Tag: Law

Cyprus’ Path in the European Green Deal: Integrating the Just Transition Mechanism

Posted on | by Paschalis Paschali
the European Green Deal #EUGreenDeal

As the European Union (EU) embarks on a transformative journey towards a greener and more sustainable future through the European Green Deal (EGD), the question of ensuring that no one is left behind takes a central stage. This article aims to analyse the measures that the government of Cyprus is undertaking to achieve its 2030 and 2050 climate targets and to assess how the concept of social inclusion is endorsed along the way.

National Energy and Climate Plan (NECP)

Cyprus, like other EU nations, has embraced the ambitions of the EGD, aiming to tackle climate change and move towards sustainability. [1]  The NECP is a vital part of this, mandated by EU regulations from 2021 to 2030. Its main objective is to devise cost-effective policies to meet energy and climate goals, driving economic growth and addressing environmental challenges. [2] Approved by Cyprus’ Council of Ministers in January 2020, it outlines the energy sector’s current status, past policies, and future trajectory to achieve national goals by 2030. Its three key pillars focus on emission reductions, energy efficiency, and increasing renewable energy sources.

For emissions, Cyprus targets a 21% reduction in non-ETS sector emissions compared to 2005 levels. Strategies include promoting natural gas, boosting renewable energy, improving carbon sinks, enhancing energy efficiency across sectors, and reducing emissions in transport, agriculture, and waste. [3]

Regarding energy efficiency, Cyprus aims for a final energy consumption of 2.0 megatonne of oil equivalent (Mtoe) and a primary energy consumption of 2.4 Mtoe by 2030. The plan includes energy efficiency obligations for distributors, low-interest loans for efficiency projects, support programs for households and businesses, voluntary agreements with businesses, and various initiatives for efficient lighting, water, and transportation.

Lastly, Cyprus aims to increase the share of renewable energy sources (RES) in its energy consumption. Targets include RES constituting 23% of gross final energy consumption, 26% of gross final electricity consumption, 39% in heating and cooling, and 14% in transportation.

To achieve these targets, Cyprus has adopted a wide-ranging approach, including various support schemes for RES, incentives for electric vehicles, and integrating RES and energy efficiency into public buildings. Efforts also focus on enhancing RES utilisation in the transportation sector.

Solar water heater adoption rates are impressive, with over 90% of households and 50% of hotels utilising these systems. However, effective energy storage solutions are crucial to fully harness solar potential. [4] Initiatives like the experimental energy storage system in Nicosia and EU projects aim to develop policies for integrating energy storage effectively, boosting photovoltaic self-consumption in the Mediterranean.[5]

To address energy security, Cyprus is implementing Liquefied Natural Gas (LNG) imports through the “CyprusGas2EU” project, diversifying energy sources and reinforcing security. Support for projects like the “EuroAsia Interconnector” and “EastMed Pipeline” will further eliminate energy isolation. The EuroAsia Interconnector, connecting Cyprus’ electricity network to the EU continental network, will facilitate RES development, reduce CO2 emissions, and enhance Cyprus’ position in the regional energy sector. [6] This project will also pave the way for widespread adoption of solar energy and sustainable practices, promoting both environmental and economic sustainability. [7]

Future trajectory

Importantly, Cyprus has submitted an updated draft of its NECP to the European Commission for review and approval. This revision is prompted by institutional obligations, failure to meet existing targets, and changes in European energy and climate goals. The revised draft includes, inter alia, commitments to reduce GHG emissions by 32% by 2030 compared to 2005 levels, increase carbon dioxide removals from land use, achieve a 42.5% penetration of RES in gross final consumption by 2030, and contribute to the EU’s mandatory energy efficiency improvement target. [8]

Additionally, Cyprus aims to design policies to support low-emission growth, laying the groundwork for achieving zero emissions by 2050. The Long-Term Low GHG Development Strategy for 2050 aligns Cyprus with the European objective of transitioning to a climate-neutral economy by 2050, emphasising a commitment to a greener future.[9] This strategy complements the NECP and envisions a shift towards clean technologies, promoting innovation and new business models, mitigating climate change impacts, enhancing economic competitiveness, and addressing environmental challenges.

Nevertheless, transitioning to carbon neutrality and renewable energy adoption presents a series of social challenges that require proactive solutions. Therefore, as Cyprus embarks on its journey towards a greener future, the integration of the Just Transition Mechanism (JTM) takes a central role in ensuring that this transition is not only environmentally sound but also socially equitable.

Just Transition Mechanism

The JTM is a critical component of the EGD, acknowledging the socio-economic realities of member states.[10] It provides a framework for financial and policy support to facilitate the transition to cleaner and more sustainable economies while safeguarding livelihoods and communities.[11]Each member state’s unique circumstances further underscore the necessity of adaptable strategies to harmonise environmental and economic aspirations.[12]

In terms of Cyprus, it has recently received the approval for its Partnership Agreement and Just Transition Plan from the EU, entailing over €1 billion in funding from 2021 to 2027. This funding will support various initiatives aimed at promoting economic, social, and territorial cohesion, facilitating the green and digital transition, and fostering competitive, inclusive, and sustainable growth. [13]

One of the most important aspects of the Agreement is the ‘Thalia 2021-27’ Cohesion Policy operational program.[14] A multi-annual, multi-fund development initiative, the Thalia program outlines Cyprus’ strategic plan for utilising resources allocated through the Cohesion Policy Funds.[15]

Central to this initiative is the Just Transition Fund (JTF), which will support an array of vital interventions. The strategic goal is to reduce GHG emissions at the power station in Dekelia and of energy-intensive businesses in general.[16] Recognising the need for social inclusion, Cyprus plans to allocate a portion of the JTF budget to modernise labour market services and support vulnerable populations, women, and youth. Additionally, initiatives to address the shortage of qualified human resources through green education initiatives are emphasised. The program prioritises equal opportunities, non-exclusion, and non-discrimination, ensuring gender equality and compliance with fundamental rights.

In conclusion, Cyprus’ proactive approach aligns with the EGD, addressing climate change, promoting economic growth, and ensuring social inclusion. However, and despite the series of green measures and initiatives that are underway, the nation faces a substantial gap between its commitments and actual outcomes.[17] To improve results and make progress toward the 2030 and 2050 targets, the government of Cyprus must enhance its efficiency in the public sector and collaborate closely with the private sector to streamline not only the processes but also the procedures for implementing all its ambitious projects.

References and URLs:

[1] General Secretariat of European Affairs, ‘CY National Strategy for EU Affairs’ (November 2021)

[2] ‘National Energy and Climate Plans (NECPs)’ <https://energy.ec.europa.eu/topics/energy-strategy/national-energy-and-climate-plans-necps_en>

[3] ‘Cyprus’ Integrated National Energy and Climate Plan’ (January 2020)

[4] Theodoros Zachariadis, ‘Monitoring EU Energy Efficiency First Principle and Policy Implementation’ (Odyssee Mure, November 2021)

[5] ‘Invest Cyprus – CEO Interviews 2018’

[6] ‘Commission Participates in Launch of EuroAsia Electricity Interconnector’

[7] EuroAsia, ‘Significant Benefits for Cyprus from Construction of the EuroAsia Interconnector | EuroAsia Interconnector’ (26 July 2023)

[8] ‘PRELIMINARY DRAFT UPDATE CONSOLIDATED NATIONAL PLAN OF CYPRUS ON ENERGY AND CLIMATE OF CYPRUS 2023’ (27 July 2023)

[9] Department of Environment, Ministry of Agriculture, and Rural Development and Environment, ‘Cyprus’ Long-Term Low GHG Emission Development’ (September 2022)

[10] ‘The Just Transition Mechanism’

[11] Aliénor Cameron and others, ‘A Just Transition Fund – How the EU Budget Can Best Assist in the Necessary Transition from Fossil Fuels to Sustainable Energy’ [2020] Policy Department for Budgetary Affairs Directorate General for Internal Policies of the Union

[12] Sebastiano Sabato and Boris Fronteddu, ‘A Socially Just Transition through the European Green Deal?’ [2020] SSRN Electronic Journal

[13] ‘Partnership Agreement and Just Transition Plan for Cyprus’ (European Commission – European Commission)

[14] ‘ΘΑΛΕΙΑ 2021-2027- Θεμέλια Αλλαγής, Ευημερίας, Ισότητας Και Ανάπτυξης’ (2022)

[15] ‘Short Description – ΘΑλΕΙΑ 2021-2027’ (21 June 2022)

[16] Green Deal: Pioneering Proposals to Restore Europe’s Nature by 2050 and Halve Pesticide Use by 2030’

[17] European Commission, ‘2023 Country Report – Cyprus’, (2023), COM(2023) 613 final

The Sale of Land (Specific Performance) (Amending) Law of 2023 – Purchaser protection when the immovable property is encumbered by a pre-existing mortgage

Posted on | by Paschalis Paschali

This article is also available in Greek

On 12.12.2023, the Sale of Land (Specific Performance) (Amending) Law of 2023 (L. 132(I) of 2023) (hereinafter the “Amending Law of 2023”) was published in the Official Gazette of the Republic of Cyprus.

