If the European Council is unable to agree on pillar two, a group of EU nations will execute it unilaterally.
In a joint statement released on Friday, September 9, the finance ministers of France, Germany, Italy, Spain, and the Netherlands said that if the European Council does not make any progress on its minimum corporate tax directive in the coming weeks, they will pass pillar two legislation on their own.
The German Federal Ministry of Finance officially released the following statement: "As inflation hits… companies must pay their fair share of the burden to alleviate the impact of the global energy crisis."
"This is why we reaffirm today our strengthened commitment to swiftly implement the global minimum effective corporate taxation," it reads. "It is a key lever for further tax justice through a more efficient fight against tax optimization and evasion."
At the IFA Congress 2022 in Berlin on September 8, Benjamin Angel, the director of direct tax at the European Commission in Brussels, stated that there is a strong political intent for pillar two to be implemented in the EU.
The statement goes on to say that "At the June 2022 ECOFIN [Economic and Financial Affairs Council meeting], 26 out of 27 EU member states expressed their willingness to implement this important step towards tax justice..."
At the ECOFIN conference in June, Hungary was the only nation to reject the pillar 2 directive, preventing a minimal corporation tax plan from being approved by the European Council. Mihály Varga, the finance minister of Hungary, suggested that approving the plan may be bad for the European economy.
According to the joint statement, "Should unanimity not be reached in the next weeks, our governments are fully determined to follow through on our commitment. We stand ready to implement the global minimum effective taxation in 2023 and by any possible legal means."
To pass pillar two, the five biggest EU economies might begin enhanced cooperation, an EU legislative mechanism that only requires 10 member states.
As EU nations finish up work on pillar two, they are laying the groundwork for implementing the plan for a greater redistribution of taxation rights under pillar one. Now, a multilateral treaty must be signed by the middle of 2023.
By June 30th 2023, Angel informed the IFA Congress, a report on Pillar One will be available.
The OECD's version of the global minimum tax framework and the EU regulation on pillar two, however, have notable variances.
The EU directive differs from other regulations in that it has a broader reach, a more straightforward domestic top-up tax system, a safe harbor provision to prevent multiple calculations, and penalties of up to 5% of turnover for non-compliant reporting.
With the exception of the Netherlands, which stands out, one head of tax at a financial services business in London who is keeping track of the developments said that a deal between these nations was anticipated.
The head of tax claims that France, Germany, and Spain are not surprised by this. He continues, "After news came from Germany about a unilateral approach, I already predicted France, Spain and Italy would follow."
After the subsequent official ECOFIN meeting, which is slated on October 4, an joint statement may be released.
By fLEXI tEAM