10 January 2019, Advocate General (AG) Juliane Kokott of the Court of Justice of the European Union (CJEU) issued her opinions in the Memira (C-607/17) and Holmen (C-608/17) cases concerning the compatibility with EU law of the Swedish rules on the deductibility of losses from foreign subsidiaries. In both cases, a Swedish parent company used the ‘Marks & Spencer exception’ as the basis for deducting losses incurred at the level of a foreign subsidiary from its taxable base in Sweden.
In the Memira case, the Swedish Revenue Law Commission held that losses incurred by a German subsidiary could not be considered as final upon a merger with its Swedish parent company, because carrying over losses to another company under similar circumstances was not allowable under German law.
In the Holmen case, the Swedish Revenue Law Commission held that losses incurred by a Spanish subsidiary could not be considered as final because the subsidiary was held through an intermediate Spanish resident company with which it formed a tax-consolidated group. A liquidation of the sub-subsidiary could not result in the recognition of final losses at the level of the intermediate company, because this was not allowable in Spain.
Both taxpayers appealed to the Swedish Supreme Tax Court, which in December 2017 requested the CJEU to clarify under which circumstances a loss could be considered as final under the ‘Marks & Spencer exception’.
The AG noted that in both cases a restriction to the freedom of establishment existed because Swedish law allowed full loss relief between Swedish group companies, whereas deductibility of losses incurred by a non-resident subsidiary was limited by certain conditions.
However, due to the need to ensure a balanced allocation of taxing rights between member states, allowing the transnational use of a subsidiary’s losses incurred over the years would undermine the fiscal autonomy of the member states involved.
In the cases at hand, the ‘Marks & Spencer exception’ did not apply because they did not satisfy the condition of losses that were usable in law. The AG interpreted the CJEU’s finality requirement as also covering losses being transferred to a third party by way of a sale. She therefore concluded that if the taxpayer had the potential to sell the subsidiary rather than liquidate or merge it, the losses could not be considered final even though, in both cases, no activities remained in Germany or Spain respectively.
AG Kokott had adopted a similar position in several previous opinions. However the Court has not necessarily followed and has previously upheld the ‘Marks & Spencer exception’.
18 December 2018, UK Minister of State for the Commonwealth Lord Ahmad told the Foreign Affairs Committee that Britain's Overseas Territories (OT) would not be forced to establish public registries of company beneficial ownership until 2023 at the earliest, rather than the 2020 deadline demanded by MPs.
In May last year, a cross-party group of campaigning MPs forced an amendment to the UK's Sanctions and Anti-Money Laundering Bill 2018 (SAMLA) that required the government to enforce public registers on the 14 OTs by the end of 2020. The government decided to accept the amendment, despite its view that legislating directly would damage the OTs' autonomy.
Ahmad said SAMLA was quite specific on the obligation on the government to produce an Order in Council on those territories that don't have a public register by 2020', but it did not specify a date when public registers must be operational.
'We have made it clear to all the OTs that attended the Joint Ministerial Council that they will then be obligated to produce an operational public register by 2023,” said Ahmad.
This date was chosen as the new deadline because former UK Prime Minister David Cameron had originally set 2023 as the target for ensuring worldwide obligations on adhering to public registers. Ahmad added that the obligation for public registers would remain for OTs, whether or not they were adopted worldwide.
1 January 2019, China’s newly amended Individual Income Tax (IIT) regime came into effect, introducing new tax brackets and changes to the preferential policies for foreign taxpayers in China.
The revised IIT law consolidates four previous categories of income – salaries and wages, remuneration for independent services, author’s remuneration, and income from royalties – into a single category called ‘comprehensive income’. Comprehensive income is subject to progressive tax rates across seven tax brackets ranging from 3 to 45%.
For China residents, the IIT on comprehensive income is assessed on an annual basis and collected through the withholding of taxes in advance, which are remitted to tax authorities by the payers on a monthly or transactional basis, followed by a final reconciliation and settlement by taxpayers at the time they file their annual tax returns.
For non-residents, the IIT on comprehensive income is assessed on a monthly or transactional basis and generally collected through the withholding of taxes, which are remitted to tax authorities by the payers.
The previous five-year exemption period for taxation on global income – income sourced outside China and paid by overseas employers – has been extended to six years for foreigners living and working in Mainland China. This policy includes Taiwan, Hong Kong and Macau passport holders who have moved to Mainland China for employment.
