Owen, Christopher: Offshore Survey - April 2011 Supplement

  • Isle of Man advocate convicted of money laundering
    • 25 February 2011, Manx advocate Jenny Holt was handed down a 12-month sentence suspended for two years after being found guilty in January of one count of money laundering and two counts of falsifying documents.

      The charges stemmed from when Holt, who denied the charges, was part of the defence team for disgraced businessman Trevor Baines and his wife Wendy at their money laundering trial in 2009. Baines was then jailed for six years and Mrs Baines was sentenced to nine months in prison, suspended for two years.

      In the new case, Baines admitted five counts of theft in relation to about £800,000 stolen from client bank accounts under their control while his wife also pleaded guilty to the theft of £400,000. Baines was sentenced to two-and-a-half-years’ prison, in addition to the six he is already serving, and his wife was sentenced to 18-months in prison.

      The Baines’ had used the money to fund the legal fees for their criminal trial in 2009. The prosecution alleged that Holt, who worked as a junior advocate and was assigned to the defence team in the Baines trial, recklessly facilitated the arrangement of the loan from the trust, knowing it to be dishonest.

  • Barbados to amend laws on tax information disclosure
    • 3 February 2011, the Barbados government announced that it is to amend the Income Tax Act to permit disclosure of individuals’ tax information to other jurisdictions, even those with whom a tax treaty has not yet been ratified.

      An OECD Global Forum Phase I Assessment concluded that while Barbados had made excellent progress in expanding and updating its network of tax treaties to reflect the OECD standard, it no longer meets the standard because these treaties are not yet in force.

      The Income Tax Act will therefore be amended to provide a domestic law basis for exchanging tax information with existing treaty partners with whom updating protocols reflecting the 2008 OECD standard have not yet been concluded, and also with those jurisdictions with whom Barbados has concluded treaty negotiations but where the agreements are awaiting ratification.

      As and when new protocols and new agreements enter into force, the domestic law basis for the exchange of information will cease to apply and legal basis for the exchange of information will be grounded in the provisions of the tax agreements.

  • Cyprus companies to register with tax authorities
    • 31 December 2010, the Assessment and Collection of Taxes law was amended and, upon its ratification on 31 June 2011, every company incorporated under the Companies Law must register with the Inland Revenue Department (IRD) and ensure that a Tax Identification Code (TIC) is assigned to it.

      Companies that are incorporated or registered or become tax resident in Cyprus should register with the tax authorities and obtain their TIC within 60 days from their incorporation or registration or from the date they become tax residents in Cyprus.

      Existing companies that are not yet registered must do so by 30 June 2011, without suffering any penalties. They will have an obligation to inform the tax authority within 60 days of any amendments to their records.

  • EC requests Belgium to amend Inheritance Tax Code in Brussels
    • 16 February 2011, the European Commission formally requested Belgium to change the provision of the Inheritance Tax Code of the Brussels Capital Region that provides for a reduced tax rate to gifts of real estate in the Brussels Capital Region. This reduced rate is only applicable if the recipient remains a resident of the Brussels Capital Region for at least five years.

      The Commission considers that this condition represents a restriction on the freedom of residence, the free movement of workers and the right of establishment as laid down in Articles 21, 45 and 49 of the Treaty on the Functioning of the European Union and Articles 28 and 31 European Economic Area Agreement. The provisions, it says, could dissuade Belgium’s residents from moving or investing in other Member States and the Commission does not see any justification for such a restriction.

      The EC considers the provisions to be incompatible with the freedom of residence, the free movement of workers and the right of establishment as provided for by the Treaty. The request takes the form of a ‘reasoned opinion’. In the absence of a satisfactory response within two months, the Commission may refer Belgium to the European Court of Justice.

  • EC requests Greece to modify its discriminatory tax amnesty
    • 16 February 2011, the European Commission formally requested Greece to change its tax legislation, which discriminates against funds held abroad by Greek residents.

      Under the Greek tax amnesty, disclosed funds that are transferred to a bank account in Greece benefit from a lower rate of tax of 5%, while the applicable tax rate for funds that are maintained out of Greece is 8%.

      The Commission considers that these rules dissuade Greek taxpayers from maintaining their disclosed funds in other Member States or EEA countries. The rules therefore constitute a restriction on the free movement of capital of Article 63 of the Treaty on the Functioning of the European Union and the freedom to provide services of Article 56 of the TFEU, and the corresponding Articles of the European Economic Area (EEA) Agreement.

      The request takes the form of a “reasoned opinion”. If there is no satisfactory response within two months, the Commission may decide to refer the case to the EU’s Court of Justice.

  • EC requests Spain to change its inheritance and gift tax provisions
    • 16 February 2011, the European Commission requested Spain to amend its tax provisions on inheritance and gift tax that impose a higher tax burden on non-residents and on assets held abroad.

      Inheritance and gift tax in Spain are regulated at both state level and at the level of autonomous communities. In practice, the autonomous communities’ legislation leads to a substantially lower tax burden for the taxpayer than the state legislation does.

      When the gift or inheritance does not fall within the jurisdiction of an autonomous community, only the State legislation applies. This is particularly the case where the recipient is resident abroad or when gifts of property are located abroad. As a consequence, a taxpayer has to pay more taxes than they would if they had been living in Spain or if gifts of property were located in Spain.

      The Commission considers that this constitutes an obstacle to free movement of persons and capital in breach of the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively). It sent a reasoned opinion to Spain on 5 May 2010 (IP/10/513).

      The Spanish legislation has been amended but is still not fully compliant with EU law. The Commission has therefore decided to send a complementary reasoned opinion requesting Spain to make additional changes to its legislation to ensure full compliance.

      The request takes the form of a complementary “reasoned opinion”. If there is no satisfactory response within two months, the Commission may decide to refer the case to the European Court of Justice.

