Pillar II news: global minimum tax from the perspective of Czech transposition (and more)

On 27 October 2023, the Chamber of Deputies approved the draft of the new Czech Top-Up Taxes Act (Parliamentary Document No. 515) in its third reading. Some minor legislative and technical changes were made to the final draft, as mentioned by the Minister of Finance in his summary and therefore were not submitted as (standard) amendments. The law is expected to be approved by the end of the year, taking effect on 31 December 2023.

The Top-Up Taxes Act serves as the transposition of EU Directive 2022/2523 on ensuring a global minimum level of taxation of multinational enterprise groups and large-scale domestic groups in the Union (the “Directive”). The Czech Republic will thus implement the OECD global rules, also known as Pillar II or the global minimum tax, into its legal system.

Let us note that the OECD has been working on the development of global rules for several years, gradually issuing various documents, administrative methodologies and templates on this issue. Most recently, for example, the Minimum Tax Implementation Handbook published in October, providing a concise overview of the new global rules in less than 30 pages, serving as a “crash course” before delving into the details of the hundreds to thousands of pages of other documents.

In the implementation and explanatory memorandum, the Ministry of Finance declared its intention not to deviate from the global rules in the Czech transposition or their implementation through the EU Directive. For a reminder of the development, refer to our previous article on this topic Global minimum tax: draft Czech legislation in the comment procedure.

Concerns have been raised within the professional community in EU member states regarding how the EU legal order will respond to further developments, documents and clarifications issued by the OECD in this area, given that the Directive has already been approved and is not expected to be amended with each new document issued by the OECD. In particular, the question arises whether only a partial reference to the OECD global rules in the Directive constitutes a sufficient legal framework for subsequent documents and methodologies issued by the OECD, such as administrative methodologies or the application of safe harbours.

During the last ECOFIN meeting on 9 November 2023, a statement was published in relation to Pillar II by the European Commission and the Council of the EU, in which the Commission stated that the subsequently issued OECD documents were compatible with the Directive and called on EU Member States to proceed rapidly with transposition into domestic law.

In the context of EU member states status of transposition, the draft Hungarian legislation has been awaited for quite a long time with regard to the level of the standard corporate income tax rate in Hungary and the definition of which Hungarian taxes will be classified as “included” in the meaning of the global rules. In the second half of October, a comment procedure took place and the relevant draft law (available in Hungarian only) was submitted to the Hungarian Parliament in early November.

Other countries outside the EU are also moving with greater or lesser speed to introduce global rules. You can keep up to date with the progress of implementation in individual countries on our global tax news website tax@hand. You can also find a new summary of country developments on our Pillar II platform.

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