27 January 2016, the Australian Taxation Office (ATO) has stepped up investigations into Australians taxpayers with Swiss bank accounts as a result of the amendment to its tax treaty with Switzerland at the end of 2014, according to a report in The Australian.
Some of the cases involving Australians are worth more than A$100 million and the ATO has made further requests for information. The ATO is also investigating at least 100 Australians with Swiss bank accounts after a new tranche of leaks from a European bank was handed to Australia by a foreign government, with ATO investigators travelling to Switzerland last year.
As part of 100 tax information exchange agreements in place with other countries, the ATO engaged in a total of 519 exchanges of information in 2014-15. It made 284 “outgoing exchanges” to other countries and 235 “incoming” requests in the past year, resulting in total tax liabilities of A$255 million.
The ATO further handed over details of 30,000 financial accounts of Americans and Australians worth more than A$5 billion to the US IRS under the Foreign Account Tax Compliance Act (FATCA). It is expecting a similar volume in 2016.
13 January 2016, President Dilma Rousseff signed into law a bill to allow taxpayers with undisclosed offshore assets to voluntarily declare and regularise their tax affairs without facing criminal prosecution and in return for a one-off tax charge and penalty.
The Special Regime for Exchange and Tax Regularisation (RERCT) applies to individuals or legal entities that were resident or domiciled in Brazil on 31 December 2014 that voluntarily declare previously undisclosed goods or titles of any kind, provided they were legally obtained in the first place. Inaccurate or incomplete previous disclosures can also be rectified without prosecution.
A one-off income tax charge of 15% will be levied on the value of the reported assets, together with a 15% penalty – a reduction from the 17.5% rates proposed when the law was first tabled in July 2015. The special regime will close 210 days after the date of the law's enactment.
30 December 2016, the Ministry of Finance announced that the Intellectual Property tax regime would be amended to incorporate the recommendations of the OECD Action Plan against Base Erosion and Profit Shifting (BEPS), which were issued on 5 October 2015, as well as the conclusions of the ECOFIN Council adopted on 8 December 2015.
The approach of the OECD’s Action 5 requires the existence of material activity (the so-called nexus approach), which includes the clear interconnection between the rights that create the income and the activity that contributes to that income.
The Cypriot authorities intend to amend the Intellectual Property legal framework in line with the provisions of Action 5 by 1 July 2016. The amendment will provide for the maximum transitional arrangements that are included within the revised framework.
28 January 2016, the European Commission published new proposals to tackle corporate tax avoidance. The “Anti-Tax Avoidance Package” calls on Member States to take a stronger and more coordinated stance against companies that seek to avoid paying their fair share of tax and to implement the international standards against base erosion and profit shifting (BEPS).
The key features of the new proposals, which are intended to combat aggressive tax planning, boost transparency between Member States and ensure fairer competition for all businesses in the Single Market, include:
LEGALLY-BINDING MEASURES TO BLOCK THE MOST COMMON METHODS USED BY COMPANIES TO AVOID PAYING TAX;A RECOMMENDATION TO MEMBER STATES ON HOW TO PREVENT TAX TREATY ABUSE;A PROPOSAL FOR MEMBER STATES TO SHARE TAX-RELATED INFORMATION ON MULTINATIONALS OPERATING IN THE EU;ACTIONS TO PROMOTE TAX GOOD GOVERNANCE INTERNATIONALLY;A NEW EU PROCESS FOR LISTING THIRD COUNTRIES THAT REFUSE TO PLAY FAIR.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Today we are taking a major step towards creating a level-playing field for all our businesses, for fair and effective taxation for all Europeans."
The two legislative proposals in the Package will be submitted to the European Parliament for consultation and to the Council for adoption. The Council and Parliament should also endorse the tax treaties recommendation, which Member States should follow when revising their tax treaties. Member States should also formally agree on the new External Strategy and decide on how to take it forward as quickly as possible once endorsed by the European Parliament.
Major initiatives put forward by the Commission in 2015 to boost tax transparency and reform corporate taxation are making progress: the proposal for transparency on tax rulings was agreed by Member States in only seven months and a number of other substantial corporate tax reforms have been launched. The Commission said it would continue its campaign for corporate tax reform throughout 2016, with important proposals such as the re-launch of the Common Consolidated Corporate Tax Base (CCCTB).
