EU Finance Ministers express broad support for compromise text for Pillar Two Directive which includes a one-year delay of the implementation timeline, but no unanimous agreement yet

Executive summary

On 15 March 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 Union (the Pillar Two Directive).1 The meeting took place one day following the release by the Organisation for Economic Cooperation and Development (OECD) of the long-awaited Commentary on the Pillar Two Model Rules and the launching of a public consultation on the Implementation Framework of the global minimum tax with a deadline for input by 11 April 2022.

In advance of the meeting, the French Council Presidency issued a new compromise text (pdf) aimed at resolving the three remaining issues and reaching unanimous agreement during the ECOFIN meeting. The three remaining issues were: (i) the implementation timeline; (ii) the obligation to introduce Pillar Two for countries with few Ultimate Parent Entities (UPEs); and (iii) the link between the introduction of Pillar One and Pillar Two. Overall, European Union (EU) Member States expressed support on the new proposal, in particular for the delay of the implementation timeline for one year and acknowledged the progress that the Council achieved with the new compromise text for reaching agreement. However, four Member States (i.e., Estonia, Malta, Poland and Sweden) still expressed some reservations and did not agree with the adoption of the Directive at this stage.

The 27 Member States will continue negotiations on the proposal during the next weeks. The draft Directive requires a unanimous decision for adoption. The French Presidency aims at reaching final adoption by the Council during the ECOFIN meeting of 5 April 2022.

Detailed discussion


Building on its earlier work on Base Erosion and Profit Shifting (BEPS) that culminated in 2015 in the issuance of final reports on 15 action areas, the OECD began a new project in 2019 focused on addressing the tax challenges of the digitalization of the economy. This project evolved into a two Pillar approach to address the pressure put on the current international tax system due to digitalization and globalization. The current project, referred to as BEPS 2.0, is being conducted through the G20/OECD Inclusive Framework. The two Pillars of the project are:

  • Pillar One on development of new nexus and profit allocation rules to assign more taxing rights to market countries
  • Pillar Two on development of new global minimum tax rules

After many months of technical work and negotiations, in October 2020, the OECD released a series of documents with respect to the BEPS 2.0 project, including a detailed Blueprint on Pillar Two.2 In the Cover Statement, the Inclusive Framework expressed the view that while no consensus had been reached yet, the Blueprint provided a solid basis for future agreement.

On 1 July 2021, the OECD released a Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy (July Statement), reflecting the agreement of 130 of the member jurisdictions of the Inclusive Framework on some key parameters with respect to both pillars. At that time, nine members of the Inclusive Framework, including Estonia, Hungary, and Ireland, did not join the July Statement.3

In October 2021, the OECD published a Statement indicating that the Inclusive Framework agreed on the two-pillar solution to address the tax challenges arising from the digitalization of the economy and providing a timeline for implementation.Of the 140 jurisdictions of the Inclusive Framework, 136 agreed to the October Statement. Estonia, Hungary and Ireland, which did not join the July agreement, joined the October Statement. Cyprus, who is not a member of the Inclusive Framework, also supported the statement.

Under the October Statement, it was stated that the GloBE (Global Anti-Base Erosion) rules were to be released by the end of November 2021. Nevertheless, the OECD was not able to meet such an ambitious deadline and the Model Rules together with an overview summary and factsheets became available by late December 2021.

The EU has been a strong supporter of a global consensus-based solution within the framework of the OECD and has embraced the course of direction of BEPS 2.0 through its participation in the G20. In its Communication on Business Taxation for the 21st Century,the Commission announced that the principal method for implementing Pillar Two in the EU would be an EU Directive that reflects the Model Rules with the necessary adjustments to guarantee EU law compliance.

On 22 December 2021, the Commission published a legislative proposal for a Directive setting forth rules to ensure a global minimum level of taxation for multinational groups. The proposed rules were generally consistent with the agreement reached by the Inclusive Framework on 8 October 2021 and followed closely the Model Rules published on 20 December 2021. 

At an ECOFIN meeting of 18 January 2022, EU Finance Ministers held a public policy debate on the draft Directive. The French EU Presidency had invited them to provide political guidance on whether the file is a priority. Overall, Member States expressed support and confirmed the priority nature of this file and the need to urgently transpose the agreed rules of international corporate taxation as soon as possible. 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. 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. The deadline for input is 11 April 2022, and a public consultation meeting will be held virtually at the end of April 2022.

ECOFIN meeting of 15 March

On 15 March 2022, the EU Finance Ministers met in Brussels for an ECOFIN meeting. In public session, Ministers also 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 implementation timeline, the link of Pillar Two with Pillar One and the mandatory inclusion of domestic groups in scope of the Directive.

Among others, the new compromise text introduced the following key changes to the proposal:

  • Implementation timeline: The deadline for transposition of the rules is extended to 31 December 2023. The Income Inclusion Rule (IIR) would then enter into effect for fiscal years starting on or after 31 December 2023 and the Undertaxed Profit Rule (UTPR) for fiscal years starting on or after 31 December 2024.

  • Election to delay application of the rules: Member States in which there are fewer than 10 parented groups in scope of Pillar Two can choose not to adopt the IIR and UTPR until 2025.

  • Assessment framework: Equivalence of IIR of third countries to be determined unanimously by the Council via an implementing act after a proposal by the Commission.

Regarding the concern of some Member States on the link between Pillar Two and Pillar One, the French Council Presidency announced its plans 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.

Overall, Member States expressed support on the new proposal during the public debate and acknowledged the progress that the Council has achieved with new compromise text in the direction of reaching agreement. However, four Member States still expressed some reservations and did not agree with the adoption of the Directive at this stage. More specifically:

  • Estonia expressed that some technical details still need to be addressed in order for Estonia to maintain its current distribution-based corporate tax system and to avoid a disproportionate administrative burden for the implementation of the rules.
  • Malta reiterated the need for the EU Directive to replicate the OECD Model Rules which are agreed as a common approach and provide for flexibility in the transposition of the rules.
  • Poland stated that the OECD's two-pillars solution mandates the implementation of Pillar One and Pillar Two in parallel and stipulated that Poland prefers a legally binding assurance on the link between the two pillars.
  • Sweden indicated that it is too early to agree on a general approach at the EU level given technical work on the implementation framework is still ongoing at OECD level.
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 5 April 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 in 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. 


The discussions during the Ecofin meeting mark progress on the path towards agreement in the EU on the Pillar Two Directive. In its conclusions, the French Presidency stated that finalizing the negotiations and reaching an agreement during the Ecofin meeting of 5 April should be feasible. For companies, the broad agreement on the one-year delay of the implementation timeline marks a change in expectations on when EU countries are likely to introduce Pillar Two rules in their domestic legislation.

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
  • Andromachi Anastasiou
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Konstantina Tsilimigka
Ernst & Young SA (Portugal), Porto
  • Mariana Lemos
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.