The Commission has today decided to send a letter of formal notice to Cyprus on the grounds of incorrect transposition of the interest limitation rule of the Anti-Tax Avoidance Directive (Article 4 of the Council Directive (EU) 2016/1164).
Cyprus makes use of the possibility to exempt financial undertakings from the interest limitation rules in the Anti-Tax Avoidance Directive. However, the respective domestic legislation goes beyond the allowed exemptions and provides unlimited deductibility of interest for the purpose of Corporate Income Tax for securitisation entities, which do not qualify as ‘financial undertakings’ under Art. 2(5) of the Directive. If Cyprus does not act within the next two months, the Commission may decide to send a reasoned opinion.