18 December 2017, offshore law firm Appleby launched breach of confidence proceedings against The Guardian and the BBC. Appleby is seeking damages for the disclosure of confidential legal documents and has also demanded that The Guardian and the BBC disclose any of the six million Appleby documents that formed the basis of its Paradise Papers’ investigation.
The documents were leaked to the German newspaper Süddeutsche Zeitung, which shared them with a US-based organisation, the International Consortium of Investigative Journalists (ICIJ). The ICIJ coordinated the Paradise Papers project, which included 380 journalists from 96 media organisations across 67 countries. The consortium included the New York Times, Le Monde, the ABC in Australia and CBC News in Canada.
Appleby said the documents were stolen in a cyber-hack and there was no public interest in the stories published about it and its clients. It has brought legal action against only The Guardian and the BBC, both UK-based media organisations.
Appleby said: “Our overwhelming responsibility is to our clients and our own colleagues who have had their private and confidential information taken in what was a criminal act. We need to know firstly which of their – and our – documents were taken.
“We would want to explain in detail to our clients and our colleagues the extent to which their confidentiality has been attacked. Despite repeated requests the journalists have failed to provide to us copies of the stolen documents they claim to have seen. For this reason, Appleby is obliged to take legal action in order to ascertain what information has been stolen.”
The Guardian said it intended to defend the legal action. “We will be defending ourselves vigorously against this claim as we believe our reporting was responsible and a matter of legitimate public interest,” it said in a statement.
A BBC spokesperson said: “The BBC will strongly defend its role and conduct in the Paradise Papers project. Our serious and responsible journalism is resulting in revelations which are clearly of the highest public interest and has revealed matters which would otherwise have remained secret. Already we are seeing authorities taking action as a consequence.”
15 December 2017, the Bahamas became the 116th jurisdiction to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the 110th jurisdiction to join the OECD's base erosion and profit shifting (BEPS) Inclusive Framework.
The Convention is the most powerful instrument for international tax cooperation providing for 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 enable The Bahamas to fulfil its commitment to implement the Standard for Automatic Exchange of Financial Account Information in Tax Matters and begin the first of such exchanges by 2018. It can also be used to implement the transparency measures of the BEPS project such as the automatic exchange of Country-by-Country reports under Action 13 as well as the sharing of rulings under Action 5 of the BEPS Project.
The Bahamas also signed the Multilateral Competent Authority Agreement (MCAA) in the margins of the 14th meeting of the Automatic Exchange of Information Group of the Global Forum on Transparency and Exchange of Information in Tax Matters, which took place on 13-15 December 2017 in San Marino. The MCAA specifies the details of what information will be exchanged and when and has been signed by 97 jurisdictions.
"Signing the Convention is an assertion of the commitment by the Bahamas to protect the integrity of its financial services industry and to effectively implement the OECD's international standards on tax transparency for the automatic exchange of financial account information," said Deputy Prime Minister and Minister of Finance of the Bahamas Peter Turnquest.
"The Bahamas is a well-known leading international financial centre, as such, we will continue to maintain a well-regulated and transparent environment for the provision of international financial services. This week, we have taken major steps to ensure this by also signing the Multilateral Competent Authority Agreement (MCAA), and by joining the Inclusive Framework on Base Erosion Profit Shifting (BEPS)."
29 December 2017, the Belgian government published the new corporate income tax reform law in the Official Gazette. The law includes measures included in last summer's coalition agreement and was voted through by parliament on 22 December. Some of the new measures will apply for financial years starting on or after 1 January 2018.
The standard corporate income tax rate of 33.99% will be lowered to 29.58% in 2018, and to 25% as from 2020. In addition, the solidarity contribution is being phased out, falling from 3% to 2% for 2018, and to 0% from 2020.
Subject to certain conditions, small and medium sized enterprises (SMEs) will benefit from a special reduced rate of 20% on the first €100,000 of taxable profits from 2018. Qualifying SMEs may also benefit from an increase in investment deduction from 8% to 20%, which is applicable for investments made in 2018 and 2019.
However deductions that companies can claim against income will be restricted to 70% of the portion of income exceeding €1 million. The benefit of the notional interest deduction has been substantially reduced: as from 2018 the deduction percentage will only be calculated on the equity increase as measured over a five-year period.
Belgian tax consolidation will apply as from 2019, and will allow a qualifying Belgian group company to offset its profits against excess current year tax deductions of another qualifying Belgian group company. Tax consolidation will only be possible between 90% related Belgian companies or branches and provided this participation has been held for an uninterrupted period of at least five years. Only current year tax deductions can be used to compensate taxable income. There is no consolidated tax return. Group companies will have to enter into an “intra-group transfer agreement” at the end of each relevant taxable period.
The attractiveness of Belgian holding company regime will be increased by the re-introduction of a full share capital gains tax exemption and the increase of the participation exemption from 95% to 100% as from 2018.
The tax reforms also include Belgium's commitment to transpose the European Union Anti-Tax Avoidance Directives into Belgian law, including specific CFC rules. The impact of these rules is to immediately tax profits realised by low-taxed foreign subsidiaries that are engaged in “non-genuine arrangements”. The profit of such subsidiaries will be immediately taxed at the level of the Belgian shareholders in Belgium, without the need for these profits to be effectively distributed. In addition, further exit tax provisions for cross-border transfers of assets are introduced and the concept of “Belgian establishment” is extended.
