OECD agrees on reform of international corporate taxation



In 2015, the OECD and the G20 countries presented a plan with 15 action points to prevent base erosion and profit shifting (BEPS). Action point 1 was dedicated to the tax challenges of the digital economy. The aim here was to take account of the fact that in times of digitalization it has become increasingly easy to shift profits to low-tax countries. The latest development provides for the reform of international corporate taxation and was presented on July 1, 2021. Its centerpiece is a two-pillar concept.

Pillar 1: Fair distribution of taxes

The scheme focuses on multinational corporations with global sales of over €20 billion and a return on investment of over 10%. The turnover threshold of the affected companies is to be lowered to €10 billion in the long term, depending on the success of implementation.

The fair distribution of taxes for the affected companies will be achieved as planned by creating a new connecting factor for taxation (so-called nexus). The current concept does not yet specify any tangible nexus points. The stated goal is to allocate profit where the service is used or the product is consumed. The regulation therefore departs significantly from the previous concept of permanent establishments, which provides for profit to be allocated primarily on the basis of the existing substance of the company.

However, the companies concerned should also benefit from the new regulations. Specifically, the establishment of new dispute avoidance and resolution mechanisms among the member states is planned, which will exclude double taxation and resolve it in a binding manner. The aim is to avoid mutual agreement procedures that drag on for several years and place a financial burden on companies.

Pillar 2: Global effective minimum taxation

The concept now also provides for a global minimum tax of 15%. The taxation is to be achieved firstly by two interlocking national rules, the Global Anti-Base Erosion Rules (GloBE), and secondly by an agreement-based rule, the Subject to Tax Rule (STTR).

  • The first national rule will be the Income Inclusion Rule (IIR), which imposes an additional tax on a parent company on the low-taxed income of a subsidiary.
  • The second national rule will be the Undertaxed Payment Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent that a subsidiary's low-taxed income is not taxed under an IIR.
  • The Subject to Tax Rule (STTR) allows withholding tax on certain payments from related parties. The withholding tax is in turn creditable against the remaining taxation.

As planned, the GloBE Rules only apply to multinational corporations with global sales in excess of €750 million as determined by country-by-country reporting. However, countries are free to apply the rules even if the threshold is lower. However, 5% of profits are excluded from the GloBE Rules (carve-out).


The concept presented is a completely new approach to achieving fair global taxation. The approach moves away from the idea of permanent establishments to taxation at the place of performance or consumption of the goods.

It should be emphasized that the regulations initially apply exclusively to multinational corporations, which means that there will initially be no changes or additional burdens for small and medium-sized enterprises.

The regulations are to be incorporated into the national laws of the member states in 2022 and applied from 2023. The details of the agreement are to be worked out by October. Against the backdrop of an emerging multinational agreement, the EU Commission has already announced that it will postpone its own plans for the introduction of a digital tax for the time being. We will keep you informed about further developments.

By uploading the YouTube video, you consent to cookies being set by YouTube and Google and to data being transferred to these providers. We process the data in order to be able to analyse access to our YouTube videos or to evaluate the effectiveness of our advertising and ads. YouTube and Google also process the data for their own purposes. In addition, you also agree that your data may be transferred to the USA, although there is a risk in the USA that the US authorities may gain access to your data for surveillance purposes and that you may not have adequate legal protection against such. You will find further information in our Data Protection Policy.
Load YouTube Video