Owen, Christopher: - Offshore Survey – September 2010 Supplement

  • 10. UK establishes new Office of Tax Simplification
    • 20 July 2010, UK Chancellor George Osborne announced the establishment of the Office of Tax Simplification (OTS), which will “provide advice to the Chancellor on simplifying the UK tax system, with the objective of reducing compliance burdens on both businesses and individual taxpayers.”

      The government’s aim is to make the UK the most competitive country in the G20 and reduce the complexity in the tax system. Over the past decade, the UK tax code doubled to more than 11,000 pages and the UK slipped from 7th to 13th in the World Economic Forum’s Global Competitiveness Index between 1997 and 2010.

  • 11. Hong Kong orders implementation of three tax treaties
    • 2 July 2010, the Hong Kong government issued a gazette order to implement three recent treaties for the avoidance of double taxation and the prevention of fiscal evasion with Brunei Darussalam, the Kingdom of the Netherlands and Indonesia. The agreements will come into effect upon completion of ratification procedures.

      These treaties were respectively the sixth, seventh and eighth comprehensive double taxation agreements (CDTAs) Hong Kong has signed with its trading partners, following those with Belgium, Thailand, Mainland China, Luxembourg and Vietnam.

  • 12. Isle of Man offers voluntary tax disclosure scheme
    • 28 June 2010, the Isle of Man government announced that an income tax voluntary disclosure scheme that waives penalties and interest would operate for the period between 1 July and 30 September. The move was first announced in the Treasury Minister’s Budget speech on 16 February.

      The scheme applies to any person who is resident for income tax purposes or who is or should be paying non-resident tax. The term “person” includes an individual, company, employer, contractor, trustee or any other entity liable to Isle of Man income tax.

  • 13. UK Court of Appeal rules on banks’ money laundering obligations
    • 4 February 2010, the UK Court of Appeal held that where a bank claimed, for the purposes of the Proceeds of Crime Act 2002, to entertain “suspicion” about money laundering concerning a proposed transaction on a customer’s account and had failed to carry out instructions promptly, a customer might be entitled to proceed with a claim in breach of contract or duty.

      In Shah and Another v HSBC Private Bank (UK) Ltd [2010] EWCA Civ 31, the Court of Appeal allowed the appeal of the claimants from a High Court decision of 26 January 2009 which gave summary judgment in favour of the defendant, HSBC, in proceedings based on an assertion that the bank had failed to carry out the claimants’ instructions. Shah had appealed on grounds that the matter was insufficiently straightforward for the claim to be dismissed and his claim should proceed to trial.

      Shah, a businessman with interests in Zimbabwe, and the other claimant commenced proceedings against HSBC in respect of losses that arose as a result of the seizure of assets in Zimbabwe that they claimed were the result of the bank’s failure to execute instructions and to provide information to which they were entitled.

      The bank asserted that it had suspected that certain transactions constituted money laundering for the purposes of the applicable provisions of the 2002 Act; that it had made an “authorised disclosure” seeking consent to effect them under s338 of the Act; and that it would have been illegal for it to effect the transactions any earlier than it did. In reply, the claimants put the bank to proof as to the claimed suspicion.

      The Court of Appeal found that Shah was entitled to require the bank to prove its case that it had formed the relevant suspicion. In doing so, the court disagreed with the bank’s submission that it was enough to rely upon hearsay evidence of the fact of the bank’s suspicion. It also reviewed earlier rulings relied upon by the bank, pointing out that those had been decided in circumstances where tipping-off was a live issue and, accordingly, evidence could only be given by the bank’s professional legal advisor.

      The Court of Appeal noted that banks were in the unenviable position of being at risk of criminal prosecution if either they entertained suspicions but did not report them, or if they reported them and then nevertheless carried out their customer’s instructions without authorisation. But accepting HSBC’s submission, it said, would give banks free rein to decline to execute a customer’s instructions without any prospect of court supervision.

  • 14. ECJ rules that Belgian supplementary municipal tax violates EU Law
    • 1 July 2010, the European Court of Justice held that Belgian legislation providing that Belgian residents who receive interest or dividends from outside Belgium are subject to an additional tax if the income from those assets is paid to them by a financial intermediary established outside Belgium, violates EU laws on the free movement of capital and the freedom to provide services.

      In Gerhard Dijkman, Maria Dijkman-Lavaleije v. Belgische Staat (C-233/09), the Court said that since only intermediaries established in Belgium could collect the “exonerating” withholding tax, the legislation puts intermediaries established in Belgium in a more advantageous position to provide services relating to non-Belgian-sourced income paid to Belgian residents than intermediaries established in other member states.

      It held that these provisions violated article 49 of the EC Treaty on the freedom to provide services and article 56 of the EC Treaty on the free movement of capital. The imposition of a supplementary tax on income from movable assets from investments made outside Belgium – and the lack of a supplementary tax on Belgian investments – constituted unfavourable tax treatment and was inconsistent with the free movement of capital.

