December 11, 2023
Office of Tax Policy
Department of the Treasury
By email to OTP_Pillar1MLC@treasury.gov
Re: Business Roundtable comments on the draft OECD/G20 Inclusive Framework Multilateral Convention to Implement Amount A of Pillar One (Pillar One MLC)
Business Roundtable welcomes the Treasury Department’s commitment to working with the private sector to ensure sound international tax policies and straightforward tax administration, which are essential to protecting investment and economic growth. On behalf of more than 230 chief executive officers of America's leading companies, Business Roundtable is pleased to submit comments in response to the Treasury Department’s request of October 11, 2023 for comments on the draft Pillar One MLC. We comment in our capacity as a business association.
We very much appreciate the fact that the Treasury Department is consulting with the business community and other stakeholders on the draft Pillar One MLC. Good tax policy cannot be made in a vacuum or in a rush, and the consultation process is an important step in the attempt to achieve a workable outcome. Our comments are made in a spirit of constructive feedback, from the perspective of our members, who lead global businesses that in many cases will be significantly affected by the Pillar One rules.
Overall, the Pillar One MLC is one of the most complicated pieces of tax legislation that we have seen proposed. Many aspects of the Amount A calculation lack clarity on the policy or economic “anchor” that would allow for predictable or intuitive outcomes. This will complicate the assessment of the tax implications of important business decisions, for example business reorganizations, supply chain investments and acquisitions and divestitures. Additionally, the lack of a policy or economic anchor is not likely to enhance certainty or stability in the international tax system, or to solve for the theoretical tax challenges arising from the digitalization of the economy.
Further, given the complexity of this proposal, the Inclusive Framework should consider whether a substantial simplification, especially of the mechanism to identify surrendering entities, is needed in order for the Amount A regime to be sustainable in the longer term. The drafting of the MLC includes complex definitions that, in some instances, do not provide full clarity on the calculation mechanics envisioned in the document and make the overall policy goals difficult to follow. For example, it is not entirely clear under Article 5, Para 5(c) and (d) that the calculation of Adjusted Elimination Profit includes adjustments for the Marketing and Distribution Safe Harbor and the Elimination Threshold. Similarly, the MLC envisions complex carryforward mechanisms (for example, certain profit shortfalls, unrelieved tax amounts, etc.) that would be potentially difficult to track for MNEs and tax authorities alike.
Further, the various cliff effects throughout the Amount A calculation would create significant volatility in financial reporting outcomes, making them difficult to accurately predict. The Inclusive Framework should consider approaches to minimize the cliff effects found throughout the Amount A formula (e.g., within the MDSH, the Domestic Exclusion and the determination of relieving jurisdictions).
Beyond these broad policy issues and the more specific technical issues outlined below, for the Amount A regime to be workable, the Inclusive Framework needs to provide guidance in the form of examples and commentary to facilitate understanding of the Amount A formula and the MLC. Additional rounds of public consultation would be needed to ensure that all potential inconsistencies, unclear definitions and the like were identified and appropriately rectified.
Ultimately, Amount A represents a significant departure from the longstanding principles of the arm’s length standard. The business community would be open to supporting a departure if this new policy were to deliver on the goals of stabilizing the tax system and providing a greater degree of certainty for taxpayers and tax authorities around the globe. As drafted, the Amount A MLC falls short of achieving these goals. We urge U.S. negotiators to continue working to address the technical issues and broader policy considerations outlined in this letter. Negotiators should ensure that Amount A, and Pillar One generally, reaches a policy outcome commensurate with the challenges the Inclusive Framework seeks to address while acknowledging the outsized impact that this substantial reform will have on U.S. taxpayers and the U.S. tax system overall.