New Regulations

Changes to the rules on back to back loans

The Minimum Margin Scheme (MMS) under which inter-company loans could bear, without any issues an interest rate of 0.35% has been withdrawn by the Cyprus Tax Office as of 1st July 2017.

This means that intra-group financing transactions (IGFTs) will now be examined on the basis of the arm’s length principle of the OECD Transfer Pricing (TP) Guidelines.  Perhaps regrettably, this change has immediate effect as it applies to all existing as well as future IGFTs with no grandfathering provisions.  This means that any rulings issued previously on IGFTs are, unless challenged in Court[1], to be considered as no longer binding.

As things are now, under section 33 of the Cyprus Income Tax Law, any income from IGFTs (interest or coupon payments on a financial instrument) needs to be in keeping with the Arm’s Length Principle and take place on generally acceptable market terms for similar transactions under similar circumstances.

Cyprus has been applying the Arm’s Length Principle to loans between companies belonging to the same group.  However, the OECD/G20 Base Erosion and Profit Shifting Base Erosion and Profit Shifting (BEPS) initiative which seeks to do away with “tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations” in which, the OECD informs us “over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS,”[2] has meant that the MMS as the manifestation of the Arms’ Length Principle, is no longer with us.

The result of this change is that in an effort to avoid findings of state aid any intercompany loans or back to back financing within a group will need to be supported by a transfer pricing study which in turn needs to be based on the OECD transfer pricing guidelines.

The study will need to be a detailed form of analysis comparing the terms of the IGFT and confirming that the transactions are being carried out on an arm’s length basis. Additionally the analysis will need to provide details of the adequacy of the equity levels and an explanation of the substance of the entities in Cyprus involved in the IGFT.

Substance is of major importance with the Cypriot entity having to show that an informed decision was made by its Cypriot based directors who have independently decided to become involved in this decision to borrow and lend onwards funds.

As we understand it the analysis has to look beyond contractual terms to fully justify the reasons why such a transaction is taking place under the terms and between the parties involved taking into consideration the financial capabilities of the parties and what might (in a somewhat old fashioned legalistic manner) be referred to as the business efficacy of any IGFT.  In any effect all parties need to justify their role in any such transaction.

Although it may be under specific circumstances possible for an entity taxable in Cyprus to opt for a Simplification Measure (giving a minimum 2% after-tax return on assets) where no extensive analysis will be required.  This process will still need to be justified.

Any IGFTs will need to be analysed and properly justified with adjustments to be made to comply with the revised rules.  An analysis of the type described above needs to be prepared on the basis of the guidelines set out in the relevant Cyprus Tax Authorities circular and on BEPS.

07 July 2017

[1] It is basic principle of tax law in Cyprus that no law should retrospectively impose tax.  Depending on how this is interpreted, it may be arguable that a ruling or law which changes the tax status of any taxpayer is illegal and not binding on an IGTF which, when set up was taxed on a set of rules which have now been changed.  This is likely to be litigated upon so watch this space.

[2] http://www.oecd.org/tax/beps/

Litigation/Arbitration

Choosing the right forum for your dispute

Resorting to the Courts when a conflict arises between two or more parties, is still the preferred route for dispute resolution in Cyprus. Parties continue to easily submit themselves to the powers afforded to a judge by our laws and feel more comfortable to pursue a case in front of a competent court and a judge, who has the legal expertise to decide a claim.

There are, however, in Cyprus alternative, as well as very popular forums for dispute resolution, which are proven to be more suitable to determine disputes between parties. Especially in commerce, conflict resolution is available through a variety of alternative forums, arbitration being the obvious one but also mediation and construction adjudication.

Cyprus has a strong tradition of referring construction disputes to Arbitration.  It is deemed to offer speed, privacy, confidentiality, flexibility and autonomy and affords direct enforceability of the decision, both nationally and internationally. Arbitration provides the parties with the initiative and freedom to choose, among others, the suitable arbitrator, the number of the arbitrators involved, the place and language of the proceedings, the applicable law and the arbitration rules.

Controversial cases and difficult disputes, which require a high degree of technical knowledge, skills and expertise have often been resolved, through arbitration.

What this process has allowed is for a pool of experts to have developed who have the requisite experience to handle complex disputes which for whatever reason are required to be referred to arbitration. Certainly amongst our firm the expertise gained over the years in construction arbitration has allowed us to develop a strong international commercial arbitration practice able to handle any number of disputes, be it shareholder’s disputes, credit recovery, finance and investment disputes.

Our Firm has also gained expertise in all ancillary matters which are still referred to court which involved the almost inevitable these days discovery & disclosure orders, freezing and gagging orders and generally any process where the assistance of the Courts is sought to ensure arbitrations proceed elsewhere.

Where no binding arbitration clause exists, before reaching the conclusion that arbitration is the best method to resolve a dispute, each case should be seen and examined based on its particular facts and circumstances.

For more information and guidance on which forum suits best your interests and disputes, please contact Constantinos Messios at Messios@messios.com or Georgia Vladimerou at Georgia@messios.com.

Georgia Vladimerou

May 2017

LIABILITY OF DIRECTORS FOR PREVENTING THE ENFORCEMENT OF A JUDGMENT DEBT

In an English judgment which has been widely commented upon[1] Marex Financial Ltd v Sevilleja Garcia [2017] EWHC 918 (Comm) it was decided that there was a prima facie case against the Defendant, a “shadow” director for committing the tort of inducing or procuring the companies which he controlled to act in a manner which amounts to a wrongful violation of the Claimant’s rights under an existing judgment.

Specifically, Marex (“the Claimant”) obtained a judgment against the companies which had substantial assets. When enforcement proceedings began, the Claimant discovered that the companies against whom judgment had been secured had been stripped of their assets as soon as judgment was obtained, leaving the Claimant with a decision which in effect could not be enforced.

The ruling in the Marex case provides the possibility that a Director or person controlling a company may be found liable in tort for asset stripping that company.  This may amount to a new and useful tool against third parties dissipating a judgment debtor’s assets by making them liable in tort.

This article explores whether the above ruling could be used as a precedent by Cypriot Courts in favour of Claimants who are the victim of post-judgment assets stripping.

The proper construction of tort jurisdictional gateway:

In Marex Financial, the Claimant claimed damages against the Defendant for inducing or procuring the violation of the Claimant’s rights under a judgment dated July 26 2013 and/or for intentionally causing loss to the Claimant by unlawful means, in particular by dissipating the assets of the Companies.

Knowingly inducing and procuring the companies to act in a wrongful violation of the claimant’s rights under the judgment

Although the Defendant argued that the alleged tort of inducing a breach of the Claimant’s judgment rights does not exist, as “the Claimant had a right before judgment to be paid a contract sum and a right after judgment to be paid the judgment sum” the decision considered that there was an arguable case to extend the original tort of procuring or inducing a breach of contract to procuring and inducing a violation of rights under a judgment.

Intentionally causing loss to the claimant by unlawful means

In Marex Financial the Defendant was alleged to have “wrongfully, and without consent of either of the Companies and acting for his own benefit and without regard to the interests of the creditors of the Companies including the Claimant removed funds belonging to the Companies and totaling in excess of US 9.5 million dollars out of England. In doing so the Defendant a) breached the fiduciary duties that he owed to the Companies as those companies’ agent, director and/or attorney and b) interfered with the freedom of the Companies to comply with their legal obligations to the Claimant by preventing them from satisfying the judgment debt owed to the Claimant. It was decided that the very point of the breach of fiduciary duty owed to a company in the form of asset-stripping was taking away from the companies the freedom to meet their obligation to the Claimant.

Use of a similar argument in Cyprus

Have in mind that Common law is an integral part of the Cypriot legal system and deems to be valuable guidance to the Cyprus courts. This stems from section 29(1)(c) of the Courts of Justice Law 1960 as amended which provides that common law while not binding, is generally applied in Cyprus in the absence of other legislative provisions.

Additionally, under section 34 of our Civil Wrongs Law which is a codification of the Torts recognized in Cyprus, “Any person who, otherwise than in furtherance of a strike or lockout in respect of a trade dispute within the trade or industry in which the strikers or persons locking out are engaged, knowingly and without sufficient justification, causes any other person to break a legally binding contract, with a third person, commits a civil wrong against such third person”.

