Owen, Christopher: Global Survey - March 2017

  • Australia introduces legislation for new Diverted Profits Tax
    • 9 February 2017, the government introduced legislation into the Parliament to implement the new Diverted Profits Tax (DPT). Designed to prevent multinational companies from shifting their Australian profits to offshore-related parties in order to avoid paying Australian tax, it will commence on 1 July.

      By making it easier to apply Australia's anti‑avoidance provisions and applying a 40% rate of tax, which will need to be paid immediately, the DPT will encourage greater compliance by large multinational enterprises with their tax obligations in Australia, including with Australia's transfer pricing rules.

      The DPT will only apply to multinationals that have global income of more than $1 billion and Australian income of more than $25 million. It will not apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds.

      A Combating Multinational Tax Avoidance Bill 2017 was also introduced into Parliament. This will increase the maximum penalty for large multinationals that fail to lodge tax documents on time to A$525,000 and amend Australia’s transfer pricing law to give effect to the 2015 OECD transfer pricing recommendations.

  • Cayman Islands introduces 11 new bills
    • 22 February 2017, the Ministry of Financial Services, Commerce and Environment introduced 11 bills into the Legislative Assembly to strengthen Cayman’s regulatory framework, provide for new financial services vehicles and improve the business environment.

      A number of these bills are in preparation for the Caribbean Financial Action Task Force’s (CFATF) evaluation of Cayman’s Anti Money-Laundering/Counter-Financing of Terrorism (AML/CFT) regime later this year and to facilitate the Cayman’s beneficial ownership information exchange agreement with the UK.

      The Companies Management (Amendment) (No. 2) Bill, the Companies Amendment (No. 2) Bill and the Limited Liability Companies (Amendment) Bill provide for companies incorporated in Cayman to establish and maintain internal beneficial ownership registers, which may be searched by a competent authority through a central access platform.

      The Cayman Islands Limited Liability Partnership (LLP) Bill will introduce the LLP business structure and is designed to increase the attractiveness of the Cayman Islands to professional service providers and to develop potential new lines of business for international clients.

      The Foundation Companies Bill will introduce a new type of corporate vehicle that is governed by Cayman Islands company law but functions like a civil law foundation. An FC may have no shareholders and may entrench its objects.

      The Limited Liability Companies (Amendment) (No. 2) Bill, the Trusts (Amendment) Bill, the Exempted Limited Partnership (Amendment) Bill and the Tax Concessions (Amendment) Bill delegate the authority of Cabinet to the Cabinet Office in respect of processing tax concession certificates and create an administrative electronic process for the issue of certificates.

      In regards to the local business environment, the Trade and Business Licensing Amendment Bill, 2017 amends the Trade and Business Licensing Law, 2014 to clarify and extend the Trade and Business Licensing Board’s functions and its relationship with the Department of Commerce and Investment (DCI).

      The bill also aims to include examples of agricultural products that are exempt from the law such as jams, jellies or sauces; remove the requirement for police clearance certificates for those with an interest in listed or regulated companies; provide proper classification for pay day loans; and allow utility bills to be substituted for bank references.

      The Legal Practitioners Bill, which was introduced at a previous Legislative Assembly sitting but deferred for further public consultation, seeks to modernise the regulation of the practice of law and includes provisions to address the Financial Action Task Force (FATF) Recommendations.

  • Court of Appeal upholds right to disclosure of data
    • 16 February 2017, the UK Court of Appeal overturned a High Court decision that law firm Taylor Wessing LLP had not breached the Data Protection Act 1998 (DPA) by refusing to carry out searches on grounds of proportionality, legal privilege and improper purpose. Subject to any appeal to the Supreme Court, the ruling reverses the previous position regarding subjects’ rights to personal data in the context of litigation.

      In Dawson-Damer v Taylor Wessing LLP ([2017] EWCA Civ 74), the case arose out of ongoing proceedings in the Supreme Court of the Bahamas between Mrs Ashley Dawson-Damer and Grampian Trust Company Limited, a trust company incorporated in the Bahamas, which was the sole trustee of a discretionary settlement of which Ashley was a beneficiary.

      Ashley and her two adopted children made subject access requests (SARs) to Taylor Wessing LLP, the data controller and solicitors to Grampian, under s.7 of the DPA. Taylor Wessing, relying on the legal professional privilege exemption under the DPA, declined the request on the grounds that: the documents would not be disclosable under Bahamian law and were protected by privilege under English law; disproportionate effort on their part would be required to inspect the documents; and the purpose of the SAR was to obtain disclosure for the sake of litigation.

