Owen, Christopher: Offshore Survey – October 2009

  • Global downward trend in top rates of personal tax about to reverse
    • 20 August, a survey released by accountants KPMG International found that the top average personal income tax rate dropped 0.3% worldwide in 2009 to 28.9% from 29.2% in 2008. But this trend was likely to reverse as governments look to high earners to increase tax revenue to support budgetary and stimulus funding.The UK was among the first to announce a rise in its top rate of personal income tax with it set to go up from 40% to 50% next April. And other countries are making plans to implement personal income tax rate increases for its top earners with still more examining this option, according to subsequent country budgets and income levies.?In the current economic environment where countries face increasing budget deficits and need funding for various economic stimulus packages, it is becoming clear that some are turning to those in the highest income brackets amongst their current tax bases to increase revenue,? said Sue Bonney, head of tax at KPMG Europe.According to the study, the highest personal income taxes in the world are still paid by the citizens of the European Union. But with the introduction of flat rate taxes in a number of Eastern European countries ? including Latvia and Poland, which reduced their top rates to 23% and 32% respectively for 2009 ? average rates have fallen from 41.1% in 2003 to 36% in 2009.Denmark ? when looking at social security and the personal income tax rate together ? has the highest personal income tax rate at 62.3%. In the Asia-Pacific region, Japan has the top rate at 50%. Chile has the highest rate in the Latin American region at 40%.KPMG?s 2009 Individual Income Tax and Social Security Rate Survey is a cross-border survey of personal tax and social security rates with historical data from 2003-2009. The report covers 86 countries, concentrating on the highest level of personal tax payable to the central government. For ease of comparison, the survey excluded, where possible, other taxes such as state and municipal taxes.

  • ECJ finds Belgian treatment of foreign dividends compatible
    • 16 July, the European Court of Justice (ECJ) held that the non-discriminatory levy of a dividend withholding tax by the state of residence of a shareholder, without granting relief for the tax paid abroad, did not violate the free movement of capital principle of the European Union.In the case of Jacques Damseaux v. Belgian State (C-128/08), the taxpayer, an individual resident in Belgium, received dividend income from a company resident in France in the period 2005-2007. The dividends were subject to a 25% withholding tax in France (of which 10% was reimbursed under the Belgium-France tax treaty), and then again to the reduced 15% dividend withholding tax in Belgium. France and Belgium signed a double tax treaty in 1964, which included a tax credit for foreign dividends, but the Belgian government later abolished this. The Liege Court of First Instance asked the ECJ whether the juridical double taxation in the source state (France) and the residence state (Belgium) without relief for double taxation in the residence state was compatible with the free movement of capital. The ECJ said it was down to each EU Member State to organise its tax system (in compliance with European law) and, consequently, to determine the tax base and the tax rate for dividend income. This could result in juridical double taxation in the case of cross-border dividend distributions when both the source state and the residence state of the shareholder choose to exercise their powers to tax.Since there are no unifying or harmonizing measures at the EU level, Member States remain free to determine the criteria to allocate the taxing rights in double tax treaties and in domestic law. European law does not currently impose any criteria to attribute taxing powers for the situation in this case, nor is there any obligation for the state of residence of the shareholder to prevent the juridical double taxation of the dividend income. Without discrimination or a restriction of a fundamental freedom or the breach of some other rule of EU law, the Court has no jurisdiction to remedy this situation. The case was therefore referred back to the Liege court.

