Owen, Christopher: Global Survey – April 2021

19 March 2021, the Financial Action Task Force (FATF) is updating its Guidance on the risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs). It said this was necessary to maintain a level playing field for VASPs in line with existing standards applicable to financial institutions and other anti-money laundering and countering the financing of terrorism (AML/CFT) obligated entities, as well as to minimise opportunities for regulatory arbitrage between sectors and countries.

The FATF originally published the Guidance in June 2019 when it finalised changes to its Standards to clearly place AML/CFT obligations on VAs and VASPs. In July 2020, the FATF committed to update this Guidance as set out in its 12-month review report and also to report to the G20 on so-called stablecoins.

The revised document provides updated guidance in six main areas to:

-Clarify the definitions of VA and VASP to ensure they are expansive and there should not be a case where a relevant financial asset is not covered by the FATF Standards (either as a VA or as a traditional financial asset);

-Provide guidance on how the FATF Standards apply to so-called stablecoins;

-Provide additional guidance on the risks and potential risk mitigants for peer-to-peer transactions;

-Provide updated guidance on the licensing and registration of VASPs;

-Provide additional guidance for the public and private sectors on the implementation of the ‘travel rule’;

-Include Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.

The FATF is now consulting private sector stakeholders before finalising the revisions. It is also considering the implementation of the revised FATF Standards on VAs and VASPs, and whether further updates are necessary, through a second 12-month review. It will consider the report of this review in June 2021.

1 March 2021, the Brazilian Senate enacted Legislative Decree Nos. 2/2021, 3/2021, and 4/2021 approving tax treaties with Singapore, Switzerland, and the United Arab Emirates (UAE) respectively. The treaties, which will become effective in Brazil when promulgated by presidential decree, bring Brazil’s tax treaty network to 36.

All three treaties contain a specific article covering fees for technical services, which is based on the UN Model Double Taxation Convention. The withholding tax rate for such fees is 10% with respect to Singapore and Switzerland, and 15% with respect to the UAE. They also contain provisions relating to the OECD Base Erosion and Profit Shifting (BEPS) project, including a principal purpose test and a limitation on benefits clause.

Singapore and Switzerland are both currently included on Brazil's ‘grey list’ of jurisdictions that are deemed to have a privileged tax regime, while the UAE is currently included on Brazil's ‘blacklist’. A blacklisted jurisdiction is one that does not tax income or taxes at a rate lower than 17%, or does not allow access to information on a corporate structure or on the identity of the beneficial owner of income.

12 March 2021, the BVI government introduced five new statutes making significant changes to various aspects of trust and estate law – the Trustee (Amendment) Act 2021, the Virgin Islands Special Trusts (Amendment) Act 2021, the Probate (Resealing) Act 2021, the Administration of Small Estates (Amendment) Act 2021 and the Property (Miscellaneous Provisions) Act 2021.

The Trustee (Amendment) Act 2021 includes provisions relating to the variation of trusts, court jurisdiction to set aside the flawed exercise of a fiduciary power, strengthening the existing firewall provisions and introducing extra reserved powers for settlors.

The most important amendment is the addition of rules empowering the High Court to vary the terms of a trust without the consent of adult beneficiaries, if the court considers the variation to be expedient in the circumstances. Safeguards are included in the section to ensure that it is not abused, in particular that the provisions will apply only if the settlor or trustees opt in to them when establishing a trust or when changing the governing law of an existing trust to BVI law. The VISTA trust legislation has also been slightly amended, as a consequence of the new provisions on variations of trust.

Statutory rules are also being enacted allowing the High Court to set aside trustees' mistakes. This will preserve the Hastings Bass rule in BVI law, following the UK Supreme Court's 2013 decision in the Pitt v Holt case.

In respect of the BVI's existing firewall provisions, which protect BVI trusts and trustees against forced-heirship and matrimonial claims in foreign countries, new provisions make it clear that all questions arising in regard to a trust are to be determined by BVI law. This should ensure that any disputes over BVI trusts are determined according to the relevant principles of its own trust laws and by its own courts, while ensuring that they cannot be used as a means for settlors to evade their legal obligations to others.

In respect of reserved powers, s.86 of the existing Trustee Act is amended to make explicit that a settlor's decision to reserve powers does not invalidate the trust or prevent its terms taking effect or cause any of its property to become part of the settlor's estate on death. A further amendment makes it clear that the grant of powers by the settlor to others will also not invalidate a trust.

The Probates (Resealing) Act 2021 expands the regime for resealing of foreign grants of probate or letters of administration by the High Court. It provides a comprehensive list of more than 60 jurisdictions that the BVI will recognise for the purposes of resealing, including all Commonwealth countries, Hong Kong and the US. Previously it was limited to a small number of jurisdictions, including the UK and certain Overseas British Territories.

The Property (Miscellaneous) Provisions Act 2021 and the Administration of Small Estates (Amendment) Act 2021 introduce minor changes. The first abolishes the last remnants of the rule against making provisions in trust instruments and wills for relatives born out of wedlock. The second increases the value at which a grant of probate or letters of administration must be sought in the BVI from USD240 to USD25,000, and restricts its application to cases where the deceased died domiciled in the BVI.

19 March 2021, the Federal Court of Canada ordered Toronto-based crypto exchange Coinsquare Limited to provide the Canada Revenue Agency (CRA) with account data on the trading activity of its largest Canadian clients even though the CRA did not identify any names in its disclosure request. It is the first time that an unnamed persons request has been made in Canada on a cryptocurrency exchange.

