A circular (Circular 3/2022) has been issued by the Cyprus Tax Authority on the 3rd of February 2022. In that circular, information regarding the completion of legal procedures for the entry into force of the Cyprus– Switzerland Double Tax Treaty Protocol which was signed on 20th of July 2020 (the “Protocol”) in both jurisdictions, was given.
The Protocol came into effect on the 3rd of November 2021 with specific provisions that have been effective on a similar day such as the 3rd of November 2021 and the rest having an effective date of 1st of January 2022.
The major amendments made to the Cyprus – Switzerland Double Tax Treaty (2014) (the “Treaty”) that has been affected due to the Protocol is considered to be the introduction of the Base Erosion and Profit Shifting (“BEPS”) minimal standards having an effective date of 1st of January 2022 and an effective date of 3rd of November 2021 for the amendments to Article 7 “Business Profits” and Article 9 “Associated Enterprises”.
Following is a summary of the major amendments to the Treaty which has been affected by the Protocol:
The amendment of the preamble has been made in order to indicate the Contracting States for the Treaty's intent of not creating the opportunities for reduced or non-taxation by means of avoidance or tax evasion. For instance by means of treaty-shopping arrangements.
The amendment to article 7 “Business Profits” has taken place in order for a right of a Contracting State to make changes to the profits which are considered to be attributable to an enterprise's permanent establishment of one of the Contracting States is restricted to the period of six years from the date taxable year ends in which the profits would have been considered to be attributable to a permanent establishment.
The amendment of Article 9 “Associated enterprises” has taken place for the following reasons:
- (i) provisions get introduced in order to provide relief from economic double taxation that may have been caused by the transactions that take place between associated enterprises; and
(ii) the right of a Contracting State for the purpose of making changes to the profits which are considered to have been accrued to an enterprise is restricted to the period of six years from the date when the taxable year ends in which the profits are considered to have been accrued to an enterprise.
Mutual Agreement Procedure
The amendment of Article 26 “Mutual Agreement Procedure” has taken place in order to allow the person who thinks that the actions of one or even both the Contracting States may lead to taxation not being according to the Treaty's provisions, present the case to either of the Contracting State's competent authorities, regardless of the remedies provided by the domestic law of those States.
Entitlement to benefits
The introduction of Article 28A “Entitlement to benefits” has taken place for the purpose of not granting a benefit under this Treaty, with reference to an item of income, if it is appropriate to conclude, concerning all the pertinent circumstances and facts, that acquiring that benefit was considered to be one of the principal purposes (Principal Purpose Test) of the transactions or arrangements that resulted indirectly or directly in that specific benefit.
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