Owen, Christopher: Global Survey – January 2019

21 December 2018, the Bermuda government brought the Economic Substance Act 2018 (ESA) into force. Section 3(1) requires every registered entity – company, limited liability company and partnership – that is engaged in a relevant activity to maintain a substantial economic presence in Bermuda and comply with the requirements prescribed by the ESA.

Relevant activity means carrying on business in: banking; insurance; fund management; financing; leasing; headquarters; shipping; distribution and service centre; intellectual property; and holding entity.

From 1 January 2019, every registered entity that submits an application to the Registrar of Companies seeking to register is required to provide a completed Form Declaring Type of Activity to the Registrar of Companies. Entities will not be registered unless the Form is submitted. These firms must show that they have a physical presence, personnel and revenue-generating activities in Bermuda. The requirements apply from 1 July 2019 for existing companies.

The EU Code of Conduct Group assessed the tax policies of a range of countries in 2017 and Bermuda was included on a list of jurisdictions that were required to address concerns about ‘economic substance’ before 31 December 2018. The government of Bermuda worked closely with the Code Group to address those concerns.

19 December 2018, the House of Assembly enacted the Economic Substance (Companies and Limited Partnerships) Act ahead of the 31 December deadline set by the EU Code of Conduct Group for the BVI and other financial centres.

The Act came into force on 1 January 2019 and applies to all companies and limited partnerships with legal personality registered in the BVI or foreign companies and limited partnerships doing business in the BVI. It applies to existing entities and new entities incorporated or formed from 1 January 2019.

The Act imposes economic substance tests for BVI companies and limited partnerships that are resident in the British Virgin Islands and carry on ‘relevant activities’. An entity cannot claim to be non-resident in the BVI by reason of being a tax resident in a jurisdiction that is included on the EU list of non-cooperative jurisdictions.

Relevant activities are defined as: banking business; insurance business; fund management business; financing and leasing business; headquarters business; shipping business; holding business; intellectual property business; and distribution and service centre business.

In order to demonstrate economic substance, a company or limited partnership that falls within the scope of the Act by reason of being resident in the BVI and carrying out a relevant activity, must be ‘directed and managed’ in and carry out ‘core income generating activities’ (CIGA) within the BVI. It must also meet defined standards of ‘adequacy’ and ‘appropriateness’.

An entity will have economic substance in terms of adequacy and appropriateness if, having regard to the nature and scale of the entity's relevant activity, it:

-Has an adequate number of suitably qualified employees physically present in the BVI;

-Incurs adequate expenditure in the BVI;

-Has physical offices or premises in the BVI as may be appropriate for its core income generating activities.

In the case of intellectual property business requiring the use of specific equipment, this equipment must be located in the BVI.

In the case of a pure equity holding entity, which carries on no relevant activity other than holding equity participations in other entities and earning dividends and capital gains, the entity will have adequate substance if it:

-Complies with its statutory obligations according to the Business Companies Act 2004 or the Limited Partnerships Act 2017

-Has adequate employees and premises for holding equitable interests or shares and, where it manages those equitable interests or shares, has adequate employees and premises for carrying out that management.

The Act provides for both criminal and financial sanctions in the case of non-compliance. The BVI International Tax Authority (ITA) is responsible for monitoring and investigating compliance. A company must provide any information ‘reasonably required’ by the ITA to assist it in making a determination.

The Act also makes certain amendments to the Beneficial Ownership Secure Search System Act 2017 (BOSS) as of 1 January 2019. Previously, the BOSS Act required that information concerning the beneficial owners of entities registered in the BVI be shared with the registered agents of those entities and held on a secure search system.

The BOSS Act is amended to also require companies and limited partnerships to provide information about their tax residency status and activities to enable the International Tax Authority to monitor whether the entity is carrying on relevant activity and, if so, whether the entity meets the economic substance tests within the meaning of the Act.

Existing companies and limited partnerships are required to comply with the economic substance requirements under the Act by 30 June 2019 and to meet reporting obligations under and the BOSS Act by 30 June 2020.

New companies and limited partnerships formed on or after 1 January 2019 are required to comply with the economic substance requirements under the Act immediately and to meet reporting obligations under and the BOSS Act within one year of formation.

27 December 2018, the International Tax Co-operation (Economic Substance) Law was gazetted. It is designed to incorporate the OECD's proposals under Action 5 of the Base Erosion and Profit Shifting (BEPS) project on countering harmful tax practices, as well as fulfilling its commitment to the European Union to have legislation in place by 31 December to avoid being placed on its list of Non-Cooperative Jurisdictions for Tax Purposes.

The Law introduces a substance test for banking, insurance, fund management and shipping companies; entities functioning as headquarters or distribution and service centres; and businesses engaged in financing and leasing or holding intellectual property.