The Amending Law of 2023 is read together with the Sale of Land (Specific Performance) Laws of 2011 to 2020 (hereinafter the “Main Law”), with the Amending Law of 2023 and the Main Law being referred to together as the “Sale of Land (Specific Performance) Laws of 2011 to 2023”.

This article briefly analyses a completely new procedure implemented by the Amending Law of 2023, which aims to provide preemptive protection with regards to the rights and interests of purchasers of immovable property, in cases where the immovable property happens to be encumbered by a pre-existing mortgage.

Formalities Necessary for the Lodging of a Contract in Cases where the Immovable Property Happens to be Encumbered by a Pre-Existing Mortgage

A key change introduced by the Amending Law of 2023 relates to the requirements that must be met for the lodging of a contract with the District Lands Office (“DLO”), in cases where the contract concerns immovable property encumbered solely by a pre-existing mortgage or contract and the registered owner of such is not subject to any restriction/prohibition.

In addition to the already existing requirements that have to be met for the lodging of a contract with the DLO to be accepted, as these are set out in sub-paragraphs (a), (b) and (c) of subsection (1) of section 3 of the Main Law, the lodging of a contract, in cases where the circumstances described above apply, now necessitates the inclusion of specific written declarations.

The Amending Law of 2023 specifies that the lodging of the contract will be accepted only if it is accompanied by the written declaration of each mortgagee and seller, in relation to which the purchaser confirms knowledge (according to Form A of the Annex), or the written declaration of the purchaser (according to Form C of the Annex).

Form A of the Annex

By means of Form A, the mortgagee and the seller undertake in writing that, if 95% of the contract amount, including any advance payment already received by the seller, is deposited by the seller and/or purchaser into a specific bank account (deposit account) maintained in the name of the seller, then a relevant payment certificate will be issued to the Purchaser immediately (in accordance with Form B of the Annex).

Form A records a commitment on the part of the mortgagee in that, upon payment of the aforementioned amount and issuance of Form B, it shall release or alleviate the immovable property from the encumbering mortgage, but also that, in case of failure on its part to do so, the purchaser shall have the ability to submit Form B with the Department of Lands and Surveys, duly signed and stamped by the mortgagee. In such an instance, the Director (Department of Lands and Surveys) shall proceed to transfer the immovable property into the name of the purchaser.

The purchaser, by signing Form A, certifies that they have received knowledge of the above commitments.

Furthermore, with relevant additions to Sections 5, 6 and 7 of the Main Law, the Amending Law of 2023 explains the practical implementation of the procedure arising from Form A, the consequences that the mortgagee will face in case of non-compliance with its commitment and how the Director (Department of Lands and Surveys) can proceed to transfer the immovable property into the name of the purchaser upon being presented with a duly completed, signed and stamped Form B.

The introduction of Form A and the related procedure seeks to bring about the preemptive protection and safeguarding of interests. These new introductions act as a safeguard for the benefit of all parties involved and especially the purchaser, setting out precisely the actions that must be carried out by the seller and/or the purchaser for the mortgagee to comply with its simultaneously granted commitment to alleviate the property from the encumbering mortgage, as well as the procedures/consequences that may be implemented in case that the mortgagee fails to honour its commitment.

The procedure arising from Forms A and B ensures that the mortgaged property will be transferred freely to the purchaser, once the purchaser has fulfilled its contractual obligations towards the seller.

Form C of the Annex

Alternatively, the Amending Law of 2023 allows the lodging of a contract by including Form C, through which the purchaser essentially acknowledges the existence of an encumbering mortgage affecting the immovable property and assures that it wishes to proceed with the lodging of the contract without it being accompanied by Form A of the Annex.

Form C does not seek to safeguard purchaser rights to the same extent as Form A. In fact, Form C circumvents the whole procedure set out by Form A.

However, it cannot be overlooked that Form C also contributes to the advance safeguarding of purchaser interests by enabling a purchaser to become aware of the existence of an encumbering mortgage affecting the property in question, but also to confirm its willingness to proceed with the lodging of a contract without the use of Form A.

The introduction of Forms A, B and C of the Annex is undoubtedly a positive development, since it implements a new practice that seeks to safeguard the procedures related to purchasing and transferring of immovable property. In order to solve a serious problem that has arisen in recent years, Forms A, B and C aim to better inform and safeguard in advance the interests of a purchaser, who, despite having fulfilled its obligations towards a seller, ends up dealing with a seller who is unable to transfer the immovable property due to the existence of a mortgage.

Greater awareness of the parties involved and completion of real estate transactions without complications contribute to the strengthening of the real estate market, whilst at the same time inspire more confidence on the part of purchasers in relation to the legislative framework that governs the whole process in cases where the property for sale is encumbered by a mortgage.

Apart from the positive elements deriving from the introduction of Forms A, B and C of the Annex, we consider it appropriate to conclude with the following comments, which potentially reveal a need or improvement of the phrasing contained in the aforementioned Forms and clarification of the new procedure implemented by the Amending Law of 2023:

(i) The additional formalities introduced by the Amending Law of 2023 are not exclusive to cases where the property is only encumbered by a pre-existing mortgage. In fact, the Amending Law of 2023 expressly states that the additional formalities also apply to cases where the property is only encumbered by a pre-existing contract. Nonetheless, this does not seem to be reflected by the phrasing contained in Forms A, B and C, which deals exclusively with the case of a pre-existing mortgage, without containing any reference whatsoever in relation to a pre-existing contract.

(ii) Forms A, B and C refer only to seller and purchaser. This implies that these Forms apply only in cases involving the sale and purchase of immovable property. However, such an approach is incompatible with Article 2 of the Main Law and specifically with the definition of the term “contract”, which includes various types of contracts such as assignment, distribution, and exchange contracts.

(iii) Forms A, B and C require for the description of the purchased unit that has been erected and/or will be erected on the property to be recorded. Such phrasing does not seem to be consistent with cases where the contract does not relate to the purchasing of a unit but instead concerns the purchasing of a field or plot.

(iv) The mortgagee’s commitment provided through Forms A and B is conditional on the payment of 95% of the contract value to a predetermined deposit account. This means, however, that the mortgagee is not obliged to extinguish the mortgage, despite the whole value of the mortgage having been deposited, unless 95% of the contract value is first deposited in that account, an amount which may exceed the total value of the mortgage.

(v) Forms A, B and C refer to cases where the immovable property forming the object of the contract is affected by a pre-existing mortgage. Nevertheless, this wording is not consistent with cases where the object of a contract is only part of an immovable property, which part has no connection whatsoever with a pre-existing mortgage that happens to exist in relation to another part of the immovable property which is not for sale and belongs to another co-owner.

The issues raised through the above commentary are expected to be clarified and addressed over time. The Amending Law of 2023 is very recent and, therefore, the practical implementation and application of the procedure arising from Forms A, B and C cannot yet be properly evaluated.

According to information we have received from the Department of Lands and Surveys, it is expected that the officers of the District Land Registry Offices will be continuously provided with guidance and informative circulars, so as to be in a better position to provide information to the public with regards to the new procedures introduced through Forms A, B and C and their proper implementation, aiming to achieve the objectives of the Amending Law of 2023.

Also available in GREEK here

Ο περί Πώλησης Ακινήτων (Ειδική Εκτέλεση) (Τροποποιητικός) Νόμος του 2023 – Προστασία αγοραστών σε περίπτωση ήδη κατατεθειμένης υποθήκης

Posted on | by Paschalis Paschali

This article is also available in English

Στις 12.12.2023 δημοσιεύτηκε στην Επίσημη Εφημερίδα της Κυπριακής Δημοκρατίας ο περί Πώλησης Ακινήτων (Ειδική Εκτέλεση) (Τροποποιητικός) Νόμος του 2023 (Αριθμός 132(Ι) του 2023) (στο εξής ο «Τροποποιητικός Νόμος του 2023»).

Ο Τροποιητικός Νόμος του 2023 διαβάζεται μαζί με τους περί Πώλησης Ακινήτων (Ειδική Εκτέλεση) Νόμους του 2011 έως 2020 (στο εξής ο «Βασικός Νόμος»), με τον Τροποποιητικό Νόμο του 2023 και τον Βασικό Νόμο να αναφέρονται μαζί ως οι περί Πώλησης Ακινήτων (Ειδική Εκτέλεση) Νόμοι του 2011 έως 2023.

