The beginning of 2021 marks more than one year from the date when the first draft version of the Cypriot law implementing the European Union (EU) Directive 2018/822 on the mandatory disclosure and exchange of information on reportable cross-border arrangements (referred to as "DAC6/MDR" or "the DAC6 Directive") was published by the Cypriot Tax Department back in October 2019. A lot has changed since then.
The draft law has been placed under public consultation between 22 October and 12 November 2019 and then there has been a long period of stakeholders' discussions and minor amendments to the wording of the draft law until the beginning of 2020, when the COVID-19 pandemic entered our lives.
Since then, on 27 July 2020, the Cypriot Tax Department issued an official announcement confirming that Cyprus has adopted a six-month deferral related to the DAC6 Directive. This announcement followed the adoption of the Directive1 on 24 June 2020, by the Council of the EU, allowing EU Member States an option to defer, for up to six months, the time limits for the filing and exchange of information on cross-border arrangements under DAC6 due to the COVID-19 pandemic.
We have now entered, as of 1 January 2021, the live 30-day reporting period of DAC6/MDR, while reporting for the 6-month deferral period (i.e., from 1 July 2020 to 31 December 2020) has also commenced and is due by 31 January 2021.
In light of the above, please see below for an update on the current developments with respect to the Cypriot DAC6/MDR law, guidance notes and XML schema for reporting in Cyprus.
Cypriot DAC6/MDR law
The Cypriot DAC6/MDR law has been recently legally vetted after some final amendments and is now expected to be discussed within the following days in the session of the Parliamentary Committee of Economic Affairs and voted at the next plenary session of the Cypriot Parliament at the beginning of February 2021. The final Cypriot DAC6/MDR law will amend the existing Cypriot Law on Administrative Cooperation in the field of Taxation (Law 205(I)/2012).
Cypriot DAC6/MDR guidance notes
It is expected that the Cypriot DAC6/MDR guidance notes (in the form of an administrative decree) will be issued shortly after the enactment of the final Cypriot DAC6/MDR law (possibly within February 2021 if not later).
Cypriot XML reporting schema
The Cypriot Tax Department has recently (Tuesday, 5 January 2021) issued two announcements ("Registration of Intermediaries and Relevant Taxpayers to the DAC6 government portal" and "DAC6 – General information") regarding:
- The registration process which is now open for intermediaries and taxpayers to submit reports to the DAC6 government portal (i.e., to the "Ariadne" portal). The announcement specifies that since DAC6 Directive has not yet been transposed into Cypriot law, the reporting of potentially reportable cross-border arrangements can be done on a voluntary basis until it becomes mandatory upon the enactment of the relevant DAC6 legislation in Cyprus.
- General information with respect to the definition of reportable cross-border arrangement, the information to be reported under DAC6 and the reporting deadlines, where it is also specified that reporting will be done through the form of XML schema and a link is provided with further information on the reporting process including the files which are relevant for reporting purposes (including notably the EU DAC6 XSD User Guide of March 2020 and the Cypriot XML sample/output file, which is actually the Cypriot XML reporting schema form).
Please note, at this point, that the Cypriot XML schema is almost the same with the EU DAC6 Schema (it has been actually based on the EU DAC6 Schema) and this is why the Cypriot Tax Department has not issued a (separate) XSD User Guide for the Cypriot XML schema so far, but has instead published the one issued by the EU Commission services on March 2020.
There is also additional information included in the aforementioned announcement on a specific difference between the EU DAC6 Schema and the Cypriot XML schema, according to which, despite the fact that the fields 'Arrangement ID' and 'Disclosure ID' are compulsory fields in the EU DAC6 Schema, such fields should remain 'blank' in the initial report to be filed, i.e., the 'Arrangement ID' and the 'Disclosure ID' fields will be issued by the Cypriot Tax Department and will be communicated to the intermediary/relevant taxpayer via email, in order to be used in case of correction of a report or re-submission of a report for the same reportable cross-border arrangement to the Cypriot Tax Department.
Given the absence of legislative basis for DAC6/MDR in Cyprus at the moment, it would not be advisable/recommended for intermediaries/relevant taxpayers to proceed with submitting reports to the Cypriot Tax Department (i.e., on a voluntary basis).
However, it is recommended that all Cyprus-based intermediaries with clients engaged in cross-border activities register from now as 'Intermediaries' in the "Ariadne" portal to be ready for the actual submission of reports to the Cypriot Tax Department.
For this purpose, the credentials obtained through the registration to the "Ariadne" portal for CRS/FATCA purposes (if a Cypriot financial institution intermediary/relevant taxpayer is already registered thereto in the past, for instance a bank or an investment fund) can be used. If this is not the case, Cyprus-based intermediaries or relevant taxpayers should obtain new credentials (i.e., "CY login") from the system in order to be logged into the portal.
Moreover, relevant taxpayers with either a tax residency, permanent establishment, or other economic activity in Cyprus, may also need to consider proceeding with the registration of themselves (in case of natural persons) or their (group) companies (in case of legal persons) as relevant taxpayers in the "Ariadne" portal, in order to be prepared, given that reporting will eventually take place.
However, this will be mainly needed in cases where relevant taxpayers do not generally use the services of external intermediaries (e.g., tax advisors, lawyers, asset managers, corporate administrative service providers, etc.) for their tax structuring and planning, wealth management, investment planning, etc., but either operate through dedicated in-house (tax) departments or teams.
In light of the above, it should be noted that the process and the links for DAC6/MDR reporting purposes in the "Ariadne" portal are different than the ones already used for CRS/FATCA (according to DAC2 Directive) and Country by Country Reporting (CbCR) (as per DAC4 Directive) purposes.
As a last note, further developments and announcements should be expected from the Cypriot Tax Department's side with regard to the submission of reports and the application of penalties (i.e., a "grace period" for penalties is expected to granted), given the absence of final law and guidance with regard to DAC6/MDR for the time being and the upcoming reporting deadlines of 31 January and 28 February 2021, as well as the 30-day reporting deadline which is now live.
How can EY Cyprus help
For further information on the above or any assistance needed in respect of DAC6/MDR, Ernst & Young Cyprus Limited can assist you in various ways.
In particular, we can offer tailored-made DAC6/MDR training sessions/workshops for your organisation and employees, assessment of DAC6/MDR impact on your business, provision of ad-hoc DAC6/MDR advisory support, licensing of DAC6/MDR technology solutions for documentation and reporting of potentially reportable cross-border arrangements to the Cypriot Tax Department and provision of 'Reporting as a Service' services, i.e., provision of support with regard to the registration and identification process to the "Ariadne" portal and submission of DAC6/MDR XML reports (including ad-hoc technical review of such reports, if requested) on behalf of your company or your clients to the Cypriot Tax Department.
1. Council Directive (EU) 2020/876 of 24 June 2020 amending Directive 2011/16/EU to address the urgent need to defer certain time limits for the filing and exchange of information in the field of taxation because of the COVID-19 pandemic.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.