Owen, Christopher: Global Survey – October 2020

11 September 2020, the Supreme Court of British Columbia held that violating an agreement to execute a will that makes a particular individual the beneficiary of an estate could amount to an anticipatory breach.

In Munro v James 2020 BCSC 1348, the defendant Jessie Patricia James entered into a contract with plaintiffs Fonda Munro and Bruce Boughey in 2008 that would govern the future management of Ms. James’ farm and the disposition of her estate.

The parties, long term acquaintances through the equestrian community on Vancouver Island, agreed that Munro and Boughey would move onto James’ farm, build a home and reside there, and look after James’ ponies for the remainder of her life. In exchange, Munro and Boughey would inherit James’ estate when she died. The property had an appraised value at the time of trial of CAD1.525 million.

In December 2017, James changed her will to exclude the plaintiffs as beneficiaries and make defendant Leslie Brown the executor and sole beneficiary of her estate, thereby ensuring that they would not inherit her estate under the agreement. In January 2018, she gave the plaintiffs notice of her intention to terminate the agreement on three months notice on the basis of her dissatisfaction with the plaintiffs’ performance as farm managers.

On 8 February, the Munro and Boughey commenced the action. In the original Notice of Civil Claim, the plaintiffs did not seek damages for breach of contract, nor did they expressly seek specific performance. Instead, the plaintiffs sought a declaration of a proprietary interest in the property. The Notice of Civil Claim was amended in October 2019 to include an alternative claim for damages for breach of contract.

The position of the plaintiffs throughout the litigation was that they wished for the contract to continue and the relief they sought primarily consisted of declaratory and equitable relief that would restore them to the position they would have been in had James never purported to terminate the agreement.

The Court held that the literal meaning of the contract was clear: the parties agreed that the plaintiffs would inherit James’ estate upon her death. It found that, when James changed her will to exclude the plaintiffs as beneficiaries and when she notified them of her intention to terminate the agreement, she committed an anticipatory breach. The court said that both of the requisites for an anticipatory breach were present in this case: James totally rejected her obligations under the contract, and lacked justification for doing so.

The court then considered the appropriate remedy for this case and concluded that the plaintiffs were entitled to partial specific performance of the agreement. While they did not expressly seek specific performance, the declaratory relief that they sought was a relief that would only apply if the agreement was still in force.

The plaintiffs had substantially performed their side of the contract, said the court, which meant that James should in turn perform her obligations under the agreement, including the provision to make them the beneficiaries of her estate.

The Court clarified that, while the contract refers to the “entire estate,” this should be interpreted to mean the residue of her estate upon her death, after payment of taxes and reasonable funeral and testamentary expenses. The Court also ordered James not to dispose of or encumber the farm without the plaintiffs’ consent.

The full judgment can be accessed at https://www.canlii.org/en/bc/bcsc/doc/2020/2020bcsc1348/2020bcsc1348.html

1 October 2020, the Cayman Islands' registers of companies and limited liability companies (LLCs) opened to public inspection when the Companies (Amendment) (No.2) Law 2020 and the Limited Liability Companies (Amendment) (No.2) Law 2020 were brought into force.

The laws permit anyone to search the registers on payment of a fee of USD61 and were introduced in response to the Financial Action Task Force recommendation that certain basic information for legal entities be made publicly searchable. ntlead11020

The information available on Cayman Islands companies includes: the company name, the location of its registered office, its share capital, the names and addresses of its initial shareholders or members and the amount of their subscription, the execution and filing dates of its memorandum of association, company number, the nature of its business and the date of its financial year-end.

The same rules will also apply to limited liability partnerships once the Limited Liability Partnership Law 2017 is fully implemented.

8 September 2020, the protocol amending the tax treaty between Cyprus and the Russian Federation was signed during an official visit by Russian Foreign Minister Sergey Lavrov to Nicosia. The amendments to the treaty should be effective as of 1 January 2021, provided that the Protocol is ratified by both parties by the end of 2020.

The text was finalised in August, after four rounds of negotiations. In March, Russian President Vladimir Putin announced the increase of withholding tax rates on dividends and interest paid from Russia to a number of foreign jurisdictions.  This was followed by an official request from the Russian Ministry of Finance to modify the existing tax treaty.

The signed protocol increases the withholding tax on dividends and interest income to 15% respectively, while excluding certain regulated entities, such as pension funds and insurance companies, as well as listed entities with specific characteristics. Additionally, exemption from the withholding tax applies for interest payments from corporate bonds, government bonds and Eurobonds. Withholding tax on royalties remains unchanged at 0%.

The Russian Ministry of Finance said that work is underway to make similar amendments to tax treaties with other jurisdictions. Equivalent changes have been agreed with Malta and Luxembourg, while negotiations continue with the Netherlands.

