EU agrees to implement Pillar 2 of OECD reform of global taxation

19 Dec '22

2 min read

Pic: Shutterstock

European Union (EU) member states recently reached an agreement to implement at the EU level the minimum taxation component, known as Pillar 2, of the Organisation for Economic Coperation and Development’s (OECD) reform of international taxation. The committee of permanent representatives at the European Council reached the required unanimous support.

Effective implementation of the directive will limit the race to the bottom in corporate tax rates. The profit of the large multinational and domestic groups or companies with a combined annual turnover of at least €750 million will be taxed at a minimum rate of 15 per cent.

The new rules will reduce the risk of tax base erosion and profit shifting and ensure that the largest multinational groups pay the agreed global minimum rate of corporate tax, the Council said in a release.

On October 8 last year, almost 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached an 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 covers the new system of allocating taxing rights over the largest multinationals to jurisdictions where profits are earned. The key element of this pillar will be a multilateral convention.

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.

On December 22, 2021, the European Commission, therefore, presented a proposal for a directive which aims to implement Pillar 2 in a way which is consistent and compatible with EU law.

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