Tag: legal services

Η αλήθεια για την Διαιτησία στην Κύπρο

Posted on | by Paschalis Paschali

Οι νέοι Κανονισμοί Πολιτικής Δικονομίας έχουν ήδη προκαλέσει αισθητή μείωση στην καταχώριση νέων αγωγών στα Δικαστήρια. Αυτό επειδή με τους νέους Κανονισμούς η προεργασία που απαιτείται να γίνει από τον διάδικο και τον δικηγόρο του, είτε για να εγερθεί μια αγωγή είτε για να καταχωριστεί μια υπεράσπιση, είναι περισσότερη από ότι ήταν με τους παλαιούς θεσμούς. Γενικότερα, με τους νέους Κανονισμούς, όλες οι δικονομικές διαδικασίες που συνθέτουν μια δικαστική διαδικασία απαιτούν περισσότερες ανθρωποώρες για να εκτελεστούν αλλά και πρέπει να γίνουν σε πολύ στενότερα χρονικά περιθώρια. Εκτιμώ ότι σύντομα θα δούμε αύξηση του κόστους παροχής δικηγορικών υπηρεσιών που αφορούν εκπροσώπηση στο Δικαστήριο αλλά αυτό είναι ένα άλλο, συνδεδεμένο μεν, ζήτημα. 

Ένεκα των πιο πάνω ριζικών αλλαγών, τα Δικαστήρια και η πολιτεία αναμένουν και προσδοκούν ότι οι Νέοι Κανονισμοί Πολιτικής Δικονομίας θα προκαλέσουν αύξηση στην εξωδικαστηριακή επίλυση διαφορών και εννοείται ότι η κύρια μέθοδος εξωδικαστηριακής επίλυσης διαφορών στην Κύπρο είναι η Διαιτησία.

Συνεπώς αποφάσισα να γράψω αυτό το άρθρο για να θέσω ορισμένα πράγματα στην ορθή τους βάση και διάσταση, ενόψει αυτής της αύξησης που αναμένεται στις Διαιτησίες στην Κύπρο, έτσι ώστε ο αναγνώστης να μπορεί να αποφασίσει εάν επιθυμεί να χρησιμοποιήσει τα Δικαστήρια ή την Διαιτησία για να επιλύσει την διαφορά του.

Εάν ο αναγνώστης έχει ήδη υπογράψει σύμβαση που περιέχει ρήτρα διαιτησίας, πάλι θα μπορεί να ενημερωθεί ως προς το πως να διαχειριστεί την διαιτησία έτσι ώστε να αυξήσει τις πιθανότητες η όλη διαδικασία να στεφθεί με επιτυχία.

Αρχίζω με το να πω ότι υπάρχουν αρκετές παρανοήσεις σε σχέση με την Διαιτησία και αυτό παρασύρει διαδίκους σε λανθασμένες αποφάσεις. Οι λανθασμένες αυτές αποφάσεις στο τέλος καταλήγουν να προκαλούν αυξημένο κόστος, σπατάλη χρόνου, ταλαιπωρία και εκνευρισμό στους διαδίκους.

Συγκριτικό Κόστος Διαιτησίας vs Δικαστηρίου

Η πρώτη παρανόηση είναι ότι η Διαιτησία είναι πιο οικονομική από πλευράς εξόδων από το Δικαστήριο. Αυτό ουσιαστικά δεν αληθεύει. Η Διαιτησία δεν είναι πιο οικονομική από το Δικαστήριο και εξηγώ. Είτε στο Δικαστήριο είτε στην Διαιτησία ο διάδικος θα εκπροσωπηθεί από Δικηγόρο, άρα αυτό το κόστος είναι σταθερό και στις δύο περιπτώσεις. Επίσης στην Διαιτησία όπως και στο Δικαστήριο η μαρτυρία είναι της ίδιας έκτασης, άλλα και οι ανθρωποώρες που θα δαπανήσει ο διάδικος για να προετοιμαστεί για να μαρτυρήσει πάλι είναι οι ίδιες.

Όμως στην Διαιτησία, οι διάδικοι θα πρέπει να πληρώσουν τον Διαιτητή ή τους Διαιτητές τους και σε ορισμένες περιπτώσεις θα πρέπει να πληρώσουν και ορισμένα άλλα κόστη όπως τους χώρους συνεδριάσεων και κόστη της Διαιτησίας. Στο Δικαστήριο πληρώνεται ένα αρχικό ποσό με την καταχώριση της αγωγής και μετέπειτα τα κόστη υπό μορφή χαρτοσήμων είναι πολύ χαμηλά. Ούτε και πληρώνεις τον Δικαστή με την ώρα και ούτε και πληρώνεις τον Δικαστή παραπάνω αναλόγως των επίδικων θεμάτων ή την έκταση των δικασίμων ή το χρόνο που θα του πάρει να συντάξει την οποιαδήποτε απόφαση. Στην Διαιτησία όμως αυτά τα επιπλέον κόστη υπάρχουν και αναλόγως της περίπτωσης μπορεί να αυξηθούν δραματικά. Επίσης, στην περίπτωση Δικαστηρίου η αίθουσα διεξαγωγής της δίκης είναι δωρεάν ενώ στην Διαιτησία υπάρχουν (κάποτε) το κόστος του χώρου της Διαιτησίας όπως και το κόστος της στενογράφου κτλ. που πληρώνονται από τους διάδικους αναλόγως της μεταξύ τους συμφωνίας και/ή του αποτελέσματος της Διαιτησίας.

Χρόνος Αποπεράτωσης

Δεύτερη άποψη που επικρατεί, και η οποία ελλοχεύει κινδύνους, είναι ότι η Διαιτησία είναι πιο γρήγορη από το Δικαστήριο. Για να κρίνουμε το εάν η Διαιτησία είναι πιο γρήγορη από το Δικαστήριο πρέπει να γνωρίζουμε από που προέκυψε η άποψη αυτή. Η άποψη αυτή προέκυψε από το ότι οι αγωγές ήταν τόσες πολλές που προηγουμένως χρειαζόταν 5 – 6 χρόνια μέχρι να έρθει η σειρά της αγωγής για ακρόαση και σύνολο 6 – 8 χρόνια μέχρι να εκδοθεί απόφαση. Ειδικότερα, αγωγές του Επαρχιακού Δικαστηρίου Λευκωσίας που ήταν και το πιο βαρυφορτωμένο όντως έπαιρναν τόσο καιρό και πολλές φορές ακόμη περισσότερο. Σε άλλα Επαρχιακά Δικαστήρια, όπως αυτό της Πάφου ή της Αμμοχώστου, η περίοδος κυμαίνετο στα τουλάχιστο 4 – 5 έτη. Δηλαδή ήταν ο όγκος των αγωγών που κατέστησε την Διαιτησία πιο γρήγορη στα μάτια των διαδίκων.

Αυτό όμως με τον χρόνο, δηλαδή σε βάθος 4 – 6 ετών, ευελπιστούμε ότι θα αλλάξει επειδή οι αγωγές, ένεκα των Νέων Κανονισμών Πολιτικής Δικονομίας (τουλάχιστο αυτό ήταν το όλο σκεπτικό πίσω από την μεταρρύθμιση), θα μειωθούν και άρα θα δίδεται ημερομηνία ακρόασης πολύ πιο γρήγορα. Υπάρχουν ορισμένες πολύ αισιόδοξες θα έλεγα προβλέψεις για εκκίνηση της ακρόασης εντός 2 ετών. Δεν νομίζω να κινηθεί τόσο γοργά η διαδικασία αλλά θεωρώ ότι ένας χρόνος εκδίκασης εντός 2.5 – 3.5 ετών από την καταχώριση θα είναι εφικτός στα επόμενα 4 – 6 χρόνια. Αυτός είναι πάλι αρκετός καιρός αλλά είναι πολύ πιο λίγος χρόνος από ότι χρειαζόταν προηγουμένως.  

Υπάρχει αλήθεια στην άποψη ότι η Διαιτησία είναι πιο γρήγορη από το Δικαστήριο αλλά  αυτό ισχύει μόνο εάν η Διαιτησία όντως κινείται με την δέουσα σπουδή. Μια Διαιτησία όπου ο Διαιτητής δεν «κουμαντάρει» επαρκώς την διαδικασία ή τους διαδίκους ή όπου Διαιτητής, δικηγόροι και διάδικοι δεν έχουν την δυνατότητα να δικάσουν συνεχόμενα (ή δεν επιθυμούν για τον ένα ή τον άλλο λόγο να την προχωρήσουν γρήγορα) μπορεί να πάρει αρκετά πιο πολλά έτη παρά ότι χρειάζεται και δεν είναι καθόλου δύσκολο να φθάσει τα 3 – 4 έτη.

Επίσης, το εάν μια Διαιτησία θα ολοκληρωθεί σε ένα, δύο, τρία ή τέσσερα και βάλε έτη είναι κάτι που εξαρτάτε όχι από τον θεσμό της Διαιτησίας αλλά κυρίως από τον Διαιτητή, τους δικηγόρους που την χειρίζονται αλλά και πιο σημαντικά, από τους ίδιους του διαδίκους. Η οποιαδήποτε καθυστέρηση, αναλόγως της περίπτωσης, είναι από τους προαναφερόμενους τρεις συμμετέχοντες που θα προκληθεί.

Εννοείται ότι σε ορισμένες περιπτώσεις υπάρχουν πολύπλοκες διαιτησίες με δικόγραφα που απαριθμούν εκατοντάδες σελίδες και εκατοντάδες τεκμήρια. Αυτές όντως είναι δικαιολογημένο να διαρκέσουν 2 – 4 έτη. Το πρόβλημα είναι όταν διαιτησίες οι οποίες δεν είναι ιδιαίτερα πολύπλοκες καταλήγουν να διαρκούν το ίδιο με τις πολύπλοκες.

Τελεσιδικία της Διαδικασίας

Τρίτη παρανόηση είναι ότι η απόφαση της Διαιτησίας είναι δεσμευτική για τα μέρη. Νομικά η απόφαση της Διαιτησίας είναι όντως δεσμευτική για τα μέρη αλλά αυτό δεν σημαίνει ότι ο διάδικος που έχασε στην Διαιτησία δεν έχει δικαίωμα να ενστεί στην εγγραφή της.

Η έκδοση διαιτητικής απόφασης δεν αποτελεί τελεσίδικο μέτρο. Σε αντίθεση με απόφαση δικαστηρίου ή τελεσιδικία στην περίπτωση Διαιτητικής απόφασης επέρχετε με την αναγνώριση και εγγραφή της σε αρμόδιο Δικαστήριο. Συνεπώς ένας επιτυχών διάδικος σε Διαιτησία, εάν ο αποτυχών διάδικος δεν σεβαστεί την απόφαση του Διαιτητή, θα αναγκαστεί να αιτηθεί στο Δικαστήριο για να την εγγράψει για μπορέσει να την εκτελέσει. Επίσης, ο αποτυχών διάδικος στην Διαιτησία θα έχει αναφαίρετο δικαίωμα να καταχωρίσει ένσταση στην αίτηση για εγγραφή και να αιτηθεί την ακύρωση της απόφασης του Διαιτητή για διάφορους νομικούς και πραγματικούς λόγους που επιτρέπει η νομολογία.

