OECD’s Pillar One Convention: Reshaping Digital Economy Taxation for MNEs

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The Organisation for Economic Co-operation and Development (OECD) has recently published a Multilateral Convention (MLC). It is aimed at addressing the taxation challenges posed by the digital economy. This convention, known as Pillar One, seeks to reallocate taxing rights to market jurisdictions for the largest multinational enterprises (MNEs).


The MLC consists of seven parts, 53 articles, and nine annexes, totaling over 200 pages. With explanatory notes running to over 600 pages, the convention provides a comprehensive framework for addressing the taxation of MNEs in the digital economy. It focuses on the reallocation of profits to market jurisdictions and includes provisions for tax certainty and dispute resolution.

Under the Pillar One rules, MNEs with a global turnover above €20 billion and profitability above 10% will be subject to the new regulations. However, regulated financial services and extractive industries are excluded from the scope of the MLC. The aim is to ensure that the largest MNEs operating in the digital economy contribute their fair share of taxes to the jurisdictions where they generate their revenues.

One of the key aspects of Pillar One is the reallocation of profits, referred to as “Amount A.” This provision reallocates 25% of an MNE’s profits in excess of 10% of its revenues to market jurisdictions. The allocation is based on revenue sourcing rules, which aim to ensure that taxes are paid in the countries where the economic activity takes place.

Tax Certainty Framework

To provide MNEs with certainty on the application of the MLC’s provisions, the convention includes a Tax Certainty Framework. This framework consists of mechanisms to resolve outstanding disagreements through a determination panel. It also provides an enhanced tax certainty process for a broad range of disputes on existing tax treaty rules through mandatory binding dispute resolution.

Importantly, the MLC requires parties to remove Digital Services Taxes (DSTs) and commit not to introduce such measures in the future. DSTs have been a source of contention, as they often target digital companies and can result in double taxation. The MLC aims to address these concerns by providing a comprehensive framework that ensures fairness and consistency in international taxation.

It is crucial to note that existing bilateral tax treaties between parties to the MLC will continue to apply. However, these treaties will be superseded to permit the application of Amount A. This approach allows for a smooth transition while ensuring the effectiveness of the new rules.

Ratification Process

To enter into force, the MLC requires ratification by at least 30 states, accounting for at least 60% of ultimate parent entities of MNEs initially in-scope. The ratification process will determine when the MLC becomes operational and applicable to eligible MNEs.


The publication of the MLC represents a significant step towards implementing the Pillar One agreement. While there are still differing views on specific items and challenges to its implementation, the convention’s detailed provisions and mechanisms for tax certainty and dispute resolution aim to address these concerns. The MLC’s relevance lies in its response to the challenges posed by the digital economy and its potential to reshape international taxation for multinational enterprises.

In conclusion, the Multilateral Convention published by the OECD represents a comprehensive and influential document in the field of international taxation. With its focus on the reallocation of profits, provisions for tax certainty, and the removal of digital services taxes, the MLC aims to create a fair and consistent framework for taxing MNEs operating in the digital economy. The ratification process will determine when the MLC enters into force, and its scope will be applicable to eligible MNEs meeting specified turnover and profitability thresholds. It is an important development in the ongoing efforts to address the taxation challenges of the digital economy and ensure a level playing field for all market participants.

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