Owen, Christopher: Global Survey – April 2019

Archive
  • Commission opens State aid investigation into Huhtamäki in Luxembourg
    • 7 March 2019, the European Commission announced an in-depth investigation to examine whether tax rulings granted by Luxembourg to Finnish food and drinks packaging company Huhtamäki had given the company an unfair advantage over its competitors, in breach of EU State aid rules.

      The Commission's formal investigation concerns three tax rulings issued by Luxembourg to the Luxembourg-based Huhtalux Sàrl. in 2009, 2012 and 2013. The 2009 tax ruling was disclosed as part of the ‘Luxleaks’ investigation led by the International Consortium of Investigative Journalists in 2014.

      Huhtalux was part of the Finnish Huhtamäki group, a company active in consumer packaging in Europe, Asia and Australia, which carried out intra-group financing activities. It received interest-free loans from another company of the Huhtamäki group based in Ireland. These funds were then used by Huhtalux to finance other Huhtamäki group companies through interest-bearing loans.

      The three tax rulings issued by Luxembourg permitted Huhtalux to unilaterally deduct fictitious interest payments for the interest-free loans it received from its taxable base. According to Luxembourg, these fictitious expenses corresponded to interest payments that an independent third party in the market would have demanded for the loans that Huhtalux received. However, Huhtalux did not pay any such interest. The deductions reduced Huhtalux's taxable base and, as a result, the company was taxed on a substantially smaller profit.

      The Commission said it had doubts that this tax treatment, as endorsed in the Luxembourg tax rulings, could be justified. It was concerned that Luxembourg had accepted a unilateral downward adjustment of Huhtalux's taxable base that might grant the company a selective advantage because it allowed the group to pay less tax than other stand-alone or group companies whose transactions were priced in accordance with market terms. If confirmed, this would amount to illegal State aid.

      The opening of an in-depth investigation gives Luxembourg and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

      Tax rulings are permitted under EU State aid rules if they simply confirm that tax arrangements between companies within the same group comply with the relevant tax legislation. However, tax rulings that confer a selective advantage to specific companies can distort competition within the EU's Single Market, in breach of EU State aid rules.

      Since June 2013, the Commission has been investigating individual tax rulings of Member States under EU State aid rules. It extended this information inquiry to all Member States in December 2014.

      Of the over 500 files that were disclosed as part of the ‘Luxleaks’ investigation, about 200 concerned financing companies and intercompany financing. In January 2017, following discussions with the Commission, Luxembourg introduced changes to its national tax rules to make the tax treatment of financing companies more stringent.

      The new rules, which concern a significant number of ‘Luxleaks’ rulings, aim to ensure that financing companies are taxed sufficiently. These changes imply that the rulings regarding certain financing companies issued before 2017, including those from the ‘Luxleaks’ files no longer bind the tax authorities in Luxembourg.

  • EU finance ministers scrap digital tax proposal
    • 12 March 2019, EU finance ministers announced that they had formally abandoned a proposal to introduce an immediate, temporary, EU-wide tax on the revenue of large multinational firms in the digital sector due to the lack of agreement between member states.

      The proposal for a 3% EU-wide digital service tax on the revenue of large multinationals that sell online advertising or provide online sales platforms was presented last year. The UK, France, Italy and Spain have all proposed to introduce a digital tax at a national level

      Speaking at a meeting of EU finance ministers, Romanian Finance Minister Eugen Teodorovici said that the opposition of a few EU Member States to a digital services tax and advertising tax was “of a fundamental nature”. The move was vetoed by Ireland, Denmark and Sweden.

      Teodorovici said the EU would instead focus on the broader international tax discussions now underway at the OECD and G20 level. The EU would revisit the issue if progress has not been made by the end of 2020 on global efforts to revise the international tax system.

  • EU issues revises ‘blacklist’ of 15 non-cooperative jurisdictions
    • 12 March 2019, the European Council expanded its ‘blacklist’ of non-cooperative tax jurisdictions from five to 15 after completing the first ‘comprehensive revision’ of the list since its adoption in late 2017. Blacklisted countries are considered either to have refused to engage with the EU or to have addressed tax good governance shortcomings.

