non-compliant businesses — non-compliant businesses — Concerns are rising in Cyprus regarding a government plan that would enable the tax department to seal business premises for serious non-compliance. Legal and accounting associations have voiced their apprehensions, arguing that the proposed measure is disproportionate, even with the introduction of additional safeguards.
The bill is set for detailed scrutiny on Friday by the parliamentary finance committee, having undergone revisions over the summer following discussions between tax commissioner Soteris Markides and various professional groups.
Non-compliant businesses: Proposed Compliance Measures Spark Controversy
According to Philenews, the new draft legislation stipulates that a tax inspector must issue three registered notifications before sealing a business, each providing a ten-day window for compliance. Despite this stipulation, the Cyprus Bar Association has called for the elimination of the provision, arguing that the procedure is “not legally correct and operates to the detriment of businesses.”
Professional Bodies Voice Strong Opposition
The Cyprus Institute of Certified Public Accountants (Selk) has also raised concerns, highlighting specific sections of the bill that would permit a tax inspector to close a business initially for ten days, with the possibility of extending this period by an additional twenty days. The grounds for such actions include failure to submit tax returns for two years, failure to file twelve monthly employer statements, non-payment of tax exceeding €20,000, failure to issue invoices and receipts, and obstructing a tax audit.
Selk reiterated that the inspector must first send three notifications, each offering a ten-day compliance period, before any sealing action can be taken. They also pointed out that only Greece and Bulgaria have similar enforcement measures within the EU, and even then, these are limited to indirect tax breaches.
Comparative Enforcement in the EU
In Greece, such practices have been in place since 2022 for violations concerning the non-transmission of retail sales data. Conversely, Bulgaria’s enforcement pertains solely to VAT violations, not direct taxation. The accountants argue that VAT legislation already provides inspectors with extensive investigative powers, including access orders, and that issues related to audit obstruction should not be classified under tax law.
Concerns Over Taxpayer Rights and Compliance
Critics of the proposed sealing measures claim they are unjustified, particularly for taxpayers who submit audited accounts. They argue that the compliance periods of 10+10+5 days are unrealistic and could hinder taxpayers’ ability to access necessary records to comply with these demands. Furthermore, they assert that numerous existing mechanisms are already in place to enforce filing and collection.
Tax Department Defends the Proposal
In response to these concerns, the tax department has defended the proposed measure, asserting that it is essential for safeguarding public revenues and preventing unfair competition against compliant businesses. An information note circulated among political parties states that the sealing measure carries a deterrent effect, enhancing tax compliance by making the actions of the tax department visible to the public and other businesses.
The tax department emphasised that consistent taxpayers should see that those who violate the law do not gain an advantage over compliant businesses. This, they argue, contributes to restoring fairness in the system and fostering a culture of tax compliance.
