10 December 2009, the State Administration of Taxation (SAT) issued Circular Guoshuihan  No. 698 to address various tax issues for equity transfers by Non-China Tax Resident Enterprises (NREs). Circular 698 is retrospectively made effective to 1 January 2008.The most significant issue is the “indirect” equity transfer undertaken by the NRE outside China. It is not uncommon for multinational corporations to interpose a Special Purpose Vehicle (SPV) as an intermediate holding company for their investments in China. Circular 698 shows the Chinese tax authorities’ determination to counter avoidance of China tax on gains derived from indirect transfer of Chinese companies’ equity via disposing the equity of the SPV outside China.Within 30 days upon the transfer of an SPV, the NRE is obliged to report the indirect transfer to the Chinese local-level tax bureau in charge of the Chinese investee company, if the SPV is located in a foreign tax jurisdiction that has an effective tax rate of less than 12.5% or does not tax foreign income of its tax resident enterprise.The documents and information that are required to be submitted by NREs to assist the Chinese tax authorities detect a “suspicious” indirect transfer are extensive. They include: the equity transfer contract/agreement; documents illustrating the relationship between the NRE and SPV being transferred; documents illustrating the operation, personnel, finance and properties of the SPV being transferred; documents illustrating the relationship between SPV being transferred and the Chinese investee company; and documents illustrating the reasonable commercial purpose of the NRE in setting up SPV being transferred.This documentation will enable the Chinese tax authorities to examine the nature of the transfer and decide if the SPV was interposed and disposed of for no reasonable commercial purpose. If so, the Chinese tax authorities may re-characterise the equity transfer based on its “substance over form” principle and disregard the existence of the SPV. Once an SPV is disregarded, the transfer would effectively be treated as NRE transferring the Chinese investee company’s equity, and therefore the transfer gain would be of Chinese source and subject to tax in China.
15 December 2009, the Liechtenstein government adopted draft legislative proposals to establish a legal basis for implementing tax information exchange agreements (TIEAs). Consultation on the proposals will be held until 5 February 2010 and both laws are to be presented to Parliament for first reading in April, with the goal of final adoption in summer 2010.Since the government’s commitment to the OECD on 12 March 2009, Liechtenstein has concluded a number of TIEAs and double tax treaties, including TIEAs that will enter into force for the 2010 tax year with Germany, France, the Netherlands and Ireland.The draft Law on Administrative Assistance in Tax Matters provides for information exchange on the basis of detailed requests in individual cases within the framework of applicable agreements. A request must precisely identify the taxpayer affected by the information exchange and present the underlying evidence, thereby excluding “fishing expeditions”.”With the Law, we have achieved another milestone in our consistent and rapid implementation of the international OECD standards,” said Prime Minister Dr Klaus Tschütscher. “The law offers financial centre clients, financial intermediaries, and our international treaty partners a clear legal framework for information exchange and accordingly for legal certainty.”A separate draft law was also adopted specifically for the agreement concluded with the UK on 11 August 2009, which provides for special arrangements until the year 2015 under the special Liechtenstein Disclosure Facility (LDF) administered by Her Majesty’s Revenue & Customs (HMRC).The UK TIEA Act and the rules for the compliance programme do not provide for exchange of UK client data to HMRC beyond the OECD standard. Information exchange on specific request is governed solely by the general Administrative Assistance Act. The UK TIEA Act however contains additional, special grounds for declining requests prior to 1 April 2015.
2 December 2009, the Russian government proposed changes to the Tax Code to restrict the applicability of benefits arising under tax treaties, according to reports in the Russian press. President Dmitry Medvedev requested amendments to prevent the beneficiaries of treaty benefits from being individuals or companies not resident in the country under whose treaty with Russia the benefits arise.The Finance Ministry has drafted an additional paragraph to be appended to article 7 of the Tax Code, as follows: “If, in a situation where norms and rules of an international agreement containing provisions relating to taxation and levies are applied in relation to income from sources in the Russian Federation, it is established that the actual recipient of that income is a physical person or organisation who or which is not a tax resident of the state with which the Russian Federation concluded the international agreement in question, the norms and rules of that agreement shall not apply to that physical person or organisation and income received by them.”This proposed amendment is scheduled to enter into force on the later of 1 January 2010, or one month from the date of being gazetted, but the draft has yet to be submitted to the State Duma for a first reading.
4 January 2010, a US Federal District Court denied a request by former UBS banker Bradley Birkenfeld for a delay in the date he is to begin his US prison sentence, as well as his request to reconsider the sentence. Birkenfeld has also applied for a whistle-blower reward for the taxes, interest, and penalties collected as a result of his cooperation.Last year Judge William Zloch sentenced Birkenfeld to 40 months in prison following his guilty plea to one count of conspiring to defraud the US. Birkenfeld was required to turn himself in and begin his prison sentence on 8 January. In his request, Birkenfeld argued that he needed more time to assist the US Justice Department and the IRS to investigate tax evasion by US individuals using Swiss bank accounts.At that hearing, prosecutors revealed that information supplied by Birkenfeld assisted them in their investigations into UBS’s activities, which led to the 19 August agreement between the US and Switzerland under which the Swiss government agreed to share information on 4,750 undeclared UBS accounts.On 10 December, a former UBS manager and a Swiss attorney charged in the US with helping wealthy Americans evade taxes were declared fugitives by a federal judge. Hansruedi Schumacher, a former NZB Neue Zuercher Bank manager who once ran the cross-border business for UBS, and Matthias Rickenbach, a Zurich lawyer, were indicted on 20 August in a federal court in West Palm Beach, Florida. Their former clients are among six UBS customers who pleaded guilty to tax evasion this year. Neither has responded to the US indictment. Prosecutors are continuing to investigate the roles of Schumacher and Rickenbach in assisting other banks and clients in evading taxes.