Συνεπώς θα έλεγα ότι η ορθή διάσταση του όλου πράγματος είναι ότι ναι μεν η απόφαση του Διαιτητή είναι δεσμευτική για τα μέρη στο ότι δεν μπορούν να την εφεσιβάλουν στον ίδιο ή σε άλλο Διαιτητή αλλά δεν είναι άμεσα εκτελέσιμη όπως είναι η απόφαση του Δικαστηρίου. Δεν είναι λίγες οι περιπτώσεις όπου το Δικαστήριο έχει ακυρώσει αποφάσεις Διαιτητών με αποτέλεσμα η νίκη στην Διαιτησία να ήταν άνευ σημασίας. Άρα μέσω του Δικαστηρίου απευθείας, αποφεύγεται αυτός ο κίνδυνος της μη εγγραφής της απόφασης του Διαιτητή. Αυτό το αναφέρω επειδή πολλή διάδικοι θεωρούν ότι ήρθαν στο τέλος του δρόμου με την έκδοση της απόφασης του Διαιτητή υπέρ τους και μετά αντιλαμβάνονται ότι κέρδισαν την πιο κύρια μάχη αλλά υπάρχουν και άλλες μάχες (και άλλα έξοδα) μέχρι να τελειώσει ο «πόλεμος».

Πρόσθετες Οικονομικές Πτυχές

Τέταρτο ζήτημα που οπωσδήποτε χρίζει αναφοράς και επισήμανσης είναι το γεγονός ότι η Διαιτησία εμπεριέχει ένα κίνδυνο που αφορά την πληρωμή του Διαιτητή. Ο διάδικος ο οποίος επιθυμεί να προκαλέσει καθυστερήσει ή να αποφύγει την πληρωμή ή που ουσιαστικά δεν θέλει να λυθεί η διαφορά επειδή θεωρεί ότι τον συμφέρει να παραμείνουν τα πράγματα όπως έχουν έχει την ευχέρεια να λειτουργήσει ανέντιμα και να μην πληρώνει το δικό του μερίδιο των εξόδων του Διαιτητή καθυστερώντας έτσι την διαδικασία.

Δεν είναι λίγες φορές που ο Διαιτητής ετοιμάζει την απόφαση του και ζητά από τους διαδίκους να πληρώσουν το τιμολόγιο του για τους την αποστείλει και ο διάδικος ο οποίος θεωρεί ότι θα χάσει ή ο οποίος δεν του συμφέρει η έκδοση της απόφασης αρνείται να καταβάλει το δικό του μισό των εξόδων. Το αποτέλεσμα είναι ότι πληρώνει όλο το κόστος του Διαιτητή ο διάδικος που επιθυμεί να εκδοθεί η απόφαση και μετά τρέχει για να εγγράψει την απόφαση του Διαιτητή στο Δικαστήριο έτσι ώστε εισπράξει αυτό το κόστος μαζί με το ποσό που επιδίκασε υπέρ του ο Διαιτητής. Και στο Δικαστήριο μπορεί να δημιουργήσει κανείς καθυστέρηση αλλά τουλάχιστο δεν επιβαρύνεται ή άλλη πλευρά με το κόστος έκδοσης της απόφασης.

Υπάρχουν και ορισμένες περιπτώσεις όπου διάδικος πλήρωσε όλο το κόστος του Διαιτητή και μετά απέτυχε στην εγγραφή της απόφασης (για τον ένα ή τον άλλο λόγο) και άρα στην ουσία πλήρωσε για μια απόφαση παντελώς άχρηστη.

Ο Διαιτητής οφείλει να μειώσει αυτό το κίνδυνο στο ελάχιστο με το να εκδίδει συχνά ενδιάμεσα τιμολόγια έτσι ώστε το τελευταίο τιμολόγιο, αυτό της έκδοσης της απόφασης, να μην είναι φορτωμένο με προηγούμενη ατιμολόγητη εργασία. Αυτό όμως δεν το έχουν πάντα κατά νου όλοι.  

Η σημασία των ορθών επιλογών και αποφάσεων

Τα προαναφερόμενα σκοπό έχουν την παράθεση της ορθής διάστασης και δεν διαφοροποιούν και δεν αλλοιώνουν το ότι η Διαιτησία ήταν, και παραμένει, εξαιρετική μέθοδος εξωδικαστηριακής επίλυσης διαφορών, για τις κατάλληλες όμως περιπτώσεις και νοουμένου ότι παρθεί μια σειρά ορθών και σοφών αποφάσεων, οι οποίες θα θέσουν τα θεμέλια για μια γρήγορη διαδικασία διαιτησίας η οποία με την σειρά της θα καταλήξει στην έκδοση μιας εγγράψιμης απόφασης.

Η πρώτη απόφαση που πρέπει να παρθεί, και ίσως η πιο σημαντική, είναι ως προς το πρόσωπο του Διαιτητή.

Ο Διαιτητής πρωτίστως οφείλει να έχει χρόνο να φέρει την Διαιτησία εις πέρας γρήγορα. Ένας Διαιτητής μπορεί να έχει χρόνο σε μια περίοδο και σε άλλη να μην έχει επειδή ανάλαβε και άλλες εργασίες ή επειδή είναι επαγγελματίας (δικηγόρος, αρχιτέκτονας, πολιτικός μηχανικός, επιμετρητής ποσοτήτων κλπ.) και έχει και άλλες επαγγελματικές υποχρεώσεις. Άρα οι διάδικοι θα πρέπει εξ αρχής, πριν την επιλογή του Διαιτητή, να κάνουν μια συζήτηση μαζί του για να διαπιστώσουν ότι την συγκεκριμένη περίοδο έχει τον χρόνο να προωθήσει την διαδικασία με την δέουσα σπουδή.

Η δεύτερη απόφαση που πρέπει να παρθεί και η οποία πάλι αφορά το πρόσωπο του Διαιτητή είναι το κατά πόσο ο συγκεκριμένος Διαιτητής είναι ο πιο κατάλληλος για να επιλύσει την συγκεκριμένη διαφορά και να καταλήξει σε μια εγγράψιμη απόφαση.

Παραδείγματος χάριν, μπορεί η διαφορά να αφορά ένα οικοδομικό συμβόλαιο και τα μέρη να συγκλίνουν στην επιλογή ενός Διαιτητή ο οποίος είναι επαγγελματίας στον κατασκευαστικό τομέα. Όμως εάν πέραν των τεχνικών ζητημάτων η διαφορά εμπεριέχει και διαφωνία ως προς σωρεία νομικών ζητημάτων τότε μπορεί ο εν λόγω επαγγελματίας του κατασκευαστικού τομέα να μην είναι ο πιο κατάλληλος για να την επιλύσει. Ένας αρχιτέκτονας σίγουρα μπορεί να κρίνει καλύτερα από ένα δικηγόρο εάν κάτι συνιστά κακοτεχνία με βάση τα σχέδια ή εάν η επιλογή ενός υλικού ήταν ή δεν ήταν η κατάλληλη αλλά σίγουρα θα δυσκολευτεί να αποφασίσει νομικά ζητήματα όπως εάν το τάδε τεκμήριο αποτελεί αποδεκτή μαρτυρία ή την νομική ερμηνεία ενός συγκεκριμένου όρου ή τις νομικές προεκτάσεις μιας σειράς γεγονότων. Πάλι αυτός ο επαγγελματίας θα αποφασίσει τα νομικά αυτά ζητήματα αλλά θα του πάρει πολύ περισσότερο χρόνο (τον οποίο βεβαίως θα χρεώσει) από αυτό που θα έπαιρνε σε ένα δικηγόρο και επιπλέον είναι αυξημένες οι πιθανότητες να προβεί σε κάποιο νομικό σφάλμα το οποίο να επηρεάσει το κύρος της τελικής απόφασης.

Το ίδιο όμως μπορεί να λεχθεί και για ένα δικηγόρο ο οποίος αναλαμβάνει μια διαιτησία η οποία ναι μεν περιέχει διαφωνία σε μερικά νομικά ζητήματα αλλά η μεγάλη διαφωνία έγκειται ως προς τα τεχνικά ζητήματα. Βεβαίως και ο δικηγόρος μπορεί να αποφασίσει το και τεχνικό κομμάτι αφού ακούσει την μαρτυρία των διαδίκων και των εμπειρογνωμόνων τους αλλά ενδεχομένως να ήταν καλύτερα οι διάδικοι να είχαν αποταθεί σε επαγγελματία του τομέα της διαφοράς αφού η διαφορά τους ήταν παραπάνω επί τεχνικών σημείων παρά επί νομικών.

Για να διασφαλίσουν μια γρήγορη διαδικασία καθώς και την έκδοση μιας εγγράψιμης απόφασης οι διάδικοι οφείλουν να αναλογιστούν την ίδια την φύση της διαφοράς τους. Με το να αποταθούν σε δικηγόρο μεγιστοποιούνται οι πιθανότητες η απόφαση να είναι εν τέλη εγγράψιμη και να μην ακυρωθεί ένεκα κάποιου νομικού παραστρατήματος. Συνεπώς οι διάδικοι θα πρέπει να αποφασίσουν εάν θα αρκεστούν στο να πείσουν τον Διαιτητή που είναι νομικός επί τεχνικών ζητημάτων μέσω της παράθεσης της μαρτυρίας τους μόνο ή εάν θα ορίσουν και ένα τεχνικό τον οποίο ο Διαιτητής θα μπορεί να συμβουλεύεται για να τον βοηθήσει να αποφασίσει περίπλοκα τεχνικά ζητήματα, μαζί με τα νομικά.

Το αντίστροφο μπορεί και να γίνει σε περίπτωση που οι διάδικοι κρίνουν ότι τα τεχνικά ζητήματα είναι πιο καίρια ή πιο πολλά από τα νομικά. Μπορούν είτε να αναλάβουν το ρίσκο ο καθένας να πείσει τον Διαιτητή ο οποίος είναι τεχνικός (και όχι νομικός) επί των νομικών ζητημάτων ή μπορούν να ελαχιστοποιήσουν το ρίσκο μιας λανθασμένης από νομικής άποψης απόφασης με να συμφωνήσουν να ορίσουν ένα δικηγόρο τον οποίο ο Διαιτητής θα συμβουλεύεται για να τον βοηθήσει να αποφασίσει περίπλοκα νομικά ζητήματα.

Αυτά τα ρίσκα μειώνονται σε μεγάλο βαθμό όπου το επίδικο ποσό είναι αρκετά μεγάλο και άρα δικαιολογεί την παραπομπή της διαφοράς σε τρείς διαιτητές, δηλαδή και τεχνικούς και νομικούς μαζί (εάν είναι τέτοια η φύση της διαφοράς).

Δεν πρέπει να ξεχνούμε ότι η επιλογή του ποιος ή ποιοι θα αποφασίσουν την διαφορά είναι ένα από τα κύρια προτερήματα της Διαιτησίας καθότι στο Δικαστήριο δεν μπορείς να διαλέξεις δικαστή. Η ουσία το όλου πράγματος όμως έγκειται στο ότι οι διάδικοι οφείλουν να αναγνωρίσουν την φύση της διαφοράς τους και να λάβουν τα κατάλληλα μέτρα και/ή να πάρουν ορθές και λογικές αποφάσεις έτσι ώστε να μεγιστοποιήσουν τις πιθανότητες η διαδικασία  να αρχίσει και να ολοκληρωθεί με την δέουσα σπουδή και να οδηγήσει στην έκδοση μιας ορθής, δίκαιης και πάνω από όλα εγγράψιμης διαιτητικής απόφασης.

