Germany Federal Ministry of Finance publishes draft BEPS 2.0 Pillar Two implementation bill


  • The German Ministry of Finance’s discussion draft for the implementation of the Global Minimum Tax is closely aligned with the requirements of the European Union (EU) Directive on the introduction of a Global Minimum Tax and the Organisation for Economic Co-operation and Development (OECD) Model Rules.
  • Interested parties may submit comments until 21 April 2023.


Executive summary

The German Ministry of Finance (MoF) published its discussion draft for the implementation of the Global Minimum Tax on Monday (20 March 2023). By publishing the discussion draft, the MoF is tackling the implementation of the EU Directive on the introduction of a Global Minimum Tax (2022/2523), which the EU finance ministers agreed to in December 2022. The discussion draft is closely aligned with the requirements of the EU Directive as well as the OECD Model Rules.

With the Minimum Tax Directive Implementation Law, Germany aims to ensure that from 2024 onwards, a top-up tax in accordance with the rules agreed to at an international level will be introduced.

The discussion draft includes a transitional Country-by-Country Reporting (CbCR) safe harbor, as well as two permanent safe harbors, the Non-Material Constituent Entity (NMCE) safe harbor and the “Qualified Domestic Minimum Top-up Tax” (QDMTT) safe harbor, aiming to simplify compliance and reduce complexity for certain entities.

The legislative process is expected to extend well into the second half of 2023.

Detailed discussion

Minimum Tax Directive Implementation Law - overview

The Minimum Tax Directive Implementation Law includes a primary “Income Inclusion Rule” (IIR) (applicable from 2024), a secondary “Undertaxed Profit Rule” (UTPR) (generally applicable from 2025), and a QDMTT, if the activities of multinational enterprises (MNEs) in a country are subject to an effective tax rate (ETR) of less than 15%. The rules apply to all MNE groups and large-scale domestic groups with consolidated revenues of at least €750 million in at least two of the last four fiscal years.

The ETR for all entities of the MNE group is determined on a jurisdictional basis by dividing the adjusted covered taxes of the entities in the respective jurisdiction by their income, which is determined separately and modified for Global Minimum Tax purposes. The starting point for this calculation is the consolidated financial statements used for consolidation purposes under an acceptable financial accounting standard (e.g., International Financial Reporting Standards (IFRS), US Generally Accepted Accounting Principles (GAAP) or German GAAP), which is then subject to a series of adjustments. If the ETR is below the Global Minimum Tax rate of 15% in a jurisdiction, the MNE is subject to a top-up tax until the effective minimum tax rate is reached.

The taxation generally takes place at the level of the ultimate parent entity (UPE). If a foreign state has decided to levy the Global Minimum Tax itself through a QDMTT, this will generally be credited under the new rules at the level of a German UPE. By providing for a German QDMTT, the discussion draft ensures that, in the unlikely event of a low taxation in Germany, the respective top-up tax will be levied by the German tax authorities.

The discussion draft does not address reducing the minimum tax threshold for German controlled foreign company purposes in the Foreign Tax Act from the current 25% tax rate to the future Global Minimum Tax rate of 15%, which has been repeatedly called for by the German business community. It remains to be seen whether a corresponding adjustment will be added in the further legislative process.

Safe harbor provisions

The complexity of the Global Minimum Tax shall be mitigated by simplifications. To this end, the discussion draft contains safe harbor provisions that were agreed in the OECD BEPS Inclusive Framework only after the final EU Directive was published. For fiscal years beginning on or before 31 December 2026, but ending before 1 July 2028 (i.e., the years 2024 to 2026 if the fiscal year corresponds to the calendar year) three temporary CbCR safe harbors are available (Transitional CbCR safe harbors):

  1. De-minimis Test: Total revenue of less than €10 million and profit/loss before income tax of less than €1 million
  2. Simplified ETR Test: The ETR is equal to or greater than 15% (in 2024), 16% (in 2025), or 17% (in 2026)
  3. Routine Profits Test: Profit/loss before income tax is equal to or less than the substance-based income exclusion amounnt

If one of the three tests is met for a jurisdiction, upon application, the top-up tax is set at zero for the jurisdiction. If the group does not file an application for a fiscal year during the transitional period or does not meet the test in a fiscal year in a jurisdiction, the Transitional CbCR safe harbors will not be available for any subsequent fiscal years.

Furthermore, the discussion draft provides for a permanent QDMTT safe harbor, according to which the top-up tax for a specific jurisdiction is reduced to zero, provided the jurisdiction has levied a QDMTT based either on the UPE’s authorized financial accounting standard or on IFRS. Finally, NMCEs may apply a simplified calculation under a permanent NMCE safe harbor.

In line with the EU Directive, the discussion draft also provides for an exclusion for up to five years for MNE groups during their initial phase of international activity. According to this provision, MNE groups that have constituent entities in no more than six jurisdictions and do not exceed a €50-million threshold of tangible assets outside a reference jurisdiction will be exempt from the Global Minimum Tax during this period.

Administrative aspects

To centralize the tax filing procedure, the discussion draft provides for the introduction of a minimum tax group comprising all domestic constituent entities of a multinational enterprise. The minimum tax group parent (e.g., an intermediate parent company located in Germany) is responsible for the electronic submission of the tax return, in which the tax itself is to be calculated. The tax is due one month after the return is submitted. In addition to the tax return, each domestic constituent entity, or a selected domestic constituent entity on behalf of the other domestic constituent entities must electronically submit a Minimum Tax Report. This must contain comprehensive information on the group and all information necessary for calculating the ETR and the top-up tax amounts. The Minimum Tax Report must be submitted within 18 months after the end of the fiscal year in the first year of minimum tax liability, and within 15 months after the end of the fiscal year thereafter. No Minimum Tax Report is required in Germany if a foreign UPE or designated filing entity has filed the report and the UPE’s residence state and Germany have concluded a Qualifying Competent Authority Agreement which is actually executed in practice.

With the presentation of the discussion draft, the industry, associations, and advisors may comment on the discussion draft until 21 April 2023. The MoF will then, most likely, present a revised draft and request further comments. Subsequently, the formal legislative process will be opened, which is expected to extend well into the second half of 2023 and may not be finished before December 2023.

The full text of the discussion draft is available on the MoF website and may be accessed directly here (pdf).


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

Ernst & Young GmbH, Germany
  • Dirk Nolte, Hanover
  • Katharina Rapp, Munich
  • Daniel Kaeshammer, Freiburg
  • Roland Nonnenmacher, Berlin
  • Robert Polatzky, Stuttgart
  • Moritz Glahe, Duesseldorf
Ernst & Young LLP (United States), German Tax Desk, New York
  • Tobias Appl
  • Thomas Schmitz
  • Kai Dittmer
  • Matthias Ritter
  • Lennart Michelberger

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