TaxLegi 29.04.2021

DAC6 constitutes one of the most notable breakthroughs in the field of automatic exchange of information in the last years. The obligations flowing from the new set of mandatory disclosure rules can be quite onerous and voluminous to intermediaries and relevant taxpayers alike. Any compliance initiative undertaken will therefore need to strike a fair balance between adherence to the rules and operational efficiency. In order to handle the potentially burdensome workload, we have created an automated solution, DAC6 Wizard, which provides for a seamless and straightforward way of assessing, logging and reporting reportable cross border arrangements. Moreover, the solution may be used to store all performed assessments and used as an evidence to illustrate compliance. DAC6 Wizard combines unique features and provides a cost-efficient option for Cyprus based intermediaries and taxpayers that wish to combine the knowledge of their internal resources with a technology route that will operationalise DAC6 compliance. The DAC6 Wizard bears no hidden costs and is offered on an annual licence model, offering unlimited number of conversions to XML and unlimited number of users within an organisation.

We will be more than happy to discuss how EY and the DAC6 Wizard can help you in your DAC6 compliance journey.

Find more information here.

 

Panayiotis Tziongouros - Director, International Tax and Transaction Services

Executive summary

On 31 March 2021, the law (Ν. 41(Ι)/2021, the ‘Law’) amending the Law on Administrative Cooperation in the field of Taxation (Law N. 205(I)/2012) entered into force. The Law transposed the European Union (EU) Directive (referred to as ‘DAC6’ or ‘the Directive’).

The Law entered into effect as of 1 January 2021. However, it will have a retrospective effect for reportable cross-border arrangements concluded on or after 25 June 2018 provided that one of the prerequisite triggering events is met.

The final Cypriot Mandatory Disclosure Rules (‘MDR’) legislation is broadly aligned with the requirements of the Directive with minor deviations, as highlighted below.

Further to the Law, guidance notes (in the form of a Ministerial Decree) will be issued by the Cypriot Tax Department (‘CTD’) in the next few weeks which will provide clarity over the interpretation of key terms of the Law.

 

Detailed discussion

Background

The Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation (the ‘Directive’ or ‘DAC6’), entered into force on 25 June 2018 [1].

The Directive requires intermediaries (including EU-based tax consultants, banks, asset managers, corporate administrative service providers, insurance companies and lawyers) and in some situations, taxpayers, to report certain crossborder arrangements (reportable arrangements) to the relevant EU Member State tax authority. This disclosure regime applies to all taxes except value added tax (VAT), customs duties, excise duties and compulsory social security contributions[2]. Cross-border arrangements will be reportable if they contain certain features (known as hallmarks). The hallmarks cover a broad range of structures and transactions. For more background, see EY Global Tax Alert, Council of the EU reaches an agreement on new mandatory transparency rules for intermediaries and taxpayers, dated 14 March 2018.

 

Scope of taxes covered

The scope of taxes covered under the Law is fully aligned with the Directive and applies to all taxes except VAT, customs duties, excise duties and compulsory social security contributions.

 

Reportable arrangements

Under the Directive, an arrangement is reportable if:

• The arrangement meets the definition of a cross-border arrangement; and
• The arrangement meets at least one of the hallmarks A-E specified in Annex IV of the Directive and the main benefit test (‘MBT’), where applicable.

Under the Directive, “cross-border arrangements” are defined as arrangements concerning more than one EU Member State or an EU Member State and a third country, where an additional “territorial” condition is met.

The definition of “reportable arrangement” included in Article 2 of the Law is aligned with the DAC6 definition.

“Marketable arrangements”, are defined in DAC6 and the Law as “cross-border arrangements that are designed, marketed, ready for implementation or made available for implementation without a need to be substantially customised”.

The hallmarks can be distinguished as hallmarks which are subject to the MBT, and those which by themselves trigger a reporting obligation without being subject to the MBT.

 

Areas of clarification and key highlights:

“EU-nexus” Main benefit test

In accordance with DAC6, the MBT 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.

The text of the Law links the definition of “tax advantage” with the scope of taxes covered under article 2(1) of the Directive 2011/16/EU[3], thus referring to an “EU-nexus” Main benefit test, i.e., the tax benefit is limited to tax advantages obtained in Cyprus or another EU Member State.

In addition, the definition of “tax advantage” is further defined by reference to the following:

(i) Relief or increased relief from tax;

(ii) Repayment or increased repayment of tax;

(iii) Avoidance or reduction of a charge to tax

or an assessment to tax;

(iv) Deferral of a payment of tax or

advancement of a repayment of tax;

(v) Avoidance of an obligation to withhold tax.

