28 May 2015, the Caribbean Financial Action Task Force (CFATF) noted at its Plenary Meeting in Port of Spain, Trinidad, that Antigua and Belize had been released from its follow-up process having remedied the deficiencies in their anti-money laundering (AML) regimes. Belize and Grenada were also released form enhanced monitoring by the CFATF International Co-operation Review Group (ICRG).
In 2011, Belize was rated partially compliant or non-compliant against 14 of the 16 FATF’s core and key recommendations and was placed on expedited follow-up and required to report at every CFATF Plenary. Belize was also made subject to the ICRG process.
In November 2012, due to the slow pace of remedial measures, the CFATF placed Belize in the second stage of enhanced follow-up and, in May 2013, it placed Belize on a list of jurisdictions with strategic anti-money laundering/combating the financing of terrorism (AML/CFT) deficiencies. In November 2013, the CFATF called on members to consider implementing counter measures to protect their financial systems from the ongoing money laundering and terrorist financing risks emanating from Belize.
As a consequence, Belize enacted nine pieces of key legislation comprising six statutes and three regulations in February 2014. These legislative measures resulted in a significantly improved level of compliance and, following review by CFATF and ICRG assessors, it was recommended that Belize should apply to exit both the follow-up process and the ICRG process.
To avoid repeating the reputational damage and economic consequences Belize suffered in 2013, the government said it was fully committed to strengthening the AML/CFT regime and Belize’s international reputation as a well-regulated financial services centre. The government will now continue to ensure compliance with new elements of the FATF Recommendations and prepare for the next round of mutual evaluations.
30 March 2015, Lugano-based private bank BSI entered a non-prosecution agreement with the US Department of Justice and agreed to pay a $211 million penalty for suspected tax-related offences, becoming the first bank to reach a settlement under the Swiss bank programme. The agreement is expected to be the first of many settlements by Swiss banks
The 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 department 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.
To be eligible under the programme, banks are required to make a complete disclosure of their cross-border activities and provide detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest. They must also: co-operate 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.
The US Department of Justice said that BSI had assisted US clients in opening accounts in Switzerland and hiding the assets and income held in the accounts from tax authorities for decades up to 2013. As part of the deal, BSI agreed to cooperate in any related criminal or civil proceedings and put better controls in place.
BSI acknowledged that it issued pre-paid debit cards to US clients without their names visible on the card to help them keep their identities secret. BSI disclosed instances where its US clients would use coded language, such as asking their private bankers “can you download some tunes for us?” or note that their “gas tank is running empty” when they required additional cash to be loaded to their cards. BSI also helped US clients create “sham corporations” and trusts that masked their identities.
BSI had more than 3,000 active US-related accounts after 2008, many of which it knew were not disclosed in the United States. In resolving its criminal liabilities under the programme, BSI provided extensive co-operation and encouraged hundreds of US accountholders to come into compliance. BSI is also assisting with ongoing treaty requests.
Acting Deputy Attorney General Sally Quillian Yates said: “When we announced the programme, we said that it would enhance our efforts to pursue those who help facilitate tax evasion and those who use secret offshore accounts to evade taxes. And it has done just that. We are using the information that we have learned from BSI and other Swiss banks in the programme to pursue additional investigations into both banks and individuals.”
Swiss financial regulator FINMA said in a statement that BSI had breached its obligations to identify, limit and monitor the risks involved in its dealings with US clients, having served a large volume of customers with undeclared assets.
The agreement paves the way for Italy’s Generali, parent of BSI, to complete its sale of BSI to Banco BTG Pactual, a Brazilian investment bank that agreed to buy the private bank last July.
23 April 2015, British Virgin Islands premier Orlando Smith announced the establishment of a Financial Services Implementation Unit to drive the BVI financial services sector in response to the challenges threatening the industry, including international regulatory pressures and growing competition.
The unit’s remit is to implement the recommendations contained in a report entitled titled “Building on a Thriving and Sustainable Financial Services Sector in the British Virgin Islands”, which was commissioned last year from consulting firm McKinsey and Co.
The ten most urgent recommendations of the 40 contained in the report are:
Confirming that the BVI will implement the recommendations, Smith reaffirmed his commitment to the financial services industry, which accounts for 60% of government revenue. He also stressed the importance of the territory complying with evolving international standards to safeguard the reputation of the territory.
The Unit is to be headed by Kedrick Malone who was appointed executive director of BVI Finance last year after serving five years as the director of the BVI London Office.
30 March 2015, a new requirement for trustees of British Virgin Islands’ trusts to maintain records and underlying documentation for each trust for at least five years was brought into force under the Trustee (Amendment) Act 2015.
The records do not have to be kept in the BVI but need to be “sufficient to show and explain the trust’s transactions” and “enable the financial position of the trust to be determined with reasonable accuracy”. Failure to comply without reasonable excuse is a criminal offence punishable by a fine up to US$100,000 or a prison sentence up to five years.
A similar duty was placed on BVI companies and limited partnerships in late 2012 by an amendment to BVI company law demanded by the OECD Global Forum.
18 May 2015, the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015 were gazetted. Brought in under the Securities and Investment Business (Amendment) Act 2015, it introduces two lightly regulated fund products that are designed for start-up managers, family offices or smaller groups of closely connected investors.
The “incubator Fund” is a start-up fund that is limited to a maximum of 20 “sophisticated private investors” – minimum investment of at least US$20,000 – and its aggregate net asset value of its investments cannot exceed US$20 million. There is no requirement to appoint an administrator, custodian or manager, or for audit. Approval status is limited to two years – with the possibility of a 12-month extension – at which time an Incubator Fund must either cease operation or convert into a private fund, professional fund or approved fund.
An “approved fund” is similar to a BVI private fund but subject to less regulation. It is limited to a maximum of 20 investors and its aggregate net asset value of its investments must not exceed US$100 million. Approved funds require an administrator, but there is no requirement for audit or to appoint a manager or custodian. They are targeted at managers that wish to establish a fund for a longer term but on the basis of a more private investor offering that may appeal to family offices or closely connected investors.
