As of 1 January 2024, the new, innovative EU rules introducing a minimum effective tax rate of 15% for multinational companies active in EU Member States came into force.
The framework will bring more fairness and stability to the tax landscape in the EU and globally, at the same time making it more modern and better adapted to today's globalised digital world. The entry into force of the minimum effective tax rules, unanimously agreed by Member States in 2022, formalises the EU's implementation of the so-called 'second pillar' rules agreed as part of the global agreement on international tax reform in 2021.
By reducing the incentive for companies to shift profits to low-tax jurisdictions, the second pillar limits the so-called 'race to the bottom', i.e. the battle between countries to lower corporate tax rates in order to attract investment. Pillar II is already yielding results, with a number of zero-tax jurisdictions announcing the introduction of a corporate income tax for companies within its scope.
The rules will apply to multinational corporate groups and large-scale domestic groups in the EU with total financial revenues exceeding 750 million euros per year. They will apply to any large group, national or international, whose parent company or subsidiary is located in an EU Member State.
The directive includes a common set of rules on how to calculate and apply an additional tax due in a given country if the effective tax rate is less than 15%. If a subsidiary is not subject to the minimum effective tax rate in a foreign country where it is based, the Member State of the parent company also applies a top-up tax on the subsidiary. The directive also ensures effective taxation in case the parent company is located outside the EU in a low-tax country that does not apply equivalent rules.