BEPS 2.0: An overview of the proposals for a global minimum tax

David McDonald Partner and TP/VCT Leader, PwC Switzerland 22 Nov 2021

The proposed global BEPS 2.0 tax rules have been in the headlines again recently with publications from the OECD, G20 and the 140 country Inclusive Framework organisation. The proposals continue to move forward towards an anticipated worldwide introduction on 01 January 2023.  
This article provides an outline of the new rules and explores some commonly asked questions. For a summary of latest develops please click here.

A summary of the new rules

The BEPS 2.0 proposals outline a new set of tax rules that are designed to address tax challenges arising from the digitisation of the economy. The proposals have two pillars and six sub-components.

Pillar 1: 

  • Pillar 1A is a new formulaic basis for allocating taxing rights on profits of the largest multinational enterprises. Most multinational enterprises will be outside of the scope of Pillar 1A because at the outset it will only apply to groups with more than Euro 20 billion of annual revenues and group profitability above 10% (the revenue threshold will reduce to Euro 10 billion over time). Regulated Financial Services and Extractives are excluded (more details on Pillar 1A).
  • Pillar 1B is a new set of rules to standardise the profit margins earned by all group companies engaged in ‘baseline marketing and distribution’. The minimum profit margins are expected to vary by geography and industry but details will only be published at the end of 2022 (more details on Pillar 1B).

Pillar 2

Pillar 2 comprises four interlocking rules:

  • The subject to tax rule (STTR). The STTR will apply a new tax on payments for interest, royalties and a defined set of other payments that are made to group companies that are taxed at a nominal corporate income tax rate applying to those payments of less than 9%. The STTR is only expected to be introduced by developing countries.  
  • The Income Inclusion Rule (IIR). Countries that adopt the Income Inclusion Rule will charge a top up tax on the profits of any direct or indirect subsidiary operations that are in jurisdictions where the group has an effective tax rate of less than a new 15% minimum tax rate (calculated using new rules defined by the OECD) (more details)
  • Undertaxed Payments Rule (“UTPR”). Countries that adopt the Undertaxed Payments Rule will be able to tax the profits of foreign group companies (including companies domiciled in the ultimate parent location) that are still taxed at less than the new minimum tax rate of 15% (after the application of the STTR and the Income Inclusion Rule) (more details).   
  • Switch-over rule. The switch-over rule, where adopted, will mean that branches are treated in the same way as subsidiaries for countries that apply a branch exemption method (or would be required to do so based on an applicable double tax treaty). 

The new rules represent the most significant changes in the international tax framework for a generation and will have material compliance and administrative impact on larger groups. It is also expected that the new rules will result in a large increase in the taxes paid by some multinational enterprises.  

BEPS 2.0

Tax challenges arising from the digitalisation of the economy

Learn more


Pillar 1A

Pillar 1A will reallocate super profits earned by in-scope groups utilising an allocation key. 

The calculation iwill include the following steps: 

  • Identify super profits (i.e. group profits in excess of 10% profit margin (profit before tax / revenue) (A)
  • Identify the super profits that will be subject to reallocation.  This will be equal to 25% of the super profits identified in step 1.  (B = A x 25%).
  • Allocate the super profits subject to reallocation using a revenue based allocation key.  (C = B x allocation key). 

Simplifications will apply.  For larger jurisdictions, a group will only be required to apply the reallocation if the group has more than Euro 1m of revenues in the jurisdiction.  For smaller jurisdictions this limit will be applied at Euro 250k. 

The way in which profits are calculated for Pillar 1A will be governed by new rules being developed by the OECD so as to ensure consistency accross jurisdictions and multinational enterprises.  In addition, detailed source rules will be stipulated by the OECD. 

It is important to remember that most multinationals will not fall into the scope of Pillar 1A. Groups are exempt from Pillar 1A if they:

  • Have group revenues of less than Euro 20bn (reducing over time to Euro 10bn)
  • Have a profit margin of less than 10% (profit before tax / revenue)
  • Operate in the Extractives or Regulated Financial Services industries

Groups will be able to file their Pillar 1A calculations centrally in one location.  It is likely that this will be the same jurisdiction in which the impacted groups currently file their CBCR.  

Pillar 1B

Pillar 1B will introduce minimum profit margins (measured on EBIT level) for entities engaged in ‘baseline marketing and distribution functions’.  Guidelines will be provided on what constitutes base marketing and distribution functions but indications from the draft blueprint published in 2020 suggests that the focus is on routine distribution companies with commissionaires, commission agents, entities performing DEMPE functions or strategic development – all out of scope.   

Notwithstanding that Pillar 1B is being narrowly focused on baseline distribution and marketing functions there is no doubt that it will shape tax authority expectations about the profitability of a full range of distribution and marketing functions (baseline or otherwise).  

