Owen, Christopher: – January 2010 Supplement

  • Alhamrani case in Jersey ends in settlement
    • 16 September 2009, the Jersey Royal Court made orders by
      consent to discontinue 16 actions concerning the Jersey trusts of the
      Alhamrani family and bringing to an end the longest and costliest case in
      Jersey’s judicial history. The move followed an out-of-court settlement,
      details of which were not disclosed.Five members of the Saudi Arabian
      Alhamrani family originally filed suit against the JPMorgan (Jersey) Trust
      Co and others, seeking compensation for losses they claimed totalled more
      than US$120 million in value. The action centred around two trusts that
      were set up in Jersey in 1998 to hold most of the Alhamrani family’s
      foreign investments. All the defendants denied the charges, which included
      breach of trust, conflict of interest, gross negligence and lack of
      communication between the trustees and beneficiaries.Legal proceedings
      have been ongoing in Jersey since 2003, with numerous appeals to the
      Jersey Court of Appeal and the Privy Council. The first stage of the
      hearing commenced in November 2008 in a temporary cour troom set up in a
      Jersey hotel. By August 2009, when settlement was finally achieved, the
      plaintiffs’ witnesses had been heard and the defendants’ witnesses were in
      the course of being cross-examined

  • Australia launches new offshore tax “amnesty”
    • 3 December 2009, the Australian Tax Office (ATO)
      announced a new scheme to allow some offshore tax avoiders to regularise
      their affairs without risking prosecution. Unlike the previous amnesty,
      Australians will, until 30 June 2010, be able to inform the ATO about
      untaxed offshore assets and income anonymously, and receive an indication
      of whether they are likely to be prosecuted were they to make a
      disclosure.The new voluntary disclosure scheme increases the penalties on
      large-scale offshore tax avoiders. Individuals whose undisclosed taxable
      income was more than A$20,000 in a tax year will have to pay a “shortfall
      penalty” of 10%, instead of the 5% imposed in the 2007 amnesty. There is
      no penalty where untaxed income was below that threshold.The ATO warned
      that those who do not disclose their offshore affairs before the amnesty
      expires would find that “all bets are off”. Tax commissioner Michael
      D’Ascenzo said: “For undeclared income through an audit process, penalties
      can be as high as 90%, and we will seek prosecution in serious

  • Bahamian Parliament amends information exchange law
    • 15 October 2009, the Bahamian Parliament
      approved legislation to amend the Criminal Justice (International
      Cooperation) Act 2000 to allows for the exchange of tax information under
      tax information exchange agreements (TIEAs) and tax treaties that are
      based on the OECD model convention.The Bahamas had previously signed only
      a single TIEA – with the US in 2002 – but, as of 31 December 2009, it had
      signed 9 further TIEAs (UK, China, France, New Zealand, Argentina,
      Belgium, the Netherlands, Monaco and San Marino), successfully concluded
      TIEA negotiations with 14 more countries and was confident it would meet
      the G-20/OECD’s March 2010 deadline of a minimum of 12 signed

  • Canadian tax court rules on residency of trusts
    • 10 September 2009, the Tax Court of Canada held that, where a statutory rule does not apply, the residence of trusts should be determined using the test of central management and control (CMAC).In The Garron Family Trust v The Queen (2009 TCC 450), the trustee of the trust was a corporation incorporated, licensed and resident in Barbados. The beneficiaries were Myron Garron, a Canadian resident, his wife and children. The trust realised a $450 million capital gain on the sale of a Canadian corporation and claimed an exemption under Article XIV(4) of the Canada-Barbados tax treaty, which provides that gains from the alienation of property is only taxable in the state of which the alienator is a resident.The issue was whether the tax treaty applied to exempt the trust from Canadian tax on the basis that it was resident in Barbados, where the gains would be non-taxable under Barbadian law, and not resident in Canada.The Court rejected the argument, based on the earlier Canadian decision in Thibodeau, that residence of a trust should be determined based on the residence of the trustee who manages the trust or controls the trust property. It acknowledged that there were significant differences between the legal nature of a corporation and a trust, but concluded that, in the interests of certainty, predictability and fairness, the test of CMAC established for corporations should also apply to trusts, with such modifications as were appropriate.The court held that the CMAC of the trust was located in Canada with Myron Garron because he made the substantive decisions respecting the trust, either directly or indirectly through his advisers. In the UK case of Wood v Holden, no one directed the decisions made
      by the managing director of the non-resident corporation. The trustee in
      Garron, however, assumed a limited role in the management of the trust.
      Accordingly, the trust was subject to Canadian tax because it was resident
      in Canada under general principles.

  • Caricom leaders say financial services remain viable
    • 10 December 2009, Caribbean Community (Caricom) leaders said
      offshore financial services are remained a viable development option for
      Caribbean states despite unwelcome pr essure from developed countries
      targeting offshore financial centres in the region. Caribbean governments
      grouped in the 15-nation Caricom have reacted with concern to an
      international campaign against banking secrecy by G-20 leaders, which has
      led to increased scrutiny and the inclusion of a number of Caribbean
      jurisdictions on the OECD Global Forum’s list of states viewed as not
      fully compliant with international tax information standards. Many
      Caribbean states are struggling to cope with the global economic downturn
      that has badly affected both offshore finance and tourism. Caribbean
      leaders argue that the G20/OECD focus on their countries is unfair and
      discriminatory and say there are offshore financial jurisdictions within
      the US, Britain and Europe which fail to apply fully the same transparency
      standards. Caricom Secretary-General Edwin Carrington said it was
      industrialised countries and the international financial institutions they
      control that had originally advised Caribbean states to move into
      financial services. “We answered many of the criticisms years ago about
      whether we were tax havens,” he said. “It is surprising that this pressure
      is now being brought on us when in fact many of the rules outlined for us
      to follow are not even followed by enterprises and areas of the developed
      countries themselves.”

  • Cayman Grand Court introduces Financial Services Division
    • 1 November 2009, the business of the Cayman Islands Grand
      Court was reconfigured as four specialist divisions – Financial Services,
      Civil, Admiralty and Family. The Financial Services Division (FSD) will be
      housed in purpose-built court premises and will also have its own
      dedicated Registrar and support staff.New procedural rules have been
      introduced to expedite proceedings in the FSD, including the assignment,
      at the outset, of an FSD judge to preside over interlocutory hearings and
      the trial. The majority of proceedings relating to investment funds,
      partnerships, trusts, insurance, corporate
      insolvencies/rescues/reorganisations, negligence by service providers and
      regulatory laws will be allocated to the FSD. Transitional arrangements
      provide that existing proceedings relating to these matters will also be
      transferred to it.On 24 November, three new judges – former English High
      Court judge Sir Peter Cresswell, Andrew Jones QC and Angus Foster – were
      appointed to the FSD.

  • Cayman Islands raise $312 million in first-ever international bond
    • 23 November 2009, the Cayman Islands announced it
      had raised $312 million (£189 million) in its first-ever placement on
      international bond markets, as it seeks to put its finances in order after
      a recent budget crisis, while avoiding the introduction of new taxes.
      According to press statement, the money will be used to repay outstanding
      bridge financing facilities and to fund capital expenditures.News of the
      bond placement came as the Cayman Islands government has been considering
      ways of dealing with the effects on its budget of the recent global
      recession and a downturn in tourism revenues that would not involve its
      having to introduce new taxes. In June, it was revealed that the country
      faced a budget deficit of about $100 million, and last month, was
      understood to have secured a $60 million loan.Newly elected premier,
      McKeeva Bush, has proposed raising fees on company registrations, mutual
      fun d licenses, security investment businesses, work permits and exempted
      limited partnerships, as well as certain new fees, such as an annual
      business premises fee that would replace a current stamp duty on
      commercial leases.The Cayman Islands, which has a population of about
      57,000, was a part of Jamaica until 1962, and is now an independent
      British overseas territory. It was one of nine offshore British financial
      centres studied and included in a recent report for the UK government.The
      jurisdiction recently moved onto the OECD’s “white list” of jurisdictions
      that are deemed to have substantially implemented its
      internationally-recognised standard for tax information transparency,
      having signed tax information exchange agreements with 14 countries,
      including the US, UK and France.

