14 August 2013, the General Council approved a new law providing for the implementation of a new fiscal framework. The law, which replaces the existing Law of 19 December 1996, strengthens the resources and mechanisms to enable the Tax Administration to optimise tax collection.
The law provides for the inclusion of a limited tax liability, as a mechanism with which to pursue tax debt, and introduces a system to enable the authorities to determine the amount of tax due in cases where the necessary information has not been provided. The draft law will be accompanied by further legislation to adapt and unify the administrative units responsible for the management and collection of taxes.
The government said the new law was required to accommodate the imposition of new types of taxes as part of efforts to open up the country’s economy and gain international acceptance after pressure from the OECD. In July, the government announced details of a bill, providing for the introduction of a tax on individual income – l’Impost sobre la Renda de les Persones Físiques (IRPF).
The IRPF will apply to anyone who lives in the principality for at least 183 days in a calendar year. The first €24,000 of Andorran-sourced income will be tax free, with the next €16,000 taxed at 5%. The balance of income exceeding that initial €40,000 will be taxed at 10%. There is no inheritance or wealth tax and there is also no capital gains tax on property held for more than 12 years.
The Andorran government also relaxed its residency and investment laws last year to make the country more attractive to foreign investors. A person now must spend 90 days a year in the principality to qualify for residency, compared with the previous 180-day requirement. Also, foreigners now have the same property ownership rights as citizens.
In addition, three new categories of residency permits were introduced. Anyone who is retired or at least not working in Andorra can obtain a permit in the first category by making a financial investment in the country of at least €400,000, which can include a property purchase. There is also a professional permit, which applies to business owners who live in Andorra but operate businesses elsewhere, and a permit for international sports, artistic and scientific professionals.
Andorran Prime Minister Marti Petit said it would be “unfair and irresponsible” not to subject personal income to taxation given other taxes that have already been introduced in Andorra, notably corporation tax (IS), the tax on economic activities (IAE), the levy on non-resident income (IRNR) and the general indirect tax (IGI).
27 August 2013, China joined the group of more than 50 developed and developing countries, including all G20 members that are signatories to the Convention on Mutual Administrative Assistance in Tax Matters. Through the Convention, China will participate in global efforts to combat tax avoidance and evasion by co-operating with other states in the assessment and collection of taxes.
14 April 2013, President Nicos Anastasiades announced that Cyprus would relax requirements for citizenship for foreign investors who have lost at least €3 million under the bank bailout deal agreed with the European Union.
In order to secure the €10 billion in aid from the International Monetary Fund and the European Union, Cyprus agreed to wind up one major bank, Laiki Bank, and write-off of a large portion of secured debt and uninsured deposits in the largest bank, Bank of Cyprus, in a move that was devastating to both Cypriots and foreign investors. Euro zone finance ministers approved the deal on 12 April.
President Anastasiades said non-resident investors who held deposits prior to 15 March – when the plan to impose losses on savers was first formulated – and who lost at least €3 million would be eligible to apply for Cypriot citizenship.
Cyprus’s existing “citizenship by investment” programme will be revised to reduce the amount of investment required to be eligible from €10 million to €3 million. The president said he would also drop requirements for citizenship applicants to keep €15 million in Cypriot banks for five years, saying they would be allowed immediate access to their money.
“These decisions will be deployed in a fast-track manner,” Anastasiades said. Other measures were also under consideration, he said, including offering tax incentives for existing or new companies doing business in Cyprus. Cyprus has been obliged to increase its corporate tax rate from 10%, which had been the lowest in the euro zone, to 12.5%.
20 July 2013, finance ministers from the G20 group of countries backed, at a summit in Moscow, a new single global standard for automatic exchange of information between jurisdictions. The new standard, based on a three-tier proposal by the Paris-based Organisation for Economic Co-operation and Development (OECD), is due to be operational in 2014.
The three-tier proposal provides for:
A definition of the financial information to be exchanged automatically – interest, dividends, account balance and income from certain insurance products. It also includes sales proceeds from financial assets and other income generated by assets or from payments made with respect to the account.
The development of an operational platform. For automatic exchange of information to function effectively, the right legal and administrative framework needs to be in place to ensure confidentiality and to avoid misuse of the data transmitted. Common reporting and due diligence rules, supported by compatible technology and software, will be developed in the coming months.
