Owen, Christopher: Offshore Survey - September 2011 Supplement

  • Australian court clears tax office to use “stolen” LGT bank records
    • 11 May 2011, Australia’s Full Federal Court dismissed an appeal by two taxpayers who had challenged the Australian Taxation Office’s (ATO) use of stolen information from LGT Bank in Liechtenstein. The taxpayers, Kevin and Mirja Denlay, argued that it was illegal for the ATO to use the “proceeds of crime” in probing their tax affairs.
      The case related to the use of Liechtenstein bank data copied by IT worker Heinrich Kieber, who secretly passed details relating to Australian taxpayers to tax officers. As a result, the Denlays, and other taxpayers, were issued tax bills. Although the German authorities paid $6.4 million to Kieber for information relating to German-resident clients of LGT in 2007, the ATO said it had not pay him for information.

      The Denlays argued that “the receipt and bringing into Australian of documents containing the LGT Group information” contravened the Australian Criminal Code. They said it was reasonable for tax officials to suspect the disks handed over by Kieber were “proceeds of crime” and that the ATO acted on the information with “conscious maladministration”. The ATO said it was entitled to use the information and that its officers had acted “in good faith” in administering the tax laws.

      The Full Federal Court said it appeared that Kieber had taken a back-up hard disk “off the shelf” from LGT’s workplace. Kieber than copied that information to other disks, which were given to the Australian tax officials. But the judges said these copied disks were not stolen, and the tax officials who received them “had no reason to suspect” they were. The judges also said that the information contained on the disks could not be said to be “proceeds of crime” because the information – the bank details – could not be described as property.

      “The proscriptions in (the Criminal Code) are upon receiving and moving property, not upon obtaining or using information,” the judges said. Lawyers acting for the Denlays said they were considering appealing the decision in the High Court. The Denlays are also disputing the tax assessments in a separate court case.

  • Bahamas introduces accelerated Permanent Residency
    • 19 April 2011, the Bahamas government amended the National Investment Policy (NIP) to provide accelerated permanent residency consideration for substantial investors and individuals purchasing a residence of $1.5 million or more.
      Permanent residence is a status issued to an individual for the duration of life, unless revoked, conferring the right to live and or work, but not to vote, in The Bahamas. An individual seeking permanent residence must make a minimum investment of $500,000. For more substantive investment of $1.5 million or greater, applications will be reviewed within 21 days.

      Prime Minister Hubert Ingraham said: “Provided you have all of the required documentation, it is expected that you would be able to have a response of a ‘yay’ or ‘nay’ within 21 days of the completed application being in the hands of the Department of Immigration. We seek to encourage persons who are purchasing or expending that sort of money for a residence in The Bahamas.”

  • Bermuda passes Specified Business Legislation Amendment Act 2011
    • 28 June 2011, the Specified Business Legislation Amendment Act 2011 to establish uniform guidelines for maintaining information and records for all of Bermuda’s financial sectors was brought into force.
      The Bill was drafted following an initial Phase 1 Assessment by the OECD Global Forum on Transparency and Exchange of Information in February last year. During this assessment, a review of Bermuda’s legislative and regulatory framework was undertaken, in order to ascertain whether it could support an efficient and effective exchange of information network for tax purposes.

      Bermuda was found to have met all criteria necessary for effective exchange of information, but some inconsistencies where identified in its legislation and regulatory framework and a set of recommendations were issued.

      Bermuda Premier Paula Cox said: “This enactment will also allow Bermuda to file its 12-month update to illustrate our progress since the Phase 1 report was adopted in September 2010 and to prepare for our Phase 2 assessment scheduled for the second half of 2012″.

  • Brazil creates new LLC vehicle
    • 12 July 2012, Brazil gazetted Law 12,441/2011, which amends Law 10,406/2002 to provide for a new limited liability sole proprietorship company that expressly allows entrepreneurs, athletes, artists and broadcasters to exploit copyrights or image rights, name, brand or voice connected to their professional activities. The new provisions will enter into force after 180 days.
      An EIRELI (empresa individual de responsabilidade limitada) is a limited liability company that permits one individual – not a legal entity – to own 100% of the company’s capital stock and carry out business activities without personally liability for the company’s debts. The minimum capital stock is BRL 54,500 (about $34,600). Previously, LLCs legally required at least two shareholders.

      As individuals, income from professional activities is subject to Brazilian income tax at rates of up to 27.5% and social security taxes of up to 11%. By transferring personal rights to an EIRELI, the maximum tax burden under the presumed tax calculation regime will not exceed 15% of gross income.

  • Cayman Islands to introduce fee for “master funds
    • 10 June 2011, Cayman Islands Premier McKeeva Bush announced a proposal to introduce a new tax and regulation on some “master fund” hedge funds that are registered in the territory. The move is aimed at plugging the regulatory gap in the fund industry.
      The new fee will apply to “master funds” that form part of existing “master or feeder” structures that are not currently regulated by the Cayman Islands Monetary Authority (CIMA). These funds will now be required to pay a fee of CI$1,500 per year to register with the authority.

      Bush said that government had “received representations from leaders in the local financial services sector that such a fee could be introduced, without any adverse effect on the sector.” The procedure for registering these funds is not expected to be onerous or increase reporting requirements, and the regime will not include close-ended private equity funds.

      CIMA has not yet announced the timetable for implementation of the new regulations and fee requirement but it considered it prudent to bring the master funds within its oversight because all assets of the fund structure are held at the master fund level.

      The motivation to regulate the funds also came from the growing pressure with regards international regulation and observations by OECD that the regulatory status of these master funds should be improve.

      It was the only new revenue raising measure contained in the 2011/12 Budget. The government said it expects to raise over CI$6 million from the new fee, of which CI$4.5 million would be used to offset fuel duty increases.

