Owen, Christopher: Offshore Survey Supplement September 2012

  • Allen Stanford sentenced to 110 years in prison
    • 14 June 2012, Allen Stanford, the American former chairman of Stanford International Bank (SIB) in Antigua, was sentenced to 110 years in prison for orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses and lifestyle. US District Judge David Hittner said Stanford’s actions were among the most “egregious criminal frauds”.

      Stanford and his co-defendants engaged in a scheme to defraud investors who purchased approximately $7 billion in certificates of deposit administered by SIB, an offshore bank controlled by Stanford and located on Antigua. Stanford and his co-defendants allegedly misused and misappropriated most of those investor assets, including diverting more than $1.6 billion into undisclosed personal loans to Stanford himself, while misrepresenting to investors SIB’s financial condition, its investment strategy and the extent of its regulatory oversight by Antiguan authorities.

      Stanford was convicted on 6 March 2012, following a six-week trial and three days of deliberation on 13 of 14 counts in the indictment. Stanford was convicted of one count of conspiracy to commit wire and mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct a US Securities and Exchange Commission (SEC) investigation, one count of obstruction of an SEC investigation and one count of conspiracy to commit money laundering. The jury also found that 29 financial accounts located abroad and worth approximately $330 million were proceeds of Stanford’s fraud and should be forfeited.

      Stanford and his co-defendants allegedly made false and misleading representations about the regulatory scrutiny of the bank by Antiguan authorities, when in fact Stanford was making corrupt payments of more than $100,000 to Leroy King, then head of Antigua’s Financial Services Regulatory Commission, to ensure that the commission did not accurately audit, or verify the assets reported in the bank’s financial statements.

      In March, the Eastern Caribbean Supreme Court of Appeal dismissed King’s application for an appeal against the decision of High Court Judge Mario Michel to commit him for extradition to the US. King remains under house arrest in Antigua as it processes a request for his extradition to the US.

  • Argentina terminates treaties with Spain and Chile
    • 29 June 2012, the Argentine government notified Spain that it has terminated the tax treaty between the two countries. Article 29 of the treaty allows a contracting party to terminate it at any time by giving notice of termination at least six months before the end the calendar year. As a result, the reduced withholding rates on dividends, interest and royalties, and the relief on the personal asset tax on the taxation of shares or other participations in the capital of an Argentina entity, will no longer be applicable on 1 January 2013.

      On the same date, Argentina also notified Chile that it had terminated the 1976 income tax treaty and 2003 protocol between the two countries as from 2013. The move follows the decision by Argentina’s tax administration to review all in force tax treaties

  • Bermuda and US MLAT comes into force
    • 12 April 2012, the US-Bermuda Mutual Legal Assistance Treaty (MLAT), signed in January 2009, was brought into force after Bermuda Premier Paula Cox and US Consul General Grace Shelton exchanged instruments of ratification. US President Barack Obama signed the Instrument for ratification on 6 January.

      The MLAT is designed to improve the effectiveness of the law enforcement authorities of both the US and Bermuda in the investigation, prosecution, and prevention of crime through cooperation and mutual legal assistance in criminal matters. The agreement will in particular boost Bermuda’s ability to tackle money laundering and prevent the financing of terrorism.

      Cox said: “The government is confident that the signing of the MLAT will be noted by key persons in Washington DC as a strengthening of the bond of friendship and cooperation between our two countries and that it will add to Bermuda’s attraction as a premier jurisdiction for international business. This treaty is good for business, commerce, and of course, it will help bring criminals to justice.”

  • BVI passes amendments to company law regime
    • 16 July 2012, the BVI Business Companies Amendment Act, which introduces a number of measures aimed at modernising the BVI’s corporate legislation, was passed into law. The Amending Act, together with the BVI Business Companies Regulations 2012 that were approved by Cabinet on 26 April, represents the first major review of the legislation since 2006. The amendments take effect on a date to be proclaimed, probably in the third quarter of 2012.

