Owen, Christopher: Global Survey – December 2021

Archive
  • Belgium and France sign new income tax treaty
    • 9 November 2021, the governments of Belgium and France signed a new income tax treaty which, when ratified, will replace the current 1964 treaty. Key changes relate to the rules covering hybrid entities, the determination of permanent establishment, new withholding tax exemptions and the introduction of anti-abuse measures.

      In 2016, the OECD released the Multilateral Instrument (MLI) to implement its tax treaty-related Base Erosion and Profit Shifting (BEPS) measures into existing bilateral tax treaties in a swift, coordinated and consistent manner. The 1964 Belgian-French double tax treaty is a covered tax agreement, meaning that the MLI must be applied alongside the 1964 Belgian-French double tax treaty – replacing or completing various treaty provisions.

      The new tax treaty is aligned with the OECD Multilateral Instrument (MLI) to implement its tax treaty-related Base Erosion and Profit Shifting (BEPS) measures, involving multiple adjustments to the concept of permanent establishment, withholding tax reduced rates or exemptions are now subject to a beneficial ownership requirement and a principal purpose test (PPT) is included in the new treaty itself.

      The new Belgian-French treaty adopts the OECD definition of tax residents, which includes a subject-to-tax requirement. It also addresses the French hybrid entities, which will be treated as tax resident provided that their place of effective management is in France, they are subject to tax in France and their partners or members are personally liable under French tax legislation for the tax on their distributive profit share of these companies.

      The maximum rate on withholding taxes for dividend distributions is reduced from 15% to 12.8% under the new treaty. The new treaty also provides for a withholding tax exemption for interest and royalties paid or attributed. Exemptions (or reduced rates) can only be claimed if the recipient of the dividend, interest and/or royalty income is the beneficial owner.

      Capital gains realised upon the sale of shares, or any other rights of a company whose assets consists (directly or indirectly) of more than 50% of its value in real estate located in one of the contracting states are taxable in that state.

      The new tax treaty will be applicable for income years, starting on 1 January, following the year in which the treaty enters into force.

  • Cairn Energy ends long-running tax dispute in India
    • 3 November 2021, UK-based Cairn Energy announced that it had entered into undertakings with the Indian government to participate in the scheme introduced by recent Indian legislation, the Taxation Laws (Amendment) Bill 2021, enabling the refund of taxes previously collected from Cairn in India.

      Subject to certain conditions, the Taxation Amendment Act nullifies the tax assessment originally levied against Cairn in January 2016 and orders the refund of INR79 billion (approximately USD1.06 billion) which was collected from Cairn in respect of that assessment.

      To satisfy those conditions, Cairn will commence the filing of the necessary documentation under rule 11UF(3) of the Indian Income Tax Rules 1962(Rules) intimating the withdrawal, termination and/or discontinuance of various enforcement actions.

      The taxes in dispute related to a 2012 law that introduced a retroactive tax on indirect transfers of assets located in India. Cairn challenged the tax through international arbitration provisions available in applicable investment treaties and prevailed with a more than USD1 billion arbitration award.

      While India contested the arbitration award, Cairn sought enforcement in multiple jurisdictions, including successfully gaining a court order in July to seize property owned by the Indian government in France. In August, India introduced a legislative amendment and proposed rules to repeal the controversial retroactive tax and allow refunds in cases where taxpayers had already paid the tax.

  • Cayman Islands to reform restructuring regime for insolvent companies
    • 21 October 2021, the Cayman Islands government gazetted the Companies (Amendment) Bill 2021, which will introduce a formal restructuring procedure for insolvent companies outside the traditional winding-up process. The bill will be presented to Parliament by the Minister of Financial Services and Commerce.

      The Bill will introduce a new standalone restructuring regime. Separating the restructuring regime from company winding-up procedures will remove the appearance that the restructuring regime is part of the liquidating process, which was a potential deterrent for companies considering using Cayman’s restructuring regime.

      Under the Bill, a distressed company will be permitted to petition the Grand Court of the Cayman Islands for the appointment of a restructuring officer on the grounds that it cannot pay its debts and intends to present a compromise or arrangement to its creditors. This will immediately stay any domestic or foreign proceedings against the company, such as issuing of a winding-up petition or the passing of any resolutions for a company to be wound up.

      The amendments will also enable directors to apply to the Court without a shareholder resolution, or without needing powers in the company’s articles of association that allow them to do so.

      Secured creditors will remain entitled to enforce their security without asking the Court and without reference to the restructuring officer. They may also still present a petition to wind up the company, but only with the permission of the Court. If the restructuring of a company fails and the company is subsequently wound up, the winding-up will be deemed to have commenced from the date of the presentation of the restructuring petition.

      The Bill will also offer improved access to the insolvency regime. For all companies incorporated prior to the commencement of the amendments, an opt-in regime will enable a company to include an express provision in its articles of association to allow directors to present winding up petitions without requiring a shareholder resolution.

      For companies incorporated after these amendments commence, directors will be able to present winding up petitions without requiring shareholder resolutions, unless an express provision is included in the company’s articles of association that prevent this.

  • Credit Suisse agrees deferred prosecution agreement with the US
    • 19 October 2021, Swiss bank Credit Suisse Group AG and a UK subsidiary Credit Suisse Securities (Europe) Ltd (CSSEL) entered into a three-year deferred prosecution agreement with the US Department of Justice (DoJ) in connection with conspiracy to commit wire fraud after admitting to defrauding US and international investors in the financing of a USD850 million loan for a tuna fishing project in Mozambique.

      After taking account of crediting by the department of the other resolutions, Credit Suisse will pay approximately USD475 million to authorities in the US and the UK, as well as restitution to victims in an amount to be determined by the court. Switzerland’s Financial Market Supervisory Authority (FINMA) also engaged in an enforcement action, which includes the appointment of an independent third-party to review the implementation and effectiveness of compliance measures for business conducted in financially weak and high-risk countries.

