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EU watch: pillar two

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When the French Finance Minister Bruno Le Maire announced in January that the EU Council would aim for an agreement by 15 March 2022 on the European Commission’s Directive implementing the OECD’s pillar two (minimum tax), many were sceptical about its chances. And indeed, the 15 March meeting of EU finance ministers came and went without an agreement being reached. Still, the amount of progress achieved in just under two months is impressive, and the French Council presidency will give it another shot at the 5 April finance ministers’ meeting.

Ahead of the meeting, the Council published a compromise text on which the finance ministers were invited to adopt. Le Maire opened the discussion by describing the main features of the compromise, aiming to address concerns expressed in January by a few EU member states:

  • The ambitious timeline: both the transposition and application deadlines have been extended to 31 December 2023, as opposed to the original 31 December 2022 deadline for transposition and 1 January 2023 deadline for application of the rules proposed by the Commission.
  • The mandatory application of the income inclusion rule (IIR): those EU countries with less than ten entities affected by the minimum tax threshold may opt out of applying IIR for a period of five years.
  • The link with pillar one: the Council would issue a separate statement reiterating their commitment to both pillars and insisting that they are part of a package.

However, for some EU countries, not enough compromises were made and they refused to support the text:

  • Sweden welcomed the extended timeframe but said that its parliament needs more time to study the proposal.
  • Poland continued to insist on the need to align the work and timelines of both pillars.
  • Malta called for an even longer timeframe for non-application of the IIR as well as an increase to the ten entities threshold.
  • Estonia insisted that more ‘technical work’ is still needed, although says the Council is now ‘very close’ to a final agreement.

Cyprus, for its part, said that the IIR should be mandatorily applicable throughout the whole EU to preserve the integrity of the single market. Although this implies that Cyprus opposes the five-year IIR exemption, it was not immediately clear whether it was actually rejecting the compromise text.

Despite this expected setback, it is nonetheless a significant achievement of the French presidency of the Council and the diplomats who have been negotiating and working hard in a very short timeframe. While member states’ differences remain, they are visibly reduced from those in January. Notably, Hungary – which opposed the Directive in January and, together with Poland, called for a link with pillar one – is now in favour of the compromise text.

So, all eyes are now on the 5 April ECOFIN meeting, where finance ministers will be invited to adopt a further amended compromise text.  

Issue: 1569
Categories: In brief