The Law applies to Cayman companies that are not tax resident in another country that carry on ‘relevant activities’ – banking, insurance, fund management, headquarters, distribution and service centres, financing or leasing businesses, shipping, holding companies, or intellectual property activities.

Such businesses are required to demonstrate that they are conducting core income generating activities (CIGA) in the Cayman Islands to be considered tax resident. Such activities include: incurring adequate operating expenditure within the island and having physical presence, such as maintaining a place of business and having full-time employees or other personnel with appropriate qualifications. These activities may be outsourced to a local service provider. Companies must also conduct board meetings on the island that meet set requirements. Intellectual property holding companies must further demonstrate that they have maintained control over intangible property assets.

The economic substance test in relation to a relevant activity will apply from 1 January 2019 for the commencement of relevant activity by relevant entities and from 1 July 2019 for relevant entities in existence before 1 January 2019.

The Cayman Islands also passed the Companies (Amendment) (No. 2) Law 2018 and the Local Companies (Control) (Amendment) Law 2018 to address EU concerns that ordinary companies operating locally and exempted companies operating outside of Cayman were treated differently under the law.

Exempted companies that choose to operate in Cayman must comply with 60% local ownership and participation requirements or apply for a Local Companies Control Licence.

20 December 2018, the High Court made a joint lives maintenance award to a wife against her former husband in a long-running matrimonial dispute connected to a £25 million Mauritius trust that had been set up to work for wildlife conservation.

Li Quan and financier William Bray married in 2001, when both were already working in Chinese tiger conservation. In 2002, they used Bray's fortune to establish a Mauritius trust – the Chinese Tigers South African Trust (CTSAT) – for the purpose of conserving the tiger population of China.

When the marriage failed in 2012, Quan applied to the English courts for a financial settlement, claiming that it should be based on the trust's assets because CTSAT could be classed as a post-nuptial settlement and so capable of variation under Matrimonial Causes Act 1973, section 24. She alleged the trust had been established not only to advance the tiger cause but also as a long-term fund for the couple, and as a tax mitigation exercise, although neither party was named as a beneficiary of the trust, nor could ever become one.

This claim was defeated in the High Court in 2014 as a preliminary issue and subsequently confirmed on appeal in 2017. As a result, no direct provision could be made to either party from the assets of CTSAT. However, it was accepted by the husband that CTSAT could, and did, employ him, for which he would be financially remunerated.

In Quan v Bray & Ors [2018] EWHC 3558 (Fam), Quan sought an order for periodical payments but did not pursue a claim for capital provision, instead seeking that her capital claims should be adjourned. It was argued for Bray that while he had been well remunerated for work completed for and on behalf of CTSAT in the past, his expertise as a structured finance expert was rendered largely obsolete following the 2008 financial crisis.

The Court did not accept Bray's evidence on this point because it was inconsistent with large sums of money that had been received from CTSAT by another company of which the husband was the ultimate beneficial owner. Moreover the profit was being paid, almost entirely, to the husband's business partner with no satisfactory explanation for this arrangement.

In addition, Bray had failed to comply with previous orders made on 31 October 2016 and 20 January 2017 compelling disclosure of CTSAT's financial position. The Court was extremely critical of his approach to the proceedings.

Mostyn J drew attention to Bray's litigation misconduct, saying he had been: "dishonest, manipulative, arrogant, menacing and contemptuous of the court's authority". The content of part of his written evidence had also been: "not only childish and facetious, but … directly and grossly disrespectful to the authority of the court".

The Court therefore inferred that CTSAT had continued to be successfully commercially active with arrangements for Bray’s remuneration to be deferred until the conclusion of the financial remedies proceedings. It was satisfied that Bray had the capacity to earn significant financial reward undertaking financial advisory work on a fully commercial arms-length basis for CTSAT, or comparable fees working for other clients.

Finding that Quan's claims to be homeless, and to require £54,000 for living expenses, were reasonable, Mostyn J ordered Bray to pay her £64,000 annual maintenance from March 2019. Exceptionally, he ruled that the award should be for joint lives rather than term-limited, in view of Quan's lack of any capital base, limited earnings capacity, and the large sums she owed to her lawyers. The couple's legal costs currently run to about £7 million.

“In this unusual case I am not satisfied that were a term maintenance order to be imposed, even if extendable, the wife would be able to adjust without undue hardship to the prospective cut-off”, he said. Further litigation will be required to determine any capital sum due to Quan. Mostyn J viewed it as foreseeable that the husband would, at some stage in the future, have accumulated sufficient sums to make proper clean-break capital settlement on the wife, so justifying an adjournment of her capital claims.

