25 July 2018, the Abu Dhabi Global Market (ADGM) financial free zone issued a consultation paper setting out a proposed regulatory framework for operators of Private Financing Platforms (PFPs).
PFPs are online platforms that enable private enterprises to seek financing from private and institutional investors to launch and grow their businesses. The aim is to encourage the growth of start-ups and SMEs in Abu Dhabi and the MENA region
The proposed framework provides for the creation of a new regulated activity – operating a PFP – that permits both loan-based and investment-based PFP transactions. Loans or investments may be held directly by lenders or investors, or indirectly through special purpose vehicles (SPV). These will offer flexibility in respect of financing, securitisation and asset transfers.
PFP transactions will primarily be targeted at professional clients but ADGM said it may allow PFP operators to serve retail clients, on an exceptional basis, subject to appropriate safeguards.
PFP operators will be required to have appropriate systems and controls in the areas of disclosure, safeguarding of client assets, due diligence of enterprises listed on the PFP, anti-money laundering and countering the financing of terrorism.
30 July 2018, the Senate approved a series of amendments to Bermuda’s anti-money laundering laws that are designed to address matters “pertinent to Bermuda’s compliance with international standards” set by the Financial Action Task Force (FATF), which is due to commence a two-week evaluation of the island on 24 September.
The Bills approved included the Proceeds of Crime [Miscellaneous] [No. 2] Act 2018, the Proceeds of Crime [Miscellaneous] [No. 3] Act 2018, the Proceeds of Crime [Miscellaneous] [No. 4] Act 2018, the Proceeds of Crime [Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement] Amendment Act 2018, the Charities Amendment Act 2018, the Chartered Professional Accountants of Bermuda Amendment Act 2018 and the Banks and Deposit Companies Amendment Act 2018.
Attorney-General Kathy Lynn Simmons told the Senate: “As part of our ongoing efforts to enhance Bermuda’s compliance with FATF standards on combating money laundering and terrorist financing, these bills seek to achieve a number of important objectives, chief among which is to maintain Bermuda’s reputation as a premier international financial centre with a robust and effective regulatory framework.”
Among the measures is the possibility of “more targeted and appropriate” enforcement action and that key players and employees of “regulatory entities” meet fit and proper person tests to ensure that they have no criminal background and are otherwise fit and appropriate for the roles they play in the system.
The regulations also ensure that reporting of suspicious financial activity will be carried out quickly and that the obligation to report will apply even if the transactions are attempted but not completed.
2 July 2018, the UK signed new comprehensive double taxation agreements with Jersey, Guernsey and the Isle of Man. These replace existing tax treaties dating from the 1950s and will come into effect when each jurisdiction has completed its parliamentary processes and exchanged written notes. This is expected to be early in 2019.
The new treaties are all based the 2017 OECD Model Tax Convention (MTC) and incorporate measures to implement the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, as well as other important updates. The principal changes include:
- Determination of corporate residency will be agreed by the signatories' competent authorities rather than determined by the current ‘place of management’ test;
-An amended definition of permanent establishment and the corresponding allocations of profits;
-Elimination of double taxation of dividends, interest and royalties where the income is beneficially owned by a resident of the other contracting state, for certain classes of resident. For interest and royalties, this includes listed companies traded on recognised stock exchanges and companies where less than 25% of the shares or rights are owned by persons outside that territory. The double taxation clauses differ between the three Crown Dependencies;
-A ‘principal purpose test’ for treaty benefits;
-Assistance with the collection of taxes;
-Provisions for information exchange on request, which were previously set out in a separate tax information exchange agreement.
10 July 2018, the Cyprus parliament approved the new alternative investment funds (AIF) legislation, Law 124(I)/2018, which will replace the existing Law 131(I)/2014 and introduce a new form of alternative investment fund, known as a Registered AIF (RAIF). The new law will be brought into force when published in the official gazette.
RAIFs that are managed by an AIF Manager (AIFM) established in an EU Member State do not require authorisation by the Cyprus Securities and Exchange Commission (CySEC) in order to operate in Cyprus. RAIFs are required to appoint a local depository but supervision will be only at the level of the AIFM.
