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Pillar 2 is a minimum tax that will be introduced for companies with a group turnover of more than EUR 750 million. Group entities of these groups located in countries that have adopted Pillar 2 (including the EU and many other countries) will be affected by this new tax. These groups must calculate which group entities are subject to a corporate income tax of less than 15% at jurisdiction level, based on the "Pillar 2" calculations. When certain group entities are taxed at a lower rate than 15%, a top-up tax will be levied on these group entities that are located in countries that implemented Pillar 2. This top-up tax will be levied through a separate tax system which is independent from e.g. the current corporate income tax system. For more information on the legislation, we would like to refer to this page.
Pillar 2 - Case brought before the General Court of the European Union
A case has been brought before the General Court of the European Union in which the applicant seeks to annul parts of the Pillar 2 Directive. It concerns the scope of the national tonnage regimes and the tonnage regime as specified in Pillar 2.
Article 17 of Pillar 2 excludes from its scope income from shipping activity covered by a Member States’ tonnage tax regimes authorized under State aid rules. However, this Pillar 2 definition of shipping income does not always align with the national provisions determining income from shipping activities. Therefore, the scope of excluded shipping income under Pillar 2 could have a negative effect on the taxation of current domestic shipping income.
Pillar 2 does not provide for transitional measures for taxpayers who will face issues due to these deviating definitions of income which falls under shipping activities. The applicant of the court case provides 5 reasons to substantiate the annulment request:
- Infringement of the general principle of equal treatment;
- Infringement of the general principle of proportionality because the effect of Pillar 2 exceeds what is necessary to achieve its purpose;
- Infringement of the principle of proportionality because Pillar 2 also applies to purely domestic situations;
- Infringement of the principle of protection of legitimate expectations and legal certainty;
- Infringement of the State Aid articles.
It is now up to the Council of the European Union to submit a statement of defence before the 4th of June
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The OECD releases an administrative guidance for the Pillar 2 GloBE Rules
The document that was published today includes guidance on the recognition of the United States' minimum tax (known as the Global Intangible Low-Taxed Income or "GILTI") under the GloBE Rules and on the design of Qualified Domestic Minimum Top-up Taxes.
It also includes more general guidance on the scope, operation and transitional elements of the GloBE Rules to allow Inclusive Framework members that are in the process of implementing the rules to reflect this guidance in their domestic legislation in a coordinated manner. "The release of today's guidance represents the final but significant piece of work on the GloBE Rules that the Inclusive Framework members had committed to deliver as part of the implementation framework, while this brings an end to the work we had set for ourselves in October 2021, we will continue, over the coming months, to work hard to ensure that the rules are implemented in a coordinated and administrable manner. This will include listening to stakeholders on how the operation of the rules can be further refined to reduce compliance costs and achieve better tax certainty for business and how we can optimise the information to be reported in the GloBE Information Return, while also developing a robust and transparent peer review process and expanding our capacity building efforts," said Grace Perez-Navarro, Director of the OECD Centre for Tax Policy and Administration.
Find out more:
- Technical guidance for implementation of the global minimum tax
- Administrative Guidance on the Global AntiBase Erosion Model Rules (Pillar Two)
The OECD agrees on the design of a safe harbour and a transitional penalty regime
In order to mitigate the acute compliance burden that arises from the Minimum Tax Act 2024, the OECD has published its ‘safe harbours and penalty relief’ document. The document includes a transitional safe harbour, a permanent safe harbour and a transitional penalty relief regime. Furthermore, the OECD is also working on a Qualified Domestic Minimum Top-up Tax (QDMTT) safe harbour that would provide compliance simplifications for MNEs operating in jurisdictions that have adopted a QDMTT (the Netherlands have adopted a QDMTT). The QDMTT allows the Netherlands to tax any Top-up Tax from any Dutch low-taxed entities.
Find out more:
- Further progress on two-pillar solution
- Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules
The EU has formally adopted the Pillar Two directive
After the statement on December 12th 2022, the EU has now also formally adopted the directive to implement a global minimum corporate tax. All 27 EU member states have unanimously voted for the implementation of Pillar Two in the European Union.
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- Outcome of written procedure on aid to Ukraine, minimum tax, Hungary’s recovery plan and the conditionality mechanism
BREAKING: The EU reaches an agreement on the global minimum corporate tax
Today, the EU Council announced that EU member states have reached an agreement in principle to implement Pillar Two at EU level. This means that Hungary, as last EU member state, has dropped its resistance. The directive has to be implemented into EU member states’ national law by the end of 2023.
