51ACCOUNTANCY CYPRUS2016. Under certain circumstances, a loss to other comprehensive income – the opening balance of retained earningsreassessment is required or permitted. difference between the amount that is for the balance of accumulated other reported in profit or loss under IFRS 9 comprehensive income.OVERLAY APPROACH and the amount that would have been reported in profit or loss under IAS 39. IMPACTUnder IFRS 9, certain financial assets Financial assets are eligible forhave to be measured at fair value through designation for the ‘overlay approach’ if Both the temporary exemption and theprofit or loss, whereas, under IFRS 4, the they are measured at fair value through ‘overlay approach’ allow entities to avoidrelated liabilities from insurance contracts profit or loss under IFRS 9, but not so temporary volatility in profit or lossare often measured on a cost basis. This measured under IAS 39. In addition, that might result from adopting IFRS 9mismatch creates volatility in profit or loss. an asset cannot be held in respect of before the forthcoming new insuranceBy using the ‘overlay approach’, the effect an activity that is unconnected with contracts standard. Furthermore, byis eliminated for certain eligible financial contracts within IFRS 4’s scope. If a using the temporary exemption, an entityassets. For these financial assets, an insurer designated financial asset no longer does not have to implement two sets ofis permitted to reclassify – from profit or meets the eligibility criteria (for major accounting changes within a short example, because it is transferred so that period, and it can take into account the The it is now held in respect of an entity’s effects of the new insurance standard banking activities or because the entity when first applying the classification and amIeFnRdmSen4t to ceases to be an insurer), it shall be de- measurement requirements of IFRS 9. designated; in that case, any balance Groups that contain insurance subsidiaries provides two accumulated in other comprehensive should be aware that the temporary different income relating to this financial asset is exemption only applies at the level reclassified to profit or loss. of the reporting entity. So, unless the solutions for The ‘overlay approach’ is applied whole group is eligible for the temporary insurance retrospectively. Accordingly, the difference exemption, whilst an eligible insurance companies between the fair value of the designated subsidiary can continue to apply IAS 39 financial assets and its carrying amount in its individual financial statements, the is recognised as an adjustment to the subsidiary will have to prepare IFRS 9 opening balance of accumulated other information for consolidation purposes. comprehensive income. Following the It is noted that, under both approaches, a same logic, if the entity stops using significant level of additional disclosures the overlay approach, it adjusts the would be required.
52 ACCOUNTANCY CYPRUS ACCOUNTING & AUDITWAYCOMING YOURData analytics is not just for the bigauDit firms.By Katharine Bagshaw, Technical Manager, Auditing Standards, ICAEW,and Phedra Diomidous, Manager, International Standards, ICAEWAuditors in nological barriers that hampered can be used to analyse data on • inventory ageing and the num- small and development of computer assist- the practice and its clients to ber of days inventory is held in medium ed audit techniques (CAATs) in find out, for example, which is stock by item. practices the late 1990s have been over- the most profitable client or sec- Data analytics tools can draw (SMPs) can come, the application of data tor. There’s a big difference be- on external market data, such as be forgiven analytics tools and techniques to tween using analysis features in third party pricing sources and for thinking the audits of SMEs is becoming system you already use and start- foreign exchange rates, to recal-that data analytics are not for commercially viable. ing from scratch with a new and culate the valuation of invest-them – if they have thought There is now a growing range additional software application ments, for example, and to helpabout them at all. To date, the of generic data analytics tools or service. So despite the various assess the reasonableness of clientuse of data analytics in external available that can be used to generic analytics tools available, estimates.audit has been associated with extract, validate and analyse large which could potentially be used The potential benefits for prac-larger entity audits. But data volumes of data, quickly. These in SME audits, many auditors tices and their clients include:analytics can provide an oppor- tools can be applied to single will prefer the idea of using data • contributing to enhanced audittunity for firms auditing entities sources, they can be used to analytics capabilities that are quality;of all shapes and sizes to reinvent blend data from multiple sourc- built into the audit systems they • enhancing risk assessment;themselves through innovation es and to analyse either subsets already use. We are aware that • supporting the applicationin audit. We should not under- of available data or complete some audit software developers and demonstration of a scepticalestimate or ignore the potential populations (i.e. 100% of the are working on this. mindset;benefits in the audit of small and transactions, or ‘full data sets’). • accessing data remotely, whichmedium-sized entities (SMEs). Data analytics tools can be used EXTERNAL AUDIT has advantages over on-siteIn its broadest sense, data ana- to support judgments, draw audits;lytics is about examining large conclusions or provide direction So, what can data analytics add • adding value to client services;volumes of raw data with the for further investigation. Data to external audit? It can be used andpurpose of drawing conclusions can be analysed and brought to at different stages of the audit • responding to client demand.about it. So it is natural for the life using bar and pie charts and including risk assessment, as wellprofession to explore how it cluster diagrams, to facilitate as substantive procedures. POTENTIAL BENEFITSmight potentially contribute to sharing and to help users under- The use of data analytics rangesaudit quality and audit efficiency stand the meaning and signifi- from simple routines to more As digital technologies becomeand deliver insights to manage- cance of the findings. sophisticated and complex mod- more accessible and morement. Listed entities already Some small audit firms may els. Examples include: affordable for businesses andexpect their auditors to have a already be using data analytics • analysing revenue trends by practices of all shapes and sizes,data analytics offering. This is in areas other than audit. Some product or region; uptake will increase. We expectnot yet true for smaller audits. practice management systems • recalculating depreciation of to see growth in the use of dataBut now that many of the tech- offer built-in capabilities that property, plant and equipment analytics in external audit out- by item; and side the larger networks, so all
53ACCOUNTANCY CYPRUS The use of data analytics improves efficiency and effectiveness, and contributes TO IMPROVED AUDIT QUALITYthis article was first The tools enable auditors to go ers focuses on data extraction. audits develops, SMEs will bepublished in ‘audit and straight to the areas of interest, It can extract information from expecting their auditors to makebeyond’, a publication to hone in on potential prob- proprietary accounting systems use of these tools in their audits.of icaeW’s audit and lem areas earlier, and to avoid used by SMEs (with their per- Auditors will then have to decideassurance faculty spending time trawling through mission) by connecting to them whether to integrate these tools samples that may provide very over the Internet. with their audit approach toaudit firms need to be aware of little audit evidence. This presents advantages over respond to client demand.the developments and under- There are various ways that on-site audits, in terms of time ICAEW’s Audit & Assurancestand the potential benefits. data analytics can contribute to and cost efficiencies, as well Faculty and the IT Faculty re- improved risk assessment. For as the quantity and quality of cently held a webinar on the useENhANcED example: information obtained within a of analytics in audit, considering:AUDIT qUALITy • the graphical representation of given time frame. Confidential- the ways in which we use data findings makes it easier to drill ity and security issues related to in audits; analysing transactions;Applying appropriate data down to the underlying data and data extraction, transformation analysing judgements; analysinganalytics routines to perform obtain a better understand of and retention can also be ad- external data; and using ourparticular tests should facili- findings; dressed in part by the software client’s data analytics. It also in-tate better directed and more • the facilitation of sophisticated and protocols applied by the cluded a demonstration of toolsfocused audit resources, and and wide-ranging query and software provider. and considered some of the chal-better quality audit analyses and filter options; lenges of using data analytics.judgements, as well as new and • speedier performance of audit ADAPTINg ANDfocused insights for the client. tests, resulting in time efficien- RESPONDINg TO DEmAND gOINg FORWARD cies;ENhANcINg RISk • the identification of anomalies, Many businesses, including Notwithstanding the benefitsASSESSmENT outliers and trends, thereby SMEs, are starting to use data of data analytics, managing the surfacing issues which otherwise differently to adjust to digital introduction of data analyticsCombining data analytics with might have been overlooked - developments and competition. to smaller audit practices andexisting auditing techniques can sharpening audit efforts towards Auditors must also adapt to this smaller clients requires care. Ithelp auditors to gain a better un- riskier audit areas; and transformation. Data analytics involves a substantial investmentderstanding of the business and • by providing a practical means represents one of the responses of time, effort and resourcesbetter quality risk-assessments. of managing certain IT issues to the new order. to help staff and clients under- in audit. Data analytics helps inform stand the change of approachFindings from clients about matters related to and it does involve embracingdata analytics SUPPORTINg ScEPTIcISm their business of which they may new technologies. Innovationroutines can not have been aware. In practice, requires the profession andsupport auditors Findings from data analytics findings from the application of auditors to take the long view,in maintaining routines can support auditors data analytics tools often help and to look at the investmentand demonstrating in maintaining and demon- management to understand the in hardware, software, skills andA SCEPTICAL strating a sceptical mindset by root causes of exceptions within quality control, in the contextMINDSET using them to help assess the a set of transactions, whether of long-term benefits – and as reasonableness of management corrective action for previously part of this process, ICAEW representations, using predictive identified deficiencies is actually has published Data analytics for tools, for example. These can working, and whether controls external auditors. also help in fraud-related work. are being applied consistently. A The use of data analytics simple example involves looking improves efficiency and effec- AccESSINg at who is posting journal transac- tiveness, and contributes to DATA REmOTELy tions and when, then comparing improved audit quality. This that with what management – in combination with other One feature of data analytics is understands is supposed to be initiatives by the profession the potential for remote applica- happening. – will help position auditors tion, without auditors neces- As smaller businesses become to better respond to growing sarily having to be physically more aware of the capabilities of competition, pressure on fees present at the client’s premises data analytics and as affordable and increased regulatory require- to apply them. Specialist data data analytics software for SME ments. analytics software already avail- able from some software provid-
54 ACCOUNTANCY CYPRUS ACCOUNTING & AUDITIFRS15 REVENUE FROM CONTRACTS WITH CUSTOMERSThe impacT on The reTail, wholesale and disTribuTion secTorBy Yiannis Leonidou, Director, Audit, Deloitte Limited warranty will always be treated as a separate service. Where a warranty isThe International Accounting Standards Board (IASB) has published determined to include both elements, IFRS 15, which outlines a single comprehensive model of accounting the transaction price is allocated to the for revenue arising from contracts with customers and supersedes cur- product and the service in a reasonable rent revenue recognition guidance, which is found currently across sev- manner. In the retail sector, it is common eral Standards and Interpretations within IFRSs. IFRS 15 is more de- for warranties to include both elements. tailed and more prescriptive than the existing guidance and introduces For example, a warranty may both new complexities. IFRS 15 requires significantly more disclosures assure the quality of the product and relating to revenue and entities will need to ensure that appropriate provide a free maintenance plan for twoprocesses are in place to gather the information. The new Standard is effective for report- years. Where a warranty contains bothing periods beginning on or after 1 January 2017, with earlier application permitted. elements, judgment will be needed in order to determine how to allocate theThe core principle is that an entity (accounted for as a cost provision) and a transaction price in a reasonable manner,recognises revenue to reflect the transfer of warranty providing an additional service and this may result in warranties beinggoods or services, measured as the amount (for which revenue will be deferred). accounted for differently than at present.to which the entity expects to be entitled Consideration of factors such as legalin exchange for those goods or services. requirement, length of coverage and How should breakage be recognised the nature of the tasks that the entity (e.g. customer loyalty schemes)?How should warranties be accounted for? promises to perform will be necessary to Many retailers offer customers futureThe new Standard distinguishes between determine which type of warranty exists. goods or services in exchange for aa warranty providing assurance that a If a customer can choose to purchase non-refundable upfront payment.product meets agreed-upon specifications a warranty as an ‘optional extra’, that Customers do not always exercise all their contractual rights in these scenarios. Such unexercised rights are often referred to as ‘breakage’. If an entity expects to benefit from breakage, it should recognise the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. Otherwise, the entity should recognise any breakage
55ACCOUNTANCY CYPRUSamount as revenue when the likelihood Contracts in this sector can include to estimate the amount of considerationof the customer exercising its remaining significant variable elements, such as that should be taken into account.rights becomes remote. volume rebates, credits and incentives. The Standard also introduces a specific There are new specific requirements in restriction for royalty payments relatingHow will shipping terms impact the respect of variable consideration such to licences of intellectual property. Iftiming of revenue recognition? that it is only included in the transaction royalty payments are based on usage orIFRS 15 focuses on when control of price if it is highly probable that the onward sale, entities are restricted fromgoods has transferred to the customer. amount of revenue recognised would not recognising the associated revenue untilFor example, some entities may supply be subject to significant future reversals the usage or onward sale has occurred,goods on the basis that title passes to the as a result of subsequent re-estimation. even if it is possible to make a reliablecustomer at the point of shipment but, The approach to variable and contingent estimate of this amount based onas a matter of business practice, may consideration is different from that historical evidence.compensate customers for loss or damage previously reflected in IFRSs and mayduring shipping. Previously, revenue may require a significant degree of judgement Should revenue be allocated tohave been recognised only at the point of customer options to acquire additionaldelivery, on the basis that some exposure Entities will goods or services at a discount?to risks and rewards is retained until then. need to assess Some contracts in the retail, wholesale andUnder IFRS 15, entities will need to assess whether control distribution sector include an option forwhether control passes to the customer at passes to the the customer to purchase additional goodsthe point of shipment or at the point of customer at or services at a discount. In this type ofdelivery. This may result in revenue being the point of scenario, an entity must allocate a portionrecognised at a different time. If revenue shipment or at of the transaction price to the option andis recognised at the point of shipment, it the point of recognise revenue when control of themay be necessary to allocate part of the goods or services underlying the option istransaction price to a distinct “shipping delivery transferred to the customer, or when theand risk coverage” service, with that option expires.element of revenue recognised when theservice is provided. Impact on the presentation of payments made to customersWhen should variable or uncertain In this sector, suppliers often makerevenues be recognised? payments to retailers of their products in order to have their products prominently displayed. Under the new Standard, there is explicit guidance that addresses how to account for payments made to a customer. Suppliers will need to consider whether the payment is made for a separate good or service or should alternatively be treated as a deduction from revenue. Should revenue be adjusted for the effects of the time value of money? IFRS 15 introduces new and more extensive guidance on financing arrangements and the impact of the time value of money. Financing arrangements such as buy now and pay later are commonplace in the retail, wholesale and distribution sector. Under the new Standard, the financing component, if it is significant, is accounted for separately from revenue. This applies to payments in advance as well as in arrears, but subject to an exemption where the period between payment and transfer of goods or services will be less than one year.
