Cyprus: An Open Letter From Andreas Neocleous, Chairman Of Our Firm, Regarding The OECD Global Forum On Transparency And Exchange Of Information For Tax Purposes

There has been considerable publicity in the financial media regarding the fact that Cyprus, together with the British Virgin Islands, Luxembourg and Seychelles, has been assessed as non-compliant with international information exchange standards by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. It is important to put this issue into a proper context.

Compliance with international information exchange standards is assessed in two phases. The Phase One assessment focuses on whether the requisite legal and institutional infrastructure and procedures are in place for effective information exchange to be possible. Phase Two focuses on the practical implementation of the procedures. Only countries that have satisfactorily passed the Phase One assessment can go forward to Phase Two. Cyprus underwent the Phase One assessment in 2011 and the Phase Two assessment was concluded in March 2013, at the peak of the banking crisis. The respective reports were published on 5 April 2012 and 22 November 2013.

It should be noted that Cyprus is one of only 50 jurisdictions that have undergone a Phase Two assessment. A further 50 jurisdictions have undergone only a Phase One assessment. More than half (29 of the 50) have been found to lack at least one essential element and in more than a quarter (14 of the 50) the deficiencies are sufficiently serious to prevent admission to the second phase until they have been dealt with. These 14 include Switzerland, where significant new legislation is required in order to put the essential legal infrastructure in place.

The Phase Two assessment evaluates compliance against 10 criteria. Cyprus was found to be fully compliant in five of these, largely compliant (that is, showing only minor failings) in one, partially compliant in two and non-compliant in two. Austria, Jamaica and Mauritius, which achieved full compliance in fewer areas than Cyprus, were nevertheless excluded from the list of non-compliant jurisdictions.

The areas in which Cyprus was assessed as non-compliant concerned the availability of historic accounting records and the use of compulsory powers to obtain information. In the case of accounting records the report acknowledged that one of the two reasons for the "non-compliant" rating was that for most of the monitoring period trusts were under no obligation to maintain the information concerned, but that new legislation had recently been introduced to require this. The other reason was a failure by companies to comply with the legal requirement to submit financial information. In their response the Cyprus authorities pointed out that delay in obtaining information had occurred in only 10 out of 650 cases examined, and that in nine of those 10 cases the information had subsequently been obtained and in the sole outstanding case legal proceedings had been instituted. They also pointed out that personnel numbers and procedures in the relevant department had been significantly strengthened, leading to a substantial improvement in its performance in responding to requests for information, and that this had been noted in the report but not taken into account in the assessment.

The principal reason for the "non-compliant" rating regarding the use of compulsory powers was that until the end of 2011 the authorities did not pursue enquiries until a tax return had been submitted. As the report acknowledged, this policy was changed from the end of 2011. However, this was not reflected in the assessment of compliance. The other reason for the non-compliant rating was a perceived failure to use the powers under the law effectively. In their response the Cyprus authorities pointed out that around 2,000 prosecutions are undertaken each year, which they consider to be an effective and proportionate response. The authorities also noted that the apparently low compliance rate in the filing of annual returns is partly due to the high proportion of inactive companies in the total population.

While the current rating is undoubtedly a disappointment, it does not affect the effectiveness of Cyprus holding and financing structures and it has to be viewed in the context that only 18 of the 50 jurisdictions assessed were found to be fully compliant. Several internationally significant finance centres fell short of full compliance, including the Channel Islands, Germany, Hong Kong, Malta, the Netherlands, Singapore, the UK and the USA.

No doubt, following the banking crisis and the allegations of laxity in the Cyprus regulatory environment that preceded it, there was a general reluctance to give Cyprus the benefit of the doubt, and the Cyprus authorities' contention is that the non-compliant rating is unduly harsh and does not reflect the situation as it is today. The government has announced that the tax authorities are working with the accounting and legal professions and all other relevant bodies in order to rectify all the reported deficiencies, and that it is confident that significant improvements will be noted at the next review, which is due to take place in 2014.

The business services sector will be a key driver in rebuilding the Cyprus economy, since it will be some years before any benefits accrue from any gas reserves and other sectors are unlikely to fuel a recovery. Therefore we must repair the damage to our business and make sure that it does not happen again. We must all compete in order to survive, but we must do so in a sustainable manner, having regard to the long term. In terms of the tax and business regime this means maintaining an appropriate balance. We must offer a competitive tax and business environment, but not to the extent that other, more influential countries perceive this as a threat to their interests, as some may well have done earlier this year. The most important asset in our sector, whether for an individual, a firm, or a jurisdiction, is a "good name", a reputation for integrity and trustworthiness. This takes years to build, but can be lost in an instant, with disastrous consequences. It behoves us all to work together to show that Cyprus maintains the highest standards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.