As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD announced on April 14, 2022 that it is seeking public comments on the Extractives Exclusion under Amount A of Pillar One.
The Extractives Exclusion will exclude from the scope of Amount A the profits from Extractive Activities. The definition of Extractive Activities contains two elements: a “product test” and an “activities test”, both of which must be satisfied. This means that the exclusion applies where the Group derives revenue from the sale of Extractive Products and the Group has carried out the relevant Exploration, Development or Extraction. According to the OECD this approach reflects the policy goal of excluding the economic rents generated from location-specific extractive resources that should only be taxed in the source jurisdiction, while not undermining the comprehensive scope by limiting the exclusion in respect of profits generated from activities taking place beyond the source jurisdiction, or later in the production and manufacturing chain.
The Schedule for the Extractives Exclusion contained in this document provides a description and explanation of the envisaged draft rules. Other than the definitions for the scope of the Extractives Exclusion, which are presented in draft Model Rules format, this document is in narrative format. This is because other parts of the Model Rules on Amount A, on which corresponding provisions for the Extractives Exclusion would be based, are pending finalisation.
The relevant sections on Scope (currently Title 2), as well as relevant definitions (currently included in
Title 9), and which were the subject of an earlier public consultation document released on 4 April 2022 are included in the footnotes, where relevant and for context. In addition, explanatory footnotes are included in the document to assist public commentators in reviewing the substantive proposal, and to note where further material is expected to be included in Commentary.
According to the OECD, the Inclusive Framework on BEPS has agreed to release this public consultation document (également disponible en français) in order to obtain public comments, but it does not reflect consensus regarding the substance of the document. The stakeholder input received on the Extractives Exclusion will assist members of the Inclusive Framework on BEPS in further refining and finalising the relevant rules.
Interested parties are invited to send their written comments no later than April 29, 2022. Instructions for submitting comments can be found in the consultation document (also available in the French language).
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