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Pillar One: Allocation Keys

Pillar One: Amount A - Allocation Keys

Contents

What are Allocation Keys for Amount A?

An Allocation Key is a simplified method of allocating revenue to jurisdictions for the purposes of the revenue sourcing rules

This is a key aspect of Amount A, as it determines which jurisdictions will be reallocated profits of multinational groups under the profit reallocation mechanism

Allocation Keys generally apply where an MNE Group cannot allocate all revenues under the general sourcing rules. The remaining amounts are then allocated using Allocation Keys. 

However, there are a couple of caveats to this:

Firstly, for revenues from transport services, the Allocation Key is used in all cases; and 

Secondly, Allocation Keys are not available for all types of revenue. The revenue sourcing rules only allow Allocation Keys to be used for specified sources of revenue. 

Schedule E of the Progress Report on Amount A of Pillar One, provides that an Allocation Key can only be used where

  • it is specifically allowed in the relevant revenue sourcing rule;
  • the multinational group can clearly show that it has taken steps to identify a reliable indicator as provided in the relevant sourcing rules; and
  • the Knock-out Rule has been taken into account. 

The Knock-out Rule excludes a jurisdiction  from the Allocation Key apportionment where there is a legal, regulatory or commercial reason so that it can be reasonably concluded that revenue didn’t arise in that jurisdiction.

What Are The Allocation Keys?

The Allocation Keys are the:

  • Aggregate Headcount Allocation Key, 

For other services not through resellers and Intangible property.

  • Cargo Air Transport Allocation Key, 

Cargo transported by air.

  • Cargo Non-air Transport Allocation Key,

Cargo not transported by air.

  • Component Allocation Key, 

Sale of components.

  • Global Allocation Key, 

Revenue from finished goods sold to a customer through an independent distributor and intangible property. 

  • Low-Income Jurisdiction Allocation Key, 

Revenue from finished goods sold to a customer through an independent distributor.

  • Passenger Air Transport Allocation Key, 

Passenger air transport services.

  • Passenger Non-air Transport Allocation Key, 

Non-air passenger transport services.

  • Regional Allocation Key, and

Revenue from finished goods sold to a customer through an independent distributor and intangible property.

  • Service Allocation Key.

Other Services through resellers.

As shown above, only certain sources of revenue can be sourced using an Allocation Key. These include:

Revenues from Finished Goods sold to a Final Customer through an Independent Distributor
The Regional Allocation Key applies where the MNE group can demonstrate that for legal, regulatory or commercial reasons part of the revenue arises in a specific region. 
 
The Regional Allocation Key attributes revenue to a jurisdiction based on the portion of a jurisdiction’s final consumption expenditure divided by the total final consumption expenditure of all jurisdictions in the region (or if that data is not available, the jurisdictions Gross National Income or Gross Domestic Product).
 

Any remaining revenues from the sale of Finished Goods to Final Customers through Independent Distributors that has not been sourced is treated as arising in Low Income Jurisdictions using the Low Income Jurisdiction Allocation Key (providing these revenues are less than 5% of total revenue from the sale of Finished Goods to Final Customers through Independent Distributors).

A Low Income Jurisdiction is a jurisdiction that is defined as a Low-Income Economy or as a Lower-Middle Income Economy by the World Bank.

As for the Regional Allocation Key, the Low Income Allocation Key allocates revenue based on the portion of a jurisdiction’s final consumption expenditure divided by the total final consumption expenditure of all low income jurisdictions.

Any revenue that hasnt been sourced using the standard revenue sourcing rules and that exceeds 5% of the total revenue from the sale of Finished Goods to Final Customers through Independent Distributors is sourced to:

  1. 85 per cent of the excess is treated as arising in the Jurisdiction which is the location of each Independent Distributor; and

  2. 15 per cent of the excess is treated as arising using the Global Allocation Key ( excluding any jurisdictions that are already allocated revenue)

The Global Allocation Key allocates revenue to jurisdictions based on their percentage share of total final consumption expenditure for the most recent calendar year.

Components

Revenues relating to the sale of components that aren’t sourced under the standard revenue sourcing rules are subject to the Component Allocation Key. Under the Component Allocation Key, revenues are sourced to jurisdictions in proportion to their percentage share of total Gross Domestic Product.

Transport Services

Unlike other sources of revenue, revenue from transport services is always allocated to jurisdictions based on an Allocation Key. The Allocation Key used depends on whether the transport services are air transport services or passenger/cargo services.

Air Transport

Passenger Air Transport Services are sourced to jurisdictions using the Passenger Air Transport Allocation Key.

The Passenger Air Transport Allocation Key sources revenue to jurisdictions as their share of:  

The available passenger capacity of the MNE Group arriving to a Place of Landing in a Jurisdiction/ the available passenger capacity of the MNE Group arriving to Places of Landing in any Jurisdiction.

For Air Transport Cargo Services, 50% of revenues are sourced to the jurisdiction of the place of take-off and 50% to the place of landing using the Cargo Air Transport Allocation Key.

The Cargo Air Transport Allocation Key is:

Total cargo weight transported by the MNE Group from a Place of Take- off and a place of landing in a Jurisdiction/total cargo weight transported by the MNE Group in all Jurisdictions.

Non-Air Transport Services

Revenue from Passenger Non-air Transport Services are allocated using the Passenger Non-air Transport Allocation Key.

This is calculated as:

The number of passengers transported by the MNE Group to Places of Destination in a Jurisdiction/the number of passengers transported by the MNE Group to Places of Destination in any Jurisdiction.

In the case of non-air cargo transport services, 50% of the revenue arises in the Jurisdiction of the Place of Origin and the other 50% in the Jurisdiction of the Place of Destination, using the Cargo Non-air Transport Allocation Key.

The Cargo Non-air Transport Allocation Key sources revenue based on:

the total volume or weight of cargo transported by the MNE Group from a Place of Origin and Place of Destination in a Jurisdiction/ by the total volume or weight of cargo transported by the MNE Group in all jurisdictions. 

Other Services Not Through Resellers

Other Services are sourced using the Aggregate Headcount Allocation Key.

In general, revenue is sourced to jurisdictions based on the percentage share of the total employee headcount in the CbC report of the Jurisdiction of which the UPE of the Large Customer is resident.

A large customer is a person that is provided other services by the MNE Group and the revenue derived exceeds 20 million euros in the fiscal year and it is one of the 200 customers which the MNE Group derives the most revenue from other services or where the revenue from the provision of other services to that customer exceeds 100 million euros in the fiscal year. 

Other Services Through Resellers

Other services through resellers are sourced using the Service Allocation Key. This is their percentage share of total Gross Domestic Product.

Intangible Property and User Data

If the Revenues are derived from a specified intangible property contract and the terms on which the MNE Group licensed or sold  the intangible property restricted the licensee, to exploiting the intangible property within a specific region then the regional allocation key is used. Any revenue remaining after this is sourced using the Global Allocation Key. 

If this does not apply and the revenue is from a large intangible property contract, remaining revenues are sourced using the Aggregate Headcount Allocation Key. A Large Intangible Property Contract” is a contract where the revenue from intangible property:

 – exceeds 20 million euros and the contract is one of the 200 contracts from which the MNE Group derives the most revenue from Intangible Property; or 

 – exceeds 100 million euros

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