background image

ATAF Cross Border Taxation Technical Committee Concerns with Pillar One Global Tax Reform — Orbitax Tax News & Alerts

The African Tax Administration Forum (ATAF) has issued a release following the recent meeting of the Cross Border Taxation Technical Committee, which included discussions of the proposed OECD global tax reform under Pillar One and related concerns. Several ATAF members joined the OECD Inclusive Framework statement for a two-pillar solution as Inclusive Framework members, including Benin, Botswana, Burkina Faso, Cameroon, Egypt, Eswatini (Swaziland), Gabon, Ivory Coast, Mauritius, Morocco, Namibia, Senegal, Seychelles, Sierra Leone, South Africa, and Zambia.


ATAF Cross Border Taxation Technical Committee elects new leader amid ongoing discussions on the proposed global tax rules

The African Tax Administration Forum (ATAF)'s 29th Cross Border Taxation (CBT) Technical Committee Meeting unanimously elected Ms Mercy Mbithi from the Kenya Revenue Authority as the Chair of the CBT.

PRETORIA – The African Tax Administration Forum (ATAF)'s 29th Cross Border Taxation (CBT) Technical Committee Meeting unanimously elected Ms Mercy Mbithi from the Kenya Revenue Authority as the Chair of the CBT. She replaces the outgoing Chairperson, Dr Aboubakar Nacanabo from Burkina Faso, who has joined the ATAF Secretariat.

Ms Mbithi has been a member of the CBT Technical Committee since 2018 and has contributed significantly to the growth of the CBT. More specifically, her technical focus has been on advancing ATAF negotiations at the OECD on the global tax rules in areas such as dispute resolution, mutual assistance procedures and transfer pricing.

The 29th meeting of the CBT extensively analysed the current technical design of the Amount A allocation formula, dispute resolution and Amount B marketing and distribution activities. CBT delegates re-iterated their concerns regarding the complexity of the proposed model rules for Amount A set out in the OECD Secretariat Progress Report of July 2022. This complexity will place an administrative burden on multinational enterprises (MNEs) that are in the scope of the rules and on African tax administrations. They questioned whether that administrative burden is justified as the tax received by African countries under Amount A may be minimal.

The discussion noted that the proposed marketing and distribution safe harbour may reduce Amount A. Additionally, the rules for the elimination of double taxation may inappropriately lead to some African countries having to relieve double taxation created by Amount A. This is in instances where those rules lead to routine profits earned in market jurisdictions being incorrectly classified as residual profit. The CBT noted the importance of African countries assessing the potential tax impact of the Amount A proposed rules. It was agreed that ATAF would work with countries to assist them in carrying out that impact assessment.

Regarding tax certainty for Amount A issues, CBT delegates expressed concerns that the eligibility criterion for the elective mechanism is too strict. Both the number of Mutual Agreement Procedure (MAP) cases and the Amount of tax at stake in those cases should be considered in that criterion, not just the number of MAP cases currently proposed by the OECD. Furthermore, CBT delegates considered that only MAP cases involving in-scope MNEs should be included in the calculation of MAP cases.

CBT delegates share the view of the ATAF Secretariat that the transfer pricing simplification measures for baseline marketing and distribution activities (the so-called Amount B rule) were very important for many African and other developing countries. However, its benefit for those countries will depend upon the design of the rule. Delegates agreed that the rule should be broad in scope and include sales agency and commissionaire arrangements. In addition, it was agreed that African countries should closely monitor the development of the Amount B rule to ensure it is fit for purpose.