Tax Policy and Statistics Division, Centre for Tax Policy and Administration The Organisation for Economic Co-operation and Development

14 December, 2020

Ladies and Gentlemen:

We are truly grateful for the continued opportunity to share our insights and recommendations with respect to this transformative era for international tax and global transfer pricing. The Organisation for Economic Co-operation and Development (“OECD”), the World Economic Forum, and the World Bank have collectively and independently validated that global economic growth hinges on the integration of digitalisation. With limited exception, the essence of digitalisation is arguably embedded in a multi-national enterprise’s (“MNEs”) global value chain. As such, there is no debate with the expansive reach of digitalisation within the global economy; the challenge to the Members of the OECD/G20 Inclusive Framework on BEPS (“Members”) lies within the calibration of the Pillar One framework to align with the microeconomic reality in which the taxpayer operates as well as the nature of the relevant business model.

As global transfer pricing strategists, Aptis Global agrees that the digitalisation of the worldwide economy merits reconsideration of the international tax and transfer pricing framework and has encouraged the Members to sustain the arm’s length principle under Pillar One. Given the velocity of this project as well as the pace of economic change, coupled with the disruption created by the global health crisis, we respect the herculean effort invested thus far to develop a collaborative framework intended to preempt the potential issues caused by unilateral measures. 

Digital tax continues to be a treaty issue at its core. Facilitating such a tax can either be created through a transparent, structured marginal-tax framework, or through the reflection of value chain creation by applying the arm’s length principle as part of a traditional transfer pricing system. In an attempt to anticipate the exceptions and their respective fact patterns, the current proposal has abandoned the potential for a simplistic option, fostering a system that could create unintended implementation challenges. We encourage the Members to consider an elective system, providing taxpayers with two choices: a safe harbour option, as a default, or an arm’s length principle election. A safe harbour election would include a simplistic, sales-based digital tax, framed by certain revenue and profitability thresholds, yet grounded in objectivity. The safe harbour would be strictly limited to Amount A and thus independent of any reconciliation with a multinational enterprise’s (“MNEs”) transfer pricing system for all other intercompany transactions. Alternatively, taxpayers could elect to apply the arm’s length principle to create the arm’s length remuneration for Amount A and Amount B, designed under these tested foundational principles, which would inherently address many of the issues and concerns of this document. Certain aspects of the current Blueprint, such as the sales and marketing safe harbour, could aid in the alignment of this approach with the objectives of the Members. Given that our appeal to reconsider the fundamental approach deviates from the Blueprint, we have nonetheless provided comments and suggestions under the assumption that the current framework will prevail in some form. 

To that end, we have addressed the implications of the Pillar One Blueprint for both the “Consumer Facing Businesses” (“CFB”) and the Automated Digital Services” Businesses (“ADS”). With the expansion to now encompass eleven “building blocks”, our insights are focused on scope; nexus; tax base determination and profit allocation for Amount A; loss carryforwards; elimination of double taxation; responses related to scope and quantum for Amount B, and implementation. The following discussion addresses certain practical and theoretical challenges in the pursuit of further clarification and guidance from the Members.2 We have also elected to provide insights around two questions posed by the OECD in the
Public Consultation Documents: Reports on the Pillar One and Pillar Two Blueprints; 12 October 2020 – 14 December 2020 (“Public Consultation Documents”).

The revised interpretation of Scope and Nexus

We appreciate the clarified scope under Pillar One to include only “consumer-facing businesses” that bear a direct consumer connection, effectively excluding those businesses previously considered that may have a “face” in the market yet do not have the direct consumer connection. Moreover, we concur with the narrower scope in the Blueprint that has eliminated sales at the commercial level of the market, strictly focusing on those goods or services that are sold to the ultimate consumer (albeit directly or indirectly) and at that level of the market. As such, our comments are primarily focused on the potential issues and questions that may arise for these CFBs, comprised of the “bricks and mortar” companies that bear some element of digital capability within the supply chain and have some connection to the ultimate consumer. 

With respect to calculating the revenue base for “dual use finished goods and services”3, the benefits achieved by not dividing the business between consumer and commercial purposes, rather than using data segregated by purchaser, are negated by this unnecessary default to a broadened scope. For further refinement, we suggest that this be created as a safe harbour in the event a business cannot obtain reliable, segmented consumer and commercial sales data. In the case where such data is available, the taxpayer would have the option to assess the threshold requirements and any tax obligation using the consumer-facing sales, which is also more consistent with the spirit of the CFB scope.

Tax Base Determination and Profit Allocation of Amount A

The proposed quantum of sales revenue for Profit Allocation of Amount A to determine the tax base is seemingly the simplest to implement and best reflects the arm’s length principle. Having said that, it is difficult for taxpayers to segment the data necessary for threshold and scope considerations by various business units, or product groups, as well as by markets and to determine the ultimate consumer in some cases where a third party distributor or franchisee has conducted the sales activity. Alternatively, a profit-based quantum based upon consolidated group margin and allocated on a standardized basis as a proxy for market profit levels does not recognize the realities and complexities of an MNEs global value chain:
treating the profitability of each segment equally creates an unrealistic economic distortion.

