Understanding the new EU Minimum Tax Directive [Council Directive EU2022/2523]

On the 20th February 2024, the European Union Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups Regulations, 2024 were enacted to transpose Directive (EU) 2022/2523. Concurrently, the Commissioner for Tax and Customs published guidelines to facilitate their implementation.

The overarching principle of this legislative intervention is to facilitate the introduction of a minimum level of taxation of 15% that shall apply to multinational enterprise groups and large-scale domestic groups in the EU. These regulations are modelled on the Model Rules issued by the OECD/G20 Inclusive Framework on BEPS and which were formalised following extensive negotiations which took place at the level of the OECD Inclusive Framework meetings and exploit synergies from concepts known previously in the field of Exchange of Information (e.g. CbCR). These regulations only apply to members of a multinational enterprise group or of a large-scale domestic group which have an annual revenue of not less than €750,000,000.

Malta has elected to avail itself of the derogation afforded by the Pillar Two Directive, delaying its implementation for the maximum period of 6 consecutive fiscal years commencing from 31st December 2023. Therefore, during fiscal year 2024 Malta will not introduce the Income Inclusion Rule, Undertaxed Profits Rule or a qualified domestic top-up tax. In spite of such an election, Malta was still required to transpose those parts of the directive which facilitate the operation and functioning of the pillar 2 system within the EU and elsewhere. Hence during this transitory period, ‘in scope’ ultimate parent entities which are situated in Malta would still have filing obligations to nominate amongst others a designated filing entity in another Member State or a third country, for the latter entity to be able to file a ‘top-up tax’ information return. It should be noted that during this transitory period, these ultimate parent entities that fall within scope may be subject to the undertaxed payments rules in other jurisdictions ensuring that the minimum taxation is imposed regardless. Hence, such entities should take the necessary measures to evaluate tax optimised solutions to manage these new tax risks.

Should you require more assistance, please contact ARQ Group for a quick consultation to understand the impact of these rules on your business.