Owen, Christopher: - Offshore Survey – April 2010 Supplement

  • Cayman Islands’ report rejects direct taxes
    • 26 February 2010, a Cayman Islands’ commission on fiscal
      sustainability released a report recommending that the UK overseas
      territory should balance its budget by cutting spending and privatising
      government holdings rather than by imposing direct taxes, which could harm
      the financial services industry. The Cayman Islands currently has no
      personal income tax, corporate income tax, VAT or direct taxes on
      property. It levies duties on imports and on goods and services, such as
      financial and corporate registrations and licenses. It also raises revenue
      from the tourist sector through charges on transport, accommodation and
      business registrations. Last year the Cayman Islands sought permission
      from the UK government to borrow about $459 million in already negotiated
      bank loans to balance the Cayman Islands’ budget for the fiscal year
      ending 30 June 2010. The UK government allowed the Cayman Islands to
      borrow $312 million, on condition that it set up a commission to review
      new revenue sources, including direct taxes. The Cayman Islands government
      appointed James Miller, former US Federal Trade Commission chairman, to
      head a commission, which also included former UK Member of Parliament
      David Shaw and Cayman Financial Secretary Kenneth Jefferson. The 135-page
      report – “Addressing the Challenge of Fiscal Sustainability of the Cayman
      Islands: Final Report of the Independent Commission” – concluded that the
      existing tax regime was crucial to attracting and retaining financial
      services firms and tourists. Adopting a system of direct taxation would be
      counterproductive because: Cayman needed less spending rather than more
      taxes; raising taxes would hinder the economy’s performance; direct taxes
      were more distortionary per dollar of revenue than alternative revenue
      systems; direct taxes would particularly harm the financial services
      sector; and setting up a direct tax system would place a heavy oversight
      burden on the government. VAT would also be harmful to the territory’s
      tourist sector. The Miller Commission instead recommended that the
      territory undertake privatisations and asset sales in respect of the
      Cayman Water Authority, the government’s new office building, various
      government land holdings, the airport on Grand Cayman and the Cayman
      Islands Port Authority. It also called on the Cayman government to
      restructure inefficient government operations and make significant
      reductions in operating costs

  • Dubai announces new real estate regulations
    • 1 March 2010, the Lands and Property Department of
      Dubai imposed a temporary month-long prohibition on offshore investments
      in the emirate’s real estate freehold market in order to allow new
      regulations aimed at improving transparency to be brought in. The new
      regulations are primarily aimed at establishing the identity of the owner
      of any investing firm in order to improve accountability and resolve
      potential conflicts. Mohammad Sultan Thani, director general of the
      Department, said that from the beginning of March, offshore companies
      would be able to register with the land department, but not as developers.
      “There are currently guidelines that exist which offshore companies have
      to adhere to. A new set of regulations is currently awaiting approval and
      is due to be introduced,” said Thani. “Most of the new regulations will be
      to monitor who the owner of the companies are, so whenever they want to
      sell they are able to inform the Land Department.” The explosion in
      Dubai’s property market was down to the relaxation of property laws,
      which, as of 2002, allowed non-UAE residents to purchase freehold
      properties in certain designated areas of the emirate. But disputes have
      soared in the last 18 months with the collapse of Dubai’s real estate
      market, which has seen prices slump more than 50% from their 2008 highs.
      Offshore companies allow investors to purchase property with relative
      anonymity and have made it difficult for the Dubai authorities to take
      action against companies when a dispute arises. The new rules mean that
      offshore companies will not be allowed to develop real estate unless they
      do so under local regulations

  • Dutch parliament debates Tax Bill for former Antilles islands
    • 5 March 2010, several parties in the Second Chamber of the
      Dutch Parliament indicated that they were not in support of the Dutch
      government’s plans to annul the profit tax in the BES islands – Bonaire,
      St Eustatius and Saba. Under a new political structure, agreed between the
      islands’ leaders and the Dutch government in late 2005, the federation of
      the Netherlands Antilles is to be dissolved in October 2010. Curaçao and
      St Maarten will become autonomous territories of the Netherlands, like
      Aruba, while the BES islands will become overseas municipalities of the
      Netherlands. Dutch Finance Minister Jan Kees de Jager and State Secretary
      of Kingdom Relations Ank Bijleveld-Schouten want to annul the existing
      profit tax for the BES islands to stimulate economic development. Based on
      the Bill submitted to the Dutch parliament, provided certain conditions
      are met, companies established in the BES islands could elect not be
      subject to corporate income tax and would only be subject to a
      distribution tax and property tax. Some parties in the Second Chamber fear
      that annulling the profit tax would encourage companies now established on
      Curaçao and St. Maarten to move to the BES islands. Dutch Socialist Party
      (SP) Member of Parliament Ronald van Raak said he would submit an
      amendment to introduce corporation tax. He described it as “a harsh
      condition”, but said the rate would be significantly lower than in The

  • EC requests five member states to change discriminatory rules
    • 18 March 2010, the European Commission sent requests to Belgium, France, Greece, the Netherlands and Portugal to change various rules related to direct taxation that it considers are disproportionate or discriminatory and infringe upon the fundamental freedoms set out in the EU Treaty. The Commission has formally requested that:
      Belgium changes an income tax rule which only
      allows tax relief to pension savings paid to Belgian institutions and,
      for collective pension savings, only if they are invested in Belgian
      funds; changes rules on tax relief for pension savings; and changes a
      tax provision which requires operators of foreign securities lending
      systems to appoint a fiscal representative in Belgium;
      French change tax rules that discriminate
      against foreign pension and investment funds by levying a 25%
      withholding tax on outbound dividends paid to pension and investment
      funds in other Member States or EEA countries, but no withholding or
      other tax is levied on domestic funds;
      Portugal amends tax rules for non-resident
      taxpayers. Non-residents are in certain cases taxed on a gross base and
      according to flat rates, while residents are taxed on a net base and
      according to progressive rates; The Netherlands change its rule that
      gifts, donations and inheritances to Dutch and foreign charities can
      only qualify for tax relief if the charities have registered themselves
      with the Dutch tax authorities;
      Greece to change its legislation on the tax deduction of medical expenses incurred in another member state.
      The requests were sent in the form of reasoned opinions, the
      second step in the infringement procedure. If there is no satisfactory
      reaction from the Member States within two months, the Commission may
      decide to refer the relevant matter to the Court of Justice

