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35 | FEBRUARY 14 - MARCH 13, 2014 | THE FUTURE OF THE AUDIT PROFESSION IN CYPRUS
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ISSUE 35 FEBRUARY 14 - MARCH 13, 2014 PRICE €4.95
BANKING
How Spain restructured its system
BITCOIN
The Future of the Digital Currency
INTERVIEWS
Peter Greenberg Matthew Kidd Alexis Tsielepis
The Future Wealth and Investment Management
*Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is regulated by the Central Bank of Cyprus in the conduct of its banking and investment business in Cyprus. Barclays Bank Plc Cyprus branch is now recognised as a Foreign Bank under the Enforcement of Temporary Restrictive Measures on Foreign Banks in case of Emergency Third Decree of 2013 (the Foreign Banks Decree). In accordance with the Foreign Banks Decree, Barclays Bank Plc Cyprus Branch can only service International Clients as defined by the Foreign Banks Decree.
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OF THE AUDIT Profession in Cyprus
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Issue 35 February 14- January 13, 2014
6 EDITORIAL 8 UP FRONT 16 FIVE MINUTES WITH…
18 The Future of the Audit Profession
in Cyprus ➜
➜
➜
EVER SINCE THE ENRON SCANDAL IN 2001, THE AUDIT PROFESSION HAS BEEN FIGHTING AN UPHILL BATTLE TO REGAIN ITS ONCE GOOD REPUTATION AND CLEAN UP SOME OF ITS PRACTICES. WE SOUGHT THE VIEWS OF SENIOR TAX/ASSURANCE PARTNERS FROM A DOZEN OF THE LEADING AUDIT AND ACCOUNTING FIRMS IN CYPRUS ON WHAT NEEDS TO BE DONE TO TACKLE THE PROBLEMS FACING THEIR PROFESSION.
38 | GOING THE EXTRA MILE For Alexis Tsielepis, Director and Head of Taxation at Costas Tsielepis & Co Ltd, Chartered Accountants, the Cyprus crisis last March set off unprecedented client turmoil that required careful, timely and pre-emptive handling.
42 | SPANISH LESSONS
38
FEATURE
TRANSPARENCY IS NOT ENOUGH By Petros Florides 26 TAXES: A STATUTORY OR MORAL OBLIGATION? By Costas Markides
28
MAKE OR BREAK TIME By Kyriakos Iordanou 48 THE BITCOIN ADVENTURE, PART 2 By Michael Hill
53
of Aristo Developers, and Chairman of the Association for Large Development Projects.
68 | CHILDREN OF THE REVOLUTION growing ties between Cyprus and the UK and why he remains optimistic about the island’s future.
30
+ OPINION
Antonio Carrascosa, General Director of Spain’s Fund for Orderly Bank Restructuring (FROB), on how Spain restructured its banks and financial sector.
44 | MAKING A DIFFERENCE
The debate surrounding Bitcoin rages on. Does it represent the way of the future or is it just a phase that will soon be forgotten? Danny Brewster, CEO of Nicosia-based Neo and Bee, has some choice words for the doubters.
68
SPECIAL ADVERTISING SUPPLEMENT 49 | CYPRUS SHIPPING DIRECTORY 2014
Interview with Theodoros Aristodemou, Chairman and Managing Director
12 | IN BUSINESS AWARDS 2013 Photos from the 6th annual IN Business Awards ceremony.
27 | WINDSOR BROKERS LTD. CELEBRATES ITS 25TH ANNIVERSARY Photos from the gala dinner at the Four Seasons Hotel in Limassol.
