Tax & Assurance Guidance

Historic Global Tax Reform on the Horizon

Posted on August 10, 2021 by

Sue Tuson

Sue Tuson

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The G-20 international forum met on July 11, 2021 to discuss plans to create a global minimum tax of 15%. This group of 19 countries and the European Union discusses matters that help shape financial policy. The Organization for Economic Co-operation and Development (OECD) has proposed a two pillar framework designed to address the needs of a global digital economy. Take a look at the key aspects of this proposed framework.

Pillar One

Pillar one addresses the allocation of profits to jurisdictions where a multinational enterprise’s (MNE’s)  market base is located. This would initially apply to MNEs with global revenues exceeding 20 billion euros and profitability above 10% before tax. The revenue threshold would be reduced to 10 billion euros, contingent on the successful implementation of this new framework. The review process would occur seven years after the agreement goes into force.

The proposal provides for new nexus rules permitting taxation without a physical presence and the allocation of taxable income to jurisdictions based on revenue allocation. Revenue would be sourced to countries based on where goods or services are used or consumed. If profits are already being taxed in a market jurisdiction, a marketing and distribution profits safe harbor would cap the residual profits allocated to the jurisdiction. Other aspects of this proposed framework include an exemption or credit methodology to relieve double taxation, and simplifying the arm’s length principle for marketing and distribution activities. Tax compliance would be streamlined to allow MNEs to manage the process through a single entity. The intention is to reach an agreement on the framework by 2022 and implement the new rules in 2023.

Pillar Two

Pillar two creates a 15% global minimum tax through anti-base erosion rules (GloBE). The GloBE rules would apply to MNEs that meet a 750 million euro annual gross revenue threshold as defined under BEPS Action 13. The rules are intended to impose a minimum tax using a common tax base calculated in reference to financial accounting income with agreed adjustments. An income inclusion rule (IIR) would impose a tax on a parent entity with respect to low taxed income of a constituent entity. An Undertaxed Payment Rule (UTPR) would deny deductions or require adjustments to the extent the low taxed income of a constituent entity is not subject to tax under the income inclusion rules.

Additionally, there would be a subject to tax rule (STTR) that allows source jurisdictions to impose limited source taxation on certain related party payments that are being taxed below a minimum rate. The proposed minimum rate for STTR transactions is between 7.5% to 9%. The intention is to use these rules to create a minimum effective tax rate of at least 15%. The OEDC is working on getting the rules adopted in 2022 so they can become effective in 2023.

The final agreement is not expected until the G20 Summit that will take place in October in Rome.

Contact Us

If you have questions about this proposed tax reform and potential impacts, we can help. Contact us today to learn more. We look forward to speaking with you soon.

Sue Tuson


With her advanced technical skills and experience with complex global businesses, Sue is known to be a creative & responsive international tax advisor.

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