Owen Christopher: Global Survey - March 2018

12 February 2018, the Australian Treasury issued draft legislation and an explanatory memorandum proposing to extend its Multinational Anti-Avoidance Law (MAAL) to prevent taxpayers from interposing foreign trusts and partnerships in corporate structures to avoid the its application. Consultation closed on 23 February.

The MAAL, which took effect in Australia on 1 January 2016, is designed to prevent large multinationals from avoiding Australian tax by using artificial or contrived arrangements to avoid having a taxable presence in Australia. It applies to ‘significant global entities’, which are entities with either annual global income of A$1 billion or more, or that are part of a group of entities that has annual global income of A$1 billion or more.

9 February 2018, the BVI International Tax Authority (ITA) announced that the BVI Financial Account Reporting System was back online following the interruptions caused by hurricanes Irma and Maria.

Financial institutions were reminded that 31 May 2017 was the deadline for reporting submissions for 2016 under the US Foreign Accounts Tax Compliance Act (FATCA) and had been extended to 1 September 2017 under the Common Reporting Standards (CRS). Reporting submissions for US FATCA and CRS should have been submitted by those dates, unless, prior arrangements had been made with the ITA.

Financial institutions that had not submitted their filings for 2016 were encouraged to do so immediately. Such institutions could be subject to penalties, in accordance with section 21 of the Mutual Legal Assistance (Tax Matters) Act, 2003 as amended, for non-compliance.

The statutory deadline for reporting submissions for 2017 filings for both FATCA and CRS is 31 May 2018 and BVI financial institutions are encouraged to make every effort to comply with this deadline. Updated lists of participating jurisdictions and reportable jurisdictions for the CRS were due to be published shortly in the Virgin Islands Gazette. They would be made available on the website once gazetted.

27 February 2018, Minister of Finance Bill Morneau tabled the Federal Budget in the Canadian parliament. Following a consultation process, Budget 2018 includes two proposed measures to limit any tax-deferral advantage of retaining surplus funds from active business in a Canadian-controlled private corporation (CCPC) for passive investment purposes.

The first proposed measure is a reduction in the amount of income eligible for the Small Business Deduction (SBD) where a CCPC earns passive income in excess of a threshold. Budget 2018 proposes to reduce the C$500,000 business limit available to CCPCs having between C$50,000 and C$150,000 of investment income on a straight-line basis. The new measure will operate alongside the business limits based on taxable capital in excess of C$10 million and the associated corporation rules.

The second proposed measure is that taxes paid on investment income will only be refunded when dividends are paid out of the investment income that generated the refundable taxes.  Refunds under the Refundable Dividend Tax On Hand (RDTOH) will not be available when dividends are paid out of active business income.

Shareholders receive two types of taxable dividends from CCPCs: ‘eligible’ and ‘non-eligible’.  Eligible dividends are taxed at a lower rate to the shareholder compared to non-eligible. Investment income earned by a CCPC is generally paid to a shareholder as a non-eligible dividend. RDTOH is not currently dependent on whether a dividend paid by a corporation is an eligible or non-eligible dividend. It therefore provides a tax advantage by allowing CCPCs to pay eligible dividends sourced from active business income to generate a refund.

The Budget proposal would amend the rules such that RDTOH would only be available where a CCPC pays a non-eligible dividend. There will be an exception for RDTOH that arises from ‘eligible portfolio dividends’ received by a CCPC.

The Budget further proposes to impose new reporting requirements on certain trusts. These will apply to ‘express’ trusts that are resident in Canada that are not currently required to file a T3 Trust Income Tax and Information Return, as well to non-resident trusts that are currently required to file a T3 return.

Where the new reporting requirements apply, a trust will be required to report the identity of all trustees, beneficiaries and settlors, as well as the identity of any person who has the ability, through the trust terms or a related agreement, to exert control over trustee decisions regarding the appointment of income or capital of the trust. The proposed new reporting requirements would apply to returns for the 2021 and subsequent taxation years.

