Owen, Christopher: Offshore Survey – January 2009

29 October 2008, the Australian Taxation Office (ATO) issued a release on its initiative to combat the use of tax havens to foster tax avoidance and evasion, including the Project Wickenby task force that brings together several government agencies. Project Wickenby, it said, had so far raised A$207 million in liabilities, collected more than A$79 million and restrained over A$75 million from the proceeds of criminal activity. A further A$70 million had been raised through increased tax collections in subsequent years from those who had been subject to action by the Wickenby taskforce. So far, 28 people had been charged, and 23 criminal investigations involving multiple parties were underway. Several defendants had indicated that they intended to plead guilty to charges and three more had been convicted.In April 2008, search warrants were executed in Australia, Vanuatu and New Zealand aimed at addressing tax evasion and money laundering linked to Vanuatu. The ATO is now conducting 80 audits linked to Vanuatu with over A$90 million in allegedly false deductions. It has written to 240 Australians with apparent links to Vanuatu seeking more information on their tax affairs. In Australia, there are 20 audit cases underway relating to funds in Liechtenstein ranging from A$200,000 to millions of dollars. The ATO expects to raise liabilities of approximately A$60 million from the Liechtenstein cases by the end of the year. In July 2007 the ATO announced an Offshore Voluntary Disclosure Initiative (OVDI), offering substantial reductions in penalties for taxpayers who voluntarily disclosed any issues before they were the subjects of an audit. So far OVDI has resulted in the disclosure of over A$45.1 million in omitted income. It has so far raised A$14.9 million in income following 1,389 disclosures involving 48 countries.Australia now has four Tax Information Exchange Agreements with Bermuda, Netherlands Antilles, Antigua and the BVI. More are being negotiated.

13 November 2008, the European Commission adopted an amending proposal intended to expand and close existing loopholes in the Savings Taxation Directive. The ECOFIN Council of Economic and Finance Ministers approved these proposals, along with a new work programme for the Code of Conduct Group on harmful tax competition, on 2 December. Since 1 July 2005, the Savings Directive has obliged paying agents ? banks, financial institutions, independent professionals ? to either report interest income received by taxpayers resident in other EU Member States or levy a withholding tax on the interest income received. The Commission proposal seeks to expand the Directive to cover the taxation of interest payments that are channelled through intermediate tax-exempted structures. The Commission proposes that paying agents in the EU, who know under the anti-money laundering provisions that the beneficial owner of the interest payments is an individual resident in the EU, should apply the provisions of the Directive at the time of the payment to the intermediate structure, as if this payment was directly made to the individual. The provisions of the Directive would also be applied to payments of interest to certain intermediate structures established within the EU, including some non-charitable trusts and foundations, no matter where they are established and regardless of the actual distribution of any sums to the individual beneficial owners. The Commission further proposes to extend the scope of the Directive to income equivalent to interest obtained through investments in certain financial and life insurance products.EU Tax Commissioner László Kovács said: “The first report on the operation of the Savings Taxation Directive concluded that the Directive, although effective within the limits of its scope, can be easily circumvented. The current scope of the Directive needs to be extended, in order to meet our goal of stamping out tax evasion, which affects the national budgets and creates disadvantages for the honest citizens.” The Savings Directive is intended to promote exchange of information automatically between Member States and thereby enable them to apply their own taxation rules to interest payments that their residents receive from paying agents in other Member States. Belgium, Luxembourg and Austria, instead of exchanging information automatically, are obliged to levy a withholding tax at a rate of 20% on a transitional basis, until 30 June 2011 and at a rate of 35% thereafter. The same or equivalent provisions to the Directive ? exchange of information or withholding tax ? have also been applied in five European third countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and in 10 dependent or associated territories of the UK and the Netherlands (Anguilla, Aruba, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles as well as the Turks and Caicos Islands) through the implementation of bilateral agreements. In a speech on 14 October, Kovács addressed the ?level playing field? issue in the area of savings taxation, saying it was crucial that more convergence should be achieved from the part of some other important financial centres. ?I would like to stress that it is beneficial to all parties to go further in extending the geographical scope of measures equivalent to those of the Savings Directive,? he said. ?The application by key non-EU financial centres of measures equivalent to those applied by Member States and third parties participating in the savings taxation mechanism will ensure a level playing field for financial intermediaries throughout the world.?The European Commission has started discussions with selected Asian financial centres, namely Hong Kong, Singapore and Macao. Formal negotiations will start shortly with Norway, at its own request, whilst other jurisdictions like Bermuda and Iceland have shown interest in participating in the savings taxation arrangements. The ECOFIN Council called for rapid progress of the discussions on the proposal for a Directive and invited the Commission to continue its negotiations and exploratory talks with financial centres outside the EU. It requested the future Presidency to report back to it on the progress of the discussions in the spring of 2009. With regard to the Code of Conduct, which relates to business taxation and concerns measures that significantly affect or are likely to affect the location of economic activities in the EU, the Council asked the Code of Conduct Group to continue monitoring standstill and the implementation of rollback. The Group is charged with evaluating the rollback of tax measures judged to be harmful ? where a favourable tax regime in one Member State attracts businesses from other Member States ? and compliance with Member States’ commitment not to introduce new measures that would be harmful (standstill).

