On 12 December 2022, the EU Council announced that EU Member States reached political agreement to implement the minimum tax component (Pillar Two) of the OECD’s global international tax reform initiative.
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.
According to an EU Council press release, the Committee of Permanent Representatives (COREPER) reached the required unanimous support, and the ambassadors of EU Member States advised the Council to adopt the Pillar Two minimum tax directive.
The proposed text of the EU Directive (compromise text here) is subject to formal adoption through a written procedure. The deadline for the procedure to be finalized is expected to be 14 December 2022. The EU proposed Directive generally mirrors the OECD model rules on Pillar Two released in December 2021 but have a broader scope that includes large-scale purely domestic groups.
Once the compromise text of the EU Directive is adopted, Member States will be required to transpose the rules into domestic law by 31 December 2023. The main rule of the Directive (so called Income Inclusion Rule or IIR) will become effective on or after 31 December 2023 with the backstop rule (so called Undertaxed Profits Rule or UTPR) becoming effective on or after 31 December 2024.
The agreed compromise text allows delayed adoption of the rules up to 31 December 2029 by those Member States in which no more than 12 ultimate parent entities of in-scope MNE groups are based. However, this does not mean that MNE group companies located in Member States other than that in which delayed adoption is elected will not be affected by the EU Directive.
For more background to the EU agreement, you may wish to refer to EU: Agreement to implement Pillar Two