The European Union has set a significant precedent in corporate taxation with the implementation of new rules mandating a minimum effective tax rate of 15% for multinational companies. Effective from January 1, these rules materialize the agreement reached by the G7 heads of state in June 2021.

Economy Commissioner Paolo Gentiloni highlighted the reform as a crucial step towards establishing a fairer corporate tax system globally. He emphasized the reform's potential in generating an additional $220 billion annually, which can be pivotal for countries to finance vital investments and high-quality public services.

This implementation, unanimously agreed upon by member states in 2022, is part of the EU's commitment to the "Pillar 2" rules of the global agreement on international tax reform formulated in 2021. These rules aim to modernize and adapt the EU tax framework to the demands of today's globalized digital world.

The reform is not just a European initiative but a global movement, with nearly 140 jurisdictions worldwide adopting similar measures. These measures are designed to limit the incentives for businesses to shift profits to low-tax jurisdictions, thus curtailing the "competition to the bottom" in corporate income tax rates.

Applicable to multinational business groups and large-scale domestic groups in the EU with an annual financial income exceeding €750 million, these rules apply equally to both domestic and international companies with a parent or subsidiary in an EU member state.

The directive outlines a common methodology for calculating and applying the 'additional' tax in cases where the effective tax rate falls below 15%. It addresses situations where a subsidiary is not taxed at the minimum effective rate in its country of establishment, necessitating the parent company's Member State to apply an additional tax.

Additionally, the directive ensures effective taxation even when the parent company is outside the EU in a low-tax country that does not apply equivalent rules.

This reform aligns with one of the two main objectives of the global agreement of the Organization for Economic Co-operation and Development (OECD): establishing a global minimum level of taxation for corporate entities. The other objective, referred to as "pillar 1", involves adjusting international rules for apportioning corporate profits of large and profitable multinationals to reflect the changing nature of business models and the ability of companies to operate without a physical presence