  • Cayman passes fee increases for money services
    • 2 December 2009, the Cayman Islands Legislative Assembly passed the Money Services Amendment Bill 2009 to amend fees payable by financial services businesses. The Bill will become law when it is published in the Gazette.The effect of the amending legislation, together with associated Regulations that the Cabinet passed on 1 December, will be to:
      Increase the annual licence fee payable by money
      services businesses to KY$10,000 (US$12,345);
      Introduce an annual fee of KY$1,000 for each
      additional subsidiary, branch, agency or representative office that a
      money services business operates; and
      Introduce a new transaction fee payable to the government, equal to 2% of the gross amount transferred overseas – up to a maximum of KY$10 per transaction – by a money services business on behalf of its customers.
      Financial Secretary Kenneth Jefferson
      said: “The government made a deliberate decision to limit the fee to a
      maximum of KY$10 recognising that the majority of persons transferring
      funds overseas are lower-paid employees. The Money Services Law makes it
      clear that banks, building societies and cooperative societies do not fall
      within its ambit. Hence, wire transfers, drafts and overnight funds in the
      banking system are not subject to the new transaction fee.”

  • China issues new Foreign Partnership rules
    • December 2009, China’s State Council issued administrative measures for
      Foreign Enterprises and Individuals to Establish Partnerships in China.
      They will become effective on 1 March 2010.The measures allow a
      partnership to be established by two or more foreign enterprises or
      individuals; or a foreign enterprise or individual and a Chinese
      individual, enterprise, or other organisation. The measures also allow
      foreign enterprises and individuals to become partners in a partnership
      formed by Chinese individuals, enterprises, or other organisations. The
      establishment of a foreign partnership requires only registration with the
      local branch of the State Administration of Industry and Commerce. There
      are no minimum capital requirements. Foreign partnerships that make
      investments in special projects or industries that do require special
      approval have to be preapproved by the relevant authorities. The
      establishment of a foreign partnership whose main business is to make
      investments may be subject to other rules and regulations. The measures
      provide that foreign-partnership-related tax matters should follow the
      prevailing applicable tax rules and regulations. Article 6 of the
      Partnership Law sets out the fundamental taxing principle, which simply
      states that each partner should separately pay income tax on its share of
      income derived from a partnership. The Ministry of Finance and the State
      Administration of Taxation jointly issued Circular 159, Notice on Issues
      Concerning the Income Tax Levied on Partners of a Partnership, in December
      2008. This circular reconfirmed the taxing principle outlined in the
      Partnership Law that individual and enterprise partners are subject to
      individual income tax and enterprise income tax, respectively, on income
      allocable from the partnership in which they are partners.

  • China signs new tax treaty with Belgium
    • 7 October
      2009, Belgium and China signed an income tax treaty and protocol in
      Brussels. They will enter into force 30 days after the countries exchange
      instruments of ratification. Once in force, it will replace the 1985
      Belgium-P.R.C. tax treaty.The treaty provides that dividends are taxable
      at a maximum rate of 5% if the beneficial owner is a company (other than a
      partnership) that before the moment of payment of the dividends has
      directly held, for an uninterrupted period of at least 12 months, at least
      25% of the dividend payer’s capital. In all other cases, dividends are
      taxable at a maximum rate of 10%. Interest may be taxed at a maximum rate
      of 10% and royalties are subject to a maximum rate of 7%.

  • China-Singapore tax treaty Protocol enters into force
    • 11 December 2009, the Second Protocol to
      the 2007 China-Singapore income tax treaty, signed on 24 August 2009,
      entered into force upon ratification. Its provisions took effect from 1
      January 2010.The major change in the new protocol relates to Article 22 of
      the original treaty regarding the elimination of double taxation on
      dividends. It will increase the minimum share ownership requirement for
      qualifying for a Chinese indirect foreign tax credit under paragraph 1(b)
      of Article 22 of the Treaty from 10% to 20%.As a result, if the income
      derived from Singapore is a dividend paid by a company that is a resident
      of Singapore to a company that is a resident of China and that owns not
      less than 20% of the shares of the company paying the dividend, the
      Chinese foreign tax credit will take into account the tax paid to
      Singapore by the company paying the dividend in respect of its income. The
      treaty will therefore be less favourable than the China-Hong Kong tax
      treaty, which provides a lower share ownership threshold of 10% for
      qualifying for a Chinese indirect foreign tax credit.The Protocol also
      contains less significant changes to the articles covering Permanent
      Establishment, where the more precise term “183 days” is substituted for
      the term “six months”, and Interest, where the list of beneficial owners
      of interest that qualify for an exemption from tax on interest is

  • Credit Suisse and Lloyds TSB agree sanctions settlements with US
    • 4 January 2010, the US Treasury’s
      Office of Foreign Assets Control (OFAC) announced a record $536 million
      settlement with Credit Suisse, after the Swiss bank committed “egregious
      sanctions violations”. The joint resolution between the US Department of
      Justice and the New York County District Attorney’s Office is the largest
      in OFAC’s history. Regulators said Credit Suisse had structured wire
      transfers to ensure that the involvement of sanctioned parties was hidden
      from US authorities. Thousands of transfers over a 20-year period,
      involving sanctioned parties in Iran, Sudan, Libya, Burma, Cuba and the
      former Liberian regime of Charles Taylor, were executed through US banks,
      as well as securities transactions executed through Credit Suisse’s US
      office. According to OFAC, Credit Suisse used elaborate procedures to hide
      from US banks the involvement of sanctioned parties in payment
      transactions, which included removing the names of sanctioned parties from
      payment instructions and forwarding payment messages that falsely labeled
      Credit Suisse as the ordering institution. The US Federal Reserve Board
      issued a consent cease and desist order against Credit Suisse, including
      enhanced reporting requirements for the bank ’s global activities. The
      Swiss Financial Market Supervisory Authority (FINMA) agreed to assist in
      its enforcement. British-based Lloyds TSB Bank also agreed to pay a US$350
      million penalty to settle a probe that it illegally handled financial
      transfers for Iran and Sudan in violation of US sanctions. The bank agreed
      to forfeit US$175 million to the US and US$175 million to New York County.
      Prosecutors alleged that from 1995 until 2007, Lloyds’ agents in the UK
      and Dubai “falsified outgoing US wire transfers that involved countries or
      persons on US sanctions lists.” A US Justice Department statement said
      Lloyd’s “has accepted and acknowledged responsibility for its criminal
      conduct” in a criminal complaint filed in US District Court in New

  • EC refers Spain and Portugal to ECJ over companies exit tax
    • 8 October 2009, the European Commission decided to refer Spain and Portugal to the European Court of Justice for their tax provisions that impose an exit tax on companies that cease to be tax resident in these countries. The provisions are incompatible with the freedom of establishment provided for in Article 43 of the Treaty and Articles 31 of the EEA Agreement. Under Spanish law, when a Spanish company transfers its residence to another Member State or when a permanent establishment ceases its activities in Spain or transfers its Spanish located assets to another Member State, unrealised capital gains must be included in the taxable base of that financial year, whereas unrealised capital gains from purely domestic transactions are not included in the taxable base. Under Portuguese law, in case of the transfer of seat and place of effective management of a Portuguese company to another Member State or in case a permanent establishment ceases its activities in Portugal or transfers its Portuguese located assets to another Member State, the taxable base of that financial year will include any unrealised capital gains in respect of the company’s assets whereas unrealised capital gains from purely domestic transactions are not included in the taxable base. The shareholders of the company that transfers its seat and place of effective management abroad are also subject to tax on the difference between the company’s net assets, valued at the time of the transfer at market prices, and the acquisition cost of their participation. The Commission considers that such immediate taxation penalises those companies that wish to leave Portugal and Spain or to transfer assets abroad, as it results in less favourable treatment as compared to those companies that remain in the country or transfer assets domestically. The rules in question are therefore likely to dissuade companies from exercising their right of freedom of establishment and, as a result, constitute a restriction of Article 43 EC and the corresponding provision of the EEA Agreement. The Commission’s opinion is based on the EC Treaty as interpreted by the Court of Justice of the European
      Communities in its judgment of 11 March 2004, in Case C-9/02, De Lasteyrie du Saillant, as well as on the
      Commission’s Communication on exit taxation of 19 December 2006. Since the
      Spanish and Portuguese tax rules on exit taxes on companies were not
      amended to comply with the reasoned opinions sent to them in November
      2008, the Commission has decided to refer the cases to the Court of

