Owen, Christopher: Global Survey – September 2020

Archive
  • Bahamas permits virtual board meetings due to Covid pandemic
    • 21 August 2020, the Bahamas Ministry of Finance issued a notice on compliance with section 7 of the Commercial Entities (Substance Requirements) Act, 2018 (CESRA) as a consequence of COVID 19 related travel and/or other restrictions. In light of the Covid-19 pandemic.

      Where an included entity's operating practices have been adjusted as a result of restrictions, it will not be regarded as having failed the direction and management test in instances where it is not possible or feasible to hold a meeting of the board of directors physically in the Bahamas. In such instances, a virtual meeting will be sufficient.

      The entity must document and have readily available for production to the competent authority, upon request, details of any such adjustments to its operating practices and the circumstances must be reflected in the minutes of any meeting of the Board of Directors not held within the Bahamas.

      Such minutes must be retained in the Bahamas and the determination of the actual impact of COVID 19 related travel and/or other restrictions on the entity's ability to comply with section 7 must be made and documented by each included entity on a case-by-case basis. The information shall be spontaneously exchanged, if and where relevant.

  • Belgium completes implementation of fifth anti-money laundering directive (AMLD5)
    • 5 August 2020, the Belgian Act of 20 July 2020 "laying down miscellaneous provisions on the prevention of money laundering and terrorist financing and on the limitation of the use of cash" was published in the Belgian State Gazette.

      This new act implements the provisions of AMLD5 that were not yet implemented into Belgian law by thoroughly amending the AML Act. Previously only the provisions of AMLD5 in relation to the ultimate beneficial owner register had been transposed into Belgian law.

      With these new amendments, AMLD5 is now fully implemented in Belgium. The new rules will largely enter into force as of 15 August 2020, with a few exceptions such as the rules in relation to professional football clubs, which will enter into force as of 1 July 2021.

  • Belgium prosecutors open investigation into clients of Credit Suisse
    • 22 August 2020, it was reported that the federal prosecutor’s office in Brussels had opened a criminal investigation into the Swiss bank Credit Suisse, in particular the dealings of 2,600 Belgian clients suspected of using Swiss bank accounts to evade taxes.

      “A criminal investigation has been opened against Credit Suisse for money laundering and unlawfully acting as a financial intermediary, as well as against Belgian customers who have not yet undergone tax regularisation,” said a spokesman.

      The investigation was triggered by leaked documents passed by the French authorities detailing 2,600 Belgian clients of the bank who held accounts there between 2003 and 2014.

      Last year, HSBC agreed to pay nearly €300 million to settle a Belgian criminal investigation into allegations of fraud and money-laundering involving clients in Antwerp, the world's main diamond-trading hub.

      Investigators uncovered 3,137 accounts, which related to a Swiss subsidiary of the British banking giant, belonging to 2,450 Belgian clients. As well as paying €295 million as a criminal fine, HSBC also handed over €400,000 in civil damages to the Belgian state.

  • Commission assesses member states’ compliance with ATAD
    • 19 August 2020, the European Commission adopted a report on the implementation of the implementation of the EU Anti-Tax Avoidance Directive 2016/1164 (ATAD), which lays down rules against tax avoidance practices that directly affect the functioning of the internal market.

      The report is the first step in the evaluation of the impact of the ATAD and provides an overview of the implementation of the interest limitation, general anti-abuse, and controlled foreign company (CFC) rules across member states. ATAD included a requirement for the Commission to evaluate its implementation four years after its entry into force and report to the Council.

      The Commission noted that four member states – Austria, Denmark, Ireland and Spain – had not complied fully with their obligations to adopt and notify transposition measures concerning the interest limitations, general anti-abuse rules (GAAR) and controlled foreign corporation rules by August 2020. It has opened ex officio infringement procedures for failure to implement the necessary measures.

      The Commission has also opened infringement cases against a number of member states – notably Germany, Greece, Latvia, Portugal, Romania and Spain – for failing to implement national measures for exit taxation and hybrid mismatches.

      The Commission must next deliver a comprehensive evaluation report of the ATAD measures, including an overview of the implementation of those ATAD measures that were not included – exit taxation and hybrid mismatches. The Commission aims to publish this second report by 1 January 2022.

  • Cyprus and Russia agree to amend tax treaty
    • 10 August 2020, the governments of Russia and Cyprus announced they had reached an agreement to add a protocol to their tax treaty that would increase the withholding tax on interest and dividend payments to 15%. They expect to sign the protocol in the autumn and the new agreement is to apply from 1 January 2021.

      The agreement exempts regulated entities, such as pension funds and insurance undertakings, calling for a zero or 5% withholding tax, in those cases; it also exempts “listed entities with specific characteristics”, Cyprus’s Ministry of Finance said.

