Is the new global tax deal finally here?


The G7 has been in the news for reaching an historic agreement on global tax reform and just recently 132 countries (as of 9 July 2021) of the 139 members of the Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS), which includes the G7, have agreed on a new international corporate tax framework. But what does that mean and how may this impact you?

How did we get here?

To understand this better we should unpack how we got to this point. The Organisation for Economic Co-operation and Development (OECD) and G20 countries adopted a 15-point Action Plan in September 2013 to address BEPS. The OECD took a further step and established the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) in 2016 to work together to assure a consistent and co-ordinated implementation of the BEPS recommendations. Action 1 aims to address the tax challenges arising from the digitalisation of the economy and has been a top priority of the BEPS Project and the IF since the release of the Action 1 Report in 2015. In 2020, the two Pillars of Action 1 were published: Pillar One is focused on nexus and profit allocation, initially within a digital economy but now it includes all economies except for certain carve outs. Pillar Two is focused on a global minimum tax aimed at preventing BEPS by multinational enterprises (MNEs) who use low tax jurisdictions to shelter their income.

What happened in the last few weeks?

The G7 Finance Ministers’ meeting took place on the 5th of June 2021 during which they have agreed to back the two-Pillar global tax reform to address the tax challenges arising from the digitalisation of the economy. This was further backed by the G20 finance ministers who met over the weekend starting 9 July 2021.

As of 9 July 2021, 132 countries and jurisdictions (representing more than 90% of global gross domestic product (GDP)) have agreed to reform international taxation rules and ensure that MNEs pay what is considered to be a fair share of tax wherever they operate. A detailed implementation plan together with remaining issues is set to be completed by October 2021. Below is a summary of the key components of each Pillar which were agreed upon by the 132 member jurisdictions:


Pillar 1


Pillar 2



  • MNEs, with
  • A global turnover greater than EUR 20 billion (to be reduced to EUR 10 billion when the agreement is reviewed seven years after implementation), and
  • Profitability (defined as profit before tax divided by revenue) is greater than 10%.



  • MNEs, with
  • An annual consolidated group revenue greater than EUR 750 million (determined under BEPS Action 13 (country by country reporting)).


Nexus – A new special purpose nexus rule will permit the allocation of Amount A to a market jurisdiction when the in-scope MNE derives at least EUR 1 million in revenue from that jurisdiction. The nexus for jurisdictions with a GDP lower than EUR 40 billion will be set at EUR 250 000.
Safe harbour - Marketing and distribution residual profits (defined as profit in excess of 10% of revenue) will be capped (to the extent that the residual profits are not already taxed in a market jurisdiction) and allocated to the market jurisdiction through Amount A.
Segmentation will occur only in exceptional circumstances where, based on the segments disclosed in the financial accounts, a segment meets the scope rules.
In-scope MNEs will benefit from dispute prevention and resolution mechanisms, which will avoid double taxation for Amount A, including all issues related to Amount A (e.g. transfer pricing and business profits disputes), in a mandatory and binding manner.


Income Inclusion Rule (IIR)* - top-up tax on a parent entity in respect of the low taxed income of a constituent entity. Interestingly, countries are free to apply the IIR to MNEs headquartered in their jurisdiction even if they do not meet the threshold.
Undertaxed Payment Rule (UTPR)* - denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR, and
Subject to Tax Rule (STTR) (‘treaty-based rule’) - allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate.
*Global anti-Base Erosion Rules (GloBE)


Between 20 to 30% of the MNE’s residual profit (defined as profit in excess of 10% of revenue) will be reallocated to market jurisdictions with reference to the new special purpose nexus rule.


The minimum tax rate for IIR and UTPR will be at least 15% for all participating countries.
The minimum rate for the STTR will be from 7.5% to 9%.



  • Extractive sector
  • Regulated financial services industry




  • Government entities, international organisations, non-profit organisations, pension funds or investment funds that are Ultimate Parent Entities (UPE) of an MNE Group or any holding vehicles used by such entities, organisations or funds are not subject to the GloBE rules.
  • An amount of income equal to at least 7.5% of the carrying value of tangible assets and payroll will be exempt from the 15% minimum tax rate (this exemption will reduce to 5% after the transition period of 5 years).
  • International shipping income (as per the OECD Model Tax Convention)



Effective date: An outline plan to be implemented as early as 2023.


Effective date: An outline plan to be implemented as early as 2023.


Work on the pillars yet to be completed


  • Detailed source rules for specific categories of transactions will be developed to simplify the application of revenue sourcing.
  • The design of the marketing and distribution profits safe harbour which will take into account the comprehensive scope.
  • The technical work on Amount B, addressing the application of the arm’s length principle to in-country baseline marketing and distribution activities, is set be finalised by the end of 2022.
  • GloBE Model rules with proper mechanisms to facilitate over time the coordination of the GloBE rules that have been implemented by IF countries, including the possible development of a multilateral instrument for that purpose.
  • An STTR model provision together with a multilateral instrument to facilitate its adoption.
  • Transitional rules, including the possibility of a deferred implementation of the UTPR.

The African Tax Administration Forum’s (ATAF) response

The ATAF has been at the frontline for African countries, actively engaging in the ongoing discussions to ensure all developments by the IF, relating to taxation of the digitalised economy, meet the needs of African countries.

The ATAF recently released communication welcoming the amendments to the two Pillars, stating that the new Pillar One rules are far simpler than the blueprint proposals and will ensure that no member of the IF will be excluded from receiving its reallocation of profit under Amount A. However, the ATAF together with the African Union calls upon the IF to address the tax allocation issue which will give source countries the much-needed taxing right to the revenue.

The ATAF previously proposed to the IF that the reallocation of profits should be calculated as a percentage of total profits and voices its disappointment on the agreed upon residual profit approach. The ATAF is of the opinion that, to close the current imbalance in the allocation of taxing rights, at least 35% of the profits should be reallocated to market jurisdictions. The ATAF has assured its members it will continue to support them to try to achieve meaningful reallocation of profits to market jurisdictions.

The ATAF is also in support of the new Pillar Two rules stating that they are a step in the right direction to prevent revenue leaving Africa through factitious profit shifting. Even though the ATAF welcomes the agreed-upon global minimum tax of 15%, the ATAF and the African Union are of the opinion that this should have been raised to at least 20% to successfully

counteract the factitious profit shifting taking place. The ATAF assured its members it will continue discussions with the IF to try to reach agreement for a minimum rate of at least 20%.

Due to current international tax rules many African countries are not able to tax digitalised businesses and therefore the ATAF will keep supporting the global tax reform work of the IF to restore stability to the international tax system.

Closing remarks

In combination with the recent G7 directive, the current OECD/G20 IF statement serves as a clear demonstration of the global commitment towards adjusting the international tax system to better address the challenges arising out of the digitalisation of the economy.

Taking current developments into consideration, we recommend the following for in-scope MNEs:

  • Remain up to date on the latest announcements by the OECD/G20 IF and what their practical implications are
  • Perform an applicability assessment of the two Pillars for your organisation
  • Perform an impact assessment of the rules of the two Pillars, bearing in mind that the share of profit will be allocated to markets irrespective of the current transfer pricing policies applied.

This development is an important step, but we are by no means at a final agreement and we await further developments. We note that implementation is ambitiously planned for 2023. It is therefore important to watch for the next significant milestone, which is the release of the detailed implementation plan scheduled for October 2021.

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