Owen, Christopher: Global Survey – December 2017

25 October 2017, Advocate General Campos Sánchez-Bordona of the Court of Justice of the European Union (CJEU) issued an opinion that the Netherlands’ tax provisions on integrated groups of companies represented a restriction on the freedom of establishment under the Treaty on the Functioning of the European Union (TFEU).

Joined cases X BV & X NV v Staatssecretaris van Financiën (C‑398/16 and C‑399/16) were referred to the CJEU by the Dutch Supreme Court in July 2016 and relate to the consequences of the ‘per element’ approach, as established by the CJEU in C‑386/14 Groupe Steria, for the Dutch group taxation regime.

In case C‑398/16, the taxpayer argued that its freedom of establishment had been restricted due to the non-deductibility of interest, which meant that investing in a non-resident subsidiary was less attractive than investing in the Netherlands. The AG found this to be incompatible with EU law because a deduction would have been available if the subsidiary had been resident in the same state as the parent company. He did not accept the Netherlands’ justifications of the need to maintain the coherence of the fiscal unity regime and the need to prevent tax evasion.

In case C‑399/16, the taxpayer claimed that, had it been permitted to form a fiscal unity with its UK subsidiary, it would have been able to deduct a loss on a share contribution as a result of exchange rate fluctuations. This had been denied by the Dutch tax authorities under the participation exemption. The AG followed the conclusion of the CJEU in X AB (C-686/13) that EU rules were not violated, however, because the Dutch regime was ‘symmetrical’ in also disregarding currency gains.

Immediately the AG issued his opinion, the Dutch State Secretary of Finance announced emergency reparatory provisions to eliminate the existing favourable treatment for domestic situations if the CJEU follows the AG’s opinion in Case C‑398/16. These measures would have retrospective effect to 25 October 2017.

The opinion can be viewed at http://curia.europa.eu/juris/document/document.jsf?text=&docid=196021&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=1077964

24 November 2017, the Australian government released a draft law and explanatory materials implementing hybrid mismatch rules designed to combat tax avoidance by multinational enterprises (MNEs).

The rules aim to prevent MNEs from gaining an unfair competitive advantage by avoiding income tax or obtaining double tax benefits through hybrid mismatch arrangements, which exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.

These rules, which are based on international standards developed under the OECD base erosion profit shifting (BEPS) plan, will operate in Australia to neutralise hybrid mismatches by:

• Disallowing a deduction in cases where a payment would otherwise qualify for a deduction in Australia and would not be included in the income tax base of the recipient in another jurisdiction; or
• Including an amount in the recipient's assessable income in cases where it otherwise would not be included and the payer jurisdiction allows a deduction or offset against the payer's income tax base; and
• Cancelling franking benefits on franked distributions (where applicable) made by a corporate tax entity.

The new law would apply to payments made six months following the date of the law’s Royal Assent. The Australian government is also developing a ‘targeted integrity rule’ to prevent circumvention of the hybrid mismatch rules, as well as branch mismatch rules to further clamp down on MNE tax avoidance.

22 November 2017, the Bermuda government announced proposals for a legislative framework to regulate firms operating in or from Bermuda that use digital ledger technologies (DLT) “to store or transmit value belonging to others, such as virtual currency exchanges, coins and securitised tokens”. The framework is due to be brought into force in early 2018.

A task force has been created to develop and put in place strategies for the island. It has been split into two teams, one focused on business development, the other on legal and regulatory matters. Those involved in the task force include government technical officers, representatives from the Bermuda Business Development Agency, and legal and industry specialists in fintech.

A self-governing cryptocurrency association is also to be set up to establish a code of conduct for Bermudian-based token issuers, including measures to ensure enhanced business transparency and meet ‘know your customer’ and anti-money laundering requirements.

Bermuda Premier David Burt said: “Bermuda is committed to building upon its position as an innovative international business centre and is considering a complementary regulatory framework covering the promotion and sale of utility tokens, aligned with the DLT framework.

“The challenge will be in figuring out how Bermuda can set-up an industry that ensures cryptocurrencies are well-regulated, is a safe environment for cryptocurrency firms to grow, whilst also ensuring that this new regulatory environment protects both consumers and the reputation of the jurisdiction with specific attention being given the our anti-money laundering and anti-terrorist financing obligations.”

31 October 2017, Canada and Antigua and Barbuda signed a tax information exchange agreement (TIEA) based upon the OECD's internationally agreed standard on the exchange of tax information upon request.

Negotiations for the TIEA commenced in November 2010. It will enter into force on the date of the later of the notifications of ratification by either party

31 October 2017, Canada and Antigua and Barbuda signed a tax information exchange agreement (TIEA) based upon the OECD's internationally agreed standard on the exchange of tax information upon request.

Negotiations for the TIEA commenced in November 2010. It will enter into force on the date of the later of the notifications of ratification by either party.

23 November 2017, the Court of Justice of the European Union (CJEU) found that Finnish exit tax legislation applicable to transfers of assets was against the freedom of establishment and could not be justified by reasons of the public interest. As a result, the relevant provisions of the Finnish Business Income Tax Act (BITA) were incompatible with EU law and should be amended.

In A Oy v. Veronsaajien oikeudenvalvontayksikkö (C-292/16), a Finnish company transferred its Austrian permanent establishment to an Austrian company in return for shares in that company, which fulfilled the requirements of the EU Merger Directive. However, in accordance with the prevailing domestic provisions in the BITA, the company was taxed on the capital gains resulting from the asset transfer.

After the Finnish Board of Adjustment rejected the company’s claim for adjustment, the company appealed to the Administrative Court. In its appeal, the company argued that the tax constituted an obstacle to the freedom of establishment because in a comparable domestic situation, the tax would have been deferred until the company’s capital gains had been realised. The Administrative Court referred the question to the CJEU for a preliminary ruling.

The CJEU considered that difference in the treatment between a resident and a non-resident asset transfer under the Finnish exit tax legislation, might deter companies established in Finland from exercising an economic activity in another Member State through a permanent establishment. It was therefore an impediment to the freedom of establishment.

The Court found that the Finnish exit tax legislation went beyond what was necessary to attain the objective of preserving the allocation of powers of taxation between the Member States and was incompatible with the freedom of establishment.

The judgment can be viewed at http://curia.europa.eu/juris/document/document.jsf?text=&docid=197045&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1078403

16 November 2017, the European Commission released a non-confidential version of its decision to open a formal investigation into the UK’s CFC Group Financing Exemption, which was introduced on 1 January 2013.

The Commission announced its decision to open an in-depth investigation on 26 October, declaring a preliminary finding of state aid under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU).

It said the Group Financing Exemption exempts from reallocation to the UK, and hence UK taxation, financing income received by the offshore subsidiary from another foreign group company. Thus, a multinational active in the UK can provide financing to a foreign group company via an offshore subsidiary.

According to the case law of the EU Courts, an exemption from an anti-avoidance provision can amount to such a selective advantage. The Commission therefore doubted whether the Group Financing Exemption was in compliance with EU State aid rules.

The decision can be viewed at http://ec.europa.eu/competition/state_aid/cases/271690/271690_1940938_12_2.pdf

14 November 2017, the French parliament approved the first amended finance law, which included an ‘exceptional’ contribution on very large companies. The measure is intended to help fund the €10 billion reimbursement of the previous 3% corporate surtax on dividends, which was deemed unconstitutional on 6 October.  It was held to violate EU rules by the Court of Justice of the European Union in May.

The temporary surcharge effectively increases the corporate tax rate from 33.3% to 38.3% for companies with turnover in excess of €1 billion and to 43.3% for companies with turnover in excess of €3 billion. It will apply for financial years ending between 31 December 2017 and 30 December 2018.

The government’s draft 2018 budget eliminated the dividends tax as of 1 January 2018 and provides €5.7 billion in reimbursements, spread over five years, to compensate companies that have paid the tax since 2012.

Members of parliament subsequently challenged the manner in which the measure was passed, as well as the legality of the tax itself. However the Constitutional Court ruled, on 29 November, that the proposed temporary surcharge was in conformity with the French constitution. It found that the tax was neither "confiscatory" nor discriminatory against the companies in question.

A second amended finance bill for 2017, released on 15 November, contains measures that would abolish the requirement for French companies to obtain advance approval of cross-border mergers to qualify for benefits under the EU merger directive, disallow a deduction for withholding tax levied under a tax treaty and reduce the default interest rate. Parliament is expected to vote on the second amended finance bill by the end of 2017.

13 October 2017, the Gibraltar government announced that it is to introduce a new regulatory framework for firms offering blockchain services from 1 January 2018. The framework will cover any commercial use of distributed ledger technology (DLT) as a means to store and transmit value.