In Minister of National Revenue v Coinsquare Ltd (T-1114-20), the CRA made an application under subsections 231.2(2) and (3) of the Income Tax Act, RSC 1985, c 1, (5th Supp), as amended, and subsections 289(2) and (3) of the Excise Tax Act, RSC, 1985, c E-15, as amended, for judicial authorisation to impose on the respondent a requirement to provide information relating to unnamed persons.

It initially requested, last September, a broad scope of disclosure in respect of all Coinsquare client data going back to 2013. The agency said this was needed to ensure customers were complying with all duties and obligations.

The order finally granted, however, is the result of a negotiated agreement between both sides. It applies to customers who have had accounts valued at CAD20,000 or more on 31 December for the years from 2014 to 2020, as well as to the 16,500 largest customer accounts by trading volume in Canadian dollars and by number of trades over the same time period. Coinsquare estimates that the ruling will apply to 5% to 10% of its 400,000 customers.

The Court considered the CRA’s request to be reasonable because the request was made against an ascertainable group of unnamed taxpayers and it was made for the purpose of verifying their income tax compliance. Coinsquare was required to provide, by 6 April, information on customer bank accounts, transactions, cryptocurrency types, trading activity, ‘know your customer’ documentation and addresses.

Nevertheless Coinsquare described the ruling as a “partial but significant victory” because the CRA had initially applied to be granted access to all customer records since 2013. However Stacey Hoisak, Coinsquare’s CEO and General Counsel, warned that the agreement was likely to set a precedent for the CRA to make similar requests to other crypto exchanges.

18 March 2021, the Court of Justice of the European Union (CJEU) held that the Portuguese taxation regime applicable to capital gains realised by non-resident individuals was contrary to EU law and that the discriminatory tax treatment of non-residents could not be aligned with EU law by granting them the option to be treated as resident taxpayers. The decision was contrary to the opinion of the Advocate General (AG) given in November 2020.

In MK v Autoridade Tributária e Aduaneira (C-388/19), the taxpayer was a French resident individual who realised a capital gain on the resale of a property located in Portugal. In the relevant tax year, Portugual’s legislation provided that while resident taxpayers were taxed on a reduced taxable base of 50% at progressive tax rates of up to 48%, non-resident taxpayers were taxed on the full amount of the capital gain at a flat rate of 28%. Following the CJEU’s previous decision in Hollmann (C-443/06), however, it also permitted non-residents to opt, if beneficial, for the regime applicable to residents.

The non-resident taxpayer reported the capital gain in his Portuguese personal income tax return and applied the tax regime for non-residents. The tax assessment was issued on this basis, not applying the 50% reduction in the taxable base available only to Portuguese resident taxpayers. The taxpayer appealed the tax assessment before Portugal’s Tribunal Arbitral Tributário, arguing that the taxation regime for non-residents constituted a restriction on the free movement of capital, prohibited by article 63 TFEU. The tribunal referred the case to the CJEU.

The CJEU reiterated that it had already ruled in Hollmann that a tax base reduction of 50% that applies only to capital gains realised by Portuguese residents and not to non-resident taxpayers constituted a restriction on the movement of capital. Given that the differential tax system at issue resulted in non-residents being systematically taxed more heavily than residents on capital gains from the sale of real estate, the system constitutes a prohibited restriction on the movement of capital that could not be justified.

The AG had opined that the Portuguese tax regime was not necessarily contrary to EU law since the option for a non-resident taxpayer to be treated as a resident taxpayer eliminated any discriminatory tax treatment, provided that a taxpayer had been informed of this option in a timely and effective manner.

The CJEU disagreed. It held that this option could not compensate for infringements of EU law because it did not eliminate the discriminatory nature or consequences of the discriminatory regime. National legislation that restricted the free movement of capital remained incompatible with EU law even if its application could be avoided by opting for the resident taxpayer’s regime.

The decision can be accessed at https://curia.europa.eu/juris/document/document.jsf;jsessionid=5702E65601349208E870A54B7ED55E42?text=&docid=239005&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=2997687

24 March 2021, the Cyprus government expanded the types of qualifying investments for non-EU nationals to obtain a Permanent Resident Permit (PRP) – also know as a ‘Golden Visa’ – under the ‘fast-track’ route from residential real estate to include commercial real estate, Cyprus company shares and Cyprus funds.

An applicant is now required to invest €300,000 (excluding VAT) from funds received from sources outside Cyprus in one of four options:

-New residential real estate – Up to two units of residential property (apartments or houses) that are being sold by a developer for the first time (or resale if the purchase of the dwellings took place before 7 May 2013);

-Non-residential real estate – including offices, shops and hotels, or a combination of these;

-Shares of a Cypriot company – Must have operations in Cyprus and a minimum of five employees; or

-Qualifying Cypriot Investment Funds – Alternative Investment Funds (AIFs), AIFs with Limited Number of Persons (AIFLNPs) and Registered Alternative Investment Funds (RAIFS).

PRP status gives the applicant and his/her dependent spouse, dependent minor children and unmarried children in tertiary education or parents/in-laws the right to reside in Cyprus. The previous requirement for an applicant to leave a deposit of €30,000 in a Cypriot bank account for three years has been removed.

