Need Help?


The longstanding principles applicable to international taxation are largely based on the concept of physical presence. Digital business models changed this nexus, and the OECD identified three critical phenomena facilitated by digitalization (scale without mass, reliance on intangible assets, and centrality of data) which pose serious challenges to elements of the foundations of the global tax system.

To overcome the possibility of multinationals shifting profits from highly-tax jurisdictions to lower-tax jurisdictions, the G20 proposed to the OECD the creation of a global framework in the field of taxation: the anti-Base Erosion and Profit Shifting, or BEPS, which is composed of 15 Actions. Action 1 (Tax Challenges Arising from Digitalization) impacts international air transport, among many other sectors. The objective is that multinational enterprises (MNE) pay a fair share of tax in every jurisdiction they operate, regardless of having a physical presence.

Action 1(Tax Challenges Arising from Digitalization) is divided into two pillars:

  • Pillar One applies to large MNEs with more than EUR 20 billion of global revenues and a profit margin on global revenues of at least 10% and defines that each MNE should allocate its global taxable income to the jurisdictions where sales or revenue-generating activities occur (market jurisdictions) and not where the “substance” (majority of employees or other capital) is located.
    Airlines that fall within this scope will be required to allocate 25% of “excess profits” (i.e., profits above 10% of global revenues) to those countries from/to which the airline has economic activities outside its country of effective management.
    The OECD plans to implement Pillar One in 2024 via the signature of a Multilateral Convention.
  • Pillar Two proposes a global minimum effective corporate tax rate of 15%, even in countries where companies may not have a taxable presence but have significant economic activity. Pillar Two seeks to put a floor on competition over corporate income tax.
    Pillar Two will require that all “constituent (local) entities” of an international airlines group determine their effective tax rate using defined rules and data specific to that local entity. Where that local entity’s effective tax rate is less than 15%, a series of rules come into effect to ensure that the minimum tax rate is applied.
    These rules are intended to be implemented as part of a common approach and brought into domestic legislation as of 2023.

Need Help?

Find out more about the impact of BEPS on international air transport:

To find out more about the BEPS project please go to the OECD webpage

Taxation in Europe

Products & Services