We have set out below recent developments on the implementation framework for Pillar One and Pillar Two.

Pillar One

During 2022 and 2023 the OECD undertook a series of stakeholder consultations on Amount A of Pillar One.  It also undertook two consultations on Amount B of Pillar One.

Amount A of Pillar One

In October 2023, the Inclusive Framework’s Task Force on the Digital Economy approved the release of a text of the Multilateral Convention to Implement Amount A of Pillar One (the MLC), together with related materials. The text of the MLC, which is not yet open to signature, reflects the consensus achieved so far among members, with different views on specific items noted in footnotes by a number of jurisdictions. 

In December 2023 members of the Inclusive Framework reaffirmed their commitment to achieve a consensus-based solution and to finalise the text of the MLC by the end of March 2024, with a view to hold a signing ceremony by the end of June 2024.  

The entry into force of the MLC requires ratification by 30 jurisdictions accounting for at least 60% of the of the Ultimate Parent Entities (UPEs) of in-scope MNEs initially expected to be in-scope for Amount A. Once these minimum conditions are met, the jurisdictions that have ratified can decide when the MLC will enter into force. 

Parties to the MLC commit not to impose digital services taxes (DSTs) and relevant similar measures on any company (whether or not within the scope of Amount A). A list of existing measures which must be removed is in Annex A of the MLC. After the MLC comes into force, jurisdictions will be able to gain certainty in advance as to whether a proposed measure would breach this commitment. 

Amount B of Pillar One

As part of its work on Amount B, the Inclusive Framework undertook two public consultations on the main design elements of Amount B, which the Institute responded to in January 2023 and September 2023. 

In February 2024, the Inclusive Framework released a report on Amount B of Pillar One. The report sets out an approach for simplifying pricing of in-scope transactions that approximates an arm’s length result in the tested party’s jurisdiction. The three-step approach includes a pricing matrix, a cross-check mechanism for operating expenses, and a mechanism to address instances when data is unavailable or insufficient in a specific jurisdiction.  

The report indicates work on the design of optional qualitative scoping criterion that jurisdictions can use to identify distributors carrying out non-baseline activities for Amount B purposes is ongoing. According to the report, the Inclusive Framework is aiming to finish that work by 31 March 2024 and will incorporate those additions into the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (TPG).  

For fiscal years commencing on or after 1 January 2025, jurisdictions that opt-into the simplified and streamlined approach have two options for implementation. Under the first option, jurisdictions can permit businesses resident within the country to elect to apply the simplified and streamlined approach. Under the second option, jurisdictions can require businesses to apply the simplified and streamlined approach where the scoping criteria are met. The list of jurisdictions that apply the simplified and streamlined approach for tested parties within their jurisdictions will be made available on the OECD website.  

Where a jurisdiction has chosen to apply the Amount B approach to qualifying transactions of its in-scope tested party, the outcome is non-binding on the counter-party jurisdiction where the associated enterprise that is a party to the controlled transaction is located.  

However, members of the Inclusive Framework have committed to respect the outcome determined under the Amount B approach to in-scope transactions where it is applied by a low-capacity jurisdiction. They have also committed to take all reasonable steps to relieve potential double taxation that may arise from the application of the approach by a low-capacity jurisdiction where there is a bilateral tax treaty in effect between the relevant jurisdictions.  

The Inclusive Framework will work on the implementation of this commitment in 2024, including through the development of competent authority agreements that could be used in the context of bilateral tax treaty relationships. The Inclusive Framework will agree the list of low-capacity jurisdictions by 31 March 2024.  

The Amount B guidance, which has been included in the OECD Transfer Pricing Guidelines as an annex to Chapter IV, will be accompanied by conforming changes to the Commentary on Article 25 of the OECD Model Tax Convention.  

It is intended that further work on the interdependence of Amount B and Amount A under Pillar One will be undertaken prior to the signing and entry into force of the Multilateral Convention to Implement Amount A of Pillar One.

Pillar Two

During the period between December 2021 and July 2023, a number of key documents were published by the OECD as part of the implementation framework for Pillar Two.  These included:

GloBE Model Rules

This report delineates the scope and sets out the operative provisions and definitions of the GloBE Rules. These rules are intended to be implemented as part of a common approach and to be brought into domestic legislation as from 2022.

