BDO Global Tax Alert

EU Finance Ministers consider amended directive for implementation of Pillar Two, but no unanimous agreement

16 March 2022

The EU Economic and Financial Affairs Council (ECOFIN) held a meeting on 15 March 2022 to discuss an amended version of the directive proposed by the European Commission on the implementation of the OECD/G20’s Pillar Two Global Anti-Base Erosion (GloBE) rules and the introduction of a global minimum tax for multinationals. (For an overview of the original proposed EU directive, see the Global Tax Alert issued on 23 December 2021).

The amended version of the proposed 22 December 2021 directive includes concessions following earlier consultations with EU member states. All EU member states must consent to the directive, but while Estonia, Malta, Poland and Sweden support the directive, they continue to have some reservations. 

The proposed directive sets out how the effective tax rate will be calculated per jurisdiction and includes rules that will ensure that large multinational groups in the EU pay a 15% minimum rate in every jurisdiction in which they operate and that the rules are applied consistently throughout the EU. The EU has pledged to move swiftly and be among the first to implement the global tax reform agreement reached by 137 of the 141 developed and developing countries in the OECD/G20 Inclusive Framework to address tax challenges posed by the digitalisation of the economy.

The concessions in the amended proposal are as follows:

  • The deadline for member states to transpose the directive into their domestic law is extended one year from 31 December 2022 to 31 December 2023;
  • Member states can opt not to apply the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR) on a temporary basis; and
  • Improvements to the connection between Pillar One and Pillar Two.

Most member states responded positively to the amended proposal and, in particular, embraced the  extension of the deadline for implementation of the directive. However, some member states have reservations:

  • Estonia and Malta have concerns about the administrative costs arising from the application of the IIR;
  • Poland wants the simultaneous implementation of Pillar One and Pillar Two and does not agree with the current separate approach; and 
  • Sweden believes it is too early for the Council to agree on its position (general approach) on the proposal.

The European Commission will need to further consider the contents of the proposed directive. Although the proposed directive cannot advance until there is unanimous consent among the EU member states, the French presidency is hopeful that agreement can be reached at the next ECOFIN meeting scheduled for 5 April 2022.

Frederik Boulogne