ITR live: OECD consultation on pillar two
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ITR live: OECD consultation on pillar two

Reporting in real-time

The OECD holds its public consultation on its pillar two blueprint to establish a global minimum tax rate, ITR reports live.

The second day of the OECD's consultation on pillar one and pillar two has come to an end. The next step will be taking the blueprints to the G20 and the Inclusive Framework meeting on January 27-29.

Digital tax has become the hottest topic in international tax policymaking. 2021 could be the year that this debate is finally settled. However, there is a lot of work to be done in very little time.


Finishing at 17.00:

The Inclusive Framework is convening at the end of January to discuss the OECD's work on digital tax.


Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, gives his closing remarks:

"We've not heard anyone say that the international tax system is perfect," he points out. "That's a change."

"I think we can be optimistic," he continues. "The main takeaways will be, of course, the discussion on how we can simplify pillar one."

He singles out the points about segmentation and scoping. He stresses the need to enhance cooperation and coordination on pillar two because countries "don't need the OECD". "They need the Inclusive Framework," he adds.


John Peterson suggests these changes need to be made on a "dynamic basis". He decides to cut the Q&A session to bring the day to a close. He hands over to Marco Iunivale:

"There are clear message on the need for simplification and reduction of complexity," says Iunivale.


Picciotto suggests the IIR is "unworkable". He calls for a comprehensive multilateral convention that goes beyond the MLI (which he regards as insufficient). He argues this would be the best way to enforce an income inclusion rule.

"Why would source countries that would get little or nothing from an IIR agree to give priority to an IIR?" asks Picciotto.

He is working on a proposal for how such a formulaic system could work. He points to pillar one and argues that the same methodology, the same allocation rules, could be used to make pillar two work.


Sol Picciotto, BEPS Monitoring Group, takes over. Picciotto's work has been hugely important to international tax reform, particularly discussions of tax avoidance, formulary apportionment and country-by-country reporting.

He has backed calls for making CbCR public. ITR charted Picciotto's role in moving the goalposts of international tax reform in a 2019 cover feature: How NGOs changed the global tax debate.


Monika Wuennemann, BDI, makes the case for a new MLI and supports the call for a white-list of CFC regimes. Without introducing such a white list, businesses would have to figure out each country's standards and whether they are compliant with the IIR.

There have been calls for a new MLI to help solve digital tax going back at least a couple of years. The EU's plans for a digital services tax raised this possibility in 2018.


There have been many twists and turns since the OECD embarked on the task of solving digital tax. Not least the IMF's turn away from traditional transfer pricing in favour of Michael Devereux's ideas for a destination-based cash flow tax.

Much like the IMF, the OECD has gone on a journey of its own since the 2008 financial crisis. The last financial crash was partly what spurred on the international community to address the problem of base erosion and profit-shifting. The result: the BEPS project.

Several years later, the world is now trying to solve digital tax. However, the discussion is fundamentally different. This debate about 'international taxing rights' is really about fiscal sovereignty.


The politics of digital tax might be difficult to put back in a box. Some observers of the OECD's work on digital tax are more sceptical of its progress than others - but not necessarily for the same reasons.

'Purists' might be more sceptical of changing the international order, particularly when it comes to the arm's-length principle, whereas 'radicals' might be dissatisfied that the organisation is not going further.


The OECD is far from the only international organisation trying to find a solution to digital tax. The EU has been trying to implement its own digital tax model for some time and the UN has drawn up its own proposals. Many NGOs have called for the UN to play a bigger role.

UN digital tax proposal diverges from OECD two pillar solution


Just a reminder of how long people have been talking about simplifying pillar two:

November 8 2019: OECD stuck on simplifying pillar two 


Although there is far more agreement on pillar two, the OECD has to build support and consensus around pillar one in order to secure GloBE.

Pascal Saint-Amans acknowledged this in December 2019:

“In reality, both pillars are really separate and different, one is on the digital economy and nexus, while the other is on putting an end to a ‘race to the bottom’ and a net on tax competition,” said Saint-Amans.

“Both pillars have been politically linked so far though, and the main enemy of pillar two is lack of agreement on pillar one,” he added.

Read in full here: OECD tax chief fears pillar two will not find support without pillar one

Also relevant: Conflicts over which OECD pillar should come first


There are many ways to simplify pillar two. One set of recommendations by Unilever made the case for measures to safeguard businesses from double taxation.

Read in full here: How the OECD couple simplify pillar two


Peterson introduces the next panel looking at 'selected issues'. The panel features Ulrich Sauter from Novartis, as well as firms Dentons and Loyens & Loeff.

Sol Picciotto, coordinator of the BEPS Monitoring Group, and Monika Wuennemann, BDI, are also present.