29 November 2017, the Bermuda government signed a Competent Authority Agreement with the UK to enable the automatic reporting of corporate income on a country-by-country basis for UK related transfer pricing enforcement purposes. Bermuda is the first Overseas Territory to sign a CbC agreement with the UK.
“The agreement completes the OECD Base Erosion and Profit Shifting (BEPS) tax transparency package between Bermuda and the UK,” a government spokesperson said. “Similar to individuals under the Common Reporting Standard [CRS], corporations must also automatically report financial information to Bermuda authorities. Any reported UK related income will be shared automatically with UK tax authorities.”
The Bermuda government signed a similar Competent Authority Agreement for the automatic reporting of corporate income on a country-by-country basis with the US on 7 December.
15 December 2017, Canada Revenue Agency (CRA) released information circular IC00-1R6 to narrow the application of the Voluntary Disclosures Programme (VDP) and offer less generous relief to non-compliant taxpayers.
The VDP provides taxpayers with an opportunity to come forward voluntarily and correct previous omissions in their dealings with the CRA. If the disclosure satisfies the CRA's conditions, the taxpayer will typically face a lower interest charge on the unpaid tax, and will not be liable for criminal prosecution or civil liabilities.
The move followed an extensive review of the VDP recommendations made in 2016 by both the House of Commons Standing Committee on Finance and the Offshore Compliance Advisory Committee. Concerns had been expressed that certain wealthy individuals and corporations were using the programme as a way to avoid the consequences arising from aggressive tax planning strategies.
Under the new circular, from 1 March 2018 only a “Limited VDP” will be available to taxpayers that “have intentionally avoided their tax obligations”. If the voluntary disclosure is accepted, the applicant will not be assessed gross negligence penalties or referred for criminal prosecution for tax offences, but they will not be eligible for relief from interest or late filing penalties. Disclosures under the General VDP may get relief of 50% of the interest for the years prior to the three most recent years of the disclosure.
When determining if taxpayers have intentionally avoided their obligations, the CRA will consider:
Corporations with gross revenue in excess of CAD250 million that apply to the VDP will only be considered under the Limited VDP.
The new circular completely eliminates the “no-name” disclosure method, such that applicants must disclose their identity and file a complete disclosure in order to enter the VDP, whether General or Limited, without a 90-day protective period to prepare the file without the risk of the losing the disclosure due to an enforcement action.
Under the new circular, “the taxpayer must include payment of the estimated tax owing with their VDP application”, although the applicant “may request to be considered for a payment arrangement subject to approval from CRA Collections officials”.
Applicants under the Limited VDP must also waive objection and appeal rights with respect to “the specific matter disclosed in the VDP application and any specifically related assessment of taxes.”
The CRA will continue to restrict participation in the VDP if it has already received information on a taxpayer's (or a related taxpayer's) potential involvement in tax non-compliance. The VDP group will no longer handle applications involving transfer pricing issues. Instead, relief requests should be sent directly to the Transfer Pricing Review Committee (TPRC).
Revenue Minister Diane Lebouthillier said: "The Government of Canada is committed to cracking down on tax evasion and aggressive tax avoidance to ensure a system that is responsive and fair for all Canadians. The changes to the Voluntary Disclosures Programme are part of these efforts, which will allow the Agency to crack down even further on those who are intentionally breaking the law."
The new VDP is expected to remain in place for at least two years. An additional tightening of the rules may then be proposed, based on results and feedback. The CRA will continue to review the regime.
18 December 2017, the European Commission announced that it had opened an in-depth investigation into the Netherlands' tax treatment of Inter IKEA, one of the two groups operating the IKEA business. It had concerns that two Dutch tax rulings may have allowed Inter IKEA to pay less tax, giving it an unfair advantage over other companies in breach of EU State aid rules.
Inter IKEA Systems in the Netherlands records all revenue from IKEA franchise fees worldwide collected from the IKEA shops. The Commission's investigation concerns the tax treatment of Inter IKEA Systems in the Netherlands since 2006. Its preliminary inquiries indicated that tax rulings given by the Dutch tax authorities in 2006 and 2011 had significantly reduced Inter IKEA Systems' taxable profits in the Netherlands.
The 2006 tax ruling endorsed a method to calculate an annual licence fee to be paid by Inter IKEA Systems in the Netherlands to another company of the Inter IKEA group, Luxembourg-based I.I. Holding, which held certain intellectual property rights required for the IKEA franchise concept. These were licensed exclusively to Inter IKEA Systems. Inter IKEA Systems also managed the franchise contracts and collected the franchise fees from IKEA shops worldwide.
The annual licence fee paid by Inter IKEA Systems to I.I. Holding, as endorsed by the 2006 tax ruling, made up a significant part of Inter IKEA Systems' revenue. As a result, a significant part of Inter IKEA Systems' franchise profits were shifted from Inter IKEA Systems to I.I. Holding in Luxembourg, where they remained untaxed. This is because I.I. Holding was part of a special tax scheme, as a result of which it was exempt from corporate taxation in Luxembourg.
