On 15 March 2022, Ministers of the EU Economic and Financial Affairs Council (ECOFIN) failed to reach an agreement on the proposed Pillar Two Directive. The proposed directive is designed to transpose the OECD GloBE model rules into EU law in a harmonised and coordinated fashion. While most Member States are supportive of the proposed Pillar Two Directive, Estonia, Malta, Poland and Sweden expressed reservation concerning certain issues, including the implementation timeline and the request for Pillar One and Pillar Two directives to be jointly adopted, as well as the inclusion of domestic groups in scope of the proposed Pillar Two Directive. Under EU law, the adoption of the proposed Pillar Two Directive requires unanimous approval of all Member States.
Following the March ECOFIN meeting, in a bid to find a compromise, the proposed Pillar Two Directive was revised by moving the implementation date from 1 January to 31 December 2023 and allowing Member States to opt for a delay in application of the rules for a further six years if they have fewer than twelve domestic groups in scope of the proposed Pillar Two Directive.
Notwithstanding these concessions, the ECOFIN hit another roadblock during today’s (5 April 2022) meeting when it failed again to achieve unanimity. Poland blocked the adoption of the proposed directive due to the absence of a legally binding requirement for the joint implementation of the Pillar One and Pillar Two directives. France, which currently holds the EU’s rotating presidency, remains undeterred and clarifies that the adoption of the Pillar Two Directive will remain on the ECOFIN’s agenda for its next meeting which is currently scheduled on 24 May 2022.
While it remains to be seen whether Poland will eventually lift its opposition, what is now certain is that Member States will have an additional year to incorporate Pillar Two Directive into their respective domestic laws if and when unanimity is finally reached. Crucially, the delay will provide Member States with much needed time to implement national legislations to give effect to the Pillar Two Directive in a coordinated fashion while also giving businesses a longer runway to ready themselves to comply with the new rules.
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