European Commission’s Directive proposal on implementing Pillar Two 15% minimum effective tax rate in the EU – Poland blocks EU adoption

Prepared by Giovanni Criscuolo, Dario Sencar, Lina Jukneviciute and Mario Volpe 

Executive summary

Yesterday the Council of the European Union (the Council) held the  Economic and Financial Affairs Council (ECOFIN) meeting during which Finance Ministers were supposed to publicly discuss the new proposal for a Directive (the text is available here) on ensuring a global minimum level of taxation for multinational groups in the European Union (EU) (the Pillar Two Directive).

Nevertheless,  due to Warsaw’s persistent refusal to come on board, the French presidency removed this point from the meeting’s agenda.

The Draft Directive to be ratified needs to be unanimously approved by all Member States. If so, Member States shall then transpose the rules in their national systems by 31 December 2022 and apply the related implementing provisions starting from  31 december 2023 (for the IIR) and from  31 december 2024 (for the UTPR).

The expectation is that the New Presidency (Czech Republic) will continue the negotiations with Poland and other Member States, with the aim of reaching an agreement during the next ECOFIN meeting scheduled on 17 june, 17, 2022.


First Draft Directive published  on December 22, 2021

On December 22, 2021 – the European Commission (EC) published its proposal (the text is available here)  for a Council Directive “on ensuring a global minimum level of taxation for multinational groups in the Union” with the aim of implementing the OECD Pillar Two Model Rules (published on 2o december 2021) on a 15% minimum effective tax rate in the EU Member States.

The Draft Directive closely follows the OECD Model Rules, which set out the Income Inclusion Rule (IIR) and Undertaxed Payment Rule (UTPR). Nevertheless, it departs from the Model Rules with some adjustments (considered necessary) in order to guarantee conformity with EU law. The major key differences are:

  • is envisaged an extension of the IIR to ‘large-scale’ purely domestic groups with consolidated revenues of at least EUR 750 millions in at least two of the four preceding years (to avoid any risk of discrimination between cross-border and domestic situations);
  • the application of the IIR by an Ultimate Parent Entity (UPE), Intermediate Parent Entity (IPE) or Partially Owned Parent Entity (POPE) is extended also to the low-taxed constituent entities located in the same Member State (including the said UPE, IPE or POPE)
  • the possibility for Member States to adopt the minimum domestic tax (the so-called Domestic Minimum Top Up Tax)

Since the first publication of the first version of the Draft Proposal, the Council is  aware that the success of the GloBE Model Rules entirely depend on the coherent and transparent implementation of the Directive both in the Union and worldwide.

The tangled path to the approval of the Directive

Yesterday’s meeting t follows the three previous once: (i) ECOFIN  of January 18, 2022, during which  all Member States confirmed the priority of the proposal, while others   expressed concerns on the : tight implementation timeline; complexity of the rules; link between Pillar One and Pilar Two and; application of the rules to domestic groups; (ii) ECOFIN of March 15, 2022 during which, the date of the implementation of the rules was postponed  from January 1, 2023 to December 31, 2023 and the UTPR delayed to 31 December 2024. The compromise text is available here.

Nevertheless, four Member States raised remaining concerns to be addressed (Estonia, Malta, Poland and Sweden); (iii) ECOFIN of April 5, 2022 – where Estonia, Malta and Sweden waived the reservations raised during the previous meeting and agreed with the proposal. Nevertheless Poland did not support the adoption of the Directive. During the public session of 5 April, EU Finance Ministers were asked to express their position on a new compromise text published on 28 March (the text is available here).

The new compromise text was aimed at resolving remaining issues raised by some Member States, among the most important (i) the specifics of the optional provision to delay application of the rules under certain circumstances, (ii) the link between implementation of Pillar Two with Pillar One implementation and, (iii) the administrative burden for small businesses.

The takeway

According to reliable sources, Poland’s position is mainly related to other aspects (e.g. the recovery plan) that could be overcome during  the next ECOFIN in  June 2022.

In the meantime, during 2022, some jurisdictions launched public consultations in order to gather comments on domestic implementation. Si tratta del Regno Unito (link), della Nuova Zelanda (link), della Svizzera (link) e del Jersey (link).

Let’s Talk

For a deeper discussion, please contact:

Lina Jukneviciute

PwC TLS Avvocati e Commercialisti


Giovanni Criscuolo

PwC TLS Avvocati e Commercialisti

Senior Manager


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