Global Minimum Tax by the end of 2023: EU Member States start transposition into national law

This week, the Hungarian Prime Minister Viktor Orbán withdrew his veto on the introduction of global minimum tax and thus enabled the EU-wide transposition into national law. The next step for the introduction of the global minimum tax will be for the Member States to transpose the EU Directive into national law. For that purpose, the Directive has set a time limit until the end of 2023. Subsequently, the new regulations will largely apply to fiscal years starting from 2024. According to reports, Berlin is currently working at full speed on a corresponding draft law, which is to be published at the end of the first quarter of 2023.

Recently, the vote in the ECOFIN Council (EU Council comprising the economic and finance ministers of all member states) on the directive on global minimum taxation failed. In September of this year, Germany, France, Italy, Spain and the Netherlands had already made it clear that they would implement the minimum taxation as uniformly as possible, even without agreement at EU level.
“Global minimum taxation” is the second pillar of the OECD’s reform package for fairer international corporate taxation. It is intended to counter the shifting of profits to tax havens. The other pillar of the OECD reform package aims to apportion profits in such a way that international taxation rights are also allocated to market states. To this end, the second pillar (“Pillar II”) creates a balance by reducing incentives to shift profits to low-tax countries.

The “global minimum taxation’s” objective is as follows: For large international groups of companies (i.e., with annual sales of EUR 750 million or more), which are generating profits through their subsidiaries in low-tax countries, the difference to a certain “minimum tax rate” will still be assessed in the country of the company’s registered office. In this regard, the G20 countries agreed upon a tax rate of 15%. Consequently, this leads to an international minimum tax rate of 15%, regardless of where the company’s registered office is located.

A total of more than 130 countries have already agreed to the scheme. The first step in implementing the “global minimum taxation” in the EU is for the member states to agree on the corresponding EU Directive on “ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union” (EU 8778/22). So far, this has failed due to Hungary’s resistance since EU law requires a unanimous decision with regard to tax matters.