We would suggest that a mutatis mutandis argument could be made before the Cypriot Courts extending this tort to cases where a person takes steps to stop the satisfaction of a judgment by stripping assets from a company.

The burden of proof will of course lie with the Claimant to prove that on the balance of probabilities, and having regard to the level of control the Defendant exerts over a company, the specific Defendant induced and or procured a company not to pay its judgment debt.

Assuming the circumstances support it there may well be a plausible argument that the above tort has been committed.

We can also consider section 51(1) of our Torts Law which effectively defines negligence.  Under that section:

“(1) Negligence consists of-

(a) doing some act which in the circumstances a reasonable prudent person would not do or failing to do some act which in the circumstances such a person would do,

or

(b) failing to use such skill or take such care in the exercise of a profession, trade or occupation as a reasonable prudent person qualified to exercise such profession, trade or occupation would in the circumstances use or take, and thereby causing damage

Provided that compensation thereon shall only be recovered by any person to whom the person guilty of negligence owed a duty, in the circumstances, not to be negligent.

(2) A duty not to be negligent shall exist in the following cases, that is to say:-

………….

    (e) any person, whether for reward or otherwise, exercising any profession,

         trade or occupation or rendering any service to any other person shall owe

         such a duty to any person upon whom, or upon the property of whom or to

         whom such person is exercising his profession, trade or occupation or

         rendering any service.”

 

In light of the above where responsibility for the dissipation of assets can be shown (admittedly a difficult task) such an act may well be found to be negligent and in breach of a director’s fiduciary duty.

So while under Cypriot law there is no economic tort of causing loss by unlawful means including interfering with the freedom of a third party, the fact that the term “unlawful means” relied on by the Claimant in Marex Financial included the breach of a fiduciary duty of a Director, this may pave the way for a breach of fiduciary duty of Directors leading to economic harm to the Claimant to be used as a legal basis on which negligence claims in tort can be relied upon.

Conclusion

We would be happy to advise on any cases where acts and/or omissions of Directors led to a dissipation of assets which in turn rendered judgments obtained unenforceable.  There is scope for innovation here and we would welcome the opportunity to apply the principles described above in an action before the Cypriot Courts

 

Constantinos Messios

Klea Achilleos

[1]https://www.bryancave.com/en/thought-leadership/dissipation-of-assets-may-be-tort-under-english-law-marex.html

 

Destination Cyprus for British Businesses after Brexit

Will British business start to move to Cyprus and elsewhere now that the UK has decided to go solo

In a paper published September 2016 written by Jill Rutter and Hannah White and published by the Institute of Government[1] those writers say that, “While Whitehall is building the machinery to respond to Brexit, politicians don’t yet know what to do with it – or if they do, they aren’t saying.”

Well it seems now they are saying, as the British Prime Minister at the Conservative Party Conference spoke of a “Great Repeal Bill” to repeal the 1972 European Communities Act which, as the writer understands, will also make all “EU law” into British law allowing their repeal at the British Government’s pleasure. The Article 50 Notice will then be served in March of 2017.

One needs to add this to what a number of commentators have pointed out that in the whole UK exit process there is no obligation on the EU, or Britain for that matter, to agree a trade agreement or any other similar treaty which would allow a continuation or even a morphing of the current free movement of goods, people and services enjoyed currently within Europe by all its members, to continue between newly splendidly isolated Britain and the European Union. An unlikely scenario, but, unless new agreements are entered into, this may mean that Britain returns to the default arrangements prescribed by the WTO.

The end game which is about to start will be a period of uncertainty and unpredictability and can be expected to last for some time.  Jill Rutter and Hannah White in their article estimate that the exit process may take up to ten years. The current UK government seems to think this will only take till 2019. One can further be sure is that the UK’s soon to be erstwhile partners will not make this much easier.

It is not this paper’s intention to analyse Article 50 of the Treaty of Lisbon. However, an examination of this Article, raises a number of queries as to both the internal British process but also how this will be dealt with by both the Member States of the EU, the Commission and the European Parliament, Will the British parliament need to legislate for the Notification to be served? Will the “Great Repeal Bill” be enough? How will the EU institutions and the other powers that be within the EU react to all this? What happens if a majority approving the proposed withdrawal process is not secured in the European Institutions? What happens if the time frames and schedules dictated are not met and no extension is agreed?

It may be stating the obvious but this creates an uncertainty as to what any business currently based and trading from the UK and into Europe is probably facing already and, if not, can very soon expect to face once the Article 50 Notice to withdraw from the EU is served. [2]  Bloomberg on 26 September 2016 warned that based on a KPMG survey, because of Brexit “most UK CEOs would consider moving their headquarters or operations outside Britain.”

Despite Brussel’s obsession with harmonisation and regulation, the EU has managed to keep itself intact despite the massive financial crisis of its Southern Members as well as the current refugee crisis.

The level of criticism for the EU’s handlings of these catastrophies is justified to a great extent but one should concede that with the possible exemption of Greece, it has succeeded in keeping the countries in trouble afloat one way or another and able to survive to fight another day.

The foreign policy of its members and their extraordinary lack of a common and cohesive policy on the refugee crisis is in part to blame for this tragedy but the EU and most of its members have made substantial efforts to do what they can for the refugees even if this effort has shown to the world the lack of unity amongst EU members.

For the foreseeable future the European Union is there and even if it is only to be considered as a trading block, UK businesses whose success is dependent on a steady and foreseeable regulatory, employment, and tax environment should be looking at the viability of setting up shop in the EU and Cyprus in particular. This is especially important to any business which has substantial income derived from trading in the EU. One might expect the industries that may benefit to be financial services, energy, ship management, production and post production services in the music and film industry, software development or even high value tertiary manufacturing, assembly or processing.

The virtual dominance of the UK in Europe in the Finance Services and Banking Sector will admittedly be hard to break. However, one cannot reasonably expect the continuation of passporting for UK banking and investment firms and the ease of provision of cross border financial services and promotion of these to be a given. Europe is likely to be uncooperative probably as a result of pressure from those EU member states who see themselves as competitors or potential competitors vying to offer themselves as alternative hosts to those bankers currently occupying the City of London and the fund and investment managers populating the wine bars of Mayfair.  Cyprus is certainly a desitnation worth a look.

Important developments and the discovery of natural gas and possibly oil in the Eastern Mediterranean basin and its imminent commercialisation creates opportunities which are not likely to be easy to take advantage of from a distance. Cyprus is becoming a hub of business activity because of this for the region with serious foreign direct investment in that industry and in infrastructure steadily coming in.

The Shipping Industry and the ancillary services needed to support it are to be found in a number of places around the EU and the predominance of Cyprus in this field for any number of reasons is there for a ll to see. The experience is definitely here and there are plenty of incentives which would justify a move to Cyprus.

There are plenty of countries in Europe who have seen the potential of the film and television industry. Newer countries are still sitting on the fence but any serious production or set up will potentially receive the support of government as well possibly access EU finding from various sources should it chose to establish operations here in Cyprus.

 We are finally waking up finally to the truth that modern states need a manufacturing and technology sector. Quite frankly techno geeks and computer boffins are needed to drive economies forward and thankfully their numbers and competencies in the EU and in Cyprus particularly are growing. We have also set up a number of start ups who are producing innovations in tech, bio-tech and production which are looking hopeful. They can also provide the skill base for people who may need to consider hiring locally.

All these UK businesses should be looking at Cyprus. We have survived yet another disaster, this time the financial meltdown of our economy. We are no longer being baby sat through the Memorandum we signed off on in 2013. The unemployment rate is steadily falling, there is modest growth, the main bank seems to be recovering, there may even be a budget surplus before debt repayment and the rating agencies are, slowly but surely, upgrading us.

We have a common law system being an old British colony and part of the Commonwealth. There are around 270 000 Cypriots living in the UK and additionally 12 000 Cypriot students enrolled in British universities. We have 60 000 – 70 000 Britons living in Cyprus. Our total population is around 850,000. There are around a million British tourists who come to Cyprus every year; these are more than half of the overall number of tourist arrivals in Cyprus; this year the rate went up by around 14%.[3]

Strong trade ties exist between the UK and Cyprus (we sell halloumi and potatoes the UK sells us cars and electrical goods) and there is also a growing stream of FDI into Cyprus from the UK.

