Pillar One is designed to address the concern that the traditional international tax rules (broadly) requiring physical presence to allocate taxing rights are not fit for purpose in a globalised and digitalised economy where businesses no longer need to be physically present in a jurisdiction to do business there. The Pillar One reforms comprise two sets of measures:

• Amount A is designed to reallocate taxing rights over part of the extraordinary profits of very large multinational groups from “relieving jurisdictions” to “market jurisdictions”, irrespective of whether businesses have a physical presence in those market jurisdictions.  These reforms are to be implemented via a multilateral convention (MLC), which will amend existing double tax treaties as required.  To be entitled to Amount A taxing rights, jurisdictions must remove unilateral digital services taxes and similar measures from their tax code.
• Amount B is designed to modify the application of the arm’s length principle to “baseline marketing and distribution activities” – effectively by setting a fixed return for such activities in transfer pricing methodologies intended to approximate the arm’s length principle without requiring groups to undertake extensive transfer pricing benchmarking analysis.  This will be achieved by updating the OECD’s Transfer Pricing Guidelines.