An applicant must provide evidence that they have an annual income from abroad in the form of wages, pensions, dividends or rents of at least €30,000 per year if they opt for the residential real estate investment option. In all other cases income can be generated in Cyprus. Additional funds need to be demonstrated for dependents included on the application – €5,000 per year for a dependent spouse or child and €8,000 per year for a parent or an in-law.

The maximum period for granting PRP under the simplified procedure is two months. PRP status does not impose any restrictions to the period of stay in Cyprus. The only exception is that a holder must visit Cyprus at least once every two years to maintain PRP status. PRP holders are free to enter and live in Cyprus without the need to obtain a visa.

An applicant and his/her spouse are required to certify that they did not intend to work in Cyprus and must submit a clean criminal record certificate issued by the police authority of their country of residence. Actual residence in Cyprus may lead to eligibility for Cyprus citizenship by naturalisation, currently after seven years of staying in Cyprus within 10 calendar years.

Additional PRPs may also be granted to non-financially dependent children of the applicant over the age of 18, but this will require the applicant to invest an additional amount of €300,000 (+VAT) per child.

If the main applicant of the PRP dies, his/her spouse and dependent children can apply to acquire the main applicant’s PRP without additional investment. Any individuals who acquired PRP status without having to invest are not then entitled to include their own spouses, children or parents.

18 March 2021, the Cyprus parliament passed into domestic law the provisions of EU Council Directive 2011/16 on cross-border tax arrangements, known as DAC6, which has been in force since June 2018. An amending Law is expected to be published in the official gazette in the near future.

DAC6 applies to cross-border tax arrangements that meet one or more specified characteristics (hallmarks) and which concern either more than one EU country or an EU country and a non-EU country. It mandates a reporting obligation for these tax arrangements if in scope, no matter whether the arrangement is justified according to national law.

DAC 6 has retroactive application as from 25 June 2018. This implies that intermediaries and taxpayers must review the necessary information relating to transactions implemented on or after that date, in order to fulfill their reporting obligations.

Following the COVID-19 pandemic, the deadlines initially were extended by six months and the Cyprus Tax Department (CTD) has further announced that there will be no imposition of administrative fines for overdue submission of DAC6 information provided that the information in respect of existing reportable cross-border arrangements (RCBAs) is submitted by 30 June 2021. As from 1 June 2021, a 30-day rolling window for submission of RCBAs will apply.

19 March 2021, the European Commission decided to refer the UK to the Court of Justice of the European Union (CJEU) for failing to fully recover illegal State aid of up to around €100 million, granted as a tax exemption for passive interest and royalties in Gibraltar, as required by a Commission decision prior to the UK's withdrawal from the EU.

On 19 December 2018, the Commission found Gibraltar's corporate tax exemption regime for passive interest and royalties applicable between 1 January 2011 and 30 June 2013 and between 1 January 2011 and 31 December 2013 respectively, as well as five tax rulings granted between 2011 and 2013, to be unlawful and incompatible with State aid rules.

EU State aid rules require that illegal State aid is recovered in order to remove the distortion of competition created by the aid. The deadline for the Gibraltar authorities to implement the Commission decision and recover all illegal aid was 23 April 2019. The Gibraltar authorities had identified four aid beneficiaries subject to the recovery order, but recovery had only be completed from two and less than 20% of the total illegal aid amount has been repaid.

Recovery is still pending from Mead Johnson Nutrition (beneficiary of a tax ruling) and partially from Fossil (beneficiary of the unlawful aid scheme). Mead Johnson Nutrition has appealed the Commission decision before the General Court of the European Union (case T-508/19) but, said the Commission, an action for annulment against a Commission decision did not suspend the obligation to recover illegal aid (Article 278 TFEU).

Mead Johnson Nutrition and Fossil have also started actions against the national recovery orders before national courts. In the framework of Fossil's national case, the Gibraltar Income Tax Tribunal has referred a preliminary ruling request to the Court of Justice (case C-705/20). In the meantime, the competent UK authorities and national courts have delayed or stayed the recovery orders.

Under the Agreement on the withdrawal of the UK from the EU, the Commission said it was entitled to bring the UK to the CJEU for failing to implement a Commission decision taken before the end of the transition period (i.e. before 31 December 2020). Article 87 (2) confirms that the CJEU has jurisdiction in such cases.

The Commission had therefore decided to refer the UK to the CJEU for failure to implement the Commission decision, in accordance with Article 108(2) of the Treaty on the Functioning of the European Union (TFEU).

Executive Vice-president Margrethe Vestager, in charge of competition policy, said: "The aid granted by Gibraltar in the form of corporate tax exemption for passive interest and royalties gave an unfair advantage to some multinational companies and had to be recovered by the UK and the Gibraltar authorities. However, more than two years after the Commission adopted this decision, the aid has still not been recovered in full and sufficient progress has not been made in restoring competition. That is why we have decided to refer the UK to the Court of Justice for failing to implement this decision."

22 March 2021, EU finance ministers formally adopted Council Directive (EU) 2021/514 – known as DAC7 –  which amends the Directive on administrative cooperation (2011/16/EU) to give tax authorities the information necessary to enforce cross-border tax rules on commercial operators of digital platforms. Member states are required to adopt the proposed amendments by 31 December 2022 and apply the new provisions from 1 January 2023.

