Owen, Christopher: Global Survey – October 2019

17 September 2019, the General Court, the second highest court in the European Uinion, began hearing Apple and Ireland’s appeal against an order by the European Commission for the US tech giant to pay a record €13 billion assessment for unpaid taxes to Ireland.

European Commissioner for Competition Margarethe Vestager imposed the tax charge on Apple in 2016 after finding that Ireland had allowed Apple to avoid its 12.5% corporate tax, already one of the lowest in the world, and instead pay rates as low as 0.005%.

The commission’s case is that the Irish revenue gave Apple an unfair advantage in two ‘rulings’ in 1991 and 2007, which allowed the US technology giant to channel most of its European sale through ‘head office’ divisions of two group subsidiaries in Ireland, which were non-resident for tax purposes.

Apple and the Irish government contend that because Apple’s products and services are created, designed and engineered in the US, the bulk of the profits of the units were due in the US.

Ireland, in its parallel appeal of the EU decision, accused regulators of “unjust criticism” and coming up with “confused and inconsistent lines of reasoning in an attempt to justify” a desired conclusion.

“It is a serious overreach for the commission to override national law,” Paul Gallagher, a lawyer representing Ireland, said. “The commission did not identify a single instance where a taxpayer was treated less favourably than Apple.”

The commission rejected claims that it had acted “as some sort of policeman of taxation” and said questions of “tax sovereignty are utterly irrelevant.”

“At no time” did Ireland “explain just what it does,” lawyer for the Commission Richard Lyal told the court. Its initial 1991 tax deal with Apple involved “no real assessment” of how Apple should be taxed, when Irish officials “simply accepted an arbitrary method proposed by Apple Ireland subsidiaries.”

If Ireland “has no system, then its decisions must be based on pure discretion. And if those decisions were based on pure arbitrary discretion, they must be presumed to constitute aid” in the form of an illegal tax break, he said.

The Irish government last year complied with a commission order that it collect €14.3 billion from Apple, including interest on the original €13 billion amount, and put it into escrow, pending the outcome of appeals against the 2016 decision.

The General Court ruling is expected to take months because written pleadings will follow the oral hearings. Any ruling is likely to end up under appeal before the EU’s highest court, the Court of Justice of the European Union.

The cases are: Apple Sales International and Apple Operations Europe v Commission T-892/16 and Ireland v Commission T-778/16.

13 September 2019, the Australian High Court refused an application from the Commissioner of Taxation seeking special leave to appeal the Full Federal Court’s decision in the residence case of Harding v Commissioner of Taxation (2019 FCAFC 29).

This means the decision of the Full Federal Court given in March, which concluded that a permanent place of abode need not be the same particular dwelling in a foreign country, now stands.

The case focused on whether an individual who had left Australia and commenced living in a series of apartments in Bahrain had ceased being an Australian tax resident. To do this, he was required to demonstrate that he was no longer residing in Australia under ordinary concepts and had established a permanent place of abode outside of Australia.

The Full Federal Court overturned the first instance decision in 2018, where the trial judge held that Harding did not have a ‘permanent place of abode’ outside Australia because he did not occupy each of his apartments in Bahrain with the intention of dwelling in those apartments permanently.

The Full Federal Court decided that the relevant question was not whether a person’s specific house or apartment was permanent, but whether Harding had abandoned his place of abode in Australia and established himself permanently in Bahrain.

Documents provided by the Commissioner of Taxation to support its application for special leave show that the decision will impact over 33,000 tax audits, 340 private binding rulings, 54 litigation proceedings and over 1,000 tax objections for the period July 2015 to 31 December 2018, demonstrating the significance of this ruling for Australian residency law.

16 August 2019, the government of the Cayman Islands gazetted the Private Trust Companies (Amendment) (No. 2) Regulations 2019 and Trusts (Transparency) Regulations 2019 to support recent legislative measures to enhance transparency measures, such as disclosure requirements, for the trusts sector.

