The Ministry of Finance informs about the adoption of the European Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (Pillar II), following a unanimous agreement reached on 15/12/2022 between the EU Member States.
This European Directive is in line with the global rules adopted unanimously by the Organisation for Economic Cooperation and Development (OECD) and the leaders of the G20 countries in October 2021. The rules focus on addressing the tax challenges arising from digitalisation and Base Erosion and Profit Shifting (BEPS).
According to this European Directive, groups of multinational companies or large-scale domestic groups based in EU m-s and maintain annual consolidated revenues of more than €750m, will have the obligation to pay corporate tax rate of at least 15% on their corporate profits. This factor also applies to the profits of affiliated entities established in third country jurisdictions.
The imposition of the effective corporate tax rate of 15% will be carried out through two main mechanisms:
-the Income Inclusion Rule (IIR) ensures that an ultimate parent entity that is located in a m-s is subject to the top-up tax (the ‘IIR top-up tax’) for the fiscal year in respect of its low-taxed constituent entities that are located in another jurisdiction,
-the Undertaxed Payments Rule (UTPR), should act as a backstop to the IIR through a reallocation of any residual amount of top-up tax in cases where the entire amount of top up tax relating to low-taxed entities could not be collected by parent entities, through the application of the IIR.
This Directive also provides for a de minimis exclusion for Multinational groups or large-scale domestic groups that have an average revenue of less than € 10 mn and an average qualifying income or loss of less than €1 mn in a jurisdiction.
Member States have a deadline to transpose the laws, regulations, and administrative provisions in order to comply with the provisions of this Directive, by 31 December 2023 at the latest.
The Ministry of Finance will proceed with the preparation of the relevant legislation and at the same time will examine measures to mitigate any negative effects that may arise on the Cyprus economy.
