9 September 2008, the British Virgin Islands Financial Services Commission announced the creation of a new Annual Return regime for BVI investment funds. This replaces the previously administered Mutual Funds survey in which funds have been invited to participate since 2004. Completion of the Annual Return is voluntary in respect of the year ended 31 December 2007 but the FSC has stated participation will be mandatory in respect of the year ended 31 December 2008. The requirement to file the Annual Return applies to all funds which are licensed under the Mutual Funds Act, 1996 ? private, professional and public funds. Funds that fall outside the scope of the Act, such as closed ended vehicles, are not required to file an Annual Return. The Annual Return requires each fund to post an annual report as to its basic prudential and governance information and summary financial information including details of its asset allocation. The Annual Return does not require disclosure of any information regarding the identity of investors or of specific investments held by the fund. The reporting period for the Annual Return is the calendar year, regardless of the financial year operated by the fund. The Annual Return includes a declaration that the information represents a true and fair view of the fund’s position as at the reporting date but there is no requirement for it to be audited.The FSC has stated that the information gathered will be used for statistical and compliance purposes only and will not be available to the public. The Annual Return is intended to allow the BVI to appropriately benchmark its funds industry, to conform to international reporting standards and to enable the FSC to gather financial information that will assist it with the strategic development of the BVI funds industry.The first Annual Returns will need to be filed no later than 30 June 2009 in respect of the reporting period ended on 31 December 2008.
15 September 2008, the Cayman Islands brought into force new regulations to exempt private trust companies (PTCs) from the trustees? licensing requirement. Previously the Cayman Islands was the only offshore jurisdiction to require PTCs to obtain a trust licence. A change has also been made to the STAR trust legislation to allow an exempted Cayman Islands? PTC to act as trustee of a STAR trust. Under the new Private Trust Companies Regulations 2008, a Cayman Islands PTC that only conducts connected trust business and is registered with the Cayman Islands Monetary Authority (CIMA) does not require a trust licence. The test for determining whether a Cayman Islands PTC carries on connected trust business for the purposes of the regulations looks solely at the relationship between the settlors/contributors of the underlying trust assets: each settlor/contributor must be a connected person to all the others. The scope of ?connected person? is broadly defined ? it includes relationships by blood and marriage between individuals, as well as companies within the same group and certain shareholder and company relationships. There is no requirement for the beneficiaries to be connected persons. The majority of PTCs, which typically are set up by and for individual families, should satisfy the test without difficulty.Other requirements under the Regulations include that the company must be incorporated in the Cayman Islands and have its registered office provided by the holder of a trust licence It must also keep copies of the relevant trust deeds and trust documents at its registered office and use the words ?Private Trust Company? or the letters ?PTC? in its name. There is no requirement for a Cayman Islands PTC to obtain approval either prior to incorporation or at any subsequent stage from CIMA or from any other body. The requirements and obligations under the previous licensing and regulatory regime have now been removed and replaced by a basic registration requirement. Although there is no longer any licence fee, a Cayman Islands PTC must pay an initial registration fee of CI$3,500 and an annual registration fee thereafter of CI$3,000 (US$3,750). It will still be possible for a Cayman Islands PTC to obtain a restricted trust licence if it so wishes.
15 October 2008, the OECD?s annual Revenue Statistics confirmed Denmark as the OECD?s highest-tax country, followed by Sweden, while Mexico and Turkey remain the lowest-taxing countries. Overall, the average tax burden in the 30 OECD countries, calculated as a proportion of gross domestic product (GDP), is close to its historic peak of 36.1% in 2000. In 2006, the latest year for which complete figures are available, the tax-to-GDP ratio was 35.9%, up from 35.8% in 2005 and 35.2% in 2004. The latest figures show a continued rise in revenues from corporate income taxes to an average 3.9% of GDP in 2006, compared with 3.7% in 2005 and 3.6% in 2000. In 1975, revenues from corporate income taxes amounted to only 2.2% of GDP. ?The current economic slowdown is going to put additional pressure on government budgets,? said OECD Secretary-General Angel Gurría. The UK and the US are already downgrading forecasts of how much revenue they can expect from the financial sector, and other countries are also likely to see a reduction in revenues from corporate income taxes. The latest figures show that in 2007 tax burdens rose in 11 of the 26 countries for which provisional figures are available and fell in 13 others, suggesting that the average ratio for the 30 OECD countries is likely to remain at recent high levels. Between 2001 and 2004, the ratio had been declining, temporarily reversing a rising trend witnessed since the 1970s.The biggest year-to-year increases were in Hungary, from 37.1% in 2006 to 39.3% in 2007, followed by Korea from 26.8% to 28.7% and Italy, from 42.1% to 43.3%. The biggest drop was in the Netherlands, from an estimated 39.3% to an estimated 38%. Denmark had the highest tax-to-GDP ratio in 2007, at 48.9%, while Sweden came in second at 48.2%. In 2006, both countries had tax-to-GDP ratios of 49.1%. In 2005, Denmark had a tax-to-GDP ratio of 50.7%, against Sweden?s 49.5%. At the other end of the scale, Turkey collected taxes equivalent to 23.7% of GDP in 2007, against 24.5% in 2006 and 24.3% in 2005, while Mexico?s tax-to-GDP ratio was estimated at 20.5%, against 20.6% in 2006 and 19.9% in 2005.Since 1965, the contribution to total government revenues of corporate income taxes increased from 9% to 11% and that of social security charges has jumped from 18% to 25%. The share of personal income taxes, by contrast, has fallen back to below 1965 levels after rising in the 1970s and 1980s.