      Additionally, exemption from the withholding tax applies on interest payments from corporate bonds, government bonds and Eurobonds. The Russia-Cyprus tax treaty’s zero withholding tax on royalty payments will not be changed.

      Earlier, on 3 August, the Russian Ministry of Finance had announced that it would terminate the Russia-Cyprus double tax agreement after negotiations broke down. It said that the Cypriot side had put forward its own proposal, which was not accepted.

      Following the subsequent deal, Russian Deputy Finance Minister Alexey Sazanov said that Russia would no longer seek to terminate the agreement. He stated: "In the coming month, we also plan to complete negotiations with Luxembourg and Malta on the same terms as we offered Cyprus."

      The Russian Ministry of Finance further stated: "Russia is also awaiting an official response from the Netherlands to directed proposals to revise the tax agreement in the coming weeks. If the Netherlands agrees to negotiate, they will be offered the same conditions as the Republic of Cyprus."

      Subsequently Malta also agreed to amend its tax treaty on 14 August, raising the withholding tax rate for interest and dividend payments to 15%, with exceptions for a limited list of institutional investments.

  • Denmark Supreme Court rules in landmark Adecco transfer pricing decision
    • 25 June 2020, the Danish Supreme Court ruled in favor of the Danish subsidiary of Swiss human resources provider Adecco in a dispute over whether royalties for the use of trademarks and trade names, know-how, international network intangibles, and business concept were deductible expenses for tax purposes, as well as the sufficiency of transfer pricing documentation.

      The dispute arose from a joint Scandinavian transfer pricing tax audit involving the Norwegian, Swedish, and Danish tax authorities. At issue were royalty payments made in 2006-2009 to the groups’ corporate headquarters in Switzerland. In 2013, the Danish tax authorities amended Adecco Denmark’s taxable income for the years 2006-2009 by a total of DKK 82 million (€11 million).

      Adecco Denmark submitted that the company’s royalty payments were operating expenses deductible under the State Tax Act and that it was entitled to tax deductions for royalty payments of 1.5% of the company’s turnover in the first half of 2006 and 2% up to and including 2009, because these prices were in line with what would have been agreed if the transactions had been concluded between independent parties and were therefore compliant with requirements in the Tax Assessment Act.

      According to section 6 (a) of the State Tax Act expenses incurred during the year to acquire, secure and maintain income are deductible for tax purposes. There must be a direct and immediate link between the expenditure incurred and the acquisition of income. The company stated that it was not disputed that the costs were actually incurred and that it was evident that the royalty payment was in the nature of operating costs, since the company received significant economic value for the payments.

      The Danish Ministry of Taxation argued that the royalty payments were fundamentally not deductible business expenses according to Danish tax law and, even if they were deductible, the payments were not on arm’s length terms.

      It further argued that the payments should, in any event, be offset against a deemed remuneration from the Swiss parent company to the Danish company, essentially reducing the expenses to zero, on the grounds that the subsidiary was kept operational merely to substantiate the general interest of the group – to maintain an entity in Denmark.

      In 2019, Denmark’s Eastern High Court ruled in favor of the tax agency by assessing that the royalty was not deductible as an operating expense rather than by assessing that the royalty was not at arm’s length. Adecco appealed the decision to the Supreme Court.

      The Supreme Court concluded that the royalty payments did indeed constitute operational costs that were deductible for tax purposes. The royalty payments were made for the right to use the Adecco trademark, for accessing the know-how and the customer referrals within the group, and the question raised was whether these expenses were sufficiently related to the company’s income-generating activity to qualify as deductible.

      The company had been loss-making in the years in question, but based on the documentation provided, the Supreme Court ruled that the payments were in fact made for services genuinely rendered to the subsidiary.

      According to the Supreme Court, the documentation provided by the taxpayer was not insufficient to a degree comparable to a complete lack of documentation. The company’s income could therefore not be estimated by the tax authorities.

      Finally, the Supreme Court did not consider that a royalty rate of 2% was not at arm’s length, or that Adecco Denmark’s marketing in Denmark of the Adecco brand provided a basis for deducting in the royalty payment a compensation for a marketing of the global brand.

  • Dubai issues law to regulate Family Ownership
    • 13 August 2020, the Ruler of Dubai issued Law No (9) of 2020 Regulating Family Ownership, which provides a governance framework that is appropriate for family-owned property and businesses. The intention is to ensure the continuity, development and smooth transition of family property from one generation to another.

      The Law recognises and legitimises the concept of a Family Property Contract that can be entered into between family members up to the fourth generation to govern the collective ownership, management and administration of family-owned wealth.

      A Family Property Contract can be entered into for all kinds of movable and immovable property, with the exception of shares in public joint stock companies, and will be valid provided it meets six conditions set out in Article 6 of the Law, including notarisation by a notary public.

