Simplifying Pillar Two implementation: European Commission puts forward DAC9 proposal

Transforming tax compliance: the impact of DAC9 on multinational enterprises

The European Commission has proposed a ninth amendment to the EU Directive on Administrative Cooperation in the field of taxation, known as DAC9. These changes aim to facilitate the exchange of top-up tax information between member states and simplify Pillar Two compliance for multinational enterprises and large-scale domestic businesses. If (or when) DAC9 is adopted by the EU in 2025, in-scope businesses will only need to file a single top-up tax information return in one EU member state, instead of multiple filings across different EU countries.

Simplified reporting requirements

DAC9 aims to simplify reporting requirements by incorporating the GloBE Information Return from the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) into EU law. This proposal establishes a system for tax authorities to exchange information with other EU member states. Under the proposed directive, Ireland and other EU member states would have until 31 December 2025 to transpose DAC9 into national law. This timeline is tight, given that the proposed directive is not yet adopted. The first top-up tax information returns are due by 30 June 2026, with information exchange by tax authorities required by 31 December 2026.

Actions for businesses

Businesses should evaluate whether Ireland is the most suitable member state to file their top-up tax information return, potentially using a designated local entity if it is not the location of the ultimate parent entity (UPE). Filing in Ireland may be advantageous for multinational enterprises unable to use the temporary Country-by-Country Reporting (CbCR) safe harbour for their Irish operations, as they will already be collecting data and preparing for GloBE compliance in Ireland. Additionally, the Irish Revenue Commissioners have issued detailed guidance on filing the top-up tax information return in Ireland, providing a level of certainty available in only a few jurisdictions. Businesses should consider the data points required for this filing if they have not already done so.

A new system for information exchange

DAC9 would introduce a system where tax authorities automatically exchange top-up tax information returns using a standardised template. Member states will need to share relevant parts of these returns with other member states within three months of receipt (six months for the first return). The European Commission will develop this standardised digital form. The proposal also includes a process for coordinating follow-up information requests among EU member states.

To share top-up tax return information with non-EU countries, member states will need to sign appropriate international agreements. The OECD BEPS Inclusive Framework has published a Multilateral Competent Authority Agreement on the Exchange of GloBE Information which will facilitate these exchanges.

Standard reporting form

DAC9 introduces a standard form for in-scope groups to report top-up tax information, aligned with the OECD’s GloBE Information Return (GIR). However, the OECD is already working on updates to the GIR, indicating potential changes to the proposed EU standard form. DAC9 empowers the European Commission to align this Pillar Two standard form with the OECD’s GIR and any future modifications.

Transitional simplified framework

The top-up tax information return includes the election for the transitional simplified jurisdictional reporting framework as a temporary measure, allowing for simplified reporting for all fiscal years beginning on or before 31 December 2028. Under the simplified framework, in-scope groups generally do not need to report adjustments to financial accounts net income and loss, current tax expense, or deferred tax expense on a constituent entity-by-constituent entity (CE-by-CE) basis. Instead, all adjustments can be reported on a net basis. This framework applies where either no top-up tax liability arises or where the liability does arise but does not need to be allocated on a CE-by-CE basis.

Avoiding additional data requirements

Both the DAC9 proposal and the GIR report suggest that jurisdictions should avoid imposing extra data requirements beyond the top-up tax information return or GIR as part of their routine tax return and payment processes. This recommendation is based on the extensive detail already required for the top-up tax information return. It is also important to note that preparing the top-up tax information return is separate from any local tax return requirements. Irish constituent entities may still need to file one or more of an Income Inclusion Rule (IIR) return, an Undertaxed Payments Rule (UTPR) return, and/or a Qualified Domestic Top-up Tax (QDTT) return, as well as meet registration and notification of filer requirements. 

Conclusion

The European Commission’s DAC9 proposal aims to simplify tax reporting for multinational enterprises in the EU. By aligning with OECD standards and facilitating automatic information exchange, DAC9 seeks to reduce the administrative burden on businesses and improve tax compliance across member states. 

Key actions businesses can take today

• Evaluate filing jurisdiction: assess whether Ireland is the most suitable member state for filing your top-up tax information return. Consider using a designated local entity if Ireland is not the location of your UPE. Filing in Ireland may be advantageous due to existing data collection and GloBE compliance preparations.
• Review data requirements: identify and review the data points required for the top-up tax information return. Ensure that your systems can capture and report this information accurately. Early preparation will help avoid last-minute compliance issues and ensure a smooth filing process.
• Monitor regulatory updates: stay informed about updates to the OECD’s GIR and any changes to the proposed EU standard form. The European Commission may align the Pillar Two standard form with future OECD updates, impacting your reporting requirements.
• Consider the simplified framework: evaluate the benefits of electing the transitional simplified jurisdictional reporting framework. This temporary measure allows for simplified reporting, reducing the need for detailed adjustments on a CE-by-CE basis, which can streamline your compliance efforts.

We are here to help you

Navigating the complexities of DAC9 and its implications for your business can be challenging. Our experts are here to provide you with tailored advice and support to ensure seamless compliance with the prospective new regulations. Our deep understanding of both local and international tax laws, combined with our practical experience, uniquely positions us to assist you. Contact us today to discuss how we can help you optimise your tax reporting processes and stay ahead of regulatory changes.