In September 2021, the President of the European Commission von der Leyen announced in her State of the Union an upcoming legislative proposal on the implementation of the OECD global agreement on minimum effective corporate taxation, known as Pillar Two. It goes along with the work on a partial re-allocation of taxing rights (so called Pillar One).

In December 2021, the Commission proposed a Directive ensuring a minimum effective tax rate for the global activities of large multinational groups. The proposal followed closely the OECD international standard and sets out how the principles of the 15% effective minimum tax rate be applied in practice within the EU. The proposal applied to groups of MNEs and large-scale domestic groups that have a combined annual group turnover of at least €750 million based on consolidated financial statements. The proposal included a common set of rules on how to calculate this effective tax rate, so that it would be properly and consistently applied across the EU. It established an Income Inclusion Rule - IIR- and its backstop, the Under Taxed Payments Rule - UTPR.

The proposal required unanimity in the Council for its adoption, following consultation of the European Parliament and the European Economic and Social Committee (special legislative procedure).

The European Economic and Social Committee adopted its opinion in the plenary of March 2022. In the European Parliament, the file was referred to the Committee on Economic and Monetary Affairs (ECON), and MEP Aurore Lalucq (S&D, France) was the rapporteur. The (non-binding) report was adopted by the European Parliament in May 2022. The text approved the key elements of the Commission's proposal. MEPs did however introduce a review clause, requesting the Commission to make a report on the implementation of the directive five years after its entry into force.

The Council adopted the minimum tax proposal in December 2023, accompanied by a Council statement relating to the work on Pillar One, confirming the participation of all Member States in the ongoing discussions within the Inclusive Framework as regards Pillar One. While the Council stays generally close to the European Commission's proposal, it did postpone the transposition deadline from 31 December 2022 to 31 December 2023.

The final act was signed and published in the Official Journal of the EU on 22 December 2022.

References:

• EP Legislative Observatory, Procedural file on Global minimum level of taxation for multinational groups in the Union, 2021/0433(CNS) 
• OECD Inclusive framework, The Pillar Two Rules in a Nutshell, October 2021
• European Commission, Minimum corporate taxation, website
• Council of the EU, General Approach, April 2022
• Council of the EU, Outcome of written procedure on minimum tax, December 2022
• Council of the EU, Directive on minimum tax, December 2022
• Official Journal of the EU, Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union, December 2022

Further reading:

• European Commission, Frequently Asked Questions on Pillar 2 Directive, December 2023
• European Parliamentary Research Service, Tax incentives after the minimum corporate tax, June 2023.
• European Parliamentary Research Service, Balancing on two pillars: Global corporate tax reform, June 2024

Author: Pieter Baert, Members' Research Service, legislative-train@europarl.europa.eu