There is still considerable uncertainty surrounding the outcome of Pillar One and the interrelationship between its component parts, Amount A and Amount B. If adopted, Amount A would represent a much more radical change to the allocation of taxing rights over profits earned by the largest multinational enterprises, providing the basis for countries to withdraw or not introduce digital service taxes (DSTs). Some jurisdictions, including the UK, see full implementation of Amount B as intertwined with reaching a satisfactory outcome on Amount A and the removal of DSTs.
The US has indicated that it is willing to implement Amount B on an optional basis independently from reaching a resolution on Amount A, but is also known to prefer a mandatory implementation of Amount B across (at least some) Inclusive Framework jurisdictions and sees this as a redline issue for an agreement on Pillar One to be reached. This is problematic as other jurisdictions have expressed reservations on Amount B, most notably Australia and India.
To date the UK Government has kept its cards close to its chest and has not made any public statements on its position on Amount B. At a minimum the UK will need to take steps to honour the political commitment it has made to respect the application of Amount B by 66 low and middle income jurisdictions, ‘covered jurisdictions’ (see OECD publicationopens in a new tab on 17 June 2024), which included Argentina, Brazil, Costa Rica, Mexico and South Africa, based on those jurisdictions having expressed a willingness to apply Amount B. The UK can implement the political commitment by enacting domestic legislation. It could also enter into individual competent authority agreements with other jurisdictions (see our earlier articleopens in a new tab on this topic).
To date we have seen two other European countries take steps to implement the political commitment. The Irish Finance Act 2024opens in a new tab was enacted on 12 November 2024 and contains an amendment to the transfer pricing legislation (in section 45) under which Ireland will respect the Amount B approach where a covered jurisdiction (with which Ireland has a double tax treaty) applies it. This goes both ways so it can apply to inbound and outbound distribution arrangements where the covered jurisdiction applies the SSA.
The Netherlands recently issued a new Decree on Amount B. Like the recently enacted Irish Finance Bill it is an acceptance of the application of Amount B by covered jurisdictions with which the Netherlands has a double taxation treaty, rather than implementation in full. It had two interesting features. Firstly, it only applies where the baseline distribution activities are carried out in a covered jurisdiction and so does not apply to baseline distributors in the Netherlands. Secondly, it applies for permanent establishment profit attribution as well as transfer pricing purposes, which is not clearly addressed in the original report issued by the OECD on Amount B.
The divergent approaches Ireland and the Netherlands adopted have added to the concern that there will be significance divergence in the way jurisdictions choose to implement Amount B leading to greater complexity for taxpayers to navigate. There is of course the possibility that jurisdictions will agree a more harmonised approach to the implementation of the SSA in the future and that what we are seeing from Ireland and the Netherlands is just ‘phase one’ of an ongoing process.
