The OECD has drafted a series of rules to ensure international businesses are paying the right amount of tax, and in the right place. The rules have two components. Pillar One is designed to ensure that multinational businesses pay tax in countries where they earn their income. Pillar Two is aimed at ensuring companies pay a minimum amount of tax on their income across all countries. 

This Public Consultation Document concerns “Amount B” of Pillar One which has been designed to ensure that multinational firms do not “profit strip” by selling into high tax jurisdictions but leaving most of the costs of sale in a lower tax country. The draft suggests a formula for pricing baseline marketing and distribution activities to ensure certainty and consistency internationally. 

The draft suggests two alternatives for pricing baseline wholesale distributors: 

• Alternative A, which does not require a separate qualitative scoping to identify and exclude non-baseline contributions, or
• Alternative B, which requires a separate qualitative scoping criterion to identify and exclude non-baseline contributions. 

Of the two alternatives, CA ANZ prefers the second. However, CA ANZ suggests that consideration should be given to retaining the status quo with some modifications.