AccountancyCyprus

Transcription

AccountancyCyprus

No122MARCH2016
AccountancyCyprus
www.icpac.org.cy
55 and going
strong!
The Journal of the Institute
of Certified Public Accountants
of Cyprus
ΠΕΡΙΟΔΙΚΟ
ΤΑΧΥΔΡΟΜΙΚΟ
ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ
ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΑΔΕΙΑ ΑΡ. 133
ΑΔΕΙΑ ΑΡ. 239
Contents
March 2016 – No. 122
ISSN 1450-2380
Editor
No122MARCH2016
AccountancyCyprus
Ninos Hadjirousos, FCA
www.icpac.org.cy
Deputy Editor
T. Anastasiades, B.Sc., M.A. (Econ.)
Editorial & Institute Offices
55 and going
strong!
11 Byron Avenue, CY-1096 Nicosia
P.O.Box 24935
1355 Nicosia – Cyprus
Tel. 22870030, Telefax 22766360
E-mail: [email protected]
URL:http://www.icpac.org.cy
The Journal of the Institute
of Certified Public Accountants
of Cyprus
ΠΕΡΙΟΔΙΚΟ
ΤΑΧΥΔΡΟΜΙΚΟ
ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ
ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΑΔΕΙΑ ΑΡ. 133
ΑΔΕΙΑ ΑΡ. 239
Accountancy Cyprus is published quarterly by the Institute of
Certified Public Accountants of
Cyprus and is sent free to all members of the Institute as well as to
a large number of other persons,
companies and organizations.
The Institute can accept no responsibility for the accuracy of
contributed statements or articles
appearing in this publication and
any views or opinions expressed
are not necessarily endorsed by
the Institute, its Council or by the
Editors.
Institute News
GM’s corner
Interview
P.4
News from the boardroom
P.7
Update from the Institute
Committees
P.12
P.18
Think’n ahead
Professional Briefing
Interview with H.E. the ambassador of
the Kingdom of the Netherlands,
Mrs. Brechje Schwach�fer
P.14
Students celebrate success at
P.22
Interview of the President of the CCCI
ICAEW graduation
Mr. Phidias Pilides
ACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
1
Contents
Economy
P.24 The challenging road ahead
P.25 Markets have funds to lend, but
they also have brains
P.26 Expectations for the year 2016
P.27 The Euro in the world
P.28 Economic Challenges of our Times*
P.30 The year will not be easy, but it will
be better
P.31 2016 – A year of growth and
investment
Provided reforms in state and
economy continue
P.32 We have set the foundations but
we should move on
P.33 The post – Memorandum era:
Investments and employment
P.35 The Need for an Entrepreneurial
Ecosystem
P.36 This Country has Potential!
P.37 Cyprus in a Time Warp
Our New Economic Model
P.39 Central bankers on the way to hell
P.40 A prices and incomes policy for
Cyprus
Business
P.42 Cyprus Securities and Exchange
Commission’s Directive on delisting
from the Cyprus Stock Exchange
Issuers’ obligations and the
protection of shareholders
P.43 Emerging Companies Market
(ECM) of the Cyprus Stock
Exchange (CSE)
P.44 The professional services sector
in 2016
P.45 Services Sector: The backbone of
the Cypriot Economy
P.46 From the ‘camel curve’ to the
‘duck curve’ on electric systems
with increasing solar power
P.48 Ways to Boost Competitiveness in
Europe: Engino Case
P.50 How U.S. Presidential Elections
Affect Equity Market Performance
P.52 Amidst continued strong capital
flows in Europe, the Real Estate
industry focuses on contending
with disruptive forces and meeting
the needs of occupiers
P.54 The European Union, a Reality and
an Opportunity for Chartered
accountants and their clients
P.55 Sustaining a competitive
development in tourism
P.57 The necessity of the creation of an
Integrated Casino Resort
P.58 Improving Research Effectiveness:
The instrumental roles of academic
and business communities
P.60Management
Human resourses management
P.61 How to make sure your employees
don’t quit!
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P.62 Proposal for a European Deposit
Insurance Scheme
P.63 Do You Have the Business
Mindset to Succeed?
A new approach for professionals
P.65 The Achievements and Failures of
this Government – Year 2015
P.66 Incentive and Reward Schemes
P.67 Crowdfunding as an alternative
way of financing small and
medium-sized enterprises (SMEs)
and start-ups
P.68 Crude Oil Tanker Market:
A Strong Performer in 2015 and
its Outlook
P.71 The Eurozone Banking Union
Where do things stand and what
does it really mean for Cypriot
banks?
P.72 Basic principles to consider in
drafting your company’s Risk
Management Policy Guidelines
Auditing & Accounting
P.74
P.75
P.76
New leasing standard should give
investors clarity
Third Party Assurance
Examinations: An Introduction to
ISAE 3402 reporting standard for
service organisations
Recent Developments on IFRSs
Taxation
P.80 Amendments to the Cyprus tax
laws to promote restructuring
P.81 FATCA Vs CRS
P.83 The EU Anti-Tax avoidance
package: An antidote in the making
P.84 European Commission proposes
Anti-Tax Avoidance Package
(ATAP) – Part I
P.86 Living in Cyprus: A scrumpTAXious
Proposition
P.89 Badges of trade
Having the right partner
makes your load lighter.
Fraud
P.91
P.92
P.94
PwC’s Global Economic Crime
Survey 2016
Nepotism and Patronage:
a Barrier for Cypriot Companies,
says the EU
The Achilles Heel of
Whistleblowing Protection
Real Estate
P.96
P.98
P.99
IT
P.100
P.102
P.103
P.104
Oversupply
Paphos is leading the course
towards recovery in the
residential market according to the
RICS Property Index
Real Estate expectations
Failing to strike a balance
Beware: You have been hacked!
Encryption
THE EXCEL WIZARD
Electronic Discovery & Digital
Forensics for Internal Investigations
Specialists in International Tax Planning
and Structuring, Accountancy and Audit.
Offices in Lefkosia and Lemesos.
Associates worldwide.
The Institute Council
Advisers to clients all over the world.
President:
Demetris Vakis, FCA, BSc, CF
Vice President: *Demetris Halios, BSc(Acc), CPA, MBA
Secretary:
Maria Pastellopoulou, FCCA
Members:
Andreas Andreou, BA, ACA
Panicos Charalambous, FCCA
Nicos Chimarides, ACA, BSc
Pieris Marcou, BA, FCA, CTA
Stavros Pantzaris, B.Eng, FCA
Philippos Raptopoulos, FCCA, BA
*Marios Skandalis, FCCA, CFC, CFE
*Spyros Spyrou, FCCA, BA, MBA
*Demetris Taxitaris, ACA
Liakos Theodorou, FCA
Christos Vassiliou, FCA, BA(Econ), CF
Audit | Tax | Advisory
Horwath DSP Limited Member Crowe Horwath International
8 Stassinos Avenue, 1st Floor, Photiades Business Center, 1060 Nicosia, Cyprus, P.O.Box 22545, 1522 Nicosia, Cyprus. Main +357 22755656, Fax +357 22452055,
www.crowehorwath.com.cy
Institute News
News from the boardroom
During the first quarter of 2016, the Council of the Institute convened three times and considered various matters that
were of significant interest to ICPAC, the profession and the economy in general. The main activities and decisions of
the Institute’s Council included the following:
Meetings with Officials
The President, Council Members and the
General Manager during the last quarter of
2015 held the following meetings with Government, political, business and other officials:
•On 13/1/2016 a delegation of the Institute
comprising of the General Manager and the
Chairmen of the Tax and VAT committees of
the Institute met with the Minister of Transport, Communication and Works in order to
assist the Minister in drafting a study for attracting airplane registration in Cyprus.
•On the 13/1/2016, the President, the
General Manager and Mr Spyros Spyrou,
member of the Council, participated at the
Public Sector Committee’s meeting, where
Mr Kypros Kyprianou, Director of the Public
Administration and Personnel Department of
the Ministry of Finance was invited to discuss
matters of mutual interest and explore ways
to enhance bilateral cooperation.
•The President together with the General
Manager met with the President of ICAEW
Mr Andrew Ratcliffe on 28/1/2016 during
his visit to Cyprus.
•The General Manager met with Mr Yiannakis Demetriades, the new President of STEP
Cyprus, on 2/2/2016 discussing matters for
pursuing mutual cooperation.
•The President and the General Manager
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of the Institute met on 11/2/2016 with the
new Secretary General of the Employers and
Industrialists Federation (OEB), Mr Michalis
Antoniou.
•On 18/2/2016 a workshop was carried out
entitled «Public value: earning and retaining
public trust in the profession» by ACCA in
Nicosia. Mr Peter Large and Sha Ali Khan of
ACCA presented the subjects and a fruitful
discussion followed between all participants.
This workshop aimed at bringing together the
Council of the Institute and the Cyprus Public
Audit Oversight Board in order to discuss the
upcoming challenges of the profession.
•On 27/2/2016 Mr Marios Skandalis, member of the Council, and the General Manager
participated as presenters in a conference
for economic crime, which took place in Nicosia.
•On 4/3/32016, a meeting was arranged
between the three competent authorities for
the Administrative Service Providers, to discuss matters of common interest and pursue
better coordination and alignment of actions.
CySEC was represented by its Chairwoman
and Vice-chairman, the Cyprus Bar Association by its President and ICPAC by its President and General Manager.
•The President and the General Manager on
7/3/2016 paid a courtesy visit to the Commissioner of the Protection of Competition,
discussing issues of mutual interest and
seeking ways to set up a closer cooperation
between the two authorities.
•The President, the General Manager and
Ms Amalia Hadjimichael, the Monitoring and
Compliance Officer of the Institute, travelled
to London between 10-12/3/2016 and had
long meetings with the main local accountancy bodies, ICAEW and ACCA, respectively. The meetings were extremely fruitful and
significant matters were brought to Cyprus.
At the same time, ICPAC reaffirmed its excellent relations and cooperation with both
bodies, exploring possible opportunities for
further enhancing the current cooperation.
•On 15/3/2016 the President, the Vice
President and the General Manager had a
meeting with a delegation of the European
Commission, which took place in the framework of the evaluation of Cyprus’ progress
with the memorandum of understanding with
Troika.
•The President, escorted by the General
Manager and a delegation of the Economic
Crime and Forensic Accounting Committee
of the Institute met on 17/3/2016 with the
Attorney General Mr Costas Clerides. During
the meeting issues of mutual interest were
discussed, as well as ICPAC’s suggestion to
provide expertise and knowhow to the Police
and prosecutors for cases involving white
collar crime investigations.
Council’s Decisions
•The Council at its regular meetings in the
quarter discussed issues relating to the cooperation with the CyPAOB, as well as, matters relevant to the mandatory audit of companies and its proposal for the amendment
of the Companies Law. Significant time was
also spent on discussing a proposal to CyPAOB for its financing structure.
•The Council decided to introduce the
BoardPad application, by which the Council meetings and proceedings (agenda, minutes, supportive material) will be conduct via
electronic means. Thus, saving significant
amount of time and reducing the use of paper.
•The Council approved the proposal put
forward by an ad hoc committee for the introduction of a retirement scheme for all its
Members. The finalised proposals will be
soon circularised to the Members of the Institute.
•During the quarter, the Council looked at
various ways to foster its effectiveness in
dealing with the increasing volume of issues
involving the Institute.
Other important meetings and
activities
•Significant time was devoted by ICPAC
representatives for the National Risk Assessment project, which is under way in
cooperation with other authorities and the
consultation of the World Bank. The first deliverables of the project were finalised and
submitted and the work is being carried out
until its completion in the summer of 2016.
•On 7/3/2016 a meeting was held between
the three competent authorities for the Insolvency Practitioners (ICPAC, Cyprus Bar Association and the Insolvency Service of the
Ministry of Energy, Commerce, Industry and
Tourism) to discuss current issues regarding
the Insolvency profession and legislation.
•Council representatives met on a number
of occasions with the Ministry of Finance to
discuss matters arising from the implementation of FATCA and the Common Reporting
Standard (CRS) by the Republic of Cyprus.
The outcome of these meetings is to formulate new piece of legislation and align the
understanding and actions of all parties involved.
•ICPAC also attended the meetings held for
the transposition into the Companies Law
the EU Directive regarding the disclosures
of non-financial information in the annual reports of firms, contributing significantly into
the discussion.
•The Institute officials held during this period various meetings and contacts with representatives of ICEAW and ACCA who visited Cyprus.
•Meetings were also held with other competent authorities such as the Cyprus Securities and Exchange Commission and MOKAS
for matters relating to anti-money laundering
and administrative service providers.
•During the quarter, ICPAC representatives
appeared before the Parliamentary Committees of Finance and Commerce regarding a
number of Laws and Bills.
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Institute News
ICPAC appoints Ms Amalia Hadjimichael as its Monitoring and Compliance Officer
ICPAC with pleasure informs its
Members that Ms Amalia Hadjimichael has joined the Institute
as the Monitoring and Compliance Officer of the Institute. This
new addition to the Institute is a
clear proof of the Council’s commitment to the continual upgrading of the Institute’s services,
as well as an enhancement of
its monitoring role. Ms Hadjimichael, who has assumed her new duties as of February
1st 2016, is responsible for the audit and AML monitoring
functions of the Institute, whilst she will also be the Com-
pliance Officer of the Institute.
Update from the Institute Committees
Brief bio:
Amalia worked at Deloitte between 2001 and 2007 where
she has gained experience in the audit of international and
local private and public companies. From 2007 till January
2016 she was a Director at the audit firm G.A.H Audit Services Limited where she was in charge of the audit department.
She holds a BA (Hons) degree in Accounting and Finance
from the University of Manchester and is a member of the
Institute of Certified Public Accountants of Cyprus (ICPAC)
and the Institute of Chartered Accountants in England and
Wales (ICAEW) since 2004.
Cooperation with the Hellenic Association of
Certified Fraud Examiners (HACFE)
Following the contact made by the Economic Crime and Forensic Accounting Committee of the Institute, ICPAC has penned an agreement with the Hellenic Association
of Certified Fraud Examiners (HACFE) in order to promote cooperation, exchange of
expertise and information, common researching and other training activities on the subjects of economic crime, fraud and forensic accounting. The agreement is in the form
of a cooperation protocol and soon its implementation will commence.
ICPAC’s e-learning platform for specialized training on AML and Compliance
matters
CORPORATE GOVERNANCE, INTERNAL
AUDIT AND RISK MANAGEMENT COMMITTEE
During the first quarter of 2016, the Committee turned its attention to Risk Management.
As the concept of Risk Management is fairly new and not
many companies have formal policies or guidelines in place
to address risks, the Committee examined a number of different policy guidelines and worked on some basic principles for
consideration. A Risk Management Policy Guidelines paper
was put together which is included in the current issue of the
Accountancy Cyprus magazine.
The Committee, in consultation with the Educational Committee and the Institute of Directors, is organising a seminar
focusing on a number of Corporate Governance issues. The
seminar will take place in May 2016.
George Hadjineophytou
Chairman
PUBLIC SECTOR COMMITTEE
During the first quarter of 2016, the Public Sector Committee
held three meetings and carried out the following activities:
ICPAC entered into the e-learning era by introducing a web-based platform for the provision of specialised training on
anti-money laundering and compliance matters. This platform has been developed by a UK company called VinciWorks
and is offered to the Institute Members free of any charge. The log in credentials have been emailed to all members and
the site is available for use. This new development compliments the existing learning and training services offered by
ICPAC, allowing the Members to take maximum benefits at the convenience of their own time and place.
Council abandons paper and adopts technology for its meetings
The Council of the Institute adopted in February this year
a web-based electronic tool for carrying out its meetings.
The BoardPad application envisages to enhance the Council’s effectiveness, communication and governance. All
Council meetings agenda, minutes and supportive material
are now available on the application and the Council Members may use their tablet or laptop to follow the meetings.
6
Gradually it is planned to incorporate all Council activities,
as well as the activities of the Committees.
EDUCATIONAL COMMITTEE
During the first quarter of 2016, the Committee held three
monthly meetings to discuss the organization of training seminars.
The Committee eventually organized the following 5 seminars
during the aforementioned period:
1. How could advisors work better with banks in the debt
restructuring process for corporates: The presentation event
took place in Nicosia on 14th of January,
2. Audit Monitoring Findings and Regulations: The half-day
training events took place in Nicosia, Limassol and Larnaca
on 12th, 13th and 14th of January respectively,
3. Refresher Seminar on IAS 12, IFRS 5, IFRS 12, and the
Current Developments: The full-day seminars took place in
Nicosia and Limassol on 26th and 27th of January respectively,
4. The professional liability of Accountants, Directors and
Secretaries: The full-day training events took place in Nicosia
and Limassol on 8th and 15th of March respectively,
1. The General Manager and representatives of the Committee met with the Chairman of the Public Service Commission,
to discuss various issues that are of mutual interest, in particular the recognition of ICPAC membership by public sector
entities. This issue should be discussed and explored more,
with other government officials.
5. Revenue Recognition and other IFRS developments: The
presentation took place in Nicosia and Limassol on 29th and
30th of March respectively.
2. The Committee met with the Director of the Public Administration and Personnel Department of the Republic of Cyprus, at the presence of the Chairman of the Board of Directors and the General Manager of ICPAC. During the meeting
a number of issues were discussed that are of the interest of
the Institute’s members who work in the public and the wider
public sector, the highlight being the public sector reform. The
Committee underlined its willingness and commitment to cooperate and assist the government in developing a new structure in the public sector, that will be promoting the general
public interest. As a first step of this cooperation, it has been
agreed and planned to co-organize a seminar, presenting the
changes in the legislation for the pensions payments to civil
servants in Cyprus.
The Committee aims to organize the following seminars during the second quarter of 2016:
Marios Hadjidamianou
Chairman
5. TAX Updates in Nicosia and Limassol in May 2016,
Overall, 10 training events were organized in all cities during
the first quarter of 2016.
1. Europass - Writing your own C.V. (only for students) in
Nicosia on 5th and 7th of April as well as in Limassol on 12th
and 14th of April,
2. FATCA & CRS in Nicosia and Limassol on 12th and 14th
of April respectively,
3. Corporate Governance in Nicosia on 5th of April,
4. New Audit Report in Nicosia, Limassol and Larnaca on
11th, 12th and 13th of May respectively,
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Institute News
6. Soft Skills in Nicosia and Limassol in June 2016,
7. Financial Services according to VAT legislation in Nicosia
and Limassol in June 2016.
Kostas G. Tsierkezos
Chairman
Administrative Services Committee
The committee worked closely with the General Manager of
ICPAC and the Chairman of the Board of Directors to present to the other two regulators of the Administration Service
Providers (CySEC and Bar Association) areas of improvement
in order to create a level playing field among the regulators.
A meeting between ICPAC, CySEC and the Bar Association
was held on 4th March 2016 in the offices of CySEC, where
all these issues were discussed including the possibility for a
common monitoring body. No conclusion was being reached
and issues will be revisited.
Issues that were addressed by the committee include:
• Updates on tax and company law changes
• Upcoming fund administration law
• Compliance manual for the ASP Industry
• Issues for expanding cooperation with the CFA
• New Double Tax Treaties
• Upcoming CRS Reporting
Andreas Athinodorou
Chairman
INSOLVENCY COMMITTEE
The committee during the past months met on numerous occasions. The main priority of our committee was to continue monitoring the licensing procedures of IPs as outlined in the new
Insolvency Laws and to record logistical and other problems
regarding the implementation of the new Insolvency Regime.
Practical and logistical difficulties were identified and suggestions have been made to ICPAC, the Ministry and the Registrar of Companies for addressing and resolving such issues.
Meetings were held with the Cyprus Bar Association, The Cyprus Banks’ Association, with Registrar of Companies officials
and the provisions of the transitional period were discussed
and efforts made to ensure that all qualified IPs will be in a
position to meet the law requirements. Our efforts in close cooperation with the President and General Manager of ICPAC
are continuing to ensure that all the problems regarding the
licensing of the IPs are resolved.
Our committee in cooperation with the Educational Committee will be organising in the near future seminars/workshops
for informing ICPAC’s members about the new Laws.
I would like to take this opportunity to thank all the committee members for their hard work, commitment and dedication
who under very tight deadlines always ensure that the views
of ICPAC are effectively communicated to decision makers
and the interests of our members are safeguarded.
Michalis Avraam
Chairman
PUBLIC RELATIONS COMMITTEE
During the first quarter of 2016, the Public Relations Commit8
tee formally held three meetings and carried out the following
activities as per the approved action plan:
Chinese dinner
On 11 February 2016, the Committee organised a dinner
at Mont Parnasse restaurant in Nicosia. A special price per
person had been arranged which included a set menu and
unlimited consumption of drinks especially for the members
and friends of ICPAC. The participation for the event was considered satisfactory and members and their friends met up for
an enjoyable night.
Charity Event
On 23 March 2016, the Committee organised a Charity Fundraising Bingo Event at Quattro Café in Nicosia. The Committee
would like to thank each and everyone involved and all the donor companies for their generous gifts for this charity event.
The net proceeds of the event were donated to the Center of
Spastic Children “Anemone”, for children with special needs.
Future Events
The Committee has discussed and assessed the organisation of future events including the Annual Sports Day to be
held in May, Cycling / Marathon Event, Sailing Event, Shooting Event, Cinema / Theatrical performances, various Happy
Hour events, the Annual General Meeting and ICPAC’s dance
for celebrating the Institute’s 55 years.
Avgousta Papadopoulou
Chairwoman
Advisory Services Committee
In the first quarter of 2016, we have organised our first event
with the invaluable assistance of the Education Committee
whom we sincerely thank. The event was a presentation/ discussion for ICPAC members and other professionals titled:
“How could advisors work better with banks in the debt restructuring process for corporates”.
On the evening of the 14th January 2016, the ballroom set
up in Nicosia proved too small to accommodate the crowd of
professionals that gathered to listen to our guest; Nick Smith,
Head of the Restructuring and Recoveries Unit at the Bank
of Cyprus.
Mr Smith, a professional with unparalleled international experience on debt restructurings on both sides of the deal; advising both borrowers and lenders, had a lot to talk about on the
role of professional advisors in financial restructurings. Having spent already 18 months on the island, Nick Smith spoke
about his expectations when he first came Cyprus, a country
with an inexistent record on debt restructurings, an economy
in crisis and a troubled banking sector.
Following a short but useful overview of his ‘Cyprus experience’ thus far, he urged advisors to ‘step-it up’ and lead
their clients/borrowers through the admittedly complex path
of financial restructuring, noting that there is still a learning
process to be achieved by professionals in Cyprus, as the first
major debt restructurings are only now being implemented.
He also spoke about steps taken to improve the overall restructuring and insolvency framework as well as the significant
effort still needed by the legislators but also the community of
professionals to help the banking sector and the economy
recover fully. At the end of his presentation, Mr Smith answered questions from the Chairman and Vice Chairman of
the Committee as well as the audience. This discussion gave
participants a chance to also express their opinion and, at the
same time, exploit the opportunity to hear BOC’s Head of Restructurings and Recoveries talk on the progress of resolving
the great NPL challenge.
We believe that the professionals that attended the event took
away much more than their CPD units and the Advisory Services Committee would like to thank all those that supported
this event.
Christophoros P. Anayiotos
Chairman
VAT Committee
During the first quarter of 2016, the VAT sub-committee of
the Institute of Certified Public Accountants of Cyprus (ICPAC)
dealt with the below issues aiming at reducing uncertainty in
applying the VAT Law and regulations and consequently creating a stable and attractive environment for new investments
and improving the competitiveness of Cyprus as a business
center.
• A sub-committee of the VAT Committee was assigned to
examine the proposed Legislation for Tax Procedure Code
(TPC) and make comments to the Tax Authorities. The proposed legislation covers areas such as registration and deregistration, submission of returns, books and records keeping,
VAT Audits, Assessments, objections and court appeals, collection of taxes, administrative and criminal offenses and penalties etc. The proposed piece of legislation applies to both
Direct and Indirect taxes.
• The VAT committee was represented at the house of Parliament to make comments to the Finance Committee with
regards to the proposed bill for the restructuring of loans. The
representatives of the committee suggested to the Finance
Committee that before the passing of the above-mentioned
bill the VAT implications must also be considered and incorporated in the bill. One of the issues causing concern as far
as VAT is concerned is the VAT treatment of new properties
that are foreclosed by financial institutions in satisfaction of
outstanding debts.
count must be credited with the total amount written off under
the bad debt relief procedure thus in effect deleting the debtor
entirely from the taxpayer’s records. We explained to the Tax
Authorities that this requirement will cause a serious reduce
the taxpayer’s chances in recovering this debtor as his balance will show zero balance and consequently risking recovering the debtor at all. It was suggested to the Tax Authorities
that the written off amount can alternatively be posted in a
separate account and they promised to look at positively.
• Although the option to tax to the leasing of immovable
property was previously discussed with the Tax Authorities, the subcommittee will once more bring it up at the next
scheduled meeting with the Tax Commissioner. In particular,
the intention of the proposal is to incorporate in the VAT Law
option to tax provisions applicable to the leasing of immovable
properties. The introduction of an ‘option to tax’ scheme is
expected to ease cash flow problems of local businesses as
well as attracting foreign investors wishing to invest in real
estate projects.
Christos Papamarkides
Chairman
TAXATION COMMITTEE
The main activities of the Taxation Committee during the first
quarter of 2016 were:
1. We have met with the newly appointed Commissioner of
Taxation Mr. Yiannis Tsangaris and discussed the way forward in addressing the issues and problems faced with the
Tax Department that need to be resolved.
2. We have studied, submitted our comments and attended
parliamentary meetings during which tax bills were discussed,
the most recent one being the bill of Finance Leases.
3. We have met with the Tax Department and discussed the
scope of application of the circular on fiscal memories.
4. We have been involved with the finalisation of the circular
on notional interest deduction.
5. We have examined and commented on the new tax bill
on tax procedures which attempts to consolidate direct and
indirect tax procedures.
• The VAT Committee formed a sub-committee for re-examining the current VAT treatment of fees payable to non-executive directors and to draft a letter giving grounds as to why
the current policy adopted by the VAT office in this respect
must be changed. In the committee’s opinion, the current
practice negatively affects the continuous effort by Government and private agencies to promote Cyprus as a financial
center for major businesses to set-up their global or regional
headquarters. In preparing its proposal, the VAT Committee
performed a research to find out how competitive jurisdictions
treat non-executive directors’ fees for VAT purposes.
6. We are examining the tax bill amending the Law on Mutual Assistance and Automatic Exchange of Information in the
field of Taxation.
• Further to the issuance of Circular 201 providing clarifications on the Bad Debts relief procedure, the VAT Committee
raised some concerns regarding the practical application of
one of the conditions contained in the circular. More specifically, for the bad debt relief to be allowed, the debtor’s ac-
9. We have continued our participation in the committee examining the tax issues arising from the adoption of the Solvency II Directive.
7. We have finalised our proposals for the taxation of benefits in kind following the Tax Department’s intention to regulate the matter and are expecting the arrangement of a meeting with the Tax Department to discuss.
8. We have continued working on proposals for the improvement of the taxation environment on trusts.
10.We have continued providing technical support to the MinACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
9
Institute News
istry of Finance when requested. Currently we are assisting
with the amendment of our IP regime.
11.Members of our committee continued their involvement
with DTT negotiations.
Panicos Kaouris
Chairman
ECONOMIC CRIME AND FORENSIC
ACCOUNTING (ECFA) COMMITTEE
During the first quarter of 2016 the ECFA committee discussed extensively recently published economic crime and
corruption cases in Cyprus and all over the world.
A representative of our committee attended on behalf of
ICPAC a Parliamentary Committee meeting regarding the
proposed amendment to the Corruption Law and the enforcement of certain penalties to companies when in default. Also
our committee met with representatives of the Cyprus Chapter of ACAMS and discussed different ways of cooperation
between ICPAC and ACAMS. In addition our committee is
liaising with different anti-fraud bodies in UK with the purpose of exchange ideas and possible cooperation such as the
Fraud Advisory Panel and the Forensic Specialist panel.
In the current issue of Accountancy Cyprus, two members of
the ECFA committee have written an article relating to PWC’s
global economic crime survey for 2016.
The article stressed that the economic crime is still going
strong despite the millions of dollars spent to tackle it. The
message is clear: the burden of preventing, protecting and
responding to economic crime rests firmly with organisations
themselves.
2. On 27 January 2016 the Committee represented by the
Chairman and a member of the Committee had a meeting
with the Superintendent of the National Betting Authority. The
meeting took place following an inquiry by the Superintendent
to discuss the possible guidance needed to be sent to the
members regarding the application of reporting requirements
provided on the Betting Law of 2012. The nominated subcommittee will review the law and provide its suggestions at
the next meeting. The Committee will then decide whether is
necessary to suggest to ICPAC the issue of a circular to the
members.
3. The Committee has completed the examination of the revised and new International Standards on Auditing (“ISAs”)
relating to the new Audit opinions effective for the accounting periods ending on or after 15 December 2016 (ISAs700,
701, 260, 570, 705 and 706). The complete booklet with the
new audit reports have been drafted, by the sub-committee,
incorporating the comments of all the members of the Committee. The booklet is now under a consultation period with
the technical departments of various audit firms. The aim is
to issue promptly a revised booklet of illustrations of Audit
Reports based on the revised ISAs. The seminars that have
been scheduled to take place in May 2016 are currently under
the final stages of preparation.
The ECFA editorial committee issued volume 6 issue 4 of the
e-bulletin. The e-bulletin was emailed to the ECFA-SIG members comprising almost 200 members and is also published
in the website of ICPAC. The main article in the issue described the latest results of the KPMG fraud barometer which
was published in August 2015 and identified the latest fraud
trends and patterns affecting the UK economy which helps
business to stay alert to new fraud risks.
Christos Tsissios
Chairman
The ECFA committee is working very closely with the Educational committee of the ICPAC for the organization of a
number of seminars covering topics in the field of forensic
accounting and economic crime. A number of seminars are
currently in the process to be organized in the near future.
1. On the 13th of January the committee coordinated the
seminar “Audit Monitoring Findings and Regulations”. The
seminar was held at Carob Mill in Limassol.
Serghios Savvides
Chairman
Auditing Standards Committee
During the first quarter of 2016 the Auditing Standards Committee (the “Committee”) performed the following tasks:
1. On 27 January 2016 a follow up meeting, arranged by
the General Manager of ICPAC, with the Superintendent
of Insurance and the personnel of her department took
place at the office of the Superintendent, in relation to the
reporting requirements of Solvency II. The committee was
represented by its chairman and a member of the subcom10
mittee dealing with Solvency II matters. It was agreed that
a working group is formed by ICPAC in order to liaise with
the Superintendent during the deliberations for agreeing
on the regulatory reporting requirements and regulatory
reporting format by external auditors of insurance companies under the Solvency II regime. The Committee is
represented by one member in the working group. The
last meeting of the working group with the Superintendent
took place on 11 March 2016.
Limassol – Paphos Coordinating
Committee
During the period from 1 January 2016 to 31 March 2016 the
Limassol-Paphos coordinating committee has carried out the
following activities:
2. On the 22nd of January the committee donated as a
Christmas gift the amount of €1.000 to “Limassol Home for
Children” charity.
3. On the 27th of January the committee coordinated the
seminar “Refresher Seminar on IAS 17, IFRS 5, IFRS 12 and
the Current Developments”. The seminar was held at St Raphael Resort in Limassol.
4. On the 15th of March the committee coordinated the
seminar “Professional Liability”. The seminar was held at Carob Mill in Limassol.
Ioanna E. Nicolaides
Chairman
Shipping Committee
to align efforts on Shipping and work towards a common goal.
During the last three months the shipping committee continued its involvement with the initiatives of the Ministry in connection with the development of a national shipping strategy. The
committee has been working closely with the Cyprus Shipping
Chamber, the Cyprus Shipowners Association, the shipping
committee of the Bar Association, the Central Bank, the Statistical Department as well as the Ministry of Transport, in an effort
Issues like contribution of shipping to the economy, filing of
accounts, freight taxes imposed on Cyprus vessels, tonnage
tax forms are some of the issues that are being discussed.
Cleo Papadoloupou
Chairwoman
New Members
During the period January - March 2016 the following persons have been accepted as
new members of the Institute:
4070
4071
4072
4073
4074
4075
4076
4077
4078
4079
4080
4081
4082
4083
4084
4085
4086
4087
4088
4089
4090
4091
4092
4093
4094
4095
4096
4097
4098
4099
4100
4101
4102
4103
4104
4105
4106
4107
4108
4109
4110
4111
4112
4113
4114
4115
4116
4117
4118
4119
4120
4121
4122
4123
4124
4125
4126
4127
4128
4129
4130
Katerina Assiotou
Mikaella Alonefti
Aliki Charalambous
Soula Ioannidou
Chariklia Thoma
Antigoni Syrimi
Stella Antoniou
Marios Makrides
Gabriel Charalambous
Michalis Christou
Dionysios Eracleous
Andreas Varianos
Andreas Tsangaris
Marinos Fasouliotis
Sviatlana Tsikhamai
Walid Khabbaze
Valentina Paphiti
Emily Stylianou
Chrysanthi Fylaktou
Rodia Constantinou
Thekla Andrea
Vana Andreou
Fillippas Koutalianos
George Tsirakkis
Lazaros Neophytou
Anna Avraam
Andreas Vladimirou
Natasa Kalaitzi
Natasa Zorpa
Eleni Papadopoulou
Christina Achilleos
Xenia Kyprianou
Anastasia Piki
Rea Koudounari
Angela Lillitou
Silva Karamani
Chrysanthi Motsakou
Xenia Saiti
Afrodite Cosma
Theano Orinou
Christos Theodoulou
Panayiotis Mitsios
Lambros Sofocleous
Antonis Siamas
Antonis Lambrou
Kyprianos Photiou
Savvas Nicolaou
Stavros Efthyvoulou
Constantinos Marcou
Nikiforos Pambakas
Paraskevi Yidari
Marios Ntzialev
Constantinos Karavalis
Yiannos Zenios
Georgios Hadjicosta
Natalia Novikana
Christina Koroni
Christia Evagorou
Eliana Orphanidou
Constantina Constantinou
Kleopatra Georgiou
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACA
ACA
ACA
ACA
ACA
ACA
ACA
ACA
ACA
CPA Australia
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACA
ACCA
ACA
ACA
ACA
ACA
ACA
4131
4132
4133
4134
4135
4136
4137
4138
4139
4140 4141
4142
Eleni Constantinou
Rodoula Demetriadou
Constantina Kyriakidou
Milto Stavrou
Christos Klokkaris
Savvas Klitou
Marios Socratous
Christos Kone
Olga Gennari
Anthi Papageorgiou
Constantinos Petrides
Chrysostomos Gavriel
ACA
AICPA
AICPA
ACCA
ACCA
ACA
ACA
ACA
ACA
ACA
ACCA
ACA
Reregistrations
3573
Michalis Vasiliou
ACA
Removals
728
Kyriakos Kolokasides
767
Michalis Aspris
848
Dina Makariou
1051
Demetris Fieros
1178
Savinos Charalambous
1233
Marios Souzou
1335
Evangelia Evangelou
1403
Anna Pelekanou
1680
Varvara Perdikou
2051
Ioanna Kyprianidou
2200
Maria Antoniou
2219
Rodoula Rousou
2420
Christos Hadjikyriacou
2510
Parson Georgiou Parson
2649
Antonis Zenieri
2707
Nicolas Patsali
2745
Thekla Prodromou
2776
Ioanna Ioannou
2825
Ioakim Costi
2861
Christina Savvidou
2931
Anna Demetriadou
3000
Anastasia Anastasiou
3006
Margarita Hadjittofi
3049
Panayiota Poullaidou Christou
3050
Pamela Christodoulou
3056
Andreas Charalambous
3110
Eleni Manti
3159
Elena Konovalova
3176
Georgina Acworth
3273
Maria Panayiotou
3285
Georgios Lazari
3327
Alexis Dritsas
3329
Loucas Anastasiou
3351
Stavros Michael
3376
Jacob Damien Roche
3469
Kristina Gailiute Khan
3523
Christina Koullapi Demosthenous
3655
Koulla Savva
3675
Timothy Barry Gardner
ICAEW
ACCA
ACCA
ACCA
ACCA
ICAEW
ACCA
ACCA
ACCA
ACCA
ACCA
SOEL
ACA
ICAEW
ICAEW
CPA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACCA
ACA
ACCA
ICAEW
ACCA
ACCA
ICAEW
ACCA
ACA
ACA
ICAEW
IIPA
ACCA
ACCA
ACCA
ACCA
Passed away
16
Solonas Triantafyllides
1530
Yiannakis Lazarou
ACA
ACA
11
GM’s corner: Think’n ahead!