Applicable tax rates for individuals are a maximum of 35% and for corporates 12.5%. Although the two countries should take a serious look at their extra EU – bilateral trade, employment and provision of services arrangements as well as the double tax treaty which also needs to be updated, it is easy to build on the existing relationships. There is little which any operation will meet in Cyprus that will faze a British business man.

Language is not a problem and our immigration policies especially for professionals and executives are very liberal.

There are plenty of office and other commercial premises which can be utilized for most types of businesses. There are plenty of educated, (a huge number of them have studied in the UK) skilled people who can work in any business.

Cyprus is a safe place to live, good housing is plentiful, international schools readily available and health care is affordable and of a high standard. And of course, do not forget the weather…….

Constantinos Messios

CD Messios LLC – Advocates

3rd October 2016

[1] http://www.instituteforgovernment.org.uk/sites/defaut/files/publications/IfG_Organising_Brexit_briefing_final.pdf

[2] http://www.bloomberg.com/news/articles/2016-09-25/brexit-leads-three-quarters-of-britain-s-ceos-to-consider-moving

[3] High Commission of the Republic of Cyprus in London – http://www.mfa.gov.cy/

–          In Business News, 2016 – http://www.inbusinessnews.com/

–          Statistical Service for the Republic of Cyprus, 2016 – http://www.mof.gov.cy/

–          Department of International Trade, 2016 – https://www.gov.uk/government/publications/exporting-to-cyprus/exporting-to-cyprus

–         Ministry of Energy, Commerce, Industry and Tourism: TRADE SERVICE, TRADE POLICY, BILATERAL AND PUBLIC RELATIONS SECTION, 2013 – http://www.mcit.gov.cy/mcit/trade/ts.nsf/All/8A346235DFDE026BC2257CE10045B2CD/$file/Cyprus-EU%20Trade%20Relations%20(May%202014).pdf

Real estate issues under Cyprus Law

New legislative regimes increase safeguards for buyers of immovable property in Cyprus

The Sale of Land (Specific Performance) Law No. 81(I)/2011 regulates the specific performance of Sale Contracts and provides safeguards for those buying property in Cyprus.

This legislation protects buyers of real estate in Cyprus with a number of provisions aimed at assisting them to secure full and proper registration of the property in their name.

Under Law 81(I)/2011, a buyer of land can only safeguard and enjoy the benefits of the new Legislation by depositing the contract of sale with the Land Registry within six months from the date of execution of the sale and purchase contract.

Although the time limit of six months is set for depositing the contract of sale, one of the safeguards provides for the buyer, who can apply to the Court for the issuance of an order allowing its late deposit.

Depositing the contract of sale with the Land Registry creates a charge on the property providing the buyer with substantial security. In effect, the deposit of the contract of sale for the immovable property acts as an encumbrance on that property from the date of its deposit.

Additional protection is afforded to buyers who can now submit an application to the Land Registry requesting for the transfer of property into their name in accordance with the new provisions of the Transfer and Mortgage of Properties Law No. 9/1965.

In effect, the new legislation introduces provisions for the transfer of property to property buyers who despite having fulfilled their contractual obligations under the contract of sale with the seller, the seller is unable or fails or neglects to transfer the property in their name because the property, or part of it, is subject to an encumbrance and/or mortgage and/or prohibition in favour of a bank or other lender.

We are happy to provide further information with regards to the matters described above and the procedure to be followed.

For any real estate enquiries please contact Constantinos Messios.

 

Maria Hadjipitta

May 2016

About Cypriot Investment Firms

General Information Regarding Cypriot Investment Firms

Cyprus is now established as a popular destination for setting up companies, as the business world is aware of the several and significant advantages it has, compared to other European and non-European jurisdictions. In addition to being a Common Law jurisdiction, Cyprus is also a Member of the EU. The Regulation of investment firms in Cyprus therefore falls under the auspices of Markets in Financial Instruments Directive 2004/39/EC (known as “MiFID”) as subsequently amended by Directive 2014/65/EU, Regulation (EU) No.600/2014 on Markets in Financial Instruments amending Regulation (EU) No.648/2012, as well as all other EU Directives and Regulations, applied and implemented by the European Union.

The European Directive 2014/65/EU amending MiFID to Markets in Financial Instruments Directive II (known as “MiFID II”), was adopted by the European Parliament and the Council on 12 June 2014 and was entered into force on 2 July 2014. MiFID II will be transposed into national law of Member States until July 2016.

MiFID II amends existing provisions on authorisation, conduct of business and organisational requirements for providers of investment services. These rules aim at strengthening the protection of investors, through the introduction of new requirements on product governance, independent investment advice and cross-selling, the extension of existing rules to structured deposits and the improvement of requirements in several areas, including on the responsibility of management bodies, inducements, information and reporting to clients, remuneration of staff and best execution.

It also specifies requirements in relation to the authorisation and the organisational rules applicable to different types of trading venues, among them a specific new type of trading venue, designed to cater specifically for SME issuers, and to providers of market data and other reporting services, as well as the powers to be granted by Member States to national competent authorities, including the sanctions for breaches of the rules.

In addition, MiFID II contains the new regulatory tools intended to improve supervision of commodity derivatives markets.

Of the relevant Cypriot legislations, Law 144(I)/2007 on the Provision of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and Other Related Activities Law, (the “Law”) which transposed MiFID I into Cyprus legislation, is of particular importance, along with its subsequent amendments.

Additionally, very important legislation in relation to the Regulation of Cyprus Investment Firms (“CIFs”) is Law 118(I)/2007 on the Prevention and Suppression of Money Laundering Activities Law, (the “AML Law”).

The relevant Cypriot Authority responsible for approving and regulating CIFs is the Cyprus Securities & Exchange Commission (“CySEC”), through which a license must be obtained prior to operating a CIF in Cyprus. In addition to its regulatory role, the CySEC has rights to inspect, impose fines, amend and suspend licenses.

 

Key Requirements for Securing a License

1. Deciding the type of license the CIF will be applying for, under the Third Appendix of the Law (see Table 1 below). The type of license will depend on the financial instruments and services that will be provided by the company, and are the determining factor for the Share Capital of the company to be incorporated.

2. The Incorporation of a Limited Liability Company under the laws of Cyprus, which will be applying for the license. The management and control of the Company has to be exercised in Cyprus, and therefore the majority of Directors appointed are Cypriot (usually non-executive). The required number of Directors is 4 (2 Executives and 2 Non-Executives). The head office of the CIF must be situated in the Republic of Cyprus.

3. Application to CySEC: At this stage detailed questionnaires of key players (Senior Management & Directors) have to be completed – all key players need to pass the “Fit & Proper” test, indicating good character and expertise to hold a position in the Company. The Company will need to demonstrate a detailed Business Plan which will include the Organisational Chart of the CIF. The application must also include the full details of the Technology/platform to be utilized and the maintenance thereof. Another very important document to be included in the application is the AML Manual, as well as the Operations Manual (detailing the internal operations of the company, in relation to all departments and officers). Essentially the Application should give full details of the operations of the company as well as of all the key officers.

Upon securing a CIF License, we also undertake the company’s Activation process (the company must make use of its authorisation within 12 months from the date of its issue) and offer advice on all regulatory compliance matters, litigation and corporate matters, as well as ancillary services such as extending the CIF license, establishing branches and Representative Offices, obtaining license to use Tied Agents, cross border license to provide investment services within the EU, restructuring of the CIF.

Initial Capital

a. CIFs which hold clients’ money and/or securities (II1) and which offer one or more of the following investment services, shall have initial capital of €125.000:

– Reception and transmission of orders in relation to one or more financial instruments (I1)
– Execution of orders on behalf of clients (I2)
– Portfolio Management (I4),

provided that they do not deal in any financial instruments for their own account (I3) or underwrite issues of financial instruments on a firm commitment basis (I6).

b. CIFs which do not hold clients’ money and/or securities (II1), do not deal in any financial instruments for their own account (I3), do not underwrite issues of financial instruments on a firm commitment basis (I6) and offer one of more of the following investment services, shall have an initial capital of €50.000:

– Reception and transmission of orders in relation to one or more financial instruments (I1)
– Execution of orders on behalf of clients (I2)
– Portfolio Management (I4).
c. All other CIFs, which offer one or more of the following investment services, shall have initial capital of €730.000:

– Dealing on own account (I3)
– Investment Advice (I5)
– Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis (I6)
– Placing of financial instruments without a firm commitment basis (I7)
– Operation of Multilateral Trading Facility (I8).

