Owen, Christopher: Offshore Survey – September 2008

7 July 2008, Prime Minister and Minister of Finance David Thompson said the expansion of Barbados’s tax treaty network and range of incentives was crucial to making it more attractive to regional and international companies. Speaking in his first financial statement and budget proposal, Thompson said his administration would prioritise the negotiation of more tax treaties and bilateral investment treaties, focusing especially on Latin American and Asian countries. Barbados is currently seeking to agree treaties with Argentina, Belgium, Brazil, Chile, Colombia, the Czech Republic, India, Ireland, Malaysia, Nigeria, Russia, South Africa and Japan. During the first six months of the new government, Barbados concluded a tax treaty and investment treaty with Ghana in May and an income tax treaty with Mexico in April. Thompson’s administration is also to increase incentives to make Barbados an attractive site for regional and international companies’ headquarters. Those incentives include tax benefits, tax and bilateral investment treaties, immigration arrangements for senior and professional staff and their families, relaxation of exchange controls on capital transactions, dispute settlement arrangements and skills availability.

8 May 2008, Belgium’s parliament adopted a law ratifying a new Belgium-Singapore tax treaty and protocol, which was signed on 6 November 2006 in Singapore. The treaty will enter into force following ratification by both countries and will replace the existing 1972 tax treaty. For Belgium, the treaty covers individual and corporate income tax, income tax on legal entities and on non-residents. For Singapore, it applies to the income tax. Under the treaty, dividends will be subject to a 5% withholding tax if the beneficial owner of the dividends is a company that directly holds at least 10% of the capital of the company paying the dividends. A 15% withholding tax rate will apply in other cases. Interest will be subject to a 5% withholding tax rate.

18 July 2008, the Jersey and Guernsey governments confirmed that they are to sign agreements – including Tax Information Exchange Agreements (TIEAs) – with Denmark, Finland, Greenland, Iceland, Norway, Sweden and the Faroe Islands in Helsinki in October. Signing the agreements will create the opportunity for the Channel Islands to negotiate tax treaties, combined with further information exchange agreements, with each of the Nordic countries in the near future. The Isle of Man already has these agreements in place. Under the terms of the agreements, the Channel Islands and the other signatories will exchange bank and other information on request relating to both criminal and civil tax matters. For criminal tax matters information exchange can apply whether the investigation relates to conduct before or after the coming into force of the agreement. For civil tax matters such exchange can apply only in respect of taxable periods beginning on or after the date of entry into force. Jersey also signed a TIEA with Germany on 4 July 2008. It was the third TIEA entered into by Jersey, which has similar agreements with the Netherlands and the US.

14 May 2008, EU finance ministers agreed to expand the Savings Tax Directive, which came into force in 2005. According to a European Commission report presented to EU finance ministers, European citizens are using trusts, foundations and other investment vehicles to circumvent the Directive.The move followed pressure from Germany, which launched an unprecedented tax fraud investigation in February after it acquired details of some 1,400 individuals with secret banks accounts in Liechtenstein. It urged other European states to force banks and financial institutions in tax havens to disclose information about their clients based in EU member states. After the meeting in Brussels, EU tax commissioner Laszlo Kovacs said he would amend the current rules in a way advocated by Germany, improving the exchange of information between banks and extending the scope of the Directive. At present, common types of investment not covered by the Directive include dividends, capital gains and payments from life insurance policies and pension schemes. The Directive also only applies to individuals but not to legal entities. Certain foundations and trusts also manage to avoid tax liabilities by arranging for the beneficiaries to receive income that is classified for legal purposes as an asset. A tougher and more united EU approach to savings taxation will be hindered by traditional bank secrecy rules in Austria, Belgium and Luxembourg, all of which negotiated an opt-out from the Directive and instead introduced a withholding tax on interest payments that started at 15% in 2005. This was increased to 20% as of July and will rise to 35% in July 2011. Germany claims it loses as much as €30 billion each year in tax fraud and the EU executive was asked to provide an interim report on how the current rules work by the end of September. The Savings Tax Directive took 14 years to be adopted and a protracted legislative procedure can be expected before a new compromise is reached. Luxembourg has already signalled opposition to the idea, while Austria and Belgium suggested they would not be willing to supply information on savers’ accounts to other countries.

Isle of Man signs TIEA with Ireland, Guernsey with the Netherlands 25 April 2008, the Isle of Man signed a Tax Information Exchange Agreement (TIEA) with Ireland and Guernsey signed a similar agreement with the Netherlands. The agreement with Ireland is the tenth such TIEA signed by the Isle of Man. For Guernsey, which concluded an agreement with the United States in 2002, the new agreement with the Netherlands is its second. The two new agreements brought to 14 the number of TIEAs signed since the beginning of 2007 by jurisdictions that have committed to work, under the auspices of the OECD’s Global Forum on Taxation, to improve transparency and to establish effective information exchange for tax purposes. Other negotiations are ongoing and are expected to lead to further new agreements shortly.

June 2008, the Liechtenstein parliament approved a revision of the law governing foundations to meet international regulatory standards. The new Foundation Law will enter into force on 1 April 2009. The move follows the reform of Liechtenstein company structures, associations and cooperative societies and the introduction of the European Company and the European Cooperative Society as new company structures. A revision of trust law is to follow. Minister of Justice and Economic Affairs Klaus Tschütscher said the revised law would meet international standards without deviating from the Liechtenstein legal traditions on the protection of privacy. The new foundation law introduces a new systematic structure differentiating private-use from charitable foundations and strengthening the responsibility of the founder. The protection of the foundation assets is subject to new rules, as are the supervision of foundations and foundation governance. The non-transferability of the founders’ rights as a further new key feature entails greater legal certainty and clarity. The ‘deposited’ foundation, which need not be registered in the Public Registry, has been retained. The government justifies the retention, despite international criticism, by saying that it serves to protect the confidentiality of a founder who wants to engage in long-term asset planning in the interest of his family. The exemption from the registration requirement applies only to private-use foundations, and not to commercially operating foundations. The government asserts that confidentiality in the foundation system is not limited to Liechtenstein and switching to a general registration requirement for all foundations would significantly diminish the attractiveness of the Liechtenstein foundation. Austrian foundations must be entered in the corporate registry, but since a professional trustee acts on behalf of the founder when establishing the foundation and the name of the foundation may be freely chosen, the beneficial founder can remain in the background. Swiss family foundations are also exempt from entry in the commercial registry, while in Germany only limited disclosure applies which, as a rule, does not extend to the person of the founder. The government has said foundations lie at the heart of its ‘Futuro’ project to develop Liechtenstein as a financial centre. Futuro also plans to make Liechtenstein into a location for trusts by harmonising them with Anglo-Saxon trust structures.

8 August 2008, Molly Bordanaro, the US ambassador to Malta, and Maltese Finance Minister Tonio Fenech signed a new tax treaty between the two countries in Valleta. The previous Malta-US treaty, signed in 1980, was terminated on 1 January 1997. The new treaty provides for reduced withholding rates on cross-border dividend payments, with the elimination of withholding on cross-border dividend payments to pension funds. It also provides for withholding at a 10% rate on interest, royalties and other income. Both countries use the credit method for the elimination of double taxation. The treaty includes a limitation of benefits clause and a provision to facilitate the exchange of information between the countries’ competent authorities. On 31 July, the Greek government officially informed Malta that it had fulfilled all the legal requirements for the ratification and entry into force of tax treaty, which was signed on 13 October 2006. Malta had ratified the treaty on 3 November 2006. The treaty entered into force on 30 August 2008. Malta’s tax treaty network includes 46 countries. In the past four years Malta has signed tax treaties with the United Arab Emirates, Singapore, Spain, Iceland and San Marino. Tax treaties with Switzerland and Jordan have also been concluded and are ready for signature.

10 March 2008, the Dutch Ministry of Finance announced that it is currently negotiating new tax treaties or treaty protocols, or intends to start treaty negotiations this year, with 29 countries. The countries are: Algeria, Australia, Azerbaijan, Brazil, Canada, China, Costa Rica, Cyprus, Cuba, Germany, France, Hong Kong, Indonesia, Iran, Isle of Man, Japan, Kenya, Kyrgyzstan, Libya, Mexico, Peru, Saudi Arabia, Slovakia, Tanzania, Turkmenistan, Turkey, UK, South Korea and Switzerland. It is expected that, having amended the political relationship with the Netherlands Antilles, negotiations to change the tax treaty will follow. The Netherlands is also negotiating Tax Information Exchange Agreements, or intends to start negotiations this year, with Bermuda, Guernsey and the Cayman Islands.

18 July 2008, the OECD published the 2008 update to the model tax convention following approval by the OECD Council. A revised version of the convention incorporating the changes is due to be released in early September. The update includes changes on resolving tax treaty disputes, interpreting article 24 on non-discrimination, handling treaty issues related to real estate investment trusts and changes to the OECD commentary on treatment of services. It also reflects revised commentary for article 7 of the model tax treaty on the attribution of profits to permanent establishments, which the OECD had released as a discussion draft in April 2007. According to the July 18 release, “the revised Commentary incorporates those aspects of the conclusions from that work that do not conflict with the existing interpretation of article 7 reflected in the current version of the Commentary”. The update also makes technical changes to the commentary on the “place of effective management,” dual-resident persons who are treaty non-residents under the tiebreaker rule, the definition of royalties, and whether to account for days of residence for the purposes of the computation of the 183-day rule of article 15. The OECD published the model tax treaty update as a discussion draft in April. After weighing all comments received, the OECD decided, “No major additional changes should be made to the update as a result of these comments.” The updated model treaty will replace the version issued by the OECD in 1963 and will be the new starting point for negotiation and interpretation of bilateral treaties among OECD member countries and non-member countries.

28 July 2008, Moftah Jassim Al-Moftah, Qatar director of public revenues and taxes, and Sudhamo Lal, director-general of the Mauritius Revenue Authority, signed a tax treaty in Port Louis. It is the first tax treaty between the two countries and will come into force after instruments of ratification have been exchanged. The Qatari government also issued a decree ratifying the pending Qatar-China tax treaty on 2 May 2008. The treaty, which was signed in Beijing on 4 February 2001, is the first tax treaty signed between the countries.

25 June 2008, the PRC State Administration of Taxation issued a notice confirming that the second protocol to the tax treaty between China and Hong Kong had come into force. Notice 80 confirmed that ratification procedures had been completed and that the protocol had entered into effect as of 11 June. The second protocol was negotiated in September 2007 and formally signed on 30 January 2008. The second protocol introduces a clarification to change the permanent establishment threshold period from “six months” to “183 days” and adds holding period requirements for the disposal of immovable property and shares. Further, it amends the list of applicable Chinese taxes under the treaty to include the new enterprise income tax law in China, which came into effect on 1 January 2008. In accordance with this new law, it has also replaced the term “place of head office” with “place of incorporation” as one criterion under the definition of resident in Mainland China.

10 June 2008, Spain and the Netherlands, which was acting on behalf of the Netherlands Antilles, signed a Tax Information Exchange Agreement (TIEA). The move should ensure the Netherlands Antilles’ removal from Spain’s list of tax havens and is the first step towards agreeing a bilateral tax treaty. The Spanish blacklist initially included: Andorra, Anguilla, Antigua, Aruba, the Bahamas, Bahrain, Barbados, Bermuda, Brunei, the Cayman Islands, the Cook Islands, Cyprus, Dominica, the Falkland Islands, Fiji, Gibraltar, Grenada, Guernsey and Jersey, Hong Kong, the Isle of Man, Jamaica, Jordan, Lebanon, Liberia, Liechtenstein, Luxembourg, Macau, Malta, the Mariana Islands, Mauritius, Monaco, Montserrat, Nauru, the Netherlands Antilles, Oman, Panama, San Marino, the Seychelles, Singapore, the Solomon Islands, St Lucia, St Vincent and the Grenadines, Trinidad and Tobago, the Turks and Caicos Islands and the United Arab Emirates. Malta and the United Arab Emirates have been removed from the blacklist after signing bilateral tax treaties with Spain, which included an exchange of information clause. Jamaica, which has also signed a tax treaty with Spain, is to be removed from the blacklist. Spain has also started negotiations for a tax treaty with Trinidad and Tobago. The TIEA between the Netherlands Antilles and Australia was brought into force on 4 April 2008. Its provisions will apply retroactively from 1 January 2007. In June, the Netherlands Antilles’ Council of Ministers approved a TIEA with Mexico. It is also negotiating with Suriname, the United Arab Emirates and has agreed to negotiate with Canada, Barbados, Jamaica and Colombia.

12 May 2008, the UK Treasury published a list of 13 non-EU jurisdictions that have anti-money laundering rules equivalent to the standards of the European Union’s Third Money Laundering Directive, which was adopted by the EU member states in December 2004. The countries are: Argentina, Australia, Brazil, Canada, Hong Kong, Japan, Mexico, New Zealand, Russia, Singapore, South Africa, Switzerland and the US. The list is part of a draft report from the EU Committee on the Prevention of Money Laundering and Terrorist Financing. When finalised, companies in listed countries can expect preferential treatment from those EU countries. Although not included on the list, the Treasury said it considered the UK crown dependencies of Guernsey, Jersey and the Isle of Man to be equivalent, along with Gibraltar. Equally it applies to five French overseas territories and the Dutch overseas territories of Aruba and the Netherlands Antilles. But the list, at least in its draft form, does not apply to Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos Islands, and it’s validity has been questioned by a lawyer specialising in money laundering and financial service regulation. Stephen Platt, chairman of BakerPlatt Group, questioned why countries such as Russia, Argentina and Mexico could justifiably make the list and pointed out that Australia and Canada, also on the list, are regarded as less than 25% compliant by the standards set by the Financial Action Task Force (FATF) into money laundering controls. “Having researched the background to some of the countries included, we question why countries that fall behind recognised international standards are on the list, whilst finance centres such as Jersey, the Bahamas and the Cayman are not,” commented Platt.

5 August 2008, UK Financial Secretary Jane Kennedy set out the UK’s tax treaty negotiating priorities through to the end of March 2009. She said the UK expects to conclude negotiations on new tax treaties with the Netherlands, Ethiopia, Libya and Thailand by that date. It will also continue ongoing negotiations with China, the US, Spain, Belgium, Luxembourg and Hungary, and is to start talks on new agreements with Australia, Canada and Israel.New Tax Information Exchange Agreements will also be concluded with Brazil, Jersey, Guernsey, the Isle of Man and the British Virgin Islands by 31 March 2009. A new treaty between the UK and France was signed on 19 June 2008 and is scheduled for consideration by the House of Commons later this year. A new treaty with France was originally signed in January 2004, but changes to the tax systems in both countries meant that this could not be progressed and it has now been replaced.