Posted: 13 Dec. 2022

EU to adopt its “Pillar II” Directive and a clear road to implementation

Looming over taxpayers for most of 2022, the EU-Directive to adopt the global minimum tax in member states has received consent from both Hungary and Poland according to a press release of the EU-Council on 12 December 2022. The formal adoption to finalize the project one year after publication of the initial proposal is expected to take place on 14 December 2022. The EU-Directive expects member states to transpose the directive into domestic law by 31 December 2023. The adoption ends a year-long political back and forth in the EU council and greenlights one of Europe’s most significant overhaul of tax determination of multinational enterprises (“MNE Groups”).

Overview on the EU-“GloBE-Directive”

The agreement reached between the EU-Finance ministers on 12 December 2022 provides for adoption of the draft EU-directive dated 25 November 2022 (the “GloBE-Directive”). The GloBE-Directive would require member states to transpose the respective ruleset applying on MNE Groups with an aggregate revenue in excess of EUR 750m into domestic law by 31 December 2023. However, member states with less than 12 ultimate parent entities may elect to delay transposition into domestic law for up to six consecutive years starting at 31 December 2023.

The majority of member states, however, will be required to implement the GloBE-Directive into domestic law fairly soon within the next year. Guidance to determine the GloBE Income and Adjusted Covered Taxes are provided in the GloBE-Directive, which follows the GloBE-Rules published by the OECD on 21 December 2021, refers to the GloBE-Commentary published in March 2022 and the GloBE Implementation Framework expected to be published soon for interpretation of the ruleset and a qualified agreement on safe harbours to be concluded by the members of the inclusive framework in due time to simplify the determination of a jurisdictional top-up tax.

Contrary to the GloBE Rules published by the OECD, the GloBE-Directive extends the scope of in-scope MNE Groups to purely domestic MNE Groups (i.e. with no cross-border constituent entities).

Timeline and milestones of the EU-“GloBE-Directive”

With the limited possibility to delay implementation, the GloBE-Directive requires EU-member states to introduce IIR-Rules into domestic law by 31 December 2023 and UTPR-Rules by 31 December 2024 applying on in scope MNE Groups. As such, the following implementation schedule is expected:

QDMTT Rules     Election for member states to apply for tax periods starting after 31 December 2023.

IIR Rules   Requirement to apply an IIR for tax periods starting after December 2023.

UTPR Rules  Requirement to apply a UTPR for tax periods starting after 31 December 2024.

With expectation of the transition year, the GloBE Directive requires in-scope MNE Groups to designate a filing entity within the European Union (should the ultimate parent entity not be located in the European Union) and the requirement to prepare a GloBE Information Return within 15 months of the fiscal year-end. The GloBE Information Return required by the GloBE-Directive shall be based on the standard template agreed upon by the Inclusive Framework of the OECD and is expected to be published towards the end of 2022 and/or early next year.

To ease preparation of the first GloBE Information Return, the GloBE-Directive provides for a transitional relief for the first GloBE Information Return and extension by 3 months (in line with the GloBE Rules).

Where do others stand?

The GloBE-Directive of the European Union provides for the biggest block of members of the inclusive framework to adopt the GloBE Rules dated 21 December 2021 into domestic legislation. The EU-member states are only second to the UK governments intend to adopt the rules in 2023 with their 2023 budget publication. In Switzerland, parliament agreed on the final law to request a change of constitution in a popular vote on 13 December 2022 and a popular vote to adopt the legal basis in 2023 is expected.

While, European legislators may be at the forefront of the “Pillar II” implementation, other jurisdictions have published draft legislation / consultation laws as well. Hong Kong, Australia, Canada, South Korea and Malaysia have published respective intentions.

What does it mean?

Faced with final legislation and the design and mechanics of the common approach, MNE Groups with activities (subsidiaries or permanent establishments) in the European Union, will need to understand the necessary actions for their organization to determine the tax impact and requirements to adhere to the compliance requirements as of 31 December 2023.

MNE Groups need to anticipate the impact of these rules to their organization, whereby an 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

Daniel Stutzmann

Partner, Global Minimum Tax


Manuel Angehrn

Senior Manager, Global Minimum Tax 


Gautam Agarwal

Senior Manager, Accounting Advisory Services


Ryan Peluso

Assistant Manager, Global Minimum Tax