19 October 2017, the Cayman Islands introduced a new type of corporate vehicle following the gazetting of The Foundation Companies Law 2017 (Commencement) Order on 18 October, and publication of related fee regulations. Foundation companies (FCs) are a special type of company that combines elements of trusts and of companies in one vehicle.
An FC has separate legal personality and limited liability but also provides the ability to have no shareholders or entrenched objectives. The main advantage is its flexibility in terms of objectives, management or structure, which allow it to be adapted to the founder’s specific circumstances. An optional model memorandum outlines foundation companies can act as a holding or investment company or provide financial assistance or benefits to beneficiaries.
The incorporation process is similar to that for an exempted company, with some additional requirements. An FC must be limited by shares or by guarantee, but may be established with or without share capital. A founder or any other person may add assets to an FC at any time, subject to the FC’s acceptance.
An FC must adopt memorandum and articles that state it is incorporated as an FC, set out its objects, provide for the disposal of any surplus assets the company may have on winding up, and prohibit dividends or other distributions of profits or assets to its members or proposed members. It must also appoint a secretary who is a person licensed to provide company management services in the Cayman Islands. The registered office must be the same address as that of the secretary.
The constitutional documents can be drafted to specify how an FC will be managed and operated and how rights, powers and duties shall be assigned to founders, members, directors, supervisors or others. Powers under the constitution may be given for the benefit of the FC, for the benefit of the donee or for any other purpose and may be subject to any condition.
A founder does not have any automatic rights in relation to the FC, but may reserve rights if he or she wishes. The founder may be given a power to amend any of the provisions of the FC’s constitution but only if expressly provided in the constitution.
An FC is managed by a board of directors. There is no residency requirement for directors and there are no other restrictions as to who may act as a director of an FC. An FC’s directors are required to give interested persons reports, accounts, and any information or explanation concerning an FC’s business and affairs
After incorporation an FC can cease to have members provided that it has one or more supervisors. This will not affect the FC’s existence, capacity or powers, however it may not subsequently admit members, or issue shares, unless expressly authorised to do so by the FC’s constitution.
A supervisor is any person, other than a member, who under the constitution has a right to attend and vote at general meetings, whether or not the person has supervisory duties or powers. In addition to the statutory registers, an FC must also maintain a register of supervisors
Assets may be applied in the furtherance of an FCs objects. There are no regulations concerning the investments of FCs and no restrictions on the types of investments an FC may make, unless the constitution provides otherwise.
FCs are exempt from any Cayman Islands income or gains taxes and are able to obtain a tax undertaking certificate from the Cayman Islands government guaranteeing no change to their tax status for a period of up to 50 years from the date of the undertaking.
It is anticipated that FCs will have a wide range of uses, such as special purpose vehicles in finance transactions, as charities, protectors or enforcers, as mechanisms within private trust company structures, as succession planning vehicles, and for any purpose for which a trust is currently used.
18 October 2017, the European Parliament’s Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) approved its final report by 47 votes to 2 with 6 abstentions, after an 18-month probe into breaches of EU law in relation to money laundering, tax avoidance and evasion. The committee also approved the inquiry recommendations, by 29 votes for to 2 votes against, with 18 abstentions.
The setting up of the Inquiry Committee was triggered by last year’s leak of personal financial information, collectively known as the ‘Panama Papers’, which revealed that some offshore business entities had been used for illegal purposes, including fraud and tax evasion.
MEPs expressed regret that “several EU member states featured in the Panama Papers”. They pointed to the “lack of political will among some member states to advance on reforms and enforcement”. This, they suggested, had allowed fraud and tax evasion to continue.
The Committee was sharply critical of the secrecy surrounding the work of the Council’s Code of Conduct Group and highlighted how moves to counter tax evasion are often “blocked by individual member states”. It urged the Commission to use its authority to change the unanimity requirement on tax matters.
The Committee backed a call for a common international definition of what constitutes an Offshore Financial Centre (OFC), tax haven, secrecy haven, non-cooperative tax jurisdiction and high-risk country. It gave overwhelming backing to a call for the Council to establish by the end of this year a list of EU member states with “where Non-cooperative Tax Jurisdictions exist”.
The Committee members also supported a proposal that any entity with an offshore structure should have to justify its need to the authorities. It reiterated the need for “regularly updated, standardised, interconnected and publicly accessible beneficial ownership (BO) registers”.
