HM Revenue & Customs last week removed all Cyprus based QROPS from its list of registered schemes – raising questions about why it did so and what HMRC’s intention is towards the QROPS market.
The removal of the Cyprus-based schemes is significant because Cyprus is an EU member and it had been widely believed that schemes within the EU were out-of-reach of HMRC. The removal of the schemes was revealed when HMRC published its updated list (available here) of registered QROPS late last week.
It is believed that there were only a small number of registered schemes in Cyprus and that they were exclusively employee schemes for companies based on the island. A list published in March shows four schemes, including one for employees of Big Four accountancy firm Pricewaterhouse Coopers.
HMRC did not offer an explanation on the updated list as to why the schemes were removed and a spokesperson declined to comment on the matter.
QROPS specialist Stephen Ward, managing director of Alicante-based Premier Pension Solutions, said, after spending a significant amount of time researching the decision, that Cyprus may have fallen foul of the same QROPS condition which saw 310 Guernsey schemes lose their QROPS status earlier this year.
According to Ward, provisions in Cyprus’s Income Tax Law 2002 (specifically amended articles 5(1) (d) and 5 (2) (c)) mean that a non-resident member of a QROPS, who had no historic employment connection in Cyprus would not be taxed on income, where as a resident scheme member would. Ward suggests this means Cyprus fails the recently established benefits tax relief test.
The test reads: “Where tax relief in respect of benefits paid from the overseas pension scheme is available to members of the scheme who are not resident in the country or territory in which the scheme is established, the same or substantially the same tax relief must…also be available to members of the scheme who are resident in the country or territory…”
Again, HMRC would not confirm or deny whether Cypriot schemes were removed because they failed this test.
Whether or not this is the reason, it has perhaps sowed a seed of doubt in the minds of those who had thought that schemes within the EU were “bullet proof”, according to Global QROPS director Paul Davies.
“The industry was under the impression that almost regardless of how a scheme was set up, because of European rules, HRMC could not discriminate against other country’s pension schemes,” said Davies.
“It certainly puts that little nagging doubt in the mind of the industry.”
Ward meanwhile, said the decision marks a climate change for the overseas pension industry.
“This illustrates that HMRC are looking at jurisdictions that have schemes which have been recognised as QROPS, and reviewing whether schemes satisfy the regulations as they apply since 6 April 2012.”
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