Μετέπειτα, η επόμενη σημαντική απόφαση που πρέπει να λάβουν οι διάδικοι είναι ποιος δικηγόρος θα τους εκπροσωπήσει στην Διαιτησία. Αυτό έχει να κάνει τόσο με τις γνώσεις του δικηγόρου σε σχέση με την Διαιτησία και την εγγραφή και ακύρωση διαιτητικών αποφάσεων αλλά και με τον χρόνο που έχει να διαθέσει ο εν λόγω δικηγόρος για να δικάσει την Διαιτησία. 

Η Διαιτησία επιτρέπει κάτι το οποίο δεν επιτρέπει το βαρυφορτωμένο πρόγραμμα των Δικαστηρίων, το οποίο δεν είναι άλλο από την συνεχιζόμενη εκδίκαση. Αυτός είναι και ένας από τους λόγους που μπορεί να είναι πολύ πιο γρήγορη από το Δικαστήριο. Συνεπώς εάν τα μέρη επέλεξαν ένα Διαιτητή ο οποίος έχει τον απαιτούμενο χρόνο και μετά επέλεξαν και δικηγόρους οι οποίοι μπορούν να δικάσουν συνεχόμενα, παραδείγματος χάριν από Δευτέρα μέχρι Παρασκευή ή για δύο οι τρείς συνεχόμενες εβδομάδες (εάν η διαφορά το απαιτεί) τότε η Διαιτησία θα κινηθεί πολύ γρήγορα και θα λήξει αισίως.

Άρα είναι εμφανές ότι οι διάδικοι έχουν πολλά να σκεφτούν και πολλά να αποφασίσουν, τα οποία θα παίξουν σημαντικό ρόλο και θα κρίνουν το κατά πόσο η διαδικασία διαιτησίας θα επιτελέσει τον σκοπό της.

Θεωρώ δόκιμο να δώσω ένα παράδειγμα μιας επιτυχούς διαδικασίας διαιτησίας. Πρόσφατα εκπροσωπήσαμε σε διαδικασία διαιτησίας ένα ημικρατικό οργανισμό. Αντίδικος ήταν μια μεγάλη εταιρεία η οποία ήταν στρατηγικός συνεργάτης του ημικρατικού αυτού οργανισμού.

Προέκυψε διαφορά στην μεταξύ τους σύμβαση και ακριβώς επειδή και οι δύο διάδικοι ήταν σοβαροί και ήθελαν να επιλύσουν την διαφορά τους για να μπορεί να συνεχίσει η επαγγελματική τους σχέση, επέλεξαν από μόνοι τους να χρησιμοποιήσουν τον θεσμό της Διαιτησίας. Η διαφορά ήταν ουσιαστικά νομική αλλά ο Διαιτητής θα έπρεπε να ακούσει και μαρτυρία από εμπειρογνώμονες.

Για Διαιτητή τους επέλεξαν ένα έγκριτο νομικό. Φυσικά, δεν τον επέλεξαν απλά και μόνο επειδή ήταν έγκριτος νομικός. Τον επέλεξαν και για τις νομικές του γνώσεις φυσικά, και για το έντιμο του χαρακτήρα του αλλά και ένεκα του ότι είχε το χρόνο να φέρει την διαιτησία εις πέρας με την δέουσα σπουδή. Το ύψος της διαφοράς ήταν τέτοιο που επέτρεπε την δαπάνη των μερικών εκατοντάδων ευρώ ανά ώρα για ένα Διαιτητή ο οποίος είχε το κύρος, τις γνώσεις, την ικανότητα αλλά και τον χρόνο να φέρει εις πέρας την διαδικασία Διαιτησίας.

Επιπλέον, η νομική κατάρτιση του Διαιτητή ήταν τέτοια που ελαχιστοποιούσε την πιθανότητα να πετύχει η οποιαδήποτε ένσταση στην μετέπειτα αίτηση για εγγραφή της απόφασης του. Για τους πιο πάνω λόγους οι διάδικοι αποτάθηκαν από κοινού στον συγκεκριμένο Διαιτητή. Δηλαδή οι διάδικοι ήδη από την αρχή, συνεργάστηκαν για την επιλογή του Διαιτητή τους χωρίς παρατράγουδα και αχρείαστη καθυστέρηση.

Επίσης, οι διάδικοι επέλεξαν να τους εκπροσωπήσουν δικηγόροι που ήταν στο ίδιο μήκος κύματος με τις επιθυμίες και με το συμφέρον των πελατών τους, με την κύρια επιθυμία να είναι να λυθεί η διαφορά δίκαια αλλά και γρήγορα έτσι ώστε να προχωρήσουν οι διάδικοι παρακάτω.

Οι διάδικοι, ακριβώς επειδή ήταν σοβαροί οργανισμοί, αναγνώριζαν ότι είναι πολύ καλύτερα για τους ίδιους να συνεργάζονται παρά να αντιδικούν. Ήθελαν συνεπώς η διαφορά τους να επιλυθεί το συντομότερο δυνατό. Για αυτό τον λόγο οι ακροάσεις της Διαιτησίας ήταν σχεδόν συνεχιζόμενες. Δηλαδή και ο Διαιτητής και οι δικηγόροι και οι μάρτυρες διέθεσαν συνεχόμενες ημερομηνίες από το πρόγραμμα τους για να δικαστεί η Διαιτησία γρήγορα (όπως προανέφερα, αυτή η δυνατότητα δεν υπάρχει στο Δικαστήριο το οποίο πολύ δύσκολα θα βρει τον χρόνο να δικάζει μόνο μια αγωγή για μια η δύο εβδομάδες συνεχόμενα).

Οι συνεχιζόμενες ακροάσεις έχουν και το επιπρόσθετο πλεονέκτημα του ότι ο μάρτυρας ετοιμάζεται μια φορά, μαρτυρεί και τελειώνει. Δεν χρειάζεται να προετοιμαστεί μια φορά για κυρίως εξέταση και μια ή δύο φορές για αντεξέταση σε κατοπινό διάστημα που στο Δικαστήριο μπορεί να είναι και μήνες μακριά. Αυτό εξοικονομεί του εκάστοτε διαδίκου και χρόνο και χρήμα αφού δεν χρειάζεται να προετοιμάσει τους μάρτυρες τους πάνω από μια φορά. Εάν οι ακροάσεις είναι η μια μακριά από την άλλη τότε θα πρέπει να ξαναγίνει η προεργασία προετοιμασίας του μάρτυρα επειδή δεν είναι εύκολο να θυμάται κανείς τι λέχθηκε πριν ένα ή δύο μήνες, ειδικά σε περίπλοκες υποθέσεις. Άρα με τις συνεχιζόμενες ακροάσεις οι διάδικοι γλυτώνουν ανθρωποώρες που στο τέλος της ημέρας αποτιμούνται σε χρόνο και χρήμα.

Επανερχόμενος στην εν λόγω Διαιτησία, η όλη διαδικασία διήρκησε λίγο περισσότερο από ένα χρόνο από την καταχώρηση των δικογράφων μέχρι και την έκδοση της απόφασης. Έδωσαν μαρτυρία διάφοροι μάρτυρες συμπεριλαμβανομένων και εμπειρογνωμόνων. Ο Διαιτητής εν τέλει δικαίωσε τον ημικρατικό οργανισμό. Ουσιαστικά οι εκεί διάδικοι έλυσαν την διαφορά τους σε λίγο πάνω από ένα έτος ενώ εάν καταχωρούσαν αγωγή στο Επαρχιακό Δικαστήριο Λευκωσίας η πιο γρήγορη ημερομηνία ακρόασης θα ήταν κάπου στο 2027 με 2028.

Οι πιο πάνω διάδικοι, ακριβώς επειδή αναγνώριζαν ότι μέσω της Διαιτησίας θα είχαν απόφαση πολύ πιο γρήγορα από ότι εάν έλυναν την διαφορά τους στο Δικαστήριο, και επειδή προβήκαν σε μια ορθή επιλογή διαιτητή έθεσαν τις βάσεις επιτυχίας της διαδικασίας μέσω των αρχικών τους επιλογών και αποφάσεων.

Άρα η θετική κατάληξη της διαδικασίας (δηλαδή χωρίς καθυστερήσεις, χωρίς αχρείαστη ταλαιπωρία και χωρίς σπατάλη χρόνου και χρήματος) δεν ήρθε κατά τύχη αλλά ως αποτέλεσμα μιας σειράς ορθών και ενημερωμένων αποφάσεων που έθεσαν τα ορθά θεμέλια για την όλη διαδικασία.

Ευελπιστώ ότι διαβάζοντας το άρθρο αυτό, το οποίο έχει ως σκοπό να θέσει ορισμένα πράγματα που αφορούν τον θεσμό της Διαιτησία στην ορθή τους βάση και διάσταση,  ο αναγνώστης στο τέλος της ανάγνωσης, να είναι σε καλύτερη θέση από ότι ήταν προηγουμένως για να λάβει πιο ενημερωμένες, και άρα πιο ορθές αποφάσεις, για το πως να επιλύσει καλύτερα την διαφορά του, είτε αποφασίσει να την επιλύσει μέσω του θεσμού της Διαιτησίας είτε μέσω των Δικαστηρίων. .

Για περισσότερες πληροφορίες ή εάν έχετε ερωτήσεις που άπτονται του περιεχόμενου αυτού του άρθρου παρακαλώ επικοινωνήστε με τον κ. Θεόδουλο Δημητρίου.

Για να λαμβάνεται άμεση ενημέρωση για τα άρθρα των δικηγόρων του Ιωαννίδης Δημητρίου Δ.Ε.Π.Ε μπορείτε να ακολουθήσετε το Ιωαννίδης Δημητρίου Δ.Ε.Π.Ε στο LinkedIn.

Illegal purpose contracts: Can they ever be enforced under Cyprus Law? – Understanding the “illegality defence”

Posted on | by Paschalis Paschali

“No Court will lend its aid to a man who founds his cause of action upon an immoral or illegal act” said Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp 341, and marked the Cyprus legal framework around illegality in contracts up to the present date. The principle was redefined in the case of Tinsley v Millingan [1994] 1 AC 340 where the so called “reliance test” was established, essentially providing that if a Claimant needs to rely upon an illegal act in order to advance his claim, then that claim should be rejected. Also known as the common law principle of “ex turpi causa non oritur actio” (meaning “no action can arise from an illegal act”), this maxim usually presents itself as the “defence of illegality”, which is invoked by Defendants so as to argue that the claim against them should not succeed as it is based upon an illegal act.

