Owen, Christopher: Global Survey – July 2021

10 June 2021, the Full Court of the Federal Court of Australia dismissed appeals against two separate decisions that trustees of resident discretionary trusts were assessable under s.98 of the Income Tax Assessment Act 1936 on capital gains made on the sale of shares that were not ‘taxable Australian property’ (TAP) and that were distributed to foreign beneficiaries.

In Peter Greensill Family Co Pty Ltd (Trustee) v Commissioner of Taxation (2021 FCAFC 99), the Peter Greensill Family Trust sold shares in London-based financing company Greensill Capital (which went into administration in March this year) between 2015 and 2017 and paid 100% of the gains – A$58 million – to founder Lex Greensill who was living in London and classed as a foreign resident.

As a UK-resident, Greensill would have had no Australian tax to pay for gains on a company based overseas if he had received the distributions directly rather than from a trust. However, the Australian Tax Office (ATO) determined that the distribution was a capital gain of the beneficiary and therefore assessable to the trustee under s.98 ITAA.

The trust challenged the ATO’s assessment, arguing that the capital gains distributed to Greensill should be disregarded under s.855-10(1) of the 1997 Tax Act because they were “from a CGT event” happening in relation to CGT assets that were not TAP.

At first instance in April 2020, a federal judge disagreed. He held that s.855-10(1) did not apply to disregard the capital gains because the taxpayer was not a foreign resident or the trustee of a foreign trust. Further, the amount calculated, under s.115-225, that is added to a trustee’s assessment, under s.98 ITAA is not an amount “from” a CGT event and therefore cannot fall within s 855-10(1). This decision was also followed by the federal judge in the second similar case, N & M Martin Holdings Pty Ltd v FCT [2020] FCA 1186.

On appeal, the Full Court of the Federal Court of Australia confirmed the two decisions. It unanimously dismissed the taxpayers’ appeals and held that the lower Courts were correct to decide that s.855-10(1) did not apply to the trustees of the respective trusts because they were not foreign residents and both trusts were resident trusts. The amount calculated under s.115-225 that is added (by virtue of s.115-220) to a trustee’s assessment under s.98 of the ITAA is not an amount “from” a CGT event and therefore cannot fall within s.855-10(1).

"The Court's judgment clarifies issues around capital gains assessed to the trustee of a resident trust, where the trustee makes a non-resident beneficiary entitled to these gains," said an ATO spokesperson in a statement.

7 June 2021, the government-appointed committee of inquiry investigating the former citizenship-by-investment (CBI) regime in Cyprus released its final report. The Attorney-General’s office said the report was being evaluated by the state prosecutor “with the aim of speedily forwarding the report to the police for the start of criminal investigations”.

Last November, Cyprus dropped its CBI scheme after Al Jazeera television aired a documentary showing undercover reporters posing as fixers for a Chinese businessman seeking a Cypriot passport despite having a criminal record. Parliamentary speaker Demetris Syllouris and an opposition politician were secretly filmed allegedly trying to facilitate a passport for the fugitive investor. They later resigned although both insisted they were innocent of any wrongdoing.

"It’s obvious the Citizenship for Investment programme operated from 2007 to 2020 with gaps and shortcomings, an inadequate legislative framework and almost no regulative framework," said former Chief Justice Myron Nikolatos, who headed the inquiry. The island's cabinet, responsible for rubber-stamping applications, broke the law on countless occasions, he said, calling it "mass illegality".

The 780-page redacted report, which covers the period 2007 to 2020, recommends, inter alia, revoking the citizenships granted to a number of foreign nationals and urges the Cypriot authorities to investigate the possible commission of criminal offences, including the making of false declarations.

It found that, of the 6,779 passports issued, 53% were issued not to the investors themselves but to family members or top company executives. The Attorney-General's Office had warned on separate occasions in 2015 and 2016 that the practice might be unlawful because there was no specific law enabling the government to issue such passports.

Of the remainder that were granted to investors, one-third failed to meet all the criteria, Nicolatos said.

He said 8% did not meet the primary condition of investing around €2.5 million into the Cypriot economy, while another 12% failed to meet the requirement on owning a permanent residence in Cyprus.

Nicolatos said the four-member commission was recommending that the authorities should look into revoking citizenship in 85 cases in which the applicants may have committed criminal or other offences to secure a passport. However, revoking the citizenship of investors’ relatives and company executives who were not directly at fault could prove “particularly complicated” because of legal rights enshrined in Cypriot and EU law.

The CBI programme ran for 13 years but was ramped up in 2013 following the financial crisis. It proved particularly attractive to foreign investors because obtaining an EU passport allowed them access to the 27-member bloc and generated more than €8 billion for Cyprus.

Nicolatos also faulted some lawyers, accountants, banks, real estate brokers and developers who he said “didn’t sufficiently live up to their legal or other obligations” through the application process, while in some instances, supervisory authorities failed to do their job properly.

Politicians and officials may bear “political” responsibility and some could face disciplinary action. Although the programme spanned the tenure of three different presidents, the overwhelming majority of citizenships were granted over the seven years in which the current president, Nicos Anastasiades, held office.

Attorney General George Savvides said authorities would examine revoking citizenships, take lawbreakers to court and take disciplinary action in those instances recommended by the report. In May his office took five individuals and four legal entities to court to face 37 charges in connection with the commission's findings.

9 June 2021, the European Commission referred Luxembourg to the Court of Justice and requested the Court to order the payment of financial penalties for failing to notify all national measures necessary to transpose EU rules on the freezing and confiscation of proceeds of crime (Directive 2014/42/EU).

Designed to assist authorities to recover the profits that criminals make from serious and organised crime, member states were required to transpose the Directive by 4 October 2016. The Commission launched the infringement procedure against Luxembourg in November 2016 and followed up with a reasoned opinion in March 2019.

To date, Luxembourg has not notified the Commission of the full transposition of the Directive into its national law. By failing to adopt all the laws, regulations and administrative provisions necessary to comply with the Directive on the freezing and confiscation of criminal assets (Directive 2014/42/EU) or, in any event, by failing to notify such provisions to the Commission, Luxembourg has failed to fulfil its obligations under Article 12 of this Directive.

Under Article 260(3) of Treaty on the Functioning of the EU (TFEU), if a member state fails to transpose a Directive adopted by the EU legislator into national law within the required deadline, the Commission may call on the Court of Justice to impose financial sanctions. In this case, the Commission is proposing a daily fine to penalise the continuation of the infringement after the Court's judgment.