It further called for proposals to close loopholes which allow for aggressive tax planning as well as more dissuasive sanctions at both EU and national level against banks and intermediaries “that are knowingly, wilfully and systematically involved in illegal tax or money laundering schemes”.
Co-rapporteur Jeppe Kofod said: "Europe needs to get its own house in order before it can end the scourge of systematic money laundering, tax avoidance and evasion. It is clear that urgent reform is needed, not least within the Council Code of Conduct Group on business taxation. The citizens of Europe have a right to know what their national governments are doing – and not doing – in the Council to help end harmful cross-border tax practices.”
The Inquiry Committee’s report will be put to a final vote by the full Parliament as a whole in Strasbourg in December.
10 October 2017, the official coalition agreement between the four parties forming the next government in the Netherlands included a number of proposed tax changes to boost Dutch competitiveness and combat tax avoidance.
The agreement proposes that the current main rate of corporate tax will be reduced in three stages from 25% to 24% in 2019, to 22.5% in 2020 and to 21% in 2021. The 20% lower rate of corporate tax on profits up to €200,000 will be lowered to 19% in 2019, to 17.5% in 2020 and to 16% in 2021. The loss carry-forward period will be reduced from nine years to six years. The loss carry-back period remains one year.
Dividend withholding tax will be abolished for regular situations, most likely as from 2020. However it will remain applicable for dividend payments in specific cases of abuse or payments to low tax jurisdictions. A new withholding tax on outgoing royalty and interest payments will also be introduced for payments from Dutch taxpayers to low tax jurisdictions.
The new government will seek to limit the deductibility of interest payments in line with the EU Anti-Tax Avoidance Directive. Net borrowing costs will only be tax deductible up to either 30% of a taxpayer’s earnings before interest, tax, depreciation and amortisation, or a threshold of €1 million. There will be no group-ratio exemption and a thin capitalisation rule will limit interest expenses related to debt exceeding 92% of the total commercial balance sheet value.
It also proposes to increase the effective tax rate for qualifying research and development profits under the Dutch innovation box regime from 5% to 7%.
26 October 2017, the European Commission announced that it has opened an in-depth state aid investigation into whether the UK’s controlled foreign company (CFC) rules violate EU law by selectively favouring some companies over others.
The UK's Group Financing Exemption (GFE) was introduced with the reform of the UK CFC regime under the Finance Act 2012. In order to benefit from the tax exemption, companies do not need a tax ruling. The scheme entered into force on 1 January 2013.
Following the adoption of the Anti-Tax Avoidance Directive (ATAD), all EU Member States are expected to introduce CFC rules in their legislation as of 1 January 2019. The ATAD does not provide for specific exemptions like the GFE.
Since June 2013, the Commission has been investigating individual tax rulings or under tax schemes of Member States under EU State aid rules. It extended this information inquiry to all Member States in December 2014.
According to the Commission, the GFE allows multinationals active in the UK to provide financing to a foreign group company via an offshore subsidiary and pay little or no tax on the profits from these transactions while, on the other hand, the rules subject certain other income shifted to offshore subsidiaries of UK companies to UK tax.
The Commission has questioned whether the GFE complies with EU State aid rules and whether it is consistent with the overall objective of the UK CFC rules. The opening of an in-depth investigation gives the UK and interested third parties an opportunity to submit comments.
4 October 2017, the European Commission concluded that Luxembourg had granted undue tax benefits to Amazon of around €250 million in violation of EU State aid rules. Luxembourg was ordered to recover the illegal aid.
Following an in-depth investigation launched in October 2014, the Commission found that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification. In June 2014, Amazon changed the way it operated in Europe. The new structure was outside the scope of the investigation.
The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that was subject to tax in Luxembourg (Amazon EU) to a company which was not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU's taxable profits.
Both Luxembourg-incorporated companies were fully-owned by the Amazon group and ultimately controlled by the US parent, Amazon.com, Inc. Amazon EU – the ‘operating company’ – operated Amazon's retail business throughout Europe. In 2014, it had over 500 employees, who selected the goods for sale on Amazon's websites in Europe, bought them from manufacturers, and managed the online sale and the delivery of products to the customer.
Amazon set up its sales operations in Europe in such a way that customers buying products on any of Amazon's websites in Europe were contractually buying products from the operating company in Luxembourg. This way, Amazon recorded all European sales, and the profits stemming from these sales, in Luxembourg.
