Pillar 2

Pillar 2-Directive adopted in EU

Authors: Dr. Lars Lüdemann, Sebastian Sieber
Pillar 2

After lengthy negotiations, the EU member states have unanimously adopted the so-called Pillar 2 Directive to implement the global minimum tax of 15 % for large companies. The EU is thus leading the way internationally in implementing the OECD Model Rules on minimum taxation. The national implementation of the directive is being prepared at full speed in the member states and a first draft is expected from the BMF in spring 2023.



The established international tax law has its origins in an analog world with typically physical connecting factors. However, with advancing digitalization and new business models arising from it, the existing international tax system is reaching its limits. For this reason, among others, more than 135 countries signed up to a proposal by the OECD in October 2021, which provides for a (re)distribution of taxation rights (Pillar 1) and a global minimum taxation of 15% (Pillar 2).


Pillar 2 covers large groups, i.e. those whose annual group turnover exceeds EUR 750 million and which maintain either a parent company or a subsidiary in an EU member state. Whether such a group operates in only one country or across borders is irrelevant.


The regulations for Pillar 2 stipulate that a so-called effective tax rate must be calculated for each tax jurisdiction in which a company is active. For this purpose, the taxes paid by the company in the territory are divided by its income. If the effective tax rate in a tax jurisdiction is below the minimum rate of 15%, the Group is retaxed so that the 15% rate is reached. This is implemented by the so-called "income inclusion rule" (top-up tax).


The minimum taxation decided in the EU also affects groups based in non-EU countries that do not implement the regulations on global minimum taxation. In such cases, the Directive provides for the application of the so-called "Undertaxed Payments Rule", which allows member states to levy part of the top-up tax due at group level.


For the vast majority of companies covered by the Directive, it is expected that no payment of top-up tax will be made. Nevertheless, these companies are obliged to make the calculations required by the Directive, which requires the collection of the necessary data within the company.


Political process and next steps


Apart from a few editorial changes, the draft directive that has now been adopted corresponds to the draft that was already submitted on 22.12.2021. The EU member states, with the exception of Hungary, had already been signaling their approval of the directive for several months following previously intensive discussions. In a meeting of EU finance ministers on 06.12.2022, Hungary once again voted against the project, thus preventing implementation due to the unanimity requirement. After further negotiations under the current Czech Council Presidency and against the background that individual EU countries (including Germany) threatened to introduce the Pillar 2 regulations on their own, Hungary finally agreed to the draft directive in the night from 12 to 13 December 2022. This means that the necessary unanimity has been reached and the EU member states are obliged to implement the regulations in national law by the end of 2023.


In Germany, the BMF has already been working at full speed for some time on a law to implement the Pillar 2 Directive. The publication of a first draft is expected in spring 2023. The OECD also plans to publish further commentaries on the Pillar 2 regulations in the coming year, including on the so-called "safe harbors". These promise permanent or at least temporary relief in the (initial) application of the regulations. Since the EU and also Germany will presumably follow the OECD comments in the further implementation of minimum taxation, these are eagerly awaited by practitioners.


Practical advice


The EU is moving ahead internationally with the introduction of global minimum taxation. Other signatories of the OECD Model Rules will follow the EU's example. As a result, international taxation will be expanded to include a component that is in part still very abstract and in any case highly complex.   Many companies have already analyzed how they can implement the documentation requirements imposed by Pillar 2. Groups with sales of EUR 750 million or more that have not yet dealt with the global minimum tax in detail are, however, advised to familiarize themselves with the new rules in a timely manner. In particular, the collection of the data required for Pillar2 in the company is likely to be a major challenge for many companies, as much of the necessary information has not been systematically prepared to date.

Due to the upcoming publication of the national implementation laws (e.g. by the Federal Ministry of Finance) or the expected comments by the OECD on individual issues, various new questions and challenges for the companies covered by the directive will arise in 2023.