EU's Proposal On Implementing Pillar Two

The European Commission has published its proposal for a Directive to implement the OECD Pillar Two Global Anti-Base Erosion rules (the “OECD GloBE Model Rules”).

We have previously considered the OECD Pillar Two proposals twice before, and they can be found  here and  here. Here, we provide an overview of the general architecture of the Directive, in particular by reference to the aspects of the Directive that track, or divert from, the OECD GloBE Model Rules.

It is worth noting that only the Income Inclusion Rule (“IIR”) and its “backstop,” the Under Taxed Payments Rule (“UTPR”), will be implemented by the Directive. As the Subject to Tax Rule (“STTR”) is a treaty-based rule that allows source jurisdictions to impose source taxation on certain related party payments that are subject to tax below a minimum rate, the European Commission considers that the STTR is naturally suited to be addressed in bilateral tax treaties, instead of in a Directive.