Commentary to the GloBE Rules

The Commentary to the GloBE Rules explains the intended outcomes under the GloBE Rules and clarifies the meaning of certain terms. It also illustrates the application of the rules to certain fact patterns.

Administrative Guidance on the GloBE Rules –February 2023  

The February 2023 Administrative Guidance on the GloBE Rules addresses a wide range of issues.  In particular, this document addresses issues related to the scope, the income and taxes calculation as well as issues related to insurance companies. It also provides guidance on the transition rules and the design of Qualified Domestic Minimum Top-up Taxes (QDMTT).

Administrative Guidance on the GloBE Rules – July 2023 

The July 2023 Administrative Guidance on the GloBE Rules includes guidance on currency conversion rules when performing GloBE calculations, on tax credits, and on the application of the Substance-based Income Exclusion (SBIE). It also includes further guidance on the design of Qualified Domestic Minimum Top-up Taxes (QDMTT) as well as two new safe harbours.  The first safe harbour is a permanent safe harbour for jurisdictions that introduce a Qualified Domestic Minimum Top-up Tax (QDMTT), which will make compliance and administration easier for MNEs and tax administrations. The second safe harbour is a transitional safe harbour, which provides the UPE jurisdiction with relief from the application of the UTPR for fiscal years commencing on or before the end of 2025.

Administrative Guidance on the GloBE Rules – December 2023   

The December 2023 Administrative Guidance on the GloBE Rules includes clarifications on a number of key areas, including:  

• the application of the Transitional Country-by-Country Reporting (CbCR) Safe Harbour;  
• the definition of revenues for purposes of determining whether a MNE group is within scope of the GloBE Rules;  
• applying the GloBE Rules in situations where there are mismatches between fiscal years or financial and tax years of constituent entities; 
• transitional relief for filing of the GloBE Information Return and notifications for in-scope MNE groups with short reporting fiscal years;  
• allocating taxes arising in a blended CFC tax regime when some constituent entities do not compute their ETR under the GloBE Rules, and 
• the Simplified Calculations Safe Harbour for non-material constituent entities. 

GloBE Information Return

The GloBE Information Return (GIR) sets out a standardised information return to facilitate compliance with and administration of the GloBE Rules. It contains the information a tax administration needs to perform an appropriate risk assessment and to evaluate the correctness of a constituent entity’s top-up tax liability.

The GIR incorporates transitional simplified reporting requirements that allow MNEs to report their GloBE calculations at a jurisdictional level. The GIR will be subject to coordinated filing and exchange mechanisms that allow MNEs to report their GloBE calculations on a single return, where the more detailed information is made available to implementing jurisdictions where a top-up tax liability may arise.

The transitional simplified jurisdictional reporting will apply to all fiscal years beginning on or before 31 December 2028 but not including a fiscal year that ends after 30 June 2030. The transitional period is intended to provide time for MNE groups to develop the accounting systems and/or processes that will facilitate information collection and reporting on a constituent entity by constituent entity basis for GloBE purposes.

In the Institute’s response to the OECD’s public consultation on the GIR in February 2023, we highlighted the need to ensure that the information required in the GIR is limited to that which is necessary to verify compliance with the GloBE Rules. We also stressed that as the GloBE Rules operate on a jurisdictional basis, the data presented on the GIR should also be provided on a jurisdictional basis.

Safe Harbours and Penalty Relief

The OECD’s Safe Harbours and Penalty Relief provides guidance on design of the Transitional CbCR Safe Harbour.  This safe harbour is a short-term measure that would effectively exclude an MNE’s operations in certain lower-risk jurisdictions from the scope of GloBE in the initial years, thereby providing relief to MNEs in respect of their GloBE compliance obligations as they implement the rules.

The document also provides a regulatory framework for the development of a potential permanent safe harbour, the Simplified Calculations Safe Harbour, which would reduce the number of computations and adjustments an MNE is required to make under the GloBE Rules or allow the MNE to undertake alternative calculations to demonstrate that no GloBE tax liability arises with respect to a jurisdiction.

Finally, the document sets out the criteria for a Transitional Penalty Relief Regime, which is a common understanding that requires a jurisdiction to give careful consideration as to the appropriateness of applying penalties or sanctions where an MNE has taken reasonable measures to ensure the correct application of the GloBE Rules.