  • French government to scrap the Bouclier Fiscal
    • 3 March 2011, French prime minister François Fillon announced the scrapping of the bouclier fiscal or “tax shield”, describing it as an “imperfect remedy” for the investment problem. To mitigate the move, it is likely to raise the threshold at which wealth tax (impôt de solidarité sur la fortune) is imposed on French residents.

      The shield was designed to limit the impact of France’s wealth tax, which is paid by households with assets worth over €790,000 euro. Under the mechanism, no taxpayer was meant to pay more than 50% of their revenues in taxes.

      This was set in 2007, early in President Sarkozy’s term, and was regarded as an important concession for wealthy people and high earners. But the heavily indebted government has decided it could no longer afford the concession, which costs €700 million euro of tax revenue each year.

      Fillon ruled out a variety of options that have been suggested in recent months. The government would not tax gains on the sale of main residences; raise the inheritance tax, which it has reduced; or introduce an additional income tax bracket, he said.

      The government says the wealth tax drives rich taxpayers out of the country, and Fillon said the government would either abolish or significantly change it. One option being discussed would be to raise the minimum threshold to €1.3 million of assets, which would remove about 300,000 households from liability to wealth tax.

      The government aims to bring a tax bill to parliament before the summer.

  • G-20 Summit calls for more TIEAs
    • 19 February 2011, the G-20 Finance Ministers and Central Bank Governors issued a release on the end of their summit in Paris to encourage all jurisdictions to extend their tax information exchange agreements and to consider signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

      It said: “We reiterated our call to improve compliance with international standards and strengthen the process of identifying non-cooperative jurisdictions. We look forward to the forthcoming update by FATF of the public list of jurisdictions with strategic deficiencies and to a public list of all jurisdictions evaluated by the FSB (Financial Stability Board) ahead of the next G20 Leaders Summit.

      “We welcome the 18 peer reviews issued by the Global Forum on Transparency and Exchange of Information and urge all jurisdictions so far identified as not having the elements in place to achieve an effective exchange of information to promptly address the weaknesses. We look forward to the progress report by November 2011, based on the expected completion of around 60 phase 1 reviews, to address in particular the jurisdictions’ quality of cooperation with the Forum, level of compliance and unsolved deficiencies.

      “We call upon more jurisdictions to join the Global Forum and to commit to implementing the standards. We urge all jurisdictions to extend further their networks of Tax Information Exchange Agreements and encourage jurisdictions to consider signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.”

  • Hogan to sue over Australian criminal tax probe
    • 6 January 2011, actor Paul Hogan said that he plans to sue the Australian government over its failed five-year criminal investigation of his tax affairs. His lawyer said the probe had damaged Hogan’s reputation and cost him millions of dollars in lost job opportunities.

      The Australian Crime Commission (ACC) announced last November that it was discontinuing its criminal investigation into alleged tax evasion by Hogan and his manager John Cornell because there were “insufficient prospects of securing convictions” and it was not in the public interest to continue. The Australian Taxation Office, however, is still conducting a civil investigation.

      After the ACC investigation was dropped, Hogan said in media interviews that his name had been “demolished” and that job offers had dried up because of the probe.

  • HSBC under threat of US tax fraud investigation
    • 26 January 2011, officials said that the US Federal authorities were considering whether to serve a broad legal summons on HSBC to ascertain whether it sold tax evasion services to wealthy American clients.

      The legal action was being considered after a federal indictment in US District Court in Newark of Vaibhav Dahake, an affluent client of an unidentified international bank on charges of conspiracy to defraud the US by keeping hidden bank accounts in India and the British Virgin Islands from about 2001.

      Dahake was born in India and became a naturalised US citizen in 2006. He is a principal of an information technology business in New Jersey. The indictment said the unnamed bank had identified wealthy Indian-Americans as clients for undeclared offshore banking through NRI Services, a US division of the bank. The New York Times said officials who had been briefed on the matter said that the international bank was UK-based HSBC, which has private banking operations around the world.

      According to court documents, Dahake received “an unsolicited letter advertising bank accounts in India that paid high interest rates” from the international bank in 2001. The indictment cited five unidentified bankers – three Americans and two Indiana – as unindicted co-conspirators.

      One of these advised Dahake to transfer money between his accounts in smaller amounts “to stay below the radar” of rules requiring banks to report to US customs officials transfers of $10,000 or more, while others advised him not to file required forms to the Internal Revenue Service (IRS) declaring the money, telling him that money transferred between the BVI account and the India account would not be processed through the US banking system, further evading scrutiny.

      One of the bankers further told Dahake that he did not have to worry about bringing his money from the India account back to the US because, according to court papers, the IRS “would be looking for undeclared accounts maintained in the Caribbean rather than in the Far East,” and his ownership of and the structure of the BVI account would be unknown to authorities. The international bank, the papers said, also advised Dahake about holding money in Singapore and Hong Kong.

      The New York Times said it was not clear how many client names would be covered under a summons, which would have to be issued by the IRS and enforced by the US Justice Department. Last August, authorities dropped a similar summons against Swiss bank UBS that had sought to require the bank to disclose the names of as many as 52,000 wealthy American clients.

  • Indian Budget targets tax information exchange
    • 28 February 2011, Indian Finance Minister Pranab Mukherjee proposed several ‘anti-avoidance’ measures to discourage residents from transacting with entities in ‘non-cooperative’ jurisdictions that do not effectively exchange information, including TDS (tax deduction at source) of at least 30%.

      As part of the Budget, Mukherjee sought to put in place a “toolbox of counter measures” against those jurisdictions that delay or refuse to enter into tax information exchange agreement (TIEA) with India. The Budget empowers India to notify such jurisdictions.