      The list is a result of a screening and dialogue process with non-EU countries, to assess them against the Council’s agreed criteria as follows:

      -Transparency – the country should comply with international standards on automatic exchange of information and information exchange on request. It should also have ratified the OECD's multilateral convention or signed bilateral agreements with all Member States, to facilitate this information exchange. Until June 2019, the EU only requires two out of three of the transparency criteria. After that, countries will have to meet all three transparency requirements to avoid being listed.

      -Fair Tax Competition – the country should not have harmful tax regimes, which go against the principles of the EU's Code of Conduct or OECD's Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. They should therefore introduce specific economic substance requirements and transparency measures.

      -BEPS implementation – the country must have committed to implement the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards. From 2019, jurisdictions are being monitored on the implementation of these minimum standards, starting with Country-by-Country Reporting.

      The EU blacklist was first established following a screening of the 92 third country jurisdictions conducted during 2017 and composed of the jurisdictions that did not take meaningful commitments to address deficiencies identified by the EU. It originally comprised 17 jurisdictions but shrank to five after most listed states committed to change their tax rules.

      Most commitments taken by third country jurisdictions included an implementation deadline of the end of 2018. The Council therefore instructed the Code of Conduct Group on business taxation to monitor implementation of these commitments in national law by until the beginning of this year.

      Of the five jurisdictions previously blacklisted, American Samoa, Guam, Samoa and the US Virgin Islands were deemed to have made no commitment to address the EU’s concerns, while there were major transparency concerns in respect of Trinidad & Tobago.

      As a result of the new revision, the Council said it had moved a further nine jurisdictions – Aruba, Belize, Bermuda, Dominica, Fiji, the Marshall Islands, Oman, the United Arab Emirates and Vanuatu – from its ‘greylist’ (Annex II) to its ‘blacklist’ (Annex I) because they had all failed to deliver on their commitments made to the EU on time.  Barbados was now deemed to have made no commitment to address the EU’s concerns.

      The EU noted with concern the replacement of harmful preferential tax regimes by measures of similar effect in certain jurisdictions, regretted that one of these jurisdictions had not taken a sufficient commitment to amend or abolish these measures by the end of 2019 and emphasised that no further replacement with measures of similar effect or delays would be accepted when assessing at the beginning of 2020 whether the requested commitments have been implemented.

      The Council did not call on member states to ban all dealings with these countries, but urged them to take the revised list “into account in foreign policy, economic relations and development cooperation with the relevant third countries, to strive for a comprehensive approach as regards to the issue of compliance” with EU tax requirements.

      The blacklist “has had a resounding effect on tax transparency and fairness worldwide,” EU Economic and Monetary Affairs Commissioner Pierre Moscovici said in a statement. “We are raising the bar of tax good governance globally and cutting out the opportunities for tax abuse.”

      The specific reasons cited for blacklisting were as follows:

      1. American Samoa does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, did not commit to apply the BEPS minimum standards and did not commit to addressing these issues.
      2. Aruba has not yet amended or abolished one harmful preferential tax regime.
      3. Barbados has replaced a harmful preferential tax regime by a measure of similar effect and did not commit to amend or abolish it by the end of 2019.
      4. Belize has not yet amended or abolished one harmful preferential tax regime. Its commitment to amend or abolish its newly identified harmful preferential tax regime by the end of 2019 will be monitored.
      5. Bermuda facilitates offshore structures and arrangements aimed at attracting profits without real economic substance and has not yet resolved this issue. Its commitment to addressing the concerns relating to economic substance in the area of collective investment funds by the end of 2019 will be monitored.
      6. Dominica does not apply any automatic exchange of financial information, has not signed and ratified the OECD Multilateral Convention on Mutual Administrative Assistance as amended, and has not yet resolved these issues.
      7. Fiji has not yet amended or abolished its harmful preferential tax regimes. Its commitment to comply with transparency and anti-BEPS measures by the end of 2019 will continue to be monitored.
      8. Guam does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, did not commit to apply the BEPS minimum standards and did not commit to addressing these issues.
      9. Marshall Islands facilitates offshore structures and arrangements aimed at attracting profits without real economic substance and has not yet resolved this issue. Its commitment to comply with transparency criteria continues to be monitored: it awaits a supplementary review by the Global Forum.
      10. Oman does not apply any automatic exchange of financial information, has not signed and ratified the OECD Multilateral Convention on Mutual Administrative Assistance as amended, and has not yet resolved these issues.
      11. Samoa has a harmful preferential tax regime and did not commit to addressing this issue. Furthermore, Samoa committed to comply by the end of 2018 with anti-BEPS measures but has not resolved this issue.
      12. Trinidad and Tobago has a ‘Non-Compliant’ rating by the Global Forum on Transparency and Exchange of Information for Tax Purposes for Exchange of Information on Request. Its commitment to comply with transparency and fair taxation criteria by the end of 2019 will be monitored.
      13. United Arab Emirates facilitates offshore structures and arrangements aimed at attracting profits without real economic substance. It has not yet resolved this issue.
      14. US Virgin Islands does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, has harmful preferential tax regimes, did not commit to apply the BEPS minimum standards and did not commit to addressing these issues.
      15. Vanuatu facilitates offshore structures and arrangements aimed at attracting profits without real economic substance. It has not yet resolved this issue.

