Implementation of the global minimum tax in Germany

What is the starting position?

As part of the OECD's BEPS 2.0 pro­ject, in 2021 around 140 coun­tries have agreed to in­tro­duce a glo­bal mi­ni­mum tax, also known as "Glo­bal Anti-Base Ero­sion Ru­les" (GloBE) or Pil­lar 2.

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In or­der to en­sure a uni­form in­tro­duc­tion and de­sign of the ap­pli­ca­tion of the glo­bal mi­ni­mum tax in the EU area, the Coun­cil of the Eu­ro­pean Union ad­op­ted the Mi­ni­mum Tax Di­rec­tive on 15 De­cem­ber 2022 (Di­rec­tive (EU) 2022/2523, Abl L 328, 22 De­cem­ber 2022, p. 1, cor­rec­ted in OJ L 13, 16 Ja­nu­ary 2023, p. 9). This ob­li­ges the EU mem­ber sta­tes to trans­pose the re­qui­re­ments of this di­rec­tive into na­tio­nal law by 31 De­cem­ber 2023.

The dis­cus­sion draft of a law for the im­ple­men­ta­tion of the Di­rec­tive to en­sure a glo­bal mi­ni­mum le­vel of ta­xa­tion for mul­ti­na­tio­nal groups and large do­mestic groups in the Union (Mi­ni­mum Ta­xa­tion Di­rec­tive Im­ple­men­ta­tion Act), which has now been pre­sen­ted by the Ger­man Fe­deral Mi­nis­try of Fi­nance on 20 March 2023, re­pres­ents the first im­ple­men­ta­tion step in Ger­many. In doing so, the draft in­clu­des the in­tro­duc­tion of a new pa­rent law to en­sure glo­bal mi­ni­mum ta­xa­tion for groups of com­pa­nies (Mi­ni­mum Tax Act, or Min­StG for short).

What is at stake?

Large cor­po­rate groups are to be re­qui­red to en­sure, for the first time in the busi­ness year be­gin­ning af­ter 30 De­cem­ber 2023, that the in­come of all group mem­bers is sub­ject to ta­xa­tion at an ef­fec­tive mi­ni­mum rate of 15 % in the ju­ris­dic­tions of their coun­tries of re­si­dence. If this ef­fec­tive mi­ni­mum tax rate is not re­ached, an ad­di­tio­nal tax amoun­ting to the dif­fe­rence to the mi­ni­mum tax rate of 15 % is to be paid at the le­vel of the ul­ti­mate pa­rent com­pany.

Who is affected?

Mul­ti­na­tio­nal as well as na­tio­nal groups with to­tal an­nual sa­les of at least EUR 750 mil­lion in at least two of the four pre­ce­ding busi­ness years are sub­ject to the glo­bal mi­ni­mum tax. If a cor­po­rate unit of such a group is lo­ca­ted in Ger­many, the new Min­StG ge­ne­rally ap­plies. Howe­ver, non-pro­fit or­ga­niza­ti­ons, go­vern­ment units, in­ter­na­tio­nal or­ga­niza­ti­ons and pen­sion funds are ex­clu­ded from the scope of ap­pli­ca­tion.

What needs to be determined?

In or­der to de­ter­mine whe­ther the busi­ness units of the group of com­pa­nies lo­ca­ted in a tax ju­ris­dic­tion are sub­ject to a tax bur­den of at least 15 %, the ad­jus­ted re­co­gnized ta­xes and the pro­fit ad­jus­ted for mi­ni­mum tax pur­po­ses (so-cal­led mi­ni­mum tax pro­fit or loss) must be ta­ken into ac­count. The ra­tio of these gi­ves the ef­fec­tive tax rate. Se­veral busi­ness units in one tax ju­ris­dic­tion are to be com­bi­ned for this pur­pose (ju­ris­dic­tio­nal blen­ding).