56 ACCOUNTANCY CYPRUSPREOSCFEOERSNVSIOCIOEMSNYALPOLITICALLY EXPOSEDTHE MISUNDERSTOOD By Kyriacos Savva, Audit Quality and AML Compliance Senior Manager, Certified Internal Auditor, and Yiannis Pettemerides, Registered Auditor, Regulatory Compliance Advisor, Certified Insolvency Practitioner. Both are Members of the ICPAC Economic Crime and Forensic Accounting CommitteeT he PEPs clientele has been largely interpreted by both the interna- tional regulatory authorities and the international financial industry as being equal to a special group of individuals involved in money laundering, embezzlement and corrupt financial practices. A large proportion of the financial industry is currently terminating or decliningany business relationship with any individuals solely on theirPEP identification criterion and the regulatory authoritiesare actively targeting any identified PEPs as likely to be highprofile criminals who are always trying to hide something.In practice, the above is far necessary means and status to become politically exposed due diligence procedures so as tofrom the truth. PEPs are do something corrupt. persons; mitigate the money launderinga misunderstood group of • take adequate measures to es- risk present due to their politicalindividuals and there is noth- Cyprus Law tablish the source of wealth and status. The aforementioned re-ing wrong in doing business source of funds; and quirements are preventive andwith them. The vast majority The Cyprus “Prevention and • conduct enhanced ongoing not punitive in nature, andare legitimate businessmen Suppression of Money Laun- monitoring of the business rela- should not be interpreted asand their corrupted members dering and Terrorist Financing tionship. stigmatising PEPs in being actu-are not at a higher percent- Law of 2007-2016” requires ally involved in criminal activity.age than any other group of that financial organisations, The purpose of the Law on Refusing a business relationshipclients. Their increased money with regard to PEPs:laundering risk, does not come • have appropriate risk-based PEPs is to prescribe enhancedfrom a predetermined fact that procedures to determinethey are all going to commit whether the client or the ben-a financial crime but rather eficial owner is a politicallyrefers to the increased risk that, exposed person;due to being entrusted with • have senior management ap-a prominent public function proval for establishing businessin their country, or to their relationships with such clientsassociation with a political of- or for the continuation of suchficeholder, they may have the a relationship with existing clients who have subsequently
57ACCOUNTANCY CYPRUSPERSONS (PEPS) -INDIVIDUALS Any failure in your money laundering procedures to identify a corrupt PEP may lead to a great risk for your organisation PEPs are a with a PEP, simply PEP can be challenging, particu- ing guidance to assist a financialmisunderstood based on the determi- larly since current information nation that a client is may not be readily available. organisation in identifying a group of a PEP, is contrary to However, failure to identify a individuals the letter and spirit of prospective client as a PEP, will PEP client: and there is the Law. lead to significant regulatory • ensure clients’ due diligencenothing wrong exposure for a financial organisa- information is up to date as ex- IdentIfyIng peps tion. The Financial Action Task isting clients sometimes become in doing Force (FATF) offers the follow- PEPs after they enter a business business with Identifying whether a relationship; prospective client is a • ensure internal procedures them include employee ongoing train- ing programmes, addressing effective ways of determining whether clients are PEPs; • use the Internet and media as sources of information for the determination, monitoring and verification of information in relation to PEPs; • use available commercial databases but do not fall into the trap of wrongly assuming that if a name is (not) in such a database then the client is (not) a PEP; • use countries’ published lists of domestic PEPs; • use in-house developed da- tabases as a tool to assist in the determination of who is a PEP; • use countries’ asset disclosure systems applying to those in- dividuals who hold prominent
58 ACCOUNTANCY CYPRUSpublic functions; different if the individual is a middle procedures to be able to identify any PEP• use self-declarations by a client of their level government official and different will solve the problem and minimise thePEP status, while noting that such pro- in the case the individual was a head of risk for your organisation. But this is onlycedure would shift the financial organisa- state. Where the risk identified is low, partly true as corrupt PEPs are firstlytion’s obligation to their client, which is financial organisations may consider concerned about hiding their identity andnot an acceptable practice; and declassifying the relationship, but only secondly about hiding their assets. The real• use general information publicised by after careful consideration of the risks risky PEPs are the suits, the middlemen,competent authorities (e.g. the level of cor- still present and also getting senior the associates who stand in the shadowsruption in the country, the level of income management approval. and are almost always the ones involvedfor certain types of positions). in the account openings. These people The length of are the PEPs you really need to look outOnCe a pep aLways a pep time after for. In fact, the political figure is arguably the last person you need to watch out for.The Law states that, without which a PEP has As such, an effective PEP risk mitigationprejudice to the application, on a ceased to hold solution should not merely provide a longrisk-sensitive basis, of enhanced cus- list of officeholders’ names and positionstomer due diligence measures, where public position is but in order to identify risk critically anda person has ceased to be entrusted not indicative of methodically, it must also provide thewith a prominent public function the relative money identities of all those ‘exposed persons’for a period of at least one year, the laundering risk that surround the PEP.financial organisation shall not beobliged to consider such a person as associated COnCLusIOnPolitically Exposed Person. with the businessFrom a first reading of the Law, PEPs are High Net Worth Individualssomeone can assume that, a year relationship and can definitely add value and prestigeafter a PEP leaves office, he/she can to your organisation. Getting them asbe declassified by the financial or- fInd the MIddLeMan and nOt the pep your clients has nothing wrong with it, asganisation from being a PEP. This long as you have procedures in place tomay appear a reasonable assumption PEPs are going to continue doing business identify them, follow enhanced due dili-to make but it is the wrong one to and may be currently using services from gence procedures as required by the Law,make. The key word in the Law your own organisation without you being and identify and control the risk you willis the phrase “...on a risk-sensitive aware. Even if you follow a low risk clients be facing.basis...”. acceptance approach and do not accept any You need though, to be on continuousThe length of time after which a PEP PEPs, any failure in your money launder- watch and to be alert and vigilant as get-has ceased to hold a public position is ing procedures to identify a corrupt PEP ting aboard a corrupt PEP will not be onlynot indicative of the relative money may lead to a great risk for your organisa- about facing scrutiny from the regulatorylaundering risk associated with the tion. You might end up with the very real authorities but will also constitute a repu-business relationship. Time limits are possibility that you will read in a morning tational risk which could irrecoverablyalways artificial and pose problems as newspaper that you are providing services damage the brand name and reputation ofthey can convey a false sense of secu- to one of the world’s most corrupt leaders, your organisation and threaten its futurerity that a client no longer poses an something that you had no idea about and viability.increased risk of money laundering. you are being held responsible for. As a closing point, remember that theEvidence suggests that corrupt PEPs So you may feel safe to conclude that whole process of money laundering riskdo not cease to move illicit funds af- having the appropriate internal control mitigation is largely now about professionalter leaving office and some may even judgment and professional scepticism; thewait until after leaving office to move times when having a copy of a passport, athese illicit funds. The timing for PEP utility bill and five ticked checklist boxesdeclassification from ceasing to hold was sufficient are long gone and mostpublic position should be considered certainly will not get your organisation offcase by case in terms of what the previ- the hook with the regulatory authorities ifous public position was for the said things go wrong.individual, as the risk is significantly
26 ACCOUNTANCY CYPRUS BSc in Accounting, Banking & Finance The Bachelor Programme in Accounting Banking and Finance has a strong focus on practical applications without sacrificing academic rigour. It provides a solid foundation in all of the traditional financial disciplines, giving participants the analytical tools for a successful career in professional and academic positions related to finance, capital markets, investment management, corporate finance, and risk management. The curriculum is highly integrated and accelerated, allowing for the study and mastery of a broad range of skills. The course has been accredited by the ACCA allowing students to obtain exemption from all 9 ACCA exams that precede the 5 professional exams. MSc in Accounting, Investment & Finance The Master of Science in Banking, Investment & Finance at Neapolis University offers a rigorous academic and practical training, which can help you become a leader in your field. It is aimed at students from a variety of backgrounds, including students with no previous training in economics or accountancy. For the banking sector employees, the programme offers the opportunity to acquire additional all-round managerial and specialised skills. This is an ideal way of preparing to take on complex managerial roles and fill responsible key leadership positions.2 Danaes Avenue, 8042 Pafos, Cyprus Τ: +357 26843300 [email protected] / www.nup.ac.cy Connect with us!
60 ACCOUNTANCY CYPRUS OPINION DIRECT DEMOCRACYBy Frixos Kyprianou, The idea of direct democracy, as opposed to the lem with our current system isDirector, LIS Primus current parliamentary representative system, the existence of special interest has been on my mind for quite some time groups and their ability to exert Audit & Tax Ltd now. Direct democracy allows the public to pressure on the lawmakers. If have its say by way of referendums on signifi- lawmakers know that a special cant issues, rather than leaving these decisions interest group commands a to the politicians. It is a major feature of the significant number of votes, Swiss political system, where there are frequent they will not vote for any pro- referendums on significant local and national issues. Most Swiss posal before the House that people are very satisfied with their political system and it certainly goes against the wishes of this has not harmed their country’s prosperity. group, even if it would clearly benefit the majority of the peo- By contrast, in my view, repre- not hesitate to put their per- ple. The non-organised major- sentative democracy – at least sonal and party interests ahead ity invariably loses out to vocal as practised in Cyprus – has of those of the people they are organised interest groups such been a complete failure, hav- supposed to represent. Since as unions, farmers, shopkeepers ing consistently shown itself the collapse of the economy in and any number of others. to be neither representative 2013, it has become clear that In my opinion, the Internet nor democratic. The fact that many of the disastrous deci- has given us a long-overdue someone has to ask for your sions which led to the catastro- opportunity to streamline our vote once every five years does phe were influenced by bribes democracy, to eliminate influ- not necessarily mean that he/ or large party contributions ence and corruption and restore she will faithfully represent you from businessmen with special real, direct democracy. If we get and your fellow voters in the interests, which have nothing rid of all the middlemen and House of Representatives. It to do with the overall well- fixers, democracy will work in has been proven time and time being of the economy or the a much more efficient manner again that parliamentarians do people. Another obvious prob- and a source of corruption in the democratic system will be uprooted once and for all.
It might be argued that the In our presidential elections, the islation. Both the Governmentrecent Brexit referendum in the candidates should be obliged to and citizens should have theUK is hardly a good advertise- present a complete programme right to propose new laws forment for direct democracy detailing how they intend to consideration by the electorate.but it is precisely because ref- run the country and this would If any matters are judged to beerendums are so unknown in be treated as a mandate for the too big or too complex for theBritain that politicians on both whole of their term in office, average citizen to understand,sides of the debate were able if elected. If circumstances an objective summary could beto mislead voters. A benefit of change and the mandate must prepared by independent ex-direct democracy is that it forces be revised, all they have to do is perts, explaining the vital issuescitizens to think about, and take present the new proposal to theresponsibility for, their society, people via the Internet or any Parliamentarians do not hesitateespecially if the issues discussed other means of communication. to put their personal and partyand decided upon directly affect Adequate time must be allowed interests ahead of those of the peoplethem or their family. Another for matters to be evaluated they are supposed to representadded benefit of direct democ- and discussed among the citi-racy is that it allows people zens and, once this period has in simple terms.with expertise in a particular lapsed, the amendment can be If referendums were moresubject to express their opinion put to the vote via a simple on- widely used, this would ceasein public, contributing to an line system. During the period to be an issue. Of course,informed, logical debate, as preceding the vote, the Govern- Utopia is always an unreach-opposed to what we have now ment will have the chance to able dream as is the probabilitywhere the representatives are explain its reasoning for the of the political parties givingjacks of all trades and masters of change and anyone will have power back to the people.none. It is common knowledge the right to express their own But, as the saying goes, “Hopethat when our parliamentarians opinion on the matter, whether springs eternal”!vote on something, they have for or against. The same prin-no idea most of the time what ciple can be applied to new lawsthey are voting for. or amendments to existing leg-
62 ACCOUNTANCY CYPRUS ECONOMY inTerview Prudent ManageMent and Continued RefoRM These are key To Cyprus’ abiliTy To aChieve and mainTain susTainable growTh in The Coming years, says FinanCe minisTer harris georgiades
63ACCOUNTANCY CYPRUS
