30 November 2016, the General Council of Andorra approved a Law on the automatic exchange of tax information (AEOI), which effectively brings to an end the tradition of banking secrecy in Andorra. Andorra ratified the Multilateral Agreement of the Council of Europe and the OECD on mutual administrative assistance in tax matters in 28 July.
Minister of Finance of Andorra Jordi Cinca said there was a need to fully adapt to the current requirements of the OECD and to support the image of the country as a state of anti-money laundering and fighting tax fraud. “This is our next step towards full financial transparency,” he said.
Automatic exchange of tax information will come into force in Andorra in 2018, based on data for 2017. Initially, this will involve individual accounts with total funds exceeding €1 million, which will be extended to accounts with less than €1 million in 2019. Corporate accounts that exceed US$ 250,000 will be subject to AEOI from June 2018.
In the first phase, a fully automated exchange process will only take place with EU member states (under the agreement signed on 12 February 2016) and those countries with which Andorra has signed agreements providing for the AEOI in accordance with the OECD standard.
The information to be exchanged includes: current account number, tax identification number, name and surname, address and date of birth; together with the type of income, income derived from the sale or transfer of assets and the account balance. This applies to both natural persons and legal persons.
22 December 2016, the Cayman Islands government issued the Tax Information Authority (Amendment) Law 2016 (Commencement) Order and the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations.
This represents the second tranche of regulations “to ensure effective implementation” of the OECD Common Reporting Standard (CRS), which is the global standard for automatic exchange of information (AEOI) between tax authorities. The Cayman Islands is one of 54 jurisdictions that committed to the adoption of CRS with the first exchange in 2017 with respect to information reported in 2016.
All Cayman Financial Institutions (CFIs) are required to complete a notification by 30 April 2017 using the Cayman AEOI Portal. CFIs that previously completed notifications for the US Foreign Account Tax Compliance Act (FATCA) or the equivalent UK Crown Dependencies and Overseas Territories (UK CDOT) regime, must update their notifications to confirm their CRS status and to provide additional required information.
All Cayman Reporting FIs (CRFIs) are required to have written policies and procedures to address their obligations in respect of due diligence, record keeping, filing information or change notices and annual returns via the Cayman AEOI Portal, and the appointment of third-parties to fulfil CRS obligations.
All CRFIs are required to submit, via the Cayman AEOI Portal, a separate return with respect to each reportable jurisdiction for which it has reportable accounts under CRS. The regulations also require a CRFI to file a nil return with respect to those reportable jurisdictions for which it has no reportable accounts.
The regulations implement penalties and enforcement powers in respect of both individuals and institutions for breaches and non-compliance with the CRS. It is now an offence for any person to provide a false self-certification to a CFI. Such an event would require the CFI to file a suspicious activity report. Directors, limited liability company members, general partners, and certain other individuals are liable where a CFI commits an offence, unless they can demonstrate that reasonable due diligence was exercised. The maximum penalties for firms or individuals who form, or form part of, an unincorporated CFI are raised to KYD50,000 (USD60,975).
8 December 2016, the Offshore Compliance Advisory Committee's (OCAC) called for a series of changes to Canada’s Voluntary Disclosure Programme (VDP). In particular, OCAC said there should be harsher penalties against taxpayers who used offshore vehicles, hid large amounts of income or did so for a number of years.
The VDP permits taxpayers to disclose previous omissions or errors in their dealings with Canada Revenue Agency (CRA). If the taxpayer's disclosure satisfies certain conditions, criminal prosecution and civil penalties under the Income Tax Act are generally waived and partial relief for accrued interest on unpaid tax is typically given but all evaded tax must be paid. CRA handled 19,500 proactive disclosures in the 2015-2016 fiscal year, for a total recovery of C$1.7 billion.
OCAC said the VDP was intended to make it “attractive for non-compliant taxpayers to come forward,” while ensuring the overall fairness of the system for all compliant taxpayers. However, it said penalties should still be imposed in a number of cases. In particular, taxpayers whose financial activities were revealed in leaks – such as the so-called Panama Papers – should not benefit from the same terms as other taxpayers.
“Depending on the particular facts, relief of penalties and partial interest relief could be seen as overly generous,” the committee said. “It is our view that the CRA should view all of the circumstances surrounding the disclosure and that relief from interest and penalties should be reduced in certain cases.”
OCAC urged CRA to force users of the programme to provide information on any accountant or adviser who helped them to engage in tax evasion or avoidance, to find other taxpayers who may have broken the rules.
“The CRA has confirmed that there exists no requirement to disclose the identity of advisers who assisted with non-compliance (by, for example, helping taxpayers set up offshore accounts or structures),” it said. “Such disclosures provide valuable information that could materially assist the CRA in identifying advisers that promote and enable offshore non-compliance.”
