Owen, Christopher: Global Survey – July 2019

14 June 2019, the Cayman Islands Trusts (Amendment) Law 2019, which includes expanding the powers of the Grand Court to set aside mistakes by trustees and vary trusts, was brought into force. It was passed by the Cayman Legislative Assembly and gazetted on 15 May 2019.

Key changes include:

-Codifying the Hastings-Bass principle to provide a clear statutory framework to apply for relief where the trustee has made a mistake in the exercise of their powers. A new Section 64A provides for the Grand Court to set aside of mistaken decisions by trustees without the necessity to prove that the person who exercised the power acted in breach of trust or duty.

-Extra-judicial variation of trusts: Section 72 is amended to substitute the ‘benefit test’ with a ‘no detriment test’ to make it easier for the Grand Court to approve a variation to a trust on behalf of minor and unborn beneficiaries;

-Compromise trust litigation: a new Section 64B is inserted to apply a ‘no detriment test’ where the Grand Court is asked to approve a compromise of a trust dispute on behalf of minor and unborn beneficiaries;

-Foreign element provisions: Subsection 91(b) of the ‘firewall’ or foreign element provisions is amended to extend the reference to a “personal relationship to the settlor” to include a personal relationship to any beneficiary, ensuring that protection is clearly available to all beneficiaries in countering any potential claims against a trust’s assets in a foreign jurisdiction;

-Trust corporations: widening the definition of a “trust corporation” to include not just licensed trust companies but also their controlled subsidiaries, thereby widening the scope for trustees to utilise the retirement provisions in the Trusts Law and also achieve consistency with the term’s definition relating to Cayman STAR trusts at Section 105(2) of the Trusts Law.

The amendments are based on recommendations made by the Cayman Islands Law Reform Commission, which reviewed the Trusts Law in 2017 against corresponding legislation in the UK, Jersey, Guernsey, Bermuda, the BVI and the Bahamas.

18 June 2019, the Securities Investment Business (Amendment) Law 2019, which imposes additional requirements on persons excluded under the Securities Investment Business Law (2019 Revision), was gazetted and brought into force. It was passed by the Legislative Assembly on 5 June.

Persons currently registered with the Cayman Islands Monetary Authority (CIMA) as ‘Excluded Persons’ are required, unless they fall within a new exemption for single family offices, to re-register as ‘Registered Persons’ under the amended law by 15 January 2020. They are also required to file an Anti-Money launder (AML) Inherent Risk and AML Risk Controls Questionnaire by 14 August 2019.

The Amendment also brings Registered Persons who are managing securities within the scope of the International Tax Co-Operation (Economic Substance) Law 2018, which requires the conduct of core activities, the maintenance of adequate staff and premises, the incurring of adequate expenditure and the management to be in Cayman.

CIMA will assess shareholders, directors and senior officers of Registered Persons as ‘fit and proper persons’ and Registered Persons are required to notify CIMA within 21 days in respect of: any material change of information given in their application for registration or annual filings; any issue or voluntary transfer or disposal of their equity interests; any change in their senior officers; and the date they cease to conduct securities investment business.

Registered Persons will be required to have a minimum of two individual directors registered under the Directors Registration and Licensing Law 2014 or a corporate director licensed under that law. Corresponding requirements apply to the general partner of a partnership and managers of an LLC or a registered foreign company.

Excluded Persons who are single family offices are no longer considered to be conducting securities investment business. Registered Person are not permitted to act as a depositary in or from within Cayman.

26 June 2019, the Parliamentary Assembly of the Council of Europe (PACE) adopted a report stating that the rule of law in Malta was “seriously undermined by the extreme weakness of its system of checks and balances.”

The resolution, based on a report by rapporteur Pieter Omtzigt, listed a series of “serious concerns” over the investigation into the murder of Maltese journalist Daphne Caruana Galizia in 2017 and demanded the setting up of an independent public inquiry into her death within three months.

It said: “Ms Caruana Galizia’s murder and the continuing failure of the Maltese authorities to bring the suspected killers to trial or identify those who ordered her assassination raise serious questions about the rule of law in Malta.”