The Private Trust Companies (Amendment) (No. 2) Regulations 2019 provide clearer definitions for the protector and enforcer of a trusts, while the Trusts (Transparency) Regulations 2019 lists the information that must be maintained and updated by a trustee for a trust constituted under Cayman law.

The Ministry of Financial Services said the new legislation supported recent measures to enhance transparency, such as disclosure requirements, for the trusts sector. The new legal framework also addresses the Caribbean Financial Action Task Force’s (CFATF) recommended action Cayman needed to take to strengthen the AML/CFT regime.

The jurisdiction is under a one-year ‘Observation Period’ by the Financial Action Task Force (FATF), ending February 2020, in which it is expected to correct AML/CFT strategic deficiencies that have been identified. The FATF will review the progress made by the jurisdiction next June to determine if positive and tangible progress has been made.

30 September 2019, Denmark became the 90^th country to deposit its instrument of acceptance of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI). Iceland earlier joined the tax agreement on 27 September. The MLI will enter into force in both countries on 1 January 2020,

The MLI enables signatories to implement swiftly a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises. It also implements agreed minimum standards to counter tax treaty abuse and to improve dispute resolution mechanisms, while providing flexibility to accommodate specific tax treaty policies.

19 September 2019, the Dutch tax authority is claiming £902 million from UK-based tobacco manufacturer British American Tobacco (BAT), for alleged tax evasion between 2003 and 2016.

Part of BAT's worldwide income flows through a holding company in The Netherlands. By making improper use of internal transfer pricing structures, BAT is alleged to have avoided corporate taxes in The Netherlands from 2003 to 2016. BAT disputes the claim and is to appeal.

According to a BAT spokesperson, the tax authorities have objected to “various intra-group transactions" from the 2003 to 2016 period. Some of these transactions are related to ‘guarantee fees’ paid by Dutch-based BAT subsidiaries to a UK holding company.

These fees were technically paid because the UK holding company gave guarantees for loans given by BAT in The Netherlands to subsidiaries in other countries. But according to the Dutch tax authority, these fees were not "at arm’s length" and were in fact designed to avoid paying profit taxes in The Netherlands.

16 September 2019, the European Commission announced it was opening separate in-depth investigations to assess whether ‘excess profit’ tax rulings granted by Belgium to 39 multinational companies had given those companies an unfair advantage over their competitors, in breach of EU State aid rules.

In January 2016, following an in-depth investigation, the Commission had concluded that the ‘excess profit’ exemptions granted by Belgium through tax rulings constituted an aid scheme and that such scheme was illegal under EU State aid rules. On this basis, the Commission ordered Belgium to recover the aid granted to the companies that had benefitted from that system.

However, in February 2019, the General Court annulled the Commission's decision. The Court found that the Commission had failed to establish the existence of an aid scheme. It said the compatibility of the tax rulings with EU State aid rules had to be assessed individually.

In its judgment, the General Court did not conclude on whether the ‘excess profit’ tax exemptions gave rise to illegal State aid. It explicitly confirmed that it was within the Commission's competence under State aid rules to review whether tax measures reducing a corporate taxpayer's income tax base give rise to a selective advantage. It further held that the ‘excess profit’ tax exemptions granted by Belgium did not appear to pursue the objective of avoiding double taxation.

As a result the Commission has now opened separate in-depth investigations into the individual tax rulings. At the same time, it has appealed the judgment of the General Court to the European Court of Justice to seek further clarity on the existence of an aid scheme. These proceedings are ongoing.

Commissioner Margrethe Vestager in charge of competition policy said: "All companies must pay their fair share of tax. We are concerned that the Belgian ‘excess profit’ tax system granted substantial tax reductions only to certain multinational companies that would not be available to companies in a comparable situation. Following the General Court's guidance, we have decided to open separate State aid investigations to assess the tax rulings. We also await further clarity from the European Court of Justice on the existence of an aid scheme.”

