Owen, Christopher: Global Survey – November 2021

5 October 2021, the European Council approved the removal of Anguilla, Dominica and Seychelles from the EU’s list of non-cooperative jurisdictions for tax purposes, the so-called ‘blacklist’.

All three had been placed on the list because they failed to meet the EU’s tax transparency criteria of being ranked as at least ‘largely compliant’ by the OECD Global Forum regarding the exchange of information on request. The delisting was preceded by the forum’s decision to grant these jurisdictions a supplementary review on this matter.

Nine jurisdictions remain on the EU blacklist: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad & Tobago, the US Virgin Islands and Vanuatu.

Pending the granted supplementary review, Anguilla, Dominica and Seychelles are now included in the state of play document, generally known as the ‘grey list’, which covers jurisdictions that do not yet comply with all international tax standards but that have committed to implementing tax good governance principles.

Costa Rica, Hong Kong, Malaysia, North Macedonia, Qatar and Uruguay were also added to the grey list, while Australia, Eswatini and Maldives were removed having implemented all the required tax reforms.

Turkey remains on the grey list. In February, the Council called on Turkey to commit to automatic information exchange with all EU member states. It said progress had since been made but further steps need to be taken.

The European Council first issued the lists in 2017 to counter abusive tax practices, and it updates the lists twice a year. The criteria for listing are in line with international tax standards and focus on tax transparency, fair taxation and prevention of tax base erosion and profit shifting (BEPS). For listed countries, EU member states can adopt defensive measures to protect tax revenues from fraud and evasion.

6 October 2021, the European Commission announced that it had decided to repeal its decision to refer the UK to the European Court of Justice over Gibraltar’s failure to fully recover illegal state aid.

In December 2018, the Commission found that Gibraltar's corporate tax exemption regime for interest and royalties, as well as five tax rulings, were illegal under EU State aid rules. It ordered Gibraltar to recover unpaid taxes from those companies that benefitted from:

• Gibraltar's corporate tax exemption regime for interest and royalties between 2011 and 2013.
• The illegal tax treatment under the following five tax rulings: (i) Ash (Gibraltar) One Ltd; (ii) Ash (Gibraltar) Two Ltd; (iii) Heidrick & Struggles (Gibraltar) Holdings Ltd; Heidrick & Struggles (Gibraltar) Ltd; and (v) MJN Holdings (Gibraltar) Ltd; these companies were also to start to pay taxes on their profits in Gibraltar like any other company.

The Commission said the precise amounts of tax to be recovered from each company must be determined by the Gibraltar tax authorities based on the methodology established in the Commission decision. It estimated that the unpaid tax amounts would be around €100 million in total.

In March this year, the Commission declared that it would take the UK to court over Gibraltar’s failure to recover the outstanding amount. Despite the UK’s withdrawal from the EU, its withdrawal agreement left it subject to the Court of Justice for certain transitional matters.

Following the Commission’s decision to take the matter to court, Gibraltar completed recovery of the illegal state aid this summer. As a result, the Commission is dropping the case.

7 October 2021, the European Parliament adopted a non-binding plenary resolution submitted by the Committee on Economic and Monetary Affairs for reforming EU policy on harmful tax practices as well as a blueprint for a new system to assess national tax policies.

MEPs called on the EU to review and step up its game in the fight against tax practices that deprive member states of substantial revenue, lead to unfair competition and undermine citizens’ trust.

The plenary resolution stated that while tax competition among countries is not in itself problematic, common principles should govern how countries use their tax regimes and policies to attract businesses and profits. This policing is falling short, MEPs said, because policy and legislation has not kept up with innovative tax schemes over the last 20 years.

MEPs made numerous proposals in the resolution to improve policy on harmful tax practices, including to:

• Request a definition of a ‘minimum level of economic substance’ – a threshold of economic activity within a country below which a company cannot be considered to be genuinely established there.
• Ask the Commission to issue guidelines on how to design fair and transparent tax incentives with fewer risks of distorting the Single Market.
• Demand that the Commission assesses the effectiveness of patent boxes and other intellectual property (IP) regimes.
• Call for the country-specific recommendations issued each year as part of the European Semester to be used to also tackle aggressive tax planning.

Most importantly, MEPs called for a wholesale reform of the Code of Conduct on Business Taxation (CoC) and the development of a ‘Framework on Aggressive Tax Arrangements and Low Rates’ that would eventually replace it.

The resolution said that, with its focus on preferential tax regimes, the CoC’s current criteria for judging a tax practice as harmful were outdated. Instead, the reformed criteria and scope should be broader and include an effective tax rate criterion in line with the internationally agreed minimum effective tax rate, as well as clear economic substance requirements. The governance would also need to be reformed to make decisions binding and the decision-making process more transparent and efficient.

French MEP Aurore Lalucq, who prepared the resolution, said: “The Pandora Papers remind us of the importance of implementing common and ambitious European rules to end tax dumping between member states, while fighting tax havens elsewhere. This report recognises the obsolescence of the current Code of Conduct. Parliament calls for their updating to strengthen the criteria for compiling the list of tax havens and demands the Code’s recommendations be legally binding in order to effectively combat harmful tax practices and aggressive tax competition.”

The resolution was adopted with 506 votes in favour to 81 against with 99 abstentions.

21 October 2021, following its October plenary meeting the Financial Action Task Force (FATF) issued proposed amendments to Recommendation 24 and its Interpretive Note on the transparency and beneficial ownership of legal persons.

The proposed changes, which follow a public consultation held from June to August 2021, focus on the multi-pronged approach to collection of beneficial ownership information, measures to prevent the abuse of bearer shares and nominee arrangements, the risk-based approach and access to accurate, adequate and up-to-date information on beneficial ownership by competent authorities.

The draft revisions propose a compulsory company approach to the collection of beneficial ownership information, as well as a requirement for a public authority or body such as a beneficial ownership registry or alternative mechanism to hold such information. Countries will be permitted to decide what form of registry or alternative mechanisms they will use to enable access to information by competent authorities and should document the reasons for their decision based on “risk, context and materiality”.

The chosen method will have to provide the authorities with rapid and efficient access to adequate, accurate and up-to-date information and countries should designate and make publicly known the agency responsible for responding to all international requests for beneficial information.