      According to court documents filed in the US District Court for the Eastern District of New York, between 2013 and March 2017 Credit Suisse, through CSSEL, and co-conspirators, used US wires and the US financial system to defraud investors in securities related to a Mozambican state-owned entity, Empresa Moçambicana de Atum S.A. (EMATUM), which Mozambique created to develop a state-owned tuna fishing project.

      Credit Suisse, through its employees and agents, conspired to and did defraud investors and potential investors in EMATUM by making numerous material misrepresentations and omissions relating to, among other things: the use of loan proceeds; kickback payments to CSSEL bankers and the risk of bribes to Mozambican officials; and the existence and maturity dates of debt owed by Mozambique, including another loan that Credit Suisse arranged to a Mozambique state-owned entity and a different loan another bank arranged with Credit Suisse’s knowledge.

      Credit Suisse represented to investors that the loan proceeds would only be used for the tuna fishing project. Instead, co-conspirators diverted loan proceeds obtained from investors. Specifically, a contractor that supplied boats and equipment for EMATUM and that received the loan proceeds from Credit Suisse paid kickbacks of approximately USD50 million to CSSEL bankers and bribes totalling approximately USD150 million to Mozambican government officials.

      Credit Suisse also admitted that it identified significant red flags prior to and during the EMATUM financing. It had learned of significant corruption and bribery concerns associated with the contractor and, in or about 2015, became aware that EMATUM had encountered problems servicing the loan, raising the risk of default. Credit Suisse agreed to arrange the restructuring and exchange of the original EMATUM security into a bond with a longer maturity date.

      During the restructuring, Credit Suisse employees raised concerns about corruption allegations made in the press and disparities in the use of loan proceeds. To address these concerns, Credit Suisse retained two independent industry experts to conduct a market valuation of the tuna fishing boats and other goods the contractor provided for the EMATUM project.

      Credit Suisse knew that the experts identified a shortfall of between USD265 million and USD394 million between the funds raised for the EMATUM loan and the fair market value of the boats and accompanying infrastructure. Credit Suisse did not disclose this material information to investors during the restructuring and the exchange. Aspects of Credit Suisse’s fraudulent conduct were revealed beginning in April 2016, causing the price of the EMATUM securities to drop and resulting in losses to investors.

      This resolution follows the prior entry of guilty pleas by three CSSEL bankers. In July 2019, Andrew Pearse, a former managing director of CSSEL, pleaded guilty to conspiracy to commit wire fraud. In September 2019, Surjan Singh, a former managing director of CSSEL, pleaded guilty to conspiracy to commit money laundering, and in May 2019, Detelina Subeva, a former vice president of CSSEL, also pleaded guilty to conspiracy to commit money laundering.

      US Attorney Breon Peace for the Eastern District of New York said: “This coordinated global resolution demonstrates this Office’s commitment to working across borders with our global law enforcement partners to root out abuse and fraud by financial institutions in order to protect investors here in the US.”

      Credit Suisse has also agreed to continue to cooperate with the DoJ, to enhance its compliance programme and internal controls, and to provide enhanced reporting on its remediation and compliance programme.

  • EU Tax Commissioner sets out agenda for tax reform
    • 30 November 2021, EU Tax Commissioner Paolo Gentiloni said the EU should be able to agree on a rule to implement the global minimum corporate tax agreement by mid-2022 to meet the deadline for the rule to take effect in 2023. He said the Commission would also soon adopt a key initiative to tackle the use of shell companies.

      Speaking at a meeting of the European Parliament’s subcommittee on tax matters, Gentiloni said the Commission considered the implementation of the OECD global agreement to be the number one priority in corporate taxation.

      “We have collectively committed to an implementation roadmap,” he said. “The Pillar 1 and Pillar 2 rules are due to come into effect in 2023. Once the OECD has finalised the technical details of the agreement, the so-called Model Rules, the Commission will move very quickly to put it into practice in the EU.”

      On Pillar 2, to ensure the timely entry into force of the rules in all member states, the Commission would publish the proposed directive on 22 December in line with the anticipated OECD model rules. This would provide legal certainty and ensure that the Pillar 2 rules are implemented in a manner that is fully compatible with EU law.

      According to the agreed implementation roadmap on Pillar 1, the text of the multilateral convention would be stabilised in spring next year, signed by June and ratified before the end of next year. Once work on the text of the multilateral convention was sufficiently advanced, there would be more clarity on the EU's way forward and on the tools to adopt the convention.

      Next year would also see new proposals to further strengthen the EU’s framework to tackle harmful tax practices. The Commission would soon adopt a key initiative to tackle the use of shell companies. The envisaged proposal would be aimed at ensuring that legal entities in the EU that have no or minimal substantial presence and no or minimal real economic activity would not benefit from tax advantages.

      “We are also reflecting on proposing to member states a more robust approach for zero tax jurisdictions in the context of the EU list of non-cooperative jurisdictions,” said Gentiloni. “I am pleased to note that this issue has been taken seriously also in the international fora and we expect an international response from the OECD Global Forum on harmful tax practices and from the OECD Inclusive Framework. The EU is keen to lead by example, but of course a consensus-based solution remains in our view the optimal solution.”

      Both the European Commission and the European Parliament agreed that an urgent reform was needed to broaden the mandate of the Code of Conduct Group.

      “What is currently on the table will help – once adopted – in fighting measures that lead to double non-taxation, or double or multiple use of tax benefits,” said Gentiloni. “We are working hard together with the Slovenian Presidency to bring member states to an agreement. However, two member states still oppose the revised mandate and are thus blocking the agreement, despite the compromise that we are working on. Hopefully, we can come to a result still this year.”

      In 2022, the Commission is to table a proposal to improve public transparency around the effective tax rate paid by large companies in the EU. The calculation of the effective tax rate will make use of the methodology agreed for the purposes of the Pillar 2 global solution on minimum effective taxation – once this is agreed at international level.