8 November 2008, the Dubai International Financial Centre (DIFC) enacted new regulations that enable companies within the financial district to form Special Purpose Company (SPC) structures. The new regulations allow companies to create SPCs for facilitating both Islamic and conventional transactions as well as vessel registrations. Transactions that can be facilitated by the new law include acquisitions and financings. Under the law, Special Purpose Companies (SPCs) can be easily structured and incorporated, while enjoying exemptions from some filing and disclosure rules relating to conventional companies in DIFC. They are not required to hold annual shareholder meetings, can be administered by a Corporate Service Provider and are not required to file annual returns.
2 September 2008, the Dubai International Financial Centre (DIFC) announced new regulations to encourage family businesses to establish Single Family Offices (SFOs). The DIFC Single Family Office Regulations address the needs of family-run institutions and create a platform for wealthy families to set up holding companies at DIFC to manage private family wealth and family structures anywhere in the world. The regulations offer distinct benefits to SFOs by excluding them from many of the regulatory constraints placed on conventional organisations located at DIFC. Dr Omar Bin Sulaiman, governor of the DIFC, said: “In recent times, family offices have become highly significant on the global economic landscape. In the Middle East, where family-run businesses make up over 75% of firms and have total assets in excess of US$1 trillion, the need for a specialised legal and regulatory framework is especially acute. “In contrast to conventional financial institutions, SFOs have no direct public liability as all their shareholders are bloodline descendants of a common ancestor. As such, their regulatory requirements differ significantly?. The move follows the establishment of the DIFC Family Office initiative, which provides infrastructure solutions for families and family businesses operating in the region.
18 September 2008, the European Commission sent the UK a formal request to implement completely the European Court of Justice (ECJ) judgment in Marks & Spencer on cross border loss compensation. The Commission said that the legislation purporting to implement the ruling imposes conditions on cross border group relief makes it virtually impossible for tax payers to benefit from the relief. It considers that this is contrary to the EC Treaty. The request is in the form of a ‘reasoned opinion’ under Article 226 of the EC Treaty. If the UK does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the ECJ.In the Marks & Spencer ruling, the Court ruled that the UK ban on cross border loss relief was disproportionate, in so far as it denied loss relief where a non-resident subsidiary had exhausted all possibilities for relief in its state of establishment. The Commission had the following concerns about the UK?s new legislation:
An unnecessarily restrictive interpretation of the condition that there should be no possibility of use of the loss in the state of the subsidiary (paragraph 7 of Schedule 18A of the Income and Corporation Taxes Act (ICTA) 1988);
The date for determining whether the condition that there should be no possibility of use of the loss in the state of the subsidiary is met is set immediately after the end of the accounting period in which the loss arises (Part 1, paragraph 7(4), of Schedule 18A ICTA 1988);
The time limit to claim for group relief for losses made by subsidiaries established in other Member States is set at 12 months (extended in case of enquiries by the Revenue) after the filing date for the company tax return of the claimant company (Schedule 18, paragraph 74, of the Finance Act 1998);
The legislation states that it applies only to losses incurred after 1 April 2006 (Part 3 of Schedule 1 of the Finance Act 2006).
According to the Commission these conditions make the new legislation incompatible with the freedom of establishment, guaranteed by Articles 43 and 48 of the EC Treaty and Articles 31 and 34 of the EEA Agreement.
27 November 2008, the European Court of Justice found that French rules that prevent a French parent company from forming a fiscally integrated tax group with French subsidiaries that are indirectly held through an intermediary holding company resident in another EU member state, constitute a restriction of the freedom of establishment principle in article 43 of the EC Treaty. In Société Papillon (C-418/07), a French parent company held more than 95% of the shares in several French subsidiaries indirectly through a Dutch company. The French tax authorities disallowed the benefit of tax consolidation on the grounds that the Dutch company was not subject to corporate tax in France. The French parent claimed that the restriction in the French Tax Code violated the freedom of establishment principle. It appealed up through the French court system. The Administrative Supreme Court referred the case to the ECJ for a preliminary ruling. The ECJ found that French legislation constituted a discriminatory restriction on the freedom of establishment. It noted that the proposition that a member state may freely apply a different treatment solely because a company’s registered office is situated in another member state would deprive the freedom of establishment of all meaning. The French government argued that the rules were necessary to prevent the double deduction of the same losses and could be justified by the need to ensure the coherence of the French tax system. But the ECJ found that the French rules exceeded what was necessary to achieve this objective because the French government had other means to prevent a risk of a double deduction of losses. France will need to revise the group consolidation rules to comply with the ECJ decision.