Foreign individuals who have no domicile and are living in China for 183 days or more per calendar year are considered tax residents. However, foreign tax residents can be exempted from Chinese taxation on their overseas income if they stay in China for no more than six years or leave China for at least 31 consecutive days before the six-year term comes and have filed with the relevant tax authorities in advance.
Previously foreigners were subject to tax liability on worldwide income if they lived in China for more than five consecutive years. However, they could ‘reset the clock’ by spending at least 31 days continuously or 91 days cumulatively abroad per year.
The Chinese tax bureau currently allows foreign employees to deduct certain allowances – such as housing, education, language training and home visits – before taxing their monthly salary. Under the new rules, foreign employees will be able to apply for the existing tax-exempted allowances until 31 December 2021, but from 1 January 2022 they will be limited only to ‘special additional deductions’ – children’s education, continuing education expenses, healthcare costs for serious illness, housing mortgage interest, expenses for supporting the elderly and housing rent.
15 January 2019, the European Commission published a communication setting out a proposed roadmap for a progressive and targeted transition to qualified majority voting (QMV) under the ordinary legislative procedure in certain areas of shared EU taxation policy that currently require unanimity among member states.
The Commission said it was not proposing any change in EU competences in the field of taxation, or to the rights of member states to set their own personal or corporate tax rates. However unanimity on crucial tax initiatives was often not achievable, leading to costly delays and sub-optimal policies. The aim is to allow member states to exercise their pooled sovereignty more efficiently so that shared challenges could be addressed more swiftly.
The Council of Ministers has two ways of taking decisions on a proposal by the Commission – unanimity, when everyone has to be in agreement, and QMV, a system of votes weighted according to the size and population of member states. QMV is the most common method of decision-making, used in all but the most sensitive issues.
A qualified majority is reached in Council if two conditions are met:
-55% of member states vote in favour (16 out of 28); and
-The proposal is supported by member states representing at least 65% of the total EU population.
This procedure is also known as the 'double majority' rule. A blocking minority must include at least four Council members representing more than 35% of the EU population. The European Parliament also votes on issues decided by QMV such that the council and parliament must act together in co-decision.
Under QMV, the Commission said, member states would be able to reach quicker, more effective and more democratic compromises on taxation matters, unleashing the full potential of this policy area. It also said that under the ordinary legislative procedure, taxation decisions would benefit from concrete input from the European Parliament, better representing citizens' views and increasing accountability.
Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said: “The EU has had a role in taxation policy since the origins of the Community six decades ago. Yet if unanimity in this area made sense in the 1950s, with six member states, it no longer makes sense today. The unanimity rule in taxation increasingly appears as politically anachronistic, legally problematic and economically counterproductive. I am fully aware of how sensitive an issue this is, but that cannot mean that the discussion is off limits. So let's begin this debate today.”
The Commission is asking that EU leaders, the European Parliament and other stakeholders assess the possibility of a gradual, four-step progression towards decision-making based on QMV as follows:
-Step 1 – member states would agree to move to QMV decision-making when it comes to measures that improve co-operation and mutual assistance between member states in fighting tax fraud, tax evasion, as well as for administrative initiatives for EU businesses (harmonised reporting obligations).
-Step 2 – introduce QMV as a useful tool to progress measures in which taxation supports other policy goals, such as fighting climate change, protecting the environment or improving public health.
-Step 3 – introduce QMV to already harmonised EU rules such as VAT and excise duty rules where faster decision-making would allow member states to keep up with the latest technological developments and market changes to the advantage of EU countries and businesses alike.
-Step 4 – introduce QMV for major tax projects, such as the Common Consolidated Corporate Tax Base (CCCTB) and a new system for the taxation of the digital economy, that are urgently needed to ensure fair and competitive taxation in the EU. The CCCTB, In particular, has progressed very slowly as a result of unanimity.
The communication suggests that member states would decide swiftly to converge on a decision to develop Steps 1 and 2 and would consider developing Steps 3 and 4 by the end of 2025. Action in the areas outlined would be possible under the so-called ‘passerelle clause' (Article 48(7) TEU) in the EU Treaties, which allows for a shift to QMV and the ordinary legislative procedure under certain circumstances. No EU treaty change is necessary.
The Commission has requested that EU member states, the European Parliament and all stakeholders should engage constructively in a debate on QMV in EU tax policy, and to define a timely and pragmatic approach for its implementation. In particular, EU leaders are invited to endorse the roadmap and to make timely decisions on the use of the relevant legal provisions set out in the treaties.