The establishment of a multilateral, legal platform. Building on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which has been signed by more than 70 jurisdictions, including all G20 countries, the OECD seeks the development of a standardised agreement to allow signatories of the Multinational Convention to opt into automatic exchange of information. Developing such a model agreement could be completed by the end of 2013, with detailed guidance available in the first half of 2014, according to the report.
“We call on all jurisdictions to commit to implement this standard. We are committed to making automatic exchange of information attainable by all countries, including low-income countries, and will seek to provide capacity building support for them. We call on all countries to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters without further delay. We look forward to the practical and full implementation of the new standard on a global scale,” a G20 statement said.
The G20 also gave its backing to a 15-point Action Plan on Base Erosion and Profit Shifting (BEPS) presented by the OECD, which includes measures such as obliging companies to pay tax where their sales are made and encouraging more transparency about their tax arrangements.
The actions outlined in the plan will be delivered in the coming 18 to 24 months by the joint OECD/G20 BEPS Project, which involves all OECD members and G20 countries on an equal footing. To ensure that the actions can be implemented quickly, a multilateral instrument will also be developed for interested countries to amend their existing network of bilateral treaties.
OECD Secretary-General Angel Gurría said: “International tax rules, many of them dating from the 1920s, ensure that businesses don’t pay taxes in two countries – double taxation. This is laudable, but unfortunately these rules are now being abused to permit double non-taxation. The Action Plan aims to remedy this, so multinationals also pay their fair share of taxes.”
Finance ministers recommended that the G-20 leaders approve the plan at their summit in September and have asked the OECD to draw up a timeline for implementing concrete changes during 2014.
The G20 agreement followed a deal struck by the G8 countries in June to establish automatic exchange of information between tax authorities as the new global standard and for each of the G8 countries to publish action plans on requiring companies to obtain and hold information on who really owns and controls them and to ensure that this information is available to tax and law enforcement authorities through central registries.
UK Prime Minister David Cameron, president of the G8, said the deal had “the potential to rewrite the rules on tax and transparency for the benefit of countries right across the world”. Prior to the G8 summit he held a meeting of all the heads of Britain’s Crown Dependencies and Overseas Territories at which they also agreed to produce national action plans on beneficial ownership registries. They also committed to joining the OECD’s Multilateral Convention.
The Cayman Islands, Anguilla, Bermuda, the British Virgin Islands, Montserrat and the Turks and Caicos Islands all agreed treaties and will pilot the automatic exchange of information bilaterally with the UK and multilaterally with the G5 – the UK, France, Germany, Italy and Spain – over the next six months. Jersey, Guernsey and the Isle of Man had previously made the same commitments, together with Gibraltar, which already operates the relevant transparency directives as part of the EU.
11 April 2013, the Global Forum on Transparency and Exchange of Information for Tax Purposes released the first four stand-alone Phase 2 reviews reports evaluating the practical application of the legal and regulatory frameworks of Belgium, the Cayman Islands, Guernsey and Singapore.
Belgium’s exchange of information (EOI) practice was in line with the international standard for transparency and EOI for tax purposes. Belgium’s legal framework and its practical implementation ensured that ownership, accounting and bank information was available according to the standard. Belgium also had all the requisite access powers to obtain the requested information and an extensive network of exchange mechanism. Belgium should nevertheless update and develop its EOI network to ensure it has agreements (regardless of their form) for exchange of information to the standard with all relevant partners. Inputs received from Belgium’s exchange of information partners attest to the high quality responses provided by the Belgian authorities in a swift and timely manner.
There had been a successful practical implementation of the international standard for transparency and EOI in the Cayman Islands. Ownership and accounting information had been available in almost all cases where it had been requested. However, the lack of monitoring of ownership and accounting obligations might affect the availability of information for all entities. In addition, it might be difficult to enforce the availability of ownership information in the Cayman Islands in respect of bearer shares where a custodian located abroad held this information. In respect of access to information, the Cayman Islands had broad powers to gather relevant information and these had been successfully exercised to gather information for EOI purposes. The competent authority was well organised with adequate internal processes in place for handling EOI requests. Inputs received from the Cayman Islands’ EOI partners attested to the high quality responses provided by the Cayman Islands in a swift and timely manner.
