UK and International Tax news

OECD Issues Multilateral Convention To Implement Amount A of Pillar One

Friday 13th October 2023

The OECD has released the text of a multilateral convention to implement Amount A of Pillar One together with several guidance documents.

The new convention [MLC] provides for a coordinated system to reallocate taxing rights via Amount A and is to apply to MNEs with global revenue over EUR 20bn and total profits greater than 10% of their global revenue. The revenue threshold will fall to EUR 10bn, contingent on successful implementation determined via a seven year review. Certain exclusions will apply to extractives, regulated financial services, defence and certain domestically oriented businesses.

It reallocates 25% of the MNE’s excess profit, being group profit in excess of 10% of revenue, to market jurisdictions where the MNE’s revenues are sourced.  This allocation is adjusted or eliminated to the extent that the market jurisdiction already taxes the excess profit of the MNE outside the MLC.  It comes with a corresponding obligation on a jurisdiction to grant relief for double taxation.

Existing bilateral tax treaties between parties to the MLC will continue to apply, but be superseded by the MLC to the extent needed to permit the application of Amount A. Tax treaties with jurisdictions which are not parties to the MLC will not be affected.

Parties to the MLC will commit not to impose digital services taxes and relevant similar measures on any company, whether or not within the scope of Amount A.

The MLC is accompanied by an Overview, an Explanatory Statement, and an Understanding on the Application of Certainty of Amount A.

The MLC reflects the current consensus among members of the Inclusive Framework, although there are different views on specific items by a small number of jurisdictions. It is understood they are constructively engaged in resolving these differences.

The MLC will be delivered to G20 Finance Ministers and Central Bank Governors in a new OECD Secretary-General tax report ahead of their meeting in Morocco later this month.

Ratification of the MLC requires at least 30 jurisdictions accounting for at least 60% of the ultimate parent entities of in-scope MNEs. Once the minimum conditions are met, the ratifying parties can decide when the MLC will enter into force.

 

If you would like further detail on the above, please contact Keith Rushen on 0044 (0) 207 486 2378.

 

Contact Us