      The key changes include:
      • Provision for re-use of old company names in appropriate circumstances;
      • Formalising the previous system for allowing BVI companies to be registered with foreign character names;
      • Clarification that the custodian of a bearer share is not regarded as the shareholder. The registered agent must also maintain a register of the company’s bearer shares;
      • Registered agents who have given notice of intention to resign can now rescind such notice;
      • Alternate directors will now be permitted to sign written resolutions;
      • Directors may be removed by a shareholder resolution passed by 75% of the votes, rather than 75% of the shareholders;
      • Shares of a particular class may be convertible into shares of a different class, if permitted by the memorandum and articles of association.
      • Provisions confirming the courts powers to set aside actions in breach of the Act or the company’s constitution will strengthen shareholders’ rights.
      • New provisions will enable segregated portfolio companies to terminate portfolios that are inactive.
      • Security documents creating security over shares in BVI companies will now be permitted to exclude any statutory moratorium periods, and amendments clarify that any security document publicly registered in the BVI will constitute constructive notice to third parties.
      • Former directors and senior mangers of a company will be prohibited from acting in the company’s liquidation and to enter solvent liquidation the company must now be cash flow as well as balance sheet solvent.
      • Companies that are struck off will be deemed to be dissolved after seven, rather than 10, years. Transitional arrangements will apply to companies that have been struck off for six or more years when the legislation comes into force.
      • Provision is made for future regulations dealing with record keeping requirements for listed companies and funds.

  • China relaxes dividend tax rules
    • 17 July 2012, China’s State Administration of Taxation (SAT) posted new rules to cut taxes on the profits that foreign companies take out of the country by up to 50% after rules on withholding taxes were relaxed to encourage more overseas investment. Known as Announcement 30, it took effect on 29 June.

      Chinese tax law requires foreign firms operating in the mainland to pay a 10% withholding tax on dividends. That falls to 5% if companies meet criteria that define them as being of “substance” in the treaty jurisdiction in which they claim relief – generally a measure of operational size.

      These withholding tax reductions were first introduced in late 2009, but companies had to meet a long list of criteria that the vast majority failed to satisfy. Any company listed and resident in a country with a tax treaty with China will now automatically qualify for the relief on dividends from Chinese operations or wholly owned subsidiaries.

      The move will also apply to dividends paid by Chinese-listed companies to foreign shareholders through the Qualified Foreign Institutional Investor scheme. In both cases, the lower tax rates will apply only to companies and shareholders based in countries that have double tax treaties with China.

  • Court of Appeal extends Ramsay principle
    • 11 July 2012, the Court of Appeal applied the Ramsay principle to defeat an avoidance strategy designed to help a taxpayer reduce the amount of tax due on a capital gain. The UK revenue (HMRC) argued that following Ramsay, the statute should be purposively construed to take account of the transaction “as a whole”. As such, no allowable loss was made.

      In Schofield v HMRC [2012] EWCA Civ 927, businessman Howard Schofield received £10.7 million in return for shares in a consulting company in December 2002 and, on advice from accountants PwC, entered into a series of transactions with Kleinwort Benson Private Bank prior to leaving the UK for Spain before the start of the next tax year. Two balancing options were exercised on 4 April 2003, and two more on 7 April 2003, ending up with Schofield paying out £65,589 more than he had received.

      When Schofield attempted to deduct an £11.3m loss from that gain in his 2002-3 self-assessment return, HMRC opened an enquiry and disallowed the deduction. HMRC won arguments in the first tier and upper tribunals that the decision in Ramsay (WT) Ltd v Inland Revenue Commissioners [1982] – that a tax loss created at one stage of an “indivisible process” that is later cancelled out does not constitute a loss for tax purposes – should be applied to the arrangement.

      The Court of Appeal dismissed Schofield’s appeal, which Lady Justice Hallett called “a thinly disguised attempt to undermine the Ramsay principle”. Once it was accepted that the principle remains valid and the facts established at the first tier tribunal were accepted, it was bound to fail.
      “The relevant transaction here is plainly the scheme as a whole: namely a series of interdependent and linked transactions, with a guaranteed outcome. Under the scheme as a whole, the options were created merely to be destroyed. They were self cancelling. Thus, for capital gains purposes, there was no asset and no disposal,” she said.

