The Pillar 2 top-up tax information return
The new Pillar 2 legislation is to be implemented shortly. The draft Minimum Tax Act 2024 is expected to enter into force on 1 January 2024. This leads to a number of new reporting obligations for multinational groups and large-scale domestic groups. In addition to the top-up tax return, every company falling within the scope of this legislation is also required to file an annual top-up tax information return. In this article, we explain the expected formalities and deadlines related to the top-up tax information return.
What is the purpose of the information return?
The Pillar 2 top-up tax is calculated based on information from multiple companies, often from different countries. It is therefore important for the tax inspector (in the Netherlands or abroad) to have all the necessary information to check the tax position. The reporting is reminiscent of the Country-by-Country reporting that may already be mandatory for transfer pricing purposes for internationally operating companies.
What must be reported?
The exact design of the declaration is not yet known. The Organisation for Economic Co-operation and Development (OECD) is developing a standard form for this purpose. Some of the information that will have to be reported can be deduced from the Dutch legislative proposal. This includes extensive information relating to the group structure and group members (in all the countries in which they operate). This must include the status of group entities for the purpose of this law.
In addition, the effective tax rate in each state and the additional tax for each group entity will need to be reported. If applicable, information is also required on the amount and the allocation of the top-up tax under the Income Inclusion Measure (IIR) and/or the Under-tax Profit Withholding Tax (UTPR), for each country.
Finally, a summary of the choices made based on the relevant provisions of this law must also be added. Examples include the choice not to treat an excluded entity as such, or applying the realisation principle to determine qualifying income.
Additional information for a parent entity in a third country
For Dutch group entities, if the ultimate parent entity is located in a third state (non-EU country), and if the Income Inclusion Rule (IIR) applies to this state, then the top-up tax information return must include additional information. This enables verification of the application of the IIR, the Under Taxed Payment Rule (UTPR) and Qualified Domestic Minimum Top-up Tax (QDMTT). The term ‘all information’ in the legislative text indicates that detailed information is required.
Who is responsible for filing the top-up tax information return?
The top-up tax information return is prepared for the entire group and is the basis for the top-up tax return. The main rule is that each group entity must submit this return to the Dutch tax inspector. However, it is also possible to designate one Dutch group entity to file the return on behalf of the other entities.
It is noted that, under certain conditions, an alleviation of the filing obligation may apply in the Netherlands. This is the case when a foreign group entity files a top-up tax information return with its local authorities. If there is an arrangement in place between the competent authorities that provides for the automatic exchange of the annual top-up tax information declaration, then the Dutch group entities only need to indicate where and by whom the return was submitted (a ‘notification’).
We note that qualifying information-exchange arrangements are not in place with all countries. Indeed, many tax treaties do not mention this particular Pillar 2 return. It is therefore important to determine on a case-by-case basis whether the alleviation applies. Our advisors would be happy to assist you with this.
Filing by foreign group entity
Information return obligations based on Pillar 2 legislation will also apply in other countries. Filing a top-up tax information return in the Netherlands will usually not relieve foreign group entities of the obligation to file a return there or to notify the local tax authorities about which entity is filing the return. While the intention is for this process to be uniformly implemented globally, it is very important to also be aware of the legislation that applies locally. Our specialists can advise you on all local obligations and coordinate the timely and correct filing of the return(s) for you. We do this in collaboration with local experts from our Baker Tilly International network.
Hefty fines and strict deadlines
The top-up tax information return must be submitted to the tax inspector (or foreign tax authority) within 15 months of the end of the reporting year. If another group entity filed the return, the tax inspector must also be informed of this within 15 months of the end of the reporting year. Please note: this 15-month period is therefore shorter than the 17-month period that applies to the top-up tax return. For the transitional year (the first year the group meets the Pillar 2 criteria), an 18-month deadline applies for filing the top-up tax information declaration. The deadline for filing the top-up tax return for the transitional year is 20 months.
Please note that if the group entity or designated local entity fails to file the top-up tax information declaration on time, in full or correctly either intentionally or as a result of gross negligence, this constitutes an offence potentially punishable by a penalty of € 900,000!
Want to know more? Our experts are happy to help you!
The new Pillar 2 legislation is a significant change in the way tax is levied. Because these regulations are expected to be introduced globally, it is very important to determine promptly how the new rules will affect your taxation, reporting and business model. Our experts are happy to help you map the implications of this new legislation for your business and your international group. We can discuss the main rules and exceptions, the consequences and obligations, as well as the consequences for your business operations, administration and reporting. Where desired, we can liaise with foreign specialists from our Baker Tilly International network so that you also get a clear picture of the local obligations in the countries in which your business operates.
Or would you like to know more about how we can guide and support you every step of the way? Our advisors would be happy to assist you!
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.