Owen, Christopher: Global Survey – May 2021

19 April 2021, Dutch bank ABN Amro announced it had reached a €480 million settlement with the Dutch public prosecutor (DPPS) in relation to its investigation into the bank's compliance with its obligations under the Dutch Anti-Money Laundering and Counter Terrorism Financing Act in the period between 2014 and 2020.

As part of its supervisory duties, the Dutch Central Bank has conducted a number of investigations into ABN Amro’s compliance with the AML/CTF Act and has found several violations. These were found to be serious and culpable, and on several occasions, it took enforcement action. The Dutch Fiscal Information & Investigation Service (FIOD) had also received concrete signals and indications in regard to dozens of clients that ABN Amro may have been falling short in fulfilling its gatekeeper function.

A criminal investigation was started by FIOD) in the second half of 2019. It identified serious shortcomings on a structural basis in ABN Amro's processes to combat money laundering in the Netherlands, such as client acceptance, transaction monitoring and client exit processes in the period between 2014 and 2020.

The DPSS had accused ABN Amro of failing to spot accounts involved in money laundering, failing to end relations with suspicious clients and failing to report such transactions to the relevant authorities. As a result, “various clients engaged in criminal activities were able to abuse bank accounts and services of ABN Amro for a long time”.

ABN Amro said in a statement it had agreed to pay a fine of €300 million, as well as €180 million as disgorgement to cover “unlawfully obtained gains”, which reflected "the seriousness, scope and duration of the identified shortcomings".

The DPSS said in a statement its criminal investigation into natural persons was continuing. Three natural persons had been identified as “suspects effectively responsible for violation of the AML/CTF Act” by the bank. They are former members of ABN Amro’s Board of Directors.

"This settlement marks the end of a painful and disappointing episode for ABN Amro," said chief executive Robert Swaak.

8 April 2021, the new Biden administration sent proposals to the steering group of the OECD/G20 Inclusive Framework on BEPS as it sought to re-enter ongoing negotiations to develop a solution to the tax challenges of the digitalisation of the economy.

In October last year, the Inclusive Framework issued for consultation a blueprint that would divide its proposals into two ‘pillars’. Pillar One would establish new rules on where tax should be paid (‘nexus’ rules) and a fundamentally new way of sharing taxing rights between countries. This would 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. Pillar Two would introduce a global minimum tax that would help countries around the world address remaining issues linked to base erosion and profit shifting by MNEs.

The Trump administration had withdrawn from the international negotiations in July, stating that the Pillar One proposal would disproportionately impact US multinationals, particularly tech and consumer facing businesses. It insisted on a ‘safe harbour’ provision that would make compliance by US technology groups voluntary.

President Biden is now seeking to reassert the US’s role in the OECD tax plans in the hopes the promise of a more stable international tax system will stop the proliferation of national digital taxes and break the mould of tax avoidance and profit-shifting. The US is currently threatening to apply tariffs to countries including France, the UK, Italy and Spain over their unilateral digital tax regimes.

On Pillar One, the US Treasury is now offering a formula in which only the very largest and most profitable companies in the world would be subject to the new rules, regardless of their sector, based on their level of revenue and profit margins. These would probably include about 100 companies, comprising the big US tech groups as well as other extremely large multinationals.

With respect to Pillar Two’s global minimum tax regime, the US proposal expressed a “wish to end the race to the bottom” on corporate taxation and strong support for the shareholder level ‘top-off’ or minimum tax that generally would apply in respect of the income of a subsidiary not subject to a minimum level of taxation. However, under the US proposal the minimum tax would be 21% rather than the putative proposed OECD rate of 12.5%.

Bruno Le Maire, France’s finance minister, said Paris would keep its national digital tax in place until an agreement was sealed at the OECD. Although “a historic accord is within reach . . . Fiscal convergence is under way between developed countries”, he added: “We won’t adopt pillar one without pillar two, and we won’t adopt pillar two without pillar one.”

The OECD has said a political agreement will be reached by mid-2021 when it will deliver a global consensus-based solution to the July G20 finance ministers’ meeting.  OECD head of tax administration Pascal Saint-Amans said: “This reboots the negotiations and is very positive,” he said. “It is a serious proposal with a chance to succeed in both the [international negotiations] and US Congress. Peace is more important than anything else and this would stabilise the [international corporate tax] system in the post-coronavirus environment.”

16 March 2021, Brazil and Switzerland brought the double tax agreement, signed on 3 May 2018, into force following ratification by both sides. The first such treaty between the two parties, its provisions will apply from 1 January 2022.