The in-depth investigations concern individual ‘excess profit’ tax rulings issued by Belgium between 2005 and 2014 in favour of 39 Belgian companies belonging to multinational groups. Most of these multinational groups are headquartered in Europe.

Belgian company tax rules require companies, as a starting point, to be taxed based on profit actually recorded from activities in Belgium. However, the Belgian ‘excess profit’ tax rulings – based on the Belgian income tax code (Article 185 §2, b of the 'Code des Impôts sur les Revenus/Wetboek Inkomstenbelastingen') – permit multinational entities in Belgium to reduce their corporate tax liability by so-called ‘excess profits’ that allegedly result from the advantage of being part of a multinational group.

These advantages included synergies, economies of scale, reputation, client and supplier networks, or access to new markets. In practice, the rulings generally resulted in more than 50% and in some cases up to 90% of those companies' accounting profit being exempt from taxation.

The Commission's preliminary view is that by discounting ‘excess profit’ from the beneficiaries' tax base, the tax rulings under investigation selectively misapplied the Belgian income tax code. In particular, the Commission has concerns that the rulings endorsed unilateral downward adjustments of the beneficiaries' tax base, although the legal conditions were not fulfilled.

The Commission also has concerns that the Belgian practice of issuing ‘excess profit’ rulings in favour of certain companies may have discriminated against certain other Belgian companies, which did not, or could not, receive such a ruling. As a result, the tax rulings may have given a selective advantage to the 39 multinational companies, allowing them to pay substantially less tax.

The opening of the in-depth investigations gives Belgium and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

The 39 companies concerned by the investigations are: Luciad NV, BASF Antwerpen NV, EVAL Europe NV, BP Aromatics Limited NV, The Heating Company BVBA, British American Tobacco Coordination Center VOF, Evonik Oxeno Antwerpen NV and “NewCo”, Nomacorc SA, Delta Light NV, Henkel Electronic Materials (Belgium) NV, Puratos NV, Omega Pharma International NV, LMS International NV, Noble International Europe BVBA, Trane BVBA, VF Europe BVBA, St. Jude Medical Coordination Center BVBA, Soudal NV, Ontex BVBA, Atlas Copco Airpower NV, Belgacom International Carrier Services NV, Dow Corning Europe NV/SA, Capsugel Belgium NV, Kinepolis Group NV, Pfizer Animal Health SA / Zoetis Belgium SA, Anheuser-Busch Inbev NV / Ampar BVBA, Flir Systems Trading Belgium BVBA, Wabco Europe BVBA, Celio International NV/SA, Magnetrol International NV, Ansell Healthcare Europe NV, Esko-Graphics BVBA, Victaulic Europe BVBA, Astra Sweets NV, Mayekawa   Europe NV, Tekelec International SPRL, Bridgestone Europe NV, Chep Equipment Pooling NV and Knauf Insulation SPRL.

24 September 2019, the EU General Court annulled a European Commission decision that a tax ruling given by The Netherlands to US coffeehouse chain Starbucks was unlawful State aid, but it upheld the Commission’s decision that a ruling given by Luxembourg to the finance company of Italian carmaker Fiat did constitute unlawful State aid.

In October 2015, the Commission decided that rulings provided to Fiat by Luxembourg and Starbucks by The Netherlands constituted unlawful state aid and that the countries would have to recover €20 million to €30 million from each company to counteract the benefits of the State aid received. The Netherlands and Starbucks, and Luxembourg and Fiat brought separate actions before the General Court seeking annulment of the decisions.

In 2015, after a long investigation launched by former EU Competition Commissioner Joaquin Almunia, the Commission concluded that The Netherlands and Luxembourg had issued tax rulings that artificially lowered the tax paid by Starbucks and Fiat respectively, in violation of EU State aid rules. Both The Netherlands and Luxembourg challenged the decision.

