In October 2021, more than 135 members of the OECD/G20 Inclusive Framework on BEPS agreed to a two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy. Work has now begun on the implementation of the two-pillar plan, including consultation with stakeholders on a number of aspects of Pillar One and Pillar Two over the coming months.

The Draft Rules for Nexus and Revenue Sourcing for ‘Amount A’ of Pillar One were published by the OECD on 4 February 2022. Interested parties were given only two weeks to respond. This is one of several building blocks that will be worked on in tandem in order to meet the political timetable agreed in October 2021.

The purpose of the revenue-sourcing rules is to allow in-scope MNEs to identify the relevant market jurisdictions from which revenue is derived, and to apply the revenue-based allocation key. As noted in the October 2021 agreement, revenue is sourced to the end market jurisdictions where goods or services are used or consumed.

A public consultation document will be issued in mid-2022 for Amount B of Pillar One, with a public consultation event to follow the comment period.

What about Pillar Two?

The Pillar Two Model Rules, issued in December 2021, provide a template for domestic implementation of the GloBE Rules. These rules will be supported by a commentary to provide tax administrations and taxpayers with guidance on how to interpret and apply them. This is currently under development, also drawing on input from a Business Advisory Group set up by Business at OECD.

An Implementation Framework is being developed to facilitate the co-ordinated implementation of the GloBE rules. It will address administrative and compliance issues, including the development of safe harbours. A public consultation on the Implementation Framework will be launched later in February, with a consultation event to follow in March.

For the Subject to Tax Rule (STTR) of Pillar Two, the draft model provision and its commentary will be released in March 2022 with a defined set of questions for input. A public discussion draft on the development of a multilateral instrument to facilitate the implementation of the STTR will be released for comment at the same time.