Owen, Christopher: Global Survey – April 2020

  • Australian Tax Office estimates ‘income tax gap’ for high-wealth residents
    • 12 March 2020, the Australian Tax Office (ATO) published, for the first time, an estimate of the tax due, but not paid, by non-compliant high-wealth individuals and groups. It found they had paid more than 92% of the total theoretical tax payable for 2016–17, leaving an estimated net income tax gap of 7.7% or A$772 million.

      High wealth private groups are defined as Australian resident individuals who, together with their associates, control wealth of more than A$50 million. For the purpose of estimating the gap, the ATO included registered individuals linked to high wealth private groups and companies where ownership by the head individual was 40% or more.

      The income of high wealth private groups included distributions from trusts and partnerships that were part of their structure. Companies with total business income greater than A$250 million were instead included in the large corporate groups income tax gap.

      The ATO found that in 2016–17 there were approximately 5,000 high wealth private groups, which comprised 9,000 individuals and 18,000 companies. In total, they paid A$9.3 billion in income tax and employed 780,000 employees.

      Internationally, tax gaps are difficult to compare, and Australia is the first jurisdiction to release a tax gap in relation to high wealth private groups.

      “The vast majority of high wealth private groups take their tax obligations seriously and are trying to do the right thing,” said ATO Deputy Commissioner Tim Dyce. “While we continue to observe a small number that are deliberately engaging in tax avoidance, we are confident that our compliance strategies are tackling the bad behaviour we see from higher-risk taxpayers and their agents.

      “From 1 July 2020 we will be expanding the work of the Tax Avoidance Taskforce and as part of this we are introducing a new programme focusing on high wealth private groups and engaging early to help them get it right. Those seeking to obtain an unfair advantage by avoiding their tax obligations will attract our full attention and will be the subject of strong enforcement action.”

  • Bank Hapoalim says to pay US$870 million to end US tax probe
    • 18 March 2020, Bank Hapoalim said it expected to pay a total of US$870 million to close a US investigation into whether the bank helped its clients avoid paying taxes. Israel’s biggest lender said in a regulatory filing that it would increase its provision in the fourth quarter to US$259 million, in addition to US$611 million it had already set aside.

      For several years, US authorities, including the US Department of Justice (DOJ) and the New York Department of Financial Services, have been investigating accusations that the Israeli bank helped US clients evade taxes.

      "Recently, the bank group and each of the DOJ and bank regulatory teams handling the investigations have extensively negotiated the terms of resolutions, which, once approved by the US authorities and the bank group and finalised, would resolve the investigations," Hapoalim said.

      The settlement would be a deferred prosecution agreement, the bank said. Its subsidiary in Switzerland will sign a plea agreement with the DOJ relating to its business with its US customers.

      Hapoalim also said it expects to pay US$30 million in a non-prosecution agreement, which it will provision in the fourth quarter, to settle a US probe into alleged corruption involving officials from world soccer's governing body, FIFA.

      Israel’s Bank Leumi agreed to pay US$400 million in 2014 to settle two separate US investigations into whether it helped US clients evade taxes, while Mizrahi Tefahot Bank paid US$195 million a year ago to settle a five-year US tax evasion investigation.

  • BVI Court grants Norwich Pharmacal relief in support of foreign proceedings
    • 10 March 2020, the BVI Commercial Court declined to follow two recent English decisions and ruled that it does have equitable jurisdiction to grant Norwich Pharmacal disclosure orders even though BVI has a statutory regime for obtaining evidence for use in foreign proceedings.

      In K & S v Z & Z BVIHCM(COM) 2020/0016, the applicants were each seeking disclosure in separate proceedings from two BVI registered agents who acted for a number of BVI companies. They had good reason to suppose that some or all of the BVI companies held assets that would be available for enforcement of overseas court judgments or an arbitration award respectively, when these had been determined.

      The BVI Court had already made freezing orders against the BVI companies involved including ancillary disclosure orders to police compliance with the freezing orders. The BVI companies had failed to provide any disclosure at all pursuant to these orders. The applicants therefore applied for relief in support of the overseas court proceedings, and/or the overseas arbitration and/or in support of the BVI Court's freezing orders.

      In Ramilos Trading Ltd v Buyanovsky [2016] EWHC 3175 (Comm) Flaux J in the English Commercial Court found that the existence of the statutory regime to obtain evidence for foreign proceedings contained in the UK's Evidence (Proceedings in Other Jurisdictions) Act 1975 excluded the availability of Norwich Pharmacal relief for the purposes of foreign proceedings.  Ramilos followed the earlier English Court of Appeal decision in R (Omar) v Secretary of State for Foreign Affairs [2013] EWCA Civ 118 that had reached the same conclusion in the context of the UK's Crime (International Co-operation) Act 2003.

