21 January 2016, Prime Minister Gaston Browne announced that, effective April, personal income tax (PIT) is to be abolished. Browne, who is also finance minister, was delivering the 2016 budget in Parliament.
PIT was introduced in 2005 and is currently levied at a top rate of 25% on income over XCD180,000 per annum (US$67,400), excluding the XCD36,000 annual personal income allowance.
“Abolishing PIT is an important reform. Not only will it put more money in the pockets of the people, so that they can save or spend more for the benefit of the economy as whole, it will help to re-establish our country as one of the most competitive in the Caribbean and beyond,” said Browne.
“Antigua and Barbuda will become a competitive location to attract the headquarters of companies and for professionals to relocate, thereby creating more jobs. Retirees will choose Antigua and Barbuda as their retirement home; Citizenship by Investment Programme (CIP) investors will invest and choose Antigua and Barbuda over our competitors,” he added.
The loss of XCD37 million in annual revenue from PIT will be partially substituted by an increase in the Revenue Recovery Charge from 10% to 13%, which is expected to yield an additional XCD20 million in revenue.
26 May 2016, the Canada Revenue Agency (the CRA) announced that limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs) governed by the laws of Florida and Delaware are to be treated as corporations for Canadian income tax purposes.
In the CRA’s view, the separate legal personality and the extensive limited liability of Florida and Delaware LLPs and LLLPs were of “overwhelming significance” in determining that such entities should be treated as corporations for Canadian income tax purposes.
The CRA also stated that, absent any tax avoidance, such entities could be converted into some other recognised form of partnership by 2018 without triggering any adverse Canadian tax implications provided that:
17 May 2016, Premier Alden McLaughlin said the Cayman Islands would not adopt a mechanism for the exchange of beneficial ownership information until the US agreed to do so. He called for a level playing field in terms of financial transparency and stated that a standard without US participation would not be “a global standard”.
He emphasised that Cayman has not agreed to a specific method for exchanging any information but had agreed to participate in a global discussion to develop such a mechanism.
His comments followed the Anti-Corruption Summit in London on 12 May attended by 40 countries. The summit passed the responsibility for the development of a global beneficial ownership standard to the Financial Action Task Force and the Organization for Economic Cooperation and Development.
Six countries – the UK, Afghanistan, Kenya, France, the Netherlands and Nigeria – committed to publish registers of beneficial ownership, while a further six, including Australia, agreed to consider doing so. Another 11 countries will join the 18 countries or territories where lists of beneficial owners are drawn up and shared between governments, but not publicly. These include the Cayman Islands, Jersey, Bermuda, the Isle of Man and the UAE.
The US, represented at the summit by Secretary of State John Kerry, advised that it was not in a position to even sign the summit communiqué, which outlined the steps needed to combat corruption as agreed by attendees.
Referring to a 2008 comment by president Barrack Obama that a single address in the Cayman Islands “supposedly houses 12,000 corporations”, Cayman Islands’ financial services minister Wayne Panton said that all of the companies registered in the UK crown dependencies and overseas territories, with the exception of the British Virgin Islands, would still be less than those registered at a single address in Delaware.
11 May 2016, the Cayman Islands’ government published a bill to repeal the Confidential Relationships (Preservation) Law, which criminalises the disclosure of confidential information except for when it is disclosable: in the ordinary course of business; pursuant to a request from certain criminal or regulatory authorities or a court order; or with the consent of the person to whom it belongs.
The Confidential Relationships (Preservation) Law was originally enacted in the 1970s but no one has ever been prosecuted under the legislation.
It will be replaced by the Confidential Information Disclosure Bill 2016, which continues to recognise when it is lawful to disclose otherwise confidential information, and includes the ability to seek court directions if required to disclose confidential information in proceedings where otherwise unable to rely on an exception, whilst at the same time removing criminal sanctions for disclosure.
The Cayman Islands will also introduce a new Data Protection Law, which will regulate the processing of data and further underpin the principles arising from the duties of confidentiality and the right to privacy.
The Companies (Amendment) Law 2016 was brought into force on 13 May. It removes the power of Cayman Islands exempted companies to issue bearer shares and other forms of negotiable shares. It provides that existing bearer shares must be converted into registered shares before 13 July 2016 or they will be void.
