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Attacks on Tax Havens

September 2008 - Tax & Private Client. Legal Developments by Andreas Neocleous & Co.

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Recent publicity regarding the United Kingdom and German revenue authorities’ purchase of confidential details of Liechtenstein bank accounts has re-focussed attention on tax havens and on how far the authorities may go to prevent their misuse.

In addition to Germany and the United Kingdom, the USA, Australia, Italy, France, Sweden, Canada, New Zealand, Greece and Spain are all understood to be targeting taxpayers holding funds in Liechtenstein, which, together with Monaco and Andorra, has been identified by the OECD's Committee on Fiscal Affairs as an unco-operative tax haven.

The OECD defines a tax haven on the basis of three tests:

  • No or only nominal taxes
  • Strict protection of personal financial information, preventing the local authorities from passing on information.
  • Lack of transparency in the operation of legislative, legal or administrative provisions.

The OECD recognises every country’s right to set its own tax rates, and a low tax regime does not make a country a tax haven if there are sufficient safeguards, in the form of transparency and commitment to information exchange, to prevent its misuse to illegally avoid taxes.

Cyprus cannot be considered a tax haven on any of the tests. Its taxes are low, but not artificially so, and it is committed to transparency. Following EU accession, Cyprus tightenened its standards on issues such as transfer pricing and they are now among the highest in the EU. Cyprus is one of the Participating Partners that are working together under the auspices of the OECD’s Global Forum on Taxation to develop international standards for transparency and effective exchange of information in tax matters.

Investors may therefore continue to use Cyprus tax planning structures with confidence.

Further information: eliasn@neocleous.com

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