Cyprus EU Anti-Tax -Avoidance Directive Implementation: A Draft bill has recently been presented by the Cypriot Tax Department to amend the Cypriot tax laws in line with the provisions of the EU Anti -Tax Avoidance Directive (“ATAD”), which was approved by the EU Commission in 2016.  Input has been invited from the Tax Department from interested parties to be taken into consideration and the proposed amendments are outlined below. Cyprus tax rates are generally very low which makes the investors to choose and proceed with a Cyprus company registration; to take advantage of the many tax benefits of a Cyprus company.

Cyprus EU Anti-Tax -Avoidance Directive Implementation: Interest Limitation Rules

The practice of groups artificially shifting their debt to jurisdictions with more generous deductibility rules is being discouraged by limiting the amount of interest that the taxpayer is entitled to deduct in a tax year. Under the new proposed provisions exceeding borrowing costs shall be deductible in the tax period in which they are incurred only up to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortization.

Exit Taxation 

In order to prevent tax base erosion a taxpayer shall be subject to tax at an amount equal to the market value of the transferred assets, at the time of exit of the assets, less their value for tax purposes, in any of the following circumstances: (a) a taxpayer transfers assets to its head office or another P/E in another Member State or in a third country in so far as Cyprus no longer has the right to tax the transferred assets due to the transfer; (b) a taxpayer transfers its tax residence to another Member State or to a third country, except for those assets which remain effectively connected with a P/E in Cyprus and for which Cyprus has the right to tax; (c) a taxpayer transfers the business carried on by its P/E from Cyprus to another Member State or to a third country in so far as Cyprus no longer has the right to tax the transferred assets due to the transfer.

General Anti-abuse rule

The proposed bill provides that for the purposes of calculating the corporate tax liability, the tax authorities will ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances.

Controlled foreign corporation (CFC) rules

Corporate Groups in practice and in In order to reduce their overall tax liability, may shift large amounts of profits towards controlled subsidiaries in low-tax jurisdictions. CFC rules reattribute the income of a low-taxed controlled foreign subsidiary to its – usually more highly taxed – parent company.

Effective date of the changes

Some of the proposed amendments will apply as from 1 January 2019 some of which will apply as from 1 January 2020 and some as from 1 January 2022.