08/11/24

CYPRUS: Cyprus faces uphill battle as EU Court presses for compliance with 15% corporate tax rate on multinationals

As published on: in-cyprus.philenews.com, Friday 8 November, 2024.

Cyprus is under pressure to adopt a minimum 15% corporate tax rate on multinational companies with revenues above €750 million, as the European Court of Justice has referred the country for delayed compliance with EU tax harmonization directives.

The proposed tax, mandated by EU Directive 2022/25231, aligns with OECD’s Pillar Two approach aimed at addressing taxation challenges from the digitalized global economy. However, Cypriot industry groups expressed concerns at a parliamentary session, urging that an alternative approach be explored to mitigate the financial impacts on approximately 1,900 multinational entities currently operating in Cyprus.

Professional groups voiced fears of potential economic fallout, noting that the measure could prompt a significant outflow of companies to countries not adhering to the OECD directive. Thomas Kazakos, General Director of the Cyprus Shipping Chamber, highlighted that 11 G20 countries have yet to adopt this directive. He pointed out possible economic countermeasures from the United States, where the U.S. Congress has signaled reluctance to implement the tax domestically.

Maria Grigoriou, representing the Cyprus Bar Association, warned that if the law is implemented without adjustments, Cyprus could face a downturn as multinationals look to relocate. Andreas Pisias, head of the Cyprus International Business Association (CIBA), questioned whether Cyprus is prepared for an exodus of key international firms, suggesting the economic impact could be severe.

The Finance Ministry countered, proposing that the tax reform could present opportunities for Cyprus, citing other tax incentives that could potentially attract or retain firms. Tax Commissioner Sotiris Markides suggested that a well-structured implementation might even benefit Cyprus in the long term. However, according to OECD guidelines, Cyprus will not be able to offer selective tax benefits to affected firms.

Political leaders voiced mixed opinions on the matter. DISY lawmaker Harris Georgiades called for a forward-thinking strategy, noting that a similar tax was proposed in 2019 but rejected at the time by business representatives. Lawmakers from AKEL and DIKO expressed concern over the limited options for modification, with AKEL’s Andreas Kafkalias suggesting alternative strategies need to be explored.

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Cyprus EU Court Compliance