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At its meeting in Barbados on 29 and 30 October 2015 the Global Forum on Transparency and Exchange of Information for Tax Purposes of the OECD (“the Global Forum”) approved the supplementary reports for Cyprus, Luxembourg and the Seychelles, which had previously been rated as Non-Compliant. In each case, following significant changes to their legal frameworks or practices, the new overall rating of Largely Compliant was assigned to all three jurisdictions.
As already known, in November 2013, Cyprus, along with Luxembourg, Seychelles and the British Virgin Islands were overall found as Non — Compliant jurisdictions on exchanging tax and other information on a timely basis with their double tax treaty partners.
Why Cyprus was originally rated as “Non- Compliant” by the Global Forum?
The rating of Non – Compliant for Cyprus was due to the fact that Cyprus has failed to exchange information on requests received from double tax treaty partners on a timely basis. The OECD requires that any request for exchange of information needs to be responded by the receiving jurisdiction within 90 days from the date of receipt of the relevant request.
In the original review by the OECD Peer Review Group (published in November 2013), it was determined that Cyprus responded within the 90 days deadline only in 10% of the requests received during the review period, (which covered the period 1 July 2009 to 30
June 2012), whereas, in about 40% of the requests received, Cyprus failed to respond fully, more than two years after the request was received.
The reasons for this failure by the Cypriot tax authorities to meet the deadlines were:
What were the consequences for Cyprus for being originally rated as Non — Compliant?
The rating of Cyprus as a Non — Complaint jurisdiction in November 2013 gave the opportunity to India to declare Cyprus as a “Notified Jurisdictional Area”, (for lack of effective exchange of information), which effectively suspended the provisions of the double tax treaty between Cyprus and India.s
Other important treaty partners also expressed concerns on the fact that Cyprus was not exchanging information timely, but deferred taking any action, expecting a swift improvement in the situation.
What happened in Cyprus subsequent to the negative rating?
Since November 2013, the Cypriot Ministry of Finance and the Tax Department have worked closely with the professional associations, such as the Institute of Certified Public Accountants of Cyprus and the Cyprus Bar Association, in order to improve the filing of tax returns and annual returns statistics and to improve the response time on exchange of information requests. Furthermore, legal action was initiated against those few taxpayers who failed or refused to respond.
The coordinated efforts improved the response time significantly and in March 2015, upon request to the Peer Review Group, Cyprus has undergone a supplementary review (covering the period 1 July 2012 to 30 June 2014), which confirmed the significant improvements made and enabled the Global Forum to accept the recommendation of the Peer Review Group to change the rating of Cyprus from Non – Compliant to Largely Compliant.
On — going monitoring of performance in this area
There will be on — going monitoring of Cyprus (along with all other jurisdictions) by the Global Forum of their performance on exchange of information, therefore it is imperative that the momentum for responding on a timely basis to requests for exchange of information to be received from double tax treaty partners or from signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which Cyprus signed last year.
Taxpayers and their professional advisors should now realize that the exchange of information is part of their everyday life and, in these times, secrecy of either the identity of the beneficial owner or the nature of the transactions carried out is not on the agenda worldwide.
Other jurisdictions rated as non – compliant
In November 2013, Luxemburg, Seychelles and the British Virgin Islands were also rated as non – compliant. The British Virgin Islands rating was changed to Largely Compliant in June 2015, whereas for Luxembourg and the Seychelles the rating was changed to Largely Compliant at the Global Forum meeting in Barbados, along with Cyprus.
Out of the 86 jurisdictions for which Phase 1 and Phase 2 reviews have been completed so far, there is no jurisdiction which is now rated as Non – Compliant.
Furthermore, out of the 34 jurisdictions for which Phase 1 reviews have been completed so far, eight jurisdictions did not qualify for undergoing a Phase 2 review. These jurisdictions are:
Trinidad & Tobago