      Besides stipulating a punitive withholding tax rate, Mukherjee also proposed that transactions with non-cooperative jurisdictions be deemed international transactions and therefore subject to transfer pricing regulations. Payments would only then benefit from tax deductions providing that whoever made the payment gives the Indian tax authorities permission to seek relevant information about the financial institution into which the money is paid.

      If a resident were to receive money from such jurisdiction, then the onus would be on the taxpayer to explain “satisfactorily” the source of such money. Otherwise, the amount would be deemed as income of the taxpayer.

      Addressing parliament and speaking of the dangers of “black money”, Mukherjee said: “We secured Membership of the Financial Action Task Force (FATF) in June last year. This is an important initiative of G-20 for anti-money laundering. We have also joined the Task Force on Financial Integrity and Economic Development, Eurasian Group (EAG) and (the OECD) Global Forum on Transparency and Exchange of Information for Tax Purposes.”

      India has so far signed tax information exchange agreements (TIEAs) with Bermuda, the Isle of Man, British Virgin Islands and the Bahamas. Last year the Washington-based research and advocacy group Global Financial Integrity estimated that India lost nearly $100 billion through illicit outflows.

  • IRS announces new tax amnesty programme
    • 8 February 2011, Internal Revenue Service Commissioner Doug Shulman announced a new programme of reduced penalties for overseas tax evaders who make voluntary disclosures of undeclared assets.

      Under the new programme, participants face a 25% penalty for the year with the highest balance, compared with the usual penalty of 50% for each year. Taxpayers whose accounts or assets total less than $75,000 in a calendar year may pay a lower penalty of 12.5%. The closing date is 31 August.

      It follows a 2009 amnesty programme, carrying a 20% penalty, which attracted 15,000 taxpayers with hidden accounts with an additional 3,000 coming forward subsequently. Fewer than 100 people make voluntary disclosure in a typical year, in part because the penalties can far exceed the value of the hidden account.

      Last year’s offer was made as the IRS stepped up efforts to go after US taxpayers hiding money overseas, particularly through Swiss bank UBS. The new programme could help the US government gather more information into other international banks that have been suspected of helping US Taxpayers evade the IRS.

      “It gives people a chance to come in before we find them,” Shulman said. He admitted that a “number of other banks” were under investigation, with some cases at “quite advanced” stages, but declined to name the banks.

  • Isle of Man Court clarifies scope of Norwich Pharmacal jurisdiction in Isle of Man
    • 21 January 2011, the Isle of Man High Court ruled on the extent of the use of the Norwich Pharmacal jurisdiction, which enables disclosure orders against non-parties, in the Isle of Man. The court held that Norwich Pharmacal orders are for the provision of information rather than evidence and are to be used as a last resort.

      In Templeton Insurance Ltd v Bradford & Bingley International Ltd, Deemster Corlett faced an application based on the Norwich Pharmacal disclosure jurisdiction in respect of copies of certain banking information. The applicants contended that the information sought might be relevant to proceedings in England being amended or fresh English proceedings being commenced.

      Deemster Corlett was satisfied that this was not an application for the provision of evidence, pointing out that, if it were, the application would fall foul of Section 56B(3)(b) of the High Court Act 1991. He confirmed that the only way in which the Manx court can collect ‘evidence’ for use in foreign civil proceedings is under the Evidence (Proceedings in Other Jurisdictions) Act 1975. He also confirmed that he considered that the Norwich Pharmacal jurisdiction upon which the application was founded was for the provision of information rather than evidence. He was satisfied that the application had been properly brought.

      The Deemster said that Norwich Pharmacal was to be used in cases where it was questionable that a wrong had been committed, but where the circumstances were such that, unless disclosure was ordered, the applicant would be unable to investigate what had occurred or, where appropriate, to bring proceedings. He referred to Stephen Gee’s book on Commercial Injunctions, in particular: “In principle the contemplated steps should be effective to redress the wrong and the information is not restricted to identifying the wrongdoer but can extend to full information required for this purpose including information about what the wrongdoer has done with his assets.”

      In the circumstances, Deemster Corlett was persuaded to grant the application, stating: “I bear in mind, of course, that the Norwich Pharmacal jurisdiction is supposed to be a relief of last resort, but in the light of the time being short between now and the trial in England, I believe it is right to say that I am using this, in essence, as an instrument of last resort.”

  • Italian newspapers publish names in tax inquiry
    • 12 January 2011, Italian newspapers reported the names of some 700 Italian account holders who allegedly held secret offshore bank accounts and are now under investigation. The named individuals, who had given their tax residency in the Lazio region around Rome, were accused of incomplete tax returns running into hundreds of millions of euro.

      They include several Italian fashion and film celebrities, such as the designers Valentino and Renato Balestra, jeweller Gianni Bulgari and the late filmmaker Sergio Leone, as well as business figures. The majority are wealthy, lesser-known individuals.

      The Italian Guardia di Finanza has been examining the so-called “Falciani List” to ascertain whether the Italians illegally held accounts with the Swiss branch of the HSBC bank and could therefore be guilty of tax evasion. Herve Falciani, an IT specialist who no longer works at the bank, originally obtained the information, dating back to 2005 and 2006.

      The 6,936 accounts on the full list belonged to 5,728 Italian taxpayers of whom only 133 were registered companies or associations, the rest being private individuals. Italian investigators said that the sum held in the accounts totalled 5.3 billion euro and that 132 of the accounts held sums of more than 10 million euro. An amnesty law permitting Italians with foreign accounts to repatriate their money by paying a fine expired last year.

      The Guardia di Finanza also issued a report on 31 January estimating that Italian taxpayers failed to report over 49 billion euro in taxable income and assets last year, an increase of 46% over the previous year. Of the total, 20 billion euro belonged to Italian wage earners who failed to report their income, while 10.5 billion euro consisted of assets hidden in offshore accounts – 26% of the overseas assets went to Luxembourg, 25% to Switzerland, 7% to the UK and 6% to Panama.

