Tag: Ioannides Demetriou LLC

BIM and the Cypriot construction industry, a construction lawyer’s perspective

Posted on | by Paschalis Paschali

What is BIM?

BIM, which is the acronym for Building Information Modelling is not new. In fact, BIM as a concept was first developed in the 1970s. The acronym BIM crept into existence sometime in the late 1980s and the protogenic BIM software, albeit quite limited in its  functions, was  first issued in the mid 1990s. Nowadays, the technology has progressed to such an efficiency that most developed construction markets, irrespective of location, have shifted to BIM.

Such is the level of growth and acceptance of BIM that in 2011, just 13% of industry professionals surveyed by UK construction software provider NBS were actively using BIM software, and 43% had yet to hear of the technology. A decade on, according to the annual NBS BIM Report, 73% of practices now use BIM, while just 1% remain unaware.

A very apposite yest easily comprehensible explanation of what BIM is and how it functions is that it is software which creates digital representations of the physical and functional characteristics of spaces. In short, it is software which is used to plan, design, construct, operate and maintain buildings.

In truth though, BIM is much more than mere computer software. It is a new construction process centred around the complete collaboration of all the parties involved in the construction process through the sharing of information throughout the planning and construction process in real time

BIM software allows for the creation of the 3D models of what is actually to be built so that the Employer, Architect, Contractor, Civil engineer, M&E engineer, QS and Interior Designer can use the model to control the design, cost and the construction process itself. Most significantly BIM is relied upon as a tool for quick and independent problem identification and remedial decision-making, from project inception to handover.   BIM is naturally most beneficial when implemented at the beginning of project so that  the planning and tendering process is done through BIM. Thereafter the model can be further developed as the project moves along its life cycle.

BIM model rendering
BIM model rendering

What does BIM do?

Simply put, everyone associated with the project works and in fact designs and builds using the same 3D model and all aspects of the planning and design are inputted into the BIM software. Any and all matters and/or issues relating to every aspect of the construction process are viewable to all and can be resolved so as to identify and eradicate any potential error before an error occurs or to deal with any necessary alteration of any aspect of the project.

BIM software flagging up a clash between the Architect’s plans and the M&E Engineer’s plans

A notable and, in terms of Cyprus, very relevant example of BIM operation is the instance of a variation. A variation, once decided upon will be inserted into the 3D BIM model by the Architect and is instantly and contemporaneously viewed by all other parties. In principle the cost of the variation can be calculated by the software itself since the software can be linked to the BOQ. Also, the software, which is linked to the planning and construction schedules can be used to develop the extension or saving of time calculation that the variation warrants. Then the Contractor and any other party whose work is affected by the variation proceeds with its execution, thereby minimising the potential or time wasting and costs involved in disputing or arguing about the implications in time and costs in relation to the variation.

BIM and Sustainability

We are all becoming aware of the need for sustainability. The BIM model can interact with specific sustainability software to carry out sustainability analysis so as to achieve optimum comfort and design optimisation as well as energy efficiency.

It is significant to note that one is able to track and attain Sustainability Certifications by the interlinking of BIM and sustainability software.

Finally, BIM software also allows for facility management as it may be integrated with computer-aided Facility Management Systems to ensure a smooth transition from the handover stage to the facility management stage once the project is completed and the Employer takes over its operation.

When BIM is utilised by a proficient Project team, the software allows for the archaic 2D modelling (i.e. plans on paper) construction process to move to 7D.

The 7 dimensions are as follows:

3D = Interactive plans

4D = Time calculation

5D= Cost calculation

6D= Sustainability

7D= Facility Management

Energy efficiency gauge on BIM model

How will BIM change the Cypriot construction industry?

Through BIM design, issues will be identified and resolved before they enter the critical path for construction. This means that parties will no longer be forced to argue about cost and extension of time claims since these factors will be calculated by the BIM software itself.

Projects will be planned and executed in the most cost effective and sustainable manner and budgets will be monitored much greater accuracy.

The adoption of BIM will effectively usher in a new era of construction in which most disputes associated with the construction process are resolved by the software itself. One can only imagine the decrease in cost to the public purse if government projects were tendered for and constructed with the use of BIM.

At the same time Contractors bidding for government projects will benefit from the increased certainty, transparency and objectivity that BIM will introduce. As a result the market will become much more competitive due to the renewed confidence in how the project will be run.

Most importantly BIM will promote greater confidence, cooperation and trust in the beleaguered construction industry of Cyprus due to the minimisation of disputes that lead to delays in payments and protracted and increasingly expensive legal disputes.

An Employer who uses the BIM model will benefit from more competitive prices due to the elimination of the uncertainties that BIM can achieve.

Even though constructing with the use of BIM has a cost, this cost is by no means restrictive in large development and public projects. In fact the opposite is the case. By using BIM the Employer, whether private or the government will end up saving money for the plethora of reasons outlined above.

BIM vs Lawyers

One could think that BIM could spell bad news for lawyers since the software eliminates many of the reasons for disputes that occur during the construction process. This is, however not the case. Recent case law in the United Kingdom and in the US has flagged up a plethora of BIM related legal disputes. After all, BIM works through human input. BIM has not yet reached the stage where it can eliminate human error. As shown above BIM can greatly reduce the effects of human errors as it can identify it and possibly aid in resolving the effects of it on site but the capacity for human error still remains a risk.

Recent disputes that have reached the courts have involved questions like:

Determining liability: Questions arise as to who bears responsibility for design errors and other human errors imputed into the BIM software. If numerous parties are sharing and using the same model then it becomes harder to ascertain who is at fault for the error once the error occurs.

Responsibility issues: A breakdown of communication can occur when not all parties on the project are using BIM (which sometimes is precisely the case). Sometimes the project might be both on BIM and on 2D plans which if not checked thoroughly might have discrepancies between them which can lead to errors which are then built into the project, and which will have to later me remedied.

Finally, ownership / title issues: Disputes as to who has ownership and/or copyright of the BIM software relating to a project are the most common form of dispute. This usually happens when there is a breakdown in relationship and the party most in control of the BIM pulls the plug and locks the other parties out of using it to finish the project.

With the above in mind, even though BIM will help prevent or resolve a large percentage of traditional disputes, it will not go as far as to eradicate disputes altogether. Even with BIM, disputes as to workmanship, design, cost and time will still occur, but simply to a lesser extent. Coupled with the BIM related disputes mentioned above there will still be ample ground for lawyers to “cross swords” in construction.  

Parties will therefore do well to look to lawyers with the relevant legal experience and expertise in understanding BIM, its implementation and the legal issues that arise through its use. Contract clauses will have to be drafted with BIM usage in mind and parties will need to incorporate the use of this technology in the actual terms of the contract itself, both in relation to the terms relating to the construction as well in relation to the clauses regulating the dispute resolution mechanisms of the contract. Simply put, lawyers will not be out of a job anytime soon but rather their scope of operations will evolve to include BIM.

Using BIM now

Readers operating in the Cypriot construction industry may be excused for thinking that BIM is years away from becoming a significant factor in the Cypriot construction industry. We are however confident that that is not the case and the situation will change rather rapidly.