  • Curaçao proposes major changes to tax legislation
    • July 2011, the Council of Ministers presented a package of proposed changes in tax legislation to the parliament of Curaçao. If approved, most will be effective retroactively to 1 January 2011, except an increase of turnover tax, which is anticipated to come into force as of 1 July.
      The proposed changes include a decrease of the corporate income tax (profit tax) rate from 34.5% to 27.5%, retroactively as of 1 January 2011. A further gradual decrease to 15% is anticipated for the years 2012 through 2014. To compensate for the budgetary effects of this decrease, turnover tax is to be raised from 5% to 6%.

      The present participation exemption rules contain an anti-abuse measure that grants only a 70% exemption on dividends derived from a participation that fails to meet the activity test or subject to tax test.

      As a result of the proposed reduction of the profit tax rate to 27.5%, the effective tax rate under the anti-abuse measure would be less than 10%, which may be undesirable from an international tax point of view. It is therefore proposed to reduce the 70% exemption to 63%, which would make the effective tax rate on dividends received from participations that meet the cumulative conditions more than 10.175%.

      The bill also introduces an amendment to provide that a public limited liability (naamloze vennoootschap – NV) company or a private limited liability (besloten vennootschap – BV) company may elect to become tax transparent. The NV or BV will then be treated as a partnership and will not become subject to profits tax.

      Finally, private foundations – and, in future, trusts – are to be given an option to be subject to a corporate income tax rate of 10%. Private foundations are not currently subject to any kind of tax on income, which can make them less attractive in structures with jurisdictions that have a subject to tax criterion. Internationally a tax rate of 10% is accepted as an absolute minimum.

      Further, draft legislation to introduce the trust in the Civil Code of Curaçao is almost complete. When this legislation becomes final, the same option to be subject to a corporate income tax rate of 10% will also be available for trusts.

      The Netherlands Antilles as a jurisdiction within the Kingdom of the Netherlands was dissolved as from 10 October last year, with two separate new jurisdictions, Curaçao and Saint Maarten, coming into existence as separate constituent countries with a status comparable to that of Aruba. Three other islands, Bonaire, Saint Eustatius and Saba – known collectively as the BES islands – became overseas special municipalities of the Netherlands. The Netherlands Antilles Guilder (ANG) will stay in place in 2011, to be replaced by the Dutch Caribbean Guilder in 2012.

  • France introduces new trust, exit and wealth taxes for individuals
    • 6 July 2011, the French Parliament passed the 2011 Amended Finance Law. The legislation, which contains significant changes to the taxation of trusts and wealth tax and introduces an exit tax system, has been confirmed as complying with the Constitution by the Constitutional Council and will enter into force upon publication in the near future.
      The tax regime applicable to trusts has been uncertain because the concept is not recognised under French civil law. The Bill proposes several measures aimed at enabling the French taxation of assets transferred or owned through foreign trusts. Transfers of assets to a trust will be subject to gift taxes or to inheritance taxes based on the fair market value of the assets.

      The Bill imposes under certain conditions an obligation to subject assets owned through a trust to wealth tax or alternately to a tax levy of 0.5%. If the settlor or the beneficiaries are French tax resident or if a trust is composed of French assets, the Bill imposes payment and disclosure obligations on the trustee. Failure to comply results in penalties up to 5% of the value of the assets held in the trusts. The new rules will be applicable from 1 January 2012.

      France abolished its exit tax in 2004 following a decision by the European Court of Justice that found it to be incompatible with EU law. Based on recommendations provided in the Court’s decision – and to discourage the transfer of domicile outside of France for fiscal reasons – the 2011 amended Finance Law introduces a new exit tax mechanism that applies retroactively for certain residents transferring their domicile since 3 March 2011.

      Under the new tax regime individuals moving their tax residence from France to a foreign country will, under certain conditions, be subject to tax on the latent capital gains on their shareholdings in corporations subject to corporate income tax or any equivalent tax. The taxable gain will correspond to the excess of the fair market value of the shares on the date of transfer of residence over the purchase price. Capital gains tax would be payable immediately but may be suspended if the transfer of residence occurs within the EU. The exit tax will be refunded if the shares are held for eight years after the exit from France or if the individual moves back to France.

      The amended Finance Law will not abolish France’s annual wealth tax – “l’impôt de solidarité sur la fortune” (ISF) – outright; instead the starting threshold for the tax is to be raised from €800,000 to €1.3 million. For families with assets above that level, tax will be imposed at 0.25% a year.

      Where assets exceed €3 million, the rate will rise to 0.5%. Existing rates currently vary between 0.55 and 1.8%. The bouclier fiscale (“tax shield”), which previously limited total household tax payments to 50% of income, will be eliminated. For the valuation of shares in real property companies owned by foreign investors, shareholder loans by the investor to the property company will be ignored for wealth tax purposes.

      French estate and gift taxes for transfers from parents to children are currently levied at progressive rates ranging from 5% to 40% on net taxable estates above approximately €1.8 million. The same rates apply to gifts among spouses or partners. There is no inheritance tax on transfers between spouses and partners.

      To encourage the early transmissions of estates between generations through gifts, French legislation currently provides a reduction of the gift tax by up to 50% depending on the age of the donor. The earlier the gift, the lower the tax liability. The Bill proposes to increase, with immediate effect, the two highest tax brackets from 35% and 40% to 40% and 45% respectively.

      The French government shelved a plan to introduce a new tax of 20% based on the rental value, as assessed by the Land Registry Office, of the French second residence of foreign individuals. The proposed measure would have applied to some 360,000 properties belonging to foreigners or French people living abroad.

