Switzerland Adds BEPS Provisions To Three Treaties

by Ulrika Lomas,, Brussels

24 July 2020

Switzerland has signed protocols to its double taxation agreements with Cyprus, Liechtenstein, and Malta to implement minimum standards developed as part of the OECD’s BEPS project.

The amending protocols were agreed with Liechtenstein on July 14, Malta on July 16, and Cyprus on July 20.

Each protocol contains an anti-abuse clause, to deny access to treaty benefits for arrangements or transactions where the principal purpose of that arrangement or transaction is to inappropriately derive a tax benefit.

The protocol with Liechtenstein also supplements the provision in the treaty on mutual agreement procedure dispute resolution, in line with the BEPS minimum standard.

Original Source Cyprus Announces More COVID-19 Tax Breaks

by Jason Gorringe,, London

25 June 2020

The Government of Cyprus has announced a number of new tax support measures for businesses, including a value-added tax rate cut for tourism accommodation providers and restaurants.

The Government has announced that during the period July 1, 2020, until January 10, 2021, tourist accommodation and catering services will be subject to a five percent rate of VAT, down from nine percent.

Further, the Government has announced that the deadline for personal income tax returns for salaried persons and payment will be extended until October 31, 2020.

Finally, penalties that were applied to entities who failed to file a return during the period April 10, 2020, to May 10, 2020, will be waived.

Original Source BEPS MLI Enters Into Force For Cyprus, Saudi Arabia

by Lorys Charalambous,, Cyprus

15 May 2020

The BEPS multilateral convention entered into force for treaties signed by Cyprus and Saudi Arabia on May 1, 2020.

Any treaty signed by Cyprus or Saudi Arabia that they selected as a “covered agreement” will be modified by the BEPS MLI as from May 1, 2020, providing the BEPS MLI also has effect in the other signatory country and that state also selected the agreement as a “covered agreement”.

The MLI was developed through negotiations involving more than 100 countries and jurisdictions. The MLI enables countries to modify their existing tax treaties to include measures developed under the OECD/G20 BEPS project without having to individually renegotiate these treaties. The instrument will implement minimum standards to counter treaty abuse, prevent the artificial avoidance of permanent establishment status, neutralize the effects of hybrid mismatch arrangements, and improve dispute resolution mechanisms.

Cyprus has allocated 59 treaties as “covered agreements” for the purposes of the BEPS MLI, while Saudi Arabia has listed 55 “covered agreements”.

The BEPS MLI is due to enter into force for Portugal and Uruguay from June 1, 2020.

Original Source Cyprus Extends Tax Compliance Dates In Light Of COVID-19

by Lorys Charalambous,, Cyprus

15 April 2020

The Cyprus Government has announced a number of extensions to tax return filing dates.

In a number of separate decisions, the Government has extended the deadline for annual corporate income tax returns and for personal income tax returns for the 2018 tax year from March 31, 2020, to May 31, 2020.

Value-added tax payments for the tax periods ending February 29, March 31, and April 30, 2020, may instead be paid by November 10, 2020, without the imposition of penalties or interest. VAT returns must still be submitted by the standard deadlines. Certain taxpayers are not eligible, such as food retailers and utility suppliers.

Finally, Cyprus has extended the deadline for the payment of tonnage tax and the annual fee for 2020 from March 31, 2020, to May 31, 2020, and cut the various rates of general health contribution (GSEY) during April, May, and June 2020.

Original Source EU Member States Slow To Implement VAT Quick Fixes

by Ulrika Lomas,, Brussels

06 February 2020

The European Commission has launched infringement proceedings against 14 member states for failing to implement the so-called value-added tax quick fixes.

The VAT quick fixes were included in Council Directive (EU) 2018/1910 of December 4, 2018. They are intended to simplify VAT compliance for businesses and strengthen and harmonize existing EU rules ahead of the introduction of more comprehensive reforms to EU VAT law scheduled for 2021.

The four short-term measures provide:

  • That the VAT identification number of the customer, allocated by a member state other than that in which dispatch or transport of the goods began, should constitute an additional substantive condition for the application of the exemption in respect of an intra-Community supply of goods.
  • For more uniform rules when determining the VAT treatment of chain transactions, including triangular transactions, clarifying in particular which party should benefit from zero-rated treatment;
  • New VAT rules for call-off stock arrangements, to reduce the compliance burden for taxpayers and tax administrations and provide for a more uniform application of the rules in the EU;
  • For the introduction of a common framework for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

According to the Commission’s list of infringement decisions dated January 24, 2020, the following member states have been issued with letters of formal notice for deficiencies in implementing the directive: Belgium, Cyprus, the Czech Republic, Denmark, Greece, Spain, France, Italy, Luxembourg, Poland, Portugal, Romania, Slovenia, and the United Kingdom.

The letter of formal notice is the first step in EU infringement proceedings against a member state. National governments are required to respond to this notice within two months or the matter will be escalated.

