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Reviewing exchange of information: The case of Cyprus

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Konstantinos Nanopoulos, Victoria Iliopoulou and Nicholas Demiroglou of TaxExperts Group consider the deficiencies in Cyprus’s tax framework with respect to the exchange of information.

The European Court of Auditors (ECA) carried out an audit in five member states including Cyprus in order to determine the effectiveness of the system for exchange of tax information in the EU. The ECA’s conclusions were recorded in Special Report No. 03/2021 under the title ‘Exchanging tax information in the EU: solid foundation, cracks in the implementation’.

Basic concerns were expressed, existing gaps in DAC rules were identified, and specific solutions were suggested. These findings allowed the identification of deficiencies in the tax framework of Cyprus with respect to the exchange of information (EOI).

As a general remark, DAC inaugurates three main pillars of exchange of information, consisting of (a) automatic exchange of information (AEOI), (b) exchange of information upon request (EOIR) and (c) spontaneous exchange of information (SEOI).

Under these schemes, it was examined:

  • If the tax information exchanged between member states was accurate, complete and sent within the deadlines;

  • If the member states used the information received and how they could make use of this information;

  • If and how members states made use of the other forms of EOI provided by DAC; and

  • If the member states elaborate an assessment following the use of EOI forms in order to measure effectiveness of the methods applied and the possible risks and/or gaps raised.

It is interesting to note that Cyprus is one of the countries that has introduced the necessary legal framework for the implementation of the AEOI Standard. In fact, pursuant to this obligation, the Cyprus tax authority sent tax information to 59 partners – countries in 2018 (for reporting year 2017). As for 2019, the competent authority provided 67 partners – countries with tax figures for reporting year 2018.

Even if these numbers are significantly above the EU average, there are existing loopholes in the tax framework applied, according to the findings of ECA.

With respect to DAC1:

Among others, auditors revealed that cryptocurrencies are excluded from the scope of EOI; and that the platforms and other electronic providers are not obliged to declare any amounts or gains generated by their clients to the tax authority. It was also derived that non-custodial dividend income does not fall under the provisions of DAC1 and to that extent, this income is not reportable.

Another issue raised is that according to DAC1, the available information about any income is reportable. It is notable that Cyprus was the only country exchanging information just for pensions until 2018. Another loophole detected was the lack of legal provisions for the EOI in advance cross-border tax rulings for high net worth individuals, as per Article 1, paragraph 2 of Council Directive (EU) 2015/2376, which amended Article 8(a)(4) of Council Directive 2011/16/EU.

With respect to DAC2:

The ECA’s findings also included that the member states do not impose any penalty in case of non-compliance with reporting obligations provided by DAC2. Another issue is that only few countries match the exchanging information with the tax identification number (TIN) of the individual reported. In fact, Cyprus is one out of many countries that does not include individual’s TIN in the reportable information as sender country.

Moreover, it was statistically estimated that the exchanged information refers to a total amount of 8.7 million accounts and financial income reaching €2.919 billion (approximately $3.53 billion). Cyprus ranks on the last countries reporting financial income of €1 billion approximately.

The general remarks of this audit are that the information exchanged between members states are not used quite efficiently.

With respect to DAC3, advance cross-border rulings for individuals are explicitly excluded from AEOI.

Lastly, country-by-country reporting of DAC4 for multinational enterprises has a minor effect and the reportable information is not deployed. More specifically, the Cyprus tax authority sent less than 500 reports to other countries and received less than 400 reports.

Based on the above findings, the ECA’s proposed specific recommendations are also applicable to Cyprus, for the coverage of deficiencies, such as:

  • The enhancement of the EU legislative framework;

  • The development of monitoring and guidance procedures;

  • The improvement of the quality and completeness of DAC1 and DAC2 data;

  • The more efficient use of the received information to fight against tax evasion and avoidance; and

  • The monitoring of the impact of the information exchanged.

The AEOI is a new field for the tax administrations of Cyprus and other EU member states. In several cases, there is lack of know-how and capacity to make good use of the tax information received. It can be assumed that the implementation of DACs shall be more efficient in following years, and taxpayers shall change their tax compliance behaviour accordingly.


Konstantinos Nanopoulos

Managing partner



Victoria Iliopoulou




Nicholas Demiroglou



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