RAIFs may only be marketed to professional or well-informed investors and are simply required to notify CySEC, which will maintain a Register of RAIFs. CySEC will inform an applicant of its decision to accept or reject an application within one month of receipt of all required documentation.
The RAIF structure offers great flexibility. There is no minimum capital requirement and RAIFs may be open- or closed-ended and stand-alone or with an umbrella structure. They may take the form of a mutual fund, an investment company with fixed or variable capital, or a limited partnership, and the new law also introduces the concept of limited partnerships with separate legal personality.
As a further incentive for funds to establish their operations in Cyprus, Article 2 of the Income Tax Law has been amended to clarify that investment by a non-resident individual in a mutual fund or partnership operating in accordance with the provisions of the Open-ended Undertaking for Collective Investment Funds Law or the Alternative Investment Funds Law does not create a permanent establishment in Cyprus with respect to the investment.
The amending law also provides that carried interest is taxed at only 8% for the first 10 years, subject to a minimum annual tax payable of €10,000, for certain employees and executives of fund managers, provided that:
-The individual is employed in a senior executive capacity by a self-managed AIF, an AIF management company or a company to which the AIF management company has delegated the portfolio management or risk management function of the fund;
-The individual became a Cyprus tax resident when his employment with the company began, and was not a Cyprus tax resident in the year preceding the year in which the employment began, or for three or more of the five tax years preceding the year in which the employment began; and
-The net book value of the fund's assets is greater than the initial investment by the investors.
The law also amends the Special Contribution for Defence Law (Law 117(I)/2002) to provide that the rate of SDC tax payable by persons who are resident and domiciled in Cyprus in respect of dividends received from UCITS is 17%. The special tax rate of 3% levied on deemed dividend distributions is abolished.
23 July 2018, the UK government published a draft Registration of Overseas Entities Bill, which proposes a new regime requiring overseas entities to register details of their beneficial owners if they want to own, lease or dispose of land in the UK. The Bill includes penalties for non-compliance.
The Bill is intended to introduce greater transparency in the UK property market, which was described Treasury Committee chair Nicky Morgan as a “destination of choice to launder the proceeds of overseas crime and corruption”.
The draft Bill provides for the creation of a beneficial ownership register maintained by Companies House. Any overseas entity wishing to own land in the UK will be required to identify and register its beneficial owners. The term 'overseas entity' refers to “a non-UK registered body with legal personality that can own property in its own right”.
When registered, an overseas entity will obtain an overseas entity ID and will be required to update information annually until it is removed from the register of overseas entities. Failure to register will result in an overseas entity being unable to register ownership with the Land Registry and obtain full legal title. This will effectively preclude overseas entities from selling or purchasing property in the UK.
The draft Bill provides for the Secretary of State to issue a notice requiring an overseas entity to register within six months if it already owns UK property and is not already registered or exempt. An overseas entity will be required to give an information notice to any persons that it knows or reasonably believes to be a registrable beneficial owner, or to persons that it reasonably believes know the identity of a beneficial owner, to provide information needed for the purposes of registration.
In addition, the Bill creates new criminal offences, carrying penalties of between two and five years imprisonment and/or fines, for:
-Failing to comply with an information notice issued by an overseas entity
-Knowingly or recklessly providing false statements in response to an information notice
-Knowingly or recklessly making or delivering misleading, false or deceptive statements or documents to the registrar
-Failing to comply with a notice compelling registration
-Failing to update information held on the register
-Making a disposition of property that cannot be registered.
Trusts will not be included on the register. An impact assessment published alongside the draft Bill states: “We do not consider that trusts should be included on the register. Trusts do not have legal personality in their own right and so are not capable of entering into contracts. They are also commonly used for reasons including protecting assets for children and vulnerable adults, meaning that legitimate grounds exist for ensuring that information on the beneficial owners of trusts is not made publicly available.”
The sponsoring government department, the Department for Business, Energy & Industrial Strategy (BEIS), has opened a consultation seeking views on the technical aspects of the Bill, which will close on 17 September 2018.
