Since January 1, 2024, the EU has introduced a groundbreaking new regulation, imposing an effective tax rate of at least 15% on multinational companies operating in EU member states. This new framework brings greater fairness and stability to the tax landscape of the EU and the world, and makes it more modern and adaptable to todays globalized and digital world. These rules were unanimously adopted by member states in 2022, formally determining the EUs implementation of the so - called Pillar Two rules in the 2021 global agreement on international tax reform.

Where Does It Come From?

The minimum corporate tax is one of the two workstreams agreed upon by the member states of the OECD/G20 Inclusive Framework to address the tax challenges of the digital economy. They focused on reaching a globally - consensus solution to reform the international corporate tax framework, and finally reached a global agreement among 137 jurisdictions in October 2021. The discussions focused on two broad themes: Pillar One, the partial re - allocation of the right to tax, and Pillar Two, the minimum tax rate on the profits of multinational enterprises.

Who Does It Apply To?

These rules will apply to any large group with an annual consolidated financial revenue of more than 750 million euros, whether domestic or international, including the financial sector, and having a parent company or subsidiary in an EU member state.

How is the Effective Tax Rate Calculated?

The effective tax rate in each jurisdiction is determined by dividing the tax paid by the entity in that jurisdiction by its revenue. If the effective tax rate of an entity in a particular jurisdiction is lower than the minimum of 15%, the Pillar Two rules are triggered, and the group must pay additional tax to bring the rate up to 15%. This additional tax is called the Income Inclusion Rule. This additional tax applies regardless of whether the subsidiary is located in a country that has signed the OECD/G20 agreement.

Member states must implement these new rules by December 31, 2023.

Relevant original text:Minimum corporate taxation