      HMRC said the scheme was used by around 200 people who now face having to pay the tax in full, plus interest, on top of significant fees for use of the scheme itself. It also said there were still other users of the generic scheme on which the scheme was based generating substantial “losses”.

  • Court of Appeal rules on trusts limitation periods
    • 3 April 2012, the Court of Appeal, Civil Division, held that the exclusion from the normal limitation period which applied to an action brought by a beneficiary under a trust in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy extended to an action against any other person who had dishonestly assisted the trustee in such fraud.

      In Williams v Central Bank of Nigeria [2012] EWCA Civ 415, the respondent had deposited more than $6 million into the client account of an English solicitor, who held the money on trust for him. The solicitor fraudulently paid a portion of the money to an English account of the Central Bank of Nigeria and retained the remainder for himself. It was held that the solicitor had committed a fraudulent breach of trust and the Nigerian Bank had dishonestly assisted and actively participated in the fraud. As the action by the respondent was commenced after a period of six years from the date of the events, the issue of limitation was a key one for the court to consider.

      Under Section 21(3) of the Limitation Act 1980, the primary limitation period for a beneficiary to bring action to recover trust property or in respect of any breach of trust, is six years from the date that the cause of action arose. However, section 21(1) states that, “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy” a six-year period does not apply.

      In this case, it was not disputed that the respondent had a claim against the solicitor for fraudulent breach of trust under section 21(1), so that claim was not time barred. The main issue considered by the court was whether the claim for fraudulent breach of trust could be brought outside the time limit against dishonest assistants – the bank.

      The court decided in favour of the respondent, and concluded that section 21(3) covered all claims by a beneficiary for fraudulent breach of trust to recover trust property, regardless of whom it was against, so the claim could be brought against the bank.

  • Dutch Senate adopts “Flex BV” Bill
    • 12 June 2012, the Dutch Senate formally adopted the Flex BV Act, which was drafted in 2007 to simplify the statutory rules governing Dutch private limited liability companies. The law will enter into force on 1 October 2012 and will apply for existing and new BV’s.

      Designed to address the need for greater freedom in structuring smaller businesses, joint ventures and corporate groups, the main changes under the new rules are to: abolish of the minimum share capital requirement and other mandatory capital protection requirements; introduce non-voting shares; enable shareholders in a joint venture BV to appoint and dismiss their own directors; and provide more flexibility regarding the corporate governance of the BV.

  • Hong Kong LegCo approves new Companies Bill
    • 12 July 2012, Hong Kong’s Legislative Council passed the new Companies Bill which, said the government, marks a new chapter in the development of company law in Hong Kong. The government will now draft more than 10 pieces of subsidiary legislation in the next legislative session, and the new Companies Ordinance will start operation after their enactment.
      The rewrite of the Companies Ordinance, intended to enhance corporate governance, improve regulation, facilitate business and modernise the law, began in mid-2006 and involved three public consultations. The bill was tabled by the government in January 2011.

      Some of the measures introduced by the Bill include: improving the accountability of directors and clarifying directors’ duty of care, skill and diligence; emphasising shareholder engagement in the decision-making process; improving the disclosure of company information; and strengthening auditors’ rights.

  • Hong Kong treaty with Malta comes into force
    • 18 July 2012, the tax treaty between Hong Kong and Malta, which was signed on 8 November last year, entered into force after completion of ratification procedures on both sides. Under the agreement, which incorporates the latest OECD standard on exchange of information, tax paid in Hong Kong will now be allowed as a credit against tax payable in Malta. The provisions of the treaty will have effect in Hong Kong for any year of assessment beginning on or after 1 April 2013.

      The tax treaty between Hong Kong and Portugual, which was signed in March last year, also came into force on 3 June following the completion of ratification procedures. The treaty will come into effect in Hong Kong for any year of assessment beginning on or after 1 April 2013.