The Ministry estimates that the amendments to its treaties with Cyprus, Malta and Luxembourg could generate an additional RUB130-150 billion in revenue per year.

16 September 2020, European Commission President Ursula von der Leyen reaffirmed, in her first State of the Union speech, the Commission’s support for the digital tax reform to ensure that big US tech firms doing business in the bloc, such as Google and Facebook, pay their share of tax.

“We will spare no effort to reach agreement in the framework of OECD and G20. But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year,” she said.

The same day, the European Parliament approved a legislative opinion on the Own Resources Decision (ORD), which paves the way for the EU to expand the tax base to digital services. Paolo Gentiloni, the EU economy commissioner, said in a parliamentary exchange that this tax would supersede any individual member states’ digital taxes.

Last year, at the request of the G20, members of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed to examine proposals that could form the basis for a consensus solution to the tax challenges arising from digitalisation, focusing on new nexus and profit allocation rules to ensure that the allocation of taxing rights with respect to business profits is no longer exclusively circumscribed by reference to physical presence.

In June, however, the US government called for a pause in the talks after suggesting any deal should include a voluntary opt-in mechanism for US companies and raising concerns about the scope of the proposed tax.

French Finance Minister Bruno Le Mair blamed the US for seeking to undermine the international talks, saying: “It’s very clear, the US don’t want a digital tax at the OECD. So they are making obstacles that prevent us from reaching an agreement even though the technical work is done.”

24 September 2020, the EU Commission adopted a new Action Plan to boost the European Union's Capital Markets Union (CMU), which comprises 16 targeted measures including a proposal to introduce a standardised EU system for withholding tax relief at source.

Valdis Dombrovskis, Executive Vice-President for an Economy that works for People, said: “The coronavirus crisis has injected real urgency into our work to create a Capital Markets Union. The strength of our economic recovery will depend crucially on how well our capital markets function and whether people and businesses can access the investment opportunities and market financing they need. We need to generate massive investments to make the EU economy more sustainable, digital, inclusive and resilient. Today's Action Plan aims to tackle head-on some of the remaining barriers to a single market for capital.”

The Commission said the Action Plan had three key objectives: to make financing more accessible for European companies, in particular SMEs; to make the EU an even safer place for individuals to save and invest long-term; and to integrate national capital markets into a genuine EU-wide single market for capital.

The Commission has proposed 16 targeted measures to complete the CMU, which include:

-Creating a single access point to company data for investors;

-Supporting insurers and banks to invest more in EU businesses;

-Strengthening investment protection to support more cross-border investment in the EU;

-Facilitating monitoring of pension adequacy across Europe;

-Making insolvency rules more harmonised or convergent;

-Pushing for progress in supervisory convergence and consistent application of the single rulebook for financial markets in the EU.

Action 10 of the plan states that in order to lower costs for cross-border investors and prevent tax fraud, the Commission will propose a common, standardised, EU-wide system for withholding tax relief at source. In particular, it says:

“Taxation can present a serious obstacle to cross-border investment. Yet alleviating the tax associated burden in cross-border investment does not necessarily require harmonisation of tax codes or rates. A significant burden ascribed to taxation is caused by divergent, burdensome, lengthy and fraud-prone refund procedures for tax withheld in cases of cross-border investment. These procedures lead to considerable costs that dissuade cross-border investment where taxes on the return on investment need to be paid both in the Member States of the investment and of the investor, to be reimbursed only afterwards, after a lengthy and costly process. The existing OECD 'treaty relief and compliance enhancement' (TRACE) system and other EU initiatives in this area, such as the code of conduct on withholding tax, already provide orientation on what a mechanism, that would make easier and faster tax refunds possible, could look like.”

The Commission said that the CMU was not a goal in itself, but was essential for delivering on key economic policy objectives: the post-coronavirus recovery, an inclusive and resilient economy that works for all, the twin transition towards a digital and sustainable economy, and open strategic autonomy in a post-Brexit and increasingly complex world.

“Meeting these objectives requires massive investments that public money and traditional funding through bank lending alone cannot deliver. Only large, well-functioning and integrated capital markets can provide the scale of support needed to recover from the coronavirus crisis. Only a proper functioning CMU can mobilise and channel the enormous investment required to tackle the climate and environment challenges we face and support the digitalisation of our companies, so they remain competitive globally,” said the Commission in its communication announcing the new plan.

25 September 2020, the European Commission announced that it was to appeal the EU General Court’s ruling in the Apple state aid case to the Court of Justice of the European Union.

The EU General Court held on 15 July that the EU Commission had failed to satisfy its burden of proof that an advantage had been granted by Ireland to Apple. It therefore annulled the Commission’s decision of August 2016, which determined that Ireland had granted illegal state aid to Apple entities through selective tax breaks and ordered Apple to pay €13 billion in additional taxes to Ireland.

