neo December 3, 2013 No Comments

taxThe Global Forum is the international body within which work in the area of transparency and exchange of information has been carried out by both OECD and non-OECD economies since 2000.

On 21st and 22nd of November 2013, the Global Forum released the ratings for the jurisdictions for which the latest round of reviews was completed. Cyprus underwent the Phase 1 review in the 2nd half of 2011 and the Phase 2 review in the 2nd half of 2012, and was awarded an overall rating of “non-compliant” together with other jurisdictions (including Luxembourg).

The Cyprus Ministry of Finance press release on the assessment of Cyprus mentions the following:

During the Global Forum meeting in Jakarta, Indonesia, on the 21st and 22nd of November 2013, the Global Forum released compliance ratings for 50 jurisdictions which had both phases of their assessments completed: a) legal and regulatory framework, and b) practical implementation of the framework.

The overall rating that Cyprus has been assigned at the Jakarta meeting was one of “non-compliant”. Issues relating to this rating and the way forward are analysed below:

1. All legal and regulatory issues identified in the first phase of review were dealt with through the enactment into law of appropriate provisions, like explicitly stating in the law (in addition to common law provisions) the information that should be available for a trust, removing references in the Companies Law which allowed the issue of bearer share warrants in public companies (a provision that does not seem to have ever been used), incorporating the need for Cyprus incorporated but not tax resident companies to file tax returns with Cypriot authorities etc. As the results of the first phase review were published in April 2012, these changes in the law in 2012 have not been reflected in the rating assigned.

2. Delays in the exchange of information with counterparts for the period of 1 July 2009 – 30 June 2012: Cyprus handled a substantial number of requests (on more than 4.000 subjects) for the period under review but with delays. Since 2012, personnel, procedures and capacity of the International Tax Affairs Division of the Inland Revenue Department have been significantly enhanced and thus its ability and performance in handling requests from counterparts. This is something that is noted by the assessors but did not bear significant weight on the rating for the period under review.

Tax update November 2013

3. Low compliance rate in the filing of tax returns: This is partly due to uncertainty as to the population of active companies in Cyprus, with the total number of active companies artificially inflated. This issue has also had a bearing on the low compliance rate in the filing of annual returns with the Companies House.

4. It is the authorities’ belief that, for the period under review, the efforts of Cyprus in completely streamlining its regulatory framework as well as its actual performance in handling requests, which were considerable in number, should have warranted a higher rating being assigned. However, despite the actual current state of affairs of being much better than at the review stage, every effort is being made by the Ministry of Finance and the tax authorities, the accounting and legal profession, the Cyprus Securities and Exchange Commission, as well as the Companies Registrar, who are working together in a coordinated manner, to take all necessary steps for significant improvements in all relevant matters.

In conclusion, it is our firm belief that Cyprus has already taken steps, and will take all necessary additional steps, to implement the required changes and ensure that during the next review stage in 2014 the assessors will note a very significant improvement on all measured parameters and have Cyprus’ overall rating changed to a much better one than the current rating.

Source: PWC Newsletter