  • Guernsey consults on new Foundations Law
    • 11 April 2011, the government of Guernsey launched a consultation on a draft Foundations (Guernsey) Law. The States of Guernsey approved a review of Trust Law in Guernsey, which included proposals for the introduction of foundations, in December 2006.
      The consultation included consideration of the precise nature of the foundation structure, initial capital requirements, the extent of founder powers, fiduciary duties and taxation. The consultation also sought views on the potential market demand for foundations – on which Jersey has a head start, having introduced its own foundations legislation in 2009.

      The Commerce Department said it would finalise the legislation and report to the States no later than September. If approved by the States and Privy Council, the Law could be enacted by early 2012.

      “The introduction of foundations will provide another tool for practitioners to meet the needs of clients. In particular, we expect the foundation structure will be attractive to clients based in civil law jurisdictions in Europe and also further afield in the emerging markets of China, Russia and Latin America where the trust concept is less familiar than in common law countries such as the US, Canada and the UK,” said Peter Niven, chief executive of Guernsey Finance.

  • HMRC issues update on Liechtenstein Disclosure Facility
    • 9 May 2011, HMRC, the UK revenue, announced that it had received 1,351 registrations by taxpayers, through to 31 March 2011, to make voluntary disclosures under its Liechtenstein Disclosure Facility (LDF).
      Under the Taxpayer Assistance & Compliance Programme introduced with the LDF, financial intermediaries in Liechtenstein are required to identify persons which it knows, or has reason to believe, may be liable to tax in the UK.

      The intermediary will then be under a duty to notify the person. Unless the person provides evidence to the financial intermediary that they are not liable to UK taxation or they are compliant with their UK tax obligations in relation to their Liechtenstein affairs within a five-year period, the intermediary will be required to stop providing services to them.

      HMRC launched the LDF on 1 September 2009. By 31 March 2010, it had received 419 registrations, increasing to 876 by 30 September 2010. HMRC also revealed that those who have registered under LDF had paid a total of £140.08 million by 31 March 2011.

  • Hong Kong companies cross 900,000 mark
    • 17 July 2011, the Hong Kong Companies Registry announced that the total number of active local companies registered had reached 912,242 as at 30 June, up 48,480 from the end of 2010 and passing 900,000 for the first time.
      A total of almost 78,000 new local companies were registered during the first half of this year, an increase of 8.5% over the new companies registered in the second half of 2010 and 15% over the first half.

      “The number of new companies incorporated continued to rise in the first six months of this year, with a monthly record averaging around 13,000,” said Registrar of Companies, Ada Chung.

      In the first half of 2011, 402 non-Hong Kong companies also established a place of business in Hong Kong to bring the total number registered to 8,342 by end-June.

  • Isle of Man implements automatic exchange of information
    • 1 July 2011, the Isle of Man moved fully to automatic exchange of information on savings income in relation to the EU Savings Directive (EUSD). As a result, the withholding tax option previously available to customers having accounts with Isle of Man banks by virtue of the transitional arrangements in the EUSD was withdrawn.
      Treasury Minister Anne Craine said: “The Isle of Man is a small but significant centre in the global financial services market, and this move signals clearly to our partners in the European Union our commitment to work closely with them by maintaining an excellent regulatory and internationally co-operative business environment.”

  • Liechtenstein law implements UCITS Directive
    • 28 June 2011, the Liechtenstein Parliament adopted a new fund law, which implements the EU directive relating to undertakings for collective investment in transferable securities (UCITS Directive) in the Liechtenstein financial centre. It entered into force on 1 August.
      Implementation of UCITS Directive reinforces access to the European Single Market for Liechtenstein funds and their services. Prime Minister Klaus Tschütscher said: “This creates an ideal framework for the fund centre as well as flexibility, dynamism, and reputation for the entire financial centre.”

  • Luxembourg tables draft law to end SPF low tax dividend cap
    • 15 July 2011, the Luxembourg government submitted a draft law to the Chamber of Deputies that would abolish the low tax dividend cap on sociétés de gestion de patrimoine familial (SPFs). If approved, it will allow an SPF to receive dividends from entities in low tax jurisdictions without any limitation and without jeopardising its tax exemptions for the relevant year.
      SPFs were introduced in May 2007 following the abolition of the 1929 holding company regime. They are in principle exempt from Luxembourg municipal business tax, corporate income tax, and net wealth tax, but these exemptions are lost for a particular accounting year if it falls under the low dividend tax cap – by receiving at least 5% of its dividends during that year from non-resident companies that are not listed on a stock exchange and are not subject to comparable taxation.

      In February 2010, the European Commission issued an opinion that the low tax dividend cap infringes the freedoms established in the Treaty on the Functioning of the European Union and the Agreement on the European Economic Area, because a different taxation is applicable to similar situations which could lead an SPF to avoid investments in non-resident companies which are similar to Luxembourg companies.

      The draft law therefore proposes to abolish the criteria for the non-application of the tax exemption in order to bring the SPF into line with the fundamental freedoms under the EU Treaty.

  • OECD issues further peer review reports
    • 14 April 2011, the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes published seven country peer review reports, followed by a further nine on 1 June.
      In the first tranche, Aruba, The Bahamas, Belgium, Estonia and Ghana underwent “Phase 1 tests”, to evaluate their legal and regulatory preparedness for tax information exchange. Canada and Germany combined a Phase 1 check with an assessment of their implementation in practice – the “Phase 2 test”.

      In the second tranche, Hungary, the Philippines, Singapore and Switzerland underwent “Phase 1 tests”, to evaluate their legal and regulatory preparedness for tax information exchange, while those for the Isle of Man, Italy, France, New Zealand and the US also covered implementation.

      The OECD said the majority of jurisdictions previously reviewed had changed their domestic legislation following Global Forum recommendations.

