At a recent conference, individuals from the US Treasury were very vocal in their desire to receive comments on the Progress Report on Amount A of Pillar One, released by the OECD on July 11, 2022. Comments are expected on August 19, 2022. next public consultation is 12 September 2022.
The progress report represents the current state of play on the A amount. While many issues have been agreed and debate narrowed on others, the inclusive framework still has work to do to reach a final agreement on what exactly the amount A made.
Of note, it was shared that Safe Harbor Marketing and Distribution (MDSH) was difficult for the parties to agree on. It was difficult for the parties to come up with an approach that only captured marketing and distribution, which is perhaps why the role of MDSH has transformed over time. To the extent that taxpayers have ideas about how to address MDSH, now is the time to suggest them.
It was also clarified that amount A is a hedge of existing transfer pricing policies and that the reallocation of amount A will take place whether or not a company’s transfer prices are deemed correct. This in turn creates further complexity in the calculation of the A amount. Comments were specifically requested on how to approach the resolution of a transfer pricing dispute and the reallocation of the A amount. Considering the resolution in the current year could create significant distortions for the amount A , but is it preferable to calculate the adjustments for previous years? The US Treasury has operated on the assumption that taxpayers do not want Amount A to be involved in transfer pricing disputes.
Finally, the rapporteurs were clear that they would like to make compliance with the A amount as painless as possible for taxpayers and governments. While it has often appeared that prior consultation documents are overly complex, if the objective, as described, is indeed to make Amount A as simple and manageable as possible, taxpayers should provide comments on how this objective could be achieved. It remains uncertain whether Pillar 1 (or Pillar 2) will ever be implemented in the United States and around the world. But as countries continue to work towards a final deal and expect Pillar 1 to eventually be implemented, companies need to provide robust commentary on a new system that could dramatically change the world of international taxation.
