18 July 2017, Finance Minister Bill Morneau announced the launch of consultations on tax planning using private corporations that are intended to ensure that high-income individuals cannot use strategies involving private corporations to gain unfair tax advantages. The deadline for submissions is 2 October 2017.
"We are asking Canadians for input into how to close loopholes and address tax planning strategies that give unfair tax advantages,” said Morneau. “These tax advantages are in place to help these businesses reinvest and grow, find new customers, buy new equipment and hire more people. We want to make sure those rules are used to do just that, and not to give unfair tax advantages to certain – often high-income – individuals."
The consultations focus on three tax practices that are being used to gain unfair tax advantages:
20 July 2017, the Department for International Tax Cooperation of Cayman Islands (DITC) issued an advisory notice extending the reporting deadline for filing US Foreign Account Tax Compliance Act (FATCA) and OECD Common Reporting Standard (CRS) returns to 31 August 2017.
Originally the DITC set this year's deadlines at 30 April 2017, but this was extended until 20 June 2017 for registrations and 31 July 2017 for the submission of reports.
The DITC said this would be the final extension of the reporting deadline because the AEOI portal will be taken offline on 31 August 2017 in order to prepare the portal for the transmission of CRS returns to the OECD Common Transmission System by 30 September 2017.
The deadline for all Cayman financial institutions to register, or vary their existing US FATCA or Crown Dependencies and Overseas Territories International Tax Compliance Regulations (UK CDOT) registration, for CRS on the AEOI portal, even if they have no reporting obligations was 31 July 2017.
The International Tax Authority (ITA) of the British Virgin Islands announced, on 5 July 2017, that the deadline to submit enrolment applications to the BVI Financial Account Reporting System for common reporting standard (CRS) was to be extended from 30 June 2017 to 31 July 2017 and submission of reports from 31 July 2017 to 18 August 2017.
1 July 2017, the Commissioner of Taxation issued on a Circular for the tax treatment of intra-group financing arrangements that provides for the application of the arm’s length principle. The changes are in line with the provisions of the OECD transfer pricing guidelines and follow discussions with the Directorate General for Competition of the European Commission.
The Circular applies to any company carrying out group financing transactions that is a Cyprus tax resident, as well as to any company that is not a Cyprus tax resident and has a permanent establishment in Cyprus, as per Section 2 of the Income Tax Law 118(I)/2002.
Intra-group financing transaction is defined as any activity consisting of financing through loans or cash advances remunerated by interest to related companies, or other financial means and instruments, such as debentures, private loans, cash advances and bank loans.
The Circular clarifies the conditions under which the agreed remuneration complies with the arm’s length principle, which is the remuneration that would have been agreed under comparable conditions in the open market.
In the case of companies performing functions similar to those performed by regulated financing and treasury companies, a return on equity of 10% after-tax can be taken as reference in calculating the arm's length remuneration. This percentage will be regularly reviewed by the Tax Department based on relevant market analysis. The minimum equity level of these companies must be in line with the equity requirements set for credit institutions by the relevant EU regulations.
The Circular also clarifies situations in which a group financing company pursues a purely intermediary function. Such transactions will be deemed to comply with the arm’s length principle if the analysed entity receives in relation to its controlled transactions under analysis, a minimum return of 2% after-tax on assets. A deviation from the minimum return will not be allowed unless justified by an appropriate transfer pricing analysis.
These guidelines come into effect as from 1 July 2017, for all existing and future transactions, irrespective of the date of entering into the relevant transactions. Any previously issued tax rulings on transactions within the scope of this circular will no longer be valid for tax periods from this date. If intra group financing transactions effected prior to 1 July 2017 and supported by Transfer Pricing study are still ongoing after the reference date, then the Transfer Pricing study will need to be verified by the Commissioner of Taxation for compliance.
14 July 2017, the Cypriot parliament approved a bill to amend the existing rules for Cyprus tax residency in order to provide a second option for applicants who are unable to meet the existing ‘183-day’ requirement. When gazetted, the new rule will apply retrospectively to 1 January 2017.
Previously, Cyprus tax law defined the term “resident in Cyprus” when applied to an individual, as meaning an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the tax year of assessment – the tax year in Cyprus being the calendar year.
