At a recent conference, individuals from the U.S. Treasury were very explicit in their desire to receive comments on the Progress Report on Amount A of Pillar One, which was released by the OECD on July 11, 2022.  Comments are due on August 19, 2022.  The next public consultation is September 12, 2022.

The Progress Report represents the current state of progress on Amount A.  While many issues have been agreed to and the debate has been narrowed for others, work remains to be done by the Inclusive Framework to reach a final agreement on how exactly Amount A will be effectuated. 

Of note, it was shared that the Marketing & Distribution Safe Harbor (MDSH) has been hard for the parties to agree on.  It has been challenging for the parties to find an approach that captured only marketing and distribution, which is perhaps why the role of the MDSH has morphed over time. To the extent taxpayers have ideas on how to address the MDSH, now is the time to suggest them.

It was also made clear that Amount A is an overlay on existing transfer pricing policies and that the Amount A reallocation will happen regardless whether a company’s transfer pricing is deemed to be correct.  This in turn creates additional complexity when calculating Amount A.  Comments were specifically requested on how to deal with the resolution of a transfer pricing disputes and the reallocation of Amount A.  Taking the resolution into account in the current year might create significant distortions for Amount A, but is that preferable to figuring out adjustments for prior years?  U.S. Treasury has been operating under the assumption that taxpayers do not want to have Amount A wrapped up in transfer pricing disputes.

Finally, the speakers were clear that they would like to make compliance with Amount A as painless as possible for taxpayers and for governments.  Even though it has often seemed like the prior consultation documents were overly complex, if the goal, as described, is truly to make Amount A as simple and administrable as possible, taxpayers should provide comments on ways this goal could be accomplished. It remains uncertain whether Pillar One (or Pillar Two for that matter) will ever be implemented in the United States and around the world.  But given that countries continue to work towards reaching a final agreement and expect that Pillar One will eventually be implemented, it behooves companies to provide robust comments on a new system that may fundamentally change the world of international taxation.

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