Spain looks to enact 15% minimum global tax for large multinationals in the EU

The Council Directive (EU) 2022/2523 was introduced in December last year to ensure a global minimum level of taxation for multinational enterprises and large-scale domestic groups in the Union. The notion of a global minimum level of taxation for large multinational groups was approved as a result of the Organisation for Economic Co-operation and Development (OECD) commitment to adapt international tax regulations to the current reality. 

This commitment to global minimum-tax reform is structured around a two-pronged solution. Pillar 1 focuses on rules for taxing "residual profits", with a standardised formula to calculate the proportion of earnings taxable within each jurisdiction. Pillar 2 reviews the taxation levels borne by large-scale groups in each country and imposes a global minimum tax of 15% to discourage companies from shifting profits to lower-taxed jurisdictions.

Pillar 2 principles

Council Directive (EU) 2022/2523 implements the OECD Pillar 2 principles and was published in the Official Journal of the European Union on 22 December 2022. The approved text requires Member States to transpose the rules into domestic law by 31 December 2023.

The 15% minimum global tax is structured around two rules. The primary Income Inclusion Rule (IIR), by which the ultimate parent entity must calculate and collect the minimum tax with respect to its undertaxed subsidiaries. The defensive Undertaxed Profits Rule (UTPR), which ensures the collection of this minimum tax in cases in which the IIR cannot reach the ultimate parent entity. The UTPR ensures collection at the level of the corresponding subsidiary.

Member States should start applying the IIR for fiscal years beginning on or after 31 December 2023. The UTPR will be applied for fiscal years beginning on or after 31 December 2024.

The principles of minimum taxation will affect both national and multinational groups with a turnover, during two of the previous four tax periods, equal to or above €750 million. This threshold is therefore consistent with the threshold for the application of country-by-country reporting (CbCR) obligations.

Top-up tax calculations

The effective taxation level is calculated on a jurisdiction-by-jurisdiction basis. For the purposes of this tax, entities are "linked" to the jurisdiction where they are considered tax resident. The effective rate in each jurisdiction is obtained by dividing the aggregate taxes in that jurisdiction by the aggregate profits or losses of the corresponding group entities.

The starting point, therefore, is the financial statements for the corresponding entities established in accordance with the rules which apply to the group's consolidated financial statements. Accounting income or loss must then be adjusted (for example, to take into account the income tax expense). Tax-exempt dividends will not be adjusted from the profit or loss. In other words, the global minimum tax regulations respect the "participation exemption" incentives that exist in many EU jurisdictions.

If the result is below 15%, a jurisdictional top-up tax will be due, at a rate amounting to the difference between 15% and the effective rate. The top-up tax is then applied to the "excess" aggregate profit from each jurisdiction. In other words, the jurisdictional profit is reduced in an amount (the "substance-based income exclusion") that is based on the group's tangible assets or resources located in such jurisdiction.

'Safe harbour' arrangements and compliance

The directive also provides for an important exclusion: the group may elect to consider that the top-up tax in a jurisdiction is zero, provided certain "safe harbours" are met. The OECD has not yet defined the requirements for the permanent safe harbours, but it has agreed on a transitional safe harbour that will apply until 2026 and that is broadly based on CbCR information.

The top-up tax formal obligations have not yet been defined. Currently, the directive only provides that, in each jurisdiction, the group should appoint the entity which will file an aggregate return. This return will include identification of the group entities and their structure, as well as the information necessary to calculate the effective rate. This return can be filed in a jurisdiction provided the tax authorities of other jurisdictions are duly notified and there is a valid automatic exchange of information in force between these countries.

Returns should be filed within a period not exceeding 15 months from the end of the corresponding financial year. Exceptionally, the filing period corresponding to the first return for this top-up tax will be extended to 18 months. Since the first financial year where the top-up tax should apply would be 2024, the first return would be filed at the earliest during the first semester of 2026.

Delayed transposition?

In Spain, the corresponding draft law is currently pending preparation and publication. It is therefore doubtful whether, in view of the current political and electoral landscape, Spain will be able to comply with its obligations to transpose the directive. Note that Member States should enact the corresponding laws and regulations during 2023, to ensure their entry into force in 2024.