Owen, Christopher: Global Survey - January 2016

11 December 2016, the Perpetuities and Accumulations Amendment Act 2015, which introduces a streamlined procedure for trustees seeking to remove or alter a perpetuity period or similar limitation on duration for pre-2009 Bermuda trusts or trusts originally established in other jurisdictions, was brought into effect.
Under the Perpetuities and Accumulations Act 2009, Bermuda abolished the Rule Against Perpetuities for all trusts established after 1 August 2009. However it continued to apply to Bermuda law trusts established prior to that date and to any trusts, whenever established, that owned real property situated in Bermuda. The Rule also generally continued to apply to trusts established after 1 August 2009 that are created under a foreign law that applies a perpetuity limitation.
Under Section 4 of the 2009 Act, trustees could apply to the Bermuda Courts to alter the application of the Rule to pre-2009 trusts through Section 47 of the Trustee Act 1975. The new Amendment Act creates an express jurisdiction to make application to the Bermuda Courts, which is intended to provide a simplified and more cost effective process.

18 December 2015, the Cayman Islands government tabled a bill to provide for the establishment of a new type of corporate entity in the Cayman Islands, the Cayman limited liability company (LLC). Following publication of the bill in the Cayman Islands Gazette for consultation, it is expected that the LLC Bill will be implemented into law during the first quarter of 2016.
The LLC Bill is based largely based on the Delaware LLC model, but with modifications required to fit with existing Cayman Islands law, including the preservation of the rules of equity and common law.
A Cayman LLC will offer separate legal personality and limited liability for its members. The internal operations of a Cayman LLC can be tailored in the operating agreement to the exact needs of the LLC members in respect of capital accounting and commitments, allocation of profits and losses, distributions, voting rights and classes of interest.
The LLC agreement also stipulates whether the management of the LLC is determined by the majority of its members or by in one or more managers as set out in the LLC agreement. There is no Cayman Islands residency requirement for managers. Cayman LLCs must be registered with the registrar of Limited Liability Companies but the LLC agreement does not have to be filed.
The LLC Bill permits a Cayman LLC to be formed for any lawful business, purpose or activity. It is required to have at least one member. There is no Cayman Islands residency requirement for members but an LLC must have a registered office in the Cayman Islands.
The LLC Bill makes provision for the applicability of other Cayman Islands laws to a LLC such that an LLC can automatically be structured under the Mutual Funds Law, the Exempted Limited Partnership Law or the Securities Investment Business Law.
The LLC Bill also makes provision for Cayman LLCs to merge or consolidate with Cayman exempted companies or any foreign entity with separate legal personality. Transfers into and out of Cayman are also permitted.
Consistent with OECD commitments, provision is made for various registers to be maintained and, as appropriate, filed or made available to Cayman Islands authorities. These include a register of members, register of managers and a register of mortgages and charges. Books of account must be maintained for at least five years.

11 December 2015, Cyprus and Ukraine signed a protocol to their existing tax treaty, which entered into force on 1 January 2014. The protocol, when ratified by both countries, will enter into force no earlier than 1 January 2019 when the current treaty expires.
The protocol includes a “most favoured nation” clause in respect of taxes on interest, dividends, royalties and capital gains, ensuring that Cyprus is treated no less favourably than any of Ukraine's treaty partners.
The existing withholding tax of 15% on dividends paid by Ukrainian companies to Cypriot shareholders is reduced to 5% if the beneficial owner owns more than 20% of the share capital of the company paying the dividend or has invested more than €100,000 in shares. Under the protocol, the lower rate will apply only if both conditions are satisfied. The rate of withholding tax on interest paid by a Ukrainian debtor to a beneficial owner in Cyprus will also be increased from 2% to 5%.
The treaty provides that capital gains derived from movable property – including shares in property-rich companies, whose assets principally comprise immovable property – are taxable only in the country of residence of the person making the disposal. Under the protocol, gains on shares in property-rich companies will also be taxable in the country in which the immovable property is located.

