Understanding The OECD Global Minimum Tax: Implications For The EU And Cyprus

The OECD's global minimum tax agreement, known as "Pillar Two," represents a major change in international corporate taxation. This framework, agreed upon by over 135 countries, establishes a minimum effective tax rate of 15% for large multinational enterprises with annual revenue exceeding €750 million. The agreement marks an historic moment in global tax cooperation and significantly impacts both the European Union and individual member states, including Cyprus.

The Global Minimum Tax operates through precisely defined mechanisms, with the Income Inclusion Rule (IIR) serving as its primary enforcement tool. Let us examine how the IIR works in practice: When a parent company has subsidiaries in various jurisdictions, it must calculate the Effective Tax Rate (ETR) for each jurisdiction where its subsidiaries operate. This calculation is performed by dividing the aggregate of adjusted covered taxes by the aggregate of GloBE income or loss for all constituent