On 9 October 2019, the OECD announced the launch of a public consultation on a Secretariat Proposal for a "Unified Approach" under Pillar One of the programme of work to address tax challenges of the digitalisation of the economy. The OECD also held a webcast on 9 October, which mainly focused on Pillar One and the proposed Unified Approach. The Unified Approach is based on commonalities among three existing proposals and is designed to achieve or lead to a consensus solution that can be agreed to.

The following is a summary of the key features of the proposed Unified Approach as provided in the consultation document:

• Scope. The approach covers highly digital business models but goes wider – broadly focusing on consumer-facing businesses with further work to be carried out on scope and carve-outs (group-revenue based thresholds being considered). Extractive industries are assumed to be out of the scope.
• New Nexus. For businesses within the scope, it creates a new nexus, not dependent on physical presence but largely based on sales. The new nexus could have thresholds including country-specific sales thresholds calibrated to ensure that jurisdictions with smaller economies can also benefit. It would be designed as a new self-standing treaty provision.
• New Profit Allocation Rule going beyond the Arm’s Length Principle. It creates a new profit allocation rule applicable to taxpayers within the scope, and irrespective of whether they have an in-country marketing or distribution presence (permanent establishment or separate subsidiary) or sell via unrelated distributors. At the same time, the approach largely retains the current transfer pricing rules based on the arm’s length principle but complements them with formula-based solutions in areas where tensions in the current system are the highest.
• Increased Tax Certainty delivered via a Three-Tier Mechanism. The approach increases tax certainty for taxpayers and tax administrations and consists of a three-tier profit allocation mechanism, as follows:
  • Amount A – a share of deemed residual profit allocated to market jurisdictions using a formulaic approach, i.e. the new taxing right;
  • Amount B – a fixed remuneration for baseline marketing and distribution functions that take place in the market jurisdiction; and
  • Amount C – binding and effective dispute prevention and resolution mechanisms relating to all elements of the proposal, including any additional profit where in-country functions exceed the baseline activity compensated under Amount B.

Note - The deemed residual profit used for Amount A would be the result of simplifying conventions agreed on a consensual basis. This means that it would only seek to approximate, without precisely quantifying, the amount of residual profit of an MNE group.

The deadline for comments on the Pillar One Unified Approach is 12 November 2019, with a public consultation meeting scheduled for 21 and 22 November 2019.

Further to Pillar One, Pillar Two of the work program was also briefly discussed during the webcast, which includes the GloBE proposal that seeks to ensure that all internationally operating businesses pay a minimum level of tax. This includes four interconnected rules, an income inclusion rule, a switch-over rule, an undertaxed payments rule, and a subject to tax rule. The rules are currently under discussion, with a consultation document for Pillar Two to be released in early November 2019 and a public consultation to be held in December 2019.

An Inclusive Framework meeting to discuss the proposals for both Pillars is to be held at the end of January 2020, with a follow-up meeting to be held in June 2020. The goal is to have a consensus-based long-term solution by the end of 2020.