OCAC also said the CRA should not approve any voluntary disclosures swiftly, given the applications might hide other large amounts of unreported income, making a specific reference to “aggressive tax-planning”. “It is not clear that complex VDP files are, in all cases, being thoroughly examined by CRA personnel with expert knowledge. Consideration should be given to introducing procedures to ensure that large or complex cases are reviewed by specialists before acceptance into the VDP,” OCAC said.
Minister of National Revenue Diane Lebouthillier established OCAC in April 2016 with a mandate to provide advice on administrative strategies to deal with offshore compliance. Lebouthilier said that she planned to announce changes to the VDP in 2017, adding that OCAC’s recommendations would be factored in the review.
19 December 2016, the European Commission published the non-confidential version of its final negative decision adopted on 30 August 2016 concluding that Ireland gave illegal tax benefits to Apple worth up to €13 billion. The Commission found this to be illegal under EU state aid rules because it allowed Apple to pay substantially less tax than other businesses.
A US Treasury spokesperson said: "Treasury has reviewed the European Commission's decision against Apple. We continue to believe the Commission is retroactively applying a sweeping new State aid theory that is contrary to well-established legal principles, calls into question the tax rules of individual countries, and threatens to undermine the overall business climate in Europe. Moreover, it threatens to erode America's corporate tax base.
"To be clear, we agree that tax avoidance is a serious problem around the world. We are committed to continuing to work with the Commission and other international partners, such as through the OECD, toward our shared objective of preventing the erosion of our corporate tax bases."
The decision is available under the case number SA.38373 on the Commission’s Competition website.
8 December 2016, the European Commission requested France to comply fully with the ruling of the Court of Justice of the European Union (CJEU) in the Accor case (C-310/09) of 15 September 2011.
The dispute concerns the refund of tax paid in France by companies with subsidiaries in other EU member states under the ‘advance payment of tax’ mechanism. The Commission referred France to the CJEU for failure to act by maintaining discrimination in the taxation of dividends originating in other member states.
Although France’s Conseil d’État had referred questions for preliminary ruling to the CJEU, it then adopted a restrictive interpretation of its ruling in two judgments handed down in December 2012. The Commission holds that its interpretation was incompatible with EU law on the grounds that:
The Commission sent France a letter of formal notice on 27 November 2014, followed by a reasoned opinion on 29 April 2016. Since France has not yet complied, the Commission is now bringing the matter before the CJEU. The Commission may ask the court to impose penalties. If the court finds that France has breached EU law, France must take action to comply with the ruling.
21 December 2016, the European Commission adopted a package of measures to strengthen the EU's capacity to fight the financing of terrorism and organised crime. The proposals will complete and reinforce the EU's legal framework in the areas of money laundering, illicit cash flows and the freezing and confiscation of assets under the Security Union agenda.
The proposed Directive is intended to criminalise money laundering and to provide competent authorities with adequate criminal law provisions to prosecute criminals and terrorists by:
To provide authorities with adequate tools to detect terrorists and those who support them financially, a new regulation on cash controls will enable authorities to act on amounts lower than the customs declaration threshold of €10,000, where there are suspicions of criminal activity, and improve the exchange of information between authorities and Member States. It will also extend customs checks to cash sent in postal parcels or freight shipments and to precious commodities such as gold, and to prepaid payment cards. These are currently not covered by the standard customs declaration.
A proposed regulation on mutual recognition of criminal asset freezing and confiscation orders will offer a single legal instrument for the recognition of both freezing and confiscation orders in other EU countries, simplifying the current legal framework. It would also widen the scope of the current rules on cross-border recognition, to include confiscation from other people connected to the criminal, and would cover confiscation in the case of a criminal non-conviction due, for example, to escape or death. It would improve the speed and efficiency of freezing or confiscation orders through standardised documentation, an obligation on competent authorities to communicate with each other and shorter deadlines.
Vice-President Valdis Dombrovskis said: "We must stay a step ahead to stop terrorists in their tracks and the fight against terrorism financing is part of it. That's why today we are proposing that money laundering be subject to effective criminal sanctions right across the EU. We are proposing cross-border freezing and confiscation of criminal assets within the EU, and putting an end to criminals circumventing cash controls at the EU's external borders."
In April 2016, the Commission identified the cutting of terrorists' access to funds as one of the priority actions to be taken to complete an efficient and sustainable EU Security Union. In August President Jean-Claude Juncker created a specific Commissioner portfolio for the Security Union.
6 December 2016, the European Council adopted a directive granting access for tax authorities to information held by authorities responsible for the prevention of money laundering. The directive will require member states to provide access to information on the beneficial ownership of companies.