Το παρόν άρθρο αναλύει συνοπτικά μια εντελώς καινούρια διαδικασία που θέτει σε εφαρμογή ο Τροποποιητικός Νόμος του 2023, η οποία αποσκοπεί στην εκ των προτέρων καλύτερη διασφάλιση των συμφερόντων και δικαιωμάτων των αγοραστών ακινήτων, σε περιπτώσεις όπου το προς πώληση ακίνητο επιβαρύνεται από ήδη κατατεθειμένη υποθήκη.

Διατυπώσεις αναγκαίες για την κατάθεση σύμβασης στην περίπτωση που ακίνητη ιδιοκτησία βαρύνεται ήδη με κατατεθειμένη υποθήκη ή σύμβαση:

Μια βασική αλλαγή που εισάγει ο Τροποιητικός Νόμος του 2023 αφορά τις προϋποθέσεις που πρέπει να πληρούνται για σκοπούς κατάθεσης σύμβασης, στην περίπτωση που αυτή αφορά ακίνητη ιδιοκτησία η οποία βαρύνεται μόνο με ήδη κατατεθειμένη υποθήκη ή σύμβαση και ο εγγεγραμμένος ιδιοκτήτης αυτής δεν τελεί υπό απαγόρευση.

Πέραν από τις ήδη γνωστές αναγκαίες διατυπώσεις για την κατάθεση σύμβασης, ως αυτές καταγράφονται επί των παραγράφων (α), (β) και (γ) του εδαφίου (1) του άρθρου 3 του Βασικού Νόμου, η κατάθεση σύμβασης, σε περίπτωση που ισχύουν οι περιστάσεις που περιγράφονται πιο πάνω, πλέον προαπαιτεί την συμπερίληψη συγκεκριμένων έγγραφων δηλώσεων.

Ο Τροποιητικός Νόμος του 2023 διευκρινίζει ότι η κατάθεση της σύμβασης θα γίνει αποδεκτή μόνο εάν αυτή συνοδεύεται από τις έγγραφες δηλώσεις εκάστου ενυπόθηκου δανειστή και πωλητή για την οποία ο αγοραστής ενυπογράφως έλαβε γνώση (κατά τον Τύπο Α του Παραρτήματος) ή του αγοραστή (κατά τον Τύπο Γ του Παραρτήματος).

Τύπος Α του Παραρτήματος:

Διά του Τύπου Α, ο ενυπόθηκος δανειστής και ο πωλητής δεσμεύονται εγγράφως ότι, εφόσον το ενενήντα πέντε τοις εκατό (95%) του ποσού της σύμβασης, περιλαμβανομένης τυχόν προκαταβολής η οποία λήφθηκε ήδη από τον πωλητή, κατατεθεί από τον πωλητή και/ή τον αγοραστή σε συγκεκριμένο τραπεζικό λογαριασμό (καταθετικό λογαριασμό) που τηρείται στο όνομα του πωλητή, τότε θα εκδοθεί άμεσα προς τον αγοραστή σχετική βεβαίωση πληρωμής (κατά τον Τύπο Β του Παραρτήματος).
Ο Τύπος Α καταγράφει δέσμευση από μέρους του ενυπόθηκου δανειστή ως προς το ότι, με την καταβολή του προαναφερόμενου ποσού και την έκδοση του Τύπου Β, θα απαλλάξει ή εξαλείψει το ακίνητο από την επιβαρυντική υποθήκη, αλλά και ότι σε περίπτωση παράλειψης από μέρους του να το πράξει τούτο, τότε ο αγοραστής έχει την δυνατότητα να προσκομίσει στο Τμήμα Κτηματολογίου και Χωρομετρίας τον Τύπο Β, δεόντως υπογραμμένο και σφραγισμένο από τον ενυπόθηκο δανειστή, με τον Διευθυντή του Τμήματος Κτηματολογίου και Χωρομετρίας να μεταβιβάζει το ακίνητο επ’ ονόματι του αγοραστή.

Ο δε αγοραστής, με την υπογραφή του Τύπου Α, βεβαιώνει ότι έχει λάβει γνώση των πιο πάνω δεσμεύσεων.

Περαιτέρω, με σχετικές προσθήκες επί των άρθρων 5, 6 και 7 του Βασικού Νόμου, ο Τροποιητικός Νόμος του 2023 καταγράφει την πρακτική εφαρμογή της διαδικασίας που απορρέει από τον Τύπο Α, τις συνέπειες που θα υποστεί ο ενυπόθηκος δανειστής σε περίπτωση μη συμμόρφωσης με την δέσμευση του, καθώς επίσης και την εξουσία που αποδίδεται στον Διευθυντή του Τμήματος Κτηματολογίου και Χωρομετρίας για να προχωρήσει στη μεταβίβαση του ακινήτου επ’ ονόματι του αγοραστή κατά την προσκόμιση δεόντως συμπληρωμένου, υπογεγραμμένου και σφραγισμένου Τύπου Β.

Η εισαγωγή του Τύπου Α και της σχετικής προς τούτο διαδικασίας επιδιώκει να επιφέρει την εκ των προτέρων διασφάλιση και προστασία συμφερόντων. Τα όσα έχουν εισαχθεί λειτουργούν ως ασφαλιστική δικλείδα προς όφελος όλων των εμπλεκόμενων μερών και κυρίως του αγοραστή, καταγράφοντας ακριβώς τις ενέργειες που απαιτούνται από πλευράς πωλητή και/ή αγοραστή για σκοπούς τήρησης της παράλληλης δέσμευσης του ενυπόθηκου δανειστή για εξάλειψη της επιβαρυντικής υποθήκης, καθώς και τις διαδικασίες/συνέπειες που μπορούν να τύχουν εφαρμογής σε περίπτωση παράλειψης του ενυπόθηκου δανειστή να τηρήσει την δέσμευση του.

Η πρακτική που απορρέει από τους Τύπους Α και Β διασφαλίζει ότι η ελεύθερη μεταβίβαση υποθηκευμένου ακινήτου σε αγοραστή θα εκτελείται μόλις αυτός εκπληρώσει τις συμβατικές του υποχρεώσεις έναντι του πωλητή.

Τύπος Γ του Παραρτήματος:

Εναλλακτικά, ο Τροποποιητικός Νόμος του 2023 επιτρέπει την κατάθεση σύμβασης διά της συμπερίληψης του Τύπου Γ, μέσω του οποίου ο Αγοραστής ουσιαστικά αναγνωρίζει την ύπαρξη επιβαρυντικής υποθήκης που επηρεάζει το προς πώληση ακίνητο και διαβεβαιώνει ότι επιθυμεί να προχωρήσει στην κατάθεση της σύμβασης χωρίς αυτή να συνοδεύεται από τον Τύπο Α του Παραρτήματος.

Ο Τύπος Γ δεν επιδιώκει να διασφαλίσει τα δικαιώματα του αγοραστή στον ίδιο βαθμό που επιδιώκει ο Τύπος Α. Κατ’ ακρίβεια, ο Τύπος Γ παρακάμπτει την όλη διαδικασία και πρακτική που απορρέει από τον Τύπο Α.

Παρά ταύτα, δεν μπορεί να παραγνωριστεί ότι ο Τύπος Γ επίσης συνεισφέρει προς την εκ των προτέρων διαφύλαξη των συμφερόντων του αγοραστή, παρέχοντας την δυνατότητα σε αυτόν να λάβει έγκαιρα γνώση για την ύπαρξη επιβαρυντικής υποθήκης που επηρεάζει το προς πώληση ακίνητο, αλλά και να επιβεβαιώσει ότι είναι πρόθυμος να προχωρήσει στην κατάθεση σύμβασης χωρίς τη χρήση του Τύπου Α.

Η εισαγωγή των Τύπων Α, Β και Γ του Παραρτήματος αναμφίβολα συνιστά θετική εξέλιξη αφού θέτει σε εφαρμογή μια καινούργια πρακτική που επιδιώκει να διασφαλίσει τη διαδικασία αγοράς και μεταβίβασης ακίνητης ιδιοκτησίας. Με στόχο την επίλυση ενός σοβαρού προβλήματος που παρουσιάζεται τα τελευταία χρόνια, οι Τύποι Α, Β και Γ στοχεύουν στην εκ των προτέρων καλύτερη ενημέρωση και διασφάλιση των συμφερόντων του αγοραστή, ο οποίος, ενώ έχει εκπληρώσει πλήρως τις συμβατικές τους υποχρεώσεις έναντι του πωλητή, έχει απέναντι του ένα πωλητή ο οποίος αδυνατεί να μεταβιβάσει λόγω της ύπαρξης εμπράγματου βάρους.

