Pillar 1 and 2 Global Tax Reform Agreement – Taxation


On October 8, 2021, 136 of the 140 members of the OECD / G20 Inclusive Framework formally agreed on certain key parameters to reallocate certain taxing rights to market jurisdictions (“Pillar 1”) and introduce a minimum effective global taxation (“Pillar 2”).

Technical details will be released over the next 14 months, starting with Pillar 2 rules in November 2021, while Pillar 1 rules will be detailed during 2022. Entry into force will be phased from 2023.

Through a combination of complementary national and treaty tax rules, multinational enterprise groups with worldwide turnover exceeding 750 million euros should be subject to a minimum effective tax rate of 15% in each jurisdiction where they operate. make a profit. In addition, multinational enterprise groups with revenues over € 20 billion and pre-tax profit margins above 10% may start paying taxes in other “market” jurisdictions. (where the users and customers of the multinational company are located). The technical details have not yet been revealed, but the multinational groups concerned are already expected to prepare for increased and more complex taxation. Our team can help you model the impact of rules and explore further avenues for action.


For several years, the Inclusive Framework has explored how to go beyond the BEPS Action Plan and adapt international tax rules to an increasingly digital economy. A two-pillar approach was then adopted. By July 1, 2021, most of the Inclusive Framework members had committed to reaching a two-pillar agreement by October 2021 (see our publication).

What does the Pillar One agreement involve?


  • Size of the EMN group. In accordance with the July 1 declaration, only multinational groups with both an overall turnover of over 20 billion euros and a pre-tax profit margin of over 10% will be affected by the new right to tax in “market” jurisdictions on the “A amount”, which is a deemed “residual profit”. The turnover threshold will be reduced to 10 billion euros if, after 8 years, experience shows that the first pillar is successful and that legal certainty remains sufficiently high. The segmentation will be exceptional.
  • Materiality of the new link. Taxation rights on amount A can only arise if the multinational group achieves a turnover of at least 1 million euros in a jurisdiction. Since economies are of very different sizes across the world, this threshold is reduced to 250,000 euros in jurisdictions with a gross domestic product of less than 40 billion euros.
  • Sector exclusions. As previously announced, multinational groups active in the financial services and extractive industries sectors will not be subject to the first pillar.

Application of amount A (subject to the new tax law)
Amount A will be 25% of “residual profit”, that is, profits above the pre-tax profit margin of 10% on turnover. The July 1 press release only indicated that this percentage would be between 20 and 30%. The profitability calculation will take into account the losses carried forward. Where the multinational group is already taxable in a “market” jurisdiction, a reallocation cap (safe haven of marketing and distribution profits) will apply.

Double taxation elimination and dispute resolution
Measures to avoid double taxation between residence and market jurisdictions will be included in a multilateral convention to implement amount A with relief to be granted either by the exemption method or by the credit method. . The proposal will also include a binding dispute prevention and resolution mechanism. However, for developing countries benefiting from a postponement under the BEPS 14 action, this mechanism will be elective, subject to regular review. Finally, all countries participating in the multilateral convention will waive and commit to revoke taxes on digital services and similar measures.

Details have yet to be provided, but the inclusive framework indicates that a single entity of a relevant multinational group can handle the additional tax compliance processes arising from the first pillar. Work on the B-pillar (simplified transfer pricing for basic marketing and distribution activities) will be completed by the end of 2022.

What does the Pillar 2 agreement imply?

The combined set of measures
As expected, the second pillar will consist of four different rules: the income inclusion rule (IIF), a failover rule (SOR, to facilitate the application of the RII within the framework of an agreement), an under-taxed payment rule (UTPR, which serves as a backstop to the RII) and a tax liability rule (STTR). The IIR (along with the SOR) and the UTPR are together referred to as the “GloBE rules”. For more details on this set of rules, please see our publication October 13, 2020.

Tax rates
The GloBE rules aim to ensure that profits in any jurisdiction are at least subject to the minimum effective15% tax rate (this GloBE minimum effective tax rate was ultimately not increased).

The STTR, which is an additional withholding tax on certain mobile payments (mainly interest and royalties) will be triggered when the payment is subject to (or adjustment) nominal rate less than 9% at the level of beneficiaries.