      The Commission will also propose a revision of the directive on administrative cooperation, by expanding the scope for exchanges of account information that involves crypto-assets and making the existing exchanges more effective.

      Gentiloni said the current ‘debt-bias’ induced by most EU tax systems not only lead to higher debt levels, making companies more fragile and economies more vulnerable to crises. It also hindered the development of equity financing which was crucial for innovation. The Commission would therefore make a proposal for a debt-equity bias reduction allowance (DEBRA) in the first half of 2022 to ensure a better balance between the treatment of debt and equity for tax purposes.

      “This measure is only a starting point for a broader reform of the EU business tax system. In 2023, as you know, the Commission will put forward a proposal for a holistic EU business tax framework fit for the decades to come, what we call BEFIT,” he said.

  • European Parliament approves public CbCR Directive
    • 11 November 2021, the European Parliament formally approved the proposed public country-by-country reporting (CbCR) Directive. Provisional agreement had been reached by representatives of EU institutions on 1 June and the European Council formally adopted the proposal on 28 September.

      The rules set out in the Directive require both EU-based multinational enterprises (MNEs) and non-EU based MNEs doing business in the EU through a branch or subsidiary with total consolidated revenue of more than €750 million in each of the last two consecutive financial years to disclose publicly the income taxes paid and other tax-related information such as a breakdown of profits, revenues and employees per country.

      Such information needs to be disclosed for all 27 EU Member States and all jurisdictions included in the Annex I (so-called EU blacklist) and Annex II (so-called EU grey list) of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes. For all other jurisdictions, it is sufficient for aggregated data to be disclosed.

      No disclosure will be required if all the companies – parent, subsidiaries and branches – of the MNE are established in a single Member State. A specific exclusion exists under certain conditions for credit institutions that are already subject to reporting obligations under article 89 of Directive 2013/36/EU of the European Parliament.

      The report will provide information in respect of the nature of the activity of the MNE, number of employees, revenues, amount of profit or loss before income tax, income tax accrued during the relevant financial year, amount of income tax paid on a cash basis and the amount of accumulated earnings.

      MNEs will be granted the possibility to defer the disclosure of specific information for five years where such disclosure would be seriously prejudicial to the commercial position of the undertaking. In such situation, any omission will need to be indicated in the report and the reason for such omission needs to be explained. This safeguard clause will not apply if information to be omitted relates to non-cooperative jurisdictions for tax purposes.

      The information is expected to be reported under an electronic template and the report will need to be published within 12 months after the balance sheet date of the financial year for which the report is drawn up.

      The Directive was published in the Official Journal of the European Union on 1 December and will enter into force on 21 December. Member States will then have 18 months to transpose the Directive into national legislation.

  • Four countries deposit new notifications under MLI
    • 25 November 2021, Belgium, Estonia, the Netherlands and Qatar deposited new notifications under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) after their ratification.

      The MLI, which has been signed by 96 jurisdictions and now covers over 1,700 bilateral tax treaties, is designed to prevent the abuse of tax treaties, and address base erosion and profit shifting (BEPS) by multinational enterprises. From 1 January 2022, it is expected to apply to over 850 treaties concluded by the 67 jurisdictions that have so far also ratified the MLI.

      Estonia has notified, in relation to Article 35(7)(a)(i) of the MLI, the completion of its internal procedures for the entry into effect of the provisions of the MLI with respect to its treaties with Austria, Cyprus, Finland, Latvia, Poland, Slovak Republic and Ukraine in accordance with Article 35(7)(b) of the MLI.

      The Netherlands and Qatar have notified additional bilateral treaties to which the MLI can apply and made additional notifications with respect to provisions of the MLI.

      Belgium made an additional notification with respect to its treaty with the Netherlands. This reflects a change in the position of the Dutch government, which was previously in favour of renegotiating the existing treaty. The mutually agreed MLI measures, including those affecting minimum standards, the determination of permanent establishment and requirements for the application of a reduced dividend withholding tax rate, will now apply from 1 January 2022.

      The MLI entered into force for Belgium on 1 October 2019, for Estonia on 1 May 2021, for the Netherlands on 1 July 2019 and for Qatar on 1 April 2020. The new notifications made by those jurisdictions will take effect in accordance with Articles 29 and 35 of the MLI.

  • Guernsey brings new Fiduciary Regulation Law into effect
    • 1 November 2021, the Regulation of Fiduciaries, Administration Businesses and Company Directors, (Bailiwick of Guernsey) Law 2020 was brought into force to repealed and replace the previous dating from 2000, as amended. The new Law, together with accompanying regulations, orders, rules and guidance, is designed to update the legislation and bring it into line with international and EU standards.

      The Law introduces two new categories of fiduciary licence to replace the current licensing categories; lead licensees will become ‘primary fiduciary licensees and joint licensees will become ‘secondary fiduciary licensees’. The former will not be granted to a Bailiwick body that has a corporate director or equivalent.

      The Law introduces a statutory exemption in relation to ‘ancillary vehicles’, which will be subject to the prior notification of the Financial Services Commission (FSC)under rules pursuant to the new Protection of Investors (Bailiwick of Guernsey) Law.

      The Law refers to new categories of key personnel of licensees that will hold ‘approved’ or ‘notified’ supervisory roles that are subject to notification to the FSC. ‘Approved’ roles cover directors, controllers, partners of general partnerships, general partners of limited partnerships, members of limited liability partnerships, money laundering reporting officers (MLROs), money laundering compliance officers (MLCOs) and compliance officers. ‘Notified’ roles cover a ‘significant shareholder’, an ‘other supervised manager’ and a company secretary.

      The Law provides for the submission by licensees of an annual return containing information, as be by the FSC, including:

      • Audited accounts and statements of income.
      • An up-to-date business plan.
      • Certificate of compliance with relevant laws and provisions.
      • Names and particulars in respect of holders of supervised roles.
      • The number of staff employed.

