Transfer pricing

1. Welcome to the Transfer
Pricing webinar!
We are waiting for all the
participants to join and we will get
started shortly…

2. Transfer Pricing webinar:
Navigate OECD’s Taxing of the Digital Economy initiative with Pillar I Modelling
30 June 2020

3. 3
Introduction to Zoom
How can you interact? Webinar support
Eleonora Zelger
Zoom Master
• If you have any technical difficulties or require
assistance with Zoom, please write to Eleonora Zelger
in the Chat box and she will try to help you as soon as
possible
Chat for technical difficulties
Ask questions
• You can use the “Q&A box” to ask your questions
On sound
• Everyone is on mute by default in the beginning of the
webinar
• During the Q&A session at the end of the webinar, you
can click on the Raise Hand icon on the bottom to let us
know you would like to unmute yourself to comment/ ask
questions
Optimising your
view
• To optimize your view, you can toggle between
speakers and slides by clicking on the button in the
right top corner

4. 4
Partner, Transfer Pricing
at Deloitte Switzerland
M A R T I N K R I V I N S K A S
Managing Director, Tax
at Deloitte US
B O B S T A C K
Manager, Transfer Pricing
at Deloitte Switzerland
A R J A N O O S T E R H E E R T
Director, Transfer Pricing
at Deloitte Switzerland
J E F F S M O L E R O F F
Managing Director,
International Tax at
Deloitte US
R Y A N D U C H E N E
With you today

5. 5
Pillar 1 – Update on recent
developments

6. 6
2015-2020
Work to date
2018 OECD interim report - March 2018
OECD policy note - January 2019
- Sets out the two pillar approach
Public consultation document - February 2019
- Comments sought on policy issues and technical aspects
- Followed by public consultation meeting - March 2019
Programme of work - May 2019
- Roadmap towards agreeing consensus solution by the end of 2020
Pillar One Secretariat proposal – Oct. 9, 2019
- Unified approach to nexus, profit allocation rule
- Public consultation
Pillar Two consultation document – Nov. 6, 2019
- Global Anti-Base Erosion Proposal
- Public consultation
Inclusive Framework statement – Jan. 31, 2020
- Reaffirms commitment to reaching consensus solution
- Outline of a unified approach to Pillar One

7. 7
Pre COVID-19
Timeline
2020
Inclusive
Framework
statement
January
31
Agreement
on key
policy
features
Final
report
on
consensus-
based long-
term
solution
Initial
economic
analysis
and
impact
assessments
February
13
By
October
IF
Meeting
By
November
Technical work
Drafting statutory
and treaty text
2021 2022 2023
Implementation
Enacting laws
and ratifying
treaties

8. 8
Position Swiss government
• Switzerland has said there would be no “digital tax”, decided by the National Council’s Economic Commission
(June 23)
• The Commission feels that by introducing a national "digital tax", Switzerland would reverse its previous position.
• The Commission’s preference is not to shift away from taxation of profits to taxation of turnover - and if a shift is
required, to do so only within the framework of an international agreement rather than via national solo efforts.
• Feeling that such efforts would create chaos.
Decision of Swiss national council commission

9. 9
Digital services taxes on the march
Austria France
India Italy
Turkey UK
Uruguay Zimbabwe
Tunisia
Czech Republic Spain
Canada Indonesia
Poland New Zealand
Norway Slovenia

10. 10
Position US government
• The office of the United States Trade Representative announced on June 2, 2020 trade investigations into nine
countries’ plus the EU’s proposed or enacted “digital services taxes” (DSTs).
• The countries/jurisdictions being investigated are:
• Austria
• Brazil
• the Czech Republic
• the European Union
• India
• Indonesia
• Italy
• Spain
• Turkey
• the United Kingdom
• The investigations could lead to the imposition of tariffs on those countries’ exports to the US.
USTR Announcement – Investigation under 1974 Trade Act

11. 11
Position US government
• On June 17, 2020 U.S. Treasury Secretary Mnuchin sent a letter to four European finance ministers (France,
Italy, Spain and UK) claiming that discussions with respect to a new global tax framework occurring at the
OECD’s Inclusive Framework had reached an “impasse.”
• The U.S. remains opposed to measures that focus solely on digital businesses.
• In light of COVID-19 and the health and economic challenges it poses, the U.S. does not believe 2020 is a
suitable time to be conducting such negotiations.
• The Secretary calls upon the OECD to “pause discussions of Pillar 1, with a view towards resuming later this
year.”
• The letter threatens “appropriate commensurate measures” if countries choose to go forward with DSTs.
• In response, the finance ministers of the U.K., Italy, France and Spain urged moving forward on a phased basis,
starting with automated digital services.
• Furthermore, the OECD Secretary-General now recommends that all members of the Inclusive Framework on
BEPS remain engaged in negotiations, with the goal of reaching a multilateral solution by the end of 2020.
Secretary Mnuchin Letter of June 17, 2020 to Finance Ministers of the U.K., Italy, Spain and France

12. 12
Pillar 1: Recap of new nexus and
profit allocation rules
Unified approach

13. 13
Profit allocation
Pillar One: Three-tier mechanism
New taxing right—beyond the arm’s-length principle
Allocates a portion of deemed residual profit to market
jurisdictions using a formulaic approach
Amount
A
Fixed “baseline” return for marketing and distribution functions,
based on the arm’s length principle
Amount
B
Additional return beyond Amount B based on transfer pricing
analysis and subject to robust dispute resolution processes
Amount
C

14. 14
Scope
Amount A: New taxing right
Two broad groups of business have been identified as in scope, which:
• Can participate in a “sustained and significant manner” in the economic life of a
market country,
• With or without local physical operations
Automated digital services Consumer-facing businesses
Activities may need to be segmented to separate in-scope from out-of-scope segments.

15. 15
Thresholds
Amount A: New taxing right
De minimis test on the total aggregated group in-scope
revenue from consumer-facing activities and/or automated
digital services
A carve-out where the total profit to be allocated under
Amount A does not meet a de minimis amount
Group gross revenue threshold
Possibly in line with the €750 million revenue threshold
used for country-by-country reporting
A number of thresholds are being considered but are not yet agreed:

16. 16
New profit allocation rules
Amount A: New taxing right
Determine the total before-tax profit
or loss of the group
Exclude “deemed” routine profit to
calculate a deemed residual or
excess profit
Treat a total percentage of deemed
residual profit as attributable to
market jurisdictions
Allocate profits between eligible
market jurisdictions using allocation key
• Use consolidated group financial statements
• Consideration is being given to the use of business
line and/or regional segmentation
• Fixed percentages
• Possible variation by market jurisdiction size and
industry
• A “rough justice” approach
• Based on sales generating nexus
• Possible variation by business model
1
2
3
4

17. 17
Pillar 1: Impact modelling

18. 18
Modelling tool
Pillar One Modelling

19. 19
Questions?

20. 20
Thank you for
joining us and see
you next time!

21. This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the
contents of this publication. Deloitte Consulting AG accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any
material in this publication.
Deloitte Consulting AG is an affiliate of Deloitte NSE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee
(“DTTL”). DTTL and each of its member firms are legally separate and independent entities. DTTL and Deloitte NSE LLP do not provide services to clients. Please
see www.deloitte.com/ch/about to learn more about our global network of member firms.
© 2020 Deloitte Consulting AG. All rights reserved.