Pillar 2 rules in an M&A context: time for action!


The OECD’s Pillar 2 rules have introduced a global minimum effective taxation of 15% for multinational enterprises or large domestic groups. Urgent action should be taken by all groups subject to the new mandatory pillar 2 notification, which is due by 13 July 2024. But also in transactions, the potential impact of pillar 2 should be carefully considered in all deal phases.

Pillar 2 at a glance

At the end of 2023, the Belgian legislator implemented the OECD’s Pillar 2 rules, introducing a global minimum effective taxation of 15% for multinational enterprises (“MNE’s) or large domestic groups. A group will be in scope of Pillar 2 if it had a consolidated revenue exceeding €750 million during 2 of the 4 previous tax years. 

Once a group is in scope of Pillar 2, it needs to assess each year and for each jurisdiction in which it is active whether it is subject to a minimum effective taxation of at least 15% (to be calculated based on the consolidated group accounts and considering specific Pillar 2 calculation rules). If not, the group will become subject to a ‘top-up tax’ for the low-taxed jurisdiction, which will be due at the level of the ultimate parent entity (“UPE”) or at a lower level (depending on how/if Pillar 2 was implemented in the relevant jurisdictions). 

Pillar 2 in an M&A deal context

The potential impact of Pillar 2 should be carefully considered in all M&A deal phases, namely (i) pre-deal (when performing a tax due diligence on the Target and when setting up the post-deal group structure) (ii) during the deal (when negotiating the purchase price and tax protection in the SPA) and (iii) post-deal (upon further integration of the Target into the group structure and evaluation of the group’s tax compliance procedures with respect to Pillar 2).

Below, we have summarized some specific attention points regarding the impact of Pillar 2 in the context of an M&A deal: 

  • It will be important to assess which entities are to be considered as a “group” for Pillar 2 purposes, in order to assess whether the €750m threshold has been met. In principle, all entities controlled by an UPE, where the UPE is required to include those entities in its consolidated accounts, form one group for Pillar 2 (with certain exceptions). 
    • For most private equity funds with portfolio investments, this means that the threshold needs to be calculated at portfolio level
  • Pillar 2 exclusions and (temporary or permanent) safe harbours may be available for certain group entities. The impact of excluding these companies from the overall ETR-calculation should be carefully considered.
  • Specific Pillar 2 scope- and calculation rules apply in case of (1) divestments / acquisitions of one or more entities, (2) investments in / via a joint venture, (3) carve-out of assets and liabilities, and (4) tax neutral reorganizations of one or more group entities;
    • For example, if a group will exceed the €750m threshold as a result of an acquisition, this could immediately push the post-acquisition group in scope of Pillar 2 as from the acquisition year, if the combined revenue of the companies / groups involved in the acquisition exceeded the €750m threshold during 2 of the previous 4 tax years;
  • Certain elements might make it difficult to fully assess the impact of Pillar 2 in a pre-deal phase, such as (1) limited access to certain (sensitive) tax information, (2) variations in applicable domestic tax regimes and -incentives and how they are treated under Pillar 2 and (3) variations in accounting standards used by the companies involved. This increases the importance of including adequate protection in the SPA and of performing an extensive Pillar 2 analysis post-deal. 
    • Pillar 2 rules and compliance requirements can vary depending on the jurisdiction that is implementing the rules. Investments in multiple jurisdictions will hence lead to increased Pillar 2 compliance monitoring requirements going forward
  • For example, in Belgium, a mandatory Pillar 2 notification was recently introduced. A group subject to Pillar 2 with a Belgian presence needs to disclose (a.o.) detailed information on its ownership structure to the Belgian Crossroad Bank for Enterprises (“CBE”), in order to receive a specific company number that needs to be used to file Belgian Pillar 2 tax returns. For groups already in scope of Pillar 2, this notification is already due by 13 July 2024. In case of a group entering into the scope of Pillar 2 later (e.g. as a result of an acquisition), the notification must be made within 30 days after the start of the financial year when the group has become subject to Pillar 2.

Contacts: Christophe Rapoye, Nancy De Beule, Hugues Lamon