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) was published in the Official Gazette of the Cyprus Republic and entered into force. The Law transposed the European Union (EU) Directive (referred to as DAC6 or the Directive) into domestic law.
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 differences.
Further to the Law, guidance notes will be issued by the Cypriot Tax Department (CTD) to provide clarity over the interpretation of key terms of the Law.
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 cross-border 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. Cross-border arrangements will be reportable if they contain certain features (known as hallmarks).
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.
Administrative fines for non-compliance
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Breach
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Penalty (one-off administrative fine per entity and arrangement)
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Failure to report a Reportable Cross Border Arrangement (RCBA)
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€10.000-20.000
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Delay in reporting an RCBA
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Up to 90 calendar days:
€1.000-5.000
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More than 90 calendar days:
€5.000-20.000
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Filing inaccurate or incomplete or misleading report of an RCBA
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€1.000-10.000
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Failure to notify other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to Legal Professional Privilege (LPP)
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€10.000-20.000
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Delay in the notification of other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to LPP
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Up to 90 calendar days:
€1.000-5.000
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More than 90 calendar days:
€5.000-20.000
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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
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€1.000-10.000
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Failure to pay the administrative fines imposed/Continuance of the relevant breach
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Increase of imposed fine up to €20.000
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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.
On 4 June 2021, the CTD announced the non-application of administrative penalties for all filings effected by 30 September 2021 in respect of RCBAs made or to be made from 25 June 2018 up until 31 August 2021.
As from 1 September 2021, RCBAs should be reported within 30 days from the rom the relevant triggering event.
Remarks
Cyprus intermediaries and taxpayers with cross border arrangements should review their existing procedures to continuously monitor their disclosure obligations under the DAC 6, ensuring compliance and minimising the risk of monetary fines.