Owen, Christopher: Global Survey – August 2019

  • Bermuda Supreme Court confirms actions of invalidly appointed trustee
    • 22 July 2019, the Supreme Court of Bermuda held that the Court had the power to intervene in the administration of a trust to approve the actions of improperly appointed trustees. It held that confirming the actions of the invalidly appointed trustees was an easier alternative to the ratification of all the actions of the trustees over a 20-year period.

      In the Matter of the C Trust [2019] SC (Bda) 44 Civ., the C Trust was a discretionary trust established by deed in 1965 that owned assets including valuable controlling shares in several holding companies, which in turn owned a network of industrial trading entities in Africa. The class of beneficiaries under the trust included the settlor, his family and descendants.

      Under the terms of the trust, the power of appointing new trustees was vested in two protectors of the trust acting jointly. In 1997, the family incorrectly assumed that it could validly appoint a sole protector in place of the two original protectors and did so.

      In December 1999, the original trustee retired and the current trustee was appointed with the consent of the single protector. The appointment was therefore invalid and the decisions made subsequently by the trustees were also therefore invalid.

      To resolve the issue, the current trustee, supported by the beneficiaries, brought an application seeking an order that it should be appointed as the sole trustee of the trust under section 31(1) of the Trustee Act 1975 and could continue to manage the assets of the trust on the basis that it had been validly appointed as the trustee of the trust.

      The Court accepted that there could be no benefit in allowing the trust to operate without a validly appointed trustee who had the full power and authority to perform the duties of a trustee. It therefore concluded that it would be expedient for the court to exercise its discretion under 31(1) to order the appointment of the trustee.

      The Chief Justice accepted that the Court had an inherent jurisdiction to intervene in the administration of a trust to approve certain acts that were in fact an effective departure from the trust. He relied upon the cases of Re New [1901] 2 Ch 534, In the Matter of the Z Settlement [2016] JRC 048 and Schmidt v Rosewood Trust Limited [2003] 2 AC 709 in support of the conclusion that the court may, in exercising its inherent jurisdiction, order that the current trustees leave undisturbed the acts or omissions of previous trustees, the validity of whose appointment may be in issue. The result is that the trust could be administered on the same footing as though those acts had been validly done with the authority of the duly constituted trustees.

      When exercising its jurisdiction, the Court held that confirming the actions of the invalidly appointed trustees was an easier alternative to the ratification of all the actions of the trustees over the 20-year period.

  • BT, GSK and Vodafone challenge EU tax ruling
    • 4 July 2019, telecoms group BT filed an appeal to the EU General Court in Luxembourg to challenge a ruling by the EU anti-trust regulator in April, which came after the European Commission decided that the UK’s Group Financing Exemption to the Controlled Foreign Company rules offered illegal exemptions. Pharmaceuticals giant GSK and telecoms group Vodafone filed separate challenges a day later.

      Between 2013 and 2018, the UK's CFC rules included a special rule for certain financing income – interest payments received from loans – of multinational groups active in the UK. The Commission concluded that the group financing exemption was partially justified but the exemption also granted a selective advantage to certain multinational companies, which was illegal under state aid rules.

      The exemption was justified if interest payments on inter-company loans were issued by subsidiaries in overseas jurisdictions, but not from activities generated in the UK. The number of companies affected by the EU ruling is believed to be over 50, with their joint tax liabilities potentially as high as £1.35 billion.

      The UK modified the group financing exemption at the end of last year in a way that it no longer raises concerns. However in June, the UK Treasury lodged an annulment application in the General Court challenging the decision.

  • Caymans tables Bills to enhance AML / CFT regime
    • 24 July 2019, the Cayman Islands’ government tabled 11 bills in the Legislative Assembly to further strengthen Cayman’s anti-money laundering and counter financing of terrorism (AML/CFT) regime. A further two separate bills are designed to provide for administrative matters for the Auditors Oversight Authority (AOA) and the Cayman Islands Monetary Authority (CIMA).

      The legislative package is designed to address the actions recommended in a report issued by the Caribbean Financial Action Task Force (CFATF) in March. The Cayman Islands was put under a one-year ‘Observation Period’ by the FATF and is expected to correct strategic AML/CFT deficiencies by February 2020.