  • EC refers the UK to ECJ over implementation of M&S ruling
    • 8 October 2009, the European Commission said it is to refer the UK to the European Court of Justice (ECJ) for improper implementation of the ECJ ruling in Marks & Spencer on cross-border loss relief. The relevant UK legislation imposes conditions on cross-border group loss relief that make it virtually impossible for taxpayers to benefit from such relief. The relevant provisions are incompatible with the right of establishment provided for in Articles 43 and 48 of the EC Treaty and Articles 31 and 34 of the EEA Agreement.In the Marks & Spencer ruling (Case C-446/03 of 13
      December 2005) the Court ruled that it was disproportionate to prohibit a
      UK parent company from deducting the losses of its non-resident
      subsidiary, when the latter had exhausted all possibilities for relief in
      its state of establishment. Following this ruling, the UK should in
      principle be granting relief for definitive losses of a subsidiary
      established in another Member State.But although the legislation has been
      amended, the Commission said the UK continues to impose conditions on
      cross-border group loss relief that in practice make it virtually
      impossible for the taxpayer to benefit from such relief in accordance with
      the judgment. Of particular concern is: the unnecessarily restrictive
      interpretation of the condition that there should be no possibility of use
      of the loss in the State of the subsidiary; the condition that the parent
      company should demonstrate that the condition that there should be no
      possibility of use of the loss in the State of the subsidiary is met as
      from immediately after the end of the accounting period in which the loss
      arises; and that the legislation states that it applies only to losses
      incurred after 1 April 2006.According to the Commission, these conditions
      render the UK legislation incompatible with the freedom of establishment,
      guaranteed by Arti cles 43 and 48 of the EC Treaty and Articles 31 and 34
      of the EEA Agreement.

  • EC requests France to abolish tax discrimination on foreign donations
    • 20 November 2009, the European Commission formally
      requested France to abolish tax discrimination against foreign public
      interest and not-for-profit bodies. It has sent the French authorities a
      “reasoned opinion”, which is the second stage of the infringement
      procedure laid down in Article 226 of the EC Treaty. If France does not
      agree to amend its legislation within the two months following the
      Commission’s letter, the Commission may decide to refer the matter to the
      European Court of Justice.The French tax legislation currently in force
      lays down a system of exemptions for public bodies, public_interest bodies
      based in France and not-for-profit bodies carrying out their activities in
      France from dividend tax and transfer duties on donations and bequests. By
      contrast, similar bodies established or active in the other EU and EEA
      Member States are subject to tax at 60% of the value of the donations or
      bequests received. France also grants tax deductions to donors only for
      donations or contributions paid to not-for-profit bodies carrying out
      their activity in France.

  • France-UK tax treaty and France-US Protocol enter into force
    • 18 December 2009, a new tax treaty
      between France and the UK, signed on 19 June 2009, entered into force to
      replace the 1968 France-UK tax treaty. In France, its provisions will
      generally apply beginning 1 January 2010, and in the UK, its provisions
      regarding income tax and capital gains tax will apply beginning 6 April
      2010, and its provisions regarding corporation tax will apply beginning 1
      April 2010.The new provisions include general tax credit mechanisms with
      respect to income tax rather than the exemption method prevailing under
      the previous tax treaty. The application scope now includes several
      additional social contributions, French/UK partnerships and several real
      estate vehicles (SIIC and OPCI in France; REITs in the UK).France and the
      US also exchanged instruments of ratification on 23 December 2009 to allow
      the effective entry into force of a Protocol, signed on 13 January 2009,
      to amend the existing 1994 tax treaty.The Protocol provides for the
      elimination of source-country taxation on qualifying parent/subsidiary
      dividends and cross-border royalty payments. These new withholding tax
      exemptions will be applicable retroactively to qualifying payments and
      distributions made since 1 January 2009.The Protocol also strengthens the
      previous limitation on benefits provision and provides for a mandatory
      arbitration in specific circumstances that cannot be settled by the
      competent authorities within a specified period of time. The Protocol also
      amends the rules regarding the exchange of taxpayer information between
      the tax authorities of both countries.

  • French tax declaration initiative nets over €500 million
    • 3 January 2010, the French government announced that it had
      received more than €500 million in additional tax revenue, from
      approximately €3 billion of funds repatriated to France, as a result of
      the tax declaration initiative, begun in April 2009. More is expected as
      the government updates its figures, with a final tally due later in
      January. The voluntary compliance programme ended on 31 December and the
      special tax unit set up to bring back assets held illegally offshore was
      due to be closed. But Budget Minister Eric Woerth instead announced plans
      to extend the work of the unit, giving taxpayers further opportunity to
      put their accounts in order.There was a surge of taxpayers making
      voluntary declaration after it emerged in early December that the French
      authorities had obtained data stolen from the offshore banking
      headquarters of HSBC in Geneva. HSBC confirmed that Hervé Falciani, a
      former employee, had stolen the data in 2006 and 2007 and fled to France.
      It was obtained by French officials following a raid on his home
      undertaken at the request of Switzerland.On 21 December, the French
      Ministry of Justice agreed to return the client data to Switzerland but
      said it would continue to make use of it. France’s possession of the data
      led to a diplomatic dispute, with Swiss President and Finance Minister
      Hans-Rudolf Merz announcing on 16 December that he had sought to delay
      parliamentary approval of a pending protocol to the France-Switzerland tax
      treaty.The dispute may continue despite the handover of the data. A Swiss
      Finance Ministry spokesperson said that the Finance Ministry “took note”
      of the French move but that the matter was not completely resolved. “As
      far as the double taxation agreement is concerned, some points remain
      open. The essential question is what France is prepared to do with the
      data. Switzerland will need to clarify this with France at the political
      level,” he added.

  • HKSE approves listing of BVI companies
    • 15 December
      2009, the Hong Kong Stock Exchange announced that it would allow companies
      incorporated in the British Virgin Islands to list in Hong Kong. The move
      will simplify the listing process and provides a cost-efficient exit
      strategy for investors in BVI-incorporated companies.Several other major
      exchanges worldwide, including NASDAQ and NYSE in the US, AIM in London
      and SGX in Singapore, already permit BVI companies to list. By
      jurisdiction, BVI companies provide the second largest source of foreign
      investment in China, at US$5.8 billion in the year to June 2009.BVI
      Financial Services Commission managing director Robert Mathavious said:
      “This is long something that the BVI authorities and industry
      practitioners have hoped would be possible. It emphasises the quality of
      BVI companies and extends their value to users.”

  • Hong Kong passes exchange of tax information amendment
    • 6 January 2010, the Hong Kong Legislative
      Council passed the Inland Revenue (Amendment) (No. 3) Bill 2009. This
      amendment enables Hong Kong to adopt the latest international standard for
      exchange of tax information and removes a major obstacle to its ability to
      enter into tax treaties. Prior to this amendment, the Inland Revenue
      Department (IRD) could only collect taxpayers’ information for domestic
      tax purposes, a provision that conflicted with the exchange of information
      clause in the OECD’s 2004 Model Tax Convention. This provides that the
      lack of a domestic tax interest does not constitute a valid reason for
      refusing to collect and supply the information requested by the other
      contracting party. The amendment to the Inland Revenue Ordinance
      introduces a new section 49.1(A), which allows the chief executive to
      authorise tax treaties or tax information exchange agreements (TIEAs) with
      other countries that include wording in conformity with the OECD standard.
      Tax authorities will have the authority to obtain information – using
      search warrants if necessary – that may affect any liability,
      responsibility or obligation of anyone under the laws of a treaty partner
      concerning taxes of that territory. The government said it would adopt the
      “most prudent” version of the standard to protect the privacy of firms and
      individuals, and ensure confidentiality. Relevant tax jurisdictions would
      need to prove their request was necessary or relevant to avoid “fishing
      expeditions”, and must treat the information as confidential under their
      domestic laws. This amendment will facilitate Hong Kong’s ability to enter
      into more tax treaties in line with its main competitors. Hong Kong has so
      far concluded only five treaties – with Belgium, Thailand, mainland China,
      Luxembourg and Vietnam – since 2003. It is expected that Hong Kong will
      now sign a number of tax treaties and TIEAs, and it may be that the
      Special Administrative Region will be included in future agreements
      entered into by mainland China. The Financial Services & Treasury
      Bureau has not said which nations are involved in current talks or the
      progress of negotiations, but it is understood that a number of
      significant trading partners, including the UK, the Netherlands, France
      and Ireland, have been waiting for this amendment before concluding treaty
      negotiations with Hong Kong. The move comes as a Bill is progressing
      through the US Congress to extend a crackdown on US taxpayers evading tax
      overseas. In February, Swiss bank UBS agreed to a US$780 million
      settlement with the US government over charges it helped Americans evade
      US taxes. Several of the UBS clients hid money in corporations in Hong
      Kong. After the G-20 meeting in London in April last year, China was
      included by the OECD on its “white list” of jurisdictions that had
      substantially implemented the internationally agreed tax standards. But in
      a footnote, the Special Administrative Regions – Hong Kong and Macau –
      were specifically excluded because they had only “committed” to implement
      the internationally agreed tax standard. The IRD has also recently
      released DIPN 46 to illustrate how transfer-pricing principles will be
      applied in the territory. The document explains how OECD Transfer Pricing
      Guidelines will be practiced in Hong Kong and particularly how OECD
      transfer pricing methodologies will work with its own Inland Revenue
      Ordinance (IRO). It shows the provisions in the IRO and the relevant
      articles in tax treaties that should allow the IRD to reallocate profits
      or adjust deductions by substituting an arm’s length