      “Countries take the peer-review reports very seriously and they all have pledged to address the deficiencies we identified. In some cases they started to act even before our reports were completed. This shows that peer reviews are working and that we are moving towards a truly level playing field,” said Mike Rawstron, the Australian chair of the Global Forum.

      An additional 25 peer review reports are due to be completed by November 2011, bringing the number of reviews to about 60 before the next G20 Summit in Cannes

  • OECD opens updated multilateral tax convention to all countries
    • 1 June 2011, the OECD announced that the revised Multilateral Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 Protocol, had entered into force and was open for signature by all countries.
      The original Convention, developed jointly by the Council of Europe and the OECD in 1988, was open for signature only by member states of both organisations. In response to a call by the G-20, it was amended in 2010 to align it to new international standards on information exchange for tax purposes and to open it to all countries.

      “The entry into force of the amended multilateral Convention marks an important step in the fight against tax evasion and I urge all countries to join,” said OECD Secretary-General Angel Gurría. “These amendments will help counter cross-border tax evasion and ensure compliance with national tax laws as acknowledged by G20 Leaders.”

      The updated Convention offers a variety of tools for administrative co-operation in tax matters, providing all forms of exchange of information, assistance in tax collection and service of documents. It also facilitates joint audits and information sharing to counter other serious crimes, such as money laundering and corruption, when certain conditions are met. It preserves the rights of taxpayers and provides safeguards to protect the confidentiality of the information exchanged, in particular in relation to personal data.

  • Offshore Group of Banking Supervisors rebrands
    • 1 April 2011, the Offshore Group of Banking Supervisors decided to rebrand itself as the Group of International Finance Centre Supervisors (GIFCS). Chairman, Colin Powell, said the change has been made to reflect more accurately the current scope of the Group’s activities.
      “When the OGBS was formed in 1980, through the initiative of the Basel Committee on Banking Supervision, its mandate was limited to banking supervision. With the passage of time the Group has been increasingly recognised by relevant international organisations as a representative body that is also making a valuable contribution to combating money laundering/terrorism financing, the regulation of trust and company service providers, and most recently the regulation of hedge funds,” Powell said.

      The current members of the GIFCS are: Aruba, Bahamas, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Labuan, Macau China, Mauritius, Panama, Samoa, Vanuatu and the Central Bank of Curaçao and Saint Maarten.

      The Group has observer status with the Financial Action Task Force on Money Laundering and Terrorist Financing, has a close working relationship with the Basel Committee, and continues to play an active role in both promoting compliance with, and participating in the setting of, relevant international standards.

  • Privy Council gives judgment in Guernsey trust case
    • 15 June 2011, the Privy Council ruled that trustees could be exonerated from their own gross negligence without breaking their duties under Guernsey law to act “en bon père de famille” (as a good father). The Privy Council, in the split (3:2) decision, effectively followed English law in this area.
      In Spread Trustee Company Ltd v Sarah Ann Hutcheson & Others [2011] UKPC 13, the case concerned the effect of a clause in a Guernsey trust deed seeking to exonerate the trustees from certain liabilities. The trust had been established before statutory legislation was introduced in 1989 to prevent trustees from including such clauses into trust deeds.

      It was alleged by the beneficiaries that the trustees had failed to investigate breaches of trust by previous trustees that had led the trust to sustain losses in excess of £50 million. It was common ground that a trustee could not exclude liability for his own fraud or willful misconduct, but could exclude liability for negligence. The issue between the parties was whether a trustee could exclude liability for gross negligence.

      The Guernsey Royal Court and Court of Appeal both found in favour of the beneficiaries to the effect that the trustees could not be relieved of liability for breach of trust arising from their own gross negligence prior to the formal Guernsey Trust Law. They held that the duty imposed on Guernsey trustees to act “en bon père de famille” was incompatible with the trustee at the same time seeking to exonerate itself from its own acts of gross negligence by a provision in the settlement deed.

      The trustees’ argument that Guernsey law should follow English trust law – and that therefore the principle of “en bon père de famille” added nothing for this purpose – prevailed before the majority of the Privy Council judges.

      Lord Clarke stated: “If, as is common ground, the essential obligation is to act as a prudent trustee would act, namely with reasonable care and skill, it can be said with force that the core obligation of a person acting en bon père de famille includes a duty to act with reasonable care and skill and thus without negligence.”

      The Guernsey law requirement to act “en bon père de famille” therefore did not provide for any additional or different responsibilities or duties for a Guernsey trustee to that of an English trustee. The Guernsey Court had considered that it was incompatible for a trustee to effectively exonerate itself from its own gross negligence whilst at the same time acting under its duty “en bon père de famille”. The majority decision of the Privy Council disagreed and allowed the trustees’ appeal.

  • Qatar introduces withholding tax
    • 9 June 2011, the Ministry of Economy and Finance published executive regulations of its Tax Law (Law 21 of 2009) introducing a withholding tax on payments made to non-residents who do not have a permanent establishment in Qatar.
      The new tax, to be deposited with the Public Revenue and Tax Department (PRTD), will include a 5% charge on royalties and technical fees; and 7% on interest, commissions, intermediary fees, board remunerations and other amounts paid for services undertaken totally or partly in Qatar.

      Resident entities are now responsible for withholding tax from payments to entities and individuals not having a permanent establishment in Qatar. The obligation to withhold also applies to Qatari companies – other than the Qatar Financial Centre entities – whether or not they are taxable on their own income.

      The new law also makes it mandatory for entities in Qatar to notify the PRTD of any contracts they enter into with non-residents who do not have a permanent establishment in Qatar. The law provides that the PRTD will issue a tax card to taxpayers who are resident in Qatar and to non-residents who have a permanent establishment in Qatar.