6 July 2018, the European Commission opened an in-depth investigation to examine whether Portugal has applied the Madeira Free Zone regional aid scheme in conformity with the 2007 and 2013 Commission approvals.
In particular, the Commission said it had concerns that tax exemptions granted by Portugal to companies established in the Madeira Free Zone were not in line with the Commission decisions and EU State aid rules.
Competition Commissioner Margrethe Vestager said: "Our regional aid rules are particularly flexible when it comes to supporting the EU's outermost regions, including Madeira. Under these rules, fiscal aid can only be granted if it contributes to the creation of real economic activity and jobs in the assisted region. We will now investigate whether the Zona Franca Madeira fiscal aid scheme approved by the Commission in the past has been applied correctly by Portugal."
The Madeira Free Zone (Zona Franca da Madeira, “ZFM”) was created by Portugal in 1987 to attract investment to and create jobs in Madeira. Portugal put in place a regional aid scheme providing support to companies establishing themselves in the ZFM through:
-Corporate income tax reductions on profits resulting from activities performed in Madeira;
-Other tax reductions, such as an exemption from municipal and local taxes, as well as exemption from transfer tax payable on real estate for setting up a business in the ZFM.
The Commission approved successive versions of the ZFM regional aid scheme under EU State aid rules on several occasions between 1987 and 2014. State aid must be granted exclusively to companies generating economic activity and real jobs in the outermost regions.
Having carried out a preliminary assessment of how Portugal applied the ZFM aid scheme until its expiry at the end of 2014, the Commission has concerns that the Portuguese authorities may have failed to respect some of the basic conditions under the 2007 and 2013 decisions, in particular that:
-The company profits benefiting from the income tax reductions originated exclusively from activities carried out in Madeira;
-The beneficiary companies actually created and maintained jobs in Madeira.
The Commission will now investigate further to find out whether its initial concerns are confirmed. The opening of an in-depth investigation gives Portugal and interested third parties an opportunity to submit comments.
Portugal has informed the Commission that, since 2015, it has implemented a similar aid scheme on the basis of the 2014 General Block Exemption Regulation (GBER). Under this Regulation, Member States can implement regional operating aid schemes for companies established in outermost regions, without notification and approval by the Commission, as long as certain conditions are respected.
2 July 2018, the tax enforcement authorities of Australia, Canada, the Netherlands, the UK and the US announced the establishment of the Joint Chiefs of Global Tax Enforcement (J5), a joint operational alliance to increase collaboration in the fight against international and transnational tax crime and money laundering.
The J5 was formed in response to the OECD‘s call to action for countries to do more to tackle the enablers of tax crime. The new alliance is to focus on building international enforcement capacity by sharing information and intelligence, enhancing operational capability by piloting new approaches and conducting joint operations to bring those who enable and facilitate offshore tax crime to account.
Membership of the J5 includes the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).
At its first meeting in Montreal, the J5 discussed tactical plans and identified opportunities to pursue cyber criminals and enablers of transnational tax crime. Members agreed to the sharing of data and technology, conducting operational activity and taking advantage of collective capabilities.
Don Fort, chief of IRS-CI, said: “We cannot continue to operate in the same ways we have in the past, siloing our information from the rest of the world while organised criminals and tax cheats manipulate the system and exploit vulnerabilities for their personal gain. The J5 aims to break down those walls, build upon individual best practices, and become an operational group that is forward-thinking and can pressurise the global criminal community in ways we could not achieve on our own.”
Further updates on J5 initiatives are expected in late 2018.
23 July 2018, the Gibraltar Blockchain Exchange (GBX), which aims to position itself as an institutional-grade token sale platform and digital asset exchange, went live and opened to users that have completed the KYC requirements. It followed a soft launch on 4 June, which saw 300 participants to gain early access.
The platform was launched with six cryptocurrencies available on the exchange – Bitcoin (BTC), Ethereum (ETH), Rock Token (RKT), Litecoin (LTC), Bitcoin Cash (BCH) and Ethereum Classic (ETC) – which had a combined market capitalisation of over US$170 billion.
The GBX GRID, the GBX token sale platform, has already completed its first token sale and announced three new projects coming to the GBX. The GRID is reserved for projects that have completed an application process and been vetted thoroughly by one of the 15 sponsor firms in the network.
Issuers that have completed their token sale on the GBX GRID will also have the opportunity to list their tokens on the GBX platform’s Digital Asset Exchange. This opportunity to list new tokens will also be open to other token issuers that have not come through the GBX GRID.
The exchange offers fiat onboarding for customers, as well as a number of trading pairs. At present, three USD pairs are available for customers, with USD on-boarding available for BTC, ETH and RKT. A greater number of fiat currencies is planned in the future.
The primary medium of exchange for trades on the GBX platform will be the GBX-generated Rock Token (RKT), a utility token that can be used to pay trading fees, listing and sponsor fees and for issuer staking on the GBX. It will also grant holders early access to token sales hosted on the GBX GRID and reduced trading fees on the Digital Asset Exchange.
GBX chief executive Nick Cowan said: “One of the biggest hurdles for people looking to enter the crypto-space is knowing how to get started, where to source ETH or how to buy BTC from a trusted platform. With fiat onboarding now in place, that’s no longer an issue.
“We have made concerted efforts to ensure that upon our public launch, the GBX would host a number of leading cryptocurrencies and tokens to ensure utility for the trading community. We are already looking forward to making significant additions to this offering in the future as we continue to make sustained progress in offering users the most comprehensive trading options possible.
ICOs have raised a combined total of US$13.7 billion globally in 2018, more than was raised in all previous ICOs combined.
10 July 2018, the Jersey parliament approved, under Regulation 127GB of the Companies (Jersey) Law 1991, the Companies (Demerger) (Jersey) Regulations 2018. These are intended to provide a better, clearer and more flexible framework for company demergers.
The new regulations enable the undertaking, property, rights and liabilities of a Jersey company to be divided amongst two or more companies, as well as permitting the transfer of their assets and liabilities.
Geoff Cook, chief executive of Jersey Finance, said: ““These new regulations are designed to make it easier and more cost-effective for companies wanting to demerge. Against a low interest rate backdrop, globally dynamic companies are increasingly looking to pursue growth strategies through M&A activity. We anticipate that this will drive a future need for good quality centers that can provide clear, straightforward and flexible regimes for corporate restructuring.”
12 July 2018, the Jersey Financial Services Commission (JFSC) issued a guidance note containing information about its approach to businesses that wish to launch an initial coin offering (ICO) in Jersey.
ICOs are a digital way of raising funds from the public using distributed ledger technology. The note, which enables ICOs to be launched in Jersey with a number of controls in place to help reduce some of the associated risks, sits alongside a risk warning for potential ICO investors issued by the JFSC in 2017.
Under the framework, the JFSC does not regulate the ICOs or the companies that issue them, but it does place some conditions on ICO issuers through its powers under the Control of Borrowing (Jersey) Order 1958 (COBO), a statutory instrument governing the raising of capital in Jersey.
An issuer is required to obtain a COBO Consent from the JFSC, which may choose to impose certain conditions, before it undertakes any activity. As a general policy, Jersey-based ICO issuers are required to be incorporated as a Jersey company and administered through a trust and company service provider that is licensed by the JFSC under the Financial Services (Jersey) Law 1998 to carry on trust company business (TCSP).
An application for consent is to be accompanied by analysis prepared by the issuer’s legal advisers outlining:
-Proposed activity including relevant timelines
-Details of the issuer and the ICO
-Rationale for the ICO, amount to be raised and use of proceeds
-Summary of the features of the tokens
-Summary of purchase and redemption processes
-Service providers to the issuer
-Relationship between issuer and holder of tokens
-Management of underlying assets and security rights over such assets for holders of the tokens
-How the activity will be wound up/dissolved and assets distributed to the holders of the tokens
An ICO issuer is also required to establish and obtain evidence to verify the identity of the purchasers of the tokens who purchase coins directly from the issuer, and the holders of tokens issued by the issuer in the event they are sold back to the issuer. It must also establish – and, depending on the level of risk, obtain evidence to verify – the source of funds and source of wealth.