  • Gibraltar
    • 22 July, Gibraltar, Spain and the UK agreed a ?detailed framework? for further negotiations on tax matters at a ministerial meeting of the Forum of Dialogue on Gibraltar. Held in Gibraltar, the meeting was the first time that a Spanish government minister had set foot on the Rock for more than 300 years. Although Spain maintains its territorial claim over Gibraltar, the forum was established to facilitate negotiations while not addressing issues of sovereignty.?Our framework relating to financial services and taxation highlights our desire to establish normal lines and methods of co-operation including tax exchange of information, regulatory contacts, liaison and exchanges between regulatory authorities, taxation and anti-money-laundering issues and policies,? said a joint communiqué from Gibraltar Chief Minister Peter Caruana, Spanish Foreign Affairs Minister Miguel Angel Moratinos Cuyaube and UK Foreign Secretary David Miliband.The officials also agreed to frameworks for agreements on environmental matters, law enforcement cooperation, education, maritime communication, and visa-related issues. Spain and Gibraltar are currently in dispute over Gibraltar?s authority to set its own tax rates. Both Spain and the European Commission contend that Gibraltar?s plan to set its own tax rates independent of the UK constitutes impermissible state aid.25 June, the Gibraltar government proposed to reduce corporate income tax rates and introduce a new 10% rate after the exempt status regime for foreign companies ends in 2010 to bring Gibraltar?s corporate tax system in line with EU law.In his Budget speech, Chief Minister Peter Caruana announced that the regime was to be repealed in the middle of the 2010-2011 assessment year, effective at midnight on 31 December 2010. Beginning 1 January 2011, all Gibraltar companies will be subject to a flat 10% corporate tax rate. Energy companies and utilities will be subject to a 10% surcharge, resulting in a total tax rate of 20%.Caruana said: ?Most exempt status companies currently hold exemption certificates that are valid, subject to repeal of the legislation, for 25 years. The government therefore feels honour bound not to remove the tax benefit provided by the exemption certificate until the last possible moment.?Caruana also proposed a reduction in the corporate tax rate from 27% to 22% for existing non-exempt companies, beginning on 1 July 2009, and a start-up company tax rate of 10% for corporations established in Gibraltar after 1 July 2009.

  • OECD claims progress against tax evasion
    • OECD claims progress against tax evasion 2 September, the OECD?s Global Forum on Transparency and Exchange of Information, meeting in Mexico City, agreed to improve monitoring of members? implementation of OECD standards, expand membership and speed up the agreement process.Since April, over 50 new Tax Information Exchange Agreements (TIEAs) have been signed, doubling the total number of agreements signed since 2000, and over 40 double tax treaties providing for tax information exchange have also been signed. As a result, a further six jurisdictions have since substantially implemented the internationally agreed tax standards.Since the OECD first published a progress report to coincide with the G-20 summit in London on 2 April, unprecedented progress has been made towards transparency and exchange of information for tax purposes. All 88 jurisdictions surveyed by the Global Forum have now committed to the OECD standards.Moreover, jurisdictions that had not substantially implemented the standard on 2 April have signed more than 150 agreements since then. Many more are under negotiation. As a result, 11 jurisdictions ? Aruba, Austria, Belgium, Bermuda, British Virgin Islands, Bahrain, Cayman Islands, Luxembourg, Monaco, Netherlands Antilles and San Marino ? have moved to the ?white list?, the category of jurisdictions that have substantially implemented the standard.OECD Secretary General Angel Gurria said: ?What we are witnessing is nothing short of a revolution. By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign. With the crisis, global public opinion?s expectations are high, their tolerance of non-compliance is zero and we must deliver?.The Global Forum was created in 2000 to provide an inclusive forum for achieving high standards of transparency and exchange of information in a way that permits fair competition between all jurisdictions, large and small, developed and developing. In 2002, Global Forum members worked together to draft a Model Agreement on Exchange of Information on Tax Matters, which is now used as a basis for bilateral agreements.The OECD published an overview of its work on countering international tax evasion on 22 September and a regularly updated list of signed TIEAs is available on the OECD?s website.

  • UAE scraps minimum capital requirement
    • 10 August, the United Arab Emirates abolished, under a decree issued by President Sheikh Khalifa bin Zayed Al Nahyan, the AED150,000 ($40,800) minimum capital requirement for limited liability companies enabling partners to ?determine sufficient capital requirements? for setting up their companies.The move reflects the federal government?s aim to encourage more start-ups and limit bureaucratic procedures. It is hoped the move will benefit the small and medium-sized business sector in the UAE and will ?promote innovation and the spirit of entrepreneurship among business leaders?.

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