8 December 2015, the European Council adopted a new directive that will require EU member states to exchange information automatically on advance cross-border tax rulings and advance pricing arrangements (APAs) as from 1 January 2017. Member states receiving the information will be able to request further information where appropriate.
The Commission will be able to develop a secure central directory, where the information exchanged would be stored. The directory will be accessible to all member states and, to the extent that it is required for monitoring the correct implementation of the directive, to the Commission.
The text amends directive 2011/16/EU on administrative cooperation in the field of taxation, which sets out practical arrangements for exchanging information. Member states will be required to transpose the new rules into national law before the end of 2016.
Concerning rulings issued before 1 January 2017, the following rules will apply:
IF ADVANCE CROSS-BORDER RULINGS AND ADVANCE PRICING ARRANGEMENTS ARE ISSUED, AMENDED OR RENEWED BETWEEN 1 JANUARY 2012 AND 31 DECEMBER 2013, SUCH COMMUNICATION SHALL TAKE PLACE UNDER THE CONDITION THAT THEY ARE STILL VALID ON 1 JANUARY 2014;IF ADVANCE CROSS-BORDER RULINGS AND ADVANCE PRICING ARRANGEMENTS ARE ISSUED, AMENDED OR RENEWED BETWEEN 1 JANUARY 2014 AND 31 DECEMBER 2016, SUCH COMMUNICATION SHALL TAKE PLACE IRRESPECTIVELY OF WHETHER THEY ARE STILL VALID OR NOT;MEMBER STATES WILL HAVE THE POSSIBILITY (NOT AN OBLIGATION) TO EXCLUDE FROM INFORMATION EXCHANGE ADVANCE TAX RULINGS AND PRICING ARRANGEMENTS ISSUED TO COMPANIES WITH AN ANNUAL NET TURNOVER OF LESS THAN €40 MILLION AT A GROUP LEVEL, IF SUCH ADVANCE CROSS-BORDER RULINGS AND ADVANCE PRICING ARRANGEMENTS WERE ISSUED, AMENDED OR RENEWED BEFORE 1 APRIL 2016. HOWEVER, THIS EXEMPTION WILL NOT APPLY TO COMPANIES CONDUCTING MAINLY FINANCIAL OR INVESTMENT ACTIVITIES.
The directive is in line with developments within the OECD and its work on tax base erosion and profit shifting. The Commission proposed the directive as part of a package of measures in March 2015. The Council reached political agreement on the directive on 6 October 2015. The European Parliament gave its opinion on 27 October 2015.