  • Italian tax amnesty scheme nets €95 billion in disclosures
    • 29 December 2009, Economic Minister Giulio
      Tremonti announced that Italian taxpayers had disclosed €95 billion in
      previously undeclared assets under the country’s latest tax amnesty
      scheme, noting that 98% of the amount was to be repatriated from offshore.
      He said that “a last-minute acceleration” in voluntary disclosures by
      individuals was the reason behind the figure surpassing the government’s
      previous estimate of €80 billion. Assets repatriated included works of
      art, sculptures, jewelry, cars and berths. The Italian government launched
      the tax amnesty – the third in the past eight years – last October to
      entice Italians to either repatriate assets or declare them to tax
      authorities. In the case of assets held in jurisdictions listed on the
      OECD’s “grey” list of countries that had not yet substantially implemented
      its standards of exchange of information, only repatriation would suffice.
      Under the scheme, which ended on 15 December, individuals were required to
      pay a 5% tax rate on the total value of assets, but there was no
      requirement to declare how the funds were earned. Tremonti has earlier
      announced, on 17 December, an extension to the scheme with an increase in
      the tax rate levied on the declared or repatriated funds. The rate levied
      during the original amnesty rises to 6% for assets declared or repatriated
      before 28 February 2010 and then 7% for assets declared or repatriated
      before 30 April 2010. In a statement, the ministry said the extension of
      the tax amnesty to April 2010 would be the “last one and definitive”. It
      anticipates that the four-month extension will bring home a further €30
      billion, amounting to about €1.8 billion in extra tax revenue.Inflows
      linked to the scheme from San Marino stood at €3.25 billion as of 11
      December, while press reports have estimated the amount of repatriations
      from Switzerland at between €30 billion and €40 billion.

  • Japan and Netherlands agree treaty renegotiation
    • 18 December 2009, the Japanese Ministry of Finance (MOF) announced that
      the governments of Japan and the Netherlands had reached agreement in
      principle on the terms of a new tax treaty that will replace the current
      1970 tax treaty. It is expected that the new tax treaty will be ratified
      by mid-2010 and will become effective as of 1 January 2011.The
      renegotiated treaty substantially reduces withholding rates on
      cross-border payments. It includes a full exemption from dividend
      withholding tax for dividends paid by qualifying shareholdings. The
      withholding tax exemption applies if a resident of one of the countries
      holds at least 50% of the shares in a company resident in the other
      country. For shareholding between 10% and 50% a reduced withholding tax
      rate of 5% applies. It was announced that the new treaty is to contain a
      limitation on benefits article, which is expected to follow those
      appearing in the Japan-US, Japan-UK, Japan-Australia, and other recently
      negotiated income tax treaties. The Bahrain-Netherlands income tax treaty,
      signed at The Hague on 16 April 2008, entered into force on 24 December.
      The treaty is the first income tax agreement concluded between the two
      countries and its provisions generally will apply beginning 1 January

  • Japan considers relaxation of corporate tax avoidance regime
    • 12 December 2009, the Japanese government’s Tax Advisory
      Council (Zeisei Chousa-kai) was reported to be considering a change to
      Japan’s tax policy in respect of so-called “tax havens” in the 2010
      financial year. In addition to having one of the highest effective
      corporate tax rates in the OECD, Japan considers countries with corporate
      tax rates under 25% as “tax havens” and treats the earnings of Japanese
      corporates in such countries as part of the parent company in Japan in
      assessing corporate taxes. Earnings from overseas subsidiaries in Hong
      Kong, Singapore, Russia, Vietnam and other key emerging markets are
      therefore taxed at domestic rates. According to a survey by the Ministry
      of Economy, Trade and Industry (METI), Japanese companies have some 17,000
      overseas subsidiaries, of which approximately half are in countries that
      the Japanese tax agency considers to be “tax havens”. Following a court
      action involving to a Hong Kong-based subsidiary and representations from
      the Japan Business Federation, the Tax Advisory Council is understood to
      be considering a reduction of the applicable corporate income tax to just
      over 20% on income from jurisdictions deemed to be tax havens, according
      to a Nikkei report.

  • Netherlands voluntary disclosure nets €1 billion in hidden assets
    • 1 December 2009, the Dutch
      Ministry of Finance announced that its voluntary disclosure initiative for
      individuals with undisclosed foreign savings accounts had so far
      identified 4,400 individuals and over €1 billion in hidden assets. The
      number of persons volunteering was running at around 50 per day and this
      was expected to increase before the year-end.”The voluntary owning-up
      scheme will be cut back as from 1 January 2010,” said State Secretary Jan
      Kees de Jager, “whereas the fine for persons not declaring their savings
      was increased to 300% in July of this year. In addition, these tax payers
      know that the Netherlands has meanwhile concluded tax treaties with many
      tax havens and they do not want to run the risk anymore of being caught by
      the Tax and Customs Administration or the Fiscal Investigation and
      Intelligence Service & Economic Investigation Service.”

  • New German government drops tax haven reporting requirements
    • 7 January 2010, the new German Finance
      Minister Wolfgang Schaeuble announced that he would not be seeking to
      impose new reporting requirements on taxpayers transferring money to
      jurisdictions that Germany had previously labeled as tax havens. The
      position is a reversal from the previous administration, in which
      then-Finance Minister Peer Steinbrueck pushed hard for legislation that
      empowered Berlin to take punitive steps against those jurisdictions. The
      resulting law, passed in September last year, requires taxpayers to
      document transactions with tax havens and submit the data to German tax
      officials. Failure to comply could lead to a revocation of privileges for
      companies, and heavy fines for individual taxpayers. But the new Finance
      Ministry of CDU member Wolfgang Schaeuble issued a statement saying: “No
      state or area fulfilled the criteria for prohibitive measures suggested in
      the September tax evasion law. At this point, we see no reason to force
      taxpayers or banks to provide documentation of accounts.” Schaeuble
      instead called on the OECD to enforce the standards with which
      jurisdictions have agreed to comply.

  • New law simplifies the migration of offshore funds to Ireland
    • 18 December 2009, the new Irish Companies (Miscellaneous
      Provisions) Bill 2009 came into force, which facilitates the migration of
      offshore funds to Ireland by permitting non-Irish corporate funds to
      register as Irish companies and continue their existence as funds
      authorised by the Irish Financial Regulator.The new legislation will
      benefit fund promoters looking to take advantage of the distribution
      opportunities afforded by the UCITS Directive and may also provide
      benefits under introduction of the proposed Alternative Investment Fund
      Managers Directive that, as it stands, will only grant a EU marketing
      passport to EU-domiciled funds. In his budget speech of 9 December 2009,
      Minister for Finance Brian Lenihan said the 12.5% corporation tax rate
      “will not change” and that further measures would be introduced to
      facilitate Ireland becoming the “European hub of the international funds
      industry following recent European legislative changes”.

