A Draft Law securing a global minimum level of taxation for MNE (multinational enterprises) and large-scale domestic groups in the EU was issued in Luxemburg on August 4th, 2023, transposing at national level Council Directive (EU) 2022/2523 (14.12.2022) which secures the application implements “Pillar Two” addressing tax issues arising from the digitalisation of the economy and the Implementation Plan (2021) also known as the “GloBE” rules (Global Anti-Base Erosion / BEPS).

Pillar Two secures the payment of a minimum amount of tax by large-scale internationally operating businesses regardless of headquartered or jurisdiction, and secures a global minimum corporate tax of 15% using an effective tax rate test calculated on a jurisdictional basis and using a common definition of relevant taxes and a tax base determined by reference to financial accounting income.

This minimum tax is to apply to MNE and/or large-scale domestic groups with an overall annual turnover superior to € 750 million, and is to be implemented via three new Luxembourg taxes, with the first two applying as of December 31st 2023 and the last one as of December 31st 2024 :

-The IIR (income inclusion rule) secures a minimum tax at the level of the parent entity in proportion to its ownership interests in entities that have low-taxed income.

-The UTPR (undertaxed payments rule) operates as a protection to the IIR.

-The QDMTT (qualified domestic top-up tax) will tax low-taxed entities based in Luxembourg and prevent the application of IIR and UTPR rules by other jurisdictions to the entities.