The Inclusive Framework on BEPS reaches final agreement on Pillar One and Two

The October IF Statement is similar in many respects to the July 2021 Statement of the IF, with some exceptions:

Pillar One

• Pillar One allocation will be in respect of 25% of the profit that exceeds the deemed normal return.
  
• Principles for determining the surrendering entities from which Amount A will effectively be reallocated to markets have not been clarified. The same can be said for the safe harbour for marketing and distribution.
• On sourcing rules, the Statement generally indicates that “Revenues will be sourced to the end market jurisdictions where goods or services are used or consumed” but admits that “detailed source rules for specific categories of transactions will be developed”, recognising that for some B2B activities, it is not clear what the end market is.
• Timeline: The Multilateral Convention (MLC) through which Amount A is implemented will be developed and opened for signature in 2022, with Amount A coming into effect in 2023.

Digital Services Taxes (DSTs)

• The MLC will imply a repeal of DSTs for all companies.
• The Statement highlights a commitment for countries not to implement new, enacted DSTs between 8 October 2021 and until the earlier of 31 December 2023 or the coming into force of the MLC.

Pillar Two

• The Pillar Two minimum tax rate is now firmly expressed as 15% rather than 'at least 15%'.
• Details of the substance based carve-outs are more specific, with an initial mark-up on tangible assets of 8% and of 10% on payrolls, both declining to 5% in 10 years.
• The application of the Subject To Tax Rule (STTR) has been restricted to double tax treaties between a developing country and a country with a corporate statutory tax rate lower than 9% (previously 7.5% to 9%).
• There is still no definitive statement on the status of the US minimum tax regime (GILTI) as a compliant Pillar Two regime.
• Timeline: Pillar Two should be brought into law in 2022, to be effective in 2023, with the UTPR coming into effect a year later, in 2024.

The G20 Finance Ministers met on 13 October and the G20 Leaders are scheduled to meet on 30 October 2021, where it's expected that the world’s largest economies will provide their final political endorsement of the agreement. However, technical work will continue with probably more detailed rules on the Pillars being made public around the end of November.

Our Tax Policy Alert has more details on the deal and its timing.

Press releases have also been issued by the governments of Guernsey and Jersey.

Should you require any more information or assistance, please get in touch with one of the individuals listed below, or your normal PwC contact in our Channel Islands tax team.