Parliament approves 15% minimum tax on multinationals and large-scale domestic groups

The Plenary has approved Cyprus' harmonisation with a European directive to ensure a 15% global minimum level of taxation of multinational enterprise groups and large-scale domestic groups in the EU, the so-called Pillar 2 Directive.

The minimum effective tax rate is 15% for entities belonging to multinational enterprise groups or a large-scale domestic group, with annual consolidated revenues exceeding €750 million.

The proposed regulations introduce into national legislation the mandatory taxation rules IIR (Income Inclusion Rule) and UTPR (Under Tax Profit Rule), as well as the national Cypriot supplementary tax, which is imposed and applied in national law in analogy to the provisions of the Directive in question.

During the discussion in the Finance Committee, it was said that mandatory taxation rules are expected to positively affect the tax revenues of all jurisdictions, including the Republic of Cyprus, as it is a framework that increases corporate taxation.

The national supplementary tax will be imposed from 2025, in order to provide the Cypriot affected entities with the necessary time to adapt and to avoid the possibility of their relocation to other countries, which will provide them with greater tax benefits. 

It is clarified that business groups falling within the provisions of the bill, which operate in Cyprus and pay actual tax corresponding to a tax rate that is lower than the minimum effective tax rate of 15%, will be required to pay the difference in the form of a supplementary tax.

The tax base on which the supplementary tax rate is imposed is the excess profit, i.e. the total accounting profits of the Cypriot constituent entities after a series of adjustments and modifications.

It is noted that during the discussion it was mentioned that the Republic of Cyprus was to be harmonized with the European acquis by 31 December 2023. Due to the non-harmonization, the European Commission issued a reasoned opinion on 23 March 2024, calling on the Republic to take the necessary compliance measures by 23 July 2024.

However, due to the failure to timely notify harmonisation measures with the Directive in question, the European Commission decided to refer the Republic to the Court of Justice of the European Union.

Based on data collected from the Taxation Department's database and relating to the years 2021 and 2022, the number of affected entities in Cyprus is estimated at 1,900.

According to calculations based on conventional tax rules applied in national legislation and without taking into account changes in the strategic decisions of the entities or the possibility of their relocation, the implementation of the proposed measure is estimated to increase state revenues for the year 2026, which is expected to range between €200 million - €250 million.

(Source: InBusinessNews)