Original Source EU Approves New Tonnage Tax Schemes

by Ulrika Lomas,, Brussels

31 December 2019

The EU has approved under state aid rules the introduction of a tonnage tax scheme in Estonia and the prolongation of a tonnage tax scheme in Cyprus.

To address the risk of flagging out and relocation of shipping companies to low-tax countries outside of the EU, the Commission’s 2004 Guidelines on State aid to maritime transport allow EU member states to adopt measures that improve the fiscal climate for shipping companies.

The Commission said that both Estonia’s and Cyprus’s tonnage tax schemes comply with the rules limiting tonnage taxation to eligible activities and vessels. As regards the taxation of dividends of shareholders, the Commission said that both schemes ensure that shareholders in shipping companies are treated in the same way as shareholders in any other sector.

Under a tonnage tax scheme, shipping companies can apply to be taxed based on a notional profit or the tonnage they operate, instead of being taxed under the normal corporate tax system.

The Commission has also approved the introduction of seafarer schemes in Estonia and Poland, as well as the prolongation of such schemes in Cyprus and Sweden, and the prolongation and extension of a scheme in Denmark. This can reduce the overall level of taxes paid.

Under seafarer schemes, labor costs (such as income tax and social security contributions) for seafarers employed on board vessels flying the flag of an EU or European Economic Area member state may be partly or totally reduced.

The Commission said that the schemes are in line with EU state aid rules, as they will contribute to the competitiveness of the EU maritime transport sector and encourage ship registration in Europe, while preserving the EU’s social, environmental, and safety standards and ensuring a level playing field.

Original Source EU States Shut Down Plans For Public CbC Reporting

by Ulrika Lomas,, Brussels

02 December 2019

EU member states have been unable to reach an agreement on proposals to release to the public information on multinational enterprises’ tax affairs.

The EU’s Competitiveness Council met on November 28, 2019, to discuss the latest compromise proposal put forward by the Council presidency. The proposals were rejected by 13 member states, including Cyprus, the Czech Republic, Estonia, Hungary, Ireland, Latvia, Luxembourg, Malta, Slovenia, and Sweden.

Under current rules, multinational groups located in the EU or with operations in the EU with total consolidated revenue of EUR750m or more are required to file country-by-country (CbC) reports. The report must include information for every tax jurisdiction in which the group does business, covering the amount of revenue, profit before tax, income tax paid and accrued, number of employees, stated capital, related earnings, and tangible assets.

The proposal would have required multinationals to “disclose publicly in a specific report the income tax they pay together with other relevant information.” Both European and non-European multinationals doing business in the EU would “through their branches have the same reporting obligations.”

According to a document on the outcome of the meeting, “there was broad support for enhanced transparency in the business activities of multinational companies in the various member states.” However, the Council was unable to “gather sufficient support for the presidency’s proposal, in particular as regards the proposed legal basis.”

The presidency intends to continue working on the proposal, “reflecting on the best way for taking it forward.”

Original Source Costa Rica Clarifies Amendments To Non-Cooperative Tax List

by Mike Godfrey,, Washington

18 October 2019

Costa Rica’s Ministry of Finance has released a statement clarifying its decision to exclude a number of territories with low effective income tax rates from its list of non-cooperative territories.

Companies doing business, directly or indirectly, with legal or natural persons situated in one of the listed territories may not deduct expenses for Costa Rican corporate tax purposes, effective October 1, 2019.

The listed territories in Resolution DGT-R-55-2019 are:

  • Bosnia and Herzegovina
  • Cuba
  • Eritrea
  • French Polynesia
  • Guadeloupe
  • Iraq
  • Kyrgyzstan
  • Maldives
  • Martinique
  • Montenegro
  • Norfolk Islands
  • North Korea
  • North Macedonia
  • Oman
  • Palestine
  • Reunion
  • Saint Pierre and Miquelon
  • Timor-Leste
  • The US Virgin Islands
  • Uzbekistan; and
  • Wallis and Futuna.

The jurisdictions have been listed because the effective tax rate on corporate profits is less than 40 percent of the corporate tax rate in Costa Rica and the territory has not agreed a tax information exchange agreement with Costa Rica. Expenses will only be allowed in respect of these territories if the taxpayer can demonstrate that the expenses are for arrangements that are not artificial.

In an October 11, 2019, statement, the Ministry said Bermuda, the Cayman Islands, the Bahamas, the British Virgin Islands, Mauritius, Cyprus, Switzerland, Singapore, Ireland, Barbados, and Hong Kong had been excluded from the list because they have signed up to and enforced the terms of multilateral agreements for the exchange of information.

The Ministry said that exclusion of any of the territories from the decision would amount to an arbitrary interpretation of the rules for placement on the list.

Original Source EU To Probe Potential Abuses Of Citizenship By Investment Schemes

by Ulrika Lomas,, Brussels

28 January 2019

For the first time, the Commission has presented a comprehensive report on investor citizenship and residence schemes operated by a number of EU member states.

