Owen, Christopher: Offshore Survey Supplement - January 2012

  • Barbados posts 2011 budget proposals
    • 16 August 2011, Barbadian minister of finance and economic affairs Christopher Sinckler delivered the Budget 2011, which contained a number of initiatives to strengthen the international financial services sector.

      The statement revealed that amendments first proposed in 2009 to implement an initiative to attract high-net-worth individuals (HNWIs) to Barbados could go forward following a review by a special committee. To reduce the effective rate of tax that individuals resident but not domiciled in Barbados must pay on their foreign income, the proposal would allow an individual domiciled in Barbados to claim a foreign currency earnings credit for income earned outside Barbados.

      The Budget also included a number of proposed changes to international business legislation, including: amendment of the Society with Restricted Liabilities Act to permit mergers between these entities; new legislation for the establishment of foundation structures and private trust companies in Barbados; amendments to the Companies Act to allow for incorporation of companies with Chinese names; and a new licensing regime to allow International Business Companies to obtain a multi-year licence.

      Sinckler also said he supports the establishment of an international securities market for the listing and trading of securities of issuers incorporated in Barbados. The range of products being considered for listing includes: equities, mutual funds, bonds, asset-backed securities, real estate investment trusts, exchange-traded funds and derivatives.

  • Belgian tax on conversion of bearer securities
    • 26 November 2011, Belgium’s political parties finally agreed the Belgian budget for 2012. One of the new tax measures provides that the conversion of bearer securities into dematerialised or registered securities would be taxed at a rate of 1% in 2012 and 2% in 2013.

      Under an Act of 14 December 2005 regarding the abolishment of bearer securities prescribes that all bearer securities must be converted into dematerialised or registered securities before 31 December 2013 at the latest. All bearer shares that have not been converted by this date will automatically be converted into dematerialised form or, if the company’s articles of association do not allow this, into registered form. Automatic conversions will be subject to tax at a rate of 3%.

      No draft law enacting the new Budget measure is currently available but the tax would apply for securities issued by listed or by privately held companies. For listed shares, the tax base would normally be the market value of the share. For unlisted shares, it is likely that the tax base will be determined either with reference to a price at which the share was recently traded or the company’s net asset value.

  • Bermuda brings in Incentives for Job Makers Act
    • 18 December 2011, the Incentives for Job Makers Act 2011, which eases work permit and residency restrictions for senior management and wealthy investors, received assent. It was brought into force on 1 January 2012.

      As well as providing concessions for businesses deemed “critical to the economic success of Bermuda”, the Act legislates for exemptions from work permit requirements for senior executives of eligible companies. Under the Act, companies will be granted exemptions for up to five personnel at any one time. A new body, the Cabinet Committee, will oversee the provision of work permit exemptions. A fee of BMD20,000 (USD20,000) will apply to each application for an exemption from needing a work permit. This fee is consistent with the fee charged for a 10-year work permit.

      The Act also provides for the issue of a permanent resident’s certificate [PRC] to persons that have been exempted from needing a work permit for 10 years, and have been ordinarily resident in Bermuda for a period of at least 10 years. For investors with existing operations in Bermuda, the 10-year period will be backdated to 1 January 2005, a concession of two years on that previously proposed. As a result permanent residency certificates will be available for long-term investors from 1 January 2015, at the earliest. The fee for a PRC has been set at BMD120,000.

  • Bermuda updates Companies legislation
    • 14 December 2011, Bermuda’s House of Assembly passed the Companies Amendment (No.2) Act 2011 to update and improve Bermuda company law by providing for simplified management, broader exemption from certain requirements and an enhanced choice of corporate structures for mergers and acquisitions. It gained assent and came into force on 18 December.

      The Amendment Act expands the categories of those eligible to be appointed directors by providing for individuals, companies, partnerships and other associations of “persons” whether incorporated or unincorporated, to be appointed as directors of Bermuda companies. It also reduces the required minimum number of directors of a Bermuda company to one individual, thereby making it possible for the affairs of a company to be managed by a sole director.

      The Act introduces the ability for shareholders of a Bermuda company to resolve to opt out of the requirement to hold an annual general meeting for a specified number of years or indefinitely. It also removes issued share capital and share premium accounts from the “asset test” requirement in relation to the declaration and payment of a dividend. This clarifies that a company with a retained loss balance from previous years may declare and pay a dividend to its shareholders out of current year profits.