3 December 2015, the European Commission opened a formal probe into Luxembourg's tax treatment of McDonald's on grounds that a tax ruling granted by Luxembourg may have granted the US food chain an advantageous tax treatment in breach of EU State aid rules
Commissioner Margrethe Vestager, in charge of competition policy, said: "A tax ruling that agrees to McDonald's paying no tax on their European royalties either in Luxembourg or in the US has to be looked at very carefully under EU state aid rules. The purpose of Double Taxation treaties between countries is to avoid double taxation – not to justify double non-taxation."
The Commission requested information on the tax rulings in summer 2014. Based on two tax rulings given by the Luxembourg authorities in 2009, the Commission found that McDonald's Europe Franchising had subsequently paid no corporate tax in Luxembourg despite recording large profits – more than €250 million in 2013 – from royalties paid by franchisees operating restaurants in Europe and Russia for the right to use the McDonald's brand and associated services.
The company's head office in Luxembourg was designated as responsible for the company's strategic decision-making, but the company also had two branches – a Swiss branch that had limited activities related to the franchising rights, and a US branch that had no real activities. The royalties received by the company were transferred internally to the US branch of the company.
A first tax ruling given by the Luxembourg authorities in March 2009 confirmed that McDonald's Europe Franchising was not due to pay corporate tax in Luxembourg on the grounds that the profits were to be subject to taxation in the US under the Luxembourg-US double tax treaty. Under the ruling, McDonald's was required to submit proof every year that the royalties transferred to the US via Switzerland were declared and subject to taxation in the US and Switzerland.
However McDonald's Europe Franchising did not have any taxable presence in the US under US law and therefore McDonald's could not provide any proof that the profits were subject to tax in the US, as required by the first ruling. McDonald's clarified this in a submission requesting a second ruling, insisting that Luxembourg should nevertheless exempt the profits not taxed in the US from taxation in Luxembourg.
The Luxembourg authorities then issued a second tax ruling in September 2009 according to which McDonald's was no longer required to prove that the income was subject to taxation in the US. McDonald's argued that the US branch of McDonald's Europe Franchising constituted a "permanent establishment" under Luxembourg law, because it had sufficient activities to constitute a real US presence. Simultaneously, McDonald's argued that its US-based branch was not a "permanent establishment" under US law because, from the perspective of the US tax authorities, its US branch did not undertake sufficient business or trade in the US.
The Luxembourg authorities recognised the McDonald's Europe Franchising's US branch as the place where most of their profits should be taxed, whilst US tax authorities did not recognise it. The Luxembourg authorities therefore exempted the profits from taxation in Luxembourg, despite knowing that they in fact were not subject to tax in the US.
The Commission will now investigate further to see if its concerns are justified that the second tax ruling in particular provided McDonald's Europe Franchising with a favourable tax treatment in breach of EU state aid rules. It will assess whether the Luxembourg authorities selectively derogated from the provisions of their national tax law and the Luxembourg-US double tax treaty and whether the Luxembourg authorities therefore gave McDonald's an advantage not available to other companies in a comparable factual and legal situation
The opening of an in-depth investigation gives interested third parties and the Member States concerned an opportunity to submit comments. It does not prejudge the outcome of the investigation.
Since June 2013, the Commission has been investigating the tax ruling practices of Member States. It extended this information inquiry to all Member States in December 2014. In October 2015, the Commission found that tax rulings for Fiat in Luxembourg and Starbucks in the Netherlands granted illegal selective tax advantages to the companies in breach of EU state aid rules. The Commission also has ongoing in-depth state aid investigations into tax rulings concerning Apple in Ireland, Amazon in Luxembourg and Belgium's "excess profit" ruling system.

8 December 2015, the European Council approved the conclusion of agreements with Liechtenstein and Switzerland for automatic exchange with EU member states information on the financial accounts of each other's residents.
The agreements upgrade 2004 agreements that ensured that Liechtenstein and Switzerland applied measures equivalent to those in an EU directive on the taxation of savings income. The EU-Switzerland agreement was signed on 27 May 2015 and the EU-Liechtenstein agreement on 28 October 2015. The Council also approved the signing of a similar taxation agreement with San Marino.

16 December 2015, the European Parliament approved a resolution setting out the legal steps needed to improve corporate tax transparency, coordination and EU-wide policy convergence. The move to counter aggressive corporate tax planning and evasion by multinationals in Europe was triggered by the November 2014 “Luxleaks” revelations. The EU Commission will have to respond to every legal recommendation, even if it does not submit a legislative proposal.
“This report shows the determination of both the European Parliament and the people of Europe to see real legislative change to prevent companies jumping across borders to reduce their tax bills to almost zero. The 'Luxleaks' scandal showed how much these corporations have been getting away with,” said co-rapporteur Anneliese Dodds.
The recommended legal steps build on the work of Parliament’s Special Committee on Tax Rulings, whose recommendations were approved at the 26 November plenary session. MEPs ask the Commission, inter alia, to:
TABLE A PROPOSAL FOR COUNTRY-BY-COUNTRY REPORTING ON PROFIT, TAX AND SUBSIDIES BY JUNE 2016;TABLE A PROPOSAL FOR INTRODUCING A "FAIR TAX PAYER" LABEL;INTRODUCE A COMMON TAX BASE (CCTB) AS A FIRST STEP, WHICH LATER ON SHOULD BE CONSOLIDATED AS WELL (CCCTB);TABLE A PROPOSAL FOR A COMMON EUROPEAN TAX IDENTIFICATION NUMBER;TABLE A PROPOSAL FOR LEGAL PROTECTION OF WHISTLE-BLOWERS;IMPROVE CROSS-BORDER TAXATION DISPUTE RESOLUTION MECHANISMS;TABLE A PROPOSAL FOR A NEW MECHANISM WHEREBY MEMBER STATES SHOULD INFORM EACH OTHER IF THEY INTEND TO INTRODUCE A NEW ALLOWANCE, RELIEF, EXCEPTION, INCENTIVE, ETC. THAT MAY AFFECT THE TAX BASE OF OTHERS;ESTIMATE THE CORPORATE TAX GAP (CORPORATE TAXES OWED MINUS WHAT HAS BEEN PAID);STRENGTHEN THE MANDATE AND IMPROVE TRANSPARENCY OF THE COUNCIL CODE OF CONDUCT WORKING GROUP ON BUSINESS TAXATION;PROVIDE GUIDELINES REGARDING “PATENT BOXES” SO AS TO ENSURE THEY ARE NOT HARMFUL;COME UP WITH COMMON DEFINITIONS FOR "PERMANENT ESTABLISHMENT" AND "ECONOMIC SUBSTANCE" SO AS TO ENSURE THAT PROFITS ARE TAXED WHERE VALUE IS GENERATED;COME UP WITH AN EU DEFINITION OF "TAX HAVEN" AND COUNTER-MEASURES FOR THOSE WHO USE THEM; ANDIMPROVE THE TRANSFER-PRICING FRAMEWORK IN THE EU.
The Commission has three months to respond to the recommendations, either with a legislative proposal or with an explanation for not doing so. Parliament has agreed on a new six-month mandate for the Special Committee on Tax Rulings, which includes close monitoring of the legal initiatives related to corporate taxation and further fact-finding. The new committee will also follow up on on-going work by international institutions, including the OECD and G20.

