Owen, Christopher: Global Survey – July 2017

  • 76 countries support new multilateral BEPS convention
    • 7 June 2017, 68 countries and jurisdictions signed a new ‘Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS’, which will provide a mechanism for signatories to transpose results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. A further eight countries formally expressed their intention to sign.


      The new convention was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting. The first modifications to bilateral tax treaties are expected to enter into effect in early 2018.


      The BEPS Project is intended to close the gaps in existing international rules that allow corporate profits to be artificially shifted to low or no tax environments, where companies have little or no economic activity.


      Almost 100 countries and jurisdictions are currently working in the Inclusive Framework on BEPS to implement BEPS measures in their domestic legislation and bilateral tax treaties. However, the sheer number of bilateral treaties would have made updating the tax treaty network on a bilateral basis burdensome and time-consuming.


      The new multilateral convention provides a mechanism to modify existing bilateral tax treaties to implement the tax treaty measures developed under the BEPS Project, which include those on hybrid mismatch arrangements, treaty abuse, permanent establishment and mutual agreement procedures. There is also an optional provision on mandatory binding arbitration, which has been taken up by 25 signatories.


      Several provisions are mandatory BEPS ‘minimum standards’ which all members of the BEPS Inclusive Framework must adopt, either through the Convention or through other means, while others are recommended best practices, which countries can choose to adopt or not.




      “The signing of this multilateral convention marks a turning point in tax treaty history,” said OECD Secretary-General Angel Gurría. “We are moving towards rapid implementation of the far-reaching reforms agreed under the BEPS Project in more than 1,100 tax treaties worldwide, and radically transforming the way that tax treaties are modified.”


      The OECD is the depositary of the multilateral convention and is supporting governments in the process of signature, ratification and implementation. The position of each signatory under the convention is now available on the OECD website. By the end of 2017, the OECD will provide a database and additional tools on its website, facilitating the application of the convention by taxpayers and tax administrations.

  • Abu Dhabi Global Market to introduce Foundations
    • 31 May 2017, Abu Dhabi Global Market (ADGM) issued Consultation Paper No. 3 of 2017 to invite public feedback on a proposal to establish a legislative and regulatory framework for foundations within ADGM. It would be the first of its kind in the UAE.


      The proposed ADGM foundations regime is designed for individuals, families, organisations and their professional advisors seeking to manage private wealth, safeguard assets and enhance succession planning in Abu Dhabi and abroad.


      Benchmarked against the other global jurisdictions, especially Jersey and Guernsey, the proposed features of the ADGM foundations regime include:


      • Creating a new type of legal structure with its own distinct attributes;
      • Protecting the confidentiality of the foundation’s arrangements;
      • Safeguarding the founder’s ability to exercise control over a foundation; and
      • Facilitating migrations from other jurisdictions to ADGM and vice versa.


      ADGM invited interested parties to comment on the proposed foundations regime by 5 July. ADGM was established in 2013 and offers a range of attractive benefits to firms, including exemption from taxes guaranteed for 50 years, relaxed rules on the repatriation of profits and 100% foreign ownership.

  • Appeal court confirms charity assets are excluded from divorce settlement
    • 16 June 2017, the England and Wales Court of Appeal rejected a wife’s appeal to include the assets of a charity trust in her divorce settlement.


      In Quan v Bray and Others [2017] EWCA Civ 405, Li Quan had married Stuart Bray in 2001, when both were already deeply committed to tiger conservation. The following year they set up the Chinese Tigers South Africa Trust (CTSAT) in Mauritius to receive donations for the charitable projects. It was largely funded by Bray. The UK arm of the charity was known as SCT UK, which was to be the sole beneficiary of the trust.


      In 2012, the marriage foundered and Li Quan applied to the English courts for a financial settlement. She claimed that the trust's assets, understood to be £25 million, should be considered in her award because the trust was established not only to advance the tiger cause but also as a long-term fund for the husband and wife. Bray denied this.


      Initially in the financial proceedings, the wife did not seek to assert that CTSAT was anything other than a charitable trust.  Her primary concern was to ensure that the funds held by the trust would be used for the charitable purposes for which they were intended. However, she later argued that the funds donated were being held by the trust in order to enable him to avoid tax.


      As a result, she argued that if CTSAT held funds that were not to be destined for charitable purposes, she should be entitled to a share of those funds. In the High Court, Coleridge J preferred the evidence of the husband, describing the wife as having been "beside herself with grief and anger" at the way she had been removed from the board of trustees of the charity and giving "wildly inaccurate" evidence at times.


