Owen, Christopher: Global Survey – January 2020

  • Appeal Court overturns ‘special contribution’ argument to award equal share
    • 18 December 2019, the England and Wales Court of Appeal (EWCA) overturned a decision of the Family Court that departed from the sharing principle and left the husband with a significantly greater proportion of the matrimonial assets.

      In XW v XH [2019] EWCA Civ 2262, the appellant was XW, a woman from a wealthy Asian family, and the respondent was XH, an Italian businessman. They married in Italy in 2008 and had one child. Both parties lived in England throughout the marriage, which broke down in 2015.

      Both parties were wealthy when the married but XH's company became very successful during the marriage. The company was sold in 2015/2016. From the sale of his shares, XH received the equivalent of approximately £370 million. By the date of the hearing, the assets in which these funds had been invested were worth approximately £490 million net of tax, significantly because of exchange rate changes. The husband also owned some restricted stock units and stock options. Apart from these the husband had other, pre-marital, assets valued at £3.9 million.

      When the parties met the wife was working as an artist. She is described in the judgment as being from a "very wealthy" family. Both "before and during the marriage her mother, who has established a series of family trusts, provided her with substantial financial support". As determined by the judge, the wife had net assets of just under £34 million.

      The parties jointly owned a residential property valued at £3.7 million net. This property was transferred to the wife as part of the final order.

      XW petitioned for divorce in England, seeking a half-share of the increased value of her husband's shareholding in his company, which she valued at £235 million. Contesting the claim, XH claimed that the 'separation of assets' declaration they made on their marriage in Italy amounted to an enforceable nuptial agreement. He also argued that he had made a 'special contribution' to their financial success during the marriage, entitling him to a larger share of the assets than his wife.

      The Family Court accepted some of his arguments, in particular the 'special contribution', although it concluded that it would be unfair to hold the wife to the separation of assets agreement. Accordingly, under Baker J's judgment – reported as XW v XH (Financial Remedies) [2019] 1 FLR 451 – XW received a financial remedy of £152 million, being about 29% of the parties' combined capital resources of £530 million.

      XW appealed, arguing that there was no reason for the court to depart from the established equal sharing principle in dividing the marital property. She sought an award of half the marital property of £460 million.

      The Court of Appeal found largely in her favour. It ruled that the first instance court judge was wrong to decide that the rapid growth of the husband's business was relevant to the division of wealth between the parties. Further, in deciding on the 'special contribution' Baker J had failed to consider whether there was such a disparity in the parties' respective contributions to the welfare of the family that it would be inequitable to disregard.

      Moylan LJ held it would be fair to both parties to treat 60% of the wealth derived from the shares as matrimonial property and 40% of it as non-matrimonial. An equal division of the total marital wealth of £296.7 million led to the wife receiving a lump sum increased from £115 million to £145 million and the jointly owned property worth £3.7 million.

      As a result, the wife was awarded approximately 34.5% (£182.45 million) of the parties' combined wealth and the husband 65.5% (£347.55 million), rather than the division of 28.75% and 71.25% made by the Family Court. King LJ and Underhill LJ agreed.

      The full judgment can be accessed at https://www.bailii.org/ew/cases/EWCA/Civ/2019/2262.html

  • EU approves plan to apply sanctions against blacklisted jurisdictions
    • 5 December 2019, the EU Economic and Financial Affairs Council (ECOFIN) approved a plan to impose financial sanctions – or ‘defensive measures’ – on countries or jurisdictions on the EU's list of non-cooperative jurisdictions for tax purposes by the end of 2020.

      The guidance requests member states to apply at least one of four measures from 1 January 2021 at the latest, although member states are entitled to apply their own additional measures or to maintain their own lists of non-cooperative jurisdictions at the national level.

      The 'defensive measures' recommended to EU Member States include:

      -Denying deduction of costs and payments that otherwise would be deductible, when these costs and payments are treated as directed to entities or persons in blacklisted jurisdictions;

      -Including in the taxpayer company's tax base the income of an entity resident or a permanent establishment situated in a blacklisted jurisdiction, in accordance with the Anti-Tax Avoidance Directive rules for controlled foreign companies;

      -Applying a withholding tax at a higher rate on payments such as interest, royalties, service fee or remuneration, when these payments are treated as received in blacklisted jurisdictions; and

      -For those Member States with rules that permit excluding or deducting dividends or other profits received from foreign subsidiaries, denying or limiting these 'participation exemptions' if the dividends or other profits are treated as received from a blacklisted jurisdiction.

      The operative EU definitions of tax avoidance and tax evasion are to be reviewed during the Croatian Presidency. By the end of 2021, an overview of sanctions applied by Member States will take place, and as of 2022, the EU Code of Conduct Group - Business Taxation will assess the need for further coordination of defensive measures.

