25 August 2017, Australia’s ‘Tax Avoidance Taskforce – Trusts’ issued a release to publicise how the Australian Tax Office and other agencies are taking action in response to evidence of increased manipulation of trusts as vehicles for tax avoidance or evasion.
The Taskforce said it will undertake focused compliance activity on privately owned and wealthy groups involved in tax avoidance and evasion arrangements using trust structures. These are not ordinary trust arrangements or tax planning associated with genuine business or family dealings.
Its priorities are to target known tax scheme designers, promoters, individuals and businesses who participate in such arrangements, lead cross-agency action to pursue the most egregious cases of tax abuse using trusts and undertake projects to gather intelligence on and deal with specific risks.
“We recognise that most trusts are used appropriately. We will continue to help those who make genuine mistakes or are uncertain about how the law applies to their circumstances,” it said. “We have a number of trust risk rules in place to identify higher risk compliance issues. Most trusts do not trigger these risk rules.”
It said it would focus on the following risks:
The Taskforce said it aimed to build community confidence and encourage voluntary compliance in relation to trusts, as well as undertaking education projects to improve voluntary compliance.
26 July 2017, the Belgian federal government reached agreement on the corporate tax reform, originally announced in 2016, which will be implemented in two phases. Most of the measures are intended to come into force from 2018, with the remaining measures following in 2020.
The standard corporate income tax rate of 33% is to be lowered to 29% in 2018 and 25% in 2020. The 3% crisis tax will also be lowered to 2% from 2018 and abolished in 2020. In addition, SMEs will enjoy a special reduced tax rate, if conditions are met, of 20% on profits below €100,000 as from 2018.
The holding company regime will be reformed such that the separate 0.412% capital gains tax on qualifying shares is to be abolished from 2018, while the conditions to benefit from the capital gains exemption will be brought in line with the dividends received deduction. A minimum participation threshold of at least 10% or an acquisition value of at least €2.5 million in the capital of the distributing company will apply.
The notional interest deduction (NID) is to be modified to stimulate the increase of equity. As from 2018, the NID will be calculated based on the incremental equity over a period of five years rather than the total amount of the company’s qualifying equity.
To finance these measures, a minimum tax charge will be imposed on companies making more than €1 million profits by limiting the number of corporate tax deductions. From 2018, certain deductions can only be claimed on 70% of the profits exceeding the €1 million threshold. The remaining 30% will be fully taxable at the new rate.
A tax consolidation regime will be introduced in 2020. This will enable tax losses of a Belgian entity to be deducted from the taxable profits of another Belgian entity within a consolidated group for the first time. Only the consolidated tax base would then be subject to corporate income tax.
The Belgian government will, by 2020, implement European Anti-Tax Avoidance Directives (ATAD) I and II (Council Directive EU 2016/1164 of 12 July 2016 and Council Directive EU 2017/952 of 29 May 2017), which will lead to the introduction into Belgian domestic law of an interest deduction limitation rule, rules on controlled foreign corporations (CFCs), the exit tax and hybrid mismatch rules.
1 August 2017, the Trade Marks Law 2016, the Patents and Trade Marks (Amendment) Law 2016 and the Design Rights Registration Law 2016 were brought into force on 1 August 2017, introducing a new intellectual property regime in the Cayman Islands.
The Legislative Assembly of the Cayman Islands laws approved the laws on 19 December 2016 and the necessary commencement orders and regulations were published and gazetted on 26 May 2017.
Under the previous legislation, trade mark protection in the Cayman Islands was obtained by extending the rights of a UK or EU-registered trade mark. The Trade Marks Law 2016 establishes a stand-alone trade mark registration system for the Cayman Islands that no longer allows for the extension of UK or EU registered trade mark.
A local Register of trade marks will be maintained by the Cayman Islands Intellectual Property Office. A trade mark owner must appoint a local registered agent to transact business with the Registry and trade mark applications should be submitted based on the Nice system of classification.
Trade marks recorded in the Cayman Islands prior to 1 August 2017 will be transferred to the new Register and deemed registered under the new law until their renewal date under the previous legislation. Series marks will also remain protected until their next renewal date, at which time they must be registered under the Cayman Act individually.
The Patents and Trade Marks (Amendment) Law 2016 eliminates all reference to trade marks. Unlike the new trade mark regime, there is no local registration process for patents. Protection of patent rights continues by way of extension of an UK or EU registration. The new law prohibits the assertion of patent infringement in bad faith and provides remedies for aggrieved parties.
The Design Rights Registration Law 2016 allows existing registered UK and EU design rights to be extended to the Cayman Islands, thereby affording owners the equivalent rights and remedies as in the UK or EU. The registered design right owner’s duly appointed registered agent must make all extension applications.
18 August 2017, Chevron Australia, a subsidiary of the US energy giant, announced that it had withdrawn its appeal to the High Court against a Australian Federal Court decision that upheld a A$340 million (US$268 million) tax demand from the Australian Tax Office (ATO) in respect of transfer pricing rules. The landmark case could have implications for multinationals in Australia and elsewhere.
The litigation centred on the ‘internal refinancing’ of Chevron Australia's debt to fund the acquisition of Texaco Australia after a global merger between Chevron and Texaco. A US$2.5 billion loan was made by Chevron Texaco Funding Corp, a Chevron subsidiary registered in Delaware. The US subsidiary borrowed the funds externally in US dollars at an interest rate of just 1.2% with the benefit of a guarantee from the ultimate parent company of the Chevron global group. It then charged a 9% interest rate to its nominal Australian parent company.