The new rules introduce an obligation for digital platforms located both inside and outside the EU to report the revenues generated by sellers on these platforms, which will then be automatically exchanged between member states' tax administrations. Reporting of seller data must take place by 31 January of the year following the calendar year in which the seller is identified.

Reportable activities include property rentals, personal services, sale of goods, and rental of any mode of transport. They will be subject to reporting obligations regardless of whether they are cross-border in nature and regardless of the legal nature of the seller. Information to be reported will include identification of the seller, country of residence, the seller's profits or turnover, bank account details and details of property rented out.

Non-EU platforms will be exempt from reporting to EU tax administrations in cases where 'adequate arrangements' exist to ensure that equivalent information is exchanged between a third-party jurisdiction and a member state.

DAC7 also introduces standardised reporting requirements intended to limit the administrative burdens and expands the existing administrative assistance rules, including the introduction of automatic information exchange on royalties and the facilitation of joint audits.

This draft law was adopted by the European Commission on 15 July 2020, as part of a Tax Package alongside an ‘Action Plan for fair and simple taxation supporting economic recovery in the EU’. The Council of the European Union endorsed a compromise text concerning this proposal on 1 December. The Act was published in the Official Journal on 25 March 2021 and can be accessed at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2021.104.01.0001.01.ENG&toc=OJ%3A%3A2021%3A104%3ATOC

The European Commission has already started its work on the next amendment to the Directive (DAC8), which will mandate exchange of tax-relevant data for crypto-assets and e-money. It will be consulting on this until 2 June 2021 and expects to issue a proposal in the third quarter of 2021.

16 March 2021, Executive Vice-President of the EU Commission Valdis Dombrovskis confirmed that the Commission will continue to progress its proposal for an EU digital levy even if a global tax agreement on digital tax is reached at the OECD and G20 level.

Speaking at an informal ECOFIN press conference, Dombrovskis said: “We still need a global agreement on reforming the institutional system … so we welcome the change of position by the new US administration and remain confident of reaching a consensus by mid-2021.

“In parallel, as mandated by the European Council, we are continuing preparations for proposing an EU digital levy, to serve as an EU own resource by 2023. We will ensure that this will complement the OECD process and be WTO-compatible.”

The European Council tasked the Commission with putting forward a digital levy in July 2020. In January, the Commission requested feedback on the design of its proposal and an inception impact assessment was also released.

3 March 2021, the European Council mandated the Portuguese presidency to engage in negotiations with the European Parliament for the swift adoption of a proposed directive on the disclosure of income tax information by certain undertakings and branches, commonly referred to as the public country-by-country reporting (CBCR) directive.

The directive requires multinational enterprises or standalone undertakings with a total consolidated revenue of more than €750 million in each of the last two consecutive financial years, whether headquartered in the EU or outside, to disclose publicly in a specific report the income tax they pay in each member state, together with other relevant tax-related information. Banks are exempted from the present directive because they are obliged to disclose similar information under another directive.

In order to avoid disproportionate administrative burdens on the companies involved and to limit the disclosed information to what is absolutely necessary to enable effective public scrutiny, the directive provides for a complete and final list of information to be disclosed.

The reporting will have to take place within 12 months from the date of the balance sheet of the financial year in question. The directive sets out the conditions under which a company may obtain the deferral of such disclosure for a maximum of six years. It also stipulates who bears the actual responsibility for ensuring compliance with the reporting obligation.

The European Parliament adopted its position at first reading on 27 March 2019. On the basis of the agreed negotiating mandate, the Portuguese presidency will explore with the European Parliament the possibility of an early second reading agreement. If approved, member states would have two years to transpose the directive into national law.

1 April 2021, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on a wide range of questions related to the implementation of the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA).

This ANPRM is the first in a series of regulatory actions that FinCEN will undertake to implement the CTA, which is included within the Anti-Money Laundering Act of 2020 (AML Act). The AML Act is part of the 2021 National Defense Authorization Act, which became law on 1 January 2021.

The CTA amended the Bank Secrecy Act to require corporations, limited liability companies and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies).

FinCEN said the new reporting requirement will enhance US national security by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people.

The CTA requires FinCEN to maintain the reported beneficial ownership information in a confidential, secure, and non-public database. It also authorises FinCEN to disclose beneficial ownership information subject to appropriate protocols and for specific purposes to several categories of recipients, such as federal law enforcement. It further requires FinCEN to revise existing financial institution customer due diligence regulations to take into account of the new direct reporting of beneficial ownership information.

FinCEN strongly encourages all interested parties, particularly those that would be affected by the beneficial ownership information reporting provisions or would seek access to reported beneficial ownership information, to submit written comments by 5 May 2021.

The proposed rule can be assessed via the US Federal Register at https://www.federalregister.gov/documents/2021/04/05/2021-06922/beneficial-ownership-information-reporting-requirements

30 March 2021, Greece and Hungary deposited their ratification instruments for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which now covers over 1,700 bilateral tax treaties. It will enter into force for Greece and Hungary on 1 July.

The BEPS MLI is a multilateral tax treaty that is designed to allow countries to amend their existing tax treaties simply in order to align them with minimum standards developed in 2015 as a result of the OECD/G20 BEPS action plan.

With 95 jurisdictions currently covered by the MLI, the ratifications by Greece and Hungary bring the number of jurisdictions that have ratified, accepted or approved it to 65. The MLI became effective on 1 January 2021 for approximately 650 treaties concluded among the 65 jurisdictions, with an additional 1,200 treaties to become effectively modified when the MLI has been ratified by all signatories.