55 and going strong!
By Kyriakos
Iordanou
General Manager
of ICPAC
This year ICPAC celebrates the fifty-fifth anniversary of its inception back in 1961. Starting off
as a humble club of the very few, at the time,
qualified accountants, and passing through various phases of development and maturity, ICPAC
grew into a significant stakeholder of the economic and business scene, a multi-discipline
organisation serving more than 3.700 members
and nearly 3.000 students.
This exponential expansion in the Institute’s roles
and interests is evident by the fact that ICPAC
has been entrusted legal responsibility and authority under four separate legislations, regulates
today three distinct professions, operates via 24
specialised committees, as well as, by the multiple issues governing the Council’s agenda.
One of the most challenging periods for ICPAC
is undoubtedly the one that we currently endure,
with the economic crisis and Troika dominating
the scene. Apart from the overall financial and
social predicament which affected everybody
(and ICPAC was no exception), the Cypriot professional accountancy body actively participated
in the efforts to successfully meet the obligations under the adjustment programme of the
Memorandum of Understanding with Troika. In
parallel, the Institute’s Council, the management,
committee and other members worked hard in
order to alleviate adverse repercussions on the
economy, to maintain Cyprus as an international
business centre and to restore the county’s reputation and credibility.
...we are still far from ultimate excellence; but we try
to gradually build it piece by piece, given the constraints of our capabilities and resources.
We are of course very pleased with the successful completion of the adjustment programme,
however there is still way to go. We are definitely
not out of the woods yet, and the economy still
faces a number of serious challenges such as
high unemployment, slow economic development, banks’ non-performing loans, market’s
lack of liquidity, coupled by the inevitable social
effects.
Something we should have learned from
this tough lesson though, is that we ought to
adopt a new mind-set and culture, be more
professional and less tolerant towards medio-
...ICPAC is also committed to servicing the public
interest and safeguarding public value.
12
cre, corruption, nepotism and complacency.
The necessity for genuine and effective structural reforms in the manner that the State is both
governed and run is eminent, calling for fair but
tough and bold decisions without daring to consider any political or personal cost.
Pursuing the above is imperative in order to be
in position to cherish the fruits of the economy
potentials that pose so attractively before us. Serious investors will most probably bypass Cyprus
if they fear that their investments will be at stake,
with uncertainty and loose procedures in the picture. There is indeed a lot of business potential; but it is not a “sitting duck” any more.
What ICPAC has achieved in its history so far,
in comparison to other local organisations and to
international accountancy bodies, is truly impressive. A mere glance at its current activities and
services is good enough to get an idea. However,
we are still far from ultimate excellence; but
we try to gradually build it piece by piece,
given the constraints of our capabilities and
resources. ICPAC is actually found at a strategically transitional stage, exploring its possibilities
for restructuring and developing new skills and
competencies. This is of-course partly dictated
by the increasing legal and professional obligations, the new EU Directives and Regulations, the
overall regulatory environment and global developments.
We try to anticipate how the future obligations
and Member needs will shape up and, at the
same time, we develop our courses of action
to meet those needs. We try to think and plan
ahead!
Being an organisation whose activities as well as
the work done by its Members affect public trust,
ICPAC is also committed to servicing the public interest and safeguarding public value. The
accountancy profession carries its share of public
responsibility, something that is understood and
addressed by the Institute.
Board evaluation for
performance excellence
Mounting expectations, regulations and challenges, have brought
Boards of Directors’ quality of performance under greater scrutiny.
KPMG focuses on preparing Boards to proactively work towards
meeting their evolving responsibilities through evaluation of their
performance and provision of practical solutions for improvement. Our
well-established methodology and approach lies on the implementation
of a targeted evaluation, placing emphasis on particular concerns
without losing its comprehensiveness.
Our past experience, market knowledge and high caliber experts are
our most valuable assets placed at your disposal. We can become
your trusted advisor bringing on Board in-depth insight, objectivity,
independence and consistency.
For more information please contact:
Marios Papalazarou
Principal
T: + 357 22209190
E: [email protected]
Elli Foulli
Manager
T: + 357 22209018
E: [email protected]
kpmg.com.cy
2016 is a landmark year for ICPAC, not only because of the successful completion of the first 55
years of professional service, but it is envisaged
to be a turning point in its activities and image.
Placing ethics, competence, knowledge and professionalism on top of its list, ICPAC is committed
to pursue further enhancement of its good services to its members, the economy, the society
and the public in general. History so far is not by
itself a guarantee of what will follow, but it is a
strong indication that we will keep on progressing
on robust foundations.
So, the first 55 years of professional commitment
have passed by and ICPAC is still going strong!
© 2016 KPMG Limited, a Cyprus limited liability company and member of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(”KPMG International”), a Swiss entity. All rights reserved.
Students celebrate success at ICAEW
graduation
ICAEW’s graduation event on 28 January celebrated the
achievements of 135 ACA graduates with over 450 guests
in attendance and 3 international prize winners. Keynote
speeches were given by ICAEW President Andrew Ratcliffe,
Nicos Syrimis, Chairman of KPMG Cyprus, George Appios,
CEO Piraeus Bank and ICPAC President, Demetris Vakis
(KPMG partner).
The ICAEW annual graduation ceremony is an important day
to both students and the organisation. It celebrates the success of many future business leaders who will join the family
of Chartered Accountants.
Andrew Ratcliffe began his keynote speech with a presentation to Nicos Syrimis celebrating his three decades of work
with ICAEW. He went on to point out to the new ACA graduate students the rewarding careers that their prestigious qualification could bring. Andrew said: “By passing your exams,
you’ve opened up the door to a very exciting career. The ACA
is internationally-recognised, and we will offer you a network
and ongoing professional support wherever your career takes
you.”
emerge from recently economically tough times over the past
two years or so. Our members in Cyprus are playing a crucial
part in rebuilding the nation’s economy, and it is great to see
that firms continue to support this for the future by training
the next generation of Chartered Accountants. And there is
an increasing demand from these firms to employ more ACA
students, which is a good indicator of the nation’s economic
growth for the year ahead.”
IASB shines light on leases by bringing
them onto the balance sheet
The International Accounting Standards Board® (the Board)
today issued a new accounting Standard, called IFRS 16
Leases. It replaces accounting requirements introduced
more than 30 years ago that are no longer considered fit for
purpose and is a major revision of the way in which companies account for leases.
The amendments will help investors to evaluate changes in
liabilities arising from financing activities, including changes
from cash flows and non-cash changes (such as foreign exchange gains or losses).
Cyprus was the first country outside the UK where ACA students were able to study, and marked the first step towards
making it a truly international qualification, making it a key international market for ICAEW The successful graduates will
now go on to complete their practical work experience requirements, at which point they will be able to become full ICAEW
members and call themselves ICAEW Chartered Accountants
Leasing provides an important and flexible source of financing for many companies. However, the old lease accounting
Standard (IAS 17 Leases) makes it difficult for investors and
others to get an accurate picture of a company’s lease assets
and liabilities, particularly for industries such as the airline,
retail and transport sectors.
FEE pursues the debate on the future of
audit and assurance
This new FEE discussion paper Pursuing a strategic debate
follows up onOpening a discussion: the future of audit and
assurance from 2014. It is based on the responses received
to the 2014 paper and on the debate at the FEE Audit Conference Long Term Vision and Short Term Challenges in
June 2015.
FEE’s work aims to keep the accountancy profession engaged in an open and dynamic debate with its stakeholders
and propose changes to respond to a rapidly changing environment. This paper thus identifies three main topics for the
future of audit and assurance:
• respond to stakeholders’ needs
• encourage innovation driven by technology
• rethink education to ensure the right skillset for the future
The challenges that lie ahead for the profession go along with
plenty of opportunities to further evolve and better serve new
markets’ needs. FEE is committed to support the constant
adaptation of the profession, while continuously promoting
the fundamental principles of integrity, objectivity and independence, professionalism, competence, and confidentiality.
Listed companies using IFRS Standards or US GAAP are estimated to have around US$3.3 trillion of lease commitments;
over 85 per cent of which do not appear on their balance
sheets*. That is because leases to date have been categorised as either ‘finance leases’ (which are reported on the
balance sheet) or ‘operating leases’ (which are disclosed
only in the notes to the financial statements).
This somewhat arbitrary distinction made it difficult for investors to compare companies. It also meant that investors and
others had to estimate the effects of a company’s off balance
sheet lease obligations, which in practice often led to overestimating the liabilities arising from those obligations. IFRS 16
solves this problem by requiring all leases to be reported on a
company’s balance sheet as assets and liabilities.
The ICAEW President also highlighted the important role that
Chartered Accountants play in rebuilding Cypriot economy.
He noted: “You will be providing a service that society depends upon. We’ve been pleased to see Cyprus beginning to
Professional reputations.
Directors and officers
liability. Data breaches
and cyber risk.
These are just some
of the issues facing
organizations today.
Helping your business survive and thrive
MARIOS PHIDIA,
Deputy CEO, Head of Client
and Business Development
Tel: +357 25 878100
[email protected]
KYRIACOS N. KYRIACOU,
Head of Non-Marine
Tel: +357 25 878100
[email protected]
Brokers Limited isCYPRUS
authorized•and
regulated 122
by the•Financial
Conduct
14 Marsh
ACCOUNTANCY
VOLUME
MARCH
2016 Authority.
Copyright 2016 © Marsh Brokers Limited All rights reserved.
Marsh helps you anticipate and manage
threats to your business. Educating
insurers on your business risks and
customizing coverage to manage
specific challenges.
Marsh enables you to conduct business
with confidence, bringing stability for
your business, facilitate innovation
and growth, improve cash flow and
return on investment, and increase
shareholder value.
IASB issues narrow-scope amendments to
IAS 12 Income Taxes
The International Accounting Standards Board® (the Board)
today issued amendments to IAS 12 Income Taxes. The
amendments, Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12), clarify how to
account for deferred tax assets related to debt instruments
measured at fair value.
IAS 12 provides requirements on the recognition and measurement of current or deferred tax liabilities or assets. The
amendments issued today clarify the requirements on recognition of deferred tax assets for unrealised losses, to address
diversity in practice.
Entities are required to apply the amendments for annual periods beginning on or after 1 January 2017. Earlier application is permitted.
The improvements are part of the Board’s Disclosure Initiative—a portfolio of projects aimed at improving the effectiveness of disclosures in financial reports.
The impact of the audit reform on audit
committees in Europe
The latest EU audit reform has expanded the audit committee’s role substantially. The audit committee is now instrumental in strengthening confidence in the statutory audit and
in financial information as a whole. Overall, the audit committee is expected to become a key factor within the corporate
governance framework of EU Member States.
This FEE briefing paper highlights the developing role of the
audit committee in Europe and provides an overview of the
related changes to corporate governance best practice. The
paper also provides for a number of FEE recommendations.
For the sake of completeness these recommendations have
been summarised at the end of the paper.
IASB responds to investors’ call for
improved disclosures
The International Accounting Standards Board (the Board),
responsible for IFRS Standards, has today issued amendments to IAS 7 Statement of Cash Flows.
As the deadline for transposing the legislation is getting
closer (16 June 2016), a high level of coordination amongst
all stakeholders (board and audit committee members, audited company management, shareholders, and auditors) will
facilitate achieving the desired outcomes. Working towards
consistent functioning of audit committees across Europe remains crucial in order to achieve the desired outcomes.
The improvements to disclosures announced today require
companies to provide information about changes in their financing liabilities and come as a response to requests from
investors for information that helps them better understand
changes in a company’s debt.
Endorsement of IFRS 9
This short briefing paper will provide additional answers to
some of the questions asked by Members of the European
Parliament of the Economic and Monetary Affairs Committee
(ECON) during recently-held two public hearings on the InACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
15
ternational Financial Reporting Standards (IFRS) broadly, and
on IFRS 9 on financial instruments specifically.
The Federation comments on IASB’s
exposure draft ‘IFRS Practice Statement
Application of Materiality to Financial
statements’
The International Accounting Standards Board (IASB)’s Disclosure Initiative project explores how disclosures in the International Financial Reporting Standards (IFRS) financial reporting can be improved. The initiative comes as a follow-up
on the discussion forum on disclosure in financial reporting.
The Federation supports the IASB’s step-by-step approach
for the Disclosure Initiative and its current project to provide
guidance to management to apply the concept of materiality when preparing general purpose financial statements, in
accordance with IFRS requirements. We also underpin the
IASB’s decision to issue the document as a Practice Statement in a non-mandatory form as we believe it will avoid the
potential risks of conflicting with national laws and/or legal
requirements.
The Federation issues views on the
development of consistent high quality
non-financial reporting in Europe
This Position Paper highlights the requirements of the EU
Directive on disclosure of non-financial and diversity information, which is due to be transposed into Member States’
national laws by 6 December 2016. Those companies affected will need to comply with the national rules from 2017
onwards; the European Commission is in the process of developing non-binding guidelines to assist them in complying
with these requirements.
The Directive requires 6,000 large European companies to
disclose information at least on environmental, social, and
employee-related matters, as well as on the respect for human rights, anti-corruption, and bribery issues. These companies also have to disclose the diversity policy for their administrative, management and supervisory boards.
This Directive represents the most significant EU legislative
initiative in respect of such environmental, social and governance disclosure in nearly a decade and is likely to have a
significant impact on the non-financial information (NFI) reporting of many of the companies affected. This paper sets
out what the NFI Directive means in practice, discusses the
key issues around implementing the requirements, and provides some real-world examples of how the requirements can
be met.
IESBA Staff Draw Auditors’ Attention to
Key Ethics Code Provisions When Facing
Downward Pressure on Audit Fees
IESBA staff have developed a new publication, Ethical Considerations Relating to Audit Fee Setting in the Context of
Downward Fee Pressure, in response to stakeholder concerns about downward pressure on fees and its potential to
adversely impact audit quality. The publication highlights important considerations in the Code of Ethics for Professional
Accountants (the Code) for auditors in relation to the setting
of audit fees.
16
Among other matters, the publication outlines some of the
reasons for downward pressure on audit fees and focuses
on the key fundamental principles in the Code to which auditors must pay particular attention in these circumstances. It
also highlights the different, but important, roles that those
charged with governance, entity management, regulators,
and other stakeholders can play in ensuring that financial
considerations related to audit fees do not drive actions and
decisions that undermine audit quality.
The publication will be relevant to auditors when considering
tendering for a new audit engagement, or when proposing or
agreeing fees for recurring audit engagements. It may also
be of interest to those charged with governance, preparers,
regulators and audit oversight bodies, investors, and others
with an interest or role in auditors’ work and their independence.
IAASB Finalizes Changes for Auditor
Reporting on Special Purpose Financial
Statements
Reporting on special purpose financial statements is linked to
the IAASB’s new and revised Auditor Reporting standards issued in January 2015, in particular ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, and
new ISA 701,Communicating Key Audit Matters in the Independent Auditor’s Report. The amendments to ISA 800 and
ISA 805 are limited to auditor reporting and are not intended
to substantively change the underlying premise of these engagements in accordance with the extant ISAs.
IAESB Issues Guidance on Implementing a
Learning Outcomes Approach for
Professional Accounting Education
The International Accounting Education Standards Board™
(IAESB™) has produced guidance material to support the
implementation of a learning outcomes approach.
IFAC member organizations who are responsible for professional accounting education and the development of professional competence through practical experience will benefit
from this guidance.
Through its revised IES™, the IAESB has prescribed the
learning outcomes to be achieved by professional accountants and aspiring professional accountants. The IES are also
relevant to stakeholders interested in the learning and development of professional accountants and audit professionals,
such as public accounting firms, regulators, and employers.
Patchwork Regulation Threatens Global
Growth and Stability
Senior Executives, Regulators, Academics Identify Ten Principles for Good Regulation
A report on global regulation issued by the International Federation of Accountants® (IFAC®) calls for political leaders
and governments around the world to follow ten principles for
consistent, high-quality global regulation, to aid global economic growth.
The ten principles were identified by 30 senior executives and
experts from regulatory agencies, financial markets, government, academia, listed companies, investment funds, and
the accounting profession at a roundtable in Hong Kong convened by IFAC in partnership with the Hong Kong Institute of
Certified Public Accountants (HKICPA). The principles are
intended to help guide regulators toward better decisions
and protect the global economy from the dangers posed by a
patchwork approach to regulation.
While business and finance are increasingly global, roundtable participants warned that important regulation is not.
Instead, it is frequently focused on national interests, which
can create barriers and impediments to inclusive growth and
jeopardize global financial stability.
Several actions were discussed to foster a more integrated
global regulatory framework that can create a better environment for economic growth:
Stronger systems and incentives for cross-border regulatory
collaboration and cooperation.
• Beyond consultation within the regulatory community, lack
of resources and different national financial ecosystems make
true collaboration with a broader set of stakeholders a challenge.
• Greater incentives are required before regulators can look
beyond national interest, and consider long-term, global implications of regulation.
Systematic review of regulations to determine whether implementation and impact match expectations.
• Current regulatory systems often focus on writing regulation
rather than evaluating effectiveness. Not all existing regulations are implemented in practice.
• Rapid change in business and financial markets requires
continued flexibility. Much regulation is outdated by the time it
is implemented, often years after originally proposed.
• Independent oversight of regulation would allow collaborative discussion and better analysis of costs and benefits.
10 clear principles for high quality financial regulation rather
than a reactive response.
• To serve the public interest, regulation needs to be evidence-based, proportionate, appropriately resourced, collaboratively developed/implemented, consistent, subject to active
oversight, systematically reviewed, have clear objectives, and
be properly targeted and enforced to address intended issues.
• They must be developed in consultation with the public, and
affected constituencies.
IPSASB Publishes Exposure Draft 61
Proposing Revisions to the Cash Basis
IPSAS
The International Public Sector Accounting Standards Board®
(IPSASB®) today released for comment Exposure Draft (ED)
61,Amendments to Financial Reporting under the Cash Basis
of Accounting (the Cash Basis IPSAS™).
The Cash Basis IPSAS has two parts. Part 1 identifies requirements that a reporting entity needs to adopt to claim that its
financial statements comply with the IPSAS. It presently in-
cludes requirements for preparation of consolidated financial
statements and for disclosure of information about external assistance and payments made by third parties. ED 61 proposes
that these requirements be revised, recast as encouragements, and moved into Part 2 of the IPSAS. Part 2 identifies
encouraged disclosures that an entity may choose to provide,
but which are not required to claim compliance with the IPSAS.
The ED also proposes amendments to ensure that the existing
requirements and encouragements of the Cash Basis IPSAS
are better aligned with the equivalent accrual IPSAS, unless
there is a reason to deviate as a result of adopting the cash basis of accounting. This will better support entities’ expected use
of the Cash Basis IPSAS as a platform from which to transition
to accrual IPSAS.
Latest Editions of IAASB, IESBA, IPSASB, and
IAESB Handbooks Now Available
The International Federation of Accountants® (IFAC®) today
announced the availability of the current editions of the handbooks from the:
• International Auditing and Assurance Standards Board®
(IAASB®);
• International Ethics Standards Board for Accountants®
(IESBA®);
• International Public Sector Accounting Standards Board®
(IPSASB®); and
• International Accounting Education Standards Board™
(IAESB™);
IAASB Highlights How Expected Credit
Loss Models Will Affect Auditors; Signals
Broader Efforts to Strengthen Auditor
Efforts on Accounting Estimates
The International Auditing and Assurance Standards Board®
(IAASB®) today released a publication highlighting the audit
issues arising from the shift to Expected Credit Loss (ECL)
models when accounting for loan losses. ECL models are now
required, or will soon be required, by some financial reporting
frameworks, including IFRS 9, Financial Instruments, which
will come into effect from January 1, 2018.
Bob Moritz selected Global Chairman of
PwC
The PricewaterhouseCoopers International Network has selected Robert E. Moritz as its new chairman, succeeding Dennis Nally, the current PwC global chairman, for a four-year
term beginning on July 1, 2016.
Since 2009, Mr. Moritz has led PwC US as its chairman and
senior partner.
Mr. Moritz has been with PwC his entire career, joining in 1985
and becoming a partner in 1995. His background is in Assurance, primarily serving financial services companies. During
his career he spent three years with PwC Japan, where he provided audit and advisory services to numerous European and
US-based financial services organisations operating in Japan
and across Asia. Mr. Moritz has held a number of leadership
roles within PwC, including leading the US Assurance practice
as well as serving as the Managing Partner for the New York
region.
17
Interview
Interview with H.E. the ambassador of the Kingdom
of the Netherlands,
Mrs. Brechje Schwach�fer
What economic conditions are presently prevailing in the Netherlands?
At the moment the Dutch economy is experiencing a period of economic growth. In 2015 the economy grew by
1.9% following a 1.0% increase in 2014. Dutch economic
growth also became more broadly based. Domestic spending such as investments and private consumption helped
the economy to grow, as well as exports.
To Ninos Hadjirousos, Editor,
and Tassos Anastasiades, Deputy Editor,
Accountancy Cyprus Journal
In an interview we had with H.E. the Ambassador
of the Kingdom of the Netherlands, Mrs. Brechje
Schwach�fer we have been informed, inter alia, that
the Netherlands is an important foreign direct investor (FDI) in Cyprus quoting the figure of €498 mln in
2014, which made up 84% of the total FDI in Cyprus
for that year. With regard to trade the Netherlands is
the sixth most important source of imports.
Regarding the present conditions of the Dutch
economy Mrs Schwach�fer stated that presently
the outlook for the Dutch economy points to sustained economic growth. The European Commission forecasts economic growth of 2.1% in
2016 and 2.3% in 2017, which is well above the
expected growth in the euro area and EU as a
whole. The Dutch economy contracted in 2012
and 2013 but recorded economic growth again
in 2014 and 2015. At the same time unemployment increased in 2012 and 2013. The government responded with a vast array of structural
reforms, ranging from the housing market and
labour market to the financial sector. The government spending was reduced. For example
the embassy in Cyprus had to, unfortunately, let
go of a number of expatriate and local staff.
To our question about the main priorities of the
Dutch presidency Mrs Schwach�fer responded
by stating that they will devote much of the sixmonth period to four major issues:
a.Migration and international security: The refugee crisis will continue to dominate the European agenda during the NL Presidency, as well as
terrorism.
b.Innovative growth: a deeper and fairer internal
market
We want to encourage job creating companies,
based on knowledge and innovation. The Netherlands see the internal market as a key to this,
and we want to deepen it and make it fairer.
18
In terms of trade, the Netherlands was in 2014 the 6th
most important import partner for Cyprus. Cyprus imported
goods for 290 million euros from my country, mainly food
and live animals, machinery and transport equipment, mineral fuels and lubricants.
The situation of the labour market is also improving. Unemployment declined to around 6.6% in the fourth quarter
of 2015. At the same time more jobs have been created.
The outlook for the Dutch economy at the moment points
to sustained economic growth. The European Commission
forecasts economic growth of 2.1% in 2016 and 2.3% in
2017, which is well above the expected growth in the euro
area and EU as a whole.
c.A Stronger European Monetary Union: The
reforms the EU has undertaken in the last years
to tackle the financial and economic crisis are
starting to show results, but there is still a need
for improvement.
d.Climate and energy: The Netherlands Presidency would like to promote sustainable economic objectives and continue to work on a wellconnected and well-functioning single energy
market.
With regard to dealing with the high unemployment the Ambassador stated that for unemployment, which is unacceptably high in most
EU countries, to go down, we need economic
growth. Which means sound budgets and,
amongst other things, room for innovation and a
completed internal market.
The interview with H.E. the Ambassador of
the Kingdom of the Netherlands, Mrs. Brechje
Schwach�fer follows:
Mrs. Ambassador we would like to start
our interview by asking you to brief us
with regard to the economic relations between the Netherlands and Cyprus.
Our bilateral economic relations are good. Let
me give you some facts. The Netherlands is an
important foreign direct investor (FDI) in Cyprus.
In 2014 it amounted to 498 million euros, which
made up for 84% of the total FDI in Cyprus for
that year, the latest for which figures are available.
Has the Dutch economy faced any serious economic problem in the last 2-3 years and if yes how
was that handled?
The Dutch economy contracted in 2012 and 2013 but recorded economic growth again in 2014 and 2015. At the
same time unemployment increased in 2012 and 2013.
The government responded with a vast array of structural
reforms, ranging from the housing market and labour market to the financial sector. The government spending was
reduced. For example the embassy in Cyprus had to, unfortunately, let go of a number of expatriate and local staff.
But we can’t do it all ourselves. The Dutch economy is
a small and open economy. Developments in the world
economy do have an impact on the Dutch economy.
When do you expect the Agreement for the Avoidance of Double Taxation between Cyprus and the
Netherlands to be finalised?
In December of last year, a Dutch delegation was on the
island to negotiate the Agreement and steps were taken to
limit the number and extent of the differences. Both governments strive to have the Agreement finalized as soon
as possible.
What are the main priorities of the Dutch E.U. rotating presidency?
During our Presidency, we will not work on national priorities. The priorities as we see them are the priorities of the
EU as a whole. Looking at the European agenda, we expect to devote much of the six-month period to four major
issues:
a.Migration and international security The refugee crisis
will continue to dominate the European agenda during the
NL Presidency, as well as terrorism.
b.Innovative growth: a deeper and fairer internal market
We want to encourage job creating companies, based on
knowledge and innovation. The Netherlands see the internal market as a key to this, and we want to deepen it and
make it fairer.
c.Stronger European Monetary Union. The reforms the
EU has undertaken in the last years to tackle the financial
and economic crisis are starting to show results, but there
is still a need for improvement.
d.Climate and energy. The Netherlands would like to promote sustainable economic objectives and continue to
work on a well-connected and well-functioning single energy market.
How does your Government propose to deal with
the refugee crisis as well as the relevant issue of
Schengen?
For the Netherlands, the current crisis should be dealt with
by finding common solutions, based on mutual trust and
with and for all 28 Member States. First and foremost, all
EU Member States should deliver on commitments previously made. Important elements of an overall policy are
better reception in the region, effective control of external
borders, well-functioning hotspots, relocation and a common return policy.
We should all take our responsibility in this. As Netherlands, for example, we have sent a 45 person team to the
Greek island of Chios, to help the authorities with the influx
of migrants. We have also committed another 250-300
people for border control assistance at the external borders of the EU. Lastly we have started receiving the first of
our quota of to be relocated immigrants from Greece and
Italy, like Cyprus has recently done.
Which measures do you propose so as to give a
push to the E.U. growth rate?
The Netherlands is convinced that continued and consistent reform and sound budgets are essential for a healthy
European economy. Agreements should be adhered to,
for a strong Eurozone for governments, businesses and
citizens.
Apart from that, we need to ensure that knowledge and
innovation, as the main guarantees of our Union’s competitiveness, are given the attention and space that is required. Through purposeful, targeted policy, we want to
encourage job-creating companies for five and ten years
to come.
The single market is key and there is still much untapped
potential in the single market, which is why it is important
that we continue to deepen it and make it even fairer.
We will look at the creation of one single market for digital products. Also, the Netherlands will move forward the
single market strategy on services, another part of the
internal market that should be deepened.
19
www.pwc.com.cy
Interview
Expertise
Solutions
Value
Lastly, we need to make the internal market fairer. The equal level playing field when it comes
to workers should be guaranteed and the social
dimension strengthened.
A serious issue the Dutch presidency will
have to deal with is the demand of prime
minister David Cameron for revised terms
of Britain’s E.U. membership. Could we
have your views on this serious issue?
The Netherlands welcomes the deal that was recently reached between all EU Member States
on the membership of the UK of the EU. We
are convinced that it is in the interest of the EU,
the Netherlands, Cyprus as well as the UK that
it remains a member. It is now up to the people
of the UK to express themselves in the referendum, which will be held in June.
Given that the Netherlands is highly dependent on trade, to what extent would
the Dutch presidency be active in promoting the finalization of the Free Trade
Agreement between the E.U. and the
USA?
We are hopeful that the pace of negotiations
will pick up. During our Presidency, the Netherlands will look to further the negotiation process
in an efficient manner. Our Minister for Foreign
Trade and Development Cooperation, Lilianne
Ploumen, will chair the meetings of the Foreign
Affairs Council that discuss our common commercial policy. We will support the European
Commission where necessary.
Another serious economic problem the
E.U. is facing is the high unemployment
20
rate which at the moment stands at 10.5%
as compared to 5% for the USA and 5.1.%
for the U.K. What measures does the
Dutch presidency intend to propose in order to combat or reduce unemployment?
For unemployment, which is unacceptably high
in most EU countries, to go down, we need economic growth. Which means sound budgets and
amongst other things room for innovation and a
completed internal market, also for services and
the digital market. We will do our best as EU
Presidency to move us forward on all these issues.
Finally could you brief us on steps being
taken for the introduction of the third leg
of the Banking Union, namely the Single
Deposit Guarantee Scheme?
Preparatory work is currently underway and this
is done on the basis of the European Commission’s European Deposit Insurance Scheme
(EDIS) proposal, as well as the communication
“Towards the completion of the Banking Union”.
As Presidency, we are committed to the project of Strengthening the Banking Union, as it
is about decisive progress towards risk reduction and a more balanced level playing-field for
banks. Risk sharing and risk reduction are two
sides to the same coin and parallel progress is
necessary.
We support you to create the value you are looking for by
providing specialised solutions based on quality. Together we build
relationships based on trust and we say things as they are, to assist
you to deal with issues that tomorrow will prove important. We
adapt our expertise and the power of our global network to your
specific needs helping you make the difference.
Our ambition is to carry out an inclusive process
in order to achieve consensus and agree on a
roadmap with concrete steps and a timetable towards risk reduction and risk sharing.
© 2016 PricewaterhouseCoopers Ltd. All rights reserved
Interview
Interview of the President of the CCCI
Mr. Phidias Pilides
How should the government proceed
with the reform of the public sector?
The reform is moving forward and we are generally very pleased with the way it is being made.
What I would like to point out is that the government must be brave and insistent on these
reforms. There is still a lot to be done and implemented, and undoubtedly the benefits we have
obtained so far stem from the restraint in public
sector wages and recruitments, which should
continue to be applied. As regards the issue of
bureaucracy, the public sector is persistently
demonstrating indifference and resistance to
change causing major investors to flee.
To Ninos Hadjirousos, Editor,
and Tassos Anastasiades, Deputy Editor,
Accountancy Cyprus Journal
The Cyprus economy
prospects and challenges
In an interview we had with Mr. Phidias Pilides, President of the CCCI regarding the prospects
and challenges faced by the Cyprus economy we have been informed, inter alia, that under no
circumstances should the Government backslide and hesitate to continue implementing the
structural changes that must take place. The economic situation in most companies does not
yet allow the complete return to their employees of what they have been deprived as a result of
the crisis. They can only give back part of these benefits, and unless a gradual restoration of
benefits is followed we are all jeopardizing what has been achieved so far with a lot of sacrifices.
To our question about the reform of the public
sector Mr. Pilides stated that the government
must be brave and insistent on these reforms.
Mr. Pilides stressed that there is still a lot to be
done and implement, and undoubtedly the benefits we have obtained so far stem from the restraint in wages and recruitments in the public
sector, which should continue to apply.
Regarding the privatisation of semi-public organisations Mr. Pilides stated that It is unacceptable
for our country to be the last one to still have
a public telecommunications organisation. This
is a sector enjoying immense privileges at the
expense of consumers. It is preposterous that
citizens are paying for the deficits of the semipublic organisations’ provident funds due to mismanagement and irregularities.
As regards the current situation of enterprises
Mr. Pilides stated that the truth is that some enterprises have started to breathe more easily.
“We certainly cannot claim that the enterprises
current situation is as it was before the crisis.
Some of them handled the crisis diligently and
are now beginning to move forward with optimism”, Mr. Pilides stated.
The interview of Mr. Phidias Pilides follows:
22
public organisations demonstrate that they are
merely interested in preserving their privileged
status.
What is your position on the Government’s reform policy?
Under no circumstances should the Government
backslide and hesitate to continue implementing the structural changes that must take place.
We all saw how beneficial the result of the initial
effort was, and this effort must go on. I hope
that we have learned our lesson, though some
disappointing actions have come to our attention. Demands have begun to be posed even
before coming out of the crisis. For example, we
can observe the reactions of the semi-public organisations’ employees, who actually behave as
if they own these organisations, without being
able to realise that these organisations belong
to the people, who will benefit or suffer from
the actions that will be taken. Demands should
be posed when there is enough room for their
satisfaction. This is not the right time to discuss
about collective agreements covering entire sectors. The economic situation in most companies
does not yet allow the complete return to their
employees of what they have been deprived as
a result of the crisis. They can only give back
part of these benefits, and unless we follow a
gradual restoration of benefits we are all jeopardizing what has been achieved so far with a lot of
sacrifices. This is the correct course of action.
Through their behaviour, the employees of semi-
Furthermore, we still cannot understand the reason behind the reactions in relation to the full
implementation of the interchangeability system.
The absence of a proper evaluation system and
the employment permanence in the public service, in the negative sense, are two elements
that must be changed. Of course there should
be security at work and employees should feel
that their jobs are not threatened, yet again they
should be appropriately evaluated and, in case
the state decides that some of them hold posts
that are outside their duties, it should be able
to make the necessary corrections. The public
sector should be an ally and a supporter of the
private sector instead of being an obstacle and
a deterrent to its activities. So we must bring
about a change of mentality. Civil servants are
there to help the state operate in a way that
serves the society in whole instead of causing
distress to citizens from an ill-conceived position
of power.
What is your opinion on the privatisation
of semi-public organisations?
It is unacceptable for our country to be the last
one to still have a public telecommunications
organisation. This is a sector enjoying immense
privileges at the expense of consumers. It is preposterous that citizens are paying for the deficits of the semi-public organisations’ provident
funds due to mismanagement and irregularities.
The unreasonable privileges, and not the basic
ones, must be readjusted on a rational basis. We
are not encouraging the passing of state monopolies into private hands in a way that would
perpetuate their status as monopolies, since this
would worsen the situation. What we are saying is that the conditions for healthy competition
should be safeguarded and semi-public organisations should be privatised. Provided that the
conditions for healthy competition are in place,
I am confident that we will begin to enjoy the
benefits within the first six months. CYTA and
EAC employ excellent technical staff, but no one
can deny that there are undeserving employees
among them, and this must be remedied.
What is the current situation of enterprises?
The truth is that some enterprises have started
to breathe more easily. We certainly cannot
claim that the enterprises’ current situation is as
it was before the crisis. Some of them handled
the crisis diligently and are now beginning to
move forward with optimism. There is increasing
optimism in the market, consumers are not as
reluctant to spend as before. It seems that those
who can afford to invest are gradually starting to
invest and, besides, a relevant recovery in the
real estate sector is starting to show. Professional services managed to sustain the crisis and
are now back in the track of development. Even
during the crisis, Cyprus never stopped being
a reputable international business centre offering high quality services without any significant
losses. Many companies have already begun to
show again their interest in using our country as
a base for their international activities. Tourism
has performed better in 2015 compared to 2014
with total revenues rising by 4.4% year on year
in 2015. If we keep acting as we should, in 2016
we will do a lot better.
What has the Chamber gained from its
business missions abroad?
The mass media abroad have been praiseful
of how we managed the crisis in our country,
and it seems that this encourages foreign investors. In our missions we have adjusted our philosophy to the needs of the time. While before it
was enough for us to merely travel abroad and
provide information about our country’s advantages, we now strive to aim precisely at the interests of investors. In China, which we visited
together with the President, great interest was
demonstrated in connection to the real estate
and tourism sectors. In Ukraine our biggest success was the signing of the agreement for the
avoidance of double taxation. This was extremely important, since we were trying to conclude
this agreement for the last eight years.
We are certainly competing with others, and for
this reason we must offer extra advantages to
investors. Although activity is taking place in the
investments field, no breakthrough has yet been
made. It is also worth mentioning that countries
such as Thailand, which are not among traditional investors, are showing interest in the real
estate sector specifically.
