Owen, Christopher: Global Survey – May 2018

  • Dutch PM Rutte survives censure vote over dividend tax row
    • 26 April 2018, Dutch Prime Minister Mark Rutte survived a censure vote in the House of Representatives after he withheld information about how his Cabinet reached a decision to scrap a tax on dividends. The motion failed with 67 votes in favour and 76 against, with seven members abstaining.

      The scrapping of the tax on foreign shareholders, which will cost the Dutch treasury €1.4 billion a year from 2020, was one of the most controversial clauses in the coalition deal agreed last year, not least because none of the parties had campaigned on the issue during the general election.

      Opposition members claimed Rutte misled them when he said in November he could not remember seeing any detailed written documents being prepared about the tax cut during coalition talks last summer.

      After a freedom of information request revealed that such documents did exist, he then said they could not be released because they were confidential. Finally he bowed to pressure and the government published a file of 12 memos, totalling more than 50 pages, outlining a months-long internal decision process.

      The decision to scrap the tax was part of a successful campaign to entice Unilever to choose the Netherlands, rather than Britain, for its head office. The documents showed Unilever considered the tax cut "decisive".

  • EC issues proposals for cross-border company conversions
    • 25 April 2018, the European Commission proposed new company law rules to make it simpler for companies to merge, divide or move across borders within the single market. The proposals contain ‘strong safeguards’ to prevent setting up fictitious structures for abusive ends, such as tax avoidance or undermining workers' rights.

      In October 2017, the European Court of Justice clarified (C-106/16 Polbud) that freedom of establishment includes the right for a company to convert itself into a company governed by the law of another member state, provided the requirements of the member state of destination for its incorporation are satisfied.

      First Vice-President Frans Timmermans said: "In our thriving EU Single Market, companies have the freedom to move and grow. But this needs to happen in a fair way. Today's proposal puts in place clear procedures for companies, with strong safeguards to protect employees' rights and, for the first time, to prevent artificial arrangements aiming at tax avoidance and other abuses."

      The procedure for a cross-border merger will remain as it is in the existing Cross-border Merger Directive with the exception of new fast-track rules for ‘simple’ mergers and extra protection measures for shareholders and creditors, where discrepancies between Member States remain.

      The newly created procedures for cross-border conversions and divisions will follow to a large extent the process established already by the Cross-border Merger Directive, but will be adapted to take into account the risks for potential abuses. These procedures will include:

      -Drafting the terms of a given cross-border operation that would be publically disclosed;

      -Preparing reports by the management for the shareholders and employees;

      -An independent expert report (not mandatory for micro and small enterprises), appointed by the competent authority, not by the company; and

      -Final checks by the departure and destination member states that all conditions have been fulfilled, including the incorporation requirements in the new member states and the respect of employee participation rights

      Under the proposals, the member state of departure of a company will have to prohibit operations that constitute an artificial arrangement aimed at obtaining undue tax advantages or undermining the legal or contractual rights of employees, creditors or shareholders. In medium and large companies where this analysis may be more complex, an independent expert will be involved in providing the factual elements for the assessment by the authority of the member state of departure.

      The expert report would need to take into account: the characteristics of the establishment in the destination member state, including the intent, the sector, the investment, the net turnover and profit or loss, number of employees, the composition of the balance sheet, the tax residence, the assets and their location, the habitual place of work of the employees and of specific groups of employees, the place where social contributions are due and the commercial risks assumed by the converted company in the destination member state and the departure member state.

      The authority of the departure member state will examine whether the cross-border conversion is lawful. The authority will assess if all conditions for the cross-border conversion are fulfilled and whether or not the operation constitutes an artificial arrangement. If the authority has no objections, it will issue a pre-conversion certificate. If the conversion does not fulfil the requirements, the authority would refuse to issue a pre-conversion certificate. Should the authority have serious concerns that an artificial arrangement may be created, it may perform an in-depth examination, and, if this confirms that the arrangement is artificial, the authority would block the operation.

      After receiving the pre-conversion certificate, the authority of the destination member state would perform its legality check, including whether the company fulfils its own incorporation requirements. One such requirement could be for the company to have its head office (‘real seat’) in the same place as its registered office. The authority will also check whether the employee participation rights in case of a conversion or division have been respected.