Η καλύτερη ενημέρωση των εμπλεκόμενων μερών και η χωρίς περιπλοκές ολοκλήρωση κτηματικών συναλλαγών προσφέρει στην ενδυνάμωση της αγοράς ακινήτων, ενώ παράλληλα εμπνέει περισσότερη εμπιστοσύνη σε σχέση με το νομοθετικό πλαίσιο που διέπει την όλη διαδικασία σε περιπτώσεις που το προς πώληση ακίνητο επιβαρύνεται με υποθήκη.

Πέραν, όμως, από τα θετικά στοιχεία που απορρέουν από την εισαγωγή των Τύπων Α, Β και Γ του Παραρτήματος, κρίνουμε σκόπιμο όπως παραθέσουμε τα ακόλουθα σχόλια, τα οποία ίσως να αποκαλύπτουν την ανάγκη για καλύτερη διατύπωση των προαναφερθέντων Τύπων και διευκρίνηση της όλης αυτής νέας διαδικασίας που θέτει σε εφαρμογή ο Τροποιητικός Νόμος του 2023:

(i) Οι πρόσθετες διατυπώσεις που εισάγονται διά του Τροποποιητικού Νόμου του 2023 δεν αφορούν αποκλειστικά τις περιπτώσεις που το ακίνητο βαρύνεται μόνο με ήδη κατατεθειμένη υποθήκη. Κατ’ ακρίβεια, ο Τροποποιητικός Νόμος του 2023 προνοεί ρητά ότι οι εν λόγω πρόσθετες διατυπώσεις αφορούν επίσης περιπτώσεις που το ακίνητο βαρύνεται μόνο και με ήδη κατατεθειμένη σύμβαση. Αυτό, όμως, δεν φαίνεται να αντικατοπτρίζεται από το λεκτικό των Τύπων Α, Β και Γ, οι οποίοι ασχολούνται αποκλειστικά με την περίπτωση ήδη κατατεθειμένης υποθήκης, χωρίς να περιέχουν οποιαδήποτε απολύτως αναφορά σε σχέση με ήδη κατατεθειμένη σύμβαση.

(ii) Οι Τύποι Α, Β και Γ αναφέρονται μόνο σε πωλητή και αγοραστή. Αυτό συνεπάγεται ότι οι συγκεκριμένοι Τύποι τυγχάνουν εφαρμογής μόνο σε περιπτώσεις που αφορούν αγοραπωλησία ακίνητης ιδιοκτησίας. Τέτοια προσέγγιση, όμως, δεν συνάδει με το άρθρο 2 του Βασικού Νόμου και συγκεκριμένα την ερμηνεία του όρου «σύμβαση» η οποία συμπεριλαμβάνει διαφόρων ειδών συμβάσεις, όπως για παράδειγμα συμβάσεις εκχώρησης, διανομής και ανταλλαγής.

(iii) Οι Τύποι Α, Β και Γ ζητούν να καταγραφεί η περιγραφή της αγορασθείσας μονάδας που ανεγέρθηκε και/ή θα ανεγερθεί επί του Ακινήτου. Η διατύπωση των εν λόγω Τύπων δεν φαίνεται να συνάδει με περιπτώσεις που η σύμβαση δεν αφορά την αγορά κάποιας μονάδας, αλλά την αγορά ενός χωραφιού ή οικοπέδου.

(iv) H δέσμευση του ενυπόθηκου δανειστή που παρέχεται διά των Τύπων Α και Β παρέχεται υπό την αίρεση καταβολής 95% της αξίας του συμβολαίου σε προκαθορισμένο καταθετικό λογαριασμό. Αυτό, όμως, σημαίνει ότι ο ενυπόθηκος δανειστής δεν υποχρεούται να εξαλείψει την υποθήκη, έστω και αν ολόκληρη η αξία αυτής έχει κατατεθεί στον ενδεδειγμένο καταθετικό λογαριασμό, εκτός και αν πρώτα κατατεθεί το 95% της αξίας του συμβολαίου στον εν λόγω λογαριασμό, ποσό το οποίο μπορεί και να υπερβαίνει την όλη αξία της υποθήκης.

(v) Οι Τύποι Α, Β και Γ αφορούν περιπτώσεις που η ακίνητη ιδιοκτησία, η οποία αποτελεί αντικείμενο της σύμβασης, επηρεάζεται από ήδη κατατεθειμένη υποθήκη. Τέτοια διατύπωση, όμως, δεν συνάδει με περιπτώσεις που το αντικείμενο προς πώληση είναι τμήμα ακινήτου, το οποίο τμήμα δεν σχετίζεται με ήδη υπάρχουσα υποθήκη η οποία αφορά άλλο συνιδιοκτήτη και συγκεκριμένα άλλο τμήμα του ακινήτου που δεν αποτελεί αντικείμενο της πώλησης.

Τα ζητήματα που εγείρονται διά των πιο πάνω σχολιασμών αναμένεται ότι θα διευκρινιστούν και θα τύχουν αντιμετώπισης με την πάροδο του χρόνου. Ο Τροποποιητικός Νόμος του 2023 είναι πολύ πρόσφατος, με την πρακτική εφαρμογή και χρήση της όλης διαδικασίας που αφορά τους Τύπους Α, Β και Γ να μην μπορεί να αξιολογηθεί δεόντως στο παρόν στάδιο.

Σύμφωνα με ενημέρωση που έχουμε λάβει από το Τμήμα Κτηματολογίου και Χωρομετρίας, αναμένεται ότι οι λειτουργοί των Επαρχιακών Κτηματολογικών Γραφείων θα εφοδιάζονται συνεχώς με καθοδηγητικές οδηγίες και εγκυκλίους, με σκοπό την καλύτερη ενημέρωση του κοινού ως προς τις νέες πρακτικές που έχουν εισαχθεί διά των Τύπων Α, Β και Γ, καθώς και την ορθή εφαρμογή αυτών, με σκοπό την επίτευξη των στόχων που προάγει ο Τροποποιητικός Νόμος του 2023.

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Recent EU Corporate Tax Proposals and their possible impact on the Cyprus Tax System

Posted on | by Paschalis Paschali

In the last few years, the European Commission has been very active in the corporate tax field, producing a number of legislative proposals. The most important one was, arguably, the Directive on Minimum Effective Tax Rate, which was approved in Council in December 2022. Member States were given until the 31 December 2023 to incorporate the provisions of the new Directive into domestic law. The provisions of this Directive were analysed in a previous newsletter.

In this newsletter, we examine the legislative tax proposals which are still in the pipelines. These are the proposed Unshell Directive, the proposed Directive on Faster and Safer Relief of Excess Withholding Taxes, the proposed BEFIT Directive (Business in Europe: Framework for Income Taxation), the proposed Transfer Pricing Directive and the proposed Directive on Head Office Tax.

THE UNSHELL PROPOSAL

The Unshell proposal was first published as a draft Directive in December 2021. The aim of this proposal was to establish transparency standards around the use of shell entities to enable tax authorities to detect abuse more easily. There is a 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. Although the European Commission was expected to publish a revised version of this draft Directive in 2023 to meet the concerns of some stakeholders, this has not happened.

If this proposal is adopted, Cyprus and other traditional holding company jurisdictions are likely to be affected. Of course, much would depend on the gateways and substance indicators that are eventually approved. In any case, 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.

THE FASTER DIRECTIVE

The Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER Directive) was proposed by the Commission in June 2023. This proposed Directive is aimed at streamlining the withholding tax reimbursement process making withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries and tax administrations. The Directive also seeks to remove obstacles to cross-border investment and to curb certain abuses.

Three options are set out in the Commission’s proposal.

Under the first option, Member States would continue to apply their current systems (i.e. relief at source and/or refund procedures) but would introduce a common digital tax residence certificate (eTRC) with a common content and format which would be issued/verified in a digital way by all Member States. There would also be a common reporting standard to increase transparency as every financial intermediary throughout the financial chain would report a defined set of information to the source Member State. It would be accompanied by standardised due diligence procedures, liability rules and common refund forms to be filed on behalf of clients/taxpayers using automation.

This second option builds on the elements included in the first option but makes it compulsory for Member States to establish a system of relief at source at the moment of payment that allows for the application of reduced rates under a tax treaty or domestic rules. Under this option, tax administrations would have to monitor the taxes due after the payment takes place.

