Netherlands’ Decision Not to Apply Amount B Rules Is No Surprise

We expect most other jurisdictions to follow the Netherlands in not implementing Amount B—part of Pillar One of the OECD’s two-pillar global tax plan—other than the US, which had indicated it would apply Amount B as an elective safe harbor.

But the fate of the Organization for Economic Cooperation and Development’s entire Pillar One endeavor is in doubt, given US announcements to withdraw from the OECD “Global Tax Deal.” As a result, there could be a new drive for a common digital services tax at the EU level.

In December, the Netherlands joined Germany and New Zealand in not implementing Amount B for its own taxpayers performing baseline wholesale marketing and distribution activities in their own local markets.

Jurisdictions are currently free to determine whether they implement Amount B of Pillar One. If any covered jurisdictions—those that the OECD considers low- and middle-income jurisdictions—elect to implement Amount B, other members of the OECD/G20 Inclusive Framework must respect such implementation and take reasonable steps to avoid double taxation if a double tax treaty is in place with the covered jurisdiction.

If a non-covered jurisdiction elects to implement Amount B, other jurisdictions aren’t required to respect the application of Amount B unless such other jurisdictions have also implemented it. In other words, they aren’t required to cooperate to avoid double taxation (or double non-taxation) resulting from the application of Amount B by the implementing non-covered jurisdiction.

It is the OECD’s intention that if and when the OECD/G20 Inclusive Framework agrees on implementation of Amount A of Pillar One through a multilateral convention, members of the OECD/G20 Inclusive Framework will also be required to implement Amount B.

But the application of the Amount B framework isn’t straightforward and requires a detailed assessment of in-scope transactions before applying the standardized remuneration for baseline wholesale marketing and distribution activities. Because there is no clear analysis framework (yet) and business models may vary, this will lead to application inconsistencies and potentially trigger disputes with or between tax authorities. Even where jurisdictions do respect application of Amount B by another jurisdiction, such application may still lead to transfer pricing disputes.

Last year, the US announced that it intended to implement Amount B, but President Donald Trump last month signed an executive order seeking to withdraw any US commitment to the “Global Tax Deal.” The order also declared the US would take “protective measures or other actions” against jurisdictions imposing tax rules that “are extraterritorial or disproportionately affect [US companies],” which is understood to include key aspects of the OECD Pillar Two global minimum tax rules. It is currently unclear whether the Trump administration will also roll back on the US position on the implementation of Amount B.

The US announcement to withdraw from the OECD’s ”Global Tax Deal” would also be a considerable setback for the wider Pillar One negotiations if the announcement also refers to Pillar One, because the successful implementation of Amount A of Pillar One would effectively require the US to sign up to the Amount A multilateral convention.

If that is the case, EU officials—including the new Dutch EU commissioner for taxation, Wopke Hoekstra—have hinted that the EU would consider relaunching discussions on an EU-wide digital services tax as a “second-best option.” Agreeing on a bloc-wide digital services tax would be a tall order, especially because of the unanimity required by the European Council. However, Trump’s position might prompt at least a resumption of discussions among the EU finance ministers on the best way to approach taxation of the digital economy.

Given the uncertainty on the wider Pillar One project, we expect most jurisdictions (particularly non-covered jurisdictions) to adopt a similar position on Amount B as that taken by the Netherlands and Germany, unless/until the OECD reaches an overall agreement on Pillar One. Accordingly, we expect the position taken by the Netherlands and Germany in respect to Amount B to have a limited impact on the investment climate of these jurisdictions—or for the companies based in or investing there.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Bob van Kasteren is partner at Freshfields in Amsterdam.

Viktoria von Abel is a principal associate at Freshfields in Frankfurt.

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