By Elias Hazou
THE STATE stands to lose some €100m in tax revenue a year from a pending revision to VAT laws, Greens MP George Perdikis said on Monday.
The House finance committee was discussing a bill on taxation of services, which Cyprus needs to enact to comply with the EU’s VAT Directive.
Cyprus currently has the second lowest VAT in the EU. The standard rate is 19 per cent. Malta has the lowest standard rate, at 18 per cent.
The concern, according to Perdikis, relates to that part of the EU directive which stipulates that the taxation of services will better accrue to the country of consumption.
“This presents a daunting dilemma for the political leadership if, under the current economic hardship, Cyprus is forced to give €100m away to the VAT funds of other European countries and out of the coffers of our treasury,” he said.
Under the EU directive, the place of taxation is determined by where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service.
The supply of services between businesses is in principle taxed at the customer’s place of establishment, while services supplied to private individuals are taxed at the supplier’s place of establishment.
Earlier this summer, lawmakers were told that as of December 31, 2013 the VAT service was owed €421m.
During discussion at the House on Monday, MPs heard of a ‘scam’ whereby Cypriot companies, instead of charging for their services in Cyprus, charge them to tax havens where EU laws do not apply.
“Once again it has been confirmed that there are shysters who try to cheat the state,” Perdikis said.
“In Cyprus, having a good lawyer and a smart accountant means you can dodge all laws,” he added.
The finance committee also discussed proposed VAT regulations, by which the scope of the legislation will be expanded to incorporate the island’s Exclusive Economic Zone (EEZ).
As set out in the explanatory note accompanying the tabled regulations, since the EEZ falls within the sovereign territory of the Republic, the provision of goods and services within the EEZ must be considered as taking place within the sovereign territory.
The amendments are designed to target the provision of goods and services in the context of prospecting and exploitation of natural resources operations within the EEZ.
Any facilities and constructions that are installed or used for prospecting and/or exploitation in the EEZ are moreover designated as falling within the territory of the Republic and thus subject to applicable VAT laws.
The amendment comes just as a new round of gas prospecting is underway by an Italian-Korean consortium in Block 9 of the EEZ, and more prospecting is expected next year in other offshore concessions.
