OECD Pillar One

What it means

OECD Pillar One is part of the international tax reform aimed at reallocating some taxable profit of the largest multinational groups to the countries where their customers are, even without a physical presence there. It responds to the digital economy, in which a company can sell into a country without a permanent establishment.

It builds on the BEPS project and complements Pillar Two, the global minimum tax. While Pillar Two already applies in the EU, the main part of Pillar One, known as Amount A, has not yet been put into practice, because it requires a multilateral agreement among major economies.

The second component is Amount B, which simplifies transfer pricing for baseline marketing and distribution activities within groups. Unlike Amount A, the OECD has incorporated it into its guidelines, and adopting it is up to individual states.

How it works in practice

Amount A would cover only groups with turnover in the billions of euros and high profitability, so ordinary Slovak companies would not be affected directly. They may feel it indirectly, for example through the prices of digital services or changes to tax treaties.

For mid-sized groups with distribution subsidiaries, Amount B is more relevant. If a state adopts it, it can simplify supporting an arm's-length distributor margin and reduce disputes. It is worth watching whether and in what form Slovakia and partner countries apply it.

Many states introduced unilateral digital services taxes as a stopgap until Pillar One is adopted. A company buying advertising or services from large platforms meets their effect in prices even though it does not pay the tax itself.

What to watch out for

The negotiations keep shifting, and many texts online describe plans that were never adopted. Tax planning should rely only on laws and treaties in force, not on OECD proposals that are not yet binding.

Do not confuse Pillar One with the minimum tax. Pillar Two sets a minimum effective rate for large groups and is implemented in the EU by a directive, whereas Pillar One deals with dividing taxing rights between states, and its main part is still awaiting agreement.