Cyprus Implements ATAD

In light of EU Anti-Tax Avoidance Directive (ATAD), the Cyprus House of Representatives on April 5, 2019 voted into law (applicable from January 1, 2019) the partial implementation of legally-anti-abusive measures. These measures include the 'interest limitation' rule, the 'general anti-abuse' rule, and the 'controlled foreign companies' rule. The rest two measures stipulated by the EU ATAD (exit taxes and rules to tackle hybrid mismatches) are expected to be implemented in Cyprus by 2020.

The underlying purpose of the Interest Limitation Rule (ILR) is to limit the practice of providing financing facilities to companies (based in high-tax jurisdictions) in low-tax jurisdictions through subsidiaries belonging to the same group of companies. To do so, the interest limitation rule requires that the excess borrowing cost (EBC) which is greater than 30% of taxable income before EBITDA, is not deductible for income tax purposes. As such, it limits the otherwise deductible