Although Guernsey had started receiving requests for information relatively recently, the authorities had gathered and exchanged the information requested quickly and were developing cooperative relationships with all relevant partners. It was also noted that Guernsey had enhanced its regulatory framework, ensuring the retention of reliable accounting information that included underlying documentation for all entities.
Singapore’s EOI practice was in line with the international standard for transparency and EOI for tax purposes. Singapore’s legal framework and its practical implementation ensured that ownership, accounting and bank information was generally available to the standard. Singapore also had all the required access powers to obtain the requested information. These access powers, nevertheless, could not be used in respect of all its EOI agreements. Singapore should therefore update and develop its EOI network to ensure it has agreements (regardless of their form) for EOI to the standard with all relevant partners. Singapore had in place appropriate organisational processes and resources to ensure effective EOI. This had been confirmed by its partners acknowledging Singapore as an important and reliable EOI partner.
The Global Forum also released Phase 1 reviews on Belize and Nauru, combined Phase 1 and 2 reviews of Finland, Iceland, Poland, Portugal, Sweden and Turkey, as well as supplementary reports, for Costa Rica and the UK. It said the Phase 1 reviews – evaluating whether jurisdictions have the laws necessary to exchange information – had been completed and more than 50 Phase 2 reviews were expected to be completed by the end of 2013. The Forum will then rate each jurisdiction on the individual elements of the international standard of information exchange, awarding an overall rating – “compliant”, “largely compliant”, “partially compliant” or “non-compliant”.
“The first-stand alone Phase 2 reviews – reviewing both tax laws and their practical implementation – are an important step in the peer review process. When we issue the first set of ratings later this year we will know whether jurisdictions are complying with the international standard,” said Global Forum chairman Kosie Louw of South Africa.
The Phase 1 report of Belize found that the legal and regulatory framework was generally in place concerning the availability of ownership information and bank information. However, serious deficiencies were identified concerning information related to accounting information and underlying documentation, which was not available in respect of all entities. The Belizean competent authority had recently ensured that its competent authority had sufficient powers to access and exchange information that was requested by a treaty partner and Belize’s network of EOI agreements now covered a growing range of jurisdictions. Belize advanced to its Phase 2 review, which is scheduled for the first half of 2014.
Ownership, accounting and bank information was available in a number of instances in Nauru; however, some serious gaps were identified. Bearer shares /share warrants to bearer might be issued in Nauru and there were currently insufficient mechanisms in place to identify the owners of such shares/warrants in all cases. Identity and ownership information might not consistently be available in respect of all domestic trusts and foreign trusts with Nauruan trustees. Accounting requirements in Nauru did not meet the international standard. Nauru had no powers to obtain ownership, identity, accounting or bank information for tax purposes. Nauru had not yet entered into any instruments providing for exchange of information to the standard. The Global Forum recommended that Nauru should not move to a Phase 2 Review until it had acted on the recommendations made in the report. Nauru will report back on the steps taken to address the recommendations made in this review within 6 months.
The Global Forum released a further 11 stand-alone “Phase 2” reports on 31 July 2013 reviewing the exchange of information (EOI) in practice in Austria, Bermuda, Brazil, British Virgin Islands, India, Luxembourg, Malta, Monaco, Qatar, San Marino and The Bahamas. It also issued two “Phase 1” reports on Israel and Lithuania, bringing the total number of jurisdictions reviewed to 98.
The 11 Phase 2 Reports on the implementation of the standard in practice were summarised as follows:
Austria – Since its Phase 1 review in 2011, Austria has made some progress on the recommendations. It has negotiated a number of new EOI agreements and is now in a position to exchange information in accordance with the international standard with 40 of its 92 treaty partners. However, as a number of treaties have not yet been ratified, the Phase 2 review raises some concerns with regard to the exchange of banking information. Austria has nevertheless been providing information to its EOI partners promptly, with 71% of requests answered in less than 90 days. The human and technical resources are sufficient for EOI and overall its treaty partners are content with the practices of the Austrian tax administration.
Bermuda – The Phase 2 review shows that Bermuda’s EOI practice is in
line with the international standard for transparency and EOI for tax purposes. Although Bermuda’s practical experience of exchanging information with a number of EOI partners is relatively new and limited, the procedure for such exchange follows one that is long established. Bermuda’s practices to date have also demonstrated a responsive approach, and information has been available in all cases where it has been requested. However, the lack of monitoring of obligations to keep ownership and accounting information may affect the availability of such information. Finally, the Phase 2 report notes that Bermuda has enhanced its legal framework in respect of the availability of ownership and accounting information.