 

Third Appendix of Law 144(I)/2007

PART I
Investment services and activities

1. Reception and transmission of orders in relation to one or more financial instruments.
2. Execution of orders on behalf of clients.
3. Dealing on own account.
4. Portfolio management.
5. Investment advice.
6. Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis.
7. Placing of financial instruments without a firm commitment basis.
8. Operation of Multilateral Trading Facility.

PART ΙΙ

Ancillary services

1. Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management.
2. Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction.
3. Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings.
4. Foreign exchange services where these are connected to the provision of investment services.
5. Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments.
6. Services related to underwriting.
7. Investment services and activities as well as ancillary services of the type included under Parts I and II related to the underlying of the derivatives included under paragraphs 5, 6, 7 and 10 of Part III where these are connected to the provision of investment or ancillary services.

PART ΙΙI

Financial instruments

1. Transferable securities.
2. Money-market instruments.
3. Units in collective investment undertakings.
4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash.
5. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event).
6. Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market or/and an MTF.
7. Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in paragraph 6 of Part III and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls.
8. Derivative instruments for the transfer of credit risk.
9. Financial contracts for differences.
10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contract relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Part, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.

Double Tax Treaty

Protocol amending the Double Tax Treaty between Cyprus and Russia

On the 4th February 2012, the Protocol amending the Double Tax Treaty (the “DTT”) between Cyprus and Russia came into force. The Amending Protocol (the “AP”), which was signed on the 7th October 2010 shall have effect from 1st January 2013, with the exclusion of Section VII which shall have effect from 1st January 2017, and Section X, which will have effect in Cyprus when the relevant legal framework comes in place.
Among others, the major changes coming into effect via the Amending Protocol are the following:
1. Definition of “Resident” (AP Article I, amending DTT Article 4)
In the original text of the DTT, the place of residence of a legal person was determined by the legal person’s place of management and control. The AP introduces a new provision, whereby when the management and control of a legal person cannot be established, the Authorities of the 2 countries shall, by mutual agreement, determine the management and control of a legal person on a case by case basis.
2. Definition of “Permanent Establishment” (AP Article II, amending DTT Article 5)
The AP widens the scope of permanent establishment to allow for taxation on profits from services perfomerd in country A by an entity in country B , where the person performing the service:
(a) remains in country B for more than 183 days in a period of 12 months and
(b) 50% of the gross revenue of this enterprise are derived from the service performed in country B through the said person, in that period of 12 months.
3. Definition of “Dividends” (AP Article V, amending DTT Article 10)
The AP widens the definition of “Dividents”, which now includes: payments from shares of collective investment schemes, whose distributions may have a maximum of 10% withholding tax by the resident paying company ( the same tax implications as dividends from shares under the DTT and the Cyprus Tax Laws).
Additionally, although the rate of withholding tax remains the same as in the DTT, there are caps imposed on withholding tax of dividends received from Russian subsidiaries:
(a) 5% withholding tax (reduced form 10%) where the minimum investment in the direct investment in Russia is €100.000;
or
(b) 10% withholding tax where the investment is less than €100.000
4. Definition of “Interest” (AP Article VI, amending DTT Article 11)
The AP definition of “Interst includes” debt claims of any form, regardless of whether they are secured by mortgage or not, or whether they are profit participating loans or not. The AP also makes clear that “Interest” does not include penalties for late payments (even of interests). For the purposes of the Law, these types of payments are considered dividends (under Article 10(3) of DTT).
5. Capital Gains Tax (AP Article VII, amending DTT Article 13) ^ Comes into effect 1st Jan 2014
The AP amends the manner in which Capital Gains is calculated regardless of a person’s country of residence: in the case of disposing shares, the seller shall pay Capital Gains tax in the Country where the property is situated: where the company is resident of country A (see Point 1 above) and derives more than 50% of the value of the said shares from immovable property situated in the country B, the Capital Gains tax will be payable in country B.
For the purposes of the amended article of the AP, Capital Gains does not include those gains derived from the disposal of shares in the case of a corporate restructure, from the disposal of shares listed on the Stock Exchange, or cases where the seller is a pension fund, a provident fund or any of the two Governments parties to the agreement. In these cases Capital Gains tax is paid in the person’s country of residence.
6. Amendment to the provisions for the Exchange of Information (AP Article V, amending DTT Article 26)
The AP provides that the two parties to the Treaty shall exchange such information as is reasonably necessary for the enforcement of the T reaty, or for the national laws of each Country party to the Treaty.
Under the new provisions, one country may now request for the confirmation of the identity of a person under investigation, for the purpose of determining whether the said person is the beneficial owner of a company resident in the other country. However, it is not possible for the inquiring party to request the identity of a beneficial owner without having submitted his identification for confirmation. Therefore, while confirmation of the identity of a person may be provided, the inquiring party may not attempt to “fish” information without an evidence-supported suspicion.
It is noted that under the AP, the said enquiry may only be effected where this is in line with the parties’ domestic legislation: Under such domestic laws of Cyprus, the Commissioner of the Inland Revenue must be first provided with sufficient evidence and with a declaration that the request for information is in line with the inquiring party’s domestic legislation. The Commissioner of the Inland Revenue shall only release such information where he is satisfied that the disclosure is compliant with the laws of both states. Additionally, such information shall not be provided by the Commissioner of the Inland Revenue without the written consent of the Attorney General.

Agreement between the Government of the Republic of Cyprus and the Government of the Russian Federation for the avoidance of double taxation with respect to taxes on income and on capital

AGREEMENT OF 5TH DECEMBER 1998

Russian Federation

AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF CYPRUS AND THE GOVERNMENT OF THE RUSSIAN FEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL
The Government of the Republic of Cyprus and the Government of the Russian Federation, desiring to conclude an Agreement for the avoidance of double taxation with respect to taxes on income and on capital and with a view to promote economic cooperation between the two countries
Have agreed as follows:

Article 1
PERSONAL SCOPE
1. This Agreement shall apply to persons who are residents of one or both of the Contracting States.

Article 2
TAXES COVERED
1. This Agreement shall apply to taxes on income and on capital imposed on behalf of each Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.
2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.
3. The existing taxes to which this Agreement shall apply are in particular:
(a) in the case of the Russian Federation:
(i) tax on profits (income) of enterprises and organisations,
(ii) income tax on individuals,
(iii) tax on property of enterprises, and
(iv) tax on property of individuals
(hereinafter referred to as “Russian Tax”);
(b) in the case of Cyprus:
(i) the income tax,
(ii) the corporate income tax,
(iii) special contribution for the defence of the Republic,
(iv) the immovable property tax, and
(v) the capital gains tax
(hereinafter referred to as “Cyprus Tax”).
4. This Agreement shall apply also to any identical or substantially similar taxes on income and on capital which are imposed by either of the Contracting States after the date of signature of this Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in their respective taxation laws.

Article 3
GENERAL DEFINITIONS
1. For the purposes of this Agreement, unless the context otherwise requires:
(a) the terms “a Contracting State” and “the other Contracting State” mean the Russian Federation or the Republic of Cyprus, as the context requires;
(b) the term “the Russian Federation (Russia)” means the territory of the Russian Federation and includes its exclusive economic zone and continental shelf as defined by the international law;
(c) the term “Republic of Cyprus” means the territory of the Republic of Cyprus and includes its exclusive economic zone and continental shelf as defined by the international law;
(d) the term “person” includes an individual, a company and any other body of persons;
(e) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively, an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;
(f) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;
(g) the term “international traffic” means any transport by ship or aircraft or road vehicles operated by a resident of a Contracting State, except when the transport is operated solely between places in the other Contracting State;
(h) the term “national” means:
(i) any individual possessing the citizenship of a Contracting State; and
(ii) any person other than an individual deriving its status as such from the laws in force in a Contracting State;
(i) the term “competent authority” means:
(i) in the case of the Russian Federation – the Ministry of Finance of the Russian Federation or its authorised representative;
(ii) in the case of the Republic of Cyprus – the Minister of Finance or his authorised representative.
2. As regards the application of this Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that State concerning the taxes to which this Agreement applies.

