The bill, the Global Floor Tax on Transnational Business Groups and Large Domestic Groups in the Union Act of 2023, is intended to provide a global floor on taxation. multinational enterprise groups and large domestic groups in the EU.
The bill proposes rules governing the introduction of minimum effective taxation for large multinational and domestic groups with annual consolidated income of €750 million. It sets out two rules:
- income inclusion rule (IIR);
- under-taxed profit rule (UTPR).
An “additional tax” must be levied whenever the effective tax rate of a multinational company in a particular jurisdiction is reduced to less than 15%.
If a company pays a tax rate of less than 15% in one country, then its parent company or other related company in another country must pay the difference of up to 15%. These two rules work together to ensure that international companies do not avoid the minimum tax by transferring their profits to low-tax countries.
The draft law under discussion includes all the provisions of the Directive and has been supplemented by some provisions of the OECD administrative guidance, as well as provisions regulating administrative matters, in order to improve the interpretation of the second pillar of the Cyprus law.