OECD Pillar 1 is an international tax framework that would give countries the right to tax a portion of the world’s largest multinationals’ profits based on where their customers are located, rather than where the company has offices or employees. Only about 100 companies worldwide would fall in scope under the current thresholds. The treaty needed to put the rules into effect, the Multilateral Convention (MLC), has not been opened for signature, and the United States formally withdrew its prior commitments in January 2025, leaving serious doubt about whether Pillar 1 will be implemented in its current form.
The Problem Pillar 1 Was Built to Solve
International tax rules historically required a company to have a physical presence in a country before that country could tax its profits. That worked when commerce meant factories, warehouses, and local offices. It works less well when a company can earn billions from a market without a single employee there. The gap between where profits get booked and where customers actually are has widened for decades, and digital business models accelerated the problem.
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, made up of 148 member jurisdictions, took on the imbalance.1Organisation for Economic Co-operation and Development. Members of the OECD/G20 Inclusive Framework on BEPS Pillar 1 is one of two pillars in the project. It creates a new taxing right for market countries based on where customers are. Pillar 2, a separate initiative, sets a global minimum corporate tax rate of 15%.
Which Companies Fall In Scope
Pillar 1’s profit reallocation rules, known as Amount A, would apply only to multinationals meeting both of two conditions: annual global revenue above €20 billion, and a profit-to-revenue ratio above 10%.2OECD. Progress Report on Amount A of Pillar One Roughly 100 multinationals worldwide clear that bar.
The MLC contains a built-in expansion mechanism. After a seven-year review period, the revenue threshold could drop from €20 billion to €10 billion, significantly enlarging the pool of covered companies.3OECD. The Multilateral Convention to Implement Amount A of Pillar One The reduction is contingent on a successful implementation review, not automatic.
Two sectors are carved out entirely. Extractive industries, including mining and oil and gas operations, are excluded because their profits are tied to the physical location of natural resources. Regulated financial services, including banks, insurers, and asset managers, are also excluded because they operate under separate regulatory frameworks and generally keep heavy physical footprints in the markets they serve.4OECD. Multilateral Convention to Implement Amount A of Pillar One Factsheets For a conglomerate with mixed operations, the exclusion covers only revenue and profits from the excluded activities, so a company with both mining and consumer-goods divisions could still be partially in scope.
How Amount A Reallocates Profits
Amount A creates a taxing right that does not depend on physical presence. A market jurisdiction qualifies to tax a share of a covered company’s profits if the company earns at least €1 million in revenue from that market in a given year. For smaller economies with GDP below €40 billion, the threshold drops to €250,000.2OECD. Progress Report on Amount A of Pillar One
The reallocated amount follows a specific formula. First, the company’s overall profitability is calculated. Any profit exceeding the 10% margin threshold counts as residual profit. Then 25% of that residual profit is allocated to qualifying market jurisdictions in proportion to the company’s revenue in each.3OECD. The Multilateral Convention to Implement Amount A of Pillar One Put concretely: an in-scope company with €50 billion in global revenue and €8 billion in profit (a 16% margin) has €3 billion in residual profit above the 10% line. Twenty-five percent of that, or €750 million, would be distributed among market jurisdictions based on each country’s share of total revenue.
Where Revenue Is Considered to Come From
Determining where revenue originates is the technical backbone of the entire system. The MLC organizes revenue into categories, including finished goods, digital content, online services like advertising and cloud computing, user data, and several others. Each category has its own sourcing rule. Revenue from finished goods is sourced to the place of final delivery. Revenue from online advertising is sourced to the location of the viewers.4OECD. Multilateral Convention to Implement Amount A of Pillar One Factsheets
Companies must use a reliable method built on indicators they already have, such as delivery addresses, IP addresses, or billing data. When direct indicators are unavailable, the rules provide fallback allocation keys based on macroeconomic data like GDP or final consumption expenditure. The layered approach is designed to ensure all revenue gets sourced somewhere, even when transaction-level data is imperfect.
The Marketing and Distribution Safe Harbour
One feature that gets less attention but matters in practice is the Marketing and Distribution Profits Safe Harbour (MDSH). Where a multinational already has substantial physical operations in a market country and already pays meaningful local tax on profits there, the MDSH reduces the Amount A allocation to that country. The logic: if a company operates a large distribution center with hundreds of employees in a jurisdiction, that country is already capturing tax on the local profits, and reallocating additional residual profit on top would amount to double counting.
The MDSH uses payroll and depreciation expenses as proxies for physical activity in each jurisdiction. The calculation is complex, but the effect is that countries where a company has a heavy on-the-ground presence receive less through the Amount A reallocation than countries where the company generates revenue purely through remote or digital sales.
Avoiding Double Taxation
If market jurisdictions gain new rights over a slice of a company’s profits, some other jurisdiction has to give up the corresponding right. Otherwise the same income gets taxed twice. The MLC addresses this through a system of relieving jurisdictions that must provide tax relief to offset the new Amount A tax paid elsewhere.
The convention offers four methods a relieving jurisdiction can use:5OECD. Multilateral Convention to Implement Amount A of Pillar One
- Direct payment, where the relieving jurisdiction pays the company an amount corresponding to the tax paid in the market jurisdiction.
- Full credit with refund, where the company receives a credit against its domestic tax liability and any excess is refunded.
- Credit without refund, where the company receives a credit against domestic tax but any excess is not refunded.