Bray had also attempted to demonstrate the existence of an agreement between the parties relating to a sum of US$1 million paid to the wife's brother in 1998. He alleged that, in the event of divorce, it was agreed that the wife would acquire the sole beneficial interest in assets purchased with this money and have no further claim against him. The relevant assets were two apartments in Beijing, purchased in the name of the wife's brother and transferred subsequently into the name of the wife's sister-in-law – the eighth and ninth respondents to the proceedings.

In the event, Bray did not formally plead this claim and so the court had nothing to dismiss. However, Mostyn J was clear that such a claim would have failed; firstly, for limitation, secondly, because the court did not have jurisdiction to hear such an action, and, in any event, because he rejected the husband's assertion that any such agreement had been reached.

30 December 2018, the European Commission welcomed the entry into force of new rules to eliminate the most common corporate tax avoidance practices. As of 1 January 2019, all Member States must apply new legally binding anti-abuse measures that target the main forms of tax avoidance practiced by large multinationals.

The legally binding rules, known as the Anti-Tax Avoidance Directive (ATAD), build on global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting (BEPS) and are intended help to prevent profits being shifted out of the EU.

First proposed by the Commission in 2016, the ATAD provides that:

-All Member States will now tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules);

-To discourage companies from using excessive interest payments to minimise taxes, Member States will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules);

-Member States will be able to tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied (general anti-abuse rule).

Further rules governing hybrid mismatches to prevent companies from exploiting mismatches in the tax laws of two different EU countries in order to avoid taxation, as well as measures to ensure that gains on assets such as intellectual property moved from a Member State's territory become taxable in that country (exit taxation rules) will come into force as of 1 January 2020.

Commissioner for Taxation Pierre Moscovici said: "The Commission has fought consistently and for a long time against aggressive tax planning. The battle is not yet won, but this marks a very important step in our fight against those who try to take advantage of loopholes in the tax systems of our Member States to avoid billions of euros in tax."

19 December 2018, the European Commission found that Gibraltar's corporate tax exemption regime for interest and royalties, as well as five tax rulings, were illegal under EU State aid rules. The beneficiaries now have to return unpaid taxes of around €100 million to Gibraltar.

In October 2013, the Commission opened an in-depth investigation into Gibraltar's corporate tax regime, to verify whether the corporate tax exemption regime applied between 2011 and 2013 for interest – mainly arising from intra-group loans ­– and royalty income selectively favoured certain categories of companies, in breach of EU State aid rules.

In October 2014, the Commission extended its State aid investigation to cover Gibraltar's tax rulings practice, with a particular focus on 165 tax rulings granted between 2011 and 2013. The Commission was concerned that these tax rulings involved State aid because they were not based on sufficient information to ensure that the companies concerned had been taxed on equal terms with other companies generating or deriving income from Gibraltar.

EU State aid rules prevent Member States from giving unfair tax benefits only to selected companies because this distorts competition and is illegal under EU State aid rules. The Commission found that both Gibraltar's corporate tax exemption regime for interest and royalties from 2011 to 2013, as well as five individual tax rulings, provided selective tax benefits and were illegal.

Under the territorial tax system applicable in Gibraltar, companies should pay corporate taxes on income accrued in or derived from Gibraltar. However, the Commission's investigation found that companies in receipt of interests or royalties were exempted from taxation in Gibraltar without a valid justification.

This measure significantly favoured a set of companies belonging to multinational groups entrusted with certain functions, such as the granting of intra-group loans or the right to use intellectual property rights. As a result, the Commission concluded that the exemption was designed to attract multinational companies to Gibraltar and effectively reduced the corporate income tax of a limited number of companies belonging to multinational groups.

This selective tax treatment in favour of multinational companies granted them an advantage against other companies and distorted competition in breach of EU State aid rules. The Commission therefore concluded that the tax exemption for companies in receipt of interest and royalties, as applied in Gibraltar between 2011 and 2013, was illegal under EU State aid rules and should be recovered from the companies.

The Commission welcomed the fact that Gibraltar had already abolished the illegal tax exemption – in July 2013 for interest income and in January 2014 for royalties income. But after reviewing 165 tax rulings granted by the tax authorities of Gibraltar, it concluded that five granted to large multinational companies in 2011 and 2012 involved illegal State aid.

The five contested tax rulings concerned the tax treatment in Gibraltar of certain income generated by Dutch limited partnerships. According to the tax legislation applicable in both Gibraltar and the Netherlands, the profits made by a limited partnership in the Netherlands should have been taxed at the level of the partners.

The partners of the Dutch partnerships were resident for tax purposes in Gibraltar and should have been taxed there. However, under the five contested tax rulings, the companies were not taxed on the royalty and interest income generated at the level of the Dutch partnerships, contrary to other companies in receipt of other type of income.