27 May 2016, the Court of Appeal granted a divorced husband permission to challenge the validity of his former mother-in-law’s will, which left him nothing from her estate. In Randall v Randall 2016 EWCA Civ 494), Colin Randall and Hilary Randall were divorced in 2006. As part of their settlement, they agreed that, if Mrs Randall were to inherit more than £100,000 from her mother, she would keep the £100,000 and the balance would be split equally with Mr Randall.
Both parties accepted that this agreement could not bind Mrs Randall's mother to any particular testamentary disposition. On her death, the mother left £100,000 to Mrs Randall in her will, while the £150,000 balance of her estate, less some small specific legacies, was left to Mrs Randall’s children. Mr Randall brought a probate claim to challenge the validity of the will alleging that it was not duly executed in accordance with the provisions of section 9 of the Wills Act 1837.
In October 2014, the High Court accepted Mrs Randall's plea that Mr Randall did not have standing to challenge her mother’s will because he did not have sufficient interest under Rule 57.7 of the Civil Procedure Rules (CPR). The Court held that the claimant did not have a proprietary interest in the deceased's estate and the will should stand. Mr Randall appealed.
The Appeal Court allowed his appeal. “Unless there is authority binding on this court which requires us to adopt a narrow interpretation of interest in CPR 57.7, or there are cogent arguments for doing so, justice requires that it should extend to a person such as (Mr Randall),” said Dyson LJ. “If this claim did not fall within the probate jurisdiction but fell within the general jurisdiction of the court, it is obvious that (Mr Randall) would have a sufficient interest in the subject-matter of this litigation to bring the claim ... I accept the submission (that) justice in the general sense requires (Mr Randall) to be able to bring his probate claim to set aside the will.”
Mr Randall must now make his substantive case that the will was not properly executed and is invalid.
25 May 2016, EU finance ministers failed to reach agreement on a draft anti-tax avoidance directive (ATAD) after several ministers, especially those from Luxembourg, Ireland and Belgium, raised concerns.
Although the Dutch Presidency, the Commission as well as a number of Member States pressed for adoption of the current draft, no agreement was concluded and the matter was postponed until the next ECOFIN meeting.
However, the directive on the exchange of tax-related information on multinational companies (country-by-country reporting to tax authorities), as well as adoption of conclusions on the Commission communication on an external taxation strategy and on the measures against tax treaty abuse were adopted as planned.
The directive for multinational companies will implement OECD anti-BEPS action 13, on country-by-country reporting by multinationals, into a legally binding EU instrument. Multinationals that have a total consolidated group revenue of at least €750 million will be required to report information on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees from the 2016 fiscal year onwards.
Tax authorities will then be required to exchange these reports automatically, so that tax avoidance risks related to transfer pricing can be assessed. Firms whose parent company is not based in the EU, will have the option to disclose information through “secondary reporting” via its EU subsidiaries from 2016, with the rule becoming mandatory from 2017.
In January, the OECD announced that 31 countries had agreed to sign an agreement on tax co-operation, enabling the sharing of country-by-country reports. The Multilateral Competent Authority Agreement (MCAA) included signatures from the UK, France, Germany, Luxembourg and Ireland.
25 May 2016, the European Council agreed to the establishment by the Council of an EU list of third country non-cooperative jurisdictions and to explore coordinated defensive measures at EU level as part of the EU’s external taxation strategy and measures against tax treaty abuse.
It said the criteria on transparency for establishing a list of non-cooperative jurisdictions would have to be compliant with internationally agreed standards on transparency and exchange of information for tax purposes, in particular standards developed by the OECD, both on exchange of information on request and automatic exchange of information.
It invited the Code of Conduct Group to consider an additional criterion for listing non-cooperative jurisdictions based on the non-existence of harmful tax regimes as defined by the criteria of the Code of Conduct on Business Taxation, and possible additional criteria, which could be inspired in particular by the OECD BEPS actions.
