Estonia’s concerns regarding Directive 2022/2523 and the implementation of the global minimum tax (Pillar 2)

REPUBLIc OF EsT0NIA MINIsTRY OF FINANcE

Ursula von der Leyen European Commission [email protected] Our ref. 2?.11.2025 No 5-1tz5O —4’ Wopke Hoekstra European Commission cab-hoekstra-contact@ec .europa.eu

Estonia’s concerns regarding Directive 2022/2523 and the impiementation of the giobal minimum tax (Pillar 2)

Dear coileagues,

Discussions on the giobal minimum tax (Piliar Two) are evoiving rapidly at the OECD Inciusive Framework. In the EU, these evoiving standards interact with Directive 2022/2523 on minimum corporate taxation, which was designed to ensure coordinated impiementation. As the rules change continuousiy, Member States, especially smalier administrations as weli as taxpayers, face rising complexity, uncertain timelines, and significant administrative burden, often with limited corresponding revenue.

We would like to draw your attention to several important concerns reiated to the impiementation of the giobal minimum tax and Directive 2022/2523. The foliowing outlines Estonia’s position and the chailenges faced by smaller Member States in this context.

We need to prioritise EU competitiveness under moving giobal standards

We are concerned about the deveiopments surrounding Piliar 2 and their impact on the competitiveness of the EU Member States.

The EU has fixed detaiied requirements in a Directive while key technicai eiements at the OECD level continue to shifi. This asymmetry puts EU economies at a structurai disadvantage. For other countries, minimum tax remains voluntary and even those countries currently impiementing the rules can decide to repeal the rules whenever they need. Only the EU has made these rules mandatory through a Directive, taking away the freedom from Member States to flexibly react to changing circumstances. As of 2021, 137 jurisdictions agreed to giobal minimum tax. As of 2025, 55 countries have impiemented it. Ofthose 55, ali but the EU Member States are free to make their own decisions about the giobai minimum tax.

The iatest amendments to the minimum tax ruies are changing the originai agreement. We did not expect to carve out big economies from the minimum tax system when we agreed to it in

Suur-Ameerika 1 / 10122 Tallinn / Estonia / +372611 3558 [email protected] www.rahandusministeeriurn.ee / Reg. code: 70000272

2021 at the OECD and when we agreed to the Directive in 2022. Carving out big economies from the minimum tax rules wiil have harmful effect on the EU competitiveness. It changes the level piaying fieid and does not provide equal treatment for businesses. Businesses have sounded the alarm that the differences between different minimum tax rules wili make an impact on strategic investment decisions. Due to the EU minimum tax, EU groups are unfavourabiy positioned to operate on foreign markets and hence, their growth potential will be severely lirnited this ali at the time when the competitiveness of the EU as an economic biock is at the cruciai junction.

We insist that important changes currently considered at the OECD cannot automatically become part of the EU law

When the Directive on the giobal minimum tax was agreed upon, the implications of Articie 32 regarding safe harbours were not fuiiy anticipated. This article was originaiiy intended to support simplification, but the situation has evolved significantly. The ruies goveming the globai minimum tax are rapidly changing, and both the volume and complexity ofthese rules — particularly the scope and application of safe harbours — have exceeded expectations.

In our view, these developments are so substantial that there is a need for changes to both the OECD Model Rules and the Directive. They go far beyond a simplification exercise that could he done through safe harbours that automatically become part of the Directive. For these substantiai changes, the Directive should be amended properiy, with sufficient time for impact assessment and by including national governments and parliaments into the procedure. Otherwise, we ailow EU legisiation to be done at the OECD technical level. Even when such changes are beneficial to taxpayers, they can stili affect both taxpayers’ obiigations and Member States’ budgets. EU tax law should not he re-written indirectly by processes where Member States iack fuil legislative participation and controi.

