Tax

The recent interpretative letter issued by the Russian Federal Tax Services (“FTS”) on 08th August 2019, has provided further guidance as to the application of the Beneficial Ownership Concept, further to the letter initially provided on the 12th of April 2018 which adopted a strict approach of the concept.  Particular reference is made to the “entrepreneurial activities” criterion, which was interpreted very narrowly by FTS in effect considering that companies whose primary activity was holding, investing or granting of finance to affiliate companies, lacked of independent entrepreneurial activity were by default unable to qualify for the Beneficial Ownership Concept and therefore claim the tax treaty benefits. The Russian Federal Tax Services have realised the latter through the various court cases, and therefore clarified that a company engaged in holding or financing activities, does not, on its own form an absolute criterion in establishing the company as conduit. On the contrary, the Russian Federal Tax Services state that they must adopt more a holistic approach, by shifting the attention to indications of artificiality and signs of lack of independence in decision making regarding the company’s assets and income under consideration, rather than the mere types of business activity. Mrs. Artemis Kyriakou (Associate – Tax Department)

The judgment of the Court of Justice of the European Union (CJEU) on February 26, 2019, in the “Danish Beneficial Ownership Cases”, can be perceived as a landmark on the interpretation of the Beneficial Ownership concept under the Interest and Royalties Directive (IRD) and the Parent-Subsidiary Directive (PSD). Following the refusals of the Danish tax Authorities to grant the exemption from the Danish Withholding Tax (WHT) levied on the payments of interest and dividends, the taxpayers appealed these refusals before the Danish Courts. The CJEU was asked to clarify whether Denmark may deny the benefits of the EU Directives and impose WHT on interest payments and dividend distribution on the grounds of the non-applicability of the Beneficial Ownership concept under the IRD and PSD. Interest and Royalty Directive Court cases Luxembourg 1 (C-115/16), X Denmark (C-118/16), C Denmark (C-119/16) and Z Denmark (C-299/16) jointly refer to intragroup financing activities (back to back loans) where the Danish resident subsidiaries were indirectly financed by their non-resident parent companies through a series of loans initially granted to holding companies resident in another EU member State acting as intermediary holding companies. These intermediary EU holding companies were regarded by the Danish Tax Authority as not being the beneficial owners of that interest and, accordingly, as incapable of being entitled to the exemption from any taxes that is provided for by IRD. Facts The Danish companies received financing by other entities in EU however these EU entities were held directly or indirectly by non-EU entities or persons. These EU entities had zero or minimum substance (i.e. 1-2 part time employees). Interest income received by the EU entities from the Danish companies was not taxed or paid a very small amount of tax in their jurisdiction. Interest paid by the Danish companies was all or almost all transferred to the non-EU entities or persons. The only or main activity of the EU Entities was the provision of the loans to these Danish companies. Court decision The exemption of Interest payment under IRD is restricted solely to the beneficial owner of such interest income. Beneficial owner is the entity that economically benefits and has the freedom to use and enjoy the interest income. OECD Model Tax Conversion and the commentaries are relevant for interpreting the concept of the beneficial owner. The facts of each case should be examined in order to establish whether abusive practices are present, and in particular whether economic operators have carried out purely formal or artificial transactions devoid of any economic and commercial justification, with the essential aim of benefiting from an improper advantage. Denmark has to deny abusive practises as a general principle and deny benefit of an EU directive in such cases even in the absence of domestic or other anti-abuse provisions. Analysing the above it can be concluded that in order for the benefit of the EU Directive to be granted, it is required that the EU Company receiving the interest and/or royalty payments to be the beneficial owner of the income. The CJEU aligns the EU Concept of the Beneficial Ownership with the interpretation given by the OECD Model Tax Convention. When examining a cross-border structure under the IRD, the beneficial owner of the income is not the entity which formally identified as the recipient on a legal basis.  Beneficial owner is the entity that actually benefits from the interest and/or royalty has the power freely to determine its use. The Court noted that Denmark has to deny the benefit of an EU Directive in the event where fraudulent circumstances identified. The fact that the group of companies structured in such a way that the recipient of the interest paid must pass that interest on to a third company thus resulting to no or an insignificant taxable profit then it acts as a conduit company, can be considered as an artificial arrangement with a purpose to benefit from the EU rules and this is an indication of abuse. Parent subsidiary directive The two joined Danish cases, N T Danmark (C-116/16) and Y Denmark (C-117/16), refer to dividend distribution from a Danish resident company to an intermediate holding company resident in another EU member State. ​Facts The Danish companies were held by other entities in EU however these EU entities were held directly or indirectly by non-EU persons. These EU entities had zero or minimum substance. Dividend income received by the EU entities from the Danish companies was exempted from tax locally. Dividend paid by the Danish companies was all or almost all transferred from the EU entities (shareholders) to the non-EU persons. The only or main activity of the EU Entities was the holding of these Danish companies Court decision The Court concluded that in this case, denying the benefit of the EU Directive is the outcome of the application of the general principle of the EU Law providing for the prohibition of abusive practices (combination of a deliberate abortion of the purpose of the EU Directives and artificial arrangements in place with purpose to obtain tax advantages). Following a similar reasoning to that in the IRD as to the indication of abuse in the existence of a conduit company, the Court noted that is for the referring courts to assess if the transactions under examination are abusive or not and provided additional guidance in that respect. Conclusion The Court’s judgement in the Danish Beneficial Ownership cases will definitely bring innovations in international taxation. The need to conduct transactions with an adequate level of economic substance is of paramount importance. In the light of the CJEU’s decision, taxpayers should take all the relevant measures to comply with the new requirements so as to ensure that the beneficial ownership requirements when it comes to the application of the PS and IR Directives are fully adhered to. September 2019 Mr. Marios Palesis (Partner – Tax Department), Mrs. Yiota Michael (Senior Associate – Tax Department)

WHY CYPRUS Cyprus, a services-oriented economy with years of experience in servicing international clients, is transposing itself as one of the top relocation and headquartering centers in Europe. The skills and knowhow obtained from lawyers and accountants during the past years are now put at work in servicing the international groups that are setting up regional headquarters in Cyprus. With a good choice of English-speaking private schools to ensure top class education as well as a range of private clinics to ensure access to good healthcare combined with the great climate conditions and the crystal clean beaches make Cyprus the obvious choice. Why Cyprus -> Business Oriented Legal Framework -> Access to Talent -> Access to Markets -> Cost Effective Strategic Location  ->Attractive Tax Regime The ideal location, the natural beauty and history team up with a holistic legal and tax framework developed specifically for making Cyprus a leading jurisdiction where high net worth individuals can relocate, set up regional headquarters and attract the human capital required to manage and control their business activities. HOW TO RELOCATE The Cyprus Investment Programme The Cyprus government has developed and maintains an attractive investment programme aimed at foreign investors and businessmen. Through this programme, high net worth individuals can obtain the Cyprus Citizenship and hence be able to relocate to Cyprus. (Please refer on our website for the chart) Obtain Employment Permit in Cyprus It is possible for a 3rd country national to live and work in Cyprus if he/she is employed by a Cyprus company whose majority shareholders are 3rd country nationals. There are certain requirements that need to be met both for the Cyprus Company who will be the employer and the 3rd country national employee, the most important of which is that an amount of €171.000 must be transferred from an overseas account of the beneficial owner to the bank account of the company in Cyprus. As to the salary of the employee the following apply: If the employee will have managerial position then his minimum gross salary is €3.873 If the employee will have middle-management position or administrative duties the minimum gross salary is €1.936. EU Nationals can be employed in a Cyprus company with no restrictions or conditions. TAXATION INCENTIVES Cyprus Tax laws provide attractive incentives for all stakeholders involved, being the owners, the companies and their employees. For an individual to be regarded as a tax resident of Cyprus must either: Spend 183 days in Cyprus, or Provided that an individual does not spend 183 in any other jurisdiction, to spend 60 days in Cyprus, be employed or be a director of a Cyprus company and own or rent a house in Cyprus (Please refer on our website for the chart) How Kinanis Law Firm can assist Our Firm is ready to assist clients with: Preparation, completion and submission of an application for the Cyprus Investment Programme. Obtaining work permits for third country nationals and other immigration issues. Introduction of real estate agents in Cyprus for residential and commercial properties. Registration with the Tax Department as a resident but non domicile individual. Completion and submission of annual tax returns. Opening of Bank accounts in Cyprus. Assistance in relation to tax and legal matters. Accounting and Payroll Services. Our Firm Kinanis Law Firm, is a Law and Fiduciary Firm with offices in Cyprus and Malta and a representative office in Shanghai China. The Firm advises for over 35 years international investors and private clients offering legal and consulting services since 1983. The Firm employs approximately 80 lawyers, accountants and other professionals. Our clients benefit from a complete range of legal, accounting, tax, vat and advisory services from a highly specialized team of professionals. This combination of legal, accounting, vat and tax services through our well qualified personnel and our involvement and participation in international transactions over the years, have established our firm as one of the key players in the field. Our involvement in international financial transactions has also provided us with the extensive expertise in representing groups, corporations, funds as well as the private client. Kinanis LLC

