On 7 October 2020, the Cypriot Tax Department ("TD") issued Application Guidance No 3 relating to Tax Audits and Revision of Tax Returns in the context of the Assessment and Collection of Taxes Law (Article 5B).

Based on the provisions of the amending Assessment and Collection of Taxes Law (L.126(I)/2020), the submission of a revised tax return can be made within a period of 3 years from the date the relevant return was due for submission. Furthermore, a revised tax return cannot be submitted during a tax audit, including field audits and investigation of a taxpayer's tax affairs.

In this respect, the TD has clarified the following:

  • Upon commencement of a tax field audit and/or tax desk review, the officer in charge from the TD will send a written notice (via email and/or letter) to the taxpayer and/or its representative, allowing the taxpayer to submit a revised tax return within a set period which may vary from 1 to 3 months.
  • The revised tax return must be accompanied by a justification note, fully explaining the circumstances and relevant evidence/supporting documentation. Upon receipt of the relevant notice the taxpayer or its tax representative has an obligation to inform the TD about its intention to submit a revised tax return, explaining in detail the nature of the correction. Such correction could relate to:
  • Correction of accounting records and consequently of financial statements;
  • Correction of tax treatment (computation of taxable profits, correction of salaries and PAYE, correction of Special Defence Contribution on deemed dividend distributions, rents etc).
  • In the case of submitting a request for the issuance of a tax clearance certificate, the date of receipt of the relevant request by the TD will be regarded as the date of commencement of a tax audit. As such, in the case that the taxpayer or its representative wishes to proceed with the submission of a revised tax return, such a revised tax return should be submitted concurrently with the submission of the tax clearance request. In such instances, the TD will not send a notification to the taxpayer that a tax audit has been initiated.
  • If it is determined that there has been a mistake in favour of the taxpayer during the tax audit, the taxpayer will not be required to submit a revised return. The officer of the TD may request additional documentation/evidence/information for further examination and once a final conclusion is reached the officer can make the relevant adjustments without the need for any further actions by the taxpayer.
  • The results of the tax audit will be notified without any delay to the taxpayer and/or its representative, through a letter, which will also state that the tax audit has been concluded and will notify the taxpayer of relevant adjustments in detail, if any. Such a letter should also state the taxpayer's rights in terms of filing an objection. During the examination of an objection, evidence can be submitted which relates to the revised return. Such evidence/information will be examined by the TD officer in charge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.