NEW government legislation grants the taxman sweeping powers, including the seizure of tax debtors’ bank accounts and assets as well as prohibiting the sale of real estate while a person is in arrears.
The bill, amending the core tax law of 1962, has been submitted to parliament, and its passage is a precondition for the release of the next bailout tranche by Cyprus’ international lenders.
Under its provisions, the director of the Inland Revenue Department (IRD) is empowered, having first secured a written consent from the Attorney-general, to request banks to freeze an amount in the holder’s account corresponding to what the person owes in taxes, including interest and late penalty fees. The frozen amount will be transferred to tax authorities.
A person has the right to appeal the action, in which case the IRD director must decide on the appeal within 15 days. Alternatively, an individual may take to the courts to have their frozen funds released.
The IRD – which by law has been merged with the VAT service – will also be able to order the confiscation of a person’s movable property, without going through the courts system, although a taxpayer may still legally challenge the seizure.
Currently the courts may, at the request of the IRD, summon before them tax debtors, investigate their financial means and possessions and order them to pay the amount in arrears. If debtors disregard the court order, the court may order the seizure and sale of their movable property, such as cars, furniture, etc.
Moreover, under the new legislation the IRD can now place a lien (legal claim) on a tax debtor’s tax debtors’ bank accounts without the prior need to secure a court order.
The action relates to tax arrears that are considered both final and recoverable, with the courts having no say on whether the amount owed to is fair or not.
Under this clause, the IRD director instructs the Department of Lands and Surveys to place a lien on a person’s immovable property as security for owed taxes that are final and recoverable. Once a property is in lien, the owner cannot alienate (sell or transfer) the property until the tax debt is settled.
The property may then be seized and sold to recover the amount due.
A person may appeal the move to have his or her property registered as lien, in which case the IRD director must within 15 days decide on the appeal.
Alternatively the affected person may apply to the court to have the lien registration lifted.
As the law now stands, prior to its amendment, only the courts may order the blocking, seizure and sale of immovable property.
It is not entirely clear whether mortgages and sales documents already filed with the land registry will be exempted.
The bill aims to strengthen powers by the tax authorities to ensure payment of outstanding tax obligations. It is set to be discussed at the House finance committee on Monday, where MPs will offer their final remarks, with the aim of bringing the bill to the plenum for a vote on Thursday.
Around €605 million in overdue taxes was owed to the state in 2012, with over half concerning unpaid income tax.
Assuming that a developer has both mortgage debts to his lending bank and tax debts to the Inland Revenue Department, AND that the developer has actually received the full selling price of the house from a resident purchaser, which party (ie the lending bank or the IRD) has legal precedence to seize and sell the property for the purpose of recovering the debt? KD.
@kufrahdog at 11:30 am – It will probably be the Inland Revenue Department. The government has precedence.
Forgive me for being a tad dim Nigel but surely if tax man wants his money he would and could go for a charge against the property (memo) rather than just a prohibition.
Regarding your earlier reply, surely an assignment of the original contract will make no difference in the event of a memo? The new “owner” (actually I think we should all stop using the word owner as it is totally wrong when one does not have title deeds) has potentially risked losing the house or part thereof to pay the original debt?
Just trying to get my head round this wee gem.
@andyp on 2014/06/14 at 2:30 pm – A vesting/assignment contract puts the second purchaser in exactly the same position as the first. It’s as if the name of the original purchaser was replaced with the name of the second purchaser. So the impact of any memos would be unaffected.
However, I hope that the second purchaser would use an honest lawyer (unlike some of ‘crooks’ involved in the profession) and they would point out the potential problems caused by any memos and any other claims, such as mortgages lodged before the first purchaser’s contract was lodged at the Land Registry. Under the law introduced in 2011 the second purchaser can repay the developer’s earlier mortgage and deduct it from the purchase price agreed with the first purchaser!!!
I think that if the property was the subject of a prohibition order, the Land Registry would refuse to accept a subsequent sale.
Beware the law of unintended consequences!
At least one developer that owes a bucket-load of money in 2013 IPT is apparently paying it off on the properties that are ready for transfer of title and not the rest, because the money can immediately be recouped from the buyer to facilitate transfer. If bank accounts are frozen there is a foreseeable situation where no title deeds can be exchanged because the amounts seized by the Revenue will be generally assigned to IPT, so that the whole debt must be paid before any further transfers of title can take place.
The solution, of course, is that the victims of the system, the buyers, will be asked to contribute to the settling of the total IPT debt, without title deeds being available, against a general receipt for the money paid and no guarantee that it will be used to pay off IPT.
@kufrahdog at 10:17 am – I don’t believe it’s possible to get a free English translation of the law – and any translation you may be able to get wouldn’t be official.
Mike/Nigel.
The way I see it, and correct me if I am wrong, is that a “sale” can in fact take place but as the new contract will be registered after the tax man’s memo the new “buyer” will potentially have put “their” property at risk to pay off the debt to the tax man.