15 November 2008, leaders from 21 nations and four international organisations attended the emergency two-day G20 summit in Washington DC to address the economic crisis in financial markets. Presenting a united front, leaders from both developed and developing nations promised to take ?whatever further actions are necessary to stabilise the financial system? and vowed to ?use fiscal measures to stimulate domestic demand to rapid effect, as appropriate?. World leaders said they would require regulators to set up ?colleges of supervisors? to monitor global banks and said ministers would report back by 31 March 2009 on issues such as strengthening of the credit derivatives markets and review of financial sector pay schemes, with further reforms to follow. They also committed ?to protect the integrity of the world?s financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.? The industrialised economies agreed to open up membership of key standards-setting bodies, including the Financial Stability Forum, to top emerging economies such as China and India, and to increase their influence at the International Monetary Fund. Officials said the outcome would depend on what the incoming Obama administration ? which takes office on 20 January ? decided to do. The G20 nations are to meet again next April in London.
27 October 2008, the UK Court of Appeal ruled that a proposed appeal by a British businessman who claimed non-domiciled status against a Special Commissioners? ruling that a he was still domiciled, resident, and ordinarily resident in the UK was ?nothing more than an illegitimate attempt to reargue the facts?. Dismissing the proposed appeal, Lord Justice Rimer ruled that however much Robert Gaines-Cooper profoundly disagreed with the UK taxman’s stance, his attempt to challenge it was ?misconceived?.Gaines-Cooper, who is in his seventies, began a successful jukebox business in England in 1958, and set up companies in Canada, the US, Italy, Singapore, Jersey, Cyprus and the Seychelles, including a successful concern that produces surgical aids. The British-born businessman insisted that he ?made a break? with the UK in 1976 and that his chief residence since had been his Seychelles house, which he renovated at a cost of $2.5 million. But in October 2006 the Commissioners for Revenue and Customs ruled that he had never abandoned the domicile of his birth – England. They pointed out that Gaines-Cooper, despite spending many years travelling the world for his many business ventures, had maintained a house and 27-acre country estate in Oxfordshire where he kept his collection of paintings, classic cars and guns, and where his second wife and son had lived for some time. His son went to an English school in 2002 and his will was drawn up under English law. Gaines-Cooper?s counsel said it was perverse that his client was not recognised as a ?non-domiciled? by the tax authorities when he has not been ?ordinarily resident? in Britain since the mid-70s. It was simply wrong of the commissioners to take account of Gaines-Cooper’s actions and lifestyle over the following 28 years when considering whether he had made his ?domicile of choice? in the Seychelles in 1976. Gaines-Cooper, he said, was not obliged wholly to reject England to qualify for non-domiciled status, adding that eminent witnesses had told the commissioners that he had ?fallen in love? with the Seychelles and wished to ?stay there for ever?.But HM Revenue & Customs contended that, despite Gaines-Cooper’s years of travelling in search of business opportunities, his true roots were in England and that, at least for tax purposes, he had never left this country. Lord Justice Rimer agreed. He described the tax commissioners’ decision as ?particularly careful? and said it had already been confirmed once, last November, by a High Court judge. He regarded it ?a very poor point? to argue that the commissioners’ decision was irrational and ?ran directly contrary to the undisputed evidence?. The appeal ruling means that Gaines-Cooper now faces a huge tax demand for the years 1993 to 2004. His final hope is a separate judicial review heard by Mr Justice Lloyd Jones in September. In a two-day hearing, Gaines-Cooper argued that he had kept strictly to the Revenue’s demands that tax exiles can spend no more than 91 days a year in the UK. He says that the Revenue’s refusal to accept him as a non-UK resident is ?unfair, inconsistent and discriminatory?.
20 November 2008, HM Revenue & Customs confirmed that it is to launch a second campaign in 2009 to collect unpaid tax in offshore accounts. The Offshore Disclosure Facility (ODF) will target account holders with money in building societies and any of the 300 UK-based banks that have offshore operations. Last year?s ODF focused solely on customers of the five largest high-street banks. According to an HMRC spokesman, ?the intention of the new facility will be to provide an opportunity for account holders to inform us of their own accord of any unpaid tax or duties and to settle their debts in a similar way to the original offshore disclosure facility.?People will face threat of prosecution and higher fines if they do not come forward, while fines will probably be capped at 20 to 30% of the tax due, to encourage people to come forward. They were capped at 10% under the previous ODF. However, HMRC stressed the campaign will not be a tax ?amnesty? as all the tax and interest on it will still have to be paid in full.The Revenue will write to the 300 banks and building societies requesting names and addresses of all their UK resident customers with offshore accounts. It will then write to customers requesting any unpaid tax. The first ODF identified some 400,000 accounts as suspicious. It raised £450 million from 45,000 people but a further 50,000 are still being investigated and some may soon be prosecuted. “HMRC has made follow-up checks of the disclosures made and has started a programme of checks on those who did not take the opportunity to come forward,” the Revenue spokesman said. “In the most serious cases, we are carrying out criminal investigations and we will bring some prosecutions before the courts?.