Dividends and interest will be taxed in the source country, up to the general limit of 15%. Switzerland does not levy withholding tax on interest arising from regular loan agreements. Royalties will be taxed in the source country, up to the general limit of 10%. The tax rate will be 15% for royalties arising from the use of trademarks. Switzerland does not levy Swiss withholding tax on royalties.

The treaty introduces 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%.

The treaty takes account of the OECD’s base erosion and profit shifting (BEPS) project by including an anti-abuse clause. The administrative assistance clause requires cooperation in terms of exchange of information, including automatic exchange, to the recovery of foreign tax claims, which addresses the current international standard.

19 April 2021, the Cayman Islands Monetary Authority (CIMA) announced an extension, to 30 September, in respect of the deadline for filing audited accounts and the Fund Annual Return (FAR) under the Private Funds (Annual Returns) Regulations 2021.

The regulations, which were gazetted on 25 March, set out the reporting requirements to be submitted via the FAR when submitting audited financial statements. CIMA said the FAR form was still being developed and expects it to be finalised by 30 June.

A further notice will be issued on the release of the FAR Form. In the interim, Private Funds will not be subject to any related penalties for non-compliance with section 13 of the Private Funds Act (2021 Revision).

24 March 2021, China’s State Council announced that the ‘super deduction’ of research and development (R&D) expenses for manufacturing enterprises will be further raised from 175% to 200% in order to encourage innovation. It is also extended for three years to 31 December 2023.

As a result, the Ministry of Finance (MOF) and State Taxation Administration (STA) jointly released Public Notice No. 13 (PN 13) on 31 March 2021.

As of 1 January 2021, manufacturing enterprises are permitted to claim a 200% super deduction on eligible R&D expenses actually incurred in the course of R&D activities for Corporate Income Tax (CIT) purposes. Alternatively, if R&D expenses incurred are capitalised as intangible assets, such enterprises are allowed to amortise the intangible assets based on 200% of the actual costs incurred.

PN 13 specifies that the manufacturing enterprises should derive over 50% of annual operating income from manufacturing industries, as set out in the prevailing Industrial classification for national economic activities.

Eligible enterprises can claim the super deduction of R&D expenses incurred in the first half of a year under the provisional CIT filing for the third quarter. They are required to self-assess before applying the tax preference and maintain the relevant supporting documents for future references. Alternatively, they can choose to claim the total amount of R&D expenses in the annual CIT filing to be completed by the end of May the following year.

26 April 2021, the Danish Supreme Court upheld a 2020 ruling of the Danish Western High Court in finding that transfer pricing documentation submitted by a local subsidiary of Swedish-Swiss conglomerate Tetra Pak Group was so inadequate that the Danish tax authorities were unable to determine whether rules had been followed and was entitled to make a discretionary assessment.

It also said the company and its parent Tetra Laval International SA had no basis on which to challenge a final reassessment of its taxable income for 2005 to 2009 by nearly DKK325 million (USD52.8 million.

In Denmark v Tetra Pak Processing Systems A/S (Case No BS-19502/2020-HJR), the Danish Tax Agency conducted a discretionary assessment in a ruling from 2011 and increased the taxable income for the Danish corporation by approximately USD57.5 million on the basis that transactions with the Tetra Pak Group had not been on arm’s length terms. In 2017, the Danish Tax Tribunal lowered the increase to approximately USD52.8 million.

In its transfer pricing documentation, the Danish company applied the resale method based on the average profit gain of the sales corporations. The High Court had found that documentation was inadequate to the extent that it failed to provide a proper base for the tax administration to assess whether the arm’s length principle was met.

It stated that the tax administration had been entitled to carry out the discretionary assessment and had been justified in applying the transaction net margin method (TNMM) because sufficiently reliable information had not been provided in respect of the group’s sales companies.

The Supreme Court agreed. It found that found that the company’s transfer pricing documentation for tax years 2005 to 2009 did not contain a comparability analysis and the indication of what was a reasonable profit for the sales companies was therefore based solely on its own discretion. There was nothing to demonstrate what profit a sales company could obtain from similar transactions between independent parties.

The reported margins for the sales companies related not only to the controlled transactions between the company and the sales companies, but also to controlled transactions with other group companies and transactions with independent parties. Some transfer pricing documents further asserted that certain figures for the sales companies had been estimates. The documentation was “thus associated with considerable uncertainty," the court said.

