5 January 2017, the Brazilian government gazetted Provisional Measure No. 766/2017 to introduce a Tax Regularisation Programme (PTR) to incentivise individuals and companies to settle their federal tax liabilities.
The PTR is an opportunity for companies and individuals to pay their tax or non-tax liabilities, due on or before 30 November 2016, or charged by the tax authorities on or after 6 January 2017. All liabilities may be included in the PTR, including those that are subject to previous, terminated or active instalment programmes. For liabilities under administrative or judicial dispute, the taxpayer must withdraw the dispute to be included.
The PTR does not grant any discounts of interest or fines. The main benefit is the possibility of compensating the indicated debts against related tax credits or against tax losses calculated for Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) purposes.
The PTR will be implemented by the Brazilian Revenue Service (RFB) and National Treasury’s Attorney General’s Office (PGFN) within 30 days. Taxpayers must then enter the PTR within 120 days.
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).
31 January 2017, Deutsche Bank was fined $630 million by US and UK regulators over a money laundering scheme to shift $10 billion out of Russia via shares bought and sold through the bank's Moscow, London and New York offices.
The authorities found that, between 2011 and 2015, the German bank enabled clients to convert roubles into dollars through security trades that had no discernible economic purposes. The bank had missed "numerous opportunities" to detect, investigate and stop these so-called "mirror" trades and had therefore conducted its business in an "unsafe and unsound" manner.
The New York authorities fined the bank $425 million while the UK's FCA fined it about $204 million. Deutsche Bank will also be required to hire an outside monitor to review its internal compliance measures. Three other banks were also fined for violations of anti-money laundering laws – Italy's Intesa Sanpaolo was fined $235 million, Agricultural Bank of China $215 million and Mega Bank of Taiwan $185 million.
1 January 2017, new rules obliging EU Member States to automatically exchange information on all new cross-border tax rulings that they issue were brought into force. Exchange will be facilitated through a central depository that is accessible to all EU countries.
Every six months national tax authorities will send a report to the depository, listing all the cross-border tax rulings that they have issued. Other Member States will then be able to check those lists and to ask the issuing Member State for more detailed information on a particular ruling.
The first exchange should take place by 1 September 2017 at the latest. By 1 January 2018, Member States will also have to provide the same information for all cross-border rulings issued since the beginning of 2012.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "The entry into force of the automatic exchange of information on cross-border tax rulings on 1 January marks a major step forward. It equips Member States and their national tax administrations with the information they need to detect certain abusive tax practices and take the necessary action in response."
27 January 2017, EU finance ministers failed to implement the OECD base erosion and profit shifting (BEPS) changes on hybrid mismatches due to disputes over exemptions for regulatory capital and the final implementation date. The Commission had committed to reach an agreement on amendments to the Anti-Tax Avoidance Directive (ATAD2) by the end of 2016 but then set a revised deadline for the end of January 2017.
The disputes concerned the UK’s insistence on “carve outs” to exempt the financial sector from hybrid regulatory capital, as well as payments by financial traders under a hybrid transfer, as well as demands by the Netherlands to postpone the implementation date of the legislation from 2019 to 2024 in order to soften the impact on US multinationals.
18 January 2017, a regulation establishing a European Account Preservation Order (EAPO) was brought into force to facilitate cross-border debt recovery in civil and commercial matters. It enables a claimant to make a single application to the courts of one EU member state to obtain an order that will "freeze" monies held by a defendant in bank accounts across all participating member states.
EAPOs are intended to be an alternative to protective measures available under national laws and can be sought in "cross-border" civil and commercial proceedings before the courts of all participating member states. The application for an EAPO can be made at any stage of the main proceedings, even before main proceedings have been issued.
An applicant must satisfy the court that there is urgency for such an order to be made. Article 7 (1) of the Regulation states: “The court shall issue the Preservation Order when the creditor has submitted sufficient evidence to satisfy the court that there is an urgent need for a protective measure in the form of a Preservation Order because there is a real risk that, without such a measure, the subsequent enforcement of the creditor’s claim against the debtor will be impeded or made substantially more difficult.”
The UK and Denmark have not opted into the regulation. However, UK and Danish account holders in participating member states will be affected, as will UK and Danish banks operating in participating member states.
12 January 2017, a French court acquitted art dealer Guy Wildenstein and seven others in a case which the prosecution claimed was "the most sophisticated and longest" case of tax fraud in postwar France. It had requested a €250 million fine and a four-year jail sentence, two suspended.
