On May 27, 2022, the OECD released two public consultation documents related to the tax certainty aspects of Amount A.  The first, entitled Pillar One – A Tax Certainty Framework for Amount A (the Amount A Draft), proposes new mechanisms for multinational enterprises (MNEs) to obtain certainty on different aspects of Amount A.  The second, entitled Pillar One – Tax certainty for issues related to Amount A (the Related Issues Draft), proposes a mandatory binding dispute resolution mechanism for issues related to Amount A, including transfer pricing and the attribution of profits to permanent establishments (PEs).  Given the potential for Amount A to result in uncertainty, disputes and double taxation, these proposed mechanisms will be of critical importance to in-scope and potentially in-scope MNEs.  Such MNEs should further note that both the Amount A Draft and the Related Issues Draft provide a short two-week public comment period that closes on June 10, 2022. 

Continue Reading OECD Releases Public Consultation Documents on Tax Certainty Aspects of Amount A: Comments Due June 10, 2022

On January 20, 2022, the OECD released the latest version of its OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The 2022 Transfer Pricing Guidelines update the 2017 edition by incorporating guidance released by the OECD over the past few years on the transactional profit split method, hard-to-value intangibles, and financial transactions. Although there is no completely new guidance in the 2022 Transfer Pricing Guidelines, some of the previously released guidance now formally incorporated in the Guidelines is quite significant. This includes new Chapter X on financial transactions, which among other guidance incorporates proposed and controversial changes to the Commentary on Article 9 of the OECD Model Tax Convention.

Continue Reading The 2022 OECD Transfer Pricing Guidelines: Mostly An Update

On December 20, 2021, the OECD released the Model Rules for Pillar Two or the “Global Anti-Base Erosion” (GloBE) Rules.[1] The GloBE Rules are the first step towards implementing the groundbreaking international agreement reached by more than 135 countries announced by the OECD/G20 Inclusive Framework in October 2021.[2] Pillar Two provides for a minimum 15% tax on corporate profits for multinational enterprises (MNEs) with more than EUR 750 million in consolidated revenues.
Continue Reading The OECD’s Pillar Two Model Rules Have Arrived

In ancient Rome, a college of “augurs” would predict the future by observing the flight patterns of birds, examining the entrails of animal sacrifices, or interpreting natural phenomena. While perhaps less colorful, our method of divination will hopefully be a little more precise. To develop this blog post, we have consulted our own augurs and have summarized all our predictions for transfer pricing developments in the coming year.

Continue Reading Looking Forward: Predictions for 2022

Pillar Two, which ensures that an MNE’s in-scope income will be subject to a minimum tax rate of 15%, is ready to go. On December 2, the Model Rules were agreed upon within the OECD Inclusive Framework and the EU is willing to speed up Pillar Two implementation. The formal endorsement by the Inclusive Framework (IF) and release of the Model Rules to the public are expected next week. A week later, on December 22, the draft EU Directive should be available and a EU Council discussion is already planned during the first week of January 2022. With respect to the primary rule of Pillar Two, the Income Inclusion Rule (IIR), the contemplated EU directive would apply when an Ultimate Parent entity (UPE), an Intermediate Parent Entity (IPE) or a Partially Owned Parent Entity (POPE) is located in a EU Member State.

Continue Reading OECD Pillar Two: The EU Implementation on Its (Express) Way

On August 5, 2021, the OECD released updated Peer Review Results for preferential tax regimes reviewed by the OECD Forum on Harmful Tax Practices (“FHTP”) in connection with BEPS Action 5. Of particular interest to Multinational Enterprises (“MNEs”), the Peer Review Results report that the Foreign-Derived Intangible Income (“FDII”) regime is already “in the process of being eliminated” and that “the United States has committed to abolish this regime.”

The possibility that FDII might be repealed should come as no surprise given the Biden Administration’s Green Book proposal to eliminate FDII. And in any event, the repeal cannot actually take effect until and unless FDII is repealed by legislation. Nevertheless, for MNEs that would be adversely affected by the possible repeal, the references in the Peer Review Results send a strong signal that FDII repeal may be a key priority in future tax reform negotiations.

Continue Reading Whither FDII — OECD Discusses FDII in Harmful Tax Practices Update

On April 15, 2020, OECD released the report titled “Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience” (the “COVID-19 Response”). The COVID-19 Response discussed the decisive action many governments have taken to contain and mitigate the spread of the virus and to limit the adverse impacts on their citizens

On July 10, 2021, the G20 endorsed a broad framework to advance Pillars One and Two, which includes an aggressive timetable for bringing the new rules into force in 2023. The endorsement came in a Communiqué, which approved the July 1 statement by the 139-country Inclusive Framework. The G20 agreement represents a political consensus on

For over a decade, countries have been looking for ways to tax the digital economy. On July 1, 130 countries announced an agreement that would provide a new taxing right to enable a country to tax a portion of digital profits even in the absence of traditional taxable nexus with the country. This new taxing right is known as “Amount A”. The quantum of Amount A remained a mystery until the publication of the OECD’s “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy” on July 1, 2021 (the “Statement”) which quantified Amount A to be “between 20-30% of residual profit defined as profit in excess of 10% of revenue” for in-scope enterprises. Although this quantum of Amount A represents a political compromise, a solid theoretical basis underlying that compromise is essential to sustaining consensus.

The early proposals to modify profit allocation and nexus rules for the digital economy enterprises, which ultimately produced Amount A, strived to be based on certain subjective criteria, including the concepts of user participation, marketing intangibles and/or the concept of significant economic presence. The contemplated methods for profit allocation were the Modified Residual Profit Split method, Fractional Apportionment method, and Distribution-based approaches, along with the options for business line and regional segmentation. However, the criteria and methods of the early proposals are nowhere to be found to found in the OECD July 2021 Statement, leaving many questions about Amount A still unanswered. While the final compromise on Pillar One eliminates the focus on digital economy and shifts instead to high profitability when defining in-scope MNEs, the “digital essence” still surrounds Amount A. For one thing, the introduction to the Statement continues to refer to the “two-pillar solution to address the tax challenges arising from the digitalisation of the economy.” Moreover, a widely accepted assumption in the final Pillar One negotiations is that high profits are generated by intangibles and those are increasingly concentrated with digital businesses. Therefore, an analysis of Amount A cannot be divorced from the analysis of the factors that contribute to the digital economy.

Continue Reading The Elusive “Amount A”

On June 5, 2021, the Finance Ministers and Central Bank Governors of the G7 countries issued a Communiqué announcing their agreement on the conceptual framework for a substantial revision to global tax policy (the “Communiqué”). The Communiqué puts the G7’s stamp of approval on recent efforts by the OECD (supported by a big push by