  • EC requests three member states to change exit tax rules
    • 18 March 2010, the European Commission formally requested that Belgium, Denmark and the Netherlands change tax rules that impose an immediate exit tax when companies transfer their seat or assets to another EU member state. It considers these provisions to be incompatible with the freedom of establishment provided for in the EU Treaty. The incriminated provisions are:
      The Belgian tax law provides for immediate
      taxation of capital gains in case the fiscal residence of a company is
      changed to outside Belgium.
      The Danish tax lax provides for immediate
      taxation of capital gains on assets transferred outside Denmark.
      The Dutch tax law provides for exit taxation of non-incorporated businesses and companies.
      The Commission
      considers that immediate taxation of accrued but unrealised capital gains
      at the moment of exit is not allowed if there is no similar taxation in
      comparable domestic situations. It follows from the case law that the
      member states have to defer the collection of their taxes until the moment
      of actual realisation of the capital gains. The request takes the form of
      a reasoned opinion, the second step of the infringement procedure provided
      for the EU Treaty. If there is no satisfactory response within two months,
      the Commission may decide to refer the case to the European Court of
      Justice. The Commission had already referred Spain and Portugal to the ECJ
      for similar exit tax rules and sent a reasoned opinion to Sweden. The case
      against Sweden has now been closed because it has complied with the
      Commission’s request

  • ECJ accepts restriction cross-border loss relief
    • 25 February 2010, the European Court of Justice (ECJ) ruled that the fact that the Netherlands tax regime makes it possible for a parent company to form a fiscal unity for corporate income tax purposes with its resident subsidiary but does not allow the formation of such a fiscal unity with a non-resident subsidiary is not in conflict with EC law, due to the fact that the profits of that non-resident subsidiary are not subject to the fiscal legislation of the Netherlands. In X Holding BV (C-337/08), the Dutch Supreme Court referred, in July 2008, a preliminary question to the ECJ regarding the Dutch fiscal unity regime. The referral stemmed from a case involving a Netherlands tax-resident parent company, X Holding, and its Belgian tax-resident subsidiary. Because the Dutch fiscal unity system in principle only allows for full tax consolidation of Netherlands tax-resident companies, the Dutch tax inspector denied the inclusion of the Belgian subsidiary in the Dutch fiscal unity. X Holding argued that its refusal was incompatible with EC law. The Dutch Supreme Court, applying the framework established by the ECJ in Marks & Spencer plc v David Halsey
      (C-446/03) to the Dutch fiscal unity legislation, concluded that the ECJ
      needed to provide guidance on whether the fiscal unity rules conformed
      with the principles of freedom of establishment and the free movement of
      workers set out in articles 43 and 48 of the EC Treaty. The ECJ ruled that
      the fact that only domestic subsidiaries could be included in a fiscal
      unity whereas foreign subsidiaries could not, constituted, in principle, a
      restriction on the freedom of establishment. But because the parent
      company was at liberty to include or exclude a subsidiary in the fiscal
      unity, acceptance of the possibility to include non-resident subsidiaries
      in the fiscal unity would offer the parent company the opportunity to
      choose freely in which EU member state the subsidiary’s losses would be
      taken into account. For that reason, the refusal of a cross-border fiscal
      unity was justified in view of the need to safeguard the allocation of the
      power to impose taxes. The verdict that could have a direct effect on all
      European member states with some form of consolidated tax group system.
      This includes France, Germany, Italy, Portugal, Spain, Sweden and the

  • European Commission approves Cyprus tonnage tax
    • 24 March 2010, the European Commission approved a
      proposal by the Cypriot government to impose a special reduced tax on
      companies engaged in international maritime transport, which replaces the
      corporate tax. It found that the scheme, which exists in several other EU
      countries, would enhance the competitiveness of the Cypriot fleet without
      unduly distorting competition. The Commission authorised the scheme until
      31 December 2019. The Cypriot government has notified a tonnage tax
      measure for companies engaged in international maritime transport and
      liable to corporate tax in Cyprus. The Cypriot maritime industry is one of
      the largest in the EU and the tenth largest worldwide. Cyprus is also the
      biggest third party ship management centre in the EU. The proposed scheme
      allows companies to opt for a tax calculated on the net tonnage of the
      fleet that they operate instead of being taxed on the actual profits of
      their maritime transport activities. The tonnage tax scheme would also be
      applicable under certain conditions to tugboats, dredgers and
      cable-layers. The Commission considered that the scheme was in line with
      EU Guidelines on state aid to maritime transport. It also found that
      strict ring-fencing measures would avoid any risks of tax evasion or
      spillover of the benefits of the scheme to non-shipping activities.
      Finally, the scheme complied with the aid ceiling provided for in the
      Guidelines. The Cypriot government has estimated that the annual cost of
      the measure would be €1.5 million

  • France and Switzerland agree new treaty Protocol
    • 11 February 2010, Switzerland and France formally
      agreed on the interpretation of the renegotiated tax treaty protocol,
      signed 27 August 2009. The two countries also noted that the data stolen
      from HSBC in Geneva would not be used for requests for administrative
      assistance from France. Clarification of the unresolved tax issues allows
      the ratification process to be resumed. The exchange of letters between
      the Swiss and French tax authorities sets out that, in cases where a
      country requesting an exchange of banking information knows the name of
      the bank holding the account of the taxpayer concerned, it shall
      communicate this information to the country to which the request is made.
      If, exceptionally, the requesting authority presumes that the taxpayer
      holds a bank account in the country to which the request is made, but does
      not, however, have information allowing it to identify without doubt the
      bank concerned, it shall supply all information in its possession to
      enable the bank to be identified. The country to which the request is made
      will respond to such a request provided that it is in line with the
      principle of proportionality and does not constitute a fishing expedition.
      France reiterated to Switzerland that none of the data stolen from HSBC in
      Geneva would be used in requests for administrative assistance. In the
      case of requests from third countries, the French authorities are to
      notify the Swiss authorities and transmit the requested information to the
      third countries. France fulfilled a further condition by delivering a copy
      of the data stolen from HSBC in Geneva to the Swiss authorities

