Answer ... While Cyprus has incorporated various anti-abuse rules into its tax laws, the general anti-avoidance rules are set out in the Income Tax Law as a result of the partial implementation of the EU Anti-Tax Avoidance Directive (expected to be fully implemented by 2020).
Answer ... The General Anti-Abuse Rules (GAAR), which are applicable as from 1 January 2019, state that transactions which are not carried out for valid commercial reasons will give rise to tax liabilities, which will be calculated in accordance with the Income Tax Law.
Answer ... Apart from the GAAR, the following specific rules apply:
- Interest deductibility: The deductibility of interest expenses is limited to 30% of taxable income before interest, tax, depreciation and amortisation, subject to conditions; and
- Controlled foreign company rules – the undistributed profits of a controlled foreign company (if a Cyprus company directly or indirectly controls 50% of the foreign entity and the foreign entity is located in a low-tax jurisdiction) which arise from non-genuine arrangements are added to the Cyprus tax resident’s tax base.
Upon full implementation of the EU Anti-Tax Avoidance Directive (expected to be fully implemented by 2020), Cyprus will also introduce the required exit taxation and hybrid mismatch provisions.
Answer ... Yes, tax rulings may be obtained from the Cyprus Tax Department.
Answer ... In accordance with Article 33 of the Income Tax Law, all related-party transactions should be carried out at arm’s length. As from 1 July 2017, the Cyprus tax authorities introduced, via a tax circular, specific transfer pricing rules which currently apply only to intra-group financing transactions – that is, where the Cyprus resident entity obtains loans (irrespective of the source) and advances these loans to a related party. In such cases, the profit margin earned by the Cyprus resident entity should be supported by a transfer pricing study.
The rules allow entities which have a purely intermediary function to avoid conducting a transfer pricing study if their post-tax return is at least 2% of the value of the assets.
It is expected that the transfer pricing rules will be extended to cover all related-party transactions by 2020.
Answer ... The statutory limitation period is six years.