One of the main reasons supporting this view is the commonly held belief that the current state of the construction industry in Cyprus is not sustainable. This is one of the few things that both Employers and Contractors agree upon.

The time is therefore ripe for the introduction of BIM into the construction market. In this context it is significant to note that BIM can be used on a project even if all parties to the process do not yet know how to use and/or do not yet have access to the relevant software. The fact of the matter is that if an Employer wishes it to be so, any Cypriot project can be run on BIM starting tomorrow.

We are currently working with construction professionals operating in Cyprus with long standing international experience working with BIM. They are very well placed to advise on and to provide BIM implementation by assisting clients in the construction and development of the models required for BIM to operate on a project and in setting out the necessary BIM process and procedures in relation to the project, irrespective of its stage of development or construction.

For any related queries and/or more information on how BIM can be put to use on your construction project please contact the Construction and Real Estate team at Ioannides Demetriou LLC.

All photos and model depictions used in this article are the property of and have been graciously provided by DG Jones and Partners (www.dgjones.com).

State Aid and Taxation

Posted on | by Paschalis Paschali

Fiscal state aid is a hot topic right now, with a number of high-profile cases going through the European courts.

Under EU law, Member States are prohibited from giving an advantage in any form whatsoever to undertakings on a selective basis, unless it is justified by reasons of general economic development. 

The test is set out in Art 107 of the Treaty on the Functioning of the European Union (TFEU):

“[…] any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

The concept of state aid is wider than that of a subsidy, embracing not only positive benefits, such as subsidies, but ‘also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect’.

An aid could include subsidies, interest-free or low-interest loans or interest rate subsidies, guarantees on preferential terms, supply of goods or services on preferential terms, capital injections on preferential terms etc.

In order to fall under the scope of Art 107 TFEU, the aid must be granted by a Member State or through Member State resources. This encompasses regional or local authorities and public bodies. There must be a burden on state resources, not just an incidental benefit given without a financial burden.

Very importantly, the aid must favour certain undertakings or the production of certain goods (the ‘selectivity’ principle), which distort or threaten to distort competition, and must be capable of affecting trade between Member States.

The salient question is whether the recipient of the advantage is receiving a benefit that it would not have otherwise received under normal market conditions. The benefit should improve the undertaking’s financial position or reduce the costs that it would have had to bear.

The Commission does not need to prove that trade will be affected. It is sufficient to show that the measure threatens competition, i.e. that intra-EU trade may be affected and not necessarily permanently. For general guidance, see the Commission’s 2016 Notice.

Under Art 107(2) TFEU, certain types of aid such as aid of a social character or aid to help in case of a natural disaster are deemed to be compatible with EU law. Furthermore, aid may be compatible with the internal market if it falls within any of the six derogations laid down in Art 107(3) TFEU. These derogations have been construed strictly, though some of these proved essential in the context of past financial crises and the COVID-19 era.

Whether or not a measure is state aid for the purposes of this provision is a question that the courts both at European and national level have competence to decide. However, whether such state aid is compatible with the common market (i.e. whether it is lawful), is a question that the national courts do not have legal competence to deal with – only the European Commission at first instance.

The Commission has a pivotal role in the application of the state aid prohibition. It keeps constant review of existing aids offered by Member States. Furthermore, Member States are required to notify the Commission as to any plans to grant or alter state aid. The Commission may also ask the Court of Justice to order a Member State to recover illegal state aid.

Companies themselves may trigger investigations by lodging complaints with the Commission. In fact, during an investigation (or even prior to it), the Commission often invites interested parties to submit comments. A company may be affected by the state aid prohibition whether it is the recipient of aid or the competitor of the recipient. Recently, a direct action against a Commission decision brought by competitors of the beneficiaries of a state aid measure was allowed in the Scuola Elementare Maria Montessori case.

Aid given to a company must be repaid if it is unlawful or has not been properly notified or approved by the Commission. If repayment is demanded, within a period of four months, the taxpayer must reimburse the full amount of the financial benefit conferred, including interest, for up to a maximum of ten years prior to the start of an investigation. No recovery is necessary when the unlawful aid was given more than ten years before the Commission’s decision.

The state aid prohibition has become very high profile in the tax field. Tax measures that relieve the recipients of charges that are normally borne from their budgets such as reductions in the tax base, total or partial reduction in the amount of tax (exemption of tax credit), deferment, cancellation or even special rescheduling of tax debt are examples of fiscal state aid. Such tax measures are thought to be granted by the state or through state resources. This is because a tax exemption mitigates the charge that would normally be recoverable from the undertaking. Therefore, the state loses tax revenue. This loss of tax revenue is equivalent to consumption of state resources in the form of fiscal expenditure.

Recent state aid investigations have centred around tax rulings or advance pricing agreements given by Member State tax authorities to various multinationals. What was objectionable to the Commission in each of these cases was that the tax rulings given by Member States allowed the MNE beneficiaries to depart from market conditions in setting the commercial conditions of intra-group transactions, which led to significant tax reductions and very low effective tax rates.

Questioning discretionary practices of tax administrations is not something new in the area of state aid. As noted in the 1998 Commission state aid notice on business taxation, treating economic agents on a discretionary basis may mean that the individual application of a general measure takes on the features of a selective measure, in particular where exercise of the discretionary power goes beyond the simple management of tax revenue by reference to objective criteria.

In the last few months, decisions of the European Court of Justice on some of these cases have come out but we are still waiting for many more. What seems to be emerging from the Fiat and Starbucks appeals is that a tax ruling which does not seem to follow the OECD’s arm’s length principle does not necessarily mean that it falls within the scope of the EU’s state aid prohibition. It is important to assess the reference system of the investigated Member State in order to determine whether the tax ruling is an exception to that system and not whether it deviates from a general abstract arm’s length principle.

Of course as the arm’s length principle as well as the OECD’s Transfer Pricing Guidelines are now incorporated or closely followed by most Member States, including Cyprus, a tax ruling or advance pricing agreement given by the tax administration which allows a tax treatment incompatible with the arm’s length principle is very likely to fall foul of the state aid prohibition. Therefore, special caution should be taken by tax authorities in giving tax rulings, to ensure that the rulings are aligned with the OECD Transfer Pricing Guidelines. Furthermore, undertakings receiving beneficial tax treatment – whether through a ruling or advance pricing agreement or other mitigating measure – should bear in mind that if it is too good to be true, it is probably state aid and will need to be reimbursed at some point.

For more information on any of the issues raised in this newsletter, please get in touch with us.

Trademark protection in the Metaverse

Posted on | by Paschalis Paschali

As the Metaverse continues to grow and evolve, it brings about exciting opportunities and challenges for businesses and creators alike. With virtual worlds becoming a significant part of our digital lives, intellectual property protection becomes crucial in this immersive digital realm. In this article, we will explore how trademark protection in the Metaverse has been addressed so far.

The Metaverse can be described as a virtual universe where users interact with one another and digital content in real-time. It encompasses virtual reality (VR), augmented reality (AR), and other immersive technologies. Within this vast digital landscape, brands and trademarks play a crucial role in distinguishing products and services, fostering consumer trust, and promoting healthy competition.

