On 12 July 2023, the OECD/G20 Inclusive Framework on BEPS (OECD inclusive framework) published an outcome statement on nexus and profit allocation challenges (Pillar One) and global minimum tax rules (Pillar Two). The statement has been agreed by 138 of the 143 members of the OECD inclusive framework. Belarus, Canada, Pakistan, the Russian Federation, and Sri Lanka did not approve the outcome statement.
Pillar One
Amount A
There are some remaining items to be resolved, following which the text of a multilateral convention to support the implementation of Amount A is expected to be published and opened for signature in the second half of 2023. The objective is that it will enter into force during 2025, once ratified by jurisdictions. As a reminder, Amount A would establish a taxing right for market jurisdictions with respect to a defined portion of the residual profits of the largest and most profitable multinational businesses (those with revenues over EUR 20bn and a profit margin above 10%).
Removal of digital services taxes (DSTs)
A requirement for jurisdictions to remove existing DSTs or other relevant similar measures is a core feature of the rules. The signatories have agreed to extend their existing commitment to refrain from introducing any such new measures by another year to 31 December 2024 (or the date of entry into force of the convention if earlier), subject to a sufficient level of jurisdictions signing up to the Amount A convention by the end of 2023 (at least 30 jurisdictions, accounting for at least 60% of the ultimate parent entities of in-scope businesses). This may be extended by another year if sufficient progress has been made by 31 December 2024.
Amount B
Following a public consultation in December 2022, the OECD inclusive framework has developed a framework for Amount B, which aims to simplify and streamline the application of the arm’s length principle to in-country baseline marketing and distribution activities.
A public consultation document is scheduled to be published in the week beginning 17 July 2023 and will cover:
the balance between a quantitative and qualitative approach to identify baseline distribution activities;
a pricing framework (including scope);
the application to the wholesale distribution of digital goods;
country uplifts within geographic markets; and
criteria to use local databases in certain jurisdictions.
The OECD inclusive framework aims to complete its work on Amount B by the end of 2023, with the rules incorporated into the OECD transfer pricing guidelines by January 2024. The implementation timetable will follow and will take account of the time businesses will need to prepare.
Subject to tax rule (STTR)—Pillar Two
The STTR will apply a type of withholding tax on related party interest, royalties, and a set of other payments still to be defined, including all payments for intragroup services. The STTR will be subject to specified exclusions as well as a 'materiality threshold' and a 'markup threshold'.
The rule will be incorporated into tax treaties by jurisdictions that apply nominal corporate income tax rates below a minimum 9% rate to receipts, where requested by developing countries. The tax (on the gross amount of the payment) will be the difference between the tax rate on the receipt and the subject to tax minimum rate of 9%, and will be administered through an annualized charge.
A model treaty article and associated commentary has been agreed by the OECD inclusive framework and is scheduled to be published in the week beginning 17 July 2023. A multilateral instrument will be released and open for signature from 2 October 2023.
Implementation support
The OECD secretariat will prepare an action plan to support the coordinated implementation of Pillar One and Pillar Two, including offering additional support and technical assistance for developing countries.
Home >Articles > OECD inclusive framework publishes outcome statement on Pillar One and Pillar Two
OECD inclusive framework publishes outcome statement on Pillar One and Pillar Two
On 12 July 2023, the OECD/G20 Inclusive Framework on BEPS (OECD inclusive framework) published an outcome statement on nexus and profit allocation challenges (Pillar One) and global minimum tax rules (Pillar Two). The statement has been agreed by 138 of the 143 members of the OECD inclusive framework. Belarus, Canada, Pakistan, the Russian Federation, and Sri Lanka did not approve the outcome statement.
Pillar One
Amount A
There are some remaining items to be resolved, following which the text of a multilateral convention to support the implementation of Amount A is expected to be published and opened for signature in the second half of 2023. The objective is that it will enter into force during 2025, once ratified by jurisdictions. As a reminder, Amount A would establish a taxing right for market jurisdictions with respect to a defined portion of the residual profits of the largest and most profitable multinational businesses (those with revenues over EUR 20bn and a profit margin above 10%).
Removal of digital services taxes (DSTs)
A requirement for jurisdictions to remove existing DSTs or other relevant similar measures is a core feature of the rules. The signatories have agreed to extend their existing commitment to refrain from introducing any such new measures by another year to 31 December 2024 (or the date of entry into force of the convention if earlier), subject to a sufficient level of jurisdictions signing up to the Amount A convention by the end of 2023 (at least 30 jurisdictions, accounting for at least 60% of the ultimate parent entities of in-scope businesses). This may be extended by another year if sufficient progress has been made by 31 December 2024.
Amount B
Following a public consultation in December 2022, the OECD inclusive framework has developed a framework for Amount B, which aims to simplify and streamline the application of the arm’s length principle to in-country baseline marketing and distribution activities.
A public consultation document is scheduled to be published in the week beginning 17 July 2023 and will cover:
the balance between a quantitative and qualitative approach to identify baseline distribution activities;
a pricing framework (including scope);
the application to the wholesale distribution of digital goods;
country uplifts within geographic markets; and
criteria to use local databases in certain jurisdictions.
The OECD inclusive framework aims to complete its work on Amount B by the end of 2023, with the rules incorporated into the OECD transfer pricing guidelines by January 2024. The implementation timetable will follow and will take account of the time businesses will need to prepare.
Subject to tax rule (STTR)—Pillar Two
The STTR will apply a type of withholding tax on related party interest, royalties, and a set of other payments still to be defined, including all payments for intragroup services. The STTR will be subject to specified exclusions as well as a 'materiality threshold' and a 'markup threshold'.
The rule will be incorporated into tax treaties by jurisdictions that apply nominal corporate income tax rates below a minimum 9% rate to receipts, where requested by developing countries. The tax (on the gross amount of the payment) will be the difference between the tax rate on the receipt and the subject to tax minimum rate of 9%, and will be administered through an annualized charge.
A model treaty article and associated commentary has been agreed by the OECD inclusive framework and is scheduled to be published in the week beginning 17 July 2023. A multilateral instrument will be released and open for signature from 2 October 2023.
Implementation support
The OECD secretariat will prepare an action plan to support the coordinated implementation of Pillar One and Pillar Two, including offering additional support and technical assistance for developing countries.
