A new special report by the Audit Office (EE-39/2025) on checks carried out by the Tax Department at eleven restaurants, bars and clubs on Larnaca’s Mackenzie seafront uncovers tax evasion patterns repeated over more than a decade. The findings range from failure to withhold the 10 percent tax due for foreign artists and unpaid VAT, to undeclared ticket revenues and inflated operating costs used to depress taxable profits. According to the report, the Tax Department’s response was frequently delayed or insufficient, allowing high-risk behaviour to persist.
A risk that went unchecked
The Audit Office says breaches spanned both direct taxation and VAT. Promoters ran high-profile concerts in 2022 and 2023 without remitting artists’ tax or VAT. In multiple cases, businesses failed to file returns for events, did not issue invoices or issued sham invoices to reduce net profit. Many companies were assessed “as declared” up to 2020-2021 without meaningful desk or on-site audits, despite prior red flags that should have classified them as high-risk. One company had long-standing allegations and Tax Department findings between 2010 and 2014, including failure to issue receipts, a “black cash pouch” kept next to the legal till, and even a power cut at 4:45 a.m. during a printout check of daily takings. None of this triggered sustained targeted audits or the involvement of the Tax Fraud Investigation Unit.
Two hospitality businesses appeared to book artificial losses by overstating operating expenses, with overheads reaching as high as 90 percent of revenue in certain years. The auditors also found VAT recording errors, undeclared remittances to third countries that should have been treated as income or fees, and in one venue a discrepancy exceeding €40,000 between ticketing-system sales and declared sales, pointing to premeditated income concealment. Companies whose financial statements carried auditors’ opinions “with qualification” or “emphasis of matter” were left unchecked.
Weak supervision and missed data
The report criticises the Tax Department for launching audits only after years of delay and without systematic risk assessment. It notes poor coordination and underuse of cross-checking tools such as POS data and records from ticketing gateways. In one example, for thirty events where documentation was lacking, the Department estimated VAT using conservative assumptions that knowingly excluded a large-attendance event from the average, understating both average turnout and the company’s liabilities.
Auditor General Andreas Papakonstantinou urges a pivot to targeted, risk-based audits to minimise loss of revenue. Given the large taxpayer base and the Department’s limited resources, he argues the upcoming tax reform must equip the Department with the tools to enforce the law effectively and curb evasion to the greatest extent possible.
Corrective actions recommended
The Audit Office proposes immediate fines and back-collection of undeclared taxes, with priority on cases where tax for foreign artists was not withheld. It calls for a registry of artists and agents so entertainment-industry payments can be matched to declared income, stronger supervision with risk analytics based on bank-flow analysis, and mandatory electronic receipt records. It also recommends unified event monitoring in cooperation with the Deputy Ministry of Culture and the Police to ensure comprehensive oversight from permitting to settlement.
The Tax Commissioner told the Audit Office that its recommendations are being taken into account and that the Department will provide updates on compliance.