  • French Finance Act amended to provide a one-off bonus tax
    • 9 March 2010, France’s Finance Act was amended to provide for a
      one-off 50% tax on traders’ bonuses for 2009. The bonus tax applies to the
      portion of the variable remuneration that is in excess of €27,500 per
      employee. The tax is due on 1 April, the first day of the month following
      the one in which the law entered into force, and must be declared by 25
      April on a special return. The levy is expected to raise €362.5 million,
      according to government estimates. The bonus tax applies to credit
      institutions and investment enterprises operating under the French
      Monetary and Financial Code and that are established in France. This
      includes French establishments of foreign entities. Insurance and
      portfolio management companies do not fall within the scope of the bonus
      tax. The bonus tax is assessed on the variable portion of the remuneration
      granted during the 2009 calendar year to employees defined as
      professionals of financial markets whose activitie s may significantly
      affect the risk exposure of their enterprise, as well as to professionals
      of financial markets who have control over those enterprises. The move
      follows the bonus tax announced by the UK government in its pre-Budget
      report on 9 December last year. French president Nicolas Sarkozy and UK
      prime minister Gordon Brown jointly called for a “level playing field” on
      global financial regulation

  • Ireland introduces transfer-pricing legislation
    • 4 February 2010, Ireland announced the
      introduction of transfer pricing legislation in the Finance Bill. The aim
      of the legislation is to align Ireland with its main trading partners by
      formally adopting the OECD arm’s-length principle. It will come into
      effect on 1 January 2011, although generous grandfathering provisions
      apply. The regulations will apply to “any arrangement” between associated
      enterprises involving goods, services, money or intangible assets, but
      only where those transactions meet the definition of being and Irish
      trading transaction for one or both parties, and only where Irish trading
      receipts are understated or trading expenses are overstated. To establish
      an arm’s length price, the OECD Transfer Pricing Guidelines for
      Multinational Enterprises and Tax Administration will be adopted. There is
      an exemption for small and medium sized The grandfathering provisions
      permit groups to continue arrangements in place before 1 July 2010.
      Termination, and renegotiation, of arrangements after that date could
      result in the loss of grandfathering. This is likely to be a commercially
      sensitive issue in the years ahead

  • Italy announces results of ongoing tax amnesty
    • 17 February 2010, the Bank of Italy announced that
      Italian taxpayers had declared over €85 billion in previously undisclosed
      foreign assets under Italy’s continuing tax amnesty. About €60 billion was
      held in Swiss banks, of which taxpayers had repatriated about €25 billion
      to Italy. In 2009 the Italian Parliament enacted a regime allowing Italian
      resident taxpayers to declare concealed foreign assets and pay a reduced
      5% tax on the value of those assets. For assets held in a country on the
      OECD’s “grey list” – countries that had committed to, but not yet
      substantially implemented, the OECD information exchange standard –
      taxpayers had to repatriate the assets to Italy to qualify for the
      amnesty. Switzerland was on the original grey list but was removed in
      September. Italy’s tax amnesty was originally set to expire on 15
      December, but the Italian government announced on 17 December that it
      would extend the amnesty to April 2010. Taxpayers declaring assets under
      the amnesty between 16 December and 15 February were assessed tax at a
      reduced 6% rate on the value of those assets, rising to 7% for
      declarations made between 16 February 16 and 30 April

  • Jersey signs tax treaty with Malta
    • 25 January 2010, Jersey Chief Minister Terry Le Sueur and
      Malta’s High Commissioner to the UK Joseph Zammit Tabona signed an income
      tax treaty. The treaty represents Jersey’s sixteenth international tax
      agreement to meet the OECD tax standards on transparency and information
      exchange and its first tax treaty based on the OECD model convention.
      Senator Le Sueur said: “The signing of the treaty with Malta is a
      significant step. We are keen to develop our business relationships with
      the EU and therefore we are delighted that, through the treaty, we will be
      further strengthening our political and business relationship with a
      Member State.” Jersey is continuing to negotiate further tax agreements
      and is also playing an international role as one of four vice-chairs of
      the Peer Review Group, which was set up by the OECD’s Global Forum on
      Transparency and Exchange of Information for Tax Purposes. The group is
      responsible for monitoring and assessing compliance with international

  • Labuan IBFC legislation enacted
    • 11 February 2010, four new Acts, together with amendments to
      four existing laws, were brought into force. Approved by the parliament of
      Malaysia on 23 December 2009, they provide for the creation of Labuan
      foundations, limited liability partnerships, protected cell companies,
      shipping operations, Labuan special trusts and financial planning
      activities. The Labuan Offshore Financial Services Authority (LOFSA) has
      also been renamed as Labuan Financial Services Authority (Labuan FSA). The
      legislation comprised: the Labuan Offshore Financial Services Authority
      (Amendment) Act 2010 [Act A1365]; Labuan Offshore Business Activity Tax
      (Amendment) Act 2010 [Act A1366]; Labuan Offshore Trust (Amendment) Act
      2010 [Act A1368]; Offshore Companies (Amendment) Act 2010 [Act A1367];
      Labuan Financial Services And Securities Act 2010 [Act 704]; Labuan
      Foundations Act 2010 [Act 706]; Labuan Islamic Financial Services And
      Securities Act 2010 [Act 705]; and the Labuan Limited Partnerships and
      Limited Liability Partnership Act 2010 [Act 707]. Labuan FSA
      Director-General Dato Azizan Abdul Rahman said “These far-reaching changes
      cover all financial activities in the Labuan International Business and
      Financial Centre (IBFC) – from banking, insurance, leasing and company
      incorporation right through to the creation of Islamic financial products
      and services. Apart from that, the changes have taken into consideration
      all aspects so that we are ahead of accepted international standards and

  • Luxembourg court bars Madoff investors from suing UBS
    • 4 March 2010, a Luxembourg court ruled that
      UBS and its adviser Ernst & Young could not be sued by investors who
      lost millions of dollars in Bernard Madoff’s Ponzi scheme through two
      “feeder” vehicles established by the Swiss bank. In a test case involving
      10 investors, the court rejected the plaintiffs’ claims of being entitled
      to individual damages against UBS, saying that they must instead rely on
      the fund liquidator to secure compensation on their behalf from the bank.
      Investors in Access International Advisors’ LuxAlpha Sicav-American
      Selection fund filed more than 100 lawsuits against UBS and Ernst &
      Young for “seriously neglecting” their fund supervisory duties. LuxAlpha,
      which invested 95% of its assets with Madoff, said it had $1.4 billion in
      net assets a month before the Madoff’s arrest in December 2008. The fund
      was dissolved and is being liquidated. The fund’s liquidators filed their
      own lawsuit last December against UBS, Ernst & Young, the fund’s
      manager, Access International Advisors, the fund’s administrators and
      Luxembourg’s financial regulator. UBS served as the custodian for LuxAlpha
      and was responsible for oversight of funds and managed deposits and
      payments to investors. The decision could affect similar suits concerning
      Luxembourg Investment Fund and Herald (Lux) US Absolute Return, which were
      also dissolved last year after investing with Madoff