9 June 2021, the European Commission sent a complementary letter of formal notice to Sweden, requesting that it amends its rules limiting tax deductibility of interest paid to affiliated companies established in other EU/EEA States.

Under this scheme, interest deductibility is denied in relation to loan arrangements between affiliated companies established within the EU/EEA, irrespective of whether the terms and conditions of those arrangements remain at arm's length or not. The Commission has held this to be incompatible with EU law.

The Commission first sent a letter of formal notice to Sweden in 2014. It said that while Sweden had introduced some modifications to the rules in question as of 2019, their general design remained unchanged and the infringement was yet to be remedied.

In its ruling of 20 January 2021 in case C-484/19 Lexel, the Court of Justice held that the scheme amounted to an unjustifiable restriction on the freedom of establishment set out in Article 49 TFEU.

Sweden now has two months to address the shortcomings identified by the Commission, after which the Commission may decide to send a reasoned opinion.

9 June 2021, the European Commission sent a reasoned opinion to Germany in response to its failure to communicate all required national measures fully implementing the exit tax rules in Article 5 of the Anti-Tax Avoidance Directive (Directive 2016/1164 of 12 July 2016 – ATAD1), laying down rules against tax avoidance practices that directly affect the functioning of the Single Market.

Germany, it said, had also failed to communicate all required national measures implementing the amended Anti-Tax Avoidance Directive (Directive (EU) 2017/952 of 29 May 2017 – ATAD2) as regards hybrid mismatches with third countries.

The deadline for the communication of the measures was 31 December 2019. In the absence of full communication of all national implementing measures, the Commission said it might decide to refer the case to the Court of Justice.

The Commission also sent a letter of formal notice to Bulgaria requesting it to abolish the exemption for undertaxed subsidiaries. Under ATAD1, the member state where a parent company is based is required to tax not only the profits of that parent company, but also the profits of its subsidiaries that do not pay sufficient corporate tax (or no tax) in their jurisdiction of residence.

The Commission said that the current legislation transposing this Directive in Bulgaria included an undue exemption for subsidiaries (also known as controlled foreign companies) that are subject to “alternative forms of taxation”.

Such an exemption was not permitted by the Directive and therefore constitutes an infringement to the ATAD. Bulgaria has two months to address the shortcomings identified by the Commission, after which the Commission may decide to send a reasoned opinion.

1 June 2021, representatives of the Portuguese presidency of the Council reached a provisional political agreement with the European Parliament’s negotiating team on a proposed Directive for the disclosure of income tax information by certain undertakings and branches – commonly referred to as the public Country-by-Country Reporting (CBCR) Directive.

The agreed text 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 income tax information in each member state, as well as in each third country listed on the EU ‘blacklist’ of non-cooperative jurisdictions for tax purposes (Annex I of the Council conclusions) or listed for two consecutive years on the EU ‘grey list’ (Annex II of the Council conclusions).

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

The reporting is required to take place within 12 months from the date of the balance sheet of the financial year in question. The CBCR Directive sets out the conditions under which a company may obtain the deferral of the disclosure of certain elements for a maximum of five years. It also stipulates who bears the actual responsibility for ensuring compliance with the reporting obligation.

Pedro Siza Vieira, Portugal’s Minister of State for the Economy & Digital Transition, said: “Corporate tax avoidance and aggressive tax-planning by big multinational companies are believed to deprive EU countries of more than €50 billion of revenue per year. Such practices are facilitated by the absence of any obligation for big multinational companies to report on where they make their profits and where they pay their tax in the EU on a country-by-country basis. At a time when our citizens are struggling to overcome the effects of the pandemic crisis, it is more crucial than ever to require meaningful financial transparency regarding such practices. It is our duty to ensure that all economic actors contribute their fair share to the economic recovery.”

The provisionally agreed text will now be submitted to the relevant bodies of the Council and of the European Parliament for political endorsement. If endorsed, the Council will adopt its position at first reading on the basis of the agreed text. The European Parliament should then approve the Council’s position and the Directive will be deemed to have been adopted.

Member states will have 18 months to transpose the CBCR Directive into national law. Four years after the date of its transposition, the Commission will report back on its application.

9 June 2021, the European Commission has decided to take further steps in the infringement procedures against Cyprus and Malta regarding their citizenship-by-investment schemes, also referred to as ‘golden passport’ schemes.

The Commission said it considered that by establishing and operating citizenship-by-investment schemes that offered citizenship in exchange for pre-determined payments and investments, these two Member States had failed to fulfil their obligations under the principle of ‘sincere cooperation’ as laid down in Article 4(3) of the Treaty on European Union (TEU) and the definition of citizenship of the EU as laid down in Article 20 Treaty on the Functioning of the European Union (TFEU).

It said that while Cyprus and Malta remained responsible for deciding who might become Cypriot and Maltese, the Court of Justice had made it clear on multiple occasions that rules on the acquisition of the nationality of a member state must do so having “due regard to EU law”.

The Commission had launched infringement procedures against Cyprus and Malta by sending letters of formal notice in October 2020. While Cyprus has repealed its scheme and stopped receiving new applications on 1 November 2020, it had continued to process pending applications.

The Commission said it considered that the concerns set out in its letter of formal notice had not therefore been addressed by Cyprus and, as a consequence, it had decided to take the next step in the procedure against Cyprus by issuing a reasoned opinion.

The Commission also decided to take further steps against Malta. While the previous citizenship-by-investment scheme was no longer in force, Malta had instead established a new scheme at the end of 2020. The Commission therefore decided to issue an additional letter of formal notice to expand the concerns set out in the letter of formal notice to the new scheme operated by Malta.

Both member states now have two months to take the necessary measures to address the Commission's concerns. In case of Cyprus, if the reply is not satisfactory, the Commission may bring the matter before the Court of Justice. In case of Malta, if the reply is not satisfactory, the Commission may take next step and issue a reasoned opinion.

15 June 2021, the FATF announced that it had re-rated Mexico from partially compliant to largely or fully compliant in respect of five of its 40 Recommendations – concerning ‘non-profit organisations’ (Recommendation 8), ‘customer due diligence’ (10), ‘politically exposed persons’ (12), ‘wire transfers’ (16) and ‘reliance on third parties’ (17) – as part of its most recent mutual evaluation.

