Early notification required regarding designation of Pillar Two group leader

Notification of designation of group leader must be filed with federal tax office by 28 February 2025 

Germany has introduced the concept of a “minimum tax group,” which is intended to reduce the administrative burden resulting from the implementation into domestic law of Council Directive (EU) 2022/2523 (“Pillar Two directive”) for German resident constituent entities of a multinational enterprise (MNE) group. This concept, however, deviates from the rules as described in the Pillar Two directive. Notably, each MNE group with German resident constituent entities must determine the “group leader” of the minimum tax group on or before 31 December 2024. The group leader then must submit an electronic notification of its designation as a group leader to the federal tax office on or before 28 February 2025.

Within the minimum tax group, only the group leader owes the minimum tax (based on an income inclusion rule, an undertaxed profits rule, or a qualified domestic minimum top-up tax as defined in the rules) to the German tax authorities. The group leader of a minimum tax group is determined by three tests applied sequentially:

• Ultimate parent entity if resident in Germany;
• German parent entity of the German resident constituent entities; and
• Designated German resident constituent entity.

If no constituent entity is designated after these tests are applied, the economically most relevant German resident constituent entity is deemed to be the group leader. 

The other German resident group entities do not have to separately pay minimum tax to the German tax authorities. As a result, only the group leader has the obligation to file one centralized minimum tax return with the local tax authorities responsible for the group leader and pay any minimum tax for the minimum tax group. The group leader then has a compensation claim for reimbursement of the taxes paid from the other members of the minimum tax group for their share of the minimum tax. Any minimum tax refunds to the group leader must be refunded to the members of the minimum tax group by the group leader. Additionally, members of the minimum tax group are jointly and severally liable for the minimum tax owed by the group leader.

As mentioned earlier, each MNE group with German resident constituent entities must determine the group leader of the minimum tax group on or before 31 December 2024. The group leader then must submit an electronic notification of its designation as a group leader to the federal tax office on or before 28 February 2025. Changes in the designation as a group leader or a revocation of the designation as a group leader must also be electronically notified immediately to the federal tax office by the former group leader and the newly designated group leader (two separate notifications required). The group leader must also notify all other members of the minimum tax group about its designation as a group leader. The federal tax office will share the information about the designation of the group leader with the local tax authorities.

Even though minimum tax returns for 2024 should generally only become due on 30 June 2026, immediate action is required in order to determine the group leader for purposes of the minimum tax group, and an electronic filing must be done on or before 28 February 2025 for calendar year taxpayers (it is currently unclear whether the 28 February 2025 deadline also applies to taxpayers with a deviating fiscal year).

Affected taxpayers should analyze the application of the rules and prepare for this notification deadline.

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