64 ACCOUNTANCY CYPRUS ECONOMYWhat are the main priorities of lead to upgrades of the economy multi-faceted, ambitious reformthe Ministry of Finance until the from the rating agencies will not policy which will guarantee andend of the present administra- only reduce the cost of borrowing allow the achievement of the objec-tion? but will send a positive signal to tive of consolidating the country’sOur top priority is to maintain potential investors. These are cor- economic recovery and securingthose conditions that will support rective measures that we are apply- long-term sustainable growth.the continuation, consolidation and ing to various aspects of the statereinforcement of economic growth. infrastructure and the economy. Your mentioned tax relief. AreHaving successfully exited the specific measures in the pipeline?economic adjustment programme Over and above the reforms con- We are constantly examining ourin March 2016 and restored the cerning the Civil Service, local gov- tax regime. We introduced a reformcountry’s creditworthiness, as well ernment and the autonomy of state in 2015 which is already bearingas emerging from the long drawn- hospitals, the next steps will include fruit, focusing on encouragingout recession that actually began in reforms relating to alternative in- investment with tax exemptions/2009, our first priority is to main- vestment funds, which are expected deductions for all new capitaltain and consolidate the recovery of to lead to the development of a investments in any Cypriot enter-the real economy. new sub-sector within the broader prise, and changes for non-residents financial services sector, reform of which are already encouraging In order to achieve this we need High Net Worth Individuals tostability – financial and economic Our recovery relocate to Cyprus. In 2016, weand more broadly in the market from the made significant reductions to real– which will strengthen consumer estate taxes, cutting transfer fees byand investment confidence so that recession and half and drastically reducing prop-the highly satisfactory recovery of return to erty tax. From January 1, 2017,the real economy can continue in growth did the special contribution has beenvirtually every productive sector. not occur abolished and our approach is that, by chance provided we maintain this stable In this way, unemployment course of prudent management ofwill continue to fall, state revenues the Provident and Pension Fund public finance and avoiding deficitwill grow and the public debt as a legislation, new legislation for the creation, conditions will graduallypercentage of GDP will be reduced creation of a Sovereign Wealth be created in which we can givewhile, at the same time, households Fund so that a credible and trans- something back to individuals andand businesses will be in a better parent framework is set up from businesses in the form of tax relief.position to service their loans. So now to govern the management ofstable, sustainable growth is what future revenues from natural gas, as Following the withdrawal of thewe are seeking to establish in the well as moves to encourage further bills relating to the privatisationcoming period and a series of initia- foreign investment. of Cyta, does the Ministry intendtives will be taken in support of this to submit new ones on the sameobjective. Other crucial steps already taken subject to the House of Represen- include the commercialization of tatives?How can that desired stable, sus- Limassol Port, the start of construc- This is our intention. We have re-tainable growth be achieved? tion of Ayia Napa Marina and the peatedly stated our conviction thatOur recovery from the recession granting of a casino licence, while Cyta cannot continue to operateand return to growth did not occur the awarding of the State Lottery under state ownership and on theby chance. They were the result of and Larnaca Port to foreign inves- basis of structures and processesspecific actions. So the consolida- tors are on the way. that belong to previous decades, es-tion of economic growth will be pecially when taking developmentsthe consequence of specific targeted We are fully implementing a in technology and competitionsteps, for example, through the in the telecommunications sectorcontinued prudent management of into consideration. It is imperativepublic finances and ensuring that in our view to attract a strategicno deficits are created. This policy partner/investor in Cyta and we areallows for tax relief in certain areasthat boost the economy. Steps that
65ACCOUNTANCY CYPRUSin the process of reviewing the op- ment community, to promote the amount of red tape and double-tions, taking into account the reser- prospects for investment and I can checking and brought a measurevations expressed by the House of tell you that Cyprus’ image today of common sense to a serviceRepresentatives, before submitting is very different from what it was that can now make better use ofa new bill. prior to 2013. It is a positive image its human resources and unified that has already begun to translate processes. This effort should beIs there a timetable for this? into tangible investments. I have repeated elsewhere.We want to do it as soon as pos- already mentioned a few that aresible. linked to Government initiatives Have you seen any study relating – Limassol Port, with investment to reform of the Central Bank ofA decision has already been taken from Dubai and Germany, Ayia Cyprus?on the privatisation of the Greek Napa Marina where the lead inves- We are waiting for the Centralsubsidiary, Cyta Hellas. tor is an Egyptian group, and the Bank to complete its own plans.This is part of the new approach casino where the preferred bidder We are ready to work with thethat we are taking, by separating is a US/Hong Kong consortium. Central Bank, especially regardingthe process regarding Cyta Hellas. We have also seen very significant any required legislative changesIt is essential that our options for investment in the pharmaceutical, and, for our part, I can only repeatCyta itself be examined at once. that we place great importance on Cyprus’ image any such reforms, which can onlyWhat are the biggest challenges today is very come from the Central Bank itself.facing the Cyprus economy? So we are ready.The biggest danger to the economy differentis our ‘bad self’. If we return to our from what How do you view the listing ofold ways of thinking and to the it was prior Bank of Cyprus on the Londonpolicies that led to the derailing Stock Exchange?of the economy, we are bound to to 2013 I view it as extremely significantcome up against new difficulties. for the Bank and for the CyprusOn the other hand, if we show retail and tourism sectors. Stock Exchange, as well as for theby our actions that we have learnt So we already have tangible con- economy more generally. A list-from our mistakes of the recent ing on and access to one of thepast, I will be very optimistic about firmation of the positive image that world’s biggest stock markets canthe future of the Cyprus economy. Cyprus has succeeded in creating only be considered as an extremely globally. However, this image needs positive step and that is precisely I repeat: the economy has shown to be constantly strengthened and how we see it.resilience and has prospects, in- safeguarded and, as I have said, weternationally it is viewed in an ex- must avoid repeating past mistakes Are there plans for the earliertremely positive light, opportunities and keep up the effort to improve privatisation of the Cooperativeare arising, it has achieved a recov- and transform state and economic Central Bank?ery that was totally unexpected in structures. We need to try to fur- It is clear that the Cooperative Cen-some quarters and, if we remain ther simplify procedures and get rid tral Bank cannot remain in stateconsistent and focused on continu- of pointless bureaucracy. hands indefinitely. In any case, theing what we have started, the econ- terms under which state aid is givenomy can progress even further. A good example of this effort is provide for this to be a temporary the unification of two previously measure and I believe that, in oneYou’ve participated in a lot of separate tax departments, which way or another, the coops need toforums that are held abroad to put an end to double processes, be returned to the people. There ispromote Cyprus as an investment double structures, double the a plan in place and certain decisionsdestination. What kind of feed- have been taken in this regard, overback have you received? and above those provided for inPositive and promising. Part of the Cooperative Central Bank’s re-this Government’s mission is to structuring plan, which will be fullyconstantly inform and communi- implemented.cate with the international invest-
66 ACCOUNTANCY CYPRUS ECONOMYCYPRUS IS OPEN By Michael Sarris prudential regulation, weak In the short five-year period Economist, former World Bank Department bank corporate governance between 2007 and 2012, Director and Finance Minister of Cyprus in and the prevailing philosophy through what was for Cyprus of “light touch” bank supervi- historically uncharacteristic 2005-2008 and in March 2013 sion. By 2010, the assets of fiscal laxity, one of the best fis- the Cyprus banking system cal performers in the eurozoneIn the fifty years since gaining independence had grown to eight times its was transformed into one of in 1960 from the British, who left behind a €19 billion GDP, with non- the worst. During this period, strong institutional legacy, including a solid residents accounting for about Cypriot public debt rose public administration, Cyprus experienced an one-third of bank deposits. It is sharply from 48% to 86% of impressive economic transformation and rapid now widely acknowledged that GDP and Cyprus joined other development. In the context of a close public/ the absence of limits to private eurozone countries deep in the private partnership, characterized by the provi- bank credit expansion, and of trap of mutually reinforcing sion of supportive infrastructure, prudent eco- surveillance rules to prevent sovereign and banking risks: nomic policies and dynamic entrepreneurship, excessive sector concentration, weak public finances unable to Cyprus took advantage of external opportuni- was a serious fault in the design support banks in need of capi-ties to build a strong service-oriented economy, based of the European Monetary tal, and banks underestimatingon exports. In parallel, it implemented much-needed Union and a major contributor risk, becoming embattled andeconomic and structural reforms in the process of join- to the unfolding of the euro- thereby undermining the sus-ing institutions with sound economic practices, which zone crisis, especially in the tainability of public finances.promote trade expansion and free capital movement in countries of the periphery. Following the loss of access topursuit of investment opportunities, such as the WTO,the EU and the eurozone. A robust legal frameworkbased on English Common Law, first-rate professionalservices and an attractive tax regime underpinned thecentral contribution of international business to the Cy-priot growth model.As happened in several other eurozone countries, thesevere and protracted worldwide recession, resulting fromthe financial crisis of 2007-2008, brought to the surfacepreexisting and home-grown economic weaknesses. Acostly misallocation of resources, resulting from massiveinvestment of capital inflows in construction, had goneunnoticed by policymakers in the face of rapid growth,low inflation and near full employment. These invest-ments were financed by excessive bank credit expansion,which was allowed to happen due to inadequate macro-
67ACCOUNTANCY CYPRUSFOR BUSINESSfinancial markets to cover during the previous several the eurozone, which were exchange of almost half ofgovernment borrowing needs months of uncertainty, and “politically fatigued” by the uninsured deposits intoin May 2011, Cyprus missed the deteriorating quality of financing bailouts such as shares at the Bank of Cyprus,several opportunities to ap- bank loan portfolios, had those for Greece, Ireland the larger of the two systemicply to the European Stability raised the estimated capital and Portugal, supported banks. About half the af-Mechanism under a relatively requirements of the Cypriot by the IMF, pushing for a fected deposits were non-moderate programme of fis- banks to much higher levels “bail-in” of bank depositors. resident. As a condition forcal and structural adjustment. than had been the case just Their decision was justified the rescue package, CypriotBy the time a new govern- a few months earlier. This mainly on the grounds that banks were also required toment took office in March opened the door to the lending the full amount of sell their branches in Greece2013, deposit outflows stronger member states of the required rescue pack- and, as a result, the ratio of age to Cyprus would have their assets to Cyprus’ GDP With Cyprus threatened with led to unsustainable public fell from eight to four. bankruptcy, politically isolated debt levels. With Cyprus As should have been ex-and with little bargaining power, threatened with bankruptcy, pected, confidence in the politically isolated and with banking system was lost and eurozone finance ministers little bargaining power, euro- capital controls had to beproceeded to impose the “bail-in” zone finance ministers pro- imposed. The immediate ceeded to impose the “bail- impact on the economy was in” involving the resolution not as severe as had been of Laiki Bank and the forced feared. However, it is not yet possible to gauge whether the impact of the “bail-in” on Cyprus’s debt sustain- ability was any less severe than that of a conventional bailout. Future economic historians may be able to shed more light on whether the “bail-in” was a costly experiment at the expense of the Cypriots or a rational ap- proach to dealing with Cy- prus’ challenges at the time. What we do know is that some three and a half years after that severe blow, the economy is well on its way to recovery, recording steady growth of around 2.5%.The unemployment rate has de- clined faster than anywhere else in Europe, from 16% in 2014 to 12.5% in 2016, and medium-term prospects are promising. This success- ful turnaround, which has
68 ACCOUNTANCY CYPRUSearned consecutive credit improvements in the corpo- Beyond its strategic location, and the upcoming develop-rating agency upgrades and rate governance of financial modern infrastructure and ment of a luxury casino resortpraise from top IMF and institutions, have contributed high quality of life, Cyprus is creating new investmentEuropean Investment Bank to the relatively rapid resto- has – and is committed to opportunities in shippingofficials, is largely due to ration of confidence in the maintain – a low corpo- and tourism. The discoverysound government fiscal financial sector, as evidenced rate tax rate of 12.5%, an of hydrocarbons and the es-and macroeconomic man- by the return of bank de- extensive network of more tablishment of a modern andagement, the resilience and posits to stable levels. Banks than 60 Double Taxation well-regulated framework forentrepreneurship of the Cy- have been restructured and Treaties and an attractive tax investment funds are attract-priot people, and the loyalty are now fully capitalized, regime for both corporates ing growing investor interestshown by Cyprus’s interna- mostly by foreign investors. and individuals. The Com- in these sectors.tional business partners. Capital controls were gradu- mon Law-based legal system Stability also plays a key roleSpecifically, despite the ally reduced and completely ensures the transparency and in attracting groups of com-disappointment with the removed in record time, reliability of business prac- panies with operations in thetreatment Cyprus received just two years after they tices, while the authorities region. In a clear manifesta-at the hands of its European were imposed – faster than are committed to working tion of its strong commit-partners, Cypriots reached it was feared at the time of harder to improve the speed ment to cooperation withan early and strong consen- the “bail-in”. As should have at which legal disputes are other states in combating taxsus that the country’s politi- been expected, the transmis- resolved. Similarly, more far- evasion and money launder-cal and economic future lay sion of the severe macroeco- reaching public sector reform ing, Cyprus has signed thefirmly within the eurozone. nomic shock of March 2013 aiming at improving service relevant OECD-sponsoredThis was an important mes- to Non-Performing Loans delivery and simplifying agreements and introducedsage of stability for both local (NPLs) was both fast and further foreign investment domestic legislation to allowand potential international strong: within a short period, procedures is high on the exchange of information. Ainvestors and for the many NPLs for the banking system Government’s agenda. More constant factor in the suc-foreign clients using Cy- rose towards 40% of its loan recently, specific naturaliza- cessful Cypriot internationalpriot professional services. portfolio. It has taken some tion and immigration permit business development story-Furthermore, a strong focus time to modernize the private schemes, based on minimum line is a modern accountingon budgetary discipline and and legal profession charac-fiscal consolidation, as agreed A strong focus on budgetary terized by reciprocal loyaltyin the Memorandum of Un- discipline and fiscal consolidation through good and bad times:derstanding with the Troika resulted in a budgetary primary highly-qualified professionals(the European Commission, serving demanding clientsthe ECB and the IMF), surplus by 2015, well ahead of at any time on any matter,resulted in a budgetary pri- the agreed timetable and fully satisfied businessmary surplus by 2015, well people retaining trust in theirahead of the agreed timeta- sector insolvency framework investment amounts in Cy- service providers throughoutble. In parallel, serious efforts and to develop a more ef- prus assets, have been devel- Cyprus’ years of crisis.were made towards reform- ficient model for NPL man- oped, as well as a fast-track Foreign direct investment ining the welfare state, result- agement but some progress is licensing process for priority traditional and, especially,ing in a much better target- now being made in reducing investments. new sectors, aiming at bring-ing of social expenditure to NPLs, thereby freeing much- This investor-friendly busi- ing modern technology andprotect the most vulnerable needed financial resources ness environment has fos- higher productivity to Cy-population groups. Agreed for lending to the economy’s tered impressive growth over prus, is the key to sustainablestructural reforms, such as more productive sectors. the years in traditional sectors economic growth and theprivatizations in the electric- The fact that Cyprus has such as shipping, tourism, creation of quality employ-ity and telecommunications reinforced its position as an banking, and financial and ment opportunities for itssectors and the restructuring attractive investment destina- professional services. There well-educated and skilledof the public sector, which tion so soon after such a se- has also been investment human resources. With thetypically tend to be politi- vere shock, and continues to activity in new sectors such as key components already incally more demanding than be open for business, is tes- medical tourism, education place, the Government andfiscal consolidation, are tak- timony to the strength and and information technology. business community areing longer to reach consensus resilience of its fundamental The recent commercializa- determined to do whateverover and to implement. competitive advantages. tion of the port of Limassol it takes for Cyprus to be aSubstantial strengthen- business centre of excellenceing of bank regulation and and the destination of choicesupervision, together with for international investors.