23 January 2019, the European Commission issued a comprehensive report on existing investor citizenship and residence schemes operated by a number of EU member states. These, it found, implied certain risks for the EU, in particular security, money laundering, tax evasion and corruption, which were exacerbated by a lack of transparency and a lack of cooperation among member states.
Investor citizenship schemes allow a person to obtain a new nationality based on investment alone. National citizenship is the precondition for EU citizenship and access to treaty-based rights. Investor residence schemes – often referred to as ‘golden visas – allow third-country nationals to obtain a residence permit to live in an EU country, subject to certain conditions.
The conditions for obtaining and forfeiting national citizenship are regulated by the national law of each member state subject to due respect for EU law. Principles laid out in international law require the existence of a "genuine link" between the applicant and the country or its nationals. The granting of an investor residence permit is not regulated at EU level and is currently governed by national law. However, EU law does regulate the entry conditions for certain categories of non-EU nationals.
According to the report, three member states – Bulgaria, Cyprus and Malta – currently operate schemes that grant investors nationality under conditions that are less strict than ordinary naturalisation regimes. There is no obligation of physical residence for the individual, or any requirement for other genuine connections with the country before obtaining citizenship.
The report said these schemes were of common EU interest because every person that acquires the nationality of a member state also acquires EU citizenship. The decision by one member state to grant citizenship in return for investment, therefore automatically gave rights in relation to other member states – in particular free movement and access to the EU internal market to exercise economic activities.
The Commission's report identified the following areas of concern in respect of existing investor citizenship schemes:
-Security – checks run on applicants were not sufficiently robust and the EU's own centralised information systems, such as the Schengen Information System (SIS), were not being used as systematically as they should be;
-Money laundering – enhanced checks (due diligence) were necessary to ensure that rules on anti-money laundering were not circumvented;
-Tax evasion – monitoring and reporting was necessary to make sure that individuals could not take advantage of these schemes to benefit from privileged tax rules;
-Transparency and information – there was a lack of clear information on how the schemes were run, including on the number of applications received, granted or rejected and the origins of the applicants. In addition, member states did not exchange information on applicants for such schemes, nor did they inform each other of rejected applicants.
Investor residence schemes posed equally serious security risks to member states and the EU as a whole because they gave third-country nationals the right to reside in the member state in question and also to travel freely in the Schengen area. The granting of investor residence permits was currently not regulated at EU level and remained a national competence.
Currently, 20 member states ran such schemes: Bulgaria, the Czech Republic, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia and the UK.
The Commission report identified the following areas of concern in respect of existing investor residence schemes:
-Security – certain security obligations under EU law had to be carried out before issuing a visa or residence permit to foreign investors. There was, however, a lack of available information on the practical implementation and discretion in the way that member states approached security concerns;
-Physical residence requirement – Residence permits obtained by investment, with limited or no required physical presence of the investor in the member state in question, could have an impact on the application of and rights associated with the EU Long-Term Residence Status, and could even provide a fast-track to national and thereby EU citizenship;
-Lack of transparency – the lack of transparency and oversight of these schemes, in particular monitoring and the absence of statistics on how many people obtained a residence permit through such a scheme.
The Commission said it would monitor wider issues of compliance with EU law raised by investor citizenship and residence schemes and take necessary action as appropriate. Member states needed to ensure, in particular, that:
-All obligatory border and security checks are systematically carried out;
-The requirements of the Long-Term Residence Permit Directive and the Family Reunification Directive are complied with properly;
-Funds paid by investor citizenship and residence applicants are assessed according to the EU anti-money laundering rules;
-In the context of tax avoidance risks, there are tools available in the EU framework for administrative co-operation, in particular for exchange of information.
The Commission said it would monitor steps taken by member states to address issues of transparency and governance in managing these schemes and will establish a group of experts to improve the transparency, governance and the security of the schemes. This group will be tasked, in particular, with:
-Setting up a system of exchange of information and consultation on the numbers of applications received, countries of origin and on the number of citizenships and residence permits granted/rejected by member states to individuals based on investments;
-Developing a common set of security checks for investor citizenship schemes, including specific risk management processes, by the end of 2019.
Finally, concerning third countries setting up similar schemes, which may have security implications for the EU, the Commission will monitor investor citizenship schemes in candidate countries and potential candidates as part of the EU accession process. It will also monitor the impact of such schemes by EU visa-free countries as part of the visa-suspension mechanism.
Commissioner for Justice, Consumers and Gender Equality Věra Jourová said: “Becoming a citizen of one member state also means becoming an EU citizen with all its rights, including free movement and access to the internal market. People obtaining an EU nationality must have a genuine connection to the member state concerned. We want more transparency on how nationality is granted and more cooperation between member states. There should be no weak link in the EU, where people could shop around for the most lenient scheme.”