@andyp at 12:34am – It isn’t clear from the article what type of lien will be used. It could be a ‘prohibition’ which effectively blocks any transfer/sale of a property or a ‘memo’.
Assuming it’s a second sale, providing the second purchaser uses an assignment/vesting contract, they will be no worse off than the first purchaser (assuming it’s a memo).
But even if a memo is lodged after a contract of sale has been deposited, it requires a court order to lift that memo before the transfer to the purchaser can take place. (That’s assuming that the debt hasn’t been paid or the creditor cannot be persuaded to lift the memo). One of the problems with memos is that they tend to be lodged against all properties registered in the name of the debtor – so even a development that is squeaky clean could have a memo lodged against it if the owner has a debt on some other development(s).
With the possible lifting of restrictions transferring money from the Banks one wonders where the money will go. To avoid paying, Perhaps London where property prices are going ballistic.
@Dunn Good at 11:33 am – I believe that one of the reasons for this new law is to prevent someone shifting money abroad if they owe tax. Hopefully, when the restrictions on overseas transfers are eventually lifted TPTB will have the presence of mind to instruct the banks to check with the Inland Revenue before allowing and funds to be moved overseas.
We saw in an earlier article the case of a vendor who was ordered by the Court to perform a specific act, namely to pay their CGT and IPT liabilities, thus enabling the legal transfer of Title to the buyer. The Court granted the vendor 9 months in which to do so, since it has always been the case, as Mike rightly points out, that Title to a property cannot be transferred if these taxes are outstanding.
Now that Income Tax and VAT look like being be added to the list of unpaid taxes which prevent Title being transferred, it is obvious that Title Deeds will become even harder to obtain, especially when around €605 million in outstanding taxes was owed to the State in 2012, let alone 2014, and over half of which was down to unpaid Income Tax by those who should have been prosecuted long ago.
Great Scott !! who is more “CROOKED” The Cyprus Government OR The Troika For Suggesting these Hair Brained Schemes to Cyprus or The Cyprus Government for (obviously) going along with it. So I Prophesy MORE Problems for us Mortal Home Buyers. Who used to be SO Very Happy. Before Buying a Perishing Property on the Islands of Dreams. Roll-On the next Chapter.
@ Nigel – could you please advise how one would obtain a free English translation from the public domain once this new legislation has been passed into law? One doesn’t want to spend a small fortune on a legal translation. KD.
Again this is worrying …..
Very Worrying…
More excuses Not to give you the Title Deeds that we all should have got at point of completion of sale. Thats if the IRC does not confiscate the property from under your nose first…..
Then what will they do with it ?
Sell it …. to whom ?
Who wants to buy there now?
Again they have not helped the country only dug a bit deeper in my opinion!
There needs to be a transparent amnesty window where we all get what we should regardless of state and condition and from this point all new sales should have Title available for transfer at point of completion of sale….
How easy is this to achieve ????
@UBoat at 10:00 am – One of the (many) problems is that they’ve mixed up the ownership of a property with its condition.
In many other countries title to a property is registered in the purchasers name on delivery (or very shortly afterwards). And actually ‘completion’ occurs at the time title to the property becomes available for transfer – but in Cyprus ‘completion’ has been bastardised to mean delivery.
It would not be impossible to achieve this in Cyprus, but as someone pointed out in a comment elsewhere it needs a complete re-engineering of the business processes involved. Tinkering about in efforts to patch up the present antediluvian system is a complete waste of time.
@Mike – The main change is that the Inland Revenue will be able to place a lien on a property for any type of unpaid Tax – Income Tax, VAT, IPT, CGT.
Currently if someone hasn’t paid their Income Tax or VAT it doesn’t affect their ability to sell/transfer their property.
Either I am missing something or there is nothing new here except for the seizure of tax debtors bank accounts (which I don’t ever see happening in Cyprus). It has always been the case that a property will not be transferred if taxes are outstanding. Claiming “prohibiting the sale of real estate while a person is in arrears” is a little disingenuous to say the least. A seller can and will sell the property to anyone at any time as has always been the case. What they cannot do is transfer title to the buyer. But they have the money so why would they care.
I appreciate it is early in the morning and my brain has perhaps not got itself into gear yet but I suspect this particular piece of proposed legislation has all to do with pacifying troika officials in order to secure further funding and nothing whatsoever to do with righting the wrongs met at every step of the conveyance system.
If as much thought and energy was put into doing the right thing as is so obviously put into finding ways to deceive and cheat then the population would all be millionaires and the country would have no need to cheat and prostitute itself to anyone around the world who has more money than sense.
After this law we can say good buy to Cyprus as a tax haven and a shipping centre.
Dear sirs we can say good buy for Cyprus as an offshore haven and shipping center !
Looks like more trouble ahead for “homeowners” trying to get their deeds.