EU member states to implement 15% tax rate for largest companies

The Council EU Ministers agreed in principle to a 15 per cent minimum taxation for groups and companies with an annual turnover of at least €750 million. EU member states have by the end of 2023 to implement this minimum taxation into national law. This is in line with the OECD’s reform for fair and effective international taxation, known as pillar two.

Despite agreeing to sign the OECD 15 per cent corporate tax proposal back in 2021, the Government held reservations regarding the €750 million profit threshold and excluded sectors, which led to Malta, along with Poland, Sweden and Estonia initially blocking the deal from moving forward back in March.

The goal of this proposal is to limit the race to the bottom in corporate tax rates, minimising the incentive for multinational corporations operating in the EU to shift profits, thus reducing the risk of tax base erosion.

“The directive has to be transposed into member states’ national law by the end of 2023. This will still result in the EU being a front-runner in applying the G20/OECD global agreement on pillar two,” said Zbyněk Stanjura, Minister for Finance of Czechia.

According to the OECD, this will lead to an additional $150 billion (€141 billion) in new tax revenues collected globally every year.

On 8th October 2021, nearly 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached a landmark agreement on international tax reform with a detailed implementation plan consisting of two pillars.

Pillar one covers the new system of allocating taxing rights over the largest multinationals to jurisdictions where profits are earned. Technical work on the details for pillar one is still ongoing in BEPS.

Pillar two includes rules aimed at reducing the opportunities for base erosion and profit shifting by requiring the largest companies to pay a minimum rate of global corporate taxation, reducing the incentives to do so. EU member states have unanimously approved an EU directive the Commission proposed, to see this pillar implemented into national law.

BusinessNow.mt has reached out to Finance Minister Clyde Caruana for a comment regarding the impact of this tax agreement on Malta and is awaiting reply.