  • Qatar brings in 10% flat corporate tax rate
    • 17
      November 2009, Crown Prince Sheikh Tamim Bin Hamad Al Thani issued Law No.
      21 of 2009 to lower the tax rate on foreign companies to a flat rate of
      10% as of 1 January 2010. Previously Qatar imposed corporate tax on
      foreign-owned companies at a progressive rate ranging from 10% to 35%.
      Several Gulf States have cut corporate tax rates in recent years,
      including Saudi Arabia, Kuwait and Oman. These states face strong
      competition from the United Arab Emirates and Bahrain, which both operate
      a 0% corporate tax rate.

  • Revised US-Italy tax treaty finally brought into force
    • 16 December 2009, the US Department of the
      Treasury announced the entry into force of a new tax treaty with Italy,
      originally approved by the US Senate in 1999, following an exchange of
      ratification documents in Rome. It replaces the 1985 Italy-US treaty.The
      new treaty reduces the withholding tax rates on dividends, interest, and
      royalties; authorises the collection of a dividend-equivalent tax on the
      repatriated profits of a branch; includes a provision limiting the
      benefits of the treaty to some qualified residents of the other
      contracting state; addresses the creditability in the US of the Italian
      regional tax on production activities; and provides for a special
      arbitration procedure if the competent authorities of the two contracting
      states fail to reach an agreement over a treaty dispute within two
      years.The US Senate made ratification subject to a reservation requiring
      deletion of the “main purpose” language included in the withholding
      provisions, and subject to an understanding regarding the information
      exchange provision. The reservation required the Italian government’s
      approval, which stalled the ratification process.In 2006 and 2007, the two
      governments exchanged diplomatic notes in which the Italian government
      officially agreed to the Senate reservation, paving the way for final
      ratification and, on 3 March 2009, the Italian Parliament passed
      legislation authorising ratification of the new treaty.With respect to
      taxes withheld at source, the new treaty will have effect for amounts paid
      or credited on or after 1 February 2010. For all other taxes, the new
      treaty will cover taxable years starting 1 January 2010.

  • Singapore and Liechtenstein sign 12 TIEAs to meet OECD standard
    • 13 November 2009, Singapore signed
      a protocol with France that brought the two countries’ bilateral tax
      treaty into line with the OECD standard on transparency and exchange of
      information for tax purposes. It was the twelfth such agreement signed by
      Singapore in accordance with the OECD standard, such that it moves onto
      the OECD’s “white list” of jurisdictions that have substantially
      implemented the standard. OECD Secretary-General Angel Gurría said:
      “Singapore is a key player in the global financial community. The fact
      that Singapore has removed the legislative impediments to its
      implementation of the international standard is very welcome and it
      confirms that there is a new global environment of tax cooperation. No
      jurisdiction can stand apart from this movement towards greater
      transparency for tax purpose.” The previous day, Liechtenstein signed tax
      information exchange agreements (TIEAs) with Belgium and the Netherlands,
      also bringing its total of TIEAs to 12 and ensuring its promotion to the
      OECD white list. OECD secretary-general Angel Gurria said the principality
      “has within a few months turned into reality its commitment to fully
      cooperate in tax matters”. Other new entries to the “white list” after the
      OECD update on 10 November include: Estonia, Gibraltar, India, Israel,
      Monaco, Netherlands Antilles, San Marino, Slovenia and

  • Singapore anti-money laundering changes come into force
    • 2 December 2009, new requirements in respect
      of the prevention of money laundering and countering the financing of
      terrorism, issued as a series of notices under the Monetary Authority of
      Singapore Act, came into force. The Monetary Authority of Singapore (MAS)
      issued a consultation paper on the proposed revisions in May.The notices
      amend existing requirements on enhanced customer due diligence on foreign
      politically exposed persons (PEPs) with a view to covering “a natural
      person who is or has been entrusted with prominent public functions
      whether in Singapore or a foreign country”. The notices apply to: banks;
      merchant banks; finance companies; capital market intermediaries;
      financial advisers; life insurers; trust companies; holders of
      money-changer’s licence and remittance licence; and, holders of stored
      value facilities.“Prominent public functions” for the above purpose
      includes the roles held by a head of state, a head of government,
      government ministers, senior civil servants, senior judicial or military
      officials, senior executives of state owned corporations, and senior
      political party officials. The new requirement comes into
      effect.Additional changes that also came into effect are designed to spell
      out explicitly that simplified procedures are not acceptable whenever
      there is suspicion of money laundering or terrorist financing; and that
      the obligation is on the financial institution to immediately collect the
      necessary information concerning elements of the customer due diligence
      process from the third party. These changes apply to most of the financial
      institutions and functionaries mentioned in the preceding paragraph.A
      statement adopted at the recently concluded 17th APEC Economic Leaders’
      Meeting, held in Singapore on 14-15 November 2009, referred to the
      financing of terrorism and stated that:“We note the importance of
      international cooperation in combating and dismantling the threat of
      cross-border criminal networks and its linkages with corruption nodes. We
      encourage member economies, where applicable, to ratify the UN Convention
      against Corruption and UN Convention against Transnational Organised Crime
      and take measures to implement their provisions, in accordance with
      economies’ legal frameworks.”

  • Singapore hopes to break US tax treaty deadlock
    • 19 October 2009, Singapore Minister for Finance
      Tharman Shanmugaratnam said Singapore expects to hold exploratory talks
      next year with the US regarding a comprehensive income tax treaty, which
      may lead to a breakthrough in the 22-year deadlock between the two
      countries.In July, John Harrington, international tax counsel for the US
      Treasury department, said that historically, there had been three issues
      on which the US could not compromise in tax treaty negotiations. “The
      country had to be willing to exchange information, had to be willing to
      agree on a comprehensive limitation on benefits provision, and can’t
      insist on tax sparing,” he said. “So to the extent countries across the
      board are meeting the OECD information exchange standard, that does open
      the door for some group of countries with whom that was an obstacle. That
      puts some potential countries back on the table.”

  • Singapore passes tax information exchange law
    • 19 October 2009, Singapore’s parliament
      passed the Income Tax (Amendment) (Exchange of Information) Bill, which
      will enable the country to implement the internationally agreed OECD
      standard for the exchange of information for tax purposes by enhancing the
      level of assistance and information that it can provide to foreign
      jurisdictions under bilateral treaties and agreements. Previously the
      assistance that Singapore could provide through treaties was subject to
      the domestic interest condition, meaning that the information requested
      had to be relevant to the enforcement of domestic tax laws before the
      Inland Revenue Authority of Singapore (IRAS) could gather and exchange it
      with treaty partners. Only where there was a domestic interest, would
      Singapore’s banking and trust confidentiality laws allow for information
      to be obtained for the purposes of investigating or prosecuting a tax
      offence. Minister of Finance Tharman Shanmugaratnam told parliament: “This
      enhanced scope of cooperation will not only allow Singapore to provide
      greater assistance to its prescribed treaty partners, but also help
      Singapore obtain information for the enforcement of our domestic tax
      laws.” “We will only provide assistance where there is a genuine case on
      hand, and the requested information is specific and relevant to the case.
      Spurious or frivolous requests for information will not be acceded to.”
      The amendment to the Income Tax Act enabled Singapore to implement the
      OECD standard for exchange of information for tax purposes upon request,
      which was endorsed by Singapore in March 2009. When the OECD published its
      list for the G-20 meeting in London last April, Singapore featured on the
      “grey” list of jurisdictions that had committed to, but not yet
      substantially implemented, the internationally agreed tax standards. On 13
      November 2009, Singapore qualified for removal from the “grey” list after
      it signed a twelfth bilateral information-sharing agreement – with France
      -– and thereby passed the threshold for inclusion on the OECD’s “white”
      list of countries whose tax law allows exchanges of information with other
      jurisdictions. Singapore had previously signed similar agreements with
      Belgium, New Zealand, the UK, Denmark, the Netherlands, Australia,
      Austria, Norway, Qatar, Mexico and Bahrain. “Singapore will also be
      playing an active role in the Global Forum on Transparency and Exchange of
      Information, and we are pleased to have been recently appointed as the
      vice chairman of the Global Forum’s Peer Review Group,” Shanmugaratnam
      said. OECD secretary-general Angel Gurría said: ”Singapore is a key player
      in the global financial community. The fact that Singapore has removed the
      legislative impediments to its implementation of the international
      standard is very welcome and it confirms that there is a new global
      environment of tax cooperation. No jurisdiction can stand apart from this
      movement towards greater transparency for tax purposes.”