Amazon Europe Holding Technologies – the ‘holding company’ – was a limited partnership with no employees, no offices and no business activities. It acted as an intermediary between the operating company and Amazon in the US and held certain intellectual property rights for Europe under a so-called "cost-sharing agreement" with Amazon in the US. The holding company itself made no active use of this intellectual property. It merely granted an exclusive licence to the intellectual property to the operating company, which used it to run Amazon's European retail business.
The Commission's investigation showed that the level of the royalty payments, endorsed by the tax ruling, had been inflated and did not reflect economic reality. These payments exceeded, on average, 90% of the operating company's operating profits. They were significantly (1.5 times) higher than what the holding company needed to pay to Amazon in the US under the cost-sharing agreement.
The Commission's State aid investigation concluded that the Luxembourg tax ruling endorsed an unjustified method to calculate Amazon's taxable profits in Luxembourg. In particular, the level of the royalty payment from the operating company to the holding company was inflated and did not reflect economic reality.
The operating company, it said, was the only entity actively taking decisions and carrying out activities related to Amazon's European retail business. The holding company was an empty shell. It was not itself in any way actively involved in the management, development or use of the intellectual property. It did not, and could not, perform any activities, to justify the level of royalty it received.
The Commission concluded that Luxembourg's tax treatment of Amazon under the tax ruling was illegal under EU State aid rules. EU State aid rules require that incompatible State aid be recovered in order to remove the distortion of competition created by the aid. On the basis of available information, this is estimated to be around €250 million, plus interest. The tax authorities of Luxembourg must now determine the precise amount of unpaid tax in Luxembourg, on the basis of the methodology established in the decision.
Commissioner Margrethe Vestager, in charge of competition policy, said: "Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others."
In a separate announcement, Vestager said she was appealing to the European Court of Justice (ECJ) to enforce an earlier ruling against Apple to ensure the US tech giant repaid €13 billion in back taxes. Apple, which has appealed the ruling to the ECJ, has neither repaid the money to the Irish government nor placed the money in an escrow account.
Citing its “intensive work” on recovering the funds, the Irish government described the decision as “extremely regrettable” in a statement. The Commission acknowledged that Ireland had begun to work on the recovery of the back taxes, but deemed the Irish deadline of “March 2018 at the earliest” not good enough.
10 October 2017, EU finance ministers at the ECOFIN Council meeting in Luxembourg approved a new directive for resolving disputes related to the interpretation of tax treaties more swiftly and effectively. It will cover a wider range of cases and Member States will have clear deadlines to agree on a binding solution.
Under the directive, taxpayers faced with tax treaty disputes can initiate a procedure whereby the Member States in question must try to resolve the dispute amicably within two years. If at the end of this period, no solution has been found, the Member States must set up an Advisory Commission to arbitrate. If Member States fail to do this, the taxpayer can bring an action before the national court to do so.
The Advisory Commission will be comprised of three independent members and representatives of the competent authorities in question. It will have six months to deliver a final, binding decision. This decision will be immediately enforceable and must resolve the dispute.
The directive will take effect as from 1 July 2019 and will operate alongside the arbitration provisions of the multilateral instrument (MLI) from the OECD BEPS project. The directive allows member states to choose the method of arbitration through bilateral agreement.
According to European Commission estimates, there are currently around 900 double taxation disputes in the EU, estimated to be worth €10.5 billion.
24 October 2017, French deputies adopted at first reading the 2018 Finance Bill, which includes several of the new government's key tax measures, including the abolition of the wealth tax, the introduction of a final 30% flat tax on capital income and a phased reduction of the corporate tax rate. The final version is due to be enacted by the end of December 2017.
French wealth tax (ISF) is currently assessed on all a taxpayer’s assets if net wealth exceeds a €1.3 million. This includes the worldwide assets of taxpayers domiciled in France and French real estate for non-resident taxpayers.
The draft Finance Bill provides that the ISF would be repealed and replaced, from 1 January 2018, with a new real estate wealth tax – Impôt sur la Fortune Immobilière (IFI) – to be assessed only on the real estate owned by the taxpayer valued at over €1.3 million. All other assets would be excluded. The IFI will have the same taxation scale as the former ISF and similar rules will apply.
Financial income (dividends, interests, capital gains on sale of shares) earned by individuals is currently subject to social taxes at a cumulative rate of 15.5% plus income tax assessed at progressive rates (up to 45%, but with certain abatements which reduce the amount subject to tax for dividends and capital gains, depending, for the latter, on the length of time during which the taxpayer has owned the investments).
