THE COMMISSION CAUGHT OUR EAR FOR THE 15% TAX ON MULTINATIONALS - Filenews 2/8 by Eleftehria Paizanou
The Cypriot authorities are rushing to correct a law that was passed in December 2024 for Cyprus' compliance with the imposition of a minimum level of taxation on multinational groups, but it did not satisfy the European Commission, which sent us back the legislation and is requesting its revision.
The legislation in question concerns the Directive known as Pillar 2. The Directive requires member states to adopt a minimum effective tax rate of 15% on entities belonging to multinational groups or large-scale domestic groups with annual revenues exceeding €750 million.
The aim of Pillar 2 is to put a stop to practices implemented by some multinational companies, transferring their profits to countries with zero or very low taxation.
The Commission disagreed
“Fileleftheros” is informed that Brussels found that “something went wrong” with the harmonization of Cyprus in Pillar 2 and did not accept the content of the law passed by Parliament, following a bill submitted by the Government. The European Commission has called on the Cypriot authorities to take new legislative measures for the correct transposition into national law of the provisions of the EU Directive.
Following the Commission’s reaction, the Ministry of Finance has prepared a draft bill, which incorporates the possibility of applying an appropriate domestic supplementary tax (Qualified Domestic Minimum Top-up Tax – QDMTT), with effect from 1 January 2026.
The bill, in addition to the amendments indicated by the European Commission, also includes additional amendments to align it with OECD guidelines and recommendations, in view of the upcoming evaluation of the Republic of Cyprus in autumn 2026, during which it will be examined whether the national legislative framework complies with the requirements of the internationally agreed Pillar 2 rules.
The bill has already been put on public consultation, during which interested parties can submit their suggestions until September 5, 2026.
What did the Parliament vote on in 2024
In December 2024, when the Plenary of the Parliament approved - with great delay - the bill submitted by the Ministry of Finance, it chose to incorporate a different formula, in order to prevent, as stated by MPs, the departure of multinational companies from Cyprus to other jurisdictions, with zero or minimal taxation.
It was decided, then, and imposed a domestic Cypriot supplementary tax, the application of which, according to European rules, falls within the discretion of the Member States. Also, through the imposition of the domestic supplementary tax, the Cypriot affected large corporate entities would benefit from specific reliefs, so as to ultimately reduce their burden with the 15% tax requested by the Commission and the Pillar 2 Directive.
Based on the legislation approved in 2024, the national supplementary tax is 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, with greater tax benefits. At the same time, according to the report of the Parliamentary Committee on Finance, it was clarified that business groups operating in Cyprus and paying effective 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. According to the report of the Committee on Finance, the tax base on which the supplementary tax rate is imposed is the excess profit, that is, the total accounting profits of the Cypriot constituent entities after a series of adjustments and amendments. In this way, MPs and others involved believed that the impact on multinationals operating in Cyprus would be minimized.
1,900 companies affected
The decision of the Ministry of Finance to amend the law again, in order to comply with the recommendations of the Commission, is still causing concern. Involved bodies express their concern about the impact on hundreds of multinational companies.
Two years ago, when the initial bill was being discussed in Parliament, data was submitted by the Ministry of Finance, according to which the imposition of a minimum corporate tax of 15% on multinationals would affect around 1,900 companies. It was estimated that, through the implementation of the tax, annual state revenues would increase by between €200 million and €250 million.
