European Commission’s proposed Directive on Pillar 2

On 22 December, the European Commission proposed a Directive ensuring a minimum effective tax rate of 15 percent for multinational enterprises with annual revenues of €750 million or above. It follows very closely the OECD Model Rules for implementing Pillar 2. The proposal aims to ensure that EU Member States can find an agreement by June 2022. 

There are two clear differences in the EC proposal compared to the OECD Model Rules: 

1. The proposed Directive extends the scope of the Model Rules to large-scale purely domestic groups, in order to ensure compliance with EU Single Market Rules.
2. The proposal allows EU Member States to apply a domestic top-up tax to low taxed domestic subsidiaries. This will allow the top-up tax due by the subsidiaries of the multinational group to be charged locally in the Member State, rather than at the level of the parent entity.

Speaking at a press conference following the publication of the draft Directive, Commissioner for Economy, Paolo Gentiloni said, “Our proposal is fully consistent with the final version of the OECD's Model Rules which set out the details for the application of the new framework. That means no gold plating; no departure from the international agreement.

We are maintaining the careful consensus that has been forged among EU Member States and our international partners.” 

Mr Gentiloni also noted that “by moving as quickly as we have with this proposal, we are facilitating a first discussion among finance ministers in January, with a view to reaching a swift agreement during the French Presidency. This is necessary in order to meet the globally agreed deadline of 2023 for the entry into force of the rules.” 

For more information read the European Commission’s update.