Owen, Christopher: Global Survey - 2015

  • Argentina charges HSBC with aiding tax evasion
    • 27 November 2014, the Argentinian authorities charged HSBC with aiding more than 4,000 clients to evade taxes through undisclosed Swiss bank accounts. HSBC Argentina rejected the charges, saying it respected Argentine law.

      “We denounce the existence of an illegal platform created by three banking entities (of HSBC) that are operating in Argentina,” said Ricardo Echegaray, the head of Argentina’s tax authority, AFIP. “Its managers have intervened actively with the sole aim of helping Argentine citizens avoid paying their taxes.”

      AFIP said it had received the information from France, which has placed HSBC’s Swiss private banking arm under formal investigation for possibly aiding tax evasion. Belgium has also charged HSBC Private Bank with tax fraud and money laundering. Stolen data concerning HSBC clients in Switzerland was passed to the Belgian and French authorities in 2010.

  • Argentina demands HSBC repay $3.5bn in offshore funds
    • 9 March 2015, the head of Argentina’s tax authority, AFIP, demanded that HSBC repatriate $3.5 billion in funds that it says HSBC helped its clients move offshore. Ricardo Echegaray said his officials had identified 4,040 undisclosed bank accounts held by Argentinean individuals and companies in Switzerland through HSBC’s Geneva subsidiary.

      AFIP has already begun legal proceedings in Argentina against the individual HSBC account holders for criminal tax evasion, but Echegaray said the authority would also be seeking redress from HSBC’s holding company for facilitating tax evasion through its Argentinean and Swiss branches.

      “HSBC built a platform to help clients evade tax,” said Echegary in a press briefing at London’s Argentine embassy. He also said that AFIP had requested information from the tax administrations in the BVI, Uruguay and Bermuda, and that a new committee in Argentina’s Congress had been set up to investigate whether other banks had used similar strategies to that of HSBC.

  • Bermuda strengthens trust legislation
    • 29 July 2014, the Trustee Amendment Act 2014 was brought into force to amend the Trustee Act 1975 to provide a statutory basis for applications to Bermuda’s courts under the common law principle known as the “Hastings Bass Rule” as it was prior to the UK Supreme Court’s decision last year in Futter v Futter and Pitt v Holt.

      The amendment confers a discretionary power on the court to intervene under prescribed circumstances in relation to the exercise by a trustee of a fiduciary power and to set aside the exercise of that power, wholly or partly and on condition or unconditionally. The Act will have retroactive effect.

      The prescribed circumstances are that the person who holds the power, did not, in exercising the power, take into account one or more considerations that were relevant to the exercise of the power, or took into account one or more irrelevant considerations and but for this, the person who holds the power would not have exercised the power or would have exercised the power, but on a different occasion or in a different manner.

      To the extent that the exercise of the power is set aside, it is as if it had never occurred. There is no requirement to allege or prove a breach of duty, or breach of trust, on the part of the person exercising the power, or any advisor to such person.

      Application to the court may be made by the person who holds the power, where the power is conferred in respect of a trust or trust property, by any trustee, beneficiary or person appointed for the purposes of section 12(B) of the Trusts (Special Provisions) Act 1989 as an “enforcer” of a purpose trust; the Attorney-General in the case of a charity or any other person with leave of the court. The court has discretion as to the relief granted and no order may be made by the court that would prejudice a bona fide purchaser for value of trust property without notice.

      Introducing the Act, Bermuda’s Minister of Education and Economic Development Grant Gibbons told the House of Assembly: “The proposed amendment to the Trustee Act 1975 will provide greater flexibility, clarity and certainty in our legislation with respect to the conduct of trust business in Bermuda. The rule has been used for over 25 years to mitigate any negative impact on trust beneficiaries and to relieve trustees of the consequences of errors in their exercise of fiduciary power. This amendment is consistent with Bermuda public policy, in favour of the establishment and maintenance of trusts in Bermuda for legitimate estate and tax planning purposes.”

      The Trusts (Special Provisions) Amendment Act 2014, which provides clarity and certainty to the powers which can be reserved by settlors or granted to third parties over a trust, is also now operative.

      Section 2(3) of the Trusts (Special Provisions) Act 1989 includes a general provision which allows settlors to reserve a wide variety of powers over a trust, but the Amendment Act 2014 adds certainty by including specific provisions which enable settlors to reserve or grant an extensive range of powers while retaining the legal validity of the trust. The powers that can be reserved or granted include:

      • To revoke the trust in whole or in part in the case of a reservation to the settlor or other donor of trust property;

      • To vary or amend the terms of a trust instrument or any of the trusts, purposes or powers arising thereunder in whole or in part;

      • To decide on or give directions to advance, appoint, pay, apply, distribute or transfer the trust property;

      • To act as, or give directions as to the appointment or removal of directors or officers of companies owned by the trust, or to direct the trustees how to exercise voting rights with respect to the shares of such companies;

      • To give directions in connection with investments or the exercise of any powers or rights arising from such trust property;

      • To appoint, add, remove or replace any trustee, protector, enforcer or other office holder or advisor;

      • To add, remove or exclude any beneficiary, class of beneficiaries or purpose;

      • To change the governing law and the forum for administration of the trust; and

      • To restrict the exercise of any powers, discretions or functions of a trustee by requiring that they shall only be exercisable with the consent, or at the direction, of a person or the persons specified in the trust instrument.

  • BVI extends FATCA deadlines
    • 26 May 2015, the BVI government advised that the deadlines for BVI Reporting Financial Institutions (RFIs) under the inter-governmental agreements (IGAs) between BVI and the governments of the US and UK to improve tax compliance and to implement FATCA have been extended. The move was in response to a number of requests from BVI financial institutions.

      For US FATCA, the deadline to register with the BVI Tax Authority has been extended from 1 June to 30 June 2015 and the deadline for submitting a report via the BVI Financial Account Reporting System (BVIFARS) has been extended to 31 July 2015.

      For UK FATCA, the election deadline for BVI financial institutions wishing to offer the Alternative Reporting Regime to UK Resident Non-Domiciled (RND) Individuals has been extended from 31 May to 30 September 2015. UK RND individuals wishing to use this facility must submit their election to the Reporting BVI Financial Institution by 28 September.

      These extensions only apply for the year 2015 to give BVI RFIs time to complete their customer due diligence and comply with the IGAs. RFIs with reportable financial accounts that comply with the revised deadlines will not attract any enforcement actions.

      The BVI Tax Authority is also reminding all reporting BVI Financial Institutions that have not obtained their Global Intermediary Identification Number (GIIN) from the US government to do so, because a GIIN is required to enrol with BVIFARS.

  • Canada launches immigration pilot programme for HNWIs
    • 28 January 2015, the Canadian government opened a new Immigrant Investor Venture Capital (IIVC) Pilot Programme to applications for a limited period to 11 February 2015. The Pilot Programme, which was announced on 16 December, will offer 50 high-net-worth individuals (HNWIs) and their families with a pathway to permanent residence.

      Under the programme, applicants must make a CAD2 million non-guaranteed investment into the IIVC fund for 15 years. They will also have to demonstrate that they can integrate into Canada’s economy and society. The selection criteria includes: proficiency in one of Canada’s official languages; education credentials; and a net worth of at least CAD10 million obtained legally.

      “Through the launch of this pilot programme, we are attracting investors who can make a significant investment and who have the education and proven business or investment experience necessary to achieve success in Canada,” said Citizen and Immigration Minister Chris Alexander. “The funds will be invested in innovative Canadian-based start-ups with high growth potential.”

      The IIVC pilot programme comes after the government scrapped both the immigrant investor programme and the entrepreneur programme last year. Launched in 1986, the immigrant investor programme offered visas to business people with a net worth of at least CAD1.6 million who were willing to lend CAD800,000 to the Canadian government for a term of five years.

      It was been put on hold in 2012 due to a huge backlog of applications and was then cancelled because, the government said, it had been riddled with fraud. Thousands of applicants who had been waiting for permanent residency under the programme sued the federal government but a Federal Court judge ruled against them in June last year.

  • Cayman Appeal Court sets aside Weavering decision
    • 12 February 2015, the Cayman Islands Court of Appeal reversed an earlier court ruling that the directors of a Cayman Islands-registered fund were personally liable to pay $111 million to the liquidators of the fund due to their wilful neglect.

      In Weavering Macro Fixed Income Fund Ltd v Peterson, the Cayman Grand Court had found in 2011 that the directors had caused the loss through their “wilful neglect or default” and, as a result, the directors were not covered by the contractual limitation and indemnity clauses in their contracts.

      The case against the directors was that they had breached their duty of supervision by failing to identify, following the collapse of Lehman Brothers in 2008, that a substantial proportion of the fund’s investments were interest rate swaps whose counterparty was a related fund and, therefore, that the fund was in fact insolvent and should have been wound up.

      The liquidators alleged that if the directors had performed their duty of supervision, the fund would have been placed into liquidation sooner. The directors disputed that they had breached their duty but contended that, even if they had, they were entitled to rely on the exculpation clause in the fund’s articles of association, which excluded them from liability for their conduct except where they were guilty of “wilful neglect or default”. The Grand Court found that the directors had breached their duty and were guilty of wilful neglect or default.

      The Court of Appeal took a different view. It agreed with the judge that the directors had breached their duty to supervise the fund’s business but held that in order to show wilful neglect or default, it was necessary either for the fund to prove that the directors had made a deliberate and conscious decision to act or to fail to act in knowing breach of duty, or for the court to be satisfied that the directors had at least recognised that their conduct might be a breach of duty and had made a conscious decision to act, or not to act, without regard to the consequences.

      Carrying out duties in a negligent way was not sufficient to make the neglect or default “wilful”, no matter how badly the duties were carried out. The Court of Appeal concluded on the facts that there was not enough evidence to show “wilful” neglect or default and allowed the directors’ appeal.

      The judgment at first instance in Weavering led to a public consultation concerning fund governance issues and the passing of new legislation in the Cayman Islands regulating certain providers of professional directorships. It is unlikely that these changes will be reversed.

  • Cayman forms first portfolio insurance company
    • 25 February 2015, the first portfolio insurance company (PIC) was formed in the Cayman Islands. AARIS Insurance Company Ltd, a Cayman segregated portfolio company (SPC) established by US-based Ascension Insurance Services, established AGG 1 PIC to allow a portfolio of clients to participate as a group in a risk transfer mechanism for staff compensation coverage.

      The Cayman Islands enacted the Insurance (Portfolio Insurance Companies) Regulations 2015 and related sections of The Insurance (Amendment) Law 2013 on 16 January 2015 to enable new or existing insurers operating as SPCs to incorporate one or more of their segregated portfolios by establishing one or more PICs underneath the SPC. Each PIC, although separately incorporated, may then engage in its own insurance business without acquiring a separate licence.

      The rules are designed to offer Cayman SPCs more flexibility with respect to quota sharing, risk pooling and reinsurance. They may also improve the tax position of segregated portfolios under US federal law and enhance the market recognition of Cayman SPCs within the insurance and reinsurance sectors.

  • Cayman forms first portfolio insurance company
    • 25 February 2015, the first portfolio insurance company (PIC) was formed in the Cayman Islands. AARIS Insurance Company Ltd, a Cayman segregated portfolio company (SPC) established by US-based Ascension Insurance Services, established AGG 1 PIC to allow a portfolio of clients to participate as a group in a risk transfer mechanism for staff compensation coverage.

      The Cayman Islands enacted the Insurance (Portfolio Insurance Companies) Regulations 2015 and related sections of The Insurance (Amendment) Law 2013 on 16 January 2015 to enable new or existing insurers operating as SPCs to incorporate one or more of their segregated portfolios by establishing one or more PICs underneath the SPC. Each PIC, although separately incorporated, may then engage in its own insurance business without acquiring a separate licence.

      The rules are designed to offer Cayman SPCs more flexibility with respect to quota sharing, risk pooling and reinsurance. They may also improve the tax position of segregated portfolios under US federal law and enhance the market recognition of Cayman SPCs within the insurance and reinsurance sectors.

  • Cayman stands firm on beneficial ownership regime
    • 30 December 2014, the Cayman Islands government followed Bermuda in rejecting the UK’s request that its Crown Dependencies and Overseas Territories should create public access central registers of the beneficial owners of companies.

      Minister of Financial Services and Commerce, Wayne Panton, said that Cayman has been adhering to the global standard for more than a decade by providing this information to law enforcement, tax and regulatory authorities from data collected, verified and maintained by licensed and regulated corporate service providers.

      The Cayman government, in a report based in part upon the responses given during a recent public consultation, determined that no change was necessary to Cayman’s already effective beneficial ownership system. Some 80% of those who responded did not believe Cayman needs a central register with public access.

      In the report, the government noted that the Financial Action Task Force (FATF) Recommendations outlined three options for countries to comply with the global availability of information standard. The UK, it said, was now taking steps to adhere with the standard via one of these options, by consolidating information into a central register, but the Cayman’s CSP regime was another option that adhered to current global standards.

      Furthermore, Cayman’s CSP regime also complied with the core set of principles in the G20’s High-Level Principles on Beneficial Ownership Transparency, which was issued last November. As a result, the Cayman government stated: “Until such time as there is global agreement on appropriate exemptions and safeguards, and this becomes the internationally practiced standard, the Cayman Islands will continue to follow its CSP regime.”

      Jude Scott, chief executive of Cayman Finance, said: “The changes that were being insisted upon were unreasonable and went far beyond globally accepted practices which would only serve to create unfair and unnecessary disadvantage and damage for Cayman’s financial services industry.”

      The report also outlines steps that the government will take to further strengthen Cayman’s framework through enhanced accuracy, access, availability, and monitoring and enforcement of ownership information.

  • China announces new measures on FTZs and pilot reforms
    • 12 December 2014, China’s State Council announced its intention to reduce further the number of items on the “negative list” that applies to foreign-invested entities engaging in business in the China (Shanghai) Pilot Free Trade Zone (FTZ). The negative list sets out the industries and activities for which foreign investment is restricted or prohibited. In particular, more restrictions will be lifted in the service and high-end manufacturing sectors.

