Tag: legal services

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.

Cyprus New Pre-Action Protocols: A mere formality or a substantive change of mentality?

Posted on | by Paschalis Paschali

In an attempt to modernize and expediate the legal procedures in our country, new Civil Procedure Rules have come into force since the 1st of September 2023, thus changing drastically our legal system. The just and proportionate as to costs handling of the cases, is placed at the heart of the reforms, as reflected in the overriding objective codified in Part 1 of the new Rules. In fact, the new Rules require the Court to handle all cases proactively by encouraging the parties to cooperate with each other, to identify the issues of dispute at an early stage and to facilitate the use of alternative dispute resolution procedures if necessary. To this end, the new Rules introduce certain Pre-Action Protocols that the parties are expected to follow before the initiation of legal proceedings before the Court.

It is worth noting that up to date, parties in litigation were not obliged to engage to any kind of pre-action conduct, apart from very limited circumstances such as in instances where a creditor of a company was obliged to send a 21-days’ notice of demand before filing a winding-up petition against the debtor company (see Art. 211 and 212, Cap. 113). The establishment therefore, of a formal mechanism which promotes the cooperation of the parties at a pre-action stage is certainly innovative.

The new Pre-Action Protocols aim at enhancing the pre-action communication and exchange of information between the parties, while the ultimate purpose they serve is the effective settlement rather than the adjudication of claim. The parties shall comply with the said protocols in a substantive way. Non- substantive adherence with the protocols’ requirements e.g. by omitting to disclose to the other party adequate information or evidence required by the protocol, may be considered as breach of the same and the Court may impose sanctions to the party in breach. In instances, for example, where, to the judgment of the Court, the non-adherence with the pre-action protocols has led to the initiation of an action, the claim of which could have been settled, the Court may order the party in breach to pay the total or part of the amount of the costs incurred. It is therefore evident that, through the imposition of sanctions, a more pragmatic approach as to the compliance of the protocols is adopted rather than merely a theoretical one.

Certain kinds of claims, such as personal injury claims, require the use of a specific Pre-Action Protocol as provided by the new Rules. It is however remarkable that even for claims for which no specific type of Pre-Action Protocol is required to be used, the Rules provide that the parties must act reasonably regarding the exchange of evidence and information and in a way so as to avoid the filing of an action before the Court. Parties are discharged from the obligation to engage in any sort of pre-action conduct only in instances where their claims are considered to be urgent, in instances where the claim is close to become time-barred or in instances where there are sufficient reasons not to engage to pre-action conduct. In such instances the reasons for the non-engagement must be outlined in the statement of claim.

In light of the above, it is obvious that from 1st September 2023 onwards, parties will be obliged to adhere to some kind of pre-action conduct. Potential omission from their part to do so will have to be accompanied with reasons for their non-compliance, while non-compliance for no good reasons may lead to them being penalized in relation to the legal costs incurred. It is therefore evident, that the new Rules attempt to introduce a  new mechanism which will encourage potential litigation parties to settle their claim in an effective and cooperative way prior to submitting their action before the Court.

This, is believed to be achieved through the exchange of evidence and information at an early stage, contrary to what used to be the case until today where proceedings initiated with the exchange of pleadings, which by default did not include evidence. As a result, parties were unable to assess the strength of their case and therefore, settlement could not easily be reached.

Consequently, the new reforms seem to “push” towards a more settlement-based legal system rather than a more adversarial one. A system that would perhaps place litigation at the top of the pyramid of our legal system and that would render it as a solution of a last resort when it comes to the resolution of a dispute.

What is certainly inarguable is that the application of the new Civil Procedural Rules must be accompanied with a change of culture, mindset and philosophy by all legal representatives who will definitely need to embrace and uphold this freshly-introduced mentality.

BIM and the Cypriot construction industry, a construction lawyer’s perspective

Posted on | by Paschalis Paschali

What is BIM?

BIM, which is the acronym for Building Information Modelling is not new. In fact, BIM as a concept was first developed in the 1970s. The acronym BIM crept into existence sometime in the late 1980s and the protogenic BIM software, albeit quite limited in its  functions, was  first issued in the mid 1990s. Nowadays, the technology has progressed to such an efficiency that most developed construction markets, irrespective of location, have shifted to BIM.

Such is the level of growth and acceptance of BIM that in 2011, just 13% of industry professionals surveyed by UK construction software provider NBS were actively using BIM software, and 43% had yet to hear of the technology. A decade on, according to the annual NBS BIM Report, 73% of practices now use BIM, while just 1% remain unaware.

A very apposite yest easily comprehensible explanation of what BIM is and how it functions is that it is software which creates digital representations of the physical and functional characteristics of spaces. In short, it is software which is used to plan, design, construct, operate and maintain buildings.

In truth though, BIM is much more than mere computer software. It is a new construction process centred around the complete collaboration of all the parties involved in the construction process through the sharing of information throughout the planning and construction process in real time

BIM software allows for the creation of the 3D models of what is actually to be built so that the Employer, Architect, Contractor, Civil engineer, M&E engineer, QS and Interior Designer can use the model to control the design, cost and the construction process itself. Most significantly BIM is relied upon as a tool for quick and independent problem identification and remedial decision-making, from project inception to handover.   BIM is naturally most beneficial when implemented at the beginning of project so that  the planning and tendering process is done through BIM. Thereafter the model can be further developed as the project moves along its life cycle.