The TCSP must ensure that it has the appropriate level of knowledge, skills and experience to provide the agreed services to the issuer and prior to being appointed and on an ongoing basis it must take appropriate steps to satisfy itself as to:
-The honesty and integrity of the issuer and the persons associated with it
-The issuer’s approach to acting in the best interests and needs of each and all its customers
-The adequacy of the issuer’s financial and non-financial resources
-How the issuer will manage and control its business effectively, and ensure that it will conduct its business with due skill, care and diligence
-The effectiveness of the issuer’s arrangements in place for the protection of client assets and money when it is responsible for them
-The effectiveness of the issuer’s corporate governance arrangements
-How the issuer ensures that that all systems and security access protocols are maintained to appropriate high standards
-What systems the issuer has in place to prevent, detect and disclose financial crime risks such as money laundering and terrorist financing
-The issuer’s marketing strategy, including the types of persons to whom the ICO will be marketed, how it will be marketed, and the jurisdictions in which it will be sold or marketed (including consideration of any relevant laws or restrictions that may apply in other jurisdictions)
-4The resilience of the issuer and the adequacy of contingency plans for the orderly and solvent wind down of its business.
Compliance with this will be considered as part of the JFSC’s supervisory approach to the TCSP sector. An ICO issuer must also take appropriate steps to mitigate and manage the risk of retail investors investing inappropriately in ICOs, and to ensure retail investors understand the risks involved.
Minister for External Relations Ian Gorst said: “We have worked with the JFSC to articulate a balanced regime: on the one hand, Jersey’s treatment of exchanges and ICOs is permissive and promotes innovation and new enterprise. On the other hand, safeguards are in place to protect investors from harm and to mitigate some of the financial crime risks associated with cryptocurrencies. As things develop in this rapidly-moving industry we will monitor best practice and continue to update our regime in the future.”
2 July 2018, the Netherlands government advanced three arguments before the General Court of the European Union in support of its challenge to the European Commission’s decision that a 2008 advance pricing agreement (APA) granted to a Starbucks subsidiary was illegal State aid.
On 21 October 2015, the Commission ordered the Netherlands to cease the advantageous tax treatment to Starbucks Manufacturing BV and to recover €20 to €30 million in unpaid tax to negate the unfair competitive advantage it had enjoyed and restore equal treatment with other companies in a similar situation.
According to the Dutch finance ministry, the Netherlands argued before the General Court that the Commission erred because it had failed to carry out its transfer pricing analysis based on the arm’s length principle, as formulated under Netherlands’ law and regulations.
“With its analysis, the European Commission is taking it upon itself to impose its own interpretation of the arm’s length principle on Member States. However, there is no basis for this in Article 107 of the Treaty on the Functioning of the European Union,” the ministry said.
The ministry also said it believed the profit determination that it used in the APA was arm’s length. Starbucks’ Dutch subsidiary was a coffee roaster conducting simple routine activities and should receive remuneration accordingly, the Dutch ministry said. The ministry said the Starbucks subsidiary’s remuneration was compared against 20 independent roasters.
The Dutch ministry further told the court that the Commission’s argument that other intercompany transactions should have been assessed was faulty because these transactions were not relevant for determining the arm’s length profit of Starbucks’ subsidiary in the Netherlands. It maintained that part of the income identified by the Commission as attributed to the Netherlands had in fact been earned in the US and taxed in the US at a 35% rate.
The General Court of the European Union is expected to deliver judgement within a few months. Its decision may be appealed to the Court of Justice of the European Union.
18 July 2018, the UK government announced that a new tax treaty with Cyprus had been brought into force following the completion of ratification procedures. It was signed on 22 March.
The new treaty, which replaces the 1974 agreement, eliminates withholding tax rate on payments of dividends, interest and royalties with the exception of dividends paid by certain investment vehicles out of income derived, directly or indirectly, from tax exempted immovable property income. In such cases a 15% withholding tax rate applies.
