OECD announces conceptual agreement in BEPS 2.0 project

Executive summary

On 1 July 2021, at the conclusion of two days of virtual meetings of the OECD1/G202 Inclusive Framework on BEPS3 (the Inclusive Framework), the OECD released a Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy (pdf) (the Statement), which reflects agreement of 130 of the member jurisdictions of the Inclusive Framework in connection with the BEPS 2.0 project. The nine members of the Inclusive Framework that have not joined the Statement are Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Peru, Saint Vincent and the Grenadines, and Sri Lanka.

The Statement describes agreed components with respect to both elements of the BEPS 2.0 project: Pillar One on revisions to nexus and profit allocation rules and Pillar Two on new global minimum tax rules. The Statement further indicates that remaining issues and a detailed implementation plan will be finalized by October 2021.

The G20 Finance Ministers are scheduled to consider the outcome of the Inclusive Framework meeting at their meeting in Venice on 9-10 July 2021.

Detailed discussion


On 12 October 2020, the OECD released a series of major documents in connection with the BEPS 2.0 project. These documents included Blueprints on Pillar One4 and Pillar Two,5 on which stakeholder comments were requested through a public consultation.

At the same time, the OECD also released a lengthy Economic Impact Assessment that was prepared by the OECD Secretariat.6 The cover statement accompanying the Blueprints indicated that while the OECD/G20 Inclusive Framework on BEPS had not reached a consensus agreement in 2020, which had been the target,7 they agreed to keep working to swiftly address the remaining issues with a view to bringing the process to a successful conclusion by mid-2021.

The Statement issued by the Inclusive Framework on 1 July 2021 follows earlier expressions of strong support for the work on the BEPS 2.0 project that were issued at the conclusion of the G7Finance Ministers and Central Bank Governors meeting in London on 5 June 20219 and at the conclusion of the G7 Leaders’ summit in Cornwall on 11-13 June 2021.10


The 1 July 2021 Statement provides a description of agreed key components of each Pillar.

Pillar One

The scope of the Pillar One rules is to be multinational entities (MNEs) with global turnover above €20 billion and profitability (i.e., profit before tax/revenue) above 10%. Exclusions are provided for the extractive and regulated financial services industries. The Statement notes that the turnover threshold may be reduced to €10 billion, contingent on successful implementation of the new rules including tax certainty. For this purpose, a review process would begin seven years after the agreement comes into force and would be completed in not more than a year.

The Statement further indicates that segmentation would be applied in exceptional circumstances where, based on the segments disclosed in the financial accounts, a segment of an MNE would meet the scope rules.

For in-scope MNEs, between 20-30% of residual profit, which is defined as profit in excess of 10% of revenue, would be allocated to market jurisdictions where there is nexus. For purposes of this allocation, profit or loss would be determined by reference to financial accounting income (with a small number of adjustments), and losses would be carried forward.

Under a special purpose nexus rule that will apply for these purposes, the new rules for allocation to a market jurisdiction would be applicable if the in-scope MNE derives at least €1 million in revenue from that jurisdiction. A lower threshold of €250,000 would apply in the case of smaller jurisdictions that have a gross domestic product lower than €40 billion. For this purpose, revenue would be sourced to the end market jurisdiction where goods or services are used or consumed, with detailed sourcing rules to be specified.

Where the residual profits of an in-scope MNE are already taxed in a market jurisdiction, a marketing-and-distribution-profits safe harbor would apply to cap the residual profits that are allocated to the market jurisdiction under the new rules.

Double tax relief is to be provided under the exemption or credit method for profit allocated to market jurisdictions under the new rules.

The Statement indicates that mandatory and binding dispute prevention and resolution mechanisms are to be provided for issues related to the new allocations to market jurisdictions. However, it further notes that consideration will be given to use of an elective binding dispute resolution mechanism for certain developing countries.

MNEs would be allowed to manage the tax compliance process with respect to the new rules through a single entity.

The Statement indicates that work on Amount B, relating to a simplified approach for the application of the arm’s-length principle to in-country baseline marketing and distribution activities, is to be completed by the end of 2022 and will focus in particular on the needs of low-capacity countries.

With respect to unilateral measures, the Statement references appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes (and other relevant similar measures) on all companies.

Finally, the Statement indicates that the multilateral instrument through which the new rules for allocations to market jurisdictions are to be implemented will be developed and opened for signature in 2022, with the new rules coming into effect in 2023.

