Owen, Christopher: Global Survey – November 2020

2 October 2020, Minister of Financial Services Elsworth Johnson told the Bahamas Financial Services Board's (BFSB) annual general meeting (AGM) that a Tax Residency Certificate (TRC) product would be launched by year-end 2020.

A TRC will provide a taxpayer identification number (TIN) and confirm that the holder is properly resident in the Bahamas in order to assist with compliance with their home country tax laws.

In 2018, the OECD included the Bahamas Economic Permanent Residency programme on a list of ‘high risk’ residence and citizenship by investment (CBI/RBI) schemes that could potentially be misused to escape reporting under the OECD/G20 Common Reporting Standard (CRS). The listing called for “financial institutions to undertake enhanced due diligence on clients that are citizens or residents of countries with CBI/RBI programmes to prevent cases of [tax] avoidance and tax evasion”.

Johnson said the Bahamas' first-ever Deputy Director of Financial Services would be based at the Department of Immigration unit that deals with enrollment, payment and collection of documents in respect of permanent residency applications.

Johnson said the Extended Visa Stay initiative proposed by the Economic Recovery Committee was also weeks from launch, and added that reforms to the Companies Act, International Business Companies Act, Property (Execution of Deeds and Documents) Act, Rule Against Perpetuities (Abolition) Act and the Foundations Act would soon be brought to Parliament.

"Several other pieces of legislation are being drafted and reviewed with the objective of creating a modern legislative framework for the long-term stabilisation and growth of the financial services sector," said Johnson.

30 October 2020, Burkina Faso deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which now covers almost 1700 bilateral tax treaties. The MLI will enter into force on 1 February 2021 for Burkina Faso.

With 94 current signatories, this brings the number of jurisdictions that have now ratified, accepted or approved the MLI to 55. It will therefore apply to over 600 treaties when it comes into effect on 1 January 2021, with an additional 1,100 treaties to be modified once the MLI has been ratified by all signatories.

30 October 2020, the Legislative Assembly passed legislative changes relating to limited liability partnerships (LLPs) – the Limited Liability Partnership (Amendment) (No.2) Bill, 2020 and the Securities Investment Business (Amendment) (No.2) Bill, 2020 – prior to the legislation becoming operational this year.

An LLP is a partnership with separate legal personality, which provides limited liability for its partners. The creation of the LLP business structure will offer local professional firms (such as those relating to legal and accounting services) to utilise an alternative to companies and general partnerships. LLPs also are expected to appeal to international clients who use Cayman entities in their portfolios.

The LLP amendment aligns LLPs with legislative changes made this year to the Companies Law and the Limited Liability Companies Law and addresses Caribbean Financial Action Task Force (CFATF) requirements. Accordingly, LLPs will be obligated to provide nature of business information on annual returns and beneficial ownership information to General Registry. The LLP amendment also allows for an administrative fines regime for breaches of beneficial ownership information.

The Securities Investment Business (Amendment) (No.2) Bill, 2020 will improve the commercial functionality of LLPs by enabling them to be included in the definition of partnership. It also allows for inclusion of an LLP in the definition of security in order to satisfy commercial interest in the structuring of business affairs.

Cayman’s LLP regime, which includes the amendment laws passed since 2017, is expected to become operational later this year.

20 October 2020, the European Commission launched infringement procedures against Cyprus and Malta by issuing letters of formal notice regarding their investor citizenship schemes also referred to as ‘golden passport’ schemes.

The Commission said it considers that the granting by these member states of their nationality – and thereby EU citizenship – in exchange for a pre-determined payment or investment and without a genuine link with the member states concerned, is not compatible with the principle of sincere cooperation enshrined in Article 4(3) of the Treaty on European Union. It also undermines the integrity of the status of EU citizenship provided for in Article 20 of the Treaty on the Functioning of the European Union.

Due to the nature of EU citizenship, it said, such schemes have implications for the Union as a whole. When a Member State awards nationality, the person concerned automatically becomes an EU citizen and enjoys all rights linked to this status, such as the right to move, reside and work freely within the EU, or the right to vote in municipal elections as well as elections to the European Parliament. As a consequence, the effects of investor citizenship schemes are neither limited to the member states operating them, nor are they neutral with regard to other member states and the EU as a whole.

The Cypriot and Maltese governments have two months to reply to the letters of formal notice. If the replies are not satisfactory, the Commission may issue a Reasoned Opinion in this matter.

The Commission has previously raised concerns about certain risks that are inherent in investor schemes granting the nationality of member states. As mentioned in its report of January 2019, these risks relate in particular to security, money laundering, tax evasion and corruption.

