This lesson establishes the context for the Two-Pillar Solution as the most fundamental reform of international tax rules in almost a century. It explores the challenges of the digitalising economy that BEPS 1.0 could not fully address and the political momentum that led to the October 2021 agreement.

• The Limitations of BEPS 1.0: While the 2015 BEPS package created significant changes, it did not comprehensively address the tax challenges created by the digitalised economy. The Action 1 final report on the digital economy acknowledged that further work was needed, particularly on the allocation of taxing rights in a world where value creation no longer required a physical presence.

• The Programme of Work (May 2019): In May 2019, the OECD formally introduced the two-pillar approach with the “Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalization of the Economy.” This marked the beginning of the BEPS 2.0 project and the political process that would culminate in the October 2021 agreement.

• The November 2019 Proposal: The Global Anti-Base Erosion (GloBE) proposal for a global minimum tax was introduced in November 2019. This represented a significant departure from traditional international tax norms, moving from a focus on preventing profit shifting to establishing a floor on effective corporate taxation.

• The October 2021 Agreement: In October 2021, over 135 jurisdictions in the OECD/G20 Inclusive Framework on BEPS reached a landmark agreement on the core design elements of the Two-Pillar Solution. This agreement represented the first substantial renovation of international tax rules in almost a century and was designed to ensure that large multinational enterprises pay a minimum level of tax regardless of where they operate.