Dr. Nils Linnemann

Minimum Tax Act in force since January 1, 2024

The German Government has always supported the concept of introducing a Global Minimum Tax aiming for a so-called „leveled playing field“. The policy rationale is to introduce an additional layer of tax wherever MNEs owe taxes under the current systems resulting in an effective tax rate below 15%. That said, it was no surprise to see Germany introducing a Minimum Tax Act on December 23, 2023. The law applies to fiscal years beginning after December 31, 2023 except for the Undertaxed Payment Rule provisions (introduced with a delay of one year).

While the German Government most likely would have implemented Pillar 2 rules in Germany on it‘s own, there was also a legal obligation under the EU Directive (RL(EU) 2022/2523) dated December 14, 2022. According to Sec. 56 of the EU Directive, the transposition into domestic law had to be complete no later than December 31, 2023.

Considering that major players like the US and BRIC states but also some other states have not yet introduced Pillar 2 regulations, the European Union (that includes Germany) is to be considered an early adopter.

Amendment law heavily delayed but expected to pass soon

Implementation in Germany is largely shaped by the OECD Model Rules, the EU Directive and the ongoing publication of Administrative Guidances by the OECD/G20 Inclusive Framework.

Since Pillar 2 is a complex matter and all regulation had to be transposed into domestic law, the initial Minimum Tax Act was soon to be amended. The amendment law dated December 2, 2024 introduced two hot fixes. Hence, academics and practitioners kept raising concerns that – at least partially – the German Minimum Tax Act was still not in line with the OECD Model Rules or included technical errors.

It was the fall of the German Government and federal elections in early 2025 that heavily delayed the process of amending the German Minimum Tax. The first draft (intended for discussion purposes) of another amendment law dates back as far as August 20, 2024. A more advanced draft was published for comments on December 5, 2024. About nine months later, the German Government formally initiated the legislative process. Besides some technical errors the latest draft is to introduce the OECD/G20‘s December 2023, May 2024 and January 2025 Administrative Guidances into the German Minimum Tax Act.

Heavy critics from MNE groups about compliance burden

Pillar 2 faces strong opposition from affected MNE groups and some politicians. The common saying is that it brings a massive compliance burden with no adequate increase in tax revenue. While it is yet to turn out whether Pillar 2 taxes result in an increase in tax revenue, the compliance burden is certain.

MNE groups of various size, business areas and complexity face the same challenge. Pillar 2 being a cross-over topic between group accounting and (international) taxes brings a lot of complexity and the more one dives in (e.g. treatment of transparent and hybrid entities or deferred taxes on an item-by-item basis etc.) the more complex it gets.

The majority of MNEs is currently working towards claiming temporary relief under the CbCR-Safe-Harbour-Rules. In parallel implementation projects are pushed ahead to be in a (more) comfortable position if the Safe-Harbour-Tests fail or once full calculations become necessary – FY2027 at the latest.

Joint motion to suspend Pillar 2 in Germany downvoted

Pillar 2 is also increasingly perceived critical among politicians, with many questioning its relevance and effectiveness since the United States reached an agreement with the other G7 members to establish a side-by-side system. Effectively, the side-by-side system results in an exemption of US-MNEs from Pillar 2 (except where domestic top-up taxes are due).

The Finance Ministers of the States of Bavaria, Hesse, and North Rhine-Westphalia, all belong to the Christian Democratic Union of Germany, which also provides the Federal Chancellor, filed a joint motion to the Finance Committee to suspend Pillar 2 in Germany on October 2, 2025. They argued that Pillar2 became a unilateral and unfair competitive disadvantage for local companies, Germany as a result would lose appeal as a business location and with the US and BRIC states not joining, the basis for agreement has been withdrawn.

Still, the joint motion has been downvoted in the Finance Committee. Even if it had passed, Germany cannot suspend, simplify or significantly amend the Minimum Tax Act in light of the EU Directive.

MNEs to prepare for June 30, 2026 tax return and GloBE information return

While there is opposition to the German Minimum Tax Act (and Pillar 2 in general), MNEs are well advised to continue preparing for the upcoming June 30, 2026 deadline for initial Pillar 2 filings in Germany. At the same time monitoring further development at the level of the G20 on the one hand and the OECD on the other hand is key.

The OECD’s policy reaction to the side-by-side-system is expected anytime soon. Further, rumours hold that policy makers are exploring ways to simplify the Pillar 2 system. However, tax managers should keep in mind that simplifications under Pillar 2 bring its own challenges considering the formal and complex Safe-Harbour-Rules that either provide full relief or none (e.g. in case of year-end adjustments or inconsistent use of data). That said, even simplified provisions require a deep-dive implementation project to mitigate tax and compliance risks. There is eight months until the filing deadline. Until then, any doubt on data quality and completeness must be resolved.