Pillar Two: GloBE Rules

The Pillar Two initiative has its roots in the G20/OECD-led Base Erosion and Profit Shifting (BEPS) project a decade ago. The BEPS Action 1 report, entitled ‘Addressing the Tax Challenges of the Digital Economy’, was released in November 2015. The report highlights that the digital economy is increasingly becoming the economy itself, and it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes.

In 2016, the OECD established the Inclusive Framework on BEPS (IF), which has been working on the two-pillar approach. As an outcome of the ongoing work of the Inclusive Framework, on 12th October 2020, the OECD Secretariat released a package consisting of the report on the Pillar One Blueprint and the Report on the Pillar Two Blueprint.

Pillar One provides taxing rights to market jurisdictions on part of the residual profits earned by large multinational enterprises (MNE) groups. Pillar Two is focused on the ‘remaining BEPS challenges,’ and proposes a systematic solution designed to ensure that MNEs, with annual revenue of EUR 750 million or more, pay a minimum level of tax (agreed at 15%) in each jurisdiction they operate in. 

This paper gives the readers an overview of the Pillar Two project and its journey to date.