This lesson introduces the Two-Pillar Solution (BEPS 2.0), the fundamental reform of international tax rules agreed by over 135 jurisdictions in October 2021. It explains the scope, mechanics, and current status of Pillar One and Pillar Two.

• The Genesis of BEPS 2.0: While BEPS 1.0 created notable changes, it did not comprehensively address the tax challenges created by the digitalized economy. The Action 1 final report acknowledged the need for further work. The OECD formally introduced the two-pillar approach in May 2019 with the “Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalization of the Economy.” The Global Anti-Base Erosion (GloBE) proposal for a global minimum tax was introduced in November 2019.

• Pillar One – Reallocation of Taxing Rights: Pillar One aims to reallocate taxing rights to market jurisdictions with respect to a defined portion of the residual profits of the largest and most profitable multinationals. It includes a Multilateral Convention to implement Amount A, which coordinates the reallocation of taxing rights, improves tax certainty, and removes digital service taxes (DSTs). It also includes Amount B, which provides simplified and streamlined transfer pricing methodologies for certain baseline distribution activities, incorporated into the Transfer Pricing Guidelines as of February 2024. As of January 2025, consensus on Pillar One had not been fully reached, and the U.S. government issued a memorandum stating that the “OECD Global Tax Deal has no force or effect in the United States,” adding uncertainty to the future of the agreement.

• Pillar Two – The Global Minimum Tax (GloBE Rules): Pillar Two establishes a jurisdictional 15% minimum effective tax rate framework. The GloBE rules apply to large MNE groups with consolidated revenue of at least €750 million. The rules include the Income Inclusion Rule (IIR), which requires the parent entity to pay top-up tax on low-taxed income of its subsidiaries, and the Undertaxed Profits Rule (UTPR), which denies deductions or requires adjustments where income is undertaxed in another jurisdiction. As of the beginning of 2025, more than 55 jurisdictions had implemented the GloBE rules, with the EU, UK, Japan, and South Korea having effective rules from January 2024. Hong Kong is implementing the rules for fiscal years beginning on or after 1 January 2025. Qualified Domestic Minimum Top-up Taxes (QDMTT) allow jurisdictions to collect top-up tax before the IIR applies