Co-funded by:Υπουργείο EΘΝΙΚΟΣ ΜΗΧΑΝΙΣΜΟΣ Γραφείο Επιτρόπου ΥπουργείοΔικαιοσύνης και ΓΙΑ ΤΑ ΔΙΚΑΙΩΜΑΤΑ ΤΗΣ ΓΥΝΑΙΚΑΣ Ισότητας των Φύλων Παιδείας καιΔημοσίας Τάξεως Πολιτισμού
70 ACCOUNTANCY CYPRUS ECONOMYWORTH THEEFFORT IFs have many advantages. They Why Cyprus is right to try offer an alternative option to inves- to attraCt investment Funds tors, who can place their money in a “ready made” portfolio, instead By Lenia Georgiadou of each one choosing the assets to Economist, Former Director, Central Bank of Cyprus invest in and creating a personal portfolio. Because the managementInvestment Funds (IFs), often referred to as Mutual Funds or, as of the funds is done professionally in the UK, Unit Trusts, are essentially pools of savings belonging by well-trained, qualified people to many investors, who assign their management to a third party, with special knowledge and invest- often a portfolio management company, an organisation or even an ment skills, they often succeed in individual under certain circumstances, all referred to as Fund Ad- obtaining better returns and there ministrators. The pooled funds are invested in various financial assets is better risk diversification, with (instruments) such as shares, Government or Corporate Bonds, cash respect to the types of financial as- or other financial assets or even in immovable property. There are sets, issuers and geographical areas various types of portfolios with different objectives and risk profiles, (e.g. USA, Europe, Asia, emerging which invest in different financial assets, depending on their particu- markets, etc.). Instead of one per-lar strategy. For example, Equity Funds, which invest in shares, Bond Funds, son, who may not have sufficientwhich invest mainly in Government and Corporate Bonds, Property Funds knowledge, making the investmentwhich concentrate on immovable property, or Mixed Funds. choices, IFs are in a better position to achieve good returns, thanks to their organised structure, their use of advanced technology and their hiring of expert advisors. In Cyprus, the Cyprus Securities and Exchange Commission (Cy- SEC) is the Regulatory and Super- visory Body for all organisations dealing in Collective Investments
71ACCOUNTANCY CYPRUS and for International Investment Cyprus must not only have Laws and Schemes. CySEC’s regulation and Regulations in place but must also operations comply with the Euro- implement and apply them in an pean Financial Harmonization Law appropriate and effective manner – Marketing Financial Instruments Directive (MiFID). starts the exit procedure, and given alike, especially under today’s circum- In the last few years, the sector that it will be very difficult for the UK stances with bank deposits earning has grown rapidly, as evidenced to get an agreement that will allow extremely low interest. by the growth of assets under free movement of goods and services They may provide the option of management, which have shown a but not people (it is expected that, for investment in many markets or in significant increase. Attracting IFs obvious reasons, most EU countries new asset classes that individual inves- and Fund Administrators will bring will not want to give London such tors lack the expertise or the time to significant benefits to the country concessions), many investment firms analyze. Cyprus has a number of advantages will seek to move their base to an EU In order to succeed in these endeav- in this respect, including well-quali- member state to maintain their access ours, additional regulatory measures fied people with studies and experi- to the single market. and tax incentives are required. ence in the British system, which Cyprus’ efforts must be steady The improvement of the quality of is the main origin and base of such and continuous on the part of all regulation and supervision is a sine Funds. Our legal system, similarly, is involved parties. Professionals with qua non. Cyprus must not only based on English Common Law and the connections and contacts with have Laws and Regulations in place there are high standard support ser- such firms should take the lead and but must also implement and apply vices such as auditing, legal, corporate work in close cooperation with the them in an appropriate and effective administration and advisory services. Government, which is responsible manner. There may also be a need In addition, there is a satisfactory for the regulatory framework and for further improvements in the tax regulatory framework and relatively the tax system. The Government, environment, including incentives favourable tax regime. Cyprus’ geo- for its part, must act as catalyst to make the tax system more favour- graphical location is good, offering and coordinator. Other financial able and competitive. In this respect, easy access to the surrounding region centres, including Frankfurt, Lux- efforts must be intensified for the for marketing investment services, embourg and Malta have already required reform and moderniza- while living conditions are good. begun such efforts. tion of Government services and Wilbur Ross, a major shareholder the adoption of more user-friendly in Bank of Cyprus with a wealth Significant benefitS procedures for citizens. There is a of experience and knowledge of need to reduce bureaucracy and all its investment matters, recently stated There will be benefits for the bank- undesirable consequences, including that, following the result of the ing and the wider financial sector corruption. We must make good use referendum on Britain’s exit from and their growth will contribute to of, and extract the maximum benefit the objective of making Cyprus a from, the recommendations of the Attracting IFs and credible and reputable international international consultants submittedFund Administrators financial services centre: to the Cyprus Investment Fundswill bring significant • They will contribute to accelerating Association (CIFA), which includebenefits to the country economic development. the requirement for the licensing and • Additional jobs will be created, regulation of the administrative ser- the EU, Cyprus should seize the thus contributing to the reduction vices (Fund Administrators). There opportunity by taking timely and of unemployment, especially among have been some recent changes to appropriate action to attract IFs young people. the legislative framework concern- and become a base for their regis- • With the possibility they offer for ing the operation of the Alternative tration and operation. alternative investments, they can con- Investments and Fund Management A large proportion of IFs, which of- tribute to improving the breadth and and efforts should continue. Further fer investment services in the EE via depth of the capital markets and offer additions and changes to the operat- single licensing (single passport), are alternative financing for enterprises, ing framework are required, together currently concentrated in London. including equity financing. with moves for the effective and suc- When Theresa May’s government • They will enrich the investment cessful promotion of the industry. It options for Cypriots and foreigners will be worth the effort.
72 ACCOUNTANCY CYPRUS ECONOMY INVESTINGIN A GREENERFUTURE The circular economy offers significanT growTh opporTuniTies, creaTes green jobs forThe benefiT of companies, ciTizens, governmenTs and, ulTimaTely, The environmenT By Costas Christofides, Deputy Director General, Cyprus Employers & Industrialists Federation (OEB) A ecosystems, cause dangerous climate change or negatively affect that global economy. s the global economy grows, so too does the In order to achieve competitive, sustainable use – or misuse – of resources which have a development for European companies, the significant impact on the environment. The European Commission (EC) has adopted an challenge is to ensure sustainable access to, and ambitious Circular Economy Package, covering use of, resources without causing environmental the whole cycle from production and consump- problems that disrupt supply chains, hamper tion to waste management and the market for secondary raw materials. The circular economy model, in contrast to the linear economy, pro- duces no waste and pollution by design or inter- vention, through greater recycling and re-use as many times as possible. The circular economy offers significant growth opportunities, creates green jobs for the benefit of companies, citizens, governments and, ulti-
73ACCOUNTANCY CYPRUS Overall, business enterprises in Cyprus have the will to adopt new environmentally friendly policies Tackling mately, the environment. Tack- • The state’s attitude (i.e. legal framework, in- environmental ling environmental challenges centives, enforcing tools).challenges opens opens new market opportunities Banks and financial institutions also have an for European and, of course, Cy- important role to play is promoting a greener new market priot companies. The environ- future in Cyprus, by providing capital andopportunities for mental challenge requires that a funding new, feasible, sustainable projects European and, lot of things be done in order to that can help the transition to a greener andof course, Cypriot overcome barriers such as a lack cleaner economy. As noted above, the green of comprehensive information, economy offers prospects for business activi- companies incentives, specialized technical ties in new areas which should be fully ex- skills and know-how, a costly ploited by our business enterprises and banks. administrative burden, difficulty Such new areas may cover investments in in securing finance and others. energy efficiency, renewable energy resource Overall, business enterprises in efficiency, waste management, environmental Cyprus have the will to adopt protection or eco-design. new environmentally friendly Another source of circular economy financ- policies but, at the same time, we ing is the EU Horizon 2020 Programme for have to consider that the major- Research and Innovation, under the pillar ity of them are Small and Me- “Societal Challenges for Climate Action” dium Size Enterprises (SMEs). and sub activity 5.4 “Transition Towards a Since this is the case, these poli- Green Economy through Eco-Innovation”. cies may be perceived as an ad- The Work Programme includes actions and ditional burden to their everyday activities with a funding rate of 70%-100%. economic activities, including Another source of financing is EU Structural the obligation for waste manage- Funds, which have a significant budget for the ment (recycling, recovery, pack- green economy. In addition, the Government should support aging waste, electrical and Small and Medium Size Enterprises that adopt electronic equipment waste, green investments by providing legislative, fi- emissions and other waste nancial and tax-exemption measures and other treatments). incentives along, with regulatory reforms and a Investment in green tech- national roadmap for the transition to a circular nologies or methods has to economy. We always have to bear in mind the take into consideration the cost and benefit of becoming greener, so a bal- following key parameters and anced strategy should be drafted. factors: Policy-makers and all relevant stakeholders, in- • How people (businessmen cluding the business community, need to work and consumers) perceive together in order to identify truly sustainable these costs and benefits to solutions. Rather than being an area of confron- business, society and envi- tation, environmental issues can be transformed ronment. into one of cooperation where win-win solu- • The culture that is being tions are established to contribute towards in- developed in all citizens from vesting in a greener future in Cyprus. birth
74 ACCOUNTANCY CYPRUS ECONOMY DON’TRefoRm is necessaRy In cases of economic crises, the need forand must continue reforms is even greater since, on the one hand, they lead to a cutback in spending ofBy Angelos Gregoriades, both an elastic and inelastic nature and, onChairman, KPMG Limited the other, they stimulate the productivity levers of the economy.In an ever-changing and fragile financial and international political environment, In Cyprus, many reforms have, unfortu- maintaining the competitiveness of an economy must be a priority for all nately, been occasionally suspended while institutions. Economic reforms usually lead to increases in productivity and others have begun and then stopped. This development as well as improvements in the standard of living for all citizens. has led to a non-competitive economy, with However, when these reforms lead to short-term temporary solutions or to bureaucratic procedures and significant prob- additional bureaucracy and complex procedures, they have the exact opposite lems in people’s everyday lives. This, beyond effect. An economy which cannot adopt quickly and flexibly to changes in the the long-term political passiveness, is a result global economic system, and which cannot achieve specialization in sectors that of weak goal congruence aming the parties are constantly changing, faces huge problems, especially during a period when involved. A prime example is town planning,the main characteristic of the international environment is inconstancy. which many times seems inconsistent and lacking in technocratic composition. The reforms that have not even com- menced are many, while some that have commenced or have already been imple- mented need to be re-examined. For exam- ple, the companies law was subject to many amendments and alterations deviating from its original publication. The specific law –
75ACCOUNTANCY CYPRUSSTOP!and, broadly speaking, the entire legislative and penalties are imposed by the current where necessary, corrective measures can be taken. Postponing decisions, especiallyframework – requires consolidation as well legislation. We are not suggesting that in today’s environment, could lead to sig- nificant negative consequences.as simplification. This might require the such fines and the interest on them should It should be noted that the reform and simplification of procedures does not meanre-drafting of laws from scratch. be reduced but, due to the sheer volume of less supervision and regulation, especially in significant services. However, specificA flexible and efficient state machine sup- potential fines and penalties, all of which supervisory mechanisms must be flexible so that they do not restrain or create impedi-ports the business environment and the are enforced in multiple cases, it should be ments to the procedures. What is important in this effort is the as-quality of services offered to citizens. This acknowledged that this may cause confu- similation of any changes by society to pro- vide the necessary support to these reforms.is the reason why legislation governing state sion. What is required is a parallel sim- Beyond this, the creation of a flexible busi- ness environment and the support of public plification and services are expected to attract foreigners who either wish to do business in Cyprus orA flexible and efficient state machine reinforcement set up an office in the country. Beyond thesupports the business environment process so that reduction of non-performing loans, as far tax compliance as the return of our country to investment is concerned, the firms’ reports focus on the is supported. upgrading of procedures. The continuation of reforms is therefore imperative.mechanism reform and simple and short Even if there were to be some progressprocedures must be adopted, at the same in the simplification of procedures in thetime supporting e-Government. public sector, there is still a lot to be doneBusinessmen and investors in general, in other areas, such as the procedures forbeyond evaluating a stable tax and legal the licensing of large-scale projects and theframework, also tend to evaluate the various modernization of both semi-governmentprocedures implemented. No-one wishes to organisations and local government bod-bear administrative costs and big delays, as ies. There were specific measures in thefar as their investments are concerned, due Economic Adjustment Programme thatto problems faced by the public service. were implemented but their practicalRegarding tax matters, a plethora of fines implementation must be evaluated so that,
76 ACCOUNTANCY CYPRUSECONOMY By Sofronis Clerides, Two of the three candidates for Professor of Economics, University of Cyprus the casino development pulled out, reportedly because they were unable to secure reasonably priced landTHE TROUBLE WITH property bubble. There is someSELLING PASSPORTS merit to this argument but the scheme should be recognizedT he Cypriot economy grew at a healthy rate of owners and developers and, to for what it is: the use of public close to 3% in 2016. A record year for tour- a lesser extent, the lawyers and property (passports) to bail out ism drove much of this growth. The real estate accountants who provide the the country’s big developers. If and construction sectors have also picked up supporting services. This is par- the developers used the revenue significantly, thanks to a large extent to the ticularly so when the new citizens to pay off their loans, then this Government’s “citizenship through investment” do not actually spend much time can be said to have served a useful programme. The Government recently touted in their new country. If someone purpose, despite the downside inthe programme’s success, claiming that it has brought in €4 billion buys an expensive apartment that terms of inflated property prices.since 2013. But it also admitted that it is facing criticism from other sits empty most of the time, thereEuropean countries over the programme and Interior Minister is little additional benefit to the Unfortunately, we haveSocrates Hasikos blamed companies he did not name for abusing local economy other than what now moved into the second,the scheme and giving Cyprus a bad name. the apartment’s seller receives. If more dangerous phase of the many apartments in a building programme, where entire new Cyprus is neither the first nor the only country to offer citizen- are empty for this reason, we end developments are being putship or permanent residency to High Net Worth Individuals in up with ghost buildings. up with the exclusive purposereturn for some form of capital inflow. In principle, there is nothing of serving citizenship seekers.wrong with this idea. Offering citizenship to investors and entre- But the most dangerous aspect This benefits developers and thepreneurs who will come in and make significant contributions to of large-scale real estate invest- construction sector, but at thea country’s economy is certainly a worthwhile proposition. The ment is the creation of distortions cost of even greater economicproblem is that, in practice, these schemes are often attached to that can be very detrimental to distortions: in the short term, theinvestments in real estate. There are several reasons why real estate the objective of balanced and sus- citizenship programme was dis-investment does not bring in as many benefits as other types of for- tainable growth. The requirement torting prices; in the long term,eign direct investment, such as the building of a factory or research of a minimum level of investment it distorts investment. Productivefacility, or the establishment of new company headquarters. These sets an effective price floor for resources are being put into useactivities bring significant benefits in the form of high quality jobs, high-end real estate and pushes to create developments that onlyimportation of technology and know-how, and demand for local up prices across the economy. have value because of the citizen-services such as restaurants and schools. These are long-term benefits This creates a ‘Dutch disease’ type ship scheme. If the scheme goesthat are spread widely across the population. By contrast, benefits of situation. Real estate becomes – which is likely, given the con-from real estate investment are mostly temporary and highly con- so expensive that it discourages cerns expressed by the Europeancentrated. They primarily benefit a small number of large property investment in other sectors of Commission and the OECD, the economy. We have seen this among others – then the invest- recently in Cyprus when two of ments will be stranded. Citizen- the three candidates for the casino ship is a public good. If a country development pulled out, report- wants to sell it, it should do so edly because they were unable to in such a way that distortions are secure reasonably priced land. minimized and as many people as possible benefit. By contrast, One could argue that the the current Cypriot programme is programme served a useful pur- channeling huge economic ben- pose as it helped clear the stock efits into the hands of a very small of apartments and houses that number of beneficiaries, while at were built during the years of the the same time creating distortions that discourage investment in other sectors of the economy. It needs to be ended immediately before further damage is done.
