What's Next After Amount A?

• In Event: International

Abstract

In October 2021, an OECD-brokered agreement on a 2-pillar solution to the taxation of the digitalized economy was signed with great fanfare by over 140 countries. The second pillar of that project – a global minimum tax – has since moved ahead with lightning speed, and over 40 countries have now signed up to adopting the OECD GLOBE model rules into domestic law (this notwithstanding U.S. lack of participation). But the first pillar – the plank that was supposed to provide a solution to the digitalized economy – has stumbled. While Amount B of pillar 2 – a proposal for a streamlined transfer pricing solution – may be moving ahead, plans for a multilateral convention for Amount A – a plan for reallocating a portion of multinationals’ global profits to jurisdictions based on market size – have hit a roadblock, one that is not expected to ease in the near future. Amount A, for all intents and purposes, has withered on the vine. And yet, in part because no one has formally called an end to the Amount A efforts, there’s been no attempt to refocus on the next step of developing alternative solutions to the same challenges that gave rise to the 2-pillar proposals.
At the same time, the problems that led countries down the road of attempting the complex and messy effort of a formulary apportionment approach to address some countries’ concerns that remote sales and profit-generating activities had led to a decline in their ability to tax bases – or presented them with new opportunities to enlarge their existing tax bases – have not gone away. Declaring the demise of amount A is needed before countries can start a renewed multilateral effort to address these concerns. One lesson from the failure of amount A may be that a multilateral approach to addressing the question of taxing new forms of doing business is not a viable one – consideration of regional, plurilateral, bilateral and even unilateral approaches is warranted.
Before exploring alternative paths to tackling the international tax challenges that pillar 1 was attempting to solve, this paper begins by questioning what and how the approach offered by amount A went wrong. Part II of this paper reviews the stated goals of Amount A, and considers why negotiators were unable to achieve them. Relevant to this question is evaluation of whether amount A’s failure should be taken as an indication that a comprehensive multilateral approach to addressing international tax challenges is unachievable; Part III looks at whether its still productive to continue work on multilateral approaches to solve these concerns. If so, the next question is whether the OECD remains a viable forum for that work, along with the conditions under which the United States might participate in such efforts. Part IV approaches the search for a solution to challenges of allocation of global taxing rights through a coordinated path that doesn’t try to be global: either regional, plurilateral, or bilateral. In the event that even such narrower attempts at coordinated international tax solutions are not feasible, Part V discusses unilateral approaches that countries might adopt – indeed, some already have. Part VI concludes with a consideration of the feasibility of simultaneous adoption of more than one of these proposed solutions.

Author

• Mindy Herzfeld, University of Florida Levin College of Law