4 May 2018, the Court of Appeal issued its detailed grounds for affirming the High Court’s decision to refuse an application by four foreign individuals seeking judicial review of a decision of the Comptroller of Income Tax to issue statutory Production Notices on three banks in Singapore following an exchange of information (EOI) request from South Korea.
It was the first such challenge to the Comptroller’s issuing of a Production Order for access to information protected under the Banking Act and the decision clarifies the rights of the taxpayer in situations where the EOI process is carried out without his or her knowledge.
Singapore has strengthened its framework for international cooperation to combat cross-border tax offences since endorsing the EOI Standard in 2009. In April 2013, the OECD Global Forum found Singapore’s EOI regime to be line with the EOI Standard, both in terms of legal framework and implementation. In May 2013, Singapore’s EOI administration was further streamlined with the removal of the requirement of a Court Order for the Comptroller to obtain bank and trust information from financial institutions.
In AXY and others v Comptroller of Income Tax  SGCA 23, the Comptroller received an EOI request from the National Tax Service of the Republic of Korea (NTS) in September 2013 concerning five individuals and 51 companies that were suspected of using Singapore bank accounts to conceal unreported income and evade taxes.
Following clarifications sought and obtained from the NTS, the Comptroller issued Production Notices to three banks in Singapore requiring them to furnish account information. The appellants filed an application with the High Court for a judicial review of the Comptroller’s decision.
After numerous interlocutory applications over the course of two years, the High Court dismissed their application in September 2016. The appellants subsequently applied to the Court of Appeal, which dismissed their appeal in September last year.
The Court of Appeal noted that the Comptroller had, where necessary, sought sufficient clarifications from the NTS to ensure compliance with the requirements in the Eighth Schedule of the Income Tax Act that must be fulfilled by a foreign treaty partner for all EOI requests. It found that the Comptroller’s decision had been based on information provided by the NTS over the course of several months before it was satisfied on the totality of the evidence.
The Court of Appeal held that it could not be said that the appellants had established an arguable or prima facie case of reasonable suspicion that the Comptroller’s decision was tainted by any illegality or irrationality so as to afford grounds for judicial review.
The Court of Appeal also highlighted the relevant principles in relation to the Comptroller’s role in dealing with EOI requests, as follows:
(a) The standard for assessing EOI requests remains the EOI Standard of foreseeable relevance. The requirements in the Eighth Schedule of the Income Tax Act help to ensure that the touchstone of foreseeable relevance is satisfied, while ensuring at the same time that relevant information is exchanged to the widest possible extent. The Comptroller must be satisfied that the information specified in the Eighth Schedule has been provided by the foreign tax authority unless he waives any of these requirements.
(b) The Comptroller's assessment of the foreseeable relevance of the requested information is important in determining whether an EOI request amounts to a fishing expedition, that is to say, a speculative request that has no apparent nexus to an ongoing tax inquiry or investigation by a foreign tax authority. If the Comptroller should so conclude, he should not provide the requested information.
(c) The Comptroller is afforded a wide discretion in dealing with EOI requests. In general, he is not expected to go behind the assertions made by a foreign tax authority in an EOI request. The Comptroller is not obliged to embark on an independent investigation or a mini-trial to establish the veracity of the foreign tax authority's statements, nor is he required to delve into questions concerning a foreign jurisdiction's domestic law.
(d) In assessing an EOI request, any doubts which the Comptroller may have as to whether the Eighth Schedule requirements have been satisfied and/or whether the EOI Standard of foreseeable relevance has been met should be clarified with the foreign tax authority. Such doubts may arise on the face of the EOI request itself or from the representations made by the person(s) of interest in response to the request. The Comptroller should make reasonable inquiries to satisfy himself that the requirements in the Eighth Schedule have been complied with and the ‘foreseeable relevance’ requirement met. Where the foreign tax authority provides an explanation to clarify any doubts that may arise, the Comptroller is not obliged to embark on a substantive inquiry into the correctness of that explanation.
(e) Each EOI request is generally assessed at the time it is made. At the material time, there need only be a reasonable possibility that the requested information will be relevant. Subsequent matters going towards the actual relevance of the requested information once it has been provided will generally be immaterial in a review of the Comptroller's initial decision on the EOI request.
(f) However, where a person of interest has not been served with notice of the EOI request and becomes aware of the request only after the Comptroller has made his decision on it, the person of interest should have the opportunity to raise concerns as to the validity of the request within a reasonable time, and the Comptroller should reconsider his initial decision in the light of these concerns if they appear to be legitimate. If necessary, the Comptroller should consult and seek the views of the foreign tax authority on any doubts that may arise from the representations made by the person of interest.
18 May 2018, Apple has transferred €1.5 billion into an Irish escrow account as Ireland begins to collect up to €14 billion claimed by the European Commission in back taxes and interest. The first payment followed the signing of a legal agreement between the Irish government and the US tech giant in respect of escrow arrangements.
