Peer Review Report Phase 1 Legal and Regulatory Framework: Cyprus

GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES
Peer Review Report Phase 1 Legal and Regulatory Framework

CYPRUS
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Cyprus 2012
PHASE 1
March 2012 (reflecting the legal and regulatory framework as at December 2011)
This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Cyprus 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168787-en
ISBN 978-92-64-16877-0 (print) ISBN 978-92-64-16878-7 (PDF)
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
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OECD 2012
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TABLE OF CONTENTS 3
Table of Contents
About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Information and methodology used for the peer review of Cyprus. . . . . . . . . . . .11 Overview of Cyprus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A. Availability of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 B. Access to information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 44 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 49 C. Exchanging information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 53 54 60 61 63 64
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CYPRUS OECD 2012
4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . . 65 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . . 69 Annex 2: List of All Exchange-Of-Information Mechanisms in Force. . . . . . . 70 Annex 3: List of All Laws, Regulations and Other Material Consulted. . . . . . 73
ABOUT THE GLOBAL FORUM 5
About the Global Forum

The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. The standards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including bank information and information held by fiduciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identified by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 and Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once adopted by the Global Forum. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please refer to www.oecd.org/tax/transparency and www.eoi-tax.org.
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in Cyprus. 1, 2 The international standard which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain timely access to that information, and in turn, whether that information can be effectively exchanged with its exchange of information (EOI) partners. 2. The economy of Cyprus is mainly driven by the services sector, which accounts for more than 80% of its gross domestic product. The economy is internationally orientated, resulting in relatively high foreign direct investment flows. Cyprus has a fully developed tax system including an income tax and a value added tax. In 2004, Cyprus joined the European Union. 3. Relevant entities include companies, partnerships, trusts and cooperative societies. Companies and cooperative societies are required to maintain a register of members and in most cases the list of members must be furnished to the authorities on a regular basis. Partnerships must be registered with the authorities and details of each partner must be provided upon registration. Subsequent changes must also be registered. Ownership and identity information on companies, partnerships and cooperative societies is therefore
1. Note by Turkey: The information in this document with reference to Cyprus relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Islands. Turkey recognizes the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the Cyprus issue. Note by all the European Union Member States of the OECD and the European Commission: The Republic of Cyprus is recognized by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.
2.
8 EXECUTIVE SUMMARY
available. However, public companies may issue share warrants to bearer but there are insufficient mechanisms to identify the owners of such warrants. 4. In respect of trusts obligations exist under AML/CFT legislation for trustees to identify any beneficiary to at least ten percent of the trust property. Beneficiaries must also be identified upon registration of trustees of a trust carrying on business in Cyprus. These obligations do not necessarily cover the identification of all beneficiaries in all cases. Also, express obligations to identify the settlors and other trustees only exist in certain circumstances. 5. Cyprus laws contain obligations to keep reliable accounting records for at least five years in respect of domestic companies, partnerships and cooperative societies. Trusts are subject to certain record-keeping obligations as well, but it is not clear in the case of trusts deriving only dividend and interest what books and records should be kept. Another gap exists in respect of companies incorporated in Cyprus but managed and controlled in another jurisdiction. Such entities do not have the obligation to keep underlying documentation or an obligation to keep accounting records for a period of at least five years. Finally, further guidance should be developed in respect of which underlying documentation should be maintained. 6. All records pertaining to the accounts as well as to related financial and transactional information are required to be kept by Cypriot banks under AML/CFT legislation. 7. Access powers to obtain all relevant information pursuant to an information exchange request are based on a specific provision in the Assessment and Collection of Taxes Law. Such powers include search and seizure powers and penalties for non-compliance. These powers apply only where the information request is based on a double taxation convention (DTC). Although Cyprus has to date not concluded information exchange agreements other than DTCs, it should be ensured that information can be accessed under all information exchange agreements (regardless of their form). 8. A person who is requested by the Cypriot tax authorities to produce information must be informed which foreign tax authority had requested the information. As no exceptions to this rule are in place, this requirement may undermine the success of a request for information and consequently of the investigation or examination conducted by the requesting jurisdiction in some cases. 9. Cyprus has a network of DTCs covering 44 jurisdictions and it also exchanges tax information under a number of instruments with other EU members. Its bilateral information exchange agreements generally contain all provisions which allow Cyprus to exchange all foreseeably relevant information. Cyprus policy is to negotiate DTCs rather than other tax information
EXECUTIVE SUMMARY 9
exchange agreements (TIEAs). It is recommended that Cyprus enter into agreements for exchange of information (regardless of their form) with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it. Cyprus authorities have indicated that they prefer to enter into DTCs, but they are ready to negotiate and sign TIEAs without any conditions and to enact appropriate legislation to give effect to these agreements. 10. Cyprus response to the findings in this report, in particular the recommendations made, as well as the application of the legal framework and the implementation of the international standard in practice, will be considered in detail in the Phase 2 review of Cyprus, scheduled to commence in the second half of 2012. In the meantime, a follow up report on the steps undertaken by Cyprus to answer the recommendations made in this report should be provided to the PRG within six months after the adoption of this report.
INTRODUCTION 11
Introduction
Information and methodology used for the peer review of Cyprus

11. The assessment of the legal and regulatory framework of Cyprus was based on the international standards of transparency and exchange of information as described in the Global Forums Terms of Reference, and was prepared using the Methodology for Peer Reviews and Non-Member Reviews. The assessment was based on the laws, regulations and exchange of information mechanisms in force or effect as at December 2011, other information, explanations and materials supplied by Cyprus, and information supplied by partner jurisdictions. 12. The Terms of Reference (ToR) break down the standards of transparency and exchange of information into 10 essential elements and 31 enumerated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchanging information. This review assesses Cyprus legal and regulatory framework against these elements and each of the enumerated aspects. In respect of each essential element, a determination is made that either: (i) the element is in place; (ii) the element is in place but certain aspects of the legal implementation of the element need improvement; or (iii) the element is not in place. These determinations are accompanied by recommendations for improvement where relevant. A summary of the findings against the elements is set out on pages 65-68 of this report. 13. The assessment was conducted by a team which consisted of two expert assessors and a representative of the Global Forum Secretariat: Mr. Duncan Nicol, Director from the Cayman Islands Tax Information Authority; Mr. Philippe Cahanin, Deputy Director in the Large Business Audit Branch of the French Revenue Administration; and Mr. Mikkel Thunnissen from the Global Forum Secretariat. The assessment team examined the legal and regulatory framework for transparency and exchange of information and relevant exchange of information mechanisms in Cyprus.
12 INTRODUCTION
Overview of Cyprus
14. The island of Cyprus is the third largest island in the Mediterranean Sea, located in the Eastern Mediterranean at the crossroads of Europe, Asia and Africa. The population of Cyprus is estimated to be 800 000. 3 Its capital is Nicosia, where about 25% of the population resides. 15. The Cypriot economy has been affected by the global economic crisis and experienced a recession in 2009. It is currently recovering and growing at a rate around 1%. The gross domestic product is estimated to be EUR 17.47 billion in 2010. The services sector accounts for 81.3% of the economy, while industry and agriculture make up 16.4% and 2.3% respectively. The services sector comprises a variety of economic activities, such as tourism, banking, finance and insurance, legal and business consulting and shipping and ship management. Cyprus main trading partner is Greece, followed by Germany, the United Kingdom and Italy. 4 16. Cyprus is a member of the European Union (EU) since 1 May 2004. It also joined the Economic and Monetary Union at that date, and adopted the euro as its national currency on 1 January 2008.
Legal system
17. The basis for Cyprus government structure can be found in its Constitution. Cyprus is a republic with a Presidential system of Government. The President is elected for a five-year term of office. The President appoints the Council of Ministers and together they exercise executive power. Legislative power is exercised by the House of Representatives (unicameral system), the members of which are also elected for five-year terms. 18. The Cypriot legal system is mainly based on common law, but some areas are based on the civil law system. Some laws in force have been inherited from the time Cyprus was a British colony, but most have since been replaced by new legislation. International treaties can be concluded either under a decision of the Council of Ministers (where the treaty deals with certain specified matters, such as a Double Taxation Convention) or on approval by the House of Representatives. It will thereafter have superior force to any municipal law (on the condition of reciprocity), 5 meaning any piece of domestic legislation in Cyprus. Following Cyprus accession to the
3. 4. 5.
2009 estimate by the Statistical Service of Cyprus, www.cystat.gov.cy. The data in this paragraph are derived from publications of the Statistical Service of Cyprus, www.cystat.gov.cy. See section 169 of the Constitution of Cyprus.
INTRODUCTION 13
EU, the Constitution was amended to also give EU law supremacy over the Constitution and national legislation. 19. If mandated by national legislation, matters may be further dealt with in Ministerial Regulations or Regulative Decisions. This subsidiary legislation is then also binding. 20. The judicial power is exercised by the courts. District Courts have jurisdiction to deal with all civil actions at first instance except for matters that fall within the jurisdiction of specialised courts or tribunals. District Courts also have jurisdiction to deal with criminal cases where the maximum punishment for the offence is five years imprisonment or less. Other criminal cases are under the jurisdiction of the Assize Courts. Appeals from all lower courts can be made to the Supreme Court. The Supreme Court may also examine the constitutionality of any law.
Financial sector
21. The financial sector represents an important part of the Cypriot economy. Financial intermediation accounted for approximately 7.8% of its GDP in 2010 6. Cyprus also has relatively high foreign direct investment (FDI) flows. From 2008-2010, Cypriot inward (FDI) flows averaged USD 4 878 million per year. An annual average of USD 4 471 million was recorded as outward FDI over that period. 7 22. The financial sector is supervised by several authorities. The main functions of the Central Bank of Cyprus in this regard are to supervise banks, to promote, regulate and oversee the smooth operation of payment and settlement systems and to safeguard the stability of the financial system. The mission of the Cyprus Securities and Exchange Commission is to ensure and safeguard the operation of a fair, orderly efficient and transparent securities market in Cyprus. It is therefore vested with the responsibility and the necessary powers to oversee the operation of Organised Markets, Investment Firms, the Issuers of shares listed on a regulated market, Credit Rating Agencies, Undertakings for Collective Investment in Transferable Securities (UCITS), as well as UCITS Management Companies\. Furthermore, separate supervisory authorities exist for cooperative credit institutions, insurance companies and pension funds. 23. All banks must be licensed by the Central Bank and are subject to the Banking Law. The banking sector comprises 40 banks, of which seven are locally based banks. Eight others are subsidiaries of foreign banks and the
6. 7. 2010 estimate by the Statistical Service of Cyprus, www.cystat.gov.cy. Data drawn from the United Nations Conference on Trade and Development (UNCTAD), available on http://unctadstat.unctad.org.
14 INTRODUCTION
remaining 25 are branches of foreign banks. In addition, cooperative credit institutions are also involved in banking, taking deposits almost entirely from local people. As at June 2011, 101 cooperative credit institutions are operational. The assets in the total banking sector amounted to approximately EUR 155 billion as at 31 August 2011. 24. All providers of financial services, trust services and company services, which includes lawyers and tax advisors providing such services, are subject to obligations under AML/CFT legislation. In this regard they must carry out customer due diligence and report any suspicious transactions.
Taxation and international cooperation

