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Cyprus's Shiarly Defends Island's Tax Integrity

by Ulrika Lomas,, Brussels

16 January 2013

Determined to secure the island’s future standing as a serious finance center and to secure an international bailout package, Cypriot Finance Minister Vassos Shiarly has vehemently rejected claims that Cyprus actively promotes money laundering and facilitates tax evasion, and has fiercely denied allegations of tax dumping.

Defending his country, Shiarly insists that Cyprus has implemented all regulations pertaining to money laundering since joining the European Union (EU) in 2004. All too aware of critical perceptions from abroad, the Cypriot government has resolved to make clear its commitment to combating money laundering, by implementing international agreements faster and better than other countries, Shiarly said.

Denying claims of tax dumping, Shiarly explained that the country’s tax system is one of its few location advantages. Cyprus must strive to attract capital, the minister stressed, alluding to the lack of industry on the island and to services as the country’s only chance.

Eurozone countries and the European Commission have recently increased pressure on debt-ridden Cyprus to adhere to anti-money laundering rules and have lamented the island’s relatively low rate of corporate taxation. Indeed, German politicians have called for the Cypriot government to increase the 10% corporate tax rate and to continue to tighten anti-money laundering and tax avoidance legislation, as a condition for its bailout.

EU Economic and Monetary Commissioner Olli Rehn urged Cyprus to consistently clamp down on money laundering and to implement new laws to ensure that the issue does not become a problem for the island.

Eurozone finance ministers are expected to agree to a rescue package for Cyprus at the beginning of March.

Cypriot Finance Minister Vassos Shiarly confirmed at the end of last year that Cyprus is very close to reaching an agreement with international creditors on a multi-billion-euro bailout to save its Greece-exposed economy.

The Cypriot government has been in consultation with other political parties and labor groups to agree to a package of spending cuts and tax measures to secure the rescue funding, which is estimated to amount to between EUR12bn (USD15.5bn) and EUR13bn.

The government hopes to cut its debt by a little over EUR1bn by the end of 2016 as opposed to the troika - the European Commission, European Central Bank and the International Monetary Fund - who have requested a EUR1bn cut by 2015. The government is said to be proposing to reduce its deficit in a ratio of 60:40 expenditure cuts to tax rises, whereas the troika has proposed an 80:20 ratio.

Austerity-driven tax rises have already seen value-added tax jump 2% to 17%, with the government discussing another rise in VAT. Income tax, investment taxes and property tax have also risen.

Cyprus became the fifth euro-zone country to request a bailout, when it was forced to recapitalize its banking system this June. The government has been reluctant to sign a deal that would impose harsh cutbacks and has been supported by French President Francois Hollande, who during a meeting with Cyprus President Dimitris Christofias urged other European leaders not to impose draconian measures on Cyprus in return for aid.

Troika negotiators have little hope of agreeing satisfactory terms with communist President Christofias, who will not countenance privatizations of bloated state monopolies, and are resigned to waiting for a new, presumably right-wing administration to take power later in February.

TAGS: compliance | tax | investment | European Commission | tax compliance | tax avoidance | law | banking | corporation tax | offshore | agreements | legislation | tax rates | Cyprus | regulation | Europe

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