      In 2014, the court at first instance ruled in favour of Taylor Wessing, finding that the legal professional privilege exemption did apply. It found that the proposed search was not reasonable or proportionate and, given that the claimants would not have been able to obtain disclosure in the Bahamian proceedings, the High Court had no discretion to order the disclosure.

      The Court stated that there was no suggestion that the claimants wished to verify the accuracy of the information held in accordance with the overarching purpose of the subject access provisions of the DPA; rather the Court believed that “the real purpose of the subject access requests was to obtain information to be used in connection with the Bahamian proceedings”, which was not a proper purpose. Mrs. Dawson-Damer appealed.

      Reversing the decision, the Court of Appeal held that legal professional privilege exemption does not extend to systems of law outside of the UK or to documents that are solely the subject of non-disclosure rules. It also held that disproportionate effort must involve more than an assertion that it was too difficult to search through voluminous papers.

      It further held that the Data Protection Directive (Directive 95/46/EC) does not limit the purpose for which a data subject can request personal data or provide data controllers with an option to deny it based solely on such purpose. Neither does the DPA require a data subject to show that they have no other collateral purpose.

  • ECJ publishes Apple’s grounds for State Aid appeal
    • 2 February 2017, the Official Journal of the European Union published an outline summary of the 14-point appeal submitted by US tech giant Apple on 19 December against the European Commission’s €13 billion State Aid decision.

      The decision concerns two opinions issued by the Irish Revenue in January 1991 and May 2007 to Apple Sales International (ASI) and Apple Operations Europe (AOE). The opinions related to the method by which ASI and AOE allocated profit to their respective branches.

      After a two-year State Aid investigation, the Commission concluded in August 2016 that the rulings had "substantially and artificially lowered the tax paid by Apple in Ireland since 1991”. In the EC’s view, the revenues in question should have been attributed to the Irish branch because there was no “head office” capable of managing the intellectual property rights. The Commission also argued that the Irish tax rulings understated profits properly attributable to activities carried out in Ireland. It ordered Ireland to recover "unpaid taxes" from Apple for the years 2003-2013 of up to €13 billion, plus interest.

      The Irish government has already appealed the decision and entered nine pleas in law supporting its case. Its primary argument is that Apple received no advantage because Irish law was properly applied. It also cites procedural issues, along with a claim of Commission overreach.

      ASI and AOE have applied to the European courts to annul the Commission's decision, either in full or in part, and order the Commission to pay the company's legal costs. In support of the action, the applicants rely on 14 pleas in law:

      • The applicants consider that as non-resident Irish companies, they were only liable to Irish corporation tax under Section 25 of the Taxes Consolidation Act 1997 on “chargeable profits” attributable to activities performed by their Irish branches. The opinions properly reflected the branches’ “chargeable profits” and did not therefore confer an advantage;
      • The Commission was wrong to find that Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) required Ireland to calculate the applicants’ taxable profits under Section 25 in accordance with the under the “arm’s length principle”;
      • The Commission made fundamental errors by failing to recognise that the applicants’ profit-driving activities, in particular the development and commercialisation of intellectual property, were controlled and managed in the US. The profits from those activities were attributable to the US, not Ireland. The Commission wrongly considered only the minutes of the applicants’ board meetings and ignored all other evidence of activities;
      • The Commission failed to recognise that the Irish branches carried out only routine functions and were not involved in the development and commercialisation of Apple IP, which drove profits;
      • The Commission presumed that all of the applicants’ critical profit-making activities were attributable to the Irish branches without properly assessing the evidence, including extensive expert evidence showing that the profits were not attributable to activities in Ireland;
      • The Commission failed to prove selectivity – it wrongly treated the applicants as if they were Irish resident companies and as if they should be taxed on their worldwide profits;
      • The opening decision did not articulate the primary line of reasoning. If it had, Apple would have been able to present evidence that could and should have changed the outcome;
      • The Commission’s subsidiary line wrongly rejects expert evidence and fails to articulate what a correct profit attribution analysis would be;
      • The Commission was wrong to compare the opinions with other opinions issued by Irish Revenue to third parties since the factual circumstances were different;
      • The decision does not contain any explanation of how much is to be recovered under the subsidiary or alternative lines, contrary to State Aid rules and the principle of legal certainty;
      • The Commission violated the principles of legal certainty and non-retroactivity by ordering recovery of the alleged aid;
      • The Commission failed to conduct a diligent and impartial investigation;
      • The Commission breached Article 296 TFEU and Article 41(2)(c) of the Charter of Fundamental Rights of the European Union; and
      • The Commission has violated legal certainty by ordering recovery under an unforeseeable interpretation of State aid law; failed to examine all relevant evidence contrary to its obligation of due diligence; failed to reason the decision adequately; and exceeded its competence under Article 107 TFEU by attempting to redesign Ireland’s corporate tax system.

