Trade Publication Article

Brief Overview of What the Pillar Two Directive Means for Multinational Companies

Valeteau, Mathieu, Nader, Reza, Tristram, Jean-Baptiste, Waxman, Amir-Kia

2024

Overview

Furthermore, it seems that the Pillar Two Directive also refers to guidance the OECD has not yet released: \"[f]urther guidance to be developed in the OECD's GloBE Implementation Framework will be a useful source of illustration\" in Recital 22; and, in Recital 24, as follows: [In implementing this Directive, Member States should use the OECD Model Rules and the explanations and examples in the Tax Challenges Arising from the Digitalisation of the Economy-Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two) released by the OECD/G20 Inclusive Framework on BEPS, as well as the GloBE Implementation Framework, including its safe harbour rules, as a source of illustration or interpretation in order to ensure consistency in application across Member States to the extent that those sources are consistent with this Directive and Union law. Additionally, the Council of the European Union recently recognized \"the need to ensure consistency with the [OECD Model Rules] when applying the Pillar Two Directive by Member States in order to avoid non-alignment or applicability of diverging standards\" The Council of the European Union indicated that it: [r]ecalls that the recitals of the Pillar Two Directive refer to the use of the guidance developed by the Inclusive Framework as a source of illustration or interpretation, and notes the intention of the EU Member States to follow this guidance when transposing the Pillar Two Directive into their national law in order to avoid divergences and inconsistencies in interpretation of the provisions of that Directive. [...]the legal force of the recitals of the Pillar Two Directive is open to question, given that it is settled case law (at the European level) that if a recital \"may cast light on the interpretation to be given to a legal rule, [it] cannot, since it has no binding legal force of its own, constitute (...) a rule\" The EU Court of Justice (CJEU) concluded on this point that: [t]he preamble to an EU act has no binding legal force and cannot be validly relied on either as a ground for derogating from the actual provisions of the act in question or for interpreting those provisions in a manner clearly contrary to their wording.® Since EU member states must transpose the Pillar Two Directive into their domestic laws, a question arises concerning the hierarchy of standards if an EU member state-relying on the Pillar Two Directive recitals-decides to incorporate the OECD guidance and commentaries published after the Pillar Two Directive into its domestic law, which would go beyond the rules the Pillar Two Directive provides for. [...]the preparatory work of the French Finance Bill for 2024, adopted on December 29, 2023, which transposed the Pillar Two Directive into French law, stated that the bill's purpose was to [t]ranspose [the Pillar Two Directive] in the light, where appropriate, of the comments and administrative guidance adopted by the OECD/G20 Inclusive Framework, including after the [Pillar Two Directive]'s publication.\" Since EU member states' domestic laws must comply with both primary and secondary EU law, taxpayers should contemplate their interest in challenging domestic rules that follow the content of the most recent OECD work on Pillar Two but that might conflict with the Pillar Two Directive.

• Publisher: Tax Executives Institute, Inc
• Subject: Case law / Councils / EU directives / Fiscal years / Legislation / Multinational corporations / Tax reform / Taxation