European Union: Implemented Directive on 15% minimum tax rate for multinationals operating within EU

On 31 December 2023, the European Union (EU) Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union, as agreed on under Pillar 2 of the OECD/G20 Inclusive Framework, is implemented. The EU Member States were required to transpose the Directive into national legislation or tax regulation. The Directive, adopted on 15 December 2022, outlines the application and calculation of taxes under the Framework. It applies 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. Under Article 50(2), Member States with 12 or less parent entities of groups that fall under the scope of this Directive may choose not to apply the IIR and UTPR for six years from 31 December 2023.