Compliance
Understanding Compliance under the Pillar 2 Directive: Cyprus, Top-Up Tax Returns & DAC9
Clarifying how Cyprus, top-up tax filings and DAC9 fit together under the EU’s Pillar 2 regime and what companies need to do now.
By NomadicTax Research Team • 5-8 min read • August 17, 2026
## Overview of Pillar 2 & EU Obligations
Pillar 2 seeks to ensure that large multinational enterprises (MNEs) pay a **minimum effective tax rate of 15%** across jurisdictions. Key elements include the **Income Inclusion Rule (IIR)**, **Qualified Domestic Minimum Top-Up Tax (QDMTT)**, and **top-up tax information returns**. The EU adopted the Pillar 2 Directive in December 2022 (Directive EU 2022/2523). ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/f8892f04-79d0-490d-8fac-56ead7dba256_en?filename=st14732-re01-en23-2.pdf&prefLang=da&utm_source=openai))
## Spotlight: Cyprus IIR Qualified Treatment & What That Means
On **29 May 2026**, the European Commission issued an FAQ confirming that **all EU Member States must treat Cyprus as having a “qualified” Income Inclusion Rule** under the EU Pillar 2 Directive—for fiscal years commencing on or after **31 December 2023**. This ensures that Cyprus’ IIR can be relied upon by other jurisdictions for cross-border tax requirements. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/pillar-2-global-minimum-tax-directive-new-faq-available-2026-05-29_en?prefLang=it&utm_source=openai))
Additionally, the **top-up tax information return** under Pillar 2 is to be exchanged automatically among Member States. DAC9 is the vehicle for this exchange. The FAQ affirms that if MNEs choose to file centrally in Cyprus, they can be relieved of duplicate filing requirements in other jurisdictions provided other conditions are met. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/pillar-2-global-minimum-tax-directive-new-faq-available-2026-05-29_en?prefLang=it&utm_source=openai))
## Compliance Risks and Infringement Notices
In **July 2026**, the European Commission sent **reasoned opinions** (a pre-litigation stage) to Belgium, Bulgaria, and Cyprus for failing to **transposition or notification** of national measures under **Directive (EU) 2025/872**, which amends DAC to standardise the collection and exchange of the top-up tax information return. These obligations were supposed to take effect so that by **June 2026**, tax authorities could start exchanging info on multinational groups under Pillar 2. ([malta.representation.ec.europa.eu](https://malta.representation.ec.europa.eu/news/july-infringements-package-key-decisions-2026-07-08_en?prefLang=de&utm_source=openai))
Failure to comply can lead to legal consequences including loss of treaty benefits, penalties, and reputational risk.
## Practical Compliance Guidance
- **For MNEs headquartered in Cyprus or operating there**: ensure your IIR is compliant with “qualified” status as per FAQ, and that appropriate notifications or filings under DAC9 are made.
- **Document central filing elections**: when filing in Cyprus or other EU jurisdictions, make sure your upstream documentation supports reliance by other Member States.
- **Watch national transposition**: even once EU directives are adopted, Member States must pass implementing legislation. If failing to do so, as seen with Belgium, Bulgaria, Cyprus, there may be legal or administrative sanction.
- **Investigate dual obligations**: some jurisdictions might attempt to require both domestic and EU-level filings; clarify your obligations especially if you’re in cross-border group.
## Case in Point
Imagine an MNE whose ultimate parent company is located in Cyprus, with fiscal year starting **1 January 2024**. Based on the FAQ, for that year, all EU Member States must treat Cyprus’ IIR as qualified. If the group opts to use Cyprus as the **Designated Filing Entity** for filings and sharing under DAC9, others should accept that to avoid duplicative filings.
## Takeaways
- Ensure your group complies with both the EU Pillar 2 rules and DAC9 exchange obligations.
- Make sure jurisdictions you operate in have transposed key directives by law—in particular the amended DAC (Directive 2025/872).
- Plan filing strategies (IIR and top-up returns) in jurisdictions like Cyprus with qualified rules.
**Bottom line:** Pillar 2 enforcement is becoming real. The EU is pushing Member States to align and enforce. Companies must move from planning to operational compliance now.