EU Delays the Implementation of Pillar Two

May 2018

• In May 2018, the UAE joined the OECD Inclusive Framework on Base Erosion and Profit Shifting

October 2021

• In October 2021, 136 Inclusive Framework member countries (currently 137) - including the UAE - committed to the implementation of a global minimum tax in line with the OECD's Pillar Two.

5 April 2022

• At the 5 April ECOFIN meeting, the EU Finance Ministers discussed the proposed Pillar Two Directive and expressed their position on a new Draft Council Directive.

Among the most relevant debate points, we find the specifics of the optional provision to delay application of the rules under certain circumstances, the link between the implementation of Pillar Two with Pillar One, as well as the administrative burden for small businesses.

Draft Council Directive Main Points

• The time limit for transposition of the rules by the Member States is to be changed to 31 December 2023.
• The application of the provisions (implemented to comply with the Directive) to the fiscal years beginning on or after 31 December 2023.

Reflections on the UAE

• As part of its announcement of Corporate Income Tax ("CIT") on 31 January 2022, the UAE Ministry of Finance ("MOF") published the rates that will apply for the different income ranges. The announced rates are 0% for income up to 375,000 AED and 9% for income above 375,000 AED.
• In addition, a "special rate" will apply to businesses in the scope of the OECD's Pillar Two, in line with the application of CIT with effect from 1 June 2023. The UAE will likely also apply a Qualified Domestic Minimum Top up Tax. As per the above-mentioned discussion at the EU level, the UAE may also suggest a deferral for businesses in the scope of Pillar Two. Whether such deferral will take place, and most importantly whether it will include Pillar Two businesses remains to be seen.