25. The current Cypriot tax system is largely the result of a major reform that came into effect on 1 January 2003. The main objectives of this reform were to comply with the EU Code of Conduct for Business Taxation and EU harmonisation rules in order to be able to become an EU member, and also to execute Cyprus commitment to the OECD following the 1998 OECD report Harmful Tax Competition: An Emerging Global Issue. With the reform the offshore tax regime was abolished and a residence-based tax regime was introduced. 26. Companies which have their effective management and control in Cyprus are subject to income tax from sources within and outside Cyprus in respect of business profits and certain investment income. Income from interest not accruing from ordinary business activities and from dividends is exempt. The income tax rate for companies is 10%. Foreign companies not having their effective management and control in Cyprus are subject to income tax on certain income from sources in Cyprus, such as having a permanent establishment there. A special regime applies in respect of shipping and ship management companies exempting them from tax under certain conditions. Cyprus has one of the largest shipping registries in the world. However, shipping and ship management companies are subject to the same rules as other companies and therefore no specific influence on exchange of information is to be expected. 27. Individuals resident in Cyprus are subject to income tax in respect of the same income as companies, as well as employment income and certain pension income. Rates are progressive with a maximum rate of 35%. Nonresidents (including non-resident partners of a partnership) are taxable on certain income derived from Cyprus. 28. Partnerships are considered tax transparent and tax is levied on the partners directly. Trustees are subject to tax in respect of the income received from the trust property under their control or administration.
INTRODUCTION 15
29. A special contribution for strengthening the defence of Cyprus is levied on all residents receiving dividend (except most intercompany dividends), interest or rental income. The rates depend on the type of income and vary from 3% on rental income to 17% 8 on dividends. 30. Several other taxes are levied, such as a capital gains tax on gains from the disposal of immovable property, a value added tax and stamp duty. 31. Cyprus has had double taxation conventions (DTCs) with its main trading partners since the 1970s. From the 1980s Cyprus has gradually expanded its network of DTCs and it now counts 41 DTCs covering 44 jurisdictions. Its powers to obtain and exchange information under these DTCs are implemented in the Assessment and Collection of Taxes Law. This power is executed by the Director of the Department of Inland Revenue of the Ministry of Finance.
Recent developments
32. A new Mutual Assistance Directive (EU Council Directive 2011/16/ EU) was adopted by the European Council on 15 February 2011 and will come into force on 1 January 2013. Cyprus is currently preparing to transpose the new Directive into its domestic legislation, which is envisaged to be finalised in the course of 2012. 33. An amendment to the Assessment and Collection of Taxes Law came into effect on 1 July 2011. This amendment provides that all companies must be registered with the tax authorities within 60 days from their incorporation or registration, or from the date they became tax residents in Cyprus. Also, specific time limits were introduced for issuing business invoices and updating business accounting records. Finally, bank information for domestic tax purposes may now be obtained with the consent of the Attorney-General instead of a court order; this procedure was already introduced in 2008 for obtaining bank information for information exchange purposes.
8.
Rate as from 31 August 2011, previously the rate was 15%.
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 17
Compliance with the Standards
A. Availability of information
Overview
34. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If such information is not kept or the information is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report describes and assesses Cyprus legal and regulatory framework on availability of information. 35. Availability of ownership and identity information in respect of companies is generally ensured by the requirement to keep an up to date register of members. However, public companies may issue share warrants to bearer and no requirements exist to identify the owners. While there is no evidence of any share warrants to bearer in existence, there are currently insufficient mechanisms in place to ensure the availability of identity information regarding the owners of such share warrants. A recommendation has been made in respect of this deficiency. 36. Partnerships must be registered with the authorities and details of each partner must be furnished upon registration. Any change in this respect must also be registered, ensuring up to date ownership information on partnerships. Cooperative societies are required to keep an up to date register
18 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

of members, and a list of members must be provided to the authorities on a regular basis. 37. Trustees have the obligation under AML/CFT legislation to identify their customer and the beneficial owner, but this requirement only expressly includes the identification of any beneficiaries of at least ten percent of the trust property. In addition, trustees of a trust carrying on a business in Cyprus are required to register and, upon registration, identify all beneficiaries. Not all trustees are covered by this requirement and express obligations to also identify the settlors and other trustees only exist in certain circumstances. A recommendation has been made for Cyprus to ensure the availability of full ownership and identity information in respect of trusts in all cases. 38. An obligation to keep reliable accounting records including underlying documentation for a period of at least five years is not in place in all circumstances. Most of the obligations are based on Cyprus tax law. As companies incorporated in Cyprus but managed and controlled in another jurisdiction are not subject to the relevant provisions, they do not have the obligation to keep underlying documentation and to keep accounting records for a period of at least five years. In addition, it is not clear what books and records should be kept by trusts deriving only dividends or interest income. Finally, a lack of guidance exists in respect of which underlying documentation should be maintained. 39. The AML/CFT legislation ensures that all records pertaining to the accounts as well as to related financial and transactional information is required to be kept by Cypriot banks. 40. Enforcement provisions are in place in respect of the relevant obligations to maintain ownership and identity information for all relevant entities and arrangements. The effectiveness of the enforcement provisions which are in place in Cyprus will be assessed as part of its Phase 2 review.
A.1. Ownership and identity information

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities.
Companies (ToR A.1.1)

41. The Companies Law (CL) is the central piece of legislation governing the establishment of and further arrangements with respect to companies. Under the CL, two types of companies may be incorporated (s. 3(2) CL):
Companies limited by shares: the liability of the members of this type of company is limited to the amount unpaid (if any) on their shares. As at 31 December 2011, 253 925 of such companies were registered in Cyprus. Companies limited by guarantee: these companies may or may not have share capital. The liability of the members of this type of company is limited to such amount defined in the memorandum of the company to the companys assets in the event that the company is liquidated. As at 31 December 2011, 302 companies limited by guarantee were registered in Cyprus. 42. A company can further either be a private or a public company. A private company cannot have more than 50 members, must restrict the right to transfer its shares, and is not allowed to invite the public to subscribe for any shares or debentures in the company (s. 29(1) CL). A public company is any company that is not a private company (s. 2(1) CL). As Cyprus is a member of the EU, it is also possible to establish an SE (Societas Europaea) 9, which is a specific type of public company. The rules described below on the availability of ownership information apply to all companies, unless indicated otherwise. 43. All companies incorporated under the CL are required to have a registered office in Cyprus (s. 102(1) CL). The location of the registered office and any change in respect thereof shall be notified within 14 days after the date of incorporation of the company or of the change, to the registrar of companies (s. 102(2) CL). Non-compliance with these provisions can lead to a fine not exceeding EUR 42.72 for every day the non-compliance continues (sections 102(3) and 375(1) CL).
Ownership information held by companies

44. All companies incorporated under the CL are required to keep a register of members (legal ownership). This register should contain the following information (s. 105 CL): (a) the names and addresses of the members; (b) in the case of a company having a share capital, a statement of the amount of shares held by each member and of the amount paid on them; (c) the date on which each person was entered in the register of members; and (d) the date on which any person ceased to be a member.
9. See Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE).

45. Section 105(2) CL provides that, as the main rule, the register of members must be kept at the companys registered office. It is also possible to keep it at another office of the company or, if another person handles the register, the office of that other person. The register must always be kept in Cyprus. In case the register is kept in another location than the companys registered office, the company must notify the registrar of companies of that other location and of any change (s. 105(3) CL). Not keeping a register of members or not notifying the registrar of companies that the register of members is not held at the companys registered office can lead to a fine not exceeding EUR 42.72 for every day the non-compliance continues (sections 105(4) and 375(1) CL). 46. The subscribers of the memorandum of a company shall be entered as members in the register of members (s. 27(1) CL). Transfers of shares shall only be registered by the company upon delivery of a proper instrument of transfer (s. 73 CL), which may take different forms dependent on the articles of association of the company and statutory legislation.
Ownership information held by the authorities

47. All companies incorporated under the CL are required to register their memorandum and articles of association (if any) with the registrar of companies, who will retain and register these documents (s. 14 CL). The memorandum must contain the names of the initial members of the company and the number of shares he/she owns (s. 4(4) CL). Furthermore, companies must file at least once every year a return to the registrar of companies. In respect of companies having a share capital the return must contain the register of members, including all current and former members and the capital paid up by them (s. 118 and Sixth Schedule CL). Non-compliance with these provisions can lead to a fine not exceeding EUR 42.72 for every day the non-compliance continues (sections 118(3) and 375(1) CL). In respect of companies not having a share capital there is no obligation to include information on its members in the return.
Tax law
48. The Cypriot tax authorities maintain the Tax Register. In this respect a new provision was introduced in 2010 in the Assessment and Collection of Taxes Law (ACTL). This section 5A provides that a company must submit a notice for registration in the Tax Register and obtain a tax identification number immediately after its incorporation. Any company that was not registered before the introduction of section 5A ACTL, had the obligation to register not later than 30 June 2011. 49. Upon registration in the Tax Register a company must submit a designated form to which the memorandum of the company must be attached. As noted above, the memorandum contains the names of the initial members
of the company and the number of shares he/she owns. Any person not complying with these obligations is liable on conviction to a fine not exceeding EUR 17 for every day the non-compliance continues or to imprisonment for a term not exceeding twelve months, or both (s. 50(1) ACTL). 50. In addition, the annual income tax return requires that the company indicates whether a change of ownership has occurred. This requires companies to maintain information about their shareholders in order to meet their tax obligations. However, only companies that are tax resident in Cyprus or derive certain income from Cyprus are required to submit an income tax return. A company is tax resident in Cyprus when it is managed and controlled in Cyprus (s. 2 Income Tax Law). This means that annual income tax returns do not have to be submitted by companies incorporated in Cyprus but managed and controlled in another jurisdiction (and not deriving income from Cyprus). It is noted that these companies do have reporting obligations under the CL (companies limited by shares have stricter obligations than companies limited by guarantee, see paragraph 47).
Ownership information held by service providers

51. Section 2(1) of the Prevention and Suppression of Money Laundering and Terrorist Financing Law (PSMLTFL) includes the provision of company services, such as the formation of companies and the provision of a registered office, in the definition of other business, which means that any person providing such services is subject to certain obligations under the PSMLTFL. Consequently, company service providers are required to carry out customer due diligence (CDD) when establishing a business relationship (s. 60(a) PSMLTFL), and identify their customer and the beneficial owner in accordance with section 61 PSMLTFL. 52. The term beneficial owner is also defined in section 2(1) PSMLTFL. In respect of a corporate entity the beneficial owner shall at least include: (i) the natural person or natural persons who ultimately own or control a legal entity through direct or indirect ownership or control of a sufficient percentage of the shares or voting rights in that legal entity, including through bearer share holdings, a percentage of 10% plus one share be deemed sufficient to meet this criterion; (ii) the natural person or natural persons who otherwise exercise control over the management of a legal entity. 53. The obligation to identify the beneficial owner includes the express obligation to identify at least the ultimate owners of at least ten percent of the company, which may not necessarily oblige the service provider to identify all owners. It should be noted that full ownership information on the legal

owners is available through the register of members that the company is required to maintain (see above). Documentation in respect of the CDD carried out must be maintained by the service provider for at least five years after the end of its business relationship with the person for whom they act (s. 68 PSMLTFL). Failure to carry out CDD or to maintain the documentation for at least five years can lead to an administrative fine of up to EUR 200 000 and, in case the failure continues, a fine of up to EUR 1 000 for each day the failure continues (s. 59(6)(a)(ii) PSMLTFL).
Foreign companies
54. Any foreign company that establishes a place of business in Cyprus must register at the registrar of companies (s. 347 CL). This registration process does not include the furnishing of ownership information. 55. However, section 5A(1) ACTL requires all companies to register in the Tax Register immediately after their registration under the CL. As at 31 December 2010, 1 561 foreign companies were registered with the tax authorities. Registration in the Tax Register does not require the furnishing of ownership information, but such information may be provided by submitting the memorandum of the company; it would then depend on the law of the jurisdiction where the company was incorporated whether its memorandum contains ownership information. Registration in the Tax Register is further required in respect of foreign companies being managed and controlled in Cyprus, as they are considered tax resident in Cyprus (s. 2 Income Tax Law) and are therefore subject to income tax in respect of their worldwide income (s. 5(1) Income Tax Law). 56. Section 5 ACTL requires every company subject to Cypriot income tax to submit an annual income tax return. This includes foreign companies being managed and controlled in Cyprus and foreign companies having a fixed place of business (permanent establishment) in Cyprus (s. 5 Income Tax Law). Any person not complying with these obligations is liable on conviction to a fine not exceeding EUR 17 for every day the non-compliance continues or to imprisonment for a term not exceeding twelve months, or both (s. 50(1) ACTL). 57. The annual income tax return requires that a company (including foreign companies) always indicates whether any change of ownership has occurred, irrespective of whether the owners are individuals or corporate vehicles. This is relevant because tax losses may only be carried forward if no change of ownership occurs in any three-year period (s. 13(1)(a) Income Tax Law). For this purpose there is a change of ownership (i) if a person acquires more than half of the ordinary share capital, or (ii) if two or more persons jointly or severally acquire at least 5% of the ordinary share capital so that in all together they acquire more than half of the ordinary share capital (s. 13(2)
Income Tax Law). In addition, tax losses may also be offset to other group companies (s. 13(5) Income Tax Law). 58. Based on the above, foreign companies being tax resident in Cyprus or having a fixed place of business in Cyprus need to maintain information about their shareholders in order to meet their tax obligations, i.e. filing proper income tax returns indicating whether a change of ownership has occurred. Such information must be maintained in particular to assess whether tax losses may be carried forward or offset to other group companies, and to assess whether other entities are considered part of the same group.
Nominees
59. The business of acting (or arranging for another person to act) as a nominee shareholder for another person is considered to be other business under section 2(1) PSMLTFL. Consequently, persons acting by way of business as a nominee shareholder are required to carry out customer due diligence (CDD) when establishing a business relationship (s. 60(a) PSMLTFL), and identify the person(s) for whom they act as a legal owner in accordance with section 61 PSMLTFL. Documentation in respect of the CDD carried out must be maintained by the nominee for at least five years after the end of its business relationship with the person for whom they act (s. 68 PSMLTFL). Failure to carry out CDD or to maintain the documentation for at least five years can lead to an administrative fine of up to EUR 200 000 and, in case the failure continues, a fine of up to EUR 1 000 for each day the failure continues (s. 59(6)(a)(ii) PSMLTFL). 60. In addition, section 50(d) of the Partnerships and Business Names Law (PBNL) prescribes the registration of every partnership, individual or corporation having a place of business in Cyprus and carrying on that business wholly or mainly as a nominee. Such registration includes submitting the name of every person on whose behalf the business is carried on (s. 53(1) PBNL). Any person failing to register as a nominee is liable on summary conviction to a fine not exceeding EUR 5.13 for every day the failure continues, and the Court shall order that the information must be furnished to the registrar (s. 61 PBNL). A person wilfully furnishing false information is liable to a fine not exceeding EUR 85.43 or to imprisonment for a term not exceeding two years, or both (s. 63 PBNL). 61. If a person holds shares on behalf of another person as a nominee not by way of business, such nominee would be subject to the tax laws, including the obligation to provide information, on request, to the Cypriot tax authorities for purposes of the exchange of information (see also section B of this report). Any person acting as nominee would then, for example, have to disclose the identity of the person for whose account the shares are held.
Conclusion
62. All companies incorporated under the CL are required to keep a register of members. In addition, the registrar of companies keeps a register of all companies and the information available includes ownership information where the company has a share capital. The Cypriot tax authorities also maintain a register on these companies, but this register does not contain updated ownership information. Foreign companies must be registered when establishing a place of business in Cyprus or when they are managed and controlled in Cyprus. Such foreign companies then also must meet tax obligations, requiring them to maintain information about their shareholders. Nominees acting by way of business must identify the person(s) for whom they act as a legal owner under AML/CFT legislation.
Bearer shares (ToR A.1.2)