      Since the BVI's own Evidence (Proceedings in Foreign Jurisdictions) Act 1988 is in the same terms as the UK's 1975 Act, there was an obvious concern that the BVI would adopt the same statutory interpretation as the English courts and find that the Court did not have jurisdiction to make Norwich Pharmacal orders for the purposes of foreign proceedings.

      In K&S, Wallbank J was persuaded by the obiter comments of the Privy Council in the Guernsey case of President of the State of Equatorial Guinea & ors v The Royal Bank of Scotland International & ors [2006] UKPC 7, that offshore jurisdictions should: "…avoid creating the reputation that [they are] a safe haven for the non-disclosure of information which might otherwise assist in the establishment of liabilities elsewhere – evasion in effect."

      Wallbank J also identified a separate basis for the jurisdiction – the Eastern Caribbean Court of Appeal decision in A, B, C, D v E, which found that a Norwich Pharmacal order was a type of injunction and that the Supreme Court Act "empowers the court to grant injunctions ‘in all cases in which it appears to the Court or judge to be just or convenient'".

      Wallbank J then considered the authorities as to whether Norwich Pharmacal orders are final or interlocutory. If interlocutory, then he concluded that s24(1) BVI Supreme Court Act provides a further, statutory, basis for the jurisdiction to make a standalone Norwich Pharmacal order in the BVI. Wallbank J relied on the Black Swan jurisdiction as confirmed by the Eastern Caribbean Court of Appeal in Yukos CIS Investments Limited et al. v Yukos Hydrocarbons Investments Limited et al.

      There were three bases for the application in K&S – in support of foreign proceedings, arbitral proceedings and the BVI court's freezing orders. Wallbank J did not set out his reasons for granting relief other than in support of foreign proceedings, but in setting out his conclusion to determine the applications in the applicants' favour he expressly identified all three grounds.

  • BVI issues statement on functionality during Covid-19
    • 18 March 2020, the BVI International Tax Authority issued a statement that it did not propose to make any changes to previously announced deadlines in respect of reporting under the Common Reporting Standard, Foreign Account Tax Compliance Act, Country-by-Country Reporting, Economic Substance (ES) and Exchange of Information on Request domestic legal frameworks.

      The ITA said it would be monitoring the international landscape and would consider any appropriate adjustments in the event that applicable international deadlines were modified.

      On 27 March, it issued further particulars to be considered in respect of ES requirements, as follows:

      -Where possible, recourse should be had to the appointment of alternate directors in the BVI in order to meet substance requirements;

      -All directors do not have to attend Board meetings in the BVI -– only as many as required to make the meeting quorate (given social distancing protocols, virtual meetings may be preferred);

      -Not all Board meetings need to be held in the BVI – only those related to core income generating activities;

      -Where it is still not possible to have a Board meeting in the BVI or to meet some other substance requirement due to restrictions (whether in the BVI or otherwise) due to the Covid-19 outbreak, then entities are urged to retain documentation to be able to support such claims for the applicable periods of time affected;

      -Individual requests should be made to the ITA for any extension of time within which to comply with Notices, along with any supporting evidence.

      Entities should note that this is only a temporary arrangement and are therefore urged to make every effort to otherwise comply with full substance requirements (including filing deadlines) as the practical and reasonable approach described above can only obtain where entities need to make adjustments to their usual operating practices and so far as these are necessary to manage threats from the Covid-19 outbreak.

  • Cayman provides extensions for annual returns and ES notifications
    • 25 March 2020, the Cayman Islands’ Registrar of Companies (ROC) and Department for International Tax Cooperation (DITC) announced an extension to the deadlines for entities to complete their annual returns and Economic Substance Notification (ESN) filings until 30 June.

      The extension will apply to all companies, including limited liability companies and foundation companies. Penalties for failure to file will only apply as of 1 July. The ESN submission is now mandatory for companies filing an annual return.

      The ROC will also accept affidavits or other documents that have been notarised or certified online or utilising audio-video technology during this time.

      The annual filing extensions are the latest measures to help the financial services industry in the face of COVID-19. General Registry previously announced a one-month extension for beneficial ownership (BO) submissions to 20 April. This was to allow corporate service providers (CSPs) to retrieve information from their overseas clients, as well as to give the BO digital platform time to come online and for CSPs to transition to making electronic filings.

