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OECD Issues Progress Report On Amount A Of Pillar One

Sunday 17th July 2022

The OECD has recently issued a progress report on Amount A of Pillar One.

Following the October 2021 statement made by the OECD on the two-pillar solution to address the tax challenges arising from the digitalisation of the economy, and subsequent issue of model rules, the OECD is seeking further responses from stakeholders through the issue of its Progress Report on Amount A of Pillar One.

The Progress Report includes a consolidated version of the operative provisions on Amount A, presented in the form of domestic model rules, reflecting the technical work completed to date. The report does not yet include the rules on the administration of the new taxing right, or the tax certainty-related provisions, which will be released in due course and before the OECD Inclusive Framework meeting in October 2022.

The OECD explains in the Report that the design of many of the building blocks has been stabilised from a technical perspective, with input received from the rolling public consultation held on various building blocks of Amount A. The novelty of the concepts relating to this new taxing right and its integration within the existing international tax architecture merit further deliberation with respect to a few of the building blocks. 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 which are intended to last for decades.

As part of this process, the OECD 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 OECD recognises that the substance of these rules must be fully stabilised before the development and completion of a Multilateral Convention to be signed and ratified by the OECD Inclusive Framework members.

The MLC will establish the legal obligations of the parties to implement Amount A in a coordinated and consistent manner. This will include binding rules on all aspects of implementing Amount A, 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 underway. It 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.

The MLC will enter into force only upon ratification by a critical mass of countries, which will include the residence jurisdictions of the ultimate parent entities of a substantial majority of the in-scope companies whose profits will be subject to the Amount A taxing right, as well as the key additional jurisdictions that will be allocated the obligation to eliminate double taxation otherwise arising as a result of the Amount A tax.

The Inclusive Framework have agreed to revise the schedule for completion of the work on Amount A with stakeholder feedback requested by 19 August 2022, after which the rules are to be stabilised by its October 2022 meeting.

Work on the detailed provisions of the MLC and its Explanatory Statement are expected to be completed before a signing ceremony to 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.

For more information on the above, please contact Keith Rushen on 0207 486 2378.

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