      The Banks & Trust Companies (Amendment) Bill is intended to ensure that appropriate transparency measures, such as disclosure requirements, are in place for trusts. For the purpose of Basel II, Pillar 3 Market Disclosures, the bill would also empower CIMA to require a licensee to make public disclosures.

      The Trusts (Amendment) (No. 2) Bill seeks to insert provisions into the Trusts Law (2018 Revision) that: require trustees and the Registrar of Trusts to share information on registered trusts with other competent authorities; provide sanctions for failure to provide competent authorities with required information; and empower Cabinet to make regulations.

      The Companies (Amendment) Bill is intended to require a company’s basic information, including a list of directors, to be maintained and publicly available. The bill also proposes stronger penalties for failure to comply with beneficial ownership obligations under the law.

      The Limited Liability Companies (Amendment) Bill is intended to ensure that all basic information, including a list of directors, for limited liability companies (LLCs) is publicly available. The bill would also impose sanctions on companies for failure to maintain up-to-date information.

      The Limited Liability Partnership (Amendment) Bill is similar to the companies and LLC bills. It will require all basic information on a limited liability partnership (LLP) to be available at the LLP’s registered office. The bill proposes stronger penalties for failure to maintain up-to-date beneficial ownership information.

      The Mutual Funds (Amendment) Bill and the Insurance (Amendment) Bill would sanction licensees, who also provide company management services, where they fail to maintain current beneficial ownership information for their clients. The Mutual Funds (Amendment) Bill further imposes duties on auditors and other professionals to notify the relevant authority if they become aware of a failure.

      The Building Societies (Amendment) Bill and the Cooperative Societies (Amendment) Bill are designed to prevent persons from holding or beneficially owning a significant controlling interest, or holding a management function, in a financial institution if they are suspected of criminal activity.

      The Money Services (Amendment) Bill will require money service businesses to monitor their agents’ compliance with their AML/CFT programmes and ensure these businesses meet AML/CFT requirements.

      The Trade & Business Licensing (Amendment) Bill will require the Trade & Business Licensing Board to consider an applicant’s compliance with AML/CFT obligations before licences are granted, renewed or revoked.

      The FATF is to review progress prior to its June 2020 Plenary. If progress made by the Cayman Islands is insufficient, the FATF will issue a public statement regarding the jurisdiction’s AML/CFT deficiencies, develop an action plan, and monitor progress against the action plan.

      Financial Services Minister Tara Rivers said: “These bills will strengthen our already extensive AML/CFT regime. The government is committed to addressing the recommendations outlined in the CFATF fourth round mutual evaluation report to further cement our standing as a responsible and responsive jurisdiction in the global fight against money laundering and terrorist financing.”

      In June, Cayman’s AML/CFT regime was strengthened by the passage of the Proceeds of Crime (Amendment) Law 2019, the Securities Investment Business (Amendment) Law 2019 and the Directors Registration and Licensing (Amendment) Law 2019.

      Two further bills were presented to the Legislative Assembly. The Auditors Oversight (Amendment) Bill is designed to amend the financial year of the Auditors Oversight Authority Law (2017 Revision) to align it with the financial year in the Public Management Finance Law (2018 Revision) and remove inconsistencies.

      The Monetary Authority (Amendment) (No.2) Bill is to amend the financial year in the Monetary Authority Law (2018 Revision) to align with the financial year in the Public Management Finance Law (2018 Revision) and eliminate inconsistencies. It also proposes to authorise CIMA as the facilitator of business continuity and disaster recovery.

  • Commission puts Germany on notice over profit and loss transfer agreements
    • 25 July 2019, the EU Commission sent a letter of formal notice to Germany for refusing to recognise profit and loss transfer agreements, which form a precondition for tax consolidation purposes entered into by companies relocating their place of management to Germany.

      Corporations established under the laws of another EU/European Economic Area (EEA) Member State, but which transfer their place of management to Germany, cannot meet the formal registration requirements for the recognition of such agreements.

      This is because the German tax administration requires that the agreement be registered at the seat of the company, while refusing to recognise the registration with a Commercial Registrar in another EU/EEA Member State as being equivalent with the registration with a domestic Commercial Registrar.

      As a result, the group of companies is treated less favourably than groups of which all the members have their registered offices in Germany. This deters companies established in another EU/EEA State from establishing a business in Germany.

