The EU Tax Observatory released an in-depth study of the estimated revenues per country and a ranking of the countries set to gain or lose from of the Pillar 1 Amount A approach contemplated by the OECD / Inclusive Framework.
The rules of Pillar 1 Amount A were introduced by the OECD July 2022 Progress Report. They deal with the determination and allocation of new taxing rights to market jurisdictions over the world’s largest and most profitable MNEs (Covered Groups). Subject to carve outs for the financial and extractive industries sectors, Covered Groups in a year are those MNEs with a global turnover above EUR 20 billion and profitability above 10%. Once the excess profits over 10% are identified, it is proposed to reallocate 25% thereof to market jurisdictions depending on their market shares with respect to the relevant Covered Group. The allocation excludes jurisdictions where the Covered Group derives minimal revenues (EUR 1 million or 250,000 threshold, depending on GDP) and is further determined based on detailed sourcing rules.
The study undertaken by the EU Tax Observatory is based on 69 Covered Groups headquartered in 13 different countries, but with a clear over-representation of the US (31 Groups or 45% of total) and China (13 Groups or 19% of total). The total Amount A profits are estimated by the study at EUR 94.4 billion, generating a gross revenue gain (based on the statutory corporate tax rates of the market jurisdictions) of EUR 24 billion. After accounting for measures to eliminate double taxation (estimated at EUR 9 billion), the aggregated net revenue gain generated by Amount A comes down to EUR 15 billion in additional tax receipts.
Once the net aggregated gain is allocated to market jurisdictions, 74% of total net gains are expected to be collected by only 3 countries: the US (EUR 7.66 billion), China (EUR 3.22 billion) and Germany (EUR 823 million). These are followed by Japan (EUR 725 million), Korea (EUR 692 million), the United Kingdom (574 million), France (EUR 571 million), and Brazil (EUR 546 million). The EU 27 altogether are set to gain an estimated EUR 2.56 billion, most of it to be collected by just 6 countries (Germany, France, Italy, Spain, the Netherlands and Austria). Where countries are classified by category, developed countries would collect more than 77% of the net revenues of Amount A, with the G7 countries alone collecting 71% of the total net revenues. Developing countries would collect 23% of the total net revenues, with China collecting most of it. The remaining developing countries that would collect revenues above EUR 100 million are Argentina, Brazil, Korea, Malaysia, Mexico, Russia, and Turkey. In absolute terms, the least developed countries collect close to nothing from Amount A net gains.