The Draft Law on Deoffshorization was initially made available for public discussion on the 18th of March 2014 and the floodgates had opened. Since then extensive discussions between the business community and governmental bodies have taken place both in Russia and abroad as this new Law is expected to significantly affect foreign jurisdictions as well. After a prolonged emotional rollercoaster caused by the various revisions of the initial text, the Draft Law was submitted to the State Duma and it was adopted on the 18th of November 2014 in the second and third readings.
The Law establishes a mechanism for the taxation in Russia of incomes of CFCs, in the case where such companies do not distribute their incomes for the benefit of Russian entities, controlling such companies. Thus, according to the Law adopted, the definition of a CFC refers to companies that are not tax residents of Russia and are controlled by individuals or legal entities that are Russian tax residents.
The “control” over the CFC shall be determined both by the ability of the controlling person to exert influence on the decisions of the CFC with regards to the distribution of its profits and by their level of participation in the authorized capital of the company, of more than 25%. Also, in the case where the overall share of Russian tax residents in the company is more that 50%, then the level of participation in the company in order to determine a controlling person shall be reduced t0 10%. It is important to note that the transition period which was previously set from 2015 until the end of 2017 has now been reduced. As such, a level of participation of 50% shall apply for the purposes of determining a controlling person up to the year 2016.
The Law also defines the criteria for foreign companies to fall outside the scope of the legislation and their profits to be exempt from taxation in Russia. These include non-profit organizations that will not distribute their profits to the shareholders, companies from the Eurasian Economic Union as well as banks and credit institutions operating in States that have recently concluded tax treaties with Russia.
The Draft Law was almost unanimously voted by the State Duma (439 votes, zero - against, and two - abstentions) without accepting the amendments proposed by the Government. Now the final word lies with the Federation of Council in Russia however it seems that the possibility for further amendments to the Law may still be in play as commented by the Russian Deputy Finance Minister Sergei Shatalov “I very much hope that we will be able to return in the spring to the CFC law, in order to correct it”.
Taxand Cyprus takes a look at TP rules in surrounding jurisdictions and investigates the likelihood of implementation in Cyprus.
Taking into consideration that the tax authorities in neighbouring countries in South Eastern Europe and the Mediterranean have started focusing considerable attention on transfer pricing, it is expected that this ‘trend’ will influence Cyprus as well.
For example the Albanian transfer pricing rules have been present for more than a decade in their corporate income tax (CIT) Law, however, detailed regulations on the application of these rules have only now been published in the Official Journal (No 70), dated 20/05/2014. The recent changes lead to the alignment of local rules to the OECD guidelines, eliminating the conflicting rules that have been applied so far.
The Bulgarian transfer pricing rules were initially introduced in the Corporate Income Tax Act (CITA), the Tax and Social Security Procedures Code, as well as in Ordinance № H-9 for implementation of the transfer pricing methods issued by the Minister of Finance on 29 August 2006. Following the international trends, a manual providing guidance on transfer pricing issues was published in 2010 by the tax authorities.
In Serbia the rules have been present since 1 July 2001, while the latest amendments related to interest rates came into force on 15 February 2014. The rulebook was enacted on 20 July 2013 giving clarity to transfer pricing rules.
Cyprus does not have specific transfer pricing rules in its domestic legislation. However, the country follows the OECD transfer pricing guidelines and the arm’s length principle.
According to Article 33 of the Income Tax Legislation (118 (I)/2002 as amended), the Cyprus tax authorities may proceed with adjustments in the taxable bases of companies if conditions indicate that transactions occurred were not valued in the same way as if they had been carried out between unrelated parties.
The definition of related parties is very broad, but exclusively includes situations where one party directly or indirectly participates in the management and control, or capital, of another party (no specific thresholds), or if the same parties participate directly or indirectly in the management and control or capital of another party. Moreover, the term ‘related party’ between entities may include situations ranging from statutory to economic dependency and also certain family relations.
By implementing international transfer pricing principles with an effective approach, Cyprus may attract more multinationals which would have a positive impact on the country’s investment environment. Multinationals with operations in Cyprus should keep abreast of all developments in the jurisdiction in order to ascertain the impact new transfer pricing rules and regulations would have on their specific situation.
The European Central Bank has made public the results of the banking health test they performed on 130 of Europe’s top banks.
Four banks in Cyprus participated in the test, Bank of Cyprus, Hellenic Bank, Central Co-op and RCB.
Of the four, only Hellenic Bank failed with a shortfall of €176 million in capital. As a result, its Board of Directors has to meet urgently to discuss additional equity.
A total of 24 banks within the European Union have been determined too weak to handle a 3 year recession and in Greece, Eurobank Ergasias, National Bank of Greece and Piraeus Bank have shown to have a combined shortfall of €8.7 billion.