The new amendment adds a second test – the so-called ‘60-day rule’ – for the purposes of determining Cyprus tax residency for individuals. This applies to individuals who in the relevant tax year:
The current ‘183-day rule’ remains unchanged by the above amendment, such that, as from tax year 2017, an individual will be considered as a tax resident of Cyprus if the individual satisfies either the ‘183-day rule’ or the ’60-day rule’ for the tax year.
2 July 2017, Delaware Governor John Carney signed a budget bill for Fiscal Year 2018 that included a provision to increase the corporate franchise tax cap from US$180,000 to US$200,000 per year. It also establishes a new category of ‘Large Corporate Filers’ whose annual franchise tax will be fixed at $250,000.
The corporate franchise tax is generally imposed on all corporations incorporated in Delaware, irrespective of whether they actually do business there. It is calculated on a company’s capital stock and applies even if they are not generating income. Partnerships and limited liability companies formed or registered in Delaware are subject to an annual tax of US$300.
Large Corporate Filers are defined as Delaware corporations that, as of 1 December in the preceding calendar year, reported either more than $750 million in revenue and at least $250 million in assets or more than $750 million in assets and at least $250 million in revenue.
The amendments will generally take effect on 1 August 2017, but the increases in the maximum annual franchise tax will be effective for the tax year beginning 1 January 2017.
26 July 2017, an Advocate General to the European Court of Justice gave his opinion that a French citizen could not rely on the agreement between France and Switzerland on freedom of movement to avoid French exit taxes.
In Christian Picart v Ministre des Finances et des Comptes publics, Case C‑355/16, a request for a preliminary ruling was submitted by the French Conseil d’État in respect of the interpretation of the Agreement between the European Community and the Swiss Confederation on the free movement of persons (the AFMP), which entered into force on 1 June 2002.
Christian Picart, a French national, held significant shareholdings in a number of French companies when he transferred his tax residence from France to Switzerland in 2002. In accordance with French law, he declared an unrealised gain on the shares and, in order to benefit from deferral of the tax payable, appointed a tax representative in France and provided a bank guarantee to ensure recovery of the debt to the French Treasury.
Picart transferred his shares, thereby bringing the deferral of taxation to an end, in 2005. After examining his tax position for the period 1 January 2002 to 31 December 2004, the French tax authorities reassessed the amount of the unrealised gain on the shares and found him liable for additional assessments to income tax and social security contributions, with penalties.
Picart filed a complaint in order to obtain a discharge from that additional tax. This was rejected by the tax authorities. Picart then brought an action before the tribunal administratif de Montreuil, maintaining that Article 167 bis of the French General Tax Code was incompatible with the AFMP. He claimed that freedom of establishment was guaranteed by that agreement and that he could rely on it, as a self-employed person, since he had become established in Switzerland in order to pursue there an economic activity consisting in managing his various direct or indirect shareholdings in a number of companies that he controlled.
This claim was dismissed by judgment in 2011 and his appeal was then dismissed by the cour administrative d’appel de Versailles. Picart then appealed on a point of law to the Conseil d’État, which made a request for a preliminary ruling to the European Court of Justice.
In his opinion, Advocate General Paolo Mengozzi concluded: “The right of establishment of a self-employed person, as laid down in Articles 1 and 4 of the AFMP must be interpreted as meaning that it extends only to a natural person wishing to pursue, or pursuing, a self-employed activity on the territory of a Contracting Party other than that of which he is a national, and on which he must be treated in the same way as a national of that State, that is to say, any overt or covert discriminatory measure on grounds of nationality must be prohibited. On the basis of the information provided by the referring court, the plaintiff in the main proceedings does not appear to fall within the scope of those terms of the agreement.”
7 July 2017, Ecuador’s National Assembly voted to approve a law to prohibit elected officials and other public servants from being allowed to keep personal assets, including companies and capital, in overseas tax havens. It attracted 107 votes in favour with 18 abstentions.
The government of former President Rafael Correa proposed the legislation earlier this year in order to increase the accountability of public officials. The proposal won public support by a vote of 55.12% to 44.88% in a referendum held on 19 February.
As part of the approved law, all public servants and elected officials now have one year to repatriate any offshore assets or they will be removed from office.
4 July 2017, the European Parliament approved a proposal for a directive of the European Parliament and of the Council amending Directive 2013/34/EU to require multinational enterprises (MNEs) to report their tax bills on a country-by-country basis – with possible exemptions in the case of commercially sensitive information.