The loan had the double impact of significantly reducing tax paid by Chevron in Australia, which could deduct interest repayments from its taxable income, and allowing the US subsidiary to make big profits on the difference between the borrowing rate of 1.2% and the high lending rate of 9%. No tax was paid in the US on these profits.
Chevron Australia Holdings was issued with transfer pricing assessments on the basis that the ATO deemed the interest rate assessed to be in excess of an ‘arm’s length’ rate under the relevant legislative provisions.
Chevron challenged the assessments but, in 2015, the Federal Court ruled that the loan was not a genuine ‘arm's length’ transaction and breached transfer pricing provisions of tax legislation. Chevron appealed but in April this year, a Federal Court full bench unanimously dismissed the appeal. The law, the court said, requires the terms of such loans do not "exceed what would be regarded as an arm's length price expected to be incurred between independent parties dealing with each other at arm's length".
Chevron had announced plans for an appeal to the High Court but then said it had reached an undisclosed settlement with the ATO. “Chevron believes the agreed terms are a reasonable resolution of the matter and are not expected to have a material impact on the year to date results of the company,” it said.
The ATO has challenged a number of large multinationals over cross-border taxation arrangements. Australian Minister for Revenue and Financial Services Kelly O'Dwyer said: "This is a significant win for the Australian community. The ATO’s initial estimates are that the Chevron decision will bring in more than A$10 billion dollars of additional revenue over the next ten years in relation to transfer pricing of related party financing alone."
28 July 2017, China’s State Council announced a plan to further attract foreign investment into China, including a new withholding tax deferral for reinvested dividends, an extension of the technological service enterprises tax incentive and a new tax incentive for overseas income remitted back to China.
The guidance and roadmap, outlined in a State Council notice, promotes foreign investment from several perspectives besides taxation, including market access, work permits for expatriates, economic development zones, and business environment.
The State Council has proposed granting a withholding tax deferral for dividends received by foreign investors from their investments in China if such dividends are directly invested in “encouraged categories of industries” and certain requirements can be met. ‘Encouraged’ industry categories were outlined in an updated version of the foreign investment catalogue, which became effective July 2017.
Under the current Corporate Income Tax (CIT) Law, a dividend declared to a foreign investor is subject to a 10% withholding tax, unless otherwise reduced by a tax treaty. The State Council has instructed the Ministry of Finance and the State Administration of Taxation to promulgate detailed implementation rules for this new tax incentive.
The State Council also proposed to extend the enterprise income tax (EIT) incentive applicable to technologically advanced service enterprises (TASEs) engaged in offshore outsourcing services. The EIT incentives comprise a reduction in the CIT rate from 25% to 15% and an increase in the employee education expense deduction limitation of total salaries and wages from 2.5% to 8%.
China currently provides preferential tax treatment on a pilot basis only to TASEs that operate in certain cities. The State Council has proposed to extend the incentives nationwide. Both domestic enterprises and FIEs can apply for the TASE certification.
The State Council further proposes to provide a tax incentive to Chinese enterprises, including regional headquarters in China of multinational enterprises, when overseas income is remitted back to China.
The State Council’s plan also proposes a number of non-tax measures, including:
18 July 2017, the First-tier Tribunal the FTT found that the grandfather of the appellant taxpayers had not acquired a domicile of choice in Brazil, thereby relinquishing his UK domicile, such that they were also UK domiciled.
In F Henderson and others v HMRC  UKFTT 556 (18 July 2017), the appellants were four siblings – Frederick, George, Cordelia and Arabella Henderson – who were appealing, under s42 of the Income Tax (Earnings and Pensions Act) 2003 and s207 of the Income and Corporation Taxes Act 1988, against HMRC’s determination that they had been domiciled in the UK since their birth.
The parties were agreed that the appeals could be determined by reference to the following questions. Issue One: had their grandfather, Ian Henderson, acquired a domicile of choice in Brazil by the time their father, Nicholas Henderson, was born? Issue Two: if he had, did he abandon that domicile of choice (so that his UK domicile of origin revived) before their father turned 16? Issue Three: if so, did their father subsequently acquire a domicile of choice in the UK?
The Tribunal accepted that Ian Henderson had been residing in Brazil at the time of the birth of his son and that, having lived there for two years, “he was happy living there, having recently married a Brazilian woman’”. However, it found that two years’ residence in Brazil was “too short a time for a young man (…) to form a settled intention to reside permanently there” and that this would depend on his ability to make a living. Indeed, when his employer had asked him to move back to London, he had done so.
Tribunal Judge Jonathan Richards said: “We recognise that Ian Henderson has sworn a statutory declaration to the effect that he intended to reside in Brazil permanently by the time Nicholas Henderson was born. However, we have concluded that his actions were not consistent with that stated intention.”
The Tribunal also found on Issue Two that any Brazilian domicile acquired by Ian Henderson would have been abandoned by the time his son had turned 16, because he had acquired a property in London, left his employer and started a UK business. “It is unlikely that facts in existence at the date of the hearing shed much light on the nature of Ian Henderson’s intentions prior to 1979. However, it is of some note that he still has not returned to live permanently in Brazil. Nicholas Henderson strongly maintained in cross-examination that his father still intends to return to live in Brazil. However, we cannot accept that an 87-year old man, who has lived in London for 51 years and whose children largely live close to him in London will return to Brazil now when he has chosen not to do so previously.”
In respect of Issue Three, the Tribunal said that although Nicholas Henderson has spoken of his strong attachment to Brazil, it had concluded that since 1993, this was little more than an emotional fondness falling short of an intention to reside there permanently. He has visited Brazil only once, for two weeks, since his gap year in 1981 despite making a large number of trips to other overseas countries in that period.