The Commission has also been monitoring wider issues of compliance with EU law raised by investor citizenship and residence schemes. In April 2020, the Commission wrote to the Member States concerned setting out its concerns and asking for further information about the schemes.

In a resolution adopted on 10 July 2020, the European Parliament reiterated its earlier calls on Member States to phase out all existing citizenship by investment (CBI) or residency by investment (RBI) schemes as soon as possible.

The Commission is also writing again to Bulgaria to highlight its concerns regarding an investor citizenship scheme operated by that Member State and requesting further details. The Bulgarian government has one month to reply to the letter requesting further information, following which the Commission will decide on the next steps.

On 13 October, the government of Cyprus announced that it was to suspend its citizenship for investment programme, which grants citizenship and guarantees visa-free travel throughout the EU for those who invest a minimum of €2m, from 1 November. The office of Cypriot President Nicos Anastasiades said the proposal was put forward in response to "weaknesses" in the scheme that could be "exploited".

The move followed an Al Jazeera report that filmed Cypriot officials, including parliamentary speaker Demetris Syllouris, using the scheme to assist a fictional Chinese businessman with a criminal record. Syllouris said he would withdraw from his duties until an investigation had been completed and issued a statement apologising for "this unpleasant image conveyed to the Cypriot public... and any upset it may have caused".

Last November, it emerged that fugitive financier Jho Low – a central figure in the global scandal which saw billions of dollars go missing from the Malaysian state fund 1MDB – had obtained Cypriot citizenship in September 2015 and reportedly bought a €5m property in the Cypriot resort of Ayia Napa.

Low, who has denied any wrongdoing and whose whereabouts are unknown, is wanted in the US, where prosecutors allege he laundered billions of dollars through its financial system. Cyprus later revoked his ‘golden passport’ and those bought by 25 foreign investors, including nine Russians, eight Cambodians and five Chinese.

The citizenship for investment programme has helped the Cyprus government raise more than €7 billion since it started in 2013 but has come under increased scrutiny after Al Jazeera’s investigative unit published a leak of more than 1,400 passport applications approved by the government between 2017 and 2019.

30 October 2020, the European Commission decided to refer Greece, the Netherlands and Belgium to the Court of Justice of the EU (CJEU) for alleged breaches of the Treaty on the Functioning of the European Union (TFEU) and the EEA Agreement in respect of tax measures.

The Commission has referred Greece to the CJEU regarding its income tax legislation, which differentiates tax treatment between business losses incurred domestically and losses in another EU/EEA state. At the same time, both categories of business profits are subject to tax in Greece. According to the Commission, this difference in tax treatment is contrary to Articles 49(1) TFEU (in conjunction with Article 54 TFEU) and 31(1) EEA Agreement (in conjunction with Article 34 EEA Agreement) and it constitutes a restriction to the right of establishment.

The Commission has referred the Netherlands to the CJEU regarding its rules on the cross-border provision of pensions and the transfer of pension capital. The referral concerns three different rules in the Dutch cross-border pension tax regime. According to the Commission, these conditions are restrictions to the free movement of citizens and workers, the freedom of establishment, the freedom to provide services and the free movement of capital.

The Commission has referred Belgium to the CJEU regarding its legislation on the deductibility of alimony payments from the taxable income of non-residents. Currently, Belgian legislation refuses the deduction of alimony payments from the taxable income of non-residents who earn less than 75% of their worldwide income in Belgium. According to the Commission, this refusal penalises non-resident taxpayers and is therefore contrary to Article 45 TFEU and Article 28 of the EEA Agreement. The press release is available online.

The Commission has also sent reasoned opinions to:

-Cyprus for failing to transpose the 5th Anti-Money Laundering Directive (AMLD5) into national law. The transposition deadline for this Directive elapsed on 10 January and the Cypriot authorities had not yet notified the Commission of any transposition measure. Ensuring timely and correct transposition of the existing anti-money laundering rules was one of the actions envisaged by the Commission in its six-point Action Plan published on 7 May.

-Spain for failing to transposed the Anti-Tax Avoidance Directive concerning hybrid mismatches into national law by 31 December 2019 (Council Directive (EU) 2017/952 amending Directive (EU) 2016/1164, known as ‘ATAD 2'). The purpose of that Directive is to ensure that multinational companies cannot artificially reduce their obligation to pay corporate tax by exploiting differences between the tax systems of member states and those of non-EU countries – so-called 'hybrid mismatches'.