      The Commission said Germany had already modified its law but the amendments would be void of purpose if German tax administration continued now to refuse the benefits of the tax consolidation on the grounds that the formal requirements of the profit and loss transfer agreement had not been met.

      These rules were, it said, likely to dissuade corporations from exercising their Treaty rights relating to the freedom of establishment (Article 49 of TFEU and Article 31 of the EEA Agreement). If Germany did not act within the next two months, the Commission might send a reasoned opinion to the German authorities.

  • Commission targets illegal tax breaks in the Italian and Cypriot yacht industries
    • 25 July 2019, the Commission announced that it would refer Italy to the Court of Justice for the EU for its failure to address an illegal system of exemptions for fuel used to power chartered yachts in EU waters. It also decided to send reasoned opinions to Italy and Cyprus for not levying the correct amount of Value Added Tax (VAT) on the leasing of yachts.

      In breach of EU rules, Italy allows chartered pleasure crafts, such as yachts, to qualify as 'commercial' even if they are for personal use. This could allow them to benefit from excise duty exemption on engine fuel.

      Current EU VAT rules allow tax exemptions for services when the effective use and enjoyment of the product is outside the EU. However, the rules do not allow for a general flat-rate reduction without proof of where the service is actually used.

      Cyprus and Italy have further established VAT rules under which the larger the boat, the less the lease is estimated to take place in EU waters. As a result, the applicable VAT base can be substantially reduced. If Cyprus and Italy do not act within the next two months on these reasoned opinions, the Commission may decide to bring the cases before the Court of Justice of the EU.

  • EU Commission publishes non-controversial version of Nike decision
    • 5 July 2019, the EU Commission published the non-confidential version of its decision, adopted on 10 January, to open an in-depth investigation into the Netherlands's tax treatment of Nike.

      The Commission has concerns that five Dutch tax rulings – granted from 2006 to 2015 – may have sanctioned a method to calculate royalties paid by the two Dutch Nike group companies for the use of intellectual property.

      They allowed two Nike group companies in the Netherlands to pay less tax and gave them an unfair advantage over other companies, in breach of EU State aid rules.

      The opening of an in-depth investigation gives the Netherlands and interested third parties an opportunity to submit comments. The decision is available under the case number SA.51284 on the Commission's competition website.

  • France introduces Digital Services Tax, retrospective to 1 January
    • 25 July 2019, France’s new Digital Services Tax (DST) legislation was published in the official gazette and brought into force. It will apply a 3% levy retroactively to revenues generated by digital interface services provided by large companies to French users and advertising services based on users’ data from 1 January 2019.

      The legislation, which was passed by the Senate on 11 July and signed by President Macron on 24 July, will only apply to companies that have global, annual revenues above €750 million and €25 million sales generated in France. It is expected to apply to 30 companies worldwide and to raise approximately €500 million a year.

      On 10 July, the Office of the US Trade Representative (USTR) announced that an investigation would be conducted under s301 of the Trade Act to determine if the DST was discriminatory and unreasonable to the extent that it caused harm to US companies.

      USTR Robert Lighthizer indicated that he believes the tax will disproportionately impact US businesses and said the US should act forcefully upon it. He invited comments by 19 August when the Section 301 Committee is to convene a public hearing. Section 301 authority provides a mechanism for imposing retaliatory tariffs.

      French Minister of Finance Bruno Le Maire responded to the announcement by noting that Chinese, German, Spanish and UK firms will also be subject to the tax, as well as one French firm. He said France's decisions on tax matters 'are sovereign and will continue to be sovereign'.

      At the G7 finance ministers meeting in France on 17 July, Le Maire called for an acceleration of the negotiations at the OECD level on the taxation of “tech giants”. He said France would only withdraw the DST if and when a credible decision was made at the OECD level.

      "France just put a digital tax on our great American technology companies," US President Donald Trump wrote on Twitter. "If anybody taxes them, it should be their home country, the USA. We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!"

  • G7 tax meeting compromises between US and European positions
    • 19 July 2019, G7 finance ministers agreed to support the OECD's proposed new rules for taxing multinational businesses, through revisions of existing profit allocation and nexus rules, combined with new global minimum tax rules.

