OECD invites public input on the Secretariat Proposal for a "Unified Approach" under Pillar One


09/10/2019 - As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS (the Inclusive Framework), the OECD is seeking public comments on a Secretariat Proposal for a "Unified Approach" under Pillar One.


UPDATE 15/11/2019: Public comments received on the Secretariat Proposal for a "Unified Approach" under Pillar One



The Programme of Work (PoW) adopted by the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) at its meeting of 28-29 May 2019, and approved by the G20 Finance Ministers and Leaders at their respective meetings in Japan (June 2019), provides for two pillars to be developed, on a without prejudice basis, with a consensus solution to be agreed by the end of 2020. For Pillar One, the PoW allocates work to explore the three proposals articulated so far, but recognises that for a solution to be delivered in 2020, the outlines of a unified approach would need to be agreed by January 2020. This outline would need to reduce the number of options available and bridge the remaining gaps to facilitate the task of arriving at a consensus on a "Unified Approach" to Pillar One in 2020.

Consistent with that objective and to help expedite progress towards reaching a consensus solution to Pillar One issues, the Secretariat has prepared a proposed "Unified Approach". It is built on the significant commonalities identified in the PoW, takes account of the views expressed during the March Public Consultation, and seeks to consider the different positions of the members of the Inclusive Framework. This proposal was discussed by the Task Force on the Digital Economy (TFDE) at its meeting on 1 October 2019 and is now released to the public for comments.

Another separate public consultation meeting on Pillar Two issues will be organised in December 2019, and the related public consultation document is expected to be released in early November 2019.


Public consultation document

This consultation document (also available in French and Spanish) describes, at a high-level, the "Unified Approach" to Pillar One proposed by the Secretariat, and seeks comments from the public on a number of policy issues and technical aspects. The comments provided will assist members of the Inclusive Framework in the development of a solution for its final report to the G20 in 2020.

The proposals included in this consultation document have been prepared by the Secretariat, and do not represent the consensus views of the Inclusive Framework, the Committee on Fiscal Affairs (CFA) or their subsidiary bodies.

Interested parties are invited to send their comments no later than Tuesday, 12 November 2019, 12:00 (CET), by e-mail to in Word format (in order to facilitate their distribution to government officials). All comments should be addressed to the Tax Policy and Statistics Division, Centre for Tax Policy and Administration.

Please note that all comments on this public consultation document will be made publicly available. Comments submitted in the name of a collective "grouping" or "coalition", or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting. Speakers and other participants at the upcoming public consultation meeting in Paris will be selected from among those providing timely written comments on this consultation document.


Public consultation meeting

The public consultation meeting on the proposed "Unified Approach" to deal with Pillar One issues will be held on 21 and 22 November 2019, at the OECD Conference Centre in Paris. The objective is to provide external stakeholders an opportunity to provide input on the ongoing work. Further information about attending the public consultation is available on the dedicated meeting page.


Frequently asked questions

1. What are the challenges arising from the digitalisation of the economy for the taxation of business income?

International income tax rules were designed more than a century ago, before the advent of widespread digitalisation. Digitalisation has allowed businesses in many sectors to locate various stages of their production processes across different countries, and at the same time access a greater number of customers around the globe. Digitalisation also allows some digitalised enterprises to be heavily involved in the economic life of a jurisdiction without any, or any significant, physical presence. Under current international income tax rules, these jurisdictions have no or minimal rights to tax such a company even if the company has a large and sustained economic presence (but no or limited physical presence) in a jurisdiction. This is the fundamental challenge arising from the digitalisation of the economy.


2. What is the plan to address these tax challenges arising from the digitalisation of the economy?

Having recognised the challenges arising from the digitalisation of the economy, the G20 mandated the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) to deliver a solution by the end of 2020. The Programme of Work endorsed by the G20 Finance Ministers and Leaders in June 2019 is a culmination of work thus far that strives to address these challenges. This Programme of Work serves as a plan for future work consisting of a two-pillar approach, aiming to provide new nexus and profit allocation rules under the first pillar and a global base erosion mechanism under the second pillar.


3. What is the status of the work?

The Programme of Work highlighted the commonalities of three competing proposals put forth by certain Inclusive Framework members under the first pillar and emphasised the necessity for the Inclusive Framework to agree a unified approach in the coming months, given the goal of arriving at a consensus solution by the end of 2020. As indicated in the Programme of Work, which the G20/OECD IF has started implementing, the fact that three competing approaches were still being considered under Pillar 1 threatened the ability of the OECD/G20 IF to deliver a timely solution as none of three proposals taken in isolation would be able to achieve consensus. In an effort to move swiftly to a "Unified Approach" under Pillar 1, the OECD Secretariat (the Secretariat) serving the Inclusive Framework has developed a proposal aimed at facilitating consensus on common rules regarding nexus and profit allocation rules which would address the challenges of the digitalisation of the economy, while providing more certainty and stability in the international tax system for all countries and jurisdictions in the world.