  • Italian tax authorities issue Circular on trust arrangements
    • 27 December 2010, the Italian Tax Administration issued Circular 61/E, which provides additional clarifications on the tax treatment of trusts. The new guidance focuses on the issue of fiscally ineffective trusts, which are completely disregarded for tax purposes such that the assets are considered not to have been transferred from the settlor.

      The definition of a fiscally ineffective trust has been widened to include trusts where:

      the settlor may terminate the trust for his own benefit or for the benefit of others;
      the settlor can at any time appoint himself as a beneficiary or, more generally, has an express power to change the beneficiaries;
      the trustees cannot make decisions without the consent of the settlor or have an obligation to follow his instructions;
      the settlor can force the trustees to distribute trust assets, or has an express power to assign trust assets or grant loans;
      the beneficiaries or settlor can influence or vary the decisions of the trustees
      An express power is interpreted as arising either where written into the trust deed or where it takes place in practice. The new definitions therefore have considerable scope. Not only will the nature of the trust deed be important, but also the way decisions are made on a more informal basis by settlors, beneficiaries and trustees.

      The changes should be considered carefully by both Italian-resident trusts with non-resident beneficiaries and non-resident trusts with Italian-resident beneficiaries, both of which may be affected.

  • Luxembourg issues guidance on financing transactions
    • 28 January 2011, the Luxembourg Tax Authority issued Circular 164/2, which clarifies the tax treatment of companies engaged in intra-group financing. It applies to companies whose principal activity, other than holding activities, consists of intra-group financing transactions, which are defined as the granting of loans or advances to associated companies, refinanced by any financial means.

      The new rules are a response to the European Union’s requests to standardise the pricing approach for financing companies. The circular defines intercompany financing transactions as loans made to associated enterprises refinanced through any type of financial instruments, such as public offerings, cash advances and private and bank loans.

      The definition of “associated enterprises” follows that in the OECD Model Treaty and includes cases in which an undertaking participates directly or indirectly in the management, control or capital of another undertaking, or when the same persons participate directly or indirectly in the management, control or capital of two undertakings.

      Luxembourg law includes only general provisions regarding the arm’s length principle, so the Circular confirms that the OECD’s Transfer Pricing Guidelines must also be used for the determination of the arm’s length spread to be earned on financing transactions. The Circular also establishes a framework for financing companies that choose to go through an advance pricing agreement (APA) process.

      The APA programme is only available for intra-group financing companies that have sufficient substance in Luxembourg and bear the risks of the financing activities. To be considered to have sufficient substance, the company must meet various criteria – the majority of its directors must be Luxembourg residents, key decisions regarding the financing company must be taken in Luxembourg and the company cannot be considered a tax-resident of another country. If a request is approved, the APA will potentially be valid for up to five years and is renewable.

      Previously there has been no formal standard in place for financing transactions in Luxembourg since 1996. The process laid out in the circular should provide companies with Luxembourg financing arms some level of certainty as to how the transfer pricing will be treated.

  • OECD publishes ten more information exchange evaluation reports
    • 28 January 2011, the OECD Global Forum on Transparency and Exchange of Information for Tax purposes released ten further reports that evaluate jurisdictions’ commitment to tax transparency, and examine whether information is made available and accessible to foreign tax authorities. These reports follow eight others released in September last year.

      The Global Forum has been mandated by the G-20 to assist specific jurisdictions, as well as the international community, to assess the status of national tax legislation, examine whether the laws are enforced, and make recommendations for improvement.

      The Global Forum released Phase 1 reports, which assess the legal and regulatory framework of the jurisdictions, in respect of five jurisdictions – Barbados, Guernsey, the Seychelles, San Marino and Trinidad and Tobago – as well as combined Phase 1 and Phase 2 reviews assessing both the legal framework and the practical implementation of the standard in respect of five others – Australia, Denmark, Ireland, Mauritius and Norway

      Of the Phase 1 reviews, Barbados, the Seychelles, San Marino and Trinidad and Tobago all fell short of the international standard and will need to implement the recommendations made in their reports before moving to the next phase of their evaluations. It was noted that San Marino had recently passed important legislation and would be further examined by the Global Forum. The report on Guernsey found that a satisfactory legal framework was in place but the OECD said there were minor issues that Guernsey has been asked to address.

      Of the combined reviews, Australia, Denmark, Ireland and Norway had achieved effective exchange of information in practice, although there were some minor issues related to information on bearer shares or nominees that would have to be addressed. For Mauritius, there were missing elements in the legal framework, such as accounting information on some of the offshore companies, while there was also room for improvement in practice, in particular as regards the access to bank information by the tax authorities.

      More than 60 reports are due to be completed by the year-end.

  • Pilot loses long-running residence case at UK Tax Tribunal
    • 5 January 2011, the UK First-Tier Tax Tribunal found that a British Airways’ pilot with a house in South Africa and property in the UK was a UK resident for tax purposes.

      In Lyle Dicker Grace v. Commissioners for HM Revenue & Customs ([2011] UKFTT 36 (TC)), the taxpayer was employed by British Airways on international long haul flights into and out of the UK. He spent numerous short periods in the UK before or after piloting such flights, staying at a house he owned in Sussex, which had been his main residence until 1997. Subsequently his main home was in South Africa and he claimed that he was therefore not UK resident.

      The then Special Commissioner Dr Brice had ruled that Grace was not UK-resident, but the High Court reversed her ruling. The Court of Appeal then concluded that the Special Commissioner had misdirected herself but did not agree with the High Court that there was only one possible conclusion to the question of residence based on the primary facts as found at first instance. It therefore sent the case back to the First-tier Tribunal (Tax Chamber), which had replaced the Special Commissioners.