      The Shanghai FTZ is also being expanded to include the Lujiazui financial district, Jinqiao development zone and Zhangjiang hi-tech park, which are all in the Pudong district of Shanghai. Enterprises established in these areas will be able to take advantage of all the preferential polices implemented in the Shanghai FTZ. The expansion will allow Shanghai to give full play to the advantages of the Pudong New Area and to test foreign investment reform on a larger scale, said officials.

      The State Council is also to establish three new FTZs in Guangdong, Tianjin and Fujian, based on the existing special zones in these areas. The FTZs in Guangdong and Fujian will be aimed at promoting economic cooperation between Mainland China and Hong Kong, Macau and Taiwan while the new FTZ in Tianjin will focus on key industries, such as high-end manufacturing, financial services and logistics and transportation.

      The rules in the new FTZs are expected to be similar to those in the China (Shanghai) Pilot FTZ but may also contain some pilot aspects that reflect the features of the specific region. The State Council said it would further roll out nationwide 28 pilot measures on investment, trading, finance and the opening up of service sectors, as well as six pilot measures applicable to customs and inspections/quarantines in special customs areas.

      The new FTZs and the expansion of the Shanghai FTZ will be effective 1 March 2015.

  • Cyprus citizenship-by-investment scheme nets €2 billion
    • 26 May 2015, Interior Minister Socrates Hasikos said Cyprus had received over €2 billion from property sales and investments over the past two years from its Scheme for Naturalisation of non-Cypriot Investors by Exception, which allow third-country nationals to obtain citizenship in Cyprus by making specified investments.

      To qualify for citizenship, the primary applicant must make a €5 million investment in one or more of the following classes: government bonds; financial assets of Cypriot entities; real estate or other developments; companies residing and operating within Cyprus; deposits in a local bank. Under every criteria the applicant must purchase a private residence in Cyprus for at least €500,000.

      In April 2014, the government introduced changes that included the introduction of the Major Collective Investment (MCI) route, which reduced the minimum investment amount from €5 million to €2.5 million where several applicants jointly apply for citizenship. The total minimum investment is €12.5 million.

      Answering a question raised in the European Parliament recently, Vera Jourová, EU Commissioner for Justice, Consumers and Gender Equality, said: “The Commission has stressed that it expects Member States to use their prerogatives to award citizenship in a spirit of sincere cooperation with the other Member States and the EU … Investor citizenship schemes providing for the possibility to obtain naturalisation in return for investment alone do not meet the minimum requirement of a genuine link to the country. The Commission is analysing investor citizenship schemes in all Member States concerned. At this stage, it appears that there is only one Member State granting naturalisation in return for investment alone, namely Cyprus. The Commission is currently pursuing a dialogue with the Cypriot authorities on this issue.”

  • Dubai introduces Qualified Investor Funds
    • 21 August 2014, the DIFC Laws Amendment Law 2014, which makes a number of significant changes to the Dubai Financial Services Authority’s (DFSA) investment laws and regulatory regime, was brought into force.

      The Collective Investment Law 2010 is amended to allow the creation of a new category of fund –Qualified Investor Fund (QIF) – available only to professional investors willing to make an investment of at least $500,000, which is reduced from $1 million minimum initially proposed by the DFSA in a draft of the rules for public consultation earlier this year.
      An addition to the existing categories of funds available in the Dubai International Finance Centre (DIFC), the lighter regulation under QIF rules is specifically designed for higher net worth investors. QIFs are limited to 50 investors each and will be offered only through private placements. The new class of funds is expected to boost the DIFC’s growth as a fund domicile.

      The DIFC Laws Amendment Law also simplifies the structure and process for DFSA regulatory decisions and subsequent appeals. The DFSA will make all first instance decisions and must follow specified procedures designed to ensure its decisions are fair and reasonable. The Regulatory Appeals Committee (RAC), which used to hear appeals from DFSA decisions, will be abolished. Instead all appeals on DFSA rulings to be taken by Financial Markets Tribunal.

      The DFSA’s supervisory and enforcement powers have been further strengthened. A new provision prohibits misleading, deceptive, fraudulent or dishonest conduct related to financial products or services in the DIFC. The DFSA previously had the right to withdraw licences but has been given new powers to suspend a licence or registration for up to 12 months and to prohibit firms from using misleading names.

      The current framework for the supervisory oversight of auditors in the DIFC is also improved by introducing the registration of audit principals, strengthening the rules on auditor independence and making other changes to ensure consistency with international auditing standards.

      “They [the amendments] are considered desirable and appropriate for the maturity of the DIFC, given that it has now experienced a decade of operations. They also ensure that the regulatory regime continues to evolve to reflect best international practice,” said Ian Johnston, chief executive officer of the DFSA.

  • Dubai issues decree to form free zone council
    • 25 August 2015, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, in his capacity as Ruler of Dubai, issued Decree No 23 and 30 of 2015, setting up a new Free Zone Council (FZC) and naming its members.

      The purpose of the FZC is to promote the development of Dubai’s free zones by attracting investment and enhancing coordination and knowledge exchange. The council is also authorised to prepare a comprehensive strategy for Dubai’s free zones and to revise the legislation and regulations governing them.

      Shaikh Ahmad Bin Saeed Al Maktoum, president of Dubai Civil Aviation and chairman and chief executive of Emirates airline and Group will chair the FZC. Council members include: the Secretary General of the Dubai Free Zone Council, the Governor of the Dubai International Financial Centre (DIFC), the Chairman of the Ports, Customs, and Free Zone Corporation (PCFC), the Director General of the Dubai Creative Clusters Authority, the Director General of the Dubai World Trade Centre Authority (DWTCA), the CEO of the Dubai Aviation City Corporation and the Chairman of Meydan City Corporation.

      Dubai is home to a number of free zones, including the DIFC, the Dubai Multi Commodities Centre (DMCC) and the Dubai Airport Free Zone (DAFZA). Free zone incentives include exemptions from corporate tax and import and export duties.

  • Dutch Tax Court confirms ECJ decision on incompatibility of fiscal unity regime
    • 11 December 2014, the Second Instance Tax Court of Amsterdam confirmed the decision of the European Court of Justice (ECJ) in June that the fiscal unity regime in the Netherlands Corporate Income Tax Act is incompatible with the freedom of establishment principle in the EU Treaty. The case was referred back to the Amsterdam court to issue a final decision in the case.

      Under the fiscal unity regime, two or more companies can be treated as a single taxpayer if certain requirements are met. In three cases – all involving group structures and having the common feature that some companies in each group were established in another EU member state – the issue was whether denial of a fiscal unity would infringe EU law.

      In all cases, the fiscal unity requests were limited to the Dutch resident companies; the connecting EU companies and the non-resident parent companies were not included because they did not have a permanent establishment in the Netherlands. The Dutch tax authorities denied the requests.

      Following the ECJ’s 2008 decision in the Papillon case, which involved France’s tax consolidation regime, the European Commission initiated an infringement procedure against the Netherlands on the grounds that the Dutch law disallowing a fiscal unity between two sister companies – without consolidation of the joint parent company that is a resident of another EU member state – infringed EU law. At the same time, a taxpayer brought another similar case before the Dutch lower tax courts.

  • EU Member States frustrate tax investigation
    • 31 August 2015, EU economics commissioner Pierre Moscovici informed the European Parliament’s special tax committee (TAXE) that he was unable to provide 25 requested documents after almost half of Member States said they would not consent to their release for confidentiality reasons.

      The TAXE committee launched its investigation into tax rulings in February following last year’s leak of 28,000 confidential documents on around 500 private tax arrangements between the Luxembourg tax administration and more than 300 multinational corporations. MEP Alain Lamassoure, head of TAXE committee, requested the documents at the start of July.

      The TAXE committee issued a draft interim report, based on its investigation into the tax ruling practices of member states, on 20 July. It found that Member States had failed to notify the Commission of all plans for tax-related aid, and that an estimated €1 trillion of potential tax revenue was lost due to the combined effect of tax fraud, tax evasion and tax avoidance in the EU each year.

      The committee proposed that member states adopt legislation on automatic exchange of tax information before the end of this year, and said that an EU-wise common consolidated tax base would help tackle transfer pricing. Its final report is due in November.

  • EU releases corporate tax reform Action Plan
    • 17 June 2015, the European Commission issued an Action Plan to reform corporate taxation in the EU. The measures, which are designed to tackle tax avoidance, secure sustainable revenues and strengthen the single market for businesses.

      Key actions include a strategy to re-launch the Common Consolidated Corporate Tax Base (CCCTB) and a framework to ensure effective taxation where profits are generated. The Commission also published a first pan-European Union list of third-country non-cooperative tax jurisdictions and launched a public consultation to assess whether companies should have to publicly disclose certain tax information.

      Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Corporate taxation in the EU needs radical reform. In the interests of growth, competitiveness and fairness, Member States need to pull together and everyone must pay their fair share. The Commission has today laid the foundation for a new approach to corporate taxation in the EU. Member States must now build on it.”

      Negotiations have stalled on the Commission’s 2011 proposal for a CCCTB. Work is now to begin on the new proposal for a mandatory CCCTB using a step-by-step approach. “This will allow member states to progress more quickly on securing the common taxable base,” said the Commission. “Consolidation will be introduced as a second step, as this has been the most difficult element in negotiations so far. The Commission will present this new proposal as early as possible in 2016.”

      The Commission said: “The CCCTB can deliver on all fronts, significantly improving the Single Market for businesses, while also closing off opportunities for corporate tax avoidance. However, there is a general consensus that they need to be revived, given the major benefits that the CCCTB offers.”

      To ensure that companies pay a fair share of tax in the country where they make their profits, the Commission proposals include measures to close legislative loopholes, improve the transfer pricing system and implement stricter rules for preferential tax regimes.

      To ensure greater tax transparency – within the EU and vis-à-vis third countries – the Commission has published a pan-EU list of third countries and territories blacklisted by Member States. This can be used to screen non-cooperative tax jurisdictions and develop a common EU strategy to combat them.

      The Commission also launched a public consultation to gather feedback on whether companies should have to publicly disclose certain tax information, including through country-by-country reporting (CBCR). The consultation, together with the Commission’s ongoing impact assessment work, will help to shape any future policy decisions on this issue.

      The Action Plan represents a second, more comprehensive step towards reforming corporate taxation in the EU. As a first step, the Commission proposed a Tax Transparency Package in March to enhance co-operation between member states on corporate tax issues. A key element in the package was a proposal for the automatic exchange of information on tax rulings.

      OECD Secretary-General Angel Gurría said: “The Commission’s initiative is another major step towards international co-operation in the fight against tax evasion and avoidance … Initiatives like the Commission’s Action Plan will help foster a co-ordinated implementation of the measures developed in the course of the BEPS project. A globalised economy needs single global standards.”

  • EU signs off on enhanced parent-subsidiary directive
    • 27 January 2015, the Council of the European Union formally adopted a decision to add a binding anti-abuse clause to the EU Parent-Subsidiary Directive. An earlier amendment was adopted in July 2014 to tackle hybrid loan mismatch arrangements. Member states have until 31 December 2015 to transpose both changes into national law.

      Revision of the Parent-Subsidiary Directive was part of the Action Plan for a more effective EU response to tax evasion and avoidance, which was presented by the European Commission in December 2012. It said the Directive, which was originally designed to prevent the double taxation of same-group companies based in different member states, was being exploited by certain companies to achieve double non-taxation.

      The amendment to address loopholes related to hybrid loans involved the adoption of provisions to prevent corporate groups from using hybrid loan arrangements to achieve double non-taxation under the Directive.

      The new “de minimis” (minimum standards) anti-abuse clause will enable member states to implement stricter or more specific domestic provisions or double tax treaty anti-abuse provisions. A common anti-abuse rule will allow member states to ignore artificial arrangements used for tax avoidance purposes and ensure that taxation takes place on the basis of real economic substance.

      Pierre Moscovici, European Commissioner responsible for Economic and Financial Affairs, Taxation, and Customs, said: “With the Council’s adoption of the anti-abuse clause of the Parent Subsidiary Directive today, the European Union is living up to its pledge of tackling tax evasion and aggressive tax planning. Today, we are building on the existing EU legislative framework to ensure a level-playing field for honest businesses in the EU’s Single Market, and we are closing down loopholes that could be exploited for aggressive tax planning.”

  • EU targets transparency on corporate tax
    • 18 February 2015, the European Commission agreed a list of tax reform priorities to lay “the foundation for a fairer and more transparent approach to taxation in EU”, which is focused on the taxation of companies.

      At its first orientation debate on the issue, Commissioners agreed that the key objective should be to ensure that companies are taxed where economic activities are performed. They agreed that rules should be strengthened to ensure that companies couldn’t avoid paying their “fair share” through aggressive tax planning.

      Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation, and Customs, said: “It is time for a new era of openness between tax administrations, a new age of solidarity between governments to ensure fair taxation for all. The Commission is fully committed to securing the highest level of tax transparency in Europe.”

      There was strong consensus that particular attention had be paid to improving transparency in the area of corporate taxation, the EU executive body said in a statement. To this end, the Commission agreed to present a Tax Transparency Package in March, and announce, shortly after, a second package of measures to address corporate taxation, taking into account the OECD’s work on base erosion and profit shifting (BEPS).

      “A prosperous Europe needs fair, transparent, and predictable tax systems for businesses to invest and for consumers to regain confidence. As part of our work for a deeper and fairer internal market, we want to establish greater tax transparency and ensure fairer tax competition, within the EU and globally. It is not acceptable that tax authorities have to rely on leaks before they enforce tax rules,” said Valdis Dombrovskis, EU Commissioner for the Euro and Social Dialogue.

  • European Commission extends enquiry on tax rulings to all Member States
    • 17 December 2014, the European Commission broadened the enquiry into the tax ruling practice under EU state aid rules to cover all Member States. The Commission will ask Member States to provide information about their tax ruling practice, in particular to confirm whether they provide tax rulings and, if they do, to request a list of all companies that have received a tax ruling from 2010 to 2013.

      Commissioner in charge of competition policy, Margrethe Vestager, said, “We need a full picture of the tax rulings practices in the EU to identify if and where competition in the Single Market is being distorted through selective tax advantages. We will use the information received in today’s enquiry as well as the knowledge gained from our ongoing investigations to combat tax avoidance and fight for fair tax competition.”