      The Law further expands provisions regarding the scope of persons from whom the FSC can seek information and the retention of information, the inspection powers of the FSC and the disclosure of information.

      The Fiduciary Rules and Guidance 2020 were replaced on 1 November with the Fiduciary Rules and Guidance 2021 to reflect the provisions of the new Law.

  • Malta amends Companies Act to enhance transparency
    • 26 October 2021, Malta’s Companies Act was amended by Act LX of 2021 to introduce changes related to the qualifications required for a person to be a director of a company, as well as the registration of electronic addresses and the obligation of every company to have a register of officers’ and shareholders’ residential addresses.

      All new directors, whether seeking to act as director of public or private companies, will now be required to submit their explicit written consent – either via the execution of the Memorandum of Association or via a separate consent in writing delivered to the Registrar of Companies in Malta – prior to their appointment. Previously this requirement was limited to public companies.

      Upon being appointed director, that person must declare to the Registrar whether he / she is aware of any circumstances that may give rise to disqualification from appointment under the provisions of the Companies Act or the laws of another EU Member State.

      The Registrar has further been empowered to request information and documents to ascertain an individual’s identity and the correctness of information, and to provide competent authorities and subject persons full access to the Malta Business Registry (MBR) website.

      The Memorandum of a company must now list its electronic mail address, and this should also be included, together with the principal activity of the company, in the annual return that is submitted to the MBR.

      Where a document, that is subject to registration with the Registrar, is required to state the name and address of a person, this may either be the residential or service address. Any such document will also require the date of birth in the case of a natural person or the company registration number in the case of a body corporate.

      A new register of the residential addresses of all a company's officers and shareholders has also been introduced, which must include the following:

      • Name of all shareholders and officers.
      • Usual residential address of each officer and shareholder (if the address is the same as the service address there only needs to be one entry).
      • The electronic mail address of each shareholder and officer.

      Directors are required to deliver this register to the Registrar within 14 days of any change in members or company officers, or whenever there is any change in existing personal details. Any officers or shareholders in default will be liable to a penalty of €465.87, unless the default is remedied within one month from the receipt of a notice of default sent by the Registrar. A daily penalty of €23.29 will also be applied for every day that such a default persists.

      This register will only be used for regulatory purposes and will not be open for public inspection.

  • Mauritania joins the OECD/G20 Inclusive Framework
    • 4 November 2021, Mauritania joined the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) as its 141st member. Mauritania will participate in the implementation of the BEPS package of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

      The Mauritanian government also committed to joining the OECD/G20 two-pillar plan to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate, bringing to 137 the total number of jurisdictions participating in the agreement.

      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. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.

  • Mauritius tables Virtual Asset & Initial Token Offering Services Act
    • 26 November 2021, the Mauritian Cabinet approved the Virtual Asset & Initial Token Offering Services Act 2021 for introduction into the National Assembly. The draft legislation was subject to industry consultation with final inputs submitted by 23 July.

      The object of the Act is to provide a comprehensive legislative framework to regulate the new and developing business activities of virtual assets and initial token offerings. This framework is required to meet international Financial Action Task Force standards in respect of provisions for managing, mitigating and preventing any anti-money laundering and countering the financing of terrorism (AML/CFT) risks associated with these emerging business practices.

      Under the Act, the Financial Services Commission (FSC) is to be responsible for regulating and supervising virtual asset service providers and issuers of initial token offerings. The Act therefore provides for the FSC, amongst other things, to:

      • License virtual asset service providers.
      • Register issuers of initial token offerings.
      • Determine whether virtual asset service providers and issuers of initial token offerings are, for AML/CFT purposes, complying with the Financial Intelligence and Anti-Money Laundering Act, the Financial Services Act and the United Nations (Financial Prohibition, Arms Embargo and Travel Ban) Act 2019.

      In addition, with a view to protecting the rights of clients of virtual assets and virtual tokens, and to ensure AML/CFT compliance, it will be a financial crime offence to:

      • Carry out business activities as a virtual asset service provider without being correctly licensed.
      • Carry out business activities as an issuer of initial token offerings without being correctly registered.
      • Otherwise, be in breach of this new regulatory regime.

      The existing regulatory framework on digital assets was adopted in the form of guidelines and regulations, with its scope limited to custodian services and to digital assets, such as ‘securities’ and ‘security tokens’. The new Act no longer limits the regulatory framework to these areas but provides for the licensing and supervision of a much wider range of activities under a new comprehensive definition.

      Key provisions in the Act include the new definition of a ‘virtual asset’, which was imported from the FATF guidelines, and the transitional provisions which provide that a ‘security’ under the Securities Act no longer includes a ‘virtual token’.

      The legislation for virtual assets was announced by the government of Mauritius as part of a raft of initiatives in the National Budget 2021-22 to promote innovation in the financial services sector. Other initiatives include:

      • The Bank of Mauritius (BoM) and the FSC to set-up open labs for banking and payment solutions.
      • A FinTech Innovation Hub to be created to foster entrepreneurship culture, with a single desk to accept all FinTech related applications.
      • Introduction of a new Securities Bill to reinforce the legal structure of the FinTech sector, especially regarding tokens or virtual assets with underlying securities.
      • The BoM to roll out a Central Bank Digital Currency, on a pilot basis, to be known as the Digital Rupee.
  • OECD Global Forum reports on international tax information exchange
    • 17 November 2021, the OECD/G20 Global Forum reported that the automatic exchange of financial account information between countries has been linked directly to at least €3 billion in additional tax revenues worldwide. It has also contributed more than €112 billion in additional tax revenues through voluntary disclosure programs and other initiatives.

      The Global Forum’s 2021 annual report noted that 102 Global Forum jurisdictions automatically exchanged information last year with respect to more than 75 million financial accounts worldwide – representing a total of about €9 trillion in assets. Nearly 90% of the jurisdictions receiving the information reported using it in tax compliance and enforcement efforts.

