G20: G20 Statement on Two-Pillar-Approach including a Reallocation of Taxation Rights and Global Anti-Base Erosion Rules

The 136 member jurisdictions of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting issued a statement updating the July political agreement which aims to address the tax challenges arising from the digitalisation of the economy. The statement is composed of two pillars. Pillar One targets multinational enterprises (MNEs) with a global turnover of more than EUR 20 billion and a before tax profitability of 10%. The turnover threshold is planned to be reduced to 10 billion euros in a review starting 7 years after the agreement comes into force. Profit taxation rights are to be moved away from the MNE's physical location into the destination countries of its goods or services, for countries where the MNE derives at least 1 million euros in revenue (250000 in the case of countries with GDP lower than 40 billion euros). The amount dedicated to these countries is 25% of MNEs' residual profit, defined as profit in excess of 10% of revenue. The Multilateral Convention will require all parties to remove all Digital Services Taxes and to commit not to introduce such measures in the future and is expected to come into force in 2023. The second pillar focuses on ensuring that all MNEs above a global revenue threshold of EUR 750 million are taxed with a minimum rate of 15% in every jurisdiction they operate in. The design is composed of two interlocking domestic rules and a treaty-based rule. Pillar Two is planned to be brought into law in 2022 and to be effective in 2023.