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Pillar One Amount A: Profit Reallocation

Pillar One Amount A: Profit Reallocation



The profit allocation rules are at the heart of Pillar One as they determine the amount of profit that is allocated to the market jurisdictions.

The approach taken in Article 6 of the Progress Report on Amount A of Pillar One is in line with the suggested approach in the OECDs statement in October 2021.

Profits reallocated to a jurisdiction are 25% of the profits above a 10% profitability threshold. They are then allocated to jurisdictions based on the proportion of local revenue sourced to that jurisdiction to total group revenue.

The OECD breaks this down into three components:

  • profitability threshold- a ratio of the adjusted profit before tax to revenues of 10 per cent;
  • a reallocation percentage – 25 per cent of the amount of adjusted profit before tax in excess of the above profitability threshold; and
  • allocation key – the ratio of the revenues arising in the jurisdiction to the total revenue of the group.


An MNE Group has:

Revenue of 50 Billion Euros

Adjusted profits of 10 Billion Euros

Revenue sourced to jurisdiction A of 5 Billion Euros

Profitability Threshold

The profitability threshold is:

10 Billion – 50 Billion * 10%

= 5 Billion Euros

Reallocation Percentage

The reallocation percentage is the above profitability threshold multiplied by 25%. Therefore 5 Billion * 25% = 1.25 Billion Euros

Allocation Key

The allocation key pro-rates the profits after the reallocation percentage by the proportion of local revenue to total revenue. Therefore 1.25 Billion Euros * 5 Billion/50 Billion = 125 Million Euros. 

This is the initial amount that can be reallocated to jurisdiction A.

The other key aspect of the Amount A profit reallocation is the marketing and distribution safe harbour. This can significantly reduce the profits reallocated to a jurisdiction.

Nexus Test

Article 3 of the Progress Report on Amount A of Pillar One provides that profits are only allocated to a jurisdiction if it meets a nexus requirement. 

The general rule is that the revenues sourced to that jurisdiction in an accounting period under the revenue sourcing rules must be 1 Million Euros or more for profit reallocation to apply.  This 1 Million Euro threshold is adjusted if the accounting period is not 12 months. 

However, for smaller economies with gross domestic product less than 40 Billion Euros, the nexus threshold is reduced to 250,000 Euros.

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