2 February 2018, the Cayman Islands Department of International Tax Cooperation (DITC) issued an Industry Advisory in advance of the publication of Country-by-Country Reporting (CbCR) Guidance and the launch of the Cayman Islands CbCR Portal, expected in early March 2018.

The Ministry of Financial Services and Home Affairs has said the notification deadlines with respect to constituent entities of an multinational enterprise (MNE) group with respect to its fiscal year beginning on or after 1 January 2016, are 15 May 2018, if the reporting entity is resident in the Cayman Islands, or 30 September 2018, if the reporting entity is not resident. This provides a grace period beyond the deadline prescribed by the CbCR Regulations.

A reporting entity resident in the Islands must make its first CbC Report by 31 May 2018 if the CbCR Regulations require it to make its first CbC Report on or before 31 May 2018. This too provides reporting entities with a grace period beyond the deadline prescribed by the CbCR Regulations.

A reporting entity resident in the Islands must make a CbC Report via the CbCR Portal even if that results in duplication because a CbC Report for the same MNE group has already been made to another competent authority

3 February 2018, China’s State Administration of Taxation (SAT) issued Bulletin No. 9 to clarify the definition of a ‘beneficial owner’ (BO) in order to determine non-resident eligibility for tax treaty benefits on China-sourced dividends, interests and royalties.

The new guidance, which amends and replaces Circular 601 (GuoShui Han [2009] No. 601) and Bulletin 30 (Gong Gao [2012] No. 30), will apply from 1 April 2018. For a non-resident to qualify for reduced withholding tax rates on dividends, interest and royalties under China’s tax treaties, the non-resident must be considered the BO of the income.

Circular 601 contained seven negative factors to be considered by the tax authorities in determining whether a ‘recipient’ of China-source income was a BO under a tax treaty. The presence of these factors can result in the denial of tax treaty benefits. Bulletin 9 consolidates these factors into five, however modifications to the first and second factors will make it more difficult for a non-resident to obtain BO status.

Bulletin No. 30 had provided a ‘safe harbour’ under which listed foreign companies, and their local subsidiaries tax resident in the same jurisdiction, would not need to satisfy the ‘negative factor’ analysis to qualify as BOs. Announcement 9 extends this to companies, held 100% by individuals resident in, and government bodies of, the company’s jurisdiction. Intermediate entities must be located in the company’s jurisdiction or in China.

Bulletin 9 further introduces a form of ‘derivative benefits’ test, enabling a recipient of dividends to qualify for tax treaty benefits, even when the recipient does not qualify for the safe harbour or as a BO on its own. The recipient will be recognised as a BO if it is 100% owned, directly or indirectly, by a shareholder that can meet the BO requirements based on an assessment of the five negative factors.

A consecutive 12-month holding period is required for the purpose of applying the above rules. Bulletin 9 also introduces new requirements relating to the period covered by the tax residence certificate and the persons whose certificates must be submitted.

22 February 2018, the Dutch government announced plans to amend tax legislation in response to a ruling by the European Court of Justice (ECJ) that the Dutch interest deduction limitation rule in combination with the fiscal unity regime violates the EU freedom of establishment.

In X BV and X NV v Staatssecretaris van Financiën (Joined Cases C‑398/16 and C‑399/16), X BV, a Dutch company that was part of a Swedish-headquartered multinational, set up another company in Italy in order to purchase shares in an Italian company. It financed the capital contribution of the Italian subsidiary by way of a loan, plus interest, from a Swedish group company.

The Dutch tax authority denied the deduction of the interest paid to the Swedish company on the intra-group loan. Under Article 10a of the Dutch Corporate Income Tax Act (CITA), the deduction of interest paid on a debt to an affiliated party can be disallowed if the loan relates to a capital contribution, in particular in the form of the purchase of shares in a related entity.

X BV challenged this assessment, arguing that the deduction would have been treated differently had the transaction in question taken placed between Dutch resident entities with a Dutch parent under the fiscal unity regime. But since the benefits of the Dutch fiscal unity regime are limited to Dutch tax resident entities, such benefits cannot be obtained in cross-border situations. X BV argued therefore that this difference in tax treatment constituted an infringement of freedom of establishment under EU law.

