There were several companies that appealed to the Supreme Court after the decision of the VAT Commissioner for shortening their fiscal period from three months to one month, starting September 1st, 2009. This decision of the Commissioner has been imposed in more than eighty companies, which during 2008 had VAT tax payable to the State, exceeding the amount of one million euros. It is important to remember that the decision was based on Regulation 17 (1) of the Regulatory Administrative Act 314/01 as amended; which authorizes the Commissioner to change the tax period. Companies that have appealed to the Supreme Court are amongst others; Hadjikyriakos & Sons Ltd and H.A.Papaellinas & Co. Limited. The decisions are described as below.
Starting from the first case, the appeal of the company Hadjikyriakos & Sons Limited is based on different legal points including that the decision is unfavourable for them since it adversely affects their liquidity and planning, and therefore should be duly justified. The Court decided to reject the appeal, finding that the obligation to charge and collect VAT on the sales is pre-existing, and a current legal obligation not differentiated by the contested decision, if the company essentially acts as a collector for the state, and its economic interests are not affected directly.
In the second case, the appeal of the company ASE Papaellinas & Co. Limited; is based on questioning the validity of Regulation 17 (1). The Court decided that the contested decision of the Superintendent was not legal since there wasn’t an authorization of the Rule, by the relevant law. According to Article 20 (1) of the Act, regulations may differentiate under certain circumstances, but these circumstances must be determined before the right is provided to the Superintendent, for diversification of the fiscal period “at will”. Based on this decision, regulations should be implemented in order to authorize the Superintendent to determine the circumstances, under which the tax period may be reduced. So for the same issue, there are two conflicting decisions of the Cypriot courts and the VAT Department continues to require the submission of monthly returns, until somebody appeals to the Court and a relevant decision is issued.
Recent changes in VAT rates.
According to the Law N.131 (I) / 2010 amending the Value Added Tax Act, the zero rate applied to a broad category of food, medicines and vaccines for harmonization with the act of the European community, has been repealed on January 10, 2011,. There isn’t any difference regarding tax treatment of food, medicines and vaccines that are already subject to a reduced VAT rate of five percent (5%).
From January 10, 2011, a reduced rate of five percent (5%) will apply to all foods, including beverages for human consumption, except alcoholic beverages, beer, wine, and soft drinks which are subject to the standard rate of fifteen per cent (15%). Delivery of smoked salmon, smoked sturgeon, lobster, crayfish, shrimp and shellfish (oysters, mussels and their like) are subject to a reduced rate of five percent (5%), from January 10, 2011
Starting also on January 10, 2011, the application of a zero VAT rate on drug delivery, as well as the delivery of vaccines for human and veterinary medicine; (which are now subject to a reduced rate of five percent (5%), has been repealed.
Starting on the same date, delivery of prepared or not prepared food or drink (excluding alcoholic beverages, beer, wine and soft drinks) or both, with or without transport and which is not accompanied by any other support services (eg, Take-away, delivery), is subject to a VAT rate of five percent (5%).
Delivery of alcoholic beverages, beer, wine and soft drinks in activities of “Take-away”, is subject to the VAT rate of fifteen per cent (15%).
From January 10, 2011, the restaurant and catering services consisting in the delivery of prepared and non- prepared food or beverages, (including alcoholic beverages, beer, wine and soft drinks) or both for human consumption, (accompanied by sufficient support services in order to enable their immediate consumption), is subject to a VAT rate of eight percent (8%).
