Proposed Directive to implement Pillar Two in the EU

EU Commission proposes a Directive to ensure a global minimum level of taxation for MNE groups in the EU, generally mirroring the Pillar Two approach.

EU Commission proposes a Directive on global minimum tax, following OECD’s Pillar Two.

14 January 2022

1 min read

On December 22, 2021, the European Commission published a proposed EU Directive to incorporate the Pillar Two tax rules into EU law.

Pillar Two is a part of a two-pillar approach developed by the Inclusive Framework of the OECD, aimed at addressing the tax challenges arising from the digitisation of the economy. Pillar Two introduces a global minimum tax, agreed at 15% by the Inclusive Framework Members, including Malta, calculated based on a specific rule set. It applies to groups with combined revenues of more than €750 million a year.

The EU proposed Directive generally mirrors the OECD model rules on Pillar Two released on December 20, 2021 but have a broader scope that includes large-scale purely domestic groups. The proposed Directive also clarifies the interaction between the Pillar Two income inclusion rule (IIR) and existing EU legislation on controlled foreign companies (CFCs).

On the same date, the European Commission published its proposal for the next generation of EU own resources. In particular, the Commission has proposed that 15% of the revenue generated under Pillar One of the OECD BEPS 2.0 proposals would be contributed by Member States to the EU budget, in lieu of the previously discussed EU COVID digital levy.

For more details about the proposed Minimum Tax/Pillar Two Directive and related developments, you may wish to refer to this EU Tax flash prepared by KPMG’s EU Tax Centre.