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The Cyprus Case
Posted on: 18-3-2013
Category: Economy
Tags: Cyprus, default, Euro crisis, bailout, bank funds taxation

Cyprus, the exit door for corporate taxes from the rest of EU, is heavily indebted (debt to GDP ratio at almost 130 %) and about to default. Not to have that happen, Cyprus has been negotiating bailout conditions with ECB, EC and IMF for several months. The deal was shaped last week, Cyprus would get boost of 10 billion Euro, while the remaining 6 billion to come from Cyprus itself (reminder – Cyprus is close to insolvent). The amount should be raised through taxation of bank deposits – first version was below 100k Euro with rate 6,75 %, above that with 9,9 %, but now a more progressive version is being proposed, even counting with exemption for deposits below 20k Euro. So is the intro into the story.
It’s more than desired to mention, that Cyprus is a tax haven and with just 10 % corporate income tax is standing at the very bottom among EU countries. And it’s Cyprus, which is stripping tax revenue from other, primarily western, northern and central Europe countries. Without overstretching the current state of things, Cyprus leaks corporate taxation from other EU countries, which have to cover the tax revenue “loss” from elsewhere, f.e. increasing personal income taxes or VAT (in the Czech Republic during past 5 years VAT imposed on food, books, public transportation tripled from 5 % to 15 % - how much was that in Cyprus?) . Last thing I want is to defend taxation, which is high in Europe in general, but Cyprus is a black rider here. Look at the string this way – Cyprus pulls corporate tax revenue over from other EU countries and now comes to exactly the same countries and says: Give us money. That’s ridiculous.
It’s also interesting that EC doesn’t use the opportunity and grants the bailout, but as one of the conditions sets, that Cyprus will raise it’s corporate taxation to 15 % or 20 % (although current Cyprus problems are not directly linked to low fiscal discipline). Yes, part of corporate taxes would depart from Cyprus to another tax haven (probably Caribbean, but outside of EU, which poses some limitations already), but it’s a good opportunity to leave the model of virtual bank-low tax economy and start a real economy. Stop lying yourself and face the real state of things.
And by the way it’s totally off and totally blind to blame anything on Angela Merkel or Germany, as we can see during demonstrations in Cyprus. Blame the governments of Cyprus, the Cyprus banks for buying Greek bonds like crazy years ago…

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