      The Act simplifies the ability of companies with securities listed or admitted to trading on an appointed stock exchange to transfer securities electronically by repealing the “appointed agent” provisions and exempting them from the requirement to deliver a written instrument of transfer.

      The Act adds a new merger provision by introducing the possibility for Bermuda companies to merge with one or more Bermuda or foreign companies or corporations and for the undertakings, assets and liabilities of each merging company to vest in one of such companies as the “surviving company”, which can elect, post merger, to either continue in Bermuda or another jurisdiction.

      Bermuda’s House of Assembly also passed, on 9 December, amendments to the Insurance Act 1978 and the Insurance Accounts Regulations, which are intended primarily to achieve compliance with capital adequacy requirements under the EU’s Solvency II Directive.

      The amendments introduce new requirements on certain classes of insurers which were previously only applicable to Class 3B and 4 insurers and make adjustments for certain classes of insurers regarding the requirement to maintain a minimum margin of solvency. They also expand the nature and scope of a principal representative’s reporting powers and set fees applicable to the industry for 2012.

      Compliance with Solvency II would permit Bermuda-based insurers to operate in the European market without additional regulatory hurdles and is a key priority for the Bermuda Monetary Authority as well as the commercial insurance sector. The Bill provided for a commencement date of 31 December 2011.

  • Cayman announces new tonnage tax regime
    • 25 October 2011, the Maritime Authority of the Cayman Islands (MACI) introduced a new Annual Tonnage Fee (ATF) regime, which came into effect on 1 January 2012. It provides two different structures, one for merchant vessels and one for pleasure yachts including those engaged in trade.

      The new structure for merchant ships will include a flat minimum ATF of USD1,000, chargeable up to 2,500 gross tonnes. For larger vessels, the first 2,500 tonnes will be charged at the flat minimum of USD1,000, with the remainder charged at USD0.11 per unit gross tonne.

      For pleasure yachts, including yachts registered as commercial vessels, the flat minimum will be USD400, chargeable up to 500 gross tonnes. Larger yachts will be charged at USD600 for the first 1,000 tonnes, with the remainder charged at USD0.20 per unit gross tonne.

      MACI’s Director for Global Operations, Kenrick Ebanks said: “We have long recognised that the economic operating profile for merchant ships is very different to yachts and it is therefore, entirely logical to develop two separate regimes which take account of this fact.”

  • Cayman court refuses Mareva freezing order
    • 18 August 2011, the Grand Court of the Cayman Islands held that leave should not be granted to serve a defendant outside the jurisdiction where there was no substantive cause of action against it in the Cayman Islands. The ruling contradicts the recent decision in Gillies-Smith on the availability of Mareva freezing injunctions.

      In VTB Capital Plc v Malofeev & Others, the Court was asked by the plaintiff, a bank registered in London, to grant a worldwide freestanding freezing injunction against three defendants in support of proceedings in the Chancery Division of the High Court in England. No substantive relief was sought in the Cayman Islands.

      The first defendant was a Russian citizen with controlling interests in companies in a large number of offshore jurisdictions. The second and third defendants were companies incorporated in the Cayman Islands, in which, the plaintiff alleged, the first defendant had significant shareholdings.

      With regard to the issue of service, the plaintiff relied on Gillies-Smith for authority that the first defendant could be served out of the jurisdiction, on the basis that the injunction sought was not “interlocutory” but rather final. The plaintiff did not have to deploy such arguments against the second and third defendants, because they were incorporated in the Cayman Islands.

      Gillies-Smith v Smith was a divorce dispute in which an Ontario court had granted the ex-wife a worldwide Mareva order injunction to stop her ex-husband disposing of the considerable matrimonial assets, much of which were located in the Caymans. In May 2011, the Cayman court granted a freestanding freezing injunction relief in the Cayman Islands in support of proceedings in Ontario, and in doing so appeared to follow case law from offshore jurisdictions such as Jersey, Guernsey and the Isle of Man.

      In VTB Capital, however, the Grand Court declined to make a freezing order against Malofeev, deciding that the bank’s desire to enforce a freezing order did not represent a cause of action in the Caymans. It did grant Mareva orders against Malofeev’s two Cayman companies on Chabra principles but “not without considerable hesitation” and a direction that the matter be reconsidered at an inter partes hearing.