However, the Law does not include any “policy” test or “principles” test in relation to MBT.

 

Intermediaries

Under the Directive, intermediaries with EU nexus have the primary obligation to file information to the tax authorities. DAC6 provides for an exemption from reporting for intermediaries and relevant taxpayers, if sufficient proof of reporting of the same information is provided by the other

intermediary/relevant taxpayer, as well as an exemption from reporting for intermediaries covered under legal professional privilege (‘LPP’). If there are no other qualifying intermediaries (i.e., EU-nexus intermediaries or intermediaries not covered under LPP), the obligation will be shifted to the relevant taxpayer(s). 

 

Legal Professional Privilege (LPP)

It has been further specified in the Law that LPP is only granted to lawyers and law firms that exercise the profession of lawyer in line with Capital 2 of the Advocates Law. However, lawyers who are covered by LPP may be exempt

from reporting to the CTD but should still have an obligation to notify other intermediaries and/or the relevant taxpayer of their reporting obligations within ten (10) days from the date

when the reporting obligation has been created (i.e., from the date of the triggering event for reporting).

 

Reporting deadlines

The reporting deadlines and triggering events provided in the Law are fully aligned with the relevant provisions of DAC6, as amended, given also the 6-month deferral provided in Cyprus due to the COVID-19 pandemic[4], the extension provided by the CTD to the deadlines for DAC6 submissions until 31 March 2021[5] and the non-imposition of administrative fines for DAC6 submissions made up until 30 June 2021[6].

It is worth noting that for the time being, Cyprus has opted not to adopt the provision of the Directive which requires that each relevant taxpayer files information about their use of the

arrangement to the CTD in each of the years for which they use it.

Moreover, the Law includes a provision that does not appear in the Directive, according to which the CTD, for reasons of verifying the compliance of intermediaries and relevant taxpayers with their reporting and notification obligations, can require under written notice, the provision of documents and/or information regarding a specific arrangement within fourteen (14) days from the date of such notice. 

 

Penalties

Breach	Penalty (one-off administrative fine per entity and arrangement)
Failure to report a RCBA	€ 10.000-20.000
Delay in reporting a RCBA	Up to 90 calendar days: € 1.000-5.000
	More than 90 calendar days: € 5.000-20.000
Filing inaccurate or incomplete or misleading report of a RCBA	€ 1.000-10.000
Failure to notify other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to LPP	€ 10.000-20.000
Delay in the notification of other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to LPP	Up to 90 calendar days: €1.000-5.000
	More than 90 calendar days: €5.000-20.000
Failure to provide the Cypriot Tax Department with information or documents for an arrangement within 14 days from the date of reception of written notice	€1.000-10.000
Failure to pay the administrative fines imposed/Continuance of the relevant breach	Increase of imposed fine up to €20.000

 

Application to Court

The CTD shall notify the affected intermediary/relevant taxpayer about its intention to impose a penalty and the reasons behind such intention by also providing them with a deadline of fifteen (15) working days from the date of the abovementioned notification in order to submit their written objections.

An intermediary/relevant taxpayer can then appeal against the (enforceable) decision of the CTD (which needs to be written, justified and be communicated to the impacted intermediary or relevant taxpayer) to impose an administrative fine, either through an hierarchical appeal, or an administrative appeal, before the Tax Council or the Cypriot Administrative Courts, respectively.

As implied by the provisions of the Law, penalties will also apply for intermediaries/relevant taxpayers who have breached their reporting or notification obligations, as prescribed in the Law, for the transitional period.

 

Next steps

Complying with the new rules is a challenging exercise. Determining if there is a reportable cross-border arrangement raises complex technical and procedural issues for taxpayers and intermediaries alike. Due to the scale and significance of the rules, taxpayers and intermediaries who have operations in Cyprus should ensure that they have the necessary policies and procedures for logging and reporting tax arrangements so that they are fully prepared for meeting their obligations and relevant deadlines.

A detailed Global Tax Alert is forthcoming that will provide more clarity on the guidance notes to be issued by the CTD.

We may assist you in a collaborative manner to help you identify and manage your obligations under DAC6. This includes:

- Conducting strategy sessions to discuss and identify the impact of DAC6 on your organisation

- Conducting workshops for your executive layer teams

- Providing DAC6 learning programmes for your operational teams

- Assisting with identifying and logging your reportable cross border arrangements by

- Using EY’s proprietary automation solutions (for logging, analysing and reporting of

arrangements)

- Outsourcing the creation and documentation of your reportable arrangements

- Simply helping you understand how these rules apply to your company

 

Reference Notes:

[1] For background on MDR, see EY Global Tax Alert, EU publishes Directive on new mandatory transparency rules for intermediaries and taxpayers, dated 5 June 2018.

