Owen, Christopher: Global Survey – November 2019

23 October 2019, the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, which aims to prevent foreign and temporary tax residents claiming the main residence exemption from capital gains tax (CGT), was introduced to parliament.

Legislation to remove the exemption was first proposed in May 2017 and was progressing through parliament when the 2019 election was called. As a result, it lapsed and had to be reintroduced in the new session.

The government has amended the change to the main residence exemption to ensure that only Australian residents for tax purposes can access the exemption. As a result, temporary tax residents who are Australian tax residents will not be affected by the measure.

Grandfathering is extended from 30 June 2019 to 30 June 2020, so properties held by foreign and temporary tax residents before 9 May 2017 will only be eligible for the CGT main residence exemption if they are sold by 30 June 2020 and satisfy the other requirements for the exemption.

Foreign owners' disposals from 1 July 2020 can further claim the exemption if certain life events – death, terminal illness or divorce – occur within six years of the individual becoming a foreign resident.

11 October 2019, the Council of Ministers approved a draft law to transpose Council Directive (EU) 2018/822 of 25 May 2018 (DAC6) on reportable cross-border tax planning arrangements. This includes measures to require the reporting of cross-border tax planning arrangements by intermediaries and the automatic and mandatory exchange of information reported with other EU Member States.

The reporting requirement primarily applies to intermediaries that design, market, organise or manage the implementation of a reportable arrangement. The requirement may also be shifted to a taxpayer in some cases.

The requirements of the Directive are to enter into force on 1 July 2020, with reportable arrangements to be disclosed within 30 days from the date the arrangement is made available for implementation, the arrangement is ready for implementation or the first step of the arrangement is implemented.

Reportable arrangements must also be disclosed where the first step for implementation was taken between 25 June 2018 and 1 July 2020, with a deadline of 31 August 2020.

The draft law has been transmitted for opinion to the Council of State.

10 October 2019, the governments of Belgium, Luxembourg and the Netherlands signed a joint agreement strengthening their co-operation in the fight against tax evasion. It will focus on digitalisation to anticipate and combat new forms of fraud.

The agreement provides for the participation in digital projects that allow for the exchange of information between the Benelux countries in the area of tax fraud and allows for joint studies to be conducted by the countries in the detection of tax fraud.

The scope of the co-operation covers direct and indirect taxes, advance levies and excise duties. It entered into force on the day it was signed.

30 October 2019, Bosnia and Herzegovina signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). It was the 90th signatory of the Convention, which now covers up to 1,600 bilateral tax treaties.

The MLI enables jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. Mauritius deposited its instrument of ratification on 18 October, becoming the 36th country to complete all steps necessary to join the MLI. It will enter into force for Mauritius on 1 February 2020.

9 October 2019, the International Tax Authority (ITA) of the British Virgin Islands (BVI) published the Rules on Economic Substance in the Virgin Islands, replacing the draft version of the Economic Substance Code released in April.

The Rules provide additional guidance and explanatory notes to the Economic Substance (Companies and Limited Partnerships) Act 2018 (ESA), which was brought into force early this year to comply with OECD requirements on the physical presence of firms in jurisdictions where they claim tax residence and conduct certain 'relevant activities'.

Relevant activities include banking, insurance, shipping, fund management, financing and leasing, headquarters, distribution and service centres, holding companies and intellectual property.

The ESA imposes economic substance requirements on BVI companies and limited partnerships with legal personality that are engaged in “relevant activities”, unless they are considered non-resident for the purposes of the ESA.

Legal entities will be required to report on their activities annually through a BVI-registered agent. The legal framework for reporting on substance requirements is being provided by amendments to the Beneficial Ownership Secure Search System Act (BOSS Act). Reporting begins in 2020 although entities must be able to demonstrate economic substance in the BVI for the 2019 financial year.

The new guidance requires firms to file additional information with the Registered Agent database. All firms will have to confirm whether they carry on a relevant activity, even if they are claiming to be tax-resident outside the BVI and outside the scope of the substance requirements.

They will also have to provide the residential address of the beneficial owner, the total expenditure incurred on the relevant activity, and the total number of employees engaged in it. Entities carrying on intellectual property (IP) businesses will have to provide a detailed business plan explaining the commercial rationale of holding the IP asset in the BVI together with evidence that decision-making is taking place within the BVI.

The Rules clarify that where the ITA approves an application for an entity to be treated as provisionally tax resident in a jurisdiction outside the BVI, that entity will be required to provide the required evidence within two financial periods, including the financial period in which the entity applied for provisional treatment.