Article 4
RESIDENT
1. For the purposes of this Agreement, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of registration or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.
2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);
(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;
(d) if each State considers him to be a national or if he is a national of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.

Article 5
PERMANENT ESTABUSHMENT
1. For the purposes of this Agreement, the term “permanent establishment” means a fixed place of business through which the business of an enterprise of a Contracting State is wholly or partly carried on in the other Contracting State.
2. The term “permanent establishment includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop, and
(f) a mine, an oil or gas well1 a quarry or any other place of extraction of natural resources.
3. The term “permanent establishment” likewise encompasses a building site, a construction, assembly or installation project or supervisory activity in connection therewith, but only if such site, project or activities continue for a period of more than twelve months.
4. Notwithstanding the preceding provisions of this Article the term “permanent establishment” shall be deemed not to include:
(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or an auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e).
5. Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an agent of an independent status to whom paragraph 6 applies – is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
6. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course of their business.
7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise) shall not of itself constitute either company a permanent establishment of the other.

Article 6
INCOME FROM IMMOVABLE PROPERTY
1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. Ships, aircraft and road vehicles shall not be regarded as immovable property.
The term “immovable property” shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, fishing places of every kind, rights to which the provisions of law respecting landed property apply, rights known as usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources.
3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.
4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7
BUSINESS PROFITS
1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.
2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.
3. In determining the profits of a permanent establishment, there shall be allowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses, so incurred whether in the State in which the permanent establishment is situated or elsewhere.
4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.
5. Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.
6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

Article 8
INCOME FROM INTERNATIONAL TRAFFIC
1. Income from the operation in international traffic of ships or aircraft or road vehicles by the owners or lessees or charterers and the rental of containers and related equipment which is incidental to the operation of ships or aircraft or road vehicles in international traffic shall be taxable only in the Contracting State of which these persons deriving such income are residents.
2. The provisions of paragraph 1 shall also apply to income from the participation in a pool, a joint business or an international operating agency.

Article 9
ASSOCIATED ENTERPRISES
1. Where:
(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,
and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would have accrued to one of the enterprises, but, by reason of those conditions have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
2. Where a Contracting State includes in the profits of an enterprise of that State – and taxes accordingly – profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are by the first-mentioned State claimed to be profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. where that other State considers the adjustment justified. In determining such adjustment, due regard shall be had to the other provisions of this Agreement and the competent authorities of the Contracting States shall, if necessary, consult each other.

Article 10
DIVIDENDS
1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other State, the tax so charged shall not exceed:
(a) 5% of the gross amount of the dividends if the beneficial owner has directly invested in the capital of the company not less than the equivalent of 100,000 US dollars;
(b) 10% of the gross amount of the dividends in all other cases.
3. The term “dividends” as used in this Article means income from shares, or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on or carried on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment or performs independent personal services from a fixed base situated therein and the dividends are attributable to such permanent establishment or fixed base. In such case the provisions of Articles 7 or 15 of this Agreement, as the case may be, shall apply.
5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

Article 11
INTEREST
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State.
2. The term “interest” as used in this Agreement means income from debt-claims of every kind, and in particular income from government securities, bonds and debentures, including premiums and prizes attaching to such securities, bonds or debentures.
3. The provisions of paragraph 1 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on or carried on business in the other Contracting State in which the interest arises, though a permanent establishment or performs independent personal services from a fixed base situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Articles 7 or 15 of this Agreement, as the case may be, shall apply.
4. Interest shall be deemed to arise in a Contracting State when the payer is the Government of that Contracting State, a political subdivision of that State, a local authority thereof or a resident of that Contracting State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or a fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.
5. Where, by reason of a special relationship between the payer and the beneficial owner of interest or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 12
ROYALTIES
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State.
2. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, of any copyright of literary, artistic or scientific work, including cinematograph films and recordings for radio and television broadcasting, any patent, know-how, computer programmes, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience or for the use of, or the right to use industrial, commercial or scientific equipment.
3. The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State carries on business in the other Contracting State in which the royalties arise, through a permanent establishment or performs independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Articles 7 or 15, as the case may be, shall apply.
4. Royalties shall be deemed to arise in a Contracting State when the payer is the Government of that Contracting State, a political subdivision of that State, a local authority thereof or a resident of that Contracting State. Where, however, the person, paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.
5. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 13
GAINS FROM ALIENATION OF PROPERTY
1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
2. Gains derived from the alienation of movable property forming part of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or of movable property pertaining to a fixed base available to a resident of a State in the other State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment or of such fixed base, may be taxed in that other State.
3. Gains derived by a resident of a Contracting State from the alienation of ships or aircraft or road vehicles operated in international traffic or movable property pertaining to such operation shall be taxable only in the Contracting State of which the alienator is a resident
4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3, shall be taxable only in the Contracting State of which the alienator is a resident.

Article 14
INCOME FROM INDEPENDENT PERSONAL SERVICES
1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other activities of an independent character shall be taxable only in that State, unless:
(a) such services are performed or were performed in the other Contracting State and the income is attributable to a fixed base which the individual has or had regularly available to him in that other State; or
(b) if the stay in the other Contracting State is for a period or periods amounting to or exceeding In the aggregate 183 days in any twelve month period.
In that case, only so much of the Income as is derived from his activities performed in that other State may be taxed in that other State.
2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians. lawyers, engineers, architects, dentists and accountants.

Article 15
INCOME FROM EMPLOYMENT
1. Subject to the provisions of Articles 17, 19, 20 and 21 salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in any twelve month period; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Contracting State; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Contracting State.
3. Notwithstanding the provisions of paragraphs 1 and 2, salaries and other remuneration derived by the resident of a Contracting State for work carried out in the other Contracting State shall not be taxed in that other State if it is performed by persons:
(a) in connection with a building site, a construction, assembly or installation project in accordance with paragraph 3 of Article 5 of this Agreement;
(b) in respect of remuneration derived as a journalist or a correspondent provided that such payment is made from sources of the State in which he is a resident for a period of two years from the date of his arrival to the other Contracting State.
4. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic shall be taxable only in the Contracting State in which the profits of the enterprise are taxable according to Article 8 of this Agreement.

Article 16
DIRECTORS’ FEES
Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17
INCOME OF ARTISTES AND SPORTSMEN
1. Notwithstanding the provisions of Articles 15 and 16, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.
2. Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or the sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7, 15 and 16, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.
3. The provisions of paragraphs 1 and 2 shall not apply to income derived from activities performed in a Contracting State by entertainers or sportsmen if the visit to that State is substantially supported by the other Contracting State or a political subdivision or local authority thereof or by funds basically financed by those authorities. In such a case the income shall be taxable only in the State of which the entertainer or sportsman is a resident.

Article 18
INCOME FROM GOVERNMENT SERVICE
1. (a) Remuneration, other than a pension, paid by the Government of a Contracting State, a political subdivision or a local authority thereof to an individual in respect of services rendered to that State, subdivision or local authority thereof shall be taxable only in that State.
(b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the recipient is a resident of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of rendering the services.
2. The provisions of paragraph 1 of this Article shall not apply and the provisions of Article 16 and 17 shall apply to remuneration paid by a Contracting State, a political subdivision or a local authority thereof if such remuneration is paid in respect of services rendered in connection with business activities carried on In the other Contracting State.

Article 19
PENSIONS
Pensions and other similar remunerations paid from sources in a Contracting State in consideration of past employment may be taxed only in that State.

Article 20
PAYMENTS TO STUDENTS, APPRENTICES, RESEARCHERS, PROFESSORS AND TEACHERS
Payments received by a student, an apprentice, a researcher, a professor or a teacher who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training, teaching and researching, and assigned for the purpose of their maintenance and education shall not be taxed in the first-mentioned Contracting State provided that such payments arise from sources in the other State.

