Owen, Christopher: Global Survey – March 2021

Archive
  • Cayman brings VASP enforcement provisions into force
    • 31 January 2021, the enforcement provisions outlined in the commencement order for the Virtual Asset Services Providers (VASP) Law, which allow the Cayman Islands Monetary Authority (CIMA) to take action where a person breaches certain provisions of the VASP Act, were brought into force.

      The VASP Law introduced a framework for the regulation of businesses that provide certain services relating to virtual assets. If a person performs a relevant service then the applicable licensing, registration, notification and reporting obligations contained in the VASP Act will apply to that person.

      The VASP Law and other elements of the virtual assets regime are being introduced through a phased roll-out. Phase one brought into force the anti-money laundering, counter financing of terrorism, compliance and supervision provisions of the VASP Law on 31 October 2020.

      An entity that provided virtual asset services prior to this date and subsequently continued to do so, should have registered with or notified CIMA under the VASP Law by 31 January 2021 when the provisions in respect of enforcement, penalties and offences were brought into force.

      Phase two is set to begin in June 2021 when the remaining provisions of the VASP law will come into effect, including the licensing requirements for virtual asset custodians and trading platform operators and the provisions for sandbox licences. Entities conducting custodial services or operating virtual asset trading platforms must register in phase one and will then need to apply for a licence.

      CIMA is to issue a Statement of Principles for VASPs in due course, in order to provide a broad framework and guidance for the conduct of virtual asset activities in or from the Cayman Islands.

  • Cayman Registrar issues first fines under Beneficial Ownership regime
    • 15 February 2021, the Registrar of Companies (RoC) announced that is had started imposing penalties and issuing warning letters to companies that have failed to submit accurate information on their ‘ultimate beneficial owners’.

      As of 1 February, the RoC had levied 19 administrative fines – at a rate of $5,000 per fine – against companies for non-compliance with beneficial ownership (BO) requirements. Warning letters were sent to the companies prior to the fines being levied. If the fines are not paid, and/or the companies involved continue not to comply, the Registrar will remove them from the companies register.

      “There are consequences to not maintaining current BO details with RoC, and these consequences are in line with Financial Action Task Force standards to fight money laundering, terrorist financing, and the financing of weapons of mass destruction,” said Head of Compliance Paul Inniss.

      “By enforcing our local legal requirement for companies to maintain current BO details with the RoC, Cayman can provide better information to international tax and law enforcement agencies for their investigations. The Cayman Islands also receives information from international agencies for our own investigations, so we understand how valuable this information can be in fighting financial crime locally and globally.”

      Trust and Company Service Providers (TCSPs) can also be fined in relation to BO non-compliance, if they do not fulfil their legal responsibilities to file restriction notices that curb companies’ abilities to conduct certain business activities if they have not provided BO information.

      As of 1 February, the RoC had therefore issued warning letters to 18 TCSPs that had not filed restriction notices. The TCSP letters direct the companies to file BO information with their TCSP, by a stated deadline, in compliance with the Companies Act (2021 Revision). Failure to comply with the warnings can result in companies being liable for the administrative fines.

       

  • Croatia and Malaysia ratify the Multilateral BEPS Convention
    • 18 February 2021, Croatia and Malaysia deposited their instrument of ratification for the Multilateral Convention (MLI) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), which that will swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises. For both countries, the MLI will enter into force on 1 June 2021.

      The MLI is designed to help close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. The MLI modifies the application of thousands of existing bilateral tax treaties concluded to eliminate double taxation. It also implements agreed minimum standards to counter treaty abuse and to improve dispute resolution mechanisms. while providing flexibility to accommodate specific tax treaty policies.

      The latest ratifications bring the number of jurisdictions that have ratified, accepted or approved the MLI to 63. The MLI became effective on 1 January 2021 for approximately 650 treaties concluded among these 63 jurisdictions, with an additional 1,200 treaties to become effectively modified once the MLI has been ratified by all 95 signatories.

      The text of the Multilateral Convention, the explanatory statement, background information, database, and positions of each signatory are available at http://oe.cd/mli

  • EU Ministers endorse Public Country-by-Country Reporting
    • 25 February 2021, the Competitiveness Council meeting of EU’s Industry and Internal Market ministers saw a clear majority of EU countries endorse the latest proposal for a directive on public country-by-country reporting (CbCR), which seeks to add further transparency to the taxation affairs of multinational companies doing business in the Single Market. The Council invited the Council Presidency to start negotiations with the European Parliament on enacting this directive.

      On behalf of the EU Presidency, Portuguese Minister of State for the Economy and Digital Transition Pedro Siza Vieira said: “Tax transparency is a fundamental principle in any democratic society. It enables policy makers to take informed decisions and to ensure that all economic actors contribute in a fair and equitable manner to the economy of the various countries where they conduct their business. Today’s debate has opened the way for the proposed directive to move forward as a matter of priority.”

      The so-called ‘trialogue’ negotiations, which began in July 2017, were blocked in Council by member states opposing public CbCR. In October 2019, the Parliament passed a resolution calling on member states to conclude the first reading on public CbCR and enter inter-institutional negotiations with the Parliament.

      The proposal only passed after Slovenia and Austria supported it. However, the legislation needs to include certain safeguards and be limited to reporting requirements on companies in EU member states or in the jurisdictions listed on the EU tax blacklist. Although 14 countries backed public CbCR, ministers representing Germany, Ireland, Luxembourg, Malta, Sweden, Czech Republic, Hungary, and Cyprus were either against it or abstained.

      With the progress secured by the Portuguese presidency, the Council will now enter negotiations with the EU Parliament. “We are ready to start negotiations with EU ministers to deliver on this crucial tool in the fight against tax evasion and tax avoidance. Our goal is a public CbCR that ensures meaningful financial transparency. Therefore, we want companies to disclose information in all countries they operate in, both in the EU and in third countries,” said EU Parliament negotiator Evelyn Regner.

