European push to implement Pillar II - Tax and Legal blog

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On Friday 9 September 2022 the governments of Germany, France, Italy, Spain and the Netherlands issued a joint statement confirming the intention to implement a global minimum tax (“Pillar II”). In essence, the statement mentions that even though EU-wide implementation of Pillar II is preferred (by means of an unanimously adopted EU Pillar II Directive), the countries will move forward with implementation even in the absence of an EU-wide agreement if such is not obtained over the coming weeks. The next ECOFIN meeting where Pillar II is on the agenda is scheduled for 4 October 2022.

An EU-wide agreement on the implementation of the global minimum tax was a key priority of the French presidency of the EU that ended in June 2022. While initial opposition of Poland was overcome only late in the process, the Hungarian opposition in the final meeting before the summer break provided a pause to the discussions at EU-level and has stalled the kick-off of domestic implementation.

While the EU-members states have stayed fairly silent on domestic implementation plans in the wake of the June 2022 ECOFIN Meeting, other jurisdictions have published their implementation projects during the summer break, among others:

jurisdictions have published their implementation projects during the summer break, among others:

UK                       draft legislation was published in July 2022 with the aim of
                             introducing income inclusion rules (domestic and global) for tax
                             periods starting after 31 December 2023.

South Korea    draft legislation was published in August 2022 with the aim of
                            introducing income inclusion rules (domestic and global) in 2024.

Hong Kong      communique published in August 2022 to delay introducing income
                           inclusion rules (domestic and global) to 2024.

Switzerland    draft legislation published in July and August 2022 with the aim of
                           introducing income inclusion rules (domestic and global)
                           and UTPR in 2024.

A small statement in the German coalition agreement dated 3 September 2022 and subsequent announcement of Chancellor Olaf Scholz was the first official statement of a major EU jurisdiction to commit to the global minimum tax in absence of an EU-directive. While the announcement did not provide for details on the actual implementation plan, it left little doubt that Germany could proceed without unanimous consent at the European level.

Following the German move: a joint declaration of Germany, France, Italy, Spain and the Netherlands issued on 9 September 2022 emphasises the clear intention to progress and implement the global minimum tax in 2023 on national level, should no unanimity be reached at the EU-level.

In addition to a strongly worded commitment by major European jurisdictions, US resentment of Hungary’s opposition to the EU-Directive on Pillar II and the treat to cancel the US-Hungarian tax treaty, increase the likelihood of a consent at the level of the EU or the package to progress without Hungary.

Where do others stand & what does it mean
Considering the 4 October 2022 deadline to finalize consent on EU-level, the confirmed coordination prior to the ECOFIN meeting may provide for any objection by Hungary to be obsolete.
Considering the weight of the Economies involved implementation of income inclusion rules in the respective jurisdictions would certainly tip over the momentum and have many other jurisdiction follow-suit in the wake of their plans.

While the statement provides for “implementation” in 2023, no detailed mention on the application of the rules is provided. However, the expectation would be that implementation plans align with the proposed application in the EU-Directive, i.e. tax periods starting after 31 December 2023.

Silence before the storm?
There is growing consent, that the global minimum tax is not a matter of if, but when, which is further emphasized by the weight of the announcement from Friday. Today, there is still time to act and prepare: the global minimum provides for a major change in global tax landscape with many untested rules and interpretations.

Faced with final legislation, MNE Groups will have to act and anticipate impact of these rules to their organization, whereby the additional layer of taxes due could require significant adjustments to reporting processes, reporting systems and a shift of responsibilities within the tax and accounting departments of these organizations.

If If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts

Blog_Daniel stutzmann110x110

Daniel Stutzmann - Partner, Global Minimum Tax  

Daniel is a Tax Partner with more than 15 years of experience as an international corporate tax specialist. This includes a one year assignment in the US to lead the Swiss ICE Desk. Daniel has extensive experience in the area of cross-border structuring (like establishing tax efficient IP- and financing structures) as well as business reorganizations including large supply chain transformation projects. This also includes advising several multinationals in moving their worldwide/regional headquarters or central functions to Switzerland, while often establishing tax privileged Swiss principal companies. In his capacity as Swiss tax expert he has worked on a significant number of value chain alignment (“VCA”) projects, cross border restructuring and headquarter relocations.

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Manuel Angehrn110x110

Manuel Angehrn - Senior Manager, Global Minimum Tax  

Manuel is a Senior Manager with over 10 years of experience in International Tax. He is a Deloitte Switzerland’s Global Minimum Tax subject matter expert. He follows domestic and global tax developments and assesses the impact to Swiss multinationals.

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Gautam

Gautam Agarwal - Senior Manager, Accounting Advisory Services

Gautam is a Senior Manager in our Corporate Assurance Services department and brings over 10 years of experience in accounting advisory. He is Deloitte Switzerland’s Pillar II accounting technical knowledge leader. He is responsible for the accounting impact assessment and governance.

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Peluso Ryan-109-110-v3

Ryan Peluso - Assistant Manager, Global Minimum Tax

Ryan is an Assistant Manager with over 7 years of experience in International Tax. He supports in modelling the impact of Pillar II as well as developing and executing processes for its implementation. He is specialised in helping clients access, visualise and analyse their data for international tax reporting, compliance and planning processes.

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