The Supreme Court found that it would not be sufficient to conduct the TNMM with the sales corporations as the tested party and that, therefore, the tax agency was right in applying the Danish corporation as the tested party.

Tetra Pak Processing Systems was ordered to pay DKK1.5 million in legal costs, plus interest, within 14 days of the ruling.

1 April 2021, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) for public consultation on the implementation of the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA).

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

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. This new reporting requirement is intended to make 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. FinCEN is only authorised to disclose subject to appropriate protocols and for specific purposes to several categories of recipients, such as federal law enforcement.

Finally, the CTA requires FinCEN to revise existing financial institution customer due diligence regulations concerning beneficial ownership to take into account the new direct reporting of beneficial ownership information.

20 April 2021, the Guernsey Financial Services Commission (GFSC) announced the addition of two new types of Private Investment Fund (PIF) to allow more investor categories to take advantage of a suitably regulated fund structure. The existing PIF will continue to be available.

PIFs were introduced by the GFSC in 2016 to offer a simple and swift route to market private Guernsey funds. The existing PIF has no requirement for a minimum investment, provides for a maximum of 50 legal or natural persons holding an economic interest and imposes no limit on the number of potential investors that the fund can be marketed to. It requires, however, the appointment of a Protection of Investors Law (PoI) licensed fund manager.

The Private Investment Fund Rules 2021, which replace the Private Investment Fund Rules 2016, provides two new paths to enable a PIF to be created without an attached PoI-licensed manager, as follows:

-The Qualifying Private Investor PIF requires that all investors will have to meet qualifying investor criteria that are designed to protect more vulnerable investors. The PoI-licensed fund administrator will be required to provide confirmations, at the time of application, that are equivalent to those currently provided by a fund administrator in respect of any Qualified Investor Fund (QIF) application.

-The Family Relationship PIF will enable a PIF to be created as a bespoke private wealth structure requiring a family relationship, either by birth or by marriage, between investors. The PoI-licensed fund administrator will be required to provide confirmation that effective procedures are in place to ensure that the PIF is restricted only to eligible family-related investors.

GFSC Director General William Mason said: “I am pleased to be able to announce the implementation of these revised PIF rules which recognise the needs of the fund industry and its clients by introducing a greater degree of flexibility while continuing to ensure that appropriate levels of investor protection are observed. In deciding to make these changes, the Commission has listened to industry and other stakeholders, sought to ensure our regulation is proportionate to the needs to different investor groups and acted to ensure that the Bailiwick remains a good place to do business.”

28 April 2021, Hong Kong’s Legislative Council passed the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 to introduce a new framework for granting concessionary tax treatment to carried interest received by or accrued to fund managers and their employees.

The bill introduces a tax concession in respect of carried interest distributed by private equity funds whose investment management activities are carried out in Hong Kong. Net eligible carried interest received by or accrued to qualifying fund managers, and remuneration paid by qualifying fund managers to their employees for work performed in securing the eligible carried interest received or accrued will not be subject to profits or salaries tax.

The carried interest tax concession will only apply to eligible carried interest distributed by a certified investment fund that is received by or accrued to a qualifying person or a qualifying employee of such a person. A certified investment fund is a fund that falls within the meaning of ‘fund’ under section 20AM of the Inland Revenue Ordinance (IRO) and that is certified by the Hong Kong Monetary Authority (HKMA) to be in compliance with its criteria for certification.

The carried interest tax concession requires that certain Hong Kong substance requirements are met. Qualifying carried interest recipients must carry out qualifying investment management services in Hong Kong subject to a ‘substantial activities’ test in terms of local employment and spending. For any tax year in which tax concessions are sought, the fund will also need to engage an external auditor to verify that the substantial activities requirements and other relevant conditions are met.

The Hong Kong Inland Revenue Department is empowered to disallow any carried interest arrangements that are entered into for a tax avoidance purpose, including specifically, where the substance of the payments are management fees rather than bona fide carried interest.

The concessionary tax treatment will have retrospective effect in respect of eligible carried interest received by or accrued to qualifying carried interest recipients on or after 1April 2020. However, the concession will not apply to carried interest accrued before 1 April 2020, even if it is only received after 1 April 2020.

Together with the introduction of the Hong Kong limited partnership fund and the Hong Kong profits tax relief for qualifying funds under the unified funds tax exemption, the new carried interest tax concession forms part of part of a longstanding government policy to attract private equity and investment fund operations to Hong Kong.

21 April 2021, the Family Division of the England and Wales High Court held that Russian billionaire Farkad Akhmedov had conspired with his son to prevent his former wife Tatiana from receiving her £454 million divorce settlement. the largest ever granted by a UK court.

