Owen, Christopher: Global Survey – February 2021

15 January 2021, the Cayman Islands government published the Virtual Asset (Service Providers) (Amendment) Act, 2020 (Commencement) Order, 2021 to bring the Virtual Asset Service Providers (Amendment) Act, 2020 into force.

The Virtual Asset (Service Providers) Act, 2020 (VASP Act) came into effect on 31 October 2020 and provides a framework for the regulation of virtual asset service providers (VASPS), ensuring compliance with international standards and providing for exchange of information with the Cayman Islands Monetary Authority (CIMA).

The VASP (Amendment) Act supports the continuing implementation of Cayman’s regulatory framework by allowing persons engaged in virtual asset services to continue operating as the provisions of the Act are commenced.

Entities that are engaged in or wishing to engage in virtual asset services must register with CIMA under the VASP Act. Entities that are engaged in or wishing to engage in virtual asset services and currently hold a licence granted by CIMA under another regulatory authority must notify CIMA under the VASP Act by 31 January.

A virtual asset is defined as "a digital representation of value that can digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies". This adopts the definition used by the Financial Action Task Force (FATF), which includes all cryptocurrencies, security tokens, utility tokens and commodity or fiat-backed stablecoins.

A virtual asset service includes the issuance of virtual assets or the business of conducting one or more of the following activities or operations for or on behalf of another person: exchanging between virtual assets and fiat currencies; exchanging between one or more other forms of convertible virtual assets; transferring virtual assets; safekeeping or administrating virtual assets or instruments enabling control over virtual assets; and participating in and providing financial services related to an issuers offer or sale of a virtual asset.

Licensed VASPs are required to prepare accounts annually and make them available for inspection by CIMA, and must ensure that their senior officers, trustees and beneficial owners are 'fit and proper' persons. They must also have a registered office in the Cayman Islands, provide documents and information required by CIMA and notify CIMA of any activities in another jurisdiction.

The Virtual Asset (Service Providers) (Savings and Transitional) Regulations 2021, which set out the various implementation deadlines, were also brought into effect on 15 January.

The enforcement provisions outlined in the commencement order for the VASP Act will commence on 31 January 2021. These allow CIMA to take action where a person breaches certain provisions of the VASP Act.

22 January 2021, the Cayman Islands Department for International Tax Cooperation (DITC) issued an industry advisory announcing that the reporting deadline for the 2019 Common Reporting Standard (CRS) compliance form has been further extended from 31 March 2021 to 15 September 2021. The original reporting deadline was 31 December 2020.

The advisory indicates that the purpose of the extension is to accommodate the availability of a bulk upload option in comma-separated values (CSV) format, which will be available within the DITC portal in advance of the revised deadline. The deadline for the 2020 CRS compliance form also remains 15 September 2021.

The new DITC portal opened in November 2020 for CRS and US Foreign Account Tax Compliance Act (FATCA) registration, and users are currently able to complete the 2019 CRS compliance form using the existing manual entry form. A new user guide also is available for guidance on the portal’s functionality.

20 January 2021, the Court of Justice of the European Union (CJEU) held that a Swedish anti-abuse rule that limits the deduction of interest paid to a related non-resident group company was contrary to the freedom of establishment principle in the Treaty on the Functioning of the European Union (TFEU). It concluded that the measure created a difference in treatment between domestic and cross-border situations that could not be justified.

In Lexel AB v Skatteverket (C-484/19), the taxpayer was a Swedish company that belonged to a French group. In 2011, it acquired the shares of a Belgian company that was sold by a Spanish member of the group. To finance the acquisition, the taxpayer obtained a loan from a French intragroup finance company, another group member, and claimed a deduction for the interest paid on the loan. The French intragroup finance company in turn offset the interest received against losses incurred by other French group companies with which it formed a tax consolidated group for French tax purposes.

The Swedish Tax Agency denied the interest deduction on the basis of a domestic anti-abuse rule – the so-called ‘10% rule’ – that applies where the principal reason for taking out the debt is to realise a substantial tax benefit at the level of the group of associated companies.

The taxpayer contended that the acquisition of the shares in the Belgian resident company was not intended to gain a tax advantage. The Spanish vendor required additional funds to acquire a company that belonged to a third party and intended to repay debt that it took out to acquire shares that it sold to the taxpayer. It also argued that the anti-abuse provision would not have applied where the debt relation was established between two Swedish companies with the right to exchange group contribution, since no tax benefit would arise in that situation.