      “To turn public CbCR into a sharp weapon against tax crimes, we want to oblige multinationals to reveal the number of all full-time employees, fixed assets and capital, net turnover, all profits and losses, as well as subsidies received by governments. As governments are helping companies out with public money to cope with the impact of the Covid-19 pandemic, tax payers have more than ever the right to know which big multinationals are playing fair and which are free-riding.”

  • European Council removes Barbados from ‘blacklist’, adds Dominica
    • 22 February 2021, the European Council of Ministers adopted a revised EU ‘blacklist’ of non-cooperative jurisdictions for tax purposes, which included the removal of Barbados and the addition of Dominica.

      The so-called EU blacklist comprises jurisdictions worldwide that either have not engaged in a constructive dialogue with the EU on tax governance or have failed to deliver on their commitments to implement the reforms necessary to comply with a set of objective tax good governance criteria.

      Jurisdictions are assessed on the basis of a set of criteria laid down by the Council in 2016, which cover tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting (BEPS).

      The changes to the list take into consideration the ratings recently released by OECD Global Forum for Transparency and Exchange of Information (Global Forum) in respect of exchange of information on request. The EU requires jurisdictions to be at least ‘largely compliant’ with the international standard on transparency and exchange of information on request (EOIR).

      The Council said Dominica has been included on the blacklist because it had received only a ‘partially compliant’ rating from the Global Forum and had not yet resolved this issue.

      Similarly, Barbados was added to the EU blacklist in October 2020 after it received a ‘partially compliant’ rating from the Global Forum. However, the Council said it has now been granted a supplementary review by the Global Forum and has therefore been moved to the ‘grey list’ pending the outcome of this review.

      As a result of the February 2021 update, there are now 12 jurisdictions on the EU list of non-cooperative jurisdictions: American Samoa, Anguilla, Dominica, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad Tobago, the US Virgin Islands and Vanuatu.

      The grey list identifies jurisdictions that do not yet comply with all international tax standards but which have made sufficient commitments to the EU to implement tax good governance principles. The Council said that Morocco, Namibia and St Lucia had been removed from the grey list because they had fulfilled all their commitments. Jamaica has been added because it has committed to amend or abolish its harmful tax regime (special economic zone regime) by the end of 2022.

      Australia and Jordan have been granted an extension to their deadline for fulfilling their commitments pending the assessment of their reforms by the OECD Forum on Harmful Tax Practices. The Maldives has been given four additional months to ratify the OECD Multilateral Convention on Mutual Administrative Assistance.

      The Council has requested that Turkey should solve all open issues in respect of its effective exchange of information with EU member states. Turkey is expected to commit at a high political level by 31 May 2021 to effectively activate its automatic information exchange relationship with all 27 member states by 30 June 2021.

      As a result of the February 2021 update, nine jurisdictions currently appear on the EU’s grey list having made commitments to reform their tax policies: Australia, Barbados, Botswana, Eswatini, Jamaica, Jordan, Maldives, Thailand and Turkey.

      The Council’s decisions are prepared by the Council's Code of Conduct Group which is also responsible for monitoring tax measures in the EU member states.

  • Hong Kong SAR announces 2021/22 Budget
    • 24 February 2021, Hong Kong Financial Secretary Paul Chan maintained the existing rates of profits tax and salaries tax in the 2021/22 Hong Kong Budget and said the government intended to expand the Special Administrative Regions’s trade, investment and tax agreement networks and was also committed to the OECD’s efforts to find an international agreement on taxing the digitalisation of the economy.

      “As businesses and individuals are generally under considerable financial pressure amid the prevailing economic environment and the epidemic, I consider that it is not the appropriate time to revise the rates of profits tax and salaries tax, which are our major sources of revenue,” said Chan. “Nevertheless, we will keep in view the situation and make adjustments at the appropriate time.”

      The 100% reduction of profits tax will be extended to the 2020-21 year of assessment subject to a ceiling of HK$10,000, which is half of the eligible 2019/20 reduction. This will benefit 128,000 businesses and reduce government revenue by HK$1.05 billion.

      The 100% reduction of salaries tax and tax under personal assessment will also be extended for another year, but the ceiling has been reduced from HK$20,000 to HK$10,000 for the 2020/21 financial year. This will benefit 1.87 million taxpayers and reduce government revenue by HK$11.4 billion.

      The government is also to waive business registration fees for 2021/22, which will benefit 1.5 million business operators and reduce government revenue by HK$3 billion.

      To offset this revenue, the government proposes to raise the stamp duty on equity transactions by 30% such that duty on stocks will rise from 0.1% to 0.13%, as of 1 August.

      Chan did announce some tax reliefs for businesses operating in Hong Kong, including tax concessions for carried interest issued by private equity (PE) funds and a half-rate profits tax concession for eligible insurance businesses, including marine insurance and specialty insurance.

      To further incentivise PE fund managers to select Hong Kong as a location of domicile and operation of funds, Hong Kong introduced a bill in January 2021 which exempts eligible carried interest, arising from in-scope transactions received by qualifying recipients for the provision of investment management services to qualifying payers, from tax in Hong Kong.1

      Subject to the passage of the bill by the Legislative Council, the above concessionary tax treatment will apply retrospectively and will be applied to eligible carried interest received by or accrued to a qualifying recipient on or after 1 April 2020.

      On research and development, the government announced plans to inject HK$4.75 billion per year into the Innovation & Technology Fund for two years to sustain its 17 funding schemes and over 50 R&D laboratories for the next three years.

      To support startups, the government-owned Hong Kong Science & Technology Parks Corporation and Cyberport will inject HK$350 million and HK$200 million into their existing Corporate Venture Fund and Cyberport Macro Fund respectively, and extend the scope to cover Series B and later-stage investments.

