Pillar 2 and the tonnage regulation: watch out for possible additional taxation!

Does your company also fall within the scope of Pillar 2? 

Does your company have consolidated group sales of at least 750 million euros? Then you fall within the scope of Pillar 2. This means that even relatively small Dutch companies that are part of a multinational group are affected by this legislation. Government agencies, pension funds, real estate (investment) entities and shipping companies are exempt under certain conditions.

How does Pillar 2 work? 

The new Pillar 2 regulations ensure that profits of multinational groups are taxed at least at an effective rate of 15 percent in each country. In other words, it is measured by the tax burden per country and not the total tax burden of the group. Does the effective rate fall below the 15 percent minimum? Then the new law will top up the tax due to the minimum rate through one of the following measures: 

• Imposition of a domestic, top-up tax (Qualified Domestic Minimum Top-up Tax). 
• Imposition of additional tax on a parent entity (Income Inclusion Rule). 
• Denial of a deduction or other equivalent adjustment (Undertaxed Profit Rule). 

Pillar 2 and the tonnage regime 

Does your shipping company (or other type of business) use the tonnage tax regime credit? If so, the effective rate of your profits may be lower than the minimum tax rate discussed earlier. This is because the tonnage tax regime sets profits at a flat rate based on net vessel tonnage. The law states which profits are covered by the tonnage tax regime. Depending on your activities, part of your profit may fall under the tonnage tax regime and part may not. This depends on the current situation and the effective tax rate. By applying the tonnage tax regime, the effective tax rate on your profits from maritime shipping may be lower than the minimum tax rate discussed earlier. Thus, this could lead to an additional tax when Pillar 2 is introduced.  

What exceptions does Pillar 2 have? 

For income from international maritime shipping, Pillar 2 has exceptions. The 2024 Minimum Tax Act excludes income from these activities from the mandatory minimum rate. Profits from maritime shipping, which are taxed in the Netherlands under the tonnage tax regime, therefore remain in principle outside the scope of Pillar 2 and in principle do not affect entrepreneurs who are 100 percent engaged in maritime transport.  

Note! 

The wording in the 2024 Minimum Tax Act for the tonnage tax regime-exception, cannot be matched one on one to the provisions of the Dutch tonnage regime! This allows the tax authorities to still include income from shipping in the group’s qualifying income in special situations. Does your company also perform side activities besides shipping? Even then, your company may still fall within the scope of Pillar 2.  

How do you prepare for Pillar 2? 

It is likely that the 2024 Minimum Tax Act will take effect on January 1, 2024. Application of the tonnage regime may cause the effective tax rate applicable per jurisdiction under this Act to be lower than the minimum rate of 15 percent. If you are 100 percent engaged in maritime transport, then in principle the introduction of Pillar 2 will have no negative consequences for you.  Unfortunately, if you (also) have profits from other activities, you may still have to deal with this complex new international legislation. Be well prepared for this (financially)! 

Want to know more? 

Would you like to know more about Pillar 2 in combination with the tonnage tax regime or about other developments within transport and logistics?

Get in contact with our experts