Pillar 2 directive adopted by the eu council
On December 2022, the EU member states have reached an agreement to implement the minimum taxation component also known as Pillar 2, in the European Union (“EU”).
This directive aims at ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU. It also aims, by an effective implementation, to limit the race to the bottom in corporate tax rates. Large multinationals and domestic groups with consolidated annual turnover of at least €750 million will be taxed at a minimum tax rate of 15%. The objective is clear and follows the project Base Erosion and Profit Shifting (“BEPS”), to reduce the risk of tax erosion and profit shifting and ensure that the largest multinational groups pay the agreed global minimum rate of corporate tax.
However, the directive is still to be transposed into member states’ national law at the latest by the end of 2023 and for an application as from 2024. As such, the EU will be a pacesetter in the application of the Pillar 2 Global agreement.
As a reminder, on October 2021, more than 100 countries reached a landmark agreement on international tax reform in the OECD/G20 Inclusive Framework on BEPS, was well as on a detailed implementation plan. The reform of international corporate tax rules consists of Pillar 1 and Pillar 2.
Given the many uncertainties ahead in terms of determining the potential impact of Pillar 2, it is important for tax departments of internationally active companies to understand the potential impact of these rules to ensure they can start preparing their tax compliance processes for the new global review in a timely manner but also deliver insights on the potential impact to their stakeholders. Recent experiences learn that internationally active companies have different ways of proactive dealing with Pillar 2 rules. The different phases could vary from developing awareness, taking inventory, and identifying (and modelling out) potential scenarios.
If you have any questions regarding this topic, don’t hesitate to contact our RSM Belgium | Tax team ([email protected]).