Owen, Christopher: Global Survey - July 2018

11 June 2018, the new Barbados government said it was prepared to implement “tough decisions” to revitalise an ailing economy as it announced a series of new tax measures as part new fiscal policies.

In her first financial statement and budgetary proposals for 2018, Prime Minister Mia Mottley, who came to office following in the general election in May, said that corporation tax would increase from 25 to 30% from 1 October. She also said that the international business sector would be carefully examined in the coming months.

“I will champion and defend the industry,” she said. “I will support the private sector task force's recommendations which we expect to receive by the end of July this year. In return we are working on ways in which the industry may make a greater contribution and financial impact to Barbados as we go through this period of structural adjustment.

“Given the uncertainties surrounding the OECD initiatives, we anticipate that we shall be able to address this matter before 1 October. We are aware that we will have an improved performance in our corporation taxes as a result of the re-domiciling of many companies from the UK as a result of hybrid mismatch rules. Our investigations suggest that this activity is likely to result in an increased tax revenue over a full year of approximately BBD60 million in Corporation Tax.”

11 June 2018, a draft bill was submitted to parliament to complete and amend the corporate income tax reform of 2017. The draft bill remediates certain flaws in respect of the implementation of the EU Anti-Tax Avoidance Directive.

The Bill contains a new anti-abuse provision for notional interest deduction (NID) and clarifies that the reduction of corporate income tax rate 20.4% for assessment year 2019. The Bill also provides for the regimes that will be introduced for the transfer of tax losses within a qualifying group and for controlled foreign companies and the rule to limit the deduction of certain interest based on the taxpayer’s EBITDA.

The explanatory memorandum to the draft law confirms the Belgian Constitutional Court’s decision of 1 March 2018 to abolish the fairness tax as from tax year 2019, and retroactively in cases involving violations of the EU parent-subsidiary directive.

3 June 2018, the Canadian Federal Court of Appeal overturned a 2016 Federal Court decision in that found that a taxpayer who had copied his tax lawyer's opinion to a third-party business associate was deemed to have forfeited solicitor-client privilege.

In Iggillis Holdings v Minister of National Revenue 2018 FCA 51, Ian Gillis and his holding corporation, Iggillis Holdings Inc., owned shares in various corporations. Gillis and Iggillis transferred these shares to Abacus Capital Corporations Mergers and Acquisitions, a corporate group that provided tax-planning advice.

Prior to the transfer, Abacus's tax lawyer had prepared, with contributions from Gillis's Canadian tax lawyer, a tax-planning memorandum that set out how the share transfer should proceed and the tax implications. Gillis and Abacus each received a copy. Gillis was not a client of Abacus's tax lawyer; Abacus was not a client of Gillis's tax lawyer.

Upon completion of the share transfer, the Canada Revenue Agency (CRA) issued Requirements for Information to Gillis and Abacus, which demanded that the parties provide it with a copy of the tax-planning memo. The parties refused, claiming it was protected from disclosure by solicitor-client privilege.

The Minister of National Revenue applied to the Federal Court for an order enforcing the Requirements for Information against Gillis and his holding company. Citing US case law that indicated that the other party's common interest in the taxpayer's transaction waived privilege, it argued that there was no common interest between Abacus and Gillis because they were on opposite sides of the transaction.

The Federal Court agreed, holding that “advisory CIP [common interest privilege] is not a legitimate or acceptable application of solicitor-client privilege” and, therefore the legal opinion should be disclosed. Gillis appealed.

The Federal Court of Appeal overturned the lower court’s decision. It held that the lower court should not have relied on US jurisprudence, and should have followed Canadian cases that accepted common-interest privilege as an extension of solicitor-client privilege.

Justice Webb considered whether the memo would be subject to solicitor-client privilege in Alberta and British Columbia. He noted a decision from the British Columbia Court of Appeal (Maximum Ventures Inc. v. De Graaf 2007 BCCA 510) and the Federal Court’s decision in Pitney Bowes of Canada Ltd. v. Canada 2003 FCT 214 that determined privilege.

“These cases and the commentary in The Law of Evidence reinforce the conclusion of the Federal Court judge that common interest privilege ‘is strongly implanted in Canadian law and indeed around the common-law world’ and in particular in Alberta and British Columbia which are the relevant provinces for the definition of solicitor-client privilege in subsection 232(1) of the Income Tax Act, in this case. It was therefore not appropriate for the Federal Court judge to rely on the decision of the New York Court of Appeals to effectively overturn the decisions of the Alberta and British Columbia courts”.

Justice Webb explained that when dealing with complex statutes, such as the Income Tax Act, the sharing of opinions could lead to efficiency in a transaction. “In my view, in the circumstances of this case, Abacus and Gillis had sufficient common interest in the transactions to warrant a finding that, in Alberta or British Columbia, the Abacus memo is protected from disclosure by solicitor-client privilege,” he said.

The appeal was allowed and the application of the minister to enforce the requirements under the Income Tax Act was dismissed.

