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27 July 2020 / article

Update on tax and digitalization

The OECD has made further progress on the design and scope of Pillar One and Two. The European Council has agreed on a COVID-19 recovery package and it is expected that the European Commission will publish proposals on a digital levy (introduction of the rules per 1 January 2023).

EU digital levy

On 21 July 2020, the European Council agreed on a recovery package and budget for 2021-2027 to recover from the consequences of the COVID-19 pandemic. The EU agreed to reform own resources and to introduce new ones, such as a digital tax. It is expected that the European Commission will publish proposals on a digital levy, with the aspiration of introducing it before 1 January 2023. It is still unclear if these EU-proposals will take into account the progress that has been made by the Inclusive Framework (IF).

State of play Pillar One and Pillar Two

Although practical challenges as a result of COVID-19 have negatively impacted the progress on Pillar One and Pillar Two, the IF members continue their cooperation with the aim of resolving the tax challenges arising from the digitalisation of the economy. In the OECD Tax Talks of 21 July last, the OECD expressed that all IF members are still committed to reach agreement and overcome remaining differences under both Pillar One and Pillar Two. Notwithstanding the view of some IF members that a pause is needed, the aim is still to deliver a global and consensus-based solution this year.


The outline of Pillar One (as agreed to in January 2020) contains 11 building blocks, categorized in Amount A, Amount B and Amount C. Over the last six months, progress has been made on the scope, nexus rules, tax base and source rules in relation to Amount A. Pillar two consist of four rules (as set out in the Programme of Work of May 2020): a) the income inclusion rule; b) the switch-over rule; c) the undertaxed payment rule; and d) the subject to tax rule. Further progress has been made on the design and scope of the rules as well as on definitions, carve-outs, co-existence with other regimes and the minimum tax rate. However, further work is required on simplification measures in order to reduce complexity of both Pillar One and Pillar Two.


Due to COVID-19, the date of the IF member’s meeting from July 2020 has been postponed to 8-9 October 2020. The progress made on the Pillar One and Pillar Two will be integrated into a blueprint report that, together with an economic analysis and impact assessment report, will be submitted during October’s meeting. This blueprint could serve as the basis for both a public consultation and a final round of negotiation with a view to agreeing a consensus based solution.

Key dates for next steps

  • 8-9 October IF meeting
  • 15-16 October 2020 G20 Finance Ministers meeting
  • December G20 Italian Presidency

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