Without a satisfactory response from Cyprus and Spain within the next two months, the Commission may decide to refer the case to the CJEU.

8 October 2020, the European Council added Anguilla and Barbados to its EU list of non-cooperative jurisdictions for tax purposes. It also removed the Cayman Islands and Oman from the list after they had passed the necessary reforms to improve their tax policy framework.

The EU lists non-EU jurisdictions that either have not engaged in a constructive dialogue on tax governance or have failed to deliver on their commitments to implement reforms to comply with a set of objective tax good governance criteria – tax transparency, fair taxation and the implementation of international standards against tax base erosion and profit shifting (BEPS).

Anguilla and Barbados were included in the EU list following peer review reports published by the Global Forum on Transparency and Exchange of Information for Tax Purposes, which downgraded their ratings, to ‘non-compliant’ and ‘partially compliant’ respectively, in respect of the international standard on transparency and exchange of information on request (EOIR).

The current Barbados government has amended 14 pieces of legislation since assuming office. Its Minister of Industry and International Business, Ronald Toppin, said he intended to request a supplementary review from the Global Forum on the grounds that the deficiencies identified in its report had been addressed.

The Cayman Islands was removed from the EU list after it adopted new reforms to its framework on Collective Investment Funds in September 2020. The Private Funds Law 2020 now requires the majority of closed ended private funds to register, which led to over 12,300 private funds registering with the Cayman Islands Monetary Authority by August 2020.

Oman was considered to be compliant with all its commitments after it ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters, enacted legislation to enable automatic exchange of information and took all the necessary steps to activate its exchange-of-information relationships with all EU member states.

As a result of this update, 12 jurisdictions remain on the EU’s list of non-cooperative jurisdictions: American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad & Tobago, the US Virgin Islands and Vanuatu.

The EU list of non-cooperative jurisdictions for tax purposes was established in December 2017 and is now updated twice a year. It is included in Annex I of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes. Annex II – the so-called 'grey list' – identifies non-EU jurisdictions that do not yet comply with all international tax standards but have provided sufficient undertakings to reform their tax policies.

Due to the ongoing COVID-19 global pandemic, the Council decided to extend several deadlines for pending commitments under Annex II. The Council also decided to remove Mongolia and Bosnia & Herzegovina from Annex II after those countries deposited their instruments of ratification in respect of the OECD Convention on Mutual Administrative Assistance in Tax Matters, as amended.

5 October 2020, the England and Wales High Court (EWHC) ruled, in a long-running dispute between the Financial Reporting Council (FRC) and a UK public company, that advice prepared by consultants that enabled a client to protect its activities from tax enforcement action was not covered by litigation privilege.

In The FRC Ltd v Frasers Goup Plc [2020] EWHC 2607 (Ch), the corporate taxpayer Frasers, then known as Sports Direct, had received enquiries from the French tax authorities regarding its online sales in France. Concerned that the French authorities were likely to challenge the tax treatment of those sales, Sports Direct instructed tax advisers Deloitte to examine how it could defend such a challenge and how to restructure its affairs to reduce the risk of similar challenges from EU tax authorities in future. Deloitte produced a series of written reports, three of which later became the subject of third-party disclosure orders obtained by the FRC.

Sports Direct sought to claim litigation privilege for these reports. To succeed, it had to show that the reports passed the 'dominant purpose' test, which states that litigation privilege applies to documents generated for the dominant purpose of obtaining advice or evidence for use in conducting actual or anticipated litigation only.

In the High Court, Nugee LJ accepted that, by the time the reports were produced, Sports Direct expected litigation in relation to its sales structure. However, he held that the dominant purpose of the reports was not to provide advice or information for the purposes of that litigation. There was, he said, a distinction between advice for use in litigation and advice on how to achieve a particular tax outcome.

All three of the Deloitte reports fell in the latter category, even though they were a reaction to the threat of a challenge by the French tax authorities. They did not provide advice on the merits of the challenge or how best to conduct or settle it, nor did they provide any evidence for the defence of the claim. Rather, he said, they were “primarily advice as to how to pay less tax”.

The full judgment can be accessed at http://www.bailii.org/ew/cases/EWHC/Ch/2020/2607.html

20 October 2020, the Administrative Court of Appeal of Versailles held that a legal entity resident in a non-EU country was entitled to a refund of the tax paid on capital gains resulting from the sale of shares in a French company on the ground that the tax was contrary to the free movement of capital because the grandfathering clause of Article 64 of the Treaty on the Functioning of the European Union (TFEU) was not applicable.

