OECD Pillar II: Draft Directive of the EU Commission on Global Minimum Taxation of 15%


Dr. Christoph Schimmer, MSc

Dr. Christoph Schimmer, MSc

CV | E-Mail

On 22 December 2021, the European Commission published a draft directive implementing a global minimum taxation for multinational groups of companies in the European Union (EU), which provides for rules under which groups of companies operating in the EU will be taxed with a global minimum tax rate of 15%.

The draft guideline goes back to the Pillar II regulations developed by the OECD, which were published on 20 December 2021. These in turn represent an extension of the OECD BEPS Project 2015. Together with the OECD work under the name Pillar I, which is aimed at the (re)allocation of taxation rights, these initiatives are intended to combat the existing problems in connection with BEPS (Base Erosion and Profit Shifting).

Most recently, a commentary by the OECD on the GloBE regulations was published on 14 March 2022 with application examples for the Globe Anti-Base Erosion (GloBE) regulations. According to the current status, the GloBE regulations are expected to come into force as of 1 January 2024 (see in detail below).

Scope of application

Groups of companies that are domiciled in an EU member state or are the ultimate group company, or have a subsidiary in an EU member state, are to be subject to the GloBE regulations if their consolidated financial statements show annual sales of EUR 750 million or more in at least two of the last four consecutive financial years. This turnover threshold is already decisive for the country-by-country reporting obligation.

The relevant source for the turnover threshold are the consolidated annual financial statements of the group of companies according to IFRS, according to recognised accounting standards of an EU/EEA member state or certain other countries.

The draft directive largely follows the OECD proposal. Unlike the OECD proposal, the draft directive also provides for the application of the Directive to domestic groups of companies with a corresponding turnover.

State-owned companies, international organisations, non-profit organisations and pension funds that are at the head of a group are not to be included in the scope of the regulations.

Income Inclusion Rule (IIR), Undertaxed Payments Rule (UTPR)

The draft directive essentially provides for two rules to be transposed into national law with the aim of achieving a global minimum taxation of 15% (together the Global anti-Base Erosion rules - GloBE):

  • the Income Inclusion Rule (IIR); and
  • the Undertaxed Payments Rule (UTPR)


The IIR has a similar effect to CFC rules and represents an additional tax (top-up tax), with which a minimum taxation level of 15% is to be achieved. The IIR is to be applied to profits of subsidiaries and permanent establishments if the ultimate parent entity is resident in an EU Member State or, in certain constellations, also to intermediate parent entities or partially-owned parent entities within the EU if the ultimate parent entity is resident in a third country. Under the IIR, the state of residence shall levy the top-up tax (simplified as the difference between the effective tax burden and the minimum tax rate of 15%) on the income of a constituent entity (affiliates or permanent establishments) at the level of the respective parent company if such constituent entity is subject to an effective tax burden of less than 15%.

Secondary to the IIR, the minimum tax level shall be ensured by applying the UTPR. This rule is applied if a minimum tax level of 15% is not achieved by applying the IIR, e.g. because the ultimate parent company is resident in a jurisdiction that has not implemented the IIR (in particular a third country). According to the UTPR, the top-up tax is levied in the states of residence of the constituent entities (subsidiaries or permanent establishments), whereby the allocation of the top-up tax is based on a certain key (relevant for this purpose are in particular the number of employees and the book values of the tangible assets).

In the OECD proposal, the IIR and the UTPR are accompanied by a subject to tax rule (STTR). The STTR is a provision of a double tax treaty (DTT) article that grants the source state extended taxation rights for certain payments that are not taxed in the state of the recipient. The draft directive does not contain any provisions on the STTR, as these are to be integrated by the EU Member States in their respective DTAs.

Determination of the Top-Up Tax

For the so-called constituent entities (companies and permanent establishments) of a group of companies falling within the scope of application, the basis of assessment (qualifying income) and the taxes attributable to the income determined (covered taxes) must be determined:

  • Qualifying income is determined on the basis of the accounting standard of the ultimate parent company (see above) and is to be adjusted according to the requirements of the draft directive (e.g. reduction of certain dividend income, neutralization of certain non-deductible business expenses). The calculation of income also applies in principle to permanent establishments; special rules apply to transparent partnerships.
  • Covered taxes are determined on the basis of a catalogue of tax types provided for in the draft directive. In turn, arithmetical adjustments are to be made (e.g. regarding deferred taxes), which results in adjusted covered taxes.


The effective tax rate is therefore determined by dividing the adjusted covered taxes by the qualifying income. The top-up tax is determined from the difference between the effective minimum tax rate (15%) and the effective tax rate of the respective country of residence. Substance-based income is excluded. For this purpose, an allowance based on wage costs and marketable assets is to be deducted for operationally active companies.

The top-up tax is then to be levied within the framework of the IIR at the level of the ultimate parent entity (Ultimate parent entity, intermediate parent entity or partially-owned parent entity) or - subsidiarily - within the framework of the UTPR at the level of the constituent entities.

The draft directive contains an exemption for states in which the groups of companies covered have a turnover of less than EUR 10 million and a profit of less than EUR 1 million.

Special regulations

In addition to the above-mentioned rules, the draft directive provides, among other things, for special rules in connection with mergers, acquisitions, joint ventures and multi-national groups of companies with several parent companies, as well as special rules for tax neutrality and distribution systems.

Substance to Tax Rule

In addition to the IIR and the UTPR, Pillar II also provides for a DTA clause (so-called Substance to Tax Rule - STTR). According to this, the source state is granted extended taxation rights. The draft directive does not contain any regulations on this. The STTR will have to be implemented by the states in the respective DTAs.


The draft directive must be adopted unanimously by the EU member states. The draft basically provides that the EU Member States undertake to transpose the Directive into national law by 31 December 2022 and to have it enter into force as of 1 January 2021. In March 2022, the ECOFIN decided to give the EU Member States until 31. December 2023 to transpose the Directive into national law. EU member states in which no more than 20 group headquarters are located are to be given the option not to apply the regulation in the period from 31 December 2023 to 31 December 2025.

Due to the complex regulations and the significant effects, it is advisable for multinational groups to deal with the GloBE regulations as early as possible and to carry out an analysis of the individual jurisdictions and subsidiaries and permanent establishments to be included. We would be happy to support you in this process.