The third option also builds on the first option, with the added requirement that Member States applying a refund system should ensure that the refund is handled within a pre-defined timeframe, through the Quick Refund System. Member States can introduce or continue to implement a relief at source system.

Of all the options, the third option is considered (by the Commission) to be the preferred option. While the second option would lead to even higher cost savings for investors, the third option enables Member States to retain an ex-ante control over refund requests. This is likely to be more politically feasible in all Member States.

Even though Cyprus does not, in general, levy withholding taxes other than on certain outbound payments if the recipient is a company resident in a jurisdiction featured in the EU’s list of non-cooperative jurisdictions, the proposed Directive is likely to have an impact on the Cyprus tax system. The development of a harmonised digital certificate of residence will help speed up the procedures for relief of excess withholding taxes from other jurisdictions.

Of course, Member State tax administrations will need to be equipped with tools to deal with the relief/refund procedures in a secure and timely manner and to train the relevant staff supervising such tools.

BEFIT

In September 2023, the Commission published the much-awaited BEFIT Directive (Business in Europe: Framework for Income Taxation). This proposal replaces the previously proposed Common Consolidated Corporate Tax Base but the overall aim is the same: to set out a new framework of tax rules to help all companies in a group to determine their tax base on the basis of common rules. The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million. Smaller groups may choose to opt in.

All members of the same group (the ‘BEFIT group’) will calculate their tax base in accordance with a common set of rules applied to their already prepared financial accounting statements. The tax bases of all members of the group will then be aggregated into one single tax base, with losses automatically set off against cross-border profits.

Tax returns will be filed both at the level of the filing entity and each group member. Member State authority representatives (the ‘BEFIT team’) will assess and agree on the content and treatment of the BEFIT Information Return. Each Member State where the multinational group is present will be allocated a percentage of the aggregated tax base under a transitional formula. Very importantly also, each Member State can then adjust their allocated tax base according to their own national rules, calculate the profits, and tax at their national corporate tax rate.

BEFIT is expected to reduce tax compliance costs for large businesses. However, a close reading of the proposal suggests that there are some differences with Pillar 2 (and the Directive on Minimum Effective Tax Rate) which is likely to increase the compliance burden of in-scope groups.

In addition, although the BEFIT’s procedural rules were meant to provide a one-stop shop for corporate taxation of MNEs, quite the opposite, they seem to lead to a two-tier compliance mechanism. There is the double filing of returns, but also the possibility of parallel operation of double (and multiple) audits in the Member States involved. (See the IBFD Taskforce’s assessment of the BEFIT.) This is highly unsatisfactory.

Furthermore, the ability to make national adjustments to the allocated part is likely to give rise to tax (base) competition, which to an extent, defeats the objective of having a common tax base.

Whilst there are likely to be very few (if any) Cypriot in-scope groups, nevertheless, the existence of an additional tax base could be attractive to smaller groups that might choose to opt in. Therefore, if the BEFIT Directive is adopted, advisors should assess whether the new tax base is more beneficial than the Cyprus tax base for any Cypriot group with non-resident subsidiaries, and whether a transition to the new system should be encouraged.

TRANSFER PRICING DIRECTIVE

The draft Transfer Pricing Directive was proposed at the same time as the BEFIT proposal, in September 2023. This Directive aims to harmonize transfer pricing rules within the EU, in order to ensure a common approach to transfer pricing problems. As stated in the preamble (page 2), the “proposal aims at simplifying tax rules through increasing tax certainty for businesses in the EU, thereby reducing the risk of litigation and double taxation and the corresponding compliance costs and thus improve competitiveness and efficiency of the Single Market”.

This objective is achieved by incorporating the arm’s length principle into EU law, harmonizing the key transfer pricing rules, clarifying the role and status of the OECD Transfer Pricing Guidelines and creating the possibility to establish common binding rules on specific transfer pricing issues.

The draft Directive contains a common definition of associated enterprises (and therefore the transactions covered). It encompasses a person (legal or natural) who is related to another person in any of the following ways:

  • significant influence on their management;
  • a holding of over 25% of their voting rights;
  • a direct or indirect ownership of over 25% of their capital; or
  • a right to over 25% of their profits.

It is clarified that a permanent establishment is an associated enterprise. This is not always the case under national tax laws.  

The draft Directive also adopts key elements of the OECD Transfer Pricing Guidelines such as the accurate delineation of transactions undertaken, comparability analysis and the five recognised OECD Transfer Pricing methods.

Very importantly, the draft Directive provides for mechanisms to enable corresponding and compensating adjustments. There is a process for applying corresponding adjustments on cross-border transactions within the EU that aims at resolving, within 180 days, any double taxation that follows from transfer pricing adjustments made by an EU Member State. A framework is also introduced for compensating adjustments, which must be recognised by Member States.

In order to ensure a common application of the arm’s length principle it is expressly stated that the latest version of the OECD Transfer Pricing Guidelines will be binding when applying the arm’s length principle in Member States.

Broadly, the common definition of associated enterprises is very welcome, as this concept is not harmonised across Member States. However, the 25% threshold is different from the criteria set out in the BEFIT Directive and the Directive on Minimum Effective Tax Rate. This is likely to cause difficulties in coordinating the various rules.

In addition, the 180 days fast-track process is very attractive, as it will help speed up the resolution of disputes. The framework introduced for compensating adjustments is also very important as not all Member States accept compensating adjustments which can lead to double taxation.

If adopted, this Directive will have an impact on Cyprus transfer pricing rules, mostly in the context of streamlining corresponding adjustments. From a literal reading of Art 33(1) and (5) of Cyprus’ Income Tax Law, it would seem that only upwards compensating adjustments are accepted by the Cyprus tax authorities – unless of course there is a tax treaty in place which provides for upwards and downwards adjustments. The current practice suggests that the Cyprus tax authorities are unwilling to allow downwards adjustments. Also, the law is silent on compensating adjustments, but again it would seem that on the basis of a literal reading of Art 33(1) and (5), only if the compensating adjustments would result in an upward adjustment will they be accepted by the Cyprus tax authorities. If the Directive is adopted, these practices will have to change.

As for the other provisions of the Transfer Pricing Directive, whilst Cyprus now broadly follows the OECD’s Transfer Pricing Guidelines, its transfer pricing regime is a rather new regime. Therefore, a harmonised EU regime will likely have spillover effects as regards the interpretation and application of the newly adopted concepts.

HEAD OFFICE TAXATION DIRECTIVE

Under the new Head Office Taxation Directive (HOT Directive), qualifying SMEs with permanent establishments in other Member States will be able to calculate their tax liability based only on the tax rules of the Member State of their head office.

There are a number of conditions determining eligibility of SMEs, which are scattered in the proposal. Broadly, the proposed regime will only be open to EU tax resident companies (of a form listed in the Annex) with EU permanent establishments. Non-EU permanent establishments are excluded from the scope of the Directive.

There are also size-related requirements. In order for companies to be eligible, they must not exceed at least two of the following three criteria, on a yearly basis: (i) total balance sheet of EUR 20 million; (ii) net turnover of EUR 40 million; (iii) average number of employees of 250.

The draft Directive excludes from the scope of the regime SMEs which are part of a consolidated group for financial accounting purposes in accordance with Directive 2013/34/EU and constitute an autonomous enterprise. There is some uncertainty in this eligibility condition, which is likely to be addressed in a revised draft.

SMEs would only file one single tax return with the head office Member State. This return would then be shared with other Member States where the permanent establishments are located. Collection will take place at the Member State of the head office, but revenues will be shared with the tax authorities of each permanent establishment.

Audits, appeals and dispute resolution procedures will remain domestic and in accordance with the procedural rules of the respective Member State. Joint audits may also be requested by tax authorities. The proposed Directive will amend the Directive on Administrative Cooperation (the DAC) to enable the exchange of information between Member States for the proper functioning of the Head Office Tax Directive.

If a qualifying SME opts into this regime, then it must apply the rules for a period of five fiscal years, which can be renewed. The regime would cease to apply before the expiration of the five-year term if either (i) the SME transfers its tax residence out of the head office Member State or (ii) the joint turnover of its PEs exceeded an amount equal to triple the turnover of the head office for the last two fiscal years.

Broadly, the proposed Directive will create a one-stop-shop regime whereby the tax filing, tax assessments and collections for permanent establishments will be dealt with through the tax authority in the Member State of the head office.

The fact that the tax base of permanent establishments will be calculated according to the tax rules of the head office might generate tax competition. Cyprus and other Member States will strive to have attractive head office tax provisions in order to attract qualifying SMEs. Of course, this will also lead to an increase in the workload of the Cyprus tax authorities, as they would act as a one-stop-shop, dealing with the tax filing and assessment of the various components of the SME, as well as the collection and payment of revenues to other tax authorities. Therefore, adequate resources will need to be devoted to the Cyprus tax authorities, in order to be able to perform their role in the context of this proposed Directive.   