BIM model rendering
BIM model rendering

What does BIM do?

Simply put, everyone associated with the project works and in fact designs and builds using the same 3D model and all aspects of the planning and design are inputted into the BIM software. Any and all matters and/or issues relating to every aspect of the construction process are viewable to all and can be resolved so as to identify and eradicate any potential error before an error occurs or to deal with any necessary alteration of any aspect of the project.

BIM software flagging up a clash between the Architect’s plans and the M&E Engineer’s plans

A notable and, in terms of Cyprus, very relevant example of BIM operation is the instance of a variation. A variation, once decided upon will be inserted into the 3D BIM model by the Architect and is instantly and contemporaneously viewed by all other parties. In principle the cost of the variation can be calculated by the software itself since the software can be linked to the BOQ. Also, the software, which is linked to the planning and construction schedules can be used to develop the extension or saving of time calculation that the variation warrants. Then the Contractor and any other party whose work is affected by the variation proceeds with its execution, thereby minimising the potential or time wasting and costs involved in disputing or arguing about the implications in time and costs in relation to the variation.

BIM and Sustainability

We are all becoming aware of the need for sustainability. The BIM model can interact with specific sustainability software to carry out sustainability analysis so as to achieve optimum comfort and design optimisation as well as energy efficiency.

It is significant to note that one is able to track and attain Sustainability Certifications by the interlinking of BIM and sustainability software.

Finally, BIM software also allows for facility management as it may be integrated with computer-aided Facility Management Systems to ensure a smooth transition from the handover stage to the facility management stage once the project is completed and the Employer takes over its operation.

When BIM is utilised by a proficient Project team, the software allows for the archaic 2D modelling (i.e. plans on paper) construction process to move to 7D.

The 7 dimensions are as follows:

3D = Interactive plans

4D = Time calculation

5D= Cost calculation

6D= Sustainability

7D= Facility Management

Energy efficiency gauge on BIM model

How will BIM change the Cypriot construction industry?

Through BIM design, issues will be identified and resolved before they enter the critical path for construction. This means that parties will no longer be forced to argue about cost and extension of time claims since these factors will be calculated by the BIM software itself.

Projects will be planned and executed in the most cost effective and sustainable manner and budgets will be monitored much greater accuracy.

The adoption of BIM will effectively usher in a new era of construction in which most disputes associated with the construction process are resolved by the software itself. One can only imagine the decrease in cost to the public purse if government projects were tendered for and constructed with the use of BIM.

At the same time Contractors bidding for government projects will benefit from the increased certainty, transparency and objectivity that BIM will introduce. As a result the market will become much more competitive due to the renewed confidence in how the project will be run.

Most importantly BIM will promote greater confidence, cooperation and trust in the beleaguered construction industry of Cyprus due to the minimisation of disputes that lead to delays in payments and protracted and increasingly expensive legal disputes.

An Employer who uses the BIM model will benefit from more competitive prices due to the elimination of the uncertainties that BIM can achieve.

Even though constructing with the use of BIM has a cost, this cost is by no means restrictive in large development and public projects. In fact the opposite is the case. By using BIM the Employer, whether private or the government will end up saving money for the plethora of reasons outlined above.

BIM vs Lawyers

One could think that BIM could spell bad news for lawyers since the software eliminates many of the reasons for disputes that occur during the construction process. This is, however not the case. Recent case law in the United Kingdom and in the US has flagged up a plethora of BIM related legal disputes. After all, BIM works through human input. BIM has not yet reached the stage where it can eliminate human error. As shown above BIM can greatly reduce the effects of human errors as it can identify it and possibly aid in resolving the effects of it on site but the capacity for human error still remains a risk.

Recent disputes that have reached the courts have involved questions like:

Determining liability: Questions arise as to who bears responsibility for design errors and other human errors imputed into the BIM software. If numerous parties are sharing and using the same model then it becomes harder to ascertain who is at fault for the error once the error occurs.

Responsibility issues: A breakdown of communication can occur when not all parties on the project are using BIM (which sometimes is precisely the case). Sometimes the project might be both on BIM and on 2D plans which if not checked thoroughly might have discrepancies between them which can lead to errors which are then built into the project, and which will have to later me remedied.

Finally, ownership / title issues: Disputes as to who has ownership and/or copyright of the BIM software relating to a project are the most common form of dispute. This usually happens when there is a breakdown in relationship and the party most in control of the BIM pulls the plug and locks the other parties out of using it to finish the project.

With the above in mind, even though BIM will help prevent or resolve a large percentage of traditional disputes, it will not go as far as to eradicate disputes altogether. Even with BIM, disputes as to workmanship, design, cost and time will still occur, but simply to a lesser extent. Coupled with the BIM related disputes mentioned above there will still be ample ground for lawyers to “cross swords” in construction.  