23
Economy
The challenging road ahead
JUST THREE years after the climax of the worst
crisis since the establishment of our state, the
Cyprus economy is back on the right path.
By Harris
Georgiades,
Minister of Finance
In Europe our country is now considered a shining example of how an economic crisis should
be tackled. Cyprus now features in articles in
the international press for its achievements and
not its problems. Of course, the consequences
of the crisis are still being felt, but comparisons
should be made not with a sound economy, but
with the conditions of economic collapse shaped
in the five years before March 2013.
Everyone should consider the state the economy was in three years ago and where it stands
now. We could list all the forecasts – by those
who disagreed and by those who voted against
all the reforms – and how many of these have
been proved wrong. Let us recall a few: we are
in the euro, we did not impose new taxes, we did
not need a second memorandum, we were not
led into an ever-deepening recession, the Troika
did not get its hands on our natural gas, society
did suffer but destitution was avoided. In short,
today we are back on the path to recovery and
development. We have, in effect, earned a second chance.
And it is exactly now at this juncture that we are
called upon to choose the road we will follow.
One road is the one we followed in the past. It is
the one of negligence in relation to the management of public finances. It is the one of constant
pressure for appointments and pay rises in the
public sector, for constant expansion of benefits and hand-outs offered by the state, usually not to those entitled to them but to those
who claim them the most vociferously. It is the
road of those who condemn austerity, but do not
realise that the deficits and debts of this irresponsible management always land on the taxpayer in a way that undermines the future and
the prospects of development. It is the road of
complacency, with a banking system – including
the co-operative banks – that lent recklessly. It
is the attitude that considers state organisations
public wealth but is indifferent to their systematic
plundering. It is the road of conservatism which
is chosen by those who resist every change and
hide behind dogmatism and slogans.
The other road is not easy at all. It is the one
of prudent management of public finances. This
means balanced budgets and control of public
24
spending, especially of the state payroll and
benefits.
It means that recruitment and pay rises in the
public sector must be reasonable and in line with
the performance of the economy as stipulated
in the proposed legislation that has been before
the legislature since last August. It means that all
possibilities of transfers of existing staff will be
explored before the option of new appointments
is considered, as stipulated in another proposed
bill tabled in the House some time ago.
This approach carries the challenge of change
and reform. One example is the radical reform of
social policy that has already been implemented,
offering cover to thousands of our compatriots
who were in genuine need while also excluding
others who should never have been eligible. Another is the ceding of the running of the ports
to a private investor, the finding of a strategic
partner for CyTA and the operation of the state
lottery by a private company.
This road demands that the banks operate in a
framework of trustworthiness and manage responsibly the money of their depositors who paid
a very high price for the mistakes of the past;
that they fund the real needs of individuals and
businesses but will also ensure the loans they
give will be repaid.
This road assumes the courage to say ‘no’ when
it is necessary. It prioritises the beneficial and
not always the popular. It is not the road that
seemingly ‘suited’ us in previous years.
But it is the only road that can lead the country forward. Unfortunately, we had to reach the
brink of total catastrophe to understand this.
Some, however, even today remain stuck in
antiquated attitudes, frequently longing for the
spoils of the past.
This is the time the people are also obliged to
take their on responsibilities. It is the time for the
silent majority who are struggling and worrying
about tomorrow, and not for those who make a
lot of noise and remain stuck in the past. Now
is the time we must find the strength to say a
big ‘no’ to populism and instead encourage rationality so that we keep our country on the road
of responsibility, consistency and prudence. It is
the only way to ensure that we do not wake up to
days like those we faced in March 2013 again.
Markets have funds to lend,
but they also have brains
The next time Cyprus taps international markets,
its borrowing cost will be higher. As Cyprus prepares to exit its adjustment programme without
having implemented all actions that were part of
the agreement, markets don’t seem to be particularly happy about it.
By Marios
Mavrides
Member of the
Parliament
Associate Professor
of Economics
European University
Cyprus
According to the latest data, the yields of the
Cypriot 10-year government bonds rose by 20
basis points since the end of December. Even
though this increase is not spectacular, it does
make a difference when we are talking about
loans amounting billions of euros. A €1bn loan
will cost €20m more every year.
What’s causing more concerns in the case of
Cyprus is that its borrowing costs are on the rise
while in the rest of the euro area they are going
down (with the exception of Greece and Portugal).
Germany’s borrowing costs, which serve as a
reference, fell by 28 basis points in January the
yield of its 10-year bond is around 0.3 per cent
today.
Germany refinances its maturing debt with 0.3
per cent while Cyprus does so at an annual cost
of 3.82 per cent, which means that Cyprus’s
As Cyprus prepares to exit its adjustment programme without having implemented all actions
that were part of the agreement, markets don’t
seem to be particularly happy about it.
spread is 3.52 per cent. Cyprus has the highest
borrowing costs in the euro area after Greece,
which borrows at 9.16 per cent.
Actually, Greece doesn’t get any loans from the
markets but from the European Stability Mechanism. It is noteworthy that Cyprus managed to
reduce its borrowing cost from the excessive
levels of 2013 (of up to 14 per cent) to 3.62
per cent until few weeks ago, mainly thanks to
the successful implementation of the adjustment
programme.
In recent weeks however, we are witnessing
a delay in the implementation of the terms of
the bailout which displeases markets. The reluctance demonstrated by opposition parties to
cooperate, and their resistance to privatizations
disappointed financial markets.
In addition, amendments to the foreclosure and
insolvency legislation translate into obstacles in
the process of consolidating the banking system smoothly, and in the reduction of non-performing loans. This therefore begs the question,
why does a country with half of its banks’ loan
portfolio non-performing make the consolidation
of its banking system so difficult? It also begs
the question of why a country with its economy
chained by various interest groups and establishments, refuses to get rid of them. Markets are
not stupid; they do have funds they want to lend
but they also have brains, much more than what
we believe. Unless the adjustment programme
is completed as agreed and we also do what it
takes to strengthen our economy, our borrowing
cost will keep rising.
25
Economy
The Euro
in the world
As well as serving as the currency of the euro
area, the euro has a strong international presence. Currencies are the means by which wealth
is stored, protected and exchanged between
countries, organisations and individuals. A global
currency, such as the euro, does this on a global
scale. Since its introduction in 1999, it has firmly
established itself as a major international currency, second only to the US dollar.
Expectations for the
year 2016
By Christos
Michaelides,
Chairman of
Employers
& Industrialist
Federation (OEB)
Cyprus has very recently exited the Memorandum of Understanding (MOU) following three
years of spending cuts and austerity, deprivation
and sacrifices. As we learned from our experience, the rate of economic recovery is slower
than that of recession, therefore improvement
of the economic climate is going to be gradual,
without huge changes in the real economy.
which will attract foreign investors to the island,
such as licensing for an integrated casino resort,
the development of marinas, privatization of ports
and the creation of a Science and Technology
Park. Apart from the high value added that each
project is expected to provide to the economy, a
much needed great number of new job positions
will be created.
Exiting the MOU will allow Cyprus to finally regain
its “freedom” from creditors and will give us the
opportunity to trade freely in international markets in order to cover our needs. However, we
cannot afford to be complacent neither we have
the right to return to the times of irrational spending.
As repeatedly stated by our political leaders, in
recent months a new momentum has been developed in the negotiation process to solve the
Cyprus problem. We believe that the current year
will definitely show whether this new effort will
lead to a mutually acceptable solution to our political issue or not. In the case of a solution, the
business world and the Cyprus economy, will find
themselves faced with enormous challenges. We
will be obliged to go through major changes and
adjustments that could lead us to great opportunities for rapid economic growth. That is why we
must remain positive and alert in order to deal
with every challenge that may arise.
The management of public finances is expected
to continue within the same reasoning and prudence taught to us by the memorandum and we
must invest in the reforms we have undertaken
as a state, if we wish to maintain and improve
the recent rates of recovery. Spending habits
and practices of the past should be abolished
once and for all and the brand new beginning in
healthy and neatly budgeted finances must become a normal practice. Strengthening of entrepreneurship must become one government’s top
priorities in order to achieve growth and development in both the economy and society.
During the current year we are expecting the
initiation of several major development projects
26
Τhe year 2016 began with feelings of hope and optimism. We
all anticipate that the faint signs
of recovery as shown recently by
the main economic indicators,
will continue to improve for the
rest of the year and certainly for
the years to follow.
OEB knows firsthand that the road to economic
recovery and prosperity will be a long one with
many reforms still to be made. We are still going
through a period of transitions for our business
model, but with proper planning we can achieve
many benefits for the near future. As our mission
states, OEB is and shall continue to be next to
the Cypriot businessmen and claim what is best
for our economy.
By George
Markopouliotis,
Head of the
European
Commission
Representation in
Cyprus
Within the euro area, the single currency, the
euro, is the means by which governments, companies and individuals make and receive payments for goods and services. It is also used to
store and create wealth for the future as savings and investments. However, the size, stability and strength of the euro-area economy – the
world’s second largest after the United States –
make the euro increasingly attractive beyond its
borders, too. Public and private sectors in third
countries acquire and use the euro for many
purposes, including for trade or as currency reserves. For this reason, today, the euro is the
second most important international currency
behind the US dollar. The widespread use of the
euro in the international financial and monetary
system demonstrates its global presence:
• The euro is widely used, alongside the US
dollar, as an important reserve currency to hold
for monetary emergencies. In 2015, more than
one-fifth of the global foreign exchange holdings
were being held in euros.
• The euro is also the second most actively
traded currency in foreign exchange markets. It
is a counterpart in around 33% of all daily transactions, globally.
• The euro is widely used to issue government
and corporate debt worldwide. In 2015, the share
of euro denominated debt in the global markets
was around 40%, on par with the role of the US
dollar in the international debt market.
• The euro is also gaining momentum as currency used for invoicing and paying in international trade, not only between the euro area and
third countries but also between third countries.
It is used as trade invoicing currency for more
than 50% of all euro area imports, and for more
than 65% of all euro area exports.
• Several countries manage their currencies by
linking them to the euro, which acts as an anchor
or reference currency.
The status of the euro as a global currency,
combined with the size and economic weight of
the euro area, is leading international economic
organisations, such as the IMF and the G7, increasingly to view the euro-area economy as one
entity. This gives the European Union a stronger
voice in the world.
To benefit from this stronger position, and to
contribute effectively to international financial
stability, the euro area is speaking with one voice
more and more in important economic fora. This
is done through close coordination between the
euro-area Member States, as well as the European Central Bank and the European Commission during international economic meetings.
A number of third countries and regions are
even more closely linked to the euro. The stable
monetary system behind the euro makes it an
attractive ‘anchor’ currency for them, particularly
for those that have special institutional arrangements with the EU – such as Andorra, Monaco,
San Marino and the Vatican City . By linking their
currency to the euro they bring more certainty
and stability to their national economies.
Euro preferred by
EU companies in their
international transactions
A Eurobarometer survey published by the European Commission in February confirms that the
euro is widely used by European firms in their
invoicing practices with nearly eight out of ten
companies invoicing more than 75% of their exports in euros. The survey covered companies in
France, Germany, Italy and the UK in the aircraft
and shipbuilding, energy, financial services, and
electrical and mechanical engineering industries.
Two thirds of the surveyed firms in France, Germany and Italy said they did not use any currency
other than the euro for export invoicing.
If companies did use other currencies, this was
mostly due to client preference and the important role of the US dollar in global finance. Moreover, four fifths of the companies said that the
European sovereign debt crisis has had no effect
on their use of the euro in trade invoicing.
27
Economy
Many other countries with declining competitiveness and low productivity accumulated large
deficits and went into debt. Second, in many
countries globalization and technology left large
numbers of people behind, creating potential
for instability.
Economic Challenges of our Times*
By Michael
Sarris
Economist
Former Minister of
Finance
The current generation is living in one of the
most challenging times in the economic and
social history of mankind. This period is characterized by a deep and protracted worldwide
recession and by a technological revolution and
continuous innovation. In the aftermath of the
onset of the Great
Recession in 2008, there is a serious debate
on its causes and impact with emphasis on the
failings of capitalism and the resulting human
suffering. It is up to this generation to implement reforms, which should eventually lead to a
redefinition of the free enterprise system. The
goal is that it will evolve into a market system
with a human face.
The other game-changing development of our
times is the digital revolution which is called
by many as the Fourth Industrial Revolution.
Powerful advances in Information and Communication technologies are leading to large
gains in productivity and efficiency and rapid
innovation in products and services. A large
share of those now in high-school will probably
look here for employment and should gear their
preparation accordingly. But these advances
are also creating important challenges in job replacement, data protection and the distribution
With respect to the Eurozone there are alternative
narratives, as to the origins and the management
of the ensuing crisis.
28
of the resulting growing wealth. The key challenge is how to distribute fairly the “automation
dividend” which has made income inequality
worse. There is also a shift in market strength:
power accrues to those who have most data,
best algorithms and most advanced computers.
The bet to be won here is how to maximize the
benefits of the digital revolution while dealing
effectively with its challenges.
The financial crisis started in the United States
about ten years ago. It was a remarkable combination of failings in bank supervision and
regulation, greed for profit and lack of attention to the potential dangers of persistent trade
imbalances and huge capital inflows coming
in from China. The Americans dealt with the
crisis, as they always do, and moved on. But
the crisis exposed serious shortcomings in the
functioning of the worldwide economic system
and especially in the European Union and the
Eurozone.
For a thirty-year period leading up to the recent crisis, expanding international trade, free
enterprise and market-based systems, generated jobs for almost everybody, created wealth
and got millions in all continents out of poverty
–viewed from afar, a remarkable achievement.
But viewed from close by, this was an unsustainable system. First, there were growing imbalances, as successful exporters like China,
other emerging economies and Germany accumulated export earnings but did not recycle
them through increased demand for imports.
With respect to the Eurozone there are alternative narratives, as to the origins and the
management of the ensuing crisis. These alternatives were seen in action during the 2015
stand-off between Greece and its creditors.
First, is the narrative of national policy failures in
terms of heavy public spending and borrowing,
and declining competitiveness. The second
narrative puts emphasis on the design faults
of the Monetary Union: its narrow emphasis
on fiscal criteria, the neglect of rapid growth in
private sector borrowing and the absence of a
banking union and of a federal budget. At the
same time the fact that surplus countries like
Germany, do not participate in the needed correction by expanding their imports, makes the
adjustment for deficit countries much harsher.
There is truth in both narratives and the challenge going forward is to build systems to help
avoid national policy errors, while fixing the architecture shortcomings of the Monetary Union.
The pressure for reforms is coming from the
legacy of the crisis in Europe. What we now
see is slow growth, income stagnation, low
productivity, high debt and, above all, high unemployment, especially among young people.
Some changes like a banking union and a
stronger fiscal pact are happening. But, the key
goal of political union that will enable Europe to
deal with crises more effectively like the United
States, remains elusive. In fact we now have
sharper North-South and East-West divides,
fuelled by economic differences and large migration flows. All this leads to Euroscepticism,
nationalism and xenophobia, mostly from the
right, and populism from the left.
Because the shortcomings of the free enterprise system are rightly seen as having contributed to the crisis, there is a danger for this
populism to lead to a return to tax-and-spend
approaches and a growth of the role state.
These approaches have been tried and failed.
That is why it is important for all of us to come
up with a credible middle road that avoids the
pitfalls of unchecked market-based capitalism
without falling into the inefficiencies of socialism. Elements of this approach must include
combating corruption which allows those using
devious methods to advance at the expense of
the rest of us; fighting tax evasion which frustrates honest people in too many countries; real
reform of the financial system so that innocent
tax payers do not have to pay the bill again; and
tackling monopolies and vested interest groups
which have captured the political system and
are blocking reforms that benefit the majority. In parallel, this approach would refocus the
welfare state on the really needy and use the
money saved to invest in health and education.
The other game-changing development of our
times is the digital revolution which is called by
many as the Fourth Industrial Revolution.
I have touched on some of the challenges of the
younger generation, namely: forging a stronger political union in Europe, rehabilitating a
market-based economic system, and taking full
advantage from the digital revolution; but there
are others, like climate change where the myopia of the young and the selfishness of the older
generations is leading to inaction. There is also
the long-standing challenge of reducing income
and wealth inequality worldwide and eliminating
poverty in developing countries which ought to
remain firmly on our radar screen. Reversal of
the extreme increase in inequality that has occurred in the last thirty years is a policy choice
and must be seen as part and parcel of the big
challenge of our times of redefining and reshaping our free enterprise economic system.
*Keynote Speech at the 11th Annual Mediterranean Model United Nations Conference of High School Students, February 5, 2016.
29
Economy
2016 – A year of growth and investment
Provided reforms in state and economy continue
By Christodoulos
Angastiniotis
President of the
Cyprus Investment
Promotion Agency
(CIPA)
The year will not be easy, but it will be better
Cyprus has weathered a storm of immense proportions and has demonstrated that this crisis,
as ones in the past, can be surpassed despite a treatment that was less than fair from Cyprus’
partners.
However, the tenacity, focus and deliberate effort that we have witnessed since 2013, must
continue unabated: If 2015 was a year marked
by massive effort, impressive achievement and
the keeping of promises, 2016 will have to be a
year of even more effort, more achievement and
more promises kept.
By John P.
Hourican
CEO, Bank of
Cyprus
This remains our focus in Bank of Cyprus. The
banking industry continues to come under pressure as NPE ratios remain high, household and
business indebtness continues to stifle growth
and the abrupt dissaving that occurred in 2013
continues to limit opportunity. Customer service
must also become more intensely improved so
that we can provide service that is not only satisfactory, but of top quality.
We will not shirk from the challenge. We welcome it and we will continue to deal with it with
equal measures of ambition and determination.
ELA exposure, despite a decline that belies
even the most optimistic observers, must continue. The management of loans in arrears and
restructuring must also continue despite the
progress that has taken place, especially in the
Austerity has come to its limits. With prudent management, the fiscal problem has been mostly tackled. Reform seems to be underway.
30
last quarter of 2015. Overall asset quality needs
to be further improved, despite the successful
outcome of the SREP test that has taken place.
The banking system, and Bank of Cyprus especially as the industry leader, need to support the
economy of the country by extending rational,
careful lending to viable customers and by assisting existing customers to return to viability.
Our focus on Cyprus itself is now complete and
we remain devoted to supporting the economy
of the country and its return to conditions that
will allow Cypriots to not only make plans for the
future, but to also dream of bigger and better
things to come.
Austerity has come to its limits. With prudent
management, the fiscal problem has been
mostly tackled. Reform seems to be underway.
Beyond the continued management of existing
challenges, however, we need to start discussing more intently the road to prosperity- a new
economic model for growth, stability and opportunity for all Cypriots. At Bank of Cyprus, we
wish to engage in this discussion with all stakeholders, participating in the emergence of a new
promise for the country.
Our wish, alongside all Cypriots, is that the year
can bring a reunification of the island. The coming year will not be easy, but with ambition, renewed energy and deliberate effort, I am certain
that it will be better.
The performance of the Cyprus economy, which
was the result of hard work and the implementation of a demanding but necessary adjustment
and reform programme, delineate a positive
outlook for 2016. A series of favourable developments, such as the island’s exit from its
economic adjustment programme this March,
ongoing positive reviews by international rating agencies, a decline in the state’s borrowing
rates, forecasts for growth in excess of 1.4% in
2015, to name but a few, allow us to look to the
future with more confidence and optimism.
Similar progress has been made in creating a
more business friendly environment, as according to the “Doing Business” report for 2016, Cyprus has climbed 13 places in the world rankings
of countries in the “Ease of doing business” category, while it also ranks among the 10 economies with the most noticeable improvement as
regards reforms for the financial year 20142015.
Attracting direct foreign investment is the only safe
choice for economic growth in a strongly competitive and evolving international environment.
Investor interest in large investment projects
such as the integrated casino resort, luxury marinas, golf courses, expansion of Limassol Port,
Vasilikos Energy Centre and the Scientific and
Technological Park, as well as use of the old
Larnaca airport building, are all testament to the
prospects of key sectors of the economy, such
as tourism, commerce, energy, research and innovation.
The Cypriot real estate market is also showing
notable potential for growth, with sales to local and foreign buyers recording a remarkable
increase in 2015. More specifically, they rose
21% in November, while on the back of a 20%
increase in 2014, an additional 9% growth was
recorded from the start of 2015.
CIPA continues to contribute, in its own area
of activity and with the same commitment and
determination, to the unremitting effort to stabilise and adjust the Cyprus economy to the new
state of affairs. The Agency actively participates
in efforts to reposition the country and introduce
a legislative framework for a comprehensive
procedure to Facilitate Strategic Investments,
which will provide a stable investment framework of regulations and procedures, bypassing
bureaucracy and time-consuming procedures
that hamper the implementation of investments.
Regarding the institutional framework, CIPA contributes by preparing proposals for amendments
to the existing tax and legal framework, with the
aim of boosting Cyprus’ competitiveness and attractiveness as an investment destination.
Bringing the law up to date, promoting large investment projects, upgrading the tourism product, defining tax, town-planning and other business incentives, as well as accelerating licensing
procedures and implementing an effective permanent residency programme for wealthy third
country nationals, are just a few of the necessary steps which are underway in the investment
sector to help the economy progress.
The progress that has been recorded and the
prospects which have opened up have helped
serve other top objectives, first and foremost of
which is reducing unemployment, which though
still high is showing signs of stabilising.
Attracting direct foreign investment is the only
safe choice for economic growth in a strongly
competitive and evolving international environment. The need to continuously redefine and
readjust the Cyprus economy’s growth model is
imperative so as to increase its versatility, and
make it more efficient, competitive and truly
hospitable to foreign investments.
This is a collective mission, the benefits of which
will be felt soon. Having recorded the required
stabilisation and progress in 2015, Cyprus has
laid the foundations to achieve sustainable
growth rates over the next year. 2016 could
mark the beginning of a
new era of growth, prosperity and progress for the
economy and the country,
provided we do not become
complacent
about what we
have achieved and
continue the reform
effort we have started
with the same dedication
and determination.
Economy
We have set the foundations but we should move on
In order to take advantage of opportunities for the
future, we need to move on with further changes
and initiatives.
Despite the improvement as illustrated by certain
key indicators and the growth of the Cyprus economy, we still have to tackle several challenges arising
from both internal and international factors.
By Christis M.
Christoforou,
CEO Deloitte Ltd
In 2015 there have been positive developments
which have led to increased hope for the future. The
public debt was decreased to 108% of GDP and
the government deficit was reduced to less than
3% of GDP, observing the Maastricht criteria. The
improvement of the perceived financial reliability of
Cyprus internationally is of major significance. This
is apparent through the Republic’s creditworthiness upgrade by foreign rating agencies, as well as
through the successful third access to the international markets by our country.
On the other hand, no one can overlook the problems in the real economy, such as the unemployment rate (15%), non-performing loans (€27,4 billion or 48% of the total bank loan portfolio), lack
of liquidity, high interest rates, reduced productivity
and lack of competitiveness in the economy. Moreover, I consider the continued dominance of bureaucracy in the public sector to be counterproductive,
as it has negative consequences on the private sector’s efforts for new initiatives, new investments and
new business activities.
In general, I would say that in 2015 we have set the
foundations for positive developments. Yet, our efforts should not stop there. In order to be successful in the future we need to keep going with further
initiatives.
In my view, in 2016 our efforts should focus on the
following key areas:
• We should proceed with pushing through the
required reforms in both the public and the private
sectors without further delay.
• We should move forward with previously scheduled large infrastructure projects.
• We should build on the comparative advantages
of our county, as well as on new sectors, mainly energy.
• We should proceed with prompt and significant
loan restructuring, in terms of number of loans and
monetary value.
• We should bring forward solutions to address the
problems of the real economy.
Unfortunately the road ahead will not be easy by any
means, since several of the efforts will be met with
obstacles such as mentality, trade unions’ reactions,
practical difficulties and other complications.
I personally believe that the government should
32
demonstrate more determination and decisiveness. We disagree with the way the government
deals with the reactions against privatizations and
the public sector’s reform. Furthermore, we worry
about the delay in completing significant infrastructure projects (marinas, golf clubs, etc.). We generally believe that we should move faster with more
urgency, in order not to miss the momentum of the
economic recovery, which brought some positive results in 2015.
At the same time, we should be cautious of the
global environment, as Cyprus is vulnerable to international developments, due to the nature of its
economy.
The crisis in Syria, in combination with the migration
problem, international terrorism and the disruption
of political relations among related parties (RussiaWest or Russia-Turkey, etc.), causes turbulences
with unpredictable consequences. We, as Cyprus,
have neither the power nor the capabilities to influence these developments. Nevertheless, we can
advance our role as a factor of stability and security
in this crisis. Cyprus, as an EU member state with
abundant competitive advantages, should build on
the current situation pushing forward in its own interests, in respect of the Cyprus problem, energy
and economy.
The post – Memorandum era:
Investments and employment
In this light, I consider that the developments in the
region may influence the development of our economy, yet, we may also take advantage of the new
situation for the benefit of our country.
Under these circumstances, we have a vital role as
professionals. Deloitte, as well as other professional
services organisations, has made a major contribution to the efforts towards rebuilding the Cyprus
economy. Through a variety of initiatives in Cyprus
and abroad we have managed to alter the negative
image portrayed by the economic crisis in 2013. At
the same time, we have tried to persuade foreigners that our economy has not lost its comparative
advantages, therefore, they should not stop their activities on the island. Moreover, we have highlighted
and promoted the prospects of Cyprus, based on
energy, tourism, shipping and other promising sectors, so as to attract further investments and foreign companies. Assessing our efforts in the recent
years, I can say that we are satisfied that Cyprus
and its economic model continues to attract foreign
investors.
Deloitte will persist in undertaking new initiatives,
which will promote Cyprus abroad and will create
the conditions for further development of our country’s business profile. Utilizing our knowledge, our
extensive experience, vision and professionalism,
Deloitte will continue being on the frontline of the
development of the Cyprus economy.
By Tassos
Anastasiades,
economist
Deputy Editor,
Accountancy
Cyprus Journal, and
former Director,
Ministry of Finance
Since March 2013, when a Memorandum adjustment programme was introduced in Cyprus, a large number of important measures
for correcting significant imbalances were implemented. As a consequence, the economy is
recovering while the banks have been restructured and recapitalized. In 2015, the Cyprus
economy expanded by 1,6%, following three
years contractions, namely of 2,5% in 2012,
5,9% in 2013 and 2,5% in 2014. The Central
Bank expects growth to pick up to a 2% rate
in 2016.
The macroeconomic adjustment programme
implemented helped the country’s fiscal deficit
as a decline to more sustainable levels. As a
percent of GDP the government budget deficit
declined to 0,2% in 2014 and 0,5% in 2015
from 5,8% and 5,9% in 2012 and 2013 respectively, declined to 0,2% in 2014 and remained low, at 0,5% in 2015.
Nevertheless, the borrowing made necessary
by the country’s financial collapse resulted in
Consumers believe that an increase in private business activity will lead to an enhancement of world
economic growth.
an increase in the public debt to 108,8% of
GDP from 79,5% in 2012. Also, unemployment has remained high—around 15% of the
labour force, compared to 3,7% in 2008 while
the non-performing bank loans are 48% of the
total value of the loans.
Now that Cyprus exits the memorandum of understanding it is necessary that it continues its
structural reform process. It is important that
Cyprus continues the prudent fiscal policy so
that it does not return to the era prevailing before the memorandum, when there was high
non - targeted social expenditure, while wages
were rising faster than the rise in productivity.
This led the downgrading of our competitiness
and to a high current account deficit which in
2008 peaked at 15.6% of GDP. This deficit
was financed by loans both locally and from
abroad so that, as stated above, the public
debt reached 108% of GDP while the debt of
the private sector (households and businesses) went up to 300% of GDP, one of the highest in the EU.
For the facing of the serious social and economic problem of unemployment, investment
is necessary. But investment cannot be undertaken by the public sector. The government with a public debt of 108% of GDP canACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
33
Economy
not increase borrowing further by new loans
to be used for investment because the rating
agencies will downgrade the credit rating of
the government and if it needs to borrow the
interest rate will be much higher. As a consequence investment should be undertaken by
the private sector, with the exception of certain
infrastructural projects which help the private
sector to promote productive investment.
According to findings of research done by the
international marketing company Edelman in
28 countries with a participation of 33,000 persons, confidence in business has increased to
the highest level since the crisis of the 1930’s.
Consumers believe that an increase in private
business activity will lead to an enhancement
of world economic growth. Specifically, the research showed that 80% of the persons who
participated believe that a company can take
the necessary actions to both increase its profits and improve social and economic conditions
of the country where it is activated and developing.
Structural reform measures: for private investments to be carried out structural reform
should continue and even be intensified. We
may underline the introductionof measures by
the government and the parliament for fiscal
prudence, the improvement of productivity of
the public sector, the reduction of the government wage-bill (including the reduction of the
salaries of the new entrants), the reduction
of bureaucracy as well a the promotion of the
``one stop shop’’ which will facilitate the foreign investors. Also the prudent behaviour of
the trade unions is needed so that wages and
salaries should not rise at o higher rate than
the rate of increase of productivity. The role of
the trade unions in a globalised economy is to
cooperate with the businesses for the improvement of productivity so that their members will
be receiving real wage rises, not nominal wage
rises which lead to the rise of the cost of production and, as a consequence, the decrease
of investments and unemployment.
But unfortunately certain political and/or professional groups both of the private and the
public sector are submitting claims for the return of the so-called “acquired rights” which
they held before the onslaught of the economic crisis. And because we are in the middle of
elections campaign the various political and social groups are expecting that the government
will yield. As a result it has been decided that
the Cyprus Electricity Authority will not be privatised as it was agreed with the international
lenders. This is also true with the privatisation
34
of CYTA. And this, as the trade unions argue,
to protect the ``national wealth’’. There were
similar arguments for the Cyprus Airways so
that we do not sell-out the ``national airline’’.
We now know the result.
The Need for an Entrepreneurial
Ecosystem
It is important that Cyprus continues the prudent
fiscal policy so that it does not return to the era
prevailing before the memorandum...
There in no more ``national airline’’ but people
can still visit Cyprus without a problem. Besides
the privatisations, other issues which have not
been finalised are the improvement of the civil
service and the introduction of a general health
care scheme (GESY). Thus we lose the 9th
and final installment of €400 and if we have to
borrow it will be at a much higher interest rate.
In parallel, the government and the trade
unions have agreed that there will be no wage
increase for the semi-government organizations for 2016. But for 2017-2018 the wage
cost should not exceed the rate of increase of
the nominal GDP. The issue of wage indexation (ATA) however, remains open for the
trade unions which insist that consultations
should go on for a final solution. It should be
stated, however, that the rise of wages and
salaries at the same rate as the increase of
the nominal GDP, also includes ATA, i.e. the
rise of prices. There would only be a problem
of wage indexation if the rise in wages and
salaries was in real terms. And even here the
employees are not entitled to the whole of the
increase in real GDP, since the increase emanates from two sources: the increase of productivity and the employment of more human,
capital and natural resources. The employers
are only entitled to the increase of productivity.
Otherwise the competitiveness of Cyprus will
be downgraded, and exports, investment and
employment will fall. With regard to the wage
indexation (ATA), besides Cyprus it is also offered only by Malta, Belgium and Luxembourg.
But in all three countries wage indexation is
only offered if the state of the economy justifies it and in any way the wage cost should not
be rising at faster rate than the wage cost in
competitive countries.
By Dr. George
Theocharides
Associate Professor
of Finance
Director of MSc
Financial Services
Cyprus International
Institute of
Management (CIIM)
I participated recently in an entrepreneurial educational field trip to Athens that is organized by
CIIM’s Entrepreneurship and Innovation Center
(ENTICE). This is part of a series of educational
field trips that CIIM’s organizes every year (includes a second entrepreneurial field trip to Tel
Aviv). The purpose of the trip was to visit various
organizations (stakeholders) that makeup the
entrepreneurial ecosystem in Greece as well as
various successful startup companies and entrepreneurs. Given the current state of the Greek
economy and the problems that it has been facing for many years, my expectations were very
low. To my surprise though, I discovered that
Greece (yes, Greece!) has a well-functioning entrepreneurial ecosystem that promotes and supports innovation and the creation of new businesses that are so vital for the country.
Greece’s Entrepreneurial
Ecosystem
The programme included visits to institutional organisations promoting the creation of the entrepreneurship and innovation ecosystem (TANEO,
PRAXI, Corallia Clusters Initiative), accelerator
and co-working spaces (Egg, IQbility), innovation and entrepreneurship funding bodies (Attica
Ventures, PJ Tech Catalyst), successful start-up
and spin off companies (Pollfish, Covve, i-sieve
and Apivita) and a half day of lectures at ALBA
Graduate Business School. TANEO (Ταμείο
Αανάπτυξης Νέας Οικονομίας) is a Greek statesponsored and privately funded, independently
managed “fund of funds” that uses its funding
to invest through venture capital funds in Greek
start-up companies. PRAXI/HELP-FORWARD
Network, on the other hand, is a national technology transfer organization that aims to transfer
knowledge, promote innovation and entrepreneurship, and improve competitiveness of Greek
companies by linking research institutions with
the industry. Corallia Clusters Initiative is an organization that was established to develop and
manage innovation clusters in specific sectors
and regions of the country with the aim to establish a competitive advantage for the participating
players. Egg (enter-grow-go) as well as IQbility
are incubators/accelerators with the role to identify, incubate, and accelerate the development of
high-potential start-ups in Greece. Attica Ventures and PJ Tech Catalyst are venture capital
funds that draw their money either from private
institutional investors (banks in this case) or from
EU structural funds and their role is to identify,
invest (finance) potentially successful start-ups
by acquiring an equity stake in them with an exit
plan usually in 5-7 years.
Lessons for Cyprus
We should draw lessons from the setup of the
Greek entrepreneurial ecosystem (as well of
course from the Israeli one). My humble opinion
is that President Anastasiades should include it
in his agenda (as another area of collaboration)
during his current discussions with the GreekIsraeli Prime Ministers and ask for help and guidance. The statistics provided at the moment for
Cyprus on innovation and entrepreneurship are
not encouraging. According to a recent study by
EY Cyprus (Innovation and Entrepreneurship Dynamics, September 2015), Cyprus was amongst
two member states of the European Union that
exhibited a declining innovation performance in
2014 (Innovation Union Scoreboard 2015), and
has be reclassified downwards from “innovation
follower” to “moderate innovator”. The level of
our innovation index is now well below the EU
average. Another interesting statistic in this report is the percentage of the country’s GDP that
is used for Research and Development (R&D).
For 2013, this is at 0.48% (or €86.1m in real
terms), which is amongst the lowest rates in the
EU. Reading the full report, I came to the conclusion that although there are some individual,
scattered efforts from participating stakeholders (government, private organizations and networks, academic institutions, etc.) the effort
must be coordinated and needs a greater support from the government and the business community. I should mention here that CIIM together
with Bank of Cyprus has launched the IDEA programme (Innovate-Develop-Excel-Accomplish)
last year to identify, support, incubate, and accelerate innovative start-ups with a global outlook.
Many more of these efforts though are needed if
we want our youth to enter this field and become
entrepreneurs. Promoting innovation and entrepreneurship creates a more competitive environment, promotes growth, creates new jobs, and
helps to increase the foreign direct investment in
the country.
Note: Originally published in Focus Magazine
35
Economy
Cyprus in a
Time Warp
Our New
Economic Model
This Country has Potential!
I was recently asked whether this country has the
potential to look forward. It is without any doubt
that Cypriot citizens have suffered a lot, some
more than others, from the unprecedented economic crisis, which has evolved into a major institutional crisis, with negative consequences on
the citizens’ trust towards the political system in
general.
By Savia
Orphanidou
Economist
Nevertheless, I truly believe that this country has
the potential of a prosperous future ahead. Cyprus has officially exited from the Memorandum
of Understanding a few days ago. After three
years of extensive efforts to stabilise our banking
system, to reform our fiscal policy and to promote
the necessary structural changes, Cyprus has entered a new era of positive growth rates, of fiscal
surpluses and of sustainable public debt levels.
