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October 25, 2021

Six country Joint Statement on transitional approach to existing unilateral measures during period before Pillar One is in effect

Executive summary

On 21 October 2021, a Joint Statement from Austria, France, Italy, Spain, the United Kingdom (UK) and the United States (US) was released describing a compromise reached by the countries on a transitional approach to the treatment of existing digital services taxes (DSTs) and other relevant similar measures during the interim period before new Pillar One rules come into effect.

Under the compromise, the five European countries, which are not required to withdraw their existing DST regimes until Pillar One takes effect, have agreed to allow a portion of taxes accrued by a multinational enterprise (MNE) under their DSTs or any other unilateral measures before Pillar One takes effect to be credited against the MNE’s future Pillar One Amount A tax liability when Pillar One rules are in effect. The US has agreed to terminate its proposed trade actions against the five countries with respect to their existing DSTs and commits not to impose further trade actions with respect to such countries and their DSTs during this interim period. Finally, the six countries are to remain in close contact to ensure there is a common understanding of the agreement and to endeavor to resolve any differences of view.

Detailed discussion


On 8 October 2021, the OECDreleased a statement reflecting the agreement reached by 136 of the 140 member jurisdictions of the OECD/ G20Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on the two-pillar project to address the tax challenges of the digitalization of the economy (the October Statement).3 On 13 October 2021, the communiqué issued at the conclusion of the meeting of the G20 Finance Ministers and Central Bank Governors in Washington endorsed the October Statement as the final political agreement on the two pillars and called on the Inclusive Framework to swiftly develop model rules and multilateral instruments with a view to ensuring that the new rules under the two pillars come into effect at a global level in 2023.4

The October Statement provides that the removal of all DSTs and other relevant similar measures with respect to all companies will be required by the multilateral convention (MLC) through which Amount A of Pillar One, relating to new nexus and profit allocation rules, is to be implemented. It further provides that no newly enacted DSTs or other relevant similar measures will be imposed on any company from 8 October 2021 through the earlier of 31 December 2023 or the coming into force of the MLC. It also foreshadowed the Joint Statement, as the October Statement notes “reports from some members that transitional arrangements are being discussed expeditiously.”

Joint Statement

The Joint Statement from Austria, France, Italy, Spain, the UK and the US released on 21 October 2021 describes a compromise reached by the countries on a transitional approach to the treatment of existing DSTs and other relevant similar measures, referred to collectively as Unilateral Measures, during the interim period before new Pillar One rules come into effect.

The framework for the compromise included in the Joint Statement provides that Austria, France, Italy, Spain, and the UK, are not required to withdraw the Unilateral Measures they have enacted until Pillar One takes effect. However, to the extent that taxes under these existing Unilateral Measures that accrue during the agreed interim period exceed an amount equivalent to the tax due under Pillar One Amount A in the first full year of its implementation (adjusted to achieve proportionality with the length of the interim period), such excess will be creditable against the income tax liability under Pillar One in these countries.

For this purpose, the interim period is the period beginning on 1 January 2022 and ending on the earlier of the date that the Pillar One MLC comes into force or 31 December 2023. The credit is to be applied in the first year that an MNE is subject to Amount A tax liability arising under Pillar One. However, the credit will not be available for an MNE that first becomes subject to Pillar One more than four years after it comes into effect in the particular country. If the credit exceeds the liability arising under Pillar One in a taxable year, the excess will be carried forward for use in subsequent years until the credit is fully utilized against Pillar One liability.

The Joint Statement includes an annex with an example illustrating the operation of this credit.

The framework for the compromise included in the Joint Statement further provides that the US will terminate trade actions proposed under Section 301 and commit not to impose further trade actions with respect to the existing DSTs imposed by the five participating countries during the interim period provided such countries follow through on their agreement to provide the credit described in the Joint Statement.

Finally, the Joint Statement provides that the countries will meet regularly to discuss progress on Pillar One implementation and “any implications that may have for the appropriate application of the agreement.”

Upon the release of the Joint Statement, the Office of the United States Trade Representative (USTR), issued a press release welcoming the agreement and stating that it is proceeding with the formal steps required for terminating the Section 301 trade actions. Ambassador Katherine Tai, the principal trade advisor, negotiator, and spokesperson on US trade policy, comments that the USTR will “continue to oppose the implementation of unilateral digital services taxes by other trading partners.” In this regard, the press release notes that Turkey and India, which also have DSTs covered by Section 301 investigations, have not joined the agreement.


The Joint Statement is an important development in the ongoing dispute between the US and these five countries over their DSTs. Companies that are affected by these DSTs should monitor further developments closely as further steps are taken with respect to the agreement outlined in the Joint Statement.

It should be noted that it is not clear whether the agreement covers any measures in any of the five countries other than their DSTs. It also should be noted that the agreement does not provide any credit for DST liability to an MNE that is not subject to liability under Pillar One in the particular country within four years after Pillar One comes into effect in such country. Thus, under the agreement, MNEs that are not within scope of Pillar One would not receive relief for DST liability accrued during the interim period.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young Limited (New Zealand), Auckland

Ernst & Young Solutions LLP, Singapore

Ernst & Young LLP (United States), Detroit

Ernst & Young LLP (United States), Global Tax Desk Network, New York

Ernst & Young LLP (United States), New York

Ernst & Young LLP (United States), Global Tax Desk Network, San Diego

Ernst & Young LLP (United States), San Jose

Ernst & Young LLP (United States), Seattle

Ernst & Young LLP (United States), Washington, DC



  1. Organisation for Economic Co-operation and Development.
  2. The G20 includes the European Union and 19 individual countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK, and the US.
  3. See EY Global Tax Alert, OECD releases statement updating July conceptual agreement on BEPS 2.0 project, dated 11 October 2021.
  4. See EY Global Tax Alert, G20 Finance Ministers endorse 8 October BEPS 2.0 statement and call for swift implementation to secure entry into effect in 2023, dated 14 October 2021.

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