“This is the first of a series of payments with the expectation that the remaining tranches will flow into the fund during the second and third quarter of 2018 as previously outlined,” said Minister for Finance Paschal Donohoe.
The Commission concluded, in a decision issued on 30 August 2016, that Ireland's tax benefits to Apple were illegal under EU State aid rules, because they allowed Apple to pay substantially less tax than other businesses. It sought to recover €13 billion of back taxes owed between 2013 and 2014, while Apple estimated that the interest bill would come to about €1 billion.
EU State aid rules require that illegal State aid be recovered in order to remove the distortion of competition created by the aid. The deadline for Ireland to implement the Commission's decision on Apple's tax treatment was 3 January 2017 in line with standard procedures.
Last October, the Commission decided to refer Ireland to the Court of Justice for failure to implement the Commission decision, in accordance with Article 108(2) of the Treaty on the Functioning of the European Union (TFEU).
Apple and the Irish government are each pursuing appeals seeking to annul the Commission’s State aid decision. Last year, the US government also sought permission to intervene in Apple's case, claiming that US tax revenues would be affected by the massive Irish tax recovery since US foreign tax credits would offset US tax collected on Apple’s future repatriation of the subsidiaries’ profits.
The EU General Court denied the US request to intervene on 15 December 2017, a decision that was upheld by the European Court of Justice (ECJ) on 17 May. The ECJ found that the US had failed to prove that Apple had or would repatriate the offshore profits and thus did not have an interest in the case.
8 May 2018, offshore law firm Appleby Global announced it had reached a settlement with the BBC and the Guardian newspaper regarding its breach of confidence claim for their use of stolen client documents.
Details of the settlement were not released, but the two defendants had assured Appleby that the vast majority of documents used in their so-called ‘Paradise Papers’ investigations related to a fiduciary business that was no longer owned by Appleby and therefore were not legally privileged.
Appleby launched the litigation in December to discover exactly what documents had been disclosed in order that it could inform clients and partners. It said the resolution of the legal action put it “well on our way to achieving our objectives”.
The Paradise Papers material, amounting to over 13 million documents, was hacked from Appleby's Bermuda office and other sources last year by an unknown person and passed to the German newspaper Süddeutsche Zeitung.
The Guardian and the BBC said the litigation was settled “without compromising their journalistic integrity or ability to continue to do public interest journalism”, and that their reporting was “investigative journalism that had raised important issues”.
1 May 2018, the Australian Taxation Office contacted 77 Australian private clients of Credit Suisse and is to target 106 clients in total. The ATO has identified more than 5,000 cross-border transactions that are deemed to be suspicious and which exceed $A900 million in total.
Minister for Revenue and Financial Services Kelly O'Dwyer told The Australian Financial Review that the Australians had been identified as high risk, noting links to "Swiss banking relationship managers alleged to have actively promoted and facilitated tax evasion schemes".
7 and 3 May 2018, Brazil signed treaties for the elimination of double taxation with respect to income taxes and the prevention of tax evasion and avoidance with Singapore and Switzerland respectively. The treaties will come into force when ratified by both jurisdictions.
The treaties largely follow the OECD Model Tax Treaty and incorporate the minimum standards set out by the OECD Base Erosion and Profit Shifting (BEPS) initiative although Brazil has not yet signed the Multilateral Convention. They also contain an anti-abuse clause as well as an administrative assistance clause in accordance with the current international standard for exchange of information upon request.
The residual withholding tax on dividends is limited to 10% if an investment of at least 10% has been held directly in the company for at least one year, and 15% in all other cases. There is a 0% residual withholding tax on dividends from Brazil, which does not levy a withholding tax on dividends under its domestic law.
For interest payments, the residual withholding tax generally amounts to 15%, but the rate is 10% for specific bank loans and 0% for certain pension funds and government/government agencies. In respect of royalties, the residual withholding tax is 15% for royalties on trademarks and 10% in all other cases.
The exchange of information articles follow Article 26 of OECD treaty model and both treaties contain an ‘Entitlement to Benefits Clause’, which will deny tax treaty benefits in situations seen as abusive or exceeding the intent of the treaty.
1 May 2018, the UK parliament approved a law obliging British Overseas Territories (OTs) – including the Cayman Islands, British Virgin Island and Bermuda – to introduce publicly accessible registers of the beneficial ownership of companies located in their jurisdictions before 2021 or the UK will require them to do so.
The new provision, added as an amendment to the Sanctions and Anti-Money Laundering Bill in the House of Commons, states that the UK Secretary of State must provide all reasonable assistance to OT governments to enable them to establish a publicly accessible register of the beneficial ownership of companies registered in each government’s jurisdiction.
The law further states that the Secretary of State must, no later than 31 December 2020, prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced a publicly accessible register of the beneficial ownership of companies within its jurisdiction to do so.