      The Tax Law does not apply to profits of wholly-owned Qatari entities or owned by naturalised Qataris, interest on public Treasury bonds, development bonds and public corporation bonds, or salaries and wages. The measure is intended to widen the tax base and generate revenue from foreign businesses, but could also provide an incentive to set up a permanent base in Qatar to avoid the tax.

      Last year, the government introduced a new corporate tax rate, which included a sizeable reduction on taxes levied on foreign entities operating in Qatar. As of 1 January 2010, the government fixed the tax rate on foreign companies at a flat 10%, replacing the previous variable tax rate of between 15% and 35%.

      Taxpayers will have to file income tax returns within four months of the end of the fiscal year on 31 March. Under new anti-avoidance provisions, the PRTD can review and alter transactions and impose market values on pricing to bring them within the scope of the tax regime.

  • Russia amends transfer pricing law
    • 18 July 2011, President Medvedev signed the final version of a federal law that amends Russian tax legislation relating specifically to transfer pricing. The bill was adopted by the lower house of the Russian parliament, the State Duma, on 8 July, and approved by the Federation Council on 13 July. It will come into force on 1 January 2012.
      The Law establishes a clear and concise list of related parties and regulated transactions and introduces a list of methods used by the regulating bodies when determining the prices of deals between related parties. It also specifies procedures for presenting documents to the regulating bodies, reporting on regulated transactions and for levying penalties for non-adherence.

      The new legislation is intended to improve the efficiency of tax examinations, reduce the potential for tax avoidance, as well as conforming more closely to the OECD Transfer Pricing Guidelines. The Russian Federation is currently negotiating to become a member of the OECD and compliance with the internationally agreed tax standards is a key element in its accession negotiations.

  • Russia approves Cyprus tax treaty protocol
    • 14 July 2011, the Russian government approved a draft law to ratify the 2010 protocol to the 1998 Cyprus-Russia tax treaty. It has been submitted to the State Duma for ratification.
      The protocol, signed in November last year, will enter into force after the exchange of the ratification instruments and will generally apply from 1 January of the year following its entry into force. It is anticipated that the protocol will enter into force by the end of 2011.

  • Swiss Court holds UBS foreign disclosure to be lawful
    • 15 July 2011, the Swiss Federal Supreme Court ruled that the disclosure of UBS customer data by the Financial Market Supervisory Authority (FINMA) to the US Department of Justice was lawful. The decision reverses the decision of the Swiss Federal Administrative Court and upholds FINMA’s order.
      In February 2009, FINMA ordered that the data of 255 UBS customers be disclosed to the US Department of Justice as a protective measure under articles 25 and 26 of the Banking Act. It proceeded on the basis that, if this data had not been disclosed, the US Department of Justice would have filed an indictment against UBS that could have caused the bank to collapse and had serious repercussions for the Swiss economy.

      UBS customers filed a claim in the Swiss Federal Administrative Court, which in January 2010 declared FINMA’s decision to be unlawful. FINMA appealed to the Swiss Federal Supreme Court.

      The Swiss Federal Supreme Court confirmed the legal opinion of the Swiss Federal Administrative Court that articles 25 and 26 of the Swiss Banking Act do not provide sufficient legal grounds for encroaching on banking secrecy, but said that government authorities may, in the absence of a specific legal foundation, act on the basis of the “general police powers clause” to avert serious imminent risks to fundamental legally protected interests.

      The Court held that this applied to FINMA, as far as it acted in agreement and with the consent of the Swiss Federal Council. “Since FINMA had compelling reasons to believe that not relinquishing the customer data to the US Department of Justice would have seriously impaired Switzerland’s financial markets and have led to serious repercussions for the Swiss economy, the action taken by it was shown to be lawful”, it said.

  • Swiss tax take under EU Savings Directive declines
    • 9 June 2011, the amount of withholding taxes collected by the Swiss Federal Department of Finance under the EU Savings Directive was SFr432 million (Euro353 million) in 2010, a fall of 20% on the previous year.
      Under the directive, EU taxpayers with interest-bearing accounts in Switzerland either declare the proceeds to their home tax authorities or have the interest taxed at source. The Swiss impose a withholding tax at 20%, of which 75% is passed on to the taxpayer’s country of residence.

      German resident account holders paid SFr108 million – a quarter of the total, and almost double that of Italy, the second largest contributor. French accountholders paid SFr47 million, Spanish SFr27 million, British SFr18 million and Belgians SFr16 million.

      The primary reason for the decline is the lower bank interest rates since 2008, but it may also reflect a withdrawal of client deposits from Swiss banks.

  • Switzerland adopts Tax Administrative Assistance Act
    • 6 July 2011, the Swiss Federal Council adopted a dispatch on the new Federal Act on International Administrative Assistance in Tax Matters, which provides for administrative assistance in tax treaties and other agreements on the exchange of information, in particular in accordance with the OECD standard.
      In 2009, the Federal Council adopted the international standards set out in Article 26 of the OECD Model Convention, which states that international administrative assistance should be provided not only for tax fraud, but also for tax evasion and tax assessment.

      Implementation of this article required Switzerland to revise the wording of its existing tax treaties. To date, more than 30 treaties have been adapted or renegotiated but the Tax Administrative Assistance Act was required to update the rules under Swiss national law.

      The new Act contains the principle that administrative assistance will only be provided upon request in individual cases and will be withheld if a request is based on information acquired by acts that are illegal under Swiss law. Information transmitted abroad can only be used to enforce Swiss tax law in so far as it could have been obtained in accordance with Swiss law.

      The Act also governs administrative assistance under other agreements that make provision for exchange of information relating to tax matters, such as the agreement on the taxation of savings income with the EU. The appeal procedure is to be streamlined and the deadlines shortened.

