On the 10th of September 2017, the Tax Department issued a letter addressing the Cyprus Bar Association, regarding, numerous requests for suspension of criminal proceedings against nominee directors on tax matters.
In summary, the Department of Tax made it clear that nominee directors share the same legal liabilities as any “actual” director. Arguably, the term nominee director can only be referred to as an industry slang. As such, just because a person is appointed as a director with the well know and commonly used method of “nominee directorship”, she is not protected or covered for any wrong-doing or alleged wrong-doing. Alternatively, she cannot be excused based on the nominee director status. Therefore, no legal proceeding can and will be suspended against nominee directors for tax-avoidance or any other tax related wrong doing(s).
The letter goes a step further by stating that, nominee directors have enhanced legal liability under Money-laundering and Terrorism Finance laws of the Republic. In any way, “nominee” is just a term. Nominee or not, directors have the same unlimited personal legal liabilities.
The question we are asked to address is “What are the tax related claim implications on our Directors & Officers Liability Insurance and vice versa?”.
It is a fact, that, the past few years we have seen the number of claims to rise dramatically not only as a consequence of increased regulatory scrutiny, but also because such parties – tax authorities in this instance – are more aware of, and willing to enforce, their legal rights. Any company with a Directors & Officers Liability Insurance policy in place, should immediately file a claim to defend its directors. As we find with most Directors & Officers Liability Insurance policies, these cover any third-party claim. As such, the policy will be “activated” in defence of the insured. However, will an insurance policy pay tax liabilities? I would try to be as straight as possible. NO. Even though we have seen policies in the market that provide for a window of cover on the actual tax liability – we prefer to advise on the contrary.
Concluding, anyone acting in a managerial capacity be it “nominee” or not is personally liable for her actions or inactions. Thus, the highest levels of business care, business ethics and risk management measures need to be in place.
The article provides only a brief overview on the subject and cannot be considered insurance advice. y46