The case of Christodoulou and others v Antonius H.F.M. Vraets, Civ.Appeal No. 329/2006, is a good example of how Cyprus Courts react to the invocation of this defence. In that case, the Claimant, claimed that he was entitled to the recovery of the amount of $856.000 which he paid as part of an agreement between himself and Defendants 1 and 2. The agreement considered the purchase of rough diamonds from Africa, which would subsequently be sold to the black market and would be exported from Angola to Belgium for processing. All three parties would divide the proceeds from the sale of the processed diamonds.  The Claimant brought an action against both Defendants, as after the payment of the amount above he received no percentage from the sale of the processed diamonds. Defendant 1 attempted to rely on the “illegality defence” and subsequently alleged that since the agreement between the parties was carried out for an illegal purpose, the Court could not “lend its aid” to a man whose cause of action was based on an illegal contract and therefore the Claimant was not entitled to recover his money. The Cyprus Court of Appeal, based their reasoning on the cases of Holman v Johnson and Tinsley v Millingan above and upheld the Defendant’s argument. It was essentially held that since the Claimant was aware of and participated in the illegality of the transaction, he was not entitled to the recovery of his money.

The case of Andronikou v Mavropoulou and another, Civ. Appeal No. 14/2014 is also relevant. In this case, the Claimant brought an action against the Defendant and his daughter for fraud, false representation, deceit and unjust enrichment. The Claimant contended that she had made an agreement with the Defendant, that she would pay him an amount of money, which the Defendant subsequently would pay to certain “key officials” of a developing company so as to persuade them to buy the Claimant’s land. The Claimant’s land was indeed acquired by the developing company but the Defendant took the money and placed them to his daughter’s account instead. The first instance court held that the Claimant was entitled to the return of her money. The Defendant appealed. The Court of Appeal’s decision was not unanimous. It was held by majority that it was evident that the agreement between the parties was signed for an illegal purpose, namely bribery. The Court could not therefore “lend its aid” to the Claimant and hence the latter was not entitled to the recovery of her money.

Remarkably enough, the Court of Appeal accepted in both cases cited above that the Claimant and the Defendants were “in pari delicto”, meaning “in equal fault” regarding the signing of the illegal contract. Yet despite the above finding, the Court held that the Claimants were not entitled to the recovery of their property, the inevitable result of their decision being that the property remained to the Defendants’ possession.

The following questions subsequently arise: If it is accepted that both parties have contributed equally to the illegality of the contract, why is it acceptable for one party to retain the property and not for the other? Why do we consider it unacceptable for the Claimant to recover his property because of his misconduct, while, the Defendant who is culpable of the same misconduct, is often allowed to keep the property?

Although it is evident that this strict approach aims at encouraging morality and ethos in every-day transactions, it is doubtful whether it represents the common sense of justice given the “paradox” results that is sometimes creates.

The UK Courts did not fail to notice the “anomalies” created by the strict application of the “illegality defence” and completely changed their approach as to its application in 2016 with the adjudication of the case of Patel v Mirza [2016] UKSC 42. The Claimant in this case transferred an amount of money to the Defendant intending the latter to trade in shares in the Royal Bank of Scotland using insider information that he anticipated receiving. Neither the insider information, nor the purchase of shares ever materialized. When the Claimant brought an action against the Defendant, the Defendant attempted to rely on the “illegality defence” and argued that the Claimant could not recover his money as trading by using insider information is illegal. The Supreme Court held that the Claimant was entitled to the recovery of his money and that in fact, there is no reason for a party who manages to prove that he is capable of recovering his property on the basis of unjust enrichment, not to do so, just because the monies were paid to the Defendant for an illegal purpose. Additionally, the Supreme Court, held that in applying the “illegality defence” the following three considerations need to be taken into account: a)what is the purpose of the law that has been infringed and whether rejecting the claim would enhance that purpose b) any other relevant public policy on which the denial of the claim may have an impact c) whether the denial of the claim would be a proportionate response to the illegality.

The approach adopted in of Patel v Mirza demonstrates a shift from a rigid approach to a more flexible one which takes into consideration the peripheral circumstances of the case and is capable of producing more reasonable and pragmatic results.

Although the case of Patel v Mirza has been invoked in several first instance court decisions in Cyprus, to some of which, the invocation was indeed successful, it is apparent that the dominant approach regarding the  application of the illegality defence remains the one established by Holman v Johnson and Tinsley v Millingan. Of course, the fact that the Cyprus Court of Appeal has not yet been given the chance to apply or make holistic reference to the case of Patel v Mirza plays an important role to the reproduction of the strict approach established by the “reliance test”.

What is certainly inarguable is that the case of Patel v Mirza which has shown the “way forward” to a more liberal approach has not been overlooked by the Cyprus Courts. What remains to be seen is how this approach will affect and re-shape the application of the “illegality defence” in Cyprus law.

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Evaluating EU Sanctions Policy: Insights from Article 263 of the Treaty on the Functioning of the European Union

Posted on | by Paschalis Paschali

Introduction

Article 263 of the Treaty on the Functioning of the European Union (TFEU) stands as a pillar of judicial oversight within the EU, providing a mechanism for private parties to challenge the legality of EU acts and serves as a vital instrument for ensuring legal integrity, accountability, transparency and the protection of fundamental rights.

Through the recent judgments of the General Court of the European Union on the cases of Russian oligarchs, Petr Aven and Mikhail Fridman, who successfully challenged their inclusion on the EU sanctions list, we examine its scope, standing requirements, and grounds for annulment of EU acts and explore the implications of Article 263 in the context of EU sanctions policy.

Bringing an action for annulment under Article 263

The EU Courts have jurisdiction to review the legality of acts of EU institutions (European Council, European Parliament, Commission, European Central Bank and other institutions, bodies, offices or agencies of the EU). Embedded within Article 263 of the TFEU lies the essence of judicial review, affording third parties the opportunity to contest the legality of EU legislative acts and acts intended to produce legal effects vis-à-vis such third parties.

Distinguishing between privileged applicants (EU countries, the European Parliament, the Council and the Commission), semi-privileged applicants (the Court of Auditors, the ECB and the Committee of the Regions), and non-privileged applicants (legal and natural persons amongst others), Article 263 limits non-privileged applicants’ standing to those acts that affect them particularly and requires private parties to satisfy stringent standing requirements and to demonstrate that the reviewable act is either addressed to them or is of direct and individual concern to them.

An action for annulment must be initiated within 2 months of the act’s publication or of its notification to the applicant. If the act is not published or notified, the deadline runs from the point at which the applicant gained knowledge about it by other means.

Article 263 TFEU enumerates grounds for annulling EU acts, including lack of competence, procedural irregularities, infringement of EU treaties or any rule of law relating to the application of the EU treaties, and misuse of powers.

If the applicant is successful, the General Court may declare the contested act void, usually from its entry into force. The General Court’s judgment is subject to appeal before the ECJ, on points of law only.

The Case of Aven and Fridman: Unraveling the Implications

In a watershed moment, the recent judgments by the General Court in Cases T-301/22, Aven v Council and T-304/22, Fridman v Council dealt a significant blow to the EU’s sanctions regime against Moscow.

Following Russia’s invasion of Ukraine, the Council of the European Union adopted acts placing Petr Aven and Mikhail Fridman, major shareholders of Alfa Group, a conglomerate including one of Russia’s major banks, on the EU sanctions list. The Council alleged their association with sanctioned individuals, including Vladimir Putin himself, and support for actions and policies undermining Ukraine’s sovereignty, leading to the freezing of their funds and economic resources.

In order to justify the inclusion of Fridman’s and Aven’s names on the disputed sanctions lists, the Council relied on articles published in the media and on several websites which concerned the control of Alfa Group by the applicants and the financing of a charity project run by Mr. Putin’s daughter and on an open letter signed by Russian and American journalists, intellectuals, activists and historians, in which the authors protested against the invitation of the applicants to the Atlantic Council’s headquarters in Washington.

The General Court upheld the applications filed by Fridman and Aven, concluding that the reasons provided in the initial acts lacked sufficient substantiation, rendering the inclusion of Aven and Fridman in the sanctions lists unjustified. While acknowledging a potential association between Aven, Fridman and Vladimir Putin or his circle, the Court asserted that the evidence relied upon, does not demonstrate their involvement in actions undermining Ukraine’s territorial integrity, sovereignty, or independence and found no proof of their provision of material or financial support to Russian decision-makers responsible for Crimea’s annexation or Ukraine’s destabilization, nor any benefits received from such decision-makers.

The successful challenge by Petr Aven and Mikhail Fridman not only exposed flaws in the EU’s sanctions mechanism but also shed light on the hasty assembly of evidence, often relying on questionable sources such as press coverage.

The judgment’s implications extend beyond the realm of legal scrutiny, sparking criticism of the EU’s sanctions policy and its effectiveness in addressing geopolitical challenges. Some argue that the judgment signifies a collapse of European sanctions policy and a declaration of impunity for acts undermining international stability. The designation of the judgment’s delivery as a ‘Day of Oligarch Triumph’ underscores the gravity of its consequences.

Conclusion

As the dust settles, questions loom over the future of EU sanctions policy and the role of judicial oversight in upholding accountability. The judgment serves as a reminder of the need for transparency, robust evidence, and adherence to legal standards in EU decision-making processes.

Article 263 TFEU once more emerges as a vital instrument for ensuring legal integrity and upholding the rights of individuals and entities within the EU and by evaluating its recent application, it becomes evident that the principles of judicial review are essential safeguards against arbitrary decision-making within the EU.

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Ioannides Demetriou LLC: Top Tier Firm in the Legal500 EMEA 2024 rankings

Posted on | by Paschalis Paschali

March 2024: IOANNIDES DEMETRIOU LLC has achieved top honours in The Legal 500 EMEA 2024 Rankings.

With top rankings in Banking and Finance, Commercial, Corporate and M&A, Dispute Resolution, Real Estate and Construction, and EU and Competition, our people also received notable recognitions for which we are proud.

“The law firm of Ioannides Demetriou LLC has exceptional associates and partners. The associates of Ioannides Demetriou have extensive legal knowledge, are always eager to assist, prompt in their turnaround and a team with qualities that anyone is glad to work with.”

Chairman Pambos Ioannides is in the Hall of Fame for Corporate and M&A, a Leading Individual for Dispute Resolution, and Recommended for Banking & Finance, EU & Competition, and Real Estate and Construction.
Managing Director Andrew Demetriou is in the Hall of Fame for Real Estate & Construction, Dispute Resolution, and Recommended for Corporate and M&A, EU & Competition.
Partner Christina Ioannidou, is a Leading Individual for Banking & Finance, and Recommended for Corporate and M&A, Dispute Resolution, and EU & Competition.

Next Generation Partners: Katerina Hadjichristofi, Zoe Christou, Anna C. Christou, Savvas Yiordamlis, Theo Demetriou

Recommended Lawyers: Christos Frakalas, Demetris Kronides, Anna Christou, Nicolas Panayiotou, Elias Demetriou

Rising Star: Evie Constantinou

Note from the Editor at The Legal 500 Europe, Middle East and Africa (EMEA), Ella Marshall: “The EMEA guide provides researched coverage of over 80 countries and over 2,700 ranked law firms. Law firms pay nothing to participate and so we are free to make ranking decisions on merit alone.

