May 20 2021

Africa Tax Administration Forum Sends Revised Pillar One Proposals to Inclusive Framework

Source: IBFD Tax Research Platform News

The African Tax Administration Forum (ATAF) has sent revised Pillar One proposals to the OECD Inclusive Framework. The ATAF proposals respond to both the Inclusive Framework blueprint report released for public consultation in October 2020 and the recent US proposals to revise the blueprint proposals.

ATAF proposals state that the Amount A proposal under Pillar One which is based on a single market revenue threshold for all economies is complex, inequitable and would result in very little reallocation of taxing rights to market jurisdictions, in particular to smaller market jurisdictions.

To ensure simplicity, ATAF proposes a single global threshold rule for all MNEs generating global sales revenue above a certain amount (irrespective of their business activities) but that the exclusions proposed in the Pillar One Blueprint should still apply.

To ensure equity, ATAF proposes that the reallocation of profits, which it refers to as "Amount D", be calculated as a portion of the MNE's 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''. ATAF adds that 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 the relevant period.

ATAF expressed that elements of it proposal are similar to the US proposal as:

  • both proposals bring all business sectors into the scope of Amount A except those excluded in the Pillar One Blueprint;
  • both proposals exclude differentiation in profit allocation between Automated Digital Services (ADS) and Consumer Facing Businesses (CFB); and
  • in both proposals there would be minimal business segmentation.

ATAF noted that its proposal would address the complexities of the global threshold rule and that with its simplification there appears no reason why the threshold would not be lowered to €250 million'.

The ATAF proposal also confirms the G-24 working group of developing countries proposal.  The G-24 proposal called for a fractional apportionment allocating part of an in-scope MNE's global profits to market jurisdictions in which it has significant economic presence. Significant economic presence would be tied to a formula based on objective criteria.

The ATAF Proposal on Pillar One was released on 12 May 2021.

Note: The ATAF member countries are Benin, Botswana, Burkina Faso, Burundi, Cameroon, Chad, Comoros Islands, Ivory Coast, Egypt, Eritrea, Gabon, Gambia, Ghana, Kenya, Lesotho, Liberia, Madagascar, Mali, Malawi, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.