Countries should also use any additional supplementary measures that are necessary to ensure the beneficial ownership of a company can be determined, such as information held by regulators or stock exchanges or obtained by financial institutions (FIs) or designated non-financial businesses and professions (DNFBPs). Countries should also consider facilitating timely access to the information by FIs and DNFBPs as well as the public.

Countries should not place unduly restrictive conditions on the exchange of information or assistance, according to the proposed amendment, such as refusing a request on the grounds that it involves tax matters or bank secrecy. Information held or obtained for the purpose of identifying beneficial ownership should be kept in a readily accessible manner to facilitate rapid, constructive and effective international cooperation.

The FATF proposes that bearer shares should be subject to additional controls, without inadvertently applying excessive controls to traceable and legitimate uses of such instruments. The consultation asks if countries should prohibit the issue of new bearer shares or bearer share warrants and force the conversion or immobilisation of existing bearer shares within a “reasonable timeframe”. It also asks if nominee arrangements should be subject to certain disclosure and licensing requirements.

Under the proposals, countries would be required to assess the money laundering risks associated with foreign-created legal persons that have “sufficient links” with their country and take appropriate steps to manage and mitigate those risks. The FATF also proposes that a risk-based approach should be applied to the verification of beneficial ownership information. Certain limits should be placed on competent authorities' access to beneficial ownership information, to take account of concerns relating to privacy, security and other potential misuse of the information.

Responses to the consultation must be submitted to the FATF by 3 December 2021.

28 October 2021, the Financial Action Task Force (FATF) updated its 2019 Guidance for a Risk-Based Approach to Virtual Assets (VA) and Virtual Asset Service Providers (VASPs). The new Guidance, which reflects input from a public consultation held during March and April, forms part of the FATF’s ongoing monitoring of the virtual assets and VASP sector.

The FATF standards require countries to assess and mitigate their risks associated with VA financial activities and providers; license or register providers and subject them to supervision or monitoring by competent national authorities. VASPs are subject to the same relevant FATF measures that apply to financial institutions.

The 2021 Guidance explains how the recommendations should apply to VA and VASP activities; provides relevant examples; identifies obstacles to applying mitigating measures; and offers potential solutions. It focuses on the following six key areas in particular:

• Clarification of the definitions of virtual assets and VASPs.

Guidance on how the FATF Standards apply to stablecoins.

• Additional guidance on the risks and the tools available to countries to address the money laundering and terrorist financing risks for peer-to-peer transactions.
• Updated guidance on the licensing and registration of VASPs.
• Additional guidance for the public and private sectors on the implementation of the ‘travel rule’.
• Principles of information-sharing and co-operation amongst VASP Supervisors

The FATF said it remains vigilant and will closely monitor the VA and VASPs sector for any material changes that necessitate further revision or clarification of the FATF Standards. This includes in relation to areas covered in the Guidance such as stablecoins, peer-to-peer transactions, non-fungible tokens and decentralised finance.

30 September 2021, Hong Kong’s Legislative Council (LegCo)approved the Securities & Futures (Amendment) Bill 2021 and Limited Partnership Fund & Business Registration Legislation (Amendment) Bill 2021, which are designed to spur the rapid development of the asset and wealth management business.

The amended Ordinances establish new fund re-domiciliation mechanisms for existing funds set up in corporate or limited partnership form outside Hong Kong to re-locate their registration and operation to Hong Kong and to be registered as open-ended fund companies (OFCs) or limited partnership funds (LPFs) respectively. The re-domiciliation mechanisms were brought into operation on 1 November.

Christopher Hui, Secretary for Financial Services and the Treasury, said: "To give full play to Hong Kong's advantages as an international asset and wealth management centre, introducing the fund re-domiciliation mechanisms enhances the investment fund regimes of Hong Kong with a view to attracting investment funds from all over the world to set foot in Hong Kong. This would further develop Hong Kong into a preferred fund domicile and drive demand for local related professional services, and in turn strengthen Hong Kong's position as an international financial centre."

The establishment of the OFC and LPF regimes were enacted via amendments to the Securities & Futures Ordinance (SFO) and the enactment of the Limited Partnership Fund Ordinance (LPFO) in July 2018 and August 2020 respectively. They broadened the choice of fund vehicles domiciled in Hong Kong and were designed to reduce the use of exempt companies and limited partnerships based in the Cayman Islands.

Prior to the OFC regime, private open-ended corporate funds could not be established in Hong Kong because of company law, while Hong Kong’s Limited Partnership Ordinance had not been updated to cater for fund vehicles.

Under the new re-domiciliation mechanisms, existing investment funds set up in corporate or limited partnership form outside Hong Kong can apply to the Securities & Futures Commission or the Companies Registry for registration of the fund as an OFC or LPF in Hong Kong respectively.

Upon re-domiciliation, the continuity of the fund, including contracts made and property acquired, will be preserved. The fund will be required to deregister in its original place of establishment upon re-domiciliation, but the mechanisms do not operate to create a new legal entity that would necessitate dissolution procedures of the original fund. Such a fund will have the same rights and obligations as any other newly established OFCs or LPFs in Hong Kong.

On the same day, amended guidelines on Anti-Money Laundering and Counter Financing of Terrorism for ‘Licensed Corporations’ (LCs) and for ‘Associated Entities’ (AEs) were gazetted and brought into force by the Hong Kong Securities and Futures Commission (SFC).

This was to address areas identified in the Financial Action Task Force's (FATF’s) mutual evaluation report of September 2019, which requested improvements to Hong Kong's rules on institutional and customer risk assessments, as well as risk mitigation for cross-border correspondent relationships, suspicious transactions and third-party deposits and payments. It also offered further guidance on persons purporting to act on behalf of the customer, as well as establishing sources of funds and wealth.

Under the new guidelines, the risk-based streamlined approach to verifying the identity of certain persons has been reinstated. Where a business relationship presents a low money laundering and terrorist financing risk, it is acceptable to rely on a confirmation letter from a department independent of the persons purporting to act on behalf of the customers, such as the compliance, audit or human resources departments.

Firms that permit third-party deposits and payments must establish and maintain adequate policies and procedures. Delayed due diligence on the source of a third-party deposit is allowed only when there is no suspicion of money laundering or terrorist financing.