  • Switzerland agrees tax settlement with Germany
    • 10 August 2011, the Swiss and German governments initialled a landmark tax agreement to settle the long-running dispute over tax evasion by wealthy Germans holding cross-border accounts with Swiss private banks. Under the deal, Swiss banks are required to make an advance “guarantee” payment of SFr2 billion ($2.8 billion) to the German tax authorities. The agreement should be signed by both governments in the next few weeks and could enter into force at the start of 2013.
      Germans with undeclared Swiss bank accounts will in future have interest, dividends and capital gains taxed at a flat rate of 26.375% – in line with the current flat-rate withholding tax in Germany.

      To tax existing banking relationships in Switzerland retrospectively, persons resident in Germany will be permitted to make an anonymous lump-sum tax payment, ranging from 19% to 34% of the total assets, which will be determined by the duration of the client relationship as well as the initial and final amount of the capital. The assessment period begins in 2000.

      In order to prevent new, undeclared funds from being deposited in Switzerland, the German authorities can submit requests for information that must state the name of the client, but not necessarily the name of the bank. The number of requests that can be submitted is limited and there must be plausible grounds. The number will be within the range of 750 to 999 requests for a two-year period; an adjustment will then be made based on the results.

      To ensure a minimum income from the retrospective taxation of existing banking relationships and to ensure implementation of the agreement, the Swiss banks have undertaken to pay an advance guarantee of SFr 2 billion, which will then be offset by the incoming tax payments and refunded to the banks.

      The text of the agreement was initialled by Michael Ambühl, State Secretary at the Swiss Federal Department of Finance, and Hans Bernhard Beus, State Secretary and German Federal Ministry of Finance. It marks the end of a long-running dispute between the two governments, brought to a head last year when the German tax authorities admitted to purchasing CDs from whistleblowers containing details of secret bank accounts in Switzerland.

      As part of the deal, Switzerland and Germany will facilitate mutual market access for financial institutions. In particular, the implementation of the exemption procedure for Swiss banks in Germany will be simplified and the obligation to initiate client relationships via a local institution will be eliminated.

      The complete text of the agreement will be published after it has been signed but the Swiss Federal Department of Finance said the problem of purchasing data relevant for tax collection purposes has been resolved and that the package also included a solution for the problem of possible prosecution of bank employees.

      It said the agreement “not only respects the protection of bank clients’ privacy, but also ensures the implementation of legitimate tax claims. Both sides acknowledge that the agreed system will have a long-term impact that is equivalent to the automatic exchange of information in the area of capital income.”

      The deal is expected to be replicated shortly with the UK, and may serve as a template for similar agreements between Switzerland and other countries.

  • Switzerland initiates forfeiture of frozen Duvalier assets
    • 29 April 2011, the Swiss Federal Department of Finance (FDF) initiated forfeiture proceedings before the Federal Administrative Court (FAC) in respect of the assets of former President of Haiti, Jean-Claude Duvalier, which are currently frozen in Switzerland.
      The Duvalier case began in 1986, when the Haitian authorities submitted a request for mutual assistance. These assets, understood to total more than SwF 5.8 million, have since been frozen in Switzerland on the basis of either international mutual assistance proceedings in criminal matters or a Federal Council decision based on the Federal Constitution.

      But from 1 February 2011, the Duvalier assets were instead frozen under the new Federal Act on the Restitution of Unlawful Assets. The Act provided for a one-year period for the initiation of forfeiture proceedings before the FAC by the FDF, or the freezing order would become null and void.

      The Federal Council instructed the FDF, on 2 February, to initiate forfeiture proceedings concerning the Duvalier assets frozen in Switzerland. If the restitution claim is successful, the Swiss Confederation will return the Duvalier assets to Haiti in accordance with the provisions of the Act.

  • TCI governor signs new laws into force
    • 15 July 2011, the Governor signed into law the Tax Information Exchange (Amendment) Ordinance 2011, Companies (Amendment) (No.2) Ordinance 2011 and Limited Partnerships (Amendment) Ordinance 2011.
      The Tax Information Exchange (Amendment) Ordinance 2011 amends the Ordinance to ensure that the competent authority has the power for effective exchange of information. It also provides a definition of legal privilege consistent with international standards.

      The Companies (Amendment) (No.2) Ordinance 2011 amends the Ordinance to require companies to maintain relevant underlying documentation, such as contracts and invoices and to keep such documentation as well as accounting records for at least five years.

      The Limited Partnerships (Amendment) Ordinance 2011 amends the Ordinance to require partnerships to keep reliable accounting records, to maintain relevant underlying documentation, such as contracts and invoices and to keep such documentation as well as accounting records for at least five years.

      The Tax Information Exchange (Amendment) Ordinance 2011 came into force on 15 July. The Companies (Amendment) (No.2) Ordinance 2011 and the Limited Partnerships (Amendment) Ordinance 2011 came into force on 29 July.

      The interim government of the TCI implemented a series of new taxes in the Budget on 5 April with the goal of stabilising and generating more revenue and also to provide for the introduction of VAT in 2013. The government was put into place after the UK Foreign Office removed the former government in August 2009 following a corruption scandal

  • Ticino freezes Italian funds over tax dispute
    • 30 June 2011, the government of the Italian-speaking canton of Ticino announced it would retain around SFr30 million ($36 million) of tax revenues attributable to Italian cross-border workers in a move designed to put pressure on the Swiss government to resolve an ongoing tax dispute with Italy.
      Ticino said the money would be frozen in Switzerland until the Swiss government started negotiating with Italy for a new tax treaty. The tax treaty was ready to be ratified but negotiations were put on hold in 2009 following a raid by Italian tax authorities on Italian branches of Swiss banks.

