In June 2017 Cyprus has become a signatory to the Multilateral Convention to Implement Tax Treaty – Related Measures to Prevent Base Erosion and Profit Shifting (“beps”). This instrument will effectively amend existing double tax treaties between the signatory countries (68 jurisdictions at the moment) to introduce measures including anti-abuse and anti-avoidance clauses.
Cyprus intends to include all of its Double Taxation Treaties as covered agreements falling within the scope of the multilateral instrument but has reserved some technical key provisions of the multilateral instrument not to apply. However the main provisions concerning treaty abuse will apply introducing thus a principle purpose test for all covered agreements.
In order for Cyprus Companies to quality and be eligible to benefit from the covered DTTs they must demonstrate real economic substance in Cyprus. As the multilateral instrument will become fully effective as of 2019 Cyprus, companies are advised to take steps towards restructuring their corporate structure in order to maintain realistic control and management of their operations in Cyprus especially in cases where conventional nominee corporate schemes that were adopted over the last two decades encouraged companies in altering their tax residence, usually via the incorporation of offshore jurisdictions, for the provision of goods and services when dealing with other countries, a practice that is critically questionable for both tax evasion and income abuse purposes. This has been evident on all corporate tax layers including actual incomes from sales for corporate tax / special defence contribution purposes, Capital Gains Tax and tax on the deemed dividend distribution for income generated outside the Republic.
PARPARINOS & HADJIPANAYIS LLC can assist you with legal and corporate consultation services in setting up an optimized tax efficient structure which will qualify for the benefits stemming out of the covered DTTs while ensuring that the proposed structure will not be caught under the base erosion and profit shifting provisions of the multilateral instrument and the upcoming Common Reporting Standards (CRS) which are set to enable signatory countries to acquire and exchange necessary information for both beps and anti-money laundering purposes for companies across the board.
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