In case number 18VE03012, Runa Capital Fund I LP, an entity registered in the Cayman Islands, claimed a refund of tax paid in France under Article 244 bis B of the French Tax Code (FTC) on capital gains resulting from the sale of shares in Capptain SAS, a French company in which it held 27% of the share capital.

The lower administrative court held that the tax constituted a restriction to the free movement of capital since a French entity would have benefited from the French participation exemption and would therefore have been subject to corporate income tax on a portion of the capital gains.

However the grandfathering clause of TFEU Article 64 permits EU Member States to maintain restrictions on the movement of capital to or from third countries provided that such restrictions existed on 31 December 1993 and relate to direct investments. It considered that this restriction fell within the scope of the grandfathering clause since both the temporal and the material conditions were met.

The administrative court of appeals disagreed, holding that the temporal condition of the grandfathering clause had not been met. First, as previously decided by the Conseil d’Etat, the provisions of Article 244 bis B prior to their amendments by the French Finance Act for 1993 were not applicable to capital gains realised by legal entities not subject to French income tax.

Second, the French Finance Act for 1993 was published in the French Official Journal on 31 December 1993 and, in the absence of an overriding clause, the amendments to Article 244 bis B of the FTC did not come into force until 2 January 1994. The grandfathering clause did not therefore apply and the disputed taxation was contrary to the free movement of capital.

The European Commission has sent a letter of formal notice to France, requesting it to adapt its legislation on the taxation of capital gains made by foreign investment funds. When a foreign investment fund sells its share in a French company, the capital gains are taxable, provided the share exceeded 25% of the company at any time over the last five years. However, capital gains by similar French investment funds are exempt from paying such a tax. According to the Commission, this is discriminatory, and infringes EU law, (Article 49 TFEU on the right of establishment and Article 63 TFEU on the free movement of capital), as it dissuades foreign investment funds from investing in French companies.

5 October 2020, the Hong Kong Special Administrative Region signed a comprehensive double taxation agreement (DTA) with Georgia. It is the 45th DTA that Hong Kong as part of the government’ sustained effort to expand Hong Kong's tax treaty network.

The Hong Kong-Georgia DTA allocates taxing rights between the two jurisdictions. Any tax paid in Georgia by Hong Kong companies 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 Georgian companies, the tax paid in Hong Kong will be allowed as a deduction from the tax payable on the same income in Georgia.

The new agreement provides that Georgia’s withholding tax rates for Hong Kong residents on interest and royalties will be capped at 5% and that profits from international shipping transport earned by Hong Kong residents arising in Georgia will not be taxed in Georgia.

The DTA will come into force upon completion of ratification procedures by both jurisdictions. In the case of Hong Kong, it will be implemented by way of an order to be made by the Chief Executive in Council under the Inland Revenue Ordinance (Cap. 112). The order is subject to negative vetting by the Legislative Council.

5 October 2020, the US Internal Revenue Service's (IRS) Large Business & International Division launched a further audit campaign aimed at non-resident foreign persons who have not disclosed or paid withholding tax on income from real property in the US under the Foreign Investment in Real Property Tax Act 1980 (FIRPTA).

FIRPTA taxes foreign persons on the disposition of their US real property interests. Generally the buyer/transferee is the withholding agent and is required to withhold 15% of the amount realised on the sale, file the required forms and remit the tax to IRS. The IRS campaign is intended to increase FIRPTA voluntary compliance through issue-based examinations and external education and outreach.

10 August 2020, the Royal Court of Jersey approved a trustee's decision to submit to the jurisdiction of the England & Wales High Court (EWHC) and to adopt a neutral stance in proceedings where the claimants asserted proprietary claims to the trust assets.

In the matter of the Arpettaz Settlement [2020] JRC 161, the trust was established in 2011 by the settlor, a former chairman of an oil exploration company and the original trustee. The beneficiaries comprised the first respondent and immediate members of his family.

By a letter of wishes, the settlor expressed the wish that the first respondent should be regarded as the principal beneficiary. The original trustee and the principal beneficiary also entered into a deed of undertaking that provided that the settlor would provide a sum with the anticipated value of USD15 million in consideration for the principal beneficiary working as chief executive officer of the company. This sum was duly paid into the trust in February 2012 by the settlor’s wife.

In 2013, the second to fifth respondents – the English claimants – issued proceedings against the settlor.  It was held that the settlor had defrauded the English claimants whilst he was at the company. A worldwide freezing order was made against him and he was ordered to pay USD299 million plus costs. The English claimants then sought to enforce that judgment against the assets of the trust and to join the principal beneficiary and the trustee to the English proceedings.