It is one of a number of measures set out by the Commission in July 2016, in the wake of the April 2016 Panama Papers revelations. The Council said the media leaks had highlighted areas where the transparency framework must be further reinforced at both EU and international levels. In particular, tax authorities needed greater access to information on the beneficial ownership of intermediary entities and other relevant customer due diligence information.
Where a financial account holder is an intermediary structure, banks are required to look through that entity and report its beneficial ownership. Applying that provision relies on information held by authorities responsible for the prevention of money laundering, pursuant to directive 2015/849/EU. Access to that information will ensure that tax authorities are better equipped to fulfil their monitoring obligations under directive 2014/107/EU.
The directive was adopted at a meeting of the Economic and Financial Affairs Council, without discussion. The European Parliament gave its opinion on 22 November 2016. The directive will apply as from 1 January 2018. Member states will have until 31 December 2017 to transpose the directive into national laws and regulations.
1 December 2016, the Financial Action Task Force (FATF) and Asia-Pacific Group on Money Laundering (APG) published its mutual evaluation of the US anti-money laundering and counter-terrorist financing (AML/CFT) regime. It concluded that the regime was well developed and robust but found the system had serious gaps that impeded timely access to beneficial ownership information.
The report found that national coordination and cooperation on AML/CFT issues had improved significantly since the last evaluation, in particular on counter-terrorism, counter-proliferation and related financing issues. Federal law enforcement agencies made good use of their extensive investigation capabilities and intelligence.
The US authorities pursued a wide variety of money laundering activity, in particular complex and high-dollar value criminal offences, resulting in over 1,200 money laundering convictions per year. The US also aggressively pursued high-value confiscation and had been very effective, as the considerable value of confiscations each year demonstrated (over USD 4.4 billion in 2014). The US also had a substantially effective system for international cooperation, and provided good quality and constructive mutual legal assistance and extradition.
However, risk mitigation through the regulatory framework was less well-developed and had some significant gaps, including minimal coverage of investment advisers, lawyers, accountants, real estate agents, and trust and company service providers (other than trust companies).
AML/CFT supervision of the banking and securities sectors appeared to be robust as a whole. The US had a range of sanctions and dissuasive remedial measures to impose on financial institutions. However, while the US placed a strong supervisory focus on the casino sector in recent years, the lack of comprehensive AML/CFT supervision for other designated non-financial businesses and professions is a significant supervisory gap.
The Federal authorities had a good understanding of the risks of complex structures of legal persons and arrangements being used to hide ownership and launder money. However, serious gaps in the legal framework prevented access to accurate beneficial ownership information in a timely manner. Fundamental improvements were needed in these areas.
7 December 2016, the Financial Action Task Force (FATF) published its mutual evaluation of Switzerland’s anti-money laundering and counter-terrorist financing (AML/CFT) regime. Overall, it found that Switzerland’s AML/CFT regime was “technically robust” and had achieved good results. However, it would still benefit from some improvements in order to be fully effective.
The assessment reviewed the level of effectiveness of Switzerland’s AML/CFT regime as well as its level of technical compliance with the 2012 FATF Recommendations. Since its previous FATF assessment in 2005, Switzerland had strengthened its AML/CFT regime. Based on a clear political will to promote the integrity of its financial centre, legal reforms had taken place to meet FATF requirements and to address the significant money laundering risks that Switzerland faces.
On the operational side, law enforcement authorities had demonstrated the effectiveness of their investigative methods and of the mutual legal assistance provided in the context of international money laundering cases. A number of these investigations related to grand corruption cases and led to the repatriation of considerable amounts to affected countries.
Supervisory authorities continuously monitored financial institutions and regulated non-financial entities following a risk-based approach. However, the assessment team encouraged the authorities to strengthen their control in respect of the obligation to report suspicious transactions, in particular for financial institutions. It also said the sanctions applied for failure to comply with AML/CFT requirements, both to natural and legal persons, must be commensurate to the seriousness of the misconduct identified and should prompt other institutions to reconsider their policies when necessary.
Switzerland demonstrated a strong commitment to mutual legal assistance. It should continue to pursue its efforts on all other forms of international cooperation, including on the supervision of financial groups. It said the Swiss authorities had recently adopted measures to address some of its concerns and would be encouraged to ensure effective implementation.
13 December 2016, the US Treasury Department and the IRS released final regulations governing the treatment of domestic disregarded entities (DREs) that are wholly owned by a foreign person for the limited purposes of the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under Code Sec. 6038A.
In order to strengthen financial transparency and prevent the use of companies to engage in illicit activities, the proposed regulations require foreign-owned ‘disregarded entities’, including foreign-owned single-member limited liability companies (LLCs), to obtain an employer identification number (EIN) from the IRS.