30 | ‘LIFE BEGINS WHEN YOU LEAVE YOUR COMFORT ZONE’ Peter Greenberg outlines the challenges facing the Cyprus tourism industry
34 | THE TIMES THEY ARE A-CHANGIN’ British High Commissioner Matthew Kidd talks about the events of last March, the
42
ORACLE’S THREE-WORD KEY TO SUCCESS ORACLE’S THREE-WORD KEY TO SUCCESS
74 78 82 84 86
{money} {business} {economy} {tax&legal} {lifestyle}
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EDITORIAL ISSUE 35 FEBRUARY 14 - MARCH 13, 2014 PRICE €4.95
Better Late Than Never
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BANKING
How Spain restructured its system
BITCOIN
The Future of the Digital Currency
I
INTERVIEWS
f there is one thing that we have learned from the events of last March, it is that the time and opportunity have finally arrived to resolve longstanding problems, to restructure inefficient organisations, to adopt new, progressive policies, to halt complacency and to correct past mistakes. If anyone believes that this situation would ever have been reached without the country teetering on the brink of bankruptcy and the subsequent pressure of the Troika’s Memorandum of Understanding, this betrays a total lack of insight into the realities of Cyprus. The good and pleasantly surprising thing about all this is the remarkable degree to which everyone – from the Government and the public sector to all areas of private enterprise – appears to be taking the opportunity to put things right. Indeed, in what will probably be his final interview with Gold as British High Commissioner (page 34), Matthew Kidd notes how “Throughout those weeks and months of the most serious and critical pressure, the readiness of public opinion to stay calm and to listen carefully to what they were being told – and to make rational responses – was very impressive. In terms of Cyprus’ ability to rebound from the crisis, that is a really important asset which I hope can be preserved and built on.” You will see that the theme of getting things fixed runs throughout this issue. Our cover story on the future of the audit profession (page 18) looks at how a dozen representatives of the leading accounting & audit firms on the island view the challenges facing them if their particular area of expertise is to regain some of its tarnished reputation. Meanwhile, Alexis Tsielepis, Director and Head of Taxation at Costas Tsielepis & Co Ltd, Chartered Accountants, shares his experience of reassuring his clients that Cyprus would survive and that their money was safe (page 38). He also has some firm ideas about what needs to be done at the Inland Revenue Department. In a similar vein, Kyriakos Iordanou, General Manager of the Institute of Certified Public Accountants of Cyprus (ICPAC), argues in an opinion piece (page 48) that his members also need to operate with greater and more visible compliance with regulations and ethical standards if Cyprus is to restore investor and public confidence in its ability to remain a reputable international centre for business and financial services. Elsewhere the acclaimed Travel Editor of CBS News, Peter Greenberg, puts forward some radical ideas about what Cyprus needs to do if it is to maintain and grow its essential tourist industry (page 30), a theme taken up by Theodoros Aristodemou, Chairman of the Association for Large Development Projects who suggests that it’s time to focus on catering for more specialist needs (page 44). Lessons from Spain’s restructuring of its banking sector (page 42) are outlined by Antonio Carrascosa, General Director of Spain’s Fund for Orderly Bank Restructuring (FROB), who was in Cyprus last month, while Danny Brewster (page 68) and Michael Hill (page 71) look to the future as the digital currency Bitcoin arrives with great fanfare in Cyprus. It is a great shame that it took the earth-shattering events of last March to awaken the island’s financial and banking sectors to the reality of what was wrong with the way they had been operating for too many years. In this respect, the country’s politicians have a lot to answer for, given that government officials and members of every political party were happy to close their eyes to a crisis which, since 2009 at least, was clearly on the way. The fact that some of them continue to criticise the serious efforts that are being made even at this late hour, without having any feasible alternative, simply illustrates how politically immature – not to mention audacious – they are. Yes, things should have been fixed long ago but, now that a genuine attempt is finally being made, we should all breathe a sigh of relief and murmur “Better late than never”.
