On 4 February 2022 the OECD published a public consultation document entitled Pillar One – Amount A: Draft Model Rules for Nexus and Revenue Sourcing, requesting input from stakeholders on the nexus and revenue sourcing rules under Amount A of Pillar One of the proposals on taxation of the digital economy. The input received will allow the Inclusive Framework to further develop and finalise the rules. Comments are requested by 18 February 2022.
The revenue sourcing rules would enable multinationals covered by the rules to identify the market jurisdictions in which they are deriving revenue, so they can then apply the revenue-based allocation key. The revenue is sourced in the end market jurisdictions in which the goods or services provided by the multinational are used or consumed.
There are different revenue sourcing rules for specific categories of transactions, taking into account the commercial context. and ensuring that the rules can be applied to all types of multinational enterprise. The rules will permit identification of the market jurisdictions and the associated revenue, keeping the compliance burden as small as possible.
The rules identifying the relevant market jurisdiction would allow multinationals to use information that they are already collecting and using in the normal course of business. This would avoid the need to introduce new procedures for collecting information and reporting. The rules are flexible in their application to allow for the fact that different business models generate different types of information.
In situations where transactional information is not available to the multinational or where it would be too impractical to attempt to obtain it, the rules allow for the use of proxies including allocation keys that avoid the need for new reporting systems or changes in contracting arrangements. The allocation keys would use industry data or other macro-economic data to arrive at an approximate view of the end market. This simplification measure would lower the compliance burden in difficult revenue sourcing situations such as sales through independent distributors, sales of components, and B2B services.
The rules would take into account the materiality of transactions in the case of smaller sets of sales, such as sales through independent distributors in the EU, where the market cannot easily be identified at transactional level owing to the nature of distribution arrangements in the EU single market. Also, certain supplementary de minimis transactions could be sourced in the same way as the main transaction so that not so many different rules would need to be applied.
With the help of stakeholder input the Inclusive framework can achieve a balance between accuracy and practical reality. The aim is to produce rules that attain the policy objective while remaining practical and not unnecessarily burdensome.