These rulings continued to apply and to exempt interest and royalties from taxation even after Gibraltar adopted legislative amendments. Since the exemptions gave the beneficiaries an undue and selective advantage, the Commission concluded that the five tax rulings concerned were illegal under EU State aid rules and that this advantage must be recovered.

In contrast, following an in-depth analysis of each addressee's situation, the Commission did not identify any selective advantage in relation to the other 160 rulings investigated and therefore found that these rulings do not break EU State aid rules.

During the Commission's investigation, Gibraltar had amended its tax rules to enhance its tax ruling procedure, reinforced its transfer pricing rules, enhanced taxpayers' obligations – filing of annual returns, providing meaningful information in applications for rulings – and improved transparency on how it implemented its territorial system of taxation. The Commission welcomed these improved rules, which entered into effect in October 2018.

As a matter of principle, EU State aid rules require that incompatible State aid be recovered in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.

Gibraltar must now recover unpaid taxes from the companies that benefitted from Gibraltar's corporate tax exemption regime for interest and royalties between 2011 and 2013, and the companies that benefitted from the illegal tax treatment under the five tax rulings must start to pay taxes on their profits in Gibraltar like any other company.

The precise amounts of tax to be recovered from each company must be determined by the Gibraltar tax authorities on the basis of the methodology established in the Commission decision. The Commission estimated that the total unpaid tax amounted to around €100 million in total.

13 December 2018, the former wife of Russian billionaire secured the sale of a £4.5 million helicopter owned by her husband. The sum is the first recovered in partial settlement of an award of over £453 million made by the High Court in financial remedy proceedings arising from the couple's divorce.

Oil and gas tycoon Farkhad Akhmedov was ordered to pay around 40% of his fortune to his former wife Tatiana by the Court in December 2016. In one of the largest divorce settlements in legal history, he was ordered to hand her a £350 million lump sum, a modern art collection valued at over £90 million and UK property worth £2.5 million.

The Court granted a worldwide freezing order and made a financial remedy order against Akhmedov and granted his former wife liberty to apply for enforcement purposes. It was apparent that Akhmedov had taken numerous elaborate steps to conceal his wealth and evade enforcement of the judgment. In August 2017, Haddon-Cave J ruled that the oligarch was in contempt of court.

Since that time, Tatiana Akhmedov has been involved in litigation to enforce the judgment in various jurisdictions around the world. The helicopter, which was seized in 2017 after landing at an airport in Turkey, was formerly the property of an Isle of Man company and was used by Akhmedov for travelling to and from his super-yacht.

Akhmedov is understood to have acquired the yacht from fellow Russian oligarch and Chelsea football club owner Roman Abramovich in 2014. He then sold Luna in December 2014 to an offshore company based in Panama. But Haddon-Cave J said it was clear the company was a “mere cipher” of Akhmedov, and that the sale was a way of keeping the luxury asset out of his wife’s reach.

In February 2017, Ms Akhmedova’s legal team had the yacht impounded in Port Rashid in Dubai as part of enforcement efforts against her ex-husband’s assets. In November 2018, Sharia judges dismissed a claim by Ms Akhmedova that they had a duty to uphold the English court award. However, Akhmedov failed to persuade the Dubai appeal court that the arrest of the yacht should be lifted.

5 December 2018, the governments of Argentina, Panama, Paraguay and Uruguay agreed to establish a Latin American initiative to tackle tax evasion, corruption and other financial crimes by making use of information exchanged under international tax transparency standards.

According to the Punte del Este Declaration, signed by participating ministers on 19 November in Uruguay, the countries will carry out a self-assessment against the principles in the OECD’s reports ‘Fighting Tax Crime: the 10 Global Principles’, ‘Effective Inter-Agency Co-Operation in Fighting Tax Crimes and Other Financial Crimes’ and ‘Improving Co-operation between Tax Authorities and Anti-Corruption Authorities in Combating Tax Crime and Corruption’.

Following this self-assessment, the signatories have agreed to “consider the possibility” of:

-Wider use of the information provided through exchange of tax information channels for other law enforcement purposes as permitted under the multilateral Convention on Mutual Administrative Assistance in Tax Matters and domestic laws; and

-Advancing more effective and real-time access to beneficial ownership information across Latin America.

Further Latin American countries are being encouraged to sign up to the Punte del Este Declaration in the future. Mexico is not one of the signatories but President-elect Andrés Manuel López Obrador has promised a clear anti-corruption agenda, in a move supported by the OECD.

The OECD has also established the Latin America Academy for Tax and Financial Crime Investigation in Buenos Aires in order to bring together tax investigators from Argentina, Bolivia, Chile, Colombia, the Dominican Republic, Mexico, Paraguay, and Peru.