The new law will apply to all overseas territories listed in Schedule 6 of the British Nationality Act 1981, as follows: Anguilla; Bermuda; British Antarctic Territory; British Indian Ocean Territory; the British Virgin Islands; the Cayman Islands; the Falkland Islands; Gibraltar; Montserrat; the Pitcairn Islands; Saint Helena, Ascension and Tristan da Cunha; South Georgia and the South Sandwich Islands; Sovereign Base areas of Akrotiri and Dhekelia; and the Turks & Caicos Islands.
The UK is the only country in the world that maintains a publicly accessible register of company beneficial ownership, introduced in 2016. The UK government had previously resisted imposing public registers by force on the OTs, but since the 2017 general election it no longer has an absolute majority in the House of Commons.
A large cross-party group of campaigning MPs, led by Labour MP Margaret Hodge and Conservative MP Andrew Mitchell, tabled the amendment. Foreign Office Minister Sir Alan Duncan told the Commons that the government recognised the majority view in this house and would not oppose the amendment, despite his view that legislating directly would damage the autonomy of the OTs.
Duncan did succeed in altering the amendment to remove references to the Crown Dependencies because the UK lacks constitutional powers to enforce orders in council on Jersey, Guernsey or the Isle of Man. The requirement for publicly accessible registers does not therefore currently extend to the Crown Dependencies.
OT governments have warned they will challenge a policy that has been branded as 'colonialist'. Lorna Smith, of BVI Finance, said the use of an Order in Council to enforce UK law on the BVI “would be unprecedented and breach previous constitutional agreements that the BVI has with the UK to guarantee the BVI's right to manage its own economy”. According to government statistics, almost 400,000 companies were registered in the BVI as of June 2017.
She also stated that the BVI was deemed largely compliant on transparency by international bodies. Its register of beneficial ownership, though not open to the public, was at least verified, unlike the UK's unverified public register, which, she said, was 'riddled with problems'.
BVI premier Orlando Smith said: 'We reject the idea that that our democratically elected government should be superseded by the UK Parliament, especially in an area which has been entrusted to the BVI people.”
Cayman Islands premier Alden McLaughlin said his government was “deeply aggrieved” at the imposition of legislation through powers that date back to the colonial era. It represented, he said, “a gross affront”, especially by exempting the Crown Dependencies, which discriminated unfairly against the OTs.
Bermuda premier David Burt said that after 50 years of constitutionally sanctioned internal self-government, his government maintained, “that the constitutional position is clear and we will take necessary steps to ensure our constitution is respected”.
Gibraltar' chief minister Fabian Picardo said there was an established convention that Orders in Council were not used to make law in Gibraltar, and that he considered them “an unacceptable act of modern colonialism which would in effect overturn democracy in the relevant territory.”
31 May 2018, the Grand Court of the Cayman Islands dismissed a US$6 billion claim made by a Saudi Arabian family against the Cayman companies of a Kuwaiti-born businessman, finding that both the family and the businessman had raised about $126 billion by way of fraudulent borrowing from at least 118 banks worldwide over more than two decades. He also dismissed a $5.9 billion counterclaim.
Ahmad Hamad Algosaibi & Brothers Co. v Saad Investment Finance Corporation Ltd and Others, FSD 54 of 2009 (ASCJ), which began in the Grand Court in July 2016, centred on the collapse of the Saudi Algosaibi family’s business empire (AHAB) and the Saad Group, owned by their Kuwaiti brother-in-law Maan Al Sanea. Both defaulted during the global financial crisis in 2009, with banks and other creditors owed billions of dollars.
Al Sanea, who married into the Algosaibi family in 1980, had been appointed managing director of an AHAB business unit called the Money Exchange in 1981. Between 1981 and 2009, AHAB claimed that he had run up debts of US$33 billion and stolen US$9 billion for himself.
In his judgment, Chief Justice Smellie found that AHAB had not only known of and approved Al Sanea’s activities, it had in fact acted in concert with Al Sanea to defraud lending banks of over US$330 billion through the promulgation of fraudulent financial statements in what was described as “one of the largest Ponzi Schemes in history”.
He said allegations that Al Sanea engaged in “industrial scale fraud” upon AHAB were made on the selection of documents on a random basis; while the documents also showed AHAB was aware of the ever-increasing facilities which they procured.
It was further stated that the AHAB partners were willing to allow the massive personal borrowing of Al Sanea from the money exchange business go unchecked because it was the quid pro quo for his willingness to use the money exchange to procure fraudulent borrowing on behalf of the AHAB Partners themselves.
AHAB’s claims were for fraudulent breaches of fiduciary duties allegedly committed by Al Sanea and restitution, damages and compensation from the defendants; on the basis of their conspiracy with Al Sanea, their knowing assistance in his alleged fraud upon AHAB and ultimately, their knowing receipt of the massive proceeds of that fraud. AHAB also brought proprietary claims against the defendants on the basis that their assets represented AHAB’s property – the proceeds of the fraud – that AHAB could trace into their bank accounts or other assets.