Both funds can be operative within two business days of the receipt of an application by the BVI Financial Services Commission (FSC). Both types of fund must submit unaudited financial statements to the FSC on an annual basis and require at least two directors, one of which must be an individual, and a local authorised representative.
8 May 2015, the Cayman Islands government gazetted the amended special economic zone regulations to codify the existing practice of the Special Economic Zone Authority and provide increased clarity in some areas. The Special Economic Zone allows companies to benefit from Cayman’s tax-neutral environment in combination with reduced red tape, lower registration fees and no work permit fees.
The government also passed an order in Cabinet setting out the types of companies that are permitted to establish a physical presence in the newly created Cayman Maritime Services Park of Cayman Enterprise City (CEC). These include ship owners, brokers and financiers, freight trading, operations, logistics, vessel management, consulting and research companies operating in the shipping industry.
The Cabinet order provides that “in respect of Islands flagged vessels, direct transactions with the Maritime Authority of the Cayman Islands shall not be permitted.” The rule requires zone companies to use the services of existing local service providers in their dealings, such as vessel registration, with the Maritime Authority.
With the addition of the Maritime Services Park, CEC now comprises six parks – Internet & Technology, Media & Marketing, Commodities & Derivatives, Biotechnology and Outsource – with 154 zone companies.
3 February 2015, China’s State Administration of Taxation (SAT) released Announcement (2015) No. 7, which expands the range of indirect transfers of PRC entities or properties by offshore investors that are subject to PRC tax, as well as the reporting and withholding obligations of the parties to an indirect transfer transaction. It is the second significant new international anti-avoidance measure following the introduction of the GAAR (general anti-avoidance rule) measures in December 2014.
An indirect transfer of taxable property is defined as a transfer by a non-resident company of an equity interest or other similar right or interest in another offshore enterprise that directly or indirectly holds taxable property, which effectively has the same or a similar effect to a direct transfer of such taxable property.
It largely replaces the previous guidance contained in SAT’s Circular 698 of 2009, which only applied to the indirect transfer of equity interests in PRC entities. Announcement 7 applies to transfers of other forms of interest including: property rights of an “establishment or site”; real property in China; and equity investments in Chinese resident enterprises.
An indirect transfer is to be regarded as a direct transfer of taxable property and therefore subject to PRC tax if, among other things, it lacks “a reasonable commercial purpose”. Factors that will be taken into account include:
Whether the value of the offshore enterprise is mainly derived (directly or indirectly) from taxable property;
Whether the assets of the offshore enterprise consist mainly of direct or indirect investments situated in China;
Whether the revenue of the offshore enterprise is mainly sourced directly or indirectly from China;
Whether the actual functions performed and risks assumed by the non-resident company and the offshore enterprise demonstrate that the enterprise structure has economic substance;
How long the offshore enterprise has existed in its current form;
Whether the indirect transfer is taxable in the offshore jurisdiction and the relevant tax liabilities;
The substitutability of indirect transfer/investment for direct transfer/investment of the taxable property;
How a tax treaty would apply to such an indirect transfer of taxable property.
Under Circular 698, the vendor was required to submit a report of an indirect transfer transaction to the PRC tax authority. Under Announcement 7, reporting is voluntary rather than mandatory. The purchaser is required to withhold the applicable taxes and submit them to the PRC tax authority. Applicable taxes on an indirect transfer are generally 10% of the capital gains on the transaction.
If the purchaser does not withhold (or under-withholds), then the vendor is required to report the transaction to the PRC tax authority and pay the applicable taxes within seven days. If it does not do so, then the PRC tax authority may impose penalties on the purchaser. If a purchaser reports the transaction within 30 days after the signing date of the transaction agreement, it may be exempted from or receive reduced penalties.
21 May 2015, the UK High Court set aside a man’s gift of a house into trust for his daughter on the ground of equitable mistake because the action attracted an unexpected inheritance tax (IHT) charge of £156,000.
In Freedman v Freedman & Ors  EWHC 1457 (Ch), Charles Freedman lent his daughter Melanie £530,000 to buy a house for her and her child to live in while she was selling her previous home. Her father agreed to this, on the condition that the loan was repaid. He also suggested that both properties should be placed in trust, to protect them from any claim from her previous partner, the father of her child, or any other “predatory males”. To ensure fairness to his other children, they were to be appointed as discretionary beneficiaries of the trust.
Melanie agreed without taking any legal advice of her own. Her father had himself taken advice, but his solicitor had been unaware that rules introduced in the Finance Act 2006 meant that the gift would be a lifetime chargeable transfer for IHT purposes. It thus triggered an immediate 20% entry charge together with further ten-yearly and exit charges. As a result Melanie was no longer able to repay the loan.
Upon discovering the error, the family sought to have the settlement revoked on the grounds of equitable mistake. HMRC, the UK tax authority, opposed this and maintained that the tax charge should stand. Both the family and HMRC based their claims on the Supreme Court’s decision in Pitt v Holt and Futter v Futter (2013 UKSC 26), which held that a court might refuse relief in cases of artificial tax avoidance, either because the claimants must be taken to have accepted the risk or because that relief should be denied on grounds of public policy.
Although Charles Freedman had died, the other family members gave evidence that the trust had not been set up for tax-planning purposes but to protect the properties from claims by Melanie’s previous partner. They contended there had been a distinct and serious mistake, and it would be unconscionable not to set the settlement aside. HMRC argued there had been not been a distinct mistake but rather a “disappointed expectation”. Melanie’s failure to check her father’s legal advice implied that she had made no mistake and further, the claimed “mistake” did to anyway go to the heart of the transaction.
The High Court disagreed. Mrs Justice Proudman found that Melanie had seen and read the legal advice and consequently understood that there would be no adverse tax consequences for her in entering into the settlement. “Accordingly it seems to me that Melanie made a distinct mistake of the kind described (in Pitt and Futter),” she said. She further held that the mistake was serious because the resulting tax charge meant that Melanie could not repay the loan to her father’s estate. As a result the court set aside the settlement on the ground of equitable mistake.
