A special tax audit report by the Audit Office identifies significant weaknesses and omissions in the tax handling of a high-value property sale between 2015 and 2017.
Authorities prepared the report after receiving an anonymous complaint. It reviews how the Tax Department managed a series of complex transactions involving a property under construction and concludes that officials failed to investigate adequately despite multiple warning signs.
Price cut turns profit into loss
The tax audit report states that parties initially agreed to sell the property in 2015 for about €19.35 million. Six months later, they cancelled the agreements and signed new contracts at €10.85 million – a reduction of €8.5 million, or 44%.
This shift proved decisive. The original price would have produced a profit, while the revised price generated a loss of €7.74 million that offset taxable profits. The Audit Office stresses that such a large variation should have triggered a thorough tax review.
Inflated construction cost indications
The report also points to major discrepancies in construction costs. A tax note listed costs near €9.26 million, yet financial statements recorded €15.78 million for 2013.
Companies capitalised €7.9 million in interest using an average rate of 11.5%, although actual borrowing appeared closer to 6.6%. They also capitalised interest during a suspension of works between 2013 and 2015, which may breach IAS 23.
If authorities had applied lower costs and the original sale price, the project would have shown a €7.26 million profit instead of a €7.74 million loss, the tax audit report concludes.
Indirect buy-back via related parties
One year after the sale, the property returned indirectly to a company whose ultimate beneficiaries were first-degree relatives of the original main shareholder, at a price of €25 million.
Transaction flows outlined in the report indicate a cycle that brought the asset back to the original business sphere through connected companies and effective financing from the original seller. The Audit Office questions the authenticity of the transactions, compliance with market-value rules under Article 33, and the commercial basis of dealings between related parties.
Share price gap up to 5,100%
The report also records major discrepancies in share issuance and redemption. Foreign investors paid €85–€92 per share under the Cyprus Investment Programme, while a related company bought shares for €1.78 each – a deviation reaching 5,100%.
Investigators found no evidence that the Tax Department examined this issue sufficiently.
Delays and possible loss of public revenue
Auditors also identified delayed tax assessments and reviews of declarations, in some cases beyond the six-year statutory limit. These delays may have caused the state to lose the right to impose additional taxation. In other cases, authorities imposed taxes based solely on declarations without substantive audit.
Overall conclusion of the report
The Audit Office concludes that an extensive network of warning indicators surrounded multi-million-euro transactions that the Tax Department did not properly examine.
Although the report does not allege criminal offences, it highlights systemic weaknesses in tax control and calls on authorities to re-examine the case, strengthen targeted high-risk audits, and introduce safeguards for early detection of complex transactions.
The findings are expected to trigger political and institutional debate because of the potential risk to public revenue in a case of major economic scale.
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