KPMG report: Public consultation document under Pillar One on draft multilateral convention provisions on DSTs

A public consultation document on Pillar One – Amount A

A public consultation document on Pillar One – Amount A

The Organisation for Economic Cooperation and Development (OECD) released on 20 December 2022 a public consultation document on Pillar One – Amount A: Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures [PDF 540KB]. This consultation document covers the last building block of Amount A—the measures that jurisdictions would be required to remove following the implementation of Amount A (the formulaic reallocation of residual profits to market jurisdictions). 

The removal of digital services taxes (DSTs) and other relevant similar measures would be included in the multilateral convention (MLC) that would implement Amount A. The consultation document contains two draft articles: Article 37 requires the removal of existing measures, and Article 38 would eliminate Amount A allocations for jurisdictions that apply a new or existing DST or other relevant similar measure after the MLC enters into force (i.e., if a jurisdiction implements a DST or other relevant measure it will not be permitted to also tax Amount A). 

The document was released by the OECD Secretariat and does not reflect the final views of Inclusive Framework (IF) members. Interested parties are invited to submit comments on the document by no later than 20 January 2023. 

Removal of existing measures

The document provides a clear framework for the removal of existing measures. Such measures will be listed in an Annex to the MLC, which will provide that they must cease to apply from the date the MLC comes into effect with respect to the relevant jurisdiction, which will not be until 2024 at the earliest. The existing measures to be removed are not identified, as these remain to be agreed by the IF. 

The document notes that consideration will be given to whether existing measures could continue to apply to a multinational group with an ultimate parent entity (UPE) located in a jurisdiction that is not a party to the MLC. This clearly indicates that if a jurisdiction, such as the United States, ultimately fails to sign the MLC or is unable to ratify it, some IF members would seek to continue applying DSTs to groups headquartered there. 

Treatment of future measures

When a jurisdiction implements a new DST or relevant similar measure (or fails to remove an existing measure), Article 38 will prevent that jurisdiction from being allocated any profit under Amount A. For this purpose, DSTs or relevant similar measures will be identified using three cumulative conditions to identify measures that: 

  • Impose taxation based on market-based criteria (e.g., determined by reference to the user / customer)
  • Are ring-fenced to foreign and foreign-owned businesses, including measures that are exclusively or almost exclusively targeted at foreign and foreign-owned businesses 
  • Are placed outside the income tax system (and therefore outside the scope of tax treaty obligations)

Value-added taxes (VATs), transaction taxes, withholding taxes that are covered taxes under tax treaties, and rules addressing abuse of existing tax standards are explicitly excluded from the definition of DSTs and relevant similar measures. The MLC does not define these concepts, creating a risk that some jurisdictions will adopt a broad interpretation of what constitutes a permissible anti-abuse rule. 

The Conference of the Parties (i.e., representatives from jurisdictions that are party to the MLC) will be responsible for determining whether a specific measure falls within the definition of a DST and relevant similar measure, placing significant power in the hands of this body. 

A footnote indicates that the IF is still discussing whether and how this article could apply with respect to subnational taxes, when constitutional constraints on national governments will be an important factor in determining the options that are realistically available. 

KPMG observation

Significant weight likely will be placed on the annex listing the existing measures subject to removal. It is unclear to what extent Article 38 will prevent jurisdictions from implementing revised DSTs or similar measures in the future. Notably, Article 38 does not even purport to prevent jurisdictions from taking such steps; instead, it merely limits the extent to which such jurisdictions can also impose tax on profits allocated to them under Amount A. This likely reflects perceived political and legal constraints on the ability of governments to commit not to do something in future.


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