In the Starbucks case the Commission said an advance pricing agreement (APA) issued by the Dutch authorities in 2008 gave a selective advantage to Starbucks Manufacturing, a Dutch company, which had the effect of reducing its tax liability. The APA was calculated based on a "very substantial" royalty paid by Starbucks Manufacturing to a UK-based entity in the Starbucks group for coffee-roasting intellectual property.

Starbucks and The Netherlands disputed the finding that the APA conferred a selective advantage on Starbucks Manufacturing. The General Court agreed. It found that the Commission was entitled to use the arm’s length principle as a criterion for assessing the existence of State aid, but said that although the Commission had criticised the transfer pricing methodology used, it had not demonstrated that this had resulted in an economic advantage for Starbucks.

The Court said that mere non-compliance with methodological requirements did not necessarily lead to a reduction of the tax burden and that the Commission would have had to demonstrate that the methodological errors identified in the APA did not allow a reliable approximation of an arm’s length outcome to be reached and that they led to a reduction of the tax burden.

In the Fiat case, the Commission said that a ruling issued by Luxembourg's tax authorities on the calculation of the taxable basis in Luxembourg for the financing activities of Fiat Chrysler Finance Europe was unlawful State aid.

The General Court upheld the Commission's ruling. It found that the transfer pricing methodology was not properly applied and minimised Fiat's remuneration. The Court said the Commission was entitled to conclude that the tax ruling conferred a selective advantage on Fiat because it resulted in a lowering of Fiat’s tax liability as compared to the tax that it would have had to pay under Luxembourg tax law.

“Each case has its specificities and involves complex legal questions. We will study the judgments carefully before deciding on possible next steps,” EU Competition Commissioner Margrethe Vestager said in a statement following the ruling.

According to the Commissioner, the decisions gave “important guidance on the application of EU State aid rules in the area of taxation.” The Commission has not yet confirmed whether it will appeal the ruling.

27 September 2019, European Union commissioners-designate said the EU should implement a digital tax if no deal on the matter is reached at a global level by the end of next year.

In written answers to the European parliament on a proposed digital tax Margrethe Vestager, the incoming commission vice-president who will be in charge of digital policy and competition, said: “If no effective agreement can be reached by the end of 2020, the EU should be willing to act alone.”

The Commission proposed last March to apply a 3% rate to online advertising, digital intermediary activities, including social platforms or e-commerce, and the sale of data. This was estimated to raise around €5 billion per year.

Despite strong support from the European Commission and the European Parliament – and the decision of around half of the 28 EU member states to introduce a similar levy – Ireland, Sweden and Denmark have continued to reject the European solution in favour of a global system driven by the OECD.

Paolo Gentiloni, the commissioner-designate for taxation, said he would seek to prevent individual EU governments from being able to veto decisions on tax matters. He also said that as part of the fight against tax evasion and tax avoidance, jurisdictions included in the EU’s tax haven list should be subject to common sanctions. There is currently no co-ordination on financial penalties from the EU.

12 September 2019, US tech giant Google announced it had agreed to pay almost €1 billion to settle all of its litigation with the French tax authorities. The agreement included a €500 million fine to bring to an end an investigation by the National Finance Ministry and a US$465 million tax adjustment.

The settlement marks the end of a four-year investigation. The French tax authority had argued that Google, which routed most of its revenue from European advertising clients through Google Ireland unit, did more business in France than the structure implied. Specifically, it said Google executives negotiated advertising deals in Paris, which gave the Irish unit a permanent establishment, or taxable presence, in France.

In 2016, French police raided Google’s Paris office to determine “whether Google Ireland Ltd., has a ‘permanent establishment’ in France, and in not declaring some of its activity in French territory hasn’t fulfilled its tax obligations,” the French prosecutors said.

Two years ago, a French court threw out an earlier €1.11 billion tax assessment that France’s tax authority had issued against Google for the years from 2005 to 2010. In that assessment, the tax authority had alleged that the Tech company had declared too little revenue and profit in France.