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up front
Nicosia Municipality Sustainability Study from KPMG
N
icosia Municipality and KPMG Ltd have signed a contract for the preparation of a study to ensure the Municipality’s sustainability over the next 25 years. Given the current difficult economic conditions in Cyprus and the financial state of the local authorities, Nicosia Municipality will continue to play a significant role in everything concerning the preservation of the quality of life of local residents, including issues of safety, cleanliness and the upgrading of the capital in general. KPMG will examine the Municipality’s current financial situation and forecast future cash
flow under different scenarios. The study will then be the basic tool for the disbursement by the Municipality of funding from loans for the completion of important infrastructure projects. The total cost of the study, which will be funded by the Municipality, amounts to €12,500 plus VAT. The contract is expected to start immediately and its implementation will span 24 months. The Head of KPMG’s Advisory Services, Christos Vasiliou, said that “During a difficult period for the economy, business and the local authorities, KPMG is providing practical support to all of them in order to add value which will, in turn, contribute to growth”.
Emirates
Completes 21 Aircraft “Make-Overs” in 2013
E
mirates operates the world’s largest fleets of A380s and Boeing 777s, and to serve these aircraft, it runs the world’s largest state-of-the-art aircraft paint hangar owned by an airline. Located at Dubai International Airport, Emirates’ paint hanger is more than twice the size of a football field, and has been designed to deliver quality that exceeds even the standards of aircraft manufacturers. In 2013, Emirates’ advanced paint hangar completely stripped 21 aircraft (or nearly 10% of its fleet) of exterior paint and gave them a brand new coat. It took 6,550 hours in total, or 273 days and nights
A Boeing 777 is stripped of its exterior paint in the Emirates paint hangar.
of non-stop stripping and repainting, to complete these “make-overs.” In addition to these major projects, the paint shop was kept fully engaged with over 60,000 other paint touch-up jobs on the exteriors and interiors of the aircraft, as well as cabin items. “Our aircraft livery is one of the most recognisable and visible aspects of our brand. It is what people see in the sky, and the first thing our passengers see at their boarding gates. We take pride in maintaining our aircraft to the highest possible standards, and it is important our planes look pristine on the outside as well as on the inside,” said
Cyprus Airways Wins Punctuality Awardyprus Airways
C
has been awarded by Israel’s Ben Gurion Airport, for its punctuality with regards to departure times in 2013. The distinction comes following Cyprus Airways achieving the highest score (97%) amongst hundreds of other airlines assessed, which fly to and from the airport in Tel Aviv. The airline’s official press release praises the distinction as reaffirming the high quality of service offered, and proving the prestige with which the airline is viewed in important airports in the Middle East. Prior to this latest recognition, Cyprus Airways was honoured by travel agents and tour operators who, in October 2013, voted it the third most friendly and flexible airline in the APG World Connect competition. Cyprus Airways currently operates six flights a week to Tel Aviv, with the intention to increase flight frequency to 11 per week in March.
Barclays Cyprus
Downsizes Adel Al Redha, Executive Vice President and Chief Operations Officer, Emirates. “It’s not just about looking good. The paint coat has to withstand fierce weather conditions, including severe wind, bitter cold and searing heat, and an exterior coat that is clean of debris and imperfections improves aerodynamics and reduces fuel consumption. Emirates already flies a young and efficient fleet, but with fuel prices at consistently high levels, every little bit of efficiency counts,” he added. Since the paint hangar started operations in August 2010, it has completed 59 full aircraft “strip-and-repaint”
8 Gold the international investment, finance & professional services magazine of cyprus
projects and several hundred thousand aircraft component paintings. After every seven to eight years in service, Emirates fully strips its aircraft of their exterior colour and gives them a brand-new coat. A Boeing 777 requires a team of 26 to 30 people for a full strip-and-repaint project, which is turned around in just 12 to 13 days. Emirates operates four scheduled flights weekly from Larnaca to Dubai: every Monday, Wednesday, Thursday and Saturday. On these days in the morning, EK 107 arrives from Dubai while in the afternoon EK108 arrives from Malta on its flight back to Dubai.
