EU Directive 2018/822: Mandatory Cross-Border Disclosure Regulations

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Tax transparency has been the topic of many discussions of the minute internationally as all eyes are watching for the EUs next move following the introduction of Europewide anti-avoidance and transparency measures.
Back in March 2018, the EU Economic & Financial Affairs Council reached an agreement on the final draft of the Council Directive EU 2018/822 which amends Directive 2011/16/EU on the obligatory automatic exchange of information regarding reportable cross-border provisions.

Directive 2018/822/EU (DAC6) presents a new report that mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements and according to DAC6, the Cyprus Ministry of Finance circulated a draft bill which will be implemented into national legislation by the end of the financial year in Cyprus. (from a bulletin released in March 2019).

The Bill appropriately implements DAC6 and elaborates on the existing Administrative Cooperation in the field of taxation in Cypriot law. Upon enactment of legislation in Cyprus, guidance notes will be issued by the Cypriot tax authorities.

Any of the following cross-border arrangements must be reported, as of July 2020, if they fall within one of several categories.

As per DAC6, the activities are officially recognised as the following activities:

1) Commercial characteristics in tax avoidance schemes.

2) Controlled arrangements typical in avoidance planning.

3) Cross-border transactions between member states.

4) Arrangements that challenge tax reporting & transparency.

5) Transfer pricing arrangements between member states which are not considered to be at arm’s length.

The “Main Benefit” Threshold Test
Categories 1-3 above will only apply after the “main benefit” test threshold has been established and sufficiently met.

The threshold will be met whereby the tax advantage obtained constitutes the main benefit or one of the main benefits derived from the arrangement.

Several challenges may arise under the new reporting obligations and determining whether there is a reportable cross-border arrangement raises complex technical and regulatory issues for taxpayers and other third parties.

It is expected that the Cypriot Mandatory Disclosure Regulations will be fully aligned to the text and the minimum requirements of the DAC6. Official guidance by the Cyprus tax authorities will be released at a later date regarding the interpretation of certain terms and provisions.