In 2016 Google agreed to pay £130 million as part of a settlement with the UK tax authority for the years 2005 to 2015, and in 2017 it agreed to pay around €306 million to Italian tax authorities, mainly for the years between 2009 and 2015.

18 September 2019, the States of Guernsey concluded a public consultation to gauge the level of demand for the introduction of a Limited Liability Company (LLC) structure in Guernsey.

LLCs offer legal personality and limited liability in a tax transparent structure with, in many jurisdictions, the opportunity to elect to be taxed in the same way as a corporation. LLCs are commonly used in the US as structures for trading businesses, holding vehicles and special purpose vehicles in finance and investment structures.

The US LLC is recognised as providing a flexible hybrid structure, combining features of both US corporations and partnerships. An LLC may be formed for any lawful business purpose, or activity, whether or not for profit.

This consultation paper was issued to seek feedback on the merits, and potential economic benefits, of enacting LLC legislation in Guernsey, as well as gathering evidence on potential proposals and core features of the legislation.

6 September 2019, the IRS announced new procedures to enable certain individuals who relinquished their US citizenship to come into compliance with their US tax and filing obligations and receive relief for back taxes.

The Relief Procedures for Certain Former Citizens apply only to individuals who have not filed US tax returns as US citizens or residents, owe a limited amount of back taxes to the US and have net assets of less than $2 million. Only taxpayers who’s past compliance failures were non-wilful can take advantage of these new procedures. Many in this group may have lived outside the US most of their lives and may have not been aware that they had US tax obligations.

Eligible individuals wishing to use these relief procedures are required to file outstanding US tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer's tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying US taxes. Individuals who qualify for these procedures will not be assessed penalties and interest.

The IRS is offering these procedures without a specific termination date. The IRS will announce a closing date prior to ending the procedures. Individuals who relinquished their US citizenship any time after 18 March 2010, are eligible provided that they satisfy the other criteria of the procedures.

These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

12 September 2019, the Council of Europe’s anti-money laundering body MONEYVAL issued a report that called on the Maltese authorities to strengthen the practical application of measures to combat anti-money laundering and counter-terrorist financing (AML/CFT) and improve its level of compliance with the Recommendations of the Financial Action Task Force (FATF). It decided to apply its enhanced follow-up procedure and invited Malta to report back in December 2020.

The report noted that Maltese legislation established a comprehensive framework for international co-operation, which enabled the authorities to provide assistance with a general positive feedback.

MONEYVAL noted that Malta had demonstrated a broad understanding of the vulnerabilities within the system, but a number of important factors – especially predicate offences, financing of terrorism, legal persons and arrangements, the development of new technologies and the use of cash – were insufficiently analysed or understood.

Limited resources, both human and financial, had a negative impact on Malta’s capability to effectively pursue this offence. Investigations and prosecutions did not appear to be in line with the country’s risk profile.

The report expressed concerns that the law enforcement authorities were not currently in a position to pursue high-level and complex money laundering cases related to financial, bribery and corruption offences effectively and in a timely manner. Fundamental improvements were also needed in respect of confiscation.

While Malta has a sound legal framework to fight the financing of terrorism, the report noted that the actions undertaken by the authorities were not fully in line with the country’s exposure to potential terrorism financing risks.

The report concluded that major improvements were needed to effective implementation by financial institutions and designated non-financial businesses and professions (DNFBPs) to some of their AML/CFT obligations. Consequently, a low level of reporting of suspicious transactions remains a concern in some sectors.

MONEYVAL noted that supervisory authorities lacked adequate resources to conduct risk-based supervision, for the size, complexity and risk profile of the country’s private sector. It identified weaknesses in respect of the appropriate consideration of the wider AML/CFT risks at the market entry stage, the adequacy of fit and proper measures for certain types of DNFBPs and the lack of a coherent and comprehensive graduated risk-based supervisory model.

It said Malta lacked an in-depth analysis of how all types of legal persons and legal arrangements could be misused for AML/CFT purposes. There were shortcomings in a multi-pronged approach to obtaining beneficial ownership information. Considering the nature and scale of business undertaken in Malta, the fines for failing to submit beneficial ownership information on legal persons are not effective, dissuasive and proportionate.

