BEPS 2.0 - Pillar One and Pillar Two

Certain Multinational Enterprises exploit gaps and mismatches in the tax rules of different countries to avoid paying tax. These tax planning strategies are known as base erosion and profit shifting (BEPS).

BEPS strategies can disproportionally effect developing countries, and the risks are increasing because of the digitalisation of the global economy. These issues are being addressed by the Organization for Economic Cooperation and Development (OECD), who propose to rework the current framework for international taxation – this new framework is commonly referred to as BEPS 2.0.

The BEPS 2.0 package consists of two key pillars:

• Pillar One is focused on profit allocation and nexus
• Pillar Two is focused on a global minimum tax

The aim of these two pillars is to ensure that Multinational Enterprises (who, thanks to digitalisation, can access global markets with relative ease) pay a fair amount of tax in ‘the right place’. The pillars also set a global minimum tax rate.

The OECDs BEPS 2.0 initiative will have major implications in the following scenarios:

• Multinational Groups with global turnover in excess of €20 billion and profits before tax above 10% of turnover (Pillar 1 – Amount A), with exclusions for the Extractive Industry and Regulated Financial Services.
• All Multinational Groups with marketing and distribution entities (Pillar 1 – Amount B).
• Multinational Groups with global turnover in excess of €750 million (Pillar 2).

Over 130 OECD member jurisdictions have agreed to the ‘two-pillar’ solution and an implementation plan, which was approved at the G20 summit in Rome in October 2021. BEPS 2.0 will be effective from 2023, however there have been some delays in the timeframe, with both Pillar 1 and some aspects of Pillar 2 now expected to come into force in 2024.

Full updates on the BEPS 2.0 implementation can be found in our summary sheet which focuses on the “Who, What, Where, When, Why and How” of BEPS 2.0, and provides guidance on key steps that Multinational Enterprises should take now, from a compliance, systems, effective tax rate, and shareholder value perspective.

Get in touch with our Corporate Tax team to discuss more.