Under the proposed measures, the income tax information of MNEs with worldwide turnover of €750 million or more would be published in a common template in each tax jurisdiction in which the firm or its subsidiary was operating. This data would be available for free and made publicly accessible on the website of the firm. The company would also be responsible for filing a report in a public registry managed by the European Commission.
Required information would include: the name of the firm and, where applicable, the list of all its subsidiaries, a brief description of the nature of their activities and their respective location; the number of employees on a full-time equivalent basis; the amount of the net turnover; stated capital; the amount of profit or loss before income tax; the amount of income tax paid during the relevant financial year by the firm and its branches resident for tax purposes in the relevant tax jurisdiction; the amount of accumulated earnings; and whether undertakings, subsidiaries or branches benefit from any preferential tax treatment.
The Parliament’s draft is broader than the Commission proposal, requiring that the information be listed separately for each tax jurisdiction and for all the countries outside the EU. However MEPs also supported measures to protect commercially sensitive information by allowing Member States to grant exemptions from the requirement to provide one or more pieces of information.
These exemptions would be renewed annually and would only be applicable in the jurisdiction of the Member State granting the exemption. Once a Member State grants an exemption, it must inform the EU Commission confidentially about the omitted information, together with a detailed explanation for the exemption.
Every year, the Commission will publish on its website a list of firms which were granted exemptions and a succinct explanation as to why. The text adopted by the Parliament provides that once MNEs lose their eligibility for an exemption they must immediately make the omitted data publicly available “in the form of an arithmetic average” to cover the period during when they enjoyed immunity from providing details.
After approving the draft report by 534 votes to 98 votes, with 62 abstentions, MEPs voted to send the report back to the Committees to start negotiations in first reading on the basis of a plenary mandate.
19 July 2017, former Credit Suisse banker and Swiss citizen Susanne Rüegg Meier pleaded guilty to conspiring to aid and assist US taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts.
According to the statement of facts and the plea agreement, Rüegg Meier worked as head of the Zurich Team of Credit Suisse’s North American desk in Switzerland from 2002 to 2011, responsible for supervising the servicing of accounts involving over 1,000 to 1,500 client relationships. She was also personally responsible for handling the accounts of approximately 140 to 150 clients, which held assets under management totalling approximately $400 million.
Rüegg Meier admitted assisting many US clients to utilise their Credit Suisse accounts to evade their US income taxes and to facilitate concealment of their undeclared financial accounts from the US Treasury and the Internal Revenue Service (IRS).
Her actions to assist clients to hide their Swiss accounts included: retaining all mail related to the account in Switzerland; structuring withdrawals in the forms of multiple checks each payable in amounts less than $10,000 that were sent by courier to clients in the US; arranging for US customers to withdraw cash from their Credit Suisse accounts at Credit Suisse locations outside Switzerland; and holding accounts in the names of nominee tax haven entities or other structures that were frequently created in the form of foreign partnerships, trusts, corporations or foundations.
When Credit Suisse began closing US customers’ accounts in 2008, Rüegg Meier also assisted the clients in keeping their assets concealed. The tax loss associated with her criminal conduct was between $3.5 and $9.5 million. She faces a statutory maximum sentence of five years in prison. She also faces a period of supervised release, restitution and monetary penalties. Sentencing is scheduled for 8 September.
Credit Suisse pleaded guilty to conspiring to aid and assist taxpayers in filing false returns in May 2014 and was sentenced to pay more than $2 billion in fines and restitution in November 2014.
8 July 2017, G20 leaders affirmed their commitment to “work for a globally fair and modern international tax system” in a communiqué released after their summit in Hamburg, Germany.
They reiterated their commitment to the implementation of the Base Erosion and Profit Shifting (BEPS) package and encouraged all relevant jurisdictions to join the Inclusive Framework. They also looked forward to the first automatic exchange of financial account information under the Common Reporting Standard (CRS) in September 2017 and called on all relevant jurisdictions to begin exchanges by September 2018 at the latest.
“We commend the recent progress made by jurisdictions to meet a satisfactory level of implementation of the agreed international standards on tax transparency and look forward to an updated list by the OECD by our next Summit reflecting further progress made towards implementation. Defensive measures will be considered against listed jurisdictions,” said the communiqué.
They pledged to continue to support assistance to developing countries in building their tax capacity and also to work on enhancing tax certainty and with the OECD on the tax challenges raised by digitalisation of the economy.