  • OECD Global Forum launches country-by-country peer reviews
    • 18 March 2010, the OECD Global Forum on Transparency and
      Exchange of Information launched a peer review programme as a first step
      in a three-year process, approved in February, in response to the call by
      G20 leaders at their Pittsburgh Summit in September 2009 for improved tax
      transparency and exchange of information. The reviews will be carried out
      in two stages: firstly, an assessment of the legislative and regulatory
      framework; and, secondly, assessment of the effective implementation in
      practice. The review reports will be published when approved by the Global
      Forum, which is next due to meet in Singapore at the end of September
      2010. The first tranche of 15 jurisdictions comprises: Australia,
      Barbados, Bermuda, Botswana, Canada, Cayman Islands, Denmark, Germany,
      India, Ireland, Jamaica, Jersey, Mauritius, Monaco, Norway, Panama, Qatar,
      Trinidad & Tobago. OECD Secretary-General Angel Gurría said: “The
      Global Forum has been quick to respond to the G20 call for a robust peer
      review mechanism aimed at ensuring rapid implementation of the OECD
      standard on information exchange. This is the most comprehensive peer
      review process in the world, and it is based on decades of experience at
      the OECD of conducting reviews of this kind in many other areas of policy
      making. I look forward to seeing the first results later this year”. The
      Global Forum brings together 91 countries and territories, including both
      OECD and non-OECD countries. At a meeting in Mexico in September 2009,
      participants agreed that all members, as well as identified non-members,
      would undergo reviews on their implementation of the standard. Mike
      Rawstron, chair of the Global Forum, said: “There has been a lot of
      progress over the past 18 months, but with these reviews we are putting
      international tax co-operation under a magnifying glass. The peer review
      process will identify jurisdictions that are not implementing the
      standards. These will be provided with guidance on the changes required
      and a deadline to report back on the improvements they have

  • OECD moves further jurisdictions to its “white list”
    • 24 March 2010, the Paris-based OECD announced that Anguilla, St
      Kitts & Nevis and St Vincent & the Grenadines have been moved into
      the “white list” category of jurisdictions that are considered to have
      substantially implemented its internationally agreed tax standard. Each
      jurisdiction had signed at least 12 tax information exchange agreements,
      the minimum number required to meet the internationally agreed tax
      standard. Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and
      Administration, said: “We continue to see a great deal of progress as
      jurisdictions move to sign agreements. With Anguilla, St Kitts and Nevis
      and St Vincent and the Grenadines now reaching this benchmark, almost all
      of the Caribbean jurisdictions have substantially implemented the
      standard, and we will be working with those remaining.” The Bahamas also
      exceeded the 12-agreement requirement on 10 March, Andorra on 24 February
      and Malaysia, which had been listed specifically in respect of the Labuan
      International Business and Financial Centre, on 22 February. All three
      have accordingly been moved to the OECD’s white list. On 19 January 2010,
      the OECD said that more progress toward full effective exchange of tax
      information had been made in 2009 than in the whole of the previous
      decade. Jurisdictions had agreed to 195 tax information exchange
      agreements (TIEAs) and had signed protocols or updated treaties to
      incorporate tax information exchange into 110 agreements. Before the G20
      Washington Summit in November 2008, only 44 TIEAs had been signed. Several
      jurisdictions, including Austria, Hong Kong, Singapore and the Bahamas,
      had now passed legislation to permit information exchange. Emerging
      economies, notably Argentina, China, India and South Africa were also
      negotiating tax information exchange agreements, according to the OECD,
      which was keen to extend the benefits of more tax transparency to
      developing countries. It estimated that illicit flows out of developing
      countries were between double and four times the flow of aid. Owens said
      he was keen to ensure that emerging countries meet the tax transparency
      standards. “The last thing Africa needs is tax havens within the centre of
      Africa.” The OECD has written to the finance minister of Ghana, which has
      been trying to move into offshore finance, warning of the risks of a
      failure to comply with international standards. The OECD also noted that
      since the publication of its original progress report on information
      exchange, 19 jurisdictions had signed the requisite 12 or more agreements
      and been promoted to the white list of countries that have substantially
      implemented information exchange standards

  • Spain enacts amendments to non-resident income tax rules
    • 1 March 2010, Spain enacted a law to amend the Non-resident
      Income Tax Act to comply with recent European Commission announcements
      that some Spanish regulations applicable to non-residents were
      incompatible with the EU Treaty. Law 2/2010 entered into force on 3 March
      but is applicable from 1 January 2010. Law 2/2010 modifies the rules for
      calculating the taxable base of income of Spanish non-residents who are
      resident in a EU member state and do not have a permanent establishment in
      Spain. The amendment is aimed at taxing the net income obtained by those
      non-residents – rather than taxing their gross income as is currently the
      case – so that non-residents receive the same tax treatment as that
      applicable to residents. Expenses to be deducted in order to determine the
      taxable base corresponding to a certain income have to be directly l inked
      to such income. The taxable base corresponding to each type of income is
      determined in accordance with the rules provided by the Spanish individual
      income tax law for the different types of income, generally applicable to
      Spanish tax-resident individuals, not to entities or companies. The
      European Commission formally requested Spain to change its tax provisions
      in October 2008 because it considered them incompatible with the EU
      Treaty, which guarantees the free movement of persons and workers, the
      freedom to provide services and the free movement of capital. It also
      decided, in November 2008, to refer Spain to the European Court of Justice
      with respect to the Spanish rules under which dividend payments to foreign
      pension funds were taxed at higher rates than dividend payments to
      domestic pension funds. As a result, Law 2/2010 provides for an exemption
      for dividends and other types of profits obtained by UCITS funds and
      pension funds resident in EU member states other than Spain, which do not
      operate in Spain through a permanent establishment and are equivalent to
      Spanish pension funds regulated under Royal Decree 1/2002, or dividends
      and profits obtained by permanent establishments of the foreign EU pension
      funds located in another EU member state. As a result, no withholding tax
      may be imposed on dividends distributed by Spanish entities as long as the
      pension funds and UCITS are considered equivalent to Spanish pension funds
      and UCITS

