Cyprus has failed to convince the EU that it is taking steps against aggressive tax planning, or that it is promoting reforms to address it as promised, by presenting measures required for approval of the second and third tranches under the Recovery and Resilience Plan.

As such, its failure to implement the "Law on Combating Aggressive Tax Planning" may provide it with reasonable time to fulfill this outstanding milestone. However, it risks receiving only partial payments until it satisfies the EU's request. Reliable sources explained that "aggressive tax planning involves exploiting legal loopholes in a tax system and mismatches between tax systems. It may also lead to double non-taxation or double deduction."

The EU is demanding measures to combat aggressive tax planning, deeming them crucial for securing tax revenues that can be used for public investments, education, healthcare, and social welfare. Losses in tax revenue are detrimental to ensuring a fair distribution of the financial burden.

In a December 2023 resolution, the European Parliament highlighted that "member states continue to lose tax revenues due to harmful tax practices, and according to estimates, lost revenue due to such practices ranges from €36-37 billion to €160-190 billion annually." Additionally, the Code of Conduct for business taxation, drafted in 1997 to detect harmful tax measures, although not legally binding, carries political weight. With its adoption, member states committed not to introduce new harmful tax measures and to amend any laws or practices deemed harmful based on the principles established by the code.

According to official EU documents, "studies show that multinational companies in high-tax countries pay about 30% less tax compared to comparable domestic ones, and for this reason, companies engaging in aggressive tax planning benefit from a potentially significant reduction in actual taxation, at the expense of society."

Moreover, multinational companies can exploit provisions of bilateral tax treaties to minimize taxes and the cost of repatriating dividends.

Nevertheless, in December 2020, the Plenary of the Global Forum of the Organization for Economic Cooperation and Development (OECD) approved Cyprus' evaluation report on the exchange of tax information upon request from foreign tax authorities. This report indicates that Cyprus complies with international transparency standards and the exchange of information for tax purposes. The Ministry of Finance believes that "this report recognized the progress achieved and the measures implemented by the relevant authorities concerning transparency and the exchange of information for tax purposes."