      On the digital economy, the government will allocate HK$375 million to the Hong Kong Trade Development Council in the coming three years to develop virtual platforms to enhance its capability to organise online activities and to proceed with digitalisation.

      The Financial Secretary said that the free trade agreement and the investment agreement between Hong Kong SAR and the Association of Southeast Asian Nations (ASEAN) has entered into effect, the government’s efforts have turned to the Regional Comprehensive Economic Partnership (RCEP) agreement among 15 economies.

      “We are actively seeking to be among the first batch of economies joining the RCEP after it comes into effect, so as to help Hong Kong businesses and investors open up markets, thereby fostering the long-term economic development of Hong Kong,” said Chan.

  • Japan and Switzerland agree tax treaty protocol
    • 8 February 2021, Japan’s Ministry of Finance announced that the government of Japan and the Swiss Federal Council had agreed in principle on a new protocol to amend their existing tax treaty. The amended protocol reinforces or introduces provisions for clarifying the scope of taxation in the two countries, eliminates international double taxation and prevents tax evasion and avoidance. No further details on the content of the agreement were released.

  • Jersey Royal Court rejects arrest of debtor’s interests in discretionary trust
    • 19 January 2021, the Royal Court of Jersey held that a judgment creditor could not obtain execution against the interest of a discretionary beneficiary under a Jersey trust. Even if a beneficiary’s interest is a type of movable property, it is not transmissible by way of either assignment or execution unless expressly provided for under the terms of the trust.

      In Kea Investments v Watson (2021 JRC 009), the plaintiff had identified three Jersey trusts of which first defendant Eric Watson, along with his children and remoter issue, was an object of the trustee’s discretionary powers over income and capital.

      The move came as part of a long running dispute between two New Zealand businessmen, Sir Owen Glenn and Watson over a £129 million investment in a joint European property venture called Project Spartan. Glenn and his company, Kea Investments, brought proceedings for fraud and breach of fiduciary duty against Watson in the High Court of England and Wales in 2015.

      In 2018, the England & Wales High Court EWHC delivered judgment in Glenn's favour. Ruling that Kea’s investment had been procured by deceit by Watson, it ordered him to pay Kea £43.5 million, representing money that could not be recovered from the failed joint venture, plus compensation for Kea's lost profits. Watson still refused to pay and the EWHC sentenced him to prison for contempt in October 2020.

      Kea had registered its judgment debt in the Royal Court of Jersey under the Judgments (Reciprocal Enforcement) (Jersey) Law 1960, but was informed that Watson intended to procure the appointment of a replacement trustee of three Jersey law trusts in another jurisdiction.

      Kea therefore applied ex parte to the Royal Court in March 2020 for urgent interim relief. The Royal Court granted a suite of orders restraining the Jersey trustee from transferring the trust assets, suspending the powers of the protector and prohibiting Watson from disclaiming his beneficial interest under the trusts.

      Kea also sought and was granted provisional execution measures to be confirmed at a subsequent inter partes hearing, on the grounds that it was entitled to attach and seize Watson's interests as a beneficiary under the three trusts by way of an arrêt. Kea also attached the benefit of certain loans that Watson had made to the trustees and to a trust-owned company by way of arrêts entre mains.

      An arrêt is a customary legal remedy for the satisfaction of a debt that may be made against the debtor, his or her property directly, or against a third party, over property owed to the debtor, known as an arrêt entre mains. The arrest procedure is available for tangible property or chattels and has been held, in some circumstances, to apply to intangible movable property, debts and shares. If granted, its effect is to charge the thing arrested and create a proprietary security interest in it in favour of the arresting creditor.

      The Jersey courts had not previously ruled on the availability of the arrest against a beneficiary's interest under a discretionary trust. At the inter partes hearing, Kea argued that the Trusts (Jersey) Law 1984 provided that the interests and rights of a beneficiary of a discretionary trust were movable property, could be sold or charged subject to the terms of the trust and were therefore capable of arrest. Kea would not be able to compel the trustee to make an appointment of any assets in Watson's favour, but it could obtain copies of trust accounts to evaluate the trust property as if it were itself a beneficiary.

      The Royal Court declined to confirm the arrêts, instead holding that the rights held by a discretionary object of a trust were not inherently transmissible by way of assignment or distraint, nor were they amenable to execution. While Article 10(11) Trusts (Jersey) Law 1984 provided that “a beneficiary may sell, pledge, charge, transfer or otherwise deal with his or her interest in any manner”, this was expressed to be “subject to the terms of the trust” and there was nothing in the terms of the specific trust instruments that provided that Watson could alienate his beneficial interest.

      The Court said: “In essence, Kea, by distraining on Mr Watson’s rights as a discretionary beneficiary, wishes to be subrogated for him in the hope that it can benefit from the trust funds of the trusts in his place as if it were a beneficiary.  Fundamentally, that is not permissible under the terms of the trust deeds as Kea is not a beneficiary and no power can be exercised in its favour. Even if Mr Watson’s rights were somehow assigned to Kea by way of distraint, it cannot ask to be considered for the exercise of the trustee’s discretion in its favour as it is not a beneficiary.”

      The Court did however confirm the arrêts entre mains in respect of the loans made by Watson to the trusts, as a result of which the debts instead became due to Kea. The Court also demonstrated some sympathy for Kea's position and granted it a period of time within which to plead factual claims against the three trusts on more conventional grounds, including resulting trust and proprietary tracing claims.

      The full judgment can be accessed at https://www.jerseylaw.je/judgments/unreported/Pages/[2021]JRC009.aspx

  • OECD agrees new peer review process for tax ruling transparency
    • 22 February 2021, the OECD/G20 Inclusive Framework on Base Erosion & Profit Shifting (BEPS) agreed a new peer review process for assessing whether countries are meeting global minimum standards for private tax ruling transparency under the BEPS Action 5 minimum standard. The new methods will apply to assessments conducted from 2021 to 2025.

