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minimum tax at european level for multinationals

Tax & Legal
02 June 2023

by Febe Louage and Ine Coolman

Minimum tax at European level for multinationals

In 2021, the OECD reached an agreement on international tax reform in a bid to combat profit shifting and profit erosion. One of the measures within this agreement aims at ensuring that major multinationals pay a minimum tax rate of 15% (pillar two).

Within this framework, the European Union published a directive on 14 December 2022, which is to be implemented by 31 December 2023 at the latest by the various Member States. This directive follows the content and structure of the OECD regulations. At present, the draft legislation is still being awaited in Belgium.

unrecognizable business people sitting meeting with charts looking pointing tablet

Applicability

The directive applies to group entities established in the EU and that are part of a multinational or sizeable national group, with a consolidated annual turnover of at least € 750 million. Government bodies, non-profit organisations and pension funds, etc., are excluded.

Effective taxation and top-up tax

Based on the directive, groups must pay at least 15% corporation tax in every country where they operate. This minimum 15% tax rate concerns effective taxation. This means that besides countries with a nominal tax rate below 15%, also intended are countries where the group pays fewer taxes due to a favourable system, such as innovation deduction for R&D activities, being applied.

If the group in a country does not pay effective taxation of 15%, a top-up tax must occur. In principle, this top-up tax is applied with regard to the ultimate parent company.  If the ultimate parent entity's state of residence does not provide for a top-up tax – which is sufficiently high – the tax authority of the underlying company/companies may apply this.

Moreover, Member States may decide to implement a qualified national top-up tax. In this case, all low-taxed entities established in that Member State are subject to the national top-up tax. This national top-up tax can then be settled with the top-up tax owed in the parent entity's Member State.

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