      The appeals by Apple and the Irish government have been made to the EU’s General Court, which may take more than two years to reach a decision. It is anticipated that, regardless of which side prevails, the other is likely to appeal to the European Court of Justice.


  • Ecuador votes to bar politicians from holding assets in tax havens
    • 19 February 2017, the people of Ecuador voted in a referendum to bar politicians and civil servants from having assets, companies or capital in tax havens. A majority of 55% voted in favour of the ban, with 45% against.

      Ecuador is the first country to hold a national referendum on the issue. The left-wing government pushed for action on the issue of tax havens in the wake of the Panama Papers’ scandal. It aims to increase transparency and tax revenue, while also cracking down on corruption and inequality.

      “It’s a very ambitious, radical, and exemplary referendum,” said Ecuador’s Foreign Affairs Minister Guillaume Long. He explained that politicians and civil servants “will have one year to bring all their assets back to Ecuador, and if they don’t comply with this within one year they will have to step down – including President and Vice-President. This will be enshrined in electoral law.”

  • EU moves ahead with “blacklist” screening process
    • 1 February 2017, European Union member states sent letters to 92 countries to inform them that they will be “screened” with a view to inclusion on a future “blacklist” of “jurisdictions refusing to comply with good tax governance standards”. The EU is to prepare a definitive list of tax havens by the end of 2017.

      The EU Code of Conduct Group is coordinating the screening process for Business Taxation. Countries were judged according to three risk factors for poor tax governance: transparency and information exchange, the existence of preferential tax regimes, and a zero-rated or non-existing corporate tax rate.

      Countries that apply zero tax rates will not automatically be considered a tax haven. A tax rate of zero will merely serve as an “indicator” that a closer look is warranted at a jurisdiction's taxation rules.

      The 92 countries include the US and Switzerland, as well as a large number of offshore finance centres such as Bermuda, the Bahamas, the Cayman Islands, Jersey, Guernsey and the Isle of Man.

      “Being listed for tax purposes by the EU is supposed to have already per se a deterrent effect since this would very likely entail potential consequences in terms of international reputation,” according to a confidential document obtained by Bloomberg. However, it adds that “member states have asked for concrete, specific and direct countermeasures linked to listed jurisdictions.”

      Sanctions under consideration by the EU Code of Conduct Group include: withholding taxes; elimination of payment deductions, such as royalties; restrictions via new EU rules for controlled foreign corporations; and elimination of the participation exemption rule.


  • EU reaches agreement on tackling hybrid mismatches
    • 21 February 2017, the European Council agreed a draft directive that is aimed at closing down “hybrid mismatches” with the tax systems of third countries. The directive will contribute to implementation of 2015 OECD recommendations addressing corporate tax base erosion and profit shifting (BEPS) and is the latest of a number of measures designed to prevent tax avoidance by large companies.

      The proposal addresses hybrid mismatches with regard to non-EU countries. Intra-EU disparities are already covered by the “anti-tax avoidance directive” adopted in July 2016. It complements and amends that directive accordingly.

      The Council reached a compromise on the following issues:

      • For hybrid regulatory capital, a carve-out from the rules is established for the banking sector. The carve-out will be limited in time, and the Commission will be asked to present a report assessing the consequences;
      • For financial traders, a delimited approach is followed in line with that followed by the OECD;
      • As regards implementation, a longer timeline is foreseen than that set for the July 2016 directive. Implementation is set for 1 January 2020 (one year later), and for 1 January 2022 as concerns one specific provision.