      On 25 April, a comprehensive tax treaty was signed between Hong Kong and Malaysia. The treaty provides withholding tax rates for dividends (5% or 10%), for interest (0% or 10%), royalties (8%), and technical fees (5%). The treaty also incorporates the latest OECD standard on the exchange of tax information.

      The treaty will enter into force upon ratification. Its provisions will apply in Hong Kong for any year of assessment beginning on or after 1 April of the calendar year in which the treaty enters into force, and in Malaysia for any year of assessment beginning on or after 1 January in the calendar year following the year in which the treaty enters into force.

  • India obtains disclosure relaxations from Switzerland
    • 20 April 2012, the Indian government signed a new treaty protocol with Switzerland to provide details of bank accounts of individuals sought by India even on the basis of “limited” information.

      According to a Finance Ministry statement, Switzerland “agreed to provide liberal interpretation on the identity requirements, that it is sufficient if the requesting state identifies the person by other means than by indicating the name and address of the person concerned, and indicates to the extent known, the name and address of any person believed to be in possession of the requested information.”

      Previously under the existing revised tax treaty, the requesting State had to provide both the name of the person under examination and the name of the foreign holder of the information as part of the identity requirements. “This was a restrictive provision and not in line with the international standards,” the Finance Ministry statement said.

      The statement also noted that the new more liberal interpretation of Article 26 of the treaty, would apply from the date of the tax information exchange protocol to the treaty, which was signed on 30 August 2010 and entered into force on 1 April 2011.

      The move follows a similar deal between Switzerland and the US which permits Switzerland to hand over data on suspected tax evaders, even if the US tax authorities are unable to identify alleged offenders by name or bank account. Switzerland is to grant administrative assistance, including for group requests, in cases where the US tax authorities produce clear evidence of a suspected offence by a bank and can detail a “pattern of behaviour”.

  • Isle of Man signs tax treaty with Qatar
    • 6 May 2012, the Isle of Man government announced the signing of a comprehensive double tax treaty with Qatar. The agreement limits withholding tax on dividends and interest to 0% and on royalties to 5%, and also contains the OECD’s international tax standard on transparency and effective exchange of information. It is only the fifth full tax treaty to be negotiated by the Isle of Man but its thirtieth tax information exchange agreement.

  • Italy uncovers €6 billion in evasion crackdown
    • 26 April 2012, Italy’s Guardia di Finanza announced that it had uncovered almost 2,200 cases of tax evasion in the period from January to April this year, representing more than €6 billion of undeclared income. In all cases the persons under investigation had never presented an annual tax return, although they often lived in luxurious circumstances. Last year, authorities recovered around €11.5 billion, up from €3.7 billion a decade ago, in part thanks to better information gathering and more targeted surveillance.

      The Guardia said its investigations had demonstrated that tax evasion was common to every sector of the economy. The greatest incidence of evasion – almost 25% of the total – was found in the wholesale and retail commercial sector, with building construction representing a further 22%. These were followed by manufacturing at 11%; the professional, scientific and technical sector at 5.7%; and hotels and restaurants at 5.5%.

  • Liechtenstein parliament backs Alternative Investment Fund Managers Law
    • 21 May 2012, the Liechtenstein Landtag voted in favour of a bill providing for the creation of a law on alternative investment fund managers (AIFML) at first reading. The bill would adopt into Liechtenstein law the requirements under the EU’s Directive on Alternative Investment Funds Managers (AIFM).

      Following the introduction of the “Liechtenstein Fund Centre” Project in 2009 the Liechtenstein government has already transposed UCITS-Directive IV into national law on 1 August 2011. The transposition of the European regulations on alternative investment fund managers is the next step and is planned to coincide with the implementation of the Directive in Europe.
      The proposed AIFM Law will establish a finite range of possible legal forms for managers falling under the Directive. In addition to the legal forms of investment fund – collective fiduciary trusteeship and investment company – already established under the UCITS Law, two further structures are available under the new law, the Liechtenstein Limited Partnership (Anlage- Kommanditgesellschaft) and the Liechtenstein Limited Liability Partnership (Komman- ditärengesellschaft).