The decision to deny the company deduction was appealed to the Swedish Supreme Administrative Court (SAC) which, in June 2019, referred the case to the CJEU for a preliminary ruling on the compatibility of the anti-abuse rule with the freedom of establishment principle in article 49 of the Treaty on the Functioning of the European Union (TFEU).

The CJEU noted that the Swedish anti-avoidance rule was intended to curb aggressive tax planning in the form of interest deductions and was not meant to apply to companies that were able to tax consolidate through group contributions. However, since the rules on group contributions only applied to companies that were taxable in Sweden, cross-border groups were treated differently from groups resident in Sweden. Consequently, it held that the Swedish rules entailed a difference in treatment which had a negative impact on the companies' ability to exercise their freedom of establishment.

The Swedish Tax Agency further sought to justify the rule through the balanced allocation of taxing rights. This was also not accepted by the CJEU since, if the French finance company had not been a related entity, the interest would have been deductible. The CJEU held that, if the conditions for a cross-border transaction within a group of companies or between unrelated parties were at arm’s length, there was no different treatment from the perspective of the balanced allocation of taxing rights. An appeal on that basis, therefore, could not succeed. Consequently, the CJEU ruled that article 49 TFEU precluded the Swedish anti-abuse rule.

The case was referred back to the SAC for a final decision. The full judgment of the CJEU can be accessed at http://curia.europa.eu/juris/document/document.jsf?text=&docid=236681&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=928079

15 January 2021, the Ministry of Energy, Industry and Commerce announced that the effective date for the commencement of data collection in respect of the beneficial ownership information in respect of Cypriot companies and other legal entities by the Registrar of Companies was being moved from 18 January to 22 February.

Relevant entities must submit information on their ultimate beneficial owners (UBOs) to the Registrar of Companies for inclusion on a newly created and centralised UBO register within six months of the new date. The UBO register is a requirement under the amended Fourth EU Anti-money Laundering Directive (4AMLD), which was transposed into national legislation in April 2018 by the Prevention and Suppression of Money Laundering and Terrorist Financing Law (13(I)/2018).

UBOs are defined as natural persons with a 25% direct or indirect ownership of shares or voting rights, except for publicly listed companies. For trusts, the beneficial owners are the settlor, trustees, protector, beneficiaries and potential beneficiaries, or any other natural person exercising ultimate control over the trust.

Relevant legal entities incorporated in Cyprus must submit the information required to an interim system within six months of 22 February. During this period, access to the UBO register will be granted only to the designated competent authorities through a request lodged with the Registrar. Information collected in the interim six-month period will be transferred to a final platform, which has yet to be developed, in the second half of 2021.

15 January 2021, Estonia deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion & Profit Shifting (MLI), which now covers over 1,700 bilateral tax treaties, underlining its strong commitment to prevent the abuse of tax treaties and BEPS by multinational enterprises. For Estonia, the MLI will enter into force on 1 May 2021.

18 December 2020, the FATF announced that it had formally de-listed the Bahamas from its list of jurisdictions under ‘increased monitoring’ in recognition of the significant progress it had made in improving its anti-money laundering and countering the financing of terrorism (AML/CFT) regime.

The Bahamas had strengthened the effectiveness of its AML/CFT system and addressed related technical deficiencies to meet the commitments in its action plan and remedy the strategic deficiencies identified by the FATF in October 2018.

At that time, the Bahamas had taken legislative action to improve its position on 13 of the FATF 40 recommendations but remained only ‘partially compliant’ with a further 10 recommendations. It made a high-level political commitment to a seven-point plan to strengthen the effectiveness of its AML/CFT regime, including a new beneficial ownership reporting regime, with the aim of meeting FATF's special recommendations by April 2020.

A compendium of financial sector legislation was brought into force in 2018 and 2019, which included:

-The Proceeds of Crime Act, which includes anti-money laundering provisions and proportionate penalties for violations;

-Financial Transactions Reporting Act and related regulations that embody customer due diligence requirements with an effective sanctions’ regime;

-The Anti-Terrorism Act to achieve compliance with the United Nations Security Council resolutions and provided for dissuasive sanctions for offences;

-The Register of Beneficial Ownership Register Act 2018 which provided for the establishment of a secure search system to facilitate searches of beneficial ownership by the Competent Authority (Attorney General), and government agencies.