The Treasury Department said DREs could be used to shield the foreign owners of non-US assets or non-US bank accounts. By treating a domestic DRE that was wholly owned by a foreign person as a domestic corporation separate from its owner in respect of reporting and compliance requirements, the regulations would allow the IRS to determine whether there was any tax liability, and if so, how much, and to share information with other tax authorities.
The final regulations are effective 13 December 2016, and apply to tax years beginning on or after 1 January 2017 and ending on or after 13 December 2017.
8 December 2016, a court in Paris sentenced former French budget minister Jérôme Cahuzac to three years in prison for tax fraud for failing to declare an offshore bank account.
Cahuzac was appointed by President Hollande in 2012 with a mandate to crack down on tax evasion. The following year, investigative website Mediapart published details of an undeclared €600,000 account that he had held at the Swiss bank UBS until 2010. Cahuzac initially denied the reports but, shortly after an investigation was opened in 2013, admitted having the account and resigned.
Cahuzac's ex-wife, Patricia Menard, was also jailed for two years for tax fraud. The couple also paid €2.3 million in back taxes. The court fined the Geneva-based private bank Reyl & Cie €1.8 million for keeping Cahuzac's account secret. Banker Francois Reyl was fined €375,000 and given a one-year suspended prison term.
The trial revealed that, in the 1990s, Cahuzac and Menard had moved profits offshore from their hair transplant business. The Swiss account was moved from UBS to Reyl & Cie after UBS came under heavy pressure to disclose its client base. It was then moved to a Julius Baer account in Singapore in 2009.
Altogether they had about €3.5m in secret accounts, including the Swiss one. Menard kept €2.7 million in an Isle of Man account, while about €240,000 was paid into accounts belonging to Cahuzac's mother.
8 December 2016, France’s Conseil Constitutionnel ruled that sections of a law establishing public country-by-country (CbC) reporting by multinational enterprises (MNEs) were contrary to the constitution. It repealed the provisions from the law. Non-public CbC tax reporting under the French Finance Law for 2016, which applies to financial years beginning as of 1 January 2016, remains applicable.
The ruling (Decision No. 2016-741) involved a French Law – Loi relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique – that provides that MNE with a turnover exceeding €750 million must file an annual CbC report freely accessible to the public, with effect from 1 January 2018.
A group of senators and deputies argued that the law was not compliant with France’s constitution because it required companies to disclose information that was an essential and fundamental element of their commercial strategy.
The French government argued that public CbC reporting was justified by the fight against tax fraud and evasion, a principal recognised and defended by the Constitution, and therefore could not be considered unconstitutional or disproportionate. It further argued that the information to be published already appeared in an aggregated form in the company’s financial statements.
The Court recognised that, in line with the constitutional objectives, the aim of public CbC reporting is to fight against tax fraud and fiscal evasion. However, it held that public CbC reporting infringed on liberté d’entreprendre because it would allow competitors to identify essential elements of an MNE’s industrial and commercial strategy. It was manifestly disproportionate to the objective pursued and unconstitutional.
9 December 2016, Germany denied a US request to extradite Swiss banker Roger Keller, a former client adviser at Wegelin & Co. in Zurich. He was one of three bankers at the erstwhile Swiss private bank charged in a 2012 indictment in New York federal court for helping US taxpayers hide more than $1.2 billion in assets.
Keller was arrested in Germany in February 2015 at the request of the US government, which sought his extradition, and served seven months in jail before being granted bail. After the denial of the extradition request, a German court ordered his release and he was allowed to return to Switzerland.
Wegelin, Switzerland's oldest private bank, was indicted a month after prosecutors announced charges against Keller and two other employees. The bank was forced to close after agreeing in 2013 to plead guilty to conspiracy to evade taxes and pay $74 million.
12 December 2016, the Hungarian Parliament passed a bill to establish a 9% flat-rate corporate tax from 1 January 2017 as part of a package of tax cuts designed to increase the country's economic competitiveness. It is now the lowest corporate tax rate in the European Union.
The corporate tax rate is currently 10% on annual income up to HUF 500 million (US$1.7 million) and 19% above that. Under the tax package, employer social contributions are also lowered from 27% to 22% from next year, and to 20% from 2018, with the healthcare contribution adjusted accordingly.
The government also submitted a package of amendment proposals under which owners of bank accounts in other countries would be granted a ‘last chance’ to report undeclared foreign assets before the introduction of automatic exchange of information. Taxpayers will have the opportunity to declare their assets and pay a 10% tax before 30 June 2017.
30 December 2016, India and Singapore signed a protocol to provide India with the right to tax capital gains arising from the alienation of shares in line with the recent revision to the India-Mauritius tax treaty. The CGT exemption under the Singapore-India tax treaty was pegged to the India-Mauritius treaty and therefore had to be similarly amended.