      The meeting of the G7, which comprises Canada, France, Germany, Italy, Japan, the UK and US, discussed international differences over the OECD's inclusive framework initiative for tax reform. In particular, the gap between the 'marketing intangibles' model being promoted by the US, and the 'user participation' model favoured by European countries, who consider the reforms to be applicable mainly to 'highly digitalised business models'.

      Considering the need to improve the current international tax framework, without undermining its principles, finance ministers agreed it was urgent to address the tax challenges raised by the digitalisation of the economy and the shortcomings of the current transfer pricing system.

      They supported a two-pillar solution to be adopted by 2020 through the work programme endorsed by the G20 Leaders.

      Under the first pillar, new nexus rules should be developed to address new business models, such as highly digitalised business models, allowing companies to do business in a territory without any physical presence. In addition, tax certainty should be reinforced and aggressive tax planning should be limited, in particular for the transfer pricing of distribution activities.

      The new taxing rights under pillar one could be determined by reference to criteria reflecting the level of businesses' active participation in a customers' or users' jurisdiction, such as valuable intangibles or employment of a highly digitalised model, on which ministers agreed that the OECD should further reflect.

      The new rules should be administrable and simple. Ministers also agreed that, in order to avoid double taxation and ensure the stability of the international tax system, robust and effective tax dispute resolution through mandatory arbitration must be a component of this global solution.

      Under the second pillar, ministers agreed that a minimum level of effective taxation, such as for example the US Global Intangible Low-taxed Income (GILTI) regime, would contribute to ensuring that companies pay their fair share of tax. The tax level to be set would depend on concrete design features of the rules.

      The G7 said it looks forward to further progress in the context of the G20 and a global agreement on the outlines of the architecture by January 2020 at the level of the Inclusive Framework on BEPS.

  • Gibraltar joins ‘Inclusive Framework on BEPS’
    • 5 July 2019, the OECD announced that Gibraltar had joined the Inclusive Framework on BEPS, bringing the total number of countries and jurisdictions participating on an equal footing in the project to 130.

      As a member, Gibraltar must adopt into law ‘minimum standards’ aimed at preventing tax avoidance by multinationals and improving cross-border tax dispute resolution. These standards were agreed to by OECD and G20 countries in 2015 as a result of the OECD/G20 base erosion profit shifting (BEPS) plan.

      The Inclusive Framework works on ensuring that the BEPS minimum standards are implemented worldwide. It is currently seeking consensus by the end of 2020 on a new international tax and transfer pricing scheme that better accounts for the new business models, in particular those are part of the digital economy.

      Bosnia & Herzegovina and the southern Africa nation of Eswatini also joined the Inclusive Framework on 11 July and 29 July respectively, bringing the total number of members to 132.

  • Global Forum issues new compliance ratings for nine jurisdictions
    • 30 July 2019, the Global Forum on Transparency and Exchange of Information for Tax Purposes published nine peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR).

      The reports were part of the second round of Global Forum reviews, which assessed jurisdictions against the updated standard, which requires beneficial ownership information of all relevant legal entities and arrangements, in line with the Financial Action Task Force Recommendations.

      Five jurisdictions – Costa Rica, Croatia, Lebanon, Malaysia, the Federated States of Micronesia and Nauru – received an overall rating of ‘Largely Compliant’. Two others – Botswana and Vanuatu – were rated ‘Partially Compliant’; and Guatemala was rated ‘Non-Compliant’.

      Vanuatu was rated overall Partially Compliant with the standard of transparency and exchange of information on request, because important legislative progress made in 2017 to ensure the availability of accounting information for offshore companies had not been sufficiently implemented in practice or supervised.

      Guatemala received an overall rating of Non-Compliant because exchange of accounting and banking information is blocked. It is the second jurisdiction to be rated Non-Compliant, along with Trinidad & Tobago.

      The review of other jurisdictions that received provisional ratings in 2017 will be finalised in October.

  • India-China tax treaty protocol enters into force
    • 17 July 2019, the Indian government announced that an amending protocol to the China-India tax treaty had entered into force as of 5 June. The protocol, signed on 26 November 2018, updates the existing provisions for exchange of information and includes the changes required to implement treaty related minimum standards and certain other changes required under the OECD Base Erosion Profit Shifting (BEPS) action plan.

      The preamble states that the treaty is not designed to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance including through treaty shopping arrangements. The treaty also states that by mutual agreement, the competent authorities can determine at taxpayer’s residence having regard to place of effective management (POEM).