6 September 2019, the Council of Europe’s anti-money laundering body MONEYVAL re-rated the Isle of Man as ‘compliant’ in respect of three recommendations in which it was originally rated as ‘largely compliant’ and one recommendation in which it was originally rated as ‘partially compliant’ in a mutual evaluation report in December 2016.

Following the adoption of its mutual evaluation report, which assessed the effectiveness of the its anti-money laundering and counter-terrorist financing (AML/CFT) measures and their compliance with the Recommendations by the Financial Action Task Force (FATF), the Isle of Man was placed in an enhanced follow-up process.

The Isle of Man had previously submitted its first enhanced follow-up report in July 2018. In line with MONEYVAL’s rules of procedure, it submitted its second enhanced follow-up report to MONEYVAL on the progress it has made to strengthen its AML/CFT framework.

This follow-up report analyses Isle of Man’s progress in addressing the technical compliance deficiencies identified in the mutual evaluation report. It also looks at progress made in the implementation of new requirements relating to FATF Recommendations which have changed since the since the first follow-up report.

To reflect this progress, MONEYVAL re-rated the Isle of Man on Recommendations 11 (record keeping), 12 (politically exposed persons), 17 (reliance on third parties) and 25 (transparency and beneficial ownership of legal arrangements). These Recommendations are now re-rated as “compliant”.

The ratings for Recommendation 2 (national co-operation and co-ordination, rated ‘compliant’), 8 (non-profit organisations, rated ‘largely compliant’), 18 (internal controls and foreign branches and subsidiaries, rated ‘largely compliant”’), and 21 (tipping-off and confidentiality, rated as ‘largely compliant’), the requirements of which changed since the mutual evaluation report, remain unchanged.

MONEYVAL said the Isle of Man would remain in enhanced follow-up and would continue to report back to MONEYVAL within one year on further progress to strengthen its implementation of AML/CFT measures.

18 September 2019, New Zealand and Guernsey signed a Protocol amending the Tax Information Exchange Agreement (TIEA). The protocol updates the TIEA to include model treaty provisions to prevent tax treaty abuse and improve dispute resolution as recommended by the OECD and G20. The agreement will come into force once both countries have given it legal effect.

3 September 2019, the OECD released the outcomes of the second phase of peer reviews of the BEPS Action 13 Country-by-Country (CbC) reporting initiative, which it said demonstrated strong progress in continuing efforts to improve the taxation of multinational enterprises (MNEs) worldwide.

CbC reporting, one of the four minimum standards of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project requires tax administrations to collect and share detailed information on all large MNEs doing business in their country.

Information collected includes: the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets, broken down by jurisdiction.

As CbC Reporting is one of the four minimum standards of the BEPS Project, all members of the Inclusive Framework on BEPS have committed to implement it, and to have their compliance with the standard reviewed and monitored by their peers to ensure a timely and consistent implementation.

The second annual peer review, which considered implementation of the CbC reporting minimum standard by jurisdictions as of April 2019, found:

-Coverage had increased to 116 Inclusive Framework members. A small number of members were not included in the review either because they had recently joined or faced capacity constraints, but they would be reviewed as soon as possible.

-Over 80 jurisdictions had already introduced legislation to impose a filing obligation on MNE groups, covering almost all MNE Groups with consolidated group revenue at or above the threshold of €750 million. Remaining Inclusive Framework members were working towards finalising their domestic legal frameworks with the support of the OECD.

-Where legislation was in place, the implementation of CbC Reporting has been found largely consistent with the Action 13 minimum standard.

-62 recommendations made in the first peer review had been addressed and these recommendations had been removed.

-Exchanges of CbC reports began in June 2018 and more than 2,200 bilateral relationships for CbC exchanges were now in place.