The growth rate for 2015 is 1.6% of GDP with a
projection of about 2% in 2016, the primary fiscal surplus for 2015 is around 2% of GDP, with
a projection of a small fiscal surplus in 2016, and
public debt levels are expected to drop below
100% of GDP in the next year. In other words,
our public finances are back on track.
This country has indeed potential. Because its citizens have shown enormous courage and dignity
during the most crucial times of the crisis. Because Cypriots, for once more after 1974, have
worked hard and with determination to achieve,
slowly but steadily, another small economic miracle. It has certainly not been easy for anybody.
However, Cypriots have chosen to place the public interest, instead of their own self interests,
above all.
...Cyprus has entered a new era of positive growth
rates, of fiscal surpluses and of sustainable public
debt levels.
36
We do have potential in this country, as long as
we have learnt from the mistakes of the past. With
one important precondition, to continue with the
implementation of this prudent economic policy,
leaving fiscal deficits and mismanagement in the
past. By showing the necessary political will to
speed up the implementation of major structural
changes in vital sectors, such as healthcare, public service and semi-government organisations.
I truly believe that the road towards growth and
development is without return. Not because we
have exited the crisis and everything goes well.
But because I am certain that we have the potential to change our mentality. To look forward,
with a different way of thinking, for the benefit of
Cyprus as a whole.
This country has a very well-educated and hardworking human capital. It has an economy with
strong areas of potential growth such as tourism,
shipping, financial services and energy. Managing
these areas of growth prudently, and especially
our natural gas sector, can make Cyprus one of
the biggest energy players in the eastern Mediterranean, and a significant business and economic
bridge between Europe and the Middle East.
Most importantly, Cyprus will have the biggest
potential if we manage to solve the Cyprus problem and re-unite the island. A viable solution,
which will safeguard the sustainability of the public finances, will show the way out to many today’s dead ends. The solution will safeguard our
national survival and will lead to the speeding up
of economic growth prospects and the re-engineering of our economy. It will create conditions
of security and peace. Above all, it will create the
opportunity to a better future not only for us but
for our children.
Yes, it is indeed true that this country has potential! And this potential lies in our hands!
The Euro group “rescue” of Cyprus was an economic catastrophe with few equals. In the space
of a few days the economy of this country was
demolished and put on life support. Since then
the country has made significant progress, surpassing the expectations of many, including the
IMF. That still leaves the Cyprus economy a long
way from anything which might be considered
economic prosperity. Unemployment is unacceptably high. Much remains to be done.
In the context of the necessary rebuilding there
has been much talk of a new economic model.
Indeed there was every reason to believe that
along with the pain of the financial crisis, there
was also an opportunity to start afresh. To develop new industries. To abandon much of the
outmoded and arteriosclerotic customs and
regulations of the pre- 2013 model.
By Dr. Jim
Leontiades
Institute of
Management
But With the appearance of even the modest
recovery the island now enjoys, many of the
dinosaurs of the past are raising their heads,
rushing to reassert destructive and outmoded
practices. Consider the issue of shop opening
hours. The current debate in parliament turns
about the interests of large shop keepers versus small retailers. The interests of the general
public do not even figure into the debate.
Apparently, it does not occur to the majority of
our parliamentarians that society has changed.
The typical married couple is now one where
both husband and wife are employed. During
week days, most wives are at work. Allowing
the stores to stay open on Sundays provides
an enormous convenience for such families.
But this gets little attention compared to organized self interest groups which can swing a
few votes.
Adding to this trend to re-establish the past is
the prospect that the Troika may soon depart.
Of course, it is not pleasant to have the country’s elected legislators subject to colonial style
subservience. But it is increasingly obvious that
whatever progress has been made toward a
new economic model owes much to oversight
and pressure from the Troika. Privatization of
our national industries, bringing them into line
with such measures taken many years ago by
most of our European peer group was to be
part of a new Cypriot economy. This has been
fiercely opposed by the unions who have benefitted vastly from nationally owned industries.
In an attempt to disguise their obvious selfinterest they refer to such companies as our
“national wealth”.
With the appearance of even the modest recovery
the island now enjoys, many of the dinosaurs of
the past are raising their heads, rushing to reassert Reaping the Returns of our
National Wealth
destructive and outmoded practices.
Even though the government had agreed to the
37
Economy
Cyprus
Airways
privatization of most of the country’s nationalized industries – there are now significant signs of backtracking. Under enormous pressure the government has buckled.
It has announced that the Electricity Authority (EAC) will not be privatized as previously agreed. Similarly, the de- nationalization of Cyta has met with the same strong
opposition. The government is vacillating. Its attempts to abide by its agreement to
privatize have met with cries of outrage from the usual sources. Here again we hear
the “national wealth” argument. What will happen to the profits which these industries
contribute to the country?
Examining the performance of this national wealth and its contributions to government
is instructive. In 2014, the EAC generated 42 million euros of profit. This was accompanied by a bill to the government of 244.3 million euros to cover the shortfall in that
company’s pension fund.
Cyta is not far behind. According to reports, there is a 161.5 million euro deficiency in
that company’s pension fund which, here again, the law requires the government to
guarantee. It goes without saying that no such guarantee applies to the hundreds of
pension funds which have been subject to the “haircut”.
Let’s not forget that the government is now in the banking business. The Co-op Bank
is the latest addition to our national wealth. Parliament has recently approved a donation by the taxpayer to that bank of 175 million euros to make up a recently discovered
shortfall.
These three nationalized industries alone require the taxpayer to pay 580 m. euros.
This does not include the 1.4 billion that the government has agreed to pay as the
purchase price for the Co-op bank. This bank already has more non-performing loans
(relative to its size) than the large private banks. Now that the Co-op bank is in government ownership steady losses are almost guaranteed.
38
It was only a short while
ago that the public was
also told of the desperate
need to save the country’s national air carrier,
Cyprus Airways. Without
a government controlled
airline how would tourists
reach the island? The
government’s attempt
to save the airline from
bankruptcy by injecting
103 million euros was
rejected by the European
Union as a violation of its
rules. Bankruptcy of the
airline followed. Naturally
the government is still on
the hook for the shortfall plus generous pension and other benefits.
Cyprus Airways is no
more but tourist arrivals
have actually increased
as have the number of
destinations served. Increased competition has
lowered many air fares.
With the anticipated departure of Troika, the
rise of the special interest groups which have
hampered the country’s
development in the past,
undermining the effectiveness of the island’s
schools, health programs and industries are
preparing for a return to
business as usual. Their
success indicates that
much needed change
will be hampered and
even reversed. These
groups will fight to maintain their privileges and
outmoded
practices.
More often than not, they
have succeeded. The
danger is that Cyprus will
eventually find itself in a
time warp, a country in
the 21st century with a
20th century economic
model.
Central bankers on the way to hell
By Frixos
Kyprianou
Director
Audit Department
The latest of the increasingly desperate attempts
made by central bankers to revive inflation and
(they hope) economic growth is the imposition
of negative interest rates. Since the 2008 collapse interest rates have been at record low levels and the printing presses have been running at
full speed printing money, not only in Europe but
around the world. However, the only effect has
been to produce bubbles in the stock exchanges
and in some property markets, with no perceptible
improvement in the real economy. Governments
have gone ever-deeper into debt but unemployment rates remain at near-record high levels
in most countries. A few countries, such as the
United States, appear to have succeeded in reducing unemployment, but on closer inspection
the reduction is illusory, with most of the new jobs
created being McJobs, offering low wages and no
guaranteed hours of work.
After the failure of zero interest rates and socalled quantitative easing, we are to be guinea
pigs for a new miracle cure, which involves people
being charged on their deposits instead of receiving interest.
The big idea behind negative interest rates, according to their advocates, is that they will encourage people to spend money instead of saving, and
so will kick-start stalled economies. What these
people are forgetting is that the main reason people save in the first place is to supplement their
pension and help them maintain a respectable
standard of living during the retirement years when
they will not be working and earning an income. In
those seemingly far-off times when deposits were
still paying interest people strove to save enough
to create a complementary income in retirement.
Now most people face penury in their old age.
What is more, the policy is likely to fail in practical terms. In the short term, if people cannot rely
on earning interest to supplement their pension
the most likely outcome is that those who can afford to will save even more to make up for the
lost income, achieving the exact opposite of what
the central bankers hope for. Instead of reviving
growth, negative interest rates will force people to
save more (though not necessarily with the banks)
and spend less, entrenching deflation and stifling
growth.
A further unintentional consequence of negative
interest rates is the increased risk of bank failures.
The central premise of negative interest rates is
that commercial banks are charged interest on
funds they deposit with the central bank. This is
an additional cost for the commercial banks and
they will have to decide whether to pass it on to
their customers. If they do, people will be encouraged to withdraw the cash and hide it under the
mattress, particularly now, when there is so little
public confidence in banks as a safe place to keep
money. If the banks decide not to pass on this
cost their profits will be reduced, with a consequent effect on capital adequacy. Either way the
policy risks creating a negative feedback loop that
could force a run on the bank, slowly at first and
at lightning speed later.
Additionally there is a new lollipop politicians all
over the world are currently licking, being the
massive and ever-widening disparity between the
wealthy few and the rest of us, and their plans
to address this issue. Irrespective of the fact that
they are completely missing the point with their
plans, they are also not telling people the real
reasons for this intolerable increase in the wealth
gap and why the middle class is becoming a dying
breed.
It is a truism that banks prefer to lend money
to people who already have plenty of it. Who is
the better prospect from their point of view, the
wealthy individual with useful contacts and security, or the average Joe who considers himself
lucky if he can make his salary last until the end
of the month, with no collateral to offer? When
the central banks kill the value of money either
by eliminating interest or printing new money, the
only person who has access to these cheap funds
is the rich one. The “haves” will become even
richer as they borrow at low cost to invest, while
the “have-nots” will have to try to survive on their
salaries.
Unfortunately the financial game is rigged against
the average person for one more reason: governments desperately need inflation to reduce the
real value of their own sovereign debt. All countries are so deep in debt that there is no way they
will ever manage to reduce it to sustainable levels
using the proceeds of taxation alone. Inflation is
an alternative “stealth” way to tax people without
them realising.
Looking at the big picture, by destroying money’s
role as a store of value, current central bank policies are punishing honest, hardworking people
who follow a responsible approach to money management, and encouraging profligacy and financial irresponsibility. In the long run they are killing
the middle class and risking social unrest. There is
a good chance that being either a central banker
or a politician will become a life threatening profession in the near future.
39
Economy
wages and other incomes should follow the increase of productivity, whereas prices should
not increase unless there was an unavoidable
increase of other elements of cost. In case of a
decrease of the cost of these elements, prices
should also decrease.
A prices and incomes policy for Cyprus
By Dr Iacovos
Aristidou
Ex Minister
Ex Director General,
Planning Bureau
On the occasion of the exodus from the Memorandum and the impending submission of
claims for pay increases and requests for the
re-establishment of the system of automatic
price adjustment of salary and wages, I thought
it would be useful to present and analyze our
experience so far on these subjects and the
wider issue of a prices and incomes policy,
which we tried to follow in the past. A prudent
policy on these matters is required in order to
secure uninterrupted growth of the economy
and at the same time a more equitable distribution of income, two basic ingredients of a modern economic and social policy.
During various periods of time, the economy
faced destabilization tendencies, which were
manifested in increasing inflation, widening of
public finance deficit and the deficit of external
current account. As a result of these developments, there was a recess in productive investment, slowing down of the rate of growth of
production and productivity as well as increased
Prices have been left altogether to the market forces, whereas wages, salaries and other incomes
are been checked for many years now by the existence of so many unemployed, the shrinkage of
economic activity and certain arbitrary Government
decisions because of the recession.
40
unemployment. Thus, no wonder how we ended up in the huge public deficit and the very
high public debt since the beginning of the new
century. Things could have been definitely better if, among other things, a healthy prices and
incomes policy had been adopted, under which
the prices would have not followed the ups and
downs of the market but only the unavoidable
increases of the cost of production and the
wages and salaries the increase of productivity
and not the power of trade unions.
It was before the invasion that we invited in Cyprus Aubrey Jones, the Chairman of the Council of Salaries, Prices and Incomes of the UK,
for consultations. Prior to this there had been
several attempts for the establishment of a
similar council in Cyprus as well. A Ministerial
Committee appointed a technical Sub-Committee to work out the terms of reference and
functions of the proposed Council before the
Employers’ and Workers’ Organizations were
invited to exchange views and take final decisions. The Sub-Committee suggested, among
other things, the strengthening and coordination of the Services that were involved in the
two legs of the subject-matter, the Market and
Prices Inspection Services of the Ministry of
Commerce and Industry and the Industrial Relations Services of the Ministry of Labour and
Social Insurance. At the same time it elaborated the general criteria for a correct prices
and incomes policy: The increase of salaries,
The above arrangements were utilized in order
to face the new destabilization tendencies that
appeared after the reactivation of the economy
following the calamities of the invasion. The
Economic Consultative Committee appointed
in 1979 a new Sub-Committee with members
representatives of Ministries, Employers’ and
Employees’ Organizations, which tried in numerous, long meetings to formulate a mutually
acceptable prices and incomes policy. Though
such a policy was not achieved this time as well,
the lengthy discussions that took place helped
the sides to realize the dangers from the submission of irrational requests for pay increases
as well as the unjustified increases of prices.
The efforts were not made in vain at the end.
During the coming years there was a considerable restrain both on the height of the submitted requests for pay increases, which in general
were within the limits of overall productivity and
the price increases, which followed more or less
the increases of the other elements of cost.
In parallel, the mechanisms for ensuring in
practice a correct and just prices and incomes
policy were strengthened. It was in this framework that our belief in the institution of free
negotiations among social partners and the
mechanisms for solving existing differences in
accordance with the Code of Industrial Relations was re-assured, as well as to the need
for exerting every effort to increase productivity,
the need for combating monopolistic situations
in the market of goods and services, as well
as strengthening the mechanisms to follow up
developments in these areas. It was on our initiative in this respect that the Government started assisting financially the newly established
Pancyprian Association of Consumers.
At various points of time the prices and incomes
policy followed was criticized. For instance, the
practice of paying the Automatic Price Adjustment was considered by the employers as inflationary since it ‘threw oil on the fire of increasing prices’. On the other hand, the employees’
side expressed the view that Automatic Price
Adjustment was just a compensation for the
loss of purchasing power and was given long
after the event. If this method was not in existence, the claims at the renewal of collective
agreements would have been much larger.
The Council of Ministers under the late President Spyros Kyprianou appointed in 1987 an
Investigation Committee in accordance with the
Law on Labour Disputes (Conciliation, Mediation and Arbitration) in order to go through all
aspects of Automatic Price Adjustment. Chairman of this Committee was appointed the future President of the Republic late Tassos Papadopoulos, whereas the Members were the
late Andreas Patsalides, Minister of Finance,
Markos Spanos, ex-Minister of Labour, George
Vassiliou, future President of the Republic and
myself. In its Report the Committee, having underlined the stabilizing role of APA in maintaining conditions of industrial peace, proceeded to
suggest the beginning of ‘a dialogue between
the social partners with a view to achieving an
agreement on the form, the content, the way
ADA should be calculated and paid’. And it
concludes: ‘As a final conclusion, the Committee suggests the commencement of a dialogue
among the social partners with a view to develop, adopt and apply an integrated incomes
policy, which will inevitably include ADA’.
The increase of salaries, wages and other incomes
should follow the increase of productivity, whereas
prices should not increase unless there was an unavoidable increase of other elements of cost.
There were no concrete developments in this
regard in the last few decades. On the contrary
the efforts to develop and follow a healthy prices and incomes policy have been abandoned.
Prices have been left altogether to the market
forces, whereas wages, salaries and other incomes are been checked for many years now
by the existence of so many unemployed, the
shrinkage of economic activity and certain arbitrary Government decisions because of the
recession. However, what will happen when,
hopefully, the reactivation of the economy
starts? In conclusion, I think there is a need to
re-examine the subject of prices and incomes
with a view to improving existing practices
and undertake collective action before it is too
late.
41
Business
Emerging Companies Market (ECM)
of the Cyprus Stock Exchange (CSE)
Cyprus Securities and Exchange Commission’s Directive
on delisting from the Cyprus Stock Exchange
Issuers’ obligations and the protection of shareholders
By Demetra
Kalogerou
Cyprus Securities
and Exchange Commission Chairman
The Cyprus Securities and Exchange Commission (CySEC) has recently addressed an important gap in the smooth operation of the securities market through CSE Directive 01 of 2015
which regulates the Delisting of Securities from
the Cyprus Stock Exchange (CSE) following an
application by the issuer. The Directive came
into force on publication in the Official Gazette of
the Republic on 13 November 2015.Among others, it sets out the conditions under which such
an application may be submitted, the procedure
to be followed, as well as the issuer’s obligations towards its shareholders when requesting
the delisting of its securities from the CSE.
Simply put, the Directive sets out, for the first
time, the legal framework enabling a company
that so wishes to exit the stock exchange while
safeguarding the best interests and rights of its
shareholders.
Conditions
According to the Directive, an issuer whose securities are traded on a CSE regulated market
for at least three consecutive years may submit
an application to the CSE Board to delist its securities under the following circumstances:
a.On completion of a squeeze out, according to
the Takeover Bids Law,
b.Where, upon making a takeover bid, the offeror has acquired over 90% of the total voting
rights of the issuer and has notified in the offer
document the intention to delist the securities,
c.Where the issuer has acquired CySEC’s approval for its conversion to an Undertaking for
Collective Investments in Transferable Securities (UCITS) or an Alternative Investment Fund
(AIF), and, as part of the conversion, at least
75% of the company’s shareholders holding vot-
ing rights at the General Meeting, pass a special
resolution to delist the company’s securities,
d.Where at least 90% of the company’s shareholders holding voting rights at the General
Meeting pass a resolution to delist the company’s securities.
Issuer obligations towards
shareholders
In relation to the latter (point d), it is a prerequisite for the issuer:
i. to give shareholders 21 days’ notice of the
General Meeting,
11. to forward together with the notice, a Memorandum including all information required for
shareholders to reach an informed decision at
the General Assembly,
In order for the rights of shareholders to be safeguarded, the Memorandum must include, among
others, the reasons for the securities’ delisting,
the advantages and/or risks that may arise from
the delisting, as well as a statement made by
the issuer’s Board of Directors as to whether,
in its opinion, the delisting is to the benefit of all
shareholders.
Additionally, in order to confer an exit right to the
issuer’s shareholders, the Memorandum must
include a Proposal to shareholders not voting for
the delisting, for the buy-out (in cash), by the issuer and/or any other legal or natural person, of
their holding percentage at a price determined
either by the average closing price over the last
12 months of trading or by the net asset value
per share in accordance with the latest published audited financial statements of the issuer,
whichever is higher.
*This article is not a legal document. The complete text of the Directive is available on the CySEC website at: http://www.cysec.gov.cy/CMSPages/
GetFile.aspx?guid=60c565cb-4ed6-4c9f-9480-74b6c23586ab
42
By Eliza
Stasopoulou
Officer Α’ at the
Cyprus Stock
Exchange
The Emerging Companies Market (E.C.M)
of the Cyprus Stock Exchange (CSE) was
launched in March 2010.
for the economic environment in general, eg
for banks, investment firms, auditors, lawyers,
nominated advisors, analysts etc.
The E.C.M. Market is considered as a Multilateral Trading Facility (MTF) according to the
markets in Financial Instruments Directive (MIFID Directive). It is based on simplified listing
requirements and fast - flexible listing procedures (e.g. on - line application, immediate response etc.). The E.C.M. operates according to
the Regulatory Decisions of the Council of the
CSE. This listing fees are very low and competitive in relation to similar markets abroad. In
this market there is also the possibility of listing newly established issuers, start-ups (under
conditions).
The market transactions are carried out with the
same methodology as in the Regulated Market,
using the existing electronic trading system of
the Cyprus Stock Exchange. Companies listed
on the ECM also enjoy the advantages of the
tax regime in Cyprus, which can be exploited
by issuers and investors such as non-payment
of tax on capital gains, elimination of sales tax
(from 2.1.14) etc.
In the E.C.M Market, the titles of 26 companies have been listed with a wide range of activities - Trade, Development of new projects,
Golf Resorts, Insurance companies, Consulting Services, Hydrocarbons etc. Out of the 26
listed companies 21 of them are from Cyprus,
two are from Greece, one is from Malta and
two from United Kingdom. Most of the Cyprus
companies are of foreign interests with shareholders from abroad such as from Greece (5),
Israel (1), Asia (4) etc. In this market 8 corporate bonds are also traded with issuers from the
United Kingdom and Cyprus.
In addition, 15 companies from United Kingdom listed their titles on the ECM of the Cyprus
Stock Exchange, within the procedure of parallel listing.
The total market capitalization of the ECM is
around €1.053.909.715.
Companies listed on the ECM of the CSE have
a number of advantages such as the facility of
a price setting mechanism for titles, the ability
to raise capital and easy access to the secondary market (direct funding and fund raising),
increased company visibility/ recognition, the
ability to pledge securities and the ability to execute acquisitions.
In the ECM market 49 Nominated Advisors are
registered: 9 of these are Cyprus Investment
Firms, 18 Audit Firms, 17 Law Firms, 3 ASPs
(Administrative Services Providers) and two
Nominated Advisors from a member state.
A considerable number of Nominated Advisors
are examining the listing of companies interested to list on the ECM. These companies are
either from Cyprus or abroad, focusing mainly
on new business and innovation sectors. This
perspective has broader positive implications as
it provides added value to the listed companies
and the Cyprus economy, in general.
During 2016, ten companies listed their titles
on the ECM. These are: INTRAWARE INVESTMENTS PUBLIC LTD, VONPENDE HOLDINGS
PLC, SNP SOUTHEAST NETWORK PUBLIC
LTD, YUMCHAA HOLDINGS PLC (SHARES
AND BONDS 2022), D& S ANASTAPOULOS
SA, BELYRIAN HOLDINGS LTD (BONDS),
EULER INVESTMENTS LONDON PLC (Bonds
2021), ALL SAINTS COMMERCIAL PLC
(Bonds 2023), JUST BRIDGING LOANS PLC
(Bonds 2020) and SILEX (UK) PLC.
Finally, four companies have filed an application
for listing their titles on the ECM of the Cyprus
Stock Exchange. These are: NETinfo PLC, LENORCA CORPORATION PUBLIC COMPANY
LTD, Κ. KOYIMTZIS SA. OPTIMA WORLDWIDE GROUP PLC.
The ECM offers new investment opportunities
for investors with possibly higher risk potential
for investments and new business opportunities
43
Business
The professional
services sector
in 2016
The professional services sector demonstrated resilience
through the economic crisis and contributed to the positive
growth rates in the Cypriot economy in the 1st quarter of 2015,
the first after fourteen quarters.
Certainly, challenges remain, as competition and
investors’ demands are increasing and becoming more complex. For this reason continuous
effort is required for the improvement of the
quality of services provided and the reinforcement of the products offered.
By Angelos
Gregoriades,
Chairman, KPMG
Limited
In 2015, with the cooperation of all the professional services sectors, the Ministry of Finance
and the House of Representatives, implemented
two packages of tax measures, which are expected to increase Cyprus’ competitiveness.
Moreover, many treaties for the avoidance of
double taxation have been concluded, (including
the renegotiation of treaties already in force or
the enactment of new treaties), while the treaties’ network is expected to be further enhanced
in 2016.
The rate of registration of new companies is
increasing, a trend which is expected to continue in 2016. This is due to the gradual regain
of investors’ trust in the Cypriot economy and
the stabilization of the financial system. The upgrading of the Cypriot economy by credit rating
agencies, in combination with the significant improvement of fiscal rates and the positive evaluations of the economic adjustment programme,
support the efforts of the sector’s professionals
in order to attract investments and establish Cyprus as a financial services centre.
Beyond the provision of tax and audit services,
the sector’s professionals continuously reinforce
the quality but also the types of services offered.
In 2016 we expect an increase in services relating to the restructuring of credit facilities and
the credit system, the laws of the insolvency
framework, companies’ administration, feasibility studies, business plans and optimum funding
ways.
Moreover, the completion of the institutional
44
framework and the tax incentives which have
been implemented in relation to collective investments undertakings (funds), predict a positive horizon in 2016. The purpose is to render
Cyprus as a powerful centre for the licensing and
establishment of such undertakings, as well as
their managers.
It is important to note that the professional services sector has effectively contributed to the
efforts made in other sectors of the economy,
such as shipping, tourism, construction, research and innovation as well as start-ups, in
order to steer the Cyprus economy towards the
path of recovery. The following year is expected
to be especially important as far as the energy
sector is concerned, bearing in mind the expected developments in relation to the natural gas
reserves in the Cyprus Exclusive Economic Zone
(EEZ).
One of the biggest challenges of this year is the
implementation of the Standard for Automatic
Exchange of Financial Account Information
(Common Reporting Standard) of the Organisation for Economic Co-operation and Development (OECD). It is imperative as the systems and
procedures of the financial services providers
are ready to properly implement the provisions of
the Common Reporting Standard. This of course
involves increased administrative costs, as well
as the proper collaboration between all professional sectors, bodies and the Tax Department.
2016 is expected to be an important year, not
only for the course of the financial services sector but also of the Cypriot economy. In order for
Cyprus to be an attractive and strong business
centre and for citizens to have at their disposal
high quality services, properly addressing the
completion of the economic adjustment programme should constitute a priority, with efforts
being made to continue with the implementation
of necessary reforms.
Services Sector:
The backbone of the Cypriot Economy
2015 was a milestone year for Cyprus, during which a number of important initiatives
were taken for the enhancement of the services sector, with a view to accommodating
the broad range and type of services requested by foreign investors and businesspeople.
By Marios A.
Klitou
Chief Executive
Officer
Baker Tilly South
East Europe
Recent developments such as expected antitreaty abuse provisions to be introduced under
the BEPS initiatives, limitation of benefits provisions in double tax treaties, enhanced exchange
of information requirements and substance considerations, are rapidly changing the international
business terrain. Cyprus must also transform its
landscape swiftly and effectively in order to respond to the changing needs of the business
world.
During 2015, there was further development of
services related to securing a residence permit
in Cyprus and Cypriot citizenship. A careful approach is needed in regards to this market in order
to encourage people who choose Cyprus as their
country of residence to also consider moving the
headquarters of their business to the island.
Another important development in the prior year
was the marked increase of interest by Greek
shipping companies in transferring their management to Cyprus. In order to ensure that this important opportunity for Cyprus is duly addressed,
the authorities must proactively simplify the procedures relevant to the activities of these companies so that we can attract and keep them on
the island.
The correct implementation of recent legislation
aimed at improving the operation of the banking
sector is key in ensuring that Cyprus can fully regain its credibility as a business centre and compete with other major business centres in Europe
and worldwide. Certainly, there is no more room
for further disruptions, as any further adverse developments could prove disastrous for the future
of the services sector and the Cypriot economy in
general.
It is also worth noting that Cyprus continues to be
one of the main destinations for Russian entrepreneurs. Efforts are also being made to strengthen
relations between Cyprus and Ukraine (including
the recent visit of the President to Kiev), indicating that the close and successful cooperation
between Cyprus, Russia and Ukraine, is likely to
continue.
I would also like to comment on developments
in the Middle East and the broader region. Political stability in Cyprus provides the island with
the opportunity to form a bridge between these
countries and the European Union, an important
advantage which could be of great significance in
the coming months and years.
Negotiations for the solution of the Cyprus problem are also encouraging. Without expressing an
opinion on the political dimension, it is important
to note that a possible solution of the Cyprus
problem would act as a catalyst in the further expansion of the service sector and the economy.
I hope that the efforts of the Under Secretary to
the President, Mr. Constantinos Petrides, in combination with the continuous efforts of CIPA and
the significant contribution of the President of the
Republic, will bear fruit, cutting through the red
tape and improving the quality of services provided to investors. Together with the important role
of our strong professional sector, this will enable
the service industry to expand and the Cypriot
economy to grow.
45
Business
From the ‘camel curve’ to the ‘duck curve’
on electric systems with increasing solar power
The ‘duck curve’ refers to the effect that solar
power has on demand for utility electricity. Thus,
all interested parties involved in solar energy
should know about the ‘duck curve’ effect.
By Dr. Andreas
Poullikkas
Chairman
Cyprus Energy
Regulatory Authority
For many, many decades, demand for electricity
followed a fairly predictable daily profile, allowing utility grid managers to become experts at
predicting and satisfying it. The addition of large
amounts of solar power to the grid promises to
fundamentally change the shape of that daily demand profile, in ways that make grid operators
looking a lot different from old-fashioned load. With lots of
solar power, load curves start looking like a ‘duck curve’.
As solar power penetration increases, things are changing.
Demand is suppressed more during the day, when the sun
is up. And year by year when solar power penetration increases we expect the effect to become more and more
pronounced, until the load curve starts looking like a ‘duck
curve’ as illustrated in Figure 2.
work difficult about maintaining power and reliability.
In particular, electricity demand used to have
a predictable, manageable shape (namely the
‘camel curve’) as shown in Figure 1. Demand for
electricity varies throughout the day, but it does
so in fairly predictable ways. It rises in the morning to a little hump before noon, levels out over
midday, and then rises to a higher hump in the
evening, when everyone gets home from work
and turns on their TVs and stoves.
Figure 2: The ‘duck curve’ effect
Figure 1: The ‘camel curve’ effect
If you squint, you can kind of see a camel’s back, with its
hump. The exact shape of this curve varies from place to
place and season to season, obviously. In some times and
places the humps are more pronounced; in temperate climates, with less heating and cooling demand, they’re a little
flatter. But in most cases, load curves share a few key characteristics. There are two daily humps. Demand never gets
too high or too low, meaning it stays within a reasonably
manageable range. And the ramp-ups and ramp-downs of
demand are fairly gradual. For near a century, that’s the
demand utilities met, and they got really good at it.
For that baseline amount of energy that’s always needed,
namely the base load, they run big power plants, usually
steam turbines, around the clock. These plants are typically
slow (and expensive) to start or stop, but cheap once they
are running. Then there’s intermediate load, with the nextcheapest tier of power plants, and at the top of that second
hump, peak load, satisfied by (usually gas turbines) peaker
plants that are expensive to run but easy to ramp up and
down quickly.
46
It all worked out fine until wind power and solar power came
along. They do different things to the load curve, though, in
this article we’re focusing on solar power. The thing about
solar power is you can’t schedule it like you can a power
plant. The sun shines when the sun shines, typically from
morning to mid-afternoon. When the sun is out and a customer’s solar panel’s are generating energy, that customer
is using less of the energy put on the grid by the utility.
In other words, from the grid operator’s point of view, solar
energy doesn’t look like a power plant at all, which are controllable, or «dispatchable», but it looks like a reduction in
demand. It’s a reduction in demand for the power supplied
by the grid operator’s power plants, a somewhat predictable
reduction, but not a controllable one. So now grid operators
no longer have to supply total demand. They have to supply total demand minus solar power. Total load minus solar
power is known a «net load.» That’s the new target utilities
have to hit.
And when solar power starts getting big, net load starts
One notable thing about the ‘duck curve’ effect is that it
wreaks havoc on the revenue of power producers and utilities. That gives them every reason to exaggerate its inevitability and its danger. From the point of view of the grid
operator, worries about the ‘duck curve’ are threefold:
Steep, tall ramps: the ramps, those times when net load
is rising or falling, no longer look like the gentle slope of a
camel’s hump. They get steep and tall (like a duck’s belly)
and relatively quick. That means grid operators are forced
to take a bunch of power plants offline, or put a bunch online, rapidly. What’s especially unfortunate is that the sun
tends to go down just before the evening peak of demand,
which means net load goes from very low to very high, very
quickly, and then down low again. Grid operators don’t like
steep ramps. It is expensive and highly polluting to turn a
bunch of plants down (or off) and then put them back up
again all at once. It also makes voltage and frequency management more difficult. Steam turbines are not good in this
role, as they are slow to ramp. For the most part, for fastresponding power plants, utilities turn to gas turbines. So
enough conventional capacity to supply the evening peak
is required, but for most of the midday, it doesn’t need any
of it. That amounts to a lot of conventional plants sitting
around a lot of the time, with low capacity factors, but being
ramped up and down frequently, increasing operating and
maintenance costs.
Overgeneration and curtailment: when the duck gets
really fat, its belly starts hanging closer to the bottom of
the chart, net load gets closer and closer to zero around
midday. That means all the peaker plants get shut down,
all the intermediate plants get shut down, and some of the
base load plants start to get ramped down too. And then a
few hours later, they all get ramped back up. For one thing,
that’s expensive. For another, grids need a certain amount
of reserve power online at all times as a buffer in case of
accident or disruption. If so much solar power comes online
that it starts to eat into those reserves, solar power will be
curtailed, i.e., the grid will stop accepting it. For example, in
Hawaii, where 10 percent of customers have rooftop solar,
the duck’s belly has hit bottom a few times with a negative
net load, which can affect system voltage and stability. In
Hawaii, the duck’s belly is so low, and the ramp up to its
head so high, they’ve started calling it the «Nessie curve,»
after the Loch Ness Monster. These worries have led Hawaiian authorities to pull back on solar power and institute
new interconnection standards since currently the grid has
no communication with most of those solar panels and no
ability to control or predict them.
Frequency response: for stability, the grid must closely
balance supply and demand, second by second. Frequency
is maintained at around 50Hz. In case of a sudden disruption, unexpected loss of a power plant, transmission line, or
large load, the grid needs resources capable of ramping up
or down quickly to compensate. This is done by automated
frequency response systems, usually on conventional power
plants. If solar starts shutting down all those plants in the
middle of the day, the grid loses those resources, and with
it some stability.
47
Business
Ways to Boost Competitiveness in Europe:
Engino Case
By Dr Olga
Kandinskaia,
Assistant Professor
of Finance and
Director of MSc
Management at
Institute of
Management (CIIM)
There has been evidence in the last four years
suggesting that many U.S. companies are bringing manufacturing back to the U.S. This growing
trend is expected to boost the competitiveness of
the U.S. economy and help it grow out of its debt.
As Europe is currently looking for ways to boost
its competitiveness as the best remedy to solve
its financial problems, there is clearly a need for
extensive research to investigate if similar trends
take place in European companies and the extent
to which such strategic moves are financially justified. Being able effectively identify financially viable
capital projects will allow to channel government
funding for supporting innovative SMEs with high
growth potential, and thus will put the European
economy on the path of recovery.
Being an academic at CIIM, a business school
which is very actively involved with the business
sector in Cyprus, I have come across an interesting
local example of a small company which in times
of crisis made a very unorthodox decision of moving its manufacturing to Cyprus. The company’s
name is Engino. It is an export-oriented SME producing construction toys of its own unique design.
The company has been investing heavily in R&D to
develop a high-quality innovative product. During
2007-2011 the company outsourced the manufacturing in China. At the end of 2011, the owner
Costas Sisamos made a strategic decision of starting his own manufacturing in Cyprus. The case of
Engino has been noted and appreciated at the international level: the case was recently published
by the Business Case Journal of the Society for
Case Research in the U.S.1
BCG Report: China Is No Longer
a Default Manufacturing
Destination
In August 2011 the Boston Consulting Group published its first “Made in America” report2, in which
it concluded that China’s overwhelming manufacturing cost advantage over the U.S. is shrinking
fast. Within five years, as the report said, “rising
Chinese wages, higher U.S. productivity, a weaker
dollar, and other factors will virtually close the cost
gap between the U.S. and China for many goods
consumed in North America.” The BCG recommendation was that companies should undertake
a rigorous, product-by-product analysis of their
global supply networks in order to carefully assess
their total costs. They went on saying that for many
products sold in North America, the U.S. will be-
come a more attractive manufacturing option.
The second BCG “Made in America” report came
out in March 20123. Its main conclusions were that
“seven groups of industries are nearing the point
at which rising costs in China could prompt more
companies to shift the manufacture of many goods
consumed in the U.S. back to the U.S.” This shift
could create 2 to 3 million jobs, lower unemployment by 1.5 to 2 percentage points, and add around
$100 billion in annual output to the U.S. economy.
Most of the evidence of the “shift” has come so far
from U.S. companies, with only a few examples
from companies in Europe. The BCG analysts have
cautiously concluded that Europe is a different story
from the U.S. – yet Engino case demonstrates the
opposite. It seems that similar trends are beginning
among European companies, even among SMEs,
and these trends need to be noticed and supported
in appropriate ways by the European governments.