In Akhmedova v Akhmedov & Ors [2021] EWHC 545 (Fam), Mrs Justice Knowles granted relief in respect of financial claims made by Tatiana Akhmedova against her son Temur, two Liechtenstein Trusts and Borderedge, a Cypriot company.

In December 2016 at a final hearing in Ms Akhmedova’s application for financial remedies, Haddon-Cave J ordered her ex-husband to pay £435,576,152 in settlement of her financial claims against him on their divorce. The claims she pursued against him and the 10 other respondents flowed from his schemes to evade compliance with that order.

However, Akhmedov has transferred most of his asset into arm's-length structures including trusts and foundations in Liechtenstein and nominee companies in Cyprus and Panama. He also transferred properties in Moscow and very large sums of money to his son Temur in 2015 and 2016, along with authority to transfer them to other parties.

Akhmedova has already obtained freezing orders against her ex-husband's assets in Liechtenstein, although the Liechtenstein Constitutional Court has subsequently held that the English judgment against the assets is not enforceable. When she learned of her son's involvement, she applied ex parte to the England and Wales High Court for a worldwide freezing order against him too. That order was granted in July 2020 by Knowles J.

Ms Akhmedova therefore sought relief under s. 423 of the Insolvency Act 1986 and / or under s. 37 of the Matrimonial Causes Act 1973. Specifically, she asked the court to set aside the transfers her husband had made to the respondents and to order the immediate recipient to return the assets to her and / or pay to her the value of the original assets received by them to her.

The Court found that Ms Akhmedova has been the victim of a series of schemes designed to put every penny of the husband’s wealth beyond her reach. That strategy was designed to render her powerless by ensuring that, if she did not settle her claim for financial relief following their divorce on her husband’s terms, there would be no assets left for her to enforce against. Their eldest son, Temur, confirmed in his oral evidence that the husband would rather have seen the money burnt than for the wife to receive a penny of it.

“Regrettably, those schemes were carried out with Temur’s knowledge and active assistance,” said Knowles J. “I reject his case that he was a mere go-between for his father: the evidence indicated otherwise. Temur told me in his evidence that he had helped his father protect his assets from his mother’s claims. He was, indeed, his father’s lieutenant. Temur has learned well from his father’s past conduct and has done and said all he could to prevent his mother receiving a penny of the matrimonial assets. He lied to this court on numerous occasions; breached court orders; and failed to provide full disclosure of his assets. I find that he is a dishonest individual who will do anything to assist his father, no doubt because he is utterly dependent on his father for financial support.”

The transfers of very large sums of money to Temur in 2015 and 2016 were driven by the husband’s overarching desire to keep his assets from the wife. He understood his father’s purpose at the relevant times and worked with him to achieve the aim of preserving assets for the family by keeping them out of his mother’s hands.

The transfer of funds to Borderedge was a necessary part of the scheme to strip everything from Cotor, a company incorporated in Panama that Haddon-Cave J had found to be the husband’s ‘nominee’. The intention was to ensure that the funds would never become available for enforcement of a judgment against Cotor.

“No one has been able suggest any other purpose for the transfer of that cash from Cotor to Borderedge in November 2016,” said Knowles J. “The arrangements to transfer that cash were orchestrated by Kerman & Co, on behalf of the husband, and that firm provided the instructions to Borderedge’s nominee director. I reject Borderedge’s claim that it acted in good faith.”

The transfers to the Liechtenstein trusts were, on Temur’s own admission, intended to put assets beyond his mother’s reach. Mrs Justice Knowles rejected the legal arguments advanced by the Liechtenstein Trusts, most of which she had already rejected in her judgment handed down on 14 August 2020. An application by the Liechtenstein Trusts for permission to appeal was refused by the Court of Appeal on 27 November 2020.

“Finally, despite a formidable smokescreen intended to show that the transfer of the Moscow property was an arm’s length commercial transaction, I have no hesitation in finding that the husband simply gave this property to Temur,” said Knowles J. “I reject Temur’s case that the husband was engaged in some form of ‘estate planning’. Once the wife commenced her claim against Temur in late 2019, Temur quickly arranged with his father to move ownership of the Moscow property back to his father to frustrate his mother’s claim in these proceedings.”

“It follows that I grant the wife’s claims against the Liechtenstein Trusts, Borderedge and Temur”, she said. Temur was ordered to pay £75.9 million to his mother.