77ACCOUNTANCY CYPRUSECONOMY cies in the recovery plan sub- mitted by a supervised entity and depending on the serious- ness of these deficiencies and the likely impact on its busi- ness activities, CySEC has the power to recommend to the institution, inter alia, to reduce its risk profile, enable timely recapitalisation measures, re- view its strategy and structure, change its funding strategy and adapt its governance structure. In case of a breach of the law, CySEC has the power to im- pose an administrative fine orBy Demetra Kalogerou, Chairwoman, Cyprus Securities and Exchange Commission other administrative sanctions. The law provides, inter alia, forAccording to the Recovery Law which • in line with the overall risk the publication of the name harmonises Cyprus’ legal framework management framework and and nature of the breach, the with the relevant European Direc- with existing liquidity or capi- temporary prohibition of a tive, Cypriot Investment Firms tal contingency plan indica- member of the Board of Direc- (CIFs) required to hold at least an tors, as well as with business tors or other natural person initial capital of €730,000, as well continuity plan indicators. responsible for the breach to as other entities under the supervi- • integrated into the institu- perform any duties at the CIF or other supervised entity and an administrative fine of the sion of the Cyprus Securities and tion’s corporate governance and CIF itself or other supervised Exchange Commission (CySEC), decision-making procedures entity of up to 10% of the total must take preventative and early and provide for the involve- net turnover of the previousintervention measures aimed at their recovery from insolvency ment of senior management. financial year. CySEC also hasor possible insolvency. It is worth clarifying that the specific law An institution should recalcu- the authority to impose anrefers solely to preventative powers to minimise the risk of pos- late its recovery plan indicators administrative fine of up to €5sible insolvency and to early intervention in order to prevent when necessary and at least million as well as an admin-impending insolvency. In cases where an institution is failing or annually. It should also be istrative fine of up to doubleis likely to fail, resolution powers are set forth in the Law on the able to provide the competent the profits earned or the lossesResolution of Credit and Other Institutions of the Central Bank Authority with an explana- avoided due to the breach,of Cyprus, which is the designated Resolution Authority. tion of how the recovery plan where these can be quantified. indicators were calculated and It is worth noting that, priorThe Recovery Law provides, • adapted to the business mod- to demonstrate that the thresh- to the issue of the relevantinter alia, that every supervised el and strategy of an institution olds can be met early enough European Directive, there wasentity is required to prepare a and in accordance with its risk for it to be effective. It is noted no applicable regulation atrecovery plan which includes profile. It should identify the that monitoring of recovery European level in relation tomeasures and actions to be key vulnerabilities most likely plan indicators should be un- the recovery and/or resolutiontaken to prevent a possible to impact its financial situation dertaken on a continuous basis of CIFs. As a result, CIFs wereinsolvency or minimise its con- and lead to the point at which to ensure that the institution not afforded any protectionsequences. The recovery plan the recovery plan should be can take appropriate measures under the legal framework andmust be detailed and based activated. in a timely manner to restore did not come under the Lawon realistic assumptions, valid • suitable for the size and com- its financial position following on the Resolution of Creditfor a range of documented plexity of each institution. In a significant deterioration. and other Institutions of theand adverse scenarios. It must particular, the number of indica- Should it identify any deficien- Central Bank of Cyprus.also include qualitative and tors should be sufficient to alertquantitative indicators, such as the institution of deteriorating In case of a breach of the law, CySEC hascapital, liquidity, profitability conditions in a range of areas.and asset quality indicators. • capable of defining the point at the power to impose an administrativeThe framework of recovery which actions referred to in the fine or other administrative sanctionsplan indicators should be: recovery plan should be taken.
78 ACCOUNTANCY CYPRUS ECONOMY WHENSMALL IS NOT SO BEAUTIFUL Taxes and The disadvanTages of being a small eU coUnTryBy Dr. Jim Leontiades,Academic Dean, Cyprus InternationalInstitute of ManagementMmbership of the European Union has immediate concern is that 12.5%. Taxes on dividends and had many advantages for Cyprus – this will be directed at raising interest were also increased sub- otherwise we would not have joined. the Irish corporate tax rate of stantially, again moving towards But the EU is changing and with the 12.5% which the European uniformity with other member impending withdrawal of the UK, the Commission has previously states. This seems fair. If greater move towards closer integration seems tried to revise upwards. If the equality is the result, one may to have gained additional impetus. Irish tax rate is increased, can ask: what is the problem? There is now serious talk about a Euro- pressure on Cyprus to raise its The great success of the Euro-pean defence force and closer integration in other areas, particularly corporate tax rate (also 12.5%) pean Union has been the rela-taxation. This movement brings with it certain disadvantages, be far behind? tively free movement of goodsparticularly for the smaller countries of the EU such as Cyprus. It is Cyprus has already had a taste and services across nationalwell to anticipate such change in order to prepare a response. of the movement toward tax borders. As regards investment uniformity. Following the and production, however,In a recent Financial Times suggests the removal of na- financial crisis, the Eurogroup there are still major barriersarticle, the French Prime Min- tional differences such as pref- required that the corporate tax in the form of institutional,ister set out his vision for the erential taxes and regulations. rate be increased from 10% to cultural and geographic dis-future direction of the EU. He His statement was quicklywrote: “Member states must followed by a report noting Changing anything connectedprogress toward common Eu- that the European Commis- with the public service seems to beropean tax rates”. This should sion would propose legislationsurprise no-one. The European for a “Common Consolidated hopeless in the case of Cyprusaim of a single market strongly Corporate Tax Base”. The
79ACCOUNTANCY CYPRUS developing or finding employ- take notice and join with Ire- ment in such industries, are able land in opposing this EU tax to emigrate to one of the larger initiative. Better still, the small EU countries with the appro- EU member states should join priate industry. This solves the together as a lobby to present problem for the individual but and forward their particular only exacerbates it for the coun- interests within the EU. If Ire- try, which will lose that person’s land’s corporate tax is raised, it talent and expertise. Small will not be long before Cyprus counties have seen thousands is asked to “fall in line”. of their citizens, on whom they Of course, there are other have spent considerable sums to measures besides taxation to educate, moving to their larger help small countries attract neighbours to find industries those industries which can which match their talents and operate effectively in a small career objectives. country. Cyprus, in particular, In short, EU integration can should intensify its efforts to remove tariffs and other bar- make itself more attractive riers but it cannot remove the as an investment location by If the Irish tax rate is increased, can pressure on Cyprus to raise its corporate tax rate (also 12.5%) be far behind?continuities between member this exclusion is also likely to sort of barriers which restrict simplifying and speeding upstates which hinder the ability include many industries on the business opportunities the many bureaucratic processof small countries to compete the frontiers of science, such as open to small countries. that often encumber appli-in certain industries. genetic engineering, new drugs, Historically, these countries cants who want to invest here.Due to their small size and atomic power, aerospace, etc. have compensated by imple- Foreign investors are con-transport costs, countries like The size disadvantage also ap- menting preferential taxes stantly complaining about ourMalta and Cyprus, for exam- plies to the service industries. and regulations. Losing them bureaucracy and red tape.ple, are unlikely to be able to With a tourist influx of three would amount to a serious The truth of this is reflectedcompete in many of the indus- million, Cyprus is not able to economic setback. in the many investment op-tries which underpin the econ- match the advertising expen- Ireland was able to keep its low portunities that have been lostomies of larger EU countries. diture of France, for instance, 12.5% tax (like that of Cyprus) for Cyprus, such as that ofSmaller countries are unlikely with its annual tourist arrivals by strongly opposing several the Chinese investor who hadto compete across a whole host of some 85 million. attempts by the EU to change indicated a desire to make aof industries which require In the past, these disadvantage it. This success promises to massive investment in the oldlarge-scale production to make were countered by the advan- be shortlived. In line with the Larnaca Airport but was even-their costs competitive. These tages that small countries were change suggested by the Euro- tually discouraged by the manyinclude major industries such able to offer foreign investors pean Commission, it will not be delays and obstacles. Singaporeas steel, aluminium. aircraft and local industry in the form long before Ireland is called upon takes advantage of this sort ofproduction, television, auto- of taxes and certain regulations. once again by the EU to raise its weakness by offering a speedymobiles, computers, etc. These are now threatened in corporate tax rate. Ireland will and efficient service to newSince research costs are highly the name of equality. Of course, again oppose such a move but businesses. An applicationsensitive to economies of scale, individual citizens, interested in this time it may fail. In the past, there to start a new business Ireland received support from can be processed in two or the United Kingdom which three days. Unfortunately, has been a strong opponent of a changing anything connected common EU tax regime. Brexit with the public service seems to means that this support will no be hopeless in the case of Cy- longer be forthcoming. prus but miracles do happen Other small countries should sometimes!
80 ACCOUNTANCY CYPRUS ECONOMYNEO-LIBERALPOLICIES,ECONOMICWELFARE ANDINEQUALITY By Tasos Anastasiades, A study by the World Bank Economic growth Economist, Editor, (Poverty and Shared Prosperity, in emerging Accountancy Cyprus 2016) states that, in general, markets has led over the last thirty years, eco- to the greatestFor a long time, the IMF had advocated neo- nomic growth in emerging decline in liberal policies that focused on free inter- markets such as Brazil, China inequality since national trade and balanced budgets, often and India has led to the great- the industrial achieved through austerity plans. However, est decline in inequality since revolution an article published in June 2016 by three the industrial revolution. This IMF economists (Neoliberalism: Oversold? progress, though, has been rising inequality. Specifically,by Jonathan D. Ostry, Prakash Loungani and Davide offset by increased inequality the study notes that the UK isFurceri), argues that these policies have been less suc- in other mainly developed one of the developed countriescessful than previously believed. They argue that some countries as a result of com- with the highest decreasesneo-liberal policies have led to an increase in inequality petition emanating from in inequality since the 2008and undermined long-term economic growth. Jonathan lower-wage emerging markets, global financial crisis.Ostry, Deputy Director of the IMF’s research depart- such as China, which has Following the IMF studyment and one of the three authors of the report, said that adversely affected workers in on neo-liberal policies andthe purpose of the article was not to blame neo-liberal the developed countries. The income inequality, a studypolicies but to lead to a more detailed study of them. World Bank study states that, by the Organization of Eco- between 2008 and 2013, the nomic Cooperation and De- number of countries that had reduced inequality was double the number of those facing
81ACCOUNTANCY CYPRUSvelopment (OECD) states between 2007 and 2014. To offset the decrease in tax between 1980 and 2010, thethat countries should worry With regard to European revenue, the OECD recom- number of bank jobs in theless about the differences countries where unemploy- mends a reduction in govern- USA increased despite thebetween high and low wage ment is high, the OECD ment subsidies except those rapid spread of ATMs andearners and care more about suggests that fiscal policy going to children and lower cashpoints. This was becauseemployment. Specifically, should work in concert income families. the revolution in technologyit says that economic poli- with monetary policy so as With regard to the distribu- did not only help customerscies that result in increased to boost growth rates and tion of incomes and inequal- withdraw money easily fromproductivity and more jobs business confidence. So far, ity, we must resort to history. machines but it also helpedshould be a priority for en- Europe has focused only on At the beginning of the indus- bank employees invent newhancing economic welfare monetary policy as a driver of trial revolution, more of the financial services that theirand reducing inequality. economic growth, while em- benefits were channelled into customers were interested in.The OECD states that phasizing tight fiscal policies. capital while, with the emer- Certain economists are nowgovernment policies should With reference to govern- gence of the trade unions, promoting the idea of of-target the slowing down of ment expenditure, the employees were able to get a fering a basic income toworld productivity, which is OECD suggests that govern- larger share. Today, history each person. Among thosethreatening the progress in ments should give emphasis repeats itself with more of the supporting the idea are theeconomic welfare, fiscal sus- to infrastructure projects benefits of digital technology American Nobel Prize-win-tainability and social cohe- and to pre-school education. going to enterprises and thesion. In this respect, it notes It also states that it might be highly paid. During the last Countries shouldthat the per hour increase advisable to reduce corpo- three decades, the share of worry less aboutin production in the 1990s rate taxation so as to boost income for employees inter- the differenceswas 2% but a mere 0.9% innovation and productivity. nationally has reduced from between high 64% to 59%, perhaps the re- and low wage sult of a reduced trade union earners and role worldwide. care more about The social effects of the employment introduction of new tech- nologies are expected to be ning economist Paul Krug- serious. Most of the jobs that man and the British econo- are in danger of disappear- mist Sir Anthony Atkinson, ing are in unskilled low-wage who visualize this basic sectors, while specialized and income as a way of extend- skilled workers with higher ing the welfare state with the incomes face a reduced risk aim of reducing increased from automation. Thus the inequality that has come expectation is that inequal- about through the introduc- ity will increase. Govern- tion of new technology. Seen ments can help reduce these in this light, the Guaranteed inequalities but they face Minimum Income provided limitations due to globaliza- by the Cyprus Ministry of tion, since the well-educated Labour and Social Insurance and well-trained can move may be seen as a pioneer- from one country to another. ing policy. What has to be Of course, automation and decided, however, is how new digital technologies may the basic income is to be lead to higher unemployment financed. It is mainly for this but, eventually, new spe- reason that, in Switzerland, cializations are created which people voted down the idea cannot be done through in a referendum. automation. On this subject, a study by MIT economist David Autor found that,
