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Delay to Pillar 1 of OECD’s international tax reforms


The decision by the Organisation for Economic Development (OECD) to delay implementation of ‘Pillar 1’ of its proposed framework to address the tax challenges of the digitalisation of the global economy is “unsurprising and, in many ways, predictable”, a tax expert has said.

Eloise Walker, corporate tax expert at Pinsent Masons, was commenting after the OECD published a revised schedule for implementation, which delays the planned reforms by 12 months to 2024. According to the revised schedule, the proposed framework will be finalised in October and implemented by way of a multilateral convention to be signed in 2023. Pillar 1 will not enter into force until the multilateral convention has been ratified by a “critical mass” of member states, which is expected to be in 2024.

“Securing international agreement on Pillar 1 has been seen as challenging for some time now, so it is unsurprising and, in many ways, predictable that the OECD has announced that implementation is being delayed 12 months.” Walker said.

“From a UK perspective, the UK government has previously expressed its desire for Pillar 1 to be implemented to help resolve longstanding concerns that the international corporate tax system has not kept up-to-date with the digitalisation of the economy and how digital businesses generate value and profits from online users. Therefore, it is unlikely that a new UK government will have a differing approach,” she said.

“However, wider implementation is dependent on international agreement, which is difficult given political challenges in securing agreement, particularly from the US. Some aspects of Pillar 1 are likely to be implemented in some form eventually, although the implementation plan may end up being pushed back further and the finer detail of the proposals may well shift,” she said.

Pillar 1 forms the second ‘pillar’ of the OECD’s proposed international solution to resolve the tax challenges of the global economy. The proposals were agreed by 136 countries in October 2021, with model rules published in December 2021. Pillar 1 focuses on where large global businesses are required to pay corporate taxes. Although it was included as part of the October 2021 political agreement, the details had not been finalised.

Pillar 1 involves a partial reallocation of taxing rights over the profits of the largest and most profitable multinational businesses to the jurisdictions where consumers, rather than the businesses, are located. It is currently envisaged that multinational businesses with global turnover above €20 billion will be subject to tax on a proportion of their profits in the countries where they operate. Extractive industries and regulated financial services will be excluded. Countries in which the multinational business derives at least €1m revenue will benefit from the new taxing right. For smaller jurisdictions with gross domestic product (GDP) that is lower than €40bn, the threshold will be set at €250,000.

A progress report and public consultation on technical aspects of the rules for Pillar 1 was published alongside the revised implementation schedule. The consultation closes on 19 August 2022.

Pillar 2 of the framework introduces a global 15% minimum corporate tax rate. Under those proposals, large multinational enterprises will pay a minimum 15% tax on profits in each country where they operate – creating a more standardised international regulatory environment and minimising tax avoidance opportunities, particularly attempts to artificially shift profits from high to low tax jurisdictions. The OECD’s framework will operate on a country-by-country basis. The UK Treasury published a consultation on implementing Pillar 2 earlier this year. Draft legislation is expected to be published this summer. The Treasury recently announced that implementation would be pushed back to 31 December 2023 – rather than 1 April – to give business more time to prepare for the new rules.

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