      The Swiss finance ministry said that it had taken note of Ticino’s decision and that it was also interested in an end to the tax dispute. Italy has retained Switzerland on its “black list” of tax havens, despite Switzerland being moved on to the OECD’s “white list”, making it harder for Swiss companies to transact cross-border business.

      Swiss President Micheline Calmy-Rey met with Italian Prime Minister Silvio Berlusconi on 1 June for talks on starting bilateral negotiations. “Switzerland’s presence on Italy’s blacklist is unacceptable and is detrimental to economic exchanges and investments between our two countries”, she said.

  • UAE approves three-year visa for property investors
    • 28 June 2011, the United Arab Emirates’ federal government approved the extension of visas for real estate investors from six months to three years. The move is designed to help boost the beleaguered real estate sector in the emirates, particularly Dubai, which was one of the worst hit during the downturn with prices dropping by as much as 60% from their peak.
      Presently, foreign owners of property worth more than AED1m ($272,250) are eligible for a six-month visa, which needs to be reviewed every six months. The new visa rules will not apply to those buying land and only investors with properties worth more than AED1m with qualify for the extended visas.

      Law No (7) of 2011, which incorporates the first ever amendments to Law No (9) of 2004 – the “Original Law that established the Dubai International Financial Centre (DIFC) as the first Financial Free Zone in the UAE – was also enacted on the 4 April 2011. It was gazetted and brought into force on 21 April.

      The new law comes as part of the Dubai’s ongoing strategic commitment to diversify the Emirate’s economy by supporting the growth of the banking and financial services sector through DIFC.

      DIFC governor, Ahmed Humaid Al Tayer, said: “The amendments to Law (9) provide greater legal clarity and improve the corporate governance of DIFC. These changes further strengthen DIFC’s legal and financial infrastructure as a whole, and reinforce the government’s commitment to the independence of each of the Centre’s bodies. This is an important step forward in the growth of DIFC as a global financial hub.”

  • US indicts former Credit Suisse offshore banking head
    • 21 July 2011, the US authorities brought charges of conspiring to help clients in the US evade taxes through secret bank accounts against Markus Walder, former head of Credit Suisse’s North American offshore banking business, together with six of his former colleagues – four of whom were previously charged in February – and an associate.
      According to the indictment filed at a Virginia federal court in US v Adami, Walder and others helped US customers evade income tax through undisclosed accounts. In the autumn of 2008, the bank maintained thousands of secret accounts for US customers with as much as $3 billion in assets.

      Walder, a Swiss resident, supervised teams of private bankers in Geneva and Zurich who worked in an unregistered private banking business in the US, and was a senior manager in a business registered with the US Securities and Exchange Commission.

      The other new defendants, also Swiss, are Susanne Ruegg Meier and Andreas Bachmann of Credit Suisse. The indictment also named Josef Dorig, the chief executive officer of a trust and asset management company owned by the bank. The bankers charged in February are Marco Parenti Adami, an Italian; and Emanuel Agustoni, Michele Bergantino and Roger Schaerer, all Swiss citizens. They live in Europe and have not appeared in US court.

      Credit Suisse announced on 15 July that it had been notified by the Justice Department that its was a target of an investigation into former cross-border private banking services to US customers. None of the accused or Credit Suisse itself has been tried for or admitted any offences.

      The bank said in a statement: “Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the US authorities in an effort to resolve these matters.”

  • US reportedly abandons talks for a “global resolution” with banks
    • 17 July 2011, the US was reported to have rejected a multibillion-dollar “global resolution” that would have enabled several Swiss banks to join a common settlement and avoid potential US prosecution for helping wealthy US citizens taxes evade tax, according to Swiss newspaper SonntagsZeitung.
      It claimed that the US had written to the Swiss State Secretariat for Economic Affairs and the Finance Ministry to inform them of its decision. Asked to confirm the existence of the letter, a spokesman for the US Department of Justice had no comment.

      US officials had admitted, on 10 June, they were in advanced talks on a deal that would invite the banks to pay a fine, exit their undeclared offshore banking businesses for Americans, and turn over client names to the Internal Revenue Service (IRS) and the Justice Department. The fines would have totalled several billion dollars.

      In exchange, the US government agencies would have dropped ongoing investigations into the banks. Banks that “opted out” of the deal would have face heightened scrutiny from US authorities, including a possible legal summons for client names from the IRS and tougher scrutiny by the Justice Department.

      A resolution would have marked a shift in the way US officials treat foreign banks suspected of helping wealthy US citizens to evade taxes. In 2009, Switzerland’s largest bank, UBS, averted indictment over its undeclared offshore private banking services by admitting to criminal wrongdoing, agreeing to pay $780 million and to turn over more than 4,500 client names.

      Since then the Justice Department has conducted a broad criminal investigation into a number of banks, bankers and third-party intermediaries suspected of helping wealthy American clients to evade taxes. Companies involved include Credit Suisse, the second-largest bank in Switzerland; HSBC, Europe’s largest bank; Julius Baer, a private bank based in Zurich; and Basler Kantonalbank, a Swiss cantonal bank in Basel.

      The IRS has compiled a “roadmap” of Swiss bankers and their intermediaries based on evidence emerging from a number of criminal investigations as well as the information provided by thousands of US citizens who have disclosed offshore accounts under two voluntary programmes in exchange for reduced fines and penalties.

      As a result, both US and Swiss authorities were interested in pursuing a global resolution rather than proceeding on a bank-by-bank basis. But, according to press reports, the talks became bogged down by Swiss insistence that any deal should leave Swiss bankers free from prosecution in the US.

