Transposition of DAC6 in Cyprus compared to other EU countries

There is no getting away from it: Cyprus is the black sheep of the EU flock at the moment as far as mandatory tax disclosures are concerned. It remains the last bastion of the Union which has yet to implement DAC6, for the time being, anyway. This article explores how Cyprus got to this point and what it means for stakeholders potentially affected by DAC6.

On 25 May 2018, the EU Council Directive (EU) 2018/822, commonly known as DAC6, was formalised. Member states were instructed to transpose the directive into their respective national legislation by 31 December 2019 to give the affected parties enough time to prepare for the relevant submissions. DAC6 was originally meant to take effect on 1 July 2020, with the first reporting period set to 31 August 2020.

Cyprus initially did well — the Ministry of Finance released a draft of the proposed legislation on 22 October 2019 and initiated a period of public consultation, after which the draft bill would ordinarily have been put up for parliamentary scrutiny and voting. Following that time, however, events either halted or slowed down:

• After the conclusion of the public consultation, the draft bill was not put before parliament and was consequently not transposed by the mandated deadline of 31 December 2019.
• The ensuing emergence of the COVID-19 pandemic pushed member states to make a case for an extension of the reporting deadlines, as the eight-month period (January to August) was deemed insufficient to allow the affected parties to prepare for DAC6 reporting while simultaneously dealing with the inherent troubles of national lockdowns and obligatory migration to a remote working environment. The EU quickly responded by giving the member states the prerogative to apply a six-month extension to the reporting deadlines, in effect pushing them back to 31 January 2021. Although a small number of member states had chosen to remain on the original timeline (namely Finland and Germany), and Austria had chosen to implement a smaller extension (four months as opposed to six), the remaining 23 member states, including Cyprus, opted for the six-month delay. The EU, noting the fact that a number of member states had not yet transposed DAC6 into national legislation, moved to issue an ultimatum for the transposition to occur by 31 December 2020.
• Post-August 2020, only three member states had yet to transpose the directive into national legislation; these were the Czech Republic, Spain and Cyprus. By 1 January 2021, however, Cyprus was the only member state falling foul of the final transposition deadline.

The lack of communication and updates from the relevant Cypriot authorities on the progress of implementation was initially disconcerting, although not entirely unexpected. At the time, one issue was taking up the entirety of the parliamentary agenda. The Cyprus Investment Program (CIP) and the results of Al Jazeera's "Cyprus Papers" investigation had an understandable impact on the body politic and caused a spate of proposed reforms, investigations and, eventually, the permanent suspension of the program itself.

For this and other reasons parliamentary proceedings became deadlocked over the issue of the 2021 national budget for weeks; and all this against the backdrop of rising COVID-19 cases and a secondary lockdown. As such, it was unsurprising that the issue of transposing DAC6 into national legislation took a back seat.

As of 2021

On 5 January 2021, the Cyprus Tax Department (CTD) issued an announcement which: (i) said that DAC6 would be enacted during the month of January; (ii) set out a brief outline of the criteria of DAC6 reporting and the information that should be included in the report; (iii) provided information in relation to the registering process for the reporting portal "Ariadne"; and (iv) noted that a number of intermediaries had already registered and that everyone could proceed to submit reports before the enactment of the legislation, on a purely voluntary basis.

Contrary to the intentions of the CTD, however, DAC6 did not go live in January. On 6 February 2021, the CTD issued a second announcement through which it conveyed the following significant developments: (i) the amalgamation of all reporting periods being submitted to a single deadline; (ii) that single reporting deadline was set for 31 March 2021; and (iii) the fact that DAC6 was set to go live in February. Unfortunately, the February go-live date was also missed.

The most recent update released by the CTD, dated 26 February 2021, allowed intermediaries to breathe a small sigh of relief by announcing a three-month grace period for the imposition of fines in instances of late DAC6-related submissions for all reports that should have been submitted by 31 March 2021.

What are intermediaries meant to do?

To counter the lack of transposing legislation, intermediaries (and practitioners) have begun to look to guidance from other member states, and especially other common law jurisdictions such as Ireland and the United Kingdom.

The legislation and guidance issued by the UK HM Revenue & Customs (before it repealed most of DAC6) was particularly useful for Cypriot intermediaries as the applicable jurisdictions share a strong legal tradition rooted in the common law, which can also be relied upon, in the absence of relevant precedent in Cyprus. English common law is in fact officially of persuasive merit in Cypriot courts.

Further, in an effort to bridge the regulatory gap, a number of regulatory authorities such as the Cyprus Bar Association (CyBAR) began to issue DAC6 guidance to its members. This has provided some comfort, though clearly it is not the same as official guidance following an act of parliament.

Cypriot intermediaries nonetheless still face a number of difficult decisions regarding how best to proceed since, if the legislation is indeed enacted in March, they would only have three months to become fully compliant in terms of their retrospective assessments. In comparison, five member states were given more than a year, and 16 member states were given at least six months.

The saving grace is a combination of "ingredients" which make Cyprus a successful international centre for business and finance: the underlying strength of the legal regime and its ability to look to authority from other common law jurisdictions for legal certainty; topclass service providers; and a willingness on the part of the authorities to refrain from fining at the outset and until the new system (whenever eventually enacted) becomes settled law.

This article was originally published by ThomsonReuters ©️ ThomsonReuters.