BDO Transfer Pricing News

International - OECD delays Pillar One completion timeline

The OECD Inclusive Framework announced on 18 December 2023 that it would delay the timeline for finalizing the multilateral convention that would implement Amount A of Pillar One to the end of March 2024. Amount A would implement the coordinated reallocation of taxing rights over a portion of the profits of the world’s largest and most profitable companies to market jurisdictions in which those companies operate.

The Inclusive Framework’s Task Force on the Digital Economy (TFDE) had published a draft text of the multilateral convention -- together with an explanatory statement and the Understanding on the Application of Certainty for Amount A of Pillar One – in October 2023. That draft reflected the consensus achieved up to that point among IF members on the technical architecture of Amount A, but the convention was not open to signature, and the OECD acknowledged that differences of opinion on a handful of specific items (noted in footnotes in the draft convention) remained outstanding.

However, the OECD/IF recognised that “the work to resolve the remaining differences will have to go on into next year.” IF members reaffirmed their commitment to achieve a consensus-based solution and to finalise the text of the convention by the end of March 2024, with a view to hold a signing ceremony by the end of June 2024.

This is not the first time the timeline for Amount A implementation has shifted. In July 2022, OECD Secretary General Mathias Cormann confirmed the adoption of a new, “more realistic” time frame for the completion of work on Amount A, which had originally been slated for 2023. Concluding that “better right than rushed,” Cormann said at the time that work on the multilateral convention was expected to be completed in the first half of 2023, with the objective of enabling it to enter into force in 2024 once a critical mass of jurisdictions had ratified it. For prior coverage, see OECD Extends Pillar One Completion Timeline | BDO Insights | BDO.
Digital services taxes

The OECD’s short announcement specifically makes reference to the “standstill” on new digital service taxes (DSTs) and other relevant similar measures.  When the OECD announced the two-pillar framework in October 2021, the jurisdictions that signed on to the plan agreed not to impose any new DSTs or other relevant similar measures from October 8, 2021, until the earlier of December 31, 2023, or the coming into force of the multilateral convention.

In July 2023, as the end of the moratorium approached, and with the work on Pillar One running behind schedule, 138 of the 143 IF member jurisdictions agreed to extend the moratorium on DSTs and other similar relevant taxes through 2024. The extended freeze on DSTs is subject to the requirement that at least 30 jurisdictions accounting for at least 60% of the ultimate parent entities (UPEs) of Pillar One in-scope MNEs sign the MLC before the end of 2023.

If the multilateral convention is not in effect by December 31, 2023, members of the IF will be free to impose new DSTs. Canada, for example, has said that it plans to move forward on enacting a DST, which would be retroactive to January 1, 2022, if Pillar 1 does not enter into force by the end of 2023.

Laurie Dicker
BDO in United States