Entities in liquidation will be expected to comply with the economic substance requirements. The Rules clarify that even where an entity is claiming to be a non-resident entity, it will be required to submit information about whether it is carrying on a relevant activity.

9 October 2019, the government of the Cayman Islands announced its intention to introduce a public register of beneficial ownership, in line with evolving standards and international obligations such as those reflected in the principles of the EU 5th Anti Money Laundering Directive.

The commitment, which follows a similar announcement by the British Crown Dependencies earlier this year, is to introduce publicly accessible registers on a timeline that reflects the development and evolution of public registers in the UK and EU.

The Cayman government is to work in anticipation of public registers of beneficial ownership becoming the international standard, and at least implemented by EU Member States, by 2023. It will advance legislation when that occurs and in the meantime will refine legislation and build the technological systems required to allow public access. This will be informed by the principles of emerging global best practice to ensure interconnection and the adoption of a common approach.

Cayman Premier Alden McLaughlin said: “Since 2013 my government has committed to introducing a public register of company beneficial ownership when it becomes an international standard. The introduction of the UK’s public beneficial ownership register, the EU 5th Anti Money Laundering Directive and similar actions by other jurisdictions represents a shift in the global standard and the practices used to combat illicit activity.

“I am proud that the Cayman Islands has worked so well with law enforcement and tax authorities the world over, and that the level of transparency of our regime has been recognised by key international bodies and other governments. The timeline we have announced today recognises the work necessary to create a register that is sufficiently robust, capable of suitable levels of interoperability and that will avoid the redesigns that the UK now has to undertake.”

17 October 2019, China signed a free trade agreement (FTA) and Mauritius. The agreement covers trade in goods and services and investment and economic co-operation. It is the seventeenth FTA signed by China and its first FTA with an African nation. The FTA will become operational following ratification by both countries.

The FTA will enable Mauritius to benefit from duty free access on the Chinese market on some 8,227 products, representing 96% of the Chinese tariff lines. The duties applicable on 88% of these tariff lines will be eliminated with immediate effect, while the remaining tariffs will be eliminated over a five to seven-year period.

As regards trade in services, Mauritius service providers will have access to more than 40 service sectors, including financial services, telecommunications, ICT, professional services, construction and health services. Mauritius will also be able to establish businesses in China as wholly owned entities or in joint partnership with Chinese operators.

In respect of investments, the agreement has been greatly upgraded from the 1996 China-Mauritius bilateral investment protection agreement in terms of protection scope, protection level and dispute settlement mechanism. Mauritian authorities also expect to have more investment in the services sector from China in view of the predictability and legal security that the FTA will provide to investors.

Regarding the Economic Co-operation chapter of the FTA, Mauritius and China have agreed to collaborate in 10 areas, including industrial development to increase competitiveness; to develop manufacturing based on innovation and research; to conduct exchange of specialists; to have an exchange of researchers for disseminating know-how and for support in technology and innovation; and to co-operate in the financial sector.

Negotiations on the FTA were launched in December 2017 and the two sides formally concluded the negotiations on 2 September 2018, after four rounds of intensive talks.

The Mauritian Prime Minister’s Office noted that the agreement would: “lay the basis for the opening of an Economic and Trade Office by the Economic Development Board in Shanghai and would facilitate promotional activities of the government of Mauritius in key target cities in line with the ‘Go East Strategy’ to explore avenues to increase FDI and trade between Mauritius and China.”

10 October 2019, the European Council agreed to the removal of the United Arab Emirates (UAE) and the Marshall Islands from the EU's blacklist of non-cooperative jurisdictions for tax purposes.

The EU Code of Conduct Group on business taxation recommended that both the UAE and the Marshall Islands were now fully compliant with their commitments to introduce economic substance requirements by the end of 2018, having appropriately addressed concerns on implementing regulations that had previously created a significant risk of circumvention.

As a result, the Marshall Islands was moved on to the ‘grey list’ – which comprises jurisdictions identified as co-operative, subject to successful delivery on their commitments – pending the result of the OECD Global Forum’s review to be released in November 2019. The UAE was completely removed from the listing process.

The list of non-cooperative jurisdictions was created as part of the EU initiative to combat tax avoidance and harmful tax practices. Of 92 jurisdictions initially selected for screening, 17 countries and territories were placed on the initial blacklist in December 2017. A majority of these made commitments to comply with the EU’s criteria and only five jurisdictions remained blacklisted at the end of 2018.

However the monitoring process undertaken by the Code of Conduct Group subsequently identified ten jurisdictions that had either failed to deliver on their commitments by the agreed deadline or had made no commitment to address the EU’s concerns. Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, the Marshall Islands, Oman, the UAE and Vanuatu were added to the blacklist in March this year. Bermuda, Aruba and Barbados were then removed from the blacklist In May, as was Dominica in June.

