BEPS 2.0 - The Two Pillar approach, an overview

Executive summary

Application of age-old international tax regimes to the current, digitally overhauled business environment may lead to significant tax leakages for countries. BEPS 2.0 intends to mitigate this with a two-pillar solution/ approach.


Following a series of revelations around aggressive tax planning and tax evasion, OECD and G20 countries joined hands and published 15 staged action plans to address base erosion and profit shifting (BEPS) in 2015 (viz. BEPS 1.0).

While the BEPS 1.0 initiatives created notable change in international tax rules, it did not comprehensively deal with the tax challenges created by the current, pervasive, digital business environment across industries.

Over the last few years, individual countries have introduced new tax laws/ regulations focusing on the digitalised economy (Digital service taxes, equalization levy etc.)

BEPS 2.0 intends to consolidate the unilateral tax regimes introduced by various countries into an overall consensus between BEPS participant countries (the Inclusive Framework) to avoid double taxation or inconsistent tax treatments.

The Tow Pillar Approach

BEPS 2.0 aims to deal with the challenges of taxing an increasinglydigital economy, split into two pillars:

BEPS Action plan

Pillar One

Pillar Two


New nexus and profit allocation rules offering market jurisdictions new taxing rights over MNEs, whether or not there is a physical presence.

Puts a floor on tax competition between countries to offer the lowest possible corporation tax rates to attract foreign investment, through the introduction of a global minimum corporate tax that countries can use to protect their tax bases.


All MNE groups with gross revenue exceeding €20 billion and profitability above 10% (Profit before tax / revenue).

MNE groups with gross revenue of €750 million or above, in the immediately preceding fiscal year.


The key elements of Pillar One can be grouped into three components:

  • Amount A (new taxing right): 25% of residual profits of MNEs (viz. profit above the 10% threshold) allocated to market jurisdictions using a formulaic approach.
  • Amount B (fixed “baseline” return): For marketing and distribution functions based on arms’ length principle.
  • Tax certainty Through effective dispute prevention and resolution mechanisms, applicable to all businesses

Global Anti Base Erosion Rules (GLoBE):

Designed to ensure large MNEs pay a minimum corporate tax of 15% on the income arising in each jurisdiction where they operate. Includes two interlocking domestic rules:

  • An Income Inclusion Rule (IIR), which imposes top-up tax on a parent entity in respect of the low taxed income of a constituent entity.
  • An Undertaxed Payment Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR

Subject to Tax Rule (STTR):

A treaty-based rule that will protect the right of countries to tax certain base-eroding payments such as interest and royalties, where they are not taxed up to the minimum of 15%.

Progress and Status

These changes are multinational in scope and, despite simplification compared to previous proposals, remain technically complex. The scope of covered businesses has moved far from the original intention of  highly digitalized business models.

While various Draft Rules have been presented for public comments in 2022, the timing for the introduction of Pillar One is unknown and depends on its acceptance by a critical mass of jurisdictions.

Detailed commentary and illustrative rules were released in March 2022 providing guidance on the interpretation and application of the GloBE rules.

In December 2022, an implementation package was  released, which included the following:

Guidance on safe harbour and penalty relief

Public consultation document on the GloBE Information Return

Public consultation document on Tax Certainty for the GloBE Rules

Further, OECD released an administrative guidance on the Globe Rules in February 2023.

137 participating countries that have signed-up to the OECD inclusive framework for a 15% global minimum tax may choose whether they wish to adopt the OECD Pillar Two Model Rules and must accept the application of Pillar Two Rules by other countries.

Further to the above, EU has enacted global minimum tax directive that requires EU jurisdictions to enact domestic legislation for the IIR from 2024 and the UTPR from 2025. A number of other jurisdictions have published proposals for the domestic enactment of Pillar Two, with commencement from 2024.

Impact forecast

Under Pillar One, taxing rights on more than USD 125 billion of profit are expected to be reallocated to market jurisdictions

Under Pillar Two, the global minimum tax, with a rate of 15%, is expected to generate around USD 150 billion in new tax revenues globally


Undoubtedly, there has been significant progress on BEPS 2.0 in the recent past. The focus now is effective execution and implementation, to ensure the yield of intended results. As part of an impact analysis, the OECD anticipates that global tax revenues will rise by 4% due to BEPS 2.0 and will most affect economies with the largest volumes of direct investment.

Watch this space for more updates on BEPS 2.0 and other international tax reforms.