Government Support for SMEs
The government’s role should be of strong support
to capital projects of SMEs which have potential to
create value in the economy. Unlike large companies, SMEs need such support, and there should
be a clear framework how to identify such projects
and a defined policy for appropriate support. Engino moved out of China three years ago for reasons
very similar to the ones listed in the BCG reports
for U.S. companies. It was a remarkably brave
strategic move. Against many odds, the decision
has already brought positive results proving that innovation and manufacturing have place in Cyprus.
Engino’s case is an illustration of a type of SME
which is a worthy recipient of government funds.
Such investments will generate high returns in the
future and will create value for European firms,
thus helping the European economy to recover
from the crisis. The problem of the massive debt
load, which caused the current European financial
crisis, is best solved via the economy growth rather
than by austerity measures only.
Call for Cases
CIIM is looking to gather other positive examples
from local companies. In times of crisis, we should
bring to attention the good practices. Engino case
is the first case of a positive story of a company
from Cyprus published in a prestigious international
academic journal. Is it time to re-think how we project the image of Cyprus?
1. Kandinskaia, O. (2015). ENGINO Toys: Staying in China or Moving to Europe? Business Case Journal of the Society For Case Research, Summer
2015, Volume 23, Issue 2, pp. 6-16 (a US top journal for cases, acceptance rate 10%)
2. Sirkin, H.L., Zinser, M., Hohner, D. (2011). Made in America, Again: Why Manufacturing Will Return to the U.S. BCG Focus, August 2011.
3. Sirkin, H.L., Zinser, M., Hohner, D., Rose, J. (2012). U.S. Manufacturing Nears the Tipping Point: Which Industries, Why, and How much? BCG
Focus March 2012.
48
Don’t just see potential
– see it realised.
To make confident decisions about the future,
an entrepreneurial, growing business needs
a different kind of adviser. One who starts by
understanding where you want to go and then
brings the ideas and insights of an experienced
global team to help get you there.
We are excited to announce that RSM Cyprus is
now called RSM. Together with our fellow RSM
firms, we have united under one name – RSM.
Experience the power of being understood.
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rsm.global/cyprus
8 Katsoni Street, 1082 Nicosia, Cyprus
T +357 22 751140 | F +357 22 751145 | E [email protected]
NICOSIA · ATHENS · THESSALONIKI
RSM Cyprus Ltd is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an
independent accounting and consulting firm each of which practices in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM
network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 11 Old Jewry, London EC2R
8DU. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article
60 et seq of the Civil Code of Switzerland whose seat is in Zug.
Business
How U.S. Presidential Elections Affect Equity
Market Performance
By Antypas
Asfour,
CFA, CMT, CAIA,
PRM
Strategic Management and Business
Ethics Lecturer at
the Cyprus Institute
of Marketing
With the 2016 U.S. Presidential election campaign well underway this is an opportune time to
explore the relationship between the four-year
U.S. presidential cycle and the stock market.
Yale Hirsch is thought to have first made the
connection between the two, adapting Wesley
Mitchell’s 40-month cycle theory. Writing in the
Stock Trader’s Almanac in 2004, Hirsch noted
that “Presidential elections every four years
have a profound impact on the economy and
the stock market. Wars, recessions and bear
markets tend to start or occur in the first half of
the term and bull markets, in the latter half”. In
terms of stock market performance from 1832
to 2004, this translated in a total net market
gain of 557% for the last two years of each
administration compared to just an 81% gain
for the first two years of these administrations.
Consequently, the average gain for each of the
latter two years of each four year cycle was
13.6%, with an only 2.0% gain for each of the
first two years. With this in mind, the election
year pattern posits that year two offers the most
opportune buying points and late in year four
the optimal selling point as can be seen in Figure 1.
final two years of George Bush’s second term
in 2007-2008 also bears no resemblance to
the averages in Figure 2. The underperforming
market during Bush’s final two years was followed by Barak Obama’s strong returns in his
first two years in office, contrary to what the
pattern would suggest. However, notwithstand-
ing the election years’ strong average performance, election years, as was 2008 and is this
year, tend to be more volatile as parties debate
and uncertainty spikes, with this uncertainty
becoming even more prominent and adversely
affecting returns when two-term presidents are
to depart.
Figure 2: Annual Performance of S&P 500 throughout the Presidential Cycle (1900 – 2010)
Figure 1: S&P 500 Performance and US Presidential Administrations
Source: Haver Analytics, CIRA – US Equity Strategy
Republican versus
Democrat
Source: BofA Merrill Lynch Global Investment Strategy, Bloomberg
A case of causality
In light of this apparent correlation, which
comes into conflict with the random walk theory, it is worth assessing the possible causal
links between politics and the stock market.
Pre-election fiscal policy actions, such as
changes in taxation and government spending,
by the incumbent party seeking to be re-elected
boost the economy, as do pre-election promises which create a sense of euphoria amongst
voters and investors. Conversely, newly-elected
presidents can proceed with the implementation
of less-populist, austere, longer-term policies
without yet distressing about being re-elected.
A lost cause?
Having identified possible causation behind
50
the election year pattern, it is important to note
certain caveats. Of the latter two years of each
administration, the third year or the pre-election
year of the cycle is on average the best performing year for the stock market as shown in
Figure 2. However, this was not the case last
year in 2015 when both Dow and S&P 500
ended the year lower, albeit marginally, significantly underperforming relative to 2013 and
2014, the first two years of the cycle. In fact,
2015 was the first pre-election year the Dow
Jones Industrial Average had a loss since 1939,
when Germany invaded Poland with Britain and
France declaring war on Germany. For S&P
500 it was the second losing pre-election year
since 1939 as the index was down 0.003% in
2011. The stock market’s performance in the
Although numerous studies have been conducted to compare the performance of the
stock market under a Democratic and under
a Republican administration, conclusions vary.
According to one of the most cited papers by
Santa-Clara and Valkanov in the Journal of Finance in 2003, “excess return in the stock market is higher under Democratic than Republican
presidencies: 9 percent for the value-weighted
and 16 percent for the equal-weighted portfolio”. However, in a 2004 paper by Campbell
and Li, two Federal Reserve economists, who
adjusted for market volatility and extended the
sample period found that the 9% higher return
dropped to 4%, concluding that “neither risk
nor return varies significantly across the presidential cycle”. What is probably more important
and meaningful for investors is to assess the
economic proposals of candidates. Proposals
aimed at making U.S. corporate tax rates more
competitive or regulation less burdensome
would be bullish for markets.
No free lunch
Investors looking to capitalise on the presidential cycle should remember that campaigns
and elections do not occur in a vacuum. Any
investing, irrespective of the underlying motivation, should be done with prudence following
thorough analysis or with the help of a qualified professional. There are a myriad of factors
that drive markets from monetary policies and
international competitiveness to wars and black
swan events such as natural disasters. Monetary policy in particular has been the predominant driver following the financial crisis and is
expected to continue to be so in the foreseeable future.
51
Business
competitive, and if the current wall of capital recedes, there will be an even stronger focus on
underlying market fundamentals, active asset
management and operational skills.”
According to the report, the five leading cities
for investment prospects in 2016 are Berlin at
the top spot, followed by Hamburg, Dublin, Madrid and Copenhagen. Many interviewees expect the German capital to thrive well beyond
2016, based on its young population and its
growing reputation as a technology and cultural
centre, as well as the land available for development. Notably, London has slipped from the top
ten, suggesting that investors are seeing better
growth prospects in regional UK and European
cities in the short term. In the long term, however, the UK capital remains the first choice
in Europe for many international investors focused on wealth preservation with liquidity and
the scale of the market, together with relatively
robust economic performance.
Amidst continued strong capital flows in Europe,
the Real Estate industry focuses on contending with
disruptive forces and meeting the needs of occupiers
Rapidly changing demands of occupiers and the
disruptive forces of technology, demographics,
social change, and rapid urbanisation are permeating the European real estate value chain,
according to Emerging Trends in Real Estate®
Europe 2016: Beyond the Capital, a forecast
published jointly by the Urban Land Institute
(ULI) and PwC.
By Tasos N
Nolas
Partner
Assurance
PwC Cyprus
and Anna G
Loizou
Partner
Assurance
PwC Cyprus
52
These ground-level disruptions have led to investors focusing on cities and assets rather
than countries. This is also visible in investors
demonstrating more interest in alternative, operational sectors that have benefited from rapid
urbanisation and demographic shifts, such as
healthcare, hotels, student accommodation and
data centres. 41 percent of survey respondents
would consider investing in alternative sectors,
compared to just 28 percent in last year’s survey. The high street retail and logistics sectors, which have benefited from technological
advances and improving economic conditions,
are also predicted to fare well in 2016.
Development is also expected to create value
in 2016, with 78 percent of respondents citing
development as an attractive way to acquire
prime assets. More progressive developers
and investors are innovating in an attempt to
meet the needs of increasingly informed and
demanding occupiers. The property developers, investors and operators leading the pack
are paying more attention to the role the physical workplace plays in talent management and
workplace productivity.
“Investors are getting more creative in trying to
access future prime assets at reasonable prices through more focus on alternatives and development,” said ULI Europe CEO Lisette van
Doorn. “They take more risk on the short term
to fulfil their long term objective for core assets.
At the same time, more and more players in the
real estate industry are starting to address the
needs of occupiers, who are seeking harmony
between their workplaces and their lifestyle
needs. Some of the industry’s biggest challenges right now are how to become less about
brick and mortar and more about service and
the implications this may have for the traditional
business models of real estate operators.”
“Low interest rates, and the weight of capital
bearing down on European real estate, mean
that most remain bullish about the industry’s
business prospects in 2016” said PwC director Gareth Lewis. “But they acknowledge that
the global field for real estate is increasingly
Top Investment Markets for
2016
The top five European real estate investment
markets in 2016 are predicted to be:
1. Berlin
Maintaining last year’s number one position,
Germany’s capital tops the table for both investment and development prospects in 2016.
An influx of the creative industry and the technology sector has led to the strongest office
uptake the city has ever seen. A young, international and diverse employee base and a lower
cost of living have also driven the city’s progress. Berlin’s status as a cultural centre and a
trendy location has boosted housing and retail
prospects as well.
2. Hamburg
Hamburg, which has taken the second spot
from Dublin, has proven a dynamic city that
responds to the needs of future occupiers.
The city boasts a diverse occupier base, with
demand for offices coming from the media,
business services, and trade sectors, including
many SMEs.
3. Dublin
While Dublin is still attracting plenty of capital,
the consensus among interviewees is that the
Irish capital has already reached its peak for
opportunistic returns. Those who have already
invested in the city or who choose to invest in
the very near term are likely to see the highest total returns. Dublin offices are expected
to see rental growth, but the demand for increased office space is unlikely to be satisfied
for several years.
4. Madrid
As the Spanish economy has improved, both
institutional and opportunistic investors have
flocked to Madrid. The city was Europe’s fifth
most active real estate market in the four quarters ending Q3 2015. However, the city’s rising prices and sub-4 percent prime office yields
could deter investors in 2016.
5. Copenhagen
Once considered a distressed market, Copenhagen is now noteworthy for its investment
opportunities. The Danish capital has seen
development in the biotech sector, which has
created an environment of strong intellectual
capital. The city’s office vacancy rate has been
contained, in part due to strong office-to-residential conversion activity. While yields are being compressed, many of those surveyed still
consider Denmark an attractive market for office, retail and residential.
53
Business
The European Union, a Reality and an Opportunity
for Chartered accountants and their clients
Over time and through its evolution the European Union has increasingly become the new area for the
development of Chartered accountants’ activities. It affects and alters their professional lives as well as
that of their firms and more generally how the profession of chartered accountant functions in France
and in other European Member States. How do we understand the evolution of a regulated profession
following the establishment of European directives impacting it ? How do we best advantage and accompany our clients in this new economic area?
The construction of the European project has been
long and winding, born long before the middle of
the 20th century1 but which only actually materialized after the World War II. The influence of the
European Union, with its motto “United in Diversity”, has never been so influential on our professional or personal life, than since introduction and
adoption of the Euro currency on 1 January 2002.
By Stefan
Petrovski *
The European Union (EU) is the first economic
power in the world, ahead of the United States,
China and Japan, with a 2014 GDP of 13 900
billion constant Euros. Five European member
states (Germany, United Kingdom, France, Italy
and Spain) are responsible for 71.4% of the EU’s
GDP2.
Despite this, the European Union is in the midst
of an internal crisis marked by a rise of Euroscepticism during the 2014 European election campaigns where the EU often served as a scapegoat
for this crisis.
The implementation of the “Services”, “Recognition of professional qualifications”, “Accounting” EU Directives3 and their transpositions into
French law, have altered the regulatory landscape
of French chartered accountants.
Should this be a source of concern or of opportunity? Chartered accountants have chosen.
The impacts of EU legislation are negative and
positive for Chartered accountants.
On one hand, they may feel competition from other European chartered accountants following the
recognition of European diplomas and the opening of their firms to outside capital funding. This
competition can cause a decrease in the rates of
services provided to clients and an increased concentration of firms at the expense of smaller firms.
However at the same time, with this new European market, they may develop their activities,
leave the country, increase their professional mobility and become more intellectually and culturally
diverse, and notably be able to develop EU wide
based firms or networks. This European opening
allows the profession to diversify in order to better adapt to the globalized economy of the 21st
century.
Small and medium-sized companies constitute
the majority of Chartered accountant’s clients in
the 28 EU member states. In 2013, the majority,
99.8%, of the companies were in the non-finance
sector of the market economy, representing 21.6
million companies. They employed 66.8% of European employees, i.e. 88.8 million people and
contributed to 58.1% of value added at factor
cost, or 3 666 billion Euros (28% of EU GDP).
To offer the best assistance and services to clients
in the EU, some adaptations are necessary and
desirable, among them: strengthening or learning
other European languages and having a computer
and digital ecosystem that resembles that of the
clients and their markets. In fact, digital technology has abolished European borders and distances. Now is the time to seize this opportunity! The
combination of effective and inexpensive communication systems and easy air and train transportation, make affluent and good European markets
more and more accessible to professionals.
Thus, the major and “only” obstacles seeming to
block Chartered accountants from servicing SMEs
in the EU are : social law, tax law, national languages and psychological barriers which are all
surmountable as long as accounting professionals
are motivated, have confidence in their ability to
open up to others, and view the European Union
as our common living space and national territory.
Once these barriers are overcome, everything becomes simple and possible: Let’s go! And thus,
a French company that sells in Germany will no
longer be “exporting” but simply trading!
But one last question arises: How can we conceive of serving a client in the European Union,
a Union which actually puts into question its very
founding principles ?
1 Victor Hugo, during a speech given on 21 August 1849 at International Congress in Paris, used for the first time the expression “United States of
Europe” and pushed for European States to unite their power
2 Source : EUROSTAT
3 EU Directives n° 2006/123/EC of 12/12/06, n° 2013/55/EU of 20/11/13 and n° 2013/34/EU of 26/06/13
54
Sustaining a competitive development
in tourism
The buzz word of tourism for many destinations is sustainability; this is the new approach
that will disperse all the negative aspects arising from further development and, at the same
time, will satisfy the rigorous neo-tourist demands. The wider notion of sustainability is defined as the:
By Dr Sotiroula
Liasidou
Lecturer
Cyprus University of
Technology
Faculty of
Management
and Economics
– Department of
Hotel and Tourism
Management
‘…development that meets the needs of the
present without compromising the ability of
future generations to meet their own needs
(World Commission on Environment and Development, (Brundtland Commission), 1987, Our
Common Future, Oxford University Press, Oxford, United Kingdom).
Sustainable tourism is an
alternative to mass tourism, and includes a more
pragmatic approach of diversified activities with the
development of ecotourism, green
tourism, agro tourism, cycling or
mountain climbing, and farm tourism. Alternative tourism coincides
with the end of mass tourism
and, at the same time,
concentrates on
three pillars
of develop-
ment, namely, economic, social and environmental.
More specifically, in an island context, in which
tourism is a key element of economic viability
because of the lack of any other resource for
exploitation and income generation, uncontrolled tourism development has many negative
effects on the environment, economy and social life. Concurrently, sustainable tourism can
be considered synonymous with a well-planned
tourism strategy and diversification of the tourism product, as well as the means to minimise
all the negative impacts that emanate from the
tourism industry. This paper aims to describe
sustainable approaches that can make the tourism industry more competitive.
Alarming signals from the environment, and
ever-increasing consumer demands, are some
of the stimuli that push tourism enterprises
towards the adaptation of new and innovative
environmental business practices. This has
a dual effect, firstly, on the protection of the
environment and, secondly, on finding ways to
satisfy the tourist who is looking for new experiences. Sustainability encompasses the issue
of innovation that includes approaches focusing on value and quality in business practices
and service delivery. In addition to this, innovaACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
55
Business
The appearance of ‘green hotels’ and the focus
of the airlines on environmental preservation and
minimisation of negative impacts provide conscious
‘eco’ strategy.
tion is implemented through government policy,
and sustainability provisions are synonymous
with environmental management, which means
strategies and tools for quality are needed. The
policy enables the destinations and enterprises
involved in the tourism industry to comply with
and adapt strategies friendly to natural and human environments. The appearance of ‘green
hotels’ and the focus of the airlines on environmental preservation and minimisation of negative impacts provide conscious ‘eco’ strategy.
The problem here is how to verify the environmental management approach of various organisations, and to cast away any suspicions of
‘green washing’ and other deceptive strategies
that have been adopted by some companies in
order to grasp the attention of the customers. It
should be mentioned here that priority has been
given by the European Union to minimising Carbon Dioxide (CO2) emissions and negative impacts on the environment, through the emission
trading systems (EU ETS). These directives are
aligned with Total Quality Management (TQM)
that prioritises quality though environmental
practices, with certain specifications. Additionally, companies’ Corporate Social Responsibil-
ity (CSR) action is further enhanced by their
contribution to common benefit actions, as part
of a new tax exemption policy. However, technology enables customers and other pressure
groups to publicise misleading CSR actions
from various enterprises. Ethical business practices involve conditions of employment that are
part of sustainability, in the sense that humans
are not exploited and human resource management policies are implemented adequately.
Regarding destination management, a key
component is the enrichment of the tourism
product by activities that are categorised as
alternative or of special interest. At present,
innovative destinations should protect areas
of environmental sensitivity and preserve nature. It is vital to manage energy and water
consumption savings by the implementation of
advanced technological systems, and also adequate waste management systems and the
recycling of water, used food and materials. All
these new strategies converge to suggest a
novel approach within the industry, instigating
a sustainable and balanced development that
arises from past experience, which proves that
unplanned strategies have many negative impacts on the different layers of the industry and,
more importantly, on the human race.
Environmental practices are vital in all the layers of the tourism industry for a harmonious symbiosis with the natural
and social environment. These policies will have positive impacts that will be obvious in the forthcoming years. The
infrastructure and superstructure should be compatible with social and environmental welfare without impacting
negatively on nature. Consumers are becoming more aware, and are strict in their judgement of products and services that do not fulfil healthy and ethical procedures. The future of Cyprus tourism is defined in sustainability and
all the stakeholders involved should pursuit a common vision and aim.
56
The necessity of the creation of
an Integrated Casino Resort
In a global economy in which tourism in Cyprus
was primarily based on the sea and in the sun,
it needs to be enriched and change direction as
there is an urgent need for a tourism that will offer quality and a high level of service. The combination of the two factors is the key to remain
competitive as a tourist destination.
By Michael
Karasavvas
Honorary Consul of
St.Vincent and the
Grenadines
Therefore, we should adopt a policy that addresses in a comprehensive way the issue. The
tourism strategic planning of Cyprus should be
in a context of sustainable development in such
a way that creates a development balance between economic and social dimension.
The role and the strong interest of the government to create an Integrated Casino Resort that
will be the leading one in Europe and amongst
the best in the world is crucial and important for
the tourism policy and the development of the
economy and of our country.
The creation of an integrated casino-resort will
offer significant opportunities in the Cyprus tourism sector and should not be treated as a negative challenge. It will attract foreign investment
into Cyprus,enrich the Cypriot tourism “prod-
...Cyprus is called upon to again become competitive and sustainable, to be modernized in all areas
and to promote a new tourist product...
uct” through additional tourist attractions, which
would attract meetings, incentives, conventions
and exhibitions.The development of alternative
forms of tourism in Cyprus with a focus on quality are the necessary ingredients for sustainable
tourism development so as to achieve the extension of the tourist period and as a positive
result will not only increase arrivals, but increase
revenue. The huge investment in facilities, infrastructure and services will have a serious tourist and economic benefits for the well-being of
the population and of the country, the creation
of jobs,the support of associated industries and
generate fiscal revenue.
It is unthinkable for a tourist and not only country without a casino. We have seen the consequences of Cyprus in the past few years lost
its competitiveness and created a big problem
in arrivals and in revenues. In the new age, and
situation that are shaped, Cyprus is called upon
to again become competitive and sustainable, to
be modernized in all areas and to promote a new
tourist product in combination of course the traditional shape of the sun and sea. The modern
tourist is more wise and seeks for quality and
variety. And these needs to be given.
This investment will constitute a new pole for attracting tourists and the basis for the successful
development and prosperity of business activities and processes that will make Cyprus competitive destination internationally.
57
Business
ably, have received significant amounts of funding. On the other hand practitioners should
understand the importance of new scientific
developments in their fields, which, especially in
the fields of economics, finance and business,
are highly significant due to the rapid developments in these fields.
Improving Research Effectiveness:
The instrumental roles of academic and business communities
In the last couple of decades Cyprus has proved to be an important centre for academic
research. The number of public and private universities, research centers, but most importantly the quality of our human capital, are important assets that should be constructively used not only for the research per se, but also in an applied manner that would
advance the economic and financial performance of our country.
By Dr Marios
Ioannou,
Course Leader of
MA in Education,
University of the
West of England,
Alexander College
The significance of research in our daily life is
not always obvious, yet there are some characteristics that should be highlighted. Albeit
the often abstract perspective that a research
project has, and the theoretical underpinnings
that govern it, research should aim to contextualize its results in the already published and
established literature, maintain its high quality
standards, clarify its applicability by producing
useful knowledge for the corresponding practical fields, and suggest clear implications and
realisable implementations.
An often occurring drawback in the international
system of realisation and publication of the research results is the, more often than not, slow
Academics and practitioners should collaborate as
co-researchers in the advancement of the theories
and practices of their fields of study and practice.
58
conversion into practice. One can identify the
disconnection between the theoretical results
presented in journal papers and conference proceedings and the realisation of these into effective policies and practices. This phenomenon
can be elucidated by the different viewpoints
that the academics and the practitioners often
have. Academics usually when reporting a certain study, they do it addressing other academics in international forums. On the other hand
practitioners, are usually informed by professional magazines and websites, which do not
include detailed academic research results.
Action should be taken from both sides to find
means of effective communication, and overcome the aforementioned barrier. Limiting oneself in the publication of research results is not
adequate. Academics, both as individuals, but
most importantly in an institutional level, should
endeavor to apprise their research results to
practitioners; research for which, most prob-
Moreover, the communication between academics and practitioners, at some point, should
extend beyond discussion and adaptation of
research results. Academics and practitioners
should collaborate as co-researchers in the
advancement of the theories and practices of
their fields of study and practice. Academic and
corporate communities ought to start encouraging participations of common research projects,
where academics could bring their theoretical
and research background, and practitioners
should add their valuable experience. The combination of these two aspects can definitely
contribute to our knowledge of how economics,
finance and other fields can contribute to our
understanding of the business world, but on the
other side allow us to appraise how practically
we can improve the conditions of our life and
society.
This successful collaboration between the two
communities should have clear and realizable
aims. Research projects are, more often than
not, a challenging and rewarding experience,
aiming to offer us the opportunity to pursue
an in-depth original study about a topic of interest. Their realisation is vital and should be
based on the established requirements for a
well-conducted research. We need to realise
that research determines the foundation of
program development and policies all over the
world. Research draws its power from the fact
that it should be empirical. Merely theorizing
about what might be effective or what could
work is inadequate. Here lies the importance
of the collaboration between theory and practice, namely academic and business communities.
Academics should design and
realise research project with practitioners
contributing
with
hard data based on
their experience. It
is needless to say
that good research project results should be examinable
by peers, following established
methodologies that can be
replicated, and should produce
We need to realise that research determines the
foundation of program development and policies all
over the world.
knowledge that can be applied to real-world
situations.
Finally, a research project is successful if it is
established through continuous reiteration. Returning back to the research questions, methods, and data, leads researchers to new ideas,
revisions and improvements. The process of reiteration and continuous analysis of the results,
with peers, colleagues and other specialists in
international forums, will lead researchers to
new research questions that emerge, perhaps
variables that need to be adjusted and other
changes that need to be made. Revisiting the
already established and published research results, will perhaps lead us to view our social and
economic reality from a different perspective
and create policies of different shape and objectives. All these characteristics define good
research practice.
The above argumentation should not be considered unrealizable. Cyprus is undoubtedly an
important research centre, due to the evolving
tertiary education and bustling research community. In combination with the characteristics
our economy and our geopolitical position, we
should aim to advance our research activities,
by aiming to strengthen the links between our
academic and business communities.
59
Business
Management
Human resourses management
All organizations employing labour have a human
resources (HR) function. In large organizations the
task is undertaken by specialist Human Resources
Managers; in a small organization a manager will
spend part of his/her time on matters relating to
employees.
By Demetris
Ergatoudes
FCIB *
The main activities undertaken by the H.R. are:
• employee resourcing
• employee development
• health, safety and welfare
• pay
• employee relations.
• Employee resourcing
This covers the acquisition and organization of employees.
 Manpower planning. Its main purpose is to
forecast the future organization’s labour requirements and to devise strategies to ensure that
sufficient labour is available for the organization
to achieve its overall objectives. Planning assists
management in decide over recruitment, training,
accommodation, promotion, labour costs, and redundancies.
 Recruitment and selection, is concerned with
obtaining the eligible number and type of people
required by the organization.
 Organization design and development. A
structure must be developed in which all activities
are covered and grouped efficiently to achieve the
organization’s objectives. The external environment
is ever changing and organizational structures must
be flexible. One of the tasks of the HR is to develop
programmes to improve the organization’s effectiveness and flexibility.
• Employee development
This covers a number of activities.
 Training. Training takes many forms including attendance on day release or short courses,
instruction manuals, induction of new staff, simulations, job rotation and on-the-job-training. The
purpose is to ensure that the workforce possesses
the skills, knowledge and aptitude to work effectively.
 Management development, is designed to
ensure that the organization’s managers possess
the required skills and are effective to meet present
and future needs. Management development involves managers acquiring the range of experience
necessary for the future development.
 Performance appraisal. The work of an individual is appraised for:
• pay
• promotion
• to assist the employee develop his/her
potential.
• Health, safety and welfare
Employers have a legal obligation to maintain a
safe working environment otherwise they become
liable to criminal prosecution. Besides this, enlightened employers are concerned over matters of
health, safety and welfare to secure and maintain
a productive workforce. Measures to achieve this
include counselling facilities, social clubs, staff discount schemes and benevolent funds.
• Pay
HR management’s role in relation to pay involves
devising pay schemes to secure and motivate the
human resources.
• Employee relations
These include negotiating with trade unions and
dealing with the grievances and the disciplining of
individuals.
MANPOWER PLANNING
The manpower plan is concerned with the acquisition of the human resources needed to achieve the
organisation’s objectives and includes the following:
• Manpower requirements. To assess the current
and future manpower requirements.
• Supply of labour. In terms of age structure,
skills, grade, turnover, absenteeism, overtime and
work practices.
• Manpower programmes. Programmes and
policies will be produced for: recruitment, training and development, promotion, pay, productivity,
retirement and redundancy.
RECRUITMENT AND SELECTION
The appointment of the right people to the right
job at the right time is crucial to the success of
the organization and is a major activity of the HR
department. The process includes: (1) defining the
requirements of the organization (2) recruitment –
attracting a field of suitable applicants and (3) selection –choosing the best candidate for the job.
Although this is a tough time period for employees and job seekers-as it is an employers’ market- it is still imperative for leaders to focus on
employee satisfaction and retention.
The majority of employees, working for the majority of organisations, have thought about quitting
their jobs more than once, during the past yearaccording to a relevant study.
By Andrie Penta
Soft Skills Trainer
and Marketing
Consultant duly a
Certified Trainer
by the Cyprus
Human Resource
Development
Authority.
The question is, how do great leaders create
engaged followers who are loyal? How do great
leaders apply internal marketing?
Here are a few ways:
1.Explore your Employees’
Full Potential
By giving the flexibility to every team member to
optimise their true potential, instead of trying to
fit them into ready-made molds, the organization
ensures that they feel engaged, happy and free
to give the maximum of their capacity. Examples
of companies that have given room for their employees to express their abilities are Google and
Facebook and we have all seen the results.
2.Find out What Motivates
Them
Different age groups are motivated by different
incentives. For instance, the younger employees
are tech-savvy and understand the importance of
constantly mastering new skills to stay up to date.
They are connected 24/7 and they would definitely appreciate more active technology support
and training. Leaders should be open to elevating
their team’s knowledge and skills in regards to
technological advances, although they may feel
intimidated.
3.Create a Sense of
Belonging
Employees normally place company culture on
their top priority list, as a reason for wanting to
join a firm or wanting to stay with a firm. What is
important for employees is to feel “like at home”,
when going to work, but also for the organisation
to ensure that all staff feel like they belong there.
This includes recruitment and development activities, the physical work environment, a number of
volunteer opportunities, get-together initiatives
etc. For instance, Starbucks have introduced employee lounges throughout their corporate offices
to create this sense of belonging and to encourage further employee interaction.
4.Be Flexible
When employees feel like their leaders sympathise with them, understand them and make an
effort to accommodate their out-of-work needs,
they make an extra effort to be productive, loyal
and work for the company’s best interest. This
is especially true for working mothers, who are
pursuing a career and need all the support they
can get from leadership.
5.Be Open to Communication
Successful leaders always encourage open communication. The annual performance review process is one way for a leader to talk openly with
his people, however waiting until then, may be
too late. Two-way exchanges between a manager
and employee could be held quarterly and augmented by real-time feedback.
6. Train & Develop Your
People
There are various ways in which an organisation
can invest in further developing its employees.
One way is through team building activities aiming
at enhancing inter-company relationships. Others
include encouraging employees to invite outside
experts to their staff meetings or ensuring key
staff members attend industry events. There are
also examples of companies which give employees a birthday voucher, which can be spend on
a personal development course of their choice.
Overall, the idea is for leaders to constantly invest
time and money in taking their employees to the
next level.
RECENT DEVELOPMENTS
In the 1980s a new concept emerged to challenge
the traditional view of HR. This is based on the
principle that HR recourses are the most important
asset of an organization.
*Demetris Ergatoudes is a retired (2006) Senior Manager of the Cyprus Popular Bank Ltd, and fellow of the Chartered Institute of Bankers, London.
60
How to make sure
your employees don’t quit!
A relevant quote:
A CFO is wary about investing in the training and education of the emploees. He asks the CEO: “What happens if we
invest in developing our people and then they leave the company?”
The CEO is a bright person and replies: “What happens if we don’t and they stay?”
61
Business
Proposal for a European Deposit
Insurance Scheme
In an effort to complete and strengthen the banking union in the eurozone the European Commission
has proposed a European Deposit Insurance Scheme (EDIS) for the whole of the eurozone. This is
the third and last pillar of the banking union for the European Commission and the European Central
Bank (ECB), after the creation of the Single Supervisory Mechanism (SSM) and the Single Resolution
Mechanism (SRM).
Currently, there are national deposits insurance
schemes in each member state of the eurozone,
which are funded by contributions of the financial institutions. The question is whether these
schemes have satisfactory funds in order to
cover insured deposits. The recent proposal of
the EU for the creation of the EDIS aims to deal
with this issue.
By Tassos
Yiasemides,
Board Member,
KPMG LTD
The EDIS will be based on the current deposit
scheme and will be fully implemented in 2024,
in three phases. In the first phase, which will be
completed in 2020, the EDIS will act as the reinsurer of national systems, when these have used
all their own resources. A basic requirement is
the full compliance with the European directives,
while there will be a maximum amount that can
be provided by the EDIS.
In 2020, according to the EU scheme, the EDIS
will change to a co-insurance mechanism, that is
in case there will be a need for compensation of
depositors, the EDIS will have the possibility to
contribute part of the cost, without the exhaustion of all the resources of national schemes being a prerequisite (in 2020 the EDIS will have
the capacity to cover 20% of the cost and this
will increase gradually until 2024). From 2024
onwards, according to the scheme, the EDIS will
cover 100% of the risk.
The EDIS will be funded by contributions of financial institutions, which can be removed from
the contribution made to the national systems.
Moreover, these contributions will be made
based on risk, meaning that high risk financial
institutions will contribute more.
The European Commission, in an effort to address Germany’s reactions in regards with this
attempt, has announced that it will soon start imposing sanctions to member states which have
not implemented the new regulations for the
rescue of financial institutions. It is noted that
the SSM and the SRM have already been institutionalized.
The SSM consists of the ECB and the national
62
supervisory authorities and as of 2014 it has all
the systemic financial institutions of the eurozone under its supervision. In this way there is
a single supervisory framework that ensures the
financial stability in the eurozone, through a risk
prevention mechanism.
On the other hand, the purpose of the SRM is
managing the resolution of problematic financial
institutions, limiting the impact of such resolutions on the taxpayers and the national economies. In the last years the governments of the
eurozone have proceeded to the nationalization
of financial institutions burdening budgets and
public debt.
The mechanism consists of two tools. The Single Resolution Council (Resolution Authority),
which decides which financial institutions will be
placed under a resolution regime and the way of
implementing the resolution scheme, especially
in cases of cross-border and big banks of the
eurozone. The second tool is the Single Resolution Fund (SRF) which is established at a supranational level.
The SRF will be used only after the use of own
resources for the rescue of the financial institutions under resolution. The funding will come
from contributions of financial institutions and
the fund is expected to begin its operation in
eight years with a budget of 55 billion euros.
Cyprus is preparing to implement the European
directive for the resolution of financial institutions of 2016 known as BRRD (Bank Recovery
and Resolution Directive), which is part of the
mechanism described above. A big part of the
directive has already been adopted in Cyprus following the events of 2013 (maybe Cyprus was
the first test for the directive).
The resolution process provides for the support
of the financial institution by its shareholders,
bondholders and the uninsured depositors, limiting the losses to the taxpayers. Based on the directive deposits up to €100.000 are protected.
Do You Have the Business Mindset
to Succeed?
A new approach for professionals
Are Leaders Born or Made? What Makes a Good
Manager? Should Businesses Hire Talent—or
Mindset? The Mindset That Increases Creativity
and Productivity.
Every day there are new small and micro businesses starting all over the world and every single one
of them has an owner that is doing their best to
achieve their version of success.
By Demetris
Stylianides,
DipLC,
CTM,CL,FAIA,
FCCA, CPA,
International NLP
Trainer
If you’re one of them, this article is for you.
What is a business mindset?
Every so often a truly groundbreaking idea comes
along. This is one. Mindset explains:
• Why brains and talent don’t bring success
• How they can stand in the way of it
• Why praising brains and talent doesn’t foster
self-esteem and accomplishment, but jeopardizes
them
• How teaching a simple idea about the brain raises grades and productivity
• What all great CEOs, parents, teachers, athletes
know
Mindset is a simple idea discovered by worldrenowned Stanford University psychologist Carol
Dweck in decades of research on achievement and
success—a simple idea that makes all the difference.
In a fixed mindset, people believe their basic qualities, like their intelligence or talent, are simply fixed
traits. They spend their time documenting their
intelligence or talent instead of developing them.
They also believe that talent alone creates success—without effort. They’re wrong.
In a growth mindset, people believe that their most
basic abilities can be developed through dedication and hard work—brains and talent are just the
starting point. This view creates a love of learning
and a resilience that is essential for great accomplishment. Virtually all great people have had these
qualities.
Teaching a growth mindset creates motivation and
productivity in the worlds of business, education,
and sports. It enhances relationships. When you
start applying the Business Mindset, you’ll see
how.
Having a business mindset is critical in setting up
and running any type of business. Because it’s not
going to grow itself, if you don’t develop the way
you think about your business, it’s going nowhere.
