THE AGREEMENT signed yesterday for the avoidance of double taxation may have the unwanted effect of driving away much-needed Russian money, a prominent lawyer has warned.
Former MP Michalis Papapetrou said that, under the agreement, authorities here would gain access to the income and bank account data of Russian businesses without the prior need to secure a court order.
“Who will choose Cyprus as a business centre when they know that, without any testimony that a crime has been committed, or even probable cause, authorities will get access to your records?” Papapetrou said.
“And who will accept authorities poring over their bank accounts? Do you know of many Cypriot businesses who’d put up with that?”
Papapetrou fears that the sweeping powers afforded to authorities might discourage potential future Russian investors and – in the worst case scenario – drive away existing businessmen.
But it all depends on how the agreement is implemented, he added.
“Supposedly, there is a safeguard in the agreement, namely, that the Attorney-general here must first give the nod to a request for information from Russian authorities.
“However, as far as I know, there are no criteria for when such information should be disclosed. In practice, therefore, the Attorney-general will likely approve most requests. It remains to be seen.”
The existence of double taxation agreements between two countries presupposes the exchange of tax declarations by non-residents in either country.
Double taxation occurs when the same transaction or income source is subject to two or more taxing authorities and can occur when different sovereign states impose separate taxes.
Consequently, companies can end up paying in both countries, leading to unnecessary relocation of economic activity to dodge higher rates, or illegal methods of tax avoidance.
In 2008 Russian authorities branded the island a “tax haven” because the government failed to provide Russian tax collectors with information related to repatriated dividends from companies based on the island.
But Papapetrou said the notion that Cyprus was actually placed on a ‘black list’ is a myth.
“We were never put on a so-called black list. The threat was there, yes, but it didn’t happen.”
Papapetrou said the government went along with the double taxation agreement most likely in exchange for Russian support for Greek Cypriot positions in the peace talks.
“No one is saying that political tradeoffs are anathema. Deals are made all the time. In my opinion, though, the tradeoff for us was not worth it.”