      Designed to maintain and further improve transparency on tax rulings, this includes enhanced terms of reference for assessing the implementation of the minimum standard and a streamlined methodology, adopting a risk-based approach towards the peer reviews.

      The new process builds on the first phase of peer reviews covering the years 2017 to 2020, with the most recent statistics gathered from the 124 peer-reviewed jurisdictions showing that so far 36,000 exchanges on more than 20,000 tax rulings have taken place. The 2021 review in relation to the year 2020 is now underway, with results expected later this year.

  • OECD calls for crackdown on professionals enabling tax and white collar crimes
    • 25 February 2021, the OECD published a report concluding that countries should increase efforts to better deter, detect and disrupt the activities of professionals who enable tax evasion and other financial crimes.

      The report – titled ‘Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes’ – set out to explore the different strategies and actions that countries can take against those professional service providers who play a crucial part in the planning and pursuit of criminal activity, referred to in the report as “professional enablers”.

      It said ‘white collar’ crimes like tax evasion, bribery and corruption were often hidden through complex legal structures and financial transactions facilitated by lawyers, notaries, accountants, financial institutions and other professional enablers. Highly publicised recent tax scandals had highlighted the cross-border nature of these practices, further undermining public trust in the integrity of the tax system.

      The OECD noted that the majority of professional service providers were law-abiding, and played an important role in assisting businesses and individuals understand and comply with the law. The aim of the new report was to assist countries in dealing with the small subset that used their specialised skills and knowledge to enable clients to defraud the government and evade their tax obligations.

      “Professional enablers often hold the key to the successful commission of white collar crimes like tax evasion, bribery and corruption, which depend on ensuring anonymity and hiding the financial trail,” said Grace-Perez Navarro, Deputy Director of the OECD’s Centre of Tax Policy and Administration.

      “Professional enablers help criminals conceal their identities and activities through shell companies, complex legal structures and financial transactions, relying on their specialised knowledge and veneer of legitimacy. Our ongoing work is intended to help countries develop and strengthen national strategies and international co-operation to crack down on the so-called professionals, whose actions are undermining government revenue, public confidence and economic growth.”

      The report calls on countries to establish or strengthen national strategies to deal with professional enablers more effectively. Such strategies should:

      -Ensure that tax crime investigators are equipped to identify the types of professional enablers operating in their jurisdiction, and to understand the risks posed by how they devise, market, implement and conceal tax crime and financial crimes;

      -Ensure the law provides investigators and prosecutors with sufficient authority to identify, prosecute and sanction professional enablers, both to deter and penalise;

      -Implement multi-disciplinary prevention and disruption strategies, notably through engagement with supervisory, industry and professional bodies, to prevent abusive behaviour, incentivise early disclosure and whistle-blowing and take a strong approach to enforcement;

      -Ensure relevant authorities proactively maximise the availability of information, intelligence and investigatory powers held by other domestic and international agencies to tackle sophisticated professional enablers operating across borders;

      -Appoint a lead person and agency in the jurisdiction with responsibility for overseeing the implementation of the professional enablers strategy, undertake a review of its effectiveness over time and devise further changes as necessary.

      The report will be presented during a dedicated session at the virtual OECD Global Anti-Corruption and Integrity Forum on 24 March. The Forum will be open to the public and interested participants are invited to register to attend.

  • OECD issues final stage 1 peer review reports for BEPS Action 14
    • 16 February 2021, the OECD published the stage 1 peer review assessments of the efforts made by 13 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to implement the Action 14 BEPS minimum standard, which aims to improve the resolution of tax-related disputes between jurisdictions.

      The assessments – covering Aruba, Bahrain, Barbados, Gibraltar, Greenland, Kazakhstan, Oman, Qatar, Saint Kitts & Nevis, Thailand, Trinidad & Tobago, the United Arab Emirates and Vietnam – contain almost 340 targeted recommendations that will be followed up in stage 2 of the peer review process.

      The OECD said these stage 1 peer review reports, which incorporate MAP statistics from 2016 to 2019, continue to represent an important step forward to turn the political commitments made by members of the Inclusive Framework into measurable, tangible progress. Many jurisdictions were already working to address deficiencies identified in their respective reports.

      The OECD has now published stage 1 peer review reports for all batches and stage 2 peer review reports for batches 1 to 3. It will continue to publish stage 2 peer review reports in batches as per the Action 14 peer review assessment schedule. In total, 82 stage 1 peer reviews and 37 stage 1 and stage 2 peer reviews have been finalised, with the fourth batch of stage 2 report to be released in the coming months.

  • Seychelles seeks speedy removal from EU blacklist
    • 16 February 2021, the Seychelles Ministry of Finance issued a statement to confirm that it was taking key steps to reform its territorial tax regime to address concerns of the European Union. Together with addressing the concerns of the Global Forum on Transparency and Exchange of Information for Tax Purposes, these changes were intended to ensure that the Seychelles is removed from the EU's list of non-cooperative jurisdictions later this year.

      President Wavel Ramkalawan gave his assent to the Business Tax (Amendment) Act on 28 December 2020, which will come into effect when gazetted. The Act refines the Seychelles territorial tax system, so that the exemption from tax for foreign income is suitably targeted. The Business Tax (Amendment) Act 2020 will amend the Business Tax Act (Cap 20) to ensure that:

      -Activities performed abroad by a permanent establishment of a Seychelles company will be exempt from tax in the Seychelles, with income from activities that are not sufficient to qualify as a permanent establishment remaining taxable;

      -Foreign income received on Seychelles-based intellectual property will be taxable in the Seychelles, with a territorial exemption for income from patents (and equivalent rights) related to the level of research and development undertaken in the Seychelles connected to the creation of that patent;

      -Foreign passive income will be exempt under the territorial regime where the Seychelles company receiving the passive income has adequate economic substance in the Seychelles;

      -Any foreign income that is subject to tax in the Seychelles, such as companies with insufficient economic substance or on non-patent intellectual property, will be taxed in the Seychelles, with a credit for foreign taxes incurred.