Finally, Mrs Justice Knowles dismissed Temur’s counterclaim for alleged breach of confidence or privacy owed to him in respect of documents provided that contained information about his financial affairs, living costs and expenses, and financial and business affairs.

“Temur cannot claim confidentiality or privacy in documents which were provided to the wife’s lawyers and which revealed serious wrongdoing by Temur and his father. Moreover, by my judgment handed down in November 2019, the wife was expressly permitted to use those documents as if they had been disclosed in these proceedings. In any event, Temur has been unable to demonstrate that he has suffered loss.”

The full judgment can be accessed at https://www.bailii.org/ew/cases/EWHC/Fam/2021/545.html

16 March 2021, amendments to the Company Service Providers Act (Cap 529 of the Laws of Malta), which was passed by Parliament as Act No. L of 2020 and published on 13 November 2020, were brought into force.

The amendments to the Act removed previous exemptions applicable to warranted professionals and de minimis operators – corporate services providers whose activities were under a certain threshold in the Act – and introduces a categorisation of Company Services Providers (CSPs) into three classes depending on the services offered:

-Class A providing formation of companies or other legal entities; and/or a registered office, business correspondence or administrative address and other related services for a company, a partnership or any other legal entity;

-Class B acting as, or arranging for another person to act as, director or secretary of a company, a partner in a partnership or in a similar position in relation to other legal entities;

-Class C providing services under both Class A and Class B.

The aim of the CSP reform is to ensure fit and proper standards, to be assured that CSPs adhere to applicable legal and AML/CFT requirements on an ongoing basis, and to apply a risk-based and proportionate regulatory approach.

The amendments implement a shift from the concept of registration to authorisation for all CSPs. Those who are already in possession of a registration as a CSP are not required to apply for authorisation. Their registration will automatically be converted to an authorisation under the CSP Act, and they will be contacted by the Malta Financial Services Authority (MFSA) in relation to their class categorisation.

The timeframe for applications to be submitted closes on 16 May. All applications will be authorised, declined, or provisionally authorised by 16 November. Provisionally authorised CSPs are to comply with the provisions of the CSP Act until 16 November or until such time as their application is approved or declined, whichever is the earlier. CSPs can only continue to operate under the transitional arrangements if they have applied for CSP authorisation by the 16 May.

The MFSA is now empowered to revoke any authorisation it has issued where a CSP is found liable by the Financial Intelligence Analysis Unit (FIAU) for a serious, repeated or systematic breach of the prevention of money laundering act or any regulations issued thereunder. The maximum administrative penalty which the MFSA can impose for any breach or failure to comply has doubled from €25,000 to €50,000.

29 March 2021, the Dutch Finance Ministry published a consultation on legislative changes to the taxation of open limited partnerships and mutual funds. The consultation period ended on 26 April and the legislative proposal, if adopted, is planned to come into effect from 1 January 2022.

In 2020, the Anti-Tax Avoidance Directive II (ATAD II) introduced the anti-hybrid mismatch legislation. According to the Dutch Ministry of Finance, the current Dutch policy on the tax qualification of foreign legal forms is no longer compatible with the updated anti-mismatch legislation.

At present, open limited partnerships are considered opaque and therefore taxable in the Netherlands, while other jurisdictions treat open limited partnerships as transparent. This could lead to hybrid mismatches.

The aim of the draft proposal is to reduce the potential for hybrid mismatches by removing the cause and treating open limited partnerships as tax transparent. This would mean that open limited partnerships would no longer be independently taxable for corporate income tax purposes and would no longer have a dividend withholding tax obligation.

The draft proposal also seeks to amend the definition of the open mutual funds. While the draft proposal seeks to maintain the difference in tax qualification of an ‘open’ or ‘closed’ mutual fund, to provide more clarity and certainty on the tax qualification.

16 April 2021, the OECD announced that it had appointed Fabrizia Lapecorella, Director General of Finance of the Italian Ministry of Economy and Finance, as the next Chair of the Committee on Fiscal Affairs (CFA), beginning on 1 January 2022.

The CFA is the main forum for the OECD's discussions on taxation, covering both international and domestic tax issues and tax policy and administration. As the key global body for setting international tax standards, the CFA builds on strong relationships with OECD members and the engagement of a large number of non-OECD, G20 and developing countries. The CFA's membership was greatly expanded in 2016 with the creation of the Inclusive Framework on BEPS, which currently has 139 members.

