The following is a list of Q&A between S&A and the Cypriot Inland Revenue, following our earlier discussions.
1. Position of the double tax treaties (DTT) in domestic legal order
Q: Does your constitution describe the hierarchy of laws in the legal order?
A: Per article 179 of the constitution, the constitution is the supreme law of the Republic.
Although not stated in the Constitution, Laws passed are considered primary legislation and regulations secondary legislation.
Q: Is there a special place for international agreements?
A: DTTs can be found on the website of IRD www.mof.gov.cy/ird.
Are the DTTs treated in the same way as other int’l agreements? (e.g.
the Polish constitution makes a distinction between int’l agreements,
which require consent of Parliament for their ratification, and
agreements which may be ratified without such consent).
A: Per article 169 of the constitution.
every international agreement with other States or any International
Organisation relating to commercial matters, economic co-operation
(including payments and credits) and modus vivendi are concluded under a
decision of the Council of Ministers;
(2) any other treaty,
convention or international agreement shall be negotiated and signed
after a decision of the Council of Ministers and shall only be operative
and binding on the Republic when approved by a law passed by the House
of Representatives whereupon it will be concluded.
50 of the constitution the President has the right of final veto on any
law or decision of the House of Representatives or any part thereof
concerning (2) the conclusion of international treaties, conventions and
DTTs are concluded under article 169(1).
Q: Is there supremacy of the DDTs over domestic tax law?
Yes under article 169(3) of the constitution, treaties, conventions and
agreements concluded in accordance with the foregoing provisions (i.e.
subsections (1) and (2) ) of this article shall have, as from their
publication in the official Gazette of the Republic, superior force to
any domestic law, on the condition that such treaties, conventions and
agreements are applied reciprocally and by the other party.
Please note that DTTs are not superior to the Constitution. Only EU Aquis is superior to the Constitution.
2. Model Convention and its Commentary (MC) during the interpretation of DTT
Q: Do courts use the MC while interpreting the DTT?
A: To our knowledge no decision has been issued by the courts relating to the interpretation of DTTs.
Q: Is the MC invoked by the courts in their judgments?
A: As above.
If the MC is used – which version of the MC is taken into account by
the court – the one in force when the DTT was signed, or the one in
force when the case arose?
A: As above
Per circular of
Director to staff d.d 3/12/2008 where a tax treaty is in line with the
OECD Model 2008 then the MC 2008 can be used for
application/interpretation of treaty. Administrative decisions are not
binding on courts neither the MC, but it may be used as a guideline.
Q: Is the MC available in the local language?
Q: Is an official translation of the MC available?
3. Interpretation of DTTs
Q: Is the Vienna Convention on the Law of Treaties applied in the interpretation of DTTs?
Is a literal interpretation of DTTs a priority (for instance, in
France, interpretation practice is very literal, more so than in
A: Domestic tax legislation and tax treaties are
interpreted literally. Where the wording of the legislation is not
explicit reference to the intention of the legislator is made.
Is foreign tax law interpretation relevant when interpreting (i.e. do
courts take into account how the given provision of the treaty is
interpreted by the other party of the treaty or any other country)?
Interpretation of ECJ must be followed. UK interpretation can be
followed if no similar court decision was issued by Cyprus courts.
When interpreting the treaty, do judges first assess the situation in
the domestic context and then in the light of the treaty?
Provisions of DTT supersede domestic legislation. If income of a person
is not subject to tax under domestic legislation, taxation of income
under DTT has no relevance as tax is charged under domestic legislation.
Q: Has EU accession changed the interpretation of DTTs?
They have to be interpreted in accordance with EU Aquis where there is a
conflict between a DTT with a European Country and EU Aquis.
Q: Are commentaries available for particular bilateral DTTs?
A: No commentaries have been issued by MOF or Department of Inland Revenue.
Q: Are academic papers used as sources of authority by the courts
(e.g. Klaus Vogel, Michael Lang, Kees van Raad, local academics)?
To our knowledge no decision has been issued by the courts relating to
the interpretation of DTTs. The court may take into account any relevant
sources of authority it thinks proper.
Q: Are there many official rulings concerning DTT interpretation (i.e. court rulings, tax administration rulings)?
Any Court rulings that may be issued supersede tax administration
rulings. At present there are no court rulings relating to the
interpretation of DTTs. Tax administration can issue tax rulings on
specific questions relating to DTT interpretation.
Q: Is the application/interpretation of DTTs, or tax treaty policy in your country, influenced by any country/countries?
Interpretation of ECJ must be followed. UK court interpretation can be
followed if no similar court decision was issued by Cyprus courts.
4. Resolving disputes resulting from DTTs
Q: Is there an arbitration clause in the DTTs concluded by your country?
A: No ( Arbitration clause introduced by the Model Treaty in 2008).
Q: If there is an arbitration clause in the DTTs, does it indicate a
specific court for trying cases (e.g. in the German-Austrian DTT it is
Q: What are the practical chances of resolving possible disputes
through mutual agreement procedures, or other cross - border settlement
A: Under a mutual agreement procedure our intention is to resolve any disputes. No practical experience yet on the matter.
Q: Are there any LOB clauses in the DTTs concluded by your country? If so, in which one?
A: Yes some DTTs have LOB clauses. All our DTTs are on our website www.mof.gov.cy/ird. The list of all treaties can be found on the website of MOF www.mof.gov.cy.
Q: Are there domestic rules limiting treaty shopping?
Section 33 of Assessment and Collection of Taxes Law if the Director is
of the opinion that in respect of any year of assessment the object of
the tax of any person is reduced by any transaction which in his opinion
was artificial or fictitious, he may disregard any such transaction and
assess the persons concerned on the proper object of the tax.
36(4) Income Tax Law says the provisions of subsection (3), (subsection
3 exempts profits of permanent establishment situated outside the
Republic), shall not apply:a) if the permanent establishment
directly or indirectly engages more than 50% in activities which lead to
investment income; and
b) the foreign tax burden on the income of
the permanent establishment is substantially lower than the tax burden
of the resident company or person controlling the permanent
establishment and Resident in the Republic.
Section 3(2)(a) of
Special Contribution of Defence state that Dividends received or deemed
to be received in the Republic from a non-resident company, by a
resident company or permanent establishment in Cyprus of a non-resident
company, is exempt from tax unless:
Q: Is there a definition of beneficial owner in domestic law/jurisprudence?
Q: What are the documentation obligations required to benefit from a
DTT, e.g. is a certificate of residency sufficient to prove beneficial
ownership? Are there any attempts to question such obligations as
contrary to DTT provisions?
A: Article 1 of the DTT specifies the persons covered by the DTT.
Per OECD Model to benefit from the treaty you must be a resident in one or both of contracting states.
certificate of residency from the other Tax Authority is sufficient to
prove residency in the other country. Residency in Cyprus may be
examined. In cases of dual residency the DTT is followed. Residency is
not sufficient to prove beneficial ownership, which will need to be
substantiated if required.
Q: Is there a general feeling of a very liberal interpretation of DTTs?