Owen, Christopher: Global Survey – November 2018

  • BVI amends CRS regime and introduces CbC reporting
    • 4 October 2018, the BVI government published the Mutual Legal Assistance (Tax Matters) (Amendment) Act 2018. It introduces new requirements to the existing Common Reporting Standard (CRS) regime, which has been in force in the BVI since 1 January 2016.

      Under the amendments, all BVI financial institutions (FIs) are now required to establish, implement and maintain written policies and procedures for the purposes of complying with their CRS obligations.

      All FIs are also now required to register with the BVI International Tax Authority (ITA) by 30 April 2019, or by 30 April of the year following it becoming an FI. Previously only Reporting FIs were required to register

      All FIs now have reporting obligations. FIs are required to file nil returns if they have no Reportable Accounts in respect of the previous calendar year. The annual reporting submission deadline is on or before 31 May of the year following the year to which the return relates.

      The Amendment Act also introduces Country-by-Country (CbC) reporting by implementing model legislation contained in Action 13 of the OECD's Base Erosion and Profit Shifting (BEPS) initiative. Qualifying multinational enterprises (MNEs) are now required to report certain financial information for each tax jurisdiction in which they operate on an annual basis.

      The Amendment Act came into force on 18 September 2018 save for the parts relating to CbC, which were deemed to have come into force on 1 January 2018.

  • Chinese actress Fan Bingbing fined for tax evasion
    • 3 October 2018, China’s highest-paid actress Fan Bingbing and her associated companies were ordered to pay back taxes and fines totalling 884 million yuan (US$129 million), according to the official Xinhua News Agency.

      The State Taxation Administration and its Jiangsu Provincial Tax Service said that they started investigating Fan in early June after receiving information from members of the public that accused Fan of tax evasion through contract frauds.

      The 37-year-old actress, who had not been seen in public since July, used a scheme called a split or ‘yin-yang’ contract, in which one performance fee was reported to authorities and a separate, much higher one was paid in secret.

      Fan will not face criminal charges if the fines and back taxes are “paid within the prescribed time limit”, Xinhua reported. Her agent was detained for allegedly obstructing the investigation by ordering evidence destroyed and concealing accounting documents. Officials at the Jiangsu tax office were also being investigated for alleged involvement.

      “As a public person I should be in compliance with the law and be an example for society and the industry. In the face of economic benefits, I should not lose my restraint and forsake administrative procedures that lead to violations of the law,” Fan said in a statement posted on an official social media account.

  • Dutch government scraps plans to eliminate the dividend withholding tax
    • 15 October 2018, State Secretary for Finance Menno Snel announced that the Dutch government had decided to cancel the proposed elimination of the dividend withholding tax and instead provide for a larger reduction in the rate of corporate tax.

      The move came directly after Unilever announced, in the face of a shareholder revolt, that it had decided to abandon its plan for a single headquarters in Rotterdam in favour of maintaining one of its headquarters in the UK.

      The proposal to abolish the dividend withholding tax and introduce a withholding tax on dividends paid to low-tax jurisdictions and in abusive tax situations was included in the 2019 Budget, announced last month.

      However, Snell told the Dutch parliament that the measure has been dropped in favour of maintaining current dividend tax rules. The government instead intends to use revenue saved by retaining current dividend tax rules to provide additional reductions in corporate tax. Under the new plans, the headline rate of corporate tax will be cut from its existing rate of 25% to 20.5% in 2021. The Budget had originally proposed reducing corporate tax to 22.5%.

      In addition, the rate of the corporate tax on profits up to €200,000 will be reduced to 15% from 2021, instead of 16% as originally planned.

      In another change to the government's tax policy, the proposed reduction in the length of time qualifying expatriate workers can benefit from the special 30% ruling tax scheme will be delayed. The term of the 30% ruling will be shortened from eight to five years as of 1 January 2019. Transitional rules have been introduced for existing cases, which means that the 30% ruling will end on 31 December 2020, or sooner if the eight-year term ends before this date.

  • EU adopts tougher rules on money laundering
    • 11 October 2018, the European Council adopted a new anti-money laundering directive, which introduces new criminal law provisions that will disrupt and block access by criminals to financial resources, including those used for terrorist activities.

      This directive complements, on the criminal law aspects, 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 new rules include:

      -Establishing minimum rules on the definition of criminal offences and sanctions relating to money laundering. Money laundering activities will be punishable by a maximum term of imprisonment of four years, and judges may impose additional sanctions and measures. Aggravating circumstances will apply to cases linked to criminal organisations or for offences conducted in the exercise of certain professional activities;

      -The possibility of holding legal entities liable for certain money laundering activities through a range of sanctions;

      -Removing obstacles to cross-border judicial and police co-operation by setting common provisions to improve investigations. For cross-border cases, the new rules clarify which member state has jurisdiction, and how those member states involved co-operate.

