Two-Pillar Solution (OECD/G20 Framework)

The Two-Pillar Solution is a comprehensive international tax reform package agreed by the BEPS Inclusive Framework in October 2021. It addresses the tax challenges arising from the digitalisation of the economy and base erosion and profit shifting (BEPS) through aggressive tax planning.

Pillar 1 creates new taxing rights for market jurisdictions over large and highly profitable multinational enterprises; however, implementation via the Multilateral Convention (MLC) remains pending. Pillar 2 introduces a global minimum tax of 15% for MNE groups with revenues of at least EUR 750 million, implemented through the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR) and the Qualified Domestic Minimum Top-up Tax (QDMTT). Both pillars are intended to replace unilateral digital service taxes and to curb tax competition over the long term.

The OECD began work on a consolidated solution for taxing the digital economy in 2019, after earlier approaches (nexus concept, PE definition) were assessed as insufficient. In May 2019, the Inclusive Framework adopted a Programme of Work; in October 2019, the Unified Approach for Pillar 1 followed. After intensive negotiations, delayed by the COVID-19 pandemic, the Inclusive Framework reached a high-level agreement in July 2021 and the final agreement on 8 October 2021 with 136 of 140 members (more joined subsequently). Implementation began in 2022 with the publication of the GloBE Model Rules. Pillar 2 has been in force in numerous jurisdictions since 2024, while the Multilateral Convention (MLC) for Pillar 1 remains unsigned after repeated deadline extensions.

The Two-Pillar Solution applies to MNE groups meeting the respective revenue thresholds. Pillar 1 (Amount A) targets groups with global revenues above EUR 20 billion and profit margins above 10%; this threshold is to be reduced to EUR 10 billion after seven years. Pillar 2 targets groups with consolidated annual revenues above EUR 750 million in at least two of the four preceding fiscal years. Exclusions apply for government entities, international organisations, non-profit organisations, pension funds, and the initial phase of international expansion.

• Implement Pillar 1 via multilateral convention (MLC) for Amount A (new taxing rights) and Amount B (simplified transfer pricing for baseline distribution activities)
• Implement Pillar 2 via domestic legislation based on OECD Model Rules
• Calculate effective tax rate (ETR) under Pillar 2 rules per jurisdiction
• Collect top-up taxes where the 15% minimum tax is not met (Income Inclusion Rule and Undertaxed Profits Rule)
• Implement the Subject to Tax Rule (STTR) via a multilateral instrument for developing countries
• Abolish existing digital service taxes in exchange for Pillar 1 implementation
• Optionally introduce a Qualified Domestic Minimum Top-up Tax (QDMTT)

1 correction:
- Programme of Work was adopted May 2019, not October 2019
5 updates:
- Pillar 1 threshold reduction to EUR 10 billion missing
- Important milestones 2022-2024 missing
- key_dates: Programme of Work May 2019 missing
- Pillar 1 status (MLC not signed) missing
- official_url uses outdated OECD URL structure
3 clarifications.
5 notes.