Given the sheer number of transactions involved, AHAB argued that it was unnecessary to show an unbroken chain of transactional links in order to ground a tracing claim. Instead AHAB sought to argue, following Relfo and Durant, that it was open to the Court to infer that funds were the traceable property of AHAB. Further, given that Al Sanea was a defaulting fiduciary, AHAB could follow its beneficial interest into the hands of the defendants who were then required to give a proper account of how they acquired the funds.
The Court rejected both arguments. It held that the effect of Relfo and Durant was that the law may infer the necessary transactional links to give rise to a tracing claim where a scheme was ‘specifically designed’ to subvert the ability of creditors to recover misappropriated funds. This position did not however affect the general rule that it was necessary to establish a chain of transactions in order to trace. It further held that while a defaulting trustee or fiduciary was required to account for what has become of trust funds that did not absolve AHAB of the burden of demonstrating that particular funds were trust assets in the first place.
The Court then went on to consider whether, given AHAB’s involvement in a scheme to defraud lending banks, AHAB’s claim would be barred by application of the illegality defence. In a detailed consideration of the factors set out in Patel v Mirza  UKSC 42, the Court found that AHAB’s claim was “indistinguishable” from that of highwaymen arguing over the proceeds of theft and therefore that AHAB’s claim ought to have been barred in any event, through the application of the court’s policy that it would not enforce an illegal arrangement or because AHAB lacked clean hands and so was not entitled to invoke the equitable remedies.
30 May 2018, the Cayman Islands government announced that reporting financial institutions (FIs) have been given until 31 July 2018 to complete their FATCA and CRS reporting for the 2017 calendar year without the fear of further action by government authorities.
The AEOI reporting portal will close on 1 June 2018, as expected, and the government currently intends to re-open it on 15 June until 31 August 2018, to give FIs more time to complete their reporting obligations.
Although the statutory deadline for FATCA and CRS reporting remains 31 May 2018, provided that FIs have completed their reporting on or before 31 July 2018, no compliance or enforcement measures will be taken or penalties applied for late filing.
FIs that fail to meet the 31 July deadline may be subject to compliance reviews by the Cayman Islands Department for International Tax Cooperation.
10 May 2018, the Court of Appeal dismissed a wife’s appeal to increase a High Court award of £90 million in financial remedy proceedings, rejecting her argument to give no weight to a pre-nuptial agreement.
In Camilla Eva Carin Versteegh v Gerard Mikael Versteegh  EWCA Civ 1050, the parties, who are both Swedish, were married in Stockholm in 1993. The day before their wedding, Camilla Versteegh signed a pre-marital agreement (PMA) by which the parties committed to a separation of property regime. Immediately after their marriage, they moved to live in London and had three children. The marriage came to an end in 2014.
By an order in the High Court in January 2017, Camilla Versteegh was awarded approximately half the non-business assets (£51.4 million), together with a 23.41% interest in a land development business called H Holdings that had been created by and was run by Gerard Versteegh under a trust structure. At the time of the judgment the parties’ wealth amounted to £273 million,
In making the order Sir Peter Singer held that:
-The wife had a full appreciation of the implications of the PMA when she signed it,
-The variables it was necessary to apply in order to value the four major developments within H Holdings were so fickle that it was impossible to value them or any of them.
-A fair outcome could be achieved by an equal division of the non-business assets and the transfer by the trustees to the wife of 23.4% of the shares in H Holdings.
Camilla Versteegh appealed, seeking a rehearing of all of the issues in the case. Gerard Versteegh sought the dismissal of the appeal in its entirety.
On appeal the wife argued that the PMA should carry no weight because at the time she signed it she had received no legal advice in respect of the English discretionary regime of divorce. Instead, the case should be approached “as if it were a pure sharing case in which fairness required the wife to receive an equal division of the assets, less only her proposed 15% reduction to acknowledge the non-matrimonial property held by the husband”.
The Court of Appeal noted Lord Philips’ approach in Radmacher, which found that legal advice is ‘desirable’ but not essential, but King LJ held: “It cannot be right to add a gloss to Radmacher to the effect that such a spouse will be regarded as having lacked the necessary appreciation of the consequence absent legal advice to the effect that some of the countries, in which they may choose to live during their married life, may operate a discretionary system.”
King LJ went on to find that: “The case was a ‘sharing case’ in that the provision made went beyond that which would provide for the needs of the wife. That that was the case does not, in my view, catapult a court to the conclusion that the only fair distribution of the assets is now an equal division of the assets, subject only to an appropriate adjustment to reflect the pre-marital assets of the husband. In my judgment, an effective PMA is another example of a case where, upon a proper consideration of all the circumstances of the case (per s.25(1) MCA 1973), a court can conclude that (notwithstanding that the husband does not seek to enforce the PMA in full, and that there is now a sharing element to the case, needs having been exceeded) the assets should be divided unequally. This to use the words of Lady Hale in Radmacher represents a “modification of the sharing principle”.”