      When the directive is published in the EU official journal, member states will have up to 24 months to transpose it into national law.

  • EU considers screening Member States for tax compliance
    • 10 October 2018, the new Austrian presidency of the European Union said it would consider assessing member states for inclusion on the EU’s list of non-cooperative tax jurisdictions as part of its review of the mandate of the Code of Conduct Group on Business Taxation (CCG).

      In December 2017 the EU drew up a blacklist of jurisdictions whose tax rules and practices were deemed not to be in line with standards. It was compiled after a global screening process that excluded the 28 EU states.

      Addressing the European Parliament's TAXE committee on tax evasion and tax avoidance, CCG head Fabrizia Lapecorella said the possibility of screening EU Member States with the same criteria as third countries was 'under discussion'.

      The EU’s list of non-cooperative tax jurisdictions initially included 17 countries but has subsequently been reduced to six. The latest country removed was Palau. On 2 October, European Union finance ministers agreed to remove the Pacific island after it committed to change.

      They also removed Liechtenstein and Peru from the ‘grey list’ of countries that do not yet meet the EU requirements for tax co-operation but have pledged to change their rules. Liechtenstein was included because it had one or more harmful tax regimes; Peru because it had failed EU tax transparency standards. They are both now deemed compliant with all EU tax standards.

      “Liechtenstein and Peru have completed the necessary reforms to comply with all the tax good governance principles identified at EU level and set out in the conclusions adopted by the Council in December 2017. As a consequence, the two countries will be removed from annex II of the conclusions,” a Council announcement said.

  • European Commission withdraws ECJ case against Ireland
    • 18 October 2018, the European Commission withdrew a European Court of Justice action against Ireland over its failure to recover €13.1 billion in tax from Apple after the Irish government confirmed that the money had been paid.

      The Commission found in August 2016 that Ireland had granted “undue tax benefits” to Apple, which amounted to illegal state aid as it allowed Apple to pay substantially less tax on profits recorded in Ireland than other companies. The Irish government and Apple are appealing that decision, arguing that the company’s taxation was conducted legally.

      Ireland completed the recovery of the aid on 6 September, and will keep the money in the escrow account until final judgement on the appeal. A total of €14.3 billion was deposited into the account, made up of the €13.1 billion tax bill plus interest of €1.2 billion.

      “Taking into account that the payment into the escrow fund of the illegal aid removed the distortion of competition caused by that aid, the Commission has today decided to withdraw the court action,” the statement from the European Commission said.

  • FATF identifies Bahamas as deficient with AML standards
    • 19 October 2018, the Financial Action Task Force (FATF) announced at its plenary meeting in Paris that it had identified the Bahamas as one of 11 jurisdictions with strategic deficiencies as part of its ongoing review of compliance with anti-money laundering and counter-terrorist financing (AML/CFT) standards.

      The UK government has added the Bahamas to its money laundering watch list, requiring UK firms to put special procedures in place when dealing with Bahamian resident entities and clients. Under the UK's Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, UK-regulated businesses are obliged to 'take into account geographical risk factors' when assessing risk and the extent of anti-money laundering measures.

      The Bahamas has made a high-level political commitment to work with the FATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, including by:

      -Developing and implementing a comprehensive electronic case management system for international cooperation;

      -Demonstrating risk-based supervision of non-bank financial institutions;

      -Ensuring the timely access to adequate, accurate and current basic and beneficial ownership information;

      -Increasing the quality of the Financial Intelligence Unit’s (FIU) products to assist law enforcement agencies in the pursuance of ML/TF investigations, specifically complex ML/TF and stand-alone ML investigations;

      -Demonstrating that authorities are investigating and prosecuting all types of money laundering, including complex ML cases, stand-alone money laundering, and cases involving proceeds of foreign offences;

      -Demonstrating that confiscation proceedings are initiated and concluded for all types of ML cases;

      -Addressing gaps in the Terrorist Financing (TF) and. Proliferation Financing (PF) targeted financial sanctions frameworks and demonstrating implementation.

      Deputy Prime Minister Peter Turnquest said he was confident the Bahamas would address the weaknesses identified by the FATF within the agreed timeframe. He also said its demands meant the Bahamas had “no option” but to create a beneficial ownership registry and pass legislation to comply with the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.

      The other 10 jurisdictions on the FATF ‘deficient’ list were Botswana, Ethiopia, Ghana, Pakistan, Serbia, Sri Lanka, Syria, Trinidad & Tobago, Tunisia and Yemen. North Korea and Iran were further classified as ‘high-risk’ jurisdictions, which are subject to more stringent money laundering sanctions.

      The FATF said each jurisdiction had provided a written high-level political commitment to address the identified deficiencies. It would closely monitor implementation of these action plans. A number of jurisdictions had not yet been reviewed and it would continue to identify additional jurisdictions that “pose a risk to the international financial system”.

