BEPS 2.0: Global minimum taxation

Pillar I and II - the "two-pillar plan

In July 2021, the OECD adopted the cornerstones of the so-called "Two Pillar Plan" and thus laid the foundation for "BEPS 2.0". The first pillar - "Pillar One" - takes into account the increasing importance of the "digital economy" and aims to change the distribution of intergovernmental taxation rights by establishing new tax connecting factors.

The second pillar - "Pillar Two" - provides for the introduction of a global minimum taxation for large, multinational companies. The EU Commission already published a proposal for a directive in December 2021, which - after lengthy political discussions - was adopted on 14 December 2022.

Objective, scope of application and entry into force of the "Global Minimum Tax"

By introducing a global minimum tax rate, the Directive aims to avoid an undesirable "race to the bottom" in the area of corporate taxation and thus to prevent artificial profit shifting to group companies in low-tax countries or to make it less attractive.

The global minimum tax is to apply to multinational corporations whose global consolidated turnover exceeds EUR 750 million. Exceptions are foreseen for non-profit organisations as well as pension and investment funds.

The implementation period runs until 31 December 2023 and the new taxation regime is to apply in principle from 1 January 2024. An exception exists for those Member States in which a maximum of 12 "ultimate parent companies" (headquarters) have their registered office. In these cases, implementation must take place by 31 December 2029 at the latest.

The key points of the minimum taxation

• Effective taxation of 15%

The global minimum tax rate has been set at 15%. The decisive factor is not the statutory tax rate, but the effective taxation. This is to be done on a country-by-country basis (so-called "jurisdictional blending"), i.e. all income earned by the companies of a multinational group in one country is to be considered together.

• "Global Anti-Base Erosion (GloBE) Income

In determining the effective tax rate, the so-called "covered taxes" (i.e. income taxes including taxes on distributed profits) are to be compared with the so-called "global anti-base erosion (GloBE) income". The starting point for determining the GloBE income is the profit before tax, whereby it is usually not national company law that is relevant, but the accounting regulations or standards (e.g. IFRS) on which the consolidated financial statements are based. This result is then adjusted for tax purposes in accordance with the directive (e.g. consideration of certain tax deduction prohibitions, elimination of tax expenses, etc.).

• Supplementary tax (top-up tax) if the tax rate falls below the minimum tax level

If the tax rate falls below the minimum tax, a so-called top-up tax is to be levied in the country of domicile of the top group company in the amount of the difference, whereby a distinction is made here between the concept of the "primary top-up tax rule - PES" (so-called income inclusion rule) and the "secondary top-up tax rule - SES" ("undertaxed profit rule").

• Reporting obligations

The Directive stipulates that - unless an exception applies - supplementary tax returns and other relevant notifications must be submitted no later than 15 months after the last day of the reporting financial year. The (tax) compliance burden on companies, which has been steadily increasing over the past few years, thus continues to grow.

Need for action for companies

The new minimum taxation system is extremely complex in detail and the associated requirements pose not inconsiderable challenges to the tax function and accounting of internationally active groups (resources, organisation, implementation of processes and interfaces, etc). A final assessment of the effects of the new taxation regime (including the question of where the supplementary tax will have to be paid in individual cases) will only be possible on the basis of the concrete implementation of the directive in Austria and the other EU states. Nevertheless, potentially affected companies are well advised to deal with the issue as soon as possible, to explore any room for manoeuvre and to implement the necessary measures in time to be "compliant" with the future regulations.