136 countries and jurisdictions representing more than 90% of global GDP, joined a new two pillar plan to remodel international taxation rules and ensure that multinational enterprises (‘MNE’s) pay a fair share of tax wherever they operate.
The Two Pillars
Under Pillar One, taxing rights on more than US$125 billion of profits are expected to be reallocated to market jurisdictions each year. Developing country revenue gains are expected to be greater than those in more advanced economies as a fraction of existing revenues.
Pillar Two introduces a global minimum corporate tax rate set at 15%. This new tax rate will be applicable to companies having revenues over €750 million and is estimated to generate around US$150 billion additional global tax revenues annually.
As per an announcement of the Ministry of Finance on the 9th October 2021, Cyprus is not in a position to take part in the global consultations that take place at this level as it is not a member of the OECD nor of the Inclusive Framework due to objections of a member country of the Organisation. Hence, the island is not included in the list of member countries of the OECD-Inclusive Framework.
The Cypriot authorities are expecting the final outcome of the discussions that will take place at the G20 meeting, which will form the basis for the development of the corresponding European legislative initiatives in 2022. As stated in the announcement, the Ministry supports this achievement and will work productively by participating in the competent EU committees for the establishment of the legislative framework.
This global deal to end tax havens now moves ahead. Economists expect that the impact of this development will encourage multinationals to repatriate capital to their country of headquarters, giving a boost to those economies.
The Paris based Organisation for Economic Co-Operation and Development (‘OECD’) said countries involved in the deal would aim to sign a multilateral convention next year, with effective implementation of the tax reforms in 2023.