The vote to transpose bill 8292 transposing Council Directive 2022/2523 of 14 December 2022 to ensure a worldwide minimum level of taxation for multinational enterprise groups and large domestic groups within the European Union was not a foregone conclusion.
Not on the substance, where everyone agreed on the need to ensure a minimum level of taxation for multinationals.
As background, on 8 October 2021, as part of the Beps initiative (the fight against base erosion and profit shifting, or Beps) led by the OECD, 136 countries reached agreement on the taxation of multinational companies. The agreement has two parts--or two pillars.
The first pillar aims to tax the profits of multinationals not in their countries of origin, but in the countries where they operate and make those profits. Multinational companies with global sales of more than €20bn and a profitability of more than 10% are targeted here. The second pillar introduces a worldwide minimum level of taxation of 15% of the profits of multinational companies and large national groups with consolidated sales of €750m or more. It is this pillar that has been formalised in the EU by Directive 2022/2523. This directive had to be transposed into national tax legislation by 31 December 2023 at the latest.
A “cash register” parliament
What bothered MPs was the timing. The finance committee took up the dossier on 5 December and the state council, or Conseil d’État, issued its opinion on 12 December.
The bill’s rapporteur, (CSV), questioned the relevance of a fast-track debate in the committee on 5 December, saying that “parliament should have the time it needs to work conscientiously on this issue.” Finance minister (CSV), who called it a “major and technically complex issue,” took the same line, expressing a preference for the text to come into force in 2024, even if the provisions were to apply retroactively.
In the end, the Chamber of Deputies voted in favour of bill 8292 on 20 December. The question of the role of national parliaments in the European legislative system will be deferred until a later date. Legally speaking, a directive is not a fixed text to be taken or left like a regulation. There should be room for national parliaments to inject their input into the text. This will not be the case today. Much to the regret of Mosar, who denounced the role of “cash register” left to the Chamber of Deputies, in a general context where European texts are becoming increasingly technical. Not to mention incomprehensible...
Two new taxes in Luxembourg’s toolbox
In concrete terms, in order to establish a minimum worldwide tax rate of 15% on the profits of multinationals, the Luxembourg law is introducing two new taxes based on the application of two interdependent rules: the income inclusion rule (IIR) and the rule relating to insufficiently taxed profits (RBII). From now on, if a group of companies, whose registered office is in Luxembourg, does not reach a minimum level of taxation of 15% in a given jurisdiction, then Luxembourg will levy an additional ‘top-up’ tax on the the parent company, the IIR, corresponding to the difference between the minimum rate of 15% and the effective rate applied to the low-taxed constituent entities located in that jurisdiction.
If the head office of a group of companies is located in a jurisdiction that does not apply the income inclusion rule, then the Luxembourg-based entities of that group (regardless of whether they are low-taxed or not) must pay an additional tax, the RBII, corresponding to the difference between the minimum rate of 15% and the effective rate applied to all the low-taxed entities of that group for which an RIR does not apply.
It is understood that the jurisdictions of the low-taxed constituent entities have the right to apply a minimum tax rate of 15% to them as a matter of priority, before Luxembourg applies the IIR or the RBII to the groups or constituent entities located on its territory. This concerns the application of a qualified complementary national tax.
See you in 2024 for clarification and in 2025 for pillar 1
With regards to the effectiveness of this measure in combating tax evasion by multinationals or the impact on Luxembourg’s tax revenues, there have been no answers. All the more so as the technical work carried out within the OECD to clarify the applicable accounting rules and taxation criteria has not yet been finalised. This means that the law adopted today will have to go back to the MPs very soon.
As for the provisions relating to pillar 1, they should apply at the beginning of 2025.
This article was first published in French on . It has been translated and edited for Delano.