It also invited the Code of Conduct Group to start work on an EU list of non-cooperative jurisdictions by September 2016, and to determine, on the basis of a first screening by the Commission, third Countries with which dialogues should start.
It further invited the Code of Conduct Group to explore defensive measures at EU level to be endorsed by the Council in 2017 – to be implemented in the tax as well as in the non-tax area.
11 May 2016, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes announced that Bahrain, Lebanon, Nauru, Panama and Vanuatu had committed to share financial account information automatically with other countries in accordance with the Common Reporting Standard.
The five nations, which have all previously been criticised for not adopting tax transparency standards, are expected to begin exchanging information in September 2018. With these new commitments, 101 jurisdictions around the world have now committed to implement information sharing developed by the OECD and G20 countries.
“These political commitments to join the fight against tax evasion must be turned into practical reality, through implementation of the standards and actual exchange of information,” said OECD Secretary-General Angel Gurría. “I urge those countries that have not yet done so to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement we have developed to enable as many countries as possible to benefit from this new more transparent environment.”
The Global Forum is monitoring the implementation of tax transparency standards to ensure the effective and timely delivery of the commitments made, the confidentiality of information exchanged and to identify areas where support is needed. Lebanon has just joined the Global Forum, bringing membership to 133 jurisdictions.
11 May 2016, Minister of Finance Michel Sapin and Minister of Budget Christian Eckert signed a decree establishing a public register of trusts. The register contain information on all trusts generating tax consequences in France and will be accessible to everyone online as of 30 June, making it possible to identify the beneficiaries and companies that make up these legal entities.
The French trusts register was established in December 2013 by a law requiring trustees to make annual or event-triggered reports to the tax authorities if either the trustee, the settlor or one of the beneficiaries are French tax residents, or if any of the trust assets are located in France. Currently, 16,000 entities have been identified as trusts and are registered with the French tax administration.
The French government said it was strongly committed to the fight for the transparency of the beneficial owners of all legal persons, companies and trusts in particular. With effective exchange of information, such transparency should put an end to the use of entities for the purpose of tax evasion, money laundering and the financing of illegal activities.
24 May 2016, French investigators raided Google’s Paris headquarters, saying the company was now under investigation for aggravated financial fraud and organised money laundering. The software firm is suspected of evading taxes by failing to declare the full extent of its activities in the country.
Google contends that its offices in Paris, London and other European capitals are not permanent establishments, but operate as satellites of its international headquarters in Dublin, providing back-office services such as marketing.
French prosecutors said they want to establish whether the Irish company through which Google funnels the majority of its European revenues does in fact control a “permanent establishment” in France. The investigation is said to concern both value-added tax and corporation tax.
Google routes most of its non-US revenue from activities such as advertising through Dublin, where the corporation tax rate is 12.5%. The structure allows the company to avoid both European and US taxes on the income. Google released a statement saying: “We comply with French law and are cooperating fully with the authorities to answer their questions.”
The raid follows a confirmation from Google in 2014 that French authorities were seeking payment of additional tax. The firm is headquartered in Ireland, with subsidiaries in the Netherlands and Bermuda.
22 April 2016, the High Court found that a transfer to a trust that had triggered disastrous and unexpected tax consequences could be rescinded. In T and C Bainbridge v P Bainbridge  EWHC 898, the claimants were a father and son who farmed in partnership. They were concerned about a number of matters, including possible claims from the other children of the father on his death, and a possible claim from the son's wife on divorce.
They claimed that their then solicitors advised them to create a discretionary trust of the land and that there would be no capital gains tax (CGT) chargeable on the transfer of the partnership land into that trust. The solicitors were not party to the claim and in correspondence denied both giving the advice and liability at all.
In June 2011, the claimants transferred several pieces of land to a discretionary trust, thereby triggering unexpected CGT of more than £200,000, plus interest and possible penalties. They applied for rescission of the transfer on the grounds of mistake, applying the principle in Pitt v Holt  2 AC 108. The High Court granted the relief sought in respect of the land that remained in the trust.
However the trust had sold some of the land in 2013 and part of the proceeds had been used to acquire other land. The claimants accepted that the buyers had bought in good faith so that the sales could not be rescinded, but they argued that the court should make an order restoring the new land to the owners of the original properties.
