Owen, Christopher: Global Survey - April 2015

Archive
  • Abu Dhabi financial free zone selects English common law
    • 7 January 2015, the Abu Dhabi Global Market (ADGM) published draft legislation covering its operations for consultation. The new financial free zone will have its own administration, court system and tax incentives to attract banks and companies from around the world.

      Under the proposals, the ADGM will follow the Dubai International Financial Centre (DIFC) in basing its legal framework on English common law. “English common law, as it stands from time to time, will therefore govern matters such as contracts, tort, trusts, equitable remedies, unjust enrichment, damages, conflicts of laws, security, and personal property,” ADGM said in one of six consultation papers.

      It will also seek to adopt the most effective legislation from around the world. “ADGM has the opportunity to take the best of the UK approach, while avoiding some of its historic peculiarities that have been removed or abandoned by the best practice of other jurisdictions,” it said. For example, shares in ADGM companies will not have a par value, in line with the approach taken in jurisdictions such as Hong Kong, Singapore and Australia.

      It will also introduce a new type of “restricted scope company” with lighter disclosure and compliance requirements which, it said, would be “holding vehicles for professional investors and limited instances of institutions for whom less regulation and a greater degree of confidentiality will be appropriate.” The ADGM is further considering extending this regime to include entities owned entirely by an individual or close family members.

  • China strengthens rules on indirect transfers of PRC entities
    • 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.

  • Cyprus relaxes restrictions on capital movement
    • 8 December 2014, the Finance Ministry published Decree 32 under Articles 4 and 5 of the Enforcement of Restrictive Measures on Transactions in Case of Emergency Law of 2013, which has further relaxed restrictions on capital movement. Under the Decree:

      Central Bank of Cyprus approval is no longer required for payments or transfers of funds abroad up to €2 million (previously €1 million);
      The transfer of deposits or funds abroad up to €10,000 (previously €5,000) is now freely permitted;
      Physical exports of euro notes or foreign currency notes are permitted up to €6,000 (previously €3,000) per natural person, per journey abroad.
      Capital controls were imposed on the island’s banking sector in 2013 as part of a European Union agreement for a €10 billion euro international bailout that forced major depositors at the two biggest banks in Cyprus to pay part of the cost of the rescue.

  • 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 Council and Parliament endorse money-laundering agreement
    • 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:

      Name
      Month and year of birth
      Nationality
      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.

  • G20 Finance Ministers back OECD BEPS project
    • 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.

  • Italy opens voluntary disclosure programme for foreign assets
    • 4 December 2014, the Italian parliament approved legislation to introduce a voluntary disclosure programme under which Italian citizens can regularise undeclared capital held abroad. Taxpayers will be obliged to pay all the taxes due, but will be subject to reduced administrative penalties and immunity from some criminal penalties.

      Under the final Decree, effective as of 1 January 2015, voluntary “self-declarations” of undeclared assets have to be made by 30 September 2015, but persons who are already subject to a tax audit or investigation will not be eligible.

      An application for inclusion in the programme will need to contain details of all investments or financial assets held – directly or indirectly – abroad for all the tax periods for which the statutes of limitation have yet to expire up to 30 September 2014. Applicants must be identified by name and will have to provide all relevant bank and other financial intermediary details, so that the history of, and all income from investments can be reconstructed.

      The tax rates applied are the statutory rates but it is possible to benefit from a 27% flat tax rate, provided that the average financial assets value is less than €2 million in each tax year. Taxable income will be calculated as 5% of the value of the financial assets at the end of each tax year.

      A reduction of 50% of the penalties will apply if the undisclosed financial assets were held in or are transferred to Italy, another EU Member State or to an EEA Member State that is a “cooperative country”. If undisclosed financial assets were held in a currently black-listed non-cooperative state, the related penalties are doubled, unless the non-cooperative state signs an agreement on exchange of information within 60 days of the law entering into force.

      Participants in the programme will have to remit all taxes that would have been payable on undeclared investments, in one lump sum or three monthly instalments, but with much reduced administrative and criminal penalties. They will also be free from criminal prosecution, including a new criminal offence of money laundering, which was introduced under the Decree.

  • Switzerland and Italy initial treaty protocol
    • 19 December 2014, Switzerland and Italy initialed a Protocol of Amendment to their existing 1976 tax treaty to provide for future cooperation in tax matters as well as a “roadmap” containing a clear political commitment for bilateral relations in the area of taxation and finance. Both documents were due to be signed before the deadline of 2 March 2015 set under Italy’s voluntary disclosure programme.