Brazil – The Phase 2 review demonstrates that Brazil’s EOI practice is in line with the international standard for transparency and EOI for tax purposes. Brazil’s legal framework and its practical implementation ensure that ownership, accounting and bank information is available and tax authorities have access powers to obtain the requested information. In some instances the competent authority has been unable to answer all requests in a timely manner due to a lack of resources and insufficient monitoring of timeframes for obtaining and providing information. Nevertheless, Brazil is viewed by its peers as a reliable and cooperative EOI partner.
India – The Phase 2 review shows that India’s EOI practice is in line with the international standard for transparency and EOI for tax purposes. India’s legal framework and its practical implementation ensure that ownership, accounting and bank information is available and accessible by the tax administration in line with the standard. India now has in place appropriate organisational processes and resources to ensure effective EOI and greatly improved the timeliness of responses during 2011 and 2012. India is considered by its treaty partners to be a very important and fully committed partner with long experience in EOI.
Luxembourg – The Phase 2 review shows that Luxembourg’s EOI practices during the review period were not fully in line with the standard. While its legal and regulatory framework provides for the availability of ownership, accounting and bank information, Luxembourg has not used its information gathering and enforcement powers to obtain requested information in all instances. Despite these deficiencies, Luxembourg does exchange a considerable amount of information and does so in a timely manner.
Malta – The Phase 2 review shows that Malta’s practices are in line with the international standard of transparency and EOI for tax purposes. Malta’s legal framework ensures that ownership, accounting and bank information is available according to the standard. However, as new legislation establishing comprehensive requirements on the availability of ownership and accounting information has been recently introduced, Malta should monitor its practical implementation. The Maltese competent authority has direct access to databases from which most requested information could be retrieved, as well as broad access powers to collect further information requested for EOI purposes. Malta’s network of EOI mechanisms covers more than 90 jurisdictions, including all its relevant partners. Feedback from its EOI partners attests to the high quality responses provided by Malta in a timely manner, in particular since the introduction of internal administrative guidance to streamline the process and shorten response times.
Monaco – The Phase 2 review shows that Monaco’s EOI practices are in line with the international standard for transparency and EOI for tax purposes. Monaco’s legal framework and its practical implementation ensure that ownership, accounting and bank information is available and tax authorities have the required access powers to obtain the requested information. Monaco should nevertheless introduce exceptions to the prior notification process for requests received from jurisdictions other than France (with which it has long-established EOI arrangements). Inputs received from Monaco’s EOI partners attest to the high quality of responses provided by the Monegasque authorities in a swift and timely manner.
Qatar – As it has received very few EOI requests, the Phase 2 review notes that Qatar has very limited experience in exchanging information for tax purposes. Nevertheless, the country has detailed procedural guidelines that appear to be adequate to effectively obtain and exchange information. Qatar also has the legal and practical framework in place to ensure that ownership, accounting and bank information are available in practice. Qatar should monitor its EOI practices, in particular taking account of any significant changes to the volume of incoming EOI requests.
San Marino – The Phase 2 review finds that San Marino has generally implemented the standard of transparency and exchange of information. In recent years, San Marino has made much effort to fully cooperate in tax matters and has signed EOI agreements with 44 jurisdictions, including its major partners. All relevant information is generally available in San Marino, and this is effectively enforced by the authorities. Nevertheless, San Marino should monitor the application of enforcement measures. The competent authority is well organised and has the necessary powers to obtain and exchange information. When requested, the competent authority has been able to provide the information in a timely manner. As the number of requests may increase in the coming years, San Marino should monitor its processes and resources.
The Bahamas – The Phase 2 review notes that although The Bahamas started receiving requests for information relatively recently, the authorities were often able to provide the information and responded fully to 75% of the requests within 180 days. Whilst ownership and accounting information was generally made available, the lack of monitoring of ownership and accounting obligations may affect the availability of information for all legal entities. The Bahamas has broad powers to gather relevant information and these have been successfully exercised to gather information for EOI purposes. The competent authority is well organised with adequate internal processes in place for handling EOI requests. This has been confirmed by its partners acknowledging The Bahamas as an important and reliable EOI partner.
