The European Commission has enforced a minimum corporate tax rate of 15% for multinational companies with annual revenues exceeding €750 million, effective from January 1, 2024.
However, the implementation of this measure in Cyprus and certain other countries is expected to experience a delay of a few months as the Ministry of Finance’s draft law undergoes legal scrutiny.
According to a reliable government source, the draft law is slated for submission to the Parliament in January or early February. They assured that the slight delay would not pose an issue with European authorities, as the increase in corporate tax for these specific companies is anticipated to take effect by the end of 2024.
The legislation, with retroactive impact, will calculate the new tax rate for these multinational companies from the beginning of the current year. These new European regulations govern multinational business groups and large-scale domestic groups within the EU with combined financial revenues surpassing €750 million annually.
Applicable to all large groups, both domestic and international, with a parent or subsidiary company in an EU member state, the rules aim to bring alignment with the European Directive, ensuring a global minimum level of taxation for multinational business groups and large-scale domestic groups in the Union, commonly referred to as Pillar 2.
While the legislation is set for implementation this year, an exception is made for Article 12, which will take effect on January 1, 2025. Article 12 addresses the option for implementing a designated domestic tax.
The draft law underwent public consultation in early October 2023 and concluded later the same month. It’s noteworthy that the decision to impose a minimum corporate tax of 15% on multinational companies with an annual turnover of €750 million was made by EU leaders in December 2022.
The EU contends that the minimum effective taxation formalizes the application of the EU’s “Pillar 2” rules, part of the global agreement on international tax reform approved in 2021.
In a bid to curb profit shifting, European regulations, specifically Pillar 2, are designed to diminish incentives for businesses to relocate profits to low-tax jurisdictions. Reports in the foreign press suggest that some European countries, including Spain and Poland, have yet to adopt these regulations, possibly implementing the law post-national elections.
Additionally, certain EU member states express strong reservations about the law’s impact.
Notably, objections to increased taxation on multinational companies are also raised by the United States and China.
