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Ireland, Estonia and Hungary sign up to global tax reform


Published: 12 Oct 2021 Update History

The OECD’s two-pillar approach to tackling the taxation of large multinationals has gained further traction with new signatories, as further details are revealed. ICAEW’s Tax Faculty explains the key changes from those unveiled in July.

On 8 October, the OCED announced that 136 countries and jurisdictions had now signed up to its two-pillar solution aimed at tackling the international tax challenges arising from digitalisation.

The OECD is developing a two-pillar approach to address the issues of multinational enterprises (MNEs) exploiting gaps and mismatches between different countries’ tax systems.

  • Pillar one seeks to achieve a fairer distribution of profits and taxing rights between countries.
  • Pillar two will put a floor on competition on corporate income tax by introducing a global minimum rate that countries can use to protect their tax bases.

Since the details of the two-pillar solution were announced on 1 July, further negotiations have been happening: the statement issued on 8 October now has the support of all 38 OECD member states and G20 counties.

The OECD inclusive framework on base-erosion and profit shifting has 140 members in total and only four of those members (Kenya, Nigeria, Pakistan and Sri Lanka) have not yet signed up to the two-pillar solution.

The latest eight-page statement on the global tax approach reveals some additional details compared to the 1 July statement.

On pillar one, covering the reallocation of profits to market jurisdictions, the following details have emerged:

  • Profitability will be calculated using an averaging mechanism.
  • 25% of residual profit will be allocated to market jurisdictions (20%–30% previously).
  • An elective binding dispute resolution mechanism will be available for developing economies meeting certain criteria.
  • No new digital services taxes or similar will be imposed on any company from 8 October 2021 until 31 December 2023 (or the coming into force of the multilateral convention for pillar one, if earlier).

The 31 December 2023 date provides a backstop for when pillar one should enter into force. If it does not happen, then it opens the way for countries to introduce new unilateral taxes. However, the statement also confirms that signatories will have to “remove all digital services taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such measures in the future”, which should also apply to the UK’s digital services tax.

On pillar two, which introduces a global minimum tax rate, the following has been agreed:

  • The minimum rate will be 15% for the income inclusion rule and the undertaxed payment rule.
  • The minimum rate for the subject to tax rule (applying to interest, royalties and a defined set of other related-party payments) will be 9%.
  • The undertaxed payment rules will not apply to MNEs in the initial phase of their international activity for a period of five years.
  • The de minimis exclusion will apply to jurisdictions where the MNE has revenue of less than €10m and profits of less than €1m.
  • The implementation of the undertaxed payment rule will be deferred until 2024.
  • The formulaic substance carve out will apply at specified rates (outlined in the table below), before settling at 5% of the carrying value of both tangible assets and payroll following a 10-year transition period.


Tangible assets









7.6% 9.6%


7.4% 9.4%


7.2% 9.2%





6.6% 8.2%


6.2% 7.4%


5.8% 6.6%
10 5.4%


11 onwards



The OECD statement also sets out the implementation plans. The next milestone should be the model rules to give effect to the minimum tax rate and the subject to tax rule, which are expected to be developed by the end of November 2021.

The timeline remains ambitious with the aim for multilateral instruments and conventions for both pillars to be in place for signature by mid-2022 with the aim of entering into force in 2023.

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