This definition of ‘value’ includes "assets, holdings, or other forms of ownership, rights or interests”. Investment services and other controlled financial offerings connected to the technology will be covered as well.

Under the framework, DLT service providers will be granted a working licence, providing they conform to certain regulatory principles, which include honesty, integrity, the protection of customer assets and maintaining a high degree of cyber security.

Samantha Barrass, chief executive of the Gibraltar Financial Services Commission (GFSC), said: "This regulatory framework demonstrates that regulators can keep up to date with technology without stifling innovation, protect consumers and create a well-regulated safe environment in which financial technology can flourish."

The GFSC is further considering a complementary regulatory framework covering the promotion and sale of tokens or coins based on DLT as a means of raising finance, especially by early-stage start-ups. The sale of such tokens is often conducted using terms such as initial coin offering (ICO) or initial token offering (ITO).

17 November 2017, the Global Forum on Transparency and Exchange of Information for Tax Purposes, meeting in Yaoundé, Cameroon, adopted the first report on the status of implementation of the AEOI Standard a few weeks after almost 50 countries started exchanges of information under the new standard on automatic exchange of information, with another 53 countries starting in September 2018.

The Global Forum said that monitoring results in relation to those that commenced exchanges this year essentially showed the full delivery of the commitments made, including the timely collection of the data domestically – 100% had data collection laws in place – and its widespread exchange internationally – given that 98% of the potential exchange agreements were activated in good time.

The work to deliver on the commitments to implement the AEOI Standard was however not yet complete, with over 50 more jurisdictions committed to commence exchanges next year. The monitoring results to date suggested that the delivery of the commitments would not be as comprehensive as for those that started exchanging in 2017.

While many jurisdictions were fully on track, with domestic laws in place (amounting to 93% of jurisdictions for 2018 exchanges) and had made good progress in putting in place the international legal framework, there were a certain number of jurisdictions that had missed key milestones and faced challenging timelines to deliver on the commitments made.

The principle of annual implementation reports and peer reviews was agreed at the meeting to ensure effective implementation and a level playing field.

The Global Forum also published six new peer reviews of Curaçao, Denmark, India, Isle of Man, Italy and Jersey under its international standard of transparency and exchange of information on request (EOIR). The standard was reinforced last year to tackle tax evasion more effectively, particularly in areas covering the concept of beneficial ownership. It brought to 16 the total number of second round reviews of the Forum’s 147 member countries and jurisdictions.

The Isle of Man, Italy and Jersey were found to be ‘Compliant’, Denmark and India were found to be ‘Largely Compliant’, while Curaçao was found to be ‘Partially Compliant’.

The Isle of Man remained ‘Compliant’ because it had passed the Beneficial Ownership Act 2012, which extended obligations to identify beneficial owners to all relevant entities except for general partnerships. It had successfully exchanged both legal and beneficial ownership information in practice and had also addressed a weakness identified in its practice during the last round of reviews, namely the sharing information received under an EOI request with the financial intelligence authority. Peers had commended the Isle of Man for its highly efficient and cooperative exchange of information practice.

Italy had been upgraded from ‘Largely Compliant’ because it had taken measures to speed up ratification process of its EOI treaties and had maintained an excellent record in terms of ensuring the availability, access and exchange of different types of information. Italy had an extensive network of exchange of information partners covering 146 jurisdictions and was heavily involved in exchange of information practice, as demonstrated in the large volume of incoming and outgoing information during the reviewed period (1 October 2013 to 30 September 2016). Italy was recommended to monitor measures recently introduced to further streamline its exchange of information processes so that all requests are responded in a timely manner.

Jersey was also upgraded from ‘Largely Compliant’ because it had taken the necessary actions to fix deficiencies identified in its 2014 peer review report regarding effective use of information gathering powers, protection of confidentiality and ensuring that requests for clarification did not create unduly delays to the exchange process. Jersey processed 262 requests over its new review period (1 July 2013 – 30 June 2016), which represented almost the double of the requests received during its previous review period (2010-2012), and has been able to respond to almost all of these requests in a timely manner. The multilateral Convention was extended to Jersey by the UK in 2014, allowing a large number of jurisdictions requesting information to Jersey.

Denmark had previously been rated Compliant in its 2011 peer review report but, while the requirements for the availability of legal ownership and accounting information were adequate, newly enacted legal provisions relating to beneficial ownership were not fully in line with the standard. Additionally, oversight of registration and record-keeping requirements related to the availability of ownership information, as well as supervision of banks with respect to the availability of beneficial ownership information, had not been sufficiently rigorous over the review period (1 July 2013 to 30 June 2016).

