The digitalization of the economy has meant that companies no longer need to be physically present
in countries to be able to derive profits from them. Goods and services can be provided online; this
has created tax challenges as existing international tax rules require the physical presence of non-
resident companies as an essential requirement for countries to be able to tax them. This phenomenon
has been accelerated since the COVID-19 pandemic as more economic activity becomes digitalized.
The 139 member OECD Inclusive Framework (IF) aims to provide a solution to the taxation of the
digitalized economy by July 2021, and no later than October 2021. The proposed “Two Pillar” solution
currently being negotiated seems to be challenging and complex, and in many ways could be a
paradigm shift for international taxation. It seeks to introduce a new taxing right in Pillar One focused
on reforms to existing nexus and profit allocation rules, while Pillar Two is focused on a global minimum
tax. The Two Pillar approach would also introduce new elements into international taxation, such as
limited formulary apportionment, multilateral dispute resolution and the allocation of taxing rights
through a multilateral agreement.
The discussion has proceeded at a brisk pace with the danger that the concerns