Achim Pross closes the panel discussion and hands over to John Peterson.

"I turn back to the question of deferred tax accounting," says Peterson. "Some of those questions have been extensively discussed at the Working Party already."

He stressed that the concerns over this are "legitimate".

"It goes back to the dichotomy," he explains. "It's true that GloBE compares financial income against a local cash tax base."

"The reason that local cash tax is the preferred measure or one that was attractive to Working Party delegates because that is the tax paid under the law in those jurisdictions," says Peterson.

Peterson argues there is no alternative model, or at least not one that works as part of these blueprints. He acknowledges the concerns about long-term deferrals.

Legitimate deferrals? "There may be a number of items where there is a structural reason or a tax policy reason," he says.

Tax administrations are also concerned that this is "something of a black box" for them, he adds. Deferred accounting is an "incomplete solution", he argues, because it comes with its own design problems.


Paul Aronoff, Prudential, representing the Insurance Working Group on BEPS, echoes the calls for the OECD to allow deferred tax accounting as part of pillar two. This would help fix the issue of timing differences.


Dave Murray, Anglo American, also stresses the common ground with previous speakers. Where Anglo American differs is that their proposal is not based on substance.

Early this year, Anglo American was among several companies thatrejected OECD proposals to reform CbCR.

Simplification must carve-out jurisdictions at a very early stage of the calculation with minimal adjustments, stresses Murray. And CbCR should be at the base data set.

Pross "thanks" Murray for "distracting us" with the guitars on his wall.


It's already clear that there is more consensus on pillar two than there was on pillar one yesterday.

Jane Gill, GSK, also supports the substance-based carve-outs. The formulaic substance-based carve-outs are an effective proxy, she says, which could work well for pharmaceutical companies.

This is because such companies tend to have much longer investment life cycles than other businesses in different sectors. MNEs should also be able to carry-forward carve-outs, she stresses.


Tania Saulnier, MEDEF, follows up:

"All the options described in the blueprints should be available because they could all be useful," says Saulnier. "MEDEF back in December had proposed this solution based on a gateway test."

This would exclude MNEs with an ETR above a certain level (20%). It would still let the blending to work and it would allow tax administrations to focus on the implementation of the rules.

"We believe that over-complexity has now been reached," says Saulnier. "Why is complexity a problem? It is a problem because it creates critical risks."

Key point: Recovering from the economic crisis created by COVID-19.

Avoiding complexity is also critical, she argues, because a simple tax system can be easily controlled and understood. Insufficient tax control is a serious problem for developing countries.

Saulnier backs deferred tax accounting and calls for UTPR/STTR to be 'postponed'. "They should only be considered after a probationary period," she argues.


Xavier Durand, Michelin, presents MEDEF's recommendations:

Formulaic substance-based carve-out:

- Strong support from businesses;

- Economic substance relates to both tangible and intangible asset components;

- MNE groups should be allowed to take data from consolidated accounts in order to avoid burdensome adjustments.

Tax administrative guidance:

- Preferred approach for businesses because it provides certainty and ease of application;

- Proposal for a white list process to identify jurisdictions that are above board;

- Objective criteria to be defined collectively;

- Transparency of the process should be monitored by the OECD.


Harlow lays out how CbCR could be used as a "gateway":

- CbCR would have to be adapted to include more categories;

- Annual tax charge, deferred tax charge, for example, would help to remove the distorting effect of timing differences;

"Not only should we have tax simplification, we should aim to have tax certainty," says Harlow.

Astra Zeneca welcomes the work on a dispute resolution mechanism. Harlow stresses it needs to be integrated into both pillars and binding to prevent national courts from overturning the results of the mechanism.


Catherine Harlow, Astra Zeneca, stresses CbCR could be used as a "gateway" to determine the pillar two charge.

Harlow has been very engaged in the OECD talks:

Big pharma takes apart the OECD on marketing intangibles

Companies see 'user participation' tax concept as a nightmare


Jesse Eggert, KPMG, starts by "thanking" the OECD for making him wear a suit for the first time in a while.

He argues that ETRs can be easily distorted and the complexity of pillar two could well result in distortions.

Everyone may agree that complexity is a problem, but there is little agreement about what areas to put first, says Eggert.

Key point: As countries take up the income inclusion rule, the importance of the undertaxed payment rule decreases.


Wolff: "The proposals as they currently stand will result in double taxation."

"They may also inappropriately protect some truly undertaxed profit that should be subject to a top-up tax."

"Changes will be required to achieve the appropriate outcome."

"The potential for double taxation will impact investment decisions."

The numbers are large enough for Rio Tinto to reconsider investing in some jurisdictions because of the impact of the pillar two blueprint. This could also hit resource-rich countries that depend on such investment.