At trial it had been common ground that some credit should be given to the husband because he had brought assets into the marriage. In her judgment King LJ considered the two different treatments that have developed in respect of non-matrimonial assets – the ‘arithmetical approach’ adopted in cases such as Jones v Jones  EWCA Civ 41 and the ‘impressionistic approach’ preferred by Moylan J.
The wife did not argue that Singer J was wrong to apply the impressionistic approach in this case, but took issue with the exercise of that discretion. The Court of Appeal did not agree. During the course of proceedings over £2 million had been spent in attempts by the parties to provide the court with evidence to fix a value of the assets available for distribution or to attempt to assess future liquidity. The values given by various experts ranged wildly.
On appeal the wife argued that the Judge had failed to ‘do his job’, which ‘contaminated the judgment’. The failure to value the company and make findings as to liquidity led to erroneous conclusion that the only solution was the making of a Wells order whereby the wife was to take a shareholding in H Holdings as a minor, but significant, part of her entitlement in the proceedings.
The Court of Appeal held that “considerable unfairness can be caused to either, or both, parties if the approach is to be that in a sharing case, there is an absolute requirement on the court to settle on a valuation (come what may) and that, if the variables render such a valuation to be particularly friable, the court should simply adopt a conservative figure.” The court had therefore been justified in reaching the conclusion that it was unable to make even a “conservative estimate” as to the value of H Holdings.
The wife argued against a Wells order on the grounds that such an order was contrary to the clean break principle, interest, especially given the unusual level of hostility between the parties. It also presented difficulties in protecting her interest in the company and provided no foreseeable exit to realise her interest.
King LJ accepted that the making of a Wells order should be approached with caution but the Court of Appeal held that the Judge had not made an error of law, nor had he erred in the exercise of his discretion, particularly where he was unable to value H Holdings or estimate future liquidity with any certainty.
Further, the wife had a full appreciation of the implications of the PMA, which included providing protection for the husband’s business assets, and there had been a substantial non-matrimonial contribution by the husband largely reflected in the assets held within H Holdings. The wife had a surplus liquid fund of £29.4m over and above her needs and was therefore protected from all contingencies even in the event that she was unable to realise her interest in H Holdings for many years. The appeal was dismissed.
The full judgment can be viewed at http://www.bailii.org/ew/cases/EWCA/Civ/2018/1050.html
9 May 2018, Denmark and the Netherlands signed an amending protocol to the 1996 tax treaty between the two countries. The protocol is the first to amend the treaty and reportedly includes amendments to bring the treaty in line with the latest OECD standards in respect to BEPS and exchange of information.
The Netherlands also signed a tax treaty with Algeria, which is not yet in force, on the same day.
25 May 2018, the European Council adopted rules aimed at boosting transparency to prevent aggressive cross-border tax planning. The directive was adopted at a meeting of the Economic and Financial Affairs Council, without discussion. Member States will have until 31 December 2019 to transpose it into national laws and regulations.
The directive requires intermediaries such as tax advisors, accountants and lawyers that design or promote tax planning schemes to report schemes that are potentially aggressive. The information received will be automatically exchanged through a centralised EU database. Penalties will be imposed on intermediaries that do not comply.
The legislation contains a range of criteria or ‘hallmarks’ that stipulate when a planning arrangement must be reported. These cover issues relating to cross-border losses to reduce tax liability, and the use of special preferential tax regimes or arrangements in countries with minimal tax rates or standards.
"The new rules are a key part of our strategy to combat corporate tax avoidance ", said Vladislav Goranov, minister for finance of Bulgaria, which currently holds the Council presidency. “With greater transparency, risks will be detected at an earlier stage and measures taken to close down loopholes before revenue is lost."
14 May 2018, the European Council adopted the Fifth Anti-Money Laundering Directive (5MLD), which is designed to strengthen EU rules to prevent money laundering and terrorist financing. Amending directive 2015/849, it is part of an action plan launched after a spate of terrorist attacks in Europe in 2016.
The main changes to directive 2015/849 involve:
-Broadening access to information on beneficial ownership, improving transparency in the ownership of companies and trusts;
-Addressing risks linked to prepaid cards and virtual currencies;
-Co-operation between financial intelligence units (FIUs);
-Improved checks on transactions involving high-risk third countries.
The new Directive provides for public access to beneficial ownership information on companies; access on the basis of ‘legitimate interest’ to beneficial ownership information on trusts and similar legal arrangements; and public access upon written request to beneficial ownership information on trusts that own a company that is not incorporated in the EU.
Member states will retain the right to provide broader access to information, in accordance with their national laws. The registers will be interconnected to facilitate cooperation between EU member states.