      A total of 105 Global Forum members have now begun annual automatic exchange of information regarding financial assets held offshore. This number is expected to further increase to 120 by 2024. Albania, Ecuador, and Kazakhstan start this year. Jamaica, Kenya, Maldives, and Morocco have committed to begin automatic exchange in 2022. These countries will be followed in 2023 by Jordan, Moldova, Montenegro, Thailand, Uganda, and Ukraine. Finally, Georgia and Rwanda join the ranks in 2024.

      The report noted that 40 countries in the Global Forum have still not yet committed to a first year to begin exchanges, while two jurisdictions that have committed – Sint Maarten and Trinidad & Tobago – still do not have in place the necessary legal frameworks and Niue lacks the technical capacity to operationalise exchanges.

      Among developing countries, 46 jurisdictions have either begun automatic exchange of information or have committed to do so in the next few years. The report said this has resulted in developing countries identifying more than €30 billion in additional revenue through voluntary disclosure programmes and offshore tax investigations.

      Most of the jurisdictions that have been evaluated through the Global Forum’s peer review process – both for domestic (financial institution reporting) and international (appropriate information exchange) – have so far been deemed fully or largely compliant with the standards.

      Next year, the Global Forum plans to launch an Asia initiative focused on tax transparency and combating tax evasion in Asian countries. The program will join existing regional initiatives for Africa, Latin America, and the Pacific Islands.

  • Requests for tax information under DAC must show ‘clear and sufficient explanation’
    • 25 November 2021, the Court of Justice of the European Union (CJEU) issued a preliminary judgment on what information must be provided by the requesting tax authority seeking tax information on request under the EU Directive on Administrative Cooperation (2011/16) (DAC) when the targeted persons are not identified individually by name.

      In État du Grand-duché de Luxembourg v L (C-437/19), the plaintiff – a company (L) established in Luxembourg – was requested by the Luxembourg tax authorities to provide certain data related to its shareholders. This following a request from the French tax authorities in 2017 under the DAC, which alleged that the shareholders could be subject to reporting obligations and liable to property tax in France.

      The French request stated that L was the indirect parent company of a French property company (F) and alleged that both F and L owned immovable property in France. Under French law, natural persons directly or indirectly owning immovable property situated in France must declare that property. The French tax authority therefore wanted to know the identity of the shareholders and beneficial owners of L.

      The Luxembourg authorities issued L with a notice requesting the names and addresses of its shareholders, its direct and indirect beneficial owners regardless of the intervening structures, the distribution of its share capital and a copy of its shareholder registers.

      L appealed against that order, but in June 2018 the Luxembourg authority declared the appeal inadmissible and two months later issued a penalty notice. The plaintiff appealed the request, as well the related penalty impose for non-compliance, claiming that the information was not foreseeably relevant. The appeal noted that the shareholders were not identified by name and the request order did not explain why the information was requested. The Luxembourg administrative court ruled that the requested information must be regarded as 'manifestly devoid of any foreseeable relevance' and annulled the request.

      The matter was then referred to Higher Administrative Court of the Grand Duchy of Luxembourg, which noted that the French request for information did not identify individually and by name the shareholders and beneficial owners of L. Under the DAC as interpreted by the CJEU in the Berlioz case (C-682/15), a request that does not contain this information was found not to be legally valid. The Higher Administrative Court therefore stayed proceedings and referred the matter to the CJEU.

      The CJEU noted that based on settled case-law, requests under the DAC are aimed at gathering information of which the requesting authority does not have full and precise knowledge. In its view, an interpretation of the concept “identity of the person under examination or investigation” as meaning that persons need to be individually identified by name, would make the DAC impractical.

      As a result, the Court ruled that this principle should also cover group requests, where the persons under investigation are defined by a set of distinctive qualities or characteristics enabling their identification. The Court also confirmed that the principle of ‘foreseeable relevance’ under the DAC should reflect the one used under Article 26(1) of the OECD Model Tax Convention on Income and on Capital and referred to the related OECD commentaries to clarify the concept of a ‘fishing expedition’.

      In view of the principle of foreseeable relevance and considering the aim of avoiding fishing expeditions, the Court concluded that tax authorities are required to provide a detailed description of the investigated persons, explain the specific tax obligations of the targeted group, and state the reasons why the targeted group is investigated, justified by reasonable suspicions of non-compliance with the specific tax obligation. The referring court must now decide whether these conditions are met in the case in point.

      The provisional text of the CJEU judgment can be accessed at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62019CJ0437&qid=1639229131110

  • Russia and Switzerland agree to negotiate treaty revision
    • 19 November 2021, Russia and Switzerland agreed to begin negotiations for a revision of their existing double taxation agreement, at the request of Russia, as soon as possible. The announcement followed a meeting in Bern between Russian Finance Minister Anton Siluanov and Swiss Federal Councillor Ueli Maurer, head of the Federal Department of Finance (FDF).

      In March last year, Russian President Vladimir Putin announced that Russia’s tax treaties should be renegotiated to include a 15% withholding tax on interest and dividend payments transferred to foreign entities. He threatened that Russia would withdraw from its bilateral tax treaties with foreign partners if these terms were not accepted.

      The Russian Ministry of Finance was instructed to amend Russian income tax treaties accordingly and Cyprus, Luxembourg, Malta and the Netherlands were approached with tax treaty amendments providing for an increase in the treaty withholding tax rate on dividends and interest to 15% (with limited exceptions for institutional investors). Agreement was eventually reached with Cyprus, Luxembourg and Malta. The revised tax treaties with Cyprus and Malta are already effective; the one with Luxembourg enters into force on 1 January 2022.

      However, negotiations with the Netherlands were unsuccessful. In June this year, Russia’s Finance Ministry confirmed the denunciation of the 1996 Netherlands-Russia tax treaty following the completion of all unilateral withdrawal procedures. The treaty will be officially terminated on 1 January 2022.