1 January 2019, the European Union’s Anti-Tax Avoidance Directive (ATAD), which is designed to target the main forms of tax avoidance practiced by large multinationals through legally binding anti-abuse measures, came into force across all EU member states.
First proposed by the Commission in 2016, the binding rules were agreed to combat aggressive tax planning and build on global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting (BEPS). Under ATAD, all member states will:
-Tax profits moved to low-tax countries where the company does not have any genuine economic activity – controlled foreign company (CFC) rules.
-Limit the amount of net interest expenses that a company can deduct from its taxable income to discourage companies from using excessive interest payments to minimise taxes – interest limitation rules.
-Tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied – general anti-abuse rule (GAAR).
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.
The ATAD rules are designed to complement transparency rules that have gradually been coming into force to make sure that member states have the information they need to police corporate tax avoidance. The EU is also acting to ensure that its international partners implement global anti-tax avoidance standards through its ongoing work on a list of non-cooperative tax jurisdictions.
10 January 2019, the European Commission has opened an in-depth investigation to examine whether tax rulings granted by the Netherlands to US footwear manufacturer Nike might have given the company an unfair advantage over its competitors, in breach of EU State aid rules.
The investigation concerns the tax treatment in the Netherlands of two Nike group companies based in the Netherlands – Nike European Operations Netherlands BV (NEON) and Converse Netherlands BV (CN) – that develop, market and record the sales of Nike and Converse products in the Europe, Middle East and Africa (EMEA) region.
Both firms obtained licences to use intellectual property rights relating to Nike and Converse products in the EMEA region in return for a tax-deductible royalty payment, from two Nike group entities that were ‘transparent’ Dutch entities for tax purposes and therefore not taxable in the Netherlands.
From 2006 to 2015, the Dutch tax authorities issued five tax rulings, two of which are still in force, endorsing a method to calculate the royalty to be paid by NEON and CN for the use of the intellectual property. As a result they were only taxed in the Netherlands on a limited operating margin based on sales.
The Commission said it was concerned that the royalty payments endorsed by the rulings did not reflect economic reality and appeared to be higher than what independent companies negotiating on market terms would have agreed under the arm's length principle.
In particular, a preliminary analysis of the companies' activities found that NEON and CN had more than 1,000 employees and were involved in the development, management and exploitation of the intellectual property, whereas the recipients of the royalty were Nike group entities that had no employees and did not carry out any economic activity.
The Commission investigation will focus on whether the Netherlands' tax rulings endorsing these royalty payments may have unduly reduced the taxable base in the Netherlands of NEON and CN since 2006. As a result, the Netherlands may have granted a selective advantage to the Nike group by allowing it to pay less tax than other stand-alone or group companies whose transactions were priced in accordance with market terms. If confirmed, this would amount to illegal State aid.
Competition policy Commissioner Margrethe Vestager said: "Member States should not allow companies to set up complex structures that unduly reduce their taxable profits and give them an unfair advantage over competitors. The Commission will investigate carefully the tax treatment of Nike in the Netherlands, to assess whether it is in line with EU State aid rules. At the same time, I welcome the actions taken by the Netherlands to reform their corporate taxation rules and to help ensure that companies will operate on a level playing field in the EU."
The Commission has been investigating individual tax rulings of Member States under EU State aid rules since June 2013. It extended this information inquiry to all Member States in December 2014.
In addition to implementing the Anti-Tax Avoidance Directives (ATAD I and ATAD II), the Netherlands has announced plans for a broad reform tightening the requirements for tax rulings concerning international structures. No rulings will be granted if a tax structure involves a tax haven or if the purpose of the ruling is essentially to avoid Dutch or foreign taxes. To enhance transparency and consistency, all Dutch tax rulings involving international structures will be centrally managed and monitored, and the tax authorities will publish an anonymous summary of all these rulings.
29 January 2019, the European Union regulations clarifying the rules applicable to property regimes for international married couples or registered partnerships were brought into force. The rules will only apply in 18 member states because it was not possible to reach unanimity among all 28.
The new regulations are designed to bring more legal clarity for international couples and will:
-Clarify which national court is competent to help couples manage their property or distribute it between them in case of divorce, separation or death;
-Clarify which national law prevails in case the rules of several countries could potentially apply;
-Facilitate the recognition and enforcement of a judgment given in one member state on property matters in another member state.
