Cyprus is on the verge of receiving a formal warning from the European Commission due to its failure to incorporate the European directive 2022/2523 into national law. This directive aims to ensure a global minimum tax rate of 15% for multinational companies with annual revenues exceeding €750 million.

An official from the European Commission stated that Cyprus, along with nine other member states, is in the process of infringement proceedings, as they were required to have implemented the directive into their national law by January 1, 2024.

>>EU Implements 15% Minimum Taxation for Multinationals<<

The official clarified that Cyprus has not yet received a reasoned opinion, which would effectively start the timeline that could potentially lead to the European Court of Justice. According to the current procedure, after receiving a reasoned opinion, member states have two months to respond.

"You will soon receive a reasoned opinion if there are no sufficient indications" that the Cypriot authorities are moving towards enacting the legislation, the official mentioned in a discussion with journalists.

It is noted that the Ministry of Finance announced in October 2023 that it had prepared the relevant harmonizing bill titled "The Law on Ensuring a Global Minimum Tax Level for Groups of Multinational Enterprises and Large Domestic Groups in the Union of 2023."

However, the official recognized that "the legislation in question is very complex," adding that for this purpose, working groups had been established between the member states and the Commission to explain the directive, while the Commission had received 400 questions. He emphasized, however, that "the political direction is to be strict."

Furthermore, the Commission is discussing legislation that would change the game in terms of taxation for small and medium-sized enterprises (SMEs) that are registered in one country and have activities in another EU country.

This involves the "Head Office Tax System for SMEs" proposal, adopted by the Commission in September 2023, which simplifies the entire system for an SME maintaining cross-border permanent activity, and thus being taxed by another member state.

The proposal includes that an SME can choose one tax authority to which it will pay its tax obligations, while the tax authority of one country will allocate the tax obligation arising from the company's activity in another country. The Commission believes this will relieve an SME from the additional administrative cost associated with dealing with different tax authorities and their varying tax rules.

Another initiative is the "Businesses in Europe: Framework for Income Taxation" (BEFIT), which will establish a common system for calculating the tax base of corporate groups across the EU. The threshold for this proposal is (like Pillar 2) for companies with a turnover of €750 million.

The third proposal relates to the directive for the implementation of common rules in transfer pricing, ensuring a uniform approach to transfer pricing within the EU. It involves pricing transactions between companies belonging to the same group. The Commission's proposal adopts the arm's length principle, suggesting that intra-group pricing is the same as if it were between two different companies.

The Commission's proposals have been submitted as part of the efforts to strengthen the EU's single market. Meanwhile, these issues are included in the pillar of topics that require unanimity in the EU Council to be established in European law.