articles | 24 March 2014

New bill to tackle tax evasion

The bill, empowering the inland revenue department to seize personal property to settle unpaid dues to the government has been submitted to Parliament.

According to the requirements of article 3.7 of the Memorandum of Understanding (MoU) agreed to between Cyprus and the International Monetary Fund, the European Central Bank and the European Commission in return for a €10 billion bailout loan in March 2013, the Cyprus government must submit a “comprehensive reform plan to improve the effectiveness and efficiency of tax collection and administration.” The article goes on to explain various areas for improvement, including the need to “strengthen powers by the tax authorities to ensure payment of outstanding tax obligations. Following the latest troika review, it was agreed that the bill must be passed by March 2014.

In compliance with the article, the finance ministry has prepared a bill that bestows on inland revenue the authority to seize the assets – excluding immovable property – in order to settle debts to the government without resorting to the courts to obtain a relevant order. Such authority is already bestowed on the director of the Value added tax (VAT) department – poised to be merged with inland revenue, also as part of the MoU.

Prior to submission, the ministry had held informal consultations with the associations of chartered accountants, banks, lawyers, and the Central Bank of Cyprus, before it was reviewed and signed off by Attorney-general Costas Clerides. Speaking on the public broadcaster, Finance Minister Harris Georgiades said the bill was a tool in the hands of the tax collection authorities so that evasion could be effectively dealt with. “This concerns confirmed cases of tax evaders who possess assets but refuse to pay their dues”, he said.

The basic provision of the proposed legislation – the seizing of personal assets without requiring court order – has been met with strong disagreement from the associations of banks and accountants, who cite issues of data protection and separation of powers infringement, as well as the risk of further damaging trust towards the Cyprus financial services sector. They also argue that the MoU article makes no mention of government access to citizens’ bank accounts without a court order, but concede that adjudications in Cypriot courts drag on due to case overloads and propose the creation of administrative courts to settle such requests speedily.

Ioannis Charilaou, president of the Association of Chartered Accountants, expressed the association’s disagreement and raised the concern that the fragile trust in Cyprus’ financial services industry would be further damaged. “Foreign investors are a valuable part in the steam engine that is Cyprus’ economy,” he said. “We understand this is an MoU-related measure but the MoU makes no mention of seizing cash with no court order. The accused must be offered the chance to respond to their accuser, and this can only be done incourt.”

Data protection commissioner Yiannos Danielides said that, while obvious privacy issues are raised by the bill, he was not consulted in its preparation. “I was only informed today from the press,” he said. “There are obviously issues to look at.” Asked whether similar data protection issues arose when authority to seize assets was granted to the VAT director, Danielides said he was unable to respond as he had not had time to study the relevant legislation yet, but offered a preliminary distinction between the VAT and income tax. The former, he said, is collected on the government’s behalf and must be paid on immediately – therefore withholding it is akin to stealing from the government – whereas income tax is a levy imposed on people’s own earnings.

Source: Cyprus Mail

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