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April 2, 2021

Cyprus law to implement Mandatory Disclosure Rules enters into force

Executive summary

On 31 March 2021, the law (Ν. 41(Ι)/2021, the Law) amending the Law on Administrative Cooperation in the field of Taxation (Law N. 205(I)/2012) was published in the Official Gazette of the Cyprus Republic and entered into force. The Law transposed the European Union (EU) Directive (referred to as DAC6 or the Directive) into domestic law.

The Law entered into effect as of 1 January 2021. However, it will have a retrospective effect for reportable cross-border arrangements concluded on or after 25 June 2018 provided that one of the prerequisite triggering events is met.

The final Cypriot Mandatory Disclosure Rules (MDR) legislation is broadly aligned with the requirements of the Directive with minor differences, as highlighted below.

Further to the Law, guidance notes (in the form of a Ministerial Decree) will be issued by the Cypriot Tax Department (CTD) in the next few weeks to provide clarity over the interpretation of key terms of the Law.

Detailed discussion


The Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation (the Directive or DAC6), entered into force on 25 June 2018.1

The Directive requires intermediaries (including EU-based tax consultants, banks, asset managers, corporate administrative service providers, insurance companies and lawyers) and in some situations, taxpayers, to report certain cross-border arrangements (reportable arrangements) to the relevant EU member state tax authority. This disclosure regime applies to all taxes except value added tax (VAT), customs duties, excise duties and compulsory social security contributions.2 Cross-border arrangements will be reportable if they contain certain features (known as hallmarks). The hallmarks cover a broad range of structures and transactions. For more background, see EY Global Tax Alert, Council of the EU reaches an agreement on new mandatory transparency rules for intermediaries and taxpayers, dated 14 March 2018.

Scope of taxes covered

The scope of taxes covered under the Law is fully aligned with the Directive and applies to all taxes except VAT, customs duties, excise duties and compulsory social security contributions.

Reportable arrangements

Under the Directive, an arrangement is reportable if:

  • The arrangement meets the definition of a cross-border arrangement; and
  • The arrangement meets at least one of the hallmarks A-E specified in Annex IV of the Directive and the main benefit test (MBT), where applicable.

Under the Directive, “cross-border arrangements” are defined as arrangements concerning more than one EU Member State or an EU Member State and a third country, where an additional “territorial” condition is met.

The definition of “reportable arrangement” included in Article 2 of the Law is aligned with the DAC6 definition.

“Marketable arrangements,” are defined in DAC6 and the Law as “cross-border arrangements that are designed, marketed, ready for implementation or made available for implementation without a need to be substantially customised.”

The hallmarks can be distinguished as hallmarks which are subject to the MBT, and those which by themselves trigger a reporting obligation without being subject to the MBT.

Areas of clarification and key highlights

“EU-nexus” main benefit test

In accordance with DAC6, the MBT will be satisfied if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement, is the obtaining of a tax advantage.

The text of the Law links the definition of “tax advantage” with the scope of taxes covered under article 2(1) of the Directive 2011/16/EU,3 thus referring to an “EU-nexus” MBT, i.e., the tax benefit is limited to tax advantages obtained in Cyprus or another EU Member State.

In addition, the definition of “tax advantage” is further defined by reference to the following:

  • Relief or increased relief from tax
  • Repayment or increased repayment of tax
  • Avoidance or reduction of a charge to tax or an assessment to tax
  • Deferral of a payment of tax or advancement of a repayment of tax
  • Avoidance of an obligation to withhold tax

However, the Law does not include any “policy” test or “principles” test in relation to MBT.


Under the Directive, intermediaries with EU nexus have the primary obligation to file information with the tax authorities. DAC6 provides for an exemption from reporting for intermediaries and relevant taxpayers, if sufficient proof of reporting of the same information is provided by the other intermediary/relevant taxpayer, as well as an exemption from reporting for intermediaries covered under legal professional privilege (LPP). If there are no other qualifying intermediaries (i.e., EU-nexus intermediaries or intermediaries not covered under LPP), the obligation will be shifted to the relevant taxpayer(s).