Licensed firms will still be required to review their institutional risk assessment at least once every two years, but simpler approaches can be taken where the range of products and services offered by the firm is very limited or its customers have a homogeneous risk profile.

Managers in charge of AML can take on more responsibilities, acting as an AML compliance officer and overseeing third-party deposits and payments.

The SFC held a consultation on its plans in September 2020 and published draft proposals on 15 September 2021. The guidelines took immediate effect, except for the requirements for cross-border correspondent relationships for LCs, which will come into force of 30 March 2022.

6 October 2021, the Hong Kong government committed to amend the Inland Revenue Ordinance to prevent companies with no significant economic activity in Hong Kong from being able to avoid paying tax on passive income by diverting it through Hong Kong.

The move followed Hong Kong’s inclusion on the European Union’s ‘grey list’ of non-cooperative jurisdictions for tax purposes following a review of foreign-source income exemption regimes. The EU concluded that certain aspects of Hong Kong SAR’s territorial tax system could facilitate tax avoidance or other tax practices that it regarded as ‘harmful’.

In particular, the EU considered that corporations without substantial economic activity in Hong Kong SAR and that were not subject to Hong Kong SAR tax in respect of certain foreign-sourced passive income – such as interest and royalties – could lead to situations of “double non-taxation”.

In a statement, the Hong Kong government said: "Hong Kong will continue to adopt the territorial source principle of taxation. The government will endeavour to uphold our simple, certain, and low-tax regime with a view to maintaining the competitiveness of Hong Kong's business environment.

"The proposed legislative amendments will merely target corporations, particularly those with no substantial economic activity in Hong Kong, that make use of passive income to evade tax across a border. Individual taxpayers will not be affected. As to financial institutions, their offshore interest income is already subject to profits tax under the Inland Revenue Ordinance at present, and hence the legislative amendments will not increase their tax burden.

"We will consult the stakeholders on the specific contents of the legislative amendments and strive to minimise the compliance burden of corporates," it said.

The EU published the guidance on the foreign-sourced income exemption regime in October 2019 and began assessing the tax arrangements of a number of jurisdictions, including Hong Kong. The focus of the assessment was to address situations where offshore companies obtain tax benefits through ‘double non-taxation’.

The Hong Kong government said it had been in contact with the EU regarding its assessment and had been actively engaging with the EU on the follow-up work. To support the combating of cross-border tax evasion, the government had agreed to co-operate with and had committed to the EU to amend the Inland Revenue by the end of 2022 and implement relevant measures in 2023.

The EU will further monitor the situation and consider moving Hong Kong SAR to a blacklist if the identified harmful aspect of its tax system does not change. Punitive measures against blacklisted jurisdictions include denial of deduction of payments made, increased withholding taxes, application of controlled foreign company rules, taxation of dividends and administrative measures.

"Hong Kong enterprises will not be subject to defensive tax measures imposed by the EU as a result of being included in the watchlist on tax co-operation,” said a spokesman. “The HKSAR government will request the EU to swiftly remove Hong Kong from the watchlist after amending the relevant tax arrangements."

5 October 2021, a judgment handed down by the Royal Court of Jersey provided clarity on the exact nature of the role performed by protectors in exercising their powers of consent, while also confirming the approach of the Court to the application of letters of wishes in the exercise of the dispositive powers of the trustee.

In Re Piedmont Trust and the Riviera Trust (2021 JRC 248), the case concerned a disputed application by the representors, Jasmine Trustees Limited and Lutea Trustees Limited, for approval of the appointment of all the trusts’ assets among the beneficiaries in specified proportions.

There were three letters of wishes relating to the Piedmont Trust, dating from 2000, 2006 and 2010 respectively, and one relating to the Riviera Trust from 2010. The combined assets of the two trusts were valued at approximately US$42 million shortly before the hearing.

Both the 2000 and 2006 letters in respect of the Piedmont Trust set out that the trust fund would be shared equally by the three children of the father / settlor. He had subsequently fallen out with his daughter, however, and the 2010 letters sought to exclude her in respect of both trusts. It was submitted on behalf of the daughter and her child that the trustees had paid insufficient regard to the historic letters of wishes of 2000 and 2006 whereby she was to receive one third share of the funds.

The Court noted that trustees “may decide to place little or no weight on a settlor’s wishes if they are satisfied that such wishes are based upon an unreasonable animus against a particular beneficiary”. It was therefore right for the trustees not to place weight on the 2010 letters and the Court noted that, in fairness, the other beneficiaries who stood to gain under those wishes did not suggest that they should be followed.

In November 2019 the trustees had put forward a scheme relating to the appointment of all the trusts’ assets among the beneficiaries in specified proportions. The protector had raised certain concerns. Some of those concerns were assuaged by a modification to the trustees’ proposal, which was re-circulated in January 2021. Following the amended proposal put forth by the trustees, the protector exercised his power of consent.

Certain of the beneficiaries argued, however, that the protector should have been bound to consent to the trustees’ previous proposal of November 2019, on the ground that a protector’s role was limited to one of review, where the protector was required simply to satisfy himself or herself that the proposed exercise of the power by the trustees was one which a reasonable body of properly informed trustees was entitled to undertake.

In considering whether to bless the trustees’ application to approve the January 2021 Proposal, the Court therefore had to consider the nature of the protector’s role in the exercise of the power of consent. Whether it was simply to perform a narrow review of the reasonableness of the trustees’ decision-making or did it extend to an independent discretion to withhold consent even if the trustees’ decision was otherwise reasonable?

Finding nothing wrong with the discussions that took place between the protector and the trustees, the Court said: “A protector is not confined to a simple yes or no to a request for consent. A protector and a trustee should work together in the interests of the beneficiaries. It is therefore perfectly reasonable for a protector to explain his concerns about a particular proposal by a trustee and the trustee may often be willing to modify his proposal to take account of these concerns or the protector may be satisfied after the trustee has explained his thinking …

“We reject the criticisms of the conduct of the protector in this case and we also reject the criticism of the trustees for deciding to reconsider the November 2019 Proposal and to modify it. It was clear that the protector was not willing to consent to the November 2019 Proposal and it was therefore perfectly proper for the trustees to revisit that proposal and decide whether to maintain it or whether to modify it to take account of the protector’s concerns. The fact that the protector consented to the January 2021 Proposal even though it was very different from the suggestion which the protector had put forward in its email of 15 September 2020, shows that the protector was not seeking to dictate the only form of distribution to which it would consent.”

