Pillar 1 and Pillar 2

On 1 July 2021, 130 members of the Inclusive Framework issued a Statement establishing a new framework for international tax reform in the form of a high level, two pillar plan. A new two-pillar solution to reform international taxation rules was subsequently issued by 136 members of the Inclusive Framework on 8 October 2021.

Keeping updated

This page provides information on Pillar 1 and Pillar 2 and will be updated when further information is available.

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Pillar 1

Pillar 1 aims to ensure a fairer distribution of taxing rights among countries with respect to the largest and most profitable multinational enterprises (MNEs). It will reallocate taxing rights over a portion of the residual profits of MNEs (Amount A) to the market countries and jurisdictions where they have business activities, regardless of whether they have a physical presence there. Specifically, MNEs with global revenues above 20 billion euros and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold being reallocated to market jurisdictions using a new formulaic approach.

Pillar 1 also seeks to introduce a simplified and streamlined application of the arm’s length principle to some in-country baseline marketing and distribution activities (Amount B).

A new Multilateral Convention (MLC) will be required to implement Pillar 1. It is anticipated that this MLC will be finalised in 2023 with the objective of enabling it to enter into force and effect in 2024.

Since October 2021, the OECD has published a number of further documents in relation to Pillars 1 and 2.

Pillar 2: Overview

Pillar 2 consists of:

  • two interlocking domestic rules (together the Global Anti-Base Erosion Rules (GloBE) rules):

    • (i) an Income Inclusion Rule (IIR), which imposes top-up tax on a parent entity in respect of the low taxed income of a constituent entity and

    • (ii) an Undertaxed Payment Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR and

  • a treaty-based rule (the Subject to Tax Rule (STTR)) that allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate.

The GloBE Model rules aim to ensure minimum effective taxation (at a 15% rate) of MNEs on a jurisdictional basis and will apply to MNEs that meet a 750 million euros annual revenue threshold test. The GloBE rules do not require jurisdictions to change their corporate income tax rates, they instead provide for a common approach if a jurisdiction chooses to adopt this top-up tax system.

The GloBE rules also allow a jurisdiction to implement a Qualified Domestic Minimum Top-up Tax (QDMTT). A QDMTT is a minimum tax that is included in the domestic laws of a jurisdiction and, effectively increases the domestic tax liability of an MNE group’s profits in a jurisdiction up to the 15% rate (and thus avoids the application of the IIR and UTPR by other jurisdictions in respect of such profits).

Under the STTR members of the Inclusive Framework that apply nominal corporate income tax rates below the STTR minimum rate of 9% to interest, royalties and a defined set of other payments would implement the STTR into their bilateral treaties with Inclusive Framework members that are developing countries when requested to do so. 

Pillar 2: Implementation

In December 2021, the OECD published the Pillar 2 GloBE Model rules. A commentary to the Pillar 2 GloBE Model rules was published in March 2022 and further documents, including agreed administrative guidance, FAQs and fact sheets have subsequently been published and can be found on the OECD BEPS website.

It is now anticipated that jurisdictions implementing the rules will do so, effectively, from 2024 onwards.  As of March 2023, a number of jurisdictions, including the UK, have confirmed their intention to implement the rules from 2024, with EU Member States (see below) also being required to implement from 2024.

The EU Directive, which requires EU Member States to effectively implement the provisions of the Pillar 2 GloBE Model rules, was approved in December 2022. The Directive reflects the OECD agreement, with some adjustments. The Directive allows, but does not require, Member States to introduce a QDMTT.

A model treaty provision to give effect to the Pillar 2 STTR and a multilateral instrument (MLI), which will facilitate the implementation of the STTR into bilateral treaties, is currently being developed. 

On 19 May 2023 the Island issued a News Release setting out the joint approach to Pillar 2 that has been agreed with Jersey and Guernsey.

A joint statement was also issued by the Crown Dependencies on the joint approach to OECD's Pillar 2.