The European Commission adopted two proposals for regulations dealing with the property regimes of international couples – for married couples and for registered partnerships – in 2011. These were intended to complement the framework of EU instruments for judicial co-operation in the area of family law.
After the European Council concluded that it was not possible to reach unanimity among the 28 member states in 2015, 17 member states requested the Commission for enhanced co-operation between them in the area of the property regimes of international couples, including both marriages and registered partnerships. Cyprus joined the enhanced co-operation at a later stage.
The Commission tabled the two proposals again and the Council adopted both regulations in June 2016. The 18 member states are: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Finland, France, Germany, Greece, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Spain and Sweden.
Non-participating member states will continue applying their national law, including their rules on private international law, to cross-border situations relating to matrimonial property regimes and the property consequences of registered partnerships. They can join both regulations at any time.
EU Justice Commissioner Vera Jourová said: “These new rules will make it easier and cheaper to divide joint assets and provide some relief to people in difficult circumstances. More than 16 million international couples will benefit from clear procedures in case of divorce or death of a partner. They will be able to save around €350 million each year in legal costs. I encourage the remaining member states to join the enhanced cooperation for the sake of all international couples across the EU.”
28 December 2018, the French Finance Act for 2019 was enacted after being adopted by the French Parliament on 20 December and came into effect on 1 January. It contains measures to amend French corporate tax rules to take account of OECD and EU initiatives.
The Act’s principal measures bring the patent box regime in line with the OECD’s ‘modified nexus’ approach, implement the EU anti-tax avoidance directive (ATAD1) and make changes to the French tax consolidation regime to conform to recent decisions of the Court of Justice of the European Union (CJEU).
In addition, the Act extends trustees' reporting obligations in respect of the French real property wealth tax – Impôt sur la Fortune Immobilière (IFI). Previously the annual reporting obligation was limited to the market value as of 1 January of the current year of the assets that were in the scope of the IFI.
Under the Act, trustees must now report annually the market value on 1 January of the current year as follows:
-For non-French tax residents – All assets and rights located in France and capitalised income placed in a trust. The former exemption for financial investment no longer applies.
-For French tax residents – All assets and rights located in France or outside France and capitalised income placed in the trust.
29 January 2019, the Minister for Finance signed the European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019 (SI16/2019). With immediate effect trustees are obliged to take all reasonable steps to obtain and hold adequate, accurate and current information in respect of a trust’s beneficial owners.
The regulations apply to all express trusts whose trustees are resident in Ireland or which are administered in Ireland. Trustees are required to keep and maintain a Beneficial Ownership Register (BOR).
For the purposes of the regulations ‘beneficial owner’ means the natural person(s) who ultimately own or control the trust or on whose behalf a transaction or activity is being conducted and includes
-The beneficiaries, or where the beneficiaries have yet to be determined, the class of persons in whose main interest the trust is set up or operates
-Any other natural person exercising ultimate control over the trust.
The regulations transpose into Irish law the requirements of the Fourth Money Laundering Directive (EU 2015/849) regarding the creation and holding of BORs for trusts. The information which trustees are required to obtain and hold in respect of each of the trust’s beneficial owners is:
-Date of birth
-The date on which he or she was entered into the register
-The date on which he or she ceased to be a beneficial owner.
Trustees are required to provide access to the BOR, on request, to the Revenue Commissioners and other state authorities, who may then disclose the information to any corresponding competent authority of another EU Member State.
15 January 2019, the IRS issued final regulations implementing the transition tax under Code Section 965, enacted as part of the Tax Cuts and Jobs Act 2017. This requires some US shareholders to pay a one-time transition tax on the untaxed foreign earnings of certain specified foreign corporations (SFCs) as if those earnings had been repatriated to the US.
Section 965 allows taxpayers to reduce the amount of such inclusion based on deficits in earnings and profits with respect to other SFCs. The final regulations are largely the same as the proposed regulations and apply to the last taxable year of an SFC beginning before 1 January 2018 with respect to a US shareholder.
For 2017 calendar year SFCs, the transition tax is calculated in 2017, and for fiscal year SFCs ending in 2018, the transition tax applies to the 2018 tax year. The final regulations define ‘section 965 element’ as any of the following amounts:
-The US shareholder’s section 965(a) inclusion amount with respect to an SFC;
-The aggregate foreign cash position of the US shareholder; or
-The amount of the foreign income taxes of an SFC deemed paid by the US shareholder under the provisions of Sec. 960 as result of the section 965(a) inclusion. The deemed foreign tax credit is only available to US corporate shareholders that own at least 10% of an SFC and is not applicable to individual US shareholders.