“As an important tool in our fight against corruption, tax evasion, terrorist financing and money laundering, we will advance the effective implementation of the international standards on transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and cross- border context,“ said the communiqué
4 July 2017, Germany’s Federal Criminal Police Agency (BKA) confirmed that it had acquired the ‘Panama Papers’, a trove of 11.5 million documents stolen from the Panamanian law firm Mossack Fonseca, for €5 million. The purchase of unlawfully obtained data revealing tax fraud has previously been ruled legal by Germany's constitutional court.
"These data are being looked into and evaluated with Hesse state's tax authorities to pursue criminal and fiscal offenses," the BKA said in a joint statement with the Hesse finance ministry and the Frankfurt public prosecutor's office.
Hesse' finance minister Thomas Schäfer said that the BKA had approached the state's tax authorities because "we have the specialists and the technical expertise”. The state of Hesse was also willing to contribute to the cost of obtaining the files. "We now have to investigate in meticulous detail how valuable the data is from a tax perspective," Schäfer said.
The ‘Panama Papers’ were initially leaked to the German Süddeutsche Zeitung newspaper last year, but was ultimately published by a number of news organizations in cooperation with the US-based International Consortium of Investigative Journalists (ICIJ). Süddeutsche said it had refused to pass on the documents to protect its sources.
Police said that reviewing the data was likely to take several months. Investigators said they would also look for evidence of other criminal offences, including organised crime and arms trafficking.
12 July 2017, the Paris administrative court ruled that Google Ireland Limited was not liable to pay €1.12 billion in back taxes demanded by the French tax authorities for the period 2005-2010. It followed a court adviser's recommendation that Google did not have a permanent establishment or sufficient taxable presence to justify the assessment.
The court found that the conditions to tax Google Ireland as if it had a permanent establishment in France were not met because Google France did not have the sufficient autonomy from the Irish headquarters. This was evidenced by the fact that Google France’s employees were unable to accept online advertising orders from French clients without requiring approval from the headquarters in Ireland.
“The French administrative court of Paris has confirmed Google abides by French tax law and international standards,” Google said in a statement. “We remain committed to France and the growth of its digital economy.”
In a statement, the French finance ministry said it was considering an appeal, which must be lodged within two months.
28 July 2017, the English High Court found that a Russian businessman whose wife and children lived in London and who had a temporary right of residence in England under his wife's UK ‘Investor Visa’, was domiciled in England for purposes of the jurisdiction of the Court, despite living and working in Russia for most of the time.
In Ruslan Urusbievich Bestolov v. Siman Viktorovich Povarenkin  EWHC 1968 (Comm), the claimant Bestolov brought proceedings in the English High Court seeking repayment of a debt relating to a joint venture arrangement in respect of mines in Russia. He argued that the defendant was domiciled in England and therefore the English Court must accept jurisdiction to determine the claim.
The defendant Povarenkin was served personally in England but applied for an order that the Court decline to exercise its jurisdiction on the basis that Russia was the more appropriate place for the claim to be heard on the grounds that: both parties were Russian citizens and lived in Russia, both parties' business interests were primarily in Russia, neither had business interests in England, the contract was concluded in Russia, the mines were in Russia, all the evidence and witnesses were in Russia and all the documentation was originally in Russian. In sum, the claim had no connection at all to England and every relevant connection to Russia.
It was common ground between the parties that were the defendant to be found to be domiciled in England, the Court had no power to stay the proceedings and the defendant's jurisdiction challenge would be dismissed.
The Court held that the defendant was resident in England because he and his wife had made a "life style choice" that she and their children would live in England during the school year whilst the children were educated in England. They had resided in a substantial property in London, which should be characterised as a family home, for the majority of the year since 2013.
The defendant spent substantial, regular and increasing, periods of time in England in order to spend time with his wife and children. He and his wife had also committed very substantial amounts of money to satisfy UK ‘Investor Visa’ requirements, leading to temporary residence in England with the potential to apply for permanent residency.
Given that the nature and circumstances of the defendant's residence indicated "overwhelmingly" that he had a substantial connection with England, the Court had therefore to accept jurisdiction. The defendant's application was dismissed and he was refused permission to appeal.
10 July 2017, HMRC launched a new online registration service for trusts and estates to allow individuals to register their trusts or complex estates. Trustees have until 5 October to register new taxable trusts and until 31 January 2018 to provide information on existing trusts.