“I am very pleased to announce that we agreed to adopt the directive on the Pillar 2 proposal today. Our message is clear: The largest groups of corporations, multinational or domestic, will need to pay a corporate tax that cannot be lower than 15%, globally,” Said Zbyněk Stanjura, Minister for Finance of Czechia.
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The consultation on the Dutch draft Pillar Two legislation is closed today
After more than a month, the public consultation of the Dutch draft Pillar Two legislation was closed today. The consultation resulted in 16 public reactions.
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The Netherlands publishes draft Pillar Two legislation
The Netherlands has published the draft Pillar Two legislation (Wet Minimumbelasting 2024), including extensive commentary on the draft legislation which should come into effect on January 1st 2024. This draft legislation is based on the third compromise text as presented by the European Commission on June 16th 2022. Hungary is the only EU member state that has not yet agreed to the compromise text. Nevertheless it is expected that the final text of the Directive will be similar to the third compromise text, which is largely based on the model rules published by the OECD on December 20th 2021.
At the same time, a public consultation is opened, to enable everyone to comment on the draft legislation. The consultation is opened until December 5th 2022.
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France, Germany, Spain, Italy and The Netherlands publish a joint statement in which they reaffirm their strengthened commitment to swiftly implement the global minimum effective corporate taxation
At Ecofin in June 2022 it turned out that the global minimum corporate tax is supported by 26 out of 27 EU member states. Hungary is the only EU member state left still resisting. Therefore France, Germany, Spain, Italy and The Netherlands feel the need to express their intention to swiftly implement the global minimum effective corporate taxation.
“Should unanimity not be reached in the next weeks, our governments are fully determined to follow through on our commitment. We stand ready to implement the global minimum effective taxation in 2023 and by any possible legal means. We are also fully committed to complete the work on the better reallocation of taxing rights from huge global multinationals’ profits with the objective of signing a multilateral convention by mid-2023,” said the five countries.
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The European Commission publishes a third compromise text of the proposal for a directive aiming to implement Pillar Two in the European Union
Earlier today, the European Commission has published a third compromise text of the proposal for a directive aiming to implement Pillar Two in the EU.
- Draft Council Directive on ensuring a global minimum level of taxation for multinational groups in the Union
The OECD releases a detailed commentary to the GloBE Rules
The OECD has released a detailed commentary to the GloBE Rules. The commentary explains the intended outcomes under the GloBE Rules and clarifies the meaning of certain terms. The commentary also illustrates the application of the rules to certain fact patterns. “The release of the Commentary today is a significant achievement which concludes many months of hard work by Inclusive Framework members in reaching a detailed agreement on the substantive provisions of the GloBE Rules. With the completion of the technical work on the Model Rules and Commentary, Inclusive Framework members now have all the tools they need to begin implementing the rules," Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration said.
- OECD releases detailed technical guidance on the Pillar Two model rules for 15% global minimum tax
- Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the Global Anti-Base Erosion Model Rules
- Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules Examples
The European Commission (EC) presents a proposal for a directive aiming to implement Pillar Two in the European Union
The European Commission has presented a proposal for a directive aiming to implement Pillar Two in the European Union. The proposal is very similar to the GloBE rules, apart from some adjustments designed to guarantee conformity with EU-law. All EU member states need to agree in order for the proposal to be adopted. Once the directive has been implemented by the member states, the directive should come in effect on January 1st 2023.
The OECD publishes model rules to implement Pillar Two
The OECD has published model rules to implement Pillar Two. These Global Anti-Base Erosion Rules (GloBE) should ensure that multinationals pay a minimum level of tax. The GloBE Rules provide for a coordinated system of taxation that imposes a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate of 15%. The rules apply to companies with revenues above EUR 750 million. These rules are scheduled to be implemented by 2023.
- OECD releases Pillar Two model rules for domestic implementation of 15% global minimum tax
- Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion Model Rules
The OECD has reached a ground-breaking agreement on a global minimum corporate tax
On October 8th 2021 a political agreement to reform the international tax system has been reached in the Inclusive Framework, organised by the OECD. The current international tax system is said to be no longer fit for purpose in a globalised and digitalised economy. The deal was agreed by over 130 jurisdictions. The agreement consists of two so called Pillars. Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinationals. Pillar Two introduces a global minimum corporate tax rate of 15%, which will apply to multinationals with a revenue above EUR 750 million.
“Today’s agreement will make our international tax arrangements fairer and work better. This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform,” OECD Secretary-General Mathias Cormann said.