The French tax authorities launched a criminal prosecution against Guy Wildenstein, president of Wildenstein & Co. in New York, together with his nephew and sister-in-law, and a number of advisers and financial institutions, claiming they had evaded inheritance taxes by under-reporting the size of the estate at the death of his father Daniel in 2001 and his elder brother Alec in 2008.
Guy and Alec Wildenstein together declared just €40.9 million for inheritance tax purposes in 2002 and then understated the family’s wealth in estate tax returns filed between 2002 and 2008. Prosecutors alleged that they schemed to hide art and assets in trusts based in the Bahamas, Guernsey and the Cayman Islands.
However presiding judge Olivier Géron acquitted the defendants of tax fraud and “aggravated” money laundering. Accepting that the verdict might be "misunderstood", he said that while there a "clear intention" on the Wildenstein family's part to hide their wealth, gaps in the investigation and grey areas in French tax law made it impossible to pronounce a guilty verdict.
No French law detailed how the transmission of trust funds had to be taxed until 2011, the court said. “It is not the role of the court to take the place of the legislator,” said Géron. He understood the French people would probably struggle to accept the ruling given the wealth of the defendant, but justice had to treat everybody equally, “be they rich or destitute”.
The two other family members, a notary, two lawyers and two trusts, the Northern Trust Fiduciary Services in Guernsey and the Royal Bank of Canada Trust Company, were also acquitted.
The French financial prosecutor's office said there were valid grounds for an appeal given that "the case had shown a clear intention to evade paying tax", even if the final ruling had been to acquit the defendants. The French tax authorities claim the Wildenstein’s owe some €550 million in back taxes, which is the subject of a separate civil case.
21 December 2016, the German cabinet adopted a bill to impose more stringent reporting obligations on German taxpayers with foreign financial interests and financial institutions managing foreign investment structures for their clients. If the bill is approved by parliament, the changes will be introduced on 1 January 2018.
Under the proposals, taxpayers must disclose a stake of 10% or more in an entity that is located outside the European Union and European Free Trade Association area, or a stake worth at least €150,000, irrespective of whether the participation is held directly or indirectly. Failure to report such "business relationships" could be punishable by fines of up to €25,000.
The draft legislation also places an obligation on financial institutions to report certain structures that they have established or administer on behalf of clients in non-EU and non-EFTA "third countries”. Failure to do so could attract fines of up to €50,000. The financial institution would also be liable for any tax shortfalls resulting from an omission.
The bill further standardises reporting obligations for direct and indirect holdings in foreign entities and synchronises the deadline for information reporting with the deadline for tax returns. German taxpayers with a controlling interest in foreign entities will be required to maintain records for at least six years under the proposed changes. In addition, the draft legislation extends the statute of limitations in cases of tax evasion from five to 10 years.
The parliamentary legislative procedure will start with an initial consultation on the draft law by the Upper House of Parliament on 10 February 2017. The cabinet also announced that Germany is to sign the multilateral instrument to align bilateral tax treaties swiftly and consistently with the OECD's BEPS recommendations.
23 January 2017, Hong Kong signed a competent authority agreement (CAA) with Korea with a view to commencing the automatic exchange of financial account information in tax matters (AEOI) in 2019. The two countries have been exchanging tax information upon request since 2016 when the Korea-Hong Kong tax treaty entered into force,
In order to exchange financial account information with another jurisdiction, Hong Kong needs to sign a CAA. The name of that jurisdiction will be added to the list of "reportable jurisdictions" in the Inland Revenue Ordinance (Cap. 112) by means of a Notice published in the Gazette. Financial institutions have to report financial account information of tax residents of that particular reportable jurisdiction to the Inland Revenue Department starting from the reporting year.
Hong Kong signed its first two CAAs with Japan and the UK in 2016. Both were gazetted on 28 October and came into force on 31 December, with a view to commencing AEOI in 2018.
Korea has signed CAAs with the US and Singapore, as well as the multilateral agreement on automatic exchange of financial account information. The Ministry of Strategy and Finance said it will work on CAAs with 45 countries in 2017, including the Netherlands, Belgium and Ireland, and is expected to add 31 countries in 2018.
6 January 2017, the Financial Services and Treasury Bureau (FSTB) released for public consultation two proposals dealing with the regulation of designated non-financial businesses and professions (DNFBPs) and enhanced transparency of corporate beneficial ownership.
