Over the last few months there have already been a number of legislative developments in connection with the global minimum tax under Pillar 2 all around the world. It is fair to say that Pillar 2 is increasingly gaining momentum and a critical mass of implementing jurisdictions could be reached in the foreseeable future. Germany is now the next country taking actions to implement Pillar 2 into domestic law. On 21 February 2023, the German Federal Ministry of Finance has published a draft law including explanatory comments.
Overall, the draft law is in line with the Pillar 2 Model Rules as published by the OECD/Inclusive Framework and the EU Council Directive (2022/2523). As such, many aspects of the draft law will already be familiar to interested parties. The draft law contains the relevant provisions for calculating the GloBE Income (or Loss) and the Adjusted Covered Taxes to determine whether a jurisdiction’s Effective Tax Rate is below the Minimum Rate of 15%. If that is the case – and depending on the individual group structure – the draft law also provides for the charging mechanisms to levy the corresponding Top-up Tax under the Income Inclusion Rule (IIR) (in German so-called ‘Primärergänzungssteuer’) or Undertaxed Profits Rule (UTPR) (in German so-called ‘Sekundärergänzungssteuer’). In addition, Germany also intends to introduce a Domestic Minimum Top-up Tax (DMTT) (in German so-called ‘nationale Ergänzungssteuer’) to collect any Top-up Tax resulting from potentially low-taxed Constituent Entities in Germany.
The IIR and DMTT will apply to fiscal years beginning after 30 December 2023. The UTPR will follow one year later and will start applying to fiscal years beginning after 30 December 2024.
The following points of the draft law are particularly worth highlighting:
Interested parties are invited to submit comments to the German Federal Ministry of Finance via email by 21 April 2023.
Please do get in touch with us if you would like to discuss the draft law in further detail and assess how Pillar 2 may impact your organization.
We would also like to highlight our monthly Baker McKenzie “Planning for Pillar 2” webinar series where we regularly take a deep dive into specific Pillar 2 topics. The registration link to these webinars can be found here.
Dr. Thomas Schänzle is co-head of the German Tax Practice Group. He has extensive experience in providing tax advice to German and foreign multinationals on complex domestic and international corporate tax issues with strong focus on deal related tax structuring and internal optimized group reorganizations. Thomas joined Baker McKenzie in April 2018 after having held the position as International Tax Partner at PwC for 6 years. He holds a diploma in International Business Administration from the European Business School (ebs) and is a certified German tax advisor since 2001. On top of that, Thomas holds a PhD in International Taxation and a Certificate in International Accounting (CINA). Thomas has published numerous tax articles during his professional career and is a frequent speaker at national and international tax conferences and, inter alia, a member of the Tax Committee of Frankfurt’s Chamber of Commerce and IFA.
Hans-Martin Eckstein joined Baker McKenzie on 1 September 2021. He was a tax partner with pwc for a total of 23 years until 30 June 2021, with an interim three-year stint at a German multidisciplinary firm as a partner. He is a tax advisor and certified accountant in Germany and has practiced international tax for more than 36 years. In the course of his career Hans-Martin has worked several years in pwc’s New York office, where he led the German tax desk and the European tax group, and he led pwc’s global and German M&A Tax practices for three years. Lately he served as a Lead Tax Partner for several German multinational groups, both public – Dax 30 – and privately held. In addition he currently chairs the tax committee of the German Institute of Public Accountants, is member of the tax committee of the Chamber of Public Accountants, of the Chamber of Tax Advisors, of the tax committee of Schmalenbach-Gesellschaft für Betriebswirtschaft and of the German branch of the International Fiscal Association.
Konstantin Sakuth is a member of the Transfer Pricing team in the Dusseldorf office of Baker McKenzie. Prior to joining Baker McKenzie in February 2021, he worked in the tax practice of a major international law firm for more than three years.
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