15% TAX ON MULTINATIONALS - CYPRUS IN THE GRIP OF THE EU FOR INADEQUATE HARMONIZATION - THE RISK OF COMPANIES LEAVING IS VISIBLE - Filenews 3/9 by Eleftheria Paizanou
The Republic is in a difficult position, following the strong recommendations of the Commission for a revision of the legislation for the imposition of a minimum level of taxation on multinational groups, which concerns Pillar 2.
On the one hand, there is a visible risk of withdrawal from Cyprus of multinational companies of American interests to tax jurisdictions that have been exempted until 2029 from the imposition of a minimum effective tax rate of 15% on entities belonging to multinational business groups or large-scale domestic groups with annual revenues of €750 million.
On the other hand, there is concern about sanctions due to the country's non-compliance with the strict instructions of the European Commission.
The provisions of the 2024 law
The relevant legislation was adopted in December 2024, with the Republic adopting a supplementary domestic tax, which it considered to have the right to do, in the context of harmonization with EU recommendations. Under the legislation adopted in 2024, the national top-up tax is imposed from the year 2025 in order to provide the affected Cypriot entities with the necessary time to adapt and to avoid the possibility of relocating them to other countries with greater tax benefits.
At the same time, groups of companies operating in Cyprus and paying an effective tax corresponding to a tax rate lower than the minimum effective tax rate of 15% will be required, under that law, to pay the difference in the form of a supplementary tax.
Along the way, Brussels was not satisfied with the law passed, considering that the parent companies of American multinational interests were particularly favoured by this regulation. For this reason, they demanded the application of an appropriate Qualified Domestic Minimum Top-up Tax (QDMTT).
Meeting at the Ministry of Finance
From the end of July, a new bill for the adoption of the Commission's recommendations, which provides for the possibility of applying an appropriate Qualified Domestic Minimum Top-up Tax (QDMTT), with effect from January 1, 2026, is under public consultation.
In addition, the amending bill includes, in addition to the amendments indicated by the European Commission, additional amendments that are in line with the relevant OECD guidelines and recommendations, in view of the upcoming assessment 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.
Initially, the public consultation would end on September 5. However, due to the complexity of the issue, an extension was finally granted until September 7. According to information from "F", a few days ago a meeting was held at the Ministry of Finance, with the participation of technocrats and professional bodies, and the issue was discussed.
In Malta, Estonia, etc.
Some domestic professional bodies have expressed concern that, with the new order of things that will be shaped by the new amendment to the law, US multinational companies operating in Cyprus will be burdened with taxes and, therefore, will turn to other countries that are exempt from Pillar 2 regulations, such as Malta, Estonia, Latvia and Lithuania.
These countries in 2023 received an exemption, as, according to the European Directive, member states in which fewer than 12 subsidiaries of multinational groups falling under the €750 million limit are based. They had the right to request a postponement of the implementation of the rules until 2029.
During the meeting at the Ministry of Finance, it was said by some professional bodies that the contribution of American companies to the state coffers is large, as they pay taxes of €140 million.
Limited changes
Technocrats of the Ministry of Finance made it clear to the stakeholders that there is not much room for changes in the draft bill, as Brussels is particularly demanding, asking for the implementation of the appropriate domestic tax.
In fact, they warned that, in case of non-compliance, the country may enter into adventures. It should be noted that the technocrats said that the goal is for the bill to be approved as soon as possible by the Council of Ministers and to be voted on by the Parliament within October. However, there is also a heated debate that this is a political issue between the US and the EU, with Cyprus being in the vortex of controversy.
The mistakes
As we were told by private sources, mistakes were made from the beginning in relation to the management of the issue. This is due, they argue, to the fact that the Ministry of Finance had not submitted clear data on the number of multinationals affected. It should be noted that it was initially reported to the Parliament that 60 companies would be asked to pay the tax and in the process there were 1,900.
In fact, at the time it was said by the Ministry of Finance that these multinationals would bring revenue to Cyprus amounting to €200 million. with €250 million. through taxation. Also, in 2024, the texts of the bill were changed without informing the bodies involved, while the competent authorities were subsequently informed by the EU about the issue of appropriate taxation.