      In respect of digitalisation, the proposal enables companies to register, file and update their data in the registers fully online, without the need of physical presence before a business registry or intermediary except where there is a genuine suspicion of fraud. As such, business registers and intermediaries will be required to integrate digital tools into their practices.

      The registration of a company and the filing of documents to the business register will be carried out entirely online without any physical presence required. Every required document can be uploaded online and the identification of company founders may be completed by the use of digital means such as e-ID, digital signatures or video conferences. Registration of companies is allowed with all parties present in the digital space and the authorised person, such as a notary, completing the process online.

      There are currently only 17 EU member states that provide for a fully online registration procedure of companies. In the other member states the only way to create a limited liability company is to go in person to the registration authority or to another body, which then submits the application for registration. This creates significant inefficiencies, unnecessary costs and delays.

      To become effective, the proposal must be approved by the EU states and presented to European Parliament.

  • EU Code of Conduct Group recommends Bahamas for removal from ‘blacklist’
    • 17 April 2018, the Bahamian government received confirmation in writing from the Secretariat of the EU Code of Conduct Group that it had recommended the Bahamas’ removal from the list of non-cooperative jurisdictions for tax purposes. The Bahamas was added to the EU blacklist on 15 March 2018.

      Following discussions between the Code of Conduct Group and the Bahamas Ministry of Finance, Member States’ delegations agreed, at a meeting on 12 April, to recommend the decision to the EU Economic and Financial Affairs Council (ECOFIN), which is responsible for making the decision official.

      Based on communications from the Secretariat, it is expected that the ECOFIN Council will take up the recommendation without discussion at its next meeting on 25 May.

      The Bahamas stipulates that it will continue to uphold international regulatory standards and best practices on matters that affect its economic development and financial well-being, and safeguard the jurisdiction’s reputation and competitiveness as an international financial centre.

      “We will continue to engage in collaborative and proactive dialogue with the Code of Conduct Group and Member States, and look forward to the harmonisation of our mutual interests,” said the Ministry of Finance.

  • European Parliament approves AMLD5
    • 19 April 2018, the European Parliament approved the latest amendments to the Anti-Money Laundering Directive (AMLD 5). Proposed by the European Commission in July 2016, the amended Directive contains extended provisions regarding the implementation and design of Ultimate Beneficial Ownership registers within the EU and closer regulation for virtual currencies, like Bitcoin, to prevent them being used for money laundering and terrorism financing.

      The updated Directive, which was passed by 574 votes to 13 votes, with 60 abstentions – aims to prevent the use of the financial system for the funding of criminal activities and to strengthen transparency rules to prevent the large-scale concealment of funds. With the objective of enhancing access to information on beneficial ownership, the following measures will be introduced:

      - Registers of beneficial owners of companies operating within the EU will be made publicly accessible and national registers will be better interconnected to facilitate co-operation between Member States.

      -Registers of beneficial ownerships of trusts and similar legal arrangements will only be publicly accessible where there is a legitimate interest. As it is recognized that trusts may also be set up for non-commercial purposes (e.g. for charity or the use of family assets), accessibility will be limited to essential data. In addition, access to beneficial ownership information on trusts will be granted upon written request, in cases where the trust owns a company that is not incorporated in the EU.

      -Information on national bank accounts and safe deposit boxes will be registered as well as information on real estate ownership, although the latter will only be accessible to public authorities.

      -Member States will retain the right to provide broader access to information, in accordance with their national law.

      To address the risks derived from pre-paid cards and virtual currencies, the scope of the Directive will be widened to cover electronic wallet providers and virtual currency exchange service providers, as well as all forms of tax advisory services, letting agents and art dealers.

      They will therefore be required to apply customer due diligence controls, including customer verification requirements, and will also have to be registered, as will currency exchanges and cheque cashing offices, and trust or company services providers. The threshold for identifying the holders of pre-paid cards will also be reduced from €250 to €150.

      There will also be tougher criteria for assessing whether non-EU countries pose an increased risk of money laundering and closer scrutiny of transactions involving nationals from risky countries (including the possibility of sanctions). There will further be enhanced protection for whistleblowers that report money laundering, including the right to anonymity.