India was also downgraded to ‘Largely Compliant’ because improvements were required to ensure that the new obligations to maintain beneficial ownership information on all the entities and legal arrangements were well monitored in practice. India was also told to improve the quality of the EOI requests that it sent to its partners.

Curaçao remained with an overall rating of ‘Partially Compliant’ because while it had addressed some recommendations, notably regarding the striking off of dormant companies, serious deficiencies remained in respect of availability of ownership information, access to information and EOI practice. Curaçao should also improve the oversight and enforcement mechanisms that were currently insufficient to ensure the availability of ownership and accounting information in all cases. Finally, the Curaçao authorities should ensure that in practice they access information effectively and in a timely manner in all cases, including information pertaining to international offshore companies.

14 November 2017, HSBC confirmed it had agreed to pay €300 million to settle a longstanding investigation by French authorities into allegations that its Swiss private-banking unit in Geneva had assisted French clients to conceal over €1.6 billion of assets.

The agreement between HSBC Private Bank (Suisse) SA and France's financial prosecutor is the first under the Judicial Convention of Public Interest, a French system introduced in 2016 to allow companies to settle investigations without any finding of guilt.

Hervé Falciani, a former employee of HSBC’s Swiss private banking unit, handed five disks of client data to the French authorities in 2008. French investigators alleged that numerous French taxpayers had not declared assets held in the Swiss bank and that the bank had provided French clients with advice that was used to conceal these assets.

The bank said the settlement agreement noted the “significant repositioning” of the Swiss private bank, which included refocusing and reducing the client base, reinforcing the bank’s compliance function and putting in place enhanced global policies on tax compliance, anti-money laundering and cross-border activity.

“HSBC has publicly acknowledged historical control weaknesses at the Swiss Private Bank on a number of occasions and has taken firm steps to address them,” HSBC said. “HSBC is pleased to resolve this legacy investigation which relates to conduct that took place many years ago.”

The French financial public prosecutor confirmed that the settlement ends proceedings against HSBC providing that the bank makes the payment.

10 November 2017, the Indian government announced that the Cabinet had given its approval for entering into a treaty with the Hong Kong Special Administrative Region of China for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Hong Kong and India signed a limited tax treaty in 2003 in respect of shipping companies and airlines but plans for a comprehensive tax treaty have failed to solidify. India notified Hong Kong as a ‘specified territory’ under Section 90 of the Income Tax Act 1961 in April 2010. This enabled two rounds of treaty negotiations to take place in late 2010 and 2011, but the talks concluded unsuccessfully.

The potential increase in the foreign direct investment under a tax treaty could enable Hong Kong to compete with Singapore as the preeminent holding company jurisdiction in the region.

The Indian Cabinet also approved a protocol to amend its existing treaty with Kyrgyzstan to update Article 26 in respect of exchange of information.

The Hong Kong Inland Revenue Department announced, on 24 November, that tax treaties signed with Latvia and Pakistan have entered into force. Both treaties will enter into effect in Hong Kong for tax years beginning after April 2018.

7 November 2017, the government of Jersey announced that it would consider introducing a substance test for corporate tax residence in response to a report that US tech giant Apple had moved two subsidiaries to Jersey after coming under criticism for minimising its tax bill via Irish subsidiaries in 2013.

The allegations were published by the International Consortium of Investigative Journalists (ICIJ), which analysed a trove of leaked financial documents from the offshore law firm Appleby, Singapore-based Asiaciti Trust, and 19 government corporate registries, which together comprise the so-called ‘Paradise Papers’.

The Jersey government said in a statement: “Jersey does not want abusive tax avoidance schemes operating in the island and expects financial services providers to abide by a voluntary code to say they will not take on this kind of business.

“If this proves to be such business, we will consider how to strengthen our arrangements, if necessary by amending our legislation to introduce a substance test. It is not satisfactory for a foreign registered company to claim tax residence in Jersey without demonstrating a substance here.”

It said the allegations would be investigated and that it would request the ICIJ to provide all relevant documents to support this action.

8 November 2017, the Dutch Finance Ministry announced an investigation into 4,000 corporate tax deals agreed between the government and companies between 2012 and 2016 to determine if they were properly issued.