Recently, in a groundbreaking ruling, a New York court applied trademark infringement analysis to non-fungible tokens (NFTs) and found that a collection of digital images called ‘MetaBirkins,’ featuring fur-covered handbags attached to an NFT, could confuse consumers with the luxury fashion brand Hermès Birkin bag. Hermès argued that the MetaBirkins collection infringed its trademark for the word ‘Birkin’ violated its trade dress rights, and involved cyber-squatting and unfair competition. The court upheld all of Hermès’ claims and awarded the brand $133,000 in damages. This decision has significant practical implications, suggesting that existing trademark rights on physical goods can potentially be enforced against their unauthorized use in virtual environments. It also highlights the importance of balancing fundamental rights when addressing trademark infringements related to NFTs and new forms of artistic expression. Additionally, the ruling raises questions about the distinction between owning the digital images and owning the ownership rights to the NFT in terms of legal action against infringement.

Although this decision has no binding effect in Europe, significantly, it indicates that existing trade mark rights on physical goods could potentially be enforced against their unauthorised use in virtual environments, in spite of the fact that the trade mark proprietor is not yet active in the metaverse or in the market of NFTs certified digital assets.

While most businesses have trademark registrations for “real world” goods/services, some are extending their trademark portfolios to include virtual goods and services. The European Union Intellectual Property Office (EUIPO) has provided guidance to brand owners on describing metaverse and NFT-related goods/services and the appropriate NICE classes to use. According to the guidelines, classes 9 (downloadable virtual items), 35 (retail store services encompassing virtual products), 41 (online entertainment services), and 42 (minting of NFTs) are relevant for trademark registrations related to the Metaverse. Generic terms like “virtual goods” or “non-fungible tokens” are not sufficient and must be further specified, such as “downloadable virtual goods, namely, virtual clothing” or “downloadable digital files authenticated by non-fungible tokens.”

There are also several infringement issues to address, including whether reproducing a trademark in the metaverse constitutes an infringement. Mere reproduction of a mark by an avatar in the metaverse may not satisfy the criteria for trademark infringement, similar to how wearing a T-shirt with a third-party logo does not infringe in the real world. However, offering an avatar design or accessory service using a third-party trademark or using a third-party trademark for a virtual store front likely constitutes infringement.

As the Metaverse continues to shape the digital landscape, the EU is proactively addressing trademark protection to safeguard brand owners’ rights. The established trademark protection framework, through institutions like the EUIPO, enforces legal remedies, prevents consumer confusion, and fosters international cooperation. This concerted effort ensures that the Metaverse remains a secure and innovative space for businesses, creators, and consumers alike. By upholding trademark rights, the EU promotes a thriving virtual environment where brands can flourish while providing users with a trusted and engaging experience.

Ultimately, the level of trademark protection in the Metaverse will depend on the legal and regulatory developments that emerge as the concept evolves and becomes more established. It is advisable for brand owners and businesses to closely monitor the legal landscape and consult with legal experts who specialize in intellectual property and emerging technologies to understand the specific implications and protections related to trademarks in the metaverse.

Get in touch for a consultation with our team.

Digital nomads, international remote working and tax implications (Part II)

Posted on | by Paschalis Paschali

In the previous part, we briefly touched upon the type of tax issues that digital nomads (and/or their employers) might encounter. In this part, we review the legal position in Cyprus. We also review how some jurisdictions have dealt with some of the tax implications affecting international remote workers for non-resident companies and whether they gave rise to a permanent establishment.

So far, the Cyprus tax authorities have adopted a light touch approach. This is facilitated by the Cypriot legislation’s objective test for tax residency of individuals. As of 2017, an individual is a tax resident of Cyprus if it satisfies either the ‘183-day rule’ or the ‘60-day rule’ for the tax year. The 183-day rule is satisfied for individuals who spend more than 183 days in any one calendar year in Cyprus. The 60-day rule for Cyprus tax residency is satisfied for individuals who, cumulatively, in the relevant tax year do not reside in any other state for a period exceeding 183 days in aggregate, are not considered tax resident by any other state, reside in Cyprus for at least 60 days, and have other defined Cyprus ties.

During the COVID-19 pandemic, the Cyprus tax authorities followed the OECD’s non-binding guidance and as such, the presence of persons within Cyprus (or abroad) due to restrictions related to the pandemic were not taken into account when assessing the existence of a permanent establishment. Similarly, the tax residency of a foreign company or a non-resident individual were not affected by extended stays in Cyprus as a result of the pandemic. However, the provisions of this guidance are no longer relevant after the lifting of all restrictions. Therefore, the 183-day rule and the 60-day rule are to be strictly adhered.

For digital nomads working from their holiday home in Cyprus or from a temporary location, even if they do not meet the test for tax residency, they could still trigger a permanent establishment for their employer/company. For this, an assessment of all the facts needs to be made to determine whether the arrangement has sufficient permanency. Furthermore, Cyprus legislation and any underlying tax treaties between Cyprus and the state of the employer need to be reviewed.

It is useful to keep abreast of how other jurisdictions have dealt with some of the tax issues relating to digital nomads.

In 2022, the Spanish tax authorities issued guidelines and later on a binding ruling to confirm that individuals who stayed at home to work remotely during the COVID-19 pandemic were doing so by an extraordinary event. This was not at the employer’s request. The activity lacked a sufficient degree of permanency or continuity and as such, it did not create a permanent establishment for the employer.

Whether after the termination of the public health measures the home office in Spain would give rise to a permanent establishment in Spain, this depended on whether the home office was at the disposal of the foreign employer (in this case a UK employer).

In assessing this, a number of factors were taken into account, such as whether the activity previously performed by the employee changed after he moved to Spain, whether the move was for a purely personal decision, whether the employer had asked the employee to move to Spain for a specific business reason, whether the employer bore the costs of the move, whether the employer had an office in the UK which could be used by the employee etc.

In 2022, a number of rulings were given by the Danish tax authorities relating to international remote work. One ruling found that a CEO of two Norwegian companies who was working from home three days per week was a permanent establishment. By contrast, in another ruling, it was found that a managing director working from home due to personal reasons was not a permanent establishment. One important factor was that the director was not involved in sales-related activities taking place in Denmark. Similarly, a CFO working from home two days a week for a Swiss employer was not a permanent establishment for similar grounds. Although the CFO was also a member of the board of directors, this was not determinative as his functions primarily related to activities in Switzerland.

The Swedish tax authorities have also updated their guidance on remote working. According to the updated guidance, working from home due to government restrictions or force majeure cases (e.g. the COVID-19 pandemic) will not give rise to the existence of a permanent establishment. Similarly, if an employee works from home for personal reasons and this is not required or imposed by the foreign employer and there is no commercial interest for the foreign employer, then the employee’s home will not be considered to be at the disposal of the foreign employer and as such, will not give rise to a permanent establishment.

More recently, the Dutch tax authorities issued a ruling accepting that a foreign EU company did not have a Dutch permanent establishment as a result of having three employees who worked fully remotely from their home offices in the Netherlands. It was crucial that the home offices were not at the disposal of the employer. It was also important that the employees had no authority to bind the company, the foreign company was subject to tax where it was based and, very importantly, the employer offered an office but the employees preferred to work from home. This appears to be the first ruling involving multiple employees.

