Council Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (so-called “Pillar 2”) is seeing an acceleration of the legislative process. On 12 December 2022, the Committee of Permanent Representatives of Member States in the Council of the European Union reached the required unanimity to approve Pillar 2. The ambassadors decided to recommend that the Council adopt the directive, commencing the formal legislative procedure.

This is one of the most important decisions in the area of corporate taxation in recent years.

Pillar 2 is intended to curb the global practice of systematically reducing corporation tax rates. After the changes, the minimum rate of corporation tax on large multinational enterprises or domestic groups (total annual turnover of at least EUR 750m) will be 15%.

This goal is to be pursued through:

  • the Income Inclusion Rule (IIR), whereby the parent entity is required to pay a top-up tax in relation to low-taxed income of group entities (which are called constituent entities); and
  • the Undertaxed Payments Rule (UTPR), which acts as a backstop to the IIR and applies in situations where there is no qualifying IIR in the jurisdiction of the ultimate parent entity or where a low level of taxation arises in that jurisdiction.

Member States will be required to implement Pillar 2 into their national law until 31 December 2023.

Pillar 2 compliance duties are a challenge to the largest groups (both parents and subsidiaries) mainly due to:

  • the large extent of data which will have to be provided for calculation of global minimum tax but which are currently not collected by companies as there is no need and no legal requirement;
  • the novel calculation methodology applicable to global minimum tax;
  • various specific rules, including those applicable to flow-through entities, permanent establishments and entities in course of restructuring.

Note that the global minimum tax under Pillar 2 is independent of the minimum income tax introduced by Poland as of 1 January 2022 and suspended for two years. As such, Poland will also be required to implement Pillar 2 by 31 December 2023.

If this issue pertains to your business and you are interested in our assistance, please contact us.

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