Mexico has been in an enhanced follow-up process in respect of its measures to tackle money laundering and terrorist financing following the adoption of its FATF mutual evaluation in 2018. It has now reported back to the FATF on the actions it has since taken to strengthen its framework.

The FATF praised Mexico’s actions to strengthen its anti-money laundering framework and its “progress in addressing most of the technical compliance deficiencies identified” in 2018 mutual evaluation.

In addition to the five Recommendation addressed above, the FATF said it has also looked at whether Mexico's measures met its requirements concerning: ‘national cooperation and coordination’ (Recommendation 2), ‘targeted financial sanctions’ (7), ‘new technologies’ (15), ‘Internal controls and foreign branches’ (18) and ‘tipping-off and confidentiality’ (21).

Of these, the FATF agreed to upgrade Mexico’s rating for Recommendation 15 to ‘largely compliant’. It noted that Mexico’s regulatory framework now covers all activities captured by the FATF definition of virtual asset service providers (VASPs) and said: “Mexico has taken steps to identify persons carrying out unauthorised VASP activity and has seen several VASPs cease operating due to requirements of the registration regime.”

As a result, Mexico is now ‘compliant’ with 8 of the 40 Recommendations and ‘largely compliant’ with 22 of them. However, it remains only partially compliant on 9 Recommendations, and non-compliant on one. Mexico will therefore continue to report back to the FATF on its progress.

5 June 2021, G7 Finance ministers agreed at a meeting in London to back a new international agreement on global tax reform that is designed to ensure that big multinational companies pay their ‘fair share’ of tax in the countries in which they do business. It could form the basis of a worldwide deal.

During the meeting, chaired by UK Chancellor Rishi Sunak, finance ministers agreed the principles of a two-Pillar global solution to tackle the tax challenges arising from an increasingly globalised and digital global economy.

The OECD has been coordinating tax negotiations among 140 countries on rules for taxing cross-border digital services and curbing tax base erosion, including a global corporate minimum tax, since the aftermath of the 2008 financial crisis.

The OECD hopes that support from the G7 will spur wider backing at the G20 Financial Ministers & Central Bank Governors meeting in Italy in July. The G20 includes China, Russia and Brazil. If a broad agreement is reached, it will be difficult for any low-tax country to block it. The aim is to strike a comprehensive agreement by October.

Under Pillar One, the largest and most profitable multinationals – about 100 firms worldwide would be within scope – will be required to pay tax in the countries where they operate rather than just where they have their headquarters. The rules would apply to global firms with at least a 10% profit margin and would see 20% of any profit above the 10% margin reallocated and then subjected to tax in the countries they operate.

Under Pillar Two, the G7 also agreed to the principle of 15% global minimum corporation tax operated on a country-by-country basis, creating a more level playing field for business and cracking down on tax avoidance. This proposal is likely to capture up to 8,000 multinationals. The proposed 15% tax rate is regarded as low.  European finance ministers succeeded in including the phrase "at least 15%", which offers a path to get that number higher.

The global minimum tax rate would apply to overseas profits. National governments could still set their own local corporate tax rate, but if companies pay lower rates in a particular country, their home governments could ‘top-up’ their taxes to the minimum rate, eliminating any potential advantage from shifting profits.

The G7 proposals have not been universally welcomed. The Tax Justice Network is advocating a minimum tax rate of 25%. Chief executive Alex Cobham said: “The world’s eyes were on the G7, hoping that in the face of this global pandemic they would throw their weight behind a new tax system that would bring back home to all countries the billions in corporate tax they were robbed of and urgently need to rebuild and recover. Instead, the G7 finance ministers are proposing to follow OECD proposals that would ensure the G7 themselves take the lion’s share of any new tax revenues – which will in any case be limited by their lack of ambition.

11 June 2021, the Inland Revenue (Amendment) (Miscellaneous Provisions) Ordinance 2021 and the Revenue (Stamp Duty) Ordinance 2021 were gazetted and brought into force by the Hong Kong government. They were passed by the Legislative Council on 2 June.

The Miscellaneous Provisions implement four areas of amendments to the Inland Revenue Ordinance (Cap. 112):

-The tax treatment for amalgamation of companies under the court-free procedures, as provided for under the Companies Ordinance (Cap. 622);

-The tax treatment for transfer or succession of specified assets under certain circumstances;

-Refining the statutory framework for the furnishing of tax returns;

-Enhancing the foreign tax deduction regime.

Secretary for Financial Services and the Treasury Christopher Hui said: "The Ordinance codifies the tax treatment with regard to qualifying amalgamations and the transfer or succession of specified assets, offering better clarity and certainty of the relevant matters. It also provides the legal basis to enable more businesses to voluntarily file tax returns, including financial statements, electronically, with the ultimate goal of implementing electronic filing of profits tax returns through the Business Tax Portal.

"Enhancing the foreign tax deduction regime will reduce the tax liability of Hong Kong branches of foreign corporations, in particular foreign banks, and holders of intellectual property. It will help foster a more favourable business environment, particularly reinforcing Hong Kong's attractiveness as a banking location, and promoting Hong Kong as a research and development hub."

The amendments in respect of the foreign tax deduction will take effect from the year of assessment 2021/22.

The Stamp Duty Amendment Ordinance gives effect to the proposal in the 2021/22 Hong Kong Budget to increase the stamp duty rate on transfer of Hong Kong stock. As of 1 August 2021, the stamp duty rate on transfer of Hong Kong stock will be increased from 0.1% to 0.13% of the consideration or value of each transaction payable by buyers and sellers respectively.

18 June 2021, the Hong Kong government published a raft of subsidiary legislation to implement the public inspection regime for the Companies Register of the Companies Registry provided for under the Companies Ordinance, which was passed by the Legislative Council (LegCo) in 2012.

The Companies Ordinance contained provisions stipulating that the Companies Register was to make available for public inspection the correspondence addresses of directors in place of their usual residential addresses (URAs), and the partial identification numbers (IDNs) of directors, company secretaries and other relevant persons in place of full IDNs.

"In recent years, there has been rising community concern over whether personal information contained in public registers is adequately protected. The government has reviewed the situation and considered it appropriate to implement the new inspection regime under the CO now, with a view to enhancing protection of personal information while ensuring that the public could continue to inspect the Register under the CO," said a spokesman for the Financial Services and the Treasury Bureau (FSTB).