Under the anti-abuse provisions, a transaction is disregarded when determining the ‘section 965 element’ if each of the following conditions are met:
-Any part of the transaction occurs on or after 2 November 2017;
-The purpose of the transaction is to change the amount of a ‘section 965 element’ of the US shareholder; and
-The transaction, in fact, changes the amount of the ‘section 965 element’ of the US shareholder.
30 December 2018, the Italian Parliament approved the 2019 Budget Law that introduces a new tax regime to encourage retired individuals holding foreign pension incomes to take up residence in the Southern part of Italy.
Non-Italian resident individuals holding foreign pension incomes transferring their tax residency can opt for a 7% flat tax rate on all their non-Italian sourced incomes. Retirees under the new tax regime will also exempted from:
-Wealth taxes levied on the value of financial assets and real estate properties held abroad;
-Foreign assets reporting requirements within the annual Italian individual income tax return.
The offer is subject to certain conditions. The individual must not have been an Italian tax resident in the preceding five tax years, and must come from a jurisdiction that has an administrative cooperation agreement with Italy. Their pension must come from a non-Italian source.
To qualify, individuals must transfer their tax residency in one of the municipalities with a population not exceeding 20,000 inhabitants that is located in one of the regions of Southern Italy – Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia.
It will be possible to opt for the new 7% tax regime for retirees from 1 January 2019. It will apply for up to six years after taking up Italian residence, after which the individual will revert to Italy’s ordinary income tax regime.
13 January 2019, Luxembourg’s Parliament approved a new law for the introduction of a central register of beneficial owners of Luxembourg legal entities, The Law, which implements the provisions of the EU’s fourth Anti-Money Laundering Directive, comes into effect on 1 March but entities will have a six-month transition period to be fully compliant by 1 September.
The Projet de Loi Instituant un Registre des Bénéficiaires Effectifs introduces an obligation for legal entities – including investment funds and limited partnerships – to provide specified information on ultimate beneficial owners (UBO) to a central register which is to be maintained by the Luxembourg Business Register, previously the Trade and Companies Register.
UBOs are defined as any natural person who ultimately owns or controls a Luxembourg legal entity through direct or indirect ownership of more than 25% of the shares, units or voting rights – or by any other means. If no natural person owns 25% of the company, information on the controlling officers, typically the director(s), of the entity must be disclosed.
The information to be provided on a UBO includes name, nationality, date and place of birth, country of residence, residential or professional address, and social security number, as well as the nature and extent of the beneficial interests held with relevant supporting documentation. A UBO is required to provide this information to the directors of the legal entities such that the latter may comply with its obligations.
The register will be open to Luxembourg national authorities and the general public, although the latter will have no access to addresses and identification numbers. No reason needs to be given to obtain access to the register.
17 January 2019, a Swiss campaign group handed in 55,000 signatures to challenge the Federal Act on Tax Reform and AHV Financing (TRAF), which proposes the overhaul of the corporate tax law, combined with a reform of old age pension system. The government has set 19 May as the date for the ballot.
Under Swiss law, Swiss citizens (or eight cantons) may request an optional referendum to contest a new or revised law if they can gather 50,000 signatures within 100 days. If the referendum goes ahead, the new law is passed or rejected by a simple majority of voters.
Switzerland was obliged to change its corporate tax regime under long-standing pressure from the EU, which led to the country accepting the EU Code of Conduct on Business Taxation in June 2014. Jurisdictions recognising the Code must, among other things, roll back tax measures deemed ‘harmful’ and commit not to introduce new ones.
The TRAF legislation, which was drafted after an earlier Corporate Tax Reform III (CTR III) package was rejected by ejected by voters at a referendum in February 2017, is due to enter into force on 1 January 2020.
It will abolish the special arrangements for cantonal status companies, along with the federal practices on tax allocation for principal companies and Swiss finance branches. The legislation will also introduce a mandatory patent box regime for all cantons, provide a relief restriction, and reform the taxation of dividends from qualified participations.
The campaign group, including the Green Party and trade unions, said the law granted unfair tax advantages to international companies at the expense of spending cuts in the health and childcare sector. They argue it is similar to a proposal rejected by Swiss voters in 2017.
Two other groups from the political right and the centre collected an additional 7,000 signatures separately. They argue it is undemocratic to link a tax reform with a planned CHF2 billion injection into the ailing old age pension scheme.