      The new conditions apply only to those companies that (with their affiliates) exceed a size threshold in order to exclude small companies that do not have an impact on the EU market. The Act also updates the definition of ‘permanent establishment’ to align with the latest OECD and UN model definitions.

      The Ministry also outlined the work undertaken to strengthen exchange of information for tax purposes after the rating of the Seychelles as only ‘partially compliant’ by the OECD Global Forum in 2020. To address these concerns, the Seychelles has undertaken to amend legislation as needed, issue guidance and work with stakeholders to understand the new requirements and build government capacity to facilitate practical implementation.  The legislative changes include:

      -The Beneficial Ownership Act 2020 came into operation on the 28 August 2020 to ensure that the definition of beneficial owners satisfies Financial Action Task Force (FATF) and OECD requirements;

      -The laws, which govern the availability of, and access to, accounting information for international business companies, trusts, limited partnerships and foundations operating in the international financial sector.  All entities will need to keep accounting information in Seychelles together with the supporting transaction documentation. These requirements will also apply to entities that are struck off and dissolved.  All such data need to be kept up to date and must be kept for at least seven years;

      -Changes to the rules for supervision and enforcement.

      The laws on availability of accounting information will be going through consultation phase and government will be submitting the laws to the National Assembly over the coming weeks. Once passed, the Seychelles will test the system with firms to build a track record that can be reviewed by the Global Forum and achieve a rating of at least 'Largely Compliant', which is necessary for removal from the EU tax blacklist.

      The timing of this review means that the Seychelles will not be in a position to satisfy the requirement of a 'Largely Compliant' rating before the EU's first biannual review of its non-cooperative jurisdiction list in February. The Ministry said that discussions with the EU Code of Conduct Group on the final details of its territorial regime were ongoing and it hoped to secure the removal of the Seychelles from the non-cooperative jurisdiction list at the next review point in October 2021.

  • Singapore Budget puts focus on innovation
    • 16 February 2021, Minister for Finance Heng Swee Keat announced as part of the Budget 2021 speech that Singapore is to sett aside S$24 billion ($18.1 billion) over the next three years to help local businesses innovate and build capabilities needed to take them through the next phase of transformation.

      He noted that last year's series of budgets had tilted towards "emergency support" in light of the global pandemic, but there was a need to focus this year's investment towards accelerating "structural adaptation". The financial boost will go towards various initiatives such as the Emerging Technology Programme, which will see the government co-fund the cost of trials and adoption of emerging technologies including 5G, artificial intelligence and cybersecurity.

      The new Emerging Technology Programme will help businesses to commercialise their innovations by co-funding the costs of trials and the adoption of frontier technologies such as 5G, artificial intelligence and trust technologies. A new chief technology officer or CTO-as-a-Service initiative, will also help firms identify and adopt digital solutions by providing access to professional IT consultancies, while a new Digital Leaders Programme will support promising firms in hiring a core digital team and in developing and implementing their digital transformation roadmaps.

      Beyond these new schemes, the government will also extend to end-March 2022 the enhanced support levels of up to 80% for existing enterprise schemes. These existing initiatives include the Scale-up SG programme, Productivity Solutions Grant, Market Readiness Assistance, and Enterprise Development Grant.

      There are no tax rebates or tax rate changes for companies for the year of assessment 2021, but as with YA 2021, tax losses and unabsorbed capital allowances can be carried back for three years rather than one for prior years. This amount remains capped at S$100,000.

      Taxpayers can make an irrevocable election to claim capital allowances over two years rather than three. For qualifying capital expenses incurred in YA 2022, 75% of the cost can be claimed in YA 2022, with the balance in YA 2023.

      An accelerated deduction will be available for expenditure incurred in the basis period for YA 2022 on renovation and refurbishment. The claim can be made in one year rather than over three, however it remains subject to the same overall cap as before of $300,000.

      The Double Tax Deduction for Internationalisation (DTDI) scheme is to be enhanced. A tax deduction of 200% is currently available for qualifying expenses incurred in respect of qualifying market expansion and investment development activities. No prior approval is required from Enterprise Singapore or the Singapore Tourism Board for double tax deductions on the first $150,000 of qualifying expenses.

      For qualifying expenses incurred on or after 17 February 2021, the DTDI has been enhanced to include virtual trade fairs in respect of certain expenses, the list of qualifying expenses for overseas investment study trips will be expanded to include logistics costs, and the list of qualifying activities that do not need approval under the $150,000 limit has been expanded.

      Currently, bond issuers who carry on a trade or business in Singapore, are allowed to claim a tax deduction of up to 200% on qualifying upfront costs incurred in relation to the issue of retail bonds. This concession will be extended from 19 May 2021 to 31 December 2026 but only in respect of rated retail bonds.

      Currently, withholding tax exemptions apply to all interest and loan-related payments falling under Section 12(6) of the Singapore Income Tax Act made between banks under an extra-statutory concession. This will now be legislated with effect from 1 April 2021 and will be subject to a review on 31 December 2031.

      The WHT exemption for payments made to any non-resident person by specified entities (banks, finance companies and other entities approved under the Securities & Futures Act), as well as for payments made for structured products and for over-the-counter financial derivatives, will be extended until 31 December 2026.

      To support businesses in nurturing creative ideas, the Singapore government is to invest in three platforms: a new Corporate Venture Launchpad, as well as the existing Open Innovation Platform (OIP) and Global Innovation Alliance (GIA).