  • Fiat Chrysler challenges ruling to pay Luxembourg €30 million in back taxes
    • 4 December 2019, carmaker Fiat Chrysler lodged an appeal to the European Court of Justice against a ruling that it must pay Luxembourg €30 million in previously unpaid taxes resulting from an agreement deemed unlawful under European competition law.

      The company, which has based its European finance unit Fiat Chrysler Finance Europe SA (FCFE) in Luxembourg for more than two decades, filed its appeal two months after the lower General Court rejected arguments by Fiat Chrysler, Luxembourg and Ireland seeking to annul the European Commission's finding of an unlawful tax agreement.

      Luxembourg's tax authorities in 2012 issued a five-year tax ruling calculating FCFE's taxable basis for its work on Fiat Chrysler's European operations. The European Commission's investigation found that Luxembourg's tax ruling reduced Fiat's tax burden by between €20 million and €30 million and that the firm had paid less than €0.4 million in corporate tax.

      In 2015 the Commission ordered Fiat to repay Luxembourg, saying the Grand Duchy's authorities gave the firm selective tax advantages, which were illegal under state aid rules. FCFE put €57.4 million in escrow pending a final court decision, an amount representing Luxembourg’s alleged state aid between 2012 and 2016, the finance company said in its 2018 financial statement.

      The unit employed seven people in Luxembourg and three in the United Kingdom as of last December, the report said.

      "We believe that the General Court's judgement contains errors of law which, in our view, should lead to it being set aside," said Fiat Chrysler in a statement. Ireland, which supported Luxembourg in the case, also appealed.

  • French Court approves powers to search social media
    • 27 December 2019, the French Constitutional Court approved a controversial new law that provides for the tax authorities to search social media postings for evidence of French residents' undeclared income.

      The measure, included in the country’s 2020 budget act, gives tax and customs authorities a three-year trial period to use artificial intelligence to review people’s profiles, posts and photographs on social media for evidence of undeclared income or inconsistencies.

      Budget minister Gérald Darmanin said possible lines of enquiry would be to check on people who regularly post photos taken in France while claiming not to be French tax residents, or to compare photographs of an individual's car with their declared income. Another would be to monitor purchases on trading sites such as eBay or, the equivalent French site, Le Bon Coin.

      The proposal sparked concern from the French data protection authority, several advocacy groups and members of parliament, who challenged its implications for people’s privacy.

      The Constitutional Court found that the law balanced the right to privacy and freedom of expression with efforts to fight tax fraud, although it imposed restrictions on the information that can be collected.

      The authorities must not attempt to gain access to password-protected content. Moreover, in an investigation of a taxpayer, they will only be able to use information published by that taxpayer, not by a third party. The Court also insisted that the Commission Nationale de l'Informatique et des Libertés (CNIL) should monitor how the information was being used, and conduct a review of the new powers at the end of the three-year trial.

      The 2020 budget law, cleared by Parliament Dec. 19, also cut the top corporate tax rate from 33.3% to 31% for large companies and includes a provision requiring heads of large companies to have French tax residency.

  • Gibraltar to bring Legislative Reform Programme into force
    • 13 December 2019, the government of Gibraltar announced that the Financial Services Act, which was passed by Parliament last July and is the key part of its Legislative Reform Programme (LRP), would come into effect on 15 January 2020.

      The Act consolidates and rationalises over 90 financial services legislative instruments into one Act and additional supporting, sector-specific regulations. The LRP has concurrently implemented all EU legislation transpositions and local legislative initiatives during the lifetime of the programme.

      The Act also ensures an appropriate degree of harmonisation between all financial services sectors and provides a comprehensive framework consistent with that of a modern international financial services jurisdiction.

      The sector-specific LRP Regulations compliment the new structure, concepts and terminology of the Act by consolidating requirements applicable to each financial services industry within respective sets of regulations.

      The Gibraltar Financial Services Commission (GFSC) said the LRP provides:

      -A harmonised approach to authorisation and obtaining permission to carry on regulated activities;

      -A Regulated Individuals' Regime;

      -A new Decision Making Committee;

      -Procedural clarity and consistency across the board;

      -Harmonised cross-sectoral powers and related processes.

      The LRP Regulations are comprised of a number of cross-sectoral regulations, such as those relating to complaints or fees, however the substantive content of the Regulations has not been changed unless necessary for alignment with the new policies introduced by the Act.

      Gibraltar’s Minister for Financial Services Albert Isola said: ‘I am delighted that this massive legislative project is now close to being finalised and will be commenced on 15 January."

  • Google agrees to pay additional AUD481.5 million to settle Australian tax dispute
    • 18 December 2019, US tech giant Google agreed to pay AUD481.5 million to the Australian Tax Office on top of its previous tax payments to settle a long-running dispute after an extensive audit of its tax affairs for the period between 2008 and 2018.

      Google previously operated by billing Australian customers through its branch in Singapore, while insisting its local office merely performed services for the global group. As a result, revenue from Australian customers – estimated to be about AUD2 billion a year – bypassed the local company such that Google Australia made little or no profit on which it could be taxed by the ATO.