      A Family Property Contract can provide for specific proportionate ownership provisions in relation to rights to income and capital and administration and management of the family property. It further provides for acquisition of interests in the underlying family property via the transfer of an individual family member’s interests in the contract, whether to successors via inheritance or through specific provisions dealing with bankruptcy and disposal to third parties.

      Administration of the family property will be the responsibility of one or more managers, and the terms of reference of their management, as well as provisions relating to the manager’s oversight by a board of directors, and their appointment and dismissal, would be set out in the contract.

      The Law includes protections against division or disposal of the family wealth that run contrary to the terms agreed by the partners to the contract. A partner is not permitted to divide the family property while the contract is valid. Disposals to any third party are subject to a right of first refusal held by the other partners,. The consent of partners owning at least 51% of the family property is also required.

      Any disputes arising from a Family Property Contract will be settled by a special judicial committee comprised of experts in legal, financial and family management matters, ensuring the confidentiality and privacy of any dispute, as well as time efficient procedures for their resolution.

      The Law further repeals any provision in any other legislation that contradicts its provisions and will be valid from the date of its publication in the Official Gazette.

  • English Court of Appeal holds that breach of trust claim can proceed, despite exoneration clause
    • 5 June 2020, the English Court of Appeal overturned a 2019 High Court decisions and ruled that a breach of trust claim against the trustees of a trust relating to loans made to the settlor could go ahead even though the trust deed included an exoneration clause that excluded trustee liability except where the trustee is guilty of fraudulent bad faith and the claimant had indemnified the trustee against any liability in respect of the loans.

      In Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699, the claimant Robert Sofer was the beneficiary of a discretionary trust, known as the Puyol Trust, settled by his father, the South African bookmaker and investor Hyman Sofer in 2006. SwissIndependent Trustees SA, the defendant, was the trustee.

      It was intended that the claimant would be the main beneficiary of the trust, but shortly after it was created, the claimant’s father was also added as a beneficiary. The trust deed included a restriction preventing the trustee from making distributions out of the trust until the settlor’s death, but the trustee was permitted to lend money to the beneficiaries.

      Between 2006 and 2016, the trustee paid substantial sums out of the trust to Hyman Sofer, recording the payments as loans, but without making any provision for security, interest or repayment. When he died on 8 July 2016, the total net amount paid out of the trust to him was nearly $19.2 million, which his estate was unable to repay.

      The claimant issued a claim alleging that the payments were gifts rather than loans, and sought orders that the trustee reconstitute the trust fund and be removed as trustee. However, the trust deed included an exoneration clause, providing that the trustee would not be liable for any loss unless it has “been caused by acts done or omissions made in personal conscious and fraudulent bad faith by the trustee”. The trustee applied to strike out the claim on the grounds that the particulars of claim did not contain adequate particulars of dishonesty, and so it was entitled to rely on its exoneration clause.

      This application succeeded at first instance. In the High Court, HHJ Matthews held that that the claimant had failed to give proper particulars of the trustee’s alleged knowledge of, or reckless indifference to, the interests of the beneficiaries; and second, that the claimant had failed to identify the natural persons whose knowledge was to be attributed to the defendant, a corporate trustee.

      The English Court of Appeal reversed this decision. The claimant argued that the amount of the payments, the length of time over which they had been made and the fact that the trustee had not investigated the prospects of the loans being repaid supported his case that the trustee had deliberately breached the terms of the trust and that the trustee:

      -knew the payments were being made contrary to the beneficiaries' interests;

      -was recklessly indifferent to the beneficiaries' interests in making the payments; or

      -was wholly unreasonable in believing that the payments were in the beneficiaries' interests.

      The fact that the claimant’s father was a beneficiary also did not absolve the trustee from considering the position of other beneficiaries.

      In Lord Justice Arnold’s view, the claim did contain sufficient details, if proved, to infer that there had been a dishonest breach of trust by the trustee, which could be sufficient to overcome the trustee exoneration clause. Based on these factors, the claimant had a reasonable prospect of succeeding in his argument that the deeds of indemnity did not protect the trustee from any claims.

      Further, it did not matter that, at the time of pleading, the claimant was unable to identify individuals whose knowledge was to be attributed to a corporate defendant in order to establish dishonesty. He could therefore wait, pending disclosure, before identifying which directors, officers or employees of the trustee had that knowledge.

  • Facebook to pay €106 million in back taxes in France
    • 24 August 2020, Facebook’s French subsidiary said it had agreed to pay €106 million in back taxes, including a €22 million penalty, following a ten-year audit of its accounts by French tax authorities. The payment covers the last decade of its French operations from 2009.

      A spokesman for the US-based social networking giant also said that since 2018 the company had decided to include its advertising sales in France in its annual accounts covering France. As a result, Facebook France’s total net revenue almost doubled in 2019 from a year earlier to €747 million and the company paid €8.5 million of income taxes in 2019 in France, an increase of almost 50% from a year earlier.

