ETAF welcomes the agreement on Pillar Two Implementing Directive

December 15, 2022

The European Tax Adviser Federation (ETAF) welcomes today's agreement between EU Member States on the Implementing Directive on Pillar Two of the OECD agreement to reform the international tax system by introducing a minimum 15% effective tax rate for large multinational enterprises (MNE).

The agreed rules will apply to any large group, both domestic and international, which meets the annual threshold of more than €750 million of consolidated revenues in at least two of the four preceding years, and with either a parent company or a subsidiary situated in an EU Member State. The final text delays the application of the new rules from 1 January 2023 to 31 December 2023, with the Undertaxed Profit Rule (UTPR) coming into effect in 2024.

“Hungary and Poland have made a sensible choice by lifting their vetoes on this important file”, reacted ETAF President Philippe Arraou. “We thank the French and the Czech Presidencies of the EU Council for leading these difficult negotiations and for sticking to the OECD tax deal and model rules as much as possible”, he added.

The blockade of this file for several months has created a lot of uncertainties for taxpayers. We are still of the opinion that the statements inserted in the text referring to the OECD Commentary to the model rules and the Implementation Framework (which still has to be released) simply as a “source of illustration or interpretation” are not enough to maintain the full alignment of EU rules with the OECD ones as time passes. However, we believe that the empowerment of the Commission to adopt delegated acts “in order to supplement certain non-essential elements of this Directive” could help bringing more legal certainty.

The success of the global minimum tax reform inevitably relies on its worldwide implementation. In this regard, a special attention should be given to the proposed US corporate tax and its alignment with what has been agreed at the OECD level.

As stated in our feedback to the European Commission, ETAF would have supported a sunset clause to be introduced in the text, to ensure that if a significant number of our big international partners don’t comply with the deal, the Directive will automatically cease to apply in order not to put European companies at a disadvantage.

“In Europe, tax advisers must stand ready and prepared to any future development, including a lowering of the threshold and the event of an application of the new rules to smaller companies”, concluded Philippe Arraou.

Next step: the implementation of Pillar One

Now, all efforts must be put on ensuring that the agreement on finding a solution to tax the digital economy (Pillar One) becomes a reality in the EU and worldwide.

“The pressing need to modify the international tax system in this area remains valid and we look forward to the finalisation of the Multilateral Convention”, said Phillippe Arraou.

In this regard, ETAF welcomes the EU Council statement annexed to the text confirming Member States continuous support for the OECD work on Pillar One and saying that it will re-evaluate, if needed, the situation of Pillar One in the OECD “with a view to ensuring a swift solution on the tax challenges arising from the digitalization of the economy.”

Notes to editors

For media enquiries, please contact: Marion Fontana, EU Policy Officer, [email protected], Phone: +32 2 2350 105 | Mobile: +32 471 78 90 64

ETAF is a registered organisation in the EU Transparency Register, with the register identification number 760084520382-92.

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