The current blacklist therefore now comprises nine jurisdictions – American Samoa, Belize, Fiji, Guam, Oman, Samoa, Trinidad & Tobago, the US Virgin Islands and Vanuatu. The Council will continue to regularly review and update the list in 2019, whilst it has requested a more stable process from 2020 with two updates per year.

The Council also agreed to the removal of Albania, Costa Rica, Mauritius, Serbia and Switzerland from the grey list after they were found to be compliant with all of their commitments on tax co-operation. They further noted the progress made by Niue, Namibia, Morocco, Serbia, Bosnia and Herzegovina and Eswatini (Swaziland). As a result, 32 jurisdictions now appear on the grey list.

The Code of Conduct Group reported its assessment following the curtailment of the ‘two out of three’ exception for tax transparency criteria on 30 June 2019. This provided that countries that failed to comply with only one of the three exchange of information (EOI) criteria – automatic EOI, EOI on request or EOI under the OECD's Mutual Assistance Convention – would not be blacklisted.

The Council concluded that all jurisdictions concerned now met the EU's three criteria, including the US. In 2017, the US was deemed to meet the first two criteria but not the third. The Code of Conduct Group had concluded that the US now meets this criterion through its Foreign Account Tax Compliance Act (FATCA) competent authority agreements and existing double taxation treaties between the US and every EU member state.

Finally, the Council endorsed a guidance note published by the Code of Conduct Group on foreign-source income exemption regimes. This aims to formalise requirements set by the EU, as well as providing transparency on the approach adopted by the Group in respect of such regimes.

The guidance clarifies that regimes will be reviewed where they create situations of double-non taxation, in particular regimes that have either an overly broad definition of income excluded from taxation – notably foreign-source passive income without any conditions or safeguards – or a nexus definition that deviates from the definition of a permanent establishment in the OECD Model Tax Convention.

24 October 2019, the Financial Action Task Force (FATF) published best practice guidance on establishing beneficial ownership of legal persons such as companies, foundations and associations.

The FATF said many countries were still not effectively preventing criminals and terrorists from hiding their identity and illegal activities behind the facade of seemingly legitimate activity. The guidance is based on assessment of the results of the peer review process by which it evaluates each member’s implementation of the FATF recommendations.

The report examines the most common challenges that countries face in ensuring that the beneficial owners of legal persons are identified, and suggests key features of an effective system. It also suggests options for jurisdictions to obtain beneficial ownership information of overseas entities.

In its Guidance on Transparency and Beneficial Ownership, published in 2014, the FATF provided guidance on what steps countries should take to prevent the misuse of legal persons for ML/TF. It gave three options for facilitating the cooperation of companies with the competent authorities and ensuring the availability of beneficial ownership information on companies:

-Registry Approach – company registries to obtain and hold up-to-date information on the companies’ beneficial ownership;

-Company Approach – requires companies to obtain and hold up-to-date information on the companies’ beneficial ownership or requiring companies to take reasonable measures to obtain and hold up-to-date information on the companies’ beneficial ownership;

-Existing Information Approach – relies on existing information that is already available to the authorities, such as information held by financial institutions or non-financial professionals, regulators, tax authorities or stock exchange disclosures.

Each approach has its own implementation challenges, says FATF. The registry approach suffers from lack of resources and powers at the registry institutions themselves, while the company approach has the problem that companies cannot easily force nominee shareholders to disclose the real owners, especially if the company directors are non-residents. The existing information approach relies on financial institutions and non-financial professionals to conduct effective customer due-diligence checks, which is not always achievable.

From countries’ experience, said the FATF, there was no single solution to tackle these obstacles that are intertwined with each other. The fourth round of FATF mutual evaluations had revealed that systems combining one or more approaches were often more effective than systems that relied on a single approach.

As a result, the FATF recommended a multi-pronged approach that gathers information from several sources, which increases transparency and access to information and helps mitigate accuracy problems. Competent authorities are urged to access to information on beneficial ownership through different sources and should ensure the accuracy of information by cross-checking. Through this process, there should be key stakeholders who are responsible for requesting information from different sources, seeking clarification from companies and, if necessary, reporting suspicious activities.

The FATF laid out suggested key features of an effective system as follows:

-Risk assessment – countries to designate an agent to analyse risks by reviewing relevant court cases, suspicious transaction reports, practical experience of competent authorities, and patterns and trends in ML/TF amongst various crime syndicates.

-Adequacy, accuracy and timeliness of information in beneficial ownership:

-The appointment of a ‘Gatekeeper’ who would verify or/and monitor the accuracy of the information.