In July 2006, the Commission concluded that the Luxembourg special tax scheme was illegal under EU State aid rules, and required the scheme to be fully repealed by 31 December 2010. No illegal aid needed to be recovered from I.I. Holding because the scheme was granted under a Luxembourg law from 1929, predating the EC Treaty. This is a historical element of the case and not part of the investigation opened today. However, as a result of the Commission decision I.I. Holding would have had to start paying corporate taxes in Luxembourg from 2011.
In 2011, Inter IKEA changed the way it was structured. As a result, the 2006 tax ruling was no longer applicable: Inter IKEA Systems bought the intellectual property rights formerly held by I.I. Holding. To finance this acquisition, Inter IKEA Systems received an intercompany loan from its parent company in Liechtenstein.
The Dutch authorities then issued a second tax ruling in 2011, which endorsed the price paid by Inter IKEA Systems for the acquisition of the intellectual property. It also endorsed the interest to be paid under the intercompany loan to the parent company in Liechtenstein, and the deduction of these interest payments from Inter IKEA Systems' taxable profits in the Netherlands. As a result of the interest payments, a significant part of Inter IKEA Systems' franchise profits after 2011 was shifted to its parent in Liechtenstein.
The Commission will now assess whether the annual licence fee paid by Inter IKEA Systems to I.I. Holding, endorsed in the 2006 tax ruling, reflected economic reality. In particular, it will assess if the level of the annual licence fee reflected Inter IKEA Systems' contribution to the franchise business.
The Commission will also assess whether the price Inter IKEA Systems agreed for the acquisition of the intellectual property rights and consequently the interest paid for the intercompany loan, endorsed in the 2011 tax ruling, reflected economic reality. In particular, the Commission will assess if the acquisition price adequately reflected the contribution made by Inter IKEA Systems to the value of the franchise business, and the level of interest deducted from Inter IKEA Systems' tax base in the Netherlands.
Commissioner Margrethe Vestager, in charge of competition policy, said: "All companies, big or small, multinational or not, should pay their fair share of tax. Member States cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere. We will now carefully investigate the Netherlands' tax treatment of Inter IKEA."
5 December 2017, the European Union published its first ever list of non-cooperative tax jurisdictions, comprising 17 countries that it deemed to have failed to meet agreed tax good governance standards. A further 47 countries committed to address deficiencies in their tax systems and to meet the required criteria, following contact with the EU.
Initially 92 out of 213 jurisdictions were selected for screening and sent a formal letter in January 2017. At the end of the screening process, they received another letter, either confirming that they were compliant or asking them to make specific improvements to their tax systems. Each country had been given a chance to present their position, address concerns and discuss how to deepen their cooperation with the EU on tax matters.
The EU said 20 jurisdictions selected for screening were subsequently given the all clear and 72 were asked to address deficiencies. Of these 47 had committed to improve transparency, stop harmful tax practices, introduce substance requirements and implement the OECD’s base erosion and profit shifting (BEPS) action plan.
The countries that have committed to improve ‘transparency standards’ are: Armenia, Bosnia & Herzegovina, Botswana, Cape Verde, Hong Kong SAR, Curaçao, Fiji; the Republic of Macedonia, Jamaica, Jordan, the Maldives, Montenegro, Morocco, New Caledonia, Oman, Peru, Qatar, Serbia, Swaziland, Taiwan, Thailand, Turkey and Vietnam.
The countries that have committed to ‘improve fair taxation’ are: Andorra, Armenia, Aruba, Belize, Botswana, Cape Verde, Cook Islands, Curaçao, Fiji, Hong Kong SAR, Jordan, Labuan, Liechtenstein, Malaysia, Maldives, Mauritius, Morocco, St Vincent & Grenadines, San Marino, Seychelles, Switzerland, Taiwan, Thailand, Turkey, Uruguay and Vietnam.
The countries that have committed to introduce a ‘substance requirement’ are: Bermuda, Cayman Islands, Guernsey, Isle of Man, Jersey and Vanuatu.
The countries that have committed to apply the OECD BEPS measures are: Albania, Armenia, Aruba, Bosnia & Herzegovina, Cape Verde, Cook Islands, Faroe Islands, Fiji, the Republic of Macedonia, Greenland, Jordan, Maldives, Montenegro, Morocco, Nauru, New Caledonia, Niue, Saint Vincent & Grenadines, Serbia, Swaziland, Taiwan and Vanuatu.
A further eight jurisdictions in the Caribbean – Antigua and Barbuda, Anguilla, Bahamas, British Virgin Islands, Dominica, St Kitts and Nevis, Turks and Caicos and the US Virgin Islands – that were badly hit by the hurricanes in summer 2017 were given until early 2018 to respond to the EU's concerns.
The remaining 17 jurisdictions – American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates – did not make high level commitments to address identified deficiencies and have therefore been ‘black listed’ as non-cooperative.
EU member states have agreed on a set of countermeasures that they can choose to apply against the listed countries. These include increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The Commission will support Member States' work to develop a more binding and definitive approach to sanctions for the EU list in 2018.
The list will be updated at least once a year based on the continuous monitoring of listed jurisdictions, as well as those that have made commitments to improve their tax systems. An interim report will be prepared by mid-2018 to assess progress made.
The Commission said it would require a re-assessment of all jurisdictions from June 2019 when more stringent transparency criteria come into effect. The EU listing criteria will also be updated to reflect new elements that member states have agreed upon, such as beneficial ownership, as well as possible changes at international level.
