On 3 February 2022, the Cyprus Tax Authority issued a circular (Circular 3/2022) informing that the legal procedures for the entry into force of the Cyprus – Switzerland Double Tax Treaty Protocol signed on 20 July 2020 (the “Protocol”) have been completed in both jurisdictions.
The Protocol entered into force on 3 November 2021 with certain provisions having effect on the same day i.e. 3 November 2021 and the remaining having an effective date of 1 January 2022.
The main amendments to the Cyprus – Switzerland Double Tax Treaty (2014) (the “Treaty”) effected by the Protocol is the introduction of the Base Erosion and Profit Shifting (“BEPS”) minimum standards with an effective date 1 January 2022 and amendments to Article 7 “Business Profits” and Article 9 “Associated Enterprises” with an effective date 3 November 2021.
Below is a summary of the main amendments to the Treaty effected by the Protocol:
The preamble has been amended to reflect the intent of the Contracting States for the Treaty not to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance (e.g. through treaty-shopping arrangements).
Article 7 “Business Profits” has been amended so that the right of a Contracting State to make adjustments to the profits that are attributable to a permanent establishment of an enterprise of one of the Contracting States is limited to 6 years from the end of the taxable year in which the profits would have been attributable to the permanent establishment.
Article 9 “Associated enterprises” has been amended so that:
- (i) provisions are introduced providing for relief from economic double taxation that may arise from transactions between associated enterprises; and
- (ii) the right of a Contracting State to make adjustments to the profits that would have accrued to an enterprise is limited to 6 years from the end of the taxable year in which the profits would have accrued to the enterprise.
Mutual Agreement Procedure
Article 26 “Mutual Agreement Procedure” has been amended so that where a person considers that the actions of one or both of the Contracting States result or will result in taxation not in accordance with the provisions of the Treaty, that person may, irrespective of the remedies provided by the domestic law of those States, present its case to the competent authority of either Contracting State.
Entitlement to benefits
Article 28A “Entitlement to benefits” is introduced so that a benefit under this Treaty shall not be granted, in respect of an item of income, if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes (Principal Purpose Test) of the arrangement or transaction that resulted directly or indirectly in that benefit.