On June 7 2017 Cyprus was among the first 68 jurisdictions to formally sign the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting in Paris.
The multilateral instrument will apply alongside existing double tax treaties and modify their application in order to implement the relevant base erosion and profit sharing (BEPS) measures, without requiring any further bilateral negotiations between the countries concerned. It will automatically amend existing double tax treaties between the signatory countries and introduce measures to prevent BEPS, including anti-abuse and anti-avoidance clauses.
When signing the multilateral instrument, each jurisdiction submitted a list of double tax agreements that it intended to be covered, together with a preliminary list of reservations and notifications in respect of the various provisions of the multilateral instrument. Cyprus intends to include all of its existing double tax agreements as 'covered agreements' falling within the scope of the multilateral instrument. While it has reserved the right for certain detailed technical provisions of the multilateral instrument not to apply, the key provisions ‒ particularly Articles 6 and 7 relating to treaty abuse ‒ will apply. This will effectively introduce a principal purpose test and limitation of benefits provisions into all covered agreements.
In order to qualify for the benefits of Cyprus's covered double tax treaties once the multilateral instrument is fully implemented, companies must therefore demonstrate real economic substance in Cyprus. As the effects of the multilateral instrument are likely to be felt in 2019 (in some cases, possibly sooner) early attention to the issue is advisable.
For further information on this topic please contact Philippos Aristotelous at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email ([email protected]). The Elias Neocleous & Co LLC website can be accessed at www.neo.law.