The ta­xes re­co­gnized and the mi­ni­mum tax pro­fit or loss are de­ter­mi­ned on the ba­sis of the re­sult (net in­come or net loss) re­por­ted in the con­so­li­da­ted fi­nan­cial state­ments pre­pa­red in ac­cor­dance with re­co­gnized ac­coun­ting stan­dards. Howe­ver, nu­me­rous ad­just­ments still have to be made. The re­co­gnized ta­xes re­por­ted in net in­come or net loss ac­cor­ding to the con­so­li­da­ted fi­nan­cial state­ments must be mo­di­fied to in­clude de­fer­red ta­xes, among other things. Nu­me­rous ad­just­ments must also be made to the re­sult re­por­ted in the con­so­li­da­ted fi­nan­cial state­ments in or­der to cal­cu­late the mi­ni­mum tax pro­fit or loss.

Note: The con­crete im­ple­men­ta­tion of the dis­cus­sion draft is ba­sed on the OECD Mo­del Ru­les for the im­ple­men­ta­tion of GloBE, ta­king into ac­count the re­cently publis­hed OECD Ad­mi­nis­tra­tive Gui­dance. Thus, among other things, re­lief for com­pa­nies with di­rect pen­sion ob­li­ga­ti­ons to (for­mer) em­ployees is ta­ken into ac­count: Ex­pen­ses from di­rect pen­sion ob­li­ga­ti­ons to (for­mer) em­ployees do not have to be ad­ded for the de­ter­mi­na­tion of the mi­ni­mum tax pro­fit or loss - con­trary to what the di­rect wording of the OECD Mo­del Ru­les sug­gests. The cor­re­spon­ding ad­di­tion stan­dard is to be ap­plied only with re­spect to pen­sion ob­li­ga­ti­ons that are out­sour­ced to a pen­sion fund. In other ca­ses (e.g. di­rect com­mit­ment, di­rect in­surance, pen­sion fund, sup­port fund), the ex­pen­ses are al­ways fully ta­ken into ac­count in the year in which the ex­pen­ses were ta­ken into ac­count in the net in­come of the con­so­li­da­ted fi­nan­cial state­ments, ac­cor­ding to the ex­planatory me­mo­ran­dum of the dis­cus­sion draft.

How does the minimum taxation take place?

If the ef­fec­tive tax rate of busi­ness units of the Group in a tax ju­ris­dic­tion falls be­low the mi­ni­mum tax rate of 15 %, the so-cal­led pri­mary supp­le­men­tary tax re­gu­la­tion ge­ne­rally re­qui­res the ul­ti­mate pa­rent com­pany to pay a cor­re­spon­ding amount of tax in­crease. In the case of a top-le­vel pa­rent com­pany lo­ca­ted in Ger­many, it would thus be ob­li­ged to pay tax to the Ger­man tax aut­ho­ri­ties.

The dis­cus­sion draft also ma­kes use of the op­tion to in­tro­duce a na­tio­nal supp­le­men­tary tax. If the busi­ness units lo­ca­ted in Ger­many are sub­ject to an ef­fec­tive tax of less than 15 %, the na­tio­nal supp­le­men­tary tax will ap­ply. This na­tio­nal supp­le­men­tary tax is then to be off­set at the le­vel of the ul­ti­mate pa­rent com­pany.

If the pri­mary supp­le­men­tary tax re­gu­la­tion does not ap­ply be­cause there is no cor­re­spon­ding re­gu­la­tion in the coun­try of re­si­dence of the ul­ti­mate pa­rent com­pany and the mi­ni­mum ta­xa­tion does not take place at the le­vel of an in­ter­me­diate pa­rent com­pany, the dis­cus­sion draft pro­vi­des for the se­con­dary supp­le­men­tary tax re­gu­la­tion as a fall­back re­gu­la­tion, which is to be ap­plied for the first time to fis­cal years be­gin­ning af­ter 30 De­cem­ber 2024. For this pur­pose, a pro rata tax in­cre­ment for the ent­ire group is to be al­lo­ca­ted to the busi­ness unit sub­ject to tax in Ger­many.

Which declarations are to be submitted?

Each Ger­man ta­xable busi­ness unit must ge­ne­rally sub­mit a mi­ni­mum tax re­port to the Ger­man Fe­deral Cen­tral Tax Of­fice no la­ter than 15 months (or 18 months in the first year of ap­pli­ca­tion) af­ter the end of the fis­cal year. This must con­tain all in­for­ma­tion re­qui­red for the cal­cu­la­tion of any tax in­crease amount.

