Anti-Tax Avoidance Directive. The Cyprus Ministry of Finance has presented to the Parliament

legislation in view of the implementation of the European Union Anti-Tax

Avoidance Directive.

The main issues

addressed by the Directive and included in the law are:

It is expected

that in the coming months further regulations will be introduced which are

included in the directive and cover the Exit Tax payment, when relocating

assets, and the Hybrid mismatches which take advantage national mismatches to

avoid taxation.

Multilateral Instrument (MLI). Following the OECD Base Erosion and Profit Shifting (BEPS)

initiative a Multilateral Instrument (MLI) was introduced which was adopted by

68 countries including Cyprus. The MLI

covers Hybrid Mismatches, Treaty abuse, Arbitration and Dispute resolution

between the countries, as well as avoidance or permanent establishment status.

In the case of treaty abuse, there will be a limitation of the benefits of the

taxpayer if there are only tax reasons for establishing and using a specific

international structure.

Transfer Pricing. In 2017

the Cyprus Tax Department has introduced transfer pricing requirement for back

to back intragroup loan transactions. A predefined profit margin of 2% after

tax is expected, otherwise a full transfer pricing study is expected to be

presented to justify the use of a lower rate. It is expected that new

guidelines will be issued for other forms of income that will cover sales of

goods, services and licensing.

Substance and tax residency requirements. Both the OECD through the BEPS Action Plan and the EU through the

parent subsidiary directive have introduced increased substance and tax

residency requirements. In effect

statutory substance will not be enough and will need to be combined with

Physical substance (office/telephone/qualified staff) and economic substance

for execution of day to day activities.

How can we help? It is

imperative that actions need to be taken to adopt structures to the new

environment. Our firm can assist you to absorb the right and cost-effective

changes by: