Swiss Canton votes for flat tax
Non-doms contribute £16 billion a year to UK economy
Germany approves plans for inheritance tax reform
Tax Institute calls for statutory UK residence test
UK Chancellor announces CGT revision delay
Dubai issues Hedge Fund Code of Practice
UK Offshore Disclosure Facility nets £400 million
OECD launches accession talks with "emerging" economies
UAE is the most favourable expatriate tax jurisdiction
UK to release funds from dormant accounts
New UK money laundering regulations due in force
Gaines-Cooper loses appeal on UK domicile
Dubai agrees links with US regulators
EC amends transitional measures for Belgian Coordination Centres
UK and Saudi Arabia sign tax treaty
Isle of Man to replace Distributable Profits Charge regime
Canada faces Income Trusts challenge
EU draws up “roadmap” designed to avoid market crises
EU and EFTA strengthen cooperation under new Lugano Convention
Massive tax bill for Swedish publisher
Arctic Systems bill estimated at £500,000
France to notify potential Tax Shield beneficiaries
UK approves protocol to Swiss tax treaty
Switzerland sets out Financial Sector Masterplan
Hong Kong to cut tax rates
IRS wins court ruling over tax shelter
Antigua wins right to US compensation over gaming ban
Bahamas to consolidate financial services regulation
Bermuda Stock Exchange recognised by UK tax authority
Cayman to implement Basel II from 2010
Guernsey brings Proceeds Of Crime Regulations into force
Jersey to launch Unregulated Funds regime
UK issues White List the 2005 Gambling Act
Qatar, Singapore tax treaty comes into force
Dubai regulator signs agreement with China
Qatar Financial Centre consults on tax regime
Isle of Man approves new suite of funds
Cyprus, Ireland and Switzerland have Europe’s top tax regime
December 2007, Cyprus, Ireland, and Switzerland have the most attractive domestic tax regimes in Europe according to a league table compiled by accountant KPMG International.
All three countries were rated highly for their consistency in interpreting tax legislation, stability in resisting frequent changes to tax laws and their comparatively low tax rates.
The three least attractive countries were the Czech Republic, Romania and Greece. All three regimes featured high volumes of complex legislation, with frequent changes.
Compiled from more than 400 interviews with tax professionals in multinational companies across Europe, the survey tested participants’ attitudes to particular aspects of their home tax regime, including consistency, stability over time, volume of legislation, the tax rate and relations with tax authorities.
It also found that nearly 70% of respondents who thought their country’s tax regime was unattractive also believed that this put their companies at a competitive disadvantage when competing with foreign companies.
But in those countries with an attractive regime, just 43% of respondents felt that this gave them a competitive advantage when competing overseas.
Sue Bonney, head of Tax for KPMG Europe and partner, said: “Governments across the world have been using tax as a lever to encourage inward investment for many years, but these results help to confirm that a benign tax regime is only part of the package which makes a business competitive. Good infrastructure, a high quality workforce and access to raw materials and markets are all equally important.”
At a European level, the most unattractive area was the volume of tax legislation, with a net attractiveness score of just 28%. But this concealed a huge variation at a country level, with 100% of respondents in Cyprus saying that the low volume of tax legislation there made the country attractive, and all of the Romanian respondents declaring that volume of legislation in their country was too high.
Relations with tax authorities were generally positive, with an average of 60% across Europe saying that this was an attractive part of their regime. The countries with the highest scores in this area were Ireland, Switzerland, Estonia, Finland, Denmark, Slovenia and Lithuania. Those with the poorest were Germany, Spain, Italy, the Czech Republic and Greece.
“These results help to illustrate just how much businesses across Europe dislike uncertainty and complexity. The volume of tax legislation is huge and its interpretation is often opaque. Simplification presents a real challenge for European tax authorities," added Bonney.
December 2007, Cyprus, Ireland, and Switzerland have the most attractive domestic tax regimes in Europe according to a league table compiled by accountant KPMG International.
All three countries were rated highly for their consistency in interpreting tax legislation, stability in resisting frequent changes to tax laws and their comparatively low tax rates.
The three least attractive countries were the Czech Republic, Romania and Greece. All three regimes featured high volumes of complex legislation, with frequent changes.
Compiled from more than 400 interviews with tax professionals in multinational companies across Europe, the survey tested participants’ attitudes to particular aspects of their home tax regime, including consistency, stability over time, volume of legislation, the tax rate and relations with tax authorities.
It also found that nearly 70% of respondents who thought their country’s tax regime was unattractive also believed that this put their companies at a competitive disadvantage when competing with foreign companies.
But in those countries with an attractive regime, just 43% of respondents felt that this gave them a competitive advantage when competing overseas.
Sue Bonney, head of Tax for KPMG Europe and partner, said: “Governments across the world have been using tax as a lever to encourage inward investment for many years, but these results help to confirm that a benign tax regime is only part of the package which makes a business competitive. Good infrastructure, a high quality workforce and access to raw materials and markets are all equally important.”
