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Mark Taylor
Mark Taylor
Head of International and Tax Director, Duncan & Toplis, Chair of Kreston Global Tax Group

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www.duncantoplis.co.uk

Mark is a Duncan & Toplis’s Management Board member and head of tax advisory services, covering all of their 11 offices. Mark has particular expertise in international structuring and corporate and property taxes. Mark is head of international tax for the firm while also heading up their corporate and business tax group and property tax departments. He has extensive experience of tax planning and due diligence having worked on many large property transactions, corporate restructures, acquisitions and disposals. Mark thrives on adding value to his clients and having a great team culture. Mark was made Chair of the Global Tax group at Kreston in June 2020.


OECD’s Pillar 1: Reshaping multinational tax compliance

January 18, 2024

Mark Taylor, Chair of the Kreston Global Tax Group, provides a critical analysis for FT Adviser on the OECD’s guidance regarding “amount A of Pillar 1”. He explores the Organisation for Economic Co-operation and Development’s (OECD) guidance on a new “Multilateral convention to implement amount A of Pillar 1”. This is a component of the OECD’s wider base erosion and profit shifting (BEPS) project, specifically designed to address tax challenges from the digitalisation of the economy. Amount A aims to redistribute taxing rights to ensure multinational corporations (MNCs) pay taxes where their customers are, rather than solely where they are tax residents.

The introduction of a multilateral convention

This framework introduces a pivotal shift in international tax policy, requiring multinational corporations (MNCs) to align tax contributions with the location of economic activities and value creation. It moves away from the traditional tax residency model, placing a greater tax obligation on MNCs in the countries where they generate profits through consumer engagement.

The OECD guidance signifies progress in the desire to implement Pillar 1, although the Multilateral Convention (MLC) required for its enactment is not yet in force.

The BEPS regime: Objectives and outcomes

The BEPS initiative combats tax avoidance strategies that exploit gaps in international tax rules, which the OECD estimates to cost up to $240 billion annually in lost revenue. Pillar 1 affects the largest and most profitable MNCs, proposing to reallocate a portion of their profits to the countries where they engage in business. Meanwhile, Pillar 2 targets a broader range of companies, imposing a minimum corporate tax rate of 15%.

The commercial impact and strategic response

Taylor highlights the need for MNCs to reassess their tax strategies in light of these developments. Digital businesses, despite their lack of physical presence in some jurisdictions, must comply with the tax laws where their users are based. This evolution in tax regulation could increase tax liabilities and compliance costs, especially for small and medium-sized enterprises (SMEs) that operate internationally on tighter budgets.

Tackling avoidance and embracing compliance

The OECD’s 15 actions provide a framework to standardise compliance and empower governments to prevent tax avoidance. These include ensuring taxation in the digital economy, countering hybrid mismatch arrangements, defining controlled foreign companies (CFCs) and their taxation, targeting preferential tax regimes, closing loopholes in tax treaties, and aligning transfer pricing with value creation.

Preparing for the BEPS shift

MNCs, and the SMEs affected indirectly, must now engage with international tax advisers to navigate this complex landscape. Advisers will play an essential role in restructuring business models, assessing global tax risk, and developing transfer pricing policies that conform to OECD guidelines. Non-compliance risks severe penalties, but thorough preparation can enhance visibility into a company’s operations and effective global tax rate.

The future of international taxation

The push to reform international tax laws to reflect the modern digital and globalised economy will undoubtably affect all businesses with cross-border activities. While the full implications of these reforms are still unfolding, they signal a firm commitment from policymakers to adapt international tax frameworks to modern economic realities. These changes are not limited to the largest corporations; any business with cross-border sales must adapt. With professional guidance, businesses can position themselves advantageously for these shifts in global taxation.

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