Parties will therefore do well to look to lawyers with the relevant legal experience and expertise in understanding BIM, its implementation and the legal issues that arise through its use. Contract clauses will have to be drafted with BIM usage in mind and parties will need to incorporate the use of this technology in the actual terms of the contract itself, both in relation to the terms relating to the construction as well in relation to the clauses regulating the dispute resolution mechanisms of the contract. Simply put, lawyers will not be out of a job anytime soon but rather their scope of operations will evolve to include BIM.

Using BIM now

Readers operating in the Cypriot construction industry may be excused for thinking that BIM is years away from becoming a significant factor in the Cypriot construction industry. We are however confident that that is not the case and the situation will change rather rapidly.

One of the main reasons supporting this view is the commonly held belief that the current state of the construction industry in Cyprus is not sustainable. This is one of the few things that both Employers and Contractors agree upon.

The time is therefore ripe for the introduction of BIM into the construction market. In this context it is significant to note that BIM can be used on a project even if all parties to the process do not yet know how to use and/or do not yet have access to the relevant software. The fact of the matter is that if an Employer wishes it to be so, any Cypriot project can be run on BIM starting tomorrow.

We are currently working with construction professionals operating in Cyprus with long standing international experience working with BIM. They are very well placed to advise on and to provide BIM implementation by assisting clients in the construction and development of the models required for BIM to operate on a project and in setting out the necessary BIM process and procedures in relation to the project, irrespective of its stage of development or construction.

For any related queries and/or more information on how BIM can be put to use on your construction project please contact the Construction and Real Estate team at Ioannides Demetriou LLC.

All photos and model depictions used in this article are the property of and have been graciously provided by DG Jones and Partners (www.dgjones.com).

State Aid and Taxation

Posted on | by Paschalis Paschali

Fiscal state aid is a hot topic right now, with a number of high-profile cases going through the European courts.

Under EU law, Member States are prohibited from giving an advantage in any form whatsoever to undertakings on a selective basis, unless it is justified by reasons of general economic development. 

The test is set out in Art 107 of the Treaty on the Functioning of the European Union (TFEU):

“[…] any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

The concept of state aid is wider than that of a subsidy, embracing not only positive benefits, such as subsidies, but ‘also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect’.

An aid could include subsidies, interest-free or low-interest loans or interest rate subsidies, guarantees on preferential terms, supply of goods or services on preferential terms, capital injections on preferential terms etc.

In order to fall under the scope of Art 107 TFEU, the aid must be granted by a Member State or through Member State resources. This encompasses regional or local authorities and public bodies. There must be a burden on state resources, not just an incidental benefit given without a financial burden.

Very importantly, the aid must favour certain undertakings or the production of certain goods (the ‘selectivity’ principle), which distort or threaten to distort competition, and must be capable of affecting trade between Member States.

The salient question is whether the recipient of the advantage is receiving a benefit that it would not have otherwise received under normal market conditions. The benefit should improve the undertaking’s financial position or reduce the costs that it would have had to bear.

The Commission does not need to prove that trade will be affected. It is sufficient to show that the measure threatens competition, i.e. that intra-EU trade may be affected and not necessarily permanently. For general guidance, see the Commission’s 2016 Notice.

Under Art 107(2) TFEU, certain types of aid such as aid of a social character or aid to help in case of a natural disaster are deemed to be compatible with EU law. Furthermore, aid may be compatible with the internal market if it falls within any of the six derogations laid down in Art 107(3) TFEU. These derogations have been construed strictly, though some of these proved essential in the context of past financial crises and the COVID-19 era.

Whether or not a measure is state aid for the purposes of this provision is a question that the courts both at European and national level have competence to decide. However, whether such state aid is compatible with the common market (i.e. whether it is lawful), is a question that the national courts do not have legal competence to deal with – only the European Commission at first instance.

The Commission has a pivotal role in the application of the state aid prohibition. It keeps constant review of existing aids offered by Member States. Furthermore, Member States are required to notify the Commission as to any plans to grant or alter state aid. The Commission may also ask the Court of Justice to order a Member State to recover illegal state aid.

Companies themselves may trigger investigations by lodging complaints with the Commission. In fact, during an investigation (or even prior to it), the Commission often invites interested parties to submit comments. A company may be affected by the state aid prohibition whether it is the recipient of aid or the competitor of the recipient. Recently, a direct action against a Commission decision brought by competitors of the beneficiaries of a state aid measure was allowed in the Scuola Elementare Maria Montessori case.

Aid given to a company must be repaid if it is unlawful or has not been properly notified or approved by the Commission. If repayment is demanded, within a period of four months, the taxpayer must reimburse the full amount of the financial benefit conferred, including interest, for up to a maximum of ten years prior to the start of an investigation. No recovery is necessary when the unlawful aid was given more than ten years before the Commission’s decision.

The state aid prohibition has become very high profile in the tax field. Tax measures that relieve the recipients of charges that are normally borne from their budgets such as reductions in the tax base, total or partial reduction in the amount of tax (exemption of tax credit), deferment, cancellation or even special rescheduling of tax debt are examples of fiscal state aid. Such tax measures are thought to be granted by the state or through state resources. This is because a tax exemption mitigates the charge that would normally be recoverable from the undertaking. Therefore, the state loses tax revenue. This loss of tax revenue is equivalent to consumption of state resources in the form of fiscal expenditure.

