Cyprus legalized the MLI Convention

Cyprus legalized the MLI Convention

The MLI was developed by the Organization for Economic Co-operation and Development (OECD) to limit the abuse (double non-taxation, treaty shopping) of the provisions of international DTTs.

On January 22, 2020, the Government of Cyprus ratified the MLI Convention. The document was published in the Official Gazette.

The MLI terms initially offered countries two options to choose from – the so-called Basic Purpose Test (PPT) or Simplified Limitation on Benefit (SLBP).

Cyprus, like most of the participating countries, opted for the PPT option. This option implies minimum restrictions on benefits. The following articles have been approved:

• Article 6 (Purpose of the tax treaty).
• Article 7 (Introduction of the Principal Purpose Test (PPT)).
• Article 14 (Enhancing the effectiveness of dispute settlement mechanisms).

The Principal Purpose Test (PPT) is the item that has the most tangible consequences. According to this principle, the benefit provided under the DTT will not be granted in respect of income or capital if the facts and circumstances give any reason to believe that obtaining this benefit was the main purpose of the transaction itself, which entitles it to it. This introduces the obligation of a reasonable economic business purpose of the operation to obtain tax benefits. The tax authorities will regulate compliance with these conditions.

Improving the effectiveness of dispute settlement mechanisms – Cyprus’s commitment under Action 14 BEPS to provide a minimum standard to ensure that disputes arising from an agreement are resolved in the most efficient manner.

The above is for informative purposes only.  Further professional advice should be sought for each particular case. Our firm does not accept any responsibility for any loss or damage occurring by acting on the basis of this information.