      Cresswell J declined to follow Gillies-Smith on the basis that the court was unable to grant leave to serve the first defendant out of the jurisdiction because it was bound by precedent, including the decision of the majority of the Privy Council in Mercedes-Benz v Leiduck, to the effect that a freezing order is an interlocutory injunction and accordingly Order 11 Rule 1(1)(b) did not give the court power to order service out.

  • Cayman incentives for reinsurance business
    • 1 December 2011, Cayman Islands Premier McKeeva Bush announced plans to introduce a number of incentives for reinsurance businesses, including 10-year work permits for senior executives of companies and reduced work permit fees.

      He said that unlike some other territories, notably Bermuda, the Cayman Islands would not seek equivalency with the capital adequacy requirements under the EU’s Solvency II Directive which would benefit reinsurers seeking to bypass the capital controls.

  • Credit Suisse settles German tax case
    • 19 September 2011, Germany’s federal government agreed to quash criminal charges against German employees of Credit Suisse, Switzerland’s second-largest bank, in return for a €150 million payment. The German authorities had accused them of helping German-based clients avoid paying taxes by opening undeclared accounts abroad.

      The charges had been pending since July 2010, after investigators from the North Rhine-Westphalia prosecutors’ office, acting on information held on a disk stolen from the bank’s Zurich headquarters, raided Credit Suisse employees’ homes and offices in 13 cities. The disc contained data on investments of Euro1.2 billion held in more than a thousand undeclared bank accounts.

      Credit Suisse said in a statement that the deal resolved all the bank’s outstanding differences with Germany, avoiding a “complex and prolonged legal dispute”. It said that it had long ago adopted a strategy of acquiring and managing cross-border wealth assets in compliance with legislation.

      Bank Julius Baer, Switzerland’s third-largest private bank, made a similar deal earlier last year, when it paid the German authorities €50 million to avoid prosecution.

  • EC refers the Netherlands, Belgium and Spain to ECJ
    • 24 November 2011, the EC decided to refer the Netherlands to the EU’s Court of Justice (ECJ) for discriminatory rules on inheritance and gift duties and asked Belgium to abolish additional taxation of certain types of income from capital deriving from outside the European Economic Area (EEA) and not received/collected by an intermediary established in Belgium.

      Under Dutch legislation, country estates located in the Netherlands are fully or partially exempt from succession and gift duties, while inheritance or gifts of country estates in other European Economic Area (EEA) States are taxed on 100% of their market value.

      In line with the ECJ’s judgment in Jäger (Case C-256/06 of 17 January 2008), the Commission said it considered this difference to be contrary to the free movement of capital. It formally requested the Netherlands to ensure compliance with the EU rules on 30 September 2010, but the Netherlands has refused to change its law.

      In respect of Belgium, the Commission issued an additional reasoned opinion asking Belgium to abolish additional taxation of certain types of income from capital deriving from outside the EEA that is not received by an intermediary established in Belgium. The same income paid by an intermediary established in Belgium is subject only to withholding tax.

      The Commission said that Article 63 of the Treaty on the Functioning of the EU prohibits any restriction on the movement of capital or payments between member states and between member states and third countries. In a “reasoned opinion” in November 2010, it called on Belgium officially to amend its legislation within two months.

      Belgian legislation was amended in May 2011 to reflect the ECJ ruling of July 2010 in the Dijkman and Dijkman-Lavaleije case but the Commission said this only partly corrected the infringement because non-EEA-source portfolio dividends and interest not collected by an intermediary established in Belgium remained liable to additional taxation.

      The EC also referred Spain to the ECJ on 27 October 2011 in respect of its discriminatory rules on inheritance and gift tax that require non-residents to pay higher taxes than residents. Inheritance and gift tax in Spain are regulated at both state level and at the level of autonomous communities. The latter grants residents a number of tax benefits that, in practice, allow them to pay much lower taxes than non-residents.

      The Commission considers that this discriminatory tax treatment constitutes an obstacle to the free movement of people and capital. It formally requested Spain to take action on 5 May 2010, and again on 17 February 2011, but no amendments had been made.