The High Court agreed that the consequence of rescission was the same whether it took place because of fraudulent (or negligent) misrepresentation, or because of mistake. The property transferred must be vested back to the transferors unless third party rights were involved. Where third party rights cannot be disturbed, there is no reason not to apply a tracing process to exchange products of the transferred property in order to find other
As to the tax consequences of rescission, the court held that once the transfers into the trust were treated as never having happened, the sales by the trustees should be imputed to the original owners. It also held that this applied to the use of the proceeds (in part) to invest in the new land and (in part) to pay stamp duty.
13 May 2016, the High Court dismissed a claim brought by a brother against his sister for a half share of the assets placed in a Liechtenstein foundation by their father. The central issue in the case was whether the assets formed part of their father’s UK estate, or whether the foundation was void as a result of alleged tax evasion.
In Hamilton v Hamilton & Anor  EWHC 1132 (Ch), David Hamilton was a non-domiciled UK resident who set up the Rainbow Foundation in Liechtenstein in the 1990s. During his lifetime, he was entitled to the assets and income; upon his death the foundation’s assets were to be split between his children, Alan and Carolyn. He arranged for Carolyn to receive more, but did not disclose this to Alan. This was in contrast to his UK estate, which passed under his will and was split equally between the siblings.
On David’s death, each sibling received a sealed envelope detailing their personal entitlements to assets in the foundation, which was administered by the Swiss bank UBS so that the assets could be passed on without notifying HMRC of their existence. Alan withdrew around £1.05 million and Carolyn around £2.2 million. Carolyn, who was UK resident, did not to disclose the amount she received to her brother and did not declared the assets to HM Revenue & Customs.
Carolyn later made a disclosure under the UK’s Liechtenstein Disclosure Facility (LDF). As her father's executor, she also had to declare income tax that should have been paid on UK-source income from investments held in the foundation in the last few years of her father's life. Her legal advisor then contacted her brother to propose that his inherited assets too should be disclosed under the LDF. It was at this time that Alan, a US-based tax accountant, learned that he had inherited less from the Liechtenstein foundation than his sister.
He sued his sister, claiming that the foundation's assets formed part of their late father's estate and passed to them equally under his will. He alleged that the Rainbow arrangement was either a “bare nomineeship for [his father] David, or a sham apparently designed to deceive the UK tax authorities and possibly others into believing that David had transferred his legal and beneficial interest in assets to the foundation”.
The High Court dismissed Alan Hamilton's action, holding that Rainbow Foundation was valid under Liechtenstein law, because its founder had the necessary intent to establish it as an independent entity. David Hamilton had not retained beneficial ownership of the assets, either because Rainbow held them as his bare nominee or pursuant to a resulting trust.
The court also rejected Alan Hamilton's claim that Rainbow was a sham. “In the light of my findings of fact, it is impossible to contend that David and Rainbow shared a common intention to create legal rights and obligations different from those which they ostensibly created,” said Henderson J.
Alan Hamilton was further ordered to pay his sister's legal costs. Carolyn had been awarded indemnity costs from March 2015 on the basis that Alan amended his case at that time and had not accepted an offer from Carolyn to end proceedings with each bearing their own legal costs. Henderson J said "[Alan's] dispute with Carolyn is so bitter, and jealousy of her so corrosive, that he persuaded himself of the justice of the case, and shaped his vision and recollection of past events accordingly."
Alan was refused permission to appeal the decision. The court also directed that the papers in the case be referred to HM Revenue & Customs, “for them to consider whether there are any useful lessons to be learnt from the operation of the LDF in this case, albeit that the LDF itself has now been discontinued.”
10 May 2016, a protocol to amend the provisions of the 1983 India-Mauritius double tax treaty was signed by both countries at Port Louis, Mauritius. The Indian government had been trying to renegotiate the treaty since 1996.
Under the current treaty, capital gains arising from the disposal of shares in an Indian company are taxable only in the country of residence of the selling shareholder (and not in India). Accordingly a company resident in Mauritius that does not have a permanent establishment in India and disposes of its shares in an Indian company is liable to capital gains tax only in Mauritius. As Mauritius does not levy capital gains tax, no capital gains tax is levied either in India or in Mauritius.
