Introduction
The OECD/G20 Inclusive Framework’s two-pillar solution addresses the tax challenges of digitalization and profit shifting. It represents a monumental shift in global taxation, directly affecting transfer pricing norms.
Pillar One: Reallocation of Profits
Focuses on reallocating taxing rights for large, highly digitalized MNEs (Group revenue > €20 billion).
Amount A reallocates a portion of residual profits to market jurisdictions.
Amount B (as covered earlier) provides a standardized return for baseline marketing and distribution.
Pillar Two: Global Minimum Tax
Introduces a 15% global minimum effective tax rate for MNEs with revenue over €750 million.
Applies through Income Inclusion Rule (IIR) and Undertaxed Payments Rule (UTPR).
TP policies may require adjustment to ensure alignment with minimum tax thresholds.
TP Implications
Less room for aggressive profit shifting through low-tax jurisdictions.
Greater emphasis on accurate profit attribution based on substance.
Multinational groups may need to review existing TP models to meet Pillar Two compliance.
Conclusion
Pillars One and Two reshape the global tax landscape. MNEs must proactively assess their TP and group structures to stay aligned with these sweeping changes.