7 June 2018, the European Council (at ambassadors' level) confirmed the agreement reached between the Bulgarian presidency and the European Parliament on new rules on using criminal law to counter money laundering. The new directive aims at disrupting and blocking access by criminals to financial resources, including those used for terrorist activities.

The main objectives of the new rules are to:

-Establish minimum rules concerning the definition of criminal offences and sanctions relating to money laundering;

-Remove obstacles to cross-border judicial and police cooperation by setting common provisions to improve the investigation of money laundering related offences;

-Bring EU rules in line with international obligations, in particular those arising from the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism (Warsaw Convention) and the relevant Financial Action Task Force (FATF) Recommendations.

The proposed directive was tabled by the Commission in December 2016, together with a proposal for a regulation on the mutual recognition of freezing and confiscation orders. Both texts are part of the EU plan to strengthen the fight against terrorist financing and financial crimes.

The directive also complements, in respect of criminal law, the directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, which was formally adopted in May 2018.

The final compromise agreed between institutions establishes that:

-Money laundering activities will be punishable by a maximum term of imprisonment of four years;

-Additional sanctions and measures may be imposed by judges together with imprisonment (e.g. temporary or permanent exclusion from access to public funding, fines, etc.);

-Aggravating circumstances will apply to cases linked to criminal organisation or for offences conducted in the exercise of certain professional activities. Member states may also define such aggravating circumstances on the basis of the value of the property or money being laundered or of the nature of the offence (e.g. corruption, sexual exploitation, drug trafficking, etc.);

-Legal entities will also be held liable for certain money laundering activities and could face a range of sanctions (e.g. exclusion from public aid, placement under judicial supervision, judicial winding-up, etc.).

The proposed directive further includes clearer rules to define which member state has jurisdiction and the co-operation between member states concerned for cross border cases, as well as the need to involve Eurojust, the EU agency that deals with judicial co-operation in criminal matters among agencies of the member states.

The text is now to undergo linguistic revision before formal adoption by the Council and Parliament. Member states will then have up to 24 months to transpose the new provisions into national law.

20 June 2018, EU member states confirmed the provisional political agreement reached by the European Parliament and European Council on the Commission's proposal for an EU regulation on the freezing and confiscation of assets across borders.

The new regulation was adopted under the Commission's 'Action Plan' against terrorist financing, launched in February 2016, following the terrorist attacks in Paris. It implies that a judicial decision taken in one EU Member State will be recognised and enforced by another EU Member State, without being reassessed.

The new regulation will set a deadline of 48 hours to recognise and execute freezing orders. It will also widen the scope of current rules on cross-border recognition – criminals can be deprived of criminal assets, even when the assets belong to their relatives.

The regulation includes limited grounds for one state to refuse to cooperate with a request, and an obligation to inform interested parties of the execution of a freezing order, including the reasons why it is carried out and the legal remedies available.

Finally, in cases of cross-border execution of confiscation orders, the victim's right to compensation will have priority over the claims of member states. Following this political agreement, the text of the Directive will have to be formally approved by the European Parliament and the Council.

Justice Commissioner Vĕra Jourová said: “I welcome the political agreement on new rules to facilitate confiscation of assets across borders. At the moment, 99% of criminal proceeds remain in the hands of criminals and terrorists. The current EU legislation on mutual recognition of orders to confiscate or freeze assets across borders is outdated and prone to loopholes.

“Member States must cooperate better and much faster. Our new set of rules will directly apply in Member States, with standard documents, clear deadlines and better communication between national authorities."

25 June 2018, Justice Commissioner Vera Jourová told the European Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance that transposition of the Fourth Anti-Money Laundering Directive (4AMLD) into member states' national law was 'slow and unsatisfactory'.

Speaking one year after the transposition deadline, she said the Commission had already opened infringement proceedings against 20 member states that had failed to notify their implementing legislation. These would continue against member states whose transposition of the 4AMLD remained missing or incomplete.

4AMLD requires member states to set up national registries of beneficial ownership. Some member states, notably the Netherlands, have announced that they will not be implementing until such time as 4AMLD's successor, the EU Fifth Anti-Money Laundering Directive, has to be transposed in January 2020.

Jourová also said that the detailed methodology for assessing third countries at high risk of money laundering had been completed on 22 June and circulated to relevant parties. This process would, she said, be 'transparent' to the countries concerned.

There will be an initial prioritisation process to decide which jurisdictions need to be assessed, which is to be completed by the end of this year. A qualitative assessment will be done for each of the criteria in 4AMLD, taking into account the risk profile of the country, resulting in the identification of third countries presenting strategic deficiencies.

By the end of this year, the Commission will present its first Delegated Regulation updating the list of high-risk third countries, based on the EU methodology. These countries will be followed up in 2019, to monitor their progress in addressing their deficiencies and remove them from the EU list if they correct strategic deficiencies, based on specific criteria. The situation of countries already assessed will be reviewed when new information becomes available.

The assessment of priority 2 countries will start in 2019. The Commission estimates that more than 85% of all relevant countries will be covered by 2022 – meaning most of the countries with substantial transactions with the EU financial system, said Jourová.