The trustee brought an application seeking a direction from the Jersey Royal Court approving its decision to submit to the jurisdiction of the EWHC to determine the ownership of the trust assets and adopt a neutral stance in proceedings. It made a Beddoe application to the Royal Court for a direction approving this position and thereby indemnifying it against legal costs.

The trustee also sought specific approval for the disclosure in the English proceedings of three pieces of privileged advice obtained by its predecessors in office relating to the manner in which the trust was established, the propriety of receipt of funds by way of settlement, and its subsequent dealings with the trust assets.

Applying Re The F Charitable Trust [2017] 2 JLR 26, the Royal Court reaffirmed that the approach to consideration of Beddoe applications was broadly the same as consideration of a blessing application in respect of a momentous decision, but “slightly more nuanced”. It further observed that questions of validity of a Jersey trust should be determined by the Jersey court and that only exceptional circumstances would warrant a direction that the trustee should submit to a foreign court’s jurisdiction where that might result in third-party recovery of the trust fund.

As both the principal beneficiary and the main trust asset, being a debt situated in England, were within the EWHC’s jurisdiction, this made it an appropriate case in which to submit and participate in the English proceedings. As the principal beneficiary intended to defend the claims to the trust assets, it was also appropriate for the trustee to adopt a neutral stance.

The court expressed provisional views that it was probably unnecessary to obtain the consent of all the beneficiaries to waive privilege in legal advice obtained on behalf of a trust and that, on an application to court, it would exercise its own discretion rather than approve the trustee’s decision. The trustee was authorised to waive privilege in the three pieces of legal advice that might assist the principal beneficiary’s defence, as well as to disclose the existence and terms of any indemnity it had received in relation to the English proceedings.

The advice of leading counsel was held to be subject to joint interest privilege, applying Lewis v Tamplin [2018] EWHC 777 (Ch), having been sought for the benefit of the trust as a whole, and should be disclosed to the principal beneficiary. The trustee was not, however, obliged to disclose the advice to the English claimants. The court expressed the hope that the English court would not subsequently order the principal beneficiary to disclose the advice in the English proceedings. The trustee was granted its costs of the application out of the disputed trust assets.

The full judgement can be accessed at https://www.jerseylaw.je/judgments/unreported/Pages/[2020]JRC161.aspx

23 October 2020, law firm Mishcon de Reya filed a claim with the district court in Luxembourg to challenge a decision taken by the Luxembourg Business Register (LBR) with respect to making clients' private details public.

The client had provided details of beneficial ownership to the LBR, as required under Luxembourg law, earlier in the year but had requested that those details were not made public in the Register of Beneficial Owners of Companies (RBE), which is administered by the LBR. The LBR rejected this request.

The claim, the first of its kind in Europe, alleges that the indiscriminate and generalised publication, in the public domain, of personal details of individuals connected to family enterprises breaches their fundamental rights to data protection and privacy and exposes them to unnecessary and disproportionate risks.

Following adoption of t in 2017, Luxembourg law now requires all businesses to identify their ultimate beneficial owners and supply the information to the LBR, which then routinely publishes it on the Register of Beneficial Owners of Companies (RBE). The client complied with this process, requesting LBR not to make the information public, but the LBR rejected her request.

Luxembourg's Law 7216B, enacted on 1 July 2020, creates a national register of fiducies and trusts, transposing the EU Fourth Anti-Money Laundering Directive (4AMLD), as well as some provisions of the Fifth Anti-Money Laundering Directive (5AMLD), into national law.

Under the 4AMLD, Member States were required to identify and obtain accurate and current information on beneficial owners of legal entities and legal arrangements. This information was only to be accessible to competent authorities and obliged entities. 5AMLD, however, provides that at least the name, the month, year of birth, the country of residence and the nature and extent of the interest held by a beneficial owner and evident on the register should be available to any member of the general public. All EU Member States were required to implement 5AMLD by 10 January 2020

Mishcon de Reya Partner Filippo Noseda said: "No one doubts the need for authorities to access beneficial ownership information in a timely manner in order to fight crime. However, privacy and data protection are fundamental rights and compliant citizens have a legitimate expectation to keep their affairs private."

23 October 2020, the Council of Europe’s anti-money laundering body MONEYVAL announced that was to keep the Isle of Man in its ‘enhanced follow-up’ process and would continue to report back on further progress to strengthen its implementation of anti-money laundering and countering the financing of terrorism (AML/CFT) measures.