  • Swiss Federal Council continues to block Duvalier accounts
    • 3 March 2010, the Swiss Federal
      Council decided to continue the freeze on the assets of the Duvalier
      family, former dictators in Haiti, on the basis of the constitution. It
      said this avoided releasing the USD 5.7 million for the benefit of the
      Duvalier clan, which the Federal Criminal Court had deemed to be a
      criminal organisation. The Council also instructed the Federal Department
      of Foreign Affairs to complete by the end of the month, drafting a federal
      law that would ultimately allow such assets to be confiscated, and to
      submit the draft law for consultation. The Duvalier case began in 1986
      when the Haitian authorities submitted a first request for international
      judicial assistance, which required Switzerland to block the assets of the
      ex-president of Haiti, Jean-Claude Duvalier. Since then, these funds have
      remained blocked in Switzerland either within the framework of
      international assistance in criminal matters or on the basis of the
      Federal Constitution. On 11 February 2009, the Federal Office of Justice
      (FOJ) decided that the Duvalier assets should be returned to the pe ople
      of Haiti. An appeal was lodged against this decision but the Federal
      Criminal Court upheld the FOJ’s decision on 12 August 2009, declaring that
      the structure put in place by the Duvalier clan “clearly constitutes … a
      criminal organisation” and that “the deposited assets … are of criminal
      origin; consequently, they must be placed under review for confiscation by
      the receiving State.” The lawyers representing the Duvalier family
      appealed to the Federal Supreme Court, which, 12 January 2010, overruled
      the decision of the FOJ to return the assets to the Haitian people
      primarily on the grounds of the statute of limitations. It did not call
      into question the judgment of the Federal Criminal Court concerning the
      criminal origin of the assets. On 1 April 2010, Pakistan’s National
      Accountability Bureau (NAB) announced that it would ask Switzerland to
      reopen corruption cases against President Asif Zardari. The move came
      after Pakistan’s Supreme Court said it would jail chairman Naveed Ahsan if
      he did not take action. “In light of directions of the court on the
      revival of the Swiss cases, the NAB has initiated the process,” said a
      lawyer for the agency A Swiss court convicted Zardari and his late wife,
      former Prime Minister Benazir Bhutto, in a $15m money-laundering case in
      2003. They denied the charges. Pakistan withdrew from the Swiss case soon
      after Zardari came to power in 2008. But the Supreme Court annulled an
      amnesty protecting Zardari and other top officials from prosecution in

  • Swiss government defends Ticino in tax dispute with Italy
    • 5 March 2010, the Swiss Federal Council announced that it has
      assured the canton of Ticino that the federal government was representing
      the canton’s interests in the ongoing tax dispute with Italy. Resolving
      the cross-border tax dispute requires a successful dialogue between the
      Swiss and Italian governments on a comprehensive package of issues, and
      the federal government is conducting that dialogue, the Federal Council
      wrote in a letter to Ticino’s cantonal government. Ticino is the only
      Swiss canton where Italian is the sole official language and its banks
      have been worst affected by Italy’s clampdown on tax evasion. The Italian
      tax amnesty launched last September required Italian taxpayers who
      reported undeclared assets in Swiss banks to repatriate the funds.
      Repatriation was not a requirement for Italian taxpayers with accounts in
      most other countries. Last October Italian tax police and tax inspectors
      also raided Italian branches of Swiss banks and, on 1 November, the Swiss
      President and Finance Minister Hans-Rudolf Merz announced that Switzerland
      had placed tax treaty negotiations with Italy on hold in response. The
      federal government has since appointed a political adviser to handle tax
      questions with Italy and created an interdepartmental working group on
      Italian-Swiss matters in Bern. An Italian-Swiss interparliamentary
      delegation recently expressed hope that the two countries will restart
      talks on revising their tax treaty

  • Switzerland and Germany agree new tax treaty
    • 26 March 2010, Switzerland and Germany reached
      agreement in principle on a new tax treaty that will clarify tax
      disclosure rules for Switzerland’s wealth management industry. The treaty
      was initialed in Berlin by Swiss finance minister Hans-Rudolf Merz and his
      German counterpart, Wolfgang Schäuble. The Swiss finance ministry said
      details of the agreement would not be disclosed until it is signed but it
      is understood that the “key element” of the revised agreement is the
      “extension of administrative assistance in tax matters in accordance with
      the OECD standard”. A bilateral working group is also to be set up to
      clarify unresolved tax issues before the signing. Amongst other issues, it
      will try to resolve how assets in Swiss banks belonging to German
      nationals should be taxed. Merz suggested a withholding tax could be
      applied. The Swiss finance ministry said that Germany had recognised in
      the talks that Switzerland would not give administrative assistance in
      cases of bank data bought from a third party. “We found solutions for the
      many contentious issues,” Merz said. “The new agreement … will prevent
      untaxed foreign assets ending up in Swiss financial institutions.”
      Germany, along with Italy, the US and France, has been highly critical of
      Switzerland’s banking secrecy and the German government’s willingness to
      buy stolen bank data has increased pressure on the Swiss banking industry.
      Germans hold an estimated €200 billion in undeclared funds in Switzerland.
      The finance ministry of the German state of North-Rhine Westphalia
      announced, on 26 February, that it had acquired a CD containing up to
      1,500 names of Swiss account holders. The purchase was made in full
      consultation with officials in Berlin. “State prosecutors have launched
      1,100 investigations against customers and staff of Credit Suisse. The
      Credit Suisse clients have investments in total of around €1.2 billion,”
      said Dirk Negenborn, spokesman for prosecutors in Dusseldorf. The move
      follows a similar initiative two years ago in which the federal government
      bought stolen data from Liechtenstein and launched a string of
      prosecutions. Swiss bank Credit Suisse said, on 21 March 2010, that it had
      imposed severe travel restrictions on employees who want to go to Germany
      over concerns that they might be detained by German authorities
      investigating possible tax evasion by its German clients. Switzerland’s
      financial regulator FINMA announced, on 27 March, that it would shortly
      draw up rules setting out the conditions under which banks can manage
      funds of foreign clients that have not been declared for tax. The aim of
      the directive on undeclared funds is to enable Swiss banks to work without
      risk in foreign markets. FINMA director Patrick Raaflaub said the details
      of the mechanism had not yet been decided and could involve a withholding
      tax or some other system to ensure that the money was seen as fiscally
      “clean”. “We haven’t yet launched work on a draft directive of this kind
      but it will not be long before we do,” Raaflaub told the Swiss daily Le
      Temps. “A solution to this problem must be found this year to allow banks
      to be able to work again on their traditional foreign markets where the
      risks have increased greatly.