15 March 2021, the Irish Revenue Commissioners announced that it had agreed to hand over about €1 million to Dutch tax authorities as part of the settlement of a dispute concerning where the tax on profits generated by the Irish-based insurance division of Dutch telecoms giant, KPN, should be paid.

The double taxation dispute arose after Dutch tax authorities queried the taxes paid by the company in the Netherlands in respect of KPN Insurance Company, a Dublin-based unit that handles insurance for KPN customers’ mobile phone handsets.

The Dutch tax authorities raised issues over the taxation of the company’s activities in 2014 and 2015, when KPN Insurance Company earned about €12.5 million in profits. It paid more than €1.5 million in taxes in Ireland those years, even though the company wrote no business there. KPN would have had to pay higher taxes if that insurance income had been taxed in the Netherlands.

The Revenue and its Dutch counterpart then entered formal mutual agreement procedure (MAP) talks to resolve where the insurance company’s taxes should have been levied. The settlement, first reported by Dutch newspaper De Telegraaf, only applies to 2014 and 2015. KPN suggested in its annual report that there may be further disputes and MAP talks over KPN Insurance Company’s taxes after 2016.

5 March 2021, the Russian Finance Ministry said it had received a notice on completion of all ratification procedures from Luxembourg in respect of amendments to its double taxation agreement with Russia. The protocol had therefore come into force and its provisions would be applied from 1 January 2022.

The protocol provides for an increase of the withholding tax rate to 15% for gains in the form of dividends and interest, with certain exceptions for institutional investments and public companies. Last year, Russia also signed protocols on similar amendments to its tax treaties with Cyprus and Malta.

"Luxembourg completed internal state procedures required for the protocol on amendments to the agreement on avoidance of double taxation with Russia signed in Moscow on 6 November 2020 to be effective," the Ministry said.

25 March 2021, the Netherlands Ministry of Finance submitted to the House of Representatives a new bill introducing an additional withholding tax, at a rate of 25%, on dividend payments to related entities in specified low tax jurisdictions, applicable as from 1 January 2024.

The measure will apply to dividend flows to countries with a corporate tax rate of under 9% and to countries on the European Union’s list of non-cooperative tax jurisdictions.

“The Netherlands has radically changed its approach to tackling tax avoidance under the current government,’” saidState Secretary for Finance Hans Vijlbrief. “The withholding tax on interest and royalties is one of the most important measures. This tax will now also apply to dividends. Financial flows channelled from or through the Netherlands to another country where they are not taxed, will no longer go untaxed. It’s now vital to make even better international agreements to prevent other countries being used for tax avoidance purposes.“

The withholding tax comes on top of the withholding tax on interest and royalties, which came into force on 1 January 2021. The bill that has been submitted to the House of Representatives has a similar design. The measure will be introduced in 2024 to give the Tax and Customs Administration enough time to prepare.

These measures specifically target financial flows to low-tax countries, which DNB, the Dutch central bank, estimated to be worth €37 billion in 2018. Since the government expects this bill to put an end to dividend flows from the Netherlands to countries with low tax rates, no estimate has been made of how much revenue this measure will generate.

31 March 2021, 12 ‘no or only nominal tax’ jurisdictions – Anguilla, the Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Turks & Caicos Islands and the United Arab Emirates – began making their first tax information exchanges under the Forum on Harmful Tax Practice’s (FHTP) global standard on substantial activities.

The standard is designed to ensure that mobile business income can no longer be attributed to a low tax jurisdiction without the core business functions being carried out from that jurisdiction and that the countries where the parent entities and beneficial owners are tax resident get access through regular exchanges of information.

The new annual exchanges cover information on the identity, activities and ownership chain of entities established in no or only nominal tax jurisdictions that are either non-compliant with substance requirements or engage in intellectual property or other high-risk activities.

The exchanges will enable receiving tax administrations to carry out risk assessments and to apply their controlled-foreign company, transfer pricing and other anti-base erosion and profit shifting provisions.

"Today’s first exchanges of information on the previously unknown operations of entities in low tax jurisdictions, are good news for tax administrations around the world, as they will now have regular access to information on the activities and income of entities in low tax jurisdictions that are held or controlled by their taxpayers," said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.

The FHTP is monitoring both the legal and practical implementation of the standard by no or only nominal tax jurisdiction through an annual peer review process under Action 5 of the OECD/G20 Inclusive Framework on BEPS. The next annual results will be released in December 2021.

29 March 2021, the OECD published proposed changes to its model tax convention commentary that would alter the language in respect of the arm’s length treatment of interest payments between associated enterprises located in different countries and clarify a state’s obligation to make corresponding adjustments in cases involving related-party loans.

The proposed changes to the OECD Model Tax Convention on Income and on Capital are designed to clarify the application of Article 9 as it relates to domestic laws on interest deductibility, including laws aimed at preventing tax avoidance described in Action 4 of the OECD’s base erosion and profit shifting (BEPS) project.

Article 9 of the OECD model treaty deals with the allocation of profits in transactions between associated enterprises. The proposed amendments would replace paragraph 3 of the Article 9 commentary, which addresses thin capitalisation rules. The new language specifies that, in assessing whether an interest payment reflects the arm’s length amount, states will generally consider the loan terms and conditions, such as the rate of interest.

