In brief

The Federal Ministry of Finance (MoF) published a draft law on March 20, to implement the ‘Pillar Two’ Directive ensuring a global minimum taxation for multinational groups and large domestic groups in the European Union (the so-called Minimum Tax Directive Implementation Act - MinBestRL-UmsG). The publication of the German draft law follows the formal adoption by the EU Council to adopt Pillar Two on December 15, 2022. (See our prior Tax Policy Alert).

Observation: The discussion draft is largely based on the EU Directive, the OECD Model GloBE Rules (See our Tax Policy Alert) and other OECD publications, such as the Safe Harbour Rules. (See our previous Tax Policy Alert).

Part 2: Top-up Tax regime 

The Top-up Tax can be levied through three different mechanisms:

• The so-called Income Inclusion Rule (IIR) is levied at the level of the Ultimate Parent Entity and, if applicable, at intermediate parent companies.
• If there is no taxation of low-taxed business units via an IIR, the so-called Undertaxed Profit Rule (UTPR) would apply. Under the UTPR, each Constituent Entity in Germany is to be allocated a pro rata supplementary tax amount from the Top-up Tax amount of the entire MNE group.
• For low-taxed domestic Constituent Entities, the discussion draft also provides for the possibility of priority collection of the Top-up Tax through a Qualified Domestic Minimum Top-up Tax (QDMTT) (governed by Part 10).

Parts 8 to 11: Administration, special provisions for the transition year, transition period, and initial period, taxation procedure, and other provisions 

The draft MinStG provides for various administrative requirements for the MNE group to fulfill. In principle, each Constituent Entity subject to tax under the MinStG is required to submit the so-called Globe Information Return (GIR) for the fiscal year to the Federal Central Tax Office (BZSt). However, under certain circumstances, the GIR may be submitted by certain Constituent Entities on behalf of the other Constituent Entities. The GIR must be submitted to the BZSt no later than 15 months after the end of the fiscal year (in the first year, however, the deadline is 18 months). 

A GIR intentionally not submitted, not submitted on time, or not submitted in full, constitutes an administrative offense. However, the amount of the fine resulting from the administrative offense has been left open in the discussion draft. 

In addition to the GIR, the discussion draft generally provides for the filing of a tax return by each domestic taxable Constituent Entity with the tax office responsible for its income taxation. If there is a Domestic Minimum Tax Group, in deviation from the aforementioned principle, only the Group Leader has to file a tax return for the Minimum Tax Group. The tax must be calculated by the taxpayer. Therefore, the Top-up Tax is only determined by the tax authority if this results in a different tax, or if the Constituent Entity does not submit the tax return.

The Top-up Tax for a fiscal year arises at the end of the calendar year in which the fiscal year ends. According to the explanatory memorandum to the discussion draft, the general provisions of the General Fiscal Code (Section 149 GFC) generally apply to the submission of the tax return. The tax is due and payable one month after submission of the tax return.

The discussion draft includes the OECD Safe Harbour Rules, such as the transitional Safe Harbour Rules based on country-by-country reporting (CbCR). If the Safe Harbour requirements are met, the Top-up Tax will be reduced to zero. However, the obligation to file the GIR and the tax return under the MinStG remains unaffected in this case.

In addition, the discussion draft provides for further optional rules to simplify the calculation of the GloBE revenue, the GloBE Income or Loss, the Adjusted Covered Taxes for immaterial business entities, as well as a relief in case the minimum tax has already been levied through a QDMTT. Also, if the MNE group only performs so-called subordinate international activities, it is exempt from the Top-up Tax for the first five years. 

In addition, the discussion draft includes provisions for determining the ETR in the transition year and subsequent years, as well as the treatment of deferred taxes and the transfer of assets between Constituent Entities after November 30, 2021.

The MinStG is to apply for the first time to fiscal years beginning after December 30, 2023. The UTPR regulations are to be applied for the first time for fiscal years beginning on or after December 30, 2024.