PACE called on Maltese law enforcement bodies to “robustly investigate and prosecute” those involved in or benefiting from the scandals exposed by Daphne Caruana Galizia and her colleagues.

PACE pointed to a series of “major scandals” in Malta in recent years, adding that certain individuals involved in these scandals seemed to “enjoy impunity, under the personal protection of Prime Minister Muscat”.

The resolution said: “Despite certain recent steps, Malta still needs fundamental, holistic reform, including subjecting the office of Prime Minister to effective checks and balances, ensuring judicial independence and strengthening law enforcement and other rule of law bodies. Malta’s weaknesses are a source of vulnerability for all of Europe: Maltese citizenship is EU citizenship, a Maltese visa is a Schengen visa, and a Maltese bank gives access to the European banking system. If Malta cannot or will not correct its weaknesses, European institutions must intervene.”

It called on Malta to urgently implement, in their entirety, reforms recommended by the European Commission for Democracy through Law (Venice Commission) and its anti-corruption body, of the Group of States against Corruption (GRECO), noting that the recent State Advocate bill was “inadequate to reform the office of Attorney General”.

19 June 2019, the governments of Guernsey, Jersey and the Isle of Man jointly announced a series of steps regarding central registers of beneficial ownership information of companies and how they will move towards developing international standards of accessibility and transparency.

The three Crown Dependencies (CDs) have resisted providing public access to beneficial ownership information, arguing that it infringes clients' privacy and safety, and that access by law or tax enforcement agencies is sufficient for most purposes. However, the enactment of the EU Fifth Anti-Money Laundering Directive (AMLD 5) has prompted a change of policy.

The CDs have committed to adopting legislative proposals within one year of the European Commission report to be published in 2022. The commitment sets out three clear stages that are consistent with the EU's approach to transparency of beneficial ownership data of companies under AMLD 5 within a deliverable timeframe. The stages are:

-The interconnection of the islands' registers of beneficial ownership of companies with those within the EU for access by law enforcement authorities and Financial Intelligence Units;

-Access for financial service businesses and certain other prescribed businesses for corporate due diligence purposes;

-Public access aligned to the approach set out in the EU Directive.

Chief Minister of the Isle of Man Howard Quayle said: "EU Member States' implementation of Public Registers creates a clear direction of travel. It is in all our strategic interests and our standing as responsible jurisdictions to commit to further develop the accessibility and transparency of our register of beneficial ownership for companies. The EU's review in 2022 gives us the opportunity to follow best practice and implement a register that meets the principles of AMLD 5."

19 June 2019, the Court of Justice of the EU (CJEU) issued two decisions holding that final losses of a foreign subsidiary are deductable in the home state of the parent company only if the parent company can demonstrate that it is impossible for it to deduct the losses elsewhere. Both judgments were in line with the Advocate General's opinions issued in January.

In Skatteverket v Holmen AB (C-608/17), the court considered whether the losses of a non-resident subsidiary were final and could be deductible in Sweden. In Skatteverket v Memira Holding AB (C-607/17), the court considered whether losses transferred through merger were final and could be deductible in Sweden.

The parent company in Holmen was seeking to liquidate a Spanish subsidiary that had incurred tax losses that could no longer be used in Spain. Under Spanish law, the tax losses could be neither carried back nor transferred to other taxpayers. The parent company in Memira Holding was seeking to merge with a German subsidiary that had incurred tax losses and could not use the losses in either Germany or in Sweden.

In both cases, the Swedish parent company sought to use the ‘Marks & Spencer exception’ to argue in favour of the deduction from its taxable base in Sweden of the losses incurred at the level of its foreign subsidiary. Both taxpayers appealed the findings of the Swedish Revenue Law Commission to the Swedish Supreme Tax Court, which in December 2017 requested the CJEU to clarify under which circumstances a loss can be considered as final under the ‘Marks & Spencer exception’.

The CJEU held that, regardless of limitation on the use of losses under the tax laws of the Member State where the subsidiary was resident, tax losses could not be regarded as ‘final’ – and therefore deductible under the Marks & Spencer principle – unless the parent company demonstrated that it was impossible for it to deduct losses by ensuring by means of sale that they were taken into account by a third party for future tax periods.