- Deduction, where the company deducts the Amount A relief amount from its taxable income in the relieving jurisdiction.
Which jurisdictions bear the relief obligation is decided by a tiered system that ranks them based on the company’s local profits relative to certain benchmarks, starting with the highest-tier jurisdictions. That keeps the company out of the middle while the jurisdictions sort out who owes what.
Filing, Payment, and Disputes
Rather than requiring separate returns in every market jurisdiction, the MLC establishes a centralized system. The company files a single global Amount A return with its lead tax administration, usually the jurisdiction of its parent entity. That administration then distributes the return and supporting documentation to all affected market jurisdictions.3OECD. The Multilateral Convention to Implement Amount A of Pillar One
Payments follow the same logic. A single Designated Payment Entity within the multinational group makes all Amount A tax payments, and other entities within the group make internal compensating payments to fund it. Those internal transfers are ignored for tax purposes.
Tax disputes between countries over Amount A calculations run through a mandatory binding process. If the standard mutual agreement procedure fails to resolve a disagreement within two years, either the taxpayer or a competent authority can escalate to a resolution panel.4OECD. Multilateral Convention to Implement Amount A of Pillar One Factsheets The panel uses a last-best-offer format: each side submits a proposed resolution, and the panel picks one. No splitting the difference, which pushes both sides toward reasonable proposals. Qualifying developing countries can opt into an elective binding process instead, recognizing that some lower-capacity tax administrations need a different procedural track.
Amount B: Simplified Transfer Pricing
Amount B addresses a different problem: the cost and complexity of transfer pricing disputes over routine marketing and distribution activities. When a multinational sells products through a local subsidiary that handles basic distribution and marketing without owning valuable intellectual property or taking on major risks, deciding how much profit that subsidiary should earn has historically triggered expensive audits and years of litigation. Amount B replaces that analysis with a standardized pricing framework.6OECD. Pillar One – Amount B: Inclusive Framework on BEPS
The framework uses a three-step process. First, the company determines whether the local distributor performs baseline functions. If it holds significant intangible assets or performs high-value research, it does not qualify. Second, the distributor is placed into an industry grouping and a factor intensity classification based on its operating characteristics. Third, a pricing matrix produces a target return on sales with an acceptable range of plus or minus 0.5 percentage points.7OECD. Fact Sheets: Pillar One Amount B A distributor in industry grouping 2 with factor intensity C, for example, would target a 3.0% return on sales, with anything between 2.5% and 3.5% treated as compliant.
Amount B is optional. Jurisdictions decide whether to adopt it, and adoption timelines vary. Inclusive Framework members committed to respect Amount B outcomes when applied by an adopting jurisdiction and when a bilateral tax treaty is in effect between the relevant countries, but no jurisdiction is required to implement the simplified approach. The practical impact depends on which countries opt in, particularly developing countries where transfer pricing capacity is most constrained.
Digital Services Taxes and the Fraying Standstill
Before the global framework was negotiated, a growing number of countries passed digital services taxes (DSTs) aimed at the revenue of large technology companies operating in their markets. Rates vary: France and Italy charge 3%, the UK charges 2%, Turkey charges 7.5%, and many countries in Africa, Asia, and Latin America have adopted their own versions.
Under the Pillar 1 agreement, participating countries committed to withdraw their DSTs once the MLC takes effect. Five countries with existing DSTs formally agreed to this withdrawal as part of a transitional compromise brokered with the United States in 2021.8U.S. Department of the Treasury. Joint Statement from the United States, Austria, France, Italy, Spain, and the United Kingdom, Regarding a Compromise on a Transitional Approach to Existing Unilateral Measures During the Interim Period Before Pillar 1 is in Effect The MLC itself defines the types of taxes that must be repealed: any levy whose application depends on the location of customers or users, applies almost exclusively to nonresidents or foreign-owned businesses, and is not treated as an income tax under domestic law.9OECD. Multilateral Convention to Implement Amount A of Pillar One
The bargain was straightforward. Countries would give up DSTs in exchange for the broader taxing rights of Amount A. That bargain depended on Pillar 1 actually being implemented. With the MLC stalled and the United States disengaged, the standstill is fraying. In February 2025, the Trump administration designated DSTs by Austria, Canada, France, Italy, Spain, Turkey, and the United Kingdom for investigation as unfair taxes on American companies. Instead of the coordinated withdrawal originally envisioned, the current trajectory points toward continued or expanded unilateral taxation with retaliatory trade measures as the counterweight.
Where Implementation Stands
The MLC text was published for consultation in October 2023, but has not been opened for signature. For the convention to enter into force, at least 30 countries must ratify it, and those countries must collectively account for at least 60% of the parent entities of multinationals expected to be in scope.3OECD. The Multilateral Convention to Implement Amount A of Pillar One The second condition is the critical obstacle, because a majority of in-scope multinationals are headquartered in the United States.
On January 20, 2025, President Trump signed a presidential memorandum directing the Treasury Department to notify the OECD that any commitments made by the prior administration regarding the global tax deal “have no force or effect within the United States absent an act by the Congress.”10The White House. The Organization for Economic Co-operation and Development (OECD) Global Tax Deal Without U.S. participation, the 60% parent-entity threshold almost certainly cannot be met, and the MLC cannot enter into force under its current terms. The remaining Inclusive Framework members have not announced an alternative path forward, though some jurisdictions may pursue unilateral measures in the meantime.