European Commission Executive Vice-President Margrethe Vestager said in a statement: “The General Court judgment raises important legal issues that are of relevance to the Commission in its application of state aid rules to tax planning cases. The Commission also respectfully considers that in its judgment the General Court has made a number of errors of law. For this reason, the Commission is bringing this matter before the European Court of Justice.

“The General Court has repeatedly confirmed the principle that, while Member States have competence in determining their taxation laws taxation, they must do so in respect of EU law, including State aid rules. If Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the European Union in breach of State aid rules.”

1 September 2020, the Global Forum on Transparency and Exchange of Information for Tax Purposes published nine new peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR). It brings the number of second round peer review reports since 2017 to 80.

The new reports relate to jurisdictions with very diverse EOIR practice and their findings are equally contrasted. Papua New Guinea, undergoing its first full peer review, was rated Largely Compliant, as were Chile, China, Gibraltar, Greece, Korea and Uruguay. Malta was issued a Partially Compliant rating and Anguilla was deemed Non-Compliant. Key findings and recommendations include:

-The revision of Anguilla’s rating from Partially Compliant to Non-Compliant was primarily due to two major deficiencies concerning the practical implementation of rules requiring the availability of accounting records and significant failures by the authorities to respond to information requests from peers. The latter stems from organisational malfunction and the abrupt closure of service providers related to the 2016 leaks case involving the law firm and corporate service provider Mossack Fonseca.

-Chile’s Largely Compliant rating comes with recommendations regarding the scope of its legislation on beneficial ownership: while Chilean banks are required to identify the beneficial owner of their clients since 2016, this obligation does not cover all relevant entities and the definition of beneficial owners for legal entities and arrangements is not fully in line with the international standard. The expansion of Chile’s EOI network to 137 jurisdictions yielded a total of 61 requests received and 28 requests sent during the period under review. Peers were generally satisfied and reported a good quality of responses.

-China was attributed a Largely Compliant rating, after being found Compliant in the last review. Chinese tax authorities answered several hundred requests from partners during the period under review and their practices were confirmed to be consistent with the international standard. The main challenges relate to the availability of beneficial ownership information on companies and other relevant entities and arrangements, a new requirement in the ongoing second round of EOIR peer reviews. The supervision of financial institutions, which are primarily relied on to keep this information, is not fully commensurate to the circumstances and should be enhanced.

-Gibraltar was rated Largely Compliant overall. Its legal framework and EOI practices were generally in line with the standard. Some improvements to ensure the availability of beneficial ownership information and increased supervision in respect of accounting information will nevertheless be necessary. While Gibraltar successfully responded to the vast majority of requests from its exchange partners, there is scope for improvement in the exercise of enforcement powers in accessing information and interpreting the relevance of requested information in line with the standard, to ensure timely and effective exchanges in all cases.

-Greece’s latest peer review resulted in a Largely Compliant rating. It has made a number of improvements since the previous review in 2013, including by abolishing the issuance of bearer shares by most companies and by establishing a beneficial owner’s register. However, deficiencies in the availability of ownership and accounting information were identified, in particular for shipping companies. The practical exchange of information on request is also still hindered by some delays.

-Korea was rated Largely Compliant in this second round assessment, after being deemed Compliant in the last review. The country’s legal and regulatory framework is largely in line with the standard. Korea received almost double the number of requests compared to the last review and EOI practices have been confirmed to be consistent with the international standard. Some improvements are needed in regard to the availability of beneficial ownership information. Korea should also ensure that ownership and accounting information for inactive companies is available.

-Malta’s new peer review resulted in an overall Partially Compliant rating, whereas the first round report had concluded the jurisdiction’s EOIR practice to be Largely Compliant with the standard. The main concerns identified refer to the effectiveness of enforcement and supervision activities to ensure the availability of ownership, accounting and banking information, particularly considering the filing compliance rates. Malta also had large number of inactive companies registered during the review period, which caused delays or failures to provide information to its main EOI partners. The new report thus includes recommendations to enhance enforcement, supervision and monitoring activities in order to reduce and limit the number of inactive companies.

-Papua New Guinea, which joined the Global Forum in 2015, received a Largely Compliant rating in its first full review. From setting up a functional EOI unit to putting in place the necessary procedures and processes for effective exchanges of information, efforts have been evident. However, improvements in monitoring and supervision of the laws on availability of ownership and accounting information are necessary. Further, while Papua New Guinea is committed to signing the Convention on Mutual Administrative Assistance in Tax Matters, it should take proactive steps to expand its existing treaty network and ensure that all its exchange mechanisms are fully in line with the standard.

