Tax directors are dubious about the 2024 start date for pillar one
Two fundamental components, known as Amount A and B, are uncertain, which raises the possibility that the endorsement of pillar one may be in jeopardy.
Tax directors worry that until more information about Amount A and Amount B is clarified, the anticipated adoption of Pillar 1 in 2024 will remain unrealistic.
Ednaldo Silva, founder director and TP expert at online database company RoyaltyStat in Washington, DC, says, "pillar one is complex, pillar two is much simpler. Both multinationals and tax administrations want certainty and pillar two brings that to the table."
"The big question is, you still need TP rules for the appropriate allocation of taxable income to jurisdiction," he continues.
If policymakers are unable to make both objectives work together, Silva claims that TP rules based on comparables will always face difficulties and that the two-pillar solution's central concept will appear to be "a collage of policies."
As pillar one lacks specifics, tax directors believe pillar two has a better chance of passing and being put into effect.
Despite ongoing political debates, the head of tax at a Swiss manufacturing company tells ITR that businesses continue to predict the likely impact of the two-pillar solution on their operations. The pillar two proposal is the subject of most internal discussions within multinationals, however, due to the scope and complexity of pillar one.
Compared to pillar two, pillar one targets multinational enterprises (MNEs) with total revenues of more than €20 billion ($23.6 billion). As a result, fewer businesses will be impacted by the rule.
Multinationals with revenues over €750 million will be subject to a 15% global minimum tax under pillar two.
The head of tax claims that "Pillar two is where most companies are working on. Pillar one is further away – the US has a big say and a lot of clarity is needed. Pillar one needs to be postponed; the date is not feasible."
According to Raphael Coin, founder of the Paris-based law firm Affidavit-avocat, the scope of pillar one indicates that it is intended for "extremely sophisticated companies."
The ability of the targets to adapt, he adds, is just as important as the complexity of the law.
The Inclusive Framework (IF), according to Philippe Penelle, managing director at the Los Angeles branch of consulting firm Kroll, has not advanced much lately in terms of pillar one's Amount A and B elements either.
Corporations covered by the scope of Amount A would be able to distribute profits to regions according to where they were first made.
Certain governments that are unable to collect taxes because of the current nexus regulations, which base revenue on physical presence, would greatly benefit from this.
Amount B aims to standardize the compensation of related party suppliers engaged in "baseline marketing and distribution activities" and is intended to simplify the TP rules for tax administrations.
Penelle claims that Amount B's coordination with TP rules is dubious and that it has technical problems.
"A lot of companies are confused about Amount B and their TP position. There is a big difference between Amount A and B. Amount B is where you transfer taxable base, which means the day Amount B is implemented you will have a transfer of value between the manufacturer and distributor."
"From a TP perspective, you have to recognise that exchange of value of business restructure. The way Amount B is designed right now, I do not see any exclusion from having to price that transfer of value," he says.