The Cyprus Tax Department
has started the public consultation process that is aimed at getting comments on the proposals for the implementation of the two sets of rules that have not been implemented yet in Cyprus but are included in the Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD). These are exit taxation provisions (Art. 5) and hybrid mismatch rules (Art. 9) that should be effective since 1 January 2020. It has to be mentioned that the rules on reverse hybrid mismatches will be applied from 1 January 2022. Thus, changes have to be made to the Assessment and Collection of Taxes Law and the Income Tax law of Cyprus.
Exit taxes are focused on situations in which a taxpayer moves assets or its tax residence out of the tax jurisdiction of the state. The point is to allow that State to tax the economic value of any capital gain created in its territory even though that gain has not yet been realized at the time of the exit.
Hybrid mismatch rules should be applicable in situations that appear as the consequence of differences in the legal characterisation of payments (financial instruments) or entities and those differences surface in the interaction between the legal systems of two jurisdictions. These mismatches might be followed a double deduction or a deduction of the income in one state without inclusion in the tax base of the other.
Any comments concerning the proposed legislative amendments might be sent via email (elpanayiotou@tax.mof.gov.cy). The consultation process is open until 26 August 2019.