The Dutch government argued that the difference in treatment was justified by the need to safeguard the allocation of the power to impose taxes between the member states, the need to ensure the coherence of the Netherlands tax system and the need to combat tax evasion.

The ECJ rejected these arguments, finding that: "Articles 49 and 54 TFEU must be interpreted as precluding national legislation, such as that at issue in the main proceedings, pursuant to which a parent company established in a Member State is not allowed to deduct interest in respect of a loan taken out with a related company in order to finance a capital contribution to a subsidiary established in another Member State, whereas if the subsidiary were established in the same Member State, the parent company could avail itself of that deduction by forming a tax-integrated entity with it."

The ECJ decision is in line with the opinion provided by Advocate General Campos Sanchéz-Bordona, which was published on 25 October 2017. In response to this opinion, the Dutch government published plans to introduce emergency measures in the form of remedial legislation to eliminate the existing favourable treatment for domestic situations within the fiscal unity regime.

It is expected that the remedial legislation will be introduced in the second quarter of 2018. If adopted by the Dutch Parliament, it will apply retroactively from 25 October 2017. The State Secretary of Finance has also announced that the government will work on a new group relief regime to replace the fiscal unity regime. This will be in full compliance with EU rules.

7 February 2018, the European Commission added three countries – Tunisia, Sri Lanka and Trinidad & Tobago – to its blacklist of non-EU countries that are considered to have strategic deficiencies in their anti-money laundering and terrorism financing regimes.

As part of its obligations under the EU’s Anti-Money Laundering Directive, the Commission is periodically obliged to draw up a list of ‘high-risk third countries’. The European Parliament has power of veto over the blacklist.

In mid-December, in line with its custom of following the lead of the Financial Action Task Force (FATF), the Commission decided to add the three states to its blacklist. Despite intense efforts by some MEPs, they failed to achieve the 376-vote absolute majority needed to defeat their inclusion, with 357 votes in support of the motion, 283 votes against and 26 abstentions.

MEPs who tabled the motion focused their opposition on the inclusion of Tunisia, arguing that it’s burgeoning democracy was in need of support and the listing failed to recognise the recent steps it has taken to strengthen its financial system against criminal activity. The other two countries were included in the delegated act.

MEPs had rejected two previous versions, after disagreements over the methodology used by the Commission for compiling the list. Since then, the two bodies have agreed on a new methodology for adding and removing countries, which will be introduced from the end of this year.

Commissioner for Justice, Consumers and Gender Equality, Vera Jourová, declined requests to delist Tunisia immediately. She said the Commission would reassess the country’s progress “as early as possible” this year.

26 February 2018, the European Commission published the non-confidential version of its final negative decision of 4 October 2017, which concluded that Luxembourg had granted undue tax benefits worth around €250 million to Amazon.

Following an in-depth investigation launched in October 2014, the Commission concluded 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.

The tax ruling enabled Amazon to shift the vast majority of its profits from Amazon EU, an Amazon group company that was subject to tax in Luxembourg, to Amazon Europe Holding Technologies, a company that was not subject to tax. 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.

The Commission's investigation found that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On that basis, the Commission concluded that the tax ruling had 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 therefore found that Luxembourg's tax treatment of Amazon under the tax ruling was illegal under EU State aid rules. 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. This is estimated to be around €250 million, plus interest.

The decision is available under the case number SA.38944 at http://ec.europa.eu/competition/state_aid/cases/254685/254685_1966181_890_2.pdf

Amazon announced, on 5 February, that it had reached a comprehensive settlement agreement with the French tax authorities. In November 2012, France’s Direction Générale des Finances Publiques issued a demand for Amazon to pay just under €200 million in non-reported tax and penalties. At the time, most of Amazon’s revenue in Europe was channelled through Luxembourg.

The French government has opened the door to negotiating settlements in long-running tax cases after it lost a court case against Google last July. A French court ruled that Google was not liable to pay €1.1 billion in back taxes because the firm did not have sufficient taxable presence in France.