23 September 2008, the European Parliament adopted a report on development financing that calls for the closure of tax havens, the promotion of a tax evasion code of conduct and the global automatic exchange of tax information to halt capital flight out of developing economies. The report calls on the European Commission and the member states “to promote the global extension of the principle of the automatic exchange of tax information?. It recommends that the EU response to capital flight should include “the goal of closing down tax havens, some of which are located within the EU or operate in close connection with member states.”The report cites World Bank figures showing that the illegal component of global capital flight amounts to between US$1 trillion and US$1.6 trillion annually, half of which comes from developing countries. In that context, the report calls for supporting international efforts to freeze and recover stolen assets. It also says that tax evasion costs developing countries more than they receive in official development assistance and recommends giving more visibility to efforts by the UN Economic and Social Council (ECOSOC) to develop a code of conduct on tax evasion. The report calls on the Commission and EU member states to support transforming the UN Committee of Experts on International Cooperation in Tax Matters “into a genuine intergovernmental body” with adequate resources to conduct the global fight against tax evasion “alongside the OECD?.The Parliament’s report is a follow-up to a 2002 international conference held in Monterey, Mexico, on funding Third World development.

25 September 2008, Jersey announced that it is to introduce legislation to enable foundations to be established in the Island for the first time. Foundations will be available in Jersey alongside existing vehicles such as companies, trusts and limited partnerships, for use in financial planning and private wealth management strategies. A foundation, unlike a trust, is a distinct legal entity similar to a company but without shareholders. The powers of the foundation will be exercised by a council, one of whose members must be registered under the Financial Services (Jersey) Law 1998 to conduct financial services business of this type. The foundation?s charter will need to be lodged with the Registrars department of the Jersey Financial Services Commission, setting out the name and broad objectives of the foundation. Although similar in design to foundations available in other territories, Jersey has introduced a new concept of a guardian who will sit on the council that administers the foundation to ensure that it meets the broad objectives outlined in its charter. It is proposed that the founder of the foundation would be able to hold the post of guardian and council member, therefore permitting a greater level of control over the assets, if required.Geoff Cook, chief executive of Jersey Finance Limited, said: ?We anticipate that the foundation vehicle will appeal to clients based in civil law territories where they are less familiar with the trust concept and it will also be an effective financial planning vehicle for those clients who want to maintain more personal control of the assets. It has some of the attractions of a trust vehicle and some of the benefits of a company structure including separate legal status, which will enhance its appeal to private clients and their advisers who may not previously have considered Jersey as a location to shelter assets. The new Foundations Law is subject to the approval of the States of Jersey Parliament before it can be formally enacted.

8 December 2008, Liechtenstein signed a tax information exchange agreement with the US after more than two years of negotiations. The agreement was signed by US Charge d’Affairs Leigh Carter and Liechtenstein Prime Minister Otmar Hasler in Vaduz, Liechtenstein. It will enter into force on 1 January 2010, and apply to information related to the 2009 tax year onward.”The TIEA will permit the United States to seek information from Liechtenstein on all types of federal taxes, and in both civil and criminal matters,” said a US Treasury statement. ?Under the TIEA, the requested information must be obtained and exchanged without regard to whether the country receiving the request needs the information for its own tax purposes or whether the conduct being investigated would constitute a crime under its law. ?If the country receiving the request for information does not have the requested information in its possession, it must take relevant information gathering measures to provide the requested information. Moreover, requests from one country to the other must be honoured, even if the information relates to, or is held by, non-residents.?As part of the signing of the TIEA, the US is extending Liechtenstein’s treatment as an eligible Qualified Intermediary (QI) jurisdiction until 31 December 2009. This one-year extension is intended to provide Liechtenstein with time to enact the legislation necessary for full implementation of the TIEA. If Liechtenstein fully implements the TIEA by the end of 2009, Liechtenstein’s QI status will be renewed for the standard six-year term.

