On 9 October, the Secretariat of the Organisation for Economic Co-operation and Development (OECD) published Secretariat Proposal for a “Unified Approach” under Pillar One (the “Pillar 1 Unified Approach”) that, if ultimately agreed, would fundamentally alter the international tax regime. The Pillar 1 Unified Approach represents an effort by the OECD to bring together three proposals for consideration by the 134 countries of the OECD Inclusive Framework under the OECD/G20 “tax challenges of the digitalisation of the economy” project. The proposal does not ringfence the so-called “digital economy” and instead seeks to allocate a greater share of taxing rights to the countries where consumers are located - regardless of a business’ physical presence there.
Together with proposals expected later this year on a global minimum tax coupled with the denial of deductions on “insufficiently taxed” payments, this would represent the biggest change in the international tax regime since the 1920s, should the Inclusive Framework countries agree to the Secretariat’s proposals. The proposal would impact a large number of “consumer facing” businesses; not just “tech” or online platform businesses.
Taxpayers will want to analyse the potential impact on their businesses, and the outstanding challenges outlined above - in terms of the impact of both prospective tax liability and increased compliance and filing burden. Given the wide-ranging implications of this project, taxpayers will want to make their views known to the OECD and national governments as the project moves forward in an effort to achieve a stable and sustainable consensus agreement.