Some taxpayers declare other income for VAT purposes and others for income tax. The Audit Office, for the purposes of checking timely collection and compliance control of the Tax Department, proceeded with a random sampling of 120 taxpayers (natural and legal persons) and identified things and miracles:

– Taxpayers have not submitted or have submitted their income statements and/or the relevant employer returns late.

– Several cases of taxpayers declare a different turnover for income tax purposes and for VAT purposes, with a difference of more than 15%.

– For cases of taxpayers, where turnover was declared in VAT for specific years, no returns were submitted at all for income tax purposes.

– Taxpayers with significant amounts of arrears as at 31.12.2022.

– Cases where the Tax Department has delayed (for a number of years) in imposing taxation (direct taxes), resulting in the expiry of the specified period of six years (or twelve years, e.g. in cases of possible intentional failure to submit an income declaration) provided for in the relevant legislation and during which it has the right to impose taxation and/or taxation on additional income.

What the sampling showed

At the same time, the Service proceeded to a random sample check of 24 tax files for the correctness of tax enforcement. Eight direct tax files and eight indirect tax files were audited and seven corporate tax files with annual losses of millions of euros were investigated. Among other things, the Office identified the following:

– Cases where the Department has delayed (for a number of years) in imposing taxation (direct taxes), resulting in the expiration of the period of six years (and/or twelve years in cases of a person guilty of deception or deliberate omission) provided for in the legislation, which allows the Commissioner of Taxation to impose taxation and/or taxation on additional income.

– Cases where there was no in-depth investigation by the Department and taxes were imposed without there being any indication/note from the taxpayers whether they requested and/or evaluated data to substantiate the position of the Department, especially regarding the tax treatment of expenses, management costs or research and development expenses.

– Cases where taxes were imposed without any adjustment of taxable income

– Cases where the Tax Department appears not to have investigated transactions between related parties to ascertain whether the principles of commercial transactions were followed.

In the game and MOKAS

In addition, the Audit Office proceeded with an audit of legal entities based in Cyprus, which were included in the US sanctions list. During the audits, it was found that in some cases tax issues arise which were forwarded to the Tax Department.

In other cases, the Audit Office identified the imposition of taxes by the Tax Department without relevant audits, in cases of companies that have losses over time, due to significant impairments of investments in subsidiaries/affiliated companies and/or impairments of debit balances, with the risk of loss of public revenue.

Specifically, it found that a company registered in the 2014 statement, an investment of €672 million. in a subsidiary company (100%) and in the same year recorded an impairment of the investment by €638m. or 95%. The company in 2017 reversed this impairment entirely.

The Audit Office invited the Tax Department to proceed with the investigation of impairments of investments and debit balances and, depending on the findings and, where necessary, to impose taxation/additional taxation, in accordance with the legislation and/or if necessary, to inform MOKAS.

Finally, it found an accumulation of arrears of revenues amounting to more than €2.5 billion, of which, an amount of €1 billion is considered precarious, mainly due to the delay in taking the necessary measures by the Department.