63. Membership (being a shareholder) of a company is limited to the subscribers of the memorandum, whose names shall be entered in the register of members, and every other person who agrees to become a member and whose name is entered in the register of members (s. 27 CL). It is therefore not possible to own shares in a company without having your name entered in the register of members, thus bearer shares as such do not exist in Cyprus. 64. However, section 81 CL provides that a company limited by shares may, if so authorised by its articles of association, issue share warrants to bearer. Such share warrant is issued with respect to any fully paid-up share and entitles the bearer thereof to the shares specified. It also may provide for the payment of the future dividends by means of coupons or otherwise. The bearer of a share warrant may, if the articles of association of the company so provide, be deemed to be a member of that company (s. 107(5) CL). Upon delivery of the warrant, the bearer will receive the shares specified and the warrant is cancelled (s. 81(3) CL). These characteristics mean that share warrants to bearer may present the same (tax) risks as bearer shares. 65. The register of members of the company must contain (i) the fact that the warrant is issued, (ii) a statement of the shares included in the warrant, and (iii) the date of the issue of the warrant (s. 107(1) CL). This does not ensure the availability of information on the owners of share warrants to bearer. 66. Section 29(1)(a) CL restricts the rights to transfer shares by private companies. As described above (paragraph 64), a share warrant is a right to a share in a company. Therefore, it is reasonable to conclude that a company that issues share warrants to bearer cannot be a private company in accordance with section 29 CL. Moreover, Table A, Part II, set out in the First Schedule to the CL contains model articles of association for all companies, including
private companies. These articles are not mandatory but they provide certainty that the companys articles of association will be consistent with the provisions of the CL (s. 10 CL). Table A, Part II, set out in the First Schedule to the CL specifically provides that private companies shall not have power to issue share warrants to bearer (s. 2(d) Table A, Part II, First Schedule, CL). A company that is not a private company is a public company under section 2(1) CL (see paragraph 42). The Registrar of Companies reports that, to his knowledge no private company has been registered in Cyprus, the Articles of Association of which, allow the issuing of share warrants to bearer. 67. Public companies, however, may issue share warrants to bearer. As at 17 February 2012, there were 517 public companies limited by shares, representing 0.2% of the total number of companies registered in Cyprus. Of these 517 companies, 123 of them have their shares publicly traded. 10 Cypriot authorities indicate that no share warrants to bearer are currently in existence. As no provisions exist to identify the owners of share warrants to bearer, this results in the fact that ownership information in respect of public companies is not ensured. While there is no evidence of any share warrants to bearer in existence, it is recommended that Cyprus introduces legal requirements to ensure the availability of ownership information in respect of bearers of share warrants in all cases.
Partnerships (ToR A.1.3)

68. Partnerships are governed by the PBNL. A partnership is defined as the relation which subsists between persons carrying on a business in common with a view of profit (s. 5(1) PBNL). Two types of partnerships can be distinguished: General partnership: every partner is liable jointly with the other partner(s) for all debts and obligations of the partnership incurred while he/she is a partner (s. 12 PBNL). Limited partnership: consisting of one or more general partners, who are liable for all debts and obligations of the partnership, and one or more limited partners contributing capital, who are liable for the debts and obligations of the partnership to the extent of the amount of capital contributed (s. 47(2) PBNL). 69. There is no fixed procedure for establishing a partnership. All partnerships, whether general or limited, carrying on business in Cyprus must be
10. The obligation to identify the owners in the case of publicly traded companies does not apply unless such information can be obtained without giving rise to disproportionate difficulties. Model Agreement on Exchange of Information on Tax Matters, art. 5(4)(b).

registered (s. 50(a) PBNL). Also, every limited partnership (whether carrying on a business or not) formed under the PBNL must be registered. Failure to do so results in the limited partners being deemed general partners and thus the partnership is considered to be a general partnership (s. 48 PBNL). 70. Section 51 PBNL requires that the registration of a partnership at the registrar of partnerships takes place within one month of the date of the partnerships establishment. The following particulars must be submitted upon registration: (a) the name of the partnership; (b) the general nature of the business; (c) the principal place of the business; (d) the full name, any former names, nationality, residence and other business occupation (if any) of each of the individuals who are partners, whether general or limited, and the corporate name and registered or principal office of every corporation which is a partner; (e) the term, if any, for which the partnership is entered into, and the date of its commencement; (f) a statement, if such is the case, that the partnership is limited; (g) the sum contributed by each limited partner and how this is paid (in cash or otherwise); and (h) the names of the general partners who are authorised to administer the affairs of the partnership, to manage it and to sign for it. 71. Whenever a change occurs in any of the particulars registered, the registrar of partnerships must be notified of this change within seven days of the date of such change (s. 54(1) PBNL). The registration requirement and the obligation to submit any change ensure the availability of ownership information in respect of all limited partnerships formed under Cypriot law and of all partnerships carrying on a business in Cyprus. Any person failing to register a partnership or a change in the particulars is liable on summary conviction to a fine not exceeding EUR 5.13 for every day the failure continues, and the Court shall order that the information must be furnished to the registrar of partnerships (s. 61 PBNL). A person wilfully furnishing false information is liable to a fine not exceeding EUR 85.43 or to imprisonment for a term not exceeding two years, or both (s. 63 PBNL).
Tax law
72. Partnerships are considered transparent for tax purposes, which means that the partners are taxed separately for their share in the partnerships income (s. 7(1)(a) ACTL). Nonetheless, the tax authorities have the discretionary power to ask one of the partners resident in Cyprus to make and deliver a return of the object of the tax of the partnership for any year (s. 7(1)(b) ACTL). Such return must then contain the names and addresses of the other partners together with the amount of the share to which each partner was entitled. Where there is no partner resident in Cyprus, the return may be required to be made by a representative (e.g. attorney) of the partnership who is resident in Cyprus (s. 7(2) ACTL). Any person not complying with these obligations is liable on conviction to a fine not exceeding EUR 17 for every day the non-compliance continues or to imprisonment for a term not exceeding twelve months, or both (s. 50(1) ACTL). This means that where a partnership return has been submitted upon request by the tax authorities, full ownership information for the relevant year is available directly within the tax authorities.
Conclusion
73. All limited partnerships and all partnerships carrying on a business in Cyprus must be registered and upon registration details of all partners must be submitted. Any changes must be notified within seven days. Updated ownership information on partnerships is therefore available in the register. In addition, the tax authorities may request that a tax return for a partnership be made including ownership information on all partners.
Trusts (ToR A.1.4)

74. Trusts can be created in Cyprus and the trustees are then governed by the Trustee Law and common law. A specific piece of legislation, the International Trust Law (ITL), provides rules for international trusts. A trust is considered an international trust if (s. 2 ITL): (a) the settlor is not a permanent resident in Cyprus; (b) during the whole duration of the trust at least one trustee is a permanent resident in Cyprus; (c) no beneficiary other than a charitable institution is a permanent resident in Cyprus; and (d) the trust property does not include any immovable property situated in Cyprus.

75. In respect of international trusts the nexus with Cyprus will always be guaranteed by the requirement that at least one trustee must be a permanent resident in Cyprus. For other trusts, the nexus with Cyprus may be limited to the creation of the trust under Cypriot law. Where the latter is the case, ownership information may not be available in Cyprus. In these situations trust information would rest in the jurisdiction where the trustee is located as the relevant records would be situated there. The obligations on trustees to maintain ownership information as described below, cover trustees of both international trusts and other trusts.
Ownership information held by trustees and service providers

76. Under section 2(1) PSMLTFL acting as a trustee of an express trust or similar arrangement is specifically considered other business. Consequently, trustees are required to carry out CDD when establishing a business relationship (s. 60(a) PSMLTFL), and identify their customer and the beneficial owner in accordance with section 61 PSMLTFL. Customer is defined as a person aiming to conclude a business relationship or conduct a single operation with another person in financial or other business activities (s. 2(1) PSMLTFL). A trustee receives its mandate from the settlor(s), meaning that in respect of a trust the settlor(s) may be identified as the customer(s) of the trustee. 77. The term beneficial owner is also defined in section 2(1) PSMLTFL. It is stated that the beneficial owner in respect of a trust shall at least include: (i) where the future beneficiaries have already been determined, the natural person(s) who is the beneficiary of at least ten percent or more of the property of the trust; (ii) where the individuals that benefit from the trust have not yet been determined, the class of persons in whose main interest the trust is set up or operates; (iii) the natural person(s) who exercises control over ten percent or more of the property of the trust. 78. The obligation to identify the beneficial owner therefore includes the obligation to identify the beneficiaries of at least ten percent of the trust property, but there is no express requirement to identify other beneficiaries. Other trustees may also be identified under this obligation, as they may exercise control over ten percent or more of the trust property. Documentation in respect of the CDD carried out must be maintained by the trustee for at least five years after the end of its business relationship with the person for whom they act (s. 68 PSMLTFL). Failure to carry out CDD or to maintain the documentation for at least five years can lead to an administrative fine of up
to EUR 200 000 and, in case the failure continues, a fine of up to EUR 1 000 for each day the failure continues (s. 59(6)(a)(ii) PSMLTFL). 79. The provisions of the PSMLTFL do not expressly require trustees to identify beneficiaries of less than ten percent of the trust property. Also, it is not clear whether the settlors or all other trustees must be identified. Cypriot authorities have issued Guidance Notes for different business groups, which are binding on the basis of section 59(4) PSMLTFL. In the Guidance Notes for banks and lawyers it is stated that where a business relationship is established with a trustee/trust, the identity of the trustees, settlors and beneficiaries should be verified (para. 121 Guidance Note for Banks and para. 4.33 Guidance Note for Lawyers). This means that for trusts having a bank account in Cyprus and/or using the services of a Cypriot lawyer (who may also act as a trustee), ownership information is available with the bank and/or lawyer. However, not all trusts will have a bank account in Cyprus and/or will be using the services of a Cypriot lawyer, and no Guidance Note exists that applies to all trustees. 80. Persons other than the trustee who administer a trust are not as such covered by the AML, but lawyers involved in the management of trusts, persons providing an administrative address and other related services to a trust and trustee services in relation to stocks are. It can be expected that this would cover most situations where any other person than the trustee is involved in administering a trust.
Ownership information held by the authorities

81. Section 50(d) PBNL prescribes the registration of every partnership, individual or corporation having a place of business in Cyprus and carrying on that business wholly or mainly as a trustee. This means that the trustee(s) of any trust carrying on business (including every trade, occupation or profession) in Cyprus must be registered. Such registration includes submitting the name of every person on whose behalf the business is carried on (s. 53(1) PBNL). The PBNL further clarifies that if the business is carried on under any trust and any of the beneficiaries are a class of children or other persons, a description of the class shall be sufficient. It can therefore be concluded that for the purposes of registration under the PBNL, a person on whose behalf the business is carried on means a beneficiary in the case of a trust. An express obligation to also register the settlors and other trustees (if any) is not provided. Any person failing to register as a trustee is liable on summary conviction to a fine not exceeding EUR 5.13 for every day the failure continues, and the Court shall order that the information must be furnished to the registrar (s. 61 PBNL). A person wilfully furnishing false information is liable to a fine not exceeding EUR 85.43 or to imprisonment for a term not exceeding two years, or both (s. 63 PBNL).