      “Due to the circumstances, the Cayman Islands Government is considering a number of ways and has taken a number of initiatives to ensure that ‘business as usual’ can continue in these unusual times,” said Financial Services Minister Tara Rivers.

  • CJEU rules that freedom of establishment does not guarantee tax neutrality
    • 27 February 2020, the Court of Justice of the European Union (CJEU) determined that the principle of freedom of establishment does not require a Member State to take into account tax losses accrued by a company in the Member State of prior tax residence

      In Aures Holdings a.s. v Odvolací finanční ředitelství (C-405/18), the case concerned a Dutch company that incurred tax losses in the Netherlands for more than €2 million in tax year 2007. In 2009, the company transferred its place of effective management to the Czech Republic and became tax resident there.

      Aures later submitted a claim to deduct the losses generated in 2007 in the Netherlands against its Czech taxable profits for the 2012 tax period. The Czech tax authority rejected the claim on grounds that Czech law did not allow for the deduction of a tax loss in the event of a change in tax residency and did not provide for the transfer of such a loss from any Member State other than the Czech Republic.

      The company appealed, arguing that it had exercised the freedom of establishment when transferring its place of effective management from the Netherlands to the Czech Republic and that the restriction on the utilisation of tax losses incurred in the Netherlands amounted to an unjustified restriction on that freedom. The Supreme Administrative Court in the Czech Republic requested a ruling from the CJEU.

      The CJEU said that the exclusion of a loss incurred by a company before it transferred its tax residency to the Czech Republic represented a difference in tax treatment when compared against a Czech incorporated and tax resident company that incurred losses in the same tax year. This difference potentially represented a restriction on the freedom of establishment that could only be permissible if it related to cases that were not objectively comparable or if it was justified by an overriding reason in the public interest.

      The Court determined, however, that a company that had incurred a loss in a Member State was not in a comparable situation to a company that had transferred its place of effective management to that host Member State and was seeking to utilise losses incurred in its Member State of origin. It noted that the Czech Republic had not asserted taxing rights over the claimant company in the period in which the loss was incurred because the company had been tax resident in the Netherlands and did not have a permanent establishment in the Czech Republic at that time.

      The Court held that the freedom of establishment did not preclude the national legislation of a Member State from excluding the possibility for a company that had transferred its place of effective management and tax residency from claiming a tax loss incurred, prior to that transfer, in another Member State, in which it has retained its registered seat.

      The full judgment of the CJEU can be accessed at https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:62018CJ0405&from=EN

  • Court of Appeal rules on beneficiaries’ rights under the Data Protection Act
    • 11 March 2020, the Court of Appeal, allowing an appeal under the Data Protection Act 1998 (DPA), ordered the international law firm Taylor Wessing to hand over documents containing personal data about the beneficiaries of a multi-million-dollar fund in the Bahamas. It held that the international law firm, which acts for the fund’s trustee, could not rely on privilege because, under English law, beneficiaries enjoy joint privilege with their trustees in respect of advice taken by the trustees for the benefit of the trust.

      In the case of Dawson-Damer v Taylor Wessing [2020] EWCA Civ 352, the claimants were Mrs Ashley Dawson-Damer and her children Piers and Adelicia, who were (or had been) beneficiaries of certain Bahamian trusts. They had discovered that substantial funds had been paid out of one of the trusts for the benefit of other beneficiaries, potentially in breach of trust.

      Before issuing breach of trust proceedings in the Bahamas, they served Subject Access Requests under the DPA on a number of people connected to the trust, including individual fiduciaries and law firm Taylor Wessing, which acted for both the individual fiduciaries and the trustee.

      The appeal arose from a judgment that Andrew Hochhauser QC, sitting as a Deputy High Court Judge, handed down in May 2019, in respect of two principle questions: whether trustees can maintain legal professional privilege (other than litigation privilege) against beneficiaries; and whether paper files are a “relevant filing system” for the purposes of the DPA and need not be searched for the personal data of a person who submits a Subject Access Request.

      At first instance, the court held that the effect of s.83(8) of the Bahamian Trustee Act 1998, which enables a trustee to refuse to disclose information concerning the exercise of its fiduciary discretions, was to remove joint privilege as between a trustee and a beneficiary. It therefore entitled Taylor Wessing to rely on the exemption for legally privileged material under paragraph 10 of schedule 7 DPA.

      The Court of Appeal disagreed: “In our view, ‘joint privilege’ arises as a matter of procedural law rather than trust law and its scope therefore falls to be determined on the basis of domestic principles rather than Bahamian law. It follows that the Bahamian Trustee Act is of no significance.”

