THE ANTI-TAX AVOIDANCE DIRECTIVE
On 05/4/2019, Cyprus adopted the first Law implementing the provisions of the EU Anti-Tax Avoidance Directive (“ATAD”) with application as of January 2019.
ATAD serves the purpose of combating abusive tax-evasive practices in the domain of corporate taxation by laying down the minimum standards for EU Member States to adopt. ATAD’s implementation has taken place only partially, with three ATAD measures having been transposed in the Cyprus law by now, namely, the interest limitation (earnings stripping rule), a general anti-abuse rule (GAAR) and rules concerning controlled foreign companies (CFC). The interest limitation rule is in place to discourage artificial debt arrangements whose objective is to reduce taxes. The general anti-abuse rule serves the purpose of targeting all non-genuine transactions performed in a domestic or a cross-border situation with the aim of obtaining a tax advantage that defeats the object or purpose of the applicable tax law. The objective of the CFC Rules is to limit the artificial use of entities in low tax jurisdictions owned directly or indirectly by Cyprus companies whose use has the objective of avoidance of paying Cyprus tax. The remaining provisions will be transposed gradually, in accordance with the Directive’s timeframe.
The first ATAD implementation Law applies to all companies as well as other entities that are Cyprus tax residents in the same manner as companies, including entities that are not Cyprus tax residents but have a Cypriot permanent establishment.
The new legislation is complex and constitutes a major change that needs to be considered by all corporate taxpayers. If you have any queries on how these new rules might affect your business, do not hesitate to contact us.