On 18 March 2021, the Cypriot Parliament voted for the amendment of the Cypriot Law on Administrative Cooperation in the field of Taxation (‘Law N. 205(I)/2012’ or the ‘Law’) implementing the European Union (EU) Directive on the mandatory disclosure and exchange of information on reportable cross-border arrangements (referred to as ‘the ‘Directive’).
Once the Law is published in the Official Gazette, it will be effective as of 1st of January 2021 although the Law has retroactive effect and captures reportable cross-border arrangements made on or after 25 June 2018. In addition, guidance notes (in the form of a Ministerial Decree) will be issued in the next few weeks and will provide clarity over the interpretation of key terms and provisions of the Law.
As per a recent announcement of the Cypriot tax authorities, no monetary penalties are expected to apply for reporting that will take place by the 30th of June 2021 under a so called ‘’grace period’’. This will allow Cypriot companies that have not yet proceeded with the analysis of their obligations under DAC6 to do so in a timely manner as the repercussions for future non-compliance are quite severe.
Our team is happy to discuss any DAC6 related matters that may affect your business.
Panayiotis Tziongouros - Director, International Tax and Transaction Services
On 19 February 2021, Cyprus and Germany signed an amending protocol (the “Protocol”) to update the 2011 Cyprus - Germany Income and Capital Tax Treaty (the “DTT”).
The Protocol, inter alia, introduces the minimum standards of the Base Erosion and Profit Shifting (BEPS) actions of the Organization for Economic Co-operation and Development (OECD).
Since the DTT with Germany has not been covered by the Multilateral Convention, the aim of which was to automatically introduce and expedite BEPS actions, the main amendments in the Protocol include the incorporation of specific wording in the preamble of the DTT and the amendment of the relevant entitlement to benefits article ‘Application of the Agreement in Special Cases’ article. Notwithstanding the other provisions of the DTT, a treaty beneﬁt shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that beneﬁt was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that beneﬁt, unless it is established that granting that beneﬁt in these circumstances would be in accordance with the object and purpose of the relevant provisions of the DTT.
The Protocol also introduces specific wording to the ‘Business Profits’ article with particular emphasis on elimination of double taxation resulting from adjustments on proﬁts of a permanent establishment made by one of the Contracting States. It also introduces the possibility of the two Contracting States resolving the issue by mutual agreement.
The Protocol shall enter into force on the day of the exchange of the instruments of ratiﬁcation and shall have eﬀect in both Contracting States:
- in the case of taxes withheld at source, in respect of amounts paid on or after the ﬁrst day of January of the calendar year next following that in which the Protocol entered into force;
- in the case of other taxes, in respect of taxes levied for periods beginning on or after the ﬁrst day of January of the calendar year next following that in which the Protocol entered into force.
We remain at your disposal for any further clarifications or questions you may have.
Elina Papaconstantinou - Manager, International Tax and Transaction Services
The Minister of Finance, exercising the powers conferred to him by the provisions of Article 5 (1) of the Assessment and Collection of Taxes Law, issued a decree, which was published on 12 March 2021 in the Official Gazette of the Republic (Decision No. 5479 - K.Δ.Π. 111 / 2021), which extends the submission deadline of the Income Tax Return for companies and self-employed persons.
Based on the above, the submission deadline for the Income Tax Return of companies (Form T.D.4) and self-employed persons whose turnover exceeds the amount of €70,000 and have the obligation to prepare audited accounts (Form T.D.1 self-employed), for the tax year 2019, is extended to 30 September 2021.
Michalis Karatzis - Manager, Direct Tax
On 26 February 2021, the Cypriot Tax Department (CTD) issued an announcement which provides that no imposition of administrative fines for submission will apply until the 30th of June 2021, with respect to information on reportable cross-border tax arrangements under the European Union (EU) Directive on the mandatory disclosure and exchange of information (referred to as DAC6 or the Directive).
Notwithstanding the CTD’s previous announcement regarding the extension of DAC6 reporting deadlines until 31st March 2021, the Tax Department has also announced their intention not to impose administrative fines for overdue submission of information under DAC6 until 30 June 2021, for the following cases:
- Reportable cross-border arrangements that have been made (i.e., of which the first step of implementation has taken place) between 25 June 2018 and 30 June 2020 (i.e., within the transitional period of the Directive) and had to be submitted by 28 February 2021.
- Reportable cross-border arrangements that have been made (i.e., that were made available for implementation or were ready for implementation or the first step in the implementation has been made or for which aid, assistance or advice has been provided by a secondary intermediary) between 1 July 2020 and 31 December 2020 (i.e., within the six-month deferral period of the Directive) and had to be submitted by 31 January 2021.
- Reportable cross-border arrangements made or to be made between 1 January 2021 and 31 May 2021 (i.e., within the normal application period of the Directive) that had to be submitted within 30 days beginning on the day after they were/will be made available for implementation or were/will be ready for implementation or when the first step in the implementation has been/will be made, whichever occurred/will occur first.