  • Switzerland and Uruguay agree tax treaty
    • 18 March 2010, Switzerland and Uruguay initialed a new tax
      treaty that extends administrative assistance in tax matters in accordance
      with the OECD standard and in line with the key points agreed by the Swiss
      Federal Council in March last year. It brings the number of treaties
      negotiated by Switzerland containing an administrative assistance clause
      to 21

  • Switzerland sets up international financial and tax unit
    • 13 January 2010, the Swiss
      Federal Council appointed Michael Ambühl as the State Secretary for
      International Financial and Tax Matters, a new unit in the Federal
      Department of Finance (FDF) set up to coordinate and manage Switzerland’s
      international position in financial and tax matters. Ambühl was formerly
      State Secretary and Head of the Directorate of Political Affairs in the
      Federal Department for Foreign Affairs (FDFA) and led negotiations between
      Switzerland and the US concerning UBS last year

  • UAE launches Regulations for large private yachts
    • 26 February 2010, the United Arab Emirates announced that its National
      Transport Authority (NTA) is using the Det Norske Veritas (DNV)
      classification society to develop new Large Private Yachts UAE Statutory
      Regulations. The regulations will apply to vessels above 24 metres in
      length, with no limit to the number of passengers and operating in areas
      including coastal, deep ocean and polar. One of the key features is to
      allow the UAE code to accommodate the design innovations and peculiarities
      of the super yacht industry, the so-called “functional requirements”.
      Captain Saleem Alavi of the NTA said the new initiative would set out
      goal-based, rather than proscriptive, requirements. The UAE had submitted
      the regulations to the International Maritime Organisation (IMO) in 2009
      and circulated the details to IMO member states for recognition. The move
      is intended to attract yachts to the UAE flag by providing a viable
      alternative to UAE-based ship owners. At present, only 61 out of 1,076
      ship owners currently register their vessels with the UAE. Norway-based
      DNV is one of the three major companies in the classification society
      business. Classification societies set technical rules, confirm that
      designs and calculations meet these rules, survey ships and structures
      during the process of construction and commissioning, and periodically
      survey vessels to ensure that they continue to meet the rules

  • UAE to relax foreign ownership rules
    • 23 March 2010, the Abu Dhabi government that a proposed new
      companies law would allow majority, but not full, foreign ownership in
      “some sectors”. The Ministry of Economy is preparing the final draft of
      the law ahead of its relay to the Federal National Council later this
      year. The new companies law will give some relaxation to foreign
      ownership,” said Mohammad Omar Abdullah, undersecretary of the Department
      of Economic Development. “But it will not be to the extent of 100 per
      cent.” Sectors to be excluded from the new legislation will be those of
      “strategic” value, such as oil and gas. Under current regulations,
      business owners from all nationalities outside the GCC must have a local
      majority partner. Exceptions apply in certain free zones where 100 per
      cent foreign ownership is allowed. Mohammad Al Qamzi, chief executive of
      the Abu Dhabi Government’s Higher Corporation for Specialised Economic
      Zones said the federal law would probably serve as a “guideline,” allowing
      for flexible implementation at the local level according to each emirate’s
      needs. The law is aimed at increasing international investment, for which
      the UAE announced an annual growth target of 9%. Last August, a
      presidential decree eliminated the Dh150,000 minimum capital requirement
      to register a limited liability company, bringing the UAE in line with
      five other Arab countries that have dr opped similar requirements since
      2004. Abu Dhabi also plans to set up a dedicated agency to attract foreign
      investors. Mohamed Omar Abdullah said: “In line with our five-year
      strategic plan, the department is working towards setting up a dedicated
      investment agency to serve the needs of international investors.” The new
      agency will begin operations by the end of 2010 and will identify key
      areas of opportunity for attracting investment

  • UAE VAT report submitted to Cabinet
    • 12 March 2010,
      the UAE Ministry of Finance announced that it had completed its study on
      the economic ramifications of introducing VAT in the seven emirates, and
      had presented it to the Cabinet for consideration. Last April, the
      International Monetary Fund recommended, as part of its Article IV
      consultation with the UAE, that VAT should be introduced within the next
      two to three years to “make the budget less vulnerable to oil price
      fluctuations”. The tax is to be introduced to raise revenues to finance
      liquidity support for UAE banks, shore up Dubai’s debt responsibilities,
      finance infrastructure projects and diversify the UAE economy away from
      oil. It will also allow the government to control money supply more
      effectively. The UAE government has not set out a timeframe for
      introducing the levy, but its absence from the October 2009 budget
      suggests it will not be introduced before 2011

  • UBS faces probes in UK, Canada and Australia
    • 15
      March 2010, Swiss bank UBS revealed in its 2009 annual report that it is
      being investigated by a number of tax authorities as a result of the US
      government’s probe of the bank’s violations of the IRS qualified
      intermediary programme. The bank said tax and regulatory authorities in a
      number of countries had asked it – as well as other financial institutions
      – to provide information about its offshore private banking services in
      the wake of the public disclosure of the US investigation of UBS and the
      bank’s February 2009 settlement agreement with the US Department of
      Justice. “In particular, the revenue services of Canada, the UK and
      Australia have served requests upon, or made inquiries of, UBS and other
      Swiss and non-Swiss financial institutions providing wealth management
      services for information relating to such services that is located in
      their respective jurisdictions,” the report said. UBS said that it is
      cooperating with these requests “strictly within the limits of financial
      privacy obligations under Swiss and other applicable laws.” In a letter to
      shareholders accompanying the annual report, Kaspar Villiger, chair of the
      bank’s board of directors, and Oswald Grübel, group chief executive, said
      UBS intends to meet its obligations under the August 2009 settlement of
      the IRS John Doe summons enforcement action reached by the Swiss and US
      governments. Switzerland and UBS agreed to turn over details on 4,450
      accounts held by US clients through an expedited treaty request process
      under the information sharing provisions of the Switzerland-US tax treaty.
      The Swiss Federal Administrative Court ruled on 21 January that the
      agreement’s more liberal interpretation of “tax fraud and the like” was
      insufficient to change the meaning of the current Swiss-US tax treaty. As
      a result, it prohibited the government from disclosing information not
      covered by the current treaty’s allowance for disclosure of cases
      involving tax fraud as defined by Swiss law. The ruling affected
      approximately 4,200 of the expected disclosures. The Swiss government
      announced on 24 February that it would seek parliamentary approval of the
      August agreement, which would give the agreement the same effect as a
      treaty and overcome the court’s objections. Villiger and Grübel said in
      the letter to shareholders that the Swiss court decision is a matter to be
      resolved by the Swiss and US governments. “We will continue to comply
      fully with our obligations, including providing information to the Swiss
      Federal Tax Administration and completing the exit of the US cross-border
      business out of non-registered entities,” they said. UBS will also
      continue to recommend current and former US clients to disclose their
      offshore assets to the IRS to the extent applicable to their
      circumstances, they said