      The introduction of the multinational anti-avoidance law (MAAL) in December 2015 required multinationals with an annual global income of AUD1 billion or more to restructure local operations to count revenue generated from Australia in the country or face penalties of double tax.

      Google restructured its operations shortly after, such that the Australian arm became a reseller of products and services and could enter into contracts with Australian customers directly, bringing some of the revenue stream onshore and under the ATO’s umbrella.

      The settlement follows a lengthy campaign to force multinationals, especially technology and resources giants, to pay tax in Australia, which was launched in 2015 by then treasurer Joe Hockey and spearheaded by tax commissioner Chris Jordan.

      Moves included more audits of tech and resources companies through a special ATO taskforce and the introduction of a suite of laws designed to force tech companies to book sales made in Australia locally, rather than running them through a low tax jurisdictions.

      Google is the latest tech giant to reach a settlement with the ATO, following Microsoft, Apple and Facebook. According to the ATO’s latest corporate tax transparency report, Google paid AUD37.2 million in taxes during 2017-18 on a taxable income of AUD188.1 million and AUD1.03 billion in revenue.

      This put the tech giant’s effective tax rate at 19.8%, slightly higher than the 18.6% and 13.2% rate it recorded in 2016 and 2015 respectively. By comparison, Microsoft, Apple and Facebook all paid the full 30% corporate tax rate – or just under it – in 2017-18.

      The ATO said the Google settlement, together with others made by companies including Microsoft, Apple and Facebook, brought the total extra amount of cash collected from ecommerce industry players to AUD1.25 billion.

      ATO deputy commissioner Mark Konza said: “It adds to the significant success of the ATO in positively changing the behaviour of digital taxpayers and significantly increasing the tax they pay in Australia.”

      The life of the tax avoidance taskforce had been extended until 2023, ensuring “that the ATO is able to continue to pursue these issues and provide assurance to the community that we are doing everything in our power to protect Australia’s tax base”.

      A Google spokeswoman said that as well as settling the company’s back tax the deal would “also provide certainty in relation to future tax treatment”.

  • Google to end ‘Double Irish, Dutch sandwich’ tax scheme
    • 31 December 2019, Google parent Alphabet confirmed to Reuters that it will no longer use an intellectual property licensing structure – known as the ‘Double Irish, Dutch sandwich’ – which allowed it to defer US taxes.

      Dutch filings, which were seen by Reuters, showed that in 2018 Google moved €21.8 billion (US$24.5 billion) through its Dutch holding company to Bermuda, up from €19.9 billion in 2017. Google said it would end the practice after 2019 in line with international rules and followed changes to US tax law in 2017.

      “A date of termination of the company’s licensing activities has not yet been confirmed by senior leadership, however management expects that this termination will take place as of 31 December 2019 or during 2020,” the Dutch filing said. “Consequently, the company’s turnover and associated expense base generated from licensing activities will discontinue as of this date.”

      “We’re now simplifying our corporate structure and will license our IP (intellectual property) from the US, not Bermuda,” a Google spokesman said in a statement. “Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23%, with more than 80% of that tax due in the US.”

      For more than a decade, Dutch, Irish and US tax law allowed Google to enjoy an effective tax rate in the single digits on its non-US profits, around a quarter the average tax rate in its overseas markets.

      The subsidiary in the Netherlands was used to shift revenue from royalties earned outside the US to Google Ireland Holdings, an affiliate based in Bermuda, where companies pay no income tax. This enabled Google to avoid triggering US income taxes or European withholding taxes on the funds, which represented the bulk of its overseas profits.

      Under pressure from the EU and US, Ireland in 2014 decided to phase out the arrangement, ending Google’s Irish tax advantages in 2020.

  • Hong Kong tax treaties with Cambodia and Estonia enter into force
    • 18 and 27 December 2019, the Hong Kong government announced that new tax treaties with Cambodia and Estonia had entered into force respectively.

      The Hong Kong-Cambodia tax treaty was signed in June. It reduces withholding tax rates on interest, royalties, and fees for technical services from 14% to 10%. It also provides rules for taxation of airlines and shippers operating in the two countries, the Hong Kong government said.

      The Hong Kong-Estonia tax treaty was signed in September. Under the treaty, any Estonian tax paid by Hong Kong residents in respect of income derived from sources in Estonia will be allowed as a credit against the Hong Kong tax payable on the same income, subject to the provisions of the tax laws of Hong Kong.

      Similarly, for Estonian residents, double taxation will be avoided by way of exemption of the income taxed in Hong Kong from the Estonian tax, or deduction of Hong Kong tax paid from the Estonian tax in respect of the same income.

      The treaty also caps Estonia’s withholding tax rate for Hong Kong residents on royalties at 5%. The current withholding tax rate is 10%. Hong Kong airlines operating flights to and from Estonia will be taxed at Hong Kong’s profits tax rate, and will not be taxed in Estonia. Profits from international shipping transport earned by Hong Kong residents arising in Estonia will not be taxed in Estonia.

  • HSBC Private Bank (Suisse) enters Deferred Prosecution Agreement with US
    • 10 December 2019, HSBC Private Bank (Suisse), a private bank headquartered in Geneva, entered into a deferred prosecution agreement (DPA) with the US Department of Justice in the US District Court for the Southern District of Florida after admitting to conspiring with US taxpayers to evade taxes. As part of the agreement, HSBC Switzerland will pay US$192.35 million in penalties.

      According to court documents, HSBC Switzerland admitted that between 2000 and 2010 it conspired with its employees, third-party and wholly owned fiduciaries, and US clients to defraud the US with respect to taxes, commit tax evasion and file false federal tax returns. Under the DPA, prosecution will be deferred for an initial period of three years to allow the bank to demonstrate good conduct. The agreement provides no protection for any individuals.

      In 2002, HSBC Switzerland had around 720 undeclared US client relationships with an aggregate value of more than US$800 million. When the bank’s undeclared assets under management reached their peak in 2007, HSBC Switzerland held approximately US$1.26 billion in undeclared assets for US clients.

      To conceal its clients’ assets and income from the IRS, HSBC Switzerland employed a variety of methods, including relying on Swiss bank secrecy to prevent disclosure to US authorities, using code-name and numbered accounts and hold-mail agreements, and maintaining accounts in the names of nominee entities established in jurisdictions, such as the British Virgin Islands, Liechtenstein and Panama, that concealed the client’s beneficial ownership of the accounts.

      In an effort to attract new US clients and maintain existing relationships with US clients, at least four HSBC Switzerland bankers had travelled to the US to meet at least 25 different clients between 2005 and 2007.

      In early 2008, in response to a public US criminal investigation into UBS, the largest bank in Switzerland, HSBC Switzerland began a series of policy changes to restrict its cross-border business with US persons. However the bank did not immediately cease that business and some HSBC Switzerland bankers assisted clients in closing their accounts in a manner that continued to conceal their offshore assets, such as withdrawing the contents of their accounts in cash.

      Under the terms of the DPA, HSBC Switzerland will cooperate fully with the Tax Division and the IRS. It is required to disclose any information it may uncover regarding US-related accounts, as well as to disclose information consistent with the department’s Swiss Bank Programme relating to accounts closed between 1 January 2009 and 31 December 2017.

      The $192.35 million penalty against HSBC Switzerland has three parts. First, the bank has agreed to pay US$60.6 million in respect of unpaid taxes resulting from its participation in the conspiracy. Second, it has agreed to forfeit US$71.85 million in respect of gross fees earned on the undeclared accounts between 2000 and 2010. Thirdly, it has agreed to pay a US$59.9 million penalty.

      This penalty amount takes into consideration that HSBC Switzerland self-reported its conduct, conducted a thorough internal investigation, provided client identifying information to the Tax Division, and extensively cooperated in a series of investigations and prosecutions, as well as implemented remedial measures to protect against the use of its services for tax evasion in the future.

      “Taxpayers and financial institutions each have the most basic responsibilities to pay taxes and report suspicious activity regarding financial transactions. When financial institutions devise a massive tax evasion scheme and actually facilitate the activity, they not only must be held accountable, they must take actions to ensure this behaviour will not happen again,” said Don Fort, Chief of IRS Criminal Investigation.

  • Jordan signs Multilateral Convention to strengthen its tax treaties
    • 19 December 2019, Jordan became the 93rd jurisdiction to sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), which now covers over 1,650 bilateral tax treaties. Liechtenstein deposited its instrument of ratification on the same day. The Convention will enter into force for Liechtenstein on 1 April 2020.

      The Convention is the first multilateral treaty of its kind, allowing jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. The Convention became effective on 1 January 2019 and now applies to 133 tax treaties concluded among the 38 jurisdictions that have already deposited their instrument of acceptance, approval or ratification.

      The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from the G20 Finance Ministers and Central Bank Governors, is one of the most prominent results of the OECD/G20 BEPS project. It is the world’s leading instrument for updating bilateral tax treaties and reducing opportunities for tax avoidance by multinational enterprises.

      Measures included in the Convention address treaty abuse, strategies to avoid the creation of a ‘permanent establishment’ and hybrid mismatch arrangements. The Convention also enhances the dispute resolution mechanism, especially through the addition of an optional provision on mandatory binding arbitration, which has been taken up by 30 jurisdictions.

      Montenegro and Honduras became the 136th and 137th countries to join the Inclusive Framework on BEPS, on 5 and 11 December respectively. Members have pledged to adopt minimum standards set out in the 2015 OECD/G20 BEPS plan, which are designed to prevent tax avoidance by multinational corporations and improve cross-border tax dispute resolution.