British Virgin Islands – The Phase 2 review shows that the BVI experienced some difficulties obtaining and exchanging information for tax purposes during the three-year review period from 1 July 2009 to 30 June 2012. Its EOI partners indicated that in a significant proportion of cases the responses to EOI requests were incomplete. This was largely because no clear organisational process was in place, resulting in the BVI not using its access powers effectively. In particular accounting information was not obtained or exchanged in many cases. A reorganisation of the BVI competent authority has taken place since the end of the review period. The Phase 2 report notes that the BVI has enhanced its legal framework in respect of the availability of ownership and accounting information.
23 April 2013, Hong Kong and Guernsey signed an agreement for the avoidance of double taxation and the prevention of income tax evasion. It is the 28th comprehensive double tax treaty signed by Hong Kong with its trading partners. The HK Financial Services & the Treasury Bureau said it would come into force after ratification procedures are completed on both sides.
17 July 2013, Hong Kong’s Legislative Council passed the long-awaited amendment to the Special Administrative Region’s trust law, which is intended to boost the competitiveness of Hong Kong’s international trust planning regime. The consultation process began in 2008.
The reforms clarify trustees’ duties and powers, better protect beneficiaries’ interests and modernise the trust law by means of amendments to the Trustee Ordinance (Cap 29) and the Perpetuities and Accumulations Ordinance (Cap 257), which date back, respectively, to 1934 and 1970.
In particular, the amendment abolishes the rules against perpetuities and against excessive accumulations. The result is that new non-charitable trusts – such as private trusts for wealth and estate planning – are no longer limited in duration. Singapore, which has significantly modernised its trust law in recent years, imposed a cap of 125 years.
LegCo also enacted, on 10 July 2013, the Inland Revenue (Amendment) Bill 2013 which provides for existing exchange of information (EOI) arrangements under double tax treaties (CDTAs) to be strengthened and for the government to enter into stand-alone tax information exchange agreements (TIEAs) with other jurisdictions where necessary. Previously, under the Inland Revenue Ordinance, Hong Kong could only exchange tax information with another jurisdiction under the framework of a comprehensive tax treaty.
The amendment follows the recommendations of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes that Hong Kong should put in place a legal framework for entering into TIEAs prior to the Phase 2 peer review of its compliance with the international EOI standard in September 2013.
The Isle of Man’s Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income with Guernsey and Jersey entered into force on 5 July and 10 July respectively. Both treaties were signed in London on 24 January.
16 July 2013, the States of Jersey approved an amendment to the Trusts (Jersey) Law 1984 that will codify the Hastings-Bass principle – as developed in the Jersey courts – and will also codify the principles developed in relation to mistake. Subject to Privy Council approval, Amendment No. 6 is likely to be in force before the end of this year.
The rule, which enables trustees who have made an administrative decision with bad consequences to request the court to reverse the decision on the basis of breach of trust, has been widely applied in both England and other common law jurisdictions. But in the recent cases of Pitt v Holt and Futter v Futter (2013 UKSC 26), the UK Supreme Court set much stricter limits on the use of Hastings-Bass to void trustee mistakes.
The amendment to the Trusts (Jersey) Law 1984, which will have retrospective effect, confirms that a settlor’s (or someone acting on his behalf) transfer of property into a trust may be voidable where the settlor has made a serious mistake of fact or law and it is shown that, but for the mistake, the settlor would not have made the transaction. Similarly a transfer made by a trustee may be held voidable if the fiduciary took into account irrelevant considerations or failed to take into account relevant considerations. It is not necessary for the fiduciary to be shown to have been at fault.
Where a person makes a mistake when exercising a power in relation to the trust, the exercise of the power may be held voidable if the person would not have exercised the power but for a mistake. And the exercise of a power relating to trust property by a trustee, or someone who owes a fiduciary duty towards a beneficiary, may be held voidable if it is shown that the person exercising the power, took into account irrelevant considerations or did not take into account relevant considerations.
1 July 2013, Malta introduced a new Global Residence Programme (GRP) that offers special tax status for individuals who are not nationals of the European Union, European Economic Area (EEA) or Switzerland. It replaces the Residence Scheme for High Net Worth Individuals (HNWIs) with more favourable conditions.