"The FSTB briefed the LegCo Panel on Financial Affairs in April 2021 on the arrangements for the new inspection regime. We have also maintained close liaison with relevant stakeholders to listen to their views and refine the implementation details, including the coverage of 'specified persons' who could access URAs and full IDNs (Protected Information), as well as other administrative measures that will allow searchers to effectively ascertain the identity of company directors."

‘Specified persons’ will include the data subjects and their authorised persons; members of the company; public officers, public bodies and persons/organisations that need to use Protected Information (PI) for execution of statutory functions; lawyers practising in law firms and practising accountants; banks; and financial institutions and designated non-financial businesses and professions regulated under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615).

The new inspection regime will be implemented in phases:

-Phase 1 – from 23 August 2021, companies may replace URAs of directors with their correspondence addresses, and replace full IDNs of directors and company secretaries with their partial IDNs for public inspection on their own registers;

-Phase 2 – from 24 October 2022, PI on the Index of Directors on the Register will be replaced with correspondence addresses and partial IDNs for public inspection. PI contained in documents filed for registration after commencement of this phase will not be provided for public inspection. ‘Specified persons’ can apply to the Companies Registry for access to PI of directors and other persons;

-Phase 3 – from 27 December 2023, data subjects can apply to the Companies Registry for protecting from public inspection their PI contained in documents already registered with the Companies Registry before commencement of Phase 2 and replace such information with their correspondence addresses and partial IDNs. "Specified persons" can apply to the Companies Registry for access to PI of directors and other persons.

The package of subsidiary legislation to implement the new inspection regime was tabled at LegCo for negative vetting on 23 June. It comprises: the Companies Ordinance (Commencement) Notice 2021; the Companies Ordinance (Commencement) (No. 2) Notice 2021; the Companies Ordinance (Commencement) (No. 3) Notice 2021; the Companies (Residential Addresses and Identification Numbers) Regulation; the Company Records (Inspection and Provision of Copies) (Amendment) Regulation 2021; the Companies (Non-Hong Kong Companies) (Amendment) Regulation 2021; and the Companies Ordinance (Amendment of Schedule 11) Notice 2021.

16 June 2021, the Isle of Man parliament approved the Income Tax (Substance Requirements) Order 2021 to amend the Income Tax Act 1970 to extend the scope of the economic substance rules to cover partnerships, limited partnerships and limited liability companies (LLCs). The extended rules will apply to accounting periods commencing on or after 1 July 2021.

Partnerships (whether registered in or outside of the Isle of Man) will be caught if they are resident in the Isle of Man and derive revenue from any relevant sector. The residence of a partnership LLC will be determined by its place of ‘effective management’.

An LLC will be treated as Isle of Man-resident unless its place of effective management is in a jurisdiction that imposes the same economic substance test or where the highest rate that may be charged to tax on any part of its profits is at least 15%.

Collective investment schemes (other than ‘self-managed schemes’), partnerships where the partners are individuals and subject to personal income tax, and partnerships that are not part of a multinational group and carry out all activities on the Isle of Man, fall outside of the scope of the economic substance rules.

The Order also introduces civil penalties for late filings of partnership tax returns and a registration requirement for certain foreign or general partnerships that carry out business activities in the Isle of Man. A partnership caught by the economic substance rules that fails to meet the test in a single financial period can be fined up to £10,000, increasing in stages of up to £150,000 for each additional period.

The other Crown Dependencies, as well as British Overseas Territories, are introducing similar legislation having given political commitments in 2018 to the EU Code of Conduct Group (Business Taxation) that they would introduce economic substance rules for resident companies.

In a report to the Council of European Finance Ministers (ECOFIN) last November, the Code Group concluded that Anguilla, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man and Jersey should extend their economic substance requirements to all relevant partnerships that were identified to fall out of the scope of existing legislation from 1 July 2021.

14 May 2021, the Jersey Royal Court authorised a trustee to advance £75 million, representing about half the trust fund, to the principal beneficiary of a discretionary trust for the purpose of making a donation to an English charitable foundation. The judgment was also significant because the beneficiary proposed to incur a UK tax liability on the donation that could otherwise have been legitimately avoided.

In the matter of the May Trust [2021] JRC137, the trust in question was a Jersey resident trust created in 2000. Originally formed under the law of the Cayman Islands, the governing law was subsequently changed to Jersey. The assets of the trust exceeded £150 million.

The beneficiaries of the trust were the ‘principal beneficiary’, his wife, three daughters and four grandchildren, their issue, and a charitable foundation established by the principal beneficiary that was registered as a charity with the UK Charity Commission and administered by him, his wife and an independent trustee.

The trust had a history of charitable donations, with sums in excess of £8 million having been paid to charity by the time of the application while not more than £100,000 had been paid to the family. It was now proposed to distribute £75 million to the principal beneficiary for him to transfer to the foundation

As a beneficiary of the trust, the foundation could have received the distribution directly from the trust and no tax would have been payable. However, the principal beneficiary sought the distribution to himself as a UK taxpayer so that he could then make transfers to the foundation in such a manner (by electing and not electing gift aid relief on different tranches of the sum transferred) that an effective tax rate of 25% would be incurred on the total sum transferred. The family believed that the payment of tax would enable the government to provide a broader social benefit.

The trust contained a power to apply capital in the following terms: “… the trustees shall have power in their absolute and unfettered discretion to pay or apply the whole or any part of the capital of the trust fund to or for the benefit of such one or more of the beneficiaries for the time being living in such shares if more than one and in such manner as the trustees shall in their absolute discretion think fit.” The trustees made the decision in principle and then applied to the court under the Public Trustee v Cooper doctrine for the decision to be blessed.

The Jersey Royal Court observed that it was unusual for it to be asked to approve an arrangement which had the purpose of paying tax in the UK but the main question it had to determine was whether the proposed distribution was for the principal beneficiary’s benefit, he being the beneficiary in whose favour the power was being exercised.

The Court found that, given the philanthropic donations that had previously been made from the trust, which far exceeded in quantum any distributions that had been made to individual beneficiaries, there was no doubt that the provisional decision to make the proposed distribution was one at which the trustees could properly have arrived.

The Foundation was an acknowledged charity and one with which the principal beneficiary and his wife were closely connected as trustees. The payment of funds to the principal beneficiary in order that he could settle those funds on the foundation would enable them to continue their philanthropic work through the foundation. The fact that the arrangements that the principal beneficiary intended to make in claiming tax relief on the payment made by him to the foundation did not detract from the purpose of making the payment to benefit the foundation. Equally, however, the decision not to claim tax relief in respect of some of the money to be paid to the foundation also fitted the social justice aspirations of the family. All these features were matters that the trustees could reasonably consider to support the conclusion that the proposed distribution would be for the benefit of the principal beneficiary.

