OECD: Submission on Pillar One Amount A: Draft Model Rules for Domestic Legislation on Scope

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OECD: Submission on Pillar One Amount A: Draft Model Rules for Domestic Legislation on Scope

Tejasvi

@tejasvi

April 21, 2022

Public Policy

197

The OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) has been working to develop a consensus based solution to address tax challenges arising out of digitalisation of the economy.

Amount A of Pillar One has been developed as part of the solution for addressing the tax challenges arising from the digitalisation of the economy. It introduces a new taxing right over a portion of the profit of large and highly profitable enterprises (Covered Groups) for jurisdictions in which goods or services are supplied or consumers are located (market jurisdictions).

The Model Rules on Scope determine when a Group will be in scope of Amount A and subject to the detailed provisions contained within the Model Rules. The scope rules are designed to ensure Amount A only applies to large and highly profitable Groups and, as far as possible, have been drafted to apply in a quantitative and objective manner, such that they are readily administrable and provide certainty as to whether a taxpayer is within scope. In this regard, the OECD released e consultation paper consisting of draft Model Rules for Domestic Legislation on Scope

Based on inputs from Industry, NASSCOM made a detailed submission to the OECD and MoF on April 20, 2022. As part of our submission, we have requested OECD to:

Prescribe use of “Adjusted profit before tax margin” for identification of “Covered Groups”, instead of using “pre-tax profit margin”.
Provide clarity on treatment of net losses brought forward from earlier years for determining applicability of covered group as well as utilisation of net losses brought forward from earlier years for Covered Groups who may be subject to Amount A in year 1, however excluded in year 2 (on account of not crossing Covered Group’s applicability thresholds) but once again included in year 3.
The prior period test (i.e., 2 out of 4-year rule) should serve as an entry test for revenues. Further, the average revenues test may be retained on a continuing basis. However, it should be truncated to 3 years (including the current year) instead of current year and 4 previous years.
In respect of profitability, prior period test should be kept as an entry criterion only. The average profitability test may be retained on a continuing basis. However, the number of years may be shortened to 3 rather than 5.
Harmonise the definition of “entity” and “group entity” with the definition of “constituent entity” as provided under CbCR.
Provide an opportunity to stakeholders to provide input/s on unresolved issues / policy decisions/which will be published once consensus has been reached by the OECD.

Our detailed submission to OECD and MoF is attached for your reference. For more information, reach out to tejasvi@nasscom.in and jayakumar@nasscom.in.

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