The aim of the GRP is to recognise foreign nationals satisfying the eligibility criteria formally as tax resident for Maltese tax purposes. It requires that an economically self-sufficient residence candidate maintains a permanent address in Malta in the form of residential property purchased or rented in Malta or Gozo. There is no minimum residence period but an individual may not reside in any other tax jurisdiction for more than 183 days in any calendar year.
Under the GRP rules, the minimum annual Malta income tax payment payable by the individual in respect of income from foreign sources and remitted to Malta, inclusive of the number of dependents of the individual, has been lowered to €15,000 from the previous €25,000 under the HNWI scheme. The government bond contract amount of €500,000 is removed completely.
Maltese residents are not subject to tax in Malta on foreign-sourced income not remitted to Malta. Nor are they subject to tax on any foreign-sourced capital gains whether remitted to Malta or not. Permanent Residents of Malta are entitled to taxation at the flat rate of 15% on remitted income. Malta further has over 60 double tax treaties, ensuring that tax is never paid twice upon the same income. There is no inheritance tax.
Applications under the GRP are open to non-EU, non-EEA and non-Swiss nationals. One application can include the main applicant and their spouse, financially dependent ascendants and other non-family members and dependent relatives that are shown to be bona fide members of the household. Children under the age of 25 are automatically eligible for inclusion. Applicants must demonstrate financial self-sufficiency and must be in possession of valid sickness insurance cover. The applicant must also be a “fit and proper person” and be fluent in Maltese or English.
Within 12 months of taking up residence under the GRP, the residence permit holder needs to comply with the requirement of acquiring or renting property in Malta. Residence candidates are required to demonstrate that an address is available to them in Malta by buying or renting property in Malta. Applicants need to meet minimum property value requirements at €275,000 for property in Malta and €220,000 for property in Gozo and the Southern Region of Malta. Candidates have the option to rent property in Malta at €9,600 or property in Gozo and the Southern Region of Malta at €8,750 in annual rent.
Individuals in possession of or having a pending application in respect of special tax status in under the previous HNWI Rules may request the Commissioner for a determination in writing that their special tax status be migrated to the new GRP Rules.
South Africa and Mauritius signed, on 17 May 2013, a new tax treaty and protocol that will replace the existing treaty dating from 1996. The most significant changes in the new treaty concern dual residence; the withholding tax rates on dividends, interest, royalties and capital gains; and the exchange of information provisions.
Under the existing treaty, dual resident companies are treated as being tax resident solely where the place of effective management is located. The new treaty contains a different tiebreaker clause, which provides that the dual residence of entities will be decided by mutual agreement of the two contracting states. If no agreement is reached the company falls outside the scope of the treaty, except for the exchange of information provisions.
The treaty also has been updated to take into account the future introduction of South African withholding tax on interest. While the existing treaty provides for a zero rate of withholding tax on interest, under the new treaty interest payments between South Africa and Mauritius will be subject to a 10% withholding tax, subject to certain exemptions.
The new treaty reduces the withholding tax rate on dividends from 15% to 10% if the recipient holds less than 10% of the capital of the company declaring the dividends. If it holds more than 10% of the capital of the payer company, the withholding tax remains at 5%. Similar to interest, royalties that were historically not taxable in South Africa will be subject to tax at a rate of 5% on the gross amount.
The capital gains tax exemption for gains derived from the sale of shares of an immovable property company will no longer be available if more than 50% of the shares derive their value directly or indirectly from immovable property. Other provisions
The exchange of information article in the new treaty gives the South African tax authority (SARS) powers to gather information from Mauritius regardless of whether Mauritius has any interest in such information. It also contains provisions for assistance in the collection of taxes along the lines of the OECD Model Agreement.
3 July 2013, the Swiss government agreed new parameters under which Swiss banks can seek to resolve the tax dispute with US authorities and avoid facing criminal charges in the US for helping wealthy Americans evade taxes. In June the Swiss parliament rejected draft legislation designed to let banks circumvent Swiss secrecy laws by disclosing their US dealings so they could avoid prosecution.
More than a dozen banks ¬– including Credit Suisse, Julius Baer, the Swiss arm of the UK’s HSBC, Pictet, Zuercher Kantonalbank and Basler Kantonalbank – are under formal investigation in the US. US authorities are seeking the names of US citizens it suspects of using secret accounts to evade tax as well as penalties potentially totaling $10 billion, but strict Swiss secrecy laws have prevented the banks complying.