      Since June 2013, the Commission has been investigating under state aid rules the tax ruling practice of seven Member States – Cyprus, Ireland, Luxembourg, Malta, the Netherlands, the UK and Belgium. It has also requested information about intellectual property taxation regimes, so-called “patent boxes”, from ten Member States – Belgium, Cyprus, France, Hungary, Luxembourg, Malta, the Netherlands, Portugal, Spain and the UK.

      In June 2014, the Commission opened formal investigations under state aid rules against Apple in Ireland, Starbucks in the Netherlands and Fiat Finance & Trade in Luxembourg. In October it opened another investigation regarding Amazon in Luxembourg. The investigations are examining whether Member States provide certain companies a selective advantage in the context of issuing a tax ruling.

  • European Commission extends probe into Gibraltar’s corporate tax regime
    • 2 October 2014, the European Commission announced that it is to extend the scope of its investigation into Gibraltar’s corporate tax regime to cover advance tax rulings. The Commission said it had assessed 165 tax rulings granted by the Gibraltar tax authorities to different companies in 2011, 2012 and up to August 2013, adding it had concerns that potentially all assessed rulings may contain state aid.

      The Commission announced in October 2013 it had opened an in-depth investigation into another aspect of Gibraltar’s corporate tax regime — an exemption for passive income such as royalties and interest from corporate tax – after Spain alleged that it granted a selective advantage to offshore companies.

      “Her Majesty’s Government of Gibraltar will continue to cooperate with the Commission going forward in order to demonstrate that the Income Tax Act 2010 does not breach any EU state aid rules. We have full confidence in all aspects of the operation of the act,” said a Gibraltar government spokesman.

  • European Commission presents new Tax Transparency Package
    • 18 March 2015, the European Commission presented a package of tax transparency measures as part of an ambitious agenda to tackle corporate tax avoidance and harmful tax competition in the EU. A key element of the package is a proposal to introduce the automatic exchange of information between member states on their tax rulings.

      At present EU member states share very little information with one another about their tax rulings. As a result, they are often unaware of cross-border tax rulings issued elsewhere in the EU that may impact their own tax bases. The Commission said certain companies were exploiting the lack of transparency on tax rulings to artificially reduce their tax contribution.

      To redress the situation, the Commission proposes that member states will now be required to exchange information on their tax rulings automatically. National tax authorities will have to send a short report to all other member states on all cross-border tax rulings that they have issued every three months. Member states will then be able to ask for more detailed information on a particular ruling and, if necessary, take action in response.

      Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes, and for the regimes that enable them to do this. We have to rebuild the link between where companies really make their profits and where they are taxed. To do this, Member States need to open up and work together. That is what today’s Tax Transparency Package aims to achieve.”

      Other elements of the Tax Transparency Package include:

      • The Commission is to examine the feasibility of new transparency requirements for companies, such as the public disclosure of certain tax information by multinationals;
      • The existing Code of Conduct on Business Taxation is to be reviewed to make it more effective in ensuring fair and transparent tax competition within the EU;
      • The Commission, along with Eurostat, is to work with member states to see how a reliable estimate of the level of tax evasion and avoidance can be reached in order to target policy measures against them;
      • The Commission is to repeal the existing Savings Tax Directive, which has been overtaken by more ambitious EU legislation requiring the widest scope of automatic information exchange on financial accounts, including savings related income.

      The two legislative proposals in the package will be submitted to the European Parliament for consultation and to the European Council for adoption. Member states are to agree on the Tax Rulings proposal by the end of 2015, so that it can enter into force on 1 January 2016.

      The next milestone will be an Action Plan on Corporate Taxation that will be presented before the summer. This second Action Plan will focus on measures to make corporate taxation fairer and more efficient within the single European market, including a re-launch of the Common Consolidated Corporate Tax Base (CCCTB) and ideas for integrating new OECD/G20 actions to combat base erosion and profit shifting (BEPS) at EU level.

  • European Parliament adopts Fourth Anti-Money Laundering Directive
    • 20 May 2015, the European Parliament voted to adopt the Fourth Anti-Money Laundering Directive and Regulation (AML IV), which implements the recommendations by the Financial Action Task Force (FATF) and, in some areas, expands on the FATF’s requirements and provides for additional safeguards.

      AML IV will for the first time oblige EU member states to keep central registers of information on the “ultimate beneficial owners” of corporate and other legal entities, as well as trusts. These central registers were not envisaged in the European Commission’s initial proposal, but were included by MEPs in negotiations.

      The text also sets out specific reporting obligations for banks, auditors, lawyers, real estate agents and casinos, among others, on suspicious transactions made by their clients.

      The central registers will be accessible to the authorities and their financial intelligence units (without any restriction), to “obliged entities” (such as banks doing their “customer due diligence” duties) and also to the public (although public access may be subject to online registration of the person requesting it and to a fee to cover administrative costs).

      To access a register, a person or organisation – for example investigative journalists or NGOs –will have to demonstrate a “legitimate interest” in suspected money laundering, terrorist financing and in “predicate” offences that may help to finance them, such as corruption, tax crimes and fraud.

      These persons could access information such as the beneficial owner’s name, month and year of birth, nationality, country of residence and details of ownership. Any exemption to the access provided by member states will be possible only “on a case-by-case basis, in exceptional circumstances”.

      The central register information on trusts will be accessible only to the authorities and “obliged entities”. AML IV clarifies the rules on “politically-exposed persons” – those people at a higher than usual risk of corruption due to their political position, such as heads of state, members of government, supreme court judges and members of parliament, as well as their family members. Where there are high-risk business relationships involving such persons, additional measures should be taken to establish the source of wealth and source of funds involved.

      This is the last stage of the Directive’s progress through EU institutions, it having been formally endorsed by the European Council in February. The approved text is likely to be gazetted in June or July. That will trigger the two-year countdown to the Directive’s transposition into the national law of each member state.

      MEPs also approved a “transfers of funds” regulation, which aims to improve the traceability of payers and payees and their assets. This regulation will be directly applicable in all member states 20 days after its publication in the EU Official Journal.

  • European succession regulation takes effect
    • 17 August 2015, the new European Union Regulation on Successions, designed to simplify cross-border inheritance, was brought into effect for the estates of persons who die on or after that date. It will apply to anyone with ties to the EU by reasons of nationality or habitual residence, or who owns assets in an EU member state.

      Adopted on 4 July 2012, the Regulation will ensure that a given succession is treated coherently, under a single law and by one single authority. In principle, the courts of the Member State in which citizens had their last habitual residence will have jurisdiction to deal with the succession and the law of this Member State will apply. However, citizens can choose that the law that should apply to their succession should be the law of their country of nationality.

      The application of a single law by a single authority to a cross-border succession avoids parallel proceedings with possibly conflicting judicial decisions. It also ensures that decisions given in a Member State are recognised throughout the EU without the need for any special procedure.

      The Regulation also introduces a European Certificate of Succession (ECS). This is a document issued by the authority dealing with the succession for use by heirs, legatees, executors of wills and administrators of the estate to prove their status and exercise their rights or powers in other Member States. Once issued, the ECS will be recognised in all Member States without any special procedure being required.

      The regulation contains an exception from the habitual residence rule if the deceased, at the time of death, was manifestly more closely connected with a state other than the state of the last habitual residence. In such cases, the law of that other state applies. This exception was introduced to prevent EU nationals moving to another jurisdiction immediately prior to their death specifically to defeat forced heirship rules in their native country.

      Věra Jourová, EU Commissioner for Justice, said: “Citizens preparing a will can now choose to have the law of the country of their nationality applied to their estate, even if they live in a different Member State and have assets located in different countries. This will give peace of mind and legal certainty to roughly 450,000 European families each year, who are involved in cross-border cases. The result will be faster and cheaper procedures, saving EU citizens time and money in legal fees.”

      Denmark, Ireland and the United Kingdom do not participate in the Regulation. As a result, succession procedures handled by the authorities of these three Member States will continue to be governed by national rules. Matters of inheritance tax law are excluded from the scope of the Regulation.

  • German Court orders amendments to inheritance tax exemptions for family-owned firms
    • 17 December 2014, the Federal Constitutional Court, Germany’s highest court, ruled that the applicable Inheritance and Gift Tax law was partially – the exemption regulations for business assets – unconstitutional.

      Family-owned companies account for 92% of German corporations, one of the highest levels in the world. The Mittelstand, the small to mid-size companies that make up the backbone of the German economy, generate more than half of the country’s economic output and employ 60% of its workforce. While most family companies are small, more than 170 have revenue of at least €1 billion.

      In 2012, German companies obtained nearly €40 billion in tax exemptions while tax authorities only collected €4.3 billion in inheritance tax revenue, the court said. An unidentified taxpayer who was taxed at 30% on a cash inheritance challenged the law. It was argued that it was unfair to be required to pay more than taxpayers who inherited a company.

      At issue were changes to tax rules in 2009 that enable people who inherit ownership of companies to avoid 85% of inheritance taxes if they maintain employment for five years, and to pay no taxes at all if they maintain employment for at least seven years. However firms with 20 employees or fewer — a category that includes 90% of Germany’s family-owned companies — are not required to preserve jobs to avoid the inheritance tax.

      The eight-judge panel found that while the 2009 rule served a legitimate goal in seeking to protect jobs and “productive wealth”, the legislation violated the constitutional principle of fair taxation because preferential treatment was extended to all companies, including large corporations, without case-by-case checks being performed as to whether an exemption was economically justified.

      The court gave legislators until the end of June 2016 to tighten the law. To claim an exemption, the court said that big companies should, in future, have to prove that their existence would be threatened if fully subjected to inheritance tax. The court further ruled that heirs to small companies with fewer than 20 staff should in future no longer be automatically exempted from inheritance tax, calling instead for the exemption to be awarded only to businesses with “few” staff.

      The ruling came after Germany’s highest tax court said it was too easy for business owners to convert private assets into non-taxable business assets. The Constitutional Court also requested that the law should be amended to prevent company owners using the tax exemption to transfer assets not directly related to the running of their businesses.

      Legislators have two options to respond to the ruling. First, they could abolish tax privileges and apply a lower, equal inheritance tax rate for all business and private assets. The second, most likely option, is to narrow the range of tax exemptions awarded to companies.

      The German Finance Ministry said the ruling affected only some individual aspects of the existing law but not the fundamental goal of helping family-owned companies to preserve jobs. “The government sticks to its maxim: no higher overall economic burden and awarding constitutional preference to business assets that get passed on to heirs,” the ministry said in a statement.

  • Gibraltar announces legislative and regulatory overhaul
    • 28 January 2015, the Gibraltar government and Financial Services Commission announced a complete overhaul of the legislative and regulatory framework for financial and professional services in Gibraltar. The aim is to streamline and rationalise over 80 different pieces of current legislation and multiple FSC guidance notes into one Act and a single accompanying regulatory handbook.

      “(We are) working to establish Gibraltar as the EU domicile of choice across the full spectrum of financial services,” the government said in a proposal document. “Critical to the achievement of this objective is efficient, robust and responsive regulation.”

      The project is an important part of the government’s strategy for the development of the Gibraltar financial and professional services market and is a key component of the FSC’s strategic programme published last October. The planned changes are set out in an 18-page document published on the FSC website.

      Albert Isola, Minister for Financial Services and Gaming, said: “We will be putting in place a simpler, highly navigable legal framework, which will, together with our investment in strengthening the FSC, result in a more efficient and responsive regulatory regime building on enhancing the key elements of our reputation, regulation and speed to market.”

  • Gibraltar launches stock exchange
    • 1 November 2014, Gibraltar opened its first stock exchange following authorisation by the Gibraltar Financial Services Commission. The Gibraltar Stock Exchange, to be known as GSX, will list open-ended funds. It is designed to give funds greater exposure to investors in the European Union, while the listing process will benefit investors by requiring the funds to become more transparent.

      The GSX is chaired by Marcus Killick who stepped down as chief executive of the Gibraltar Financial Services Commission in February. The full opening, when open-ended funds will be able to list on the exchange, is scheduled for the first quarter of 2015.

  • HMRC proposes to criminalise failure to declare offshore earnings
    • 19 August 2014, the UK tax authority (HMRC) announced proposals for tougher penalties for people believed to be hiding assets offshore and failing to pay tax on these earnings, including a new criminal offence of failing to declare taxable offshore income and gains.

      In a consultation, HMRC sets out plans for a “strict liability’ criminal offence for failing to declare taxable offshore income and gains. HMRC would need only to demonstrate that a person failed to declare the offshore income or gains correctly and not that they had the intention of defrauding the government.

      HMRC contends that the costs of being caught should be increased in order to reflect the difficulties in detecting non-compliance. If a custodial sentence is appropriate it has recommended a six-month sentence.

      However is said the majority of offshore cases would continue to be dealt with on a civil basis. A further consultation paper sets out HMRC’s plans to introduce tougher civil sanctions for offshore evaders, including those who move their taxable assets between offshore banks in different countries in an attempt to hide their wealth and evade tax.

      The consultation examines the situation where an individual moves assets from one offshore centre that has tightened its tax information exchange laws to another that has not. The 20-year rule limiting how far back HMRC can look at a taxpayer’s affairs could also be suspended.

      David Gauke, financial secretary to the Treasury, said: “There is nothing wrong with holding assets offshore but investors must pay the tax they owe here. Over 56,000 people have already told HMRC about what they owe offshore and HMRC has offered opportunities to clear things up as quickly and easily as possible. Those that don’t come forward must face tough consequences, including a criminal conviction.”

      In its consultations, HMRC said the scope of the new criminal offence and the tougher civil sanctions would initially be limited to income tax and capital gains tax liabilities, but indicated that it would consider extending the regimes to cover inheritance tax liabilities.

  • Hong Kong Budget proposals to boost financial centre
    • 25 February 2015, Hong Kong Financial Secretary John Tsang announced a number of proposals in the 2015/16 Budget to increase the competitiveness of Hong Kong’s financial centre.

      Measures were included to increase the competitiveness of Hong Kong’s asset management sector. A Bill will be presented to the Legislative Council that would extend the profits tax exemption for offshore funds to private equity funds, and the government plans to formulate legislative proposals on the legal framework for open-ended fund companies.

      Incentives aimed at attracting multinational and Mainland China enterprises to manage their global or regional treasury activities from Hong Kong are to be provided, including a relaxation of the tax deduction criteria for interest expense for corporate treasury centres and a 50% reduction in the profits tax for specified treasury activities.

