Lana Brlek (PwC Hrvatska): Pillar 2 will become a standard part of financial reporting

Next year brings some news in the taxation of large global companies. This concerns the Law on Minimum Global Tax, which is widely discussed around the world and will also be implemented in Croatia. Lana Brlek, director of tax consulting at PwC Croatia, states that the idea is actually very simple: a minimum corporate tax rate of 15% is being introduced in all countries where large multinational groups with consolidated revenues exceeding €750 million are present. Within the Inclusive Framework of the Organisation for Economic Co-operation and Development (OECD), 138 countries have already joined this tax initiative, says Brlek, to address the challenges arising from the digitalization of the economy.

What news does the Law on Minimum Global Tax introduce?

– The Law on Minimum Global Tax, known as Pillar 2, is a topic that is increasingly mentioned on a global scale, and recently in Croatia, as it is currently in urgent parliamentary procedure and its publication is expected. Its goal is to combat tax avoidance and create a level playing field in economies around the world. The intention is to tax the profits of multinational groups where the economic activities that generate those profits are carried out and where value is created. The rule brings a domino effect, and there are three levers that will ensure that tax is always paid somewhere for each country, even if that country has not introduced Pillar 2. The tax is levied either at the level of the parent company’s jurisdiction or in the country where the subsidiary is located (according to the Croatian proposal of this law, it must have revenues above €10 million and generate a profit of at least €1 million) or in any third country where the group operates if, for example, the jurisdiction of the parent company or Croatia does not introduce these rules. This system motivates countries to join the initiative; otherwise, the excess tax that would belong to them will be paid elsewhere.

How will it affect companies in Croatia?

– Since Croatia is not a country where profits are shifted, is not a tax haven for large groups, and our companies generally pay tax at regular rates, our government does not expect that the introduction of Pillar 2 will result in significant new tax revenues or affect many entrepreneurs. Considering the source, aim, and purpose of the Law, as well as the method of determining the additional tax obligation, it is concluded that investments in Croatia will not decrease. Since investments bring tax incentives that reduce the effective tax rate, it is still possible that there will be some challenges in this area, according to experiences in some other countries. The rules are complex, so we expect many administrative challenges for all companies that will be covered by this law, even if the final conclusion is that there are no taxable obligations. The formula for calculating the effective tax rate according to Pillar 2 rules differs significantly from that of our corporate tax return. Even if we pay regular tax in Croatia, the Pillar 2 calculation may still surprise us.

Which bodies and organizations will not be covered by the tax?

– Excluded are, of course, legal entities that are not otherwise subject to corporate tax, such as state bodies or international and non-profit organizations, as well as all companies in multinational groups that have not achieved consolidated revenues above €750 million in two of the previous four years. Therefore, for example, a Croatian company with revenues above €15 million is not covered by this regulation if the entire group has consolidated revenues of €500 million.

What solutions will you offer your clients?

– PwC has been analyzing the potential impacts on our market for some time. We apply the experiences of experts from the PwC network at the European and global level, and we have also organized workshops with larger clients where we discussed the possible impact of the provisions on their business. We are the only ones in Croatia who have formally submitted proposals in the public discussion on this law because our goal is to assist both entrepreneurs and our Ministry of Finance in implementing these rules. We have already presented basic information on the topic of Pillar 2 in some articles and continue with individual meetings with clients. The first tax return will be submitted only in mid-2026, but companies will have to report additional tax expenses or confirm that there is no impact as part of their audit reports already in 2024. Pillar 2 is becoming an increasingly important topic given its prevalence worldwide and will become a standard part of financial reporting.

Content created in collaboration with PwC Hrvatska.