European Union: Submitted Proposal for a Directive to implement 15% minimum tax rate for multinationals operating within EU

On 22 December 2021, the European Commission has proposed a directive to implement the 15% minimum tax rate for multinationals agreed on as Pillar 2 of the OECD/G20 Inclusive Framework. The proposed directive sets out how taxation will be calculated, the applicability of the tax, as well as other more specific rules and exceptions. It would apply to MNEs with a combined annual turnover of at least 750 million EUR. The proposed directive would only implement the two domestic tax rules proposed under the Pillar, together known as the Global anti-Base Erosion (GloBE) rules. The first rule, the Income Inclusion Rule (IIR), imposes a top-up tax on parent entities in respect of the low-taxed income of constituent entities. The second rule, the Undertaxed Payment Rule (UTPR), adds a top-up tax to constituent entities located in the EU where the primary entity of the MNE is based outside of the EU, or where the primary entity operates in an IIR jurisdiction but is undertaxed. The other main component of Pillar 2, the Subject to Tax Rule (STTR), is treaty-based and therefore will not be implemented by the Directive.