This browser is not actively supported anymore. For the best passle experience, we strongly recommend you upgrade your browser.

Welcome to the European Tax Blog.

Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

| 4 minutes read

International tax reform: public consultation on Pillar One

The OECD’s public consultation on the blueprints for international tax reform took place on 14 and 15 January and recordings are available to watch on OECD Web TV. This post looks at the consultation responses on Pillar One which seeks to re-allocate taxing rights to market jurisdictions.  A further post will follow on the Pillar Two consultation.

Support for global solution and removal of unilateral measures

The responses on Pillar One show there is continued support for an international consensus-based solution, with the removal of unilateral measures. The pressure is increased to achieve a global consensus to avoid international trade wars following the latest Section 301 investigations by the US Trade Representative (USTR) into digital services taxes (DSTs) concluding that each of the DSTs introduced by Italy, India, Turkey, Austria, Spain and the UK all discriminate against US companies. This USTR previously found the French DST to be discriminatory and investigations are ongoing into proposed DSTs for Brazil, the Czech Republic, Indonesia and the EU.

Although many respondents helpfully proposed solutions to address the concerns they have with the blueprints, the problem is that the scope of the project is so big that in some areas there is no single view expressed by business as it depends what industry and what size of business the response originates from. However, the OECD is hopeful that this diversity of suggestions will make for a better solution. 

The aim is to reach agreement by mid-2021 but it is important that the US is on board and it will take time for the new US administration to get up and running and turn its attention to this project. In the meantime, however, the OECD is aiming to make as much progress as possible and the Inclusive Framework meetings and technical working party meetings to advance the work will continue.


An overarching theme from the responses is the need for simplification to reduce complexity and compliance costs and to reduce disputes. There is also an acknowledgement that there needs to be a balance between simplicity and accuracy. As Pascal Saint-Amans explained, the blueprints have several complex layers because of the state of play of the negotiations they reflect. Because there are numerous aspects still open for discussion, everyone keeps their own position. So the blueprints are not representative of what a consensus solution will look like in some areas. A certain amount of simplification will necessarily occur as the number of options being explored are reduced as the proposals are nailed down. But there will also be further work to simplify and improve workability wherever possible.

Which comes first, the problem or the solution?

As it has not yet been agreed what the problem is that Pillar One aims to solve, it is difficult to determine the scope of the new taxing right. A common understanding of the problem needs to be reached in order to agree the solution. Is the lack of ability to tax value created remotely the problem to be solved, or is it something more targeted at particular activities or businesses than this?

Some respondents (in particular digital businesses) understandably argue for a wider scope of Amount A using a quantitative approach based on revenue and profitability to avoid ring-fencing. Others argue for a scope based on remote sales where revenue is booked outside the market. There is a call for exclusion of specific parts of consumer-facing business (CFB) such as prescription drugs, franchise business and telecoms. And others suggest excluding from automated digital services (ADS) B2B cloud computing and software and other B2B ADS services.

Areas of consensus amongst respondents

There is strong support for a global revenue threshold in excess of EUR 750m. There is also broad support for a “de minimis” foreign in-scope revenue exception, but with different views on the parameters for this exclusion. There is broad support for a market revenue threshold for nexus and concerns that nexus “plus factors”, will create excessive compliance costs with some respondents suggesting that if nexus plus factors are to be included, there should be a taxpayer election so they could be ignored if too costly to apply. 

The OECD explained that responses show the revenue sourcing architecture broadly works subject to a number of comments such as the need for more flexibility on hierarchy, concerns about B2B including third party distributors, and a number of technical concerns about using IP addresses and geolocation within ADS. There is almost unanimous support for the proposed earn-out approach to carry-forward losses and strong support for pre-regime losses to be included and for unlimited (or very extensive) loss carry-forward. When it comes to elimination of double taxation, business and advisors understandably prefer exemption over the credit method.

Not good enough for developing countries

Oxfam, and other civil society respondents, remain concerned that the proposals do not raise enough additional tax for the amount of complexity involved and that if the threshold for Pillar One is EUR 750m, developing countries will see very little of the redistributed profits.

Tax certainty

There is strong support for mandatory binding dispute prevention and resolution for Amount A and broad support for application of such methods beyond Amount A, although NGOs and developing countries remain concerned about mandatory binding dispute resolution. Timing and resource burdens are seen as the main challenges.

Where do we go from here?

There is still a lot to be resolved and it seems unlikely it will happen in the proposed 6 months timescale. But a lot of people are working very hard to resolve the technical and political issues, and the conclusion of the latest USTR investigations further emphasises the need for an agreement on a global alternative to unilateral measures sooner rather than later.


zandrews, slaughterandmay, international tax reform, oecd, pillar one, digital services tax, section 301 investigations