11 November 2008, the UK High Court quashed the decision of the Special Commissioner, ruling that a non-domiciled, non-UK citizen who regularly came to and stayed in the UK while pursuing his career as an airline pilot was resident in the UK for tax purposes. In HMRCC v Grace  EWHC 2708 (Ch), Mr Grace was an airline pilot with homes in the UK and South Africa, who was not a UK resident for tax purposes. He appealed against a notice of determination dated 10 June 2004 that he was ordinarily resident in the UK for the six years from 1997/98 to 2002/2003 inclusive. Grace claimed that he had departed from the UK on 6 August 1997 to live outside the UK permanently and that thereafter he was not resident in the UK. He had removed the centre of his life to South Africa in 1997 since when he had kept his visits to the UK to a minimum. He kept his private aeroplanes in South Africa and did no private flying in the UK. He had retained a house in the UK as an investment but could have stayed in hotels.The UK Special Commissioner held, on 29 January 2008, that whether Grace was resident and ordinarily resident in the UK in the years in question were matters of fact and degree. Taking into consideration the evidence before him, especially having regard to the taxpayer?s past and present habits of life, the reasons for his visits to the UK, the temporary nature of his ties with the UK, the more permanent nature of his ties with South Africa, and the distinct break made in 1997, he came to the conclusion that from 1 September 1997 he ceased to be resident and ordinarily resident in the UK.The High Court disagreed, ruling that the Special Commissioner had been wrong to treat Grace’s permanent, main residence as his sole residence. The following points were made:
The word reside is a familiar English word, meaning “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place”;
Physical presence does not necessarily mean residence;
Consideration must be given to the amount of time spent in a place, the nature of the presence and the person’s connection with the place;
Residence connotes a degree of permanence and continuity or expectation of continuity;
Short but regular visits to a place might also amount to residence, particularly if they are connected to the performance of obligations and are not down to chance or occasion;
A person might have more than one residence at a time;
Ordinary residence means a person’s abode in a place that he has adopted voluntarily and for a settled purpose and part of the regular order of his life, whether for a short or long term;
A person might be ordinarily resident in more than one place at a time.
In this case, the taxpayer was regularly present in the UK so that he could discharge his duties under his contract of employment and the purpose for his being in the UK was neither casual nor transitory.
20 November 2008, the Finance Bill gave the Irish Revenue extensive new powers to access the names of all Irish residents who have established a trust in the past five years. The Revenue will also be able to identify the trustees of a trust, which manage it on behalf of the ultimate owner. The details must be forwarded to the Revenue within the next six months. Revenue officials will then compile a database of all beneficiaries of discretionary trusts, in an effort to establish whether they have paid capital gains tax on profits earned.It was one of a number of anti-avoidance initiatives included the Finance Bill. Other measures include the imposition of stamp duty on transactions for the ??exchange of property?? as opposed to the ??sale of property??. A loophole used by the issuers of corporate bonds to generate ??artificial losses??, and then use those losses to shelter ??real capital??, gains has also been axed.
13 October 2008, the Internal Revenue Service issued new rules to strengthen its Qualified Intermediary (QI) programme under which participating foreign banks are permitted to withhold tax overseas on behalf of US clients without disclosing their names to the IRS. More than 7,000 foreign banks participate in the QI programme, which was established in 2001, but it came under scrutiny as part of a US investigation into the Swiss bank UBS, which has been accused of deliberately selling US clients offshore banking services that went undeclared to the IRS. Under the new rules, which will go into effect in 2010, banks in the QI programme will be required to determine whether US investors are behind the foreign accounts they set up and to alert the IRS to any potential fraud that they detect, whether through their own internal controls, complaints from employees or investigations by regulators. The IRS will also begin auditing small samples of individual bank accounts in the QI programme, without knowing the clients’ names, to determine whether US investors actually control foreign entities set up by the banks. The QI programme will also place more duties on external auditors, which participating banks must hire to monitor their compliance. Banks using foreign-based external auditors, including foreign branches of US auditors, will have to work with an US auditor, which in turn will accept joint responsibility for the audit. UBS’s violations of the QI programme were brought to light in testimony from Bradley Birkenfeld, a former UBS private banker who pleaded guilty to helping a US billionaire evade $7.2 million in taxes by hiding $200 million overseas. At his criminal hearing in the US District Court for the Southern District of Florida on 19 June, Birkenfeld said UBS had approximately $20 billion of assets under management in “undeclared” accounts for US taxpayers. To help US clients hide those assets, UBS employees created sham offshore entities and then completed IRS forms that falsely claimed that these entities owned the accounts, Birkenfeld said. Birkenfeld also provided US investigators with a letter UBS sent to its US clients after the bank’s 2001 entry into the QI programme. The letter assured clients who did not want to provide forms identifying themselves as US account holders that they would continue to remain anonymous. Investigators said UBS divided its US clients into two groups: those that were willing to submit such forms and those that wished to remain “undeclared?.