      As a member of the Inclusive Framework, Montenegro and Honduras can also participate in international discussions on how to update to the international tax and transfer pricing rules in a coordinated way to better account for newer digital business models.

  • Luxembourg parliament approves Budget 2020 and ATAD II laws
    • 19 December 2019, Luxembourg's Chamber of Deputies approved the government's Budget for 2020, which among other measures includes important changes to the validity of advance tax agreements (ATAs).

      As previously announced, ATAs that have been granted by the Luxembourg tax authorities prior to 1 January 2015 will no longer apply as of 1 January 2020. Taxpayers may however introduce another request for an ATA regarding their existing structure to secure the applicable tax treatment.

      Such a request will be subject to the payment of an administrative fee of up to €10,000 and the validity of the ATA, where granted, will be restricted to five years in conformity with the current tax procedural law.

      The Luxembourg Parliament also approved the law to implement the EU Anti-Tax Avoidance Directive II (ATAD II), which is designed to combat aggressive tax planning using hybrid mismatches resulting mainly from the use of hybrid financial instruments and hybrid entities involving third party countries. ATAD I, which the new directive amends, dealt only with hybrid mismatches arising between EU Member States.

      The Luxembourg Income Tax Law (ITL) has been amended to extend the scope of the existing anti-hybrid rules to third party countries as well as to certain transactions – double residency and imported hybrid mismatches – and a new article, applicable as from 2022, has been introduced into the ITL to counter the use of reverse hybrid entities for tax purposes.

      The ATAD II Law confirms the 10% de minimis rule that applies to investors in an investment fund for the purposes of ‘acting together’. Under this rule, a rebuttable presumption is introduced under which an investor who holds less than 10% in an investment fund is not considered as acting together with the other investors in the fund.

      The ATAD II Law and Budget 2020 Law will apply from 1 January 2020, except for the reverse hybrid entity provision, which will apply from fiscal year 2022 in accordance with the ATAD II.

  • Netherlands gazettes laws implementing 2020 Tax Plan
    • 27 December 2019, a package of seven laws making up the Dutch 2020 Tax Plan, which includes significant modifications to the taxation of multinational enterprises operating in the Netherlands, was gazetted and brought into law.

      Under the plan, the corporate income tax rate for taxable profits up to €200,000 will fall from 19% to 16.5% in 2020, with the tax rate for taxable profits over €200,000 remaining at 25% for 2020 but falling to 21.7% for 2021.

      The plan introduces a definition of permanent establishment and representative, in line with the definition in the OECD Model Convention 2017 and includes an amendment to the anti-abuse measures in the Dutch corporate income tax act and the dividend withholding tax act to align these laws with the outcome of the European Court of Justice decisions in the so-called “Danish Cases”.

      These anti-abuse measures will be part of the introduction of the conditional withholding tax on intragroup interest and royalty payments to certain low-tax jurisdictions and for certain anti-abuse situations. The conditional withholding tax in itself will become effective as of 1 January 2021.

      The plan also implements the second European Union Anti-Tax Avoidance Directive (ATAD 2) concerning hybrid mismatches effective from 1 January 2020. This law addresses hybrid mismatches with regard to non-EU countries, given that intra-EU disparities are already covered under ATAD 1 adopted in July 2016.

      In addition to the adoption of the 2020 Tax Plan, the Dutch Senate also adopted a motion to research the simplification of the tax system. It requests that the recent simplifications in the UK tax system should be assessed to evaluate whether elements could be implemented in the Dutch system.

  • Netherlands issues updated list of low tax jurisdictions
    • 30 December 2019, the Dutch Ministry of Finance published an update of its list of low tax jurisdictions. Barbados and Turkmenistan have been added to the list while Belize, Kuwait, Qatar and Saudi-Arabia have been delisted.

      Jurisdictions named on the Dutch list, which is updated annually, are deemed to have corporate tax rates of less than 9%. According to the Finance Ministry, Barbados has been added to the list because its corporate tax rate fell below 9% as from 1 January 2019. Turkmenistan was added to the list after analysis showed that the generally applicable income tax rate is not 20% but 8%.

      The list now consists of: Anguilla, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Guernsey, Isle of Man, Jersey, Cayman Islands, Turkmenistan, Turks & Caicos Islands, Vanuatu and the United Arab Emirates.

      The list is relevant for three Dutch measures:

      -The new controlled foreign companies (CFC) rules, which became effective from 1 January 2019, under the framework of the EU's Anti-Tax Avoidance Directive;

      -As from 1 July 2019, the tax authorities will no longer issue tax rulings to companies which are established in a listed jurisdiction;

      -Withholding tax equal to the Dutch headline corporate tax rate will be imposed on interest and royalty payments to these jurisdictions from 2021. The rate of corporate tax in 2021 is expected to be 21.7% as per 1 January 2021.

      These measures are also applicable in relation to the countries on the EU list of non-cooperative jurisdictions for tax purposes.