The OECD said that, following the first exchanges of CbC reports, work was underway to support the effective use of CbC reports by tax administrations in assessing transfer pricing and other BEPS-related risks. An automated Tax Risk Evaluation and Assessment Tool (TREAT) was currently being developed to help tax administrations, in particular those of developing countries, use CbC reports to identify important indicators of potential tax risk.

As mandated in the BEPS Action 13 report delivered to the G20 in 2015, work had now started on a review of the CbC reporting minimum standard. This will include a public consultation in early 2020.

"The peer review outcomes and the launch of the global exchange of CbC reports in June 2018 show that the BEPS measures are being implemented rapidly, consistently and globally," said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.

1 September 2019, amendments to the Singapore-United Arab Emirates tax treaty made by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI) came into force.

Singapore and the UAE ratified the multilateral instrument on 21 December 2018 and 29 May 2019, respectively. Details of the amendments made by the multilateral instrument to the treaty can be found at in Annex A to the parties’ bilateral tax treaty.

10 September 2019, the Swiss Federal Administrative Court ruled that ‘third party actors’, such a bank employees, lawyers and accountants, should not be named when Switzerland hands over tax data to other countries.

The verdict upholds a complaint from the Swiss data commissioner’s office against a Finance Ministry decision to include the names of professionals. People who are not directly linked to a request for administrative assistance should have their privacy respected, said the court.

The Finance Ministry argued that the practice was essential to keeping to the spirit, as well as the letter, of laws involving the transfer of tax data to other countries. It also said it would be too time consuming and costly to search documents to redact names.

The court disagreed, saying that this would infringe the human rights of individuals and their right to privacy under Swiss data protection laws. Accordingly names of people with a connection to bank clients being investigated for tax offences should be redacted or such persons should be warned in advance. This applied particularly to people whose names appear accidentally in documents, the court said.

27 September 2019, the Federal Council voted to bring into force the Federal Act on the Implementation of Recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) with effect from 1 November 2019.

The Act implements recommendations made by the Global Forum to Switzerland in its phase 2 report, which was published in July 2016. One of the key recommendations was for companies to determine and disclose their beneficial owners for tax and anti-money laundering purposes. This was incompatible with the continued existence of bearer shares.

Accordingly, from 1 November 2019 bearer shares will only be permitted if a company has equity securities listed on a stock exchange or if bearer shares are structured as intermediated securities. Impermissible bearer shares will have to be converted into registered shares within 18 months of the Act’s entry into force, on 1 May 2021.

The Act also provides for a procedure to identify shareholders who have not complied with their duty to report to the company and whose shares have been converted. Shares held by non-registered shareholders will become void five years after the entry into force of the Act, on 1 November 2024.

The Act further provides for a fine to be imposed on shareholders or companies that fail to report beneficial owners or fail to maintain the share register and the list of beneficial owners of shares. In addition, the Act requires legal entities headquartered abroad with effective administration in Switzerland to keep a register of their owners at the effective place of administration.

The Swiss Parliament adopted the implementing Act on 21 June 2019. The referendum period ran until 10 October 2019 and was not triggered. The Federal Administration will publish guidance on implementing the Act when it comes into force.

11 September 2019, the United Arab Emirates (UAE) issued Ministerial Decision No. 215 of 2019 containing guidance for businesses on compliance with the Economic Substance Regulations (ESR), enacted on 30 April in Resolution No. 31 of 2019.

Any natural or juridical person licensed by a competent licensing authority in the UAE that carries out any relevant activity is subject to the ESR. Relevant activities are banking, insurance, investment fund management, shipping, lease-finance, distribution and service centres, headquarters and intellectual property (IP) activities.

A licence includes a commercial licence, certificate of incorporation, or other form of permit required to be procured before carrying out an activity in the UAE.

Only companies deriving income from the relevant activities in the UAE must meet the requirements in the ESR.

The Guidance clarifies that the licensee shall, with effect from 1 January 2020, submit the notification to the relevant authorities. The specific deadline, form and manner in which the notification must be submitted are yet to be determined.

