Pillar 2: Filing obligations & deadlines
With the planned introduction of the new Pillar 2 legislation, internationally operating companies will face a number of new filing obligations. Large-scale domestic groups should also determine whether they are affected by the proposed legislation.
Any group company that falls within the scope of the Minimum Tax Act 2024 must determine how it can meet these obligations. In this article, we discuss the formalities and deadlines relating to the top-up tax return. This is the Dutch tax return in which the top-up tax to be paid is reported.
Top-up tax return filing obligation: deadlines, additional taxation and penalties
The tax levied based on the Minimum Tax Act 2024 is a declaration tax. Unlike corporate income tax, no tax return form is issued. It is therefore up to the entities themselves to determine whether they are required to file returns and pay taxes, and to subsequently file correct tax returns on time.
The tax return must be filed and paid no later than 17 months after the end of the reporting period. For the transitional year (the year the Pillar 2 criteria are met for the first time), a 20-month filing deadline applies. Companies with a financial year equal to the calendar year and that already met the Pillar 2 criteria before 2024 must therefore have filed the first annual return no later than 31 August 2026. In addition, the tax to be paid must also be have been received by the Dutch Tax Authorities on that date.
The return period will usually be the same as the financial year, although exceptions to this are conceivable. Be sure to contact your advisor in good time to discuss which return period applies to your business. As far as known, extensions will not be possible. The Organisation for Economic Co-operation and Development (OECD) has suggested mitigating fines during the first few years.
If the top-up tax return is not filed or not filed on time, this will be considered a default. This is subject to a penalty of € 136. If the taxes due have not been paid within 17 months of the end of the return period, then a fine of € 5,514 could be imposed. These penalty amounts will be indexed in 2025.
Please note, a fine relating the top-up tax information return can amount to over €900,000. You can read more about the top-up tax information return, the required information and the applicable deadlines here.
Who is subject to taxation?
It is important to note that any company that is part of an internationally operating group or a large-scale domestic group may, in principle, be subject to taxation and filing obligations. It does not matter what the stand-alone size or turnover is. In addition to legal entities, a permanent establishment may also be subject to a filing obligation under Pillar 2 legislation. It is therefore important to establish what the obligations are at the individual level. Who is subject to taxation is dependent on the type of additional levy.
Taxpayer under the Income Inclusion Rule (IIR)
The Income Inclusion Rule (IIR) results in additional taxation when too little tax has been levied in another country. Additional taxation based on the IIR takes place at the level of the ultimate parent entity. If there are foreign companies within the group subject to an effective tax rate (ETR) of less than 15%, and if the ultimate parent entity is a tax resident in the Netherlands, then the Netherlands will in principle top up to cover the difference. This is then done at the level of the Netherlands-based ultimate parent entity, partially-owned parent entity or intermediate parent entity.
Taxpayer under the Qualified Domestic Minimum Top-up Tax (QDMTT)
The Netherlands has a statutory corporate income tax rate of more than 15%. However, the application of certain tax facilities (for example, the innovation box) may result in the combined income (result) of all group entities established in the Netherlands being taxed at an ETR of less than 15%. In that case, any subsidiary entity established in the Netherlands may be included in the additional levy. Taxation takes place as if there is one taxpayer. Under the Qualified Domestic Minimum Top-up Tax (QDMTT), a single top-up tax return is prepared and filed for all Dutch entities (including permanent establishments) belonging to a group. If there is a Netherlands-based intermediate holding company that holds the shares of the other Dutch entities, then this intermediate holding company is required to file the return. In other cases, an entity is designated to file the return. All group entities in the Netherlands are/remain liable to pay tax. It is therefore important to properly coordinate which entity will prepare and file the return.
Taxpayer under the Under Taxed Payment Rule (UTPR)
In some cases, the IIR combined with the QDMTT does not lead to the desired minimum taxation, for instance when the ultimate parent entity is located in a low-tax country that does not apply the IIR. In that case, additional taxation based on the Under Taxed Payment Rule (UTPR) is possible. Countries that have implemented Pillar 2 including the UTPR can then charge top-up taxes on the profits earned by low-taxed businesses elsewhere in the group.
Like the QDMTT, the levy takes place at one group entity. One major difference, however, is that under the QDMTT, all Dutch group entities are subject to taxation, while under the UTPR, only one entity is. If multiple group companies are established in the Netherlands, the group and/or the tax inspector will make a choice as to which entity is obligated to file the return and subject to taxation.
Tax liability exceptions
The draft Minimum Tax Act 2024 has a limited number of exceptions for tax liability and calculation methodology. You can read more about the exceptions and safe harbours here.
Start your preparations in good time!
Although the first filing deadline still seems far away, we recommend you start making preparations as soon as possible. In that way, you can ensure that all required information is available on time, and that all group entities are well aware of their obligations.
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly consultant.