G20 Backs OECD Plan to Tax Big Tech in Market Countries
The Pillar One framework reallocates a share of the largest firms' profits to the countries where their revenue is earned.
G20 leaders have endorsed a final political agreement to implement the OECD's Pillar One framework, the most significant overhaul of international corporate tax rules in generations. The leaders' declaration commits members to reallocating a share of the largest multinationals' profits from headquarter nations to the countries where their revenue is generated.
The change targets roughly 100 of the world's biggest firms — predominantly technology and consumer-facing companies — that earn substantial revenue in markets where they have little or no physical presence.
Key Highlights
- G20 leaders endorsed the OECD Pillar One profit-reallocation framework.
- It applies to firms with global revenue above €20bn and margins above 10%.
- A quarter of “residual” profit shifts to market jurisdictions.
- India could gain USD 1.8-2.4bn a year and will phase out its Equalization Levy.
- The parallel Pillar Two sets a 15% global minimum corporate tax.
How Pillar One Works
Under Pillar One, companies with annual global revenue above €20 billion and profit margins above 10 per cent face a formulaic reallocation. Twenty-five per cent of the “residual profit” — earnings above the 10 per cent margin — is assigned to market jurisdictions based on where sales occur.
For large digital platforms that book revenue in countries where they have no office, this effectively creates a new taxing right for markets such as India, Brazil and Nigeria with large user bases. It is one half of the OECD's two-pillar response to base erosion and profit shifting (BEPS).
Pillar One at a glance
| Parameter | Threshold |
|---|---|
| Companies in scope | Around the 100 largest multinationals |
| Global revenue threshold | Above €20 billion |
| Profit-margin threshold | Above 10% |
| Reallocated to markets | 25% of residual profit |
| Pillar Two minimum tax | 15% |
India Stands to Gain
Finance-ministry estimates suggest Pillar One could yield India between USD 1.8 billion and USD 2.4 billion a year from technology platforms, search engines and streaming services that earn Indian-sourced revenue without matching local tax. India was an early advocate of the market-jurisdiction approach.
In exchange, India will withdraw its Equalization Levy — a 2 per cent tax on digital advertising paid by non-resident firms — a long-running friction point with the United States. The levy will sunset when the Pillar One treaty takes effect.
Implementation and Holdouts
The multilateral convention giving effect to Pillar One will open for signature in Paris, with members committing to ratify within 24 months. Several large economies — notably the United States, which faces domestic legislative resistance — entered conditional commitments tied to their parliaments.
Developing countries welcomed the framework while noting their gains are more modest. The Pillar Two global minimum tax of 15 per cent, already being legislated in more than 60 jurisdictions, is expected to compound Pillar One in curbing profit shifting.
Frequently Asked Questions
What is Pillar One?
An OECD framework that reallocates part of the largest multinationals' profits to the countries where their sales occur.
Which companies are affected?
Roughly the 100 largest firms with global revenue above €20bn and margins above 10%.
How much could India gain?
An estimated USD 1.8-2.4 billion a year.
What happens to India's Equalization Levy?
It will be phased out when the Pillar One treaty enters into force.
How is Pillar Two different?
Pillar Two sets a 15% global minimum corporate tax; Pillar One reallocates taxing rights to markets.
Sources
- OECD/G20 Inclusive Framework on BEPS
- G20 Leaders' Declaration
- Ministry of Finance, Government of India