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Cyprus

State aid commissioner says tax breaks to help NPL restructurings violate EU law

By Stelios Orphanides

Seven laws passed by the parliament in December extending tax breaks in cases involving property transactions as part of loan restructurings may conflict with European state-aid rules and have to be reviewed by the European Commission, the State Aid Commissioner said.

Commissioner Theophanis Theophanous said in a telephone interview on Wednesday that he had informed the finance ministry in an April 4 letter about the problematic provisions included in the laws. If overturned, it could upset the banking sector’s efforts to reduce their high stock of non-performing loans, the commissioner said.

“We have not been asked to give a view,” which is the case when the finance ministry submits draft-bills to parliament. Theophanous added that the legislation in question was proposed by lawmakers.

Daily Politis reported on Thursday that the finance ministry submitted proposals to improve the bills, which offer inter alia exemption from defence contribution in cases of an accounting profit, exemption from property transfer fees, reduced stamp duties, and exemption from income tax in cases of profit or losses resulting from restructurings and capital gains tax.

Politis cited Theophanous’s letter to the ministry that the laws may violate European state-aid rules because they result in loss of government revenue, afford advantages to borrowers and banks and were selective and not universal since they only concerned a certain industry

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