The updated treaty preserves the existing tax exemption on capital gains for shares acquired before 1 April 2017, while providing a transitional arrangement for shares acquired on or after 1 April 2017.
For shares acquired on or after 1 April 2017, there will be a two-year transition period, during which the capital gains from such shares will, subject to the limitation of benefits clause, be taxed at 50% of India’s domestic tax rate if the capital gains arise during 1 April 2017 to 31 March 2019.
The new protocol also updates Article 9 on Associated Enterprises to provide for both countries to enter into bilateral discussions for elimination of double taxation arising from transfer pricing or pricing of related party transactions. The protocol further provides for a new Limitation of Benefits clause to ensure that tax residents with substantive economic activities can only enjoy benefits.
Singapore was the largest foreign direct investor into India for the period April 2015 to March 2016 and one of the largest portfolio investors in Indian markets.
16 December 2016, India’s Central Board of Direct Taxes announced that the notification of Cyprus under section 94A of the Income Tax Act 1961 as a notified jurisdictional area for lack of effective exchange of information, had been rescinded with effect from 1 November 2013.
It followed the signing on 18 November of a revised agreement between India and Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income, along with its Protocol, which will replace the existing treaty signed in 1994.
Both sides have now exchanged notifications of the completion of their respective internal procedures for the entry into force of the revised treaty, which will come into effect in India in the fiscal years beginning on or after 1 April 2017.
The revised treaty will enable source-based taxation of capital gains on shares, except in respect of investments made prior to 1 April 2017. It also provides for a reduction in withholding tax rates from 15% to 10% on royalties, and expands the definition of "permanent establishment." The article on the exchange of information is updated in line with the latest international standards and a new article to facilitate collection of taxes has been introduced.
7 December 2016, the Italian parliament approved the Finance Act 2017, which introduces a special tax status for non-domiciled residents who pay a ‘flat-rate tax’ on income produced abroad. The law, which is intended to attract capital investment to Italy, was one of the last acts of outgoing Prime Minister Matteo Renzi before his resignation.
Article 1 of the Finance Act 2017 adds a new provision to the Italian Consolidated Income Tax Code permitting non-domiciled residents who disclose their tax residency location to the Italian authorities to pay an annual charge of €100,000 for themselves (and €25,000 for their relatives) on certain foreign income including income from rental activities, capital, employment and corporate income with or without a permanent establishment.
Ordinary taxes will be applied only on capital gains from ‘qualifying holdings’, realised in the first five fiscal years and on Italian-source income. Inheritance and gift tax will be due on Italian assets only and not on assets held abroad. The law also offers an exemption from monitoring obligations (RW Form) and from related wealth tax payments.
The new regime will be available to all individuals, regardless of nationality or domicile, who have been non-resident in Italy for at least nine out of the previous 10 fiscal years. This will include returning Italian nationals. It will apply for up to 15 years, but will terminate immediately if any tax is not paid, or is only partially paid, by the due date for remittance of the tax.
The process of obtaining Italian entry visas and resident permits will accelerated for foreign investors who invest a minimum of €2 million in Italian government bonds or a minimum of €1 million in an Italian company for at least two years, or who donate a minimum of €1 million for philanthropic purposes in a sector that furthers the Italian economy.
This fast-track route is subject to evidence of the existence of the funds and their legal origin. The initial length of the residence permit will be two years, renewable for a further three years. After five years, if the above requirements are still satisfied, permit holders will be able to claim a long-term EU residence permit.
30 December 2016, the Italian tax agency Agenzia delle Entrate issued the final procedures and application form for the launch of Italy's second voluntary disclosure programme (VDP). It will remain open until 31 July 2017 and is targeting a further €2.6 billion in additional tax revenue.
The first VDP, which closed on 30 November 2015, attracted €60 billion in previously undeclared overseas assets and yielded €4 billion in tax revenue. Under the second VDP, in addition to undeclared overseas assets, it will also be possible to declare previously unreported cash or negotiable instruments held in Italy.
Participants will be required to pay 100% of the taxes due, but can benefit from a reduction in penalties of up to 50% of the minimum penalty if certain conditions are met. Eligible taxpayers will not, subject to certain specific exclusions, be investigated in respect of criminal prosecution for tax evasion or false declaration.
Taxpayers can enter the programme by self-assessing taxes, penalties and interests and immediately settling with the tax authorities. There are special requirements for cash and negotiable instruments held in safe deposit boxes. They should be opened and the contents registered only under the supervision of a notary. The contents must then be deposited with financial intermediaries who are authorised for this purpose.
The statute of limitations, which expired on 1 January 2015 for a tax audit on violations regarding assets and income subject to voluntary disclosure, is extended to 31 January 2018 for assets and income disclosed under the new VDP and to 30 June 2017 for assets and income disclosed under the previous VDP.
