It is commonly understood that everyone should pay their taxes as they come due and the relevant competent authorities in each member state should be allowed to take all necessary measures against any person that neglects to settle such legally applicable taxes. For the purpose of avoiding tax evasion by individuals that move in other countries within the European Union or that dispose assets from one country to another, the EU has adopted a directive that enhances the cooperation between member states for recovery of taxes and other ancillary matters as explained below.
The applicable law in Cyprus for the provision of mutual assistance on matters of tax recovery is the Mutual Assistance for the Recovery of Claims Relating with Taxes, Duties and other Measures of 2004, that has implemented the European Directive 2010/24 (the “Directive”).
Scope of Directive:
The Directive applies to claims relating to the following:
a) All taxes and duties of any kind;
b) Refunds, interventions and other measures forming part of the system of total or partial financing of the European Agriculture Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD);
c) Levies and other duties provided for under the common organisation of the market for the sugar sector.
The scope of the Directive includes:
a) administrative penalties, fines, fees and surcharges relating to the claims for which mutual assistance may be requested;
b) fees for certificates and similar documents issued in connection with administrative procedures related to taxes and duties;
c) interest and costs relating to the claims for which mutual assistance may be requested.
The Directive does not apply to:
a) compulsory social security contributions;
b) dues of a contractual nature, such as consideration for public utilities;
c) criminal penalties imposed on the basis of a public prosecution or other criminal penalties not covered by the scope of the Directive as mentioned above.
Main features of Directive:
The Directive establishes an efficient assistance system, enabling member states to cooperate on the below matters:
a) Exchange of information that is foreseeably relevant to a member state in the recovery of its claims;
b) Direct participation of a member state’s officials in administrative enquiries that take place in another member state;
c) Assistance for notification of documents relating to tax claims or to their recovery that include documents of a judicial nature;
d) Request for recovery of tax claims by taking enforcement measures pursuant to the law of the country that receives the request for assistance;
e) Request for precautionary measures to ensure recovery when the claim is contested in the member state that requests the assistance or when the claim is not yet the subject of the instrument permitting enforcement in the said member state.
Interpretation by CJEU:
The European Court of Justice and the Advocate General have been given the opportunity to assess certain aspects of the Directive and some of the conclusions drawn are the following:
a) The Directive does not preclude an authority of a member state that receives an assistance request, from applying Article 47 of the Charter of Fundamental Rights of the European Union (rights to effective judicial protection) in order to refuse to enforce a recovery request (Case C-34/17, 26 April 2018). The above reinforces the established norm, that when interpreting a provision of EU law, it is necessary to consider not only its wording but also the context in which it occurs and the objectives pursued by the said rules.
b) Although under the provisions of the Directive, the member state that received the request for assistance is -for the purposes of recovery of a claim forming the subject matter of such a request- required to treat that request in the same way as its own claims, that does not mean that the claim of the requesting member state has been assigned to the requested member state. Such claim remains, from a substantive perspective, a claim of the requesting member state, distinct from those of the requested member state (Case C-19/19, 14 January 2020)
Effect and way forward:
The European Commission has issued a report, dated 18 December 2017, on the operation of the arrangement established by the Directive (the “Report”), whereby the impact of the Directive was assessed through consultations, questionnaires by members states and the evaluation of requests.
The Report’s conclusion was that the overall impact of the Directive is positive and that it has been successful in making assistance between member states efficient, effective and straightforward; however, it was found that member states do not take advantage of its full potential, since the use of the option for direct participation in proceedings is scarcely used.
In addition, some member states have indicated the weaknesses of the assistance framework, which are mainly related with the lack of resources available to the relevant competent authorities in order to address the requests for assistance efficiently and the lack of efforts by some authorities, which is connected with the weaknesses of their recovery system.
The above observations are particularly relevant in Cyprus, as it was among the countries with the lowest recovery assistance rates. The Commission committed to provide its support for improving the recovery performance of these countries, so it is expected that within the next years the internal tax recovery systems will be strengthened and the national authorities will be encouraged to deploy sufficient resources for the purpose of increasing the recovery assistance rates.