In November 2011 the Cyprus Parliament enacted a law allowing a partial write-off of interest and penalties on overdue tax. The law applies to liabilities of individuals and companies in respect of income tax, SDC tax, immovable property tax, stamp duty and capital gains tax for periods up to 31 December 2008 and provides for the waiver of interest or penalties in excess of 5% of the principal amount owed, as long as the balance is paid by 31 March 2012.
According to the tax authorities, outstanding tax arrears for 2008 and prior years amount to some €355 million. The government believes that the waiver of fines and penalties will encourage taxpayers to settle their debts, resulting in the collection of these long-overdue amounts.
The law was passed despite warnings from the office of the Attorney General that it is inconsistent with articles 24 and 28 of the Constitution, which provide that all persons are equal before the law and that every person is bound to contribute according to their means towards public burdens. A similar law passed in 2007 was found to be unlawful by the Supreme Court of Cyprus on the grounds that it unfairly discriminated against taxpayers who comply with their obligations in favour of those who do not.
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