It should be pointed out that the proposed Directive does not directly impact Cyprus’ transfer pricing rules. The proposed rules will simply enable permanent establishments of qualifying SMEs to have their profits calculated according to the tax rules of the Member State of the head office. Therefore, assuming we have a qualifying Cyprus head office with Greek permanent establishments, the Cyprus tax rules will apply to determine how the profits of the Greek permanent establishments will be taxed. Those taxable profits will be subject to the Greek tax rates. However, the prior question of what profits will be attributed to the Greek permanent establishments (which will then be subject to the Cyprus tax rules) is most likely to be determined by Greek tax rules on profit attribution to permanent establishments. Unfortunately, this important point is not clear in the proposed Directive and is likely to give rise to disputes.

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

Seminar on Recent Developments in EU Tax Law, Taxpayers’ Rights and the Impact on Cyprus

Posted on | by Paschalis Paschali

NEWSLETTER by Professor Christiana HJI Panayi, Special Counsel for Tax

On 30th November 2023, Ioannides Demetriou LLC & Nobel Trust Ltd organised a seminar entitled “Recent Developments in EU Tax Law, Taxpayers’ Rights and the Impact on Cyprus”. The keynote speaker for this event was Professor Philip Baker, KC, OBE. I was also a speaker in this seminar, covering in detail the issues discussed in my last newsletter.

Professor Philip Baker is a leading expert in international and EU tax law. He is a practicing barrister and King’s Counsel, practicing from chambers in Field Court, Gray’s Inn.  Additionally, he is a Visiting Professor at the Law Faculty of Oxford University and a Senior Visiting Fellow at the Institute of Advanced Legal Studies, University of London.

Professor Baker has a particular interest in taxation and the European Convention on Human Rights and is widely considered as an authority on this area of law. Therefore, it was a great privilege to hear Professor Baker’s presentation in this seminar.

Professor Baker first gave a general overview of the legal framework for the protection of taxpayers’ rights and the important function of these rights. He talked about the expanding powers of tax authorities and the need for safeguards and limits. Some examples of taxpayers’ rights include the confidentiality of personal data, rights during investigations and audits as well as trials, rights during enforcement of taxes etc.

He explained that there are different levels of protection of these rights: protection under domestic law (e.g. under the tax law, and/or administrative law, and/or constitutional law), protection under international law (e.g. the International Covenant on Civil and Political Rights and the International Covenant on Economic Social and Cultural Rights) and protection under regional laws such as the European Convention on Human Rights (ECHR) and the EU Charter of Fundamental Rights (CFR). The protection offered by the CFR on taxpayers’ rights, as relevant to the audit process, investigations, information orders and penalties was discussed in more detail in a previous newsletter.

Professor Baker discussed how rights under the ECHR, the CFR and general EU law have an important impact on issues such as data protection, exchange of information and beneficial ownership registers.

As far as data protection is concerned, the relevant rights are Arts 8 of the ECHR, Arts 7-8 of the CFR but also Arts 16 TEU and Art 39 TEU. The GDPR legislation is also very important. All these rights impose restrictions on the use of data and obligations for the protection of data by authorities. There are of course limitations to the protection offered by these rules, as shown in some cases litigated at the Court of Justice, which were briefly discussed in the seminar.

As far as automatic exchange of information is concerned, Professor Baker explained that although this is now widely spread as a result of FATCA and subsequent OECD/G20 but also EU developments, this does not mean that it is immune from attack under the existing legal framework. In the past, warnings were sounded by, inter alia, the European Data Protection Board, as regards the inadequate protection of taxpayers’ data due to the roll-out of automatic exchange of information. With the intensification of automatic exchange of information both internationally and in the EU context, the possible tensions with the legal framework for the protection of taxpayers’ rights should not be underestimated by all relevant parties: tax administrations, banks, (tax) data collectors and taxpayers. Professor Baker also predicted that there is a likely to be a challenge to FATCA and the OECD’s Common Reporting Standard soon. ‘This is a time bomb about to explode’, he warned.

Finally, Professor Baker discussed issues pertaining to public registers of beneficial ownership. Following the direct challenge to the lawfulness of public access to beneficial ownership registers in the SOVIM case, Cyprus, in addition to other Member States have closed their registers. Other Member States have kept them open. Professor Baker questioned whether public beneficial ownership registers are lawful under EU law and whether access only to those who can show a legitimate interest would be sufficient to comply with Arts 7 and 8 CFR.

Professor Baker concluded his presentation by arguing that there needs to be a balance between rights to privacy/data protection and the disclosure of wrong-doing and tax evasion. How this balance can be achieved by the relevant actors (e.g. tax authorities and financial institutions) is a difficult question which can only be addressed by careful examination of the various layers of legal principles pertaining to this area.

Recording of Professor Baker’s and Professor HJI Panayi’s presentations

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

Winding-up vs Striking-off

Posted on | by Paschalis Paschali

Under the current legal framework, there are various ways by which a company may cease to exist: voluntary winding-up, compulsory winding-up, winding-up under court supervision, striking off. The process and consequences of each of these methods are briefly analysed below. 

Voluntary winding up by members

A voluntary winding up procedure is initiated by the Company’s members and presupposes that the Company is capable of paying all its debts within a period of 12 months from the commencement of winding up. For this purpose, a Declaration of Solvency is prepared by the Directors confirming the above, which is essentially a statement in the form of an affidavit, signed by the majority of the Directors before the court registrar, accompanied by a statement evidencing the Company’s assets and liabilities. In view of this, the auditors of the company need to prepare up-to-date financial statements. The Declaration of Solvency must be made within 5 weeks immediately preceding the passing of the resolution for winding up and be delivered to the Registrar of Companies (“RoC”) for registration before that date.

A voluntary winding up is deemed to commence at the time of passing of a resolution by the members for the company’s winding up. The members also appoint the liquidator, whose appointment is advertised in the Official Gazette within 14 days and relevant forms are filed with the RoC. Upon the appointment of the liquidator, the directors’ powers cease to exist and the liquidator proceeds with liquidation of the company’s assets, repayment/settlement of the company’s financial obligations including tax liabilities and payment of any dividends/surplus to the company’s members. The liquidator presents a statement of the actions performed during liquidation at the final general meeting, notice for which is published in the Official Gazette at least 1 month before the date of the meeting. Within a week following the final meeting, the liquidator files copy of the reports and accounts with the RoC. The company is deemed dissolved after 3 months from such filing.

Voluntary winding up by creditors

If at any stage during a voluntary liquidation by members it appears that the company is unable to pay its debts, then a voluntary liquidation by members is by operation of law transformed to a voluntary liquidation by creditors. Under such circumstances, the company convenes a creditors’ meeting in which a liquidator is nominated for the purposes of winding up the affairs of the company and distributing its assets. If there is a disagreement between the liquidator proposed by the creditors and that of the members, the proposal made by the creditors prevails. Furthermore, in the event that creditors deem appropriate, they may decide to appoint an Inspection Committee consisting of up to 5 persons. Apart from the involvement of creditors, and the liquidator’s duty to convene creditors’ meetings to present an account of the winding up process, the process otherwise resembles voluntary winding up by members. Within a week following the final meeting, the liquidator files copy of the reports and accounts with the RoC. The company is deemed dissolved after 3 months from such filing.

Winding up with the Supervision of Court

At any time after a resolution authorising the voluntary winding up has been passed by the Company, and upon the application of the company’s creditors, contributors or any other person, the Court may issue an order allowing the continuance of the winding up under Court’s Supervision. The court may also order the appointment of an additional liquidator, who may exercise all his powers without the sanction or intervention of the Court, subject to any restrictions imposed by the Court in the same manner as if the company were being wound voluntarily.

Compulsory winding-up

A compulsory winding-up may be ordered by the Court upon filing of a relevant petition by the Company, any creditor, or contributor, on the following grounds:

  • The company has passed a special resolution for winding up by the court;
  • The company has omitted to complete its statutory obligations and/or commitments;
  • The company has not commenced operations within one year from its incorporation or its business has been halted for a whole year;
  • In case of a public company, the number of members is reduced below seven;
  • The company is unable to pay its debts;
  • If in the opinion of the court, it is just and equitable that the company be wound up.

A compulsory winding up is deemed to have commenced at the time of filing of the petition for the winding up (or passing of the special resolution, if applicable).

