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Pillar 1 Gets a Reality Check

17th February 2022

Nearly 140 jurisdictions have agreed to the OECD’s Pillar 1 and Pillar 2 global tax plans. But being a fan of the big-picture ideas doesn’t mean governments know how to implement them. A new legislative framework, released from the OECD on February 4, offers guidance on allocating profits under Pillar 1—but instead of bringing relief, the instructions are causing more anxiety for taxpayers thanks to their innate complexity. The Pillar 1 proposal proposes to reallocate a portion of profits to market jurisdictions, home to customers as opposed to a company’s physical presence. It will affect only about 100 of the world’s largest companies.100 of the world’s top companies. The recent guidance advises taxpayers to cull intricate data from complicated transactions and attribute those unpacked revenue numbers to the consumer-based jurisdictions. It’s a tricky exercise for companies who can produce the dataand an impossible one for those that can’t. If after “reasonable efforts” (and who knows what constitutes “reasonable?) taxpayers can’t come up with the numbers, then they can use an allocation key. The OECD is going for a process that walks the fine line between accuracy and simplicity, but experts fear the looming 2023 deadline stands in the way of that. As Daniel Bunn, the vice president of global projects at the Tax Foundation, told Law360, the focus may be on “getting this done rather than getting it done right.”