      The tax deduction currently allowed for capital expenditure for the purchase of patents, know-how, copyrights, designs and trademarks would be expanded to include other types of intellectual property rights.

      A Bill will also be introduced in 2016 to establish an automatic exchange of information regime that would require financial institutions to report specified financial account information to the Inland Revenue Department, which would exchange the information with other tax jurisdictions beginning in 2018.

  • Hong Kong gazettes offshore private equity tax exemption
    • 20 March 2015, the Hong Kong government published in its Official Gazette the Inland Revenue (Amendment) Bill 2015, which seeks to amend the Inland Revenue Ordinance (Cap. 112) by extending profits tax exemption for offshore funds to non-resident private equity funds. The Bill was tabled in the Legislative Council on 25 March 25.

      Secretary for Financial Services and the Treasury, Professor K C Chan, said, “The Bill provides clear tax exemption for transactions conducted by offshore private equity funds in respect of eligible overseas portfolio companies. This will help attract more private equity fund managers to set up or expand their business in Hong Kong and hire local asset management, investment and advisory services, which will be conducive to the further development of our asset management industry. This will in turn drive demand for other relevant professional services, such as business consulting, tax, accounting and legal services.”

      The Bill will extend the Offshore Funds Exemption to include transactions in the securities of, or issued by, certain private companies incorporated outside Hong Kong – referred to as “excepted private companies” (EPCs). It will also extend the exemption to “special purpose vehicles” (SPVs) that are established to hold, directly or indirectly, one or more EPCs and will waive the requirement for transactions to be carried out through or arranged by “specified persons” for “qualifying funds”.

      The Hong Kong government said the asset and wealth management business was a fast-growing area within the financial services sector. At the end of 2013, the combined fund management business in Hong Kong had achieved a record high of $16,007 billion, representing year-on-year growth of 27% compared with 2012, placing Hong Kong among the top asset management hubs in Asia. The private equity industry in Hong Kong is also growing. Total capital under management in private equity funds in Hong Kong reached US$114.6 billion at end-2014, a year-on-year increase of 16% and accounting for 21% of Asia’s total capital under management in private equity.

  • Hong Kong signs tax treaties with South Africa
    • 16 October 2014, Hong Kong and South Africa signed a comprehensive double taxation agreement. It was the 31st treaty signed by Hong Kong. K C Chan, Secretary for Financial Services and the Treasury, said that it sets out the allocation of taxing rights between the two jurisdictions and will help investors better assess their potential tax liabilities from cross-border economic activities.

      Currently, the profits of Hong Kong companies doing business through a permanent establishment in South Africa may be taxed in both places if the income is Hong Kong-sourced. Under the treaty, double taxation will be avoided in that any South African tax paid by the companies will generally be allowed as a credit against the tax payable in Hong Kong in respect of the income.

      South Africa’s withholding tax on dividend income will be reduced from 15% to either 5% or 10%, depending on the percentage shareholding; royalties, currently 15% will be capped at 5%; interest will be capped at 10%. The treaty includes provisions in line with international standards on the exchange of information in tax matters.

  • India and Seychelles sign tax information exchange agreement
    • 26 August 2015, the Indian and Seychelles governments signed a tax information exchange agreement (TIEA) to facilitate the exchange of exchange of information between the two countries for tax purposes. The agreement will enter into force on the date of notification of completion of ratification procedures by both countries.

      The TIEA will enable the competent authorities of India and Seychelles to provide assistance through exchange of information that is foreseeably relevant to the administration and enforcement of the domestic laws of two countries concerning taxes.

      Information received under the agreement will be treated as confidential and may be disclosed only to persons or authorities (including courts or administrative bodies) concerned with assessment, collection, enforcement, prosecution or determination of appeals, in relation to taxes covered under the agreement. Information may be disclosed to any other person or entity or authority or jurisdiction with the prior written consent of the country sending the information.

      India has signed bilateral TIEAs with Argentina, the Bahamas, Bahrain, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Guernsey, the Isle of Man, Jersey, Liberia, Liechtenstein, Macao, Monaco and San Marino.

  • Ireland to close “Double Irish” corporate tax scheme
    • 14 October 2014, Irish finance minister Michael Noonan said the so-called “Double Irish” corporate tax structure, which has allowed US technology and pharmaceutical groups to avoid paying tax on billions of dollars of income over two decades, would be closed from the beginning of 2015. Companies using the existing structure have until 2020 to phase it out or make alternative arrangements.

      The “Double Irish” enabled multinational corporations to move most of their taxable revenue from an operating firm in Ireland to an Irish-registered firm in an offshore financial centre. The structure or variants have been used by companies including Facebook, LinkedIn, Microsoft and VMware, according to corporate filings. Google alone used the structure to send €8.8 billion (US$11.2 billion) in royalties in 2012 to a Bermuda-based company registered in Ireland.

      Ireland’s move was a pre-emptive step to counter growing international criticism and scrutiny, particularly from within the European Union. Noonan said that, in future, all companies registered in Ireland must be tax resident in Ireland.
      In his budget speech Noonan told parliament: “These measures will enhance Ireland’s corporate tax regime and align it with best practice internationally. It will ensure that Ireland continues to be the home of the best and most successful companies in the world.”

      However, Noonan robustly defended Ireland’s 12.5% corporation tax rate, which has been a cornerstone of the economy for many years. “The 12.5% tax rate never has been and never will be up for discussion,” he said. “The 12.5% tax rate is settled policy. It will not change.”

  • IRS opens FATCA data exchange service
    • 12 January 2015, the US Internal Revenue Service introduced an International Data Exchange Service that foreign financial institutions (FFIs) and their host country tax authorities will use to send information reports on financial accounts held by US persons under the Foreign Account Tax Compliance Act (FATCA) or under the terms of an intergovernmental agreement.

      FATCA requires foreign financial institutions (FFIs) to report on the holdings of US taxpayers to the IRS or withhold up to 30% in tax on their US source income. More than 145,000 FFIs have registered through the IRS FATCA Registration System. The US has more than 110 IGAs, either signed or agreed in substance, with other jurisdictions.

      “The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS commissioner John Koskinen in a statement. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”

      Where a jurisdiction has a reciprocal intergovernmental agreement and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country’s tax authority on accounts in US financial institutions held by the jurisdiction’s residents.

      Using IDES, a Web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level is intended to safeguard sensitive tax information.

  • Isle of Man appoints unified financial services regulator
    • 5 August 2015, the Financial Supervision Commission (FSC) and Insurance and Pensions Authority (IPA) announced Karen Badgerow’s appointment as chief executive of the Island’s newly formed unified financial services regulator, the Isle of Man Financial Services Authority (IOMFSA). The new authority is the result of the merger of the FSC and the IPA.

      The Transfer of Functions (Isle of Man Financial Services Authority) Order 2015, which was approved by Tynwald in March 2015, creates the new regulator with effect from 1 November 2015 and gave responsibility to the existing regulators, the FSC and IPA, to appoint a chief executive for the new body.

      Ms Badgerow will take up her position on 1 November 2015 when the new body comes into being. She is to move to the Isle of Man from Canada, where she has spent the last two years as Senior Vice President (Insurance and Risk Assessment) at the Canada Deposit Insurance Corporation (CDIC). Prior to her role at the CDIC she held senior leadership positions at the Office of the Superintendent of Financial Institutions, Canada’s unified financial services regulator.

      John Aspden, chief executive of the FSC since 1998, is to leave the commission at the end of his contract of employment this summer. David Vick, chief executive of the IPA since 2002, is to retire on 30 September.

  • Isle of Man introduces new ISPV Legislation
    • 5 March 2015, the Isle of Man Insurance and Pensions Authority issued the Insurance (Special Purpose Vehicles) Regulations 2015 under section 50(1) of the Insurance Act 2008 to create a regulatory framework for the purpose of giving effect to transactions commonly referred to as Insurance Linked Securities (ILSs). These include catastrophe bonds, mortality bonds, industry loss warranties, sidecars and other collateralised insurance and reinsurance structures.

      An Insurance Special Purpose Vehicle (ISPV) must only have (re)insureds and investors (together its “participants”) that are suitably sophisticated for this specialist form of business. In addition, an ISPV must be fully funded by way of contractual arrangements with its participants such that the ISPV’s liability to its participants is limited to its available assets. An ISPV must also be administered by an insurance manager registered under Part 6 of the Insurance Act 2008.

      The resulting reduced risk to vulnerable stakeholders and reduced risk of insolvency is reflected in the simplified regulatory requirements and lower fees applicable to an ISPV. The ISPV application process is designed to facilitate fast licensing, with a target of five days or less from a fully completed application.

      John Garland, head of Corporate Financial Services with the Isle of Man Department of Economic Development, said: “This new framework promises to open up new business streams for the Isle of Man and provide welcome competition in this area, particularly given our close proximity to London. We can offer speed to market … a highly competitive fee structure – that may be fixed for the lifetime of any ISPV with a determinable lifespan, along with simplified regulatory requirements, including returns.”

  • Isle of Man progresses regulation for digital currencies
    • 17 March 2015, Tynwald approved amendments to the Proceeds of Crime Act in order to bring digital currency under the control of the Act such that digital currency businesses will have the same anti-money laundering (AML) responsibilities as lawyers, accountants and real estate agents.

      The scope of activities covered is broad. From 1 April 2015, anyone on the Isle of Man engaged in the “business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies” must comply with the island’s AML framework.

      In addition, digital currency businesses will soon be subject to registration and oversight by the Isle of Man Financial Services Commission (FSC) when the Designated Businesses (Registration and Oversight) Bill, which completed its passage through Tynwald on 24 March, receives Royal Assent.

      Peter Greenhill, director of e-Business Development and CEO of e-Gaming at the Department of Economic Development, said: “This sector offers great potential and it is important the Isle of Man creates friendly, but firm, controls in order to nurture growth and maintain our reputation as a leading area for digital currency start-ups. We want to be at the centre of development in this area and we hope this innovative legislation will attract more digital FinTech business, entrepreneurs and developers.”

  • Italian Supreme Court overturns Dolce and Gabbana tax convictions
    • 24 October 2014, Italy’s Supreme Court overturned tax evasion convictions and 18-month jail terms against fashion designers Domenico Dolce and Stefano Gabbana, who were accused of having transferred control of their brands to a shell company in Luxembourg in 2004 and 2005 to avoid paying Italian taxes.

      Prosecutors argued that setting up the Luxembourg company Gado – an acronym of the designers’ surnames – while the operation was being managed and controlled of Italy was a bid to defraud the state. Dolce and Gabbana were initially accused of tax evasion of around €1 billion.

      In June 2013, they were found guilty of evading taxes totalling €200 million and given 20-month jail sentences, which they appealed. In April this year an Italian appeals court upheld the guilty verdict. However, the Supreme Court has now annulled the convictions and ended the case, declaring that the prosecution case was “unfounded”. “We have always been honest and we are extremely proud of this recognition by the Italian court of justice. Viva l’Italia,” the two designers said in a statement.

  • Italian tax authorities revise “blacklists”
    • 1 April 2015, Minister of Economy and Finance Pier Carlo Padoan signed two ministerial decrees, altering the blacklists on the “non-deductibility of costs” and “controlled foreign companies (CFC)”, already implemented by articles 110 and 167 of the Consolidated Text of the Laws on Income Tax.

      The decrees provide for early implementation of the provisions contained in the 2015 Stability Law, which modified the criteria for drawing up such lists with the aim of promoting the cross-border economic and commercial activity of Italian businesses.

      The Stability Law (Art. 1, subsection 678) provides that the only relevant blacklist criterion on the “non-deductibility of costs” relative to transactions carried out with foreign jurisdictions was the lack of adequate information exchange with Italy. The criterion relative to adequate level of taxation was removed.

      Based on the new criterion, the decree modified the blacklist relating to “non-deductibility of costs”, which now contains 46 countries and jurisdictions rather than 67. As a result, 21 countries and jurisdictions that currently have bilateral tax information exchange agreements (TIEAs) with Italy or that have signed the multilateral OECD/Council of Europe Mutual Assistance in Tax Matters Convention have been removed from the blacklist.

      These are: Alderney (Channel Islands), Anguilla, former Dutch Antilles, Aruba, Belize, Bermuda, Costa Rica, United Arab Emirates, Philippines, Gibraltar, Guernsey (Channel Islands), Isle of Man, Cayman Islands, Turks and Caicos Islands, the British Virgin Islands, Jersey (Channel Islands), Malaysia, Mauritius, Montserrat and Singapore.

  • Italy ratifies Switzerland, Monaco, Liechtenstein TIEAs
    • 7 August 2015, the Italian Cabinet approved legislation to ratify tax agreements signed with Switzerland, Liechtenstein and Monaco, to provide for the exchange of information in line with international standards.

      The protocol to the existing double tax treaty between Italy and Switzerland was signed on 23 February 2015. The Cabinet noted that, when the protocol enters into force following ratification by both sides, its exchange of information provisions would apply retrospectively from that date.

      It also noted that the protocol “widens the boundary of tax information exchange to involve all types of taxation, and foresees an end to banking secrecy. In addition, the two sides have agreed administrative procedures that will guarantee effective and simplified exchange of information.”

      The tax information exchange agreements (TIEAs) with Monaco and Liechtenstein provide for automatic exchange on request, while their accompanying protocols allow group requests providing there is evidence that tax compliance is at risk. They will apply retrospectively from the date of signature on 26 February 2015.

      These countries will now be removed from Italy’s “black list” of non-cooperative jurisdictions because adequate information exchange arrangements are now deemed to be in place. Accordingly Italian taxpayers with undeclared assets will be permitted to enter into Italy’s current voluntary disclosure programme, which allows them to regularise undeclared capital held abroad and access penalty concessions. Participants must file an application by 30 September 2015.

      The double tax treaty signed with Hong Kong in January, which incorporates tax information exchange provisions based on the OECD’s latest international standard, came into force on 10 August.

      Under the treaty, tax paid in Hong Kong may be credited against tax payable in Italy. Previously the profits of Hong Kong companies doing business through a permanent establishment in Italy could be taxed in both places. Hong Kong residents who receive interest and dividends from Italy have been subject to Italy’s 26% withholding tax. Under the treaty, withholding tax on interest and dividends will be capped at 12.5% and 10%, respectively.

