18.08.2025MOF issues second revised version of draft bill to update minimum taxation rules
Draft bill is intended to implement OECD administrative guidelines and changes to domestic income tax and CFC rules
The German Ministry of Finance (MOF) on 8 August 2025 published the second revised version of a draft bill to amend the Pillar Two minimum taxation rules and further measures (Entwurf eines Gesetzes zur Anpassung des Mindeststeuergesetzes und zur Umsetzung weiterer Maßnahmen). The initial draft bill was published on 20 August 2024, followed by the first revised version on 5 December 2024 (see GTLN dated 12/16/2024). Progress was then put on hold as a result of the breakup of the governing coalition and after the government under the leadership of Chancellor Olaf Scholz lost a confidence vote on 16 December 2024. Following snap elections on 23 February 2025, a new government under the leadership of Chancellor Friedrich Merz was elected, and the new government is now proceeding with the initiative to implement amendments to the minimum taxation rules. Once approved by the governing coalition, the draft bill will enter into the formal legislative process for consideration in the lower house of parliament (Bundestag) and the upper house of parliament (Bundesrat).
The main purpose of the initial draft bill was to implement through Germany’s minimum taxation rules the country-by-country (CbC) reporting safe harbor rules as described in the December 2023 OECD Pillar Two guidance. This included, for example, the use of qualified financial statements/reporting packages for CbC reporting safe harbor purposes, purchase price accounting adjustments in qualified financial statements, the implementation of rules related to hybrid arbitrage arrangements, and rules on the CbC reporting safe harbor in situations where no obligation to prepare a CbC report exists. In addition, the initial draft bill included several editorial updates to properly reflect the wording of Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise (MNE) groups and large-scale domestic groups in the EU (generally referred to as the EU minimum taxation directive) and various legislative references, as well as other important administrative simplifications.
The first revised version of the draft bill included certain updates to the measures in the initial draft bill as a result of editorial changes and incorporated comments received during the consultation period. It also included amendments to implement the OECD Pillar Two administrative guidance released in June 2024 and regulations for the exchange of information on minimum taxation reports between Germany and other EU member states in anticipation of the proposed Council Directive (EU) 2025/872 (9th directive on administrative cooperation in the field of taxation or “DAC 9”). The DAC 9 implementation is aimed at standardizing the information exchange on minimum tax reporting within the EU. This should facilitate the application of section 75(2) of the German Minimum Tax Act, which provides for the GloBE information report (GIR) to be submitted in only one EU member state. This is aimed at reducing the administrative burden for affected companies and providing for legal certainty in cross-border situations. The first revised draft also included related measures intended to reduce bureaucracy.
The second revised draft bill now aims to implement the OECD administrative guidelines of 13 January 2025 (with a particular focus on article 9.1 of the OECD Pillar Two model rules, which sets out the transitional rules applicable where an MNE group comes within scope of the Pillar Two/GloBE rules) in addition to the OECD guidelines that were already incorporated in the first two versions of the draft bill.
In contrast to the first revised version of the draft bill, the second revised draft bill no longer includes the elimination of the double deduction rule for partnerships where certain interest expense that qualifies as a special business expense at the level of a non-German partner in a German partnership is considered deductible for both German and foreign tax purposes (section 4i of the Income Tax Code (ITC)). The elimination of the royalty barrier rule in section 4j of the ITC is, however, still included in the draft bill.
The second revised draft bill also no longer includes an exclusion from the German controlled foreign company (CFC) rules for intermediary companies generating specific investment income (Zwischeneinkuenfte mit Kapitalanlagecharakter) in terms of section 13 of the FTA. Instead, the bill proposes the retroactive introduction of an increased minimum shareholding of 10% in these cases. With regard to the planned increase to the relative and absolute threshold for the application of the CFC rules based on section 9 of the FTA, the second revised version of the draft bill provides for a threshold of EUR 100,000 compared to the current threshold of EUR 80,000 (and instead of the EUR 250,000 threshold proposed in the initial draft version). In addition to these changes, several other provisions of the CFC rules (such as more stringent exit taxation rules for individuals) are specifically incorporated in the draft bill.
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