11 December 2017, the European Commission published recommendations for a new Code of Conduct on withholding taxes to help member states reduce costs and simplify procedures for cross-border investors in the EU.
The recommendations, which form part of the EU's Capital Markets Union Action Plan, are intended to reduce the challenges faced by smaller investors when doing business cross-border and should create quick, simplified and standardised procedures for refunding withholding taxes where appropriate.
The Code, which is voluntary for member states, outlines a range of practical ways for Member States to address key issues including:
Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici said: "While a very important tool for protecting public finances, withholding taxes can lead to a disproportionate burden on individuals and companies when it comes to seeking tax relief. My hope is that today's Code of Conduct will help EU countries to navigate the fine balance between ensuring a consistent tax collection on income and offering tax certainty to businesses that lose out on an estimated €8.4 billion in compliance costs each year."
The Code of Conduct will be presented to stakeholders at a public hearing organised by the Commission on 30 January 2018.
19 December 2017, the European Commission conditionally approved under EU State aid rules the Maltese tonnage tax scheme for a period of 10 years. The scheme will ensure a level playing field between Maltese and other European shipping companies, and will encourage ship registration in Europe.
In 2012, the Commission opened an in-depth investigation into the Maltese tonnage tax scheme to examine its compatibility with EU State aid rules. It found certain features of the original scheme, such as tax exemptions applied to Maltese residents and the broad scope of the scheme extending to vessels not carrying out maritime transport activities, to be in breach of EU State aid rules.
As a result, Malta committed to introduce a number of changes to its scheme to prevent any discrimination between shipping companies and to avoid undue competition distortions. In particular, Malta agreed to restrict the scope of the scheme to maritime transport and to remove those tax exemptions for shareholders that constituted State aid.
Under the Maltese scheme, a shipping company is taxed on the basis of ship net tonnage rather than the actual profits of the company. In particular, tonnage taxation is applied to a shipping company's:
If a shipping company wants to benefit from the scheme, a significant part of its fleet must fly the flag of a European Economic Area (EEA) member state. In addition, any new entrant to the scheme must have at least 25% of its fleet subject to tonnage tax with an EEA flag.
The Commission assessed the amended measures under EU State aid rules. It concluded that the amended Maltese scheme was in line with EU State aid rules because the tax relief granted was an appropriate instrument to address global competition and provided the right incentives to maintain maritime jobs within the EU, whilst preserving competition within the EU Single Market.
Competition Commissioner Margrethe Vestager said: "Tonnage tax systems are meant to promote the competitiveness of the EU shipping industry in a global market without unduly distorting competition. I am pleased that Malta committed to adapt its tonnage tax system to achieve this. Moreover, by encouraging the registration of ships in the EU, the scheme will enable the European shipping industry to keep up its high social and environmental standards.”
12 December 2017, social media giant Facebook announced that it will move to a “local selling structure” in countries where it has an office to support sales to local advertisers. As a result non-US revenues from large advertisers will no longer be booked to its international headquarters in Dublin, but will be recorded by the local company in the countries in which they are earned. It will also pay the taxes on those revenues in those countries, and not in Ireland.
The US firm shifted its international business operations to Ireland in 2010. Dave Wehner, the group's Chief Financial Officer, said: "We believe that moving to a local selling structure will provide more transparency to governments and policy makers around the world who have called for greater visibility over the revenue associated with locally supported sales in their countries."
"It is our expectation that we will make this change in countries where we have a local office supporting advertisers in that country. That said, each country is unique, and we want to make sure we get this change right. This is a large undertaking that will require significant resources to implement around the world. We will roll out new systems and invoicing as quickly as possible to ensure a seamless transition to our new structure. We plan to implement this change throughout 2018, with the goal of completing all offices by the first half of 2019."
29 December 2017, Hong Kong published two bills in its Official Gazette – to implement a two-tier profits tax rates regime and to introduce a mandatory transfer pricing regime and to counter base erosion and profit shifting (BEPS). The bills were to be tabled before the Legislative Council on 10 January 2018 and must pass three readings before enactment.
The Inland Revenue (Amendment) (No. 7) Bill 2017 will amend the Inland Revenue Ordinance to introduce a two-tiered profits tax rates regime from the year of assessment 2018 such that the tax rates for the first HK$2 million (US$256,000) of profits of corporations and unincorporated businesses – 16.5% and15% respectively – will be reduced by 50%.
The legislation is designed to benefit small and medium enterprises and start-ups. To prevent income splitting, it contains restrictive provisions stating that a group of “connected entities” can only elect one of them to be eligible for the two-tiered profits tax rates regime for a year of assessment.
It further contains a provision to counter double benefits by excluding corporations that have elected to be subject to the special half-rate tax regimes for profits derived from professional reinsurers, captive insurers, corporate treasury centres, aircraft lessors or aircraft leasing managers.
In addition, interest, gains or profits derived from qualifying debt instruments that are already subject to tax at half-rates under existing provisions will be excluded from the proposed two-tiered profits tax rates regime.
The Inland Revenue (Amendment) (No. 6) Bill 2017 will introduce fundamental transfer pricing rules that empower the Inland Revenue Department (IRD) to adjust the profits or losses of an enterprise where the actual provision made or imposed between two associated persons departs from the arm’s length principle. The 2017 version of the OECD’s transfer pricing guidelines is cited as the version to follow, along with the OECD Model Tax Convention on Income and on Capital.
