On 6 October 2022 the OECD published for public consultation a document with the title Progress Report on the Administration and Tax Certainty Aspects of Pillar One. Comments are invited from interested parties by 11 November 2022.

Administration Framework

An important consideration in designing the administration framework in relation to Amount A is to ensure that compliance costs are kept within manageable limits for taxpayers. Building an Administration Framework for Amount A that minimises compliance costs for taxpayers and keeps the administration of the new rules manageable for tax administrations is one of the key objectives of the Pillar One agreement.

The Administration Framework for Amount A will be designed to ensure that tax compliance is streamlined and that in-scope multinationals can manage the process through a single entity. Unnecessary duplication will be eliminated. The tax liabilities arising from Amount A will need to be enforced on multinationals that are within the scope of the rules and there needs to be effective relief from double taxation.

The Amount A income will be included in the income tax base of market jurisdictions and the current administrative rules in each jurisdiction will apply to the income and to double taxation relief. Each country can determine how to tax Amount A income and implement double taxation relief, provided that this is consistent with the Model Rules and Multilateral Convention.

Entities liable to tax on Amount A income will be required to submit documentation to tax administrations setting out the relevant calculations. Double taxation relief on Amount A income would be given through the income tax base of relieving jurisdictions.

Two possible solutions have been put forward for the process of identifying the taxpayers in market jurisdictions and the entities receiving double tax relief. The “single taxpayer” approach would establish that a single entity in each group would be liable for the Amount A tax in all market jurisdictions, and this may not be the same as the entities entitled to double tax relief. The “multiple taxpayer” approach would provide that one or more entities from each jurisdiction that is required to eliminate double taxation would be liable for the Amount A tax, with a single entity coordinating payment and compliance. A majority of Inclusive Framework members provisionally support the single taxpayer approach, but no decision has yet been made.

Tax Certainty Framework

The Tax Certainty Framework sets out three mechanisms to enable taxpayers to have more certainty in relation to aspects of Amount A. Taxpayers can choose if they want to be subject to any of the mechanisms. The tax administration of the group’s Ultimate Parent Entity, referred to as the lead tax administration, coordinates the process and liaises with the multinational. The mechanisms are:

Scope Certainty Review

This is a mechanism to provide certainty to a multinational group that considers it is out of scope of the rules. The multinational is given certainty that is not within the scope of rules for Amount A for a Period, so there is no risk of unilateral compliance action in jurisdictions where it earns revenues.

Advance Certainty Review

The advance certainty review would provide certainty in relation to a taxpayer’s methodology for applying the rules on Amount A and aspects of its internal control framework. The mechanism would be available to provide certainty on the categorisation of revenues and costs for applying the rules on exclusion of Qualifying Extractive Groups and the methodology for ascertaining the non-Extractives Adjusted Profit before Tax or the profit for a non-extractives segment.

In a similar way the advance certainty review could be used to give the taxpayer certainty on applying rules on exclusion of revenue and profits of Regulated Financial Services (RFS) and determining the non-RFS Adjusted Profit Before Tax or the non-RFS segment profit.

Comprehensive Certainty Review

This process would give certainty to a multinational group on the application of all aspects of the new rules for a period that has already ended. This would take into account and build on any advance certainty already applying to that period. The process would be based on a standardised Common Documentation Package.

The three mechanisms would be backed up by a binding Determination Panel process that would resolve any disputes arising.