17 December 2018, Finance minister Bruno Le Maire announced that, due to difficulties in agreeing a new EU-wide levy, France would impose a new domestic digital tax on large Internet and technology companies such as Google and Facebook from 1 January 2019.

At the beginning of the month, Le Maire had said that France would give the EU until March to come up with a deal on taxing US internet giants but tax cuts introduced by French president Emmanuel Macron to calm anti-government street protests required extra sources of revenue.

Le Maire said the French measures would go further than plans currently being debated over in the EU Council of Ministers, by extending to “advertising revenues, platforms and the resale of personal data”. Le Maire said he hoped the new tax would raise €500 million in 2019.

France had proposed a comprehensive digital services tax (DST) to cover all 28 EU member states but with states such as Ireland, Sweden, Denmark and Finland opposing the plans consensus in the European Council was going to be difficult to achieve. A number of member states, such as Spain and the UK, have already committed to pursuing their own digital tax measures.

1 December 2018, G20 leaders issued a communiqué after their summit in Buenos Aires pledging to continue working for a globally fair, sustainable, and modern international tax system based, in particular on tax treaties and transfer pricing rules, and welcoming international co-operation to advance pro-growth tax policies.

“Worldwide implementation of the OECD/G20 Base Erosion and Profit Shifting package remains essential. We will continue to work together to seek a consensus-based solution to address the impacts of the digitalisation of the economy on the international tax system with an update in 2019 and a final report by 2020,” said the communiqué.

“We welcome the commencement of the automatic exchange of financial account information and acknowledge the strengthened criteria developed by the OECD to identify jurisdictions that have not satisfactorily implemented the tax transparency standards. Defensive measures will be considered against listed jurisdictions. All jurisdictions should sign and ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters.”

G20 leaders also promised to regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with the Financial Action Task Force (FATF) standards. Other responses would be considered as needed.

29 November 2018, German enforcement authorities raided six Deutsche Bank offices in and around Frankfurt as part of an investigation into alleged money laundering based on the so-called ‘Panama Papers’ data breach from Panamanian law firm Mossack Fonseca.

The prosecutor’s office said it had seized written and electronic business documents. It is looking at whether Deutsche Bank may have assisted clients to set up ‘offshore companies’ in tax havens so that funds transferred to accounts at Deutsche Bank could by-pass anti-money-laundering rules.

Fourteen German banks used the Panamanian law firm to set up more than 1,200 anonymous shell companies. By 2007, Deutsche Bank is said to have brokered or managed more than 400 of these. In 2016 alone, more than 900 customers were served by a Deutsche Bank subsidiary registered in the British Virgin Islands, generating €300 million, prosecutors said.

Investigators are looking into the activities of two Deutsche Bank employees – aged 50 and 46 – and others not yet identified, who allegedly helped clients to set up offshore companies to launder money.

In a statement Deutsche Bank said it would “cooperate closely with prosecutors”, adding that it was “anxious to clarify all suspicions”. The bank said it believed it had previously handed over to the authorities all relevant information in the Panama Papers case.

18 December 2018, the Central Bureau of Direct Taxes issued a notification to implement Country-by-Country Reporting (CbCR) filing requirements under the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13. This requires Multinational Enterprises (MNEs) to report the information annually and for each jurisdiction in which they do business.

The CbCR legislation, which broadly follows OECD recommendations, requires that where the MNE – or its nominated alternate reporting entity – is headquartered in a country with which India has an agreement for exchange of information, the India constituent entity need only file a notification on Form 3CEAC specifying the details of the group entity maintaining CbCR. In such cases, there is no requirement for the CbC report to be filed locally.

Indian constituent entities are required to file a CbC report locally in the following situations where:

-The parent entity of the India constituent entity is ‘not obligated’ to file a CbC report in the country in which the ultimate parent entity or alternate reporting entity of the MNE is resident;

-India does not have an agreement for the exchange of the CbC report with the country in which the ultimate parent entity or alternate reporting entity of the MNE are resident; or

-There has been a systemic failure of the country to exchange CbC reports with a country in which the ultimate parent entity or alternate reporting entity of the MNE is resident, and the failure is intimated by the prescribed authority to the India constituent of the MNE.

Countries that have not yet entered in an agreement for the exchange of information with India include Saudi Arabia, the United Arab Emirates, Sri Lanka, Taiwan and, most notably, the US.

Notification No. 88/2018 required an India constituent entity of an MNE to file a CbC report in India within 12 months of the end of the reporting accounting year. In a relief update, the Indian Revenue subsequently extended the due date for filing the CbC report to 31 March 2019 for cases that are already overdue for filing or are due for filing by 28 February 2019.

