Tax Updates: 24 October 2023

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at

Pillar One MLC released

If you have an interest in following developments on the international tax front, even though they may actually be of little relevance to your own client base, then you may have been tracking the progress of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which includes the Two-Pillar Solution. As of the 9th of June 2023, 139 member jurisdictions have agreed to the Inclusive Framework.

Pillar One will initially apply to Multinational Enterprises (MNEs) with a global turnover of over 20 billion euros and profitability above 10% (PBT/Revenues). Where the MNE derives at least 1 million euros in revenues from a market jurisdiction, there will be an allocation of Amount A to that market jurisdiction, which that jurisdiction can then tax. The revenue threshold will be lowered by smaller jurisdictions (GDP<40 billion euros) to 250,000 euros.

When applicable, 25% of the residual profit (more than 10% of revenue) of the MNE will be allocated to the market jurisdiction using a revenue-based allocation key. In essence, Pillar One will override the present concept included within most tax treaties, which requires a permanent establishment to exist in a jurisdiction before a right to tax the profits of an enterprise will arise. Instead, a right to tax will be based on the use or consumption of goods or services within the market jurisdiction.

Pillar Two, in a nutshell, will apply to MNEs that meet the 750 million euros threshold, and will introduce a global minimum tax that countries may implement in their domestic law, which will ensure large MNEs are subject to an effective tax rate of 15% on their profits in every jurisdiction where they operate.

The “Multilateral Convention to Implement Amount A of Pillar One” (the MLC) published on 11 October 2023 reflects the consensus achieved among members of the Inclusive Framework. As I have mentioned, Amount A of Pillar One coordinates a reallocation of taxing rights to market jurisdictions with respect to a share of the profits of the largest and most profitable multinational enterprises (MNEs) operating in their markets, regardless of their physical presence. However, the latest MLC also ensures the repeal and prevents the proliferation of digital services taxes and relevant similar measures, secures mechanisms to avoid double taxation, and enhances stability and certainty in the international tax system.

The Inclusive Framework is also making good progress on Pillar Two. With the opening for the signature of the multilateral instrument to implement the Subject to Tax Rule (STTR), the work on the STTR is now essentially complete. The STTR is a treaty-based rule that allows developing countries to “tax back” where certain intra-group payments are subject to nominal corporate income tax rates below 9%.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.

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