-Cross-checking information against a supplementary information platform in addition to a company registry, such as a tax database.

-Ongoing obligations to update beneficial ownership information to the reporting entities or company registry.

-Verification of information through cross-checks, red flags or suspicious activities, sample testing with public and non-public data, coordination among authorities, or voluntary reporting by external parties when errors are suspected.

-Enhanced measures for companies with foreign ownership/directorship.

-Highly effective law enforcement authorities with adequate resources.

-Using technology to facilitate checking and validation.

-Giving competent authorities direct access to beneficial ownership information.

-Forbidding bearer shares and nominee arrangements.

-Effective, proportionate and dissuasive sanctions ranging from administrative sanctions to prosecution actions against corporate entities that fail to comply with information filings.

18 October 2019, Financial Action Task Force (FATF) President Xiangmin Liu, chaired the first plenary meeting under the FATF Chinese Presidency, which was attended by 800 delegates from 205 jurisdictions.

The FATF is an inter-governmental body that aims to set standards for effective implementation of the regulatory, legal and operational measures to combat money laundering and terrorist financing. The latest reports from the FATF have retained the Bahamas, Pakistan, Panama, and Trinidad & Tobago as jurisdictions with strategic anti-money laundering (AML) deficiencies.

Of the four, Pakistan is most at risk of counter-measures, having addressed only five of the 27 items it agreed to remedy in undertakings made to the FATF in June 2018. It has now been explicitly warned to complete its full action plan within the next four months.

“FATF strongly urges Pakistan to swiftly complete its full action plan by February 2020,” said the outcomes report. “Otherwise, should significant and sustainable progress not be made across the full range of its action plan by the next plenary, the FATF will take action, which could include the FATF calling on its members and urging all jurisdictions to advise their financial institutions to give special attention to business relations and transactions with Pakistan.”

The Bahamas was told it should continue to work on implementing its action plan to “demonstrate that authorities are investigating and prosecuting all types of money laundering, including complex money laundering cases, stand-alone money laundering, and cases involving proceeds of foreign offences, including foreign tax crimes; and increase the identification, tracing and freezing or restraining of assets and to present cases linked with foreign offences and stand-alone money laundering cases.”

Both Panama and Trinidad & Tobago were also requested to improve their beneficial ownership reporting framework, among other technical requirements.

Three new countries – Iceland, Mongolia and Zimbabwe – were added to the FATF's ‘grey list’ of jurisdictions with strategic deficiencies that are subject to monitoring. They join the Bahamas, Botswana, Cambodia, Ghana, Pakistan, Panama, Syria, Trinidad & Tobago and Yemen.

Three further countries – Ethiopia, Sri Lanka and Tunisia – were declared to be no longer subject to monitoring, having delivered their commitments for AML law reform. Both Russia and Turkey also received favourable new assessments.

Although not on the grey list, FATF announced in February 2016 that it had “deep concerns about Brazil's continued failure to remedy deficiencies identified six years earlier”. The FATF has withdrawn the threat to expel Brazil after it enacted two new laws for identifying and freezing terrorist assets.

However the FATF is still concerned that a judge on Brazil's Supreme Court has issued an injunction against the use of financial intelligence in criminal investigations. “FATF is following this situation closely and it looks forward to timely updates and reassurances from Brazil in this regard,” it said.

FATF also announced intensified due-diligence measures against Iran and North Korea, with the threat of full counter-measures against Iran if it does not meet its targets by February 2020.

A number of jurisdictions have not yet been reviewed by the FATF. The FATF continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system.

After strengthening its standards to address the money laundering and terrorist financing risks of virtual assets, the FATF has now agreed on how to assess whether countries have taken the necessary steps to implement the new requirements. From now on, assessments will specifically look at how well countries have implemented these measures. Countries that have already undergone their mutual evaluation must report back during their follow-up process on the actions they have taken in this area.

The FATF said emerging assets such as so-called ‘stablecoins’, and their proposed global networks and platforms, could potentially cause a shift in the virtual asset ecosystem and have implications for money laundering and terrorist financing risks. In general terms, both ‘stablecoins’ and their service providers would be subject to the FATF standards either as virtual assets and virtual asset service providers or as traditional financial assets and their service providers.

Given the significant shift towards digital payments, the FATF also said customer identification was essential to prevent criminals and terrorists from raising and moving funds. The FATF is therefore issuing draft guidance on the use of digital identity for public consultation, which analyses the use, reliability and independence of digital identification systems. It aims to help governments, financial institutions and other relevant entities to apply a risk-based approach to using digital ID systems.

