In recent years, countries have debated significant changes to international tax rules affecting multinational companies. In October 2021, after negotiations at the Organisation for Economic Co-Operation and Development (OECD), more than 130 member jurisdictions agreed to an outline for new tax rules. Pillar Two introduces the global minimum taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. with an effective tax rate of 15 percent (increasing tax revenues by an estimated $220 billion, globally).
Pillar Two includes three main rules that establish the global minimum tax: The first is a qualified domestic minimum top-up tax (QDMTT), which countries could use to claim the first right to tax profits currently being taxed below the minimum effective rate of 15 percent. The second is an income inclusion rule (IIR), which determines when the foreign income of a company should be included in the taxable income of the parent company. When a company’s effective tax rate falls below 15 percent , additional taxes would be owed in its home jurisdiction.
The third rule in Pillar Two is the undertaxed profits rule (UTPR), which would allow a country to increase taxes on a company if another related entity in a different jurisdiction was being taxed below the 15 percent effective rate. If multiple countries apply a similar top-up tax, the taxable profit would be divided based on the location of tangible assets and employees.
Together, the domestic minimum tax, income inclusion rule, and undertaxed profits rule create a minimum tax both on companies investing abroad and foreign companies investing domestically. They are all tied to the minimum effective rate of at least 15 percent and would apply to each jurisdiction in which a company operates.
The EU Directive on Pillar Two obliges Member States with more than 12 in-scope multinational groups to implement the IIR starting 31 December 2023, and the UTPR starting 31 December 2024. Member States with fewer than 12 in-scope multinational groups can elect to defer implementing both rules for six years under Article 50 of the Directive.
2024 Data
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Pillar Two Implementation in Europe, 2024
Implementation of Pillar Two rules in 35 Major European Countries, 2024
| Country | Joined the Pillar Two Statement | Income Inclusion Rule (IIR), | Undertaxed Profits Rule (UTPR) | Qualified Domestic Minimum Top-up Tax (QDMTT) | Details |
|---|---|---|---|---|---|
| Austria | Yes | Yes | No | Yes | QDMTT+IIR |
| Belgium | Yes | Yes | No | Yes | QDMTT+IIR |
| Bulgaria | Yes | Yes | No | Yes | QDMTT+IIR |
| Croatia | Yes | Yes | No | Yes | QDMTT+IIR |
| Cyprus | No | No | No | No | Draft law provides for IIR implementation in 2024 but is not yet enacted. |
| Czech Republic | Yes | Yes | No | Yes | QDMTT+IIR |
| Denmark | Yes | Yes | No | Yes | QDMTT+IIR |
| Estonia | Yes | No | No | No | Six-year deferral under Article 50. |
| Finland | Yes | Yes | No | Yes | QDMTT+IIR |
| France | Yes | Yes | No | Yes | QDMTT+IIR |
| Georgia | Yes | No | No | No | No public intention announced. |
| Germany | Yes | Yes | No | Yes | QDMTT+IIR |
| Greece | Yes | Yes | No | Yes | QDMTT+IIR |
| Hungary | Yes | Yes | No | Yes | QDMTT+IIR |
| Iceland | Yes | No | No | No | Public consultation to implement QDMTT and IIR from 2025. |
| Ireland | Yes | Yes | No | Yes | QDMTT+IIR |
| Italy | Yes | Yes | No | Yes | QDMTT+IIR |
| Latvia | Yes | No | No | No | Six-year deferral under Article 50. |
| Lithuania | Yes | No | No | No | Six-year deferral under Article 50. |
| Luxembourg | Yes | Yes | No | Yes | QDMTT+IIR |
| Malta | Yes | No | No | No | Six-year deferral under Article 50. |
| Moldova | No | No | No | No | No public intention announced. |
| Netherlands | Yes | Yes | No | Yes | QDMTT+IIR |
| Norway | Yes | Yes | No | Yes | QDMTT+IIR |
| Poland | Yes | No | No | No | Deferral of all rules until 2025. |
| Portugal | Yes | No | No | No | Draft law provides for QDMTT and IIR implementation in 2024 but is not yet enacted. |
| Romania | Yes | Yes | No | Yes | QDMTT+IIR |
| Slovakia | Yes | No | No | Yes | Selective implementation of QDMTT. Six-year deferral of other rules under Article 50. |
| Slovenia | Yes | Yes | No | Yes | QDMTT+IIR |
| Spain | Yes | No | No | No | Draft law provides for QDMTT and IIR implementation in 2024 but is not yet enacted. |
| Sweden | Yes | Yes | No | Yes | QDMTT+IIR |
| Switzerland | Yes | No | No | Yes | QDMTT |
| Turkey | Yes | Yes | No | Yes | QDMTT+IIR |
| Ukraine | Yes | No | No | No | No public intention announced. |
| United Kingdom | Yes | Yes | No | Yes | QDMTT and IIR implemented. No commencement date for UTPR set so far. |
Eighteen of the 27 Member States of the European Union have implemented both the IIR and the QDMTT in 2024, while nine have not.
Five EU Member States can opt for a six-year deferral of Pillar Two implementation, and all of them have done so, with Estonia, Latvia, Lithuania, and Malta deferring all rules until 2029, while Slovakia selectively implemented only a domestic top-up tax in 2024.
Four other EU Member States—Cyprus, Poland, Portugal, and Spain—have not implemented Pillar Two rules despite obligations to do so under the EU Directive. Poland deferred the implementation of QDMTT and IIR by one year, to 2025. Cyprus, Portugal, and Spain have published draft laws providing for the implementation of an IIR in 2024 (and QDMTTs, except for Cyprus), but these laws have not been officially enacted yet.
Among eight major European countries outside of the European Union, only Norway, Turkey, and the United Kingdom have implemented both a QDMTT and an IIR in 2024. In Norway and Turkey, a UTPR is set to apply in 2025, while the UK has not announced a commencement date. Switzerland implemented a QDMTT in 2024 but has not set a date for either an IIR or a UTPR. Iceland is undergoing public consultation to implement a QDMTT and an IIR in 2025, with no statements regarding a UTPR. Georgia, Moldova, and Ukraine, the latest candidates for EU accession, have not publicly announced intentions to implement any Pillar Two rules.
In contrast to many European countries, the US has chosen not to implement changes in line with the global tax deal. Tax treaty ratification requires 67 votes in the Senate, making the adoption without broad, bipartisan support in the US challenging. Pillar Two poses multiple risks to the US tax base: recent guidance on Pillar Two means that US global intangible low-taxed income (GILTI) would apply after foreign minimum taxes, reducing US tax revenues from the tax on GILTI. Further, the application of IIRs may tax US income of multinational companies, while the application of a UTPR would even tax US companies on US income.
Since extraterritorial taxation measures like the IIR and UTPR can risk tax and trade disputes, European countries that negotiate free trade agreements on their own, rather than as part of a larger trading bloc, face stronger incentives to avoid measures that could provoke retaliation.
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