6 January 2016, the District Court of Appeal of Florida held that a USD24.6 million award granted to three trustees who administered the estate of the late US artist Robert Rauschenberg had been properly calculated by a lower court.
Rauschenberg’s estate was structured such that the Rauschenberg Foundation was the primary beneficiary of the Robert Rauschenberg Revocable Trust. The trustees – Darryl Pottorf, Bennet Grutman and Bill Goldston, respectively Rauschenberg's executor, business partner and accountant – oversaw the trust for several years after Rauschenberg's death in 2008 while its assets were being transferred to the foundation. During that time, it was claimed that the value of the trust's assets rose from about $600 million to $2.18 billion.
The trust documents did not include any indication as to trustee remuneration and the dispute arose as to the method to be used to calculate their fees. The trustees claimed they were owed $51 million to $55 million because of the nature of their work and the vast increase in the value of the assets. Representatives of the Foundation, however, argued that, based on an hourly rate, the three were only entitled to $375,000.
Judge Rosman, in the Circuit Court for Lee County in August 2014, chose to follow the principles regarding reasonable compensation set out in West Coast Hospital Ass'n v. Florida National Bank (1958). These include considering the amount of capital and income received and disbursed by the trustee, the success or failure of the administration of the trustee, unusual skills or experience which the trustee in question may have brought to their work, the fidelity or disloyalty displayed by the trustee, and the amount of risk and responsibility assumed, among others.
Judge Rosman found that the trustees' accomplishments on behalf of the trust had been substantial and that they had made "very good decisions and rendered very good service". As the trustees had already split USD8 million in fees among themselves, he ordered that they were entitled to another USD16.4 million, totalling USD24.6 million.
The Second District Court of Appeal unanimously agreed. "The court's findings regarding those factors and the reasonable fee amount are supported by the evidence presented at trial," wrote Judge Morris Silberman.
23 January 2016, US-based Internet giant Google announced that it had agreed with HM Revenue and Customs (HMRC) to pay £130 million in back taxes as part of a settlement covering the period since 2005 in the UK. It will also pay a higher rate of tax in future.
The agreement followed a multi-year investigation by HMRC into Google’s practice of allocating profits to Ireland, where its European operations are based. Between 2005 and 2013, Google generated revenue of more than £17 billion in the UK, its biggest market outside the US, but based on attributed profits in the UK paid only £52 million in tax.
Under the settlement, Google confirmed it was to pay £46.2 million in taxes on UK profits of £106 million for the 18 months to June 2015, as well as back taxes and interest owed for the previous decade.
A spokesperson also indicated a change in policy, stating: “We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business. The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance.”
An HMRC spokesperson said: "The successful conclusion of HMRC inquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK. Multinational companies must pay the tax that is due and we do not accept less."
George Osborne, the UK chancellor, initially labelled the agreement a “major success”, but there has been growing criticism of the firm and the government over the deal. Pressure is also mounting on the European Commission to launch a full state aid investigation into the UK’s tax settlement with Google
8 January 2016, the Inland Revenue (Amendment) Bill 2016, which seeks to provide a legal framework for Hong Kong to implement the new international standard for automatic exchange of financial account information in tax matters (AEOI), was gazetted.
In September 2014, Hong Kong committed that, subject to the passage of local legislation, AEOI would be implemented on a reciprocal basis with appropriate partners which could meet relevant standards on protection of privacy and confidentiality of information exchanged and ensuring proper use of the data exchanged, with a view to commencing the first information exchanges by the end of 2018.
Under the AEOI standard, a financial institution (FI) is required to identify financial accounts held by tax residents in the jurisdictions with which Hong Kong has entered into an AEOI arrangement. FIs are required to collect the reportable information of these financial accounts, and furnish such information to the Inland Revenue Department (IRD). The IRD will exchange it with the tax authorities of AEOI partner jurisdictions on an annual basis.
