a closer look GLOBAL TAX WEEKLY ISSUE 255 SEPTEMBER 28, 2017

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1 GLOBAL TAX WEEKLY a closer look ISSUE 255 SEPTEMBER 28, 2017 SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL GOVERNANCE BUDGETS COMPLIANCE OFFSHORE SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS COUNTRIES AND REGIONS EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU

2 FEATURED ARTICLES ISSUE 255 SEPTEMBER 28, 2017 Further Modernization Of Tax Procedures In Cyprus by Alexandra Spyrou, Elias Neocleous & Co LLC Introduction In 2014, the Inland Revenue department, which dealt with direct taxation, and the VAT department were merged to create a single Tax Department. One of the principal objectives of the unified body has been to modernize and streamline tax administration, for example by encouraging electronic filing of returns and settlement of tax liabilities by electronic means. Considerable progress has been made: all major categories of direct taxes can now be paid via online banking, and the queues to submit returns and pay taxes that used to be commonplace in tax offices towards the end of July and December have almost disappeared. In the spring of 2017 a system for electronic payment of VAT liabilities became operational, and electronic submission of VAT returns became mandatory. Two further steps in the modernization process took place in July 2017 with the enactment of laws making significant alterations to the VAT appeal procedure, and making electronic filing of income tax returns mandatory. The main provisions of the two laws are summarized in this article. The VAT Amendment Law Of 2017 Taxpayers who disagreed with VAT assessments raised following examinations of their records had three options for resolving the issue. They could submit a written objection to the Commissioner of Taxes within 60 days of receiving the assessment under article 51A of the VAT Law, 1 or a written objection to the Minister of Finance within the same time limit under article 53 of the VAT Law; or they could file an application to the Supreme Court of Cyprus within 75 days of receiving the assessment for review of the decision under article 146 of the Constitution. The first two options did not rule out the third: taxpayers who were dissatisfied with the decision of the Commissioner of Taxes or the Minister of Finance could subsequently file an application to the Supreme Court for review of their decision. 10

3 In the period since these appeal procedures were established, two important developments have occurred, namely the establishment of an independent Tax Tribunal under article 4A of the Assessment and Collection of Taxes Law, and the establishment of an Administrative Court with exclusive jurisdiction to adjudicate recourse applications under article 146 of the Constitution, with the aim of lightening the workload of the Supreme Court. With effect from July 7, 2017, the VAT Amendment Law transfers responsibility for determination of taxpayers' objections on VAT matters to the independent Tax Tribunal and to the Administrative Court. The taxpayer still has the right of recourse to the Supreme Court as the ultimate court of appeal. The amending law amends article 51A of the VAT Law by removing references to the Minister of Finance and the Supreme Court and requiring the Commissioner of Taxes to notify persons whose complaints are rejected of their right to submit an appeal to the Tax Tribunal or bring an action in the Administrative Court. In addition, the amending law replaces article 52 of the VAT Law, giving taxpayers the right to submit an appeal to the Tax Tribunal in respect of an expanded range of issues, principally: VAT imposed on the supply of goods or services, or the acquisition of goods from another EU Member State or a third country; Deductible input VAT; VAT assessments imposed on persons who fail to submit returns or keep proper records under articles 49 and 49A of the VAT Law; Supplementary VAT assessments issued under article 50; Any directions under paragraph 2 of Part I of Schedule One, which allows the aggregation of businesses which the Commissioner of Taxes considers to have been artificially segregated for the purpose of avoiding VAT; Any decision taken pursuant to paragraph 1 of Part I of Schedule Four, which allows the Commissioner of Taxes to adjust transactions between related parties onto an arm's length basis. It also adds a new article 52A giving taxpayers the right to submit objections to the Commissioner of Taxation in relation to issues including registration and deregistration of a taxable person for VAT purposes, enrollment in special schemes such as the special regime for farmers, repayment claims, recovery of input tax, and imposition of penalties. 11

