European Union: Entry into force with grace period the EU Directive on 15% minimum tax rate for multinationals operating within the Union

On 22 December 2022, 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, entered into force with a grace period. The Directive, adopted on 15 December 2022, outlines the application and calculation of taxes under the Framework. 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. EU Member States are given until 31 December 2023 to make the necessary changes in national legislation or tax regulation with the exception that 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.