      Last year, France announced a new digital services tax on multinational technology firms, but in January, the country said it would delay the tax until the end of 2020. The new tax would have required them to make tax payments equivalent to 3% of their French revenues twice a year in April and in November. In response to France delaying the new tax, the US said it would not impose retaliatory tariffs on $2.4 billion of French goods, including champagne and cheese.

      The OECD is working on a multilateral agreement on how multinational firms should be taxed by governments. Current international tax rules legally allow companies to funnel sales generated in local markets in Europe to their regional headquarters. Some of the tech companies, including Facebook, have European or international headquarters based in countries with comparatively low corporate tax rates, such as Ireland.

      In June, the finance ministers of France, the UK, Italy and Spain signed a letter saying that tech giants, like Google, Amazon and Facebook, need "to pay their fair share of tax". The four finance ministers told US Treasury Secretary Steven Mnuchin that the pandemic had increased the need for such levies.

      "The current Covid-19 crisis has confirmed the need to deliver a fair and consistent allocation of profit made by multinationals operating without – or with little – physical taxable presence," the letter said. "The pandemic has accelerated a fundamental transformation in consumption habits and increased the use of digital services, consequently reinforcing digital business models' dominant position and increasing their revenue at the expense of more traditional businesses."

      On 31 August, US tech giant Google announced that the Danish tax authorities had initiated a review of its accounts in Denmark to determine whether it had any outstanding tax obligation. Google’s Danish unit, Google Denmark Aps, said in its financial report for 2019 that tax authorities had “commenced a review of the open tax years concerning the company’s tax position”.

      Google, owned by parent firm Alphabet Inc, employs more than 100 people in Denmark and earned revenue of DKK284 million ($45.4 million) last year. It said in the financial statement it had not made any provisions for the tax review.

  • Guernsey introduces regulations to allow migrations of limited partnerships
    • 31 July 2020, Guernsey has introduced new regulations which will allow the migration of limited partnerships into the island. The move follows Guernsey’s adoption in June of a fast-track regime for the migration of investment funds and managers, and the new regulations are similarly structured.

      The Limited Partnerships (Migration) Regulations 2020 will allow limited partnerships – commonly company structures, private equity vehicles or collective investment funds – seeking the security of a jurisdiction such as Guernsey, white-listed by the European Union and OECD for economic substance, to move quickly and easily.

      “Companies and fund managers today are looking to jurisdictions that can and have met new global standards on economic substance,” said Guernsey Finance chief executive Rupert Pleasant. “Guernsey has always had genuine substance in financial services. Our whitelisted position genuinely sets us apart from other jurisdictions which have not met these criteria, and we will continue to build on this position of strength.”

      Guernsey lawyers report significant levels of interest in migrating funds, companies and limited partnerships to the island over the past 12 months.

      The development of the limited partnership regulations once again demonstrates Guernsey’s legal flexibility in responding to the needs of potential clients.

  • High Court confirms validation of declaration of trust
    • 1 May 2020, the England and Wales High Court ruled that discretionary trusts containing AXA offshore bonds were valid, despite refusals from AXA which claimed document defects invalidated the trusts.

      In Bowack v Saxton 2020 EWHC 1049 Ch., Michael and Ann Bowack had instructed a financial advisor to set up two Isle of Man trusts in 2014, each containing £325,000. They completed all of the relevant paperwork, appointing themselves and their daughter Claire Saxton as trustees, and also naming Claire as as beneficiary.

      However, when the documents were forwarded to AXA Isle of Man, it noted that Claire's signature on the trust forms had not been witnessed by an independent person. It also turned out that the declarations of trust as executed left the effective date blank and failed to identify the trust property as the two bonds.

      As a result, AXA said it was unable to proceed with placing the policy into trust. Despite this, AXA cashed the two cheques it had received in payment for the bonds, and duly issued the bonds, which were subject to Manx law and only assignable with the company's agreement.

      A long correspondence followed to try to set matters right but, in the face of AXA's continued resistance, the Bowacks finally resorted to the courts, formally suing their own daughter to establish the validity of their estate plan.

      The case was heard by Matthews J who, although criticising the handling of the paperwork, decided that none of the defects destroyed the arrangement. He declared the trusts had become valid at the point they were issued, and there were simultaneous valid and effective assignments of those bonds to the three trustees in each case.

      “On the evidence it is clear that the claimants were not making a gift of the money to [AXA], and neither were they paying it with a view to that money being held on trust by that company for their intended beneficiaries,” he noted.

  • Hong Kong and Serbia sign tax treaty
    • 28 August 2020, the Hong Kong Special Administrative Region government signed a comprehensive double tax agreement (CDTA) with Serbia. The treaty, which will come into force after the completion of ratification procedures by both parties, is the 44th DTA signed by Hong Kong.