For capital gains, Cyprus retains the exclusive taxing right on the disposal of shares made by Cyprus tax residents, except: where the shares derive more than 50% of their value (directly or indirectly) from immovable property situated in the UK or where the shares derive their value or the greater part of their value (directly or indirectly) from certain offshore rights/property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in the UK.
Cyprus also retains the exclusive taxing rights on pension income of Cyprus tax resident individuals, with the exception of certain cases of UK government service pensions.
The new treaty is based on the OECD model treaty and incorporates the Principal Purpose Test (PPT), which is a minimum standard under the Base Erosion and Profit Shifting (BEPS) project. The PPT provides that a double tax treaty benefit will not be granted if obtaining that benefit was one of the principal purposes of an arrangement or transaction. This measure is designed to tackle “treaty shopping” and puts a strong emphasis on ensuring that operations are supported by appropriate substance and reflect a principal commercial rationale.
The new treaty will apply in Cyprus as of 1 January 2019. In the UK, will apply in respect of withholding taxes for amounts paid or credited as of 1 January 2019, for income tax and capital gains tax from 6 April 2019 and for corporation tax for any financial year beginning on or after 1 April 2019.
In the UK for withholding taxes for amounts paid or credited the New Treaty shall take full effect on or after 1 January 2019, for income tax and capital gains tax it shall take full effect from 6 April 2019, and for corporation tax for any financial year beginning it shall take full effect on or after 1 April 2019.
20 July 2018, the Swiss Financial Market Supervisory Authority (FINMA) found Rothschild Bank and its subsidiary Rothschild Trust (Schweiz) to be in serious breach of Swiss anti-money laundering rules in respect of business relationships and transactions concerning the alleged corruption scandal involving Malaysian sovereign wealth fund 1MDB.
Specifically, FINMA found that the bank and trust company had failed to adequately clarify the origin of assets in a significant business relationship. Although there were early indications that this client could be involved in money laundering activities, the institutions had decided nevertheless to enter into the relationship and at a later stage considerably expand it.
Given the inadequate clarifications carried out, FINMA found that the institutions also breached their reporting requirements. They reported suspicions of money laundering to the Money Laundering Reporting Office Switzerland (MROS) only after a substantial delay. The bank also failed to adequately document a number of high-risk transactions.
FINMA said the firms had already taken steps to implement a range of organisational measures aimed at improving compliance with anti-money laundering rules. FINMA is to appoint an audit agent to review the appropriateness and effectiveness of these measures and of the internal control system for combating money laundering.
The case was the last of seven cases relating to 1MDB. FINMA said it has now concluded enforcement proceedings.
31 July 2018, the Federal Administrative Court in St Gallen ruled that the Federal Tax Administration (FTA) should not provide France with details about 40,000 UBS bank clients with French addresses.
In May 2016, the French tax authorities filed requests for administrative assistance from the FTA in December 2012 and again in December 2013 for information about taxpayer returns for 2010, 2011 and 2012 in respect of UBS clients who lived or had lived in France.
The FTA agreed to assist in February 2018 and ordered UBS to transfer the information. UBS, along with account holders, challenged the proceedings in court, contending that the French tax office had not been sufficiently specific about the data it was seeking. The Federal Administrative Court made UBS a party to the French tax office’s request in an October 2016 ruling, enabling the bank to appeal.
The Swiss Federal Administrative Court said in a statement that French officials had not provided evidence that “the taxpayers involved have failed to comply with their tax obligations.” It concluded: “Simply having an account in Switzerland is not sufficient.”
“The decision confirms our initial view that the request for administrative assistance is inadmissible,” said UBS in a statement. The French tax authorities can appeal the decision to the Swiss Federal Court.
26 July 2018, the number of individuals claiming non-domiciled taxpayer status in the UK dropped by almost a quarter in 2016-2017 – from 120,000 to 91,100 – according to figures published by the UK tax authority.
HMRC said it traced the taxpayers who stopped claiming non-dom status, and found they split into two broadly equal groups: taxpayers who switched their status from non-domiciled taxpayer to domiciled taxpayer and continued to pay tax in the UK, and non-domiciled taxpayers who left the UK tax system in 2016/17.