16 September 2008, the Jersey Royal Court ruled that where a party seeks to enforce a non-money judgment of a foreign court submitted to by the parties who are before the Royal Court (or their privies) the Royal Court would have discretion to enforce it.In the matter of the Representation of the Brunei Investment Agency and Bandone Sdn Bhd, and in the matter of Karinska Ltd and Greencap Ltd, the case arose in the context of ongoing attempts in several jurisdictions by the Brunei Investment Agency (BIA) to secure the return of assets by Prince Jefri Bolkiah. In proceedings commenced in the High Court of Brunei in 2000, the BIA and the government of Brunei allege that Prince Jefri misappropriated and misapplied more than US$15 billion of state funds while he was Minister of Finance and chairman of the BIA. Those proceedings were compromised by way of a settlement agreement and Tomlin Order in May 2000, which required Prince Jefri to disclose to the BIA what had become of the BIA’s funds and to return to the BIA the remainder of those funds and any assets acquired with those funds. Prince Jefri returned some assets in 2000 and 2001, but refused to transfer many other assets including shares in two Jersey companies (Karinska and Greencap), which were held for him by Jersey nominees.In March 2006 the High Court of Brunei ordered Prince Jefri to perform his obligations under the settlement agreement, including his obligation to deliver the shares in the Jersey companies to the BIA or its nominee, Bandone. Appeals by Prince Jefri to the Court of Appeal of Brunei and to the Privy Council were dismissed. The BIA and Bandone brought enforcement proceedings in several jurisdictions including Malaysia, the Cayman Islands, Singapore, Japan and Jersey. The Jersey proceedings sought an order of the Royal Court recognising the Brunei judgment as binding upon Prince Jefri and his agents and such relief as appropriate to enable the Brunei judgment to be given effect in Jersey ? orders to allow the shares in Karinska and Greencap to be transferred to Bandone. The Jersey nominee shareholders indicated that they would abide by the decision of the Royal Court, and were released from participation in the hearing. The Judgments (Reciprocal Enforcement) (Jersey) Law 1960 provides for the enforcement of certain judgments of superior courts of “reciprocating countries”, currently England and Wales, Scotland, Northern Ireland, the Isle of Man and Guernsey. Where this does not apply, the enforceability of a foreign judgment is governed by common law.In determining the common law of Jersey the Courts have had regard to the English rules of conflicts of law, but the Jersey Courts have tended to rely on the doctrine of comity ? mutual assistance between courts of foreign jurisdictions ? rather than obligation. In English common law, Rule 35(1) of Dicey, Morris & Collins on The Conflicts of Laws provides that a judgment of a foreign court can only be enforced if it is for a debt or definite sum of money and that a judgment of a court of competent jurisdiction over the judgement debtor imposes a duty or obligation on him or her to pay the sum for which judgment is given. But in Lane v Lane [1985-86] JLR 48, the Royal Court of Jersey held, in relation to the transfer of an interest in Jersey real property, that where there was a declaration of a competent English Court, properly made, submitted to by the same parties and not appealed, the doctrine of comity enabled the declaration of the English court to be given effect to, provided that it was clear that the defendant had every opportunity to raise all relevant defences at that hearing.One of Prince Jefri’s submissions was that the decisions of Jersey Courts that had relied on the doctrine of comity to give effect to foreign judgments, including Lane v Lane, were incorrectly decided. Prince Jefri argued that the only basis for enforcement of foreign judgments is the theory of obligation as explained in Dicey. In consequence, he submitted, the Royal Court had to follow the English rules of common law and had no jurisdiction to enforce non-money judgments such as the order for transfer of the shares in Karinska and Greencap to the BIA/Bandone.The Court noted that in the past foreign non-money judgments were not enforceable because to enforce them would require the local court to get involved in supervision and policing of such orders. But both Canadian and Cayman Island Courts had recently doubted the absolute rule against enforcement of non-money judgments of a foreign court, and the Privy Council in Pattni v Ali  2 AC 85 (Isle of Man) had made observations which supported enforcement of foreign non-money judgments. The Royal Court held that Rule 35(1) of Dicey should be amended to give the Court discretion ? consistent with that exercised in Lane v Lane ? to enforce non-money judgments. The Court did not list criteria that should be taken into account in future cases invoking its discretion to enforce foreign non-money judgments, but held that the discretion should be exercised in the present case. This decision was on the grounds that the Brunei Court had jurisdiction to give judgment in accordance with the requirements set out in Rule 35(1) of Dicey and the Brunei judgment was final and conclusive and the orders sought in the application to the Royal Court were clear and specific.The Jersey nominees and the Jersey companies had also raised no concerns as to the terms of the orders sought and knew exactly what they would have to do. There was little likelihood of further supervision being required by the Court and it would not be required to extend greater judicial assistance to the BIA/Bandone than it would to its own litigants. There were no grounds upon which the Court should refuse to exercise its discretion. On the contrary, the Court was mindful of the observations of the Privy Council on Prince Jefri’s attempts to extricate himself from the obligations he had accepted under the settlement agreement.
17 November 2008, a landmark legal battle between members of a Saudi Arabian family and the trust operation of a major US bank opened at a hotel in Jersey because there is insufficient space at the Royal Court. Sheikh Mohamed Ali M Alhamrani is bringing the main action with four of his brothers in relation to two Jersey trusts ? the Internine Trust and the Intertraders Trust ? which were set up in 1998 to hold most of the Alhamrani family’s foreign investments. The Alhamrani family runs a group of industrial companies in Saudi Arabia They are suing JP Morgan (Jersey) Trust Company, Jersey trust company Russa Management and their younger brother Sheikh Abdullah Ali M Alhamrani ? the protector of the trusts ? for losses totaling around US$120 million.All the defendants deny the allegations against them, which include breach of trust, conflict of interest, gross negligence and lack of communication between the trustees and beneficiaries. Legal proceedings in connection with the case have been ongoing in Jersey since 2003, with appeals to the Jersey Court of Appeal and the Privy Council in London. The trial is being heard by Commissioner Howard Page QC, sitting with Jurats Geoffrey Allo and John de Veulle. The first stage of the trial is likely to last until next summer.