      The Court rejected the Belgian government’s arguments that the legislation was justified because of the need to maintain the coherence of the Belgian tax system and guarantee the effectiveness of fiscal supervision. It said the government had failed to show that there was any particular tax levy offsetting the advantage of an exemption from the supplemental municipal tax and it could not justify the fact that income subject, or not subject, to that withholding was treated differently for purposes of the supplementary municipal tax.

      The case had been sent to the ECJ by reference for a preliminary ruling under Article 234 EC from the hof van beroep te Antwerpen (Belgium), made by decision of 16 June 2009.

  • 15. EU requests Luxembourg to change inheritance tax rules
    • 24 June 2010, the European Commission officially requested Luxembourg to change its legislation on inheritance tax, which imposes additional conditions for non-resident heirs and, in particular, freezes their entire estates until they provide “an additional guarantee”. This freeze rule does not apply to resident heirs and is therefore considered discriminatory.

      When a resident dies, the government of Luxembourg is owed a debt equivalent to the amount payable in inheritance tax by the heir. In order to recover this debt, the government of Luxembourg can avail itself of certain guarantees: a privileged lien on all the movable property and/or a legal mortgage on all the immovable property located in Luxembourg bequeathed in the inheritance.

      A non-resident heir has to provide an additional guarantee, established by the Court, for payment of the amount due before being able to take possession of the inheritance. If the heir is not able to provide such a guarantee, the inherited assets are frozen until a guarantee is forthcoming.

      The Commission said it took the view that this discriminatory arrangement was disproportionate, if not unjustifiable, and that it was contrary to the provisions of the Article 63 of the Treaty on the Functioning of the European Union concerning the free movement of capital.

  • 16. Canada confers tax treaty benefit on Bermuda
    • 14 June 2010, Bermuda signed a tax information exchange agreement with Canada. As a result, Canada has agreed to exempt from Canadian taxation any dividends of foreign affiliates resident in Bermuda that are paid to their Canadian parent companies out of the active business income earned on the island.

      Bermuda’s Deputy Premier and Minister of Finance Paula Cox said this benefit, which was previously only conferred to countries with which Canada had a double tax treaty in force, would be particularly useful to Bermuda’s captive insurance industry. “Canadian companies are hugely involved in the captive, hedge fund and private equity areas of the international business sector and more recently in the banking arena. Currently, there are 1,145 entities with Canadian interest and this is expected to grow exponentially,” she said.

  • 17. Swiss parliament approves UBS Agreement, rejects referendum
    • 17 June 2010, the Swiss parliament gave final approval to the disclosure agreement reached with the US Department of Justice last year to resolve the UBS dispute. It also rejected calls to put the agreement before the Swiss public in a referendum, ensuring that the account details can be handed to US authorities within the stated deadline.

      Both houses of the parliament had already approved the actual Agreement, but the lower house had inserted a caveat to its enactment by also voting for a referendum. At a settlement conference convened on 17 June to work out differences, the lower house agreed to drop this demand and both houses voted again to approve the deal without including a call for a referendum.

      Parliamentary approval of the agreement gave it the legal force of a treaty in Switzerland, permitting the authorities to follow through with the disclosure of data on 4,450 UBS client accounts that had been blocked by a January decision of the Federal Administrative Court. The Court had objected to the government’s claim that the agreement could expand the definition of the current treaty term “tax fraud and the like” to include long-term tax evasion.

      The Swiss government said “nothing stands in the way of UBS client details being disclosed” and that 1,200 cases were ready for immediate delivery. In addition to the cases ready to be disclosed, the Swiss Federal Tax Administration (SFTA) had issued final decisions on 400 cases with another 650 to follow shortly. Once a final decision has been issued, the individual taxpayer is given a 30-day period in which to file an appeal with the Federal Administrative Court.

      The government also revealed that disclosures had already been made in 500 cases in which the US clients had consented to the release of their information. The remaining 1,450 cases are being processed by the SFTA and were due be completed by the agreement’s final deadline in August, the Swiss government said.

      “I am very pleased with today’s events in the Swiss parliament which clear the way for the Swiss government to fulfill its obligations under the agreement it signed with the US last August,” said IRS Commissioner Douglas Shulman in a statement. “This Administration is firmly committed to deterring offshore tax evasion, and this has been and will continue to be a major priority of the IRS.”

      The Swiss Bankers Association (SBA) also welcomed the decision. “The approval of the Agreement safeguards Switzerland’s reputation as a reliable contracting partner and establishes legal certainty,” said an SBA spokesman. “Today’s decision protects the country’s economic and national interests.”

  • 18. New Zealand consults on repeal of gift duty
    • 10 June 2010, New Zealand Revenue Minister Peter Dunne announced that the government intends to repeal the gift duty if creditor protection and social assistance concerns can be properly addressed. The government said it would open a gift duty consultation within the next few months.