Under the first proposal, a licensing regime is to be introduced for trust and corporate service providers (TCSPs) and the scope of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) in respect of statutory customer due diligence (CDD) and record-keeping requirements is to be expanded to cover all DNFBPs when engaging in specified transactions.
Under the second proposal, the FSTB intends to amend the Companies Ordinance to require companies incorporated in Hong Kong to obtain and hold up-to-date beneficial ownership information for public inspection upon request. The requirement will apply to all companies incorporated in Hong Kong under the Companies Ordinance, including companies limited by shares, companies limited by guarantee, and unlimited companies.
A beneficial owner in relation to a company will be, for example, an individual who directly or indirectly holds more than 25% of its shares; directly or indirectly holds more than 25% of its voting rights; directly or indirectly holds the right to appoint or remove a majority of its directors; or otherwise has the right to exercise, or is actually exercising, significant influence or control.
For the purpose of keeping accurate and timely beneficial ownership information in accordance with the Financial Action Task Force (FATF) recommendation, the FSTB also proposes that a company will be required to identify and keep a "register of people with significant control" over the company.
Written comments are to be submitted by 5 March to enable implementing legislation before the next mutual evaluation by the FATF in 2018. A government spokesperson said: "The proposals are pertinent to our fulfilment of the relevant FATF obligations. This will safeguard the integrity of Hong Kong as an international financial centre, and add to our credibility as a trusted and competitive place to invest and do business."
6 January 2017, the Irish Revenue issued new guidance on the disclosure of foreign income and assets, outlining changes to the voluntary disclosure rules that will prevent individuals from benefitting from lower penalty rates when the disclosure relates to “offshore matters”
It noted that restrictions introduced in the Finance Act 2016 include a measure to preclude a person from making a disclosure that would otherwise be a qualifying disclosure if the disclosure relates to offshore matters. Currently, those eligible for a qualifying disclosure face reduced penalties for the underpaid tax, are not included in the list of tax defaulters, and are not subject to investigation with a view to criminal prosecution by Revenue
From 1 May 2017, it will no longer be possible to obtain the benefits of a qualifying disclosure if the matter relates either directly or indirectly to an account held or situated in a country or territory other than Ireland; income or gains arising from a source, or accruing, in a country or territory other than Ireland; or property situated in a country or territory other than Ireland.
In addition, Revenue guidance states that where there are liabilities arising within Ireland as well as liabilities relating to offshore matters, a qualifying disclosure will be unavailable in respect of all of those liabilities except in limited circumstances.
It will also mean that, as of 1 May 2017, persons with liabilities involving offshore matters could be liable to higher penalty rates, the settlement could be liable for publication in the quarterly defaulters’ list, and a criminal prosecution could be pursued.
27 January 2017, the Council of Europe’s expert committee on money laundering and the financing of terrorism (MONEYVAL) praised the Isle of Man’s legal system for tackling money laundering (AML) and the financing of terrorism (CFT), whilst also expressing a number of concerns about how it works in practice.
In its Fifth Round Mutual Evaluation Report, which assesses compliance with the 40 recommendations of the Financial Action Task Force, MONEYVAL highlighted the good coordination of policies related to money laundering and the financing of terrorism. It said significant reforms had already been introduced and further improvements were expected.
The authorities had a thorough understanding of the Isle of Man’s institutional and legal vulnerabilities in these areas, said the report, as well as those sectors that are most at risk. However it noted some concern over so-called “beneficial ownership” rules and said there was not enough understanding of the risks involved when financial institutions work with intermediaries, and where risk assessment information was passed on through “information chains”.
The number of customers considered “higher risk” also seemed to be relatively low given the type of business carried out in or from the Isle of Man. Furthermore, money laundering convictions on the island were rather limited in relation to its risk profile and the overall value of confiscations remains extremely low. Many aspects of financial intelligence work needed to be improved, although major reforms had already begun.
Chief Minister Howard Quayle said: “The Isle of Man is one of the first small international finance centres to undergo the Fifth Round Evaluation, which is more comprehensive and demanding than previous evaluations. Taking part in this process is an opportunity to learn and improve from being tested against the latest international standards.
“In terms of key findings the report largely reinforces the Island’s own National Risk Assessment and National Strategy on AML and CFT. However there is much to consider in this document and Government will be carefully working through its recommendations in conjunction with the business community.”
