Revolutionary EU regulations take effect on the 1st of January 2024, establishing a minimum effective tax rate of 15% for multinational companies operating in EU Member States. This framework enhances fairness and stability in EU and global taxation, aligning it with the demands of the contemporary, globalized, and digitalized world. The unanimous adoption of these minimum effective taxation rules by EU Member States in 2022 formalizes the EU's implementation of 'Pillar 2,' part of the global agreement on international tax reform in 2021.
While nearly 140 jurisdictions worldwide have committed to these rules, the EU has demonstrated leadership by enshrining them into law. 'Pillar 2' mitigates the "race to the bottom" by reducing incentives for profit shifting to low-tax jurisdictions, a phenomenon already showing results globally. Several zero-tax jurisdictions have announced the introduction of corporate income tax for relevant companies.
1. Applicable to multinational and large domestic groups in the EU with financial revenues exceeding €750 million annually.
2. Applies to large groups, whether domestic or international, with a presence in an EU Member State.
3. Introduces a 'top-up tax' to be imposed if the effective tax rate falls below 15%, addressing situations where a subsidiary faces a lower effective rate in a foreign country.
4. Ensures effective taxation when the parent company is located outside the EU in a low-tax country lacking equivalent rules.
This landmark legislation fulfils the EU's commitment to be among the first to implement the OECD tax reform. Global minimum corporate taxation (Pillar 2) is one component of the broader OECD agreement, the other being the partial re-allocation of taxing rights (Pillar 1). The latter adapts international rules on the distribution of corporate profits taxation for the largest multinationals, reflecting evolving business models and the ability to operate without a physical presence.
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