The contradictory nature of Nicholas Henderson’s evidence, it said, suggested that the true intention since 1993 has been for he and his wife Sophie to reside permanently or indefinitely in the UK although they were keeping that situation under review particularly in the light of proposed tax changes to the status of ‘non-doms’.
“There is much less evidence of actions consistent with an intention to reside permanently outside the UK than there is of actions consistent with an intention to reside permanently in the UK,” said the Tribunal. “Since 1993, the Trust (his wife’s family trust) has purchased and refurbished property in the UK for the Hendersons, the Hendersons sent their children to schools in the UK and Nicholas Henderson has established businesses in the UK. Nothing like the same actions have been taken in relation to any country outside the UK.
“Rather, the evidence supporting the proposition that Nicholas Henderson intends to live outside the UK comes largely in the form of statements as to both his, and his wife’s intentions. We have had regard to those statements of intention, but have given them less weight than evidence of actions since Nicholas Henderson has an obvious self-interest in making them. Moreover, Sophie Henderson has chosen not to give evidence in this appeal. Nicholas Henderson has an obvious self-interest in giving evidence as to Sophie Henderson’s intentions since there is a real prospect that her own stated domicile in New Zealand may be the subject of a dispute with HMRC, so his reports as to her intentions carry little weight.
“Our overall conclusion on Issue Three is therefore that, even if Nicholas Henderson had a Brazilian domicile of origin, he lost that in 1993 at the time the Trust acquired the property in Chelsea Harbour. HMRC therefore succeed on Issue Three.” The appeal was dismissed.
The judgment can be viewed at http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06010.html
15 August 2017, the Beneficial Ownership of Legal Persons (Guernsey) Law 2017 came into force and the associated limited-access electronic registry service is now live. The law was originally expected to take effect from 30 June in order to comply with a 1 July deadline set under an agreement signed with the UK government last April.
The States of Guernsey approved the law in February and blamed the delay on a recent reshuffle of the Privy Council, the body that gives royal assent to Guernsey laws. "A general election in the UK, and the subsequent appointment of Andrea Leadsom as Lord President of the Privy Council, has caused a delay in the establishment of a central register of beneficial ownership in Guernsey," a spokesman said.
The law imposes a statutory duty on resident agents to keep an up-to-date record of the beneficial owners of legal entities for which they are responsible. 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.
Resident agents are expected to be able to make beneficial ownership submissions from 15 August onwards for all legal persons incorporated or created in Guernsey, including companies registered in Guernsey, and/or limited liability partnerships registered under Guernsey law.
All companies formed before 15 August 2017 must be registered by 28 February 2018. For non-company legal entities the deadline is the earlier date of 31 October 2017 or, in some cases, 31 December 2017. If the resident agent has ascertained that there are no beneficial owners in relation to a Guernsey entity, this must be recorded in the register.
3 August 2017, HMRC published the first GAAR Advisory Panel opinion notice, which found that a scheme to pay employee rewards using gold bullion was “not a reasonable course of action in relation to the relevant tax provisions”. It was HMRC’s first use of the general anti-abuse rule (GAAR) since its introduction in 2013.
The scheme was used by a company with two directors. Each received payments of about £150,000 through a series of complicated steps involving an offshore trust and the purchase and immediate sale of gold assets. HMRC’s position was that the company and the employees were seeking to avoid a charge to income tax and the associated NICs charge on the funds made available to them.
The GAAR advisory panel stated that the use of gold as payments for employees was “abnormal and contrived”. The scheme was as a “clear case of associated taxpayers seeking to frustrate the intent of parliament by identifying potential loopholes in complex interlinking anti-avoidance legislation”.
An HMRC spokesperson said: “We’re delighted with the opinion of the GAAR Advisory Panel. HMRC has already made clear that gold bullion avoidance schemes don’t work and that we will challenge these schemes. This result has wide-reaching impacts and reinforces the power of the GAAR in tackling abusive tax avoidance.”
The GAAR was introduced by former chancellor George Osborne in 2013 in an effort to crack down on tax avoidance, which Osborne labelled “morally repugnant”. Where there are loopholes that allow companies and individuals to avoid tax, the GAAR acts as a blanket rule to identify abusive tax avoidance arrangements that are deemed “unreasonable”. The advisory panel of experts was set up to issue opinions on whether particular schemes should be caught by the rule, which are taken into account if cases are taken to court.
The approved version of Opinion Notice can be viewed at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/635712/GAAR_Panel_opinion_-_employee_reward_using_gold_bullion__Company_.pdf
28 August 2017, in a stock market announcement Hong Kong-based CK Hutchison Holdings reported Hutchison said it had received in February a demand from the Indian government for capital gains tax of Rs79 billion (US$1.2 billion), plus interest of Rs164 billion. It said it had also received on 9 August a further notice demanding payment of a Rs79 billion penalty for the unpaid tax, indicating a total claim of Rs322 billion (US$5 billion).
The dispute relates to its alleged capital gains during the US$11 billion sale of its India mobile business to UK’s Vodafone Group in 2007. The Indian tax department previously applied a tax demand on Vodafone for not withholding tax from payments it made to Hutchison for Rs200 billion (US$3.13 billion) including penalties and interest.
It argued that tax should have been paid since the underlying asset was in India, even if the transaction was conducted among offshore entities. Vodafone challenged the demand and, in January 2012, the Indian Supreme Court ruled that Vodafone was not liable. In May 2012, the Indian government amended the tax laws with retrospective effect and claimed taxes. Vodafone has disputed the levy and the matter is before an international arbitration panel.