Since April 2019, the new rules regarding capital gains tax have been implemented in UK. The intention of the implementation of new rules is to remove the advantage of non- UK residents who did not pay tax over the gains from the disposal of all their property in UK. Since April 2019, the new rules regarding capital gains tax have been implemented in UK. The intention of the implementation of new rules is to remove the advantage of non- UK residents who did not pay tax over the gains from the disposal of all their property in UK. What was the situation before April 2019? Until April of 2019 Capital Gains Tax applied only to disposals of UK residential property held by non- UK residents’ individuals. There was no Capital Gains Tax if a non- UK resident sells a company that owns UK residential property. Also, non-UK residents did not pay any Capital Gains Tax when they disposed commercial property in UK (eg. Offices, shops, hotels, farms or factories) whether they own the property itself or their company owns the property. What are the changes? The UK government introduced non-resident capital gains tax (NRCGT) which applies to all non-UK residents including individuals, trusts and companies. From 6th of April 2019 non -UK residents will be obliged to pay NRCGT on both commercial and residential properties in UK. NRCGT will also be applied on the sale of shares in company that owns UK real estate (either residential or commercial) in the following cases: If the company is “land rich” at least 75% of its values derives from UK property. The disposal could be of the company which directly owns the UK property, or a holding company of a subsidiary which holds UK property. Where more than one company is sold, complicated rules apply to work out whether, in aggregate 75% of the value of the companies derives from UK company. If the non-UK resident and related partners hold or at some point in the previous two years have held at least a 25% interest in the company. Tax Rates: Natural persons will pay NRCGT at 28% on residential property and 20% on commercial property. UK companies pay corporation tax currently 19% on gains made from the disposal of UK property. Non-UK companies pay NRCGT at 20% on gains from the UK real estate. Tax returns and payments of tax The Capital Gains Tax for the particular year must be paid by the 31st January following the end of the tax year. A taxpayer who owns a number of assets can look at his gains and losses for the entire year and only pays tax on the net gains. In case that a non-UK resident sells UK residential property, then he must submit a NRCGT return within 30 days of the sale and any tax due must be paid at the same time. UK government will extend these rules to all sales of UK real estate whether direct (i.e. a sale of the property) or indirect (i.e. the sale of a property owning by company): From 6th April 2019 for non-UK residents; and From 6th April 2020 for UK residents. It is worth to be noted that the following transactions will be exempted from these new obligations: Gifts and sales between spouse; Gifts and sales of non-UK shares by a UK resident but non-domiciled individual who claims the remittance basis; Sales of an individual’s main residence (which is exempt from capital gains tax). Non-UK resident property holders must be aware that they have an obligation to submit NRCGT returns within 30 days of sale. Otherwise HMRC may impose penalties on the owner who fails to submit a return in time. If the individual has a “reasonable excuse” for not submitting the return then no penalty will be imposed by HMRC.  For any further information please contact Theo Antoniou, Head of London Office by email at [email protected] or by phone at +44(0)2076920777.

Issued by the Ministry of Finance in the United Arab Emirates (‘UAE’), the Tax Domicile Certificate (also referred to as the Tax Residency Certificate) enables eligible government entities, companies and individuals to take advantage of double taxation avoidance agreements on income signed by the UAE. Issued by the Ministry of Finance in the United Arab Emirates (‘UAE’), the Tax Domicile Certificate (also referred to as the Tax Residency Certificate) enables eligible government entities, companies and individuals to take advantage of double taxation avoidance agreements on income signed by the UAE. The Tax Domicile Certificate, as the official certificate that can be used in support of an application to seek the benefits of the UAE’s double tax treaties (‘DTT’), is issued to individuals residing in the UAE or resident companies operating within the UAE. Thus, this certificate cannot be issued to international business companies (also referred to as offshore companies), whereby such companies can only be granted a tax exemption certificate. The validity of a Tax Residency Certificate is one year, commencing from the date on which it is issued. As per the UAE Ministry of Finance, the required documents so as to obtain a Tax Domicile Certificate, are as indicated below. Individuals: Copy of valid passport; UAE Residence visa/permit; Emirates ID; Certified UAE bank statement covering at least six months; Source of income within the UAE (for example, salary certificate); Immigration report of residency (subject to the sole discretion of the Ministry of Finance); and Certified tenancy agreement or title deed. Companies: Copy of the company's valid trade license; Certified Tenancy agreement or title deed; Passport, residence visa/permit and Emirates ID copies of the company’s owner/manager/director; Audited financial statement; and   Certified UAE bank statement covering at least six months . The team of Michael Kyprianou in our office in Dubai has the required experience so as to be able to assist in, inter alia, registering companies within the UAE (mainland, free zones and offshore), issuing residence permits and obtaining Tax Domicile Certificates, all in a cost efficient manner. For any queries regarding Taxation contact us on [email protected].

A. INTRODUCTION The Cyprus House of Representatives has recently voted a new law transposing the provisions of the European Union Anti-Tax Avoidance Directive (the “ATAD” or “Directive”) into the local legislation. The ATAD provides for minimum standards that need to be applied by all Member States and constitutes part of the Anti-Tax Avoidance Package established by the EU. The Directive aims to tackle tax avoidance practices and aggressive tax planning. The ATAD provisions set rules for the following aspects: Applicable as from 1st of January 2019: Controlled Foreign Company (CFC) rule Controlled Foreign Company (CFC) rule Interest Limitation rule General Anti abuse rule (GAAR) Applicable as from 1st of January 2020: Exit Taxation rule Hybrid Mismatches rule. The main provisions of the above rules which are in force as from 1st of January 2019 are analyzed below. The provisions of the rules applicable as from 1st of January 2020 are not yet introduced into the Cyprus legislation however this is expected to be done before the end of 2019. B. ANALYSIS OF THE ATAD PROVISIONS APPLICABLE AS FROM 1ST OF JANNUARY 2019 1. Controlled Foreign Company (CFC) rule The rule provides that the CFC income of a CFC is included in the taxable income of a Cyprus tax resident entity and is taxed according to the provisions of the Cyprus legislation. The CFC rule applies to Cyprus tax resident companies and to the permanent establishment in Cyprus of non-Cyprus tax resident companies. Definitions CFC: According to the provisions of the Law, a CFC is a non-Cyprus tax resident company or a foreign permanent establishment of a Cyprus tax resident company where its profits are not taxed or are exempt from taxation in Cyprus and the following conditions are met: i. 50% of the voting rights or of the share capital or the rights on the profits of the non-Cyprus tax resident company are held directly or indirectly by a Cyprus tax resident Company (either alone or together with other connected entities), AND ii. The actual income tax paid (the effective tax) on the profits of the non-Cyprus tax resident company is less than 50% of the tax that would have been paid in Cyprus if calculated based on the provisions of the Cyprus Income Tax Laws. CFC Income: According to the provisions of the Law, the CFC income is the undistributed income of the CFC which was generated from non-genuine arrangements that have been put in place for the essential purpose of obtaining a tax advantage. The CFC income that is added to the taxable income of the Cyprus Company is calculated based on the percentage holding of the Cyprus company and relates only to the income that originates from assets and risks directly linked with the Significant People Functions performed by the Cyprus Controlling Entity. The level of income of the CFC that originates from the Significant People Functions performed by the Cyprus Controlling Entity must be determined through a Transfer Pricing Study. Non-Genuine Arrangements : If the Significant People Functions in relation to the CFC are performed at the level of the Cyprus controlling entity to the extent that the CFC would not have been in a position to have in its possession the assets and to undertake financial risks that generate the income. Exception The CFC provisions do not apply if: i. the accounting profits of the CFC Company do not exceed €750.000 AND the passive income is not more than €75.000. Or ii. The accounting profits of the CFC Company do not exceed 10% of its operating expenses for the tax year. Elimination of double taxation The Law provides for the avoidance of the double taxation profits distributed as dividends from a CFC or profits from the sale of a CFC to be reduced by previously regarded CFC income which was taxed under the CFC rules. Tax credit In accordance to the Law, the Cyprus controlling entity is eligible to claim, with no restriction, any overseas tax paid on the CFC profits included in its tax base. 2. Interest Limitation Rule The rule provides that the exceeding borrowing costs that are more than 30% of the Tax-Adjusted EBITDA (Earnings Before Interest Tax Depreciation Amortisation) shall not be deducted for the purpose of calculating the taxable income of the company. However, the rule provides that exceeding borrowing costs up to EUR 3 million to be excluded from the above limitation. The interest limitation rules apply to both Cyprus tax resident companies and non-Cyprus tax resident companies having a permanent establishment in Cyprus. Main objective of this rule is to “limit deductibility of taxpayers’ exceeding borrowing costs” due to the fact that groups tend to engage in base erosion and profit shifting, in order to reduce their global tax liability, through the deductibility excessive interest payments. Definitions Exceeding Borrowing Cost (EBC) EBC is defined as the amount by which the borrowing cost of a taxpayer which is deductible for tax purposes, exceeds the taxable income from interest and other economically equivalent revenues which are taxable according to the Income Tax Law in Cyprus. The term ‘Borrowing costs’ follows the definition of the Directive and includes the loan interest expense on all forms of debt, other costs economically equivalent to interest and expenses incurred from the raising of financing (both intra-group and third party loans). Tax adjusted EBITDA Based on the Law provisions, the tax adjusted EBITDA is calculated by adding to the taxable income of the year the exceeding borrowing cost and the adjusted amounts for deductions, allowances and additions with regards to fixed and intangible assets. Losses brought forward are not taken into account for the calculation of EBITDA. Exemptions Interest limitation rule shall not apply to: I. Stand-alone entities (an entity not part of a consolidated group for accounting purposes and which has no associated entities or PE) II. Loans concluded before 17 June 2016 (unless amended) III. Financial undertakings (credit institutions, AIFs, insurance) The Law also includes an equity escape rule allowing full deduction of borrowing costs if the local taxpayer's ratio of equity to total assets is not more than two percentage points lower than the equivalent group ratio. Any exceeding borrowing costs not allowed for deduction in a tax year due to the restrictions of the limitation rules, may be carried forward for the next five years. Interest Limitation on a group level. If the taxpayer is part of a Cypriot group as defined in section 13 of the Income Tax Law then the rule will apply on a group level. In this respect the 3 million limitation will apply for the whole group and the Tax adjusted EBITDA used will be the one of the group. 3. General Anti-Abuse Rule (GAAR) The rule aims to ignore a non-genuine arrangement or series of non-genuine arrangements for purposes of calculating the corporate income tax liability if they have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law. The taxpayer’s tax liability will be computed in accordance to the provisions of the Cyprus Income Tax Law in the instance where arrangements are disregarded as explained above. C. PURPOSE OF THE ATAD PROVISIONS APPLICABLE AS FROM 1ST OF JANNUARY 2020 4. Exit-taxation Aims to tax the difference between tax book value and market value upon asset transfers between entities, head office and PEs and different PEs, as well as tax residency transfers. 5. Anti-hybrid mismatch rules (1/1/2020) Aims to deny deduction or to include income in case of hybrid mismatches that result in a double deduction or a deduction without inclusion. C. CONCLUSION Considering the practical implementation of the above rules it is expected that the Cyprus Tax Authorities will provide further clarifications through interpretative circulars. The new provisions introduced in the Income Tax Law, are expected to affect a significant number of companies operating in Cyprus. In this respect, is of imperative importance the corporate taxpayers to perform an ongoing review on their business structures irrespective of their activities in order to ensure compliance with the laws and regulations. Disclaimer: This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. Authors: Marios Palesis - Partner, Yiota Michael - Supervisor

