1 January 2012, the new Andorran corporate income tax regime came into effect introducing a 5% rate of tax – rising to 10% in 2013 – on to the worldwide income of resident legal entities. Taxpayers can request a reduction of 80% of the tax base if the taxpayer is engaged in: international operations involving intangible assets; international trading of goods; or intergroup financial management and investment.
The holding regime applies to Andorran entities whose exclusive purpose is to manage interests in non-resident entities. Under the regime, dividends distributed by non-resident entities are exempt from tax, as are capital gains derived from the transfer of the corresponding participation regardless of the level of participation. Profits that correspond to the income distributed by the Andorran entity to its shareholders are also exempt.
All Andorra-source income received by non-resident legal entities and individuals is subject to tax, although a wide range of exemptions applies. There is a withholding obligation on the payer of the income, the custodian, paying agent or asset manager. The general withholding tax rate is 10%, with a 1.5% rate on reinsurance transactions and 5% on royalties.
As part of Andorra’s modernisation of its tax framework, it is expected that VAT will be introduced as from 1 January 2013 to replace all current consumption taxes. A proposal to introduce an income tax on individuals as from 2014-2015 also is under discussion.
23 December 2011, both Houses of Parliament approved the Tax information Exchange Miscellaneous Amendments Bill, which requires entities to keep certain tax related documents for a minimum of six to seven years. It must be signed by the governor general and gazetted to come into force.
It follows the Phase 1 Peer Review of Antigua’s legal and regulatory framework by the OECD Global Forum on 12 September 2011, which found that reliable accounting information was not available for international entities and the authorities’ power to obtain information to respond to international requests for information was limited by confidentiality provisions. As a result, Antigua was not assessed as ready to move to the next phase of its evaluation and its position will be reviewed in 2012.
The Tax Information Exchange Act was specifically cited as problematic because its scope only pertained to information located in Antigua and Barbuda, and therefore excluded information that might belong to a resident, but which was kept overseas. The new Bill introduces amendments across a broad range of financial services legislation – the Companies Act, the Inland Revenue Administration Act, the International Business Corporation Act, the International Foundation Act, the International Trust Act, International Limited Liability Companies Act and the Income Tax Act.
31 January 2012, Argentina’s Official Gazette carried a summary of a note sent on 16 January by the Foreign Affairs Bureau to the Swiss Ambassador, informing Switzerland that Argentina intends to discontinue the formal approval process of the tax treaty signed in 1997. It will continue negotiations with Switzerland for a tax information exchange agreement.
The move follows the review launched by Argentina last year to analyse the costs and benefits of all its treaties in 2011. Since the treaty was never fully in force, the Argentine government has taken the position that termination is immediate.
23 January 2012, the Financial Services Commission released a draft of the proposed Trade Marks Bill for consultation as part of the mandate set by the Premier and Minister of Finance during his Budget address delivered on 17 January. The Draft Bill represents a major re-write of the British Virgin Islands’ trademark law. It will replace, consolidate and update the current legislation contained in two primary pieces of legislation, the Trade Marks Act, 1887 and the Re-Registration of United Kingdom Trade Marks Act, 1946, both with minor amendments in 1956 and 1991.
15 February 2012, the Financial Action Task Force to combat money laundering and terrorist financing has revised its Recommendations to provide authorities with a stronger framework to act against criminals and address new threats to the international financial system.
It said the revised Recommendations, which follow two years of consultations by member countries, will enable national authorities to take more effective action against money laundering and terrorist financing at all levels – from the identification of bank customers opening an account through to investigation, prosecution and forfeiture of assets. At the global level, the FATF will also monitor and take action to promote implementation of the standards.
The revised FATF Recommendations now fully integrate counter-terrorist financing measures with anti-money laundering controls. The main changes are:
Combating the financing of the proliferation of weapons of mass destruction through the consistent implementation of targeted financial sanctions when these are called for by the UN Security Council;
Improved transparency to make it harder for criminals and terrorists to conceal their identities or hide their assets behind legal persons and arrangements;
Stronger requirements when dealing with politically exposed persons (PEPs);
Expanding the scope of money laundering predicate offences by including tax crimes;
An enhanced risk-based approach which enables countries and the private sector to apply their resources more efficiently by focusing on higher risk areas;
More effective international cooperation including exchange of information between relevant authorities, conduct of joint investigations, and tracing, freezing and confiscation of illegal assets;
Better operational tools and a wider range of techniques and powers, both for the financial intelligence units, and for law enforcement to investigate and prosecute money laundering and terrorist financing.
On 16 February the FATF called on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/TF) risks emanating from Iran and the Democratic People’s Republic of Korea (DPRK).
