Gold Magazine December 2013 - January 2014, Issue 33 | Page 77

The Cyprus
authorities’
contention is
that the

non-compliant
rating is unduly
harsh and does not
reflect the situation
as it is today

ance in fewer areas than Cyprus,
were nevertheless excluded from the
list of non-compliant jurisdictions.
The areas in which Cyprus was assessed
as non-compliant concerned the availability
of historic accounting records and the use
of compulsory powers to obtain information. In the case of accounting records, the
report acknowledged that one of the two
reasons for the “non-compliant” rating was
that, for most of the monitoring period,
trusts were under no obligation to maintain
the information concerned, but that new
legislation had recently been introduced to
require this. The other reason was a failure
by companies to comply with the legal requirement to submit financial information.
In their response, the Cyprus authorities
pointed out that delay in obtaining information had occurred in only 10 out of 650
cases examined, and that in nine of those
10 cases the information had subsequently
been obtained and in the sole outstanding
case legal proceedings had been instituted.
They also pointed out that personnel numbers and procedures in the relevant department had been significantly strengthened,
leading to a substantial improvement in its
performance in responding to requests for
information, and that this had been noted
in the report but not taken into account in
the assessment.
The principal reason for the “non-compliant” rating regarding the use of compulsory powers was that until the end of 2011
the authorities did not pursue enquiries
until a tax return had been submitted. As
the report acknowledged, this policy was
changed from the end of 2011. However,
this was not reflected in the assessment of
compliance. The other reason for the non-

compliant rating was a perceived failure to
use the powers under the law effectively.
In their response, the Cyprus authorities
pointed out that around 2,000 prosecutions are undertaken each year, which they
consider to be an effective and proportionate response. The authorities also noted
that the apparently low compliance rate in
the filing of annual returns is partly due to
the high proportion of inactive companies
in the total population.
While the current rating is undoubtedly
a disappointment, it does not affect the
effectiveness of Cyprus holding and financing structures and it has to be viewed in the
context that only 18 of the 50 jurisdictions
assessed were found to be fully compliant.
Several internationally significant finance
centres fell short of full compliance, including the Channel Islands, Germany, Hong
Kong, Malta, the Netherlands, Singapore,
the UK and the USA.
No doubt, following the banking crisis
and the allegations of laxity in the Cyprus
regulatory environment that preceded it,
there was a general reluctance to give Cyprus the benefit of the doubt, and the Cyprus authorities’ contention is that the noncompliant rating is unduly harsh and does
not reflect the situation as it is today. The
government has announced that the tax
authorities are working with the accounting
and legal professions and all other relevant
bodies in order to rectify all the reported
deficiencies, and that it is confident that
significant improvements will be noted at
the next review, which is due to take place
in 2014.
The business services sector will be a key
driver in rebuilding the Cyprus economy,
since it will be some years before any
benefits accrue from any gas reserves and
other sectors are unlikely to fuel a recovery.
Therefore we must repair the damage to
our business and make sure that it does
not happen again. We must all compete
in order to survive, but we must do so in
a sustainable manner, having regard to the
long term. In terms of the tax and business
regime, this means maintaining an appropriate balance. We must offer a competitive
tax and business environment, but not
to the extent that other, more influential
countries perceive this as a threat to their
interests, as some may well have done

earlier this year. The most important asset
in our sector, whether for an individual, a
firm, or a jurisdiction, is a “good name”,
a reputation for integrity and trustworthiness. This takes years to build, but can be
lost in an instant, with disastrous consequences. It behoves us all to work together
to show that Cyprus maintains the highest
standards.

BOOK
REVIEW
After the Music Stopped:
The Financial Crisis, the
Response, and the Work
Ahead
By Alan S. Blinder (Penguin, 2013)

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