4 May 2015, the Dubai International Financial Centre (DIFC) Courts launched the DIFC Wills and Probate Registry, which was established by Resolution No. 4 of 2014. The new service, the first in the MENA region, aims to provide non-Muslim expatriates with the ability to register English language wills that will allow their assets to be transferred upon death according to their wishes.
The new rules have been drafted on the basis of Common Law principles from the Estates Act and Probate Rules of the UK, as well as legislation from other leading common law jurisdictions such as Singapore and Malaysia.
Michael Hwang, Chief Justice of the DIFC Courts, said: “The objective of the DIFC Wills and Probate Registry is to give expatriates a legal solution to secure their family’s future after their death. The Registry creates legal certainty that the testator’s Dubai-based assets will be distributed as set out in their registered wills. The new regime reflects the spirit of existing UAE laws.”
The Registry has been established under the jurisdiction of the DIFC Courts, allowing it to operate as a distinct entity. DIFC Courts will handle all probate claims related to the registered wills. The service will only cover estates located in the Emirate of Dubai for both residents and non-residents.
Essa Kazim, Governor of the DIFC, said: “The new Registry reflects respect for the diversity of the UAE community and the keenness of our country to provide new frameworks for strengthening the legal environment in line with the community’s needs and requirements. The initiative confirms the country’s leadership in various sectors and further enhances Dubai’s attractiveness as a destination for investment, supporting greater economic growth, stability and prosperity.”
18 May 2015, Mohammed bin Rashid al Maktoum, the ruler of Dubai, issued Law No (9) of 2015 to establish the Dubai World Trade Centre (DWTC) as a free zone to act as a hub for regional and international exhibitions while also attracting local and international investments.
A new Dubai World Trade Centre Authority (DWTCA) will regulate the free zone. The DWTCA’s responsibilities include establishing and managing infrastructures within DWTC, managing various business activities, licensing companies within the zone and overseeing construction work undertaken in the free zone. The law also authorises DWTCA to establish companies independently or jointly and invest in such companies.
Helal Saeed Al Marri, Director General of the Dubai Department of Tourism and Commerce Marketing (DTCM), has been appointed as Director General of the DWTCA. It will be part of Investment Corporation of Dubai (ICD), a sovereign wealth fund owned by the government of Dubai.
17 June 2015, the European Commission published its first list of 30 so-called “non-cooperative jurisdictions” as part of a crackdown on tax avoidance by multinational companies. The list includes Hong Kong and Brunei in Asia, Monaco, Liechtenstein, Andorra and Guernsey in Europe and a number of Caribbean territories including the Cayman Islands and British Virgin Islands.
The list consolidates national tax “blacklists” as they stood six months ago, and includes any jurisdiction that appears on 10 or more member states lists. It does not include the Netherlands, Ireland or Luxembourg, which are all currently under investigation by the Commission, because it only assesses non-EU members.
Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs, said publication of the blacklist was a “decisive step” that would “push non-cooperative non-EU jurisdictions to be more co-operative and adopt international standards”. However Guernsey’s Chief Minister Jonathan Le Tocq expressed his astonishment at Guernsey’s inclusion. He said Guernsey was only on nine national blacklists but was included because Sark, for which it has no legal responsibility in tax matters, appeared on another blacklist.
“The Commission appears to have hurriedly put together a list of so-called ‘non-cooperative’ non-EU jurisdictions using some very arbitrary criteria,” said Le Tocq. “It is this type of arbitrary and inconsistent use of ‘blacklists’ that international standards are supposed to be replacing, so this seems to me to run counter to what the Commission itself is trying to do on tax transparency. It also runs counter to Commissioner Moscovici’s own positive views on Guernsey, which we discussed just over a month ago.
“The fact remains that we lead a number of EU Member States on tax transparency and cooperation, and we will be partners of the EU in the automatic exchange of information under the Common Reporting Standard. This means we are well ahead of the full EU 28 – and yet we have been erroneously placed on an arbitrarily defined blacklist. Our priority is to be removed from this list,” he added.
The full EU blacklist is: Andorra, Liechtenstein, Guernsey, Monaco, Mauritius, Liberia, the Seychelles, Brunei, Hong Kong, Maldives, Cook Islands, Nauru, Niue, the Marshall Islands, Vanuatu, Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Grenada, Montserrat, Panama, St Vincent and the Grenadines, St Kitts and Nevis, the Turks and Caicos and the US Virgin Islands.
10 February 2015, the European Council approved an agreement with the European Parliament on strengthened rules to prevent money laundering and terrorist financing. The directive and regulations implement the recommendations by the Financial Action Task Force (FATF) and reflect the need for the EU to adapt its legislation to take account of the development of technology and other means at the disposal of criminals. The main elements are:
The extension of the directive’s scope, introducing requirements for a greater number of traders. This is achieved by reducing from €15,000 to €10,000 the cash payment threshold for the inclusion of traders in goods, and also including providers of gambling services;
The application of a risk-based approach, using evidence-based decision making, to better target risks. The provision of guidance by the European supervisory authorities;
Tighter rules on customer due diligence. Obliged entities such as banks are required to take enhanced measures where the risks are greater, and can take simplified measures where risks are demonstrated to be smaller.
The package includes specific provisions on the beneficial ownership of companies. Information on beneficial ownership will be stored in a central register, accessible to competent authorities, financial intelligence units and obliged entities such as banks. The agreed text also enables persons who can demonstrate a legitimate interest to access the following stored information:
Month and year of birth
Country of residence
Nature and approximate extent of the beneficial interest held.
Member states that so wish may use a public register. As for trusts, the central registration of beneficial ownership information will be used where the trust generates consequences as regards taxation.
For gambling services posing higher risks, the agreed text requires service providers to conduct due diligence for transactions of €2,000 or more. In proven low-risk circumstances, member states will be allowed to exempt certain gambling services from some or all requirements, in strictly limited and justified circumstances. Such exemptions will be subject to a specific risk assessment. Casinos will not benefit from exemptions.
The text provides for a maximum pecuniary fine of at least twice the amount of the benefit derived from the breach or at least €1 million. For breaches involving credit or financial institutions, it provides for:
A maximum pecuniary sanction of at least €5 million or 10% of the total annual turnover in the case of a legal person;
A maximum pecuniary sanction of at least €5 million in the case of a natural person.