After the judgment had been handed down, but before the final version was published, the Royal Court had its attention drawn to a recent decision of the Supreme Court of Bermuda in Re The X Trusts [2021] SC (Bda) 72 Civ, which followed the ‘narrower view’ of a protector’s role. This decision was examined in a postscript to the judgment.

The Royal Court did not accept the Bermudan court’s view that, just because the trustees and protector do not jointly exercise the trustees’ power, a protector’s role must be limited to a review of rationality. The word ‘consent’ indicated that protectors had a genuine choice whether or not to consent to the trustees’ proposed exercise of power.

The Court also noted that it was inherently unlikely that settlors would go to the trouble of appointing a protector from the ranks of their trusted friends or advisors if the role of protector were limited to that of assessing rationality. It would leave the protector ‘helpless’ in the face of a decision that they regarded as wrong but was otherwise ostensibly rational.

“The last point has particular force in the context of offshore trusts where the use of a protector is most common,” said the Court. “As mentioned in Re X Trust, it is frequently the case that a settlor is recommended to a particular trustee company by his advisers but has no personal knowledge of the trustee company or its officers. Not unnaturally therefore, he will often wish to impose some check on the exercise of the trustee’s powers and to do this by appointing himself or a trusted friend or adviser as protector.

“To take a common example, he may well have views about how much money should be given to comparatively young children or grandchildren and does not wish to give them too much too early. A decision by trustees to appoint a comparatively large sum (perhaps at the request of a beneficiary) is unlikely to be categorised as irrational but this is just the sort of situation where a settlor would no doubt intend that a protector should be able to see that the trust is administered in accordance with his (the settlor’s) wishes by refusing consent.

“One can think of many other examples. It seems inherently unlikely that settlors would go to the trouble of appointing themselves or trusted friends or advisors as protectors if they intended the role of protector to be limited to that of assessing rationality. If that were the case, the key requirement for a protector would be a legal qualification rather than knowledge of the settlor’s wishes and sound judgment as to what is in the best interests of particular beneficiaries.”

Nevertheless, the Court cautioned that the protector’s discretion had to remain narrower than that of the trustee. For protectors to assume the function of trustee, for example by stating that they will consent only to a particular decision, would be to “exceed their proper role”. The Court proceeded to encourage “full and open discussion between trustee and protector”.

The full judgment of the Royal Court can be accessed at https://www.jerseylaw.je/judgments/unreported/Pages/[2021]JRC248.aspx

8 October 2021, 136 jurisdictions out of the 140 members of the OECD/G20 Inclusive Framework on BEPS joined a landmark tax deal and signed the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.

Pillar One is intended to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinational enterprises (MNEs). It will re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

Specifically, multinational enterprises with global sales above €20 billion and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions. The OECD said taxing rights on more than USD125 billion of profit are expected to be reallocated to market jurisdictions each year, with developing country revenue gains expected to be greater as a proportion of existing revenues than those in more advanced economies.

Pillar Two is intended to introduce a global minimum corporate tax rate set at 15%. The new minimum tax rate will apply to companies with revenue above €750 million and is estimated to generate around USD150 billion in additional global tax revenues annually. The OECD said further benefits will also arise from the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations.

With Estonia, Hungary and Ireland having joined the agreement, it is now supported by all OECD and G20 countries. Only four Inclusive Framework members – Kenya, Nigeria, Pakistan and Sri Lanka – have not yet joined.

“Today’s agreement will make our international tax arrangements fairer and work better,” said OECD Secretary-General Mathias Cormann. “This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform.”

At the end of their October 30–31 summit in Rome, the leaders of the G20 adopted a declaration supporting the implementation of new international tax rules and urging the OECD “to swiftly develop the model rules and multilateral instruments” necessary to bring the agreement into effect globally in 2023.

In endorsing the OECD deal, the G20 did ‘note’ the OECD’s work on helping to address the tax needs of developing countries and to identify “possible areas where domestic resource mobilisation efforts could be further supported”.

Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023. The convention is already under development and will be the vehicle for implementation of the newly agreed taxing right under Pillar One, as well as for the standstill and removal provisions in relation to all existing Digital Service Taxes and other similar relevant unilateral measures. This will bring more certainty and help ease trade tensions. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.

18 October 2021, the OECD/G20 Inclusive Framework on BEPS reported that over 100 jurisdictions worldwide have now introduced legislation to impose a filing obligation on multinational enterprises (MNEs) covering practically all MNE groups with consolidated group revenue at or above the threshold of €750 million, according to its fourth annual peer review of BEPS Action 13.

The BEPS Action 13 minimum standard on Country-by-Country reporting (CbC) requires tax administrations to collect and share detailed information on all large MNEs doing business in their country. Information collected includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets, broken down by jurisdiction.

The annual review, which covered 132 Inclusive Framework members, found that where legislation was in place, implementation of CbC reporting was largely consistent with the Action 13 minimum standard. More than 3,000 bilateral relationships for the exchange of CbC reports are now in place.

Of those jurisdictions with CbC reporting, 83 jurisdictions had multilateral or bilateral competent authority agreements in place for the related exchange of information. A total of 89 of the jurisdictions had also their related confidentiality safeguards reviewed without further recommendations, and 84 had provided sufficient information to establish appropriate use of the CbC reports.

Eight Inclusive Framework countries could not be reviewed in the report, either because they joined the Framework too late to be included or because they had no resident ultimate parent entities of in-scope multinational groups. These jurisdictions were Albania, Belarus, Burkina Faso, Cook Islands, Montenegro, Saint Kitts and Nevis, Samoa and Togo.

Many recommendations made in the first three peer review phases had now been addressed and these recommendations have been removed. The BEPS Action 13 peer review is an annual process, and the next peer review report will be released in the third quarter of 2022.