The Court next turned to the second question – whether the quantum of the proposed distribution was such that it would be an unreasonable exercise of the power. It recognised that although the trust deed contained a power, in the full and unfettered discretion given to the trustees, to ignore the interests of other beneficiaries and make a payment to one beneficiary alone, that was a power that reasonable trustees would undoubtedly need to have regard to the obligations that they owed to the other beneficiaries before exercising.

The trust fund, although much depleted, would still have approximately £50 million available for the benefit of the beneficiaries. The evidence suggested that the principal beneficiary and his wife would not have much, if any, call on the trust fund for their own support and maintenance and the trust fund was also likely to receive further distributions from the appointing trust of up to £1.5 million per annum. In addition, a transfer of shares in the underlying family business into the names, inter alia, of their three children was envisaged in the not-too-distant future.

“In those circumstances, given the acceptance by all adult beneficiaries of the family values and ethos of philanthropic giving, and their support for the proposed distribution, it seems to us to be not unreasonable that the trustees should reach the conclusion that they can properly rely on the power to ignore interests notwithstanding the requirement that they have regard to their obligations towards the other beneficiaries,” said the Court.

“For all these reasons, we are satisfied that the decision which the trustees have provisionally reached to make the proposed distribution is one which falls properly within their power and it is accordingly one which we are willing to bless as a momentous decision.”

The full judgment of the Jersey Royal Court can be accessed at https://www.jerseylaw.je/judgments/unreported/Pages/[2021]JRC137.aspx

9 June 2021, the Maltese government introduced a new ‘Nomad Residence Permit’, which offers a six-month visa and an option of obtaining a one-year ‘Nomad Residence Permit’ that is aimed at attracting ‘non-EU’ remote employees by allowing them to work and consume in Malta but pay taxes in different jurisdictions.

helping to maintain Malta’s workforce talent resources. This new permit, which was on and is overseen by Residency Malta,

To qualify, applicants must prove they are contracted to work remotely by a company based overseas, show that they run their own business or offer freelance service to clientele based abroad.

Parliamentary Secretary for Citizenship Alex Muscat also confirmed that the Maltese government does not intend to limit the application of the permit to any particular sectors, noting that remote working has increased substantially due to the COVID-19 pandemic.

The Malta government is set to trial a non-EU remote worker programme that offers a six-month visa and an option of obtaining a one-year ‘Nomad Residence Permit’ at the cost of €300.

As one of Europe’s largest gaming markets – online gambling accounts for 12% of the island’s GDP, generating €700 million and employing 9,000 people – Malta is home to over 250 betting operators, including Betsson, Tipico and Betfair.

These international operators in turn employ hundreds of workers all over the world, the vast majority of which have been working remotely during the pandemic. As an added incentive to the betting and gaming industry, the Maltese government offers a 15% tax cap on salary payments to highly skilled recruits in the online sector.

Residency Malta chief executive Charles Mizzi said: “Early to recognise the signs, Residency Malta has launched this new permit that allows digital nomads to come to Malta and work here, while enjoying all the perks that Malta offers foreigners. The process is simple and we promise an efficient service that discerning nomads expect.”

18 June 2021, the Mauritius Financial Services Commission issued the Financial Services (Robotic and Artificial Intelligence Enabled Advisory Services) Rules 2021 to provide a regulatory framework and promote the adoption of new and emerging technologies by licensed service providers in Mauritius.

The holder of a Robotic and Artificial Intelligence Enabled Advisory Services licence will, under these Rules, be entitled to provide advisory services through expert systems and/or computer programmes using AI-enabled algorithms, with limited human intervention.

FSC chief executive Dhanesswurnath Thakoor said: “Robotic and artificial intelligence are key technology enablers that will contribute to the digital transformation of the investment and portfolio management landscapes in Mauritius. I am confident that this new licence will play a catalytic role in encouraging our licensees to engage into new and innovative service lines.”

The following rules have been introduced or amended to cater for this licence:

-The Financial Services (Robotic and Artificial Intelligence Enabled Advisory Services) Rules 2021

-The Securities (Investment Advice) Rules 2021

-The Securities (Solicitation) (Amendment) Rules 2021

-The Financial Services (Consolidated Licensing and Fees) (Amendment No. 3) Rules 2021

The relevant application form and licensing criteria for the conduct of this new business activity are published on the FSC website.

4 June 2021, the Council of Europe’s anti-money laundering and counter terrorist financing body MONEYVAL said there was a serious need to improve the effectiveness of states’ action against money laundering and terrorist financing.

The MONEYVAL 2020 annual report contained the key preliminary conclusions of a horizontal review of the implementation of Financial Action Task Force (FATF) recommendations currently underway with 19 states and jurisdictions.

Its findings showed, on average, only a moderate level of effectiveness in their efforts to combat money laundering and terrorist financing. As a result, their level of compliance with anti-money laundering and counter terrorist financing (AML/CTF) standards was below satisfactory.

Effectiveness was particularly weak in the supervision of the financial sector, private sector compliance, transparency of legal persons, as well as in convictions for money laundering offences and confiscations of assets, which remain very low. The report also identified serious shortcomings in respect of financial sanctions for terrorism and proliferation of weapons of mass destruction.

The annual report points out that risk assessments, international cooperation and the use of financial intelligence were areas where MONEYVAL members obtained higher compliance ratings. A positive development was that 90% of jurisdictions regularly pursued international cooperation via mutual legal assistance and information exchanges.

By the end of 2020, 16 of the 19 jurisdictions evaluated by MONEYVAL in the fifth round of mutual evaluations were subject to its enhanced follow-up procedure for their insufficient level of compliance with AML/TF standards: Albania, Andorra, Cyprus, the Czech Republic, Georgia, Gibraltar, Hungary, Latvia, Lithuania, Malta, Moldova, Serbia, Slovakia, Slovenia, the Isle of Man and Ukraine.

Armenia, Israel and the Russian Federation – the latter two countries were jointly evaluated by the FATF and MONEYVAL – were subject to MONEYVAL’s regular follow-up procedure.