The government and a majority in parliament argue the proposed law allows Switzerland to retain its attractiveness as a low tax destination for all companies because tax reductions for patents, research and development will be offset by an increase in the dividend tax.
29 January 2019, the OECD announced that countries and jurisdictions participating in its Inclusive Framework on Base Erosion and Profit Shifting (BEPS) would seek to agree a multilateral global solution to the issue of taxing multinational enterprises in a rapidly digitalising economy in 2020. An update will be presented to the G20 during 2019.
Renewed international discussions will focus on two central pillars identified in a new Policy Note released after the Inclusive Framework’s January meeting, which brought together 264 delegates from 95 member jurisdictions as well as 12 observer organisations.
The first pillar will focus on how the existing rules that divide up the right to tax the income of multinational enterprises among jurisdictions, including traditional transfer-pricing rules and the arm’s length principle, could be modified to take into account the changes that digitalisation has brought to the world economy. This will require a re-examination of the so-called ‘nexus’ rules and the rules that govern how much profit should be allocated to the business conducted there.
The Inclusive Framework will look at proposals based on the concepts of marketing intangibles, user contribution and significant economic presence and how they can be used to modernise the international tax system to address the tax challenges of digitalisation.
A second pillar aims to resolve remaining BEPS issues and will explore two sets of interlocking rules designed to give jurisdictions a remedy in cases where income is subject to no or only very low taxation.
The Inclusive Framework will issue a consultation document that describes the two pillars in more detail and a public consultation will be held in Paris in March as part of the meeting of the Task Force on the Digital Economy. Further details on the consultation process, including how stakeholders can provide input and most effectively participate, along with the consultation document, will be published in the coming weeks.
“Countries have agreed to explore potential solutions that would update fundamental tax principles for a twenty-first century economy, when firms can be heavily involved in the economic life of different jurisdictions without any significant physical presence and where new and often intangible drivers of value become more and more important,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration.
“In addition, the features of the digitalised economy exacerbate risks, enabling structures that shift profits to entities that escape taxation or are taxed at only very low rates. We are now exploring this issue and possible solutions,” he said.
29 January 2019, the OECD published ‘Harmful Tax Practices – 2018 Progress Report on Preferential Regimes’ containing assessments on whether jurisdictions have delivered on their commitment to comply with the standard on harmful tax practices under Action 5 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.
The assessments were conducted by the Forum on Harmful Tax Practices (FHTP), which comprises more than 120 member jurisdictions of the OECD’s Inclusive Framework for BEPS. The latest assessment by the FHTP provided conclusions on 57 regimes.
It found 44 regimes where jurisdictions had delivered on their commitment to make legislative changes to abolish or amend the regime. These were in Antigua & Barbuda, Barbados, Belize, Botswana, Costa Rica, Curaçao, France, Jordan, Macau (China), Malaysia, Panama, Saint Lucia, Saint Vincent & the Grenadines, the Seychelles, Spain, Thailand and Uruguay.
As a result, all IP regimes that were identified in the 2015 BEPS Action 5 report are now considered to be ‘not harmful’ and consistent with the nexus approach, following the recent legislative amendments passed by France and Spain.
Three new or replacement regimes in Barbados, Curaçao and Panama were also found to be ‘not harmful’ because they were specifically designed to meet the Action 5 standard.
Four other regimes – Malaysia, the Seychelles and two regimes in Thailand – were found to be out of scope or not operational, while two further commitments were secured from Malaysia and Trinidad & Tobago to make legislative changes to abolish or amend a regime.
One regime in Montserrat was found to potentially harmful but not actually harmful, while three regimes in Thailand were found to be potentially harmful.
The FHTP has now reviewed 255 regimes to date since the start of the BEPS Project. The latest report also delivers on the Action 5 mandate for considering revisions or additions to the FHTP framework, including updating the criteria and guidance used in assessing preferential regimes and the resumption of application of the substantial activities factor to no or only nominal tax jurisdictions. The report further sets out the next key steps for the FHTP in continuing to address harmful tax practices.
The Cook Islands, the Faroe Islands and Greenland joined the Inclusive Framework on BEPS during January, bringing the total number of countries and jurisdictions participating on an equal footing to 127.
Belize and Papua New Guinea also signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting to bring the total number of signatories to 87. The Multilateral Convention now covers over 1,500 bilateral tax treaties.
31 December 2018, the Singapore government gazetted the Serious Crimes and Counter Terrorism (Miscellaneous Amendments) Act, which introduces a new mechanism that is similar to the Unexplained Wealth Order (UWO) rules enacted by the UK in January 2018. The Bill was passed by Parliament on 19 November and assented to by the President on 21 December.
