Global Tax Alert (News from Transfer Pricing) | 2 June 2017
Cyprus issues new Decree on Country-by- Country Reporting
On 26 May 2017, the Cypriot Ministry of Finance issued a new decree (the Decree) on Country-by-Country Reporting (CbCR) pursuant to the powers given under Section 6 (16) of the Assessment and Collection of Taxes Law. The Decree replaces the previous decree dated 30 December 2016.
The Decree provides more clarity with respect to identifying the reporting entity for a Multinational Enterprise (MNE) Group and reporting deadlines in accordance with the recommendations of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13 on CbCR.
Cyprus CbCR requirements took effect on 1 January 2016. The Cyprus CbCR requirements require certain Cyprus parented groups, and in specific instances, domestic subsidiaries of foreign parented groups, to report data on revenues, profits, taxes paid/accrued, capital, accumulated earnings and employee numbers, along with other data on a CbC basis for the group to the Cyprus Tax Department (the Tax Department). Groups with annual consolidated revenue in the preceding accounting period of less than €750 million will be exempted from the CbCR requirements.
The Decree also includes an obligation for Cypriot constituent entities to make an annual notification confirming the identity and jurisdiction of tax residence of the CbC reporting entity.
The deadline for the notification for the year 2016 has been extended to 20 October 2017 and requires Cypriot companies to notify the Tax Department electronically to confirm the name, identity and tax residence of the CbC reporting entity.
Reporting entity of MNE Group
As it was previously noted, the CbC report must be prepared and submitted to the Tax Department for the year starting on 1 January 2016, if the annual consolidated group revenue exceeds €750 million by:
- Ultimate Parent Entity (UPE) of an MNE Group which is tax resident in Cyprus.
- Surrogate Parent Entity (SPE) of an MNE Group which is tax resident in Cyprus and has been appointed by the MNE Group as the reporting entity for CbCR.
The deadline to file the CbC report with the Tax Department is 12 months from the end of the relevant accounting period (e.g., for groups with year-end 31 December 2016, the reporting deadline is by 31 December 2017).
A constituent entity that is tax resident in Cyprus and is neither the UPE nor the SPE of an MNE Group, may have a secondary/local filing obligation in Cyprus, if one of the following exists:
(i) The UPE is not tax resident in Cyprus and it is not required to file a CbC report in its country of residence
(ii) Although obligated to file the CbC report in its country residence, there is no exchange of information instrument in place between that jurisdiction and Cyprus
(iii) Such jurisdiction has been notified regarding a systematic failure on exchanging information
Cyprus has opted to postpone the secondary/local filing requirement for financial years starting on or after 1 January 2017.
Moreover, if the UPE did not provide, for any reason, all the required information to the constituent entity of an MNE Group for the submission of the CbC report, the constituent entity is required to submit an equivalent CbC report and notify the local authorities that the UPE failed to provide all the necessary available information.
Cyprus has opted to postpone the equivalent filing requirement for financial years starting on or after 1 January 2017.
If a UPE of an MNE Group files a voluntary CbC report for its 2016 fiscal year in its country of residence, and provided a number of other conditions are met (described in greater detail below), constituent entities resident in Cyprus will not be required to file a local or an equivalent CbC report under the secondary reporting mechanism for that year. This is particularly relevant to MNE Groups with parent entities in countries where voluntary filing is an option (e.g., Russia and Switzerland). The conditions that must be met for the Tax Department to accept a voluntary filing for the 2016 fiscal year include:
- The UPE of the MNE Group makes available a CbC report conforming to the requirements of BEPS Action 13 to the tax authority of its jurisdiction of tax residence by the filing deadline, i.e., 12 months after the last day of the 2016 fiscal year of the MNE Group.
- By the first filing deadline of the CbC report, the jurisdiction of tax residence of the UPE must have its laws in place to require CbC reporting (even if the filing of a CbC report for the 2016 fiscal year is not required under those laws).
- By the first filing deadline of the CbC report for the fiscal year 2016, a qualifying competent authority agreement must be in effect between the jurisdiction of tax residence of the UPE and Cyprus.
- The jurisdiction of tax residence of the UPE has not notified Tax Department of a systemic failure.
- A Cypriot tax resident constituent entity of the MNE Group must, by the last day of the fiscal year, notify the Tax Department of the name, identity and jurisdiction of tax residence of the reporting entity.
CbC notification requirement
The Decree requires an annual notification to be made to the Tax Department by the last day of the fiscal year to which the CbC report relates to, as follows:
- For UPEs resident in Cyprus, the entities must electronically notify the Tax Department confirming that they are the CbC reporting entity of the Group.
- For SPEs resident in Cyprus, the entities must electronically notify the Tax Department confirming that they are the CbC reporting entity for the Group and also provide the identity and tax residence of the Group’s UPE.
- For domestic constituent entities resident in Cyprus, the entities must electronically notify the Tax Department confirming the identity and tax residence of the CbC reporting entity of the Group and also provide the identity and tax residence of the Group’s UPE (if different from the reporting entity).
For 2016, the deadline for first notification has been extended to 20 October 2017.
For Cypriot constituent entities falling within the secondary/local filing (including equivalent filing) requirement, the notification requirement (similar to the reporting requirement) will also apply for fiscal years starting on or after 1 January 2017.
Each Cypriot constituent entity must submit its own notification electronically via the Government Gateway Portal (Ariadne).
The submission of both the notification and the CbC report shall be completed annually in the English language and submitted electronically via Ariadne. Detailed guidance regarding the electronic submission of the notification and of the CbC report is expected to be issued shortly by the Tax Department.
Exchange of information
For reports other than the first submitted report, the report will be automatically exchanged within 15 months from the last day of the reporting fiscal year (RFY) of the MNE Group. The first submitted report for the RFY, starting on or after 1 January 2016, will be automatically exchanged within 18 months starting from the last day of the aforementioned fiscal year.
Maintenance of books and records
The Decree provides that the Tax Department may request books and records from the Reporting Entity explaining and supporting the information disclosed in the CbC report, no matter if the records are kept in Cyprus or outside Cyprus. The Reporting Entity is required to maintain the books and records for a period of six years.
Currently, no specific penalties have been introduced in Cyprus with respect to non-compliance with CbCR. In this respect, the general fines provided for in the Assessment and Collection of Taxes Law will apply (e.g., administrative penalties of €100). The above legislation is expected to be amended during 2017 in order to provide higher penalties for non-compliance with CbCR obligations. A draft tax bill has already been prepared and it is expected that the penalties may be up to €20,000.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Cyprus Limited, Limassol
- Philippos Raptopoulos
+357 25 209 740
- Charalambos Palaontas
+357 25 209 709
Ernst & Young Cyprus Limited, Nicosia
- Petros Krasaris
+357 22 209 790
EYG no. 03543-171Gbl