      Gift duty was originally introduced to prevent people from circumventing the estate duty rules. When estate duty was abolished, with effect from 1992, gift duty was retained to prevent people from gifting away large assets.

      “Officials have been reviewing the gift duty rules for several months, and a strong case has emerged for repealing the rules altogether,” Dunne said. “The use of gifting programmes ensures that gift duty is not paid in most situations. The result is that very little revenue is being collected, but at a significant cost to Inland Revenue and to the private sector in compliance costs.

      “The alignment of the top personal tax rate with the trustee tax rate announced in Budget 2010 will significantly reduce the motivation to minimise tax obligations through gifting to trusts. However, there are still some valid concerns around preventing gifting which may undermine the interests of creditors or which enables access to social assistance. There will be further consultations over the next few months, and if gift duty is to be repealed, I intend to include it in a tax bill to be introduced in November this year.” he added.

  • 19. Netherlands targets “black” credit card payments
    • 8 June 2010, Dutch Finance Minister Jan Kees De Jager instructed the Tax Department to trace payments with anonymous “black” credit cards in the Netherlands. This concerns special credit cards and pin debit cards linked to bank accounts in tax havens that are not reported to the Tax Department and, it is claimed, account for hundreds of millions of euros of undeclared funds.

      The Tax Department is currently in discussion with organisations processing credit card payments in the Netherlands to trace people who own these cards. De Jager said: “It is inconceivable that people buy expensive things anonymously through foreign bank accounts and at the same time try to dodge tax. The Tax Department ruthlessly tackles this type of fraud. When caught the fine can be as much as at most 300%.”

  • 2. Guernsey and Isle of Man to switch to EU automatic information exchange
    • 28 July 2010, Guernsey Chief Minister Lyndon Trott told the States assembly that Guernsey plans to move to automatic exchange of information under the EU Savings Tax Directive (EUSD) in place of the equivalent measures that it has operated since the Directive came in to force.

      His statement, which followed consideration of the results of the consultation process carried out by the Fiscal and Economic Policy Group, said Guernsey would give financial institutions a six-month window – from 1 January to 1 July 2011 – for moving to automatic exchange of information.

      Trott said: “This transition period is to provide the maximum flexibility to our industry in making their necessary adjustments to their payment systems.” A report will be submitted to the States in the early autumn to confirm arrangements for the move.

      The Isle of Man parliament earlier endorsed, on 17 June 2010, the commitment made in June 2009 by then Treasury Minister Allan Bell to move fully to automatic exchange of information under the EUSD from 1 July 2011. As a result, the withholding tax option currently available to customers having accounts with Isle of Man banks by virtue of the transitional arrangements in the EUSD will be withdrawn.

      Bell said this was “further evidence that the Isle of Man is prepared to align its policies with international benchmark standards, which signals to our trading partners and investors alike that we can be relied upon and that our name is associated with probity and foresight.”

      Preparation for the change has moved forward with the passing of enabling legislation. Liaison work will continue with the Island’s banks to ensure that the change is brought in smoothly and effectively. Jersey responded to the Isle of Man’s June 2009 commitment by stating that it had always been the intention of the EU that the option to withhold tax on interest paid to EU savers instead of the exchanging of information on account holders’ interest would only be available to jurisdictions during a transitional phase. It said Jersey Finance would be consulting within the Industry on the timing of this change while monitoring developments in other jurisdictions.

  • 20. Italian tax amnesty nets 5.6 billion euros in revenue
    • 9 June 2010, the Italian Economic Ministry announced that assets totalling 104.5 million euros were repatriated as a result of a tax amnesty launched by the government in October, with 5.6 billion euros being paid in tax on those assets. The ministry said that 95% of those assets had been repatriated to Italy.

      The Italian Parliament enacted the amnesty in 2009 to encourage Italian resident taxpayers to declare foreign assets and pay a reduced 5% tax on the value of those assets. The amnesty was to expire on 15 December 2009, but on 17 December the government extended it to April 2010. Taxpayers declaring assets between 16 December 2009 and 15 February 2010, paid a reduced 6% tax on the value of assets declared, and taxpayers declaring assets between 16 February and 30 April paid a 7% rate.

      The Ministry said that extending the amnesty through April resulted in additional declarations of about 9.2 billion euros in foreign assets.

  • 21. European Council approves cross-border succession guidelines
    • 4 June 2010, the European Council approved a set of political guidelines for the future work on rules concerning matters of succession. The proposed regulation, submitted by the European Commission in October 2009, aims to create a legal framework for succession at EU level, including a European Certificate of Succession, and using habitual residence as the default determinant of jurisdiction.

      Since the Commission proposal qualifies succession right as a matter different to family law, the final regulation will be adopted under the ordinary legislative procedure with qualified majority voting in the Council and full co-legislative powers of the European Parliament. It is to be noted that Denmark, the UK and Ireland will not take part in the adoption and application of the proposed regulation.