  • Five Caribbean nations join the Inclusive Framework on BEPS
    • 26 October 2018, Grenada, Antigua & Barbuda, Dominica, Saint Vincent & the Grenadines and the Dominican Republic all joined the OECD’s Inclusive Framework on base erosion and profit shifting (BEPS), bringing the total number of countries and jurisdictions participating to 123.

      Ecuador became the 126th jurisdiction to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 29 October. The Convention is the key instrument for swift implementation of the Common Reporting Standard (CRS) for automatic exchange of financial account information in tax matters.

      Ecuador also signed the CRS Multilateral Competent Authority Agreement (CRS MCAA), which is the prime international agreement for implementing the automatic exchange of financial account information under the Convention. The signing of the CRS MCAA will allow Ecuador to activate bilateral exchange relationships with the other 103 jurisdictions that have so far joined the CRS MCAA.

  • Global Forum issues compliance ratings on seven jurisdictions
    • 15 October 2018, the Global Forum on Transparency and Exchange of Information for Tax Purposes published seven peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR) over the period from 1 July 2014 to 30 June 2017.

      The reports assessed jurisdictions against the updated standard that incorporates beneficial ownership information of all relevant legal entities and arrangements, in line with the definition used by the Financial Action Task Force (FATF) Recommendations.

      Two jurisdictions – Bahrain and Singapore – received an overall rating of ‘Compliant’. Five others – Austria, Aruba, Brazil, St Kitts & Nevis and the UK – were rated ‘Largely Compliant’.

      Singapore had taken measures to address the recommendations in its 2013 report and further strengthened its legal and regulatory framework to ensure compliance with the standard on the availability of beneficial ownership information strengthened in 2016. Singapore had in place an appropriate legal and regulatory framework requiring the availability of all relevant types of information. Singapore also carried out adequate supervisory and enforcement measures to ensure that the relevant information was available in practice, although the practical availability of beneficial ownership information remained to be fully tested.

      Singapore’s network of exchange of information partners was broad, covering more than 140 jurisdictions including through the Multilateral Convention. Singapore had in place a robust programme ensuring timely and effective exchange of information. During the reviewed period Singapore received over 1,000 requests, which represents almost triple the number of requests received over the previous period reviewed. Nevertheless, the average response times remained short. Accordingly, Singapore is valued by its exchange of information partners as an important and reliable partner.

      Bahrain had demonstrated improvements since its 2013 review in ensuring the availability of accounting information for all legal entities and arrangements, but received a recommendation to ensure that up-to-date beneficial ownership information was available for all partnerships as a result of the strengthening of the international standard in 2016. Bahrain had not received any requests for information at the time of its 2013 reviews.

      In the new review period, a few requests were made to Bahrain, which demonstrated that its organisational processes allowed for timely responses to partners’ requests. Bahrain had expanded its tax information exchange network by ratifying the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which entered into force in September 2018, and could therefore anticipate receive more requests in future.

      While the UK has been one of the first jurisdictions to implement a register of beneficial ownership information, it was found that it still needed to strengthen its supervision and enforcement measures to ensure that information recorded was adequate, accurate and up to date. The review also concluded that beneficial ownership and accounting information might not be available for all entities and arrangements.

      Another key area for improvement referred to the scope and practical implementation of the powers to access information, because the formal process to access information from third parties continued to delay effective exchange of information and occasionally created an undue burden to the UK’s partners.

      The UK was nonetheless capable of responding to most requests in a timely manner, and the majority of its partners praised the working relationship established with the UK competent authority. A major global financial centre with a large network of EOI mechanisms, the UK received more than 5,200 EOI requests and sent over 1,700 EOI requests during the review period.

      The Global Forum said the jurisdictions had demonstrated their progress on many deficiencies identified in the first round of reviews including improving access to information, developing broader EOI agreement networks; and monitoring the handling of increasing incoming EOI requests as well as taking measures to implement the strengthened standard on the availability of beneficial ownership.

      The Global Forum also welcomed Oman as a new member. This takes its membership to 154 members who have come together to co-operate in the international fight against cross border tax evasion.

  • High Court dismisses ‘unexplained wealth order’ challenge
    • 3 October 2018, the High Court dismissed a challenge to the UK’s first unexplained wealth order (UWO), which had been obtained by the National Crime Agency (NCA) in respect of Zamira Hajiyeva, the wife of the former chairman of a state-owned bank in Azerbaijan who was imprisoned on fraud charges.

      Incorporated into UK law in January 2018 as part of the Criminal Finances Act 2017, a UWO is a legislative power that allows enforcement agencies to challenge owners of assets worth more than £50,000 to reveal the sources of their unexplained wealth.