In February 2020, the FATF made an initial determination that the Bahamas has substantially completed its action plan. This, it said, warranted an on-site assessment to verify that the implementation of reforms had begun and was being sustained, and that the necessary political commitment remained in place to sustain implementation in the future.

Due to the impact of the COVID-19 crisis, it was unable to conduct an on-site visit. However, this also gave the Bahamas time to take further measures. One of these was a Bill amending the Register of Beneficial Ownership Act, to bring segregated accounts companies (SACs) and non-profit organisations limited by shares under the Act's explicit scope. SACs were viewed by FATF as a vulnerability in the Bahamas' anti-money laundering framework with respect to the identification of beneficial owners.

As a result of these changes, the FATF said the Bahamas would no longer be subject to its increased monitoring process. The Bahamas is to continue to work with the Caribbean Financial Action Task Force (CFATF) to improve further its AML/CFT regime.

21 January 2021, the Gibraltar government gazetted the Income Tax Act 2010 (Amendment) (EU Exit) Regulations 2021, which amends the Income Tax Act 2010 by replacing the cross-border tax planning disclosure provisions of the EU Directive on Administrative Cooperation (DAC6) with the OECD’s mandatory disclosure rules (MDR). The regulations are deemed to have come into operation on 1 January 2021.

Gibraltar, which unlike all other British Overseas Territories was part of the EU, has followed the UK's lead in realigning its reporting requirements from most of the DAC6 provisions. Legislation has been published in the Gibraltar Gazette extending the territorial application to include reportable arrangements involving both the UK and EU Member States and requiring reporting in relation to the category D hallmarks.

The first reporting date under the new model will be 30 January 2021, and reporting will be in compliance with the OECD MDR requirements as transposed into the Gibraltar legislation. Due to Gibraltar’s commitments under the ongoing UK/Spain agreement regarding Gibraltar, reporting standards in respect of Spain may have to be realigned with the EU Directive standards in the future.

15 January 2021, the Hong Kong government gazetted subsidiary legislation to implement the new profits tax concessions for insurance-related businesses as of 19 March.

Enacted in July 2020, the Inland Revenue (Amendment) (Profits Tax Concessions for Insurance-related Businesses) Ordinance 2020 halves the profits tax rate to 8.25% for all general reinsurance business of direct insurers, selected general insurance business of direct insurers and selected insurance brokerage business.

For the purpose of effecting the profits tax concessions, the government gazetted two pieces of subsidiary legislation:

-The Inland Revenue (Profits Tax Concessions for Insurance-related Businesses) (Threshold Requirements) Notice, which prescribes the threshold requirements for determining whether the relevant activities of the specified insurance-related business are, or are arranged to be, conducted in Hong Kong;

-The Inland Revenue (Amendment) (Profits Tax Concessions for Insurance-related Businesses) Ordinance 2020 (Commencement) Notice, which appoints 19 March 2021, as the date on which the Inland Revenue (Amendment) (Profits Tax Concessions for Insurance-related Businesses) Ordinance 2020 will become effective.

"The profits tax concessions will promote the development of marine and specialty insurance businesses of Hong Kong,” said a spokesman for the Financial Services and the Treasury Bureau. “They will also enhance the competitiveness of the insurance industry in seizing new opportunities, including those arising from the Belt and Road Initiative."

14 January 2021, Minister for Finance Paschal Donohoe published an update to Ireland’s 2018 Corporation Tax Roadmap, which takes stock of the changing international tax environment, outlines the significant actions Ireland has taken to date and the further actions that will be taken over the coming years.

“Tax rules need to continue to evolve to match the modern world, and that evolution can best take place through international agreement at appropriate institutions such as the OECD. Ireland will continue to foster economic activity in Ireland, the EU and beyond by adapting and evolving our corporate tax regime while maintaining our key 12.5% rate,” said Donohoe.

