Penalties for omissions relating to the application of reverse charge

However, there are some shortfalls in legal certainty concerning the practical application of these measures and whether penalties will be also imposed on VAT returns which were submitted before the effective date of the legislation.

The forthcoming measures

The legislation encompasses within its scope the application of the reverse charge pursuant to Article 11, 11A, 11B, 11C, 11D, 11E and 12A of the Cyprus VAT Law and provides that the relevant measures come into effect from 1/7/2021. Failure to apply the reverse charge will result in a penalty of €200 per VAT return with a cap of a total penalty amount of €4.000.

The Tax Department has yet to issue a policy statement addressing whether VAT returns submitted prior to the date when the measures come into effect will become subject to the aforementioned legislation. The adoption of this practice would entail that penalties could be imposed for failure to comply with the aforementioned provisions up to the statutory limitation period within which an audit may be carried out, which is currently 6 years.  

Planning ahead

A voluntary disclosure/correction may be made if there are shortfalls in compliance with the above provisions relating prior VAT returns. This may be made, subject to conditions which apply in each case, by including it in a subsequent VAT return, by voluntary disclosure to the Tax Department or through application to the Tax Commissioner for a correction of prior periods.

Once a VAT investigation has been initiated the Tax Commissioner has the right to refuse any subsequent voluntary disclosure/correction application and may impose the penalties. It is therefore important to take action before the measures are brought into effect.

How we can assist

Our dedicated VAT team can assist by reviewing the policies adopted for declaring transactions falling within the above provisions, identifying the options available and preparing voluntary disclosures or correction applications, with a view to mitigating any risks which may arise from the above forthcoming measures.