4. What is the "Unified Approach"?

The Secretariat Proposal for a "Unified Approach" under Pillar One would focus on "consumer-facing businesses", which would cover highly digitalised business models and other highly profitable business models that interact with consumers. It proposes a new nexus, distinct and separate from the existing concept of the permanent establishment, which would ensure a company is taxable in a jurisdiction where its sales exceed a certain threshold even if it is not physically present in that market. The Secretariat proposal aims to reallocate to market jurisdictions a portion of deemed residual profit – i.e. profit in excess of a certain threshold – through a formula and based on the consolidated financial accounts of the company. It also proposes to allocate an appropriate fixed return for what are known as distribution activities, which simplify and improve the administrability of the current international tax rules. Finally, it recognises that the facts and circumstances approach under the existing arm’s length principle rules would continue to apply in the market/user jurisdictions, but that effective dispute prevention and binding dispute resolution between member jurisdictions would be needed to limit disputes and improve tax certainty. In short, the "Unified Approach" provides a package which reallocates taxing rights to market jurisdictions in certain circumstances in exchange for improved tax certainty.


5. Which businesses would considered to be in the scope of the proposal?

The scope would be limited to large businesses that interact remotely with users in market jurisdictions, even if the business has no or a limited physical presence in that jurisdiction. It would also apply to other businesses that market their products to consumers, and which may use digital technology to develop remotely a consumer base with limited or no physical presence in the jurisdiction where these consumers generally reside. Depending on the tax policy rationale, some business sectors could be carved-out for practical reasons. Furthermore, a revenue threshold would likely apply, meaning that only business above a certain threshold (e.g. the EUR 750 million revenue threshold used for CbCR reporting) would be considered within the scope of the proposal.


6. What is the nexus issue?

Under the current international tax rules, "nexus" implies that a company has a sufficient economic relationship with a certain jurisdiction for that jurisdiction to be able to tax this particular company. Usually this meant the company would have some sort of physical presence in the jurisdiction. However, digitalisation has strained the applicability of this concept as companies can increasingly do business with customers from a remote location. This is particularly true of the remote sales of highly digitalised businesses. The new nexus rule would address this issue by being applicable in all cases where a business has a sustained and significant involvement in the economy of a market jurisdiction, such as through consumer interaction and engagement, irrespective of its level of physical presence in that jurisdiction. A revenue threshold could be used as the primary indicator of whether or not a company has a sustained and significant involvement in the economy of a jurisdiction. It is important to note that this new nexus rule would be introduced as a stand-alone rule, on top of the permanent establishment rule – to limit any unintended spill-over effect on other existing rules.


7. Why does the approach on profit allocation depart from existing principles?

Under the proposal, new profit allocation rules would be required given that it would be impossible to use the existing rules to allocate profit under a new nexus as described above. These new profit allocation rules would go beyond the arm’s length principle and beyond the limitations on taxing rights determined by reference to a physical presence, two principles generally accepted as cornerstones of the current rules. The new rules would allow for the taxation at an appropriate level of business activities in a market jurisdiction, while retaining transfer pricing rules where they work relatively well in that market jurisdiction. Any such new rules will need be reconciled with existing rules and should be effectively applicable to both profits and losses.


8. There appear to be a number of key questions outstanding. Who will be deciding these details moving forward?

In the coming weeks and months, the members of the Inclusive Framework will be meeting regularly to advance work on the details of the "Unified Approach". The Programme of Work explicitly mandates further work on the possible use of business line or regional segmentation, options in connection with the treatment of losses and the challenges associated with the determination of the location of sales. Other issues that still need to be agreed regard definitions and quanta, differentiation for business models, elimination of double taxation and other implementation issues. While the Secretariat has proposed the "Unified Approach" as a basis for advancing the work to address the tax challenges arising from digitalisation, these open items and technical details will be finalised by the delegates to the Inclusive Framework, and the subsidiary bodies of the Committee on Fiscal Affairs (Working Party 1, Working Party 6, and the Forum on Tax Administration).


9. How inclusive is the decision-making process?

Any final consensus on the outstanding issues mentioned above will be the result of a political agreement that has the support of all members of the Inclusive Framework, small and large, developed and developing. The Inclusive Framework has a global membership, including about 70% of non-OECD and non-G20 countries from all geographic regions. It is important to emphasize that work in the Inclusive Framework is conducted on an equal footing, meaning that countries and jurisdictions, small and large, developed and developing, have an equal say in the ongoing work to address the tax challenges arising from the digitalisation of the economy. Furthermore, international organisations can act as Observers within the Inclusive Framework, and regional tax organisation such as the African Tax Administration Forum and the Inter-American Centre of Tax Administrations are also represented. Input from the business community and civil society is also actively solicited.


10. How can stakeholders provide their input on the proposals released today?

Stakeholder input is actively encouraged. In fact, the Secretariat's proposal draws upon the over 2,000 pages of comments received from over 200 stakeholders who participated in the last public consultation held in March 2019. Another public consultation has been scheduled for 21-22 November 2019 and any interested party is welcome to attend and submit comments. Stakeholder input will be critical as the details of this proposal are further developed. Please visit our calendar of planned stakeholder input in OECD tax matters for more information.


11. What are the next steps?

The Steering Group of the Inclusive Framework will meet regularly until January 2020 with the goal to have a more detailed, consensus-based solution under Pillar One ready for political agreement by the first half of 2020. Key parameters for Pillar Two are also being examined and discussed at the technical level and ideally some of the main features of Pillar Two could be agreed by the next meeting of the Inclusive Framework in January 2020, while a political agreement on the architecture of Pillar Two would be expected in the first half of 2020 as well. Another separate public consultation meeting on Pillar Two issues is scheduled on 9 December 2019, and the related public consultation document was released on 8 November 2019.