The EU member states have finally agreed on the introduction of a minimum effective tax rate: the directive on ensuring a global minimum level of taxation for multinational groups and large national groups entered into effect on 23 December 2022. It must be implemented by the member states by the end of 2023.
Throughout 2022, we kept you informed about the EU's intention to introduce a minimum global effective corporate income tax deriving from the OECD's international tax reform (Pillar 2; more details available here).
The directive’s aim is that profits of large multinational and domestic groups or companies should be taxed at least at a 15% effective tax rate in each state in which the companies operate. The rules apply to EU-based companies that are part of groups with consolidated revenues of at least EUR 750 million for at least two of the four previous periods. If a company’s effective tax rate in one state does not reach the required 15%, this will give rise to a top-up tax.
The directive contains two interconnected rules ensuring a minimum level of taxation: the Income Inclusion Rule and the Undertaxed Payment Rule. These determine where the tax will be topped-up, in what amount, and by whom. The Income Inclusion Rule aims to ensure that the tax is topped-up at the parent company if profits are not sufficiently taxed at individual subsidiaries. If it is not possible to top-up the tax using this rule (e.g., if the parent company is established outside the EU), the Undertaxed Payment Rule shall be applied at the subsidiary level.
The directive must be implemented by the end of 2023
Member states must implement the rules contained in the directive into their national legislations by the end of 2023, with effect for taxable periods commencing after 31 December 2023. The Income Inclusion Rule shall apply from 2024 and the Undertaxed Payment Rule from 2025.
We expect the Ministry of Finance to prepare a legislative proposal implementing this directive into Czech law in the first half of this year.
Since the consolidated revenue criteria are determined based on historical data, it is possible to preliminarily determine in advance whether a particular corporate group will be subject to the minimum effective tax rules. We are ready to help you in this area.