What is the ePrivacy Regulation? The ePrivacy Regulation[1] (‘ePR’) is an unfinished EU law first published in January 2017 that is meant to become an extension of the European Union’s General Data Protection Regulation (‘GDPR’).[2] The ePR is an attempt to streamline and improve EU laws regarding privacy of communications through users’ electronic devices. The ePR targets the use of cookies and other tracking technologies, electronic marketing, metadata processing and so called ‘over-the-top’ communication services like WhatsApp and Skype. The ePR was originally supposed to be approved in May 2018, however the text has not been finalised yet and is still being negotiated. When the ePR does eventually become applicable it will repeal the current ePrivacy Directive (‘ePD’ - known also as the cookie-law). Differences between ePR and GDPR Although there is some overlap between the ePR and the GDPR, in practice these regulations are intended to complement each other in the protection of individuals’ personal data and how this data is used by the entities possessing it. The GDPR has a very broad scope concerning the collection and processing of ‘Personal Data’ of individuals. The ePR on the other hand, is intended to safeguard the privacy of individuals in the context of the various channels of electronic communications. In instances where there is overlap between these two laws, the ePR is to be deemed ‘lex specialis’ with respect to the GDPR, which consequently is to be considered ‘lex generalis’. By definition, this means that with regards to those areas which fall within the scope of both the ePR and the GDPR, the ePR takes precedence over the less specialised GDPR. Consequently, most data protection issues that fall outside the ePR will fall within the scope of the GDPR. Who will be affected? Organisations The ePR is intended to regulate those organizations and individual providers dealing with publicly available electronic communication, specifically those that use or store information from EU users’ electronic equipment. The following are a few examples of such entities: Website owners Users of online tracking tools Telephone/internet/fax marketers Communication service providers Owners of publicly available directories Publicly available wireless network operators Internet users located within the EU Internet users, mainly those browsing within the EU, will see changes in service policies and the way their communication data are being handled. Depending on the final text of the ePR they could see a significant reduction in popups and advertisement spam, though critics worry the ePR might block their access to certain international sites or cause even more spam. Member states Member states will likely see national legislation in the framework of the ePrivacy directive replaced by the ePR articles, in a similar manner to that experienced in the transition caused by the GDPR. Data protection authorities will have to carry out the regulatory and supervisory tasks associated with the new law. What will the ePR change? From Directive to Regulation First of all, the ePR will replace the current ePrivacy directive. The difference between a directive and a regulation is that a regulation is directly applicable across all member states, while a directive just provides a framework for member states to make their own legislation for implementation of the directive. This means that once the ePR becomes applicable, its articles will be instantly enforceable in all member states without the need of any action on the part of member state governments. Fines Secondly, ePR carries with it the same possible fines that the GDPR does. This means fines of up to twenty million euros or 4% of total annual global turnover, whichever is the highest, will be possible for certain ePR breaches. A point of note is that member states have been given some flexibility as to when to fine in cases of non-compliance.[3] This makes the ePR an especially important piece of legislation to get right for organizations that fall within its scope, even more so for those that have not yet taken the steps toward GDPR compliance. GDPR Consent A good indication of how the ePR is supposed to complement the GDPR is the borrowing of terms like ‘consent’ and the fines from the GDPR. Articles in the ePR mentioning consent refer to the GDPR criteria on what constitutes consent. [4] The GDPR requirements for consent, in a nutshell, require consent to be freely given, informed, specific, unambiguous and be given by a clear, affirmative action. [5] This means that ‘Passive’ consent (opt-out, like pre-ticked consent boxes on websites) is no longer sufficient. Furthermore, the end user must be able to withdraw his/her consent at any time. These criteria will apply everywhere consent is mentioned in the ePR. Cookies and other tracking technologies Cookies are small files that gather data on the device they are stored on, the function of which depends on the type of cookie. Different types of tracking technologies exist, however for reasons of practicality they shall be collectively referred to hereunder as ‘cookies’. Currently, visiting a website that makes use of cookies will often result in the visitor being assaulted with consent popups. Some of them are quite subtle, while others will block the entire screen or in some cases even deny access, unless the use of cookies is agreed to. This can quickly get annoying and will often lead to users just hammering the accept key, without reading what they are consenting to. The GDPR changes to consent seem to only have made this problem worse, adding privacy policy updates and explanatory messages to the mix. The ePR aims to heavily reduce this ‘consent fatigue’, though if and how exactly it will accomplish that is a subject that is heavily debated and lobbied. The current version of ePR prohibits the use of cookies, unless: GDPR compliant consent has been given by the user; The cookies are non-Privacy intrusive (purely analytic); It is necessary for transmitting an electronic communication; The cookies are there to improve browsing experience (shopping carts etc.); For a user-requested service; It is necessary for establishing or maintaining a network connection; Necessary for security, fraud prevention or to detect technical faults; or There is cause to locate the device because an emergency number has been dialled. Note that these exceptions are subject to additional criteria, like time limitations, notification of users on data collection and updates, the anonymization of statistical data, and granting users the possibility to turn off automatic updates.[6] Of significant importance here is the effort to distinguish between different kinds of cookies. An earlier draft of the ePR also included an article requiring cookie consent preferences to be managed through the users’ internet browser settings (article 10). This version of the article was later scrapped, following heavy criticism pointing out technical implementation and liability concerns. ~~This does not mean, however, that there will not be a similar article in the final text of the ePR. This remains one of the areas that is likely to change, and therefore warrants attention.[7] What will most likely remain, is the aim of reducing the amount of cookie consent spam and the requirement to provide the user with more advanced cookie- settings, in a clearly visible, transparent and easy to understand manner. Metadata from electronic communications Metadata from electronic communications is information derived from electronic communications, other than the actual content of those communications; like the time a phone call was made or the IP address of a computer that just sent a chat message through a communication server. This type of information can be as sensitive as the content of the communication itself. The lion’s share of this metadata is found nowadays in online communications that take place through ‘over the top’ (‘OTT’) communication services. These OTT are entities that offer communication services through the users’ internet connection. Examples of these are internet telephony services like skype and instant messengers, like WhatsApp. The ePR extends the privacy protection of the directive it replaces to these OTT, as it currently only covers the more traditional telephone marketers and services. The use and storage of this metadata by electronic communication networks and services is only allowed when the ePR allows it, specifically in the following cases: The user has given GDPR compliant consent; Necessary for the transmission of the communication; Necessary for security reasons or for detecting technical faults; Necessary for detecting and removing child pornography; Necessary for network management/optimization if this cannot be achieved with anonymized data; For billing purposes or to prevent fraud; In case of an emergency or to protect the vital interest of an individual; Upon request of a competent authority; For research/statistical purposes if in accordance with EU/State law; or Stored data is anonymized or deleted. As with cookies, similar restrictions apply to these exceptions.[8] Direct marketing and unsolicited communications The ePR gives a very broad definition of the term ‘direct marketing’: “any form of advertising by which a natural or legal person sends direct marketing communications directly to one or more identified or identifiable end-users using electronic communications services’’ ePR forbids this direct marketing toward individuals, unless prior consent has been acquired. An exception is possible in the case of emails, if the individual who receives the mail has bought a product or service from the organization before, as long as they are given the opportunity to object to such messages. Further clarification has been given that marketing that is not directed at or directly sent to a specific individual, falls outside of the term ‘direct marketing’. So advertisements on a website that do not make use of an individual’s data are allowed. Unsolicited calls Providers of communication services will have to put measures in place to prevent their users from being called by anonymous numbers or calls being forwarded to them by third parties.[9] Additionally, direct calls for marketing purposes are no longer allowed while hiding their contact number. Member states are given the option to add additional requirements to this, for example requiring the use of an identifiable number prefix for these type of calls[10] When can we expect the ePR? The complexity of the ePR and the many issues arising from that, combined with lobbying efforts from interest groups have kept the ePR back and it currently looks like it still has a long road ahead. To arrive at an official finalized version of the ePR, the EU Commission, Parliament and Council have to come to an agreement in what are called trilogue negotiations. However, the EU organs have not decided on their negotiation position yet. Further delay will be caused by the upcoming EU Parliament elections in May, during which no negotiations will take place, and after which the position of the Parliament will have to be reassessed. When the negotiations eventually do result in a finalized text, this will then be published in the official EU journal, shortly after which (usually 20 days) the regulation will enter into force . Note that entry into force does not mean that the regulation becomes applicable yet. The current version of the ePR includes a 24 month implementation period, though this period could still be modified. Only after the implementation period has expired do the provisions of the ePR become effective.[11] All of this considered means that the ePR is unlikely to become applicable before 2022. So why pay attention to ePR now? Keeping up to date on the developments and discussions around ePR and the data protection issue in general will be important for any business wishing to be active in the future online communication market. While ePR is still a way off, it is a complex piece of legislation broadening the scope of another complex piece of legislation, the GDPR, and both of them carry heavy fines. Implementation of the GDPR has proven hard and many have not taken the steps towards compliance yet. These businesses will be doubly risking once the ePR hits. Businesses considering re-design of their websites should take the ePR into consideration to ensure that their websites are sufficiently flexible to allow full compliance with the ePR. As for end users, it remains to be seen whether the ePR will achieve its aims of offering increased privacy protection with reduced spam, or if we are just in for the next generation of notification banners. For queries or further information on this subject, please email : [email protected] [1] Brussels, 22 February 2019 (OR. En) document no. 6771/19 [2] Regulation (EU) 2016/679 [3] Article 23 ePR, March 2019 draft [4] Article 4a ePR, February 2019 draft [5] Article 4(11) GDPR [6] Article 8 ePR, February 2019 draft [7] Article 10 ePR, October 2018 draft [8] Article 6,7,8 ePR, February 2019 draft [9] Article 14 ePR, February 2019 draft [10] Article 16 ePR, February 2019 draft [11] Article 29(2) ePR, October 2018 draft

