Technical details will be released over the next 14 months, starting with Pillar Two rules in November 2021, while Pillar One rules will be detailed over 2022. The entry into force will be progressive as from 2023.

Through a combination of domestic and treaty-based top-up taxation rules, MNE groups with a global turnover above EUR 750 million should be subject to a minimum effective tax rate of 15% in every jurisdiction where they realise profits. In addition, MNE groups with a turnover above EUR 20 billion and a pre-tax profit margin above 10% may start paying taxes in additional “market” jurisdictions (where the MNE’s users and customers are located). The technical details are yet to be released, but in-scope multinational groups should already prepare for increased and more complex taxation. Our team can assist with modelling the impact of the rules and exploring subsequent courses of action.


For several years, the Inclusive Framework explored how to go beyond the BEPS Action Plan and adapt the international tax rules to an increasingly digitalised economy. A two-pillar approach was subsequently adopted. On 1 July 2021, most Inclusive Framework members had committed to reaching an agreement on both pillars by October 2021 (see our related publication).

What does the Pillar One deal entail?


  • Size of MNE group
    In line with the 1 July statement, only MNE groups having both a global turnover above EUR 20 billion and a pre-tax profit margin above 10% will be affected by the new taxing right in “market” jurisdictions on “Amount A”, which corresponds to a deemed “residual profit”. The turnover threshold will be reduced to EUR 10 billion if, after 8 years, experience shows that Pillar One is a success and legal certainty remains sufficiently high. Segmentation will be exceptional.
  • Materiality of new nexus
    Taxing rights on Amount A may only arise if the MNE group realises at least EUR 1 million of revenue in a jurisdiction. Since economies have very different sizes across the world, this threshold is reduced to EUR 250k in jurisdictions having a gross domestic product below EUR 40 billion.
  • Sectoral exclusions
    As announced earlier, MNE groups active in the financial services and extractive industry sectors will not be subject to Pillar One.
    Application of Amount A (subject to the new taxing right)
    Amount A will be 25% of the “residual profit”, i.e., of the profits above the 10% pre-tax profit margin over revenue. The 1 July statement had only indicated that this percentage would range between 20% and 30%. The profitability computation will take losses carried forward into account. Where the MNE group is already taxable in a “market” jurisdiction, a reallocation cap (marketing and distribution profits safe harbour) will apply.
Elimination of double taxation and dispute resolution

Measures to prevent double taxation between residence and market jurisdictions will be included in a multilateral convention to implement Amount A with relief to be provided either through the exemption or credit method. The proposal will also include a binding dispute prevention and resolution mechanism. However, for developing countries benefiting from a deferral under BEPS Action 14, this mechanism will be elective, subject to regular review. Finally, all countries participating in the multilateral convention will renounce and commit to revoke digital services taxes and similar measures.


Details are yet to be provided, but the Inclusive Framework indicates that a single entity of an in-scope MNE group may handle the additional tax compliance processes arising from Pillar One. Work on Amount B (simplified transfer pricing for baseline marketing and distribution activities) shall be completed by the end of 2022.

What does the Pillar Two deal entail?

The combined set of measures

As expected, Pillar Two will consist of four different rules: the income inclusion rule (IIR), a switch-over rule (SOR, to facilitate the application of the IIR in a treaty context), an undertaxed payment rule (UTPR, which serves as back-stop to the IIR) and a subject-to-tax rule (STTR). The IIR (with the SOR) and UTPR are together referred to as the “GloBE Rules”. For more details on this set of rules, please see our publication dated 13 October 2020.

The tax rates

The GloBE rules seek to ensure that profits in any jurisdiction are at least subject to the minimum effective tax rate of 15% (this minimum GloBE effective tax rate was not increased, in the end).

The STTR, which is a top-up withholding tax on certain mobile payments (primarily interest and royalties) will be triggered when the payment is subject to a (or an adjusted) nominal rate of less than 9% at recipient level.