The Bill further introduces mandatory documentation requirements based on the three-tiered approach of country-by-country (CbC) reporting, Master file, and Local file measures, as well as for details concerning an advance pricing arrangement (APA) programme and other related provisions.
30 November 2017, the Hong Kong government announced that the Comprehensive Avoidance of Double Taxation Agreement (CDTA) with Belarus, signed in January 2017, had entered into force following ratification. It will come into effect in Hong Kong for any year of assessment beginning on or after 1 April 2018.
Under the treaty, Belarus' withholding tax rate for Hong Kong residents on dividends, interest and royalties will be capped at 5%. It also has includes an article on exchange of information. It is the 36th CDTA that Hong Kong has signed with its trading partners.
CDTAs with Latvia and Pakistan, signed in April 2016 and February 2017 respectively, also entered into force on 24 November 2017 following ratification and will come into effect in Hong Kong for any year of assessment beginning on or after 1 April 2018.
4 December 2017, the Irish government announced that it had agreed with Apple to start collecting the €13 billion in unpaid taxes demanded by the European Commission in a ruling issued in August 2016. In October, the Commission referred the Irish government to the European Court of Justice over its failure to implement an order to collect the tax.
The Commission investigation concluded that Apple had received illegal state aid after it effectively paid 1% tax on its European profits in 2003, falling to about 0.005% in 2014. EU competition commissioner Margrethe Vestager concluded that Ireland had given Apple "selective treatment" enabling it to "pay substantially less tax than other businesses over many years."
Both Apple and the Irish government are appealing the ruling. The Irish government has said it profoundly disagrees with the Commission's analysis of the case. It has lodged an application in the General Court of the European Union for the Commission's decision to be annulled.
The Irish Finance Ministry said: "These sums will be placed into an escrow fund with the proceeds being released only when there has been a final determination in the European Courts over the validity of the Commission's Decision."
Irish finance minister Paschal Donohoe said: “We have now reached agreement with Apple in relation to the principles and operation of the escrow fund. We expect the money will begin to be transmitted into the account from Apple across the first quarter of next year.”
On 15 December, the General Court of the EU rejected an application by the US government to intervene in the Apple State aid case, concluding that the US did not have a sufficient interest in the result of the case under EU law. The court had previously granted applications to intervene from Ireland and the EFTA Surveillance Authority.
The US argued that it should also be allowed to intervene because US tax revenues would be affected and because the decision could harm bilateral tax treaty negotiations with EU member states, as well as efforts to develop transfer pricing rules within the OECD framework. The US also argued it could assist the court in understanding US tax law.
However, the court concluded that none of these arguments were sufficient to establish under EU law that the US was directly affected by the contested decision or that it has a particular interest in the result of the case.
According to the court, the US did not prove its tax revenue would be reduced and did not provide evidence of any direct link between the contested decision and the development of OECD transfer pricing rules or EU tax treaty negotiations. It further noted that it must resolve the present case on the basis of EU law and not the basis of US tax law.
The US's request for leave to intervene was lodged with the General Court last April. The European Commission raised objections to the application in May.
15 December 2017, Jersey became only the third jurisdiction worldwide, after Austria and the Isle of Man, to have completed domestic ratification of the OECD’s Multilateral Instrument (MLI). The MLI, which enables countries to modify existing bilateral tax agreements to implement base erosion and profit shifting (BEPS) measures, will enter into effect once ratified by five jurisdictions in total.
Jersey became a BEPS Associate and Member of the BEPS Inclusive Framework at its inaugural meeting on 16 June 2016 and was also among the first jurisdictions to sign the MLI in Paris on 7 June 2017. Tax treaty-related measures that may be implemented through the MLI include those on hybrid mismatch arrangements, treaty abuse, permanent establishment, and mutual agreement procedures, including agreed minimum standards to counter treaty abuse and to improve dispute resolution and an optional provision on mandatory binding arbitration.
Minister for External Relations, Senator Sir Philip Bailhache, said: “Our ratification brings the MLI’s entry into force one step closer. I am delighted that Jersey is one of the founding five signatories of the MLI. This is further confirmation of the important role that we continue to play in helping to develop and implement international standards in tax good governance.”
On 20 December, Curaçao became the latest jurisdiction to join the MLI via a communication from the Kingdom of the Netherlands to the OECD. A provisional list of reservations and notifications for Curaçao has been provided and a definitive version will be deposited with the OECD at the time of the deposit of the instrument of ratification of the Kingdom of the Netherlands.
Now covering 72 jurisdictions and over 1,100 treaties, the OECD is organising a second signing ceremony for the MLI in the margins of the Inclusive Framework on BEPS meeting on 24 January.
15 December 2017, the Luxembourg government announced its decision to appeal the European Commission's decision last October in the Amazon state aid case that it should collect some €250 million in back taxes from the e-commerce retailer.
“Luxembourg believes that the Commission has not established the existence of a selective advantage within the meaning of Article 107 TFEU (Treaty of the Functioning of the European Union),” the Luxembourg Finance Ministry said in a statement. ”Furthermore, Luxembourg does not share the Commission’s analysis with regard to transfer pricing.”
On 4 October, the Commission concluded that a tax ruling issued by Luxembourg in 2003, and extended in 2011, lowered the tax paid by Amazon in the country compared with what comparable businesses would pay.