Applicants who benefited from the previous VDP with respect to undeclared overseas assets may not participate in the revised VDP to declare further overseas assets, unless also declaring unreported assets in Italy.
13 December 2016, the Luxembourg parliament passed a law on non-public country-by-country (CbC) reporting to transpose the EU Directive 2016/881 of 25 May 2016 into domestic law. The law, when gazetted, will apply from 1 January 2016.
CbC reporting applies to multinational enterprises (MNEs) whose total consolidated group revenue exceeds €750 million during the previous fiscal year. Qualifying Luxembourg group entities will have to comply with filing and notification obligations.
Finance minister Pierre Gramegna confirmed that Luxembourg would not support the initiative of the EU Commission for public CbC reporting, provided there is no consensus at the OECD level.
In April, the EU Commission proposed an amendment to Accounting Directive 2013/34/EU with the aim to introduce public CbC reporting for MNE groups operating in the EU with global revenues exceeding €750 million. The Commission believed that this amendment could be passed in the Council of the EU with a qualified majority but the EU Legal Service gave a written opinion on 11 November that the proposal requires unanimous consent from the Council.
14 December 2016, Monaco deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters. By doing so, the OECD said, it had taken another important step in implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters as well as automatic exchange of Country-by-Country Reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The Convention will enter into force for Monaco on 1 April 2017.
Monaco committed to implement automatic exchange of financial account information in time to commence exchanges in 2018 and was amongst the first signatories of the CRS Multilateral Competent Authority Agreement (CRS MCAA) and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA), which are both based on Article 6 of the Convention.
22 December 2016, the OECD announced that a further 350 bilateral automatic exchange relationships had been established between over 50 jurisdictions committed to exchanging information automatically pursuant to the OECD Common Reporting Standard (CRS), starting in 2017. It followed the completion of the second wave of activations of bilateral exchange relationships.
There are now more than 1,300 bilateral relationships in place worldwide, most of them based on the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (CRS MCAA). With respect to the jurisdictions exchanging as of 2017, 1,133 out of the 1,459 possible bilateral exchange relationships are now established. The 326 non-activated exchange relationships are mainly due to the fact that six jurisdictions were not yet in a position to provide a full set of notifications.
Two more rounds of activations are scheduled to take place in March and June 2017, which will allow the remaining 2017 and 2018 jurisdictions to nominate the partners with which they will undertake automatic exchanges in the coming months. The next update on the latest bilateral exchange relationships will be published before the end of March 2017, with updates to follow on a periodic basis.
In total, 101 jurisdictions have agreed to start automatically exchanging financial account information in September 2017 and 2018, under the CRS. The full list of automatic exchange relationships that are currently in place under the CRS MCAA and other legal instruments can be accessed on the OECD’s Automatic Exchange Portal.
2 December 2016, the Monetary Authority of Singapore (MAS) imposed financial penalties of S$5.2 million and S$2.4 million respectively on the Singapore branches of Standard Chartered Bank (SCB) and Coutts & Co for breaches of the MAS anti-money laundering (AML) requirements. These breaches occurred in the context of fund flows related to the Malaysian 1MDB wealth fund in 2010 to 2013.
An inspection of SCB revealed significant lapses in the bank’s customer due diligence measures and controls for ongoing monitoring, which resulted in 28 breaches of MAS Notice 626 – Prevention of Money Laundering and Countering the Financing of Terrorism. The control lapses stemmed from inadequacies in policies and procedures, insufficient independent oversight of front office staff, and a lack of awareness of money laundering risks among some bank staff.
While the regulatory breaches were serious, the inspection did not find pervasive control weaknesses or wilful misconduct at SCB. MAS directed the bank to appoint an independent party to confirm that rectification measures have been effectively implemented and to report its findings. It also instructed SCB to take disciplinary action against those officers who failed to perform their duties effectively.
A supervisory examination of Coutts found 24 breaches of MAS Notice 1014 – Prevention of Money Laundering and Countering the Financing of Terrorism These were in relation to customer due diligence measures for politically exposed persons (PEPs) on accounts established between 2003 and 2009. The failure to exercise the necessary enhanced due diligence was the result of actions or omissions of certain officers who have since left the bank.
MAS also served notice of its intention to issue a Prohibition Order against Tim Leissner, a former director of Goldman Sachs (Singapore) for making false statements on behalf of Goldman Sachs (Asia), without the latter’s knowledge or consent. Leissner had overall responsibility for managing the relationship with 1MDB when Goldman Sachs (GS) was engaged by 1MDB to arrange three bond issuances from 2012 to 2013.
