On 7th of June, 2017 Cyprus signed the multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS).
The multilateral instrument (MLI) was signed by 67 countries. The MLI enables all signatories to meet their treaty-related minimum standards under the BEPS project, the minimum standard for the prevention of treaty abuse under Action 6 and the minimum standard for the improvement of dispute resolution under Action 14, and also measures to address hybrid mismatch arrangements under Action 2 and the strengthened definition of permanent establishment under Action 7.
The MLI is drafted to provide flexibility in various ways to accommodate the positions of various countries. For example, a country may reserve the right to opt-out of the other provisions, and to not apply these articles to its tax treaties or to a subset of its tax treaties. In addition, flexibility is granted with respect to ways of meeting the BEPS minimum standards on treaty abuse and dispute resolution. Once a tax treaty has been listed by the two treaty partner countries, the treaty becomes an agreement to be covered by the MLI.
The level of impact of the MLI on any particular existing DTT typically depends on the parties to the DTT making ‘matching’ decisions under the MLI, although there are limited instance where the MLI allows asymmetrical choices.
The timing of when the MLI provisions will come into force for a particular bilateral DTT will depend upon how quickly Cyprus and the other treaty partner carry out the required domestic procedures to ratify the MLI and the relevant choices. Most probably the MLI will be effective for a particular bilateral DTT of Cyprus as from 1 January 2018, although1 January 2019 would seem more likely as things currently stand.
Cyprus remains one of the most attractive onshore tax jurisdictions in Europe, with one of the lowest income tax rates in Europe of 12.5%, and is EU and OECD compliant. Cyprus benefits from over 60 double tax treaties worldwide.
Savva & Associates has significant experience in providing comprehensive Cyprus related advice and assistance on tax planning IP related matters and the corporate restructuring of your business. Should you require any further information please contact Mr. Charles Savva at firstname.lastname@example.org, where we would be happy to assist.