An adequate number of board meetings must be held and attended in the UAE to meet requirements in the ESR. The adequate number depends on the level of the relevant activity being carried out by the licensee. It is expected that at least one meeting should be held in the UAE per financial year. These meetings must be recorded in written minutes, signed by attendees physically present in the UAE and kept in the country. If an individual manages the licensee, these requirements apply to such individual.

The UAE guidance states that what is adequate or appropriate for each licensee depends on the nature and level of the relevant activities. The guidance indicates that the ESR is not intended to impose requirements that businesses engage more employees or incur more expenditures than what is needed. Instead, a licensee should maintain sufficient records to demonstrate the adequacy and appropriateness of the resources utilised and expenditures incurred.

The guidance clarifies that a licensee may outsource core income generating activity (CIGA) to a related party in the UAE. A licensee must be able to demonstrate that outsourcing to third-party or related-party service providers is not being done to circumvent compliance with the ESR. The guidance further states that the resources of a third-party service provider in the UAE will be taken into consideration to determine the adequacy of a licensee’s resources, but there must be no double counting if the service is provided to more than one licensee carrying out a relevant activity in the UAE.

Companies whose activities are limited to holding equity participation are not required to carry out CIGA in the UAE.

Holding companies that undertake a relevant activity other than solely receiving income from equity interests (i.e., dividends and capital gains) do not benefit from the reduced ESR. A licensee must meet the full substance requirements associated with the relevant activities it carries out.

An entity carrying out headquarter activities is tested based on the activities it performs, and not on its position within the group structure.

26 September 2019, a London court blocked the extradition of an Azeri banker’s wife who spent £16.3 million in Harrods and is the subject of the UK’s first unexplained wealth order (UWO), on the grounds she would be unable to get a fair trial in her home country.

Zamira Hajiyeva faces allegations of conspiring to defraud the state-owned International Bank of Azerbaijan where her husband, Jahangir Hajiyev, was chairman. She denied the allegations and had been fighting an extradition request brought by the Azeri government.

The Azeri government alleges that she defrauded the bank by spending millions of pounds and that she was involved along with 36 other people in an alleged $97 million fraud that saw “vast sums” being taken out of the bank on 28 bank-issued credit cards.

Westminster magistrates’ court blocked her extradition on human rights grounds, saying there was “a real risk” that she could suffer a “flagrant denial of justice” if she were sent back to Azerbaijan to stand trial. Emma Arbuthnot, the UK’s chief magistrate, noted in her ruling that Azerbaijan has a judiciary that is not independent of government.

The Azeri government said it intended to appeal. Ms Haijyeva also has a separate appeal pending against the UWO ruling, which is due to be heard in the Court of Appeal in December.

20 September 2019, the US Treasury Department announced the entry into force of tax treaty protocols with Luxembourg and Switzerland. The protocols bring the existing tax treaties with Luxembourg and Switzerland into closer conformity with current US tax treaty policy to allow for greater tax information exchange.

The protocols with Luxembourg and Switzerland are the first updates to US income tax treaties in nearly 10 years. They were approved by an overwhelming majority in the US Senate earlier this year.

The Luxembourg Protocol incorporates the modern international standards for exchange of information between the two countries’ tax administrations. The Protocol to the 1996 income tax treaty between the US and Luxembourg entered into force on 9 September 2019, upon the delivery of the diplomatic note by the US.

The Switzerland Protocol also modernises the rules governing the exchange of information. In addition, it provides for mandatory binding arbitration to expedite dispute resolution between the tax authorities of each country. The Protocol to the 1996 tax treaty between the US and Switzerland entered into on 20 September 2019, upon the exchange of instruments of ratification in Bern.

The US Treasury had previously announced that the Protocol to the 2003 tax treaty between Japan and the US entered into force on 30 August 2019, and that the Protocol to the 1990 tax treaty between Spain and the US would enter into force on 27 November 2019.