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Finding consensus: BEPS 2.0 and tax certainty

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The statement marks a milestone agreement on many key features of BEPS 2.0

Mark Martin and Thomas Bettge of KPMG in the US examine the Inclusive Framework’s July statement on pillars one and two and consider what it has to say about dispute prevention and resolution.

On July 1 2021, the OECD/G20 Inclusive Framework on BEPS issued a statement reflecting high-level agreement with respect to pillars one and two of its work to modernise the international tax system, commonly referred to together as BEPS 2.0. As of the composition of this article, 132 of the 139 Inclusive Framework member countries had approved the agreement, and it had received the formal endorsement of the G20.

The recent statement is the fruit of political and technical discussions following the October 2020 release of blueprints on pillars one and two. Unlike the blueprints, the statement includes little technical detail. Not every aspect of pillars one and two is addressed, and the statement acknowledges that some areas remain under consideration. Nonetheless, the statement marks a milestone agreement on many key features of BEPS 2.0, including the pillar two minimum rate (at least 15%), the removal of digital service taxes for all companies, and the scope of pillar one (employing a quantitative approach, with carveouts for extractives and regulated financial services).

With respect to tax certainty, the statement is notable both for what it says and for what it omits. For pillar one’s Amount A, the statement commits to mandatory binding dispute prevention and resolution mechanisms that will be available to in-scope companies. These mechanisms will cover Amount A and all related issues, which the statement specifically notes include TP and business profits disputes. When there is a dispute regarding whether something is a related issue, that dispute will also be resolved through a mandatory binding process, without delaying the underlying tax certainty process.

In addition, the Inclusive Framework is considering, but has not determined, whether developing countries with low levels of mutual agreement procedure (MAP) activity (such that they are eligible for deferral of Action 14 peer reviews) would be permitted to elect out of these mandatory processes. The pillar one blueprint estimated that about 50 countries have no or minimal MAP activity. Interestingly, it appears the proposed opt-out for these small developing countries in the statement may cover the entire Amount A process, whereas the blueprint only gave consideration to allowing these countries to opt out of non-Amount A disputes (including TP and business profits disputes).

Moreover, the statement notably omits any mention of the elaborate two-tier Amount A dispute prevention system described in the blueprint, which would feature an advisory review panel process backed up by a quasi-arbitral determination panel. The two-tier process had replaced earlier calls for mandatory binding arbitration, and appeared to be designed to address concerns about arbitration voiced by some developing countries. However, it is not clear that the two-tier alternative was actually more palatable to these countries. If small developing countries are in fact permitted to opt out of the dispute resolution process, this may alleviate some of the concern around using an arbitral or quasi-arbitral process, although it is important to recognise that some larger countries, such as India, have also historically expressed concerns with mandatory binding arbitration.

Also absent from the statement is any word on tax certainty for Amount B, other issues outside the scope of Amount A, or pillar two. With respect to Amount B, this makes sense – the statement notes that work on Amount B is continuing, but that it has been decoupled from the other components of BEPS 2.0 and is expected to wrap up by the end of 2022. Similarly, it is not surprising that tax certainty for other issues beyond Amount A is not addressed, as even the otherwise intricate pillar one blueprint included only tentative suggestions in this area. Tax certainty for pillar two has always received too little attention, perhaps because it is a less politically salient issue there than in the context of pillar one’s reallocation proposals. 

Some of these gaps could be addressed in the BEPS 2.0 implementation plan that is slated for October, but even with these shortcomings, the statement’s agreement on mandatory binding dispute prevention and resolution for Amount A is historic. Whether or not similar mechanisms are adopted for Amount B and pillar two, it is hoped that the political and technical progress that has been made will serve as a springboard for future improvements in tax certainty.


Mark Martin

Principal, KPMG




Thomas Bettge

Manager, KPMG


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