A detailed list of cross-border arrangements hallmarks of entities/companies that should be disclosed to the Tax Department of Cyprus by 31 January 2022
Information should only be provided to the Cyprus Tax Department on cross-border arrangements by intermediaries or if there is no intermediary by the taxpayer if a taxpayer falls in one of the categories below:
(1) involvement of taxpayers in more than one Member State within the EU
(2) Involvement of taxpayers in a Member State and a third country
(3) At least one of the taxpayers in an arrangement is not a tax resident in any jurisdiction
(4) A taxpayer legal entity /permanent establishment has a dual tax residence (in two jurisdictions)
(5) The arrangement is not a pre-existing arrangement (First implementation step done before June 25, 2018), if not, if the arrangement was substantially changed after June 25, 2018. (Formation of a company may not be the first implementation step if none of the whole marks described below applies)
(6) the main benefit or one of the principal benefits that a person can reasonably be expected to derive from the arrangement is to obtain a tax advantage
(7) At least one of the below hallmarks is met
Category A – Relate to features that are common to promoted schemes
1, The relevant taxpayer undertakes to comply with a condition of confidentiality which may require them not to disclose how the arrangement could secure a tax advantage
2. The intermediary is entitled to receive a contingent (premium) fee by reference to the tax advantage
3, Off-the-shelf arrangements where the person purchasing services buys a final product that requires little or no modification
- If the arrangement requires substantial modification that is not an off-the-shelf arrangement
- If an opinion is provided on any matter relating to cross-border arrangement it will not be considered as an off-the self-arrangement
Category B – Specific hallmarks linked to the main benefit test
4. acquisition of the loss-making company, discontinuation of main activity, and using losses for the reduction in tax liabilities
5. Acquisition of loss-making company, discontinuation of main activity, and using losses for the reduction in tax liabilities
6. Conversion of income into capital, donations, gifts, or other types of income taxed at a lower rate /exempt
7. Circular transactions result in the round-tripping of funds (including third-party transactions) with no other primary commercial function. Incentives, such as asset protection, market access, and/or specialist staff are an indication of commercial function and therefore not reportable.
Category C – Specific hallmarks related to cross-border transactions
8. Deductible payments to a related party where:
- the recipient is not a tax resident in any jurisdiction
- the recipient is a tax resident in a jurisdiction with no CIT, or 0% (or almost 0%) corporate tax rate
- the recipient is tax resident in a black-listed country (EU / OECD)
- the payment benefits from a full exemption from tax other than those approved by the EU (I.P. regimes, notional interest deduction, tonnage tax approved by EU does not fall into this category and therefore are not reportable)
9. Deduction of the same depreciation on an asset in multiple jurisdictions
10. Double tax relief claimed for the same income/capital in multiple jurisdictions.
Exemptions and therefore not reportable
- When the country of taxation taxes a permanent establishment abroad, providing a tax deduction through the method of tax credits,
- Controlled Foreign Company, providing double tax deduction through the method of tax credits, which had earned income from a third jurisdiction and the withheld tax is provided as relief both at the level of Controlled and Foreign parent company. Relief on income/capital claimed due to the Double Taxation Convention or the implementation of the EU Taxation Directive
11. Transfer of assets with significant differences in valuation between jurisdictions including third-party transactions. The transfer of tax residence does not fall within the scope of this hallmark
Category D – Specific hallmarks concerning the automatic exchange of information and beneficial ownership (applicable to holders of more than 25% shareholding)
12. Circumvention of reporting obligation on automatic exchange of financial account information especially for passive NFEs
13. An arrangement has or is designed to have, the effect of undermining the reporting obligation under the national laws implementing Council Directive 2014/107/EU and the Common Reporting Standard or equivalent agreements on the automatic exchange of information on Financial Accounts, including agreements with third countries
14. Legal structure lacking substantive economic activity, where actual beneficial owners become unidentifiable and established not in the jurisdiction of the beneficial owner. (In relation to trusts, the beneficial owners are disclosed or identified and therefore not reportable.)