      One of a package of corporate taxation proposals presented by the Commission in October 2016 and agreement was reached at a meeting of the Economic and Financial Affairs Council. The Council will adopt the directive once the European Parliament has given its opinion. Member states will then have until 31 December 2019 to transpose the directive into national laws and regulations.

  • French industrialist found guilty of fraud and fined €2 million
    • 2 February 2017, French industrialist and politician Serge Dassault was found guilty of fraud by a Paris court after failing to fully disclose his wealth to the tax authorities. He was fined €2 million and given a five-year ban from public office.

      Dassault, who owns controlling stakes in Dassault Aviation and Le Figaro newspaper, is France’s third wealthiest person, with a net worth estimated by Forbes magazine of €13.3 billion. He has been a French senator since 2004.

      He was convicted of failing to declare assets worth tens of millions of euros between 1999 and 2014. The accounts in question, which were held by foundations and companies based in Luxembourg and Liechtenstein, contained €31 million in 2006. This total had fallen to €12 million by 2014.

      Dassault, now aged 91, argued that he had inherited many of the arrangements from his father, the aircraft manufacturer Marcel Dassault who died in 1986, and that he had since rectified the situation with the French authorities.

      The court said that while the “extent of the fraud and its duration” justified a prison sentence, in practice such a move would make “no sense” because of Dassault’s age. Dassault’s legal team said he would appeal.


  • Jersey Court rules on beneficial ownership of Jersey companies
    • 23 February 2017, the Jersey Royal Court dismissed a claim seeking a declaration that the registered shareholder of the shares in a company held them as nominee or bare trustee for him following the revocation of his powers of attorney. It further stated that the Court should not recognise any arrangement that detracts from the ability of regulators or law enforcement authorities to identify the beneficial owners of companies or the beneficiaries under trusts

      In Essam Abdulamir Al Fadhi Al Tamimi v Rouzin Marwan Al Charmaa [2017] JRC033, the plaintiff was the senior partner of a law firm with offices across the Middle East. He was also an experienced businessman with extensive real property interests and an investment portfolio. He married the defendant in the United Arab Emirates under Sharia law in 2002 and they were divorced according to the laws of the UAE in 2015. They were both resident in the UAE.

      At issue in the case was the ultimate ownership of two Jersey companies, First Grade Properties Limited and Jorum Limited, which owned real estate in London. The plaintiff claimed he was the ultimate beneficial owner of the two £1 ordinary shares of the issued share capital in each company.

      His primary case was that the defendant, who was the registered shareholder of the shares, held them as nominee or bare trustee for him and he sought a declaration to that effect. In the alternative, he sought a declaration that the defendant held the shares on resulting trust for him, to include all dividends, income, profits and all or any net sale proceeds deriving from the shares, alternatively that she held the shares on constructive trust for him including all dividends etc., and as a further alternative a declaration that she had been unjustly enriched at his expense.

      The defendant denied any form of trusteeship or nominee arrangement and denied that she had been unjustly enriched at his expense. She asked the Court to dismiss the plaintiff’s claims.

      The plaintiff’s case was that in or about 2006 he became aware of a claim that his first wife, Ms Buratto, was bringing for judicial separation in the Italian courts. He took advice from his Italian lawyer that he should structure his assets either in the name of the defendant or in the name of his children. He was also been advised by his English lawyer that there were good reasons to structure the asset holding in London property through Jersey companies for good practice and taxation reasons. Accordingly the companies in Jersey were incorporated and the properties transferred into them. He explained in his evidence that he had an oral agreement or understanding with the defendant that she would hold the shares in the companies as his nominee. Later, at his insistence, the defendant was asked to sign powers of attorney to confirm his complete authority and power of disposition over the companies and any of their property.

      In fact the plaintiff’s first wife did not make any claim against the properties in question and he settled her proceedings on payment of a lump sum in or about 2010. It came as a shock to the plaintiff in May 2014, when he moved out of the matrimonial home that he shared with the defendant that she revoked the powers of attorney. He contended this went completely against and was a serious breach of the arrangement between them. It was the first time she had taken any unilateral step in relation to the companies.

      The defendant’s case was that the shares were registered in her name because they belonged to her. She had signed no declaration of trust, nor had she signed a share transfer form with the identity of the transferee uncompleted. She had signed powers of attorney, but the purpose of those powers of attorney was to enable her husband to deal with the assets on her behalf, and certainly not on his own behalf.