The draft Finance Bill introduces, from 1 January 2018, a flat tax rate (PFU) on income from capital (interests, dividends, capital gains, director fees, carried interests), which is set at 30% (12.8% income tax and 17.2% social taxes). Taxpayers with smaller incomes will be allowed to use the progressive rates for personal income tax by election rather than using the flat tax rate. The exceptional contribution on high income (3% or 4%) remains.
It is also proposed to lower the corporate tax rate from the current 33.33% to 31% in 2019, 28% in 2020, 26.5% in 2021 and 25% in 2022.
On 2 November, the French government tabled an amended Finance Bill for 2017 to introduce an exceptional one-time 15% surtax (up to a maximum effective tax rate of 39.4%) on corporate income tax due from very large companies whose annual turnover exceeds €1 billion. A higher rate of 30% (up to a maximum effective tax rate of 44.4%) would apply to large companies whose turnover equals or exceeds €3 billion.
The aim of the exceptional surtax is to finance the reimbursements from the French Treasury that will result from the recent decision of the constitutional court, which held on 6 October, that the 3% surtax on profit distributions, in its entirety, violates the French constitution. As a result of the decision, surtax reimbursements in 2017 and 2018 will approach €10 billion.
5 October 2017, a court in Bochum handed a two-year suspended sentence to former spy Werner Mauss after he was convicted of tax evasion. He was also ordered to donate €200,000 to charity. Prosecutors had sought a prison sentence of six years and three months.
Dubbed the ‘German James Bond’, Mauss was found guilty of hiding €15 million in a series of overseas bank accounts in Luxembourg, Liechtenstein and the Bahamas between 2002 and 2011.
He was first investigated after one of his aliases was found among names of UBS account holders on a CD purchased from a whistleblower by the state of North-Rhine Westphalia. He made a €4 million tax payment in 2012.
However his name also then appeared in connection with several shell companies listed in the so-called ‘Panama Papers’. Mauss claimed that the accounts were set up by Western and Israeli intelligence officials in the mid-1980s to fund covert security operations around the world.
The court rejected his argument that confidentiality agreements prevented him from mounting a proper defence. However Judge Markus van den Hoevel said he had considered Mauss's "impressive life achievement" when deciding on the sentence.
11 October 2017, the High Court ruled that Sergei Pugachev, a Russian ‘oligarch’ who was a settlor, protector and discretionary beneficiary of five discretionary trusts worth approximately US$95 million, was the true owner of the trust assets in question and the Court should not give effect to the trust instruments.
In JSC Mezhdunarodniy Promyshlenniy Bank & State Corporation "Deposit Insurance Agency" v Sergei Viktorovich Pugachev & Others  EWHC 2426 (Ch), Pugachev had been a prominent Russian banker and ally of President Putin. He had two adult sons by his estranged wife and three young children by Ms Alexandra Tolstoy, a British citizen of Russian ancestry whom he met in Moscow.
Pugachev’s assets included a Russian bank called Mezhprom, which collapsed after the 2008 financial crisis. The bank’s liquidators, the Russian State Corporation Deposit Insurance Agency (DIA), claimed that Pugachev had embezzled the bank. In 2013 it brought claims against him in Russia seeking to recover losses claimed to amount to several billion dollars.
By this time Pugachev was living in London with Ms Tolstoy and their children. The DIA therefore commenced proceedings in London in July 2014 with the aim of enforcing judgements obtained in Russia against Pugachev’s UK assets. It made a series of applications relating to disclosure and disputed ownership of assets purportedly held in trust. In total, the Court issued more than 170 orders relating to the litigation.
In 2011, and after leaving Russia following the commencement of criminal investigations into the collapse of Mezhprom, Pugachev settled five New Zealand discretionary trusts. The named discretionary beneficiaries included variously Pugachev, his two adult sons, Ms Tolstoy and her children with Pugachev. Each of the trust instruments named Pugachev as the ‘First Protector’, to be succeeded by his eldest son Victor, who would also have the power to act as protector if Pugachev was “under a disability”. The trust deeds were drafted by a New Zealand solicitor and the trustees were newly incorporated New Zealand companies.
