Filenews 2 January 2024
Groundbreaking new EU rules entered into force on 1 January, introducing a minimum effective tax rate of 15% for multinational companies operating in EU Member States.
The framework will bring more fairness and stability to the tax landscape in the EU and globally, while modernising and adapting it better to today's globalised digital world. The entry into force of minimum effective tax rules, unanimously agreed by Member States in 2022, formalises the EU's implementation of the so-called 'Pillar 2' rules, adopted as part of the global agreement on international tax reform in 2021.
Worldwide, almost 140 jurisdictions have now joined these rules, but the EU has been a pioneer in translating them into binding law. By reducing incentives for businesses to shift profits to low-tax jurisdictions, Pillar 2 limits so-called "race to the bottom" – i.e. the battle between countries to lower corporate income tax rates to attract investment. Results have already been achieved, with some zero-tax jurisdictions announcing the introduction of corporate income tax for companies falling within the scope of the rules.
The rules will govern multinational and large-scale domestic groups in the EU, with combined financial revenues of more than €750 million per year. They will apply to any large group, domestic and international, with a parent company or subsidiary established in an EU Member State.
The Directive contains a common set of rules on how to calculate and apply the 'top-up' tax due in a given country where the effective tax rate is below 15%.
If a subsidiary is not taxed at the minimum effective rate in the foreign country in which it is established, the Member State of the parent company also applies a top-up tax to the parent company. In addition, the Directive ensures effective taxation in cases where the parent company is located outside the EU, in a low-tax country that does not apply equivalent rules.
