THE GOVERNMENT is rushing to pass a new bill easing financial confidentiality to stem the flow of countries threatening to cancel their double taxation agreements with Cyprus.
Finance Ministry representatives told the House Finance Committee yesterday that the bill would pave the way for the sharing of confidential information on non-taxed residents of Cyprus. The government is pushing for the bill to be passed this Thursday in the last parliamentary session before the summer recess.
The bill has the backing of the Bar Association, bankers, certified accountants and the Cyprus Investment Promotion Agency.
Finance Ministry Permanent Secretary Christos Patsalides and head of the Internal Revenue Department Georgios Poufos were in parliament yesterday to brief deputies on the new legal proposal.
The two informed the Finance Committee that Russia still has Cyprus on a tax “black list” while Germany plans to cancel its double taxation treaty with Cyprus if the government doesn’t take measures to permit the exchange of confidential information.
Patsalides maintained that the ministry had consulted with all stakeholders before drafting the bill to ensure that the necessary safety mechanisms were in place. He said the government wanted to meet its obligations under the double taxation agreements while at the same time protect lawyers’ confidentiality and the interests of foreign investors whose deposits in Cypriot banks account for up to 47 per cent of total deposits on the island.
The Bar Association agreed with the government’s position but stated that the bill would not solve the problems regarding the attraction of foreign investment. It pointed to the functional difficulties faced at the Companies Registrar.
This is the second bill on confidentiality being proposed by the government. The last one was passed in December 2007. The latest bill will allow the Director of Inland Revenue to receive necessary information that will allow him to meet his obligations regarding the avoidance of double taxation. The director requires the written approval of the Attorney-general to exercise the powers proposed under the new bill.
The bill also clarifies that the director will not give information to countries with which Cyprus has a double taxation agreement unless those countries are able to do the same when required.
According to the ministry, Germany has informed Cyprus of its intention to cancel the existing double taxation agreement unless the government makes it possible to share confidential information on non-taxed residents.
France has also made it clear in writing that negotiations on a double taxation agreement will depend on Cyprus complying fully with OECD models on sharing confidential information.
Similar positions were taken by Denmark, Italy, the Baltic countries, the Netherlands, Finland and Norway regarding existing agreements, while Spain and Portugal raised the issue in current negotiations for a new double taxation agreement.
All the above countries are in a position to share confidential information with Cyprus on request, though currently they cannot receive such information from Cyprus.
The government has made it a priority to maintain and expand its double taxation agreements for the purposes of attracting foreign investment. It appears the government is now willing to share confidential information, at the risk of scaring off a few investors, rather than lose existing and potential tax agreements with other countries.