Of course, these rulings do not bind the tax authorities of other countries, including Cyprus, but they provide useful guidance. It would appear from some of the rulings issued so far that someone generating sales, or a management team or senior staff could give rise to a permanent establishment in Cyprus for the employer/company. For senior management or employees creating significant value for the employer, it is advisable to obtain a tax ruling from the Cyprus tax authorities before any international remote working arrangement is approved by the employer.

We can help you in this process and protect you and your employee from triggering any unexpected tax liabilities. Of course, given Cyprus’ very competitive tax regime and relatively low tax rates, it might be tax efficient to create a permanent establishment in Cyprus, or even transfer your tax residence. Currently, many incentives are offered by the Cypriot government for relocation to Cyprus, especially for non-domiciled individuals, which might make the change of tax residency a very appealing option. However, the transfer of tax residence, whether by an individual or a company needs to be carefully planned, in order to avoid creating dual tax residency. A relocation before you break your previous tax residency could give rise to double taxation of the employee’s worldwide income.

Our experienced lawyers can help you navigate this complex area whether you prefer to avoid the creation of taxable presence in Cyprus, or whether you wish to transfer your tax residency as an employer or that of your employees in Cyprus. We can assist you with all the technical formalities (e.g. registration as a local employer, maintaining payroll in Cyprus etc.) and we can help you obtain any necessary tax rulings from the tax authorities for a seamless transition.

For more information, please get in touch with us.

New EU Directive on improving the gender balance among directors of listed companies and related measures (EU 2022/238): Women on Boards of Listed Companies

Posted on | by Paschalis Paschali

In the context of the EU Gender Equality Strategy 2020–2025, the EU Parliament has adopted a new directive aiming to close the gender gap on corporate boards of large (the “Directive”), with listed EU companies imposing at the same time the obligation for transparent assessment procedures on the basis of the candidates’ merits, irrespective of their gender.

Pursuant to the said Directive, Member States must set an objective to ensure that at least 40% of non-executive director positions at listed companies are held by members of the underrepresented sex. If Member States choose to apply the new rules to both executive and non-executive directors, the target would be 33% of all director positions.

 Listed companies that are not subject to this latter objective, must set individual quantitative objectives with a view to improving the gender balance among executive directors. Also, Member States must ensure that listed companies which do not achieve the objectives referred to above (40% and 33% respectively), as applicable, adjust the process for selecting candidates for appointment or election to director positions. Hence, if the targets set are not being met, companies will need to explain how they intend to meet these objectives.

To ensure compliance with the requirements of the Directive, listed companies will be obliged to provide information, once a year, regarding their respective boards’ gender representation and measures being undertaken to achieve the applicable quotas. On the basis of the information provided by the listed companies, a list of those companies satisfying either of the Directive’s requirements (executive, non-executive directors, all directors) annually will be published by each Member State.

The Directive exempts from its application SMEs, i.e. companies that employ fewer than 250 persons and have either an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million.

Finally, Member States are required to implement “effective, proportionate and dissuasive” penalties for infringements by listed companies. Τhe Directive further obliges Member States to ensure that in the performance of public contracts and concessions, listed companies comply with applicable obligations relating to social and labour law in accordance with the applicable EU law.

Key dates:

The Member States must adopt and publish the laws, regulations and administrative provisions necessary to comply with the Directive by 28 December 2024.

Listed companies in the EU must meet the targets set above by 30 June 2026.

Comment:

Generally, Cyprus enhanced its position in the gender equality field (there has been an increase in women actively involved in politics) having of course considerable room for improvement while laying solid foundations at a socio-political level. Cyprus has adopted a National Action Plan on Gender Equality 2019 – 2023 setting various measures aiming the promotion of equal participation in decision-making. It remains now to be seen how the Directive’s provisions will be implemented at national level, undoubtedly bringing about a positive effect for the country’s economy and a safeguard of equal labour opportunities especially for women’s employment in the companies concerned.

Navigating EU sanctions – overview and predictions for 2023

Posted on | by Paschalis Paschali

European Commission President Ursula von der Leyen has recently announced that the EU is preparing a 10th package of sanctions on Russia and is planning to have it in place by 24 February 2023 – the 1 year anniversary of Russia’s actions in Ukraine. The new package is said to be focusing on technology that may be used by the military of Russia and in cutting sanctions circumvention. It may further include financial sanctions against four Russian banks. Overall, the EU has progressively imposed sanctions against Russia since 2014, in light of the annexation of Crimea and the non-implementation of the Minsk agreements.

EU sanctions do not apply extraterritorially. The Sanctions Regulation applies, inter alia, to any person inside or outside the territory of the Union who is a national of a Member State, and to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State.

The measures forming part of the various sanctions packages as found and developed under the two main EU regulations, namely Council Regulation (EU) No 833/2014 (a.k.a. economic or sectoral sanctions) and Council Regulation (EU) No 269/2014 (a.k.a. individual or targeted sanctions) are complex and multi-layered, and understanding their full scope and compliance is becoming an increasingly challenging exercise for the stakeholders involved.

The EU economic sanctions regime imposes prohibitions and limitations via the targeting of specific sectors of the Russian economy as a whole including inter alia prohibitions on new investments in the energy sector; prohibitions on certain operations in the aviation sector; prohibitions on imports of iron and steel; prohibitions on the financing of the Russian government and Central Bank as well as banning all those transactions related to the management of the Central Bank’s reserves and assets; prohibitions on a range of financial interactions, financial rating services and transactions with Russia; prohibitions on accepting deposits; prohibitions on trust and a number of business-related services.

The EU individual sanctions regime imposes the freezing of assets belonging to, owned, held, or controlled by listed persons or entities: all their assets in the EU are frozen and EU persons and entities cannot make any funds available to those listed. Both Regulations have broad anti-circumvention provisions, pursuant to which it is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions as found under the Regulations. Additionally, any person who facilitates the circumvention of sanctions by others, may now be included in the sanctions list himself – and this includes EU natural and legal persons.

The year ahead

It seems unlikely that developments in sanctions policy and regulations will be slowing down in 2023. On the contrary, we expect to see more packages but also enforcement actions as regulators and prosecutors come under increasing pressure to show more “teeth” rather than simply introducing and drafting new policies. The controversial idea of ceasing and not only freezing assets has also been increasingly under discussion.

On 28 November 2022, the European Council unanimously decided to add violations of EU sanctions to the list of “EU crimes”. On 2 December 2022, the European Commission introduced a proposal for an EU Directive which sets out minimum rules concerning the definition of criminal offences and penalties in respect of violating EU sanctions. The willingness to introduce such a Directive is reflective of the EU’s objective for stronger harmonization in the enforcement of sanctions by Member States and for dissuading circumvention at the EU level. Of course, for the Directive to take effect, Member States will have to incorporate it via the passing of national legislation. The Commission has also recently launched an EU whistle-blower tool enabling the anonymous reporting of possible sanctions violations, including circumvention.

