Within a year's time, the Supreme Court of Cyprus has issued another Value Added Tax (VAT) decision finding company directors as criminally liable for unpaid VAT amounts reported in VAT returns, unsettled VAT assessment and associated penalties. For background on the earlier VAT criminal judgment, see EY Global Tax Alert, Cyprus Supreme Court imposes incarceration for Directors' VAT criminal liability, dated 11 October 2017. Although the District Court had initially found the company Directors innocent, the Supreme Court, on appeal, emphasized the absolute and strict liability of the VAT legislation, whereby entity officers are personally liable for the VAT affairs of the entities they manage.

The ruling

The Supreme Court in conjoined appeals 323-4-5/2015, overturning the District Court decision, has found company Directors liable by clarifying that:

• VAT returns submission by the entity constitutes conclusive evidence that the company Directors recognize VAT amounts due to the Cyprus Tax Department.
• A VAT criminal act committed by the company results in liability both for the legal person and its officers inclusive of Directors and executive management handling entity affairs (per the strict provisions of Article 48).
• Upon Directorship or management appointment, VAT legislation stipulates for strict personal liability for such company officers irrespective of their daily involvement level.
• Any decision issued by the VAT authorities and addressed to the company equally binds its officers who can guide the entity in objecting where they disagree with the acts of the Cyprus Tax Department within the permissible timeframes.

Implications of the Decision

The Supreme Court judgment, especially given the reversal of District Court decision, signals the necessity for businesses and their officers to protect reputation by:

• Ensuring that entity VAT affairs including returns submission, invoicing, and VAT treatment are in order.
• Safeguarding that VAT positions adopted are in line with legislation provisions and accordingly justified.
• Providing a well-documented and substantiated defense position for subjective and controversial VAT matters.

Implications

Caution should be exercised by both companies and their officers while complying with their VAT obligations and they should consider taking action with their local tax professionals in the following areas:

• Correction of errors – Disclosure submissions
• Advanced rulings – Opinions – Appeals/Objections preparation
• Defense file compilation for implemented VAT positioning
• VAT Health – Diagnostic Checks pre-empting disputes
• Liaison with Cyprus Tax Department pre, during and post-audits

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Cyprus Limited, Nicosia

• George Liasis, Indirect Tax Services
  george.liasis@cy.ey.com
• Charalambos Prountzos, EY Law
  charalambos.prountzos@cylaw.ey.com
• Nicolas Pavlou, Forensic & Integrity Services
  nicolas.pavlou@cy.ey.com
• Maria P. Raspa, Indirect Tax Services
  maria.raspa@cy.ey.com
• Aristodemos Yiannakas, Forensic & Integrity Services
  aristodemos.yiannakas@cy.ey.com
• Simos Simou, Tax Barrister
  simos.simou@cy.ey.com
• Iacovos Kefalas, Indirect Tax Services
  iacovos.kefalas@cy.ey.com

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ATTACHMENT

PDF version of this Tax Alert