Cyprus has introduced the General Healthcare System (GHS) that will cover its entire population. The GHS is a modern, patient-centric healthcare system with the aim of delivering equal and quality healthcare services to beneficiaries. The Beneficiaries of the GHS are: -          Citizens of the Republic of Cyprus -          European Union (EU) citizens who are working or have a permanent residence permit in the Republic of Cyprus -          Non-EU citizens who have permanent residence permit in the Republic of Cyprus or have the right of equal treatment in the social insurance sectors. -          Refugees and Persons with status of supplementary protection. -          Beneficiaries' Dependents of the above mentioned categories. The first stage will come to force on 1 June 2019 with the introduction of outpatient healthcare, which includes the provision of healthcare services by personal doctors and outpatient specialists, pharmacist and laboratories. The second and final stage will come to force on 1 June 2020 and will introduced inpatient healthcare and services, services offered by allied health professionals (clinical dieticians, occupational therapists, speech pathologies, physiotherapists, and clinical psychologists), nurses and midwifes, the accident and emergency departments, ambulance services and medical rehabilitation services. The Contributors' categories to GHS are: -          Employees -          Employers -          State -          Self-employed -          Pensioners -          Individuals Income-earners (i.e. Director or other fees, rents, interests, dividends) that are tax residents of Cyprus irrespective of being domiciled or not -          Government Officials -          Persons responsible for the payment of remuneration to Government Officials The contribution rates for each of the above categories are: Contributors Categories First Phase (1/3/2019-28/2/2020) Final Phase (As of 1/3/2020) Employees 1,70% 2,65% Employers 1,85% 2,90% State 1,65% 4,70% Self-employed 2,55% 4,00% Pensioners 1,70% 2,65% Individuals Income earners (i.e. rent, interest, dividends) * 1,70% 2,65% Government Officials 1,70% 2,65% Persons responsible for the payment of remuneration to Government Officials 1,85% 2,90%   * This applies to all tax resident individuals irrespective if they are domiciled or not. Maximum amount of Income where GHS is calculated is €180.000 per year.      