-Uruguay maintained its first round Largely Compliant rating. It has made significant progress since the previous review, including in ensuring that beneficial ownership information of entities is available, and becoming a party to the Multilateral Convention on Mutual Administrative Assistance on Tax Matters. It should now ensure that banking information is accessible in all cases and in a timely manner.

The Global Forum is the leading multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement both the EOIR standard and the standard of automatic exchange of information (AEOI). These objectives are achieved through a robust monitoring and peer review process. The Global Forum also runs an extensive technical assistance programme to support its members in implementing the standards and help tax authorities make the best use of cross-border information sharing channels.

21 September 2020, the Irish government approved the draft text and publication of the Investment Limited Partnerships (Amendment) Bill 2020, which is designed to serve as a means to promote investment and bolster Ireland’s competitiveness in international financial services.

The Bill incorporates significant amendments to enhance the transparency applied to Ireland’s fund vehicles by extending beneficial ownership requirements to both Investment Limited Partnerships and to Common Contractual Funds. It also makes a number of technical amendments to the Irish Collective Asset Management Vehicles Act of 2015 to enhance the efficiency of the structure and align it with the Companies Acts.

The Bill further provides that the Central Bank can verify Personal Public Service Number (PPSN) information in respect of beneficial ownership registers it operates by proposing an amendment to the Social Welfare Consolidation Act 2005.

Finance Minister Paschal Donohoe said: “The publication of this Bill is an important step to maintain Ireland’s place as a leader for investment funds in Europe. It fulfills a commitment made in the Programme for Government to progress the revision of the Investment Limited Partnership structure and it ensures the same standards of transparency and beneficial ownership apply across all of Ireland’s investment fund vehicles.”

21 September 2020, the US Internal Revenue Service issued final regulations to provide guidance for decedents' estates and non-grantor trusts clarifying that certain deductions of such estates and non-grantor trusts are not miscellaneous itemised deductions.

The Tax Cuts and Jobs Acts (TCJA) prohibits individuals, estates, and non-grantor trusts from claiming miscellaneous itemised deductions for any taxable year beginning after 31 December 2017 and before 1 January 2026.

Specifically, the final regulations clarify that the following deductions are allowable in figuring adjusted gross income and are not miscellaneous itemised deductions:

-Deductions for costs paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in such estate or non-grantor trust;

-The deduction concerning the personal exemption of an estate or non-grantor trust;

-The distribution deductions for trusts distributing current income;

-The distribution deductions for trusts accumulating income.

In addition, the final regulations provide guidance on determining the character and amount of, as well as the manner for allocating, excess deductions that beneficiaries succeeding to the property of a terminated estate or non-grantor trust may claim on their individual income tax returns.

10 September 2020, the Isle of Man government issued a consultation on amendments to the Beneficial Ownership Act 2017 that are intended to address compliance deficiencies identified by the Council of Europe's anti-money laundering watchdog MONEYVAL.

MONEYVAL conducted a mutual evaluation report on the jurisdiction in 2016, concluding, among other things, that its beneficial ownership regime was only moderately effective and the accuracy of the data held on the register could be improved. The Act, as it stood at the time, required relevant beneficial ownership details to be provided within three months, which MONEYVAL’s inspectors considered to be too long a period to ensure accuracy of the details held for so-called 1931 companies, limited partnerships or general partnerships.

The new proposals therefore include an amendment to s.9 of the Act, requiring an entity's legal owner to supply their identification details to the nominated officer within one week of incorporation of the legal entity. Section 10 is also being amended to clarify that a beneficial ownership or intermediate owner must now notify their details to a legal owner within one week. The section title is also being changed to emphasise that the various owners must notify the legal owners as well as ‘assist’, indicating that there is now a proactive requirement to notify as well as a reactive element.

Section 20 is to be amended to give the Department for Enterprise powers to issue regulations on the 'reasonable steps' to be taken by nominated company officers, especially if a nominated company officer reports that the entity has no registrable beneficial owners. Details of beneficial owners are to be submitted to the departments within time limits that have not yet been published.

A new subsection is to be added, giving the Department powers to verify the information submitted and remove any suspected false information from the database. These additional powers are necessary for the Isle of Man to meet the international requirements to identify and verify the information on its database to ensure it is timely and accurate. Any person accessing the database must also notify the Department within a week if they find an entry they consider to be incorrect.

Other amendments will permit the extraction of anonymised data by relevant authorities in order to assist with international reporting obligations. This will further the jurisdiction's public commitment to deliver an effective public register of company beneficial ownership by 2023. The consultation closes on the 21 October 2020.

20 August 2020, the Royal Court of Jersey held that while it was unable to set aside a foundation established and incorporated under Jersey law, it was able to set aside endowments of property to the foundation on conventional application of the Jersey law of mistake.