15 October 2019, the governments of Gibraltar and the UK signed a Double Tax Agreement (DTA) to ensure that people with income or interests in both jurisdictions do not pay tax twice on the same income. It will position Gibraltar’s offering on a secure footing as Gibraltar exits the European Union alongside the UK.

The agreement records the UK and Gibraltar’s desire “to further develop their economic relationship and to enhance their cooperation in tax matters”.

The document states that the DTA will eliminate double taxation “without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance”.

The DTA applies to taxes on income and on capital and will enter into force once the UK and Gibraltar have completed their respective legislative procedures and exchanged diplomatic notes.

Gibraltar Chief Minister Fabian Picardo said: “I am very pleased that the outcome of close working with UK ministers and officials has come to fruition in time for our exit from the EU with the UK. This is an important part of the architecture of our planning for ‘no deal’ but equally important going forward in any scenario.”

Gibraltar has been working towards such an outcome for several years with the substantive text agreed on the 1 August and the final text agreed in the second week of September 2019.

The DTA is the latest in a series of developments pursued by the Gibraltar government in the areas of international tax treaties and information exchange agreements, all of which maintain Gibraltar’s commitment to international standards of tax transparency and co-operation.

8 October 2019, the Irish government announced its Budget 2020, which includes measures to tackle base erosion and profit shifting (BEPS) and to introduce the European Union’s Anti-Tax Avoidance Directive (ATAD), which Ireland is obligated to enact.  It will publish the Finance Bill 2019 in the coming weeks.

Transfer pricing rules will be updated to align with OECD-standard rules and to require formal documentation. New anti-hybrid tax rules implement specific ATAD provisions and the dividend withholding tax rate increases from 20% to 25%. Significant exemptions from this tax remain through domestic legislation and double tax treaties.

29 October 2019, Jordan became the 158th member of the Global Forum on Transparency and Exchange of Information for Tax Purposes. It has committed to combat tax evasion through implementing the internationally agreed standards of transparency and exchange of information for tax purposes – both exchange of information on request and automatic exchange of information.

The Global Forum is the multilateral body mandated to ensure that all jurisdictions adhere to the standard of international co-operation in tax matters. Members of the Global Forum include all G20 countries, all OECD members, all international financial centres and a large number of developing countries.

Jordan also joined the OECD/G20 Inclusive Framework on BEPS, bringing the total number of countries and jurisdictions participating to 135. Jordan will be collaborating with all other members on implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

14 October 2019, the Luxembourg government published the Budget Bill 2020, which confirms that advance tax agreements (ATAs) granted by the Luxembourg tax authorities before 1 January 2015 will no longer be valid after the 2019 tax year, or earlier in 2019 if the taxpayer’s tax year-end is prior to 31 December.

The ATA procedure was modernised and explicitly formalised into Luxembourg domestic law by a grand-ducal decree published on 29 December 2014. The most important change was the creation of a new Ruling Commission – Commission des décisions anticipées (CDA).

Under the new rules, any written request for confirmation of a tax treatment filed by a corporate taxpayer must be transferred by the relevant tax office to the CDA, ensuring a uniform and consistent application of Luxembourg’s tax laws.

Tax rulings granted by the CDA are only valid for a maximum period of five years. The Budget Bill’s new measure is intended to complete the transition between the old ATA procedure and the new one.

31 October 2019, the OECD released guidance on spontaneous exchanges of information in respect of the new substantial activities standard for ‘no or only nominal tax jurisdictions’ under Action 5 of the Base Erosion and Profit Shifting (BEPS) initiative. It is expected that exchanges will commence in 2020.

The Inclusive Framework on BEPS decided in November 2018 to resume the application of the ‘substantial activities’ requirements to jurisdictions with zero or only nominal tax rates, whether or not they offer preferential tax regimes, in order to ensure a level playing field.

This is to ensure that substantial activities must be performed in respect of the same types of mobile business activities, regardless of whether they take place in a preferential regime or in a no or only nominal tax jurisdiction. The substance requirement is that core income-generating activities should be undertaken by the entity in-country; staff and expenditures are adequate; and the country enforces non-compliance.

The new standard requires these jurisdictions to spontaneously exchange information on the activities of certain resident entities with the jurisdiction(s) in which the immediate parent, the ultimate parent and/or the beneficial owners are resident. This information will allow the tax authorities of these jurisdictions to assess the substance and the activities of the entities resident in no or only nominal tax jurisdictions.

The guidance sets out the practical modalities regarding the exchange of information requirements of the standard. It contains guidance on the timelines for the exchanges, the international legal framework and clarifications on the key definitions in order to make sure that jurisdictions receive coherent and reliable information on the activities of the entities in no or only nominal tax jurisdictions and their owners.