30 October 2008, the OECD announced that 16 new bilateral tax information exchange agreements (TIEAs) had been signed between OECD members and the British Virgin Islands, Guernsey and Jersey. The BVI signed TIEAs with Australia and the UK. Guernsey and Jersey each signed bilateral TIEAs with the Nordic economies ? Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden. These new agreements bring to 44 the number of TIEAs put in place since 2000. The Isle of Man is leading, with 11; Jersey has signed 10, Guernsey nine, the Netherlands Antilles four and the British Virgin Islands three. Bermuda, also with three, signed its first bilateral agreement with the US in 1986. Antigua has signed two, while Aruba, The Bahamas and the Cayman Islands have all signed one each. The OECD said progress was also being made in other financial centres. Cyprus and Malta had removed the last impediments to a full exchange of information; Belgium has negotiated its first tax treaty with full exchange of information; Bahrain and the United Arab Emirates are implementing the OECD standards; and the government of Hong Kong (China) recently launched a review of its policy on exchange of information. ?The political climate is changing, and financial centres that do not respect the OECD standards will not be allowed to gain a competitive advantage,? said OECD Secretary-General Angel Gurría. ?Every new bilateral agreement demonstrates that we can make progress internationally. It is in the interest of all financial centres to have adequate measures in favour of full transparency as quickly as possible.? The OECD is now working on a list of uncooperative jurisdictions to which defensive measures ? actions to neutralise the effects of harmful tax practices ? could be applied. In 2000, the OECD decided to put aside this aspect of its work to adopt a more inclusive approach, but following the Liechtenstein tax evasion scandal in 2008, it said it now recognises that a return to the defensive measures approach is necessary. In its Tax Co-operation: Towards a Level Playing Field – 2008 Assessment, published by the Global Forum on Taxation on 29 September, the OECD found that significant restrictions on access to bank information for tax purposes remain in three OECD countries ? Austria, Luxembourg and Switzerland ? and in a number of OFCs, including Liechtenstein, Panama and Singapore. The 2008 Assessment is the third in a series of reports by the Global Forum on Taxation reviewing how far the OECD?s standards of transparency and effective exchange of information are being implemented in 83 OECD and non-OECD economies. Among other things, it noted that:
11 of the 83 economies still do not have tax information exchange agreements in the form of tax treaties or TIEAs that are either signed or in force.
78 of the 83 economies are able to obtain and provide banking information in response to a request for information in criminal tax matters in some or all cases.
Belgium now exchanges bank information on request for civil and criminal tax matters under its new DTC with the US. Under legislation that took effect in January 2008, tax authorities in Malta can now access bank information for the purpose of exchanging information in tax matters where reciprocal arrangements.
Bearer shares, which are often used as a way of avoiding taxation by concealing ownership, have been eliminated in Cyprus, Belgium and the US, while Samoa immobilised bearer shares with the result that their owners can now be identified.
In Andorra, new laws require all companies to file accounts with a government authority. Public and limited companies must have their accounts audited where they exceed certain thresholds with respect to assets, turnover and numbers of employees.

17 November 2008, an unidentified US customer of Swiss bank UBS applied to the Swiss court to prevent his account details being handed over to US authorities inquiring into alleged tax evasion. Swiss lawyer Thomas Fingerhuth said his client has been given 30 days to challenge the decision of the Swiss federal tax office to surrender his entire file to US investigators, who are examining whether Switzerland’s largest bank helped wealthy Americans to evade tax. The case will test Switzerland’s strict banking secrecy rules, which have come under sustained pressure from the US, France and Germany in the wake of several high-profile tax evasion investigations. Several other UBS clients are preparing similar cases, but this will be the first. “It’s my contention that the documents were compiled illegally, and therefore cannot be surrendered or used in America, where the rules on permissible evidence are much stricter than in Switzerland anyway,” Fingerhuth told The Associated Press. Fingerhuth declined to identify his client, a retired US citizen, but said he would also be filing a criminal complaint against UBS for handing the documents over to Swiss authorities in the first place, in breach of Switzerland’s banking secrecy laws.Andreas Rued, a Zurich-based lawyer representing another of UBS’s American clients, said the request US authorities sent to the Swiss tax office on 17 July constituted an illegal “fishing expedition” because it lacked specific evidence of wrongdoing by individuals. On 6 November, Raoul Weil, chairman of global wealth management at UBS in Zurich, was indicted by a US grand jury in Florida on one charge of conspiring to help 20,000 wealthy Americans hide assets from the Internal Revenue Service to maintain a ?profitable’? business for the Swiss bank. Weil, who UBS has replaced on an interim basis, faces up to five years in prison and $250,000 in fines if convicted. From 2002 to 2007, he served as head of the wealth management business, according to the indictment. ?Today’s indictment is totally unjustified and without any factual basis,? Aaron Marcu, Weil’s attorney, said in a statement. ?Mr. Weil denies any suggestion that he was aware of, engaged in or tolerated any illegal conduct in the operation of UBS’s US-cross border business.’? The indictment said Weil gave subordinates at UBS incentives to increase their business with US clients, knowing that they were violating the Qualified Intermediary rules brought in by the US in 2001 to identify customer names. It also claims that in 2002, Weil and other executives hid from the IRS the results of an internal audit that showed the bank was failing to comply.