On 11 July 2023 an Outcome Statement on the two-pillar international tax solution was approved by 138 member jurisdictions of the Inclusive Framework on base erosion and profit shifting. The Outcome Statement summarises the package of deliverables developed to address the remaining elements of the two‐pillar international tax proposals.

Pillar One – Multilateral Convention

The text has been prepared for a multilateral convention (MLC) to enable signatories to exercise a domestic taxing right over part of the residual profits of multinationals with a defined nexus to the market in the jurisdiction (Amount A of Pillar One). The text of the MLC sets out the scope and operation of the relevant taxing rights under Amount A; the mechanisms for relieving double taxation; the procedure for achieving tax certainty; the conditions for removing existing digital service taxes (DSTs) and similar measures after the MLC takes effect; and the commitment of the signatories not to enact new DSTs or similar measures.

Currently efforts are being made to resolve some concerns raised by jurisdictions. When these are resolved, the MLC will enter into force on a date to be decided by the contracting jurisdictions after 30 jurisdictions (accounting for at least 60% of ultimate parent entities of the in-scope multinationals) have ratified it. When the MLC has entered into force there will be a Conference of the Parties to deal with issues around the interpretation and implementation of the MLC.

Pillar One – Amount B

Amount B applies to baseline marketing and distribution activities and simplifies the current transfer pricing rules for all taxpayers with transactions within the scope of the rules, such as buy/sell entities, commissionaires and sales agents. The proposals for Amount B take into account the situation of countries with low administrative capacity that will need to devote some of their scarce resources to implementing the provisions. Amount B also aims to cover situations where transfer pricing disputes are arising due to an absence of local market comparables.

Further work is continuing, including a public consultation, to ensure that there is a balance between a quantitative and qualitative approach when identifying the baseline distribution activities covered by Amount B. Work is also being done on the appropriateness of the pricing framework; application of the framework to the wholesale distribution of digital goods; country uplifts within geographic markets; and defining the criteria that will permit the use of a local database in certain jurisdictions.

Pillar Two – STTR

The Inclusive Framework has completed subject to tax rule (STTR) and a commentary. The subject to tax rule (STTR) is a treaty-based rule that protects the right of developing countries to tax certain intra-group payments, where they are taxed at a nominal income tax rate below a minimum rate of 9%. A binding request can be made by developing countries to include the provision in tax treaties with jurisdictions that have nominal tax rates below 9%. The STTR is to apply to intra-group interest, royalties and certain other defined intra-group payments including payments for services.

A multilateral instrument and an explanatory statement are being developed to enable countries to include the provision in their tax treaties. The instrument will be open for signature from 2 October 2023.

Implementation Support

An action plan is being prepared to ensure co-ordinated implementation of the two-pillar proposals. Support and technical assistance is to be available to developing country administrations to increase the necessary capacity for the implementation of the rules.