Newsletter

Council reaches agreement on a minimum taxation (Pillar two)

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Plane in the sky.

On 12 December 2022, the EU Member States reached, after several months of intense negotiations, an agreement to implement the minimum taxation component, known as the Pillar Two directive, of the OECD’s reform of international taxation.


In short, the minimum tax directive was originally proposed by the EU Commission on 22 December 2021, providing a mechanism by which the 27 EU Member States would implement Pillar Two and the global anti-base erosion rules (GloBE rules) proposed by the OECD.


The EU directive proposes an effective 15 percent minimum corporate tax and a common set of rules on how to calculate this effective tax rate, so that it is consistently applied across the EU. The directive has, since first being published, been updated on a number of occasions in order to find a compromise between the Member States, including a deferred implementation option. The agreed compromise text requires Member States to transpose the rules into domestic law by 31 December 2023 and to start applying the income inclusion rule (IIR) for fiscal years beginning on or after 31 December 2023.


Just a few days following the EU agreement, the OECD released guidance documents related to Pillars One and Two, including the Pillar Two Guidance on Safe Harbours and Penalty Relief intended to reduce the administrative burden and simplify tax calculations for qualifying multinational enterprises (MNEs). As EU Member States will implement the minimum tax directive during 2023 and MNEs are trying to navigate the new rules, the guidance is intended to provide some transitional relief and well needed simplification.


As Sweden holds the presidency of the EU Council during the first 6-month period of 2023, it will be interesting to see how Sweden will be pushing the minimum tax directive forward.


For additional information on the EU minimum corporate tax and Pillar Two, please see our newsletter on 11 April 2022.


Schjødt's tax lawyers in Sweden and Norway are following the continuous development closely.

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