20 June 2018, the former wife of an Internet entrepreneur was awarded £115 million of her 51-year-old Italian husband's estimated £475 million assets after the England and Wales Family Court accepted the husband's claim for unequal sharing due to his 'special contribution' to the matrimonial assets.

In XW v XH [2017] EWFC 76, the parties – a woman from a very wealthy Asian family (XW) and an Italian businessman (XH) – met in 2007 and were married in Italy in October 2008. The wedding ceremony was conducted entirely in Italian and the parties signed a deed of marriage in Italian that included a declaration that the parties had chosen the ‘separazione dei beni’ regime.

Both parties had lived in England before the marriage and continued to do so throughout their married life. They had one child. The wife petitioned for divorce in August 2015. During the marriage the XH’s Internet company became very successful and ultimately went public in 2016. His shareholding realised around £460 million.

XW filed a petition for divorce in England, seeking a half share of the increased value of her husband's shareholding, which she valued at £235 million. XH contested this, asserting that the parties had entered into a separation of assets agreement that amounted to a nuptial agreement to which the parties should be held.

XH’s open offer was to transfer his share of a jointly owned Asian property (£3.7 million) to the wife on a Radmacher basis and pay a lump sum of £20 million. He further argued that XW's claim on his company shares should be rejected because: the shares should be regarded as a unilateral, non-matrimonial asset; at the date of the marriage, the true value of the shares was much higher than reflected in the formal valuation produced for the financial remedy proceedings; and the increase in value of the shares during the marriage was attributable to his own 'special contribution'.

Baker J held that it would be unfair to hold the wife to the separation of assets agreement, and that no weight should be attached to the agreement in determining the division of the matrimonial assets. However, after examining the history of the 'special contribution' concept, he decided to depart from the sharing principle for the reasons outlined:

-“The parties have to a very substantial extent kept their financial affairs completely separate during the marriage … In this case, the way this couple chose to run their lives was to keep their financial affairs separate. This is, to my mind, a matter of considerable relevance … In my judgment, that is a factor which the court should take into account when deciding the extent to which the assets should be shared now that the marriage has come to an end.'

-“The assets which grew so substantially in value during the latter years of the marriage were the husband’s business assets” and “the fact that the enormous wealth at issue in this case was created through the husband’s business activity is something which must be taken into account in reaching a fair decision.”

-He was “satisfied that there was a latent potential in the company not reflected in the conventional valuation ... The ultimate phenomenal success of the company was due in part to developments and decisions taken before the marriage – the creation of the company.” He therefore proposed to “undertake a broad evidential assessment before deciding how the wealth should be divided.”

-He was further satisfied that the “husband’s contribution to the growth in value of the business assets during the marriage comes within the concept of special contribution.”

In all the circumstances the judge concluded that a fair outcome would be to award the wife a lump sum equivalent to 25% of the difference between the husband’s share of the proceeds of sale of the company in 2015 and the value of the husband’s shares at the date of the marriage as assessed by the expert but increased to take account of passive growth applying the appropriate share index. This resulted in the wife retaining her own assets (£33.75 million), receiving the jointly owned property (£3.7 million) and a lump sum of £115 million, giving her 28.75% of the overall assets.

The financial remedy judgment was delivered in private on 21 December 2017 but publication was delayed due to arguments over reporting restrictions. The full judgment can be accessed at http://www.bailii.org/ew/cases/EWFC/HCJ/2017/76.html

29 June 2018, Franco-American art dealer Guy Wildenstein was cleared of tax evasion by a criminal court of appeal in Paris for the second time. French prosecutors had accused him of concealing art treasures and properties worth hundreds of millions of euros from tax authorities and sought a fine of €250 million and four years in jail, half deferred.

The court ruled that Wildenstein could not be tried because too much time had elapsed since a 2002 tax declaration following the death of his father Daniel Wildenstein. On a second inheritance in 2008, on the death of his brother Alec Wildenstein, the judge found a lack of legal basis and evidence to support a prosecution.

The widows of Daniel and Alec had accused Wildenstein of hiding, to their detriment, much of the family fortune via a web of companies and in trusts based in Guernsey and the Bahamas. This attracted the attention of French investigators, who opened an investigation in 2010 and demanded a tax adjustment payment of €550 million in 2014.

Wildenstein and his co-defendants – nephew Alec Wildenstein Junior, Alec’s widow Liouba Stoupakova, a notary, two lawyers and two trust managers – were first tried on the same charges in September 2016. This trail ended in January 2017 with their acquittal.

The court held that the defendants had not been legally obliged to disclose the trusts to French authorities at the time of the declarations. France introduced a law requiring trust reporting in 2011 – it is referred to colloquially as the 'Wildenstein law'.

Although the court found evidence of a clear intention by Wildenstein and his seven co-defendants to evade paying tax, the presiding judge said lapses in the investigation and in French law made it impossible to return a guilty verdict.

Prosecutors had successfully appealed for a re-trial but the second attempt also ended in failure. Confirming the decision of the first court, the appeal court found that the crime of tax fraud lay outside the statute of limitations, which at the time was only three years. For the second tax declaration in 2008, the appeal court found there was no legal basis for a prosecution.

