Global Minimum Tax (Pillar 2) developments

March has been a particularly interesting month of developments on the Pillar Two front. Hereunder is a summary of the main ones.

On 7 March 2022 KPMG has submitted its response to the European Commission’s call for public consultation on the subject matter.

On 12 March 2022, the compromise text of the proposed Directive intended to incorporate the OECD’s Pillar Two tax rules into EU law has been published. The compromise text revises the initial proposed Directive of 22 December 2021 which seeks to ensure a global minimum level of taxation (at 15%) for multinational groups in the EU with a turnover exceeding €750 million. Amongst others, the compromise text provides for amendments that refer to the ongoing work of the OECD and rectifies areas of discrepancy between the OECD Model Rules (also referred to as the ‘GloBe Rules’), which were first released on 20 December 2021, and the initial text of the Directive. In addition, the new text extends the transposition deadline to 31 December 2023 and provides an option for Member States to defer the application of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR), where no more than 10 Ultimate Parent Entities of in-scope MNE groups are located in those Member States. You may wish to refer to this Euro Tax Flash from KPMG's EU Tax Centre for a non-exhaustive overview of the key amendments that the compromise text provides for in comparison to the initial version of the Directive.

On 15 March 2022, the Economic and Financial Affairs Council (ECOFIN) failed to reach political agreement on the compromise text for an EU Minimum Tax Directive. Due to objections of four Member States including Malta, further discussions are required with a view to reaching agreement.

In the meantime, on 14 March 2022, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) involving more than 140 countries including Malta, released Commentary related to the GloBE Model Rules. In addition to the March Commentary of 228 pages, a document containing 24 Examples and 49 pages was released to supplement the Commentary. The Model, the Commentary and the Examples provide the framework for the 15% Minimum Tax across the globe.

Alongside the release of the Commentary, the OECD opened a public consultation on the administrative and compliance aspects of the GloBE Rules, including the potential terms of any simplifications and the use of Safe Harbours. Written comments are due no later than 11 April 2022.

Read KPMG’s Global updated analysis of the Pillar Two model rules following release of the Commentary and Examples and the Top 20 questions and answers on the new GloBE Model Rules Commentary.