Vikram Chand

For the final part of the session, the floor was handed over to Prof (Dr.) Vikram Chand, to present his innovative new alternative to Pillar One formulated along with one of his PhD students Mr. Camille Tirand of “Deemed AE” as an alternative to the Pillar One Solution:

Framing the issue
● Starts from the basic problem: o Company R in state R uses digital infrastructure to access customers in market/source state S, generating significant revenues without a traditional permanent establishment. o In common structures, a limited-risk local entity (e.g., cost-plus service provider) may exist but captures only routine returns; most profit is taxed in state R.

Core proposal
● Proposes a solution based purely on domestic law and Article 9 transfer pricing, avoiding PE redefinition or new treaties: o Domestic law in market state S would define a “deemed associated enterprise” (deemed AE). o When a non-resident group exceeds a sales threshold in S, a fictional resident entity is “created” in S for tax purposes.
● Once triggered: o Functions, assets, and risks associated with accessing and maintaining the customer base in S, particularly customer-based intangibles and digital user value are legally attributed to the deemed AE. o A hypothetical transaction is posited between the non-resident principal and the deemed AE (e.g., payment for access to or development of market/customer intangibles). o Transfer pricing rules (Article 9-style) are applied to set an arm’s length return on this hypothetical transaction, effectively allocating profit to the market.

Quantification and safe harbours
● Recognises that traditional comparables for such “market access” functions are scarce; proposes using safe-harbour margins tied to sales: o For consumer products like milk or soda, a margin of around 3% of sales after routine distributor returns might be appropriate. o For highly digitalised, platform-like models, a much higher safe-harbour margin would be needed to reflect the scale of user-driven value.
● Suggests that minimum thresholds (e.g., minimum revenue in the market) avoid imposing obligations on smaller players and focus on very large multinationals.

Legal and practical features
● Emphasises no need to modify Article 7 (permanent establishment) or renegotiate treaties; everything is framed via Article 9 (associated enterprises) and domestic definition of an AE.
● Argues that the approach builds on existing concepts of marketing intangibles and routine vs. non-routine returns, but “goes further” by explicitly attributing part of residual profit to market-related intangibles.
● Suggests that, in principle, if widely adopted, this could mirror the outcome of Pillar One by allocating slices of residual profit to markets, but via transfer pricing rather than a standalone formula.