  • New Zealand-China tax treaty enters into force
    • 27 December 2019, the New Zealand government announced that the China-New Zealand tax treaty, signed on 1 April, had entered into force. China is New Zealand’s largest trading partner.

      The treaty will be effective in New Zealand for withholding taxes from 1 January 2020, and for other provisions, generally, from income years beginning 1 April 2020. The treaty will be effective in China, generally, from 1 January 2020.

      The treaty will not affect relations between New Zealand and Hong Kong, which are governed by a separate tax treaty, the New Zealand government said.

  • OECD publishes updated country-by-country MNE reporting guidance
    • 23 December 2019, the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) issued additional interpretative guidance to give greater certainty to tax administrations and multinational enterprises (MNEs) on the implementation and operation of Country-by-Country (CbC) Reporting, Action 13 of the OECD/G20 BEPS project.

      The new guidance makes clear that, under the BEPS Action 13 minimum standard, the automatic exchange of CbC reports filed under local filing rules is not intended.

      The document presents the complete set of guidance concerning the interpretation and operation of BEPS Action 13 issued so far. It will continue to be updated with any further guidance that may be agreed.

      The guidance can be accessed at https://www.oecd.org/tax/beps/guidance-on-country-by-country-reporting-beps-action-13.htm

      As part of continuing efforts to address BEPS concerns, the Inclusive Framework on BEPS (Inclusive Framework) has now assessed 112 jurisdictions' progress in spontaneously exchanging information on tax rulings under Action 5. This includes the first review for newer members of the Inclusive Framework, as well as certain developing countries that had requested additional time and were deferred from the previous years' peer reviews.

      The 2018 Peer Review Reports on the Exchange of Information on Tax Rulings shows that one key aim of the BEPS Project – increasing transparency on tax rulings – is being achieved. As at the end of 2018, almost 18,000 tax rulings had been identified and almost 30,000 exchanges of information have taken place to date.

      The peer review process also takes into account feedback on the conduct of the exchanges by Inclusive Framework members, which has in a number of cases allowed jurisdictions to revise their processes and improve the clarity of the information being exchanged, which is essential for the effectiveness of the standard.

      A number of recommendations for improvement that were made in the second annual report have been actioned and removed during the 2018 year in review. Having assessed implementation of the standard to the end of 2018, 80 jurisdictions have now successfully implemented the standard and did not receive any recommendations for improvement.

      At the same time, other jurisdictions need to do more. The report contains 55 jurisdiction-specific recommendations on issues such as improving the timeliness of the exchange of information and ensuring that exchanges of information are made with respect to preferential tax regimes that apply to income from intellectual property.

      The Inclusive Framework will continue to pursue progress in this area, with the next annual peer review in 2020, to continue to track the progress of jurisdictions and the actions taken to respond to any remaining recommendations.

      The carrying out of reviews after 2020 will be subject to the agreement of the Inclusive Framework on BEPS. First discussions on the effectiveness of the rulings standard, and the format for any further peer review process, will also take place in 2020.

  • Proposal to expand EU tax blacklist to include member states
    • 9 December 2019, France, Germany, Austria and Spain were among a group of EU countries calling for stricter criteria and tougher sanctions for countries that facilitate tax avoidance, according to an EU document seen by news agency Reuters.

      The document, prepared by the Danish government, asks whether the "current criteria provide sufficient protection against tax avoidance and evasion” and seeks "strengthened" standards and sanctions. It also calls for a discussion on how member states deal with the issue, asking: "Do we internally have sufficient safeguards against tax avoidance and evasion?"

      This puts the group on a collision course with EU members Ireland, the Netherlands and Luxembourg, which widely use tax incentives to attract business. The current list of countries that are deemed uncooperative in tax matters exempts EU member states.

      According to Reuters, the European Commission supports the Danish initiative. Citing an unnamed EU official, Reuters reported that Croatia, which holds the EU presidency for six months from January, said the current tax blacklist criteria would be reviewed in February or March.

      Since the first EU blacklist was published in December 2017, it has been revised 10 times. Only eight countries are currently blacklisted – American Samoa, Fiji, Guam, Oman, Samoa, Trinidad & Tobago, the US Virgin Islands and Vanuatu.

      The EU-wide list was intended to replace national tax blacklists. However, earlier this month France announced it would place Anguilla, Virgin Islands, Bahamas and Seychelles on its blacklist. French Budget Minister Gérald Darmanin said these jurisdictions were not sufficiently co-operative in terms of financial transparency.

  • Seychelles introduces Immovable Property Tax Act
    • 27 December 2019, Seychelles President Danny Faure assented to the Immovable Property Tax Act 2019, which was approved by the Cabinet on 18 September and by the National Assembly on 18 December.

      The Immovable Property Tax Act introduces an annual tax on immovable property owned by non-Seychellois, calculated at 0.25% of the assessed market value of the property.