82. Registration under the PBNL is obligatory only for trustees of a trust carrying on business in Cyprus. This requirement does therefore not cover trustees where the trust only holds and manages assets without carrying on a business.
Conclusion
83. Trustees have the obligation under AML/CFT legislation to identify their customer and the beneficial owner. This obligation specifically includes the identification of any beneficiaries of at least ten percent of the trust property and of other trustees exercising control over ten percent or more of the trust property. Identification of other beneficiaries, other trustees and of settlors is only expressly required from banks and lawyers establishing a business relationship with the trust or trustee. It is noted that the rules in the AML/CFT legislation do not apply to trustees not carrying on a business, in other words not acting in a professional capacity. Nevertheless, the number of persons acting as trustees in such a capacity is likely to be very small and, under common law, they would be expected to know the identity of the persons for whom they are acting as trustees. The impact of this gap on the availability of information on trusts will be assessed in the Phase 2 review of Cyprus. 84. In addition, trustees of a trust carrying on a business in Cyprus are required to register. Upon registration, all beneficiaries must be identified, but no express obligation exists to also register the settlors and other trustees. Also, not all trustees are covered by this registration requirement. 85. It can be concluded that obligations in Cyprus to identify settlors, other trustees and beneficiaries are not consistently provided for, although in all cases the beneficiaries of at least ten percent of the trust property must be identified by the trustee. It is therefore recommended that Cyprus amends its legislation to ensure the availability of ownership information in respect of trusts in all cases. 86. It is finally noted that where a trust is created under the laws of Cyprus which has no other connection with Cyprus, there may be no information about the trust available in Cyprus.
Foundations (ToR A.1.5)

87. The Cypriot legal and regulatory framework does not provide for the establishment of foundations.
Other relevant entities and arrangements

88. Under the Cooperative Societies Law (CSL) cooperative societies can be established. Two types of cooperative societies can be distinguished in Cyprus: Cooperative credit institution: these entities are involved in traditional banking, taking deposits almost entirely from local people and granting loans to their members. As at June 2011, 101 cooperative credit institutions are registered. Other cooperative societies: these can operate in various sectors of the economy, such as consumer trading of agricultural products and services. As at June 2011, 83 cooperative societies are registered that are not cooperative credit institutions. 89. Cooperative societies must have at least twelve members, who must be individuals over eighteen years of age and residing or owning immovable property in the (intended) area of operations (s. 8(2) CSL). Alternatively, a cooperative society may also have at least five other cooperative societies as its members (s. 8(4) CSL). The word cooperative has to form part of the name of the cooperative society (s. 8(5) CSL) and only registered societies may trade or carry on a business under any name that includes the word cooperative (s. 55(1) CSL). Hence, all cooperative societies must be registered and they may do so only when they have as their objective to promote the financial interests of their members in accordance with the cooperative principles (s. 6 CSL). For tax purposes, cooperative societies are treated the same as companies. 90. Registered societies must keep a list of members at their registered address (s. 18 CSL). In addition, section 14 of the Cooperative Societies Regulations (CSR) requires each registered cooperative society to maintain a register of members containing the following details: (a) in respect of individuals: each members name, identity number, age, profession, address and possible shareholding; (b) in respect of cooperative societies: each members name, registration number, address and shareholding; (c) the date on which the name of each member has been recorded to the register; and (d) the date on which the member ceased to be a member and the reason for ceasing to be a member. 91. A list containing the details of new members and persons that ceased to be a member must be submitted to the Commissioner of the Authority for

the Supervision and Development of Cooperative Societies every six months (s. 14(2) CSR). Any person failing to do anything required by the CSL or CSR is guilty of an offense and, upon conviction, shall be subject to an initial fine not exceeding EUR 854.30, and for every day the offense continues a further fine not exceeding EUR 42.72 can be imposed (s. 57 CSL).
Enforcement provisions to ensure availability of information (ToR A.1.6)

92. Jurisdictions should have in place effective enforcement provisions to ensure the availability of ownership and identity information, one possibility among others being sufficiently strong compulsory powers to access the information. This subsection of the report assesses whether the provisions requiring the availability of information with the public authorities or within the entities reviewed in section A.1 are enforceable and failures are punishable. Questions linked to access are dealt with in Part B. 93. Companies and cooperative societies are required to keep a register of members. For companies, not keeping a register of members can lead to a fine not exceeding EUR 42.72 for every day the non-compliance continues. In respect of cooperative societies an initial fine not exceeding EUR 854.30 applies, and for every day the offense continues a further fine not exceeding EUR 42.72 can be imposed. 94. Companies must also register their initial members in the Tax Register. Any person not complying with this obligation is liable on conviction to a fine not exceeding EUR 17 for every day the non-compliance continues or to imprisonment for a term not exceeding twelve months, or both. Foreign companies must indicate in their annual tax return whether a change of ownership has occurred. Any person not complying with the obligations to submit a tax return or providing false information is liable on conviction to a fine not exceeding EUR 17 for every day the non-compliance continues or to imprisonment for a term not exceeding twelve months, or both (s. 50(1) ACTL). 95. Partnerships must register and upon registration details of each partner must be furnished. Any change in this respect must also be registered. Any person failing to register a partnership or a change in the particulars is liable on summary conviction to a fine not exceeding EUR 5.13 for every day the failure continues, and the Court shall order that the information must be furnished to the registrar of partnerships. A person wilfully furnishing false information to the registrar is liable to a fine not exceeding EUR 85.43 or to imprisonment for a term not exceeding two years, or both. The same penalties apply for nominees having to register because it is their main business to act as a nominee and for trustees of a trust carrying on a business in Cyprus.
96. Trustees and trust administrators are required to collect and maintain certain ownership and identity information regarding the trust under AML/ CFT legislation. Failure to do so can lead to an administrative fine of up to EUR 200 000 and, in case the failure continues, a fine of up to EUR 1 000 for each day the failure continues. 97. Enforcement provisions are in place in respect of the relevant obligations to maintain ownership and identity information for all relevant entities and arrangements. The effectiveness of the enforcement provisions which are in place in Cyprus will be assessed as part of its Phase 2 review.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Recommendations
Cyprus should ensure the availability Although bearer shares cannot of ownership information in respect of be issued, the issuance of share bearers of share warrants in all cases. warrants to bearer is allowed by public companies. Although Cypriot authorities report that no share warrants to bearer are currently in existence, no legal requirements exist to identify owners of share warrants to bearer. Although in all cases the beneficiaries of at least ten percent of the trust property must be identified by the trustee, obligations in Cyprus to identify settlors, other trustees and other beneficiaries of trusts are not consistently provided for. Cyprus should ensure the availability of ownership and identity information in respect of trusts in all cases.
A.2. Accounting records

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements.
98. A condition for exchange of information for tax purposes to be effective is that reliable information, foreseeably relevant to the tax requirements of a requesting jurisdiction, is available, or can be made available, in a timely manner. This requires clear rules regarding the maintenance of accounting records.
General requirements (ToR A.2.1)

99. The directors of a company are responsible for ensuring that proper books of account are kept as deemed necessary for the preparation of financial accounts (s. 141(1) CL). Such books of account must give a true and fair view of the state of the companys affairs (financial position) and must explain its transactions (s. 141(2) CL). Furthermore, the directors of a company must ensure that a full set of financial accounts (financial statement) is drawn up in accordance with International Accounting Standards (s. 142(1) and s. 143(2) CL). If a director of a company fails to take all reasonable steps to comply with these obligations, he/she is subject to a fine not exceeding EUR 1 708.60 or to imprisonment not exceeding one year, or both (sections 141(4), 142(4) and 143(5) CL). It is noted that some companies (including all public companies and all private companies not being small sized companies 11) are required to have their financial accounts audited (s. 152A CL). In addition, certain regulated businesses, such as banks, must submit accounting records to the supervising authorities. 100. Partnerships are required to keep books of account as necessary to exhibit or explain their transactions and financial position, including books containing daily entries in sufficient detail of all cash received and paid and accounts in sufficient detail of all goods sold and purchased (s. 64(1) PBNL). Any person failing to keep proper books of accounts is liable on summary conviction to a fine not exceeding EUR 170.86 or to imprisonment for a term not exceeding one year, or both (s. 64(2) PBNL). 101. Trust laws do not provide for an obligation to keep accounting records, but trustees are covered by tax law and AML/CFT legislation (see below). 102. The accounts of every cooperative society are audited by the Audit Service of Cooperative Societies (s. 19(1) CSL). The obligation for cooperative societies to keep accounting records then follows from the rule that the accounts of every cooperative society must be ready for audit within one (in case of cooperative credit institutions) or three (in other cases) months from the end of the financial year (s. 19(11)(c) CSL). Failure to do so can result in an initial fine not exceeding EUR 854.30, and for every day the offence continues a further fine not exceeding EUR 42.72 (s. 57 CSL). Although it may be expected that audited accounts are in accordance with the standard, the existing requirements will be further examined in the Phase 2 review of Cyprus, as no specific guidance has been issued in all cases. It is noted that for cooperative credit institutions further guidance is provided in Regulative Decision 476/2008 (paragraph 2.1), which requires these entities accounting records to be based on the International Accounting Standards.
11. A company is a small sized company if at least two of the following thresholds are not exceeded: (i) total assets on the balance sheet of EUR 3 417 202 (ii) net turnover of EUR 7 005 246 (iii) 50 employees.
Tax law obligations

103. In addition to the requirements for the separate entities, section 30(1) (b) ACTL requires both resident and non-resident taxpayers (except individuals with a turnover of EUR 70 000 or less) deriving income from specified sources (see below) to keep accounting books and records, on the basis of which they prepare accounts in accordance with accepted accounting principles. These accounts must also be audited by a person having a permit to be appointed auditor of a company under the CL. Any person who fails to keep accounting books and records under the tax law is liable on conviction to a fine not exceeding EUR 17 for every day the non-compliance continues or to imprisonment for a term not exceeding twelve months, or both (s. 50(1) ACTL). 104. Section 30 ACTL only applies to persons liable to income tax in Cyprus. This includes all individuals being present in Cyprus for more than 183 days and companies managed and controlled in Cyprus. Although partnerships are considered transparent for tax purposes, they are subject to these record-keeping obligations as well (s. 30(1) ACTL). In addition, trustees are answerable for doing all matters and things required to be done for the assessment and payment of tax in respect of any object under their direction (s. 8 ACTL) and are subject to tax in respect of the trust property (s. 31 Income Tax Law), making them subject to record-keeping requirements in respect of the trust property. However, these record-keeping requirements only apply where the taxpayer derives certain income, being: (i) income from any business (including from a permanent establishment in Cyprus where it concerns a non-resident); (ii) income from any rents, royalties, remuneration or other profits arising from property; and/or (iii) any amount in consideration of trade goodwill. 105. Income in the form of dividend or interest is mentioned as a separate category in the ITL and the obligation to keep books and records in section 30(1)(b) ACTL does not refer to this category of income. This means that the obligation under tax law does not necessarily cover all persons, as persons receiving no income as referred to in section 30 ACTL, for example receiving only dividends and/or interest and not carrying on a business (passive investors), are not covered. 12 Similarly, companies incorporated in Cyprus but managed and controlled in another jurisdiction (non residents) are not covered by tax law obligations to keep accounting records; it should be noted that such companies are covered by the obligation in the CL to keep accounting records (see above).
12. Taxpayers receiving both taxable income and other income (such as dividends) are required to keep books and records in respect of all of their income.

