EU Takes Cyprus to Court for Delayed Tax Law Implementation

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The European Commission has referred Cyprus, along with Spain, Poland, and Portugal, to the European Court of Justice due to their failure to enact the 2022 directive on a global minimum level of taxation for multinational corporations and large companies, known as the Pillar 2 directive.

This action was part of the Commission’s October infringement package, announced recently. In addition to the tax directive, Cyprus is facing another infringement procedure for non-compliance with the EU directive concerning the recognition of professional qualifications, particularly for architects. The Commission also sent formal requests to Cyprus, the Czech Republic, and Portugal, urging them to comply with the Digital Services Act (DSA).

Infringement procedures are initiated when a member state fails to meet its obligations under EU law. The process typically leads to a resolution once the country complies with the required legislation, but in cases of continued non-compliance, the matter can be escalated to the European Court of Justice, which has the authority to impose penalties.

Cyprus (INFR(2024)0020), along with Spain, Poland, and Portugal, was referred to the court for failing to implement directive (EU) 2022/2523, adopted in December 2022. The directive seeks to ensure a minimum level of taxation for multinational and large domestic firms across the EU, a measure designed to limit tax competition and ensure fair corporate taxation.

EU member states had until December 31, 2023, to incorporate the directive into their national laws. However, despite significant efforts, Cyprus and the other countries have yet to notify the EU of the necessary legislative changes. In May 2024, the Commission had already issued formal warnings to these countries, but compliance remains pending.

The directive is part of Pillar 2 of the G20/OECD international tax reform agreement, which mandates that large multinational and domestic groups with annual revenues of at least €750 million must pay a minimum effective tax rate of 15%. This move aims to reduce tax avoidance and ensure that major corporations contribute their fair share to national economies.

Additionally, Cyprus (INFR(2024)4019) is under scrutiny for failing to comply with the EU directive on the recognition of professional qualifications, specifically affecting architects with acquired rights. These professionals are facing barriers when trying to join the national registry, limiting their job prospects, while others with Cyprus-issued qualifications face no such issues.

Cyprus has been given two months to address these concerns. If it fails to respond adequately, the case may be escalated further.

Lastly, the Commission issued formal warnings to Cyprus (INFR(2024)2016), along with the Czech Republic and Portugal, for failing to fully implement the Digital Services Act (DSA). These countries have not yet empowered their national digital services coordinators or established penalties for DSA violations, despite the February 17, 2024 deadline. They now have two months to comply or risk being referred to the European Court of Justice.

Source: Knews

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