EC takes action against nine Member States over failure to implement Pillar Two agreement

Thursday, 01 February 2024
The European Commission (EC) has begun infringement action against Member States that have so far failed to implement the 15 per cent minimum corporation tax mandated by the OECD-G20 countries' Pillar Two international agreement.

The EU Council’s Directive (EU) 2022/2523 set a deadline of 31 December 2023 for all Member States to transpose the tax into their national legislation. It requires multinational enterprises (MNEs) with more than EUR750-million global annual revenue to pay at least 15 per cent tax on profits made in every jurisdiction in which they operate.

Most EU Member States have duly transposed the Directive. The nine who did not are Cyprus, Estonia, Greece, Latvia, Lithuania, Malta, Poland, Portugal and Spain.

Of these, Cyprus, Estonia, Latvia, Lithuania and Malta have explicitly stated that they will delay Pillar Two implementation, or at least do it in stages. Cyprus does not expect its undertaxed profits rule, part of the Pillar Two package, to become effective until January 2025. In January 2024, Spain published draft legislation that includes the income inclusion rule and a qualified domestic minimum top-up tax applicable for fiscal years after 31 December 2023, but its undertaxed profits rule will not take effect until after 31 December 2024.

The EC states that the Directive 'brings greater fairness and stability to the tax landscape in the EU and globally by limiting the race to the bottom in corporate tax rates and lowering the incentive for businesses to shift profits to low-tax jurisdictions.' On 25 January 2023, it sent notice letters to the nine Member States warning them that they were not in compliance with EU law. Spain has said its draft implementation will mostly have a retrospective effect to 1 January 2024.


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