Pillar Two

The Statement describes Pillar Two as having two elements. The GloBE11 rules are a set of interlocking rules: an Income Inclusion Rule (IIR) that allows parent entities to impose a top-up tax on low taxed income of a constituent entity, and the Undertaxed Payments Rule (UTPR) that denies deductions or requires an equivalent adjustment for low-tax income that has not been subject to tax under an IIR. The Subject to Tax Rule (STTR) allows jurisdictions to impose a withholding tax on certain related-party payments that are taxed at a low adjusted nominal rate. Although the STTR is described second, it would apply before the GloBE rules and thus take priority over those rules.

The Statement describes the GloBE rules as having the status of a common approach, specifying that Inclusive Framework jurisdictions would not be required to adopt these rules, but, if they choose to do so, they are to implement and administer the rules in a way that is consistent with the agreed design and accept the application of such rules by other Inclusive Framework members. 

The GloBE rules would apply to MNEs with total consolidated group revenue of at least €750 million in the immediately preceding fiscal year. However, the Statement notes that countries would be free to apply the IIR to MNEs that are tax resident within their jurisdiction even if this threshold is not met.

An exclusion from the GloBE rules would be provided for investment funds, pension funds, governmental entities, non-profit organizations, and international organizations that are at the top of an MNE group. The Statement also indicates that further consideration will be given to a possible exclusion for MNEs that are in the initial phase of their international activity.

The Statement indicates that the rights to impose a top-up tax would be allocated to jurisdictions under a top-down approach under the IIR (with special rules for split ownership situations) and under a methodology to be agreed under the UTPR.

The GloBE top-up tax would be determined using an effective tax rate (ETR) test calculated at the jurisdictional level, with a common definition of covered taxes and a tax base measured by reference to financial accounting income (with adjustments to be agreed and mechanisms to address timing differences). The Statement notes that in the case of existing distribution tax systems, no top-up tax would apply if earnings are distributed within three to four years and taxed at or above the minimum level.

According to the Statement, the minimum tax rate for purposes of the IIR and the UTPR would be at least 15%.

The GloBE rules would provide for a formulaic substance carve-out that would exclude income in the amount of at least 5% of the carrying value of tangible assets and payroll. The Statement notes that for a transition period of five years, this amount would be increased to 7.5%. In addition, a de minimis exclusion is to be provided. Furthermore, international shipping income would be excluded.

The Statement also notes that mechanisms are to be incorporated in the GloBE rules to avoid compliance and administrative costs that are disproportionate to the policy objectives of Pillar Two.

According to the Statement, because the Pillar Two rules are to apply on a jurisdictional basis, consideration will be given to the conditions under which the US GILTI12 regime will co-exist with the GloBE rules, in order to ensure a level playing field.

With respect to the STTR, the minimum rate would be from 7.5% to 9% and the taxing right allocated to the source country under the STTR would be limited to the difference between the minimum rate and the tax rate on the received payment. The Statement indicates that the Inclusive Framework members recognize that the STTR is an integral part of achieving a consensus on Pillar Two for developing countries. In this regard, it further states that Inclusive Framework members with nominal corporate income tax rates below the STTR minimum rate for interest, royalties and certain other payments are to agree to implement the STTR into their bilateral treaties with developing members when they are requested to do so. 

According to the Statement, Inclusive Framework members are to agree and release an implementation plan, that will include model GloBE rules together with the possible development of a multilateral instrument for coordination of such rules, an STTR model provision together with a multilateral instrument to facilitate adoption, and transitional rules including the possibility of deferred implementation of the UTPR. The Statement notes that Pillar Two should be brought into law in 2022, to be effective in 2023. 


The Statement is an important step in advancing the work on the BEPS 2.0 proposals for fundamental changes to global tax rules. However, it reflects a conceptual agreement and there is significant work to be done to flesh out the technical details and address the remaining open questions. That work will need to be completed quickly in order to achieve the objective of reaching a final agreement in connection with the October 2021 G20 meetings.

It is important for companies to follow these developments closely as they unfold in the coming months and to evaluate the potential impact of the proposals to their businesses. In addition, looking ahead, companies will need to monitor activity in relevant countries related to the implementation of these proposed rules through changes in domestic tax rules and bilateral or multilateral agreements.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Marlies de Ruiter
  • Maikel Evers
  • Ronald van den Brekel
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Konstantina Tsilimigka
  • Roberto Aviles Gutierrez
Ernst & Young Solutions LLP, Singapore
  • Luis Coronado
Ernst & Young LLP (United States), Detroit
  • Jeff Michalak
Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Ana Mingramm
  • Jose A. (Jano) Bustos
  • Jean-Charles van Heurck
  • Joana Dermendjieva
  • Matthieu Van Remortel
Ernst & Young LLP (United States), New York
  • Tracee J Fultz
Ernst & Young LLP (United States), Seattle
  • Anne Welsh
Ernst & Young LLP (United States), Washington, DC
  • Barbara M. Angus
  • Mike McDonald

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.