  • UK Appeal Court rules that wife must pay ex-husband £5m
    • 23 February 2010, the UK Court of Appeal dismissed an appeal
      brought by a US heiress against a court order that she must pay a £5
      million lump sum to her estranged husband, a property developer, to help
      cover losses he suffered during the financial crisis. Elena Marano, the
      daughter of a multi-millionaire US businessman, was married in California.
      She moved to London in the late 1980s and her husband Peter Marano began
      working in property development and set up Laurel Group Company. They
      separated three years ago after more than 19 years of marriage. Peter
      Marano’s portfolio had dropped in value from £80 million when he filed to
      a paper loss of £10 million by the time of the trial, including a
      potential US tax liability of £10 million in the event of winding up the
      business. His wife was the beneficiary of trusts from her wealthy parents
      and it was common ground that some trust money had been put into the
      property development projects. In the High Court, Justice King had ordered
      that the wife pay a lump sum of £5 million to the husband even though that
      left 84% of the assets with the wife, which her counsel noted made it
      remarkable that she was the appellant. Mrs Marano was to retain the £13
      million former marital home in Belgravia while her husband kept a £4.4m
      mews house together with a Sardinian holiday home and yacht. At the
      appeal, counsel for Mrs Marano argued that the judge had not sufficiently
      reflected the wife’s injection into the business and, more importantly,
      had been wrong to base her order on a snap shot value where the asset
      price was fluctuating wildly and where the husband was committed to
      trading through the loss: it was contended that the asset values had
      already risen since the trial to take them into a small profit. Three
      Court of Appeal judges upheld the earlier court decision. Lord Justice
      Thorpe said that because “the judge was exercising a broad and general
      discretion to achieve fairness” and while she might “have imposed a
      contingent rather than an immediate obligation on the wife, it was
      certainly not something that she was bound by authority to do”. Therefore
      no error of principle was involved and the decision was plainly within her

  • UK Budget increases sanctions for offshore non-compliance
    • 24 March 2010, UK Chancellor Alistair Darling announced
      increases in the sanctions available to HMRC for tackling offshore
      non-compliance. Building on the existing behaviour-based penalty
      structure, the measure provides for increased penalties, from 1 April
      2011, where the non-compliance arises in a jurisdiction that does not
      automatically share tax information with the UK. As now, penalties will be
      calculated by looking at the behaviour of the taxpayer, the degree of
      disclosure and the amount of tax lost. But the level of the tax-geared
      penalty will be determined by the tax transparency of the jurisdiction in
      which the non-compliance arises. Where a jurisdiction only exchanges
      information with HMRC on request, inaccuracies arising offshore will be
      subject to penalties at 1.5 times the existing rate. Where a jurisdiction
      shares no information with HMRC, penalties will be at twice the current
      rate. This means that deliberate failures to report income or gains from
      the most opaque tax jurisdictions could be met with penalties of up to
      200% of the tax. The new penalty frameworks for offshore non-compliance
      will apply to income tax and capital gains tax. Taxing the previously
      undeclared assets of Britons using the Liechtenstein Disclosure Facility,
      announced in the Budget, is expected to raise £40 million this year,
      rising to £320 million next, with the government estimating the scheme
      will raise a total of £984 million over its five-year life. The facility
      allows UK citizens to declare offshore assets on which they owe back
      taxes, incurring only a 10% fine with immunity from prosecution. Other
      measures announced were aimed at specific tax-avoidance schemes. Darling
      promised action to prevent attempts to avoid tax and national insurance
      contributions through the use of employee benefit trusts and other
      arrangements to disguise salary payments. Legislation will also be
      introduced in Finance Bill 2010 to stop companies using tax-advantaged
      Company Share Option Plans. There will also be new rules to block tax
      avoidance schemes that exploit the rules for tax relief on gifts of
      qualifying investments to charities. The Exchequer estimates that it loses
      up to £40 billion each year through illegal tax evasion and aggressive but
      legal tax avoidance

  • UK court increases divorce award from Nigeria
    • 10
      March 2010, the Supreme Court found in favour of a Nigerian woman who
      brought her case to the UK courts after disputing the divorce settlement
      she was awarded by a Nigerian court. Under Part III of the Matrimonial and
      Family Proceedings Act 1984, English and Welsh courts have the power to
      grant financial relief after a marriage has been dissolved in a foreign
      country as long as there is a close connection between the spouses and the
      UK. The husband, a barrister, issued divorce proceedings in Nigeria after
      38 years of marriage. The marital assets were about £700,000 but, in 2003,
      a Nigerian court awarded Mrs Agbaje only a lump sum of £21,000, plus
      interest in a home in Nigeria, which had a capital value of about £86,000.
      She applied to the English court for financial provision after her
      marriage had been dissolved in a foreign country. Although the couple
      lived in Nigeria for much of their married life, Mrs Agbaje had been
      living in England continuously since 1999, when the marriage broke down,
      and had dual British and Nigerian citizenship. The application was
      granted, and Coleridge J made an order which was intended to enable her to
      house and maintain herself in London by providing her with 65% of the
      proceeds of sale (expected to be about £275,000) of the house in which she
      has been living, the equivalent of a 39% award to the wife. The husband
      successfully appealed against this order, principally on the ground that
      the judge had given insufficient weight to the connections of the case
      with Nigeria. The Court of Appeal therefore dismissed Coleridge J’s order,
      whilst recognising that this was harsh on the wife. She appealed to the
      Supreme Court. The Supreme Court disagreed with the Court of Appeal,
      finding that “the English connections were substantial, if not
      overwhelming”, and that there was “a very large disparity between what the
      husband received and what the wife received such as to create real
      hardship and a serious injustice”. Accordingly, the wife’s appeal was
      allowed, and the order of Coleridge J restored

