The EU member states reached agreement on 12 December 2022 to implement the minimum tax for multinational groups under the OECD’s Pillar Two model rules. A press release announcing the agreement states that ambassadors of the member states decided to advise the Council of the EU to adopt the Pillar Two directive originally released on 22 December 2021 and subsequently revised. The Polish government initially refused to sign onto the agreement but changed its position during the meeting of the Council on 15 December, thus paving the way for formal adoption of the minimum tax directive to move forward and the Council did formally adopt the directive by written procedure (for prior coverage, see the tax alerts issued on 16 September 2022, 16 March 2022 and 20 June 2022).
The EU directive is based on the Pillar Two GloBE model rules published by the OECD on 20 December 2021 (see the tax alert issued in December 2021) and provides a common framework for implementing the rules into the national laws of the EU member states, adjusted to take into account EU law requirements. The directive will ensure a global minimum level of taxation (15%) of the profits of large multinational and domestic groups or companies that have a combined annual turnover of at least EUR 750 million. These rules are expected to reduce base erosion and profit shifting by the largest multinational groups and limit the “race to the bottom in corporate tax rates.”
The directive must be transposed into the EU member states’ national law by the end of 2023. Based on the latest version of the directive published on 25 November 2022, EU member states must apply the directive in respect of fiscal years beginning from 31 December 2023. However, member states with 12 or fewer ultimate parent entities in their jurisdictions may elect to defer implementation for six fiscal years. Other member states may then include the top-up tax allocable to the ultimate parent entity via the undertaxed payment rules. The European Commission must be notified of such a deferral before 31 December 2023.