      Mr Justice Supperstone rejected the eight grounds on which Mrs Hajiyeva hoped to avoid the asset-freezing order and refused her permission to appeal, although he said that her lawyers might approach the Court of Appeal. Orders preventing identification of Mrs Hajiyeva, her husband, their home country and the bank he chaired were also lifted following a further appeal.

      Mrs Hajiyeva is the subject of two orders on properties jointly valued at £22 million, a central London house and a golf course in the southeast. She challenged the order on the London home, bought in 2009 by a company registered in the British Virgin Islands of which she is the beneficial owner. She put down a £4 million deposit on the London home and paid off the £7.5 million mortgage in five years.

      According to financial records, the golf course is owned by a Guernsey-registered entity called Natura Ltd, which also owns a UK company called MRGC 2013 Ltd. Mrs Hajiyeva was once a beneficial owner of MRGC, which gives the golf club as its address.

      The court was also told of a $42.5 million loan for a private jet arranged by a company called Berkeley Business Limited, registered in London. According to Companies House documents, Mr Hajiyev is a “person of significant control” at Berkeley.

      Mrs Hajiyeva was also revealed to have spent £16.3 million at Harrods store between 2006 and 2016. She was said to have used 35 credit cards issued to family members and charged to the state-owned bank of which her husband was chairman.

      Her lawyers said she could not be called a ‘politically exposed person’, as the orders require, and that her husband’s role had been misrepresented. Mrs Hajiyeva, who is understood to have entered Britain on a tier 1 investor visa, said her husband had substantial means and was independently wealthy when they married in 1997.

      Jahangir Hajiyev was chair of the International Bank of Azerbaijan from 2001 until 2015 when he abruptly resigned, citing health reasons. He had a modest official salary from 2001 to 2008 of between £22,000 and £54,000. In 2016, he was jailed for 15 years by a court in Baku for embezzlement, abuse of office, fraud and other charges. He was also fined nearly $40 million.

      Donald Toon, NCA director for economic crime, said: “I am very pleased that the court dismissed the respondent’s arguments today. This demonstrates that the NCA is absolutely right to ask probing questions about the funds used to purchase prime property. We will continue with this case and seek to quickly move others to the High Court. We are determined to use the powers available to us to their fullest extent where we have concerns that we cannot determine legitimate sources of wealth.”

  • HMRC wins £79 million tax avoidance case
    • 24 October 2018, the Court of Appeal ruled in favour of HMRC in a £79 million tax avoidance case against US firms Goldman Sachs and Cargill in respect of a scheme set up in 2006-07 when they owned the former Teesside power station.

      In GDF Suez Teesside Ltd v Revenue and Customs [2018] EWCA Civ 2075, Cargill’s private equity division and Goldman Sachs took over Teesside Power Limited (TPL) following the collapse of the former owner Enron in 2001. The tax liabilities in question involved £200m of contingent and unrealised claims that TPL had against certain companies in the insolvent Enron group.

      On the advice of its auditors, EY, TPL transferred the relevant claims to a newly-incorporated and wholly-owned Jersey subsidiary – Teesside Recoveries & Investments Ltd (TRAIL) – in consideration for the issue by TRAIL to TPL of equivalent numbers of fully paid ordinary shares in TRAIL representing the fair value of the claims.

      The scheme was designed on the basis that the transfer of the claims by TPL to TRAIL would not give rise to any ‘credits’ which, in accordance with UK GAAP, would have to be taken into account in computing the profits and gains arising to TPL in the relevant accounting periods.

      As a company registered and resident for tax purposes in Jersey, TRAIL was not itself liable to corporation tax, but it was a controlled foreign company (CFC) and as such any future profits were liable to be attributed to TPL and taxed in the UK accordingly. However only profits arising from realisations in excess of the £200 million base value could be ‘brought home’ in this way and taxed in the hands of TPL.

      The intention of the scheme was that this £200 million would fall permanently outside the net of corporation tax because the transfers of the claims to TRAIL did not give rise to any loan relationship credits in the hands of TPL, and any subsequent profits realised by TRAIL from the claims would be taxable under the CFC legislation only to the extent that they exceeded the £200 million base value.

      TRAIL subsequently received sums totalling approximately £243 million in respect of the claims, between April 2007 and May 2008. It never held any assets other than the claims and the proceeds from their realisation were for the most part lent back to TPL on an unsecured and interest free basis.

      When TPL submitted its tax returns and computations for the relevant accounting periods, HMRC opened enquiries into the returns that resulted in the issue of closure notices on the basis that loan relationship credits should have been brought into account on the dates when the claims were transferred to TRAIL. TPL challenged HMRC at both a First Tier Tribunal and an Upper Tribunal.