A proposed change to the commentary to Article 24 (non-discrimination) makes it clear that states can impose additional information requirements with respect to payments made to non-residents, including reversing the burden of proof, as such measures are intended to ensure similar levels of compliance and verification in the case of payments to residents and non-residents.

The OECD issued the proposed changes in a public discussion draft and expects to include them in the next update to the OECD model tax convention. The deadline for comments to be submitted on the draft is 28 May.

25 March 2021, the OECD published, in its capacity as depositary of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), the arbitration profiles of 30 jurisdictions applying Part VI on Arbitration of the MLI and an opinion of the Conference of the Parties to the MLI.

The MLI so far covers 95 jurisdictions and has been ratified by 64 jurisdictions. Part VI of the MLI allows jurisdictions to adopt mandatory binding arbitration for the resolution of tax treaty disputes. This option has so far been taken up by 30 parties and the arbitration profiles have been developed to provide taxpayers with additional information on these jurisdictions and to allow participating jurisdictions to make publicly available clarifications on their position on the MLI arbitration.

Each of the arbitration profiles includes links to the competent authority agreements (CAAs) concluded by each jurisdiction, lists of any reservations made by those jurisdictions in respect of the scope of cases eligible for arbitration and any further clarifications that those jurisdictions wish to make publicly available on their position on the MLI arbitration.

On 15 March, the Conference of the Parties to the MLI approved an opinion that clarifies the interpretation and application of Article 35 of the MLI on the entry into effect of its provisions. In particular, the opinion clarifies a question that had arisen with respect to the entry into effect of the MLI for taxes withheld at source where the latest of the dates of entry into force of the MLI for a pair of Contracting Jurisdictions is on 1 January of a given calendar year.

31 March 2021, new US President Biden proposed a US$2 trillion ‘American Jobs Plan’ to create domestic jobs, rebuild national infrastructure and increase US competitiveness. To fund this, the administration also proposed a ‘Made in America Tax Plan’, which is intended to raise that amount or more over 15 years through a mix of incentives for domestic spending, renewed tightening of offshore profit shifting and higher income tax rates on corporations.

The plan reverses or modifies several important provisions enacted in the President’s Trump’s 2017 Tax Cuts & Jobs Act (TCJA) and focuses primarily on corporate income taxes. The headline policy increases the federal corporate income tax rate from 21% to 28%, which is still below the pre-TCJA rate of 35%, but the most significant proposals relate to the taxation of foreign profits.

The first is a revision of the global intangible low taxed income (GILTI) tax rate, which currently imposes a 10.5% minimum tax on US corporate shareholders that hold at least 10% of controlled foreign corporations (CFCs) based on a CFCs' aggregated active income. President Biden proposes to raise the effective rate from 10.5% to 21% and to calculate this on a country-by-country basis such that income earned in low-tax countries will become subject to GILTI. This would prevent multinationals avoiding the GILTI tax by diluting the income from subsidiaries operating in low-tax countries with income from those in high-tax countries.

The second would be the repeal of the foreign derived intangible income (FDII) regime, which encourages US multinational groups to keep intellectual property in the US by taxing certain sales and services provided to unrelated foreign parties at an effective tax rate of 13.5%. Revenues from the repeal of FDII will be used to expand more effective research and development investment incentives.

To backstop other anti-inversion provisions, corporate residence for US federal income tax purposes would consider the place of management and operations. Deductions for ‘offshoring’ jobs would be denied and a tax credit would be provided to support ‘onshoring’ jobs.

The plan would introduce a corporate alternative minimum tax, which would be a 15% minimum tax on the ‘book income’ of very large corporations with book profits of $100 million or more. Fossil fuel preferences would be eliminated, and Superfund payments reinstated, in furtherance of President Biden’s 2050 net-zero emissions goal.

Funding for the Internal Revenue Service would be increased to enable broader enforcement initiatives to address tax evasion among corporations and high-income Americans.

Most significantly for international business, the report commits to seeking global agreement on a minimum corporation tax rate, which is currently under discussion at the OECD and G20 base erosion and profit shifting (BEPS) meetings. To encourage acceptance, the plan would replace the US base erosion and anti-abuse tax (BEAT) with a regime that denies tax deductions to US-owned multinationals that make payments to foreign persons in jurisdictions that have not adopted the minimum tax.

“These are key steps toward a fairer tax code that encourages investment in the US, stops shifting of jobs and profits abroad, and makes sure that corporations pay their fair share,”  said the plan. “The President looks forward to working with Congress, and will be putting forward additional ideas in the coming weeks for reforming our tax code so that it rewards work and not wealth, and makes sure the highest income individuals pay their fair share.”

The proposals have not yet reached the stage of draft legislation and each element of the plan must be introduced and passed by the US Congress before it can become law.

 5 March 2021, the National Assembly approved the International Trusts Amendments Bill, which amends section 29A of the International Trusts Act (Cap.276) and inserts a new section 33A in order to rectify the shortcomings identified by the Eastern & Southern Africa Anti-Money Laundering Group (ESAAMLG) in its 2018 Mutual Evaluation Report.

Section 29A is amended to require trusts to provide a full name, address, nationality or place of incorporation for each trustee, beneficiary or class of beneficiaries, settlor, protector (if any) and regulated agent and service provider of the trust including, but not limited to, investment advisors, investment managers, accountants or tax advisors of the trust. These provisions, as amended, must be complied with by every trustee within three months from the date of commencement of the Act.

