BEPS 2.0 - Chronology on the taxation of the digital economy

In recent decades, digitalisation and globalisation have allowed companies to optimise their processes and supply chains also from a tax perspective and to distribute profits within cross-border activities in a tax-optimal manner. In response to this development, states intensified their cooperation in the tax area and sought regulations to limit the possibilities of legal cross-border tax optimisation. These efforts were finally brought together at the OECD and translated into concrete measures within the framework of the BEPS project. The goal of the BEPS (Base Erosion and Profit Shifting) project of the OECD and G20 is, among other things, to be able to better capture the digital economy through new taxation rules with the help of a 2-pillar plan. To help you keep track of these developments, we have summarised the most important milestones from BEPS 1.0 to BEPS 2.0 in a chronology below:

BEPS 1.0 - First phase of the OECD/G20BEPS project

BEPS-Project Action point 1: (10/2015)

The OECD published the 15-point final reports of the BEPS project on 5 October 2015. The final report on Action Point 1 contains an analysis of the tax challenges posed by the expansion of the digital economy. The report finds that certain business models and key features of the digital economy can exacerbate BEPS risks, such as tax evasion and profit shifting, and shows the expected impact of the measures developed under the project on these risks. Further, the report also analyses options for addressing the tax challenges of the digital economy and points out that developments in the digital economy need to be monitored continuously. The report only contains approaches to solutions and no concrete recommendations. A conclusive assessment of the issues associated with digitalisation was not possible at that time. Although there was a consensus on the basic problem, the member states of the BEPS project and other stakeholders were not able to agree on concrete measures due to diverging positions and ideas.

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Overview BEPS-Project Action point 1 Chronology on the taxation of the digital economy, taken from Bucher Tax.

BEPS 2.0 - Second phase of the OECD/G20BEPS project

Interim Report 2018: (03/2018)

The OECD/G20 Inclusive Framework, established in 2016, was set up to ensure that interested countries and jurisdictions, including developing countries, can participate on an equal footing in the development of standards on BEPS-related issues, while reviewing and monitoring the implementation of the OECD/G20 BEPS project. The Inclusive Framework includes not only all OECD member states, but over 100 other countries. Currently, the Inclusive Framework counts 140 countries and territories. The 2018 Interim Report of the Inclusive Framework for BEPS set out the direction of work agreed in the Inclusive Framework on digitalisation and international tax rules up to the year 2020. The interim report went on to show how digitisation is impacting other areas of the tax system and how new tools for tax authorities can lead to improved services for taxpayers, more efficient tax collection and detection of tax evasion. However, recommendations were not made in this report either.

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Policy Note of the TFDE: (01/2019)

In January 2019, the TFDE (Task Force on the Digital Economy as a subcommittee of the Committee on Fiscal Affairs) published initial approaches to the tax challenges of the digitalisation of the economy in a policy note. In this draft, the OECD pursues a two-pillar model on an equal footing: Pillar 1 starts with a redistribution of taxation rights and nexus, and Pillar 2 is intended to secure a certain minimum level of taxation.

Public consultation on the tax challenges of digitalisation: (02-03/2019)

On 13 and 14 March 2019, the public hearing of the draft TFDE took place in Paris. The hearing was attended by more than 400 representatives from business, academia, public administration and NGOs, who submitted written submissions in advance of the consultation based on the January 2019 draft. The various interest groups expressed understanding in principle for the project with regard to Pillar 1. The Pillar 2 proposals were met with overall scepticism by the various stakeholder groups. The comments provided are intended to help the members of the Inclusive Framework of both develop a solution for a final report to the G20 in 2020.

Work programme to develop a consensus solution to the fiscal challenges arising from the digitalisation of the economy: (05/2019)

In May 2019, the OECD announced that the international community had agreed on a two-pillar work programme . This demonstrated the willingness of the members of the Inclusive Framework to agree on a global and sustainable solution by the agreed deadline 2020. The work programme takes up the interim status on the development of a new taxation system from January 2019 and the results of the public consultations from March 2019. The work programme proposes the following two pillars:

  • The first pillar explores solutions to determine where and on what basis taxes should be paid and what proportion of profits should be taxed in the states where consumers or users are located.
  • The introduction of a global effective minimum taxation is intended to put an end to increasingly harmful international tax competition within the framework of a second pillar.

In addition to examining these two pillars, the work programme also provides for an economic analysis and impact assessment. Information events on the topic of digitalisation are also planned in cooperation with regional organisations and development banks.

Public consultation on Pillar 1 - Unified Approach: (11/2019)

The public consultation on Pillar 1 describes the OECD's proposed "unified approach" for Pillar 1 and invites public comments on a range of policy issues and technical aspects. The comments submitted are intended to help members of the Inclusive Framework develop a solution for the final report to the G20 in 2020.