- Reportable cross-border arrangements for which secondary intermediaries provided/will provide aid, assistance or advice, between 1 January 2021 and 31 May 2021 (i.e., within the normal application period of the Directive), and had to submit information within 30 days beginning on the day after they provided/will provide aid, assistance or advice.
A detailed alert will follow when the DAC6 is enacted into final law.
Panayiotis Tziongouros - Director, International Tax and Transaction Services
As part of the new tax package on fair and simple taxation, in July of 2020 the European Commission proposed the amendment of the EU Council Directive 2011/16 on Administrative Cooperation in the field of taxation in the EU for the sixth time (DAC 7). The initial proposal has been subject to a number of amendments introduced by the EU Council and EU Parliament before it was finally approved on 22 March 2021.
It is now expected that the (revised) legislation will be officially published into the EU Journal after which Member States will have to transpose its provisions by 31 December 2022 and apply the new rules from January 2023 onwards. Different deadlines apply for joint audit provisions.
Expanding automatic exchange of information through digital platforms
The new DAC 7 legislation aims to safeguard tax revenues and ensure fair taxation through changing the existing DAC provisions and extending the scope of the automatic exchange of information reported by (multisided) digital platform operators. As per the explanatory memorandum of the legislation, such amendments were necessary due to the underreported income earned by taxpayers supplying goods and services through the use of digital platforms. The new regime will also limit the burden faced by the operators of such platforms, since it will introduce a “standardized” reporting obligation across the EU.
The legislation introduces new definitions setting out the objective, subjective, and territorial scope of the new DAC 7. In particular, it adopts a broad definition of ‘platform’ using nearly an identical language to the OECD initiative. In this regard a digital platform is defined as any software, including websites and applications (i.e. Mobile applications) accessible by users which allow sellers to carry out certain sale activities.
Non-EU platforms facilitating such activities in an EU Member State (i.e. through a Permanent establishment) are also caught under the scope of the new DAC 7 regime. The legislation however excludes platforms that merely allow the processing of payments in relation to sales, advertising or redirecting users to a Platform (i.e. so-called intermediaries, without further intervention).
According to the legislation, Platforms are run by the so called “Platform Operators” who have an obligation to report sellers’ income from “Relevant Activities” i.e. income arising from:
- The rental of immovable property (both residential and commercial);
- The provision of personal services;
- The sale of goods;
- The rental of any mode of transport;
- Investing and lending in the context of crowdfunding as defined in Union financial markets legal framework.
Income arising as a result of the seller acting as an employee and/or a related entity of the Platform Operator shall not be reported.
The inclusion of the sale of goods as a ‘Relevant Activity’ in the DAC is expected to have the highest reporting impact as it ‘catches’ into the scope of DAC the sale of goods through internet giant platforms i.e. e-Bay, Amazon, Etsy, even Facebook marketplace. Notably though, a de-minimis reporting exemption is provided for sellers who facilitate a maximum of thirty ( 30) sales of goods transactions in return for an overall consideration not exceeding EUR 2,000 per annum.
The impact of DAC 7 in achieving tax efficiencies
The information collected by the Platform Operators in their capacity as “digital intermediaries” will undoubtedly be more reliable. This stems from the fact that they will now be obliged to collect and verify data on their users by establishing a due diligence procedure, a process to be repeated by December 31 of each year. Such user’s data includes, amongst others, the seller’s identity, primary address, TIN or VAT Identification number, and in the case of sellers renting immovable property the address of each Property Listing and respective land registration number.
In addition to the Due diligence procedure, Platform Operators will have to report a number of information to their national tax authorities by January 31 of the following year. Such information includes among others the consideration received or credited and details of the Financial Account Identifier.
A national tax authority in possession of the data collected will have to forward such data to the tax authorities of the other relevant Member States. The reported information will be used by the authorities to assess, levy and collect income tax but also (for the first time) VAT and other Indirect taxes.
The legislation also sets out the legal framework for the authorities of two or more Member States to conduct joint audits, a move which will undoubtedly provide more clarity and legal certainty on the matter.
The notion of foreseeable relevance with regards to the exchange of information via request is also clarified as intended to provide for exchange of information in tax matters to the widest possible extent.
In terms of sanctions, all Member States should agree on a harmonised system of penalties across the Union in the case of infringement. This will prevent the exploitation by platform operators of loopholes and registration shopping based on the severity of penalties applied by each Member State. Exclusion from public contracts and the possibility of revoking the business licence of the platform operator should also be considered.
The shift in focus on sharing and gig economy platforms for reporting tax information indicate the crucial role multisided digital platforms can play at present in improving the tax field information sharing. Indeed, the central role of these platforms within the supply chain places them in the ideal position to become the “trustees” of new tax obligations. Adding into the equation the enhanced cooperation rules imposed on national tax authorities DAC 7 seems indeed promising in addressing current global tax transparency issues.
Ioanna Drousioti - Associate, Indirect Taxes