The Inclusive Framework also released the results of its Stage 2 peer review on the resolution of tax related disputes between jurisdictions under the BEPS Action 14 on Mutual Agreement Procedure (MAP). These monitoring reports evaluated the progress made by Brazil, Bulgaria, China, Hong Kong (China), Indonesia, Russia and Saudi Arabia in implementing recommendations resulting from their Stage 1 peer review.

Of these jurisdictions, Bulgaria, China, Hong Kong (China), Indonesia, Russia and Saudi Arabia had all signed the Multilateral Instrument, while Indonesia, Russia and Saudi Arabia had also ratified it, bringing a substantial number of their treaties into line with the Action 14 minimum standard.

In addition, there were bilateral negotiations either ongoing or concluded. Bulgaria, China, Hong Kong (China), Indonesia and Saudi Arabia now have a documented bilateral notification/consultation process that they applied in cases where an objection was considered as being not justified by their competent authority.

Brazil, Bulgaria, China, Hong Kong (China) and Saudi Arabia 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.

Hong Kong (China), Russia and Saudi Arabia had closed MAP cases within the pursued average time of 24 months, whereas the median time taken by Bulgaria to resolve MAP cases was within this pursued average as well.

Russia had introduced legislative changes to ensure that MAP agreements could always be implemented notwithstanding domestic time limits, while this was already possible in China and Hong Kong (China). All the concerned jurisdictions had issued or updated their MAP guidance.

BEPS Action 14 Stage 2 peer review reports will continue to be published in batches in accordance with the Action 14 peer review assessment schedule. In total, 82 Stage 1 peer review reports and 52 Stage 1 and Stage 2 peer monitoring reports have now been finalised and published, with the eighth batch of Stage 2 reports to be released in a few months.

4 October 2021, the Privy Council handed down a majority judgment that provides a comprehensive legal foundation for freezing and interim injunctions and removes many of the restrictions imposed on injunctions by previous cases.

In Convoy Collateral Ltd v Broad Idea International Ltd and Cho Kwai Chee [2021] UKPC 24, Broad Idea was a company incorporated in the BVI. Dr. Cho was a shareholder and director of Broad Idea. In February 2018, Convoy applied to the BVI court for freezing orders against Broad Idea and Dr. Cho in support of anticipated proceedings against Dr Cho in Hong Kong. Convoy also sought permission to serve Dr. Cho out of the jurisdiction.

A ‘freezing order’ is an interim or provisional order of the court restraining the party against whom it is granted from disposing of or dealing with, the party’s assets. The 2010 BVI ruling in Black Swan Investment ISA v Harvest View Ltd (BVIHCV 2009/399) indicated that the court did have such a power and it had become a vital tool in aid of judgment and award enforcement in the BVI. It permitted freezing injunctions against BVI respondents to foreign proceedings in aid of potential future enforcement.

Following a hearing held without notice to Broad Idea and Dr. Cho, the BVI court granted freezing orders restraining them from disposing of or diminishing the value of certain of their respective assets and gave permission to serve Dr. Cho out of the jurisdiction. Convoy commenced proceedings against Dr. Cho (but not Broad Idea) in Hong Kong shortly after.

The freezing orders issued against Dr. Cho by the BVI court and the order granting permission to serve Dr Cho out of the jurisdiction were subsequently set aside in April 2019 on the basis that the court did not have jurisdiction to make them. In the meantime, Convoy had made a further application for a freezing order against Broad Idea in support of the Hong Kong proceedings against Dr. Cho.

In July 2019, the judge continued the freezing order against Broad Idea indefinitely on the basis that the principle enunciated in TSB Private Bank International SA v Chabra [1992] 2 All ER 245 applied in the circumstances and that Broad Idea’s assets were at risk of dissipation. Broad Idea appealed.

In May 2020, the East Caribbean Court of Appeal (ECCA) ruled that the Black Swan judgment was wrong and that the BVI court lacked jurisdiction to grant a freestanding freezing injunction against a BVI company that was not a party to substantive proceedings either in the BVI or elsewhere.

Convoy then appealed to the Judicial Committee of the Privy Council (JCPC). The main issues in this appeal were:

• Whether the BVI court has jurisdiction and/or power to grant a freezing order where the respondent is a person against whom no cause of action has arisen, and against whom no substantive proceedings are pursued, in the BVI or elsewhere, and if so
• Whether any such jurisdiction and/or power extends to the granting of a freezing order in support of proceedings to which that person is not a party.

On the facts, the JCPC found that the BVI court rules did not permit service out of the claim solely for a freezing injunction against Dr Cho, a non-BVI resident, following previous authority. However, where the court did have personal jurisdiction over a defendant – Broad Idea was a BVI company – it could grant an injunction to assist with the future enforcement of a foreign judgment.

The JCPC therefore overturned the ECCA ruling and confirmed the Black Swan jurisdiction, albeit in an ex parte passage and only by a 4:3 majority. It also thereby overturned the decision in House of Lords’ decision in The Siskina [1979] AC 210, which limited freezing injunctions to cases where the cause of action for substantive relief had arisen. This decision, it considered, had taken a ‘wrong turning’ regarding the law of freezing injunctions.

“It is necessary to dispel the residual uncertainty emanating from The Siskina and to make it clear that the constraints on the power, and the exercise of the power, to grant freezing and other interim injunctions which were articulated in that case are not merely undesirable in modern day international commerce but legally unsound,” said the JCPC.

Giving judgment, Leggatt LJ said he saw no difference in principle between a case where a freezing injunction is sought in anticipation of (i) a future judgment of a BVI court in substantive proceedings brought in the BVI, (ii) a future judgment of a foreign court enforceable by the BVI court on registration in the BVI, and (iii) a future judgment of a BVI court obtained in an action brought to enforce a foreign judgment.

“In each case the injunction, if granted, is directed towards the enforcement of obligations to satisfy judgments which do not yet exist,” he said. “In each case the question is whether there is a sufficient likelihood that a judgment enforceable through the process of the BVI court will be obtained, and a sufficient risk that without a freezing injunction execution of the judgment will be thwarted, to justify the grant of relief.”

There was no requirement that the judgment should be a judgment of the domestic court, the JCPC ruled, noting that the principle applies equally to a foreign judgment or other award capable of enforcement and to the domestic court.

