A delegation from the Cyprus led by Finance Minister Constantinos Petrides will go to Moscow next week for another round of negotiations with the Russian government on the double taxation treaty that President Vladimir Putin wants drastically changed, if not scrapped altogether. It will be the last shot Cyprus has at limiting the damage that would be caused to our economy by the changes to the agreement proposed by the Russian side.
Negotiations have not gone too well with sources at the Cyprus finance ministry complaining that numerous proposals it made were rejected and denying accusations it had refused to negotiate, made in a written statement issued by the Russian finance ministry on Monday. The announcement turned out to be a pressure tactic, as Cyprus had declined an offer for talks about the matter in Nicosia this week.
Russia is quite clearly in a hurry to finalise a new agreement, which it wants in force from the start of 2021, and its finance ministry’s threat of “denouncing” the agreement was aimed at speeding things up, perhaps on suspicions the Cyprus government was dragging its feet. It was not the case, even though it would have been understandable if it were, considering Cyprus only stands to lose from new agreement and the only realistic objective is damage limitation.
This might be easier said than done, as Russia is in a very strong position and has been calling all the shots in the negotiations. Cyprus has no leverage, which is why all proposals it submitted in the negotiations so far have been rejected. Harsh as this may sound, Russia has next to nothing to gain from compromise but that it is still prepared to talk gives a little hope.
Putin announced earlier in the year that he would be taxing Russian companies for dividend payments abroad at 15% to bolster the struggling economy, hit by low oil prices and the pandemic. There are no arguments to counter this position, even though Cyprus’ Foreign Minister Nicos Christodoulides said he had asked his Russian counterpart Sergei Lavrov that this policy should apply to all countries in the EU with favourable tax regimes, as if Cyprus had the right to dictate Russia’s relations with other countries.
It was not the only ludicrous comment made in relation to double taxation treaty issue. Akel leader Andros Kyprianou on Tuesday asked “whether we are paying the price of our one-sided and one-dimensional foreign policy of a government which is ignoring the traditional friends of Cyprus?” The simplistic theory, repeated also by the Alliance of Citizens, was that Cyprus was being punished by Russia for moving closer to the West and in particular the US.
The reality is that in these difficult times Russia would have sought changes to the double taxation treaty, which allows big capital outflows, even if Cyprus was its satellite.