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September 13, 2023

Italy launches BEPS 2.0 Pillar Two draft law for public consultation

  • On 11 September 2023, the Italian Government released a draft Legislative Decree to implement the BEPS 2.0 Pillar Two global measures.
  • The draft is based on the EU Directive n. 2022/2523 providing for the implementation of the OECD BEPS Pillar Two rules within the European Union (EU). EU Member States have until 31 December 2023 to transpose the Directive into national legislation.
  • The draft is subject to a public consultation process until 1 October 2023.

Executive summary

On 11 September 2023, the Italian Government released a draft Legislative Decree to implement the BEPS 2.0 Pillar Two global measures (GloBE Rules) in its domestic legislation (Draft Law). The Draft Law is currently subject to a public consultation process with comments to be submitted through the Ministry of Economy and Finance website by 1 October 2023.

Based on the Government's explanatory statement, the Draft Law closely reflects the EU Directive n. 2022/2523 dated 14 December 2022 aimed at implementing the Organisation for Economic Co-operation and Development (OECD) Pillar Two rules within the EU (Pillar Two Directive). In addition, the Draft Law incorporates a Qualified Domestic Minimum Top-Up Tax (QDMTT) and includes clarifications from the OECD Commentary and recent OECD guidance.

The new rules should become effective starting 1 January 2024.

Detailed discussion

Generally, the GloBE Rules provide for a coordinated system of taxation intended to ensure that large multinational enterprise (MNE) groups pay a minimum level of tax — equal to 15% — on income arising in each jurisdiction in which they operate. Whenever the effective tax rate for a given jurisdiction is below the 15% minimum rate, a top-up tax on profits arising in the jurisdiction will be levied through two interlocking domestic rules, the Income Inclusion Rule (IIR) and Undertaxed Payment Rule (UTPR). Jurisdictions have the possibility to also implement a domestic minimum top-up tax in compliance with GloBE Rules (the above mentioned QDMTT) that would apply with priority over IIR and UTPR.

The Government's explanatory statement notes that the following priorities were addressed when drafting the Draft Law:

  • Implementing provisions that strictly adhere to the Pillar Two Directive
  • Defining a legislative structure that incorporates the EU provisions while also issuing further implementing regulations
  • Using language that is more consistent with the Italian legislative practice

The Draft Law consists of 52 articles divided into nine chapters. It starts by defining the scope of the rules (Chapter 1) and by introducing a concept of top-up taxation by way of three different measures (Chapter 2): the IIR, UTPR and the QDMTT. After describing the rules for calculating the effective tax rate at jurisdictional level (Chapters 3, 4 and 5) and on certain group reorganizations (Chapter 6), Chapter 7 aims to ensure proper coordination between certain domestic tax regimes and the new rules on top-up taxation.

The Draft Law concludes by addressing the new tax compliance requirements related to the implementation of the Pillar Two rules (Chapter 8) and establishing the effective date of the new provisions (Chapter 9). To comply with EU obligations, the Italian Government proposes that the IIR and QDMTT become effective for financial reporting years starting on or after 31 December 2023, while the UTPR would become effective for financial reporting years starting on or after 31 December 2024.

No derogation or deferral for the application of the QDMTT is currently envisaged for MNE groups in their initial phase of internationalization and for large-scale domestic groups.

The Government's explanatory statement also clarifies that some parts of the OECD Model Rules Commentary and OECD administrative guidelines have already been included in the Draft Law. For instance, the Draft Law already incorporates the definition of "marketable transferable tax credit" as developed and explained in the OECD Administrative Guidance of 17 July 2023.

Any future OECD guidance, along with technical aspects of the new tax system, will be addressed in future implementing measures. Similarly, simplifying safe harbor criteria and administrative requirements will be dealt with by a separate decree to be issued by the Minister of Economy and Finance.

The Draft Law also contains a generic reference to "certain simplified regimes" (Article 32), under which the additional top-up tax arising in a given jurisdiction for a given fiscal year is deemed to be zero if the level of effective taxation of the constituent entities located in the jurisdiction complies with the conditions stated in an international "Agreement on Simplified Regimes" (i.e., a set of rules and conditions agreed upon by all the EU Member States that allow MNE Groups to benefit from certain simplification regimes).

The ordinary deadline for filing the Pillar Two Return is the fifteenth month following the last day of the relevant fiscal year (for FY2024 the deadline is pushed back by three additional months). The Italian Government will provide future clarifications concerning technical aspects of filing the return. At present, the Draft Law provides that in the case of omitted GloBE return or relevant filing delayed by at least three months, a €100k penalty will apply. For a filing delayed by less than three months or an inaccurate return, the applicable penalty ranges from €10k to €50k. However, a penalty relief period is provided for the first three years of enactment of the GloBE rules, except in cases of taxpayers' gross negligence.


For additional information with respect to this Alert, please contact the following:

Studio Legale Tributario, Milan

Studio Legale Tributario, Rome

Studio Legale Tributario, Bologna

Studio Legale Tributario, Florence

Studio Legale Tributario, Torino

Studio Legale Tributario, Treviso

Studio Legale Tributario, Verona

Ernst & Young LLP (United Kingdom), Italian Tax Desk, London

Ernst & Young LLP (United States), Italian Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor