By Elias Hazou
A NEWLY-FORMED committee addressing the island’s lax compliance with tax information exchange requirements will be holding its first meeting this week, in the wake of reports that a recorded lack of transparency might jeopardise Cyprus’ double taxation treaties.
The panel, established under the auspices of the finance ministry, comprises representatives from the Inland Revenue Department, the Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC).
It was formed only last week when Cyprus was graded bottom of the heap in the OECD’s (Organisation for Economic Cooperation and Development) taxation transparency ranking.
The OECD forum for transparency in taxation ranked Cyprus 50th along with the Seychelles, the British Virgin Islands and Luxembourg.
The OECD’s conclusions are expected to be ratified at the organisation’s meeting in Jakarta on November 21-22.
Once that happens, Cyprus has until September 2014 to conform to transparency requirements. If it does not, and the country’s ranking remains dismal, then counterparties to existing double taxation treaties (52 in total) might start cancelling the agreements, said Christodoulos Angastiniotis, head of the Cyprus Investment Promotion Agency (CIPA).
That in turn, he warned, would deal a severe blow to foreign investment in Cyprus as foreign companies would start migrating to other tax jurisdictions.
“When a country is under the microscope, like we are now, it needs to be clean as a whistle,” Angastiniotis told the Mail.
Earlier, Angastiniotis told newsmen that the Inland Revenue Department (IRD) forwards queries received from tax authorities of other governments to the relevant sectors here, comprising of law firms, audit firms and fiduciary services, which fail or even refuse to provide answers.
He went on to urge regulatory bodies, such as the Cyprus Bar Association, the Securities and Exchange Commission and ICPAC to be stricter with their members “because negligence, indifference or bad practices of a few could destroy the services sector of the economy.”
The CIPA chairman also revealed that India has cancelled the double taxation treaty with Cyprus on the grounds that it did not receive any answers to the questions sent to the Cypriot authorities.
But this did not spell “the end of the world,” he added, explaining that Cypriot authorities could renegotiate the treaty with India.
Angastiniotis suggested that a few rotten apples – local representatives of foreign firms – are tarnishing Cyprus’ reputation.
Asked by the Mail whether the actions or omissions of a few wayward accountants, lawyers or fiduciary services firms could account for the country’s poor ranking as a whole, given that hundreds of requests for information are received, Angastiniotis said it could.
“Yes, because often such requests are made about ‘suspicious’ companies operating here,” he explained.
Queries regarding foreign companies are made by foreign governments to the IRD, which then forwards a request by contacting directly the concerned audit firm, law firm or fiduciary services company.
The IRD concedes that frequently its requests either go entirely unanswered or else the responses, when they do come, are given too late. The department says it lacks the manpower and resources to ensure full compliance.
But it’s understood that the IRD has several means at its disposal to force the representatives of foreign companies to comply with requests for information.
One way might be for the department to refuse to renew a company’s tax residence certificate. Another method to turn the screw on companies are fines, or even enforcing a name-and-shame policy.
ICPAC chairman Yiannos Charilaou acknowledged that a major problem exists with regard to tax transparency, and called for a professional approach to solving what he called “a highly complex issue.”
“Playing a blame game would be counter-productive… we need to sit down, preferably behind the scenes and without a lot of publicity hype, and figure out ways of resolving this,” he said.
Tax transparency was also one of the issues discussed on Monday during a meeting between CIPA and inspectors from the troika of international lenders, here on their second review mission of Cyprus’ economic adjustment programme.
During the day, troika teams held separate meetings with officials at the finance ministry and the Planning Bureau, reviewing the management of public debt, the prospects of the real estate market, attracting foreign investment and salaries in the banking sector.
The inspectors also met with the Commissioner of Electronic Communications and Postal Regulation, and with the Statistical Service to consider salary statistics.
Over at the Central Bank, the troika technocrats discussed the updated Memorandum of Understanding linked to the bailout. The MoU has been revised since it was first concluded in April.
The troika’s review mission is expected to wrap up at the end of this week, and depending on their findings Cyprus will become eligible for the next tranche of assistance cash.