The move came after documents leaked as part of the so-called ‘Paradise Papers’ trove of records from offshore law firm Appleby revealed what the Finance Ministry acknowledged were errors in the drafting of a 2008 tax ruling for Procter & Gamble. Only one tax inspector rather than two had signed off the previously undisclosed ruling, which provided the US consumer goods giant with an estimated tax saving of $169 million.

In a letter to the Dutch parliament, secretary of state for finance Menno Snel said the ministry "would investigate whether more than 4,000 international tax rulings were issued according to the intended procedure."

The leaks also found that US sportswear group Nike received a tax ruling that enabled it to shift €1 billion in earnings to Bermuda between 2010 and 2014. Nike’s European headquarters are in the Dutch city of Hilversum.

The European Commission said it would review the leaked information from the Paradise Papers but it was “too early to speculate on possible further actions”. In 2015, it ordered the Dutch government to recoup unpaid taxes from Starbucks under the terms of an illegal tax ruling.

The Commission said: “Our state aid enforcement work sends a clear message that companies must pay their fair share of tax. Some of this work concerns exactly the type of issues that have been revealed in the Paradise Papers. And this work is by no means done.”

21 November 2017, the OECD Council approved the contents of the 2017 Update to the OECD Model Tax Convention, which incorporates a number of changes to take account of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.

The 2017 Update changes Article 29 (Entitlement to Benefits) to include an anti-abuse rule for permanent establishments situated in third states and a principal purposes test (PPT) rule, which were contained in the Report on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances).

Article 5 (Permanent establishment) is also changed to take account of the Report on Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status).

Article 25 (Mutual agreement procedure) and the Commentaries on Articles 2, 7, 9 and 25 are changed to take account of the Report on Action 14 (Making Dispute Resolution Procedures More Effective). These changes reflect the OECD Model MAP arbitration provision developed in the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) adopted on 24 November 2016.

The 2017 Update also contains changes that were previously released for comment. Changes to the Commentary on Article 5 integrate the changes resulting from the work on Action 7 of the BEPS project together with previous work on the interpretation and application of Article 5.

It further changes Article 8 in respect of the definition of “international traffic” and paragraph 3 of Article 15, concerning the taxation of the crews of ships and aircraft operated in international traffic, and to Articles 6, 13 and 22.

The 2017 Update additionally includes amendments that were included in a public release on 11 July as follows:

• Changes to the Commentary on Article 4 (Resident) related to the issue of whether a house rented to an unrelated person can be considered to be a “permanent home available to” the landlord for purposes of the tie-breaker rule in Article 4(2) a);
• Changes to the Commentary on Article 4 intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c);
• The addition of a new paragraph to the Commentary on Article 5 which indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition — in response to public comments, an addition was made to clarify the paragraph and to provide a cross-reference to similar language in the Report on Action 1 (Addressing the Tax Challenges of the Digital Economy) and to the International VAT/GST Guidelines; and
• Deletion of the parenthetical reference “(other than a partnership)” from subparagraph 2 a) of Article 10 (Dividends), which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in circumstances in which the new Article 1(2) (the transparent entity provision) would apply.

The 2017 Update was approved by the Committee on Fiscal Affairs on 28 September and will be incorporated in a revised version of the OECD Model that will be published in the next few months.

November 2017, Qatar, St. Kitts and Nevis, the Maldives, Trinidad and Tobago all joined the inclusive framework for the global implementation of the BEPS project and will participate as BEPS associates of the OECD’s Committee on Fiscal Affairs.

Joining the BEPS inclusive framework means they must implement four minimum standards: countering harmful tax practices, preventing treaty abuse, transfer pricing documentation and enhancing dispute resolution. There now are 108 countries participating in the inclusive framework.

Qatar also signed, on 10 November, the amended Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which serves as the primary instrument for implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters (CRS).

The Convention provides for the exchange of information on request, spontaneous exchanges, automatic exchanges, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It can also be used to implement the transparency measures of the BEPS Project such as the automatic exchange of Country-by-Country reports under Action 13 and the sharing of rulings under Action 5. Qatar was the 115th jurisdiction to join.

Qatar further signed the CRS Multilateral Competent Authority Agreement‎ (CRS MCAA), re-confirming its commitment to implementing the automatic exchange of financial account information under the OECD/G20 Common Reporting Standard (CRS) in time to commence exchanges in 2018. Qatar was the 96th jurisdiction to sign the CRS MCAA.

Monaco and Bulgaria have also both signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), which enables automatic sharing of country-by-country information under BEPS Action 13. This brought the total number of signatories to 67.

