Cyprus mandatory disclosure on cross-border arrangements DAC6
Under Council of the European Union Directive (EU) 2018/822, known as DAC6, transposed into Cyprus law, information should be provided to the Cyprus Tax Department on cross-border arrangements.
Cross border arrangements (DAC6) are those that concern either more than one Member State or a Member State and a third country.
1. Obligation to disclose cross-border arrangements to the Cyprus tax department
Obligation to disclose to the Cyprus tax department is on intermediaries (the person that designs, markets, organises, or makes available or implementation or manages the implementation of the reportable cross-border arrangement or owed to have known of these). In case there are no intermediaries the obligation is transferred to 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 and described below. 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 as described below. For Hallmark categories A, B, and certain elements of category C as described below, an arrangement will only be reportable if it is also captured by the so-called ‘Main Benefit’ test. This test means that one of the main objectives of the arrangement is to obtain a tax advantage.
Category A – Relate to features that are common to promoted schemes
- 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 vis-à-vis other intermediaries or the tax authorities. Examples of an arrangement obtaining a tax benefit should not be disclosed, requirements that correspondence with tax authorities can only be directed to a nominated person, discouraging people from taking external advice, Commercial confidentiality conditions that do not relate to how the arrangement secures a tax advantage will not be caught under this hallmark.
- The intermediary is entitled to receive a contingent (premium) fee by reference to the tax advantage
- Standardized documentation is used and available to more than one taxpayer i.e. off-the-shelf arrangements that are primarily tax-driven and whereby the finished product requires little or no modification to suit the specific requirements or circumstances of the relevant taxpayer.
Category B – Specific hallmarks linked to the main benefit test
- Acquisition of loss-making company, discontinuation of main activity, and using losses for the reduction in tax liabilities
- Conversion of income into capital, donations, gifts, or other types of income taxed at a lower rate /exempt
- Circular transactions resulting in the round-tripping of funds with no other primary commercial function
Category C – Specific hallmarks related to cross-border transactions
- 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 a tax resident in a black-listed country (EU / OECD)
- the payment benefits from a full exemption from tax
- the recipient is a tax resident in a jurisdiction where the payment benefits from a preferential tax regime
- Deduction of the same depreciation on an asset in multiple jurisdictions
- Double tax relief claimed for the same income/capital in multiple jurisdictions
- Transfer of assets with significant differences in valuation between jurisdictions
Category D – Specific hallmarks concerning the automatic exchange of information and beneficial ownership
- 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.
- 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.)
Category E – Specific hallmarks concerning transfer pricing
- Use of unilateral safe harbour rules. Safe harbour rules are exceptions to the application of the arm’s length principle for certain categories of taxpayers, such as small businesses. The use of the administrative simplification measure of 2% minimum margin after-tax (i.e., a margin of 2.29% before tax) on intragroup back-to-back financing is a safe harbour rule.
- Transfer of hard-to-value intangibles between associated enterprises
- 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
3. Information to be submitted for each declared cross-border arrangement to the Cyprus tax department
The information to be submitted for each declared cross-border arrangement to the Cyprus tax department, including the following, as appropriate:
- the identities of intermediate and interested taxpayers, including name, date, and place of birth (for natural persons), tax residence, VAT number, and, where applicable, persons who are affiliated undertakings for the taxpayer concerned;
- detailed information on the insignia making the cross-border arrangement declarable.
- a summary of the content of the declared cross-border arrangement, including a reference to the name by which it is widely known, if any, and a description of the relevant 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;
- the date on which the first phase of the application of the declared cross-border arrangement is completed or will be completed;
- detailed information on the legal provisions that form the basis of the declared cross-border arrangement;
- 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;
4. 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.
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