Earlier this year, the OECD Forum on Harmful Tax Practices concluded that 11 of the 12 countries on its list of low-tax jurisdictions were compliant with its standards for 'substantial activity' legislation and their tax regimes are therefore not harmful. The 11 were Anguilla, the Bahamas, Bahrain, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey and the Turks and Caicos Islands. The twelfth, the United Arab Emirates, has since amended its laws to comply.

9 October 2019, the OECD Secretariat published a proposal to advance international negotiations to ensure that large and highly profitable multinational enterprises (MNEs), including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits.

The new OECD proposal brings together common elements of three competing proposals from member countries, and is based on the work of the OECD/G20 Inclusive Framework on BEPS, which groups 134 countries and jurisdictions on an equal footing, for multilateral negotiation of international tax rules.

The proposal, described as a new “unified approach to pillar one”, would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets. It would ensure that MNEs conducting significant business in places where they do not have a physical presence, would be taxable through the creation of new ‘nexus rules’ stating where tax should be paid and ‘profit allocation rules’ stating on what portion of profits they should be taxed.

The OECD has proposed a three-tier mechanism to implement the unified approach. Amount ‘A’ focuses on calculating then allocating deemed non-routine profits of MNEs among market jurisdictions for taxation in those jurisdictions. Amounts ‘B’ and ‘C’ concern the taxation of marketing and distribution functions of MNEs, dealing with the taxation of “baseline activity” and the taxation of amounts above this baseline, respectively.

“We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD Secretary-General Angel Gurría.

“This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share. Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally.”

The Inclusive Framework’s tax work on the digitalisation of the economy is part of wider efforts to restore stability and certainty in the international tax system, address possible overlaps with existing rules and mitigate the risks of double taxation.

Beyond the specific elements on reallocating taxing rights, a second pillar of the work aims to resolve remaining issues in respect of Base Erosion and Profit Shifting (BEPS), ensuring a minimum corporate income tax on MNE profits.

The OECD is seeking feedback on its new ‘pillar one’ proposal by 12 November. A public consultation on the unified approach will be held November 21–22 in Paris.  The OECD hopes that a unified approach to pillar one can be agreed by January 2020.

The Intergovernmental Group of Twenty-Four on International Monetary Affairs (G-24), in a communiqué released after its meeting in Washington DC on 17 October, expressed support for multilateral action.

“Any tax solution should generate equitable benefits for developing countries and should recognize that digitalization enables firms to have a significant economic presence in economies even without a physical presence,” the G-24 countries said.

“The goal should be to put in place rules that are fair and simple, allocate profits by taking into account the contribution of markets and users in creating these profits and can be effectively implemented in developing countries.”

A separate public consultation meeting on pillar two issues will be organised in December. The related public consultation document is due to be released in early November.

24 October 2019, the OECD published the sixth round of Stage 1 peer review reports assessing efforts to implement the Action 14 minimum standard, which seeks to improve the resolution of tax-related disputes between jurisdictions, as agreed to under the OECD/G20 BEPS Project.

The reports of Argentina, Chile, Colombia, Croatia, India, Latvia, Lithuania and South Africa contain over 230 targeted recommendations that will be followed up in stage 2 of the peer review process.

The OECD said the Stage 1 peer review reports represent an important step forward to turn the political commitments made by members of the OECD/G20 Inclusive Framework on BEPS into measureable, tangible progress. Many countries are already working to address deficiencies identified in their respective reports.

It will continue to publish Stage 1 peer review reports in batches in accordance with the Action 14 peer review assessment schedule. In total, 45 Stage 1 peer reviews and 6 Stage 1 and Stage 2 peer reviews have been finalised, with the seventh batch of Stage 1 and the second batch of Stage 2 soon to be released.

16 October 2109, a new Protocol on upgrading the China-Singapore Free Trade Agreement (CSFTA) came into force. It covers co-operation in six sectors contained in the original CSFTA – rules of origin, customs procedures and trade facilitation, trade remedies, service trade, investment, and economic co-operation – and adds three new sectors of e-commerce, competition policies, and the environment.

The upgraded CSFTA provides Singapore businesses with improved Rules of Origin that allow more petrochemical products to qualify for preferential treatment. The upgraded agreement will also grant Singapore companies greater access into China’s legal, maritime and construction services sector.

The most significant changes made were in the ‘investment’ chapter, which accounts for almost a quarter of the protocol. The two sides have agreed to offer each other a high-level of investment protection – applying ‘national treatment’ and ‘most-favoured-nation treatment’ status to each other’s investors to ensure the most favourable treatment of investors with respect to the management, conduct, operation, and sale or other disposition of investments.