The Update outlines further actions that Ireland will be taking as part of international tax reform efforts, including commitments to:

-Introduce interest limitation rules compliant with the EU Anti-Tax Avoidance Directive (ATAD), which came into force on 1 January 2019 with the aim of eliminating the most common corporate tax avoidance practices – publication of an initial Feedback Statement in December 2020 will be followed by an iterative consultation and feedback process in early 2021, with transposition in Finance Bill 2021;

-Legislate for reverse hybrids aspect of ATAD anti-hybrid rules – the publication of a Consultation Paper in Q1 2021 followed by a Feedback Statement by mid-2021, with legislation to be introduced in Finance Bill 2021 to be effective from January 2022;

-Consultation on possibility of moving to a territorial regime – A consultation will be launched in 2021. Any subsequent policy actions will take account of the outcome of the ongoing international discussions on international tax matters;

-Progress the International Mutual Assistance Bill – Draft legislation to be published in the coming weeks, and to begin progression through the Irish parliament in early 2021;

-Apply defensive measures in CFC regime to countries on EU Member States’ list of non-cooperative jurisdictions – the Finance Act 2020 will provide that Ireland’s CFC rules apply more stringently to companies with subsidiaries operating in jurisdictions that remain on the EU list;

-Consider additional defensive measures against countries on EU list of non-cooperative jurisdictions –In 2021 consideration will be given to introducing additional restrictive measures, if required, including denial of tax deductions or imposition of withholding taxes where material payments are made from Ireland to listed jurisdictions;

-Consider actions that may be needed in respect of outbound payments – In 2021, commence a consideration of broader issues related to outbound payments from Ireland and the wider withholding tax regime;

-Adopt the Authorised OECD Approach for transfer pricing of branches – extend transfer pricing rules to the taxation of branches in Ireland in line with the Authorised OECD Approach. Work will commence in early 2021 on this policy and it is intended to bring forward the necessary legislation in Finance Bill 2021.

The full Update can be accessed at https://www.gov.ie/en/publication/678e5-irelands-corporation-tax-roadmap-january-2021-update/

1 February 2021, the Jersey government opened a consultation to examine the extension of economic substance rules that currently apply to Jersey resident companies to partnerships. The proposal is designed to fully meet commitments previously given to the EU Code of Conduct Group on Business Taxation (CCG) and will progressed in parallel with the other Crown Dependencies and Overseas Territories. Feedback is requested by 1 March.

The States of Jersey gave a political commitment to the CCG in 2018 to introduce economic substance in Jersey for resident companies. Although the CCG ‘white listed’ Jersey on the basis of its current company legislation, it has now confirmed that it considers partnerships to be included within the scope of that original commitment.

This position was publicly confirmed in the text of a CCG report to the Council of European Finance Ministers (ECOFIN) last November, which stated that Anguilla, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man and Jersey should extend their economic substance requirements to all relevant partnerships that were identified to fall out of the scope of existing legislation.

The relevant jurisdictions are to adopt and put into effect the necessary amendments to their legal framework so that this can be assessed in the CCG’s October 2021 listing update. The necessary legislative amendments are to be adopted by 30 June 2021 in order to come into force on 1 July 2021, with a maximum six-month transition period for existing entities.

The Jersey government said that companies in Jersey had been subject to economic substance rules since 1 January 2019 and that industry had now developed a good understanding and experience of the requirements. The new economic substance test for partnerships will follow the approach for companies as closely as possible, in order to build on this understanding and experience.

To ensure a level playing field applies in the approach adopted across other jurisdictions, Revenue Jersey is to work with counterparts in the other Crown Dependencies (CDs) to develop a consistent approach. To accommodate the differences between partnerships and companies, the following exemptions are currently under discussion with the EU Commission:

-Partnerships with a nexus in another jurisdiction – The economic substance regime for companies is applied to those companies that are tax resident in Jersey. As there is no international concept of tax residence for partnerships, the CDs are exploring with the Commission how to develop an approach that would lead to a similar outcome.

-Partnerships that are fund vehicles – In the economic substance regime for companies, fund vehicles are not required to be subject to the economic substance test because sufficient regulatory requirements are already in place to ensure that there is sufficient substance for their activities. This exemption should be equally applicable to partnerships.

-Partnerships that are comprised solely of individual partners – Individual partners will be subject to the personal income tax regimes of the CDs insofar as they have a share of profits in a partnership in that CD. Where the entire partnership is comprised of individuals, then all the income of that partnership will be subject to personal income tax in that CD.

-Partnerships that are wholly domestic – Where a partnership is neither conducting activities outside Jersey, nor part of a group of multinational enterprises, it can be considered to be wholly domestic and therefore exempt from the economic substance test.

The Economic Substance rules will apply insofar as the partnership carries on relevant activities and will apply to partnerships in their entirety, rather than to the partners individually. This means that if a relevant activity is being carried on by a partnership, the partnership will report the activities conducted by the partners through the partnership and the partnership will meet the test. The partners (if companies) will not be required to report the same activities in their returns or subjected to the same economic substance test.

