Introductory remarks

While we appreciate the importance of solving the tax challenges arising from the digitalization of the economy, we find that the highly complex proposed rules illustrate a lack of proportionality when considering the compliance burden imposed on MNEs and, on the other hand, the in-country nature, presence and taxation of many MNEs.

For MNEs engaged in, or organized as, complex vertical and/or horizontal B2B supply chains, even outside the category of components, the likelihood of obtaining sufficiently detailed information, or even any information, will likely prove challenging and not even possible without disrupting business procedures requiring massive investments in IT and human resources. For many MNEs it may be true that B2C transactional information is available because the MNE controls the entire supply chain but for B2B transactions there could be several layers of third parties involved or cross-border transactions between such third parties happening without the knowledge of the MNE.

The Pillar One project seems to indicate a global tax landscape with tax payers transacting cross-border have to navigate between co-existing systems having to apply new rules (Pillars One and/or Two) in combination with, or as an alternative to, well-established and well-functioning rules (e.g. OECD Transfer Pricing Guidelines).

We expect more double taxation conflicts as a result of these two sets of rules, the formulaic approach to determine Pillar One and the transfer pricing rules. In favour of tax certainty and in order to reduce the burden of transition, we propose to delay the introduction of Pillar One until we have a safer base to avoid taxation conflicts. Formulaic approaches are as exposed to double taxation as transfer pricing is. The cumulation of both exposures creates additional complexity.

Information and systems

We welcome the introduced possibility of reliance on existing information within a Covered Group.

We note that while it is now an option to rely on information that is not reported for purposes of the issuance of consolidated financial statements, such other information that are collected and reported for management purposes – if available at all –  will in most cases not ensure the required transaction-by-transaction information as foreseen under the proposed rules and will, as a logical consequence of being collected for other purposes than financial reporting, in most cases not reconcile with the consolidated financial statements.

As consolidated financial statements are the basis for determining Amount A, it would appear that Covered Groups would have no other choice than to enter into the costly and resource demanding task of setting up dedicated reporting systems.

For many MNEs the reality is that even for financial reporting purposes, the system architecture is very complex consisting of different types of systems, different versions of the same type of system and various degrees of availability of information at a single legal entity level or transactional level. Cost of aligning reporting system across all legal entities of an MNE, where groups of entities may have been acquired over the years, are generally not warranted by the benefits derived.

There are SwissHoldings member firms which operate through decentral and complex ERP landscapes with up to 60 differently set up of SAP systems in one Group covering the need over more than 20 global business units and thousands of different products (finished goods, components, services, projects, software, etc.) where intercompany transactions may happen between any of the more than 500 legal entities of the Group.

The proposed rules for Nexus and Revenue sourcing would require several millions Swiss Francs investments and may require the involvement of hundreds of the MNE’s business and finance employees. Especially, in traditional B2B industries which largely operate through legal entities or branches in the markets they do business in, such investments are not justified.

Independent distributors

The requirement to contractually limit the territory of an independent distributor appears impossible in a competitive market environment. Such a limitation would also be against the 4 freedoms of the European Union where the right to freely move goods cannot be limited. The same is true for any obligatory information about sharing the customer base of an independent distributor and the relevant turnover. This would clearly endanger the market position of the independent distributor.

Compliance burden

We also welcome that a Covered Group may rely on “systemic-level review” in terms of how revenue is sourced for purposes of Amount A instead of “…a requirement to retain and supply information from every transaction to administrations.”.

While MNEs have extensive internal control systems in place, the purpose of such systems is to monitor, evidence and test certain proscribed internal standards and is, as such, not well suited for any collection of information (numerical or otherwise). Consequently, we believe that the reliance placed on existing internal control systems of a Covered Group is essentially misplaced and that a Covered Group would have to set up dedicated systems as noted above.

We further note, for the sake of prudency, a Covered Group would retain transactional information gathered and that the obligation to not, at least initially, have to file such information with a tax administration appears to ease the compliance review burden for tax administrations rather than for Covered Groups.

Dispute Resolution

We note that the many variable, and at times subjective, elements involved in the determination of Amount A are bound to lead to controversy not just between a Covered Group and a particular tax administration but also, and more importantly, between tax administrations. As such, we would stress the importance of very comprehensive and effective dispute resolution mechanisms.

Summary conclusion

In conclusion, we find that the compliance burden placed on Covered Groups to be extreme due to the following non-exhaustive factors:

  • The scope is not limited to digital non-presence type activities, rather even more traditional MNEs with in-country presence through legal entities and branches and limited cross-border transactions will be in scope
  • The materiality threshold for Nexus is very low considering the value and number of transactions typically undertaken by MNEs
  • The absence of transactional materiality thresholds after nexus has been established

Consequently, SwissHoldings urges to rethink the overall approach of the Nexus and Revenue Sourcing Rules and would welcome:

  • More, and more reliance on, allocation keys
  • A domestic business exemption covering revenues without cross-border connection
  • Higher thresholds for Nexus including multiple year considerations
  • Introduction of materiality thresholds
  • The usage of already existing data from the financial systems of the MNE that can be reconciled with the consolidated financial statements without asking for a completely new dataset which does not exist so far and disrupting relationships with customers in particular in the area of B2B industries. Information gathering should be stopped at the level of sales from the MNE to third parties whatever the role of the third party is
  • Transition periods for implementation allowing simplification measures until final rules get enforced


As the consultation on Pillar One components happens according to a rushed and staggered approach, we reserve the right to revert with further comments on the Nexus and Source Rules once all components and the related commentaries are published.

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