  • Singapore and Germany sign Protocol to existing tax treaty
    • 9 December 2019, Singapore and Germany signed a protocol to their existing 2004 double taxation agreement to bring it into line with international standards and amend the maximum withholding tax rates that may be charged.

      The protocol reduces the maximum withholding tax rate that can be charged in the source country for cross-border dividends income from 15% to 10%. The reduced rate of 5% for qualifying participations of more than 10% in the paying company will remain the same.

      The protocol also reduces the withholding tax rate on interest from 8% to zero, and lowers the rate on royalties from 8% to 5%.

      The protocol incorporates into the DTA the internationally agreed minimum standards to counter treaty abuse. It amends the exchange of information provisions in line with international standards on the exchange of information on request. It also updates the Mutual Agreement Procedure (MAP) article to provide a mechanism that will allow taxpayers to request arbitration in eligible MAP cases that have not been resolved between the competent authorities of Singapore and Germany in three years.

  • Swiss Federal Council initiates consultation on tax treaty implementation
    • 13 December 2019, the Swiss Federal Council initiated a consultation on the Federal Act on the Implementation of International Tax Agreements (ITAIA). The Federal Council is adapting the existing law to the recent changes in international tax law with this proposal. The consultation will last until 27 March 2020.

      The total revision of the Federal Act of 22 June 1951 on the Implementation of International Federal Conventions on the Avoidance of Double Taxation is intended to ensure that tax agreements – particularly double taxation agreements – can continue to be applied easily and with legal certainty in the future.

      The revision of the law stipulates how mutual agreement procedures are to be carried out at national level. The defined procedure largely follows current practice and is applied only if the agreement does not contain any deviating provisions. The revision also provides for certain simplifications. Moreover, it contains the key points for withholding tax relief based on international agreements, as well as criminal provisions in connection with relief from withholding taxes on capital income.

      The Council also adopted a new Ordinance to the Financial Market Supervision Act (FINMASA), which sets out the tasks of the Swiss Financial Market Supervisory Authority (FINMA) at the international level and in terms of regulation, regulatory principles and the co-operation and exchange of information between FINMA and the Federal Department of Finance (FDF). The ordinance will enter into force on 1 February 2020.

      The new ordinance governs how regulatory principles are to be applied and how the aspects of proportionality, differentiation and international standards are to be taken into consideration in regulatory activities. It also sets out the main features of the co-operation between FINMA and the FDF, as well as the mutual exchange of information.

      During the consultation, the new ordinance was largely regarded as a logical means of clarifying the FINMASA. Various submissions called for even more extensive and detailed requirements, but the Federal Council did not consider these to be expedient on the whole. A minority was fundamentally opposed to the proposal, referring to the administrative burden and a possible restriction of FINMA's powers. The Federal Council has taken account of these concerns in the ordinance that has now been adopted.

  • US announces addendum to Non-Prosecution Agreement with Coutts & Co
    • 20 December 2019, the US Department of Justice announced the signing of an addendum to its non-prosecution agreement (NPA) with Coutts & Co., a private Swiss bank headquartered in Zurich, in respect of additional undisclosed US-related accounts.

      The Justice Department executed NPAs with 80 banks between March 2015 and January 2016 under its Swiss Bank Programme and imposed a total of more than US$1.36 billion in penalties. Every bank that signed an NPA had represented that it had disclosed all known US-related accounts that were open at each bank between 1 August 2008 and 31 December 2014. Each bank also represented that it would, during the term of the NPA, continue to disclose all material information relating to its US-related accounts.

      When the original NPA was signed in December 2015, Coutts reported that it held and managed 1,337 US related accounts, with assets under management exceeding US$2 billion, and paid a penalty of US$78.5 million.

      However Coutts acknowledged that there were additional US-related accounts that it knew about, or should have known about, but that were not disclosed to the Department at the time. Under the addendum, the bank will pay an additional US$27.9 million fine and provide supplemental information on its US-related account population, which now includes 311 additional accounts.

      “This agreement reflects our commitment to ensuring that foreign banks that participated in the Swiss Bank Programme fully comply with their obligations to disclose accounts in which US taxpayers have direct or indirect interests,” said Principal Deputy Assistant Attorney General Richard Zuckerman of the Justice Department’s Tax Division. “When any person or entity makes false, incomplete, or misleading disclosures to the Department, the Department will hold those persons or entities accountable.”

  • US suggests ‘safe harbour regime’ for OECD ‘pillar one’ proposal
    • 3 December 2019, US Treasury secretary Steven Mnuchin wrote to the OECD secretary-general proposing a ‘safe-harbour regime’ in place of the OECD’s ‘pillar one’ proposal for reform of international tax rules for multinationals.

      The ‘pillar one’ and ‘pillar two’ proposals are halves of a two-part package of proposals being negotiated by 136-countries, known as the Inclusive Framework on BEPS in an OECD-led process. The Inclusive Framework aims to reach an agreement on both pillars to achieve a coordinated update to the international tax and transfer pricing rules for multinational groups by the end of 2020.