  • ECSC changes Civil Procedure Rules
    • 1 October 2011, a number of changes to the Civil Procedure Rules of the Eastern Caribbean Supreme Court (ECSC), which regulate procedure in civil and commercial proceedings in all of the OECS States – Anguilla, Antigua, Dominica, Grenada, Montserrat, St. Lucia, St Kitts & Nevis, St Vincent & the Grenadines and the BVI – came into force.

      The ECSC rules are loosely based on the English CPR, but with significant modifications. The new changes take the form of extensive revisions to the CPR, together with the implementation of ten new Practice Directions.

      The key change is the broader provision for service out of the jurisdiction, and new provisions that permit the Court to dispense with service in an appropriately exceptional case, or to make an alternative order in relation to the “mode of service”.

  • France introduces new tax on high incomes
    • 24 August 2011, the French government announced an extra tax of 3% on annual income above €500,000 (US$721,000). Prime Minister Francois Fillon said the new tax would remain in place until France reduces its budget deficit back within the EU’s intended limit of 3% of GDP, which should occur in 2013.

      Sixteen executives, including Europe’s richest woman L’Oreal heiress Liliane Bettencourt, earlier posted an open letter on the website of the French magazine Le Nouvel Observateur in which they offered to pay a “special contribution” in a spirit of “solidarity”. Other signatories Christophe de Margerie of oil firm Total, Frederic Oudea of bank Societe Generale and Air France’s Jean-Cyril Spinetta.

      The letter said: “We, the presidents and leaders of industry, businessmen and women, bankers and wealthy citizens would like the richest people to have to pay a ‘special contribution’… When the public finances deficit and the prospects of a worsening state debt threaten the future of France and Europe and when the government is asking everybody for solidarity, it seems necessary for us to contribute.”

  • Gaines-Cooper loses appeal over residency
    • 19 October 2011, the UK Supreme Court dismissed an appeal by international businessman Robert Gaines-Cooper against the Court of Appeal’s decision that he was a resident of the UK despite spending most of his time in the Seychelles.

      The dispute centred on IR20, which was the UK revenue authority’s guidance on what constitutes residency for tax purposes. Gaines-Cooper claimed to have followed the guidance and stayed away from Britain for a sufficient number of days every year to qualify as a non-resident.

      But the Revenue argued that counting days was irrelevant because Gaines-Cooper had not left Britain “permanently or indefinitely” by making a distinct break, which meant he was resident. He had maintained extensive social and domestic ties to the UK, including a family home in Henley-on-Thames and a UK-based collection of Rolls-Royces, as well as making regular visits that included Royal Ascot and shooting parties.

      The Supreme Court, by a 4-1 majority, dismissed Gaines-Cooper’s appeal on the grounds that a “proper construction” of IR20 did not support his case and the argument that the Revenue had departed from the IR20 guidance was “far too thin and equivocal”.

      Although the guidance on how to achieve non-residence “should have been much clearer”, it considered that a sophisticated taxpayer would have concluded that he had to make a “distinct break” from the UK in order to become non-resident.

      Lord Mance dissented saying that no requirement for “a distinct break” had been expressed and other factors, including the day-count proviso, pointed away from such a requirement.

      Gaines Cooper said in a statement: “The judgment I have received today is a disappointment to me and to my family. I also consider it to be a blow for all UK taxpayers who have relied on HMRC’s published guidance when planning their tax affairs. My next step is to seek the views of my legal advisers with a view to referring my case to the European Court.”

      Although the Supreme Court ruling could affect the outcome of hundreds of cases pending, the issues at stake could soon be of historic interest. The UK Treasury released, on 17 June 2011, two major consultation documents: one proposing the establishment, for the first time, of a statutory residence test (SRT) for tax purposes; the other, proposing an increase in the annual tax charge for long term non-domiciled individuals that are resident in the UK.

  • HMRC extends deadline under Liechtenstein Disclosure Facility
    • 23 December 2011, the UK revenue granted a three-month extension of the notification deadline under the Liechtenstein Disclosure Facility (LDF) to 31 March 2012. It was one of several revisions to the Memorandum of Understanding (MOU) between HMRC and the Liechtenstein government, which forms the basis of the LDF.

      The three-month extension was granted due to the complex steps required to ensure that affected UK residents are identified and the larger than anticipated increase in the number of applicants. As at 30 September 2011, 1,721 UK taxpayers had come forward. Liechtenstein financial intermediaries are required to inform UK clients of their UK tax obligations.