Key point from Wolff: The OECD's rejection of deferred tax accounting to address timing differences makes "no sense" because this accounting is a key part of international standards. These same standards are fundamental to pillar two.


Ann-Marie Wolff, Rio Tinto: "Corporates don't pay tax on profit. They pay tax on taxable income, according to the local laws."

So comparing taxes could be a comparison of apples and oranges, argues Wolff.

Timing differences mean that the company's income is not necessarily 'under-taxed'. This is especially significant for capital-intensive industries.


Joachim Englisch, director of the Institute of Tax Law at Muenster University, opens the panel.

Key point: Jurisdictional blending increases administrative complexity, so the GloBE compliance burden will worsen with this approach. However, it's politically acceptable because global blending would 'dilute' the effect of a global minimum tax rate.


The digital tax debate has come a long way in a short period of time. In 2017 and 2018, the OECD was focusing on the question of value creation and user data. The debate shifted towards formulaic approaches in 2019.


The race to tax the digital economy

The race to tax the digital economy intensifies


OECD to consider worldwide fractional apportionment

OECD presents its unified approach


Pillar one and pillar two documents are leaked

Digital tax plan consensus possible by mid 2021


First panel features such multinational companies as Anglo-American, Astra Zeneca, GSK, Michelin, Prudential and Rio Tinto. Achim Pross is moderating.



- Support for a multilateral convention;

- Support for the coordinated approach suggested for IIR/UTPR;

- Concerns over the interaction between GloBE and other similar rules (see GILTI).

ITR has just covered this very subject:

OECD must clarify coexistence of GloBE and GILTI rules, say MNEs

Most companies engaging with the OECD have made it clear that they support treating GILTI as a compliant IIR regime, though they have some concerns over the global blending applied under US GILTI rules.

Some commentators suggested GILTI be 'deactivated' when it is applied to US sub-groups. This would favour a top-down approach to 'sandwich' structures or crediting GILTI tax against GloBE if it is applied.

There have been suggestions that BEAT be 'switched off' in similar cases or GILTI should preclude the application of STTR. This would apply to rules similar to GILTI, in theory.


Simplification options:

There were more than 150 pages of comments dedicated to simplification measures.

"It was really a response to the complexity that is inherent to certain aspects of these rules," says Peterson.

Many stakeholders felt that tax simplification would not be effective unless it came with tax certainty. If you over-simplify the rules and create too many easy ways 'out' of the rules you undermine the rules themselves, says Peterson.

Support for different simplification options:

- Majority of commentators support tax administrative guidance because it would create more stability and ease of application for business. It would require a transparent and non-political process.

- Some support for CbCR ETR safe harbour, but some concerns over using CbCR beyond high-level risk assessments;

- Others support the use of a de minimis profit exclusion to simplify pillar two.

Income inclusion rule (IIR) and undertaxed payments rule (UTPR):

- General support for a top-down approach to the IIR;

- Support for simplifications in the administration of the UTPR.

Subject to tax rule:

- Majority support for the ex-post annualised charge approach to administer the STTR (no need for withholding taxes);

- Concerns about over-taxation;

- Many commentators felt the STTR was a "very blunt tool";

- Widespread calls for a narrow scope of application (limiting the rule to royalty payments and instituting a materiality threshold;

- Questions were raised about the hierarchy of rules (STTR is too high up for business, but too low for NGOs);

- NGOs argued the STTR does not "go far enough";


John Peterson, senior tax advisor at the OECD, looks at effective tax rate (ETR) computation:

- Start by looking at consolidated financial statements;

- Go to permanent adjustments;

- Identify the covered taxes;

- Apply jurisdictional blending;

- Apply carve-outs, if necessary;

- Implement mechanism to address timing.



Pross: "There is broad support for the overall approach of the blueprint."

Stakeholders broadly see the minimum tax proposal as 'sensible', even if they don't necessarily think such a proposal is necessary or the best way forward.

Financial companies don't want to see an extra layer of rules on top of existing rules and regulations. While insurance companies have ideas for how to revise these rules.

There have been suggestions that 'phasing' would be a good way to implement pillar two. This would mean starting off big and then getting more granular.


Achim Pross, head of the International Cooperation and Tax Administration Division at the OECD, gives his opening address.

Submissions figures: 197 submissions, 1,800+ pages.

Business associations make up 27% of these submissions, while advisors make up 18%. Meanwhile civil society and academic make up 24% together.


Marco Iuvinale, chair of Working Party No.11 on aggressive tax planning, opens. "A key focus of the consultation was on simplification measures. A number of commentators submitted comments making observations on this specific issue," said Iuvinale.

"The purpose of the day is to provide an overview of the key issues."

The OECD's live feed can be found here if you're not already watching.

Starting at 13.00 (CET)


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