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On 1 July 2021, in an historic agreement, 130 of the 139 members of the OECD/G20 Inclusive Framework on BEPS (IF) approved a statement providing a framework for reform of the international tax rules. The IF statement sets out the key terms for an agreement on a two-pillar approach and calls for a comprehensive agreement by the October 2021 G20 Finance Ministers and Central Bank Governors meeting, with changes coming into effect in 2023. In this article, we set out a number of observations on the IF statement.

IF members that have not joined in the statement are: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Peru, St. Vincent & the Grenadines and Sri Lanka.  Several of these members (including Ireland and Hungary) had expressed concerns leading up to the IF meeting.

The statement diverges in some important respects from the October 2020 IF Pillar One and Pillar Two Blueprints, albeit largely in ways that have been widely-trailed in recent months.  The statement builds on the Blueprints, resolving some of the key open items (such as the baseline for a minimum tax rate under Pillar Two), and setting out a clear timeline for resolution of the remaining matters (such as simplification measures and general implementation).

With a proposed globally minimum tax rate of 15%, it is expected that a significant number of large MNE Groups with presence in Hong Kong will be adversely affected by Pillar Two proposals. Hong Kong MNEs or foreign MNEs with Hong Kong subsidiaries should now therefore be undertaking the preparatory work necessary to be ready to comply with these rules in a little over 18 months. The size of the potential impact for a Hong Kong MNE with global operations should not be underestimated, and it is critical that in-scope groups move quickly.