4 The taxpayer has 45 days from receiving the notification of the relevant decision or act of the Commissioner of Taxes to submit an appeal to the Tax Tribunal. The Tax Tribunal has discretion to extend the period on written application by the taxpayer if there are reasonable grounds such as the applicant's illness or absence overseas. The Tax Tribunal cannot consider an appeal unless the applicant has: Submitted the necessary documents and evidence to substantiate the merits of the appeal; Submitted all the required tax returns and paid the amounts indicated in these statements as payable or made a settlement with respect to them; and In the case of appeals on matters referred to in article 52, paid the undisputed amount or provided appropriate security for payment. There is no right to appeal against settlements concluded under the VAT Law or the VAT Regulations, and the Tax Tribunal may summarily reject appeals which it deems to be unsubstantiated. The amending law inserts a new article 54A into the VAT Law requiring the Tax Tribunal to notify the Commissioner of Taxes that an appeal has been lodged, and to require the Commissioner to provide the Tax Tribunal with his statement and any other information specified by the Tax Tribunal within three months. At the hearing of the appeal, neither party may present any new arguments or evidence, unless the evidence only came to light at a late stage as a result of an inquiry by the Tax Department. Appeals should be concluded with the minimum possible delay and in any event the Tax Tribunal must issue its decision on the appeal within a year of its submission. The Tribunal may uphold or reverse the original decision entirely or in part, amend it, issue a new decision to replace the original decision, or remit the case to the Commissioner of Taxes with instructions to him to undertake specific actions. Any administrative action required as a result of a decision by the Tax Tribunal must be undertaken within 60 days. Appeals against decisions of the Tax Tribunal may be submitted to the Administrative Court, and appeals against decisions of the Administrative Court may be submitted to the Supreme Court. Changes To The Assessment And Collection Of Taxes Law Law 97(I) of 2017 amends the Assessment and Collection of Taxes Laws of 1978 to 2016 ("the ACT Law") with effect from July 14,

5 The principal change introduced by the amending law is that tax returns for 2017 and subsequent years must be submitted by electronic means or by other means approved by the Commissioner of Taxes. While the proviso that returns may be submitted by other approved means appears to provide an alternative, it is generally recognized that electronic submission is the only option in practice, as has been the case for VAT returns for several months. In addition, notices of assessment may now be served electronically, as an alternative to being served personally or by mail. The six-year limitation (12 years in the event of deliberate omission to provide information) on raising assessments provided for in articles 21 and 23 of the ACT Law does not apply if the assessment is issued after a court decision. The amendment law also introduces new penalties to encourage timely compliance by taxpayers: In addition to any penalty imposed in the event of omission to pay any tax due by the specified deadline, an additional amount of 5 percent of the tax due will be imposed if the omission continues for more than two months from the deadline; An administrative fine of up to EUR20,000 may be imposed for breach of the ACT Law or any Regulations or other secondary legislation issued under it, depending on the gravity of the infringement, irrespective of any criminal liability; Specific administrative fines may be imposed for failure to comply with the country-by-country reporting requirements under the Multilateral Competent Authority Agreement, and for breach of obligations relating to FATCA and the Common Reporting Standard contained in the relevant ministerial orders issued under the ACT Law. These range from EUR500 for failure to provide information to enable the Tax Department to verify its records, to EUR10,000 for failure by the reporting entity of a group of multinational enterprises based in Cyprus to submit a country-by-country report. In the event of failure to pay the administrative fine or failure to remedy the breach, the amount may be increased to EUR20,000; Before it imposes any administrative fine, the Tax Department must notify the person concerned and give them the right to make representations. An appeal against an administrative fine may be made to the Tax Tribunal or the Administrative Court. Conclusion The enactment of the two laws is certainly a step in the right direction. The amendments to the VAT Law align the procedures for resolution of VAT disputes with those for direct taxes, and 13

6 place them in the hands of an independent body, and the switch to electronic filing of tax returns will make the process much more efficient, and more convenient for taxpayers. E NDNOTE 1 Law 86(I)/