On 3 October 2023, the Cyprus Ministry of Finance introduced a harmonisation bill for 2023, entitled "The Law on Ensuring a Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union", aligning with the European Directive 2022/2523.
This draft legislation follows the OECD Pillar Two and is a response to Directive 2022/2523 seeking to ensure a global minimum effective tax rate of at least 15 per cent on Multinational Enterprises (MNEs) or large-scale domestic groups with annual revenues of more than €750million. This Directive, also known as the GloBE Directive (Global anti-Base Erosion Directive), forms part of a broader European effort to combat aggressive tax planning and profit shifting within the internal market.
Throughout the years, the European Union implemented regulations to ensure that multinational enterprises pay their taxes where their economic activities generate profits and value. OECD recommendations were converted into EU law in order to eradicate harmful tax practices that permit profit shifting to beneficial jurisdictions with low or zero-tax rate. The implementation of a global minimum effective tax rate, aims to create a level playing field for businesses worldwide and safeguards the tax bases of jurisdictions.
The draft legislation introduces two essential rules, the Income Inclusion Rule (IIR) and the Under-Taxed Profits Rule (UTPR), also known as the “GloBE rules”. These rules impose additional taxes in jurisdictions of effective tax rate below 15 per cent to make sure that MNEs will pay a fair amount of tax in any jurisdiction that they operate.
Additionally, the bill establishes the Qualified Domestic Minimum Tax (QDMTT) which will come into effect on 1 January 2025 and states that entities which satisfy the conditions of an “acceptable international safe harbour agreement” will not be subject to a top-up tax.
The Ministry of Finance, in collaboration with the Tax Department, has incorporated all provisions of the EU Pillar Two Directive into the draft legislation, enriched with procedural clauses derived from cooperation between the EU and its member states. This aims to clarify the interpretation of the Directive's articles in relation to the corresponding global rules at the OECD level.
The Ministry of Finance invites stakeholders to submit comments no later than 31 October 2023.
The official press release (in Greek) can be found here.
The draft legislation (in Greek) can be accessed here.
OECD’s Safe Harbors and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two) can be found here.
The European Directive 2022/2523 can be found here.