In B and C v D, E, F and others [2020] JRC 169, the founders, having taken estate planning advice from a UK tax adviser, established a foundation in October 2012 under the Foundations (Jersey) Law 2009. The beneficiaries of the foundation were their children.

In November 2012 the founders executed a simple declaration of trust in which they declared that they held the founders’ rights upon trust for such of their three children that should reach the age of 30 years, and if more than one, in equal shares absolutely. During 2013 endowments totalling some £11.4 million were made by the founders to the foundation.

The structure was reviewed in early 2019 shortly before the founders’ eldest child turned 30. UK legal advice was taken and it became clear that the UK tax advice the founders had received in 2012 was incorrect because the Declaration of Trust was not a potentially exempt transfer, the use of the founders’ rights mechanism did not prevent the occurrence of an event immediately chargeable to UK IHT at the rate of 20% (an entry charge), and the endowments to the foundation also constituted chargeable transfers for the purposes of UK IHT. The founders’ tax liability was estimated at between £4.7 million and £6.2 million.

The Founders, supported by their children, applied to the Court for a declaration that the foundation should be set aside ab initio on the grounds of mistake. The Foundations (Jersey) Law 2009 does not provide an express power to set aside a Foundation on the basis of mistake but the family nonetheless sought to argue that the 2009 Law implicitly provides the Court with such a power to set aside. The Court was referred to the Trusts (Jersey) Law 1984 that clearly provides the Court with a power to set aside a trust on the basis of mistake.

The Royal Court disagreed with the comparison made. It confirmed that there were important and fundamental legal differences between a trust and a foundation and that it would not be appropriate to read such a power into the 2009 Law. A foundation was a legal entity and owned its assets both legally and beneficially. If the Court were to set aside a foundation ab initio with the effect that it never existed, there would be no foundation to hold the foundation’s assets and no council with power to deal with them.

However, the Court was satisfied that it had the power to set aside the endowments made to the Foundation on the basis that a mistake had been made. Just as in the Trusts Law, Article 32 of the Foundations Law required that any question that arose in respect of the endowment of a foundation must be determined in accordance with the law of Jersey and (subject to specific exceptions) without reference to foreign law.

The Court was satisfied that the case before it satisfied the three stage test formulated in the case of Lochmore Trust: was there a mistake on the part of the donor; would the donor not have entered into the transaction “but for” the mistake; and was the mistake of so serious a character as to render it unjust on the part of the donee to retain the property?

The founders had now been advised that the endowments triggered significant and immediate UK IHT liabilities. The Court accepted that the founders would not have made the endowments if had not been for their mistake and the size of the UK IHT liability was sufficient to render their mistake of so serious a character as to render it unjust for the foundation to retain the endowments.

It was clear that the setting aside of particular endowments, followed by an orderly winding up of the foundation, was likely to be a solution in any similar cases in the future. This would protect the reliability of the register of foundations as conclusive evidence of the existence of a Jersey foundation.

The full judgment can be accessed at https://www.jerseylaw.je/judgments/unreported/Pages/[2020]JRC169.aspx

29 September 2020, Jordan deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) with the OECD. It will enter into force for Jordan on 1 January 2021.

The MLI, which came into force on 1 July 2018, enables signatories to swiftly transpose results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. Measures included in the Convention address treaty abuse, strategies to avoid the creation of a ‘permanent establishment’ and hybrid mismatch arrangements.

The MLI has been signed by 94 jurisdictions and now covers almost 1,700 bilateral tax treaties. Albania, Bosnia & Herzegovina and Costa Rica also deposited their instruments of ratification on 22 September, so ratification by Jordan brought the number of jurisdictions that have ratified or approved it to 53. In addition, France has notified additional bilateral treaties to which the MLI can apply.

The Convention will become effective on 1 January 2021 for over 500 treaties concluded among the 53 jurisdictions, with an additional 1,200 treaties to become effectively modified once the MLI will have been ratified by all signatories.

The OECD also announced that four countries – Botswana, Eswatini, Jordan and Namibia – had signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, bringing the total number of participating jurisdictions to 141.

The Convention enables jurisdictions to engage in a wide range of mutual assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It also guarantees extensive safeguards for the protection of taxpayers' rights.

The Convention is the primary instrument for swift implementation of the Standard for Automatic Exchange of Financial Account Information in Tax Matters (CRS), which enables jurisdictions to automatically exchange offshore financial account information. These signings will trigger 554 new exchange relationships under the Convention following their ratification.

15 September 2020, the Dutch Ministry of Finance submitted the 2021 Dutch Budget to parliament. The proposals are currently subject to review and discussions by the Dutch Parliament. The final version of the proposals is expected to be enacted in December 2020.