The full version of the protocol has not yet been published, but key changes include amendments to the taxing rights on capital gains and limitation of benefits. Article 13 of the current treaty will be amended such that, from 1 April 2017, capital gains arising from disposal of shares of a company resident in India will be taxable in India.
The protocol contains a “grandfathering” provision such that investments acquired before 1 April 2017 will be unaffected by the protocol and will remain taxable in Mauritius.
There will also be a transition period, from 1 April 2017 to 31 March 2019, during which any capital gain generated on the sales of investments acquired after 1 April 2017, will be taxed in India at a reduced rate of 50% of the domestic tax rate (currently 15% for listed equities and 40% for unlisted ones) provided it fulfils the conditions of the Limitation of Benefits (LOB) article. After 1 April 2019, the full domestic Indian tax rate will apply.
Under the LOB article, a Mauritian resident will benefit from the reduced tax rate provided that it satisfies the main purpose and bona fide business test, and is not a shell or conduit company. A Mauritian company will be deemed to have substance provided it meets an annual expenditure threshold of Mauritian Rs 1.5 million (approx. US$43,000) in Mauritius in the period of 12 months immediately preceding the date the gains arise.
A withholding tax of 7.5% will be introduced on interest arising in India to Mauritian resident banks in respect of debt claims or loans made after 31 March 2017. Any debt claims or loans existing on or before 31 March 2017 will remain exempted from tax in India.
Other changes include an amendment to Article 26 of current treaty on exchange of information to bring it into line with international standards. The Protocol also introduces provisions for assistance in collection of taxes and source-based taxation of other income.
The current treaty was a major reason for a large number of foreign portfolio investors and foreign entities to route their investments in India through Mauritius. Between April 2000 and December 2015, Mauritius accounted for US$93.66 billion — or 33.7% — of the total foreign direct investment of US$278 billion.
The Indian Finance Ministry statement said the protocol would tackle issues of treaty abuse and round-tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius.
Although Mauritius has traditionally accounted for almost a third of the total FDI inflow into India, Singapore has emerged as a preferred destination due to the uncertainty concerning the Mauritius treaty over the last few years. For the 9-month period from April 2015, FDI inflows through Singapore were US$10.98 billion, significantly higher than the US$6.1 billion that came through Mauritius.
However, it is expected that the amended tax regime for Mauritius will also be applicable to capital gains for Singapore tax residents. Article 6 of the protocol dated 18 July 2005 to the Singapore tax treaty sets out that the capital gains exemption under the Singapore treaty will remain in force only while the capital gains exemption under the Mauritius treaty remains in force
India is also seeking to revise the other two treaties that offer a capital gains tax exemption to investors – the Netherlands and Cyprus.
16 May 2016, the Supreme Court sought the government's response on appeals that have challenged its 2013 decision to suspend tax benefits under the India-Cyprus Double Taxation Avoidance Agreement (DTAA). The Indian government is currently renegotiating its tax treaty with Cyprus to bring it into line with the revised India-Mauritius tax treaty.
The appeals were lodged by three companies against a decision of the Madras High Court, which upheld the government’s 2013 decision to notify Cyprus as non-cooperative for failure to share adequate information with the Indian tax authorities. Following the suspension of tax benefits, money coming in from Cyprus is liable to 30% withholding tax
The companies contend claim that the government does not have the right to override bilateral treaties and that the suspensions of benefits are therefore invalid. The Supreme Court has agreed to hear the petition. It also gave notice to the government to clarify its position to make such decisions with respect to the treaty.
India and Cyprus signed the tax treaty in 1994. More than US$8 billion was invested in India from Cyprus between 2000 and 2015. The next date of hearing is 5 July.
19 May 2016, the Dutch Ministry of Finance issued for consultation a draft bill for the revision of the Dutch innovation box regime, which is designed is to bring it into line with the “modified nexus approach” contained in Action 5 of the OECD base erosion and profit shifting (BEPS) project.