      Quan appealed by way of a 'reasons challenge', alleging that the judgment “fails adequately to give reasons for the findings of fact [Coleridge] made, his evaluation of those facts and the conclusions he reached so as to render that judgment unsustainable.” If Coleridge had explained certain specific issues in his judgment, she said, the appellate court would have had to set aside his order and remit the case for a fresh trial.


      The Court of Appeal unanimously dismissed Li Quan's appeal, holding that Coleridge J had properly conducted his analysis, although Lady King admitted “many if not most judges would have gone into significantly more detail than did [Coleridge] ... this judgment, if not actually short of background and of analysis of the surrounding arguments, was perilously close to it.”


      King LJ also referred to the submissions made on behalf of the Attorney General, which reminded her that the central issue in the case was to examine the purpose of the trust, and that all of the evidence contemporaneous with the formation of that trust pointed to it being solely for the benefit of the Chinese Tiger project. The wife sought to go behind these documents and consequently the case became about the parties' credibility. The judge had therefore been entitled to find as he did.


      The appeal was therefore dismissed in a judgment with which the other two members of the Court concurred in full.

  • BEPS Inclusive Framework reaches 100 members
    • 22 June 2017, Vietnam became the 100th jurisdiction to join the Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS). Members of the IF have the opportunity to work together on an equal footing with the OECD and G20 countries on implementing the BEPS package consistently and on developing further standards to address remaining BEPS issues


      At its third plenary meeting – held on 21/22 June in Noordwijk, the Netherlands – the IF discussed and approved its first monitoring report, which was to be submitted to G20 leaders at their 2017 summit in Hamburg on 7 July.


      The report highlighted the progress that has been achieved since the IF first met in Kyoto in June 2016. The meeting also approved the release of discussion drafts on Attribution of Profits to Permanent Establishments and Transactional Profit Splits.


      As part of continuing efforts to boost transparency by multinational enterprises (MNEs), Belize, the Cayman Islands, Colombia, Haiti, Pakistan, Singapore and the Turks & Caicos Islands signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), to bring the total number of signatories to 64.


      The CbC MCAA is a mechanism that allows signatories to bilaterally and automatically exchange CbC Reports with each other, as proposed by Action 13 of the BEPS Action Plan. At present, over 800 bilateral exchange relationships have been put in place for the exchange of CbC Reports.


      The US, which is not a CbC MCAA signatory, has concluded a further set of bilateral competent authority arrangements (CAAs) for the automatic exchange of CbC Reports. It now has arrangements in place with Canada, Denmark, Guernsey, Iceland, Ireland, Korea, Latvia, the Netherlands, New Zealand, Norway, the Slovak Republic and South Africa. The US continues to negotiate with a significant number of jurisdictions and anticipates concluding additional competent authority arrangements in the immediate future.


      Singapore signed both the CRS and the CbC MCAAs on the basis that an AEOI partner has the safeguards needed to ensure the confidentiality of information exchanged and prevent its unauthorised use and there is full reciprocity with the AEOI partner in terms of information exchanged.


      In the case of CRS, Singapore will also want to ensure that there is a level playing field among all major financial centres. Singapore will consider engaging in automatic exchange of financial account information with regional jurisdictions that have similar agreements in place with relevant financial centres, including Hong Kong and Switzerland. In the case of CbC, signing the MCAA will enable Singapore to efficiently establish a wide network of exchange relationships for the automatic exchange of CbC Reports.

  • European Commission launches new pan-European personal pensions label
    • 29 June 2017, the European commission published proposals to introduce a new pan-European personal pension (PEPP), a new class of pension products that will be standardised across all Member States and can be offered by a broad range of providers, such as insurance companies, banks, occupational pension funds, investment firms and asset managers.


      PEPPs would complement existing state-based, occupational and national personal pensions, but not replace or harmonise national personal pension regimes. Consumers would benefit from strong information requirements and distribution rules. PEPP providers and savers will have different options for payments at the end of the product's lifetime.


      Under the proposal, PEPP will grant savers a high level of consumer protection under a simple default investment option. Savers will have the right to switch providers – both domestically and cross-border – at a capped cost every five years.


      The PEPP will be portable between Member States and providers will be able to develop PEPPs across several Member States, to pool assets more effectively and to achieve economies of scale. PEPP providers will need to be authorised by the European Insurance and Occupational Pensions Authority (EIOPA).


