Gold Magazine November - December 2013, Issue 32 | Page 92

double taxation

{TAX&LEGAL}

NEW CYPRUS-ESTONIA

DOUBLE TAX AGREEMENT
By Philippos Aristotelous

A

new Double Taxation Agreement (DTA) between Cyprus
and Estonia took another step
towards ratification with its
approval by the Estonian Parliament on 25 September 2013. The Cyprus
government ratified the agreement in February
this year. Assuming that the final steps of the
process are completed before the end of 2013,
the agreement will enter into force on 1 January 2014.
Until it enters into force, the Cyprus tax
authorities will normally allow unilateral relief
for Estonian tax paid in accordance with their
normal practice.
Like all of Cyprus’s recent double taxation
agreements, the new agreement with Estonia
follows the latest Organisation for Economic
Cooperation and Development (OECD)
Model Treaty, in this case the 2010 version. Its
main provisions are as follows.

DIVIDENDS, INTEREST
AND ROYALTIES

Dividends, interest or royalties paid by a
company that is a resident of one country to a
resident of the other will be taxable only in the
latter country.

CAPITAL GAINS

Capital gains derived by a resident of one
country may be taxed in the country in which
the property concerned is situated where it
relates to:
• the disposal of immovable property situated
in the other country
• the disposal of shares or comparable interests
deriving more than 50% of their value from
immovable property situated in the other
country, or
• movable property forming part of the busi-

ness property of a permanent establishment
which an enterprise of one country has in the
other.
All other gains may be taxed only in the
country of residence of the person or company
making the disposal.

ELIMINATION METHOD

Double taxation will be eliminated in Cyprus by allowing credit against Cyprus tax
payable for any Estonian tax paid. The credit
cannot exceed the Cyprus tax payable in respect of the income concerned. In Estonia,
double taxation will be eliminated by exemption from Estonian tax of any income which
has been taxed in Cyprus. However, any such
exempt income may be taken into account in
calculating Estonian tax on the taxpayer’s other
income.

EXCHANGE OF INFORMATION
The article of the Cyprus-Estonia agreement
dealing with exchange of information reproduces the corresponding article of the OECD
Model Treaty verbatim. It also permits the use
of information received by a contracting state
for purposes beyond the assessment of tax,
subject to this being legal under the laws of
both states and subject to the consent of the
competent authority of the state providing
the information.
A protocol to the agreement requires the
country making the request for information
to provide further particulars in order to
demonstrate the foreseeable relevance of the
information requested, including:
• the identity of the person under examination
• details of the information requested and the
form and manner in which the requesting
state wishes to receive it

THIS IS THE FIRST DOUBLE TAX
TREATY EVER CONCLUDED
BETWEEN THE TWO COUNTRIES
• the tax purpose for requesting the information
• the reason for believing that the requested
information is held by the tax authorities to
whom the request is addressed, or is in the possession or under the control of a person within
their jurisdiction
• the name and address of any person who may
hold the information requested, if known
• a declaration that the provision of such information is in accordance with the legislation
and the administrative practices of the requesting state (where the requested information is
found within the jurisdiction of the state in
question, the relevant authority may obtain the
information according to its laws and according to the terms of its ordinary administrative
practices), and
• proof that the requesting state has exhausted
all practical means available in its own territory
to obtain the information.
These requirements effectively rule out fishing expeditions based merely on suspicion.

COMMENT

Since Estonia did not apply the 1982 double tax
treaty between Cyprus and the former Soviet
Union, this is the first double tax treaty ever
concluded between the two countries. Estonia,
like Cyprus, is among the world’s smaller states,
but it has a dynamic economy with a high number of start-ups and numerous businesses in the
technology sector. The new agreement provides
an opportunity to increase business and investment between the two countries.

info: Philippos Aristotelous is an Advocate – Partner at Andreas Neocleous & Co LLC.
92 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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07/11/2013 16:05