106. Persons who are tax residents but who are not covered by the obligation to keep books and records under section 30(1)(b) ACTL (including the so-called passive investors, but not the companies incorporated in Cyprus but managed and controlled in another jurisdiction) are nevertheless required to submit an income tax return if they receive other income than referred to in section 30 ACTL (s. 5(1) ACTL). For these taxpayers, an obligation to keep accounting records may be found in section 5(5) ACTL. This provision reads as follows: Documents which are not stated in the tax return, but support directly or indirectly any amounts or information recorded in the return, shall be preserved by the person responsible for the submission of the return or by a duly authorised person for a period of seven years from the end of the year of assessment to which they refer. 107. The provision requires all persons who are obliged to submit a tax return to keep records for tax purposes. However, the lack of further guidance may result in taxpayers applying this obligation unevenly. This is especially true since there is a separate obligation to keep accounting records under section 30 ACTL applicable to most taxpayers. It is noted that companies, partnerships and cooperative societies are subject to obligations to keep books and records separately from tax law. For other cases where persons are not covered by the obligation to keep books and records under section 30(1) (b) ACTL, being the situation where trusts derive only dividend and interest income, it is recommended that express guidance on which books and records to keep be introduced either under tax law or otherwise. 108. No definition of the term accepted accounting principles is provided in the ACTL. The Cypriot authorities state in this regard that books and records should be kept in accordance with the International Financial Reporting Standards. Taking into account the requirement that the accounts must be audited as well, it may be expected that the records to be kept (i) correctly explain all transactions, (ii) enable the financial position of the entity or arrangement to be determined with reasonable accuracy at any time, and (iii) allow financial statements to be prepared. However, it is recommended that more express guidance be provided in the law.
AML/CFT legislation
109. Under section 68(1)(b) PSMLTFL persons engaged in financial or other business activities (i.e. service providers, including trustees) are required to keep relevant evidential material and details of all transactions, including documents for recording transactions in the accounting books. This would encompass only transactions where the service provider is involved in
and is therefore generally not sufficient to cover all relevant books, records and documentation. In respect of trusts it may be expected that the trustee is involved in all transactions carried out by the trust. However, as the requirements under the AML/CFT legislation only pertain to transactions, this does not necessarily enable the financial position of the trust to be determined and allow for financial statements to be prepared.
Underlying documentation (ToR A.2.2)

110. The laws governing the different entities and arrangements do not contain an express obligation to maintain underlying documentation, although it may be expected that where there is an obligation to have the accounts audited, sufficient underlying documentation is kept. 111. As indicated under A.2.1, the ACTL requires all taxpayers (except individuals with a turnover of EUR 70 000 or less) deriving income from specific sources to keep accounting books and records. The Cypriot authorities state that the reference to records is to be regarded as an obligation to keep underlying documentation. However, no support of such interpretation can be found in the ACTL, any subsidiary legislation or court cases. It can therefore not be concluded that this is an express obligation under the ACTL to maintain underlying documentation. However, other provisions in the ACTL do contain references to underlying documentation (see below). 112. An obligation to maintain an important category of underlying documentation is expressly provided for in connection with section 30(1)(a) ACTL. This provision requires taxpayers to issue invoices and receipts in connection with their transactions and collections. The Assessment and Collection of Taxes (Issue of Invoices and keeping of Records) Regulations (ACT Invoice Regulations) provide further rules on the types and content of such invoices and receipts. Section 8 ACT Invoice Regulations requires that taxpayers keep copies of all invoices and receipts issued. Any person failing to comply with the obligation to issue invoices and receipts or to keep copies is liable on conviction to a fine not exceeding EUR 1 708.60 or to imprisonment for a term not exceeding three years, or both (s. 9 ACT Invoice Regulations). 113. The obligation under section 30 ACTL to issue and keep invoices and receipts applies for the same category of taxpayers as the general obligation to keep books and records. This means that not all relevant entities and arrangements are covered, as explained above (see A.2.1). In addition, this obligation does not cover all underlying documentation, as it only applies to invoices and receipts in respect of transactions and collections. Other underlying documentation is therefore not specifically covered in this section, although it may be expected that sufficient underlying documentation is kept for audit

purposes (submitting audited accounts is an obligation for all taxpayers subject to section 30 ACTL). 114. However, section 5(5) ACTL does require all persons who are obliged to submit a tax return to keep documents supporting the information in the tax return. This would include underlying documentation, although no further guidance is provided as to which documentation is to be kept. It is recommended that such further guidance be introduced. 115. The obligation under section 5(5) ACTL covers most relevant entities and arrangements deriving income. However, companies incorporated in Cyprus but managed and controlled in another jurisdiction are not necessarily covered as they only may be required to submit a tax return if so requested by the Director of the Department of Inland Revenue. The Cypriot authorities advised that, as a matter of practice, all companies incorporated in Cyprus and registered at the Registrar of Companies are requested by notice to submit tax returns. However, there is no obligation in the law for all such companies to submit tax returns annually. It is recommended that obligations to keep all underlying documentation be introduced for all relevant entities and arrangements.
5-year retention standard (ToR A.2.3)

116. The tax law contains the explicit requirement that the books and records required to be kept must be retained for at least seven years (s. 30(2) ACTL). The same applies for the underlying documentation required to be kept for tax purposes (s. 8 ACT Invoices Regulations and s. 5(5) ACTL). As noted above (A.2.2), these requirements do not cover companies incorporated in Cyprus but managed and controlled in another jurisdiction where they are not required to submit a tax return. Other laws do not contain a minimum retention period. 13
Conclusions on A.2
117. The Companies Law, the Partnership and Business Names Law and the Cooperative Societies Law put an obligation on companies, partnerships and cooperative societies respectively to keep accounting books and records in accordance with the standard. Such obligation does also exist under tax law. Although the obligations under the various commercial laws and tax law cover most situations, one gap remains. In the case of trusts deriving only
13. Regulative Decision 441/2007 (paragraph 13(3)) does mention a retention period of at least 10 years for records held by cooperative credit institutions, but it is not clear which records are meant.
dividend or interest income no express guidance exists as to which books and records are to be kept. 118. Requirements to keep underlying documentation and to keep reliable accounting records for at least five years are provided for in the tax law. However, these requirements do not cover companies incorporated in Cyprus but managed and controlled in another jurisdiction where they are not required to submit a tax return. In addition, with respect to underlying documentation there is only a clear requirement for taxpayers conducting an active business to keep invoices and receipts they issued in respect of their transactions and collections. Further guidance is required in other situations. 119. The deficiencies identified may be limited in terms of the number of persons affected, as the persons most affected are trusts deriving only dividend or interest income (for A.2.1, lack of guidance) and companies incorporated in Cyprus but managed and controlled in another jurisdiction (for A.2.2 and A.2.3, not automatically covered by the tax law obligations). However, these persons are relevant for tax purposes and may be regarded as posing a higher risk in respect of tax evasion as the assets are either highly mobile (in the case of trusts deriving only dividend or interest income) or the company is managed from a jurisdiction with which a requesting state has no information exchange agreement (in the case of companies incorporated in Cyprus but managed and controlled in another jurisdiction).
Phase 1 determination The element is not in place. Factors underlying recommendations Although there is an obligation to keep documentation, it is not clear in the case of trusts deriving only dividend and interest what books and records are to be kept. Although there is a requirement for most taxpayers to keep invoices and receipts they issued in respect of their transactions and collections, further guidance is required for all relevant entities and arrangements what underlying documentation should be kept. Recommendations Cyprus should introduce further guidance for trusts deriving only dividend and interest income on which accounting records are required to be kept. Cyprus should introduce further guidance for all relevant entities and arrangements to maintain underlying documentation.

Phase 1 determination The element is not in place. Factors underlying recommendations There is no obligation to keep underlying documentation and to keep records for a period of at least five years in respect of companies incorporated in Cyprus but managed and controlled in another jurisdiction. Recommendations Cyprus should ensure that all relevant entities and arrangements keep underlying documentation and that they keep records (including underlying documentation) for a period of at least five years.
A.3. Banking information

Banking information should be available for all account-holders.
120. No person is allowed to engage in banking business or in the business of taking deposits in Cyprus unless it is a body corporate holding a valid license for that purpose issued by the Central Bank (s. 3 and s. 4 Banking Law). The Central Bank is the regulatory and supervisory body for the Cypriot banking industry. As at September 2011, a total of 40 banks operate in Cyprus.
Record-keeping requirements (ToR A.3.1)

121. The requirements for banks are primarily laid down in the Banking Law. In respect of banking information, section 15A Banking Law requires all banks to obtain the name, address and number of the official identity card or passport number and its country of issue in respect of all customers. It is also expressly prohibited to open or maintain anonymous or numbered accounts or accounts in names other than those stated in official identity documents (s. 66(2) PSMLTFL). 122. The activities carried out by banks are regarded as financial business under the PSMLTFL, resulting in the obligation to identify their customers by performing CDD (s. 60 PSMLTFL). This also includes scrutinising transactions undertaken, the business and risk profile and, where necessary, the source of funds. Any documents, data or information related to this obligation must be kept up to date (s. 61(1)(d) PSMLTFL). 123. Section 68(1) PSMLTFL requires all persons engaged in financial business to keep records of the following documents: (a) copies of the evidential material of the customer identity;
(b) relevant evidential material and details of all business relations and transactions, including documents for recording transactions in the accounting books; and (c) relevant documents of correspondence with the customers and other persons with whom they keep a business relation. 124. These records must be maintained for a period of at least five years after termination of the business relationship (or after the transaction where there is no business relationship, e.g. a one-off transaction) (s. 68(1) PSMLTFL). Failure to carry out CDD or to maintain the documentation for at least five years can lead to an administrative fine of up to EUR 200 000 and, in case the failure continues, a fine of up to EUR 1 000 for each day the failure continues (s. 59(6)(a)(ii) PSMLTFL). 125. The customer identification obligations and record keeping obligations on all transactions require banking information to be available in Cyprus for all account holders.
Phase 1 determination The element is in place.
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 43
B. Access to information
Overview
126. A variety of information may be needed in respect of the administration and enforcement of relevant tax laws and jurisdictions should have the authority to access all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities. This section of the report examines whether Cyprus legal and regulatory framework gives to its competent authority access powers that cover all relevant persons and information, and whether the rights and safeguards that are in place would be compatible with effective exchange of information. 127. The Director of the Department of Inland Revenue of the Ministry of Finance has sufficient access powers to obtain all relevant information pursuant to an information exchange request. These powers are derived from a provision specifically introduced for obtaining information under double taxation conventions (DTCs). Cyprus law does not allow information to be accessed in respect of an exchange of information request made under a comprehensive information exchange agreements other than a DTC. So far, Cyprus has not concluded such other agreements. 128. A power to search buildings and seize documents is also provided for. In addition, penalties (including imprisonment) and administrative fines may be imposed where a person fails to produce the information requested. Any secrecy obligations, including bank secrecy, are waived when a person is asked to produce information. Attorney-client privilege as defined in the law must, however, be respected. This privilege may be broader than the international standard in some cases. 129. There is no requirement in Cyprus domestic legislation that the taxpayer under investigation or examination must be notified of a request. However, the person who is requested to produce information must be informed which foreign tax authority has requested the information. As no exceptions to this rule are in place, this requirement may undermine the success of a request
44 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION

for information and consequently of the investigation or examination conducted by the requesting jurisdiction in some cases.
B.1. Competent Authoritys ability to obtain and provide information

Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information).
130. Under Cyprus DTCs the Minister of Finance or his authorised representative is the designated competent authority. The Director of the Department of Inland Revenue of the Ministry of Finance (the Director) has been delegated this task. The Director also exercises the powers to obtain information for information exchange purposes.
Ownership and identity information (ToR B.1.1)

131. The powers to obtain information for tax purposes are provided for in the ACTL. Section 6(9)(a) ACTL provides that the Director may, for the purposes of exchange of information in respect of any person (including a company or partnership dissolved or stricken off and a deceased individual), require and receive in any form from any person books, records or other documents or particulars or information under his control, possession, disposal or jurisdiction. It is further stated that these books, records or other documents or particulars must be supplied, presented, delivered, given or sent with the essential or necessary explanations or clarifications in full satisfaction of the Director (s. 6(10) ACTL). These provisions have a wide scope and prima facie enable the Cypriot authorities to obtain all available information to fulfil its obligations under an information exchange agreement. 132. It is noted that the access powers may only be used to obtain information in order to be able to comply with the provisions of DTCs. It would therefore not allow the Cypriot authorities to obtain information for exchange purposes under other information exchange agreements, such as TIEAs. So far, however, Cyprus has not concluded any comprehensive information exchange agreements other than DTCs. 133. Section 6(11) ACTL contains a condition for the Director to use its access powers. These powers may only be used if the competent authority of the requesting state provides the following particulars and information: (a) the identity of the person under examination or investigation;
(b) description of the information sought, including its nature and the manner in which it wishes to receive the information from the Director; (c) the tax purpose for which the relevant information is sought; (d) the grounds for believing that the information requested is held by the Director or in the possession or control of a person in Cyprus; (e) to the extent known, the name and address of any person believed to be in possession of the requested information; (f) a statement that the application for obtaining information is in conformity with the law and administrative practice of the applicant state, and if the requested information were within the jurisdiction of the applicant state, its competent authority would be able to obtain the relevant information under its laws or in the course of its administrative practice; and (g) a statement that the applicant state has pursued all means available in its own jurisdiction to obtain the information being sought, except those that would give rise to excessive difficulties. 134. These particulars are the same as provided in Article 5(5) of the Model Tax Information Exchange Agreement and are meant to ensure that the requesting state demonstrates the foreseeable relevance of a request. The condition that these particulars be provided is consistent with the international standard. It is noted that the requirement is found in Cyprus domestic law (only six of Cyprus DTCs contain this specific requirement, see C.1.1) and therefore may not necessarily be known to the authorities of the requesting states. However, it may be expected that a requesting state sufficiently demonstrates the foreseeable relevance of a request and if not, that the Cypriot authorities will inform their exchange of information partners. 135. In addition, section 6(11) ACTL codifies the reciprocity principle, stating that information shall not be supplied by the Director unless he is satisfied that the requesting state has reciprocal provisions or applies appropriate administrative practices to provide information to Cyprus. This provision is in conformity with the international standard. 136. Another condition for the Director to use its access powers is provided for in section 6(12) ACTL. This provision states that the access powers shall be exercised only after obtaining the written consent of the AttorneyGeneral. In order to obtain such consent, the Director must submit a relevant written request. Cypriot authorities state that the Attorney-General will give his consent when he is satisfied that the prerequisites of section 6(11) ACTL (see above) are met. The additional procedural step of involving the AttorneyGeneral may cause delays in obtaining the information. Whether this causes

an impediment to the effective exchange of information will be the subject of the Phase 2 review of Cyprus.
Bank information
137. For domestic tax purposes a specific provision to obtain bank information exists (s. 6(7) ACTL). Where information must be obtained from a bank for information exchange purposes, the general provision to obtain information (s. 6(9)(a) ACTL) can be used to obtain such information. This provision specifically states that the access powers may be used notwithstanding any obligations for secrecy, including bank secrecy (see also B.1.5).
Accounting records (ToR B.1.2)

