In December 2021 the members of the OECD’s Inclusive Framework (IF) reached a political agreement on reforms to the international tax system. The agreement on Pillar One included a standstill and withdrawal commitment for DSTs and similar measures. The IF agreed including this rule in the MLC. We refer to our Tax Flash of 10 October 2021. The released document contains the draft MLC provisions that require parties (i) to remove any (to be) listed existing DSTs and similar measures, and (ii) in case of jurisdictions applying (future) DSTs and similar measures, any Amount A allocation to that jurisdiction will be eliminated. The document presents the work undertaken to date. It does not yet reflect the IF’s final views.

Removal of Existing Measures

Pursuant to the MLC provisions all jurisdictions that are party to the agreement are required to no longer apply any listed measure as of the date on which the MLC enters into effect for such jurisdiction. The list of measures that are considered DSTs and similar measures still needs to be agreed upon by the Task Force on the Digital Economy (TFDE) – a subsidiary body of the IF – during its continuing negotiations on the MLC.

Provision Eliminating Amount A Allocations for Parties Imposing DSTs and Relevant Similar Measures

In case jurisdictions still impose (future) DSTs and relevant similar measures following the entering into effect of the MLC, their Amount A allocation will be eliminated.

DSTs and relevant similar measures have been defined as follows:

  1. impose taxation based on market-based criteria;
  2. are ring-fenced to foreign and foreign-owned businesses; and
  3. are placed outside the income tax system (and therefore outside the scope of treaty obligations).

The Conference of the Parties of the MLC will review and decide whether a measure should indeed be considered a DST or relevant similar measure. The Conference of the Parties to the MLC may be convened by all jurisdictions that sign up to the MLC and is responsible for taking any decisions or exercising any functions as may be required or appropriate under the provisions of the MLC. The rules for the decision-making process of the Conference of the Parties of the MLC will be further developed by the TFDE during the continuing negotiations.

Next Steps

Interested parties can send to the OECD their comments on this consultation document by 20 January 2023. The OECD will consider this input with the objective to assist the IF in further refining and finalising the relevant provisions.

What can taxpayers do? 

Our Pillar One team is available to support you in analysing and modelling the impact of the Pillar One rules on your group and exploring ways to mitigate increased taxation and complexity.

We will keep you informed about further developments. Should you have any question or need assistance in assessing the impact of the rules, please contact a member of our Pillar One team or your trusted Loyens & Loeff adviser.