B
arclays, the UK’s second-largest bank by assets, is cutting hundreds of jobs in its investment arm around the world and its two branches in Cyprus will be affected with more than half of the 45 employees losing their jobs. Some 20 are expected to retain their positions. A Barclays spokesperson said, “As part of its new global strategy, Barclays Wealth and Investment Management recently announced that it would undertake a full review of its Cyprus business. Following a thorough review, we confirmed at the end of last year our commitment to maintaining a presence in Cyprus in both Nicosia and Limassol, but that this will be in a reduced form. We are committed to fully supporting our clients and employees through this transition.” Barclays Chief Executive Officer Antony Jenkins said twelve months ago that he was seeking to remove £1.7 billion of annual expenses by 2015, eliminating 3,700 positions. In June it was announced that Barclays would move 4,000 administrative jobs at its investment bank to lower-cost locations to reduce expenses.
Cyprus Shipping Chamber Celebrates 25th Anniversary
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Tax Investigations Law Firm of the Year in Cyprus
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he Cyprus Shipping Chamber (CSC) celebrated it’s 25th anniversary last month and it will continue to mark its 25 years throughout 2014. The CSC was established on 26 January 1989, and constitutes the trade association of the shipping industry in Cyprus. The main purpose of the Chamber is to promote the interests of Cyprus shipping and to continuously further the reputation of the Cyprus flag. At the same time, the Chamber acts as a lobbying group for the promotion and safeguarding of the legitimate interests of its member companies, at a national as well as at international level. Today, the CSC is one of the largest national shipping associations in the world. In the framework of the various events that will be organised to mark this special occasion, the Chamber will be the hosting the Annual General Meeting of the International Chamber of Shipping in June 2014 in Limassol. In cooperation also with the Maritime Administration and exploiting the presence of the international shipping community in Cyprus, the CSC is also planning a Summit Meeting of Shipping Ministers from around the world.
olakis Sarris & Co LLC has been named Tax Investigations Law Firm of the Year in Cyprus in the 2014 Corporate Intl. Magazine Global Awards. The firm specialises in taxation and corporate law and related litigation issues. Referring to the award, Antigoni D. Fakonti, Partner, said: “Cyprus has been strongly criticized for allegedly not complying with tax investigation requests from other jurisdictions. However, noone has noted that, in the course of both accessing and exchanging information, certain rights should be respected, including the taxpayer’s right to privacy and to the confidentiality of any obtained data. This award is a proof that Cyprus can be successful in maintaining a balance between the two.”
Hellenic Bank on Medlook App
M
edlook has launched a free app called Discover Cyprus, the aim of which is to provide everyday useful, practical and valid information about health, wellness, longevity, psychology, relations, food, wine, attractions, sports, events, history, culture and holidays in Cyprus. Hellenic Bank is included in the Selected Services section of the app, which features information
on the Hellenic Bank Group, the Hellenic NetBanking service and more, including a branchfinder for all Hellenic Bank branches across Cyprus. Medlook (www.medlook.net) is an online portal dealing with health, medicine and wellbeing. It contains more than 6,000 articles and is updated daily. Short daily messages, news and articles of the Discover Cyprus app about
health and wellbeing are written by experts, doctors, scientists and other Cyprus tourism specialists from Medlook.
