The Tax Department has been instructed to carry out strict audits of service providers involved in the citizenship by investment programme, Finance Minister Constantinos Petrides said in parliament on Thursday.
“Instructions have been given for strict audits to be conducted by the tax department to safeguard public interest as regards tax collection,” Petrides told the House watchdog committee.
The committee asked to be informed of the checks carried out by the department in accounting and law firms, which were registered service providers in the citizenship-by-investment (CBI) scheme.
The minister said audits focus on two categories of individuals or entities: those who sold immovable property and those who collected commission either as service providers or were involved in the naturalisation process.
Tax commissioner Yiannis Tsangaris said his department was in the final stages of recording all 3,000 citizenship applications. At the same time, 80 of the 245 providers are being audited for VAT, he said. Those providers filed 80 per cent of applications, which in value, made up 77 per cent of the citizenships.
Tsangaris said his department will audit all CBI service providers who have processed more than four applications, beginning with those with those who facilitated the highest number of naturalisations.
Regarding land developers in particular, inspectors started with the 10 smallest companies, and will move onto the 60 largest ones in time.
The reason, said Tsangaris, is that by law development projects must reach 90 per cent of completion before tax is payable. As some of these larger projects are unfinished, for now they cannot be properly audited.
According to the official, the single largest CBI provider is a law firm in Paphos connected to a political person.
Also being checked are the (former) law firm of President Nicos Anastasiades and the Tassos Papadopoulos law firm.
Queried by MPs, Tsangaris said that at first sight firms linked to politicians did not pay VAT for services rendered.
“As we see it, these services [in relation to the CBI] are administration services and should be taxed.”
But providers tend to log their services in different ways.
“There are offices linked to Politically Exposed Persons which, at first sight, seem suspect but unless and until the checks are completed I cannot say for sure.”
Fees charged for such services ranged from €30,000 to €100,000 per application.
On Anastasiades’ Limassol-based law firm, Tsangaris said its receipts are being checked, but for the time being “nothing untoward has come up.”
MPs also asked whether the audits cover overseas jurisdictions or “exotic destinations.”
Tsangaris said the Tax Department may request data from any country that is a signatory to the Country Reporting Standard; this includes the Seychelles.
“But I cannot ask them for data on tax residents of my own country.”
And without a court order the Tax Department cannot block nor gain access to anyone’s bank account.
Auditor-general Odysseas Michaelides said checks carried out by his agency found that, of the 15 largest service providers for CBI, one did not file tax returns for the years 2017 and 2018.
Michaelides also flagged the lower 5 per cent VAT rate paid by certain CBI applicants purchasing property in Cyprus, noting that the lower rate is designed only for primary residences and not for the purposes of investment.
He also cited another finding where the value of the immovable property bought under the CBI was “approximately twice its true market value” with the money ending up in the bank accounts of developers.
A company selling a property at twice the true price would then have to choose between either showing excessive profits on its books, which would be taxed, or an intermediary would suggest sending part of the amount to the Seychelles or Malta and write it up as an expense.
The finance ministry’s permanent secretary Giorgos Panteli said that over the years some €6bn flowed into the economy through the CBI. The majority of naturalisations concerned Russian, Ukrainian and Chinese nationals.
Cyprus was forced to nix the CBI in November following a series of damning media reports saying dubious individuals had secured citizenship.
The final straw was an undercover video aired by Al Jazeera that showed former House president Demetris Syllouris and former Akel MP Christakis Giovanis offering help to a (fictitious) Chinese businessman with a criminal record to secure citizenship.
Both have since resigned amid a public backlash against the political establishment.
At about the same time, the EU announced it was launching legal procedures against Cyprus in relation with the controversial programme.