Since then the French government has been leading an initiative at the EU level for new rules to tax online companies based on revenues generated in EU countries. Such a move could seriously disrupt the business model of many technology groups, which are currently taxed in Europe based on profits rather than total revenues.

14 February 2018, the EU Code of Conduct Group on business taxation will focus its efforts on addressing non-cooperative tax jurisdictions, monitoring EU implementation of the modified nexus approach for patent boxes and assessing EU countries’ standstill and rollback of harmful tax measures, according to a work programme for the Bulgarian Presidency released by the EU Council.

The Code of Conduct Group is to continue to follow the Council conclusions of 5 December 2017 on the EU list of non-cooperative jurisdictions for tax purposes. It will begin monitoring countries’ commitments to improve their tax regimes and will prepare a progress report to the ECOFIN Council on this matter before summer 2018.

The group will undertake further work to monitor whether and how the defensive measures agreed on 5 December 2017 are applied and will explore further coordinated defensive measures in the tax area.

The group will monitor developments in administrative practices of Member States and review the tax measures announced by Member States under the standstill and rollback process for the year ending on 31 December 2017, giving priority to notional interest deduction regimes.

The group will also monitor whether Member States that have not yet modified their IP regimes to comply with the modified nexus approach have begun to amend their patent box regimes to comply as soon as possible and, in any case, no later than end of 2018.

The group will further monitor the implementation by Liechtenstein of the amendments to preferential regimes with identified deficiencies, with particular focus on the tax-exempt corporate income-dividends and capital gains regime and on the interest deduction on equity.

8 February 2018, the European Parliament voted to launch another inquiry into financial crime, tax evasion and tax avoidance. If formally approved by a plenary vote of the parliament, the main focus of the committee will be the recent ‘Paradise Papers’ leaks, which consisted of data leaked from the offshore law firm Appleby.

The TAXE 3 committee of 45 MEPs will have mandate of one year, extending to the end of the current parliamentary term. It follows the investigations of the TAXE 1 and 2 committees, which were founded to examine the consequences of the ‘LuxLeaks’ papers in 2014, and the PANA committee, which was set up in 2016 following the release of the ‘Panama Papers’.

The terms of reference adopted by the Parliament make specific reference to the attention it intends to give to the UK “crown dependencies and overseas territories”. The TAXE 3 committee is also likely to examine “national schemes providing tax privileges for new residents or foreign income”. The committee also intends to focus on cases of VAT fraud and problems of ensuring tax compliance in the digital economy.

2 February 2018, the Inland Revenue (Amendment) Ordinance 2018, which provides the legal framework for Hong Kong to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA), was gazetted.

The new law will enable Hong Kong to meet its commitments under the OECD/G20 base erosion and profit shifting (BEPS) package by implementing automatic exchange of information in tax matters (AEOI), automatic exchange of country-by-country reports of multinational corporations and spontaneous exchange of information on tax rulings.

By becoming a party to the MCAA, Hong Kong will be able to select those other signatories with whom it intends to enter into automatic exchange of information relationships, rather than having to negotiate individual agreements with states bilaterally.

"Given the continued expansion in the scope and network of tax information exchanges in the international community, Hong Kong needs to move from the established bilateral approach for implementing various new tax standards to riding on the MCAA to implement the relevant initiatives," said the Inland Revenue Department.

"To allow Hong Kong to implement the new initiatives on international tax cooperation more effectively and reduce the risk of Hong Kong being identified as a 'non-cooperative tax jurisdiction,' the government will strive to complete the procedures for participating in the Multilateral Convention as soon as practicable," it said.

After the passage of the Ordinance by the Legislative Council, the government will seek the assistance of China’s government in depositing the declaration for territorial extension with the OECD such that the application of the MCAA will be extended to Hong Kong.

The Ordinance also makes technical amendments to certain provisions on AEOI to align them with the OECD Common Reporting Standard (CRS). These do not involve substantial changes to the due diligence requirements for financial institutions (FIs). To give FIs time to implement the changes, however, these provisions will only become effective on 1 January 2019 and will apply to reports due for mid-2020, covering data from 2019 and after.

