Taxatalier presentation kiev feb 2018 final BEPS & EU Substance. Are you the Beneficial Owner of the income? Exchange of information Cyprus as a case study.

Excellence in Taxation.
Eliminate Risk on Tax
Residency and
Beneficial Owner of
the Income
BEPS & EU Substance.
International Tax Advice.
Tax Compliance.
Indirect Tax Services.

Agenda
© 2017 Taxatelier Page 2
1
•Check BEPS and EU Initiatives
2
•Challenge Tax Residency & Substance
3
•Eliminate Beneficial owner of the income Risks
4
•Uncover Transfer Pricing rules

Agenda
1
2
3
4

BEPS Action Plan
COHERENCE
• AP2: No hybrid mis-
matches
• AP3: Better CFC rules
• AP4: Interest
deduction limitation
rules
• AP5: No harmful tax
practices
SUBSTANCE
• AP6:Preventing Tax
Treaty abuse
• AP6: Prevent artificial
avoidance of PE
• AP8: Transfer Pricing
of Intangibles
• AP9: TP/risk and
Capital
• AP10:TP high risk
transactions
TRANSPARENCY
•AP11: Methodologies
and data analysis
•AP12: Disclosure of
rulings
•AP13: TP
Documentation
•AP14:Dispute
resolution
4
Digital Economy
AP 1
Multilateral
Instrument AP15

BEPS Action Plan Example

EU Anti - Tax Avoidance Directive (ATAD) Articles
BEPS ATAD
Art. 9
Art. 7-8
Art. 4
Art. 6
HYBRID
CFC
Interest limitation
PPT

What is currently scrutinized
Amendment as from 2016 to the EU Parent / Subsidiary
Directive which effectively (subject to certain conditions)
exempts from taxation dividends paid by a company located
in one member state to a company located in another
member state (changes already introduced in Greece).
Adoption of the EU Anti - Tax Avoidance Directive, which
will address transactions between companies located in
different EU member states, including Greece.
•Challenge Tax residencyLuck of substance and
commercial business
reasons
•Beneficial owner (BO) of the
income
Improper use of double tax
treaties and treaty
shopping
•Transfer Pricing (TP)Unjustifiable allocation of
profits between the various
jurisdictions

Agenda
1
2
3
4

Global Tax Residency Criteria
•Incorporation test
•Management and Control; or
Central Management and Control; or
Central Mind and Management
•Company seat; or legal seat; or statutory seat
• Effective management and control

Challenge Tax Residency
OECD MTC Art. 4(3) Place of effective management (POEM)
The (POEM) is the place where key management and commercial decisions that
are necessary for the conduct of the entity’s business as a whole are in substance
made. All relevant facts and circumstances must be examined to determine the
place of effective management.
BEPS Report – 2015, Action 6
In case of dual residence:
• No PoEM, but case-by-case approach: endeavor to determine by Mutual
Agreement Procedure (MAP)
• If no Mutual Agreement is reached then no treaty benefits.

Foreign Entity considered as tax resident. Treasure Company
example
Income Statement year 2016 Details Euro
Interest income Loans 10m @10% 1.000.000
Interest Expense Loans payable 10@ 9% (900.000)
Gross Profit 100.000
Administration expenses (10.000)
Profit Before Tax 90.000
Tax @ 12,5% 11.250
Challenge Tax Residency 90.000 @ 18%
16.200
Double tax relief in
Cyprus
Effective Tax paid
additionally
4.950

Substance in EU
Cadbury and Schweppes: ECJ’s Decision (C196/04)
“Wholly artificial arrangements” expression is of importance
Cadbury Schweppes
United Kingdom
Cadbury Schweppes
Treasury Services
Ireland
Cadbury Schweppes
Treasury International
Ireland

Substance in EU (Checklist)
Statutory Substance
Physical substance
(Staff & Premises)
Genuine activities
Equity of the Company &
Profit attribution on
economic reality
SUBSTANCE