It also aims at improving co-operation between member states' FIUs by providing access to information in centralised bank and payment account registers, to enable them to identify account holders. The Directive will require additional due diligence measures for financial flows from countries identified as having deficiencies in their anti-money laundering prevention regimes.
“These new rules respond to the need for increased security in Europe by further removing the means available to terrorists”, said Vladislav Goranov, minister for finance of Bulgaria, which currently holds the Council presidency. “They will enable us to disrupt criminal networks without compromising fundamental rights and economic freedoms.”
The directive was adopted at a meeting of the General Affairs Council, without discussion. This follows an agreement with the European Parliament reached in December 2017. The Parliament approved the agreed text on 19 April 2018.
5MLD will enter into force 20 days after it has been published in the Official Journal of the European Union. Member States must transpose it into their national laws within 18 months of the date on which it enters into force.
25 May 2018, the European Council removed the Bahamas and Saint Kitts & Nevis from the EU’s list of non-cooperative tax jurisdictions after they made commitments at a high political level to remedy EU concerns.
The two jurisdictions were consequently moved from Annex I (the ‘black list’) of the conclusions to Annex II (the ‘grey list’), which cites jurisdictions that have undertaken sufficient commitments to reform their tax policies.
The EU black list was drawn up last December following publication of the so-called ‘Panama Papers’ and ‘Paradise Papers’, which revealed widespread tax avoidance by corporations and individuals.
The three criteria used when developing the black list were transparency, fair tax competition and real economic activity. It originally included 17 jurisdictions that refused to engage with the EU or to address tax good governance shortcomings.
In January, eight jurisdictions were removed from the list, following commitments made at a high political level to remedy EU concerns. In March, the EU removed Bahrain, the Marshall Islands and Saint Lucia and added the Bahamas, Saint Kitts & Nevis and the US Virgin Islands.
As a result of the latest announcement, the black list currently comprises: American Samoa, Guam, Namibia, Palau, Samoa, Trinidad & Tobago and the US Virgin Islands.
Black-listed jurisdictions could face stricter controls on their financial transactions with the EU, although no sanctions have yet been agreed by member states. Jurisdictions on the grey list could be moved to the black list if they do not honour their commitments.
“Having fewer jurisdictions on the list is a measure of the success of the listing process”, said Vladislav Goranov, minister for finance of Bulgaria, which currently holds the Council presidency. “As jurisdictions around the world work to reform their tax policies, our challenge for the rest of the year will be to see that their commitments have been correctly implemented.”
On 8 May, Luxembourg’s direct tax authorities published a circular setting out ‘defensive measures’ in respect of non-cooperative jurisdictions. The Luxembourg tax authorities intend to subject transactions between Luxembourg companies and related entities situated in any of the listed jurisdictions to enhanced monitoring.
The Luxembourg tax authorities will require Luxembourg companies to list on their tax returns all transactions with related entities located in jurisdictions that are black-listed at the time of their financial year-end. The reporting requirement will apply for the first time in the tax returns to be filed in 2019 covering fiscal year 2018.
21 May 2018, the IRS Large Business and International division (LB&I) announced the approval of six additional compliance campaigns that will target international individuals and businesses.
The latest campaigns, which follow 29 campaigns launched since 31 January 2017, were identified through LB&I data analysis and suggestions from IRS employees. They will impact many US expatriates and foreigners with US connections by seeking to:
-Enforce reporting of ownership of foreign trusts and transactions with them, and those who receive foreign gifts;
-Penalise withholding agents who do not properly withhold, deposit or report payments of US-source income to foreign persons;
-Enforce non-resident alien (NRA) individual tax treaty exemption claims related to effectively connected income, and to fixed determinable annual periodical income; and
-Enforce the proper deduction of eligible expenses and tax credits for NRA individuals.
27 April 2018, Malta published Legal Notice 142 of 2018 in the Official Gazette to ratify the OECD's Multilateral Convention implementing tax treaty related measures to prevent Base Erosion and Profit Shifting (BEPS).
The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from G20 Finance Ministers and Central Bank governors, modifies existing bilateral tax treaties to introduce measures on hybrid mismatch arrangements, treaty abuse and permanent establishments. The Convention also strengthens provisions to resolve treaty disputes.
The Convention enters into force on 1 July 2018. Other countries that have ratified the Convention include Austria, the Isle of Man, Jersey, Slovakia, Poland and the United Arab Emirates. The amendments introduced through the Convention will have effect for existing tax treaties from 2019.
11 May 2018, the Financial Crimes Enforcement Network (FinCEN) announced that the final ‘Customer Due Diligence (CDD) Requirements for Financial Institutions’ rule, which is intended to improve financial transparency and prevent the misuse of companies, had entered into force.