5 November 2017, the results of a year-long investigation into the so-called ‘Paradise Papers’ – a leak of 13.4 million files from two offshore service providers and the company registries of 19 financial centres – were published by the International Consortium of Investigative Journalists (ICIJ).

The investigation exposed the financial affairs of thousands of companies and individuals and revealed many cases of avoidance, some of them aggressive. However, unlike the ‘Panama Papers’ leak of 2016, the Paradise Papers contained little or no direct evidence of criminality.

Appleby, the specialist ‘offshore’ law firm at the centre of the leak, said it had investigated all the allegations, and found “there is no evidence of any wrongdoing, either on the part of ourselves or our clients”, adding: “We are a law firm which advises clients on legitimate and lawful ways to conduct their business. We do not tolerate illegal behaviour.” It blamed the breach on the actions of an “intruder who deployed the tactics of a professional hacker”.

The leak generated three main concerns for the sector: firstly that the Paradise Papers’ revelations would further blacken the reputation of offshore financial centres following similar leaks from Panama, Luxembourg and Switzerland; secondly, that the publicity would attract more hackers to the sector, prompting firms to review and strengthen their cyber security defences; and thirdly, that the international authorities would respond by pushing for greater transparency from offshore financial centres and tightening tax rules in onshore locations.

Angel Gurría, secretary-general of the OECD, said that the problems shown in the leaks were a “legacy issue” and there was now “quite literally no place to hide”. But while the OECD is largely satisfied by the progress made by the offshore centres, some governments would like to go much further.

European governments have been divided over plans to draw up a tax haven ‘blacklist’, with the UK, in particular, opposing some of the efforts. There might also be a renewal of pressure to open up trusts to greater public scrutiny, an issue on which the UK is strongly opposed on privacy grounds.

There could also be a revival of the pressure on British Overseas Territories and Crown Dependencies to introduce central public registers of company ownership. This was a long time goal of former Prime Minister David Cameron.

20 October 2017, the UK High Court ruled that the First Tier Tribunal was wrong to conclude that an information notice could be issued extra-territorially. Although Schedule 36 to the Finance Act 2008 was silent on the matter, the relevant principles of public international law meant that it should not be construed to have such an effect.

In Tony Michael Jimenez v First Tier Tribunal & HMRC [2017] EWHC 2585 (Admin), the claimant had lived in Cyprus and Dubai since 2004 but has faced an investigation by HMRC that began in 2012. HMRC obtained an order under Schedule 36 from the First Tier Tribunal (FTT) to hand over information on his affairs from 2004 to 2013 and issued the claimant with a production notice at his Dubai residence.

As a non-UK taxpayer, who lived outside the UK and has done so for many years, Jimenez challenged HMRC's right to issue a production notice in Dubai. As the claimant had no right of appeal from the FTT's decision, his only remedy was by way of judicial review and he submitted an application to the High Court.

His argued that the powers accorded to HMRC to issue notices under Schedule 36 did not "extend to subvert the sovereignty of foreign states". The fact that he was a British national did not render the information notice valid because such an extra-territorial interpretation and application of Schedule 36 was inconsistent with the approach to the interpretation of domestic legislation against the relevant background of international law. The information notice was an enforcement provision and could not be given to a British national outside the jurisdiction.

The claimant relied upon the principle established in Clark v Oceanic Contractors Inc [1983] STC 35 that, unless the contrary is expressly enacted, UK legislation is applicable only to British subjects or to foreigners who have made themselves subject to British jurisdiction by being present in the jurisdiction. This was reiterated in Masri v Consolidated Contractors [2009] UKHL 43, when Lord Mance concluded: "The principle relied upon is one of construction, underpinned by consideration of international comity and law. It is that ‘Unless the contrary intention appears … an enactment applies to all persons on matters within the territory to which it extends, not to any other persons and matters’.”

The claimant also relied on Perry v SOCA [2012] 4 All ER 795, in which it was held that the courts had no power under the Proceeds of Crime Act 2002 to make disclosure orders relating to persons outside the jurisdiction. The judge observed that, when having regard to the Masri principle, Perry may not apply to British nationals.

HMRC asserted that Jimenez was a taxpayer for the purposes of Schedule 36 and, therefore, it had the power to issue a notice under Schedule 36 to any such taxpayer outside the UK to assist it to establish that person's UK tax position. It argued that the claimant’s nationality was determinative but in line with its earlier submissions, and that the information notice served on the claimant would have been valid even if he was not a British national because there was no territorial limit on who could be given a taxpayer notice.