      The definition of ‘permanent establishment’ (PE) is amended to include certain changes required under the BEPS project. A limitation of benefits clause has also been introduced to deny the benefits of the tax treaty if it is reasonable to conclude that obtaining benefit was one of the principal purposes of any arrangement or transaction.

      The article on exchange of information has been amended in line with the treaties India has entered with other countries, including Australia, Singapore, Norway and South Korea.

  • IRS targets non-compliance by former OVDP taxpayers
    • 19 July 2019, the Large Business & International division (LB&I) of the Internal Revenue Service announced a new campaign targeting former Offshore Voluntary Disclosure Programme (OVDP) taxpayers who have failed to remain compliant with their foreign income and asset reporting requirements.

      US persons are subject to tax on worldwide income. The IRS said it will “address tax non-compliance through soft letters and examinations”.

      The OVDP, which closed on 29 September 2018, was a voluntary disclosure programme specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a wilful failure to report foreign financial assets and pay all tax due in respect of those assets.

      First introduced in March 2009, the OVDP and its variants attracted more than 56,000 taxpayers who paid $11.1 billion in back taxes, interest, and penalties. The decision to close the OVDP was driven by declining participation from its peak in 2011, when about 18,000 taxpayers came forward, to only 600 disclosures in 2017.

      The Offshore Voluntary Disclosure Initiative (OVDI) ‘streamlined procedure’, which was introduced in 2014 to encourage disclosures of unintended offshore non-compliance, currently remains in place.

      As part of a package of six additional compliance campaign, the LB&I is also targeting US citizens and long-term residents who expatriated on or after 17 June 2008, who may not have met their filing requirements or tax obligations. The IRS will address non-compliance through a variety of treatment streams, including outreach, soft letters and examination.

      A further compliance category addresses ‘high income non-filers’. The LB&I said this campaign would concentrate on bringing into compliance those taxpayers who have not filed tax returns through an “examination treatment stream”.

  • Netherlands proposal for mandatory disclosure of cross-border arrangements
    • 12 July 2019, the Netherlands government published a legislative proposal, following consultation, implementing the EU Mandatory Disclosure Directive. This requires all EU member states to implement mandatory disclosure rules for intermediaries and, in some cases, taxpayers, to report cross-border arrangements that meet certain hallmarks.

      Under the proposal, an intermediary is defined as any person that designs, markets, organises, makes available for implementation or manages the implementation of a reportable cross-border arrangement.

      The legislation fully enters into force on 1 July 2020 but applies to any and all reportable cross-border arrangements implemented from 25 June 2018. The deadline for reporting is 31 August 2020.

      A cross-border arrangement is reportable if it concerns at least one EU Member State and contains at least one of the ‘hallmarks’ set out in the Directive. An arrangement can consist of different elements such as a transaction, action, agreement, loan, commitment or a combination of these, and applies in respect of all taxes except for value added tax, custom duties and social security premiums.

      Some of the hallmarks only apply if a ‘main benefit test’ is satisfied. The terms 'tax benefit' and ‘artificial’ will be interpreted in line with the European Commission's recommendation on aggressive tax planning of 6 December 2012.

      A bespoke arrangement will have to be reported within 30 days after the arrangement is ready for implementation – if there is agreement that the arrangement will be implemented – or when the first step in the implementation has occurred. Arrangements that are not pursued do not have to be reported.

      The information obtained by the Dutch tax authorities will be automatically exchanged with other EU member states.

  • New EU-wide system to resolve tax disputes comes into force
    • 1 July 2019, the new European Union directive on tax dispute resolution mechanisms to ensure quicker and more effective resolution of tax disputes between Member States, in particular those related to double taxation, was brought into force. Member States will now have a legal duty to take conclusive decisions.

      Previously the EU only had a multilateral convention that gave tax authorities the possibility of submitting a dispute arising from the interpretation and application of international double tax agreements to arbitration, but without any means for the taxpayer to trigger this process directly. Neither were tax authorities required to reach a final agreement. Estimates show that 2,000 such disputes are currently pending in the EU, out of which around 900 are over two-years old.