10 December 2015, the UK government confirmed that its new 3% surcharge on the purchase of additional properties will be applied to foreign buyers and non-doms, as well as to UK residents.
Chancellor George Osborne announced the surcharge as part of his Autumn Statement last November. It raises the top rate of stamp duty land tax (SDLT) to 15% on affected properties as from April 2016. The term “additional properties” explicitly includes second homes as well as residential lets.
Responding to a question in parliament, Treasury Minister David Gauke said: “Foreign investors and people not domiciled in the UK will be treated in exactly the same way as UK residents under these new rates. If purchasers own another property anywhere else in the world and are purchasing an additional property in England, Wales or Northern Ireland they will be charged under the new rates.”

9 December 2015, HM Revenue & Customs (HMRC) agreed to raise the minimum threshold under its proposed new strict liability criminal offence of offshore tax evasion, from £5,000 to £25,000 of potential tax lost per year.
It said the move, which followed an industry consultation, would serve to target the offence at only the most significant cases of non-compliance because the offence could only apply to the top 5% of evaders who are currently pursued through civil penalties. It would mean that a higher rate taxpayer would need between £1.25 million and £6.25 million savings in a bank account (if the interest rate was between 1% and 5%) before this offence applied.
The government also confirmed that the offence would not come into effect until April 2017 at the earliest. The offence will not apply retrospectively but will first apply in respect of the tax year in which the offence is introduced.
A further full consultation on this offence and accompanying guidance will be held in early 2016, ready for introduction before the OECD international automatic exchange of information begins operating in 2017.

4 December 2015, President Obama signed into law a new provision to the Internal Revenue Code that gives the US government the right to revoke or deny the passports of US persons who owe more than US$50,000 in federal taxes. It was appended to a massive highway funding bill, H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act”.
The new provision (section 7345) authorises the Treasury Secretary to certify, to the Secretary of State, that a taxpayer has a “seriously delinquent tax debt". A "seriously delinquent tax debt" is greater than US$50,000 (including penalties and interest) for which the IRS has either filed a lien or levy. On receiving the certificate, the Secretary of State can deny, revoke, or limit the taxpayer's US passport.
Taxpayers who have entered into installment agreements or offers-in-compromise, or who have requested collection due process hearings or innocent spouse relief are exempt from the application of this provision, as are those who need to travel for emergency or humanitarian purposes.

