EU: Member states in the EU reach agreement to implement Pillar Two (updated)

Minimum tax component of the OECD’s global international tax reform initiative

Minimum tax component of the OECD’s global international tax reform initiative

The EU Council on 12 December 2022 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.

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. 


EU member states had been unable to reach political agreement on the minimum tax directive proposal during the second half of 2022 due to a veto expressed by Hungary in June 2022. Although a vote on the EU minimum tax directive was initially included on the agenda of the December 6 ECOFIN meeting, the file was removed just prior to the meeting and its approval was therefore not discussed in the public session. Read EuroTaxFlash

In advance of the December 6 meeting, the Czech Presidency of the Council had released a new compromise version of the draft directive (dated 25 November 2022) following checks by linguists and lawyers. The new compromise text does not provide for material amendments compared to the previous versions and is closely aligned with the OECD GloBE model rules. To achieve consistency with EU law, particularly with the principle of freedom of establishment, the compromise text is not limited to cross-border situations but also applies to domestic groups and requires the application of the income inclusion rule (IIR) at the level of the respective parent entity not only to its low-taxed foreign subsidiaries but also to all low-taxed constituent entities resident in the same member state.

The November text clarifies the power of the European Commission (EC) to adopt delegated acts to supplement certain non-essential elements of the directive. Such acts would be used when determining the jurisdictions with a domestic legal framework which can be considered to be equivalent to a qualified IIR. This assessment would be performed by the EC, after appropriate consultations, including with experts appointed by member states. 

Next steps

The compromise text (dated 25 November 2022) is subject to formal adoption through a written procedure, together with the other items in the so-called “Hungarian package.” The deadline for the procedure to be finalized is expected to be 14 December 2022.

It has been reported that during the COREPER meeting, the Polish delegation raised a reservation and advised that further analysis would be needed for Poland to give its approval on the file. However, it is expected that this reservation will be resolved in time for the written procedure to be finalized with respect to the entire package.

Once adopted, member states will be required to transpose the rules into domestic law by 31 December 2023 and to start applying the IIR for fiscal years beginning on or after 31 December 2023. The undertaxed profits rule (UTPR) will be applied for fiscal years beginning on or after 31 December 2024. In addition, the agreed compromise text provides the option for member states to implement a qualified domestic top-up tax and to defer the application of the IIR and the UTPR up to 31 December 2029 if a maximum number of 12 ultimate parent entities (UPEs) are based in an EU member state.

For more information, contact a tax professional with KPMG’s EU Tax Centre:

Raluca Enache |

Robert van der Jagt |

Marco Dietrich |


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