Hong Kong introduces register for ‘Significant Controllers’

24 January 2018, the Legislative Council passed the Hong Kong Companies Ordinance (Amendment) 2018, which introduces new requirements for registering people with significant control of companies. It was brought into force on 1 March 2018.

A ‘significant controller’ is a person or legal entity that meets one or more of the following conditions:

-Holds, directly or indirectly, more than 25% of the company’s issued shares or a right to share more than 25% of the capital or profits of the company;

-Holds, directly or indirectly, more than 25% of the voting rights of the company;

-Holds, directly or indirectly, the right to appoint or remove the majority of the board of directors of the company;

-Has the right to exercise, or actually exercises, significant influence or control over the company;

-Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the above four conditions in relation to the company.

To identify a significant controller, companies must review their register of members, articles of association, shareholders agreements, and other relevant agreements, or invite an evaluation from a third party organisation. If a company knows or has reasonable reason to believe that a person is a significant controller, the company must notify them within seven days of such knowledge.

The Ordinance requires Hong Kong companies to maintain additional details on their significant controllers. Some of the key requirements prescribed by the Ordinance are to:

-Identify the person/persons who has/have significant control over the company;

-Prepare and maintain a Significant Controllers Register (SCR), which will be accessible by law enforcement officers upon demand;

-Designate a representative to provide assistance relating to the SCR to law enforcement officers;

-Keep the SCR at the company’s registered office or a prescribed place in Hong Kong;

-Keep the SCR updated.

The Designated Representative must either be a member, director or an employee of the company who is a natural person resident in Hong Kong, or an accounting or legal professional, or the holder of a Trust and Company Service Providers’ licence.

The details of a company’s significant controller(s) and Designated Representative are recorded in the SCR, along with any changes to them. Companies must also record the steps they have taken to identify significant controllers.

Failure to comply with the requirements set forward in the Ordinance may qualify as a criminal offence. The company and every responsible person in breach of the Ordinance could liable for a fine levied at HK$25,000 (US$3,200) and, where applicable, a further daily fine.

The Legislative Council also passed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance on 24 January. The primary objective was to apply statutory customer due diligence (CDD) and record-keeping requirements to ‘designated non-financial businesses and professions’ (DNFBPs) – solicitors and foreign lawyers, accounting professionals, estate agents and trust or company service providers (TCSPs) – when they engage in specified transactions.

The amendments, which apply as of 1 March 2018, also introduce a new licensing regime for TCSPs, which requires them to apply for a licence from the Registrar of Companies and satisfy a ‘fit-and-proper’ test before they can provide trust or company services as a business in Hong Kong. They further make amendments to the existing anti-money laundering requirements relating to financial institutions.

The Hong Kong government is seeking to bring its anti-money laundering legislation into line with the international standards set by the Financial Action Task Force (FATF), which is scheduled to commence an evaluation of Hong Kong’s regime towards the end of this year. In its last Mutual Evaluation Report for Hong Kong in 2008, the FATF noted that while supervision was effective for the banking, insurance and securities sectors, it was “weak or non-existent for many types of DNFBPs”.

27 February 2018, Fabrizio Pagani, head of the office of the Italian Minister of Economy and Finance, told Bloomberg that about 150 people had made inquiries about Italy’s new ‘flat-rate tax’ regime for ultra-wealthy individuals, which was introduced under Article 24 bis of the Italian Income Tax Code in the 2017 Budget Law.

Under the regime, individuals who previously have not been tax residents of Italy and who transfer their tax residence to Italy will pay, instead of ordinary tax, a flat-rate substitute tax of €100,000 per year on all their non-Italian sourced income (and a flat tax of €25,000 for eligible family member).

Pagani said the figure of 150 was a “very good number for the first year” and that the number was expected to grow “exponentially”.

23 February 2018, the government of the Netherlands agreed to adopt a new tax policy agenda proposed by State Secretary for Finance Menno Snel and to move forward with the agenda’s first priority, tackling tax avoidance and evasion.

It said that the reforms were designed to counter “international criticism of the Dutch tax system”, adding that “the downside of having an international oriented tax system is that it is susceptible to improper use”. As a separate part of its drive to attract more investment, the Netherlands’ new government has promised to reduce corporate tax rates and abolish a dividend tax.