17 December 2015, the Luxembourg Parliament enacted Bills 6847, 6891 and 6900 in respect of the 2016 Luxembourg budget. The enacted bills, which introduce new tax measures affecting both corporations and individuals, came into effect on 1 January 2016.
The new law transposes the recent changes made by the European Commission to the EU Parent-Subsidiary Directive by introducing a general anti-abuse rule and an anti-hybrid rule into Luxembourg’s domestic participation exemption regime. Profit distributions falling within the scope of the Directive will no longer be tax exempt in Luxembourg. Dividends paid to EU companies may also be subject to withholding tax if the transaction is considered as abusive.
The existing Luxembourg IP regime, which allows a tax exemption on 80% of the net income and capital gains derived or deemed to be derived from a wide variety of intellectual property, is repealed in line with the recommendations of the EU’s Code of Conduct for Business Taxation Group and the OECD BEPS Project. The regime will begin to phase out on 1 July 2016, with some grandfathering rules applying to taxpayers currently benefitting under the regime.
To bring Luxembourg tax law into conformity with EU legislation, the minimum corporate income tax (CIT) provisions are repealed and will not apply after the 2015 tax year. In its place a minimum NWT charge will apply from 1 January 2016, for all corporate entities with a statutory seat or central administration in Luxembourg. The measures imposing the new charge are similar to the repealed minimum corporate income tax.
A temporary tax amnesty regime is also introduced for the years 2016 and 2017. To benefit from this measure, taxpayers will have to file an amended tax return voluntarily and pay the tax due plus a penalty of 10% (of the tax due) if reported in 2016, or of 20% if reported in 2017.

4 December 2015, the Luxembourg government announced that it would be appealing the European Commission's decision that a transfer pricing agreement between Fiat Finance and Trade and the Luxembourg tax authorities constituted unlawful State Aid.
Last October, the Commission found that Luxembourg's agreement with Fiat did not reflect economic reality and granted a selective tax advantage to the company in breach of EU law. It ordered Luxembourg to recover €20m in "unpaid tax" from Fiat.
The Luxembourg government said the Commission has used unprecedented criteria in establishing the alleged State aid, thereby putting into jeopardy the principle of legal certainty. In particular, it said, the Commission had not established in any way that Fiat received selective advantages within the meaning of article 107 of the Treaty on the Functioning of the EU.

2 December, the British Overseas Territories (OTs) – including the British Virgin Islands, Cayman Islands, Turks and Caicos Islands and Bermuda – will not be required to implement central registers of the beneficial ownership of companies registered there, provided that they put "similarly effective" systems in place.
The political leaders and representatives of the UK and its OTs met as the Joint Ministerial Council (JMC) in London. The UK plans to introduce a central, publicly accessible register of “persons with significant control” of UK companies in June 2016, in line with a commitment made by members of the G8 leading global economies in June 2013.
It further called for similar registers to be introduced in all its OTs and Crown Dependencies of Jersey, Guernsey and the Isle of Man. Ahead of the JMC, Foreign Office minister James Duddridge stated the UK's explicit requirements as follows:
UK LAW ENFORCEMENT AND TAX AUTHORITIES MUST BE ABLE TO ACCESS COMPANY BENEFICIAL OWNERSHIP INFORMATION WITHOUT RESTRICTION, SUBJECT TO RELEVANT SAFEGUARDS;THESE COMPETENT AUTHORITIES SHOULD BE ABLE TO QUICKLY IDENTIFY ALL COMPANIES THAT A PARTICULAR BENEFICIAL OWNER HAS A STAKE IN WITHOUT NEEDING TO SUBMIT MULTIPLE AND REPEATED REQUESTS; ANDCOMPANIES OR THEIR BENEFICIAL OWNERS MUST NOT BE ALERTED TO THE FACT THAT AN INVESTIGATION IS UNDER WAY.
However most OTs and the Crown Dependencies had previously indicated they did not want to introduce central registries because they were already in compliance with international standards and, to do so, would put them at a competitive disadvantage with other jurisdictions.
At the JMC, OTs did not accede either to the UK’s request to create public registers of beneficial ownership or to allow UK and domestic law enforcement and tax authorities be given unrestricted access to information. However, according to the JMC communiqué, there was an agreement to hold beneficial ownership information in their respective jurisdictions via central registers or “similarly effective systems”.
OTs also agreed to give the “highest priority” to implementation, including through technical dialogue with UK law enforcement authorities on further developing a timely, safe and secure information exchange process. Progress on implementation will be kept under "continuous and close review".