At a European level, the most unattractive area was the volume of tax legislation, with a net attractiveness score of just 28%. But this concealed a huge variation at a country level, with 100% of respondents in Cyprus saying that the low volume of tax legislation there made the country attractive, and all of the Romanian respondents declaring that volume of legislation in their country was too high.
Relations with tax authorities were generally positive, with an average of 60% across Europe saying that this was an attractive part of their regime. The countries with the highest scores in this area were Ireland, Switzerland, Estonia, Finland, Denmark, Slovenia and Lithuania. Those with the poorest were Germany, Spain, Italy, the Czech Republic and Greece.
“These results help to illustrate just how much businesses across Europe dislike uncertainty and complexity. The volume of tax legislation is huge and its interpretation is often opaque. Simplification presents a real challenge for European tax authorities," added Bonney.
Obwalden has become the first Swiss Canton to adopt a flat rate of tax for individual income taxpayers after 90% of the electorate voted in favour in a cantonal referendum in December.
Obwalden had been forced to review its tax system following a complaint from Socialist Party deputy Josef Zisyadis that reforms put in place in January 2006 had created a regressive tax system, where wealthy taxpayers paid a lower tax rate than those on lower incomes, and which was therefore unconstitutional.
Zisyadis succeeded in getting the tax overturned by the Federal Tribunal in Lausanne in June last year, stating at the time that the court's decision had "put a brake on the fiscal cannibalism between the cantons".
Following a previous referendum in 2005, Obwalden cut income tax for those earning more than SFr300,000 per year to 1% from 2.35 %. But individuals earning up to SFr70,000 paid 8% and those with income up to SFr300,000 paid up to 6%.
At the same time, Obwalden also cut corporate tax to 6.6%, one of the lowest rates in Switzerland, prompting other cantons to respond.
The cantonal tax system is currently being targeted by the European Commission, which argues that the Swiss tax regime, which allows cantonal governments freedom to set their own tax rates to attract new companies and wealthy foreigners, is in breach of the 1972 trade agreement between Switzerland and the EU.
The economic benefits to the UK of non-domiciled residents amounts are estimated to be at least £16 billion a year.
The figure, which excludes housing and non-VAT expenditure, is based on the latest results from HM Revenue & Customs, the UK tax authority, after questioning under the Freedom of Information Act and is the conclusion of research by wealth manager Stonehage, to provide detail and context about UK "non-dom" residents and their contribution to the UK.
It found that non-doms made £7.1 billion of tax contributions in the tax year to end April 2006 – £3.9 billion in income tax, £2.9 billion in VAT and £308 million in stamp duty. The income tax paid by non-doms per capita represents, on average, eight times as much as the national average.
Stonehage said the data also shows that UK non-doms are paying more tax over time – 1,000 of the 6,000 tax payers earning over £1 million of taxable income a year were non-doms. And there has been a levelling off in the number of non-doms with the number of UK taxpayers earning over £1 million rising from 6,000 to 7,000 in the tax year ended April 2007.
The study follows the UK government's Pre-Budget Report in October, which proposed a number of changes to their existing remittance basis of taxation.
Under the new proposals, non-doms who have been resident in the UK for seven years or more will only be able to claim the remittance basis of taxation upon payment of a £30,000 annual charge. Where an individual decides not to pay the additional tax charge and accordingly, not to claim the remittance basis, he or she will be taxed on their worldwide income and gains. Individuals who claim the remittance basis of taxation will not be able to claim any of the personal income tax allowances.
Although the rules are due to come into effect in April 2008, all previous years of residence count from that date. If the proposals become law, an individual who at 6 April 2008 has been resident in the UK for seven years will have to choose between paying the annual charge or forfeiting the remittance basis of taxation.
Of particular concern is whether non-doms will be obliged to disclose details of overseas assets and associated income, in light of recent issues at HMRC with regards to the security of personal information.
The Treasury is also planning to make changes to rules governing the tax treatment of non-doms who have lived in the UK for over 10 years.
The German cabinet approved in December a proposal by a working group headed by Finance Minister Peer Steinbrueck to reduce the inheritance tax due when family members pass businesses between themselves.
The new proposals would allow for a family member inheriting the business to be immediately liable for 15% of the inheritance tax liability. The balance would only be payable if the new family owner relinquishes control of the firm before the end of a 15-year period, or if employee wages drop below 70% of their pre-transfer average.
The UK Treasury is looking to change rules that allow people to work in the UK while residing in tax havens abroad. It expects about 17,000 non-residents to be brought into the UK tax net, raising an additional £125 million over the next three years.
Existing UK rules make a visitor resident if they spend at least 183 days in the UK in any particular year, or an average of more than 90 days over four years. The proposed new regime, which is to be introduced in April, will include dates of arrival and departure as days in the UK.
"This will have a genuine and really serious impact on London and other major UK cities as places to do business," said the Institute in a submission to the UK Treasury.
The institute is calling for the introduction of a "comprehensive statutory residence test". This should include days of arrival and departure, but instead of restricting time in the UK to 90 days, it should allow visitors to spend 120 days in the UK before they became resident.
13 December 2007, UK Chancellor Alistair Darling said he was delaying announcement of a revised capital gains tax regime until 2008.