      Switzerland is now the fifth state to which the Russian Finance Ministry has sent a request to amend its tax treaty. The volume of trade between Switzerland and Russia amounts to CHF4.1 billion (USD 4.45 billion). Russia holds capital stock of CHF16.6 billion, making it the ninth largest foreign investor in Switzerland. Swiss investment in Russia amounts to CHF28.9 billion.

      Currently, profits distributed as dividends from Swiss subsidiaries to Russian holding companies are subject to a 35% withholding tax in Switzerland, which is reduced to 5% under the tax treaty. If the treaty is amended in the same way as with Cyprus, Malta and Luxembourg, it will only be possible to reduce the rate to 15%. Other passive incomes, including royalties, will not be affected.

  • Russian bank founder pays USD500 million for US felony tax conviction
    • 29 October 2021, the US District Court for the Northern District of California sentenced Oleg Tinkov, the founder of a Russian bank, for filing a false tax return as part of a scheme to renounce his US citizenship and conceal large stock gains that he knew were reportable from the IRS.

      As required under his plea agreement, Tinkov paid USD509 million, more than double the tax he had sought to evade. This included USD250 million in taxes, statutory interest on that tax and almost USD100 million as a fraud penalty. He was additionally fined USD250,000, which is the maximum allowed by statute, and sentenced to time served and one year of supervised release.

      Tinkov was indicted in September 2019 for wilfully filing false tax returns and was arrested in London in February 2020. The US sought extradition, which he contested on medical grounds. On 1 October 2021, he entered a plea to one count of filing a false tax return.

      According to the plea agreement, Tinkov was born in Russia and became a naturalised US citizen in 1996. From that time through 2013, he filed US tax returns. In late 2005 or 2006, he founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides customers with online financial and banking services. Tinkov held the majority of TCS shares indirectly through a foreign entity.

      In October 2013, TCS held an initial public offering (IPO) on the London Stock Exchange and became a multi-billion dollar, publicly traded company. As part of going public, Tinkov sold a small portion of his majority shareholder stake for more than USD192 million, while his assets following the IPO had a fair market value of more than USD1.1 billion. Three days after the successful IPO, Tinkov went to the US Embassy in Moscow to relinquish his US citizenship.

      As part of his expatriation, Tinkov was required to file a US Initial and Annual Expatriation Statement, which requires expatriates with a net worth of USD2 million or more to report the constructive sale of their assets worldwide to the IRS as if those assets were sold on the day before expatriation. The taxpayer is then required to report and pay tax on the gain from any such constructive sale.

      Tinkov was told of his filing and tax obligations by both the US Embassy in Moscow and his US-based accountant. He denied to his accountant that his net worth was more than USD2 million and filled out the expatriation form himself, falsely reporting that his net worth was only USD300,000.

      In February 2014, Tinkov filed a 2013 individual tax return that falsely reported his income as only USD205,317. He also failed to report any of the gain from the constructive sale of his property worth more than USD1.1 billion, nor did he pay the applicable taxes as required by law. In total, Tinkov caused a tax loss of USD250 million.

  • Singapore signs tax treaty with Cabo Verde, Brazil treaty comes into force
    • 12 November 2021, the governments of Singapore and Cabo Verde signed a double tax agreement to set out the taxing rights of both countries on all forms of income flows arising from cross-border business activities.

      The general withholding tax rate for dividends is 5%, with a 0% rate applying for beneficiaries holding at least 10% of the capital of the paying company. An exemption also applies for payments to governments. It is 7.5% for interest, with exemptions for government and financial institutions, and for royalties.

      The tax treaty between Singapore and Brazil, signed in May 2018, entered into force on 1 December and will become effective in January 2022.

      The general withholding tax rate for dividends is 15%, with a 10% rate applying if the beneficial owner holds at least 25% of the capital of the paying company for the preceding 365 days.

      The general withholding tax rate for interest is 15% with a 10% rate applying for banks in certain circumstances and an exemption for government-owned interest. For royalties, a 15% rate applies for the use or right to use trademarks and a 10% rate in other cases.

  • Singapore to change classification of retail investment products
    • 3 November 2021, the Monetary Authority of Singapore (MAS) issued a consultation paper on proposals to extend the existing complex products regime, which was first introduced in 2012, to give retail investors’ access to a greater range of investment products while helping them better understand the features and risks of products that are considered more complex.

      Products that are well-established in the market and have terms and conditions generally understandable are termed Excluded Investment Products (EIPs). Products that do not fall within the prescribed list of EIPs are termed as Specified Investment Products (SIPs) and must be sold only with enhanced distribution safeguards.

      MAS is seeking views on:

      • Classifying collective investment schemes that are authorised or recognised by MAS, as simple investment products.
      • Classifying debentures with varying interest payments or convertible features as complex investment products.
      • The appropriate classification of perpetual securities and preference shares, and suitable safeguards for investors.
      • Removing the requirement for Financial Institutions to conduct separate assessments on the investment knowledge and experience of customers when advising customers on products.

      MAS Assistant Managing Director (Capital Markets) Lim Tuang Lee said: “With these proposals, we strive to maintain the balance between providing retail investors convenient access to a range of investment products, while ensuring that sufficient safeguards are in place to enable them to make informed investment decisions. These include helping retail investors better understand and appreciate the unique characteristics and risks associated with more complex products.”

  • Singapore withholding tax guidance clarifies payment date determination
    • 8 November 2021, the Inland Revenue Authority of Singapore (IRAS) issued a new e-Tax guide setting out the determination of the date of income payments for withholding tax purposes for payments made or deemed made to non-resident persons. The guide also clarifies withholding tax filing and payment due dates, as well as late payment penalties.