Recent state aid investigations have centred around tax rulings or advance pricing agreements given by Member State tax authorities to various multinationals. What was objectionable to the Commission in each of these cases was that the tax rulings given by Member States allowed the MNE beneficiaries to depart from market conditions in setting the commercial conditions of intra-group transactions, which led to significant tax reductions and very low effective tax rates.

Questioning discretionary practices of tax administrations is not something new in the area of state aid. As noted in the 1998 Commission state aid notice on business taxation, treating economic agents on a discretionary basis may mean that the individual application of a general measure takes on the features of a selective measure, in particular where exercise of the discretionary power goes beyond the simple management of tax revenue by reference to objective criteria.

In the last few months, decisions of the European Court of Justice on some of these cases have come out but we are still waiting for many more. What seems to be emerging from the Fiat and Starbucks appeals is that a tax ruling which does not seem to follow the OECD’s arm’s length principle does not necessarily mean that it falls within the scope of the EU’s state aid prohibition. It is important to assess the reference system of the investigated Member State in order to determine whether the tax ruling is an exception to that system and not whether it deviates from a general abstract arm’s length principle.

Of course as the arm’s length principle as well as the OECD’s Transfer Pricing Guidelines are now incorporated or closely followed by most Member States, including Cyprus, a tax ruling or advance pricing agreement given by the tax administration which allows a tax treatment incompatible with the arm’s length principle is very likely to fall foul of the state aid prohibition. Therefore, special caution should be taken by tax authorities in giving tax rulings, to ensure that the rulings are aligned with the OECD Transfer Pricing Guidelines. Furthermore, undertakings receiving beneficial tax treatment – whether through a ruling or advance pricing agreement or other mitigating measure – should bear in mind that if it is too good to be true, it is probably state aid and will need to be reimbursed at some point.

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

Navigating EU sanctions – overview and predictions for 2023

Posted on | by Paschalis Paschali

European Commission President Ursula von der Leyen has recently announced that the EU is preparing a 10th package of sanctions on Russia and is planning to have it in place by 24 February 2023 – the 1 year anniversary of Russia’s actions in Ukraine. The new package is said to be focusing on technology that may be used by the military of Russia and in cutting sanctions circumvention. It may further include financial sanctions against four Russian banks. Overall, the EU has progressively imposed sanctions against Russia since 2014, in light of the annexation of Crimea and the non-implementation of the Minsk agreements.

EU sanctions do not apply extraterritorially. The Sanctions Regulation applies, inter alia, to any person inside or outside the territory of the Union who is a national of a Member State, and to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State.

The measures forming part of the various sanctions packages as found and developed under the two main EU regulations, namely Council Regulation (EU) No 833/2014 (a.k.a. economic or sectoral sanctions) and Council Regulation (EU) No 269/2014 (a.k.a. individual or targeted sanctions) are complex and multi-layered, and understanding their full scope and compliance is becoming an increasingly challenging exercise for the stakeholders involved.

The EU economic sanctions regime imposes prohibitions and limitations via the targeting of specific sectors of the Russian economy as a whole including inter alia prohibitions on new investments in the energy sector; prohibitions on certain operations in the aviation sector; prohibitions on imports of iron and steel; prohibitions on the financing of the Russian government and Central Bank as well as banning all those transactions related to the management of the Central Bank’s reserves and assets; prohibitions on a range of financial interactions, financial rating services and transactions with Russia; prohibitions on accepting deposits; prohibitions on trust and a number of business-related services.

The EU individual sanctions regime imposes the freezing of assets belonging to, owned, held, or controlled by listed persons or entities: all their assets in the EU are frozen and EU persons and entities cannot make any funds available to those listed. Both Regulations have broad anti-circumvention provisions, pursuant to which it is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions as found under the Regulations. Additionally, any person who facilitates the circumvention of sanctions by others, may now be included in the sanctions list himself – and this includes EU natural and legal persons.

The year ahead

It seems unlikely that developments in sanctions policy and regulations will be slowing down in 2023. On the contrary, we expect to see more packages but also enforcement actions as regulators and prosecutors come under increasing pressure to show more “teeth” rather than simply introducing and drafting new policies. The controversial idea of ceasing and not only freezing assets has also been increasingly under discussion.

On 28 November 2022, the European Council unanimously decided to add violations of EU sanctions to the list of “EU crimes”. On 2 December 2022, the European Commission introduced a proposal for an EU Directive which sets out minimum rules concerning the definition of criminal offences and penalties in respect of violating EU sanctions. The willingness to introduce such a Directive is reflective of the EU’s objective for stronger harmonization in the enforcement of sanctions by Member States and for dissuading circumvention at the EU level. Of course, for the Directive to take effect, Member States will have to incorporate it via the passing of national legislation. The Commission has also recently launched an EU whistle-blower tool enabling the anonymous reporting of possible sanctions violations, including circumvention.

