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Global TP Forum Europe: Tax authorities want pillar one to be "streamlined."

At an ITR event, Tricentis and Boehringer Ingelheim, along with a European Commission TP specialist, criticised the complexity and scope of pillar one guidelines.

According to speakers at ITR's Global TP Forum Europe, held yesterday in Amsterdam, the OECD's pillar one-related transfer pricing laws remain too complex, and the scope should be increased.

“We think it’s really important to have a simplification of the TP rules,” said Mauro Faggion, TP expert at the European Commission.

Faggion emphasised that the necessity for simplification gave a "clear mandate" and that businesses have a "genuine demand."

Other panellists, including Vikram Chand, a legal professor at the University of Lausanne in Switzerland, supported Faggion's remarks.

“A lot of people will agree that these rules are not simple to understand at this stage. The way the proposal has been set right now in the progress report looks complex,” he explained.

Failure to address the complexity of the requirements could jeopardise the OECD's project's success, especially if corporations continue to be hesitant.

Jens Krüger, senior manager of TP at the German pharmaceutical firm Boehringer Ingelheim, highlighted why the standards needed to be simplified.

“We need to have the data from our systems – to find where they are and compute Amount A and B. What we did is a list of pillar one and two and all the different definitions.

“Then we also did a list where we compared the definition of pillar two, which we might be able to use for pillar one,” said Krüger.

“Simplification for us would mean shortening this list. That would be my pledge for simplicity,” he added.

Size does matter

The streamlining of pillar one rules, however, is not the only change that tax directors anticipate. Some also want a broader scope that includes more corporations.

Pillar one of the current proposals targets the largest and most profitable companies. Those subject to the law must have total revenues in excess of €20 billion ($19.2 billion) and profitability in excess of 10% of total revenues.

“Neutrality is also about ensuring that the system applies as broadly as possible,” said Chand. “From that point of view, you may say that a lot of multinational enterprises are not caught by these rules.”

Other corporations, however, are concerned that digital taxes already target enterprises that are not totally technologically driven, and that broadening the scope will increase the risk of double taxation.

Marta Pankiv, senior director and head of group tax at Tricentis in Vienna, stated that digital services tax (DST) is still "quite an issue."

“Every time we are trying to figure out whether we can sell in a location, the first thing that pops up would be DST and VAT. When we talk about pillar one allocation – how about other businesses? DST is very broad,” she said.

"There are companies that aren't really entirely about technology but sell technological things - the range is quite broad." "It's also double taxation for us," Pankiv remarked.

Countries such as France, the United Kingdom, Austria, Italy, Spain, and the United States agreed to implement DST during the interim period of pillar one's implementation in 2021.

These jurisdictions intend to offer tax credits if pillar one is implemented, which Pankiv supports, but the small number of countries remains a concern for firms.

“My hope is that countries are willing to be aware that it’s not about imposing tax and getting quick money. I hope there will be some compromise on the road,” she said.


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