MONEYVAL noted the continuing positive progress made by the Isle of Man to tackle money laundering and terrorist financing since the adoption of its mutual evaluation report in December 2016, in particular the implementation by the Financial Supervisory Authority (IOMFSA) of its sanctioning regime. It assigned the island a higher international compliance rating in the area of tipping-off and confidentiality, and a positive compliance rating in the area of new technologies, including virtual assets.

It said the Isle of Man had reached a level of full compliance with 20 of the 40 FATF Recommendations that constitute the international AML/CFT standard. It retained only minor deficiencies in the implementation of another 19 Recommendations, but the report found that a 'serious' deficiency in relation to FATF Recommendation 23 concerning the reporting obligations on designated non-financial businesses and professions (DNFBPs). Its rating on group-wide requirements for DNFBPs was therefore being put on hold, pending FATF's decision on the issue.

The IOMFSA is continuing to tighten its AML regime to meet MONEYVAL's recommendations. In September, it published draft amendments to the Beneficial Ownership Act 2017, intended to address compliance deficiencies identified by MONEYVAL regarding availability of company ownership information.

MONEYVAL also said that it had carried out an onsite evaluation visit to San Marino from 28 September to 9 October. The report will be scheduled for discussion and adoption at MONEYVAL’s 61st Plenary meeting in April 2021.

12 October 2020, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released for public consultation a package comprising reports on the ‘Pillar One Blueprint’ and the ‘Pillar Two Blueprint’, as part of its ongoing work to develop a solution to the tax challenges of the digitalisation of the economy. The deadline for written comments is 14 December.

Pillar One would establish new ‘nexus’ rules on where tax should be paid and a fundamentally new way of sharing taxing rights between countries. The aim is ensure that digitally-intensive or consumer-facing multinational enterprises (MNEs) pay taxes where they conduct sustained and significant business, even when they do not have a physical presence as is currently required under existing tax rules.

The Inclusive Framework said the blueprint offers a solid basis for future agreement and reflects that:

-In an increasingly digital age, in-scope businesses are able to generate profits through participation in a significant/active and sustained way in the economic life of a jurisdiction, beyond the mere conclusion of sales, with or without the benefit of local physical presence and this would be reflected in the design of nexus rules while being mindful of compliance considerations;1

-The solution would follow the policy rationale set out above and allocate a portion of residual profit of in-scope businesses to market/user jurisdictions (‘Amount A’);

-The solution would be targeted and build in thresholds so that it minimises compliance costs for taxpayers and keeps the administration of the new rules manageable for tax administrations;

-Amount A would be computed using consolidated financial accounts as the starting point, contain a limited number of book-to-tax adjustments and ensure that losses are appropriately taken into account;

-In determining the tax base, segmentation would be required to appropriately target the new taxing right in certain cases, but with broad safe-harbour or exemption rules from segmentation to reduce complexity and minimise burdens for tax administrations and taxpayers alike;

-The solution would contain effective means to eliminate double taxation in a multilateral setting;

-The work on Amount B will be advanced, (a fixed rate of return on base-line marketing and distribution activities intended to approximate results determined under the arm’s length principle) recognising its potentially significant benefits including for tax administrations with limited capacity as well as its challenges;

-The Pillar One solution would contain a new multilateral tax certainty process with respect to Amount A, recognising the importance of using simplified and co- ordinated administrative procedures with respect to the administration of Amount A;

-A new multilateral convention would be developed to implement the solution, recognising that it would offer the best and most efficient way of implementing Pillar One.

Pillar Two would introduce a global minimum tax that would help countries around the world address remaining issues linked to base erosion and profit shifting (BEPS) by MNEs. It sets out rules that would provide jurisdictions with a right to ‘tax back’ where other jurisdictions have not exercised their primary taxing rights, or the payment is otherwise subject to low levels of effective taxation. This would ensure that all large internationally operating businesses pay at least a minimum level of tax.

The Inclusive Framework said the blueprint offers a solid basis for future agreement and reflects that:

-The Income Inclusion Rule (IIR), the Undertaxed Payment Rule (UTPR), the Subject to Tax Rule (STTR), the rule order, the calculation of the effective tax rate and the allocation of the top-up tax for the IIR and the UTPR, including the tax base, the definition of covered taxes, mechanisms to address volatility, and the substance carve-out;

-The IIR and UTPR as a common approach, including an acceptance of the right of all members of the IF to implement them as part of an agreed Pillar Two regime. It would nevertheless be recognised and accepted that there may be members that are not in a position to implement these rules. However, all those implementing them would apply them consistently with the agreed Pillar Two vis-à-vis all other jurisdictions (including groups headquartered therein) that also join this consensus. Furthermore, given the importance that a large number of IF members, particularly developing countries, attach to an STTR, we recognise that an STTR would be an integral part of a consensus solution on Pillar Two;

-The basis on which the US Global Intangible Low Taxed Income Regime (GILTI) would be treated as a Pillar Two compliant income inclusion rule as set out in the Report on the Blueprint on Pillar Two;

-The development of model legislation, standard documentation and guidance, designing a multilateral review process if necessary and exploring the use of a multilateral convention, which could include the key aspects of Pillar Two.