      A new “confirmation of relevance” has also been introduced to simplify LDF registration. The COR is to be issued by a Liechtenstein financial intermediary as proof that its UK clients have acquired a qualifying asset or established a connection with Liechtenstein’s financial centre.

      Finally a self-certification option has been introduced to demonstrate UK Tax compliance. According to HMRC, this will reduce costs and simplify the process, but is only available to those investors who can demonstrate they are tax compliant.

  • IRS nets $2.7 billion from offshore disclosure
    • 15 September 2011, US Internal Revenue Service announced that the 2011 Offshore Voluntary Disclosure Initiative (OVDI) had attracted 12,000 applications before its expiry the previous week, pushing the total number of voluntary disclosures up to 30,000 since 2009.

      In total, the IRS said it had collected $2.2 billion so far from the 15,000 people who participated in the original 2009 Offshore Voluntary Disclosure Programme (OVDP), reflecting closures of about 80% of the cases. A further 3,000 applicants had come in after the deadline, but were allowed to participate in the OVDI, which gave US taxpayers with undisclosed assets or income offshore a second chance to achieve compliancy and avoid potential criminal charges.

      The IRS had so far collected an additional $500 million in taxes and interest as down payments for the 2011 programme – a figure that did not yet include penalties – to bring the total collected through the offshore programmes to $2.7 billion.

      The two disclosure programmes also provided the IRS with a wealth of information on various banks and advisors assisting people with offshore tax evasion, which the IRS said it would use to continue its international enforcement efforts.

      “By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts,” said IRS Commissioner Doug Shulman. “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”

  • Jersey adopts further amendments to Trusts Law
    • 2 November 2011, a draft Trusts (Amendment 5) (Jersey) Law 2011 was debated and adopted by the States of Jersey. The changes, proposed by the Trusts Law Working Party and due to be brought into force in 2012, are designed to bring clarity and certainty to a number of areas.

      Two new definitions have been inserted into the Law. A “professional trustee” is defined as being a person who is registered under Article 9 of the Financial Services (Jersey) Law 1998 (FSL) by the Jersey Financial Services Commission to carry on trust business within the meaning of Article 2 of the FSL.

      “Purpose” is defined to include the acquisition, holding, ownership, management or disposal of property, and the exercising of any function. Whether or not a purpose confers a benefit on a person or is capable of consuming the income or capital of the trust will be immaterial. Accordingly, “ownership only” purpose trusts will be permitted under the new law.

      Article 9 has been amended to provide that the Royal Court should not enforce a decision by a foreign court or tribunal to alter or vary a Jersey trust. The definition of “personal relationships” is widened to explicitly prevent “personal relationships with beneficiaries from being used as grounds to look through a Jersey trust by a foreign court under foreign law and to clarify the conflict of laws provision”.

      Article 26 has been amended to entitle a professional trustee to reasonable remuneration if the terms of the trust are silent as to remuneration. This will only apply to services provided after the amendment comes into force.

      Also significant are amendments to Article 57 relating to the period in which an action for breach of trust may be brought. The period in which an adult beneficiary can sue for breach of trust is after three years from the date on which he or she is given the final accounts or three years from the date upon which he or she becomes aware of the breach, whichever is earlier. The period in which a trustee may sue a former trustee for breach of trust is three years from the date on which the former trustee ceases to be a trustee. A 21-year long stop is also introduced to prevent any action for breach of trust being brought by any person more than 21 years after the breach.

  • Jersey Royal Court ruling permits litigation funding
    • 25 November 2011, the Jersey Royal Court found that the public policy reasons which had led England and Australia to allow third party funding subject to certain safeguards were equally applicable in Jersey.

      In the matter of the Valetta Trust, the representors were beneficiaries of a Jersey discretionary trust in which the only material asset was a minority shareholding in a company that owned certain rights to a product. In 2003, the former trustee had sold the trust’s shares in the company to itself as trustee of another trust, which also held shares in the company and was for the benefit of the family of one of the co-investors involved in developing the product. The sale proceeds received by the trust were subsequently distributed to the beneficiaries and the trust had been dormant.