I will be providing some guidelines into improving
your current mindset. These guidelines will not automatically make you a business mindset guru but
they will align your current way of thinking to the
business mindset type of thinking and hopefully will
help out in taking the subject to the next level.
1. Be clear with your intention
Is it your intention to be in business and to grow a
business? Or are you just doing this for fun?
Just because you love what you do doesn’t mean
you should do it for free – the key to a successful business is to do what you love, serve others,
and charge appropriately for the value you deliver.
Value yourself and have a clear intention to generate a profit. You wouldn’t work 40 hours a week
for free, nor for a discounted price, so don’t do it in
your own business.
Set your intentions clearly from the start and allow
those intentions to guide your decision making.
2. Use your awareness
What’s happening in your industry, who are your
competitors, who can you team up with for mutual
benefit? What does the market want? What is the
value you can offer?
The secret to starting a business is to find out what
your market wants, and deliver that. This is often
stated as finding out a gap in the market and then
a market in the gap before confirming that you are
the right person to fill that gap.
Is there room for two businesses delivering the
same product or service in your market? Can you
see a way to do it better than what is currently on
offer?
If you’re not aware of your differentiating factors, it
will be tough to sell it.
3. Energy flows where attention goes
Attention is a limited resource. Where you place
your attention is going to have a major impact on
the growth of your business. So use it intentionally.
Create a business plan and place your attention on
what is necessary to grow your business.
63
Business
I find it’s best to place my attention on three
major things per day. That’s three things per
day that I want to get done. And I make and
keep a commitment to myself to get them
done.
4. Set objective goals
An objective goal is one that if you explained
it to a complete stranger in one sentence,
they would understand it, and also be able to
measure your progress and achievement. It
would have a very clearly defined end objective.
Set objective goals for profit, turnover, target
market, product creation, and everything else
in the 9 divisions of your business. And make
sure the objective goal you set is going to
challenge you.
5. Be clear on who you serve
Who are your customers (who do you deliver
value to?)
6. Make decisions after identifying at
least three choices
If you have one option than that is no option
at all. If you have two options this is called
a dilemma. When you create at least three
scenaria, than you can have an option to pick
at least one.
Nothing suppresses your leadership abilities
more than you. And one of the ways you do
that is by using words (both thoughts and
spoken words) that take away your perception of choice.
You are the King or Queen of your world –
you always have choice and you are the only
one who can make any choice for you.
Every time you use the words and phrases
listed below you take away your perception
of choice. Therefore, you restrict your own
ability to lead and make decisions.
• Have to
• Need to
• Should
• Must
Be aware of your use of these words – they
have very low levels of intention and are a
very low order of create.
A business after all, is a creation of you and
your mind. It’s best to be creating with intention and with a perception of choice.
7. Develop a combination of attention
to detail and organisation in
everything you do
Business is really all about numbers. Being
organised helps you measure those numbers,
and then improve systems in order to improve
the numbers. Without this, your business will
fail.
It’s important to understand what numbers
are worth monitoring (the ones that have
a direct impact on your ability to serve and
charge for that service is a good start).
It’s also about the attention to detail you pay
to the little things that make a big difference.
Sometimes this is the only thing that sets
you apart from your competition – and it can
mean that you own the space you’re in.
8. Measure service and have an
awareness of income
The more you serve, the more you’ll earn. It’s
a matter of the Laws of Exchange. The more
you place your attention on the quality of the
delivery of your service (your outflow), the
more your customer is going to have a perception of value, and therefore a willingness
to pay your reward.
That means you’ll be more willing to ask for a
reward (your inflow). And that is very important – you’ll never hit a shot you don’t take.
You’ll never get paid more than what you ask
for. And reward is always to be asked for.
RESOLUTIONS TO
CREATE BUSINESS
SOLUTIONS
In front of an audience
consisting of ambitious
young people, businessmen, lawyers and accountants, Demetris Stylianides
founder and CEO of
THINKBOX LTD presented the professional services of Creativity, Entrepreneurship and Business
Mindset. The event was
held on Friday 15 January
2016 at the 7seas Columbia, Limassol.
The whole presentation
was a call for ambitious
young people to follow
their dream on creation,
entrepreneurship
and
business mind set. These
services are equally useful
for experienced business
people who need a different approach because of
the new economic developments around the world.
THINKBOX’s philosophy
is that everyone should
develop
entrepreneurial
thinking and problem-solving skills that are important
for their future, through
new approaches. Most
young people after they
finish their studies, do not
have the practical tools to
put their knowledge into
practice and such programmes will make them
feel more confident in
their first business steps.
While most of the young
people have plenty of new
ideas, they luck the experience needed to implement
those ideas.
Using systemic thinking
and methodology as well
as advanced verbal skills,
participants will be able to
learn among other things,
negotiation
techniques
and ways of promoting
services and products.
64
The Achievements and Failures of
this Government – Year 2015
By Antonis
Loizou F.R.I.C.S.
– Antonis Loizou
& Associates Ltd Real Estate Valuers
& Estate Agents
We would like to enumerate some of the achievements of this Government and some of its failures
regarding the real estate market. The past year
(2015) one must admit that it was a year which was
met with many changes. Some of these changes
came about after Troika’s pressure (just as well)
and some due to the change of Government from a
“communist/socialist” way of approaching matters,
to a capitalist one, with a complete new prospective.
It will not be a miss to credit the foreign/local pressure groups regarding title issues etc which helped
towards the changes.
The market is still at a rather num state, with very
few transactions and those who are, are directed
towards good quality holiday homes and houses
(upmarket) investment properties (i.e. income producing ones with returns of 5%-6% p.a.) whereas
deals regarding agricultural land and building plots
(residential in the main but as well others) are at the
low end. Land on the beach and near it has shown
positive signs of interest and it is evident in our opinion that for such plots the future is positive.
The positive achievements
• The main one is the measure for visas and passports (and without blowing our own horn, 50% of
this measure is the result of our own Office efforts
since the year 2011 (notwithstanding that this measure existed since 2007, but was not taken on by
the previous Government).
• The relaxed interpretation regarding what is a
“permanent/main” home by foreigners, is all the
best. In the previous years the permanent house
meant that the house where a foreigner lives more
than ½ 365 days. Now it refers to the main house
while in Cyprus with no limitation on living period.
• The quick action to replace the catastrophic Cyprus Airways with new airlines operating in many
other European countries has open new horizons for
tourism which is the forerunner of the foreign real
estate demand.
• The incentives given for large scale projects be
it proposed in agricultural areas, for the new golf
courses, marinas etc have added to the profitability
of such projects increasing their chances to attract
foreign investors.
• The replacement of the building amnesty by allowing a 20% increase in building density to existing
buildings (or up to 60 sq.mts.) is an easy way to bypass the red tape procedures which existed for the
building amnesty.
• The measure for property tax to replace the
1.1.80 values to 1.1.2013 done within 6 months (be
it with a lot of mistakes but with a 6 month period to
correct – with objections) is another way forward.
• The updating of the taxation system regarding
foreign high earners is another point to note in attracting the foreign market as is the new shipping
regulations.
• The relaxations, more of a routine nature nowadays rather than going through the relaxation Board
is a point in hand. In addition is the 50% transfer
fee reduction and the abolition of capital gains tax in
certain cases. Etc etc
On the positive points it will be a miss not to mention
the breath of fresh air that the Minister of Interior
has brought into the market with no reservations to
relaxations with the aim of attracting foreign/local
investments in order to revive the market.
The negative aspects
• Whatever measures however that this/any Government takes, one is the common denominator,
that of the confidence in the economy. We live in
a world that most countries are targeting foreign investors and our recent past history (3/2013) is not
easily forgotten. Just as well that our competitors
have problems of their own so that we are not alone
in disappointing the market. As we have reported in
the past the ill fortunes of others seem to benefit Cyprus, but this is not the way to build a new economic
basis. Some of our local financiers, we believe, are
yet behind in handling the real estate problems and
we are afraid that their shareholders based on a
non long term stay, but short term capital gains, is
a cause for concern. This is worrying unless we are
mistaken.
• The Central Bank is also well behind what it is
called upon to do. The problem with the appointment of the Governor of the Central Bank apart, it
seems to us that the Central Bank has not placed its
hand on the problems and/or is taking its time with
a lack of leadership at various levels.
• The opportunities that came about caused by
other countries problems, do not seem to be pushed
forward by the Government, by producing some sort
of a list of suggested ideas, awaiting the private sector to do it and then the Government to accommodate their requirements. Why has Ayia Napa only
17 football training grounds and other areas not?
Why the Government is not coordinating Municipalities and local authorities/hoteliers for the purpose of
winter sports? Why other sports are not earmarked
such as rugby, cricket, polo etc earmarked on the
Governmental owned land with subsidies to go? (direct or indirect). Why keep the old colonial system
in securing permits and not adopting a fresh, completely new approach on procedures? Why is red
tape not being addressed as yet regarding all sorts
of matters from registration of a Co, to permanent/
working visas time issue? The “feeling” that the
public and foreigners have, is that the Government is
looking after its own members with family business
which is an embarrassment to the country eminating
almost from the top to bottom of the hierarchy.
Let’s hope that our new 2016 report on such matters will be more positive.
65
Business
Incentive and Reward Schemes
Examples of rewards and
incentives
By Aspasia
Simillidou Theodosiou
BSc, MSc, PhD
(candidate)
Human Resources
Consultant /
Lecturer
Besides the monetary rewards such as bonuses and commissions there are other types of rewards as well. Especially
during challenging times, when organisations struggle, these
types of rewards may be more effective. Non-monetary incentives are used to reward employees for excellent behavior through opportunities. Non-monetary incentives may include flexible work hours, payroll or premium contributions,
training and development schemes and health savings. If it
comes to environmental behavior for example, often labeling and recognition certificates are used. This may include
stickers, T-shirts with banner logo etc. These among many
others can increase motivation of employees and therefore
performance. Employees may also be rewarded for discovering new ideas for implementing a task at work using small
gifts. Finally, a reward that does not cost anything at all and
it is really easy to implement is to celebrate your employees
successes and show them appreciation.
Many organisations believe that
salary is a motivator. Well, bad
news! Salary is not a motivator. It
is only enough for the employee
to do the minimum that can be
done for his job. It really sounds
scary, but this is the truth. A salary cannot increase motivation,
productivity and performance.
And more than ever, it can never
create engaged employees.
A good salary has been enough
some decades ago. The introduction of incentive schemes,
though, has increased the performance of employees in many industries. An incentive programme
is actually a formal scheme used
to promote or encourage specific
actions or behavior by a specific
group of employees. An incentive
and reward scheme does not always include money.
Advantages of rewards and
incentives
There are many advantages for implementing a reward and
incentive scheme
For the organisation the advantages are:
• increase staff motivation, morale and loyalty
• boost productivity
• link individual and business performance
• focus employees on achieving targets
• build teamwork
For staff:
• enhancing the quality of working life
• increase in motivation
• adding value to the employment contract
In these troubled times it’s more important than ever to keep your staff engaged with your business and goals. Unfortunately a down turn also makes it much more challenging to be heard over the noise and financial pressures to win
genuine advocacy from your employees, customers and partners.
Corporate incentives and rewards have always had a significant role to play in creating engagement, but now they have
to be smarter and work harder than ever before.
66
Crowdfunding as an alternative way of financing small
and medium-sized enterprises (SMEs) and start-ups
Crowdfunding or financing from the crowd, alternatively internet microfinance, is a method by
which people, organizations or businesses (including business start-ups) can raise funds via
the internet for the financing of an idea or project. It operates usually through an online portal
(crowdfunding platform) which is accessible to
the public with a proposal to finance the said idea
or project.
By Christiana
Loizou,
Senior Associate,
KPMG Limited
Although Crowdfunding has originally been connected with the financing of various projects of
public-interest and cultural events, it is now growing as a fund-raising method for start-up companies or other commercial projects.
In the Entrepreneurship 2020 Action Plan (Entrepreneurship 2020 Action Plan – Reigniting the
entrepreneurial spirit in Europe (COM (2012) 795
final), the European Commission presents a series of actions for implementation at both EU and
Member States’ level aiming to support entrepreneurship in Europe. Particular attention has been
given to the difficulties of SMEs and entrepreneurs in the access to financing their business in
the early stages, due to the global financial crisis.
In this framework and targeting towards exploring alternatives and/or complementary ways to
bank lending, which will be more easily accessible, the European Commission has emphasized
in the abovementioned plan that it will work with
the European investors in order to increase the
flow of venture capital and crowdfunding into web
start-ups. In addition it invited the Member States
to assess the need of amending current national
financial legislation with the aim of facilitating
new, alternative forms of financing for start-ups
and SMEs in general, in particular as regards platforms for crowd funding.
As of today, there are mainly three types of
Crowdfunding:
• Donations and rewards crowdfunding. In this
type of crowdfunding, the return or reward does
not involve any kind of financial investment.
Natural or legal persons may donate an amount,
goods or provide a service for a specific project,
campaign or to support a business without receiving a monetary amount in exchange as a reward. Although contributions are exchanged with
non-monetary rewards.
• Loan-based crowdfunding or peer-to-peer
(P2P) as well as peer-to-business lending (P2B).
In this type of lending, individuals lend money to
individuals or businesses aiming to a financial return in the form of repayment of capital and interest payments.
• Equity crowdfunding or investment-based
crowdfunding. People invest in unlisted securities
or other investment products without these being
readily realizable by the company or business or
the platform operator in exchange of their contribution to its targets.
In the abovementioned types of Crowdfunding,
funds are deposited once the project successfully
completes funding or otherwise all amounts are
returned to the crowd investors.
Currently there is not a common EU approach
to regulating Crowdfunding. It is worth noting
however that Italy, United Kingdom and Germany have recently proceeded in amending their
regulatory regime governing the provision of investment services by enacting new rules and/
or exemptions, focusing mainly on the platform
operators who offer crowdfunding through loanbased crowdfunding and equity crowdfunding.
Considering the important benefits Crowdfunding
provides in the financing of SMEs and the growth
of economy in general, the creation of a legislative framework regulating the activity of Crowdfunding in Cyprus is considered
necessary. A proportionate
framework that will balance
regulatory costs against
benefits and will address
efficiently the protection
of investors.
Business
Crude Oil Tanker Market: A Strong Performer
in 2015 and its Outlook
2015 turned out to be the best year for crude oil tankers since the market crashed towards
the end of 2008. But how does its outlook look?
A. Market Performance
during 2015
The crude tanker market gained significant momentum during 2015, with demand for crude
tankers driven by the lower oil prices and enhanced by a relatively small supply-side growth.
By Andreas
Avraam
Director
Assurance Services
PwC Cyprus
In addition, the crude tanker fleet experienced
lower productivity due to increased voyage distances and port congestion. On the contrary,
the higher freight rates led many owners to
defer scrapping and to operate their fleets at
higher speeds, hence leaving the market in a
vulnerable position if demand weakens. At the
same time, differing opportunities for crude
tankers were created due to the oversupply of
crude oil, with floating storage being the most
noticeable one.
Freight rates have stayed high during most of
the year as low crude oil prices have driven demand. The improved spot market also had a
corresponding positive effect on the timecharter
market. Timecharter rates started to slowly rise
towards the end of 2014, while they grew even
more strongly early 2015. Following few months
of relative stability, timecharter rates began rising again in Q2 of 2015, reaching their highest
level since the start of the crisis in 2008.
young age distribution of the fleet, coupled with
the high orderbook, and eventually high levels
of deliveries hitting the water, are likely to be
amongst the main factors putting downward
pressure to the market, especially if demand
growth weakens.
Expected increase in ton-miles traveled may
add to tankers’ demand
The ton-mile demand is an important factor in
the supply side equation of tankers. The longer
the distance traveled to deliver, the greater the
time in water, which in turn reduces the avail-
Orderbook build-up and strong fleet growth
expected
As Danish Ship Finance (“DSF”) recently reported, the orderbook-to-fleet ratio towards the
68
In fact, average travelling distances have been
and may continue getting longer, as Asian crude
oil importers have been diversifying their crude
oil import volumes away from the Middle East
in favor of the Atlantic Basin producers. As per
DSF recent market report, Africa’s market share
has risen by 4% since 2010, reaching 14% in
2015. In addition, volumes of seaborne crude
oil are expected to grow more strongly in the
coming years.
However, the key question is: Can these rates
continue?
Since rates are just prices which are determined
by supply and demand factors, in Section B we
will briefly comment on some of these factors,
including their outlook.
Overall, the crude tanker market may continue
benefiting from this development, as the productivity of the fleet is decreasing due to the
longer travelling distances.
B. Main Supply and Demand
Factors and their Outlook
able supply of vessels, thus having a positive
impact on rates.
end of 2015 has jumped to more than 18% of
the fleet, totaling roughly 62 million dwt, while
the crude tanker fleet net growth is expected
to climb to 4% in 2016 and 2017, versus 2%
in 2015.
The expected low levels of scrapping due to the
Chinese demand driven by Refining and
Strategic Petroleum Reserves (SPRs) Build
Up
China is expected to grow its imports of crude
oil volumes by 55 million tonnes in the coming
five years, reaching almost 370 million tonnes
by 2020, DSF recently reported. This development is driven by expected increasing refinery
intake and storage build-ups.
The attractive price levels and margins for refined products experienced during 2015, have
prompted refineries to delay maintenance and
increase their utilization rates. In addition, during 2015, independent non-governmental refineries, the so-called teapot refineries, were
granted permission to import and refine crude
oil, thus further boosting demand.
As per DSF, China’s refinery industry is expected to expand by an additional 1.6 million
barrels per day, equivalent to roughly 70 million tonnes in the coming five years. Although
uncertain, it can be argued that as long as
prices remain attractive, China is expected to
continue increasing its refinery capacity which
should necessitate increased crude oil imports
and increased demand for crude tankers.
In addition to the impact of refining, during
2015 China took advantage of the low crude oil
prices to significantly expand its SPRs. In fact,
as per Bloomberg, China may start four additional SPRs in 2016, augmenting its existing
eight, as part of its ultimate goal of stockpiling
enough oil to cover 100 days’ worth of imports
by 2020 (versus 29 days of supply as of the
69
Business
The Eurozone Banking Union
Where do things stand and what does it really mean for Cypriot banks?
middle of 2015).
C. Conclusion
However, despite the fact that storage buildups in China may be happening for some time,
it is important to keep in mind that the effect
is temporary and that potentially imports will
fall back once inventories are filled. There is
also great uncertainty over the speed at which
these reserves will be filled, as it depends on
future oil price levels.
Despite a strong 2015, the market’s outlook remains fragile and uncertain
Arguably, factors like increased refinery additions and storage filling, especially in Asia region and primarily China, may be expected to
have a positive impact on crude oil demand and
thus the crude tanker market. However, this is
very uncertain and there are several areas of
concern that can negatively impact crude oil
demand, including the re-balancing of the Chinese economy, the geopolitical conflicts in the
Middle East including the recent tension between Iran and Saudi Arabia, and the planned
expansion of the ESPO pipeline which moves
Russian crude oil to China by 2020.
Uncertainty over the impact of Iran
The impact on the crude tanker market of the
expected increase in the supply of crude oil by
Iran, following lifting of sanctions in early 2016,
is uncertain.
A recent survey by Platts estimated that Iran
produced 2.89 million b/d in December 2015,
while the International Energy Agency has said
it expects Iran to be able to achieve crude
output of 3.6 million b/d similar to the 2011
level within six months of the lifting of sanctions. However, a lot of independent analysts
are skeptical as to whether such an increase is
indeed achievable.
Whatever the case, eventually, more Iranian
crude oil volumes are expected to hit the already oversupplied crude oil market, but the
effect on crude tanker demand and freight
rates is uncertain and may even be limited, if it
turns out that the return of Iranian crude tankers into the market dilutes the positive impact
of increased crude oil exports.
70
Looking at the supply side, due to the high annual level of tanker deliveries expected in 2016,
we shall be cautious that fleet growth may start
to impact the market. Freight rates may get under pressure if demand growth turns out to be
insufficient to employ the increased fleet.
In summary, the crude tanker market’s outlook
remains fragile and uncertain, while the market
may at times be very volatile as it starts to accommodate the large influx of new vessels.
It has been just over a year since the official
launch of the Single Supervisory Mechanism
(SSM) –the foundational pillar of Eurozone’s
Banking Union. A few days ago, the second
pillar, the Single Resolution Mechanism (SRM)
also came into play. With these two major undertakings completed the Banking Union is very
much a reality albeit perhaps too early to call it
a success.
By Vassilios G
Vrachimis
Partner
Assurance
PwC Cyprus
A recent report prepared by the PwC and IE
Business School Financial Sector Centre1 critically analyses where things stand with this longin-coming Eurozone-enthusiasts’ vision.
One of the major findings of this report is that
whilst in theory the Banking Union’s oversight
model is based on risk analysis, in practice, supervision has moved closer to the US Federal
Reserve’s “Camel” approach the which encompasses a comprehensive assessment across
Capital adequacy, Asset quality, Management
administration, Earnings and Liquidity. For some
at least, this must have come as a surprise as it
was never written down in the “what to expect”
guides.
The implication is that the Banking Union’s practical supervisory model has resulted in a strain
on the banking sector. A significant amount
of management’s time and banks’ financial resources are focused on satisfying the supervisory demands instead on running the banks’
business. At the same time, the supervisors’ are
coming back challenging banks’ business models and their viability.
In my view, this strain is felt much more on smaller
banks (i.e., all of the Cypriot banks). Notice the
oxymoron. If you are a Cypriot bank’s CEO you
are spending much of your time trying to keep
the supervisor at bay, commit vast amounts of
shareholders’ investments in costly liquidity and
at the same time you are being challenged by
the same people that set the rules of the game
to be able to work on reducing NPLs and demonstrate that your bank is profitable without taking on too much risk. And by the way, you have
to keep your shareholders’ happy. Yet, this is
the new reality and it is likely here to stay.
To survive and thrive in this “new world” the Cypriot banks’ CEOs have to plan ahead, “learn on
the job” and be “smarter” about how they manage risk and focus on reducing capital consumption without compromising returns. Easier said
than done. This calls for sophistication and innovation. For some, this could also mean start
thinking about who you join forces with – takeover or be taken-over – so as to reduce the impact of the supervisory strain.
For me one thing is clear, whether intentional or
not, the Banking Union will change the Cypriot
banking landscape.
1. The PwC and IE Business School Financial Sector Centre is a joint commitment on the part of both institutions, started in 2010, to create a benchmark in the area of financial reporting and research, which analyses the challenges facing institutions in Spain and worldwide in their current transformation process. The centre is a stand-alone institution in Spain and is independent from credit institutions.
71
Business
Basic principles to consider in drafting your company’s
Risk Management Policy Guidelines
By
CORPORATE
GOVERNANCE,
INTERNAL
AUDIT
AMD RISK
MANAGEMENT
COMMITTEE
The concept of Risk Management is fairly new,
with the majority of companies in Cyprus appearing not to have specific policies in place to identify
and subsequently address specific risks relating to
them. Our Committee is attempting to put together a concise policy guideline, to serve as a generic
prompt to companies to start considering the various risks associated with them. These are matters
to consider and by no means represent an exhaustive list of guidelines. Each company and sector
will have their own particular risks which will need
to be specifically addressed in drafting a comprehensive policy.
1. Introduction
The company, as a whole, is committed to the
identification, monitoring and management of operational, financial and other business risks. The
risk management policy forms part of the internal
controls and corporate governance of the company. The objective of the risk management policy
is to assist the company to establish an effective
system of risk oversight, risk management and internal control.
The types of risks which may be faced by the company include:
• Financial;
• Legal and regulatory;
• Operating;
• Commercial; and
• Health, safety and environment risks.
2. Roles and responsibilities
a)The board of directors of the company (the
“Board”) is responsible for the approval and oversight of the company’s risk management strategy,
internal compliance and controls. The Board will
undertake an annual review of the strategic and
other material business risks facing the company
as part of its strategic and business planning process.
b)The Audit and Financial Risk Committee (the
“AFRC”) is responsible for the assessment of financial risks arising from the company’s operations
and considering the adequacy of measures taken
to mitigate those risks. The AFRC will advise the
Board on financial risk management and internal
controls and assist the Board to fulfil its financial
risk management and oversight responsibilities.
c)The Physical Risks Committee (where applicable) oversees all aspects of the company’s risks
with regards to:
i. Safety, health, environment and security matters;
ii. Enterprise-wide physical risk management; and
iii.Compliance with legal and regulatory obligations
relating to safety, health, and environment.
72
d)The Company’s Management is responsible for
designing, implementing and monitoring the company’s risk management policies and internal control system. Management is required by the Board
committees to report back on the efficiency and
effectiveness of the company’s risk management
process.
3. Risk Management Process
The company’s process of risk management and
internal controls includes:
• Establishing the company’s goals and objectives, and implementing and monitoring strategies
and policies to achieve these goals and objectives;
• Continuously identifying and measuring risks
that might impact upon the achievement of the
company’s goals and objectives, and monitoring
the environment for emerging factors and trends
that affect these risks;
• Formulating risk management strategies to
manage identified risks and designing and implementing appropriate risk management policies and
internal controls; and
• Monitoring the performance of, and continuously improving the effectiveness of, risk management
systems and internal compliance and controls, including an ongoing assessment of the effectiveness of risk management and internal compliance
and control.
Within the identified risk profile of the company,
risk management practices are directed towards
achieving the following objectives:
• All major sources of potential opportunity for and
thread to the company (both existing and potential)
are identified, analysed and treated appropriately;
• Business decisions throughout the company appropriately balance the risk and reward trade off;
• Regulatory compliance and integrity in reporting
are achieved; and
• Senior management, the Board and investors
understand the risk profile of the company.
4. Policy review
An annual review of the company’s risk profile
should be undertaken as part of its annual strategic
and business planning and any material changes to
the risk profile noted and incorporated in the plan.
To assist the Board to conduct the annual review,
Management and key executives are required to
report to the Board committees on:
• Any material risks identified;
• How the risks are being managed;
• The implementation of any risk management or
internal control system; and
• Whether any breaches of the risk management
policies have occurred during the preceding 12
months.
Third Party Assurance Examinations:
An Introduction to ISAE 3402 reporting standard for service organisations
What is ISAE 3402?
International Standard on Assurance Engagements
(ISAE) No. 3402, Assurance Reports on Controls
at a Service Organization, was issued in December
2009 by the International Auditing and Assurance
Standards Board (IAASB).
New leasing standard
should give investors clarity
By Eddy James
Technical Manager,
Financial Reporting
ICAEW’s
On 1 January 2019, IFRS 16 Leases will become
effective. The publication of this standard is one
of the most significant developments to date
in the world of international financial reporting.
Leasing is a major source of finance for businesses of all shapes and sizes, and the financial
reporting of lease arrangements has long been
recognised as far from satisfactory. Publication
of the standard has therefore ended a long debate on how companies should report their leasing obligations – which has caused confusion for
investors and other users of financial statements
in the past.
sector, but should not be underestimated. It will
particularly affect businesses with a significant
number of material off-balance sheet leases, including those in the transportation and real estate sectors.
But the effects will not be limited to these industries. Retailers and other companies with significant leased premises should also prepare for
major changes. There is a lot of work for companies to do to understand and implement the
changes, not least in the area of data collection,
and this work needs to be started sooner rather
than later.
Good news for investors
The good news is that investment decisions
should be made easier. IFRS 16 should give
investors a more transparent and comparable
picture of entities’ leasing obligations. Under
current guidance, leases are classified as either
“finance” leases or “operating” leases. The former appears on the balance sheet of the lessee,
along with a related lease liability. In the case
of the latter, both asset and the liability are offbalance sheet, with rental costs expensed in the
profit and loss account over the lease term.
Under the new standard, almost all major lease
arrangements will appear on the balance sheet
of the lessee for the first time. This major shift
in a core aspect of global financial reporting
addresses concerns about the extent of offbalance sheet financing in listed company accounts. As a result, investors and analysts will
have access to transparent and reliable information about leasing commitments, without having
to make difficult estimates about a company’s
true level of debt.
Major changes
The impact of IFRS 16 will vary by business and
74
Not just adjusting the
accounting
The potential implications also go way beyond
a mere change in accounting; the standard will
also have a significant effect on financial ratios
and debt covenants. This is because the leased
assets and liabilities will now be recognised on
lessee balance sheets. Employee compensation
arrangements, dividend planning and taxation
may also be affected.
Another concern is the need for the EU to formally endorse the standard before it can be used
by European companies. The European Commission needs to get the complex process of
endorsement underway as soon as possible, especially considering that some businesses may
wish to adopt the new standard early.
Obviously we cannot know at this stage whether it will ultimately be a success. But ICAEW
believes it should be viewed as a positive move
that will improve the transparency of financial reporting and boost investor confidence. 
By Theodoros
Hadjistyllis
Senior Consultant
Enterprises
Risk Services
Department
Deloitte Limited
The purpose of an ISAE3402 review is to provide
users of the report with an objective assessment
that expresses an opinion about the control environment of a service organisation. This will be
based on a standardised set of objectives, tested
only once in a period. The user organisation receives a detailed description of the service organisation's controls and an independent assessment
of whether the controls were implemented, suitably
designed (type I report) and operating effectively
(Type II report).
Why did third party
assurance report become
important?
Breakdowns in internal controls have been widely
publicized in recent years and each new scandal
brings with it a renewed focus on the importance
of a sound system of internal controls. This in turn
results in changes to regulatory requirements (e.g.
Sarbanes-Oxley) over financial reporting.
The requirement to focus on core activities and
minimize costs has resulted in substantial growth
of outsourcing and companies increasingly depend
on third-party providers to deliver critical services.
Consequently, organisations are being requested
or required to provide more and more information
about their internal control environment to a variety
of external and internal stakeholders and thus resulting in outsourcing companies to look for thirdparty assurance to provide their clients with comfort about their internal controls.
There are two types of
Service Auditor's Reports:
Type I and Type II
A Type I report describes the service organization's
description of controls at a specific point in time. A
Type II report not only includes the service organization's description of controls, but also includes
detailed testing of the service organization's controls over a minimum six month period and a maximum of eighteen month period.
In a Type I report, the service auditor will express
an opinion on (1) whether the service organization's
description of its controls presents fairly, in all material respects, the relevant aspects of the service
organization's controls that had been placed in operation as of a specific date, and (2) whether the
controls were suitably designed to achieve specified control objectives.
In a Type II report, the service auditor will express
an opinion on the same items noted above in a Type
I report, and (3) whether the controls that were
tested were operating with sufficient effectiveness
to provide reasonable, but not absolute, assurance
that the control objectives were achieved during
the period specified.
Benefits of an ISAE 3402
assessment to service
organisations
Service organizations receive significant value from
having an ISAE 3402 engagement performed.
Some of the key benefits are outlined below:
• Differentiates an organization from its peers by
demonstrating the establishment of a sound control environment and commitment to safeguarding
customer data.
• Identifies opportunities for improvement in business process and operations.
• Provide an independent third-party assurance
about the service being provided to customer.
• Benchmarking an organisation's control objectives and controls with leading practices and an accepted internal control framework (e.g. COSO)
• More efficient external audit as reliance can be
placed on the work performed for the ISAE 3402
purposes
• Pinpoint existing internal and outsourcing organisation gaps in processes and controls that may
increase risk
• Providing additional comfort to management on
the design and operation of controls
• Generating increased awareness within the organization of the importance of controls and embeds a strong control culture
• Demonstrating to existing clients and regulatory
bodies that controls are in place and operating effectively
• It results in reduced queries and testing from
the service organisations clients and their auditors. This frees up service organisation resources
to complete more ‘value add’ activities.
• Increases the level of transparency of the organisation regarding its processes which builds trust
with clients
As a conclusion, the ISAE 3402 standard provides
a wide range of key benefits to any service organization in various industries, especially during a time
in which transparency, efficiency and effectiveness
of the internal control environment have become
core values for any organization seeking to differentiate from its peers and compete effectively in
the current economy.
75
What are the changes proposed by Amendments?
Overview
Recent Developments
on IFRSs
1.IASB issues exposure draft:
Annual Improvements to IFRSs 20142016 Cycle
By Yiannis
Leonidou
Deloitte
Member of the
International
Auditing Standards
Committee of the
ICPAC
The Bottom Line:
• The exposure draft proposes amendments to the following Standards:
o IFRS 1 First-time Adoption of International Financial Reporting Standards
o IFRS 12 Disclosure of Interests in Other Entities
o IAS 28 Investments in Associates and Joint Ventures
• The IASB did not propose an effective date for the proposed amendments. However earlier application is proposed to be permitted
• Comments on the proposals are due by 7 February 2016.
Why are the amendments being proposed?
The Annual Improvements process provides the IASB with
the ability to make necessary, but non-urgent
amendments to IFRSs that address unintended consequences, conflicts or oversights. The publication of the proposals
in a single exposure draft is intended
to streamline the standard - setting
process, providing benefits for both
interested parties and the IASB. The
exposure draft proposes amendments
to three IFRSs that meet the criteria for the
IASB’s Annual Improvement process.
76
The purpose of this article is to
outline recent developments on
International Financial Reporting
Standards as follows:
1.IASB issues exposure
draft: Annual Improvements
to IFRSs 2014-2016 Cycle:
In the first part of this article we
summarise the proposals set
out in the recent exposure draft
ED/2015/10 Annual Improvement to IFRSs 2014 - 2016 Cycle (the “exposure draft”) which
was published by the IASB in
November 2015 for public comment.
2.IASB publishes exposure
draft addressing transfers
of investment property:
In the second part of this article
we outline the proposed amendment to IAS 40 Investment Property set out in the recent exposure draft ED/2015/9 Transfers
of Investment Property (the “ED”)
which was issued in November
2015 for public comment.
When would the amendments apply?
The exposure draft does not specify an effective date for the amendment, though, if finalised, earlier adoption is proposed to be permitted.
The comment period ends on 17 February 2016, and the IASB will determine the effective date after considering the
comments received on the exposure draft.
77
2.IASB publishes exposure
draft addressing transfers of
investment property
The Bottom Line:
• The IASB proposes an amendment to the guidance in
IAS 40 that concerns transfers to, or from, investment
properties.
• Under the proposed new wording, an entity would reclassify a property to, or from, investment property when,
and only when, there is evidence that a change in use of
the property has occurred. The Standard’s current list of
circumstances in which a transfer should be made is proposed to be re-presented as examples of evidence that a
change in use has occurred.
• The IASB does not propose an effective date for the
proposed amendment. However, early application would
be permitted.
• Comments on the proposal are due by 18 March 2016.
each of:
• A transfer from investment property to inventory (the
commencement of development with a view to sale);
• A transfer from inventory to investment property (the
commencement of an operating lease to another party);
and
• A transfer between investment property and owneroccupied property (the commencement or end of owneroccupation).
The ED proposes retention of the requirement to make
a transfer into, or out of, investment property when, and
only when, evidence of a change of use of the property
exists. However, it proposes to re-characterise the Standard’s current list of events constituting such evidence
as only examples of evidence that a change in used has
occurred.
Why is the amendment being proposed?
The IASB received a request concerning properties under
construction or development that are classified as inventory. The submitter asked whether those properties could
be transferred to investment property when there was an
evident change in use other than the single circumstance
currently described in IAS 40. The IASB found that IAS
40 was not sufficiently clear in that respect.
What are the changes proposed in the ED?
Under the existing requirements of IAS 40, transfers to,
or from, investment properties are only permitted when
there is a change in use of a property. The Standard then
specifies one event that constitutes evidence supporting
Observation
In the basis for conclusions on this proposed amendment, the IASB explains that it does not propose adding more
examples of circumstances that evidence a change in use. Instead, the IASB wants to continue to focus on the
principle that transfers to, or from, investment property should reflect a change in the use of that property which
is supported by evidence instead of merely being a change in management’s intention.
When would the proposed amendments apply?
The ED does not include an effective date for the proposed amendments. However, if finalized, earlier adoption is
proposed to be permitted.
The proposed amendments would be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors.
The comment period for the ED ends on 18 March 2016.
The purpose of this Article was to outline the recent development on International Financial Reporting Standards.
In the next edition of the Accountancy we will outline the proposals set out in the recent draft IFRIC Interpretation
Foreign Currency Transactions and Advance Consideration. In addition we will provide an introduction to the provisions
of IFRS 16- Leases.
