The Cyprus Finance Ministry and foreign taxation consultants have been attempting to find a way of eliminating harmful tax practices that will satisfy the OECD, while yet cushioning Cyprus-based offshore companies against a resulting fall in income. In other words, they are trying to square the circle.
According to the online Cyprus news service Xak.com, a draft document has been produced which pledges that the tax regime applying to locally-owned companies will apply equally to foreign-owned companies operating in Cyprus, some time before December 31, 2005. That doesn't sound much like 'cushioning'. The date is said to be flexible depending upon the time-scale of the implementation of other tax reforms currently under consideration.
Further proposals in the report include Cyprus' intention to participate in exchange of information regarding taxation issues, and transparency as regards the ownership of companies and bank accounts. Administration practices will need to be improved to facilitate information flows. Well, we knew that already: but does the Government seriously believe that offshore companies will stay if their affairs are going to be revealed wholesale to home tax authorities?
It is also said that Cyprus has agreed to sign OECD-model double tax treaties with the remaining 13 OECD countries, which are: Finland, Luxembourg, Netherlands, Portugal, Spain, Iceland, Switzerland, New Zealand, Mexico, Korea, Japan, Australia and Turkey. Treaties already exist with other members.
Cyprus will maintain its trust and company formation regime, with the proviso that the identity of the beneficiary of a company is disclosed to the tax authorities when the company is registered or within a month from the time of a change in ownership. The government intends this to come into effect from December 31, 2003 for new companies registered in Cyprus; those that are already registered on the island will have until December 31, 2005 to comply with the new requirements.
It is expected that the OECD will examine Cyprus' report and will respond in the following weeks with an agreement between the two parties to be finalised by mid-2001.
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