MONEVYAL chair Elżbieta Frankow-Jaśkiewicz said: “During 2020 MONEYVAL members continued the development of their legal and institutional frameworks to combat money laundering and terrorist financing, despite Covid-19. However, further efforts are indispensable to ensure the effectiveness of these frameworks to counter criminals aiming to launder the proceeds of their crimes or to fund terrorist attacks”.

“Criminals all over the world have found new ways to abuse the financial system by committing cybercrimes, engaging in fraudulent investment schemes, selling counterfeit medicines and exploiting the public health procurement sector. We must address the new and emerging risks and challenges stemming from the pandemic, notably the increase in online operations and in the use of virtual currencies,” she added.

1 June 2021, the Supreme Court of New Zealand unanimously dismissed the trustee’s appeal and upheld the Court of Appeal’s decision to order disclosure of trust documents, including legal advice, to a beneficiary.

In Lambie Trustee Ltd v Prudence Anne Addleman [2021] NZSC 54, the appeal arose out of a dispute between two estranged sisters, Annette Jamieson and Prudence Addleman, concerning the Lambie Trust, a discretionary trust established in New Zealand in March 1990. Ms Jamieson and Mrs Addleman are both beneficiaries.

Mrs Addleman first became aware of the trust’s existence around the time of her father’s death in late 2001 and did not find out that she was a beneficiary until November 2002 when she received a letter from one of the then trustees, stating that the trustees in their discretion had decided to make a distribution to her of NZ$4.26 million, which “represents the full distribution of funds that will be coming to you from Lambie Trust”.

In March 2003, Mrs Addleman’s solicitors wrote requesting trust information including a copy of the trust deed, the trust accounts and other trust documents. The trustees provided Mrs Addleman with some basic information but not all the information she sought.

The sole trustee since 2006 was Lambie Trustee Ltd, a company controlled by Ms Jamieson. In 2014, Mrs Addleman’s solicitors again wrote to the trustee asking for additional information. Lambie Trustee Ltd did not provide anything further to Mrs Addleman.

In proceedings commenced on 16 June 2015, Mrs Addleman sought disclosure of a wide range of trust documents, which extended to: “all legal opinions and other advice obtained by the trustees for the purposes of the trust fund and funded from the trust fund, including all those that might be privileged as against third parties.”

In the High Court, Woolford J accepted the argument that the Lambie Trust was, in substance, a ‘sole purpose’ trust for the benefit of Ms Jamieson and had been funded with her money. This conclusion heavily influenced his refusal to order any disclosure of trust documents.

On the basis of further evidence admitted for the purposes of the appeal, the Court of Appeal was distinctly sceptical of the contention that the trust had been solely funded by Ms Jamieson and held that in any event, “the Trust cannot properly be regarded as a ‘sole purpose trust’ or ‘essentially [Ms Jamieson’s] trust’.”

Looking at the case on that basis, the Court of Appeal – Addleman v Lambie Trustee Ltd [2019] NZCA 480 – directed disclosure by Lambie Trustee Ltd of all documents in its possession or power relating to the Lambie Trust in respect of financial statements, minutes of meetings and any legal opinions and other advice obtained by the trustees and funded by the trust.

Lambie Trustee Ltd sought leave to appeal to the Supreme Court. This was granted but only in relation to whether the Court of Appeal was correct to order the applicant to disclose to the respondent any legal opinions and other advice obtained by the trustees of the Lambie Trust and funded by the trust. The approved question was: “Whether the Court of Appeal was correct to reject the applicant’s claims of legal advice privilege and litigation privilege respectively.”

The Court noted in its reasons: “We ask counsel for the applicant to include in her submissions to the Court such general information about the nature of the legal opinions and other advice as possible, so that the Court has a proper context in which to consider the privilege issues. For the avoidance of doubt, we confirm the Court does not seek to view the documents themselves. The hearing will be confined to issues of principle only.”

in response, Lambie Trustee Ltd claimed legal advice privilege in relation to advice / opinions obtained either by the trustee company or by a former trustee which, it said, fell across a spectrum of issues, ranging from matters of trust administration to advice about the trustees’ discretionary powers and dealings with beneficiaries.

The appellant further claimed litigation privilege in respect of communications between the appellant, its legal advisers and third parties, which were made for the dominant purpose of a proceeding – from 16 June 2015, when Mrs Addleman filed her statement of claim – or for the dominant purpose of an apprehended proceeding – from 24 September 2014, when the respondent’s former solicitors threatened proceedings.

Despite the Supreme Court’s decision to confine the appeal, it said arguments advanced on behalf of Lambie Trustee Ltd extended to broader conceptions of confidentiality, a general invocation of disclosure principles adopted in Erceg v Erceg [2017] NZSC 28 and even an attempt to rely on the Trusts Act 2019, which came into full effect on 30 January 2021 after the hearing of the appeal but before judgment.

Counsel for Lambie Trustee Ltd, relying on the last sentence in the leave judgment, also invited the Court to issue a judgment addressing only the general principles that should apply and leaving it to the trustee itself to determine what documents in its possession should be disclosed.

The Supreme Court was not prepared to broaden the scope of the appeal beyond the question on which leave was granted or to confine itself to general principles. “In respect of virtually all documents in question, the necessary corollary of the principles we adopt is that the documents are to be disclosed,” said the judgment. “There is, however, a limited category of documents in respect of which we reserve leave to Lambie Trustee Ltd to come back to the Court if it wishes to persevere with its claim to privilege.”

The Supreme Court found that all advice in issue in the proceeding was covered by legal professional privilege so that, against non-beneficiaries, Lambie Trustee Ltd was entitled to assert privilege. However, the Court confirmed that a trustee is not entitled to privilege against a beneficiary of the trust in respect of advice on issues in which the trustee and beneficiary have a joint interest.

It unanimously dismissed Lambie Trustee Ltd’s appeal finding that the trustee and Mrs Addleman had a joint interest in the administration of the trust and therefore the trustee could not claim privilege in relation to the legal advice obtained by the trust regarding its administration.

It did however hold that advice received after the commencement of litigation was not included in the Court of Appeal’s order and that, in any event, once litigation had commenced, the trustee and Mrs Addleman were in competing positions so the “joint interest exception” to privilege would not apply.

The full judgment can be accessed at https://www.courtsofnz.govt.nz/assets/cases/2021/2021-NZSC-54.pdf

24 June 2021, the Global Forum published today new peer review reports assessing the legal and regulatory framework against the international standard on transparency and exchange of information on request (EOIR) for Antigua & Barbuda, Argentina, the Russian Federation, South Africa and Ukraine.