It comes following an announcement from the OECD that it intends to increase its work on challenging tax avoidance through citizenship by investment and similar schemes, focusing in particular on taxpayers seeking to avoid their financial data from being exchanged with their home country tax authority under the Common Reporting Standard.

The Commission’s new report maps the existing practices and identifies certain risks such schemes imply for the EU, in particular as regards security, money laundering, tax evasion, and corruption. A lack of transparency in how the schemes are operated and a lack of cooperation among member states further exacerbate these risks, the report finds.

The Commissioner for Migration, Home Affairs, and Citizenship, Dimitris Avramopoulos, said: “Legally residing in the EU and in the Schengen area comes with rights and privileges that should not be abused. Member states must at all times fully respect and apply existing obligatory checks and balances – and national investor residence schemes should not be exempt from that. The work we have done together over the past years in terms of increasing security, strengthening our borders, and closing information gaps should not be jeopardised. We will monitor full compliance with EU law.”

In the EU, three member states – Bulgaria, Cyprus, and Malta – currently operate schemes that grant investors the nationality of these countries under conditions less strict than ordinary naturalization regimes, the Commission said. In these three member states, there is no obligation of physical residence for the individual, or a requirement of other genuine connections with the country before obtaining citizenship.

These schemes are of common EU interest since every person that acquires the nationality of a member state will simultaneously acquire Union citizenship. The decision by one member state to grant citizenship in return for investment, automatically gives rights in relation to other member states, in particular free movement and access to the EU internal market to exercise economic activities as well as a right to vote and be elected in European and local elections. In practice, these schemes are often advertised as a means of acquiring Union citizenship, together with all the rights and privileges associated with it.

The Commission said, among other things, monitoring and reporting is necessary to make sure that individuals do not take advantage of these schemes to benefit from privileged tax rules.

The Commission added that investor residence schemes, while different from citizenship schemes in the rights they grant, pose equally serious security risks to member states and the EU as a whole. A valid residence permit gives a third-country national not only the right to reside in the member state in question, but also to travel freely in the Schengen area. While EU law regulates the entry conditions for certain categories of third-country nationals, the granting of investor residence permits is currently not regulated at EU level and remains a national competence. Currently, 20 member states run such schemes: Bulgaria, the Czech Republic, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, and the United Kingdom.

The Commission said it will monitor wider issues of compliance with EU law raised by investor citizenship and residence schemes and it will take necessary action as appropriate. For this reason, it said member states need to ensure, in particular, that:

  • All obligatory border and security checks are systematically carried out;
  • The requirements of the Long-Term Residence Permit Directive and the Family Reunification Directive are properly complied with; and
  • Funds paid by investor citizenship and residence applicants are assessed according to the EU anti-money laundering rules.

The Commission noted, in the context of tax avoidance risks, there are tools available in the EU framework for administrative cooperation, in particular for exchange of information.

The Commission said it will monitor steps taken by member states to address issues of transparency and governance in managing these schemes. Further, it will establish a group of experts from member states to improve the transparency, governance, and the security of the schemes. That group will be tasked, in particular, with:

  • Setting up a system of exchange of information and consultation on the numbers of applications received, countries of origin, and on the number of citizenships and residence permits granted/rejected by member states to individuals based on investments; and
  • Developing a common set of security checks for investor citizenship schemes, including specific risk management processes, by the end of 2019.

Finally, concerning third countries setting up similar schemes, the Commission will monitor investor citizenship schemes in candidate countries and potential candidates as part of the EU accession process. It will also monitor the impact of such schemes by EU visa-free countries as part of the visa-suspension mechanism.

Given the OECD’s movement into this area of international policy, the latest announcement appears to signal that the EU is seeking to clean up affairs at home, to enable it to better participate in international efforts to seek wider reform.

Original Source Switzerland Begins Sharing Tax Data Internationally

by Ulrika Lomas,, Brussels

12 October 2018

Switzerland has made its first exchanges under the new international automatic exchange of information (AEOI) framework, the Common Reporting Standard.

The Swiss Federal Council said that the Federal Tax Administration (FTA) made its first transmission of financial account information at the end of September. The FTA sent information on around two million financial accounts to its partner states.

The information exchanged included name, address, state of residence, and the tax identification number of account holders, along with information relating to the reporting financial institution, account balance, and capital income. Currently, there are around 7,000 reporting financial institutions registered with the FTA. These institutions collected the data and transferred it to the FTA.

The Council explained that in 2018 Switzerland will exchange information with the EU’s member states, along with Australia, Canada, Guernsey, Iceland, the Isle of Man, Japan, Jersey, Norway, and South Korea.

The transmission of data to Australia and France has been delayed. The Council said that these countries have not yet been able to deliver data to the FTA due to technical reasons. The FTA has yet to receive data from Croatia, Estonia, and Poland.

Information will not yet be shared with Cyprus and Romania, as they are not seen to meet the international requirements on confidentiality and data security.

The AEOI will take place on an annual basis. In 2019, data relating to 2018 will be exchanged with around 80 partner states, provided they meet the requirements on confidentiality and data security.

Original Source