Bloomberg Tax
Free Newsletter Sign Up
Bloomberg Tax
Advanced Search Go
Free Newsletter Sign Up

OECD Plans to Have Model Rules for Minimum Tax Next Month (1)

Oct. 8, 2021, 7:50 PMUpdated: Oct. 8, 2021, 9:40 PM

The OECD has published an ambitious timeline for how it plans to implement a new global deal to rewrite tax rules.

More than 130 countries around the world signed up Friday to an agreement to dramatically overhaul where and how much tax multinationals pay.

The implementation plan sets out the tasks the Organization for Economic Cooperation and Development must complete by 2023, and includes technical deliberations as well as resolution of some thorny political issues.

The agreement proposes to reallocate part of the tax revenue from the largest and most profitable businesses to countries where they make sales, known as Pillar One, and a global effective minimum tax for corporations, known as Pillar Two.

“I think this statement, while far from putting a bow around a detailed package of new rules, really evidences further meaningful progress toward what I think is a sustainable consensus,” said Manal Corwin, principal in charge for KPMG’s Washington National Tax practice. “Big picture, it’s a big step toward sealing the deal. But there’s a lot to work through in terms of details.”

Pillar One

The design of Pillar One is split into two sections—Amounts A and B. Amount A, which reallocates a fraction of the profits of in-scope multinationals toward market jurisdictions, will affect bilateral tax treaties signed by countries to avoid double taxation—two countries taxing the same income twice.

Countries decided Friday that 25% of residual profits from a small group of the largest and most profitable companies will be taxable in the jurisdictions where the companies have markets, rather than the headquarters countries where they currently book most of their profits.

The OECD plans to write a multilateral convention—a treaty signed by participating countries—for Amount A and open it for signatures in the middle of 2022.

As they create the new instrument, countries must decide how to design the rules that determine where the reallocated profits come from. Friday’s statement said “the entity (or entities) that will bear the tax liability will be drawn from those that earn residual profit.” But depending on the design of those rules, the brunt of the revenue impact could fall more heavily on certain jurisdictions.

In addition, the OECD hopes to release model rules in early 2022 that countries can adopt to implement Amount A.

The OECD will continue working on some key design issues in the Amount A rules, such as how a marketing distribution safe harbor would work.

The Pillar One multilateral convention will also play a key role in coordinating countries’ repeal of the unilateral digital taxes that ratcheted up trade tensions in the years leading to the agreement.

The convention “will require all parties 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,” Friday’s statement said.

It will also define which measures are marked unacceptable under the agreement.

“The modality for the removal of existing Digital Services Taxes and other relevant similar measures will be appropriately coordinated,” the statement added, but didn’t give further details.

The OECD also hopes to complete work by the end of 2022 on Amount B—which would allow countries to use a formula to determine how much tax is due on marketing and distribution activities.

Companies are “very interested in the technical challenges that remain on Pillar One,” including tax certainty, the elimination of double taxation rules, segmentation, a marketing and distribution safe harbor, and Amount B, said Rick Minor, international tax counsel at the U.S. Council for International Business, speaking in his own capacity.

Pillar Two

The 15% minimum effective tax for corporations agreed by countries on Friday will be applied through a series of interacting rules—the income inclusion rule, the undertaxed payments rule, and the subject-to-tax, or STTR, rule.

The OECD said it aims to complete model legislation rules for Pillar Two by the end of November 2021.

Also in November, the group is looking to release a model treaty provision and supplementary commentary for how the STTR will work.

The OECD meanwhile will work on a draft multilateral instrument for implementing the subject to tax rule for mid-2022, or the end of 2022 at the latest, for countries to sign.

Aside from the technical questions to be resolved under both pillars, the pace of implementation could prove a challenge to some countries, the African Tax Administration Forum warned in a statement released Friday.

“This implementation must be done responsibly and in consideration of the fact that not all countries have similar capacity in implementation of the rules,” ATAF said.

(Updates with details and comments throughout.)

To contact the reporter on this story: Hamza Ali in London at

To contact the editors responsible for this story: Meg Shreve at; Vandana Mathur at