Section 33A requires that a trustee of a trust must disclose its status as a trustee to a financial institution or a designated non-financial business or profession when forming a business relationship or carrying out an occasional transaction in an amount equal to or above the amount prescribed under the Third Schedule to the Anti-Money Laundering and Countering the Financing of Terrorism Act, 2020 (Act 5 of 2020). A fine not exceeding $5,000 will be applied to trustees who are found not to be in compliance.

Minister of Finance Naadir Hassan, who presented the bill to the National Assembly, described the amendments as “urgent actions that Seychelles had to take, to be on par with the international norm and meet the requirements of the FATF standards.”

“Today, the amendments are sort of a stop gap measure to address the immediate issues,” he said. “We are already working on a new modern Trusts Act, which is more comprehensive. The first draft is ready, and the next step will be consultation with the stakeholders. We anticipate that we should be able to go back to the National Assembly in mid-year to present a new Trusts Act.”

The National Assembly also approved amendments to: the Anti Money Laundering and Countering the Financing of Terrorism (Amendment) Bill, 2021; the Beneficial Ownership (Amendment) Bill, 2021; the Mutual Assistance in Criminal Matters (Amendment) Bill, 2021 and the Extradition (Amendment) Bill, 2021.

10 March 2021, the Swiss parliament passed a bill to revise the Anti-Money Laundering Act but rejected proposals to make lawyers, fiduciaries, trustees, and other consultants subject to due diligence requirements. The Financial Action Task Force (FAFT) has been recommending that lawyers and financial advisors be included in Swiss legislation against money laundering since 2005.

Under the latest revision, financial intermediaries will now be required to verify the identity of customers, record which services have been provided to them, and clarify their background and purpose. This information will be subject to periodic checks.

Associations that collect or distribute funds abroad for charitable purposes – which could be exposed to an increased risk of terrorist financing and money laundering – will also be required to sign up to the commercial register, appoint a representative in Switzerland and keep a list of their members for five years.

Another key revision is the reporting of suspicious activity. Parliament agreed that banks are obliged to inform the Money Laundering Reporting Office Switzerland (MLROS) if they have a “well-founded suspicion” of criminal funds.

However, the hardest-fought part of the two-year-long political process was whether to include related industries to wealth managers – chiefly lawyers, fiduciaries, trustees, and other consultants – in the anti-money laundering law. The Swiss parliament opted not to do so.

It also did not accept the government’s proposal to reduce the maximum amount that dealers in precious metals and gemstones can accept in cash payments to CHF15,000 ($16,200), which corresponds to the EU’s ceiling. The threshold for cash payments therefore remains at the current CHF100,000 ($107,672). The scope of application of the Anti-Money Laundering Act will also not be extended to those who manufacture smelted products on a commercial basis.

In 2015, upon pressure from the FATF, Switzerland introduced new reporting obligations in the Swiss Code of Obligations (CO), which require companies to keep a register of owners of bearer shares as well as of the company’s beneficial owners. In November 2019, further amendments of the CO entered into force, which abolished bearer shares in principle.

As of 1 May 2021, bearer shares are permitted only if the company has equity securities listed on a stock exchange or if the bearer shares are structured as intermediated securities. These exceptions need to be registered with the commercial register. Companies that do not fall under these exceptions but still have bearer shares must convert them into registered shares by 30 April 2021.

3 March 2021, UK Chancellor Rishi Sunak presented the Spring Budget 2021 in which he outlined a three-part plan to support people and businesses, fix public finances and build the future economy. He said the government's overall Covid-19 support package will be £352 billion over 2021 and 2022, giving a total of £407 billion when including last year's measures.

The principal tax rise was corporation tax. The rate, paid on company profits, is to rise to 25% from 19%, starting in 2023. Sunak said it was "fair and necessary" for business to contribute to the economic recovery and maintained that even with the rise to 25% "the UK will still have the lowest corporation tax rate in the G7" group of leading nations.

He also unveiled a ‘small profits rate’, which will maintain the 19% rate for firms with profits of £50,000 or less. This means that about 70% of companies – 1.4 million businesses – will be "completely unaffected" by the tax rise. There will also be a taper above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate – about 10% of firms.

There will be a consequential increase in the main rate of ‘diverted profits tax’ from 25% to 31%, This tax was introduced to address arrangements that are designed to erode the UK tax base through avoiding a presence in the UK or exploiting cross-border mismatches. The increase will maintain the current differential of 6% between the rates of diverted profits tax and corporation tax when the latter rises.

Prior to the rate increase, the Chancellor confirmed that between 1 April 2021 and 31 March 2023, businesses will be able to make ‘super deductions’ by way of enhanced first-year capital allowances for expenditure on plant and machinery.

There were no changes to the rates of income tax, national insurance or VAT for the 2021/22 tax year, but a number of thresholds were ‘frozen’ until 2026. The tax-free personal allowance will rise by £70 from £12,500 to £12,570 in April 2021, and it will then remain there until April 2026. The higher-rate tax threshold, at which point the amount charged rises from 20% to 40%, will rise by £270 from £50,000 to £50,270 from April 2021, where it will remain until April 2026. The additional-rate tax threshold, at which point the amount charged rises from 40% to 45%, is also to remain at  £150,000 until April 2026.