To minimise the need for industry to create new processes, the economic substance return for partnerships is to be substantially similar to the current economic substance return for companies. All partnerships are to notify Revenue Jersey on an annual basis whether they need to file economic substance information and the administration of economic substance reporting and tax reporting will be harmonised to reduce duplication and administrative burdens

Existing sanctions for failing to comply with economic substance requirements are to be extended to partnerships. Where partnerships are not legal persons (so that winding up is not an appropriate sanction), escalating penalties will be required for each subsequent failure to comply with economic substance requirements.

28 January 2021, the Luxembourg parliament adopted rules disallowing tax deductions for interest and royalties due to related entities established in a country or territory included in the EU list of non-cooperative jurisdictions for tax purposes. The new rules will apply as of 1 March.

The disallowance of deductions will apply if:

-The beneficiary of the interest or royalties is a collective undertaking within the meaning of article 159 of the Luxembourg Income Tax Law (LITL), which excludes ‘look-through’ entities. If the recipient of the payments is not the beneficial owner, the rule will apply to the beneficial owner of the amounts due;

-The collective undertaking is an associated enterprise within the meaning of LITL article 56 such that any direct or indirect participation in the management, control or capital of the enterprise may cause it to be treated as an associated enterprise;

-The collective undertaking is established in a country or territory included in the EU list.

However, the expense will be deductible if the taxpayer can demonstrate that the transaction generating the interest or royalties is driven by sound business reasons that reflect economic reality. Following article 2 of the EU interest and royalties directive (Directive 2003/49/CE), interest is defined as interest and arrears accrued that relate to debt-claims of every kind, even if they are secured by a mortgage or carry a right to participate in the debtor's profits, as well as bonds or debentures, including premiums and prizes attaching to such securities.

Royalties are defined as payments of any kind accrued as consideration for the use of, or the right to use, any copyright of literary, artistic, or scientific work, including cinematograph films and software, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience. Royalties also include payments for the use of, or the right to use, industrial, commercial, or scientific equipment.

4 January 2021, the South African Reserve Bank (SARB) released Exchange Control Circular No. 1/2021, which provides for the relaxation of the South African exchange control rules relating to ‘loop’ structures and investments. The reform was effective as 1 January 2021 and applies to private individuals and companies, including private equity funds, that are tax resident in South Africa.

A loop structure is broadly any arrangement under which a South African resident invests in an offshore vehicle which, in turn, invests in South African assets. Previously such structures were permitted only in very limited instances, such as where SA residents held 40% or less of the shares in a foreign company that held interests back into SA.

The move was first proposed by South African Finance Minister Tito Mboweni in his Budget Statement last February. It was then reiterated in his Medium Term Budget Speech (MTBS) delivered last October, when he said: “Work is well advanced to modernise the cross-border flows management regime to support South Africa’s growth as an investment and financial hub for Africa.”

An explanatory note to the MTBS stated: “The full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa, subject to reporting to Financial Surveillance Department of the SARB as and when the transaction is finalised. This reform will be effective from 1 January 2021 for companies, including private equity funds, provided that the entity is a tax resident in South Africa.”

In terms of the new provisions, South African companies and South African resident individuals with authorised foreign assets will be permitted to invest in South African assets provided that, where South African assets are acquired through an offshore structure, the investment is reported to an authorised dealer. It will also be required to verify that the transactions are entered into on an arm’s length basis and for market value consideration. Existing unauthorised loop structures must still be regularised with the Financial Surveillance Department of the SARB (FinSurv).

30 January 2021, the United Arab Emirates’ government announced plans to offer citizenship to a select group of foreigners. The proposed changes will allow the UAE to grant citizenship to selected investors and professionals, including scientists, doctors, engineers, artists, authors and their families.

Designed to attract talent and investment, the UAE cabinet, local courts and executive councils will nominate those eligible for the citizenship under criteria set for each category. The law will also allow receivers of the UAE passport to keep their existing citizenship.

According to a statement on UAE state news agency WAM, the conditions that must be met to secure the citizenship are:

-Investors must own a property in the UAE;

-They must obtain one or more patents that are approved by the UAE Ministry of Economy or any other reputable international body, in addition to a recommendation letter from the Economy Ministry;

-Doctors and specialists must be specialised in a unique scientific discipline or any other scientific principles that are highly required in the UAE;

-Scientists are required to be an active researcher in a university or research center or in the private sector, with a practical experience of not less than 10 years in the same field;

-Individuals with creative talents such as intellectuals and artists should be pioneers in the culture and art fields and winners of one or more international award. A recommendation letter from related government entities is mandatory as well.