To monitor progress in making improvements, the Isle of Man is in what is known as “enhanced follow-up”. It will be reporting back to MONEYVAL in 12 months to confirm that improvements are being delivered.
20 January 2017, the New Zealand High Court approved a request by relatives of Malaysian businessman Low Taek Jho to appoint new trustees to fight the seizure of assets by the US government in its investigation of the One Malaysia Development Berhad (1MDB) fund.
Low and several family members stand to lose US$260 million in assets held in New Zealand trusts after the US government seized the assets in a California court proceeding. Civil lawsuits filed in July by the US Department of Justice allege that more than US$3.5 billion was misappropriated from 1MDB.
It is seeking to recover some US$1 billion of these assets through civil lawsuits, by seizing them from three people, including Low and Riza Aziz, the stepson of Malaysian Prime Minister Najib Razak. The third person named is a former United Arab Emirates government official.
The New Zealand High Court agreed to a request by Low's family members to replace Swiss trustees Rothschild with a New Zealand-based entity of Cayman Islands law firm FFP. Court records said the Swiss trustee did not take any steps to stop the seizure, citing concerns that to do so would be considered money laundering by the US government.
Submissions for the Swiss trustees said they were not opposed to being replaced as trustees but considered it must be done by a court order because of the action brought by the US. The trustee also wanted to be covered for any costs incurred by transferring the assets.
It specified that the assets at issue included a US$380 million stake in New York’s Park Lane Hotel, a US$107-million interest in EMI Music Publishing, a US$35 million Bombardier Jet and a US$30 million penthouse at Time Warner Center in New York. It also noted the trusts owned other assets in Hong Kong, Singapore and the UK that were not being sought at this stage.
Judge Christopher Toogood said in his judgment: "I am satisfied that the replacement of the current trustees with trustees who are willing to ensure that proper legal steps are taken in the California proceedings is not only expedient, but necessary to safeguard the trust assets." He also said the New Zealand court had no view on the merits of the US government's allegations.
The former branch manager of Swiss bank Falcon Private Bank was sentenced to 28 weeks jail and a fine of S$128,000 in Singapore on 11 January, after pleading guilty to six counts including consenting in the bank's failure to comply with Singapore's anti-money laundering rules in relation to 1MDB.
Swiss national Jens Sturzenegger was charged with 16 counts including failing to report suspicious transactions tied to inflows of about US$1.265 billion into two accounts between 21 and 25 March 2013. Ten further charges were taken into consideration.
The Monetary Authority of Singapore (MAS) ordered the closure of Zurich-based Falcon Private Bank's Singapore branch last October, following similar action against Swiss bank BSI in May. Falcon was accused of "a persistent and severe lack of understanding" of MAS's anti-money laundering regulations and fined S$4.3 million.
30 December 2016, the government published Decree 354-A/2016 to exclude Jersey, the Isle of Man and Uruguay from Portugal’s list of tax havens. It entered into force on 1 January 2017.
It was stated that Jersey, the Isle of Man and Uruguay are all members of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. Jersey and Uruguay are rated as “largely compliant” and the Isle of Man as “compliant” in respect of practical implementation of the Global Forum’s information exchange standard.
Uruguay has a tax treaty in force with Portugal that facilitates exchange of information for tax purposes, while Jersey and the Isle of Man both have Tax Information Exchange Agreements (TIEAs) in force with Portugal. All three jurisdictions have also joined the OECD's Multilateral Competent Authority Agreement for the Common Reporting Standard.
27 January 2017, Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and Russia signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA). Total signatories to the agreement are now 57, the OECD said.
The CbC MCAA is designed to give effect to OECD/G20 base erosion profit shifting (BEPS) standards, developed under action 13, concerning transfer pricing documentation and country-by-country reporting. It sets out uniform rules and procedures to implement the exchange of reports between nations.
Under these standards, large multinationals must report to their country of residence specified information regarding each jurisdiction in which the group operates, including revenues, profits, income tax paid, stated capital, accumulated earnings, number of employees, and tangible assets. That information will then be shared with other countries’ tax administrations so that assessments can be made regarding whether is a risk the multinational is engaging in tax avoidance.
On 6 January, the OECD announced that three more countries – Bermuda, Côte d'Ivoire and Kazakhstan – have committed to participate in international base erosion and profit shifting (BEPS) discussions and implement minimum standards. It brings the total number of countries and jurisdictions participating in the project to 94.