Agreement with the European Parliament was reached on 16 December 2014. The Council’s approval of that outcome paves the way for adoption of the package at second reading. Member states will have two years to transpose the directive into national law. The regulation will be directly applicable.
10 February 2015, the Group of 20 (G20) finance ministers and central bank governors meeting in Istanbul expressed their full support to the G20-OECD Base Erosion and Profit Shifting Project (BEPS), which aims to modernise international tax rules and tackle cross-border tax avoidance. OECD Secretary-General Angel Gurría said agreements on key elements of the BEPS project between OECD and G20 countries “demonstrate that progress is being made toward a fairer international tax system.”
In the Communiqué, finance ministers and central bank governors endorsed the OECD’s mandate to develop a multilateral instrument to streamline implementation of tax treaty-related measures, and reaffirm their commitment to strengthening tax transparency.
The implementation of the BEPS Action Plan will require modifications to the existing network of more than 3,000 bilateral tax treaties worldwide. The planned multilateral instrument will offer countries a single tool for updating their networks of tax treaties in a rapid and consistent manner. The agreed mandate authorises the formation of an ad-hoc negotiating group, open to participation from all states. The group will be hosted by the OECD and will hold its first meeting by July 2015, with an aim to conclude drafting by 31 December 2016.
Another key objective of the BEPS project is to increase transparency through improved transfer pricing documentation standards – including the use of a country-by-country reporting template that requires multinationals to provide tax administrations with information on revenues, profits, taxes accrued and paid, along with some activity indicators.
The guidance presented to the G20 requires country-by-country reporting by multinationals with a turnover above €750 million in their countries of residence starting in 2016. Tax administrations will begin exchanging the first country-by-country reports in 2017. Countries have emphasised the need to protect tax information confidentiality.
The guidance confirms that the primary method for sharing such reports between tax administrations is through automatic exchange of information, pursuant to government-to-government mechanisms such as bilateral tax treaties, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, or Tax Information Exchange Agreements (TIEAS). In certain exceptional cases, secondary methods, including local filing can be used.
Determining which intellectual property regimes (patent boxes) and other preferential regimes can be considered harmful tax practices is another key objective of the BEPS Project. In Brisbane, G20 Leaders endorsed a solution proposed by Germany and the UK on how to assess whether there is substantial activity in an intellectual property regime. The proposal – based around a “nexus approach”, which allows a taxpayer to receive benefits on intellectual property income in line with the expenditures linked to generating the income – has since been endorsed by all OECD and G20 countries. Transitional provisions for existing regimes, including a limit on accepting new entrants after June 2016, have been agreed, and work on implementation is ongoing.
8 June 2015, heads of state meeting at the G7 Summit in Germany committed to promoting automatic exchange of tax information and tax rulings to discourage multinational companies from shifting profits from country to country to avoid taxes.
In a joint declaration, the G7 leaders reaffirmed their commitment to finalise, by the end of this year, recommendations from the larger group of G20 finance ministers and the Organisation of Economic Cooperation and Development (OECD) on their Base Erosion and Profit Shifting (BEPS) Action Plan, which was announced last September. They also plan to implement a new global standard for automatic exchange of tax information and cross-border tax rulings to curb tax avoidance.
“Going forward, it will be crucial to ensure its effective implementation, and we encourage the G20 and the OECD to establish a targeted monitoring process to that end,” said a joint statement from the G7 leaders. “We commit to strongly promoting automatic exchange of information on cross-border tax rulings. Moreover, we look forward to the rapid implementation of the new single global standard for automatic exchange of information by the end of 2017 or 2018, including by all financial centres subject to completing necessary legislative procedures. We also urge jurisdictions that have not yet, or not adequately, implemented the international standard for the exchange of information on request to do so expeditiously.”
The G7 leaders also confirmed their commitment to promote greater transparency about the beneficial owners of business entities. “We recognise the importance of beneficial ownership transparency for combating tax evasion, corruption and other activities generating illicit flows of finance and commit to providing updates on the implementation of our national action plans,” said the joint statement. “We reiterate our commitment to work with developing countries on the international tax agenda and will continue to assist them in building their tax administration capacities.”
At the same time, the G7 leaders recognised the need to avoid double taxation on the profits of multinationals and said they would work to establish binding mandatory arbitration mechanisms to safeguard trade and investment.
“Moreover, we will strive to improve existing international information networks and cross-border cooperation on tax matters, including through a commitment to establish binding mandatory arbitration in order to ensure that the risk of double taxation does not act as a barrier to cross-border trade and investment,” said the statement. “We support work done on binding arbitration as part of the BEPS project and we encourage others to join us in this important endeavour.”
1 April 2015, the English High Court adjourned summary judgment and strike out applications against a claim made by Ruanne Dellal, the second wife and sole beneficiary of the late property developer Jack Dellal, under the Inheritance (Provision for Family and Dependants) Act 1975.
Dellal married twice. The first marriage, in 1952, produced five children of which four survive. The second, to Ruanne in 1997, produced two more. He also had two further children by an extramarital relationship.
In a will made in 2006, Dellal effectively left his entire estate to his second wife. In 2012, The Sunday Times Rich List had estimated his wealth at £445 million. The disclosed assets of his estate on his death in October 2012 were only £15.4m. The applicant contended that Dellal had made dispositions to his children from previous relationships with the intention of defeating an application for provision under the Act. She therefore made the claim against Dellal’s deemed “net estate” under sections 2, 10 and 13 of the Act.
The defendants applied for strike out and summary judgment on the basis that no relevant dispositions had been identified within the six-year period provided for in the Act and there was no plausible evidence of bad motive by Dellal. The applicant had been sufficiently provided for from her own £41.5m of assets and, in relation to those defendants out of the jurisdiction, the leave to serve had been improperly obtained and any order against them would be ineffective.
