EU Pillar Two Global Minimum Tax 2025: Multinational Payroll Implications

EU Pillar Two Tax 2025: Payroll & Compliance Guide

Pillar Two introduces a global 15% minimum corporate tax for multinationals with €750M+ revenue, impacting payroll allocation, transfer pricing, and compliance reporting from 2024-2025. HR and payroll teams must coordinate with tax departments to ensure employee costs are correctly attributed across jurisdictions.

Pillar Two Overview

  • Scope: Multinational groups with consolidated revenue ≥€750 million.
  • Effective Tax Rate (ETR): Minimum 15% per jurisdiction; top-up tax if below.
  • Implementation: EU member states adopting 2024-2025; global rollout through 2025-2027.

Payroll Impacts

Employee Cost Allocation

  • Permanent Establishment (PE) Risk: Remote workers may create PE, triggering top-up tax calculations.
  • Transfer Pricing: Ensure arm's length compensation for cross-border secondments, shared services.
  • Substance Requirements: Document employee presence, decision-making authority to support jurisdictional ETR.

Top-Up Tax Calculation

If jurisdiction ETR <15%, parent company pays top-up:

Formula: Top-Up Tax = (15% - Jurisdiction ETR) × Adjusted Profit

Payroll costs reduce profit, lowering top-up exposure—incentive to allocate employees to low-tax jurisdictions with substance.

Compliance Reporting

  • GloBE Information Return: Annual filing detailing global tax, revenue, profit, employees per jurisdiction.
  • Payroll Data: Headcount, compensation, social charges by legal entity and country.
  • Coordination: HR systems must integrate with tax reporting platforms for accurate GloBE submissions.

Payroll Strategy Considerations

  • Centralize Data: Implement global HRIS with jurisdiction-level reporting (Workday, SAP SuccessFactors).
  • Transfer Pricing Policies: Align intercompany recharges for seconded employees with OECD guidelines.
  • Remote Work Tracking: Monitor workdays per country to prevent unintended PE creation and top-up tax.
  • Safe Harbors: Utilize transitional safe harbors (qualified refundable credits, CbCR safe harbor) to reduce compliance burden.

Next Steps: Engage tax advisors to model Pillar Two impact on your group, audit payroll systems for jurisdiction-level data quality, and train HR teams on PE risks and transfer pricing documentation requirements.

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