OECD progress report on Pillar One

The OECD has published a progress report on Pillar One, and in particular the calculation of Amount A. The progress report also operates as a public consultation on the technical design of Amount A. In addition, the progress report now recognises that the timeline for implementation of Pillar One should be delayed, with an updated expected commencement of 2024 following agreement of a multilateral convention in 2023. More details on the OECD two pillar solution can be found in our earlier Insights article.

The progress report sets out the different building blocks relating to the new taxing right under Amount A presented in the form of domestic model rules. It does not yet include the rules on the administration of the new taxing right, including the tax certainty related provisions, which it is intended will be released before the Inclusive Framework meeting in October 2022.

The report highlights that significant progress has been achieved in relation to the technical rules of the new taxing right (Amount A) for market jurisdictions established under Pillar One. Whilst the design of many of the building blocks has been agreed from a technical perspective, it is clear that the novelty of the concepts relating to this new taxing right and its integration within the existing international tax architecture require further work. In this regard, the Inclusive Framework recognises that it is important to balance the political interest in swift implementation with the need to properly finalise the design of innovative new rules intended to last for decades.

As a result, as part of this process, the Inclusive Framework has decided to seek feedback from stakeholders on the overall design of the Amount A rules as well as specific building blocks before reaching final agreement.

The Inclusive Framework recognises that the substance of these rules must be fully agreed before the development and completion of a multilateral convention (MLC) to implement Amount A in a coordinated and consistent manner. This will include binding rules on all aspects of implementing Amount A, including the allocation of Amount A to market jurisdictions, the elimination of double taxation, marketing and distribution safe harbour, a simplified administration process, exchange of information and the tax certainty process. Pending finalisation of the substantive rules, work on the overall design and the framing of individual provisions of the MLC is already underway.

In addition to the operative provisions of Amount A, it is intended that the MLC will also contain provisions requiring the withdrawal of all existing digital service taxes and relevant similar measures with respect to all companies, as well as a commitment not to enter into such measures in the future.

Against that background, the Inclusive Framework has agreed to revise the schedule for completion of the work on Pillar One as follows:

• Stakeholder feedback on the Amount A Progress Report is sought by 19 August 2022;
• the Inclusive Framework will review stakeholder input and seek to stabilise the rules at its meeting in October 2022;
• Amount B work to continue, with delivery by end 2022;
• the work on the detailed provisions of the MLC and its Explanatory Statement are expected to be completed so that a signing ceremony of the MLC can be held in the first half of 2023 with the objective of enabling it to enter into force in 2024 once a critical mass of jurisdictions as defined by the MLC have ratified it.

Consultation

This Progress Report is also a consultation document released by the OECD for the purposes of obtaining further input from stakeholders on the technical design of Amount A. Interested parties are invited to send their comments on the discussion draft no later than 19 August 2022 by email to tfde@oecd.org.

Affected businesses should review the progress report and model rules and consider taking the opportunity to engage with consultation process.