In November he had assured the Confederation of British Industry conference that he was listening to protests against his Pre-Budget Report decision to implement a single 18% rate of CGT. This would replace the system where the tax rate on the sale of business assets is reduced the longer it is held, falling to 10% after two years.
Darling had pledged to announce the final regime before Christmas, but instead told MPs that the “quite complex” nature of proposals from business groups to mitigate the impact of the tax rise meant it was “desirable to have further discussions with those groups before I finalise my proposals”.
11 December 2007, the Dubai Financial Services Authority issued a hedge fund code of practice, which sets out best practice standards for operators of hedge funds in the Dubai International Financial Centre.
The first of its kind to be issued by any regulator, the move comes in the wake of enhanced industry and regulatory focus on hedge funds and reflects the DFSA’s commitment to risk-based regulation, it said.
The code is based on nine high-level principles covering key operational, management and market-related risks, particularly in areas such as valuation of assets, back office functions and exposure to market risks.
6 December 2007, about 45,000 UK taxpayers who had secret offshore bank accounts have settled unpaid tax bills under a deal with HM Revenue & Customs.
The department said it had received £400 million in unpaid tax by its November 26 deadline, under which those with offshore accounts were able to take advantage of a 10% cap on any penalties they were liable for.
The largest payment the government received as a result of the partial amnesty was £3 million, while the average amount paid was £9,000.
The total was well short of the £1.75 billion the Revenue had initially estimated it would receive, although it is still expecting payments from 300 people who have been given extra time because they have particularly complex offshore holdings.
It is thought that once payments from these people are included the total gained could reach £500 million.
HMRC announced in April last year that it was giving investors until 22 June to reveal their secret offshore accounts and avoid paying penalties of up to 100% of the tax due as well as a possible criminal conviction.
All tax, interest and penalties had to be declared and paid by 26 November in order for people to qualify for the flat-rate penalty of 10% of the outstanding bill.
The move came after the big five high street banks – Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB – were forced to hand over details of customers with offshore accounts after HMRC won a legal battle against Barclays in May 2006.
HMRC is now understood to be considering offering a similar deal to customers at another 170 banks and financial institutions after obtaining a similar ruling for them to disclose information on offshore accounts.
A spokeswoman said: "We are pleased with the outcome and we expect that figure will increase. People with money offshore should still come forward as the sooner they come to us, the lower any penalties will be."
She added that the department was considering running a further disclosure facility.
3 December 2007, OECD countries agreed to start accession talks with five prospective new members – Chile, Estonia, Israel, Russia and Slovenia – signalling the organisation’s drive to increase its involvement with emerging players in the global economy.
The approval of so-called “road maps” setting a negotiating framework for each of the five countries marked the formal launch of a process agreed at an OECD ministerial meeting at its Paris base last May.
The OECD has also announced plans to engage more closely with other significant economies, notably Brazil, China, India, Indonesia and South Africa.
The twin-track process is designed to reinforce OECD’s role as a hub for dialogue on global issues involving both OECD and non-OECD countries, said secretary-general Angel Gurría. “By extending our membership and deepening our relations with other big players in the world economy, we are broadening our perspectives and consolidating our role as a source of policy solutions,” he added.
Accession negotiations will take place individually between the candidate countries and the OECD committees that handle the substantive aspects of its work. These bring together senior officials from national capitals to discuss policy in areas ranging from farming to financial affairs and from taxation to trade.
The OECD’s current membership comprises: Austria, Australia, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, the UK and the US.
Expatriate tax is most benign in the United Arab Emirates, Russia and Hong Kong, while Belgium, Denmark and Hungary are the least attractive places to work for expats from a personal tax perspective.
Mercer Consulting's 2007 Worldwide Individual Tax Comparator Report, released on 19 November 2007, analysed the tax and benefits systems across 32 countries, focusing on personal tax structures, average salaries and marital status and is used by multinational companies to structure pay packages for their expatriate and local market employees.
The UAE was found to have the most attractive tax environment for single expats because it does not assess any income tax, and the country's social security contributions amount to only 5% of an employee’s gross salary.
Russia, second in the rankings applies a flat tax of 13% across all income levels, while Hong Kong was placed third, with taxes and social security contributions at 14.2% of gross base salary.
Excluding Russia, in general, European countries had less attractive tax environments and dominate the bottom of the rankings. The UK ranks 14=, followed by Ireland (18), Spain (19), and Switzerland (21). France and Germany are ranked 22 and 29.
At the bottom of the rankings, single managers in Hungary (30), Denmark (31) and Belgium (32) paid, respectively, 48.5%, 48.6% and 50.5% of their gross income in taxes and social security contributions.
Asian markets dominated the top of the rankings with Hong Kong, Taiwan, Singapore, South Korea and China (Beijing) ranked 3, 4, 5, 6 and 7. The lowest ranked Asian market was India at 14=. In the Americas, Mexico (8), Brazil (9) and Argentina (10) outranked the US (14=) and Canada (20).