Leissner was found to have issued an unauthorised reference letter to a financial institution based in Luxembourg in June 2015, using the letterhead of Goldman Sachs (Asia). The letter stated that Goldman Sachs had conducted due diligence on Low Taek Jho and his family, and had not detected any money laundering concerns.
Leissner moved to Goldman Sachs (Asia) in Hong Kong in November 2011 but he maintained his representative status with GS Singapore until his resignation from GS in February 2016, and was therefore subject to MAS requirements to being fit and proper to carry out regulated activities. The proposed Order will prohibit Leissner for a period of 10 years from: performing any regulated activity under the Securities and Futures Act; or taking part, directly or indirectly, in the management of any capital market services firm in Singapore.
MAS is nearing completion of its supervisory examinations of financial institutions in Singapore through which 1MDB-related fund flows took place, and will provide a final update in early 2017. MAS managing director Ravi Menon said: “The supervisory investigations into the intricate web of international fund flows have been a learning experience for financial institutions as well as for MAS. Our financial sector will emerge cleaner and stronger from the lessons learnt.”
MAS has previously shut down BSI and Swiss-based Falcon private bank in Singapore and fined UBS for 1MDB-related offences. The Swiss financial regulator has also taken action against BSI and Falcon and is investigating other banks in connection to the scandal.
1 December 2016, the Federal Department of Finance (FDF) initiated a consultation on introducing the automatic exchange of information (AEOI) in tax matters with 21 other countries. The AEOI with these countries should enter into force on 1 January 2018 so that data can start to be exchanged in 2019. The consultation will last until 15 March 2017.
The countries named are: Andorra, Argentina, Barbados, Bermuda, Brazil, the British Virgin Islands, the Cayman Islands, Chile, the Faroe Islands, Greenland, India, Israel, Mauritius, Mexico, Monaco, New Zealand, San Marino, the Seychelles, South Africa, the Turks and Caicos Islands and Uruguay.
AEOI with these countries will be implemented based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA). The MCAA is based on the international standard for the exchange of information developed by the OECD. The finance ministry said in a statement that the treaties “contribute to strengthening the competitiveness, the credibility and integrity of Switzerland's financial centre.”
Switzerland is to introduce AEOI in 2017 with all of the EU states including Gibraltar, as well as with Australia. The same applies to Iceland, Norway, Japan, Canada, South Korea and the British crown dependencies of Jersey, Guernsey and the Isle of Man. The entry into force of AEOI with these countries and territories is conditional on approval by parliament in the 2016 winter session.
22 December 2016, the double tax treaty between Switzerland and Liechtenstein entered into force. It was signed on 10 July 2015 and is the first comprehensive tax treaty between the two countries. The provisions of the treaty will apply from 1 January 2017.
The new treaty replaces the current agreement of 22 June 1995 between Switzerland and Liechtenstein on various tax issues. It contains a provision on the exchange of information upon request.
Amendments to Switzerland's double tax treaties with Norway and Albania entered into force on 6 December 6 and 1 December respectively. Both will apply from 1 January 2017.
The Norwegian protocol introduces a most favoured nation clause and inserts a new arbitration clause. It also amends the article on the exchange of information, at Norway's request.
The Albanian protocol provides for the inclusion of a new arbitration clause. An ‘evolutionary’ clause on royalty payments means that any more advantageous agreements concluded by Albania with members of the European Union or the European Economic Area will also be applicable to cross-border dealings with Switzerland. It also updates the tax information exchange provisions and introduces a limitation on benefits clause.
Switzerland has currently signed 54 double tax treaties and 10 tax information exchange agreements (TIEAs) that are in line with the international standard on the exchange of information upon request.
23 December 2016, Argentina and the US signed a new tax information exchange agreement (TIEA) in Buenos Aires, which provides the legal framework for the reciprocal and automatic exchange of tax information between the two countries.
Argentine Minister of Finance Alfonso Prat-Gay said the agreement would support Argentine financial institutions to comply with the requirements of the US Foreign Account Tax Compliance Act (FATCA), and also for Argentina to obtain information about any taxpayer who holds undeclared assets in the US.
The Argentine government is seeking to target an estimated US$400 billion in undeclared overseas assets held by Argentine residents in the US. Its current tax amnesty, which entered into force in July this year, provides for special tax rates of up to 15% for disclosures by the end of March 2017.
12 December 2016, the Los Angeles federal court dismissed an attempt by relatives of Malaysian financier Low Taek Jho to claim assets seized by the US government as part of its investigation into the Malaysian 1MDB development fund.
Four of his relatives, including his father and brother, are seeking to replace the Swiss trustees holding the assets who have declined to oppose the forfeiture. They claim that the Swiss trustees fear being exposed to criminal liability if they get involved. The US Justice Department contended that the family members had no standing to contest forfeiture of the assets.
