The Cyprus Parliament on 19 June 2020 has voted the Cyprus transposition of the European Union (EU) Anti-Tax Avoidance Directive (ATAD) for Exit taxation and Hybrid mismatch rules, which essentially completes Cyprus' transposition of the EU ATADs i.e. ATAD I and II that were adopted by the EU in 2016 and 2017 respectively.
The new law mainly addresses Exit Taxation with the sole purpose to prevent companies from avoiding tax in the event of re-location of assets.
While the EU Anti-Tax Avoidance Directive aims to ensure that member states take a coordinated stance against tax avoidance, it is worth to note that those targeted are Companies operating across international borders. In view of this, most of Cyprus firms have the activity of a holding company, which are tax exempt in Cyprus and with limited transactions, therefore the impact may not be that large in terms of exit taxation. We believe that the new law shall affect Companies in structures with taxable assets (not tax exempt), transferred in other jurisdictions.
By implementing these Exit Taxation rules, the EU has weakened and/or diluted the fundamental right of Freedom of Movement of Capital along with severe penalties and repercussions to businesses and corporations that relocate their funds and/or businesses. In addition, taxing the loss of tax income for a future period is in direct conflict with the basic tax principle and regulations on tax profits.
In that context, we advise all corporates and multinationals which are holding structures in the EU, doing business with the EU, or moving their tax residence, to get in touch with our Tax Team for an expert advice as per these changes in consideration of future transactions or restructuring.
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.