According to Niklaus Kobel, researcher at Mercer's Geneva office, "Marital status is still a major factor in determining local tax rates. The data highlights the fluctuation in tax rates applied according to an employee's income level and marital status. It is important to note that high tax rates do not necessarily mean less affluence."
7 November 2007, a Dormant Bank and Building Society Accounts Bill was introduced into the UK parliament to provide the legislative framework for a scheme to allow monies to be released from unused bank and building society accounts to fund community projects.
The Bill proposes that accounts be considered dormant after 15 years. At that point, around 80% of money in dormant accounts remains permanently unclaimed. With shorter periods the pattern of reclaim rapidly becomes higher and less predictable, said the British Bankers’ Association.
Prior to the scheme coming into operation the banking industry has also committed to undertaking a further reunification initiative aimed at re-uniting customers with their lost accounts where a trail can be found. Analysts believe there could be £400 million lying in dormant accounts
"The government and the banking industry have been working together to bring about an unclaimed assets regime,” said BBA chief executive Angela Knight. “This will release money from unused bank and building society accounts for use on community causes and will crucially leave undisturbed the rights of account holders or their legal heirs to reclaim their money at any time.”
15 December 2007, new money laundering regulations were brought into force in the UK.
The new rules, which apply to money service businesses (MSBs), trust or company service providers (TCSPs), high value dealers (HVDs) and accountancy service providers (ASPs), bring more businesses under the supervision of HM Revenue & Customs, the UK tax authority.
They also introduce a new fit and proper test for people in positions of ownership or control in MSBs and TCSPs, and require businesses to implement risk-based systems and controls to help prevent money laundering and terrorist financing.
HMRC already supervises MSBs and HVDs for compliance with existing regulations. The new regulations extend this supervision to ASPs, as well as TCSPs.
ASPs, MSBs and TCSPs will all need to register with HMRC unless they are already supervised by a designated professional body. HVDs are already required to register with HMRC.
The proposed registration deadlines for businesses are 1 February 2008 for MSBs and 1 April 2008 for TCSPs. Existing HVDs will re-register with HMRC as a part of the annual process by which they renew their registration.
From 15 December 2007, any new MSB, HVD or TCSP had to register with HMRC before they commence trading.
HMRC intends to open a register for ASPs on 1 April 2008, with a registration deadline of 1 July 2008. Once the ASP register is closed in October 2008, any new ASP must register with HMRC before they commence trading.
The fit and proper test is a negative-criteria check of the background of an applicant intended to disrupt criminal access to these sectors.
15 November 2007, British businessman Robert Gaines-Cooper lost his appeal against a decision by the UK tax courts over his status as domiciled in the Seychelles rather than in the UK.
Last November, the Special Commissioners found that Gaines-Cooper had not given up his status as a UK domicile because he continued to maintain links with the UK, including retaining various properties.
Gaines-Cooper, whose own father had been an Inland Revenue tax inspector, had been appealing against tax demands from 1992 to 2004, having moved to the Seychelles in the 1970s.
He argued that he was a legitimate tax exile despite his British citizenship, a number of homes in the UK, a fondness for English country pursuits and attendance of Royal Ascot, but judges sided with the taxman.
The appeal dealt solely with Gaines-Cooper's domicile status and did not focus on the time he spent residing in the UK, which had been a key part of the earlier case.
23 October 2007, the Dubai Financial Services Authority signed a memorandum of understanding with US banking supervisors.
The four federal agencies principally responsible for US banking supervision – the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision – have all joined as parties to a comprehensive statement of co-operation with the DFSA.
Chief executive of the DFSA David Knott said: “The attraction of the Dubai International Financial Centre as the domicile of choice for US financial institutions in the Middle East will be further enhanced by these regulatory relationships.”
It follows similar arrangements the DFSA has with other banking supervisors such as the UK Financial Services Authority and Germany’s Bundesanstalt für Finanzdienstleistungsaufsicht.
13 November 2007, the European Commission retroactively changed the transitional periods set for headquarters of multinational companies in Belgium to qualify for certain corporate tax breaks, following a ruling by the EU courts last year.
Under the changes, the expiry date for “co-ordination centres”, used by multinational companies as headquarters for financial, accounting and administrative operations, to benefit from the tax system – whose authorisation expired no later than 31 December 2005 – is now set between 17 February 2003 and 31 December 2005.
Under a previous EU executive decision, since ruled illegal by the EU courts, centres were allowed to take advantage of the system until the expiry of their individual authorisation or 31 December 2010, whichever came first.
A Belgian law of December 2006 allowing the extension of the system beyond 31 December 2005 was also declared incompatible with the Commission’s decision.
EU competition commissioner Neelie Kroes said: “It would not ... have been reasonable to authorise all centres to benefit until the end of 2010 from a system that ceased to be compatible in 2003.”
At issue was a Belgian law passed in 1982, which permitted “coordination centres” to be taxed on the basis of their operating costs rather than revenue.
In 1998, the commission decided to clamp down on the scheme, arguing it was a case of tax competition between EU member states. It ruled in February 2003 that the way tax rules are applied to coordination centres was illegal and set transitional periods for changes to take effect.