      Section 45 of the Singapore Income Tax Act (SITA) provides that persons making payments to a non-resident person of interest that is chargeable to tax are required to deduct tax from the payment at the appropriate rate and immediately give notice of and pay the deduction to the Comptroller of Income Tax (CIT).

      Where the interest is not actually paid to the non-resident person but reinvested or otherwise held on account for the non-resident person, it is deemed paid on the date that it is reinvested or designated. The withholding tax requirement is also applicable to the payment of royalties, management fees, director’s remuneration, professional and other service fees etc. to a non-resident person.

      Generally, the withholding tax must be accounted for on the earliest of the date that the liability arises under the: terms of an applicable contract or agreement; the date of invoice where there is no contract; the date the income is credited to the non-resident; or the actual date of payment.

      For filing and paying withholding tax, the guidance states that the due date is the 15th day of the second month from the date of payment. If not received by the due date, a 5% late payment penalty will be imposed. Additional penalties may be imposed if still not paid within a further 30 days.

  • Swiss Federal Council adopts Act on implementation of tax treaties
    • 10 November 2021, the Swiss Federal Council approved the Federal Act on the Implementation of International Tax Agreements (ITAIA), which is intended to align Switzerland’s existing legal framework with developments in international tax law. The Act and the associated Ordinance will come into force with on 1 January 2022.

      Previously, Swiss legislation in respect of the implementation and application of double taxation agreements (DTAs) was governed by the Federal Act of 22 June 1951 on the Implementation of International Federal Conventions on the Avoidance of Double Taxation. The new ITAIA supplements the existing legal provisions as required and introduces new areas of regulation.

      The revision of the law aims to provide clear rules to follow in mutual agreement procedures, particularly where the applicable DTA does not contain any deviating provisions. Secondly, it clarifies the procedures for withholding tax relief based on international agreements. Thirdly, it sets out criminal provisions related to relief from withholding taxes on investment income.

      The entry into force of the ITAIA will require certain existing ordinances to be amended. Two existing ordinances and a federal decree will also be repealed because they will be superseded by the ITAIA when it comes into force.

  • UAE introduces raft of amendments to accelerate economic transition
    • 27 November 2021, the UAE Federal government introduced amendments across more than 40 existing laws to further enhance the openness and competitiveness of the business environment and to accelerate the UAE’s transition towards a new economic model. The changes were timed to coincide with celebrations to mark the Golden Jubilee of the creation of the UAE.

      The UAE Ministry of Economy said the unprecedented law amendments, which followed a wide-ranging consultation process, to mark the ‘Year of the Fiftieth’ would have a far-reaching positive impact on the business, investment, innovation, environment and intellectual property sectors.

      “In total, amendments were made to more than 40 laws with an aim to further enhance the economic environment. The move puts in place proactive legislative frameworks that drive long-term economic growth in the country over the next 50 years of the UAE,” said Ministry of Economy Undersecretary Abdullah bin Ahmed Al Saleh at a media briefing.

      The most important UAE laws to have undergone extensive amendment are the Commercial Companies Law (CCL), the Commercial Register Law and the Trademark law, which represent “key drivers for enhancing the flexibility of the economic climate, stimulating innovation, developing the intellectual property system, and increasing the country's attractiveness to companies, investors, entrepreneurs, talents and innovators from around the world in vital and strategic sectors.”

      A total of 55 amendments were made to the CCL: 51 articles have been replaced, three new articles added and one deleted. The changes are intended to enhance the competitiveness of the UAE economy and the dynamism of its business environment. Several new provisions are also designed to support the shift towards the new economic model in accordance with the principles of economic openness and flexibility, the Ministry of Economy said

      The most significant new provisions and amendments to the CCL include:

      • Provision for the establishment of companies for the purposes of acquisition or merger, and Special Purpose Vehicles (SPVs), and establish a legal framework for these new legal forms that exempts them from some provisions of the Companies Law subject to regulation by the Securities & Commodities Authority (SCA) to ensure their effectiveness and economic feasibility.
      • Abolition of a maximum and minimum percentage in respect of a founders’ contribution to the company’s capital at the time of a public offering and the legal limitation of the subscription period. These two matters will be specified in the prospectus.
      • Abolition of the requirements in respect of the nationality of the members of the board of directors and instead permit shareholders’ decisions in the election of board members in accordance with the terms and conditions set by the competent authority.
      • Provision for a company to transform into a public joint stock company and sell its shares or offer new shares in a public subscription without being restricted to a certain percentage, by following the price-building mechanism of the security.
      • Provision for companies to divide and create legal rules governing division operations, therefore enabling companies to diversify their business activities and sectors and increase their opportunities for growth.
      • Provision for companies to determine the face value and the percentage of any offering.
      • Provision for companies to access financing solutions through the issuance of other types of shares.
      • Provision for branches of foreign companies licensed in the UAE to transform into a commercial company with UAE citizenship.

      The revisions to the Commercial Register Law aim to make the Economic Register a comprehensive reference for economic activities that will assist investors and companies to develop their businesses based on documented, integrated and accurate information.

      In particular, the amendments seek to direct investment towards the knowledge and scientific sectors, advanced technological industries and areas of the new economy, by providing a digital infrastructure and a unified digital platform that provides integrated, easy and fast digital services for all sectors and economic activities.

      The most significant new provisions and amendments to the Commercial Register Law include:

      • Establishing the Economic Register as the official reference for data and information for establishments with economic activity in the country.
      • Enabling the use of a unified Economic Register number as a digital identity for establishments.
      • Providing a unified database for all registrants in the Commercial Register, trademark owners, commercial agency activities, etc., and information related to merchants and licensed activities, and any updates or modifications to this data, ensuring its validity, accuracy and updating periodically.
      • Providing a comprehensive and reliable digital knowledge base that can be accessed via advanced digital platforms available at any time and from anywhere to serve investors, policy makers, economic researchers, academics, students and all stakeholders.
      • Facilitating the provision of official data to economic consultancy, research, classification and evaluation institutions and relevant international organisations, and support analysis and research related to economic activities, market trends and potential opportunities.
      • Enabling data sharing between relevant authorities and provide advanced services based on partnership to facilitate customer journey and avoid repetition of submissions.
      • Allowing all transactions to be conducted through the unified Economic Registry number, without the need to re-use documents and data across different government entities.