21 December 2018, Malta and Singapore deposited their instruments of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) with the OECD.

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.

It comes into force on 1 January 2019 for the first 47 tax treaties concluded among the 15 jurisdictions that have already deposited their acceptance or ratification instrument. 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, through the addition of an optional provision on mandatory binding arbitration that has been taken up by 28 jurisdictions.

Qatar signed the Multilateral Convention on 4 December to bring the total number of signatories to 85. It now covers nearly 1,500 bilateral tax treaties.

28 December 2018, the Dutch finance ministry published its own ‘blacklist’ of 21 jurisdictions aimed at preventing companies from avoiding tax by moving mobile assets to low-tax countries and territories. All either have no corporation tax or levy a corporation tax rate that is lower than 9%.

In addition to the five jurisdictions that are currently blacklisted by the EU as non-cooperative – American Samoa, the US Virgin Islands, Guam, Samoa and Trinidad & Tobago – the Netherlands has listed a further 16 countries and territories: Anguilla, the Bahamas, Bahrain, Belize, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Kuwait, Qatar, Saudi Arabia, the Turks & Caicos Islands, Vanuatu and the United Arab Emirates.

The list will be used in relation to three measures to combat tax avoidance. The first is an additional measure on controlled foreign companies (CFCs) announced in the Dutch budget, which came into effect on 1 January 2019. With this measure the government aims to prevent companies avoiding tax by moving mobile assets to low-tax jurisdictions.

The list will also be used to implement a conditional withholding tax on interest and royalties. From 1 January 2021, companies registered in blacklisted jurisdictions will be subject to a 20.5% withholding tax on interest and royalties received from the Netherlands. This will prevent funds being channelled to tax havens through the Netherlands.

Thirdly, the Tax and Customs Administration will no longer issue advance tax rulings on transactions with companies headquartered in jurisdictions on the list.

Dutch State Secretary for Finance Menno Snel said: “By drawing up its own stringent blacklist, the Netherlands is once again showing that it is serious in its fight against tax avoidance.”

The Netherlands has been criticised for permitting international companies to shift profits to low-tax jurisdictions via its extensive network of 150 double tax treaties. A recent study by government agency Statistics Netherlands found that it had received $5.2 trillion in foreign direct investment in 2017, but only $836 billion remained in the Dutch economy, while $4.2 trillion was routed through to other jurisdictions.

A notable absence from the list is Curaçao in the Netherlands Antilles. The Dutch blacklist will be updated every year. If currently unlisted jurisdictions are added to the EU blacklist, the measures will also be applied to these jurisdictions.

29 November 2018, the US Internal Revenue Service issued a memorandum (LB&I-09-1118-014) updating the process for all voluntary disclosures – domestic and offshore. The new procedures are effective for all voluntary disclosures, offshore or otherwise, received after the closure of the 2014 Offshore Voluntary Disclosure Programme (OVDP) on 28 September.

The new voluntary disclosure practice (VDP) gives taxpayers with exposure to criminal liability a way to comply with the law and possibly avoid criminal prosecution. Taxpayers wishing to make a voluntary disclosure must submit a preclearance request to the IRS Criminal Investigation Division and, upon acceptance, promptly submit the facts and circumstances, and identify their assets, entities, related parties and any professional advisors involved in the non-compliance.

The VDP covers a six-year disclosure period, less than the eight-year OVDP period, but allows a taxpayer to expand the disclosure period if desired. Participants must submit tax returns and make full payment of all taxes, penalties and interest for the disclosure period.

At the completion of the examination, participants enter into a closing agreement with the IRS. If no agreement is reached on taxes and penalties, participants have the right to appeal the results with the IRS Office of Appeals.

The VDP penalty regime provides general penalty guidance to IRS examiners, as follows:

-A fraud penalty equal to 75% of the unpaid income tax on the non-compliant year with the highest income. Examiners retain discretion to impose a fraud penalty for other years.

-A wilful Foreign Bank Account Report (FBAR) penalty equal to 50% of undisclosed assets’ value for taxpayers disclosing foreign financial assets.

-Penalties for failure to file foreign information returns will not be automatically applied. The examiners retain discretion in implementing any such penalties, taking into account the application of other penalties.

-Penalties in connection with estate and gift taxes, employment taxes and excise taxes will be based on the facts and circumstances of the particular case.

19 December 2018, President of Seychelles Danny Faure assented to seven pieces of legislation approved by the National Assembly that are intended to bring the Seychelles into compliance with the OECD's base erosion and profit shifting (BEPS) minimum standards.

Seychelles signed up to the BEPS multilateral instrument to make changes to its tax treaties in June 2017 and has received support from Sweden on BEPS implementation, as part of a twinning programme, for the past two years.

