Filenews 21 December 2022 - by Eleftheria Paizanou
Pressure on the Commission to gain time will be exerted by the Cypriot authorities, following the new written ultimatum of the European Commission to amend within two months the legislation in relation to the reduced VAT of 5% on the purchase or construction of a main residence.
A few days ago, it became what everyone had expected. Nineteen months after the opening of the infringement procedure against the Republic, due to the abuse of the European Directive on VAT on primary residences, the Commission sent a new warning to the Cypriot authorities, thus reinforcing the risk of referring the country to the EU Court of Justice for a fine. Based on the letter, the authorities of the Republic have until February 15 to amend the legal framework by the Parliament.
On December 15, the Director-General of the Directorate General for Taxation and Customs Union of the European Commission, Gerasimos Thomas, in a letter to the Secretary-General of the Ministry of Foreign Affairs Finance, George Pantelis, asks him to approve the bill within two months. In fact, he warns that, otherwise, a prolonged delay in the adoption of the government's proposal will probably lead the Commission to decide to proceed to the next stage of the infringement procedure.
"I would ask you to inform me within two months of receipt of this letter of the enactment of the amended Act. In case the relevant legislation is not amended within this deadline, we will proceed to the next stage of the infringement procedure", adds Mr. Thomas.
A competent source told "F" that from time to time the Cypriot authorities had requested time credit from Brussels, which they will do now. We were also told that initially the Commission was reacting to the revised bill submitted by the Ministry of Foreign Affairs on June 10 and after a strong argument developed by the Cypriot authorities, it consented that this is in line with the social purpose of the European Directive. This is also pointed out by the Director-General of the Directorate-General for Taxation, commenting on the revised draft law, which was sent by the Ministry of Finance to Brussels last August. According to Mr Thomas, amending the legislation to address the breach of EU law responds effectively to the concerns.
It is reminded that the bill pending in the Parliament provides for the imposition of 5% VAT on the first 170 sq. m. of houses, with a total area of up to 220 sq. m. and with a transaction value of up to € 350,000. Also, a reduced VAT of 5% will be imposed on the first 90 sq. m. of apartments, with a total area of up to 110 sq. m. and with a total value of up to € 200,000.
The ball back at the feet of the House
The Parliament and the Government are in an open line of communication for the handling of the issue. Now, the ball is at the feet of Parliament, which is why the Ministry of Finance forwarded the EU's letter of formal notice to the chairman of the House Standing Committee on Finance, Christiana Erotokritou. Parliamentary sources told "F" that they are in consultation with the relevant ministry to coordinate the actions that will follow. The members of the Finance Committee have assured that, although Parliament is not functioning because of the elections, they will hold an extraordinary meeting if necessary. As it turns out, the House will likely deal with the bill again after February 18, when MPs will return to the benches. What worries the Government is whether the changes that the Parliament may proceed with will be in line with the European Directive and will be accepted by the Commission.
COMMENT
They will be responsible for the consequences
For 19 months everyone has been comfortable with not changing the legal framework for 5% VAT on primary residences. Behind the scenes, Brussels put pressure on the Cypriot authorities, but the Republic managed to secure additional time with an argument. Although everyone knows that the legislation is perverse, they hoped that the European demand would not come just before the presidential elections. None of the parties seem to want to bear the political cost and change the law before the elections, so as not to cause disruption in the real estate sector. De facto, the bill must be put forward for approval immediately after the elections, otherwise everyone will bear responsibility for the consequences.