The European Court of First Instance found in June 2006 that the tax scheme for the centres was incompatible with the common market.
31 October 2007, UK Chancellor Alistair Darling and the Saudi Finance Minister Dr Ibrahim Al-Assaf signed the first tax treaty between the UK and Saudi Arabia in London.
The treaty generally follows the OECD model. Important features include the complete elimination of source-country withholding taxes on all interest payments. Dividends may generally be taxed at source up to a maximum rate of 5% and royalties to a maximum of 8%.
The treaty will enter into force when ratified by both countries.
11 December 2007, Tynwald approved an Order to repeal the Distributable Profits Charge regime and introduce an attribution regime for individuals, or ARI, from 6 April 2008.
The Distributable Profits Charge regime was found by the EU Code Group not to conform to the principles of the EU Code of Conduct for Business Taxation.
Discussions with UK and EU authorities resulted in the new system, which the Isle of Man Treasury said does not relate to business taxation and, consequently, does not fall under the Code Group's mandate.
The change also reflects local concerns about the complexity of the DPC, which was introduced as part of the April 2006 taxation changes.
A Treasury spokesman stressed that the charge was the only matter considered by the EU Code Group as the zero-ten corporate taxation system was already known to conform.
The new ARI will apply to Manx resident individuals with an interest in a relevant company, who will be taxed on their appropriate share of the distributable profits. Such attributed profits will then be tax-exempt when later received by the individuals.
Businesses will be categorised as trading companies if more than 50% of gross income is derived from a trading activity, unless the assessor believes company activities are structured to avoid the ARI.
It is intended that the DPC will be repealed for accounting periods commencing after 6 April 2008. The company taxation system will not be changed.
The Canadian government is facing a North American Free Trade Agreement challenge by two US trust investors. Their claim is based on the decision in October 2006 to eliminate the tax advantages of income trusts over companies.
The unexpected change caused investors losses of $35 billion according to some estimates; it is thought that US investors suffered over $5 billion of that loss.
The claim is being pursued by Chicago husband and wife, Marvin and Elaine Gottlieb, who allege that the Canadian government discriminated against US citizens when it imposed the new measures, in breach of the terms of NAFTA. They are seeking $6.5 million in damages they claim to have suffered as a result of the tax.
9 October 2007, EU finance ministers agreed to a “roadmap” of proposals to protect financial markets including establishing new guidelines on transparency, valuation standards and risk management.
The proposals are intended to provide a blueprint for reviewing whether changes are required to avoid a repeat of the global financial turmoil seen this summer.
The work focuses on four aspects that will involve a series of expert studies to be conducted over the next year:
- enhancing transparency – especially by examining banks’ mandatory disclosure rules
- improving the way investments are valued – by agreeing common standards
- reinforcing supervisory mechanisms – improved information sharing between national authorities and the development of cross-border co-operation agreements
- improving market functioning – looking at the role of credit rating agencies.
Under the proposal, the first progress reports will be completed in the spring but some studies will not be finalised before the end of 2008.
30 October 2007, the European Commission and certain member states of the European Free Trade Area (EFTA), including Switzerland, signed a new Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
The new agreement aims to align the Convention provisions with the present EU legal framework. As a result, the rules for determining jurisdiction of the courts will now be similar in the EU and the EFTA states and judgments delivered by EU national courts and those of EFTA states will be more easily recognised and enforced.
The other EFTA member states party to the new agreement, which replaces the 1988 Lugano Convention on the same subject, include Iceland and Norway.
Franco Frattini, the European Commissioner responsible for Justice, Freedom and Security, said: "This new convention shows the mutual trust we have in each other's judicial systems and allows for more flexible provisions between Members States and Switzerland, Norway, and Iceland, aligned with current EC practice. This will smooth procedures in civil and commercial matters, enhance legal security and consequently facilitate the life of citizens involved in those proceedings."
20 October 2007, Swedish pornographic publisher Berth Milton was ordered to pay back taxes for ten years in which he claimed he was not resident in the country. The bill could be as high as 650 million kronor ($101 million).
Milton, whose father started the Private Media Group in 1965, declared in 1989 that he had left Sweden and claims to have lived in Barcelona since then.
But according to the Swedish revenue, his move away from Sweden was less than entirely committed. In fact, he was still running his companies in Sweden, did not have a permanent address in Spain and was personally overseeing the redevelopment of his property in Sweden.
Milton's partner and two children lived in their Swedish house until 1998 and the businessman had a number of luxury cars registered in Sweden.
The Board of Taxation concluded that for the ten years after 1989, Milton was still resident in Sweden. During that time he earned 1.35 billion kronor from his business.
24 October 2007, HM Revenue & Customs is estimated to have spent £500,000 chasing a tax bill of just £7,000 in the Arctic Systems case.
Angela Eagle, the UK Treasury Minister, admitted to Parliament that “known legal and associated costs and court fees” for the case had reached £120,207, but all the bills were not yet in. It was also not possible to assess how much of the Revenue’s employees’ time was wasted, because such records were not kept.