78
Taxation
Amendments
to the Cyprus
tax laws
to promote
restructuring
By Philippos
Aristotelous
Advocate / Partner
Andreas Neocleous
& Co LLC
In December 2015 the Cyprus tax laws were
amended to temporarily exempt loan restructurings from tax in order to facilitate and encourage the restructuring of non-performing loans.
The amendments1 affect the Income Tax Law,
the Capital Gains Tax Law, the Special Defence Contribution Law, the Stamp Duty Law,
the VAT Law, the Collection of Taxes Law and
the Department of Lands and Surveys (Fees and
Charges) Law.
In all of the laws a new definition of the term “restructuring” has been introduced, referring to the
direct or indirect sale and transfer of immovable
property and transfer of rights under a sale contract deposited with the Department of Lands
and Surveys, between one or more borrowers,
debtors or guarantors regarding the same credit
facility or debt and one or more creditors taking place in 2016 or 2017 in order to reduce or
repay credit facilities or loans or debts granted
to borrowers with one or more licensed credit
institutions operating in Cyprus.
Following the amendments, any benefit, profit
or gain arising in the context of restructuring is
exempt from income tax, and any gain arising
from the disposal of property in the context of
a restructuring is exempt from capital gains tax.
In the context of restructuring a lender disposing of a property or taking possession of it for
the lender’s own use is deemed to acquire it at
the value attributed to it for the purpose of the
restructuring and the disposal proceeds in the
hands of the lender are reduced by any amount
returned to the borrower. In the event of part of
the proceeds being returned to the borrower,
any tax exemption granted to the borrower may
80
be liable to clawback: in this event the lender
is responsible for withholding the appropriate
amount and paying it to the tax authorities.
The amendment to the Special Contribution for
Defence Law provides that accounting profits
arising in the context of restructuring are not
subject to the deemed distribution provisions of
the law. However, in the event of any part of the
disposal value being refunded to the borrower,
then this amount is included in the accounting
profit of the borrower in the tax year in which
the amount was refunded and is subject to the
deemed distribution provisions.
The amendments to the Stamp Duty Law provide that any contracts, mortgages or other documents used within the context of a restructuring are exempt from SD.
The amendments to the VAT Law and the Collection of Taxes Law provide that any property
acquired by a lender in the context of a restructuring remains subject to any existing charges
or encumbrances, and that the tax authorities
may require the borrower to replace them with
equivalent security over another property. The
tax authorities are given discretion to enter into
a negotiated agreement with the borrower to
settle any outstanding taxes in order to allow the
discharge of any security.
FATCA Vs CRS
By Christina
Themistocleous
Assistant Manager
Enterprise Risk
Services
Deloitte Limited
Foreign Accounts Tax Compliance Act (FATCA)
and Common Reporting Standard (CRS) are tax
initiatives that were designed to reduce tax evasion. According to Richard Summersgill, director
of criminal investigation, “the world is becoming
a much smaller place for those who want to hide
themselves and their assets behind anonymous
corporate structures”`.
the intergovernmental approach to implement
FATCA. Similar to FATCA, the CRS requires financial institutions resident in the Participating
Jurisdictions to implement due diligence procedures, in order to document and identify reportable accounts under CRS, as well as to establish
reporting processes on the reportable accounts
identified.
Overview
More than 100 jurisdictions, including Cyprus,
participate to this OECD initiative, while the
majority signed the Competent Authority Agreement, at OECD level. Based on an EU Directive,
together with all EU Members (except Austria
that is late adopter), Cyprus will apply CRS reporting as from 2017 (reporting on calendar year
2016).
FATCA was introduced by the US Department
of Treasury and Internal Revenue Service (IRS)
in 2010 in order to encourage better tax compliance by preventing US taxpayers who hold
financial assets in non-US financial institutions
and other offshore vehicles from avoiding their
US tax obligations. Cyprus concluded an InterGovernmental Agreement (IGA Model 1) with
the US, in order to transpose FATCA obligations
based on automatic exchange of information
through the Tax Authorities.
The Department of Lands and Surveys (Fees
and Charges) Law already provided that no fees
or charges should be levied for transfer or registration of immovable property in the context of a
restructuring and the only change to that law is
the introduction of the new definition.
Since the introduction of FATCA in 2010, the
development of other tax initiatives continues.
Aiming to reduce tax evasion, the automatic exchange of information is increasingly becoming
the standard system of exchange between tax
authorities, with a growing number of countries
participating in initiatives such as the OECD
Common Reporting Standard (CRS).
1. Laws 208(I) and 209(I) of 2015 amending the Special Defence Contribution Law 117(I) of 2002; Law 210(I) of 2015 amending the Department of
Lands and Surveys (Fees and Charges) Law Cap 219; Law 211(I) of 2015 amending the Stamp Duty Law 19 of 1963; Law 212(I) of 2015 amending
the Income Tax Law 118(I) of 2002; Law 213(I) of 2015 amending the Capital Gains Tax Law 52 of 1980; Law 214(I) of 2015 amending the Collection
of Taxes Laws 31 of 1962 and 80(I) of 2014; and Law 215(I) of 2015 amending the Value Added Tax Law 95(I) of 2000.
The CRS is the standard for automatic exchange
of financial account information (“AEOI”), developed by the OECD. The CRS is a comprehensive reporting regime that draws extensively on
FATCA Vs CRS:
The scope of CRS is broader than FATCA, as it
aims to identify tax residents in any of the 100+
jurisdictions participating in CRS. CRS differs
from FATCA as the reporting is based on tax
residency and not citizenship status. Financial
institutions will need to collect specific self-certifications covering the CRS required information
in order to identify and report account holders
that are resident in any of the 100+ jurisdictions.
Therefore, the account scope of CRS may be
significantly greater than FATCA, due to the fact
that most thresholds applicable under FATCA
are not applicable within CRS while the categories of entities that have to provide information
on Controlling Persons are broader.
81
Taxation
Key differences between
FATCA and CRS:
Governing Authority
FATCA: The governing authority are the United
States, specifically the US Department of Treasury and Internal Revenue Service (IRS).
CRS: The governing authority are the 96 separate tax jurisdictions from which 55 are considered early adopters and 41 late adopters.
Registration
FATCA: Financial Institutions need to register
with the IRS and obtain a Global Intermediary
Identification Number (GIIN).
CRS: There is absence of central registration
process. Financial institutions may possibly need
to register with local authorities to submit their
yearly CRS report, but no new global identifier
will be required.
Withholding
FATCA: Financial intermediaries that fail to comply with the reporting obligations (or clients of
those financial intermediaries who fail to provide
sufficient information to the intermediary to be
classified correctly for FATCA purposes) may be
subject to a punitive 30% FATCA withholding
tax on their direct (and at a later stage, indirect)
sources of US income.
CRS: No Withholding. Absence of withholding
under the CRS, but possible imposition of penalties by the tax authorities of the signatory jurisdictions.
Account Scope
FATCA: US Individual Accounts, US Entity accounts and Passive Non-Financial Foreign Entities (NFFE) accounts held by substantial US
owners.
CRS: Individual and Entity accounts held by tax
residents of any CRS participating jurisdiction
or Passive Non-Financial Entities (NFEs) with
Controlling Persons that are resident in any CRS
participating jurisdiction. The number of CRS reportable accounts may be greater than reportable accounts under FATCA.
Thresholds
FATCA: Under FATCA, individual accounts with
balances of $50,000 or less and entity accounts
with balances of $250,000 or less are excluded
from review and reporting, if elected by the financial institution.
CRS: With the exception of preexisting entity accounts, no thresholds are applicable.
82
Documentation requirements
FATCA: Forms W-8/ W-9 are used to capture
all tax data.
CRS: US Tax Forms are not acceptable because
they do not capture all CRS data. Specifically,
CRS self-certifications are needed to capture
CRS specific data such as multiple tax residency
and CRS legal entity classification. Additionally,
Controlling Persons are required to provide their
own self-certification. It is noted that the selfcertification can be provided in any form, but in
order to be valid, the Standard sets out that it
must be signed (or otherwise positively affirmed)
by the Account Holder, be dated, and must include the Account Holder’s: name; residence
address; jurisdiction(s) of residence for tax purposes; TIN(s) and date of birth.
New Accounts of Preexisting Account
Holders
FATCA: The current US FATCA Regulations allows certain new accounts opened by account
holders of Preexisting Accounts to be treated as
Preexisting Account.
CRS: The conditions for a New Account to be
treated as a Preexisting Account are similar to
those in the current US FATCA regulations.
However, is not allowed when the account
holder of a preexisting account needs to provide
new, additional, or amended customer information. Therefore, CRS limits the cases where new
accounts can be considered preexisting.
Key challenges
Complying with CRS reporting implies significant
challenges on the operating model of many Cypriot financial institutions and other institutions.
In an international financial place like Cyprus, it
is expected that the number of account holders, and the volume of data to be reported, will
increase substantially compared to the data exchanged for FATCA purposes.
The financial institutions must be updated and
informed on the new regulations around these
tax initiatives, manage relationships with multiple tax authorities, educate and inform their staff
and clients on account opening procedures and
evidently on reporting requirements.
All these changes will have a huge impact upon
their systems and processes, and will require
enhanced controls. It is therefore expected, that
a need for more automated reporting systems
and the demand for outsourcing solutions, will
arise.
The EU Anti-Tax avoidance package:
An antidote in the making
By Costas A.
Markides,
Board Member,
International Tax
Department, KPMG
On January 28th the European Commission delivered on its promise and unveiled an Anti-Tax
avoidance package. The package mainly consists of two legislative proposals addressing on
the one hand, measures supportive of anti-Base
Erosion and Profit Shifting (the EU-BEPS) with an
aim to create a simpler, levelled and ‘fairer’ level
of taxation within the EU and on the other hand,
non-public country by country reporting (CBCR)
through an amendment to the current EU Directive
on Administrative Cooperation in the field of direct
taxation. The package also includes measures for
a coordinated approach towards good governance
with third countries and last but not least, recommendations to tackle treaty abuse.
The contents of the EU anti-Tax avoidance package released, mirrors the 2013 BEPS Action plan
undertaken by the Organization for Economic Cooperation and Development (OECD) under the
direct instructions of the G20 and is built on the
fundamental premise of aligning the country of activity with the country where tax is paid, only this
time with EU member States at the center of this.
The latest measures as laid out in the anti-Tax
avoidance package, should be seen in the overall context of the European Commission’s “Action
Plan”, which was adopted by the European Parliament on the 16th of December last year and drafted by the Committee on Economic and Monetary
Affairs (ECON), regarding matters of coordination,
transparency and convergence of corporate taxation policy within the EU.
The determination of the EU to get the leading
grip on the fight towards tax evasion was apparent from the very first days following the aftermath
of the ‘LuxLeaks’ scandal back in November of
2014, leading to the adoption of a triple target by
the European Parliament; increased transparency
in all financial transactions within the EU, coordination as far as possible of the national tax authorities within the EU, and convergence of all tax systems within the EU, to an extent which will enable
the European Council to speak with ‘one voice’ at
the international scene.
Without this article aiming to venture into or analyze the numerous and composite tax issues that
have mounted and now surfaced as a result of an
old and out of date international tax system (not
excluding aggressive and even abusive tax practices) and the global financial meltdown which resulted in deteriorating public finances around the
globe, it became obvious that the EU proposed
anti-tax avoidance package is simply an antidote
in the making. With imminent risks that have not
yet been determined (let alone being measurable)
with first and foremost the complete absence of
an estimable assessment of the impact that such
an endeavor may have on the fragile economy of
each member state.
The uncalled eagerness of the EU to go beyond
OECD BEPS proposals and become the champion
of tax transparency at the cost of endangering the
competitiveness of the internal market is another
grave risk that need not be taken in my opinion at
this stage. In light of the fact that third countries
are openly reluctant to adopt similar measures.
The need for coordinated action in tackling tax
evasion not excluding the automatic exchange
of tax information is objectively speaking a move
in the right direction. If this were to be achieved
on a global basis, then the commendable efforts
undertaken by the EU and the OECD would have
generated immediate and quantifiable results in
the global struggle against tax evasion.
The problem however which arises, in my opinion,
concerns the fact that there are many countries
(most of them situated in the Americas, Asia and
the Middle East) who have not committed to the
above standards, nor have they expressed any intent to willingly do so in the future.
As a result, the EU and the OECD are left competing on their own as to who will tackle most
effectively the phenomenon of tax evasion and
tax avoidance (lately these two concepts have increasingly and alarmingly been used as synonyms,
which is a fundamental mistake). The absence of
a conclusive and binding solution for all countries
with no exceptions, as concerns the aspiration to
effectively tackle tax evasion and promote corporate tax consciousness as the global standard,
will lead to a more intense phenomenon of capital
flight out of the fragile European banking system,
resulting in the prolongation of the recession in the
EU, or at a best case scenario lead to sluggish
recovery for certain European countries.
We all agree with the principle of increased and
improved measures that will enhance global transparency and accommodate to the maximum a tax
levelled playing field for all. This endeavor can succeed only under the condition that this will apply to
and be implemented by all and for all. ‘A la carte’
solutions which are non-binding for all countries
will not only fail to solve the global issue of tax evasion and avoidance, but on the contrary will undeservedly serve as to reward those countries which
do not comply, whilst penalizing those countries
that do.
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Taxation
• transfers its tax residence out of a MS or
• transfers its PE out of a MS.
A ‘switch-over’ clause: The aim of proposed Article 6 is to ensure taxation of income in respect of
businesses in a low tax non-EU country, i.e., ensuring a minimum level of tax on revenues derived
from that income. There is no equivalent provision
in the G20/OECD BEPS report.
European Commission proposes Anti-Tax Avoidance
Package (ATAP) – Part I
By Joanne
Theodorides
Director
Tax Advisory
PwC Cyprus
On 28 January 2016, the EU Commission (EC)
presented its ATAP, which consists of seven parts:
• a general policy ‘Communication’ on the ATAP
and the proposed way forward
• legislative proposals for an Anti-Tax Avoidance
Directive (draft ATA Directive)
• legislative proposals for an amendment to Directive 2011/16/EU to coordinate implementation
of G20/OECD BEPS country-by-country reporting
(CBCR) requirements
• a general policy ‘Communication’ on an EU external strategy for effective taxation
• proposed ‘EC Recommendation’ to EU Member States (MSs) on the implementation of G20/
OECD Base Erosion and Profit Shifting (BEPS)
recommendations on double tax treaty abuse and
on permanent establishments (PEs)
• an EC Staff Working Document, and
• a study on Aggressive Tax Planning
The first four parts of the ATAP are discussed in
more detail below. The remaining parts will be discussed in Part II in the next edition of this publication.
General policy ‘Communication’ on the ATAP and
the proposed way forward
In this Communication the EC notes that the majority of businesses do not engage in aggressive
tax planning and suffer a competitive disadvantage
to those that do. The EC also notes that MSs suffer significant revenue loss as a result.1
While the EC generally commends the G20/OECD
BEPS project, which released its ‘final’ report in
October 2015, the EC states that the EU can and
should go further to ensure that MSs develop a
‘common standard’ and level playing field by implementing the ATAP in a coordinated manner.
The Communication also refers beyond the ATAP
indicating that the Common Consolidated Corporate Tax Base (CCCTB) is the EC’s preferred solu-
tion to profit shifting, transparency, and effective
corporate taxation in the EU and the EC is aiming
to adopt the new CCCTB legislative proposal in
Autumn 2016.
The ATA Directive
The proposed ATA Directive would apply to all
taxpayers (including PEs) that are subject to corporate tax in MSs (per proposed Article 1). The
proposed Directive includes minimum standards to
be enacted irrespective of whether the situation involves cross-border transactions. It would not prevent MSs from having other anti-avoidance rules
designed to give greater protection to corporate
tax bases (per proposed Article 3). No transitional
rules are included in the proposed ATA Directive.
The key provisions in the proposed ATA Directive
include:
Interest deductibility: Article 4 proposes a rule
restricting net borrowing costs to the higher of
EUR 1 million or 30% of the taxpayer’s taxable
earnings before interest, taxes, depreciation, and
amortization (EBITDA). The proposed Directive
also includes suggested language for a group ratio
that differs from the potential group ratio rule suggested in G20/OECD BEPS Action 4. There is a
temporary exclusion for financial undertakings (as
defined in Article 2).
Rules for exit taxation: The Article 5 proposals
aim to prevent tax base erosion with tax jurisdiction
transfers without any ownership change. There
would be an exemption where the transfer is temporary with the intention to revert to the transferor
state. There is no equivalent provision in the G20/
OECD BEPS report. The market value (arm’s
length) of the assets involved in the transfer minus
their tax value (written down or otherwise) is to be
taxed where a taxpayer:
• transfers assets (between a head office and its
PE, or between PEs) out of a MS or
1 In this context aggressive tax planning is defined by the European Commission (EC) as “taking advantage of the technicalities of a tax system or
of mismatches between two or more tax systems for the purpose of reducing tax liability. It may result in double deductions (e.g. the same cost is
deducted both in the state of source and residence) and double non-taxation (e.g. income which is not taxed in the source state is exempt in the state
of residence)”.
84
MSs would not be able to exempt a taxpayer from
tax on:
• profit distributions from an entity in a non-EU
country
• proceeds from the disposal of shares held in an
entity in a non- EU country or
• income from a PE in a non-EU country,
where the entity/PE is subject to a statutory corporation tax rate which is less than 40% of the
statutory rate applicable in the taxpayer’s MS. Instead, these amounts must be subject to tax with
credit for foreign taxes. This is not designed to apply to losses.
General anti-abuse rule (GAAR): The aim of
proposed Article 7 is to tackle abusive tax practices not dealt with through other specific provisions. There is no equivalent provision in the G20/
OECD BEPS report. The proposal is effectively
a direction for tax authorities to apply a standard
EU-wide GAAR to ignore arrangements where
the essential purpose is to obtain a tax advantage
that defeats the object or purpose of the tax provision and where the arrangements are regarded
as non-genuine. The tax liability would then be
‘calculated by reference to economic substance in
accordance with national law’. Within the EU, this
would be limited to ‘wholly artificial arrangements’
to ensure compliance with the EU fundamental
freedoms and case law.
Controlled foreign company (CFC) rules: CFC
rules for entities subject to a low level of taxation
are proposed in Articles 8 and 9. A low level of
taxation is considered 40% of the parent’s effective rate, and the CFC rules apply if more than
50% of the entity’s income falls within specified
categories (generally, passive income). If the CFC
is domiciled in the EU/European Economic Area
(EEA), the rules would apply only if the entity’s establishment is wholly artificial or the entity engages
in non-genuine arrangements with the essential
purpose of obtaining a tax advantage.
Hybrid mismatch rules: Proposed Article 10
aims to prevent outcomes where there is a double
deduction or deduction with no income inclusion.
It seeks to address mismatches between MSs’ tax
systems arising due to the use of hybrid entities or
hybrid instruments. Hybrid mismatches between
MS and non-EU countries will be further examined
at a later stage. Under the proposed treatment in
the ATA Directive, characterization of the entity or
instrument in the MS where the payment has its
source would be followed by the other MS involved
in the mismatch.
Coordinated implementation
within the EU of G20/OECD BEPS
Action 13 CBCR requirements
The EC proposes coordinated implementation
within the EU of the G20/OECD BEPS Action 13
CBCR requirements by extending the scope of the
Directive 2011/16/EU. This is popularly known as
DAC4, as the fourth iteration of the so-called Directive on Administrative Cooperation. Since most
EU MSs are also OECD members, and already
have committed to implementing Action 13, this
amendment could be adopted in Council within
weeks if MSs do not raise new technical issues.
DAC4 would require, inter alia, large multi-national groups to provide to tax authorities a template
analysing by tax jurisdiction; revenue, profit before
income tax, income tax paid and accrued, number of employees, stated capital, retained earnings and tangibles assets (other than cash or cash
equivalents).
DAC4 could take effect in 2017 and could require
reporting for accounting periods beginning from
1 January 2016. The EC is already looking beyond DAC4 and is expected to issue a proposal
for CBCR with public disclosure of information in
Spring 2016.
Communication on an EU
external strategy for
effective taxation
The communication on an EU external strategy
for effective taxation outlines the EC’s ideas for
promoting tax governance with non-EU countries,
such as through a special clause in trade agreements, and assistance to developing countries on
tax matters. Most importantly, the EC wants a
common EU system for assessing, screening and
listing third countries. The communication does
not address the counteraction against listed countries. An update of the EC’s controversial June
2015 list of non-EU country, non-cooperative tax
jurisdictions is available online in an interactive
map.
The takeaway
The legislative proposals of the ATAP will be submitted to the European Parliament for consultation
and to the Council for adoption. Before endorsing
and implementing the various documents, all MSs
must consent on a unanimous basis and decide
on the way forward. Although it is uncertain when
and in what form the ATAP will be enacted, it is
important to monitor updates and further developments. If the ATAP is enacted in some form, it
may significantly impact multi-national enterprises
in the EU.
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Taxation
Living in Cyprus:
A scrumpTAXious Proposition
Cyprus has always been an attractive tourist destination, as well as a great place to relocate and
call home. Being family and business friendly, it
has so far won over the hearts of over 180.000
foreign nationals who live and work here, making
up 22% of the country’s total population.
By Nicolas
Papapanayiotou,
BSc, MBA, FCCA
Senior Manager,
Taxation
Department
Costas Tsielepis &
Co Ltd
Now, Cyprus has further reinforced another aspect of its allure: that of personal taxation.
Having recently adopted highly attractive domicile provisions, the island aspires to also become
an ideal country for private domiciliation.
Below is an analysis of the reasons why.
1.TAX RESIDENCY AND
DOMICILE
The key to understanding personal taxation in
Cyprus lies with the important concepts of ‘tax
residency’ and ‘domicile’.
a) Tax Residency
A Cyprus tax resident physical person is any person who is physically present in Cyprus for more
than 183 days in a calendar year, regardless if
that person owns or rents accommodation.
b)Domicile
According to the domicile concept under the tax
legislation, every person has at any given time
either:
i. the domicile received by him/her at birth
(‘domicile of origin’), or
ii. the domicile (not being the same as the domicile of origin) acquired or retained by him/her
by his/her own act (‘domicile of choice’).
For tax purposes however, a non-domiciled individual will be deemed as domiciled in Cyprus
if he/she has been a Cypriot tax resident for at
least 17 out of the last 20 years prior to the relevant tax year (deemed domicile rule).
An individual who has a domicile of origin in Cyprus, may still qualify as non-domiciled subject
to certain conditions, namely to have not been
a Cyprus tax resident for a consecutive period
of 20 years.
2.TAXABLE INCOME
A tax resident individual is subject to income tax
86
on his/her worldwide income. Where such person is also not domiciled in Cyprus, for a period of at least 17 years, i.e. until the person is
deemed domiciled in Cyprus (see above) then:
• no Cyprus tax is payable on receipt of any
dividend income from anywhere in the world (although on foreign dividends, the source country
may withhold taxes);
• the provisions whereby a Cyprus tax-resident company must declare at least 70% of
its after-tax accounting profits within two years
(known as the ‘deemed distribution rules’), do
not apply to that proportion of shareholding beneficially owned by a non-Cyprus domiciled individual;
• no Cyprus tax is payable on receipt of interest income from anywhere in the world (although
on foreign interest, the source country may withhold taxes).
A non-tax resident is subject to income tax on
income accruing or arising only from sources
within Cyprus and is exempt from any Cyprus
tax on dividend and interest income.
3.INCOME TAX RATES
Taxable income, i.e. gross income less exemptions less deductions, up to €19.500 is exempt
from income tax. The taxable income exceeding
this amount is subject to progressive tax rates
ranging from 20% to 35% (the higher rate being
for taxable income exceeding €60.000).
4.EXEMPTIONS
One of the following exemptions is available for
individuals moving to Cyprus to commence employment:
• Either, 20% of the employment income, up
to a maximum of €8.550 annually
This exemption applies from the start of the year
following the year of employment, until the 2020
tax year inclusive, but cannot be granted for a
total period exceeding five years.
•
Or, 50% of the employment income
A 50% exemption applies to salary income of a
non-tax resident individual, who takes up resi-
dence in Cyprus to work for an employer in Cyprus. The exemption applies for a period of 10
years starting from the first year of employment,
provided that the annual income of the employee
exceeds €100.000 per annum; and
- the exemption will not be available where
the individual was a Cyprus tax resident in any
three of the previous five tax years (only applies
to employments that commence on or after 1
January 2015); and
- the exemption will not be available where
the individual was a Cyprus tax resident in the
year preceding the year of commencement of
employment (only applies to employments that
commence on or after 1 January 2015); and
- the exemption will be granted for any tax
year in which the 12-month total gross emoluments from the employment exceed €100.000,
regardless if in a specific tax year, these were
less than €100.000.
4.1 Exemptions for overseas employment
Where an employee is Cyprus tax resident, then
salaries from rendering services outside Cyprus
to a non-resident employer or to an overseas
permanent establishment of a resident employer
for more than 90 days in a tax year are exempt
from income tax.
In order for the 90 day rule to apply there must
be an employee/employer relationship.
4.2 Exemptions on titles
Any gains arising from the disposal of shares,
bonds and other similar equity financial instruments are exempt from income tax.
ing two options:
• the pension can be taxed under the progressive income tax rates with the first €19.500 taxfree; or
• the first €3.420 of the foreign pension tax
free, with the balance taxed a flat rate of 5%.
Any lump sum received as a retirement gratuity
is exempt from tax.
6.DEDUCTIONS
In general, the below deductions are available
for Cyprus tax resident individuals:
•
donations to approved charities;
•
payments relating to special contribution;
• payments relating to the Social Insurance
Fund and similar contributions, even when paid
abroad;
• payment relating to premiums for life insurance (limited to 7% on the insured capital
amount) and contributions to pension plans.
• there is an overall limit on personal allowance deductions (i.e. for life-insurance premiums, contributions to funds including pension
and social insurance) of 1/6 of the taxable income before these deductions.
• payments relating to premiums paid to approved medical funds are tax deductible, provided that they do not exceed 1,5% of the gross
salary income.
ex.1
Any income from a buy-back or redemption of
units in funds is also exempt from income tax.
4.3Exemption from capital gains tax on sale of
real estate
Capital gains arising from the disposal of immovable property situated outside Cyprus is exempt
from any Cyprus taxation.
Where Cyprus property is acquired between 16
July 2015 and 31 December 2016, no capital
gains tax will apply on its future disposal.
5.ADVANTAGES AVAILABLE TO
PENSIONER EXPATRIATES ON
PENSION INCOME
A Cyprus tax resident receiving a pension from
abroad can choose every year one of the followACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
87
Taxation
7.WEALTH, GIFT, INHERITANCE,
ENDOWMENT AND EXIT TAXES
Cyprus generally does not impose wealth, gift,
inheritance, endowment or exit taxes.
8.HOW DOES IT WORK?
PRACTICAL EXAMPLES
a) EXAMPLE 1 - Dividend and Interest Income
A non-Cyprus domiciled individual relocates
to Cyprus in December 2015. During 2016,
while being a Cyprus tax resident, she received
€150.000 dividends from Cyprus companies
and €750.000 from foreign companies.
She also received €15.000 interest income
from her Cypriot personal savings account and
€25.000 interest income from a notice account
held with a foreign bank. No foreign tax was
withheld on the interest income received from
the foreign banks.
ex.2
The total interest and dividends income received
will be exempt from Cyprus tax.
b) EXAMPLE 2 - Remuneration
Mr. Ivanovic relocated to Cyprus in December
2014 and started working in Welcome-To-Cyprus Ltd from 1/1/2015 as a Senior Regional
Manager earning an annual gross salary of
€110.000. His annual salary of €110.000 relates to employment services rendered within
Cyprus. Mr. Ivanovic also travelled to Dubai,
of the UAE, to work for Welcome-To-Cyprus
Ltd’s Dubai branch for an aggregate period of
4 months. During the period in Dubai, Mr. Ivanovic received an extra salary of €25.000 and
an overseas special allowance of €7.500.
Calculation of Mr. Ivanovic’ 2015 income subject
to tax in Cyprus is as follows:
Badges of trade
The Tax Tribunal of Cyprus, with its present
composition, completed the first two years of the
four, for which its appointment applies.
By Costas
Procopiou
FCCA
Tax Tribunal
Counselor
The difference in the majority of the Appeals that
we have handled in these two years, relates to
the treatment, from the Tax Department, of profits arising in cases of property disposal by Taxpayers. Specifically, if the profit is deemed to be
of a capital nature, it falls within the provisions
of the “Capital Gains Tax Law” (N.52/1980) as
amended, while, if it is deemed to be trading,
then it falls within the provisions of the “Income
Tax Law” (N.118 (1)/2002) as amended.
If the gain is considered to be of a capital nature,
it will be taxed by 20%, while, in the case that will
be considered trading in nature, it will be taxed
by 10%, or 12.5% for companies (depending
on the fiscal year in which the profits arise), and
approximately by 24.89% for individuals in hypothetical taxable profit of €100,000, with no
other income and deductions. In cases of other
income (wages etc.) there is an increased possibility that this factor will be higher.
This difference in the tax effect, is the root
cause of dispute between the Tax Department
and Taxpayers in most (if not all) of the cases
examined by the Tax Tribunal. Whether a trans-
88
action has the marketing character, or investment realization, is a mixed matter, legal and
real. There is abundant case law, both British
and Cypriot.
The Court decisions, have established the following:
i. Each case is examined individually and is decided by the application of the Law and the guidance of the reports, on the facts and circumstances of each case.
ii."Badges of trade" have been established
through the court reports.
iii.These “badges” are objective, are not exhaustive and none alone is decisive.
iv.Ultimately, what defines the true nature of a
transaction, is the cumulative effect of all the elements which form it.
Below are the established by the Court “Badges
of trade" with a general analysis:
1. The subject matter of the
transaction
The nature of the object is an important factor in
deciding the question which arises. It should be
considered whether:
- the object generates income (if it does, it will
most likely be considered to be of capital nature)
- the object was purchased for personal or fam-
89
Taxation
ily reasons e.g. artworks (not subject to income
tax)
- the object is part of a trading stock (in which
case the transaction will be considered as a trading one).
7. Method of financing the
cost of acquisition
2. The length of ownership
8. Knowledge of the owner
The short duration of property’s ownership is
usually an indication of trading nature of the
transaction. However, due to the fact that there
is no specified time for each kind that may be
the subject matter, it is understood that this criterion, like all the others, is examined alone, and
in combination with the rest.
3. The frequency or
the number of similar
transactions by the same
person
The frequency of similar transactions is an important factor as to whether a transaction will
be considered as a trading one. The more similar transactions have been made by the same
person, the higher the probability to classify the
transaction as a trading one.
4. Supplementary work
done on the disposed
property
Supplementary work carried out on an asset, in
order to enhance its value and thus to become
more marketable, is an indication of trading. For
example, a purchase of a plot of land and the division of it into building plots, was considered as
individual trading transaction, when part of them
were disposed in a few months.
5. Circumstances
responsible for the
disposal
In the case of land purchase for development in
buildings for rent, but for unforeseen reasons,
the development does not take place and the
land is sold, such action may not be considered
as an individual act of a trading nature. Similarly,
a forced sale for fundraising in an emergency
situation is an indication that the transaction is
not trading.
6. Motive
This is probably the most difficult to detect. If
there is an obvious intention of a person to make
a quick profit from a transaction, the transaction,
will more likely be classified as a trading one.
Usually this badge will be used to reinforce the
examination/evaluation of other badges, such
as the duration of property ownership, the disposal circumstances etc.
90
Fraud
PwC’s Global Economic Crime Survey 2016
The purchase of an asset by getting a loan, and
the sale of it or part of it for repayment of the
loan is a sign of a trading transaction.
The owner's knowledge sometimes is an important factor in deciding whether a transaction is a
trading one. For example, the case of a taxpayer
who was a technician in an architect’s office and
purchased land in coastal area under tourism
development and sold in a short time period. The
profit gained was considered to be trading.
9. The method of acquisition
The purchase of an asset is a strong indication, that in case of disposal, the transaction will
probably be an individual trading act, provided
that there are other criteria, such as short property ownership, etc. By contrast, the disposal
of property acquired by way of gift or by inheritance, usually is not considered to have a trading
substance.
10. What happens with the
disposal proceeds
This factor is quite useful to support the position
that the disposal was not aimed at trading profit.
If the disposal proceeds are used for new purchases of similar goods, is more likely to have
a trading disposal, while if they are set aside, is
more likely to lead to a disposal of capital nature.
The above 10 badges of trading, as already
mentioned, have been established by the rich
case law of the matter, are not exhaustive and
none by itself is not determinative.
Each case is unique and what will determine the
true nature of a transaction, is the aggregate
result.
By Michalis
Tallis,
Member of the
Economic Crime
and Forensic
Accounting (EFCA)
Committee*
According to PwC “More than a third of organisations have experienced economic crime in the
past 24 months” as reported by over 6,300 respondents” in to PwC’s Global Economic Crime
Survey 2016. The sample analysed by the survey
span across 115 different countries. The companies interviewed ranged from huge multinational
firms to private business across a variety of different industries in the private sector as well as government departments. “This year’s results show
that the incidence of economic crime has come
down, for the first time since the global financial
crisis of 2008-9, albeit marginally by 1%” as PwC
points out in their survey. These incredible statistics by PwC show how large and extensive the
problem of financial crime is. Living in Cyprus and
listening to the news with all the various financial
scandals revealed daily makes our perception of
this type of crime even more acute.
Despite the millions of dollars spent to tackle economic crime this is still going strong. Despite the
fact that the PwC survey shows a 1% decrease in
this type of crime, its effect is still huge and it still
inflicts a great cost on the global economy.
The 2016 report demonstrates how economic
crime has evolved over the past years, and how
it has transformed into different modes depending on industrial sector and region. Since cash is
o longer the prime method of payment for most
business activities and since businesses have
expanded across national borders, criminals are
devising very sophisticated ways of action with a
view to defraud their employers and their countries.
Traditionally financial crime was associated with
the Financial sector, in the past few years however other business sectors like mining and transportation and logistics, which traditionally were
thought to be free of such crime, now show that
they can also be vulnerable. Hence the survey
points out that “it is the type of crime and its perpetrators that are changing rather than the crime
per se going down”.
Additionally PwC survey stresses the need for
organisations to understand where their risk lies.
Risks are different in different markets as well
as across industries. For example countries in
Asia pacific, Eastern Europe and Africa are more
susceptible to bribery, corruption and procurement fraud, i.e. fraud relating to tenders and/or
purchasing materials, services etc on behalf of
the company/government. Procurement crime
is more likely to happen in large organisations of
more than 10,000 employees, or in government
departments where procedures and controls are
weak and not very transparent.
The PwC survey results were focused on the
three areas companies have to give priority to
when they want to curb financial crime:
1.Cybercrime: This is the type of crime that involves a computer and a computer network and in
which the computer may be used to commit the
crime itself, or it may be the target of the criminals. This type of crime has shown a significant
increase since PwC last survey.
2.Money laundering: In the past few years there
has been a significant increase in regulation and
hence the cost of compliance relating to this topic. Anti money Laundering officers and manuals
were introduced and also the local police fraud
squads got heavily involved in the process. However the PwC survey could not report an equivalent reduction in this type of crime.
3.Ethics and Values: These are increasingly important as a first line of defence on compliance
and the PwC survey stresses that even the most
rigorous compliance methods would fail if the culture of a firm is unethical or corrupt.
Some respondents to PwC’s Global Economic
Crime Survey 2016 (45% of the total) expressed
a belief that local law enforcement agencies have
the ability and the capacity to fully deal with economic crime. The majority think that more can be
achieved through better training and determination. The survey goes on to stress the fact that
“today more than ever before, a passive approach
to detecting and preventing economic crime is a
recipe for disaster”. To emphasize this fact, the
survey exposed a prevalent lack of confidence in
local law enforcement agencies which is a phenomenon that is not limited to regions or level of
economic development of the country itself. The
message in the report is clear: “the burden of preventing, protecting and responding to economic
crime rests firmly with organisations themselves.”
In addition to highlighting specific areas of economic crime worth focusing on, the Survey emphasises the things a company can do better to
confront them. It stresses the need to implementing more sophisticated and efficient measures that can not only reduce these risks, but
also bring the benefits of a more “threat-aware”
business, one that will be confident on how to
improve its defences in a changing world.”