Investigators concluded that the 2003 deal approved by Luxembourg’s tax authorities allowed Amazon to attribute the vast bulk of its EU profits between 2006 and 2014 to a holding company, Amazon Europe Holding Technologies, which had “no employees, no offices and no business activities”.
The Commission found that the tax ruling endorsed an unjustified method to calculate Amazon's taxable profits in Luxembourg. In particular, it said the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the Commission concluded that the tax ruling granted a selective economic advantage to Amazon by allowing the group to pay less tax than other companies subject to the same national tax rules. In fact, the ruling enabled Amazon to avoid taxation on three quarters of the profits it made from all Amazon sales in the EU, it said.
The Luxembourg government said in a statement: “This appeal seeks to obtain legal certainty, and does not put into question Luxembourg’s strong commitment to tax transparency and the fight against harmful tax practices.”
Margrethe Vestager, the EU competition commissioner, has also ruled against Fiat’s deal with Luxembourg, Starbucks arrangement in the Netherlands and Ireland’s deal with Apple. Separately, Belgium was required to recover about €700 million tax from about 35 companies that benefited from a generous scheme.
20 December 2017, the Commission de surveillance du secteur financier (CSSF) issued fines totalling just over €2 million to nine supervised entities, including four banks, after uncovering several examples of "medium or even severe breaches" of Luxembourg’s anti-money laundering regime.
The CSSF stated that after the Panama Papers’ revelations in April 2016, it “started to perform a comprehensive review of corporate accounts, whether or not related to Mossack Fonseca or Panama, and more particularly to verify the respect of ‘know your customer’ and ‘know your transaction’ obligations.”
It appointed external auditors to carry out procedures in relation to offshore structures in a large number of banks, set out a questionnaire to all 73 banks active in private wealth management, and conducted a desk-based review of the responses. An on-site review was performed at the 30 banks holding 80% of all corporate accounts related to offshore structures. The sample represented 20% of all corporate accounts related to offshore structures.
While the review uncovered a range of shortcomings with the relevant AML/CFT laws, a large majority of supervised entities were nevertheless found to be in compliance with these legal requirements. "All these verifications showed that adherence to Luxembourg laws and regulations applicable to them at the relevant moments in time was the norm for a large majority of supervised entities reviewed," the CSSF said.
However it had imposed fines on four banks – CA Indosuez Wealth (Europe), DNB Luxembourg, Nordea Bank and Novo Banco, Luxembourg branch – and five other entities – Experta Corporate and Fund Services Luxembourg, Link Corporate Services, Maitland Luxembourg, Pure Capital and Victory Asset Management – for “medium or severe breaches”.
Several other firms received injunctions for less severe breaches of the laws, but "immediately" brought themselves into compliance, the CSSF said.
6 December 2017, the Luxembourg government published two draft laws to implement new transparency measures required under the EU’s Fourth Anti-Money Laundering Directive 2015/849 (AMLD 4) to create central registers of beneficial owners (BOs).
Draft law No. 7217 provides for a central register of beneficial owners of Luxembourg legal entities (companies, partnerships, etc.) under the authority of the Minister of Justice, and Draft law No. 7216 provides for a central register of beneficial owners of fiduciary arrangements under the authority of the Administration de l’Enregistrement et des Domaines (AED).
All Luxembourg commercial companies as well as any other legal entities registered with the trade and companies’ register fall within the scope of the draft law and are required to obtain and hold adequate, accurate and up-to-date information on their BOs at their registered office. This information must be uploaded into the central register – Registre des bénéficiaires effectifs (REBECO) – maintained by the Luxembourg trade and companies’ register.
Existing entities will have up to six months after the entry into force of the law to register the relevant information with the REBECO. The information must include the identity of the BO, date and place of birth, nationality and private or professional address of residence as well as the BO’s nature and extent of beneficial interests held in the relevant entity.
The register of fiduciary arrangements – Registre des Fiducies – is subject to a similar regime. Fiduciary agents subject to any express fiduciary arrangements governed by Luxembourg law that generate tax consequences must obtain, hold, keep up-to-date and upload information in the central Registre des Fiducies. The information must include the identity of the principal, the fiduciary agent, the protector (if any), the beneficiaries or class of beneficiaries and any other natural person exercising effective control over the fiduciary arrangement.
Direct (electronic) access to the register will be limited to Luxembourg national competent public authorities, as well as to professionals that need to comply with laws and regulations on money laundering and terrorism prevention. For the wider public, only persons and organisations that can demonstrate a legitimate interest based on a reasoned request addressed to the administrator will be able to gain access to the register.
The national competent public authorities will be permitted to exchange all relevant information in the context of the performance of their duties as provided by the draft law and the AML Luxembourg law.
6 December 2017, the New Zealand government introduced the Taxation (Neutralising Base Erosion and Profit Shifting) Bill, which includes new initiatives and significant amendments to existing law in respect taxing international business. The Bill’s proposals generally have application for income years beginning on or after 1 July 2018.
The proposed measures in the Bill are intended to prevent multinational enterprises (MNEs) from using:
In addition, the Bill proposes strengthening Inland Revenue’s powers to investigate large MNEs – those with at least EUR €750 million of global revenues – that do not cooperate with a tax investigation
21 December 2017, the OECD announced that another series of bilateral exchange relationships had been established under the CRS Multilateral Competent Authority Agreement (CRS MCAA), bringing the total number of bilateral relationships for the automatic exchange of CRS information in place to over 2,600 worldwide.