  • Swiss Court hands over bank data in Siemens’ case
    • 23 December 2009, the Federal Criminal Court rejected an appeal against
      the disclosure of banking information to German prosecutors who are
      examining whether Siemens, the German industrial conglomerate, employed
      corrupt practices in Malaysia. Siemens has faced a series of international
      corruption investigations and legal proceedings in numerous jurisdictions
      around the world, leading to a US$1.6 billion settlement with the US and
      German authorities in December 2008. The Court heard that $300,000 was
      paid through Swiss accounts to Malaysia in 2004 and 2005, where Siemens
      sought to become the exclusive supplier to a mobile phone company.
      Switzerland launched its own investigation in 2005 to determine whether
      Siemens channeled money into secret accounts for bribes to secure
      contracts. The investigation is ongoing. More than US$95.5 million in
      Siemens accounts in Switzerland is blocked pending the investigation, said
      Jeanette Balmer, spokeswoman of the federal prosecutor’s office. Before
      1999, bribes were deductible as business expenses under the German tax
      code, and paying off a foreign official was not a criminal offence. In
      February 1999, Germany ratified the OECD Convention on Combating Bribery
      of Foreign Public Officials in International Business

  • Switzerland freezes tax treaty negotiations with Italy
    • 29 October 2009, Switzerland announced that it
      had frozen its tax treaty negotiations with Italy in response to an
      Italian crackdown on tax evasion. The move followed threats by Giulio
      Tremonti, Italy’s finance minister, to “dry out” Lugano, Switzerland’s
      third financial centre after Zurich and Geneva, and the traditional
      destination for Italian funds.“The agreement was ready to be signed on our
      side,” said Hans-Rudolf Merz, finance minister and head of state this year
      under Switzerland’s rotating presidency.The Italian foreign minister said
      it would be counter-productive for Switzerland to retaliate after Italian
      police raided local branches of Swiss banks. Switzerland summoned the
      Italian ambassador to demand an explanation after officers of Italy’s
      Guardia di Finanza and tax inspectors from the Agenzia delle Entrate
      raided, on 27 October, 76 Italian branches of Swiss banks and Italian
      banks with Swiss links in north Italy and around San Marino.Italy said the
      operation was aimed at ensuring all relevant data was being provided to
      tax authorities to assist a crackdown on widespread tax evasion.Relations
      between the two countries have soured since Italy announced a generous tax
      amnesty aimed at recovering billions of Euros illicitly hidden by Italians
      in Switzerland and other jurisdictions.The Italian government published a
      list of 36 countries – deemed to be cooperating with tax authorities by
      providing information – where funds can be declared and a one-off penalty
      paid without having to repatriate them. Switzerland was not included.
      Italy’s tax authorities estimate that Italians have Euro125 billion in

  • UBS data transfer ‘violated secrecy laws’
    • 8 January 2010, a Swiss court ruled that Swiss Financial
      Market Supervisory Authority (FINMA) had violated Swiss laws by
      authorising the transfer of data of 300 clients of UBS, Switzerland’s
      largest bank, to US tax authorities. Three US clients of UBS brought the
      case against FINMA. Last February, in a bid to settle charges of tax fraud
      in the US, UBS agreed to pay US authorities US$780 million and hand over
      details of about 300 clients. Banks in Switzerland are not allowed to
      provide any data on their clients to authorities, unless there is clear
      evidence of fraud or money laundering. Only the Swiss government and the
      parliament are authorised to allow banking secrecy rules to be lifted by
      evoking the law of “constitutional necessity”. The Federal Administrative
      Tribunal ruled that: “the decision of the FINMA on 18 February 2009 to
      order the transfer of banking data of UBS clients to authorities of the
      United States of America violates the law.” It further noted: “even if
      FINMA is in a critical situation due to threats of a penal proceeding
      against UBS from the US authorities, it is not authorised to allow the
      transmission of banking data concerning clients outside of the ordinary
      international administrative assistance procedure.” FINMA justified its
      decision saying that “only this solution could prevent an imminent lawsuit
      by the US penal authorities against the bank that threatened the
      existence” of UBS. It said it would analyse the ruling and decide if it
      would file an appeal at the Supreme Court.

  • UK Court of Appeal holds corporate schemes of arrangement cannot deprive beneficiaries of trust assets
    • 6 November 2009, the Court of Appeal held that the court had no jurisdiction under Pt 26 of the Companies Act 2006 to sanction a scheme of arrangement which extended to the release of rights over property held by the company under a trust since it did not constitute a compromise or arrangement between the company and its creditors within s 899 of the 2006 Act.In re Lehman Brothers International (Europe) (in administration) (No 2) [2009] EWCA Civ 1161, dismissed an appeal by
      the administrators of Lehman Brothers International (Europe) against the
      decision of Blackburne J on 21 August 2009 that the court had no
      jurisdiction to sanction a scheme of arrangement proposed by the
      administrators between the company and certain former clients with
      proprietary interests in the assets held by or on behalf of the
      company.Patten LJ said that the question was one of statutory
      construction. The current provisions had remained essentially unchanged
      since they first appeared in the 1870 Act and there was nothing to suggest
      that Parliament had recently intended to give them any different or wider
      meaning. Given that “creditor” was not defined in the legislation, it was
      inconceivable that Parliament should have used the word in the 2006 Act in
      any but its literal sense. An arrangement between a company and its
      creditors had to mean an arrangement that dealt with their rights inter se
      as debtor and creditor. That formulation did not prevent the inclusion in
      the scheme of the release of contractual rights or rights of action
      against related third parties necessary in order to give effect to the
      arrangement proposed for the disposition of rights and liabilities of the
      company to its own creditors. But it did exclude from the jurisdiction
      rights of creditors over their own property that was held by the company
      for their benefit, as opposed to their rights in the company’s own
      property held by them merely as security.Parliament could not have
      intended to allow creditors to be compelled to give up not merely those
      contractual rights but also their entitlement to their own property held
      by the company on their behalf. A proprietary claim to trust property was
      not a claim in respect of a debt or liability of the company. The
      beneficiary was entitled in equity to the property in the company’s han ds
      and was asserting its own proprietary rights over it against the trustee.
      The trust element in these arrangements could not be merged in some way
      into the general contractual framework and treated merely as ancillary
      when considering the limits of the scheme jurisdiction, nor did Parliament
      ever intend to deal with it in that manner.

  • UK Court of Appeal remits pilot residence case to First-Tier Tribunal
    • 1 November 2009, the Court of Appeal found that the Special Commissioner had misdirected herself in law in the case of Lyle Dicker Grace v Revenue & Customs Commissioners when she originally heard the case, and this would have
      affected her decision regarding his residence. It ruled that the case
      should be remitted to the Tax Tribunal for reconsideration in the light of
      the areas where the Court of Appeal considered the Special Commissioner
      was misdirected.Grace was a pilot domiciled in South Africa but who had
      been living in the UK for some time. He had come to the UK in 1986 to
      qualify as a commercial pilot and was then employed by British Caledonian.
      In 1997 his marriage was dissolved and he returned to South Africa,
      setting up home in Cape Town while continuing his employment with the
      airline. He retained his house near Gatwick Airport, which he used in
      order to rest before or after carrying out his flying duties.HMRC argued
      that he had not really left the UK. There had been no distinct break and
      he remained resident here. Grace said that in August 1997 he left the
      country to live outside the UK permanently and thereafter was not resident
      in the UK. He had moved the centre of his life to South Africa and he had
      kept his visits to the UK to a minimum. In the following three years he
      spent 41, 71 and 70 days in the UK, ignoring days of arrival and
      departure. The Special Commissioner decided that he was not resident in
      the UK.On appeal, the High Court decided that he was resident after all.
      The judge said that his presence in the UK to perform duties under a
      permanent contract of employment was not casual or transitory and his
      presence simply could not be described as a temporary purpose. This was
      not a conclusive point and although the issue of distinct break was
      raised, the judge did not feel it profitable to deal with the point and it
      was not a basis for his decision. The only error of law made by the
      Special Commissioner was that she should not have concluded that because
      Grace had a permanent dwelling and a settled place of abode in South
      Africa, he could not have had one in the UK. She misdirected herself
      regarding the nature and quality of Grace’s presence in the UK.The Court
      of Appeal did not feel that a finding of UK residence was the only
      possible conclusion based on the facts found by the Special Commissioner
      so it would not be right to pre-empt a decision. It said: “It would be
      wrong to treat the appellant’s presence for the purposes of his employment
      as a factor which necessarily shows his residence. It may well be a strong
      pointer in that direction but…I do not think it would be right to regard
      Mr Grace’s residence in this country in order to perform the duties of his
      employment as a trump card which of itself concludes the issue in favour
      of residence.”It therefore allowed the appeal by Grace, but only so that
      the issue of residence could be remitted to the First-tier Tribunal for