      Under the DTA, any tax paid in Serbia by Hong Kong companies in accordance with the DTA will be allowed as a credit against the tax payable in Hong Kong on the same income, subject to the provisions of the tax laws of Hong Kong. Likewise, for Serbian companies, the tax paid in Hong Kong will be allowed as a deduction from the tax payable on the same income in Serbia.

      Serbia's withholding tax rates for Hong Kong resident companies on dividends, interest and royalties will be capped at 10% and profits from international shipping transport earned by Hong Kong residents arising in Serbia will not be taxed in Serbia.

  • Hong Kong-Macao tax treaty enters into force
    • 21 August 2020, the Hong Kong Inland Revenue Department announced that the double tax treaty between the Hong Kong Special Administrative Region and the Macao Special Administrative Region had entered into force following ratification by both sides. The treaty was signed in November 2019.

      According to Article 28 of the treaty, the provisions of the treaty will have effect in Hong Kong in respect of taxes on income derived for any year of assessment beginning on or after 1 April 2021.

  • Hong Kong passes Limited Partnership Fund Ordinance and proposes carried interest concession
    • 31 August 2020, Hong Kong’s Limited Partnership Fund Ordinance (LPFO), which provides for registration of eligible funds as limited partnership funds (LPFs) in Hong Kong, came into operation. The move is part the Hong Kong government’s stated aim to enhance the competitiveness of Hong Kong to encourage asset managers of private funds to locate their activities in Hong Kong and to use a Hong Kong domiciled fund vehicle.

      Under Hong Kong’s previous legal framework, funds could be established in the form of a unit trust or an open-ended fund company. But Hong Kong’s previous Limited Partnership Ordinance did not provide an attractive framework for limited partnerships, which are the preferred structure for private equity (PE) funds.

      The LPFO contains provisions that:

      -Allow flexibility in capital contributions and distribution of profits;

      -Enable the parties in a LPF to freely contract according to their commercial intentions;

      -Offer a simple registration process with the Registrar of Companies; and

      -Provide a straightforward and cost-efficient dissolution mechanism.

      The introduction of the LPFO follows last year’s expansion of existing tax exemptions to create the ‘Unified Funds Exemption Regime’, which created a level playing field making tax exemptions at the fund level available, subject to meeting certain conditions, to both offshore and onshore funds on the same basis.

      The government has also now published for consultation a proposal to introduce a tax concession on carried interest distributed by PEs funds, which says: “A tax concession should be provided for carried interest arising from eligible transactions of a fund subject to meeting specified conditions.” The proposal does not specify the tax concession rate, but notes it will be “highly competitive.” If approved, the relief will have retrospective effect from 1 April 2020.

  • Italian Supreme Court rules that foreign trusts can receive tax treaty benefits
    • The Italian Supreme Court – Corte Suprema di Cassazione – confirmed that trusts are officially recognised under the Italian legal system and that the articles of the Italy-UK double tax treaty are therefore also applicable to trusts under the definition of 'person'.

      The two decisions (Cassazione Civile, Sez. V, 5 febbraio 2020, nn. 2617-2618) involved NatWest Bank in its capacity as trustee of the Baring Global Growth Trust. NatWest had invested in shares in Italian companies whose dividends (received between 1995 and 2000) were accounted for and taxed in the UK, producing a tax credit.

      In order to avoid the double taxation of the dividends in Italy and in the UK, NatWest requested that the Italian tax authorities reimburse the tax credit in accordance with the Italy-UK double tax treaty, which states: "A resident of the UK who receives dividends from a company which is a resident of Italy shall […] be entitled, if he is the beneficial owner of the dividends, to the tax credit in respect thereof to which an individual resident in Italy would have been entitled had he received those dividends […]"

      The Italian tax authority granted a partial reimbursement in relation to the tax years 1995-97, but changed its position in 2010, claiming that the trustee of a trust could not be considered to be a 'person' as described in the tax treaty provisions. It held there are no regulations in Italian law regarding the role of trustees and, therefore the concepts of ‘residence’ and ‘beneficial owner’ could not be applied.

      NatWest appealed this decision to the Provincial Tax Court of Pescara in 2011, but the Court found in favour of the tax authority. NatWest appealed. The court of second instance, dismissed an appeal in 2013, stating that the appellant had not provided sufficient evidence to prove it was the beneficial owner of the dividends and that such dividends had already been taxed in the UK.

      The Supreme Court argued that article 3, paragraph 1 of the Italy-UK double tax treaty, which lists general definitions that should be applied to the other provisions of the convention "unless the context otherwise requires", permits the treaty states to interpret the general definitions according to the nature of the agreement between them, the development of their legal systems and their economic framework.