1. INTRODUCTION  The Tax Department has announced in October 2018 its intention to terminate the previous tax practice in relation to the benefits in kind, and instead provide clear guidelines as to the proper valuation of the benefits in kind, for the purpose of consistency, clarity and uniformity, clearing any ambiguities. The broad definition of the Article 5 of the Income Tax Law in relation to the tax treatment of the benefits in kind, necessitate for a change as the previous tax practice was leaving room for the taxpayers to define and calculate the value of the Benefits in Kind in accordance to their discretion, allowing a more relaxed approach. Based on the guidance, clear provisions for the valuation of the benefits in kind are set out, applicable as from 01.01.2019. Nevertheless, the subject provisions may be applied for previous years as well. 1.     DEFINITIONS AND APPLICATION Benefit in Kind ("BIK") is considered to be the benefit that is, or is deemed to be, granted in connection with any employment or the holding of an office. The benefit can be in the form of cash or any other cash equivalent received under an employee - employer relationship, or by a connected person[1] of the employer, or by third parties. The benefit is also applicable to self-employed persons, but the tax treatment will not be covered in the present brochure.             I.        Application The benefits in kind apply to the below individuals: Ø    Employees: With or without employment contract Under a part time or full time employment Existing or former employees Ø    Individuals, who are members of the family / household of the employee   Ø    Individuals who hold or considered to hold an office: Directors Individuals who exercise duties similar to the Directors' Individuals who exercise control            II.        Categories of benefits in kind Benefits related to the use of cars Benefits related to accommodation Other benefits 2.     ANALYSIS OF CATEGORIES OF BENEFITS IN KIND               I.        Benefits Related To the Use of Cars A BIK related to the use of cars arises where there is a usual element of private use as defined below: The car is at the disposal of an individual, or; The car is used on non-working hours, or; The car is not kept at the premises of the employer during the night or the weekends, or; The car is used for private purposes; The BIK does not arise to employees who are drivers, messengers, distributors or other persons, for whom the use of the car is necessary for the execution of their duties, provided that they use the car during working hours. The three types of benefits in kind related to the use of cars are as follows: a.    Use of saloon car belonging to the employer b.    Reimbursements / use of cars belonging to the employee, for business purposes c.    Use of commercial car (van) belonging to the employer a.    Use of saloon car belonging to the employer A BIK arises where there is a usual element of private use and its value is calculated as follows: b.   Reimbursements / use of cars belonging to the employees for business purposes Reimbursements for the use of cars belonging to the employees which are used for business purposes are divided into the three following categories: Reimbursement for the wear & tear of the use of cars Reimbursement for both the wear & tear of the use of cars and the fuel expenditure; Reimbursement only for the fuel expenditure; The valuation of the BIK is further analysed in the below diagram: Conditions for the use of the "kilometres travelled" basis In the case that the employer compensates the employee on a "kilometres travelled" basis, then the compensations received by the employee are not considered BIK, if the below conditions apply: Restriction If an individual receives multiple reimbursements either from the employer, or a related party of the employer, or multiple employers (if the individual has more than one employment) in relation to the use of private car or/and fuel expenditure, the deduction of 50% on the reimbursement or the € 1.500 deduction may only claimed once (i.e. in respect of only one reimbursement). c.    Use of commercial car (van) belonging to the employer Commercial car (van) for tax purposes is considered to be: the vehicle that is manufactured for transportation of goods (rather than for transportation of persons), and with maximum weight 3.500 kg Benefit is raised from the use of commercial cars in the instance that such use is being made for private purposes. The BIK is valued at the fixed amount of €500 per year, regardless of the type, model or year of manufacture/registration of the relevant commercial car.            II.        Benefits related to accommodation The provision of assets to the employee when they belong to the employer and/or leased and/or rented by the employer, can be considered as benefits in kind. The private use of the below assets, falls within the scope of benefits related to accommodation: Accommodation Furniture Boats Aircrafts Machinery The BIK arises: On the date that the individual moves into the property, if the benefit is related to immovable property On the first day at which the asset is put to the disposal of the individual, if the benefit is related to assets other than immovable property The annual value of the benefits in kind for the use of assets applies for as long as the asset is at the disposal of the beneficiary and is determined as follows: Deductions: The amount paid by the employee in relation to the use of the assets (rent/lease/bills or other expenses) is deducted from the calculation of the BIK.  III.         Other benefits Any other BIK that does not fall within the Use of Car or Accommodation categories mentioned above, is considered to fall into this category. In general, the value of the benefits in kind in this category is the market value (normal selling price less discounts provided to the general public) reduced by the price paid by the employee. However, the guidance issued by the Tax Authorities provides for specific treatment for the following cases: Benefit Explanations Goods/Services which are produced/provided in the business course of the employer, provided to the employee BIK is the difference between the market value of the goods/services, less any amount paid by the employee (subject to a conditional first €500 exemption) Goods/Services which do not form part of the business of the employer or of a party related to the employer BIK is the higher of: the market value of the good/service less any amount paid by the employee, or the acquisition cost of the employer for the good/service less any amount paid by the employee Provision of assets (tangible/intangibles) The value of the BIK depends on whether the asset "forms part of the business activity of the employer" or not. Repayment of personal expenses: BIK is the price that the employer paid plus any associated costs, subject to certain restrictions Business trips No BIK arises provided that the daily amount paid is up to €250, or if the actual costs are paid.                                                                                              A "per diem" payment in excess of the business trip expenses is considered to be BIK. If the trip is of excessive private purpose, the total amount of the business trip is considered to be BIK. Meals No BIK arises if the meals are provided to all employees or if the meals are provided in the course of a business event of the employer. In all other cases the BIK is valued as the total cost of the employer Gifts No BIK arises if: the gift does not exceed the amount of €300, and the employee only received one gift per year, and the employer does not claim the cost of the gift as an allowable deduction in his tax computation Performance related rewards are not considered to be BIK if the employer will not claim them as allowable deduction Costs related to the acquisition of tools BIK equals to the cash provided for the acquisition of tools necessary for the executions of the employee's duties Vacations, various presents and motive awards BIK equals to the cost of the employer for vacations of the employee, his family or both. Additionally paid vacations / recreation expenses during a business trip are taxable BIK equal to the costs borne by the employer   3.     EXEMPTIONS There are various cases where the employee receives a benefit which is not considered to be taxable as a BIK. It is important however to stress out that as a general principle, exemptions apply only to the extent where the payment or reimbursement to the employee is made against actual costs supported by payment receipts. Exemption Explanations Computer Equipment Exempted, unless the employer is a provider of internet services, where the provision of free internet services and other free subscriptions is taxable Telephone services The payments / reimbursements made in respect of the use of telephones are exempted only if supported by the relevant payment receipts. However, lump sum cash payments are taxable Childcare facilities Exempted, if the childcare services provided by the employer are within the workplace Goods consumed in the workspace Exempted, if the goods and services are manufactured / produced / provided by the employer or/and a connected company Newspapers Exempted, if the subscriptions to newspapers or/and magazines or/and websites are related to the activities of the employer Awards for long-term service Exempted, if the award does not exceed the maximum amount of €100 per year of service, and no any similar award was given to the receiver in the last 10 years Subscriptions to professional bodies Exempted, if the professional capacity of the employee is considered to be necessary for the execution of his duties, and for the benefit of the employer Christmas parties and events Exempted, provided that the cost of the event per employee is reasonable Uniforms and specialized attire Exempted, when necessary for the execution of his duties. Any payments made by the employer related to the cleaning of the uniforms, are also not taxable Transportation to the workplace Exempted, if the employer provides specific vehicles for the transportation of the employees, from specific gathering points, to the workplace Recreation areas Exempted, if allowed to all employees. The payment for a club membership subscription is not taxable, if the membership is for the benefit of the employer and not the employee Relocation expenses For the employee and his family. The exemption is the lump sum of €9000 or the amount of the actual expenses incurred, if these are supported by the relevant invoices Training Courses/scholarships to employees Exempted if the courses are necessary for the execution of the duties of the employee, and the expenses include only the course fees and the cost of the necessary books and materials. Taxable BIK only arises, if the main purpose of the training is for the benefit of the employee                                               Exemptions do not apply where the relevant BIK takes the form of cash. Any payment receipts which are reimbursed must be kept by the employer for future assessment carried out by the Tax Department. 4.     TAX TREATMENT The benefits are taxed in accordance to Article 5 of the Income Tax Law, by which the value of the benefit is added to the income of the individual. The value of the benefit is calculated according to the guidance as analysed in the present brochure. The BIK added to the income of the individual is taxed under the progressive tax bands, and the respective tax is withheld via the Pay As You Earn system on a monthly basis. The individuals are responsible for informing the employer for any benefits in kind received. Failure to declare the benefits in kind entails to additional taxation in accordance to the Assessment and Collection of Taxes Law of 1978. 5.     HOW KINANIS LLC CAN ASSIST Kinanis LLC is in a position to assist you with the provision of the following services: Assistance to the computation and the tax treatment of benefits in kind Payroll and Accounting Services Completion and submission of annual tax returns Assistance to tax and legal related matters 6.     DISCLAIMER This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss. March 2019 [1] (a) An individual is connected with another individual if the first individual is the spouse or relative of the second individual, or the spouse if a relative of the second individual, or relative of the husband or wife if the second individual; (b) a person is connected with any person  with whom he is in partnership, and with the husband or wife or relative of any individual with whom he is in partnership; (c) a company is connected with another company - (i) If the same person has control of both. or a person has control of one and persons connected  with him  have control of the other; or (ii) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting or the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected, (d) a company is connected with another person if that person has control of it or if that person and persons connected with him together have control of it (e) any two or more persons acting together to secure or exercise control or a company shall be  treated in relation to that company as connected with one another and with any person acting on the directions or any of them to secure or exercise control  of the company.

In order to harmonize the Acquis Communautaire on the Taxation of untapped and undeveloped plots of land, the Cyprus Government enacted, on 03/11/2017, relevant legislation for the imposition of 19% Value Added Tax (VAT) on these properties, with a date of enforcement being 02/01/2018. The relevant legislation refers to plots/pieces of land offered and/or provided for construction for economic purposes. In order to harmonize the Acquis Communautaire on the Taxation of untapped and undeveloped plots of land, the Cyprus Government enacted, on 03/11/2017, relevant legislation for the imposition of 19% Value Added Tax (VAT) on these properties, with a date of enforcement being 02/01/2018. The relevant legislation refers to plots/pieces of land offered and/or provided for construction for economic purposes. This Legislation limits the imposition of VAT on certain pieces of land. In particular, under the Law, land that is taxed may be considered to be a piece of land intended for the construction of buildings, however, this excludes, for example, livestock zones, environmental protection zones, archaeological and rural areas. It is of particular interest that in land containing an incomplete building or a building that has been allocated for demolition the land is considered a plot intended for building construction purposes.  The same applies in cases where the building situated on the plot does not exceed 10% of the designated area. Therefore, in the aforementioned cases the intended Purchaser, as reflected by the Law, buys the land rather than the building.  Nevertheless, all cases and/or purchase of land/property should be considered individually and independently. A basic prerequisite for imposing VAT on plots is that the seller of the plot is liable to the VAT Authorities.  What does the notion of a taxable person mean? It is a person which is registered with VAT and/or carries out a business for VAT purposes. The Legislation regarding Companies clearly provides that in the case where land constitutes an asset of a Company its disposal will always be considered as a taxable transaction, irrespective of the Company’s type of economic activity. The same, however, could not be claimed for the sale of land by individuals and/or persons which are not registered for VAT, due to the vagueness of the Legislation. Each case has to be assessed and evaluated separately.  The particulars in each instance will be evaluated by the Tax Department and a decision will be made as to whether the sale will be subject to VAT. The parameters that will be considered are:  The number and scale of the sales The separation of land into plots The period during which the transactions are carried out Income from these types of sales? Whether similar methods were applied to those      used by a Land Development Entrepreneur? The initial intent to purchase the immovable property A typical example of an opportunistic sale of land is where the sale is for non-profitable purposes and there is not continuous commercial activity in real estate sales (where sales are undertaken every 7-10 years). If the same person, however, were to sell another plot in a shorter period of time, could it be assumed that he is pursuing an economic and/or commercial activity? In this case, would the Tax Commissioner ask for the payment of VAT for the first sale? Probably yes! According to the new Legislation, it is at the discretion of the Tax Commissioner to decide and answer these questions in the light of the parameters mentioned above. In addition, the Tax Commissioner will decide whether to retrospectively request the taxation of 19% on the sale of the first plot. It is worth mentioning how the amendment of the Legislation has put in place certain transitional provisions concerning the timing of the transactions in particular, the levying of VAT that is exempted when the delivery of undeveloped building land has either been transferred to the Purchaser before 02/01/2018, or a Sales Contract has been submitted to the Department of Lands and Surveys or to the Tax Commissioner before the aforementioned date. In conclusion, could one assume that imposing 19% VAT on undeveloped buildable land treats all citizens and businesses equally? In my view it favours and promotes the sale of property by Companies that are active in the field of property sales. Someone who wishes to purchase land for the purpose of building a first house will prefer to buy and construct their residence from a Company that operates in this area in order to benefit from the Levy of 5% VAT on the total value of the sale. Otherwise the purchase of land and construction of a building from a different Company and/or person may lead to the purchase of land with 19% VAT, and 5% VAT will be imposed on the construction of the house. Furthermore, the owners of a single piece of land will be able to more easily carry out the procedures for selling their property, since the Legislation protects them against the imposition of such taxation. In the current situation, as the new Legislation is progressing, for the purpose of protecting the Purchaser and/or even the Seller, meetings with the Tax Commissioner should be carried out in order to determine the enforcement of VAT, or not, from the sale of a plot. Both parties must act together to ensure the right conditions and obligations, in order to defend their rights and avoid unnecessary penalties, costs and future conflicts between themselves and the Public Authorities. The content of this article intends to provide a general guide to the subject matter.  Specialist advice should be sought on each particular case. For any further information, please contact Machi Kleanthous. 

