Measures to facilitate the movement of goods and the development of contacts and economic relations between G/C and T/C

July 30, 2004

The Government has made specific Proposals to the European Union for the promotion of further measures in order to establish those rules and procedures which will make practically possible and easier the commercial exchanges across the line and will result to the further development of the exchanges and other financial relations between the Greek Cypriots and the Turkish Cypriots.

It should be noted that the measures concern only products and merchandise which are produced in the non controlled areas and products which have in some way been processed in these areas, as provided in the relevant articles of the Customs Code (Article 23 and 24), that is the raw materials these products are made of have undergone substantial processing, e.g. timber converted into furniture. They are not considered as having been processed which have simply assembled or have undergone maintenance or preservation works. In addition, the fourth measure concerns products and merchandise, irrespective of their origin, provided that the goods and merchandise are intended for the non-controlled areas and are produced in the controlled areas or have been legally imported in them.

On the basis of the above the Republic of Cyprus has suggested the implementation of the following measures:

1. Exclusion from the obligation to register in the V.A.T. Register

According to the acquis communautaire, which is implemented in the areas under the effective control of the Government, persons who belong to the non controlled by the Government areas have the obligation to register in the V.A.T. Register when they sell goods or provide services to persons who are in the areas controlled by the Government and when the value of these goods or services exceeds £9000.

The registration of those persons will entail multiple obligations such as book and record keeping, submission of three-month tax statements and payment of V.A.T. This would also create problems of tax control which would make trade between Greek Cypriots and Turkish Cypriots difficult.


GOVERNMENT PROPOSAL

The Government’s Proposal to the European Union is the endorsement of a simplified measure according to which the person who is located in the areas which are not controlled by the Government will not be registered in the V.A.T. Register. Instead, the buyer of the goods or the recipient of the services who is in the controlled areas and is registered in the V.A.T. Register will have the obligation to pay the tax.

This measure will allow the Turkish Cypriots to sell their merchandise to the controlled areas without the need to be registered in the V.A.T. Register and follow the other tax procedures.

This measure concerns the sales that occur when the buyer is registered in the V.A.T. Register.

2. Plan for the sale of goods directly to consumers

Simplified measures, Article 24 of E.E.C Directive 77/388 for merchants who sell goods directly to consumers

This measure concerns the sale of goods to the consumers in the controlled areas by persons in the non-controlled areas who cross the line with their merchandise.

In this case, as well, on the basis of the acquis communautaire (sixth community directive on VAT) the aforementioned merchants who sell goods to consumers in the controlled areas have the obligation to register themselves in the VAT register. The difficulties which may be encountered from such registration have already been mentioned.


GOVERNMENT PROPOSAL

In order to avoid these difficulties, the Government has, also in this case, proposed a special plan through which the aforementioned merchants will not register in the VAT register. However, when they travel across the line to the areas controlled by the Government there will be a registration of their merchandise or a declaration of the quantity of their merchandise. Analogous registration (or statement regarding quantity) will be carried out, when the same traders cross the line on their return. The Value Added Tax will be submitted by these persons only after the sale of their goods directly to the consumers and with the provision that the value of merchandise within a period of one year, will exceed the sum of £9.000.

This measure will give the opportunity to sell products wholly produced or are processed in the non government controlled areas, directly to consumers in the government controlled areas, without the need to register for VAT of undertake other procedures that might obstruct the exercise of commerce between the two communities.


3. Movement of goods through the line without the imposition of duties

Article 4 (2) of (EC) Regulation 866/2004

According to Article 4 (2) of the Regulation, goods which are entirely produced or processed in the areas outside the effective control of the Government of the Republic of Cyprus, when they travel across the line, are subject to duties, if these goods are entitled to export return, in the framework of the Common Agricultural Policy, in other words return of the imposed duties. A great number of agricultural goods, like for example the hesperids, are subject to export returns and surcharges of equivalent result when they cross the line.

This provision of the Regulation basically inhibits the free and surcharge-free entry of these goods in the customs territory of the Community through the line. These goods constitute the basic goods which are produced in the areas which do not fall under the effective control of the Government. This provision substantially, renders the development of this kind of trade through the line impossible.


GOVERNMENT PROPOSAL

Amendment of article 4 (2) of the Regulation (EC) 866/2004

The Government has suggested the amendment of the Regulation at this specific point so that the goods which are entitled to export return and which are entirely produced in the non controlled areas are exempt from duties or surcharges of equivalent result when they cross the line and are considered as community goods. In this way, the free movement of these goods and the assistance to the Turkish Cypriots will be reinforced by providing them with the possibility to trade these goods in the entire Community territory.


4. Imposition of zero VAT on goods which cross the line to the non controlled areas

Article 5 of the Regulation (EC) 866/2004

According to the article 5 (3) of the Regulation goods which cross the line towards are B are not exempt from VAT on the basis of the article 15 (1) (2) of the Regulation 77/388/EC. That is, products allowed to cross the line transported from areas under the control of the Government to the occupied areas, are not exempt from VAT. That is, these products are not to be considered as having been transported outside the taxable area of the Community, even though the implementation of the acquis is suspended in the areas that are not controlled by the Government.

In practice, this article renders the acquisition of these products financially difficult for trade purposes by persons living in the areas not controlled by the Government since these products, in order to be obtained, 15% VAT will have to be paid. This has as a result the limitation of the prospect for further development of trade and economic relations between Greek Cypriots and Turkish Cypriots.


GOVERNMENT PROPOSAL

Amendment of Article 5 of the Regulation (EC) 86/2004

The Government has asked for the amendment of this article to the effect that goods entering the Republic of Cyprus through the ports and airports in the controlled areas, as well as goods sold by persons registered in the VAT Register, for trade purposes and are destined for the areas not controlled by the Government are taxed with zero VAT, that is with no burden to the buyer, for VAT purposes.

With the application of these measures, the economic and trade relations between Greek Cypriots and Turkish Cypriots, will be developed, which is one of the goals of the Government of the Republic of Cyprus.

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