On 12 December 2022, the Czech presidency of the EU Council announced that ambassadors of EU member states forming the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (Coreper) had reached an important milestone with their decision to recommend that the Council of the European Union adopt the proposed Pillar Two directive designed to ensure a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU. This agreement will have to be confirmed during the written procedure for the formal adoption and once formally approved, the directive will have to be transposed into member states’ national law by the end of 2023 to apply as from 2024. However, during the Coreper meeting, Poland advised other member states that it could not offer its support for the Pillar Two directive at that time as it needed to conduct further analysis on the proposal ahead of the written procedure for adopting the directive, i.e., by the end of 14 December 2022.

EU member states previously have struggled to reach unanimous agreement on the draft directive implementing in the EU the OECD Pillar Two model rules for a global 15% minimum taxation on large multinational and domestic groups or companies with a combined annual turnover of at least EUR 750 million. The last Economic and Financial Affairs Council meeting on 6 December 2022 was not successful in this respect with Hungary maintaining its veto.

The European Commission first proposed a draft directive to implement the OECD inclusive framework model rules in a coherent and consistent way across EU member states on 22 December 2021 but the required unanimous agreement could not be reached. This also was the case with a revised compromise version of the text issued on 16 June 2022. Another compromise text was published by the Council of the European Union on 25 November 2022.

Background

On 8 October 2021, almost 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached a landmark agreement on international tax reform, as well as on a detailed implementation plan. The reform of international corporate tax rules consists of two pillars:

• Pillar 1 applies to the largest multinationals and proposes a system of allocating taxing rights to jurisdictions where profits are earned. The key element of this pillar will be a Multilateral Convention. Technical work on the details thereof is ongoing in the Inclusive Framework.
• Pillar 2 contains rules aimed at reducing the opportunities for base erosion and profit shifting, to ensure that the largest multinational groups of companies pay a minimum rate of corporate tax. In particular, the OECD Pillar 2 Model Rules proposed a global 15% minimum tax on large multinational and domestic groups or companies with a combined annual revenue of at least €750 million.

On 22 December 2021, the Commission presented a proposal for a Directive to implement Pillar 2 in a way which is consistent and compatible with EU law. On 12 December 2022, the Czech presidency of the EU Council announced that ambassadors of EU member states forming the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (Coreper) had reached an important milestone with their decision to recommend that the Council of the European Union adopt the proposed Pillar Two directive designed to ensure a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU. This agreement will have to be confirmed during the written procedure for the formal adoption and once formally approved, the directive will have to be transposed into member states’ national law by the end of 2023 to apply as from 2024. However, during the Coreper meeting, Poland advised other member states that it could not offer its support for the Pillar Two directive at that time as it needed to conduct further analysis on the proposal ahead of the written procedure for adopting the directive, i.e., by the end of 14 December 2022.

EU member states previously have struggled to reach unanimous agreement on the draft directive implementing in the EU the OECD Pillar Two model rules, despite a number of revised versions being issued. The last Economic and Financial Affairs Council meeting on 6 December 2022 could not reach unanimous agreement with Hungary maintaining its veto.

Next Steps

If formally approved, countries must transpose the directive into their domestic law by the end of 2023.

We expect consultations on this matter with the Department of Finance in 2023 on the transposition of the Directive into Irish national law.