Our research is conducted annually, providing a detailed qualitative assessment of various factors including work conducted by law firms over the past 12 months and historically; experience and depth of teams; specialisms and ancillary services; and, importantly, opinions of law firms’ clients – each year, The Legal 500 series contacts over 300,000 clients globally to obtain feedback on which law firms meet the criteria required by today’s in-house counsel and business leaders, wherever in the world their work takes them. All of this is used to benchmark each law firm versus competitors in the practice area in question.”

For more information contact us here.

The abolition of the UK’s non-dom regime – Should UK non-doms consider relocation to Cyprus?

Posted on | by Paschalis Paschali

The abolition of the UK non-domiciled (or non-dom) status in the last UK budget marks the end of an era for the UK’s tax system. It might also be a game-changer in global mobility as many UK resident non-domiciled individuals might seek to relocate to other jurisdictions in order to shield their overseas earnings from taxation. One such jurisdiction could be Cyprus.

What are the UK’s non-dom rules?

Broadly, non-doms are individuals who are resident in the UK, but who claim that their domicile, being the centre of their personal and financial interests, is outside of the UK. Crucially, hitherto, a non-domiciled individual who was UK tax resident was broadly taxed on income and gains on a remittance basis only by contrast to a UK tax resident and domiciled individual who was taxed on income and gains on a worldwide basis, irrespective of remittance. The UK rules changed a few years ago whereby the non-dom status became time limited and, in fact, after a number of years, a hefty remittance basis charge was levied in order to benefit from the exemption. Nevertheless, it still remained an attractive (optional) regime for high net worth individuals with foreign earnings.

Following last week’s UK budget, the non-dom regime will be abolished from 6 April 2025. In its place, the UK government has introduced a new residence-based regime taking effect from April 2025. What is crucial to note is that the new foreign income and gains regime will be relevant only as far as new tax residents are concerned. This is because under the new regime, individuals who have been non-UK tax resident for at least 10 consecutive years will, regardless of domicile status, be eligible to use the new regime for four years.

Very importantly, under the new regime, non-UK income and gains will not be taxable in the UK and can be brought (i.e. remitted) to the UK without UK taxation during an individual’s four-year eligibility period. From the fifth year of UK tax residence onwards, an individual will be chargeable to UK income tax and capital gains tax on worldwide basis.

It would appear that the new regime will apply to all individuals becoming tax resident in the UK after not being tax resident for 10 consecutive years, irrespective of whether they are UK domiciled. As such, this new regime is likely to be very attractive to (UK) expats who decide to return to the UK.

Although Cyprus has many UK expats, as explained in this newsletter, Cyprus also has a very attractive non-dom regime. Therefore, it is unlikely that UK expats living in Cyprus would relocate to the UK just to benefit from the new regime, as many of the benefits of this regime are essentially replicated in Cyprus’ non-dom regime and for 17 years as opposed to the four years provided for by the UK non-dom regime.

What is likely to happen now is a competition between countries with preferential regimes for high net worth individuals to attract UK non-doms who will no longer benefit from the UK tax regime.

Cyprus is such a jurisdiction with an attractive system overall, combined with special privileges to non-domiciled tax residents.

The concept of domicile in Cyprus law originates from the Wills and Succession Law (Cap 195), which is based on English law. This law provides that every person has a domicile of origin or a domicile of choice. An individual’s domicile of origin is that of his/her father’s domicile (at birth). A person acquires a domicile of choice by establishing his home at any place with the intention of permanent or indefinite residence therein. The domicile of origin prevails and is retained until a domicile of choice is in fact acquired. Under the Special Contribution for Defence Law, a non-domiciled individual may be deemed as domiciled in Cyprus if he/she has been a Cypriot tax resident for at least 17 out of the last 20 years prior to the relevant tax year. This means that Cyprus’ non-dom privileges are available for 17 years.

But what are these non-dom privileges?

The combined application of Cyprus’ tax laws (i.e the Income Tax Law and the Special Contribution for Defence Law) allows Cyprus tax resident individuals who are not domiciled in Cyprus to be exempt on their worldwide dividends and interest, whether remitted to Cyprus or not. It is noteworthy that the exemption applies even if the dividends and interest have a domestic source (i.e. they are derived from Cyprus). There is also an exemption from the special defense contribution tax for rental income (but income tax is payable).

In addition to these privileges, the Cyprus tax system has other advantageous features for tax residents in general, whether domiciled or not.

For example, under Cyprus’ Capital Gains Tax Law, capital gains tax is only imposed on the sale of immovable property situated in Cyprus, and for the sale of shares in companies in which the underlying asset is immovable property situated in Cyprus. There is no capital gains tax in Cyprus for any other disposals. This means that the disposal of any other securities (shares, bonds, tradable contracts etc.) are not subject to tax in Cyprus.

Τhere is also a special tax regime for foreign pension income, which is exempt from tax up to €3,420 per year and taxed at only 5% above that threshold.

Furthermore, Cyprus does not have any inheritance tax or gift tax. Again, these rules are applicable to all Cyprus tax residents – whether domiciled or not.

It should be pointed out that dividends and interest received and pensions are subject to 2.65% General Healthcare System Contributions (GESY). However, this is capped so that for every natural person, the total maximum annual amount on which contributions will be paid is €180,000. This means that the maximum annual amount of GESY contribution levied is €4,770.

Another important tax exemption available to all Cyprus tax residents (whether domiciled or not) is the exemption on income from services rendered outside of Cyprus for more than 90 days in a tax year. The services must be rendered to a non-Cypriot tax resident employer. This, combined with the 50% exemption rule for individuals taking up employment in Cyprus (subject to some other conditions) makes relocation to Cyprus a very attractive option for UK non-doms who wish to explore other jurisdictions.

Of course, in order to access these benefits, as a non-dom or not, it is a prerequisite to become tax resident in Cyprus. For an individual to become tax resident in Cyprus, he/she must be resident in Cyprus for 183 days in the relevant tax year and must not reside more than 183 days per year in another jurisdiction. There is also a quicker route to becoming tax resident in Cyprus under the 60-day rule. Under this rule, an individual must spend at least 60 days in Cyprus in the relevant tax year and must not spend more than 183 days in another jurisdiction. The individual must also maintain a permanent home in Cyprus (owned or rented) and must carry on a business in Cyprus or be employed in Cyprus or hold an office with a tax resident of Cyprus during the relevant tax year.

On the basis of the 60-day rule, it is relatively easy to establish tax residence in Cyprus and obtain the non-dom status, if the aim is to access the specific privileges attached to this status.

Whether or not the abolition of the UK’s non-dom regime will lead to an exodus of high net worth individuals from the UK remains to be seen.

It is worth pointing out however that even before the changes to the UK non-dom regime were abolished Cyprus has for a long time now offered an advantageous tax regime for individuals wishing to take the relatively simple steps required to relocate their residence/domicile to Cyprus.

For information on any of the issues raised in this newsletter, please get in touch with us and note that working closely with our associated corporate services provider Nobel Trust we are able provide the full range of advice and services for anybody wishing to be advised as to the benefits of considering Cyprus as a replacement for UK non-dom status.

The regulation of the content of B2C contracts under Cypriot contract law

Posted on | by Paschalis Paschali

Effective consumer protection is an area still in the earliest stages of its development in the Cypriot legal system. Prior to the adoption of Directive 93/13 which provided a substantive test of unfairness and which regulated the content of business contracts through ensuring that unfair terms not be considered binding to consumers, the Cypriot legal system did not provide for a level of consumer protection through statutory or case law. In essence, no measures existed aimed at protecting consumers against contract terms that had not been individually negotiated by consumers in advance and which in turn could grant a considerable advantage to businesses.


Such terms often come in the form of exclusion clauses which can exclude or restrict liability, make the liability or its enforcement subject to restrictive conditions, or exclude or restrict a person from pursuing a right or remedy. As the characteristic of an unfair term is one which increases the number or the difficulty of a party’s obligations, even a force majeure clause may come to be considered unfair if intentionally worded vaguely. If a seller can unilaterally determine a force majeure clause for example, then what is to prevent them from defining a reasonably foreseeable phenomenon as grounds for the removal of liability? Where standard form contracts were established to facilitate commercial transactions and better define the rights and obligations of the two parties, a unilateral approach to the definition of these terms by sellers would necessarily come at the cost of the consumer, who was faced with either accepting these terms or be deprived of the sought goods or services.


Prior to Directive 93/13, Cypriot consumers only had recourse to general principles of contract law and primarily procedural safeguards provided by the Contract Law, Cap. 149 i.e. the key law governing contracts in Cyprus. However and while generally sufficient, Cap. 149 was inadequate in providing the necessary tools in dealing with unfair contract terms, making the implementation of Directive 93/13 necessary for enhanced consumer protection.

Procedural Safeguards of Cap. 149


It could be argued that, in relation to regulating the use of unfair terms, the common law of contract is less concerned with the substance of the contract and more so with the procedure leading to its conclusion. If no illegality is found in what preceded the conclusion of the contract, which could in any way impact the will of the parties to be bound in contract, common law courts would hesitate in intervening since the determination of the substance of the contract remains, based on the principle of privity of contract, within the exclusive competence and autonomy of the parties.


As such, section 13 of Cap. 149, with its emphasis on the concurrence of wills, established that consent is considered a central concept of contract conclusion. If consent is considered to be given “freely”, then the contract is to be respected. With the intention to ensure this, section 14 of Cap. 149 codified a number of principles in order to safeguard that the parties’ consent is “free”, which include provisions on coercion, undue influence, fraud, misrepresentation and mistake.


Yet, beyond the rules established in section 14 emphasizing procedural fairness, Cap. 149 did not provide the necessary tools for examining the substantive unfairness of contract terms. Contrarily, while the Indian Contract Act introduced similar procedural rules, Indian courts also made use of the public policy exception under their section 23 (identical to section 23 of Cap. 149) to strike down contracts whose terms were labelled as contrary to public policy, thereby invoking the illegality of the contract’s object or consideration.


In conclusion, Cypriot law follows the general position of English contract law, where the latter has long taken the view that acceptance of the principles of freedom of contract, the binding force of contracts and the lack of a general principle of good faith and fair dealing precludes the review of the fairness of either the contract as whole or of its particular terms. This can most notably be seen in the instance of contract formation. While a promise could not be considered valid without the corresponding consideration, the acknowledgment of an inadequate or nominal consideration signifies that a substantive inequality of bargaining power is not seen as a ground for a vitiation of a contract.


As regards the fairness of particular contract terms, the common law approach can be illustrated most explicitly in its acceptance of the validity of exemption clauses. That is, when once agreed between the parties, knowingly or otherwise, these clauses can effectively exclude liability both in contract and in tort, severely impacting the balance of rights and obligations between the parties. However, beyond a favorable interpretation of the contract in favor of the weaker party in instances of inequality of bargaining power but also through the use of the contra preferentem principle in instances of ambiguity in interpretation of an exclusion clause, and save in instances of a fundamental breach of contract, the Cypriot contract law tools seemed inadequate in properly regulating the use of unfair terms.