The Paris prosecutor's office said it would pursue the case at the Cour de Cassation, France's court of final appeal.

9 June 2018, leaders from the Group of Seven (G7) countries said they would exchange approaches and support international efforts to deliver fair, progressive, effective and efficient tax systems, according to the final communiqué issued at the conclusion of their summit in Charlevoix, Canada.

However, shortly after German Chancellor Angela Merkel, French President Emmanuel Macron, and Canadian Prime Minister Justin Trudeau announced that the G7 members had agreed to sign the communiqué, US President Donald Trump instructed officials not to sign the agreement.

Expressing support for the OECD's work, the communiqué stated that the impact that an increasingly digitalised global economy is having on the international tax system remained a "key outstanding issue".

"We welcome the OECD interim report analysing the impact of digitalisation of the economy on the international tax system. We are committed to work together to seek a consensus-based solution by 2020," the communiqué said.

In supporting the OECD's digital tax work, the G7 appeared to reject the European Union's proposals for an ‘interim tax’ on digital companies' revenues until a consensus can be reached.

The communiqué also emphasised the G7's continued support for a multilateral approach to tackling tax avoidance and evasion “by promoting the global implementation of international standards and addressing base erosion and profit shifting.”

19 June 2018, German and French finance ministers Olaf Scholz and Bruno Le Maire issued a common position paper on the European Commission’s proposal for a directive establishing a Common Corporate Tax Base (CCTB).

The European Commission proposed in October 2016 the re-launch of the idea of a Common Consolidated Corporate Tax Base (CCCTB) through a two-step process, consisting of legislative proposals for a directive establishing a common corporate tax base (the CCTB Directive) after which agreement should be reached on the consolidation element.

According to the position paper, both France and Germany share the objective and substance of the Commission's proposed directive and are now focusing on "modifications aimed at completing or amending the CCTB Directive on certain specific points”.

The common position provides for the following scope and general principles:

-The CCTB should apply to all corporate taxpayers, irrespective of their size and legal form. The Commission’s proposal would be mandatory only for large corporate groups with consolidated revenue exceeding €750 million, while the system would be optional for other companies;

-The general principles for profit and loss recognition should be supplemented on the basis of accounting principles and calculated by applying the business asset comparison method;

-The CCTB should not feature any tax incentives such as the proposed R&D and equity financing incentives;

-The provisions on cross-border loss relief should only be discussed at a second stage, as part of the negotiation on the CCCTB Directive.

-A reasonable transitional period of at least four years should be considered.

The position paper also discusses detailed amendments of a more technical nature regarding the deduction of all taxes and duties, a participation-exemption rule, the deduction for gifts and donations, asset depreciation and special provisions on hedging instruments and insurance undertakings.

France and Germany further support alignments of the Directive with Anti-Tax Avoidance Directive (ATAD) in respect to certain measures such as general anti-abuse rules, hybrid mismatches and exit taxation.

The objective of the joint paper is to foster current discussions on the CCTB Directive at EU level and rally the other EU member states to adopt the CCTB Directive as soon as possible, before considering possible adoption of the CCCTB Directive.

20 June 2018, the Guernsey Court of Appeal handed down a judgment that resolves some of the uncertainty regarding Hastings-Bass relief, the principle under which trustees in common-law jurisdictions are able to unwind decisions that turn out to produce adverse financial consequences.

In M v St Anne's Trustees Ltd., Appeal No. 519 the appellant M had taken tax advice regarding a proposed transfer, which confirmed there were no adverse tax implications. As a consequence, the trustee had acquired shares in two property-holding companies and conducted other associated transactions in satisfaction of loans owing. This had given rise to significant adverse UK tax charges. M had sought Hastings-Bass relief.

The Royal Court examined the cases of Futter v HMRC and Pitt v HMRC, which effectively limited the protection afforded to beneficiaries to cases of 'aberrant' conduct. As a result, it declined to grant the relief because it recognised the need not to put beneficiaries of trusts in a stronger position than other ordinary individuals or to impose too stringent a test in judging trustees' decision making.

The appropriate test, it held, was whether or not the Court found it ‘unconscionable’ that the transaction should be left to stand. On the facts, the Court did not find the transaction unconscionable – instead it found that an ordinary person who made an investment with dire consequences on the basis of incorrect advice, would be obliged to take action to obtain compensation from their adviser.

The Court of Appeal disagreed with the Royal Court that there must be a causal connection between the breach of duty and the actual transaction, because once a breach of trust was established, the court had jurisdiction to void the transaction if it felt it was the appropriate form of relief.

The Court might decide there was no need to void a transaction if no prejudice or loss had been caused, but that would be at the discretion of the court in deciding whether to grant relief rather than a pre-condition for its jurisdiction to be engaged.

Instead, it stated that Hastings-Bass relief should only be applied where the trustee's failure to take account of relevant matters was of sufficient seriousness to amount to a breach of fiduciary duty. If that condition was established, the court could use its discretion to set aside the offending decision.