The new registration requirements, which is designed to comply with the EU’s Fourth Anti-Money Laundering Directive (MLD4), will apply to all UK trusts and to non-UK trusts that receive income from a source in the UK or have assets in the UK on which they are liable to pay UK tax. HMRC said that 162,000 trusts made self-assessment returns for the 2014/15 tax year.
Trustees will be required to provide information on the identities of the settlors, other trustees, beneficiaries, all other natural or legal persons exercising effective control over the trust, and all other persons identified in a document or instrument relating to the trust, including a letter or memorandum of wishes.
Details to be supplied about individuals include name and address and, if that address is outside the UK, the individual’s passport number or identification card number, the individual’s date of birth and the individual’s national insurance number and unique taxpayer reference, if any.
If a trust has a class of beneficiaries, not all of whom have been determined, then trustees must provide a description of the class of persons who are entitled to benefit from the trust, rather than individual names and addresses.
Trustees will also be required to provide general information on the nature of the trust. In the draft regulations these include its name, the date on which it was established, a statement of accounts describing the assets identifying the value of each category of the trust assets (including the address of any property held by the trust), the country where it is resident for tax purposes, the place where it is administered and a contact address.
Trustees will also need to provide the name of any advisers who are being paid to provide legal, financial, tax or other advice to the trustees. The information will have to be updated annually.
Previously, Form 41G(Trusts) was used to register a trust or estate with HMRC but this form was withdrawn in May 2017 in advance of being replaced by the new online registration process.
The current regulations only allow HMRC and law enforcement bodies to access the information on the register. However, if the EU approves proposed amendments to MLD4 to allow full public access to registers of trust beneficial ownership, the UK regulations would need to be amended.
13 July 2017, the UK government posted the seventh successive year of revenue growth, collecting £574.9 billion in tax revenues in 2016/2017, an increase of £38.1 billion on the previous year according to HMRC’s annual report and accounts. It also showed that the Revenue generated £28.9 billion of ‘compliance yield’ in the last financial year.
Jon Thompson, HMRC’s chief executive, said: “In the last year, we have generated £28.9 billion of compliance yield, billions of pounds that would have otherwise been lost to the UK through avoidance, evasion and organised crime but will now be spent on public services. That’s around £1,000 for every household in the UK.”
In 2016/17, HMRC prosecuted 886 criminals and fraudsters, and its litigators handled more than 1,200 tax cases in courts and tribunals. It said 83% of these cases were successful, protecting £15 billion in tax revenues.
30 June 2017, Hong Kong’s Commissioner of Inland Revenue published in the Gazette a notice to designate the AEOI Portal as the information system for automatic exchange of financial account information (AEOI) purposes under section 50I(1) of the Inland Revenue Ordinance (Cap. 112) with effect from 3 July. It will enable financial institutions to furnish notifications and file returns in relation to the reporting of financial account information for AEOI.
A financial institution maintaining reportable accounts on or before 3 July is required to register under the AEOI Portal and submit a notification of commencement of maintaining reportable accounts no later than 3 October 3. Financial institutions that commence to maintain any reportable accounts after 3 July should submit the required notifications through the AEOI Portal within three months from the commencement of maintaining such accounts.
31 July 2017, the Hong Kong government released a consultation report on measures to counter base erosion and profit shifting (BEPS) by enterprises. It is now preparing legislation with a view to introducing an amendment bill into the Legislative Council by the end of 2017.
Hong Kong indicated its commitment in June 2016 to implementing the BEPS package put forward by the Organisation for Economic Co-operation and Development (OECD). The government held a consultation exercise from 26 October to 31 December 2016, in order to gauge views on the relevant implementation proposals. A total of 26 written submissions were received.
14 July 2017, Hong Kong signed an agreement with New Zealand for conducting automatic exchange of financial account information in tax matters (AEOI) from 2018 onwards. It now has 14 AEOI partners – Belgium, Canada, Guernsey, Indonesia, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, Portugal, South Africa and the UK.
The Hong Kong government also plans to extend the application of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to Hong Kong. An amendment bill will be introduced into the Legislative Council by late 2017.
3 July 2017, Prime Minister Narendra Modi said India had cancelled the registration of more than 100,000 companies that were "in violation of laws". The decision was based on data analysis of more than 300,000 firms after the sudden ban on high-value currency banknotes.
"This is not an ordinary decision," Modi said. “"Further stern measures will be taken in the coming days against companies that are violating the law."
The government is also to take action against more than 37,000 identified ‘shell companies’ that were found to be engaged in illegal transactions.
