15 points comprised the action plan that the OECD and the G20 published in 2015 to combat profit shortage and profit shifting (BEPS action plan). Now, the implementation of the most ambitious undertaking - to address the tax challenges posed by the digital economy - is nearing completion, at least at the European level. The Global Minimum Tax Directive (Pillar 2) entered into force shortly before Christmas and still requires national implementation. Large corporate groups affected are facing a mammoth task.
EU Directive has entered into force
On 22 December 2021, the EU Commission presented a draft directive to transpose the rules on global minimum taxation (Pillar 2) into national law (blog post from 18 January 2022). After long discussions and political negotiations, in which first Poland and finally Hungary vetoed the adoption of the directive, an agreement was reached towards the end of the year. The Directive was published in the Official Journal of the EU on 22.12.2022 and consequently entered into force on 23.12.2022. The member states are now obliged to transpose the directive into national law by 31.12.2023.
Model: OECD model regulations
The directive is strongly modelled on the guidelines of the OECD, which published so-called GloBE (Global Anti-Base Erosion) regulations in December 2021. These are designed to ensure that large multinational groups (that is, those with a consolidated turnover of at least €750 million) pay a minimum level of tax on income arising in each of the countries and territories in which they operate. The GloBE rules include an "Income Inclusion Rule" to be applied on a primary basis, which acts similarly to an addition tax, and an "Undertaxed Profits Rule" to be applied on a downstream basis. The minimum taxation is ensured by levying a top-up tax on profits in countries where the specific effective tax rate is below the minimum rate. The minimum effective tax rate is set at 15%.
Timing of application postponed by one year
The original draft of the Directive envisaged an application already from 1.1.2023 or 1.1.2024 for the Undertaxed Profits Rule. Due to the political delay, this introduction date cannot be kept and was therefore postponed by one year. Thus, the minimum tax applies to financial years beginning on or after 31 December 2023 (or, with regard to the Undertaxed Profits Rule, after 31 December 2024). Compared to the draft, further selective changes have also been included: For example, smaller member states with only a few large parent companies may waive the implementation of the directive for a transitional period of six years.
Short deadline for implementation
Despite the postponement by one year, the deadline for the affected companies to prepare for the changes is extremely tight. In particular, in order to determine the country-specific effective tax rates, a wealth of information and data must be determined and highly complex calculations must be made. The tax department (or external tax advisors) and group accounting must work closely together to implement the requirements of this politically ambitious project. At the same time, it is still completely open whether the minimum taxation will actually lead to an end to tax competition between states or whether it will ultimately remain an enormously high administrative burden to meet another compliance standard.