  • 22. Uruguay to lift bank secrecy to facilitate OECD standards
    • 24 May 2010, the Uruguayan government announced that it intends to eliminate bank secrecy for tax purposes and to tax the global investment income of individuals residing in Uruguay. A bill containing the changes to the tax system is to be remitted to parliament and, if approved, would become effective 1 January 2011.

      Under the current system, tax authorities cannot access the bank accounts of a taxpayer and the taxpayer is not obligated to reveal bank accounts. The refusal to show details and movements of accounts therefore represents the legitimate exercise of a taxpayer’s right. The proposed legislation would enable the tax authorities to request a court to lift bank secrecy to “verify the veracity” of a taxpayer’s declaration.

      In April 2009 Uruguay pledged to sign 12 tax information exchange treaties to meet the OECD requirement. The Bill sets out the judicial procedure to enable the exchange of tax information with countries.

      The government also announced changes to the personal income tax (impuesto a la renta de las personas fisicas, or IRPF) that represent a significant break with Uruguay’s tradition of taxing only income generated in Uruguay. Currently, foreign-source income is not subject to IRPF. Under the reform, interest on deposits and placements in foreign banks and other non-resident entities and on dividends from foreign companies will be subject to IRPF at a rate of 12% when the owner is a Uruguayan tax resident.

  • 23. ECJ finds that Spain’s treatment of outbound dividends violates EU Law
    • 3 June 2010, the European Court of Justice held that the different treatment of domestic and foreign shareholders under Spain’s participation exemption regime violates article 56 of the EC Treaty on the free movement of capital.

      Spanish legislation currently provides that dividends paid by a Spanish company are exempt from tax if the recipient of the dividend is a Spanish company holding 5% or more of the capital of the paying company. But if the recipient is a non-resident company, the shareholding threshold for the exemption is higher – the minimum holding percentage was reduced from 20% to 15% in 2007, and then to 10% in 2009.

      In European Commission v Kingdom of Spain (C-487/08), the Spanish government argued that the legislation did not violate EU law because resident and non-resident companies were not comparable and the task of relieving any double taxation should fall on the country of residence of the company receiving the dividends. It further argued that the legislation by itself did not lead to unfavourable treatment of non-resident companies because the tax treatment of the transaction as a whole, including any tax paid on the dividends in the country of residence and the procedure for eliminating double taxation, had to be considered.

      The ECJ rejected these arguments and held that the legislation was in violation of EU law because the difference in treatment was sufficient to discourage non-resident companies from investing in Spain. The Court said Spain could not argue that resident and non-resident companies were not comparable because Spain chose to exercise its power of taxation over dividends distributed to companies established in other Member States. It therefore found that the unfavourable treatment of dividends distributed to non-resident companies could also be attributed to Spain’s exercise of its tax powers.

      The ECJ further noted that disadvantages arising from the difference in treatment could not always be neutralised by Spanish tax treaties because of the limits imposed by some treaties on the amount that could be deducted or offset. If dividends were not taxed, or were insufficiently taxed, in the company’s country of residence, the amount withheld in Spain could not be deducted.

      It held that, because the Spanish government did not present any public interest evidence to justify the unequal treatment, the Commission’s complaint in respect of the Spanish legislation was justified.

  • 24. EC refers Austria, Germany and Portugal to ECJ for tax discrimination
    • 3 June 2010, the European Commission referred Austria, Germany and Portugal to the European Court of Justice over discriminatory tax provisions, due to their failure to comply with earlier reasoned opinions issued by the Commission


      The Commission said it considered that the Austrian rules that oblige foreign investment funds, real estate funds and credit institutions to appoint a fiscal representative, result in discriminatory treatment. The Commission also considered that the prohibition on foreign credit institutions and certified public accountants being appointed as fiscal representatives for investors in investment funds or real estate funds were discriminatory and incompatible with the freedom to provide services.

      Under Austrian law, domestic credit institutions managing domestic investment funds or real estate funds are not required to appoint a fiscal representative, while foreign investment funds and real estate funds must always appoint a fiscal representative when carrying out operations in Austria. These fiscal representatives must always be established in Austria.

      The Commission said it believed that the rules restricted the freedom to provide services and constituted direct discrimination based on the place of establishment of service providers. The Commission considered that Austria had in both cases failed to fulfill its obligations under Article 49 of the Treaty on the Functioning of the European Union (TFEU) and Article 36 of the European Economic Area (EEA) Agreement on the freedom to provide services.

      In Germany, dividends paid by German companies to German “Pensionskassen” are either subject to a reduced withholding tax rate, or the “Pensionskasse” can benefit from a partial refund of the withholding tax paid. But this reduced rate or partial refund is not available to similar institutions established elsewhere in the EU and in the European Economic Area.

