African Tax Administration Forum proposes simpler, more equitable “Pillar One”

By Doug Connolly, MNE Tax

The African Tax Administration Forum on May 12 sent a revised Pillar One proposal to the OECD Inclusive Framework, emphasizing its support for the effort to reach a global consensus on reallocating more taxing rights to market jurisdictions, while critiquing the existing proposals.

The ATAF, in part, found common ground with the recent US proposal under Pillar One – as opposed to the OECD blueprint proposal released last year, which it described as “far too complex.” Like the US, it seeks a simpler approach that would cover large multinational enterprises regardless of business sector, rather than focusing on digital companies like the OECD blueprint.

The ATAF said that such an approach “would mean no or minimal business segmentation,” which is what underlies much of the complexity of the OECD blueprint proposal. However, the ATAF would also allow certain exclusions, as specified in the OECD blueprint.

While the US proposed reallocating taxing rights for the 100 largest multinational companies, the ATAF suggested applying reallocation to multinational enterprises with revenues above a specified threshold. In this respect, it suggested a relatively low threshold of EUR 250 million (approximately USD 300 million).

With respect to equitability, ATAF believes that neither the OECD nor US approach would allocate adequate profits to market jurisdictions, particularly for smaller market jurisdictions.

The ATAF proposes amending the calculation of the amount of a multinationals’ profits that would be reallocated to market jurisdictions under the OECD blueprint to increase the amounts reallocated. ATAF said that its approach will create “a more level playing field” between businesses that currently have a taxable presence in a jurisdiction and those that do not.

Regarding the impact on smaller markets, ATAF said that the blueprint proposal for determining whether a business has a taxable presence in a jurisdiction “using a single revenue threshold for all economies is inequitable as it clearly discriminates against smaller economies.” ATAF instead proposes a tiered approach as more equitable, noting that what “constitutes significant for a small economy is obviously different to what constitutes significant in a large economy.”