Breaking: the EU’s Pillar Two Directive received required unanimous support

As mentioned in a previous newsflash, the EU Council published a slightly revised draft of the Pillar Two Directive on 25 November 2022. This was done in an attempt to convince the final member state to cave and drop its reservations to this Directive. Last night, Hungary apparently did so (International taxation: Council reaches agreement on a minimum level of taxation for largest corporations - Consilium (europa.eu)), albeit that a number of other agreements were made part of the deal to convince Hungary. Including the country’s reservations to an aid package for Ukraine and EU funds that were temporarily frozen, but would now be partially released to Hungary.

The formal adoption procedure of the Pillar Two Directive still needs to be finalized, but at least on a political level, the EU is in the final stretch to formal adoption thereof. Transposition of this Directive into domestic law has to be done by 31 December 2023. Given the complexity of the rules and the required integration thereof in domestic (income) tax systems, the domestic legislatures are up for a considerable task for which they hopefully already have started to prepare.

We also note that the OECD Administrative Guidelines are still awaited for. These await approval by the Inclusive Framework and are expected to be published within a relatively short period of time. At least, that can be hoped for, as not only the rules itself and their transposition into domestic legislation are rather complicated. The actual application of those rules by tax authorities and in scope multinational enterprises alike, raises additional questions of a legal, as well as a practical nature. In that regard, the – be it temporary or definitive – safe harbors are indeed one of the much awaited for clarifications that is hoped to be provided in the Administrative Guidelines.