The Revenue began pursuing Arctic Systems, a husband and wife IT firm, for £7,000 in 2003, but finally lost in July 2007 and was ordered to cover the legal costs of Geoff and Diana Jones, who run the business.
22 October 2007, French Finance Minister Éric Woerth announced that he had instructed tax authorities to identify and inform potential beneficiaries that they were eligible for tax refunds under the country's new tax shield rule.
The tax shield, which came into effect lastJanuary, creates a maximum rate of direct taxation. Combining income, property and wealth taxes paid during the year, an individual may claim a refund for the portion of tax paid that exceeds 60% of his or her annual income.
Under a tax cut package passed earlier this year, that rate will be reduced to 50% for 2008. Indirect taxes such as VAT are not included in the calculation.
Taxpayers must apply for tax shield refunds but, as of 30 September, only 2,722 refunds had been issued, with another 394 under review. This represented only a small fraction of the 100,000 potential beneficiaries, officials said.
To increase taxpayers' use of the tax shield, the Finance Ministry announced that it would send notices to taxpayers that it identifies as likely to benefit from the rule, directing them to sources of information about it.
12 December 2007, the Privy Council approved the Double Taxation Relief (Taxes on Income) (Switzerland) Order 2007, a protocol to the 1977 Switzerland-UK tax treaty, which was negotiated in June this year.
The main amendments include the elimination of taxation at source when a company receives dividends from a company in which it has at least a 10%. Dividends a company pays to a pension fund will also be exempt from tax at source.
The exchange of information article has also been amended, with both countries agreeing to co-operate on tax fraud or similar offences and to cases involving holding companies.
The amendments will come into force when both sides have completed ratification procedures.
13 September 2007, Switzerland's leading financial services trade bodies called for reforms aimed at transforming the country into the world's third financial centre behind London and New York if enacted by politicians.
The demands – made jointly by the Swiss Bankers Association, the Swiss Insurance Association, the Swiss Funds Association and the Swiss Financial Market Services Group – stemmed from concerns that the sector, which accounts for about 14% of Switzerland's gross domestic product, was being overtaken by foreign rivals.
"The financial sector's strong position and the exceptionally good results of Swiss banks and insurers obscure the fact that wealth creation in Switzerland is growing at a slow pace compared with other financial centres," said Pierre Mirabaud, chairman of the SBA.
The launch of the Swiss Financial Sector Masterplan marked the first time the four lobbies had worked together. Bankers said the fact that the lobbies had joined forces and recognised the need for more dialogue with the government was significant.
According to its sponsors, the masterplan would boost employment in financial services by 20-40 per cent by 2015. It would potentially double tax revenues generated by the sector, and could more than double the sector's contribution to GDP.
The masterplan includes proposals for the progressive abolition of stamp duty – a levy said to have contributed to the transfer of much business to financial centres outside Switzerland. But such demands – which have been made for years – continue to meet political resistance because of the duty's role as a source of revenue.
10 October 2007, Hong Kong's government announced it is to cut personal and corporate income tax rates by one percentage point to maintain its fiscal advantage over competing financial centres Singapore and Shanghai.
Chief Executive Donald Tsang said, in his annual policy address, that taxes on salaries and company profits would be cut to 15% and 16.5% respectively in the financial year ending March 2009.
The move will widen the gap with Singapore, which in February announced a cut in its corporate tax rate to 18%.
Tsang, who won a five-year mandate in March after pledging to cut taxes to 15%, said: “The rise of our country brings new opportunities,'' reiterating plans to promote integration of the region’s financial system with the mainland. “We will consider further profits tax relief if our economy remains robust and our public finances stay sound.''
21 December 2007, the US Court of Federal Claims issued a ruling in a tax refund case that the transactions under question were a tax avoidance mechanism, and not an investment strategy.
The case, Jade Trading LLC v. the US, involved tax refunds sought by the Ervin brothers of Sturgis in Kentucky, who sold their cable business in 1999, making more than $40 million in profits.
The same year, each of the three brothers bought an option for $15 million and sold an option for about the same value, through a limited liability corporation.
Each limited liability corporation then contributed the option spread to Jade Trading LLC, and on exiting the partnership, claimed a basis of over $15 million in its Jade interest, factoring in the premium for the call option that was bought, and ignoring the sold call option, according to the court document.
The court ruled that a claim that each brother had invested and lost $15 million was false, and that they had each invested only about $150,000.
"In sum, this transaction's fictional loss, inability to realise a profit, lack of investment character, meaningless inclusion in a partnership, and disproportionate tax advantage as compared to the amount invested and potential return, compel a conclusion that the spread transaction objectively lacked economic substance," Judge Mary Ellen Coster Williams said in the ruling.
The 75-page ruling also said that a key part of the transaction “was devised and marketed by a tax accounting group, BDO Seidman’s ‘Tax Sells’ Division, as a tax product, not by an investment adviser as a vehicle to earn profit.”
Son of Boss, which the IRS formally disallowed in 2000 and never considered valid for deductions, involves creating artificial losses that are then used improperly to offset legitimate gains. The scheme is based on an older shelter, bond and options sales strategy, or Boss.
