On July 1, 2021, in an historic agreement, 130 countries approved a statement providing a framework for reform of the international tax rules. These countries are members of the OECD/G20 Inclusive Framework on BEPS (“IF”), comprising 139 countries. The statement sets forth the key terms for an agreement of a two-pillar approach to reforms and calls for a comprehensive agreement by the October 2021 G20 Finance Ministers and Central Bank Governors meeting, with changes coming into effect in 2023. Pillar One of the agreement is a significant departure from the standard international tax rules of the last 100 years, which largely require a physical presence in a country before that country has a right to tax. Pillar Two secures an unprecedented agreement on a global minimum level of taxation which has the effect of stipulating a floor for tax competition amongst jurisdictions. 

The five-page statement reflects high-level agreement on key political questions and design features of Pillars One and Two following a two-day meeting of the IF. Of the 139 members of the IF, 130 had signed onto the statement as of its release. IF members that have not joined in the statement are: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Peru, St. Vincent and the Grenadines, and Sri Lanka. Several of these members (including Ireland and Hungary) had expressed concerns in the weeks leading up to the IF meeting.

The statement diverges in important respects from the Pillar One and Pillar Two Blueprints, released by the IF in October 2020. However, in a number of respects the statement builds on the Blueprints and resolves some of the key open items from the Blueprints.

Pillar 1: Reallocation of profits for large companies to market countries

Pillar One’s Amount A would provide a new taxing right to market jurisdictions, allocating a portion of residual profit based on a formulary approach. The statement reflects important developments with respect to the scope and computation of Amount A. The statement reaffirms that Amount B is intended to streamline the application of the arm’s length standard to routine marketing and distribution activities, but does not substantively address Amount B, which is on a separate track for completion.


According to the statement, Pillar One will apply to multinational groups that have more than EUR 20 billion of global turnover and profitability above 10 percent (measured as profits before tax divided by revenue on a book basis). This threshold would be reduced to EUR 10 billion 7 years after Pillar One enters into force contingent on successful implementation.

KPMG Observation: The agreed scope is a dramatic departure from the Pillar One Blueprint, which had focused on businesses engaged in “automated digital services” and “consumer facing businesses.” Based on the defined scope, it appears that Amount A is likely to initially apply to approximately 100 companies.

The statement provides that segmentation would only be required in exceptional circumstances in which, based on the segments disclosed in the financial accounts, a segment meets the scope thresholds. 

KPMG Observation: Based on the language in the statement, segmentation would apply if a multinational enterprise (“MNE”) did not meet the profitability threshold on a consolidated basis, and a segment of that MNE (as reported for financial statement purposes) exceeded both the turnover and profitability thresholds. It is not clear whether segmentation would also apply if an MNE did meet the profitability threshold on an overall basis and also had one or more disclosed segments that meet the thresholds.

The statement provides that extractives and regulated financial services will be excluded from Amount A. 

KPMG Observation: It is unclear whether the scope of the exclusions for extractives and regulated financial services will be the same as that described in the Pillar One Blueprint.

Calculation of New Taxing Right

The statement provides that for in-scope MNEs, between 20 and 30 percent of residual profit (defined as profit in excess of 10 percent of revenue) will be allocated to market jurisdictions with nexus using a revenue-based allocation key. 

KPMG Observation: The statement’s allocation of “between 20-30%” of residual profit differs from the “at least 20%” language from the G7 Finance Ministers and Central Bank Governors Communique by capping Amount A to 30 percent.

As described in the statement, nexus for Amount A will be based solely on an MNE’s sales in a market jurisdiction. For this purpose, a bifurcated threshold applies. For most jurisdictions, nexus will only exist if the in-scope MNE derives at least EUR 1 million in revenue from the jurisdiction. For smaller jurisdictions with gross domestic product (“GDP”) less than EUR 40 billion, the nexus threshold is reduced to EUR 250,000 in revenue. The statement notes that compliance costs, such as those associated with tracing small amounts of sales, will be “limited to a minimum.”

KPMG Observation: The lower threshold for small jurisdictions would only cover a small portion of overall economic activity. Based on data from the World Bank, it appears that jurisdictions that fall below the EUR 40 billion GDP threshold comprise less than 2% of total global GDP.