Travel restrictions due to the COVID-19 pandemic had prevented assessment teams from performing on-site visits to evaluate the practical implementation of the standard, so the new reports only covered the first phase of the assessment. Ratings for each element and overall ratings are to be attributed later, when on-site visits can be carried out and full reviews completed.

Antigua & Barbuda’s peer review recognised the improvements made towards ensuring that accounting records were maintained by international business companies (IBCs) for a minimum of five years. Since its last review, Antigua & Barbuda had also significantly expanded its EOI relationships network by becoming a party to the multilateral Convention on Mutual Administrative Assistance in Tax Matters.

However, the Global Forum said flaws remained in the regulatory framework that could undermine the availability of beneficial ownership information for legal entities and arrangements. The legal framework also did not fully ensure that an agent was in possession of, or had control of, or had the ability to obtain the accounting records of IBCs. Antigua & Barbuda should ensure that all accounting information was available in relation to IBCs and international limited liability companies that re-domicile to other jurisdictions.

Argentina’s legislative and regulatory framework covered almost all the elements of the EOIR standard and the entry into force of the multilateral Convention in 2013 had allowed Argentina to expand its network of EOI relationships significantly since its previous peer review. The only legal and regulatory improvement needed was to ensure that beneficial ownership information on bank account holders was available in all cases, in accordance with the standard, because the new requirements under tax law and commercial law might not cover all of them.

The Russian Federation’s legal and regulatory framework generally ensured the availability, access and exchange of relevant information for tax purposes. The main legal improvement since its previous peer review related to the enhancement of its international network of EOI relationships, after the entry into force of the multilateral Convention in 2015. The interplay of the recent obligation for all Russian entities to keep information on their beneficial ownership and anti-money laundering provisions did not yet fully cover the requirements of the standard and should be improved. Improvements were also required on the availability of ownership and accounting information of relevant foreign entities.

South Africa’s legal and regulatory framework generally ensured the availability, access and exchange of all relevant information for tax purposes in accordance with the international standard. The peer review report underlined the scope for improvement in respect of beneficial ownership information, especially in the case of partnerships and trusts. Further, accounting information on companies that domiciled out of South Africa might not be available due to some ambiguity in the existing law. South Africa was recommended to address these issues.

Ukraine’s peer review pointed out a number of important improvements since its last review in 2016, such as the tax authority’s ability to obtain information directly from financial institutions without seeking a court order, when responding to an EOI request. However, deficiencies previously identified regarding the availability of legal ownership and accounting information continued to exist. Although Ukraine had a centralised register for collecting legal and beneficial ownership information for all legal entities and arrangements, gaps persisted and the availability of beneficial ownership information could not be ensured in line with the standard.

The Peer Review Group of the Global Forum further approved requests from Anguilla and Barbados to be subject to supplementary reviews to assess progress made in implementing the standard. These reviews will encompass an onsite visit and will therefore depend on travel restrictions.

22 June 2021, the OECD published revised ‘Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy’ (MRDP), which require operators of digital platforms to collect information on the income realised by those offering accommodation, transport and personal services through their platforms and to report the information to tax authorities.

The MRDP were approved by the OECD/G20 Base Erosion and Profits Shifting (BEPS) Inclusive Framework last June, but the OECD has subsequently developed an international legal framework – the Multilateral Competent Authority Agreement on Automatic Exchange of Information on Income Derived through Digital Platforms (DPI MCAA) – to support the annual automatic exchange of information by the residence jurisdiction of the platform operator with the jurisdictions of residence of the sellers.

Given the interest of a number of jurisdictions to permit the extension of the scope of the MRDP to further cover the sale of goods and the rental of means of transportation, the OECD has also developed an optional module that would allow such jurisdictions to implement the MRDP with an extended scope.

The DPI MCAA allows for the possibility of exchanging information on the basis of the scope of the MRDP or to cover both the scope of the MRDP and the extended scope, and also for enabling information to be exchanged even in situation where the sending or receiving jurisdiction has not itself implemented the MRDP. This is to facilitate situations where a jurisdiction has incentives to exchange such information on a non-reciprocal basis.

“Activities facilitated by platforms may not always be visible to tax authorities or self-reported by taxpayers,” said the OECD. “At the same time, the platform economy also permits increased access to information by tax administrations, as it brings activities previously carried out in the informal cash economy onto digital platforms.”

By providing a standardised reporting regime, the revised MRDP is therefore designed to help to minimise burdens on platform sellers and digital platform operators that might arise where jurisdictions apply multiple different requirements.

A Code of Conduct, published by the OECD Forum on Tax Administration, is intended to supplement the MRDP, in particular in instances where sellers are not subject to reporting under the model rules, either because the transactions are out of scope or the jurisdiction has not yet implemented the model rules.

The intention of the Code of Conduct is to facilitate a standard approach to co-operation between administrations and platforms on providing information and support to platform sellers on their tax obligations while minimising compliance burdens.

7 June 2021, the Dutch government informed the Dutch Parliament that the Russian government had officially gave a notice of termination of the existing double tax treaty between the Netherlands and Russia with effect from 1 January 2022.

The notice of termination was the final step in the process of denouncing the treaty. A proposal to withdraw from the existing treaty was approved by the Russian parliament on 11 May and signed by the Russian President Vladimir Putin on 26 May.

The Netherlands has been negotiating with the Russian Federation on a standard, partial revision of the double tax treaty since 2014. Although officials reached agreement on the partial revision of the tax treaty in January 2020, including arrangements for preventing tax avoidance, the Russian Federation contacted the Netherlands in August 2020 with a view to revising certain aspects of the negotiated amendments.

The Russian Federation proposed that the treaty should allow higher withholding taxes to be levied in order to generate more tax revenue. Besides the Netherlands, it approached Cyprus, Malta and Luxembourg, which agreed to Russia’s proposal. Russia is also understood to have approached Switzerland, Singapore and Hong Kong.

In a statement, Dutch State Secretary for Finance Hans Vijlbrief said the Netherlands has always been willing to make further agreements to combat tax avoidance, but the Russian proposal meant that the Russian Federation would only be prepared to grant treaty benefits to listed companies under strict conditions, even when there was no question of treaty abuse. One of these conditions was that a listed company in the Netherlands must have a direct shareholding in a subsidiary in Russia, or vice versa.