The minimum profit margins that will be introduced are expected to vary by industry and geography as well as functional intensity.  

Pillar 1B is expected to have a relatively smaller impact compared to the other BEPS 2.0 proposals but group’s will need to assess how it interacts with their existing transfer pricing, and where new segmentations and payment flows are required. With the anticipated date of publication of the new rates pushed back until late 2022, Pillar 1B is not the main focus for most groups at this time.   

The Income Inclusion Rule and Undertaxed Payments Rule

The Income Inclusion Rule and Under-Taxed Payments Rule are the core of the global minimum tax concept.

The Income Inclusion Rule and the Undertaxed Payments Rule are together known as the GloBE rules (Global anti-Base Erosion Rules). 

The key to both of these rules is the calculation of the new GloBE effective tax rate.

The most important aspects of this calculation are as follows:

  • The starting point for the calculation is accounting figures based on IFRS or an accepted alternative (US GAAP, HK GAAP etc).  Swiss GAAP FER and/or Banking GAAP are not expected to be accepted alternatives.
  • For groups that do not currently prepare accounts using one of the accepted alternatives there is expected to be an option to utilise the group accounting standard (if locally accepted by the relevant body, e.g. Swiss GAAP FER) with adjustments made for any material differences between the accounting standard used, and IFRS.  This will of course require the taxpayer to assess and document the differences.
  • The numerator for the effective tax rate calculation will be a measure of covered taxes which will include not only income taxes but a range of other taxes on profits, profit distributions or equity. It is currently expected, that also deferred taxes will be part of these covered taxes with certain limitations that will require monitoring and adjustments.
  • The denominator for the calculation will be a new definition of covered income calculated from group consolidated accounts with a number of adjustments specified by the OECD.

MNEs will need to calculate their effective tax using these new rules on a jurisdictional basis and compare the effective tax rate that they have calculated to the 15% minimum that has been endorsed by theOECD and Inclusive Framework.

The income inclusion rule works by requiring a parent company to tax any profits in its subsidiaries that have not been taxed at the minimum rate. For example if Switzerland adopts the income inclusion rule (as expected) then a Swiss parent company with a subsidiary in Hungary that has an effective tax rate of 9% would pay a top up tax of 6% of the Hungarian profits – the payment would be made here in Switzerland to the Swiss tax authorities.

The under-taxed payment rule would work by allowing the Swiss tax authorities to tax payments made by a Swiss entity to undertaxed foreign entities (I.e. entities in locations where the group has a GloBE effective tax rate of less than 15%. For example if a Swiss subsidiary made payments to a sister company in Bermuda (tax rate 0%) then the Swiss tax authorities would be allowed to tax the profits of Bermuda at the new minimum rate of 15% - subject to cap.  Switzerland would apply this additional tax unless Bermuda’s profits were already taxed in another country through an application of the subject to tax rule or the income inclusion rule (or unless Bermuda perhaps introduces a 15% corporate tax for large entities in response to the new rules – as Ireland has indicated it will).

Another important implication of the undertaxed payments rule is that foreign tax authorities will be able to tax the Swiss profits of Swiss headquartered groups if their GloBE effective tax rate for the Swiss operations is less than 15% (as calculated under the new rules).  This will happen unless or until Switzerland amends its tax law – for example by introducing a new 15% domestic minimum tax for the largest groups.

A final important aspect of the income inclusion rule and the under-taxed payments rule is the order in which they apply. Because the income inclusion rule applies first, and because the undertaxed payments rule only applies to profits that have not already been caught by the income inclusion rule, it is likely that the income inclusion rule will have a much larger impact on most Swiss headquartered groups. 

Contact us

We would be happy to talk to you. Please contact your regular PwC tax contact or any of the other BEPS 2.0 experts listed at the bottom of this page.

Dominik Birrer

Partner Tax, PwC Switzerland

+41 58 792 43 22


David McDonald

Partner and TP/VCT Leader, PwC Switzerland

+41 75 413 19 10


Markus Prinzen

Partner and Leader Corporate Tax Services, Zurich, PwC Switzerland

+41 58 792 53 10


Rolf Röllin

Partner, Corporate Tax, PwC Switzerland

+41 58 792 68 90


Jacob Parma

Director - Transfer Pricing & Value Chain Transformation, Zurich, PwC Switzerland

+41 58 792 44 87


Raphaël Matthys

Director, Corporate Tax, Zurich, PwC Switzerland

+41 58 792 9346


Christa Elsaesser

Partner, Tax & Legal Services, PwC Switzerland

+41 58 792 42 66


Etienne Michaud

Senior Manager, Transfer Pricing and Value Chain Transformation, PwC Switzerland

+41 58 792 96 70