      The protocol makes provision to introduce the OECD standard for the exchange of information upon request, which will ensure that Switzerland will be removed from Italy’s blacklist of countries considered uncooperative in tax matters. This will allow for a simplified regularisation of Italian bank clients’ assets in Switzerland under the voluntary disclosure programme and an orderly transition to automatic exchange of information in the future.

      The Italian parliament approved, on 4 December 2014, legislation to introduce a voluntary disclosure programme under which Italian citizens can regularise undeclared capital held abroad. Taxpayers will be obliged to pay all the taxes due, but will be subject to reduced administrative penalties and immunity from some criminal penalties, including a new criminal offence of money laundering, which was introduced under the Decree.

      Under the final Decree, effective as of 1 January 2015, voluntary “self-declarations” of undeclared assets have to be made by 30 September 2015, but persons who are already subject to a tax audit or investigation will not be eligible.

      The tax rates applied are the statutory rates but it is possible to benefit from a 27% flat tax rate, provided that the average financial assets value is less than €2 million in each tax year. Taxable income will be calculated as 5% of the value of the financial assets at the end of each tax year.

      A reduction of 50% of the penalties will apply if the undisclosed financial assets were held in or are transferred to Italy, another EU Member State or to an EEA Member State that is a “cooperative country”. If undisclosed financial assets were held in a currently blacklisted non-cooperative state, the related penalties are doubled, unless the non-cooperative state signs an agreement on exchange of information within 60 days of the law entering into force.

  • UK Autumn Statement targets tax evasion and aggressive tax planning
    • 3 December 2014, UK Chancellor George Osborne announced a raft of new measures to tackle tax evasion and aggressive tax planning in the 2014 Autumn Statement, which included increasing the amount and scope of civil penalties for tax evasion and a new “Google tax” on profits shifted abroad.

      The existing offshore penalty regime imposes penalties of up to 200% of the “potential lost revenue” based on three categories of offshore territories, which broadly reflect the quality of the information exchange arrangements in place. This regime will be extended to:

      Include inheritance tax;
      Apply to domestic offences where proceeds of non-compliance are hidden offshore;
      Update the territory classification system to reflect jurisdictions which have now adopted the standard of automatic tax information exchange;
      Include a new aggravated penalty of up to a further 50% where hidden funds are moved to circumvent international tax transparency agreements.
      The Disclosure of Tax Avoidance Schemes (DOTAS) regime will be strengthened to prevent circumvention and there will also be greater public disclosure of DOTAS schemes and their promoters. A new taskforce to police the DOTAS regime will be introduced.

      The government announced the introduction of a new Diverted Profits Tax – the so-called “Google Tax” – of 25% as of 1 April 2015, which will apply to multinational companies who seek to use artificial arrangements to divert profits overseas so as to avoid UK tax.

      Osborne also announced the abolition of the “cliff edge” thresholds for Stamp Duty Land Tax (SDLT) in favour of a more graduated system. Under the new rules, there will be no tax payable for houses worth less than £125,000, 2% on the next portion up to £250,000, 5% up to £925,000, 10% up to £1.5m and 12% on any higher portion.

      The Annual Tax on Enveloped Dwellings (ATED) is to be increased. From 1 April 2015, the ATED charge for residential properties owned through a company or other “enveloped” structure will be raised from £15,400 to £23,350 for properties worth £2m to £5m, from £35,900 to £54,450 for those worth £5m to £10m, from £71,850 to £109,050 for properties worth £10m to £20m and from £143,750 to at £218,200 for properties above £20m. Non-resident owners of UK residential property will also be subject to CGT at 28% on any gains realised on residential property after April 2015.

      The annual charge for those who elect to be taxed on the remittance basis is set to increase for those who have been resident for at least 12 out of 14 years, from £50,000 to £60,000. A new level of charge will also be introduced for those who have been resident for 17 out of the last 20 years, which will be set at £90,000.

      The government will also consult, in early 2015, on introducing further deterrents for serial avoiders and on penalties for tax avoidance cases where the General Anti-Abuse Rule applies.

      The government said it would be proceeding with a proposal to introduce a single settlement nil-rate band of IHT to multiple trusts held by an individual. Instead it will introduce new rules to target avoidance through the use of multiple trusts and also simplify the calculation of trust rules in the Finance Bill 2015.

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