Understanding the BEPS 2.0 Blueprints and its impact on businesses

Understanding the BEPS 2.0 Blueprints and its impact on businesses

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Luis Coronado

30 Nov 2020
Categories Thought leadership
Jurisdictions Singapore

The global tax architecture is changing. Multinational enterprises should monitor and adapt to groundbreaking changes arising coming from BEPS 2.0.

On 12 October 2020, the Organisation for Economic Co-operation and Development (OECD) released its reports on the blueprints of the two-pillar approach to address the tax challenges arising from digitalisation of the economy (Blueprints). While certain technical and political differences remain, the Blueprints are considered a solid foundation for further work. Indeed, it is expected that 137 participating countries under the OECD/G20 Inclusive Framework will reach a consensus by mid-2021. The Blueprints are currently open for public consultation until 14 December 2020, and public consultation meetings on them will be held in January 2021. This level of international cooperation on matters of taxation is groundbreaking.

We summarise the developments and examine how these may affect taxpayers in Asia-Pacific.

 Where are we and how did we get here?

The Blueprints are a continuation of the work by the OECD since the OECD’s taskforce on digital economy released an interim report in May 2018.

Pillar One focuses on defining a new nexus rule and allocating a share of residual profits to the market jurisdictions, while Pillar Two focuses on a global minimum tax intended to address remaining base erosion and profit shifting (BEPS) issues.

Based on the OECD’s Economic Impact Assessment published on the same day as the Blueprints, the two pillars could increase annual global corporate tax revenues by approximately US$50 to 80 billion. Combined with the US Global Intangible Low-taxed Income (GILTI) regime, the impact could be US$60 to 100 billion per annum, or up to around 4% of global corporate tax revenues.

Against this backdrop, as the OECD/G20 Inclusive Framework on BEPS (IF) works towards achieving consensus, a number of countries have already implemented unilateral measures (such as the Digital Service Tax) and other anti-base erosion legislations ahead of a consensus solution envisaged by the BEPS 2.0 project. With nations’ coffers exhausted from tackling the health and economic effects of the COVID-19 pandemic, there is significant political pressure on governments to find new revenue sources. This area is expected to be contentious in the months ahead as the IF members work through the remaining technical design, political differences and priorities.

Pillar One blueprint


The aim of Pillar One is to reach a global agreement on adapting the allocation of taxing rights on business profits in a way that expands the taxing rights of market jurisdictions. In order to achieve this, Pillar One contains three elements:

  • New taxing rights for market jurisdictions over a share of the (deemed) residual profits of a multinational enterprise (MNE) or segment of such a group (Amount A)
  • A fixed return for certain baseline marketing and distribution activities taking place physically in a market jurisdiction (Amount B)
  • Process to improve tax certainty through effective dispute prevention and resolution mechanisms

Salient points

The Pillar One blueprint provides a more comprehensive and structured approach to address Pillar One design architecture principles. Here are the key points of interest:

  • Amount A
    • (i) Activity tests identifying automated digital services (ADS) and consumer facing businesses (CFB) activities which are in-scope; and (ii) threshold tests – comprising a global revenue test and a de minimis foreign in-scope revenue test
    • Tightening the rules on the (deemed) nexus to be created – the blueprint proposes for nexus to be determined for ADS businesses using only an annual market revenue threshold, whilst for the CFB segment, an additional indicator to evidence a significant and sustained engagement in the market jurisdiction
    • Whether segmentation of business lines is required – the blueprint outlines a three-step framework and has identified further work required (including revenue thresholds, allocation of indirect costs and other practical implementation matters)
    • Process for elimination of double tax – the blueprint has (i) determined a mechanism to address double taxation based on the identification of paying entities through a series of four tests (activities, profitability, market connection priority and connection with market jurisdiction); and (ii) identified methods to eliminate double taxation using existing exemption or credit methods
  • Amount B
    • Definition of baseline marketing and distribution activities – the blueprint refers to positive and negative lists of qualitative factors


The proposals under Pillar One represent a substantial change to the tax architecture and go well beyond digital businesses or digital business models. It is widely expected that if no agreement can be reached by mid-2021, many countries will introduce digital services taxes as well as other elements of the Pillar One architecture (such as a variation of Amount B) through their domestic legislation. Without a coordinated global agreement, double taxation and controversy are expected to rise.