It also listed further jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies – Cuba, Bolivia, Ethiopia, Ghana, Indonesia, Kenya, Myanmar, Nigeria, Pakistan, São Tomé and Príncipe, Sri Lanka, Syria, Tanzania, Thailand and Turkey.
26 March 2012, Guernsey’s State Legislative Committee approved a proposed new S157E pension regime which, by extending the tax exemption on pension benefits to residents as well as non-residents, complies with the new Qualifying Recognised Overseas Pension Schemes (QROPS) requirements being introduced by the UK.
In December last year HM Revenue & Customs launched a consultation on a series of proposed amendments to the regulations regarding QROPS, with the final proposals outlined in the budget and set to take effect from 6 April 2012. The most problematic of the proposed changes was “Primary Condition 4″, which provided that residents and non-residents must be treated equally in terms of tax on benefits paid within any QROPS scheme. This effectively meant that Guernsey QROPS schemes would no longer qualify. Although Condition 4 was removed from the final UK regulations, a new Paragraph 6 that has the same effect replaced it.
Fiona Le Poidevin, Deputy Chief Executive at Guernsey Finance, said: “We are confident that Guernsey has responded quickly and appropriately to ensure our schemes will meet the conditions for being considered a QROPS from 6 April and our cooperative and compliant approach means that we will not be making any changes which risk losing this status.”
In the UK Budget 2012, the government said it supported the changes in secondary legislation published last December and would introduce changes in primary legislation to strengthen reporting requirements and powers of exclusion relating to QROPS.
It further included (Clause 2.69) a general warning that “where the country or territory in which a QROPS is established makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules, the government will act so that the relevant types of pension scheme in those countries or territories will be excluded from being QROPS.”
22 March 2012, the Hong Kong government announced the launch of a two-month public consultation on draft legislation on trust law reform based upon the policy proposals derived from an earlier consultation held in 2009. It plans to finalise an amendment bill for introduction into the Legislative Council in the 2012-13 legislative year.
The consultation document sets out draft provisions to amend the Trustee Ordinance (Cap. 29) and the Perpetuities & Accumulations Ordinance (Cap. 257) in three principal areas: to clarify trustees’ duties and power to provide clearer guidelines on the role of trustees; to enhance the protection of beneficiaries’ interests; and to clarify that a trust will not be invalidated only by reason of a settlor reserving to himself some limited power. The rules that set time limits on the duration of trusts and the accumulations of income would also be abolished.
Secretary for Financial Services and the Treasury Professor K C Chan, said: “The reform seeks to modernise Hong Kong’s trust law to better cater for the needs of modern-day trusts and enhance the interests of parties to a trust. It is a major initiative to strengthen the competitiveness of our trust services industry and further consolidate our status as an international asset management centre.”
13 January 2012, the Isle of Man High Court of Justice dismissed a trustee’s application to apply the doctrine of cy-pres in the construction of a will – that when literal compliance with the terms of a will or trust is impossible, the intention of a donor or testator should be carried out as nearly as possible – holding that there was no general charitable purpose behind the gifts that could be amended cy-pres.
In Philip Bradshaw Games (as administrator (trustee) of the Estate of the late Donald Collister) v Manx National Heritage (Manx Museum & National Trust) CHP 2001/61, the trustee of a Manx estate sought direction from the High Bailiff on the extent to which he must follow a testator’s wishes where such wishes, if strictly followed, were impracticable.
The testator had left provision in his will for a heritage centre and museum to be erected on a piece of land which he owned (clause 8) with the building and on-going maintenance to be funded by his residuary estate (clause 9). The testator also provided that if there were insufficient funds for this purpose, the trustee was to pay his residuary estate to the Manx Museum and National Trust (clause 15).
When the testator died, the trustee of the estate was advised that planning permission would not be granted on the piece of land. The assistance of the Court was sought as to whether the gifts had filed and, if so, could the cy-pres doctrine apply to save either gift.
The Court held that the gifts relating to the museum and heritage centre as a whole were impractical and impossible because the property could not be used for the intended purpose and therefore considered whether the purpose of the gifts could be amended cy-pres in order to save the gifts.
The Court drew the distinction between a general charitable intention and a specific charitable intention. Where a testator means his charitable disposition to take effect if, but only if, it can be carried into effect in a particular and specified way, the doctrine of cy-pres cannot apply. The Court applied the Privy Council decision in Mayor of Lyons v AG of Bengal, which held that the doctrine of cy-pres must be applied to a gift without regard to the other charitable gifts in the same instrument. A gift might therefore be saved regardless of the fact that the residue was nevertheless directed to charity. The question was whether it was possible to impute to the testator a mere general charitable intention behind the gift that would enable the gift to be given effect in an alternative way.