On the facts of the case, the Court found that there had been a breach of sufficient gravity to constitute a breach of fiduciary duty, and exercised its discretion to void the transaction. It noted that substantial prejudice had been caused to the appellant as a result of the trustee's breach, and the trustee had neither taken independent tax advice nor enquired whether the appellant had taken tax advice.

Birt JA said: “We are conscious that we have not articulated any overriding test for the exercise of discretion under the Hastings-Bass principle as the Lieutenant Bailiff sought to do. However, we do not think this would be a practicable or indeed desirable exercise. Inevitably, the exercise of discretion is likely to be fact specific.

“We do not accept the Appellant’s submission in this case that, once a breach of fiduciary duty is found, relief by way of avoidance should be granted unless there is some exceptional circumstance which militates against it. On the other hand, as we have already stated we do not consider that it is essential that ‘something more’ than the breach of duty is required to justify avoidance.

“Ultimately, it must be a decision for the court as to the outcome which it considers fair and reasonable but always bearing in mind that the beneficiaries will have incurred a loss or damage which will have been caused by a breach of duty by the trustees in circumstances where, if relief is not granted by the court, the beneficiaries will be left to seek a remedy by way of legal action against the trustees and/or professional advisers, as the case may be.”

The full judgement can be accessed on the Guernsey Legal Resources website at http://www.guernseylegalresources.gg (registration is required).

8 June 2018, the Trusts (Amendment No.7) (Jersey) Law 2018 was brought into force to refine the existing legislation, in particular, the reworking of Article 29 relating to the disclosure of information to beneficiaries.

Amendment No.7 reworks Article 29 to make it clear that restrictions can be drafted into a trust instrument, and to address the statutory powers of beneficiaries, trustees and the court in relation to requests for disclosure.

A trust instrument can be drafted to:

-Confer rights to request disclosure of information or documents concerning the trust;

-Determine the extent of a person's right to information or documents concerning the trust;

-Require trustees to disclose information or documents concerning the trust to any person.

Subject to the terms of the trust, beneficiaries and enforcers of non-charitable purpose trusts can ask the trustees to disclose documents that relate to or form part of the trust accounts. Trustees can decline to comply with such a request if they are satisfied that it is in the interests of one or more of the beneficiaries, or the beneficiaries as a whole, to do so.

The new provisions are all made subject to any order of the court and Amendment No.7 confers a statutory power on the court to make disclosure orders that override the terms of a trust.

Other provisions contained in Amendment No. 7 relate to the reservation or grant of powers by a settlor, the accumulation of income and the statutory power of advancement, a trustee’s right to reasonable security and indemnity and the court’s power to vary trusts, as follows:

-In addition to clarifying that all of the powers listed in Article 9A(2) – now widened to include certain powers relating to underlying entities wholly, partly, directly or indirectly held by the trust – may be reserved to or granted by the settlor, the amendments to Article 9A confirm that the reservation to or the granting of such powers by the settlor will not have the effect of constituting the relevant power holder as a trustee.

-Amendments to Article 38 provide that the terms of a trust may direct or authorise the accumulation of income (with either the addition of such accumulated income to capital or its retention as income) – and that, subject to the terms of the trust, there is no time limit within which these powers, or the power to distribute income, must be exercised. Where the terms of a trust are silent as to the accumulation of income, trustees now have a statutory power to accumulate any undistributed income. The statutory power of advancement under Article 38(5) has also been widened to apply to ‘all or part’ of a beneficiary's future interest in the relevant trust property.

-A new Article 43A reflects current industry practice in Jersey and confirms a trustee's right to ‘reasonable security’ where a trustee resigns, retires, is removed or otherwise ceases to be trustee, where a trustee distributes trust property or upon the termination or revocation (either in whole or in part) of a trust. Where ‘reasonable security’ is provided in the form of a contractual indemnity, Article 43A sets out the classes of persons in whose favour such indemnity may be provided, as well as their ability to enforce it.

-Amendments to Article 47 serve to extend the scope of the court's powers to approve trust arrangements in circumstances where ‘despite reasonable effort’ members of a beneficial class cannot be traced or where, given the size of the beneficial class, it would be unreasonable for such members to be contacted.

26 June 2018, the Maltese Parliament approved three bills at second reading – the Virtual Financial Assets Act, the Innovative Technology Arrangements & Service Act and the Malta Digital Innovation Authority Act – to establish a legal framework for initial coin offerings (ICOs), exchanges and innovative technologies.

The legislation is designed to provide investor protection and legal certainty to investors and operators for the setting up of crypto-currency operations in Malta, as well as to provide for legal recognition and regulation.

The Virtual Financial Assets Act (VFA) deals with the regulation of initial coin offerings (ICO) and introduces a requirement for projects attracting funding through ICO to publish ‘white papers’ that must contain detailed descriptions of the entire project. The VFA also requires that the issuer’s financial history be made public.

The Innovative Technology Arrangements and Services Act provides for the regulation of designated innovative technology arrangements. It will also give legal recognition to blockchain start-ups and other businesses looking to leverage distributed ledger technology.