[2]  DAC6 sets out a minimum standard. EU Member States can take further measures; for example, (i)

introduce reporting obligations for purely domestic arrangements;(ii) extend the scope of taxes

covered; (iii) bring forward the start date for reporting

[3] https://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX%3A32011L0016

[4] See EY Global Tax Alert, Cyprus postpones MDR reporting deadlines for six months, dated 5 August 2020.

[5] See CTD’s announcement. ‘DAC6 – Οδηγία του Συμβουλίου της ΕΕ για την υποχρεωτική αποκάλυψη και ανταλλαγή πληροφόρησης για διασυνοριακές ρυθμίσεις’, dated 3 February 2021.

[6]  See CTD’s announcement, ‘DAC6 – Οδηγία του Συμβουλίου της ΕΕ για την υποχρεωτική αποκάλυψη και ανταλλαγή πληροφόρησης για διασυνοριακές ρυθμίσεις’, dated 26 February 2021.

 

Stavros Karamitros - Assistant Manager, International Tax and Transaction Services

1. PERMANENT RESIDENCE BY INVESTMENT SCHEME: RECENT REVISIONS

1.1             Pursuant to the provisions of Regulation 6 (2) of the Aliens and Immigration Regulations, the Minister of Interior decided on the 24th of March, after informing the Council of Ministers, to issue Immigration Permits to third-country national applicants, in cases of investments that meet the below conditions.

1.2         The applicant must satisfy at least one of the criteria of paragraph 2.1, as well as the quality criteria as per paragraph 3. It is noted that the money that will be used for the investment must be proven to have been transferred to Cyprus from abroad.

 

2.  INVESTMENT CRITERIA

2.1 The applicant must make an investment of at least € 300,000 in one of the following investment categories:

(A) Investment in a house/apartment: Purchase of a house or apartment from a land development company, which should pertain to a first-time sale of at least € 300,000 (plus VAT).

(B) Investment in real estate (excluding houses/apartments): Purchase of other types of real estate such as offices, shops, hotels or similar developments or a combination of these with a total value of € 300,000. These properties can also be resale.

(C) Investment in the share capital of a Cyprus Company with activities and personnel in Cyprus: € 300,000 worth of investment in the share capital of a company registered in the Republic of Cyprus, based and operating in the Republic of Cyprus and having a proven physical presence in Cyprus and employing at least five (5 ) people.

(D) Investment in shares of Cyprus Investment Organization Collective Investments (type AIF, AIFLNP, RAIF): € 300,000 worth of investment in shares of Cyprus Investment Organization Collective Investments.

It is understood that any alienation of the holder of the Immigration Permit from the investment he has made without its immediate replacement with another of the same or greater value, which must meet the conditions set out in the present procedure, will entail the activation of the procedure cancellation of the Permit based on the provisions of Regulation 6 of the Aliens and Immigration Regulations.

2.2 The applicant must, in addition to the investment under Section 2.1 above, be able to prove that he/she has at his/her disposal an insured annual income of at least € 30,000. The annual income increases by € 5,000 for each dependent family member and € 8,000 for each dependent parent (of the same and/or spouse). This income may come from salaries for deriving from employment, pensions, shares dividends, permanent deposits, rental income, etc. coming from abroad for cases where the applicant chooses to invest as per Section

2.1. (A). In calculating the total income, the income of the applicant's spouse can also be taken into account.

In cases where the applicant chooses to invest as per Sections 2.1. (B), 2.1. (C) or 2.1. (D), his total income or part of it, may also be generated from sources coming from activities within the Republic.

 

3. QUALITY CRITERIA

3.1 The applicant and his/her spouse shall submit certificates of clean police record from their country of residence or from the Republic if they legally reside here and must not constitute a threat to public order nor public safety.

3.2 The applicant and his/her spouse shall declare that they have no intention of engaging in employment in the Republic, with the exemption of their employment as Directors by the company at which they chose to invest as per this policy.

3.3 In instances where the investment does not pertain to Company shareholding, the applicant and his/her spouse can be shareholders of registered companies in the Republic and any income generated from dividends in said companies, will not be considered as an obstacle for the purpose of acquiring the Immigration Permit. In addition, they can hold the position of Non-executive Director (no salary) in said companies.