In Holmen, the CJEU further held that a Member State could not make the use of final losses conditional on the parent company holding the loss-making subsidiary directly, if all the intermediate companies were resident in the same Member State as the loss-maker. However, if any of the intermediate companies were resident in a different Member State, the parent company's Member State was not required to permit the company to use the final losses.

CJEU judgments can be accessed at http://curia.europa.eu/juris/recherche.jsf?language=en

14 June 2019, the European Council removed Dominica from the EU list of non-cooperative jurisdictions for tax purposes. It said Dominica had implemented its commitments and addressed EU concerns as regards automatic exchange of financial information.

More specifically, Dominica completed the necessary steps to sign and ratify the OECD multilateral convention on mutual administrative assistance. This step warrants Dominica's removal from the EU's list of non-cooperative jurisdictions.

As a result, 11 jurisdictions remain on the EU blacklist: American Samoa, Belize, Fiji, Guam, Marshall Islands, Oman, Samoa, Trinidad & Tobago, United Arab Emirates, US Virgin Islands and Vanuatu.

The list was established in December 2017 and revised in March 2019, following an in-depth review of the implementation of the commitments taken by third country jurisdictions that are part of the process. The Council will continue to review and update the list in 2019 and will move to a bi-annual review as of 2020.

21 June 2019, the Financial Action Task Force (FATF) adopted and issued an Interpretive Note to Recommendation 15 on New Technologies (INR 15) that further clarifies the FATF’s previous amendments to the international standards relating to virtual assets.

Last October, the FATF updated its standards to clarify their application to virtual assets and virtual asset service providers by amending INR 15 and adding two new definitions to the FATF Glossary.

INR 15 establishes binding measures relevant for both countries and virtual asset service providers, as well as other obliged entities that engage in or provide virtual asset products and services.

The obligations require countries to assess and mitigate their risks associated with virtual asset activities and service providers; license or register service providers and subject them to supervision or monitoring by competent national authorities.

They also require countries to implement sanctions and other enforcement measures when service providers fail to comply with their AML/CFT obligations, and underscore the importance of international co-operation.

Further, INR 15 requires countries to ensure that service providers also assess and mitigate their money laundering and terrorist financing risks and implement the full range of AML/CFT preventive measures under the FATF Recommendations, including customer due diligence, record-keeping, suspicious transaction reporting and screening all transactions for compliance with targeted financial sanctions. This includes co-ordination with relevant authorities to ensure the compatibility of AML/CFT requirements with data protection and privacy rules and similar provisions.

The FATF also published updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, which builds upon its 2015 guidance paper, to further assist countries and providers of virtual asset products and services in understanding and complying with their AML/CFT obligations.

The FATF said the threat of criminal and terrorist misuse of virtual assets was serious and urgent, and it expects all countries to take prompt action to implement the FATF Recommendations in the context of virtual asset activities and service providers. The FATF will monitor implementation of the new requirements by countries and service providers and conduct a 12-month review in June 2020.

The FATF will establish a contact group to engage industry and monitor industry-led efforts to enhance compliance with the FATF Standards and better safeguard the international financial system from abuse.

As part of its ongoing review of compliance with the AML/CFT standards, the FATF identified the following jurisdictions with strategic AML/CFT deficiencies for which they have developed an action plan with the FATF.

The FATF called on the following jurisdictions with strategic deficiencies to complete the implementation of action plans expeditiously and within the proposed timeframes: The Bahamas, Botswana, Cambodia, Ethiopia, Ghana, Pakistan, Panama, Sri Lanka, Syria, Trinidad & Tobago, Tunisia and Yemen.

The Bahamas, it said, should continue to work on implementing its action plan by: (1) completing the comprehensive electronic case management system for international co-operation; (2) demonstrating risk-based supervision of non-bank financial institutions; (3) completing the process to ensure the timely access to adequate, accurate and current basic and beneficial ownership information; (4) increasing the quality of the financial intelligence unit’s (FIU) products to assist law enforcement agencies in the pursuance of ML/TF investigations, specifically complex ML/TF and stand-alone ML investigations; (5) demonstrating that authorities are investigating and prosecuting all types of money laundering, including complex ML cases, stand-alone money laundering, and cases involving proceeds of foreign offences; (6) increasing the identification, tracing and freezing or restraining of assets and to present cases linked with foreign offences and standalone ML cases; and (7) addressing remaining gaps in the frameworks for Targeted Financial Sanctions (TFS) against Terrorist Financing (TF) and Proliferation Financing (PF), and demonstrating implementation.