      The Corporate Venture Launchpad, which will be piloted this year, will provide co-funding for corporates to build new ventures through pre-qualified venture studios.

      The OIP will be enhanced with new features such as a cloud-based Digital Bench for accelerated virtual prototyping and testing. The platform also co-funds prototyping and deployment.

      The GIA catalyses cross-border collaboration between Singapore and major innovation hubs across the world. Its network currently has 15 city links, which will be expanded to more than 25 over the next five years. In addition, the Co-Innovation Programme will be included in GIA. The programme will support up to 70% of qualifying costs for cross-border innovation and partnership projects.

      Heng noted that two major changes in the post-Covid-19 economy will be a shift from physical to digital modes of transactions across geographical borders and a shift from tangible to intangible assets (IA) in value creation. The government is therefore to develop a Singapore Intellectual Property Strategy 2030 to support businesses in commercialising the fruits of their innovation.

       

  • Supreme Court of Canada dismisses CRA leave to appeal in Cameco case
    • 18 February 2021, the Supreme Court of Canada gave notice that it had dismissed Canada Revenue Agency’s (CRA) application for leave to appeal the June 2020 transfer pricing decision of the Canadian Federal Court of Appeal in favour of Cameco Corporation, one of the world’s largest uranium producers. The Supreme Court did not issue reasons for its decision.

      In the matter of Canada v. Cameco Corporation, 2020 FCA 112, a Luxembourg-resident subsidiary of Cameco had become a party to uranium supply agreements with third parties in 1999 and Cameco also agreed to sell to it its uranium inventory and certain future production. In the same year, Cameco incorporated a subsidiary in Switzerland.

      In 2002, the Luxembourg subsidiary transferred its rights to purchase uranium under the supply agreements to the Swiss subsidiary. The price of uranium had increased sharply during the term of the supply agreements, such that the Swiss subsidiary realised substantial profits over time.

      The CRA reassessed Cameco’s 2003, 2005 and 2006 taxation years, reallocating approximately C$480 million of the Swiss subsidiary’s profits to Cameco through the application of the ‘recharacterisation’ provisions in section 247 of the Canadian Income Tax Act. These provide a mechanism for the CRA to make transfer pricing adjustments such that a transaction or series of transactions is substituted with the transaction or series that would have been entered into between persons dealing at arm’s length, under terms and conditions that would have been made between persons dealing at arm’s length. Cameco appealed the reassessments to the Tax Court of Canada.

      In September 2018, the Tax Court ruled that Cameco’s marketing and trading structure involving foreign subsidiaries, as well as the related transfer pricing methodology used for certain intercompany uranium sales and purchasing agreements, were in full compliance with Canadian law for the tax years in question.

      The CRA appealed the Tax Court’s decision to the Federal Court of Appeal. It argued that under Canada’s transfer pricing rules, the agreements between Cameco and its Swiss subsidiary should be recharacterised or repriced such that all of the profits would be realised by Cameco in Canada. It abandoned the argument that Cameco’s international structure and transactions were a sham and should be disregarded, after this had been emphatically rejected by the Tax Court.

      In June 2020, the Court of Appeal also found in favour of the taxpayer and upheld the Tax Court’s finding. In doing so, it noted that the economic benefit of participating in the uranium purchase agreements at the time the contracts were entered into was negligible. The profit that was proposed to be reallocated to the taxpayer resulted from the increase in the price of uranium, which the parties could not forecast. This was an inappropriate use of hindsight and after applying an objective test, the Court held that the recharacterisation provisions did not apply, because there was no evidence that parties dealing with each other at arm’s length would not have entered into the contracts in question.

      As all the transactions between Cameco and its subsidiary were done on market terms, the CRA’s allegation that there was ‘profit shifting’ was unfounded. The profits in issue properly belonged to Cameco’s subsidiary and the CRA could not rely on the transfer pricing provisions to arbitrarily reallocate profits from a subsidiary to its parent.

      On 30 October 2020, the CRA sought leave to appeal the Court of Appeal’s decision to the Supreme Court. The Supreme Court has now denied that request and dismissed the CRA’s appeal with costs.

      Cameco said it expects to receive a refund of C$5.5 million plus interest for amounts paid on previous reassessments issued by CRA for 2003, 2005 and 2006, as well as C$10.25 million in legal fees and up to C$17.9 million in disbursements for costs awarded by the Tax Court and the Court of Appeal in previous rulings.

       

  • Swiss Federal Council consults on Services Mobility Agreement with UK
    • 17 February 2021, the Federal Council opened consultation proceedings on the agreement between Switzerland and the UK on the Services Mobility Agreement (SMA), which was signed on 14 December 2020 and has been applied provisionally since 1 January. The consultation runs until 30 April.

      The SMA, regulates the reciprocal access and temporary stay of service providers such as management consultants, IT experts and engineers. It ensures mutual facilitated access for service providers in Switzerland and the UK after the Agreement on the Free Movement of Persons (AFMP) ceased to apply to the UK from 1 January. The SMA also contains provisions on the recognition of professional qualifications.

      Under the agreement, Switzerland will continue the notification procedure for service providers from the UK for up to 90 days per year. The Swiss economy will thus continue to have rapid access to short-term services from UK companies. The accompanying measures for UK service providers will also continue in full under the SMA. In 2019, around 3,800 businesses from the UK provided services in Switzerland for up to 90 days.

      The SMA also opens up the UK market to Swiss service providers through market access commitments in over 30 service sectors. Service providers from Switzerland are granted access to the UK market for 12 months within a 24-month period. These SMA conditions continue to give Swiss companies extensive access to the UK market for contract-based service provision by natural persons.

      The SMA will initially apply for two years and can be extend by mutual agreement. The Federal Council must submit a dispatch to Parliament to approve the agreement on the basis of its provisional application by the end of June.