The CDD Rule, which amends Bank Secrecy Act regulations, clarifies and strengthens customer due diligence requirements for US banks, mutual funds brokers or dealers in securities, futures commission merchants and introducing brokers in commodities. It requires covered financial institutions to:
-Establish and maintain written policies and procedures that are reasonably designed to identify and verify the identity of customers;
-Identify and verify the identity of the beneficial owners of companies opening accounts;
-Understand the nature and purpose of customer relationships to develop customer risk profiles; and
-Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
With respect to the new requirement to obtain beneficial ownership information, financial institutions will have to identify and verify the identity of any individual who owns 25% or more of a legal entity, and an individual who controls the legal entity.
24 May 2018, the OECD released the first peer reviews under its Country-by-Country (CbC) reporting initiative. These, it said, showed that practically all countries that serve as headquarters to the large multinational enterprises (MNEs) covered by the initiative have introduced new reporting obligations compliant with transparency requirements.
CbC reporting is a minimum standard (Action 13) of the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative. With exchanges scheduled to begin in June 2018, CbC reporting will see tax administrations worldwide collect and share detailed information on all large MNEs doing business in their country. More than 1,400 bilateral relationships are already in place for CbC exchanges, with more to come throughout the year.
Information to be collected includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets, broken down by jurisdiction.
The first annual peer review reflected implementation as of January 2018 and focused mainly on countries’ domestic legal and administrative framework as part of a phased approach. It covered 95 members of the Inclusive Framework. A few jurisdictions that were recent joiners or faced capacity constraints have not yet been included in the process, but will be reviewed as soon as possible.
It found that 60 jurisdictions had already introduced legislation to impose a filing obligation on MNEs, covering almost all MNEs expected to be in scope. The remaining jurisdictions were working towards finalising their domestic legal framework with the support of the OECD.
Where legislation was in place, the implementation of CbC Reporting was found to be largely consistent with the Action 13 minimum standard. Some jurisdictions had received recommendations for improvement on certain specific aspects of their legislation.
The second annual peer review, covering all members of the Inclusive Framework, was launched in April 2018. It will focus on the exchange of information aspects, as well as the confidentiality and appropriate use conditions. Following the first exchanges of CbC reports, work will also begin on analysing how CbC reports are used by tax administrations in assessing transfer pricing and other BEPS-related risks.
The OECD also released, on 17 May, decisions on 11 preferential regimes of BEPS Inclusive Framework members that were reviewed by the Forum on Harmful Tax Practices (FHTP) in respect of BEPS Action 5 – ‘Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance’ – which is another of the four BEPS minimum standards.
Four new regimes – Lithuania, Luxembourg, Singapore and the Slovak Republic – were found to comply with FHTP standards, meeting all aspects of transparency, exchange of information, ring fencing and substantial activities and are found to be not harmful.
Four regimes were abolished or amended to remove harmful features (Chile, Malaysia, Turkey and Uruguay). A further three regimes (Kenya and two in Vietnam) were found not to relate to geographically mobile income and/or business taxation and were therefore out of scope.
The FHTP has reviewed 175 regimes in over 50 jurisdictions since the creation of the Inclusive Framework. Of these, 31 regimes have been changed; 81 required legislative changes which are in progress; 47 regimes were deemed not to pose a BEPS risk and four were found to have harmful or potentially harmful features. A further 12 regimes are still under review.
Saint Lucia, Bahrain and the United Arab Emirates all joined the Inclusive Framework on BEPS in May. The Framework was established in January 2016 and now has 116 members that have pledged to adopt the OECD/G20 minimum standards for BEPS.
5 May 2018, the Singapore government published the Economic Expansion Incentives (Amendment) Act 2018 and related Commencement Notification and Regulations in the Official Gazette.
The Act and Regulations provide for the exclusion of income from intellectual property (IP) rights from the scope of tax relief under the Pioneer Service Companies Incentive (PC-S) and the Development and Expansion Incentive (DEI) schemes.
The change is required by Singapore’s planned introduction, as of 1 July 2018, of the new Intellectual Property Development Incentive (IDI), which will be in compliance with the modified nexus approach of BEPS Action 5.
The exclusion generally applies in respect of income from IP rights acquired from 1 July 2018, with a grandfathering provision in respect of income from existing IP rights acquired before that date for companies that were already approved as PC-S or DEI companies.
Where the IP was acquired from a related party, however, the exclusion also applies for IP rights acquired between 17 October 2017 and 30 June 2018 in cases where the main purpose, or one of the main purposes, of the acquisition was to avoid income tax in Singapore or elsewhere.
Further, where a PC-S or DEI company is given an extension of its tax relief period on or after 1 July 2018, income from all IP rights owned by the company will be excluded from relief from the first day of the extension, regardless of when the rights were acquired.
9 May 2018, the Swiss Federal Council adopted a dispatch to Parliament to approve the agreements on the automatic exchange of information (AEOI) with Singapore and Hong Kong. Last October, the Council decided to apply the agreements provisionally as of 1 January 2018 and to exchange account information with these countries for the first time in autumn 2019.
