EU Finance Ministers continue negotiations to adopt Pillar Two Directive in light of Poland’s remaining objection

Executive summary

On 5 April 2022, the Council of the European Union (the Council) held an Economic and Financial Affairs Council (ECOFIN) meeting where Finance Ministers publicly discussed the proposal for a Directive on ensuring a global minimum level of taxation for multinational groups in the European Union (EU) (the Pillar Two Directive).1 The meeting took place three weeks following the ECOFIN of 15 March where EU Finance Ministers failed to reach agreement on this Directive as four Member States raised remaining concerns that needed to be addressed.2

In advance of the meeting, the French Council Presidency issued a new compromise text (pdf) aimed at resolving the remaining issues and reaching unanimous agreement during the ECOFIN meeting. The three remaining issues were: (i) the specifics of the optional provision for small Member States to delay application of the rules; (ii) the administrative burden placed on small businesses; and (iii) the link between the introduction of Pillar One and Pillar Two. 

During the public debate, all EU Member States expressed support on the new proposal except for Poland. Poland reiterated its position that the Organisation for Economic Co-operation and Development’s (OECD) two-pillar solution mandates the implementation of Pillar One and Pillar Two in parallel and that Poland therefore requires a legally binding assurance on the link between the introduction of the two pillars.

The draft Directive requires a unanimous decision for adoption. The French Presidency of the Council will continue the negotiations with Poland and the other Member States with the aim of reaching agreement during the next ECOFIN meeting on 24 May.

Detailed discussion 

In January 2019, the OECD started the work on Pillar Two with the release of a Policy Note describing two pillars of work: Pillar One addressing the broader challenges of the digitalization of the economy and the allocation of taxing rights to market jurisdictions, and Pillar Two addressing remaining concerns about potential Base Erosion and Profit Shifting (BEPS) and tax rate competition among countries.3

Since then, the OECD has released a series of documents on the development of the two pillars, culminating with the release in October 2020 of detailed Blueprints on both Pillar One and Pillar Two.4 This was followed in July 2021 with the release of a high-level statement reflecting agreement of members of the OECD/G20 Inclusive Framework on key parameters with respect to the two pillars.5 In October 2021, the OECD published a statement on the final political agreement on the two pillars, which includes an implementation timeline that contemplates implementation of the new rules largely with effect from 2023.6

As a follow up of the implementation timeline, on 20 December 2021, the OECD published the Model Rules on GloBE as agreed by the Inclusive Framework.On 22 December 2021, the European Commission published a legislative proposal for a Directive setting forth rules to ensure a global minimum level of taxation for multinational groups.8 The proposed rules were generally consistent with the July and October statements of the Inclusive Framework and the Model Rules.

At an ECOFIN meeting of 18 January 2022, Finance Ministers of the 27 EU Member States held a first public policy debate on the draft Directive. Overall, Member States expressed support and confirmed the priority nature of this file. However, eight Member States also expressed concerns related to the tight implementation timeline, the complexity of the rules, the link between Pillar One and Pilar Two and the application of the rules to domestic groups.

On 14 March 2022, the OECD released the long-awaited Commentary (pdf) together with some illustrative examples (pdf), on the Pillar Two Model Rules.9 On the same date, the OECD also launched a public consultation on the Implementation Framework seeking input from stakeholders on the issues of administration, operation, compliance and rule coordination.

One day following the release of the Commentary, the Finance Ministers of the EU Member States discussed a new compromise text (pdf) of the Pillar Two Directive, but failed to reach agreement as four Member States had remaining concerns which still needed to be addressed (Estonia, Malta, Poland and Sweden).10 The concern which many Member States had expressed in January regarding the tight timeline for introduction was addressed through the extension of the deadline for entry of effect of the rules to 31 December 2023.

ECOFIN meeting of 5 April

On 5 April 2022, the EU Finance Ministers met for an ECOFIN meeting. In a public session, Ministers discussed the proposed Pillar Two Directive and were asked to express their position on a new compromise text (pdf) issued by the French Council Presidency in advance of the meeting. The new compromise text was aimed at resolving remaining issues raised by some Member States, the most important of which relate to the specifics of the optional provision to delay application of the rules under certain circumstances, the link between implementation of Pillar Two with Pillar One implementation and the administrative burden for small businesses.

Among others, this new version of the compromise text updates the optionality clause by allowing Member States with no more than 12 parented groups in scope of Pillar Two to choose not to adopt the income inclusion rule (IIR) and undertaxed profit rule (UTPR) for six fiscal years beginning from 31 December 2023. The previous compromise proposal provided that Member States with no more than 10 ultimate parent entities would not have to apply the IIR and the UTPR until 2025. The extension of the deadline for transposition of the rules remained 31 December 2023.

Regarding the concern on the link of Pillar Two with Pillar One, the French Council Presidency maintained its proposal to issue a statement, along with the agreement on the proposed directive on Pillar Two, confirming the commitment of all Member States to the ongoing process on Pillar One in the Inclusive Framework.

During the public debate, all Member States except Poland expressed support on the new proposal. Estonia, Malta and Sweden waived the reservations they had raised during the ECOFIN meeting of 15 March and agreed with the proposal. Poland did not support the adoption of the Directive. They did not express disagreement with the text of the proposal, but reiterated that the OECD's two-pillar solution mandates the implementation of Pillar One and Pillar Two in parallel and that Poland prefers a legally binding assurance on the link between the introduction of the two pillars.

Next steps 

Article 115 of the Treaty on the Functioning of the EU is the legal basis for the Directive. Proposals under this special legislative procedure are subject to the Council's unanimity. The French Presidency aims at formal adoption of the Directive during the next ECOFIN on 24 May 2022. Since the European Parliament only has an advisory role, it will just need to provide its opinion for the adoption process to be complete. Such opinion is expected at the end of April.

Once adopted, Member States shall transpose the provisions of the Directive by 31 December 2023 and then apply these provisions for fiscal years starting on or after 31 December 2023 except the UTPR, which would apply for fiscal years starting on or after 31 December 2024. 


With 26 Member States committed to Pillar Two introduction, and one country blocking, the next weeks will show whether the EU is able to reach unanimous agreement or not. If no agreement can be reached by the next Ecofin meeting at the end of May, it could be that other paths will be explored to allow the other Member States to move ahead without Poland.

Companies are encouraged to keep monitoring the developments as the Pillar Two policy environment continues to evolve.


For additional information with respect to this Alert, please contact the following: 

EY Société d’Avocats, Paris
  • Jean-Pierre Lieb
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Klaus von Brocke
Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Marlies de Ruiter
  • Maikel Evers
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Konstantina Tsilimigka
Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.