On 8th October, 2021, the OECD/G20 Inclusive Framework on BEPS issued a "Statement on a Two Pillar Solution to Address the Tax Challenges Arising from the Digitisation of the Economy" 1.The Statement, termed as "ground-breaking" and "landmark"2, has been agreed by 136 countries representing 90% of the global GDP3. The broad contours of the solutions identified in the October 8th Statement identical to the previous Statement issued on 1st July, with certain areas made clearer such as the below4:

  • Under Pillar 1, Amount A has been agreed to be equivalent of 25% of residual profits i.e. profits which is in excess of 10% of revenue.
  • A clear pronouncement that Multilateral Convention (MLC) will require all parties to "remove all Digital Services Taxes and other similar relevant measures with respect to all companies and to commit not to introduce such measures in the future".
  • For Pillar 2 the minimum tax rate used for purposes of the Global anti-Base Erosion (GloBE) rules will be 15% and the minimum rate for the Subject to Tax Rules (STTR) will be 9%.  

A detailed implementation plan has been identified, with model legislations for Pillar 2 to be provided by November 2021, MLC to be introduced by "early 2022", put up for signatures by mid 2022 and thereafter implemented by 20235.

The Statement endorses and affirms a very laudable and important trend –of international consensus in the field of taxation - made conducive perhaps on account of the present political climate as also the pandemic and resultant revenue crunch.

The Reservations

Though laudable, several key areas yet remain to be addressed including6:

  • For Amount A- the detailed source rules for specific categories of transactions are yet to be developed.
  • The designing of the safe harbour rules for capping marketing and distribution profits in case residual profits are already taxed in market jurisdiction
  • The exact mechanism of the binding dispute prevention and resolution mechanism for Amount A
  • The exact scope of "Digital Services Taxes and other relevant similar measures" which are to be removed and the modality for such removal
  • The work on Amount B (to be completed by the end of 2022)
  • Apart from interest and royalties, the set of payments to which the STTR would apply 

Implication for Developing Countries

While a unified front has been displayed through the 1st July and now the 8th October Statement, the G 24 which is a body representing 24 developing nations including India, had issued a statement on 19th September7, emphatically urging that without a meaningful share in Amount A [recommended to be least 30%] and a broader subject to tax rule [recommended to extend to payments for services and capital gains], "the solution if any, shall be suboptimal and shall not be sustainable even in the medium run".

The October 8th Statement does not abundantly resonate these viewpoints of G 24, while capitulating fully to demands of Ireland (the newest nation to join the pact) as regards fixing the global minimum tax rate to 15%.

Whether the October 8 Statement would be a sustainable solution for the developing countries in the short, medium or long run is a subject matter of much debate. It is touted that Pillar 1 would lead to USD 125 billion being distributed to market jurisdiction every year and Pillar 2 would lead to USD 150 billion of additional revenue annually8. However, how much would actually trickle down to developing countries needs to be seen. For India, the compromise would involve withdrawing Equalization Levy by the year 2023 which is projected to earn about INR 3000 crores in FY229. Further, the binding multilateral dispute prevention and resolution system of this nature is untested in the Indian context. Implementing such a complex system of taxation would also involve significant resources for India.

Given how digitisation has triggered a border-agnostic growth for businesses, a multilateral solution for their taxation is certainly the step in the right direction. However, the success of the solutions envisaged in the October 8 Statement would depend on the political consensus on perceiving such an agreement as beneficial for all and on equal terms One hopes that as finer details emerge, concerns raised by all factions are addressed to make the solutions sustainable in the long run.  

The article has been published in CNBC TV18.


1. Can be found at https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf

2. https://www.oecd.org/tax/international-community-strikes-a-ground-breaking-tax-deal-for-the-digital-age.htm

3. ibid

4. Supra note 1

5. Supra note 1 (Annexure thereto)

6. Supra note 1

7. Available at https://www.g24.org/wp-content/uploads/2021/09/Comments-of-the-G24-on-the-IF-July-Statement.pdf

8. Supra note 2

9. https://www.financialexpress.com/economy/india-to-eventually-gain-from-oecd-global-tax-deal-cbdt/2348922/

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