On 28 October 2024, the EU Commission (“EC”) introduced a proposal to amend Directive 2011/16/EU on administrative cooperation in the field of taxation (“DAC”) to ease the exchange for Pillar Two information returns within the EU (the “EC Proposal”).
Background
On 20 December 2021, the OECD and G20 Inclusive Framework on Base Erosion and Profit Shifting had issued Model Rules for the implementation of Pillar Two designed to guarantee a minimum level of taxation of a multinational enterprise (“MNE”) group.
On 14 December 2022, Directive 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (the “Pillar Two Directive”) was adopted. This Directive is based on the OECD Model Rules and had to be transposed by EU Member States by 31 December 2023.
Article 44 of the Pillar Two Directive addresses reporting obligations and provides that each constituent entity of an MNE or domestic group must file a Top-up Tax information return with its local tax authorities. As an exception, the Ultimate Parent Entity (“UPE”) or a designated constituent entity, can file a single information return for the entire group under the condition that an agreement for the exchange of information is in place between the jurisdictions where the MNE group is established. According to the EC, the latter reporting procedure relying on a single point of filing is expected to be the main approach adopted by groups in scope of Pillar Two.
On 17 July 2023, the OECD released the GloBE Information return (“GIR”), a standard template for Pillar Two reporting, with an updated version released on 15 January 2025.
At Luxembourg level, the Pillar Two Directive has been transposed by the law of 20 December 2023 introducing a Top-up Tax, an undertaxed profits rules and a qualified domestic Top-up Tax as well as the reporting obligations foreseen by the Pillar Two Directive. This law has been updated by the law of 20 December 2024 to include subsequent OECD guidance and set the GIR as applicable reporting format.
Update to the DAC
The aim of the EC Proposal is to update the DAC to provide for the exchange of information of the Top-up Tax information return within the EU, thus making operational within the EU the possibility for a single information filing provided by Article 44 of the Pillar Two Directive (see above). The exchange of information with non-EU countries remains subject to the entry by each EU Member State into a relevant agreement (models of bilateral and multilateral agreements being developed at OECD level).
The Top-up Tax information return will be prepared under the format agreed by the Inclusive Framework, the GIR which would be an Appendix to the DAC. In addition, the possibility will be granted to the EC to take further procedurals acts to maintain the reporting format in line with potential developments at the level of the Inclusive Framework.
The filing deadlines provided by the Pillar Two Directive remain unchanged for relevant groups (see our previous newsflash in that respect) (as a reminder, the Top-up Tax information return should be filed within 15 months after the last day of the fiscal year (extended to 18 months for the first fiscal year).
The Member State receiving the Top-up Tax information return (i.e., Member State of the UPE or of the designated constituent entity) would exchange information with relevant Member States within 3 months (6 months for the first year) after the deadline to file the information return.
On the level of exchange, the EC Proposal adopts the “dissemination approach” as approved by the OECD, under which (i) the Member State of the UPE receives the entire Top-up Tax information return, (ii) Member States having a qualified IIR and/or UTPR receive the full general section, (iii) Member States having a QDMTT receive parts of the general section and (iv) Member States having taxing rights under the Pillar Two Directive receive jurisdictional sections.
Transposal
Once approved at EU level, the EC Proposal should be implemented by EU Member States by 31 December 2025.
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