In March 2018, Ingela Willfors, a United Nations tax expert from the Swedish Ministry of Finance, warned that Seychelles was lacking the resources and capacity to effectively respond to the OECD's recommendations. She therefore recommended that it focused on the BEPS minimum standards – preventing treaty abuse, country-by-country reporting rules, dispute resolution mechanisms and tackling harmful tax practices.

The amendments brought into force are: the International Trade Zone (Amendment) Act, 2018; the International Business Companies (Amendment) Act, 2018; the Companies (Special Licences) (Amendment) Act, 2018; the Securities (Amendment) Act, 2018; the Insurance (Amendment) Act, 2018; the Mutual Fund and Hedge Fund (Amendment) Act, 2018; and the Business Tax (Amendment) Act, 2018;

The Seychelles Pension Fund (Amendment) Act, 2018, was also enacted. It provides for greater flexibility in the retirement age after 60 and for the withdrawal of voluntary pension contributions upon reaching the age of 55. The Act also provides for benefits for certain categories of dependants upon the death of the parent or guardian who had contributed to the pension fund, as well as for a surviving live-in spouse.

29 November 2018, President of Seychelles Danny Faure signed an amendment to the International Business Act 2016 that maintains the confidentiality of offshore companies registered in the jurisdiction.

Section 152 of the Act, as originally enacted two years ago, required companies to file a list of their directors with the Registrar of Companies by 1 December 2018, for inclusion on a publically available central register. It also provided for the introduction of a private register of beneficial ownership, available only to the authorities.

The law was drafted in the expectation that public registers of company ownership would become the standard across all competing financial centres, but this did not materialise. The financial services sector is the third largest contributor to the Seychelles’ economy and over 200,000 companies are registered.

As a result, an amendment was tabled to the National Assembly in a private Members’ Bill to propose the suspension of s152. This amendment was duly approved on 26 November and subsequently received presidential assent.

Under the proposed amendments, the details of the Directors of an IBC will be available only to regulatory bodies, such as the Financial Services Authority, the FIU, and the Central Bank of Seychelles; such details would not be publicly available.

International business companies are still required to keep a register of directors or other officers at their registered office in Seychelles and file a copy to the Registrar. The courts and the financial regulatory authorities will still have access to this register, but the information will not publicly accessible. Particulars of each beneficial owner's beneficial interest and how it is held must also be kept.

The amendments will also increase the period following a company being struck off the register of IBCs and it being allowed to re-register in Seychelles from five to seven years. It also reduces certain fines prescribed for non-compliance with the Act.

7 December 2018, the Federal Council initiated the consultation on the introduction of the automatic exchange of financial account information (AEOI) with 18 further states and territories. The implementation of the AEOI is planned for 1 January 2020, and the first exchange of data should take place in 2021.

In June 2018, the OECD adapted the conditions used to determine whether the international standards on tax transparency are being implemented satisfactorily. One of the conditions requires that individual states and territories complement their AEOI network with all partner states that have an interest in the AEOI and meet the requirements of the OECD standard.

The Federal Council is proposing to expand Switzerland's AEOI network to the 18 partner states that are still missing from the 107 states and territories that are currently committed to implementing the AEOI – Albania, Azerbaijan, Brunei, Dominica, Ghana, Kazakhstan, Lebanon, Macao (China), the Maldives, Nigeria, Niue, Pakistan, Peru, Samoa, Sint Maarten, Trinidad and Tobago, Turkey and Vanuatu.

Prior to an initial exchange of data with these partner states, the Federal Council will again review whether they meet the requirements of the AEOI standard on data security and confidentiality. The consultation will last until 20 March 2019. The Federal Council plans to submit the dispatch on the introduction of the AEOI with these partner states to Parliament in spring 2019.

10 December 2018, the UK government published measures to increase transparency and prevent illegitimate uses of Limited Partnerships (LPs). The reforms seek to address concerns that Scottish Limited Partnerships (SLPs) in particular have been used for improper purposes. Legislation will proceed when parliamentary time allows.

According to the Department for Business, Energy & Industrial Strategy (BEIS), the proposals will ensure LPs can still be used legitimately to invest by pension funds and investors while preventing abuse. The key proposals are:

-Those registering LPs must demonstrate they are registered with an official anti-money laundering supervised agent, such as an accountant or a lawyer, or an overseas equivalent;

-The LP must demonstrate an ongoing link to the UK, for example by keeping its principal place of business in the UK;

-All LPs must submit a confirmation statement at least every 12 months to Companies House to ensure their information is accurate and up-to-date;

-Companies House will be given powers to strike off dissolved LPs and LPs that are not carrying on business.