      The Court of Appeal found in favour of HMRC. The judge said: “Looking in the round at each claim and the assignment of it by TPL to TRAIL in return for shares in TRAIL of equivalent value, I see no difficulty in concluding that a profit or gain of a capital nature thereby arose to TPL from the disposal of the claim, and that such profit or gain can only be fairly represented by a loan relationship credit in the hands of TPL equal to the value of the claim at the date of the disposal. In this way, the profit or gain is brought into charge to tax at the same value as is recognised for accounting purposes in the hands of TRAIL, and a symmetrical outcome is assured.”

      The full judgment can be viewed at https://www.bailii.org/ew/cases/EWCA/Civ/2018/2075.html

  • IMF urges Panama to improve on tax transparency
    • 24 October 2018, the International Monetary Fund (IMF) warned Panama that it risked “reputational damage” unless it improved its international tax transparency agenda.

      Although Panama commenced automatic exchange of information (AEOI) in line with the OECD’s Common Reporting Standard (CRS) on 28 September, the IMF said its lack of speed in progressing the criminalisation of tax evasion was viewed as a “key domestic failure”.

      “Outstanding gaps in the legal framework should be addressed to fully align it with international standards. Making tax crimes a predicate offence to money laundering by approving the draft legislation under consideration without further delay and ensuring the availability of beneficial ownership and accounting records of Panamanian entities are important to avoid being listed as a non-cooperative jurisdiction,” said the IMF.

      The IMF commended current actions being taken to “share tax information more widely and promptly,” and encouraged Panama to further advance these transparency initiatives.

      Panama has committed to exchanging information with jurisdictions including Australia, France, Germany, India, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, Portugal, Spain, and the UK. The General Directorate of Revenue (DGI) said around 660 reports from 337 financial entities had been included in the first automatic exchange of information under the CRS.

  • Ireland’s Budget 2019 introduces a new Exit Tax
    • 9 October 2019, Minister for Finance Paschal Donohoe, presenting the Budget 2019 to the Irish Parliament, announced the immediate introduction of an exit tax in line with the EU’s Anti-Tax Avoidance Directive (ATAD). The rate for the exit tax will be set at 12.5%, in line with the headline rate of corporation tax.

      The measure will tax the unrealised capital gains of companies in each of the following circumstances:

      -A company resident in another EU country transfers assets from its permanent establishment (PE) in Ireland to its head office or to a PE in another country;

      -A company resident in another EU country transfers the business carried on by PE in Ireland to another country; or

      -A company transfers its tax residence from Ireland to another country.

      All EU member states are required to introduce an exit tax under ATAD I by 31 December 2019. Donohoe said it had been decided to introduce Ireland’s exit tax immediately to provide certainty to businesses currently located in, or considering investing in, Ireland.

      Budget 2019 also included proposals for a controlled foreign company (CFC) regime in Ireland for the first time, another requirement of the ATAD. Generally, an entity will be considered a CFC under ATAD rules where it is subject to more than 50% control by a parent company and its associated enterprises and the tax paid on its profits is less than half the tax that would have been paid had the income been subject to tax in the jurisdiction where the parent company is tax resident.

      Member states must introduce CFC rules or bring existing national CFC rules into alignment with ATAD I by 1 January 2019.

  • IRS international unit to focus on FATCA compliance and foreign entity filing
    • 30 October 2018, the IRS Large Business and International division (LB&I) announced the approval of five additional compliance campaigns that are intended to improve return selection, identify issues representing a risk of non-compliance and maximise the use of resources.

      The IRS will focus on filing accuracy by foreign financial institutions and others required to report under the Foreign Account Tax Compliance Act (FATCA). Non-compliance will be addressed through termination of the FATCA status and other means.

      A new IRS “delinquent returns campaign” will address foreign entities that fail to file Form 1120-F returns on time. This form must be filed for a foreign corporation to claim deductions and credits against its effectively connected income, the IRS said.

      A campaign focusing on withholding and individual compliance will address US taxpayers who engage offshore service providers that facilitate the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets, generally, for tax avoidance or evasion, the IRS said.

      Another campaign will address individual taxpayers who have claimed the foreign tax credit but do not meet its requirements.

      Finally, a campaign will assess Work Opportunity Tax Credit eligibility issues. The IRS will collaborate with industry stakeholders to develop an LB&I directive for taxpayers experiencing late certifications and to promote consistency in the examinations of credit claims.

  • Jersey publishes draft law on company ‘economic substance’
    • 23 October 2018, the Jersey government lodged a draft Taxation Companies Economic Substance Law with the States Assembly. Designed to address the concerns of the EU Code of Conduct Group (CCG) on Business Taxation, enactment is expected to take place before the end of this year and the law will come into force on 1 January.

      The European Commission published an inaugural list of non-cooperative tax jurisdictions – known as the EU ‘blacklist’ – in December 2017. The crown dependencies of Jersey, Guernsey and the Isle of Man were not on the blacklist but were included in a group of 13 jurisdictions that committed to addressing concerns relating to economic substance by 2018.