  • Swiss ‘group of experts’ recommends tax areas of action for Switzerland
    • 4 February 2021, a group of experts assembled to review the Swiss tax system issued a report praising the tax culture but also identifying potential for improvement, in particular 16 areas of action aimed at strengthening Switzerland as a business location.

      The group of experts, which was made up of representatives from the Confederation, the cantons, businesses and the scientific community, was instructed by Federal Councillor Ueli Maurer to draw up areas of action to improve the framework conditions for the private sector and to position Switzerland as an attractive investment location.

      To promote research and development, the report recommended an extension of Switzerland’s patent box to copyrights for software. The patent box could also be extended to cover ancillary rights to support companies that do not have patents on their innovative services or products.

      The report also recommended expanding relief limits for R&D, noting that more generous regulation of research and development assists companies with a high level of innovation. The enhanced benefits would increase Switzerland’s attractiveness as a location for mobile companies.

      It further recommended that the cantonal capital and wealth taxes should be reduced because cutting taxes that are detrimental to a company’s asset base would strengthen the resilience of businesses, promote investment and increase Switzerland’s appeal for well-capitalised companies.

      The report called for an expansion of ecological incentive fees and also recommended also recommended the expansion of loss offsetting, which is currently limited to seven years, to strengthen businesses’ ability to take risks.

      The Federal Department of Finance (FDF) intends to submit measures based on its recommendations to the Federal Council for a decision by the end of June. Legislative procedures are already under way in the case of some areas of action; the reform of the withholding tax on interest; the abolition of the issue tax on equity capital; the partial abolition of transfer stamp tax; and the introduction of tonnage taxation.

  • UK Appeal Court rules on disclosure of overseas documents
    • 5 February 2021, the UK Supreme Court ruled that UK law enforcement agencies cannot issue notices under section 2(3) of the Criminal Justice Act 1987 to force the disclosure of documents and evidence held overseas by a foreign company.

      In R (on the application of KBR Inc.) v Director of the Serious Fraud Office [2021] UKSC 2, the appellant KBR Inc. (KBR) was a company incorporated in the US. It did not have a fixed place of business in the UK and had never carried on business in the UK. However, it had UK subsidiaries, including Kellogg Brown & Root Ltd (KBR UK).

      On 4 April 2017, the Serious Fraud Office (SFO) issued a notice under section 2(3) of the 1987 Act to KBR UK. KBR UK provided various documents to the SFO in response, but made it clear that some of the requested material, if and to the extent it existed, was held by KBR in the US.

      On 25 July 2017, officers of KBR attended a meeting in London at which the SFO handed the Executive Vice President a further notice (the ‘July notice’) under section 2(3), which contained multiple requirements for the production of material held by the firm outside the UK.

      KBR applied for judicial review to quash the July notice. Amongst other things, it argued that the July notice was ultra vires because section 2(3) of the 1987 Act did not permit the SFO to require a company incorporated in the US to produce documents it holds outside the UK.

      The Divisional Court refused KBR’s application. It held that section 2(3) extended extra-territorially to foreign companies in respect of documents held outside the UK if there was a sufficient connection between the company and the UK. On the facts, there was a sufficient connection between KBR and the UK, so the July notice was valid. KBR appealed.

      The Supreme Court unanimously allowed KBR’s appeal. When construing section 2(3) of the 1987 Act, the starting point, it said, should be the presumption that UK legislation was generally not intended to have extra-territorial effect. This presumption was rooted in both the requirements of international law and the concept of comity, which was founded on mutual respect between states.

      It said the presumption against extra-territorial effect clearly applied in this case because KBR was not a UK company and had never had a registered office or carried on business in the UK. The question for the Court was, therefore, whether Parliament intended section 2(3) to displace the presumption to give the SFO the power to compel a foreign company to produce documents it holds outside the UK. The answer depended on the wording, purpose and context of section 2(3), considered in the light of relevant principles of interpretation and principles of international law and comity.

      When Parliament intended legislation to have extra-territorial effect, said the Court, it often made this clear by including express wording in the statutory provisions. There was no such express wording in section 2(3). The other provisions of the 1987 Act did not provide any clear indication either for or against the extra- territorial effect of section 2(3). The fact that the SFO could use section 2(3) to compel a UK company to produce documents it held overseas did not cast any light on whether the legislation could be used against a non-UK company in the very different circumstances of the case at hand.

      The SFO submitted that the extra-territorial effect of section 2(3) must be implied because its purpose – to facilitate the investigation of serious fraud, which often has an international dimension – could not otherwise be effectually achieved. However, the Court held, there was nothing in the legislative history of the 1987 Act that suggested that Parliament intended that section 2(3) should have extra-territorial effect.

      Rather, the legislative history indicated that Parliament intended that evidence of fraud should be obtained from abroad by establishing reciprocal arrangements for co-operation with other countries. Since 1987, successive Acts of Parliament had developed the structures in domestic law that permitted the UK to participate in international systems of mutual legal assistance to facilitate criminal proceedings and investigations.

      These systems were subject to protections and safeguards, including provisions that regulated how documentary evidence might be used and made provision for its return. These provisions were fundamental to the mutual respect between states and comity on which the system was founded. It was therefore unlikely, said the Court, that Parliament would have intended them to operate alongside a broad unilateral power that permitted the SFO to compel foreign companies to produce documents held outside the UK, under threat of criminal sanction and without the protection of any safeguards.

      Judicial decisions concerning the extra-territorial effect of other statutory provisions should be approached with caution because they concerned entirely different statutory schemes, often enacted for different purposes and operating in different contexts. However, said the Court, the reasoning in Serious Organised Crime Agency v Perry [2012] UKSC 35 was instructive by way of analogy.

