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Vergide Gündem
Mirna Vlahovic
Güray Ilman

Navigating national developments
and differences in a global framework:
Implementation of the OECD’s Pillar II rules
across jurisdictions

The Pillar II initiative of the Organization for Economic Cooperation and Development
(“OECD”), a key component of its Base Erosion and Profit Shifting (“BEPS”) 2.0 project,
has brought significant changes to the global direct tax landscape. The initiative aims
to prevent tax base erosion and profit shifting by ensuring that large multinational
enterprises (“MNE”) pay a minimum effective tax rate (“ETR”) of 15% in each
jurisdiction they operate in. It does so by introducing Global Anti-Base Erosion Model
Rules (“GloBE”).

It should be noted, however, that, although the OECD member states and members of
the OECD Inclusive Framework might have participated in the development of GloBE
8
Rules, they are not obliged by OECD as a multinational organization to adopt them
into their legislation, since OECD has no such authority. Nevertheless, if the members
of the Inclusive Framework decide to implement global minimum tax in their respective
legislations, they have committed to follow the common approach defined in the GloBE
Rules. Hence, it is clear that, by establishing the global minimum tax rate of 15% and
defining a common approach in minimum corporate taxation, Pillar II represents a step
further in the global harmonization of direct taxes.

An even more advanced approach to harmonization of direct taxes is present in the
European Union (“EU”). Namely, while the OECD cannot force its member states to
implement the GloBE Rules into their national legislations, by mirroring the GloBE Rules
into the EU Directive 2022/2523 (“Pillar II Directive”), which is binding for EU Member
States, the European Union has ensured that the global minimum corporate tax of 15%
is implemented across the EU, with the exception of a few smaller EU Member States
9
which are entitled to delay the implementation. It should also be noted that, while the
OECD GloBE rules are restricted to groups with foreign subsidiaries and/or branches
(“MNE”) which exceed the consolidated revenue threshold of EUR 750m, Pillar II
Directive applies also to large-scale domestic groups, where all group members are
present in the same EU Member State.

Additionally, building on the rules from the Pillar II Directive, and aiming for even higher
level of harmonization in the field of direct taxation, in 2023 the European Commission
has adopted a new proposal for a new legislative framework for corporate taxation in
the EU – the so-called BEFIT (Business in Europe: Framework for Taxation). The goal is
to simplify tax rules and compliance in the EU, as the constituent entities of the same
MNE group would calculate their corporate tax base in accordance with a common set
of rules (which are already defined in the Pillar II Directive), regardless of the fact that
the constituent entities are tax residents in different jurisdictions (which have their own
rules for determining corporate tax base). The tax bases of all members of the group
would then be aggregated into one single tax base and, afterwards, each constituent
entity would be allocated a percentage of the aggregate MNE group’s tax base, to be
adjusted following the national tax rules of the respective EU Member State where the
MNE group member is tax resident.

8 More than 140 countries have participated in the negotiations around development of the rules.
9 Estonia, Latvia, Lithuania, Malta and Slovakia.
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