Filenews 21 October 2024 - by Vassos Vassiliou
Restaurants and other businesses in the Mackenzie area of Larnaca were cooking their tax returns and the Tax Department was turning a blind eye, in the sense that it accepted what was declared without control, while for events with well-known names of artists it seems that VAT or even Income Tax was not paid normally.
The above emerges from a Report of the Audit Office and characteristic of the situation that prevailed as well as the suspicions of tax evasion, is the report that next to the cash register a "black bag" with cash was found (during an audit) and presented as "personal").
Two years later, in the context of the monitoring of this company, at the time of printing the daily receipts from the cash register, at 4.45 in the morning, there was a power outage, only in the specific premises, and it was not possible to print them, so that no control could be exercised for tax purposes. For the company in question in the period 2010-2014 there were complaints and findings of the Tax Department for not issuing receipts. It is also indicated that the Tax Fraud Investigation Unit (NDT) should have been involved in the whole case.
The audit of the Audit Office covered 11 companies/businesses that manage the leisure and catering centers in the Mackenzie area and the observations concern a period of ten years.
The Auditor General, in his preface, states that in companies that organized artistic events, a large number of concerts (2022-2023) of well-known singers were identified, without the corresponding artists' tax and VAT returns.
A "relaxed" approach was also generally observed on the part of the Tax Department in relation to these companies. Indicatively, an example of a company (with 30 artistic events) is mentioned, for which, in the absence of data, the VAT was calculated by the Tax Department on an estimate with conservative assumptions (consciously in the calculation of the average participants) underestimating the company's tax debts.
According to information/data received from the Tax Department, the corresponding, significant amounts of artists' tax for the events organized were not identified.
It was also observed that during the years 2022 and 2023, musical events were held in other premises in the Mackenzie area, without any relevant payment of artist tax by any person/event organizer being detected.
In more detail, the following are also recorded in the Report:
-For the period 2011-2017, the Tax Department carried out an audit of this company, without the involvement and/or information of the Investigation and Tax Fraud Unit (NTFA), despite the data and serious weaknesses identified over time, according to the relevant indirect tax file. In this regard, it is reported that the MDFA, in a letter to the Larnaca District VAT Office, dated 9.7.2007, pointed out the need to carry out an audit on the basis of a complaint received for the non-issuance of receipts for collection and concealment of collections, and asked to be informed if during the audit there was a suspicion of committing a criminal offense. Also, a handwritten note by an officer of the Department, dated 15.6.2010, stated that no collection receipts are issued and there are serious suspicions of extensive concealment.
-According to a report by the official responsible for the inspection of the premises in the period 2011-2017 during an audit visit in the year 2012, actions were observed by the staff of the premises that referred to the concealment of receipts.
According to a report by the same official, the tax returns of the specific company were judged to be unsatisfactory, entries in the VAT account were found after the submission of the company's tax returns, the reconciliation of the tax returns with the VAT account was impossible, and the company issued computerized invoices, which seem to have been unreliable.
From relevant information received from the Department during the audit, the HDMI does not keep any file for the specific company, which worries the Audit Office, as from the above it appears that there were serious weaknesses and indications and/or evidence that could justify the involvement of the Unit in further investigation.
-According to the financial statements for the year 2018, a company (restaurant and café-bar) submitted the income tax returns for the years 2011 to 2021. The Department imposed taxes on the basis of the return, without any control and/or differentiation of the taxable income for the years 2011-2021, except for the year 2019, for which the imposition of taxation is pending.
The company in question in tax returns for the years 2012 to 2016, after deducting various expenses, resulted in significant losses. The total accumulated losses carried forward to 2017 amount to €1,041,532. The losses seem to have arisen due to the increased declared expenses, for which it seems that there was no relevant audit by the Department to prove that they are wholly and exclusively related to the taxable activities of the company.
-According to a report by a competent Officer of the Tax Department (12.3.2018), a company had not paid any amount of VAT for its receipts from tickets to 30 events organized at its premises. The officer made an estimate of the VAT due, based on data received from the Municipality of Larnaca for four out of a total of 30 events. For the remaining 26 events, there seems to have been no data in the Municipality of Larnaca.
-It was observed that the estimated calculation of the Tax Department was made for the benefit of an audited company, despite the data, weaknesses and indications of tax evasion. Specifically, according to the Officer's report, in the events for which there were two ticket prices (pre-sale tickets and on door tickets) the lowest price was taken into account.
In addition, the Department considered that the number of tickets sold, for all events for which there was no data from the Municipality of Larnaca was 572. An official of the Tax Department said that according to the director of the company, about 3.000 people had attended.
–For several companies, the audit showed that the Tax Department imposed taxes based on returns (up to and including 2020/2021) without adjustments or obvious audit documentation, even though previous audits had yielded significant additional taxes and highlighted weaknesses.
-No on-the-spot and/or other VAT audits were carried out, for the last six years, even where there were serious findings in previous audits (e.g. unreliable books, incomplete declarations, weaknesses in the sales system).
-According to information from the Deputy Ministry of Tourism, the 11 leisure and catering centers inspected in the Mackenzie area do not have a relevant operating license.
-Besides, according to data in the ED system, the majority of the companies under examination have submitted income declarations until the tax year 2020 and/or 2021. For most companies, the Department imposed taxes for a number of years, based on their declaration, i.e. without any adjustment of the taxable income and without any indication in the file that any relevant audit was carried out.