      For another category of German pension institutions – “Pensionsfonds” – the dividends received are taken into account in the annual tax assessment procedure and are taxed on a net basis at the general corporate tax rate of 15%. But dividends paid from Germany to similar foreign institutions are subject to a final withholding tax of 25% on the gross dividend, without the possibility of deducting any costs.

      Similar distinctions are also made between interest payments paid to “Pensionskassen” and “Pensionsfonds”, and those paid to foreign pension institutions. Higher taxation of foreign pension funds may thus restrict the free movement of capital, as protected by Article 63 TFEU and Article 40 of the EEA. The Commission said it was not aware of any justification for such restrictions.

      Portuguese tax rules may in certain cases lead to higher taxation of outbound dividend payments to foreign companies than domestic dividend payments to domestic companies. While the legislation provides for no or only very low taxation of domestic dividends, outbound dividends are subject to withholding taxes up to 20%. The Commission considers that these rules restrict both the free movement of capital and the freedom of establishment.

      In the Denkavit ruling of 14 December 2006 (Case C-170/05) the Court confirmed the principle that outbound dividends cannot be subject to higher taxation in the source State than domestic dividends. The ruling also found that it might be relevant to take into account whether the State of residence of the parent company gives a tax credit for the withholding tax levied by the source State. The Commission said it would take this ruling into account when drafting its applications to the Court.

  • 25. China and Hong Kong sign Protocol to tax treaty
    • 27 May 2010, the Hong Kong Inland Revenue Department announced that officials from China and Hong Kong had signed a Protocol to amend the information exchange article of the 1996 tax treaty. It amends the arrangement to require that either party, on receiving a request for information, should provide the information even if no domestic tax interest is involved. The 2006 arrangement was previously amended by a Protocol signed in 2008.

  • 26. Spanish PM proposes new wealth tax
    • 26 May 2010, Spanish Prime Minister Jose Luis Rodriguez Zapatero announced his intention to impose a new temporary wealth tax on Spain’s richest taxpayers. The new tax on people with a “high-economic capacity” was to be created “in a few weeks”, he told parliament. Media reports suggest that the net worth threshold for the new wealth tax could be 1 million euros.

      The proposed new tax follows closely on a 15 billion euros austerity package announced by Spain on 12 May. Spain abolished a previous wealth tax that charged 0.2 to 2.5% on assets above 600,000 euros in 2008. Annual revenue from the tax amounted to 2 billion euros, or around 0.2% of GDP.

  • 27. Australian tax agreements with three OFCs enter into force
    • 21 May 2010, Australian Assistant Treasurer Nick Sherry announced that administrative agreements on the allocation of taxing rights with three offshore financial centres (OFCs) – the British Virgin Islands, the Isle of Man and Jersey – had entered into force.

      The Additional Benefits Agreements (ABAs) help to prevent double taxation by allocating the taxing rights over certain income of pensioners, students and government employees who are resident of Australia, the Isle of Man, Jersey or the BVI. ABAs also provide for a mechanism to deal with disputes arising from transfer pricing adjustments.

      “These arrangements are part of the new taxation and financial relationship between Australia and these countries,” said Sherry. “These three jurisdictions have also signed Tax Information Exchange Agreements with Australia, as part of the global push for greater tax transparency in the financial system.”

      “The Australian Tax Office is available to lend support to our treaty partners on request, on subjects ranging from exchange of information best practice to sharing our taxpayer compliance strategies. These programmes will enable our treaty partners to more effectively administer their tax codes and help them in the fight against tax evasion,” he said.

      The ABA with the Isle of Man entered into force on 18 March, the ABA with the BVI entered into force on 12 April and the ABA with Jersey entered into force on 15 April.

  • 28. OECD-Council of Europe agree to amend mutual tax assistance treaty
    • 6 April 2010, the OECD and the Council of Europe agreed to a protocol amending the Convention on Mutual Administrative Assistance in Tax Matters, for which the two multilateral organisations are the custodians. Its effect will be to align the convention to the international standard on information exchange for tax purposes by allowing for the exchange of bank information.

      The Protocol was opened for signature at the OECD’s annual Ministerial Meeting in Paris on 27 May, where it was signed by 11 existing parties to the Convention – Denmark, Finland, Iceland, Italy, France, Netherlands, Norway, Sweden, Ukraine, the UK and the US. Korea, Mexico, Portugal and Slovenia also signed both the Convention and the amending Protocol.

      The Protocol provides for a wide range of tools for cross-border tax co-operation including exchange of information, multilateral simultaneous tax examinations, service of documents, and cross-border assistance in tax collection, while imposing extensive safeguards to protect the confidentiality of the information exchanged. It will enable a wider group of countries to become parties to the Convention and will require full exchange of information on request in all tax matters without regard to a domestic tax interest requirement or bank secrecy for tax purposes.

  • 29. OECD moves Brazil, Indonesia and three Caribbean jurisdictions to “White List”
    • 3 June 2010, the OECD announced that it had moved Brazil and Indonesia to the “White List” category of jurisdictions that have substantially implemented the internationally agreed tax standard. Dominica, Grenada and St Lucia were also promoted on 19 May.

      Brazil and Indonesia had provided details on their legal and regulatory frameworks for exchange of information to the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. Brazil had more than 25 bilateral tax treaties that met international standards for exchange of information in tax matters, while Indonesia had 53.

      The two countries joined the Global Forum last September and will undergo peer reviews of their exchange of information laws and practices, Brazil in 2011 and 2012 and Indonesia in 2011 and 2013. According to a schedule published by the Global Forum, Grenada and St Lucia will also undergo reviews of their legal and regulatory framework for exchange of information in 2011 and reviews of their information exchange practices in 2013. Dominica’s peer reviews will take place in 2012 and 2014.

      Jeffrey Owens, director of the OECD’s Centre for Tax Policy & Administration, said: “We continue to see a great deal of progress in the Caribbean as jurisdictions move to sign agreements. With Dominica, Grenada and St Lucia now reaching this benchmark, most of the Caribbean jurisdictions have implemented their commitment to signing exchange of information agreements.

      “We will be working with the remaining Caribbean jurisdictions — Belize, Costa Rica, Guatemala, Montserrat and Panama – to encourage them to follow this trend, providing them with whatever assistance is needed. The real test will come with the peer review process, when the Global Forum can evaluate the quality of these agreements and the extent of the implementation of the standards in practice.”

      Countries that remain on the OECD’s “Grey List” of jurisdictions that have committed to, but not yet substantially implemented, the internationally agreed tax standard are: Belize; Brunei; Cook Islands; Costa Rica; Guatemala; Liberia; Marshall Islands; Montserrat; Nauru; Niue; Panama; Philippines; Uruguay; and Vanuatu.

  • 3. Swiss to facilitate treaties with territories and dependencies
    • 18 August 2010, the Swiss Federal Council adopted the dispatch on a corresponding Federal Act to empower the Council to recognise agreements for the avoidance of double taxation in cases where a treaty cannot be concluded for reasons of international law.

      Double taxation agreements (DTAs) are normally entered into by two states and are therefore considered bilateral treaties. The Federal Act will make it possible to strengthen economic relations with territories or dependencies that Switzerland does not recognise as states under international law. The Act will apply only in relation to a few territories and sets out the prerequisites for such recognition in detail. The Federal Council will consult the relevant parliamentary committees in advance. The Act is subject to an optional referendum.

  • 30. BVI enacts Securities & Investment Business Act
    • 12 April 2010, the BVI House of Assembly passed the Securities & Investment Business Act (SIBA) and related secondary legislation, which is designed to update the regulation and administration of investment funds (including hedge funds) and entities conducting investment or securities business. SIBA was brought into force on 17 May with the exception of the provisions in Part II of SIBA relating to public issuers, which was due to come into force at a later date.

      SIBA provides for: repeal of the Mutual Funds Act 1996 and its replacement by Part III of SIBA; a new investment business licensing regime to regulate investment advisors, broker-dealers, market makers, custodians and operators of investment exchanges; restrictions on, and regulation of, public securities in a non-mutual funds context; and the introduction of a market abuse regime that provides for offences of insider trading, circulating misleading information and market manipulation.

      The last three segments of regulation are almost entirely new in the BVI. The first segment – the regulation of mutual funds – is already well established and, in this regard, the framework for the regulation of BVI funds is not materially altered by the enactment of SIBA and most of the popular concepts remain.

      Notable changes introduced by SIBA include: a codification of the requirement for BVI funds to have at least two directors; a requirement for all BVI funds to appoint an authorised representative resident in the BVI; a change in the minimum initial investment which may be made by investors investing into professional funds, requiring, subject to limited exceptions, all investors to make an initial minimum investment of at least US$100,000 – the previous position was that a majority of the investors into professional funds were required to invest at least US$100,000.

  • 31. Bahrain and Seychelles sign a tax treaty
    • 23 April 2010, Bahrain Finance Minister Sheikh Ahmed bin Mohammed Al Khalifa and Seychelles Finance Minister Danny Faure signed a tax treaty in Washington D.C. The new treaty increases the number of Bahrain’s tax treaties to 31, of which 20 conform to the new broader exchange of tax information provision included in the latest OECD model treaty.

  • 32. Cyprus introduces new tonnage tax regime
    • 29 April 2010, the Cypriot parliament approved the Merchant Shipping (Fees and Taxing Provisions) Law, which introduces a new tonnage tax regime in Cyprus that is applicable retroactively from 1 January.

      The new system, which has received EU approval, extends the benefits applicable to ship managers and owners of Cyprus flagships to the owners of foreign flagships and charterers. It also extends the tax benefits that previously covered only profits from the use of vessels in shipping operations to cover profits on the disposal of vessels, interest earned on funds used for purposes other than investment and dividends paid directly or indirectly from shipping-related profits.

