The European Directive 2018/822 of 25 May 2018, known as DAC6, provides the disclosure requirements concerning the cross-border arrangements that may bear the marks of “aggressive tax planning”.
Each Member State should have implemented the said EU Directive to the national laws. However, for some time, Cyprus remained the only EU country that had not done that.
In March 2021, Cyprus made the relevant amendments to Law No.205(I)/2012 on administrative cooperation in the field of taxation. In November, the Cyprus Tax Department issued the Interpretative Circular focused on implementing DAC6.
Under DAC6, both parties and intermediaries who participate in implementing a reportable arrangement must report the information on such arrangement to tax authorities. “Intermediary” means anyone who develops, promotes, organises or implements a reportable arrangement. It also means any person who knows or may know that they have undertaken to provide (directly or indirectly) aid, assistance, or advice to implement an arrangement. The individual tax advisors may also be considered intermediaries and therefore are subject to reporting requirements.
The data obtained in respect of cross-border arrangements is subsequently used in the automatic exchange of financial information.
All EU Member States, including Cyprus, envisaged penalties for failure to meet the reporting deadlines under DAC6.
Clarifications on fines for failure to meet the reporting deadlines made by Cyprus Tax Department
The Interpretative Circular dated 10 November 2021 No.55 outlines the limits and timeframes for payment of fines for failure to file the information on reportable arrangements required under DAC6. In particular:
- The maximum annual administrative fine of EUR 120,000 applies to intermediary/taxpayer, although it does not apply in cases of willful default or fraud;
- Fines may be reduced by up to 50% if reporting non-compliance for a particular year is rectified by the tax return due date of the intermediary or taxpayer for the specific year, although this does not reduce the maximum annual administrative fine;
- If an intermediary or taxpayer has applied a wrong interpretation of the law on multiple arrangements, multiple fines will not be imposed if the interpretation was reasonable and resulted from inadequate guidance. This relief, however, does not apply in cases of willful default or fraud; and
- Fines may be imposed for failing to keep relevant books and records for reportable arrangements for at least six years from the end of the relevant tax year, which is increased to 12 years in cases of willful default or fraud.
Time extension for DAC6 reporting
The Cyprus Tax Department has extended the deadline for submitting information on cross-border arrangements to 31 January 2022.
This deadline applies to all reportable arrangements made between 25 June 2018 and 31 December 2021.
The Tax Department informs that it will not impose administrative fines for overdue submission of DAC6 information that will be submitted until 31 January 2022, in cases of reportable cross-border arrangements:
- made between 25 June 2018 and 30 June 2020 (due date for submission – 28 February 2021);
- made between 1 July 2020 and 31 December 2020 (due date for submission – 31 January 2021);
- made between 1 January 2021 and 1 January 2022, that had to be submitted within 30 days from the date they were made available for implementation or were ready for implementation or the first step in the implementation has been made, whichever occurred first;
- for which secondary intermediaries provided aid, assistance or advice, between 1 January 2021 and 1 January 2022 and had to submit information within 30 days beginning on the day after they provided aid, assistance or advice.