"We intend to conduct AEOI only with our partners with which Hong Kong has signed comprehensive avoidance of double taxation agreements (CDTAs) or tax information exchange agreements (TIEAs), on a bilateral basis. The safeguards for exchange of information under the respective CDTAs and TIEAs will be applicable to information exchanged under the AEOI mode, alongside safeguards under the AEOI Standard," said a Hong Long government spokesman.
The bill was tabled at the Legislative Council (LegCo) on 20 January. The government has committed to secure its early passage.
30 December 2016, Swiss bank Julius Baer announced that it has reached an agreement in principle with the US Attorney’s Office for the Southern District of New York with respect to a comprehensive resolution regarding its legacy US cross-border business. The resolution is subject to final approval by the US Department of Justice (DoJ).
Based on the terms of the agreement in principle, Julius Baer has taken an additional provision of USD197.25 million to supplement its preliminary provision of USD350 million in June 2015. With the overall provision of USD547.25 million charged in 2015, the group will remain adequately capitalised with a BIS total capital ratio of 18.6% as per 31 October 2015.
Julius Baer, Switzerland's fourth-largest private bank, said it remains committed to cooperating proactively with the DoJ investigation and has carried out its co-operation in full compliance with applicable Swiss laws and regulations. It anticipates that it will execute a resolution with the DOJ in the first quarter of 2016.
15 January 2016, the Mauritius Revenue Authority (MRA) announced that the first exchange of information under the OECD’s new Common Reporting Standard (CRS) would take place in September 2018 – a year later than originally planned.
Mauritius was among the first 51 jurisdictions – known as the “early adopters” – that signed a multilateral competent authority agreement in October 2014 to automatically exchange on financial account information. These countries committed to start exchanging automatically in 2017.
In a recent communiqué to stakeholders, the MRA said that the requirement to apply due diligence procedures to record tax residence of clients opening new accounts would now take effect as from 1 January 2017 rather than 1 January 16.
The MRA also said that, in due course, a technical committee would be convened to discuss and finalise the guidance notes for the implementation of CRS.
18 January 2016, Russia and the Hong Kong Special Administrative Region of the People's Republic of China signed a comprehensive double tax treaty (CDTA), which incorporates an article on exchange of information. This is the 34th CDTA that Hong Kong has signed with its trading partners and will come into force following the completion of ratification procedures on both sides.
Profits of Hong Kong companies doing business through a permanent establishment in Russia may currently be taxed in both places if the income is sourced in Hong Kong. Under the CDTA, double taxation will be avoided in that any Russian tax paid by the companies will be allowed as a credit against the tax payable in Hong Kong in respect of the income.
Income earned by Russian residents in Hong Kong is currently subject to both Hong Kong and Russian tax. Under the CDTA, tax paid in Hong Kong will be allowed as a credit against the tax payable on the same income in Russia.
Russia's current withholding tax rate on royalties is currently 20% for companies or 30% for individuals. Under the CDTA this will be capped at 3%. Russia's dividend withholding tax rate on Hong Kong residents will also be reduced from the current rate of 15% to either 5% or 10%, depending on the percentage of their shareholdings.
18 January 2016, Saint Lucia’s Citizenship by Investment Board announced that it had appointed two international agents to market its new Citizenship by Investment Programme globally, which was launched on 1 January. Arton Capital has been given the exclusive rights to market in the Middle East and North Africa and CS Global has exclusive rights for the Far East and Asia.
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).
20 January 2016, Switzerland signed joint declarations on the introduction of the automatic exchange of information (AEOI) in tax matters on a reciprocal basis with the British crown dependencies of Jersey, Guernsey and the Isle of Man, as well as with Iceland and Norway.
The AEOI will be implemented based on the OECD Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA). Switzerland and these countries intend to start collecting data in accordance with the global AEOI standard in 2017 and to start transmitting data in 2018, after the necessary legal basis has been created.
The joint declarations meet the criteria set by the Swiss Federal Council in the negotiation mandates of 8 October 2014. Aside from the EU and the US, the negotiations initially concern countries with which there are close economic ties and which provide their taxpayers with sufficient scope for regularisation. Switzerland has already signed a similar joint declaration with Australia as well as concluding an agreement on AEOI with the EU. It further signed a joint declaration with Japan on 29 January.