STTR – Model Treaty Provision and Multilateral Instrument

The Tax Challenges Arising from the Digitalisation of the Economy – Subject to Tax Rule (Pillar Two) report published on 17 July 2023 contains the model treaty provision to give effect to the STTR, together with an accompanying commentary that explains the purpose and operation of the STTR. The report also contains provisions governing the application of elimination of double taxation provisions in respect of additional tax payable under the STTR.

On 3 October, the Inclusive Framework adopted a Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (the STTR MLI). Inclusive Framework members can elect to implement the STTR by signing the MLI, or bilaterally amending their treaties to include the STTR when requested by developing Inclusive Framework members.

February 2024  – Report on Amount B of Pillar One  

December 2023 – Administrative Guidance on the GloBE Rules (Pillar Two) – December 2023 

October 2023 – Multilateral Convention to Implement Amount A of Pillar One  

October 2023 – Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule  

July 2023 – Subject to Tax Rule (Pillar Two) 

July 2023 – GloBE Information Return (Pillar Two)

July 2023 – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two) – July 2023  

July 2023 – Pillar One – Amount B

March 2023 – Public consultation meeting on compliance and tax certainty aspects of global minimum tax

February 2023 – Administrative Guidance on the Global AntiBase Erosion Model Rules (Pillar Two) – February 2023

December 2022 – Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two)

December 2022 – Pillar Two – GloBE Information Return

December 2022 – Pillar Two – Tax Certainty for the GloBE Rules 

December 2022 – Pillar One – Amount B

December 2022 – Pillar One – Amount A: Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures

October 2022 – Progress Report on the Administration and Tax Certainty Aspects of Pillar One

September 2022 – Public consultation meeting on Amount A of Pillar One

July 2022 – Progress Report on Amount A of Pillar One

May 2022 – Pillar One – A Tax Certainty Framework for Amount A

May 2022 – Pillar One – Tax certainty for issues related to Amount A

May 2022 – Pillar One – Amount A: Regulated Financial Services Exclusion

March 2022 – Commentary to the Global Anti-Base Erosion Model Rules

April 2022 – Pillar One – Amount A: Extractives Exclusion

April 2022 – Pillar One – Amount A: Draft Model Rules for Domestic Legislation on Scope

March 2022 – Public Consultation on Pillar Two Implementation Framework for the GloBE Rules

February 2022 – Pillar One – Amount A: Draft Rules for Tax Base Determinations

February 2022 – Pillar One – Amount A: Pillar One Draft Model Rules for Nexus and Revenue Sourcing

December 2021 – Pillar Two Global Anti-Base Erosion (GloBE) Model Rules

November 2021 – Members of the OECD/G20 Inclusive Framework on BEPS joining the October 2021 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy as of 4 November 2021 

October 2021 – OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors

October 2021 – OECD Brochure on Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy

October 2021 – Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy 

July 2021 – OECD Podcasts – Global digital tax deal: A multilateral solution to end corporate tax avoidance

July 2021 – OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors

July 2021 – Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy

January 2021 – Public consultation meeting on the Reports on the Pillar One and Pillar Two Blueprints

October 2020 – Public Consultation Document – Reports on the Pillar One and Pillar Two Blueprints – 12 Oct to 14 Dec 2020

October 2020 – Report on the Pillar One Blueprint

October 2020 – Report on Pillar Two Blueprint 

October 2020 – Cover Statement by the OECD/G20 Inclusive Framework on BEPS on the Reports on the Blueprints of Pillar One and Pillar Two

October 2020 – Tax Challenges Arising from Digitalisation – Economic Impact Assessment

October 2020 – OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors

October 2020 – Addressing the Tax Challenges Arising from the Digitalisation of the Economy – Highlights

October 2020 – Tax Challenges Arising from Digitalisation – Top 10 Frequently Asked Questions

November 2019 – OECD public consultation document requesting input for work on Global Anti-Base Erosion Proposal (“GloBE”)

October 2019 – OECD public consultation document requesting input for work on Secretariat Proposal for a “Unified Approach” under Pillar One  

March 2019 – OECD BEPS public consultation meeting on the tax challenges of digitalisation

February 2019 – OECD public consultation document Addressing the Tax Challenges of the Digitalisation of the Economy

October 2017 – OECD public consultation document requesting input for work regarding the tax challenges of the digitalised economy

November 2017 – OECD BEPS public consultation meeting on tax challenges of digitalisation

The OECD’s dedicated webpage on Action 1 Tax Challenges Arising from Digitalisation