On April 5, 2019, the Cyprus House of Representatives voted into law the provisions of the EU Directive for the adoption of rules against tax avoidance practices, known as the EU Anti-Tax Avoidance Directive (ATAD).

The EU Anti-Tax Avoidance Directive aims at preventing multinational companies sheltering their profits in low or no tax jurisdictions.

The anti-tax avoidance measures provided by the law are the below:

1. General Anti-Abuse Rule (GAAR)

2. Controlled Foreign Company Rule (CFC)

3. Interest Limitation Rule

The above provisions are applicable as of January 1, 2019.

1. General Anti-Abuse Rule (GAAR)

The general anti-abuse rule aims to tackle abusive tax practices that have not yet been dealt with through specific provisions. 

2. Controlled Foreign Companies (CFC)

The CFC Law has the effect of re-attributing the income of a low or zero taxed controlled foreign subsidiary to its parent and controlling company and tax such undistributed income based on the Cyprus Tax Legislation. The goal is to prevent revenue diversion to subsidiaries which are tax resident in jurisdictions with preferential tax regimes such as BVI, UAE, Belize, Marshall Islands, etc.

3. Interest Limitation Rule

The interest limitation rule aims to discourage groups from providing financing facilities to companies based in high-tax jurisdictions through subsidiaries based in low-tax jurisdictions. The rule focuses on limiting the deduction of inflated interest arising from the above practices.

April 23, 2019