The beneficial ownership of the income concept (“the Concept”) is nowadays a material aspect affecting the eligibility of the taxpayers to claim treaty benefits. The Concept is defined by the OECD, however, it is not very specific leaving room for Tax Administrations of each jurisdiction to adopt a more relax or strict approach. In either case the Concept is a weapon to the tax authorities which enables them to attack aggressive tax planning by refusing granting treaty benefits to the entities that are not beneficial owners of the income. The most recent example is the new interpretation of the Russian Federal Tax Service (“FTS”) issued on 12th of April 2018 which followed a strict approach as of the concept. Given the above, clients should examine the position of their companies and take the necessary measures to comply with the new requirements of Russian Federal Tax Service. This should not be limited to those clients that obtain treaty benefits from Russia but to all clients that obtain treaty benefits as the “concept” can be found in all double tax treaties. A.    DEFINITION OF BENEFICIAL OWNERSHIP BY OECD In the OECD commentary on Article 10 of the Model Convention, it is stated that the term “beneficial owner” should not be used in the narrow technical sense but should be understood in light of the object and purposes of the Convention, including avoiding double taxation and the prevention of fiscal evasion and avoidance. The Commentary also states that in the cases of an agent, nominee, Conduit Company acting as a fiduciary or administrator, the direct recipient of the dividend is not the “beneficial owner” because that recipient’s right to use and enjoy the dividend is constrained by a contractual or legal obligation to pass on the payment received to another person. Such an obligation will normally derive from relevant legal documents but may also be found to exist on the basis of facts and circumstances showing that, in substance, the recipient clearly does not have the right to use and enjoy the income. The Commentary stresses that the beneficial ownership concept should be applied only in relation to passive income such as dividends, royalties and interest. B.    DEFINITION OF BENEFICIAL OWNERSHIP BY RUSSIAN FEDERAL TAX SERVICE In an effort to interpret the meaning of actual right to use/or dispose the income the FTS issued a letter in 2017 [1], explaining that the beneficial owner of income can be determined through a limited list of criteria: Independence of directors in decision-making; Power to dispose of the income; Availability of personnel, office and related general administrative expenses; Use of the income in entrepreneurial activities (enjoying the economic benefits from the income); Absence of any legal or actual obligations to further transfer the income, including the systemic nature of any transitory (back-to-back) payments; The FTS noted that the beneficial ownership concept applies to all types of income. 2018 In 2018, the FTS provided further guidance [2] as to the criteria which were initially analysed in 2017 which has now led to an increase in the requirements for a foreign entity to qualify as the beneficial owner of the income. The new criteria for the beneficial owner of income are can be summarised as follows: Sufficient level of substance The FTS guidance states that a foreign company should be in the position to demonstrate the right to use and dispose the income independently (as per the requirements of the 2017 letter) AND also to demonstrate that the foreign company operates as an independent business. If no independent business is performed then it is an indication of a conduit company. According to the new guidance a conduit company is a company which has the following characteristics: Has no independent operating activity. Absence of non-Russian Income. Principle purpose is to redirect income to shareholders or group entities. The company takes minimum financial and commercial risks. Its employees perform minimum functions. Minimum administration costs. No significant income other than dividends and interest from related entities. According to the FTS guidance, the below do not constitute valid arguments to prove that a company operates as an independent business: Holding and financing activities are not considered as operational activities. The investing in the shares of a company without involvement in the operations of the subsidiary do not constitute active business. Minimal personnel cost doesn’t not evidence the employment of qualified staff. The only administration expenses of the company are for the compliance with the local regulations. This is an indication that the company does not operate independently. Genuine business activities This approach focuses on the business purpose and nature of the transactions. More specifically, in order for a company to qualify as the beneficial owner of the income, the Russian taxpayer has to justify the need for involving a foreign company in their business structure and operations. Further, evidence should be provided that the involvement of the foreign company was reasonable and also to present the associated business risks. In case the Russian taxpayer is unable to demonstrate the business rationale for involving a foreign company the tax authorities have the right to deny treaty benefits and also to reclassify the payment, for example from debt to equity. Disclosure Requirements The new interpretation enforces extensive disclosure, since the burden of proof in relation to the qualification of the beneficial ownership concept, has shifted from the Tax Authorities to the taxpayers, since all the above-mentioned criteria necessary to be met, should be proved and justified by the taxpayer in order to receive the treaty benefits. C.    CONCLUSION The new approach mainly focuses on attacking the holding, treasury, licensing, and intermediary group financing companies in an effort to extinguish all the previously adopted tax planning practice followed with the purpose of tax avoidance and tax minimisation. On top of this, the fact that this is a change in interpretation rather than a formal amendment to the Russian Tax Code, means that this approach may apply to transactions for the past three years that are still open for tax audit. It is evident through the years, that the Russian Tax Authorities follow an aggressive approach. Therefore, there is need for a more in-depth and sophisticated analysis of the existing structures, in order to reassess the viability and the corresponding tax risks based on the current tax developments. Our Tax Department will be able to prepare a diagnostic review and propose possible solutions to your structure. D.    HOW KINANIS LLC CAN ASSIST Kinanis LLC is in a position to assist you with the provision of the following services: Reviewing your existing structures and report with suggestions on the possible risks and possible solutions based on the new developments Tax Advice on possible restructuring Assistance in the creation of substance and relocation of personnel to Cyprus E.     DISCLAIMER This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss. November 2018 Authors MARIOS PALESIS, Manager – Tax Department, [email protected], Kinanis LLC                          ARTEMIS KYRIAKOY,  Tax Advisor – Tax Department, [email protected], Kinanis LLC Our Firm Kinanis LLC, a law and consulting firm, is one of the leading and largest business law firms in Cyprus and advises for over 35 years the international investor and private clients on all aspects of law, tax and accounting. Kinanis LLC absorbed the business of its shareholders which are in the legal and consulting profession since 1983, with local and international dimensions.  Experience and practice over the years brought forward the need for transformation from a traditional law firm to a more innovative multidisciplinary firm providing a full range of services combining law and accounting with the extensive expertise in corporate and tax advice to ensure that our clients will obtain the best possible spherical advice adopting the principle as to the services offered "All in one place", so that the client will find a quick, correct and efficient solution to its daily legal, accounting and tax issues in a trustworthy environment.  This combination of legal, accounting and tax services through our well qualified personnel and our involvement and participation in international transactions over the years, have established our firm as one of the key players in the field. Our involvement in international financial transactions has also provided us with the extensive expertise in representing groups, corporations, funds as well as the private client. The firm is staffed with around 80 young, energetic and ambitious professionals, including lawyers, accountants and administrators who provide prompt, efficient and high quality services and who are capable of meeting the current demanding challenges of the local and international business environment. We always look to give solutions in a simple and as possible quick way focusing on the needs of each client trying to anticipate the issues before becoming a problem. Kinanis LLC Lawyers’ Limited Company 12 Egypt Street, 1097, Nicosia P.O. Box 22303, 1520 Nicosia, Cyprus Tel: + 357 22 55 88 88 – Fax: + 357 22 66 25 00 E-mail: [email protected] – Web site: www.kinanis.com KINANIS is the service mark through which Kinanis LLC of Cyprus, Kinanis Fiduciaries Limited of Malta and their affiliated companies are conducting business each of which is a separate legal entity. [1] Letter СА-4-7/9270@ of 17.05.2017 [2] Letter CA-4-9/8285 @ of 28.04.2018

A. General The below mentioned comments relate only to companies which are tax residents of Cyprus and refer to the worldwide income these companies may have. Precise reference to relevant provisions of the Income Tax Law or Special Defence Contribution Law, examples and definitions of terms used may be found in our separate extensive reports:- Read more

ICOs have recently exploded and become an increasingly popular method of fundraising for start - ups and other companies with the intention to fund innovative projects based on the Blockchain technology. Read more...

