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EU Reaches Preliminary Agreement On The Pillar 2 Directive: Large Multinational Groups Of Companies To Pay A Minimum Tax Rate – Tax Authorities

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On the 12th of December 2022, European Member States came to a
landmark agreement on the implementation of Pillar

What is Pillar II?

Pillar II is a result of the OECD/G20 Inclusive Framework on
Base Erosion and Profit Shifting (BEPS), whereby almost 140
countries came to an agreement on the need for a reform in the
international taxation sphere.

Pillar II aims at preventing profit shifting and preventing
aggressive tax planning by ensuring that large multinational groups
of companies pay a minimum tax rate.

Why now?

This particular proposal has been discussed and debated for
years within the European Union, with the delay in implementation
attributable to the fact that unanimous consent is required for
matters of taxation. Nevertheless, unanimity was finally reached
this week and, consequently, an EU directive to this effect will be

What to expect from the Directive

In essence, the Directive shall impose a global minimum tax rate
for multinational enterprise groups and large-scale domestic groups
in the Union.

Large multinational enterprises (MNEs) will be subject to a
minimum tax rate of 15%. Therefore, an additional amount of tax (a
‘top-up tax’) should be collected in situations where
the effective tax rate of an MNE in a particular jurisdiction is
less than 15%.

Which enterprises will fall under Pillar II?

Pillar II will only apply to those entities within the European
Union which are members of MNE groups or large-scale domestic
groups and which meet the annual threshold of at least EUR
750,000,000 of consolidated revenue.

Are there any exceptions?

Some entities which originally fall within Pillar II may be
excluded, depending on their purpose. Examples include those
entities which carry out activities in the general interest, such
as public health care, education or the building of public
infrastructure. Hence governmental entities, international
organisations, pension funds, and non-profit organisations fall
outside the scope of the Directive.


Member States must transpose the Directive into local
legislation by no later than the 31st of December 2023.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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