The claimants argued that the beneficial interest in the trust assets belonged to Pugachev and advanced their claim in three ways:
In breach of a Court order, Pugachev left London in 2015 to live in France where he has citizenship. He did not take part in the hearing. The only defendants who were represented were his infant children, with Ms Tolstoy acting as their litigation friend.
Birss J found that the wide scope of the powers conferred on Pugachev as the protector of the trusts were “purely personal” in nature. Pugachev was not constrained by the terms of the trust instruments to act in the best interests of the discretionary beneficiaries as a class and could instead choose to exercise those powers in his own interests.
In particular, the protector’s powers included being able to add or remove other discretionary beneficiaries, the power to veto the trustees’ decisions and the power to appoint and remove trustees, including removing them without cause. Birss J found that as a matter of construction, the true effect of the trust deeds was to leave Pugachev in control of the trusts assets.
Even if that interpretation of the deeds was wrong, such that the protector’s powers were fiduciary in nature and did have the effect of divesting Pugachev of his beneficial ownership, Birss J said that the trust instruments were a sham and of no effect because Pugachev’s intention “was not to cede control of his assets to someone else, it was to hide his control of them”. The judge found that none of the other individuals involved in setting up the trusts had an intention independent of that.
Birss J held that “whatever label is to be applied to this case”, the court should not give effect to the trust instruments as that would result in the assets being regarded as outside Pugachev’s ultimate control when, in fact, they were not.
The judgment can be viewed at http://www.bailii.org/ew/cases/EWHC/Ch/2017/2426.html
6 October 2017, the Inland Revenue (Amendment) (No. 5) Bill 2017 was gazetted to enable Hong Kong's participation in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA) and to align the Inland Revenue Ordinance (IRO) with the OECD Common Reporting Standard (CRS).
The IRO was amended in June 2016 to put in place a legal framework, and was further amended in June 2017 to mandate financial institutions to collect account information of tax residents from 75 jurisdictions. However, the Chief Executive in Council lacked the power under the IRO to give effect to multilateral tax agreements or arrangements for international tax co-operation other than affording relief from double taxation and exchange of information.
The new Amendment Bill aims to remove this limitation so as to facilitate Hong Kong's participation in multilateral tax agreements and new areas of international tax co-operation. Signing the MCAA will allow Hong Kong to implement initiatives on international tax co-operation, including the automatic exchange of financial account information in tax matters (AEOI) and combating base erosion and profit shifting (BEPS).
The government is also taking the opportunity to make necessary legislative amendments to align the IRO with the CRS by removing inconsistencies identified. The CRS sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, and due diligence procedures to be followed by financial institutions.
"Whilst a bilateral approach is allowed for the exchange of relevant information and reports, it has become increasingly impractical given the continued expansion in the scope and network of tax information exchanges in the international community. A more practical approach is for jurisdictions to adopt the Multilateral Convention as a basis to implement the initiatives," said a government spokesman.
The intended date for the first exchange of information by Hong Kong is September 2018 with respect to financial account information for 2017. Hong Kong financial institutions will be required to submit the relevant data to the Inland Revenue Department by May 2018.
Separately, the Chief Executive in Council made the Inland Revenue (Double Taxation Relief and Prevention of Fiscal Evasion with respect to Taxes on Income) (New Zealand) (Amendment) Order 2017 (Amendment Order) to implement the Second Protocol to the Comprehensive Avoidance of Double Taxation Agreement between Hong Kong and New Zealand.
This will enable both sides to implement AEOI on a bilateral basis before the Multilateral Convention comes into effect in Hong Kong. The Amendment Order will be tabled at the Legislative Council on 18 October for negative vetting. The Second Protocol will enter into force after both Hong Kong and New Zealand have completed their ratification procedures.
11 October 2017, Hong Kong’s new Chief Executive Carrie Lam kept an election promise in her maiden Policy Address by announcing the introduction of a two-tier profits tax system to lower the tax burden on Hong Kong enterprises, as well as a super tax deduction for qualifying research and development (R&D) expenditure.
The two-tier profits tax system will provide for the first HK$2 million of profits of all enterprises to be taxed at a reduced rate of 8.25%. Profits tax is currently levied at rate of 16.5% for companies carrying on business in Hong Kong on relevant income earned in or derived from Hong Kong. To address potential abuse, anti-avoidance measures will prevent groups from setting up numerous enterprises and splitting their businesses to enjoy multiple entitlements at the reduced rate.