To support economic recovery from the COVID-19 crisis, the proposed reduction of the upper corporate income tax (CIT) rate from 25% to 21.7% will not be introduced in 2021. However the reduction of the lower CIT rate from 16.5% to 15% will go ahead as planned and the amount of taxable income to which this applies is to be increased from €200,000 to €245,000, rising to €395,000 in 2022.

The government has proposed to increase the effective tax rate of the innovation box regime, allows taxpayers to reduce their effective corporate income tax rate on profits related to certain R&D activities, from 7% to 9%.

It is proposed to align the substance requirements for financial services entities (entities for which 70% or more of activity involves receiving and paying interest, royalties, rent or lease from group companies) with the substance requirements under the dividend withholding tax and CIT regimes. Financial services entities that are tax resident in the Netherlands should be able to demonstrate the availability of office space for at least two years and relevant wage expenditure of at least €100,000.

Under the anti-base erosion rules, interest costs – including expenses and currency exchange results – are non-deductible under certain conditions. This currently applies to both positive and negative items. It is proposed to limit the exemption of a positive currency exchange result to the amount of non-deductible costs on that specific loan.

It is proposed that losses may be carried forward indefinitely. However, the offset of losses will be limited in a given year against the first €1 million of taxable profit. For taxable profit in excess of this amount, losses may only be offset up to 50% of this excess. The measure will be introduced as an amendment to the proposals, and, if enacted, would be set to come into force by 1 January 2022.

The use of so-called informal capital structures – where the Netherlands grants a step-up, but there is no corresponding adjustment in the other jurisdiction –  is to be abolished as of 2022.

Interest that is already non-deductible under the ATAD II hybrid mismatch rules will not also be restricted under the earnings stripping rule (also known as the 30% EBITDA interest limitation).

The State Secretary further announced the following:

-A bill to amend the arm's-length principle in the spring of 2021;

-Consultation on the introduction of a capital deduction in combination with a restriction in the earnings stripping rule;

-The Dutch corporate income tax Act will be amended from 2022 to reflect the November 2018 Sofina decision from the Court of Justice of the European Union;;

-As of 1 January 2021, the Netherlands will levy a withholding tax on interest and royalties paid to associated enterprises that are resident for tax purposes in a listed low tax or non-cooperative jurisdiction. The rate of the conditional withholding tax is linked to the highest rate of CIT. The tax will apply to any jurisdiction that has a corporate income tax rate of less than 9% as determined on 1 October 2020 or to any jurisdictions on the EU list of non-cooperative jurisdictions for tax purposes on the date that a new list is published.

-Following a consultation on whether the participation exemption should be amended for intermediate holding companies, the government is looking at regulations to provide for exchange of information with foreign countries for conduit companies that lack sufficient substance. This would be in line with existing measures for conduit companies that mainly receive interest or royalties from and pay these on to foreign countries.

7 September 2020, the Inland Revenue has updated its guidance on the tax treatment of crypto-assets in New Zealand. Crypto-assets, whether they be in the form of currencies or digital assets, have no special tax rules covering them and are currently treated as a form of property for tax purposes.

The new guidance is aimed at improving how ordinary tax rules apply to crypto-assets, so people can understand their tax obligations. It clarifies what different forms crypto-assets may take, as well as how to calculate New Zealand dollar values for crypto-assets and what records individuals and companies should keep.

For individual taxpayers, it sets out information on calculating what tax they may need to pay on income gained from selling, trading, exchanging, lending, mining or staking crypto-assets. It further explains how New Zealand tax-residency status affects tax on an individual’s crypto-asset income.

For companies, the guidance outlines how tax applies to crypto-assets used as part of a crypto-asset mining, dealing or exchange business. For other businesses, it explains what tax may need to be paid on any crypto-assets the business may trade with or pay as benefits to employees.

Inland Revenue spokesperson Tony Morris said: “People can buy, sell, and exchange crypto-assets; provide goods or services in exchange for them; mine crypto-assets; and earn staking rewards (or ‘crypto interest’) among other things. The guideline is part of IR’s focus on helping people to get things ‘right from the start’ and get their returns filed correctly.

“It’s also a good opportunity for people to review the tax positions they have taken previously and make voluntary disclosures if their income from crypto-assets hasn’t been returned correctly. As the industry is constantly evolving, Inland Revenue will continue to consider other crypto-asset-related tax issues as they emerge."

24 September 2020, the OECD reported that over 90 jurisdictions had introduced legislation to impose a filing obligation on multinational enterprises (MNEs), covering almost all MNE groups with consolidated group revenue at or above the threshold of €750 million.

The report assessed 131 countries for their compliance with ‘minimum standards’ on country-by-country (CbC) reporting set by OECD and G20 nations in 2015 as one of the four minimum standards of the base erosion profit shifting (BEPS) plan. These minimum standards were later adopted by all members of the Inclusive Framework on BEPS, who also agreed to be peer-reviewed for compliance.