Lapecorella will take over from Martin Kreienbaum of Germany after his five-year term ends on 31 December 2021. She has been a member of the CFA's Bureau since 2012 and Deputy Chair of the CFA since 2017. She is also a member of the Steering Group of the OECD/G20 Inclusive Framework on BEPS.

15 April 2021, the OECD issued eight Stage 2 peer review reports under the BEPS Action 14 Minimum Standard on Mutual Agreement Procedures (MAPs), which seeks to improve the resolution of tax-related disputes between jurisdictions.

Members of the OECD/G20 Inclusive Framework on BEPS Inclusive Framework, which comprises over 135 countries, have committed to have their compliance with the minimum standard reviewed and monitored through a peer review process that seeks to increase efficiencies and improve the timeliness of the resolution of double taxation disputes.

Despite the significant disruption caused by the COVID-19 pandemic and the necessity to hold all meetings virtually, the OECD said work had continued to evaluate the progress made by Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand and Portugal in implementing any recommendations resulting from their stage 1 peer review.

It said the results demonstrated positive changes across all eight jurisdictions, although not all showed the same level of progress. Highlights of the reports included:

-The Multilateral Instrument had been signed by all eight jurisdictions and ratified by seven of them, which brought a substantial number of their treaties in line with the standard. Bilateral negotiations were also either ongoing or concluded.

-Australia, Ireland, Japan, Malta, New Zealand and Portugal now had a documented bilateral notification/consultation process that they applied in cases where an objection was considered as being not justified by their competent authority.

-Australia, Ireland, Israel, Japan, Mexico, New Zealand and Portugal had added more personnel to the competent authority function and/or had made organisational improvements with a view to handle MAP cases in a more timely, effective and efficient manner.

-Australia and Malta closed MAP cases within the pursued average time of 24 months, while Israel, New Zealand and Portugal had decreased the amount of time needed to close MAP cases.

-Ireland and Mexico had introduced legislative changes to ensure that MAP agreements could always be implemented despite domestic time limits, which was already the case for Japan and Portugal.

-All jurisdictions had issued or updated their MAP guidance.

The OECD will continue to publish stage 2 peer review reports in batches in accordance with the Action 14 peer review assessment schedule. In total, 82 stage 1 peer review reports and 45 stage 1 and stage 2 peer monitoring reports have now been finalised and published, with the fifth batch of stage 2 reports to be released in a few months.

1 April 2021, the OECD said the third peer review report on the implementation of the Action 6 minimum standard on treaty shopping revealed that a large majority of members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) were translating their commitment on treaty shopping into actions and modifying their treaty networks.

As one of the four minimum standards, BEPS Action 6 identified treaty abuse, and in particular treaty shopping, as one of the principal sources of BEPS concerns. To address this issue, all members of the Inclusive Framework have committed to implementing the Action 6 minimum standard and participate in annual peer reviews to monitor its accurate implementation.

The latest report includes the aggregate results of the peer review and data on tax treaties concluded by each of the 137 jurisdictions that were members of the Inclusive Framework on 30 June 2020. The data shows that the BEPS Multilateral Instrument (MLI) has been the tool used by the vast majority of jurisdictions that have begun implementing the Action 6 minimum standard, and that the MLI has started to impact tax treaties of jurisdictions that have ratified it.

The impact and coverage of the MLI are expected to rapidly increase as jurisdictions continue their ratifications and as other jurisdictions with large tax treaty networks consider joining it. To date, the MLI covers 95 jurisdictions and over 1,700 bilateral tax treaties. However, the report said, those jurisdictions that had not signed or ratified the MLI have still generally made no or very little progress in implementing the minimum standard.

Further, about 200 agreements concluded between pairs of MLI signatories that are members of the Inclusive Framework, could still not be modified by the MLI because, at this stage, at least one treaty partner had not listed the agreement under the MLI. An additional 325 agreements had also been concluded between pairs of jurisdictions where only one of them had signed the MLI; none of these agreements would, at this stage, be modified by the MLI.

A revised peer review document was also released, which will form the basis on which the peer review process will be undertaken as of 2021. The consolidated document includes the terms of reference which set out the criteria for assessing the implementation of the Action 6 minimum standard, and the methodology which sets out the procedural mechanism by which the review will be conducted.

28 April 2021, US President Biden announced the ‘American Families Plan’, a USD1.8 trillion proposal that would fund a number of education and childcare projects that would be partially offset by income tax increases for wealthy Americans, an increased IRS budget for compliance, but does not include the estate and gift tax changes proposed during the presidential campaign. The legislative pathway for enactment and effective dates have not been set out.