3.4 In instances where the applicant invests as per paragraphs 2.1(B), 2.1(C) or 2.1 (D), proof of residence shall be submitted (e.g. title deed, purchasing agreement, rental agreement)

 

How we can help:

With our all-around support at every stage, our Immigration, Tax and Legal experts will be able to assist you by:

• Advising on the proper setup of your investment, to meet the relevant criteria
• Providing advice and clarifications on the new legal framework, eligibility criteria and relevant information regarding PRP.
• Advise on any regulatory procedures and processes regarding eligibility to qualify for the program and provide guidance and clarifications on the application forms and any other supporting documentation required.
• Continuous monitoring and follow-up of the application with the relevant authorities

Our Immigration Team is at your disposal for any information and/or clarifications required.

 

Related Link: Civil Registry and Migration Department - Announcements

Riginos Polydefkis - Senior Manager, Head of Immigration Services - People Advisory Service

We would like to inform you that the Cypriot House of Representatives has voted for an amendment to the Assessment and Collection of Taxes Law which in effect, extends the submission deadline of the Income Tax Return for individuals, the submission deadline of the Employer’s Return and the deadline for the payment of the 2nd instalment of provisional tax for the tax year 2020. The Law was published in the Official Gazette of the Republic on 20 April 2021.

More specifically, the submission deadline for the Income Tax Return of individuals (Form T.D.1) and Employer’s Return (Form T.D.7), for the tax year 2020, is extended to 30 September 2021. The deadline for the payment of any income tax which is due as per Form T.D.1 is also extended to 30 September 2021, without the imposition of any penalties/interest.

Lastly, the deadline for the payment of the 2nd instalment of provisional tax for the tax year 2020 has been extended to 30 September 2021, without the imposition of penalties/ interest.

Our team remains at your disposal for any information and/or clarifications required.

 

Despo Kyrmitsi - Assistant Manager, Direct Tax

On March the 30th EY Cyprus organised a webcast with the topic “The future of work and the future of Skills”.

The keynote speaker was the Associate Partner and Head of EY’s People Advisory Services (PAS), Mr. Panayiotis Thrasyvoulou. The webcast was held virtually with more than 400 registrations.

On the below article you can read Mr. Thrasyvoulou’s commentary on the Future of Work.

What are the people implications from all those things we are living through? How do we design organizations and prepare our workforces for what’s next and beyond?

I am going to start by referring to some megatrends of the future which are mainly driven by the forces of demographics and technology.

The first trend relates to the fact that the average life span is increasing, people live longer and through the medical technologies are ageing gracefully. While this is a good thing for humanity, it also puts a lot of pressure on social welfare systems and makes prolonged retirement a necessity. Prolonged retirement is also becoming a necessity because of our inability to save enough for retirement. This in turn, creates a very diverse workplace where up to 5 generations can co-exist, with 4 generations being already the norm.

A related trend is that the definition of employee is changing; we now have full time workers, contingent workers with alternative forms of employment such as freelance (which, by the way, will constitute 50% of the global workforce from this year onwards), we have remote workers whose talent can be tapped from everywhere in the world and we have robots.

So, imagine the leadership challenges, the situation millennials are faced with having to lead teams of people and bots with such diverse backgrounds and demographics. At this point I should mention that, within the next 5 years, millennials will occupy 75% of managerial jobs. We already see that the majority of team leaders are called to lead teams composed of people who are older than them, much younger than them, some are not physically present, some others work for multiple employers and many tasks are automated and executed by algorithms. The combination of inter-personal skills, emotional skills as well as the digital skills needed in order to coordinate work and produce results are immense and can make them or break them. Note that millennials and GenZs today grow up to be much less empathetic and less emotionally skilled than their counterparts a couple of decades ago. This creates an added need for up-skilling them even more, and not just making them digitally savvy.

Some other key trends have to do with technology, which has evaded our personal lives and this trend is here to stay. We no longer refer to work-life balance but instead to work-life integration, which means finding ways to live our personal lives and at the same time face the fact that technology and work are following us at home.

We also need to be able to manage the fact that younger generations have specific needs, in this case GenZ which needs consumer-grade experiences at work, technology interfaces they can find on Amazons and Alibabas. They need to feel that the experience of receiving feedback, of being on-boarded in the organization or the simple task of tracing their annual leave balance is online and of consumer-grade.

Other key trends include the physical infrastructural changes to cater to the new demographics and realities; people want flexibility and tools to work remotely, and this has been exacerbated by the current covid-19 situation. Moreover, de-urbanization trends in the developed world constitutes the use of expensive city-centre offices a bit less necessary.

The acquisition of digital skills by tomorrow’s leaders will be imperative to get the work done efficiently. Coupled with the key trend of organizing around teams, highly diverse teams as we have seen, makes digital skill acquisition by leaders even more important.

