Pijler 1

Pillar 1

OECD/G20 Pillar 1 reallocates taxing rights to market jurisdictions for the largest and most profitable multinational enterprises, establishing a new nexus concept independent of physical presence and a formulaic profit allocation mechanism.

Amount A Overview

Amount A introduces a new taxing right for market jurisdictions over a portion of residual profits of the largest MNEs. The rules apply to MNE groups meeting both:

Revenue Threshold

Global consolidated revenue exceeding EUR 20 billion. This threshold is intended to be reduced to EUR 10 billion after seven years, subject to review.

Profitability Threshold

Pre-tax profit margin exceeding 10% of revenue (calculated using an averaging mechanism over prior periods to smooth volatility).

Extractive industries and regulated financial services are excluded from the scope of Amount A. The rules are expected to affect approximately 100 MNE groups globally.

Nexus and Revenue Sourcing

Amount A establishes a new nexus concept based on revenue derived from a market jurisdiction, rather than physical presence. An MNE has nexus in a jurisdiction if it derives at least EUR 1 million in sourced revenue from that jurisdiction (EUR 250,000 for smaller economies with GDP below EUR 40 billion).

Revenue sourcing rules determine where revenue arises based on the location of the customer or user. Different rules apply to different revenue categories:

Finished Goods

Revenue sourced to the jurisdiction where the final product is delivered to or on behalf of the customer.

Services

Revenue sourced based on the location where the service is used or consumed, with specific rules for different service categories (advertising, cloud computing, transport, etc.).

Digital Services

Revenue from online advertising, digital content, social media, and online intermediation sourced based on user location using IP addresses, billing addresses, and other indicators.

Licensing & Franchising

Revenue sourced to the jurisdiction where the licensed right is used or exploited, or where the franchise operates.

Profit Allocation

Amount A allocates a portion of residual profits to market jurisdictions using a formulaic approach rather than the arm's length principle:

  1. Determine the MNE group's adjusted profit before tax using consolidated financial statements with specified adjustments.
  2. Calculate residual profit — the profit exceeding 10% of revenue (the routine return threshold).
  3. Allocate 25% of residual profit to market jurisdictions (Amount A). The remaining 75% stays with the jurisdictions where it is currently taxed.
  4. Distribute Amount A among eligible market jurisdictions using a revenue-based allocation key — each jurisdiction receives a share proportional to its sourced revenue.

Amount B

Amount B provides a simplified and streamlined approach to the application of the arm's length principle to baseline marketing and distribution activities. It is designed to reduce transfer pricing disputes and provide greater tax certainty for both MNEs and tax administrations.

In-Scope Activities

Baseline wholesale distribution and marketing/distribution activities that do not involve unique and valuable intangibles or assumption of economically significant risks beyond the distribution function.

Pricing Matrix

A standardised return matrix based on industry grouping and intensity factors (operating expenses to revenue ratio, net asset intensity). The matrix provides a fixed return on sales for qualifying distributors.

Qualifying Jurisdictions

Amount B is particularly targeted at low-capacity jurisdictions that lack resources for complex transfer pricing disputes, though it is available as an option for all jurisdictions.

Timeline and Status

Pillar 1 Amount A requires a multilateral convention (MLC) for implementation. The text of the MLC was released in October 2023, but signing has been delayed. Key milestones include:

MLC Signing

Originally targeted for mid-2024, the signing ceremony has been postponed. Consensus remains fragile, with ongoing political negotiations around scope, quantum, and the withdrawal of unilateral digital services taxes.

DST Standstill

Countries participating in the Inclusive Framework committed to a standstill on new digital services taxes (DSTs) pending Pillar 1 agreement. Some jurisdictions have introduced or extended DSTs as negotiations stall.

Amount B Adoption

Amount B was incorporated into the OECD Transfer Pricing Guidelines in early 2024 and is applicable from 1 January 2025, independently of the broader Amount A framework.

Important

Pillar 1 implementation remains subject to political agreement — monitor developments closely before advising on its impact.