Further, under the protocol, China and Singapore signed a Financial Service Side Letter. Singapore will grant a Qualifying Full Bank (QFB) licence to one of the Chinese banks, such that China will hold the largest number of QFB licences in Singapore.

The original CSFTA entered into force on 1 January 2009 and was China’s first comprehensive bilateral FTA with an Asian country. Since its entry into force, bilateral merchandise trade between Singapore and China grew at 6.6% and investments grew at 11.9% per year on average.

China is Singapore’s largest trading partner while Singapore is China’s largest foreign investor since 2013. In 2018, total bilateral trade between Singapore and China reached S$135 billion. In 2017, Singapore’s cumulative investment in China amounted to S$140 billion, while China’s cumulative investment in Singapore amounted to S$36.3 billion.

Negotiations for the upgrade of the CSFTA were launched in November 2015 and the CSFTA Upgrade Protocol was signed on 12 November 2018 after eight rounds of negotiations over three years.  The upgraded CSFTA will take effect from 16 October 2019 except for the articles relating to Rules of Origin, which will take effect on 1 January 2020.

Singapore Minister for Trade and Industry Chan Chun Sing said: “Singapore welcomes the ratification of the China-Singapore Free Trade Agreement Upgrade Protocol. The CSFTA Upgrade is a substantive, meaningful and mutually beneficial agreement. It will strengthen the foundation for Singapore and China to deepen our trade and investment linkages. The entry into force of the agreement is an important signal of both countries’ commitment to free and open trade.”

16 October 2019, the Supreme Court unanimously ruled that Jersey has the status of a ‘third country’ for the purpose of the free movement of capital.

In Routier & anor v Commissioners for HMRC UKSC 2017/0190, the appellants were the executors of Mrs Beryl Coulter, who died in Jersey on 9 October 2007, leaving her residuary estate on trust for charitable purposes – the Coulter Trust. The appellants were domiciled in Jersey and the will specified that the trust was to be governed by Jersey law. The estate included substantial assets in the UK.

In October 2010, the appellants retired as trustees, but not as executors, and were replaced by a UK-resident trustee. The will was amended to make the proper law of the Coulter Trust the law of England and Wales. In 2014, the Coulter Trust was registered as a charity under English law.

In 2013, HMRC determined that Mrs Coulter’s gift to the Coulter Trust did not qualify for the relief from inheritance tax in respect of gifts to charities under section 23 of the Inheritance Tax Act 1984. The Coulter Trust was governed by the law of Jersey at the date of Mrs Coulter’s death, it held, and Jersey was not a part of the UK for the purposes of section 23.

The appellants appealed this decision to the High Court, which found for HMRC. It was held that, for the exemption to apply, the gift must be for charitable purposes under UK law and the relevant trust must be subject to the jurisdiction of a UK court.

The appellants appealed further on the grounds that HMRC’s determination was incompatible with Article 63 of the Treaty on the Functioning of the European Union (TFEU), which prohibits restrictions on the free movement of capital between EU member states, and between member states and third countries. HMRC argued this did not apply because a movement of capital between the UK and Jersey should be regarded as an internal transaction taking place within a single member state.

In 2017 the Court of Appeal accepted the appellants’ submission that Jersey should be regarded as a third country for the purposes of Article 63, but decided that the restriction of section 23 to trusts governed by the law of part of the UK was nevertheless justifiable under EU law.

The ruling was appealed to the Supreme Court. It was common ground between the parties that Article 63 applied to gifts to charities and that Jersey was not a member state. The issue therefore turned on whether Jersey was to be regarded as a third country.

The Court said decisions of the Court of Justice of the European Union (CJEU) provided a systematic and consistent approach to this issue. The question was context-specific and depended on whether, under the relevant Treaty of Accession and supplementary measures, the relevant provisions of EU law applied to that territory.

The decision of Prunus SARL v Directeur des services fiscaux (Case C-384/09) [2011] I-ECR 3319, in which the CJEU held that the British Virgin Islands was to be treated as a third country, was determinative. Jersey was to be considered a third country for the purpose of a transfer of capital from the UK and accordingly EU rules on the free movement of capital did apply to transfers of capital between the UK and Jersey.

It was therefore accepted that the refusal of relief under section 23 was a restriction on that free movement. The remaining question was whether this was justifiable under EU law.

On its face, section 23 did not impose any restriction on the free movement of capital and was therefore compliant with Article 63. The only restriction was that imposed by the judicial gloss placed on the words now found in section 989 of the Income Tax Act 2007 by the House of Lords in Camille and Henry Dreyfus Foundation Inc v Inland Revenue Comrs [1956] AC 39.