      The tribunal considered a number of factors in determining the residence position. Grace’s presence in the UK, although not continuous, was a permanent feature of his life because it was his employment. He also had a settled abode in the UK. Nor was his presence in the UK a stopgap measure because it was indefinite while his employment with BA continued. When staying in the UK he was more than a visitor, he had a regular and settled presence here continuing to stay in the house that had been his home when his UK residence was not in dispute.

      The actual time in the UK did not help, so a comparison between days in the UK and days in RSA was made and was found to be broadly equal. Although he had no UK family connections, there was a significant connection in his employment and he had girlfriends in the UK for some of the time over the period, sometimes also living in the property. He had available living accommodation in the UK.

      Judge Barbara Mosedale said: “Taking into account all factors but giving greatest weight to his employment and home here in the UK and the amount of time actually spent here together with the frequency of his short visits, I am in agreement with Lewison J that in September 1997 Mr Grace went from being a person resident in one country to being a person resident in two.”

  • Scottish court holds that trust assets may be set aside
    • 17 February 2011, a Court of Session judge ruled that assets held in trust may no longer be untouchable in Scottish ancillary relief proceedings and granted an order setting aside part of the payment for setting up a trust and purchasing the trust estate.

      In Morrison v Morrison, Mr and Mrs Morrison were married in 1988 and separated 22 years later, in 2010. They did not have any children. In September 2005, Mr Morrison received £10 million from the flotation of his company. He used a proportion of those funds to set up a trust to benefit his children and grandchildren.

      At the time the trust was set up, unknown to Mrs Morrison, Mr Morrison had three children with Ms B. He subsequently ended his relationship with Ms B and entered into a relationship with Ms E, with whom he had a further two children. Mrs Morrison only became aware of her husband’s children after the separation.

      Upon receipt of the £10 million, Mr Morrison transferred £4.5 million to the trustees, of which £3.8 million was used to purchase an estate. The estate was used from time to time to provide a home for the children. Ms B, Mr Morrison’s first extra-marital partner lived there with Mr Morrison’s three eldest children until August 2008 and then Ms E, Mr Morrison’s second extra-marital partner lived there with Mr Morrison’s two youngest children until 2010.

      The court found that the matrimonial property at the date of separation amounted to over £10 million. Mrs Morrison owned £600,000 worth of assets and Mr Morrison owned the rest, including over £4 million cash. But by the time the case came to hearing, Mr Morrison’s resources had reduced significantly, through a combination of expensive living as well as gifting substantial sums to the trust, leaving him with no realisable assets other than £700,000 of pension.

      Mrs Morrison asked the court to set aside payments provided by Mr Morrison to the trust on the basis that the effect of these payments was, in whole or in part, to defeat her claim for financial provision on divorce.

      Judge Lady Clark assessed the matrimonial assets at £3 million, of which Mrs Morrison was to receive £1.6 million. This amount of cash was no longer available: Mr Morrison had placed much of it in the children’s trust. So Lady Clark used s.18 of the Family Law (Scotland) 1985 Act to partially set aside Mr Morrison’s gifts to the children’s trust, of which £789,000 will now be extracted for Mrs Morrison’s sole benefit.

      She said: “I consider that my decision will still leave substantial assets for the benefit of the beneficiaries of the trust, provided they are not consumed in further legal dispute and what might be regarded as lavish administration and expense without obvious benefit to the [trustees]”.

  • Singapore Budget introduces key strategic tax changes
    • 18 February 2011, Finance Minister Tharman Shanmugaratnam’s Budget speech contained several key tax changes in strategic business sectors to boost the Singapore’s competitiveness as an Asian location for global companies. These included specific fiscal initiatives for finance, maritime and biomedical firms as well as for start-ups and commodity traders.

      From 1 April, interest payments by banks and similar financial institutions to non-residents will be exempt from withholding tax. The move is intended to help banks access more diverse funding sources for their lending business and promote cross-border financial transactions. Non-bank sources of funds may include hedge funds and insurance companies.

      A Maritime Sector Incentive (MSI) will be introduced, with effect from 1 June, to streamline and enhance existing maritime tax incentives. New tax benefits such as certainty of withholding tax exemption for interest payments on loans to build or buy ships will also be introduced to attract international ship operators and encourage the growth of the shipping-related services sector in Singapore.

      GST zero-rating will be extended to repair and maintenance services performed on ship parts and components, and will also be allowed for specified services supplied to overseas persons, if they are performed on goods kept in qualifying specialised warehouses and eventually sent overseas. This scheme will help to promote the use of specialised storage facilities that store high-value collectibles such as art and antiques.

      For the biomedical sector, GST relief will be granted for imported clinical trial materials from 1 October, as well as to enhance the Approved Contract Manufacturer and Trader Scheme.

      GST zero-rating Businesses will, with effect from next year, be allowed to claim tax deductions on pre-commencement expenses incurred in the accounting year immediately before the year in which they earn their first dollar of trade receipts.

      Companies that purchase shares for the purpose of their equity-based remuneration schemes will, with effect from next year, be allowed tax deductions when they make such purchases through the special purpose vehicles that are set up as trustees to administer the schemes.

      The Global Trader Programme will be enhanced to qualify all derivative trades under the scheme. The enhancement will apply to income from qualifying trades in the new qualifying instruments from year of assessment 2012.

      The Productivity and Innovation Credit (PIC) scheme will be enhanced. Singapore businesses will be allowed a deduction for 400% (up from the current 250%) of the first S$400,000 qualifying expenditure (up from the current S$300,000) on each of the following six qualifying activities: research and development; investments in design; acquisition of intellectual property; registration of intellectual property; investments in automation; and training. Businesses can opt to receive, in lieu of tax deduction or allowance benefits, a cash payout of 30% of the first S$100,000 of qualifying expenditure, capped at S$30,000 (currently S$21,000).

