Cyprus has lost potential state revenue after thousands of tax assessments exceeded the six-year legal deadline within which authorities can impose taxation or additional tax, according to the Audit Office.
Despite a significant reduction in pending tax assessments, the Audit Office found that 139,078 individual tax assessments related to tax years 2014-2017 had exceeded the six-year deadline within which the tax commissioner can issue taxation or additional tax.
Similarly, 6,070 company tax assessments from 2014-2017 also exceeded the six-year deadline prescribed by legislation for imposing or adding tax.
The Audit Office estimates that many taxpayers who potentially have taxable income and have not submitted income tax returns are not included in the pending assessment figures.
Tax Department’s clearance campaign
According to the Audit Office report, the Tax Department issued 789,519 tax assessments in 2024 as part of a campaign to clear delayed work and impose pending tax assessments, compared with 943,413 in 2023 and 905,967 in 2022.
However, the Office found that 12,254 assessments were issued in 2023 for tax years 2014-2016 and 11,428 assessments were issued in 2024 for tax years 2014-2017 – mostly concerning legal entities – had already exceeded the six-year deadline for imposing taxation on additional income, resulting in lost state revenue.
Based on Tax Department data, the majority of assessments over the past two years were imposed without any substantial examination or adjustment of taxable income.
Recommendations for high-risk companies
The Audit Office acknowledges the Tax Department’s efforts to clear delayed work through tax assessments but points out that companies considered high-risk cannot remain without examination for years due to the risk of state revenue loss.
High-risk companies include those related to the construction industry, land development companies, development enterprises, and companies with significant losses in their history for consecutive years.
The Office calls on the Tax Department to conduct a timely examination of income tax returns, taking into account taxpayer risk levels, and to impose taxation within the six-year deadline to retain the right to make modifications and additional assessments following relevant investigations to safeguard public revenue.