Article 23
ELIMINATION OF DOUBLE TAXATION
1. In the case of Russia double taxation is eliminated as follows:
Where a resident of Russia derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in Cyprus, the amount of tax on that income or capital payable in Cyprus, may be credited against the tax levied in Russia. The amount of credit, however, shall not exceed the amount of the tax of Russia on that income or capital computed in accordance with its taxation laws and regulations.
2. In the case of Cyprus double taxation is eliminated as follows:
(a) Subject to the provisions of Cyprus Tax Law regarding credit for foreign tax, there shall be allowed as a credit against Cyprus tax payable in respect of any item of income derived from Russia or capital owned in Russia the Russian tax paid under the laws of Russia and in accordance with this Agreement. The credit shall not, however, exceed that part of the Cyprus tax, as computed before the credit is given, which is appropriate to such items of income or capital.
(b) Where such income is a dividend paid by a company which is a resident of Russia to a company which is a resident of Cyprus the credit shall take into account (in addition to any Russian tax on dividends) the Russian tax payable in respect of its profits by the company paying the dividends. Such credit shall not, however, exceed that part of the Cyprus tax, as computed before the credit is given, which is appropriate to such a dividend.
3. The tax paid in Russia mentioned in paragraph 2 of this Article, shall be deemed to include the tax which would have been payable but for any provisions concerning tax reduction, exemption, or other tax incentives, enacted by the Russian Federation for the purpose of encouragement of the economic development.

Article 24
NON-DISCRIMINATION
1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. This provision shall notwithstanding the provisions of Article 1 also apply to persons who are not residents of ore or both of the Contracting States.
2. The taxation of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.
3. Except where the provisions of paragraph 1 of Article 9, paragraph 5 of Article 11 or paragraph 5 of Article 12, apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted with a resident of the first-mentioned State.
4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

Article 25
MUTUAL AGREEMENT PROCEDURE
1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Agreement, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident. The case must be presented within two years from the first notification of the action resulting in taxation not in accordance with the provisions of this Agreement.
2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Agreement. Any agreement reached shall be implemented notwithstanding any time limits provided for in the domestic law of the Contracting States.
3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement.
4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

Article 26
EXCHANGE OF INFORMATION
1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Agreement or of the domestic laws of the Contracting States concerning taxes covered by this Agreement insofar as the taxation thereunder is not contrary to the Agreement. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as confidential in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes covered by the Agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy.

Article 27
ASSISTANCE IN COLLECTION
1. The Contracting States undertake to send assistance to each other in the collection of taxes owed by a taxpayer to the extent that the amount thereof has been finally determined and become finally payable according to the laws of the Contracting State making the request for assistance.
2. A request for assistance shall only be made by a Contracting State to the extent that sufficient property of the taxpayer owing the taxes is not available in that State for the recovery of the taxes owed.
3. It is understood that unless otherwise agreed by the competent authorities of both Contracting States:
(a) ordinary costs incurred by a Contracting State in providing assistance shall be borne by that State;
(b) extraordinary costs incurred by a Contracting State in providing assistance shall be borne by the other State and shall be payable regardless of the amount collected on its behalf by that other State.
4. In no case shall this Article be construed so as to impose upon a Contracting State the obligation to carry out measures at variance with the laws, administrative practices, or public policy of either Contracting State.

Article 28
MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS
Nothing in this Agreement shall affect the fiscal privileges of members of diplomatic missions or consular posts under the rules of general international law or under the provisions of special agreements.

Article 29
ENTRY INTO FORCE
1. Each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Agreement.
2. The Agreement shall enter into force on the date of receipt of the later of these notifications and shall thereupon have effect:
 in respect of tax withheld at source, for amounts paid or credited on or after the first day of January in the calendar year next following that in which the Agreement enters into force and subsequent years; and
 in respect of other taxes on income and on capital, for taxation yearn beginning on or after the first day of January in the calendar year next following that in which the Agreement enters into force and subsequent years; and
3. The Convention between the Government of the Republic of Cyprus and the Government of the Union of Soviet Socialist Republics for the avoidance of double taxation of Income and property signed in Moscow on 29 October, 1982 shall cease to have effect between the Republic of Cyprus and the Russian Federation from the date on which this Agreement becomes effective in accordance with paragraph 2 of this Article.

Article 30
TERMINATION
This Agreement shall remain in force indefinitely but either Contracting State may terminate the Agreement through diplomatic channels, by giving to the other Contracting State written notice of termination at any time after the expiration of five years from the date on which the Agreement enters into force. In such event, the Agreement shall cease to have effect in respect of income derived or capital owned on or after the first day of January of the calendar year next following that in which the notice of termination is given.

 

The new framework for Investment Management in Cyprus

1. Collective Investments and Managers

a. UCITS and Management Companies

The European UCITS Directive introduced the marketing passport for retail investor funds, more than 25 years ago. The UCITS framework has been further developed in recent years, through the introduction of the management company passport and measures to facilitate cross-border fund mergers and master-feeder structures. The UCITS Directive 2009/65/EC was transposed into Cyprus Law via the UCI Law of 2012, which introduced key modifications in the UCITS regulatory framework:

– Simplified cross border notification process: the new procedure facilitates immediate access to the host Member States markets for UCITS and is based on swift, electronic communication of standardized documentation between authorities.

– Management Company passport: a UCITS Management Company (ManCo) authorised in the Republic, can freely provide UCITS management services for which it has been authorised in Cyprus to other EU Member States, and vice versa.

– Cross border merger of UCITS: the performance of mergers between UCITS, both domestically and across borders is now simpler and subject to a single framework across the EU.

– Introduction of master-feeder structures: the introduction of master feeder structures allows the creation of a structure investing its portfolio into another UCITS, even if the latter is located in another EU Member State.

– Replacement of the simplified prospectus with Key Investor Information Document (KIID): this document shall be written in a concise manner and in non-technical language so that it is comprehensible to the retail investors.

– The uniform application of marketing of units of UCITS: marketing standards for units of UCITS are now harmonized.

– Split of UCITS: A UCITS established in Cyprus can split into two or more UCITS of the same legal form namely of a Common Fund or a Variable Capital Investment Company.

b. AIFs and AIFMs

The Alternative Investments Fund Managers Directive (AIFMD) came into force on 21 July 2011 and one of the cornerstones of the Directive is the introduction of a ‘single market framework’ to regulate the offer or placing of shares or units in an AIF. It introduces a European ‘passport’ under which authorised AIFMs can market EU AIFs to professional investors throughout the EU, subject to a notification procedure. The AIFMD was transposed into Cyprus Law in July 2013, by the Alternative Investment Fund Manager Law, which regulates the setting up and operation of AIFM who manage all types of investments which are not UCITS and form part of the AIF category.

Further to the above, the Alternative Investment Funds Law of 2014 (the “AIF Law”) was enacted by the Cyprus House of Representatives in July 2014. The AIF Law replaces and repeals the International Collective Investment Schemes Law (the “ICIS Law”), which has been in place since 1999. Under the AIF Law, the Cyprus Securities and Exchange Commission (the “CySEC”) is the competent authority for the supervising and regulating AIFs and AIF Managers established in the Republic of Cyprus. The AIF Law introduced new structuring options such as:

– Umbrella structures with multiple investment compartments: allow the management of different pools of assets with different investment policies.

– Common Funds: contractual fund structures where investors participate as co-owners of the assets of the AIF.

– Possibility to make public offerings of shares/units of AIFs: the offering of ICIS shares/units was restricted to private placement only.

2. Investment Services and Capital Markets

a. Cypriot Investment Firms

Cyprus is now established as a popular destination for setting up companies, as the business world is aware of the several and significant advantages it has, compared to other European and non-European jurisdictions. In addition to being a Common Law jurisdiction, Cyprus is also a Member of the EU. The Regulation of investment firms in Cyprus therefore falls under the auspices of Markets in Financial Instruments Directive 2004/39/EC (known as “MiFID”), which was transposed into Cyprus Law by Law 144(I)/2007, and subsequently amended by Directive 2014/65/EU. The Directive 2014/65/EU amending MiFID to Markets in Financial Instruments Directive II (known as “MiFID II”), was adopted by the European Parliament and the Council in June 2014 will be transposed into national law of Member States by July 2016.

MiFID II aims at establishing a safer, sounder, more transparent and more responsible financial system that works for the economy and society as a whole. The main contributions introduced by MiFID II to achieve these objectives are:

– MiFID II introduces a market structure framework which ensures that trading, wherever appropriate, takes place on regulated platforms. To this end, it subjects shares and non-equity instruments to a trading obligation. It further ensures that investment firms operating an internal matching system which executes client orders in shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments on a multilateral basis have to be authorised as a Multilateral trading facility (MTF). It also introduces a new multilateral trading venue, the Organised Trading Facility (OTF), for non-equity instruments to trade on organised multilateral trading platforms.