  • Suharto’s son wins case against Guernsey financial crime force
    • 4 March 2011, an investment company owned by Tommy Suharto, son of the late Indonesian president Haji Muhammad Suharto, won a case against Guernsey’s Financial Intelligence Service (FIS), which had frozen its assets.

      Suharto, who ruled from 1967 to 1998, lost power following the Asian financial crisis. According to Transparency International’s Indonesia branch, Garnet Investments, a British Virgin Islands’ company owned by Tommy Suharto, deposited money with BNP Paribas in Guernsey on 22 July 1998, weeks after the fall of President Suharto in May.

      Four years later, in October 2002, BNP Paribas in Guernsey refused to transfer assets owned by Garnet to another bank on the grounds that Suharto and his father may have been involved in corrupt activities. President Suharto, who died in 2008, was suspected of massive embezzlement of state funds, but never stood trial because judges ruled his health was too frail.

      In 2006, Garnet brought proceedings against BNP in the Royal Court of Guernsey to compel BNP Paribas to comply with its instructions. That led, in January 2007, to the government of Indonesia intervening and obtaining a freezing order over the funds, which was ultimately discharged by the Guernsey Court of Appeal in January 2009. Garnet issued a fresh instruction to BNP to transfer part of the funds to an account in Indonesia. In June 2009 the FIS refused consent and Garnet brought an application for judicial review.

      Guernsey’s Lieutenant Bailiff said the FIS had no grounds to block the transfer, which the court ruled had been unreasonable because there were no “known” criminal proceedings against Suharto “anywhere in the world”.

      The Court held that, by the time the decision had been taken, the means used to impair the rights and freedoms of Garnet to deal in the funds had become excessive in relation to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, since ample time had already been given to the government of Indonesia to take action. Moreover, though the Court confined its judgment to the decision, it accepted that the mere effluxion of time could of itself cause a refusal to give consent that was reasonable when decided upon to subsequently become unreasonable.

      The Court also, noting that there was no investigation to imperil, and no proceedings to prejudice, and given that the decision had been made on the basis of open source reports, held that Garnet should have been given reasons why consent had been refused.

      Finally, in dealing with the property rights of Garnet, the Lieutenant Bailiff rejected the argument of the FIS that the decision did not impact upon the property rights of Garnet, because, in the argument of the FIS, all it did was deny BNP a potential defence. The Court, rather, accepted the argument of Garnet that the practical consequence of a refusal of consent was an interference in those property rights.

      The Court held that the law should recognise that the FIS has the power to effect the ability of Garnet to deal with the funds, and that where the FIS chose not to give reasons, in circumstances where refusal of consent “looks simply extraordinary”, they must accept that decisions which seem arbitrary are likely to be the subject of an adverse ruling. The Court held that “Garnet has lost the right to deal with this property for long enough”.

      The Court therefore quashed the decision, on the grounds that it was: unreasonable; disproportionate; unlawful; and in breach of Garnet’s human rights. The FIS is now seeking leave to appeal the decision in the Court of Appeal.

      “The decision was found to be unreasonable, because there were no known criminal investigations against Mr Suharto anywhere in the world; disproportionate, as the restraint against Garnet was not made within a reasonable time; in breach of Garnet’s human rights; and unlawful, in that the FIS committed a procedural impropriety by not giving reasons for its decision,” said Christopher Edwards, a partner in law firm Mourant Ozannes, which represented Garnet.

      Edwards said the verdict should serve as encouragement to other “entities” whose assets had been frozen by the FIS to challenge the decision in the courts. “The implication is that the FIS must exercise its powers in a proportionate manner and not to informally freeze funds indefinitely. This case provides an insight into how the FIS should act in future financial crime investigations,” he added.

  • Swiss regulator faults HSBC for poor controls
    • 28 February 2011, FINMA, the Swiss financial markets regulator, reprimanded HSBC’s private bank in Geneva for a lack of safeguards that led to the theft of data on up to 24,000 Swiss clients by a former employee.

      FINMA has been investigating to see whether organisational and technical measures implemented by HSBC since the data theft, which took place in 2006 or 2007, to prevent such incidents complied with legal requirements.

      “FINMA has concluded that there were deficiencies in the bank’s internal organisation and IT controls that resulted in a serious breach of the bank’s licensing requirements,” the regulator said in a statement. “FINMA has demanded that HSBC continues to implement measures to establish the necessary level of IT security. FINMA will ensure that these measures are implemented promptly.” HSBC will not be fined.

  • Switzerland to revise requirements for administrative assistance in tax matters
    • 15 February 2011, the Swiss government agreed to comply with other countries’ demands for information about individuals’ bank accounts, even if the requesting country does not supply the name and address of the individual or his bank.

      The concession was made after the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes threatened to declare that Switzerland had failed the first stage of its peer review, which started at the end of October 2010. The Global Forum deemed that Swiss requirements for administrative assistance were too restrictive and could prove to be a possible hindrance to an effective exchange of information.

      In order to pass the first phase of the peer review, Switzerland has therefore agreed to revise the requirements on identifying the taxpayer and the holder of the information in line with the globally applicable standard. Revisions to the administrative assistance provisions in tax treaties will be put to the Swiss parliament in June.

      But the Swiss Federal Department of Finance again explicitly rejected European pressure to move to a system of universal automatic exchange of individuals’ tax information. In a new report on international financial and tax matters, published on 3 February, it asserted that withholding taxes, not automatic disclosure, was the right way to balance governments’ demands for tax revenues against bank clients’ need for privacy.