In its filing to the Hong Kong stock exchange, CK Hutchison Holdings stated that the orders of Indian tax authorities have been issued on the basis of “retrospective legislation seeking to overturn the judgement of the Indian Supreme Court, which ruled that the acquisition was not taxable in India, are in violation of the principles of international law.” The company said its legal advice was the claim was not enforceable.
4 August 2017, Luxembourg’s Minister of Finance introduced draft law No. 7163 for a new intellectual property (IP) regime that is in line with the modified ‘nexus approach’ under Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project.
The draft law proposes an 80% corporate income tax and municipal business tax exemption on the adjusted and compensated net eligible income and capital gains derived from eligible IP assets multiplied by a specific ratio, as well as a full exemption from net wealth tax on these assets.
To be considered as eligible, IP assets must:
The adjusted and compensated net eligible income should generally be determined on an asset-per-asset basis. Taypayers must be able to demonstrate the link between the costs incurred and the income received or the capital gain realised.
To be considered as eligible, the income must be linked to an eligible IP asset and fall within one of the following categories: royalty income, income related to an eligible IP asset embedded in the sale price of a product or service, capital gains and indemnities in certain circumstances.
The eligible income is then reduced by all expenses linked (directly or indirectly) to the eligible IP asset subject to specific adjustments. All income and expenses must be in line with the arm’s length principle. Acquisition costs, financing costs including interest, and real estate costs are in particular specifically excluded from eligible costs. A 30% uplift may apply to eligible costs, but this is capped at the amount of total costs incurred during the current fiscal year or previous fiscal years.
If approved, the provisions of the new law will apply as from tax year 2018. Luxembourg’s previous IP regime was withdrawn on 30 June 2016 but with a five-year grandfathering period. Taxpayers with existing IP assets will therefore have to choose which regime to apply until 30 June 2021, the choice being irrevocable as from the fiscal year where it is exercised.
3 August 2017, the New Zealand government confirmed that it would implement proposed changes to the taxation of international commerce to comply with the OECD’s base erosion and profit shifting (BEPS) project. Notably ‘foreign trusts’ are included within the new rules taxing hybrid mismatch arrangements.
The key changes, which follow discussion documents released in September 2016 and March 2017, include:
Finance Minister Steven Joyce said the new measures were intended to stop foreign parents charging their NZ subsidiaries high interest rates to reduce their taxable profits in NZ and to stop multinationals using artificial arrangements to avoid having a taxable presence in NZ.
They would also ensure that multinationals are taxed in accordance with the economic substance of their activities in NZ and counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world. Finally, they would make it easier for Inland Revenue to investigate uncooperative multinational companies.
It is expected that the BEPS measures will be included in a tax bill to be introduced by the end of the year, for enactment by July 2018.
The government’s view of foreign trusts was that they would often be a “reverse hybrid” for the purposes of the hybrids rules and should therefore be made subject to tax in NZ in certain circumstances. This would effectively eliminate the current non-taxation of foreign trusts on foreign-sourced income in most cases.
During consultation, submissions had argued that foreign trusts were not actually reverse hybrids. It was further argued that the existing tax treatment of foreign trusts was conceptually appropriate and that the Shewan Inquiry into Foreign Trust Disclosure Rules had confirmed this.
However the government said it had decided that foreign trusts would be included within the scope of the rules where their treatment outside NZ meant income of the trust was not taxed anywhere in the world. A specific de minimis is to be provided such that foreign trusts and limited partnerships will not be subject to the rules if their foreign-sourced income does not exceed a certain threshold. The application of this rule will be delayed until 1 April 2019 to allow parties affected by this rule more time to assess their options.
NZ’s foreign trust industry was placed firmly in the public spotlight during the ‘Panama Papers’ affair, when a leaked cache of documents showed how various structures – including NZ foreign trusts – were being used for illegal purposes, including tax evasion and money laundering.
This triggered the Shewan Review which, while not looking specifically at tax, recommended a broad range of measures including requiring foreign trusts to register and provide details of settlors and beneficiaries to Inland Revenue in order to share this with other tax authorities.
These changes, which required registration by 30 June this year, have already dramatically reduced the sector. There were 11,645 foreign trusts registered in April last year prior to the release of the Panama Papers. The latest figures from Inland Revenue show that 3,300 trusts have registered under the new regime, with 3,200 electing to exit. The revenue had not heard from the balance of about 5,000 trusts, but non-registration means they can no longer operate in NZ.
On 8 August, the government tabled in parliament a multilateral convention that will enable it to update tax treaties in line with the OECD's recommendations on base erosion and profit shifting (BEPS). It includes articles on permanent establishment, treaty abuse, dispute resolution and hybrid mismatches.
Revenue Minister Judith Collins said the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting is a "major new weapon" in the fight against BEPS, "because tax treaty abuse is often the basis for BEPS techniques”.
The government’s BEPS policy reports, Cabinet papers, regulatory impact assessments and submissions can be viewed at http://taxpolicy.ird.govt.nz/publications/2017-other-beps/overview
17 August 2017, Nigeria signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) and the CRS Multilateral Competent Authority Agreement (the CRS MCAA). It was the 71st jurisdiction to sign the MLI and the 94th to join the CRS MCAA.
The MLI is a legal instrument designed to prevent base erosion and profit shifting (BEPS) by multinational enterprises. It allows jurisdictions to transpose results from the OECD/G20 BEPS Project, including minimum standards to implement in tax treaties to prevent treaty abuse and ‘treaty shopping’, into their existing networks of bilateral tax treaties.