1 October 2008, a draft bill introducing new tax measures, including an exemption of withholding tax on dividends paid to corporate shareholders located in countries with which Luxembourg has signed a double tax treaty, was submitted to the Luxembourg Parliament. Currently, most treaties signed by Luxembourg provide for a reduced rate of withholding tax (generally 5% instead of the domestic withholding tax of 15%). If the bill is approved, this would reduce the withholding tax on dividends paid by a Luxembourg company to its parent company located in a country with which Luxembourg has signed a double tax treaty to zero. This expansion of the participation exemption regime would seriously enhance the attractiveness of Luxembourg as a jurisdiction for the repatriation of profits.The draft bill also provides for a reduction in the overall corporate income tax rate to 28.59%. The move follows the Prime Minister?s speech to the Luxembourg Parliament on 22 May, when he announced a phased reduction in overall income tax from 29.63% to 25.5%. The draft bill further introduces measures to the law of December 2007 on income and capital gains derived from intellectual property. Under the bill, qualifying IP assets held by Luxembourg companies will be exempt from the net wealth tax of 0.5% and domain names will, as from tax year 2008, be eligible for the 80% tax exemption on income derived from intellectual property. It is expected that the bill will be approved such that the measures will apply as of the tax year 2009.
18 August 2008, the Malaysian Internal Revenue Board issued guidelines in respect of the new option for Labuan offshore companies to be taxed under Malaysia’s Income Tax Act 1967, as well as under the Labuan Offshore Business Activity Tax Act of 1990. The move, introduced as part the Malaysian Budget 2008, is intended to address concerns about the competitiveness of Labuan as an international offshore financial centre after several countries ? including the UK, Australia, Netherlands, Japan, Sweden and Indonesia ? excluded Labuan from the scope of their tax treaties with Malaysia.The new option provides a Labuan offshore company with the ability to elect (irrevocably) to be taxed under the Income Tax Act 1967 (ITA) with effect from year of assessment 2008 instead of the Labuan Offshore Business Activity Taxes Act 1990, and therefore obtain the benefits provided under the relevant tax treaty. It therefore provides that such companies remain offshore companies for Malaysian domestic purposes, but continue to enjoy treaty benefits provided under relevant tax treaties. The Labuan Offshore Financial Services Authority (LOFSA) announced, on 15 July 2008, the appointment of Martin Crawford as chief executive officer of Labuan International Business and Financial Centre (IBFC), a company set up by LOFSA to promote the jurisdiction.
27 September 2008, the Financial Services (Other financial business activity) Rules 2008 and the Financial Services (Consolidated licensing and fees)(Amendment) Rules 2008 were gazetted. The Financial Services (Other financial business activity) Rules 2008 provide for four new activities ? credit rating and rating agencies; payment intermediary services; actuarial services; and representative offices for financial services provided by a person established in a foreign jurisdiction. By the Financial Services (Consolidated licensing and fees)(Amendment) Rules 2008, the Financial Services Commission has ensured that the amendments will not affect existing licensees and will not change the existing fee structure, except in cases where alignments were considered necessary.
1 January 2009, the new Swiss Financial Market Supervisory Authority (FINMA) commenced operations. The Federal Act on the Swiss Financial Market Supervisory Authority (FINMASA), which the Swiss Parliament approved on 22 June 2007, went into full legal force on that date. The effect of the Act is to merge three bodies ? the Federal Office of Private Insurance (FOPI), the Swiss Federal Banking Commission (SFBC) and the Anti-Money Laundering Control Authority ? into the Swiss Financial Market Supervisory Authority FINMA. Until their merger and incorporation into FINMA, these three authorities will retain responsibility for their own areas of activity. It also sets out principles governing financial market regulation, liability rules and harmonised supervisory instruments and sanctions. The Act therefore functions as an umbrella law for the other laws governing financial market supervision, although the legal mandate conferred on the supervisory authority remains unchanged.As an independent supervisory authority, FINMA’s task is to protect the clients of financial markets, namely creditors, investors and insured persons, in accordance with the requirements of financial market legislation, thereby strengthening confidence in the smooth functioning, competitiveness and integrity of Switzerland’s financial centre. Eugen Haltiner, chairman of FINMA, said: “I am convinced that FINMA will be a supervisory authority capable of taking on the challenging functions at national and international level that a financial centre like Switzerland entails.”
8 September 2008, the tax collection assistance article contained in the 2005 Australia-New Zealand tax treaty protocol, which allows tax authorities to help collect tax debt owed in the other country, entered into effect. “The entry into effect of this Article along with the current renegotiation of other provisions in the treaty will further enhance economic links between the two countries and will strengthen trans-Tasman tax administration,” said Australian Assistant Treasurer Chris Bowen. “It will also assist the Australian Tax Office’s efforts in tracking down outstanding tax debts from people who have left Australia.? The protocol, which focused on strengthening the integrity aspects of the 1995 tax treaty, entered into force in January 2007, with the entry into effect of the Assistance in Collection of Taxes Article to take effect after both countries had put in place supporting domestic arrangements.