In 2011, in response to public concerns over large multinational companies exploiting differences in national tax rules, the European Commission published a proposal for a Common Consolidated Corporate Tax Base (CCCTB) to unify tax rules throughout the EU. Individual countries would still be free to set their own tax rates, but anomalies between countries in terms of deductibility of expenses and recognition of income would be eliminated. The initial proposal met with considerable political resistance, particularly from the United Kingdom, and was not pursued. In October 2016, perhaps in anticipation of less resistance once Brexit was completed, the Commission issued a revised proposal to replace the earlier one. It aims to introduce a set of common rules for determining the tax base of companies with operations in several EU Member States and tax them in the country where their revenues are generated, and remove the anomaly of large companies paying what the public perceives as disproportionately low amounts of tax in countries where they have significant activities.  Read more ...

On 30th June 2017, the European Parliament and the European Council published in the Official Journal of the European Union the Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “New Prospectus Regulation”). Read more...

Since 2004, Cyprus is a full Member State of the European Union. This fact, along with its good strategic location, highly skilled human capital, excellent infrastructure, reliable communications, relatively low cost of living, sound and stable legal system, warm climate and hospitality of its people, are some of the advantages which contribute to Cyprus’ continuous development as a competitive international financial, tourist, retirement and relocation centre. Read more...

Introduction Via the 2018 Budget Laws, the Maltese Government seeks to introduce new rules regarding deductions of notional interest on risk capital. The aim of the Notional Interest Deduction (NID) is to achieve neutrality between debt and equity financing. Such rules come into effect as from the year of assessment of 2018. Also in light of the international tax measures such as BEPS, the NID seeks to bring into line the tax treatment of the cost of equity with the cost of debt, since this latter is a tax-deductible expense. With this measure, debt financing is put on the same level playing field with equity financing, as entities now have the option to claim a deduction of a notional interest against their income. TAX UPDATE NOTIONAL INTEREST DEDUCTION A. Introduction Via the 2018 Budget Laws, the Maltese Government seeks to introduce new rules regarding deductions of notional interest on risk capital. The aim of the Notional Interest Deduction (NID) is to achieve neutrality between debt and equity financing. Such rules come into effect as from the year of assessment of 2018. Also in light of the international tax measures such as BEPS, the NID seeks to bring into line the tax treatment of the cost of equity with the cost of debt, since this latter is a tax-deductible expense. With this measure, debt financing is put on the same level playing field with equity financing, as entities now have the option to claim a deduction of a notional interest against their income. B. Who can claim the Notional Interest Deduction? Maltese registered companies as well as partnerships have the option to claim a deduction of notional interest against their chargeable income. The option also extends to Malta permanent establishments of foreign companies. C. Calculating the Notional Interest Deduction In order to determine the deductible NID, one has to apply the following formula: NID = Notional Interest Rate X Total Risk Capital Wherein: Notional Interest Rate = the risk-free rate set by reference to the current yield to maturity on Malta Government Stocks with a remaining term of approximately 20 years, plus a 5% premium; Total Risk Capital = the share capital including any share premium, interest free debt, positive retained earnings, and any item reported as equity including contribution reserves, in the entity’s financial statements as at financial year end. If the NID is claimed by a Maltese permanent establishment of a non-Maltese resident undertaking, the total risk capital is taken to be the capital attributable to the permanent establishment. In addition, it is important to take into account the following: Capping of NID: There is an annual capping at 90% of the chargeable income. Excess NID is carried forward and can be deducted against chargeable income derived in future years; Deemed Receipts of NID: When a company or partnership claims a NID, the shareholder or partner is deemed (for tax purposes) to have received the corresponding notional interest income from the company or partnership; No further tax: Dividend distributions made out of profits relieved from tax through a NID claim would not be chargeable to further tax at the level of the shareholder; Anti-Avoidance Rules: The rules contain anti-avoidance rules to curb abusive application of the NID. D. CONCLUSION The NID seeks to bring on par the tax treatment of debt and equity financing, and hence facilitating and incentivising financing via equity. E. DISCLAIMER  This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case.  No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. November 2017

Case C-28/26 - Examines the right of a holding company to deduct input VAT on services acquired in the interest of its subsidiaries where those services are offered to its subsidiaries with no consideration. On 12 January 2017, the European Court of Justice delivered its judgment in the case of MVM (C-28/16), concerning the right of MVM to deduct input value added tax (VAT) paid in relation to services procured in the interest of its subsidiaries. This case re-iterates the principles that need to be considered in order to determine whether the involvement of a holding company, in the management of its subsidiaries, without charging those subsidiaries either for the cost of the services procured in the interest of the group of companies as a whole or in the interest of certain of its subsidiaries, nor for the corresponding VAT, constitutes an ‘economic activity’, within the meaning of the Council Directive 2006/112/EC of 28 November 2006 (EU Principal VAT Directive). A. Facts of the case MVM is a Hungarian State-owned commercial company active in the energy sector. It leases power plants and fibre optic networks as well as being the owner of a number of companies which mainly generate or sell electricity. MVM was responsible for the strategic management of the group (corporate group under Hungarian law, not a VAT Group). For that purpose, it acquired legal, business-management and public-relations services for the benefit of: itself, since those services were provided in relation to its leasing of power plants and fibre optic networks, subject, as such, to VAT; the entire group; and each of the members of the group. MVM deducted the VAT relating to all of those services. However, even when those services were in the interest of the entire group or related directly to the taxed activities of the other members of the group, MVM did not, save for a few exceptions, charge its subsidiaries for those services. Nor did MVM impose a general charge on the group for its strategic management, with the result that it carried out that activity free of charge. During a tax inspection, the Tax Authority of Hungary took the position that VAT relating to the legal, business-management and public-relations services could be deducted only to the extent to which MVM had used those services in order to effect supplies of goods or services. B. Questions referred to the European Court of Justice (ECJ) by the Supreme Court: May a holding company which plays an active role in the management of certain affairs of its subsidiaries, or of the group of companies as a whole, but which does not pass on to its subsidiaries the cost of the services carried out in relation to its active holding activity or the corresponding VAT be regarded as a taxable person for the purpose of VAT in respect of those services? If the first question is answered in the affirmative, may the active holding company exercise the right to deduct the VAT corresponding to the services used by it which are directly related to the taxed economic activity of some of its subsidiaries, and if so in what way? If the first question is answered in the affirmative, may the active holding company exercise the right to deduct the VAT corresponding to the services used which are in the interest of the group of companies as a whole, and if so in what way? Do the answers to be given to the above questions differ if the active holding company bills its subsidiaries in respect of the abovementioned services as intermediary services, and if so to what extent? C. Judgment of the ECJ C1. No Remuneration - No Economic Activity The Court re-iterated that an activity is, as a general rule, categorised as ‘economic’ where it is permanent and is carried out in return for remuneration which is received by the person carrying out the activity, therefore, only services supplied for consideration by a taxable person acting as such are subject to VAT. The mere involvement of a holding company in the management of its subsidiaries, without carrying out transactions subject to VAT under Article 2 of Directive 2006/112, cannot be regarded as an ‘economic activity’ within the meaning of Article 9(1) of that directive. In the present case, MVM normally received no remuneration from its subsidiaries in exchange for its centralised management of the activities of the group. Thus, in the light of the foregoing considerations, it must be held that the involvement of MVM in the management of its subsidiaries cannot be regarded as an ‘economic activity’, within the meaning of Article 9(1) of Directive 2006/112, such as to come within the scope of that directive. It follows that MVM does not have the right to deduct the VAT paid for the services at issue to the extent to which those services relate to transactions falling outside the scope of Directive 2006/112. C2. Direct and immediate link of the expenses of the company with the taxed activities of the company Further, the court recalled that in order for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction. Therefore, it is irrelevant if the subsidiaries will use the relevant services for their taxed activities or not. It is common ground that, during the period at issue in the main proceedings, MVM engaged in a taxable economic activity, namely the leasing of power plants and fibre optic networks. However, it appears difficult to imagine that the services at issue, namely services procured in the interest of other members of the group and business-management services relating mainly to the acquisition of shareholdings, may have a direct and immediate link with that leasing activity, considered overall, although this is a matter for the referring court to determine. C3. The EU Principal VAT Directive does not provide for the method to be used by Member States for the apportionment of input vat to economic and noneconomic activities. Following the assessment that certain of the services at issue relate to both economic and non-economic activities of MVM, it should be borne in mind that the provisions of Directive 2006/112 do not include rules relating to the methods or criteria which the Member States are required to apply when adopting provisions permitting the apportionment of input VAT paid according to whether the relevant expenditure relates to economic activities or to noneconomic activities. In those circumstances, and in order that taxpayers can make the necessary calculations, it is for the Member States to establish methods and criteria appropriate to that objective and consistent with the principles underlying the common system of VAT. In particular, the Member States must exercise their discretion in such a way as to ensure that deduction is made only for that portion of the VAT that is proportional to the amount relating to the transactions giving rise to the right to deduct. In the case at hand, the Court considers that Articles 2, 9, 26, 167, 168 and 173 of Directive 2006/112 must be interpreted as meaning that, in so far as the involvement of a holding company, such as that at issue in the main proceedings, in the management of its subsidiaries, where it has charged those subsidiaries neither for the cost of the services procured in the interest of the group of companies as a whole or in the interest of certain of its subsidiaries, nor for the corresponding VAT, does not constitute an ‘economic activity’, within the meaning of that directive, such a holding company does not have the right to deduct input VAT paid in respect of those services in so far as those services relate to transactions falling outside the scope of that directive. Source: http://eur-lex.europa.eu/legal-content/EN/TXT/ HTML/?uri=CELEX:62016CO0028&qid=1484829870668&from=EN Author: Demetra Constantinou Manager [email protected] Disclaimer: This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. Our Firm Kinanis LLC, a law and consulting firm, is one of the leading and largest business law firms in Cyprus and advises for over 33 years the international investor and private clients on all aspects of law, tax and accounting. Kinanis LLC absorbed the business of its shareholders which are in the legal and consulting profession since 1983, with local and international dimensions. Experience and practice over the years brought forward the need for transformation from a traditional law firm to a more innovative multidisciplinary firm providing a full range of services combining law and accounting with the extensive expertise in corporate and tax advice to ensure that our clients will obtain the best possible spherical advice adopting the principle as to the services offered “All in one place”, so that the client will find a quick, correct and efficient solution to its daily legal, accounting and tax issues in a trustworthy environment. This combination of legal, accounting and tax services through our well qualified personnel and our involvement and participation in international transactions over the years, have established our firm as one of the key players in the field. Our involvement in international financial transactions has also provided us with the extensive expertise in representing groups, corporations, funds as well as the private client. The firm is staffed with around 80 young, energetic and ambitious professionals, including lawyers, accountants and administrators who provide prompt, efficient and high quality services and who are capable of meeting the current demanding challenges of the local and international business environment. We always look to give solutions in a simple and as possible quick way focusing on the needs of each client trying to anticipate the issues before becoming a problem.