31 January 2017, Singapore’s Competent Authority Agreements (CAAs) in respect of the Common Reporting Standard (CRS) with the UK, Japan, South Africa, Norway, Finland, Netherlands, Iceland, Malta and Ireland entered into force.
Singapore-based Financial Institutions (SGFIs) – depository institutions such as banks, specified insurance companies, investment entities and custodial institutions – are required to establish the tax residency status of all their account holders, and report to the Inland Revenue Authority of Singapore (IRAS).
These jurisdictions are now regarded as "Reportable Jurisdictions" and SGFIs will have to transmit to IRAS the financial account information of accounts held by persons that are tax residents of these jurisdictions, with the first submission due by 31 May 2018.
A CAA enables the implementation of information exchange under the CRS based on existing legal instruments such as the Convention on Mutual Administrative Assistance in Tax Matters or a bilateral tax treaty. Singapore has also signed CAAs with Australia, Republic of Korea, Italy, Canada, Latvia and New Zealand.
All account holders of SGFIs should provide their FIs with information and supporting documents to establish their tax residency status on request. For accounts opened before 1 January 2017, FIs may contact the account holders to confirm their tax residency status if the FIs hold information that indicates they could be foreign tax residents. For new accounts opened on or after 1 January 2017, FIs will use a self-certification form, to be filled in by account holders, to collect tax residency information.
If account holders do not respond to their FIs’ requests to confirm their tax residency status, the FIs will have to treat the account holders as tax residents in the respective foreign jurisdictions, based on the information available to the FIs. Account holders should also inform their FIs of any change in circumstances, such as long-term job postings to a foreign jurisdiction, which may affect their tax residency status. Account holders are also reminded to ensure that all submissions to FIs are accurate. Deliberately providing false information to the FIs on an account holder’s tax residency status is an offence under the CRS law.
12 January 2017, the Inland Revenue Authority of Singapore (IRAS) issued the fourth edition of the Singapore transfer pricing (TP) guidelines. Significant changes include:
In line with Singapore committing to join the OECD Base Erosion and Profit Shifting (BEPS) project, the new TP Guidelines include greater details in respect of: Action 5: Countering harmful tax practices; Action 13: Transfer pricing documentation; and Action 14: Making dispute resolution mechanisms more effective.
On 19 January, the Monetary Authority of Singapore (MAS) announced that registered business trusts (BTs) will adopt a new Singapore financial reporting framework that is identical to the International Financial Reporting Standards (IFRS), while authorised collective investment (CIS) schemes will continue to prepare financial statements using accounting practices recommended by the Institute of Singapore Chartered Accountants (ISCA).
In 2014 the Accounting Standards Council (ASC) announced that Singapore listed companies must apply the new Singapore financial reporting framework for annual periods beginning on or after 1 January 2018, but this did not cover registered (BTs) or authorised CIS.
MAS has decided to align the treatment for registered BTs with that of Singapore listed companies, while authorised CIS should continue to prepare financial statements according to the Reporting Framework for Unit Trusts, issued by ISCA. This is consistent with practices in other major fund jurisdictions such as the UK and the US.
19 January 2017, the Taxation Laws Amendment Act 2016, which confirmed the final details of the Special Voluntary Disclosure Programme (SVDP), was promulgated. The SVDP provides a final window of opportunity for taxpayers to regularise their tax and exchange control affairs before automatic exchange of information under the OECD’s Common Reporting Standard (CRS) gets underway from September 2017. The SVDP application period opened on 1 October 2016 and will close on 31 August 2017.
The SVDP is available to South African resident individuals and companies who have not in the past disclosed tax and exchange control defaults in relation to offshore assets. South African trusts will not qualify to make use of the SVDP, but settlors, donors, deceased estates and beneficiaries of foreign discretionary trusts may participate if they elect to have the trust’s offshore assets and income deemed to be held by them personally.
The SVDP focuses on assets derived wholly or partly from receipts or accruals not declared as required in terms of the Income Tax Act or Estate Duty Act, which were held by a person or company during the period 1 March 2010 to 28 February 2015. Special deeming provisions apply for assets held and disposed of prior to 1 March 2010.
The SVDP provides that 40% of the highest aggregate market value of the unauthorised assets, as at the last day of February of each year between 2011 and 2015, will be included in the taxpayer’s taxable income for 2015 and be subject to tax in South Africa. If an application is successful, the assets are deemed to be regularised and any prior tax liabilities that may have arisen are “forgiven” for income tax, donations tax and estate duty purposes.