      Under the new directive, taxpayers facing tax disputes that arise from bilateral tax agreements or conventions that provide for the elimination of double taxation can now initiate a mutual agreement procedure whereby the Member States in question must try to resolve the dispute amicably within two years.

      If no solution has been found at the end of this two-year period, the taxpayer can request the setting up of an Advisory Commission to deliver an opinion. If Member States fail to do this, the taxpayer can bring an action before its national court and force Member States to act.

      This Advisory Commission will be comprised of three independent members appointed by the Member States concerned and representatives of the competent authorities in question. It must deliver an opinion within six months, which the Member States concerned must carry out unless they agree to another solution within the six months following the opinion.

      If the decision is not implemented, the taxpayer who has accepted the final decision and renounced his right to domestic remedies within 60 days from notification may seek to enforce its implementation before the national courts. Member States are obliged to notify taxpayers and publish the full final decision or an abstract.

      The new directive applies to complaints submitted from 1 July 2019 onwards, relating to questions of dispute in matters of income or capital earned in a tax year commencing on or after 1 January 2018. The competent authorities can also agree to apply the directive to any complaint submitted prior to that day or to earlier tax years.

      Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici said: “A fair and efficient tax system in the EU should also ensure that the same revenue is not taxed twice by two different Member States. When that happens, the problem should be solved swiftly and efficiently.

      “From today, resolving tax disputes will be a lot easier. Companies, in particular small businesses, and individuals that may be experiencing cash flow problems as a result of double taxation will see their rights considerably enhanced. They can now be more certain that their tax matters will be resolved by the relevant judicial authorities in an acceptable and predictable timeframe, instead of dragging on for years.”

  • Norway ratifies BEPS Multilateral Convention
    • 17 July 2019, the OECD announced that Norway had deposited its instrument ratifying the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The MLI will enter into force for Norway on November 1.

      The MLI allows 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.

      Norway is the 30th country to submit its MLI ratification documents to the OECD. To date, 89 jurisdictions have signed the MLI and a further six more have expressed intent to sign.

  • OECD endorses ‘substantial activity’ legislation by low-tax jurisdictions
    • 23 July 2019, the OECD Forum on Harmful Tax Practices (FHTP) reported that 11 of the 12 countries on its list of ‘no or only nominal tax jurisdictions’ were compliant with its standards for 'substantial activity' legislation under the Base Erosion and Profit Shifting (BEPS) Action 5. It therefore found their tax regimes were not harmful.

      The BEPS Action 5 minimum standard requires that for certain highly mobile sectors of business activity, the core income generating activities must be conducted with qualified employees and operating expenditure in the jurisdiction.

      After agreeing the new substantial activities standard for no or only nominal tax jurisdictions in November 2018, the 12 jurisdictions identified by the FHTP had introduced the necessary domestic legal framework to meet the standard.

      For 11 of these jurisdictions – Anguilla, the Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey and the Turks & Caicos Islands – the FHTP concluded that the domestic legal framework was in line with the standard and therefore "not harmful".

      For the remaining jurisdiction, the United Arab Emirates, the FHTP concluded that the legal framework was in line with the standard but with one technical point outstanding. It said the UAE has committed to make further legislative changes and the law was now "in the process of being amended".

      From 2020, the FHTP will start an annual monitoring process for the effectiveness of jurisdictions' mechanisms to ensure compliance with the standard in practice.

      During its June 2019 meeting, the FHTP made new and updated decisions on 56 regimes, some of which were reviewed for the first time, as follows:

      -13 regimes had been abolished in Cabo Verde, Malaysia, Mongolia, Montserrat, Morocco, Switzerland and Thailand;

      -Three regimes had been amended to remove the potentially harmful features in Cabo Verde, Malaysia and Mauritius, and four new regimes in Malta, Poland and Thailand that were specifically designed to meet the Action 5 standard had also been classified as ‘not harmful’;

      -Four regimes in Aruba, Greece and Kazakhstan were in the process of being amended;

      -Eight regimes in Cabo Verde, Nigeria, Paraguay and Vietnam were found to be out of scope for the FHTP;

      -Two regimes in Aruba and Vietnam were found to be potentially harmful but not actually harmful, and one regime in Paraguay was not operational;

      -One regime in Jordan was found to be ‘actually harmful’;

      -21 additional regimes in Cook Islands, Dominica, Dominican Republic, Jamaica, Morocco, North Macedonia and Qatar had been placed under review.