“It seems likely that not all listed companies will automatically meet (or be able to meet) all the conditions,” he said. “Businesses with no stock exchange listing, such as family businesses, would no longer be eligible for any treaty benefits at all. Only a very limited number of taxpayers would still qualify for treaty benefits. This does not take sufficient account of the interests of real Dutch businesses. In addition, companies in other EU countries that are also active in Russia will not face such (unusual) higher withholding taxes, which would put real Dutch companies at a disadvantage compared with companies from those countries.”

Vijlbrief said the Netherlands had put forward counterproposals aimed at combating tax avoidance, including conduit activities, while sparing genuine economic activities. For example, in addition to a principal purposes test (generic anti-abuse provision), the Netherlands has proposed a strict limitation on benefits provision (specific anti-abuse provision). However, the Russian Federation had informed the Netherlands that it was only possible to make the same arrangements as previously made with Cyprus, Malta and Luxembourg, and that there is no room for negotiation.

“The Netherlands has emphasised several times that these countries cannot be compared to the Netherlands,” said Vijlbrief. “This is because a significant proportion of Dutch investments involve (real) Dutch companies that operate and invest in Russia on a large scale. Taking all the above reasons into consideration, the Netherlands finds the Russian Federation’s proposal unacceptable.”

The treaty will cease to apply on 1 January 2022. From that date, the Double Tax (Avoidance) Decree 2001 can be invoked in certain circumstances. This is unilateral Dutch legislation that prevents resident taxpayers from being taxed twice on the same income, in certain situations and under certain conditions. In addition, to prevent double taxation, businesses will still be entitled to an exemption for foreign corporate profits.

The most important consequence of the treaty’s termination is that Russia will be able to levy higher withholding taxes on outbound dividend, interest and royalty payments. In addition, these higher withholding taxes will no longer be eligible for offset once the treaty is terminated. This is because, in the absence of a double tax treaty, the payments in question cannot be offset and will in principle be taxed twice, in both the Netherlands and Russia.

Vijlbrief said the termination of the treaty was not irreversible. The Netherlands would continue its efforts to engage in dialogue and to resolve the issue by the end of the year.

11 June 2021, the Swiss Federal Council said it would decide on a coordinated reform plan in the context of the OECD/G20 work on global corporate taxation during the first quarter of 2022. Its response would depend on the progress made at international level.

“Recently, the G7 finance ministers came out in favour of a minimum international tax rate of at least 15% for large multinationals. In addition, market jurisdictions' taxing rights on the profits of certain highly profitable multinationals are to be increased. It is expected that the Organisation for Economic Co-operation and Development (OECD) will reach a political agreement on certain benchmarks by mid-2021 and that the detailed provisions will be established by the end of 2021,” said the Council in a statement.

It noted that the Federal Department of Finance (FDF) had, in discussions with the cantons, academia and the business community, been examining the possible transposition of an international standard into Swiss law, as well as internationally accepted measures that would safeguard Switzerland's appeal as a business location.

This work would be intensified in the coming months in close cooperation with the Federal Department of Economic Affairs, Education and Research (EAER) and other departments concerned. Depending on the progress made by the OECD/G20, a coordinated reform plan would be submitted to the Federal Council in the first quarter of 2022.

“It is important for Switzerland to set the course now in order to be a competitive location with sustainable growth, innovation, attractive jobs and a high level of prosperity also in the light of the OECD/G20 work on international corporate taxation,” said the Council.

1 June 2021, foreigners opening a company in the United Arab Emirates are no longer required to have an Emirati shareholder or agent under significant amendments to the UAE Commercial Companies Law (CCL) that were first announced last November.

Prior to the amendment, Article 10 of the CCL required 51% of the share capital of all UAE onshore companies to be owned by UAE Nationals. Foreign companies that operated through a branch office were required to have a UAE national agent, while the chairman and the majority of members of the board of directors of joint-stock companies were also required to be UAE nationals.

Article 10 has been amended to remove these requirements and now refers to ownership restrictions being continued in respect of companies undertaking activities that have a been determined, by way of Cabinet Resolution, as having "strategic impact".

Significantly, it also grants each Emirate's Department of Economic Development (DED) the power to impose minimum UAE National shareholding levels and board participation for companies incorporated within their jurisdiction.

Both the Abu Dhabi DED and Dubai DED have both released lists of more than 1,000 commercial activities covering a broad range of sectors in which 100% foreign ownership is now permitted. The Dubai DED has also confirmed that minimum share capital requirements will not be imposed on wholly foreign owned companies beyond the standard requirements.

According to the Strategic Impact Resolution (No. 55 of 2021) passed by the UAE Cabinet Resolution, activities with a 'strategic impact' are:

-Security, defence and military activities

-Banks, exchange houses and finance companies

-Insurance

-Currency printing

-Communications

-Haj and Omar services

-Quran centres

-Fisheries

UAE Minister of Economy Abdulla Bin Touq Al Marri said: "These substantial amendments made to the Commercial Companies Law represent a true translation of the UAE's vision and directives of its wise leadership to attract foreign investments and develop the national economy to achieve unparalleled growth and leadership; and enhance its competitiveness and resilience in the face of various regional and international developments. This necessitated more open and attractive economic policies for investments that can enhance the economy's ability to face challenges, continuously generate opportunities and adapt to changes and benefit from them."

Some have questioned whether these new changes will affect the economic competitiveness of the UAE’s many free zones, which previously allowed 100% foreign ownership. However, the exemption from customs duties and other taxes in the free zones offers significant additional advantages to foreign companies seeking a presence in the UAE.

31 May 2021, Israel and the UAE signed a Double Tax Agreement (DTA) that is intended to incentivise business development between the countries following their decision to ‘normalise’ relations last year. The treaty has to be ratified by both countries and is expected to enter into force on 1 January 2022.

Based on the OECD Model Tax Convention, the treaty’s primary focus is the avoidance of double taxation. The applicable withholding tax rates under the treaty will be 0% to 15% for dividends, 0% to 10% for interest and 12% for royalties. The application of reduced withholding taxes will depend on aspects such as tax residency, the identity of the income’s recipient and beneficial ownership.

UAE national or resident individuals and UAE resident companies have access to an extensive and growing network of over 100 DTAs. These DTAs may not be immediately relevant for obtaining relief from UAE taxation – because the UAE does not levy WHT or other forms of non-resident taxation – but they continue to allow for relief from taxation in DTA partner countries.