An outline of Pillar 1 tax measures was published by the Inclusive Framework. Pillar 1 aims to re-allocate taxation rights of automated digital service companies and consumer facing businesses to user/market jurisdictions. Consensus is sought by July 2020 and the final report is expected by year-end 2020. Consensus on Pillar 1 would entail the withdrawal of unilateral measures (DST).
The proposal contains a formulaic allocation of residual profits to market jurisdictions regardless of physical presence (Amount A), as well as a baseline margin (Amount B) and additional profits tax authorities may claim (Amount C) for physical distribution/marketing activities. Key will be anti-double counting rules as well as dispute resolution mechanisms.
The statement includes welcome limitations of the scope of Amount A in the form of nexus rules for consumer facing companies and thresholds based on group revenue, digital revenue and profitability. Producers of intermediate products and regulated financial services might be out of scope. Consideration will be given to (pre-regime) losses when calculating Amount A.
Following the demands of the US, the Inclusive Framework considers an alternative global safe harbor system that companies may apply.