      In respect of jurisdictions on the greylist (Annex II), the Council said the state of play of the co-operation with the EU with respect to commitments taken to implement tax good governance principles was as follows:

      1. Transparency
      • Palau and Turkey have committed to implement the automatic exchange of information, either by signing the Multilateral Competent Authority Agreement or through bilateral agreements, by end 2019.
      • Jordan, Namibia, Palau, Turkey and Vietnam have committed to become member of the Global Forum on transparency and exchange of information for tax purposes and/or have a satisfactory rating in relation to exchange of information on request by end 2019. In addition, Anguilla and Curaçao have committed to have a sufficient rating by end 2018 and awaiting a supplementary review by the Global Forum.
      • Armenia, Bosnia and Herzegovina, Botswana, Cabo Verde, Eswatini, Jordan, Maldives, Mongolia, Montenegro, Morocco, Namibia, North Macedonia, Palau, Serbia, Thailand and Vietnam have committed to sign and ratify the OECD Multilateral Convention on Mutual Administrative Assistance (MAC) or have in place a network of agreements covering all EU Member States by end 2019.

       

      1. Fair Taxation
      • Costa Rica and Morocco have committed to amend or abolish their harmful tax regimes covering manufacturing activities and similar non-highly mobile activities by end 2018. They have demonstrated tangible progress in initiating these reforms in 2018 and were granted until end 2019 to adapt their legislation.
      • Cook Islands, Maldives and Switzerland have committed to amend or abolish their harmful tax regimes by end 2018 but were prevented from doing so due to genuine institutional or constitutional issues despite tangible progress in 2018. They were granted until end 2019 to adapt their legislation.
      • Namibia has committed to amend or abolish identified harmful tax regimes by 9 November 2019.
      • Antigua and Barbuda, Australia, Curaçao, Mauritius, Morocco, Saint Kitts & Nevis, Saint Lucia and Seychelles have committed to amend or abolish harmful tax regimes by end 2019.
      • Jordan has committed to amend or abolish harmful tax regimes by end 2020.
      • Bahamas, British Virgin Islands and Cayman Islands have committed to addressing the concerns relating to economic substance in the area of collective investment funds, have engaged in a positive dialogue with the Group and have remained cooperative, but require further technical guidance. They were granted until end 2019 to adapt their legislation.

       

      1. Anti-BEPS Measures
      • Albania, Bosnia and Herzegovina, eSwatini, Jordan, Montenegro, Morocco and Namibia have committed to become member of the Inclusive Framework on BEPS or implement OECD anti-BEPS minimum standards by end 2019.
      • Nauru, Niue and Palau have committed to become member of the Inclusive Framework on BEPS or implement OECD anti-BEPS minimum standards if and when such commitment becomes relevant.

      The Council said the work on the EU list of non-cooperative jurisdictions was a dynamic process. It would continue to review and update the list regularly in the coming years, taking into consideration the evolving deadlines for jurisdictions to deliver on their commitments and the evolution of the listing criteria that the EU uses to establish the list.

      It also reiterated the extension agreed last year of the geographical scope of the EU screening exercise to G20 countries that were not yet covered, namely Russia, Mexico and Argentina. These countries will be screened in 2019 to see if there are any deficiencies in their tax systems, and will be asked to commit to address them if there are.