Panama, it said, should work to implement its action plan, including by: (1) strengthening its understanding of the national and sectoral ML/TF risk and informing findings to its national policies to mitigated the identified risks; (2) proactively taking action to identify unlicensed money remitters, applying a risk-based approach to supervision of the Designated non-financial businesses and professions (DNFBP) sector and ensuring effective, proportionate, and dissuasive sanctions again AML/CFT violations; (3); ensuring adequate verification and update of beneficial ownership information by obliged entities, establishing an effective mechanisms to monitor the activities of offshore entities, assessing the existing risks of misuse of legal persons and arrangements to define and implement specific measures to prevent the misuse of nominee shareholders and directors, and ensuring timely access to adequate and accurate beneficial ownership information; and (4) ensuring effective use of FIU products for ML investigations, demonstrating its ability to investigate and prosecute ML involving foreign tax crimes and to provide constructive and timely international cooperation with such offence, and continuing to focus on ML investigations in relation to high-risk areas.

The FATF welcomed Serbia’s significant progress in improving its AML/CFT regime and noted that Serbia had strengthened the effectiveness of its AML/CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in February 2018. Serbia was therefore no longer subject to the FATF’s monitoring process under its ongoing global AML/CFT compliance process.

30 June 2019, G20 leaders at their Summit in Osaka welcomed recent progress on addressing the tax challenges arising from the digitalisation of the economy and said they would redouble efforts for a consensus-based solution by 2020. They reaffirmed the importance of worldwide implementation of the G20/OECD Base Erosion and Profit Shifting (BEPS) package.

“We welcome the recent progress on addressing the tax challenges arising from digitalisation and endorse the ambitious work programme that consists of a two-pillar approach, developed by the Inclusive Framework on BEPS. We will redouble our efforts for a consensus-based solution with a final report by 2020. We welcome the recent achievements on tax transparency, including the progress on automatic exchange of information for tax purposes,” said the Leaders’ Declaration.

“We also welcome an updated list of jurisdictions that have not satisfactorily implemented the internationally agreed tax transparency standards. We look forward to a further update by the OECD of the list that takes into account all of the strengthened criteria. Defensive measures will be considered against listed jurisdictions. The 2015 OECD report inventories available measures in this regard. We call on all jurisdictions to sign and ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters.“

25 June 2019, India deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). For India, the MLI will enter into effect on 1 October 2019.

The MLI enables governments to modify existing bilateral tax treaties in a synchronised and efficient manner to implement the tax treaty measures developed during the BEPS Project, without the need to expend resources renegotiating each treaty bilaterally. It now covers over 1,500 bilateral tax treaties worldwide.

The Russian Federation also ratified the MLI on 18 June, while Morocco became the 89th jurisdiction to join the MLI when it signed the Convention on 25 June. Serbia signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 13 June.

10 June 2019, Prime Minister and Minister of Finance & Economic Development Pravind Jugnauth delivered the 2019-20 National Budget, which included a number of measures to expand and diversify Mauritius as an international financial centre and to ensure compliance with international standards.

To address the deficiencies identified by the EU in the partial exemption regimes, the Income Tax Regulations 1996 will be amended to define the detailed substance requirements that must be met in order for a taxpayer to enjoy the partial exemption benefit, and to lay down the conditions that must be satisfied where a company outsources its core income generating activities. Consequential amendments will be made to Section 71 of the Financial Services Act.

The Income Tax Act will be amended to set out rules on controlled foreign companies (CFC). In addition, the Companies Act, Limited Liability Partnerships Act and Limited Partnerships Act are to be amended to provide for the definition of beneficial owner with a view to fulfilling the requirements of the OECD. The limit on the number of shareholders permitted for private companies incorporated under the Companies Act will also be reviewed.

