ATAF’s revised Pillar One Proposals to the Inclusive Framework adds to G7 deal to stop global corporate tax avoidance

PRETORIA – Will the G7 tax deal force multinational (MNE) companies to pay their fair share of tax? 

This has been the big debate since finance ministers from wealthy G7 nations on Saturday, pledged to commit to a global minimum corporate tax of at least 15%, rallying behind a U.S.-backed plan.

The meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business.

In addition, they agreed in principle to the global minimum corporate tax rate to avoid countries undercutting each other.

The landmark move is aimed at getting MNEs - especially tech giants - to pay more into government coffers, which have been severely hit during the COVID-19 pandemic.

ATAF’S REVISED PILLAR ONE PROPOSALS TO THE INCLUSIVE FRAMEWORK

To help African governments achieve the above objectives on the continent, the African Tax Administration Forum (ATAF) has submitted  revised Pillar One Proposals  aimed at significantly simplifying the rules and addressing several of the inequities in the current proposal to the OECD Inclusive Framework.

ATAF proposes the adoption of a single global threshold rule to cover all MNEs that generate global sales revenue above a certain amount. The new rule would apply to all such MNEs irrespective of their business activities. However, it would retain the current exclusions in the Pillar One blueprint and the Pillar One domestic revenue exclusion.

This proposal is similar to some of the features of the recent U.S. proposal which echoes ATAF’s concerns that the Pillar One blueprint proposals are too complex. Both the ATAF and U.S. proposal aim to greatly simplify the Pillar One rules by bringing all business sectors into the scope of Amount A except the current proposed exclusions in the Pillar One blueprint. Both proposals also remove the current ADS and CFB concept and propose no differentiation in profit allocation between ADS and CFB including the removal of the use of the so-called plus factors. Both proposals would mean no or minimal business segmentation.

Turning to the amount of the MNE’s profit to be reallocated to market jurisdictions, the USA estimates that its proposal would lead to approximately the same level of profits being reallocated as under the Blueprint proposals. ATAF do not consider the estimated level of profits re-allocated under the Blueprint is adequate and needs to be increased.

ATAF further proposes that the reallocation of profits which we refer to as “Amount D”, would be calculated as a portion of the MNEs total profits instead of its residual profit. The quantum of Amount D would be a Return on Market Sales based on the Global Operating Margin of the MNE group using a tiered approach whereby the higher the Global Operating Margin of the MNE the higher Amount D would be. Amount D would be allocated to a market jurisdiction to the extent it exceeds the arm’s length profits reported in the market jurisdiction for that period.

Tech giants such as Amazon and Facebook are among those likely to be affected.

The G7 summit was attended by counterparts from Canada, France, Germany, Italy, Japan, and the United States.