      Although the OECD Model Tax Convention on Income and on Capital did not provide a definition of 'trust', it had been demonstrated that an extensive interpretation of the definition of 'person' in article 3 included trusts and these were fully recognised in Italy following its 1992 ratification of the Hague Convention and had been fully regulated for tax purposes since 2007.

      As a result, the Italian Supreme Court confirmed that trusts were officially recognised by the Italian legal system and that the articles of the Italy-UK double tax treaty were therefore also applicable to trusts under the definition of 'person'.

      The Supreme Court also accepted that the structure of a trust was not always the same and, therefore, a case-by-case analysis was required. To benefit from the tax treaty provisions, it would be necessary to provide evidence of the trust structure, the powers of the trustees and identify the beneficiaries. It would further be necessary for trustees to provide evidence that dividends had been taken into account in calculating taxable income but taxed effectively in the other state.

  • Malta fines Fimbank €168,943 for ‘serious’ anti-money laundering failures
    • 5 August 2020, the Maltese Financial Intelligence Analysis Unit (FIAU) announced that it was fining Fimbank €168,943 for “serious shortcomings” in its anti-money laundering obligations following a 2018 inspection of the bank.

      The FIAU found Fimbank’s risk assessment tools did not account for all the countries its clients were dealing with and said the compliance examination also identified weaknesses in the bank’s ability to retrieve records in an efficient manner. The FIAU deemed that the bank’s record-keeping measures were not adequate for the bank to completely satisfy its record-keeping obligations.

      Serious shortcomings were also found when it came to the bank’s obligation to scrutinise its clients’ transactions. While the bank had transaction monitoring measures in place, the FIAU said the measures were not proportionate to Fimbank’s activities.

      The FIAU said at times single payments passing through the bank’s accounts exceeded €13 million, whereas in other cases, the transactions did not tally with the customer profile, with the bank failing to thoroughly scrutinise the transactions that were taking place.

      The FIAU added that Fimbank has already started implementing measures to address the other breaches.

  • Seychelles brings AML and BO laws into force
    • 28 August 2020, the Seychelles government announced that the Anti-Money Laundering & Countering the Financing of Terrorism (AML/CFT) Act 2020 and the Beneficial Ownership Act 2020, both enacted in March this year, had been brought into force following the approval by the Cabinet of Ministers of the necessary regulations to ensure their enforcement.

      The OECD’s 2019 peer-review report on the Seychelles' record on exchange of tax information on request stressed the “urgent need” to amend or draft new legislation to ensure compliance with global norms, and produced a series of recommendations for reform. These included a requirement that all legal entities and legal arrangements should keep appropriate accounting records; alignment of the definition of beneficial ownership with international standards; strengthening of the requirement on obtaining information from foreign third parties; and a rule that accounting records must be kept for a minimum of five years after an entity is liquidated. Significant sanctions for non-compliance were also proposed.

      The AML/CFT Act replaced the AML Act 2006 and provides for a new sectoral supervisory approach with the Central Bank of Seychelles and Financial Services Authority to supervise institutions under their regulatory purview and the Financial Intelligence Unit to supervise Designated Non-Financial Businesses and Professions (DNFBPS) and high-risk non-profit organisations. The act also introduced dissuasive and proportionate sanctions for non-compliance and new investigative powers to the relevant law enforcement authorities.

      The new Beneficial Ownership law provides for the identification and verification of beneficial ownership information of legal persons and legal arrangements, extending to domestic, as well as international companies registered in Seychelles, trusts, associations and foundations among others. The law includes provisions for the establishment of an up-to-date register of beneficial owners, as well as a secured and centralised Seychelles Beneficial Ownership database maintained by the FIU.

      The AML Act also provided for the establishment in law of a National AML/CFT Committee (NAC), which has now published a three-year National Anti-Money Laundering and Countering the Financing of Terrorism Strategy that is intended to “address deficiencies highlighted by international bodies and jurisdictions in recent times”.

      According to the Ministry of Finance, the Strategy should be fully implemented by the end of 2022. Finance Minister Maurice Loustau-Lalanne said: “Having robust policies and measures in place requires us to know our exposure to such risks, and this has been highlighted in the country’s recent assessments against international standards.”

  • Singapore implements a Central Register of Controllers
    • 30 July 2020, Singapore brought the new requirement for all companies, foreign companies and limited liability partnerships (LLPs) in Singapore, unless specifically exempted, to lodge the information that they currently maintain in their Register of Registrable Controllers (RORC) with the Accounting and Corporate Regulatory Authority (ACRA) into effect.

      Since March 2017, Singapore entities have been required to keep a RORC either in their registered office address or at the office of their authorised filing agent. Registrable controllers are also commonly known as the beneficial owners of the entities. The information maintained in the RORC includes the names and identifying details of their controllers, as well as information on their citizenship or places of registration in the case of legal entities.

