Gold Magazine April - May 2013, Issue 25 | Page 30

COVER STORY

YES
XXX
WE
CAN

Facing

The Future

By Stephen
Michaelides

IT’S NOW TIME TO CHANGE THE BLEAK
PICTURE OF CYPRUS AND LOOK AHEAD
WITH CONFIDENCE

I

n the build-up to joining the
EU in 2004, Cyprus transformed itself from an offshore
tax haven to a jurisdiction
which complied fully with EU
directives and OECD initiatives against harmful tax practices. This development, in combination
with the many tax incentives offered to the
international tax planner, a familiar, UKbased legal system and an ever-increasing
network of double tax treaties, led to an
explosion of foreign-owned companies in
Cyprus. This brought with it many good
years for accountants, lawyers, fiduciary
services providers and our banks.
This tremendous growth was especially
true in relation to the CIS countries, where
the strength of the double tax treaty as well
as religious links have meant that Cyprus
has become a firm favourite of wealthy
businessmen (most notably Russian), as
a place to park their personal wealth and
hold their business interests.
Unfortunately for Cyprus, this growth
in Russian business coincided with several
factors which put Cyprus in the spotlight
(or the sights?) of the powerful in Europe:
High-profile Russian oligarchs and their
glamorous lifestyle have attracted a great
deal of publicity recently, with many questioning the origins of their immense and
sudden wealth. Offshore tax havens and
aggressive tax planning by large multinationals have also received a lot of coverage
in the media, as well as criticism from various political circles, with many questioning
the ethics (rather than the legality as such)
of such practices. With the increasing use
of Cyprus in tax stuctures, our name was
inevitably associated with some of these
practices and we have been accused of being part of the problem
Moreover, our government’s delay in

finalising a bailout during 2012 put us
firmly in the pre-election period in Germany. This provided an easy target for
opposition parties to put pressure on the
government through the populist argument
that they should not bail out “the tax haven
where rich Russians are hiding their illgotten gains”.
I believe we could have dealt with the
above ‘friendly fire’ as long as our banks
were able to stand on their own two feet (or
as long as the amounts involved were manageable). However, in my opinion, the final
nail in the coffin came with the signing of
the haircut of Greek bonds. The hit taken
by our big banks meant that, from that
day, we were at the mercy of our European
partners and the IMF.
Hence the mess we are in.
Whether we feel badly treated or not, we
have to deal with today’s reality: the local
economy is going to take a significant hit
and things are going to get worse before
they start getting better. Inevitably new
industries and sectors will start popping up
but the never-say-die attitude of us Cypriots may be tested even more than in 1974.
However, there is light at the end of the
tunnel in the shape of offshore gas reserves
and now that the bailout agreement has
given us some breathing space, we should
start to seriously look at ways of cashing in
sooner rather than later, even if this means
having to accept a discount on the reserves’
real value. In George Lakkotrypis we have
a bright, open-minded and down-to-earth
Minister of Energy, Commerce, Industry
& Tourism with experience in the real
world of commerce. Let’s hope he can deliver and, at the same time, we can navigate
the associated and inevitable political (or
worse!) brinkmanship.
On the positive side, the crisis we are
experiencing was (and remains) a banking

Our tax regime
remains the mos
t
attractive in the
eurozone
crisis. Cyprus has now turned a page (even
the IMF says that we have solved our structural problems) and we have managed to
contain the damage to the two problematic
banks. Most importantly, our tax regime
remains the most attractive in the eurozone
and this means that we can start talking to
our international clients with confidence
about the future.
This message needs to go out loud and
clear from everyone involved – the accountants, the lawyers, the fiduciaries, CIPA,
etc. – and we need to stop painting this
bleak picture of the future of our services
sector. I have spoken to dozens of clients
over the last few days and not one (I repeat
– not one) is looking to move his company
elsewhere.
If we manage to get through the next 1-2
months without any further adverse developments, there is good reason to be optimistic that the vital funds generated by our
overseas business clients will continue to
flow while the rest of the economy realigns
to the new realities.

info: Stephen Michaelides is a Partner at Grant Thornton (Cyprus) Ltd.

30 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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