Key points of OECD Jan 31st outline of Pillar 1 Unified Approach architecture


  • Automated Digital Serves (ADS): businesses that provide automated and standardized digital services to a large and global customer or user base.
  • Benefit from exploiting powerful customer or user network effects, from interaction with users and customers, from data and content contributions made by users and from intensive monitoring of users’ activities and data exploitation.

               Non-exhaustive list of ADS business models:

  • online search engines;  / social media platforms;
    • online intermediation platforms, inc operation of e-marketplaces, irrespective of B2B or B2C;
    • digital content streaming; / online gaming;
    • cloud computing services; 
    • online advertising services.
  • Professional services -legal, accounting, architectural, engineering and consulting-, out of scope. 
  • Online services involving a high degree of human intervention and judgement are to be revised.
  • Consumer facing businesses (CFB): Businesses that generate revenues from selling goods or services, whether directly or indirectly, to consumers (i.e. consumer facing businesses).
  • Broad set of businesses that includes traditional businesses that manufacture physical products, but they increasingly use digital technologies to more heavily interact and engage with their customer base, and are increasingly selling or marketing online through platforms.
  • These more traditional businesses are increasingly able to have an active non-physical presence in market jurisdictions  through which they substantially improve the value of their products and increase their sales.
  • If the product is of a type that is commonly sold to consumers, expected to fall.
  • Businesses generating revenue from licensing rights over trademarked consumer products or licensing a consumer brand (and commercial know-how) such a franchise model are in scope
  • Intermediate products & components of finished products out of scope


  • Extractives, commodities, agricultural.
  • Airline and shipping businesses. 
  • Most of the activities of the financial services sector  (inc insurance) as they take place with commercial customers and “will therefore be out of scope”.

    Retail banking likely out of scope given the impact of prudential regulation and, agreements to protect local deposit/policy holders.

    In review some unregulated elements of the financial services sector: digital P2P lending platforms.


  • The new nexus is created based on indicators of a significant and sustained engagement with market jurisdictions. Standalone rule.
  • The generation of in-scope revenue in a market jurisdiction over a period of years would be the primary initial evidence of a significant and sustained engagement.
  • The revenue threshold to be commensurate with the size of a market, with an absolute minimum
  • Administration and reporting kept to the minimum through simplified reporting and registration-based mechanisms (such as a “one stop shop”) and exclusive filing in ultimate parent country.
  • The final agreement will include precise figures.
  • For ADB in scope, the revenue threshold will be the only test required to create nexus.
  • For other in-scope activities, e.g. the sale of tangible goods, the proposal will not create a new nexus if the MNE is merely selling consumer goods into a market jurisdiction without a sustained interaction with the market.
  • Further work to explore possible additional or “plus” factors (qualitative factors…) such as the existence of a physical presence of the MNE in the market or targeted advertising directed at the market where the “viewers” are located and revenue from other in-scope digital services where they are consumed.


  • Quantum of Amount A
  • Amount A, it is formula-based and excludes business activities in scope that do not exceed a certain level of profitability.
  • The formula-based approach (with no connection to the ALP) is applied only in the case of A
  • Amount A applies only to the portion exceeding a certain level of profitability (to be negotiated).
  • Portion of the residual profits that goes to market jurisdictions to be negotiated.
  • The quantum of Amount A could be weighted to account for different degrees of digitalization between in-scope business activities (“digital differentiation”).
  • Amount A: is not an additional remuneration in respect of those same “in-market” activities. 
  • The “A” tax base
  • Amount A based on a measure of profit derived from the consolidated group financial accounts.
  • Adjustments to harmonize the use of different financial accounting standards to be kept to a minimum, only material items.
  • The profit before tax (“PBT”) is the preferred profit measure to compute Amount A
  • Apply to both profits and losses. Will include loss carry-forward rules. 
  • Segmented accounts may be required to capture only in-scope business segments
  • Segmentation among regions and/or in-scope business lines may be required where profitability varies materially
  • To be considered leaving at the ability for taxpayers to elect into business line segmentation among in scope businesses (e.g. across regions or products).   
  • Allocation key will be based on sales of a type that generate Nexus.
  • Specific revenue sourcing rules by business model to be develop (i.e. online advertising revenue)
  • Elimination of Amount A double taxation
  • Appropriate mechanisms to exempt the income from tax, or to provide a credit against its own tax will be considered.
  • It will not be possible to use a corresponding TP adjustment approach as Amount A is not premised on identifiable IC transactions.
  •  This will prevent any unintended impact-issues with custom duties applied to imported goods.
  • Necessary to determine which jurisdiction will have an obligation to eliminate any resulting double taxation; and, if there is more than one jurisdiction, the quantum of the relief to be provided by each.  If there is more than one, seems it will be the “owners” of the residual.
  • Interactions of Amount A with B & C and potential for double counting
  • Amount A would be allocated to eligible market as an overlay or partial override to the ALP-based profit allocation rules.
  • As Amount A is designed to remunerate market with a portion of the relevant residual profits of that MNE group and Amount B is designed to remunerate a market jurisdiction with a fixed return for baseline distribution and marketing activities, there will be no significant interaction between Amounts A and B.
  • Instances of double counting might arise if there is an overlap between Amounts A and C.
  •  Areas for possible double counting:
    • (1) marketing intangibles in the local jurisdiction;
    • (2) comparability adjustments under the ALP; and
    • (3) uncommon interpretations of the ALP.


  • Fixed Return for Defined Baseline Distribution and Marketing Activities (BDMA)
  • Fixed return model aiming to standardize the remuneration of distributors that buy products  from related parties for resale and, perform “baseline marketing and distribution activities”.
  • Simplify the computation of the return and reduce disputes
  • Explore how to account for different functionality levels
  • Ensure BDMA are only remunerated in Amount B and not (again) in Amount C.

    To be achieved by clear definition: Will likely include “distribution arrangements with routine levels of functionality, no ownership of intangibles and no or limited risks”.
  • Reaching agreement on the amount of the fixed % will require countries to make tradeoffs
  • Treaty changes will not be required to implement Amount B regime (as is ok with ALP)
  • Other key technical matters to be advanced:
  • % return set at median /
  • Benchmarks to support the fixed % & likely industries/regions differentiation


  • In essence:
  • Early dispute prevention process with innovative mechs
    and binding dispute resolution  as last resource.
  • Main disputes expected between A & C.  Not with B if clear guidance on the scope of Amount B.
  • A clear, administrable and binding process for early dispute prevention.
  • Exploration of representative panels which would carry on a review function and provide tax certainty.
  • Use of standardized rules for information reporting, filing of returns and collection of tax


  • A new multilateral convention could be negotiated to establish a new multilateral framework to ensure that all jurisdictions implement the UA consistently and at the same time. 
  • Would apply between jurisdictions that do not currently have a bilateral treaty, supersede the relevant provisions of existing treaties
  • Consensus agreement must include a commitment by members to withdraw relevant unilateral actions,


  • An alternative approach to Pillar One implementation will be considered.
  • Under this alternative global safe harbour system, an electing MNE group would agree, on a global basis, to be subject to Pillar One.
  • From the OECD doc non-exhaustive list of considerations to be addressed, we select 2 critical ones:
  • Potential scope modifications to amount A
  • Behavioral implications for taxpayers and jurisdictions


  • In respect to the Thresholds, in essence Groups will have to segment their consol financial statements by in scope activities and business lines, and calculate 5 thresholds there at different levels:
    • 3 Based in revenue, and 2 based in profitability
  • The Graphic decision tree provided by OECD to help MNEs understand this is as follows:                                                     

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