African Tax Administration Form submits revised Pillar One proposals

The revised proposals respond to both the Inclusive Framework blueprint report released for public consultation in October 2020 and the recent proposals from the US to revise the blueprint proposals.

The African Tax Administration Forum (ATAF) has sent revised Pillar One proposals to the BEPS Inclusive Framework, aimed at simplifying the rules and addressing a number of the inequities in the current proposal.

The revised proposals respond to both the Inclusive Framework blueprint report released for public consultation in October 2020 and the recent proposals from the US to revise the blueprint proposals.

The ATAF has proposed the adoption of a single global threshold rule to cover all multinational enterprises (MNEs) that generate global sales revenue above a certain amount. “The new rule would apply to all such MNEs irrespective of their business activities. However, it would retain the current exclusions in the Pillar One blueprint and the Pillar One domestic revenue exclusion,” it said.

Next, the ATAF proposes that the reallocation of profits which it refers to as “Amount D”, would be calculated as a portion of the MNEs total profits instead of its residual profit.

“The quantum of Amount D would be a Return on Market Sales based on the Global Operating Margin of the MNE group using a tiered approach whereby the higher the Global Operating Margin of the MNE the higher Amount D would be. Amount D would be allocated to a market jurisdiction to the extent it exceeds the arm’s length profits reported in the market jurisdiction for that period,” it said.

The ATAF said that this approach provides two advantages. 

“Firstly, it will reduce complexity in determining the allocable profits of in scope MNEs; and secondly it will result in a more level playing field between businesses with a current taxable presence in market jurisdictions and those with no such current presence,” it added.

“This proposal would greatly simplify the rules for both taxpayers and tax administrations and would address many of the concerns regarding the global threshold rule. As the rule would be much simpler there appears to be no need for a high threshold nor a phased approach. In fact, with this simplification there appears no reason why the threshold could not be lowered to EUR 250 million,” it continued.