Will G20 adoption of the Two Pillar tax package lead us all to the Dead Sea?

On July 1, 2021, the OECD and G20 announced that 130 countries, led by the USA, have joined the Two Pillar tax reform package to “ensure that multinational enterprises pay a fair share of tax wherever they operate.”

The OECD hopes to reallocate a quarter of a trillion dollars of taxable profit (not tax) per year of the largest multinational groups to onshore countries.

Janet Yellen, the US Treasury, may think she has pulled a rabbit out the hat, but it is only a partial rabbit.

Many practical details have yet to be sorted out. Don’t think only the tech giants are affected.

E-commerce businesses of all sizes are targeted by separate but related income, VAT, and Sales tax changes afoot in the US, EU, UK, and OECD. For many small e-commerce firms, it will be like a loose-fitting shirt with hidden tax pockets. Many onshore countries may benefit from resulting extra tax revenues….

What are the two Pillars?

Will we all be turned into a pillar of salt near the Dead Sea?

The Two Pillars are a draft tax reform package developed by the OECD. Many digital operators work on an internet cloud located nowhere in particular but owned by an offshore subsidiary company. Those offshore companies have been accumulating tax-free profits perfectly legitimately until now.

So Pillar One proposes to allocate some profits to “market jurisdictions” in the locations of customers or users. Pillar One is subdivided into Amounts A and B, see below.

Pillar Two proposes to impose a minimum global tax rate on the ultimate parent entity (UPE). Of course, there are exceptions and loose ends. The July 1 announcement of the G20 aims to tie down some of the loose ends.

More on Pillar One:

According to the G20, “in scope” multinationals for Pillar One would have global turnover (revenues) above EUR 20 billion, which may decrease to EUR 10 billion after 7 – 8 years. But “extractives” (mining companies apparently) and Regulated Financial Services would be excluded altogether from Pillar One.

A new nexus (taxing) rule will permit the allocation of Amount A to a market jurisdiction when the multinational derives at least EUR 1 million in revenues there.  But, for jurisdictions with a GDP under EUR 40 billion, the qualifying figure would be EUR 250,000. (The current Israeli GDP is around EUR 340 billion).

Amount A allocated in this way would be 20%-30% of the excess (“residual”) profit above 10% of revenue.

Segmentation within a group “will occur only in exceptional circumstances.” This provision matters because some segments of Amazon, say, make more than 10%, others under 10%.

The application of this package should see the removal of Digital Service Taxes in some countries such as the UK, France and India .

Amount B will be taxable “baseline marketing and distribution activities.” Details should become available by December 2022!

Double taxation:

There should be no reallocation of any profit already taxed locally via Amount A.  Double taxation of profit allocated to market jurisdictions should be relieved using the exemption or credit method.

More on Pillar Two:

Pillar two is also known as GloBE (Global Base Erosion Rules) and will aim to achieve a 15% minimum global corporate tax rate. The GloBE/Pillar Two rules would apply to multinationals with a turnover of at least EUR 750 million. Parent companies and payments offshore would be targeted.

Pillar Two Exceptions:

Pillar Two carve-outs (exemptions) may include:

  • 5%- 7.5% of the carrying value of tangible assets and payroll (“substance carve-out”);
  • If earnings are distributed within 3-4 years and taxed above the minimum level (15%);
  • Shippers;

Countries need not adopt the GloBE/Pillar Two rules, but it’s all or nothing if they do.

US entities may continue to be governed by GILTI rules in US law.


New multilateral instruments (super tax treaties) will emerge and open up for signature in 2022. Amount A and B rules should come into effect “in 2023”.


We predict chaos before and after 2023 for large and small international businesses due to:

  • Complexity and multiple taxation of the same income;
  • The G20 ignored VAT and sales taxes around the world and the present OECD “MLI” super tax treaty impacting fulfilment houses and agents;
  • There will be multiple tax collectors;
  • Dispute procedures across 130+ countries not yet agreed;
  • We predict many new loopholes;

Next Steps:

If you are engaged in e-commerce of any type or size, please contact us for advice. There are many taxes, with many answers.

[email protected]m

The writer is a certified public accountant and tax specialist and founder of

(c) 7.7.21

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