On 28 October 2024, the European Commission issued a proposal aiming to amend Directive 2011/16/EU to ensure effective implementation of Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprises groups and large scale domestic groups in the Union (“Pillar II”). This amendment is crucial as the first reporting deadline is set for 30 June 2026.
Background
The amendment builds on the Pillar II framework, which ensures multinational enterprises groups (“MNEs”) pay at least 15% tax in each jurisdiction they operate. Under these rules:
- MNEs calculate the effective tax rate (“ETR”) for each jurisdiction;
- If the ETR is below 15%, the MNE pays a top-up tax;
- Member States can implement their own qualified domestic top-up tax (“QDTT”) to collect the additional tax locally, preventing others from claiming it.
Objectives of the Proposal
- Simplify Reporting: Establish uniform tax reporting requirements for MNEs.
- Enhance Information Exchange: Expand automatic data-sharing between EU tax authorities based on MNE reports.
Key Details of the Proposal
Reporting Requirements
- MNE entities in the EU must file a top-up tax information return (the “Return“) using a standard template.
- Exceptions: an entity is exempt if the Return is filed by the MNE’s ultimate parent entity (“UPE”) or a designated filing entity located in a jurisdiction that has, for the reporting fiscal year, a qualifying competent authority agreement in effect with the other Member State in which the entity is located.
- A central filing system will allow MNEs to submit the Return once, reducing the need for local filings.
Automatic Exchange of Information
- Within the EU:
- Tax authorities of Member States share the Return using a standardized process to ensure all relevant jurisdictions receive the required information.
- With Non-EU Countries:
- Member States must establish agreements for information exchange with third countries, aligning with OECD standards.
Dissemination Approach
Tax authorities exchange different sections of the Return based on each Member State’s role:
- The Member State of the UPE of the MNE receives the full Return;
- Member States that have implemented a qualified income inclusion rule or a qualified under-taxed profits rule or both, for the given reporting fiscal year, receive the full general section of the Return;
- QDTT-only Member States, where entities of the MNE are located, receive the relevant parts of the general section of the Return; and
- Member States with taxing rights under Pillar II receive specific Jurisdictional sections.
The competent authority of a Member State shall exchange the Return received as soon as possible and in any case (i) no later than three months after the filing deadline for that reporting fiscal year and (ii) after the filing deadline no later than three months following the date on which it is received.
The EU should adopt the OECD’s GloBE Information Return template and create a standard computerized system for data exchange.
Error Handling & Communication
A new article (Article 9a) will address discrepancies and missed deadlines in the reporting process:
- If errors regarding a UPE or a designated filing entity that is located in the jurisdiction of another Member State are found in the Return, the tax authority which received the Return must notify its counterpart and obtain, as well as all other competent authorities for which such information is subject to exchange, corrected information promptly.
- When the competent authority of a Member State has received a notification from an entity located in this Member State that its Return was to be filed by a foreign UPE or designated filing entity, but the information included in the Return was not exchanged withing the deadlines, it shall notify the other competent authority that the information has not been received. The latter shall, without delay, determine the reason for not exchanging the Return and inform the competent authority within one month of the receipt of the notification, including the expected exchange date for the Return where relevant.
What’s next?
- The Council and the Parliament should adopt a legislative proposal either at the first reading or at the second reading;
- If the two institutions do not reach an agreement after the second reading, a conciliation committee is convened; and
- If the text agreed by the conciliation committee is acceptable to both institutions at the third reading, the legislative act is adopted.