HMRC said the number of non-UK resident non-domiciled taxpayers decreased from 33,600 in 2015/16 to 14,300 in 2016/17, but these taxpayers had contributed very little UK tax in the previous year (2015-2016).
In the 2016-2017 year, resident non-doms paid £9.4 billion in UK income tax, capital gains tax and national insurance contributions. This was £130 million higher than the previous year, and the highest paid in any year since the remittance charge for non-doms was introduced in 2007-2008.
16 July 2018, the Department for Business, Energy and Industrial (BEIS) confirmed that the UK government intends to transpose the fifth EU anti-money laundering directive (AMLD V), which will establish beneficial ownership registers in respect of trusts as well as companies, into national law.
Member states are required to transpose the directive into their national legislation by 10 January 2020. Although the UK will formally leave the EU in March 2019, there will be a transition period until the end of December 2020 during which the UK has undertaken to abide by all existing and new European laws.
In a letter sent to the MP Margaret Hodge, parliamentary undersecretary of state at the BEIS Lord Henley wrote: “You ask about the government’s plans in regard to complying with the requirements of the fifth anti money laundering directive. The deadline for the transposition of the directive falls within the implementation period and the UK will transpose this directive.”
AMLD V was presented by the European Commission in July 2016 in the wake of terrorist attacks and the revelations of the Panama Papers scandal, and was adopted by the European Parliament on 19 April 2018. It sets out a series of measures to better counter the financing of terrorism and to ensure increased transparency of financial transactions, including:
-Public registers of company owners in every member state;
-Access to the names of the beneficiaries of trusts for law enforcement agencies and those with a “legitimate interest”, including investigative journalists and NGOs;
-A cross-border database of company and trust owners, overseen by the European Commission;
-Automatic access to the names of bank account holders for national financial intelligence units.
There is no explicit requirement for AMLD V to be extended to the UK’s Crown Dependencies or Overseas Territories. In the case of a ‘no-deal’ Brexit, it is unclear whether the UK government would still implement new EU laws.
23 July 2018, Ukraine became the 83rd jurisdiction to sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), which now covers over 1,400 bilateral tax treaties.
The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from the G20 Finance Ministers and Central Bank Governors, enables jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties.
Measures included in the Convention address hybrid mismatch arrangements, treaty abuse, and strategies to avoid the creation of a "permanent establishment". The Convention also enhances the dispute resolution mechanism, especially through the addition of an optional provision on mandatory binding arbitration, which has been taken up by 28 jurisdictions.
11 July 2018, the Department of Treasury and IRS issued final regulations on certain inversion and post-inversion transactions, which finalize proposed regulations and remove temporary regulations dating from April 2016.
The final regulations target certain transactions structured to avoid the purposes of section 7874 where a foreign corporation directly or indirectly acquires the assets of a US corporation or partnership when the former shareholders of the US corporation own 60% or more of the acquiring foreign corporation.
Section 7874 requires an examination of the shareholder overlap between a domestic corporation and an acquiring foreign corporation before and after a transaction – the ‘Stock Ownership Test’ – to determine whether to treat the foreign acquiring corporation as a domestic corporation going forward or to limit its use of certain tax benefits, unless the resulting group has sufficient activities in the new jurisdiction – the ‘Substantial Business Activities Test’.
The final regulations largely follow the 2016 regulations, but make some limited modifications and clarifications, including to the rules applying the Stock Ownership Test which can disregard foreign acquiring corporation stock issued in certain prior domestic entity acquisitions – the ‘Serial Acquisitions Rule’.
In Chamber of Commerce v. IRS, 2017 WL 4682049 (W.D. Tex. 2017), the US District Court invalidated the Serial Acquisitions Rule in the 2016 regulations for failure to comply with the notice and comment requirements of the Administrative Procedure Act (APA). The government is expected to withdraw its appeal of the District Court’s decision.
The effective date of the final regulations is 12 July 2018, and the applicability dates for various measures are set out in the final regulations.