  • Excluded entities
    In line with the Blueprint of October 2020, where the Ultimate Parent Entity of the consolidated group would be an investment or pension fund, a governmental entity, a non-profit organisation, or an international organisation, the GloBE rules will not apply to these entities and to investment holding vehicles they control. The carve-out does not extend, however, to MNE groups meeting the EUR 750 million global turnover threshold that are controlled by an excluded entity.
  • Sectoral carve-out
    International shipping income (as defined for purposes of article 8 of the OECD Model Tax Convention) is excluded from the scope of the GloBE rules.
  • Substance-based carve-out
    For the computation of the GloBE effective tax rate, the jurisdictional tax base will be reduced by 8% of the carrying value of tangible assets and by 10% of the payroll. A 10-year transitional period will bring down these carve-out rates to 5%.
  • De-minimis exclusion
    If an MNE realizes both less than EUR 1 million of profits and less than EUR 10 million of income in a given jurisdiction, the GloBE rules will not apply to profits realised in that jurisdiction. Other safe-harbours and simplification measures are yet to be revealed.
  • Specificities of distribution-based tax systems
    If profits realised in such jurisdictions are distributed within 4 years and at that time subject to the minimum effective tax rate of 15%, the GloBE rules will not apply.

What are the next steps?

The international agreement is not automatically applicable. It first needs to be implemented by the signatories. At EU level, the European Commission plans to propose a directive on Pillar Two swiftly after the technical proposal is released to ensure a harmonised implementation of the agreement. A directive on Pillar One may also follow in 2022. All EU member states, except for Cyprus, are part of the Inclusive Framework and have agreed to the international agreement. Cyprus also appears to support it. Therefore, the adoption of an EU directive is unlikely to raise complications, as the Commission also appears willing to strictly follow the international agreement. EU member states would then need to implement the directives in national legislation for them to take effect.

The Inclusive Framework members committed to implementing the rules as they will be laid down in the final technical proposal, if they choose to implement them and, if they do not, to respect other jurisdictions’ application of Pillar Two rules in line with the technical proposal. As an exception, jurisdictions can be stricter on the scope and apply the IIR to MNE groups that do not meet the EUR 750 million global turnover threshold.

Model rules for Pillar Two, including a model treaty provision for the STTR, should be released by the end of November 2021, with that multilateral instrument open for signature and ratification in 2022. The IIR, SOR and STTR would then apply as from 2023, and the UTPR would be effective as from 2024. The interaction with GILTI will depend amongst others on the announced U.S. tax reform.

As to Pillar One rules, the plan is to have a multilateral convention developed by early 2022 to determine the features of Amount A. The hope is to have sufficient ratifications still in 2022, so that the reallocation of taxing rights on Amount A can occur as from 2023. The multilateral convention would include a removal of and renouncement to digital service taxes and similar measures. Technical work on Amount B will continue throughout 2022.

What can taxpayers do?

Implementing the agreement by 2023 is very ambitious, but political pressure is strong, so that at least part of the Pillar Two rules can be reasonably expected to enter into force in a number of jurisdictions in 2023. However, different speeds of implementation between jurisdictions may create increased complexity.

  1. Gathering information
    This includes collecting information to (i) compute jurisdictional effective tax rates under the GloBE rules and (ii) assess which jurisdictions could claim taxing rights on Amount A. MNE groups should also monitor which of their tax jurisdictions levy tax on intragroup interest, royalties and some other categories of mobile income at a nominal rate of less than 9%.
  2. Modelling
    Data used for country-by-country reporting purposes can provide a good start for such assessment but will need to be refined for detailed impact assessment.
  3. Thinking forward
    Since most rules are expected to enter into force in 2023, the key lessons drawn from the modelling exercise should help MNE groups in assessing the need for restructuring to mitigate tax compliance complexity and increased taxation. This assessment will notably depend on the national tax reforms further to this global tax overhaul, the cost/benefit analysis of being present in certain jurisdictions, and the available mechanisms to mitigate the risk of double taxation.

We will keep you informed about further developments. Should you have any question or need assistance in assessing the impact of the rules, please contact a member of our Digital Economy Taxation team or your trusted Loyens & Loeff adviser.