As we just enter into 2025, with a clear focus head, it is also important to have a quick look back on what happened in 2024. In this edition, we have taken a look at 3 key ITAX developments in the area of substance, Pillar 2 and mobility that emerged during 2024 and that will affect internationally active companies as well as their employees. A look-back to 2024, of course, also coincides with an outlook to 2025 and beyond. 

European participation exemption and ‘substance’ developments

Introduction 

The participation exemption is a Parent Subsidiary EU directive-based exemption for dividends and capital gains. It is generally considered as one of the ‘crown jewels’ of tax legislations in the EU in terms of significance. Recent years have conjured up discussions on whether the participation exemption should stay available for low-substance taxpayers. The Dutch government among others has chosen in prior years to have the exemption remain in place for participation shareholdings, so long as such shareholdings meet certain ‘mechanical’ requirements. However, Lithuanian case law (“Nordcurrent”) from April 2024 stipulated that a sort of ‘proportionality’ test was used by the local tax authorities to deny the exemption for an operational and high-taxed participation shareholding which was also not considered a conduit entity (i.e. which would typically meet the ‘mechanical’ requirements of the participation exemption).

According to the Nordcurrent case, the substance in the participation shareholding was not in ‘proportion’ to the sales volumes made by participation shareholding, hence denying the exemption based on the overall spirit and purpose of the Parent Subsidiary based General Anti-Abuse Rule (“GAAR”).  The same Lithuanian case ignited prejudicial question towards the European Court of Justice (“ECJ”) whether denial of the participation exemption in this case is in line with the Parent Subsidiary based EU GAAR.  
For now, one can await the response of the ECJ to the prejudicial questions. However, we do recommend taxpayers that have participation shareholdings to look beyond the ‘mechanical’ rules provided by the locally implemented participation exemption regimes and verify whether their structuring can also be considered in line with the Parent Subsidiary based EU GAAR.  

On a related note, the Netherlands will implement an Anti-Tax Avoidance Directive 1 (“ATAD1”) based GAAR into its legislation per 2025. This has fired up discussions whether such ATAD1 GAAR could perhaps also be used by tax authorities to contest applicability of the participation exemption beyond its ‘mechanical’ conditions, i.e. meaning that meeting such conditions should not provide a safe harbor for taxpayers. The most noteworthy observation in that context is that the ATAD1 based GAAR could potentially not only be used to contest lack of ‘proportionate’ substance at the level of the participation shareholding itself, but potentially also lack of substance at the level of the (Dutch) taxpayer that aims to invoke the participation exemption. Typically, Dutch holding companies with a co-called linking function between the business of their participation shareholdings and upper-tier operational business can be eligible for the Dutch participation exemption. However, tax-technically speaking there may be leeway to say that such structures should be denied the exemption based on the ATAD1 GAAR. Looking at this from a ‘policy’ perspective, governments may not be so keen to deny the participation exemption so swiftly, considering that this is, as mentioned, one of the crown jewels in corporate tax laws. 

Forward thinking 

Taking the above into account, we do recommend clients to remain vigilant and most of all review the Dutch participation exemption on a real-time basis, not only taking into accounts its ‘mechanical’ conditions, but also its spirit and purpose based on the ATAD1 GAAR and Parent Subsidiary GAAR. 

Pillar Two Compliance: Key Updates and Strategy to ensure compliance 
During 2024 the global tax landscape continued to evolve and requiring MNEs to face complex compliance requirements under the OECD's Pillar Two framework. The Global Anti-Base Erosion (GloBE) rules mandate a global minimum tax rate of 15%, impacting MNEs across multiple jurisdictions. Although the filing of the GloBE Information Return for the reporting year of 2024 seems distant, numerous actions were already required in 2024 to ensure compliance. These include filing local notifications and gathering consistent data across jurisdictions. The list of the actions to be undertaken to ensure Pillar 2 compliance will expand substantially in 2025. Therefore, awareness of these actions is required from MNEs to be compliant in relation to the first Pillar 2 reporting year. Accordingly, this edition shares what are the key actions to focus on in 2025 so that MNEs in the scope of Pillar 2 are able to ensure compliance in respect of the first reporting year.

Key Global Updates and Compliance Strategies 

To prepare for Pillar Two compliance, MNEs must conduct scoping analyses of their group structures and operations. This involves identifying the scope of constituent entities, filing obligations, data gaps, assessing tax liabilities, analyzing financial impacts, and developing a compliance strategy for timely filings and payments. Filing obligations vary by jurisdiction, with new systems and deadlines introduced already in 2024, for instance, the filing of Pillar 2 notification in Belgium and Hungary, and an increasing list of filing obligations already known for 2025.  

