OECD released the Reports on the Pillar One and Pillar Two Blueprints

On 12 October 2020, the Inclusive Framework of OECD released a package consisting of the Report on the Pillar One and Pillar Two Blueprints, which will have an impact on the taxation of multinational operated businesses. A new economic impact analysis was also released which shows the combined effect of the two-pillar solutions. The OECD encourages interested parties to comment on the reports until 14 December 2020.

Initially, a consensus solution should have been presented at the end of 2020. However, due to the lack of consensus between the more than 130 jurisdictions, the work has been delayed and OECD intends to present a consensus solution in mid-2021.

Below is a brief overview of Pillar One and Pillar Two Blueprints. We will shortly present a more detailed summary and our view of the Blueprints.




Pillar One is a multilateral solution concerning digital taxation, to ensure that taxation is not exclusively limited to taxpayers with a physical presence (nexus) in a jurisdiction. Instead, the purpose is to redistribute profits to the place where the consumer is (the market jurisdiction) located.

Which industries are covered by the proposals?

Pillar One is intended to include Automated Digital Services (ADS) and Consumer Facing Businesses (CFB). Previously, only CFB were included. Please note that consensus is still lacking, and these may change.

What does Pillar One mean?

The Blueprint presents the three key elements for Pillar One: Amount A, Amount B and Tax certainty. Amount A means a certain proportion of the profit calculated at group level. Amount A deviates from the arm’s length principle. Still, there are no consensus on the formula. Amount B entails a fixed remuneration in line with the arm’s length principle for the Group’s routine, distribution, and marketing functions in the relevant jurisdiction. The third key element, Tax certainty, involves processes to improve predictability for companies and tax authorities through effective mechanisms for the prevention of double taxation and dispute resolution.

The purpose is to adapt the international income tax system through Amount A, Amount B and Tax certainty through changed allocation rules and nexus rules as well as innovative mechanisms for prevention and resolution of disputes.

How to avoid possible double taxation is still unclear, but a multilateral agreement is recommended. 




The overall work – within Pillar Two – aims to work against structures where profits are moved to low tax jurisdiction to reduce or completely avoid taxation and to work against “raise to the bottom” between jurisdictions in terms of the level of its corporate taxation. The Blueprint presents a systematic solution designed to ensure that all multinational operating businesses pay a minimum level of tax regardless of where they are headquartered or which jurisdiction they are operating in.

What does Pillar Two mean?

The meaning of Pillar Two is that multinational operating businesses, whose incomes are not taxed according to a minimum level, could be subject to taxation in other jurisdictions by applying the proposed GloBE-rules.

The Blueprint does not propose a specific level which should be considered as a minimum level of effective tax, so this is something that will be agreed on at a later stage.

The principal mechanism of the proposed GloBE-rules is the Income inclusion rule, which triggers an inclusion at the level of the shareholders where the income of a controlled foreign entity is taxed below the effective minimum tax rate. The Income inclusion rule is supplemented by the Switch-over rule that removes treaty obstacles from its application to certain branch structures and applies where a tax treaty otherwise obligates a contracting state to use the exemption method.

The Blueprint also contains the Undertaxed payment rule that refuses deductions or imposes withholding tax on intragroup payments which are taxed below the effective minimum tax rate. The Undertaxed payment rule should be used as a secondary rule and should only applies when the entity is not already subject to taxation according to the Income inclusion rule. Further, the Subject to tax rule is also proposed, which supplements the other GloBE-rules by denying treaty benefits for certain deductible intra-group payments made to jurisdictions where those payments are subject to no or low taxation.

The Blueprint also address questions of implementation and effective rule coordination.

If you want to discuss how the new guidelines may affect you, you are welcome to contact us.