The CRS MCAA is a multilateral competent authority agreement, based on Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, that aims to implement the automatic exchange of financial account information under the OECD/G20 Common Reporting Standard (CRS) and to deliver the automatic exchange of CRS information between 101 jurisdictions by 2018.
21 August 2017, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes published the first 10 outcomes of a new and enhanced peer review process aimed at assessing compliance with international standards for the exchange of information on request between tax authorities.
The new round of peer reviews follows a six-year process during which the Global Forum assessed the legal and regulatory framework for information exchange (Phase 1), as well as the actual practices and procedures (Phase 2) in 119 jurisdictions worldwide.
The Global Forum’s new peer review process combines the Phase 1 and Phase 2 elements into a single undertaking, with new focus on an assessment of the availability of and access by tax authorities to beneficial ownership information of all legal entities and arrangements, in line with the Financial Action Task Force (FATF) international standard.
Three countries – Ireland, Mauritius and Norway – received an overall rating of ‘Compliant’, while six others – Australia, Bermuda, Canada, Cayman Islands, Germany and Qatar – were rated ‘Largely Compliant’. In addition, Jamaica was rated ‘Partially Compliant’ and the Forum has requested a supplementary report on follow-up measures to ensure a higher level of compliance.
Global Forum members are working together to monitor and review implementation of the international standard for the automatic exchange of financial account information, under the Common Reporting Standard (CRS), which commenced in September 2017. The process is intended to ensure the effective and timely delivery of commitments made, the confidentiality of information exchanged and to identify areas where support is needed.
28 July 2017, Nawaz Sharif resigned as prime minister of Pakistan following a decision by the country's Supreme Court to disqualify him from office based on corruption accusations stemming from the ‘Panama Papers’, a trove of leaked documents from the Panamanian law firm Mossack Fonseca.
The court's ruling stated that Sharif had been dishonest in not disclosing his earnings from a Dubai-based company in his nomination papers during the 2013 general election. It recommended that anti-corruption cases be brought against several individuals, including Sharif, his daughter Maryam and her husband Safdar, Finance Minister Ishaq Dar and others.
Although Sharif’s name did not appear in the Panama Papers, according to reports from the International Consortium for Investigative Journalists (ICIJ) three of his six children – Maryam, Hasan and Hussain – were determined to have purchased luxury flats in London’s Park Lane using offshore funds.
Maryam was listed as the owner of two BVI companies – Nielsen Enterprises Ltd and Nescoll Ltd – which were set up just after her father’s first term as prime minister ended in the early 1990s. She was underage at the time. The companies owned “a UK property each” for use by the family of the owners, according to the documents.
Maryam and Hasan signed paperwork in 2007 that was part of a series of transactions in which Deutsche Bank Geneva lent up to $13.8 million to the companies using the London properties as collateral. Hasan was listed as the director of another BVI company, Hangon Property Holdings Ltd. Another shareholder of that company transferred shares to him for about $11.2 million, according to the documents.
Maryam later claimed that she was only a trustee and that it was her brother who was the beneficial owner. She produced a trust deed signed by both her and her brother dated February 2006 but a forensic expert said the document was "fake" or had been "falsified" because it was typed in the Calibri font, which was not commercially available until 2007.
Sharif is the second national leader to resign as a result of the Panama Papers. Iceland's prime minister Sigmundur David Gunnlaugsson was forced to resign last year after documents appeared to reveal that he and his wife concealed millions of dollars' worth of investments in an offshore company. Sharif’s case, and that of his children, will now go to Pakistan’s National Accountability Bureau for further investigation.
15 August 2017, the US Department of Justice announced that Swiss asset manager Prime Partners had entered into a non-prosecution agreement (NPA) with the US Attorney’s Office and agreed to pay $5 million for assisting US taxpayers in opening and maintaining undeclared foreign bank accounts between 2001 and 2010.
Prime Partners admitted that it knew certain US taxpayers were maintaining undeclared foreign bank accounts in order to evade their US tax obligations and acknowledged that it helped certain US taxpayers conceal their beneficial ownership from the IRS by, among other things:
The Department of Justice said the NPA recognised that, in early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting US taxpayers in evading federal income taxes. It further recognised the extraordinary cooperation of Prime Partners, including its voluntary production of approximately 175 client files for non-compliant US taxpayers, which included the identities of those US taxpayers.
The NPA requires Prime Partners to forfeit $4.32 million to the US, representing certain fees that it earned by assisting its US taxpayers in opening and maintaining undeclared accounts, and to pay $680,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by its clients
14 July 2017, the First-tier Tribunal (FTT) rejected a taxpayer’s appeal, finding that the FTT found that three Jersey subsidiaries specifically set up to take a single uncommercial decision as part of a tax saving scheme were UK resident because the Jersey directors were acting on the instructions of the UK parent company.
In Development Securities (No 9) Ltd and ors v HMRC  UKFTT 565 (TC), the Development Securities Group (DSG) developed and implemented a plan designed by PricewaterhouseCoopers by which companies incorporated in Jersey were to enter into call option arrangements with UK group companies to crystallise latent capital losses on the disposal of certain assets without losing the benefit of indexation allowance. The amount of money DSG stood to save from the planning was around £8 million. The total price paid for the acquisition of the assets, as funded by Development Securities Plc (DS Plc), was £24,495,000.
It was essential to the success of the arrangement that the Jersey companies were resident in Jersey and not the UK in the period from incorporation until 20 July 2004. As planned, the companies were incorporated on 10 June 2004, the call options were entered into on 25 June 2004, they were exercised on 12 July 2004 and steps were taken to ensure the companies were UK tax resident from 20 July 2004.
In October 2014, HMRC contended that the companies were instead resident in the UK during this period and denied the claims to indexation allowance. The taxpayer appealed.