Therefore, global coordination is crucial for MNEs with operations in multiple jurisdictions. Establishing compliance teams, implementing technology solutions, and maintaining regular communication with tax authorities is key to overcoming coordination challenges and ensuring compliance.

Challenges in Pillar Two Reporting 

Pillar Two compliance poses significant challenges for MNEs. Data collection and management are complex due to the need for detailed financial data from various jurisdictions, including country-by-country reporting (CbCR) and effective tax rates (ETRs). Complex calculations, such as aligning accounting profits with taxable profits and applying QDMTT, IIR, and UTPR rules require expert knowledge. Outdated systems, cross-jurisdictional coordination, resource constraints, and ongoing legislative changes add to the complexity. Maintaining thorough documentation is critical to avoid audit risks and penalties.

Key Actions for Ensuring Compliance for the First Reporting Year (2024) 
Although the first deadline for filing the GloBe Information Return seems far, many actions are required to be performed, particularly in 2025 to ensure compliance.  Some of those actions are listed below:

December 2024

  • Review Current Compliance Status: Assess your current compliance with Pillar Two requirements. 
  • Identify In-Scope Entities: Determine which entities within your MNE are subject to Pillar Two rules and will file the GloBE Information Return. 
  • Filing of Pillar Two Notification in Hungary: Ensure the notification is filed by December 31, 2024. 

January - December 2025

  • Prepare Notifications and Registrations: Complete required notifications and registrations in all relevant jurisdictions, including: 
    • Bahamas: Notification by January 1, 2025 
    • Germany: Notification by February 28, 2025 
    • Vietnam: Notification by March 31, 2025 
    • UK: Notification by June 30, 2025 
    • Ireland, Jersey, Portugal: Notification by December 31, 2025 
    • The list is not exhaustive as it can be seen that on regular basis more jurisdictions implement additional Pillar 2 filing requirements.  
  • Data Collection: Gather financial data for all in-scope entities, including CbCR data. 
  • Evaluate Effective Tax Rates (ETR): Calculate the ETR for each jurisdiction to identify any below the 15% minimum rate. 
  • Implement Internal Controls: Establish controls around data collection, reporting, and compliance processes. 
  • Engage with Auditors: Collaborate with auditors to ensure accurate implementation of compliance measures. 
  • Prepare Top-Up Tax Calculations: Calculate any top-up taxes due under QDMTT, IIR, and UTPR. 
  • Review Safe Harbors: Assess eligibility for any transitional safe harbors provided by the OECD. 
  • Monitor Legislative Changes: Stay updated on changes to Pillar Two regulations in jurisdictions where you operate. 
  • Monitor Implementation of Exchange Agreements: Verify the countries where the GloBE Information Return for 2024 needs to be filed. 
  • Continuous Monitoring: Regularly review and update compliance processes and controls. 
  • Training and Education: Provide ongoing training for staff involved in compliance activities. 
  • Documentation: Ensure all documentation is thorough and up to date to support compliance efforts. 
  • Technology and Systems: Implement or upgrade systems to handle data collection and reporting requirements efficiently. 
  • Stakeholder Communication: Maintain clear communication with all stakeholders involved in the compliance process. 
  •  

January 2026

  • Prepare First Draft GloBE Information Returns: Prepare the first draft of the GloBE Information Return (GIR) for financial year 2024. Reconfirm the list of countries where the GIR will be filed and by which entities. 

June 2026

  • File GloBE Information Returns: Prepare and file the GloBE Information Return (GIR) for 2024 by June 30, 2026. 
  • File notification that GIR is filed in another country: Prepare and file Pillar 2 notifications to inform Tax Authorities that the GIR is filed in a different jurisdiction. 
  • File Top-up Tax Returns: File Top-up Tax Returns in those jurisdictions in which the deadline for submission a Top-up Tax Return is similar to filing GIR. 

August 2026

  • Top-Up Tax Returns: File Top-up Tax Returns in those jurisdictions in which the deadline for submission a Top-up Tax Return differs from filing GIR. In the Netherlands, this return is due two months after the GIR filing, by August 31, 2026. 

