A leading German business association has urged the suspension of the EU Directive related to Pillar 2, which establishes an overall 15% minimum tax for multinationals. This request reflects concerns about the effects of such a regulation on the competitiveness and tax burden of European companies.
Background
Pillar 2 is an initiative promoted by the Organization for Economic Co-operation and Development (OECD) to ensure that large multinational corporations pay a minimum of 15% in taxes, regardless of the location. The European Union adopted this proposal through Directive (EU) 2022/2523, which requires member states to implement it in their national legislation.
German Business Concerns
The German business association argues that implementing the Pillar 2 Directive could:
- Increase the tax burden: Companies could face higher taxes, affecting their profitability and investment ability.
- Reduce competitiveness: Companies could face disadvantages due to this minimum tax before competitors who do not implement this measure.
- Generate administrative complexity: Adapting to new tax regulations could entail additional costs and operational challenges.
The BDI (Bundesverband der Deutschen Industrie – Federation of German Industries) Proposes:
- To suspend the EU Pillar 2 directive temporarily to avoid immediate detrimental effects.
- To extend the transitional exemption from the under-taxed profits rule (UTPR) to reduce its effects on U.S. companies and minimize retaliation.
- To pressure the OECD to simplify the global minimum tax rules further and extend the exemptions.
Reactions in Other EU Countries
Implementing European directives related to business taxation and regulation has been questioned several times. For example, France has proposed suspending specific EU directives to simplify for businesses.
Implications for Multinational Enterprises
The possible suspension or amendment of the Pillar 2 Directive in Germany could have several consequences:
- Tax uncertainty: Companies could face an uncertain tax landscape, hindering strategic planning.
- Competitive inequality: If some countries implement the directive and others do not, there could be disparities in tax burdens among companies in different countries.
- Re-evaluation of strategies: Multinationals could reconsider their corporate structures and investment strategies depending on the tax policies of each country.
Conclusion
The German business association’s request to suspend the EU Pillar 2 Directive highlights the tensions between international tax harmonization and local competitiveness and tax burden concerns. Businesses need to keep informed and prepared to adapt to possible changes in the European tax environment.
Keep Informed!
Due to the constant evolution of tax regulations, multinational companies must consult with international tax experts to ensure compliance and optimize their tax planning.
Source: TaxNotes / EUR-Lex