138. The powers described under the previous subsection (Ownership and identity information) apply equally where accounting information must be obtained.
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
139. The information gathering powers under section 6(9)(a) ACTL specifically refer to them being used in order to be able to comply with the provisions of double taxation conventions, so they are not subject to Cyprus requiring such information for its own tax purposes.
Compulsory powers (ToR B.1.4)

140. Jurisdictions should have in place effective enforcement provisions to compel the production of information. 141. According to section 50(1) ACTL any person refusing, failing or neglecting to furnish any particulars or to perform any duty required to be performed under the ACTL shall be guilty of an offence and shall be liable on conviction to a fine not exceeding EUR 17 for each day the offence continues or to imprisonment for a term not exceeding twelve months, or both. The court may also direct the person convicted to give the particulars as has been required (s. 50(2) ACTL). It is noted that prosecution for an offence under this provision may only be instituted with the consent of the Attorney-General (s. 53 ACTL). 142. In addition, administrative penalties may apply. Any person not complying with a notice to provide information to the Director for information exchange purposes is subject to a fine of EUR 200 where it concerns information on themselves (s. 50A(c) ACTL) and EUR 100 where it concerns
information on another person (s. 50A(d) ACTL). However, these penalties can only be imposed if the Director has given the person at least 60 days to comply. In cases where a shorter time period is given, only the compulsory powers described in the previous paragraph apply. 143. A search warrant may be issued by a judge if that judge is satisfied that any documents or particulars which should have been produced and have not yet been produced, can be found in any building, except a building of a person who is bound to observe professional secrecy under the Evidence Law (s. 32(1) ACTL). Persons found in the building may be searched and objects may be seized where there is reasonable cause to believe that they should have been produced (s. 32(2) ACTL).
Secrecy provisions (ToR B.1.5)

144. Section 6(9)(a) ACTL provides that the access powers of the Director to obtain information for information exchange purposes may be used notwithstanding any obligation for secrecy or other restriction for the supply and use of information and particulars provided in any law or otherwise, [] subject to the legal privilege recognised by law. This provision effectively overrides any secrecy obligations on any person under any law, except for legal privilege (see below).
Bank secrecy
145. Bank secrecy is laid down in section 29(1) Banking Law and precludes any person having access to records of the bank in a professional or employment relationship with the bank to divulge any information regarding the account of any individual customer of the bank. However, one of the exceptions to this rule applies where the information is provided to a public officer who is duly authorised under any law to obtain that information (s. 29(2)(d) Banking Law). 146. Powers to obtain information for information exchange purposes are provided in section 6(9)(a) ACTL (see B.1.1). This provision specifically states that such powers may be used notwithstanding any obligations for secrecy, including bank privilege. This means that any public officer requesting information from a bank under this provision is duly authorised, and bank secrecy does not provide a valid reason for not providing the information.
Legal privilege (attorney-client privilege)

147. The attorney-client privilege in Cyprus is implemented through the Advocates Code of Conduct Regulations (ACCR) issued by the Cyprus Bar Association (CBA). The CBA has this power under section 24(1) of the

Advocates Law. Any rules made by the CBA under this provision shall be published in the Official Gazette of Cyprus and shall thereupon be binding on all practising advocates (s. 24(2) Advocates Law). 148. Section 13(1) ACCR states that professional secrecy is recognised as the fundamental and primary right and obligation of advocates, and it must be protected by the courts and any public authority. Section 13(3) contains the core of this professional secrecy: Advocates must, without any time limitation, respect the secrecy of all confidential information or evidence which has come to their knowledge in the course of their professional activity. 149. Two limitations to the professional secrecy apply according to the quoted definition. First, it pertains only to confidential information, which would exclude information that cannot reasonably be expected to be kept secret, such as information provided by the client to its attorney in the presence of third parties from being privileged (see, for example, Article 7(3) of the Model TIEA and its Commentary). 150. The second limitation is that information is only covered by the professional secrecy where it has come to the knowledge of the attorney in the course of his/her professional activity. The term professional activity is not defined as such, but section 2 Advocates Law does contain a definition of the phrase practising as an advocate. The following activities are included in the definition: Appearing before any Court to conduct any proceedings on behalf of any person or Cyprus, including preparing or perusing any pleading on behalf of a client. Registering trademarks or patents and appearing before any administering authority for these purposes. Drawing up, reviewing or amending any Memorandum or Articles of Association of a company of any form, or any application, report, statement, affidavit, decision or other document pertaining to the incorporation, registration, organisation, reorganisation or dissolution of any legal entity. Registering ships and drawing all documents referring to the incorporation, transfer, alteration or abolition of all rights on a ship as well as appearing before the competent authority for this purpose. Giving opinions on all legal matters submitted to the advocate. Drawing up or perusing any document filed in Court for administration purposes under the Administration of Estates Law.
151. It is clear that if an advocate takes up a different role altogether, such as a trustee, agent or nominee, any communications and information are not covered by the professional secrecy. However, the above list does include activities other than the giving of legal advice or activities related to existing or contemplated legal proceedings, most notably the activities regarding the incorporation, reorganisation or winding up of companies or other legal entities. Information coming to the knowledge of an advocate in this respect may be relevant for tax information exchange purposes and seems to be covered by professional secrecy as it can be considered a professional activity of an advocate. It should be noted that most of this information seems to be in connection with drawing up and registering official documents, of which it is likely that they are available in public registers or otherwise could not be considered confidential. Nevertheless, it is recommended that Cyprus amends its laws so that advocates can only invoke professional secrecy in respect of information that would reveal confidential communications where these are (i) produced for the seeking or providing of legal advice or (ii) produced for the purposes of use in existing or contemplated legal proceedings. Whether the current scope of the attorney-client privilege forms an impediment to the effective exchange of information will be further examined in the Phase 2 review of Cyprus.
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Cyprus access powers to obtain information under an information exchange agreement are only applicable to requests made under double tax conventions. Recommendations Cyprus should ensure that its competent authority has the power to obtain all relevant information pursuant to requests under all exchange of information agreements (regardless of their form).
B.2. Notification requirements and rights and safeguards

The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information.
152. Rights and safeguards should not unduly prevent or delay effective exchange of information. For instance, notification rules should permit exceptions from prior notification (e.g. in cases in which the information request is

of a very urgent nature or the notification is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction).
Not unduly prevent or delay exchange of information (ToR B.2.1)

153. There is no requirement in Cyprus domestic legislation that the taxpayer under investigation or examination must be notified of a request. The regular procedure to obtain information is described under B.1. 154. The person who is asked to produce information for information exchange purposes must be informed which foreign tax authority had requested the information (s. 6(9)(b) ACTL) when he/she is requested to produce the information. This means that it is in all cases known to the person requested to produce the information that this information will be exchanged to the foreign tax authority of a certain identified jurisdiction. It is recognised that, when using their access powers, the tax authorities could state the legal basis used for asking the information from the holder of it (i.e. the domestic law provisions and the international information exchange arrangement). However, in some cases this could undermine the success of obtaining the information. This is especially true when it is the taxpayer under investigation or examination who is asked to produce the information. It may, however, also affect cases where a third party is asked to produce information, for example where such third party plays a role in a tax evasion scheme. 155. No exceptions exist to informing the person who is asked to produce information which foreign tax authority had requested the information. Also, the search and seizure powers described under B.1.4 can only be used by the Cypriot authorities where a person does not produce the information requested, so not before notifying which tax authority had requested the information. It is therefore recommended that Cyprus introduces exceptions to the requirement of informing the person who is asked to produce information which foreign tax authority had requested the information where this is likely to undermine the success of a request for information and consequently of the investigation or examination conducted by the requesting jurisdiction.

Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations No exceptions exist to informing the person who is asked to produce information which foreign tax authority has requested the information. Recommendations Cyprus should ensure that appropriate exceptions exist to informing the person who is asked to produce information which foreign tax authority had requested the information (e.g. in cases in which informing that person is likely to undermine the chance of the success of the investigation conducted by the requesting jurisdiction).
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 53
C. Exchanging information
Overview
156. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. In Cyprus, the legal authority to exchange information derives from its DTCs, as soon as such DTC is given effect by Order of the Council of Ministers. This section of the report examines whether Cyprus has a network of information exchange agreements that would allow it to achieve effective exchange of information in practice. 157. Cyprus has a network of DTCs covering 44 jurisdictions, and it is currently actively (re)negotiating agreements. In addition, Cyprus exchanges information under a number of instruments with other EU members. Its bilateral information exchange agreements generally contain sufficient provisions to enable Cyprus to exchange all relevant information. 158. Cyprus has signed agreements which allow for exchange of information to the international standard with a variety of relevant partners, including its four main trading partners. Cyprus policy is to negotiate DTCs rather than other agreements that would allow exchange of tax information, such as TIEAs. Two of the Global Forum members have indicated that they have approached Cyprus with an interest in negotiating a TIEA without success, with Cyprus indicating a strong preference for a DTC. It is recommended that Cyprus should be prepared to enter into agreements for exchange of information (regardless of their form) with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it. 159. The confidentiality of information exchanged with Cyprus is protected by obligations implemented in the information exchange agreements, complemented by domestic legislation which provides for tax officials to keep information secret and confidential. Breach of this confidentiality obligation may lead to the tax official(s) concerned to be disciplined.
54 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION

160. Cyprus agreements ensure that the contracting parties are not obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy.
C.1. Exchange of information mechanisms

Exchange of information mechanisms should allow for effective exchange of information.
161. Cyprus has concluded 41 DTCs covering 44 jurisdictions 14 (see Annex 2), almost all of which were signed before the update of the OECD Model Tax Convention in 2005. This section of the report explores whether these agreements allow Cyprus to effectively exchange information. 162. As an EU member state, Cyprus also exchanges information under various multilateral mechanisms, including the new Council Directive 2011/16/EU of 15 February 2011 on administrative co-operation in the field of taxation, replacing Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States of the EU in the field of direct taxation and taxation of insurance premiums. When more than one legal instrument may serve as the basis for exchange of information for example where there is a bilateral agreement with an EU member which also applies Council Directive 2011/16/EU the problem of overlap is generally addressed within the instruments themselves. There are no domestic rules in Cyprus requiring it to choose between mechanisms where it has more than one agreement involving a particular partner and thus the competent authority is free for any exchange to invoke all of the available mechanisms or to choose the most appropriate.
Foreseeably relevant standard (ToR C.1.1)