Mostyn J declined to strike out her claim. He ruled that, ahead of disclosure, a claimant could plead a case in a “laconic or protean” way in anticipation of further evidence, and this did not render a claim legally unrecognisable. Despite limited evidence provided by the claimant, he found that the case was not “a merely speculative punt”.
He further held that determinations on summary judgment should be made on an informed basis. “In my judgment the claimant has put up a strong prima facie case that at his death Jack had access to very considerable resources … It is a reasonable inference that most were held in trusts,” he said. The summary judgment application was therefore adjourned with liberty to restore, and specific disclosure was ordered under the Civil Procedure Rules.
24 April 2015, the Hong Kong government launched a consultation exercise on the proposed model for implementing automatic exchange of information (AEOI) in tax matters in Hong Kong. The consultation will end on 30 June.
On the basis of the OECD’s Common Reporting standard promulgated in July 2014, the government has drawn up proposals to apply the AEOI requirements to Hong Kong. These proposals relate to: the definitions of financial institutions (FIs); the types of information FIs have to secure from account holders; the due diligence and reporting requirements FIs have to follow; the powers of the Inland Revenue Department (IRD) to collect relevant information from FIs and forward such information to designated bilateral AEOI partners; the sanctions for non-compliance; and confidentiality provisions.
“Hong Kong will adopt a pragmatic approach to legislate for all essential requirements of the OECD standard on AEOI, and will ensure effective implementation of the new standard,” said Professor K C Chan, Secretary for Financial Services and the Treasury.
In September 2014, Hong Kong indicated to the OECD its support for implementing the new standard on AEOI, with a view to commencing the first information exchanges by the end of 2018. The commitment was premised on the condition that Hong Kong could put in place the necessary domestic legislation by 2017.
Under the OECD standard, FIs include banks, custodians, insurance companies, brokers and investment entities (such as certain collective investment vehicles), unless they present a low risk of being used for evading tax and are excluded from reporting. FIs are required to identify and keep information of their non-Hong Kong tax resident account holders in accordance with the due diligence procedures prescribed in the OECD standard and report the relevant information of reportable accounts to IRD in prescribed format. For account holders who are tax residents of our AEOI partners, the IRD will pass the relevant information to the AEOI partners concerned on an annual basis.
“Our plan is to conduct AEOI on a bilateral basis with jurisdictions with which Hong Kong has signed a comprehensive avoidance of double taxation agreement (CDTA) or a Tax Information Exchange Agreement (TIEA). In identifying AEOI partners from amongst our CDTA or TIEA partners, we will take into account their capability in meeting the OECD standard and in protecting data privacy and confidentiality of the information exchanged in their domestic law,” Professor Chan said.
The current target is to introduce an amendment bill into the Legislative Council in early 2016. FIs will have to start conducting due diligence procedures for their financial accounts in January 2017, with the first international data exchanges planned to begin by the end of 2018.
4 June 2015, HSBC announced it had agreed to pay the CHF40 million (€38m) to settle an investigation by the authorities in Geneva into allegations of money laundering at its Swiss private bank.
The bank said in a statement that the payment was to compensate the authorities for past organisational failings. The bank said the Geneva prosecutor, which searched HSBC’s Swiss offices in February, had acknowledged the progress the bank had made in recent years and no criminal charges would be filed.
Failings at the private bank emerged after 2008 when a former HSBC employee Hérvé Falciani left Geneva with files that were alleged to show evidence of tax evasion by some of the bank’s clients. Files were leaked to the media and published earlier this year. HSBC is currently facing investigation by US and French authorities, among others.
20 March 2015, the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill 2015, which provides for separate taxation of any undisclosed income in relation to foreign income and assets, was introduced in the Parliament.
The Act will apply to all persons resident in India and the provisions of the Act will apply to both undisclosed foreign income and assets, including financial interest in any entity.
Undisclosed foreign income or assets will be taxed at the flat rate of 30%. No exemption or deduction or set-off of any carried forward losses that may be admissible under the existing Income Tax Act 1961, will be allowed.
The penalty for non-disclosure of income or an asset located outside India will be equal to three times the amount of tax payable – 90% of the undisclosed income or the value of the undisclosed asset. This is in addition to tax payable at 30%.
Failure to provide a return in respect of foreign income or assets will attract a penalty of INR 1 million (approx. US$16,000). The same penalty is prescribed for cases where a taxpayer has filed a return of income, but has not disclosed the foreign income and asset or has furnished inaccurate particulars.
The punishment for wilful tax evasion in relation to a foreign income or an asset located outside India will be imprisonment from three years to ten years, as well as a fine. Failure to furnish a return in respect of foreign assets and bank accounts or income will be punishable with imprisonment for a term of six months to seven years. The above provisions will also apply to beneficial owners or beneficiaries of undisclosed foreign assets.
Abetment or inducement of another person to make a false return or a false account or statement or declaration under the Act will be punishable with imprisonment from six months to seven years. This will also apply to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians or falsification of documents.
Failure to report bank accounts with a maximum balance of up to INR500,000 will not entail penalty or prosecution in order to protect persons holding foreign accounts with small balances that may not have been reported out of oversight or ignorance.
The Bill is expected to come into effect in April 2016 and apply to financial years from 2015-16. A one-time non-prosecution compliance opportunity is to be offered for a limited period to taxpayers who have any undisclosed foreign assets that have not previously been disclosed. Taxpayers may file a declaration within a specified period, followed by payment of tax at the rate of 30% and an equal amount by way of penalty. The Bill also proposes to amend the Prevention of Money Laundering Act 2002 to include tax evasion as a scheduled offence.
8 May 2015, Italy’s Supreme Court ruled that the Italian Revenue Agency and the specialised financial crimes police could use account data illicitly removed from HSBC in Geneva against Italian owners of undeclared HSBC Swiss bank accounts.
Hervé Falciani, a consultant with HSBC Suisse, stole the information in 2008 and took it to France, where it was passed to the French Finance Minister Christine Lagarde. The list was used to investigate French taxpayers and was also passed to the tax authorities of many other countries.
The so-called “Lagarde List”, which included details of more than 7,000 accounts totalling a reported €7.5bn held by Italians in Switzerland in 2005 and 2006, reached Italy’s Guardia di Finanza and Italian Revenue Agency in May 2010.