Three more key thresholds will also be frozen until 2026:

-The pensions lifetime allowance – the maximum amount that can be paid into a pension over lifetime before tax is due – will remain at £1,073,100 until 2026. The separate annual tax-free pensions allowance of £40,000 is unchanged;

-Inheritance tax (IHT) thresholds will remain at existing levels until April 2026. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million;

-The capital gains tax (CGT) allowance will remain at £12,300/year for individuals until 2026.

In response to reduced activity in the housing market during the pandemic, Sunak has committed to extend the temporary Stamp Duty Land Tax (SDLT) relief, which he introduced in July last year. The original allowance, which was due to end on 31 March this year, saw the threshold for SDLT increase from £125,000 to £500,000, with the reductions being passed on to those falling within the upper rate bands as well. These reduced rates of SDLT will now run to 30 June 2021, while house purchases completing between 1 July and 30 September 2021 will see the threshold set at £250,000.

A further 2% surcharge for non-residents purchasing residential property has been introduced from 1 April 2021. This will apply in addition to the current 3% surcharge that is imposed when an individual acquires a UK property if they already own a residential property anywhere in the world. With a basic 12% SDLT rate for a property purchase of £1.5 million or more, this could increase SDLT to as much as 17% for a non-resident purchaser buying a second home.

Sunak also announced a consultation on implementation of a new Mandatory Disclosure Regime to replace the EU Mandatory Disclosure Regime (DAC6) in the UK. The government proposes to introduce a regime that aligns with the OECD’s Mandatory Disclosure Rules, which facilitate global exchange of information on certain cross-border tax arrangements and will launch a consultation later this year on draft regulations.

Sunak also announced a package of new measures to target promoters and enablers of tax avoidance schemes. These measures are expected to allow HMRC to issue and publish penalties for those who enable schemes sooner, to allow HMRC to stop promoters from marketing schemes earlier, and to amend the general anti-abuse rule (GAAR) so that it can be applied more directly and clearly to partnerships that enter into abusive arrangements at the level of the partnership.

Another measure introduces a new Financial Institution Notice (FIN) that will be used to require financial institutions to provide information to HMRC when requested about a specific taxpayer, without the need for approval from the independent tribunal that considers tax matters. It will also allow information and documents to be obtained for the purpose of collecting a tax debt.

Sunak announced that the government is updating the immigration system to help the UK attract and retain the most highly skilled, globally mobile talent – particularly in academia, science, research and technology – from around the world. To do this, the government will:

-Introduce, by March 2022, an elite points-based visa. Within this visa there will be a ‘scale-up’ stream, enabling those with a job offer from a recognised UK scale-up to qualify for a fast-track visa;

-Reform the Global Talent visa, including to allow holders of international prizes and winners of scholarships and programmes for early promise to qualify automatically;

-Review the Innovator visa to make it easier for those with the skills and experience to found an innovative business to obtain a visa;

-Launch a new Global Business Mobility visa by spring 2022 for overseas businesses to establish a presence or transfer staff to the UK;

-Provide practical support to small firms that are using the visa system for the first time;

-Modernise the immigration sponsorship system to make it easier to use. The government will publish a delivery roadmap in the summer;

-Establish a global outreach strategy by expanding the Global Entrepreneur Programme, marketing the UK’s visa offering and explore building an overseas talent network.

29 March 2021, UK Foreign Secretary Dominic Raab reaffirmed the UK’s commitment to reaching agreement on a future treaty between the UK and European Union in respect of Gibraltar. As a result of the position taken by the EU prior to Brexit, Gibraltar was not covered by the UK-EU Trade and Cooperation Agreement.

The UK, working side-by-side with the Gibraltar government, reached a political agreement with Spain on 31 December 2020 for a political framework to form the basis of a separate treaty between the UK and the EU regarding Gibraltar, which is a British Overseas Territory.

This outline agreement, currently being examined by the European Commission, will allow Gibraltar 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 external borders of the Schengen area.

This will then need to be agreed by the European Council before negotiations can begin. The key issue for the negotiation is border fluidity in respect of the movement of people and goods between Gibraltar and the surrounding region.

While this 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, and customs and policing, which were signed in 2018 and had been due to expire at the end of 2020.

“As a valued member of the UK family, we stand side-by-side with Gibraltar as we enter into the forthcoming negotiations with the EU on Gibraltar’s future relationship,” said Raab. “We are committed to delivering a treaty that safeguards UK’s sovereignty of Gibraltar and supports the prosperity of both Gibraltar and the surrounding region.”

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.”

26 March 2021, the US Trade Representative (USTR) announced that it had found that Digital Service Taxes (DSTs) trade actions adopted by Austria, India, Italy, Spain, Turkey and the UK were subject to action under Section 301 because they discriminated against US digital companies, were inconsistent with principles of international taxation and burdened US companies.

USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.

In each case, the USTR is proposing to impose additional tariffs of up to 25% ad valorem on a quantity of trade from each country. The aim is to collect duties on goods from the countries in an amount that would offset the amounts that the countries are expected to collect from US companies under their DSTs.

“The US is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,” said Ambassador Katherine Tai. “The US remains committed to reaching an international consensus through the OECD process on international tax issues.  However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.”

The USTR initiated investigations into DSTs adopted or under consideration in ten jurisdictions last June. The remaining four jurisdictions – Brazil, the Czech Republic, the EU and Indonesia – have not adopted or not implemented the DSTs under consideration when the investigations were initiated. As result, USTR said it was terminating these investigations without further proceedings.