Portugal prepares to implement Pillar II: the 15% minimum rate and the IBC of Madeira

On September 11, 2024, the Portuguese Council of Ministers adopted a draft bill to implement the European Union Minimum Taxation Directive (Directive 2022/2523, hereinafter the “Directive”).

This Directive aims to ensure a minimum level of global taxation for multinational enterprises (MNEs) and large-scale domestic groups within the European Union (“EU”) with a minimum consolidated turnover of at least EUR 750 million.

What does this mean? Is my company impacted?

Entities that do not belong to a group with the EUR 750 million minimum consolidated turnover are outside the scope of the Directive. Hence, companies of the Madeira International Business Center (and benefitting from the special 5% Corporate Income Tax rate) will not be impacted, unless they are integrated into a group with a minimum consolidated turnover of at least EUR 750 million.

In fact, Portugal is a country characterized by micro, small, and medium-sized companies – we are not a typical holding jurisdiction of MNEs (such as Ireland, for instance). Although there are no public numbers, these new rules should apply to a limited number of Portuguese companies - estimated to be around 3,000, but there are no official numbers.

Where does all of this come from?

The EU Member States agreed on Directive 2022/2523 on December 15, 2022, to enforce a global minimum tax for MNEs and large domestic groups across the EU, fulfilling the EU’s commitment to implement the agreement on global tax reform reached by the OECD/G20 Inclusive Framework to combat on base erosion and profit shifting (the so-called OECD Pillar Two Model Rules).

The Directive mandates a minimum tax rate of 15% for MNEs within the EU.

The deadline for transposing the Directive into national law was December 31, 2023, but Portugal was among nine Member States that failed to meet this obligation.

Consequently, on January 25, 2024, the European Commission initiated an infringement procedure by issuing a formal notice that gave a two-month deadline for finalizing the process and avoiding further penalties - Portugal obviously missed the deadline once again.

The unfortunate golden plate for being the last EU member-state to implement the Directive was ultimately won, but with the adoption anticipated for the upcoming weeks, the infringement procedure should be closed without further action.

The full text of the draft bill is available here (in Portuguese only).