The OECD and G20 approved the Common Reporting Standard (CRS) as the basis for the automatic annual exchange of information on offshore financial accounts to the tax authorities of the residence country of account holders in 2014. At present, over 100 jurisdictions have publicly committed to implement the CRS, with half having started the exchange last September and a further 53 set to follow in 2018.
The implementation of the CRS requires both domestic legislation to ensure that financial institutions correctly identify and report accounts held by non-residents, and an international legal framework for the automatic exchange of CRS information. The CRS MCAA defines the scope, timing, format and conditions for the exchange of CRS information and is based on the multilateral Convention on Mutual Administrative Assistance in Tax Matters.
At present, 97 jurisdictions have signed the CRS MCAA. Although it is a multilateral agreement, exchange relationships for CRS information are bilateral and are activated when both jurisdictions have the domestic framework for CRS exchange in place and have listed each other as intended exchange partners.
The OECD said 39 of the 53 jurisdictions committed to first exchanges in 2018 had already put the international legal requirements in place to commence exchanges under the CRS MCAA next year, thereby doubling the number of 2018 jurisdictions that have their international legal framework in place since the last activation round in August.
A further activation round for jurisdictions committed to a 2018 timeline is scheduled to take place in March, which will allow the remaining jurisdictions to nominate the partners with which they will undertake automatic exchanges of CRS information in September next year.
The OECD also announced that over 1,400 automatic exchange relationships were in place among jurisdictions committed to implementing Country-by-Country (CbC) Reporting in accordance with the BEPS Action 13 minimum standard for transfer pricing. These were achieved through activations of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (CbC MCAA).
The automatic exchange of CbC Reports, which is set to start in June 2018, will give tax administrations access to key information on the annual income and profits, as well as the capital, employees and activities of multinational enterprises (MNEs) that are active within their jurisdictions.
4 December 2017, the OECD released the first analysis of individual countries' progress in spontaneously exchanging information on tax rulings in accordance with Action 5 of the BEPS package of measures released in October 2015.
The first annual report on the exchange of information on rulings evaluates how 44 countries, including all OECD members and all G20 countries, are implementing one of the four new minimum standards agreed in the OECD/G20 BEPS Project.
To ensure that information on certain tax rulings is exchanged between relevant tax administrations in a timely manner (Action 5), the minimum standard requires tax administrations to spontaneously exchange information on rulings that have been granted to a foreign related party of their resident taxpayer or a permanent establishment which, in the absence of exchange, could give rise to BEPS concerns.
The standard covers rulings such as advance pricing agreements (APAs), permanent establishment rulings, related party conduit rulings, and rulings on preferential regimes. The report said that more than 10,000 tax rulings in the scope of the rules had been issued by the jurisdictions under review and almost 6,500 exchanges of information had taken place up to the end of 2016.
While 16 countries were judged as having adhered to the BEPS standards, there were problems with compliance in the remaining 28, ranging from temporary delays in exchanging the required information to no compliance at all.
The OECD report includes almost 50 country-specific recommendations on issues such as improving the timeliness of the exchange of information, ensuring that all relevant information on the taxpayer's related parties is captured for exchange purposes, and ensuring that exchanges of information are made with respect to preferential tax regimes that apply to income from intellectual property.
The OECD said the next annual peer review will cover all members of the Inclusive Framework, except for the developing countries that requested a deferral of their review to 2019.
18 December 2017, the OECD released the latest edition of the OECD Model Tax Convention, which incorporates significant changes developed under the OECD/G20 project to address base erosion and profit (BEPS).
The OECD Model provides a means for settling on a uniform basis the most common problems that arise in the field of international double taxation. The 2017 edition mainly reflects a consolidation of the treaty-related measures resulting from the work on the OECD/G20 BEPS Project under Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements), Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances), Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and Action 14 (Making Dispute Resolution More Effective).
Only a few dozen tax treaties were in force when the OECD published its first Draft Model Tax Convention in 1963. There are now more than 3,000 tax treaties in force worldwide that are based on the OECD Model. The full version of the OECD Model Tax Convention, including the Articles, Commentaries, non-member economies’ positions and historical notes, will be published this year.
31 December 2017, the Singapore Inland Revenue Service announced that a revised tax treaty with Sri Lanka, signed on 3 April 2014, had entered into force following ratification.
The new treaty lowers withholding tax rates for dividends and royalties, and updates the provisions for determining permanent establishments. It also incorporates the internationally agreed standard for exchange of information for tax purposes.
22 December 2017, US President Donald Trump signed the Tax Cuts and Jobs Act into law. The Act represents the most comprehensive reform to the US tax code in over 30 years and took effect on 1 January 2018.
The Act was passed a second and final time by the House of Representatives on 21 December 21 in a 224-201 vote after both chambers of Congress had earlier approved a compromise version.
The Act provides a reduction in the main rate of US federal corporate tax from 35% to 21% and introduces a form of territorial corporate taxation through the provision of a 100% dividend tax exemption on the foreign income of domestic corporations, provided they own at least 10% of the foreign subsidiary.