In 2021 the Netherlands will introduce a system of withholding taxes on interest and royalty flows to low tax jurisdictions and in the event of abusive tax arrangements, so as to prevent the Netherlands from being used as a conduit to tax havens. “My aim is to tackle tax avoidance and evasion and put an end to the Netherlands’ image as a country that makes it easy for multinationals to avoid paying taxes,” said Snel. “This stubborn image undermines the investment climate.”

The government plans to equip both the Netherlands and its treaty partners with effective tools to combat tax avoidance. Accordingly, the Dutch government will include more anti-abuse provisions in its tax treaties via the Multilateral Instrument than many other countries. This is intended to prevent the Netherlands’ extensive network of tax treaties being used improperly.

In implementing the EU’s first and second anti-tax avoidance directives (ATAD1 and ATAD2), the Netherlands will impose stricter standards than those required by those directives. For example, it will not include a group exemption in the earnings stripping rule. In addition, no grandfathering rules will apply to existing loans, and the threshold will be lowered from €3 million to €1 million.

A minimum capital rule will be introduced for banks and insurance companies in order to foster a more equal treatment of debt and equity in all sectors. This is intended to create more stable companies and healthier economic conditions.

The government will clarify the right of non-disclosure as it applies to lawyers and notaries. Fines for culpable negligence will be made public, and as a result, these financial service providers will have to better account for the advice they give on tax planning schemes.

To increase the integrity of financial markets, the government is working on legislation to create a register for ultimate beneficial owners. Existing legislation for trust offices will be tightened up.

The Dutch government supports the European Commission’s proposals for greater transparency. The Commission’s proposed directive on mandatory disclosure will require financial intermediaries – tax advisers, lawyers, notaries and trust offices – to notify the tax authorities of potentially aggressive cross-border tax planning schemes. The proposed directive on public country-by-country reporting will reveal the extent to which multinationals comply with their tax obligations.

The government agenda identifies four other priorities for the next few years: reducing the tax burden on labour; promoting a tax climate in the Netherlands that remains competitive for real economic activities; further greening the tax system; and making the tax system more workable.

“During and after this government’s term in office, we must continue to pursue a simpler, more workable, more comprehensible and fairer tax system with a view to ensuring equitable taxation for individuals and businesses alike,” said Snel.

19 February 2018, State Secretary of Finance Menno Snel said, in a letter to the lower house of the Dutch parliament, that the Dutch tax administration had made procedural errors in at least 78 tax rulings with multinational companies. The government is to revise the way in which tax rulings are issued to prevent further mistakes.

Snel ordered a review of 4,462 advance tax rulings in November after documents disclosed in the ‘Paradise Papers’ leak revealed that a tax deal with US multinational Procter & Gamble had not followed the correct procedures. Dutch daily newspaper Trouw reported that the P&G ruling, which enabled the consumer products giant to shift US$676 million in untaxed revenue to the Cayman Islands, had been signed off by a single tax inspector in Rotterdam, in contravention of the rules.

Snel said possible procedural errors had been identified in six of the 3,101 rulings made by the Rotterdam-based division in the Dutch tax administration responsible for advance pricing agreements and advance tax rulings (APA/ATR). Three of these needed to be investigated further.

Procedural errors were also found in 72 of the 1,361 rulings made by local tax officials. In 63 cases, investigators concluded that these rulings should have been submitted to the APA/ATR team. To prevent this type of error in the future, Snel proposed that all future agreements with multinational companies should be submitted to the APA/ATR team.

Where procedural errors were found, the Ministry of Finance further investigated whether the content of a ruling was correct. In two cases it found that 'substantive errors' had been made. Three other cases "probably" contained substantive errors.

"Prior consultation and giving certainty in advance are key elements in the supervision of the tax authorities and are an important pillar of our business climate," said Snel. He will however review the process of issuing rulings with the Dutch parliament and a group of independent experts to see what changes can be made to prevent further errors.