The Court held that there was a clear direction in this case that if the gifts failed, the property should pass as residue – there was a specific charitable intention. The testator had determined to give to charity in his own way such that there was no general charitable purpose behind the gifts that could be amended cy-pres.
6 March 2012, the Luxembourg Parliament adopted legislation amending the Law of 13 February 2007 on Specialised Investment Funds (SIFs). The new Law anticipates requirements due to be introduced by the EU’s Directive on Alternative Investment Funds (AIFMD) – specifically with regards to risk management, conflicts of interests and the delegation of third parties.
It also takes account of the experience of the regulator, the Commission de Surveillance du Secteur Financier (CSSF), and integrates certain new developments introduced for UCITS by the law of 17 December 2010 on Undertakings for Collective Investment Schemes.
One of the major changes is that it will no longer be possible to launch a SIF prior to approval from the CSSF on its constitutive documents, choice of custodian and identity of the directors and persons in charge of the portfolio management.
1 February 2012, Pascal Saint-Amans took up the post of Director of the Centre for Tax Policy and Administration (CTPA) following the retirement of Jeffrey Owens. Saint-Amans, a French national, joined the OECD in September 2007 as Head of the International Cooperation and Tax Competition Division in the CTPA. He was responsible for the OECD’s work on harmful tax practices, money laundering and tax crimes, the tax aspects of countering bribery of foreign officials and administrative cooperation between tax authorities. In October 2009 he was appointed Head of the Global Forum Division, created to service the Global Forum on Transparency and Exchange of Information for Tax Purposes, a programme with the participation of over 100 countries.
28 March 2012, the OECD’s first Global Forum on Transfer Pricing, comprising tax officials from 90 countries, agreed to simplify and strengthen transfer pricing rules – particularly in the area of intangible assets whose location may have a strong impact on tax revenues – and improve the efficiency of dispute resolution.
OECD Secretary-General Angel Gurría said: “The time has come to simplify the rules and alleviate the compliance burden for both tax authorities and taxpayers. Because complicated rules can be a barrier to cross-border trade and investment and place a heavy burden on tax administrations and businesses, we are making our approach simpler without making it arbitrary.”
Delegates agreed that during the coming year the Global Forum would carry out a transfer pricing risk assessment, developing a detailed manual to establish good practices for governments when they assess transfer-pricing risk at the beginning of an audit.
6 March 2012, US financier Allen Stanford was convicted by a court in Houston of stealing US$7 billion of client funds. After a six-week trial, the jury convicted Stanford on 13 of 14 counts including fraud, conspiracy and obstructing a Securities and Exchange Commission investigation. He was found not guilty on one count of wire fraud.
Stanford, who has been held in custody since his June 2009 arrest, could face decades in prison when he is sentenced later this year. The Stanford case was the biggest investment fraud since Bernard Madoff, who is serving a 150-year prison sentence.
The Stanford Financial Group, headquartered in Houston, had 50 offices in the Americas, including Stanford International Bank in Antigua, and claimed to manage US$8.5 billion of assets for more than 30,000 clients in 136 countries on six continents. The bank specialised in selling certificates of deposit, targeting clients in Latin America and oil company workers on the US Gulf Coast.
At the trial, the prosecution said Stanford treated Stanford International Bank as his “personal ATM”. The group’s chief financial officer James Davis, testified that he and Stanford faked documents and made up financial reports. They funneled millions of dollars from Stanford International Bank to a secret Swiss bank account that Stanford tapped for his personal use.
Stanford became a major investor, media proprietor, philanthropist and cricket sponsor in Antigua, and was knighted there in 2006. By February 2009, however, in the wake of the financial crisis and the Madoff collapse investors were trying to withdraw their money and, on 17 February, US Federal agents put the company into receivership following charges of fraud.
Three other former Stanford executives, including former chief investment officer Laura Pendergest-Holt, are awaiting trial in June on fraud charges in connection with the Ponzi scheme. They have denied wrongdoing. Leroy King, the former Antiguan regulator accused of helping Stanford obstruct the SEC investigation, has denied wrongdoing and is fighting extradition to the US.
27 February 2012, the First Tier Tribunal ruled that a taxpayer who disposed of a large shareholding, making sizeable capital gains, had become resident while in the UK on holiday.
In Kimber v HMRC  UKFTT 107 (TC), Rupert Kimber had been a partner of the asset management firm Cazenove & Co and was the head of the Japanese office. He was not resident in the UK between September 1997 and at least July 2005. In that month Kimber left Japan, handing in his Japanese residency permit, and came to the UK on holiday. During his visit, he signed an employment contract with a UK company before going on holiday to Italy with his family. He returned to the UK in September 2005 to start working for a UK company. On 12 August 2005, while he was outside the UK, Kimber disposed of the shares.
