Germany’s Notification Requirement
With the Pillar Two compliance deadline approaching in Germany, multinational enterprises (MNEs) must be aware of their reporting obligations under the Minimum Tax Act. This act requires MNEs within the scope of Pillar Two and operating in Germany to declare which German entity is the head of the minimum tax group by 28 February 2025 [1]. Even if the ultimate parent entity of the MNE is outside Germany, a designated German entity must act as the primary contact. The declaration can be done via the digital Pillar Two notification form which is accessible through the portal of the German tax authorities.
The German entities that are part of an MNE with a consolidated group turnover of at least EUR 750 million, together constitute the German minimum tax group. If an MNE only has one entity in Germany, this entity forms the German minimum tax group. The declared head of the minimum tax group will have to handle German Pillar Two compliance and, if applicable, pay the top-up tax for the German minimum tax group.
Understanding Pillar Two
Pillar Two refers to the global anti-base erosion (“GloBE”) rules, which are part of the OECD/G20 Inclusive Framework on BEPS (“Base Erosion and Profit Shifting”). These rules ensure that MNEs with a turnover of at least EUR 750 million are subject to a minimum level of taxation in every jurisdiction where they operate. The primary objective of Pillar Two is to address the issue of profit shifting and tax avoidance by setting a global minimum tax rate of 15%. This is achieved through the application of the Income Inclusion Rule (“IIR”) and the Undertaxed Payments Rule (“UTPR”), ensuring that MNEs pay a minimum level of tax on their profits, regardless of where they are earned.
The implementation of Pillar Two includes several transitional safe harbours to reduce the compliance burden on MNEs, particularly in high-tax and low-risk jurisdictions. These safe harbours are applicable for fiscal years 2023-2026 and include tests such as the de minimis test, the simplified effective tax rate (“ETR”) test, and the routine profits test. Additionally, countries like Germany have already started implementing Pillar Two compliance rules, requiring in-scope groups to register and comply with specific administrative guidelines. Overall, Pillar Two aims to create a more consistent and transparent international tax system by ensuring that MNEs contribute taxes globally.
Germany’s Pillar Two Notification Deadline: 28 February 2025
The 28 February 2025 deadline in Germany is fast approaching. Ensuring timely compliance with Germany’s notification requirements can be relevant for qualifying MNEs. Our team of experts is available to provide tailored advice and practical support to help businesses fulfil their obligations under Pillar Two. Contact us today to ensure your organization is fully prepared for these obligations.
[1] Deadline applicable for MNEs with a financial year equal to the calendar year.
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