Loss-Carry Forwards

In the spirit of simplicity, we understand the objective of the pooling approach as a mechanism to enable carry-forward losses, rather than allocating them to the relevant market jurisdictions.However, under the arm’s length principle, entities that merit residual profit, rather than a routine return, should also bear losses. As such, Amount A jurisdictions should also accommodate losses. A safe harbour mechanism for losses may accomplish this objective yet an election to adopt a traditional transfer pricing approach would remain preferable, allowing the identification of the specific circumstances linked to a market’s activities that generated the loss as well as the ability to adjust the arm’s length results accordingly.

Elimination of Double Taxation

Although the Members continue to have a range of views in this area, the “cascading liability” that could arise from the inability of a designated paying entity to bear the cost of Amount A is a fundamental departure from the arm’s length principle. As a residual profit-taker, the designated paying entity with Amount A activities should also bear the responsibility of its corresponding tax liability. As such, the proposed pro-rata/back-stop allocation of such a shortfall to another affiliate in the group is not in sync with the economic reality of an arm’s length relationship. Moreover, any carryforward should also be borne by the designated entity.

Queries from the Public Consultation Document
We have provided our insights to certain questions posed by the Members as follows. 

VII. The scope and relevance of possible double counting issues arising from interactions between Amount A and existing taxing rights on business profits in market jurisdictions.

c. What would be the most important design and technical considerations in developing a marketing and distribution profits safe harbour for MNE groups with an existing taxable presence in the market jurisdictions?

A market and distribution profits safe harbour is essential to achieving fair implementation of Amount A while respecting the existing taxing rights on business profits in market jurisdictions. Consideration of a safe harbour, or alternative election, that would be based upon an industry and market-adjusted return could be designed as a default. The safe harbour would be an election available to MNEs where they would either be able to apply a formulaic safe harbour approach to determining the tax base or they could elect an arm’s length approach with required documentation to support an alternative level of profitability based upon the arm’s length principle.5

IX. The issue of scope of Amount B and definition of baseline marketing and distribution activities.

b. Do you consider the baseline activities outlined in the positive and negative list achieve the narrow scope definition examined in the Blueprint? If not, what changes should be considered? What changes to these lists would be required if a broader scope was adopted?

The basic premise for Amount B is generally consistent with the framework of the arm’s length principle. The provision of both a positive and negative list for transfer pricing is indicative of best practice in that it is just as important to state what a transaction is not, as to state what it is intended to be. Under the first positive attribute of importation of products for resale within the market, however, footnote “16” deviates to capture those companies where “...up to [50%] of the products distributed may be to customers outside the market where the distribution entity is resident or where the PE is situated.”6

The characterization of an entity should not be dependent on a percentage of products that would be distributed to customers outside the market. In fact, it should depend on the functions performed, assets deployed, and risks assumed in the relative creation (or destruction) of the value. Reconsideration of the intent of this allocation is suggested. Characterization of the entity within Amount B will be critical. The provision of a negative list is both insightful and practical, however, the current negative list must be more detailed. To avoid confusion of incorporating what may seem to be subtle functions that could unintentionally transform a limited risk distributor into something inherently bearing greater risk, such as product liability risk, warranty exposures, or a catastrophic sequence of economic events that would prevent operations in a time period to modify both short-term and fixed costs and losses to be managed (e.g., including the current global economic and health crisis), an integration of the assets and risks into the discussion of each trait for the positive and negative list would be more helpful to both the taxpayer and the taxing authorities.

Scope of Amount B

We appreciate the challenges faced by both tax administrations and taxpayers in validating the abstract, transfer pricing concept of routine and/or limited risk sales and marketing activities. However, the narrowed Amount B scope to cover only Buy/Sell distributors presents new issues. With the determination based upon whether a distributor takes title to (presumably finished goods) inventory, this revised scope results in the exclusion of commissionaires and commission agents, opening an angle for new confusion and potential debate. As noted, the current list of positive and negative traits for a Buy/Sell distributor is a helpful tool and should be duplicated for defining the functions of a more simplistic sales and/or marketing function. Without further specificity, taxpayers may be encouraged to modify their structures to avoid such disputes.

We concur with a threshold for materiality to determine an MNEs transition or phase-in basis; we are keenly aware that many MNEs, particularly CFBs, will require additional time to gather the data to determine the extent of their digital footprint and in-scope activities. For those with diverse business segments and/or geographies, as well as MNEs that operate through third party distributor or licensees/franchisees, this process will be the most challenging and require an extended period of expected compliance to then design and implement their processes.

Our overall recommendation to further refine the current Blueprint is to seek areas where a safe harbour election could be made to achieve simplicity, while offering the alternative to rely on the arm’s length principle. We have noted certain examples where safe harbour alternatives may be feasible to create clarity without exacerbating confusion, which should always be a strategic goal of a transfer pricing system.

Again, we commend the OECD’s timeline in addressing this transformational endeavor that will shape taxation for decades to come. It continues to be an honor to have this opportunity to provide our insights; we greatly welcome any queries from the Members regarding our input. If there are questions regarding this submission, please contact either Kathrine Kimball at or Sofie Stas at

1 OECD (2020), Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,

2 OECD (2020), Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,; P. 11.

3 OECD (2020), Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,; P. 45.

4 OECD (2020), Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,; Paragraph 480.

5 This would be similar to the application of U.S. Internal Revenue Code § 1.482 to derive an arm’s length return as an alternative to a safe harbour profit margin prescribed for the taxable entities acting as service providers for a real estate investment trust under U.S. Internal Revenue Code § 857.

6 OECD (2020), Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,; PP. 158, 166.