Posted on :Tuesday, August 5, 2014
Charles Savva, Managing Director of C. Savva & Associates, talks to Gold News about what exactly constitutes an ‘optimum’ tax regime, how this relates to Cyprus, and if EU tax harmonisation is truly a tangible prospect in the offing, or an impractical notion for as long as current conditions prevail.
Inspired by recent reports that Luxembourg’s tax regime is coming under siege, what are your thoughts regarding Cyprus and a so-called ‘optimum’ tax regime?
With regards to an ‘optimum’ tax regime in Cyprus, you are likely aware that Cyprus is consistently ranked by EU tax professionals as having the most attractive EU tax regime.
Cyprus has also steered clear of high profile negative publicity regarding alleged ‘tax sweeteners’ to companies like Apple, being offered by Ireland, Luxembourg and the Netherlands, which are currently being investigated by the EU.
Apple, for example, has a special deal in place with Dublin and pays no more than 2% tax on profits, at least 10% below what some other businesses have to in Ireland.
As a further example, EU MPs have also accused Starbucks of using a similar system in the Netherlands to help them slash their UK tax bill by claiming they had little or no taxable profit in Britain.
Cyprus also has a highly attractive network of Double Tax Treaties, and our Finance Ministry is constantly and aggressively negotiating new treaties. This is the backbone of our tax regime, and why Cyprus is on the map when it comes to EU financial centers.
After the banking crisis of 2013, we saw a concentrated effort by the Government and the professional services industry to push through even more attractive tax reforms.
Coupled with important, and necessary, improvements regarding transparency, I believe Cyprus strikes a good balance between what you would expect from a low tax jurisdiction, but also a reputable and transparent jurisdiction as well.
One can never say we are at the ‘optimum’ state, as we should continue to strive to make our tax regime even more competitive and attractive, and continue to negotiate attractive double tax treaties that are the cornerstone of what our industry offers.
And what are your thoughts regarding the possibility of tax harmonisation in light of EU advancements towards a single market?
In regards to tax harmonisation in light of EU advancements towards a single market, I do not expect there to be tangible developments during this decade, for various reasons.
The reality is that EU tax harmonisation, as it is currently being contemplated, results in an increase in tax rates across the entire board.
In my opinion, if you raise taxes, you destroy jobs. Until Europe abandons the Socialist Economic Model, I do not believe we will see material change and improvement. You do not need to be an economist to understand that the higher taxes are, the less businesses will invest and the less human resources they will employ.
We, here in Cyprus, know all too well that as foreign governments begin raising corporate taxes, many businesses migrate to more tax friendly jurisdictions, such as Cyprus. Just look at what Mr. Hollande has done in France; he managed to chase out many companies!
And surely there is a substantial contrast between various European tax regimes.
There is, and if Cyprus, Luxembourg, and Ireland – for example – being small countries, ‘agreed’ to harmonise their tax systems with the rest of Europe, then they will lose their competitiveness and ultimately all foreign business will leave such countries.
This would likely mean total economic collapse. If Cyprus, Luxembourg, and Ireland satisfy European demands on these issues, what will Europe do to compensate these countries? Will European companies come and fill the gap? Will German factories come and be established in Cyprus to give jobs to the Cypriots, jobs that they lost because they agreed to the French and German demands? I am highly skeptical.
If Europe was what it should be and there existed real solidarity among its members then yes, Cyprus, Luxembourg, and Ireland should coordinate their taxation with the rest of Europe. Sadly however, the European Union and solidarity exists only on paper, therefore why would such countries willingly destroy the competitiveness they’ve managed to establish?
For these reasons I cannot support tax harmonisation in the current EU environment; not until the well-off countries are willing to play on more equitable terms will Europe become united.
Source: Gold News