Lawyers and accountants are challenging proposed powers that would allow Cyprus’s Tax Department to seal businesses for non-compliance, despite safeguards included in draft tax reform legislation.
The controversial provision will be debated extensively on Friday at Parliament’s Finance Committee. Tax Commissioner Sotiris Markides modified the measure over the summer following consultations with stakeholders, but professional bodies remain opposed.
Under the bill, the Tax Department would send three registered letters, giving businesses ten days each to comply before sealing premises.
The measure targets firms that fail to submit tax returns for two years, miss twelve monthly employer declarations, owe more than €20,000 in unpaid taxes, don’t issue invoices and receipts, or obstruct tax audits.
The Cyprus Bar Association has asked Parliament to remove the article entirely, arguing the procedure isn’t legally sound and works against businesses.
The Institute of Certified Public Accountants of Cyprus (ICPAC) noted that within the EU, only Greece and Bulgaria apply such measures, and only for indirect taxation (VAT).
Greece introduced business sealing in 2022 for failures to transmit retail sales data to electronic tax systems, whilst Bulgaria applies it for VAT violations, not direct taxation.
Accountants said the measure is unjustified, particularly for taxpayers preparing audited accounts to file tax returns.
They argued the 10+10+5 day timeframe isn’t realistic for achieving compliance, and that sealing would prevent taxpayers from accessing their files to comply.
According to ICPAC, the Tax Commissioner already has numerous compliance provisions available, and obstruction of audits doesn’t fall under tax legislation.
The Tax Department defended the measure as necessary to protect public revenues and prevent unfair competition against businesses that meet their obligations.
In a briefing document sent to political parties, the department said sealing serves as a deterrent, preventing violations and strengthening compliant businesses’ trust in fair and effective tax administration.
The department said the measure is effective because sealing is visible to the public, customers and other businesses, showing the Tax Department acts immediately and strictly without tolerating violations.
It argued the measure demonstrates that lawbreakers don’t benefit at the expense of compliant businesses, restoring a sense of justice and promoting fair competition, which strengthens trust in legality and cultivates a culture of tax compliance.