Specifically, the American Families Plan includes the following tax proposals:

-Increasing the rate applicable to long-term capital gains and qualified dividends from 20 to 39.6% for households with over USD1 million in income. A long-term capital gain derives from assets that are held longer than a year. A ‘qualified dividend’ is an ordinary dividend that meets specific criteria to be taxed at the current law lower capital gains rate rather than at the higher individual ordinary income tax rate.

-Ending the ‘stepped-up’ fair market value basis at death, with an exemption of USD1 million per person. The legislation would include protections to exclude family-owned businesses and farms if the decedent's heirs continue to run the business.

-Increasing the highest individual tax rate from 37 to 39.6%, without repealing the cap on state and local tax (SALT) deductions. This returns to the top rate in effect prior to the 2017 Tax Cuts and Jobs Act (TCJA).

-Eliminate the Carried Interest Rule such that income associated with ‘carried interests’ would be taxable at the ordinary income tax rate rather than the current preferential capital gains rate of 20%. A ‘carried interest’ is a contractual right that entitles a fund manager to a share of a partnership's profits and under current law is taxable at the preferential capital gains rate, provided certain conditions are satisfied.

-Ending capital gains tax deferral under Section 1031 for like-kind exchanges – a swap of one real estate business or investment property for another – for gains in excess of USD500,000.

-Permanently restrict the current deductibility of ‘excess business losses’ for non-corporate taxpayers, including ‘pass-through entities such as partnerships, limited liability companies (LLCs) and S corporations. An excess business loss is the amount by which the total deductions attributable to all of a taxpayer's trades or businesses exceed total gross income and gains attributable to those trades or businesses plus USD250,000 (or USD500,000 for a joint return).

-Apply the 3.8% ‘Medicare Tax’ to all taxpayers making more than USD400,000 per year. Under current law, the Medicare tax is a 3.8% tax imposed only on a portion of a taxpayer's income.

-Revitalise enforcement by require financial institutions to report information on account flows so that earnings from investments and business activity are subject to reporting in the same way as wages.

-Increasing funding for IRS enforcement by roughly USD80 billion over the next ten years. Additional resources would focus on large corporations, businesses, estates and higher-income individuals.

The American Families Plan is the third part of the Biden Administration's Build Back Better agenda, addressing ‘human infrastructure’ and containing proposals on free education, direct support to children and families, and the extension of tax cuts for families with children and American workers.

Taken together, the tax reforms focused on the highest income Americans are projected to raise about $1.5 trillion across the decade. In combination with the American Jobs Plan, which produces long-term deficit reduction through corporate tax reform, all of the investments would be fully paid for over the next 15 years. The American Jobs Plan proposes to increase the corporate tax rate from 21% to 28%, adding a 15% corporate tax on book income, modifying various international tax provisions and making other changes.

A White House statement said: “It will ensure that high-income Americans pay the tax they owe under the law – ending the unfair system of enforcement that collects almost all taxes due on wages, while regularly collecting a smaller share of business and capital income. The plan will also eliminate long-standing loopholes, including lower taxes on capital gains and dividends for the wealthy, that reward wealth over work. Importantly, these reforms will also rein in the ways that the tax code widens racial disparities in income and wealth.”

On the same day, the US Treasury Department announced plans to require US financial institutions to file annual reports of the aggregated inflow and outflow of funds from the financial accounts of every individual and business taxpayer as part of the Biden administration's strategy to collect more taxes from high earners and high-net-worth individuals (HNWIs).

It proposes to leverage the information that FIs already know about account holders, simply requiring that they add to their regular, annual reports information about aggregate account outflows and inflows. Providing the IRS this information, it said, would help to improve audit selection and allow it to target its enforcement activity on the most suspect evaders.

Leveraging 21st century data analytic tools would also enable the IRS make use of new information about income that accrues to high-earners and will help revenue agents unpack complex structures, like partnerships, where income is not easily traced.

The full White House statement on the American Families Plan can be accessed at; https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/28/fact-sheet-the-american-families-plan/

The full US Treasury Department statement can be accessed at: https://home.treasury.gov/news/press-releases/jy0150

12 April 2021, the Russian government approved a legislative initiative to denounce its double tax agreement with the Netherlands and submitted a bill to the State Duma, the lower chamber of the Russian parliament. Consideration of the bill by the State Duma was scheduled for 12 May.

The move followed last year’s announcement by Russian President of, Vladimir Putin that a 15 to 20% withholding tax was to be imposed on dividend and interest payments from Russian sources to all jurisdictions from 2021. This was accompanied by a warning that Russia would unilaterally revoke its treaty with any treaty partner that rejected the proposal.