Italian taxpayers under investigation challenged the legality of using the evidence and the case was appealed to Italy’s Supreme Court. It has now issued two judgments asserting that the police can use any evidence other than that prohibited by statute or acquired in breach of the taxpayer’s constitutional rights. The latter prohibition, it said, did not apply because the Italian authorities received the data via a request made in accordance with official tax information exchange agreements.
Italian taxpayers who held undeclared HSBC Suisse accounts and have not yet been investigated can still take advantage of Italy’s voluntary disclosure programme, which remains open until 30 September.
26 April 2015, Yahya bin Said al-Jabri, Chairman of the Special Economic Zone Authority in Duqm (SEZAD) announced the issue of regulations to regularise the granting of tax exemptions in SEZD.
Qualifying projects will be exempted from income tax for 30 years or for the term of the lease or usufruct agreement, whichever is sooner. The exemption starts from the date that businesses meet all the legal requirements for exemption. The exemption may be renewed if certain conditions are met.
The exemption is limited to the income generated from licensed activities in SEZD only and not the businesses done outside SEZD. The exemption applies to banks, financial institutions, insurance, reinsurance, telecommunications services and land transport companies that are registered with SEZAD and doing their businesses permanently inside SEZD.
22 April 2015, the National Assembly unanimously approved a Bill for the Prevention of Money Laundering, the Financing of Terrorism and the financing of Proliferation of Mass Destruction Weapons. The Bill was tabled by Ministry of Economy and Finance on 19 March.
The new legislation updates the current law to combat money laundering – Act No. 42 of 2 October 2000 – extends the suspicious transaction report (STR) regime already established for the financial institutions to designated non-financial business or professions (DNFBPs), including lawyers, notaries, accountants, real estate brokers, casinos and construction firms.
In June 2014, Panama made a high-level political commitment to work with the Financial Action Task Force (FATF) and the Financial Action Task Force of Latin America (GAFILAT) to address its strategic AML/CFT deficiencies. Since October 2014, Panama has taken steps towards improving its AML/CFT regime, including by issuing guidance to reporting entities on filing STRs, improving the capacity of the Financial Intelligence Unit (FIU) and issuing regulations on bearer shares. However, the FATF determined that strategic AML/CFT deficiencies remained.
In February the FATF said Panama should continue to work on implementing its action plan to address these deficiencies, including by: adequately criminalising money laundering and terrorist financing; establishing and implementing an adequate legal framework for freezing terrorist assets; establishing effective measures for customer due diligence in order to enhance transparency; establishing a fully operational and effectively functioning FIU; establishing suspicious transaction reporting requirements for all financial institutions and DNFBPs; and ensuring effective legal mechanisms for international co-operation. The FATF encouraged Panama to address its remaining deficiencies and continue the process of implementing its action plan.
Panama’s Minister for Economy and Finance Dulcidio De La Guardia said: “With the implementation of this Act, it paves the way for the exclusion of Panama from the grey list of the FATF, it is possible to protect the national economy, the financial services platform and other key activities for the development of our country, therefore, will be safeguarded in the companies and their workers.”
8 June 2015, Russian President Vladimir Putin signed a law allowing Russians to voluntarily declare foreign assets and bank deposits to avoid criminal, administrative and tax liability.
Under the law, as published on the government website, Russian citizens are required to submit a special declaration revealing the assets to the tax authorities. The information in the declaration will be protected by confidentiality and may not be used either for assessments or criminal investigations.
The declaration can be submitted from 1 July to 31 December 2015. Amnesty will be granted providing that the violation relating to the declared property was committed before 1 January 2015.
Putin approved the law on capital amnesty on 25 March. It aims to “create the legal basis for returning to our economy assets hidden in the shadows,” said Prime Minister Dmitry Medvedev at the time. Assets do not necessarily have to be repatriated, but will have to be reregistered in countries that are not classified as tax havens.
The delay in signing was due to disagreements within the government on the scope of the measure, according to Russian media, with the final agreement granting amnesty for evading taxes and customs duties but not for money laundering or corruption.
Capital outflows from Russia tripled in 2014 to $151.5 billion, the highest amount ever recorded. A further $32.6 billion left the country in the first quarter, according to Russia’s central bank.
28 May 2015, the revised South Africa-Mauritius double tax treaty was ratified by Mauritius and entered into force. It replaces the previous 1996 treaty and will apply to taxable income as of 1 January 2016.
The new treaty reflects changes in the tax policies of the two countries and international best practice. The principal changes include a revised test for dual residence for persons other than individuals; withholding taxes on interest and royalties; capital gains tax; removal of tax sparing provision; and assistance in tax collection.
Renegotiations were started in 2009, primarily to curb perceived abuse under the existing treaty, and the two countries signed the new tax treaty in May 2013. It was ratified by the South African parliament that September but the Mauritian government sought further clarification as to how the new treaty would be applied, particularly in respect of the corporate dual residency test.
Under the previous treaty, a company with dual residency was deemed to be resident in the country in which its place of effective management was situated. Under the new tiebreaker test, the exclusive state of residence of the company is to be decided by mutual agreement between South African Revenue Service (SARS) and the Mauritius Revenue Authority (MRA) on a case-by-case basis.
In order to provide greater certainty to companies that may be affected by the change, South Africa and Mauritius signed a memorandum of understanding (MOU) on 22 May, which draws on the guidance provided in commentaries to the OECD and UN Model Tax Conventions, as well as the OECD’s ongoing Base Erosion and Profit Shifting (BEPS) initiative work, to set out the factors that the two competent authorities will take into account in deciding the country of residence. These include:
The previous treaty stated that interest and royalties were taxable only in the country of residence. Under the new treaty, interest will be subject to a withholding tax of 10% and royalties 5%, both at source.
Tax on dividends have been reduced from 15% to 10% where the beneficial owner is a company which holds less than 10% of the capital of the company paying the dividends. Capital gains tax will be applicable on shares deriving more than 50% of their value from immoveable property only.
