DAC6 Mandatory Disclosure: What Cyprus Entities Need to Know

DAC6 — the EU Directive on Administrative Cooperation — requires intermediaries (advisors, accountants, lawyers) and, in certain cases, taxpayers themselves to report cross-border tax arrangements that bear specified hallmarks to the relevant tax authority. In Cyprus, DAC6 has been transposed into national law and applies to arrangements implemented from 25 June 2018.

What Is a Reportable Arrangement?

A reportable arrangement is a cross-border arrangement (involving at least one EU member state) that bears one or more of the hallmarks set out in Annex IV of the DAC6 Directive. The hallmarks are grouped into five categories: generic (Category A), specific (Category B), relating to transfer pricing (Category C), automatic exchange of information (Category D), and beneficial ownership (Category E).

Categories A and B arrangements are only reportable if the "main benefit test" is satisfied — i.e., one of the main benefits is obtaining a tax advantage. Category C, D, and E hallmarks are reportable regardless of the main benefit test.

Who Must Report?

The primary obligation rests with intermediaries — those who design, market, organise, make available, or implement a reportable cross-border arrangement. Intermediaries in a privileged profession (lawyers under legal professional privilege) may transfer the reporting obligation to the taxpayer. Where there is no EU-based intermediary, the taxpayer themselves must report.

Timing of Disclosure

Disclosure must be made within 30 days from: the day after the arrangement is made available for implementation, the day the arrangement is ready for implementation, or the day the first step in the implementation is made. For historical arrangements (25 June 2018 to 30 June 2020), the deadline for retroactive disclosure has passed — but advisors should check whether undisclosed arrangements remain outstanding.

Penalties for Non-Compliance

Failure to comply with DAC6 reporting obligations in Cyprus can result in administrative penalties. These can apply to both intermediaries and taxpayers. The penalties are not trivial — consistent non-compliance can also attract increased scrutiny from the Cyprus Tax Department.

Common Arrangements That May Be Reportable

Arrangements that frequently require DAC6 analysis include: intra-group IP transfers, intra-group financing arrangements with non-market interest rates, dividend repatriation strategies designed to utilise preferential regimes, use of hybrid mismatches, arrangements involving entities in non-cooperative jurisdictions, and arrangements with a main purpose of obtaining a tax advantage through step-up structures or losses.