[World Tax News] Netherlands Publishes Guide on Minimum Tax Act 2024 Implementing Pillar 2 Global Minimum Tax and More

Editorial Team – [2024] 158 taxmann.com 319 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Netherlands publishes guide on Minimum Tax Act 2024 implementing Pillar 2 Global Minimum Tax

The Minimum Tax Act 2024 guide has been released by the Dutch Tax Administration, aligning with the Council Directive (EU) 2022/2523 of December 14 2022, which came into effect on December 31 2023.

This guide outlines the implementation of the Pillar 2 global minimum tax and includes information on:

(a) There is an obligation to file an extra tax information declaration annually unless submitted in another country and exchanged with the Netherlands, in which case a notification is mandatory. The notification is expected within 15 months after the conclusion of the reporting fiscal year, except for the initial year, for which an 18-month window is allowed (due by June 30 2026, for the initial reporting fiscal year spanning from January 1 to December 31 2024).

(b) The requirement is to file an additional tax return and make payment if additional tax is owed. The return and payment deadline is 17 months after the end of the reporting fiscal year, with an extended period of 20 months allowed for the initial year.

(c) An overview of the operational framework of the Minimum Tax Act 2024, encompassing:

i. Scope of the Minimum Tax Act 2024: The act generally covers group entities, including permanent establishments, of both multinational and domestic groups whose consolidated annual revenue is at least EUR 750 million.

ii. Qualifying Income Criteria: It requires in-scope groups to assess, for each country of operation, whether the effective tax rate is below 15%. Effective tax rate is calculated as taxes divided by net qualifying income (briefly explained in the guide), multiplied by 100%.

iii. Taxes Considered: This encompasses all taxes on income and/or profits. It considers both current and deferred taxes, with certain adjustments.

iv. Additional Tax Calculation: This involves determining the effective rate and subtracting it from the 15% minimum rate to find the additional tax rate. It establishes excess profit by subtracting excluded income based on real economic presence from net qualifying income.

v. Levying Additional Tax with Examples: Once the amount of additional tax is determined, it is imposed through three distinct measures Qualified Domestic Minimum Top-Up Tax (QDMTT), Income Inclusion Rule (IIR), and Under taxed Profit Rule (UTPR)

Beyond this, the guide also addresses various temporary and permanent safe harbor rules that in-scope groups may adopt to alleviate administrative complexities.

Source: Minimum Tax Act

2. South Korea amends pillar two legislation to incorporate administrative guidance from the OECD

South Korea released Law No. 19928, a partial amendment to the International Tax Adjustment Act. These revisions specifically pertain to the Pillar 2 global minimum tax regulations introduced by South Korea as part of its 2023 tax reforms. The amendments involve incorporating the most recent administrative guidance from the OECD regarding implementing the Pillar 2 rules.

Previously, South Korea has notified implementation of new global minimum tax (GloBE) rules in line with pillar 2 of the OECD two-pillar solution with effect from 01-01-2024.

The GloBE rules typically pertain to the primary entity within a relevant Multinational Enterprise (MNE) group, holding accountability for all constituent entities with low tax rates. In cases where the parent entity isn’t subjected to a supplementary tax via an Income Inclusion Rule (IIR), the responsibility then transfers to the subsequent intermediate parent entity that is subject to an IIR.

Source: Law No. 19928

3. EU General Court dismisses challenge to the Global Minimum Tax Directive on the grounds of insufficient individual concern

The General Court of the EU has issued an order pertaining to a case (Case T-144/23) initiated by Fugro NV, headquartered in Leidschendam (Netherlands). Fugro sought the partial annulment of the EU Global Minimum Tax Directive, Council Directive (EU) 2022/2523, dated December 14 2022, citing conflicts with EU-approved shipping and tonnage tax regimes.

In its order dated December 15, 2023, the General Court ruled that the action was to be dismissed as inadmissible. This decision was based on the determination that Fugro lacked standing, as it would not be individually affected by the Directive due to the exclusion of shipping income.

Source: Order of the General Court