      Other countries will be brought into the scope from 2020 onwards. The Council further invited the Code of Conduct Group to review the economic data used for selecting jurisdictions in 2020, for application as from 2021.

  • EU parliament votes to adopt TAX3 report
    • 26 March 2019, the European Parliament adopted a report by its Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3). It contains numerous recommendations for overhauling the EU tax system to deal with financial crimes, evasion and avoidance, and notably the elimination of all investment-based citizenship and residency schemes.

      The Parliament decided to establish the TAX3 committee with a year-long mandate on 1 March 2018 in the wake of continued revelations over the last five years – Luxleaks, the Panama Papers and the Paradise papers. The report was adopted by 505 votes in favour, 63 against and 87 abstentions.

      The TAX3 findings and recommendations included:

      -The Commission should act on a proposal for a European financial police force and an EU financial intelligence unit;

      -The Commission should set up an EU anti-money laundering watchdog;

      -Seven member states – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and The Netherlands – displayed traits of a tax haven and facilitate aggressive tax planning;

      -All investment-based citizenship and residency schemes should be phased out as soon as possible. Those offered by Malta and Cyprus were singled out for their weak due diligence;

      -Denmark, Finland, Ireland and Sweden should be criticised for maintaining their opposition to the digital services tax;

      -The Netherlands, by facilitating aggressive tax planning, deprives other EU member states of €11.2 billion of tax income;

      -The Cum-ex fraud scheme clearly shows that the complexity of tax systems results in legal loopholes and that multilateral, not bilateral, tax treaties are the way forward;

      -Countermeasures should be envisaged against the US if it does not ensure FATCA’s reciprocity;

      -Whistleblowers and investigative journalists must be much better protected and an EU fund to help investigative journalists should be set up.

      The chair of the special TAX3 committee, Czech MEP Petr Ježek, said: “Member states are not doing enough and, in the EU, the Council is clearly the weakest link. Without political will, there can be no progress. Europeans deserve better.”

      Danish co-rapporteur Jeppe Kofod said: “This report is the result of the most comprehensive work ever done by the European Parliament on tax evasion and avoidance. Within the EU we need a minimum corporate tax rate, an end to tax competition and to make it more difficult to bring dirty money in.”

      The European Parliament's role is advisory. Its decision will be passed to the European Commission for consideration.

  • EU reaches provisional agreement on whistleblower protection
    • 12 March 2019, the European Parliament and EU Member States reached a provisional agreement on new rules to guarantee EU-wide standards of protection for whistleblowers that report breaches of EU law.

      The new rules, first proposed by the European Commission in April 2018, cover a wide reach of areas of EU law, including anti-money laundering and corporate taxation, data protection, protection of the Union's financial interests, food and product safety and environmental protection and nuclear safety. Member States are free to extend these rules to other areas.

      The Commission encourages them to establish comprehensive frameworks for whistleblower protection based on the same principles:

      -Clear reporting procedures and obligations for employers: the new rules will establish a system of safe channels for reporting both within an organisation and to public authorities.

      -Safe reporting channels: whistleblowers are encouraged to report first internally, if the breach they want to reveal can be effectively addressed within their organisation and where they do not risk retaliation. They may also report directly to the competent authorities as they see fit, in light of the circumstances of the case.

      In addition, if no appropriate action is taken after reporting to the authorities or in case of imminent or manifest danger to the public interest or where reporting to the authorities would not work, for instance because the authorities are in collusion with the perpetrator of the crime, whistleblowers may make a public disclosure including to the media. This will protect whistleblowers when they act as sources for investigative journalism.

      -Prevention of retaliation and effective protection: The rules will protect whistleblowers against dismissal, demotion and other forms of retaliation. They will also require from national authorities that they inform citizens about whistle blowing procedures and protection available. Whistleblowers will also be protected in judicial proceedings.

      First Vice-President Frans Timmermans said: “We should protect whistleblowers from being punished, sacked, demoted or sued in court for doing the right thing for society. These new, EU-wide whistleblowers' protection rules do exactly that and will make sure they can report in a safe way on breaches of EU law in many areas. This will help tackle fraud, corruption, corporate tax avoidance and damage to people's health and the environment. We encourage Member States to put in place comprehensive frameworks for whistleblower protection based on the same principles.”

