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Amending Protocol to Tax Treaty between Cyprus and Switzerland has Entered into Force — Orbitax Tax News & Alerts

The amending protocol to the 2014 income and capital tax treaty between Cyprus and Switzerland entered into force on 3 November 2021. The protocol, signed 20 July 2020, is the first to amend the treaty and includes the following changes:

  • The preamble is replaced in line with BEPS standards;
  • Article 7 (Business Profits) is amended with the addition of a new paragraph 4 providing that a Contracting State shall make no adjustment to the profits that are attributable to a permanent establishment of an enterprise of one of the Contracting States after 6 years from the end of the taxable year in which the profits would have been attributable to the permanent establishment, although this provision does not apply in the case of fraud, gross negligence, or willful default;
  • Article 9 (Associated Enterprises) is amended as follows:
    • paragraph 2 is replaced, including new provisions regarding appropriate (corresponding) adjustments by a Contracting State where an adjustment has been made in the other State;
    • a new paragraph 3 is added, providing that a Contracting State shall not include in the profits of an enterprise, and tax accordingly, profits that would have accrued to the enterprise but by reason of the conditions referred to in paragraph 1 (non-arm's length) have not so accrued, after 6 years from the end of the taxable year in which the profits would have accrued to the enterprise, although this provision does not apply in the case of fraud, gross negligence, or willful default;
  • Paragraph 1 of Article 25 (Mutual Agreement Procedure) is replaced, providing that where a person considers that the actions of one or both of the Contracting States result or will result for that person in taxation not in accordance with the provisions of the treaty, that person may, irrespective of the remedies provided by the domestic law of those States, present the case to the competent authority of either Contracting State (originally just the State of residence) ;
  • A new Article 28A (Entitlement to Benefits) is added, providing that a benefit under the treaty shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty; and
  • The final protocol to the treaty is amended with the deletion of paragraph 1, which contains an anti-abuse provision.

The protocol applies from 1 January 2022.