In particular, HMRC relied on R (Derrin Bros. Properties Ltd) v First-tier Tribunal [2016] EWCA Civ 15 and its confirmation that the purpose underlying Schedule 36 was to provide a credible and effective system of “checking and investigating”, which encouraged self-regulation and compliance.

In the High Court, Mr Justice Charles did not disagree with this submission but was of the view that the principles did “not of themselves found a conclusion that Parliament intended Schedule 36 or parts of it, to have effect outside the UK”. Instead it pointed to the conclusion that its reach extended only to the UK and that if HMRC sought information about liability to UK tax from persons who were abroad, it should rely on any mutual assistance arrangements with the relevant state.

Charles J held: "In my judgment, the application of (i) the Masri principle, and (ii) the approach that Parliament is presumed to have intended to act in accordance with international law, and so not to offend against the sovereignty of another state, found the conclusion that Schedule 36 does not provide a power to give the taxpayer notice that was given to the Claimant in Dubai and so the Revenue should not have given it, the First-tier Tribunal should not have approved it and it should be quashed." He ordered HMRC to pay the claimant’s costs.

The full decision can be viewed at http://www.bailii.org/ew/cases/EWHC/Admin/2017/2585.html

15 November 2017, the UK Supreme Court unanimously ruled in favour of HMRC and dismissed an appeal brought by two users of a failed tax avoidance film partnership scheme, which HMRC claimed had sought to use legitimate investment in the film industry as a hook for tax avoidance. HMRC estimated that the ruling could potentially protect over £1 billion of revenue.

In De Silva and another v. HMRC ([2017] UKSC 74), the appellants had invested in and became limited partners of various partnerships in implementing marketed tax avoidance schemes. The schemes were aimed at accruing substantial trading losses through investment in films.

The partnerships claimed relief for film expenditure by taking advantage of tax incentives under Section 42 of the Finance (No 2) Act 1992. A limited partner could use the provisions of sections 380 and 381 of the Income and Corporation Taxes Act 1998 (ICTA) to set off an allocated share of trading losses of a partnership against general income for that year, or any of the previous three years of assessment.

HMRC did not accept the partnerships claims for relief and initiated inquiries into their tax returns under Section 12AC(1) of the Taxes Management Act 1970 (TMA). HMRC disallowed the partnerships' claims for expenditure funded by non-recourse or limited recourse loans to individual partners and also expenditure paid as fees to the promoters of the schemes. The partnerships appealed.

In August 2011, the partnership losses were stated at much reduced levels in a partnership settlement agreement. HMRC informed the appellants that their carry-back claims would consequently be amended in line with the lower figures.

The appellants raised judicial review proceedings, asserting that HMRC was entitled to inquire into their claims only under Schedule 1A to the TMA and that, because the statutory time limit for such an enquiry had expired, the appellants' claims to carry back the partnership losses in full had become unchallengeable.

The Upper Tribunal rejected the appellants' claim and the Court of Appeal dismissed their appeal. The appellants then appealed to the Supreme Court. The decision turned on whether the taxpayers' claims should be classed as stand-alone claims for relief, as argued by the taxpayers, or as claims made in their self-assessment tax returns under section 8 of the TMA. The Supreme Court ruled that they should be classed as the latter, siding with HMRC and upholding the decisions of the lower courts.

The full judgment can be viewed at http://www.bailii.org/uk/cases/UKSC/2017/74.html

1 November 2017, the Council of State of the canton of Vaud announced that its cantonal tax reform, approved by public vote on 20 March 2016, would be brought into effect on 1 January 2019, in advance of the Swiss federal corporate tax reform which is not scheduled to take effect until 2020-2021.

The new law will reduce the effective corporate income tax rate for ordinarily taxed companies from the current rates, which range between 20%-22%, to 13.78%. The capital tax rate will be increased slightly but will continue to be creditable against income tax.

The Federal Council opened, on 6 September, a consultation procedure in respect of a new Tax Project 17 (TP 17) to replace and revise the Corporate Tax Reform (CTR III) that was rejected by the Swiss people by the referendum of 14 February 2017.

TP 17, like CTR III, will abolish the special cantonal tax regimes for multinational companies – holding, domiciliary and mixed companies, as well as the administrative practices relating to Swiss finance branches and principal allocation – in order to bring Switzerland into line with internationally accepted standards.

As the special regimes have not yet been abolished, companies that currently benefit from a special tax status will continue to benefit until such time as the Swiss federal reform enters into force.

