Tax - The One Pager: Pillar Two

Lack of EU competence and breach of EU law
The plaintiff argued that the EU lacks legisla-tive competence in direct tax matters, so the Pillar II Directive could not be adopted. In addition, the plaintiff argued that the Di-rective infringes primary EU law with a pre-liminary ruling pending before the CJEU on the Pillar II Directive (C-519/25, American Free Enterprise Chamber of Commerce).

Knock-on effect on the MTA
If the Directive were legally invalid due to a lack of legislative competence, the national incorporation law lacked legal basis and democratic legitimacy. Art. 23 of the German Constitution (Grundgesetz) prohibits the transfer of sovereign powers to the EU for unlawful EU acts. 

Procedural outlook
The plaintiff has already lodged an appeal to the Federal Fiscal Court (Bundesfinanzhof; file reference number: BFH - I R 12/26) and is expected to appeal possibly to the Federal Constitutional Court (Bundesverfas-sungsgericht). Since only the CJEU can de-clare an EU act invalid, its ruling in C-519/25 will be key and should be watched out for.

Practical note
The EU's competence to adopt directives in the field of taxation is increasingly being challenged. Strictly speaking, the EU's legis-lative competence for tax harmonization is limited to indirect taxes. However, by relying on the justification of the Functioning Internal Market, the EU has increasingly adopted directives that extend into direct taxation and relating procedural law (e.g., EOI). The outcome of these proceedings must therefore not be underestimated and may well have implications beyond Pillar II.

Key Takeaways:
MNEs in scope should consider keeping their minimum tax assessment notices open and monitor the Federal Fiscal Court appeal and CJEU case C-519/25.

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