163. The international standard for exchange of information envisages information exchange to the widest possible extent. Nevertheless it does not allow fishing expeditions, i.e. speculative requests for information that have
14. The DTC with the former Union of Soviet Socialist Republics still applies to Tajikistan, Turkmenistan and Ukraine. Although Cyprus is willing to apply this DTC in respect of Azerbaijan, Kyrgyzstan and Uzbekistan as well, it seems that these jurisdictions do not apply this DTC in practice (see www.ibfd.org). As Cyprus applies the principle of reciprocity (see also B.1.1), the relationship with these jurisdictions is not further considered in this report. The DTC with the former Socialist Federal Republic of Yugoslavia still applies to Montenegro and Serbia.
no apparent nexus to an open inquiry or investigation. The balance between these two competing considerations is captured in the standard of foreseeable relevance which is included in Article 26(1) of the OECD Model Tax Convention, set out below: The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. 164. Nine of Cypruss DTCs (Armenia, Czech Republic, Denmark, Germany, Italy, Kuwait, Russia, Slovenia and the United Arab Emirates) use this or similar language and therefore clearly meet the foreseeably relevant standard. 165. It is noted that the DTCs with Armenia, Denmark, Germany, Kuwait, Slovenia and the United Arab Emirates include a provision requiring the requesting state to demonstrate the foreseeably relevance of a request by providing certain specified information. This provision mirrors Article 5(5) of the OECD Model TIEA and this requirement is therefore considered to be consistent with the international standard. 166. The DTC with Austria provides only for the exchange of information as is necessary for carrying out the provisions of the Convention. The DTC applicable to Tajikistan, Turkmenistan and Ukraine uses language with a similar meaning: exchange [] any other material required for the carrying out of this Convention. These DTCs do not meet the foreseeably relevant standard. It is recommended that Cyprus update its DTCs with relevant partners to remove this limitation. 167. The other DTCs concluded by Cyprus provide for the exchange of information that is necessary or pertinent for carrying out the provisions of the Convention or of the domestic laws of the Contracting States, or contain language which has similar meaning. The Commentary to Article 26(1) of the OECD Model Tax Convention refers to the standard of foreseeable relevance and states that the Contracting States may agree to an alternative formulation of this standard that is consistent with the scope of the Article, for instance by replacing foreseeably relevant with necessary. In view of this recognition, all DTCs but for the two mentioned (affecting four jurisdictions) above meet the foreseeably relevant standard.
In respect of all persons (ToR C.1.2)

168. For EOI to be effective it is necessary that a jurisdictions obligations to provide information are not restricted by the residence or nationality of the person to whom the information relates or by the residence or nationality of the person in possession or control of the information requested. For this reason the international standard for EOI envisages that EOI mechanisms will provide for exchange of information in respect of all persons. 169. The DTCs applicable to twenty jurisdictions 15 do not specifically include a provision which extends the scope of the exchange of information Article to persons other than residents of one of the Contracting States. However, in respect of seventeen jurisdictions the DTCs provide for the exchange of information as is necessary for carrying out the provisions of the domestic laws of the Contracting States, or similar language. Because the domestic (tax) laws are applicable to non-residents as well as to residents, it is likely that under these agreements information can be exchanged in respect of all persons. In respect of the other three jurisdictions (Tajikistan, Turkmenistan and Ukraine) it is not possible to exchange information in respect of all persons, since the relevant DTC only provides for exchange of information for the purposes of carrying out the Convention. 170. The DTCs applicable to the other 24 jurisdictions do provide for exchange of information in respect of all persons.
Obligation to exchange all types of information (ToR C.1.3)

171. Jurisdictions cannot engage in effective exchange of information if they cannot exchange information held by financial institutions, nominees or persons acting in an agency or a fiduciary capacity, as well as ownership information. Both the OECD Model Convention (Article 26(5)) and the OECD Model TIEA (Article 5(4)), which are primary authoritative sources of the standards, stipulate that bank secrecy cannot form the basis for declining a request to provide information and that a request for information cannot be declined solely because the information is held by nominees or persons acting in an agency or fiduciary capacity or because the information relates to an ownership interest. 172. As most of Cyprus DTCs were concluded before the update of the OECD Model Tax Convention in 2005, they generally do not contain a provision corresponding to Article 26(5), which was introduced at that update.
15. These jurisdictions are: Bulgaria, Greece, India, Ireland, Montenegro, Norway, Poland, Qatar, Romania, Serbia, Singapore, Slovak Republic, Syria, Tajikistan, Thailand, Turkmenistan, Ukraine, the United Arab Emirates, the United Kingdom and the United States.
Only the DTCs with Armenia, Denmark, Germany, Italy, Kuwait, Russia, Slovenia and the United Arab Emirates contain such a provision. However, the absence of this provision does not automatically create restrictions on the exchange of information held by banks, other financial institutions, nominees, agents and fiduciaries, as well as ownership information. The Commentary to Article 26(5) indicates that while paragraph 5 represents a change in the structure of the Article, it should not be interpreted as suggesting that the previous version of the Article did not authorise the exchange of such information. Cyprus domestic laws allow it to access and exchange the information covered by Article 26(5) even in the absence of such provision in the DTC. 173. At least two of Cyprus treaty partners (Austria and Singapore) currently have restrictions in accessing bank information in the absence of a provision corresponding to Article 26(5) of the OECD Model Tax Convention, which limits the effective exchange of information under this DTC. Such restriction may also exist in other jurisdictions with which Cyprus has concluded a DTC. It is recommended that Cyprus update its DTCs with relevant partners to remove this limitation.
Absence of domestic tax interest (ToR C.1.4)

174. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. A refusal to provide information based on a domestic tax interest requirement is not consistent with the international standard. Jurisdictions must be able to use their information gathering measures even though invoked solely to obtain and provide information to the requesting jurisdiction. 175. As most of Cyprus DTCs were concluded before the update of the OECD Model Tax Convention in 2005, they generally do not contain a provision corresponding to Article 26(4), which was introduced at that update and which stipulates that a domestic tax interest may not be a reason to decline an information request. Only the DTCs with Armenia, Denmark, Germany, Italy, Kuwait, Russia, Slovenia and the United Arab Emirates contain such a provision. However, the absence of this provision does not automatically create restrictions on the exchange of information. The Commentary to Article 26(4) indicates that paragraph 4 was introduced to express an implicit obligation to exchange information also in situations where the requested information is not needed by the requested State for domestic tax purposes. No domestic tax interest restrictions exist in Cyprus laws even in the absence of a provision corresponding with Article 26(4) of the OECD Model Tax Convention. 176. At least one of Cyprus treaty partners (the Seychelles) has a domestic tax interest requirement. Such requirement may also exist in other jurisdictions

with which Cyprus has concluded a DTC. In these cases, the effective exchange of information will be limited. It is recommended that Cyprus update its DTCs with relevant partners to remove this limitation.
Absence of dual criminality principles (ToR C.1.5)

177. The principle of dual criminality provides that assistance can only be provided if the conduct being investigated (and giving rise to the information request) would constitute a crime under the laws of the requested country if it had occurred in the requested country. In order to be effective, exchange of information should not be constrained by the application of the dual criminality principle. 178. None of the DTCs concluded by Cyprus applies the dual criminality principle to restrict the exchange of information.
Exchange of information in both civil and criminal tax matters (ToR C.1.6)
179. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to information requested for tax administration purposes (also referred to as civil tax matters). 180. All of the DTCs and concluded by Cyprus cover both civil and criminal tax matters. 181. It is noted that the confidentiality provision in Cyprus DTC with Ireland does not expressly provide that the competent authority may disclose the information received to other persons or authorities concerned with the enforcement or prosecution in respect of taxes, and it also does not expressly mention courts as being an authority to which information may be disclosed.
Provide information in specific form requested (ToR C.1.7)

182. In some cases, a Contracting State may need to receive information in a particular form to satisfy its evidentiary or other legal requirements. Such forms may include depositions of witnesses and authenticated copies of original records. Contracting States should endeavour as far as possible to accommodate such requests. The requested State may decline to provide the information in the specific form requested if, for instance, the requested form is not known or permitted under its law or administrative practice. A refusal to provide the information in the form requested does not affect the obligation to provide the information.
183. No restrictions apply in any DTC concluded by Cyprus for information to be provided in the specific form requested. The DTC with the United States specifically states that information shall be provided in the form of depositions of witnesses or authenticated copies of unedited original documents, to the extent possible under the domestic laws of the requested State.
In force (ToR C.1.8)

184. Exchange of information cannot take place unless a jurisdiction has exchange of information arrangements in force. Where such arrangements have been signed, the international standard requires that jurisdictions must take all steps necessary to bring them into force expeditiously. 185. Of the 41 DTCs concluded by Cyprus, only four are not in force. These four agreements have all been signed recently (new DTC with Kuwait: 5 October 2010, protocol to the DTC with Russia: 7 November 2010, new DTC with Germany: 18 February 2011, DTC with the United Arab Emirates: 27 February 2011). Cyprus has completed all internal procedures, which usually take between three and four months, and finalised ratification in respect of these agreements.
Be given effect through domestic law (ToR C.1.9)

186. For information exchange to be effective, the parties to an exchange of information arrangement need to enact any legislation necessary to comply with the terms of the arrangement. 187. A DTC concluded by Cyprus is given effect by Order of the Council of Ministers (s. 34 Income Tax Law). 188. With the coming into effect of Law No. 72(i) of 2008 on 25 July 2008, provisions were added to the ACTL introducing the access powers necessary to obtain and exchange information under Cyprus existing and future DTCs, even if they do not include the new Art 26 of the OECD Model Tax Convention, on the basis of reciprocity (see also B.1).
C.2. Exchange of information mechanisms with all relevant partners

The jurisdictions network of information exchange mechanisms should cover all relevant partners.
189. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce its tax laws it may indicate a lack of commitment to implement the standards. 190. Cyprus has DTCs in place with 44 jurisdictions, of which 38 allow for exchange of information according to the international standard. These DTCs are with jurisdictions representing: 4 of its major trading partners (Greece, Germany, the United Kingdom and Italy); 26 of the Global Forum member jurisdictions; and 10 of the G20 member jurisdictions. 191. Comments were sought from Global Forum member jurisdictions in the course of the preparation of this report. Two jurisdictions (one of which being a G20 member) informed the assessment team that it approached Cyprus to indicate its interest in entering into a TIEA, but Cyprus offered instead to negotiate a DTC. One of these jurisdictions indicated its willingness to enter into a DTC, but no response was provided to date. In addition, another jurisdiction has asked to renegotiate the existing DTC to introduce an exchange of information provision as provided in Article 26 of the OECD Model Tax Convention and has received no response to date. It must be noted that in the latter case Cyprus is able to exchange all relevant information on the basis of reciprocity under the existing DTC. 192. The Cypriot authorities indicate that delays in responding are due to limited resources and heavy workload (it was reported that Cyprus is currently in (re)negotiation for a DTC or a protocol to a DTC with 22 jurisdictions). Nevertheless, Cyprus should be expected to respond to requests and acknowledge that other jurisdictions have an interest in concluding an information exchange agreements with them. 193. The Cypriot authorities also indicate that they prefer concluding DTCs over TIEAs, as a DTC provides a comprehensive approach to
international tax matters. It was added that Cyprus does not intend to enter into a TIEA. Moreover, Cyprus powers to obtain and exchange information are limited to cases where this is required to exchange information pursuant to a DTC (see B.1.1). 194. The international standard requires that a jurisdiction exchanges information with all relevant partners, meaning those partners who are interested in entering into an information exchange agreement. Cyprus policy to date of only entering into DTCs may limit its ability to have exchange of information arrangements with all relevant partners. It is recommended that Cyprus ensures that it enters into exchange of information agreements (regardless of their form) with all relevant partners.
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Cyprus has been approached by at least two jurisdictions to negotiate a TIEA and has so far not entered into negotiations with them. Furthermore, Cyprus domestic law does not allow for obtaining and exchanging information in the case of information exchange agreements other than DTCs. Recommendations Cyprus should enter into agreements for exchange of information (regardless of their form) with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it.
C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
Information received: disclosure, use, and safeguards (ToR C.3.1)

195. Governments would not engage in information exchange without the assurance that the information provided would only be used for the purposes permitted under the exchange mechanism and that its confidentiality would be preserved. Information exchange instruments must therefore contain confidentiality provisions that spell out specifically to whom the information can be disclosed and the purposes for which the information can be used.

In addition to the protections afforded by the confidentiality provisions of information exchange instruments, jurisdictions with tax systems generally impose strict confidentiality requirements on information collected for tax purposes. 196. All of the arrangements for the exchange of information concluded by Cyprus contain a provision ensuring the confidentiality of information exchanged and limiting the disclosure and use of information received, which has to be respected by Cyprus as a party to these agreements. 197. Any person having an official duty or being employed in administering the Income Tax Law or the ACTL (containing the provisions in respect of obtaining and exchanging information) must deal with the information and all documents relating to the income or object of tax of any person as secret and confidential and has to make and subscribe a declaration to that effect before a judge (s. 4(1) Income Tax Law and s. 4(2) ACTL). Such information or documents shall not be communicated other than for the purposes of the respective laws, except in case the Minister of Finance authorises such communication for the public interest (s. 4(2) Income Tax Law and s. 4(3) ACTL). As Cyprus must respect the confidentiality provisions of its DTCs, it may be expected that this exception will not occur in respect of information received in the course of an exchange of information request under a DTC. In any case, treaties have precedence over domestic law (s. 169(3) Constitution). 198. In addition to the specific rule in the Income Tax Law, section 67 of the Public Services Law provides that all information, written or oral, which comes to the knowledge of a public officer in the execution of his duties, shall be confidential and its communication to any person shall be prohibited, except for the proper performance of an official duty or on the express direction of an appropriate authority. Breach of the confidentiality is considered a disciplinary offence, which may result in disciplinary punishments varying from a reprimand to dismissal (s. 79 Public Services Law).
All other information exchanged (ToR C.3.2)

199. Confidentiality rules should apply to all types of information exchanged, including information provided in a request, background documents to such requests, and any other documents or communications reflecting such information. 200. The confidentiality rules for tax officials as described under C.3.1 are not restricted to information received. A specific provision is in force to lift the obligation to keep information secret and confidential where it must be disclosed to the competent authorities of another jurisdiction with which Cyprus has concluded a DTC (s. 4(4)(b) ACTL).