      In Perry, the Supreme Court held that section 357 of the Proceeds of Crime Act 2002 did not permit a disclosure order to be imposed on persons outside the UK. This supported the view that section 2(3) of the 1987 Act was likewise not intended to have extra-territorial effect, because there were close similarities between section 357 and section 2(3).

      The SFO relied on a number of other judicial decisions that it claimed supported its case that section 2(3) has extra-territorial effect. However, the Court said there was no sufficiently close analogy between the legislation considered in these cases and section 2(3), so it was unable to derive any assistance from them.

      There was therefore no basis for the Divisional Court’s finding that the SFO could use the power in section 2(3) of the 1987 Act to require foreign companies to produce documents held outside the UK if there was a sufficient connection between the company and the UK. Implying a sufficient connection test into section 2(3) was inconsistent with the intention of Parliament and would involve illegitimately re-writing the statute.

      The full judgment can be accessed at https://www.supremecourt.uk/cases/docs/uksc-2018-0215-judgment.pdf

       

  • UN Panel seeks global support for financial integrity
    • 25 February 2021, the United Nations High-Level Panel on International Financial Accountability, Transparency and Integrity (FACTI) urged governments across the world to create robust and coordinated national governance mechanisms that efficiently reinforce financial integrity for sustainable development.

      At the launch of a new report, titled ‘Financial Integrity for Sustainable Development’, the FACTI Panel outlined a set of measures to reform, redesign and revitalise the global architecture so it can effectively foster financial integrity for sustainable development. Recommendations contained in the report included:

      -Accountability

      -All countries should enact legislation providing for the widest possible range of legal tools to pursue cross-border financial crimes.

      -The international community should develop and agree on common international standards for settlements in cross-border corruption cases.

      -Businesses should hold accountable all executives, staff and board members who foster or tolerate illicit financial flows in the name of their businesses.

      -Legitimacy

      -International tax norms, particularly tax-transparency standards, should be established through an open and inclusive legal instrument with universal participation; to that end, the international community should initiate a process for a UN Tax Convention.

      -Transparency

      -International anti-money-laundering standards should require that all countries create a centralised registry for holding beneficial ownership information on all legal vehicles. The standards should encourage countries to make the information public.

      -Improve tax transparency by having all private multinational entities publish accounting and financial information on a country-by-country basis.

      -Building on existing voluntary efforts, all countries should strengthen public procurement and contracting transparency, including transparency of emergency measures taken to respond to COVID-19.

      -Fairness

      -Taxpayers, especially multinational corporations, should pay their fair share of taxes. The UN Tax Convention should provide for effective capital gains taxation. Taxation must be equitably applied on services delivered digitally. This requires taxing multinational corporations based on group global profit.

      -Create fairer rules and stronger incentives to combat tax competition, tax avoidance and tax evasion, starting with an agreement on a global minimum corporate tax.

      -Create an impartial and fair mechanism to resolve international tax disputes, under the UN Tax Convention.

      -Enablers

      -Governments should develop and agree global standards/guidelines for financial, legal, accounting and other relevant professionals, with input of the international community.

      -Governments should adapt global standards for professionals into appropriate national regulation and supervision frameworks.

      -International Cooperation

      -End information sharing asymmetries in relation to information shared for tax purposes, so that all countries can receive information.

      -Enable free exchange of information at the national level as standard practice to combat all varieties of illicit flows.

      -Promote exchange of information internationally among law enforcement, customs and other authorities.

      -Global governance

      Establish an inclusive and legitimate global coordination mechanism at united nations economic and social council (ECOSOC) to address financial integrity on a systemic level.

      -Building up on existing structures, create an inclusive intergovernmental body on tax matters under theunited nations.

      -Starting with the existing FATF plenary, create the legal foundation for an inclusive intergovernmental body on money-laundering .

      The objective of the FACTI Panel is to contribute to the overall efforts undertaken by UN member states to implement the ambitious and transformational vision of the 2030 Agenda for Sustainable Development. It is mandated to review current challenges and trends related to financial accountability, transparency and integrity, and to make evidence-based recommendations to close remaining gaps in the international system.

  • US drops ‘safe harbour’ demand, raising hopes for global tax deal
    • 26 February 2021, new US Treasury Secretary Janet Yellen told G20 officials that the US government had dropped its demand that the OECD's proposed Pillar One reform of the global digital tax and transfer pricing rules includes 'safe harbour' provisions, which would have allowed US companies to opt out of them. The move raised hopes for an agreement by the summer.

      The OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS), which groups 137 countries and jurisdictions, is currently negotiating changes to the international business tax system to address criticisms that it has been rendered obsolete by the growth of digital services and corporation tax avoidance.

      The proposals are grouped into two 'pillars':

      -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.

      -Pillar Two would introduce a global minimum tax that would help countries around the world address remaining issues linked to BEPS by MNEs.

      Last year, the former US Treasury Secretary Steven Mnuchin withdrew from negotiations, rejecting any new nexus rules unless multinational companies were allowed to opt to be taxed under the existing rules, the so-called ‘safe harbour’ clause. This objection, together with the impact of the pandemic, forced the OECD to delay the target consensus date until mid-2021.

      In a letter to G20 officials, Yellen underscored the Biden administration’s commitment to multilateral discussions on the global taxation issue, “overcoming disagreements, and finding workable solutions in a fair and judicious manner.”

      “Secretary Yellen announced that we will engage robustly to address both Pillars of the OECD project, and that the US is no longer advocating for ‘safe harbour’ implementation of Pillar One,” a US Treasury official said.

      Leaders of the G7 group of the world's largest developed economies reaffirmed their commitment, during a meeting on 19 February, to reach an agreement by mid-2021 on new international tax rules. “We will… strive to reach a consensus-based solution on international taxation by mid-2021 within the framework of the OECD,” the group said in a statement.

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