US federal judge Dale Fischer dismissed a motion brought by the family members to intervene and lay claim to real estate and other assets seized in a US government lawsuit. The family members are seeking to replace the trustees "with people or entities who, for reasons undisclosed, movants believe will file claims. But movants have no standing to request an extension on behalf of companies they do not control," Fischer said.
She also denied a motion seeking additional time to pursue legal action in New Zealand and the Cayman Islands, where they are trying to replace the trustees with others who are more willing to defend their interests.
Fischer held that, although the Low family members were beneficiaries of the trust, they did not control the assets and therefore were not qualified to ask the court to delay proceedings in the forfeiture cases. The judge also said that their request to intervene was denied because they are already participants in the lawsuits by having filed proposed claims.
Low is among the people named in civil lawsuits filed by the US Department of Justice in July, which allege that more than $3.5 billion was misappropriated from the 1MDB fund. Malaysian Prime Minister Najib Razak established the fund in 2009 and, until recently, chaired its advisory board.
The US action seeks to seize $1 billion in assets allegedly siphoned off from 1MDB including a $100-million interest in EMI Music Publishing Group, a $35 million Bombardier jet and a $380-million stake in the Park Lane Hotel in New York.
Singapore police have named Low as a “key person of interest” in a money laundering investigation linked to 1MDB. Low, whose whereabouts are unknown, has said he provided consulting to 1MDB that did not break any laws.
The case is USA v Any Rights to Profits, Royalties and Distribution Proceeds Owned by or Owed to JW Nile (BVI) Ltd, 16-cv-05364, in the US District Court, Central District of California (Los Angeles).
30 November 2016, a federal court in the Northern District of California entered an order authorising the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., a virtual currency exchanger headquartered in San Francisco. It seeks information about US taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015.
In the court’s order, US Magistrate Judge Jacqueline Scott Corley found that there was a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws. The John Doe summons directs Coinbase to produce records identifying US taxpayers who have used its services, along with other documents relating to their virtual currency transactions.
There are nearly a thousand virtual currencies, but the most widely known and largest is bitcoin. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS.
The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency.
“Transactions in virtual currency are taxable just like those in any other property,” said IRS Commissioner John Koskinen. “The John Doe summons is a step designed to help the IRS ensure people doing business in the emerging economy are following the tax laws and meeting their responsibilities.”
29 December 2016, the Department of Justice (DoJ) announced it had reached final resolutions with banks that had met the requirements of the Swiss Bank Programme, which provided a path for Swiss banks to resolve potential US criminal liabilities and to cooperate in the DoJ’s ongoing investigations into the use of foreign bank accounts to commit tax evasion.
The programme established four categories of Swiss financial institutions. Category 1 included Swiss banks already under investigation when the programme was announced, which were not eligible to participate. Category 2 was reserved for those banks that advised the DoJ 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.
In exchange for a non-prosecution agreement, Category 2 banks made a complete disclosure of their cross-border activities, provided detailed information on accounts in which US taxpayers had a direct or indirect interest, cooperated in treaty requests for account information, provided detailed information as to other banks that transferred funds into hidden accounts or that accepted funds when those secret accounts were closed, and cooperated in any related criminal and civil proceedings for the life of those proceedings. These banks were also required to pay appropriate penalties.
Banks eligible for Category 3 were those that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offences and had an effective compliance programme in place. Category 3 banks were required to provide the DoJ with an independent written report that identified witnesses interviewed and a summary of each witness’s statements, files reviewed, factual findings, and conclusions. In addition, Category 3 banks were required to appear before the DoJ and respond to any questions related to the report or their cross-border business, and to close accounts of accountholders who failed to come into compliance with US reporting obligations. Upon satisfying these requirements, Category 3 banks received a non-target letter under the terms of the programme.
Category 4 of the programme was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). Category 4 banks were also eligible to receive a non-target letter.
Between March 2015 and January 2016, the DoJ executed non-prosecution agreements with 80 Category 2 banks and collected more than $1.36 billion in penalties. It also signed a non-prosecution agreement with Finacor, a Swiss asset management firm. Between July and December 2016, four banks and one bank co-operative satisfied the requirements of Category 3, making them eligible for non-target letters. No banks qualified under Category 4 of the programme.
“The completion of the resolutions with the banks that participated in the Swiss Bank Programme is a landmark achievement in the Department’s ongoing efforts to combat offshore tax evasion,” said Principal Deputy Assistant Attorney General Caroline Ciraolo.
“We are now in the legacy phase of the Programme, in which the participating banks are cooperating, and will continue to cooperate, in all related civil and criminal proceedings and investigations. The Tax Division, working closely with its colleagues throughout the Department and its partners within the Internal Revenue Service (IRS), will continue to hold financial institutions, professionals, and individual US taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading US tax obligations.”