      The new Trademark Law is designed to offer integrated protection for trademarks and new mechanisms that will improve the trademark and intellectual property system. The most significant new provisions and amendments to the Trademark Law include:

      • Accelerating the issuance of licences and the completion of government approvals and procedures and allowing the submission of multi-category applications that will encourage companies to protect their trademarks.
      • Determining the procedures for registering a mark locally and internationally, providing it with protection and preventing and addressing infringement with deterrent penalties.
      • Providing a comprehensive database of trademarks to be open and free of cost to the public.
      • Introducing the option to renew a mark within six months of an expiry period and to extend by a further six months if reasons are accepted by the Ministry of Economy.
      • Cancellation actions will be filed with the Trademark Committee, as opposed to the Courts, which will be headed by a member of the judiciary. Cancellations for bad faith registrations are now permitted after the expiration of five years.
      • Providing legal protection for non-traditional trademarks, including for voice/sound, smell and 3D/hologram.
      • Raising the scale of penalties for violators of the law and its regulations.
      • Providing protection for ‘geographical indications’ to strengthen the status of the UAE and its domestic products globally.
  • UK holds first ‘Tax Administration and Maintenance Day’
    • 30 November 2021, the UK government marked the inaugural Tax Administration and Maintenance (TAM) Day with the publication of 30 papers covering a wide range of tax issues, including calls for evidence, draft regulations, policy papers and corporate reports. Chancellor Rishi Sunak made the commitment to have a TAM Day in the Autumn Budget.

      Notable initiatives affecting business and international taxation include measures relating to research and development (R&D) tax reliefs, transfer pricing documentation, mandatory disclosure rules (MDR), large business tax compliance and ‘making tax digital’ for corporation tax.

      The government recently announced plans to reform R&D tax reliefs, including by expanding qualifying expenditures to include data and cloud costs, refocusing support towards activities in the UK, and targeting abuse.

      In a report on its review of R&D tax reliefs, the government said it planned to issue draft legislation on the R&D tax relief changes next summer, allowing for further consultation. The changes are planned to take effect in April 2023.

      The government is to introduce transfer pricing legislation next year that will require businesses in-scope of country-by-country reporting (CbCR) requirements to maintain a master file and local file in line with Action 13 of the OECD’s base erosion and profit shifting (BEPS) plan. It plans to issue a further consultation next year on the draft legislation to introduce the master file and local file documentation requirement. The changes will take effect in April 2023.

      The government has issued a technical consultation and draft regulations on implementation of the OECD’s model mandatory disclosure rules. The draft regulations, which will replace the previous EU rules, largely follow the OECD model and will require promoters, service providers, and taxpayers to provide information about certain reportable arrangements and structures. Feedback on the consultation will be accepted until 8 February 2022.

      Following a review of tax administration for large businesses earlier this year, the government announced measures, including developing new guidelines for compliance that will provide practical guidance and transparency on approaches that the government considers to be higher or lower risk. The government is also undertaking measures to address long-running inquiries, including inquiries relating to transfer pricing.

      The government published a summary of responses from its consultation on the design of “making tax digital for corporation tax”. It said it would adopt requirements such as maintaining income and expenditure records digitally and using specified software both to provide an annual corporate tax return and to provide regular summary updates to the tax administration. Adequate time will be allowed for implementation, it said.

  • US makes Digital Services Tax transition deals with Turkey and India
    • 22 and 24 November 2021, the US announced agreements with Turkey and India respectively on the transition from their existing Digital Services Tax regimes to the two Pillar multilateral solution on new international taxing rules that was agreed between 137 countries of the OECD-G20 Inclusive Framework on 8 October.

      The announcements did not specify the terms of the agreements in respect of Turkey’s Digital Services Tax and India’s ‘equalisation levy’ digital services tax but stated that the “compromise represents a pragmatic solution” and that the countries “have committed to working together through constructive dialogue on this matter.”

      In accordance with these agreements, the US will terminate retaliatory trade measures threatened against Turkey and India. The two agreements followed similar US agreements with Austria, France, Italy, Spain and the UK on 21 October.

  • US Tax Court finds Coca-Cola motion had gone flat
    • 26 October 2021, the US Tax Court denied a motion by Coca-Cola for leave to file out of time a motion for reconsideration of a November 2020 transfer pricing decision that increased the drinks giant’s US taxable income by about USD9 billion in a case involving the pricing of cross-border intercompany royalties.

      In the motion for reconsideration that Coca-Cola had filed this June, it argued that it had “reasonable reliance interests” in a 1996 closing agreement that it had completed with the IRS, which it had continued to apply in years after the agreement expired.

      In its 2020 decision, the Court found the agreement inapplicable to the years at issue (2007–2009). It stated that the 1996 closing agreement in question related to a dispute involving Coca-Cola’s 1987–1995 tax years, to which the agreement applied the “10-50-50 method”.

      The court held that the fact that the IRS initially seemed to acquiesce in Coca-Cola’s continued use of this method in subsequent years did not create a legitimate reliance interest. It also concluded that the IRS was entitled to take different positions in different years and was not “required to give a taxpayer prior notice that it is planning to revise its stance.”

      The Tax Court denied Coca-Cola’s motion for reconsideration of the 2020 decision, noting that its motion had not been filed 196 days after the November 2020 opinion, well outside the normal 30-day deadline, and its justifications for the delay were not compelling.

      With respect to the merits of the underlying motion for reconsideration, the court said that it had denied motions for leave to file a motion for reconsideration where the underlying arguments were “meritless and would not change the outcome.”

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