      Switzerland is negotiating withholding tax agreements with the UK and Germany, which it claims will have similar effects to automatic exchange of information on investment income. “Switzerland is adamant that the automatic exchange of [bank client] information is not up for discussion,” said the report. “This only yields data and unnecessarily impairs the aspect of privacy.” It added that Switzerland’s existing bilateral agreement with the European Union on taxation of savings income – combining withholding taxes and voluntary declaration – should not be called into question.

      The report also dismissed the idea of an administrative assistance agreement with the EU. Such an agreement was unnecessary, it says, because Switzerland had already agreed such clauses in tax treaties with several EU member states.

      In the report the Swiss government also indicated its disagreement with some current international thinking on money laundering legislation. It noted that the international Financial Action Task Force (FATF) will, by 2013 at the latest, make tax offences a “predicate offence” for money laundering such that financial organisations will be obliged to report any suspicious cases to the authorities.

      It said it did not intend to allow these extra measures to be used as a means of collecting taxes. The report points out that each jurisdiction is free to set its own definition of a serious “tax crime” and Switzerland will opt for the narrowest possible definition. “The main objective from the Swiss perspective is not the criminalisation of as many tax transgressors as possible, but the efficient combatting of money laundering,” said the report.

  • UK announces new penalties for offshore non-compliance
    • 31 January 2011, HM Revenue & Customs (HMRC) announced new penalties for offshore non-compliance, which will be linked to the tax transparency of the territory in which the income or gain arises.

      HMRC published a list of over 50 countries categorised according to their transparency and their willingness to share information on UK taxpayers with HMRC. Where it is harder for HMRC to get information from another country, the penalties for failing to declare income or gains arising in that country will be higher.

      Penalties will be doubled – up to 200% of tax – if they involve jurisdictions that do not exchange tax information with the UK (Category 3). They will be one-and-a-half times as big – up to 150% of tax – in cases of evasion involving countries that exchange information on request, but not automatically (Category 2).

      The list of Category 1 jurisdictions comprises: Anguilla; Aruba; Australia; Belgium; Bulgaria; Canada; Cayman Islands; Cyprus; Czech Republic; Denmark (excluding Faroe Islands and Greenland); Estonia; Finland; France; Germany; Greece; Guernsey; Hungary; Ireland; Isle of Man; Italy; Japan; Korea, South; Latvia; Lithuania; Malta; Montserrat; Netherlands (not including Bonaire, St Eustatius and Saba); New Zealand (excluding Tokelau); Norway; Poland; Portugal; Romania; Slovakia; Slovenia; Spain; Sweden; and the USA (excluding overseas territories and possessions).

      Territories not listed in either of these categories will be deemed to be “Category 2″.

      The new penalties come into force from 6 April 2011 and apply to Income Tax and Capital Gains Tax. The first Self Assessment returns affected will be for the 2011-12 tax year, with paper returns due to be filed by 31 October 2012, and electronic returns by 31 January 2013.

  • UK Budget accelerates corporation tax rate cuts
    • 23 March 2011, the UK coalition government’s second Budget announced plans to accelerate the proposed reduction in the main rate of corporation tax with a 2% cut, from 28% to 26%, from 1 April 2011. There will be further 1% reductions in the main corporation tax rate in each of the next three years to bring the rate down to 23% by 1 April 2014.

      Effective dates for interim improvements to the current controlled foreign companies (CFC) regime and the new foreign branch exemption, originally published in December 2010, were confirmed; the CFC changes will apply for accounting periods beginning on or after 1 January 2011 and the opt-in exemption for foreign branches will be available for accounting periods beginning on or after the Finance Bill 2011 receives Royal Assent.

      It was also confirmed that the previously announced proposals for new CFC and patent box regimes are continuing to the expected timetable, with documents for consultation in May and draft legislation in autumn 2011.

      Minor changes were announced to both the interim CFC improvements and the new CFC rules. These included an extension to the period of grace exemption to apply to groups that have previously been UK headed and a more generous partial finance company exemption from 2012, resulting in an effective UK tax rate of 5.75% on overseas financing profits, as opposed to the 8-9% previously proposed.

      For personal taxation, Chancellor George Osborne confirmed that the 50% income tax rate band was only considered to be a temporary measure and has asked HMRC to quantify the amount of tax raised when the first tax returns are filed in January 2012.

      For non-domiciled individuals, the existing £30,000 annual remittance basis charge that applies to those who have been UK resident for at least seven years is to be increased to £50,000 after 12 or more years.

      The government also announced that it intends to remove the tax charge when non-domiciled individuals remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses. A consultation document will be published in June with the changes to take effect from April 2012. The government also said it would consult on the introduction of a statutory definition of residence.

      The government confirmed that it intends to consult on further measures to tackle tax avoidance. These measures would include: regulations listing specific avoidance schemes and ensuring users do not benefit from a cash flow advantage from retaining the tax due through an additional charge for late payment of tax; reviewing the legislation on reliefs for income tax losses that can be set against other income in the same or previous years to ensure it is effectively targeted at those intended to benefit and reduce its use for tax avoidance; and introducing an anti-avoidance measure to prevent the benefit of double tax treaties being given where arrangements have been made in relation to the claim to avoid UK tax.

  • US charges former UBS banker with conspiracy
    • 1 March 2011, Credit Suisse banker Christos Bagios was charged in federal court in Fort Lauderdale, Florida, with conspiring to defraud the US by assisting 150 US clients hide as much as $500 million in assets from US tax authorities when he worked at UBS.

      US Magistrate Judge Robin Rosenbaum made public the charge against Bagios after denying his request for immediate release after his lawyers argued he had failed to get a prompt hearing on the evidence against him.

      Bagios, a Swiss resident and Greek citizen, joined Credit Suisse Private Advisors in 2009 after spending more than 15 years at UBS. He was arrested and jailed in New York on 26 January. UBS avoided prosecution in 2009 when it admitted it helped US citizens cheat the IRS. It paid $780 million in fines and penalties, and turned over data on previously secret accounts.