The OECD has come a long way with the blueprint and has sought to provide clearer and detailed frameworks on how to apply the principles under Pillar One. Nonetheless, there continues to be multiple points of complexity in attempting to apply these rules. Taxpayers will need to carefully acquaint themselves with the application of the rules in order to understand whether and how they will be affected – and if affected, how these rules will practically apply in order to calculate the additional taxes to be paid in the respective countries. This is anticipated to lead to increased compliance costs and burden.

MNEs operating cross border in Asia-Pacific have already encountered some tax authorities applying certain expectations on returns to be earned, i.e., changing expectations on the tax base for certain activities.   For example, the Australian Practical Compliance Guidelines (PCGs) for distribution activities, and returns for local marketing intangibles or market premium in China and India. Many MNEs with centralised business models seek to take advantage of synergistic effects of centralisation to achieve economies of scale. With these developments, the question is whether the use of regional hubs to capture these synergistic effects continues to make financial sense for the businesses that fall within the activity scope of Pillar One.

Pillar Two blueprint


The proposed global anti-base erosion (GloBE) rules under Pillar Two are designed to ensure that large MNEs pay at least a minimum level of tax, regardless of the jurisdiction where the profits may be earned or booked. It seeks to stop harmful tax competition by setting a floor rate and to shield developing countries from undue pressure to offer tax incentives.

The blueprint provides technical details on the design, which includes the GloBE rules (comprising an income inclusion rule and an undertaxed payments rule) and a subject to tax rule (STTR).

Salient points

While acknowledging the sovereign rights of jurisdictions to determine their own tax systems, the proposed GloBE rules are defined to give one jurisdiction a right to “tax back” if the other jurisdiction chooses to forgo its taxing rights. This is achieved by computing the effective tax rate (ETR) on a jurisdiction by jurisdiction basis where the MNE group has taxable presence and imposing a top-up tax to the extent that the ETR falls below the desirable minimum tax.

Jurisdictions are free to renegotiate their existing tax treaties to allow withholding tax to be imposed on certain high-risk related party payments such as interests, royalties, rents and intermediary service fees that are being taxed at below the nominal tax determined under the proposed STTR. In contrast with the GloBE rules, the STTR is applied on a payment-by-payment basis and its scope may not be restricted to just large MNEs meeting the country-by-country reporting threshold of €750 million. Given the complexity of the GloBE rules, it should not come as a surprise if many jurisdictions will rush to adopt the STTR. In fact, many European countries have proposed or enacted conditional withholding taxes in their recent budget announcements.

The implementation of these proposed global tax rules may reduce the importance of tax as a relevant factor in the decision that MNEs make in locating their business activities. Depending on the global minimum tax rate that has yet to be fixed, these proposed rules may neutralise the attractiveness of preferential tax schemes in attracting foreign direct investments (FDIs). Hence for many jurisdictions, non-tax reasons are expected to be the determinant factors in attracting FDIs.


Notwithstanding that the new international tax architecture has not been cast in stone, MNEs can expect their global ETR to increase in the years to come. Relevant stakeholders should be informed on a timely basis about the likely impact of these global tax rules on the group’s business operations and tax burden. Given the complexities of the proposed rules, MNEs’ compliance costs are also expected to increase significantly. Planning ahead will definitely help MNEs avoid a rude shock when BEPS 2.0 goes live.

Be ready for BEPS 2.0

As the IF continues to work on achieving consensus on the Blueprints, MNEs will need to closely monitor developments, identify and determine whether the changes arising from BEPS 2.0 will have a significant financial impact on them (e.g., through financial modelling of how Pillar One and Pillar Two principles may affect the ETR of the Group). As countries start tweaking their rules arising from BEPS 2.0 proceedings, MNEs may want to reconsider their supply chain, operational and tax model to actively address such impacts.

The co-authors of this article are Luis Coronado, EY Global Tax Controversy Leader and EY Global Transfer Pricing Leader, Chai Sui Fun, EY Asean International Tax Policy and Controversy Leader and Chester Wee, EY Asean International Corporate Tax Advisory Leader from Ernst & Young Solutions LLP.