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Update on the progress of the global minimum tax

A new international tax agreement on minimum taxation for multinational groups has been delayed until 2024. Implementation deadline which was originally intended in 2023 was slowed down by the discussion on ironing out technical details. France, as the current presidency, is trying to reach the unanimous support of all EU Member States. This article provides a summary of recent developments on the international level.

We keep you informed about the changes on international tax rules within series of our Articles.

Current status of Development and Implementation of Minimum Tax Directive EU

October 2021

Following years of intensive negotiations, the OECD/G20 Inclusive Framework has agreed in October 2021 the tax treaty, which consists of two pillars:

  • Pillar One applies to all multinationals with a global annual turnover above EUR 20 billion and profitability above 10%, pay taxes in the countries where sales are made.
  • Pillar Two sets to tax companies with an annual turnover of more than EUR 750 million with a minimum rate of 15 %.

December 2021

On 22 December 2021, the European Commission published a proposed EU Directive to implement the Pillar Two rules into EU law. Further to the publication of the OECD on „Global Anti-Rase Erosion Model Rules“ provides jurisdictions with detailed guidance, which is based on the two rules - Income Inclusion Rule („IIR“) and Undertaxed Payment Rule („UTPR“).

March 2022

On 14 March 2022, the OECD released the Commentary to the Model GloBE rules under Pillar 2 including a separate document with illustrative examples to better understand the mechanics. They also launched a public consultation on the GloBE Implementation Framework. The OECD received over 500 pages of comments.

Ahead of the meeting, on 15 March 2022 the Council published a compromise text for an EU Minimum Tax Directive on which the finance ministers were invited to adopt following key changes:

  • implementation timeline – postponement of the transposition deadline for the rules into domestic law within 31 December 2023 and IIR deferral until 31 December 2023 and UTPR deferral until 31 December 2024
  • application of the GloBE rules in the case of smaller number of ultimate parent entities („UPEs“) – only Member States where no more than ten UPEs of in-scope MNE groups are located may therefore decide to not apply the Directive for five years
  • parallel link between Pillar One and Pillar Two

However, four Member States (Poland, Sweden, Malta and Estonia) did not agree with the adoption of the Directive at this stage. Discussion continued at the next ECOFIN meeting.

April 2022

It was expected that EU Member States reach an agreement on the compromise text at ECOFIN meeting on 5 April 2022 taking into consideration the objections of Poland (Sweden, Estonia and Malta supported amendments).

New compromise text extends the application period of the deferral to six years from five and increases the maximum number of ultimate parent entities to twelve from ten. The proposed rules have again failed to approve.

May 2022

EU Finance Ministers express broad support for unanimously adopting the compromise text for Pillar Two Directive, but Poland's acceptance is essential for the deal to proceed. Accordingly, the EU Minimum Tax Directive was initially added to the agenda for the ECOFIN meeting on 24 May 2022, but it was removed at the last minute. There are still Poland's concerns in context of aligning the work and timelines of both pillars. Final conclusion could be reached at the next meeting of ministers on 17 June 2022.

To date, the European Commission has only produced a proposal on Pillar 2. This is primarily because the details of Pillar 1 are still being negotiated at the OECD level. A proposal to implement Pillar 1 is expected in the summer 2022.

We will keep you informed on further update of the Global Minimum Taxation proceeding.

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