      The Commission is encouraging Member States to grant the same tax treatment to PEPPs as is currently granted to similar existing national products, even if the PEPP does not fully match the national criteria for tax relief. Member States are also invited to exchange best practices on the taxation of their current personal pension products to foster convergence of tax regimes.


      The PEPP was one of the key measures announced in the Mid-term Review of the Capital Market Union, the Commission's project to create a single market for capital in the EU, in May. The PEPP supports the goal of the CMU, which is to create the right conditions to unlock funding so that it can flow from Europe's savers to Europe's businesses. Currently, only 27% of Europeans between 25 and 59 years old have enrolled themselves in a pension product.


      The PEPP proposal will now be discussed by the European Parliament and the European Council. If adopted, the Regulation would enter into force 20 days after its publication in the Official Journal of the European Union.


      Commission Vice-President, responsible for Financial Stability, Financial Services and Capital Markets Union Valdis Dombrovskis said: "The PEPP is an important milestone towards completing the Capital Markets Union. It has enormous potential as it will offer savers across the EU more choice when putting money aside for retirement. It will drive competition by allowing more providers to offer this product outside their national markets. It will work like a quality label and I am confident that the PEPP will also foster long-term investment in capital markets."

  • European Commission proposes DOTAS-style rules for intermediaries
    • 21 June 2017, the European Commission announced new transparency rules for intermediaries – such as tax advisors, accountants, banks and lawyers – who design and promote tax planning schemes for their clients.


      Under the proposal, which takes the form of an amendment to the Directive for Administration Cooperation (DAC), cross-border tax planning schemes bearing certain characteristics or 'hallmarks' which can result in losses for governments will now have to be automatically reported to the tax authorities before they are used.


      The Commission has identified key hallmarks, including the use of losses to reduce tax liability, the use of special beneficial tax regimes, or arrangements through countries that do not meet international good governance standards. This is the same methodology used by the Disclosure of Tax Avoidance Schemes (DOTAS) regime already in force in the UK. Ireland and Portugal have similar regimes.


      An obligation to report a cross-border scheme bearing one or more of these hallmarks will be created for:

      • The intermediary who supplied the cross-border scheme for implementation and use by a company or an individual;
      • The individual or company receiving the advice, when the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is bound by professional privilege or secrecy rules;
      • The individual or company implementing the cross-border scheme when it is developed by in-house tax consultants or lawyers.


      Member States will automatically exchange the information that they receive on the tax planning schemes through a centralised database, providing early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements.


      The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities. However, Member States will be obliged to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures.


      The new rules cover all intermediaries, all potentially harmful schemes and all Member States. Details of every tax scheme containing one or more hallmarks will have to be reported to the intermediary's home tax authority within five days of providing such an arrangement to a client.


      Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said: “We are continuing to ramp up our tax transparency agenda. Today, we are setting our sights on the professionals who promote tax abuse. Tax administrations should have the information they need to thwart aggressive tax planning schemes. Our proposal will provide more certainty for those intermediaries who respect the spirit and the letter of our laws and make life very difficult for those that do not. Our work for fairer taxation throughout Europe continues to advance."


      The proposal will be submitted to the European Parliament for consultation and to the Council for adoption. It is foreseen that the new reporting requirements would enter into force on 1 January 2019, with EU Member States obliged to exchange information every three months thereafter.

  • EU’s Fourth Money Laundering Directive enters into force
    • 26 June 2017, the EU’s Fourth Money Laundering Directive (MLD4) entered into force to strengthen Europe’s existing anti-money laundering regime and to bring the 40 new recommendations adopted by the Financial Action Task Force (FATF) in 2012 into effect. First published on 5 June 2015, Member States were given a two-year period for the directive to be implemented into national law.


      MLD4 repeals and replaces the Third Money Laundering Directive (MLD3) and introduces the following key changes with a potential impact on AML compliance:


      • Reinforces the risk assessment obligation for banks, lawyers, and accountants – upon request firms must provide an up-to-date written risk assessment, which will need to cover the methodology of necessary steps taken to identify and assess any terrorist financing or money laundering risks;
      • An EU level risk assessment report will be published by the European Commission, and every two years, each Member State will be required to deliver its own National Risk Assessment (NRA), which firms are expected to acknowledge when reviewing and updating their own AML risk assessments;
      • Sets out transparency requirements about beneficial ownership for companies, including trust structures – all corporate groups with EU entities will need to comply with the obligation and identify their beneficial owners, regardless of whether those individuals are located within or outside the EU;
      • EU Member States are obliged to create central registers containing information on the beneficial ownership of corporations, including trust structures. National authorities (such as the Financial Intelligence Units) and obliged entities must have access to the central register under the national anti-money laundering legislation for exercising their customer due diligence. Persons and organisations capable of evidencing a ‘legitimate interest’ in this information must have access to the central register except for information regarding trust structures.
      • Under 3MLD, specific customers were automatically entitled to apply for Simplified Due Diligence (SDD). This is no longer the case. Firms will now be required to assess the risk level posed by certain customers before SDD is applied for, and provide a strong explanation for doing so.
      • Changes the definition of a ‘Politically Exposed Person’ (PEP) – 4MLD no longer differentiates between PEPs resident in the same country as the obliged entity and in other countries. Firms will be required to make sure that domestic clients holding prominent positions are recognised and categorised accordingly as well as applying enhanced due diligence.
      • MLD4 also expands the category of PEPs to include members of the governing bodies of political parties, which will result in the necessity to update existing PEP lists;
      • The requirement for firms to retain client information for a maximum of five years remains, but there is now a provision for Member States to extend this period under certain circumstances;
      • The threshold to undertake customer due diligence will be reduced from €15,000 to €10,000 when trading in cash for goods, regardless of whether this takes place over several linked transactions or just a single one;
      • Extends the Directive to providers of gambling services and real estate agents, which are now listed as ‘obliged entities’;
      • The obligation to establish group-wide compliance systems, including due diligence requirements relating to money laundering, will apply to all obliged entities under the Directive, including branches and majority owned subsidiaries in foreign countries;
      • Facilitates cooperation and exchange of information between Financial Intelligence Units from different Member States to identify and follow suspicious transfers of money to prevent and detect crime or terrorist activities;
      • Establishes a coherent policy towards non-EU countries that have deficient anti-money laundering and counter-terrorist financing rules;
      • Reinforces the sanctioning powers of competent authorities.


      On the day that MLD4 entered into force, the European Commission also published for the first time a report on the supra-national risk assessment (SNRA) of the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border activities.


      Last July, the Commission intends to bring in further amendments to MLD4 as soon as possible, largely to cover the money laundering risks presented by new technologies and to bring in more stringent beneficial ownership rules in the wake of the ‘Panama Papers’ scandal.


      Discussions with the European Parliament and European Council on these additional measures, known as the Fifth Money Laundering Directive (MLD5), are already at an advanced stage. The proposed changes relate to:


      • Inclusion of virtual currencies;
      • Removing some of the current exemptions for certain lower risk pre-paid instruments;
      • Setting a lower beneficial ownership threshold of 10% in relation to passive non-financial entities;
      • Requiring public access for limited beneficial ownership information;
      • Setting up central registries (with some public access) for beneficial ownerships of trusts;
      • Giving financial intelligence units more powers over obliged entities even where no suspicious activity report (SAR) has been filed;
      • Requiring Member States to set up registers that would enable regulators and enforcement agencies to identify the beneficial owners of bank and payment accounts.


      First Vice-President of the EU Commission Frans Timmermans said: "Laundered money is oxygen to crime, terrorism and tax-avoidance. We need to cut off its supply as best we can. Today's stronger rules are a big step forward but we now need quick agreement on the further improvements the Commission proposed last July."

  • Global Forum lists only Trinidad & Tobago as non-cooperative
    • 28 June 2017, the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes identified Trinidad & Tobago as the only jurisdiction that has not yet made sufficient progress towards satisfactory implementation of the tax transparency standards.


      Last July, G20 countries called on the Global Forum to devise objective criteria to identify jurisdictions that have not made sufficient progress toward a satisfactory level of implementation of the agreed international standards for Exchange of Information on Request (EOIR) and Automatic Exchange of Information (AEOI).


      A list of non-cooperative jurisdictions was to be prepared for the G20 Leaders Summit in Hamburg in July 2017, with jurisdictions needing to meet at least two of the three benchmarks to avoid inclusion:


      • At least a “Largely Compliant” rating with respect to the EOIR standard;
      • A commitment to implement the AEOI standard, with first exchanges in 2018 (with respect to the year 2017) at the latest; and
      • Participation in the Multilateral Convention on Mutual Administrative Assistance on Tax Matters or a sufficiently broad exchange network permitting both EOIR and AEOI.