      The Court confirmed the principle that under English law a beneficiary is in a position of joint privilege with a trustee and that personal data sought by a trust beneficiary under a subject access request under the DPA cannot be withheld on the grounds of legal advice privilege belonging to the trustee. Only in circumstances where privilege can be asserted under English Law will the privilege exemption be available as a basis for non-disclosure.

      The decision means that Mrs Dawson-Damer will now receive further data which was previously incorrectly withheld on the grounds of privilege. However, the Court of Appeal also allowed a cross-appeal concerning the status of certain paper files which it held do not constitute a ‘relevant filing system’ under the DPA.

      The full Court of Appeal judgment can be accessed at https://www.bailii.org/ew/cases/EWCA/Civ/2020/352.html


  • Germany and France publish draft MDR guidance
    • 4 March 2020, the German Ministry of Finance published a draft decree containing guidance on the final German Mandatory Disclosure Rules (MDR) legislation for public consultation. Designed to implement the EU Directive on the mandatory disclosure and automatic exchange of cross-border tax arrangements (DAC6), it is expected that the final decree will be published by the end of June.

      The newly issued draft decree provides further clarity on the Ministry’s interpretation of the scope, hallmarks and reporting procedure and confirms that the German MDR legislation is broadly aligned with the requirements of the Directive. It also contains a so-called ‘white list’ of arrangements that are in principle not reportable.

      Due to delays in the establishment of the reporting interface connection at the German Federal Central Tax Office (BZSt), a one-time extension will be granted until 30 September 2020 for the submission of the first reports.

      On 9 March, the French Tax Authorities (FTA) also published detailed draft guidance on the interpretation of the French Mandatory Disclosure Rules (MDR) for public consultation. The draft clarifies the definitions of the terms in the Directive and sets out how the FTA anticipates the reporting process to operate.

      It further provides some details regarding the information to be reported, although more details are expected to be provided in a decree that will be published shortly. Additional draft guidance, dedicated to hallmarks, will be published at a later stage, which will also be subject to a public consultation.

  • Global Forum’s new AEOI peer review group holds first meeting
    • 19 March 2020, the recently established Automatic Exchange of Information Peer Review Group (APRG) held its first meeting to take forward work on ensuring the effective implementation of the Standard for Automatic Exchange of Financial Account Information (AEOI) in Tax Matters.

      The APRG, which comprises 34 members of the Global Forum on Transparency and Exchange of Information for Tax Purposes, said substantial progress had been made in establishing a framework to finalise the first round of peer reviews in relation to the AEOI Standard.

      With many jurisdictions having commenced exchanges under the AEOI Standard in 2017 and with the first widespread exchanges amongst almost 100 jurisdictions in 2018, covering total assets of USD 4.9 trillion, the move to AEOI has been a step change in the international community’s ability to improve tax compliance.

      Due to the developing coronavirus emergency, and in compliance with the measures implemented by France – the Global Forum’s host country – on steps being taken to contain the epidemic, this was the first ever Global Forum meeting to be conducted entirely remotely. Over 90 delegates from around the world participated in the virtual meeting.

  • Global Witness cites poor implementation of AMLD5
    • 20 March 2020, anti-corruption campaign group Global Witness called on the European Commission to get tough with the Member States that have failed to properly implement the 5th AML Directive (AMLD5). Member States were obliged to transpose into national law by 20 January 2020.

      AMLD5, which entered into force on 9 July 2018, was intended to Improve transparency on the real owners of companies by making beneficial ownership registers for legal entities, such as companies, publicly accessible. The need to demonstrate a legitimate interest for access was to be eliminated except for trusts and similar legal arrangements.

      Global Witness found that just five of the EU’s 27 countries – Bulgaria, Denmark, Latvia, Luxembourg and Slovenia – had properly set up beneficial ownership databases that could be consulted by the public. The UK was also judged to have set up a publicly-accessible database.

      However Global Witness said 17 EU states either did not have a register or had registers that could not be considered publicly accessible, including:

      -Six countries – Czechia, Finland, France, Portugal, Romania and Spain – that have a register but only make it available to people that can demonstrate legitimate interest or purpose of use;

      -Four countries – Belgium, Croatia, Portugal and Sweden – that make the register available only to citizens or residents of a few European countries;

      -Eight countries – Cyprus, Greece, Hungary, Italy, Lithuania, Malta, Netherlands and Slovakia – that either do not appear to have any beneficial ownership register as yet or have one that is not available to members of the public with a legitimate interest.

