EU Nearing Full Implementation of Global Minimum Tax Next Year

European Union countries are largely on track to start applying Pillar Two of the global tax deal next year, but the finalization of Pillar One remains uncertain, an EU official said at a European Tax Adviser Federation seminar Wednesday.

The European Commission, the EU’s executive, is “optimistic that all member states will transpose” the EU’s minimum tax framework law “in time and in a very comprehensive way,” said Reinhard Biebel, head of direct tax policy and coordination in the commission’s tax directorate.

The minimum tax directive, agreed to at the end of 2022, sets a common standard for national minimum tax laws that must be adopted by each of the EU’s 27 countries. The law would establish a 15% minimum tax rate, in line with Pillar Two of the deal brokered within the Organization for Economic Cooperation and Development.

However, Biebel said he was less optimistic on Pillar One of the global tax deal, which relates to the reallocation to market jurisdictions of taxing rights over some of the profits of the world’s largest companies.

If Pillar One isn’t signed and ratified by the United States, it “doesn’t make sense” for the EU to implement the rule, Biebel said.

A Department of the Treasury consultation on Pillar One, which closes Dec. 11, created a “risk that new issues will come up and be referred back to the OECD,” he said.

If Pillar One doesn’t go ahead, there would be “a fragmentation of the international tax landscape” caused by “an avalanche” of new digital service taxes designed to capture some of the revenues earned by online companies in jurisdictions where they have no physical presence, Biebel said.

Pillar One would be implemented through a multilateral convention, and the EU previously said it would reinforce this with an EU-wide law similar to the minimum tax directive. But there currently isn’t “sufficient appetite” for an intermediary EU law, Biebel said.