The “furnishing of services by an enterprise through employees” and “performance of professional services or other activities of an independent character” will now fall within the scope of permanent establishment.
A tax sparing provision that was included in the previous treaty has been removed. This provided that a foreign company could claim a credit to reflect any tax breaks or holidays to which it would have been entitled if operating domestically.
With an extensive network of tax treaties with African countries, low tax rates and no exchange controls, Mauritius has been a popular intermediary holding company jurisdiction. The new “mutual agreement procedure” as a tiebreaker test has therefore created considerable uncertainty for multi-nationals that have Mauritian companies in their group structures.
27 March 2015, a draft law was submitted to the Russian State Duma for the Voluntary Declaration by Individuals of Property and Bank Accounts (Deposits), which is intended to enable taxpayer to disclose their foreign property and facilitate tax-free restructurings of foreign assets.
The Draft Law provides exemption from criminal, administrative and tax liabilities with regard to the accumulation, use and disposal of declared property. The Draft Law further sets up a legal mechanism for the transfer of assets from nominees to actual beneficiaries who are Russian individuals.
The draft version provides for a full tax exemption on declared assets, and does not require repatriation of the assets back to Russia except where the property is located in a state on the Financial Action Task Force’s blacklist or in a state with which Russia does not have a double tax agreement.
4 June 2015, seven new countries joined the agreement to exchange information automatically under the OECD/G20 standard. Australia, Canada, Chile, Costa Rica, India, Indonesia and New Zealand became the latest countries to sign the Multilateral Competent Authority Agreement (MCAA), bringing the total number of jurisdictions to 61.
The MCAA implements the Standard for Automatic Exchange of Financial Information in Tax Matters, developed by the OECD and G20 countries and presented in 2014. To date, 94 jurisdictions have committed to implement the Standard, agreeing to launch the first automatic information exchanges in 2017 or 2018.
The Standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends and sales proceeds from financial assets. It covers accounts held by individuals and entities, including trusts and foundations.
The MCAA is a framework administrative agreement used in conjunction with the Convention on Mutual Administrative Assistance in Tax Matters, which is the most comprehensive multilateral instrument available to countries for all forms of tax co-operation to tackle tax evasion and avoidance.
OECD Secretary-General Angel Gurría said: “We expect a truly significant amount of additional financial information to circulate among authorities in the coming years, resulting in less tax evasion, greater tax revenues and a fairer tax system for honest taxpayers”.
17 June 2015, the Inland Revenue Authority of Singapore confirmed that new income tax rates that will be in effect for non-resident individuals with effect from the 2017 year of assessment. The increase has been introduced to maintain parity with the top marginal tax rate for resident individuals, which is being raised 2%.
Tax rates for non-resident directors – except certain reduced final withholding tax rates – will be raised from 20% to 22% for income earned between 1 January and 31 December 2016. Rental income will also be subject to the same rate.
For professionals, the rate is either 15% of gross income or 22% of net income, up from 20%. Non-resident public entertainers will continue to be subject to a 10% rate.
5 June 2015, the Swiss Federal Council submitted the dispatch on the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters and the dispatch on the required legal basis for implementing the standard for the automatic exchange of information in tax matters (AEOI) to Parliament. The vast majority of the cantons, political parties and interested parties approved the proposals in the consultation procedure.
The first proposal concerns the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters. Signed by Switzerland on 15 October 2013, this convention governs international administrative assistance in tax matters and makes provision for three forms of information exchange: upon request, spontaneous and automatic.
The Federal Council has insisted on the reservations it included in the consultation draft concerning the timing and material scope of application of the convention. Regarding the legal basis required for implementing the convention in Switzerland, the Federal Council is requesting selective amendments to the Tax Administrative Assistance Act.
The second proposal submitted to Parliament concerns the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA), which was signed by Switzerland on 19 November 2014. A corresponding federal act is required to ensure that the provisions of this agreement and of the global standard for the automatic exchange of information can be applied. The new Federal Act on the International Automatic Exchange of Information in Tax Matters (AEOI Act) contains provisions on the organisation, the procedure, the judicial channels and the applicable criminal provisions.
The standard for the automatic exchange of information can be implemented in two ways: either through a bilateral agreement, such as the one signed between Switzerland and the European Union on 27 May 2015, or by means of the Multilateral Competent Authority Agreement, which is based on the multilateral OECD/Council of Europe Convention. The latter was the means chosen for introducing the automatic exchange of information in tax matters between Switzerland and Australia. The draft is currently under consultation.
The consultation for the two proposals ran from 14 January to 21 April 2015. Parliament will begin deliberations on the proposals in autumn 2015. Even if a referendum is held, the legal basis could come into force at the start of 2017, and the exchange of information with partner states could commence in 2018, in line with what Switzerland indicated to the Global Forum in October 2014.
Parliament will have to decide not only on the legal basis but also, at a later date, on the agreements signed by Switzerland. In addition to the agreements with Australia and the EU, other agreements are currently being negotiated.
14 June 2015, a proposal to federalise Switzerland’s inheritance tax system and redistribute wealth by taxing estates and gifts over CHF2 million ($2.15 million) at a basic rate of 20%, with exceptions for company property, was rejected by 71% of voters.
Switzerland’s cabinet, both houses of parliament and all 26 cantons had recommended voters reject the proposal, as did the main business lobbies. At present only four of Switzerland’s cantons impose inheritance taxes on wealth inherited from a parent.
19 March 2015, Switzerland and the EU initialed an agreement regarding the introduction of the global standard for the automatic exchange of information (AEOI) in tax matters. Under the agreement, the 28 EU member states and Switzerland will automatically exchange information on the full range of financial account information from 2018.
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 a broad set of other financial and account balance information. This is fully in line with the new OECD/G20 global standard for the AEOI to which Switzerland committed last autumn.
The AEOI agreement is reciprocal. Withholding tax exemption for cross-border payments of dividends, interest and royalties between related entities has also been taken over from the existing taxation of savings agreement.
The new EU-Swiss agreement will be signed following authorisation by the European Council and the Swiss government, both of which are expected to be before the summer.
Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Today we are taking a decisive step towards total tax transparency between Switzerland and the EU. I am confident that our other neighbours will soon follow suit. This transparency is vital to ensure that each country can collect the tax revenues it is due.”
The Swiss Federal Council adopted a negotiation mandate on 8 October 2014 to implement AEOI under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA) with individual foreign countries with which Switzerland has close economic ties. The first such agreement was signed with Australia on 3 March 2015.
The joint declaration specified that each jurisdiction be satisfied with the confidentiality rules provided for in the other jurisdiction in respect of tax and that they intend to start collecting data in 2017 and transmit data in 2018, once the necessary legal basis has been created in both countries. The Swiss Federal Department of Finance (FDF) is to prepare a consultation draft that will then be submitted to the Swiss parliament for approval.
10 June 2015, the US Department of Justice (DoJ) announced that Société Générale Private Banking (Suisse) and Berner Kantonalbank had both signed non-prosecution agreements (NPAs) under its Swiss Bank Programme, bringing the total to 11. More than 100 Swiss banks are believed to have enrolled in the programme.
Under the terms of the NPAs, each bank has agreed to co-operate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared US accounts and pay penalties in return for the DoJ’s agreement not to prosecute these banks for tax-related criminal offences.
Since 1 August 2008, SGPB-Suisse held and managed approximately 375 US-related accounts, which included both declared and undeclared accounts, with a peak of assets under management of approximately $660 million. It will pay a penalty of $17.8 million.
BEKB held approximately 720 US-related accounts, which included both declared and undeclared accounts, with total assets of approximately $176.5 million. It will pay a penalty of $4.6 million.
Deputy Commissioner Douglas O’Donnell of the IRS Large Business & International Division said: “We are encouraged by the Justice Department’s programme success and look forward to additional information to further our investigations of those who have evaded detection and reporting as well as those who have aided them.”
US taxpayers that enter the IRS Offshore Voluntary Disclosure Programme to resolve undeclared offshore accounts pay a penalty equal to 27.5% of the high value of the accounts. However this penalty rises to 50% if, at the time the taxpayer initiates disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or co-operating with a government investigation, including an NPA.
18 March 2015, UK Chancellor George Osborne targeted up to £3 billion from a clampdown on tax avoidance in the Budget with a number of measures including confirmation that the Diverted Profits Tax – dubbed the “Google Tax” – would come into force from 1 April. The 25% levy will be applied to multinational businesses seeking to shift profits made in the UK to jurisdictions overseas.
The government also expects to raise £560m by 2020 following the introduction of the OECD’s Common Reporting Standard, a global anti-evasion initiative that will provide details of offshore accounts held in more than 90 countries.
A new “last chance” disclosure facility will be introduced next year to encourage holders of undeclared accounts to come forward before the government receives foreign bank data in 2017. It will offer less generous terms than the existing Liechtenstein and Crown Dependencies’ disclosure facilities, which will close early — at the end of 2015, instead of in April 2016.
As a result of the early closure of the Liechtenstein disclosure facility, the UK Treasury expects to receive revenue more quickly while neutralising criticism about the generosity of the initiative, which offers low penalties and immunity from prosecution.
The biggest avoidance measure in the Budget was aimed at “contrived loss arrangements” used to cut corporate tax bills. The measure is to prevent companies from bringing forward reliefs such as trading losses, and was brought into force with immediate effect. The move will curb companies’ ability to make use of previous years’ losses.
Businesses also face anti-avoidance measures on loss refreshment schemes, a new penalty regime based on amount of tax payable under the general anti-abuse rule (GAAR) and a commitment from HMRC to increase the number of accelerated payment notices to companies, whereby disputed tax is paid to HMRC upfront prior to litigation.
Individual taxpayers were targeted with “special” reporting requirements and a surcharge for any inaccurate tax returns. The government will also seek to deny serial avoiders access to tax reliefs where they have a track record of abusing reliefs. The name-and-shame regime will be further extended.
HM Revenue & Customs will extend is power to issue conduct notices to a broader range of people, to include not only promoters of tax avoidance schemes but advisers and distributors. A review on the avoidance of inheritance tax through the use of deeds of variation will report by the autumn.
27 March 2015, the UK Treasury sent letters to the governments of the British Virgin Islands and the Cayman Islands to request that they set out specific timetables for implementing central registers or similar systems of companies revealing corporate ownership by November. It has also written to Bermuda, which already has a central register, asking it to make the information more accessible to law enforcement agencies.
Prime Minister David Cameron proposed plans for public registers of company ownership in 2013, during a G8 summit in Northern Ireland, which was met with opposition by the Overseas Territories who said it would damage the UK’s interests.
Last November, leaders of the G20 nations said that creating central registries of beneficial ownership was just one way of implementing the principle that such information should be “adequate, accurate and current” and held onshore.
The BVI held a consultation, which found that four out of five respondents were opposed to a central register because of compliance costs, the impact on its competitiveness and the risk of fraud. But it said it was working on initiatives aimed at achieving the same result, adding that the UK government “has been extremely engaging and supportive”.
In January, the Cayman Islands also announced it would not introduce a central register. But its government said it would pass legislation requiring corporate service providers to produce beneficial ownership information to tax, regulatory and law enforcement within a target time of 24 hours.
The new letters, signed by Financial Secretary to the Treasury David Gauke and Foreign Officer Minister James Duddridge, were sent a day after the UK’s own legislation to improve transparency around corporate ownership – contained in the Small Business, Enterprise and Employment Act – gained Royal Assent. UK companies will be required to keep a register of individuals with significant financial control from January next year. This will be publicly accessible by April 2016.
The UK’s register is expected to affect about 2.5 million companies and partnerships. In all but a minority of cases — estimated to be about 400,000 — the beneficial owner would be the same as the legal owner, whose name already appears on a public share register. The proposal is not expected to cover companies listed on the stock exchange, which are already subject to strict disclosure requirements.
The EU’s fourth money laundering directive will introduce corporate registers that will be publicly available to those with a “legitimate interest”. Advocates of public registries say the ability of the public to scrutinise filings will make it more effective.