Current process speed Iimits meaningful participation by smaJl Member States

The pace and volume of OECD ruiemaking leave smaiier administrations with iittie practicai ability to shape outcomes or adequately assess system-wide impacts. For small states, the human and IT capacity needed to build and maintain systems for compiex rules is disproportionate to their size and to the expected tax revenue. Implementing legisiation now, only to revise it shortiy thereafter, is costiy and inefficient. In line with the European Cornmission’s key priority ofbetter regulation and simplification, it is essential to ensure that the impiementation of the giobai minimum tax does not impose excessive administrative obligations, particularly on businesses. Constantly changing ruies, introduced without sufficient time for preparation and proper national tax legislation, wouid not contribute to our goai.

We fuily support the Inciusive Framework’s pian to conduct a stocktake by 2029. This process wiii aliow rnernbers to identify substantiai risks, unintended effects, and opportunities for simplification, and to reach consensus on the way forward. However, we are concerned about the timing. Estonia wouid he required to implement the giobai minimum tax ruies before this stocktake is completed, meaning we would have to adopt rules that may need to be amended even before they enter into force. Additionaliy, we would need to develop an IT system and begin modifying it immediateiy, which is hoth costiy and inefficient for a small jurisdiction. At the same time, we do not expect adequate tax revenue from the impiementation of the giobal minimum tax to justify the resources and costs required for its application.

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The impiementation of giobal minimum tax should be voluntary for Estonia and other Member States with smail number ofUPEs

Pillar 2 rules adopted at the Inclusive Framework of the OECD are voluntary for ali countries who have agreed to them. Only the EU has made these rules mandatory through a Directive. In the current direetive, five countries are abie to postpone the impiementation of minimum tax until 2030. Even though Estonia does not have to apply the rules now, we aiready need to make preparations, as 2030 is just around the corner. The volume of the rules is a challenge ofitself. From other countries’ experience we see that the rules are complex, costly and bring iittie if any revenue. In addition, the ruies change every year and this aiso comes with additional costs and burden. This is challenging for smailer Member States, especially now, when we are facing other, more pressing calls for our attention and resources. At the times when we need more revenues to cover the increasing defence expenditure, minimum tax is a very expensive soiidarity proj ect.

In the current economic and geopolitical situation, ali EU Member States need to raise revenue effectiveiy and efficientiy

Revenue needs of Member States and the EU are growing. By continuing the application of compiex and inefficient tax rules, we are misspending the resources of the taxpayers and tax administrations that are essential for voluntary compliance. We need to work coliectively on solutions that bring in the maximum amount oftax revenue with the minimum cost.

One of the priorities of the Estonian government is simplification and the reduction of administrative burden. I3etter regulation and simplification are also key priorities of the European Cornmission. Therefore, it would be difficult to gain support for rules that increase both the nurnber of provisions to be implemented and the associated impiementation costs —

particularly when such rules may resuit in double taxation in certain cases, whiie failing to generate sufficient tax revenue to justify the resources required.

Given these circumstances and the seerningiy endless nature ofwork on Piliar 2. it would he more beneficial to the EU ifPillar 2 would he solved as a common approach also for the EU Member States or at ieast small EU Member States. We propose giving serious consideration to reviewing the Directive. There are severai options the EU could navigate the current uncertain situation so that our economies wiii not iose in their competitiveness. We wouid suggest either suspending the implementation of the Directive 2022/2523 until the OECD ruies are stabilized and clear; repealing the Directive; or amending Article 50 of the Directive to provide a permanent derogation for Member States with small number of UPEs.

The third option would respect the desire of certain Member States to continue with the Directive while allowing smailer Member States to avoid excessive implementation and amendment costs, taking into account their limited resources. Since other Member States can apply the UTPR in cases of undertaxed profits, a permanent derogation wouid not raise integrity concerns. The overali integrity of Pillar Two is preserved, since the current OECD Model Rules provide sufficient tools to ensure the agreed minimum level oftaxation.

Estonia remains committed to constructive dialogue and is ready to contribute to discussions aimed at finding a balanced and sustainable solution that would benefit ali the Member States.

Yours sincerely,

Jflrgen Li Minister of Finance

Inga Kiauson +372 5885 1357 Inga.Klausonfin.ee

Copy to Kyilike Sillaste-Elling kyilike.sillaste-ellingmfa.ee

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