Public Consultation on Pillar 2 - Global Anti-Base Erosion (GloBE): (12/2019)

The Global Anti-Base Erosion (GloBE) proposal contains rules aimed at achieving minimum taxation of internationally operating corporations. The December 2019 public consultation on Pillar 2 addressed technical issues related to the GloBE proposal. Comments were invited on any aspect of the Pillar 2 work programme, in particular on the following three technical aspects:

  1. The use of financial accounts as a starting point for determining the tax base;
  2. The extent to which a multinational company can combine income and taxes from different sources in determining the effective (blended) tax rate on that income; and
  3. Stakeholders' experiences and views on exemptions and thresholds that could be considered as part of the GloBE proposal.

Comments submitted should in turn help members of the Inclusive Framework develop a solution for the final report to the G20 in 2020.

OECD/G20 Inclusive Framework Statement on the Two Pillar Approach: (01/2020)

The members of the Inclusive Framework reaffirm their commitment to reach agreement on a consensus-based solution by the end of 2020. In further developing the two pillars, the Inclusive Framework has therefore agreed on an outline of the architecture of a unified approach for the first pillar as a basis for negotiations and welcomed progress on the second pillar.

Publication of Pillar 1 and Pillar 2 plans: (10/2020)

On 12 October 2020, the Inclusive Framework published a package consisting of Pillar 1 and Pillar 2 plans. These drafts reflect consensus views on many of the key policy features, principles and parameters of both Pillars, and identify the remaining technical and administrative issues, as well as the policy issues on which Inclusive Framework members still hold divergent views. According to the package, a consensus-based solution composed of two pillars is, on the one hand, essential to ensure fairness and equity in state tax systems and to strengthen the international tax framework in the face of new and changing business models. On the other hand, the package can also help to put public finances back on a sustainable footing. Public pressure for large, internationally active and profitable companies to pay their fair share and to do so under the new international tax rules has increased due to the current COVID 19 pandemic. According to the report, a consensus-based solution could at the same time provide companies with the necessary tax certainty and thus contribute to economic recovery.

Public consultation on Pillar 1 and 2 plans: (01/2021)  

Stakeholder input on the Pillar 1 and Pillar 2 plans is welcomed by the Inclusive Framework Public consultation meetings in January 2021 will help the members of the Inclusive Framework to finalize the package and clarify existing open questions.

Opinion on a two-pillar solution to the fiscal challenge of the digitalisation of the economy: (07/2021) 

The multilateral agreement envisaged under BEPS 2.0 moved forward at the beginning of July 2021 with a statement from the OECD/G20 Inclusive Framework agreeing on a two-pillar solution to address the fiscal challenge of the digitalisation of the economy.

BEPS 2.0 Decision status: (07/2021)

The OECD's BEPS 2.0 project was adopted at the G20 Finance Ministers' Meeting on 09/10 July 2021. According to the OECD, the new provisions of the two pillars should enter into force in 2023:

Pillar 1 - Reallocation of taxation rights

Pillar 1 aims to ensure a fairer distribution of profits and taxing rights between states in relation to the largest multinational companies, including digital companies. Pillar 1 would shift some taxing rights for multinationals from their state of origin to the markets in which they do business and generate profits, regardless of whether the companies have a physical presence there. Under Pillar 1, more than $100 billion of profit tax substrate is expected to be redistributed to market states annually. Pillar 1 applies to companies in all sectors with a global turnover of more than €20 billion and a profitability of more than 10 per cent. The first pillar is primarily aimed at taxing the digital economy.

Pillar 2 - Global mechanism against erosion of the tax base

The second pillar aims to limit competition at CIT by introducing a global minimum profit tax rate that countries can use to protect their tax bases. The second pillar is intended to apply to multinational companies with global sales of more than EUR 750 million. The minimum effective tax rate is to be at least 15%. The global minimum profit tax under the second pillar is estimated to generate around USD150 billion in additional global tax revenue annually. According to the OECD, there will be further benefits, particularly in terms of stabilizing the international tax system and increasing tax certainty for taxpayers and tax administrations.

Statement Inclusive Framework and FDF press release on BEPS 2.0: (10/2021)

On 8 October 2021, the OECD's Inclusive Framework with 140 member states, including Switzerland, further specified the key points on future international corporate taxation already published in July 2021. Important points that have since been clarified for Switzerland are the following:

  • New taxation rights turn out to be moderate for market countries;
  • Unilateral digital taxes are to be abolished on a binding basis;
  • A rate of 15% is to apply for the global minimum taxation;
  • A gradual introduction of the minimum taxation rules is planned, which is of key importance for Switzerland with a long legislative process.

According to statements made by Federal Councillor Ueli Mauer at the OECD ministerial meeting in Paris on 5 and 6 October 2021, a minimum taxation of 15% is feasible for Switzerland. However, the Finance Minister expressed criticism of the OECD's timetable, which does not yet take sufficient account of national legislative processes. It will not be possible for Switzerland to implement the new rules by 2023.

In the coming months, existing open points for Switzerland will be further specified. By the end of March 2022, the Federal Department of Finance (FDF), together with other departments and with the involvement of the cantons, cities, business and academia, will draw up proposals for the attention of the Federal Council that are internationally accepted and will provide companies in Switzerland with the best possible conditions for sustainable growth in the future.