      The provisional agreement now has to be formally approved by both the European Parliament and the Council.

  • European Council rejects draft list of “high risk” money laundering countries
    • 7 March 2019, the European Council unanimously rejected a draft list put forward by the Commission of 23 "high-risk third countries" in the area of money laundering and terrorist financing.

      The Commission published a new methodology last June. This looked at how countries criminalised anti-money laundering activities and terrorism financing, the existence of additional checks, the powers of competent authorities to apply sanctions if rules were breached, and the transparency about the beneficial ownership.

      The criteria were applied to 54 ‘priority’ jurisdictions. For each country, the Commission assessed the level of existing threat, the legal framework and controls put in place to prevent money laundering and terrorist financing risks and their effective implementation. The Commission also took into account the work of the Financial Action Task Force (FATF).

      The Commission concluded that 23 countries had strategic deficiencies in their anti-money laundering/ counter terrorist financing regimes. This included 12 countries listed by the FATF and 11 additional jurisdictions.

      The draft ‘blacklist’, published in February, comprised: Afghanistan, American Samoa, The Bahamas, Botswana, Guam, North Korea, Ethiopia, Ghana, Iran, Iraq, Libya, Nigeria, Panama, Pakistan, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria, Trinidad & Tobago, Tunisia, the US Virgin Islands and Yemen.

      The Commission has the power to adopt a delegated act, but this can enter into force only if no objection is expressed either by the European Parliament or by the Council within a period of one month of the notification of the act.

      In a statement, the Council said it could "support the current proposal that was not established in a transparent and resilient process that actively incentivises affected countries to take decisive action while also respecting their right to be heard."

      The Commission will now have to propose a new draft list of high-risk third countries that will address member states' concerns.

      The 5th directive on anti-money laundering and terrorist financing sets out an obligation to identify third country jurisdictions that have strategic deficiencies in their anti-money laundering and terrorist financing regimes that pose significant threats to the financial system of the EU.

      The objective of the listing is to protect the EU financial system from risks of money laundering and terrorist financing coming from third countries. On this basis, banks and other financial institutions are required to be more vigilant and to carry out extra checks in the context of transactions involving high-risk third countries.

  • France introduces 3% digital tax
    • 6 March 2019, the French government introduced a digital tax that will impose a 3% levy on the French revenues of big tech companies such as Google, Facebook and Amazon. The tax would apply to companies that generate worldwide revenues on their digital services of at least €750 million of which €25 million is generated within France.

      The scope of the tax would specifically cover interfaces and websites that connect clients and businesses, advertising companies that provide targeted ads, and resellers of private data for advertisement purposes.

      The legislation will specifically exclude: companies making on-line sales of goods, including digital contents, to consumer, e-mail and payment service providers; advertising companies that provide untargeted ads; and regulated financial service providers.

      Last year, plans to introduce a similar 3% tax on the revenue of large multinational firms in the digital sector on an EU-wide basis failed due to concerns from countries, including Ireland and Germany, who feared retaliation from the US. The OECD is currently examining a global digital tax but will not reach a conclusion until 2020.

      Finance Minister Bruno Le Maire estimated that the new tax would raise about €500 million per year and said France would withdraw the tax if and when the OECD reaches an agreement. Other countries including the UK, Germany and Spain are also working on their own digital tax measures.

  • HMRC finds out about 5.67 million offshore accounts
    • 13 Mar 2019, HMRC revealed, in a policy paper entitled 'No Safe Havens” setting out its approach to tackling offshore tax non compliance, that it had received information last year about 5.67 million offshore accounts held by around three million UK residents.

      According to the paper, HMRC received 1.63 million records under the Common Reporting Standard (CRS) relating to accounts held by 1.3 million individuals in 2017, but in 2018 it received significantly more information because of the increase in countries exchanging information. The CRS provides a framework for countries to automatically exchange information on an annual basis about non-residents holding bank accounts and other financial accounts offshore.

      Over 40 countries, including the UK, signed up to be early adopters of CRS and provided information in September 2017 about financial accounts in existence from 1 January 2016. By September 2018 over 100 countries, including major offshore financial centres such as Switzerland, Singapore and the UAE were exchanging information about accounts in existence from 1 January 2017.