No understatement penalties will be levied and SARS will not pursue criminal prosecution for a tax offence, although interest on the tax liability will run from 1 October 2015. Future income will be fully taxed, and declared assets will remain liable for donations tax and estate duty in the future, should the applicant donate these assets or die in possession.
The SDVP will also apply to exchange control contraventions that occurred before 29 February 2016. Successful applicants for exchange control relief may have to pay a levy based on the market value of the foreign assets as at 29 February 2016. The following percentages will apply: 5% of the leviable amount if the regularised assets or sale proceeds are repatriated to South Africa; and10% of the leviable amount if the regularised assets are kept offshore.
The levy must be paid from foreign-sourced funds. Where insufficient liquid foreign assets are available and local assets are used to settle the levy, an additional 2% will be added. Individuals will not be allowed to deduct their R10 million foreign capital allowance (or any remaining portion) from any leviable amount.
The South African Revenue Service (SARS) and the South African Reserve Bank (SARB) have established a joint application process utilising the SARS eFiling website. The SVDP will not be open to individuals and companies if an audit or investigation in respect of foreign assets or foreign taxes is underway or pending. Amounts in respect of which SARS has obtained information under the terms of any international exchange of information procedure will also be ineligible
10 January 2017, an opinion issued by the EU Court of Justice (CJEU) found that Luxembourg should allow a company to challenge the legality of an information order issued in support of a French exchange of information request on the grounds that the request lacks “foreseeable relevance”.
In Berlioz Investment Fund SA v Directeur de l’administration des Contributions directes (Case C‑682/15), the French tax authority issued a request for information to its Luxembourg counterpart in 2014 in the context of an application for a withholding tax exemption by French subsidiary Cofima in respect of dividends paid to its Luxembourg parent company, Berlioz.
The French tax administration sought to ascertain whether the relevant conditions of French law had been complied with. To comply with France’s request, Luxembourg ordered Berlioz to divulge information. Berlioz complied, in part, but refused to provide information regarding the names and addresses of its members, the amount of capital held by each member, and the percentage of share capital held by each member.
According to Berlioz, the information was not foreseeably relevant to the French government’s tax inquiry within the meaning of Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation. Berlioz was fined €250,000 on account of its failure to divulge the information. It challenged the fine in Luxembourg’s tribunal administratif, which refused to determine the validity of the information order under Luxembourg law.
Berlioz then appealed to Luxembourg’s Cour administrative, arguing that the tribunal administratif had violated its right to an effective judicial remedy under Article 47 of the EU’s Charter of Fundamental Rights. The Cour administrative stayed proceedings, requesting a preliminary ruling from the CJEU.
Advocate General Melchior Wathelet issued an opinion that the CJEU should rule that, to comply with Article 47 of the Charter, the Luxembourg Cour administrative must examine the legality of the information order on which the penalty is based. “I consider that the right to an effective remedy and to an impartial tribunal enshrined in Article 47 of the Charter necessarily entails the right of access to justice, that is to say, the possibility for an individual to secure a rigorous judicial review of any act capable of adversely affecting his interest,” he said.
Wathelet further said that compliance with the “foreseeable relevance” standard was condition of a tax information request, and therefore of a subsequent information order, so it should be for a court to verify “that the information order is based on a request for information which demonstrates a link between, on the one hand, the information requested, the taxpayer concerned and any third party asked to provide information and, on the other, the tax objective pursued.”
He said further that the request for information must be communicated to the court hearing the action against the pecuniary sanction, and also to the third party holding the information.
12 January 2017, the European Court of Human Rights rejected UBS's challenge to a €1.1 billion security which had been imposed by the French authorities in 2014 in the context of the court supervision of the Swiss bank, which has been placed under formal investigation for alleged illegal direct selling of banking products and aggravated laundering of the proceeds of tax fraud.
In the case of UBS AG v. France (application no. 29778/15), the Court found that the interference to UBS had not been disproportionate and that a fair balance had been struck. In addition, it said UBS had not exhausted potential domestic remedies to the dispute before bringing a case before the Court.
“The Court held that the security required constituted an interim measure which did not prejudge the outcome of the proceedings and that the amount had been assessed by the domestic judges, using particularly thorough reasoning, on the basis of the findings of the investigations, the alleged facts, the scale of the offences and the potential harm, and the fine payable in the event of a conviction,” the European Court of Human Rights said in a statement.