Category E – Specific hallmarks concerning transfer pricing for permanent establishments and related parties
15. Use of unilateral safe harbour rules within the same entities such as permanent establishments is reportable. Safe harbour rules exceptions to the application of the arm’s length principle for certain categories of taxpayers, such as small businesses, simplified methods of transfer pricing adopted by OECD eta are not reportable. However, the use of the administrative simplification measure of 2% minimum margin after-tax (i.e., the margin of 2.29% before tax) on intragroup back-to-back financing is a safe harbour rule that should be reported.
16. Transfer of hard-to-value (difficult to value) intangibles between associated enterprises fall under this hallmark
17 Transfer of functions/risks/ assets resulting for the transferor a decrease in income before interest and taxes (EBIT) by more than 50% during the next 3 years between associated enterprises falls under this hallmark
1, A legal person resident in a Member State is granted a loan from a permanent establishment/branch of a domestic bank which is under the jurisdiction of a third country
2. Arrangements that may have an impact on the automatic exchange of information for tax purposes, as required by bilateral or multilateral agreements or Directives, or which may have an impact on the identification of the beneficial owner required by relevant national law
- The provision of compliance services by the intermediary in relation to historical data as long as they are not part of the application of the arrangement, such as the provision of assistance in completing a customer tax return previously involved in a declarable cross-border arrangement, does not mean that the service is provided by an intermediary
- An auditor cannot be described as an intermediary if, during the review of the accounting records, he has identified declarable cross-border arrangements, as although the auditor provides assistance in connection with the arrangement, as such does not meet any of the conditions of the definition of intermediary
- An arrangement may include a series of arrangements or it may consist of more than one stage or parts. A single arrangement can include the following steps / elements: (a) The financing of a company, (b) the conclusion of a loan agreement, (c) the payment of the loan, (d) the successive payments of the loan interest and (e) the repayment of the loan capital.
Information to be submitted for each declared cross-border arrangement to the Cyprus tax department if the above applies
- Intermediates Identity
- Tax payer Identity
- Date of birth / Date of incorporation
- Place of birth / Place of incorporation
- Country of Tax residence
- VAT No
- Relevant affiliated undertakings
- Detailed information making the cross-border arrangement declarable i.e. Hallmark reference
- Business activities or arrangements in general terms, without disclosing any commercial, industrial or professional secrecy
- The commercial process or information the disclosure of which would be contrary to public policy;
- Date of first application is completed or will be completed
- Detailed information on the legal provisions that form the basis of the declared cross-border arrangement; i.e. refer to the relevant law on intellectual property
- Value of the declared cross-border arrangement
- An indication of the Member State of the taxpayer concerned and any other Member States likely to be affected by the declared cross-border arrangement
- The identity of any other person in the Member State likely to be affected by the declared cross-border arrangement, with an indication of the Member States to which that person is associated
Date of submission of the relevant data to the Cyprus tax department
The date of submission of the relevant data to the Cyprus tax department without the imposition of any fines is set for January 31, 2022.
Relevant cross border arrangements
- Declarable cross-border arrangements that have been made between 25 June 2018 and 30 June 2020 and had to be submitted by 28 February 2021.
- Declarable cross-border arrangements made between 1 July 2020 and 31 December 2020 and due by 31 January 2021.
- Declarable cross-border arrangements made between 1 January 2021 and 1 January 2022 and to be submitted within 30 days from the date they became available for implementation or were ready for implementation or the first step towards their implementation was taken, whichever happened first.
- Declarable cross-border arrangements for which secondary intermediaries provided assistance or advice between 1 January 2021 and 1 January 2022 and had to submit information within 30 days of the day on which they provided assistance
- Periodic reports for general purpose arrangements.
How can we help
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The list is provided to inform taxpayers and intermediaries about the most important points of the relevant law. It provides a summary of some of the most important points that a taxpayer or an intermediary should be aware of. Referring to the relevant legislation, there may be cases where important information may be missing.
The authors expressly disclaim all and any liability and responsibility to any person, entity, or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication.
Accordingly, no person, entity, or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.