The Federal Council is requesting Parliament's authorisation to ratify the two agreements. At the same time, it is proposing the option of implementing AEOI with Singapore and Hong Kong based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA).
In order to ensure a level playing field worldwide, the Federal Council is also proposing to activate AEOI with other financial centres on a multilateral basis (MCAA) from 2019. The first sets of data should be exchanged from 2020.
The vast majority of the financial centres with which the Federal Council wishes to introduce the AEOI – Anguilla, Bahamas, Bahrain, Qatar, Kuwait and Nauru – apply AEOI in a non-reciprocal manner. They provide data but do not receive data from their agreement partners.
AEOI is to be introduced on a reciprocal basis with Panama. This also applies to the three special municipalities of the Netherlands that are located in the Caribbean – Bonaire, Saint Eustatius and Saba – which are not covered by the scope of the existing AEOI agreement with the EU.
The Federal Council intends to apply the review mechanism adopted by Parliament in December 2017 by analogy to all of the new AEOI partner states.
8 May 2018, the Federal Tax Administration (FTA) transmitted a first batch of 82 reports containing information on advance tax rulings to a total of 41 exchange of information partner states, including France, Germany, the UK, the Netherlands and Russia. Some reports were exchanged with several partner states.
Switzerland ratified the OECD/Council of Europe Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 1 January 2017. This provided for the obligation to exchange information spontaneously if the transmitting country suspects that it might be of interest to another country, even when no request has been submitted beforehand. Within the framework of the OECD/G20 project on base erosion and profit shifting (BEPS), the scope of spontaneous exchange of information was extended to advance tax rulings.
Advance tax rulings are generally issued by the cantonal tax administrations in Switzerland. The cantons must forward these to the FTA, which then carries out the administrative assistance procedure and transmits ruling reports to relevant partner states. The first batch concerned advance tax rulings that were still effective on 1 January 2018. The advance tax rulings themselves are not exchanged.
18 May 2018, a new ‘tax amnesty’ law, which was passed by the Turkish Assembly on 11 May, was brought into force. It provides for certain penalty relief on the repatriation of capital and certain receivables. Applications to participate in this tax amnesty programme are due before 31 July 2018.
Individuals who failed to report their income in Turkey or who failed to pay their full or partial Turkish taxes or tax penalties can benefit from the amnesty for calendar years between 2013 and 2017.
The scope of this amnesty law includes but is not limited to certain social security debts, various other taxes, administrative fines, as well as tax amnesty for assets held abroad. It provides the opportunity to settle tax liabilities with a discounted interest rate and eliminates corresponding tax penalties.
Individuals who would like to increase the tax bases that they have declared in a previous year’s tax return – 2013 to 2017 – can do so by increasing the tax base by a flat rate irrespective of the level of actual income and pay income tax over the declared amount at a flat rate of 20%. The related years will then be closed to any tax audit, unless a tax audit has already started.
Individuals who have not filed tax returns for the years concerned can declare a lump-sum income irrespective of the level of actual income and pay income tax over the declared amount at a flat rate of 20%. The deadline for tax amnesty is 31 August 2018.
The amnesty is also designed to attract cash, gold, securities, other capital market tools, and movable and immovable assets held outside Turkey back into the country. It offers immunity from inspections, enquiry, penalty and assessment for assets brought to Turkey by 31 July 2018. For assets brought to Turkey after 31 July 2018 but before 30 November 2018, an additional tax at the rate of 2% must be paid over the transferred asset amount.
The assets should be physically brought or transferred to a bank or intermediary company account in Turkey within three months of the declaration of these assets to the same institutions. Taxes will be collected and paid by financial institutions by 31 December 2018 upon the declaration of foreign assets.
9 May 2018, the IRS signed a bilateral competent authority arrangement (CAA) with Liechtenstein for the exchange of country-by-country (CbC) reports on multinational enterprise (MNE) groups. The CAA also came into force on the same date.
CAAs were previously signed and brought into force with Mauritius and Estonia on 27 April and 25 April respectively. A CAA with Greece, signed in September last year, was brought into force on 21 May.
CbC reporting is part of Action 13 of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan, which is intended to promote greater transparency for tax administrations by providing them with relevant and reliable information to conduct high-level transfer pricing risk assessments.
A competent authority will automatically exchange CbC reports prepared by MNEs with a reporting entity in its jurisdiction with partner jurisdiction competent authorities in all jurisdictions in which the MNE group operates, provided that a legal instrument allowing for the automatic exchange of information – double taxation agreement (DTA) or tax information exchange agreement (TIEA) – is in force and a CAA is operative.
The IRS now has 36 CAAs in operation and is currently in negotiations with Austria, Croatia, France, Germany, Hungary, India, Indonesia, Israel and Slovenia.