  • UK Court rejects service of “Chabra” order on foreign domiciled party
    • 24 September 2009, the UK High Court held that it did not have jurisdiction to serve a “Chabra” order on foreign domiciled third parties ancillary to a freezing injunction already granted by the Court against the first defendant.In the case of Dario Belletti & ors v Pierantonio Morici & ors [2009] EWHC 2316, the claimants were Italian professionals and businessmen who claimed to have been the victims of a fraud perpetrated by the first defendant. Claims were brought against the first defendant in Italy, in the form of civil proceedings within criminal proceedings. In December 2007, the Milan Criminal Court found the first defendant guilty of aggravated fraud and awarded the claimants some €4 million, plus costs.On 25 May 2006, the claimants had obtained a worldwide freezing injunction against the first defendant under section 25 of the Civil Jurisdiction and Judgments Act, which permits the English court to give interim relief in support of substantive proceedings elsewhere in the EC. The first defendant infringed the injunction by concealing funds in Monaco.His Italian-domiciled parents, the fifth and sixth defendants, had assisted the first defendant with the transfers and, on 8 May 2009, the claimants obtained without notice orders restraining them from dealing with or disposing of any assets of the first defendant. The order also ordered delivery up of assets and information relating to them – a “Chabra” order, so named after the decision in TSB Private Bank International v Chabra. The fifth and sixth defendants failed to comply and applied to
      have the order set aside on the ground of want of jurisdiction.Mr Justice
      Flaux held that the application to set aside the order should be heard,
      despite the fifth and sixth defendants’ contempt of court, because the
      issue was whether the court had jurisdiction to make the order.Secondly,
      there was no jurisdiction to make a Chabra order against them because the
      Civil Procedure Rules, Practice Direction 6, para 3.1, which permits
      service on a person who is a necessary or proper party, applied only where
      the substantive dispute was before the English courts. Even if that was
      wrong, then there was no dispute between the claimants and the fifth and
      sixth defendants.It was not expedient to make a Chabra order under section
      25 of the 1982 Act because there was no connection between the fifth and
      sixth defendants and England, and the English court had no power to
      enforce any order against them.

  • UK High Court refuses jurisdictional challenge to service of proceedings
    • 24 September 2009, the UK High Court held that although a defendant worked and resided in Kenya and spent no more than a small fraction of his time in England, a house he owned in London, which was occupied by his wife and family, was his “usual or last known residence” for the purpose of serving proceedings upon him.In Relfo Ltd (In Liquidation) v Bhimji Velji Jadva Varsani (2009), the defendant applied to set aside service upon him of
      proceedings brought by the claimant or, in the alternative, to stay the
      proceedings pursuant to res judicata. The claimant sued the defendant in
      Singapore, alleging that, just prior to the claimant going into
      liquidation one of the directors paid a large sum to the defendant in
      breach of fiduciary duty and that the defendant was liable to account for
      that sum on the basis of knowing receipt. The claim was dismissed in the
      Singaporean courts on the basis that it amounted to an indirect
      enforcement of the revenue laws in the UK. The claimant issued fresh
      proceedings in England.The claim form was served on the defendant’s father
      at an address in London. The defendant challenged the service on the basis
      that the London address was not his “usual or last known residence” as he
      worked and resided in Kenya and spent only a small fraction of time in
      England and, even if the proceedings were correctly served, res judicata
      should prevent the claimant bringing an action which had already been
      dismissed in Singapore.It was held that the defendant’s house in England
      was as a home where his immediate and wider family lived. The term “usual
      residence” meant that which was in ordinary use. On the evidence, the
      claimant had a better case in establishing that the English address was a
      usual residence of the defendant than the defendant had of establishing
      the contrary. If a defendant could have more than one residence, he could
      have more than one “last known” residence. The defendant’s application
      failed in this respect. The doctrine of res judicata did not apply because
      the merits of the cause of action by the claimant against the defendant
      had not been finally disposed of in the courts in Singapore, which had
      declined to use their jurisdiction rather than decide the claim on its

  • UK New Disclosure Opportunity brings in 10,000 taxpayers
    • 7 January 2010, HM Revenue & Customs announced that
      10,000 individual taxpayers with previously undisclosed offshore income or
      gains had responded to the UK tax amnesty known as the New Disclosure
      Opportunity (NDO). The deadline for registering under the NDO, which
      offers tax evaders reduced penalties and a lower risk of prosecution, had
      been extended from 30 November 2009 to 4 January 2010 in a bid to increase
      take-up. HMRC said many of the 308 banks served legal notices in August
      requiring them to divulge account details had not yet handed over the
      information, in some cases because they were still appealing against the
      notices. Dave Hartnett, permanent secretary for tax at HMRC, said: “We
      know that some bank customers will not be contacted by their banks in good
      time for the original deadline of 30 November, so in the interests of
      fairness we have decided to extend our deadline by a month to 4 January.
      “I strongly urge anyone who has been hiding taxable assets offshore to go
      on line and register. The NDO is voluntary but from the start of the New
      Year we will begin to investigate those who were eligible to use the NDO
      but instead buried their heads in the sand. Don’t let that happen to

  • UK Pre-Budget Report targets anti-avoidance
    • 9
      December 2009, the UK government delivered its Pre-Budget Report – the
      last before the next general election – that included a one-off “super
      tax” on bankers’ bonuses and a number of targeted anti-avoidance measures
      relating to inheritance tax and pensions and further measures targeted at
      tackling offshore tax evasion. As previously announced, higher earners
      will be targeted with a new 50% tax rate from 6 April 2010 on income over
      £150,000. Dividends received by those subject to this new rate of 50% will
      be subject to tax at a new dividend rate of 42.5%. The new higher rates of
      tax will also apply to trusts. From April 2010, the dividend trust rate
      will be increased to 42.5% and the trust rate of tax payable by
      discretionary trusts will be increased to 50%, regardless of the level of
      trust income. Chancellor Alistair Darling announced the introduction of a
      one-off 50% “super tax” on bonuses of more than £25,000 per employee,
      whether in cash or otherwise, paid by banks and other financial services
      firms. The 50% bank payroll tax will be payable by the employer and will
      be in addition to the income tax and national insurance contributions
      payable by the employee on the net amount of the bonus after the 50% tax
      has been paid. The employee will get no credit for the 50% tax already
      paid by the bank and the 50% tax will not be a deductible expense in
      calculating the bank’s profits for corporation tax purposes.The bank
      payroll tax will apply to bonuses paid between 9 December 2009 and 5 April
      2010, and where a contractual obligation to pay a bonus arises during that
      period even if the bonus itself is not paid until after 5 April 2010. In
      addition, banks and other financial services firms will have an obligation
      to report all bonuses, in excess of £25,000, paid or awarded between 9
      December 2009 and 5 April 2010 to HMRC even if they do not consider that
      the bank payroll tax applies.The UK government also announced that, having
      given taxpayers with undeclared offshore assets the opportunity of coming
      forward under the 2007 Offshore Disclosure Facility (ODF) and last year’s
      New Disclosure Opportunity (NDO), higher penalties will apply for offshore
      non-compliance and UK taxpayers with offshore bank accounts in certain
      jurisdictions will be required to notify HMRC of those accounts. The
      government said it is also consulting on whether new obligations to
      provide HMRC with information in relation to non-UK resident trusts should
      be introduced.Under measures announced in the Pre-Budget Report, penalties
      in connection with undeclared tax on assets held or transferred offshore
      will be the same as those for deliberate domestic tax evasion – a minimum
      penalty of 20% for a voluntary disclosure and a maximum penalty of 100%
      for an involuntary disclosure where funds have been actively concealed.
      The new penalties will apply for tax periods commencing from 1 April
      2011.There will be no requirement, under current proposals, to notify HMRC
      of an account in a jurisdiction with which the UK has an agreement that
      provides for automatic exchange of information on savings income. But
      where a taxpayer has an account in a jurisdiction that has no tax treaty
      or tax information exchange agreement with the UK, the taxpayer must
      notify HMRC within 60 days of opening the account or face both a fixed
      penalty and ongoing daily penalties for continued non-compliance. Where a
      taxpayer has an account or accounts in any other jurisdiction he will be
      required to notify HMRC if the aggregate balance on all of the accounts is
      more than £25,000. This will not apply to remittance basis users.Two
      measures are to be introduced to counter two inheritance tax avoidance
      schemes using trusts. Where a life interest in a trust is purchased on or
      after 9 December 2009 for full market value, the assets will be treated as
      forming part of the individual’s estate for inheritance tax purposes on
      his death. Where the life interest comes to an end during the individual’s
      lifetime this will be treated as an immediately chargeable transfer
      subject to inheritance tax at 20%. The assets will continue to be treated
      as within the “relevant property” regime and so subject to ten-yearly
      periodic charges to inheritance tax and exit charges.Also from 9 December
      2009, where an individual transfers property into a trust in which they or
      their spouse has a future interest, or where a person purchases a future
      interest in a trust, there will be a charge to inheritance tax when the
      future interest comes to an end and the individual becomes entitled to an
      actual interest in the tr ust property or the individual gives their
      future interest away.The government also announced a consultation on
      measures aimed at strengthening the current tax avoidance disclosure rules
      under which promoters or in-house advisors of “hallmarked schemes”, which
      give, or might be expected to give, rise to a tax advantage, are required
      to provide HMRC with prescribed information within strict time