C.4. Rights and safeguards of taxpayers and third parties

The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties.
Exceptions to requirement to provide information (ToR C.4.1)

201. The international standard allows requested parties not to supply information in response to a request in certain identified situations. 202. In line with the standard, under all but one (the DTC that applies to Tajikistan, Turkmenistan and Ukraine) of Cyprus DTCs the contracting parties are not obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy. 203. The attorney-client privilege (professional secrecy) under Cyprus domestic law appears to apply to certain information other than information (i) produced for the seeking or providing of legal advice or (ii) produced for the purposes of use in existing or contemplated legal proceedings (see B.1.5). As Cyprus DTCs do not define the scope of attorney-client privilege, the provisions in its domestic law could prevent such information held by attorneys (the term advocates is used in Cyprus) from being exchanged under these DTCs. Whether the current scope of the attorney-client privilege forms an impediment to the effective exchange of information will be further examined in the Phase 2 review of Cyprus.
C.5. Timeliness of responses to requests for information

The jurisdiction should provide information under its network of agreements in a timely manner.
Responses within 90 days (ToR C.5.1)

204. In order for exchange of information to be effective it needs to be provided in a timeframe which allows the tax authorities to apply the information to the relevant cases. If a response is provided but only after a significant lapse of time the information may no longer be of use to the requesting authorities. This is particularly important in the context of international cooperation as cases in this area must be of sufficient importance to warrant making a request. 205. There are no specific legal or regulatory requirements in place which would prevent Cyprus from responding to a request for information by providing the information requested or providing a status update within 90 days of receipt of the request. 206. As regards the timeliness of responses to requests for information, the assessment team is not in a position to evaluate whether this aspect is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
Organisational process and resources (ToR C.5.2)

207. The Director of the Department of Inland Revenue of the Ministry of Finance (the Director) is the competent authority of Cyprus for exchange of information purposes. The Director also has the powers to obtain information in this respect. A review of Cyprus organisational process and resources will be conducted in the context of its Phase 2 review.
Absence of restrictive conditions on exchange of information (ToR C.5.3)

208. There are no specific legal and regulatory requirements in place which impose restrictive conditions on Cyprus exchange of information practice. However, the assessment team is not in a position to evaluate whether this aspect is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
Phase 1 determination The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 65
Summary of Determinations and Factors Underlying Recommendations

Factors underlying recommendations
Determination
Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities (ToR A.1) The element is in place, but certain aspects of the legal implementation of the element need improvement. Although bearer shares cannot be issued, the issuance of share warrants to bearer is allowed by public companies. Although Cypriot authorities report that no share warrants to bearer are currently in existence, no legal requirements exist to identify owners of share warrants to bearer. Although in all cases the beneficiaries of at least ten percent of the trust property must be identified by the trustee, obligations in Cyprus to identify settlors, other trustees and beneficiaries of trusts are not consistently provided for. Cyprus should ensure the availability of ownership information in respect of bearers of share warrants in all cases.
Cyprus should ensure the availability of ownership and identity information in respect of trusts in all cases.
66 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS

Determination
Recommendations
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements (ToR A.2) The element is not in place. Although there is an obligation to keep documentation, it is not clear in the case of trusts deriving only dividend and interest what books and records are to be kept. Although there is a requirement for most taxpayers to keep invoices and receipts they issued in respect of their transactions and collections, further guidance is required for all relevant entities and arrangements what underlying documentation should be kept. There is no obligation to keep underlying documentation and to keep records for a period of at least five years in respect of companies incorporated in Cyprus but managed and controlled in another jurisdiction. The element is in place. Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information) (ToR B.1) The element is in place, but certain aspects of the legal implementation of the element need improvement. Cyprus access powers to obtain information under an information exchange agreement are only applicable to requests made under double tax conventions. Cyprus should ensure that its competent authority has the power to obtain all relevant information pursuant to requests under all exchange of information agreements (regardless of their form). Cyprus should introduce further guidance for trusts deriving only dividend and interest income on which accounting records are required to be kept. Cyprus should introduce further guidance for all relevant entities and arrangements to maintain underlying documentation.
Cyprus should ensure that all relevant entities and arrangements keep underlying documentation and that they keep records (including underlying documentation) for a period of at least five years.
Banking information should be available for all account-holders (ToR A.3)
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 67
Determination
Recommendations
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information (ToR B.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. No exceptions exist to informing the person who is asked to produce information which foreign tax authority has requested the information. Cyprus should ensure that appropriate exceptions exist to informing the person who is asked to produce information which foreign tax authority had requested the information (e.g. in cases in which informing that person is likely to undermine the chance of the success of the investigation conducted by the requesting jurisdiction).
Exchange of information mechanisms should allow for effective exchange of information (ToR C.1) The element is in place. The jurisdictions network of information exchange mechanisms should cover all relevant partners (ToR C.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. Cyprus has been approached by at least two jurisdictions to negotiate a TIEA and has so far not entered into negotiations with them. Furthermore, Cyprus domestic law does not allow for obtaining and exchanging information in the case of information exchange agreements other than DTCs. Cyprus should enter into agreements for exchange of information (regardless of their form) with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it.
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received (ToR C.3) The element is in place. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties (ToR C.4) The element is in place.
68 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS

Determination
Recommendations
The jurisdiction should provide information under its network of agreements in a timely manner (ToR C.5) The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
ANNEXES 69
Annex 1: Jurisdictions Response to the Review Report*
Cyprus is committed to implement the international standards of transparency and exchange of information for tax purposes. Cyprus stands ready to negotiate exchange of information agreements regardless of the form, including tax information exchange agreements (TIEAs) without any conditions. In addition, Cyprus will enact appropriate legislation to give effect to these agreements.
* This Annex presents the Jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
70 ANNEXES
Annex 2: List of All Exchange-Of-Information Mechanisms in Force
EU regulations and multilateral agreements Cyprus exchanges information under:

EU Council Directive 2011/16/EU of 15 February 2011 on administrative co-operation in the field of taxation. This Directive is in force since 11 March 2011. It repeals Council Directive 77/799/EEC of 19 December 1977 and provides inter alia for exchange of banking information on request for taxable periods after 31 December 2010 (Article 18). All EU members are required to transpose it into national legislation by 1 January 2013. The current EU members, covered by this Council Directive, are: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom; and EU Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments. This Directive aims to ensure that savings income in the form of interest payments generated in an EU member state in favour of individuals or residual entities being resident of another EU member state are effectively taxed in accordance with the fiscal laws of their state of residence. It also aims to ensure exchange of information between member states.
Bilateral agreements
Exchange of information agreements signed by Cyprus as at December 2011, in alphabetical order:
ANNEXES 71
Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21 Armenia Austria Belarus Belgium Bulgaria Canada China, Peoples Rep. Czech Republic Denmark Egypt France Germany Greece Hungary India Ireland Italy Kuwait Lebanon Mauritius
Type of EoI Arrangement DTC DTC DTC DTC DTC DTC DTC DTC DTC New DTC DTC DTC DTC New DTC DTC DTC DTC DTC DTC Protocol DTC New DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC Protocol
Date signed 17 January 2011 20 March 1990 29 May 1998 14 May 1996 30 October 2000 2 May 1984 25 October 1990 28 April 2009 26 May 1981 11 October 2010 18 December 1993 18 December 1981 9 May 1974 18 February 2011 30 March 1968 30 November 1981 13 June 1994 24 September 1968 24 April 1974 4 June 2009 15 December 1984 5 October 2010 18 February 2003 22 October 1993 21 January 2000 28 January 2008 29 June 1985 18 May 1955 4 June 1992 11 November 2008 16 November 1981 5 December 1998 7 November 2010
Date entered into force 19 September 2011 1 January 1991 12 February 1999 8 December 1999 3 January 2001 3 September 1985 5 October 1991 26 November 2009 10 August 1981 18 May 2011 14 March 1995 1 April 1983 8 June 1977 16 January 1969 24 September 1982 21 December 1994 7 December 1970 9 June 1983 23 November 2010 25 September 1986 14 April 2005 11 August 1994 12 June 2000 3 September 2008 30 January 1986 18 May 1955 7 July 1993 20 March 2009 8 November 1982 17 August 1999
20 Malta 22 Moldova 23 Montenegro 24 Norway 25 Poland 26 Qatar 27 Romania 28 Russia
72 ANNEXES
Type of EoI Arrangement DTC DTC DTC DTC DTC DTC New DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC Date entered into force 18 July 2007 30 January 1986 27 October 2006 7 February 2001 30 December 1980 30 January 1986 14 September 2011 8 December 1998 13 November 1989 22 February 1995 26 August 1983 4 April 2000 26 August 1983 26 August 1983 18 March 1975 31 December 1985
Jurisdiction 29 San Marino 30 Serbia 31 Seychelles 32 Singapore 33 Slovak Republic 34 Slovenia 35 South Africa 36 Sweden 37 Syria 38 Tajikistan 39 Thailand 40 Turkmenistan 41 42 Ukraine United Arab Emirates
Date signed 27 April 2007 29 June 1985 28 June 2006 24 November 2000 15 April 1980 29 June 1985 12 October 2010 26 November 1997 25 October 1988 15 March 1992 29 October 1982 27 October 1998 29 October 1982 29 October 1982 27 February 2011 20 June 1974 19 March 1984
43 United Kingdom 44 United States
ANNEXES 73
Annex 3: List of All Laws, Regulations and Other Material Consulted
Commercial laws
Charities Law (Cap. 41) Clubs (Registration) Law (Cap. 112) Companies Law (Cap. 113) Cooperative Societies Law Cooperative Societies Regulations (selected provisions) International Trusts Law 1992 Partnership and Business Names Law Societies and Institutions Laws, 1972 and 1997 Trustee Law (Cap. 193)
Financial sector laws

Banking Laws of 1997 to 2009 Central Bank of Cyprus Laws of 2002 to 2007 Directive to banks in accordance with Article 59(4) of the Prevention and Suppression of Money Laundering Activities Law of 2007 Money laundering: Guidance Notes for lawyers Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007
74 ANNEXES
Taxation laws
Assessment and Collection of Taxes Law 1978 Income Tax Law of 2002 Special Contribution for the Defence of the Republic Law of 2002
Miscellaneous
Company Income Tax Return Constitution of Cyprus Income Tax Return Self-Employed Public Services Law Tax Register Registration Form
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

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OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2012 04 1 P) ISBN 978-92-64-16877-0 No. 59899 2012
Global Forum on Transparency and Exchange of Information for Tax Purposes
PEER REVIEWS, PHASE 1: CYPRUS

The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org.
Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Cyprus 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168787-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.
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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

Peer Review Report Phase 1 Legal and Regulatory Framework

ISBN 978-92-64-16877-0 (print) ISBN 978-92-64-16878-7 (PDF)

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

ABOUT THE GLOBAL FORUM 5

About the Global Forum

Information and methodology used for the peer review of Cyprus

Taxation and international cooperation

Rate as from 31 August 2011, previously the rate was 15%.

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 17

Compliance with the Standards

18 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

A.1. Ownership and identity information

Companies (ToR A.1.1)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19

Ownership information held by companies

20 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Ownership information held by the authorities

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 21

Ownership information held by service providers

22 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 23

24 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Bearer shares (ToR A.1.2)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 25

Partnerships (ToR A.1.3)

26 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 27

Trusts (ToR A.1.4)

28 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Ownership information held by trustees and service providers

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 29

Ownership information held by the authorities

30 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Foundations (ToR A.1.5)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 31

Other relevant entities and arrangements

32 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Enforcement provisions to ensure availability of information (ToR A.1.6)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 33

A.2. Accounting records

34 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

General requirements (ToR A.2.1)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 35

Tax law obligations

36 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 37

Underlying documentation (ToR A.2.2)

38 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

5-year retention standard (ToR A.2.3)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 39

40 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

A.3. Banking information

Record-keeping requirements (ToR A.3.1)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 41

COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 43

44 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION

B.1. Competent Authoritys ability to obtain and provide information

Ownership and identity information (ToR B.1.1)

COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 45

46 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION

Accounting records (ToR B.1.2)

Compulsory powers (ToR B.1.4)

COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 47

Secrecy provisions (ToR B.1.5)