14 July 2017, the Board of the Financial Services Commission, with the concurrence of the Minister of Financial Services, appointed Harvesh Kumar Seegolam as the new chief executive of the Financial Services Commission. Seegolam was senior investment advisor at Board of Investment and served previously as chief executive of the Financial Services Promotion Agency (FSPA). The appointment of P.K. Kuriachen as acting chief executive of the FSC lapsed on 13 July.
28 June 2017, the National Council of Monaco enacted, by Law No.1488, significant amendments to the Droit International Privé to provide foreign residents with clarity over what laws will apply in respect of families and their assets for estate and succession planning purposes.
It applies the EU Succession Regulation, known as Brussels IV, which establishes that a single succession law should apply to an entire succession regardless of the type and location of the assets. In particular, it introduces the professio juris principle such that the law of the state in which the deceased was domiciled at the time of death, unless he or she elects to apply the law of their nationality, will govern succession.
The law also provides for the matrimonial law to be applied in an international divorce. Where spouses disagree, the relevant matrimonial regime is that of the state where their household is located. Other 'tie-break' rules come into play if that criterion does not apply.
10 July 2017, the OECD released the 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which provide guidance on the application of the ‘arm’s length principle’.
It said governments need to ensure that the taxable profits of multinational enterprises (MNEs) are not artificially shifted out of their jurisdiction and that the tax base reported by MNEs in their country reflects the economic activity undertaken therein and taxpayers need clear guidance on the proper application of the arm’s length principle.
The 2017 edition of the Transfer Pricing Guidelines mainly reflects a consolidation of the changes resulting from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. It incorporates the following revisions of the 2010 edition into a single publication:
In addition, the new edition of the Transfer Pricing Guidelines includes the revised Recommendation of the OECD Council on the Determination of Transfer Pricing between Associated Enterprises [C(95)126/FINAL]. The revised Recommendation reflects the relevance to tackle BEPS and the establishments of the Inclusive Framework on BEPS. It also strengthens the impact and relevance of the Guidelines beyond the OECD by inviting non-OECD members to adhere to the Recommendation.
27 July 2017, the OECD released a new report on Neutralising the Effects of Branch Mismatch Arrangements, which occur where two jurisdictions take a different view as to the existence of, or the allocation of income or expenditure between, the branch and head office of the same taxpayer. It falls under Action 2 of the OECD’s Base erosion and profit shifting (BEPS) project.
These differences, said the OECD, can produce the same kind of mismatches that were targeted in its 2015 Report on Neutralising the Effects of Hybrid Mismatch Arrangements, which set out recommendations for domestic rules to put an end to the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment.
The new report sets out recommendations for changes to domestic law that would bring the treatment of these branch mismatch structures into line with outcomes described in the 2015 Report.
The OECD also released, on 18 July, additional guidance to give certainty to tax administrations and multinational enterprise (MNE) groups on the implementation of country-by-country (CbC) reporting (BEPS Action 13). It addresses two specific issues: how to treat an entity owned and/or operated by two or more unrelated MNE groups, and whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the CbC report.
In 2016, the OECD established the ‘Inclusive Framework on BEPS’, a group of countries that have pledged to implement measures aimed at preventing tax avoidance by multinationals and improving tax dispute resolution. This now boasts 102 members following commitments received from Barbados and Montserrat on 5 July and 10 July respectively.
Meanwhile Mauritius and Cameroon signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS on 5 July and 11 July respectively. This brings the total number of signatories to 70. The MLI is a legal instrument designed to allow jurisdictions to transpose results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties swiftly. It was launched in June.
4 July 2017, the OECD announced the launch of its Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) Matching Database, which makes projections on how the MLI modifies a specific tax treaty covered by the MLI by matching information from signatories’ MLI positions.
The MLI was developed to enable countries to implement OECD/G20 base erosion profit shifting (BEPS) measures swiftly and easily. Rather than implementing the BEPS changes by amending multiple bilateral tax treaties, countries can opt to sign the MLI once to change many tax treaties at the same time.
The MLI has been signed by 69 countries but has not yet been ratified by any pair of signatories to a bilateral tax treaty. The OECD said the Matching Database was a preliminary version that would be enhanced over time.
13 July 2017, the Federal Administrative Court in St Gallen ruled that the Swiss Federal Tax Administration could cooperate with the Indian authorities in their investigation of data stolen from the Geneva branch of HSBC bank by whistle-blower Hervé Falciani.
