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In brief

On 14 and 15 January 2021, the OECD held a public consultation to address comments received from the public on the Draft Pillar 1 and Pillar 2 Blueprints (available here). The first day of the two-day consultation, which was held via video conference, addressed feedback received from stakeholders (businesses, trade associations, academia and NGOs) in December of 2020 on the Pillar 1 Blueprint. The OECD also provided an update on the state of play, with confirmation that the Inclusive Framework goal remains to reach a consensus political agreement by July of 2021. While the participants echoed the broad support among businesses and organizations for an international consensus-based solution, it is clear following the January 14 consultation that substantial work lies ahead before a Pillar 1 agreement is reached, and thereafter further work to draft the necessary multinational agreements and obtain national agreement before it can be successfully implemented across a meaningful number of jurisdictions. Below, we examine the key take-aways from the consultation on Pillar 1.

Key takeaways from the Consultation

    • As reflected in the Secretariat’s summary of comments received and as reiterated by panelists throughout the consultation conference, there is strong support for the Inclusive Framework process and for a consensus-based solution, with additional work needed on reducing complexity and uncertainties, while finding a solution that is based on sound tax policy to withstand changes over time.
    • During the consultation conference there were no government representatives, hence none of the views expressed were government views.
    • Several panellists noted that the scope of Amount A needs to be more clearly defined, with some business representatives asking for a more narrow scope, while others focusing on a different definition of scope that is not sector specific (e.g. all remote sales of businesses that are not booked in the market country). By contrast, civil society commentators continue to ask for an expansion of the scope, a move away from the arm’s length principle, and lower thresholds, with some pointing to the COVID-19 crisis and the related growth of some digital businesses as important policy considerations.
    • Almost all panellists asked for further simplifications that would reduce the compliance burden the current draft would place on companies. The Secretariat indicated that several simplification work streams are ongoing in connection with the refinement of Pillar 1.
    • It is still the OECD’s goal to simultaneously deliver on both Pillar 1 and 2, although some commentators suggested that Pillar 1 is a priority and must be finalized even if there is not agreement on Pillar 2. The consultation opening remarks did not provide any indication regarding the direction of the Inclusive Framework on important issues still to be decided.
    • Panellists representing Johnson & Johnson, Procter & Gamble, and Intercontinental Hotels Group, presented alternative mechanisms to the draft Blueprint, which could inform material changes (less likely at this juncture) or upcoming simplifications in relation to Amounts A and B.
    • The revenue sourcing rules present specific practical concerns, in particular with regard to compliance with various data privacy laws, the collection of geolocation data of users, the hierarchy presented in the Blueprints, and the lack of guidance on how businesses go about proving the preferred information is not available or reliable.
  • The consultation showed widespread support for a marketing and distribution safe harbor under Amount A and the inclusion of Amount B, although comments differed with respect to the scope of Amount B. While the marketing and distribution safe harbor under Amount A is a welcome tool to mitigate double taxation, comments noted that the proposed rules relating to the determination of the paying entity are incredibly complex and hard to administer.

In more detail

Scope of Amount A, Nexus and Revenue Sourcing

    • Based on the Secretariat’s discussion of the comments received, while there was agreement between NGO and business representatives on certain aspects of the Pillar 1 Blueprint, e.g. the need for increased tax certainty and the fact that the Pillar 1 Blueprint needs to be simplified, there was marked disparity in relation to questions of scope, threshold, and the quantum of profits to be redistributed from production to market jurisdictions.
    • Commentators stressed that the terms ‘automated digital services’ (“ADS“) and ‘consumer facing businesses’ (“CFB“) should be accurately delineated and defined, pointing out that the current lack of accurate delineation will increase tax uncertainty and disputes. While some called for excluding specific businesses from the scope of Pillar 1 (e.g. prescription drugs, franchise-based businesses from CFB; B2B cloud computing services from ADS), others called for a phased implementation starting with ADS businesses.
    • On the other hand, some business representatives and a number of NGOs advocated for the broadening of the scope to allow for equal treatment of different sectors and to reduce the current complexity. The idea of using revenue and profitability benchmarks without sector limitations received support from some of the panel participants, and was listed as the first comment in the Secretariat’s presentation summarizing major comments received.
    • In terms of the threshold for applicability of the Pillar 1 rules, some commentators advocated for an amount higher than the country-by-country threshold of € 750 mn in global revenue (currently included as a reference in the draft Blueprint), which would effectively reduce the scope of Amount A, while NGOs argued for a much lower threshold, which would lead to a larger number of companies in scope.
  • Several commentators favour the removal of the ‘plus’-factors from the nexus rules, which can lead to further complexity and future disputes. A possible alternative would determine nexus based on (market) revenue alone.

Reducing complexity: Alternative approaches proposed

    • Having noted the complexities and challenges associated with achieving political consensus on different aspects of the Pillar 1 Blueprint, a few representatives presented their own alternatives to the taxation of highly digitalised and consumer facing businesses.
    • One alternative approach presented during the Consultation involves combining Amounts A and B into a single measure to reduce complexity and would constitute a fixed return on sales for all the marketing & sales entities of a MNE group. Such approach could potentially result in a slightly higher margin when compared to the Blueprint proposal.
  • Another proposal presented during the Consultation would include a domestic carve-out for decentralised business models. While the proposal presented a number of unique points specific to decentralized business models, other commentators seem to agree that withholding taxes should be taken into account for purposes of calculating payments of tax for Amount A to avoid double taxation of the same residual profits.Therefore it was argued that Amount should be reduced or eliminated where there is already a withholding tax applicable.

Amount B and Dispute resolution

    • In relation to application of Amount B, some commentators and panellists argued for a wider scope (e.g. including commissionaires and agents), whereas others argued for keeping a narrower scope to avoid departing from the arm’s length principle.
  • Furthermore, while business representatives argued strongly for mandatory binding dispute resolution, NGOs were concerned about the use of mandatory binding dispute resolution.

Next steps and outlook

    • The moderators of the Consultation suggested that the Inclusive Framework membersseek input from a wider groupof stakeholders (e.g. trade unions, OECD’s employment experts and other members of ‘civil society’).
  • The Inclusive Framework members will hold a video conference at the end of January to discuss the follow up work resulting from the Consultation on Pillar 1, which for the first time will be open to the public.

For further information and to discuss what this development might mean for your company, please contact us.


Richard Fletcher heads the UK Transfer Pricing Group in London. A seasoned professional with over 30 years of experience as an international tax adviser, he has published a number of articles in various tax technical journals. Richard has presented at the International Tax Review’s Global Transfer Pricing Conference for a number of years and at meetings of tax directors of UK multinationals for the UK branch of the International Fiscal Association.


Vladimir Zivkovic is a Counsel in Baker McKenzie Amsterdam’s Transfer Pricing team. He has 10+ years of experience in transfer pricing and value chain analysis. Vladimir started his career in Canada in 2008 and relocated to the Netherlands in 2011.


Juliana Marques is an associate in the Firm’s San Francisco office, where her practice involves all areas of domestic and international tax law. She also worked in the Firm's Chicago office for 10 months.