      In addition, an overriding criterion applied in the case where a jurisdiction was determined by the Global Forum peer review process to be “non-compliant”, or was blocked from moving past Phase 1 of the EOI standard, or where it was previously blocked from moving past Phase 1 and has not yet received an overall rating under the Phase 2 process.


      In response to the G20, the Global Forum established a fast-track review process to evaluate continuing efforts by some jurisdictions to meet transparency standards in the run-up to the Hamburg Summit. Fifteen jurisdictions which previously had a less than satisfactory rating on their peer reviews against the EOIR standard, were evaluated to assess whether recent progress would upgrade their rating if they were to be reviewed again.


      Following the evaluation, the Global Forum assigned the following provisional ratings:


      • Largely Compliant – Andorra, Antigua & Barbuda, Costa Rica, Dominica, the Dominican Republic, Guatemala, the Federated States of Micronesia, Lebanon, Nauru, Panama, Samoa, the United Arab Emirates and Vanuatu.
      • Partially Compliant – Marshall Islands.
      • Non-Compliant – Trinidad & Tobago.


      The Global Forum said its fast track process was a rigorous process and informed by peer input but did not substitute a full peer review. In all cases a full review will be carried out with a peer evaluation against the revised international standard for exchange of information on request, which now includes the requirement of beneficial ownership.


      “Applying the objective criteria, and taking into account the fast track reviews, Trinidad & Tobago has been identified as the only jurisdiction which has not yet made sufficient progress towards satisfactory implementation of the tax transparency standards. Discussions are continuing with Trinidad & Tobago, and progress is anticipated soon,” said the Global Forum.


      “The provisional ratings reflect the strong progress made by the jurisdictions in implementing the EOIR Standard. A number of critical changes have been introduced by the reviewed jurisdictions, including the elimination of strict bank secrecy and bearer shares, improved access to accounting records and a more rigorous oversight and enforcement of obligations to maintain information.”


      The fast-track results mark the end of the first round of EOIR peer reviews. A second round of peer reviews is now underway, with the first outcomes to be released later this year.

  • Hong Kong abandons bilateral approach to AEOI
    • 7 June 2017, the Hong Kong Legislative Council (LegCo) passed the Inland Revenue (Amendment) (No. 3) Bill 2017 to expand the list of reportable jurisdictions for Automatic Exchange of Information (AEOI) from two to 75. The government has now adopted a multilateral approach to AEOI because "a bilateral approach to negotiations and amendments is no longer efficient or effective".


      The Bill changes the definition of "reportable jurisdiction" so that it is no longer required to be a party to a tax treaty or a tax information exchange agreement (TIEA) with Hong Kong. Instead, any jurisdiction that is specified as such in the Inland Revenue Ordinance (Schedule 17E, Part 1) will be considered as a reportable jurisdiction.


      Previously the Hong Kong government was pursuing a policy of implementing AEOI on a bilateral basis with its TIEA partners. It had concluded bilateral Competent Authority Agreements (CAAs) with 13 countries – Belgium, Canada, Guernsey, Indonesia, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, Portugal, South Africa and the UK. Of these, only Japan and the UK were on the current list of reportable jurisdictions.


      The new legislation also adds 73 new jurisdictions from 1 July; the remaining 11 confirmed AEOI partners and 62 prospective AEOI partners. The 62 prospective AEOI partners include the following three categories:


      • Jurisdictions that have expressed an interest in conducting AEOI with Hong Kong to the OECD or jurisdictions suggested by the OECD;
      • Tax treaty partners that have committed to AEOI; and
      • All member states of the EU.


      Hong Kong financial institutions (HK FIs) will be required to identify and collect information in relation to accounts held by tax residents of these jurisdictions from 1 July to 31 December 2017 – the first reporting period. HK FIs will then be required to submit the relevant data to the Inland Revenue Department (IRD) by May 2018, which will conduct the first exchange with the AEOI partners in September 2018.


      In the case of jurisdictions with which Hong Kong do not have an agreement in place for AEOI, the information will be kept by the IRD and exchanged with the relevant jurisdiction after an AEOI agreement has been concluded with that jurisdiction. In subsequent years, HK FIs are required to collate full year data for all jurisdictions included as reportable jurisdictions. The reporting of accounts held by tax residents of Japan and the UK will cover the full 2017 calendar year.


      The government has also obtained in-principle agreement from the State Council of the People's Republic of China to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This will provide Hong Kong with a platform to exchange tax information under the OECD’s Common Reporting Standard. To enact the necessary legislative changes, the Hong Kong Government plans to introduce an amendment bill to the LegCo in October 2017.


