BRUSSELS | 15 DECEMBER 2025
Estonia Withholds Support for Proposed Changes to OECD Minimum Tax Framework
Estonia’s Ministry of Finance confirmed that it did not approve proposed amendments to the international minimum tax rules developed under the OECD Pillar Two process which were anticipated to be agreed upon last week, on the grounds that they are unsuitable for the Estonian tax system.
In a webpost concerning the issue, the Estonian Ministry of Finance set out that it considers the rules to be technically complex and administratively burdensome, particularly in light of Estonia’s small number of ultimate parent entities and the limited revenue expected to arise from implementation. It notes that although Pillar Two was endorsed by 137 jurisdictions in 2021, global implementation remains uneven, with only a minority of countries having implemented the rules to date and the EU standing out as the only jurisdiction to have made them mandatory. Estonia argues that this asymmetry, combined with recent OECD adjustments such as carve-outs that tend to favour larger economies, risks undermining competitive neutrality and placing EU-based multinational groups at a disadvantage in global markets at a time of heightened competitiveness pressures.
The Ministry also raises broader structural concerns about the interaction between the evolving OECD technical standards and EU law, warning that the pace and volume of rule-making create legal uncertainty and significant administrative challenges, particularly for smaller tax administrations with limited capacity to assess wider system impacts. This position follows a communication from Estonia to the European Commission published in early December in which Estonia set out detailed concerns regarding the EU Pillar Two Directive, including the risk that substantive OECD changes are effectively incorporated into EU law without full legislative scrutiny or sufficient Member State involvement. Estonia further noted that provisions originally intended to support simplification, such as the use of safe harbours, now risk expanding the scope and complexity of the regime.
Although Estonia benefits from a derogation under the Directive allowing it to defer implementation until 2030, the Government notes that it must already begin preparing for complex and costly administrative and compliance systems, despite minimal expected fiscal gains. Drawing on the experience of other jurisdictions, Estonia points out that the minimum tax rules are expensive to administer, subject to frequent technical adjustments and burdensome for both tax authorities and businesses. In the context of increasing fiscal pressures, including rising defence expenditure, Estonia considers the minimum tax an inefficient use of administrative resources and has called for a more proportionate and flexible EU approach, including consideration of suspending, amending or narrowing the scope of the Directive to better reflect differing Member State circumstances while preserving the overall integrity of Pillar Two.
EU Publishes Mind the Gap Report
The European Commission has published the Mind the Gap report, offering the first EU-wide, country-by-country overview of tax gaps in VAT and CIT and tax administration performance across all 27 Member States. The Commission distinguishes between compliance gaps, arising from non-compliance such as evasion and avoidance, and policy-induced gaps resulting from tax expenditures and concessions. The latest estimates show the EU VAT compliance gap at around EUR 128 billion in 2023 and a VAT policy gap driven by reduced rates and exemptions at over 50% of notional VAT revenue. The new harmonised CIT gap methodology indicates an average compliance gap of nearly 11% of collected corporate tax revenues across 23 Member States assessed, with substantial variation between countries.
The report highlights persistent challenges in measuring and addressing tax gaps and underscores the role of digital transformation, modern risk analytics and cooperation in enhancing tax compliance. It calls for stronger estimation capacities, regular and transparent reporting on tax expenditures to assess their effectiveness, and improvements in tax collection and recovery systems. The Commission stresses the potential benefits of reducing tax gaps for fairness, fiscal sustainability and competitiveness, and signals the importance of frameworks for periodic evaluation of policy choices. The press release reiterates these priorities and situates the report as a basis for future EU-level action, including leveraging digital tools and shared best practices to improve tax gap outcomes.
CFE Issues Joint Statement Calling for Targeted Reform of the EU Foreign Subsidies Regulation