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.
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