NERA Experts Comment on the OECD Proposal for a “Unified Approach” under Pillar One

14 November 2019
Dr. Vladimir Starkov, Dr. Yves Hervé, Amanda Pletz, Dr. Emmanuel Llinares, Dr. Harlow Higinbotham, Pim Fris and Dr. Jacques Potin

In a new commentary letter submitted to the OECD, NERA transfer pricing experts Dr. Vladimir Starkov, Dr. Yves Hervé, Amanda Pletz, Dr. Emmanuel Llinares, and Dr. Jacques Potin offer their analysis on the recent OECD “Secretariat Proposal for a ‘Unified Approach’ under Pillar One.” This proposal was presented as a framework for developing multi-country consensus around taxation issues that arise from digitalization of the economy while recognizing the fact that this framework will present a departure from the long-standing and consensus-based arm’s length principle.

The NERA experts suggest that adopting rules not based on the arm’s length principle will be counter-productive. They argue that the methods based on the arm’s length principle, long agreed upon by various stakeholders, can continue to be relied upon as an effective way to recognize the value contribution of marketing intangibles in market jurisdictions while minimizing economic and tax distortions.

The NERA experts also point out that the OECD “Unified Approach” has many features that are close to that of a formulary apportionment. In their view, implementation of the “Unified Approach” would ignore the key elements that drive profitability of digital and other consumer-facing businesses, and the fact that the value of user contribution to profit may vary substantially from one business model to another and from one market to another. They believe that such a result might impede innovation and digital transformation in the overall global economy, with potential negative implications for growth.

OECD link: