Italy’s Ministry of Finance announced the ‘TSH decree’, which was published in the official gazette on 28 May, 2024.

This decree implements the Pillar Two transitional safe harbour (TSH) rules, as stipulated in Article 39 of Legislative Decree No. 209/2023, which aligns with the Council Directive (EU) 2523/2022.

The Pillar Two or GloBE rules ensure a minimum corporate tax of 15% for large multinational (MNE) groups with annual consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years.

The rules apply to all domestic and international groups with a parent company or subsidiary in an EU member state.

It also proposes implementing a qualified domestic minimum top-up tax (QDMTT) for members of in-scope groups and certain safe harbours.

Italy plans to implement the Pillar Two or GloBE rules from 1 January, 2024, except the undertaxed profits rule (UTPR), which comes into effect on 1 January, 2025.

The TSH rules include a transitional country-by-country (CbC) reporting safe harbour (CbCR TSH) and a transitional UTPR safe harbour (UTPR TSH).

The decree on TSH rules aligns with the guidelines provided by the OECD/G20 Inclusive Framework on BEPS, which was published in December, 2022, and amended in February, July, and December 2023. It exempts the operations of multinational and domestic groups from the GloBE rules during the initial fiscal years of implementation.

The TSH decree also mandates the implementation of the UTPR TSH for specific groups whose ultimate parent entity is based in a jurisdiction with a corporate income tax rate of at least 20%.

This is particularly relevant for US-parented groups and will be applicable from 2025 for calendar-year groups.

If a group qualifies for the UTPR TSH, the top-up tax amount calculated under the UTPR for the jurisdiction of the ultimate parent entity is considered zero for the year.

The CbCR TSH rules are applicable during the “transitional period”, such as for the years 2024, 2025, and 2026 for calendar-year groups.

If a group fails to apply the CbCR TSH rules for a specific jurisdiction in a fiscal year when it is subject to the GloBE rules, it cannot qualify for the CbCR TSH for that jurisdiction in the following years unless the group had no constituent entities or joint ventures in that jurisdiction in the previous fiscal year.