Additionally, a Directive on asset recovery and confiscation has been proposed with the aim to tackle “the serious threat posed by organised crime” and provide the means to competent authorities to “effectively trace and identify, freeze, confiscate and manage the instrumentalities and proceeds of crime and property that stems from criminal activities.” Should such proposal solidify further, EU member states would be required to make substantial changes to their national laws and confiscation regimes for instance, the confiscation of unexplained wealth – enabling judicial authorities to confiscate property when they are convinced it derives from criminal activities, even if it cannot be linked to a specific crime. Such confiscation measures will inevitably be raising inter alia various property and human rights considerations, which will eventually have to be determined by the member state courts.

At the moment, while EU regulations set out the prohibitions and licensing grounds with respect to sanctions, it is implementing legislation at each Member state level which imposes the applicable penalties. Cyprus currently adopts The Implementation of the Provisions of the United Nations Security Council Resolutions or Decisions (Sanctions) and the European Union Council’s Decisions and Regulations (Restrictive Measures) Law (Law 58(I)/2016) which renders violation of any provisions of such sanctions/restrictive measures a criminal offence subject to imprisonment and/or penalties.

The above information and challenges make it even more important that businesses adopt their own robust and up-to-date sanctions compliance measures. It is the individual responsibility of each person and organisation to carefully examine risks potentially arising under the EU sanctions regime and verify whether any of the listed individuals or entities are part of their business relationships or whether their activities violate sanctions.

The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. It is recommended to seek independent legal advice when considering participating in activities or transactions which may give rise to sanctions-related matters. Engaging in thoughtful due diligence at the outset of any investment/transaction will help you to prevent pitfalls further down the line.

The Evolving Cyprus Corporate Tax Landscape

Posted on | by Paschalis Paschali

Cyprus has long enjoyed a relatively stable fiscal environment, especially as far as the corporate tax regime is concerned. Changes to the tax code have traditionally been scarce and far between. Changes are however afoot mostly as a result of international developments. In this newsletter, we examine some of the recent changes and also discuss what possibly lies ahead.

Transfer pricing documentation and APA procedure

One of the biggest developments last year was the introduction of transfer pricing documentation requirements, effective from 1 January 2022. Under the new provisions, broadly, Cyprus tax resident companies and permanent establishments of non-resident companies are required to prepare on an annual basis transfer pricing documentation supporting their controlled transactions with related parties. The documentation consists of the “Master File” and the “Cyprus Local File”. Furthermore, taxpayers are required to complete a summary information table containing high-level information on related-party transactions.

There are certain exemptions to the filing requirements. For example, only Cyprus tax resident entities that are the ultimate parent (or surrogate parent) entity of a Multi National Enterprise (“MNE”) group falling under the scope of country-by-country reporting (i.e. with a consolidated revenue above €750 million), have an obligation to prepare and maintain a Master File.

Also, persons that engage in controlled transactions with an arm’s length value of less than €750,000 annually, in aggregate per transaction category (e.g. sale/purchase of goods, provision/receipt of services, financing transactions and receipt/payment of IP licencing/royalties) are exempt from the obligation to prepare a Local File.

There are penalties for non-compliance with the new obligations.

A formal Advance Pricing Agreement (“APA”) procedure has also been introduced. Cyprus tax resident persons and non- resident persons with a permanent establishment in Cyprus can submit to the Cyprus tax authorities an APA Request with respect to current or future domestic or cross-border transactions. The APA request could be bilateral or even multilateral involving tax authorities in other jurisdictions.

The tax authorities must examine the application and reach a decision within 10 months from the date of the application (in certain cases a longer time period of up to 24 months may be allowed).

APAs are valid for up to 4 years. The APA may be revised, upon application by the taxpayer or at the discretion of the tax authorities. Under certain circumstances, the tax authorities may revoke or cancel an APA.

In granting APAs, the Cyprus tax authorities will obviously need to take into consideration the state aid prohibition under the Treaty on the Functioning of the European Union (Art 107) and the recent high-profile litigation on over-generous tax rulings conferred to multinationals by some Member States. Taxpayers requesting an APA should also be aware that under certain circumstances set out in EU legislation adopted by Cyprus, tax authorities are obliged to automatically exchange information on advance pricing agreements issued by them to other Member States and the European Commission.

Although the new transfer pricing documentation requirements and especially the Master File are likely to affect MNEs with limited exposure to Cyprus, in general, good documentation of related party transactions is a recommended practice for transfer pricing compliance. There may also be in-scope Cypriot group companies that have to file the Local File. Affected groups could strive to have some of their overall transfer pricing documentation obligations catered for by Cypriot advisors, to benefit from lower operating costs compared to other jurisdictions.

For more information on how these changes might affect your business, please get in touch with us.

Future Developments

As part of our newsletters we shall attempt to keep you up to date on what is being discussed in the field of taxation of both businesses and individuals.

15% Minimum Effective Tax Rate

For the past few years, the international tax community has been working on the so-called Two-Pillar Solution to deal with the taxation of the digital economy (also, sometimes referred to as BEPS 2.0). Pillar One focuses on rules for taxing profits and rights, with a formula to calculate the proportion of earnings taxable within each relevant jurisdiction. Pillar Two focuses on a global minimum tax of 15% which is to be implemented through domestic and treaty-based rules. The domestic rules are also called the Global Anti-Base Erosion (GloBE) rules.