Snel suggested that, in future, only companies with sufficient economic substance in the Netherlands would be entitled to apply for a tax ruling. "The question is, given the Cabinet's intention in the coalition agreement to counter letter box companies, whether certainty needs to be given in advance to companies that make a limited contribution to the real economy," he said.

Snel said that the government intended to consult on changes to tax ruling practices this year, ready for a new system to be in place by 1 January 2019.

19 February 2018, the OECD released a consultation document on proposals to curb the misuse of ‘residence by investment’ (RBI) and ‘citizenship by investment’ (CBI) schemes in order to circumvent reporting under the Common Reporting Standard (CRS).

The OECD said an increasing number of jurisdictions were offering RBI or CBI schemes that enabled foreign individuals to obtain citizenship or temporary or permanent residence rights in exchange for local investments or against a flat fee.

Whilst there were a number of legitimate reasons for individuals to be interested in RBI and CBI schemes – greater mobility through visa-free travel, better education and job opportunities for children, or the right to live in a country with political stability – information obtained through the OECD's CRS public disclosure facility had highlighted their misuse to circumvent CRS rules.

The consultation document is intended to:

-Assess how these schemes are used to circumvent the CRS;

-Identify the types of schemes that present a high risk of abuse;

-Remind stakeholders to apply relevant CRS due diligence procedures correctly;

-Explain next steps the OECD will undertake to further address the issue.

Public input is sought to obtain further evidence on the misuse of CBI/RBI schemes and effective ways for prevention. This will be taken into account in determining next steps.

8 February 2018, the OECD Inclusive Framework on BEPS released an update on progress under Action 5 of the Action Plan on Base Erosion and Profit Shifting (BEPS), one of the four BEPS minimum standards.

Action 5 requires members to undertake a peer review to identify features of preferential tax regimes that can facilitate BEPS and have the potential to unfairly impact the tax base of other jurisdictions. It also requires them to make a commitment to transparency through the compulsory spontaneous exchange of relevant information on taxpayer-specific rulings that, in the absence of such information exchange, could give rise to BEPS concerns.

Two ‘preferential tax regimes’ in Barbados – the international financial services regime and the credit for foreign currency earnings/credit for overseas projects or services regime – were both labelled as ‘potentially harmful’ by the Forum on Harmful Tax Practices (FHTP) in its 2017 Progress Report on Preferential Regimes.

In a ministerial letter the government of Barbados has committed to amend these regimes in accordance with the FHTP's criteria and within its agreed timelines. The Inclusive Framework has therefore updated the conclusions for these two regimes to ‘in the process of being amended’.

The FHTP also determined Canada's regime for international banking centres (IBCs) to be ‘potentially but not actually harmful’. Canada has since abolished the IBC regime, with limited grandfathering that is consistent with the FHTP guidance and therefore the conclusion for this regime has been updated to ‘abolished’.

The OECD will continue to communicate updated results of reviews of preferential regimes as approved by the Inclusive Framework.

The Inclusive Framework on BEPS has further released additional guidance to give certainty to tax administrations and MNE Groups alike on the implementation of Country-by-Country (CbC) reporting (BEPS Action 13).

The additional guidance addresses two specific issues: the definition of total consolidated group revenue and whether non-compliance with the confidentiality, appropriate use and consistency conditions constitutes systemic failure.

It also released a compilation of the approaches adopted by member jurisdictions of the Inclusive Framework with respect to issues where the guidance allows for alternative approaches. These documents will continue to be updated with any further guidance that may be agreed.

21 February 2018, South African Minister of Finance Malusi Gigaba announced in the 2018 Budget Speech that the government would give further consideration to the proposed extension of the application of controlled foreign company (CFC) rules to foreign companies held through foreign trusts and foundations.

The CFC rules were to have been extended, with effect from tax years commencing on or after 1 January 2018, to foreign companies held by foreign trusts and foundations, interposed between the foreign companies and South African residents. The draft legislation also contained related rules to classify distributions by discretionary foreign trusts or foreign foundations to resident individuals or trusts as income in their hands.

However, the government decided to withdraw and postpone the introduction of these rules due to their broad application and complexity. They will now be reconsidered and potentially re-introduced.

