Don’t leave digital software out of “Amount B,” a key component of the global agreement to simplify transfer pricing, a coalition of global software companies told the OECD.
The Organization for Economic Cooperation and Development Wednesday released dozens of public comments it received for its consultation document on Amount B under Pillar One of its two-pillar solution to address tax challenges arising from digitalization of the economy.
The Software Coalition, whose members include Amazon.com Services, Adobe Systems, Inc., Oracle, and SAP, among other major software providers, said the document leaves it “uncertain” whether digital software will be included in the scope of Amount B. That omission could deprive tax authorities in jurisdictions with minimal resources of an important tool for defusing potentially long-running and costly tax controversies that involve companies that distribute digital software, it said.
The coalition released its comments through law firm Baker McKenzie.
Risk of Falling Short on Goals
Some 138 OECD and non-OECD jurisdictions have approved the OECD-brokered agreement to simplify transfer pricing, but details remain to work out.
While the plan’s Pillar two imposes a 15% minimum effective global tax rate on global companies, Pillar One is an excess-profits tax that targets mainly technology and pharmaceutical companies.
According to the OECD, Amount B, part of Pillar One, aims to provide a streamlined approach to applying transfer pricing rules to so-called baseline marketing and distribution, with a particular focus on needs of low-capacity jurisdictions.
The Software Coalition said that distribution of digital goods through local enterprises presents no sufficient functional differences or novel questions of law or practice to justify excluding the sector from the proposed Amount B framework.
If Amount B does not apply to that distribution, low-capacity jurisdictions will lack an essential tool for applying the arm’s length principle to transactions of these businesses and reducing the risk of tax controversies, it noted.
Clarification Needed
In comments released earlier this month, the OECD’s business advisory group, BIAC, said a “well-constructed” proposal for Amount B could produce significant benefits for both taxpayers and tax administrations.
But it said several Amount B details need clarification, such as its scope, how it will work as a safe harbor, and transfer pricing approaches to applying it.