      Hong Kong’s Secretary for Financial Services and the Treasury, K C Chan, said: “We believe the entry into force of the CDTA will help address any concerns on the part of the Italian authorities about Hong Kong’s commitment to enhancing tax transparency and combating cross-border tax evasion.”

  • Jersey Royal Court considers ethics of “aggressive” tax avoidance
    • 31 July 2015, the Jersey Royal Court may take into account the ethics of “aggressive” tax avoidance in its future rulings regarding trusts said Bailiff William Bailhache in his reasons for making of an order for rectification of a trust.

      In the case of IFM Corporate Trustees (2015 JRC 160), the trust was an employee benefit scheme in which the UK employer made discretionary loans to employees, then settled its right to repayment into the Jersey trust, together with cash contributions to the trust fund. The beneficiary class set out by the trust instrument included any specified employee and specified classes of relatives, but accidentally omitted certain other relatives and their spouses. Accordingly some of these persons, with the agreement of the other parties, applied to the Jersey courts for the terms to be rectified.

      The Court was satisfied that there was a genuine mistake and that there is no practical remedy other than rectification. In respect of full and frank disclosure, however, there was little mention of the UK tax position and the Court was initially concerned that the scheme might have fallen into the category of aggressive tax avoidance. Had that been so, it might have been the sort of scheme where in the exercise of its discretion, the Court should consider whether such a fact, if true, should lead to the refusal to exercise discretion in favour of the applicant.

      “Historically,” said Bailhache, “the courts have always applied the principles of law rather than what are perhaps inchoate and uncertain ethical considerations in this area. What seems to us perhaps to be open to argument is whether, in an area which involves the exercise of a judicial discretion in cases where the court’s assistance is being sought for a mistake which has been made, there is room for the argument that the discretion ought not to be exercised if on the facts of a particular case, the scheme in question is lawful but appears to be so contrived and artificial that it leaves the Court with distaste if, in effect, it is required to endorse it.”

      However it turned out in argument that these considerations did not apply. Although the employee benefit trust used in the IFM case was indeed a notifiable scheme under the UK’s Disclosure of Tax Avoidance Schemes (DOTAS) rules, the Court accepted that it did not constitute unacceptable tax avoidance. It therefore agreed to vary the trust documents.

  • Luxembourg court charges French reporter over “LuxLeaks” role
    • 23 April 2015, French journalist Edouard Perrin was charged in a Luxembourg court for his role as a “co-author, if not an accomplice, in the infractions committed by a former employee of PricewaterhouseCoopers” in respect of the theft and leaking of confidential documents from the accountancy firm that led to the so-called “LuxLeaks” scandal involving tax deals for large corporations in the Grand Duchy.

      The case is the latest in the probe triggered by a complaint from PwC in 2012 after it noticed the theft of documents revealing hundreds of confidential tax pacts between Luxembourg’s tax authorities and multinational companies.

      Perrin was the third person charged in the case. Antoine Deltour, a former auditor at PwC in Luxembourg and an unidentified French former PwC employee were charged in December and January respectively with on five counts of “domestic theft, violation of professional secrecy, violation of business secrets, laundering and fraudulent access to a system of automatic data treatment.”

      In 2012 Perrin used documents obtained from Deltour in a French television documentary on tax avoidance in Luxembourg, but the charges relate to a separate theft of 16 corporate tax returns that PwC which were also transmitted to the press in 2012 by a PwC employee.

      In November and December last year the International Consortium of Investigative Journalists revealed more than 28,000 pages of leaked documents that showed how international corporations, including Apple, IKEA and Pepsi, effectively lowered their tax bills in Luxembourg through advance tax rulings. The revelations have triggered multiple inquiries in the European Union.

  • Mauritius signs Multilateral Convention
    • 24 June 2015, Mauritius signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Developed jointly by the OECD and Council of Europe, the convention provides a comprehensive multilateral framework for exchange of information and assistance in tax collection.

      Last October, Mauritius committed to implement automatic exchange of information and to begin sharing financial account information automatically by 2017 and 2018. It has now signed the legal instrument that, once ratified, will serve as the basis for the implementation of the multilateral competent authority agreement.

      The Convention provides a legal basis for Mauritius to undertake tax information exchange and administrative assistance between tax authorities, including automatic exchange, simultaneous tax examination and assistance in tax debt collection.

  • Netherlands revises treaties to reflect BEPS
    • 22 June 2015, the government of the Netherlands announced that it has renegotiated tax treaties with Ethiopia, Ghana, Kenya, and Zambia to add anti-abuse provisions to the treaties. It said that it hopes to revise tax treaties with a further 23 developing nations.

      The government said renegotiation of its treaties with developing countries was part of supporting the work of the OECD on base erosion and profit shifting (BEPS). Talks are currently underway with a further seven developing countries and it is hoped that “several” will agree to a renegotiated tax treaty containing an anti-abuse clause before year-end.

      “We’re now starting to see real progress. It’s only fair that a company should pay a realistic amount of tax in the country where its operations actually take place,” said Dutch Minister for Foreign Trade and Development Cooperation Lilianne Ploumen.

      In April, the Netherlands signed a revised tax treaty with Malawi that “contains anti-abuse provisions to prevent the benefits of the treaty being used solely to avoid paying tax”. The government said the anti-abuse provisions in the renegotiated treaty related to taxes on dividends, interest and royalties.

  • Obama proposes tax on overseas profits of US firms
    • 2 February 2015, US President Barack Obama proposed a one-off 14% tax on the profits of US corporations held overseas, as well as a 19% tax on future overseas profits as they are earned. The move, part of the 2016 budget proposals, is linked to boosting infrastructure spending.

      No tax is currently imposed on the foreign profits of US corporations provided that they are not brought into the US. Research firm Audit Analytics calculated last April that US corporations were holding $2.1 trillion of profits abroad. General Electric reported US$110 billion in undistributed overseas earnings in 2013, while the figure for Apple Inc. was US$54.4 billion.

      The Obama administration said its plans for an immediate 14% tax would raise $238 billion, which would be used to fund a wider $478 billion public works programme of road, bridge and public transport upgrades.

      “This transition tax would mean that companies have to pay US tax right now on the $2 trillion they already have overseas, rather than being able to delay paying any US tax indefinitely,” said a White House official, while the 19% permanent tax on overseas profits “would level the playing field, and encourage firms to create jobs here at home.” Companies would be permitted to reinvest funds in the US without paying additional tax.

  • OECD issues new compliance ratings on transparency
    • 3 August 2015, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes published new peer review reports for 12 countries or jurisdictions. The British Virgin Islands and Austria were both reassessed as “Largely Compliant” following supplementary reviews of their exchange of information practices.

      Jurisdictions may request supplementary reviews to assess their responses to the recommendations of the Global Forum identified in previous reviews. A supplementary report on the BVI, which assessed progress made since its Phase 2 report in July 2013, concluded that based on significant improvements having been made, its overall rating be upgraded from “Non-Compliant” to “Largely Compliant”. Austria, which was rated “Partially Compliant” in July 2013, has since implemented a number of recommendations leading to an upgrade of its overall rating to “Largely Compliant” in its supplementary report.

      Phase 1 reports on Albania, Burkina Faso, Cameroon, Dominican Republic, Lesotho, Pakistan and Uganda assessed their legal and regulatory frameworks for transparency and exchange of information on request. These countries were cleared to move to the next stage of the review process, which will assess exchange of information practices.

      The Global Forum also reviewed exchange of information practices through Phase 2 peer review reports in Lithuania and Sint Maarten. Lithuania received an overall rating of “Compliant” and Sint Maarten an overall rating of “Partially Compliant”.

      A supplementary report on the Marshall Islands, which had been blocked from moving to Phase 2 due to significant gaps in its legal framework, was also published. It concluded that key changes to its legislation now enabled the Marshall Islands to move to Phase 2.

      The Global Forum has now completed 198 peer reviews and assigned compliance ratings to 80 jurisdictions that have undergone Phase 2 reviews. Of these, 21 jurisdictions are rated “Compliant”, 46 are rated “Largely Compliant”, 10 are rated “Partially Compliant” and three jurisdictions are “Non-Compliant”. A further 11 jurisdictions are blocked from moving to a Phase 2 review due to insufficiencies in their legal and regulatory framework.

      To encourage smooth implementation of the OECD’s standard on Automatic Exchange of Information, the Global Forum has launched a multilateral process to evaluate confidentiality and data safeguards frameworks in more than 90 jurisdictions that have committed to begin automatic information exchange by 2017 or 2018.

  • OECD progresses move to new global standard for automatic exchange
    • 26 September 2014, the government of the Philippines signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Philippines formally expressed interest in becoming a party to the Convention in October 2013. To enter into force, it must now be ratified internally.

      The Convention, developed jointly by the he OECD and the Council of Europe, provides an instrument for jurisdictions to implement automatic exchange of tax information with multiple partners. Open to all countries, it enables tax authorities to request information from other signatories’ revenue agencies and to seek assistance in the collection of outstanding tax debts.
      The Philippines Internal Revenue Commissioner Kim Jacinto Henares said: “We highly look forward to becoming a party to the Convention. As the Philippines continues to grow, the government continues to look for ways to increase revenues to support this growth and ensure that critical investments in infrastructure and social services for our people are amply funded.”
      The Department of Finance said signing the agreement would give the Philippines “an efficient and expeditious way of increasing its tax treaty network from 28 to 59 treaty partners, saving time, financial and human resources spent on negotiating and updating bilateral tax treaties, which usually take five to ten years to complete.”

      The OECD also called the signature of the Convention by the Philippines “quite timely as it will facilitate its implementation of the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters, published last July.” The Standard calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.

  • Perfume heiress jailed in France for HSBC tax fraud
    • 13 April 2015, Arlette Ricci, the 73-year-old heiress of the Nina Ricci perfume and fashion business, was sentenced to a year in prison and a €1 million fine after being convicted of tax fraud by a Paris court in respect of undisclosed accounts in Switzerland.

      Ms Ricci was the first of around 50 French nationals to face trial for tax evasion in the so-called “Swissleaks” scandal. Herve Falciani, a former employee at HSBC’s private bank in Geneva, collected data on thousands of HSBC Suisse clients on a CD, which he took to France in 2009.

      Details of Ricci’s accounts, which contained a total of €20 million, were on the CD, although some of the accounts were owned through offshore nominees, mostly in Panama. Once she had been identified as the owner, the French authorities tapped her phone and recorded various conversations that, it claimed, showed she knew she was breaking the law.

      Ms Ricci was sentenced to a total of three years’ imprisonment, two of them suspended. In addition to the €1 million fine, the court confiscated two properties worth €4 million and ordered that she pay back taxes for the 2007-2009 period. The exact amount will be fixed at a later hearing.

      Ricci’s 51-year-old daughter Margot Vignat was also convicted and given an eight-month suspended sentence.

  • Portugal to resume “Golden Visas” programme shortly
    • 16 July 2015, Portugal passed a decree to amend the Residence Permits for Investment Activity (ARI) programme, commonly known as the “golden visa” programme, which issues residence permits to foreign investors. The programme will resume once the decree receives presidential assent and is gazetted.

      Golden visas are valid for five years and provide access to the 26-country Schengen zone. Holders can also apply for family reunification visas and, after five years, can apply for a permanent residence permit. After a further 12 months, holders can apply for Portuguese citizenship.

      Under the terms of the original programme, foreign applicants were required to either buy property in Portugal worth at least €500,000, or make a capital investment of €1 million or create 30 jobs. Under the new decree, the initial minimum investment of €500,000 has been reduced to €350,000 for investment in properties located in districts designated for urban renewal or which are older than 30 years.

      New qualifying investment categories have also been introduced, including: scientific or technological research activities (minimum €350,000 investment); artistic production or natural heritage (minimum €250,000 investment); or funds invested in the capitalisation of small or medium sized businesses (minimum €500,000 investment). Children over 18-years-old are no longer required to be studying in Portugal in order to qualify for family reunification.

      The scheme was suspended following the passage of a new immigration law on 1 July, which repealed, but did not replace, some of the visa’s provisions. The move followed an investigation into corruption linked to the granting of visas. The Portuguese authorities arrested 11 people, including former SEF director Jarmela Palos. Portugal’s interior minister Miguel Macedo also stepped down but denied any wrongdoing.

      As a result, the eligibility criteria have been modified. Applicants are now requested to submit a copy of their criminal record, as well as proof that they are in full compliance in respect of taxation in their home country. Applicants must also now prove they will create 30 new jobs in Portugal, instead of the previous 10.

      Figures from the Serviço de Estrangeiros e Fronteiras (SEF) show there were 1,526 successful golden visa applicants in 2014, but only 398 successful applicants in the first six months of 2015. Of the 2,420 visas granted since 2012, 95% were guaranteed by property purchase and 5% by a transfer of capital. Only three visas were granted in exchange for job creation. Chinese nationals have received 1,947 (80%) of all visas issued to date. Brazilians received 87 visas and Russians 79 visas.

  • Portugal to tighten Golden Visa controls
    • 23 February 2015, Portugal’s Vice Premier Paulo Portas said the government would tighten controls over residence permits issued to non-European property investors. The new rules will include audits by a unit of the Ministry of Internal Administration and the involvement of more officials in the decision-making process

      The move followed an investigation into allegations of corruption and money laundering linked to the “golden visa” programme, which led to several arrests and the resignation of Internal Administration Minister Miguel Macedo last November.

      “The aim is to improve this programme,” Portas told a press conference. “There are 13 other EU countries with similar investor programmes and it doesn’t seem wise to me to give up this programme to the benefit of others.”

      The “golden visa” programme enables non-EU citizens who invest at least €500,000 in Portuguese real estate to obtain a temporary residency permit that allows them to travel freely within Europe. Chinese investors have been the biggest participants in the programme, which attracted €1.27 billion of investment over the past two years.

      Portas said the government also planned to issue resident permits to individuals who invest €350,000 or more in scientific research or the arts in Portugal. Property buyers who spend at least €500,000 in property renovation or investors in less populated regions of the country may also be eligible. These proposals would need parliamentary approval.