  • UK publishes review of offshore financial centres
    • 29 October 2009, Britain’s offshore financial centres must meet clear
      standards on financial regulation and tax information exchange, according
      to Michael Foot’s independent review on the sector.Foot, the former
      managing director of the UK Financial Services Authority, published his
      review of British Crown Dependencies and Overseas Territories with
      significant financial sectors, which looked at the future sustainability
      of these jurisdictions and set out a series of standards to which offshore
      centres must adhere.He did not spell out the kind of sanctions that might
      be imposed, but said London needed to “offer both carrots and sticks” to a
      group in which some members were performing well but others had “a lot of
      work to do”.An accompanying report on corporate tax avoidance – prepared
      by Deloitte, the accounting firm, and published on the same day –
      calculated said that UK companies avoided up to £2 billion of taxes each
      year through offshore jurisdictions and other means, a much lower number
      than some previous estimates. The report analysed the financial results
      for last year for 50 of Britain’s biggest businessesThe 93-page Foot
      report stated that British offshore financial centres must ensure they
      meet international standards on tax information exchange, financial
      regulation, anti-money laundering and financing of terrorism.Foot said
      that while the majority of the centres surveyed – Jersey, Guernsey, the
      Isle of Man, Gibraltar, Bermuda, the Cayman Islands, the British Virgin
      Islands, Anguilla and the Turks and Caicos Islands – had a “good story to
      tell”, none could afford to be complacent.He said he shared the concerns
      that offshore businesses were too secretive, but pointed to similar
      problems in rich countries, most significantly the US state of
      Delaware.The report noted that financial intelligence units that had only
      single-digit numbers of staff oversaw huge financial industries such as
      the Cayman hedge fund sector. Bermuda, the British Virgin Islands,
      Anguilla and the Turks and Caicos Islands needed to do more to tackle
      financial crime, Foot said, while Gibraltar and the Isle of Man had to
      improve compliance with international anti-money laundering norms.More
      controversially, he said, that tax havens must also ensure that they put
      public finances on a firmer footing by diversifying their tax bases,
      making them less vulnerable to events like the current financial crisis.
      “It’s in their own hands,” Foot said. “There are some tough calls for some
      of these jurisdictions.”The report also said the UK government should
      discuss its relationship and future responsibilities towards these
      jurisdictions, including what financial assistance it will provide in
      times of crisis, and how their risks exposures will be managed.Stephen
      Timms, financial secretary to the UK Treasury, said: “This report sends a
      strong signal to overseas financial centres that they must ensure that
      they have the correct regulation and supervision in place, while also
      ensuring their tax bases are more diverse and sustainable to withstand
      economic shocks – this is essential to their long term

  • UK to bring Perpetuities & Accumulations Act into force
    • 7 January 2010, Justice Minister Bridget
      Prentice announced a Commencement Order to bring the Perpetuities and
      Accumulations Act 2009, which received Royal Assent on 12 December 2009,
      fully into force on 6 April 2010. The Act is designed to modernise and
      simplify trust law on leaving property in trust for future
      generations.Under the Act, a standard perpetuity period of 125 years will
      apply to property put in trust, by will or otherwise. The perpetuity
      period limits the length of time that the future ownership of property can
      be dictated by a person setting up a trust. The new time limit aims to
      strike the balance between respecting the intentions of people who give
      away property, against the needs of future generations to use estates for
      other purposes that might be more appropriate in future years.The Act will
      also remove the current limits on the time that t he terms of a trust can
      require the trustees to accumulate investment income rather than
      distributing it. The previous law derived from legislation in the
      early-19th century that was designed to prevent individuals accumulating
      sufficient money to threaten the national economy – which is no longer
      considered to be a threat. Charities will be subject to an accumulation
      limit of 21 years or, if specified, the remainder of the life of the
      settlor, unless the court or the Charity Commission allows longer.The Act
      implements, with some modifications, the recommendations in the Law
      Commission’s 1998 Report, The Rules Against Perpetuities and Excessive
      Accumulations (LC251) and is the first piece of primary legislation to
      enter Parliament under a trial of a proposed House of Lords procedure for
      legislation implementing Law Commission recommendations.

  • US voluntary disclosure programme attracts 15,000 taxpayers
    • 17 November 2009, IRS Commissioner Douglas Shulman said participation in the Internal Revenue Service amnesty programme was “unprecedented”, with almost 15,000 US taxpayers voluntarily disclosing previously undeclared foreign holdings.Of 14,700 newly disclosed accounts, many involved bank accounts in Switzerland and Europe, but assets were hidden in more than 70 countries. In particular, there was a “significant influx in accounts with holdings in the Far East”. The IRS has said recently it is focusing on funds flowing out of Europe and into Asia, and is opening a new office in Beijing.The US and Swiss governments also released the criteria used to select the 4,450 accounts that Swiss bank UBS must provide to the IRS. Details of the agreement, reached on 19 August 2009, had remained secret to allow the US to extract the maximum returns from its offshore amnesty programme.The Swiss Justice Department said it would hand over the names of wealthy US clients of UBS with unreported accounts holding more than SFr1 million, at any time since 2001, where there was a reasonable suspicion of tax fraud.Other criteria included:
      US clients who indirectly owned accounts that
      generated unreported income above SFr100,000 in any of the three years
      in the period 1998-2008;
      Clients who held more than SFr250,000 and who
      are shown to have committed “fraudulent conduct”. This could mean
      holding accounts through trusts, shell companies or foundations, or
      failing to disclose US citizenship when opening the account. This
      criterion applies to about 250 of the accounts, according to the Swiss
      Clients who used secure mobile phones or debit cards to move funds secretly.
      There will be no disclosure of US clients who have lived outside the US for a long time and who hold Swiss accounts in their own names – although the IRS said it still regards such people as liable for tax penalties.The Swiss Justice Ministry said UBS has already handed over details of 900 accounts to the Swiss tax authorities. The first 500 UBS account holders were to be officially informed that they are to be identified to the IRS by the end of November.Jean-Pierre Blackburn, Canadian Minister of National Revenue, announced on 2 December 2009 that 90 Canadian residents had voluntarily come forward in the past year to disclose hidden offshore accounts in Swiss bank UBS.The Canada Revenue Agency (CRA) has so far reached settlement agreements with 41 residents who disclosed a total of C$15.3 million in previously unreported income and was still in talks with UBS to obtain a list of other Canadian taxpayers holding secret offshore accounts with the bank, similar to the deal agreed in August by the US.”It’s not easy,” Blackburn told the Financial Post. “If we realise that it won’t be
      possible to obtain it, if they just try to obtain time, we will go [to]
      court to obtain that list.”Since 1 January 2009, a total of 6,798
      Canadians – including the 90 with UBS accounts – had voluntarily disclosed
      hidden assets and offshore accounts, revealing C$1.66 billion in
      unreported income.

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