A pa­rent com­pany re­si­dent in Ger­many that is the group pa­rent of a so-cal­led mi­ni­mum tax group (con­sis­ting of all busi­ness units lo­ca­ted in Ger­many) must sub­mit a tax re­turn for all do­mestic busi­ness units by the ex­piry of the afo­re­men­tio­ned dead­line, in which it must cal­cu­late the tax in­crease amount its­elf and pay it wi­thin one month of sub­mit­ting the re­turn.

Is there any relief available, if applicable?

Safe har­bor ru­les that ap­ply to coun­try-by-coun­try re­por­ting (CbCR) data pro­vide that, upon re­quest of a busi­ness unit, which has to sub­mit a mi­ni­mum tax re­port, a tax in­cre­ment amount of EUR 0 is as­su­med for the tax ju­ris­dic­tion, in which it is lo­ca­ted, if one of the fol­lo­wing th­ree tests is met for that tax ju­ris­dic­tion:

• De mi­ni­mis test: re­ve­nues of less than EUR 10 mil­lion and pro­fit be­fore tax of less than EUR 1 mil­lion ac­cor­ding to CbCR.
• Sim­pli­fied Ef­fec­tice Tax Rate test (ETR test): Ef­fec­tive tax rate cal­cu­la­ted on the ba­sis of the CbCR data (plus cer­tain mo­di­fi­ca­ti­ons, in par­ti­cu­lar to ac­count for de­fer­red ta­xes) of at least 15 % (in 2024), 16 % (in 2025) and 17 % (in 2026), re­spec­tively.
• Sub­stance test: Pro­fit be­fore tax ac­cor­ding to CbCR cor­re­sponds at most to the so-cal­led sub­stance-ba­sed al­lo­wance (de­ter­mi­ned on the ba­sis of wage costs and tan­gi­ble as­sets).

These re­li­efs, which do not com­ple­tely ex­clude the busi­ness unit from the duty to file a tax re­port, are pro­vi­ded for a tran­si­tio­nal pe­riod co­ve­ring fi­nan­cial years ending be­fore 1 July 2028.

In ad­di­tion, if the group of com­pa­nies only car­ries out in­ter­na­tio­nal ac­tivi­ties to a sub­ord­inate ex­tent, an ex­emp­tion is pro­vi­ded for in the first five years of ap­pli­ca­tion of the mi­ni­mum tax. The dis­cus­sion draft also con­ta­ins sim­pli­fi­ca­tion pro­vi­si­ons, among other things, for the case that a for­eign na­tio­nal supp­le­men­tary tax is al­re­ady le­vied at the ul­ti­mate pa­rent com­pany.

What are the practical implications?

Af­fec­ted com­pa­nies should in­ten­si­vely deal with the re­qui­re­ments for de­ter­mi­ning the cal­cu­la­tion ba­sis for the ex­ami­na­tion of the ef­fec­tive tax rate. In this con­text, the no­mi­nal tax rate pro­vi­ded for in the re­spec­tive tax ju­ris­dic­tion can­not pro­vide more than an in­di­ca­tion of any supp­le­men­tary ta­xes to be paid. This is be­cause the ex­ten­sive ad­just­ments to both the re­le­vant pro­fit and the ta­xes to be ta­ken into ac­count can re­sult in si­gni­fi­cant de­via­ti­ons here. In or­der to de­ter­mine the ba­sis for cal­cu­la­tion, a cor­re­spon­din­gly ad­jus­ted in­ter­nal group re­por­ting sys­tem that goes far beyond the pre­vious re­por­ting pa­cka­ges in con­nec­tion with group ac­coun­ting will be es­sen­tial. Ex­ten­sive de­cla­ra­tion ob­li­ga­ti­ons will also arise for the ent­ire Group even if no supp­le­men­tary tax is payable as a re­sult.

If you have any ques­ti­ons re­gar­ding the in­ten­ded le­gis­la­tive im­ple­men­ta­tion of the mi­ni­mum tax as well as the prac­tical im­ple­men­ta­tion, please do not he­si­tate to con­tact us. We would be plea­sed to sup­port you in the con­text of selec­ted work­shops on the to­pic of the glo­bal mi­ni­mum tax.