82 ACCOUNTANCY CYPRUSECONOMY Sovereign Wealth Funds by Year of InceptionSOVEREIGN Source: Sovereign Wealth Fund InstituteWEALTHFUNDS According to data from the and contain inflation by invest- Sovereign Wealth Fund Insti- ing abroad payments for exportsAND THEIR tute, 57% of Sovereign Wealth rather than spending domesti- cally, potentially leading to anBENEFITS Funds, in terms of assets as of asset bubble or increasing bank- June 2016, were hydrocarbon ing system deposits, potentially related, with 71% of those con- leading to a credit boom. More- trolled by the Arab states of the over, the existence of a Sover- eign Wealth Fund as a potential Persian Gulf. The largest and source of capital amidst a crisis may reduce government borrow- most eminent Fund in terms of ing costs, thus helping from a fiscal perspective. Finally, Sover- transparency and environmen- eign Wealth Funds may increase transparency and governance, tal, social, and governance best as commodity-related receipts, for instance, are managed with a practices is the Government longer-term investment horizon rather than at the discretion of Pension Fund of Norway with politicians, with Funds also hav- ing the ability to offer as well as US$850 billion assets under attract talent and technical exper- tise in the investment field. By Antypas Asfour management (AUM) as of JuneBoard Member of the CFA Society of Cyprus, In order for all these benefits 2016. The only non-commodity to materialise, nonetheless, it isLecturer at the Cyprus Institute of Marketing related Fund in the top five is the vital for an appropriate frame- China Investment Corporation work to be in place. The opera- tions of the Sovereign Wealth (US$814 billion), the second Fund need to be integrated into the country’s overall policy struc-S overeign Wealth Funds – the state- largest Fund globally, with the ture. Moreover, explicit funding, owned investment funds whose funding Abu Dhabi Investment Author- withdrawal and investment pol- is derived from the exports of natural ity (US$792 billion) following icy rules need to be established, resources and budget and trade surplus- in terms of size as of June 2016. congruent with the Fund’s es – have been receiving growing atten- The prevalence of Sovereign objective. Finally, corporate gov- tion in recent years, particularly since Wealth Funds amongst com- ernance and transparency best recapitalising Citi, Morgan Stanley, and modity-rich countries comes as practices should be adhered to, Merrill Lynch during the financial crisis. no surprise; the reliance on ex- such as the International Work- porting non-renewable resources ing Group of Sovereign Wealth drives the need to transform Funds’ Santiago Principles, in order to ensure operational Cyprus is working to create and oper- these finite supplies into sus- independence and gain public support for the opportunity cost ate its own National Investment Fund tainable and less volatile future of not spending today but rather saving for a rainy day.using the proceeds from the sale of hy- income.drocarbons after 2020 but this is a global Sover-phenomenon. Since 2008, more than 22 The prevalence eign Wealth of Sovereignnew Sovereign Wealth Funds have been Wealth Funds Funds,established, their objectives varying from amongst however,helping stabilise and diversify the na- commodity-rich benefittional economy from volatile commodity countries comes economiesexport proceeds to funding economic as no surprise in furtherdevelopment and saving for future gener- ways. Theyations. Despite the recent hype, though, can helpSovereign Wealth Funds are by no means prevent thenew (see illustration), with the Kuwait overheat-Investment Authority amassing reserves ing of anfrom Kuwaiti oil exports since 1953. economy
83ACCOUNTANCY CYPRUSECONOMYQUANTITATIVE EASINGAND THE COST OFSERVICING PUBLIC DEBT By Marios Mavrides, MP national income on interest on the government or the organ- its €19 billion debt. isation issuing the bonds has Professor of Economics, European a good rating, it can refinance University Cyprus, Member of Parliament The European Central its existing obligations at a Bank started its quantita- lower interest rates. Depend-W hile interest rates tive easing programme a ing on the terms of the bond are on the rise year ago and the results have issue, some organisations may in the United been amazing. Interest rates even proceed with an early States, in the have gone down everywhere, repayment of the bonds using eurozone they especially for good lenders. cheaper refinancing. remain near zero. Germany borrows money at The European negative interest rates while A careful planning of debt Central Bank several other countries of restructuring can save billions continues to ap- the eurozone borrow at very of euros to eurozone members ply a very loose low rates. In an uncertain and the savings can be usedmonetary policy to compact deflation, which continues environment, investors are to stimulate growth or evento threaten the European economies. After the negative looking for safe havens in reduce their debt. Some coun-result in the Italian Referendum, the quantitative easing which to invest their money. tries like Germany, France andprogramme of the European Central Bank is expected In the aftermath of the 2008 Italy have debt to GDP ratiosto continue until the end of 2017, pumping hundreds financial crisis, investors do above 80% and the cost of ser-of billions of euros into Europe’s banking system. The not trust just anybody who vicing their debts is enormous.quantitative easing programme purchases long term wants their money. They are It is reasonable to argue thatgovernment and private bonds from the market, push- now more rational and will- this cost subtracts a coupleing bond prices higher and bond yields (interest rates) ing to sacrifice high returns of percentage points off theirlower. That makes money cheaper for investment and for safety. The opinions of the growth rates. It is clear,consumer spending. The objective of quantitative eas- top rating agencies are highly however, that the Europeaning is to stimulate aggregate demand in order to gener- valuable for investors. Central Bank cannot applyate inflation, which is likely to encourage production a loose monetary policy for aand create more jobs in the eurozone. The current time period of long period of time. Quanti- low interest rates is an excel- tative easing can be used for Lower bond yields mean a lower cost of borrowing for lent and real opportunity for as long as inflation is belowbusinesses and governments in their attempt to refinance governments and businesses to 2%. When inflation begins totheir debt. Most countries in Europe are heavily indebted restructure their debt and save rise, it is almost certain thatand pay substantial amounts in interest each year. The money on interest rate costs. the European Central Bankaverage debt to GDP ratio in the eurozone is above 80% That means more money will terminate the programmeand the average cost of borrowing ranges from 2% to for investments and growth. and begin raising interest4%. Cyprus spends about €600 million or 3.5% of its Many eurozone countries have rates. So timing is crucial for outstanding debt that matures governments and businesses at different dates. When a that are trying to restructure bond matures, it is refinanced their debts. with another issue of bonds. If Cyprus spends about €600 million or 3.5% of its national income on interest on its €19 billion debt
84 ACCOUNTANCY CYPRUS ECONOMYDEALING WITHTHE EURO INTERESTRATE DERIVATIVESCARTEL I in what has become known By George as the EURIBOR cartel. Markopouliotis, n December, the European They colluded on a financial Head, Commission decided to fine product called euro interest Representation three banks – Crédit Agri- rate derivatives, in breach of of the European cole, HSBC and JPMorgan EU antitrust rules. They did Commission in Chase – a total of over €485 so together with four other Cyprus million for their participation banks – Barclays, Deutsche Bank, Royal Bank of Scot- land and Société Générale – which chose to settle the case with the Commission in De- cember 2013. This decision sends a clear message: Banks, like all companies, have to respect EU competition rules.
85ACCOUNTANCY CYPRUS policy’ against interest rate gratulating each other and of the infringement. fluctuations. thanking each other for a This decision marked job well done. Imagine what is at stake the end of several investi- if this market is rigged to The participation in such gations by the Commis- benefit only a few. This is schemes was very lucrative sion into cartels set up by exactly what the seven banks for the banks. Even tiny major international banks did: over different periods movements of the EURI- to manipulate the trad- between 2005 and 2008, BOR rate can have a huge ing of derivatives. Over participating traders were impact, given the trading the past three years, it in regular contact through volumes at stake. has taken six decisions on corporate chatrooms or cartels imposing fines of instant messaging services, In December 2013 just above €2 billion. In exchanging confidential and Barclays, Deutsche Bank, addition to this case, we sensitive information about Royal Bank of Scotland and also imposed sanctions on their trades and strategy. Société Générale admitted cartels concerning deriva- to taking part in this car- tives linked to the Japanese So, what exactly did they tel and paid a fine of over yen and the Swiss franc. do? €820 million in total. On the other hand, Crédit Agri- That said, our work in The aim of the cartel was cole, HSBC and JPMorgan the financial sector is not to distort a pricing compo- nent for euro interest rate The Commission will not hesitate derivatives, the so-called to investigate and fine any new EURIBOR rate. cartel it may uncover in the future Banks, like The EURIBOR rate is Chase chose not to settle done. And, the Commis-all companies, set based on quotes sub- with the Commission – and sion will not hesitate to mitted daily by a panel of of course this was their investigate and fine any have to banks. The seven cartelists right. Our investigation new cartel it may uncover respect EU were part of this panel. The into their role in the cartel in the future. competition traders involved tried to therefore continued under submit quotes in order to the standard procedure and This case is another ex- rules either move the EURIBOR we looked at all the evi- ample of how enforcement rate up or down, depending dence again. We then care- of competition rules and Financial markets need on what benefited them. On fully reviewed the banks’ regulation go hand-in-hand.to be competitive and euro days when a trader received written response and the The enforcement of com-interest rate derivatives are money calculated on the arguments they presented at petition rules brought tohighly important, not only basis of EURIBOR, he had an oral hearing. light widespread collusionfor banks but for many an interest in a high EURI- between banks and showedbusinesses in the EU. They BOR rate. On days when On this basis, the Com- that we needed to find bet-are traded on international he needed to pay, he would mission concluded that the ter ways to regulate howmoney markets worth tril- want a low EURIBOR rate. three banks had breached financial instrument bench-lions of euros and compa- EU antitrust rules. We im- marks are set.nies use them to manage Given how contracts are posed a fine of over €114their interest rate risks and set up in this market, the million on Crédit Agricole, The Commission there-reduce uncertainty in the EURIBOR rate on specific €33 million on HSBC and fore proposed new Europeanbusiness environment. We days can make a huge differ- €337 million on JPMorgan rules to prevent the manipu-can think of these prod- ence to a bank’s cash flow. Chase. The fines take into lation of financial bench-ucts as a sort of ‘insurance Monday, 19 March, 2007 account the value of their marks, which were adopted was one of those days. The sales of the products con- by the European Parliament cartelists decided that it cerned within the European and Council last July. The would be beneficial to them Economic Area, how long common goal is to make sure to have a lower EURIBOR they participated in the that financial markets are rate on that day. Therefore, cartel, and the very serious competitive to the benefit weeks before 19 March, nature and geographic scope of European consumers and they agreed to submit businesses. quotes that would allow them to move the EURI- BOR down on the day. And it worked. Chats were later found between traders con-
86 ACCOUNTANCY CYPRUSECONOMY By Thomas Kazakos, Cyprus is aligning its business models Director-General, to continue as a sustainable shipping Cyprus Shipping Chamber centre with growth potentialCYPRUS SHIPPING: the Cyprus Register overnight moving in the right direction, once the Turkish Embargo is aligning its business models toPROSPECTS lifted, one may very easily ac- continue as a sustainable shippingFOR FURTHER knowledge that the prospects for centre with growth potential. quantitative development of theGROWTH Cyprus Register are very realistic. The prospects for the further As such, if there is a result to the development for Cyprus ship-C yprus is steadily returning to strong economic ongoing efforts to solve the Cy- ping are strengthened even more growth at a time when the European and prus Problem, Cyprus shipping in view of the development of global markets are showing volatility and will need to be ready to operate the energy sector and, especially, uncertainty. This positive performance for ‘the day after’ the solution, under the hydrocarbons industry due to the economy, coupled with the country’s exit a modern, more functional and its direct relation with the trans- from its Economic Adjustment Programme, is politically upgraded structure, port of natural gas and/or oil to providing much optimism for both the short which corresponds to perhaps be found in the island’s Exclusiveand medium term. The shipping industry continues to grow in ab- the only truly globalised industry Economic Zone, which will playsolute terms and the addition of a number of internationally recog- of Cyprus today, as it operates on a leading role in the joint effortsnised companies to our shipping cluster is both a vote of confidence an international basis. towards the creation of a new,in Cyprus and added strength to the country’s shipping community. more efficient and sustainable Looking ahead, despite the model of the Cyprus Economy. The current competitive shipping operational and taxation continuous unstable freightframework has proven yet again that it can be relied upon at a time market globally, we remain op- The Cyprus shipping indus-of changing regulations and uncertain policy priorities in other parts timistic that the overall shipping try remains united and faithful toof the world. The Cyprus Shipping Chamber (CSC), as the voice of landscape will improve. Investors Cyprus and the Cyprus flag, as itthe resident shipping industry in Cyprus, continues to work will still find opportunities to has been for many decades now.closely with the Government in promoting both the Cyprus profit as the capital markets con- The Chamber strongly believesflag and the resident shipping cluster. However, this promo- tinue to provide opportunities for that, if the structural measurestional campaign must be enhanced even more. shipowners in an unpredictable and policies that it has advocated freight and asset price environ- are implemented or resolved the In addition, the CSC is actively involved in the Govern- ment. New realities have now soonest, the prospects for sub-ment’s efforts to upgrade and improve the country’s Mari- begun to be understood and stantial growth in Cyprus ship-time Administration. To this end, the creation of an Under- correctly managed and Cyprus is ping in 2017 are both tangibleSecretariat for Shipping will play a vital role in strengthening and achievable.and growing the industry in the years to come. The Cham-ber strongly welcomes the Government’s efforts and is com-mitted to continue to working tirelessly to maintain Cyprus’edge as a leading maritime centre. The settlement of the Cyprus Problem will have an ob-vious positive and direct catalytic effect with regard to thelifting of the Turkish Embargo on Cyprus ships. Thus, tak-ing into account that, around 2,000 ships under foreign flagare managed by shipping companies in Cyprus (in additionto their Cyprus ships), which could easily be re-registered in
