OECD: Submission on Progress Report on Amount A of Pillar One

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OECD: Submission on Progress Report on Amount A of Pillar One

Tejasvi

@tejasvi

August 22, 2022

Public Policy

208

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 Progress Report is a consultation document released by the OECD Secretariat for the purposes of obtaining further input from stakeholders on the technical design of Amount A. Based on inputs from Industry, NASSCOM made a detailed submission to the OECD and MoF on August 19, 2022. As part of our submission, we have requested OECD to:

Provide examples and rationale (for instance, for calculation of marketing and distribution profits, safe harbour, adjusted jurisdictional return on depreciation and payroll, etc.) which will help stakeholders in comprehending and understanding the impact of Pillar One proposals for businesses.
Pillar One should apply only at the Group level and in case where the Group does not meet the prescribed conditions, Pillar One should not be applicable to the Group. Further, suitable clarifications and illustrations may be provided in respect of treatment of net losses / profit shortfalls brought forward from earlier years for determining applicability of Covered Group.
In respect of revenue sourcing rules for large customers, commercial documents do not have reference to list of locations where services are to be used by customers. Even where such information is available, it is difficult to find location-wise value bifurcation in commercial documents. Nevertheless, MNEs maintain information regarding the location of use of services in their internal system. Thus, to capitalise on the information already maintained by the Covered Groups and to eliminate tedious data gathering process, we have requested OECD to clarify that the information maintained by the Covered Group in their internal systems to reasonably determine location of use is also a reliable indicator.
Non-customer revenues which is directly identifiable to a particular jurisdiction should be allocated only to that jurisdiction in which it is earned.
OECD should align tax base determination rules for both Pillar One and Pillar Two as well as within different Articles of Pillar One and explain the reasons for any differences.
The definition of “Eligible business combination” should be expanded to include other possible forms of business combinations and not be restricted to the above two options only.
While discharging tax liability in market jurisdiction under Pillar One, credit of taxes already withheld by market jurisdiction should be given.

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

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