Finally, beyond technology, demographic changes and new habits, we have to also account for the fact that people of all generations want meaningful work, they want to contribute to something bigger than them and they are more attuned to employers who are both Purpose-driven and socially sensitive. Highly talented people refuse to apply to an employer who does not seem to operate for any reason other than money and who does not respect the surrounding communities and the environment. They even avoid applying to companies who are not pet-friendly! Having a purpose and providing meaningful work will be a huge challenge, especially for traditional industries who find it hard to convince people that they are here to change the world for the better, for example banking, retail, HORECA and consumer goods. Even retailers have to compete for attracting data analysts, user experience designers and app developers away from high tech industries these days.

So, what can we do about it? How can we respond to these key trends of the future?

First, we have to invest time and resources to designing high-performing organizations. We have to design the organizational structure in a way that brings about both efficiency and effectiveness, efficiency for back-end automation and front-end shift to digital channels and effectiveness for bringing about collaboration, innovation, customer-orientation, complex problem-solving and superior leadership of cross-functional and fluid teams. We have to automate but also innovate, reduce human interaction where it matters but also enhance it where it makes a difference. While applying “one less click” strategies for optimising customer experience the Amazon way, we have to also remember that Amazon employs 750k people, among others on designing e-commerce solutions, cloud computing, digital streaming, AI and so on. In a few words, intelligent automation and streamlined process management should be coupled with effective functioning of teams in order to constantly innovate, create new products and services, take evidence-based decisions and managing customer experience face-to-face where it makes sense. All these mean that a tremendous shift in headcount will occur, with rightsizing being the name of the game. Simplified, mechanistic jobs will become automated and human capital will have to be shifted to other parts of the organization where creativity, problem-solving and highly complex interactions are needed. Whether this will disrupt the labour markets partly depends on the up/skilling, cross-training activities that will take place within organizations, whether current workforces will be sufficiently prepared and equipped for the transformation of work.

Along with these trends, acquiring the necessary digital skills and being able to utilise advance analytics and process automations will also become part of work transformation.

Agile HR processes and systems will have to be designed, in order to instil the necessary flexibility and adaptability whenever circumstances change and customer needs evolve, a phenomenon which will become more frequent.

Along this transformation process we must identify and leverage enabling technologies that will bring about the desired results. It should be added that technology alone is not enough, and disruptive innovations are not only technological innovations. Disruption comes from new ways of thinking about processes, organization and job design, new business models. Technology can be an enabler and not an end.

So, designing the future-proof organization will require novel thinking and enabling technology to enact it. We have seen recently organizations that rolled-out quite a few of those technologies to help organizations enact their vision for the future. Take for example crowdsourcing; crowdsourcing had been a predominately marketing tool to promote products or secure funding, but we see that nowadays it also constitutes an effective way of deploying novel and fun recruitment campaigns, especially appealing to new generations. People log-on to the crowdsourcing platform and get the opportunity to deploy certain skillsets, within the framework of a competition or challenge. Recruiters then interact with candidates and evaluate their work and select people who exhibited the skills and even the values sought and invite people for further assessment.

Another example is leveraging technology in order to facilitate peer recognition and rewards programs; newer generations are more accustomed to near real-time feedback and rewards, and they can get it from both their managers and peers via these platforms.

Bigger organizations can utilise platforms for designing and constantly adjusting their job grading systems and pay structures, and at the same time deploy the right people at the right time and at the right cost, via the strategic workforce planning & manpower optimisation platforms.

Of course, predictive people analytics provide the means for evidence-based, data-driven decision-making which can come before uncomfortable situations emerge. HR departments can utilise such readily available tools to assess turnover intentions, sentiment regarding near real-time employee engagement levels and psychological and physical well-being. Advance culture fitness diagnostics can also add to the effectiveness of this process.

To recap, I would say that the future of work is primarily driven by the forces of technology and demographics and brings about challenges for both the HR Function and the employees themselves.

New, agile organizational formats and designs will become imperative and upskilling in the areas of essential human skills such as empathy, creative problem-solving, leadership of highly diverse teams and complex cross-functional collaboration will be coupled with the need for digital up-skilling to facilitate those designs.

Technology enablers will drive HR to improve employer branding, make decision-making more informed and more convincing with the use of analytics, enhance the overall employee experience by making it consumer-grade via superior HR information systems, optimise sizing and deployment of staff through digitalised workforce planning, transform learning and leadership development directed to the effective leading of highly diverse, cross-functional and fluid teams, optimise and increase the frequency of feedback and rewards and at the same time reduce costs.

Panayiotis Thrasyvoulou, Associate Partner, Head of People Advisory Services