Multilateral Convention for Taxation of Large Multinational Enterprises operating across the Globe

OECD has recently provided guidance (the multilateral convention) on how Amount A will be calculated. These rules would apply to multinational enterprises with revenue above EUR 20 billion and profitability above 10%. 25% of the profit above 10% of revenue is to be reallocated to market jurisdictions with certain quantitative revenue thresholds. Extractives and regulated financial services will be excluded so generally almost all multinationals will be included. The rules to determine and compute Amount A are complex.

A single tax return with standardized documentation is to be filed with one tax administration that would typically be the parent jurisdiction of the multinational enterprises.

The convention must be ratified by at least 30 jurisdictions accounting for at least 60% of the ultimate headquarter jurisdictions of multinational enterprises expected to be in scope for Amount A. The ratified jurisdictions can then decide when the convention will enter into force. Signing the convention requires that country to remove existing digital services taxes (“DST”).

The impact on BEPS Pillar One on multinational enterprises vary and several factors need to be considered:

• Potential increase in tax liability: Companies that generate substantial revenue in market jurisdictions but currently pay minimal or no tax may see an increase in their tax liability. This will affect the overall profitability of these companies.
• Compliance challenges: In scope entities will see increased tax compliance.
• Business model adjustments: Some companies may need to reassess their business models to optimize tax outcome under the new framework. This could involve restructuring or modifying certain aspects of their operations.
• Administrative burden: Companies may face an increased administrative burden as they adapt their systems and processes to comply with the new rules. This could involve changes in transfer pricing documentation and reporting requirements.

This is a developing story and multinationals that are or potentially in scope should watch this space. How can Mazars help?

1. Assist in advising whether you fall in scope of Amount A and if so, determine the impact of the reallocation of profits to your group’s effective tax rate; or
2. Assess the impact of removal of DST in your countries; or
3. Advise on formalizing legal structures in market jurisdictions, how to structure them tax efficiently, setting up of legal entities, and supporting in all requirements to ensure compliance with local rules.