  • Portugal to tighten Golden Visa controls
    • 23 February 2015, Portugal’s Vice Premier Paulo Portas said the government would tighten controls over residence permits issued to non-European property investors. The new rules will include audits by a unit of the Ministry of Internal Administration and the involvement of more officials in the decision-making process

      The move followed an investigation into allegations of corruption and money laundering linked to the “Golden Visa” programme, which led to several arrests and the resignation of Internal Administration Minister Miguel Macedo last November.

      “The aim is to improve this programme,” Portas told a press conference. “There are 13 other EU countries with similar investor programmes and it doesn’t seem wise to me to give up this programme to the benefit of others.”

      The “Golden Visa” programme enables non-EU citizens who invest at least €500,000 in Portuguese real estate to obtain a temporary residency permit that allows them to travel freely within Europe. Chinese investors have been the biggest participants in the programme, which attracted €1.27 billion of investment over the past two years.

      Portas said the government also planned to issue resident permits to individuals who invest €350,000 or more in scientific research or the arts in Portugal. Property buyers who spend at least €500,000 in property renovation or investors in less populated regions of the country may also be eligible. These proposals would need parliamentary approval.

  • Revised China-Netherlands tax treaty comes into force
    • 31 August 2014, the revised 2013 China-Netherlands tax treaty, which is to replace the 1987 treaty, entered into force. It will apply as from 1 January 2015.

      The new treaty provides for a 5% withholding tax on dividends paid to a company (other than a partnership) that holds directly at least 25% of the capital of the distributing company; otherwise, the rate will be 10%. As such, the Netherlands enjoys one of the lowest rates approved by China in its tax treaties.

      The rate of withholding tax on interest will be 10%. Royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment will be subject to a 10% withholding tax on 60% of the gross amount; otherwise, the rate will be 10%.

      Under the new tax treaty, the capital gains of a Dutch entity from the disposal of Chinese shares are no longer taxable in China, unless: the shares derive more than 50% of their value directly or indirectly from immovable property situated in China; or, the recipient of the gains, at any time during the 12-month period preceding the share disposal, holds a participation, directly or indirectly, of at least 25% in the capital of the Chinese resident company.

      The new treaty contain a limitation of benefits clause, which denies the benefits of the treaty with respect to withholding taxes on dividends, royalties and interest, if the main purpose of the creation or assignment of the rights is to take advantage of the treaty.

      The new tax treaty provides for a mutual agreement procedure between the parties, which can be initiated at the request of any taxpayer who believes that the actions of one or both the contracting states results, or will result, in taxation not in accordance with the treaty.

  • Russia extends deadline for filing “Notifications”
    • 1 April 2015, Russia’s Federation Council approved a draft law extending the deadline for Russian taxpayers to file notifications on owning shares in foreign companies and on the establishment of foreign structures until 15 June 2015.

      The Tax Code was amended at the start of the year to require all Russian taxpayers to file notifications before 1 April 2015. Russian taxpayers must also disclose controlled foreign companies, and must pay taxes on their undistributed profits.

      The notifications relate to the draft federal law on the Voluntary Declaration of Property and Bank Accounts (Deposits) by Individuals, which was approved at a meeting of the Russian government on 23 March and submitted to the State Duma on 27 March.

      The extension of the deadline for filing the Notifications gives extra time to taxpayers to finalise the restructuring of foreign assets. If participation in a foreign company is suspended before 15 June 2015, the filing of a notification is not required.

  • Seychelles signs multilateral tax cooperation treaty
    • 24 February 2015, the Seychelles became the 85th signatory of the Organisation for Economic Co-operation and Development’s (OECD’s) Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

      The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange of information, tax examinations abroad, simultaneous tax examinations and assistance in tax collection, while simultaneously protecting taxpayers’ rights. It will therefore allow the Seychelles’ Revenue to request information from other tax authorities and seek assistance in collecting outstanding tax debts on a reciprocal basis.

      Developed jointly by the OECD and the Council of Europe in 1988, the Convention was amended in 2010 after the G20 called for it to be aligned to the international standard on exchange of information and opened to all countries, in particular so that developing countries could benefit from the new more transparent environment.

      The Convention continues to be a key item on the tax transparency agenda of the G20, which has invited the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes to report on progress made by its members in signing.

  • Seychelles signs multilateral tax cooperation treaty
    • 24 February 2015, the Seychelles became the 85th signatory of the Organisation for Economic Co-operation and Development’s (OECD’s) Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

      The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange of information, tax examinations abroad, simultaneous tax examinations and assistance in tax collection, while simultaneously protecting taxpayers’ rights. It will therefore allow the Seychelles’ Revenue to request information from other tax authorities and seek assistance in collecting outstanding tax debts on a reciprocal basis.

      Developed jointly by the OECD and the Council of Europe in 1988, the Convention was amended in 2010 after the G20 called for it to be aligned to the international standard on exchange of information and opened to all countries, in particular so that developing countries could benefit from the new more transparent environment.

      The Convention continues to be a key item on the tax transparency agenda of the G20, which has invited the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes to report on progress made by its members in signing.

  • Singapore proposes tougher anti-money laundering rules
    • 15 July 2014, the Monetary Authority of Singapore (MAS) released a consultation paper on proposed amendments to its notices to financial institutions (FIs) on anti-money laundering and countering the financing of terrorism (AML/CFT). Singapore is to undergo another evaluation by the Financial Action Task Force (FATF) in 2015.

      The scope of the amendments will be comprehensive across the financial sector, covering banks, merchant banks, finance companies, money-changers and remittance licence holders, life insurers, capital markets intermediaries, financial advisers, approved trustees, trust companies, stored value facility holders, and non-bank credit and charge card licensees.

      The key proposed amendments will:

      • Require FIs to perform an ML/TF risk assessment at the wider institutional level, in addition to assessing the ML/TF risk of individual customers;

      • Elaborate on steps to be taken by FIs to identify and verify beneficial ownership of non-individual customers, such as companies and trusts;

      • Formalise the need for FIs to screen customers and their connected parties;

      • Cater for a risk-based approach for certain categories of Politically Exposed Persons; and

      • Put in place additional requirements for cross-border wire transfers exceeding S$1,500, such as customer due diligence on occasional transactions and minimum information fields in the message or payment instructions.

  • South Africa proposes amendment for international information exchange
    • 22 July 2015, the National Treasury published the 2015 draft Tax Administration Laws Amendment Bill for public comment. Section 32 of the draft bill proposes the insertion of a definition of “international tax standard” in Section 1 of the Tax Administration Act (28/2011), to mean “an international standard as specified by the Commissioner by public notice for the exchange of tax-related information between countries”.

      The National Treasury said this definition was inserted to implement a scheme under which the South African Revenue Service (SARS) may require South African financial institutions to collect information under an international tax standard, such as the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters.

      Under the proposed amendment, all reporting financial institutions will be obliged to obtain the information and provide it to SARS. In addition, financial institutions will have to comply with the relevant data protection laws. Public comments on the proposed amendments closed on 24 August 2015.

  • South Africa’s Constitutional Court upholds exit charge
    • 18 June 2015, South Africa’s Constitutional Court overturned a Supreme Court of Appeal (SCA) judgment and upheld the constitutionality of the 10% exit charge imposed on all citizens that transfer more than ZAR750,000 ($60,000 approx.) out of the country.

      Software entrepreneur Mark Shuttleworth left South Africa and immigrated to the Isle of Man in 2001. The bulk of his wealth remained in a block loan account in South Africa. In 2003, the Minister of Finance introduced a 10% exit charge on capital exceeding ZAR750,000 as a condition to the export of that capital.

      Shuttleworth applied to the South African Reserve Bank for permission to transfer capital of about R2.5 billion out of South Africa in 2009. His request was granted on the condition that he paid a 10% exit charge – about ZAR250 million (US$204 million) – on the transfer. Shuttleworth challenged the imposition of this charge in the North Gauteng High Court in Pretoria.

      Shuttleworth claimed that the exit charge, as well as various legislative and regulatory provisions underpinning the exchange control system, was constitutionally invalid. He argued that the National Assembly had not followed certain procedures specified in South Africa’s constitution for enacting a Money Bill. Instead, the exchange control regime had merely been announced by way of a ministerial statement.

      In October 2014, the South African Supreme Court (SARC) found in his favour and rescinded the charge. It held that the exit charge was unlawful because it was brought into force via a 2003 circular that was announced in a budget vote in Parliament. The law had not been passed in line with the Constitution’s requirements for passing a “Money Bill”.

      The SARC also held that the exit levy was a tax because it was paid into the National Revenue Fund. The Court noted: “The manner and extent to which national taxes are raised and appropriated must yield to the democratic will as expressed in law.” It ordered the Reserve Bank to repay Shuttleworth the ZAR250 million, plus interest.

      The Ministry of Finance then appealed to South Africa’s Constitutional Court. It claimed that the levy imposed on Shuttleworth was a regulatory mechanism imposed to deter capital flight rather than a tax. The appeal was heard in March.

      The Constitutional Court overruled the SARC and reinstated the exit tax. In a majority judgment, Deputy Chief Justice of South Africa Dikgang Moseneke said the “decisive question” was whether or not the exit charge was a tax or a regulatory charge.

      The Court said that exchange control legislation had its roots in the Great Depression of 1929, and later, in the wake of the economic crisis following the Sharpeville shootings in 1960, and was designed to stave off capital flight. It agreed with the “uncontested” evidence of the National Treasury that the exit charge was a regulatory, and not a revenue raising, mechanism.

      “The exit charge was not inconsistent with the Constitution. The dominant purpose of the exit charge was not to raise revenue but rather to regulate conduct by discouraging the export of capital to protect the domestic economy,” Moseneke found.

      Shuttleworth had not demonstrated that the regulations infringed on his constitutional right and had not shown that he was acting in the public interest. But Moseneke said it could be that some of the regulations were “truly archaic” and at odds with the tenets of the Constitution. “The state parties are nudged to take appropriate steps to review the provisions in issue,” he said.

      Justice Johan Froneman, in a dissenting judgment, said the exit charge had raised revenue for the national fiscus and therefore its announcement in Parliament by the Minister of finance was constitutionally invalid. He said the only way in which government could raise revenue in this way was for Parliament to legislate it. There was nothing wrong with the imposition of an exit charge provided that it was “done in accordance with the Constitution”.

  • St Kitts & Nevis passes ECCB Banking Act
    • 29 July 2015, the St Kitts & Nevis House of Assembly passed the Banking Bill 2015, which seeks to reform the region’s banking sector by increasing the regulatory powers of the Eastern Caribbean Central Bank (ECCB), into law without amendment.

      The bill is being adopted in all eight Eastern Caribbean Currency Union (ECCU) member territories. St. Kitts became the sixth member to pass the legislation, with only overseas territories Anguilla and Montserrat still outstanding.

      The bill was the source of controversy in some member countries where stakeholders raised concerns that it gave too much power to the ECCB in relation to regulatory powers over commercial banks and other financial institutions.

      Some of the concerns raised include the 300% increase in capitalisation. Banks and financial institutions regulated by the ECCB will now have 450 days to increase their capitalisation from $5 million to $20 million. The ECCB will also have the power to remove directors, determine majority shareholders and remove employees of regulated institutions.

      Under the new Act the ECCB will further be responsible for the granting and revocation of bank licences and the collection of associated fees. Licences granted by the ECCB in one country will automatically apply in all member states. Banks will now have to submit their financial reports to the ECCB three months after the end of their fiscal year and will have to change auditors every six years.

      The Act was created to better protect the interests of depositors in the region in the wake of the 2008 financial crisis. ECCB Governor Sir Dwight Venner said its purpose was “to ensure that our legislation is compatible with international standards, in order to preempt future crises, to enable the authorities to resolve failed banks more efficiently and effectively, to protect depositors, and to maintain financial stability.”

      On 31 August, the St Kitts and Nevis government signed an intergovernmental agreement (IGA) with the US to facilitate compliance with the USA’s Foreign Account Tax Compliance Act (FATCA). FATCA introduces a reporting regime for foreign financial institutions to identify and report, to the US Internal Revenue Service (IRS), information on assets of US$50,000 or more, held by US taxpayers.

      The IGA is a Model 1B Agreement under which financial institutions in the Federation will be required to report on US persons’ income, from financial assets that are held outside the US, to the competent authority in St Kitts and Nevis, which will then submit the required information to the IRS. The first exchange of information is due to be made by 30 September 2015.

  • St Kitts & Nevis to tighten up Citizenship By Investment programme
    • 28 April 2015, St Kitts & Nevis Prime Minister Timothy Harris announced that his government would restructure, reform and reposition its Citizenship by Investment (CBI) programme after the US issued a financial advisory against holders of CBI passports in May 2014 and Canada revoked SKN citizens’ visa-free travel last November.

      “We shall make provisions to revoke the citizenship of any economic citizen who within five years of the issuance of the certificate of registration, commits a serious crime like an act of terrorism, or appears on an international sanctions list, or on a wanted list of any country or international body, or is named in any scandal that might bring our country into disrepute,” said Harris.

      He further pledged to partner governments across the world, especially the critically important US, Canada, UK and European Union, in ensuring that no “undesirables” would be allowed to take advantage of the CBI programme.

      In 2014 the former administration contracted the services of IPSA International, a risk management and due diligence firm, to conduct an independent evaluation of the CBI and the CBI Unit. The new government, said Harris, had reviewed the report and after consultation with stakeholders had agreed to implement the 20 recommendations proposed by IPSA.

      Among the recommendations are the implementation of a case management tool to streamline the application management process within the CBI Unit, changes to the Unit’s organisational structure to enhance processing capabilities and mitigate risk, an improved risk assessment process and a review of previously approved applicants.

      “The Citizenship by Investment programme has become a catalyst for growth and development in the Federation and is integral to the country’s economic success and social stability’” said Harris. “We are committed to expeditiously putting the necessary reforms in place to ensure the long-term economic stability of the programme.”

  • Swiss complete historic tax payments to the UK and Austria
    • 1 September 2014, the Swiss tax administration announced that it had implemented the retrospective taxation of the assets of UK and Austrian bank clients, as set out in the bilateral withholding tax agreements with these two countries. It said the UK had received a total of £469.5 million and Austria €738.3 million between July 2013 and August 2014.