Two weeks have been given to the Eurozone banks to find contingency strategies to deal with any flaws uncovered within the next nine months. Those unable to meet this deadline risk facing closure.
More specifically, the supply of such services to private individuals and non-business customers will always be taxed in the country where the customer belongs - i.e. the Member State of the customer and not the Member State of the supplier. The adoption of the aforementioned changes was part of the “VAT Package” (Council Directive 2008/8/EC amending Directive 2006/112/EC) for purposes of the proper functioning of the internal market.
Following the changes in the VAT place of supply rules, it was also decided to set up a single electronic portal to allow for the simplified implementation of the new rules (Council Regulation No. 143/2008), namely the mini One Stop Shop (MOSS). The scheme will allow taxable persons to avoid registering in each Member State of consumption. More specific, the application of the scheme will allow taxable persons supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons in Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified (single point of electronic contact for VAT identification, declaration and payment purposes).
The Member State of identification is the member state in which the taxable person is registered for using the MOSS. For example a Bulgarian company which makes B2C supplies to customers in Romania, Greece and Cyprus may choose the latter as the Member State of identification and will therefore declare and pay VAT in Cyprus for supplies made in the said countries.
The MOSS scheme will be available to taxable persons established in the EU (Union Scheme) and taxable persons not established in the EU (Non Union Scheme). Under the Union scheme, the Member State of identification has to be the member state in which the taxable person has established its business. However, if the taxable person does not have its business establishment in the EU, it can choose any member state in which it has a fixed establishment. Under the non-Union scheme, the taxable person is free to choose its Member State of identification.
Under the Union scheme, the taxable person will maintain the same individual VAT identification number with which it is identified for its domestic VAT returns for the MOSS purposes. Under the non-Union scheme, whereby the taxable person can choose any Member State to be the Member State of identification, the said State will allocate an individual VAT identification number to the taxable person.
A Guide was prepared by the European Commission in October 2013, providing the necessary guidelines for the MOSS scheme in relation to Registration, Deregistration, Exclusion and Quarantine period, VAT groups, VAT returns, Payments and Corrections. The guide even though not final, can provide more thorough understanding and significant insight to the MOSS scheme and its practical application.
Further to the above, a survey was made by Taxand with regards to the invoicing requirements in 2015 for businesses registered in various countries in relation to the provision of services to non-business customers.
According to the findings, taxable persons registered under MOSS in Bulgaria, Croatia and Greece will need to issue invoices to non-business customers.
On the other hand, in Cyprus businesses under MOSS will not need to issue invoices to non-business customers. It should also be noted that according to the report prepared on 26 June 2014 from the Commission to the Council it is recommended that member states refrain from the option to require an invoice on B2C supplies covered by the new place-of-supply rules.
The seminar will be held at the Eurofast offices in Nicosia (Cypress Centre, Chytron 5, 1302 Nicosia ) on July 29, 2014 at 11am.
Speaker at the event will be Mr. Imad Abou Nasr, Regional Executive of Eurofast in the Middle East based in Erbil and responsible for operations.
During the seminar Mr. Abou Nasr will discuss the tax & legal framework, procedure of registering companies, and payroll, employment solutions and work permits for independent contractors. Investment opportunities in Erbil will be discussed in the areas of oil and gas, energy, agriculture, infrastructure and healthcare. The seminar will be followed by a cocktail reception.
Due to limited seating registrations will be accepted on a "first come-first served" therefore please confirm your participation by July 28, 2014 by email or telephone to Angela Neophytou by email at firstname.lastname@example.org or by phone at 22 699 222.
Until 2013, the tax was levied on an annual basis according to the market value of the property at 1 January 1980. All owners of property in Cyprus whose 1980 value exceeds €12,500 are liable to pay an annual tax to the Inland Revenue based on the total 1980 value of all immovable property in their name on the 1st day of January.
Based on last year changes, one of the measures which were taken was to reform the fiscal framework of real property. Specifically scales were created in order to calculate the tax for each person or company.
On 2nd of July 2014, the government submitted a bill suggesting properties worth up to €200.000 to be excluded from the immovable property tax and also to reduce the tax rated. It is expected that 54% of the property owners will be excluded from paying property tax in contrast with last year 40% property owners which they were excluded from the property tax.
It was also suggested that the tax to be levied would be calculated in accordance with today’s market value. The matter has been subject to intense debate in Parliament. As of the date of writing, 10 July 14 the Cyprus Parliament has finally passed the new law which once again is based on the 1980 valuations. Various Political parties of Cyprus had strongly objected in using the 2013 valuations.