The Malta Digital Innovation Authority Act provides for the creation of tan industry-specific governing body that will be responsible for supporting the development and implementation of the guiding principles relating to technology innovation, including distributed or decentralised technology. It will also exercise regulatory functions in respect of innovative technology, arrangements and related services.

The bills now go to the Committee Stage for discussion and require a third reading and presidential assent before they can be published and brought into force.

Malta has already emerged as a prominent jurisdiction in the crypto-currency industry. Binance and OKEx, the world’s largest crypto-currency exchanges by trading volume, recently set up operations on the island. Binance’s decision to relocate was based on Malta’s plan to enable fiat-to-crypto currency deposits and withdrawals through local bank partnerships.

14 June 2018, Prime Minister Pravind Jugnauth, presenting the Budget, announced reforms to the tax regime for Global Business Companies that are designed to align the taxation of Global Business Companies with domestic companies and ensure that Mauritius adheres to best practices and standards in tax matters in line with EU and OECD requirements.

The main changes consist of the abolition of the Deemed Foreign Tax Credit system available to companies holding a Category 1 Global Business Licence (GBC1), and the introduction of a partial exemption system for certain specified income as from 1 January 2019.

Under the partial exemption regime, subject to satisfying pre-defined substantial activities requirements imposed by the Financial Services Commission, GBC1 companies, except banks, will be granted an income tax exemption at the rate of 80% on the following income:

-Foreign source dividends and profits attributable to a foreign permanent establishment;

-Interest and royalties; and

-Income derived from provision of specified financial services.

Where partial exemption is not available, GBC1s will benefit from the current foreign tax credit system for taxes suffered on foreign source income.

Profits derived from global trading activities will be taxed at a reduced rate of 3%, subject to the need to demonstrate enhanced substance in Mauritius based on criteria to be issued by the Financial Services Commission (FSC). Whilst capital gains will continue to be exempt, other income derived by a GBC1 company will be subject to tax at the standard rate of 15%.

The current formula for the Special Levy on Banks – currently 10% of chargeable income for a Segment A banking business; and 3.4% on book profit and 1% on operating income for a Segment B banking business – which was scheduled to end by June 2018, will be maintained up to June 2019.

The Deemed Foreign Tax Credit regime available to banks will be abolished from 1 July 2019. In its place, a new tax regime for banks will be introduced that will make no distinction between Segment A and Segment B income. Income up to MUR1.5 billon (US$42.5 million) will be subject to a 5% rate of tax. Income above MUR1.5 billon will be taxed at a rate of 15% unless the bank satisfies certain conditions entitling it to be taxed at 5%

The Category 2 Global Business (GBC2) regime will be abolished as from 1 January 2019. The current regime will continue to apply until 30 June 2021 for companies that have been issued a licence prior to 16 October 2017.

The proposed measures aim at a harmonising the fiscal regime for domestic and Global Business Companies will be promulgated once the Finance Act is passed in Parliament. Consequential amendments will be made to other legislation relating to companies including, the Income Tax Act, Companies Act, Foundations Act, Insurance Act, Limited Liability Partnership Act, Limited Partnerships Act, Private Pension Schemes Act, Non-Citizens (Property Restriction) Act, Protected Cell Companies Act, Securities Act, and Trusts Act.

The Budget also announced two new schemes designed to attract high-net-worth individuals to Mauritius. The first scheme will offer Mauritian Citizenship to foreigners who make a non-refundable contribution of USD1 million to the Mauritius Sovereign Fund. An additional contribution of USD100,000 will be required for a spouse or dependent family member.

The second scheme will offer the opportunity to obtain a Mauritian passport provided they make a contribution of USD 500,000 to the Mauritius Sovereign Fund. An additional contribution of USD50,000 will be required for a spouse or dependent family member.

The Mauritius Sovereign Fund will be managed by the Mauritius National Investment Authority and will be used to meet disbursements for new capital projects and public debt repayments.

21 June 2018, the OECD released two reports on hard-to-value intangibles and the transactional profit split method in relation to Actions 8 and 10 of its base erosion and profit shifting (BEPS) project respectively.

The Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles (HTVI) under BEPS Action 8 is aimed at reaching a common understanding and practice among tax administrations on how to apply adjustments resulting from the application of this approach.

Designed to improve consistency and reduce the risk of economic double taxation by providing the principles that should underlie the application of the HTVI approach, the guidance also includes a number of case studies and addresses the interaction between the HTVI approach and access to the mutual agreement procedure under applicable tax treaties. The guidance has been formally incorporated into the Transfer Pricing Guidelines as an annex to Chapter VI.

The Revised Guidance on the Application of the Transactional Profit Split Method under BEPS Action 10 retains the basic premise that the profit split method should be applied where it is found to be the most appropriate method to the case at hand, but significantly expands the guidance available to help determine when that may be the case. It also contains more guidance on how to apply the method, as well as examples.

This guidance has been formally incorporated into the Transfer Pricing Guidelines, replacing the previous text on the transactional profit split method in Chapter II.

12 June 2018, leaders from the British Overseas Territories (BOTs) held two days of talks with UK government ministers in an attempt to reverse the UK parliament’s vote to require BOTs to set up public registers of beneficial ownership by the end of 2020.