Legal Professional Privilege

It has been further specified in the Law that LPP is only granted to lawyers and law firms that exercise the profession of lawyer in line with Capital 2 of the Advocates Law. However, lawyers who are covered by LPP may be exempt from reporting to the CTD but should still have an obligation to notify other intermediaries and/or the relevant taxpayer of their reporting obligations within 10 days from the date when the reporting obligation has been created (i.e., from the date of the triggering event for reporting).

Reporting deadlines

The reporting deadlines and triggering events provided in the Law are fully aligned with the relevant provisions of DAC6, as amended, including the six-month deferral provided in Cyprus due to the COVID-19 pandemic.4

The extension provided by the CTD to the deadlines in respect of DAC6 submissions until 31 March 20215 and the non-imposition of administrative fines for DAC6 submissions made up until 30 June 2021 are separately covered under the respective announcements made by the CTD.6

It is worth noting that for the time being, Cyprus has opted not to adopt the provision of the Directive which requires that each relevant taxpayer files information about their use of the arrangement with the CTD in each of the years for which they use it.

Moreover, the Law includes a provision that does not appear in the Directive, according to which the CTD, for reasons of verifying the compliance of intermediaries and relevant taxpayers with their reporting and notification obligations, can require under written notice, the provision of documents and/or information regarding a specific arrangement within 14 days from the date of such notice.



Penalty (one-off administrative fine per entity and arrangement)

Failure to report a Reportable Cross Border Arrangement (RCBA)


Delay in reporting an RCBA

Up to 90 calendar days:


More than 90 calendar days:


Filing inaccurate or incomplete or misleading report of an RCBA


Failure to notify other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to LPP


Delay in the notification of other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to LPP

Up to 90 calendar days:


More than 90 calendar days:


Failure to provide the Cypriot Tax Department with information or documents for an arrangement within 14 days from the date of reception of written notice


Failure to pay the administrative fines imposed/Continuance of the relevant breach

Increase of imposed fine up to €20.000

Application to Court

The CTD shall notify the affected intermediary/relevant taxpayer about its intention to impose a penalty and the reasons behind such intention by also providing them with a deadline of 15 working days from the date of the abovementioned notification in order to submit their written objections.

An intermediary/relevant taxpayer can then appeal against the (enforceable) decision of the CTD (which needs to be written, justified and be communicated to the impacted intermediary or relevant taxpayer) to impose an administrative fine, either through a hierarchical appeal, or an administrative appeal, before the Tax Council or the Cypriot Administrative Courts, respectively.

As implied by the provisions of the Law, penalties will also apply for intermediaries/relevant taxpayers who have breached their reporting or notification obligations, as prescribed in the Law, for the transitional period.

Next steps

Complying with the new rules is expected to be a challenging process. Determining if there is a reportable cross-border arrangement raises complex technical and procedural issues for taxpayers and intermediaries alike. Due to the scale and significance of the rules, taxpayers and intermediaries who have operations in Cyprus should ensure that they have the necessary policies and procedures for logging and reporting tax arrangements so that they are fully prepared for meeting their obligations and relevant deadlines.

A detailed Global Tax Alert is forthcoming regarding the guidance notes to be issued by the CTD.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Cyprus Limited, Nicosia



  1. For background on MDR, see EY Global Tax Alert, EU publishes Directive on new mandatory transparency rules for intermediaries and taxpayers, dated 5 June 2018.
  2. DAC6 sets out a minimum standard. EU Member States can take further measures; for example, (i) introduce reporting obligations for purely domestic arrangements;(ii) extend the scope of taxes covered; (iii) bring forward the start date for reporting.
  3. Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC.
  4. See EY Global Tax Alert, Cyprus postpones MDR reporting deadlines for six months, dated 5 August 2020.
  5. See CTD’s announcement, ‘DAC6 – Οδηγ?α του Συμβουλ?ου της ΕΕ για την υποχρεωτικ? αποκ?λυψη και ανταλλαγ? πληροφ?ρησης για διασυνοριακ?ς ρυθμ?σεις’, dated 3 February 2021.
  6. See CTD’s announcement, ‘DAC6 – Οδηγ?α του Συμβουλ?ου της ΕΕ για την υποχρεωτικ? αποκ?λυψη και ανταλλαγ? πληροφ?ρησης για διασυνοριακ?ς ρυθμ?σεις’, dated 26 February 2021.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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