Upon issuance of a winding-up court order, a copy of the said order, must be delivered to the RoC within 3 working days. The RoC thereafter proceeds with the registration of the order and its publication on the official website of the Registrar of Companies and Official Receiver.

Strike-off

An alternative way for a company to be dissolved, is by the way of its striking-off from the Register of Companies. This is typically a simpler and faster process than liquidation and it may be voluntary or involuntary.

This route is available for non-active or non-operating companies (dormant companies) and/or companies the businesses and/or operations of which have ceased and which have no longer any assets or liabilities and do not intend to carry on any business in the future. Furthermore, companies which have failed to pay annual government fees and/or make statutory filings may be struck off the register by the RoC after the expiration of three (3) months from relevant publication in the Official Gazette.

A dormant company may voluntarily apply for strike off by submitting a relevant request to the RoC. The company in its capacity as the applicant must ensure that it has complied with all of its statutory and ancillary obligations, as provided by the Companies Law and has settled all its affairs including its obligations to corporation taxes, VAT, Social Insurance, creditors and that there is no prohibiting court order against the Company. Once the registrar is satisfied that the company has honoured its relevant obligations, it proceeds with strike-off as requested.

Reinstatement

A company which has been struck off from the register either voluntarily or involuntarily may be reinstated and be regarded as never struck off.

Any interested party (e.g. member/shareholder of the company, creditor or whoever deems that they have been damaged by the actions of the company before its strike off) may request by way of an application to the court for the reinstatement of the company. This application can be made within the period of 20 years from the date of strike-off. If the court is satisfied that the company at the time of its strike off had been conducting business or was still in operation or if it is deemed fair for the company to be reinstated then the court may order the reinstatement of the company.

Provided that the RoC is satisfied that all the requirements of the law are complied with, it proceeds to the reinstatement of the company, the update of the register of the RoC, and to the publication of its reinstatement in the Official Gazette. Upon reinstatement of its name to the register the company is regarded as existing and never struck off before.

Administrative reinstatement of a company

 In case that a company is struck off from the register of companies for non-compliance with the Companies Law (i.e. for failure to submit any document required by the law or for failure to pay the annual government fee or in case a company is struck off from the register because the RoC has reasons to believe that the company is not operating), the said company may be reinstated through the procedure of the administrative reinstatement. In contrast with the procedure described above, in which a court order is required, the procedure of administrative reinstatement does not require the acquisition of a court order and upon company’s reinstatement, the company is deemed to have continued its existence as if it had never been struck off.

Reinstatement can take place with the submission of the relevant statutory form to the RoC together with all ancillary documents within 2 years of the date of strike off.

Submission of the form can be effected by a company director or company member.

If the RoC is satisfied that all legal requirements have been met, they will re-instate the company and issue a certificate of reinstatement with the date it has been re-instated and update the companies register. The re-instatement will be published in the Official Government Gazette.

Cyprus New Pre-Action Protocols: A mere formality or a substantive change of mentality?

Posted on | by Paschalis Paschali

In an attempt to modernize and expediate the legal procedures in our country, new Civil Procedure Rules have come into force since the 1st of September 2023, thus changing drastically our legal system. The just and proportionate as to costs handling of the cases, is placed at the heart of the reforms, as reflected in the overriding objective codified in Part 1 of the new Rules. In fact, the new Rules require the Court to handle all cases proactively by encouraging the parties to cooperate with each other, to identify the issues of dispute at an early stage and to facilitate the use of alternative dispute resolution procedures if necessary. To this end, the new Rules introduce certain Pre-Action Protocols that the parties are expected to follow before the initiation of legal proceedings before the Court.

It is worth noting that up to date, parties in litigation were not obliged to engage to any kind of pre-action conduct, apart from very limited circumstances such as in instances where a creditor of a company was obliged to send a 21-days’ notice of demand before filing a winding-up petition against the debtor company (see Art. 211 and 212, Cap. 113). The establishment therefore, of a formal mechanism which promotes the cooperation of the parties at a pre-action stage is certainly innovative.

The new Pre-Action Protocols aim at enhancing the pre-action communication and exchange of information between the parties, while the ultimate purpose they serve is the effective settlement rather than the adjudication of claim. The parties shall comply with the said protocols in a substantive way. Non- substantive adherence with the protocols’ requirements e.g. by omitting to disclose to the other party adequate information or evidence required by the protocol, may be considered as breach of the same and the Court may impose sanctions to the party in breach. In instances, for example, where, to the judgment of the Court, the non-adherence with the pre-action protocols has led to the initiation of an action, the claim of which could have been settled, the Court may order the party in breach to pay the total or part of the amount of the costs incurred. It is therefore evident that, through the imposition of sanctions, a more pragmatic approach as to the compliance of the protocols is adopted rather than merely a theoretical one.

Certain kinds of claims, such as personal injury claims, require the use of a specific Pre-Action Protocol as provided by the new Rules. It is however remarkable that even for claims for which no specific type of Pre-Action Protocol is required to be used, the Rules provide that the parties must act reasonably regarding the exchange of evidence and information and in a way so as to avoid the filing of an action before the Court. Parties are discharged from the obligation to engage in any sort of pre-action conduct only in instances where their claims are considered to be urgent, in instances where the claim is close to become time-barred or in instances where there are sufficient reasons not to engage to pre-action conduct. In such instances the reasons for the non-engagement must be outlined in the statement of claim.

In light of the above, it is obvious that from 1st September 2023 onwards, parties will be obliged to adhere to some kind of pre-action conduct. Potential omission from their part to do so will have to be accompanied with reasons for their non-compliance, while non-compliance for no good reasons may lead to them being penalized in relation to the legal costs incurred. It is therefore evident, that the new Rules attempt to introduce a  new mechanism which will encourage potential litigation parties to settle their claim in an effective and cooperative way prior to submitting their action before the Court.

This, is believed to be achieved through the exchange of evidence and information at an early stage, contrary to what used to be the case until today where proceedings initiated with the exchange of pleadings, which by default did not include evidence. As a result, parties were unable to assess the strength of their case and therefore, settlement could not easily be reached.

Consequently, the new reforms seem to “push” towards a more settlement-based legal system rather than a more adversarial one. A system that would perhaps place litigation at the top of the pyramid of our legal system and that would render it as a solution of a last resort when it comes to the resolution of a dispute.

What is certainly inarguable is that the application of the new Civil Procedural Rules must be accompanied with a change of culture, mindset and philosophy by all legal representatives who will definitely need to embrace and uphold this freshly-introduced mentality.

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).

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.

The Protection of Taxpayers’ Rights

Posted on | by Paschalis Paschali

In the past, the application of human rights provisions in the field of taxation was scarce. The European Court of Human Rights had in the past considered tax matters as falling within the protection of the European Convention of Human Rights, but only in so far as they were classified as criminal charges.

Today, there is a major shift of attitudes. In the European Union, as of 1 December 2009, with the entry into force of the Lisbon Treaty, the Charter of Fundamental Rights constitutes primary EU law. As such, the restrictive application of the European Convention of Human Rights as regards taxation is no longer an issue as there is a provision in the Charter which limits the scope of the rights to criminal tax charges.

It should first be pointed out that the provisions of the Charter are addressed primarily to Union institutions and bodies. They are also binding on Member States but only when and in so far as they are implementing Union law. Therefore, the Charter applies when the Member State authorities apply an EU regulation directly as this involves the implementation of EU law. It also applies when national authorities adopt or apply a domestic law transposing an EU directive. Furthermore, it applies to national rules imposing penalties for non-compliance with a directive, even if the directive itself does not make an express reference to penalties.

There are several articles of the Charter that provide for procedural guarantees and are applicable to tax procedures. These articles include:

  • Article 7, which provides for the right of respect for private and family life
  • Article 8, which provides for the right of protection of personal data
  • Article 11, which provides for the right of protection of the freedom of expression and information
  • Article 17, which provides for the right to good administration
  • Article 47, which provides for the right to an effective remedy and a fair trial
  • Article 48, which provides for the right of presumption of innocence and the right of defence
  • Article 49, which provides for the principles of legality and proportionality of criminal offences and penalties
  • Article 50, which provides for the right not to be tried or punished twice in criminal proceedings for the same criminal offence.

There have been some interesting cases at the CJEU where some of these rights were invoked. In this newsletter, we look at some of the areas in which the EU’s Charter has afforded protection to taxpayers which may be relevant to the audit process, investigations, information orders and penalties.

Tax Investigations/Searches/Seizures – The right of respect for private and family life

In the WebMindLicenses case, the CJEU dealt with the question whether in a situation where a taxpayer was being investigated for tax abuse concerning VAT, the tax authorities could use evidence obtained without the taxpayer’s knowledge in the context of a parallel criminal procedure that had not been concluded, when such evidence was obtained through interception of telecommunications and seizure of emails.