Prior to the transposition of Directive 93/13, Cypriot courts had lacked the legal tools to confront the challenges that came with standard form contracts and in particular seemed unwilling to examine the parties’ initial allocation of risk, even if it was done unilaterally and in a standardized manner by one of the contracting parties. Instead of focusing on the pursuit of mutual assent, the courts were content with the finding of the external communication of intention by the parties through their signatures to the contract. Since both parties seemingly gave their consent to be bound by the contract, Cypriot courts appeared hesitant in interfering with its individual terms, beyond through the use of the above mentioned procedural safeguards in instances where the parties consent to be bound could be impacted. These legal circumstances are what justified the need for the implementation of Directive 93/13. It provided courts the ability to control unfair terms in consumer contracts, though the granting of discretionary power as to the interpretation of the substantive unfairness of contract terms through the control of their content. However, while there is still very limited Cypriot case law applying the Directive’s robust two-tiered unfairness test, it remains to be seen if future applications of this test by the Cypriot courts can promote effective consumer protection or if additional national legislation is required to this end.

–> Contact us here for any information on how we can assist you with the application of Directive 93/13 to your consumer contracts

Cyprus’ Path in the European Green Deal: Integrating the Just Transition Mechanism

Posted on | by Paschalis Paschali
the European Green Deal #EUGreenDeal

As the European Union (EU) embarks on a transformative journey towards a greener and more sustainable future through the European Green Deal (EGD), the question of ensuring that no one is left behind takes a central stage. This article aims to analyse the measures that the government of Cyprus is undertaking to achieve its 2030 and 2050 climate targets and to assess how the concept of social inclusion is endorsed along the way.

National Energy and Climate Plan (NECP)

Cyprus, like other EU nations, has embraced the ambitions of the EGD, aiming to tackle climate change and move towards sustainability. [1]  The NECP is a vital part of this, mandated by EU regulations from 2021 to 2030. Its main objective is to devise cost-effective policies to meet energy and climate goals, driving economic growth and addressing environmental challenges. [2] Approved by Cyprus’ Council of Ministers in January 2020, it outlines the energy sector’s current status, past policies, and future trajectory to achieve national goals by 2030. Its three key pillars focus on emission reductions, energy efficiency, and increasing renewable energy sources.

For emissions, Cyprus targets a 21% reduction in non-ETS sector emissions compared to 2005 levels. Strategies include promoting natural gas, boosting renewable energy, improving carbon sinks, enhancing energy efficiency across sectors, and reducing emissions in transport, agriculture, and waste. [3]

Regarding energy efficiency, Cyprus aims for a final energy consumption of 2.0 megatonne of oil equivalent (Mtoe) and a primary energy consumption of 2.4 Mtoe by 2030. The plan includes energy efficiency obligations for distributors, low-interest loans for efficiency projects, support programs for households and businesses, voluntary agreements with businesses, and various initiatives for efficient lighting, water, and transportation.

Lastly, Cyprus aims to increase the share of renewable energy sources (RES) in its energy consumption. Targets include RES constituting 23% of gross final energy consumption, 26% of gross final electricity consumption, 39% in heating and cooling, and 14% in transportation.

To achieve these targets, Cyprus has adopted a wide-ranging approach, including various support schemes for RES, incentives for electric vehicles, and integrating RES and energy efficiency into public buildings. Efforts also focus on enhancing RES utilisation in the transportation sector.

Solar water heater adoption rates are impressive, with over 90% of households and 50% of hotels utilising these systems. However, effective energy storage solutions are crucial to fully harness solar potential. [4] Initiatives like the experimental energy storage system in Nicosia and EU projects aim to develop policies for integrating energy storage effectively, boosting photovoltaic self-consumption in the Mediterranean.[5]

To address energy security, Cyprus is implementing Liquefied Natural Gas (LNG) imports through the “CyprusGas2EU” project, diversifying energy sources and reinforcing security. Support for projects like the “EuroAsia Interconnector” and “EastMed Pipeline” will further eliminate energy isolation. The EuroAsia Interconnector, connecting Cyprus’ electricity network to the EU continental network, will facilitate RES development, reduce CO2 emissions, and enhance Cyprus’ position in the regional energy sector. [6] This project will also pave the way for widespread adoption of solar energy and sustainable practices, promoting both environmental and economic sustainability. [7]

Future trajectory

Importantly, Cyprus has submitted an updated draft of its NECP to the European Commission for review and approval. This revision is prompted by institutional obligations, failure to meet existing targets, and changes in European energy and climate goals. The revised draft includes, inter alia, commitments to reduce GHG emissions by 32% by 2030 compared to 2005 levels, increase carbon dioxide removals from land use, achieve a 42.5% penetration of RES in gross final consumption by 2030, and contribute to the EU’s mandatory energy efficiency improvement target. [8]

Additionally, Cyprus aims to design policies to support low-emission growth, laying the groundwork for achieving zero emissions by 2050. The Long-Term Low GHG Development Strategy for 2050 aligns Cyprus with the European objective of transitioning to a climate-neutral economy by 2050, emphasising a commitment to a greener future.[9] This strategy complements the NECP and envisions a shift towards clean technologies, promoting innovation and new business models, mitigating climate change impacts, enhancing economic competitiveness, and addressing environmental challenges.

Nevertheless, transitioning to carbon neutrality and renewable energy adoption presents a series of social challenges that require proactive solutions. Therefore, as Cyprus embarks on its journey towards a greener future, the integration of the Just Transition Mechanism (JTM) takes a central role in ensuring that this transition is not only environmentally sound but also socially equitable.

Just Transition Mechanism

The JTM is a critical component of the EGD, acknowledging the socio-economic realities of member states.[10] It provides a framework for financial and policy support to facilitate the transition to cleaner and more sustainable economies while safeguarding livelihoods and communities.[11]Each member state’s unique circumstances further underscore the necessity of adaptable strategies to harmonise environmental and economic aspirations.[12]

In terms of Cyprus, it has recently received the approval for its Partnership Agreement and Just Transition Plan from the EU, entailing over €1 billion in funding from 2021 to 2027. This funding will support various initiatives aimed at promoting economic, social, and territorial cohesion, facilitating the green and digital transition, and fostering competitive, inclusive, and sustainable growth. [13]

One of the most important aspects of the Agreement is the ‘Thalia 2021-27’ Cohesion Policy operational program.[14] A multi-annual, multi-fund development initiative, the Thalia program outlines Cyprus’ strategic plan for utilising resources allocated through the Cohesion Policy Funds.[15]

Central to this initiative is the Just Transition Fund (JTF), which will support an array of vital interventions. The strategic goal is to reduce GHG emissions at the power station in Dekelia and of energy-intensive businesses in general.[16] Recognising the need for social inclusion, Cyprus plans to allocate a portion of the JTF budget to modernise labour market services and support vulnerable populations, women, and youth. Additionally, initiatives to address the shortage of qualified human resources through green education initiatives are emphasised. The program prioritises equal opportunities, non-exclusion, and non-discrimination, ensuring gender equality and compliance with fundamental rights.

In conclusion, Cyprus’ proactive approach aligns with the EGD, addressing climate change, promoting economic growth, and ensuring social inclusion. However, and despite the series of green measures and initiatives that are underway, the nation faces a substantial gap between its commitments and actual outcomes.[17] To improve results and make progress toward the 2030 and 2050 targets, the government of Cyprus must enhance its efficiency in the public sector and collaborate closely with the private sector to streamline not only the processes but also the procedures for implementing all its ambitious projects.

References and URLs:

[1] General Secretariat of European Affairs, ‘CY National Strategy for EU Affairs’ (November 2021)

[2] ‘National Energy and Climate Plans (NECPs)’ <https://energy.ec.europa.eu/topics/energy-strategy/national-energy-and-climate-plans-necps_en>

[3] ‘Cyprus’ Integrated National Energy and Climate Plan’ (January 2020)

[4] Theodoros Zachariadis, ‘Monitoring EU Energy Efficiency First Principle and Policy Implementation’ (Odyssee Mure, November 2021)

[5] ‘Invest Cyprus – CEO Interviews 2018’

[6] ‘Commission Participates in Launch of EuroAsia Electricity Interconnector’

[7] EuroAsia, ‘Significant Benefits for Cyprus from Construction of the EuroAsia Interconnector | EuroAsia Interconnector’ (26 July 2023)

[8] ‘PRELIMINARY DRAFT UPDATE CONSOLIDATED NATIONAL PLAN OF CYPRUS ON ENERGY AND CLIMATE OF CYPRUS 2023’ (27 July 2023)

[9] Department of Environment, Ministry of Agriculture, and Rural Development and Environment, ‘Cyprus’ Long-Term Low GHG Emission Development’ (September 2022)

[10] ‘The Just Transition Mechanism’

[11] Aliénor Cameron and others, ‘A Just Transition Fund – How the EU Budget Can Best Assist in the Necessary Transition from Fossil Fuels to Sustainable Energy’ [2020] Policy Department for Budgetary Affairs Directorate General for Internal Policies of the Union

[12] Sebastiano Sabato and Boris Fronteddu, ‘A Socially Just Transition through the European Green Deal?’ [2020] SSRN Electronic Journal

[13] ‘Partnership Agreement and Just Transition Plan for Cyprus’ (European Commission – European Commission)

[14] ‘ΘΑΛΕΙΑ 2021-2027- Θεμέλια Αλλαγής, Ευημερίας, Ισότητας Και Ανάπτυξης’ (2022)

[15] ‘Short Description – ΘΑλΕΙΑ 2021-2027’ (21 June 2022)

[16] Green Deal: Pioneering Proposals to Restore Europe’s Nature by 2050 and Halve Pesticide Use by 2030’

[17] European Commission, ‘2023 Country Report – Cyprus’, (2023), COM(2023) 613 final

Recent EU Corporate Tax Proposals and their possible impact on the Cyprus Tax System

Posted on | by Paschalis Paschali

In the last few years, the European Commission has been very active in the corporate tax field, producing a number of legislative proposals. The most important one was, arguably, the Directive on Minimum Effective Tax Rate, which was approved in Council in December 2022. Member States were given until the 31 December 2023 to incorporate the provisions of the new Directive into domestic law. The provisions of this Directive were analysed in a previous newsletter.

In this newsletter, we examine the legislative tax proposals which are still in the pipelines. These are the proposed Unshell Directive, the proposed Directive on Faster and Safer Relief of Excess Withholding Taxes, the proposed BEFIT Directive (Business in Europe: Framework for Income Taxation), the proposed Transfer Pricing Directive and the proposed Directive on Head Office Tax.

THE UNSHELL PROPOSAL

The Unshell proposal was first published as a draft Directive in December 2021. The aim of this proposal was to establish transparency standards around the use of shell entities to enable tax authorities to detect abuse more easily. There is a filtering system (gateways) comprising of several substance indicators. Undertakings will need to show that they satisfy the substance indicators, otherwise they will be presumed to be “shells”. Such a finding could lead to penalties, a denial of a tax residency certificate and unavailability of exemptions under the Parent-Subsidiary and Interest and Royalties Directive.

If adopted as proposed, the Unshell proposal will introduce a heavy compliance burden of reporting, preparation of rebuttals and appeals, not just for MNEs but also for smaller undertakings involved in cross-border transactions. Although the European Commission was expected to publish a revised version of this draft Directive in 2023 to meet the concerns of some stakeholders, this has not happened.

