Already struggling with a growing economic crisis and the near-failure of its state banks, Cyprus’ government said a poor rating it received from Europe’s leading financial monitoring agency on tax transparency was undeserved.
The Paris-based Organization of Economic Cooperation and Development (OECD) said that Cyprus, which has long had the dubious reputation of being a money-laundering tax haven for crime and tax cheats in other countries, fell short of international best practice on tax transparency. Cypriot efforts at reform “warranted a higher rating being assigned,” the ministry said in a statement.
Cyprus, Luxembourg, Switzerland, the British Virgin Islands and the Seychelles were all criticized for aspects of their tax administration by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
The forum is overseen by the OECD which said the countries, long seen as places where the rich stash their cash, either failed to share taxpayer information with other countries effectively or to gather information on who benefited from ownership of corporations within their borders.
Cyprus came under pressure earlier this year to reform its financial system as a condition of getting a 10 billion euro ($13.67 billion) bailout after its banks were brought toward ruin by bad loans to Greek businesses that failed and big holdings in devalued Greek bonds, losing 4.5 billion euros ($6.11 billion).
German lawmakers in particular criticized Cyprus as a tax haven for wealthy Russians, who lost 47.5 percent of their bank accounts under a government-imposed confiscation scheme.
But in return for taking much of their money, Cyprus gave major depositors shares in state banks, leading to many Russians being on the board of Bank of Cyprus and having a big say in how it operates now.
In its statement, the Cypriot Finance Ministry said the OECD didn’t consider legislative changes made last year or improve information available on companies, nor consider how the country had to cope with demand for information from other jurisdictions.
During the next review in 2014, assessors would note a “very significant improvement,” the ministry said, and improve Cyprus’s rating considerably.