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Protocol between Cyprus and Switzerland to amend Double Tax Treaty (DTT) comes into effect


In Summary

On February 3rd, 2022 a circular was issued by the Cyprus Tax Authority (3/2022) notifying of the completion of all legal procedures on behalf of both Cyprus and the Swiss Confederation, enabling the protocol on the avoidance of Double Taxation regarding taxes on income and on capital to come into force.

The protocol in question, which was signed on July 20th 2020, introduced an amendment to the 2014 Double Tax Treaty between the two countries and came into effect on November 3rd, 2021, with a substantial number of provisions also being implemented on the same day, whereas the remaining provisions have been actualised on January 1st 2022.

Such amendments include the introduction of the minimum standards of the BEPS actions of the OECD regarding bilateral agreements and other amendments agreed upon bilaterally.

Incorporation of the preamble

The preamble of the treaty was amended to clearly indicate its intention to eliminate double taxation on income and on capital, without creating opportunities for non-taxation via tax evasion or avoidance (treaty-shopping arrangements included that would aim obtaining reliefs provided in the treaty to indirectly benefit residents of third states).

Should such cases occur, where the jurisdictions are deprived from imposing tax, the benefits that arise because of the treaty shall be deprived.

Article 7: Business Profits

Article 7 of the treaty has been amended in order to introduce a six-year limitation, from the end of the taxable year, relevant to the right of a Contracting State to make adjustments to the profits attributable to a permanent establishment of the other contracting states.

Article 9: Associated Enterprises

Article 9 has been revised to implement provisions for transactions between associated enterprises. It has been clarified that the other contracting state will need to make an adjustment to the amount of the tax charged on those profits. Added to that, a contracting state shall not have the right to include as profits of an enterprise, profits gained after the six-year period from the end of the taxable year during which the profits would have accrued to the enterprise.

Article 26: Mutual Agreement Procedure

According to Article 26, in cases where a person acknowledges that the actions of one or both of the contracting states result or will result in taxation that is not in accordance to the treaty, then that person may present their case to the competent authority of either states, regardless of the remedies provided by the domestic law of the states in question.

Article 28A: Entitlement to Benefits

The Principal Purpose Test (PPT) is implemented after the amendment of Article 28A to prevent treaty-shopping arrangements. What has been clarified is that the taxpayer shall receive no benefit under this agreement, should it be concluded that obtaining the benefit was one of the principal purposes of any arrangement or transaction, unless the taxpayer is able to prove that being granted the benefit was in accordance with the object and purpose of the tax treaty.


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