Global Daily Tax News, Countries Stand To Benefit More From Pillar One, (Oct 16, 2023)

The OECD's newly released updated Economic Impact Assessment of Amount A of Pillar One concludes that all territories, except investment hubs, stand to benefit even more considerably from the proposals than first projected.

The upwards revision follows changes to the proposals; more accurate data on the tax affairs of multinational enterprises, owing mainly to the increased roll-out of country-by-country reporting requirements; and increased MNE profits that would be subject to Amount A.

The report says, based on the assumption of full implementation of the reforms, compared to the 2020 EIA, the 2023 EIA Update shows investment hubs losing more and high-, middle-, and low-income jurisdictions gaining approximately double the amount of revenue as a share of CIT, depending on the year modelled.

The main goals of Amount A of Pillar One are to address the tax challenges arising from the digitalization and globalization of the economy, stabilize the international tax system, and reduce the risks of tax uncertainty and disputes. Implementation of Amount A would also avoid increased trade tensions arising from the proliferation of new unilateral measures including digital service taxes and aggressive audits by tax administrations worldwide.

Amount A would accomplish this goal by providing market jurisdictions with a new taxing right over a portion of the residual profits of the world's largest and most profitable multinational enterprises (MNEs).

In addition, previous OECD research has suggested that a proliferation of digital services taxes and the likely tax and trade disputes arising from them could reduce global GDP by up to one percent in a worst-case scenario.

The paper is divided into six sections. Section 2 provides an overview of the approach taken, the key design features modelled, and the main results. Section 3 discusses the data used as part of the estimates. Section 4 discusses the calculation of Amount A. Section 5 provides key results, examining both the allocation to market jurisdictions as well as the impact on tax revenues, and Section 6 features a conclusion.