Published 16.07.021

More than 130 countries and jurisdictions have endorsed the Organisation for Economic Co-operation and Development (OECD) Declaration of 1 July 2021 on a two-pillar reform plan to address the tax challenges raised by the digitalisation of the economy and the globalisation process.

These have shaken the rules that have governed the taxation of international business profits for a century. As a result, large multinational enterprises (MNEs) are able to earn significant revenues in foreign markets without those markets receiving much, if any, tax revenue as a result. Hence the need for a plan to reform international tax rules, ensuring that large MNEs pay taxes where their users and customers are located and introducing a global minimum corporate tax rate. The remaining elements of the framework, including the implementation plan, are to be finalised by October 2021. The new rules should be applicable in 2023.

The package is the result of intense discussions over the past few years under the auspices of the OECD’s Base Erosion and Profit Shifting (BEPS) project.

First pillar: a breakdown according to the taxable nexus

In the words of the OECD: “Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.”

It is important to note that the first pillar rules will not apply to regulated financial services. Banking federations and associations, including the International Banking Federation , the European Banking Federation and the ABBL, have consistently argued that banks’ business models and applicable regulations ensure that banks establish a physical presence and therefore have a tax link where they serve their customers.

Second pillar: the global minimum tax rate

“Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.” The minimum tax rate, to be agreed, will be at least 15%.

As the ABBL, we are closely monitoring the development of these new rules. We anticipate further engagement at EU level to ensure the implementation of an appropriate carve-out for regulated financial services under EU law, in line with the global framework, and to discuss other issues of concern from a banking perspective.

At the national level, exchanges with the Luxembourg Ministry of Finance on the implementation in Luxembourg and the interaction with EU corporate tax plans are coordinated by the Union des employeurs luxembourgeois (UEL), with the participation of the ABBL, among others.

With regard to the agreement on this two-pillar framework:


By Christian Daws