Tax Certificate

After consultations between the Inland Revenue Department (IRD) and the Association of Certified Public Accountants of Cyprus, an agreement was reached for the preparation of the Tax Certificate which will accompany the Income Tax Return. The IRD with the circular dated February 15, 2011; reported that from April 1st, 2011 an Income Statement of every company or self-employed person(s) (with a turnover of more than € 70,000), regardless of the fiscal year for which the statement refers, should be accompanied by an independent auditors’ (or tax advisers’) certificate. The certificate will refer to the conformity of the determinations of the taxable income, with a number of specific tax circulars, issued by the IRD (listed in Form I.R. 172 (1) -2011 (ANNEX C). Any new tax circular issued, will be added to the list, which will be updated every six months.
The Tax Certificate was included in Part 8 of the Income Tax Return. In cases where the Income Tax Return is not accompanied by the Tax Certificate, the IRD indicates in the relevant circular, that the statement will not be accepted and at the same time, a letter will be sent to the independent auditor (or tax adviser) stating that the declaration is not acceptable unless accompanied by a signed Tax Certificate.
The purpose of the Tax Certificate is that the independent auditor (or tax advisor) is confirming whether during the determination of the taxable profit / loss, the specific provisions of the circulars issued by the IRD, have been taken into account.
If the provisions of the relevant circulars have been followed, then the following part is noted: “We have not established that the tax determinations do not comply in all important respects with the circulars of the Inland Revenue Department.”
If the provisions have not been followed, then the part that says: “We have established that the tax determinations do not comply in all important respects with the circulars of the Inland Revenue Department.” is noted. At the same time, the independent auditor (or tax adviser), is obliged to state the circulars which were not respected during the preparation of the determination of the taxable income, but is not obliged to state the reasons why the circulars were not adopted; or the amounts affected by the failure to adopt provisions of a circular.
Henceforth, the preparation of determining taxable income becomes more complex and the correct completion of the Tax Certificate makes the existence of a qualified tax adviser necessary, since completing the Tax Certificate requires specialized tax knowledge for more than fifty interpretative circulars. Additionally, the strict wording of the Tax Certificate referring to the provisions of the Assessment and Collection Act, makes the independent auditor (or tax adviser) responsible for the correctness of the Tax Certificate, resulting with all the consequences in the event of a false statement.
It is important to remember that the circulars issued by the IRD are of an interpretive and/or explanatory nature, and in no way replace the fiscal legislation. In many cases, taxpayers have questioned provisions set out in Circulars of the IRD and have been vindicated by the Tax Tribunal and/or the Cyprus Courts; therefore the non-application of these provisions does not mean non-compliance with fiscal legislation.
The IRD attaches great importance to the submission of the Tax Certificate and to the accuracy of completing it, because it is an important (if not the most important) tool in selecting returns for further examination of the taxpayer’s tax liability. From the perspective of the professional auditor / tax adviser, it is required that he / she is aware of the provisions of the applicable tax legislation and related circulars and regulations; so that he / she can properly advise his / her client and illustrate the effects of non-compliance with these provisions.