Multinational Entities minimum global taxation of 15% – The case of Cyprus

The  Organisation for Economic Co-operation and Development (OECD) has issued 2 pillars at addressing taxation on multinational entities aiming to: 

Pillar 1 – to shift tax on large digital service providers into the countries in which their sales take place. This is expected to come in 2023 and will only apply to Multinational Enterprises with a turnover in excess of €20 billion and profitability before tax in excess of 10%. 

Pillar 2 –  Establish a minimum global tax rate of 15% in each county in which  Multinational Entities operates. The minimum tax rate will only apply to Multinational Entities that exceed a  consolidated annual revenue threshold of €750 million.

There are some indications that investment funds, pension funds, governmental entities, non-profit entities as well as some other industries including financial services may be excluded from both of the above. 

Commentary – the Cyprus case

It is expected that both pillars above may not affect Cyprus companies because:

1. Cyprus has a corporate tax rate of 12.5%. It seems that this will not affect Cypriot companies as 15% is close to 12.5%. Therefore, Cypriot companies may not withdraw their activities from Cyprus due to the increasing corporate tax rate of 2.5%.
2. Many other countries, especially developed countries, have much higher corporate tax rates and therefore multinational entities are unlikely to consider repatriating their businesses.
3. Cyprus is an open economy and a competitive destination, based on its own merits.
4. A minimum turnover of more than € 20 billion and a pre-tax profit of more than 10% set for Pillar 1, as well as a consolidated annual minimum revenue of € 750 million set at a global tax rate of 15% are not expected to affect Cyprus, as most of the multinational entities currently operating in Cyprus are well below these limits.
5. If the indications regarding the exceptions apply specifically to the mutual fund sector, the Cyprus Fund sector will not be affected.

To read the full statement  of OECD please click here

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