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Cyprus Internet Directory [ Cyprus escapes Ukraine tax black list ]

Cyprus escapes Ukraine tax black list

-- Amendment aims to relax sharing rules


Finance Minister Charilaos Stavrakis has been assured by government officials in the Ukraine that Cyprus is not and will not be included in the country’s tax black list.

Stavrakis, who returned from a visit to Kiev on Monday was optimistic that in a few weeks’ time the two governments will sign an agreement to avoid double taxation.

This is regarded as a very important development as failure to be excluded from such a black list would prompt the huge outflows of Ukrainian capital from Cyprus and cause a setback to efforts to maintain the island as a favourable accounting base for multinationals. This would also hurt Cyprus’ prestige as a regional financial and business centre and possibly lead to layoffs in the accounting and legal services sectors.


-- Article 26 needs amendment


The problem with the Ukraine and more acutely with Russia, which has already placed Cyprus on its tax black list for its nationals setting up companies here, is Article 26 of the Cyprus tax law, which forbids Cypriot authorities to give out information about investments made by Ukrainian or Russian nationals to their respective tax authorities.

Informed sources explained to the Financial Mirror why other EU nations such as the Netherlands, Austria and Luxembourg have stayed off such lists maintained by Russia and the Ukraine and why Cyprus is having problems.

The Financial Mirror understands that Cypriot officials have no problem sharing information on foreign nationals with their host countries, only when such information is requested through proper channels, such as a court order. But they are loathe to give out information just because a tax official in Russia or the Ukraine suspects that the national involved may be involved in illegal activities.

“These guys need to understand that you need to produce evidence before you can ask information on their activities,” said a highly informed source, adding that Stavrakis now needs to “walk a thin line” between meeting the needs of the Ukrainians, Russians and others, while at the same time protecting the reputation of Cyprus as a trustworthy centre for of all nationalities to do business.

Last June, Cyprus was placed on a similar black list issued by Russia.

Stavrakis has already called for amendments to the law, which would address banking secrecy and information-sharing, to help achieve Cyprus’ removal from the list.

Stavrakis has said that he will visit Russia as soon as he receives a formal invitation.

“We have a high level of financial services and I would like to believe that on a political level, at least, those decisions which will remove Cyprus from the black list will be taken,” the Minister said.


-- Tax revenue


The problem that Cyprus now encounters with the likes of Russia, the Ukraine and India is the attempt by all countries to boost tax revenues and close loopholes that allow their nationals to skip paying high taxes in their home countries by booking their business through Cyprus, which allows them to pay the lower tax rate here and then seek exemption from paying tax in the home country, citing the double tax avoidance treaties that Cyprus has signed with 40 countries.

Other than that, tax authorities always want to have full access to the personal wealth information of their nationals, which is why they wish to have the liberty to get information from other countries. It remains to be seen how the House of Representatives will vote on the pending bill on amending the banking secrecy law and how much Cyprus will yield in to pressure from foreign tax authorities and if appropriate measures are included in the amendment to safeguard fundamental rights of individuals.


-- Uniform tax rate


Efforts by major EU nations to force all member states to apply a uniform tax rate is another issue Cyprus is concerned about. Fortunately, there is very little support for such a measure, currently demanded by Germany and France, but the issue is serious enough to force Stavrakis that if such a proposal is passed, then it would mean a trebling of the current tax rate, which rests at 10%.

“This would be catastrophic for us,” Stavrakis has said.

Cyprus is a financial centre which attracts foreign investment and the low rate of corporation tax is the strongest weapon we have. Despite our small size, we will fight such propositions with all our strength,” he said.

Cyprus will not be alone and in most likelihood would be joined by other countries with a low tax co-efficient, such as Ireland and Luxembourg, Stavrakis said.

(Source: Financial Mirror)

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