Cyprus, as a member of the European Union and a jurisdiction committed to international tax transparency, has adopted the OECD’s Base Erosion and Profit Shifting (BEPS) framework, including Action 13 on Country-by-Country Reporting (CbCR). This guide provides a comprehensive overview for Chief Financial Officers (CFOs) and financial executives operating in Cyprus regarding CbCR obligations. It covers who is affected, reporting requirements, penalties, and important resources for compliance.

Applicability of CbCR in Cyprus

Criteria for Reporting:

• The CbCR requirements apply to multinational enterprise (MNE) groups with consolidated revenue of €750 million or more in the preceding fiscal year.
• The reporting obligation generally falls on the ultimate parent entity of an MNE group if it is tax resident in Cyprus.
• If the parent company is in a jurisdiction that does not have CbCR obligations or does not exchange reports, a surrogate parent entity in Cyprus may be required to file the report.

Relevant Legislation:

• The CbCR framework in Cyprus is governed by the Income Tax Law (Amendment No. 3) of 2016, which incorporates the provisions of Council Directive (EU) 2016/881 into local legislation.
• More information can be found on the Tax Department of Cyprus website.

Reporting Requirements

Information to be Reported:

• The CbC report must include aggregated financial and tax information for each jurisdiction where the MNE operates, including revenue, profit (or loss), income taxes paid, income taxes accrued, stated capital, accumulated earnings, number of employees, and tangible assets.
• The report must also detail each constituent entity in the MNE group, specifying its tax jurisdiction and main business activities.

Form and Submission:

• The report must be submitted in XML format, in line with the OECD’s standard electronic format.
• In Cyprus, MNEs are required to submit the CbC report electronically through the Ariadne Portal, the official government platform for tax filings.
  • Detailed instructions on filing can be found on the Ariadne Portal.

Filing Deadlines

• The CbC report must be filed within 12 months from the end of the MNE group’s fiscal year. For example, if the fiscal year ends on 31 December 2023, the report must be filed by 31 December 2024.
• MNE entities in Cyprus that are not responsible for filing the report must notify the Cyprus Tax Department about the entity that will file the report and the jurisdiction where it will be submitted.

Penalties for Non-Compliance

Penalties:

• Failure to comply with CbCR requirements, including failing to submit the report, submitting incomplete or inaccurate data, or failing to notify authorities about the filing entity, can result in penalties.
• The penalties for non-compliance in Cyprus range from €5,000 to €20,000, depending on the severity and nature of the violation.

Defences:

• Penalties may be reduced or waived if the MNE group can demonstrate reasonable cause, such as technical difficulties or unintentional errors. The Cyprus Tax Department reviews each case individually to determine if penalty relief is appropriate.

Confidentiality and Use of Information

Data Protection:

• Cyprus adheres to the confidentiality standards outlined in the OECD’s CbCR guidelines. The information contained in the CbC reports is exchanged only with tax authorities in jurisdictions that have signed an agreement with Cyprus for the automatic exchange of information.
• The reports are used solely for assessing transfer pricing risks and detecting base erosion practices. The information is not publicly available.

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Conclusion

Multinational enterprises operating in Cyprus must ensure compliance with the Country-by-Country Reporting requirements to avoid penalties and ensure transparency in international tax matters. Understanding the reporting criteria, submission processes, and compliance obligations is essential for effective management. Engaging with tax professionals familiar with Cyprus’s CbCR regulations will help MNEs navigate their reporting obligations smoothly and avoid non-compliance risks.