To strengthen the regulatory framework and increase investors’ confidence, a Financial Crime Commission will be set up to act as an apex body to ensure greater co-ordination and coherence among the various investigative agencies, including the Independent Commission Against Corruption (ICAC), the Financial Intelligence Unit (FIU) and the enforcement department of the FSC in carrying out their functions, in particular in dealing with drugs investigations and other financial crimes.

The Income Tax Act will be amended to implement the recommendation of industry stakeholders regarding the determination of tax residency for companies so that a company will not be considered as tax resident in Mauritius if it is centrally managed and controlled outside Mauritius. Consequential amendments will be made to Section 71A of the Financial Services Act.

In respect of tax incentives, the Budget announcement included the following measures:

-Innovation Box Regime – A newly set-up company involved in innovation-driven activities to benefit from an eight-year tax holiday on income derived from intellectual property assets developed in Mauritius. Existing companies will also qualify for income derived from intellectual property assets developed in Mauritius after 10 June 2019. In order to qualify, companies will have to satisfy pre-defined substantial activities requirement in compliance with the Base Erosion and Profit Shifting (BEPS) Action 5 report.

-E-commerce Platform – A five-year tax holiday will be introduced for a company setting up an e-commerce platform, provided the company is incorporated in Mauritius before 30 June 2025. The Economic Development Board Act will be amended to allow for the issuance of E-commerce Scheme Certificate.

-Peer-to-Peer Lending – A 5-year tax holiday will be granted to a Peer-to-Peer lending operator provided the company starts its operation prior to 31 December 2020.

Further proposals designed to expand and diversify Mauritius as an international financial centre included:

-Establishing a new framework for fund administration and fund management;

-Updating the existing Special Purpose Fund regime to ease access to new markets;

-An agreement with Gujarat International Finance Tec-City to recognise Mauritius-licensed funds and management companies as qualified to operate in Gujarat as well;

-Introduce new rules and tax regime to promote the development of Real Estate Investment Trusts (REITs);

-Introduce an ‘umbrella licence’ for wealth management activities;

-Introduce a scheme for headquartering of ‘e-commerce’ activities;

-Introduce a new trading platform at the Stock Exchange of Mauritius to allow medium-sized profitable enterprises that do not qualify for listing on the official and Development & Enterprise Market (DEM) markets to raise capital and trade shares;

-Introduce a ‘single-window system’ at the FSC to allow for submission of documents for financial services and global business applications;

-Establish a regime for Robotics and Artificial Intelligence (AI) enabled financial advisory services;

-Introduce a new licence for Fintech Service providers;

-Encourage self-regulation for Fintech activities, in consultation with the United Nations Office on Drugs & Crime (UNODC);

-Introduce the use of e-signatures and e-licences on a pilot basis;

-Establish ‘Crowd Funding’ as a new licensable activity;

27 June 2019, the OECD released the international administrative and operational framework for the automatic exchange of information collected under the OECD's Model Mandatory Disclosure Rules (MDRs) on Common Reporting Standard (CRS) Avoidance Arrangements and Opaque Offshore Structures.

The MDR exchanges will be based on a multilateral Competent Authority Agreement (MCAA), which will enable a jurisdiction that receives information about a CRS Avoidance Arrangement or Opaque Offshore Structure under the MDRs to exchange such information with all jurisdictions of tax residence of the taxpayers.

This will enable the tax authorities in relevant jurisdictions to use such information to assess compliance with respect to both the taxpayers and the intermediaries involved in the arrangements disclosed under the MDRs.

In order to support the operational and technical side of the MDR exchanges, the OECD is also releasing the MDR XML Schema and User Guide to support MDR exchanges, which will facilitate the structured collection and exchange of information on CRS Avoidance Arrangements and Opaque Offshore Structures.

Separately, the OECD is releasing updated XML schemas and guidance to support the exchange of tax information under the Common Reporting Standard (CRS), on Country-by-Country (CbC) Reporting and in relation to tax rulings (ETR). The updates to the several user guides and XML schemas reflect the experiences gained from first exchanges. They are aimed at increasing the user-friendliness and contain the latest technical developments.

The CRS and CbC-related schemas will become effective for all exchanges on or after 1 January 2021, whereas the ETR-related schemas will take effect as from 1 April 2020.

