On January 1, 2024, new rules for the minimum corporate tax rate came into force in EU countries, including Cyprus.
The innovations affected local and foreign companies with a combined annual turnover exceeding 750 million euros. Now they will be obliged to pay tax at the rate of 15% of profits.
Recall that recently the Organization for Economic Cooperation and Development (OECD), which includes 38 countries, announced the introduction of a global tax for corporations in the amount of 15% of profits.
It should be noted that to date, this idea has been supported by more than 140 countries.
The main purpose of the innovation is to put an end to the race for minimum tax rates. Many multinational companies pay taxes not at the place of profit, but at the place of registration, choosing countries with a more lenient taxation system. This leads to obvious distortions in the distribution of tax revenues.
By the way, the OECD has been fighting for the introduction of a single taxation system for corporations since 2013. One of the main initiators of the introduction of a single tax is the United States. The fact is that due to the devious financial schemes of large IT giants, the American treasury is underpaid by tens of billions of dollars a year. We are talking about Apple, Google, Facebook, Amazon.
According to the investigation conducted by the American Senate, the named firms accumulated most of their profits in Ireland with the help of subsidiaries. The tax rate in this country is one of the lowest in Europe - 12.5%. But even it seemed too high to the business giants. Back in 2007, Apple agreed with the Irish authorities to pay only 1.9% on its profits. The deal was formalized through a complex scheme, for the implementation of which were created subsidiaries in Ireland and Bermuda.
Google and Facebook have been seen in the application of similar schemes. For example, in 2017, Google paid only 3.4 million in tax on multi-billion dollar profits. Both American and European authorities were dissatisfied.
Also diluted and unfair is the system of distribution of fees between states. Today, large corporations pay taxes at the place of registration without taking into account the actual location of the final consumers of goods and services. The introduction of the tax will help eradicate devious schemes in the taxation system. It is called digital, as it will primarily affect the IT sphere. However, the authors of the project themselves do not envision any differentiation by industry.
The main changes are elaborated and outlined in two concepts:
Pillar 1 provides that multinational corporations will have to pay tax levies in those countries where they make profits, even if they are not physically present there. The innovation will affect large business structures with a net margin of at least 10% and a turnover of more than 20 billion euros per year. The exceptions are companies extracting natural resources and providing financial services.
Pillar 2 provides for the introduction of a minimum tax rate of 15% for companies with revenues of more than €750 million. Such firms will be obliged to pay it, regardless of where they are registered and where they earn their income.