OECD/G20 Inclusive Framework Agreement on BEPS 2.0

130 of the 139 members of the BEPS OECD/G20 Inclusive Framework approved a statement providing a framework for international tax reform.

130 of the 139 members of the BEPS OECD/G20 Inclusive Framework approved a statement....

On 1 July 2021, in an historic agreement, 130 of the 139 members of the OECD/G20 Inclusive Framework on BEPS (IF) approved a statement providing a framework for reform of the international tax rules. The IF statement sets out the key terms for an agreement on a two-pillar approach 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. In this article, we set out a number of the UK observations on the IF statement.

IF members that have not joined in the statement are: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Peru, St. Vincent & the Grenadines and Sri Lanka.  Several of these members (including Ireland and Hungary) had expressed concerns leading up to the IF meeting.

The statement diverges in some important respects from the October 2020 IF Pillar One and Pillar Two Blueprints, albeit largely in ways that have been widely-trailed in recent months.  The statement builds on the Blueprints, resolving some of the key open items (such as the baseline for a minimum tax rate under Pillar Two), and setting out a clear timeline for resolution of the remaining matters (such as simplification measures and general implementation).

For prior coverage of the Blueprints, please refer to our summary article.

Pillar One

The statement addresses some of the questions that the largest UK-headquartered multinational enterprises (MNEs) may have had on Pillar One in the light of the Blueprint (and perhaps more recently in the light of the G7 Communiqué in June).

The distinction between different types of business (such as ‘automated digital services’ and ‘consumer facing businesses’) has been replaced by a turnover and profitability threshold, which is a departure from the  previous scope of Pillar One, and which should mean that only a handful of UK headquartered MNEs currently fall within the scope of Pillar One. 

Regulated Financial Services are excluded from scope, in a major victory for the UK.  As expected, the UK Digital Services Tax will need to be repealed for all companies as part of the implementation of these reforms.

Also excluded from scope is the Extractives industry, however Extractives MNEs will likely be required to review whether specific segments of their business may meet the financial threshold and will be awaiting further guidance in this area.


The statement also provides a clear indication on nexus for Amount A, meaning that MNEs can start reviewing in which jurisdictions they will likely meet the new nexus rule.

The mandatory binding nature of the dispute prevention and resolution mechanisms will be welcomed. However as mentioned in the statement, there are clear questions over how this will operate for developing countries that have no or low levels of Mutual Agreement Procedure (MAP) disputes.

Greater clarity on mechanisms to relieve double taxation will be required, and references made to compliance costs being kept to a minimum will likely be met with a degree of scepticism. 

Amount B

Finally, the statement places Amount B on a separate track, with work being completed by the end of 2022. UK MNEs should continue to monitor developments closely.  The industries of the UK MNEs likely in scope means that they are unlikely to create new taxable nexus in jurisdictions subject to Amount A, meaning that Amount B will likely impact the overall allocation of Amount A.

Pillar Two

Minimum rate

Pillar Two secures an unprecedented agreement on a global minimum level of taxation of at least 15 percent, which has the effect of stipulating a floor for tax competition amongst jurisdictions.


The threshold for the Global anti-Base Erosion (GloBE) rules to apply remains the same as seen in the Blueprint (namely, the country-by-country reporting threshold of Euro 750 million), but interestingly (and as envisioned in paragraph 678 of the original Pillar Two Blueprint) countries are free to apply the income inclusion rule (IIR) to MNEs headquartered in their country even if they do not meet such threshold.

Overall design

The statement confirms that the IIR and Undertaxed Payment Rule (UTPR) use a common definition of covered taxes and a tax base determined by reference to financial accounting income, with agreed adjustments to address timing differences. However, the statement makes no reference to a specific approach for managing timing differences, leaving open the possibility of alternative approaches, such as deferred tax accounting, which have been the subject of heavy lobbying by capital-intensive industries.

While the GloBE rules are presented 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), the statement provides that IF members applying nominal corporate tax rates below the treaty-based Subject to Tax Rule (STTR) rate of 7.5 to 9 percent to covered payments (e.g. interest and royalties) 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 precise trigger rate under the STTR and the scope of ‘other related party payments’ are subject to further negotiation.


In terms of carve-outs, the statement explicitly links the discussion of the minimum tax rate to the availability of carve-outs. However, the precise mark-up percentages on the carrying value of tangible assets and payroll, and the design of the ‘de minimis exclusion’ carve-out are yet to be agreed so that the IF’s objective of ensuring “a limited impact on MNEs carrying out real economic activities with substance” can be met.


A 2023 effective date for both Pillar One and Pillar Two rules seems to assume prompt resolution of all remaining open issues, and swift implementation.

UK MNEs should now therefore without further delay be undertaking the extensive preparatory work necessary to be ready to comply with these rules in a little over 18 months.  The size of the potential undertaking here for an MNE with global operations should not be underestimated, and it is critical that in-scope groups move quickly now to undertake three key activities:

(i) Model at a high-level the anticipated tax cost of these new rules and communicate with the C-Suite and other stakeholders;

(ii) Engage in the consultation process over the summer to inform and shape the evolution of the final package of measures in order to minimise administration burdens whilst still ensuring effective implementation; and

(iii) Begin the process of planning ahead for the necessary changes in legal entity and supply chain structures, together with starting the significant overhaul of systems & processes required in order to be ready to comply from 2023.  

If you would like to discuss the statement in more detail or have any questions, please speak to one of KPMG UK’s BEPS specialists:

Kash Javed, Head of International Tax (Partner)
E: kashif.javed@kpmg.co.uk
M: +44 (0) 7584 156 013

Matthew Herrington, Head of International Tax and Deal Advisory Tax – Corporates (Partner)
E: matthew.herrington@kpmg.co.uk
M: +44 (0) 7810 527 497

Andrea Tolley, Head of Transfer Pricing - Corporates (Partner)
E: andrea.tolley@kpmg.co.uk
M: +44 (0) 7517 111 932

Mark Semple, Head of International Tax - Financial Services (Partner)
E: mark.semple@kpmg.co.uk
M: +44 (0) 7919 132 675

Joe Groenen, International Tax (Director)
E: joseph.groenen@kpmg.co.uk
M: +44 (0) 7517 112 127