      Furthermore, in seven EU countries, including Germany and the Irish Republic, the register was only available in return for a fee. And in two cases – Portugal and Greece – searching for a company triggered an alert to the owners of that entity.

      Global Witness campaigner Tina Mlinaric said: “Transparency over company ownership is a key tool in fighting corruption, in an age where the corrupt have exploited global financial secrecy to move around large sums of stolen wealth. It’s disappointing that despite having two years to get this right many of those in the EU are still dragging their feet.”

  • Luxembourg passes Law to implement Mandatory Disclosure Rules
    • 21 March 2020, the Luxembourg Parliament approved a draft law implementing the EU Directive on the mandatory disclosure and exchange of cross-border tax arrangements (DAC6). It will be effective as of 1 July 2020.

      DAC6 requires intermediaries – including EU-based tax consultants, banks and lawyers – and, in some cases taxpayers, to report certain cross-border arrangements (reportable arrangements) to the relevant EU member state tax authority from 1 July 2020. The regime applies to all taxes except value added tax (VAT), customs and excise duties, and compulsory social security contributions.

      Cross-border arrangements are reportable if they contain certain ’hallmarks’, which cover a broad range of structures and transactions, and where the first step was implemented during the transitional period between 25 June 2018 – when the Directive entered into force – and 1 July 2020. The deadline for the first reporting in respect of the transitional period is 31 August 2020.

      The final Luxembourg Mandatory Disclosure Rules (MDR) are broadly aligned with the requirements of the Directive, except for the provisions in respect of the reporting exemption based on legal professional privilege.

      Under the original Bill, lawyers acting within the limits applicable to the exercise of their profession were the only intermediaries to benefit from the reporting exemption. However, the State Council requested in January that this should be extended to all intermediaries bound by professional secrecy in the field of tax advisory services; notably, auditors and qualified accountants.

      Intermediaries exempted from their reporting obligations instead have an obligation to inform, within 10 days of the key date, any other intermediary or the taxpayer, of their respective reporting obligations. The latter will then have to file the report, within 30 days of the same key date, to the Luxembourg tax authorities.

  • Luxembourg tax deductibility to be denied for parties in blacklisted countries
    • 30 March 2020, the Luxembourg government published a draft bill to introduce measures to deny the tax deduction of interest and royalty payments made to affiliated parties located in any of the countries found on the EU List of Non-Cooperative Jurisdictions for Tax Purposes. If approved, measures should apply as from 1 January 2021.

      The draft bill follows a resolution of the EU’s Economic and Financial Affairs Council (ECOFIN) on 5 December 2019, requiring EU Member States to introduce legislative defensive measures for countries that are on the EU blacklist. Luxembourg companies are currently only required to disclose any intragroup transactions made with entities located in blacklisted jurisdictions in their tax returns.

      The draft bill aims to modify article 168 of the Luxembourg Income Tax Law to provide that interest and royalty payments made to or due to a related collective entity established in a blacklisted jurisdiction, would become non-deductible expenses for both corporate income tax and municipal business tax purposes, unless the taxpayer is able to demonstrate that they were incurred in respect of transactions carried out for valid commercial reasons and that reflect economic reality.

      The explanatory memorandum states that in order for transactions to be accepted as valid, economic reasons must, having regard to all relevant facts and circumstances, be capable of being judged to be real and presenting a sufficient economic advantage, beyond any tax benefit obtained. If such evidence is provided by the taxpayer, the defensive measure introduced by this draft bill should not apply.

  • New changes to India’s tax residency rules
    • 23 March 2020, the Indian parliament approved a final version of the Finance Act 2020, which contained a significant dilution of proposed new residency tests that were first announced as part of India's 2020 federal budget on 1 February. The Act received presidential assent on 27 March.

      Under the original proposals, non-resident Indians (NRI) and persons of Indian origin (PIO) were to be deemed tax resident if they were in India for only 120 days in the relevant year, rather than the current 182 days, with effect from 1 April 2020.

      Indian citizens who were not tax resident in any other jurisdiction were also to be deemed Indian tax residents if they received income from a business or profession in India, bringing their worldwide income into India's tax net.

      Significant changes have been made to the new residency tests in the final Act. NRIs and PIOs will continue to be treated as residents and liable to Indian income tax on their worldwide dividends at 43% if they spend more than 181 days of the year in India. However they may now be deemed to be resident if their income from sources in India exceeds INR 1.5 million in any year and their time spent in India is at least 120 days in the relevant year and 365 days in the last four years.

      The proposal to deem Indian citizens as Indian tax resident if they are not liable to tax in any other country, regardless of whether such individual meets the residency test laid out above, has also been dropped.