CbC reporting (BEPS Action 13) requires tax administrations to collect and share detailed information on all large MNEs doing business in their country. Information collected includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets, broken down by jurisdiction.

As a result, tax administrations, often for the first time, will have received detailed information on all large MNEs doing business in their country. As CbC Reporting is one of the four minimum standards of the BEPS Project, all members of the Inclusive Framework on BEPS have committed to implement it, and to have their compliance with the standard reviewed and monitored by their peers.

The OECD said the outcomes of the third phase of peer reviews of the CbC reporting initiative, demonstrated strong progress in continuing efforts to improve the taxation of multinational enterprises (MNEs) worldwide. Exchanges of CbC reports began in June 2018 and over 2,500 bilateral relationships for CbC exchanges were now in place, compared to just over 2,200 in September 2019. A large number of recommendations made in the first two peer review phases had now been addressed and these recommendations had been removed.

However, according to the 427-page report, 41 jurisdictions still do not have in place a legal or administrative framework for CbC reporting, despite pledging to comply with the standards, the report said. A further 34 countries that had a framework were required to make that framework compliant, said the report. The peer review did not cover all Inclusive Framework member countries because some joined the Framework late or faced capacity constraints, the OECD said in a statement.

The OECD also confirmed that a 2020 review of the CbC reporting minimum standard will be completed this year, taking into account feedback received from a public consultation.

23 September 2020, Minister of Finance Peter Turnquest tabled a Bill to amend the Register of Beneficial Ownership Act, which provides for the specific inclusion of the Non-Profit Organisation limited by Shares (NPO) and the Segregated Accounts Company (SAC) in the definition of entities covered by the Act.

The Bill also fine tunes the definition of beneficial owner with respect to NPOs and Partnerships (Common Law Partnerships, Limited Liability Partnerships and Exempted Limited Partnerships) by defining who are the beneficial owners of such entities.

It further imposes a duty on the Registrar General to provide beneficial ownership information in those cases where a legal entity does not have a registered agent. A Compliance Unit has been established in the Registrar General’s Department to monitor the provision of beneficial owner information and other compliance measures related to the Register of Beneficial Ownership registry.

The Bill addresses a major recommendation by the Financial Action Task Force that no person should be able to hide their identity through the use of a Bahamian entity and is intended to ensure the removal of the Bahamas from the FATF’s International Co-operation Review Group (ICRG) process. The FATF has been unable to conduct the in-country assessment of the Bahamas’ anti-money laundering regime due to Covid- 19 related travel restrictions.

In May, the European Commission adopted a new delegated regulation in relation to ‘high-risk third countries’ that have strategic deficiencies in their AML/CFT regimes that are deemed to pose significant threats to the EU financial system. The methodology provides that the Commission will consider FATF lists as a starting point.

Turnquest stated that the Bill was a protection against the abuse of the Bahamas’ financial services industry by persons attempting to use its financial institutions and products to avoid declaring or to abate the true extent of their financial assets to the relevant authorities in their home countries, or as a shield to hide or launder illicit assets.

“If The Bahamas is to remain in the global financial ecosystem, we must comply with the rules that govern operating in that environment. If only to be able to support our arguments on the legitimacy of our industry, to decry the use of blacklists and other punitive actions by certain countries to coerce us to implement measures that expand the parameters of the accepted standards, and to demand that the global standards be equitably applied against all participants in the global financial arena,” said Turnquest.

28 August 2020, the UAE Cabinet of Ministers brought Cabinet Resolution No. 58 of 2020, on the Regulation of the Procedures of the Real Beneficiary, into force. It introduces a requirement for a beneficial ownership register in the UAE mainland and to unify the minimum disclosure requirements for corporate entities incorporated on the UAE mainland and in the non-financial free zones.

All companies in the UAE, both mainland and free zone companies – with the exception of companies incorporated in the financial free zones (Abu Dhabi Global Market and Dubai International Financial Centre) or companies wholly owned by the federal or local government – are now required to compile and keep at their office premises:

-A register of beneficial owners – to include name, nationality, place of birth, residential address, travel ID card number and date of issuance and expiry, reason why the individual is classified as a BO and the date on which the person became a BO or ceased to be a BO;

- A register of shareholders / partners – to include the number of ownership interests held by each shareholder of partner and the voting rights attached and the date of acquisition. For physical persons, the register should include their full names, nationality, address, place of birth, employer name and address and a ID or travel document copy. For legal persons, the register should include their constitutional documents, address and details of their senior management.

-A register of nominee directors – to include full names, nationality, address, place of birth, employer name and address and a ID or travel document copy.

