In order to accommodate new initiatives in the field of tax transparency at the level of EU, the EU Council adopted on the 25th of May 2018 the Directive 2018/822/EU on Administrative Cooperation in Tax Matters (amending Directive 2011/16/EU) (the “Directive” or “DAC6”) under which EU intermediaries involved in cross-border arrangements are obliged to make a disclosure to their tax authority, if certain requirements are met.
On the 31st of March 2021 the Republic of Cyprus brought into force the Law on Administrative Cooperation in the Field of Taxation 2021 transposing the Council Directive EU 2018/822 (the “Law”).
Obligation to Report:
The primary reporting obligation for a reportable transaction, lies with the Intermediary (as this is defined in the Directive and the Law). However, the said obligation may be shifted to the relevant taxpayer in the following cases:
(a) When the Intermediary is a non-EU intermediary. An intermediary is considered non-EU when it is neither:
- Resident in a Member State; nor
- Maintains a permanent establishment in a Member State through which the services in respect of the arrangement are provided; nor
- Incorporated/governed by the laws of a Member State; nor
- A member of a professional association in a Member State.
(b) When there is no intermediary involved (i.e. an in-house arrangement);
(c) When the Intermediary has the right to a waiver due to legal professional privilege.
According to the Directive and the Law, a cross-border arrangement shall be reportable, if the following conditions are met:
(a) The cross-border arrangement involves more than one member state or a member state and a third country where at least one of the following conditions is satisfied:
- not all participants in the arrangement are tax resident in the same jurisdiction;
- at least one participant in the arrangement is tax resident in more than one jurisdiction;
- at least one participant in the arrangement carries on a business in another jurisdiction through a permanent establishment there and the arrangement forms part or all of the business of that permanent establishment;
- at least one participant in the arrangement who is a tax resident in one jurisdiction carries on an activity in a different jurisdiction without being tax resident or creating a permanent establishment there; or
- the arrangement has a possible impact on the automatic exchange of information or the identification of a beneficial owner.
(b) The cross-border arrangement contains at least one of the hallmarks set out in Annex IV of the Directive.
Hallmarks & “Main Benefit Test”:
A Hallmark is defined as a characteristic or feature of a cross-border arrangement that presents an indication of a potential risk of tax avoidance, as listed in Annex IV of the Directive and the Law.
Some of the Hallmarks (e.g. Category A, Category B and points (b)(i), (c) and (d) of paragraph 1 of Category C) are only triggered where the arrangements satisfy the Main Benefit Test (“MBT”) whereby the rest of the Hallmarks (Category C.1(a), C.2, C.3, C.4, D.1, D.2, E.1, E.2 and E.3) are not subject to the MBT.
That test will be satisfied if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage.
According to the guidelines issued in the form of a Ministerial Decree on the 29th of October 2021, in order to identify whether an arrangement results to a tax advantage, a comparison test is required between the amount of tax due, having regard to the arrangement, with the amount of tax that would be due under the same circumstances in the absence of the subject arrangement. It goes further clarifying that it is not necessary to consider the specific motives or intentions of a person entering into the arrangement as it does not matter if the person sought a tax advantage from the arrangement or if he had other aspirations in relation to the arrangement. What matters, is whether the arrangement is such that the tax advantage is the main benefit or one of the main benefits that a person can reasonably expect to derive from the arrangement.
Value-added tax, Customs and excise duties, as well as compulsory social security contributions are not covered. Other taxes such as Income taxes, corporate taxes, capital gains taxes, inheritance taxes, real estate taxes, wealth taxes, local taxes etc. are covered.
The Law has a retrospective effect thus reportable cross-border arrangements concluded on or after 25 June 2018, provided that are assessed and concluded as reportable as above said, shall be reported as well.
The Tax Department, announced, on the 22nd of November 2021, that the deadline for the submission of DAC6 information is extended until 31 January 2022, in the following cases:
(a) Reportable cross-border arrangements that have been made between 25 June 2018 and 30 June 2020 and had to be submitted by 28 February 2021.
(b) Reportable cross-border arrangements that had been made between 1 July 2020 and 31 December 2020 and had to be submitted by 31 January 2021.
(c) Reportable cross-border arrangements made between 1 January 2021 and 1 January 2022, that had to be submitted within 30 days from the date they were made available for implementation or were ready for implementation or the first step in the implementation has been made, whichever occurred first.
(d) Reportable cross-border arrangements for which secondary intermediaries provided aid, assistance or advice, between 1 January 2021 and 1 January 2022 and had to submit information within 30 days beginning on the day after they provided aid, assistance or advice.
(e) The periodic reports for marketable arrangements.
Submission of Information:
The information for reportable arrangements shall be submitted by the relevant Intermediary or Taxpayer, as the case may be, through the “Ariadne” DAC6 reporting web portal, in the form of an XML, after completing the registration process, in accordance with the guidelines issued by the Tax Department.
According to the aforesaid guidelines of the Tax Department, the information to be submitted for each reportable arrangement, include the following (depending on the case):
(a) Identification details of intermediaries and relevant taxpayers, including the name, date and place of birth (for natural persons), tax residence, tax identification number and in some cases, any associated persons.
(b) Detailed information in relation to the hallmarks that deem the cross-border transaction reportable.
(c) A summary of the content of the reportable cross-border arrangement, including a reference to the name by which it is commonly known, if any, and a description in abstract terms of the relevant business activities or arrangements, without leading to the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information the disclosure of which would be contrary to public policy;
(d) The date on which the first step in implementing the reportable cross-border arrangement has been made or will be made;
(e) Details of the national provisions that form the basis of the reportable cross-border arrangement;
(f) The value of the reportable cross-border arrangement;
(g) The identification of the Member State of the relevant taxpayer(s) and any other Member States which are likely to be concerned by the reportable cross-border arrangement;
(h) The identification of any other person in a Member State likely to be affected by the reportable cross-border arrangement, indicating to which Member States such person is linked.
Considering the fact that for an arrangement there may be several intermediaries, an intermediary (the “Intermediary A”) of such arrangement may be exempted from the obligation to submit information to the TD provided that:
(a) Provided that another intermediary (the “Intermediary B”) of the same arrangement has already reported the arrangement to the TD and,
(b) That Intermediary B provides Intermediary A with the following supporting documentation:
- a copy of the information (i.e., of the DAC6 XML report) submitted to the TD or to the competent authority of another EU Member State; and
- a written confirmation of the unique reference number assigned to the arrangement by the TD or the competent authority of another EU Member State; and
(c) The information provided by the Intermediary B is the same information that the Intermediary A would submit as well.
How we can help?:
Please reach out to us for any assistance you may need for ensuring compliance with the DAC6 requirements.
Author: Elli Ioannou Project Manager / Head of Corporate Department (LLB, LLM)
You can contact Elli directly at firstname.lastname@example.org