Under the existing Dutch regime, profits derived from intangibles that qualify for the innovation box regime are taxed at an effective rate of 5% – a significant reduction on the Dutch corporate income tax rate of 25%.
In February 2016, the Dutch State Secretary of Finance published the impact assessment which showed that the use of the innovation box regime had increased from a total tax benefit of €52 million in 2008 to €697 million in 2012. More than 10% of the taxpayers, at a minimum, did not create the intangible assets in the Netherlands.
Under the draft bill, a taxpayer can only apply the innovation box for intangibles that originate from activities approved by the Ministry of Economic Affairs via an R&D Declaration. Additional restrictions apply to companies with more than €50 million global group-wide turnover and at least €7.5 million per year in gross revenues from all IP assets.
Qualifying income can be limited if, and to the extent that, a taxpayer has outsourced part of its R&D-activities to a company within its group – the so-called modified nexus approach – based on the proportion of qualifying R&D expenses incurred by the taxpayer in relation to the overall R&D expenses incurred by the taxpayer in respect of the relevant intangible asset.
Intangible assets developed after 30 June are to be governed by the new regime with respect to financial years beginning on or after 1 January 2017. A grandfathering rule provides that qualifying intangible assets created before 30 June would continue to benefit from the current regime until 1 July 2021.
18 May 2016, the Queen’s Speech, delivered at the state opening of Parliament, included a new corporate criminal offence of failing to prevent the facilitation of tax evasion, which will be introduced in the current parliamentary session as part of the Criminal Finances Bill.
The Bill will introduce a criminal offence for corporations that fail to stop their staff facilitating tax evasion. HMRC is currently consulting on revised draft legislation. It will also seek to improve the operation of the suspicious activity reports (SARs) regime to encourage better use of public and private sector resources against the highest threats and improve the ability of law enforcement agencies and courts to recover criminal assets more effectively, particularly in cases such as those linked to grand corruption.
It is anticipated that the money laundering and confiscation measures to be included in the Bill will be based on the Home Office's new anti-money laundering strategy and will require those who file SARs to supply further customer information to law enforcement agencies.
A new confiscation measure may also allow the issue of “unexplained wealth orders” requiring individuals to declare the source of their wealth or forfeit their assets where their answers are unsatisfactory, with an associated seizure power for law enforcement agencies.
The Investigatory Powers Bill will also help tackle tax evasion and economic crime. The Bill brings together all the existing powers available to law enforcement and the security and intelligence agencies to obtain communications and data about communications. It introduces a “double-lock” for the most intrusive warrants, including interception and all of the bulk capabilities, so that these cannot come into force until approved by a judge.
9 May 2016, the Singapore Parliament passed the Income Tax (Amendment No 2) Bill, which will enable Singapore to implement the Common Reporting Standard (CRS) for automatic exchange of financial account information. It is not yet in force.
Singapore is committed to implement the CRS by 2018. The amendments to the Act will enable financial institutions (FIs) to put in place necessary processes and systems to collect CRS information from 1 January 2017 in order to commence first exchange of information under the CRS in 2018.
The CRS sets out the financial account information to be exchanged, the FIs that are required to report, the different types of accounts and taxpayers covered, as well as the customer due diligence procedures for FIs.
Singapore will adopt the “wider approach” under which FIs may collect and retain CRS information in respect of all non-Singapore tax residents. However they only need to transmit to the Inland Revenue Authority of Singapore the information relating to tax residents of jurisdictions with which Singapore has signed an automatic exchange of information (AEOI) agreement.
The OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters came into force in Singapore on 1 May 2016. It will allow the Inland Revenue Authority of Singapore to request information from other tax authorities, and seek assistance in collecting outstanding tax debts. Signed in May 2013, Singapore ratified the Convention in on 20 January.
To date, 92 jurisdictions, including all G20 countries, most OECD countries and major financial centres such as Singapore, Switzerland and Luxembourg, have signed the Convention. It will expand Singapore’s network of partners for exchange of information on request by 34 jurisdictions. Singapore adopted the internationally agreed standard for exchange of information on request in 2009.
12 May 2016, a further six countries – Canada, Iceland, India, Israel, New Zealand and China –signed the OECD's Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of country-by-country reports. It brings the total number of signatories to 39.