Agenda
1
2
3
4

Significance of Beneficial Owner notion
• The notion of beneficial owner was introduced in the OECD MTC in
1977 and in the UN model in 1980
• Articles 10 Dividends, Article 11 Interest, Article 12 Royalties
• Also included in Parent Subsidiary Directive and Interest and Royalties
Directive
• Primary goal to establish an anti-abuse provision
• Avoid Treaty Shopping

PREVOST CASE Dividends Beneficial Ownership

PREVOST CASE Dividends Beneficial Ownership
• There is no evidence that Prévost was a conduit for Volvo and Henlys and
there was no pre-determined or automatic flow of funds to Volvo and
Henlys;
• Prévost Holding was a statutory entity carrying on business operations and
corporate activity in accordance with the Dutch law under which it was
constituted;
• Prévost was not party to the Shareholders’ Agreement;
• Neither Henlys nor Volvo could take action against Prévost for failure to
follow the dividend policy described in the Shareholders’ Agreement;
• Prévost’s Deed of Incorporation did not obligate it to pay any dividend to
its shareholders;
• When Prévost decides to pay dividends, it must pay the dividends in
accordance with the Dutch law;

Anti-abuse – Deny DTT benefit Treasury Co. Example
Income Statement year 2016 Details Euro
Interest income Loans 10m @10% 1.000.000
Interest Expense Loans payable 10@ 9% (900.000)
Tax @ 12,5% 11.250
Reduced Foreign Tax (WHT) paid
at source (Ukraine)
900.000 @ 2% (DTT between
Cyprus and Ukraine)
18.000
Denying the DTT benefit 1.000.000 @ 15% 150.000
Tax payable 150.000-18.000
132.000

Comparison Table BO, RESIDENCE
Income Statement year 2016 Residence BO
Interest income 1.000.000 1.000.000
Interest Expense (900.000) (900.000)
Gross Profit 100.000 1000.000
Administration expenses (10.000) (10.000)
Profit Before Tax 90.000 90.000
Tax @ 12,5% Paid in Cyprus 11.250 11.250
Challenge Tax Residency Paid in Ukraine 16.200
Denying the DTT benefit 150.000
Tax payable Paid in Ukraine 132.000

Interest and Royalties
Interest
Beneficial
ownership?
Back to back
loans
Royalties
Beneficial
ownership?
Back to back
licensing

Agenda
1
2
3
4

Transfer Pricing Rules Example
Income Statement year 2016 Details Transfer Pricing
Interest income 10% increased to 11% TP Study 1.100.000
Interest Expense (900.000)
Tax @ 12,5% paid in Cyprus 23.750

Comparison Table TP, BO, RESIDENCE
Income Statement year 2016 Transfer Pricing Residence BO
Interest income (11%) 1.100.000 1.000.000 1.000.000
Interest Expense (900.000) (900.000) (900.000)
Gross Profit 200.000 100.000 1000.000
Administration expenses (10.000) (10.000) (10.000)
Profit Before Tax 190.000 90.000 90.000
Tax @ 12,5% in Cyprus 23.750 11.250 11.250
Challenge Tax Residency 16.200 (Ukraine)
Denying the DTT benefit 150.000
Tax payable in Ukraine 132.000

Agenda
1
2
3
4

Thank you!
Christos A. Theophilou
Partner
Tel: + 357 22 875720
E: ctheophilou@taxatelier.com.cy
W: www.taxatelier.com.cy
Delfon Street 10, 5th floor
1101, Nicosia, Cyprus
This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. Do not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this
publication. Τo the extent permitted by law, Taxatelier Ltd, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of
anyone acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Taxatalier presentation kiev feb 2018 final BEPS & EU Substance. Are you the Beneficial Owner of the income? Exchange of information Cyprus as a case study.

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Taxatalier presentation kiev feb 2018 final BEPS & EU Substance. Are you the Beneficial Owner of the income? Exchange of information Cyprus as a case study.