This restriction, when incorporated into section 23, had the effect of confining relief under that provision to trusts governed by the law of a part of the UK and subject to the jurisdiction of the UK courts. There could be no doubt that the Dreyfus gloss on section 989, as applied to section 23, was incompatible with Article 63.

The restriction of relief from IHT to trusts governed by the law of a part of the UK could not therefore be justified under EU law. Article 63 was directly applicable and had to be given effect in priority to inconsistent national law, whether judicial or legislative in origin. Since it was undisputed that the Coulter Trust satisfied the conditions at the time, it followed that it qualified for the relief.

7 October 2019, the Swiss Federal Council announced that it had approved the suspension of automatic exchange of financial account information (AEOI) with Bulgaria due to an issue with the country's data security. It said the systems and databases of Swiss tax administrations and financial institutions were not affected by this incident.

The first automatic exchange on a reciprocal basis between Switzerland and Bulgaria took place in 2018 within the framework of the bilateral agreement between Switzerland and the European Union (EU).

Following a data security incident affecting the Bulgarian National Revenue Agency in July 2019, the Agency confirmed to the Swiss authorities that individuals with tax residence in Switzerland holding financial accounts in Bulgaria and individuals with tax residence in Bulgaria with financial accounts in Switzerland were affected by the disruption.

As well as names, addresses, personal identification numbers and dates of birth of Bulgarian and foreign nationals, the leaked data included individuals' annual tax returns; records of their income; 'acts of administrative violations'; health and social insurance status; and tax information automatically exchanged with foreign governments.

In accordance with the Federal Act on the International Automatic Exchange of Information on Tax Matters (AEIA), the Federal Council formally approved the suspension of the exchange of data with Bulgaria on 20 September with immediate effect.

As a result, the Federal Tax Administration (FTA) did not provide the Bulgarian tax authorities with 2018 financial account data supplied to it by the Swiss financial institutions at the end of September 2019.

Bulgaria will only receive information from its AEOI partners again once the data security problem has been resolved and the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) has validated the corrective measures taken.

Switzerland automatically exchanges personal financial account information with 75 countries, but has always maintained that it will only work with jurisdictions whose data security and probity can be trusted. This is the first time it has suspended cooperation because of a publicly admitted leak.

16 October 2019, a review carried out by HM Treasury found that the Isle of Man government had correctly implemented and administered UK and EU VAT law for aircraft and yachts but should implement additional post-registration compliance procedures to ensure that the right VAT continues to be collected.

The Isle of Man Government invited HM Treasury to carry out a review of its VAT rules and procedures regarding aircraft and yacht importations following a series of allegations of VAT avoidance in November 2017 in the wake of the ‘Paradise Papers’ leak of documents.

The review looked into the application of aircraft and yacht VAT rules in the Isle of Man and whether its rules and procedures enabled importation by high net worth individuals of private jets into the EU without paying the correct amount of VAT.

The report found that UK and EU VAT law had been correctly implemented in the Isle of Man and allegations of widespread VAT avoidance on aircraft and yachts were not upheld.

The report found that the Isle of Man government carried out extensive and effective compliance checks during VAT registration but recommended that it should implement further compliance checks in the years after registration to ensure that the right amount of VAT continued to be collected.

The Isle of Man government has already started to implement improved compliance procedures in light of these recommendations.

Financial Secretary to the Treasury Jesse Norman said: “I am pleased to confirm that the reviewers have found no evidence of widespread VAT avoidance. However, the Isle of Man government is taking action to improve its post-registration checks as a result of the review.“

22 October 2019, the US House of Representatives passed the Corporate Transparency Act of 2019 (HR 2513) by a vote of 249 to 173, including 25 Republicans. The Bill would create a national database of the beneficial owners of corporations and limited liability companies (LLCs) in the US. A companion bill is under review by the Senate.

At present, each US state has its own rules and requirements to incorporate and several states allow individuals to use nominees to create companies without identifying the beneficial owner. The bill is designed to “assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct."

The Bill would require corporations, LLCs and other entities to register their beneficial owners with the Financial Crimes Enforcement Network (FinCEN). Within two years of enactment, the two million existing corporations and LLCs would also be required to register their beneficial owners.

The Bill also provides that the Office of the Comptroller of the Currency would have two years to complete a study of what other business entities should be covered, including partnerships, trusts or beneficiaries of such entities.

The White House issued a statement in support of the legislation, saying it would help police illicit financial activity, while calling for some minor changes.