The court rejected an appeal by two Indian citizens and two companies that have been subject to requests by the Indian revenue in respect of data of their banking activities between April 2011 and March 2014, when they held HSBC trust accounts in the BVI. They had opposed a previous decision by the court to permit the transfer of information because the request for assistance by the Indian authorities was based on stolen data.
Switzerland has previously received group requests for assistance on tax matters from France, Sweden, the Netherlands and Spain. In September 2016, the Swiss Federal Supreme Court overturned a previous administrative court ruling that a Dutch request to UBS, which listed no names, could be ignored as a ‘fishing expedition’. In March this year, it also approved administrative assistance to France despite that case being based on data stolen from UBS.
Falciani, an IT employee of HSBC bank in Geneva, stole client data from the bank in 2006. After failing to sell the data in Lebanon, he gave it to French authorities. In 2016, Falciani was sentenced in absentia by a Swiss court to a five-year jail term. He continues to live in France where he is protected from extradition by his French citizenship.
Italy’s Guardia di Finanza announced, on 20 July 2017, that it had requested information from the Swiss authorities in respect of Italian citizens holding 9,953 financial accounts in Switzerland totalling €6.7 billion.
The Guardia di Finanza linked its request to an earlier investigation in Milan into suspected tax evasion by Italian clients of Swiss bank Credit Suisse. Last year, Credit Suisse agreed to pay €109.5 million in Italy to settle the investigation into its activities between 2008 and 2015.
In a statement, the Guardia di Finanza also said that 3,297 people had also been identified through a national voluntary disclosure scheme, which was operated by the Italian government last year to encourage tax defaulters to declare funds held abroad in return for immunity from prosecution.
At the start of this year, Swiss banks began collecting data of all non-Swiss clients in preparation of an automatic handover of such information to foreign tax authorities from 2018.
10 July 2017, the amount of tax withheld by Switzerland on behalf of European Union member states under the Savings Tax Directive fell from CHF 169.3 million in 2015 to CHF 74.8 million in 2016. The payment deadline expired on 31 March 2017.
It is the Directive's final year of operation after the EU and Switzerland signed an agreement on the automatic exchange of information (AEOI) in 2015. The Swiss parliament adopted the new agreement in June 2016 and it came into force on 1 January 2017.
The Savings Tax system has been in force since July 2005. The core of the agreement was the introduction of a 15% withholding tax initially, which increased to 20% in 2008 and 35% in 2011. The tax withheld peaked at just under CHF 500 million in 2012.
The agreement also permitted taxpayers to choose between the withholding tax and voluntary declaration to their home tax authorities. In recent years growing numbers of taxpayers have chosen voluntary declaration in advance of the implementation of AEOI, the number rising from around 35,000 in 2010 to 350,000 in 2016.
13 July 2017, the UK Treasury confirmed that a second Finance Bill 2017 would be introduced “as soon as possible after the summer recess” to implement all of the policies that were deleted from the 2017 Finance Bill because there was insufficient parliamentary time left before the General Election on 8 June to debate them. All policies originally due to start from April 2017 will be effective from that date.
Those policies include the non-domicile taxation reforms concerning income tax and capital gains tax, inheritance tax, value of benefits for settlements and transfers of assets abroad, exemption from attribution of carried interest gains and inheritance tax on overseas property representing UK residential property.
The government also published updated draft legislation for a “small number of clauses taking effect before the Bill is introduced”. These make “technical adjustments and additions to the previous legislation to ensure that the clauses function as intended’. These include:
18 July 2017, UK Secretary of State for Foreign and Commonwealth Affairs Alan Duncan said the creation of new central registers of beneficial ownership or similarly effective systems had been completed in all the Crown dependencies (CDs) and in the following Overseas Territories (OTs) with financial centres: Bermuda, the BVI, the Cayman islands and Gibraltar, with legislation to underpin the registers passed by their respective legislatures. Data population of the registers with data would be taken forward as a priority in coming months.
In April last year the UK government announced that treaties had been signed with the CDOTs to exchange information relating to the beneficial ownership of legal entities incorporated in those jurisdictions with UK law enforcement authorities. The arrangements were to come into effect on 1 July 2017.
Each CDOT agreed to hold adequate, accurate and current beneficial ownership information for corporate and legal entities incorporated in their jurisdictions. This information was to be held in a secure central electronic database or similarly effective arrangement. The information would be available to UK law enforcement upon request within 24 hours or within one hour in urgent cases.