      Co-rapporteur Judith Sargentini said: “With this new legislation, we introduce tougher measures, widening the duty of financial entities to undertake customer due diligence. This will shine a light on those who hide behind companies and trusts and keep our financial systems clean.”

      Member states will then have 18 months to transpose the new rules into national law after publication. The amended Directive is therefore expected to enter into force by the end of 2019. In respect of the specific provisions of the Directive, it is foreseen that national registers of beneficial owners of companies will be made public by the end of 2019, while national beneficial ownership registers of trusts will be accessible to persons with a legitimate interest in early 2020. In addition, the implementation of national bank account registers is expected as from 2020, while the interconnection of all national registers will proceed from 2021.

  • French court freezes assets in Hallyday inheritance dispute
    • 13 April 2018, a court in Nanterre issued a temporary freezing order against the French estate of the late French singer Johnny Hallyday who was domiciled in California when he died in December. Under the terms of a will drawn up in California in 2014, Hallyday left his €100 million estate to his fourth wife Laeticia and their two adopted daughters.

      However Laura Smet and David Hallyday, his two children from previous relationships, argue that the US will is contrary to French law, which would automatically have split the inheritance between the four children and his wife. Pending a decision over whether French or US law applies to the inheritance, they sought to freeze his assets and artistic rights.

      The court in Nanterre, west of Paris, decided to freeze those assets based in France. The judge ruled that there was a “real risk of a transfer of all assets of the deceased to the JPS Trust” – a US-based trust whose sole beneficiary is Laeticia Hallyday.

      The court said the move was justified as the transfer “could happen at any moment, and/or the liquidation of the estate, thus depriving them of almost any chance of recovering a potential share of the inheritance”.

      Laeticia Hallyday was forbidden from “selling or disposing of” the singer’s properties in Marnes-la-Coquette, an affluent village near Paris, and Saint-Barthélémy in the Caribbean. All royalties from song rights are also frozen.

  • Global Forum issues nine tax transparency compliance ratings
    • 4 April 2018, the Global Forum on Transparency and Exchange of Information for Tax Purposes published nine peer review reports assessing compliance with international standards on tax transparency.

      Eight of these reports assess countries against the updated standards that incorporate beneficial ownership information of all legal entities and arrangements, in line with the Financial Action Task Force definition.

      Four jurisdictions – Estonia, France, Monaco and New Zealand – received an overall rating of ‘Compliant’. The Bahamas, Belgium and Hungary were rated ‘Largely Compliant’ and Ghana was rated ‘Partially Compliant’. Progress for Jamaica was also recognised through a Supplementary Report that attributed a ‘Largely Compliant’ rating.

      The Global Forum now includes 150 members following the addition of Montenegro. Members of the Global Forum already include all G20 and OECD countries, all international financial centres and many developing countries.

      All peer review reports published to date can be accessed at: http://www.oecd-ilibrary.org/taxation/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-peer-reviews_2219469x

  • High Court finds Indian father was domiciled in the UK
    • 17 April 2018, the High Court found that an Indian businessman was domiciled in the UK at the time of his death In India and his daughter could therefore bring an application for ‘reasonable provision’ under the Inheritance (Provision for Family and Dependants) Act 1975.

      In Proles v Kohli [2018] EWHC 767 (Ch), Melissa Proles, the mistress of the late Baldhev Kohli is challenging his will on behalf of their five-year-old daughter for a share of the £2.5 million estate that he left to his wife, Harjeet Kaur Kohli.

      Kohli, an Indian national, came to the UK from Delhi when his eldest son enrolled at Kingston University in 2002 and, shortly after, purchased a house, which he occupied with his son. He began to buy commercial and residential properties around London and built up property letting and restaurant businesses.

      Kohli met Proles at a tennis club in Weybridge and began a relationship with her. Unbeknown to Proles, he was still married to his wife of 33 years in India. The pair lived together for a period of time before the birth of their child and it was clear that Kohli had formed a relationship with his daughter. Sometime after the birth, he was diagnosed with mouth cancer and was receiving treatment in the UK. In late 2015, Kohli undertook a visit to India, where he spent 35 days before his unexpected death. By his will, he bequeathed his entire estate to his widow.