  • UK revenue to “name and shame” tax evaders
    • 3
      March 2010, HM Revenue & Customs announced that it will begin to make
      public the names and addresses of individuals and companies that
      deliberately avoid taxes and to provide the details of their evasion as of
      1 April 2010. Under s.94 of the Finance Act 2009, HMRC is permitted to
      publish the details of taxpayers where it is established that they have
      committed certain serious tax offences. Taxpayers who may be named are
      those who have deliberately evaded tax of more than £25,000 in total. It
      is planned that names will be published on HMRC’s website. Because this
      measure will only be applied for periods starting from 1 April 2010, it is
      not expected that any names will be published before the first half of
      2011. If taxpayers make a full disclosure of any tax wrongs without delay
      they can avoid having their name and details published. Stephen Timms,
      Financial Secretary to the Treasury, said: “This new approach should make
      people think again about trying to get away with tax fraud. As well as
      having to pay the tax, interest on the tax, plus penalties of up to 100
      per cent of the tax lost, they also now risk being identified publicly. We
      are only targeting delib erate tax evaders. So if you know that you have
      not paid the right tax, and you want to avoid being named, contact HMRC
      right away to set things straight.

  • UK tax court rules on resident status
    • 3 February 2010, the UK First-Tier Tribunal (Tax Chamber) found that an individual hired to be president of a US-based company who was terminated from that position and thereafter moved to Monaco was not ordinarily resident in the UK after taking the US position. In Turberville v Revenue & Customs ([2010] UKFTT 69 (TC)), the taxpayer was
      UK-based and UK-resident until leaving for a three-year contract in the
      US. He was made redundant whilst in the US but returned to the UK for
      three months to help the administrators of the company that had made him
      redundant. He then left the UK for Monaco. The questions for the Tribunal
      were whether his decision to take up employment in the US meant that he
      lost ordinary residence in the UK and whether his return to the UK for
      three months restored his ordinary resident status. The Tribunal found
      that time waiting to take up a position abroad was merely an extension of
      the previous residence status, it is the date of actual departure that
      must be considered in determining whether there has been a distinct break
      in lifestyle. This question should be considered against the facts known
      at the time and not with the benefit of hindsight. On the “facts taken
      together” the Tribunal held that there had been such a break. The period
      of return after redundancy did not mean that the taxpayer became
      ordinarily resident in the UK, as there was not the necessary degree of
      settled purpose. Settled purpose implies regular order and where, as here,
      there were a number of factors which meant there was no regular order, a
      settled purpose to remain in the UK did not resume. The Tribunal treated
      the fact that the taxpayer had retained property in the UK as tax neutral,
      though this was against a background of having retained UK property while
      working abroad previously. The Tribunal therefore found the taxpayer was
      not ordinarily resident from the date of departure but made the point that
      it did not think it was open to them to split the year of departure for
      tax purposes. Unless HMRC agreed to do so – as the Tribunal noted was its
      practice in other cases -the taxpayer would remain ordinarily resident for
      the whole of the year in which the departure date fell

  • UK Tribunal finds entrepreneur was ordinarily resident
    • 29 December 2009, the UK First Tier Tribunal dismissed a taxpayer’s appeal against an assessment that he had not ceased to be resident in the UK and substantial gains realised on the sale of a company would be taxable. Without interest and penalties, the assessment for capital gains tax was over £30 million. In Derek Hankinson v The Commissioners [2009] UKFTT 384 (TC), the appellant was
      a successful entrepreneur who held shares in Bison Ltd, a UK flooring
      company, via non-resident trusts. The trusts sold their holdings to
      Phildrew Ventures Fourth Fund, a venture capital fund, on 24 September
      1997, but retained an interest in Bison. Hankinson entered into a service
      agreement with Monoliet Holding, a Dutch subsidiary that Bison has
      acquired in 1990, to work in the Netherlands from 23 February 1998 for a
      period of a minimum of 15 months, while remaining as non-executive
      chairman of Bison. In January 1999 Hankinson took ill on a flight to
      Barbados where he had booked a holiday. He returned to the UK on 30 April
      1999 but did not return to work in the Netherlands again, and retired from
      the service of Monoliet and from his non-executive chairmanship of Bison
      in August 1999. Substantial gains realised in the non-resident trusts on
      the sale to Phildrew were crystallised in March 1999. These would be
      taxable if Hankinson were ordinarily resident in 1998-99. The Tribunal
      found that the question was not whether the taxpayer became resident in
      the Netherlands but whether his circumstances had changed sufficiently to
      show that he had ceased to be resident or ordinarily resident in the UK.
      For common law purposes, the retention of property and visits to the UK
      were sufficient that he remained resident in the UK, as there was no break
      in the pattern of his life. The Tribunal agreed that ordinary residence
      must be voluntarily adopted and there must be a degree of settled purpose.
      In this case the taxpayer had not taken up full time work abroad and the
      retention of property in the UK was to be taken into account. It ruled
      that the move to the Netherlands did not amount to a “sufficient definite
      break in the pattern of his life” and this meant his residence in the
      Netherlands was “occasional”. The Tribunal found that on the basis that
      the taxpayer’s residence outside the UK was occasional, he had not ceased
      to be ordinarily resident in the UK

  • US bank agrees to pay tax on offshore transactions
    • 10 March 2010, US bank BB&T agreed to pay $890 million in back taxes,
      penalties, and interest arising from a notice of deficiency the bank
      received in February from the IRS for tax years 2002-2007 in respect of
      offshore transactions it undertook using a structure that the IRS is now
      challenging. The bank said it plans to sue for a refund. BB&T
      disclosed the IRS assessment as part of its annual report, which was
      released in February. The bank said the IRS issued the notice of
      deficiency in February and that the $890 million in question involved back
      taxes, penalties, and interest “related to foreign tax credits and other
      deductions claimed by a deconsolidated subsidiary in connection with a
      financing transaction”. The annual report said BB&T believed that its
      actions were “in compliance with applicable laws and regulations”. Chief
      executive Kelly King said the bank had agreed to make the payment to avoid
      “a very high interest rate”, but it planned to sue in federal court for a

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