In the wake the ‘Panama Papers’ exposé, MPs ignored government pleas and backed a cross-party amendment to the Sanctions and Anti-Money Laundering Bill that will require public registers of the beneficial ownership of companies in all the BOTs by 31 December 2020 or have the requirement imposed by the UK through orders in council.

The BOTs, which include the British Virgin Islands (BVI), Bermuda, Cayman Islands and Turks & Caicos Islands, assert that the legislation infringes the constitutional right of the BOTs to oversee their own domestic legislation. It has sparked protests and calls for constitutional separation

UK government ministers had been desperate to exclude the jurisdictions, which are currently in the process of establishing beneficial ownership registers that can be accessed on request by law enforcement bodies, from the legislation passed in May.

The BVI government has hired law firm Withers and instructed counsel to prepare a legal challenge on the basis that the UK parliament has overreached itself. The BVI’s position is that it will not introduce public registers unless and until they become a global standard. The Cayman Islands is considering whether to join the action or to instruct a different firm of lawyers.

David Burt, the premier of Bermuda, has already warned the UK government that he will not implement the laws, saying: “This country does not recognise the right of the UK parliament to legislate on matters which are internal affairs reserved to Bermuda under its constitution.”

However, the UK MPs who drove the cross-bench campaign for the amendment, led by former Conservative minister Andrew Mitchell and former Labour minister Dame Margaret Hodge, are now seeking to persuade the Crown Dependencies – Jersey, Guernsey and the Isle of Man – to accept the same regime as the BOTs.

7 June 2018, the Swiss Senate passed the revised corporate tax reform 17 (STR 17) bill following the recommendations of its Ways and Means Committee.

STR 17 provides for the abolition of all special corporate tax regimes, such as the holding or mixed company tax regimes, and their replacement with a series of compliant measures, such as the introduction of a Patent Box, a super Research and Development deduction, as well as a substantial reduction of tax rates at the discretion of individual cantons.

If the bill is approved by the House of Representatives this autumn of 2018 and no referendum is triggered, some elements of the reform could become effective as soon as the first quarter of 2019.

The Swiss Federal Council has set a date of 1 January 2021 for the revised withholding tax law to enter into force. The revised law was proposed in response to a decision issued by the Federal Supreme Court in 2010, which held that certain aspects of Switzerland’s individual withholding tax system were in violation of the Bilateral Agreement on the Free Movement of Persons between Switzerland and the EU.

Under the revised law, non-residents will be able to request to file a tax return to claim allowable deductions if certain requirements are met; residents subject to withholding who do not earn more than CHF 120,000 per year will be able to request to file a tax return; and non-residents will need to renew their request before 31 March of each year, whereas a request made by a resident taxpayer will be irrevocable.

18 June 2018, the Federal Tax Administration (FTA) announced that it would, for the first time, be exchanging 109 ‘country-by-country’ (CbC) reports on multinational groups with a total of 35 states by the end of June.

The scope and implementation of the exchanges are based on the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA), which has currently been signed by 69 states. CbC reports contain information on the global allocation of income, taxes paid and the group's principal business activities in particular countries.

The automatic exchange of CbC reports aims to combat base erosion and profit shifting (BEPS) and is the G20 and OECD minimum standard. Switzerland’s first exchange for the 2016 tax period is on a voluntary basis. The submission of reports will be mandatory from the 2018 tax period onwards.

 1 June 2018, the Swiss Federal Council opened a consultation on amendments to the Anti-Money Laundering Act (AMLA) that are designed to implement the recommendations in the Financial Action Task Force's (FATF) 2016 Mutual Evaluation Report on Switzerland. The consultation runs until 21 September.

The FATF report identified certain weaknesses in Switzerland’s anti-money laundering and terrorist financing regime. In June 2017, the Federal Council instructed the Federal Department of Finance (FDF) to prepare amending legislation for consultation.

The key measures proposed are as follows:

-Due diligence obligations are to be introduced for providers of services that concern the establishment, management or administration of companies and trusts. Activities for operating companies in Switzerland are excluded due to their low risk. A proposed duty to verify should ensure that the regulations are effective. Supervision or a duty to report will not apply.

-The new law now explicitly obliges financial intermediaries to verify information on beneficial owners. This creates a basis for the existing practice and enshrines case law. Financial intermediaries must also check that client data is up-to-date on a regular basis. The frequency and scope of reviews is based on the degree of risk posed by the contracting party.

-Associations that are at risk of being misused for money laundering or the financing of terrorism must now be entered in the commercial register. This concerns associations that are mainly involved in collecting or distributing assets abroad for charitable purposes.

The consultation draft makes provision for improving the effectiveness of the suspicious activity reporting system for money laundering and terrorist financing. The right to report is to be repealed because there is now little scope for its application. In addition, the threshold for cash payments in precious metals and gem trading is to be reduced, and an authorisation for the purchase of old precious metals is to be made compulsory.