After several discussion drafts and a consultation document, a global agreement on tax reform was eventually reached in July 2021.

Following this global agreement, the OECD released the Pillar Two Model Rules which defined the scope and key mechanisms of the GloBE rules. On 22 December 2021, the European Commission published its own proposal for an EU directive on global minimum taxation for multinationals, which broadly mirrored the OECD’s GloBE rules. This draft was subsequently revised in compromise texts and eventually adopted in December 2022.

With the adoption of this Directive in the EU, it is widely thought that the much needed ‘critical mass’ for the adoption of Pillar Two by other countries has been reached. Pillar One still seems to be lagging behind, even though it was the front runner in the early discussions at the OECD/G20 level.

One important difference between the new Directive and the OECD’s rules is that the EU rules will apply to ‘large-scale domestic groups’ with a threshold of €750 million consolidated revenue in at least two of the four preceding years. The OECD rules do not apply to domestic groups.

Cyprus, as an EU Member State, will be obliged to incorporate the provisions of the new Directive into domestic legislation by 31 December 2023. There are transitional rules which delay the application of the rules for MNE groups and large-scale domestic groups at the initial phase of their international activity.

Under the system set out in the new Directive, the parent entity of an MNE located in a Member State would be obliged to apply the so-called Income Inclusion Rule (IIR) to its share of top-up tax relating to any entity of the group that is low-taxed (i.e. below the 15% threshold), whether that entity is located within or outside the European Union.

There is also the very controversial Undertaxed Payment Rule (UTPR) which acts as a backstop to the IIR through a reallocation of any residual amount of top-up tax in cases where the entire amount of top-up tax relating to low-taxed entities could not be collected by parent entities through the application of the IIR. The UΤPR will apply in situations where a group is based in a non-EU country and that country does not impose the minimum rate. The constituent entities of such an MNE group that are located in a Member State will have to pay in their Member State a share of the top-up tax linked to the low-taxed subsidiaries of the MNE group. The calculation and allocation of the UTPR top-up tax in the Directive is based on the number of employees and the carrying value of tangible assets.

The Directive provides Member States the option to apply a qualified domestic minimum top-up tax (QDMTT). The domestic top-up tax allows the Member State in which a low-taxed entity is resident to levy the top-up tax before application of the IIR at the level of the parent company (in another jurisdiction). It is expected that most Member States will opt for such tax.

There are detailed rules on the calculation of qualifying income or loss, the computation of adjusted covered taxes and the calculation of the effective tax rate and the top-up tax. There are also special rules for mergers and acquisitions as well as distribution regimes.

Unsurprisingly, there are many reporting obligations which increase the already heavy compliance burden of in-scope MNEs. Each constituent entity of an MNE group located in a Member State must file a top-up tax information return, unless the return is filed by the MNE group in another jurisdiction, with which the Member State has an exchange of information agreement. The constituent entity might also designate another entity located in its Member State to file on its behalf. The returns must be filed within 15 months after the end of the fiscal year to which they relate. 

Member States will introduce penalties for failures to file the information return within the prescribed deadline or for making false declarations. The 5% fixed penalty which was suggested in the original version of the Directive has now been withdrawn.

Whilst the impact of this new Directive on Cypriot companies might seem minimal at first instance, the combination of the aforementioned rules (i.e. the IIR, the UTPR and the QDMTT) make it imperative that such companies continuously monitor whether or not they fall outside the scope of the rules. Cypriot constituent entities of in-scope groups could be subject to top-up taxes on the basis of a Cypriot imposed QDMTT. In addition, Cypriot constituent entities of in-scope groups would need to file a top-up tax information return. There might also be restructuring needs or acquisition/divestment opportunities, to ensure reduction or elimination of top-up taxes through jurisdictional blending. The unique structure of the new regime will lead to the creation of new valuable tax attributes that MNEs will strive for. It is important for tax advisors to identify whether a Cypriot company has such valuable tax attributes or how it could develop such attributes in order to minimise the impact of the new rules and the imposition of top-up taxes.  

For more information on how these changes might affect your business, please get in touch with us.

What lies ahead for tax in 2023

A “War” against Tax Abuse

Notwithstanding these ground-breaking developments in 2022, it is likely that there will be further developments in 2023 due to the various projects that the European Commission has in the pipelines.

The “Unshell” Proposal

One such project is the “Unshell” proposal which introduces rules on the misuse of entities. The aim of this proposal, which was first published as a draft Directive in December 2021, was to establish transparency standards around the use of shell entities, so that abuse could more easily be detected by tax authorities. The proposal introduces a complex 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. The European Commission is widely expected to publish a revised version of this draft Directive in 2023 to meet some of the concerns expressed by several stakeholders. However, the structure of the proposal and the reporting obligations are unlikely to change significantly.

Traditional holding company jurisdictions like Cyprus or Malta are likely to be affected by this proposal. 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.

Once the Unshell proposal has been finalised and is expected to be adopted, we will publish a newsletter on how this will affect Cypriot companies.  