      The incorporation of the companies and the transfer of property into them had come about because in or about 2005, before her second child was born, relations between her and the plaintiff deteriorated. She discovered he was having an affair, and shortly before the birth of their second child, he threw her out of the matrimonial home. When they reconciled after the birth of their second child, she made it plain to the plaintiff that she would only have him back if her future were to be secured.

      As a result of this, she says it was agreed that she would hold a 1% shareholding in Al Tamimi Investments Company LLC (ATI), which held a number of investments, the plaintiff holding the other 99%; and that the Jersey companies would be incorporated and properties transferred to her for the future. In lieu of her receiving any form of dividend from ATI, the plaintiff would continue financing the different maintenance costs in relation to the properties. Thus it was that the shares in the companies were issued to her, and the loan accounts were in her name.

      The defendant revoked the powers of attorney in 2014 in the presence of a notary in Dubai. According to her evidence, the motivation for doing so was that in April 2014 the plaintiff removed his personal effects from the former matrimonial home, taking his clothes, shoes, books and electronic devices that he had left at the property, leaving behind, however, his desktop computer with his emails left open on the screen. He also locked out the defendant from two of her cars and locked her jewellery away in the safe situated on the property.

      The defendant asserted that the primary reason for her cancelling the powers of attorney was that on 10 May, 2014, she became aware of an email which the plaintiff had sent to Ms Wunsch (a director of the companies) in which he said: “ … be sure that the two company which own the two flats in London I am the only beneficiary, make it in a simple instruction to the Jersey trustee please, get the facts and the status today (without alerting the trustee) and ensure I am the only one, I remembered we may have changed things when Katia filed in Italy, did we reverse it after that?? We may have done it by simple facts or email then, we can do the same.”

      The Court held that the burden lay on the plaintiff to show that the legal owner of the shares in Jorum and First Grade was not the beneficial owner. It found the plaintiff’s witnesses were not convincing witnesses, and it was clear that the plaintiff was prepared to hide assets from his first wife and, it could be surmised, that he was willing to hide them or take them back from his second wife as well. In the Court’s view, the defendant’s case was more compelling.

      It found that the defendant did not hold the shares in First Grade and Jorum for the plaintiff as nominee and believed he was willing to settle for the defendant owning the shares in the companies because he wished to get both the fiscal advantages of structuring ownership in that way and because he wished to protect the London assets from any claims by his first wife.

      The Court also rejected the argument that the grant of the powers of attorney and the issue of the shares in the companies should he treated as one transaction that created an express trust by conduct, or if that argument failed, as a resulting trust or a constructive trust. It found that the defendant’s explanation of how the transfer of assets came about was a credible explanation on the balance of probabilities. It was therefore also impossible to conclude that the enrichment was unjust.

      The Court said: “For all the reasons given above, the plaintiff’s claim does not succeed, but given that alternative cases have also been put to the Court on questions of illegality or immorality, it seems to us desirable that we express our view on these issues … There is a public interest – a very strong public interest – in the Island being able to demonstrate that it has the ability to identify the beneficial owners of companies, or the beneficiaries under trusts. In our judgment, this Court should not recognise any arrangement which detracts from the ability of regulators or law enforcement authorities to do so, and, even if we had been satisfied that the shares were held as a nominee or on trust for the plaintiff, or that the defendant had been unjustly enriched at the expense of the plaintiff, we would not have been prepared to grant relief in the exercise of our equitable discretion on that basis.”

  • King of Spain’s brother-in-law imprisoned for tax fraud
    • 17 February 2017, Iñaki Urdangarin, brother-in-law of Spain’s King Felipe VI, was sentenced to six years and three months in prison and fined more than €500,000 after being found guilty in a court in Mallorca of charges including embezzlement, fraud and tax evasion.

      His wife, Princess Cristina, was cleared of assisting her husband but was ordered to pay a fine of €265,000 for “civil responsibility” for benefitting, albeit indirectly and unknowingly, from her husband’s activities.

      Urdangarin was accused of exploiting his connections to win falsely inflated contracts from regional government bodies to stage sporting and other events. He then used a non-profit sports foundation as a vehicle to channel more than €6 million of public money to personal accounts via tax havens.

      He and his wife were among 18 co-defendants facing a total of 89 charges ranging from fraud and money laundering to trafficking of influences. Urdangarin’s former business partner Diego Torres received a prison term of eight years and six months. Nine defendants in all were acquitted.