      The FHTP has reviewed 287 regimes since the start of the BEPS Project. It will continue its reviews in December 2019, and in 2020 will continue to monitor the implementation of the new laws in practice.

  • Offshore law firm caught up in ‘Mauritius Leaks’
    • 23 July 2019, the International Consortium of Investigative Journalists (ICIJ) published data on more than 200 companies extracted from a leak of over 200,000 confidential documents from the Mauritius office of law firm Conyers Dill & Pearman.

      The data, relating to several well-known businesses such as Whirlpool, Total S.A. and the Mayo Clinic, included the names of shareholders, directors, beneficial owners, the law firm’s role, the proposed activity and the countries of activity.

      The ICIJ and 54 journalists from 18 countries analysed the leaked documents. Publication of the so-called 'Mauritius Leaks' was accompanied by a series of news stories detailing how multinational companies used Mauritius to avoid taxes in countries in Africa, Asia, the Middle East and the Americas.

      The ICIJ has previously published leaked documents exposing tax avoidance. In 2014, the group published confidential tax documents of PwC clients including 548 Luxembourg advance rulings. It also published 11.5 million leaked documents on 214,488 offshore entities from Panamanian law firm Mossack Fonseca.

  • Swiss Supreme Court rules against UBS over client information
    • 26 July 2019, the Swiss Federal Supreme Court overturned the 2018 decision of the Federal Administrative Court and ordered the Federal Tax Administration (FTA) to hand over client data on 40,000 UBS customers who are resident, or previously resident, in France to the French tax authorities.

      The French tax authority submitted an administrative assistance request under the mutual assistance agreement in May 2016. The FTA collected the information from UBS, but the bank and some of its clients appealed.

      In July 2018, the Federal Administrative Court in St Gallen granted the appeal and ordered the FTA not to co-operate. It dismissed the French request, which was based on names and addresses of UBS clients with French addresses, as an inadmissible  ‘fishing expedition’.

      The FTA then appealed to the Swiss Federal Supreme Court. It decided by a three to two majority that France’s administrative assistance request was not a ‘fishing expedition’ on account of guarantees given by the French authorities to use the data only for the purposes stated in its administrative assistance request.

      Switzerland’s Federal Department of Finance (FDF) said it had taken note of the decision of the Federal Supreme Court to approve “the transfer of UBS client data to France in principle”. This would be analysed in detail once the written grounds were available.

      It also noted that use of the information was restricted by the ‘principle of speciality’, so it could not be used against UBS itself. UBS is currently challenging a EUR3.7 billion fine imposed by France in February for assisting French clients to evade taxes.

      Ueli Maurer, President of the Swiss Confederation and Head of the FDF, said: "The decision concerns administrative assistance in this specific case which dates back many years. Each future request will also be subject to a detailed examination as to whether the conditions for the transmission of data have been fully met."

  • UAE relaxes foreign ownership restrictions and introduces substance requirements
    • 2 July 2019, the UAE Cabinet announced that a Resolution had been passed approving the ‘positive list’ of 122 specific activities across13 business sectors in the UAE that are now eligible for up to 100% foreign ownership.

      The Cabinet issued the Foreign Direct Investment Law (Federal Decree Law No. 18) in September 2017, which provided a framework for the relaxation of the majority shareholder requirement in specific licensed activities and business sectors to be detailed in supplementary legislation.

      Previously any company established outside a free zone in the UAE was required to have at least 51% of its share capital held by a UAE national shareholder.

      Publication of the Cabinet Resolution is still awaited but the business sectors referred to in the official press release are as follows:

      -Renewable energy




      -Transport and Storage

      -Hospitality and Food Services

      -Information and Communications

      -Professional, Scientific and Technical Services

      -Administrative and Support Services


      -Arts and Entertainment



      When published, the Resolution will set out the activities – primarily focused on research, ecommerce, biotech and renewables – within these sectors. The individual Emirates will retain the ultimate authority to determine which activities are subject to liberalised foreign ownership.

      The UAE Cabinet also published, on 4 July, Federal Cabinet Resolution No.31 of 2019 regarding the requirements for actual economic activities and Federal Cabinet Resolution No.32 of 2019 regarding the organisation of reports submitted by multinational companies. Both were originally issued on 30 April.