– MiFID II will introduce trading controls for algorithmic trading activities which have dramatically increased the speed of trading and can cause systemic risks. These safeguards include the requirement for all algorithmic traders to be properly regulated and to provide liquidity when pursuing a market-making strategy. In addition, investment firms which provide direct electronic access to a trading venue will be required to have in place systems and risk controls to prevent trading that may contribute to a disorderly market or involve market abuse.

– Stronger investor protection is achieved by introducing better organisational requirements, such as client asset protection or product governance, which also strengthen the role of management bodies. The new regime also provides for strengthened conduct rules such as an extended scope for the appropriateness tests and reinforced information to clients. Independent advice is clearly distinguished from non-independent advice and limitations are imposed on the receipt of commissions (inducements).

– A new framework will improve conditions for competition in the trading and clearing of financial instruments. This is essential for the integration of efficient and safe EU capital markets. For this purpose, MiFID II establishes a harmonised EU regime for non-discriminatory access to trading venues and central counterparties (CCPs).Smaller trading venues and newly established CCPs will benefit from optional transition periods. The non-discriminatory access regime will also apply to benchmarks for trading and clearing purposes. Transitional rules will ensure the smooth application of these provisions.

Tax Developments in Cyprus

Changes to the Corporate Income Tax Law, introduced on December 2015

There are significant amendments to the Tax Law, introduced on December 2015, serve several purposes including alignment of the Cypriot tax legislation with recent changes made in the European Union (EU) – Parent Subsidiary Directive as well as to close certain loopholes that occurred in the taxation of capital gains law.

1. Tax neutrality with regards to the profits or losses resulting from FX fluctuations in any transaction. These FX differences would not be treated as taxable/deductible.

  • This does not affect FOREX companies; their profits are taxable, as usual. FOREX companies will have the option to irrevocably elect to be taxed only on realized FX differences. The unrealized FX differences will be treated as taxable in the year that they will be realized.
  • This amendment simplifies the tax treatment of FX differences. A company (not dealing in FX trading) should be in a position to estimate its taxable profit more accurately, which will not depend on FX fluctuations.

2. Taxation of hydrocarbon and other related activities.

  • Amendment to the definition of the Republic of Cyprus including all activities relating to the exploration and exploitation within Cyprus territorial waters as well as within any area outside territorial waters including the exclusive economic zone and the continental shelf. This change is effective as of 1st of January 2015.
  • The law also introduced the obligation to withhold tax at the rate of 5% on the gross income derived by a non-resident person who provides services in Cyprus in respect of activities relating to the installation and exploitation of pipelines and other installations on the soil, seabed or on the sea surface. This change is effective as of 1st of January 2016.

3. Implementation of the amendments made to the EU Parent Subsidiary Directive.

  • Distribution of dividends to Parent company;
  • If the dividends will be considered as expenses in company A (under any jurisdiction within EU) then these will be treated as taxable in Cyprus (company B – Cyprus company – will pay tax for the dividends received by company A);
  • In the case where the foreign company (which is a subsidiary company) will consider the dividends as expense, then these dividends will be treated as taxable under our Income Tax Law.

4. Limitation of loss carried forward on IP activities.

  • Under current law, the IP activities companies are eligible for an 80% deduction, on the net profit before tax (i.e. the profit will be reduced to 20%). As of 1st of January 2012, an IP company could set-off or transfer 20% of its losses, for the next year.
  • As of 1st of January 2015, the Notional Interest was imposed on the acquisition (financing of an IP Box regime; this can be considered as direct expense for the calculation of the 80% deemed deduction).

5.  Extending the scope of application of the group loss relief provisions.

  • The group loss relief provisions are applicable only between Cyprus companies which are under the same group.
  • As of 1st of January 2015 the group loss relief provisions are extended where the surrendering company is registered and it is a tax residence of another EU Member State, provided that it has exhausted all the possibilities of surrendering, all the losses to any other company within its country (under the same jurisdiction). Thus, the EU Member State company may transfer its losses to a Cyprus company of the same group under Cyprus laws and thus to deduct its income.

6. Reserving tax neutrality of reorganizations for bona fide transactions.

  • The amended law includes anti-abuse provisions in relation to company reorganizations. There is a number of tax benefits on reorganizations, however the tax authorities may impose certain conditions, in order to safeguard the bona fide nature of the reorganizations.

7. Amendment to the arm’s length principle provisions regulating the transactions between related parties.

  • As of 1st of January 2015, the transactions between the related parties which are not reasonable (e.g. company A bought products from related company B at half price), then the tax authorities will make an adjustment increasing the taxable profit of one entity. However, negative adjustment should be made to the tax on the profits of the other entity.

For more information please contact Constantinos Messios at Messios@messios.com or Christiana Antoniou at Christiana@messios.com

Notional Interest Deduction (NID) – Change taking effect as of 1st January 2015

The aim of this amendment is to encourage the decrease of corporate debt and encourage equity investment – acquisition of shares in a company either at par value or at a premium.

On the basis of the NID any investment (in cash or in kind where the in kind investment is verified), by way of equity in a Cypriot Company, will enjoy a deduction from taxable income on the basis of the interest rate which would have been payable had the investment been made by way of a loan.

The interest rate for the NID is the interest paid by way of a yield on 10 year government bonds in the proceeding tax year on the country in which the funds are deployed as part of the business of the Company plus a 3% premium which cannot be less than the yield on the equivalent Republic of Cyprus Government Bond.

The maximum NID deduction is 80% of the taxable profit for that Company in that Year.

The NID is qualified in that there are a number of strict provisions seeking to avoid abuse of the system relating to group companies and restrictions on its application were it arises form conversions of share premiums existing at 31 December 2014.

 

Non-Domiciled Individuals (Non-Doms) – Change taking effect as of 16th July 2015

Non-Doms are effectively defined now as persons who were not a Cyprus tax resident for at least 20 consecutive years before the commencement of this provision. Such a person will not be considered to be domiciled in Cyprus, regardless of the fact that his domicile of origin (place of birth) is Cyprus.

Non-Doms will not under the new rules be liable to Special Defence Contributions (SDC) which amounts to a levy on passive income (dividends currently at 17% and interest income 30%).

This rule covers all income including rental income from Cypriot real estate which had previously been subject to SDC. Coupled with existing exemption of taxation on the disposal of shares this should prove a strong incentive in attracting HNWI to settle and invest in Cyprus.

Expected increases of the 50% exemption of income tax on salaries of over €100,000 from a period of 5 to 10 years should also enhance the attractiveness of Cyprus.

For further information contact Constantinos Messios at messios@messios.com

Cyprus International Trusts

The Inretnational Trusts Law of 1992, has been amended by the reforms of March 2012 (International Trusts (Consolidated) Law of 1992 and 2012).

There are no formalities in setting up a Cyprus International Trust and it can be done simply through a Deed of Settlement. There are however basic registration requirements which depend on whether the trustees of the Trust are licensed Cypriot Advocates or regulated service providers which do not in any way effect the confidentiality of the beneficiaries or the settlor.

Protection of assets

The assets of a Cyprus International Trust are well protected. As an example of this protection is the fact that no claim can be made in case of the Settlor’s bankruptcy or liquidation or in any action or proceedings raised against the Settlor unless it is proven that the transfer of the assets to the Trust was carried out with the intention to defraud the Settlor’s creditors.

Confidentiality

Confidentiality is invariably of paramount important and is secured when the Cyprus International Trust is formed. The names of the persons indicated in the Trust are not disclosed to any public authority. That creates a strong advantage in comparison to jurisdictions where trust deeds are open to public for inspection.

Taxation

It is only when the Beneficiary is a Cyprus resident, both income sourced within the Republic as well as from outside Cyprus, subject to taxation. There is no capital gains tax on the disposal of assets not being Cypriot real estate of a Trust and there is no withholding tax on dividends paid out by a Cyprus International Trust to a nonresident beneficiary.

