Two-pillar deal on global business taxes set to go ahead

On 1 July 2021, the OECD announced 130 jurisdictions (representing more than 90% of global GDP) have agreed to a two-pillar plan for a new framework for international taxation, including a global minimum corporate tax of at least 15% and the reallocation of taxing rights on more than $100 billion of profits annually.

It appears that Ireland and Hungary among a few other countries, have not yet signed up as the global minimum rate would be higher than their current corporate tax rate. However, most major trading nations (including China) have agreed to take forward the deal by finalizing the details by October 2021 with an outline plan to implement it as soon as 2023.

The plan is detailed in a five-page statement that outlines the two prongs of the new framework – Pillar One on taxing rights and distribution of profits and Pillar Two on the global minimum tax.

How pillar one will work

Pillar One would apply to multinational enterprises (MNEs) (or segments of MNEs per financial reporting) with global turnover above EUR 20 billion and profitability above 10% (although this threshold may be reduced to EUR 10 billion when the agreement is reviewed seven years after implementation). So, for example, AWS would fall within the rules but other parts of Amazon’s business would not as their profit margin is less than 10%.

Companies in the regulated financial services industry and the extractive sector will not be subject to Pillar One and it is possible that other industries may be excluded as negotiations progress. However, it is suggested that as part of the agreement, local Digital Services Taxes in each jurisdiction will have to be repealed when the deal is implemented – including the UK’s digital services tax.

MNE’s within the rules will have to reallocate a share of their residual profit (defined as profit in excess of 10% of revenue) to each market jurisdictions where they derive at least EUR 1 million in revenue (EUR 250,000 for smaller jurisdictions with GDP lower than EUR 40 billion). The amount of that residual profit that is reallocated is yet to be finalised but the OECD statement say it will be between 20 and 30%.

How pillar two will work

The global minimum tax rules would apply to MNEs that have annual consolidated group revenue in the immediately preceding period of more than EUR 750 (ie MNE’s that must apply the country-by-country reporting rules) although pension funds and investment funds that are ultimate parent entities an MNE group will be exempt.

The agreed-upon minimum tax rate for all participating countries to apply is “at least 15%”. However, International shipping income is exempt from this charge and there will also be a general exemption of income equal to at least 7.5% of the carrying value of tangible assets and payroll will be excluded from the 15% minimum tax (this exemption reduces to 5% after a five-year transition period).

The OECD statement addresses the interaction of the global minimum tax rules and the US’s global intangible low-taxed income (GILTI) provisions, and provides that “consideration will be given to the conditions under which the US GILTI regime will co-exist” with the global minimum tax rules.


MNEs will now need to review their global structures and prepare impact assessments from both a financial and administrative perspective. For help and advice on the implications of a move to the two pillar system please contact our local tax experts or log your query here.

Read the OECD statement.  

Read more on the impact of the OECD's two pillar plan.

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