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Dominik Birrer
Partner Tax, PwC Switzerland
Christa Elsaesser
Partner International Tax, PwC Switzerland
On 12 December 2022 the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (COREPER) agreed in principle on the introduction of a global minimum taxation proposal by the EU Member States. The COREPER decided to advise the Council to adopt the draft Pillar Two Directive and approved the related Council statement. A written procedure for formal adoption of the Directive is expected to conclude in the upcoming days.
Overview
At the COREPER meeting on 12 December 2022 EU Permanent Representatives agreed to a package deal on several files, including the Draft Directive “on ensuring a global minimum level of taxation for multinational groups in the Union” (“Pillar Two Directive”) aimed at implementing the OECD Pillar Two Model Rules on a 15% minimum effective tax rate in the EU Member States.
This agreement is seen as a breakthrough for the adoption of the global minimum tax across the EU, considering that the Directive was debated and rejected at various ECOFIN meetings throughout 2022 whilst Hungary was the only Member States declining to approve the latest compromise text. Hungary’s support for the Directive has meanwhile been secured through promising the release of EU recovery funds.
Although Hungary’s support for the Directive should clear the way to the implementation of the Pillar Two ruleset in the EU member States, the Polish representative is reported to have told COREPER at the meeting on Monday that Poland could not offer its support for Pillar Two at that time because it needed to conduct further analysis. The EU Council apparently interpreted the Polish position as an approval of the Directive, not hesitating to issue a press statement despite the study reservation. While we do not foresee Poland blocking the adoption of the Directive at this stage, we remind readers that the Directive should not be taken as agreed until the written procedure is complete.
Assuming that a final agreement on the Directive is reached in the upcoming days, the Directive will enter into force on the day following that of its publication in the Official Journal of the European Union. In a second step, the rules of the Directive have to be transposed into EU Member States’ national law by the end of 2023, noting the exception for any Member States which avail themselves of the derogation to delay the introduction of the rules. The IIR is required to take effect for accounting periods beginning on 31 December 2023, which for most groups will mean FY24 is the first period for which Pillar Two rules will apply. It’s also expected that Qualified Domestic Minimum Top up Taxes (QDMTTs) will apply from the same date to the extent they are introduced in a country. The UTPR should apply as of 31 December 2024.
This timeline set forth by the EU is in line with the planned implementation of the Pillar Two rules in Switzerland where, subject to a public vote in June 2023, the GloBE rules should be adopted as per 1 January 2024 based on a temporary ordinance.
There are also a lot of activities ongoing at the OECD level. The OECD plans to publish the so-called Implementation Framework in the near future (according to the latest announcements, probably - at least for larger parts of the guidance- next year and not before Christmas). This will probably also include so-called "safe harbours", according to which individual companies will be exempted from the collection of data and the preparation of detailed calculations for constituent entities in certain jurisdictions (at least in a transitional phase).
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Takeaway
The deal to secure Hungary’s support for the Directive through promising the release of EU recovery funds is a significant development in this long-running saga. The EU Council announced this agreement, albeit in principle, despite Poland’s reservation. The Directive should not be considered adopted until such time as the written procedure is finalised and the Polish reservation is addressed.
If the written procedure is secured later this week as expected, the European Union will be the first block of countries that have adopted the Pillar Two minimum taxation rules. This will undoubtedly encourage other countries to adopt and implement the rules.
For a more detailed analysis on the latest events at EU level, including key differences between the Pillar Two Directive and the OECD’s Model Rules, we refer to the respective Tax Policy Alert provided by PwC Global.
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