Proposal for a directive to implement the second pillar in the EU – Economic analysis


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The European Commission is proposing a directive to ensure an overall minimum level of taxation for multinational enterprise groups in the EU, generally reflecting the second pillar approach.

On December 22, 2021, the European Commission published a proposal for a European directive to incorporate second pillar tax rules into EU law.

The second pillar is part of a two-pillar approach developed by the OECD Inclusive Framework, aimed at addressing tax challenges arising from the digitalisation of the economy. The second pillar introduces a global minimum tax, agreed at 15% by the members of the inclusive framework, including Malta, calculated on the basis of a specific set of rules. It applies to groups whose cumulative turnover exceeds 750 million euros per year.

The proposed EU directive generally mirrors the OECD Model Second Pillar Rules published on December 20, 2021, but has a broader scope that includes purely domestic large-scale groups. The proposed directive also clarifies the interplay between the second pillar income inclusion rule (IIR) and existing EU legislation on controlled foreign companies (CFCs).

On the same day, the European Commission published its proposal for the next generation of EU own resources. In particular, the Commission has proposed that 15% of the revenues generated under the first pillar of the OECD BEPS 2.0 proposals be paid by Member States to the EU budget, instead of the EU digital tax on the COVID mentioned above.

For more details on the proposed Minimum Tax Directive/Pillar 2 and related developments, you can refer to this EU Tax Flash prepared by KPMG’s EU Tax Center.

Originally published on January 14, 2022

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