      The representors contended that this sale was at a gross undervalue that was known to the former trustee. They therefore wanted to institute proceedings for breach of trust against the former trustee and other persons who were said to have been knowingly involved in the sale at an undervalue but could not afford to bring proceedings, while the trust had no assets other than the claim against the former trustee.

      They entered into a funding agreement with an English entity known as Harbour Litigation Investment Fund, which would fund the litigation in return for a share of the proceeds if successful. The Royal Court requested that it should first be addressed on whether such an arrangement was permitted under Jersey law.

      Bailiff Birt concluded that public policy considerations pointed strongly in favour of upholding the validity of the funding agreement. “In our judgment, it does not have any tendency to corrupt or adversely affect the purity of justice. The control of the proceedings remains with the plaintiffs, they will still retain a substantial proportion of the damages if successful and the defendants are protected in respect of costs if the claim fails,” he said.

  • L’Oreal heiress pays French tax officials
    • 1 December 2011, French tax authorities said they would not pursue criminal charges against L’Oreal heiress Liliane Bettencourt – France’s richest woman with an estimated fortune of €16 billion – over tax evasion after she paid more than €100 million.

      “Liliane Bettencourt has provided the (tax) administration with all the necessary information, which resulted in a considerable tax adjustment including penalties as foreseen under the law. The tax administration has not filed criminal charges,” said the budget ministry.

      Bettencourt was forced to admit tax evasion after secret recordings of conversations between her and her advisors were leaked to the media. She co-operated with the tax investigation, revealing more than €100 million in undeclared funds in a dozen bank accounts including in Switzerland and Singapore, as well as an island property in the Seychelles.

  • Luxembourg creates Family Office legal framework
    • 21 October 2011, the government adopted a bill of law on the creation of a framework for Family Office activities in order to increase control of this sector by restricting certain financial services to specific regulated professions.

      Under the law, the activity of a family office consists in providing professional services and advice concerning private wealth to: natural persons; families; or patrimonial entities belonging to natural persons or families that may be the founders or beneficiaries of said entities.

      The trading name ‘Family Office’ may only be used by professionals active in a regulated profession or sector, such as a credit institution, investment advisor or wealth manager, or by a professional active in a specifically regulated and authorised financial sector or profession, such as a family office, domiciliation agent, court lawyer or a professional offering business creation and company management services.

      The adoption of the bill of law by the government marks the beginning of the legislative procedure.

  • Monaco to remove bearer shares
    • 7 December 2011, Monaco’s Conseil National adopted Projet de loi, no. 888, containing various legislative measures concerning sociétés anonyms, sociétés civiles, trusts and foundations that are designed to ensure compliance with international standards on transparency. The move is a reaction to recommendations in the OECD Global Forum’s Phase 1 Peer Review.

      The draft law modifies the law on sociétés anonyms (LLCs) by putting an end to the possibility of issuing bearer shares for companies listed on the stock exchange. Those who hold bearer shares must convert the shares to nominal shares within a three-year period after the law has come into effect. Sociétés anonyms must keep up to date share registers that can be consulted at any time.

      It further imposes an obligation on Law 214 Trusts and sociétés civiles to keep accounts. Such companies and trusts must keep the accounting documentation for a minimum period of five years. Failure to comply with this obligation could give rise to a fine of up to €90,000. The same sanction will apply to Monaco Foundations, which were previously subject to accounting obligations.

      Whilst trusts were already covered by the anti-money laundering regulations, Sovereign Order no. 3,450 of 15 September 2011 clarified who is to be considered the ultimate beneficial owner under Monaco rules for anti-money laundering purposes. To ensure that the beneficial owner is properly identified, professionals must take all reasonable measures to verify the identity of the individual beneficial owners when dealing with a trust.

      Sovereign Order no. 3,474 of 28 September 2011 imposed an obligation for companies, insurance companies, exchange officers, bankers, public officers, transport entrepreneurs, property developers and all fiscal representatives to communicate on request to tax inspectors, their files, insurance policies, title deeds, company records, accounts and all other documents that may be required in order to ensure compliance with relevant legislation.

  • New registration requirements for Cayman Master Funds
    • 5 December 2011, the Cayman Islands’ Legislative Assembly passed the Mutual Funds (Amendment) Bill, 2011, which provides for the registration of certain Cayman Islands master funds with open-ended master/feeder structures with the Cayman Islands Monetary Authority (CIMA).

