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New Double Tax Treaty Between Cyprus And Germany


On 18 February 2011, after lengthy negotiations, Cyprus and Germany signed the new Agreement on the Avoidance of Double Taxation, which will replace the existing agreement of 1974.

Taxand Cyprus highlights the main changes of the Agreement. The Agreement's application on taxes has been extended to include further forms of tax such as the Cyprus corporate income tax, the capital gains tax, special contribution to defence tax and the immovable property tax.

A new definition is also provided on the Protocol to the Agreement according to which the 'place of effective management' will be considered as the place where the key management decisions are taken, that is where the senior partner/s make such decisions. The following articles are examined in detail:

  • Article 5 - Permanent establishment
  • Article 6 - Income from immovable property
  • Article 8 - Shipping, inland waterways transport and air transport
  • Article 9 - Associated enterprises
  • Article 10 - Dividends
  • Article 11 - Interest
  • Article 12 - Royalties
  • Article 13 - Capital gains
  • Article 25 - Exchange of information

Taxand's Take

The concept of beneficial owner is introduced in the present Agreement and is increasingly being used in Double Tax Treaties. It raises discussions within a tax, legal and economic context, the main issue being the understanding and interpretation by each contracting state. Currently, there is a disagreement between civil law and common law jurisdictions on what approach should be given to the term. The introduction of the beneficial ownership shows the attempt of the States to prevent economically unrealistic tax structures. Although this approach seems in line with the OECD, not all countries follow it in their national tax laws resulting in differences when interpreting the beneficial ownership. If at some time there is a common understanding and an international fiscal meaning of the term, among the contracting states, one will be in a better position to understand, which country taxes the dividends, royalties and interest paid, as in practice, under the new approach, a recipient is not necessarily also the beneficial owner of the income.

Finally, exchange of information has become a characteristic element for agreements concluded by Germany recently and is becoming standard practice across the globe in bilateral agreements.

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Your Taxand contact for further queries is:
Chris Damianou
T. +357 22 699 222

Taxand's Take Author