Additionally, a Directive on asset recovery and confiscation has been proposed with the aim to tackle “the serious threat posed by organised crime” and provide the means to competent authorities to “effectively trace and identify, freeze, confiscate and manage the instrumentalities and proceeds of crime and property that stems from criminal activities.” Should such proposal solidify further, EU member states would be required to make substantial changes to their national laws and confiscation regimes for instance, the confiscation of unexplained wealth – enabling judicial authorities to confiscate property when they are convinced it derives from criminal activities, even if it cannot be linked to a specific crime. Such confiscation measures will inevitably be raising inter alia various property and human rights considerations, which will eventually have to be determined by the member state courts.

At the moment, while EU regulations set out the prohibitions and licensing grounds with respect to sanctions, it is implementing legislation at each Member state level which imposes the applicable penalties. Cyprus currently adopts The Implementation of the Provisions of the United Nations Security Council Resolutions or Decisions (Sanctions) and the European Union Council’s Decisions and Regulations (Restrictive Measures) Law (Law 58(I)/2016) which renders violation of any provisions of such sanctions/restrictive measures a criminal offence subject to imprisonment and/or penalties.

The above information and challenges make it even more important that businesses adopt their own robust and up-to-date sanctions compliance measures. It is the individual responsibility of each person and organisation to carefully examine risks potentially arising under the EU sanctions regime and verify whether any of the listed individuals or entities are part of their business relationships or whether their activities violate sanctions.

The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. It is recommended to seek independent legal advice when considering participating in activities or transactions which may give rise to sanctions-related matters. Engaging in thoughtful due diligence at the outset of any investment/transaction will help you to prevent pitfalls further down the line.

The Evolving Cyprus Corporate Tax Landscape

Posted on | by Paschalis Paschali

Cyprus has long enjoyed a relatively stable fiscal environment, especially as far as the corporate tax regime is concerned. Changes to the tax code have traditionally been scarce and far between. Changes are however afoot mostly as a result of international developments. In this newsletter, we examine some of the recent changes and also discuss what possibly lies ahead.

Transfer pricing documentation and APA procedure

One of the biggest developments last year was the introduction of transfer pricing documentation requirements, effective from 1 January 2022. Under the new provisions, broadly, Cyprus tax resident companies and permanent establishments of non-resident companies are required to prepare on an annual basis transfer pricing documentation supporting their controlled transactions with related parties. The documentation consists of the “Master File” and the “Cyprus Local File”. Furthermore, taxpayers are required to complete a summary information table containing high-level information on related-party transactions.

There are certain exemptions to the filing requirements. For example, only Cyprus tax resident entities that are the ultimate parent (or surrogate parent) entity of a Multi National Enterprise (“MNE”) group falling under the scope of country-by-country reporting (i.e. with a consolidated revenue above €750 million), have an obligation to prepare and maintain a Master File.

Also, persons that engage in controlled transactions with an arm’s length value of less than €750,000 annually, in aggregate per transaction category (e.g. sale/purchase of goods, provision/receipt of services, financing transactions and receipt/payment of IP licencing/royalties) are exempt from the obligation to prepare a Local File.

There are penalties for non-compliance with the new obligations.

A formal Advance Pricing Agreement (“APA”) procedure has also been introduced. Cyprus tax resident persons and non- resident persons with a permanent establishment in Cyprus can submit to the Cyprus tax authorities an APA Request with respect to current or future domestic or cross-border transactions. The APA request could be bilateral or even multilateral involving tax authorities in other jurisdictions.

The tax authorities must examine the application and reach a decision within 10 months from the date of the application (in certain cases a longer time period of up to 24 months may be allowed).

APAs are valid for up to 4 years. The APA may be revised, upon application by the taxpayer or at the discretion of the tax authorities. Under certain circumstances, the tax authorities may revoke or cancel an APA.

In granting APAs, the Cyprus tax authorities will obviously need to take into consideration the state aid prohibition under the Treaty on the Functioning of the European Union (Art 107) and the recent high-profile litigation on over-generous tax rulings conferred to multinationals by some Member States. Taxpayers requesting an APA should also be aware that under certain circumstances set out in EU legislation adopted by Cyprus, tax authorities are obliged to automatically exchange information on advance pricing agreements issued by them to other Member States and the European Commission.

Although the new transfer pricing documentation requirements and especially the Master File are likely to affect MNEs with limited exposure to Cyprus, in general, good documentation of related party transactions is a recommended practice for transfer pricing compliance. There may also be in-scope Cypriot group companies that have to file the Local File. Affected groups could strive to have some of their overall transfer pricing documentation obligations catered for by Cypriot advisors, to benefit from lower operating costs compared to other jurisdictions.

For more information on how these changes might affect your business, please get in touch with us.

Future Developments

As part of our newsletters we shall attempt to keep you up to date on what is being discussed in the field of taxation of both businesses and individuals.

15% Minimum Effective Tax Rate

For the past few years, the international tax community has been working on the so-called Two-Pillar Solution to deal with the taxation of the digital economy (also, sometimes referred to as BEPS 2.0). Pillar One focuses on rules for taxing profits and rights, with a formula to calculate the proportion of earnings taxable within each relevant jurisdiction. Pillar Two focuses on a global minimum tax of 15% which is to be implemented through domestic and treaty-based rules. The domestic rules are also called the Global Anti-Base Erosion (GloBE) rules.

After several discussion drafts and a consultation document, a global agreement on tax reform was eventually reached in July 2021.

Following this global agreement, the OECD released the Pillar Two Model Rules which defined the scope and key mechanisms of the GloBE rules. On 22 December 2021, the European Commission published its own proposal for an EU directive on global minimum taxation for multinationals, which broadly mirrored the OECD’s GloBE rules. This draft was subsequently revised in compromise texts and eventually adopted in December 2022.

With the adoption of this Directive in the EU, it is widely thought that the much needed ‘critical mass’ for the adoption of Pillar Two by other countries has been reached. Pillar One still seems to be lagging behind, even though it was the front runner in the early discussions at the OECD/G20 level.

One important difference between the new Directive and the OECD’s rules is that the EU rules will apply to ‘large-scale domestic groups’ with a threshold of €750 million consolidated revenue in at least two of the four preceding years. The OECD rules do not apply to domestic groups.

Cyprus, as an EU Member State, will be obliged to incorporate the provisions of the new Directive into domestic legislation by 31 December 2023. There are transitional rules which delay the application of the rules for MNE groups and large-scale domestic groups at the initial phase of their international activity.

Under the system set out in the new Directive, the parent entity of an MNE located in a Member State would be obliged to apply the so-called Income Inclusion Rule (IIR) to its share of top-up tax relating to any entity of the group that is low-taxed (i.e. below the 15% threshold), whether that entity is located within or outside the European Union.

There is also the very controversial Undertaxed Payment Rule (UTPR) which acts as a backstop to the IIR through a reallocation of any residual amount of top-up tax in cases where the entire amount of top-up tax relating to low-taxed entities could not be collected by parent entities through the application of the IIR. The UΤPR will apply in situations where a group is based in a non-EU country and that country does not impose the minimum rate. The constituent entities of such an MNE group that are located in a Member State will have to pay in their Member State a share of the top-up tax linked to the low-taxed subsidiaries of the MNE group. The calculation and allocation of the UTPR top-up tax in the Directive is based on the number of employees and the carrying value of tangible assets.