However it limits deductions for interest payments to 30% of earnings before interest, tax, depreciation and amortisation between 2018 and 2021, with a lower threshold of 30% of earnings before interest and tax from 2022 onwards.
In addition, there will be a deemed repatriation tax on foreign deferred income of US corporations of 15.5% for cash and 8% for illiquid assets. Small business owners will be able to take advantage of a 20% tax deduction on pass-through business income.
For individual taxpayers, the Act retains a seven-tier income tax regime but five of them have been reduced. The rates start at 10% and rise to 12, 22, 24, 32, 35 and 37% respectively. The highest rate will apply to single individuals whose income exceeds US$500,000 and US$600,000 for joint filers. In addition, the standard deduction for individuals will be increased to USD12,000 for single filers, US$18,000 for heads of household and US$24,000 for joint filers.
The Act retains and expands the deduction for charitable donations but curtails and repeals many others. The mortgage interest deduction is retained for new purchases, subject to a cap of US$750,000 in mortgage debt. Taxpayers will also be able to continue claiming a deduction for a combination of state and local taxes, but only up to a maximum of US$10,000. Such deductions were previously unlimited.
The Act retains the individual alternative minimum tax (AMT), although the exemption limit will be raised. The corporate AMT will be eliminated.
The Act also significantly increases the estate and gift tax exemption amounts such that the estate and gift tax will now be mostly eliminated for all but the wealthiest of all taxpayers. The estate tax rate will still be 40%, but the exemption amount has been doubled to US$10.98 million for individuals and US$21.96 million for married couples. This also applies to gifts.
US Treasury Secretary Steven Mnuchin said he believed the tax cuts would ultimately become revenue neutral over 10 years due to higher growth, but the Treasury is likely to seek more money from Congress to implement the plan.
"We think there will be over US$1 trillion in growth, so I do think this will pay for itself," Mnuchin said, dismissing estimates from the Joint Committee on Taxation that the tax cuts would increase US deficits by US$1.1 trillion to US$1.5 trillion over 10 years.
Mnuchin said that for modelling purposes, the plan assumes 2.9% annual US growth, but "we do think we can get to three percent or higher.”
20 December 2017, UK Prime Minister Theresa May told the House of Commons that Gibraltar will not be excluded from any aspect of the UK’s Brexit negotiations after the European Commission appeared to indicate that Spain would have a veto on any transitional arrangements covering the Rock.
Negotiating guidelines for the next phase of the Brexit talks published by the European Commission, which are still subject to negotiation and have yet to be adopted by the European Council, reiterated the Clause 24 Gibraltar veto granted by the EU to Spain last April. This states that after withdrawal, no future agreement between the UK and the EU can be applied to Gibraltar without prior agreement between Spain and the UK.
The Commission’s lead negotiator Michel Barnier said: “We have reproduced in the negotiating guidelines the exact phrase decided upon by the European Council and I can confirm to you that for the transition period, as for the rest, I will work to reach decisions which will be taken by the 27 unanimously and by consensus.
“We, the 27 members, have – and I will say no more on this issue – always worked striving for consensus and unity and to take all decisions within the framework of this consensus and unity and we will continue to do so. Therefore the spirit of April’s guidelines is reaffirmed on this particular point in the document agreed on today.”
Sir Jeffrey Donaldson MP asked the Prime Minister: “In light of the guidelines published this morning, will she give a commitment not to enter into an agreement with the European Union that excludes Gibraltar from the transitional or implementation arrangements and periods?”
May responded: “We and the EU have been clear that Gibraltar is covered by the withdrawal agreement and our Article 50 exit negotiations and … we will be negotiating to ensure that the relationships are there for Gibraltar as well. We are not going to exclude Gibraltar from our negotiations for either the implementation period or the future agreement. I can give the honourable gentleman that assurance.”
29 November 2017, the San Francisco District Court ruled that crypto-currency trading platform Coinbase must disclose identifying information concerning 14,355 customers, which have accounted for nearly 9 million transactions.
In US v Coinbase 17-01431, the investigation began after the IRS searched its electronic filings and discovered that only 802 people had declared bitcoin-related losses or gains in 2015. During the three years covered by the IRS demand, the price of bitcoin rose from $13 to over $1,100. It exceeded $10,000 in December.
The order, which covers transactions between 2013 and 2015, came after a prolonged legal dispute that began when the IRS demanded that Coinbase provide detailed personal information for more than a million customer accounts.
The IRS subsequently limited its demand to accounts that conducted bitcoin transactions – either exchanging bitcoin for dollars, or sending or receiving coins from another bitcoin user – worth $20,000 or more.
Coinbase claimed that even the narrower IRS request represented an illegal imposition, but the court disagreed. “The summons as narrowed by the Court serves the IRS’s legitimate purpose of investigating Coinbase account holders who may not have paid federal taxes on their virtual currency profits,” said US District Judge Jacqueline Corley.
The ruling only covers a three-year period and is limited to Coinbase and bitcoin. While bitcoin is the most popular digital currency, there are now many others in a market that is now worth over $200 billion dollars. Coinbase is also just one of numerous exchanges for purchasing bitcoin and other currencies.
The Court refused to order the exchange to provide certain personal information, including passport information or third-party communications.
In March 2014 the IRS issued a notice ruling that virtual currencies such as bitcoin are to be treated as property rather than as fiat currency for tax purposes.