1 February 2018, Switzerland’s Financial Market Supervisory Authority (FINMA) announced that it had prohibited Gazprombank (Switzerland) Ltd from accepting new private clients until further notice, after identifying “serious shortcomings in anti-money laundering processes”.

FINMA said it had determined that the Swiss arm of the Russian state-owned bank had “failed to carry out adequate economic background clarifications into business relationships and transactions with increased money laundering risks”.

In its enforcement proceedings, which concluded in January 2018, FINMA said, it had “examined the manner in which the bank had exercised its anti-money laundering due diligence requirements for a number of business relationships involving private clients, and politically exposed persons using offshore companies”.

Ultimately, it said, it found that Gazprombank Switzerland, “was in serious breach of its anti-money laundering due diligence requirements in the period from 2006 to 2016”, and said it therefore had “banned Gazprombank Switzerland from expanding its activities with private individuals”.

Until further notice, the bank may not establish any new relationships with private clients; its existing client relationships “must be strictly monitored”, and Gazprombank Switzerland “must also establish from among its board of directors a “risk committee with a majority of independent members”, FINMA said.

FINMA opened investigations into more than 30 Swiss banks in the wake of information disclosed in the ‘Panama Papers’ leak in April 2016. In-depth investigations were carried out at around 20 banks. Where necessary, FINMA required banks to take action to improve their anti-money laundering processes. The conclusion of FINMA’s proceedings against Gazprombank Switzerland also marks the conclusion of FINMA’s activities linked to the Panama Papers.

15 February 2018, the Office of Tax Simplification (OTS) published the scoping document for its review of inheritance tax (IHT). Chancellor Philip Hammond wrote to the OTS on 19 January, acknowledging its interest in the IHT regime and asking it to carry out a review.

The overall aim of the review will be to identify opportunities and develop recommendations for simplifying IHT from both a tax technical and an administrative standpoint. The OTS will work alongside HMRC’s project on administrative changes for the vast majority of estates where there is no tax to pay.

The review will consider how key aspects of the current IHT system work and whether and how they might be simplified. This will include a combination of administrative and technical questions such as:

-The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;

-The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;

-Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in particular in relation to situations which commonly arise;

-Complexities arising from the reliefs and their interaction with the wider tax framework;

-The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and

-The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.

The OTS will publish a report in the autumn of 2018 that contains an initial evaluation of aspects of the current IHT regime, and what they mean for taxpayers, HMRC and the Exchequer. It will also identify opportunities for simplification of IHT supported by analysis and evidence, and offer specific simplification recommendations for government to consider.

15 February 2018, the US Attorney’s Office in the Southern District of New York announced criminal charges against US Bancorp consisting of two felony violations of the Bank Secrecy Act (BSA) by its subsidiary, US Bank National Association, for wilfully failing to have an adequate anti-money laundering (AML) programme and wilfully failing to file a suspicious activity report (SAR).

The Minneapolis-based bank, the fifth largest in the US, has entered into a two-year deferred prosecution agreement with the US Attorney’s Office, which fined it US$453 million. It was also fined US$75 million by the Office of the Comptroller of the Currency, US$70 million by the Financial Crimes Enforcement Network (FinCEN) and US$15 million by the Federal Reserve, for a total of $613m.

US Attorney Geoffrey Berman said: “US Bancorp ’s AML programme was highly inadequate. The bank operated the programme ‘on the cheap’ by restricting headcount and other compliance resources, and then imposed hard caps on the number of transactions subject to AML review in order to create the appearance that the programme was operating properly. The bank also concealed its wrongful approach from the OCC. As a result, US Bancorp failed to detect and investigate large numbers of suspicious transactions. With today’s resolution, the bank has accepted responsibility for its criminal conduct and committed to completing the reform of its AML programme.”

Notable flaws included waving through transactions connected to Scott Tucker, who ran a payday lending empire and was sentenced to more than 16 years in prison last October for violating federal truth in lending and racketeering laws. US Bancorp did not file a SAR regarding Tucker until served with a subpoena in November 2013.