The Directive provides Member States the option to apply a qualified domestic minimum top-up tax (QDMTT). The domestic top-up tax allows the Member State in which a low-taxed entity is resident to levy the top-up tax before application of the IIR at the level of the parent company (in another jurisdiction). It is expected that most Member States will opt for such tax.

There are detailed rules on the calculation of qualifying income or loss, the computation of adjusted covered taxes and the calculation of the effective tax rate and the top-up tax. There are also special rules for mergers and acquisitions as well as distribution regimes.

Unsurprisingly, there are many reporting obligations which increase the already heavy compliance burden of in-scope MNEs. Each constituent entity of an MNE group located in a Member State must file a top-up tax information return, unless the return is filed by the MNE group in another jurisdiction, with which the Member State has an exchange of information agreement. The constituent entity might also designate another entity located in its Member State to file on its behalf. The returns must be filed within 15 months after the end of the fiscal year to which they relate. 

Member States will introduce penalties for failures to file the information return within the prescribed deadline or for making false declarations. The 5% fixed penalty which was suggested in the original version of the Directive has now been withdrawn.

Whilst the impact of this new Directive on Cypriot companies might seem minimal at first instance, the combination of the aforementioned rules (i.e. the IIR, the UTPR and the QDMTT) make it imperative that such companies continuously monitor whether or not they fall outside the scope of the rules. Cypriot constituent entities of in-scope groups could be subject to top-up taxes on the basis of a Cypriot imposed QDMTT. In addition, Cypriot constituent entities of in-scope groups would need to file a top-up tax information return. There might also be restructuring needs or acquisition/divestment opportunities, to ensure reduction or elimination of top-up taxes through jurisdictional blending. The unique structure of the new regime will lead to the creation of new valuable tax attributes that MNEs will strive for. It is important for tax advisors to identify whether a Cypriot company has such valuable tax attributes or how it could develop such attributes in order to minimise the impact of the new rules and the imposition of top-up taxes.  

For more information on how these changes might affect your business, please get in touch with us.

What lies ahead for tax in 2023

A “War” against Tax Abuse

Notwithstanding these ground-breaking developments in 2022, it is likely that there will be further developments in 2023 due to the various projects that the European Commission has in the pipelines.

The “Unshell” Proposal

One such project is the “Unshell” proposal which introduces rules on the misuse of entities. The aim of this proposal, which was first published as a draft Directive in December 2021, was to establish transparency standards around the use of shell entities, so that abuse could more easily be detected by tax authorities. The proposal introduces a complex filtering system (gateways) comprising of several substance indicators. Undertakings will need to show that they satisfy the substance indicators, otherwise they will be presumed to be “shells”. Such a finding could lead to penalties, a denial of a tax residency certificate and unavailability of exemptions under the Parent-Subsidiary and Interest and Royalties Directive.

If adopted as proposed, the Unshell proposal will introduce a heavy compliance burden of reporting, preparation of rebuttals and appeals, not just for MNEs but also for smaller undertakings involved in cross-border transactions. The European Commission is widely expected to publish a revised version of this draft Directive in 2023 to meet some of the concerns expressed by several stakeholders. However, the structure of the proposal and the reporting obligations are unlikely to change significantly.

Traditional holding company jurisdictions like Cyprus or Malta are likely to be affected by this proposal. Advisors would need to assess which undertakings may come within the scope of the rules, whether they can benefit from any carve-outs and how they can ensure they remain low-risk in order to be exempt. If reporting of minimum substance is inevitable, then diligent preparation of documentary evidence will be crucial to ensure the rebuttal of the presumption of a shell.

Once the Unshell proposal has been finalised and is expected to be adopted, we will publish a newsletter on how this will affect Cypriot companies.  

Anti-Facilitation Measures

In addition to the above, the resolve of the European Commission in fighting abuse is further evident from the fact that it is working on a follow-up initiative aimed at tackling the role of enablers in setting up complex structures in non-EU countries with the objective of eroding the tax base of Member States through tax evasion and aggressive tax planning. The proposal will likely include criteria for defining the forms of aggressive tax planning that should be prohibited. This initiative is heavily supported by the European Parliament.

If this proposal goes ahead, it will impose more onerous due diligence obligations on tax intermediaries (lawyers, accountants, general tax advisors). Non-legally trained intermediaries would likely need legal advice to navigate the new rules.

BEFIT Measures – A Proposal for a New Framework for Business Taxation in the EU

Another major initiative to watch out for is the new proposed framework for business taxation in the EU: the ‘Business in Europe: Framework for Income Taxation’ (or BEFIT). This will replace the previously proposed Common Consolidated Corporate Tax Base and will provide a common corporate tax base for group companies and consolidation. The European Commission recently published a call for evidence for an impact assessment and asked for public feedback. A legislative proposal for a new corporate tax system is expected later on this year.

We are closely monitoring these and other international developments to ensure our clients are in the best position to comprehend and comply with any new obligations whilst at the same time continuing to benefit from efficient and legitimate tax structuring.  

Court of Justice (EU) ruling on accessing information of beneficial owners (AML Directive)

Posted on | by Paschalis Paschali

On 22 November 2022 the Court of Justice of the European Union (“CJEU”) ruled that the provision of Directive (EU) 2015/849, as amended (“AML (EU) Directive”) providing that Member States must ensure that information on the beneficial ownership of legal entities is accessible in all cases to any member of the general public is invalid.

In addition to granting access to the public on beneficial owner information, the AML (EU) Directive also allows Member States to provide for an exemption to the public’s access on a beneficial owner’s information where the access would expose the beneficial owner to “disproportionate risk, risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or where the beneficial owner is a minor or otherwise legally incapable”. This exemption for restricting access “in exceptional cases” and on a “case-by-case basis”, did not prevent the CJEU from ruling that the provision for granting the right to such access is invalid.

The judgement concerned CJEU’s joined Cases C-37/20, Luxembourg Business Registers and C-601/20, Sovim. The two cases were referred to the CJEU following a request for a preliminary ruling from the tribunal d’arrondissement de Luxembourg (Luxembourg District Court) pursuant to Article 267 of the Treaty on the Functioning of the European Union.

The concerned provision

The question referred to the CJEU concerns, inter alia, the provision of Article 30(5)(c) of the AML (EU) Directive which reads as follows:

Member States shall ensure that the information on the beneficial ownership is accessible in all cases to:

(a) […]

(b) […]

(c) any member of the general public.

The persons referred to in point (c) shall be permitted to access at least the name, the month and year of birth and the country of residence and nationality of the beneficial owner as well as the nature and extent of the beneficial interest held.

[…]

Conflict with the EU’s Charter of Fundamental Rights

In declaring invalid the provision permitting the general public’s access to information on beneficial ownership, the CJEU stressed in its decision that the concerned provision constitutes a serious interference with the fundamental rights enshrined in Article 7 (Respect for private and family life) and Article 8 (Protection of personal data) of the EU’s Charter of Fundamental Rights.