In his minority judgment, Sir Geoffrey Vos thought that broad survey of the law was inappropriate, given the JCPC’s unanimous view that the appeal would be dismissed because service out was not permitted. The majority judgment would not be binding on lower courts but would be “powerful obiter dicta”.

Leggatt LJ countered that it was not inappropriate to decide these broader issues. Some of the most significant judgments that developed the law were obiter dicta, notably Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465. It was necessary and important to decide the issues, to lay to rest the lingering effects of The Siskina.

The full judgment of the JCPC can be accessed at https://www.bailii.org/uk/cases/UKPC/2021/24.html

29 October 2021, the President of the Family Division published a long-awaited report recommending greater transparency in the Family Court of England and Wales. Sir Andrew McFarlane called for ‘a major shift in culture’ to increase transparency and confidence in the family justice system, which has long been dogged by allegations of secrecy.

An immediate consequence is a proposal to introduce a standardised reporting permission order (RPO) for financial remedy proceedings in the Financial Remedies Court (FRC) to codify and clarify the existing reporting rules “so as to achieve a better balance between privacy of the parties, on the one hand, and transparency and freedom of expression, on the other”.

Launching the consultation on the proposed RPO, Mostyn J and Hess HHJ said: “We emphasise that we are not seeking to change any existing legal standards. Rather, the proposal does no more than to continue to preserve the essential privacy rights of the litigants while at the same time giving meaningful expression to the right of the press and legal bloggers not merely to attend hearings but to comment on and debate the process. We judge that public confidence in the work of the FRC would be greatly enhanced if the public knew what was being done in the public’s name.”

While, in contrast to cases about the welfare of children, there was no ban on journalists or legal bloggers attending a financial remedy proceeding on naming the parties, the entitlement to report was subject to restrictions that effectively ensured that no meaningful report of a case could ever be made:

• Case law established that financial information obtained from the parties under compulsion was protected and could not be referred to in a published report without the leave of the court (Clibbery v Allen (No 2) [2002] EWCA Civ 45, Lykiardopulo v Lykiardopulo [2010] EWCA Civ 1315, Cooper-Hohn v Hohn [2014] EWHC 2314 (Fam)).
• A journalist or legal blogger was not allowed to see any documents without the leave of the court. All financial remedy cases are heavily document-based. All the key evidence is in writing and the main submissions on the law and the facts are in written skeleton arguments. Without sight of these documents a journalist/legal blogger cannot begin to understand what the case is about, and the right to attend and report the hearing is largely rendered meaningless.

“This does not represent a fair balance of, on the one hand, the right to privacy in relation to financial information extracted under compulsion, and, on the other hand, the merit of transparency of the court process and the right to freedom of expression by the press,” said Mostyn and Hess.

The proposed RPO therefore provides straightforward and self-explanatory machinery for a journalist/legal blogger to have sight of the documents containing the key protected financial information, subject to strict conditions.

The conditions will ensure that the journalist/legal blogger is supplied with only those documents containing protected financial information which are necessary to understand what the case is about; that the documents are not bandied about; and that they are destroyed at the latest six months after the case is over.

The draft RPO provides that the embargo on use of protected information is subject to a proviso which allows the journalist/blogger to publish a broad description of (i) the types and amounts of the assets, liabilities, income, and other financial resources of the parties, without identifying the actual items, or where they are sited, or by whom they are held, and (ii) inasmuch as the open proposals of the parties are based on protected information a broad description of them giving only the monetary value of the proposals and without identifying actual items.

“Armed with this basic information, the journalist/legal blogger can say how much the case is worth and what the parties are arguing about. Without this information the journalist/legal blogger could not hope to write a newsworthy, or even intelligible, report,” said Mostyn and Hess. “It is considered that the proposed RPO fairly balances the right of the press and legal bloggers to report meaningfully with the essential privacy rights of the parties and the children.”

The publication of the transparency review, “In Confidence and Confidentiality: Transparency in the Family Courts”, follows at least three decades of debate about openness in family proceedings, during which time ‘the pace of change has been glacial’, McFarlane said. It had been “rumbling on continuously for 30 years and maybe longer and it has never been properly addressed.”

McFarlane recommended reform of the automatic statutory reporting restrictions on family proceedings set out in section 12 of the Administration of Justice Act 1960, which effectively prevents contemporaneous reporting of most family cases without the consent of the judge. The section has been intended to “protect and support the administration of justice” but had actually had “the contrary effect of undermining confidence in the administration of family justice to a marked degree”.

Rules that “mitigate” the effect of section 12 on reporting family proceedings can be made without the need for legislation, McFarlane suggested, but he also called for the government and parliament to give “urgent consideration” to a review of the provision.

“The time has come for accredited media representatives and legal bloggers to be able, not only to attend and observe family court hearings, but also to report publicly on what they see and hear,” McFarlane said.

McFarlane also recommended the publication of more judgments and will ask all family judges to publish “at least 10% of their judgments each year”, a figure he said may be seen as “very low” but is nonetheless “a very significant increase on the present output”.

The full report can be accessed at https://www.judiciary.uk/wp-content/uploads/2021/10/Confidence-and-Confidentiality-Transparency-in-the-Family-Courts-final.pdf

23 October 202, the Inland Revenue Authority of Singapore (IRAS) issued a revised edition of its e-tax guide on ‘avoidance of double taxation agreements’ to add guidance on arbitration provisions in Singapore’s double tax treaties.

The guidance noted that arbitration clauses in Singapore’s tax treaties address situations where the competent authorities of the countries involved are unable to reach resolution on an issue through mutual agreement procedure (MAP). Under Singapore’s tax treaties, the arbitration panel’s decision is usually binding on the competent authorities, unless the taxpayer pursues alternative domestic or foreign remedies.

Taxpayers can generally request arbitration if the competent authorities have been unable to reach resolution in the timeframe specified in the relevant tax treaty. Taxpayers seeking arbitration must submit such requests in writing.

For further details on the process, the guide states that taxpayers should refer to the relevant competent authority agreement on arbitration for the applicable treaty. The e-tax guide further includes information on Singapore’s tax treaty policy, common provisions, MAP, and other tax treaty issues.