Kimber relied on an extra statutory concession A11, which permits an individual taking up permanent residence in the UK to split the tax year such that he is resident from the date of arrival rather than the beginning of the tax year. He contended that this disposal was not taxable because he was not resident in the UK at this time. He further argued that he was only in the UK for a temporary purpose and at the time had intended to accept a job in Hong Kong.
HMRC disagreed saying that the extra statutory concession should not be applied and that Kimber was resident in the UK as from 17 July. The First Tier Tribunal rejected HMRC’s suggestion that the extra statutory concession should not be applied because HMRC had in fact applied the concession and argued the case on the basis that Kimber was resident in the UK from 17 July 2005 rather than the beginning of the tax year.
21 March 2012, UK Chancellor George Osborne announced in the Budget speech reductions in corporation tax and the top rate of personal income tax but raised stamp duty land tax (SDLT) on properties exceeding £2 million and announced that it is to consult on a General Anti-Avoidance Rule (GAAR).
Corporation tax is to be cut by an additional 1% from April, from 25% to 24%, and to 22% by 2014-15. Osborne said that the cut would mean that the UK had the lowest main corporation tax rate in the G7 group of leading economies and the fourth lowest in the G20. A corresponding rise in the banking levy will mean that banks do not benefit.
The top rate of personal income tax, for those earning more than £150,000 a year, is also to be lowered from 50% to 45% from April 2013, but accompanied by a new cap on income tax reliefs above £50,000. Official analysis of tax returns for 2010-11, the first year that the 50p rate was in force, concluded it was “a distortive and economically inefficient way of raising revenue, and that the behavioural response has been larger than expected”.
HM Revenue & Customs reported that about £16bn to £18bn of income had been brought forward to 2009-10 to avoid the introduction of the new top rate of tax, reducing revenues for 2010-11 by about £1bn. It said: “The longer the additional rate remains in place the more people are likely to consider it a permanent feature of the UK tax system and the more damaging it would be for competitiveness.”
The SDLT applied to residential properties over £2m is to be raised to 7% from 22 March 2012 while properties acquired through a corporate structure will attract a punitive 15% charge. Since April 2011, stamp duty on £1m-plus homes has been charged at 5%. Osborne accompanied his announcement with a warning that he would act “swiftly, without notice and retrospectively” if wealthy individuals or their advisors sought to avoid the rules.
The Treasury said the 15% rate would apply to properties in excess of £2m bought by “non-natural persons”. This is designed to combat the practice of “enveloping” high-value properties into companies to avoid paying most of the tax. For those who have already used corporate envelopes, Osborne said he would consult on the introduction of a “large” annual charge on those £2m-plus properties that have already been put into corporate envelopes. And, to ensure wealthy non-residents are also caught by these changes, the government would be introducing capital gains tax (CGT) on residential property held in overseas companies.
The government announced that it is to consult on a General Anti-Avoidance Rule (GAAR) and would look to bring forward legislation in the Finance Bill in 2013. “We asked whether a GAAR could work in the UK tax system and it has been recommended that a rule could improve our ability to clamp down on tax avoidance,” said Osborne.
9 January 2012, the US Internal Revenue Service announced that it had reopened its limited amnesty programme for US taxpayers with undeclared foreign accounts. It also presented further results from the first two programmes in 2009 and 2011.
IRS Commissioner Doug Shulman said the reopened Offshore Voluntary Disclosure Programme would run for an indefinite period, but warned that the terms were not fixed and it could end at any time. The agency “may increase penalties for all or some taxpayers or defined classes of taxpayers, or decide to end the programme entirely at any point,” he said.
As with the first two amnesty programmes, taxpayers must apply for entry. If accepted, they will face penalties but are unlikely to be criminally prosecuted. Shulman said the new programme was similar to that in 2011, which ended last September, except that the largest penalty had risen to 27.5% of the highest aggregate balance in undeclared foreign accounts or entities during the eight full tax years before the taxpayer came forward. The highest penalties under the 2009 and 2011 programmes were 20% and 25% respectively.
As in 2011, some taxpayers will be eligible for a lower penalty of 12.5% or 5%. The 12.5% rate generally applies if the account never exceeded US$75,000 during the eight-year period. The 5% penalty generally applies to taxpayers who live outside the US and who are tax-compliant in their place of residence, owe no US tax and have almost no assets in the US.
Shulman also said that more than 33,000 taxpayers had come forward in the first two programmes and the IRS had so far collected more than $4.4 billion. He expected the revenue to grow as more cases were closed. The 2009 programme was “95% complete” having collected about $3.4 billion from about 15,000 taxpayers.