      Proles launched proceedings on behalf of her daughter under the Inheritance (Provision for Family and Dependants) Act 1975, seeking reasonable provision for her from the father’s estate. The claim was resisted by Kohli’s widow. She disputed her husband’s paternity of the child and also argued that the English courts had no jurisdiction to consider the girl’s claim because Kohli remained domiciled in India on the date of his death.

      The issues to be decided at a preliminary hearing were whether Kohli had acquired the UK as his domicile of choice, and if so, whether he had abandoned it by travelling to India before his death.

      The Court found there was a significant amount of third party evidence that Kohli had intended to return to the UK and live there permanently after the visit to India. He had told friends and his doctor that the trip was only for ‘rest and recuperation’ and that he would be returning to the UK to complete his medical treatment in six weeks. He was also in the process of seeking to persuade HMRC that he intended to make taxable supplies and that his restaurants were ongoing concerns such that he should be re-registered for VAT.

      There was no evidence to support the widow’s claim that she and her husband had been physically and emotionally close throughout the marriage. After selling his business in India, he had travelled widely and had invested extensively in the UK. He had been closely connected to the UK for ten years before the girl’s birth and was a keen member of his local tennis club. By contrast, there was no evidence that he had a social life in India.

      The Court held the even if Kohli had changed his mind in India about returning to the UK because he realised his illness was fatal, or even if he had travelled to India intending to die there, that would not be an abandonment of his UK domicile of choice. It therefore found that Kohli was domiciled in the UK at his death and the 1975 Act claim against his estate could proceed.

      The full judgment can be viewed at http://www.bailii.org/ew/cases/EWHC/Ch/2018/767.html

  • High Court rules on trustee disclosure to beneficiaries
    • 16 April 2018, the High Court determined that a request by trust beneficiaries for disclosure about a trust could not be dismissed by the trustees merely by asserting that they already had sufficient information.

      In Lewis & Ors v Tamplin & Ors [2018] EWHC 777 (Ch), Ernest Tamplin and his wife Gladys Tamplin had purchased 12 acres of land in Glamorgan as beneficial joint tenants in 1951. Ernest died in 1985 making Gladys the absolute beneficial owner. In 1986 Gladys entered into a Deed of Variation and a Deed of Family Arrangement such that she would retain a half share in the equity of the land and remainder was to be split between her six children. Gladys died in 1988 and her half share passed to her children in trust.

      The land is now estimated to be worth in excess of  £10 million due to its potential development. Only two of the original beneficiaries survive, Edward Tamplin and Jane Wayne, who remain as trustee-beneficiaries along with Edward’s son John.

      The trustee-beneficiaries had entered into various options over trust land with potential developers but the non-trustee group of beneficiaries, the settlor’s three other grandchildren, had sought information from the trustees including:

      -Copies of the professional advice sought about the option agreements;

      -Correspondence between the trustees’ solicitors and potential developers;

      -Information about conditional fee agreements entered into by the trustees and related professional advice;

      -Information about the use and occupation of the land, including the terms of any payment relating to the trustees’ use of the land;

      -The basis on which distributions had been made to some of the trust beneficiaries;

      -Copies of tax advice; and

      -Full trust accounts.

      When the trustees refused, the non-trustee group of beneficiaries applied first to the County Court and then to the High Court. The trustees argued that because only some of the beneficiaries had requested the information, they were not entitled to have to provide it and, in their reasonable view, they had provided enough information already and the court was not able to disagree.

      In the High Court, Matthews J held that the trustees had taken an “indefensible approach” to the beneficiaries’ requests. He was satisfied that the beneficiaries had a prima facie case and noted that: ‘if the trustees had taken a less confrontational and more co-operative approach at the outset, all this litigation could have been avoided and fewer documents (perhaps none at all) would now need to be disclosed”.

      In authorising disclosure of documentation to the beneficiaries, with some limited exceptions, Matthews J found that where trustees seek legal advice for the benefit of themselves personally and pay for it themselves, without recourse to the trust funds, that advice was privileged and need not be disclosed to the beneficiaries. However, advice sought for the benefit of the trust as a whole, and paid for out of the trust funds, was liable to be produced to the beneficiaries, even if it would be subject to legal professional privilege.

