Tax News Letter- Transposing the Anti Tax Avoidance Directive

Tax News Letter – Snapshot on Cyprus: The Anti Tax Avoidance Directive

Cyprus has recently incorporated in its laws the anti tax avoidance measures contained in the EU Directive on Anti-Tax Avoidance 2016/1164 (ATAD) with retroactive effect (as of 1st January 2019)(ATAD Law).
Brief analysis of key areas:
Interest Barrier Rule (IBR) 

The Interest Barrier Rules is a new provision that limits the deductibility of interest expenses and other related borrowing costs (‘Borrowing Costs’) to 30% of the calculated earnings before interest, depreciation and amortisation (EBITDA). The deductibility limitation is linked to the Borrowing Costs which exceed interest income. The limitation applies at the level of a Cyprus company or at the level of a Cyprus tax Group (as defined in the ATAD Law and assuming the Cyprus company is part of such Group).

Certain exceptions apply, such as: (i) monetary threshold of EUR 3m (calculated either at the level of Cyprus company or Cyprus tax Group), (ii) exclusion of loans entered into before June 2016, (iii) standalone companies, and (iv) if the equity over total assets ratio of the Cyprus Company is within 2% of the consolidated group equity to total assets ratio.