A 300% tax deduction will also be offered for the first HK$2 million of qualifying R&D expenditure incurred by enterprises; a 200% tax deduction will be available for the remaining expenditure. The details of the super R&D deduction regime, including the qualifying criteria, the application procedures and the eligibility assessment, have yet to be announced.
A Bill to implement these initiatives is to be submitted to the Legislative Council as soon as possible. Lam further said that Hong Kong would seek to sign more comprehensive tax treaties with other economies.
23 October 2017, India’s Central Board of Direct Taxes (CBDT) issued a circular to clarify the guidelines for determining whether a foreign company has a place of effective management (PoEM) in India in cases involving a multinational group with a regional headquarters structure in India.
The PoEM is the place where key management and commercial decisions necessary for the conduct of the business of an entity as a whole are made in substance. The concept was introduced with effect from assessment year 2017-2018 for the purposes of determining whether a foreign company is a tax resident of India.
The CBDT issued final guidelines for the determination of the PoEM for an entity on 24 January 2017. A month later it clarified that the PoEM provisions do not apply to companies with turnover below INR 500 million in a financial year.
The latest guidance was issued in response to concerns from taxpayers that the PoEM rules might be triggered where certain employees are in India, and not where the company's regional headquarters are declared to be, and are responsible for tasks covering a group's operations in multiple countries.
The circular clarifies that the activities of a regional headquarters will not establish a PoEM in India, provided that it is merely conducting routine activities for the entire group that are in line with the global policies of the parent entity and are not specific to any subsidiaries/group companies.
Circular No. 25 of 2017 stated: "So long as the Regional Headquarter operates for subsidiaries/ group companies in a region within the general and objective principles of global policy of the group laid down by the parent entity in the field of payroll functions, accounting, HR functions, IT infrastructure and network platforms, supply chain functions, routine banking operational procedures, and not being specific to any entity or group of entities per se, it would, in itself, not constitute a case of Board of Directors of companies standing aside and such activities of regional headquarter in India alone will not be a basis for establishment of PoEM for such subsidiaries/ group companies."
25 October 2017, the Isle of Man ratified of the OECD/G20 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) – known as the ‘Multilateral Instrument’ (MLI) – with the OECD.
The MLI is designed to implement agreements reached under the BEPS project. Included are measures to prevent tax treaty shopping and hybrid mismatches and measures strengthening the definition of permanent establishment. The MLI also contains provisions designed to improve the resolution of cross-border tax disputes.
The Isle of Man is the second country to ratify the MLI, which was signed by over 70 countries at its launch June. Austria deposited its instrument of ratification on 22 September 2017. The MLI will enter into force three months when it has been ratified by five countries.
16 October 2017, the OECD issued an Action 5 Progress Report on Preferential Tax Regimes under the OECD/G20 BEPS Project to improve the international tax framework. It said that governments worldwide had dismantled, or were in the process of amending, nearly 100 preferential tax regimes.
BEPS Action 5 is one of the four BEPS minimum standards that all Inclusive Framework members have committed to implement. One part of the Action 5 minimum standard relates to preferential tax regimes where a peer review is undertaken to identify features of such regimes that can facilitate BEPS and therefore have the potential to unfairly impact the tax base of other jurisdictions.
All 102 members of the BEPS Inclusive Framework have committed to ensuring that any regimes offered meet the agreed criteria under BEPS Action 5. This includes a requirement that taxpayers benefiting from a regime must themselves undertake the core business activity, ensuring the alignment of taxation with genuine business substance.
The report sets out the outcome of peer reviews undertaken in the last 12 months of 164 preferential tax regimes identified amongst members of the BEPS Inclusive Framework. Of these, it had determined that 99 required action. Of these, the required changes have already been completed or initiated by Inclusive Framework members in respect of 93 regimes.
It had also determined that 56 regimes did not pose a BEPS risk, while nine regimes were still under review, due to extenuating circumstances such as the impact of the recent hurricanes on certain Caribbean jurisdictions.
"These outcomes demonstrate that the political commitments of members of the Inclusive Framework are rapidly resulting in measureable, tangible progress,” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.
Inclusive Framework members have agreed an ambitious timeline, whereby jurisdictions whose regimes have harmful features are expected to adjust their regimes as soon as possible and generally no later than October 2018. The OECD will continue to publish the results of reviews of preferential regimes.
The Sultanate of Oman became the 103rd jurisdiction to join the Inclusive Framework on 20 October.