9 September 2008, the OECD said it intends to speed up the process of modifying the OECD model treaty and getting changes into bilateral tax treaties. Jeffrey Owens, director of the Centre for Tax Policy and Administration, praised a recent proposal to have a multilateral framework within which countries could have single-issue protocols to implement changes they have agreed to at the OECD. Speaking at a special conference in Paris to celebrate the 50th anniversary of the OECD model income tax treaty, Owens said the current process took too long. “The very fact that we have almost 3,000 tax treaties around the world makes it much more difficult to get changes in the model into that network,” he said. The OECD also wants to reduce the time it takes to identify issues. “We need to be quicker to identify what are the pressure points,? said Owens. ?Once we’ve identified that, we need to throw more resources out to find resolutions more quickly.”Owens also presented a “wish list” of what he wants to see in the future, which includes:
Arbitration becoming the norm;
Working harder on getting a consistent application on tax treaties;
Remembering that the purpose of tax treaties is not only relieving double tax but also eliminating double non-taxation;
More involvement of senior policymakers in the treaty forces;
Greater coordination between OECD countries and countries just joining the treaty world;
Reviewing the nature of the reservations and observations in the model;
Greater involvement of non-OECD-member countries.
11 November 2008, Qatar and Cyprus signed seven cooperation agreements, including a tax treaty, during an official visit to Nicosia by Qatari Prime Minister Hamad bin Jasim bin Jabir Al Thani. The other agreements included tax information exchange, economic and technical cooperation and the promotion and protection of international investment. An additional Memorandum of Understanding was also signed between the central banks of Cyprus and Qatar for cooperation in the monitoring of money lending organisations. The Cypriot government is seeking to expand its network of double taxation agreements and is in negotiations with 39 countries for new and updated tax treaties. Of these, the final agreement stage has been reached with the Czech Republic, Iran, India, Luxembourg, Moldova, Slovenia and Yugoslavia. Negotiations with Estonia, Latvia, Lithuania, Finland, Netherlands, Portugal and Spain are at advanced stages of negotiation.The Qatari government issued a decree, on 17 September 2008, to ratify the pending Mauritius-Qatar tax treaty that was signed in Port Louis on 28 July. Mauritius had not yet ratified the treaty. Under the treaty, dividends and interest paid by a resident of a contracting state to a person who is a resident of the other contracting state will be taxed only in the contracting state of which the recipient of dividends and interest is a resident. Royalties will be subject to a 5% withholding tax rate.
5 December 2008, the Swiss Federal Council mandated the Federal Department of Foreign Affairs (FDFA) to draft legislation that will make it possible to confiscate the assets of illicit origin of politically exposed persons and restore them to the people of the country in which the funds originated. This law would apply in the event that mutual assistance proceedings between Switzerland and the country in which the funds originated were to fail. It will, under strict conditions, reverse the burden of proof to the holder of the frozen assets to demonstrate their non-illicit origin. If this proof cannot be provided then the assets subject to litigation will be confiscated by a decision of the judicial authorities, thus making it possible to return the funds to the country of origin. It will also include measures to provide for the follow-up of the asset restitution to ensure the transparency of a process that is intended to benefit the people of the country in which the funds originated. In the past 20 years, Switzerland has returned more illicit funds to the country of origin that any nation in the world, totalling more than US$1.6 billion.
7 December 2008, Pope Benedict XVI laid the blame for the international financial crisis largely on ?offshore centres? and called for their effective closure as a ?necessary first step? to restore the global economy to health. In his second encyclical, according to a report in The Observer, the Pope said OFCs had given support to imprudent economic and financial practices and also played a significant role in the imbalances of development, allowing a massive ?flight of capital linked to tax evasion?. Offshore markets could also be linked to the recycling of profits from illegal activities.The Pope pointed to estimates that the global fiscal deficit caused by offshore activities could amount to US$255 billion, which is ?more than three times the entire sum of [global] development aid?. The paper argued that tax havens facilitate the transfer of wealth from poverty-stricken nations to the rich world.
28 October 2008, Dubai Economic Council chairman Juma Al Majid announced that the United Arab Emirates and the other Gulf Cooperation Council (GCC) members plan to implement a VAT by 2012. The GCC members ? comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE ? have set a deadline of 2012 to introduce a VAT at a uniform 5% rate across the GCC, but some member countries plan to introduce it earlier. GCC member states opting to introduce VAT before the 2012 deadline may set the rate between 3% and 5%.
29 October 2008, the UK High Court dismissed a £2.5 billion claim brought by a Russian oil company against Roman Abramovich and Millhouse Capital UK, his London-based investment company, after ruling that he was neither ?resident? nor ?domiciled? in the UK. The Russian billionaire faced claims by Yugraneft, the biggest company on the AIM market, that it was cheated out of its 50% stake in a huge oilfield in Siberia.Mr Justice Christopher Clarke said that the claim should have been served in Russia, not in England, and that Abramovich, a Russian citizen and Russian taxpayer who enters the UK on a business visa, was not resident in the UK for tax purposes or domiciled here. The judge said: ?He spends more time in Russia than anywhere else and his business and personal interests are focused on Russia. Virtually all of the business associates with whom he is said to have dealt in these proceedings are Russian. Prior to 2004 he spent virtually no time in England. In 2007 he spent only 57 full days here, virtually all in connection with football matches.? The practice of the Revenue was to regard people as resident in Britain if they are here for 183 days or more in any tax year, the judge said. In its terms, Abramovich would not be regarded as resident. In 2007, the year of the claim, he spent an average stay of 1.47 days and a longest stay of 11 full days, during which he attended four football matches. ?Such visits are not the sort that suggest an intention to make England one’s usual or settled place of abode.?The ruling comes after a five-year dispute between Sibir Energy and Abramovich arising from a joint venture, SibneftYugra, to develop a 1.8 billion-barrel oilfield in Siberia. Sibir held its shares in the joint venture through Yugraneft; and Abramovich held his through Sibneft. Sibir’s 50% stake was diluted to less than 1% in a manoeuvre in which Sibneft maintained its 50% interest, with the rest transferred to three offshore companies later revealed to be controlled by Sibneft. Abramovich maintained that the transfers were approved by shareholders. He sold Sibneft to the Russian gas giant Gazprom three years ago. Sibir initially took the case to a court in the British Virgin Islands, where the offshore companies are understood to be registered. But the claims were dismissed for lack of jurisdiction. Yugraneft?s liquidators then lodged the claims in the Commercial Court in London, alleging that Abramovich was liable for ?dishonest assistance, knowing receipt and/or unjust enrichment? arising out of the issue of ?participation interests? in a joint venture company.Mr Justice Clarke said that the claim over ?dishonest assistance? had to be either governed by Russian law or to be actionable under Russian law in order to succeed; and that the other claims were governed by Russian law. He also ruled that as a matter of Russian law, all the claims were time-barred.