Effect on Cyprus AML legislation

The Cyprus AML Law transposing the respective AML (EU) Directive includes a similar provision permitting members of the general public to have access “in all cases” to information on the beneficial owner’s name, the month and year of birth, the nationality, the country of residence and the nature and extent of the beneficial interest held.

The CJEU’s decision is expected to impact the general public’s access “in all cases” on information concerning beneficial owners. It remains to be seen whether the AML (EU) Directive will provide express grounds for the public’s access to such information or whether such grounds will be left to the discretion of each Member State, however, such grounds must be based on a proportionate and balanced approach without violating the Charter’s rights.

In the meantime, the Cyprus AML Law will need to be amended so that access of the public to information on beneficial owners is subject to grounds which are aligned with the EU’s Charter on Fundamental Rights and specifically Article 7 (Respect for private and family life) and Article 8 (Protection of personal data).

As of 23 November 2022, the Cyprus Department of Registrar of Companies and Intellectual Property suspended the access to the register of beneficial owners for the general public, in response to CJEU’s decision. Obliged entities will continue to have access to information maintained in the beneficial owner’s register by submitting a solemn declaration confirming that the information is requested within the context of performing customer due diligence.

Our services

Ioannides Demetriou LLC advises on matters concerning regulatory AML compliance and the protection of fundamental rights such as your right to the protection of personal data and your right for private and family life.

Reach out to our team to ensure that your regulatory obligations are protected in a manner that respect and safeguard your fundamental rights.

You can contact us directly by calling + 357 22 022 999 or by email at [email protected]

The information provided in this article does not and is not intended to constitute legal advice; instead, all information contained in this article is for general informational purposes only. If you require assistance with any legal matter, including a matter referred to in this article, you should contact one of our attorneys to obtain advice tailored to your specific circumstances.

Introducing the Cyprus Shipping Limited Liability Company (SLLC)

Posted on | by Paschalis Paschali

With an attractive location lying just a few miles from the Suez Canal and in the crossroad of the European – African and Asian markets, Cyprus grew to one of the main maritime players of the world with the 3rd largest fleet in the European Union and the 11th largest worldwide. The country’s business minded policy coupled with the evolving needs of the shipping industry led to the creation of the Shipping Deputy Ministry in 2018.

In 2021, the Ministerial Counsel approved the Strategic Vision for Cyprus Shipping dubbed “Sea Change 2030” which included the development of a regulatory and administrative framework for the incorporation of shipping entities. As a result of this strategy, the Cypriot parliament voted in favour of the Cypriot Shipping Limited Liability Company Law (the “SLLC Law”).

The SLLC Law was published in the Official Gazette of Cyprus, issue no. 4916 on 27 October 2022 and was shaped after the Cypriot Companies Law, Cap.113 (the “Companies Law”), thus offering shipping entities a familiar regulatory framework and corporate environment.

Shipping Limited Liability Company

The purpose of the SLLC Law is to simplify the procedures and operation of shipping companies for the ownership and exploitation of ships. To that effect, the SLLC Law introduces a new type of legal entity, the Shipping Limited Liability Company (“SLLC” or «ΝΕΠΕ – Ναυτιλιακή Εταιρεία Περιορισμένης Ευθύνης») which is the equivalent of a limited liability company.

The SLLC Law applies to newly incorporated SLLCs and to shipping companies incorporated under the Companies Law that wish to transfer on the SLLC register under the SLLC Law.

Administration and management of SLLCs

The objective of the SLLC Law is the creation of a “one-stop-shop” within the Shipping Deputy Ministry for the servicing of shipping companies and their shareholders, and the handling of matters which were previously under the responsibilities of the Registrar of Companies. In effect, SLLC Law maintains the advantages and flexibility offered under the Companies Law as it includes provisions for the administration and management of SLLCs and provisions regulating matters which concern SLLCs from their incorporation up to their liquidation.

Features of the SLLC Law

The SLLC Law mirrors a number of functions exercised by the Registrar of Companies. The following list outlines some of the matters regulated under the new law:

  • The creation of the Registrar of SLLCs as the competent authority for the registration of SLLCs and any other corporate matters relating to SLLCs, for the promotion of a “one-stop-shop”;
  • The creation of the SLLC register;
  • Provisions on the incorporation of SLLCs, their share capital and other management arrangements;
  • The appointment of a secretary of the SLLC who, as per the SLLC Law, must be a lawyer;
  • Provisions for the transfer of companies registered in the register of the Registrar of Companies under the register of the Registrar of SLLCs;
  • The power of the Registrar of SLLCs to approve the use of electronic signatures in relation to documents submitted to or issued by the Registrar of SLLCs;
  • The power of the Registrar of SLLCs to impose administrative fines.

Why incorporate or convert into an SLLC?

Despite the seemingly identical legal frameworks between a limited liability company (incorporated under the Companies Law) and a SLLC (incorporated/transferred under the SLLC Law), the SLLC Law contains small but rather significant differences which are tailored to the operations of SLLCs:

Simplified procedures for the increase and reduction of share capital

The Companies Law requires a court approval for the reduction of a company’s share capital.

On the other hand, the reduction of share capital for SLLCs does not require a court order and is achieved under a simpler and time-effective manner.

Simplified procedures for amending the SLLC’s memorandum

Under the Companies Law, a change in the memorandum of association is not effective unless approved by the court following a related application.

In contrast, the memorandum of SLLCs is based on a template prescribed under a notification of the Registrar of SLLCs and its amendment is permitted only in circumstances specified under the LLC Law.

A law tailored to SLLCs

SLLCs have the opportunity to benefit from a legal framework distinct from other entities. The SLLC Law is tailored to their business activities and creates a sustainable environment for SLLCs by setting the ground for further targeted improvements in the shipping industry.

Our services

  • Incorporation and administration of SLLCs;
  • Advice on Environmental, employment and safety requirements;
  • Acquisitions and financing services;
  • Sanctions and export control advice;
  • Ownership, acquisition, chartering and selling of superyachts.
  • Corporate and commercial advice.

Get in touch for a free consultation with our team.

The information provided in this article does not and is not intended to constitute legal advice; instead, all information contained in this article is for general informational purposes only. If you require assistance with any legal matter, including a matter referred to in this article, you should contact one of our attorneys to obtain advice tailored to your specific circumstances.

The New Cyprus Commercial Court: An “Internationalisation” of Cyprus Civil Justice?

Posted on | by techlink

On 2nd June 2022 the Cypriot parliament passed law 69(I)/2022 for the establishment of a Commercial Court and an Admiralty Court (“the Law”).

Introduction

Many readers will be aware that Cyprus is an island in the eastern Mediterranean and the eastern most outpost of the European Union. Its geographical location being at the crossroads of Asia, Europe and the Middle East has shaped its history. Previously seen as a strategic location for would be conquerors of which there were many, the location of Cyprus, its Common Law background, large number of Double Tax Treaties, business friendly climate and highly effective and efficient services sector have been key drivers in making Cyprus a favoured business destination for many Europeans especially Dutch, for Canadians, nationals of the states of the former Soviet Union and latterly Chinese and Israeli investors. This has established Cyprus as a major international business hub which has a reach that belies its size.