      Since 2010, the UK government has introduced over 100 new measures to tackle tax non-compliance and has raised £2.9 billion in additional revenue. HMRC said that the global implementation of CRS is "shedding unprecedented light" on the overseas arrangements of UK residents. It said that early analysis of the information HMRC received last year suggests around one in 10 UK taxpayers have an offshore financial interest.

      Mel Stride, Financial Secretary to the Treasury, said: “The government has introduced new sanctions to help HMRC crack down on those who try to pay less tax than they should, as well as those who help them. These efforts have transformed HMRC’s capabilities to tackle the risk that offshore arrangements pose.

      “However, we are not complacent and recognise that more remains to be done. Some still try to hide money offshore. Others use contrived offshore arrangements in an attempt to avoid tax. Some make mistakes. HMRC’s priority remains to promote compliance by making it easy for taxpayers to get their tax right first time, ensuring that individuals who want to do the right thing receive a service that is tailored to their circumstances.”

  • Hong Kong extends CbC reporting deadline
    • 21 March 2019, the Hong Kong Inland Revenue Department (IRD) announced a 45-day extension to the notification deadline for Hong Kong entities of reportable groups to file country-by-country (CbC) reporting notifications.

      Under section 58H of the Inland Revenue Ordinance (Cap. 112), a Hong Kong entity of a reportable group is required to give a notification in relation to CbC reporting for an accounting period. The notification must be given electronically via the CbC Reporting Portal within three months after the end of the accounting period. This requirement applies to an accounting period beginning in or after 2018.

      The IRD said it recognised that Hong Kong entities and service providers might need more time to get familiar with the requirements and procedures for giving the notification via the CbC Reporting Portal. For the first accounting period beginning on 1 January 2018, it would therefore accept notifications received via the CbC Reporting Portal on or before the expiry of 45 days after the relevant notification deadline as having complied with the time limit.

      This treatment only applies to the first accounting period beginning on 1 January 2018. If the first accounting period begins after 1 January 2018, the notification deadline must be duly observed.

  • Netherlands and Germany join forces for a minimum tax rate
    • 27 March 2019, Dutch State Secretary for Finance Menno Snel and German Federal Minister of Finance Olaf Scholz announced that that their two countries had agreed to join forces in international talks on introducing a minimum tax rate of corporation tax to help combat tax avoidance.

      “We recognise that further measures are important to ensure a sufficient level of taxation globally. In this regard, the Netherlands will introduce a conditional withholding tax on payments to low tax

      jurisdictions,” they said in a joint statement.

      “The Global Base Erosion (GloBE) proposal that is under discussion within the OECD ensures that all internationally operating businesses pay a minimum level of tax and reduces the incentives to allocate returns for tax reasons to low taxed entities. We are committed to further work out this minimum tax standard, while taking into account undesired risks of double taxation and over‐excessive administrative burdens.”

      The operating principle would be that if a company in one country were taxed below the minimum rate, another country could also tax this company if it receives payments from that country. The Netherlands is already planning to introduce a minimum withholding tax but wants to work with Germany and France on more detailed plans

      As of 2021, companies based in countries with a corporation tax rate of under 9% will pay the Dutch tax authorities a 20.5% tax on any interest and royalties they receive from the Netherlands. The same will apply to companies in countries on the EU blacklist. This is intended prevent the Netherlands from being used for channelling funds to tax havens.

      Snel said: “International cooperation is necessary to prevent international tax avoidance because otherwise a company may continue to pay too little tax, but in another country. It’s in the Netherlands’ interests to work with other countries to ensure that practical measures are adopted that are fully transparent to businesses.’

  • Netherlands ratifies BEPS Multilateral Convention
    • 29 March 2019, the Netherlands ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) with the OECD in Paris. It was approved by the Dutch parliament on 5 March and covers Curaçao and the European and Caribbean parts of the Kingdom of the Netherlands.

      The instrument was amended by way of a temporary opt out from article 12 of the MLI, which targets the artificial avoidance of the permanent establishment (PE) status through inter alia commissionaire arrangements by broadening the ‘agency PE’ definition in existing bilateral tax treaties.

      The Dutch government seeks to ensure either sufficient clarity on profit allocation to agency PEs or that there is an effective dispute resolution mechanism in place with sufficient other MLI parties. If progress is made, a legislative proposal to withdraw the Dutch reservation may be submitted by the end of 2020.