7 June 2019, the OECD said international efforts to improve transparency via automatic exchange of information on financial accounts are improving tax compliance and delivering concrete results for governments worldwide.

More than 90 jurisdictions participating in the automatic exchange of information (AEOI) initiative, activated through 4,500 bilateral relationships under the OECD’s Common Reporting Standard (CRS) have now exchanged information on 47 million offshore accounts since 2018, with a total value of around €4.9 trillion.

Voluntary disclosure of offshore accounts, financial assets and income in the run-up to full implementation of the AEOI initiative resulted in more than €95 billion in additional revenue (tax, interest and penalties) for OECD and G20 countries over the 2009-2019 period. This cumulative amount has increased by €2 billion since the last reporting by OECD in November 2018.

Preliminary OECD analysis of bank deposits held by companies or individuals in more than 40 key international financial centres showed that deposits increased substantially over the 2000 to 2008 period, reaching a peak of USD1.6 trillion by mid-2008, but have since fallen by 34% over the past ten years, representing a decline of USD551 billion. The complete study is due to be published later this year.

OECD Secretary-General Angel Gurria said: “The transparency initiatives we have designed and implemented through the G20 have uncovered a deep pool of offshore funds that can now be effectively taxed by authorities worldwide. Continuing analysis of cross-border financial activity is already demonstrating the extent that international standards on automatic exchange of information have strengthened tax compliance, and we expect to see even stronger results moving forward.”

26 June 2019, the Swiss Federal Council adopted a dispatch on the amendment of the Anti-Money Laundering Act (AMLA) to achieve compliance with the main recommendations of the mutual evaluation report of the Financial Action Task Force (FATF) on Switzerland.

In its fourth mutual evaluation report on Switzerland, the FATF identified weaknesses in certain areas. It recommended that lawyers, notaries and other advisors in connection with companies or trusts should be required comply with due diligence obligations. It also made recommendations regarding due diligence requirements for Swiss-based associations active abroad, as well as the traders of precious metals and stones.

The ‘Panama Papers’ investigation revealed that 1,339 Swiss lawyers, financial advisors and other middlemen had set up more than 38,000 offshore entities over the last 40 years. These entities listed 4,595 officers – or administrators – that were also connected to Switzerland.

The Federal Council instructed the Federal Department of Finance (FDF) to prepare a consultation draft. It proposes that due diligence obligations under the AMLA should apply not only to financial intermediaries and dealers, but also to persons who provide certain services in connection with the formation, management or administration of companies and trusts.

It suggests a new category of individuals – advisers – who would be required by law to report to the Money Laundering Reporting Office suspicions of money laundering activities if money laundering is suspected. Lawyers and notaries will only be affected by the reporting obligation if they carry out a financial transaction as part of their services.

The difference between reporting obligations and the right to report is to be clarified by describing the concept of justified suspicion in more detail in the Anti-Money Laundering Act. If the financial intermediaries do not receive any feedback from the Money Laundering Reporting Office within 40 days, they should be allowed to terminate the business relationship.

In respect of Swiss associations and their potential misuse for terrorist financing or money laundering, the Federal Council focused on associations involved in collecting or distributing money for charitable purposes abroad. Transparency rules will apply to such entities, which will have to register in the commercial register and designate a representative who resides in Switzerland.

The government also said it wants to lower the threshold for traders in precious metals and stones to comply with due diligence requirements for cash payments. The threshold will be lowered from CHF100,000 to CHF15,000. This does not apply to trading in precious metals and gemstones that are typically intended for sale to end customers. A control mechanism is to be introduced for the purchase of precious metals.

Parliament is expected to begin addressing the measures in the second half of 2019. They are not expected to come into force until the start of 2021 at the earliest. Switzerland's next FATF country review is scheduled for 2020.

20 June 2019, the Ruler of Dubai issued the Resolution of the Cabinet of Ministers No. 31 for 2019 concerning economic substance rules. The legislation, which entered into force as of 30 April, is intended to secure the UAE’s removal from the European Union's blacklist of unco-operative jurisdictions.