If this proposal is adopted, Cyprus and other traditional holding company jurisdictions are likely to be affected. Of course, much would depend on the gateways and substance indicators that are eventually approved. In any case, advisors would need to assess which undertakings may come within the scope of the rules, whether they can benefit from any carve-outs and how they can ensure they remain low-risk in order to be exempt. If reporting of minimum substance is inevitable, then diligent preparation of documentary evidence will be crucial to ensure the rebuttal of the presumption of a shell.

THE FASTER DIRECTIVE

The Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER Directive) was proposed by the Commission in June 2023. This proposed Directive is aimed at streamlining the withholding tax reimbursement process making withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries and tax administrations. The Directive also seeks to remove obstacles to cross-border investment and to curb certain abuses.

Three options are set out in the Commission’s proposal.

Under the first option, Member States would continue to apply their current systems (i.e. relief at source and/or refund procedures) but would introduce a common digital tax residence certificate (eTRC) with a common content and format which would be issued/verified in a digital way by all Member States. There would also be a common reporting standard to increase transparency as every financial intermediary throughout the financial chain would report a defined set of information to the source Member State. It would be accompanied by standardised due diligence procedures, liability rules and common refund forms to be filed on behalf of clients/taxpayers using automation.

This second option builds on the elements included in the first option but makes it compulsory for Member States to establish a system of relief at source at the moment of payment that allows for the application of reduced rates under a tax treaty or domestic rules. Under this option, tax administrations would have to monitor the taxes due after the payment takes place.

The third option also builds on the first option, with the added requirement that Member States applying a refund system should ensure that the refund is handled within a pre-defined timeframe, through the Quick Refund System. Member States can introduce or continue to implement a relief at source system.

Of all the options, the third option is considered (by the Commission) to be the preferred option. While the second option would lead to even higher cost savings for investors, the third option enables Member States to retain an ex-ante control over refund requests. This is likely to be more politically feasible in all Member States.

Even though Cyprus does not, in general, levy withholding taxes other than on certain outbound payments if the recipient is a company resident in a jurisdiction featured in the EU’s list of non-cooperative jurisdictions, the proposed Directive is likely to have an impact on the Cyprus tax system. The development of a harmonised digital certificate of residence will help speed up the procedures for relief of excess withholding taxes from other jurisdictions.

Of course, Member State tax administrations will need to be equipped with tools to deal with the relief/refund procedures in a secure and timely manner and to train the relevant staff supervising such tools.

BEFIT

In September 2023, the Commission published the much-awaited BEFIT Directive (Business in Europe: Framework for Income Taxation). This proposal replaces the previously proposed Common Consolidated Corporate Tax Base but the overall aim is the same: to set out a new framework of tax rules to help all companies in a group to determine their tax base on the basis of common rules. The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million. Smaller groups may choose to opt in.

All members of the same group (the ‘BEFIT group’) will calculate their tax base in accordance with a common set of rules applied to their already prepared financial accounting statements. The tax bases of all members of the group will then be aggregated into one single tax base, with losses automatically set off against cross-border profits.

Tax returns will be filed both at the level of the filing entity and each group member. Member State authority representatives (the ‘BEFIT team’) will assess and agree on the content and treatment of the BEFIT Information Return. Each Member State where the multinational group is present will be allocated a percentage of the aggregated tax base under a transitional formula. Very importantly also, each Member State can then adjust their allocated tax base according to their own national rules, calculate the profits, and tax at their national corporate tax rate.

BEFIT is expected to reduce tax compliance costs for large businesses. However, a close reading of the proposal suggests that there are some differences with Pillar 2 (and the Directive on Minimum Effective Tax Rate) which is likely to increase the compliance burden of in-scope groups.

In addition, although the BEFIT’s procedural rules were meant to provide a one-stop shop for corporate taxation of MNEs, quite the opposite, they seem to lead to a two-tier compliance mechanism. There is the double filing of returns, but also the possibility of parallel operation of double (and multiple) audits in the Member States involved. (See the IBFD Taskforce’s assessment of the BEFIT.) This is highly unsatisfactory.

Furthermore, the ability to make national adjustments to the allocated part is likely to give rise to tax (base) competition, which to an extent, defeats the objective of having a common tax base.

Whilst there are likely to be very few (if any) Cypriot in-scope groups, nevertheless, the existence of an additional tax base could be attractive to smaller groups that might choose to opt in. Therefore, if the BEFIT Directive is adopted, advisors should assess whether the new tax base is more beneficial than the Cyprus tax base for any Cypriot group with non-resident subsidiaries, and whether a transition to the new system should be encouraged.

TRANSFER PRICING DIRECTIVE

The draft Transfer Pricing Directive was proposed at the same time as the BEFIT proposal, in September 2023. This Directive aims to harmonize transfer pricing rules within the EU, in order to ensure a common approach to transfer pricing problems. As stated in the preamble (page 2), the “proposal aims at simplifying tax rules through increasing tax certainty for businesses in the EU, thereby reducing the risk of litigation and double taxation and the corresponding compliance costs and thus improve competitiveness and efficiency of the Single Market”.

This objective is achieved by incorporating the arm’s length principle into EU law, harmonizing the key transfer pricing rules, clarifying the role and status of the OECD Transfer Pricing Guidelines and creating the possibility to establish common binding rules on specific transfer pricing issues.

The draft Directive contains a common definition of associated enterprises (and therefore the transactions covered). It encompasses a person (legal or natural) who is related to another person in any of the following ways:

  • significant influence on their management;
  • a holding of over 25% of their voting rights;
  • a direct or indirect ownership of over 25% of their capital; or
  • a right to over 25% of their profits.

It is clarified that a permanent establishment is an associated enterprise. This is not always the case under national tax laws.  

The draft Directive also adopts key elements of the OECD Transfer Pricing Guidelines such as the accurate delineation of transactions undertaken, comparability analysis and the five recognised OECD Transfer Pricing methods.

Very importantly, the draft Directive provides for mechanisms to enable corresponding and compensating adjustments. There is a process for applying corresponding adjustments on cross-border transactions within the EU that aims at resolving, within 180 days, any double taxation that follows from transfer pricing adjustments made by an EU Member State. A framework is also introduced for compensating adjustments, which must be recognised by Member States.

In order to ensure a common application of the arm’s length principle it is expressly stated that the latest version of the OECD Transfer Pricing Guidelines will be binding when applying the arm’s length principle in Member States.

Broadly, the common definition of associated enterprises is very welcome, as this concept is not harmonised across Member States. However, the 25% threshold is different from the criteria set out in the BEFIT Directive and the Directive on Minimum Effective Tax Rate. This is likely to cause difficulties in coordinating the various rules.

In addition, the 180 days fast-track process is very attractive, as it will help speed up the resolution of disputes. The framework introduced for compensating adjustments is also very important as not all Member States accept compensating adjustments which can lead to double taxation.

If adopted, this Directive will have an impact on Cyprus transfer pricing rules, mostly in the context of streamlining corresponding adjustments. From a literal reading of Art 33(1) and (5) of Cyprus’ Income Tax Law, it would seem that only upwards compensating adjustments are accepted by the Cyprus tax authorities – unless of course there is a tax treaty in place which provides for upwards and downwards adjustments. The current practice suggests that the Cyprus tax authorities are unwilling to allow downwards adjustments. Also, the law is silent on compensating adjustments, but again it would seem that on the basis of a literal reading of Art 33(1) and (5), only if the compensating adjustments would result in an upward adjustment will they be accepted by the Cyprus tax authorities. If the Directive is adopted, these practices will have to change.

As for the other provisions of the Transfer Pricing Directive, whilst Cyprus now broadly follows the OECD’s Transfer Pricing Guidelines, its transfer pricing regime is a rather new regime. Therefore, a harmonised EU regime will likely have spillover effects as regards the interpretation and application of the newly adopted concepts.

HEAD OFFICE TAXATION DIRECTIVE

Under the new Head Office Taxation Directive (HOT Directive), qualifying SMEs with permanent establishments in other Member States will be able to calculate their tax liability based only on the tax rules of the Member State of their head office.

There are a number of conditions determining eligibility of SMEs, which are scattered in the proposal. Broadly, the proposed regime will only be open to EU tax resident companies (of a form listed in the Annex) with EU permanent establishments. Non-EU permanent establishments are excluded from the scope of the Directive.

There are also size-related requirements. In order for companies to be eligible, they must not exceed at least two of the following three criteria, on a yearly basis: (i) total balance sheet of EUR 20 million; (ii) net turnover of EUR 40 million; (iii) average number of employees of 250.

The draft Directive excludes from the scope of the regime SMEs which are part of a consolidated group for financial accounting purposes in accordance with Directive 2013/34/EU and constitute an autonomous enterprise. There is some uncertainty in this eligibility condition, which is likely to be addressed in a revised draft.

SMEs would only file one single tax return with the head office Member State. This return would then be shared with other Member States where the permanent establishments are located. Collection will take place at the Member State of the head office, but revenues will be shared with the tax authorities of each permanent establishment.

Audits, appeals and dispute resolution procedures will remain domestic and in accordance with the procedural rules of the respective Member State. Joint audits may also be requested by tax authorities. The proposed Directive will amend the Directive on Administrative Cooperation (the DAC) to enable the exchange of information between Member States for the proper functioning of the Head Office Tax Directive.

If a qualifying SME opts into this regime, then it must apply the rules for a period of five fiscal years, which can be renewed. The regime would cease to apply before the expiration of the five-year term if either (i) the SME transfers its tax residence out of the head office Member State or (ii) the joint turnover of its PEs exceeded an amount equal to triple the turnover of the head office for the last two fiscal years.

Broadly, the proposed Directive will create a one-stop-shop regime whereby the tax filing, tax assessments and collections for permanent establishments will be dealt with through the tax authority in the Member State of the head office.

The fact that the tax base of permanent establishments will be calculated according to the tax rules of the head office might generate tax competition. Cyprus and other Member States will strive to have attractive head office tax provisions in order to attract qualifying SMEs. Of course, this will also lead to an increase in the workload of the Cyprus tax authorities, as they would act as a one-stop-shop, dealing with the tax filing and assessment of the various components of the SME, as well as the collection and payment of revenues to other tax authorities. Therefore, adequate resources will need to be devoted to the Cyprus tax authorities, in order to be able to perform their role in the context of this proposed Directive.   

It should be pointed out that the proposed Directive does not directly impact Cyprus’ transfer pricing rules. The proposed rules will simply enable permanent establishments of qualifying SMEs to have their profits calculated according to the tax rules of the Member State of the head office. Therefore, assuming we have a qualifying Cyprus head office with Greek permanent establishments, the Cyprus tax rules will apply to determine how the profits of the Greek permanent establishments will be taxed. Those taxable profits will be subject to the Greek tax rates. However, the prior question of what profits will be attributed to the Greek permanent establishments (which will then be subject to the Cyprus tax rules) is most likely to be determined by Greek tax rules on profit attribution to permanent establishments. Unfortunately, this important point is not clear in the proposed Directive and is likely to give rise to disputes.

For information on any of the issues raised in this newsletter, please get in touch with us.

Expert Witnesses under the New Civil Procedure Rules

Posted on | by Paschalis Paschali

The new Civil Procedure Rules, which have entered into force on the 1st of September 2023, have brought about monumental changes in the way in which cases will be heard before the Cypriot Courts.