  • US Senate approves protocols to Swiss and Luxembourg treaties
    • 26 July 2011, the US Senate Foreign Relations Committee approved proposed protocols to the US tax treaties with Switzerland and Luxembourg, as well as a proposed new tax treaty with Hungary. They will be voted on by the full Senate.
      The proposed Swiss and Luxembourg protocols contain updated information exchange provisions that conform to the OECD standard. At committee hearing on pending treaty instruments, on 7 June, a Treasury official said he was confident that the new provisions would enable the US government to more effectively combat offshore tax evasion.

      The proposed Swiss protocol also amends article 10 of the existing treaty to eliminate withholding tax on cross-border dividend payments to pension plans and individual retirement plans. It also amends article 25 to provide for mandatory arbitration. The US currently has four in-force tax treaties – with Germany, Belgium, Canada, and France – that provide for mandatory arbitration.

      One of the most significant provisions in the proposed new treaty with Hungary is a limitation on benefits article. The new treaty’s LOB provisions are consistent with the 2006 US model’s provisions but also include a headquarters company test, a derivative benefits provision and a triangular branch rule.

  • US Senator reintroduces the Stop Tax Haven Abuse Act
    • 12 July 2011, Senator Carl Levin introduced the latest version of his legislation to reduce tax abuse and avoidance by US taxpayers, which he claimed cost the US Treasury $100 billion in lost revenue per year. It is the fifth version of the Stop Tax Haven Abuse Act since 2009; some elements of prior bills have become law.
      The new Bill would authorise the US Treasury secretary to take special measures to prevent US financial institutions from doing business with foreign jurisdictions or financial institutions that impede US tax enforcement. It would also prevent corporations whose management and control are located primarily in the US from claiming tax status as foreign corporations. Instead, it would treat them as domestic corporations for tax purposes.

      The Bill would close a tax loophole that allows credit-default swap payments to escape taxation if sent from the US to persons offshore, such as an offshore hedge fund or foreign bank. It would impose a tax on assets that are supposedly kept offshore by foreign subsidiaries of US corporations but, in reality, are deposited into accounts physically located in the US. The Bill would deem the funds to be taxable distributions by the foreign subsidiaries to their US parents.

      Another provision would increase publicly available information about multinational corporations’ taxes around the world, requiring them to include basic information on a country-by-country basis in their filings with the Securities and Exchange Commission.

      The Bill would also authorise the US Treasury Secretary to take special measures against foreign jurisdictions or financial institutions that impede US tax enforcement, as well as imposing additional disclosure requirements on multinational corporations by requiring them to include basic information on a country-by-country basis in their filings with the SEC.

      Notably, the Bill did not include a controversial proposal in the 2009 Bill that specifically identified 34 “Offshore Secrecy Jurisdictions”, including the Cayman Islands, the British Virgin Islands and the UK Crown Dependencies.

  • US Treasury extends FATCA implementation timetable
    • 14 July 2011, the US Treasury announced (Notice 2011-53) that the deadline for implementation of the Foreign Account Tax Compliance Act (FATCA), which targets non-compliance by US taxpayers through foreign accounts, would be extended by one year.
      Under FACTA, enacted last March as part of the Hiring Incentives to Restore Employment (HIRE) Act, foreign financial institutions (FFIs) with US customers and foreign non-financial entities with substantial US owners must disclose information regarding US taxpayers directly to the IRS (Internal Revenue Service). Failure to disclose information will result in a requirement on non-US financial intermediaries to withhold a 30% tax on US-source income.

      The FATCA reporting obligations were scheduled to come into force in January 2013. But the US government has come under pressure to dilute its provisions due to the compliance burden they would place on financial institutions.

      On 6 April, Algirdas Semeta, head of the European Commission’s tax policy office, wrote to the US Treasury criticising FATCA’s “onerous” disclosure provisions for European banks. In the letter, he warned that FATCA’s requirements were too wide-ranging and would have a “severe impact on the EU financial industry in terms of costs of compliance and penalties in cases of non-compliance”.

      The Commission, he said, had obtained the support of EU Member States for an EU-wide approach aimed at exploring solutions that would ensure that US tax authorities can obtain the information they require on investments by US residents in foreign financial institutions without any excessive burden on the EU financial industry.

      The US Treasury has now extended the schedule by a year. The reporting requirements will begin in 2014. Withholding tax on dividends and interest will also be delayed until January 2014, while withholding tax on gross proceeds of asset disposals will be postponed until January 2015.

      But FATCA’s special due diligence requirements – which require banks to identify certain “high-risk” US accounts worth more than $500,000 – will take effect in 2013. And foreign banks will have to notify the IRS by June 2013 whether they intend to comply with the FATCA regime. Any who do not will be assumed to be non-compliant and will be subject to the withholding tax.

  • US/Panama TIEA enters into force
    • 18 April 2011, the US Treasury Department announced the entry into force of the tax information exchange agreement (TIEA) signed with Panama in November 2010. The TIEA will permit the US and Panama to seek information from each other on all types of national taxes in both civil and criminal matters for tax years beginning on or after 30 November 2007.
      Panama’s National Assembly approved the treaty on 13 April, having been assured by vice president Juan Carlos Varela that ratification would be swiftly followed by the conclusion of a free trade agreement between the two countries. Panama’s economy has been hard pressed by American tariffs on Panamanian food exports and restrictions on US investment.

      Panama amended its domestic law – by Law 33, gazetted on 30 June 2010 – to enable the government to obtain and exchange information to comply with international conventions (including TIEAs) even when such information is not of domestic tax interest.

      Panama also – by Law 2, gazetted on 1 February 2011 – amended its law by requiring law firms that incorporate businesses to conduct due diligence to verify the identity of the owners, including “bearer shares”, and to share that information with authorities upon request.

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