“The assessment had also been based explicitly on the resources of the applicant bank, which had been afforded adequate procedural safeguards,” it noted.
25 December 2016, the tax treaty between the UK and the United Arab Emirates (UAE), signed in April 2016, came into force following ratification. Provisions will apply with regard to taxes withheld at source, in respect of amounts paid or credited on or after 1 January 2017, and with regard to other taxes, in respect of taxable years (and in the case of UK corporation tax, financial years) beginning on or after 1 January 2017.
The treaty provisions on dividends, interest and royalties contain a main purpose test denying reduced withholding tax rates in abusive circumstances. It also contains an OECD compliant provision for the exchange of information between the two countries.
1 January 2017, the UK government introduced new civil penalties for the facilitators of the tax evasion who provide planning, advice or other professional services or physically move funds offshore. HMRC will also be able to name the enabler publicly.
The Treasury said the government’s new powers would see individuals or firms who take deliberate action to help others evade paying tax facing fines of up to 100% of the tax they helped evade or £3,000, whichever is highest.
The UK is one of the first countries in the world to introduce this power, which was originally announced at Budget 2015 and legislated for in the Finance Bill 2016.
Financial Secretary to the Treasury, Jane Ellison said: “Tax evasion is a crime and as a government we have led reform of the international tax system to root it out. Closer to home we are creating a tax system where taxes are fair, competitive and paid.”
This year will also see the government introduce a new corporate criminal offence of failing to prevent the facilitation of tax evasion. Under the new rule, which is currently being legislated, companies will be held liable if an individual acting on its behalf as an employee or contractor facilitates tax evasion. Previously there needed to be proof that the board of directors were aware and involved in facilitating the evasion.
It will also introduce a new requirement to correct past tax evasion, which will see anyone who has failed to correct past evaded taxes by 30 September 2018 liable to new penalties, and is consulting on a new requirement for businesses and individuals who create complex offshore financial arrangements that bear the hallmarks of enabling tax evasion to notify them to HMRC.
Since 2010, HMRC has secured over £130 billion in additional compliance revenues as a result of actions to tackle tax evasion, tax avoidance and non-compliance. It has also secured more than £2.5 billion specifically from offshore tax evaders.
1 January 2017, Uruguay's Law on International Tax Transparency, the Prevention of Money Laundering and Terrorist Financing was brought into force. It was approved by parliament on 29 December.
The Law requires certain resident and non-resident entities to disclose the identity of their ultimate beneficial owners – defined as an individual who, directly or indirectly, holds at least 15% of the entity’s capital or voting rights, or otherwise has control over the entity – to the Central Bank of Uruguay. Reporting entities would also be required to provide documentation supporting their disclosures.
It applies to resident or non-resident entities that have a permanent establishment (PE) or place of effective control or management in Uruguay, or that own local assets valued in excess of approximately US $300,000 Resident entities that issue nominative or registered shares are further required to disclose the identity of their owners to the Central Bank. This reporting obligation previously applied for bearer shares.
The new law also requires domestic and foreign financial institutions to provide information about their resident and non-resident clients to the Uruguayan tax authorities on an annual basis under the OECD’s Common Reporting Standard (CRS) for the automatic exchange of information. The information includes account balances as of the end of the calendar year, annual account averages, gains or profits generated by deposits, and financial assets held in custody by the financial entity.
The new law also introduces measures to discourage the use of foreign entities located in low tax jurisdictions or that benefit from low tax regimes, as well as incorporating new provisions adopting the OECD recommendations under BEPS Action 13, regarding country-by-country reporting for transfer pricing purposes.
18 and 19 January 2017, the US signed Model 1 intergovernmental agreements (IGAs) with Bahrain and Greece respectively US to facilitate compliance with the US Foreign Account Tax Compliance Act (FATCA) by financial institutions (FIs).
FATCA is intended to ensure that the US Internal Revenue Service obtains information on financial accounts held at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients results in a requirement to withhold 30% tax on payments of US-sourced income.
The US had previously agreed to a FATCA IGA “in substance” with both countries, such that Bahrain has been treated as if it has had an IGA in force as of 30 June 2014 and Greece as of 30 November 2014.
The IGA with Greece is accompanied by an understanding in respect of the treatment under FATCA of securities registered in the Bank of Greece or in the Central Securities Depository as to whether they are held through participating or non-participating financial institutions.