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EU implements landmark 15% minimum tax for tech giants earning over €750M globally. The two-pillar system reallocates taxing rights to user countries and establishes enforcement mechanisms. US threatens retaliation as 65 nations adopt similar rules. News Image

Europe Takes Historic Step on Tech Taxation

After years of negotiations, European Union member states have agreed on a landmark digital tax framework targeting major technology companies. The new rules establish a 15% minimum corporate tax rate for large multinationals with global revenues exceeding €750 million. This comes as part of the EU's implementation of the OECD's Pillar Two global tax agreement.

How the New Tax System Works

The agreement contains two key components:

Pillar One: Profit Reallocation

Companies with over €20 billion in revenue and profit margins above 10% will see 25% of their excess profits taxed in countries where they have users or customers. This particularly affects US-based tech giants who generate significant revenue in European markets without physical operations.

Pillar Two: Global Minimum Tax

The 15% minimum tax features three enforcement mechanisms:

Income Inclusion Rule - Allows home countries to tax foreign profits if effective tax rate falls below 15%
Undertaxed Profits Rule - Permits countries to impose top-up taxes
Domestic Minimum Tax - Gives market jurisdictions first claim to tax revenue

Implementation Timeline

The rules took effect in early 2024 across most EU states. Countries with fewer than 12 affected companies received a six-year implementation delay. 65 nations worldwide have now adopted similar legislation.

Why This Matters Now

The digital economy represents 15.5% of global GDP according to World Bank data, growing 2.5x faster than overall GDP. Previous tax structures allowed tech giants to shift profits to low-tax jurisdictions like Ireland or Luxembourg. The EU estimates the new system will generate €220 billion annually in additional tax revenue globally.

International Reactions

The US has threatened retaliation against countries implementing the tax. President Trump recently included digital taxes in his "Fair and Reciprocal Plan", while Germany's Hesse state has called for temporary suspension of the rules. Despite tensions, EU Trade Commissioner Valdis Dombrovskis maintains the tax "levels the playing field for all businesses".