      “Christos Bagios and others would and did market undeclared Swiss bank accounts and Swiss bank secrecy to wealthy United States clients who were interested in attempting to evade United States income taxes,” according to the criminal complaint. It said Bagios conspired with Renzo Gadola, another UBS banker who pleaded guilty to conspiracy in December.

      Gadola told an IRS agent on 26 January that he and Bagios were “part of a team of UBS bankers who serviced hundreds of undeclared accounts at UBS owned and controlled by U.S. taxpayers,” according to the complaint.

  • US charges Swiss bankers for aiding tax evasion
    • 23 February 2011, the US Department of Justice indicted four Credit Suisse bankers on charges of helping, with unnamed co-conspirators, US taxpayers to open secret Swiss accounts to hide money from US tax authorities. It said that, as of 2008, the bank hosted thousands of such accounts holding up to $3 billion in assets.

      “The conspiracy dates back to 1953 and involved two generations of US tax evaders, including US customers who inherited secret accounts at the international bank,” the DoJ said in a statement. Bank officials “knew and should have known that they were aiding and abetting US customers in evading their US income taxes.”

      The indictment, filed in federal court in Virginia, named three Swiss nationals – Emanuel Agustino, Michele Bergantino and Roger Schaerer – and an Italian, Marco Parenti Adami. Agustino and Bergantino had travelled to the US to market the tax-evasion opportunities at the bank, it said. Agustino also continued to offer such services at two other Swiss banks after he left Credit Suisse. The four face possible sentences of up to five years in prison and a fine of $250,000.

      The charges said they had helped Credit Suisse customers travel to Switzerland, the Bahamas and elsewhere to make use of the secret accounts. “After the bank decided to close the secret accounts maintained by US customers, the defendants encouraged and assisted the customers to transfer their secret accounts to other banks in Switzerland and Hong Kong,” the DoJ said.

      Credit Suisse itself is not a part of the investigation, according to the bank, and the indictment said the bank began shutting down its US cross-border banking services in 2008.

      The indictment came after the recent arrest in the US of another Credit Suisse banker on similar charges. “We are cooperating with the authorities in their investigation of these individuals,” a Credit Suisse spokesman said.

  • US issues final rules for foreign bank account reporting
    • 23 February 2011, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued final Bank Secrecy Act regulations on addressing Report of Foreign Bank and Financial Accounts (FBAR) filing requirements, Form TD F 90-22.1.

      Under the general FBAR requirements, a reporting obligation may arise if a qualifying person has a financial interest in, or signature or other authority over, any foreign financial account if the aggregate value of all such accounts exceeds $10,000 at any time during the calendar year.

      The final rules include guidance on persons required to file, reportable foreign financial accounts, prior deferral of the filing obligation under past guidance issued by Treasury and non-filing.

      The final rules clarify that only a US person who has a present beneficial interest in more than 50% of the assets of the trust or from which such person receives more than 50% of the current income is required to report such a foreign financial account. Such beneficiaries are also exempt from reporting if the trust or trustee of the trust is a US person that files a report for such foreign financial accounts.

      The rules apply to reports required to be filed by 30 June 2011 for calendar year 2010 accounts and for reports required to be filed for all subsequent calendar years.

  • US jails two HSBC clients for tax evasion
    • 4 February 2011, a US judge in Florida sentenced two Miami-based property developers to 10 years in prison. They were convicted last October of hiding $150 million in assets and failing to report $49 million in income to the US Internal Revenue Service.

      US District Judge William Zloch also ordered Mauricio Cohen and his son Leon Cohen-Levy, clients of HSBC bank who owned and operated several hotels, to pay $9.38 million and $7.76 million respectively in restitution.

      According to court documents, they routed money through bank accounts belonging to offshore companies based in the Bahamas, Panama and other locations. Neither the Cohens, nor any of their related businesses or entities, reported the income on US tax returns. The Cohens also stole and used the identities of employees and relatives to open and operate accounts, prosecutors said.

      At the time of their arrest last April, the Cohens told authorities they had combined assets of just over $15,000. Their unreported assets included Miami Beach mansions, a New York apartment, commercial property, yachts, cars, and helicopter and bank accounts.

      The case marked the first trial since the start of an intensified US crackdown on offshore tax evasion following the settlement of the UBS case. The IRS said it would pursue other banks if it found similar wrongdoing and sent letters to some HSBC clients, notifying them that they were targets of a criminal probe.

  • Vanuatu accuses Australian Tax Office of “fishing expedition”
    • 24 February 2011, the Vanuatu government said it might join ANZ Bank’s Federal Court action to stop the Australian Taxation Office accessing Australian-linked bank accounts in the Pacific offshore financial centre.

      Vanuatu Reserve Bank governor Odo Tevi said the tax office was engaged in a “fishing expedition” late last year when it issued two notices to ANZ to produce the accounts. The Vanuatu government would stay out of the court proceedings for the moment, but this could change.

      Tevi supported the legal response of ANZ, Vanuatu’s biggest lender, with about 14,000 customers. The Vanuatu crackdown is part of the multi-agency Wickenby probe into tax fraud, and follows 2008 raids on local law and accounting firms coordinated by the tax office and the Australian Federal Police.

      ANZ and the tax office have been discussing the Vanuatu matter for 16 months, but last December ANZ started Federal Court proceedings seeking to strike out the notices because they were “oppressive”. It said compliance would violate Vanuatu law on bank customer confidentiality and jeopardise its licence to operate.

      In February, Judge Michelle Gordon rejected ANZ’s bid for a September trial, instead setting the case down for 11 July.

      Vanuatu and Australia signed a treaty to exchange tax information for civil and criminal tax purposes in April last year, but it only comes into force once both countries have completed their institutional frameworks.

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