Tax Certainty

The statement commits to making mandatory binding dispute prevention and resolution mechanisms available for in-scope MNEs. These mechanisms would cover all issues related to Amount A, including transfer pricing and business profits (e.g., permanent establishment) disputes. While the dispute prevention and resolution mechanisms would generally be mandatory, the statement notes that consideration will be given to making them elective for certain developing countries (i.e., those that have few or no mutual agreement procedure cases and are eligible for deferral of their BEPS Action 14 peer reviews).

Implementation and Unilateral Measures

The statement provides that Amount A will be implemented through a multilateral instrument, which will be opened for signature in 2022. Amount A is anticipated to take effect beginning in 2023. The final agreement on Amount A will provide for the removal of all digital service taxes and “other relevant similar measures” for “all companies.”

KPMG Observation: The language of the statement suggests that digital service taxes and other unilateral measures will be eliminated for all companies, not just for MNEs within the scope of Amount A. The statement does not provide detail on how relevant measures will be identified, or on the timing for their removal.

Pillar 2: Global Minimum Tax

Overall design

The statement describes Pillar Two as:

  • two interlocking domestic rules (Global anti-Base Erosion (GloBE) Rules): (i) an Income Inclusion Rule (IIR), which imposes top-up tax on a parent entity in respect of low taxed income of constituent entities within an MNE group, and (ii) a supporting Undertaxed Payment Rule (UTPR) which denies tax deductions, or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR; and
  • a treaty-based Subject to Tax Rule (STTR), which allows limited source taxation at a rate of 7.5% to 9% on interest, royalties, and certain other related party payments that are subject to tax below a minimum rate. Any tax paid under the STTR is creditable under the GloBE Rules.

The statement notes that the IIR and UTPR use a common definition of covered taxes and a tax base determined by reference to financial accounting income, with agreed adjustments consistent with the tax policy objectives of Pillar Two and mechanisms to address timing differences. Special ETR calculation rules are provided for jurisdictions with distribution tax systems.

KPMG Observation: The language included in the statement makes no reference to the specific approach for managing timing difference. While the Pillar Two Blueprint contained a detailed carry-forward approach, the statement seems to leave open the possibility of alternative approaches, such as deferred tax accounting.

The statement notes that the IIR allocates top-up tax based on a top-down approach in which the application of the IIR by the jurisdiction at or near the top of the ownership chain of the MNE group takes priority, subject to a split-ownership rule for shareholdings below 80%. It further states that the UTPR allocates top-up tax from low-tax constituent entities including those located in the UPE jurisdiction under a methodology to be agreed.

KPMG Observation: Significantly, the UTPR design in the Pillar Two Blueprint had a special capping mechanism that limited the application of the UTPR to the UPE. The language in the IF statement - “including those located in the UPE jurisdiction” - seems to call into question whether such a cap is still being contemplated.

The statement describes the GloBE Rules as a “common approach,” meaning that IF member jurisdictions are not required to adopt the GloBE rules, but must accept their application by other IF members (including the specified rule order and the application of any agreed safe harbors). IF members that adopt the GloBE rules would agree to implement and administer the rules consistently with the agreement reached on Pillar Two.

KPMG Observation: While the GloBE rules are presented as a common approach, the statement provides that IF members applying nominal rates below the STTR rate to covered payments would agree to incorporate the STTR into their bilateral treaties with developing IF members when requested to do so, indicating that the STTR would be more akin to a minimum standard.


The statement provides that the GloBE rules will apply to MNEs with revenues exceeding the EUR 750m threshold as determined under BEPS Action 13 (country by country reporting). Countries are, however, noted to be free to apply the IIR to MNEs headquartered in their countries whose revenue fall below this threshold.

Exclusions are provided from the GloBE rules for government entities, international organizations, non-profit organizations, pension funds or investment funds that are ultimate parent entities (UPE) of an MNE group or any holding vehicles used by such entities, organizations or funds.

KPMG Observation: Under this approach, the UTPR would still be limited in application to MNEs above the €750m revenue threshold. While not explicit, it appears that the threshold would still apply to the application of the IIR to MNE subgroups (i.e. where a jurisdiction other than the residence of the UPE applies the IIR).

International shipping income is also excluded from the GloBE rules using the definition of such income under the OECD Model Tax Convention.

In addition, while not directly positioned as an “exclusion”, the statement notes that the IF is exploring excluding MNEs in the initial phase of their international activity.