20 October 2021, the UK Supreme Court held, by a 4:1 majority, that a claim in tort against an overseas hotel operator met the criteria allowing the claim to proceed in the English courts. These criteria required that “damage was sustained… within the jurisdiction”. The argument by the hotel operator that jurisdiction only founds where initial or direct ‘damage’ was sustained in England and Wales was dismissed.

In FS Cairo (Nile Plaza) LLC v Brownlie [2021] UKSC 45, the respondent Lady Brownlie and her husband, Sir Ian Brownlie QC, were on holiday in Egypt in 2010. They stayed at the Four Seasons Hotel Cairo at Nile Plaza. On 3 January 2010, they went on a guided driving tour that Lady Brownlie booked through the hotel. The vehicle in which they were travelling crashed, killing Sir Ian and seriously injuring Lady Brownlie.

Lady Brownlie issued a claim in England seeking damages in contract and tort. The case reached the Supreme Court, which found that the company sued by Lady Brownlie was not the operator of the hotel and remitted the matter to the High Court. There, she successfully sought permission to substitute the present defendant and to serve the proceedings on it out of the jurisdiction. The defendant appealed on the question of whether permission should have been given to serve the proceedings out of the jurisdiction. The Court of Appeal dismissed the appeal.

The defendant raised two issues before the Supreme Court. The first – the ‘tort gateway issue’ – was whether Lady Brownlie’s claims in tort satisfied the requirements of the relevant jurisdictional ‘gateway’ in the Civil Procedure Rules (CPR). The second – the ‘foreign law issue’ ­ – was whether, to show that her claims in both contract and tort had a reasonable prospect of success, Lady Brownlie had to provide evidence of Egyptian law.

Before permission can be given for service of a claim from outside the jurisdiction, the claimant must establish that: (1) the claim falls within one of the gateways set out in paragraph 3.1 of Practice Direction 6B to the CPR; (2) the claim has a reasonable prospect of success; and (3) England and Wales is the appropriate forum in which to bring the claim.

Lady Brownlie submitted that her tortious claims met the criterion for the gateway in para 3.1(9)(a) of PD 6B, namely that "damage was sustained… within the jurisdiction". The appellant submitted that para 3.1(9)(a) only founds jurisdiction where the initial or direct damage was sustained in England and Wales. Lady Brownlie instead maintained that the requirements of the gateway were satisfied if significant damage was sustained in the jurisdiction.

The Supreme Court considered that the word "damage" in para 3.1(9)(a) refers to actionable harm, direct or indirect, caused by the wrongful act alleged. Its meaning should not be limited to the damage necessary to complete a cause of action in tort because such an approach is unduly restrictive.

The notion that para 3.1(9)(a) should be interpreted in light of the distinction between direct and indirect damage that has developed in EU law was also misplaced. It was an over generalisation to state that the gateway was drafted to assimilate the domestic rules with the EU system. In any event, there are fundamental differences between the two systems. The additional requirement that England is the appropriate forum in which to bring a claim prevents the acceptance of jurisdiction in situations where there is no substantial connection between the wrongdoing and England. Lady Brownlie’s tortious claims relate to actionable harm that was sustained in England; they therefore pass through the relevant gateway.

Lord Leggatt dissented on this issue, favouring a narrower interpretation of paragraph 3.1(9)(a). He considered that Lady Brownlie’s tortious claims did not pass through the relevant gateway because Egypt was the place where all the damage in this claim was sustained.

It was common ground that Lady Brownlie’s claims were governed by Egyptian law. One of the requirements for obtaining permission for service out of the jurisdiction was that the claim as pleaded had a reasonable prospect of success. The appellant argued that Lady Brownlie had failed to show that certain of her claims had a reasonable prospect of success because she had not adduced sufficient evidence of Egyptian law. Lady Brownlie submitted that it was sufficient to rely on the rule that in the absence of satisfactory evidence of foreign law the court would apply English law.

The Supreme Court distinguished between two conceptually distinct rules: the ‘default rule’ on the one hand and the ‘presumption of similarity’ on the other. The default rule was not concerned with establishing the content of foreign law but treated English law as applicable in its own right when foreign law was not pleaded. The justification underlying the default rule was that, if a party decided not to rely on a particular rule of law, it was not for the court to apply it of its own motion.

However, if a party pleaded that foreign law was applicable, they must then show that they had a good claim or defence under that law. The presumption of similarity was a rule of evidence concerned with what the content of foreign law should be taken to be. It was engaged only where it was reasonable to expect that the applicable foreign law was likely to be materially similar to English law on the matter in issue.

The presumption of similarity was therefore only ever a basis for drawing inferences about the probable content of foreign law in the absence of better evidence. Because the application of the presumption of similarity was fact-specific, it was impossible to state any hard and fast rules as to when it might properly be employed.

Lady Brownlie’s claims were pleaded under Egyptian law. There was therefore no scope for applying English law by default. However, the judge was entitled to rely on the presumption that Egyptian law is materially similar to English law in concluding that Lady Brownlie’s claims were reasonably arguable for the purposes of establishing jurisdiction.

The Supreme Court dismissed the appellant’s appeal on both issues. In relation to the tort gateway issue, Lord Lloyd-Jones (with whom Lord Reed, Lord Briggs, and Lord Burrows agreed) gave the lead judgment. Lord Leggatt dissented and would have allowed the appeal on that issue. On the foreign law issue, Lord Leggatt gave the unanimous judgment.

The full judgment can be accessed at https://www.bailii.org/uk/cases/UKSC/2021/45.html

1 October 2021, the Swiss Federal Council opened a consultation on proposed amendments to the Anti-Money Laundering Ordinance and other ordinances, which include the most important recommendations from the Financial Action Task Force's (FATF) mutual evaluation report on Switzerland of 2016.

The Swiss parliament approved the revision of the Anti-Money Laundering Act on 19 March 2021, including due-diligence and beneficial ownership reporting obligations for persons providing services in connection with companies or trusts, as well as for financial intermediaries. Banks will be required to file suspicious activity reports when they have any 'well-founded suspicion' of criminal funds.

