Introduction – What is the OECD’s Pillar One?
Pillar One is part of the OECD’s two-pillar approach to reforming international tax rules.
It addresses the taxation challenges posed by the digital economy, where many companies earn profits in countries without having a physical presence there.
The main goal of Pillar One is to reallocate the taxing rights of large multinational companies so that countries where customers are located can tax a portion of the company’s profits, even if the company doesn’t have a physical presence in that country.
How Does Pillar One Work?
Under current tax rules, a company is usually taxed in the country where it has a physical presence, like an office or factory.
But in today’s digital world, companies can make huge profits from customers in countries where they don’t have any physical presence.
Pillar One aims to change this by allowing countries to tax a portion of the profits based on where the company’s users or customers are located.
This rule mainly applies to large multinational companies with global revenues of more than €20 billion and profitability of over 10%.
A portion of their profits—above a set threshold—will be taxed in countries where they have customers, rather than just where the company is based.
Who Will Be Affected by Pillar One?
Pillar One will mostly affect the world’s largest multinational companies, especially those in the digital economy like Google, Facebook, and Amazon.
These companies generate significant profits from users around the world but don’t necessarily have offices or factories in every country where their users live.
Conclusion – What is the OECD’s Pillar One?
Pillar One is a big step forward in adapting international tax rules to the realities of the digital economy.
It ensures that companies pay taxes where their customers are, even if they don’t have a physical presence in those countries.
This change is expected to help countries collect more tax revenue and create a fairer tax system for the global economy.
Final thoughts
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