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Writer's pictureradhakishan rawal

Pillar 1: Who Should Be PayingThe Tax Bill?

Updated: Mar 13, 2022

The OECD’s pillar 1 solution does not replace the treaty framework that distributes taxing rights

among countries. The amount A allocation will be an overlay to the profit allocation rule, which could result in the profits equivalent to amount A being taxable in Country A under treaty rules and the same amount of profits being taxable in Country B under the pillar 1 solution. That results in double taxation that must be relieved.


Further, simultaneous application of the two systems is likely to result in a situation in which a country can levy tax on amount A under both a treaty and pillar 1. That is called “double counting” and must also be addressed. The pillar 1 blueprint recognizes that problem and provides

solutions.


The existing treaty framework also contemplates taxation of the same income by country of residence and country of source. It contains a mechanism for eliminating double taxation in the form of an exemption or credit method. Pillar 1 also contemplates use of those methods.


Tax treaties between residence and market jurisdictions will not give taxing rights over amount A.1. Because taxation by the market jurisdiction would not be in accordance with the treaty, double taxation will not be relieved by the treaty. The treaty could be amended to relieve double taxation on amount A, or the domestic law of the country of residence might relieve it. The multilateral arrangement contemplated for amount A can be expected to facilitate either of those options.


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