As Jersey incorporated companies, the Jersey companies could only be UK tax-resident if they were ‘centrally managed and controlled’ in the UK. The Tribunal disagreed with HMRC’s view, based on HMRC v Smallwood and Another  STC 2045, that the ‘central management and control’ test could be approached as a question of whether there was a ‘scheme of management’ in the UK.
However it found on the facts that the companies’ only business was to acquire the assets under the call option arrangements and that the real decisions, affecting the real business, had been taken by the UK resident parent company; the board had been usurped.
In reaching that conclusion, the Tribunal identified three unusual features:
The Tribunal concluded that “from the outset, in the very act of agreeing to take on the engagement, the Jersey directors were in reality agreeing to implement what the parent had already at that point in effect decided to do”.
Judge Harriet Morgan acknowledged Chadwick LJ’s remark in Wood v Holden  STC 443 that “Ill-informed or ill-advised decisions taken in the management of a company remain management decisions”. However she stated: “Unlike Wood v Holden, therefore, this was not a case where the board considered a proposal and, having taken appropriate advice, decided that it was in the best interests of the companies to enter into it. Given that the transaction was clearly not in the interests of the companies and indeed could only take place with parental approval, the inescapable conclusion is that the board was simply doing what the parent, DS Plc, wanted it to do and in effect instructed it to do. In the circumstances, the line was crossed from the parent influencing and giving strategic or policy direction to the parent giving an instruction.”
It therefore concluded that the Jersey companies were resident in the UK in the relevant period and the appeal was dismissed.
The decision can be viewed at http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j9977/TC06007.pdf
27 August 2017, the United Arab Emirates (UAE) Federal Government issued Federal Decree Law No. (8) of 2017 on Value Added Tax, which outlines the scope, rates and responsibilities for the tax. The Law will come into force on 1 January 2018.
The Unified Agreement for VAT across the Gulf Cooperation Council (GCC) region was published in the official gazette of Saudi Arabia in May. It provides the framework for the operation of VAT across the GCC – the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.
Each GCC member state can interpret the framework into its own local law and implement VAT. Some member states, notably the UAE and Saudi Arabia, have indicated an intention to implement VAT with effect from 1 January 2018. The framework allows for a basic rate of VAT of 5% as well as allowing for certain supplies of goods and services to be zero-rated or VAT exempt.
Article 2 of the UAE Federal Decree Law provides that all taxable supplies (including deemed supplies) as well as imported concerned goods will be subject to VAT. The term ‘concerned goods’ is defined as imported goods that would not be exempted if they had been supplied in the UAE. The VAT treatment of concerned goods will be regulated by the Executive Regulations.
Article 3 provides that a standard rate of 5% will be imposed on the supply of goods and services as well as importation. There are however certain exceptions where the zero-rate will apply, as well as exemptions.
Article 13 provides that UAE residents are required to register for VAT if the value of goods and services supplied exceeds (or is expected to exceed) the registration threshold to be specified in the Executive Regulations.
The Law sets out 14 instances where supplies may qualify for zero-rating, including exports, international transport, investment metals, first supply of residential buildings (provided it is supplied within three years of completion), crude oil and gas. Educational services as well as preventative and basic healthcare services and related goods and services may also be zero-rated if complying with the specifications in the Executive Regulations.
Designated Free Zones are deemed to be outside the UAE. Goods may be transferred between designated zones without VAT. Applicable procedures and conditions will be specified in the Executive Regulations.
The supply of bare land, local passenger transport and the sale and lease of residential buildings will be exempt from VAT, as well as financial services specified in the Executive Regulations.
Persons without residency in a GCC Member State where VAT will be implemented will be required to register for VAT if they supply goods or services in the UAE and no other person is required to account for VAT in respect of those supplies. A person may apply to the tax authority to be exempted from the VAT registration requirement if the person only makes zero-rated supplies.
11 August 2017, the High Court held that 13 separate wills made by the late June Clark between 2004 and her death in 2016 were invalid because a will she had previously executed in July 2000, at the same time as her husband, was judged to be a mutual will binding on her estate.
In Legg v Burton  EWHC 2088 (Ch), the claimants – Ann Legg and Lynn Burton – were the daughters of June and Bernard Clark. Bernard died on 16 May 2001 and his entire estate passed to his wife, in accordance with his will of 25 July 2000. June had entered into a will on the same date containing identical terms, which were that their estate would pass to the surviving spouse absolutely, unless the spouse pre-deceased, in which case the estate would pass to the two daughters in equal shares.
The mutual wills were unchanged at the date of Bernard’s death, but June went on to make 13 further wills. The last, on 12 December 2014, left legacies of only £10,000 to Ann and £30,000 to Lynn, with the remainder of the estate left to various beneficiaries including grandchildren and their spouses, three of whom were defendants to the claim. This will was admitted to probate.
The claimants challenged all the post-2000 wills by asserting that the will executed by their mother in 2000 was one of a pair of mutual wills, falling within the scope of the equitable doctrine of mutual wills. If the first individual died without having altered the mutual will, the surviving testator was not at liberty to alter their will. When the surviving testator died, their personal representatives must hold their estate on a constructive trust on the terms of the mutual will.
The main asset was a council house, which Bernard and June had purchased under the right-to-buy scheme and which they wished to pass on to their daughters. The Court placed reliance on the evidence of the claimants that they had attended the execution of the wills at their parents’ house where the agreement between their parents was explained to them. The wills appointed Ann and Lynn as executrices and trustees.
