In July 2020, Cyprus and Switzerland signed an amending protocol (the "Protocol") to update the 2014 Cyprus - Switzerland Income and Capital Tax Treaty (the "DTT"). The Protocol has been ratified by Cyprus and was published in the official gazette of the Republic on 24 July 2020. The Protocol is currently in the process of being ratified by the Swiss Federation.

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).

The amendments to the Protocol include the following:

a) Amendment to the preamble of the DTT

b) Introduction of the 'Entitlement to Benefits' Article

c) Introduction of specific wording in the 'Mutual Agreement Procedure' Article

d) Amendment to the 'Business Profits' Article

e) Amendments to the 'Associated Enterprises' Article

A.Amendments to the Protocol

a)Preamble of the DTT

In line with the OECD minimum standard in BEPS Action 6, the preamble to the DTT was amended to specify that the DTT's intention is to eliminate double taxation with respect to taxes on income and on capital, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this convention for the indirect benefit of residents of third states).

b)Entitlement to Benefits

An 'Entitlement to Benefits' articles was introduced in line with the OECD minimum standard and in accordance with the Principal Purpose Test (PPT) in BEPS Action 6.

Notwithstanding the other provisions of the DTT, a 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 this DTT.

c)Mutual Agreement Procedure

In line with OECD minimum standard in BEPS Action 14, the 'Mutual Agreement Procedure' Article was amended so that if a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of the DTT, he may, irrespective of the remedies provided by the domestic law of those states, present his case to the competent authority of either contracting state.

d)Business Profits

A new paragraph was added to the 'Business Profits' article which essentially introduces a six-year limitation in relation to the right to make an adjustment to the profits that are attributable to a permanent establishment of an enterprise of one of the contracting states. However, this provision does not apply in the case of fraud, gross negligence or wilful default.

e)Associated Enterprises

The 'Associated Enterprises' article has been amended to require the other Contracting State to make an appropriate adjustment to the adjustment made by the first Contracting State. Previously, the other Contracting State was required to make such adjustment only if it agreed that the adjustment made by the first Contracting State was justified both in principle and as regards the amount. In addition, the right to make an adjustment is subject to a 6-year limitation unless there is fraud, gross negligence or wilful default.

B.Dates of entry into force

As noted above, the Protocol has already been ratified by Cyprus and shall enter into force upon its ratification by the Swiss Federation as follows:

· In respect of taxes withheld at source, for amounts paid or credited on or after the first day of January of the year next following the date on which the Protocol enters into force.

· In respect of other taxes, for taxation years beginning on or after the first day of January of the year next following the date on which the Protocol enters into force.

Notwithstanding the above, the amendments relating to the Business Profits article, Associated Enterprises article and the Mutual Agreement Procedure article shall have effect from the date of entry into force of this Protocol irrespective of the taxable period to which the matter relates to.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.