OECD Pillar 2 GloBE in CEE: Preparing for a different tax future

The Pillar 2 Global Anti-Base Erosion (GloBE) rules have been developed by the Organisation for Economic Co-operation and Development (OECD) to provide a common system of taxation that ensures multinational enterprises (MNEs) pay a global minimum tax (GMT) of 15% in each jurisdiction where they operate and generate income.

That is why we have developed our practical guide to Pillar 2 GloBE to support businesses to navigate their Pillar 2 journey.

Download our guide to Pillar 2 Globe

Also, watch our introduction to Pillar 2 video to learn more about the new Pillar 2 GloBE rules:

On 14 March 2022, the OECD published a comprehensive commentary and illustrative examples of what the implementation of the GloBE rules could look like. However, with the rules still evolving keeping track of progress is essential.

Status of implementation in Central and Eastern Europe

EU Directive 2022/2523 sets forth rules for the implementation of a global minimum level of taxation for large multinational groups and large-scale domestic groups operating in the EU (Pillar 2). The Directive should be transposed into national legislation by the end of 2023.

Taxpayers members of a multinational group or a large-scale domestic group located in an EU Member State, with annual revenue exceeding EUR 750 million in the last two of the four fiscal years immediately preceding the reporting year are subject to Pillar 2 obligations.

The Directive provides a mechanism based on three interdependent model rules commonly referred to as the Global anti-Base Erosion (GloBE), according to which a top-up tax should be collected in instances in which the Effective income Tax Rate (ETR) of a multinational group in a specific jurisdiction is below the Minimum Tax Rate (MTR) of 15%.

In Austria, a draft legislation will be published and subsequently sent to Parliament later this year. It is likely that a new law will be enforced, because of the number of rules necessary to transpose the Directive into Austrian legislation. No significant deviations are expected between the local legislation and the provisions of the Directive.

Croatia has yet to implement the EU Directive 2022/2523, as well as any local tax legislation in connection to Pillar 2. A draft legislation is expected to be publish in the following period.

In the Czech Republic large multinational and domestic corporations will be required to pay a minimum income tax of at least 15%. The corresponding draft of the law - the Act on Equalisation Taxes for the Purpose of Ensuring the Minimum Taxation Level of Large Multinational and Domestic Groups - was approved by the Czech Government on 16 August 2023. It is set to take effect from December 31, 2023. The Act is a transpositional legal regulation that incorporates into Czech legislation the Directive. It introduces two new direct taxes into the Czech tax system – the allocated equalisation tax and the Czech equalisation tax.

The allocated equalisation tax will be imposed on parent entities of large companies with annual revenues exceeding 750 million EUR if their overall effective taxation is less than 15%. Based on the proposed rules, an equalisation tax will be determined for the parent entity in relation to each country where the group operates and where the group's effective taxation is lower than 15%.

The Czech equalisation tax is aimed at preserving the primary right of the Czech Republic to tax income derived from sources within its territory. Due to various tax exemptions and similar measures, it might occur that the income of a member entity of a group operating in the Czech Republic is subject to an effective rate lower than 15%. The Czech equalisation tax ensures that these revenues are taxed within the Czech Republic's jurisdiction.

In Hungary no draft domestic legislation was issued at this time, however, the expectation is that Hungarian rules would not differ significantly from the provisions of the Directive. Also, it is more likely than not that Hungary would implement the rules regarding the qualified minimum domestic top-up tax (QMDTT) in order to collect the additional tax revenues at local level.

In Poland, the government has yet to publish a bill containing domestic regulations implementing the Directive. According to press releases, Pillar 2 regulations are to be implemented in Poland only from January 1, 2025. This would mean that in 2024 the Pillar 2 regulations may apply to those companies operating in Poland, but only in the case of implementation of relevant regulations in the parent jurisdictions.

Romania has not formally published a draft legislation concerning the implementation of the Directive into local legislation. The expectation is for the Directive to be implemented by the end of this year with minimum deviations, however, it is possible for the application of some rules, like the Income Inclusion Rule (IIR) and Undertaxed Payments Rule (UTPR) to be postponed.

Considering that some CEE countries, like the Czech Republic, have already implemented the new rules, while in other countries enforcement is imminent, in scope multinational groups should finalise their preparations. The analysis should focus on determining which group entities are within the scope, understanding local requirements, and calculating the ETR in each jurisdiction.

As Slovakia holds a specific position, where only a very small number of parent entities have their headquarters, the Slovak Ministry of Finance has decided to use the option given by the directive not to start the immediate application of the Income Inclusion Rule (IIR) and the Undertaxed Profit Rule (UTPR). Instead, to benefit from the top-up tax revenues collected on the low-taxed constituent entities located in the territory of Slovakia, they elected to apply a qualified domestic top-up tax system.

In this respect, a draft Act on top-up tax to ensure a minimum level of taxation for multinational enterprise groups and large-scale domestic groups has been prepared. If the effective taxation of income of qualified entities located in Slovakia is lower than 15%, the minimum taxation of these entities will be ensured by collection of the top-up tax. If approved by the Slovak Parliament, the Act becomes effective as of 31 December 2023.

In Slovenia, the Ministry of Finance published in June 2023 proposed local law changes to implement the Directive into domestic legislation. The act must be approved by the government until the end of 2023 with start of use from 2024 onwards. The proposed local law is more or less a direct translation of the Directive, implementing the additional minimum tax, which brings the effective minimal tax rate to 15 % for the relevant multinational corporations.

Why an international approach is essential

Dealing with GloBE requires an international approach that joins the dots between how parent entities and subsidiaries are impacted based on revenue and location. As an internationally integrated partnership operating in over 90 countries and territories around the world, the ability to draw on the expertise of more than 44,000 professionals enables us to collaborate closely with impacted clients.

Having been consulted as part of the development of GloBE rules at the OECD level, and with extensive CbC reporting knowledge, our global team of experts can:  

• assist in calculating the potential top-up tax due under existing arrangements; 
• review your CbC reporting processes and controls;
• assess Pillar 2 readiness and identify gaps;
• assess safe harbour eligibility;
• highlight key risk areas and potential Pillar 2 impact and summarise proposals and prioritisation;
• design roadmap and implementation plans for Pillar 2 compliance and optimisation is appropriate.

Mazars is already supporting clients on their Pillar 2 GloBE journey with our Pillar 2 tool to support data point calculations and help track Pillar 2 GloBE country-by-country progress.