On the back of Germany’s intention
to start the process of implementing the Pillar Two GloBE Rules, on September 9, 2022, Germany, France, Italy, Spain and the Netherlands issued a joint statement
stating that if agreement is not reached on Pillar Two
in ‘the next few weeks’ they will push forward domestic implementation of the Pillar Two GloBE rules
‘by any possible legal means’ in 2023.
This is an interesting development. On the one hand it could be argued this is, in part, to push the countries holding out at the EU level (ie Hungary with its 9% headline corporate income tax rate
) to fall in line and support the EU directive.
If they continue to hold out, other key EU jurisdictions will implement the rules anyway. It is also very likely that additional EU jurisdictions would follow suit and implement the rules.
The Pillar Two GloBE rules don’t need any form of multilateral convention to implement them (unlike Amount A of Pillar One
) and therefore individual jurisdictions can enact domestic legislation to implement the rules.
and South Korea
have already released draft legislation for Pillar Two. However, releasing draft legislation is a long way from having enacted legislation.
No one individual jurisdiction would want to, in isolation, implement the Pillar Two GloBE rules given the threat to inward investment. As such, most jurisdictions are adopting a wait and see approach to determine if they will be part of the critical mass of jurisdictions implementing the rules.
In this regard the joint statement is important – particularly if other EU jurisdictions also agree. Having multiple jurisdictions make statements like this make it much more likely domestic legislation will be enacted.
Whilst the EU wanted a directive
to harmonise the approach to Pillar Two implementation across the EU, this is not strictly required. Jurisdictions would have had to enact local legislation to implement the directive anyway.
The draft EU directive did include a few amendments to the OECD Model Rules, including applying the global minimum tax to domestic corporations. It would be expected that any draft legislation issued by Germany, France, Italy, Spain and the Netherlands would follow this approach.
What this means for MNEs?
The move towards international adoption of the Pillar Two GloBE Rules is likely to increase quickly. MNEs should already be modelling
the impact and looking at the potential systems changes required to apply the rules.
In many cases, this will be a significant undertaking and as such preparation is key. Analysing the potential data requirements and mapping
these with new and existing data sources should be at the top of any list for MNEs considering how to approach Pillar Two. For more information see 122 Data Points for Pillar Two Systems Implementation
Belgium announced in early October 2022 that it is prepared to push forward with Pillar Two implementation even if Hungary continues to block the draft EU Directive by the end of 2022.