BEIS is not proceeding with the proposed requirement to require LPs to have their principal place of business (PPoB) in the UK. When an application for registration of an LP is made, it must contain a proposed PPoB in the UK. On an ongoing basis, an LP will then need to demonstrate that it maintains an ongoing connection to the UK through one of three ways:

-By retaining its PPoB in the UK;

-By demonstrating that it is continuing a legitimate business activity at a UK address; or

-By demonstrating that it continues to engage the services of an agent that is registered with a UK AML supervisory body and which has agreed to provide its address as a service address for the LP.

Where an LP does not retain its PPoB in the UK, it must notify the Registrar. If the way in which an LP demonstrates its ongoing connection to the UK changes, it will also need to notify the Registrar. BEIS is still considering what evidence will be required to demonstrate an ongoing connection in each case and is also considering how these requirements should apply to existing LPs and whether transitional arrangements will be required.

The proposed reforms will apply to all LPs in the UK. Last year, the government introduced laws requiring Scottish Limited Partnerships (SLPs) to report their beneficial owner and make their ownership structure more transparent.

SLPs were of particular concern because they have legal personality, so that the partnership itself can enter into contracts, take on debts or own property. LPs in England, Wales or Northern Ireland can do this only in the partners' names.

The number of SLPs increased by 237% between the financial years 2012 – 2016, with half of the total 17,000 SLPs being registered at only ten addresses. The BEIS suspected that SLPs were being used to carry out financial crime in foreign countries, typically in eastern Europe, because they are not required to register for UK tax or provide financial reports if they conduct business abroad.

UK government minister Lord Duncan said: “This latest package will deliver greater transparency and more stringent checks. It builds on measures we’ve already brought in to close loopholes in their use while ensuring legitimate companies can continue to choose SLPs as a way to invest in the UK. The interest and protection of citizens is of the upmost importance to the UK government and these reforms will ensure Scotland and the rest of the UK remains a great place to work and invest in.”

The government also announced a broader package of reforms to ensure to Companies House is fit for purpose. A consultation on these as yet unspecified reforms is due to start in 2019.

4 December 2018, US prosecutors unsealed criminal charges – wire fraud, tax fraud, money laundering, and other offences – against four men in respect of their roles in Panamanian-based global law firm Mossack Fonseca. It is the first US criminal case brought in connection with the so-called ‘Panama Papers’ date breach in 2016.

The four are: Ramses Owens, a Panamanian lawyer at Mossack Fonseca; Dirk Brauer, a German national who was an investment manager at Mossfon Asset Management; Richard Gaffey, a US-based accountant; and Johan von der Goltz, a German national and a former US resident and taxpayer, who was allegedly a client of Mossack Fonseca.

The indictments allege that, between 2000 and 2017, Owens and Brauer assisted US clients of Mossack Fonseca to conceal assets from the US tax authorities using offshore foundations, trusts and companies in Panama, Hong Kong and the British Virgin Islands. The bank accounts were set up in jurisdictions with strict bank secrecy laws, and the cash in them was illegally repatriated to the US using specially created debit cards. It was falsely claimed that the funds had come from the sale of companies.

The structures allegedly created by Mossack Fonseca typically included sham foundations that owned the shell companies, which in turn held the undeclared assets on behalf of the US taxpayers. The clients' names did not appear anywhere on the incorporation paperwork.

Goltz is accused of using shell companies to hide tens of millions of dollars from the IRS. In the scheme set up for Goltz by Owens and Gaffey, it was falsely claimed that his elderly mother, a Guatemalan citizen and resident, was the sole beneficial owner of the shell companies and bank accounts at issue.

Gaffey is accused of assisting Goltz’s scheme and advising another US taxpayer, who is identified only as ‘Client-1’. Gaffey allegedly devised a system for this client to bring $3 million of offshore funds into the US by falsely telling the IRS he had sold a company.

A court filing indicated that the men had been indicted in secret by a grand jury in September. Three of the four defendants have been arrested. Brauer was arrested in Paris, Golz was arrested in London, and Gaffey was arrested in Boston. Owens remains at large.

The penalties being sought by the US Department of Justice for tax offences range from five to ten years in prison. However, charges of money laundering and 'wire fraud' are also being pressed, which could take the maximum sentences to 20 years.

Manhattan US Attorney Geoffrey Berman said: “As alleged, these defendants went to extraordinary lengths to circumvent US tax laws in order to maintain their wealth and the wealth of their clients. For decades, the defendants, employees and a client of global law firm Mossack Fonseca, allegedly shuffled millions of dollars through offshore accounts and created shell companies to hide fortunes. In fact, as alleged, they had a playbook to repatriate un-taxed money into the US banking system.  Now, their international tax scheme is over, and these defendants face years in prison for their crimes.”