      The Swiss–UK Tax Agreement 2011 and Swiss-Austria Tax Agreement 2012 provided two options to taxpayers with undeclared assets placed in Swiss banks. They could either report it to their home country revenue authority or have their accounts taxed by the Swiss, who would then transfer the funds without naming clients.

      Now the retrospective taxation of the assets has been completed, withholding tax amounts and declarations on the disclosure of assets will continue to be transmitted according to the agreements.

  • Swiss police raid HSBC’s Geneva office
    • 18 February 2015, Swiss prosecutors searched offices of HSBC Private Bank (Suisse) in Geneva in an inquiry into alleged money laundering. Geneva’s attorney general, Olivier Jornot, said: “The goal of this investigation is precisely to verify if the information that has been made public is well-founded and if de facto reproaches can be made, whether it be towards the bank, or towards physical persons, like collaborators or clients.”

      HSBC’s Swiss unit has been in the spotlight since 2008 when former IT employee Hérvé Falciani fled to France with a cache of stolen bank data that, it was claimed, showed evidence of tax evasion by clients. Jornot said Swiss law prohibited an investigation based on stolen evidence but his office could investigate if it secured the evidence itself.

      In 2010, under finance minister Christine Lagarde, France prepared confidential lists of the leaked names for other countries. The so-called “Lagarde list” led to investigations and arrests in Greece, Spain, the US, Belgium and Argentina. French magistrates put the bank under formal investigation last November.

      The files were subsequently obtained by an international collaboration of news outlets, which published reports around the world in February. Summoned before parliament’s Public Accounts Committee, the UK Revenue said it had identified about 1,100 people who had evaded their tax liabilities from the data. It had raised £135 million in unpaid tax but had secured only one prosecution. There has been no UK legal action against HSBC. HSBC said it was “co-operating with relevant authorities”.

  • Swiss police raid HSBC’s Geneva office
    • 18 February 2015, Swiss prosecutors searched offices of HSBC Private Bank (Suisse) in Geneva in an inquiry into alleged money laundering. Geneva’s attorney general, Olivier Jornot, said: “The goal of this investigation is precisely to verify if the information that has been made public is well-founded and if de facto reproaches can be made, whether it be towards the bank, or towards physical persons, like collaborators or clients.”

      HSBC’s Swiss unit has been in the spotlight since 2008 when former IT employee Hérvé Falciani fled to France with a cache of stolen bank data that, it was claimed, showed evidence of tax evasion by clients. Jornot said Swiss law prohibited an investigation based on stolen evidence but his office could investigate if it secured the evidence itself.

      In 2010, under finance minister Christine Lagarde, France prepared confidential lists of the leaked names for other countries. The so-called “Lagarde list” led to investigations and arrests in Greece, Spain, the US, Belgium and Argentina. French magistrates put the bank under formal investigation last November.

      The files were subsequently obtained by an international collaboration of news outlets, which published reports around the world in February. Summoned before parliament’s Public Accounts Committee, the UK Revenue said it had identified about 1,100 people who had evaded their tax liabilities from the data. It had raised £135 million in unpaid tax but had secured only one prosecution. There has been no UK legal action against HSBC. HSBC said it was “co-operating with relevant authorities”.

  • Swiss voters retain “lump sum” tax regime for wealthy foreigners
    • 30 November 2014, Swiss voters rejected by referendum a proposal to end the “lump sum” tax regime under which wealthy foreigners pay a fixed annual sum based upon their Swiss living expenses, disregarding overseas earnings or accumulated wealth.

      The proposal, put forward by the left-wing Alternative List political grouping, was defeated by 59% of Swiss voters. Voters in the cantons that are home to the highest number of foreign lump sum beneficiaries came out strongest in support of retaining the tax system.

      Vaud, Valais, Geneva and Ticino are home to the majority of Switzerland’s estimated 5,500 lump sum tax beneficiaries. Schaffhausen, one of five cantons that currently prohibit lump sum taxation, was the only canton out of 26 to support the proposal.

      Swiss Finance Minister Eveline Widmer-Schlumpf said: “This maintains the tradition of allowing cantons to decide their own fiscal regimes.” She added that new federal rules, due to come into force at the start of 2016, will both tighten up qualification for lump sum tax status and increase the levy.

      Under the new federal rules, the minimum taxable basis (deemed income) will be CHF400,000. Living expenses will be assessed at a minimum of seven times the annual rental cost or rental value of the taxpayer’s dwelling in Switzerland, or at least three times the costs for a hotel. The new rules also stipulate that worldwide living expenses must be taken into account to determine the tax base and cantons will be required to determine the tax base for both income and wealth tax purposes.

  • Switzerland and EU sign agreement on automatic information exchange
    • 27 May 2015, the European Union and Switzerland signed a bilateral agreement on the automatic exchange of financial information that commits both parties to collect information on banking accounts starting in 2017 and to exchange this data from 2018. The new agreement is fully in line with the strengthened transparency requirements that EU Member States agreed last year. It is also consistent with the OECD’s Common Reporting Standard (CRS) for the automatic exchange of information.

      Under the agreement, EU Member States will receive, on an annual basis, the names, addresses, tax identification numbers and dates of birth of their residents with accounts in Switzerland, as well as other financial and account balance information. This information can currently only be accessed upon request.

      The new agreement will replace the current agreement on the taxation of savings that entered into force in 2005. Under the current agreement, Switzerland is required to remit to the EU countries 75% of the taxes withheld on interest on savings of EU resident individuals. Alternatively, the client can request the bank to report the interest income to the client’s home country tax authority.

      The current agreement exempts intercompany payments of dividends, interest and royalties from any withholding tax in the source state. This withholding tax exemption has been adopted in the new agreement without any changes, such that dividend, interest and royalty payments from EU member states to Switzerland and vice versa will continue to be exempt from withholding taxation in the source state if the respective requirements are met.

      The existing withholding tax agreements that Switzerland signed with Austria and the UK and which entered into force on 1 January 2013 will also be terminated. Switzerland intends to agree with Austria and the UK on how to terminate those agreements and to ensure a smooth transition to the new CRS.

      Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Today’s agreement heralds a new era of tax transparency and cooperation between the EU and Switzerland. It is another blow against tax evaders, and another leap towards fairer taxation in Europe. The EU led the way on the automatic exchange of information, in the hope that our international partners would follow.”

      Switzerland first committed itself to incorporating the OECD CRS by signing a declaration at the OECD’s annual Ministerial Council meeting in May 2014. Since that time approximately 100 countries, including all major financial centres, have committed to introducing the CRS. It is the intention of Switzerland to reach agreements for the implementation of the CRS with countries outside the EU, including the US. A first agreement has been signed with Australia.

      The Swiss Federal Council has already opened a consultation procedure on the new agreement, providing interested parties, including the cantons, the opportunity to comment until 17 September. The agreement will then be submitted to Parliament for approval. Approval is subject to an optional public referendum.

      The European Commission is currently concluding negotiations for similar agreements with Andorra, Liechtenstein, Monaco and San Marino. It expects that these will be signed before the end of the year.

  • Switzerland consults on withholding tax reform and exchange of tax information
    • 17 December 2014, the Federal Council submitted for consultation a bill for the introduction of paying agent principle for withholding tax that is designed to refine the system to improve the raising of capital within Switzerland. The consultation will last until 31 March 2015.

      The Council said the current debtor principle allowed Swiss groups to avoid the tax by processing their financing through foreign companies. Switching to the paying agent principle would allow these problems to be counteracted and would also enable the tax to be collected in a more targeted manner than at present. It is currently levied on all investors, including pension funds, which have no safeguard needs.

      At present, withholding tax is levied on interest, participation income, lottery winnings and certain insurance benefits, and is refunded only if the corresponding income is declared. Withholding tax receipts totalled CHF 5.9 billion in 2013, largely related to foreign beneficiaries who in many cases cannot, or choose not to, claim a refund.

      Withholding tax is currently collected from the debtor of the taxable item – for example a Swiss company that issues interest-bearing bonds currently pays 65% of the gross coupon to the beneficiary and transfers the 35% tax deduction to the Federal Tax Administration. If the paying agent principle were to be introduced, the debtor would transfer the full gross amount to the paying agent, typically a bank.

      The change of system would occur particularly in the area of interest, where tax collection is to be focused on natural persons resident in Switzerland. Withholding tax will cease to apply for all other investors. In this way, the Swiss capital market will be strengthened as desired and the issuance of contingent convertible bonds will be facilitated. No change is planned for Swiss companies’ dividends.

      In order to mitigate the risk of persons resident in Switzerland avoiding the tax by transferring their assets to a foreign bank, natural persons resident in Switzerland would have the option of voluntary disclosure instead of the tax deduction. The withholding tax reform would not be implemented until automatic exchange of information has been established with major financial centres.

      The reform, said the Council, would both create favourable framework conditions for big banks’ financial instruments that are eligible as capital and prevent the accumulation of disclosures and safeguard taxes for foreign investors following the introduction of the automatic exchange of information internationally, which would be damaging for the Swiss financial centre.

      On 14 December, the Council launched two consultations on legislation to facilitate the international exchange of information in tax matters. One bill relates to the OECD/Council of Europe administrative assistance convention signed by Switzerland in 2013, and the other to implementing Swiss participation in the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA), which was signed by Switzerland on 19 November 2014.

      The Council’s decision to sign the administrative assistance convention and implement the global automatic exchange of information (AEOI) standard is in line with its strategy for a competitive Swiss financial centre, which includes the international standards in the area of tax and particularly those concerning transparency and the exchange of information.

      The bilateral activation of the AEOI will be addressed in separate bills that will be submitted to the Federal Assembly for approval. Corresponding negotiations with the European Commission and possible partner states are under way or will commence in the near future. The exchange of information within a country is not affected by the global standard and it is not covered by the two consultations either.

      Both consultations will run until 21 April 2015. The Federal Council’s dispatches for the attention of Parliament are expected in summer 2015. Parliament can thus discuss the draft legislation from autumn 2015. This means that the legal foundations could come into force from the beginning of 2017, even with a possible referendum. The first automatic exchange of information would then take place in 2018.

  • Switzerland to revise withholding tax on earned income
    • 28 November 2014, the Swiss Federal Council adopted a dispatch for a legislative amendment to eliminate the differences between the tax treatment of individuals taxed at source and those subject to ordinary taxation. Accordingly, anyone resident in Switzerland whose earned income is taxed at source should have the option of a subsequent ordinary tax assessment. This option should also be available to people taxed at source who are not resident in Switzerland but earn a major part of their global income in Switzerland.

      Withholding tax is currently levied at source on the income of foreign employees in Switzerland who do not have a permanent residence permit (C permit). Currently 760,000 employees without a permanent residence permit are taxed at source, of which 490,000 have their tax domicile or place of residence in Switzerland and are considered residents.

      The remaining 270,000 do not have their tax domicile or place of residence in Switzerland and are considered non-residents. Quasi-residents are employees who do not have their tax domicile or place of residence in Switzerland but generate a major part of their global income in Switzerland.

      In January 2010, the Federal Supreme Court ruled that, in certain cases, withholding tax contravenes the Agreement on the Free Movement of Persons concluded with the European Union. According to the Court, quasi-residents are entitled to the same deductions as those subject to ordinary taxation in Switzerland.

      Following the amendment, withholding tax will continue to be levied for the groups of people currently affected but all residents taxed at source will have the option of a subsequent ordinary tax assessment. This will replace the supplementary ordinary tax assessment, which includes income and assets not subject to withholding tax. A subsequent ordinary tax assessment is also available to non-residents, provided they meet the quasi-residency requirements. Withholding tax is definitive for all other non-residents.

  • UAE signs FATCA agreement with US
    • 18 June 2015, the UAE Ministry of Finance announced the signing of an intergovernmental agreement (IGA) with the US to facilitate implementation of the US Foreign Account Tax Compliance Act (FATCA).

      The US Congress enacted FATCA in 2010 to target non-compliance by US taxpayers using foreign accounts. The US law requires foreign financial institutions (FFIs) to provide annual reports in respect of accounts held by US persons or companies with one or more US shareholders that own more than 10% of the company.

      Undersecretary of the Ministry of Finance Younis Haji Al Khoori said: “The country was keen to sign this agreement to protect UAE financial institutions. In the case of non-compliance with the requirements of FATCA, any non-US financial organisation could face a 30% penalty on certain financial returns of its operations in the US market.

      “The Ministry will continue to meet all necessary requirements for linking UAE government financial institution systems to the FATCA e-system. The ministry will also determine the required processes for monitoring reporting by financial institutions.”

      FATCA requires FFIs to submit reports either directly to the US government (Model 1 IGA) or indirectly via their national reporting authority for onward transmission to the US government (Model 2 IGA). The UAE Cabinet opted, on 14 April 2013, to implement the Model 1 IGA. Under the agreement, the first report, concerning 2014, must be submitted to the US by 30 September 2015

  • UK Court of Appeal imposes conditions on application for permission to appeal
    • 30 July 2014, the UK Court of Appeal found compelling reasons to require a defendant company that had unsuccessfully defended a claim to pay the judgment sum and other amounts into court as a condition of its pursuit of an application for permission to appeal and, if successful, an appeal.

      In Deutsche Bank AG v Sebastian Holdings Inc., the Turks & Caicos registered company owned by Norwegian businessman Alexander Vik, its sole shareholder and director, owed Deutsche Bank over $250 million after failing in an $8 billion counterclaim against the bank in the High Court last November.

      Sebastian Holdings (SHI) and Deutsche Bank had been involved in four years of litigation relating to losses made on foreign exchange trades. The bank had pursued SHI for compensation for losses incurred on trades during the 2008 financial crisis. SHI had countered that the bank had breached its contract and demanded $8 billion in compensation.

      The High Court found that, on and after 13 October 2008 when Vik had a clear indication that SHI’s trading liabilities stood at many hundreds of millions of dollars, he had caused $896 million of funds and assets to be transferred from SHI to either himself or companies closely associated with him or his family. It found that Vik procured those transfers for no genuine commercial reason and with a view to depleting SHI’s assets to make it more difficult for the bank to recover the amounts owed.

      The Court ruled in favour of Deutsche Bank and dismissed SHI’s counterclaim, ordering it to pay $243 million to the bank, together with indemnity costs amounting to 85% of the bank’s £60 million legal bill. SHI sought permission to appeal. The application before the Court of Appeal was Deutsche Bank’s application for an order imposing conditions on the ability of SHI to pursue its application for permission to appeal and, if successful, its appeal.