  • MEPs vote to broaden access to beneficial ownership registers
    • 28 February 2017, the Economic and Monetary Affairs and Civil Liberties committees of the European Parliament voted to amend the EU Anti-Money Laundering Directive (AMLD) to allow EU citizens to access registers of beneficial owners of companies.

      Access to beneficial ownership registers is currently restricted to authorities and professionals such as journalists and lobbyists that can demonstrate a “legitimate interest” in the information.

      The scope of the AMLD will also be expanded to cover trusts and “other types of legal arrangements having a structure or functions similar to trusts”. These were previously excluded from the directive on privacy grounds. Trusts will now have to meet the full transparency requirements of firms including the need to identify beneficial owners.

      Virtual currency platforms and custodian wallet providers have also been brought within the scope of the directive. Under the amendments, virtual currency platforms would have the same obligation as banks and other payment institutions to scrutinise their customers. This includes verifying identity details and monitoring their financial transactions, to reduce the risk of virtual currencies being used to launder criminal proceeds.

      The update also aims to streamline coordination among member states in fighting terrorism financing and money laundering. Measures include introducing centralised bank and payment account registers in member states, harmonising the checks that banks and financial institutions make across the EU and easing the flow of information between member states’ financial intelligence units.

      The committees voted by 92 votes to one, with one abstention, to enter into negotiations with the Council. Parliament as a whole must now give the go-ahead in the March plenary session for MEPs to start three-way talks with the EU Commission and Council.

  • Mexico launches voluntary disclosure scheme in advance of CRS
    • 18 January 2017, legislation to establish the 2017 Repatriation Tax Amnesty was published in the Official Gazette of the Federation in the form of a presidential decree (Decreto que otorga diversas facilidades administrativas en materia del impuesto sobre la renta relativo a depósitos o inversiones que se reciban México).

      The decree sets out that “during a six month period starting 19 January, Mexican resident taxpayers, and permanent establishments in Mexico of non-Mexican residents, who, directly or indirectly, obtained income that has been kept abroad until 31 December 2016, may elect to pay the income tax applicable on such income by applying an 8% flat rate on all funds repatriated to Mexico, and complying with the rules set forth in the decree.”

      All repatriated funds will be required to remain “invested in Mexico” for at least two years. Funds that are currently being investigated or audited by tax authorities or otherwise involved in legal proceedings will not be eligible under the voluntary disclosure scheme.

      Mexico is one of the 53 countries that have committed to participate in the OECD’s Common Reporting Standard (CRS) regime by undertaking first exchanges in 2017. The CRS provides for the automatic exchange of information held on accounts held in the participating jurisdictions’ financial institutions. Some 47 other countries have agreed to undertake first exchanges in 2018.

  • Mossack Fonseca founders arrested in Panama
    • 9 February 2017, Jurgen Mossack and Ramón Fonseca, the founders of Panamanian law firm Mossack Fonseca, were arrested in Panama City as part of an investigation into their alleged connection to Operação Lava Jato (Operation Car Wash) corruption investigation in Brazil. The arrests followed a search of the firm’s offices by Panamanian prosecutors.

      Mossack Fonseca was at the centre of the “Panama Papers” scandal in April 2016, an unprecedented leak of 11.5 million files from the law firm’s database to the international press, which revealed financial information about wealthy individuals and public officials in respect of more than 200,000 offshore entities.

      Panama’s attorney general Kenia Porcell said she had information that identified Mossack Fonseca “allegedly as a criminal organisation that is dedicated to hiding money assets from suspicious origins”.

      She said the firm’s Brazilian representative had allegedly been instructed to conceal documents and to remove evidence of illegal activities related to Lava Jato. Charges had been formulated against four individuals, including the Mossack Fonseca partners. A judge has ordered pre-trial detention for all, to prevent their flight.

      The Lava Jato enquiry revealed systematic corruption centred on Brazil’s state-controlled oil company Petrobras and Latin America’s largest construction group Odebrecht. Last December, Odebrecht was fined at least $3.5 billion by the US, Brazilian and Swiss authorities for channelling almost $788 million to politicians and officials across a dozen countries through an “unparalleled bribery and bid rigging scheme”.