      The trustees were not obliged to explain their reasoning or create documents explaining why they took the views that they did about the beneficiaries when considering making distributions.  However, if other producible documents revealed the trustees’ reasoning, the trustees could not refuse to disclose those documents on the grounds that their reasoning would be laid out.

      The full judgment can be viewed at http://www.bailii.org/ew/cases/EWHC/Ch/2018/777.html

  • HMRC consults on measures to prevent ‘profit fragmentation’
    • 10 April 2018, HM Revenue & Customs opened a consultation on proposals to tackle avoidance schemes where profits of trades or professions are moved outside the UK tax charge, often using offshore trusts and companies. The measure was announced at Autumn Budget 2017.

      The aim is to target arrangements not caught by either the transfer pricing rules or diverted profits tax through legislation that requires alienated profits meeting certain conditions to be added to UK profits, as well as a new duty to notify HMRC of such schemes and pay tax earlier, possibly within 30 days.

      The targeted legislation would apply if three conditions are met:

      - Profits are attributable to the professional or trading skills of an individual resident in the UK, whether that individual is trading as an individual or a partner, or conducting business through a company;

      - Some or all of the ‘alienated profits’ end up in an entity that results in significantly less tax being paid than if they had arisen to the UK-resident individual – an ‘entity’ would include a company, partnership or trust, whether or not having legal personality; and

      - The UK-resident individual, or a connected person, or someone acting together with them, is able to enjoy economic benefits from the alienated profits.

      A final condition would be that it could reasonably be concluded that some or all of the offshore entity’s profit is excessive in respect of the profit-making functions that the entity performs, with that excess being attributable instead to the connection between the entity and the UK-resident individual. This ‘excessive profits’ test will involve examining all of the facts around the arrangements.

      The ‘significantly less tax’ test would involve a comparison with real rates of tax suffered on the alienated profits, in the region of 80% of the UK tax that would have been paid on the same profits, rather than headline rates.

      HMRC said: "The measure will apply only to businesses that have deliberately set out to reduce UK tax by allocating excess profits to an offshore entity from which they or someone connected with them can benefit. It will have no impact on businesses that pay all UK tax correctly due on their profits."

      The consultation closes on 8 June and legislation is to be introduced in Finance Bill 2019 to take effect from April 2019. The government intends to apply it to all arrangements in existence at the start date, whenever the arrangements were entered into.

  • Hong Kong tables Bill for enhanced deduction for qualifying R&D expenditure
    • 20 April 2018, the Hong Kong government gazetted Inland Revenue (Amendment) (No. 3) Bill 2018 to amend section 16B of the Inland Revenue Ordinance to provide for an enhanced tax deduction for research and development (R&D) expenditure.

      Subject to certain conditions, it will introduce a 300% tax deduction for the first HK$2 million (US$255,000) of qualifying R&D expenditure incurred by enterprises. Expenditure above this threshold will benefit from a 200% tax deduction. R&D expenditure that does not qualify for the enhanced deduction will continue to benefit from the existing 100% tax deduction, subject to specified conditions.

      In order for expenditure on a qualifying R&D activity to be deductible, it must be incurred in relation to the taxpayer’s business and must be:

      -Paid to a designated local research institution; or

      -Paid to a designated local research institution that has, as an object, the undertaking of a qualifying R&D activity related to the class of business to which the taxpayer’s business belongs, where the payment is used for pursuing that object; or

      -An expenditure in relation to an employee engaged directly and actively in a qualifying R&D activity, or a consumable item that is used directly in a qualifying R&D activity.

      The bill is due to be introduced into the Legislative Council for first and second readings on 2 May. When enacted, it will take effect retrospectively for expenditure incurred, or payment made on, or after, 1 April 2018.

  • IRS Issues additional guidance on Transition Tax
    • 2 April 2018, the Treasury Department and the Internal Revenue Service provided additional guidance for computing the ‘transition tax’ on the untaxed foreign earnings of foreign subsidiaries of US companies under the Tax Cuts and Jobs Act, which was enacted on 22 December 2017.

