Tax euro – Image by Bruno – Germany on Pixabay
(BRUSSELS) – Ground-breaking new EU rules on corporate taxation came into effect on 1 January with the introduction of a 15 per cent minimum rate of effective taxation for multinational companies active in EU Member States.
The rules will apply to multinational enterprise groups and large-scale domestic groups in the EU, with combined financial revenues of more than EUR 750 million a year. They will apply to any large group, both domestic and international, with a parent company or a subsidiary situated in an EU Member State.
The new framework is designed to bring more fairness and stability to the EU’s tax landscape as well as globally. The Directive includes a common set of rules on how to calculate and apply a ‘top-up tax’ due in a particular country should the effective tax rate be below 15%. If a subsidiary company is not subject to the minimum effective rate in a foreign country where it is located, the Member State of the parent company will also apply a top-up tax on the latter.
The entry into force of the minimum effective taxation rules, which was unanimously agreed by the Member States in 2022, formalises EU implementation of so-called ‘Pillar 2’ rules agreed as part of a global deal on international tax reform in 2021.
While almost 140 jurisdictions worldwide have now signed up to those rules, the EU has been ahead of the game in translating them into hard law. By lowering the incentive for businesses to shift profits to low-tax jurisdictions, Pillar 2 curbs the so-called ‘race to the bottom’ – the battle between countries to lower their corporate income tax rates in order to attract investment.
It already appears to be delivering results, with a number of zero tax jurisdictions around the world having announced the introduction of a corporate income tax for the companies in scope.