Anti-Facilitation Measures

In addition to the above, the resolve of the European Commission in fighting abuse is further evident from the fact that it is working on a follow-up initiative aimed at tackling the role of enablers in setting up complex structures in non-EU countries with the objective of eroding the tax base of Member States through tax evasion and aggressive tax planning. The proposal will likely include criteria for defining the forms of aggressive tax planning that should be prohibited. This initiative is heavily supported by the European Parliament.

If this proposal goes ahead, it will impose more onerous due diligence obligations on tax intermediaries (lawyers, accountants, general tax advisors). Non-legally trained intermediaries would likely need legal advice to navigate the new rules.

BEFIT Measures – A Proposal for a New Framework for Business Taxation in the EU

Another major initiative to watch out for is the new proposed framework for business taxation in the EU: the ‘Business in Europe: Framework for Income Taxation’ (or BEFIT). This will replace the previously proposed Common Consolidated Corporate Tax Base and will provide a common corporate tax base for group companies and consolidation. The European Commission recently published a call for evidence for an impact assessment and asked for public feedback. A legislative proposal for a new corporate tax system is expected later on this year.

We are closely monitoring these and other international developments to ensure our clients are in the best position to comprehend and comply with any new obligations whilst at the same time continuing to benefit from efficient and legitimate tax structuring.  

Court of Justice (EU) ruling on accessing information of beneficial owners (AML Directive)

Posted on | by Paschalis Paschali

On 22 November 2022 the Court of Justice of the European Union (“CJEU”) ruled that the provision of Directive (EU) 2015/849, as amended (“AML (EU) Directive”) providing that Member States must ensure that information on the beneficial ownership of legal entities is accessible in all cases to any member of the general public is invalid.

In addition to granting access to the public on beneficial owner information, the AML (EU) Directive also allows Member States to provide for an exemption to the public’s access on a beneficial owner’s information where the access would expose the beneficial owner to “disproportionate risk, risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or where the beneficial owner is a minor or otherwise legally incapable”. This exemption for restricting access “in exceptional cases” and on a “case-by-case basis”, did not prevent the CJEU from ruling that the provision for granting the right to such access is invalid.

The judgement concerned CJEU’s joined Cases C-37/20, Luxembourg Business Registers and C-601/20, Sovim. The two cases were referred to the CJEU following a request for a preliminary ruling from the tribunal d’arrondissement de Luxembourg (Luxembourg District Court) pursuant to Article 267 of the Treaty on the Functioning of the European Union.

The concerned provision

The question referred to the CJEU concerns, inter alia, the provision of Article 30(5)(c) of the AML (EU) Directive which reads as follows:

Member States shall ensure that the information on the beneficial ownership is accessible in all cases to:

(a) […]

(b) […]

(c) any member of the general public.

The persons referred to in point (c) shall be permitted to access at least the name, the month and year of birth and the country of residence and nationality of the beneficial owner as well as the nature and extent of the beneficial interest held.

[…]

Conflict with the EU’s Charter of Fundamental Rights

In declaring invalid the provision permitting the general public’s access to information on beneficial ownership, the CJEU stressed in its decision that the concerned provision constitutes a serious interference with the fundamental rights enshrined in Article 7 (Respect for private and family life) and Article 8 (Protection of personal data) of the EU’s Charter of Fundamental Rights.

Effect on Cyprus AML legislation

The Cyprus AML Law transposing the respective AML (EU) Directive includes a similar provision permitting members of the general public to have access “in all cases” to information on the beneficial owner’s name, the month and year of birth, the nationality, the country of residence and the nature and extent of the beneficial interest held.

The CJEU’s decision is expected to impact the general public’s access “in all cases” on information concerning beneficial owners. It remains to be seen whether the AML (EU) Directive will provide express grounds for the public’s access to such information or whether such grounds will be left to the discretion of each Member State, however, such grounds must be based on a proportionate and balanced approach without violating the Charter’s rights.

In the meantime, the Cyprus AML Law will need to be amended so that access of the public to information on beneficial owners is subject to grounds which are aligned with the EU’s Charter on Fundamental Rights and specifically Article 7 (Respect for private and family life) and Article 8 (Protection of personal data).

As of 23 November 2022, the Cyprus Department of Registrar of Companies and Intellectual Property suspended the access to the register of beneficial owners for the general public, in response to CJEU’s decision. Obliged entities will continue to have access to information maintained in the beneficial owner’s register by submitting a solemn declaration confirming that the information is requested within the context of performing customer due diligence.

Our services

Ioannides Demetriou LLC advises on matters concerning regulatory AML compliance and the protection of fundamental rights such as your right to the protection of personal data and your right for private and family life.

Reach out to our team to ensure that your regulatory obligations are protected in a manner that respect and safeguard your fundamental rights.

You can contact us directly by calling + 357 22 022 999 or by email at [email protected]

The information provided in this article does not and is not intended to constitute legal advice; instead, all information contained in this article is for general informational purposes only. If you require assistance with any legal matter, including a matter referred to in this article, you should contact one of our attorneys to obtain advice tailored to your specific circumstances.