      The new rules retain the existing criteria for ‘resident who is not ordinarily resident’ (RNOR), but with two additions. NRIs or PIOs whose income from sources in India exceeds INR 1.5 million in any year may be considered as a RNOR if they spend between 120 to 182 days of the year in India. NRIs who are deemed to be resident because they live in a zero tax country would also be treated as RNORs.

      Unlike ordinary residents, RNORs are taxed on income sourced in India or foreign source income derived from a business controlled in India. RNORs are not required to disclose overseas trusts, bank accounts or financial interests.


  • OECD issues second peer review on preventing treaty shopping
    • 24 March 2020, the OECD released the second peer review assessing countries’ efforts to implement the Action 6 minimum standard on the prevention of treaty shopping as agreed under the OECD/G20 base erosion and profit shifting (BEPS) project.

      The report included the aggregate results of the peer review and data on tax treaties concluded by each of the 129 jurisdictions that were members of the OECD/G20 Inclusive Framework on BEPS (IF) on 30 June 2019. There were a total of 2,145 agreements between IF members, and about 1,020 agreements between IF members and non-members.

      The results of the peer review indicated that the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) was the tool that most IF members were using to implement tax treaty-related BEPS measures. Currently 94 jurisdictions have signed the MLI, 43 jurisdictions have deposited the instrument of ratification and the MLI has entered into effect for around 290 covered tax agreements.

      The review found that, as of 30 June 2019:

      -91 IF members had begun to update their bilateral treaty network and were implementing the minimum standard;

      -An additional seven jurisdictions – Angola, the Bahamas, the Cayman Islands, the Cook Islands, Djibouti, Haiti and Turks & Caicos Islands – had no comprehensive tax agreements in force subject to the peer review;

      -Six jurisdictions, – Bahrain, Jordan, Lebanon, North Macedonia, Thailand and Vietnam – had expressed an intention to sign the MLI in the future;

      -31 jurisdictions had not signed any complying instruments to implement the minimum standard.

      According to the report, 86 bilateral agreements between IF members were in compliance with the minimum standard as of 30 June 2019. An additional 14 agreements with non-IF members that were not subject to the review also complied with the minimum standard.

      The first peer review was conducted in 2018 and covered the 116 jurisdictions that were members of the IF on 30 June 2018. The IF plans to evaluate the agreed methodology for the peer review of the implementation of the minimum standard on treaty shopping in 2020 based on the experience in conducting reviews in 2018 and 2019. That evaluation will be focused on the peer review methodology and not on the minimum standard of Action 6 itself.


  • Panama publishes law to create beneficial owner register
    • 21 March 2020, the Panamanian government brought Law 129 of 2020 into force to provide for the creation of a registry of ultimate beneficial owners of legal entities.

      Under the law, resident agents are required to register information on legal entities and their ultimate beneficial owners within 30 days of an entity's registration in the Public Registry of Panama or within 30 days of the date the agent is appointed. Changes in information must also be registered within 30 days of a change.

      An ultimate beneficial owner is defined as any individual who directly or indirectly owns or controls, or has a significant influence on, the business or individual benefitting from a transaction, including individuals who ultimately control the legal entity’s decisions or have a significant influence on accounts and contracts. The law also contains criteria for determining possession, control or influence over a legal entity.

      Failure to fulfill the register obligations will result in penalties of USD1,000 to 5,000 for the agent, which may be increased by 10% for each day the failure continues up to six months. Legal entities may also be suspended from Panama's Public Register of companies if the resident agent fails to register the required information. In such cases, a legal entity will be allowed to change their resident agent in order to comply.

      Under transitional rules, any lawyer providing professional services as a resident agent to one or more entities incorporated in Panama must register with the Superintendence of Non-Financial Institutions to obtain a unique registry code to access the beneficial owner register and complete the information required for each legal entity.

      The Superintendence is required to implement the required measures within six months. It is also required to issue a notification, after which resident agents will have six months to register the required information in respect of existing legal entities.

      Access to the registry will be limited to approved resident agents of legal entities and officials of the Superintendence, who may make required information available to the competent authorities in respect of the prevent money laundering and the financing of terrorism, and in compliance with Panamanian laws and international co-operation obligations established in treaties or conventions ratified by Panama.

  • Seychelles to reform business tax regime in line with OECD recommendations
    • 12 March 2020, the Seychelles government announced that it was preparing a series of reforms to realign its business tax regime in line with recommendations of a Tax Policy Review report which was published by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. The proposals will be presented at the end of April.