The Act amends the Corruption, Drug Trafficking and Serious Crimes (Confiscation of Benefits) Act (CDSA) and the Terrorism (Suppression of Financing) Act (TSOFA) to strengthen the government’s ability to enforce and prosecute offences relating to money laundering and terrorism financing. It also enhances penalties for greater deterrence and facilitates sharing of financial intelligence with foreign jurisdictions.
A new Section 47AA in the CDSA now makes it an offence for any individual or company to possess or use any property that may be reasonably suspected of wholly or partly being the proceedings of drug dealing or other serious crimes, unless the individual or company can satisfactorily explain the provenance of the property. Individuals or companies convicted of such an offence face heavy fines and imprisonment, in addition to the seizure and forfeiture of the property in question.
The most significant aspect of Section 47AA is its reversal of the traditional prosecutorial burden of proof. If there is a ‘reasonable basis’ to suspect the property is derived from drug dealing or a serious crime, the accused individual or company must satisfactorily prove otherwise to a court. Unlike the UK UWO regime, a Singapore enforcement agency need not apply to the Singapore courts; it simply has to alert a suspect to the operation of Section 47AA.
27 January 2019, Swiss newspaper SonntagsZeitung reported that Switzerland was the only country that declined an offer from the German police last year to review the leaked ‘Panama Papers’ for evidence of potential money laundering or tax evasion.
The Panama Papers revealed among other things that 1,339 Swiss lawyers, financial advisors and other middlemen had set up more than 38,000 offshore entities over the past 40 years. These entities listed 4,595 officers – or administrators – also connected to Switzerland.
The German authorities said that 16 other countries had sent investigators to Wiesbaden, Germany, last September but they had not received any request for assistance from Switzerland. The Swiss Office of the Attorney General said it was restricted by regulations on how it could receive and use evidence.
3 January 2019, Deputy Prime Minister and Minister of Finance Peter Turnquest announced that the government is to develop a new framework for the financial services sector under which financial institutions meeting the regulatory requirements will be permitted to offer services to both domestic and international clients.
It will remove any preferential tax treatment between financial institutions that cater primarily to the domestic markets and those financial institutions that cater to international clients. This is essential to removing discriminatory treatment of specific businesses proscribed under the Removal of Preferential Exemptions Act 2018.
The new framework, which took effect as of 1 January, proposes that financial institutions, including banks, insurance companies, trust companies, investment advisers, mutual fund administrators, brokers/dealers and other regulated financial services entities, will be exempt from paying a Business Licence fee when renewing or applying for a licence, starting from January 2020.
In place of Business Licence fees, Bahamas’ financial institutions will be subject to a three-tiered system, as follows:
-All financial institutions will pay a flat registration fee that will be set on a sliding scale between BSD2,250 and BSD250,000 per year. The applicable fee will be determined primarily by the operational complexity of the institution, which aligns with the level of resources expended to regulate financial institutions based on their respective size and complexity. Smaller institutions like credit unions will pay much lower fees;
-All financial institutions that are deemed systemically important, as determined by their degree of integration into the domestic financial system, will be subject to an additional fee in respect of BSD liabilities and contingencies to mitigate any threat posed to the Bahamian financial system; and
-Any bank wishing to access the domestic payments system, and/or wishing to operate as an Authorised Agent for BSD transactions, will be charged fees reflecting the substantial supervisory and management costs of these arrangements for the Central Bank of The Bahamas and other public sector agencies.
Companies incorporated in The Bahamas under either the Companies Act or the International Business Companies Act – with the exception of those financial institutions already covered – will be required to register under the Business Licence Act and pay a value-based Business Licence fee. The application process has been streamlined such that a provisional licence that can be processed in a matter of days.
Moving forward, a company’s Business Licence fee will be calculated by reference to the value of any positively rated taxable supplies made in that year, charged at a rate of between 0% and 2.5% of that value.
This new framework follows the recent passage of a package of legislation aimed at implementing measures that will ensure compliance with international standards on tax governance and transparency – the Commercial Entities (Substance Requirements) Act, the Removal of Preferential Exemptions Act, the Register of Beneficial Ownership Act and the Multinational Entities Financial Reporting Act.
“We expect that our demonstrated commitment to operate within the framework of mutually agreed standards, that are accepted by all stakeholders, will allow the Bahamas and the global community to move forward and get down to the work of doing business in a marketplace characterised by more transparent rules that lead to equity and fair competition,” said Turnquest.