In 2024, the corporate tax landscape is set for a seismic shift that will impact both multinational giants and homegrown corporations. This transformation has been looming on the horizon ever since the Organisation for Economic Cooperation and Development (OECD) rolled out its ground-breaking global guidelines. The plot thickened when the G20 members unanimously gave their stamp of approval in October 2021.
Fast forward to December 2022, when Cyprus and fellow European Union members threw their weight behind the implementation of the Pillar Two tax legislation, a brainchild of the OECD, with resounding support from the G20.
The game-changing European Directive is poised to revolutionize corporate tax rates. It introduces a robust minimum corporate tax rate of 15% that will be binding on multinational corporations and large domestic conglomerates with consolidated revenues surpassing €750 million.
This directive casts its net wide, encompassing entities with a parent or subsidiary company operating within any European Union member state.
Even the profits of subsidiaries headquartered in third countries won’t escape its purview.
This 15% effective minimum tax rate will be enforced through two distinct procedures: Income Inclusion and Undertaxed Payments. The Income Inclusion Rule, set to roll out in the new year, mandates that corporations pay a supplementary tax to ensure their effective tax rate aligns with the 15% benchmark. This calculation hinges on dividing the taxes paid by group entities in their respective jurisdictions by their income. Meanwhile, the Undertaxed Payments Rule acts as a formidable reinforcement, enabling member states to collect the top-up tax from EU-based entities within a group, when the tax jurisdictions of other group entities fall short of the 15% global tax rate. This rule will come into play in the year 2025.
The Cyprus’s Ministry of Finance has taken the lead in aligning its policies with the EU Directive’s guidelines. They are now inviting input and suggestions from all stakeholders until the end of October. Subsequently, the drafted bill will be handed over to the House of Representatives for the final nod, heralding a new era in tax legislation.
Whether in Cyprus or elsewhere in Europe, Eurofast experts are always ready to furnish you with up-to-date information regarding latest European and local legislation and its potential impact on businesses. For any further information, feel free to contact Eurofast Cyprus office at nicosia@eurofast.eu
Avraam Apostolou
Acting Manager, Accounting & Tax
Eurofast Nicosia
nicosia@eurofast.eu