      On 29 May, an amendment to the Persons and Companies Act (PGR) was tabled to introduce a mandatory obligation to register transfers of bearer shares in a public register at a company’s registered office. In accordance with the provisions, personal details including name, date of birth and residence must be registered in future
      The move is designed to implement the international standards, together with the various recommendations from the International Monetary Fund and OECD Global Forum Peer Review, on increased transparency and to improve the identification of beneficial owners of bearer shares.

      The government has also proposed introducing a new provision pertaining to nominal shares. In addition to the requirement for legal entities issuing shares to keep a record of shareholders, the government has proposed introducing a mechanism for imposing sanctions for any companies failing to comply with their record-keeping obligations.

  • Liechtenstein sets new minimum deposit requirements under LDF
    • 10 July 2012, the Liechtenstein government adopted amendments to the implementing Ordinance for its tax information exchange agreement with the UK that set out the minimum deposits required to qualify as a “meaningful relationship“ under the Liechtenstein Disclosure Facility (Memorandum of Understanding of 11 August 2009). The amendments will enter into force on 1 September 2012.

      In the case of banks, at least 20% of the assets (or minimum CHF3 million) of the relevant person’s worldwide bankable assets to be registered for the disclosure programme must be held in an account with a Liechtenstein bank.

      In the case of Liechtenstein trusts and legal entities, if a legal entity is domiciled in Liechtenstein or a trust is managed by at least one trustee domiciled in Liechtenstein and at least 10% of the assets (or a minimum of CHF1 million) of the relevant person to be registered for the disclosure programme are on an account in the name of this legal entity or trust with a Liechtenstein bank.

      In the case of foreign legal entities, if a legal entity is domiciled abroad but managed for the most part by members of the executive bodies domiciled in Liechtenstein and at least 15% of the assets (or a minimum of CHF1 million) of the relevant person to be registered for the disclosure programme are on an account in the name of this legal entity or trust with a Liechtenstein bank.

      For insurance companies, if the relevant person takes out an insurance policy with a minimum premium of CHF150,000 issued by a Liechtenstein insurance company.

  • OECD Global Forum reports steady progress to G20
    • 19 June 2012, the Global Forum on Transparency and Exchange of Information for Tax Purposes presented a report to G20 leaders at their summit in Los Cabos, Mexico, which said significant progress had been made since previous Summit in Cannes in November 2011.

      The Forum reported that more than 800 cross-border exchange of information agreements had now been signed. And since the previous Summit, four more countries – Colombia, Costa Rica, Greece and India – had signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The number of signatory countries now stands at 35.

      The Convention complements the work of the Global Forum, which now includes 109 countries in extensive peer review processes. The Global Forum examines laws and regulations (Phase 1 reviews) and implementation of the international standard of transparency and exchange of information (Phase 2 reviews). It had completed 79 reviews since March 2010, with a further 17 reviews under way. It said the focus would now shift to exchange of information in practice with the launch of Phase 2 reviews and steps to improve cooperation amongst competent authorities.

      A supplementary report by the OECD showed growing adherence to automatic exchange of tax information. The OECD also announced a new initiative to tackle the misuse of corporate vehicles such as shell companies. The work will tackle the issue of tax base erosion and profit shifting by some multinational firms. A progress report on the initiative will be presented to the next G20 Summit.

      In April, the Global Forum issued peer reviews on 11 jurisdictions – Brazil, Chile, Costa Rica, Cyprus, the Czech Republic, Guatemala, Malta, Mexico, Saint Vincent and the Grenadines and the Slovak Republic. The reports made several recommendations for improvements in the legal frameworks of the countries reviewed but only in respect of Costa Rica and Guatemala were the deficiencies sufficiently serious for the Global Forum to conclude that they should not move to the next stage of the review process. These two countries will be reconsidered once future reports on their progress are received.