      Notice 2018-26 describes regulations that the Treasury Department and the IRS intend to issue, including rules intended to prevent the avoidance of section 965, rules and procedures relating to certain special elections under section 965, and guidance on the reporting and payment of the transition tax.

      The new anti-avoidance rule provides that transactions, accounting method changes, and entity classification elections under reg. section 301.7701-3 occurring after 2 November 2017, will be disregarded if undertaken with a principal purpose of reducing the section 965 tax liability and if the tax liability would, in fact, be reduced if it was not for this new rule.

      The guidance states that some transactions are presumed to be undertaken for a principal purpose of reducing the section 965 tax, which can be rebutted only if the facts and circumstances clearly show otherwise. These transactions are cash reduction transactions, earnings and profits reduction transactions, and pro-rata share transactions.

      Further, the Service said that regulations will be issued providing that any accounting method change made for a taxable year of a specified foreign corporation that ends in 2017 or 2018 will be disregarded for purposes of determining the section 965 tax if the accounting method change reduces the tax. These rules will not apply to method changes requested prior to 2 November 2017.

      Notice 2018-26 also provides relief to taxpayers from certain estimated tax requirements and penalties arising from the enactment of the transition tax and the change to existing stock attribution rules in the Tax Cuts and Jobs Act.

      The Treasury and the IRS request comments on the rules described in the notice and on what additional guidance should be issued to assist taxpayers in computing the transition tax. Previous guidance on the transition tax was provided in Notice 2018-07, Notice 2018-13, and Revenue Procedure 2018-17, and they expect to issue additional guidance in the future.


  • OECD releases 14 additional transfer pricing country profiles
    • 9 April 2018, the OECD published new transfer pricing country profiles for Australia, China, Estonia, France, Georgia, Hungary, India, Israel, Liechtenstein, Norway, Poland, Portugal, Sweden and Uruguay respectively. They assess the current transfer pricing regimes of each country and their alignment with OECD Transfer Pricing Guidelines. The profiles of Belgium and the Russian Federation have also been updated.

      The transfer pricing profiles focus on countries' domestic legislation regarding key transfer pricing principles, including the arm's length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbours and other implementation measures.

      The updated profiles reflect the revisions to the Transfer Pricing Guidelines resulting from the 2015 Reports on Actions 8-10 Aligning Transfer Pricing Outcomes with Value Creation and Action 13 Transfer Pricing Documentation and Country-by-Country Reporting of the OECD/G20 Project on Base Erosion and Profit Shifting (BEPS). Country profiles are now available for 44 countries.

  • OECD releases new edition of the CRS Implementation Handbook
    • 5 April 2018, the OECD released the second edition of the Common Reporting Standard (CRS) Implementation Handbook. It provides practical guidance to assist government officials and financial institutions in the implementation of the CRS.

      Changes reflected in the second edition offer further guidance on the features of the legal framework of the CRS, data protection aspects, IT and administrative requirements as well as on measures to ensure compliance with the CRS.

      It also expands the trusts section in relation to the identification of Controlling Persons and includes all ‘frequently asked questions’ in relation to the CRS that have so far been issued by the OECD.

      The OECD further published a new set of bilateral exchange relationships established under the CRS Multilateral Competent Authority Agreement (CRS MCAA), which for the first time includes activations by Panama.

      In total, there are now over 2,700 bilateral relationships for the automatic exchange of offshore financial account information under the CRS worldwide. The full list of automatic exchange relationships that are currently in place under the CRS MCAA is available online. A further update is due to be published in May.

  • Privy Council issues landmark decision on trustee liability
    • 23 April 2018, the Privy Council determined that the effect of Article 32(1) of the Trusts (Jersey) Law 1984 is to limit the liability of a trustee to third parties to the trust assets and safeguard a trustee's personal assets from claims where the other party to a transaction knows that the trustee is acting in the capacity of trustee.

      In Investec Trust (Guernsey) Ltd & Anr. v Glenalla Properties Ltd. & Ors [2018] UKPC 7, the case concerned claims by BVI companies as creditors under loan agreements entered into by trustees of a Jersey law trust. It was the latest instalment in a long running dispute in relation to the Tchenguiz Discretionary Trust (TDT).