Here, the CJEU found that the interception of telecommunications and the seizure of emails in the course of searches at the professional or business premises of a natural person or the premises of a commercial company, could constitute an interference with the exercise of the right to privacy under Article 7 of the Charter.

Whilst the tax authorities were allowed, in order to establish the existence of an abusive practice concerning VAT, to use evidence obtained without the investigated taxpayer’s knowledge, this had to be done in a manner compatible with Article 7. The authorities had to show that the interception of telecommunications and the seizure of emails were means of investigation provided for by law and were necessary in the context of the criminal procedure. The authorities also had to show that the right of defence was respected and the investigated taxpayer had the opportunity, in the context of the administrative procedure, to gain access to the evidence seized and to be heard. National courts must also have a power to review whether the evidence obtained by the authorities was in accordance with EU law.

If these safeguards were not met, then the evidence obtained had to be disregarded, being fruits of a poisonous tree. It appears that irrespective of what the national law stipulates on the use of illegally obtained evidence, the CJEU demands that a separate and autonomous assessment should be made, based on the guarantees protected by the EU Charter. However, this is not settled yet and there is conflicting precedent by the European Court of Human Rights in a subsequent case (K.S. and M.S. v Germany), whereby information obtained by the tax authorities under questionable circumstances was still admissible.

It should not be forgotten that the EU’s Charter rights are only applicable as regards the implementation of EU law. Therefore, if the investigation is for abuse of a non-EU tax, arguably, the evidence illegally obtained might be admissible. This would depend on local law.

Reporting Obligations & the Legal Professional privilege – The right of respect for private and family life

Due to the increasing reporting obligations of tax intermediaries under EU law following DAC 6, there was concern that the legal professional privilege may in some cases be eroded, especially as regards the provision which had the effect of requiring a lawyer acting as an intermediary, where they were exempt from the reporting obligation on account of the legal professional privilege, to notify any other intermediary who was not their client of that intermediary’s reporting obligations (Art 8ab(5)). In a recent important judgment in the Vlaamse case, the CJEU found that this provision was invalid as it infringed Article 7 of the Charter.


The obligation of the lawyer acting as an intermediary (otherwise exempt from reporting due to the legal professional privilege) to notify other intermediaries, in so far as these other intermediaries did not necessarily have knowledge of the identity of the lawyer-intermediary, interfered with the right to respect communications between lawyers and their client, as guaranteed in Article 7 of the Charter. Furthermore, as the third-party intermediaries notified were not themselves bound by legal professional privilege, they had to inform the competent tax authorities of the disclosure under the provisions of the Directive – another interference with Article 7.


Therefore, any reporting obligations on tax intermediaries covered by the legal professional privilege which indirectly affect this privilege, to the extent that they are derived from EU laws, may be struck off.

Naming and Shaming/Beneficial Ownership Registers – The right of protection of personal data

The right of protection of personal data under Article 8 of the Charter of Fundamental Rights is also a very important right which, in theory, can curb the extensive power of tax authorities in relation to the use and exchange of personal data of taxpayers.

In Puškár, the CJEU considered a case where the Slovakian tax authorities published a list of names of individuals, referring to them as white horses – i.e. persons acting as fronts in company director roles. It was questioned whether this was compatible with Article 8 of the Charter. The CJEU found that the processing of personal data by the authorities for the purpose of collecting tax and combating tax fraud was allowed, subject to strict conditions. Firstly, the relevant authorities had to be invested by the national legislation with tasks carried out in the public interest. Secondly, the drawing-up of that list and the inclusion on it of the names of the data subjects had to be adequate and necessary for the attainment of the objectives pursued. Thirdly, there were sufficient indications to assume that the data subjects were rightly included in that list.

In a landmark case decided recently, the Luxembourg Business Register case, it was held that Luxembourg’s requirement that beneficial ownership registry information be displayed online and remain accessible for all members of the public violated the right of protection of personal data. The Luxembourg rules were implementing the rules of the Anti-Money Laundering Directive (Directive (EU) 2018/843) and as such, fell within the scope of the Charter of Fundamental Rights. The rules of the Directive were found to be invalid by the CJEU, as they constituted a serious interference with the fundamental rights enshrined in Articles 7 and 8 of the Charter.

Personal tax data, including tax information exchanged between a Member State and a third country, may also be protected under the General Data Protection Regulation. It could be problematic if the level of protection of the information by the recipient third country is not adequate, as per the EU standards.  

Information Orders and Requests for Recovery – The right to effective remedy and fair trial

In recent times, tax authorities have acquired extensive powers for information requests and recovery orders. Some of these powers have been given to tax authorities as a result of EU legislation, for example, the Directive on Administrative Cooperation (and all its amendments), the Mutual Assistance Directive for the Recovery of Claims, the Anti-Money Laundering Legislation etc. The enhanced powers of tax authorities are a common feature of the post-BEPS era. The exercise of some of these powers can, however, affect the rights of taxpayers to a fair trial, or the right to effective remedy.

In the Berlioz case,  the Spanish tax authorities sent requests for exchange of information to the Luxembourg tax authorities in the context of an investigation of a Spanish taxpayer. The Luxembourg tax authorities did not possess the requested information and made an information order pursuant to the Directive on Administrative Cooperation, to a Luxembourg company and a Luxembourg bank with a possible fine of 250.000 euros in the case of non-compliance. This was irrespective of the fact that the Directive did not contain any provisions as regards penalties.

Under Luxembourg law, the information holder could challenge the amount of the fine but not the information request. The addressees of the information order (i.e. the Luxembourg company and bank) and the taxpayer challenged the legality of the order under Article 47 of the Charter.

The CJEU found that the addressees of the information order had the right to challenge the legality of the information orders, as well as the penalties. The foreseeable relevance of the requested information was also a condition of the validity of an information order.

Here, the addresses of the order had challenged its legality also on the basis that the information requested was not foreseeably relevant. They argued that they should have the right of access to Spain’s request for information to the Luxembourg authorities. Here, the CJEU, taking into account the secrecy provisions of the Directive, found that the request for information must remain confidential, including to interested parties in the course of the administrative and judicial proceedings. This provision did not infringe the rights of the defence and the right to a fair hearing, as long as the relevant person (here, the addressees of the order) could access the minimum information set out in the Directive (Article 20(2)), to assess the lawfulness of the information order: namely, the identity of the taxpayer concerned and the tax purpose for which the information is sought.

Issues regarding the legality of proceedings when there is a breach of the right to an effective remedy have also been raised in relation to the Mutual Assistance Directive for the Recovery of Claims.

In the Donellan case, the CJEU found that an authority of a Member State may refuse to enforce a request for recovery on the ground that the decision imposing that fine was not properly notified to the person concerned before the request for recovery was made to that authority by the authorities of another Member State. In order to comply with Article 47 of the Charter it was important not only to ensure that the addressee of a document actually receives the document in question but also that he was able to understand effectively and completely the meaning and scope of the action brought against him abroad, so as to be able to assert his rights in the Member State of transmission.

Simultaneous application of sanctions – Ne bis in idem

The principle of ne bis in idem, i.e. the right not to be tried or punished twice for the same offence, comes into play when administrative and criminal sanctions are imposed on the same person for the same offence.

In the case of Åkerberg Fransson, the CJEU held that under the ne bis in idem principle, a Member State is not allowed to impose, successively, for the same acts of non-compliance with VAT declaration obligations, a tax penalty and a criminal penalty, in so far as the first penalty (the administrative one) was criminal in nature. This was a matter which was for the national court to determine.

In a later case, the Luca Menci case, the CJEU examined a situation where criminal proceedings were initiated against a taxpayer who had previously been subject to a final administrative penalty for non-payment of VAT. It was found that for the national legislation to be compatible with Article 50 of the Charter it had to pursue an objective of general interest which justified such a duplication of proceedings and penalties. Furthermore, the national legislation had to limit the duplication, including the penalties imposed, to what was strictly necessary.

Know your taxpayer rights

It is very important to know your rights as a taxpayer. This newsletter provided a very limited overview of some important rights and protections offered mainly under EU law. There are many more rights affecting taxpayers’ dealings with tax authorities and principles derived from case law, not only under the Charter but also under the European Convention of Human Rights, which Cyprus follows.

We can help you navigate this area and ensure your rights and interests are protected in your dealings with the Cyprus tax authorities. This is especially important if some of the proposals that the European Commission has been working on, which we discussed in our previous newsletter (e.g. the UNSHELL proposal and the Anti-Facilitation proposal), are eventually adopted.