      The tonnage tax system is available to any owner, charterer, or ship manager who owns, charters, or manages a qualifying ship engaged in a qualifying shipping activity. The tonnage tax is calculated on the net tonnage of the ship according to a broad range of bands and rates prescribed in the legislation. The rates applicable to ship managers are 25% of those applied for ship owners and charterers.

      Owners of Cyprus flagships automatically fall within the scope of the tonnage tax system. Owners of EU flagships or third-country flagships may elect to be taxed under the tonnage system. Owners of third country flagships must comply with certain requirements to qualify for an election to be taxed under the new regime. These include the requirement that a portion of their fleet be composed of EU flagships, which portion must not be reduced in the three-year period following the election, and that the commercial and strategic management of the fleet be carried out from the EU.

      Any ship owner electing the tonnage tax system must remain in the system for 10 years. Early withdrawal will result in penalties, calculated as the difference between the amount paid during the period the ship owner was under the tonnage tax system and the amount that would have been due had it been subject to corporation tax in the same period. In addition, the ship owner will lose the right to reelect for tonnage taxation until the expiration of the 10-year period from the date of the first election.

  • 4. Singapore-New Zealand tax treaty enters into force
    • 12 August 2010, the new tax treaty between Singapore and New Zealand came into force following ratification by both sides. The agreement, which was signed on 21 August last year, replaces the existing tax treaty, which dates from 1973 and was amended by protocols in 1993 and 2005.

      The new treaty incorporates the OECD standard for the exchange of information and lowers withholding tax rates for dividends, interest and royalties, which were 15% under the previous treaty. The new withholding tax rates for interest and royalties are reduced to 10% and 5% respectively, while the withholding tax rates for dividends are reduced to 5% where an investor holds direct investment in a company.

      The new withholding rates will apply in New Zealand from 1 October this year and its other provisions will apply beginning 1 April 2011. In Singapore the new withholding rates will apply from 1 January 2012.

  • 5. St Kitts and Nevis parliament approves VAT
    • 12 August 2010, the National Assembly of St Kitts and Nevis approved legislation to replace the existing ad hoc system of consumption taxes with a single general rate of VAT of 17% and a special 10% rate for the tourism sector. The new rates will come into effect on 1 November.

      The legislation will eliminate existing levies such as the consumption tax, the hotel and restaurant tax and the cable television tax, but some goods and services will be zero-rated to minimise the impact for taxpayers on low incomes. According to a government statement, zero rated items will include medicines, vehicle and cooking fuels, local farm produce and some imported foods. The tax will also not apply to bus fares, residential rent and interest payments.

      Prime Minister Denzil Douglas, who proposed the move in his March budget, said that VAT was one aspect of a comprehensive programme to stabilise the economy and that the government will reduce the corporate tax later this year.

  • 6.Swiss regulator and Finance Minister to step down
    • 18 August 2010, Switzerland’s top financial regulator Eugen Haltiner, who as chairman of FINMA led the banking sector through a crisis that nearly crippled UBS and weakened Swiss bank secrecy, announced that he will stand down at the end of the year. The statement came a fortnight after Swiss Finance Minister Hans-Rudolf Merz announced that he was to retire in October.

      Haltiner, a former UBS managing board member, was criticised for being too close to the country’s largest bank and for the way he handled the US tax fraud investigation into UBS, which he famously characterised as an “economic war”. Merz said he was stepping down following the resolution of a number of major issues – balancing the federal budget, improving tax information exchange and rescuing banking giant UBS from possible collapse.

      “He will retire from federal politics in October 2010 after 14 years of political activity in Bern – seven years as a member of Parliament’s upper house and seven years as a federal councilor – and after fulfilling his primary mission of strengthening the federal finances,” said a Federal Department of Finance statement.

      Merz’s tenure was marked by upheavals in global finance, including demands for international assistance in tax matters. He responded with measures to strengthen the Swiss financial market, such as developing Switzerland’s tax treaty policy to comply with the OECD information exchange standard.

      But Merz was criticised for not defending Swiss bank secrecy more strongly, and in particular for approving the 2009 agreement to provide the US tax authorities with information on 4,450 UBS account holders. A report from the control committees of the upper and lower houses of parliament in May also cited him, along with other federal councillors, for failing to address the UBS investigation adequately in its early stages.

  • 7.German authorities question Credit Suisse clients
    • 12 August 2010, German authorities have asked 1,500 German clients of Credit Suisse to provide evidence as part of a probe into whether Switzerland’s second-largest bank assisted in tax evasion. The chief prosecutor’s office in Duesseldorf said in a statement it had written to ask why they had deposited their money with the Swiss bank.

      “The target of the survey is the explanation of the circumstances under which the investments with Credit Suisse came about,” said a statement. “It should also be determined who participated in the engagements from the bank’s side.”

      The Duesseldorf prosecutor’s office sent the Credit Suisse clients 24 questions, which included whether there had been any discussion that the funds would not be taxed, whether a courier service had transferred funds and whether the possibility of opening two accounts – with one for untaxed wealth – had been addressed.