24 November 2008, the UK Pre-Budget Report announced a review into the long-term opportunities and challenges for the UK’s crown dependencies and overseas territories as offshore financial centres. The review will cover: financial supervision and transparency; fiscal arrangements; financial crisis management and resolution arrangements; and international cooperation. The review will not consider changes to the UK’s constitutional relationship. Interim conclusions will be produced for Budget 2009, with fuller conclusions later in the year. Only those Crown Dependencies and Overseas Territories with significant financial sectors are included in the scope of the review. These are: Jersey, Guernsey, Isle of Man, Bermuda, Cayman Islands, Gibraltar, Turks & Caicos Islands, British Virgin Islands and Anguilla. The UK government subsequently announced that Michael Foot would head the review. After a 20-year career at the Bank of England and the UK Financial Services Authority (FSA), he was also Inspector of Banks & Trust Companies at the Central Bank of The Bahamas from 2004 to 2007. Paul Myners, the UK Financial Services Secretary, said: “Offshore financial centres must play a responsible role in the global financial system. This review will take a serious and constructive look at the challenges these centres face in the current economic climate, and how they can best respond to these.? The Pre-Budget Report also included provisions to reduce the VAT rate from 17.5% to 15% through to the end of 2009, to limit personal income tax allowance for those with income above £100,000, and to create a new 45% top income tax rate as of April 2011. The government further announced that it would bring forward a package of reforms to the taxation of foreign profits in Finance Bill 2009 to deliver an exemption from tax for most foreign dividends received by large and medium-sized groups, regardless of the level of shareholding. It will also continue to examine options for reform of the CFC rules. The UK economic stimulus package follows on the heels of similar growth packages in the US, Japan, Spain and elsewhere. Germany and France rejected cutting VAT rates or other taxes to increase growth.
26 September 2008, the Netherlands and UK signed a new income and capital gains tax treaty in London. When ratified, the new tax treaty will replace the existing tax treaty that dates from 1980, as amended by protocol in 1983 and 1989. The new treaty includes a 0% dividend withholding tax for dividends paid to pension funds, charities and direct investors and a reduction of withholding tax for portfolio dividends from 15% to 10%. Dividends paid to certain real estate investment funds will be subject to 15% dividend withholding tax. The treaty also includes addition of an arbitration provision to resolve disputes and the most recent OECD provision for the exchange of information in tax matters and international assistance in the collection of taxes, together with some further anti-abuse provisions. The new treaty will have effect in the Netherlands as of 1 January of the next calendar year following ratification and in the UK as of April 1 (for corporation tax purposes) or April 6 (for income tax and capital gains tax purposes) of the next following calendar year.
29 October 2008, the UK and BVI governments signed a tax treaty and Tax Information Exchange Agreement (TIEA) in London. It followed the signing of a TIEA between the UK and the Isle of Man on 29 September. UK Financial Secretary to the Treasury, Stephen Timms, said: ?These agreements build on and enhance the effective co-operation that already exists between the UK and the BVI, notably in the area of mutual legal assistance in criminal matters. I particularly welcome the new agreement on tax information exchange, which demonstrates the BVI government’s willingness to implement OECD principles of transparency and effective exchange of information in relation to both criminal and civil tax matters. The (tax treaty) will also benefit individuals resident in both jurisdictions.? The agreements will enter into force as soon as both governments have completed the legislative procedures needed to give them effect. The UK has previously signed a TIEA with Bermuda, while the BVI has previously signed TIEAs with the US and Australia.The TIEA with the UK is the eleventh signed by the Isle of Man. Jeffrey Owens, director of OECD?s Centre for Tax Policy and Administration said: ?The agreement is particularly significant given the close economic and political relations between the Isle of Man and the UK. The Isle of Man is a significant financial centre and was one of the first jurisdictions to engage constructively with OECD countries in efforts to address the abuse by companies and individuals of offshore centres to evade their tax obligations.? ?I am particularly pleased that the Isle of Man now has the largest network of agreements. Almost all of these also provide significant tax and non tax benefits which will enhance the Isle of Man?s financial sector.?