      The Jersey substance requirements will apply to tax resident companies that carry on banking, insurance, fund management, financing and leasing, headquarters, shipping, and holding company or intellectual property activities. There are three proposed general requirements, while separate, more onerous requirements will apply to IP income generating companies.

      The first requirement is for tax resident companies to be directed and managed in Jersey, such that board meetings are held on the island at ‘adequate frequencies’ with a quorum of directors physically present. Strategic decisions should be set at the meetings and recorded and all company records should be kept in Jersey. The directors should have requisite expertise.

      The second requirement is that core income generating activities should be carried on in Jersey by the company itself or by a sub-contracted third party.

      The third requirement is that there should be an ‘adequate level’ of qualified employees, annual expenditure and physical offices or premises in Jersey. Any of these may be sub-contracted to a third party.

      The second and third requirements derive from the OECD BEPS Action 5, relating to work on harmful tax practices, which recommended substantial activity requirements for preferential regimes.

      The Jersey legislation proposes three levels of sanctions: requests for information and filing penalties for incomplete disclosure; financial penalties for failure to meet substance requirements; and striking off from the register for persistent non-compliance.

      Jersey’s Minister for External Relations Senator Ian Gorst said: “As well as meeting the commitment made in 2017, the lodging of this legislation demonstrates Jersey’s well-deserved reputation as a jurisdiction of substance that is committed to the development of new international standards in fair taxation and to the maintenance of a good neighbour policy with the EU.”

      The draft was developed in close consultation with the governments of Guernsey and the Isle of Man, which will be tabling similar proposals.

  • OECD lists 21 ‘high-risk’ citizenship or residency schemes
    • 16 October 2018, the OECD published the results of its analysis of over 100 citizenship or residence-by-investment schemes (CBI/RBI) schemes offered by countries that have made commitments to the OECD/G20 Common Reporting Standard (CRS) in order to identify schemes that pose a potential high-risk to the integrity of CRS.

      The OECD said that while schemes that allowed individuals to obtain citizenship or residence rights through local investments or against a flat fee – often referred to as golden passports or visas – for perfectly legitimate reasons, they could also be potentially misused to hide assets offshore by escaping CRS reporting.

      Identity cards and other documentation obtained through CBI/RBI schemes, in particular, could potentially be misused abuse to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures.

      Potentially high-risk CBI/RBI schemes, said the OECD, were those that gave access to a low personal income tax rate of less than 10% on offshore financial assets and do not require significant physical presence of at least 90 days in the jurisdiction offering the CBI/RBI scheme.

      It listed 21 jurisdictions as potentially high-risk: Antigua & Barbuda, the Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, the Seychelles, St Kitts & Nevis, St Lucia, the Turks & Caicos Islands, the United Arab Emirates and Vanuatu.

      Under Section VII of the CRS, a financial institution (FI) may not rely on a self-certification or documentary evidence that it knows, or has reason to know, is incorrect or unreliable. The same applies with respect to pre-existing high-value accounts where a relationship manager has actual knowledge that the self-certification or documentary evidence is incorrect or unreliable.

      If an account holder or controlling person is claiming residence in a jurisdiction offering a potentially high-risk CBI/RBI scheme, the OECD recommended that FIs should consider raising further questions, including:

      -Did you obtain residence rights under a CBI/RBI scheme?

      -Do you hold residence rights in any other jurisdiction(s)?

      -Have you spent more than 90 days in any other jurisdiction(s) during the previous year?

      -In which jurisdiction(s) have you filed personal income tax returns during the previous year?

  • Switzerland announces first exchange of financial account information
    • 5 October 2018, the Swiss Federal Tax Administration (FTA) announced that it had exchanged financial account information for the first time within the framework of the global standard on the automatic exchange of information (AEOI).

      The transmission of data took place at the end of September 2018. It comprised identification, account and financial information, including name, address, state of residence and tax identification number, as well as information concerning the reporting financial institution, account balance and capital income.

      The Swiss tax amnesty programme also came to an end on 30 September. It allowed individuals to avoid paying penalties on undeclared assets outside Switzerland if they came forward voluntarily, although they were still required to pay back taxes and interest. More than 90,000 Swiss taxpayers had made voluntary declarations under the programme since 2010.

      Switzerland’s framework of AEOI provides that it can exchange in 2018 with all EU member states, as well as with a further nine states and territories – Australia, Canada, Guernsey, Iceland, Isle of Man, Japan, Jersey, Norway and South Korea.

      However the FTA said Cyprus and Romania were presently excluded because they did not yet meet the international requirements on confidentiality and data security. Transmission of data to Australia and France had also been delayed, because these states could not yet deliver reciprocal data to the FTA due to technical reasons. Similarly, the FTA had not yet received data from Croatia, Estonia and Poland. The other partner states had transmitted data to the FTA.