      The Seychelles government sought the assistance of the OECD in March 2019, to review its tax system and devise a business tax regime that was simple and did not discriminate against certain sectors. The report was launched via Skype from France as the authors were unable to travel to Seychelles due to the coronavirus outbreak.

      Currently, Seychelles business tax rates on profits vary between 15% for the tourism, agriculture and fisheries sector; 25 to 30% for small- to medium-sized businesses; and 33% for the largest businesses. As a result, the tax burden is heavily concentrated on a small number of companies, with 30 companies accounting for almost 80% of total business tax payments.

      The OECD recommended that the Seychelles should “realign business tax rates across sectors” to ensure a more evenly distributed business tax burden. This would entail lowering statutory tax rates on many operators while increasing tax levels on those that currently contribute little to the collection of revenues.

      Minister for Finance, Trade, Investment and Economic Planning Maurice Loustau-Lalanne said: "There is a need therefore to bring some uniformity, fairness and equity in our business tax regime. The need to harmonise the business tax rates in the coming years by applying a new business tax rate schedule that applies to all businesses is our top priority.”

      The OECD acknowledged that the Seychelles had made significant tax reforms in recent years, notably in reforming its preferential tax system for international companies in 2017. However, it further recommended that the government should phase out or scale back its International Trade Zone regime, which provides tax incentives to international businesses, and discourage “aggressive corporate tax avoidance” by introducing measures in line with the OECD's base erosion and profit shifting (BEPS) project.

      The report follows two consultative meetings held in Seychelles in July and October last year with all business sectors. The government said that not all OECD recommendations would be implemented. The Finance Ministry will present its proposals to the government at the end of April.


  • UK updates Statutory Residence Test guidance for coronavirus
    • 9 March 2020, the UK government issued new guidance to non-UK resident individuals in cases where the coronavirus (COVID-19) pandemic impacts their ability to move freely to and from the UK or, requires them to remain unexpectedly in the UK for longer than intended in respect of UK residency.

      The Statutory Residence Test (SRT) was introduced in the Finance Act 2013 with the aim of clarifying UK residence for tax purposes. Where an individual is in the UK for 183 days or more in a tax year they will always be resident, irrespective of the reasons for being here.

      However, it is possible to disregard up to 60 days spent in the UK due to ‘exceptional circumstances’ that are beyond the individual’s control. Whether days spent in the UK can be disregarded due to ‘exceptional circumstances’ will always depend on the facts and circumstances of each individual case.

      The updated guidance in respect of the coronavirus measures states that the circumstances will be considered as ‘exceptional’ if the individual is:

      -Quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus;

      -Advised by official government advice not to travel from the UK as a result of the virus;

      -Unable to leave the UK as a result of the closure of international borders; or

      -Asked by his/her employer to return to the UK temporarily as a result of the virus.

  • US charges Russian bank founder with tax fraud
    • 5 March 202, the Tax Division of the US Department of Justice unsealed an indictment for filing false tax returns against Oleg Tinkov, the founder of Russian online bank Tinkoff, following his arrest in London.

      Tinkov appeared at Westminster Magistrates Court after US prosecutors issued a provisional arrest warrant. He paid a £20 million bail charge to stay out of jail while contesting extradition proceedings to the US.

      According to the indictment, Tinkov was the indirect majority shareholder of the online bank, which was launched in 2006 and had expanded from credit cards to full-service retail banking. The indictment alleges that, as a result of an initial public offering (IPO) on the London Stock Exchange in 2013, Tinkov himself beneficially owned more than USD1 billion worth of the bank’s shares.

      The indictment further alleges that three days after the IPO, Tinkov renounced his US citizenship – a taxable event requiring Tinkov to report the constructive sale of his worldwide assets and the gain on the sale to the Internal Revenue Service (IRS) and pay any tax on the gain to the IRS.

      Although Tinkov allegedly beneficially owned more than USD1 billion of shares in TCS, Tinkoff’s holding company, at the time of his expatriation through a British Virgin Island structure, the indictment charges that Tinkov filed a false 2013 tax return with the IRS that reported income of less than USD206,000, and a false 2013 Initial and Annual Expatriation Statement reporting that his net worth was USD300,000.

      If convicted, Tinkov faces a maximum sentence of three years in prison on each count. He also faces a period of supervised release, restitution, and monetary penalties. An indictment merely alleges that crimes have been committed.


  • US extends federal income tax filing and payment deadlines
    • 21 March 2020, the US Treasury Department and Internal Revenue Service (IRS) announced that the federal income tax filing due date was to be automatically extended from 15 April to 15 July 2020.

