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Tax haven, a misnomer for Cyprus

By  Petros Petrides, Huang Yanan (Xinhua)

14:49, May 05, 2013

NICOSIA, May 4 (Xinhua) -- When Cyprus applied to the European Union and the International Monetary Fund for bailout in June last year it was unexpectedly confronted with orchestrated attacks on its banking and tax systems.

Final negotiations for the bailout deal coincided with the opening shots in an electoral campaign for general elections in Germany scheduled for September, and German politicians were fully aware that tax payers loathed the idea of having to pocket out more money for rescuing another Eurogroup economy, even if it only represents just 0.2 of the eurozone's economy.

The Cypriot bailout got entangled in the German electoral campaign and German government and opposition politicians embarked on what Cypriot officials saw as a witch hunt, as they were competing among themselves to make it as tough as possible for Cyprus to obtain a bailout.

Cypriot finance minister at the time, Vassos Shiarly, desperately tried to push through a bailout deal as early as possible and went on record saying in an interview that he expected the Germans and their cronies, the Dutch and the Finnish, to literraly slaughter Cyprus if the deal was not concluded before the end of 2012.

Having missed that target, a provisional bailout agreement which was concluded in late November, 2012, was widely expected in Cyprus to be finalized in early January.

However, German Finance Minister Wolfgang Schaeuble had a different target date, proclaiming that it would not be ready before early spring when Cyprus would have almost run entirely out of money.

Schaeuble then laid down more conditions: Cyprus would have to downsize its banking system which he claimed was stashed with money belonging to what he called "Russian oligarchs", and also submit to an investigation into money laundering by a private institution.

Cypriot politicians, aghast by the ferocity and intensity of the campaign against Cyprus and the harshness of the demands, in vain tried to point out that the charges did not stand of facts.

They protested that Cyprus'legislation and procedures were closely vetted when the island was accepted in the eurozone in 2008 and an official report on money laundering prepared by the Council of Europe Moneyval committee only in 2012, placed Cyprus even higher than Germany as money laundering procedures were concerned. Their protests fell on deaf ears.

Demands for an increase on the Cypriot corporate tax from 10 percent to 12.5 percent and for an anti-money laundering investigation were quickly turned into media accusations that Cyprus was actually a center for money laundering and a secretive tax haven.

Economists point out that this picture is not justified by actual facts and has been disproved by the investigation demanded by Germany and other Eurogroup countries.

"There could be no biggest lie than to claim that Cyprus is a tax haven," economist Stelios Platist told Xinhua recently in an interview.

Platis, who runs a firm offering financial and investment advice, points out that Cyprus did nothing different than what other countries did, only did better.

"Cyprus can offer a very sound legal system based on the British common law and the security of European Community legislation on top of its own, highly trained lawyers specializing in business and investment, excellent auditors who mostly work in association with international firms, excellent communications and fairly easy access to the heart of Europe-plus a reliable banking system, until it was destroyed by the troika," Platis said.

The Cypriot government and the Eurogroup reached a 10-billion-euro (about 13 billion U.S. dollars) bailout agreement on March 25 this year.

According to the agreement, depositors with deposits over 100,000 euros in Cyprus biggest bank the Bank of Cyprus will take loss up to 60 percent, the deposits under 100,000 euros in the second largest bank the Popular bank will be taken by the Bank of Cyprus, and deposits over 100,000 euros in the Popular Bank will be frozen and liquidated after seven years.

Platis said that the low 10 percent corporate tax may be a factor in attracting thousands of offshore companies to Cyprus but this alone does not justify calling the country a tax haven.

According to Platis, true tax havens provide little or no financial information to foreign tax authorities.

He said Cyprus has signed agreements for the exchange of information and avoidance of double taxation with over 50 countries, including all EU countries, the United States, Russia and China.

"All agreements meet the standards laid down by the Organizaton for Economic Cooperation and Development (OECD) Global Forum on transparency and exchange of information for tax purposes. Cyprus' name will not be found anywhere on official and reliable lists of tax havens around the world," he said.

Platis pointed out that tax havens opportunities usually go hand in hand with money laundering, which is not the case with Cyprus.

Despite widespread allegations about money laundering operations in Cyprus, two separate probes demanded by the troika including the European Commission, the European Central Bank and the International Monetary Fund have exonerated the island.

Cyprus government spokesman Christos Stylianides told Xinhua that separate surveys by the Council of Europe Moneyval Committee and the Italian private audit firm Deloitte belie charges about money laundering.

"There was much ado about nothing," said Stylianides.

Officials reports on the surveys will be made available to the Eurogroup within the next few days, prior to the disbursement of the first tranche of bailout loans expected by the middle of May.

Stylianides said that draft reports on the money laundering allegations show that Cyprus stands at a much better level than some people in Brussels thought.

Platis said that Cyprus still maintains all its advantages as a services center despite the blow dealt to the banking sector.

"I do not expect offshore companies to leave because of the present conditions in Cyprus. On the contrary, I am confident about a blooming financial services sector," Platis said.

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