Pink Floyd and Cyprus-Russia Tax Treaty
A significant part of the professional services sector in Cyprus (comprising of lawyers, accountants, service providers, bankers, real estate agents and others) are still in a state of shock from the latest news.
Here is some context:-
Amidst ongoing negotiations between the Cypriot and Russian delegation aiming to agree on a revised version of the treaty for avoidance of double taxation between Russia and Cyprus (the “Cyprus-Russia Tax Treaty”) and before those negotiations were concluded, Russia’s finance minister unexpectedly declared to the public that Russia will be proceeding unilaterally to denounce the Cyprus-Russia Tax Treaty.
The news have sent shockwaves across the island.
For many people on the island, the Cyprus-Russia Tax Treaty has been the cornerstone of economic progress and development for the last 30 years. A large number of professionals (such as lawyers, accountants and others) have greatly benefited from the favourable tax regime promoted by the double tax treaty while economic activity has had a positive cascading effect on the whole economy as well (tourism, real state and more).
For more detailed information on the benefits and the background to the Cyprus-Russia Tax Treaty negotiations please refer to this Cyprus Mail article.
The focus of this post is not to delve into the technical aspects of the negotiations nor to provide an analysis on international tax legislation despite the temptation stemming from the author’s own background in this field.
The focus is entirely different.
Let me explain.
What many professionals seem to overlook is the fact that for the past 10 – 15 or so years, access to the benefits of the Cyprus-Russia Tax Treaty (as with other similar treaties) has been substantially restricted only to those investments that genuinely involve the setting up of real offices, the hiring of staff and the creation of proper substance in Cyprus; requirements that translate into significant financial set-up costs.
In addition, the professional services industry -not only in Cyprus but globally- has been witnessing an unprecedented pace and flow of new laws, regulations and requirements translating into what often seems to be a never-ending cascade of new compliance, anti-tax avoidance and anti-money laundering rules that constantly chip away the attractiveness of international business centres like Cyprus (but not only).
Just to name a few fairly recent developments (using some technical language, forgive the author for not using a legend for those technical acronyms) that have already arguably eroded the perceived attractiveness of Cyprus:
- FATCA
- The CRS framework
- Exit taxation
- CFC rules
- Trust registers
- Regulation of ASP/Fiduciaries/trustees/PTCs
- UBO registers (upcoming)
- Transfer Pricing Rules
- The MLI instrument amending bilateral treaties
- DAC-6 on cross-border reporting of structures (upcoming)
- And more
In a few words:
The game has already shifted completely and what we are witnessing is the de-commoditisation of professional services not only in Cyprus but in most other comparable international business centres abroad as well.
Two things stem and become abundantly clear from the above (regardless of the final outcome concerning the Cyprus-Russia Tax Treaty):
- Professional service providers can no longer rely on what were once perceived to be readily available legal or tax products and services so as to attract foreign investors and clients to Cyprus (i.e the de-commoditisation aspect mentioned above).
- Professional service providers urgently need a paradigm shift on how they perceive themselves, their business and how they engage in effective business development activities. They need to re-discover the art of prospecting as well as develop a new toolkit of skills that will arm and provide them with the necessary conviction and the confidence to go out, communicate effectively, negotiate and handle objections and convince prospects and clients of the non-tax (primarily) benefits of (a) doing business in Cyprus and (b) doing business in Cyprus with them.
Now coming to the Pink Floyd narrative and nexus – to those who might still be wondering if there is any.
Over the past decades a significant number of professionals and firms (including law firms and accountancy firms) became comfortably numb (to quote the title of one of the greatest rock songs in history by Pink Floyd).
They’ve become “comfortably numb” by finding comfort in that Cyprus itself could do the marketing for them and in that all they had to do was book a few tickets and show up at the right place and at the right time with their brochures and smiles. Not much communication or persuasion skills required to be frank. Only showing up where and when it mattered.
So many professionals found comfort and solace to the fact that the Cyprus administration and legal establishment, through its lawmakers and representatives (note: nearly 50% of the lawmakers/members of parliament in Cyprus are lawyers) had always been available to enact and design laws to promote legal tools, tax schemes and financial products that would in many cases sell themselves to interested or would-be investors.
They’ve become “comfortably numb” in the sense that they became complacent and felt no pressure to up their game as professionals due to the perceived reassurance that there would always be a steady flow of new high value (and repetitive) work coming their way.
Well, those times are long gone.
Professionals have no other option but to up their game.
They have no choice but to shift their mindset and paradigm from administrators of a steady flow of commoditised work, to creative developers of new business and active explorers of new frontiers.
Professionals need to get out there and go bring new work as the work is no longer coming to them.
What should professionals do then?
The first step is to train themselves and their teams so as to acquire critically important skills that will allow them to win the hearts and minds of prospects and clients.
The critically important skills required for the new future embracing professionals of tomorrow include:
- Effective communication skills
- Empathy
- Building relationships for success
- Persuasion and influence skills
- Creativity (required also for designing new legal and tax tools)
- Mindset
- Self-leadership
- Goal setting skills
- Effective negotiation skills
- Handling difficult conversations
- Client care / customer service
- More
Conclusion
In conclusion, whatever the outcome of the negotiations between Cyprus and Russia may be concerning the Cyprus-Russia Tax Treaty, one scenario has now more than ever become a compelling reality.
Cyprus still offers a great array of reasons for professionals to generate valuable work both for local and international clients, prospects and entrepreneurs. Here is an interesting article by Harris Sharpe for more on this point.
The days where Cyprus itself would do the marketing and business development activities for us allowing us to be comfortably numb and to merely show up so as to collect the basket full of fruit are also long gone.
The key to survive and thrive in the new environment unfolding before us is to stop whining, complaining and romanticising about all things gone with the river and to start planning and planting for tomorrow.
As a popular Chinese proverb provides, the best time to plant a tree was 20 years ago. The second best time is now.
What are you waiting for?