      The new economic substance requirements are a result of work conducted by the OECD under Action 5 of the Base Erosion and Profit Shifting (BEPS) project, as well as an investigation by the European Union (EU) Code of Conduct Group (COCG) into certain low or no corporate income tax regimes.

      In March, the European Union added the UAE to its blacklist of ‘non-cooperative’ tax jurisdictions that had failed to meet EU requirements on tax transparency and had not implemented commitments made to the EU by an agreed deadline.

      Resolution No. 31 requires that UAE entities carrying on specific categories of licensed activities in the UAE should satisfy prescribed economic substance criteria and report annually on compliance.

      The rules apply to companies engaged in ‘core income generating activities’ (CIGA) – 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.

      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 shall be subject to less stringent substance requirements. Furthermore, additional reporting requirements apply to ‘high-risk’ IP companies.

      All UAE companies – onshore and free zone companies – are required to file an annual notice stating whether they undertake relevant activities. Entities carrying on relevant activities that fall within the scope of the regulations need 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. Non-compliance will result in fines ranging from AED 10,000 to AED 50,000 for a first-time breach and between AED 50,000 to AED 300,000 thereafter.

      Resolution No. 32 is focused on multinational groups of companies and requires that an entity established in the UAE that is a member of such a group must issue a detailed report of financial and other information if certain criteria are met.

      A multinational group is one in which at least two of the companies are tax resident in different jurisdictions, or one entity has permanent establishments in at least one other jurisdiction, and that generates consolidated revenues of at least AED 3.15 billion per annum.

      The tax report will need to contain the following for each country in which the multinational group operates:


      -Profit and loss before tax

      -Income tax paid

      -Declared capital

      -Accrued profits

      -Number of employees

      -Non-cash or cash equivalent assets

      Tax reports must be submitted within 12 months after the end of a multinational group's financial year beginning on 1 January 2019.

  • UK government issues Registration of Overseas Entities Bill
    • 23 July 2019, the UK government issued the draft Registration of Overseas Entities Bill, which sets out provisions to establish a new beneficial ownership register of overseas entities that own UK property. An overview document accompanies the Bill, which explains how the register will work and invites comments on some technical aspects of the Bill.

  • US Senate ratifies treaty protocols with Spain, Japan, Switzerland and Luxembourg
    • 16 July 2019, the US Senate ratified a protocol to the US-Spain tax treaty, the first US ratification of a tax treaty or tax treaty protocol since 2010. The following day it ratified further protocols to the treaties with Japan, Switzerland, and Luxembourg. Two Republican senators – Rand Paul of Kentucky and Mike Lee of Utah – voted against all four protocols.

      The protocols allow companies with operations in Spain, Switzerland, Japan and Luxembourg to avoid double taxation when transferring money to their operations abroad. They also update the existing treaties to allow for more detailed sharing of information on individual and corporate taxpayers between countries.

      As well as full exchange of information, the US-Spain tax treaty protocol includes new limitation on benefits provisions to discourage tax treaty shopping. The new protocol reduces withholding tax on interest payments to zero, except in limited cases involving contingent interest and real estate mortgage conduits. Most royalty payments will now be free of withholding taxes.

      The US-Japan tax treaty, signed in 2013, exempts from withholding all cross-border payments of interest and expands the withholding tax exemption for dividend payments. Under the protocol, dividends are exempt from withholding if the beneficial owner of the dividends owns 50% or more of the voting stock in a company paying the dividends for at least six months. Taxation of capital gains from the sale of real property is also modified under the new agreement. The protocol provides for a system of mandatory arbitration to resolve cross-border tax disputes.

      The protocol with Switzerland, signed in 2009 and corrected with an exchange of notes in 2010, updates the 1996 US-Switzerland treaty, providing for more robust exchange of information between US and Swiss tax authorities. The protocol with Switzerland also adopts mandatory arbitration for unresolved cross-border tax disputes.

      The US-Luxembourg tax treaty protocol, signed in 2009, updates the US and Luxembourg’s 1996 tax treaty. It adds stronger provisions on the exchange of information between tax authorities to facilitate the administration of each country’s tax laws.

      The protocols cleared the US Senate Foreign Relations Committee in late June. To enter into force, the US and its treaty partners must officially notify each other that all procedures for ratification are met.

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