In our previous article, the Council of the EU unanimously adopted the directive’s compromise text of 25 November 2022, with a Council statement stressing the EU’s commitment to Pillar 1. As part of a larger political deal, all Member States voted in favor with one Member State abstaining.

In addition, it was agreed that the Commission will have to report to the Council on the progress on Pillar 1 by June 2023. If appropriate, the Commission will have to submit a legislative proposal by the end of 2023 to address the tax challenges arising from the digitalization of the economy, if there is no agreement on Pillar 1. This entails that the proposal for an EU digital levy could be revived in the absence of an agreement on Pillar 1.


The OECD's Pillar Two seeks to enforce a global minimum corporate income tax at an effective rate of 15% for large groups globally. Based on the directive, the EU member states will apply the minimum taxation to multinationals or domestic groups that meet the EUR 750 million annual turnover threshold. 

The EU directive is largely aligned with the OECD’s model rules released in December 2021 (see our prior tax flash for further details) and agreed upon by approximately 140 countries. Some EU-specific deviations were introduced to ensure compliance with EU treaties (see our prior tax flash on the EU directive proposal).  

Some transition rules would, in principle, have effect as from December 2021. These notably concern (i) the treatment of restructurings between December 2021 and the first year in which an MNE group falls in the scope of Pillar Two, (ii) the initial deadline for Pillar Two filing obligations, and (iii) an optional progressive entry into force of the rules. 

Preparing for Pillar Two

Below we list a non-exhaustive selection of action points for large groups:

  • Check whether your group is expected to be in scope of Pillar Two rules or whether your group may be in scope in the future. In both cases, the transition rules already apply.
  • Start modelling the impact of the rules to identify red flags and action points.
  • Identify the items in the transition rules that require attention. Such items, for instance, include recognition or exclusion of certain existing tax attributes, such as tax losses, as well as the Pillar Two effect of business restructurings taking place during the current transition period.
  • Pillar Two rules are intrinsically linked to accounting standards. Start organizing significant data gathering.
  • Prepare for the additional compliance burden as a result of the Pillar Two rules and check whether there is sufficient budget available to bear this burden.

Next steps

Once the EU has formally approved the directive, member states will have a year to adopt legislation and guidance before the entry into force of the “income inclusion rule” and (optionally) the “Qualified Domestic Minimum Top-up Tax” for tax years starting on or after 31 December 2023. The backstop rule – the “undertaxed profit rule” – is still expected to enter into force one year later.

The directive does not solve every open question. For example, the European Commission will be in charge of determining what foreign tax regimes are equivalent to the IIR – based on the framework, it can be expected that GILTI in its current version would not qualify. Taxes paid under the US GILTI rules may be considered as taxes paid under CFC rules for Pillar Two purposes, based on which taxes levied under GILTI are to be taken into account for calculating the relevant ETR. The question is then how to allocate the GILTI taxes to specific jurisdictions.

Our Pillar Two team is available to support you in analysing and modelling the impact of the Pillar Two rules on your group, assisting you in setting up compliance processes and exploring ways to mitigate increased taxation and complexity.

Should you have any question in the meantime, please contact a member of our Pillar Two team or your regular trusted contact at Loyens & Loeff.