In the past decade, governments around the world have undertaken significant initiatives to combat international tax
During the meeting of the Economic and Financial Affairs Council of the EU (ECOFIN Council) on November 9, 2023, EU Member States resoundingly approved a statement affirming their continued political backing for Pillar One and Pillar Two. This important endorsement was accompanied by a parallel statement from the European Commission (EC), collectively reinforcing the commitment to international tax initiatives.
Update on Pillar One:
As an integral part of adopting the EU Minimum Tax Directive, a specific provision mandated the European Commission to present a progress report to the Council on Pillar One’s implementation. The report dated June 30, 2023 showcased achievements by the Inclusive Framework and emphasized the EC’s dedication to ensuring consistent Pillar One implementation at the EU level.
Following this report, notable progress occurred at the Inclusive Framework level:
Release of Amount A Multilateral Convention: Reflecting the consensus among Inclusive Framework members, this convention acknowledges the need for continued work to address specific outstanding areas.
Public Consultation on Amount B Design: Initiated to implement updates to the OECD Transfer Pricing Guidelines from January 2024, with a subsequent review after three years.
ECOFIN Council and EC Statements on Pillar One:
Key takeaways from the Council statement:
- Emphasizes the paramount importance of Pillar One implementation.
- Welcomes progress on the Amount A Multilateral Convention and acknowledges advancements in Amount B.
- Expresses continued support for ongoing efforts, considering the interests of all Member States to ensure fair tax payment by enterprises in the EU.
The EC statement reinforces their commitment to ensuring successful Pillar One delivery in the EU. It urges Member States to promptly sign and ratify the Amount A Multilateral Convention and highlights the significance of Amount B in simplifying transfer pricing and enhancing legal certainty.
While the focus appears to be on finalizing the Amount A Multilateral Convention, it’s important to note the EC’s previous commitment to propose an alternative solution by the end of 2023 if international consensus on Pillar One is not reached. Ongoing developments indicate the need for taxpayers to stay vigilant for potential alternative solutions at both EU and Member State levels.
Update on Pillar Two:
The EU Minimum Tax Directive, adopted on December 15, 2022, and entering into force on December 22, 2023, sets forth key elements:
Implementation Deadline: Member States must transpose rules into domestic law by December 31, 2023, applying the Income Inclusion Rule (IIR) for fiscal years beginning on or after this date.
Undertaxed Profits Rule (UTPR): Applicable for fiscal years beginning on or after December 31, 2024, with an option for Member States to implement a Qualified Domestic Top-Up Tax (QDMTT) and defer application until December 31, 2029, for a maximum of 12 Ultimate Parent Entities (UPEs).
Reference to OECD Materials: Aligned with the OECD GloBE Model Rules, the Directive incorporates the OECD rules in a manner compatible with EU Treaties.
As Pillar Two implementation gains momentum, questions arise regarding the application of supplementary rules released by the Inclusive Framework after the Directive’s adoption. The Council and EC statements offer assurance, emphasizing the compatibility of Administrative Guidance with the EU Minimum Tax Directive.
While the statements focus on finalizing the Amount A Multilateral Convention, it is imperative for taxpayers to closely monitor how Member States incorporate and apply Safe Harbour provisions and elements of the Administrative Guidance.
In conclusion, the ECOFIN Council and EC’s backing reaffirms the EU’s commitment to global tax initiatives. Tax professionals, investors, and stakeholders should remain vigilant for emerging developments in Pillar One and Pillar Two, ensuring compliance. Stay informed as the EU progresses in shaping the future of international taxation.
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