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Global tax reform: the OECD pillars

Pillar One – a new taxing right

One of the challenges the OECD two-pillar approach seeks to address is that increasing digitalisation of businesses means profits can be generated in a jurisdiction without any local physical presence. The October framework seeks to address this in relation to the 'largest and most profitable multinationals'.

For those multinational groups that are in scope, a proportion of residual profit (referred to as ‘Amount A’) will be allocated to certain market jurisdictions from which the group derives revenue, regardless of whether the multinational has any physical presence there.

It is expected that pillar one will be implemented by way of a multilateral instrument to be developed over the course of 2022, with the new tax on Amount A coming into effect in 2023.

We can help you understand how these rules would impact your organisation.

Does your group meet the financial thresholds?No
Does your group meet the financial thresholds?

Global turnover over EUR 20 billion AND profitability (PBT / revenue) above 10%

Yes
Do any exemptions apply to your group?Yes
Do any exemptions apply to your group?

Regulated financial services and extractives are excluded

No
Identify which of your market jurisdictions are in scopeNone
Identify which of your market jurisdictions are in scope

Market jurisdictions where your group derives at least EUR 1 million (or EUR 250,000 for smaller jurisdictions) of revenue are in scope

No Amount A tax payable

None

How much Amount A tax will you have to pay in those market jurisdictions?

25 per cent residual profit allocated to market jurisdictions subject to safe harbour and adjustments for “Amount B”

 
What adjustments will there be in your jurisdiction of residence for Amount A tax paid elsewhere?

Elimination of double taxation using the exemption or credit method

 

What should you be doing now?

If you would like to discuss any of these issues in more detail, please get in touch with your local tax team for more information and access to further relevant content.