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up front
Bloomberg
Ranks Cyprus 35th for Business
ings, Bloomberg analysed 157 countries on six broad criteria, based on data collected in 2013: the degree of economic integration; the cost of setting up a business; the cost of labour and materials; the cost of moving goods; less tangible costs like inflation and the amount of corruption; and the health of Canada its consumer base. Hong Kong once again tops the list. Its first-place ranking is credited in part to the low cost of starting a business there. Canada jumped from sixth place to second, largely because of the receptivity of its consumers, measured Singapore by the size of its middle class, household consumption and GDP per capita. = The US, meanwhile, fell from second to third place, as the cost of setting up a business has increased considerably relative to other countries. Germany The BRIC countries (Brazil, Russia, India and China) mostly improved their standing this year. Brazil, Russia, and India entered into the top 50, positioned 38th, 44th, and 48th respectively. China, however, dropped from the 19th position Netherlands in the ranking’s first year of publication to 28th this year, influenced by its score on lesstangible costs being 46th lowest among the 50 countries. Cyprus dropped from 32nd place in 2013 to 35th this year, achieving a total score of 65.5. Hong Kong, ranked Sweden first, achieved a total score of 83.4. Cyprus’ score for the loomberg Rankings has cost of setting up a business just presented its analysis of is very competitive compared the world’s most attractive with other countries in the list, countries for doing busi- though its overall score is afness in 2014, with Cyprus fected dramatically by the cost ranked 35th in the world. of labour and materials. To create this year’s rank-
The Top 10
➊ Hong Kong
➌ USA
=
➎
Australia
➐ UK
➒
B Spain
➋
➌
➎
➑
➓
10 Gold the international investment, finance & professional services magazine of cyprus
Danish Embassy in Cyprus to Close
T
he Embassy of Denmark in Cyprus is to close in August, in a move by the Danish Foreign Service to withdraw operations in five countries in Europe. The embassies in Cyprus, Switzerland, Luxembourg, Slovenia and Slovakia will close, while new embassies will be established in four new countries: Colombia, Nigeria, Myanmar and the Philippines. The Danish Minister of Foreign Affairs Holger K Nielsen commented on the restructuring of the Danish Foreign Service, “It is a tough and difficult decision to close missions. It affects both the embassy’s users and staff. However, in the places where missions will be closed, primarily in Europe, we will find new and different ways to cooperate with the countries concerned and to promote Danish interests. But it will be in another and less intense manner. The changes to the embassy structure will, all in all, give Denmark direct access to over 300 million more people and consumers than at present – distributed throughout three continents – including important emerging markets. We will open
missions in regions and countries where economic growth is booming, where there is a huge potential – and where the economic power shift is accompanied by increased political clout.” A statement posted on the Nicosia Embassy website reads: “On 16 January 2014, the Ministry of Foreign Affairs of Denmark launched a reform of the Danish Foreign Service implying an adjustment of the network of Danish Missions abroad. The reform means that there will be changes to the Danish presence in more than 25 countries. In this connection, a number of Missions will close for budgetary reasons. The reform implies that Denmark unfortunately must close the Embassy in Nicosia as of 1 August 2014. Denmark will attach importance to finding other ways to continue the good cooperation with Cyprus and to pursue Danish interests in Cyprus after the closure of the Mission. More detailed information will be presented on the Embassy website, including information on how the consular services tasks of the Foreign Service in Cyprus will be performed in future.”
Cyprus Trade Mission to Qatar
P
resident Anastasiades led one of Cyprus’ biggest trade missions in recent history to Qatar last month, accompanied by Yiorgos Lakkotrypis, Minister of Energy, Commerce, Indutry & Tourism, Nicos Kouyialis, Minister of Agriculture, Natural Resources & Environment, Ioannis Kasoulides, Minister of Foreign Affairs and numerous other government officials. In addition to the official delegation which also included Phidias Pilides, President, of the Cyprus Chamber of Commerce & Industry,
Christodoulos Angastiniotis, Chairman of the Cyprus Investment Promotion Agency (CIPA) and Marios Lanitis, President, Cyprus Qatar Business Association, senior representatives of some 60 companies from the private sector, many of them property and land developers, also traveled to Doha. At a Business Forum in the Qatari capital, presentations included “Investing in Cyprus” by CIPA Chairman Christodoulos Angastiniotis, “Oil & Gas Industry: Prospects and Cooperation” by the Minister of Energy,
Commerce, Industry and Tourism, Yiorgos Lakkotrypis, and “How to do business in Qatar” by the Qatar Chamber of Commerce. The Business Forum in Doha is viewed with great optimism by all concerned. A source with the delegation told Gold that “this is the first time that Cypriot entrepreneurs truly believe that something positive can emerge from such a mission”. Another was more restrained and cautioned that “it will take several months before we see the results of out efforts.”