Global Minimum Tax Law, aligning with the EU Directive 2022/2523 and the OECD’s Pillar 2 Global Anti-Base Erosion (GloBE) framework. This legislation marks a significant shift in the international tax landscape, aiming to ensure that multinational enterprises (MNEs) pay a minimum effective tax rate of 15% in every jurisdiction where they operate. Over 140 countries have committed to this initiative, addressing the challenges posed by a globalized and digitalized economy.
Key Provisions of the Law
The law targets large multinational groups and significant domestic enterprises with consolidated revenues exceeding EUR 750 million in any two of the four fiscal years preceding the reporting year. The primary mechanisms of the law include:
- Income Inclusion Rule (IIR) – Requires parent entities to pay top-up taxes if subsidiaries are taxed below the minimum rate.
- Undertaxed Profits Rule (UTPR) – Ensures that profits not adequately taxed at the subsidiary level are subject to additional taxation elsewhere.
- Qualified Domestic Minimum Top-Up Tax (QDMTT) – Allows countries to collect top-up taxes domestically, ensuring tax revenue is retained within the country.
Application and Reporting Requirements
Although the first tax filings under this law are due in mid-2026, businesses must start reflecting its impact in their 2024 financial statements. This includes assessing potential additional tax liabilities and confirming whether the new rules affect their operations. Companies will need to prepare detailed analyses to determine compliance requirements and the necessity of additional tax payments.
Financial Reporting Implications
Organizations subject to the Global Minimum Tax Law will have to incorporate these requirements into their annual financial reports. This involves:
- Disclosing the impact of Pillar 2 on financial performance.
- Calculating effective tax rates in accordance with the new rules, which differ significantly from traditional corporate tax calculations.
- Documenting compliance measures and any additional taxes paid to meet the minimum tax threshold.
Specific Provisions in Croatia
Croatia’s implementation of the EU Directive mirrors the original provisions with minimal deviations. The law applies to both multinational enterprises headquartered in Croatia and Croatian subsidiaries of foreign multinational groups. The Croatian Tax Authorities have identified only a few domestic parent companies exceeding the revenue threshold, suggesting limited immediate impact but significant administrative requirements for affected entities.
What Can Businesses Expect?
Businesses in Croatia that fall under the scope of this law should prepare for:
- Comprehensive compliance assessments to determine their obligations.
- Enhanced administrative processes to manage the complex calculations required.
- Potential restructuring to optimize tax liabilities across different jurisdictions.
- Coordination across departments (tax, finance, legal, IT) to ensure accurate data collection and reporting.
Major Challenges Ahead
The introduction of the Global Minimum Tax Law presents several challenges:
- Complex Calculations – The methodology for determining effective tax rates and additional obligations is intricate and differs from standard tax practices.
- Data Management – Gathering accurate, comprehensive data from multiple jurisdictions is resource-intensive.
- Administrative Burden – Increased reporting requirements will strain existing compliance systems.
- Adaptation to Evolving Rules – As OECD guidelines and local laws continue to evolve, businesses must stay updated and adaptable.
How Confida Can Support Your Business
Confida offers a range of services to help businesses navigate the complexities of the Global Minimum Tax Law:
- Legal and Tax Advisory – Detailed guidance on understanding and applying the new tax rules.
- Impact Assessment – Evaluating how the law affects your business operations and financial outcomes.
- Implementation Support – Assisting with the development of internal systems and processes for compliance.
- Administrative Assistance – Managing reporting obligations and ensuring accurate tax filings.
- Continuous Monitoring – Keeping your business informed about regulatory updates and compliance best practices.
By leveraging Confida’s expertise, businesses can confidently address the challenges posed by the Global Minimum Tax Law and ensure full compliance while optimizing their tax strategies.