      In addition to keeping a RORC privately, entities will now have to lodge the same information in their RORC with ACRA’s central register within 30 days. However, in view of the Covid-19 disruptions and to assist business entities to ease into the resumption of normal business activities, ACRA will allow entities to file their RORC information by 29 September 2020.

      There is no penalty for late submission but entities that are found to have failed to lodge RORC information with ACRA within the required deadline may face enforcement action and a fine of up to SGD5,000 upon conviction.

      Any update to the controllers’ information in their RORC must also be lodged with the ACRA central RORC within two business days of the change being made. Information in the ACRA central RORC will only be made available to law enforcement agencies for the purpose of administering or enforcing the law. Members of the public will not have access.

  • Switzerland adopts dispatch on introducing form of professional investor fund
    • 19 August 2020, the Swiss Federal Council adopted the dispatch on amending the Collective Investment Schemes Act to provide for a new fund category in Switzerland that offers qualified investors a type of professional investor fund. Parliament is due to discuss the bill for the first time in the second half of 2020. It is not expected to come into force until the start of 2022 at the earliest.

      The bill exempts certain collective investment schemes from the requirement to obtain authorisation and approval from the supervisory authority, on condition that they are reserved exclusively for qualified investors and are not offered to the general public. They must also be managed by institutions supervised by the Swiss Financial Market Supervisory Authority (FINMA).

      Collective investment schemes of this kind will be known as Limited Qualified Investor Funds (L-QIFs). This new fund category is aimed at ensuring that, in the future, more collective investment schemes are set up in Switzerland and more of the value chain remains in Switzerland.

      The provisions of the Collective Investment Schemes Act also apply in principle to L-QIFs, which must be audited. However, L-QIFs are subject to specific investment rules, which are couched in very broad terms. The explanatory report expressly mentions securities, units of collective investment schemes, money market instruments, real estate, derivatives, structured products, commodities, infrastructure projects, crypto currencies, wine and art as examples of permissible investments. There is also an absence of regulatory diversification requirements.

  • Switzerland adopts dispatches on new tax treaty with Bahrain
    • 26 August 2020, the Swiss Federal Council adopted the dispatches on a new double taxation agreement (DTA) with Bahrain and on a protocol of amendment to the DTA with Kuwait. Both agreements will be subject to ratification by both treaty partners before they can be brought into force.

      The new DTA with Bahrain in the area of taxes on income and capital improves matters for cross-border investments. It also contains an administrative assistance provision in accordance with the international standard concerning the exchange of information upon request and implements the minimum standards in accordance with the OECD/G20 project on base erosion and profit shifting (BEPS). This includes in particular an anti-abuse provision.

      The protocol to the DTA with Kuwait in the area of taxes on income and capital significantly improves matters for cross-border investments. It also enhances the dispute resolution mechanism by means of an arbitration clause and contains substantial components of the minimum standards for DTAs.

  • US clarifies PEP’s due diligence requirements under Bank Secrecy Act
    • 21 August 2020, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued a joint statement clarifying that Bank Secrecy Act (BSA) due diligence requirements for customers who may be considered ‘politically exposed persons’ (PEPs) should be commensurate with the risks posed by the PEP relationship.

      The term PEP is commonly used to refer to foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates. By virtue of this public position or relationship, these individuals may present a higher risk that their funds may be the proceeds of corruption or other illicit activity.

      Addressing the money-laundering threat posed by corruption of foreign officials continues to be a national security priority for the US. However, the statement recognises that PEP relationships present varying levels of money-laundering risk, which depends on facts and circumstances specific to the customer relationship.  For example, PEPs with a limited transaction volume, a low dollar deposit account with the bank, known legitimate sources of funds, or access only to products or services that are subject to specific terms and payment schedules could reasonably be characterised as having lower customer risk profiles.

      The statement clarifies that, while banks must adopt appropriate risk-based procedures for conducting customer due diligence (CDD), the CDD rule does not create a regulatory requirement, and there is no supervisory expectation for banks to have unique, additional due diligence steps for customers who are considered PEPs. However it does not alter existing BSA and anti-money laundering (AML) legal or regulatory requirements and does not require banks to cease existing risk management practices.

  • US expats renounce US citizenship at record levels
    • 9 August 2020, US citizens are continuing to renounce their citizenship at the highest levels on record, according to research published by Bambridge Accountants New York. It said the pandemic appeared to have motivated US expats to cut ties and avoid the current political climate and onerous tax reporting

      US government figures showed that 5,816 Americans had given up their citizenship in the first six months of 2020, a 1,210% increase on the previous six months to December 2019, when only 444 cases were recorded. Some 2,072 Americans gave up their citizenship in 2019 in total. Americans must pay a $2,350 government fee to renounce their citizenship, and those based overseas must do so in person at the US Embassy in their country.

