Filenews 18 February 2023
Associations and/or foundations are allegedly involved in tax evasion or money laundering and the harm seems to have gone too far if we take into account that out of the 2,000 that have been audited by external auditors, it appears that 20% were judged to be high-risk for the above offences.
In other words, out of 2,000 clubs, 400 are considered high-risk and according to conservative calculations, the concealment of money for each ranges between €100,000-€200,000. This translates to €40 - €80 million. If the findings for the 2,000 clubs reflect on the total of 4,500 registered clubs, then 20% translates into 900 clubs and tax evasion is estimated to be between €100 - €200 million.
Tax evasion and money laundering seem to be achieved through active businesses that hide behind various sports schools. As for how this is done, a source who is involved in the sector as he explained to "F", company owners set up clubs, foundation clubs, etc., where they channel money from their business, in the form of a donation/contribution but the money is usually withdrawn in the same year without showing where it ends up. They are recorded in the accounts as contributions but without indicating to whom they are addressed or by whom the contributions are made. As we have been told, this is considered a potential rinsing mechanism.
In order for the covered companies to operate, they approached, for example, 20 parents of children (a number required by law) who were interested in being active in a competition and formed a club, which led to their subsidy while at the same time they did not pay VAT or income tax and while they appeared as unions they operated as businesses.
As the audit found, in some of these associations, all the members of the board of directors came from the same family, i.e. the family to which the company belonged. Of course, this does not automatically mean that behind every board of an association where there are members of the same family, there is anything wrong.
It is noted that for the operation of schools (various sports) by companies, there are conditions, including building ones, while they must employ properly trained staff. However, when a club operates, these conditions are not required, so it is easier for them to operate with relative concealment of data.
The control of the unions and the amendment of the legislation was also made after pressure from the MANIVAL Committee (of the Council of Europe) which focuses on tax evasion, tax avoidance and money laundering.
Before the adoption of the relevant legislation in 2017, there were 6,500-7,000 associations / foundations that were invited to submit updated articles of association, in order to comply with the new legislation, which aimed at the transparency of their operating procedures and the control of their financial activities.
About 2,500 clubs were not interested in continuing their operation and as it was found along the way, most of them were dormant. Only 60 of them contacted the Ministry of Interior stating that they inadvertently did not express an interest in registering and requested their re-registration, which implies compliance with the legislation (the Law on Associations and Foundations and other related issues Law N 104(I)/2017) and their applications were put to the test.
During this whole process, it was found that several of the dormant associations, foundations and clubs owe the state either income tax or social insurance, which is controlled through the services involved. Already, as "F" is informed, the Department of Social Insurance has forwarded some data to the Ministry of Interior. However, the exact amount of the debts was not established, which shows both the chaos that prevailed for so many years and the work that needs to be carried out in this direction. Further handling of the matter is pending before the Legal Service and from there the filing of cases before the Court for dissolution, liquidation or other actions will be initiated.
Some of the unions, foundations, clubs, etc., employed employees and it seems that the whole process created pending issues. During the audit, the indications for several of the associations/foundations, etc., converge on the fact that they were established simply to get state subsidies. It is noted that some of these associations were founded after 1972, when the subsidy of some organizations began.
Along with the bathwater, the baby was burned
'The baby has been thrown out with the bathwater' in the sense that small associations, non-governmental organisations or organisations which actually produce charitable work have been or will be forced to close because they cannot afford to pay accountants to keep their books and accounts to meet the provisions of the legislation.
It is noted that from the period 2012 to 2013 Cyprus has been targeted by the MANIVAL Committee of the Council of Europe, as a haven of tax evasion, which is why it exerted intense pressure in order to end such phenomena that left Cyprus exposed. Since then, steps have been taken but, as recognized by MPs, it seems that not all the holes have been closed, even if the Cypriot authorities consider that the country has ceased to be a haven for tax evasion.
One of the measures taken was the adoption of the legislation in 2017.
Great pressure on its approval was exerted by the Minister of Interior Nikos Nouris, citing both the negative assessment and the comments from the MANIVAL report. In fact, when in the year 2020 the issue was raised to give a new extension to the application of the Law, which had not yet been implemented (three years after its approval) he had indicated that an evaluation by MANIVAL was imminent and stressed that the government did not want a new downgrade. He also indicated that the insinuations are clear, that in the field of clubs there are activities that leave shadows. He also noted that three years had elapsed since the adoption of the legislation but several associations did not use the time to initiate their registration procedures.
On the same wavelength, MOKAS had indicated that any new extension would create problems for Cyprus.
MPs had argued that there were distortions in the process of registering/deleting unions and one of them concerned the rejection of an application concerning an artists' union. As mentioned, the association had 21 members but the general meeting was attended by 16-17 people, so the Superintendent rejected the application for registration indicating that the presence of 20 members was required.
In addition to the above example, examples of other associations were also mentioned. Eventually the legislation was implemented and now it seems to be revealed that some unions took advantage of the gaps that existed.
INTERVENTION
Check to the end
The services involved must find a way to check whether there is indeed tax evasion and money laundering, in order to put an end to this phenomenon, which exposes Cyprus internationally.
If it is found that there is indeed a problem, then the amounts lost must be recovered, although those involved have probably had all the time to wipe out both their money and their traces. Even if some people hid them well and they cannot be traced, the message that will be sent is that such practices are no longer accepted, it is worth the effort and time that they will be expended.
At the same time, it is worth considering any distortions, because many unions do offer what the state itself does not offer.