Where the Beneficiary is not a Cyprus tax resident, only the income and profits of a Cyprus International Trust earned or deemed to be earned from sources within Cyprus, other than dividends or interest received from Cyprus sources, are taxable.

Purpose

A Cyprus International Trust is an excellent vehicle for holding assets where inheritance and succession planning is required and where confidentiality is important. With proper planning it is useful asset protection generally and can be of great use in the structuring of many types of wealth round the world.

For more information please contact Constantinos Messios at Messios@messios.com

Ανεξαρτησία Διαιτητών στις Εγχώριες Διαιτητικές Διαδικασίες

Ανεξαρτησία Διαιτητών στις Εγχώριες Διαιτητικές Διαδικασίες

1. Θεωρούμε ότι η διεθνής πρακτική, η δεοντολογία και η επαγγελματική ηθική επιβάλλει όπου υπάρχει σοβαρή σύγκρουση συμφερόντων ο Διαιτητής χωρίς να αναμένει την οποία κίνηση από τους διάδικους ενώπιον του, να αποσύρεται ή να παραιτείται. Η προάσπιση των δικαιωμάτων του όποιου διαδίκου και η διασφάλιση ότι δεν θα υπάρξει οτιδήποτε που μπορεί με οποιονδήποτε τρόπο να επηρεάσει την ορθή απονομή της δικαιοσύνης καθιστά επιβεβλημένη την παραίτηση Διαιτητή όπου προκύπτουν τέτοια θέματα.

2. Επί του θέματος, έχει αναφερθεί στο σύγγραμμα Russel on Arbitration ότι τα μέρη σε μια Διαιτησία δικαιούνται να αναμένουν όπως ο Διαιτητής επιδείξει αμεροληψία τόσο σε σχέση με τα μέρη που λαμβάνουν μέρος στη Διαιτησία όσο και στα θέματα στα οποία καλείται να αποφασίσει. Επομένως, το οποιοδήποτε προσωπικό συμφέρον το οποίο τείνει να επηρεάσει τον τρόπο σκέψης του Διαιτητή και το οποίο ήταν άγνωστο σε ένα εκ των δυο μερών κατά την παραπομπή της διαφοράς ενώπιον του, καθιστά τον εν λόγω Διαιτητή αναρμόδιο. To ίδιο ισχύει για θέματα που προκύπτουν κατά τη διάρκεια της διαιτητικής διαδικασίας.

3. Είναι επιπρόσθετα, γενικότερα αποδεκτό πως διεθνή κανόνες όπως αυτούς του Διεθνούς Εμπορικού Επιμελητηρίου (ICC ) και, όπως αυτοί έχουν αναπτυχθεί και εφαρμοστεί στις διαιτητικές διαδικασίες ανά το παγκόσμιο, επιβάλουν την ανεξαρτησία και αμεροληψία του Διαιτητή καθώς και την διασφάλιση ενός περιβάλλοντος εμπιστοσύνης, ανάμεσα στα μέρη. Η όποια εύλογη υπόνοια μεροληψίας του Διαιτητή υπέρ του ενός εκ των δυο μερών, είναι δυνατό να δημιουργήσει σοβαρότατα θέματα, τόσο αναφορικά με τη νομιμότητα της τελικής απόφασης, όσο και σε σχέση με την νομιμότητα ολόκληρης της διαιτητικής διαδικασίας.

4. Στο Guide to the ICC Rules of Arbitration αναφέρθηκαν τα εξής:

“But as an arbitrator’s partiality or lack thereof will not as just stated usually be determinable at the outset of an arbitration, the ICC’s independence requirement serves the broader goal of permitting the Court from the outset, to exclude potential arbitrators whose impartiality may legitimately be doubted. In this manner, the court seeks to ensure, to the extent reasonably possible that “a trusting atmosphere” is preserved and that subsequent disruptions of the proceedings or challenges of the Award on the basis of an arbitrator’s alleged bias, are avoided.”

(οι υπογραμμίσεις είναι δικές μας)

5. Υπάρχει επομένως η πίστη ότι ένας Διαιτητής οφείλει και πρέπει να παραιτηθεί εάν έρθει αντιμέτωπος με μια πιθανή σύγκρουση συμφερόντων σε όποιο στάδιο και αν βρίσκεται η διαδικασία, ανεξάρτητα ακόμα με το αν έχει ξεκινήσει η όχι η Διαιτησία. Σχετικό είναι και το ακόλουθο απόσπασμα:

“An arbitrator is to [resign] if, for instance, he may have an interest in the result of the dispute. In fact, in view of the qualities he is required to possess, a candidate is unlikely to accept an appointment as arbitrator where his personal interest is involved and, if he realizes such involvement after the appointment he may be trusted to resign.”

6. Στο σημείο αυτό, αναφέρουμε αυτούσιες τις ακόλουθες κατευθυντήριες γραμμές όπως αυτές έχουν συνταχθεί από το Διεθνή Δικηγορικό Σύλλογο σε σχέση με τα ζητήματα που προκύπτουν σε περιπτώσεις σύγκρουσης συμφερόντων:

(2) Conflicts of Interest

(a) An arbitrator shall decline to accept an appointment or, if the arbitration has already been commenced, refuse to continue to act as an arbitrator, if he or she has any doubt as to his or her ability to be impartial or independent.

(b) The same principle applies if facts or circumstances exist, or have arisen since the appointment, which, from the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, would give rise to justifiable doubts as to the arbitrator’ impartiality or independence, unless the parties have accepted the arbitrator in accordance with the requirements set out in General Standard 4.

(c) Doubts are justifiable if a reasonable third person, having knowledge of the relevant facts and circumstances, would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision.

(οι υπογραμμίσεις είναι δικές μας)

7. Ενόψει τούτων, όταν παρουσιάζεται οποιοδήποτε ζήτημα που ενδέχεται να αποτελεί σύγκρουση συμφερόντων, πρέπει να απαντηθεί το ερώτημα, του κατά πόσο ένα λογικό τρίτο άτομο, το οποίο έχει γνώση των συνθηκών, μπορεί να συμπεράνει, ότι υπάρχει πιθανότητα ο Διαιτητής να επηρεαστεί, από παράγοντες άσχετους με τη διαδικασία, κατά την έκδοση της απόφασης του.

8. Θεωρούμε επίσης, ότι εάν υφίσταται έστω και η παραμικρή ελπίδα ή προσδοκία ότι το εν λόγω γεγονός θα διαδραματίσει τον όποιο θετικό ρόλο στην διαδικασία και ειδικά στο αποτέλεσμα αυτής, τότε η διαδικασία αυτομάτως μολύνεται και η Δικαιοσύνη πλήττεται.

9. Υπάρχει ακόμη το ενδεχόμενο, τα μέρη να βλέπουν την όλη διαδικασία με καχυποψία, να υπάρχει δηλαδή ένα λανθάνων αίσθημα ότι ένα από τα δυο μέρη θα έχει προνομιακή μεταχείριση ένεκα των συνθηκών και εύκολα μπορεί τεθεί υπό αμφισβήτηση το όποιο τελικό αποτέλεσμα.

10. Ως εκ των ανωτέρω και ανεξάρτητα από την όποια άποψη που τυχών έχει κάποιος Διαιτητής ότι ο Διαιτητής θα ενεργήσει με τον δέοντα αμερόληπτο τρόπο, ενδεχομένως να υπάρχει παρά ταύτα, η ηθική υποχρέωση για την παραίτηση και εύλογα αναμένεται όπως παραιτηθεί από τα καθήκοντά του, εφόσον έχει διαπιστωθεί θέμα σύγκρουσης συμφερόντων. Σε κάθε περίπτωση ο Διαιτητής θα πρέπει να είναι σε εγρήγορση προς αποτροπή έγερσης τέτοιων θεμάτων. Ίσως ακόμα ποιο σημαντικό είναι αυτά τα θέματα να τα χειρίζονται τα μέρη και ο ή οι Διαιτητές με διαφάνεια και ειλικρίνια.

Γεωργία Βλαδιμήρου & Μαρία Χ’ Πίττα
Δικηγόροι – Ομάδα Υπηρεσιών Επίλυσης Διαφορών

Για οποιεσδήποτε απορίες παρακαλώ επικοινωνήσετε μαζί μας στο georgia@messios.com ή στο maria@messios.com

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