      German tax authorities had passed the names of the Credit Suisse clients on to the prosecutor after they had admitted not paying their taxes in full. The clients have to respond to the questionnaire as they are being contacted as witnesses.

      Searches of Credit Suisse’s private banking offices in Germany in July also netted huge amounts of data and more than 100 boxes of material after tax authorities obtained a compact disc with names of alleged tax evaders this year. The investigation comes as Germany and Switzerland try to negotiate a tax accord.

  • 8. UK Revenue to target medics after amnesty ends
    • 21 July 2010, only 1,500 of an estimated 28,500 potential UK health professionals took advantage of favourable tax penalties to disclose £9 million of untaxed income, according to figures announced by HM Revenue & Customs. The deadline for the Tax Health Plan, which provided a set 10% penalty in return for disclosure, expired on 30 June.

      The highest value disclosures were more than £1 million by a doctor and more than £300,000 by a dentist. The Revenue said it was not disappointed by the yield of the initiative – the first of planned campaigns targeting professionals – as it was inexpensive to run and the results had been unpredictable. But it intended to pursue anyone who should have come forward, imposing penalties of up to 100% of the tax due.

      “We are very happy with the response to the campaign,” said an HMRC spokesman. “We didn’t have a target in mind but nonetheless the campaign has resulted in millions of pounds of tax that might otherwise have been lost being paid to HMRC as required by law. Anyone who has been evading tax should talk to us as a matter of urgency as voluntary disclosure always makes financial sense.”

      Separately, about 5,500 individuals with undeclared offshore accounts have come forward to pay £82 million in tax under the new disclosure opportunity, the latest amnesty targeting offshore tax evasion. The initiative, which yielded less than most experts expected, coincided with legal notices that forced 130 banks to disclose customer information.

  • 9. UK MP defends role of offshore finance centres
    • 22 July 2010, the UK parliament called for an “informed, consistent and balanced” debate on the role of offshore centres in the global economy. It welcomed agreement from the UK government that an evidence-based approach should be adopted in future policy making on offshore financial centres, both nationally, and in international fora.

      The debate was sponsored by Conservative MP Mark Field, who argued that small international financial centres (IFCs) have endured unwarranted “political attacks and misguided criticism as major governments seek to understand the cause of the global financial crisis”. He said that initiatives being driven by the OECD, the G-20, the Financial Action Task Force (FATF), the EU and national governments ran the risk of inaccurately labelling small IFCs as scapegoats for the recent shortcomings in financial markets, and in doing so obscuring the real causes of the financial crisis.

      “Small IFCs were not the cause of the global financial crisis. While it is convenient to blame far-off countries for causing the financial crisis, even those who work in the financial markets do not accept that small IFCs were a major cause of the crisis,” he said.

      Field emphasised the conclusions reached by the Foot Review into the UK’s relationship with its Crown Dependencies and Overseas Territories. In particular, he noted that there was limited impact on the UK’s tax base as a result of so-called “tax havens” – the Deloitte Report, commissioned by the UK Treasury at the time of the Foot Report, had shown that only £2 billion was potentially lost in tax leakages per annum.

      Field also noted that many small IFCs were able to offer stable, well-regulated and neutral jurisdictions through which to facilitate cross-border business for the benefit of the global economy, pointing out that a number of academic studies have concluded that small IFCs create jobs within financial centres and in domestic economies; and can help poverty alleviation in developing countries. He argued that, as a major net recipient of capital flows from small IFCs, the UK would suffer if its firms were to find it more difficult to access capital via the international markets.

      During the debate, it was stressed that the FATF gives many small IFCs a positive assessment in meeting its 49 recommendations – including measures to avoid concealing financial crime and terrorist financing. Field also pointed out work being carried out by the Commonwealth Secretariat in illustrating the important role that small IFCs play in developing economic development and prosperity.

      Finally, Field argued that the OECD did not operate with the sort of transparency that it would expect of others and called for the government to outline measures to ensure that the G-20 process was more inclusive.

      Mark Hoban, Financial Secretary to the UK Treasury, responded by agreeing that the UK was uniquely placed in this debate in having a constitutional relationship, through its Crown Dependencies and Overseas Territories, with half of the top 30 offshore financial centres. The UK was also, he explained, a major recipient of investment capital raised through small IFCs. He acknowledged the important contribution played by small IFCs to market liquidity in the UK, as well as the important link to the UK retail financial services market.

      The minister said it was crucial that the small IFCs were fully engaged in the process of raising global standards on regulation and transparency on issues such as prudential standards, anti-money laundering and the financing of terrorist activities. He recognised the efforts made by small IFCs to date and welcomed further efforts towards progress in this area. He also supported the call for a balanced debate in arguing that it was important that the UK government, the EU and the G-20 proceed on an evidence-based approach.

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