The opening of the consultation procedure coincided with the publication of a report by the interdepartmental Coordinating Group on combating Money Laundering and the Financing of Terrorism (CGMF) report on the risks of money laundering for legal entities. The report analysed the risks associated with various legal forms in Switzerland and abroad, and reinforces the draft's proposed measures concerning services for companies and trusts.

The CGMT recommended eight measures in its report for consolidating the current system, which include promoting dialogue between the public and private sectors, developing and systemising statistics and specific recommendations for future analyses, as well as with regard to the examinations of the areas not covered by the AMLA – the real estate sector, the commodities industry, foundations and free ports.

27 June 2018, Kazakhstan, Peru and the United Arab Emirates signed the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), bringing the total number of signatories to 79 and the number of covered jurisdictions to 81.

The MLI is the first multilateral treaty of its kind, allowing jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. The MLI already covers over 75 jurisdictions and will enter into force on 1 July 2018 for Austria, the Isle of Man, Jersey, Poland and Slovenia, which were the first five jurisdictions to ratify it.

Serbia, Sweden and New Zealand have also recently also deposited their instruments of ratification with the OECD and the MLI will enter into force in these jurisdictions on 1 October 2018. The OECD expects more ratifications in the coming months.

Over 115 countries and jurisdictions are currently working in the Inclusive Framework on BEPS to implement BEPS measures in their domestic legislation and bilateral tax treaties. The MLI, negotiated by more than 100 countries and jurisdictions under a mandate from G20 Finance Ministers and Central Bank governors, enables signatories to swiftly modify more than 3,000 existing bilateral tax treaties.

“The new signatures and the imminent entry into force of this landmark agreement underlines governments’ commitment to update the international tax rules and ensure they are fit for purpose in the 21st Century,” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.

On 26 June, Kazakhstan became the 102nd jurisdiction to sign the OECD's Multilateral Competent Authority Agreement for the Common Reporting Standard (CRS MCAA). The CRS MCAA is a multilateral framework agreement, with the subsequent bilateral exchanges coming into effect between those signatories that file the subsequent notifications under Section 7 of the CRS MCAA.

The notifications to be filed by each jurisdiction include:

-Confirmation that domestic CRS legislation is in place and whether the jurisdiction will exchange on a reciprocal or non-reciprocal basis;

-Specification of the transmission and encryption methods;

-Specification of the data protection requirements to be met in relation to information exchanged by the jurisdiction;

-Confirmation that the jurisdiction has appropriate confidentiality and data safeguards in place;

-A list of its intended exchange partner jurisdictions under the CRS MCAA.

A particular bilateral relationship under the CRS MCAA becomes effective only if both jurisdictions have the Convention in effect, have filed the above notifications and have listed each other.

On 22 June, Vanuatu signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, making it the 123rd jurisdiction to join. The Convention, developed jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010, is the most comprehensive multilateral instrument available for all forms of tax co-operation to tackle tax evasion and avoidance.

21 June 2018, the US Supreme Court abolished the physical presence test for states to require out-of-state retailers to collect and remit sales and use tax on sales to in-state consumers.

The decision overturned the cases of National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 US 753 (1967), and Quill Corp. v. North Dakota, 504 US 298 (1992), which had established a principle that a state could not require an out-of-state seller to collect sales tax on the sale of a taxable good or service delivered into the state unless the seller had some physical presence in the state.

In South Dakota v. Wayfair, Inc. No. 17-494, the Supreme Court examined a South Dakota law requiring out-of-state retailers with at least $100,000 in sales or 200 transactions per year in the state to collect sales taxes even if they had no physical presence there.

The Court noted that a tax would be sustained provided that it applied to an activity with a substantial nexus with the taxing state, was fairly apportioned, did not discriminate against interstate commerce, and was fairly related to the services the state provides.

The ‘substantial nexus’ requirement was met where a retailer purposely “avail[ed] itself of the substantial privilege of carrying on business” in the state. The Court found that its prior precedents had erroneously construed this requirement through the imposition of an additional physical presence requirement.

With respect to the South Dakota law, the Court found that the connection of a retailer that did $100,000 or 200 transactions in the state was “clearly sufficient based on both the economic and virtual contacts…with the state” to establish “substantial nexus”.

The Court also highlighted several factors supporting the validity of the law, including:

-A safe harbour for businesses who transact only limited business in South Dakota by virtue of the $100,000 or 200 transactions threshold;

-A prohibition on retroactive application;

-Participation in the Streamlined Sales and Use Tax Agreement (SSUTA), which creates uniformity in order to reduce tax compliance costs.

The Court examined why its prior cases had been wrongly decided and emphasised that the rise of e-commerce had greatly exacerbated the analytical and practical flaws inherent in the physical presence test. All nine justices agreed that the prior cases were wrongly decided. The four dissenting justices, however, believed the physical presence test was so entrenched that the Court should defer to Congress to enact alternative national sales tax collection standards.

A number of US states have already enacted sales tax collection laws similar to South Dakota’s, and the decision in Wayfair may swiftly subject many e-commerce and catalogue vendors to new sales tax collection obligations in many states. The Court did not address the issue of retroactivity.

The decision can be viewed at https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf