The new tax framework for a “global minimum corporate taxation “– a unique momentum

29.03.2022

UEL POSITIONS AND OPINIONS

For several years, the OECD and the EU have been engaged in a substantial international tax reform. This reform aims to adapt the current tax rules to the globalisation and digitalisation of the economy while strengthening the measures to combat tax evasion and aggressive tax planning previously implemented by the OECD’s BEPS initiative. It is in this vein that the members of the OECD Inclusive Framework have adopted the new rules to combat tax base erosion (known as the “GloBE rules”, or more broadly “Pillar 2”). The main objective of the new rules is to ensure a minimum effective taxation of multinational groups, set at 15%, as depicted in the chart below:

(Source: European Commission « Questions and Answers on Minimum corporate taxation », available here)

A proposal for a Directive was published by the European Commission in December 2021 to transpose these rules at EU level. It is expected that the proposal be voted on in the coming weeks. Its entry into force, initially planned for 2023, should nevertheless be postponed to 2024 based on the current wording of the compromise text.

While it is not yet possible to precisely quantify the effects of this international tax reform on the revenues of the Member States, it is expected to have a negative impact on the attractiveness of smaller countries with open economies, such as Luxembourg, on the long term. Furthermore, a premature entry into force of these rules at EU level, ahead of the finalisation of the discussions at OECD level and before any agreement on a similar and concurrent implementation by the world’s largest economies, could have adverse consequences on competitiveness and economic growth at EU level.

Furthermore, these new rules will undoubtedly increase the complexity of the tax framework and the reporting obligations for companies, resulting in additional compliance costs and administrative burden for them.

Consequently, the UEL considers it crucial that the entry into force of these rules at EU level be effectively postponed to 2024 at the earliest. Moreover, it is necessary that their domestic implementation be anticipated, both in terms of possible budgetary impact and overhaul of the current domestic tax framework. This would help ensuring legal certainty for taxpayers, limiting a disproportionate increase of implementation costs and maintaining the attractiveness of the Luxembourg economy.