There was no dispute that Mr and Mrs Clark had each made mirror wills in 2000, however they contained the clause: “My trustees shall pay my residuary estate to my [spouse] absolutely and beneficially and without any sort of trust or obligation.” This gave Aaron Burton, Lynn Burton's son and the principal defendant, grounds to challenge the mutual wills’ claim.
Matthews HHJ held the claimants to be successful in establishing that there was an express agreement between their parents that the 2000 wills were intended to be mutual wills that could not be revoked or changed. Whilst the relationship between Mrs Clark and her daughters deteriorated, the Court found that she had not been at liberty to unilaterally alter her will due to the binding nature of the agreement with her husband, which fell into the equitable doctrine of mutual wills.
As a result of the mutual wills of July 2000, and despite the numerous other wills Mrs Clark made prior to her own death, a constructive trust has arisen on her death that imposed an obligation on her personal representatives to give effect to the July 2000 will. The daughters were therefore to inherit the entirety of their mother’s estate in equal shares, and the numerous other beneficiaries named in the later will were to receive nothing.
The judgment can be viewed at http://www.bailii.org/ew/cases/EWHC/Ch/2017/2088.html
18 August 2017, the US Court of Appeals for the Sixth Circuit affirmed the district court’s dismissal of a lawsuit brought by several individuals, including US Senator Rand Paul, to enjoin the enforcement of the Foreign Account Tax Compliance Act (FATCA) and the foreign bank account reporting (FBAR) requirement imposed by the Bank Secrecy Act.
In Mark Crawford et al v Department of Treasury et al (Case Number 16-3539), the plaintiffs claimed that the intergovernmental agreements, the reporting requirements and the penalties violated various constitutional provisions such as equal protection, the Fourth Amendment and others. They also claimed general inconveniences such as difficulty opening bank accounts or general marital stress.
In 2015, US District Judge Thomas Rose ruled that all of the plaintiffs lacked standing to bring their claims because none had been adversely affected by FATCA.
On appeal, the plaintiffs’ counsel argued that even though FATCA has not been enforced against his clients, the US Supreme Court’s ruling in Susan B. Anthony List v Driehaus allowed for a pre-enforcement challenge of the law.
The Sixth Circuit panel affirmed the dismissal of their lawsuit for lack of standing because no plaintiff had credibly alleged injuries traceable to the laws.
“First, no plaintiff has alleged any actual enforcement of FATCA such as a demand for compliance with the individual-reporting requirement, the imposition of a penalty for noncompliance, or a foreign financial institution’s deduction of the Pass thru Penalty from a payment to or from a foreign account,” wrote Judge Danny Boggs for the three-judge panel.
“Second, no plaintiff can satisfy the Driehaus test for standing to bring a pre-enforcement challenge to FATCA because no plaintiff claims to hold enough foreign assets to be subject to the individual-reporting requirement.”
14 August 2017, the US District Court for the District of Columbia ruled that the IRS had acted reasonably in denying a taxpayer’s request for discretionary benefits under the US-Switzerland tax treaty. It declined to set aside the IRS’s determination that the taxpayer was not entitled to a reduced withholding tax rate under the treaty.
In Starr International Co. Inc. v. USA, Case No. 14-cv-01593 (CRC), Starr International was once the largest shareholder of the insurance giant AIG. It had recently relocated to Switzerland from Ireland, having previously been based in Bermuda and Panama. In 2007, it petitioned the IRS for a discretionary reduction in the rate applied to some $191 million in dividends that Starr received from AIG during the 2007 tax year.
Although Starr qualified as a resident under the US-Switzerland tax treaty, it did not meet the objective limitation on benefits tests in article 22 and thus sought a discretionary determination from the US competent authority, largely on the ground that it had relocated to Switzerland for charitable considerations, not tax concerns. Such a determination would have permitted Starr to obtain a reduced rate of withholding on the dividends that it received from AIG.
AIG withheld taxes at a rate of 30% on the dividends it paid to Starr. The amount withheld was roughly $57.3 million in 2007 and $42.3 million in 2008. According to Starr, if the company had qualified for treaty benefits, those amounts would have been $19.1 million and $21.2 million respectively.
In 2010, after a lengthy period of discussions between the two sides, the IRS ultimately denied Starr’s request for treaty benefits on the ground that Starr’s historical selection of domiciles and its then-recent relocation to Switzerland were motivated as much by tax reasons as by independent business purposes. A “primary purpose” of the move, the IRS thus concluded, was to obtain treaty benefits.
Starr filed a tax refund suit in the US District Court for the District of Columbia, contending that the IRS had abused its discretion. In September 2015, the court concluded that the determination was reviewable because the treaty, read in conjunction with the Department of Treasury Technical Explanation, provided a manageable standard for determining whether the IRS abused its discretion.
Following the government’s motion to reconsider, however, the court subsequently determined that it would be unable to grant monetary relief to the taxpayer because that would constitute an interference with the treaty process.
Starr subsequently re-filed its complaint. Both Starr and the IRS ultimately moved for summary judgment with respect to the following issues: (i) the proper legal standard for awarding treaty benefits under article 22(6) and (ii) whether the US competent authority reasonably applied this standard.
Starr challenged the IRS’s denial of treaty benefits as arbitrary and capricious under the Administrative Procedure Act. Its primary contention was that the treaty’s primary purpose test is designed to prevent the practice of “treaty shopping” and that the IRS applied an erroneous definition of that term in concluding that the company’s relocation to Switzerland was largely tax-driven.