The growth of Cyprus as a business centre has placed great pressure on its civil courts, resulting in delays that are amongst the worst in the European Union. The reasoning behind the establishment of the Commercial Court is the creation of a specialist Court where the judges will specialise in commercial disputes in the same manner and with the same efficiency as specialist courts such as commercial courts, construction and technology courts operate in other jurisdictions.

Characteristics of the Commercial Court

One unique aspect of the Commercial Court which demonstrates the desire of the legislature to ease the administration of justice in international commercial disputes is the permissibility of using the English language. This mirrors recent initiatives in some EU jurisdictions, most notably Holland which have established similar international commercial courts to cater for the foreign business community that conducts business in or through these jurisdictions.

Jurisdiction of the Commercial Court

The Commercial Court will hear commercial disputes which are defined in the law as disputes relating to:

(a) Business documents or contracts.

(b) Purchase, sale, import and export of goods.

(c) The carriage of goods by land, air or pipeline.

(d) The exploitation of oil, natural gas or other natural resources.

(e) Insurance and reinsurance.

(f) The functioning of markets or the exchange of shares, stock or other monetary credit or investment vehicles or goods (which is clarified to mean every kind of moveable property save for choses in action and money and includes bonds and shares.

(g) The provision of services excluding medical, quasi medical, dentistry services or services that are provided within an employment contract.

(h) Manufacture of vehicles.

(i) Commercial representations.

(j) The application of the provisions of the law relating to Compensation for Breaches of competition law.

(k) Disputes between shareholders in entities that are regulated by any regulatory authority within the Republic of Cyprus.

(l) Matters relating to copyright and related rights within the ambit of the law for the Protection of Copyright and Related Rights law and the Certificates of Inventions law.

(m) Arbitration Issues.

Minimum Monetary Value of Disputes

The Law sets the minimum value of disputes that will be heard by the Commercial Court at €2 million excluding interest claimed. In the event of a dispute as to the value of the dispute, and by extension the jurisdiction of the court the objecting party may apply to the court of a determination.

In the event that the court determines that the value of the commercial dispute is below €2 million the Law allows the Commercial Court to refer the dispute to the District Court.

Geographical Jurisdiction

(a) The cause of action arises in whole or in part in the district where the Court has jurisdiction.

(b) The defendant or any one of the defendants at the time of the filing of the action resides, carries on business, or in the case of a legal person has its registered office in the district where the court has jurisdiction.

(c) The parties jointly agree between themselves by written agreement to refer the commercial dispute to the Commercial Court, in such a case if any one of the parties resides outside Cyprus, or carries on business outside Cyprus, or in the case of a legal person has its registered office outside Cyprus. In such a case the Commercial Court sitting in Nicosia shall have jurisdiction

(d) The jurisdiction of the Commercial Court derives from community law, international treaty or any rule of private international law. In such a case the Commercial Court sitting in Nicosia shall have jurisdiction.

Transfer of Cases from the District Court to the Commercial Court

Any party may apply to either the Commercial Court or to the District Court for a case that is before the District Court to be transferred to the Commercial Court provided that the hearing of the case has not commenced.

Transfer of Cases from the Commercial Court to the District Court

A judge of the Commercial Court may transfer a case to the District Court where:

(a) the Commercial Court lacks jurisdiction, or

(b) where upon the application of any party that it is appropriate for the case to be tried before the District Court.

Sittings of the Commercial Court

The Commercial Court shall sit in the district capitals of each administrative in buildings that will be specifically prescribed and published in the Official Gazette. Given that there are four administrative districts one can assume that two judges will sit in Nicosia one in Limassol, one in the Larnaca-Famagusta District and one in Pafos.

The Commercial Court will have its own separate registry and registrars.

Judges of the Commercial Court

The Commercial Court will be manned by five judges to be appointed by the Supreme Legal Council.

As the Law prescribes that the number of judges shall be five. This number will effectively and for all intents and purposes be limited to five as a change of law is required for the increase in the number of judges.

The judges of the Commercial Court shall have the standing and shall have the same powers as those of a President of the District Court. (Hitherto the highest tier of judges of first instance in the civil justice system of Cyprus).

The powers derive from the Courts of Justice Law and the Civil Procedure Law.

Procedure Before the Commercial Court

The Courts of Justice Law applies to the following extent:

  • Section 29 relating to the law to be applied (the Constitution, Statute law, Common Law and Equity, Vakouf (Turkish Cypriot trusts and immoveable property) law;
  • Part 4 – relating to the powers of the Court;
  • Part 5 – relating to the witnesses and evidence;
  • Part 7 – relating to the transfer of cases from a court to another court having jurisdiction by order signed by the President of the Supreme Court*.

Procedure before the Commercial Court shall be regulated by procedural regulations specially formulated for the requirements of the Commercial Court. For this purpose, the Supreme Court* has power within the Law to issue a procedural order for the better implementation of the Law and for the regulation of any matter capable of regulation by way of procedural rules.

Use of English Language

A judge of the Commercial Court may where the interests of justice demand allow for the hearing of the case and the filing of pleadings to be in the English language following an application of one of the parties. In such a case the court prescribes that the English language as the language in which the procedure shall be carried out and shall issue its judgment in English.

Appeals from the Commercial Court

Each judgment or order of the Commercial Court is subject to appeal before the Supreme Court.

A decision of the Commercial Court for the pre-trial referral of a question to the ECJ or a decision of the Commercial Court dismissing an application for the pre-trial referral of a question to the ECJ shall not be subject to appeal.

As with other courts in Cyprus the Law establishing the Commercial Court does not contain any provisions for leave to appeal or any restrictions as to the grounds of appeal.

In the case of an appeal, the Law states that the Supreme Court* shall not be bound by any findings of fact made by the Commercial Court and shall where the circumstances so demand shall have power to review and re-examine evidence and reach its own conclusions and shall further be entitled examine further evidence and to rehear witnesses and to issue any order of judgment that is justified under the circumstances including an order the rehearing of the case by the Commercial Court or other court having jurisdiction to hear the case.

Conclusions

The establishment of the Commercial Court is a reaction to commercial pressure for a quicker and more specialist trial court for larger commercial disputes many of which run into hundreds of millions and indeed some into billions of Euros.

Specialist commercial judges will in time gain the experience and specialised knowledge so as to be able to deal with complex commercial cases effectively and speedily.

The ability of the court to conduct proceedings in English will expand and enhance cooperation with foreign lawyers and make justice more accessible to a large number of potential litigants who conduct their commercial businesses within and through Cyprus.

The wide jurisdiction given to the Supreme Court* may appear daunting at first. It is however to be seen as an attempt to give finality to the proceedings at the level of the appeal. This should eliminate the need for retrials in all but the most unavoidable circumstances.

On the whole, the legal and commercial community of Cyprus has greeted the creation of the commercial court with an open mind and a cautious optimism. 

Andrew Demetriou

Ioannides Demetriou LLC  

*It should be noted that the current Supreme Court will be re-organised into an Appeals Court and a Constitutional Court. The appeal from the Commercial Court will be to the civil division of the Appeals Court.