EXCHANGE OF INFORMATION FOR TAX MATTERS AND DISCLOSURE OF UBOS IN CYPRUS COMPANIES AND INTERNATIONAL TRUSTS

One of the main challenges currently facing tax authorities is the need to move a step closer towards tax transparency, including transparency of trust/fiduciary arrangements and banking details. To achieve this goal, important measures are being taken on several fronts, such as by the OECD, the European Union as a whole and by each EU member state.

This article aims at highlighting the most recent developments in the exchange of information for tax matters, as well as the disclosure of Ultimate Beneficial Owners (UBOs) in Cyprus companies and Trusts.

A. Exchange of information for tax purposes

I. European Union (EU) Savings Tax Directive

In March 2014, the original EU Savings Tax Directive from 2003 was revised to strengthen the existing rules on the exchange of information on savings income. The original Savings Directive provided for the Automatic Exchange of Information (AEoI) across the EU on interest payments, where the beneficial owner of the income was an individual resident in another EU Member State.

The main amendments in the revised version of March 2014 included the following:

 Increase in the types of income reported under the EU Savings Directive to cover income similar to interest;
 Application of the reporting mechanism to certain indirect means of holding interest bearing securities via entities or legal arrangements outside the EU which are not subject to effective taxation;
 Enhanced rules regarding receipt of interest and similar type income by entities or legal arrangements within the EU which are not subject to effective taxation (including also Cyprus International Trusts); such entities/legal arrangements must provide details to the tax authorities upon receipt of interest.

The revisions to the EU Savings Directive are required to be transposed into each EU Member State’s law by January 2016, and implementation by 2017.

II. EU Directive on Administrative Cooperation in the Field of Taxation

In 2011, the EU adopted the Directive on Administrative Cooperation in the Field of Taxation
(“Admin Directive”), which provides for exchange of tax information across EU Member States, upon request. It also provides for simultaneous tax examinations by two or more EU Member States, participation in tax examinations in another EU Member State, and serving of documents of another EU Member State.

Automatic exchange of information will start in 2015 for taxable periods as from 1 January 2014 for the following categories of income (and ownership in the case of immovable property), if information is available when the income concerns a resident of another EU Member State:

 Income from employment;
 Director’s fees;
 Pensions;
 Life insurance products not covered by other EU exchange of information laws;
 Ownership of and income from immovable property.

In June 2013, the automatic exchange of information was extended to include information on the following items provided they are paid, secured or held by a financial institution:

 Dividends;
 Capital gains;
 Any other income generated with respect to the assets held in a financial account;
 Any amount with respect to which the financial institution is the obligor or the debtor, including any redemption payments;
 Account balances.

III. Council of Europe – OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters (‘the Convention’)

This is a multilateral agreement to exchange information and provide other assistance in relation to tax matters. Over 67 countries have already signed the Convention, including Russia, Switzerland, Greece and Cyprus.

IV. OECD initiative for automatic exchange of information

In February 2014, the OECD published initial documents entitled the “Common Reporting Standard” and “Model Competent Authority Agreement”. On 21 July 2014, the OECD released a detailed version of these documents entitled “The Standard for Automatic Exchange of Financial Information in Tax Matters” (‘the Standard’).

The Standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and shell companies, trusts and similar arrangements.

More than 65 countries and jurisdictions worldwide have already publicly committed to implementation. Cyprus belongs to the countries that have declared to automatically exchange information from 2017.

B. Disclosure of UBOs in Cyprus Companies and Trusts

The details of registered shareholders of Cyprus companies’ are publicly available information. However, a level of anonymity still exists when referring to the details of UBOs of Cyprus companies’ as that information is confidential and may only be disclosed by court order or as part of a verified tax investigation (not mere “fishing expeditions” by foreign tax authorities).

The details of beneficiaries of Cyprus International Trusts (“CITs”) remain confidential, although a Trust Registry has been created pursuant to an amendment to CITs Law, listing the details of CITs which exist and operate under Cyprus law. As per the CIT Law, the Trust Registry is maintained by each of the three authorities supervising the provision of trustee services, namely, the Cyprus Securities and Exchange Commission, the Cyprus Bar Association, and the Institute of Certified Public Accountants of Cyprus. The information contained in the said Trust Registry includes the name of the CIT, the name and address of every trustee, the CIT’s date of establishment and date of termination. The creation of the Trust Registry has been welcomed by the providers of trustee services in Cyprus as it enhances the quality trustee services offered on the island.