Michael Tallis has a BA degree in Economics from The University of East Anglia UK. Also qualified FCCA and ACA
91
Fraud
tend to believe that closer links between business and politics lead to corruption.
Nepotism and Patronage:
a Barrier for Cypriot Companies, says the EU
Corruption is a serious challenge for all societies, and the EU is no exception. The cost of
corruption in the EU and its Member States has
been estimated at EUR 120 billion annually.
By Maria
Konstantinou
(SociologistCriminologist) is
an Officer and
Researcher at
Transparency
International
-Cyprus. info@
transparencycyprus.
org.
Practices are in place to fight corruption throughout the EU. To address this phenomenon, the
Commission has implemented a range of measures to fight corruption, such as the Stockholm
Programme and the Anti-Corruption Report
(ACR) of the EU.
The ACR report was published in 2014 and its
aim was to monitor and evaluate anti-corruption
efforts in the EU Member States. The next report
is due in the autumn of 2016. The Eurobarometer survey conducted in 2013 and published in
2014 was designed to investigate the level of
corruption, how it is perceived and how it is experienced by companies engaged in the following sectors: energy, minerals, oil and gas, chemical, healthcare and pharmaceutical, engineering
and electronics, motor vehicles, telecommunications and information technology, construction,
and financial, banking and investment services.
...corruption or abuse of power for personal gain
among politicians, party representatives and senior
officials at the national level, is widespread.
92
The 2015 Eurobarometer on Business and Corruption was conducted by telephone interviews
from 21 September to 9 October 2015, with a
sample of 7996 people in the EU and was published in December of 2015. The Cypriot participation was 180 business representatives.
The results showed that in 2015, seven out of
10 companies (71%) stated that corruption is
widespread in their country, compared to the
survey conducted in 2013. In Cyprus, the rate is
93%. Compared with 2013, there is an increase
of 10% of companies in Cyprus who consider as
a problem patronage and nepotism.
Regarding the practice of bribes, 52% of companies in Cyprus said this is the most widespread
problem. There is an increase of 19% compared
to 2013.
Compared with 2013, 2015 shows an increase
in favouritism of family and friends in companies and public organizations in Cyprus. In fact
87% of the Cypriot companies consider this as a
problem which hinders competition in business.
Also, Cyprus has reported the highest percentage of companies that believe funding of political
parties is carried out in exchange of public contracts or influence over policies. Just like in the
previous Eurobarometer companies in Cyprus
Moreover, significant is the finding that nine
out of ten companies believe that corruption or
abuse of power for personal gain among politicians, party representatives and senior officials
at the national level, is widespread. First is
Greece with 91%, followed by Cyprus with 89%
and Italy with 88%. According to the Eurobarometer, noteworthy is the fact that 90% of these
companies said that corruption is widespread in
their country, and at least ¼ of the companies
reported that corruption is one of the most common practices in their country. The percentages
concerning Cyprus showed an increase of 18%
compared to 2013.
Following Bulgaria and Greece, a percentage of
85% of companies in Cyprus agree that bribery
and the use of connections is often the easiest
way to obtain certain public services. For the
25 Member States, companies tend to believe
that money or gifts of 1 to 50 euros constitute a
bribe. Fifty-four percent of companies in Cyprus
share this view.
Also, more than half of the companies from 22
Member States reported that the practice of tailor-made specifications for public procurement is
widespread. There is a perception amongst the
Cypriot companies (75%) that public procurement procedures are tailor-made for particular
companies and that (a) conflict of interests in the
evaluation of bids (76%), (b) collusive bidding
(70%), (c) involvement of bidders in the design
of specifications (67%), and (d) amending the
contract terms after the contract is concluded
(55%) is widespread.
85% of companies in Cyprus agree that bribery
and the use of connections is often the easiest
way to obtain certain public services.
nies in Finland (64%), Cyprus (61%) and Denmark (60%) are the most likely to agree people
or businesses caught for petty corruption are appropriately punished?
Companies in Cyprus have identified the following barriers of doing business:
(a) patronage and nepotism (56%),
(b) access to financing (61%),
(c) inadequate infrastructure (67%) and
(d) lack of means or procedures to recover debt
from others (73%) is a problem for their company.
(e) complexity of administrative procedures
(53%)
(f)tax rates (48%)
(g) ast-changing legislation and policies (47%)
(h) restrictive labour regulations (44%)
Corruption misallocates resources, fosters misguided and unresponsive policies and regulations, lowers investment levels, reduces competition and efficiency, lowers public revenue for
essential goods and services, increases public
spending, reduces competition and efficiency,
and lowers growth. Transparency International- Cyprus through it actions initiatives and the
Business Integrity Forum for companies, aims to
reduce corruption in Cyprus. Join the initiatives
in an effort to reduce corruption in our country.
As for the punishment of the corruption, compaACCOUNTANCY CYPRUS • VOLUME 122 • MARCH 2016
93
Fraud
blow the whistle upon seeing someone committing a crime, an illegal act or a wrongdoing,
in order to mobilize other police officers or the
general public.
The act of whistleblowing has 4 elements: (a)
the whistleblower; (b) the whistleblowing act;
(c) the person to whom the complaint is made;
and (d) the organisation against whom the
complaint is made.
The Achilles Heel
of Whistleblowing Protection
Part A
By Maria
KrambiaKapardis
(PhD, M.Bus,
B.Ec, FCA, ACFE)
Associate Professor
of Accounting,
Cyprus University
of Technology,
Chair and Founding
Member of
Transparency
International Cyprus
and Andriani
Papageorgiou
( BBA) Researcher,
Cyprus University of
Technology
94
The 2015 Eurobarometer1, has found that in Cyprus there is a perception by companies (93%)
that corruption is widespread in the country.
The business respondents believe: (a) there
is abuse of power for personal gain by politicians, party representatives or senior officials;
(b) there is bribery, kickbacks, favoritism and
nepotism and (c) corruption in the local government has increased since the 2013 survey by
21%. These phenomena have also been noted
in the National Audit Office’s Audit Report for
2014 where mismanagement of public funds
and risks of corruption are well documented.
The Auditor General has made many suggestions/recommendations for improvement of the
entities audited. The European Commission in
its 2014 Anti-corruption report has also made
a number of suggestions to the Republic of
Cyprus in combating corruption. Transparency
International Cyprus has been advocating for
measures to be implemented by the government since 2013.
The government has been demonstrating in
recent months the political will to reduce corruption. Efforts have been made by the Ministry of Justice and Public Order, the Treasury,
the Presidency, the Attorney General and the
Auditor General to implement anti-corruption
measures.
One of the topics advocated by Transparency
International -Cyprus (TIC) has been the enactment of legislation on protecting the Whistleblowers. Whistleblowing has proven to be an
effective anti-corruption mechanism and a powerful tool that helps in deterring fraud, violations
and malpractices within organizations, corporations and the public sector. Thus, “greater
whistleblower awareness results in more observed corruption coming to light and being
successfully prosecuted”2. In addition, through
the implementation of such legislation, an entity’s top management can correct and eliminate
specific wrongdoings thus enabling them to develop and implement the correct ethical culture
and work environment. In fact, greater whistleblower awareness results in more observed
corruption coming to light and being successfully prosecuted. TIC has carried out a survey of
whistleblowers, has organized an international
conference on the topic and published a report,
all of which are available on the NGOs website3.
The Ministry of Justice and Public Order has
prepared a Bill which is subject to review by
the office of the Attorney General before being
sent to Parliament for discussion.
The term whistleblowing can be described
as expressing a concern about a wrongdoing
within an organization, such as a corporation,
an association, an institution or a union. Such
disclosure must be made in the public interest
and should relate to the cover up of matters
that could potentially result in a miscarriage of
justice, a crime, criminal offence and threats to
health and safety. The disclosure ought to be
made in good faith and it is not considered a
complaint.
The origins of the term ‘’whistleblowing’’ come
from the practice of British police, who would
Whistleblowing is becoming a powerful weapon
for corruption prevention and sometimes is the
only way to reveal such information. However,
in order to help the common good, a whistleblower is taking some serious personal risks.
He/she may be burdened with negative stereotypes and derogatory labels such as ‘informer’ or ‘snitch’, or he may face retaliation
in his career, face a lawsuit, threats of physical
harm and in extreme cases death threats. The
above difficulties illustrate obstacles to the fight
against corruption, at the expense of the public interest, as many choose to remain silent at
the risk of personal or financial burdens being
created.
There are over 200 well known whistleblowers4 listed on the Webb. The stories of Edward
Snowden, who released classified material on
top-secret NSA programs; John Kiriakou who
disclosed that the CIA water boarded detainees constituted torture and Sherron Watkins,
who exposed the Enron financial scandal- have
been covered and glorified by the media. The
stories of those whistleblowers who have lost
their jobs, have suffered personal humiliation,
have had their family lives destroyed and have
reached personal financial catastrophes remain
in the shadows.
A survey conducted of Cypriot whistleblowers
and intended to- be- whistleblowers has provided some significant findings that are worth
considering by the authorities. Some of these
findings are:
• The Cypriot whistleblower is a male (46-55
years), married with or without dependent children, in full-time position and would not hesitate to blow the whistle again.
• The Cypriot whistleblower is in top management, with professional qualifications.
• The consequences faced by the whistleblowers were: fired, bullied, demoted and harassed.
• Apart from those with minor dependent children who would not blow the whistle again, the
rest of the whistleblowers would do it again because they believe work ethics is above financial incentives, and money.
• Knowing of the consequences of their nondisclosure now, 65% of the would-be whistleblowers would not blow the whistle, because
they believe ‘nothing would happen’.
• Interestingly, 81% would not be motivated
by a financial incentive to decide to blow the
whistle.
• Immunity protection against retaliation of being fired would have influenced the decision of
only 36% to blow the whistle.
• In fact, 89% of the respondents would blow
the whistle if there was a legal obligation to do
so, with a provision that failing to do so would
render them equally accountable and therefore
criminally liable.
• It is worth mentioning that 72% of the respondents felt that cases like the Stock Exchange Scandal, the Helios Incident, the Mari
Explosion, the banking crisis would not have
been prevented the incidents even if we had
a whistleblowers protection legislation because
the authorities would not have acted upon the
information.
The survey findings illustrate that not only there
is a legislative gap as far as whistleblowers is
concerned but an expectation that the authorities ought to be taking a holistic approach to
the matter. Part B of the article, to be published
in the next issue of Accountancy, will address
legislative reforms and suggestions made by
the European Commission and Transparency
International-Cyprus. In fact TIC recommends
a holistic and comprehensive framework in addressing Whistleblowing since legislation is not
always a panacea in addressing corruption.
1 European Commission (2015) Flash Eurobarometer 428, Business and Corruption http://open-data.europa.eu/en/data/dataset/S2084_428_ENG
[10/1/2016]
2 Goel K., R & Nelson, M. 2013, “Effectiveness of whistleblower laws in combatting corruption”. Available at http://www.suomenpankki.fi/pdf/171843.
pdf [accessed 27/1/2015]
3 www.transparencycyprus.org
4 https://en.wikipedia.org/wiki/List_of_whistleblowers
95
Real Estate
Oversupply
DEFINITION OF ‘OVERSUPPLY’. Investopedia
An excessive amount of a good or other substance. Oversupply results when
demand is lower than supply, thus resulting in a surplus. Real estate cycles can
be separated into four distinct phases based upon the rate of change in both
demand and supply.
By Panos Danos
FRICS, VRSc, C.
Env. - CEO DANOS
/ BNPPRE Group
Figure 1 depicts the market cycle in terms of occupancy rates. Occupancy is the difference between total supply (including newly constructed space) and effective demand as measured by
absorption.
Markets
are defined as having
two up-cycles (recovery
and expansion) and two
down-cycles (hypersupply and recession). In
reality, markets always
have either demand
growing faster than
supply or supply growing faster than demand.
The demand and supply
growth rates are equal
only at the peak of the
market cycle, with existing space plus new construction exactly matching new demand.
Figure 1
PREDICTING THE FUTURE
The next decade will be different from the cycles of the last three decades. Most
economists predict moderate, but stable demand growth. The technology revolution is similar in opportunity and employment impact to the industrial revolution, but
the major difference is that we now have a global economy instead of a national
economy, and the magnitude of economic growth may be substantially greater than
the past. What will “The New Economy” mean to real estate? The technology revolution (note that we will soon enter the space revolution) has actually created more
employment opportunities and the need for more space of many types. Technology
employment has created major demand for office space, more efficient inventory
control has caused demand for large warehouse space, land based retail continues
to grow as people have more money to spend and apartments are in large demand
from the young people. People still need real estate to work, sleep, shop, eat and
play.
The supply of space will be much more constrained than previous cycles for a number of reasons. First, the constraints on building have increased. Over the past two
decades, the number of impact studies, permits and approvals necessary to build
projects have more than tripled in cost and time. Environmental impact studies, traffic impact studies, storm water runoff management and other societal impacts must
now be analyzed and mitigated before development approvals are given. The cost of
construction labor and materials has increased at high rates.
A “start-up” development company is now much more difficult than it was in previous cycles and many of the major commercial developers have become long-time
investors by turning their companies into REITs. Also now, is much more difficult to
justify new space without an analysis of existing competitive construction and user
demand for existing space.
Figure 2
The rental growth theory assumes that growth
rates for asking rents are a function of the market’s position in the real estate cycle phase as
indicated by market occupancy.
This theory holds that rental growth will be below inflation when market occupancies are low,
while rental growth rates will exceed inflation
when market occupancy is high. Additionally the
96
theory assumes that the rental growth rates will
steadily increase in up-cycles and rental growth
rates will steadily decrease during down-cycles.
Thus, during the recovery phase of the property
cycle, rental growth rates should be negative
near the bottom, increasing only as the cycle
moves toward the long term occupancy average.
Figure 2 displays the occupancy to rental growth
relationship for different phases of the cycle.
CYPRUS REAL
ESTATE: IS
IT A GOOD
INVESTMENT?
It was said that foreign
investors and buyers
are looking for properties in Cyprus, driving
the real estate demand
to an all-time high. It
was said that acquiring a holiday home in
Cyprus can be a real
opportunity of those
interested in buying a
residence.
Some say that, “Declining incomes, zero mortgage financing, an oversupply of real estate
property, have crashed
the Cyprus real estate
market, therefore saying that Cyprus real estate is a buyer’s market
is an understatement”.
HOW DO APPRAISERS DETERMINE IF THERE IS AN OVERSUPPLY OR
SHORTAGE OF HOMES?
Keep in mind that real estate is location and property specific, and just because there is a shortage in one
area, does not mean this is true all over. In addition, supply and demand can vary among homes in different
price ranges, so we may see a shortage of homes for sale in the €100,000 to €200,000 price range but an
oversupply of homes for sale over €1,000,000. Valuers always been required to research and analyze market
conditions in their appraisal assignments.
As a conclusion Oversupply is not a definite term. Oversupply or Overdemand cannot hold for ever. The Cyprus
Real Estate Market is volatile at present, but is definitely a good place to invest for the future.
97
Real Estate
Paphos is leading the course towards recovery in the
residential market according to the RICS Property Index
Dr. Petros
Sivitanides
Associate Professor
of Real Estate and
Director of Real
Estate Programmes
at Neapolis
University Paphos
The residential market represents the largest and
most active segment of the Cyprus property market. Furthermore, due to the high percentage of
homeownership in our country, house prices and
their fluctuations have a significant effect on household wealth and, therefore, on consumption and
the broader economy. The impact of house price
fluctuations on the country’s economic system is
exaggerated by the strong link between the property market and the health of the banking system,
as a large part of the loan portfolios held by banks
is secured by residential property. For this reason,
the recovery of the housing market is a significant
requirement for the continuation and acceleration
of the country’s economic growth.
According to the latest RICS Property Index data,
the Cyprus housing market is one step closer to
stabilisation and recovery, with Paphos leading
clearly the course towards recovery in both the
apartment market and the market for semi-detached houses. More specifically, as indicated in
the graphs below, the year-on-year rate of price
decreases at the national level was decelerating
during 2015 and reached -0.3% in the case of
semi-detached houses and -1.8% in the case
of flats during the fourth quarter. However, the
trends in residential prices have not been the same
in the different Cyprus districts. Paphos seems to
be leading clearly the course towards recovery as
the prices of semi-detached houses on a year-onyear basis remained stable in the first quarter of
2015 and registered increases over 2.5% in all
the other quarters, while at the same time they
have been declining in all other districts (except
Larnaca). Also the apartment market in Paphos
was the only one that registered stable prices on
a year-on-year basis in the last two quarters of
2015, although apartment prices in all other districts were falling, with Nicosia registering the
largest year-on-year fall (3%) in the fourth quarter of 2015. Analysis of the quarter-on-quarter
changes confirms also that in 2015 Paphos led
the stabilisation of prices in the apartment market
and the recovery of prices in the market for semidetached houses.
Real Estate expectations
Failing to strike a balance
Since the middle of 2008 real estate prices took
a plunge, till about six months ago, when process stabilised.
It is expected that prices will remain unchanged
during 2016. No projections beyond that can
be made as a lot of unknowns, affecting prices,
come into the equation.
By George
Mouskides
General Manager,
FOX Smart Estate
Agency
Chairman Cyprus
Association of
Property Owners
(ΚΣΙΑ)
Here we need to clarify that the House Price Indices
that are published by the Central Bank of Cyprus,
and which are available up until the third quarter of
2015, are registering different trends than the ones
portrayed by the RICS property index. In particular,
in the third quarter of 2015, house prices continued
to fall on a year-on-year basis in all districts including Paphos, which recorded along with Larnaca the
smallest reductions (2.3% and 2%, respectively).
A similar picture is depicted by the Central Bank indices for the apartment market, with the exception
of Limassol, which registered a 1.7% year-on-year
increase. In terms of quarter-on-quarter changes,
the Central Bank indices registered for Paphos a
1.5% increase in apartment prices and stabilization
in house prices during the third quarter of 2015.
The reported trends in house prices are consistent with the increases in the number of sales
contracts that were recorded in all months of
2015, with the exception of May and August. According to Land Registry data, the largest year98
on-year increase in sales contracts took place in
March (31%) and the second largest in October.
Overall, in 2015 the number of sales contracts increased by 9% compared to 2014. Of course, the
fact that prices continued to decline in most districts indicates that there is still a demand deficit.
The up-to-date data for 2016 shows that demand
for property continues to rise, as the total number
of sales contracts that were submitted in the first
two months of this year increased by 28% compared to the sales contracts that were submitted
in the first two months of 2015. The anticipated
continuation and acceleration of the economic
growth in 2016 and 2017, the tax incentives that
expire at the end of this year, and the revision of
the criteria for granting an immigration permit via
the expedited procedure are expected to lead to
further increases in demand for residential property and, eventually, to the stabilisation and recovery of prices, assuming that there will be no
negative developments in the meantime and that
the supply side with remain under control.
The volume of transactions hit rock bottom in
2013, reaching a low 3.767, following a record
year in 2007 with 21.245 sales. 2014 and 2015
recorded increases of 20% and 9% respectively, reaching 4.952 in 2015.
Expectations
The upward trend is expected to continue in
2016 and is estimated to be anywhere between
a 10%-15% increase.
A sales volume in the real estate sector during
a ‘normal’ year should amount to about 10.00012.000 transactions.
Based on the above it is easily understood that
we have some distance to cover to arrive at a
normalised market but the prospects are positive.
Paradox
Despite the above facts and figures we now
have the sellers arguing that market conditions
have suddenly improved immensely and higher
asking prices are justified.
Buyers at the same time opt to walk down the
pessimism path, indicating that the economic
crisis is still to hit bottom and prices will further
decline.
It is clear that the two groups live and operate in
two different and distant worlds and will never
achieve what both should be aiming for, that is
set up and finalise a property transaction.
Being Cypriots, it is true that we are known to
have difficulty striking a balance between the
two extremes, on many issues. Instead of walking a straight line, many a time we’ll either jump
off the cliff or take off to the skies.
Improvement
There are a lot of indications that the real estate
market will grow at a slow but steady pace. It
will also probably be below the normal volume of
transactions and prices.
There are of course factors which may affect
these projections. Namely, the progress of settling non-performing loans and foreclosures, rate
of new bank loans, economic growth, unemployment rates, buyers’ psychology and many more.
These are unknowns which could shift the market either way.
The possibility of a solution to the Cyprus problem was not mentioned on purpose; as such a
development would generate a whole new dynamic for the real estate sector.
Summing up we would expect that prices will
remain stable for a period of time while sales
are expected to gradually rise but remain below
normal levels for quite some time. Both sellers
and buyers should exercise common sense and
evaluate all factors in their true dimensions rather than being led into making wrong decisions
either by over-optimism or over-pessimism.
99
IT
In the case of Cyprus, highly publicized forms of attack
were Police Ransomware attacks. These are essentially
trojans that prey on uninformed PC users by displaying
a message that appears to be from the Cyprus Police
that their computer has been locked because they have
viewed illegal pornography or downloaded copyrighted
material. The message contains logos and extracts from
the Cyprus Police Website (picture on the left) and is usually accompanied by a Winlocker component that locks
the infected computer and prevents the victims from accessing their files unless they pay a fine online. In the last
couple of years, the ransomware trojans have evolved,
like CryptoLocker, and can now encrypt the victim’s data
(e.g. Word/Excel/PDF files, pictures, songs, movies) and
ask for a ransom to be paid in return for the decryption
key (password). Since most users and SMBs don’t keep
backup copies of their data, they end up paying a lot
of money in hope that the attacker will be kind enough to
provide them with the decryption key. Such attacks have
been quite common in Europe during the past five years
and have allowed criminal groups to generate millions of
Euros.
Beware: You have been hacked!
“There are two types of companies: those who have been hacked and those who don’t yet
know they have been hacked” (John Chambers, CEO of Cisco)
By Anna Zavou
Christoforou
Commissioner of
Internal Audit
of the Republic of
Cyprus
In November 2014, the hacker group “OurMine”
leaked on the Internet a plethora of confidential
data from one of the world’s largest film producers: Sony Pictures Entertainment. The leaks included personal data about employees and their
families, e-mails, executive salaries and copies of unreleased films. An investigation by the
FBI concluded that “the malware that was used
would have slipped or probably got past 90%
of internet defenses that are out there today
in private industry and would have challenged
even state government,” (Joseph Demarest, Assistant Director of the FBI’s Cyber Division).
Sony is just one of the many examples of major
organizations who have admitted that they have
been hacked in recent years. The list is very long
and includes companies like EBay, Amazon, Yahoo and CNN as well as a number of key Government Departments like the US Inland Revenue Service, the FBI, the US Department of
Homeland Security and NASA.
Economies in the information age are based
on computerization, evolving from the Industrial
revolution of the 18th century to the Digital age.
Unlike conventional assets, information assets
are in most cases intangible and potentially accessible from anywhere on the planet through
the internet. In this age, information security has
become a critical risk factor.
Hackers nowadays range from enthusiastic
teenagers like Jonathan James who managed
to infiltrate the US department of Defense at
the age of 15, to professional hackers working
for the Public or Private Sector, Cybercriminals,
Cyber terrorists and Hacktivists.
100
Cyber terrorists are generally politically or religiously motivated hackers whose goal, not unlike conventional terrorists, is to generate fear.
Hacktivists on the other hand, are politically motivated anarchists with a more ethical agenda.
Most of their activities seek to promote human
rights, freedom and free speech.
On the other side of the fence, many governments and corporations have established cyberdefense and cyber-attack units for both defensive and preemptive strikes. Perhaps the most
famous example of a government-originated
preemptive cyber-attack was that of Stuxnet, a
malicious computer worm believed to have been
a joint creation of Israel and the United States
(Operation Olympic Games). Stuxnet’s goal was
to attack the programmable logic controllers
used by Iranian nuclear centrifuges at Natanz
in an attempt to cripple Iran’s nuclear program.
By infecting removable storage devices such as
USBs and by exploiting vulnerabilities in Microsoft Windows systems, Stuxnet was able to attack targets within private networks not directly
connected to the Internet.
The internet has enabled criminals to bypass
physical borders and in recent years we have
witnessed an unprecedented number of cyberattacks against persons and corporations with a
financial motive. The Conficker worm is probably the most famous example of such an attack. By infecting computers via numerous
techniques, it was able to steal personal data,
banking credentials, credit card numbers, usernames and passwords. It also allowed the attacker to use the infected PCs as base stations
for future attacks.
In 2015, the British insurance company
Lloyd’s estimated that cyber-attacks cost
businesses as much as $400 billion dollars
per year and it should be pointed out that this
is hardly the most optimistic estimate as various vendors like McAfee have reported even
higher figures.
By infecting computers via numerous techniques,
it was able to steal personal data, banking credentials, credit card numbers, usernames and passwords.
keep winning the war.
Companies and people should realize that
becoming a victim of a cyber-attack is only
a matter of time and most of us may in fact
have already been hacked. Malware is continuously being discovered within even the most
secure of organizations.
Stay tuned as in the next issue we discuss ways
to help you protect your business and personal
data from such attacks.
The Internet is a battlefield between hackers
and defenders and unless we grasp the importance of cyber security the hackers are likely to
101
IT
THE EXCEL WIZARD
Question: Is it worth upgrading to
Excel 2016?
By Stratos
Panayides
BA(Econ), ACA –
Training Consultant
at AKTINA
Encryption
By George
Agathangelou
Professional
Services Director,
BSc CIT, MSc CSN
IBSCY Ltd
The word encryption comes from the Greek word
Kryptos, meaning hidden or secret. According to
wikipedia “encryption is the process of encoding
messages or information in such a way that only
authorized parties can read it. Encryption does
not of itself prevent interception, but denies the
message content to the interceptor.” Why would
a company want to encrypt their data or communications; Well starting from the simplest is to
avoid the data being read by the wrong person
accidentally, to protecting sensitive confidential
personal /financial data from malicious attacks.
Email is the default form of business communication, both internal and external. It is so critical
in business today, and this is shown by a study
by the Huffpost Tech, U.S. white collar workers
spend 6.3 hours a day checking email. Email
goes through a number of routers, servers, proxies, until it arrives at its final destination, during
which it is at risk of an attack. Sent unencrypted
anyone with an intent can intercept and read,
modify or even block the email, since it is in plain
text. According to a 2015 email statistic report
by Radicati group, (a technology market research
firm), there are 205 billion emails send and received daily, according to Google between 4050% of emails sent between Gmail and other email providers are not encrypted. Translating the
aforementioned to all email providers and email
servers we can assume that approximately 100
billion emails are prone to attack from hackers.
There are a number of software/technologies
that can encrypt emails both where stored, as
well as, in transit and the cost is not dissuasive.
In the same way as email encryption works, we
can proceed to encrypt files, folders or even our
entire disks. It is usually common advice to encrypt everything, but the average users don’t really need to encrypt everything. Some examples
102
of where encryption would actually help are:
1.If your laptop is lost or stolen: Sensitive
data can be protected if the laptops’ disk is encrypted. Chances are that if your laptop is stolen
the thief most probably wants the actual laptop
rather than the data on it; But still there are numerous cases that the laptop holds either company sensitive information or even personal information such as passwords etc…
2. Storing Sensitive data online: For the average user storing data online the security features
and even encryptions used are adequate, but for
professionals in industries which are regulated
they should address certain considerations. Considerations such as, is the vendor secure enough
to earn a professional users trust? What is the
security in regards to granular controls? Is it secure enough to mitigate user mistakes? Does
security comply with regulations?
Wizard: Before any upgrade considerations,
make sure that you are aware of your existing version’s functionality. The following conversation is
typical of how some Advanced Excel course participants react when we show a feature unknown
to them: “Wow, this is really impressive. It must
be a new feature, right?”. “No, it has been there
since the 1997 version”!
One way to address the upgrade issue is a traditional cost and benefit analysis. The cost depends on which Office licensing option you already have, including whether you have the
Office 365 subscription, the Microsoft software
assurance (maintenance) agreement in place
etc. On the benefits side: These, of course, are
difficult to quantify since they depend on your
own subjective assessment of the productivity
and decision-making improvements as a result of
adopting the new version. One thing is for sure:
If you are upgrading from Office 2007 or even
2010, the benefits will be more than if you are
upgrading from the immediately previous version
2013.
Below are six such improvements, some of them
only available to Office 365 subscribers:
1.The new Insert - 3D Map button, which gives
a geographical visualization, even recognizing locations in Cyprus…
2.One click forecasting: Using the new Data
- Forecast Sheet button, you get a forecasted
chart based on historic values, using an exponential or a linear relationship.
3.New Functions: Probably the most interesting
one is IFS(logical_test1;value_if_true1; [logical_
test2;value_if_true2];…) which is quite efficient
when it comes to multiple conditions/tests, replacing previous lengthy nested IF functions.
4.Auto-complete for functions now gives you all
functions containing, not just beginning with, certain letters you type.
5.7 New charts, including Sunburst and Waterfall.
6.New Tell me (a handy help assistant for Excel
functionality), Smart Lookup (giving Wiki articles
and other top web searches) and Simpler Sharing with other Excel users - these are new features across all Office 2016 applications.
On the data analysis side, you also have new
functionality:
1.A new Data - Get & Transform group of buttons replace the previous Power Query add-in,
simplifying the retrieval of data from various
sources based on criteria.
2.PivotTable improvements.
3.Ability to quickly publish and share analysis reports with Power BI.
Question: How is Power BI compared with Excel?
Wizard: Power BI is Microsoft’s separate Business Intelligence tool, previously an extension of Excel, with enormous
analytical and visualisation functionality including dashboards with graphs, maps and KPI’s. It extends Excel’s PivotTable, Power Pivot and Query capabilities to new levels, in an extremely user-friendly manner. Because of its importance
for decision-makers, we will devote some of our future articles to its impressive capabilities:
3. Business Policies: This is purely to comply
with companies’ policies, they are put in place
to avoid becoming one of those companies we
hear on the news that a company’s laptop was
stolen with a database of thousands if not millions of customers and all their details including
financial records. Of course this is what should
be encrypted in the first place!
Encryption is a must, especially in this digital era
or travelling professionals and malicious attackers lurking on every corner. Implementing encryption either on emails / files or entire laptops
is quite easy and the cost vs the risk is quite low
to justify implementing it.
The real question is what do I need to encrypt?
Do I need to encrypt everything? What is considered Sensitive data for me or my company?
103
IT
Visit ICPAC’s website www.icpac.org.cy
-
-
-
-
-
Follow all Institute’s news, announcements, events and other activities.
Keep connected to the developments of the Institute and the profession.
Find all licensed professional accountants.
Use the website both as a library and as a gateway to other useful links.
A useful tool and reference point for all members, students and affiliates of the Institute.
Use ICPAC’s website to promote
your services, business and commercial messages.
Electronic Discovery & Digital
Forensics for Internal Investigations
Most of today’s companies would not be in business without the technology that allows them to
instantly create, search, send, retrieve, and store
information. It is often the case that an entire business dispute, investigation or multimillion euro
litigation may hinge on identifying when a single
piece of data was communicated, generated, altered or deleted, by and to whom, and under what
circumstances.
By Christos
Makedonas
Discovery & Digital
Forensics
Deloitte Ltd
The world is witnessing increasing incidences of
business misdemeanours such as fraud, corruption, bribery, conflicts of interest, corporate codeof-conduct violations, regulatory non-compliance,
and others. This calls for effective monitoring both
by regulators as well as corporates. It is a fact that
the need of commercial and internal investigations
will exponentially increase due to the market particularities, the economic challenges and moreover due to the dramatic surge of cyber-attacks.
It is also a fact that nowadays, evidence in a case
is not going to be primarily from tape recorders,
printed documents or handwritten notes. Instead,
evidence will reside in electronic documents,
spreadsheets, emails, file shares, social media
accounts, in the cloud, or moreover on smart
phones and tablets. Such evidence is also known
as Electronically Stored Information (ESI).
Organisations, and internal investigation teams
(such as the Internal Audit Units and Internal Legal Services) must have the capability and support
that’s necessary for collecting such data to successfully use it in their cases. When an investigation contains electronic media (laptops, disks,
servers, mobile devices, cloud data etc.) and
large amounts of data from multiple users / custodians, residing in different locations, the internal
investigation team may not know where to turn
for guidance. Electronic Discovery (eDiscovery) is
designed to manage large volumes of data during
104
investigations - whether the data is already available in electronic format or in hard copy - as well
as efficiently managing all technical aspects.
Discovery services include forensic data collection, handling, retention, hosting, analysis and review of data with specific tools and methodologies
in order to find information and evidence relevant
to the investigation. Discovery services can be tailored to the specific needs of each investigation
by including only those specific phases of interest.
The forensic technology specialists, forensic and
investigative professionals, technologically advanced computer labs and sophisticated software
can offer new, innovative solutions to the corporates’ complex investigation, data privacy issues,
legal problems and litigation challenges. Digital
Forensics professionals can recover, analyze and
correlate a wealth of information from electronic
media such as computer hard drives and backup
tapes, including active, deleted, hidden, lost or
encrypted files; file fragments; and even files that
were merely viewed but never saved.
Under the umbrella of Discovery Services the following services are included: eDiscovery, eDiscovery Readiness, Forensic Data Collections,
Digital / Cyber Forensics, Data Recovery, Cloud
Forensics, Mobile Forensics, Expert Witness support, Incident Response, Incident Readiness and
Crisis Management.
To confront all the aforementioned challenges
promptly, businesses, internal investigation teams
and their legal counsel can benefit from the assistance of forensic investigators and eDiscovery.
Overall, Discovery can provide many of the specialized methodologies and technologies necessary to support a company’s position and help
them in their efforts to prevail.
Raise the awareness of your business to more than 3.600 members
and 3.000 students, as well as other visitors and users.
Availability to advertise in all sections of the website (ie the public
section, members section and student section), with link facilities to
web addresses of your preference.
Availability to advertise vacant positions in your organization to a large
number of users and visitors.
Competitive rates offered for annual
and semi-annual postings.
Contact the offices of the Institute for more details and
prices.
Advertise with “Accountancy Cyprus” magazine
The official quarterly business journal issued by the Institute and circulated free of charge to more than 7.500 recipients, including, inter
alia, ICPAC members and students, government and business officials, government departments, embassies, international bodies and
major corporations both in Cyprus and abroad. “Accountancy Cyprus”
is also available in electronic form at www.icpac.org.cy
Contact the offices of the Institute for more details and prices for
single and group ads.
6
t h
N I C O S I A
ECONOMIC
C O N G R E S S
2016: A Breakthrough Year for the Economy?
T h e S t a t e o f t h e C y p r u s E c o n o m y a n d P r o s p e c t s f o r 2 016 - 2 018
Thematology
• A Review of the EU-IMF Aid Programme
and the Economic Forecast for 2016-2018
• Structural Reforms: Transforming &
Developing the Economy
• Transforming the Health Sector:
The Proposed National Health Service
• How Cyprus is Viewed by Foreign
Institutional Investors
• Foreign Investment Prospects and
Opportunities for Cyprus
• The Business Sector: Opportunities
and Threats
Featuring Speakers
Harris Georgiades
Minister of Finance
Constantinos
Petrides
Under-Secretary
to the President
George Pamboridis
Minister of Health
Christodoulos E.
Angastiniotis
Chairman of the
Board, CIPA
Panel Discussions
CEO Panelists
• Andreas Pittas, Executive Chairman &
Founder, Medochemie
• Dinos Lefkaritis, Executive Director
Finance, Petrolina Holdings
• Pavlos Photiades, Managing Director,
Photos Photiades Group
Academic Panelists
• Sofronis Clerides, Associate Professor,
Economics Department, University of Cyprus
• Andreas Charitou, Professor,
Accounting and Finance Department,
University of Cyprus
• Alexandros Michaelides, Professor
of Finance, Imperial College, London
Thursday 26th May 2016| 09:00 - 14:30 | Hilton Hotel | Nicosia
For further information contact: IMH, 5 Aigaleo Str., 2057 Strovolos, P.O.Box 21185, 1503, Nicosia, Cyprus
Tel. +357 22505555 Fax. +357 22679820, E-mail: [email protected], website: www.imhbusiness.com
Coordinator
Communication Sponsors
Organizers

AccountancyCyprus

Transcription

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