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How historic change is creating a new era of tax multilateralism

Dramatic tax changes require radical collaboration – the G20 is poised to lead as the world works together to shape a robust global economy.

In brief

  • World leaders have reached a milestone agreement on addressing the tax challenges of digitalization of the economy, also known as BEPS 2.0.
  • Individual countries must make the changes in their tax laws necessary to implement the new architecture.
  • The G20/OECD Inclusive Framework can continue to lead by offering multilateral support for this global tax reform.

The world is on the brink of historic change in the global tax landscape with new rules for the taxation of international businesses on the horizon – the culmination of several years of policy and technical work led by the G20 and conducted through the OECD/G20 Inclusive Framework, which was established to broaden participation in the initiative and which now comprises 140 jurisdictions.


On 10 July, the G20 finance ministers endorsed the key components of a new international tax architecture set out by the Inclusive Framework. With discussions re-energized by the active interest of the Biden administration and encouraged by the strong support of the G7, the agreement on core elements of the two ‘pillars’ of the project on addressing the tax challenges of the globalization and digitalization of the economy is supported by the vast majority of the participating jurisdictions.


Pillar One represents a new approach for dividing up taxing rights over global business income, with nexus based on revenue without regard to physical presence and a greater share of profits allocated to the market jurisdiction. Pillar Two establishes a new set of global minimum tax rules. At their July meeting, the G20 finance ministers called on the Inclusive Framework to address the remaining issues and finalize an implementation plan by their October meeting.


Even with a final agreement, there is more work to be done to fill in the myriad substantive and technical details of model legislation and multilateral agreement provisions that reflect the approaches developed under the two pillars. Then, when the focus of the effort turns to implementation of the new approaches by participating countries, the paths forward for the two pillars will differ.


Diverging paths


Pillar One involves a commitment of Inclusive Framework jurisdictions to implement the agreed rules for dividing taxing rights over global business income through changes to their tax laws and treaties. This cannot be accomplished with incremental implementation over time – the new approach to nexus and profit allocation can take effect only when the necessary rules have been put in place by a critical mass of countries. Moreover, this unprecedented level of coordination among countries will be equally crucial to the proper operation of the new rules on an ongoing basis.


In contrast, Pillar Two takes the form of a common approach, with Inclusive Framework jurisdictions under no obligation to implement global minimum tax rules. Countries that choose to do so, however, should use the agreed approach and participating countries agree to accept the application of these rules by other countries. This means that implementation of global minimum tax rules is likely to play out over time in countries around the world and variation in the details of the rules across countries can be expected. That said, some countries have been vocal regarding their intention to move forward quickly with minimum tax rules, including the United States where legislation reflecting Pillar Two design concepts is already advancing through Congress with the strong backing of the Biden administration. Moreover, as more countries put global minimum tax rules in place, multilateral coordination will be necessary to prevent overlapping rules that result in taxation beyond the agreed minimum level.


Tax is and always will be a fundamental matter of sovereignty. Nevertheless, multilateral engagement is a component of countries’ individual fiscal policies – one that is becoming more important than ever. Given the necessity of multilateral cooperation and coordination among countries in the new global tax environment, the role of the G20 will not end with final agreement on Pillar One and Pillar Two. As the agreed rules are implemented and become operational in countries around the world, the ongoing involvement of the Inclusive Framework will be essential to the stability of the new international tax architecture.


At a minimum, the future work of the Inclusive Framework must include:

  • Development of guidance on the new rules to facilitate common interpretations
  • Support for the development and operation of robust new multilateral dispute prevention and resolution processes
  • Comprehensive peer review and monitoring
  • Periodic review and evaluation of the effectiveness of the new rules.

In all these workstreams, consultation with the business community will be critically important. Affected businesses should have the opportunity to provide feedback on the operation of the new rules across countries and on how the dispute prevention and resolution processes can be improved.


Tax administrations and taxpayers alike need certainty in the tax system. Managing through dramatic change calls for radical collaboration. With the leadership of the G20, government tax policymakers around the world, working together with business stakeholders, can reach the shared objective of a robust global economy for all.

First published in the Global Governance Project’s G20 Italy: The Rome Summit background book.


World leaders have reached a final agreement on a new international tax architecture to address the tax challenges of the globalization and digitalization of the economy. However, much technical and substantive work remains. The G20/OECD Inclusive Framework has an important role to play in helping countries devise rules to implement the agreement, settle disputes that may arise and monitor effectiveness of the new system.

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