July 12, 2022
OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project and invites public comment
On 11 July 2022, the Organisation for Economic Co-operation and Development (OECD) Secretariat released a Progress Report on Amount A of Pillar One (the Progress Report) in connection with the ongoing OECD/G20 project on Addressing the Tax Challenges Arising from the Digitalisation of the Economy (the so-called BEPS 2.0 project). The Progress Report is a consultation document released by the OECD Secretariat that covers many of the building blocks with respect to the new taxing right under Amount A and is presented in the form of domestic model rules. As noted in the Progress Report, it does not yet include the rules on the administration of the new taxing right, including the tax certainty-related provisions.
Together with the Progress Report, the OECD released a Cover Note by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to the Progress Report providing a revised schedule for the work on Amount A as approved by the Inclusive Framework on 1 July 2022. The OECD also released a Frequently Asked Questions document on Amount A and a Fact Sheet providing an overview of the structure of the Amount A rules. In addition, the OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors (G20 Tax Report) for their 15-16 July 2022 meeting was released at the same time.
The documents make clear that the Amount A rules will not come into force in 2023 as had been reflected in the timeline agreed by the Inclusive Framework in October 2021 because there is additional work to be done. The Inclusive Framework is seeking written comments from stakeholders on the overall design of the Amount A rules reflected in the Progress Report by 19 August 2022, with plans to review the input received and seek to stabilize the rules at the October Inclusive Framework meeting. When the Amount A rules are stabilized, they will be translated into provisions for inclusion in a Multilateral Convention (MLC), to be signed and ratified by Inclusive Framework members. The agreed schedule reflects the expectation that this work will be completed so that a signing ceremony for the MLC can be held in the first half of 2023, with the objective of enabling it to enter into force in 2024 once a critical mass of jurisdictions has ratified it.
Work on the BEPS 2.0 project began in early 2019. On 8 October 2021, the OECD published a Statement on the final political agreement on the key parameters of the two pillars of the BEPS 2.0 project, including an implementation timeline contemplating implementation of the new rules largely with effect from 2023.1
Several key documents with respect to the BEPS 2.0 project were released by the OECD on 11 July 2022:
According to the Cover Note, the development of the Two-Pillar Solution is well advanced at this point, now nine months after the October 2021 political agreement. With respect to Pillar Two, the GloBE Model Rules were released in December 20212 and the related Commentary was published in March 2022.3 In addition, work on the Implementation Framework for Pillar Two is underway and work on the design of the Subject to Tax Rule is ongoing.
On Pillar One, the Cover Note indicates that even though substantial progress has been made on the development of Amount A, the Inclusive Framework believes that further deliberation is merited with respect to a few of the building blocks. The Inclusive Framework also has decided to seek feedback from stakeholders on the design of the Amount A rules. The Cover Note indicates that the substance of the Amount A rules must be fully stabilized before proceeding to the development of the MLC, which will establish the legal obligations of the signatory parties to implement Amount A in a coordinated and consistent manner. In addition, the Cover Note specifies that the MLC will enter into force only upon ratification by a critical mass of countries, which will include the residence jurisdictions of the ultimate parent entities of a substantial majority of the companies that are in scope of Amount A as well as key additional jurisdictions that will be allocated the obligation to eliminate double taxation with respect to Amount A.
The Cover Note further provides that the Inclusive Framework has agreed to revise the schedule for completion of the work on Amount A. Stakeholder feedback received on the Progress Report will be reviewed by the Inclusive Framework at its October 2022 meeting, and it will seek to stabilize the Amount A rules at that meeting. The work on the MLC and its Explanatory Commentary is expected to be completed so that a signing ceremony can be held in the first half of 2023, with the objective of enabling it to enter into force in 2024 once a critical mass of jurisdictions as defined in the MLC has ratified it.
In addition to the operative provisions of Amount A, the MLC will also contain provisions requiring the withdrawal of all existing Digital Services Taxes (DSTs) and relevant similar measures with respect to all companies, as well as a commitment not to enter into such measures in the future. The October 2021 Statement also included the agreement of Inclusive Framework members that no newly enacted DSTs or other relevant similar measures are to be imposed on any company from 8 October 2021 and until the earlier of 31 December 2023 or the coming into force of the MLC. The Cover Note does not reflect any specific update to this commitment in light of the new timeline for entry into force of the Amount A rules.
To reflect the technical work completed on Amount A thus far, the OECD Secretariat released the Progress Report on Amount A for public consultation requesting input on the design of the rules. The Progress Report includes a consolidated version of the operative provisions on Amount A, which was prepared by the OECD Secretariat and does not represent the consensus views of the Inclusive Framework. The document is framed in the form of domestic law provisions and is organized in seven Titles and ten Schedules (reflected in summary form in the Fact Sheet):
The Progress Report does not yet include the rules on the administration of the new taxing right, including the tax certainty-related provisions, which are to be released in due course and before the Inclusive Framework meeting in October 2022. Stakeholders are invited to submit written comments on any aspect of the Amount A rules in the Progress Report no later than 19 August 2022.
The Progress Report is also included as an annex to the G20 Tax Report prepared for the G20 Finance Ministers meeting in Bali, Indonesia on 15-16 July 2022. The G20 Tax Report provides a summary of developments in the BEPS 2.0 project, together with an update on other G20 tax deliverables including the new Inclusive Forum on Carbon Mitigation Approaches and the ongoing work of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
The views of the G20 Finance Ministers and Central Bank Governors on the developments in the BEPS 2.0 project are expected to be reflected in a communiqué issued following their 15-16 July meeting.
The public consultation on the Progress Report will be open for stakeholder input until 19 August 2022 and all written comments received will be made publicly available. Following this, the Inclusive Framework will meet in October 2022 with the aim of stabilizing the rules. A signing ceremony of the MLC for the implementation of Amount A is expected to be held in 2023 with the objective of enabling it to enter into force in 2024. In addition to Amount A, work on Amount B is also expected to be delivered by year-end.
These documents provide significant new information with respect to the design of Pillar One Amount A and reflect a new timeline for its planned implementation. Affected companies should review the documents carefully and may want to consider taking the opportunity to engage with the OECD and country policymakers through the consultation process. It also will be important to continue to monitor developments with respect to both Pillar One and Pillar Two closely over the coming months.
Detailed EY Global Tax Alerts on the Progress Report and the G20 Tax Report will be released shortly.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Belastingadviseurs LLP, Amsterdam
Ernst & Young Limited (New Zealand), Auckland
Ernst & Young LLP (United States), New York
Ernst & Young LLP (United States), Washington, DC
1 See EY Global Tax Alert, OECD releases statement updating July conceptual agreement on BEPS 2.0 project, dated 11 October 2021.
2 See EY Global Tax Alert, OECD releases Model Rules on Pillar Two Global Minimum Tax: Detailed review, dated 22 December 2021.
3 See EY Global Tax Alert, OECD releases Commentary and illustrative examples on Pillar Two Model Rules, dated 21 March 2022.