Cyprus passes the global minimum tax (Pillar Two)

In detail

Key provisions of the Law

We highlight below certain notable elements of the Law:

QIIR

The Law introduces the QIIR as provided in the Directive. The rule applies more broadly to the Model Rules, applying to a local parent on its own results and those of its local subsidiaries. The QIIR will be effective from 2024.

QUTPR

The Law specifies that the QUTPR will impose an additional top-up tax, rather than charged under CIT through a denial of deduction mechanism. The QUTPR will be effective from 2025.

DMTT

Aligning with the QUTPR, the Law introduced a Cyprus DMTT, effective from 2025. It applies to constituent entities and joint venture entities located in Cyprus and takes precedence over the QIIR and QUTPR.

Similar to the QIIR and the QUTPR, the DMTT includes for the specific allocation of covered taxes incurred by other constituent entities, such as for the so-called ‘push-down’ of controlled foreign corporation (CFC), head office, and hybrid entity taxes, unlike a QDMTT does.

Additionally, the DMTT respects the safe harbor provisions (such as the Transitional CbCR Safe Harbour) and clarifies that the initial phase of the international activities exemption will fully align with the QIIR.

General Anti-abuse Rules (GAAR)

The Law does not explicitly feature a GAAR. This aligns with the Directive/Model Rules, which also do not explicitly provide for a GAAR.

Interaction of the Law and the AG

The Law directly references AGs issued to date by the OECD/G20 Inclusive Framework on BEPS as a means of interpreting the Law’s provisions, provided that it is consistent with the Law and allows the Minister of Finance, through a decree, to also directly refer to any future AGs.

Nonetheless, certain elements of the AGs issued to date are detailed in the Law itself.

Administrative provisions of the Law

Notification of being in scope: All Cyprus constituent and joint venture entities of in-scope groups have an obligation to notify the Cyprus tax authorities (CTA) no later than 15 months after the last day of the relevant fiscal year, or 18 months in case of the transition year (i.e., the first year of being in scope), e.g., for 2024 by June 30, 2026.

Top-up tax local return filing and payment: In addition to the GloBE Information Return all in-scope Cyprus constituent entities must annually submit their local self-assessment filing and make any payments within 30 days of the due date for the submission of the GloBE Information Return, which per the Law is as described above.

Penalties: The Law outlines penalties for late filings, delayed payments, and other infringements. These penalties align with those imposed by the Cyprus Assessment and Collection Laws for notification and returns, as well as those related to Country-by-Country Reporting. For fiscal years beginning on or before December 31, 2026, but not ending after June 30, 2028, no administrative fines or penalties shall be imposed if the CTA is satisfied that the relevant MNE/Large-scale domestic Group has taken all necessary actions to comply with the Law. The CTA shall consider the Group compliant if it can demonstrate that it acted in good faith to understand and apply the Law’s provisions.