9 December 2015, Royal Bank of Scotland agreed to pay €23.8 million to settle claims by German prosecutors that its Swiss Coutts & Co. Ltd. private bank assisted clients to evade tax. The penalty was levied by a Dusseldorf court and was set in proportion to the undeclared assets of German customers the bank handled.
RBS agreed to sell the international business of Coutts to Switzerland’s Union Bancaire Privee (UBP) last March. It provided an indemnity to protect UBP from the German investigation. The settlement with the German prosecutors is understood to include immunity for any current or former staff.

15 December 2015, Spanish opera singer Montserrat Caballé was given a six-month suspended jail sentence for tax fraud. The sentence was the result of an agreement with prosecutors that avoided the need for a trial. All first convictions resulting in sentences of less than two years are suspended in Spain. She was also fined €326,000.
Prosecutors claimed that she had earned more than €2 million from a number of recordings and concerts in countries that included Spain, Germany, Switzerland, Italy and Russia in 2010. The singer claimed she was a resident in neighbouring Andorra at the time but, it was alleged, she was actually living in Spain "with the sole objective of not paying taxes to the Spanish state".
According to court documents, Caballé allegedly signed all her concert contracts through a company registered in Andorra and deposited the income in an Andorran bank account with the aim of "ensuring the treasury did not have knowledge of her income and her true residency in Spain".
In a brief hearing, the singer ratified an out-of-court agreement in which she admitted that she had avoided paying €508,000 in taxes related to her earnings from 2010. Caballé, who is 82 years old and has avoided public engagements since a stroke in 2012, appeared at the hearing via videolink from her home.
The singer said that she had been unaware of how her income was being handled for tax purposes, and that she had become confused after a previous adviser had passed away. The governments of Spain and Andorra signed a bilateral Tax Information Exchange Agreement (TIEA) in 2010.

1 January 2016, Saint Lucia started accepting applications for its new citizenship by investment programme introduced by the Citizenship by Investment Act (No. 14 of 2015), which came into force on 24 August 2015.
Under the regulations published on 2 October, the number of successful applications per year will initially be capped at 500 and applicants will be subject to a higher qualifying criteria. This includes a requirement to prove a minimum net worth of US$3 million in addition to making a qualifying minimum investment in either of:
THE SAINT LUCIA NATIONAL ECONOMIC FUND (US$200,000);AN APPROVED REAL ESTATE PROJECT (US$300,000);AN APPROVED ENTERPRISE PROJECT (US$3.5 MILLION AND NO LESS THAN THREE PERMANENT JOBS);
A purchase of government bonds (US$500,000 in five-year holding bond).

27 November 2015, Hervé Falciani, a former IT employee at HSBC’s Geneva private bank who leaked information on account holders to foreign tax authorities, was convicted of aggravated industrial espionage by a Swiss court. He was sentenced to five years in prison.
Falciani fled Geneva in 2008 with files that were leaked to the media and were alleged to show evidence of tax evasion by clients. French newspaper Le Monde has said it identified more than 106,000 clients. The Swiss prosecutor argued he was not a whistleblower because his actions, including approaches to banks in Lebanon, suggested he had wanted to sell the stolen data.
HSBC welcomed the judgment stating that the ruling demonstrated that the leak of the data was for the "sole purpose of reselling them for his own enrichment."
Falciani, who did not attend the trial, was cleared of others charges of data theft and violating commercial and banking secrecy. As a French and Italian citizen residing in France, he cannot be extradited to Switzerland and there are no legal proceedings against him in France.

2 December 2015, the Swiss Senate followed the House of Representatives by approving a legal framework for the automatic exchange of tax information. Only four senators, all from the conservative right Swiss People’s Party, voted against the measure, which paves the way for an end to bank secrecy.
Currently, Switzerland sends data about account holders to foreign governments and institutions upon request only. However, the new legal framework will enable such information to flow automatically to certain countries, among them Australia and the 28 European Union nations, with which Switzerland has already concluded automatic exchange agreements.
Switzerland has already signed a similar information exchange deal with the United States through a bilateral Intergovernmental Agreement under the Foreign Account Tax Compliance Act (FATCA).
Those agreements make up part of Switzerland’s commitment to share foreign clients’ account data with other countries by 2018 as part of a new global Common Reporting Standard designed by the OECD. Agreements with individual countries will have to be ratified separately by parliament, but the Swiss Senate’s decision creates the legal framework for their acceptance.