Last August, Cyprus, Luxembourg and Malta agreed to the new withholding tax and their tax treaties with Russia were amended to increase withholding tax rates for dividends and interest to 15%, with substantial limits placed on access to reduced rates. Talks were also held with the Dutch government, but the two sides failed to reach agreement.

Under the termination rules laid down in Article 31 of the treaty, a party must notify its treaty partner of the termination of the treaty at least six months before the end of any calendar year in order for the treaty to cease to have effect beginning from the following tax period. If the bill is passed and Russia notifies the Netherlands of termination no later than June 2021, the treaty will cease to apply from 1 January 2022. Otherwise, it will remain in place until January 2023.

Termination of the treaty would cause Russian withholding tax rates to rise to 15% for dividends and 20% for interest and royalties. Gains from the sale of shares in property-owning private Russian companies would also become taxable in Russia. Dividends paid from the Netherlands to Russia would also be subject to Dutch withholding tax, for which the current rate is 15%.

26 April 2021, Foreign Secretary Dominic Raab announced the UK’s first sanctions under the new Global Anti-Corruption Sanctions Regulations 2021, which will enable the government to impose asset freezes and travel bans on individuals and organisations believed to be involved in serious corruption.

The new regulations, introduced under the Sanctions and Anti-Money Laundering Act 2018, replace the Misappropriation (Sanctions) (EU Exit) Regulations and are designed to capture those profiting from bribery and misappropriation of state funds from any country outside the UK.

Individuals and entities designated under the regime will be included on the consolidated UK sanctions list. They are prevented from entering the UK, opening UK bank accounts and doing business with UK businesses; and any assets that they already hold in the UK are frozen.

The announcement was accompanied by designations against 22 individuals allegedly involved in serious corruption in Russia, South Africa, South Sudan, and Latin America. The same powers will be available against those who 'facilitate' or profit from corrupt acts, conceal or transfer the proceeds, or who obstruct justice relating to serious corruption.

Raab said more designations would follow in due course. Designated individuals can request that a minister reviews the decision and will also be able to challenge the decision in court. He noted that the National Crime Agency's International Corruption Unit and its predecessors had restrained, confiscated or returned over £1 billion of assets stolen from developing countries since 2006.

20 April 2021, the UN Committee of Experts on International Cooperation in Tax Matters approved the final version of new Article 12B of the UN Tax Treaty and commentary that will grant additional taxing rights to countries where an automated digital services provider’s customers are located.

The new taxing right would apply to income derived from online advertising services, the supply of user data, online search engines, online intermediation platform services, social media platforms, digital content services, online gaming, cloud computing services, or standardised online teaching services.

Rather than allocating taxing rights to the jurisdiction where the services are performed, the general approach in the new article is to permit a withholding tax on gross payments for ‘automated digital services’ made by a resident of one treaty country to a resident of the other treaty country. The Committee recommended a ‘modest’ rate of between 3 and 4% for income from such services.

Alternatively, in lieu of withholding, the beneficial owner of income from automated digital services can request that its ‘qualified profits’ from automated digital services be taxed at the rate provided under the domestic laws of the contracting state.

1 April 2021, a US federal court in the District of Massachusetts entered an order authorising the IRS to serve a ‘John Doe’ summons on Circle Internet Financial Inc., a digital currency exchanger headquartered in Boston, seeking information about US taxpayers who conducted at least USD20,000 in transactions in cryptocurrency during the years 2016 to 2020.

According to the court order, the summons seeks information from Circle related to the IRS’s “investigation of an ascertainable group or class of persons” that it has reasonable basis to believe “may have failed to comply with any provision of any internal revenue laws”.

The US petition does not allege that Circle has engaged in any wrongdoing in connection with its digital currency exchange business. It requests that Circle produces records identifying the US taxpayers along with other documents relating to their cryptocurrency transactions.

Cryptocurrency, as generally defined, is a digital representation of value. The IRS has issued guidance regarding the tax treatment of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes. Receipt of virtual currency as payment for goods or services is treated as income and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency.

In the court’s order, US Judge Richard Stearns found that there was a reasonable basis for believing that cryptocurrency users may have failed to comply with federal tax laws.

“Tools like the John Doe summons authorized today send the clear message to US taxpayers that the IRS is working to ensure that they are fully compliant in their use of virtual currency,” said IRS Commissioner Chuck Rettig. “The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic noncompliance or fraud.”