      It also issued three supplementary reports – for Barbados, Bermuda and Qatar – which assessed whether these jurisdictions had acted upon the Forum’s recommendations to improve agreements and legislation. It found all three jurisdictions’ compliance with the international standards had progressed significantly. The Phase 2 reviews for Bermuda and Qatar will take place in the second half of 2012 and for Barbados in the first half of 2013.

      In June, the Global Forum issued peer reviews on a further 9 jurisdictions – Cook Islands, Liberia, Lebanon, Grenada, Montserrat, Saint Lucia, United Arab Emirates, People’s Republic of China and Greece. Deficiencies identified in the reports included the lack of available ownership information as regards foreign trusts and bearer shares; incomplete accounting information for some forms of companies, trusts and partnerships, including foreign or international entities; and some limitations to access information, including bank information or information protected by professional secrecy.

      In the case of Lebanon, Liberia and United Arab Emirates, the Global Forum considered that the deficiencies in their legal framework were sufficient to prevent them from moving to the next stage of the review process, until these deficiencies are addressed.

      It also issued three supplementary reports – for Antigua and Barbuda, Estonia and The Seychelles – which assessed the changes to legislation that these jurisdictions had made to address recommendations made by the Global Forum in their Phase 1 reviews. All three jurisdictions were found to have improved and can now move to Phase 2 of their review process.

  • OECD Global Forum signs MOU with United Arab Emirates
    • 17 July 2012, a Memorandum of Understanding confirming the United Arab Emirates’ commitment to the work of the OECD Global Forum on Transparency and Exchange of Information was signed in Abu Dhabi by Monica Bhatia, the Head of the Global Forum Secretariat and Majid Ali Omran, Director of International Financial Relations in the UAE Ministry of Finance.

      The UAE will host two seminars specifically targeted on the Middle East and North African countries. The first seminar, which will take place in November 2012, will focus on implementation issues relating to international exchange of information in tax matters, covering both policy issues and issues of practice. The second, which will take place in the third quarter of 2013, will be a training seminar for assessors in conducting peer reviews.

  • OECD updates Model Tax Convention to extend information requests to groups
    • 18 July 2012, 
the OECD has updated Article 26 of the OECD Model Tax Convention, which sets out the international standard on exchange of information. The standard provides for information exchange on request, where the information is “foreseeably relevant” for the administration of the taxes of the requesting party, regardless of bank secrecy and domestic tax interest.

      The update explicitly allows for group requests. This means that tax authorities are able to ask for information on a group of taxpayers, without naming them individually, as long as the request is not a “fishing expedition”.

  • Privy Council rejects claim that a corporation is liable for State debts
    • 17 July 2012, the Judicial Committee of the Privy Council overruled the Jersey Royal Court and the majority of the Court of Appeal of Jersey in holding that Gécamines, a large state-owned mining corporation, was not liable to satisfy an arbitration award that had been obtained against the Democratic Republic of the Congo.

      In La Générale des Carrières et des Mines v F.G. Hemisphere Associates LLC [2012] UKPC 27, FG Hemisphere was a US distressed debt fund that had purchased the assignment of two very substantial arbitration awards against the DRC and brought proceedings in a number of different jurisdictions around the world in pursuit of DRC assets against which the awards could be enforced.

      FG Hemisphere brought proceedings against Gécamines in Jersey seeking to enforce against Gécamines’ shareholding in a Jersey joint venture company and certain income streams due from that company to Gécamines under contract. It claimed Gécamines was an “organ of the state” and so responsible for debts owed by DRC. Such a case could not have been brought in the UK since a law was passed in 2010 limiting the amount distressed debt funds could claim from developing countries, but the law was not made to apply in British crown dependencies.

      In October 2010 the Royal Court upheld FG Hemisphere’s claim including a claim for injunctive relief, on the basis that Gécamines was at all material times an organ of and so to be equated with the DRC. In July 2011, the Jersey Court of Appeal upheld this judgment (by a majority). Gécamines appealed to the Privy Council, the highest court of appeal for UK overseas territories and crown dependencies.

