In 2013, members of the OECD/G20 began to review the digital economy as part of the Base Erosion and Profit Shifting ("BEPS") Action Plan. Their primary aim was to allow the fair taxation of profits generated by businesses without a physical presence in the relevant market jurisdictions by introducing new nexus and profit allocation rules.
Since then, the digital economy has continued to evolve at a breakneck pace, with industry-agnostic functions from digital platforms to data analytics shifting value creation across international borders. This trend shows no signs of abating and is only accelerated by the latest Covid crisis, having expanded a presence into almost every industry which makes it increasingly challenging to ring-fence.
Following an interim report, on 29 January 2019, the OECD published a policy note on new proposals to combat the BEPS activities of multinational companies, which was referred to as „BEPS 2.0". One and a half years later, on 12 October 2020, after a series of policy notes and public consultations, the OECD published blueprints for Pillar One and Pillar Two, together with accompanying documentation including an economic impact assessment.
Pillar One aims at developing an approach for establishing taxable presence ("nexus") in the digitalised and consumer-facing economy. Pillar Two introduces the concept of a global minimum profit tax.
The updated blueprints provide detail on the technical design and features of each pillar, identify areas that require further technical work prior to finalization, and also highlight aspects where political agreement will be necessary. As the OECD documents make clear, the Blueprints do not reflect agreement by the member jurisdictions of the Inclusive Framework on BEPS, as there are political and technical issues that still need to be resolved. However, the cover statement of the Inclusive Framework refers to the Blueprint as a "solid basis for future agreement". It states that the member jurisdictions have agreed to swiftly address the remaining issues to bring the process to a successful conclusion by the ambitious deadline of mid-2021.
A broad consensus will be critical to avoid ongoing unilateral action by many jurisdictions. As will be noted, the scope of BEPS 2.0 is significantly broader than European Union-style digital services taxes ("DSTs"). Based on an impact assessment performed by the OECD, Pillar One and Pillar Two could increase global corporate income tax revenues by about US$ 50-80 bn per year, and up to US$ 100 bn taking into account the impact of the Global Intangible Low-Taxed Income (“GILTI”) regime in the US. While this may enable political consensus of governments to repeal DSTs, it may also increase pushback from businesses based in the administrative and tax costs envisaged.