87ACCOUNTANCY CYPRUSECONOMY legislation for the creation of an Under-Secretariat for Ship-SHIPPING SECTOR ping that will independently administer all shipping related matters; the DMS is currently being reviewed with a view toINITIATIVES being restructured; and special task forces are being com- missioned, made up of sectorMUST CONTINUE specialists and professionals, to investigate various matters such as the competitiveness of the Cyprus flag in relation to taxes applied by third countries when vessels call at their ports, and the possibility of mitigating these through tax or transport trea-By Alexandros Sofocleous, Board Member, KPMG Limited ties. Other significant develop-Whilst the global economy is als, notional interest deduc- ments such as the discovery of increasingly showing signs tions for corporate tax payers, natural gas in Cyprus’ Exclusive of recovery, the shipping and tax breaks to high earning Economic Zone and the efforts sector remains in the midst employees amongst others, to extract these resources in of a slump, considered to be have further improved the cooperation with neighboring the most difficult in living business friendly climate. countries, as well as port priva- memory. For many shipping tization initiatives, create even The Government, in col- more opportunities for shipping companies on the island and for companies, it is now a matter laboration with the island’s Cyprus shipping in general. of survival as depressed charter wider shipping community, The Turkish embargo on rates often do not cover even has undertaken a number of Cyprus-flagged vessels con-a vessel’s operating expenses. Charter rates face immense pressure as, initiatives in recent years with tinues to be the single mostamongst other things, the impact of the long lead time between placing the ultimate aim of meeting the important challenge facing thean order for a newbuilding vessel and taking delivery (typically a number ever-changing demands of our island’s shipping industry, as itof years later) means vessels ordered during better times are only now maritime cluster. The Ministry substantially limits the sector’sentering the market, increasing supply and accentuating the problem. of Transport, Communications ability to operate seamlessly & Works and the Department and to attract more shippingClearly the shipping com- commercial fleet internation- of Merchant Shipping (DMS) companies given the key rolemunity needs strong support ally and the 3rd largest in the carried out a detailed assessment that Turkey plays within theduring these difficult times, European Union, with tonnage of the problems that Cyprus market. One of the greatestand it is imperative, therefore, exceeding 21 million. Cyprus shipping is facing in order to economic benefits of a solutionthat Cyprus’ public admin- is also the largest 3rd party ship identify methods by which to to the Cyprus Problem will beistration and, in particular, management centre in Europe, resolve them and make the sec- the expected influx of majorthe departments dealing with with over 60 fully fledged ship tor more competitive on the global shipping players tomaritime affairs, are able to management companies op- international stage. Important Cyprus upon the lifting of theevolve to meet the new de- erating on the island, many of progress has already been made. Turkish embargo. However,mands that come with such which belong to leaders in the For example, following a study the priority must always bea challenging market. Such international arena. commissioned in 2015, a Na- to achieve a solution that hasa transformation to move The cornerstone of Cyprus’ tional Strategy for Shipping is long-term viability, as businesswith the times will also allow success in establishing itself as being developed; the House cannot flourish under condi-Cyprus to leverage any oppor- an internationally recognised of Representatives enacted tions of political uncertainty.tunities that may arise in these shipping hub has been thevolatile conditions. island’s tonnage tax regime, The Turkish embargo on Cyprus- Cyprus already forms a though recent amendments to flagged vessels continues to be the single the wider taxation system onbase for a significant numberof companies operating in the the island, such as the intro- most important challenge facing themaritime sector. The Cyprus duction of a “non-domicile” island’s shipping industryregistry holds the 10th largest status for tax resident individu-
88 ACCOUNTANCY CYPRUS TAXATION TAX CHANGESFOR BOARD MEMBERS AND OTHERCOMPANY OFFICERS By Konstantinos Michail, Advocate, Andreas Neocleous & Co LLCIn October 2016, the Cyprus Tax Department issued Circular 151, explaining arises in respect of a person whose the changes made with regard to VAT for persons who are appointed as Di- appointment is not made in the rectors or other officers of companies. In the event that a lawyer, accountant context of, or for, the promotion or other professional is appointed as a Director, Treasurer or Secretary of a of any profession or occupation or company and the appointee continues to practise his or her profession or par- any other commercial activity, or a ticipate in any other economic activity after being appointed, then the services person (including a retired person) constitute an economic activity which is subject to VAT. who does not offer any other pro- fessional services beyond the roleHowever, the circular provides a regulations of the Central Bank of in question. Individuals who arenumber of exceptions. For example, Cyprus. employees, as defined in article 3(3)if a person accepts such an office In addition, acceptance of an office of the VAT Law, of a company inin a banking institution based on on purely personal grounds (for ex- which they hold office are exempt,the “Directive to licensed credit ample personal merit, professional since they are not promoting theirinstitutions for the evaluation of experience, expert knowledge and own profession or business.the capacity and suitability of the expertise or social status) does notmembers of the administrative body of itself create an economic activity Individuals who areand the directors of licensed credit subject to VAT if it is unconnected employees of a companyinstitutions”, it will not constitute with a trade or profession carried on in which they hold office,an economic activity. Such activity by the appointee. Accordingly, no are exempt from VATis already strictly prohibited by the economic activity subject to VAT
89ACCOUNTANCY CYPRUSThe circular includes a number of employee of a company is appointed Acceptance ofpractical illustrations. For example, as a Director of another company an office onwhere an employee or a Director of and is directly remunerated by thatcompany A is appointed as a Mem- company, the first company has no purely personalber of the Board of Directors of liability to charge or account for any grounds does notcompany B, company A is required tax. Instead, the onus will be upon of itself create anto charge VAT at the standard rate the individual concerned, and he or economic activityon the agreed fee. she will be required to register andEspecially in groups of companies, charge VAT for the services offered subject to VATan individual may carry out the role if the total remuneration exceedsof Director in several companies, the VAT threshold of €15,600 per as long as the director does not of-while being remunerated solely annum. However, the appointment fer any expert advice and does notby one of them. Unless there is an must clearly be made on a personal participate in the management ofagreement between the companies level and not in the context of pro- the business, then there is no tax-to charge for the time spent, the vision of services between the two able supply of services for VATservices are treated as being offered companies. purposes. If, on the other hand,directly by the individual to the If a company or a physical person the Director is appointed becauserelevant businesses, and not subject who holds an investment in a com- of his or her specialized knowledgeto VAT, since there is no provi- pany exercises a legal or contractual and participates in or advises onsion of services from one company right to appoint a director to the the management of the business, ato another. When a Director or an Board of the investee company, then taxable supply of services arises and VAT must be charged on any fees or remuneration.
90 ACCOUNTANCY CYPRUS TAXATION THE 5% VAT ‘SOCIAL POLICY’... AND THE CUBAN CIGAR How Cyprus allows tHe ‘poor’ purCHasers of million-euro residenCes to benefit from a Huge reduCtion in Vat, all in tHe name of its so-Called ‘soCial poliCy’ By Alexis Tsielepis policy’ in our own country. evant EU provision that form Managing Director, Chelco VAT Ltd In Cyprus, advertising about the basis of the 5% rate for new building or buying new immovable property in Cyprus,A t the old Partagas factory, situat- immovable property often and refers to the “…provision, ed on 520 Calle Industria Street refers to a reduced 5% Value construction, renovation and in Cuba’s old Havana quarter, Added Tax (VAT) as op- alteration of housing, as part of the female guard settles her large posed to the standard rate of a social policy.” frame behind a battered, old 19%. Indeed, this relaxation Looking at the Cyprus legisla- wooden desk, and lights up her does exist, allegedly as part of tion, there is immediately an first cigar of the day. Cyprus’ social policy. issue of conflict with the EU Her job is to wait for passing Directive and it has to do with tourists and inform them that, LegisLation: the last part of the paragraph due to renovation works, the european union that states: ‘…as part of a so-operations of this historic factory have been temporarily cial policy’.moved to a different part of town. Nearing 50 years of The use of the reduced rate in When the 5% rate was beingage, she is constantly smiling and has an abundant sense of a member state is restricted to championed by the politicalhumour, despite her poor English. She is a classic Cuban, specific transactions that are parties to facilitate the aspira-clearly on low wages, but the state provides her with work, provided for in the EU VAT tions of the average Cypriot toshelter, food and healthcare. Directive (Council Directive ‘live the dream’ and becomeCuba’s communist policy provides food for thought, espe- 2006/112/EC of 28 November a home owner, there was acially when compared to the social policies of western, demo- 2006 on the common system clear hidden agenda, whichcratic countries and, in particular, when compared to some of Value Added Tax). Article was to help the constructionof the legal provisions enacted under the umbrella of ‘social 98 therein permits the use of a industry offer cheaper hous- reduced rate but only to sup- ing to wealthy buyers. This is plies of goods and services in the categories set out in Annex III of the Directive. Paragraph 10 of Annex III details the rel-
91ACCOUNTANCY CYPRUSwhy the restrictions to the 5% tive allows the use of the 5% on 7 October 2011. However, thosereduced rate provided for in rate only with regard to the who were championing the legislationthe Cyprus legislation make provision, construction, reno- on behalf of the developers – rather thanreference only to the size of the vation and alteration of hous- first-time buyers as one would have ex-property and not to its value, ing. It does not provide for the pected – quickly realised their mistake,with the size being very gener- use of the 5% rate for the ‘sup- given that the initial legislation only ap-ous. Thus a 200 sq.m. house ply’ (i.e. the sale) of a property, plied to EU citizens permanently resid-on the beach in Limassol, as is the case in Cyprus. No ing in Cyprus. This naturally ruled outwhich may sell for in excess of doubt the Ministry of Finance most of the prospective lucrative clients€2 million plus VAT, is also must have obtained, as it from other countries, notably Russia,within the scope of the 5% is accustomed to do when from our ‘social policy’. In order to cor-reduced rate. zealously undertaking its tax rect this discrepancy, the House of Rep-Therefore, strictly speaking, planning, some form of au- resentatives amended the legislation andit is questionable whether the thorization from the European so, since 8 June 2012, any person living5% reduced rate provisions Commission… anywhere could benefit from the reducedon properties truly forms VAT provision.part of a ‘social policy’. This, LegisLation: Cyprus The property acquired would need to be aof course, is a more general new one to be used for the first time fromweakness of a reduced VAT The supplies that are subject the date it was delivered or constructed.rate – that it has a universal to the 5% reduced rate of Until recently, eligible properties were thoseapplication and does not tar- VAT are detailed in Table C that did not exceed 275 sq.m. in total cover-get the section of the popula- of Schedule 5 of the Cyprus age. For the purposes of the VAT legislation,tion that needs it most. VAT Laws (N95(I)/2000 total coverage was defined as the total sumIn addition, the VAT Direc- as amended). Table C first of the covered areas of the property, includ- appeared in the legislation ing engine rooms, storage areas and covered parking areas, as well as covered verandas, but excluded: •up to 5 sq.m. of engine rooms •up to 7 sq.m. of storage rooms •up to 36 sq.m. of covered parking • up to 40 sq.m. of covered verandas • covered spaces up to 2.20 m in height that arise only due to the large height differences of the plot, and which are in no way used as liveable areas. The reduced rate applied only to the first 200 sq.m. Any excess square coverage up to the actual real coverage of the dwelling was subject to VAT at the standard rate, as confirmed by the Cyprus Courts in Case 549/2013 of 28/03/2016, Achilleas Kyprianou vs Ministry of Finance. the Distortion Obviously the restriction in total coverage could not of- fer the necessary relief to the ‘vulnerable social groups’ that needed towering palatial homes and mansions. So, as of 18 November 2016, the House of Representatives removed all references to total coverage from the legisla- tion, in order to fix this distortion. Now, the first 200 sq.m. of any new main and permanent residence will benefit from the reduced rate. In this manner, all luxurious new properties may benefit, at least in part, from the reduced VAT, bringing a smile to the faces of their wealthy buyers. At the same moment, some 10,410 kilometres away in Ha- vana, the female guard continues to smile as she gets ready to light up another Cuban cigar.