A very important change comes with Part 34 of the new Regulations, which concerns the evidence given to the Court by Experts. Part 34 has completely revised what was in force up until now in relation to Expert evidence. The ultimate purpose of this new Part 34 is to limit the testimony of Experts so as to resolve the dispute faster and with a reduced costs burden. If the Expert ignores his obligations towards the Court, there is a real risk that the Court will decide that this testimony cannot be taken into account.

The general principle that Experts must be objective and impartial, of course, still applies.  

One of the two very important changes brought about by Part 34 is that, whereas until recently (before the entry into force of the New Civil Procedure Rules) each party in Court proceedings, selected the Expert whose testimony it wished to adduce to the Court, without first being obliged to submit a request, this unfettered right will no longer exist.

The summoning of an Expert by the parties can now only be achieved by applying to the Court. A disputing party, which wishes to file a relevant Expert Report with the Court, may not do so without prior permission, and when such permission is requested, the issues to be dealt with by that Expert must, inter alia, be specified.

However, what must be borne in mind by both the parties to the dispute and the Court, is that the right of the Court to limit the testimony of the Expert cannot be exercised arbitrarily and must always be exercised in the light of the overriding objective of a achieving a fair trial. In addition, the facts of each case should be taken into account, as well as suggestions/positions of the parties and there should be no general instructions from the Court on these issues.

The second very important change brought about by Part 34, is that the Court is now given the power to order that the testimony be provided by a joint Expert if the disputing parties think it appropriate for an Expert witness to give evidence on a particular matter. However, in the event of disagreement between the parties as to the person of the joint Expert, the Court itself is invited to select such an Expert from a list drawn up by the parties (unless otherwise instructed). It should also be noted that, in accordance with the relevant (English) case-law on the subject, it has been held that, where a party agrees to the appointment of a joint Expert, this does not constitute an obstacle to requesting additional appointment of an Expert if there is good reason to contest the joint Expert’s Report.

Furthermore Part 34 places a raft of stringent requirements on the content of Expert Reports and requires Experts to state explicitly whether there are conflicting opinions on a particular matter and whether the Expert can opine on a particular matter with or without reservation. Furthermore, the Court now is afforded the power to investigate the precise instructions that were given the Expert by the party adducing the Expert evidence and the Expert must include in his Expert report a summary of his opinion so as to make it easier for the Court to understand his opinion and decide upon it. Finally, Expert Reports must now contain a Statement of Truth signed by the Expert. Understandably, these heightened requirements aim at ensuring that the Expert evidence adduced before the Court will be of the highest quality.

In conclusion, it is plainly evident that under Part 34 parties will now have to put particular care into choosing Experts, giving instructions to Experts and in readying the Expert Report so that it can be successfully adduced as evidence before the Court.   

THE IMPACT OF EU LAW ON THE CYPRUS CORPORATE TAX SYSTEM

Posted on | by Paschalis Paschali

Distinguishing the Concepts from the Misconceptions

For an effective tax planning strategy, businesses in Cyprus need to be fully aware of the concepts of taxation on a European level and how they affect Cyprus at present and how they may affect it going forward. This article aims to give an informed overview as a first step to gaining such an understanding.

There is often a misconception that the EU dictates all Cyprus tax laws. Whilst this is true as regards indirect taxes such as VAT, customs and excise which are largely harmonized, technically, the power to levy direct taxes, including corporate taxes, remains within the exclusive powers of Member States.

However, these powers must be exercised consistently with general EU law, that is, the EU’s fundamental freedoms, the Charter of Fundamental Rights, and the state aid prohibition. This obligation is derived from the supremacy of EU law over domestic law. In terms of tax law this general EU law and the various Directives are considered as “hard law”.

Cyprus’ corporate tax laws are primarily set out in the Income Tax Law (Law 118(I)/2002, as amended) and the Special Contribution for Defence Law (Law 117 (I)/2002, as amended). There are also important provisions in some of Cyprus’ pre-accession general tax instruments: the Capital Gains Tax Legislation of 1980 (Law 52/1980, as amended) and the Assessment and Collection of Taxes Legislation of 1978 (Law 4/1978)

Since Cyprus acceded to the EU, there have been few changes to its corporate tax system which were necessary as a result of EU legislation (usually, Directives).  This was because in anticipation to join the EU in 2004, Cyprus had already overhauled its tax system, including its corporate tax system, to ensure compatibility with the acquis Communautaire.

Accordingly, at the time of accession to the EU, Cyprus had already incorporated in its domestic law the then existing EU corporate tax law concepts: namely, the Parent-Subsidiary Directive, the Interest and Royalties Directive, the Merger Directive, and the Mutual Assistance Directives dealing with recovery of taxes and exchange of information.

Furthermore, pre-accession, Cyprus legislation was assessed under the Code of Conduct on Business Taxation, which is considered as “soft law”. Within the context of taxation although soft law is not, technically speaking, legally binding, nevertheless, it carries important political weight and must be followed. Numerous potential harmful tax measures were therefore identified and repealed at the beginning of 2003.

However, as we all know, law in general, and specifically EU law is not static. Since Cyprus’ accession to the EU, several incorporated Directives have been amended. Obviously, the amendments had to be again incorporated in Cyprus laws, as under EU law, directives (and their subsequent amendments) must be adopted by Member States within the time frame provided, otherwise, they become directly effective.

For example, when the Parent-Subsidiary Directive was amended in order to withdraw the exemption of dividends received when these were deductible in the country of the paying company, this amendment was incorporated into Cyprus tax laws (Art 8(20) of Income Tax legislation). Similarly, when the 1977 Directive on Mutual Assistance (Directive 77/799/EEC) was replaced with the 2011 Directive on Administrative Cooperation (Directive 2011/16/EU), the changes had to be incorporated in Cyprus tax law. In fact, this Directive has been amended several times since 2011 and each time, Cyprus has had to amend its tax laws to ensure compliance with the Directive.

Furthermore, since Cyprus’ accession, new Directives have been adopted – for example, the infamous Anti-Tax Avoidance Directive (ATAD I & II) and the Tax Dispute Resolution Mechanisms Directive. The provisions of ATAD I & II were subsequently incorporated in Cyprus Income Tax Law (Arts 11A, 11B, 11C, Art 11(16)(a), Art 33B and Art 36A as amended by Law 3 of 80(I)/2020). The Tax Dispute Resolution Mechanisms Directive was incorporated in Art 36B, 36C and 36D of the Income Tax Law (as amended by Law 151(I)/2019).

Cyprus is now gearing up to adopt the Directive on Minimum Effective Tax Rate, which was approved in Council in December 2022. Member States were given until the 31 December 2023 to incorporate the provisions of the new Directive into domestic law.

There are also a number of other legislative tax proposals in the pipelines, which have not yet been approved in Council: for example, the proposed “Unshell” Directive, the proposed Directive on Faster and Safer Relief of Excess Withholding Taxes and the (not yet proposed) SAFE Directive which will look at the activity of tax enablers.

Recently, the Commission has also  proposed three very important Directives: the BEFIT Directive (Business in Europe: Framework for Income Taxation), the Transfer Pricing Directive and the Directive on Head Office Tax.

In addition to EU legislative instruments that must be incorporated into domestic legislation, like all Member States, Cyprus needs to closely follow the jurisprudence and the precedents emanating from tax litigation at the Court of Justice. This is necessary so as to ensure that Cyprus domestic law remains compatible with EU primary law (i.e. the fundamental freedoms, the Charter of Fundamental Rights, the state aid prohibition etc). For example, if the tax legislation of another Member State is found to be in breach of freedom of establishment and Cyprus contains similar tax rules, these must be amended. Similarly, if a tax provision or administrative practice of the tax department of another Member State is investigated by the Commission and found to be in breach of the state aid prohibition, if Cyprus has a similar tax provision or administrative practice, this must be repealed.

Failure to do so could lead to an infringement procedure by the Commission. Furthermore, affected taxpayers could also sue the Cyprus government in domestic courts on the basis of the Francovich principle of state liability.

Apart from legislative amendments, Cyprus has had to follow closely the work of the Code of Conduct Group, to ensure compatibility with the Code of Conduct on Business taxation. Although this is soft law, as explained above, it has significant political force. In fact, since 2004, Cyprus’ tax system was formally investigated twice by the Code of Conduct Group.

The first investigation focused on the Cyprus Intellectual Property Regime which provided for a deductible expense for corporate income tax purposes, calculated as 80% of the qualifying profits (Art 9(1)(e) of Income Tax Law). The effective rate on the profits qualifying for the CIPR was 2.5%. This regime was found not to be harmful.

The second investigation focused on the Notional Interest Deduction rule (Art 9B of Income Tax Law). The amended version of the legislation was found in 2020 not to be harmful.

Furthermore, following the Code of Conduct Group’s Guidance on defensive measures in the tax area towards non-cooperative jurisdictions, Cyprus’ has had to introduce withholding taxes to payments of dividends, interest and royalties flowing to countries included in the EU’s list of non-cooperative jurisdictions. In the latest update to this list, Russia was added.

Moreover, there have been important changes as a result of the international tax community’s initiatives. For example, even though Cyprus is not an OECD member country nor included in the Inclusive Framework due to Turkey blocking its membership, nevertheless, Cyprus has been following closely the work of the OECD/G20 and its recommendations. Cyprus has signed up to the Multilateral Instrument. It also updated its Transfer Pricing Regime in light of the OECD’s Transfer Pricing Guidelines.

Whilst Cyprus has been broadly compliant with EU (hard law and soft law) obligations and OECD/G20 standards, it is currently being asked by the EU to revamp aspects of its corporate tax system which are perceived to be facilitating aggressive tax planning. Other Member States such as Luxembourg and Malta have also been asked to amend their tax systems to curb aggressive tax planning.

In the Council’s 2020 country specific recommendations for Cyprus, in paragraph 26 it was reiterated that tackling aggressive tax planning was key to improving the efficiency and fairness of tax systems. Furthermore, in the Cyprus Recovery and Resilience Plan, there is a reform objective to increase the effectiveness, efficiency and fairness of the tax system by combatting tax evasion and aggressive tax planning practices by multinational enterprises (MNEs) by June 2026 (Reform 10 of component 3.5).

In the more recent Commission 2023 Annual Report on Taxation, it is stated that under the Recovery and Resilience Facility “several Member States have committed to address aspects of their tax systems that facilitate [aggressive tax planning], with key milestones (including the establishment of withholding taxes on outbound payments or a similar defensive measure) expected to be completed by the end of 2023 (e.g. HU) and in 2024 (e.g. CY, IE)”. It is expressly stated that country specific recommendations have been put on hold for some Member States, including Cyprus, in order to take account of the progress made in the context of the Recovery and Resilience Facility.

Going forward it should be noted that Cyprus’ corporate tax laws are currently being evaluated and legislative changes are expected in some areas. Broadly, although EU hard law has had a rather limited impact on the Cyprus corporate tax system after the country’s accession to the EU, it would seem that lately, many of the significant constraints or drivers for reform are derived from EU soft law. This is likely to change if the legislative initiatives that are in the pipeline, especially BEFIT, are eventually approved in Council and adopted.

For any information on any of the issues raised in this newsletter in the context of your business strategy and longer term tax planning please get in touch with us.