In January 2024, a total of 26 jurisdictions had successfully implemented minimum tax regulations, marking a transformative era in corporate taxation. These developments represent a significant shift in global tax practices, compelling multinational enterprises (MNEs) to navigate a novel and intricate framework of regulations.
On January 9, 2024, the Organization for Economic Co-operation and Development (OECD) released a working paper "The Global Minimum Tax and the taxation of MNE profit." This working paper, although not representing the official views of the OECD or its member countries, provides valuable insights into the impact of the Global Minimum Tax (GMT).
The key findings of the working paper are as follows:
Regarding the implementation of the EU Minimum Tax Directive, as of the end of January, eighteen EU Member States - Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Romania, Slovakia, Slovenia, and Sweden, had finalized the domestic legislative process required for its enactment.
In line with the EU Directive, the Income Inclusion Rule (IIR) applies in all EU jurisdictions that have enacted related legislation for financial years starting on or after December 31, 2023, except for Slovakia, which has made use of the deferral option. The Undertaxed Payment Rule (UTPR) becomes applicable one year later, i.e., for financial years starting on or after December 31, 2024, except where the Ultimate Parent Entity (UPE) of the group is located in an EU Member State that opted for the IIR and UTPR deferral (Article 50 of the Directive).
All EU jurisdictions that have completed the transposition process will apply a Domestic Minimum Top-up Tax (DMTT) for financial years starting on or after December 31, 2023.
On December 10, 2023, the European Commission issued a Note recognizing that Estonia, Latvia, Lithuania, Malta, and Slovakia have exercised their option under Article 50 of the Minimum Tax Directive. Article 50 of the Minimum Tax Directive permits Member States with fewer than 12 Ultimate Parent Entities (UPEs) falling under the Directive's scope to postpone the implementation of IIR and UTPR for a consecutive six-year period starting from December 31, 2023. However, it emphasizes that these Member States are still required to implement all other provisions outlined in the Minimum Tax Directive to ensure consistent application across jurisdictions and among taxpayers. The Minimum Tax Directive explicitly mandates that other Member States must apply the UTPR to their constituent entities belonging to such groups, effective from December 31, 2023.
As of January 25, 2024, the EU Commission announced infringement decisions against EU member states that have not enacted domestic law to implement Pillar Two: Estonia, Greece, Spain, Cyprus, Latvia, Lithuania, Malta, Poland, and Portugal. These countries have been given a two-month period to respond and finalize their legislation, with potential further action by the Commission if compliance is not met. The EU Commission announced infringement decisions against these Member States, granting them two months to reply to the letters of formal notice and complete their transposition, or face the issuance of reasoned opinions.
On December 22, 2023, the European Commission updated its webpage on the Minimum Tax Directive, adding various documents, including a frequently asked questions (FAQ) document. The Commission clarifies on its webpage that this document reflects the Commission Services' perspectives and is non-binding for both the Commission and the Member States. The FAQ document primarily reiterates that the Guidance of the Inclusive Framework can serve as a source for interpreting and implementing the Pillar Two Directive, ensuring consistency among Member States, provided it aligns with the Directive and Union law.
Additionally, on the same date, the General Court of the Court of Justice of the European Union issued a decision in Case T143/23. This case involved a taxpayer's request for the partial annulment of the Minimum Tax Directive, specifically regarding its impact on the Dutch tonnage tax regime. The applicant contended that the Directive might subject their business to top-up tax and hinder their ability to recover investments made under the tonnage tax scheme. However, the General Court dismissed the case, deeming it inadmissible because the applicant couldn't demonstrate that they belonged to a "limited class of persons" whose pre-existing rights were affected by the adoption of the Minimum Tax Directive.
In addition to these developments, several other countries have taken significant steps related to the implementation of Pillar Two rules:
As these changes continue to evolve, it is imperative for businesses and stakeholders to stay informed and adapt to the new tax landscape. WTS Global, with its expansive network spanning over 100 countries, remains committed to providing a comprehensive overview of the Pillar Two implementation status in 72 countries. If you have specific inquiries regarding the Pillar Two rules and their implications for your business, we encourage you to reach out to our tax experts.
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