Forward thinking 

Pillar Two compliance presents significant challenges for MNEs, from data collection and calculations to cross-jurisdictional coordination and resource constraints. However, by focusing on comprehensive data preparation, leveraging technology, fostering cross-functional collaboration, and maintaining robust documentation, MNEs can navigate these challenges effectively. Proactive planning, ongoing training, and a commitment to continuous improvement will be critical in ensuring compliance with Pillar Two rules for the financial year of 2024 and beyond.

How can RSM help MNEs in scope for Pillar 2 purposes? 

As a very first step to address the challenges, RSM has developed a comprehensive and user-friendly solution for managing your compliance obligations. RSM offers the Pillar 2 Compliance Calendar that is tailored for each of our clients. This tailored tool is designed to help MNEs manage deadlines and reduce compliance risks effectively with detailed due dates, personalized updates based on your MNE’s unique operational footprint, a structured approach to gathering and reporting required data and insights into penalty risks and strategies for mitigation.  

Employee Matters: Key challenges for employers that emerged in 2024 
The world of employment is ever evolving with employers facing increasing challenges with respect to employee matters. Below are several key items that emerged in 2024.

Mobility and CO2 reporting 

2025 will mark the first year the employers are required to file a report data on employees' business travel and commutes between home and work. The data to be reported includes the number of kilometers traveled, the means of transport used, and the type of fuel. The actual CO2 emissions are not reported directly; instead, they are calculated based on the reported data.

The reporting requirement is for employers in the Netherlands with 100 or more employees, with the first report due by June 30, 2025. The report must be filed with the RVO (Netherlands Enterprise Agency) through their digital platform.

The reporting requirement poses a challenge for employers as they must navigate how to collect the required information, whilst managing concerns regarding employee privacy and the “big brother” effect on employees. At the same time, employers will need to start collecting the required data in a timely fashion in order to process, prepare and file the required report.

Self-employment versus deemed employment 

As of January 1, 2025, the Dutch Tax Authorities will restart audits and enforcement with respect to self-employed persons who are in a deemed employment relationship.

Over the past years, the Netherlands has seen an exponential growth in self-employed persons. This growth is mainly seen in the health, care, education and construction sectors. The growth has given rise to various initiatives from the Dutch Government to create legislation in this area.

At the forefront of the discussions is the Supreme Court ruling in the Deliveroo case. In their ruling, the Supreme Court provided clear guidelines on how to determine whether or not a person is in fact in an employment relationship. Key aspects in this respect are the requirement for the person to provide the work/services personally, the remuneration received, the authority of the principal regarding the work as well as the period of work and the extent to which the person is embedded in the principal’s organisation. The ruling in the Deliveroo case is not in itself unique with similar cases having led to comparable outcomes in France and the U.K.

The beginning of 2025 provides a good opportunity for companies to assess their self-employed persons, the nature of the agreements and the actual work performed.

Remote working 

While remote working itself did not emerge in 2024, several trends developed in this respect which will require companies to rethink and reshape their approach to remote working.

For many people looking for jobs, having a choice of work environment and/or location has become a key factor. In addition, remote working can help provide a better work-life balance, flexibility and efficiency. For employers, remote work options can vastly improve geographical reach in the search for talent as well as provide environmentally and financially friendly employment solutions.

At the same time, remote work offers several challenges. Not only in the area of tax, social security and legal/regulatory compliance, but also in the area of employee engagement, management, visibility and satisfaction, as well as cybersecurity and data protection. These challenges are expected to increase in the years to come, with companies expected to adopt transparent and traceable governance policies and procedures.

European Equal Pay Directive 

U Pay Transparency Directive came into force on June 6, 2023. This directive mandates measures to enhance pay transparency across the EU.

Under the Directive, Employers with at least 250 employees must report on gender pay gaps annually and take corrective action if discrepancies exceed 5% without justification. The deadline for transposing this directive into national law is set for 7 June 2027 with the Netherlands looking to implement the Directive into national legislation by June 7, 2026.

In the meantime, the Netherlands has existing laws that require companies with at least 100 employees to discuss reward data and pay ratios annually with their works councils. In addition, the Dutch Civil Code and the Equal Treatment of Men and Women Act already prohibits discrimination in terms of employment, including pay. Further to this, the Dutch Government has indicated that that they expect to have the draft implementation legislation for the equal pay directive ready in the first quarter of 2025.

From a broader perspective, other EU countries such as Belgium, Germany and Poland have also already taken steps towards the full implementation of the directive, aiming to enhance pay transparency and address gender pay gaps across the EU to ensure transparency and fairness in pay practices and aiming to reduce the gender pay gap as well as promote equality in the workplace. 

RSM is a thought leader in the field of International Tax consulting. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.