This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our PRIVACY POLICY for more information on the cookies we use and how to delete or block them.

Direct Tax Alert - OECD releases statement of Pillar 1 and Pillar 2

23 November 2021


With the advent of digitalisation, there is a paradigm shift in the way businesses are being conducted. While the businesses have seen rapid changes, the tax laws have not been able to keep pace with it. Hence, the businesses were claiming benefit of differential tax regime in different countries and in some cases, though majority of the business activities were carried out, the source country either received negligible or did not receive the fair share of tax revenues. Realising this, in 2018, the OECD had released an Interim Report on Tax Challenges Arising from Digitalisation stating that further work needs to be carried out to understand digitalisation of the economy as well as various business models operated by Multinational Enterprises (MNEs) offering digital goods and services. As a part of consensus-based solution, more than 130 countries in the OECD Inclusive framework have been working on the Two Pillar approach. In October 2020, OECD released a detailed report on the Blueprints on Pillar One and Pillar Two. This was followed by an OECD statement in July 2021, announcing a consensus by 130 countries on a Two-Pillar Solution. In October 2021, the OECD announced that 136 countries have reached agreement on a sweeping overhaul of the international tax system that will impose a 15% minimum tax rate on MNEs and reallocate more than USD 125bn of profits from approximately 100 of the world’s largest and most profitable MNEs to countries worldwide. The eight-pager statement by OECD is an update of its July 2021 blueprint which includes an annex providing important details regarding implementation of the agreement. The new statement follows the outline of the original plan; a two-pronged framework, with Pillar One addressing taxing rights and distribution of residual profits and Pillar Two imposing a global minimum tax.     

We, at BDO in India, have analysed and summarised the said statement hereunder:

Pillar One

  • Pillar One will apply to MNEs with global turnover above EUR 20bn and profitability above 10%.
  • For determining whether a jurisdiction qualifies for the Amount A allocation or not, a new special purpose nexus rule is to be applied. The applicability would depend upon whether the in-scope MNE derives at-least EUR 1mn in revenue from the jurisdiction or not. However, in case of smaller jurisdictions with GDP lower than EUR 40bn, the nexus threshold will be EUR 250,000.
  • Amount A will allocate 25% of ‘residual profits’ (which is defined as profit in excess of 10% of revenue) to market jurisdictions that meet the nexus test. The allocation to be made by using revenue-based allocation key.
  • Mandatory and binding dispute prevention and resolution mechanisms designed to avoid double taxation for Amount A, including all issues related to Amount A (for example, transfer pricing and business profits dispute) will be available for in-scope businesses. For some developing countries (jurisdictions with low levels of mutual agreement procedures), an elective binding dispute resolution mechanism will be available.
  • A multilateral convention (MLC) to be executed to remove of all Digital Services Taxes (DST) and other similar measures with respect to all companies. As part of this measure no newly enacted DST or other similar measures will be imposed on any company from 8 October 2021 and until the earlier of 31 December 2023 or the coming into force of the MLC.
  • Amount A will be implemented through an MLC and, when necessary, through correlative changes to domestic law. The MLC will be developed by early 2022, with the goal of enabling it to enter into force and effect in 2023 once a critical mass of jurisdictions has ratified it.
  • On Revenue Sourcing, detailed rules are to be developed.
  • On Amount B, the application of the arm’s length principle to in-country baseline marketing and distribution activities will be simplified and streamlined, with a particular focus on the needs of low-capacity countries. This work will be completed by the end of 2022.

Pillar Two

  • The overall design of Pillar Two has not been changed from what had originally been described in July 2021. Two interlocking domestic rules that are together known as the Global anti-Base Erosion (GloBE) rules and a treaty-based rule, the Subject to Tax Rule (STTR). These rules combine to impose what has been commonly referred to as the global minimum corporate tax.
  • The global minimum tax rules will apply to MNEs that meet the EUR 750mn threshold as determined under the country-by-country reporting rules. The statement provides a carve-out for government entities, international organisations, non-profits, pension funds and investment funds that are ultimate parent entities of an MNE group, which will not be subject to these rules.
  • The GloBE rules will provide a carve-out that will exclude an amount of income that is 5% of the carrying value of tangible assets and payroll. In a transition period of 10 years, the amount of income excluded will be 8% of the carrying value of tangible assets and 10% of payroll, declining annually by 0.2 percentage points for the first five years, and by 0.4 percentage points for tangible assets and by 0.8 percentage points for payroll for the last five years.
  • The GloBE rules will also provide for a de minimis exclusion for those jurisdictions where the MNE has revenues of less than EUR 10mn and profits of less than EUR 1mn.
  • The nominal tax rate used for the application of the STTR will be 9%.
  • A MLC will be developed by mid-2022 to facilitate the implementation of the STTR in relevant bilateral treaties.

BDO Comments

The agreement is perceived to restore stability to the international tax system and reset the base on which countries compete with one another from a fiscal standpoint. Many technical details remain to be ironed out in the coming months, and the ambitious timeline for implementation remains.

From India’s standpoint several concerns may arise such as:-

  • Impact on its overall revenues now and after implementing the two pillar solution.
  • Renegotiating power to market jurisdictions in case their revenues after implementation suffers.
  • DST be continued for companies with revenue below EUR 20mn.
  • India’s willingness to international dispute resolution.

From a companies’ perspective, it is important that they follow these developments closely, keep watch on measures brought by relevant jurisdictions where they operate and evaluate the potential impact on their businesses. While further work is being carried out, some of the timelines to be kept in mind are:



End of November 2021

Development of the Model treaty provision to give effect to the STTR


  • MLC through which Amount A is implemented will be developed and opened for signature
  • Pillar 2 to be brought into law to be effective from 2023

Early 2022

  • The Task Force for Digital Economy (TFDE) will seek to conclude the text of the MLC and its Explanatory Statement
  • The TFDE to develop model rules for domestic legislation to give effect to Amount A

Mid 2022

High-level signing ceremony of MLC

End of 2022

  • Application of the arm’s length principle to in-country baseline marketing and distribution activities to be simplified (i.e., Amount B)
  • Implementation framework will be developed to facilitate the coordinated implementation of the GloBE rules.


Amount A to come into effect


UTPR to come into effect