| Status | Enacted Law |
| Law | Act supplementing the Tax Information Exchange Act, the Tax Administration Act and the Income Tax Act, published in the Official Gazette on May 2, 2024 (Approved by Parliament on April 10, 2024). |
| Effective Date | December 31, 2023 |
| IIR | Article 50 Postponement |
| UTPR | Article 50 Postponement |
| QDMTT | No |
| Filing Deadlines | Information provision under Article 50 of the EU Minimum Tax Directive. |
| Safe Harbours | No |
On May 2, 2024, the Estonian Official Gazette enacted the ‘Act supplementing the Tax Information Exchange Act, the Tax Administration Act and the Income Tax Act’ to implement the EU Global Minimum Tax Directive.
On February 8, 2024, the ‘Act supplementing the Tax Information Exchange Act, the Tax Administration Act and the Income Tax Act’ to implement the EU Global Minimum Tax Directive was approved by the Estonian Government and sent to Parliament. It was approved by Parliament on April 10, 2024.
However, as Estonia intends to delay the application of the GloBE rules under Article 50 of the EU directive, the draft law is not comprehensive and only covers limited aspects of the GloBE rules (as required for the application of Article 50).
GLOBE APPLICATION
General
Article 50(2) of the EU Minimum Tax Directive provides that where a UPE is located in a Member State that has elected to apply the deferral, other member states are to ensure that the constituent entities of that MNE group are subject (in the Member State in which they are located), to the UTPR top-up tax amount from December 31, 2023.
The election for deferral under Article 50 of the EU Minimum Tax Directive applies to EU Member States in which no more than 12 UPEs of in-scope MNEs are located.
According to the Estonian Tax and Customs Board, the number of in-scope UPEs in Estonia is 5.
It should be noted that Estonia applies a distribution tax regime (ie a tax regime that doesn’t levy a tax charge on taxable income when it is generated, but instead, when it is distributed.)
Given that the nominal income tax rate in Estonia is 20% (rising to 22% from 2025), it would be necessary to distribute 53.18% of the profits to achieve an effective tax rate of 15%.
The Law transposes and implements the relevant provisions of the EU Minimum Tax Directive. It is relatively short as a number of key elements of the GloBE rules are directly transposed by a static reference from the EU Minimum Tax Directive.
The Law specifically provides for:
Scope of application
Articles 5410(1)-(2) of the Law provide that it applies to entities located in Estonia included in a group, whose annual net sales income in the consolidated financial statements of its UPE is at least 750 million in at least 2 of the 4 financial years immediately preceding the relevant financial year.
Article 5410(3) also defines Excluded Entities as in the EU Minimum Tax Directive, however, unlike Latvia, for example, the Excluded Entity Election is not included in the Law.
Definitions
The Law includes reference to a number of terms which are integral to the application of the relevant rules. Unlike other Article 50 postponement laws (eg for Latvia and Lithuania), the terms are not expressly defined in the Law.
Instead, Article 5410(6) directly transposes Articles 3 and 20 of the EU Minimum Tax Directive for the relevant definitions.
This would therefore include definitions for:
-Non-profit organization
-Significant distortion of competition
-Partially-owned parent company
-Fiscally transparent entity
-Excluded dividends
-Excluded equity gain or loss
-Fiscal year
-Insurance investment entity
-Ultimate parent company
-Group
-Investment fund
-Investment entity
-Constituent entity
-Ownership
-Excluded entity
-Consolidated financial statements
-Controlling interest
-Parent company
-Intermediary parent entity
-Minimum tax
-Real estate investment vehicle
-Permanent establishment
-Pension fund
-Pension services entity
-Acceptable Financial Accounting Standard
-MNE group
-Entity
-Top-up tax
Location of entities
Section 5411 of the Law includes rules to determine the location of an entity/PE that is part of a group. This is important for determining which EU member state or third country they will be treated as being located in for Pillar Two purposes. These rules tie into the standard rules in Article 10.3 of the OECD Model Rules.
Administrative Guidance
The Law does not reflect the provisions of the OECD Administrative Guidance. In addition, as the detailed definitions are transposed from the EU Minimum Tax Directive, they also do not reflect the OECD Administrative Guidance updates (eg it does not provide that intermediate parent entities and partially-owned parent entities do not include insurance investment entities).
Safe Harbour and Penalty Relief Guidance
Not applicable, as Estonia is opting for the Article 50 postponement of the EU Minimum Tax Directive.
ELECTIONS
Elections in the OECD Model Rules
As Estonia is opting for the Article 50 postponement of the EU Minimum Tax Directive, most GloBE elections are not relevant. As such, no elections from the OECD Model Rules are included in the Law.
Elections in the Administrative Guidance
No elections from the OECD Administrative Guidance are included in the Law.
New Elections
There are no new elections in the Law.
DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE
As Estonia intends to delay the application of the GloBE rules under Article 50 of the EU Minimum Tax Directive, the Law is not comprehensive and only covers limited aspects of the GloBE rules (as required for the application of Article 50).
Member states that have postponed the application of these rules must incorporate part of the provisions of the EU Minimum Tax Directive into national law in such a way as to ensure the operation of the GloBE rules in the EU, as established by the EU Minimum Tax Directive.
In particular, even though the application of the GloBE rules in Estonia is to be delayed, Estonia is required to implement domestic law which ensures that a group filing entity located in another Member State is provided with the necessary information to enable it to complete a GloBE Information Return.
Whilst the Law transposes relevant aspects of the EU Minimum Tax Directive, it does not reflect any relevant aspects of the OECD Administrative Guidance.
Most of the aspects of the GloBE rules, including the detailed calculation rules and operation of the IIR and UTPR are not included in the Law given the postponement of the rules in Estonia.
QDMTT
General
Estonia is not implementing a QDMTT.
QDMTT Design Features
Estonia is not implementing a QDMTT.
Registration
Not provided in the Law.
Filing
Section 5410(4)/(5) of the Law provides for the key information provision rules:
1) The UPE of an MNE group, located in Estonia, must appoint another MNE group entity located in another member state (or in certain cases, in a third country) to submit a top-up tax information declaration to the tax authority of that country on behalf of the MNE group; and
2) The group entities located in Estonia must submit the data required to fill out this declaration to the designated group filing entity.
Payment
Not provided in the Law.
Penalties
Not provided in the Law.
None Issued
NA
NA
NA
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