      Previously most master funds were structured with fewer than 16 investors so as to be exempt from the requirements for registration under the Mutual Funds Law. As a result of the Bill, master funds that fall within the scope of the new provisions will now be required to register with, and be regulated by, CIMA.

      The amendment applies to “a mutual fund that is incorporated or established in the Islands, that holds investments and conducts trading activities and has one or more regulated feeder funds”. Notable exceptions are master funds that: are closed-ended; have no more than one investor; or have only unregulated feeder funds.

      Registration of a master fund will involve filing the certificate of incorporation and a new form MF4 setting out certain prescribed details. A registered master fund will be required to comply with many of the same duties and obligations to which CIMA-registered hedge funds are already subject including the payment of an annual fee – set at CI$2,500 (US$3,048) – and the requirement to file audited financial statements signed off by a Cayman-approved auditor within 6 months of the financial year end.

      It was anticipated that the amendment would come into force before the end of the year. New master funds would therefore become subject to its registration requirements before the end of December 2011. Existing master funds have a period of 90-days in which to comply.

  • NZ Supreme Court confirms Penny and Hooper appeal ruling
    • 24 August 2011, the New Zealand Supreme Court upheld a lower court’s ruling that two orthopedic surgeons who conducted their practices through corporate and family trust structures had avoided tax by diverting salary to company income taxed at a lower rate. It agreed with the Court of Appeal that “income derived from personal exertion should belong in its appropriate taxation band and should not be inappropriately diverted away.”

      Two orthopaedic surgeons, Ian Penny and Gary Hooper, declared annual incomes of between NZ$655,000 and NZ$832,000 in the years prior to the April 2000 increase in the top personal tax rate to 39%. After that date, they declared personal incomes of between NZ$100,000 and NZ$120,000, while channeling income previously declared as personal through companies they established to employ them, and distributing that income to their families through family trusts.

      The NZ tax authorities contended that the salaries paid to the men were artificially low and that the use of the structures in this manner constituted a tax avoidance arrangement under the Income Tax Act 1994 (ITA). The authorities consequently made assessments increasing the taxable incomes of both Penny and Hooper for the 2002, 2003, and 2004 tax years. The total tax avoided amounted to about NZ$90,000 each, but the principles saw the case go all the way to the highest court.

      In 2009, the High Court sided with the taxpayers, holding that the ITA did not require the taxpayers to derive the practice’s profits as personal income, but last year a majority of the Court of Appeal reversed that decision and held that the incorporation of the practices and the payment of salaries at artificially low levels did constitute tax avoidance.

      The Supreme Court agreed. The finding of tax avoidance turned on the “single step” taken by both taxpayers to place themselves on “each side of the employment contract relationship (as controlling director of the employer and as employee) in setting an artificially low level of salary which had the effect of altering the incidence of taxation.”

      “If the setting of the annual salary is influenced in more than an incidental way by a consideration of the impact of taxation, the use of the structure in that way will be tax avoidance,” the judges said.

  • Revised Indo-Swiss tax treaty comes into force
    • 10 October 2011, the revised Indo-Swiss tax treaty, which will allow India to seek specific bank information in cases related to tax evasion, came into effect. Under the previous treaty, India could only seek bank details in relation to tax fraud cases.

      The provisions of the agreement will apply in India to income originating in tax years that start on or after 1 April 2012. In Switzerland, they will apply to income originating in tax years that begin on or after 1 January 2012. In the case of the exchange of information, the provisions will apply to information referring to tax years that start on or after 1 January 2011.

      India signed an agreement with Switzerland to revise the treaty in August 2010. The Swiss Parliament approved the revised treaty in June and, under Swiss rules, bilateral tax treaties are subject to public scrutiny for a period of 100 days, which ended on 6 October.

      “It contains provisions on the exchange of information in accordance with international standards applicable at present,” said the Swiss Federal Department of Finance. The most recent data from the Swiss National Bank shows that the total deposits of Indian individuals and companies in Swiss banks stood at about $2.5 billion at the end of 2010.

  • Sarkozy and Merkel announce move to common corporation tax
    • 17 August 2011, German chancellor Angela Merkel and French president Nicolas Sarkozy pledged to prepare annual budgets on harmonised economic outlooks and work towards a common corporation tax by 2013. “We have to converge,” said Sarkozy. “The status quo is impossible.”