Competition Clearance in Cyprus – a quick summary

Posted on | by techlink

Under Cyprus law, transactions such as mergers and acquisitions resulting in concentrations of major importance which meet the threshold prescribed under the Control of Concentrations Between Undertaking Law 83(I)/2014 (the “Law”) may have to be notified to the Cyprus Commission for the Protection of Competition (“CPC”).

Which acts of concentration must be notified?

Acts of concentration of major importance within the scope of the Law, shall be notified to the service of the CPC (the “Service”) before their implementation and following the conclusion of the agreement or before its conclusion upon proving to the CPC the existence of a bona fide intention to enter into an agreement. A concentration is considered to be of major importance where:

(i) the aggregate turnover achieved by each of at least two of the participating undertakings exceeds EUR 3.500.000 (EUR 3.5 million);

(ii) at least two of the participating undertakings achieve turnover in Cyprus; and

(iii) at least EUR 3.500.000 (EUR 3.5 million) out of the aggregate turnover of all participating undertakings is achieved in Cyprus.

Notifications and timeframes

With the submission of the notification, a fee is paid to the Service of the CPC (currently set at EUR 1.000) which marks the commencement of the initial stage of the review. The Service will then proceed with a preliminary evaluation of the notification and prepare a written report to the CPC with its reasoned opinion. The CPC will in turn examine the notification taking into account the written report produced by the Service and take a decision as follows:

(a) the notified concentration does not fall within the scope of the Law and/or within the meaning of concentration; or

(b) the concentration does not raise serious doubts as to its compatibility with the functioning of competition in the market and the concentration is declared compatible with the functioning of competition in the market; or

(c) the concentration raises serious doubts as to its compatibility with the functioning of competition in the market and commences full investigation proceedings.

If the CPC decides to initiate a full investigation it invites the parties to pay an additional fee (currently set at EUR 6.000).

The Service has a statutory deadline of 1 month to notify the parties of the decision taken by the CPC on whether the concentration may be implemented (Phase I review) or whether the concentration is going to be fully investigated as per point (c) above (Phase II investigation). Depending on the complexity or volume of information, the Service may extend the deadline by 14 days in which case it shall inform the notifying undertaking at least 7 days before the expiry of the initial statutory deadline. If additional information is required for the purposes of securing the completeness of the notification, the statutory deadline is reset to 1 month.

If the notifying undertaking does not receive CPC’s decision within the expiration of the aforementioned timeframe, the transaction is deemed to have been declared compatible with the market.

Publication of CPC decision and confidentiality

The nature of the notified concentration, names of the participating undertakings and the economic sectors involved are published in the Official Gazette of the Republic of Cyprus (“Official Gazette of Cyprus”). A non-confidential version of CPC’s decision on the notified concertation with the redaction of selected parts of the decision is published on the Official Gazette of Cyprus and the website of the CPC upon a confidentiality request by the parties involved in the concentration.

The CPC and the Service are bound by a duty of confidentiality and their members and officers are prohibited from communicating and/or publicising confidential information and business secrets which become available to them in the process of the notification. The notifying undertaking may also specify to the CPC which documents, statements and material it considers as confidential information and/or business secrets.

Basic notions and definitions

“Undertaking”In Competition Law, an undertaking covers any entity engaged in an economic activity, regardless of its legal status and the way in which it is financed. Any activity consisting in offering goods or services on a given market is an economic activity.
“Concentration”A concentration arises where a change of control on a lasting basis results from:  

(a) the merger of two or more previously independent undertakings or parts of undertakings;  

(b) the acquisition, by one or more persons controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings;  

The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity also constitutes a concentration within the meaning of point (b) above.

Failure to comply with the law & administrative sanctions

The implementation of a transaction giving rise to an act of concentration of major importance is prohibited under Cyprus Law unless such transaction is cleared by the CPC. Failure to obtain clearance may result in fines, including an administrative fine of up to 10% of the total turnover of the undertaking with an obligation to notify. The CPC also has the power to order the dissolution or partial dissolution of a concentration, in order to secure the restoration of the functioning of competition in the market.

Our services include

  • Preliminary assessment to determine whether the transaction constitutes a concentration of major importance which must be notified to the CPC;
  • Comprehensive advice on cross-border and national transactions;
  • Merger control filings (notification) and approvals (clearance);
  • Request for confidentiality by redacting selected parts of the published clearance decision.

Get in touch for an initial consultation

The information provided in this article does not and is not intended to constitute legal advice; instead, all information contained in this article is for general informational purposes only. If you require assistance with any legal matter, including a matter referred to in this article, you should contact one of our attorneys to obtain advice tailored to your specific circumstances.

Oil & Gas Services in Cyprus

Posted on | by Paschalis Paschali

Ioannides Demetriou LLC is recognised as a leading Oil & Gas law firm in Cyprus. It represents major players in the Cyprus market, including government, semi-government, public and private clients in all aspects of the Oil & Gas supply chain, including upstream, midstream, downstream and Liquefied Natural Gas (LNG).

The following article is featured in Gold, The Business Magazine of Cyprus – Supplement with special feature on Oil & Gas Services in Cyprus.

Oil-and-gas-supplement-IDLAW-GOLD