16 November 2017, the Finance (No.2) Bill 2017 received Royal Assent and was enacted as Finance (No.2) Act 2017. It contains a number of measures that were originally to be included in the Finance Act 2017 after the Spring Budget, but were dropped to allow it to be passed quickly before the general election.

The Act provides for the introduction, effective 6 April 2017, of the deemed domicile rule for all tax purposes for those who have lived in the UK for 15 of the previous 20 tax years and specific measures for those born in the UK with a UK domicile of origin to treat them as UK domiciled.

It also provides for the ability of deemed domiciled individuals to rebase foreign-sited assets for capital gains tax purposes and for all non-doms that have previously claimed the remittance basis of assessment to cleanse mixed funds.

It also contains certain protections for offshore trusts as well as tainting provisions and the introduction of ‘look through’ rules for Inheritance Tax purposes where UK residential property is held within a corporate, partnership or trust structure.

Other key measures in the Finance Bill include provisions on the corporate interest restriction (CIR) rules (start date 1 April 2017), corporate tax loss reform (start date 1 April 2017) and hybrid and other mismatches (start date 1 January 2017).

28 November 2017, UK Prime Minister Theresa May met with the leaders of 10 British overseas territories at their annual joint ministerial council in Downing Street for talks on hurricane recovery, Brexit, climate change and tax transparency.

According to a statement, May “raised the issue of financial services, noting the increased focus on taxation and transparency that have come to the fore since the recently leaked Paradise Papers. She recognised that a lot of work had been done following the Panama Papers last year.”

May thanked the Territories for the leadership they have already shown, including steps they have already taken to implement international standards, and “asked for similar leadership to show what more can be done to make further progress on the issue.”

The request can be linked to a cross-party group of 12 MPs who recently wrote to the prime minister asking that she set a deadline for the offshore financial sectors under British control to publish registers of the beneficial owners of companies. Although May has expressed her desire for more transparency, she has not formally endorsed the request for public registers, which was championed by her predecessor, David Cameron.

On the fringes of the meeting, Bermuda became the first Overseas Territory to sign a Country-by-Country (CbC) Competent Authority Agreement with the UK to enable CbC reporting under Action 13 of the OECD/G20 base erosion and profit shifting (BEPS) initiative.

Under the initiative, countries agreed to enact laws requiring the parent entity of large multinationals resident in their jurisdiction to report specified information regarding operations in each jurisdiction in which the group operates. The information includes revenues, profits, income tax paid, stated capital, accumulated earnings, number of employees, and tangible assets. It is designed to help tax administrations determine if there is risk of tax avoidance by the multinational through transfer pricing or other means.

In a statement, the Bermuda government said the agreement completed the BEPS tax transparency package between Bermuda and the UK.

21 November 2017, a former Swiss banker was found not guilty of conspiracy to commit criminal tax evasion by a jury in the Southern District of New York. The verdict followed a three-week trial that included testimony from former clients who described how he helped them hide assets after other Swiss banks refused to deal with them.

In April 2013, an indictment was filed against Stefan Buck, previously head of the private banking desk at Bank Frey & Co. in Zurich, and Edgar Paltzer, a US citizen and lawyer, alleging they had conspired with US taxpayers to move funds out of Swiss banks under investigation in the US. A number of Buck’s clients subsequently entered the IRS Offshore Voluntary Disclosure Programme.

In October 2016, Buck travelled to the US to answer the charges directly. His trial began a year later. Buck’s co-conspirator Paltzer and asset manager Peter Amrein described how they worked with Buck to move clients’ assets to Bank Frey. They were also indicted in 2013 but had pleaded guilty and co-operated with prosecutors.

Five former clients also testified that Buck advised them on ways to hide their assets from the IRS, such as concealing their identities through corporate entities in jurisdictions like Lichtenstein and Panama and buying Swiss watches and jewels to move the money out of the country without detection.

The US crackdown on Swiss banks began in 2007, when former UBS banker Bradley Birkenfeld told investigators how his employer had helped thousands of Americans evade taxes. The bank later discontinued offshore accounts for US citizens, paid a US$780 million penalty and handed over information on about 4,700 accounts.

The UBS settlement led more than 56,000 taxpayers to voluntarily disclose their offshore accounts to the IRS and pay about US$10 billion in taxes and penalties. The US government also reached non-prosecution agreements with 80 Swiss banks, which paid US$1.36 billion in penalties.