      Around 7,000 reporting financial institutions have registered with the FTA. These institutions collected the data and transferred it to the FTA. The FTA sent information on around 2 million financial accounts to the partner states and received information. The FTA said it could not provide any information on the amount of financial assets.

      AEOI will now take place on a yearly basis. In 2019, data from 2018 will be exchanged with around 80 partner states, subject to the requirements on confidentiality and data security. The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes is responsible for assessing the participating states' implementation of AEOI.

  • Switzerland extends country-by-country BEPS reporting
    • 17 October 2018, the Swiss Federal Council approved the extension of country-by-country reporting on multinationals to all jurisdictions that have undertaken to implement the minimum standards resulting from the OECD/G20 base erosion and profit shifting (BEPS) project.

      In December 2017, Switzerland notified the OECD of its initial list of 108 countries with which it will exchange country-by-country reports. The list included all countries that had signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA) or that, as of 1 December 2017, were members of the Inclusive Framework on BEPS.

      Since December 2017, more states have signed the CbC MCAA or joined the Inclusive Framework on BEPS. The Swiss government therefore decided to include on its list of exchange partners all jurisdictions that have undertaken to implement the minimum standards resulting from the BEPS project.

      Switzerland’s Federal Council also adopted an amendment to the Ordinance on the International Automatic Exchange of Country-by-Country Reports of Multinational Corporations to put it in line with the new guidelines, which have been supplemented and revised with further technical answers for the preparation and exchange of country-by-country reports. The amendment will come into force 1 December 2018.

  • Switzerland’s highest court rejects extra-territorial banking secrecy
    • 4 October 2018, Switzerland’s highest court rejected by three votes to two an appeal by Zurich prosecutors against the previous acquittal of former private banker and whistleblower Rudolf Elmer on charges brought under Swiss banking secrecy laws. The case was seen as a test on whether the banking secrecy principle could be enforced extra-territorially.

      Elmer, who headed the Cayman Islands office of Swiss private bank Julius Baer until he was dismissed in 2002, later sent documents with details of alleged tax evasion to the anti-secrecy group WikiLeaks and to tax authorities across the world.

      Under Article 47 of the Swiss Banking Act, anyone who divulges clients’ secrets can be sentenced to five years in prison. Elmer was arrested twice in Switzerland, in 2005 and in 2011, and spent over seven months in investigative custody.

      Zurich's upper court ruled in 2016 that the bank secrecy rules did not apply because Elmer had been an employee of a Caribbean subsidiary of Julius Baer rather than of the parent bank in Zurich. Elmer, who denied all the charges, did however receive a suspended sentence for forging documents and threatening Julius Baer following his dismissal.

      On appeal to the Federal Supreme Court, prosecutors argued that if they could not apply the law to people connected to Swiss banks outside the country, banking secrecy would be deprived of its substance "with far-reaching consequences that cannot be accepted".

      The law, prosecutors argued, did not require that "the contractual activity be exercised under Swiss law" for Swiss bank secrecy to apply. Even contractors, lawyers and consultants who performed work for a Swiss bank internationally should fall under the obligation. They called for Elmer to receive a 36-month jail sentence, 24 of which would be suspended.

      In upholding Elmer’s acquittal, the Swiss Federal Court put clear geographic limits on Article 47. The court said that secrecy rules stop at the border and don’t apply to Swiss lenders’ far-flung entities around the world. “Banking secrecy is not exportable,” said Judge Laura Jacquemoud-Rossari.

  • UK and Cayman reach agreement on beneficial ownership information sharing
    • 8 October 2018, following further talks between Cayman Islands and UK officials concerning the sharing of beneficial ownership information by law enforcement agencies, an agreement was reached to allow close and effective co-operation under the exchange of notes.

      This followed discussions on the technical process to be used by the General Registry and Royal Cayman Islands Police Service (RCIPS) for providing information to UK law enforcement in a timely manner and assurances from the UK that addressed the Cayman Islands concerns on privacy issues and the secure transmission of data.

      The National Crime Agency (NCA) and RCIPS confirmed that they are “satisfied with the operational adjustments and that the agreement immediately allows them to resume collaboration under the Exchange of Notes, which is in addition to the other mechanisms for information exchange that have been in existence for years."

  • UK Budget announces Digital Services Tax and corporate tax reforms
    • 29 October 2018, UK Chancellor Philip Hammond delivered the final UK Budget before the Brexit deadline. He repeated the government's commitment to attracting investment and business to the UK by reducing the corporate tax rate from 19% to 17% in 2020.

      The government intends to introduce a Digital Services Tax (DST) with effect from April 2020. Profitable technology companies with global sales of more than £500 million will be liable to a 2% DST on UK revenues from April 2020. This is intended to be an interim measure until international consensus is reached on the taxation of the digital economy.

