European Union: Adopted Directive implementing 15% minimum tax rate for multinationals operating within EU by Council of EU

On 15 December 2022, the Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union was formally adopted through a written procedure by the Council of EU. The Directive implements the 15% minimum tax rate for multinationals agreed on as Pillar 2 of the OECD/G20 Inclusive Framework. The 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 large multinational and domestic groups or companies with a combined annual turnover of at least EUR 750 million. The 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. Following the entry into force of the Directive Member States will have until 31 December 2023 to transpose the provisions into national legislation.