Costas Markides: Corporate tax harmonisation could make Cyprus more attractive

As Cyprus prepares to introduce the OECD-suggested and EU-mandated new, higher, corporate tax rate, expert Costas Markides believes the move will not only not chase businesses away, but also suggested it could instead even encourage more companies to have a presence on the island.

A Board Member, International Business Unit, Head of International Tax and Transfer Pricing Services at KPMG, Markides was asked to comment on the issue in the wake of Finance Minister Makis Keravnos expressing the conviction that the move will not deter large companies from setting up shop on the island.

More specifically, in statements to CBN, Markides said, “Whether the adoption of the new rules will be a reason to exit Cyprus? I do not think so. I fully share the Minister’s view that the introduction of the minimum tax provisions in our local laws will not be a reason for large groups to exit Cyprus, since the same rules apply across the EU and OECD member countries and also countries members of OECD’s inclusive framework --139 countries."

"On the contrary," Markides continued, this may be a reason for some large groups to redomicile to Cyprus.”

Elaborating on this point, Markides told CBN that the move could encourage some large companies and groups to redomicile to Cyprus because it brought the country in line with the relevant more widely used legislation while also coming in addition to the many other attractions the island has for businesses.

These, he noted included compliance with International Financial Reporting Standards (IFRS), the island’s legal system, the welcoming community and the relatively low cost of doing business here, among others.

While giving banks as one example of the type of business anticipated to be impacted, Markides did not have the exact number of companies that will be affected by the new rules at hand, but noted that the numbers mentioned by Keravnos when it came to the amount of additional income to state coffers the change would bring about (over €200 million) would have been based on official data.

“It makes sense to see how many companies have had an obligation to report under the so-called Country by Country rules, which also applies to companies with a similar threshold, that is €750 million in order to get a close estimate,” he said, adding, “The Minister and the Tax office have readily available reported data of the number of companies meeting or exceeding the stated threshold and so the projection of the additional tax revenue of €200 million (as mentioned by Keravnos) is most likely based on this data.”

In his statements to CBN, meanwhile, Markides underlined that the introduction of the minimum 15% effective tax rate on multinationals and large-scale domestic groups with turnover in excess of €750 million started as a global initiative driven by the OECD.

“The EU has pretty much adopted the OECD provisions in the form of an EU Directive back in December of 2022 with the intention to transpose the EU Directive into local law by December 2023,” he said, adding, “Although Cyprus has not yet adopted the Directive into the local tax legislation, I am aware that there is every intention to do so in the next couple of months.”

Separately, a Tax Commissioner Office source approached by CBN did not have anything to add to Keravnos’ comments but noted that various types of companies including but not limited to banks were anticipated to be impacted by the upcoming change.

Ιn his recent statements to the media, Keravnos had said Cyprus’ harmonisation with and implementation of the EU directive to impose a minimum tax rate of 15% on large multinational companies is expected to bring in over €200 million in additional revenues to the state coffers.

The Minister said the relevant harmonising bill has already been submitted to Cabinet and final decisions were expected soon.

Indicating that with Cyprus’ harmonisation with the EU legislation, companies with a turnover of €750 million or more will be taxed at 15% - instead of the 12.5% currently taxed - Makis Keravnos underlined that this is something that will bring about significant additional income for the Republic of Cyprus.

"An initial estimate is that there will be additional revenues of more than €200 million, maybe €250 million," the Finance Minister pointed out.

At the same time, Keravnos appeared reassuring regarding concerns about the departure of large multinationals from Cyprus as a result of the increase in the tax rate.

In this context, he indicated that the 15% does not concern only Cyprus, which is worth noting that it is already late with its harmonisation, but all countries, as it is a directive adopted by the OECD.

"There is no concern that there will be an outflow of companies from Cyprus," Keravnos noted in this regard.