      The government will legislate in Finance Bill 2018-9 to make changes to the Controlled Foreign Company (CFC) rules and the hybrid mismatch rules to ensure compliance with the EU Anti-Tax Avoidance Directive (ATAD) from 1 January 2019 and 1 January 2020 respectively. It will also legislate to give full effect to changes being made to its tax treaties through the OECD's BEPS Multilateral Instrument.

      Measures will be introduced from 6 April 2019 that will directly tax offshore low-tax entities that realise intangible property income to the extent that it is referable to UK sales, subject to a de minimis threshold of £10 million UK sales. The measures will also target embedded royalties and income from the indirect exploitation of intangible property in the UK market through unrelated parties. Anti-forestalling measures will apply from 29 October 2018 to counteract arrangements entered into with a main purpose of avoiding these charges.

      The government intends to press ahead with a consultation on introducing a new 1% stamp duty land tax surcharge on the acquisition of residential property in England and Northern Ireland by non-residents. This consultation will be published in January 2019.

      From April 2019, non-residents that make a capital gain on the disposal of UK real estate or on the sale of shares in certain 'property-rich' entities will become subject to UK tax.

      From April 2020, non-residents that are currently subject to UK income tax on rental profits made from the letting of UK real estate will, instead, be brought within the scope of UK corporation tax. A targeted anti-avoidance rule has been introduced with effect from 29 October 2018. Guidance on the transitional rules as well as general guidance on corporation tax aimed at non-UK resident companies will be published during 2019.

      The rates of 'annual tax on enveloped dwellings' (ATED) will increase by 2.4% in line with the consumer prices index with effect from 1 April 2019. The ATED-related capital gains tax will be abolished from April 2019.

      The government also intends to make directors liable for business taxes owed, where there is a risk of a company deliberately entering insolvency to avoid or evade tax.

      The assessment time limit for ‘careless’ offshore tax non-compliance for income tax, CGT and inheritance tax (IHT) will increase to 12 years from April 2019. In cases where there is deliberate behaviour, the time limit remains set at 20 years.

      Legislation will be introduced to confirm that additions of assets by UK-domiciled or deemed domiciled individuals to trusts made when they were non-domiciled are not excluded property. This will apply to IHT charges arising on or after the date on which Finance Bill 2019-20 receives Royal Assent, whether or not the additions were made prior to this date.

  • UK targets estate agents to tackle money laundering
    • 26 October 2018, the UK government announced that, with support from HMRC, it was expanding its ‘Flag It Up’ campaign for the first time into the property sector to encourage estate agents to file suspicious activity reports (SARs) to the National Crime Agency if they suspected UK properties were being bought with the proceeds of crime or corruption.

      The Flag It Up campaign has been targeting solicitors since 2014 and accountants since 2015. Over the period April 2017 to March 2018, estate agents submitted just 710 SARs, despite being under a legal duty to report suspicions, compared with accountants submitting 5,036 and independent legal professionals submitting 2,660.

      Flag It Up complements other actions taken by the government to target illicit funds, such as the Criminal Finances Act and tools like Unexplained Wealth Orders and Account Freezing Orders. The government also published a Register of Overseas Entities Bill in July, which aims to force overseas corporate buyers of UK property to disclose their beneficial ownership, which will be displayed on a public register.

  • UK to extend civil partnerships law to mixed-sex couples
    • 2 October 2018, UK Prime Minister Theresa May announced that all couples in England and Wales would be allowed the option to obtain legal recognition of their partnership without having to marry. There are currently 3.3 million cohabiting unmarried couples in England and Wales.

      In June, the Supreme Court ruled, in Steinfeld and Keidan v Secretary of State for International Development [2018] UKSC 32, that the Civil Partnership Act 2004 was incompatible with the European Convention on Human Rights.

      May said: “As Home Secretary, I was proud to sponsor the legislation that created equal marriage. Now, by extending civil partnerships, we are making sure that all couples, be they same-sex or opposite-sex, are given the same choices in life.”

  • US and Singapore sign TIEA and new FATCA agreement
    • 13 November 2018, Singapore signed a Tax Information Exchange Agreement (TIEA) and a reciprocal Foreign Account Tax Compliance Act Model 1 Intergovernmental Agreement (FATCA IGA) with the US.

      The TIEA will permit Singapore and the US to exchange information for tax purposes. It provides that the competent authorities of the two countries will provide assistance to each other through an exchange of information that is foreseeably relevant to the administration and enforcement of the domestic laws of the countries concerning taxes covered by the agreement.

      The reciprocal IGA provides for the automatic exchange of information with respect to financial accounts under the US FATCA. This new reciprocal IGA will supersede the existing non-reciprocal IGA, signed in 2014, when it enters into force.

      The TIEA will enter into force after its ratification by Singapore. The reciprocal FATCA IGA will enter into force after its ratification by both countries.

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