      Taxpayers can also defer federal income tax payments due on 15 April 2020 to 15 July 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

      Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual and business taxpayers that need additional time to file beyond the 15 July deadline, can request a filing extension by filing Form 4868 or Form 7004 respectively.

      The IRS urged taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.

      The announcement followed President Trump's emergency declaration under the 1988 Stafford Act, which is a law designed to bring an orderly and systematic means of federal natural disaster and emergency assistance for state and local governments in carrying out their responsibilities to aid citizens. The IRS will continue to monitor issues related to the COVID-19 virus and to post updated information on a special coronavirus page on IRS.gov.


  • US remains in enhanced follow-up by the FATF
    • 31 March 2020, the United States is now compliant on 9 of the 40 Financial Action Task Force (FATF) Recommendations, according to its third enhanced follow-up report to its mutual evaluation report (MER), which was adopted in October 2016, and ‘largely compliant’ on 22 of them.

      However the US is still only ‘partially compliant ‘on five Recommendations and ‘not compliant’ on a further four, which means that it remains in enhanced follow-up and must continue to report back to the FATF on its progress in addressing technical compliance deficiencies that were identified in its MER..

      The US has subsequently taken a number of actions to strengthen its framework of measures to tackle money laundering and terrorist financing and has reported back in line with the FATF procedures. It did not request technical compliance re-ratings during its first or second follow-up reports.

      To reflect US progress, the FATF has re-rated the country on Recommendation 10 – Customer Due Diligence – from ‘partially compliant’ to ‘largely compliant’.

      The report also looks at whether the US measures met the requirements of FATF Recommendations that have changed since the 2016 mutual evaluation. The FATF agreed to maintain the rating of compliant for Recommendation 2 (National cooperation and coordination), Recommendation 5 (Terrorist financing offence) and Recommendation 21 (Tipping-off and confidentiality).

      The FATF also maintained the rating of ‘largely compliant’ for Recommendation 7 (Targeted financial sanctions related to proliferation), Recommendation 8 (Non-profit organisations), Recommendation 15 (New technologies) and Recommendation 18 (Internal controls and foreign branches and subsidiaries).

      As a result the US is now compliant on 9 of the 40 Recommendations, ‘largely compliant’ on 22, ‘partially compliant’ on five and ‘not compliant’ on four. The United States to strengthen its implementation of Anti-Money Laundering / Countering the Financing of Terrorism measures.

      Enhanced follow-up is based on the FATF’s policy in dealing with members with significant deficiencies (for technical compliance or effectiveness) in their AML/CFT systems, and involves a more intensive process of follow-up.

      The latest report does not address what progress the US has made to improve its effectiveness. A later follow-up assessment will analyse progress on improving effectiveness, which may result in re-ratings of immediate outcomes at that time.

  • US sanctions Chinese nationals for alleged cryptocurrency laundering
    • 2 March 2020, the US Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions against two Chinese nationals for allegedly laundering over US$100 million in stolen cryptocurrency connected to a North Korean state-sponsored cyber group that hacked cryptocurrency exchanges in 2018.

      According to OFAC, Tian Yinyin and Li Jiadong “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a malicious cyber-enabled activity” or in support of the North Korean Lazarus Group, which was designated by OFAC last September.

      As a result of the sanctions under Executive Orders 13694, 13757 and 13722, “all property and interests in property of these individuals that are in the US or in the possession or control of US persons must be blocked and reported to OFAC.”

      OFAC further noted that its regulations “generally prohibit all dealings by US persons or within the United States (including transactions transiting the US) that involve any property or interests in property of blocked or designated persons,” and warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to the designated individuals may subject them to US correspondent account or payable-through sanctions.

      “The North Korean regime has continued its widespread campaign of extensive cyber-attacks on financial institutions to steal funds,” said Secretary Steven Mnuchin. “The US will continue to protect the global financial system by holding accountable those who help North Korea engage in cyber-crime.”

      On the same day, the DOJ issued a two-count indictment against Tian and Li, charging them with money laundering conspiracy and operating an unlicensed money transmitting business. The indictment claims that the individuals converted virtual currency traceable to the hack of a cryptocurrency exchange into fiat currency or prepaid Apple iTunes gift cards through accounts in various exchanges linked to Chinese banks and then transferred the currency or gift cards to customers for a fee.

      According to the indictment, neither individual was registered as a money transmitting business with the Financial Crimes Enforcement Network, which is a federal felony offence. The complaint seeks forfeiture of 113 virtual currency accounts belonging to the individuals.

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