Recognising that the negotiations have been slowed by both the COVID-19 pandemic and political differences, the Inclusive Framework said the blueprints reflected the convergent views on many of the key policy features, principles and parameters of both Pillars, and identified remaining technical and administrative issues, as well as policy issues, where divergent views among members remain to be bridged.

An economic impact analysis showed that USD100 billion could be redistributed annually to market jurisdictions through Pillar One, and up to 4% of global corporate income tax (CIT) revenues, or a further USD100 billion of revenue gains, could result from implementation of the global minimum tax under Pillar Two.

The absence of a consensus-based solution, on the other hand, could lead to a proliferation of unilateral digital services taxes and an increase in damaging tax and trade disputes, which would undermine tax certainty and investment. Under a worst-case scenario – a global trade war triggered by unilateral digital services taxes worldwide – it estimated that failure to reach agreement could reduce global GDP by more than 1% annually.

“It is clear that new rules are urgently needed to ensure fairness and equity in our tax systems, and to adapt the international tax architecture to new and changing business models. Without a global, consensus-based solution, the risk of further uncoordinated, unilateral measures is real, and growing by the day,” said OECD Secretary-General Angel Gurría. “It is imperative that we take this work across the finish line. Failure would risk tax wars turning into trade wars at a time when the global economy is already suffering enormously.”

The Inclusive Framework, which groups 137 countries and jurisdictions on an equal footing for multilateral negotiation of international tax rules, will hold public consultation meetings on the blueprints will be held in mid-January 2021.

In a communique released after their October 14 virtual meeting, G20 finance ministers and central bank governors welcomed the release of the blueprints and said they remained committed to achieving consensus on new rules for taxing multinational group income. They acknowledged that, due to the Covid-19 pandemic, they would miss their previous deadline for reaching a global tax agreement by the end of 2020. The new goal is to reach a consensus on new tax rules by mid-2021.

They ministers also welcomed a report approved by Inclusive Framework on the tax policy implications of virtual currencies and global progress implementing tax transparency standards.

22 October 2020, the OECD released Stage 2 peer review monitoring reports for eight jurisdictions under Base Erosion and Profit Shifting (BEPS) Action 14, the minimum standard to improve the resolution of tax-related disputes between jurisdictions.

The reports evaluate the progress made by the Czech Republic, Denmark, Finland, Korea, Norway, Poland, Singapore and Spain in implementing the recommendations contained in their Stage 1 peer review reports and take into account any developments in the period 1 August 2017 to 28 February 2019.

Many tax treaties between jurisdictions contain a mutual agreement procedure (MAP) providing for a process to resolve disputes. This mechanism is of fundamental importance to the proper application and interpretation of tax treaties, notably to ensure that taxpayers entitled to the benefits of the treaty are not subject to taxation by either of the contracting states that is not in accordance with the terms of the treaty.

The OECD said the results from the peer review and peer monitoring process demonstrated positive changes across all eight jurisdictions, although not all showed the same level of progress. All had signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), which serves to modify the application of existing bilateral tax treaties to implement the tax treaty measures developed through the OECD/G20 BEPS project, and five had also ratified it, bringing a substantial number of their treaties in line with the standard. In addition, there were bilateral negotiations either ongoing or concluded.

Denmark, Finland, Korea, Norway, Poland, Singapore and Spain all now had a documented notification or bilateral consultation process to be applied in cases where an objection was considered as being not justified by their competent authority.

All jurisdictions had added more personnel to the competent authority function and/or made organisational improvements with a view to handle MAP cases in a more timely, effective and efficient manner. Denmark, Finland, Korea, Norway, Singapore and Spain had decreased the amount of time needed to close MAP cases.

Singapore had introduced legislative changes to ensure that all MAP agreements could be implemented notwithstanding domestic time limits if the treaty did not provide for it, while in five of the other seven jurisdictions this was already the case. Denmark, Finland, Korea, Norway and Singapore had issued or updated their MAP guidance.