Minimum tax rate

The statement provides for a minimum tax rate of at least 15% for purposes of the GloBE Rules.

KPMG Observation: The failure to indicate a specific rate indicates that further negotiation of the rate will be required.


A formulaic substance carve-out is provided that would exclude an amount of income from the GloBE rules, determined as a mark-up on the carrying value of tangible assets and payroll. The mark-ups would be at least 7.5% for the first 5 years in which the rules are in effect and at least 5% after that. 

The IF statement also provides for a de minimis exclusion.

KPMG Observation: The statement explicitly links the discussion of the minimum tax rate to the availability of carveouts. While the statement does not indicate an intent to apply favorable rules with respect to existing tax incentives, the carve outs, the possible exclusion for MNEs starting to expand overseas, and the deferred implementation of the UTPR may combine to preserve the value of some incentives otherwise impacted by Pillar Two.


The statement provides that the Pillar Two rules are anticipated to be brought into law in IF member jurisdictions in 2022, and made effective beginning in 2023.

It is noted that IF member jurisdictions will finalize remaining issues and release a detailed implementation plan by October 2021. The implementation plan will include (i) GloBE model rules with proper mechanism to facilitate over time the coordination of the GloBE rules that have been implemented by IF members, including the possible development of a multilateral instrument, (ii) an STTR model provision together with a multilateral instrument to facilitate its adoption, and (iii) transitional rules, including the possibility of a deferred implementation of the UTPR.

KPMG Observation: A 2023 effective date for the Pillar Two rules seems to assume prompt resolution of all remaining open issues, and swift implementation. It seems particularly challenging for the STTR to be effective by 2023 since its widespread adoption would require a multilateral instrument.

Open issues

While the statement represents very significant progress, many key political and technical issues remain open, including:

GloBE rules:

  • The precise minimum rate to be applied
  • Mechanism for managing timing differences for the ETR calcualtion
  • Precise mark-up percentages on the carrying value of tangible assets and payroll
  • Design of the “de minimis exclusion” carve-out
  • Design of exclusion for MNEs in the “the initial phase of their international activity”
  • Design of elements to ensure “limited impact on MNEs carrying out real economic activities with substance”
  • Transitional related issues including the treatment of pre-existing losses
  • Design of the UTPR generally
  • The scope of simplification measures, including “safe harbors and/or other mechanisms”


  • Precise minimum rate
  • Scope of “other payments”
  • Rules for determining the tax rate on specific payments

EU Tax Centre Comment

The consensus among 130 of the Inclusive Framework members is a significant development that increases the likelihood that agreement can be reached within the EU as well. The European Commission has stated that a consistent implementation of Pillar 1 and 2 in all EU Member States, ensuring compatibility with EU law, requires new EU Directives. This EU legislative route could lead to timing issues, assuming that the EU proposals are launched early 2022.

Adoption of EU Directives implementing the new global standards would be subject to unanimous agreement among Member States, not all of which have signed the IF Statement. According to data published by the European Commission in respect of 2019, Bulgaria, Cyprus, Croatia, Estonia, Hungary, Ireland, Lithuania and Romania are the Member States where the effective tax rate (calculated according to the Commission’s methodology) is lower than 15 percent. Of the 27 EU Member States only Cyprus is not a member of the OECD Inclusive Framework and has therefore not expressed a formal opinion on the agreement, whereas Estonia, Hungary and Ireland – Member States that are part of the IF group, have chosen not to sign the Statement at this stage.

In a statement published after the release of the OECD announcement, Irish Finance Minister, Paschal Donohoe noted that Ireland fully supports the Pillar One proposals and expressed broad support for the agreement on Pillar Two but has reservations about the proposal for a global minimum effective tax rate of at least 15%. Ireland is therefore not in a position to join the consensus but will “constructively engage in these further discussions and technical work over the coming months”. Ireland’s headline tax rate is 12.5%.

As regards the future of unilateral digital services taxes (DST) imposed by some Member States, it appears that the intention is for these to be eliminated. The statement does not provide detail on how relevant measures will be identified, or on the timing for their removal. Furthermore, the European Commission is expected to publish its proposal for an EU-wide digital levy (as a new own resource) in July 2021. In its May 18 Communication, the Commission noted that, once set-up, the digital levy would co-exist with the Pillar One agreement, as implemented in EU law. It remains to be seen if the Commission will maintain this position and, if so, how this would work in practice.