  • Excluded entities. In accordance with the Blueprint of October 2020, where the ultimate parent entity of the consolidated group would be an investment or pension fund, a government entity, a non-profit organization or an international organization, the GloBE rules will not apply. to these entities. and the investment vehicles they control. The exclusion does not, however, extend to multinational groups reaching the threshold of 750 million euros of total turnover which are controlled by an excluded entity.
  • Sector carve-out. Income from international shipping (as defined for the purposes of Article 8 of the OECD Model Tax Convention) is excluded from the scope of the GloBE rules.
  • Carve-out based on substance. For the calculation of the effective GloBE tax rate, the jurisdictional tax base will be reduced by 8% of the book value of the tangible fixed assets and by 10% of the payroll. A 10-year transitional period will reduce these exclusion rates to 5%.
  • De minimis exclusion. If a multinational enterprise achieves both less than € 1 million in profit and less than € 10 million in revenue in a given jurisdiction, the GloBE rules will not apply to profits made in that jurisdiction. Other security and simplification measures have yet to be revealed.
  • Specificities of tax systems based on distribution. If the profits made in these jurisdictions are distributed within 4 years and at that time subject to the minimum effective tax rate of 15%, the GloBE rules will not apply.

What are the next steps?

The international agreement is not automatically applicable. It must first be implemented by the signatories. At EU level, the European Commission plans to propose a Directive on the second pillar soon after the publication of the technical proposal in order to ensure a harmonized implementation of the agreement. A first pillar directive could also follow in 2022. All EU member states except Cyprus are part of the inclusive framework and have accepted the international agreement. Cyprus also seems to support it. Therefore, the adoption of an EU directive is unlikely to raise complications, as the Commission also appears willing to strictly follow the international agreement. EU member states would then have to transpose the directives into their national law for them to take effect.

Members of the Inclusive Framework are committed to implementing the rules as they will be set out in the final technical proposal, if they choose to implement them and, if they do not, to abide by the application. second pillar rules by other jurisdictions in accordance with the technical proposal. As an exception, jurisdictions can be stricter on the scope and apply the IIR to multinational groups that do not meet the threshold of 750 million euros in aggregate turnover.

Model rules for the second pillar, including a model treaty provision for the STTR, are expected to be published by the end of November 2021, with this multilateral instrument open for signature and ratification in 2022. The IIR, the SOR and STTR would then apply from 2023, and UTPR would be effective from 2024. Interaction with GILTI will depend among other things on the announced US tax reform.

Regarding the rules of the first pillar, it is planned to draw up a multilateral convention by the beginning of 2022 to determine the characteristics of the amount A. The hope is to have still enough ratifications in 2022, so that the reallocation of taxing rights on amount A could occur as from 2023. The multilateral convention would include a removal and waiver of taxes on digital services and similar measures. Technical work on the B-pillar will continue throughout 2022.

What Can Taxpayers Do?

The implementation of the agreement by 2023 is very ambitious, but the political pressure is strong, so that at least part of the second pillar rules can reasonably come into force in a number of jurisdictions in 2023. However, different implementation speeds between jurisdictions can create increased complexity.

  • Step 1: collecting information. This includes collecting information to (i) calculate jurisdictional effective tax rates under the GloBE rules and (ii) assess which jurisdictions might claim tax rights on the amount A. certain other categories of mobile income to a nominal rate of less than 9%.
  • 2nd step: modeling. Data used for country-by-country reporting can be a good starting point for such an assessment, but will need to be refined for a detailed impact assessment.
  • Step 3: thinking about the future. As most of the rules are expected to come into effect in 2023, key lessons learned from the modeling exercise should help multinational enterprise groups assess the need for restructuring to alleviate the complexity of tax compliance and increase in taxation. This assessment will depend in particular on national tax reforms following this global tax reform, on the cost / benefit analysis of the presence in certain jurisdictions, and on the mechanisms available to mitigate the risk of double taxation.

We will keep you informed of further developments. If you have any questions or need help assessing the impact of the rules, please contact a member of our Digital Economy Tax team or your trusted Loyens & Loeff advisor.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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