By 2005, the IRS had persuaded more than 1,200 people who bought Son of Boss tax shelters to come forward and pay $3.7 billion in taxes owed. It can be expected to use the ruling in this case to pressure additional taxpayers to settle.
Tax shelters similar to Son of Boss were at the centre of the US government’s criminal case against former employees of the accounting firm KPMG.
The ruling could also have significance for Deutsche Bank, the German bank that is under criminal investigation by Manhattan federal prosecutors over its work with questionable tax shelters that the IRS considers similar to Son of Boss.
22 December 2007, the World Trade Organisation (WTO) awarded Antigua and Barbuda US$21m worth annually of compensatory measures in its fight against the US over its unilateral suspension of its WTO obligations in regard to on-line gaming.
The ruling comes at the end of a five-year legal contest between Antigua and the US regarding its blocking of offshore online gambling sites. Because many of these sites were located in Antigua, the Antiguan government filed a complaint with the WTO saying that the US prohibition constituted unlawful restriction of trade.
When the WTO agreed, Antigua pressed for US$3.4 billion in punitive damages. It asked to have this penalty assessed as permission to copy US intellectual property, since there was no trade embargo that Antigua could impose on the US to collect the amount for itself.
The panel agreed that Antigua had no way to collect punitive damages through trade sanctions but lowered the amount of damages to US$21 million per year. This falls significantly short of the dispensation sought by Antigua, but is far higher than the US$500,000 per year allocation suggested by US negotiators.
Antigua's Minister of Finance and the Economy, Dr Errol Cort, said: "Although we are pleased that the extraordinary sanction of the suspension of intellectual property right protection for US interests has been given to us – only the second such authorisation in WTO history – we are disappointed by the portion of the decision limiting our annual compensation to such a mere fraction of our industry's lost revenues."
He said that it was not Antigua's immediate intention to apply the sanctions because it remained preferable to reach a compromise solution with the US.
6 December 2007, the Bahamas government said it was to consolidate the financial services regulatory regime in order to advance the growth and development of the financial services sector.
Finance Minister Zhivargo Laing told a Tax and Trade Symposium hosted by The Bahamas Financial Services Board, that new clients had currently to deal with five financial services regulators – the Central Bank, the Securities and Exchange Commission, the Inspector of Financial and Corporate Service Providers, the Office of the Registrar of Insurance Companies and the Compliance Commission.
“In many instances each of these regulators has exacting demands that represent a duplication or replication of requirements for our clients,” he said. “We all agree that this is not an ideal operating environment for our clients who would much rather focus on pursuing their core business interest than having to fulfil requirements two and three times already fulfilled within our jurisdiction."
Laing said the government has therefore decided to amalgamate regulators in a phased fashion, moving towards either a single super-regulator, or at most two regulators for the entire financial services sector.
The minister added that the consolidation process was already underway, to the extent that the Inspectorate of Financial and Corporate Service Providers has been transferred from the Registrar General’s Department to the Securities Exchange Commission as of 1 January 2008.
Laing said the consolidation effort also includes establishing an internationally compliant anti-money laundering and counter terrorism-financing regime. This effort was being led by the Financial Intelligence Unit and was due to be completed within 12 months.
The government is also going to refine immigration policies as they relate to international services such as financial services, he announced. The policies will seek to more clearly define the parameters for the granting of work permits and provide some reasonable assurances for the receipt, review and determination of work permit and permanent residency applications.
4 December 2007, the UK tax authority HM Revenue and Customs designated the Bermuda Stock Exchange (BSX) as a “recognised stock exchange” under UK tax law.
As such, securities listed on the BSX will meet the HMRC interpretation of “listed” as set out in the Income Act 2007, as amended by Schedule 26 to the Finance Act 2007. The BSX is also regarded as a recognised stock exchange for Inheritance Tax purposes.
Greg Wojciechowski, BSX president and chief executive said: “BSX clients have asked for the Exchange to seek this designation as they have indicated an interest in having their investment universe of “qualifying investments” expanded or in other instances to have an alternative to the current listing venues for the listing of their Eurobond or debt products.“
24 September 2007, the Board of the Cayman Islands Monetary Authority (CIMA) approved the implementation of the new Basel II framework in the Cayman Islands between 2010 and 2012.
Implementation will follow a preparation process that will include policy development, new reporting requirements, and consultations with the Cayman Islands banking industry. The preparation process has begun with the search for a Basel II Implementation Project Manager.
The initial focus will be on requiring Cayman incorporated banks to implement the standardised approaches under Pillar 1 by the end of 2010, with a staged implementation of Pillars 2 and 3 between 2010 and 2012.
The Basel II Framework was developed by the Basel Committee on Banking Supervision, and is a new global supervisory framework for assessing the capital adequacy of international banks.
15 December 2007, the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 came into force.
The Financial Services Commission has also formally issued the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing.
Since the proposed regulations and handbook were issued on 18 September, one clarification to the Regulations and a few small clarifying amendments to the Handbook have been made.
The Commission is also issuing Business from Sensitive Sources Notice (Number 5).
