Mandatory automatic exchange of information on declarable cross-border arrangements Cyprus DAC6 – Technical analysis
Scope
EU to protect Member States countries’ national tax bases from base erosion and from profit shifting, and in order to protect Member States’ authorities to react immediately to harmful tax practices and promote the automatic exchange of information on tax issues, it has adopted the sixth directive on mandatory automatic exchange of information on declarable cross-border arrangements.
Cyprus and the rest of the Member States have now incorporated the relevant directive into their national law.
Obligation to disclose cross-border arrangements to the Cyprus tax department under DAC6
Obligation to disclose to the Cyprus tax department is on intermediaries (the person that designs, markets, organises, makes available or implements, or manages the implementation of a reportable cross-border arrangement). In case there are no intermediaries the obligation rests with the taxpayer.
A cross-border arrangement or a series of arrangements can be defined as an arrangement or a series of arrangements that fulfill at least one of the Hallmarks as outlined by the Directive. Hallmark is a characteristic or feature of a cross-border arrangement that presents an indication of a potential risk of tax avoidance.
Identifying cross-border arrangements to be reported to the Cyprus tax department .
In defining a cross-border agreement, all of the following criteria must be met:
1. What is a Cross-border arrangement?
The definition is met:
- if a Cyprus entity has any beneficial owner being a non-Cyprus Tax resident or
- if a Cyprus entity has any participation in a non-Cyprus Tax resident entity of more than 25%.
2. Who is considered an intermediary?
An Intermediary is a person involved or assists in the preparation, marketing, organisation, or management of the implementation of a declarable cross-border arrangement. An intermediary can be a promoter or a service provider
Promoter – Intermediaries who design, market, organise, make available for implementation or manage the implementation of a reportable cross-border arrangement.
A promoter is:
- A person that has a full understanding of the material aspects of the arrangement.
- A person who advertises an arrangement to potential clients.
- A person who makes publicly available potential tax benefits of an arrangement. It can be a professional tax advisor, lawyers specialising in tax law in house departments of larger corporate groups, which design and advise other group members.
A service provider is:
A person who undertakes to provide aid, assistance, or advice in relation to the designing, marketing, organising, or implementing of a reportable cross-border arrangement. Such can be tax advisors, corporate service providers, lawyers, asset managers, bankers, insurance companies, In-house departments of larger corporate groups, etc.
An intermediary is not a person involved in the:
- Provision of compliance services in relation to historic data. Reporting of historical information is not considered as assisting in the implementation of a transaction.
- Provision of audit services.
- Provision of an opinion on whether a transaction is reportable under DAC6
When an intermediary does not disclose an arrangement
Where an intermediary does not disclose an arrangement the intermediary must notify the taxpayer within 10 days from the date of the arrangement. The taxpayer is then obliged to declare the arrangement to the tax department of Cyprus
3. Does the cross-border arrangement fulfills at least one of the Hallmarks as outlined by the Directive?
A Hallmark is a characteristic or feature of a cross-border arrangement that presents an indication of a potential risk of tax avoidance. Hallmarks are divided into categories. For Hallmark categories A, B, and certain elements of category C, an arrangement will only be reportable if it is also captured by the so-called ‘Main Benefit’ test. That is if one of the main objectives of the arrangement is to obtain a tax advantage
To view the list of hallmarks please visit our earliest publication by clicking here
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