Starting 1 January 2024, a global minimum tax obligation is in effect for large multinational enterprise groups with consolidated revenue of more than 750 million euros in European Union member states and many third countries (such as UK, Switzerland, Canada, Australia, Singapore etc.)
The deadline for the first minimum tax declaration is 30 June 2026 and thereafter the deadline will be 15 months after the end of each financial year.
Although Estonia is exercising the exception (which it proposed itself) not to impose the minimum tax until 2030, a minimum tax will nevertheless apply in regard to Estonia-based entities in other countries that have imposed the global minimum tax. That means that parent companies and subsidiaries located in Estonia must submit the necessary information to group companies declaring minimum taxes in another country. Development of the form and the means for the submission of information has been left up to the corporations themselves.
The purpose of the minimum tax is to levy an effective tax rate of at least 15% on profits made by large corporations regardless of which country the group earns its profit in. To do this, the effective tax rate for entities in each jurisdiction is calculated and if it is less than 15%, the difference must generally be paid as a jurisdictional top-up tax in the country of the ultimate parent company[1]. The rules for calculating tax are laid out in EU directive 2022/2523, and are based on the GloBE rules developed by the OECD.
There is a transitional safe harbour available for the first three years, based on data submitted in country-by-country reporting (CbCR). There are three tests for the CbCR exception, and if at least one is fulfilled, the group qualifies for a simplified exemption in that jurisdiction and the minimum tax payable is automatically considered to be zero. The tests are the following:
Besides the first CbCR test, there is also a permanent de minimis exclusion that gives safe harbour to subsidiaries whose three-year average revenue in its jurisdiction does not exceed 10 million euros and average profit is not more than one million euros.
If neither the CbCR safe harbour nor de minimis exclusion applies, the minimum tax obligation of Estonian-based entities can be deferred by four years and annual tax be recognized in accounts. If no dividends are distributed in Estonia and thus no tax is paid during the following four years, the minimum tax that has accrued will (generally) be payable in the country of the parent company. For example, if the tax for 2024 is not paid by the end of 2028 in Estonia, the minimum tax will be due in the country of the parent company.
Pursuant to Section 5410 of the Income Tax Act, the ultimate parent of a large-scale corporation located in Estonia is obliged to designate the entity that files a minimum tax declaration in a country in minimum tax jurisdiction. The parent company is obliged to provide the entity filing the declaration with information needed to calculate the minimum tax, including:
Thus, even though the ultimate parent located in Estonia has no obligation to file a global minimum tax declaration in Estonia, the parent does have the duty to provide the entity based in another country with all of the information on Estonia-based entities and entities in other countries, necessary to file the declaration.
If a subsidiary of international group is located in Estonia, the ultimate parent of that group generally files a global minimum tax declaration pursuant to the laws of the country of its location.
Thus, a subsidiary does not have obligations in the context of the global minimum tax provision in Estonia; however, the parent company does file a minimum tax declaration and pays top-up tax (unless the CbCR transitional safe harbour or the de minimis exclusion apples) with regard to subsidiary in the parent’s country of location. The parent company may collect the tax expense for Estonia paid in its home country from Estonia-based entities.
Subsidiaries have the option of distributing enough profits in Estonia to achieve an ETR of at least 15%. In such a case the parent company does not have to make complicated global minimum tax calculations in regard to its Estonia-based subsidiaries and the tax revenue also remains in Estonia.
[1]The global minimum tax is generally paid in the country of the ultimate parent, but in certain cases also in the country of the intermediate holding company or subsidiary.
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