The European Parliament has urged action on uneven Pillar Two implementation, concerns over the US side-by-side framework, BEFIT, and digital taxation, while calling for simpler compliance rules and stronger coordination in international tax negotiations.
The European Parliament adopted its resolution on “The EU’s approach to corporate tax policy in a changing international environment” on 6 October 2026. The resolution, built upon the report prepared by the Committee on Economic and Monetary Affairs (ECON), comes against a backdrop where base erosion and profit shifting (BEPS) continue to cost global public budgets an estimated USD 100 billion to 240 billion annually and where the effective tax rate of multinational enterprises (MNEs) in the EU declined by 2.7% between 2014 and 2022.
The European Parliament highlights the need for transparent and predictable corporate tax policies to strengthen economic competitiveness within the single market. The resolution addresses the challenges of global tax fragmentation, noting that incomplete international adoption of the Pillar Two global minimum tax and the introduction of parallel regimes like the US side-by-side framework create structural disadvantages for European businesses.
Global minimum tax rate (Pillar Two) and the side-by-side (SBS) system
- Incomplete global implementation: Parliament expresses deep concern that implementation of the OECD/G20 Pillar Two framework remains uneven globally, with major economies such as China and India not having implemented the rules, and only around one-third of the 148 Inclusive Framework jurisdictions having done so.
- Structural imbalances of the side-by-side (SBS) package: Under an agreement reached within the OECD at US initiative, US specificities were accommodated by granting safe harbour status to the US Net Controlled Foreign Corporation Tested Income (NCTI, formerly GILTI) regime. Parliament points out that this SbS approach technically exempts US-headquartered MNEs from full Pillar Two obligations, while European MNEs operating in the US face structural disadvantages, distinct effective tax rates, and double reporting layers.
- Risks to the level playing field: The resolution notes with concern that SbS was introduced as a safe harbour under Article 32 of the Pillar Two Directive rather than through a proper legislative process. Coexistence of Pillar Two with parallel domestic regimes risks fragmenting the international framework and reigniting harmful corporate tax competition.
- Call for urgent impact assessment: The European Parliament calls on the OECD to trace backsliding and urgently requests the European Commission to publish an impact assessment analysing potential revenue losses for Member States (specifically examining substance-based tax incentive safe harbours and blending rules). It further urges the Commission to deploy State aid and anti-subsidy controls to counter unfair tax advantages.
Competitiveness and the EU’s simplification agenda
- Simplification: Parliament recognises Pillar Two’s role in addressing low-tax jurisdictions but calls for simpler OECD rules, including streamlined reporting and safe harbours, to reduce compliance costs. It also urges the Tax Omnibus process to remove overlapping rules, standardise tax definitions, and apply the “once-only” reporting principle without extending MNE-level burdens to SMEs.
- BEFIT review: Parliament calls for the Commission to re-examine BEFIT due to its mismatch with OECD GloBE rules and its lack of genuine EU-level tax consolidation. With Council negotiations stalled, it supports a narrower, step-by-step proposal focused on simplification and compatibility with international rules.
- Tax incentives: The resolution supports protecting EU-compliant incentives, including R&D premiums, under Pillar Two and proposes linking access to EU public procurement and research funding to maintaining a substantive tax presence.
Digital taxation and reallocation of taxing rights
Digitalisation has weakened the link between where value is created and where corporate profits are taxed, while stalled international negotiations on Pillar One have prompted several EU Member States to introduce or retain Digital Services Taxes (DSTs). The European Parliament considers unilateral DSTs a legitimate fallback to protect national tax bases when global progress stalls, but urges the Commission to assess potential retaliation, higher consumer prices, and impacts on access to technology.
UN framework convention on international tax cooperation
The European Parliament supports constructive EU participation in the UN negotiations on a Framework Convention on International Tax Cooperation and two protocols, which are expected to be completed by 2027. It stresses that the UN framework should complement, rather than replace or duplicate, the existing OECD/G20 international tax process and calls on EU Member States to coordinate closely and present a unified position in international tax forums.
