On Wednesday 9 March, the Member States' ambassadors to the EU (Coreper) discussed Pillar II of the agreement reached at the OECD on international tax reform, but have not yet reached political agreement on the proposed directive transposing this agreement in the EU. During an initial discussion in the Ecofin Council under the French Presidency, some countries expressed reservations (see EUROPE 12871/2).
According to our information, eight countries - Estonia, Hungary, Latvia, Luxembourg, Malta, Poland, Slovakia and Sweden - did not support the compromise that France tabled. The main stumbling blocks are: - the transposition period; - the link with Pillar I on the reallocation of rights for taxing multinationals; - the mandatory application of the income inclusion rule.
Indeed, three Member States wish to link the entry into force of the two pillars. A number of Member States also believe that implementing the future rules in the EU from 1 January 2023 would raise too many practical or institutional difficulties for them. In addition, some Member States want the mandatory application of the income inclusion rule to be optional.
According to a European diplomat who spoke to EUROPE, “we have made significant progress, only a few remain to be questioned”. If “a large majority supports” the French Presidency's proposal, “we will continue to work until Tuesday”, at the next Ecofin Council on Tuesday 15 March. “It will depend on everyone’s goodwill” he added, noting that taxation issues are decided in the EU Council by unanimity of the Member States. “It would be a nice sign of unity”, the diplomat concluded.
The directive faithfully translates the OECD agreement into EU law and provides for the introduction of a minimum tax rate of 15% for multinational companies with annual revenues of €750 million or more.
The European Commission's main addition is the extension of the rules in the EU to domestic profits and purely domestic companies that cross the €750 million turnover threshold, whereas the OECD planned to apply the rules only to multinationals operating across several countries. This rule avoids a difference in treatment between cross-border and domestic situations, a situation that would be contrary to the freedom of establishment enshrined in the EU Treaties.
The Commission's other addition is a domestic top-up tax which will allow the tax to be collected in a jurisdiction where there is a low level of taxation, instead of being collected entirely at the level of the parent entity. But Member States that choose to apply this rule will have to notify the Commission of their decision in advance.
To read the draft directive: https://aeur.eu/f/p9 (Original version in French by Anne Damiani)