  • St Vincent to establish Financial Services Authority
    • 22 November 2011, the government of St Vincent and the Grenadines enacted the Financial Services Authority Act 2011, which will establish a single regulatory unit for the first time in SVG.

      Under the Act, the FSA will be responsible for the regulation and supervision of “financial entities” – international banks, mutual funds, insurers, money service businesses, registered agents and trustees, building and friendly societies and credit unions – and for the administration of “registered entities” – trusts, IBCs and LLCs.

      Powers of the FSA include: ensuring compliance with the FSA Act and sector specific legislation including Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) laws; powers of examination, investigation and the obtaining of freezing orders; access to information from financial and registered entities, auditors and from any person believed to have the information sought; and suspension or cancellation of licences and other remedial measures.

  • Swiss treaties with Germany and Greece enter into force
    • 21 December 2011, the revised tax treaty between Switzerland and Germany, signed on 27 October 2010, entered into force upon ratification. The treaty contains provisions on the exchange of information in accordance with the international standard, which will apply from 1 January 2011. The remaining provisions will apply from 1 January 2012.

      A Protocol of Amendment to the double tax treaty between Switzerland and Greece entered into force following ratification on 28 December 2011. Signed on 4 November 2010, it contains an OECD administrative assistance clause. The provisions of the Protocol will apply from 1 January 2012.

      In addition to the administrative assistance clause, the Protocol exempts dividend payments to pension funds and public bodies from withholding tax in the future. The withholding rate for interest payments has been lowered from 10% to 7%. An arbitration clause has also been adopted.

  • UAE approves new Companies Law
    • 4 December 2011, the cabinet approved a new companies law, which is expected to replace the existing Commercial Companies Law 1984 (CCL), according to a statement by Minister of Economy, Sultan bin Saeed al-Mansouri.

      The draft law has not yet been made publicly available but it is understood to allow the cabinet to issue a resolution specifying the forms of business, activities or groups in which greater foreign investment may be permitted. Existing legislation imposes ownership restrictions that require every company incorporated under the CCL to have at least 51% of share capital owned by UAE nationals.

      Other key provisions of the draft law are reported to include provisions relating to the pricing of shares for public subscription, exemptions to shareholders’ pre-emption rights on new share issues, corporate governance, company founders and accounting principles.

      The approval of the Federal National Council, the Supreme Council and the President of the UAE is required before the draft law comes into force.

  • UK Court of Appeal rules in Huitson and Shiner
    • 25 July 2011, the UK Court of Appeal handed down its judgments in Huitson and Shiner – two cases where the claimants argued that retrospective changes to the taxation of foreign partnerships were contrary to the European Convention on Human Rights and the free movement of capital guaranteed under the EC Treaty.

      In both these cases, the individuals had entered into marketed tax avoidance schemes that involved the use of the UK-Isle of Man tax treaty and legislation then in force to generate income from UK activities that were free of UK income tax. The legislation was changed in 2008 to close the loophole and was given retrospective effect.

      In dismissing both applications, the Court of Appeal stated that the purpose of the retrospective amendments was to give effect to “a justified fiscal policy” of maintaining a fair approach to all taxpayers in the UK. In balancing the rights of the general body of taxpayers against those of the claimants, the court decided that the liability to pay tax arising under the retrospective legislation was no more an infringement on the rights of the claimants than the usual obligation on ordinary citizens to pay tax in the country in which they are resident.

      Regard was also paid to the fact that the tax treaty was used to avoid to income tax entirely on that portion of the income earned by the claimants through the trusts.

  • Uruguay moved to OECD “white list”
    • 15 December 2011, the OECD moved Uruguay to its “white list” of countries that have “substantially implemented the standard for exchange of information” after it signed seven new agreements with the Nordic countries providing for the exchange of tax information to bring its total to 18.

      Uruguay’s actions followed the progress report delivered by the Global Forum on Tax Transparency and Exchange of Information to the Cannes G20 Summit, which suggested that Uruguay still had to address a number of issues for the effective exchange of information.

      “The signing of these new agreements shows that Uruguay is committed to moving quickly towards full transparency and effective information exchange,” said OECD Secretary-General Angel Gurría. The Global Forum will continue to monitor Uruguay’s progress.

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