Introducing a minimum tax rate in the EU

EU Member States have agreed to introduce a minimum effective tax rate, and before Christmas the Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large domestic groups came into force. Member States must implement it by the end of 2023.

The aim of the Directive is that profits realised by large multinational and domestic groups or companies should be taxed at a minimum effective tax rate of 15% in each country 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 preceding periods. If the effective tax rate for companies in one country does not reach the required 15%, a so-called top-up tax is payable. The purpose of the income inclusion rule is to ensure that the tax is topped up at the level of the parent company tax if the profits of each subsidiary are not sufficiently taxed. If the tax cannot be topped up using this rule (e.g. if the parent company is based outside the EU), the under-taxed profits rule applies at the level of the subsidiaries.
The income inclusion rule will start to apply from 2024 and the undertaxed profits rule from 2025. The consolidated income criteria will be determined on the basis of historical data, so it is possible to make a preliminary determination now regarding whether the minimum effective tax rules will apply to a particular group.