“The new directives aim to attract talents that contribute to our development journey,” said Prime Minister Sheikh Mohammed Bin Rashid Al Maktoum.

31 December 2020, the UK and Spanish governments reached agreement on a political framework to form the basis of a separate treaty between the UK and the EU regarding Gibraltar.

This outline agreement, currently being examined by the European Commission, will allow Gibraltar, a British Overseas Territory, to join the Schengen zone that guarantees passport-free travel and freedom of movement to more than 400 million EU citizens. As a result, Gibraltar's port and airport will become the external borders of the Schengen area.

While the treaty is being prepared, the UK and Spain have also agreed a six-month extension to three memorandums of understanding for cooperation regarding tobacco, the environment, customs and policing, which were signed in 2018 and had been due to expire on 31 December.

Negotiations had stalled over how entrance into the Schengen zone, now to be inside the British territory, would be policed. The Gibraltar government said it would not accept Spanish officials controlling its borders. In announcing the agreement in principle, Spanish foreign minister Arancha González Laya said that Spain would be the responsible party for the oversight of Schengen, but said that officers from the EU border agency Frontex would assist with border controls during a four-year transition period.

UK foreign secretary Dominic Raab said the agreement would form the basis of a separate treaty between the UK and the EU regarding Gibraltar, adding “we remain steadfast in our support for Gibraltar and its sovereignty is safeguarded”.

The Gibraltar Finance Centre Council, which represents Gibraltar’s financial services industry, said: “A stable relationship with the EU which guarantees frontier fluidity and unhindered travel throughout the Schengen zone is to be welcomed. Coupled with bilateral access in financial services to the UK market, sensible regulation, competitive tax rates and a developing double tax treaty network, the outlook for the financial services industry and its prosperity are very positive.”

Gibraltar enjoys a unique relationship with the UK through passporting rights, which allow financial service providers in Gibraltar unique access to the UK market. To prepare for Brexit, the Gibraltar government brought a new Financial Services Act into force in January 2020 under the Legislative Reform Programme (LRP).

The LRP consolidated and rationalised over 90 financial services legislative instruments into one Act and 41 sets of supporting, sector specific regulations to provide a clear, more navigable and accessible legislative framework for financial services. The LRP has concurrently implemented all EU legislation transpositions and local legislative initiatives during the lifetime of the programme.

4 January 2021, HM Revenue & Customs confirmed that, following conclusion of the Free Trade Agreement with the EU, the UK will no longer be applying the EU’s DAC6 (Directive 2018/822) mandatory disclosure regime that imposes mandatory reporting of cross-border arrangements in its entirety.

Despite the fact the UK was leaving the EU, the UK implemented DAC6 into domestic law, requiring intermediaries such as tax advisors, accountants and lawyers to report any cross-border tax planning schemes in which they are involved to their national tax authority, if the scheme bears 'hallmarks' showing it to be potentially 'aggressive avoidance'.

EU Member States and non-member jurisdictions that adopted DAC6, are to exchange this information through a central database. DAC6 requires EU intermediaries to file information on Reportable Cross Border Arrangements to their home tax authorities. The first disclosures were due to be made by 30 January 2021.

The new Free Trade Agreement signed between the UK and the EU on 24 December states that “A party shall not weaken or reduce the level of protection provided for in its legislation at the end of the transition period below the level provided for by the standards and rules which have been agreed in the OECD at the end of the transition period, in relation to (a) the exchange of information…concerning… potential cross-border tax planning arrangements.”

The UK government therefore decided to restrict reporting only to those arrangements, which would be reportable under the under the OECD's Model Mandatory Disclosure Rules (MDRs) on Common Reporting Standard (CRS) Avoidance Arrangements and Opaque Offshore Structures. As a result, the UK regulations that implement DAC6 will be amended to remove hallmark categories A, B, C and E., and the scope of DAC6 reporting will be significantly reduced. This applies both for ‘historic’ arrangement reporting – steps taken after 25 June 2018 for which the reporting window had not yet opened – and for ‘new’ arrangements.