On 1 December 2016, the European Commission has published proposals to improve the Value Added Tax (VAT) environment for e-commerce businesses in the EU. Particularly, the proposed changes, aiming to allow start-ups and SMEs, to buy and sell goods and services more easily online. Specifically, the proposal refers to: The introduction of a single portal (‘One Stop Shop’) through which businesses could account for VAT due on supplies of goods and services in other Member States aiming at the reduction of the VAT compliance expenses of the e-commerce businesses they currently encounter; The removal of the import VAT exemption of €22 for small value consignments entering EU from outside the EU aiming to provide a level playing field to EU businesses; An annual threshold of €10,000 below which businesses selling cross-border could continue to treat sales as though they were domestic, aiming to minimise burdens attached to cross-border e-commerce arising from different VAT regimes; An annual threshold of €100,000 below which businesses selling cross-border will benefit from simpler procedures for identifying where their customers are based; The option allowing Member States to align VAT rates on electronic and printed publications aiming to correct the less favourable VAT treatment of e-publications compared to printed publications. Subject to agreement by the Member States, the proposed reforms could start as early as 2018. A. Ne w rules - expected to be introduce d in 2018 A1. New VAT Rules for sales of services electronically Currently, businesses selling cross-border electronic services have to register in ALL the Member States to which their customers are based, no threshold exists. With the proposed action, businesses selling cross-border electronic services without exceeding a threshold of €10,000 per annum can opt to apply the rules of their home country. This rule simplifies the VAT treatment for a large number of small businesses which can remain out of the Mini One Stop Shop (MOSS) regime, this way. Moreover, this would result to the use of familiar domestic VAT rules regarding the invoicing requirements and record keeping rather than the ones applicable in the Member State of the customer, as it currently applies. Also, small businesses will no longer be audited by each Member State where they have sales, but by the tax administration where the business is located. Another simplification for SMEs selling online services, is the fact that if their yearly turnover remains below €100,000, these companies will only have to collect one proof of evidence to prove their customer’s location. Currently, they are required to collect two pieces of evidence. A2. Equal vat rate for e-books, e-newspapers and their printed equivalents Currently, Member States are allowed to tax printed publications such as books and newspapers at reduced or in some cases zero rates, whereas their electronic equivalents, e-publications, are subject to standard rate. The Commission proposes to grant all EU Member States the possibility to apply the same VAT rates to e-publications as they currently apply to their printed equivalents (possibly reduced rates). B. Ne w rules - expected to be introduced in 2021 B1. New VAT Rules for sales of goods electronically The simplification rules described above for the sale of electronic services are expected to be extended to the online sale of goods by 2021. B2. VAT One Stop Shop portal Currently, online traders engaged in the distance selling of goods are obliged to register for VAT in the EU Member State of their non-business customers. As of 2021, the one stop shop, (similar to the MOSS, currently available for the sale of services electronically) is expected to be extended to the online sale of goods (distance sales). This will be a significant simplification for online traders engaged in the distance selling of goods, since they will be able to handle the VAT obligations across the several member states via the use of an online portal, the “One Stop Shop” by submitting only one simple quarterly return. Consequently, such a reform will significantly reduce the vat compliance cost online traders currently encounter. B3. Abolition of thresholds for imports Currently, import into the EU of packages with value less than €22 per consignment is exempt from VAT. This exemption is expected to be abolished as of 2021. Author DEMETRA CONSTANTINOU Manager [email protected] Disclaimer: This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. Our Firm Kinanis LLC, a law and consulting firm, is one of the leading and largest business law firms in Cyprus and advises for over 33 years the international investor and private clients on all aspects of law, tax and accounting. Kinanis LLC absorbed the business of its shareholders which are in the legal and consulting profession since 1983, with local and international dimensions. Experience and practice over the years brought forward the need for transformation from a traditional law firm to a more innovative multidisciplinary firm providing a full range of services combining law and accounting with the extensive expertise in corporate and tax advice to ensure that our clients will obtain the best possible spherical advice adopting the principle as to the services offered “All in one place”, so that the client will find a quick, correct and efficient solution to its daily legal, accounting and tax issues in a trustworthy environment. This combination of legal, accounting and tax services through our well qualified personnel and our involvement and participation in international transactions over the years, have established our firm as one of the key players in the field. Our involvement in international financial transactions has also provided us with the extensive expertise in representing groups, corporations, funds as well as the private client. The firm is staffed with around 80 young, energetic and ambitious professionals, including lawyers, accountants and administrators who provide prompt, efficient and high quality services and who are capable of meeting the current demanding challenges of the local and international business environment. We always look to give solutions in a simple and as possible quick way focusing on the needs of each client trying to anticipate the issues before becoming a problem.

In the recent case RE: ANTONAKIS ANDREOU & CO LLC, a Supreme Court Judge, in Certiorari proceedings, cancelled a warrant issued against a lawyer and his law firm, for the search of the lawyer’s premises, on the ground that the law firm withheld certain important documents, relating to the alleged commission of serious crimes, by a client of the law firm. In the recent case RE: ANTONAKIS ANDREOU & CO LLC, a Supreme Court Judge, in Certiorari proceedings, cancelled a warrant issued against a lawyer and his law firm, for the search of the lawyer’s premises, on the ground that the law firm withheld certain important documents, relating to the alleged commission of serious crimes, by a client of the law firm.  The Supreme Court held that the search warrant was very wide and did not secure the minimum safeguards, required for the protection of the legal professional privilege, and that conducting a search of lawyers’ premises, should be subject to especially strict scrutiny. The above decision has been welcomed by the Cypriot legal profession, because it has re-affirmed the existence, respect and protection of legal professional privilege in the Republic of Cyprus, and its importance in a democratic society.  View in Publications For further information on this topic please contact Mr. Soteris Pittas at SOTERIS PITTAS & CO LLC, by telephone (+357 25 028460) or by fax (+357 25 028461) or by e-mail (mailto:[email protected]