      Signing the Multilateral Convention will also provide the legal basis for exchanging the required information under the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards; namely, automatic exchange of Country-by-Country reports (Action 13) and spontaneous exchange of information of tax rulings (Action 5).


      The Hong Kong government stated: "We must expedite the expansion of the AEOI network in view of the recent international developments. The Amendment Ordinance can ensure that Hong Kong can preserve the financial account information from the second half of 2017 for exchanging with other jurisdictions. This enables the effective implementation of AEOI without introducing an undue compliance burden to financial institutions."

  • Hong Kong SFC consults on new open-ended fund company structure
    • 28 June 2017, the Inland Revenue (Amendment) (No. 4) Bill 2017, which extends the profits tax exemption to privately offered open-ended fund companies (OFCs) that exercise central management and control in Hong Kong, was introduced into the Legislative Council (LegCo).


      An OFC is a collective investment scheme with variable capital set up in the form of a company, but with the flexibility to create and cancel shares for investors' subscription and redemption in the funds, which is currently not enjoyed by conventional companies.


      The legal framework for the OFC structure was enacted by LegCo in June last year by way of the Securities and Futures (Amendment) Ordinance 2016. It is a key initiative to help diversify Hong Kong's fund domiciliation platform and build up fund manufacturing capabilities.


      The new Bill seeks to create a level playing field between onshore and offshore privately offered OFCs to enjoy profits tax exemption. It also contains anti-avoidance measures to ensure that an OFC is non-closely held and that transactions must be carried out through or arranged by a qualified person in permissible asset classes.


      The Bill establishes a 10% de minimis limit for investing in non-permissible asset classes and will allow a gear-up period to meet the non-closely held condition. There are ‘safe harbour’ arrangements to cater for the actual operational circumstances that an OFC may encounter.


      The Hong Kong Securities and Futures Commission (SFC) also launched a consultation on the detailed legal and regulatory requirements applicable to the new open-ended fund company (OFC) structure, which will enable investment funds to be established in corporate form in Hong Kong, in addition to the current unit trust form.


      The consultation sets out the SFC’s proposed Securities and Futures (Open-ended Fund Companies) Rules (OFC Rules) and Code on Open-ended Fund Companies (OFC Code), which include requirements relating to an OFC’s formation, key operators, ongoing maintenance, termination and winding-up. They will apply to all OFCs.


      SFC chief executive officer Ashley Alder said: “The new fund structure will accelerate the development of Hong Kong’s asset management industry and enhance Hong Kong’s position as a preferred fund domicile.”


      Implementation of the new OFC regime is planned for 2018 following the conclusion of the consultation and completion of the legislative process.

  • Mauritius raises substance requirements for GBC1 companies
    • 8 June 2017, Finance Minister Pravind Jugnauth, presenting the National Budget, announced a number of measures designed to gear up the financial services sector to face emerging challenges and be compliant to international norms, standards and requirements.


      The substance requirements for Category 1 Global Business (GBC1) companies are to be increased, requiring that such companies must fulfil at least two of the six additional criteria established by the Financial Services Commission in 2014, instead of the current obligation to comply with a minimum of one requirement.


      The tax regime for GBCs is to be reformed to meet new international requirements and the legal obligations on Special Purpose Funds are also to be aligned with those of GBC1 companies.


      Other measures included:

      • Amendment to the Companies Act 2001 to allow for Islamic Financial Institutions and Islamic Banks to adopt accounting standards issued by the Accounting and Auditing Organisation for Islamic Financial institutions
      • Stock Exchange of Mauritius to engage with Euroclear to transform the local debt market and to set up an international capital market to issue multi-currency bonds
      • Minimum capital requirement of banks raised from Rs 200 million to Rs 400 million, with a moratorium of two years for existing banks to adjust their capital. The Banking Act will be amended accordingly.
  • New transparency requirements for Scottish Limited Partnerships
    • 26 June 2017, the UK government brought the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 into force, which extend beneficial ownership registration requirements to Scottish limited partnerships (SLPs) and certain Scottish general partnerships in line with other limited partnerships in the UK.


      SLPs will need to provide information about the people or legal entities that have significant control within 28 days. If they fail to do so, these partnerships will face daily fines of up to £500. Information provided by SLPs will be available on the Companies House register.


      There are currently around 30,000 firms registered as SLPs. Unlike those set up in England, Wales and Northern Ireland, SLPs have their own ‘legal personality’, meaning they can hold assets, borrow money from banks and enter into contracts.