      The Court of Appeal ruled that conditions should be imposed on the application for permission to appeal. SHI was therefore ordered to pay into court, within 28 days, the judgment sum of $243 million and interest, failing which the application for permission to appeal would be struck out. In addition, the Court found it was appropriate to require SHI to give security for Deutsche Bank’s costs of the application and appeal and ordered SHI to pay £1.9 million as security for costs.

      Lord Justice Tomlinson said in the judgment: “Standing back from the arguments, it is in my judgment difficult to think of a case which could present more compelling reason for making the order sought.”

      The ruling demonstrates that parties that are not prepared to comply with court orders, unwilling to be transparent about the movement of their assets and intent on putting obstacles in the path of enforcement are likely to find conditions being imposed if they wish to proceed through the appeals process.

  • UK doubles minimum investment for Tier 1 Visa
    • 16 October 2014, the UK government announced changes to its Tier 1 (Investor) visa regime for applications made after 6 November 2014. The most notable change is the doubling of the minimum investment amount from £1 million to £2 million. All the funds must also now be invested in UK government bonds or share capital or loan capital in active and trading UK registered companies. Under the previous regime, applicants were permitted to invest up to 25% in property.

      The requirement that a migrant’s investment must be “topped up” if its market value falls is also being removed; instead migrants will only need to purchase new qualifying investments if they sell part of their portfolios and need to replace them in order to maintain the investment threshold. The required investment sum can no longer be sourced as a loan.

      Finally there is a new “genuine investor” test under which UK will refuse applications if there are reasonable grounds for believing that a third party is fronting the investment funds, if the funds were obtained unlawfully or the character, conduct or associations of a funding provider make approving the application contrary to the public good.

      The UK Home Office approved 735 applications for UK residency permits from wealthy foreign investors from outside the EU in the year to June. This is up from around 500 in the previous year and just 100 in the year to 30 June 2009. Foreigners have invested an estimated total of £2.2 billion since 2009.

  • UK first to commit to OECD’s country-by-country reporting template
    • 20 September 2014, the UK Treasury announced that the UK would become the first of 44 countries to commit to the new country-by-country reporting model proposed by the OECD as part of a wider movement against tax avoidance by large corporations.

      The OECD set out its first series of recommendations on base erosion and profit shifting (BEPS) in seven detailed reports on 16 September. The leaders of the largest global economies commissioned the project during the UK’s presidency of the G8 last year.

      Among the OECD’s recommendations are proposals to neutralise so-called hybrid mismatch arrangements, prevent the abuse of tax treaties and ensure that transfer pricing rules do not allow companies to avoid being taxed in the jurisdictions where they make their profits.

      Requiring companies to report on profits earned and taxes paid on a country-by-country basis will help tax authorities to gather information on their global activities, profits and taxes, according to the OECD. This will assist them to better assess where risks lie and where their efforts to discourage tax avoidance should be focused.

      UK Financial secretary to the Treasury David Gauke said: “We believe that country-by-country reporting will improve transparency and help identify risks for tax avoidance – that’s why we’re formally committing to it. Reporting high level information using a standardised format across all jurisdictions will ensure consistency, give tax authorities the information they need and minimise the additional administration burden on business.”

  • UK Revenue loses CGT dispute over Reynolds painting
    • 19 January 2015, the UK Revenue and Customs was refused leave to appeal to the Supreme Court against the decision of the Court of Appeal to disallow its attempt to charge capital gains tax (CGT) on the £9.4 million sale by the executors of the late Lord Howard of Henderskelfe of a Joshua Reynolds painting in 2001.

      In Executors of Lord Howard of Henderskelfe (Deceased) v HMRC, the case concerned a Reynolds painting,Omai, which had belonged to the Howard estate since the late 18th century. From the 1950s the painting has been on display to the public at the family home, Castle Howard.

      HMRC attempted to charge CGT on its disposal at auction in 2001, but the executors pointed out that the painting had been on long-term loan to the Howard family’s stately home business, where it acted as plant and machinery. It was therefore a depreciating asset and exempt from CGT.

      The executors’ argument was rejected at the First-tier Tax Tribunal, but accepted at the Upper Tribunal. HMRC took the case to the Court of Appeal in March last year. The executors successfully argued that the painting was plant within the definition provided in an 1887 case (Yarmouth v France). In addition and, most importantly for the wasting asset rules, the Court of Appeal confirmed that the painting was plant even though it was used by another entity, the operating company, which did not own the painting.

      HMRC applied to the Supreme Court. The Supreme Court under Lord Neuberger considered whether the fact that the painting was not used as plant by the estate itself was an arguable point of law against the Appeal Court’s decision. It refused leave to appeal.

  • UK tax paid by non-doms rises
    • 1 September 2015, UK income tax paid by individuals based in the UK, but “non-domiciled” for tax purposes, increased by 7% last year to reach £6.6 billion in 2013/14, up from £6.18bn in 2012/13, according to figures obtained by law firm Pinsent Masons. In addition, the total number of UK taxpayers indicating a non-domiciled status on their tax returns increased by 3% over the same period, from 110,700 in 2012/13 to 114,300 in 2013/14.

      Non-doms are eligible to be taxed under the remittance basis of taxation, which allows them to pay UK tax only on income and gains in the UK, rather than on their worldwide income and gains, as is generally the case for UK-domiciled individuals. Non-domiciled taxpayers who have lived in the UK for at least seven out of the past nine tax years have to pay the remittance basis charge if they wish to continue being taxed under the remittance basis.

      According to figures, the remittance basis charge raised an additional £223 million from around 5,000 non-dom taxpayers both last year and the year before. As announced in the Summer Budget, the UK government intends to abolish, from 6 April 2017, non-dom status for taxpayers who have been resident in the UK for 15 out of the previous 20 tax years. Taxpayers would then be deemed ‘domiciled’ for the purposes of income tax, CGT and inheritance tax (IHT) and would no longer be able to be taxed on the remittance basis on their non-UK income and gains.

      The government also intends to bring all UK residential property held directly or indirectly by non-doms into charge for IHT purposes, even when the property is owned through an offshore company or partnership. Properties that are ‘enveloped’, meaning held by companies or other structures, are already subject to an annual tax on enveloped dwellings (ATED) and to higher rates of stamp duty land tax (SDLT) when purchased.

  • US acts to rein in corporate tax Inversions
    • 22 September 2014, the Obama administration issued new rules to crack down on corporate inversions – a transaction in which a US-based multinational restructures so that the US parent is replaced by a foreign parent, in order to reduce their domestic tax bill and put their non-US earnings beyond the reach of US authorities.

      The new rules will stop non-US subsidiaries of inverted companies from making loans to their new foreign parent as a way to avoid paying US tax. They will further stop the new parents from buying overseas subsidiaries to free that cash from US tax.
      The Treasury is also making it harder for a US company to meet the current rules for inversion, which require shareholders of the foreign partner to own more than 20% of the new company. The new rules prohibit the use of certain assets to inflate the size of the foreign merger partner and also stop US companies from paying special dividends just before an inversion in order to reduce their own size, or spinning off part of their operations to shareholders for the same reason.

      “We’re taking initial steps that we believe will make companies think twice” before carrying out an inversion, said US Treasury secretary Jack Lew. “For some companies considering deals, today’s actions will mean that inversions no longer make economic sense.”

      Thirteen inversion deals have been announced since the start of 2013 – including Burger King’s $11.4 billion acquisition of the Canadian coffee shop chain Tim Hortons – which are together worth $178 billion.

      The Obama administration resorted to using its executive powers to curb inversions because Congress failed to agree on how to tackle them via legislation. The Treasury warned that it would continue to look for other steps to discourage inversions, and to review tax treaties.

      “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I’m glad that Secretary Lew is exploring additional actions to help reverse this trend,” said President Barack Obama in a statement.

  • US FinCEN blacklists Andorran bank
    • 10 March 2015, the US Financial Crimes Enforcement Network (FinCEN) designated Banca Privada d’Andorra (BPA), based in the Principality of Andorra, as a foreign financial institution of primary money-laundering concern under Section 311 of the USA PATRIOT Act (Section 311).

      The Andorran government took BPA, the fourth largest bank in the Principality, under state control following FinCEN’s designation and is now at work on a restructuring plan. On 16 March it imposed a €2,500 per week withdrawal limit on depositors. BPA’s Spanish subsidiary Banco de Madrid also filed for bankruptcy protection after depositors staged a run.

      BPA’s activity of primary money laundering concern occurred largely through its Andorra headquarters. BPA is one of five Andorran banks and is a subsidiary of the BPA Group, a privately held entity. FinCEN’s announcement cited three examples of alleged money-laundering activity, which included processing funds from organised crime in Russia and China, and processing transactions as part of a scheme for Venezuelan third-party money launderers.

      FinCEN also issued a Notice of Proposed Rulemaking under which US banks would be prohibited from providing correspondent banking services to BPA or any bank that processes transactions for it. It said BPA accessed the US financial system through direct correspondent accounts held at four US banks, through which it has processed hundreds of millions of dollars. BPA’s high–level managers established financial services tailored to its third-party money launderer clients to disguise the origins of funds. In exchange for some of these services, BPA’s high-level managers accepted payments and other benefits from their criminal clients.

      “BPA’s corrupt high-level managers and weak anti-money laundering controls have made BPA an easy vehicle for third-party money launderers to funnel proceeds of organised crime, corruption, and human trafficking through the US financial system,” said FinCEN Director Jennifer Shasky Calvery. “Today’s announcement is a critical step to address this compromised financial institution’s egregious conduct and send a message that the United States will take strong measures to protect the integrity of its financial system from criminal actors.”

  • US FinCEN issues proposed rule for registered investment advisers
    • 26 August 2015, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking that would require investment advisers that are registered (or required to be registered) with the Securities Exchange Commission (SEC) to establish an anti-money laundering programme.

      The proposed rules would require investment advisers to; establish and implement policies, procedures and controls designed to prevent them from being used to facilitate money laundering or to finance terrorist activities; designate an AML compliance officer; and provide ongoing AML training for employees. Investment advisers would also be required to identify and report suspicious activity to FinCEN under the Bank Secrecy Act (BSA).

      In addition, the Proposed Rule would include Registered Investment Advisers in the definition of “financial institution” under the Bank Secrecy Act that would require investment advisers to, among other things, file Currency Transaction Reports and maintain certain records regarding the transmission of funds. FinCEN intends to delegate examination authority for ensuring compliance with the Proposed Rule’s requirements to the SEC.

  • US offshore disclosure programme to remain open indefinitely
    • 28 January 2015, the US Internal Revenue Service (IRS) announced that its current Offshore Voluntary Disclosure Programme (OVDP), which opened in 2012, would remain “open for an indefinite period until otherwise announced”.

      It said that since the first OVDP opened in 2009, there had been more than 50,000 disclosures and it had collected more than $7 billion from the initiative. IRS Commissioner John Koskinen said: “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”

      The announcement said tens of thousands of individuals had come forward voluntarily to disclose their foreign financial accounts since 2009, taking advantage of special opportunities to comply with the US tax system and resolve their tax obligations. With new foreign account reporting requirements being phased in over the next few years, hiding income offshore would be increasingly more difficult.

  • US runs out of investor visas again as Chinese flood programme
    • 15 April 2015, the US State Department announced that, as from 1 May, no more applications for EB-5 immigrant investor visas would be accepted from China for the rest of the current fiscal year, which ends 30 September.

      The EB-5 immigration programme issues green cards to foreigners who invest at least $500,000 and create 10 jobs in the US. The programme, which caps the number of visas issued annually at 10,000, hit its annual limit for the first time last August.

      This year, the programme has reached the quota even earlier, reflecting the massive jump in demand among wealthy Chinese. There are 13,000 pending applications and the waiting list for an EB-5 visa is now estimated at two to three years. Chinese nationals accounted for 8,308 (90%) of EB-5 visas issued last year, compared to 16 visas (13%) granted to Chinese in 2004.

  • US settles with four more Swiss banks
    • 28 May 2015, the US Department of Justice announced it had reached settlement with four more Swiss banks – Société Générale Private Banking (Lugano-Svizzera), MediBank (Zug), LBBW (Zurich) and Scobag Privatbank (Basel) – under its Swiss Bank Programme.

      According to the DoJ, Société Générale held 109 US-owned accounts from August 2008 with a peak of assets under management of $140 million. It was ordered to pay a fine of $1.36 million. MediBank had only 14 US-owned accounts with assets under management of $8.6 million but had allowed US clients of UBS to open accounts after it became public that UBS was under investigation in 2007. It was fined $826,000. LBBW and Scobag Privatbank maintained 50 US-owned accounts between them and were fined $34,000 and $9,090 respectively.

      The four banks will also be required to provide the DoJ with detailed information on accounts held by US persons. US taxpayers with unreported accounts at these institutions will now incur a 50% penalty should they seek to join the 2014 Offshore Voluntary Disclosure Programme (OVDP) – almost double the 27.5% penalty that would otherwise apply under the OVDP.

      Vadian Bank and Finter Bank Zurich also reached settlements with the DoJ in April. Vadian Bank, which after 2008 accepted more than 70 accounts from US taxpayers fleeing UBS, was required to pay a $4.253 million penalty, while Finter Bank was required to pay a $5.414 million penalty and disclose information regarding its 283 US-related accounts.

      The first settlement under the programme was reached in March with BSI, one of Switzerland’s ten largest banks, which agreed to pay $211 million and disclose information on more than 3,000 US-related bank accounts.

      Caroline Ciraolo, the Acting Assistant Attorney General in charge of the DoJ Tax Division, said the information obtained from those banks settling with the US would be used to prosecute taxpayers.

      The Swiss Bank Programme, which was announced in August 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the US. Swiss banks eligible to enter the programme were required to advise the DoJ by 31 December 2013, that they had reason to believe that they had committed tax-related criminal offences in connection with undeclared US-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the programme.

      Under the programme, banks are eligible for a non-prosecution agreement only if they: make a complete disclosure of their cross-border activities; provide detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest; cooperate in treaty requests for account information; provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; agree to close accounts of account holders who fail to come into compliance with US reporting obligations; and pay appropriate penalties.

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