The MCAA allows all signatories to bilaterally and automatically exchange CbC reports with each other, as contemplated by Action 13 of the OECD’s base erosion and profit shifting (BEPS) Action Plan. It is intended to ensure that tax administrations obtain a complete understanding of how multinational corporations structure their operations, while also ensuring that the confidentiality of such information is safeguarded, the OECD said.
24 May 2016, the Swiss Financial Market Supervisory Authority (FINMA) found, as a result of enforcement proceedings, that Swiss bank BSI was in serious breach of the requirements for proper business conduct in respect of the Malaysian sovereign wealth fund 1MDB.
It found serious breaches of the statutory due diligence requirements in relation to money laundering and serious violations of the principles of adequate risk management and appropriate organisation. Right up to top management level there was a lack of critical attitude needed to identify, limit and oversee the substantial legal and reputational risks inherent in the relationships.
BSI was penalised by FINMA last year for misconduct in the Petrobras scandal concerning corruption at the Brazilian state oil company. In the case of 1MDB, BSI was found to have executed numerous large transactions with unclear purpose over a period of several years and, despite clearly suspicious indications, did not clarify the background to these transactions.
FINMA announced its approval of the takeover of BSI by EFG International with the condition that BSI is integrated and then dissolved. It also ordered the disgorgement of profits amounting to CHF 95 million and launched enforcement proceedings against two of the bank's former top managers.
The Monetary Authority of Singapore (MAS) further announced that it had served the bank a “notice of intention to withdraw its status as a merchant bank in Singapore”. The two authorities cooperated intensively.
FINMA launched enforcement proceedings against BSI in 2015 after indications that the bank had breached money-laundering regulations. In the period from 2011 to April 2015, it found serious shortcomings in identifying transactions involving increased risk. These failures related in particular to business relationships with politically exposed persons (PEPs), the origin of whose assets was not sufficiently clarified, and whose dubious transactions involving hundreds of millions of US dollars were not satisfactorily scrutinised.
At the end of 2013, FINMA had highlighted to the bank the many serious risks inherent in the client relationships and pressed the bank for further clarification. Nevertheless, the bank's board of directors and executive board knowingly and repeatedly expressed their intention to continue.
In the context of 1MDB, the bank had business relationships with a range of sovereign wealth funds whose accounts were booked in both Singapore and Switzerland. The fact that this was BSI's largest and most profitable client group was reflected in the remuneration paid to the bank employees involved.
The fees charged were above average and out of line with normal market rates. Senior management at the bank did not question why the sovereign wealth funds should use a private bank to provide institutional services and pay excessive out-of-market fees for doing so.
In the context of the 1MDB case, the bank failed to adequately monitor relationships with a client group with around 100 accounts at the bank. Transactions were executed within the client group and with third parties without the bank adequately clarifying their commercial justification.
BSI executed transactions involving similar amounts even though in some cases the explanations and contractual documents obtained contradicted the purpose of the account as stated when it was opened. Transactions were often generically justified on the basis of loan agreements, although the agreements provided no sufficient explanation of the real background to the transaction in question.
Finally, in many cases there were clear indications of pass-through transactions. Nevertheless, the bank failed to properly document or carry out plausibility checks on these transactions or was happy to accept the explanation that the beneficial owner of all the accounts was the same person or that the transactions were being executed for "accounting purposes".
The bank executed substantial transactions for the foreign sovereign wealth funds, in some cases involving hundreds of millions of US dollars, without adequately clarifying the background to them. Assets were typically invested through specially created intermediate structures. BSI supported the development of these structures with the aim of achieving a higher level of confidentiality for the investment activities. Ultimately, however, BSI was therefore unable to determine how these assets were invested.
The client advisor responsible for these relationships was repeatedly uncooperative in terms of compliance, particularly in dealing with the inadequate clarification of transactions. Management was aware of the situation but gave their support to the client advisor instead of the bank’s compliance department.
Exceptions to the bank's internal rules were made for important clients and justified as special client service. Management was informed, but took no action to monitor these exceptions.