THE CDOTs successfully negotiated for their platforms to operate on a non-publicly available basis. The definition of "beneficial owner" was derived from the EU's Fourth Money Laundering Directive and covers any natural person(s) who ultimately own or controls a corporate or legal entity through direct or indirect ownership of more than 25% of the shares or voting rights or ownership interest in that entity or through control via other means.
“Guernsey and Alderney’s legislation to enable their registers to be operational will be considered by the Privy Council this month,” said Duncan in response to a written question in Parliament. “The Turks & Caicos Islands have passed legislation, and their register is expected to be operational by the end of this month. Anguilla has not yet established its register. We continue to engage with the Anguillan authorities to take this forward.” He chose not say what plans he had to make those registers public.
On 1 July, the UK government launched an 18-month review of the arrangements between the UK and each of its CDOTs for the sharing of beneficial ownership information. The review was ordered under the Criminal Finances Act, which introduced new corporate offences of failure to prevent facilitation of tax evasion and received Royal Assent on 27 April 2017.
Among the amendments made during the passage of the Bill was a new section 9 in Part 1, which requires the relevant minister to present a report to Parliament by 1 July 2019 covering arrangements in place for the period from 1 July 2017 to 31 December 2018.
12 July 2017, the UK Treasury issued regulations under the Criminal Finances Act 2017 to make new corporate criminal offences of failure to prevent tax evasion effective from 30 September, which corresponds with the date for the first automatic exchanges of information under the common reporting standard (CRS).
The new offences will make businesses liable for the criminal acts of their employees and other “associated” persons who facilitate tax evasion whilst performing services for them, even if the senior management of the business was not involved or aware of what was going on. The offences apply to both companies and partnerships.
Businesses will have a defence if they can prove that they had reasonable prevention procedures in place to prevent the facilitation of tax evasion, or that it was not reasonable in the circumstances to expect there to be procedures in place.
A further measure in the Act allows for Unexplained Wealth Orders to be served on individuals suspected of a serious crime to explain the sources of their wealth; any proceeds of crime can be seized by the authorities.
The Act also covers a raft of other provisions, including further powers to investigate suspected money laundering or terrorist financing, and new orders to require someone to disclose information they may have on money laundering.
13 July 2017, the Tax Court declined to follow Revenue Ruling 91-32 and instead held that a foreign partner’s gain from the redemption of its interest in a partnership did not constitute effectively connected income (ECI) with a US trade or business.
In Grecian Magnesite Mining, Industrial & Shipping Co. v. Commissioner, 149 T.C. No. 3. , GMM was a Greek corporation that owned an interest in Premier Chemicals LLC, a Delaware limited liability company treated as a partnership for US income tax purposes. In 2008, Premier fully redeemed GMM’s interest for $10.6 million by making one payment in July 2008 and another payment in January 2009.
GMM realised a gain of $6.2 million on the redemption, approximately $2.2 million of which was attributable to Premier’s US real estate. Based on the advice of an experienced certified public accountant, GMM did not report any of the gain from the redemption as US taxable income on its 2008 tax return and did not file a 2009 US tax return.
The IRS asserted that GMM had US source gain in both 2008 and 2009 that was effectively connected with a US trade or business. The IRS based its position on Rev. Rul. 91-32, which applies an “aggregate” theory of partnerships to determine that the portion of any gain realised by a foreign partner on a sale of a partnership interest that is attributable to the partnership’s US trade or business assets is taxable as ECI under Code section 864.
The Tax Court disagreed. It initially determined that a redemption of a partnership interest should be treated the same as a sale, and that section 741 of the Code calls for an entity rather than an aggregate approach to sales of partnership interests. The court then applied the general rule that gain on a sale of personal property is sourced based on the residence of the seller under section 865. Because the taxpayer was a foreign corporation and a non-resident of the US, the gain was accordingly foreign source rather than US source income, and hence not ECI.
The court rejected the IRS’s argument that the gain should be US source under section 865 because it was attributable to a US office of the taxpayer. The court held that, even assuming the US office of the LLC was properly treated as a US office of the taxpayer, the gain from the redemption was not attributable to that office because the LLC’s office was not a material factor in the taxpayer’s realisation of income from the redemption transaction and the LLC was not regularly engaged in the business of transacting in its own LLC interests.