Council Reaches Agreement on Minimum Taxation Directive

On 12 December 2022, the 27 EU Member States agreed to adopt the Minimum Taxation Directive, which establishes a minimum effective tax rate of 15% for large corporate groups in the European Union (for details on the Commission's proposal, see European Union-1, News 22 December 2021).

The agreed text of the Directive is based on the latest compromise version (for prior coverage, see European Union-3, News 30 November 2022).

After this agreement, the Minimum Taxation Directive will be formally adopted by written procedure. The Directive will have to be transposed by the Member States by the end of 2023.

The Minimum Taxation Directive aims to implement Pillar Two of the OECD/G20 Global Agreement (for details, see OECD-1, News 11 October 2021).

The Commissioner for Economy, Paolo Gentiloni, has welcomed this development and reaffirmed the commitment (also expressed in the Council statement) to finalise discussions and to implement Pillar One of the OECD/G20 Global Agreement in the European Union, "This agreement on minimum corporate taxation is a win for fairness, a win for diplomacy and a win for multilateralism. The European Commission never gave up on this deal, and I am proud to see it become reality. The common European interest has prevailed, and I want to pay tribute to the French and Czech Presidencies for all their efforts that have led us to this point. We must now concentrate our efforts on finalising the discussions on the other pillar of the global agreement, which focuses on taxing the largest multinational groups, and bringing it into EU law”.

From a UK perspective, Chris Denning (International Tax Partner, MHA) commented,

“Whilst the UK government has already introduced draft legislation, which will implement Pillar 2 with effect from accounting periods commencing after 31 December 2023, some multinational groups have been hesitant to commit resource to address the significant compliance obligations this will place on them because of the uncertainty around when and even if, the rules will be implemented on a wider basis. Clearly the EU’s agreement to adopt now takes away a considerable level of that uncertainty and will likely act as a trigger for the speed of adoption in other jurisdictions. Groups should now be actively considering how they are going to deal with this issue”.

From an EU perspective Marijn Verhagen (International Tax Partner, Baker Tilly Netherlands) noted,

“After a period of negotiations of almost 52 weeks, the EU finally agreed on the Pillar 2 Directive. The EU member states should apply most of the Pillar 2 measures in respect of financial years starting on 31 December 2023 (the undertaxed profit rule mist be implemented for financial years starting on 31 December 2024). The Pillar 2 legislation effectively introduces an entirely new corporate income tax regime for EU companies that are part of large multinational groups. Also since the EU is the first region implementing the Pillar 2 rules, there will certainly be a huge impact for EU based companies in terms of compliance obligations and, possibly, also in terms of additional tax liabilities. It would be recommendable to start analysing the impact of Pillar 2 early 2023”.

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For more information on the BEPS tax framework or other corporate international tax matters, please Contact Us, or email Chris Denning or Chris Danes from our International Tax team, who will be happy to assist:

Chris Denning, Head of Corporate International Tax: [email protected]
Chris Danes, Tax Partner: [email protected]

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