 The Resolution defines a real beneficiary as a physical person who owns or controls at least 25% of a company’s shares. If no such person is identified, then the real beneficiary is a physical person who exercises control over the company, and in the absence of either of the above, the real beneficiary is the senior manager of the company. Companies will also have to keep a register of any nominee directors who act in accordance with the guidelines or instructions issued by another person. 

Companies are required to file information relating to the shareholders and beneficial owners with the relevant registrar or licensing authority responsible for supervising the various types of establishments registered in the UAE by 27 October 2020.

Each company must take reasonable steps to ensure transparency, to obtain accurate information in respect of the beneficial ownership, and to update the information on the registers on an ongoing basis. Any change or amendment to the information provided should be notified to the relevant registrar within 15 days. Each company must also designate an individual who the relevant registrar can contact in relation to any disclosure.

Companies that are listed on qualifying stock exchanges or companies that are owned by such listed companies can rely on the disclosures made to the relevant stock exchange rather than making independent inquiries as to the beneficial ownership.

The information contained within companies’ registers will be kept confidential by the UAE Ministry of Economy and the relevant registrar. Administrative penalties may be imposed on companies that fail to comply with the new Regulations.

10 August 2020, the UAE Cabinet of Ministers issued Cabinet Resolution No. 57 of 2020, which repeals and replaces Cabinet Resolution No.31 of 2019 and introduces significant changes to the scope and application of the UAE’s Economic Substance Regulations (ESR).

The amended ESR apply as of 1 January 2019 and require entities to reassess their position and resubmit their 2019 financial year notifications by the end of 2020. The UAE Minister of Finance also issued an updated guidance on 19 August.

The new regulation introduce ‘exempted licensees’ as a new category of licensee under the ESR, which include: investment funds; licensees that are tax resident in another jurisdiction; and branches of a foreign entity of which the income from the relevant activity is subject to tax in a jurisdiction other than the UAE. In order to enjoy their exempt status for ESR purposes, exempted licensees need to file a notification and provide documentary evidence demonstrating such position.

The UAE Federal Tax Authority (FTA) has now been appointed as the National Assessing Authority, with powers to:

-Assess whether licensees have met the economic substance tests;

-Impose administrative penalties for non-compliance;

-Hear and decide on appeals filed by licensees, among others.

Resolution 57/2020 has increased the size of administrative penalties for non-compliance. The penalty for failure to submit an ESR Notification has been increased from AED10,000 to AED20,000, while penalties for submitting inaccurate information, failing to submit the Economic Substance Report or failing the economic substance test have been increased to AED50,000.

Resolution 57/2020 further makes changes in respect of relevant activities in the UAE and what licensees performing such activities must demonstrate in terms of sufficient economic substance. These include clarifications relating to the relevant activities of distribution and service centre businesses and high-risk IP businesses.

The deadline to submit the Economic Substance Notification is six months after the end of the financial year. Licensees that have already submitted their notification are required to re-submit them via the Ministry of Finance portal. The Economic Substance Report should be submitted within 12 months after the end of the financial year. The format of the report will be published by the National Assessing Authority.

18 September 2020, the UK government published its full response to the Corporate Transparency and Register Reform consultation and announced plans to reform the register of company information to clamp down on fraud and money laundering. This includes a requirement for Companies House to verify the identity of directors prior to their appointment.

The changes aim to increase the reliability of the data showing who is behind each company so that businesses have greater assurance when they are entering transactions with other companies, such as when small businesses are consulting the register to research potential suppliers and partners. It will also improve the ability of law enforcement agencies, such as the National Crime Agency, to trace their activity for suspected fraud or money laundering.

To facilitate the new identity verification requirement, Companies House will develop a fast, efficient, 24/7 digital verification process to minimise any strain on business, and prevent delays in incorporations and filings.

Data on Companies House informs many transactions between businesses and underpins credit scores and lending decisions. Register data was accessed 9.4 billion times in the last year and research suggests it is worth up to £3 billion per year to users.

The reforms will give Companies House more powers to query and reject information, to improve the quality of data on the register, as well as affording users greater protections over their personal data, to help protect them from fraud and other harms.

Minister for Corporate Responsibility Lord Callanan said: “Mandatory identity verification will mean criminals have no place to hide – allowing us to clamp down on fraud and money laundering and ensure people cannot manipulate the UK market for their own financial gain, whilst ensuring for the majority that the processes for setting up and running a company remain quick and easy.

“Where any new controls are introduced, Companies House will keep the burden on business as low as possible and will continue to look for ways to make incorporation and access to its services as smooth as they can be.”

The government is to consult on further changes to make Companies House more useful and usable, including reforms to the filing of company accounts. It will bring forward legislation to enact the reforms to the register when Parliamentary time allows.

The changes are a result of the government’s 2019 consultation on Corporate Transparency and Register Reform. The government response is available on the consultation page.