9 December 2015, HM Revenue & Customs published draft legislation to neutralise the tax effect of hybrid mismatch arrangements in accordance with the recommendations of Action 2 of the G20/OECD Base Erosion and Profit Shifting (BEPS) project. It is designed to defeat aggressive tax planning by multinational companies.
UK resident companies, and non-resident companies carrying on a trade in the UK through a permanent establishment, are chargeable to corporation tax on their profits. The computation of those profits is, on the issue of a relevant notice, subject to anti-arbitrage legislation set out in Part 6 of Taxation (International and Other Provisions) Act 2010 (TIOPA).
The proposed new measure neutralises the tax mismatch created by the hybrid arrangement by changing the tax treatment of either the payment or the receipt, depending on the circumstances. The rules are designed to work whether both the countries affected by a cross-border hybrid arrangement have introduced the OECD rules, or just one. This measure deals with mismatches in two ways, described as a “primary response” and a ‘”secondary response”.
In the case of double deductions, the primary response is to deny a deduction to the parent company. If this does not occur because the tax law in the country in which the parent company is resident does not provide for this, the secondary response is to deny the deduction to the hybrid entity.
In the case of deduction/non-inclusion, the primary response is to deny a deduction to the payer. If this does not occur, the secondary response is to bring the receipt into charge for the recipient.
The effect of this change is that hybrid mismatch outcomes involving hybrid entities and financial instruments will be countered through the primary response, which is a disallowance of deductions where the UK is the payer jurisdiction in respect of a deduction/non-inclusion mismatch. Where the UK is the payee jurisdiction, and the primary response has not been applied in another jurisdiction, then the UK will bring the receipt into charge.
Legislation will be introduced in Finance Bill 2016 to substitute Part 6A for Part 6 of TIOPA 2010. The measure applies to payments made on or after 1 January 2017 involving hybrid entities or instruments that give rise to a hybrid mismatch outcome.

23 December 2015, the Department of Justice announced it had reached agreements with 75 Swiss banks, imposed penalties in excess of $1 billion and secured “voluminous and detailed information regarding the illegal conduct of financial institutions, professionals and account holders around the world”.
The announcement followed the conclusion of non-prosecution agreements with four more Swiss banks – Bank J. Safra Sarasin AG, Coutts & Co Ltd, Gonet & Cie and Banque Cantonal du Valais – under the department’s Swiss Bank Programme. These banks collectively will pay penalties of more than $178 million.
According to the terms of the non-prosecution agreements, each bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared US accounts and pay a penalty in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.
Safra Sarasin had 1,275 US-related accounts with an aggregate maximum value of approximately $2.2 billion since 1 August 2008. Safra Sarasin will pay a penalty of $85.809 million.
Coutts held and managed 1,337 US-related accounts, which included both declared and undeclared accounts, with a peak of assets under management of approximately $2.1 billion since 1 August 2008. Coutts will pay a penalty of $78.484 million.
Gonet, which held 150 US-related accounts with an aggregate maximum balance of approximately $254.5 million, will pay a penalty of $11.454 million, while BC Valais, which maintained 185 US-related accounts with a maximum aggregate value of approximately $72 million, will pay a penalty of $2.311 million.
The Swiss Bank Programme 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.
Under the terms of the programme, each bank mitigated its penalty by encouraging US accountholders to come into compliance with their US tax and disclosure obligations. While US accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Programme, the price of such disclosure has increased to a penalty equal to 50% of the high value of the accounts.
“The end of the year does not signal the end to our enforcement efforts to bring to justice those who would circumvent our nation’s tax laws by hiding their money overseas,” said Chief Richard Weber of IRS Criminal Investigation. “In fact, with the wealth of information gathered from the Swiss Bank Programme, we have already begun to track those individuals who think they are above the law and continue to hide their money offshore.”