Under the new framework, the Swiss government said banks could apply for individual permission to allow them to settle tax investigations. They would be allowed to reveal information – including details of accounts moved to other banks, names of bank staff, lawyers and accountants – but would not be allowed to hand over client data.
The Swiss Bankers Association said: “The SBA expects that this will finally create legal certainty so that the banks in Switzerland can make use of the US unilateral programme.”
Switzerland’s biggest bank, UBS, was forced to pay a $780 million fine in 2009 and deliver the names of more than 4,000 clients to avoid indictment, giving the US authorities information that allowed them to pursue other banks. Since then, the Swiss government has been attempting to reach a settlement for the whole financial industry.
13 August 2013, the Appeal Court rejected a scheme used to avoid £2.6 million stamp duty (SDLT) on the purchase of a building in London’s Regent Street by a company that then transferred the leasehold interest to a partnership for a nominal sum that fell below the stamp duty threshold. The judgment affects 87 follower cases, totaling £68 million in tax.
The scheme was designed to take advantage of the sub-sale rules for SDLT and the rules that deal with transfers of interests to partnerships. DV3 Regent Street Ltd (DV3), a property fund, set up a BVI limited partnership with three connected companies and a unit trust. DV3 had a 98% interest in the partnership. On the same day that it acquired the head leasehold interest in the former Dickins and Jones building, DV3 transferred it to the partnership. It argued that because DV3 and people connected to it were the partners in the partnership, the SDLT partnership rules meant that the property was treated as transferred for nil consideration and no SDLT was payable.
HM Revenue and Customs (HMRC) accepted that the scheme was designed for genuine commercial reasons rather than simply to avoid tax. However, it disagreed with the principle that no tax was paid. It challenged the scheme in the Upper Tribunal, which said the scheme worked, and then took the case to the Court of Appeal.
Lord Justice Lewison held that the scheme had merely shifted the obligation to pay SDLT from the company to its partnership. The Court of Appeal agreed with HMRC that the SDLT partnership rules did not apply in that situation and tax was due on the full purchase price. DV3 now intends to take the case to the Supreme Court for a final ruling.
HMRC claimed that successful court action against stamp duty avoidance schemes has “protected” £400 million of taxpayers’ money this year. David Gauke, the Exchequer Secretary to the Treasury, said: “This case shows that HMRC will challenge the designers of tax avoidance schemes, and those who use them, taking them to the highest court in the land if necessary.”
12 July 2013, the US Treasury announced that implementation of the Foreign Account Tax Compliance Act (FATCA) would be deferred from 1 January 2014 to 1 July 2014 to give foreign financial institutions (FFIs) around the world a further six months to prepare to comply. This is the second postponement.
IRS Notice 2013-43 also provided additional guidance for the treatment of FFIs whose country had signed an intergovernmental agreement (IGA) or where the US Treasury would treat the country as if they had. At the time of the announcement, only 10 IGAs had been signed, although discussions for many more were ongoing. FATCA compliance may differ significantly depending on whether or not an FFI is in a country with an IGA. There will be further differences according to the type of IGA – Model 1 or Model 2 – and whether the IGA has provisions requiring US reciprocity in reporting US financial institution information.
Some foreign governments have insisted on “equivalent levels of reciprocal automatic exchange” with financial institutions in the US. The US Treasury has requested statutory authority to impose reciprocity on US financial institutions from Congress but it seems far from certain that Congress will be minded to pass the necessary legislation.
On 9 May, the US Treasury released updated Model Intergovernmental Agreements (IGAs) to improve international tax compliance and implement FATCA. The most significant development is that the US Treasury will now enter into IGAs with jurisdictions that do not have a pre-existing tax information exchange agreement (TIEA) or bilateral income tax treaty. To this end, the US Treasury introduced two new model agreements: a non-reciprocal Model 1B Agreement and a Model 2 Agreement. The release also includes two updated reciprocal and non-reciprocal Model 1 agreements (Reciprocal Model 1A and Non-reciprocal Model 1B) for countries with a pre-existing TIEA or bilateral income tax treaty and an updated Model 2 agreement for countries with a pre-existing TIEA or bilateral income tax treaty.