92 ACCOUNTANCY CYPRUS EIBNCUOCSNIYNPOERMSUSSY intErviEw INVESTMENT, INNOVATION AND SUSTAINED QUALITY CAN MAKE CYPRUS AN INTERNATIONAL EDUCATION HUBChristoforos hadjikyprianou, CEo of EuropEan univErsity Cyprus, outlinEs thE stEps that nEEd to bE takEn if thE Country’s longstanding ambition is to bEComE rEalityWhat are the key challenges for issue of the employability of gradu- educational hub, having a sustainablehigher education in Cyprus current- ates. Cyprus has the EU’s second increase of quality international stu-ly and how are they transforming highest tertiary education attain- dents, the modernization of the legalthe local higher education sector? ment rate but the employability regulatory framework and, finally,Higher education has made huge prospects for graduates remain poor. cooperation among universities forstrides in Cyprus in the last decade. We are addressing that by adjusting research opportunities.The scope and growth of universi- to the needs of a post-crisis growthties, their programmes, services and economy, giving our graduates the What needs to be done to improveresearch have improved immensely. opportunity for training placements the competitiveness of CypriotThere are still issues that hold Cy- as well as the professional skills and Universities against European orprus back from fulfilling its potential certification that will facilitate their global competition?to become a technological and edu- employment. Bringing the job mar- Although the quality of teaching,cational centre of excellence. Putting ket closer to the student community services, infrastructure and researchthat aside for a moment, I think the and the graduating class is crucial for have all made huge strides and Cy-greatest and broader challenge here both sides of that relationship and priot universities have secured somebut also overseas – one that I think for Cyprus as a country. very flattering distinctions in the lastwe at European University Cyprus Some additional challenges include few years, there are still many thingsare addressing effectively – is the the branding of Cyprus as a quality to be done in order to improve the
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94 ACCOUNTANCY CYPRUS BUSINESS IN CYPRUScompetitiveness of universities in Cy- Laureate International Universities, these are purely speculative but theprus. Distance education, sophisticat- a public benefit corporation based in detail will be part of the negotiationsed learning-management systems and Baltimore in the United States. As to take place between Britain and thethe opportunity to collaborate with a global leader in higher education EU. Having said that, I think thatresearch partners from around the with a network that includes more there will be a shift towards Cyprusworld are additional transformational than 80 campus-based and online but mainly for the reasons I outlinedchallenges that universities should universities in 28 countries, Laureate earlier, i.e. the fact that the quality ofembrace. Technology has had – and offers undergraduate and gradu- the education offered here is now ofwill continue to have – a significant ate degree programmes to over one the highest standard.impact on higher education. In fact, million students on five continentstechnology will become a core dif- making our University part of a very International students can be keyferentiator in attracting students and broad network of excellence. In the to the success of higher educationcorporate partners. Online learning Mediterranean region alone, Laure- in Cyprus. How do internationalshould be a key strategic initiative as ate has universities in Spain, Cyprus, students benefit from studying init is gaining a firm foothold in uni- Italy and Morocco and that level of Cyprus rather than in other Euro-versities around the globe. Last but network and cooperation strengthens pean countries?not least, corporate-academic part- Cyprus’ regional role. I think Cyprus has good potentialnerships have to form an increasing and we have been pushing in thatpart of the university experience and We need direction. We have accomplishedresearch activity. to establish several objectives to this end but the Cyprus first state can do much more towards im-Can Cyprus become an established as a top-quality proving the appeal of the country asregional international education education an educational hub. Indeed, over thehub? If so, what needs to be done years, many governments have talkedin order to achieve this? brand about creating a regional higher edu-This idea of the country as a hub cation hub in Cyprus. It must be saidfor education has been a priority Do you expect Brexit to impact the that some recent developments suchfor the government for many years Cypriot higher education sector? as the bilateral agreements betweennow. In order for it to happen you Do you believe there will be a shift Cyprus, China and Russia have beenneed strategic orientation. There are in the number of students who very positive. However, we need tosome steps in the middle that need might wish to study in the UK do more. Cyprus has many advantag-to be taken. For instance, the signing towards other European countries es over other countries in the region:of bilateral agreements with other and, in particular, Cyprus? a very high percentage of highly edu-countries, improving recognition and In the short term I don’t think there cated people, good infrastructure andaccreditation should be a top prior- will be a significant impact. Let’s services, security and superb weather.ity. We also need to establish Cyprus not forget that Brexit will take some In fact, it is like studying at a qualityfirst as a top-quality education brand. time to be fully implemented and European university but with a goodThen we need some incentives from among the so many unknowns in climate and safe environment.the government, regarding the non- the process – which has not yet beenpublic universities, so they can create, triggered – there is the possibility of What are your recommendationsfor example, high-level infrastruc- exemptions when it comes to matters for strengthening the Cypriotture. And finally we need closer col- of education or at least some transi- higher education sector?laboration between the private and tion periods. As things stand now, The key to long-term success is qual-the public sectors so as to aggressively ity programmes orientated towardspromote Cyprus as a quality educa- employability. I would highlighttion brand. that we have to close the gap be- tween academic education and the In summary what is needed is real environment. Today we have ainvestment, innovation and deliver- significant increase in youth unem-ing sustained quality. Speaking on ployment in this country, in Europebehalf of our university, I must note and worldwide, and to combat thisthat, since 2011, European Uni- we need to bridge this gap.That isversity Cyprus has been owned by
95ACCOUNTANCY CYPRUSwhat we are trying to do as a univer- to deliver education that matches to our academic family as a visitingsity; we are trying to bring employ- our students’ needs and exceeds their Professor.ment through our career services expectations. Our success is basedand internships in all programmes. on the quality of the education pro- On top of the profoundly impor-Everything must be connected with vided and the innovation embedded tant QS STARS distinction we haveemployability. in our academic programmes and received, European University Cy- research initiatives. Our people – prus has received another recognitionWhat are the benefits of the col- faculty and staff – are also a vital of excellence for both its academiclaboration between European Uni- factor because of their engagement and administrative functions, fromversity Cyprus and the Microsoft with and passion for their work in the reputable non-profit organiza-Innovation Center to its students this institution. tion EFQM. European Universityand to the Cyprus business com- was rated with 5-stars in the EFQMmunity? Belonging to Laureate means we Model of Excellence, scoring moreIn 2015 Microsoft selected Europe- give our students opportunities no- than 500 points in the areas of strat-an University Cyprus to be its part- one else can. Laureate’s education egy, processes and results. This ac-ner institution for the establishment model, whether on-campus or on- creditation confirms the viability ofof the only Microsoft Innovation line, is uniquely designed to provide the University and its future courseCenter in Cyprus, one of around high-quality content, a multinational as a successful organization and itsonly 100 such centres worldwide. contribution to education, societyThis state-of-the-art technological The key to and the business world. The awardhub situated on campus promotes long-term confirms the high quality standardscollaborations in innovative research success is quality that define us, offer a clear competi-and technology, involving a combi- programmes tive advantage and put us firmly onnation of government, academic and orientated a successful path towards excellence.industrial participants. The Micro- towards That in the end is the driving force.soft Innovation Center highlights employabilityand enhances the significant shift in What are the future plans for Eu-our University over the last decade. context and access to resources not ropean University Cyprus?Laureate International Universi- available elsewhere. This cross-bor- To continue growing is importantties is founded on the principle of der academic collaboration enables for any organization. To continueinvesting in growth, innovation and our graduates to be more successful growing while remaining focusedexcellence. The Center falls within in their careers. on quality, innovation, and thethat framework. In terms of what outstanding student experience isit contributes to students, it clearly Over and above the accolades particularly complex and challeng-allows us to organize and host initia- that we have secured, we are proud ing. Achieving this will only betives that aim to engage and involve to have three Nobel Prize Laure- possible through an explicit align-them, whether these are fairs, study ates among our visiting professors. ment of our vision and strategy butcourses, competitions or start-up The School of Medicine’s faculty also with close cooperation andinitiatives. Ultimately the aim is to includes 1988 Nobel Laureate in collaboration amongst all constitu-connect the students, their ideas and Chemistry, Biochemist Robert Hu- ents of our organization. Withintheir work with the business sector ber, while the 2009 Nobel Laure- our long-term strategy is the fulland allow them to get project-based ate in Chemistry, Biochemist Ada implementation of the Laureateexperience, networking and potential Yonath, is an Honorary Professor of academic model; the establishmentemployability. the School. More recently we have of the Dentistry School; smart welcomed the 2015 Nobel Laure- campus implementation; to capi-What are the recent successes of ate in Chemistry, Tomas Lindahl, talize on the Microsoft InnovationEuropean University Cyprus and Center with the creation of morewhere does its competitive advan- start-ups; scale Digital educationtage over other higher education and close cooperation with the lo-establishments in Cyprus lie? cal and global industry. Our aim isWe challenge the status quo and to continue to ensure that Europe-continuously improve performance an University Cyprus and Laureate are here for good.
96 ACCOUNTANCY CYPRUS BUSINESS IN CYPRUSBRANDING ON How to present yourself and your services By Demetris Stylianides DipLC, CT, CTM, FAIA, FCCA, CPA, Internationally Certified NLP TrainerHHow many times have you left a presentation saying to yourself, “That was great. I wish I could do that! Why can’t I be that good?” Communication is imperative to training. The quality of our commu- nication largely determines the qual- ity of our training and our lives. Our communication is constant, whether or not we are speaking. We all, in oneway or another, send our messages out to the world and rarelydo we send them consciously. We act out our state of beingwith non-verbal body language. The gestures are numerousand, while some are deliberate, many are mostly unconscious.NON-VERBAL PATTERNS OF ily therapist who used a Leveller sentation in order to makeCOMMUNICATION number of gestures in her Adopt a symmetrical a really important point. routines. These non-verbal physiology, hands start Generally, Leveller assertsWhen first presenting patterns of communication centrally, palms down, authority and calms peopleand training, people of- are specific postures and about waist height, moving down, so it is very goodten wonder what to do gestures that involve your in an outward direction for bringing things downwith their hands. Neuro- entire body, including as if you are smoothing to earth.linguistic programming your hands. Here is a brief something (like plaster).(NLP), which is the art of summary of these five non- This is sending out a very Placaterexcellence in communica- verbal communication pat- powerful message. Use this Adopt a symmetrical opention, found the answers terns which you will also sparingly during your pre- physiology with palmsby studying Virginia see in the picture below:Satir – the famous fam-
97ACCOUNTANCY CYPRUSSTEROIDS by leaning forward. Warn- chin in a closed fist. This ing: this body language is the stance adopted by can be perceived as very someone who is think- aggressive so use it spar- ing, or about to make a ingly. It can be used to decision. Use this gesture point out important issues when you want to convey and procedures that must facts and information to be followed, otherwise your audience. the audience will “suffer” serious consequences for Distracter not following them. It can Adopt an asymmetrical be used for motivational physiology, incongru- purposes during the end ent and off-balance, of your presentation when weight on one foot. Use you want to inspire your this gesture if you have Non-verbal patterns of communication are specific postures and gestures that involve your entire bodyturned up or open, mov- want to apologize about audience or move them to a heckler in your audi-ing in an upward or out- something which is your action on a certain matter. ence who tries to annoyward direction, like some- fault. Avoid using it when Note that when using the you with silly commentsone pleading for mercy or you convey facts and in- pointing or jabbing fin- or questions. As this isbegging. This should be formation as you will not ger, point above people’s an extreme gesture, youused rarely in a presenta- be taken seriously. heads. You don’t want to should use the Levelertion as the “openness” point at anyone as this gesture immediately afterimplied by the gesture can Blamer gesture will be taken as Distracter. You don’tbe perceived by your audi- This posture is demon- rude and inappropriate. want the audience toence as a “weakness” on strated by the pointing associate you with theyour behalf. Use it if you finger, jabbing finger and Computer/Thinker Distracter gesture and To adopt this gesture, you not take you seriously. have to put one hand on Distracter can also be your chin with the other performed in a more arm folded across the subtle way by bringing chest, hand supporting the elbows closer to your the elbow. Feet parallel body while making the and the hand supports the gesture.
98 ACCOUNTANCY CYPRUSBUSINESSIN CYPRUSLEARNING STYLE They may have changed 1Start with the Whys, bits of the exercise around because until youThe 4MAT system comes orally or on a printed page. or they may be doing give reasons, the whyfrom a study of learning In presentations and train- something completely people won’t listen to thestyles by Bernice Mc- ing, the What people are different, because they go rest of the information. InCarthy. She noticed that happiest when there is so into the exercise thinking a training, they won’t bewhen she was teaching much information that “I wonder what would motivated to do the exer-children in school, they they are frantically making happen if we just leave cises, and they certainlylearned in different ways. notes but they can’t write that step out?” In general, won’t contemplate theIn particular, they learned fast enough to keep up! these people will be con- What ifs. It is as thoughby asking specific ques- The How? people learn sidering the consequences they are ‘on hold’ untiltions. She put the children best by doing. They aren’t of making changes to the they have good reasons forinto four basic categories, too bothered about the structure of the exercise, engaging. Therefore alwaysaccording to their particu- the consequences of doinglar mindset, as follows: theory or the reasons. They 2give the Whys first. want to be trying things it in another context, and Then give some Some children wanted out, getting the feel, the any possible repercussions What information.reasons. They were habitu- hands-on approach. Get on themselves through Obviously peopleally asking the question them to do something, not sticking to the rules. need details before doingWhy? give them feedback on It is almost as if they are an exercise, or thinking what they did, and then testing the boundaries: about how they might use Others wanted facts. coach them on what they finding out where theyThey would be asking for could be doing better. are, where they could go 3something.information, the What? The What if? people and what is possible. Third, do the How. learn best through self- In a training, this Others would be very discovery. When they go In any presentation is an exercise; in apragmatic. They wanted off to do a training exer- or training, you need to presentation it might beto do things, to find out cise and you then observe ensure that you give the talking them through howHow things worked. them doing it, it may bear information in a way that they could implement no resemblance to what is suitable for all four this information back in The remainder wanted you asked them to do. learning styles. And you their own environment orto explore future conse- need to do this in a par-quences. They were more ticular order: 4workplace.interested in the What if? Last, you need to look at the con- As adults we maintain sequences: Whatour preferred learning would happen if you didstyle, so we will find that this? What would happenone particular style is the if you didn’t? What is like-most comfortable for our ly to happen if you deviateway of working. from the plan? And so on.The four different styles The entire process is,of learning of course, great in theoryThe Why? group learn but you have to start put-best by discussing the ting it into practice. Inreasons why. They want December 2016, ICPACto know why something is held two workshops onworth doing: “Why would presentations in Limassolwe need to know this stuff? and Nicosia and over 100Why bother to use it?” members attended..They like to explore thereasons for taking action Be different, be unique,before actually doing so. put all these into practice and soon you will be hav-The What? group learn ing people say “Wow! Thatbest when you give them was a great presentation. Ithe information either wish I could do that! Why can’t I be that good?”.
100 ACCOUNTANCY CYPRUS BUSINESS IN CYPRUSACTIONS FORDAMAGESTowards an effecTive enforcemenT of compeTiTion LawBy Maria Vassiliou, LLB Law (University of Cyprus) and LLM Candidate, LLMin Commercial Law, University of Cambridge, Associate at Trojan EconomicsThe effective enforcement of competition law requires the full compensation of uncertainty and lead to costly “satellite victims of anti-competitive conduct. To facilitate damages actions and to har- litigation”. Indeed, the fact that the Direc- monize the approach of national laws on this issue, the European Parliament tive provides legal standing (locus standi) to and the Council adopted Directive 2014/104, which Member States were indirect purchasers, while recognizing the required to implement by the end of 2016. The Directive is an important passing-on defence, may further underminedevelopment for both consumers and businesses, seeking both to facilitate the the effective compensation objective of theexercise of the right to full compensation of victims of violations of EU and national com- Directive. In light of the above, it seemspetition rules, while maintaining a balance between public and private enforcement. The that the Directive does not allow privateDirective is applicable to both follow-on actions, based on the decision of a national Com- enforcement to become the strong secondpetition Authority finding an infringement of competition law, and stand-alone claims. pillar of competition law enforcement in the EU, which would make it possible to offset the shortcomings of public enforce-The Directive provides, inter alia, for whether the Directive fully achieves the ment (e.g. ineffective fines, low detection(i) national courts to order disclosure of purpose for which it was designed, so long rates of anticompetitive conduct).evidence,(ii) the binding effect of final as a number of inherent weaknesses are The issue of damages is already re-decisions of national competition authori- preventing its effective implementation. ceiving a great deal of attention fromties for the courts of the Member State in It is argued that one major limitation of researchers and practitioners of competi-which the decisions are issued, (iii) the lim- the Directive is that it fails to reduce the tion law and, thus, new developmentsitation of right of action to five years, (iv) huge costs involved in damages claims, should be expected soon, particularly withthe presumption of harm caused by cartels, and does not provide the victims with suf- regard to collective actions. Clearly, these(v) the joint and several liability for partici- ficient incentives to enforce their rights. developments will lead to a new balancepating in anti-competitive behaviour, (vi) Importantly, consumers and small busi- between public and private enforcementthe pass-on defence and (vii) the power of nesses face potentially high legal costs (e.g. of competition law, ultimately creatingcourts to quantify the loss. It is important lawyers’ fees, remuneration of specialized a new playing field in terms of broaderto note that, with respect to the quantifica- economists) that may outweigh the pos- competition policy at EU level and attion of harm, the European Commission sible compensation if the claim is success- a national level as well. Therefore, ithas adopted a working document in order ful. As a result, potential claimants may should be expected that damages claimsto provide guidance to the national courts. be deterred from taking advantage of the within the European Union will gradu-In light of the above, it is argued that Directive, given the lack of a prediction ally become commonplace. Whether thethe risk of exposure to the private enforce- mechanism for collective actions. Directive will be beneficial for victims ofment of competition law has substantially Moreover, the complex structure of anticompetitive conduct or not remainsincreased with the Directive, since it is now joint and several liability may create legal to be seen.more likely to find a business accountableto compensate for damage caused to a There are doubts as to whether the Directive fullythird party as a result of anticompetitive achieves the purpose for which it was designedconduct. However, there are doubts as to
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