4 October 2007, Jersey announced that it is to introduce an Unregulated Funds Regime in early 2008, which is designed to provide promoters and other fund introducers with the simplicity, certainty and speed when setting up certain types of specialist fund.
The new Unregulated Funds Regime includes an Unregulated Eligible Investor Category (UEIC) and an Unregulated Exchange Traded Category (UETC). Funds in these categories will not be approved or authorised by the Island’s financial regulator, the Jersey Financial Services Commission (JFSC).
Consultations continue with the JFSC to fine-tune the proposals ready for the launch. Key features of the Unregulated Eligible Investor Fund include:
- a minimum investment criteria of $US 1 million or a need to be a sophisticated investor.
- applies to both open and closed ended funds and can be structured using companies, unit trusts and limited partnerships.
- no requirement for Jersey domiciled administrator, directors or custodian.
- no audit requirement.
- Open-ended vehicles are permitted to list but only on certain exchanges that allow transfer restrictions.
- existing funds will not be able to transfer to the new regime.
Jersey’s existing regulated funds including the Expert Fund Regime, introduced by the JFSC in 2004 and the Listed Fund Guide, launched this year, which streamlined the authorisation process for regulated alternative investment funds.
The value of the funds industry in Jersey recently reached a new record high of £210 billion and funds in the alternative investment fund sector accounted for more than half the total. It is anticipated that the new Unregulated Funds Regime will provide a further significant boost to the Island’s funds capabilities in the Alternative Investment Market.
The Isle of Man and Alderney were the only jurisdictions on the UK government’s “White List” of gaming jurisdictions to be exempt from the advertising ban that was brought into effect on 1 September 2007 in the UK.
Published on 10 August, the UK Department of Culture, Media and Sport said these two jurisdictions were only ones found to have a "rigorous licensing regime designed to stop children gambling, protect vulnerable people, keep games fair and keep out crime" under the 2005 Gambling Act.
Countries within the European Economic Area (EEA), including Gibraltar and Malta where a number of online gambling sites are licensed, automatically qualify to advertise in the UK under European law.
James Purnell, UK Secretary of State for Culture, Media and Sport, rejected white list applications from Alexander (a Canadian Reservation), the Netherlands Antilles and Tasmania. He also announced that applications from Kahnawake (another Canadian Reservation) and Antigua are still being considered.
Gambling operators in jurisdictions that did not apply to be white listed, including major online gambling centres like Costa Rica and Belize, are automatically banned from advertising. Several operators are already considering becoming licensed in white listed jurisdictions.
5 October 2007, the Qatar-Singapore tax treaty was brought into force. Its provisions will apply to income derived on or after 1 January 2008.
Effective initially for 10 years, under the treaty there will be no withholding tax on dividends, while that on interest and royalties would be 5% and 10% respectively.
Singapore now has 56 comprehensive tax treaties in place and has concluded similar agreements in the Gulf region with Bahrain, Egypt, Israel, Kuwait and Oman.
“The treaties reflect Singapore’s continual efforts to engage her trading partners in relieving double taxation, which encourages and facilitates the cross-flow of trade, investment, financial activities and technical know-how,” said Umej Singh Bhatia, Charge D’ Affaires of the Singapore Embassy in Doha.
26 September 2007, the Dubai Financial Services Authority entered into a memorandum of understanding with the China Banking Regulatory Commission on dealing with co-operation and information sharing between the two banking supervisors.
The Commission supervises all banking institutions, including banks, non-bank financial institutions and foreign banks.
The Qatar Financial Centre Authority is consulting on the tax rules and regulations for businesses licensed with the Qatar Financial Centre as of 1 May next year.
The original QFC Law of 2005 provided that there would be no taxation on businesses licensed by the QFC for the first three years of the centre's operation – from 1 May 2005 to 30 April 2008. Thereafter, the QFC is to levy a tax rate on business profits of 10 per cent but taxable profits will be based on accounting profits and non-local source profits will not be taxed.
In addition to the basic charging provisions the new tax regime will include specific regulations covering Islamic finance, insurance companies, transfer pricing, partnerships and reorganisations.
There will be no withholding taxes in the QFC and a tax ruling facility will be available.
Stuart Pearce, chief executive officer and director-general of the QFCA, said: "The adoption of a tax regime is a planned and transparent part of the development of the QFC. The regime we are proposing will give investing firms a high degree of certainty about their future tax."
"There are no hidden costs in operating from the QFC, and as firms we have already consulted with on these proposals have told us, a low tax rate based on international best practice principles is preferable to a tax haven as it is both predictable and — in the long term — more commercially efficient," he added.
1 November 2007, the orders to introduce the new Specialist and Qualifying funds and to update the Experienced Investor Fund regime came into effect.
The changes follow on from the work of the Isle of Man Funds Review Group, which published a report that looked at the future opportunities for the island’s funds industry in March this year.
Amongst its recommendations, the group advocated the introduction two new fund types, one targeted at the institutional funds market and another aimed at non-retail investors. There were also implications for existing Experienced Investor Funds.
The commission has also consulted with the industry and will shortly be announcing some new licensing arrangements for managers and asset managers, to complement the new regime.
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