      The MLI will enter into force for the Netherlands on 1 July 2019 and will generally have effect as from 1 January 2020 for tax treaties concluded by the Netherlands with other jurisdictions that have already ratified the MLI. The government expects 51 of its tax treaties to be affected by the MLI.

  • Singapore amends 14 tax treaties under MLI
    • 1 April 2019, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which was ratified by the Singapore government on 21 December 2018, entered into force.

      Designed by OECD and G20 countries, the MLI is designed to allow countries to swiftly implement provisions of the OECD/G20 base erosion profit shifting (BEPS) plan in to tax treaties. The BEPS provisions aim to curb tax avoidance and improve cross-border tax dispute resolution.

      The Singapore Inland Revenue Authority (IRA) published details of how this will effect its existing double tax agreements with Australia, Austria, France, Israel, Isle of Man, Japan, Jersey, Lithuania, Malta, New Zealand, Poland, Slovak Republic, Slovenia and the UK. The information is provided in the annexes to each of the DTAs.

  • UK and Spain sign post-Brexit tax treaty over Gibraltar
    •  

      4 March 2019, Spain’s Foreign Minister Josep Borrell and UK Cabinet Office minister David Lidington signed a treaty covering areas such as harmful tax practices, anti-money laundering regulations and rules to resolve conflicts over tax residency between Spain and Gibraltar. It is the first treaty to be signed by the UK and Spain over Gibraltar since 1713.

      The International Agreement on Taxation and the Protection of Financial Interests between the UK and Spain regarding Gibraltar sets out objective criteria to determine who is a tax resident in Gibraltar and who is not after Brexit.

      A British Overseas Territory, Gibraltar controls its own affairs, taxation and policies, with the exception of defence and foreign relations. But unlike all Britain’s other British Overseas Territories and Dependencies, Gibraltar has also been part of the European Union since 1973.

      The treaty sets out that an individual will be a tax resident in Spain if they spend over 183 nights in the country, their spouse resides habitually in Spain, their permanent home is in Spain or two-thirds of their net assets are located in Spain. Spanish nationals who move their residency to Gibraltar after the agreement date will continue to be considered tax residents of Spain in all cases.

      Non-Spanish nationals that demonstrate they have moved their residency to Gibraltar will stay as tax residents of Spain for the tax period when the change was made and for the next four years. There is an exemption for those non-Spanish nationals who have spent less than a year in Spain and for individuals registered as Gibraltarians that spend less than four years in Spain.

      Signing up to Gibraltar’s tax residency schemes for high net worth Individuals (HNWI), Category 2 Individuals, High Executive Possessing Specialist Skills (HEPSS) or any other equivalent scheme “shall not of itself” constitute proof of tax residency in Gibraltar.

      The treaty will eliminate double taxation where relevant and comply with domestic laws of the country in which individuals reside. It also covers exchange information on tax matters regarding administration, enforcement and collection concerning taxes of all kind imposed by the jurisdictions.

      After Brexit, both countries will implement EU-equivalent legislation surrounding mutual assistance of tax administration; as well as the EU equivalent to anti-money laundering and transparency rules. Both countries will also create a joint co-ordination committee to monitor all of the tax issues covered in the treaty.

      The UK government further brought a new statutory instrument, the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019, into force on 15 March to enable financial services firms authorised in Gibraltar to continue to provide services and establish branches in the UK after Brexit, until at least the end of 2020.

      The governments of the UK and Gibraltar have also committed to work to design a replacement framework to endure beyond 2020 that is similarly based on shared standards of regulation that are underpinned by up-to-date arrangements for exchange of information, transparency and regulatory co-operation.

      The statutory instrument amends Section 409 of the Financial Services and Markets Act 2000, the Financial Services and Markets Act 2000 (Gibraltar) Order 2001, and EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (2018 No.1149) to address deficiencies arising from the UK’s exit from the EU.

      The government of Gibraltar will be adopting a similar and reciprocal approach to the UK in its own ‘EU Exit legislation’. As a result, Gibraltar will continue to have automatic access to the UK in banking, insurance, investment services and any other similar area where EU cross-border directives currently apply.