11 October 2017, the OECD announced a wave of additional activations of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA).
Over 1,000 automatic exchange relationships now have been established among jurisdictions committed to exchanging CbC reports in accordance with the BEPS action 13 minimum standard as from mid-2018, including those between EU member states under the directive regarding the mandatory automatic exchange of information in the field of taxation.
More jurisdictions are expected to nominate partners with which they will undertake the automatic exchange provision under the CbC MCAA in the coming weeks. In addition, the US now has signed 27 bilateral competent authority agreements for the exchange of CbC reports under double tax treaties or tax information exchange agreements.
To date, 65 jurisdictions have signed the CbC MCAA, over forty of which have already provided notifications to the Co-ordinating Body Secretariat, setting out the other signatories with which they intend to have an agreement for the exchange of CbC Reports.
The Action 13 minimum standard provides that the ultimate parent entity (UPE) of a multinational enterprise (MNE) group should file a CbC Report with the tax authority in its residence jurisdiction. It recommends that jurisdictions provide up to 12 months after the end of the reporting fiscal period for filing of the CbC report, but jurisdictions may apply an earlier filing deadline. Currently, around 55 jurisdictions have implemented an obligation for the filing of CbC Reports by resident UPEs.
An MNE group may also nominate a constituent entity to act as a surrogate parent entity (SPE) and file a CbC Report on a voluntary basis. This may be done where the jurisdiction of the UPE does not require the filing of CbC Reports for a particular reporting fiscal period, but has its legislation in place and allows filing on a voluntary basis, or it may be a constituent entity in a different jurisdiction that allows filing of CbC Reports by SPEs.
Currently nine countries have informed the OECD that they will permit voluntary parent surrogate filing by the resident UPE of an MNE group, and more than 45 countries will permit surrogate filing by constituent entities that are not the UPE of their group.
The full list of automatic exchange relationships that are now in place is available at http://www.oecd.org/tax/beps/country-by-country-exchange-relationships.htm together with an update on the implementation of the domestic legal framework for CbC Reporting in jurisdictions.
25 October 2017, the Republic of Peru became the 114th jurisdiction to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, and the 12th Latin American jurisdiction to do so.
The Convention, which was developed jointly by the OECD and the Council of Europe in 1988 and amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information, provides all forms of administrative assistance in tax matters – exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection.
The Convention will allow Peru to expand its network of information exchange partners and to implement the transparency measures of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, in particular the automatic exchange of Country-by-Country reports under Action 13.
Peru expands its capacity to fight international offshore tax avoidance and evasion
10 October 2017, the South African Revenue Service (SARS) announced that over 2,000 taxpayers had made use of its Special Voluntary Disclosure Programme (SVDP), which was launched on 1 October 2016 and closed on 31 August. More than ZAR1.1 billion (USD86.2 million) was collected.
The SVDP offered non-compliant taxpayers a one-off opportunity to regularise their unauthorised foreign assets and income by voluntary disclosing tax and exchange control defaults specifically in relation to offshore assets ahead of the first automatic exchange of Information (AEOI) between tax authorities in September 2017.
It said 2,018 applications had been tallied under the SVDP and 335 applications had been processed, yielding just over ZAR1 billion in revenue. The total tax liability currently stood at ZAR1.2 billion.
The SVDP was designed to run concurrently with the Voluntary Disclosure Programme (VDP). Taxpayers who did not apply for offshore tax relief can still do so under the normal VDP process.
11 October 2017, the Accounting & Corporate Regulatory Authority (ACRA) of Singapore implemented, with immediate effect, the Companies (Transfer of Registration) Regulations 2017, which permits eligible foreign companies to transfer their place of incorporation to Singapore.
The Re-domiciliation Regulations were issued under the amendments to the Companies Act introducing the provisions to allow the inbound re-domiciliation of foreign corporate entities (FCEs) to Singapore and to govern them under the Singapore company law provisions.
The primary requirement is that the original jurisdiction of the FCE must permit the redomiciliation to Singapore, and the FCE must be able to adapt its legal structure to become a Company limited by shares under the Singapore Companies Act.
FCEs must also satisfy at least two of the following criteria at the end of the two financial years immediately preceding an application: revenue exceeding S$10 million, total assets exceeding S$10 million or 50 employees. The minimum size requirement can be fulfilled by the FCEs on a consolidated basis in certain circumstances.