Further progress on making dispute resolutions more timely, effective and efficient will become known as other stage 2 monitoring reports are published. In the meantime, the OECD will continue to publish stage 1 peer review reports in accordance with the Action 14 peer review assessment schedule. The publication of the tenth batch of Action 14 peer reviews is forthcoming.

1 October 2020, Russia and Malta signed a protocol on amendments to their existing double tax agreement to provide for an increase in the rate of interest and dividend withholding tax to 15%. The Russian Finance Ministry said the protocol is to be ratified before the end of this year, so that its provisions come into effect on 1 January 2021.

The Russian government is seeking to increase the rate of withholding tax applying on interest and dividends that are withdrawn abroad from 2% to 15%. This measure requires the adjustment of double tax treaties with certain countries. Cyprus has already agreed to amend its treaty with Russia.

The ministry also noted that, similar to the previously signed protocol with Cyprus, the protocol with Malta defines a list of exceptions. "Exceptions are provided for institutional investments, as well as for public companies, which have at least 15% of their shares in free float, and those who own at least 15% of the company’s capital and pay these incomes during the year. For such income, the tax rate is set at 5%," said a statement.

According to the ministry, the changes will also not affect interest income paid on Eurobonds, bonded loans of Russian companies, as well as loans provided by foreign banks.

Russia’s Deputy Finance Minister Alexei Sazanov said: "Today we have taken another step in our struggle for the Russian tax base. I would like to thank my colleagues from Malta for the high level of cooperation and constructive dialogue. Now we are working on amending tax agreements with other jurisdictions. The next signing of a similar agreement is planned with Luxembourg. Negotiations are ongoing with the Netherlands."

27 October 2020, the State Duma approved amendments to the Russian Tax Code under which taxpayers would be eligible to pay a flat annual tax of RUB5 million ($72,777) per year on revenues from the activities of controlled foreign companies (CFC), regardless of the number of CFCs or their financial performance.

Under the new rules CFC owners can elect to pay tax on a deemed fixed income of RUB38.46 million for 2020 (RUB34 million starting from 2021) instead of being taxed on the CFCs' actual declared profits. If a CFC is controlled by several individuals, each may choose to move to the new regime. If all controlling persons of the same CFC wish to move to the new regime, each of them should file an application with tax authorities

To apply the new tax regime, an individual should file a special notification with the Russian tax authorities by 31 December of the relevant calendar year. The regime will be applicable as of 1 January 1 of the year when the notification is filed. However, an extra month's grace is being granted for the 2020 year, so that the filing deadline for that year is 1 February 2021.

Upon switching to the new regime, individuals will not be required: (i) to file CFC financial statements, (ii) to determine the CFC's profits using adjustments set forth in the Russian Tax Code, and/or (iii) to pay individual income tax on the CFC's profits. The Russian tax authorities will not be able to request the CFC's financial statements for the period when the new regime is applied.

The new law requires taxpayers to apply the new regime for a set period. Those who will switch in 2020 or 2021 must employ the new regime for at least three years. From 2022, the new regime should be employed for at least five years and will apply even if a CFC suffers losses or its annual profits are under RUB10 million. After the minimum mandatory term expires, taxpayers will be eligible to return to the old procedure for assessing CFC profits.

9 October 2020, the Federal Tax Administration (FTA) said it had exchanged information on financial accounts with 86 countries within the framework of the global standard on the automatic exchange of information (AEOI).

This year, the AEOI involved a total of 86 countries after Anguilla, Aruba, Bahamas, Bahrain, Grenada, Israel, Kuwait, Marshall Islands, Nauru, Panama and the United Arab Emirates were added to the existing list of 75 countries.

The exchange of information was reciprocal with 66 countries. In the case of 20 countries, Switzerland had received information but did not provide any, either because those countries do not yet meet the international requirements on confidentiality and data security or because they had chosen not to receive data.

A further 38 countries will supply their data to Switzerland in accordance with the Global Forum on Transparency and Exchange of Information for Tax Purposes by 31 December 2020. These countries have claimed technical difficulties due to the Covid-19 crisis.

Currently, around 8,500 reporting financial institutions are registered with the FTA. These institutions collected the data and transferred it to the FTA. The FTA sent information on around 3.1 million financial accounts to the partner states and received information on around 815,000 financial accounts.

Identification, account and financial information is exchanged, including name, address, country of residence and tax identification number, as well information concerning the reporting financial institution, account balance and capital income. The exchanged information allows the cantonal tax authorities to verify whether taxpayers have correctly declared their financial accounts abroad in their tax returns.