      The UK has also provided assurance that gambling operators based in Gibraltar will continue to access the UK market after the UK leaves the EU in the same way they do now and has committed to work closely with Gibraltar in respect of transport arrangements that support Gibraltar’s prosperity.

  • UK defers attempt to impose public ownership registers on Crown Dependencies 
    • 4 March 2019, the UK government withdrew the Financial Services (Implementation of Legislation) Bill after it was made subject to a cross-party amendment requiring the Crown Dependencies to introduce publicly accessible registers of beneficial ownership of companies by 2020.

      The Bill, a planning measure designed to enable the UK to adapt to changes in EU financial services legislation in the event of a ‘No-Deal Brexit’, was due to be debated in the House of Commons. However the legislative amendment was tabled by a group of MPs, led by former Conservative minister Andrew Mitchell and Labour MP Margaret Hodge, which succeeded last year in attaching an amendment to the Sanctions and Anti-Money Laundering Bill to impose a requirement for "publicly accessible registers of beneficial ownership of companies" on British Overseas Territories (BOTs).

      As a result the BOTs, which include Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar and the Turks & Caicos Islands, are required to introduce publicly accessible registers of those with significant control over companies by 31 December 2020. This requirement does not currently apply to the Crown Dependencies of Jersey, Guernsey and the Isle of Man.

      Mitchell said: “This amendment is an important continuation of the G8 agenda on transparency and openness to combat money laundering and tax evasion. In the face of certain defeat the government has pulled the business for today but the business will return and so will this important amendment. Parliament decided last year that the British Overseas Territories should adopt open registers of beneficial ownership and so now should all members of the British family.”

      A Treasury spokesman said: “The beneficial ownership amendments were tabled … and we want to give them proper and thorough consideration. The government will not move the bill today but will reschedule it to ensure that there is sufficient time for proper debate.”

      The governments of Jersey, Guernsey and the Isle of Man welcomed the decision, claiming that such legislation would be “inoperable” and adding that they already had “robust” arrangements for sharing information about the beneficial owners of companies with tax authorities and law enforcement agencies.

  • UK introduces new Start-up and Innovator immigrant investor categories
    • 7 March 2019, the UK government published a Statement of Changes in Immigration Rules, introducing new Start-up and Innovator categories and also making changes to the Tier 1 (Investor) category.

      From 29 March 2019, a new Start-up category is introduced for those starting a new business for the first time in the UK. An expanded version of the Tier 1 (Graduate Entrepreneur) category, it is intended for applicants who can secure an endorsement for starting a new business for the first time in the UK. There is no requirement for applicants to be graduates or to have secured any initial funding. Successful applicants will be granted two years’ leave and will be able to progress into the Innovator category and to continue developing their businesses in the UK after that time.

      The Innovator category is intended for more experienced businesspeople. As well as an endorsement, applicants will need £50,000 to invest in their business from any legitimate source – a significant reduction from the £200,000 requirement for most applicants under the Tier 1 Entrepreneur category. This funding requirement will be waived for those switching from the Start-up category that have made significant achievements against their business plans. The category may lead to settlement in the UK.

      Applicants under both new categories will require endorsement by UK trusted bodies – such as business accelerators, seed competitions and government agencies, as well as higher education providers. These bodies will assess applicants’ business ideas for their innovation, viability and scalability. The English language requirement is set at the upper intermediate (B2) level rather than the intermediate (B1) level required under the previous categories.

      The Tier 1 (Investor) category is also subject to changes. From 29 March, applicants are required to provide evidence that they have held the funds that they will invest in the UK for two years, rather than 90 days as previously. Banks must further confirm that they have completed all due diligence checks on applicants opening accounts for the purpose of the investment. New investments will have to be put into businesses rather than UK government bonds, to incentivise investment in active and trading UK companies.

      The UK Home Office announced last December that it believed the Investor scheme was being misused to launder illicit funds into the UK and to allow undesirable persons to obtain residence in the country. The revised requirements, it said, would “better protect the UK from illegally obtained funds, whilst ensuring that genuine investors have access to a viable visa route.”

      Finally, the letter states that the Code of Conduct Group will accept no further replacement with measures of similar effect or delays when it assesses whether the requested commitments have been implemented at the beginning of 2020.

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