OECD/G20 Inclusive Framework agreement on BEPS 2.0

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.

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.

The OECD will seek to reach a global and consensus-based solution building on the Blueprints following which technical details for both Pillars are expected to be finalised at the G20 Rome Summit scheduled for the end of October 2021.

For the avoidance of doubt, consensus at the OECD on a global minimum taxation regime under Pillar Two would not compel jurisdictions such as the Crown Dependencies to modify their corporate tax rates. The proposal instead contemplates agreement on a set of coordinated measures designed to top-up the tax on cross-border income that falls below the agreed minimum tax. The top-up tax could be imposed by either the jurisdiction in which the parent company of an entity is located (through an “income inclusion regime”) or by a jurisdiction from which deductible payments are made (through an “undertaxed payments rule”).  

The technical details are expected to be finalised by the G20 Summit in Rome later this year, however under current proposals Pillar Two would only apply to the largest multinational enterprises (with consolidated group revenue of at least €750m) and contains exemptions for investment funds, pension funds and governmental entities (such as sovereign wealth funds).

The Crown Dependencies, as members of the OECD/G20 Inclusive Framework, have actively participated in discussions on the design of the Pillars since their inception and, irrespective of the conclusions ultimately reached, remain focused on offering a stable, transparent and well-regulated business environment.

If you would like to discuss the potential implications of these developments in more detail or how they might impact your business, please do not hesitate to get in touch with your usual KPMG contact.