      There have been allegations that some SLPs have been used as vehicles of crime, with a 236% increase in the number of SLPs registered between March 2011 and March 2016. Limited partnerships elsewhere in the UK increased by only 43% over the same period.


      Scottish Secretary David Mundell said: “Campaign groups and media activity have highlighted growing concerns that SLPs had the potential to be used for criminal activity, and by introducing stronger deterrents the UK government is encouraging transparency.”

  • OECD CRS disclosure facility delivers first result
    • 1 June 2017, the Hong Kong Inland Revenue Department issued a guidance to clarify that only certain registered “occupational retirement schemes” (ORS) are “out of scope” of reporting under the OECD Common Reporting Standard (CRS). It was the first action in response to the new OECD disclosure facility for schemes designed to circumvent application of the CRS.


      The guidance stated that only ORS registered under the Occupational Retirement Schemes Ordinance (ORSO) qualify as non-reporting financial institutions under the Inland Revenue Ordinance (IRO), which imposes due diligence, reporting and other obligations on a reporting financial institution.


      Any scheme granted an exemption certificate by the Mandatory Provident Fund Schemes Authority (MPFA) under ORSO remains a reporting financial institution and must comply with the statutory requirements in IRO.


      If a reporting financial institution fails to comply, an offence will be committed. The anti-abuse provisions under the IRO can be applied to counteract an arrangement whose main purpose, or one of the main purposes is to avoid the due diligence and reporting obligations.


      The OECD launched a disclosure facility on its Automatic Exchange Portal on 5 May to enable interested parties to report schemes suspected of circumventing the CRS. It said it was in close contact with a number of jurisdictions to assess whether other schemes that have been disclosed through the facility, including a number of residence by investment programmes, pose an actual risk for avoiding CRS reporting and need to be addressed.

  • OECD releases BEPS drafts on permanent establishments and profit splits
    • 22 June 2017, the OECD released discussion drafts for consultation on the Attribution of Profits to Permanent Establishments (Action 7) and Revised Guidance on Profit Splits (Actions 8-10) of the Base Erosion and Profit Shifting (BEPS) Action Plan. The deadline for submitting public comments is 15 September.


      The Report on Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) mandated the development of additional guidance on how the rules of Article 7 of the OECD Model Tax Convention would apply to PEs, in particular those outside the financial sector. It also indicated that there was a need to take account of the results of the work on other parts of the BEPS Action Plan dealing with transfer pricing, in particular the work related to intangibles, risk and capital.


      The new discussion draft sets out high-level general principles for the attribution of profits to permanent establishments, which countries agreed were relevant and applicable in attributing profits to permanent establishments.


      Action 10 of the BEPS Action Plan invited clarification of the application of transfer pricing methods; in particular the transactional profit split method, in the context of global value chains. The revised draft is intended to provide clarification by identifying indicators for its use as the most appropriate transfer pricing method, and providing additional guidance on determining the profits to be split.

  • Swiss Federal Council adopts dispatch on AEOI with 41 states and territories
    • 16 June 2017, the Swiss Federal Council adopted a dispatch on the introduction of the automatic exchange of financial account information (AEOI) with 41 states and territories, including Brazil, Mexico, China, Liechtenstein and Russia. Implementation is planned for 2018, with the first sets of data to be exchanged in 2019.


      AEOI will be activated with each individual state or territory by means of a specific federal decree within the framework of the dispatch. The exchange of information itself will be carried out under the Multilateral Competent Authority Agreement for the Common Reporting Standard (CRS MCAA).


      The Federal Council will prepare a situation report before the first exchange of data, which is planned for autumn 2019. It will be checking whether the states and territories concerned effectively meet the requirements under the standard, especially those concerning confidentiality and data security. If Switzerland finds requirements are not met, it could suspend AEOI with these jurisdictions.


      The list of the countries is as follows: Andorra, Antigua & Barbuda, Argentina, Aruba, Barbados, Belize, Bermuda, Brazil, British Virgin Islands, Cayman Islands, Chile, China, Cook Islands, Costa Rica, Curacao, Faroe Islands, Grenada, Greenland, India, Indonesia, Israel, Colombia, Liechtenstein, Malaysia, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, New Zealand, Russia, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, San Marino, Saudi Arabia, Seychelles, South Africa, Turks & Caicos Islands, Uruguay and the United Arab Emirates.