Starr argued that “treaty shopping” was a precise legal term, covering only those instances where an on-paper resident of a country not party to the relevant tax treaty used an entity that was an on-paper resident of a treaty country in order to obtain treaty benefits. Because Starr and its subsidiaries were on-paper Swiss residents and the majority of its voting shareholders were US citizens at the relevant time, Starr argued that it could not have been “treaty shopping” under this definition.
The district court concluded that there was nothing arbitrary or capricious in the competent authority’s finding that “at least of one of the principal purposes” of Starr’s relocation to Switzerland was to obtain tax benefits under the US-Swiss tax treaty.
It said Starr’s legalistic conception of “treaty shopping” could not be squared with the text of the US-Swiss treaty or its accompanying agency guidance. Instead, those authorities understood “treaty shopping” as encompassing situations where an entity established itself in a treaty jurisdiction with a “principal purpose” of obtaining treaty benefits. Because the IRS reasonably applied that standard in denying treaty benefits to Starr, the Court declined to set aside its determination.
The judgment can be viewed at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1593-91
8 August 2017, a US District Court dismissed a complaint by a US citizen residing in Canada against a $120,000 penalty for failing to file fiscal documentation for an overseas business with the IRS.
In Donald Dewees v USA, Case No. 16-cv-01579 (CRC), Donald Dewees was residing in Toronto, Canada, where he had set up a small consulting company. As a US citizen, Dewees was required to provide certain annual information about the firm to the IRS – Form 5471 in respect of ownership and financial information about the corporation and a Foreign Bank and Financial Accounts (FBAR) report in respect of holdings in foreign bank accounts over certain thresholds.
For tax years from 1997 to 2008 Dewees failed to disclose the required information. In 2009, on the advice of a tax specialist, he applied to participate in the IRS Offshore Voluntary Disclosure Programme (OVDP).
The IRS assessed a penalty of $185,862 against Dewees for not filing FBARs from 2003 to 2008, but did not at that time calculate a penalty for his failure to file Form 5471. Dewees refused to pay the assessed penalty and withdrew from the OVDP.
The IRS withdrew the OVDP penalties, but in September 2011 it notified Dewees that it had assessed a different penalty of $120,000 against him for failing to file Form 5471 from 1997 to 2008 – $10,000 penalty for each missed filing. He was not liable for any unpaid taxes. Dewees requested an abatement of this penalty for reasonable cause, which was denied, as was his subsequent appeal of that decision.
In May 2015, the Canadian Revenue Agency notified Dewees that it was withholding, under Article 26(A) of the US-Canada Income Tax Convention, his Canadian tax refund due to his outstanding $120,000 debt to the IRS. Dewees promptly sent the Canadian Revenue Agency a check for $134,116.34, representing the $120,000 penalty plus interest. He also filed a claim seeking a refund of that amount, which was rejected in May 2016.
Dewees then requested that the US District Court find the collection assistance provisions of the United States-Canada Tax Convention unconstitutional for violating: the Excessive Fines Clause of the Eighth Amendment, the Due Process Clause of the Fifth Amendment and the Equal Protection Clause of the Fifth Amendment.
US District of Columbia Judge Christopher Cooper upheld the $120,000 penalty imposed and dismissed is complaint. Specifically, the Court found that Dewees had “failed to state a claim upon which relief can be granted on his Eighth Amendment and due process claims, and lacks standing to bring his equal protection claim.”
The Memorandum Opinion of the US District Court can be accessed at https://www.courtlistener.com/opinion/4416987/dewees-v-united-states/
30 August 2017, the IRS released a list showing the status of negotiations with other countries for the exchange of country-by-country (CbC) reporting data under a bilateral competent authority arrangement (CAA) pursuant to an income tax treaty, a tax information exchange agreement (TIEA) or an agreement on mutual administration assistance in tax matters permitting
The IRS table includes jurisdictions that: are currently in negotiations for a CAA, have satisfied the US bilateral data safeguards and infrastructure review, and have consented to be listed. The CAAs require the US to exchange data on the worldwide operations of US-headquartered multinationals that have group annual revenue of US$850 million or more.
According to the list, the US has signed CAAs with 20 countries: Australia, Belgium, Brazil, Canada, Denmark, Estonia, Guernsey, Iceland, Ireland, Isle of Man, Jamaica, Latvia, Malta, Netherlands, New Zealand, Norway, Republic of Korea, Slovakia, South Africa, and the UK.
CAAs are also in negotiation with: Bermuda, Colombia, Czech Republic, Finland, France, Germany, Hungary, India, Israel, Italy, Jersey, Liechtenstein, Lithuania, Luxembourg, Mauritius, Mexico, Poland, Portugal, Slovenia, Spain, and Sweden.
The IRS cautioned that taxpayers should not rely on this information for assurances that CAAs with the competent authorities of these jurisdictions will be concluded by the end of 2017. Additionally, there may be other countries that are also currently in negotiations with the IRS, but have not consented to be listed
31 July 2017, the US Treasury Department's Office of Foreign Assets Control (OFAC) designated the President of Venezuela Nicolas Maduro under Executive Order 13692. As a result all Maduro’s assets subject to US jurisdiction were frozen and US persons were prohibited from dealing with him.
The move came a day after the Maduro government held elections to create a National Constituent Assembly (ANC) to take over the constitutional role of the democratically elected National Assembly.
"Yesterday's illegitimate elections confirm that Maduro is a dictator who disregards the will of the Venezuelan people. By sanctioning Maduro, the US makes clear our opposition to the policies of his regime and our support for the people of Venezuela who seek to return their country to a full and prosperous democracy," said Secretary of the Treasury Steven Mnuchin. "Anyone who participates in this illegitimate ANC could be exposed to future US sanctions for their role in undermining democratic processes and institutions in Venezuela."