The blacklisting was announced in March, after the EU's Code of Conduct Group (Business Taxation) named the UAE as one of the jurisdictions it considered to be facilitating offshore structures or arrangements aimed at attracting overseas profits that do not reflect real economic activity in the jurisdiction.

The economic substance regulations apply to companies engaged in core income generating activities (CIGA) including banking, insurance, fund management, financing and leasing, headquarter companies, shipping business, investment holding, IP activities and distribution and service centres.

To meet the economic substance requirement, companies will generally need to satisfy the following three tests:

-The company should be directed and managed in the UAE for the specific activity;

-The company’s CIGA should be performed in the UAE;

-The company should have an adequate level of qualified employees, premises and annual operating expenditures.

Relevant companies should ensure that their boards have frequent quorate meetings in the UAE, minuted and signed by all attendees, and all the records must be kept within the UAE. For legal entities such as branches, representative offices and other companies who are managed by a single director, that manager must be physically present in the UAE when making the main decisions.

Entities may outsource CIGA activities – with the exception of ‘high risk’ IP – provided the outsourced activities are carried out inside the UAE and the entity retains full control over those activities. In line with the EU recommendations, pure holding companies will be subject to less stringent substance requirements. Additional reporting requirements apply to ‘high-risk’ IP companies.

Entities carrying on relevant activities that fall within the scope of the regulations are required to prepare a report to the regulatory authority, demonstrating that they satisfy the economic substance test, no later than 12 months after the end of each financial year. The regulatory authority will then submit the report to the competent authority, the UAE Ministry of Finance.

Fines of up to AED50,000 will be imposed for late reporting. Fines of up to AED300,000 and possible licence suspension, deregistration or even compulsory liquidation will apply for failure to meet the mandatory substance requirements.

It is expected that further executive regulations will be issued to provide more clarifications with respect to the provisions of the new economic substance regulations, including implementation details.

13 June 2019, Justice Secretary David Gauke introduced the Divorce, Dissolution & Separation Bill, which aims to make divorce less acrimonious by providing that divorcing couples will no longer have to make allegations about each other’s conduct.

Current divorce law requires people seeking divorce to give evidence of one or more of five facts – adultery, behaviour, desertion, two-years’ separation if the other spouse consents to the divorce or five years’ separation if they do not.

The reforms remove conflict flashpoints that exist in the current process and introduce a minimum overall timeframe, encouraging couples to approach arrangements for the future as constructively and cooperatively as possible.

Specifically, the Bill will:

-Replace the current requirement to evidence either a conduct or separation ‘fact’ with the provision of a statement of irretrievable breakdown of the marriage, which ca be a joint statement;

-Remove the possibility of contesting the decision to divorce, as a statement will be conclusive evidence that the marriage has broken down;

-Introduce a new minimum period of 20 weeks from the start of proceedings to confirmation to the court that a conditional order may be made, allowing greater opportunity for reflection and, where couples cannot reconcile and divorce is inevitable, agreeing practical arrangements for the future.

The Bill removes the possibility to contest a divorce but all divorce applications could still be challenged on the bases of jurisdiction, the legal validity of the marriage, fraud or coercion and procedural compliance.

The current law does not require any minimum period of time to elapse before granting a conditional order of divorce (decree nisi) but will retain the current minimum period of eight weeks before a final decree can be applied for.

Justice Secretary David Gauke said: “Marriage will always be a vitally important institution in society, but when a relationship breaks down it cannot be right that the law adds fuel to the fire by incentivising couples to blame each other.”

Parallel changes will be made to the law governing the dissolution of a civil partnership, which broadly mirrors the legal process for obtaining a divorce. The proposed legislation will not cover other areas of matrimonial law such as financial provision. Financial provision on divorce is handled in separate proceedings and the court has wide discretion to provide for future financial needs.

5 June 2019, the UK Upper Tax Tribunal overturned a 2017 decision of the First-tier Tribunal (FTT) in deciding that three special purpose vehicles (SPVs) incorporated in Jersey as part of a tax planning arrangement were not managed and controlled in the UK.

In Development Securities plc & Others v HMRC [2019] UKUT 0169 (TCC), a property development and investment group undertook a tax avoidance scheme in 2004 designed to crystallise latent capital losses. Development Securities plc set up three SPV subsidiaries in Jersey, which were granted call options to acquire shares in property owning companies and certain properties.

