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.

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.