      The pillar one proposals would update the international tax rules by granting greater taxing rights to countries where a multinational’s customers or users reside. The pillar two proposals, also known as the global anti-base erosion (GloBE) tax, provide for a global minimum tax coupled with restrictions on deductions for base eroding payments made by multinationals to related entities located in countries that have low taxes.

      Referring to the ‘unified approach’ to profit allocation and nexus rules under ‘pillar one’, Mnuchin expressed “serious concerns regarding potential mandatory departures from arm’s-length transfer pricing and taxable nexus standards”. These, he said, were “long-standing pillars of the international tax system upon which US taxpayers rely.”

      Mnuchin instead proposed that the pillar one goals could be achieved by making it a ‘safe-harbour regime’, meaning companies should be able to opt into or out of the ‘unified approach’ under pillar one, provided that they abided by some other agreed measure.

      The letter confirmed US support for the ‘pillar two’ global minimum tax on multinational group profit. It also reinforced the importance to the US of a multilateral solution to prevent the ‘proliferation’ of unilateral measures, such as revenue-based digital services taxes. In Europe alone, 15 countries are believed to be considering a digital services tax.

      “The US firmly opposes digital services taxes because they have a discriminatory impact on US-based businesses”, Mnuchin said. “We urge all countries to suspend digital services tax initiatives, in order to allow the OECD to successfully reach a multilateral agreement.”

      OECD secretary-general Angel Gurría responded on 4 December, saying that “we had so far not come across the notion that pillar one could be a safe-harbour regime” during the consultation process. He expressed concern that introducing the idea at this point could make it difficult for the 135 countries participating in the process “to move forward within the tight deadlines we established collectively in the inclusive forum”.

      The OECD held a public consultation in Paris on 9 December, providing a forum for stakeholders to express their views on how to best design the ‘pillar two’ global minimum tax. It focused on only a portion of the technical work underlying pillar two: whether an MNE’s financial accounts should be used to determine the base of the tax; whether the effective tax rate of MNEs should be determined by blending the effective tax rates in many countries or not; and whether any particular carve outs from the rules should be provided.

      Director of the OECD Centre for Tax Policy and Administration Pascal Saint-Amans acknowledged that individual countries could decide whether or how to implement these measures as the US had done when it enacted the global intangible low-taxed income (GILTI) provisions. Unilateral action was not precluded, he said, but coordinated action by countries was more desirable so that companies were not faced with a multitude of different rules.

      Saint-Amans said the comments made during the consultation would inform the Inclusive Framework steering group, which will make recommendations to the Inclusive Framework on BEPS for its endorsement at the end of January.

      The OECD hopes to launch a second consultation on a pillar two proposal in March covering the OECD’s suggestions with respect to computing the base, blending, carve outs, and possibly the minimum tax rate to be applied. The goal is to reach an agreement by the Inclusive Framework in June or July.

  • US Treasury and IRS issue guidance on FTC and the BEAT
    • 2 December 2019, the US Treasury Department and IRS issued proposed and final regulations relating to two significant international tax provisions of the Tax Cuts and Jobs Act (TCJA) – foreign tax credits (FTC) and the base erosion and anti-abuse tax (BEAT).

      “The TCJA has made America’s business environment more competitive. Tax cuts have led to companies bringing back close to a trillion dollars and creating countless opportunities for hardworking Americans,” said Treasury Secretary Steven Mnuchin.

      “Today’s guidance continues to modernise our tax system, ensure a thoughtful and deliberate transition from a worldwide towards a territorial system, protect the US tax base, and provide taxpayers with the clarity they need to plan and grow their businesses.”

      FTCs generally provide relief to US taxpayers paying or accruing foreign income taxes. Changes to the treatment of FTCs under the TCJA included adding new foreign tax credit limitation categories, providing new foreign tax credit rules related to the enactment of the global intangible low taxed income (GILTI) regime, and eliminating the fair market value asset valuation method for interest expenses.

      The proposed regulations include rules on the allocation and apportionment of research and experimental deductions that will generally allow taxpayers subject to the GILTI regime to increase their use of foreign tax credits.

      The final regulations finalise proposed regulations issued in December 2018. Those regulations include a rule treating certain assets as 50% exempt for expense allocation purposes, as well as rules on applying the new FTC limitation categories. This includes a taxpayer favourable elective transition rule for carryovers of FTCs.

      BEAT provides a backstop to prevent multinational enterprises from eroding the US tax base by unduly reducing their US tax liability. The final regulations provide detailed guidance regarding which taxpayers will be subject to the BEAT, how to determine base erosion payments, and the calculation of the base erosion minimum tax amount.

      The new proposed regulations also provide guidance on other operational aspects of BEAT. They provide a rule for applying BEAT when taxpayers elect to waive certain deductions, and provide additional guidance for applying the BEAT to groups of related taxpayers and to partnerships.

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