The EU Commission has already presented its proposal for the implementation of the global corporate minimum tax in 2021. All EU member states have now finally pledged their support for the declaration. The necessary unanimity could thus finally be achieved after repeated vetoes by Hungary. From AK's point of view, it is a step in the right direction, which, however, must be followed by others.
In October 2021, more than 130 OECD countries reached a landmark agreement on an international tax reform for globally operating companies. Already in December 2021, the EU Commission presented an implementation proposal for the second pillar of the agreement - a global minimum tax rate for corporate profits. Until recently, however, only Hungary had prevented an agreement. In recent months, countries like Germany threatened the government in Budapest with blocking the approval of the Hungarian plan for the use of EU Corona aid. Finally, in mid-December 2022, the Permanent Representatives of the Member States were able to reach an agreement.
To whom do the provisions of the Directive apply?
The provisions apply from 1 January 2024 to all groups whose annual turnover exceeds 750 million euros and which have a parent company or subsidiary in a Member State. If group companies of European corporations fall below the minimum tax rate of 15%, the difference will be taxed subsequently (top up tax). Avoiding taxation via so-called tax havens is thus no longer possible.
Who is exempt from its scope?
State-owned enterprises and international organisations are excluded, provided they are acting in a sovereign capacity, as well as pension and investment funds, which are usually considered fiscally transparent; hence, they are taxed at ownership level. However, the exemption of international shipping is absolutely incomprehensible. There are only a few economic sectors, where the harmfulness of the competition and the associated dumping of tax, labour and environmental standards is as obvious as in international maritime transport
How is the tax rate calculated?
The effective tax rate is determined for each tax jurisdiction by dividing the tax paid by corporations in the jurisdiction of their revenue. If the effective tax rate for corporations in a given tax jurisdiction is below the minimum rate of 15 %, the corporation will be subject to a top-up tax to reach the rate 15 %. Either through the affiliate’s state of domicile itself (national supplementary tax) or through the parent company’s state of domicile (so-called “Income Inclusion Rule”).
Are there exemptions
The provisions provide for an exemption up to a certain amount. Under this so-called “de-minimis exemption”, no top-up tax is levied on a group's income and profits generated in a territory that do not exceed a certain minimum amount in the given state, even if the effective tax rate is below 15%.
AK demands for a more effective minimum tax rate Directive
The Directive provides for an optional application of a national supplementary tax. If a Member State adopts this option, all low-taxed business units will be subject to this national supplementary tax. AK demanded the deletion of this Article without replacement, as it is only benefits tax havens to generate additional revenue at the expense of normal tax countries. In addition, AK demands an increase of the minimum tax rate; the increase should be enshrined the Directive, e.g. through an opting-out option. Furthermore, the turnover threshold should be lowered to below 750 million Euro to increase the scope of application of the minimum tax rate. Apart from the minimum tax rate, the EU must also push ahead with the first pillar of the OECD minimum tax rate. The next hurdle will be signing the multilateral convention, planned for mid-2023.