      There are currently an estimated nine million US expats although there has been a steep decline in the numbers of citizens expatriating over the last few years. US citizens living abroad are still required to file US tax returns each year, potentially pay US tax and report all their foreign bank accounts, investments and pensions held outside the US.

      Partner Alistair Bambridge said: “For many Americans this intrusion is too complicated, and they make the serious step of renouncing their citizenship as they do not plan to return to live in the US.”

  • US Supreme Court rejects Altera stock options case hearing
    • 22 June 2020, the US Supreme Court declined to review the Ninth Circuit’s decision concerning the validity of Treasury Regulations under Internal Revenue Code Section 482, which require cost sharing of stock-based compensation. The decision confirms, for the Ninth Circuit, that stock-based compensation must be included in costs shared under a qualified cost sharing arrangement and affirming the deference to be given to Treasury Regulations.

      In Altera Corp. v. Commissioner (#19-1009), the Internal Revenue Service (IRS) and Treasury had issued regulations in 2003 that required stock-based compensation costs to be included in intangible development costs that would be governed by its cost-sharing arrangement with a foreign subsidiary. Such arrangements determine how transactions shifting intangible property such as patents or copyrights overseas are handled for tax purposes.

      That compensation included stock options, which gave employees the right to buy company shares at a set price in the future. Altera was contesting an IRS claims that the taxable income Altera reported was more than USD80 million too low from 2004 to 2007. Altera disputed whether Congress had granted tax officials the authority to require that companies include stock-based compensation costs in their cost-sharing arrangements under the circumstances.

      In 2015, the Tax Court ruled these regulations to be invalid under the Administrative Procedure Act, finding that that Treasury’s conclusion that the final rule was consistent with the arm’s-length standard was contrary to the evidence before it, namely that unrelated parties, acting at arm’s length, would never agree to share each other’s stock-based compensation costs.

      On 7 June 2019, a Ninth Circuit panel reversed the Tax Court’s decision finding that the government had adequately supported in the record that stock-based compensation should be treated as an intangible development cost in a cost-sharing arrangement and Treasury’s position on the issue was not a policy change.

      The Ninth Circuit applied the Chevron standard, first finding that s482 was ambiguous and then considering whether Treasury’s interpretation of the statute was reasonable. The Ninth Circuit stated the second step of Chevron was satisfied because “[t]hese internal allocation methods are reasonable methods for reaching the arm’s length results required by statute. While interpreting the statute to do away with reliance on comparables may not have been ‘the only possible interpretation’ of Congress’s intent, it proves a reasonable one.”

      On 10 February 2020, Altera filed a petition for a writ of certiorari asking the Supreme Court to review the Ninth Circuit decision, arguing that it had committed serious errors by “upholding an arbitrary and capricious regulation based on a rationale presented for the first time in litigation, and even giving the new rationale Chevron deference.”

      The Supreme Court denied Altera’s petition but did not give reasons. The decision makes the Ninth Circuit ruling binding precedent in the Ninth Circuit and may carry persuasive weight with courts outside the Ninth Circuit as well. Many ‘BigTech’ taxpayers have adopted similar contractual provisions in their cost-sharing agreements referring specifically to stock-based compensation and the validity of the regulatory rule. Among the companies that urged the Supreme Court to take up the case were Apple, Google and Facebook.

  • US suspends or terminates three bilateral agreements with Hong Kong
    • 19 August 2020, the US State Department notified the Hong Kong authorities of the suspension or termination of three bilateral agreements. These agreements covered the surrender of fugitive offenders, the transfer of sentenced persons and reciprocal tax exemptions on income derived from the international operation of ships.

      Following China’s application of its new National Security Law on Hong Kong on 1 July, US president Donald Trump took two actions on 14 July – signing the Hong Kong Autonomy Act to impose sanctions on foreign individuals and entities for “contributing to the erosion of Hong Kong’s autonomy” and Executive Order on Hong Kong Normalisation (E.O. 13936).

      The Executive Order made provision to end Hong Kong’s special trading status – accorded to it via a 1984 agreement, which was also agreed between China and Hong Kong’s former colonial ruler, the UK, before sovereignty was returned to the city in 1997. The US-Hong Kong Special Policy Act of 1992 allowed Hong Kong to enjoy lower trade tariffs and a separate customs framework in its dealings with the US. The Order revoked licence exceptions on sensitive exports to Hong Kong, including defence equipment, dual-use technologies and high-technology products.

      On 11 August, the US Customs and Border Protection (CBP) published in the Federal Register a general notice [CBP Dec. 20-15] that notifies the public that, in light of the President’s Executive Order 13936, suspending the application of section 201(a) of the United States-Hong Kong Policy Act of 1992 to the marking statute, section 304 of the Tariff Act of 1930 (19 U.S.C. 1304), with respect to imported goods produced in Hong Kong, such goods may no longer be marked to indicate “Hong Kong” as their origin, but must be marked to indicate “China”.

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