In recent years, there has been an ongoing debate about changes to international tax rules for multinationals in order to address the tax challenges of the digital economy. The first significant momentum was when OECD countries representing more than 90% of global GDP introduced a global minimum corporate tax rate of 15% (as one of a two-pillar package). This global minimum tax rate should apply to multinational companies with revenues of more than EUR 750 million. This will ensure that large groups in the EU pay a 15% minimum tax on profits for every jurisdiction in which they operate.
The minimum tax rate will apply to any large group, both domestic and international, including from the financial sector with combined financial revenues of more than EUR 750 million a year and with either a parent company or a subsidiary located in an EU Member State.
If the effective tax rate (calculated by dividing taxes paid by the entities in the jurisdiction by their income) in the respective jurisdiction is below 15% then the group must pay a top-up tax to bring its rate up to 15%. This means that if the effective tax rate is 10%, the group company should pay an additional 5% tax.
Pursuant to information provided by the Commission, if the global minimum rate is not imposed by a non-EU country where a group entity is based, Member States will effectively collect the part of the top-up tax due at the level of the entire group if some jurisdictions where group entities are based apply tax below the minimum level and do not impose any top-up tax.
There was a goal to enact a minimum tax rate by the end of 2022. At an EU Council meeting which took place in June 2022, Hungary blocked a proposed EU directive that would impose a 15% minimum tax. We will continue to monitor the situation surrounding the adoption of European legislation that is to introduce a minimum tax.