UK and International Tax news
OECD Issues Secretariat Proposal For A “Unified Approach” Under Pillar One
Wednesday 9th October 2019
The OECD Secretariat has published a proposal to advance international negotiations on the taxation of multinational enterprises, including digital companies, wherever they have significant consumer facing activities and generate their profits.
The latest proposal brings together common elements of three competing proposals from member countries in response to the OECD’s January 2019 condoc in respect of Pillar One.
Pillar One considers the reallocation of certain profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets. It would ensure that MNEs conducting significant business in places where they do not have a physical presence, be taxed in such jurisdictions, through the creation of new nexus and profit allocation rules.
The three alternatives have a number of significant commonalities and whilst there is some variation in how the proposals address the digitalisation issue, to the extent that highly digitalised businesses are able to operate remotely, and/or are highly profitable, all proposals would reallocate taxing rights in favour of the user/market jurisdiction.
All the proposals envisage a new nexus rule that would not depend on physical presence in the user/market jurisdiction. They all go beyond the arm’s length principle and depart from the separate entity principle. They all search for simplicity, stabilisation of the tax system, and increased tax certainty in implementation.
Pillar Two, which proposes to explore the design of a system to ensure that multinational enterprises in and outside the digital economy pay a minimum level of tax, is not covered in the latest consultation.
Comments on the proposal have been requested by 12 November 2019 and a public consultation meeting, on the proposed “Unified Approach” to deal with Pillar One issues, will be held in Paris on 21/22 November 2019.
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