14.03.2025Industry association publishes report requesting suspension of EU Pillar Two directive
State officials also express skepticism about the global minimum tax rules
In a report published on 7 March 2025, the Federation of German Industries (“BDI”) called on the EU to temporarily suspend Council Directive (EU) 2022/2523, which implements the OECD global minimum tax (“Pillar Two” or global anti-base erosion (“GloBE”)) rules in the EU (“EU Pillar Two directive”). The report refers to the current US tax policy under President Donald Trump, and states that such policy, in conjunction with the global minimum tax, poses significant risks to the global competitiveness of European companies. The report emphasizes that, in the view of the BDI, political decision makers must take measures to minimize the potential burdens on European companies, offset competitive disadvantages, and secure Europe as a business location.
The BDI, in its report, refers to a 20 January 2025 memorandum in which President Trump directs the US administration to investigate whether other jurisdictions are complying with tax treaties they have with the US and whether other jurisdictions enforce extraterritorial taxes that discriminate against US companies. The report also mentions a second 20 January 2025 memorandum in which President Trump suggests applying US Internal Revenue Code section 891 as a retaliatory measure, which would double tax rates for citizens and corporations of jurisdictions that apply discriminatory or extraterritorial measures.
The report notes that the consequences would be highly disadvantageous for EU companies if the US makes use of these countermeasures and includes two possible solutions that may avoid any such disadvantages. First, a temporary suspension of the EU Pillar Two directive, which requires EU member states to implement the Pillar Two rules into their domestic law, is mentioned. Second, an extension of the Pillar Two transitional undertaxed profits rule (UTPR) safe harbor (i.e., an exemption from top-up tax under certain circumstances for a specified period of time) is mentioned, together with a discussion about the US global intangible low-taxed income (GILTI) regime. The report notes that this second possible solution should be combined with a significant simplification of the GloBE rules in order to minimize the competitive disadvantage of EU companies compared to US companies.
Similarly, on 3 March 2025, the BDI and other German trade associations, including the German Chamber of Commerce and Industry, Association of German Banks, and German Insurance Association, sent a letter to the European Commission requesting that the EU not move forward with the implementation of Pillar Two in order to avoid retaliatory measures from the US.
The move from businesses coincides with calls from German state officials to suspend the application of the EU Pillar Two directive. On 26 February 2025, Alexander Lorz, the finance minister of the German state of Hesse and a member of the Christian Democratic Union (CDU) called for a suspension of the GloBE rules as a reaction to developments in the US. The same call was made on 6 March 2025 by Marcus Optendrenk, the finance minister of the German state of North Rhine-Westphalia and also a member of the CDU. In an interview with the German Press Agency, Marcus Optendrenk also pointed out that this position is an agreed position of all finance ministers of the CDU and its sister party, the Christian Social Union (CSU), at the level of the German states. The CDU/CSU alliance won the German snap elections on 23 February 2025 and is currently in the process of forming a federal government with one or several coalition partners.
The report from the BDI, as well as calls from other German trade associations and German state officials, can be seen as a reaction to the US position not to implement the GloBE rules and to potentially assess countermeasures against jurisdictions that are applying the GloBE rules, in particular the UTPR, against US companies. It is noteworthy that, so far, the discussion in Germany is to further simplify the GloBE rules but not to entirely suspend the EU Pillar Two directive that introduced the GloBE rules. The enactment of EU directives in the area of direct taxation, such as the EU Pillar Two directive, as well as any amendments to such directives, requires unanimous consent of all EU member states in the European Council.
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