      This dispatch strengthens Switzerland’s international position, as its AEOI network has extended to most of the G20 and OECD states, in addition to the already existing agreements with 38 states and territories, including all EU member states. No situation reports are planned for the 2018 batch of countries.

  • Swiss Federal Council agrees to corporate tax reforms
    • 9 June 2017, the Swiss Federal Council confirmed the main parameters for a revised Swiss corporate tax reform package, called Tax Proposal 17 (TP17) that is intended to bring it into line with international standards by replacing existing tax regimes with a new set of internationally accepted measures by 1 January 2019.


      Swiss voters rejected the previous proposal, which was known as Corporate Tax Reform III (CTR III), in a popular vote on 12 February 2017. Disagreements on the scope of the new measures and the handling of the anticipated tax losses caused the rejection, but the need for tax reform due to the changing international tax environment is not disputed.


      The Council generally accepted the recommendations of the steering group charged with preparing a new corporate tax reform plan, although the cantons' share of direct federal tax will be increased from 17% to 20.5% rather than the 21.2% proposed,


      It asked the Federal Department of Finance (FDF) to prepare a draft tax reform package for consultation by September. The Council expects to discuss a dispatch on TP17 in the spring of 2018. It will make a decision on a proposed staggered implementation schedule then.


      Under TP 17 many Swiss cantons will significantly lower their effective corporate income tax rates as of 2019/2020. Depending on the location, effective corporate income tax rates will be in the range of 12% to 14%.


      The steering body recommended that the Federal Council:


      • Abolish the preferential tax regimes for cantonal status companies, such as holding, principal, mixed companies and finance branches;
      • Introduce a mandatory patent box at cantonal level on 90% of qualifying income;
      • Limit the additional deduction for R&D costs to 50% of the actual costs;
      • Limit the tax relief on profits arising from the patent box and the R&D deduction to 70%;
      • Increase the tax rate for dividends, and set the partial taxation of dividends from qualified participations (with a minimum stake of 10%) at 70% at the federal level and at least 70% at the cantonal and communal level; and
      • Increase the cantons' share of direct federal tax from 17% to 21.2%.


      The Federal Council said that TP17 takes into account the rejection of the CTRIII package and respects the principle of tax federalism. It stressed that TP17 pays special attention to safeguarding the tax receipts of the Confederation, the cantons, the cities and the communes.


      Companies currently benefitting from a Swiss preferential tax regime may receive a tax neutral step-up in basis if they decide to give up a preferential regime voluntarily. The effective tax rate should generally match the current effective corporate income tax rate and reduce administrative compliance under the new standard on exchange of information.


      TP 17 does not include a notional interest deduction. Dividend taxation for Swiss resident individuals will be increased to 70% at both the federal and the cantonal level. TP 17 also includes a base-erosion limitation for companies with combined tax deductions limited to 70% of the taxable profit.


      The Federal Department of Finance is to prepare a consultation draft by December 2017. It is envisaged that the dispatch for the attention of Parliament will be adopted in spring 2018.

  • The Bahamas commits to multilateral tax information sharing convention
    • 1 June 2017, Minister of Finance Kevin Turnquest formally communicated to the OECD that the government of The Bahamas intended to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.


      The Bahamas had previously agreed to implement the OECD’s Common Reporting Standard (CRS), the global standard for automatic tax information exchange, via a bilateral approach that involved negotiating Competent Authority Agreements (CAAs) on an individual country-by-country basis.


      However, the OECD has been steadily increasing the pressure on The Bahamas to switch to the ‘multilateral’ approach, which would enable it to negotiate treaty amendments with all treaty partners simultaneously. Following the decisions of Hong Kong, Panama and the United Arab Emirates to switch from the bilateral to multilateral approach, The Bahamas was the last international financial centre of significance that had not committed.


      In April, the OECD’s Global Forum on transparency and tax information exchange warned that The Bahamas must “take quick action” to avoid being ‘blacklisted’. It argued that The Bahamas was seen as undermining the ‘level playing field’ concept when it came to implementing the CRS.


      The Convention is the most comprehensive multilateral instrument available for a wide range of tax co-operation to tackle tax evasion and avoidance. Developed jointly by the OECD and the Council of Europe in 1988, it was amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries. The Convention has already been joined by 111 countries and jurisdictions.


      "We very much welcome that The Bahamas has now officially expressed a strong interest in joining the Convention. Signing and ratifying the Convention will be a very significant step forward in implementing its commitment to tax transparency and effective exchange of information, in particular under the OECD/G20 Common Reporting Standard," said Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration.

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