The directors of an FCE are required to sign a declaration that the FCE is solvent and that it is in the position to pay all of its existing debts.
The tax framework for companies re-domiciled in Singapore was introduced by the Income Tax (Amendment) Act 2017, which was passed by Parliament on 2 October 2017 and received Presidential assent on 19 October 2017. The Act, which also introduces a mandatory transfer pricing documentation requirement, was brought into force on 26 October.
Where an FCE is subject to exit taxes on deemed income in its existing jurisdiction, credit may be available after re-domiciliation against any Singapore taxes paid on such income when subsequently realised, subject to conditions and approval by the Finance Minister. The tax credit would be the lower of the Singapore tax and the foreign taxes paid.
Businesses in Singapore are now required to maintain Transfer Pricing Documentation (TPD). However, to limit the compliance burden for smaller businesses, the requirement will only apply to firms with gross revenues of over S$10 million (USD7.4 million) with significant related-party transactions. As such, the amendment is expected to affect fewer than 5% of Singaporean firms.
26 October 2017, a former member of the Swiss police force admitted to the Higher Regional Court in Frankfurt am Main that he had spied on tax investigators in the German state of North Rhine-Westphalia on behalf of Switzerland.
The 54-year-old, identified only as Daniel M under court rules, told the court he had received €28,000 from the Swiss Federal Intelligence Service (NDB) to gather personal information on state tax investigators between July 2011 and February 2015.
Since 2010, the state of North Rhine-Westphalia has bought several CDs containing confidential Swiss bank client data, collecting more than €7 billion in unpaid taxes and penalties as a result. It also passed Swiss bank client data to 27 other countries,
The man, who was arrested in Frankfurt in April, denied acting with criminal intent, telling the court via a statement read out by his lawyer that he acted out of a combination of "patriotism, a desire for adventure, a pursuit of profit, and outrage."
18 October 2017, the Swiss Federal Council announced that the Federal Act on the International Automatic Exchange of Country-by-Country (CbC) Reports of Multinationals would enter into force on 1 December 2017. The move followed the expiration of a referendum deadline on 5 October without a referendum being called.
Under the Act, multinational enterprises (MNEs) operating in Switzerland will be required to file CbC reports from the 2018 fiscal year. The first exchange of CbC reports between Switzerland and its partner states is to take place from 2020.
The Multilateral Competent Authority Agreement on the Exchange of Country-by-Country reports (CbC MCAA) will also enter into force in December. Under the CbC MCAA framework, Switzerland will disclose to the OECD the list of countries with which it will exchange CbC reports.
The Federal Council said that it was "implementing one of the global minimum standards of the base erosion and profit shifting (BEPS) project, which aims to improve transparency with regard to the taxation of multinationals and to establish a uniform framework for the exchange of the reports."
Under the current rules, multinationals can voluntarily submit a CbC report for the 2016 and 2017 fiscal years. Any such reports would then be transferred to Switzerland's partner states from 2018. The Convention on Mutual Administrative Assistance in Tax Matters will apply for the 2016 and 2017 fiscal years, but will be restricted to the exchange of voluntarily CbC reports.
The Council also adopted a list of 101 countries with which it intends to exchange CbC reports. These countries have either signed the CbC MCAA or are member states of the Inclusive Framework on BEPS. However, the CbC MCAA will not be applicable between Switzerland and another state until that other state has also listed Switzerland.
13 October 2017, the Swiss Federal Council opened consultations on the implementation of new automatic tax information exchange (AEOI) agreements with Hong Kong and Singapore on the same day an agreement was signed with Hong Kong. Its agreement with Singapore was signed on 17 July.
Under the agreements, Switzerland will automatically exchange account information on accounts held in Switzerland by tax residents of Hong Kong and Singapore, and vice versa. The agreements will apply from 1 January 2018, with the first exchange of data in 2019.
The Swiss government said it was important for Switzerland’s financial sector that the same competitive conditions exist all over the world, noting that Hong Kong and Singapore were key rivals.
The Council has six months from the start of the provisional application to submit the proposals to Parliament for approval. It expects to submit the dispatch on both agreements for adoption next spring. The consultation is to close on 27 January 2018.
The Hong Kong Inland Revenue Department said that Hong Kong plans to extend the application of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to Hong Kong to further expand Hong Kong’s AEOI network. Inland Revenue (Amendment) (No. 5) Bill 2017 will be introduced into the Legislative Council.