On 23.12.2022, the EU Directive to ensure a global minimum tax for multinational groups and large domestic groups in the Union came into force. This is closely aligned with the so-called GloBE Model Rules (Global Anti-Base Erosion) of the OECD and the international agreements on Pillar Two of the G20/OECD two-pillar solution.
Background: EU Directive
On 23.12.2022, the EU Directive to ensure a global minimum tax for multinational groups and large domestic groups in the Union came into force. This is closely aligned with the so-called GloBE Model Rules (Global Anti-Base Erosion) of the OECD and the international agreements on Pillar Two of the G20/OECD two-pillar solution. The member states must transpose the directive into national law by 31 December 2023. The Federal Ministry of Finance (BMF) presented a first discussion draft on 20.3.2023. According to this, the implementation is to take place in a separate law (Minimum Taxation Directive Implementation Act).
Close orientation to the Directive
The draft closely follows the German version of the EU Directive, according to which multinational groups of companies and large domestic groups with a consolidated turnover of at least €750 million must tax their profits at least at an effective tax rate of 15% in each country. The minimum taxation is achieved through a primary supplementary tax (PES / Income Inclusion Rule) to be applied in priority, which acts similarly to a tax on additions, and a secondary supplementary tax (SES / Undertaxed Profits Rule) to be applied downstream. In addition to the OECD Model Rules, the associated commentary and the safe harbour rules presented in December 2022 are also taken into account. A national supplementary tax is also provided for in the draft law.
The PES is to apply to financial years from 2024, the SES from 2025. According to the draft, in principle every German taxable business entity of a correspondingly large group of companies is obliged to file minimum tax reports as well as tax returns based on them. Under certain conditions, exempt filing by a parent company for its subsidiaries is possible. Reports and returns must be filed no later than 15 months after the end of the business year, with an extended deadline of 18 months for the first year.
Structure of the draft law
The draft is divided into eleven parts, which closely follow the structure of the OECD Model Rules:
Part 1 regulates the scope of application and defines the essential terms as well as the scope of the group of companies and its components.
Part 2 contains the taxation of a domestic parent company under the PES and individual domestic business units under the SES.
Part 3 contains the detailed rules for determining the minimum tax profit or loss and various adjustment mechanisms.
Part 4 defines the taxes recognised and regulates various adjustments.
Part 5 contains the determination of the effective tax rate and the tax increase amount as well as regulations on a substance-based allowance.
Part 6 contains, among other things, special regulations in the case of changes in the group of companies and on special participation structures.
Part 7 (Special features of ultimate parent companies, distribution regimes and investment units) regulates, among other things, the special case of fiscally transparent parent companies.
Part 8 contains regulations on the minimum tax report and on options as well as on permanent safe harbour rules.
Part 9 (Special Provisions for the Transition Year, the Transition Period as well as the Initial Phase) contains, among other things, provisions on the use of tax attributes of the transition year as well as the regulations on the temporary safe harbour.
Part 10 contains the regulations on the levying of a German domestic minimum top-up tax.
Part 11 (Taxation Procedure and Other Provisions) contains, among other things, independent procedural regulations on the origination of the tax, the tax declaration obligation and jurisdiction, as well as on fines.
The draft, including its explanatory memorandum, comprises 242 pages and is expressly marked as a discussion draft. It is thus still before a draft bill, which usually initiates the legislative process. This already makes clear how complex and in need of interpretation the individual provisions are. Against this background, the comment period until 21 April 2023 does not appear to be too generous. The affected groups of companies with a consolidated turnover of €750 million are in any case well advised to deal with the regulations and the concrete implementation as soon as possible. dhpg would be happy to assist in this process!