OECD Pillar 2 Directive: EU Council Agrees on a minimum level of taxation for the largest corporations
On December 12, 2022, EU member states agreed to implement a minimum corporate tax rate for large businesses at the EU level. The goal is to prevent a race to the bottom in tax rates for these businesses. The measure will apply to multinational and domestic companies with a combined annual turnover of at least CHF740 million and tax their profits at a minimum rate of 15 percent.
In October 2021, the 137 countries that are part of the Organization for Economic Cooperation and Development (OECD) Inclusive Framework reached a landmark agreement on a two-pillar solution to curb profit-shifting by global corporations. The EU Member States agree with the OECD's belief that implementing Pillar 2 will limit competition between Member States over who has the lowest corporate tax rates. This is the most comprehensive attempt to date to tackle this issue.
The move intends to reduce the risk of tax base erosion and profit shifting and ensure that the largest multinational companies pay the agreed global minimum rate of corporate tax. The ambassadors of EU member states have recommended that the Council adopt the measure, and a written procedure for its formal adoption will be launched. The directive is expected to be transposed into national law by member states by the end of 2023.
Spain is among some European countries that have announced the implementation of a minimum effective tax for companies within their jurisdiction or have expressed support for such a concept. If this legislation is not adopted, the holding company's state would be responsible for collecting the top-up tax related to activities in that jurisdiction.