      The Privy Council held that where a separate juridical entity is formed by the state for what are, on the face of it, commercial or industrial purposes, with its own management and budget, the strong presumption is that its separate corporate status should be respected, and that it and the state forming it should not have to bear each other’s liabilities. It would take quite extreme circumstances to displace this presumption. The presumption would be displaced if in fact the entity had, despite its juridical personality, no effective separate existence.

      On the facts of the case, Gécamines was an entity clearly distinct from the executive organs of the government of the DRC. Nothing Gécamines did could be sensibly described in nature as involving the exercise of sovereign authority or as acta jure imperii. There was no justification for deriving from instances where Gécamines’ assets were used for the state’s benefit a conclusion that the two should for all purposes be assimilated.

  • South Africa, Seychelles treaty protocol comes into force
    • 15 May 2012, a protocol to the existing double taxation treaty between South Africa and the Seychelles, which was signed on 4 April 2011, has been ratified and went into effect. It updates the treaty to reflect the introduction of South Africa’s new dividends tax – which replaced the secondary tax on companies from 1 April this year and is being levied at a rate of 15% on shareholders.

      For residents of the Seychelles receiving dividends from South African companies that rate will be reduced to 5% of the gross amount of the dividends if the beneficial owner is a Seychelles company which holds at least 10% of the capital of the company paying the dividends; or 10% of the gross amount of the dividends in all other cases. The protocol also incorporates the OECD standard for the exchange of information for tax purposes into the existing treaty.

  • Swiss tax treaty with Malta comes into force
    • 6 July 2012, the tax treaty between Switzerland and the Republic of Malta, signed in August 2011, entered into force with a diplomatic exchange of notes. The provisions of the treaty will apply from 1 January 2013.

      The treaty contains provisions on the exchange of information in accordance with the international and includes a withholding tax exemption for dividend and interest payments between related companies with a capital stake of at least 10% in the company making the payment. Royalties are exempt from withholding tax.

  • Switzerland agrees tax deal with Austria
    • 13 April 2012, Switzerland and Austria signed a bilateral treaty to legalise undeclared assets held by Austrians in Swiss banks and introduce a withholding tax. It follows similar agreements with Germany and the UK last year.

      “Under this agreement, persons resident in Austria can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts,” Switzerland said in a statement.

      The agreement, which is expected to come into force in 2013 and requires approval from both countries’ parliaments, will tax existing assets at a rate from 15% to 38%, depending on the duration of the client relationship and the amount of capital. Swiss banks will in the future levy 25% on capital gains earned by Austrians with offshore accounts. Revenue generated will go to the Austrian Finance Ministry, while client identities remain secret. Austria has said that it expects to raise €1 billion (USD1.3 billion) from the one-time levy in 2013 and has budgeted this revenue for next year.

      This treaty, together with the two similar agreements signed with Germany and the UK, threatens to undermine efforts by the European Commission to introduce an automatic exchange of banking information among the 27-nation bloc. Switzerland said the deal was further proof that is serious about its new financial strategy to accept only taxed assets.

      It also agreed, on 12 June, to open negotiations for an agreement with Italy. As well as the regularisation of assets held in Switzerland by non-resident taxpayers and the introduction of a withholding tax on future investment income, the discussions will cover modifications to the double tax treaty previously agreed but not ratified between the two countries, such that Switzerland could be removed from the Italian “black list”, together with possible changes to the existing agreement on the taxation of Italian cross-border workers.

      Meanwhile the UK has exercised the “most favoured nation clause” contained in its Protocol of Amendment with Switzerland, such that the tax rates in the UK agreement have been brought into line with the rates in the German agreement. The minimum rate for regularising the past will be raised from 19% to 21%, and the maximum rate will be raised from 34% to 41%. This amendment will not affect non-UK domiciled individuals; their flat rate of 34% will remain unchanged.

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