      In August 2007 the interests of property developers Robert Tchenguiz and his brother Vincent Tchenguiz, which had been held in a single trust structure, were separated into two different trust structures. As part of that exercise, the shares in several companies were transferred to the then trustees of the TDT – Investec Trust (Guernsey) Ltd and Bayeux Trustees Ltd – and the trustees of the TDT also became liable for certain loans owed to those companies.

      Although the TDT was governed by Jersey law, Investec and Bayeux were Guernsey companies and the TDT was administered in Guernsey. Consequently, the loans owed by Investec and Glenalla to the companies in the TDT were not governed by Jersey law.

      In December 2007, the TDT structure was refinanced and Icelandic bank Kaupthing obtained security over the companies to which Investec and Bayeux were indebted. Following a default in the security arrangements, Kaupthing exercised its security over the companies in the TDT structure and appointed joint liquidators over those companies. The joint liquidators demanded repayment of the loans owed by Investec and Bayeux to the companies in the structure.

      In 2010 Investec and Bayeux opened proceedings in Guernsey seeking a declaration that, under Article 32, they were not personally liable to repay the loans owed to the companies over which the joint liquidators had been appointed. The joint liquidators counterclaimed for repayment of the loans.

      Robert Tchenguiz exercised his power as protector of the TDT to replace Investec and Bayeux with a new trustee, Rawlinson & Hunter Trustees (R&H), shortly after the proceedings in Guernsey had been commenced. R&H was joined to the proceedings and argued that the joint liquidators were not entitled to enforce their claims against the TDT assets on the basis that the loan liabilities had not been reasonably incurred by Investec and Bayeux because they had committed a grossly negligent breach of trust by failing to divest themselves of the liabilities after they had been incurred.

      The Royal Court of Guernsey held in December 2013 that the liabilities owed by Investec and Bayeux had been reasonably incurred and they were not liable for gross negligence. This finding was upheld by the Guernsey Court of Appeal and by the Privy Council. Accordingly, Investec and Bayeux had a right of indemnity against the assets of the TDT in respect of their liabilities to the companies over which the joint liquidators had been appointed. However, the remaining assets of the TDT were insufficient to meet those liabilities in full.

      The Privy Council unanimously decided that the effect of Article 32 was to modify the common law by relieving a trustee of all personal liability for transactions entered into as trustee provided that the other party to the transaction knew that they were dealing with a trustee, although it also held that Article 32 does not apply to costs orders made against trustees in the course of litigation.

      The Privy Council also decided unanimously that Article 32 does not give a third party creditor of the trustee any greater right to be paid out of the trust assets than it would have at common law.  If the liability incurred by the trustee was not reasonably incurred, or the trustee had otherwise committed a breach of trust preventing the trustee from exercising its right of indemnity, then a third party creditor cannot enforce its claim against the trust assets. In those circumstances, where Article 32 applies, a third party creditor has no ability to enforce its claims either against the trustee’s personal assets or against the trust assets.

      By a majority the Privy Council decided that Article 32 applied so as to exclude the personal liability of a trustee even if the transaction that gave rise to the claim was not governed by Jersey law and the claim was brought in a forum other than Jersey.

      The majority (Lords Sumption, Carnwath and Hodge) held that the nature of the trustee’s liability was to be characterised for the purposes of private international law as a matter going to the ‘status’ of the trustee under its constitutive law and therefore Jersey law was to be applied regardless of the law governing the transaction. In a dissenting judgment, Lord Mance (supported by Lord Briggs) considered that the majority’s reasoning in this respect constituted “a radical and unprincipled innovation, with potentially far-reaching consequences” and expressed the view that “the whole area will at some stage merit revisiting, because of its potential significance.”

      The full judgment can be viewed at https://www.jcpc.uk/cases/docs/jcpc-2016-0016-judgment.pdf

  • Swiss Council adopts dispatches on treaties with Zambia and Ecuador
    • 18 April 2018, the Swiss Federal Council adopted dispatches on a new double tax treaty with Zambia and a protocol to its existing treaty with Ecuador.

      The new tax treaty with Zambia was signed in August 2017 and will replace a 1954 agreement between Switzerland and the UK, which had applied to Zambia. The treaty reduces withholding tax on dividends to a maximum of 15%, with qualified participations being taxed at no more than 5%. Withholding tax on interest is reduced to a maximum of 15%.