Switzerland has been in an ‘enhanced follow-up process’ since the FATF evaluation in 2016. In February 2020, FATF recognised Switzerland's progress by publishing improved ratings of its AML measures. Switzerland is now rated ‘compliant’ on eight Recommendations and ‘largely compliant’ on 27 Recommendations. It remains partially compliant on 5 Recommendations however and is required to continue to report on further work under the enhanced follow-up regime.

The measures require implementing provisions, specifically around the reporting system for money laundering, the introduction of a licencing requirement for purchasing precious metal scrap, the appointment of the Central Office for Precious Metal Control as the new money laundering oversight authority, and the transparency of associations that carry a greater risk of terrorist financing.

The proposed ordinance amendments serve mainly to provide more detail on the adopted measures. In addition, it is planned to use this opportunity to transpose relevant disclosure provisions from the money laundering ordinances of the supervisory authorities and the Federal Department of Justice and Police (FDJP) into the Federal Council's money laundering ordinance.

The Federal Council is proposing amendments not just to the Anti-Money Laundering Ordinance, but also to the Ordinance on the Money Laundering Report Office Switzerland, the Commercial Register Ordinance, the Precious Metals Control Ordinance, and the Ordinance on Fees for Precious Metal Control.

Consultation on the draft Ordinance will be open until 17 January 2022. The next FATF follow-up audit of Switzerland is due later in 2022.

27 October 2021, UK Chancellor Rishi Sunak delivered the Autumn Budget which scheduled the introduction of the proposed new Qualifying Asset Holding Companies regime, announced a consultation on corporate re-domiciliation, as well as further measures to tackle promoters of tax avoidance.

As part of the government’s wider review of the UK funds regime to boost the UK’s competitiveness as a location for asset management, the government is to legislate to introduce a bespoke tax regime for qualifying asset holding companies (QAHC). The Budget confirmed that this regime is intended to be legislated in Finance Bill 2021-22.

The policy paper sets out further benefits that a QAHC will enjoy in addition to those included in the policy paper published in July. Additional benefits include exempting the associated profits that arise from loan relationships and derivative contracts and allowing certain amounts paid to certain ‘non-domiciled’ residents by a QAHC to be treated as non-UK source when such individuals claim the remittance basis for the purposes of UK income tax and capital gains tax.

The government is still considering its response to the second-stage consultation and announced that it is to consult on options to simplify the VAT treatment of fund management fees.

The government is to seek views on the introduction of a UK re-domiciliation regime, which would make it possible for companies to re-domicile and therefore easier to relocate to the UK. In particular, the consultation will seek views on:

• The advantages of enabling companies to re-domicile
• The level of demand that exists, among which types of companies and sectors
• The appropriate checks and entry criteria
• The merits of establishing an outward re-domiciliation regime
• Any tax implications associated with the introduction of a re-domiciliation regime

The Autumn Budget included details of new anti-tax avoidance measures for inclusion in Finance Bill 2021-22, which include:

• Penalties on UK entities that facilitate tax avoidance provided by offshore promoters. The policy paper describes such UK entities as “willing associates and collaborators” and proposes that, in addition to existing statutory penalties, it will introduce an additional penalty of an amount up to the total fees derived from the facilitation.
• Winding up companies that are “operating against the public interest” in promoting tax avoidance, regardless of whether a tax debt exists under the relevant insolvency legislation.
• Empowering HMRC to seek a “freezing order” against promoters’ assets when it is about to initiate proceedings for a tribunal-assessed penalty under current anti-avoidance legislation, irrespective of whether an enforceable debt existed at the point that the freezing order is sought.

HMRC has confirmed its intention to legislate in Finance Bill 2021-22 to require the notification of uncertain tax treatments by large businesses – those with a £200 million UK turnover and £2 billion UK balance sheet.  The proposals are to apply to large businesses’ tax returns from 1 April 2022.

Finally, the government said that the Economic Crime (Anti-Money Laundering) Levy, announced at the last Budget, is to commence in the financial year running from 1 April 2022 to 31 March 2023 on medium, large, and very large entities that are regulated for anti-money laundering purposes at any point during that year.

The new Levy is part of the government’s wider objective, set out in the 2019 Economic Crime Plan, to develop a long-term “sustainable resourcing model” to tackle economic crime.  The rate of the Levy will depend on the relevant UK revenue of the relevant regulated entity, with threshold figures and Levy amounts to be finalised in Finance Bill 2021-22.

21 October 2021, the US government reached a ‘Unilateral Measures Compromise’ with Austria, France, Italy, Spain and the UK concerning the treatment of existing Digital Services Tax (DST) regimes during the interim period prior to full implementation of Pillar 1 of the OECD global tax deal.

These countries joined 130 other members of the OECD/G20 Inclusive Framework in reaching political agreement on the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy on 8 October.

The side agreement is a political compromise between the US, which preferred that DSTs should end concurrently with the 8 October global tax deal, and the European countries that had already implemented DSTs and preferred that they should be kept fully in place until Pillar 1 of the OECD agreement is implemented.

Under the compromise agreement, Austria, France, Italy, Spain and the UK are not required to withdraw their Unilateral Measures until Pillar 1 takes effect. However, multinationals paying DST in these countries can receive a partial credit for such taxes paid during the interim period, which will run from 1 January 2022 until either a multilateral convention implementing Pillar 1 enters into force or 31 December 2023, whichever is earlier.

This credit will equal the amount of the DST paid in excess of the taxpayer’s Pillar 1 liability in the first year after implementation (prorated in accordance with the length of the interim period). Taxpayers receiving such credits will be able to apply them against their Pillar 1 “Amount A” corporate income tax liability in the relevant countries. To the extent they are not fully used in the first year of such liability, the credits will be carried forward to apply against future years’ Pillar 1 tax liability. Multinational groups that are not in-scope of Pillar 1 when it takes effect will still be able to benefit from the credits if they become in-scope within four years.

As part of the agreement, the US has also agreed to terminate proposed trade actions and commit not to impose further trade actions against Austria, France, Italy, Spain and the UK with respect to their existing DSTs until the end of the Interim Period.

The Office of the US Trade Representative is proceeding with the formal steps required for terminating the Section 301 trade actions, and in coordination with the US Treasury, will monitor implementation of the agreement going forward. Turkey and India, the other two countries covered by the DST investigations, have not joined in the compromise agreement.