The joint declarations specify that each jurisdiction is satisfied with the confidentiality rules provided for in the other jurisdiction with regard to tax. Furthermore, these countries have prepared scope for regularisation for their taxpayers.
The Federal Council authorised the Federal Department of Finance (FDF) to initiate a consultation on introducing the AEOI with the other countries following the signing of the declarations with the various countries. They will then be submitted to Parliament for approval.
27 January 2016, the US Department of Justice announced that it reached its final non-prosecution agreement under Category 2 of the Swiss Bank Programme, with HSZH Verwaltungs AG (HSZH). The department had executed agreements with 80 banks since 30 March 2015, when it announced the first Swiss Bank Program non-prosecution agreement with BSI SA, and had imposed a total of more than US$1.36 billion in penalties. Every bank in the programme is also required to cooperate in any related criminal or civil proceedings through 2016 and beyond.
US Attorney General Loretta Lynch said: “Through this initiative, we have uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts. We have improved our ability to return tax dollars to the United States. And we have pursued investigations into banks and individuals. I would like to thank the Swiss government for their cooperation in this effort, and I look forward to continuing our work together to root out fraud and corruption wherever it is found.”
The DoJ said completion of the agreements under Category 2 of the Swiss Bank Programme represented a substantial milestone in its efforts to combat offshore tax evasion and it remained committed to holding financial institutions, professionals and individual taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading US tax obligations.
The Swiss Bank Programme, which was announced on 29 August 2013, was designed to provide 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 – Category 1 banks – and all individuals were expressly excluded from the programme.
Under the programme, banks eligible for a non-prosecution agreement are required to:
MAKE A COMPLETE DISCLOSURE OF THEIR CROSS-BORDER ACTIVITIES;PROVIDE DETAILED INFORMATION ON AN ACCOUNT-BY-ACCOUNT BASIS FOR ACCOUNTS IN WHICH US TAXPAYERS HAVE A DIRECT OR INDIRECT INTEREST;COOPERATE IN TREATY REQUESTS FOR ACCOUNT INFORMATION;PROVIDE DETAILED INFORMATION AS TO OTHER BANKS THAT TRANSFERRED FUNDS INTO SECRET ACCOUNTS OR THAT ACCEPTED FUNDS WHEN SECRET ACCOUNTS WERE CLOSED;AGREE TO CLOSE ACCOUNTS OF ACCOUNTHOLDERS WHO FAIL TO COME INTO COMPLIANCE WITH US REPORTING OBLIGATIONS; ANDPAY APPROPRIATE PENALTIES.
HSZH Verwaltungs AG, the final Category 2 Swiss bank to reach a non-prosecution agreement, was previously known as Hyposwiss Privatbank AG. During the period since 1 August 2008, HSZH held a total of 605 US-related accounts, both declared and undeclared, with an aggregate peak of approximately $1.12 billion in assets under management. HSZH agreed to pay a penalty of $49.757 million.
Earlier in January, Union Bancaire Privée (UBP) and Leodan Privatbank AG (Leodan) also reached resolutions with the DoJ. During the period since 1 August 2008, UBP held and managed approximately 2,919 US-related accounts, which included both declared and undeclared accounts, with aggregate peak of assets under management of $4.895 billion. However, 1,282 of the 2,919 US-related accounts were acquired through the acquisitions of other banks, including ABN AMRO, and bank assets. UBP agreed to pay a penalty of $187.8 million.
During the period since 1 August 2008, Leodan held a total of 44 US-related accounts, which included both declared and undeclared accounts, with an aggregate peak of approximately $59.42 million in assets under management. Leodan agreed to pay a penalty of $500,000.
“Today’s resolution with HSZH Verwaltungs AG brings to a close this phase of DoJ’s Swiss Bank Programme,” said acting Deputy Commissioner International David Horton of the IRS Large Business & International Division. “The comprehensive success of this programme sends a powerful message to those who might think they can evade their tax obligations by going offshore. A whole sector of financial institutions, 80 banks in all, has been held accountable for aiding the use of secret accounts and circumventing US law. In addition to the more than US$1.3 billion in penalties from these resolutions, more than 54,000 taxpayers have come forward to the IRS to pay more than $8 billion in taxes, interest and penalties.”