      According to the Reuters news agency, Ramón Fonseca denied his firm had a connection to Odebrecht, which has admitted to bribing officials in Panama and other countries to obtain government contracts in the region between 2010 and 2014. He also accused the president of Panama, Juan Carlos Varela, of receiving money directly from Odebrecht. Varela has denied the allegation. An independent commission has been set up to investigate.

      Panama’s Superintendent of Banking has taken control of FPB Bank. In July, Brazilian police launched an investigation into FPB Bank for "financial crimes, laundering of assets and transnational criminal organisation" for offering private banking services without the authorization of Brazil's central bank.

  • New FATCA IGAs enter into force
    • 30 January 2017, the US Treasury announced that Model 1 FATCA intergovernmental agreements (IGAs) had entered into force with the United Arab Emirates, Portugal, Croatia and Montserrat. IGAs had also been signed with Anguilla and Greenland.

      All are Model 1 IGAs, which require foreign financial institutions to report all FATCA-related information to their domestic governmental agencies, which will then report the FATCA-related information to the US IRS.

      The announcements state that the IGAs entered into force as of: 19 February 2016 with the UAE; 10 August 2016 with Portugal; 28 October 2016 with Montserrat; and 27 December 2016 with Croatia. All the countries have been treated as if they have had a FATCA IGA in effect since 30 June 2014, except for Montserrat, for which the date was 20 November 2014.

      A further Model 1 FATCA IGA was signed with Ukraine on 17 February.

  • New Zealand strengthens disclosure regime for foreign trusts
    • 21 February 2017, the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act, which will increase disclosure obligations for NZ resident trustees of NZ foreign trusts, received Royal Assent and was brought into force. Approved by Parliament on 14 February, the law further provides for New Zealand’s participation in the G20/OECD Common Reporting Standard for automatic international exchange of financial account information.

      The disclosure requirements in respect of foreign trusts require trustees to register the trust with the Inland Revenue Department and provide: the name of the trust; the details of each trust settlement; and the name, email address, physical residential or business address, jurisdiction of tax residence, taxpayer identification number of every settlor or controller of the trust.

      For a fixed trust, the trustee must provide the name, age, and taxpayer identification number of the beneficiary. For a discretionary trust, the trustee must provide details of each beneficiary or class of beneficiary sufficient for the IRD to determine, when a distribution is made under the trust, whether a person is a beneficiary.

      The trustee must also provide a copy of the trust deed (and any subsequent amendments or additions) and an annual return, which must be accompanied by the filing of annual financial statements if the trustee prepares financial statements or is required to prepare financial statements, as well as details of trust distributions and the beneficiaries.

      A trustee will have to register any foreign trusts by 30 June 2017 and notify any subsequent changes within 30 days. Disclosure of the information is limited to “a person who is a member of the New Zealand Police or an officer, employee, or agent of the Department of Internal Affairs”.

      John Shewan, who was appointed by the government to review existing legislation following the release of the “Panama Papers” last year, recommended the new disclosure requirements.

  • OECD releases peer review documents for BEPS Actions 5 and 13
    • 1 February 2017, the OECD released key documents, approved by the Inclusive Framework on BEPS, which will form the basis of the peer review of Action 13 Country-by-Country Reporting and for the peer review of the Action 5 standard for the compulsory spontaneous exchange of information on tax rulings (transparency framework – two of the four BEPS minimum standards.

      Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation. All members of the Inclusive Framework on BEPS commit to implementing the minimum standards and participating in the peer reviews.

      The documents form the basis on which the peer review processes will be undertaken. The compilations include the Terms of Reference, which sets out the criteria for assessing the implementation of the minimum standard, and the Methodology which sets out the procedural mechanism by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process.

      To date, 48 countries and jurisdictions have joined the Inclusive Framework with the existing group of 46 countries (including OECD, OECD accession and G20 members), bringing the total number of countries and jurisdictions participating to 94. The OECD Secretary General will be publishing an update on the whole BEPS Action Plan in advance of the G20 Finance Ministers’ meeting, which will take place in Baden Baden, Germany, on 17 March.

  • Panama issues policy statement on fiscal transparency
    • 2 February 2017, Panama’s Ministry of Economy and Finance issued Executive Decree No. 10 of 2017, which sets out policy in respect of fiscal transparency and its criteria for the country’s automatic exchange of information in tax matters.

      Panama is committed to implementing the Common Reporting Standard (CRS) for the automatic exchange of financial information on a bilateral basis beginning in 2018. It is also a signatory of the Organisation for Economic Co-operation and Development’s (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which will be the legal basis for the negotiation of Competent Authority Agreements (CAAs) with partner jurisdictions.