The price payable by the Jersey SPVs on exercise of the call options was an amount equal to the historic base cost of the asset plus indexation accrued to that time. This was significantly in excess of current market value. The UK parent company funded the entire acquisition of the assets by subscribing for shares and making a capital contribution.

Within 40 days, the SPVs moved their residence to the UK to achieve an increased capital loss on disposal. In order to meet the accepted central management and control (CMC) test for tax residence, the boards of the Jersey SPVs had a majority of Jersey-resident directors and the board meetings all took place in Jersey and decisions were actually taken at those board meetings.

HMRC sought to challenge the scheme under Ramsay principles, but abandoned this argument in 2014. Instead it claimed that the scheme failed because the Jersey SPVs were effectively managed and controlled in the UK.

In 2007, the FTT agreed. In Development Securities (No.9) Limited & Others v HMRC [2017] UKFTT 0565 (TC), it concluded that the transactions entered into by the Jersey SPVs were inherently uncommercial and that the directors would not have accepted their appointment without an intention to undertake the transaction.

Under Jersey corporate law, the SPVs could only have entered into such transactions with the approval of their UK parent company. Further, the Jersey SPV directors only had one specific task entrusted to them by the UK parent company and following completion of that task they were to resign, which they did.

The FTT held that the directors appointed to the board were in reality, in accepting their appointment, agreeing to implement the parent's decisions barring any legal impediment. While the SPV directors took every effort to ensure their actions were legal, there was no evidence that they took the commercial decision to implement the transactions or that they had considered the merits. Rather the UK parent company had taken this decision and the SPV directors were merely verifying that it could be implemented legally. As a result it found that the Jersey SPVs were centrally managed and controlled and resident in the UK and not in Jersey where the board meetings were held.

Development Securities appealed to the Upper Tax Tribunal, contending that the Jersey boards had not “abdicated responsibility for management and control” despite their purchase of the assets at an overvalue.

The Upper Tribunal noted that the Jersey subsidiaries had not been economically disadvantaged because the UK parent company had funded the overpayment. Further, the main concern of the directors of the Jersey subsidiaries should have been the best interests of the parent company as shareholder, and this was for the scheme to succeed.

The Upper Tribunal stated that in the case of SPVs, the CMC test should be approached with “particular care” so as to distinguish between influence over the subsidiary and control of the subsidiary. Where a parent merely influences a subsidiary, CMC remains with the subsidiary but where the parent company controls the subsidiary – by taking decisions that should properly be taken by the subsidiary’s board of directors – then CMC vests in the parent.

The Upper Tribunal did not consider that the fact that the directors had a specific task entrusted to them by their parent company was sufficient to establish where CMC vested. It was satisfied that the Jersey directors had not abdicated their responsibilities and had not ceded control to someone else, in circumstances where they:

-Knew exactly what they were being asked to decide;

-Did so understanding their duties; and

-Complied with those duties.

“Where a parent company merely influences the subsidiary, CMC remains with the board of the subsidiary. It is only where the parent company controls the subsidiary, i.e. by taking the decisions which should properly be taken by the subsidiary's board of directors, that CMC vests in the parent,” said the Upper Tribunal. “The place of central management and control is the place where CMC is actually to be found, not the place where CMC ought to be exercised.”

25 June 2019, the US Senate Foreign Relations Committee approved four protocols amending existing US tax treaties with Japan, Luxembourg, Spain and Switzerland. The four protocols, which were signed between 1990 and 2013, can now be considered by the full Senate.

Ratification of tax treaties in the Senate has been held up since 2010 by Senator Rand Paul, who disagrees with provisions that provide for exchange of financial account information between tax authorities. Senator Paul said he would not permit “abbreviated” consideration of the protocols in the full Senate,

Committee chairman Jim Risch said: “I am pleased that the committee favourably reported four important tax treaties to the full Senate today. These protocols between the US and Spain, Switzerland, Japan, and Luxembourg, respectively, are important for citizens of all nations. These treaties have languished and awaited ratification for nearly a decade, and are incredibly important to our own citizens.”