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Taxman may raid bank accounts

The Cyprus government is considering allowing the taxman to raid bank accounts to recover unpaid debts in a move very similar to the changes announced in the recent UK budget.

A BILL allowing the taxman to seize personal property – including bank deposits to settle unpaid dues to the government without a court decision has caused a storm of protest.

The bill, empowering the Inland Revenue Department was just submitted to the House, has been met with a furious reaction within the business world.

According to the requirements of article 3.7 of the Memorandum of Understanding (MoU) agreed to between Cyprus and the International Monetary Fund, the European Central Bank and the European Commission in return for a €10 billion bailout loan in March 2013, the Cyprus government must submit a “comprehensive reform plan to improve the effectiveness and efficiency of tax collection and administration.”

The article goes on to explain various areas for improvement, including the need to “strengthen powers by the tax authorities to ensure payment of outstanding tax obligations.” Following the latest troika review, it was agreed that the bill must be passed by March 2014.

In compliance with the article, the Finance Ministry has prepared a bill that bestows on Inland Revenue the authority to seize the assets – excluding immovable property – in order to settle debts to the government without resorting to the courts to obtain a relevant order.

Such authority is already bestowed on the director of the Value added tax (VAT) department – poised to be merged with inland revenue, also as part of the MoU.

Prior to submission, the ministry had held informal consultations with the associations of chartered accountants, banks, lawyers, and the Central Bank of Cyprus, before it was reviewed and signed off by Attorney-general Costas Clerides.

Speaking on the public broadcaster, Finance Minister Harris Georgiades said the bill was a tool in the hands of the tax collection authorities so that evasion could be effectively dealt with.

“This concerns confirmed cases of tax evaders who possess assets but refuse to pay their dues”, he said.

The basic provision of the proposed legislation – the seizing of personal assets without requiring court order – has been met with strong disagreement from the associations of banks and accountants, who cite issues of data protection and separation of powers infringement, as well as the risk of further damaging trust towards the Cyprus financial services sector.

They also argue that the MoU article makes no mention of government access to citizens’ bank accounts without a court order, but concede that adjudications in Cypriot courts drag on due to case overloads and propose the creation of administrative courts to settle such requests speedily.

Ioannis Charilaou, president of the Association of Chartered Accountants, expressed the association’s disagreement and raised the concern that the fragile trust in Cyprus’ financial services industry would be further damaged.

“Foreign investors are a valuable part in the steam engine that is Cyprus’ economy,” he said. “We understand this is an MoU-related measure but the MoU makes no mention of seizing cash with no court order. The accused must be offered the chance to respond to their accuser, and this can only be done in court.”

Data protection commissioner Yiannos Danielides said that, while obvious privacy issues are raised by the bill, he was not consulted in its preparation.

“I was only informed today from the press,” he said. “There are obviously issues to look at.”

Asked whether similar data protection issues arose when authority to seize assets was granted to the VAT director, Danielides said he was unable to respond as he had not had time to study the relevant legislation yet, but offered a preliminary distinction between the VAT and income tax. The former, he said, is collected on the government’s behalf and must be paid on immediately – therefore withholding it is akin to stealing from the government – whereas income tax is a levy imposed on people’s own earnings.

Readers' comments

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  • Pebbles says:

    I love the idea that we Foreigners are the ‘Steam’ Engine of the economy, surely this speaks volumes of the backward thinking of this island!

  • Robert Briggs says:

    In my case, good luck to them, since I have got sweet nothing in my Cyprus Bank accounts.
    Since I have spent it all on drink and chasing after the Wild Prodromi Women.
    Cheers, Bob.

  • @All

    Cyprus looks to be following the UK example announced in the recent budget:

    A sweeping change in the law unveiled in the Budget will allow HM Revenue & Customs to raid bank accounts for debts.

    Anyone owing more than £1,000 in tax or tax credits could see the cash siphoned out of a bank account or even an ISA without their consent.

    Current rules force HMRC to go to court to recover cash.

  • MartynG says:

    Much whineging and whining, as you’d expect, but in a country where tax avoidance and evasion are well embedded in the national culture, those who are biggest and best at it, (the avoiding and evading) will have already moved any significant < sizeable bank balances and 'movable properties/assets' well out of reach of the – until very recently, it seems – sleepy and laborious Revenue Collectors. Deep-seated problems require often radical solutions, but one has to wonder if even the Collectors themselves have the necessary 'attitude' and 'appetite' for it!

  • Andrew says:

    The Inland Revenue should seize personal and business assets of any developer who has sold property to buyers, yet failed to transfer title deeds into the buyers name. Any transfers of assets should also be traced and seized.

  • Richard says:

    This is not joined-up thinking – and both banks and government in the Republic will ‘cherry pick’ the legislation and practices that allow them to raid & plunder citizen’s money – whilst delay, obfuscate and generally continue corrupt domestic practices where there should be a fair system of settling debt and issuing deeds.

    At this rate – bureaucrats are sowing the seeds for civil unrest.

  • Deanna says:

    As Jay so rightly points out; by the time they’ve finished arguing about the rights and wrongs of implementation the money will have left the banks, and property assets will have been transferred. Which, of course, is the whole point of the exercise!

  • Mike says:

    Jay – not cynical just realistic based on the evidence before you. I do not understand the VAT directors reasoning as both VAT and income tax are taxes collected on the governments behalf, the source is irrelevant as both are ordered in legislation. The only legitimate reason I can see for withholding income tax is as a result of disputed demands which, given the competence levels of the authorities, may or may not be justified. Changing legislation may help but changing the mind set will be a herculean task and probably an impossibility. Tax avoidance and evasion is a national sport, one in which we excel.

  • Jay says:

    If the bank accounts were not empty before, they will be now. In addition, all the other assets will be transferred to relatives (I wonder if they have title deeds). Cyprus has made me such a cynic.

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