- Introduction
Utilizing our experience in the daily administration of our clients, we are now in a position to confirm the increase in the official requests for information by the Cyprus Tax Department in the field of direct taxation.
The above arose as a result of a new Directive 2014/107/EU amending the Directive 2011/16/EU regarding mandatory automatic exchange of information in the field of taxation (so called ‘Directive on administrative cooperation’) that was adopted by the European Union Council on 9th of December 2014 regarding mandatory automatic exchange of information in the field of taxation.
EU citizens and businesses have the freedom to move, operate and invest across national borders. Some taxpayers had taken into advantage the fact that direct taxation is not harmonised across the EU, and as a result they achieved to avoid or evade tax in their country of residence which usually, according to the bilateral tax treaties, has the right to impose tax on worldwide income and assets, even if the income or asset is taxed in the other country. Naturally no double taxation should exist either, and there are agreements in place to avoid this, but the correct amount of taxes must be paid in each relevant country.
The above has forced the Tax authorities in the EU to agree in a closer cooperation in order to be able to apply their taxes correctly to their taxpayers and combat tax fraud and tax evasion.Administrative cooperation in direct taxation between the Competent Authorities of the EU Member States helps to ensure that all taxpayers pay their fair share of the tax burden, irrespective of where they work, retire, hold a bank account and invest or do business. This is based upon Council Directive 2011/16/EU which establishes all the necessary procedures, and provides the structure for a secure platform for the cooperation.
- Areas covered by the Directive
- Scope: the scope of the Directive encompasses all taxes of any kind excluding of VAT, customs duties, excise duties and compulsory social contributions because these are already covered by other Union legislation on administrative cooperation. As you can appreciate recovery of tax debts is still regulated via its own legislation.
The scope of persons covered by particular exchanges of information depends on the subject matter. The Directive covers natural persons (i.e. individuals), legal persons (i.e. companies), and any other legal arrangements like trusts and foundations that are resident in one or more of the EU Member States.
- Exchange of Information: the Directive provides for the exchange of information that is of foreseeable relevance to the administration and the enforcement of Member States' tax laws in three forms:
- Spontaneous exchange of information happens if a country discovers information on possible tax evasion relevant to another country, which is either the country of the income source or the country of residence.
- Exchange of information on request is used when additional information for tax purposes is needed from another country.
- Automatic exchange of information is activated in a cross-border situation, where a taxpayer is active in another country than the country of residence. In such cases tax administrations provide automatically tax information to the residence country of the taxpayer, in electronic form on a periodic basis. The Directive provides for mandatory exchange of five categories of income and assets:
- employment income
- pension income
- directors fees
- income and ownership of immovable property and
- life insurance products
The scope has later been extended to financial account information, cross-border tax rulings and advance pricing arrangements, country by country reporting and tax planning schemes. These amendments which extend the application of the original Directive are loosely based on the common global standards agreed by tax administrations at international level, notably at the OECD. However, they sometimes go further and importantly they are legislative rather than being based on political agreement without legislative force.
The Directive provides for a practical framework to exchange information - i.e. standard forms for exchanging information on request and spontaneously, as well as computerised formats for the automatic exchange of information – secured electronic channels for the exchange of information and a central directory for storing and sharing information on cross-border tax rulings, advance pricing arrangements and tax planning schemes. Member States are also required to provide a feedback to each other on the use of information received, and to examine together with the Commission how well the Directive supports the administrative cooperation.
- Other Forms of Administrative Cooperation
The Directive provides for other means of administrative cooperation such as the presence of officials of a Member State in the offices of the tax authorities of another Member State or during administrative enquiries carried out therein. It also covers simultaneous controls allowing two or more Member States to conduct simultaneous controls of person(s) of common or complementary interest, requests for notifying tax instruments and decisions issued by the authority of another Member
- Conclusion
Savva & Associates aims to work with clients to ensure their Cyprus, international and personal structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.
For further information please contact Mr Charles Savva at c.savva@savvacyprus.com who will be happy to further assist you.