Overall, the management of the BSI Group during this period did not adequately supervise its subsidiary in Singapore, even though they had close and frequent contact and the group's executive management was represented on the subsidiary's board of directors.
FINMA also closed its investigation and sanctioned BSIs misconduct in the Petrobras case. In connection with the same two cases, FINMA has investigated more than 20 other Swiss banks and launched proceedings against six of those banks.
31 May 2016, the Swiss parliament approved agreements with the European Union and Australia for the automatic exchange of tax information. Last December, the Swiss parliament agreed the legal basis for the data exchange based on a convention of the Council of Europe and OECD. The agreements are based on international standards and should become operational in 2018.
Finance Minister Ueli Maurer called on parliament to agree the accords in an effort to create legal security. He pledged to implement the accords judiciously.
The agreement with the EU will effectively replace the 2004 accord under the EU Savings Tax Directive. The Swiss government is preparing similar agreements with Japan, Canada, South Korea as well as Norway, Iceland and the three British Crown Dependencies of Guernsey, Jersey and the Isle of Man.
12 May 2016, Prime Minister David Cameron announced, ahead of the Anti-Corruption Summit in London, that foreign companies that own or wish to purchase property in the UK or bid for central government contracts will be required to join a new public register of beneficial ownership.
Foreign companies currently own around 100,000 properties in England and Wales, including more than 44,000 in London alone. The Scottish government included similar proposals in its recent land reform bill.
According to the UK government, the register will mean corrupt individuals and countries will no longer be able to move, launder or hide illicit funds through the property market, and will not benefit from public funds. It did not say how the measure would be implemented or whether there would be penalties for non-compliance.
A public consultation suggested there would be difficulties in enforcing such a regime. It said that while provision of false information by UK companies was a criminal offence, “there are challenges to UK authorities being able to effectively apply the same sanctions against foreign companies”.
5 May 2016, the US Treasury Department announced a Customer Due Diligence (CDD) Final Rule, proposed beneficial ownership legislation and proposed regulations for foreign-owned, single-member limited liability companies (LLCs). The actions are designed to strengthen financial transparency and combat the misuse of companies to engage in illicit activities.
The CDD Final Rule adds a new requirement that financial institutions – including banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities – collect and verify the personal information of the real people (beneficial owners) who own, control, and profit from companies when those companies open accounts. The Final Rule also amends existing Bank Secrecy Act (BSA) regulations to clarify and strengthen obligations of these entities.
The CDD Final Rule contains three core requirements:
With respect to the new requirement to obtain beneficial ownership information, financial institutions will have to identify and verify the identity of any individual who owns 25% or more of a legal entity, and an individual who controls the legal entity. It also extends the proposed implementation period from one year to two years, expands the list of exemptions, and makes use of a standardised beneficial ownership form optional as long as a financial institution collects the required information.
The proposed beneficial ownership legislation will require companies to know and report adequate and accurate beneficial ownership information at the time of a company’s creation, so that the information can be made available to law enforcement. As part of the legislation, companies formed within the US would be required to file beneficial ownership information with the Treasury Department, and face penalties for failure to comply.
The proposed regulations for foreign-owned “disregarded entities”, including foreign-owned single-member limited liability companies (LLCs), will require them to obtain an employer identification number (EIN) with the IRS. This will enable the IRS to determine whether there is any tax liability and to share information with other tax authorities.
A Treasury release said: "Together, these efforts target key points of access to the international financial system – when companies open accounts at financial institutions, when companies are formed or when company ownership is transferred, and when foreign-owned US companies seek to evade their taxes."
Treasury Secretary Jacob Lew also highlighted the new proposed measures in a letter to the US Congress, urging it to act. "The Treasury Department has long focused on countering money laundering and corruption, cracking down on tax evasion, and hindering those looking to circumvent our sanctions," he said. "The actions we are finalising today mark a significant step forward to increase transparency and to prevent abusive conduct within the financial system."
Noting that the full Senate has not approved any income tax treaty or protocol since 2010, Lew also called for the Senate to approve eight pending tax treaties. Finally, he told Congress that it should enact proposed legislation to give the US full reciprocity on foreign tax reporting.