Only those arrangements that meet hallmarks under Category D of DAC6 will need to be reported in the UK after the end of the transition period, which broadly covers arrangements that involve attempts to conceal income or assets, or to obscure beneficial ownership. These will still need to be considered for reporting on an ongoing basis.

As an interim measure, the UK government issued the International Tax Enforcement (Disclosable Arrangements) (Amendment) (No. 2) (EU Exit) Regulations on 30 December to amend the regulations so that they only apply to arrangements falling under the category D hallmarks. These are arrangements designed to undermine tax reporting under common reporting standard and transparency rules and are split into two types:

-Arrangements that have the effect of undermining reporting requirements under agreements for the automatic exchange of information;

-Arrangements that obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.

This change applies retrospectively so no disclosures will need to be made for any arrangements that fall into one of the other hallmarks set out in DAC6. Reporting obligations apply to arrangements where the first step was entered into on or after 25 June 2018. Reports are due to be made in respect of these arrangements by 28 February 2021, although an earlier reporting deadline of 30 January 2021 applied to:

-Arrangements that were made available for implementation, or ready for implementation, or where the first step in the implementation took place between 1 July 2020 and 31 December 2020; and

-Arrangements in respect of which a UK intermediary provided aid, assistance or advice between 1 July 2020 and 31 December 2020.

The UK is to consult on and implement the OECD’s MDR as soon as practicable to replace DAC6.

27 January 2021, the US IRS signed a competent authority arrangement on the exchange of Country-by-Country (CbC) Reports with Argentina. It was effective as from that date.

The arrangement provides that under the provisions of Article 6 (Automatic Exchange of Information) of the 2016 US-Argentina tax information exchange agreement, each competent authority intends to automatically exchange CbC reports received from each reporting entity resident for tax purposes in its jurisdiction, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the multinational enterprise (MNE) group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority, or are subject to tax with respect to the business carried out through a permanent establishment situated in the other jurisdiction.

CbC reports are intended to be exchanged with respect to fiscal years of MNE groups commencing on or after 1 January 2018, with a CbC report to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE group to which a CbC report relates. The competent authorities have up to three months after the arrangement is operative to first exchange reports – by 27 April 2021.

14 January 2021, the Office of the US Trade Representative (USTR) announced that it had found the digital services taxes (DSTs) enacted in Austria, Spain and the UK to be unreasonable or discriminatory and a burden or restriction on US commerce. All three were therefore actionable under section 301(b) of the US Trade Act.

Sections 301(b) and 304(a)(1)(B) of the Trade Act provides that if the USTR determines that an act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts US commerce, the USTR shall determine what action, if any, to take under Section 301(b). The notices stated that these matters would be addressed in subsequent proceedings under Section 301.

These announcements followed earlier USTR decisions, issued on 6 January, that DSTs enacted or proposed in India, Italy, Turkey and France were discriminatory. Pending investigations into DST enacted or proposed in Brazil, the Czech Republic and Indonesia had also revealed significant concerns.

In an accompanying status update, the USTR also said that even though the EU has not yet set out its approach to an EU-wide DST, based on a 2018 EU proposal and official statements, it was concerned that an EU-wide tax might also discriminatory.

In all cases, the USTR has yet to recommend retaliatory trade action; it said it would recommend a coordinated response when it had completed all its investigations.

The USTR has been investigating whether DSTs enacted by several nations discriminate against US companies and warrant retaliation since 2 June 2020. In each case where it has reached a conclusion, the USTR has found the tax to be discriminatory.

A common design feature of digital services taxes is that they are imposed only on the very largest companies – those with significant worldwide revenue and significant revenue earned within the country imposing the tax. For example:

-Austria’s DST imposes a 5% tax on gross revenues from digital advertising services provided in Austria. It applies only to companies with annual global revenues of €750 million or more, and annual revenues from digital advertising services in Austria of €25 million or more;

-Spain’s DST applies a 3% tax on certain digital services revenues related to online advertising services, online intermediary services and data transmission services. Only companies with worldwide revenues of €750 million or more and €3 million in certain digital services revenues are subject to the tax;

-The UK’s DST applies a 2% tax on the revenues of certain search engines, social medial platforms and online marketplaces. It applies only to companies with digital services revenues exceeding £500 million and with UK digital services revenues exceeding £25 million.

According to the USTR, these kinds of revenue thresholds discriminate against US companies in favour of domestic companies because the US is home to the largest companies.