      The treaty also adds provisions consistent with the OECD/G20 Base Erosion and Profit Shifting (BEPS) action plan and provides for the exchange of information on request, administrative assistance and arbitration of tax disputes.

      The protocol to the Ecuador DTA was signed in July 2017. It introduces a provision on the exchange of information upon request that is in line with the international standard.

      Both agreements must now be approved by Swiss parliament. Steps must also be taken in both Ecuador and Zambia before the agreements will enter into force.

  • UK Inheritance Tax Review calls for evidence
    • 27 April 2018, the Office of Tax Simplification (OTS) issued a call for evidence and an on-line survey to gather information about people’s experience and perceptions of Inheritance Tax (IHT). It wants to hear from individuals as well as professional advisers and representative bodies. The deadline for responses is 8 June.

      OTS Tax Director Paul Morton said: “In a nutshell, while tax rates are for government, the role of the OTS is to challenge tax complexity and so help all users of the tax system, and so we hope to hear from as many individuals as possible. We are keen to hear both from those who have had some experience of dealing with Inheritance Tax and those who are concerned about it, but who may be unfamiliar with it.

      Chancellor Philip Hammond requested a review of the IHT regime on 19 January. He said the review should include a focus on the technical and administrative issues within IHT, such as the process of submitting returns and paying any tax due, as well as practical issues around routine estate planning and disclosure.

      HMRC collected a record £5.3 billion in IHT in the year to February 2018, a 13% increase on the £4.7 billion collected in 2016-17. IHT revenue has seen a rapid climb in recent years. HMRC collected £3.5 billion in 2013-14, rising to £3.8 billion in 2014-15 and £4.6 billion in 2015-16.

  • UK proposes to tighten regulation for Scottish Limited Partnerships
    • 29 April 2018, the UK government launched a consultation on proposals to tighten the regulatory framework around Scottish Limited Partnerships (SLPs) following a review that demonstrated they were being exploited abroad for money laundering schemes.

      Figures published showed that just five ‘frontmen’ were responsible for over half of 6,800 SLPs registered between January 2016 and mid-May 2017. By June 2017, 17,000 SLPs, over half of all SLPs, were registered at just 10 addresses.

      There was also evidence that SLPs had been exploited in complex money laundering schemes, including one which involved using over 100 SLPs to move up to US$80 billion out of Russia. They had also been linked to international criminal networks in Eastern Europe and around the world, and had allegedly been used in arms deals.

      The proposals would make it clearer who runs limited partnerships to enable British investors to continue to use them legitimately and invest in the UK while curtailing their use in unlawful activities. These include:

      -Requiring a real connection to the UK, including ensuring SLPs do business or maintain a service address in Scotland;

      -Registering new SLPs through a company formation agent, such that ‘frontmen’ will be subjected to anti-money laundering checks

      -New powers for Companies House to remove limited partnerships from the company register if they are dissolved or are no longer operating.

      The reforms being proposed will apply to all limited partnerships in the UK and will also include new annual reporting requirements for limited partnerships in England and Wales and Northern Ireland, which will help Companies House ensure they comply with the law.

      Last year, the government introduced laws requiring SLPs to report their beneficial owner and make their ownership structure more transparent, seeing an 80% reduction in the number registered.

      Business Minister Andrew Griffiths said: “Scottish Limited Partnerships are being abused to carry out all manner of crimes abroad – from foreign money laundering to arms dealing. This simply cannot continue to go unchecked and these reforms will improve their transparency and subject them to more stringent checks to ensure they can continue to be used as a legitimate way for investors and pension funds to invest in the UK.”

      SLPs are a business entity provided for in UK law. Limited Partnerships are formed by at least two partners, one of which must be a general partner – who is liable for any debts incurred – and one limited partner – who has limited liability but cannot play a role in how the partnership is run.

      SLPs differ to Limited Partnerships elsewhere in the UK because they have legal personality, which allows them to enter into contracts, take on debts or own property. In a Limited Partnership in England and Wales or Northern Ireland, this is done by the partners.

      The consultation seeks views on the proposals to ensure that SLPs can continue to be used as a legitimate vehicle for investment.

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