      The policy states that Panama will negotiate CAAs with countries that have “an adequate legal framework and technological systems to guarantee the confidentiality and protection of information that will be subject to automatic exchange.” CAA negotiations will be undertaken on the basis of common interests and internationally accepted standards and negotiations will not take place as a result of unilaterally imposed measures.

      On 23 February President Juan Carlos Varela signed into law the implementation of the Convention on Mutual Administrative Assistance in Tax Matters (MAC), which raises the number of partner jurisdictions or nations with which it can exchange information from 30 to 107.

      Publio Cortés, Director General of Revenue, said the Convention “allows the exchange of tax information on request between signatory jurisdictions, but does not imply automatic exchange, but allows bilateral negotiations through agreements between the competent authorities to which automatic exchange can be given “.

  • Singapore-India treaty Protocol enters into force
    • 27 February 2017, the Third Protocol amending the existing double tax treaty between Singapore and India to phase out capital gains tax exemption, which was signed on 30 December 2016, entered into force.

      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 India markets. With the revision to the India-Mauritius tax treaty, the capital gains tax exemption for shares in the Singapore-India treaty, which had been pegged to the India-Mauritius treaty, 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 will 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 will continue to be underpinned by the substance requirements contained in the Singapore-India treaty, which ensure that treaty benefits are only available to tax residents with substantive economic activities.

      The new tax treaty between Singapore and Uruguay also entered into force on 14 March 2017. The DTA provides clarity on tax matters and eliminates double taxation relating to cross-border transactions between the two countries.

  • South Africa’s budget targets trusts
    • 22 February 2017, the South African government’s 2017 budget announcement introduced a new 45% top rate of income tax for incomes above ZAR1.5 million (US$115,000) and increased the dividend withholding tax from 15% to 20% with immediate effect.

      The exemption and rate of tax for foreign taxable dividends will also be revised in line with the new DWT rates whereby the maximum rate of effective tax will be 20%. This will be effective as from 1 March 2017.

      It is proposed to increase the rate of tax applicable to trusts (other than special trusts) to 45%. This would result in the effective rate of Capital Gains Tax on the disposal of a capital asset in the hands of a trust increasing to 36%. By comparison, the maximum effective rate of tax on capital gains in the hands of a natural person will be increased to 18% as a result of the increased maximum marginal personal tax rate.

      In 2016, an anti-avoidance measure was introduced in section 7C of the Income Tax Act to curb the tax-free transfer of wealth to a trust by means of an interest free or low interest loan. This measure will be extended to cover low or interest-free loans to companies owned by a trust, if the trust has been set up for estate-planning purposes. It will not apply to employee share scheme trusts and certain trading trusts.

      The 2015 Budget Review announced that measures would be introduced regarding the treatment of foreign companies held by interposed trusts. It is proposed that specific countermeasures be introduced to curb abuse but no details have yet been provided.

      The foreign employment income tax exemption for South African residents is to be restricted such that relief will only be applicable to the extent that the foreign employment income is actually subject to tax in the foreign country.

      The withholding tax to be applied to non-resident sellers of immovable property will be raised from 5% to 7.5% for individuals, from 7.5% to 10% for companies, and from 10% to 15% for trusts.

  • Swiss voters reject tax reform plan
    • 12 February 2017, Swiss voters decisively rejected the proposed federal bill on Corporate Tax Reform III (CTR III), which was adopted by the Federal Parliament last June, by a majority 59.1% vote in a referendum.

      CTR III was designed to align the Swiss corporate tax system with international standards, particularly the OECD's base erosion and profit sharing (BEPS) project, by replacing existing tax regimes with a new set of internationally accepted measures as of 1 January 2019.

      International bodies such as the European Union and OECD have been pressuring Switzerland to change its corporate tax rates. Switzerland reached agreement with the EU in 2014 to abolish the “special status” afforded to 24,000 multinationals operating in the country.

      The reform would have repealed cantonal tax status for holding, domicile, and mixed companies, as well as a principal company taxation and the finance branch regime. These preferential tax rates were to be replaced by a lower universal tax rate applicable to all companies along with the introduction of a patent box regime, research and development super deduction, a notional interest deduction on surplus equity, and a tax basis step-up. Overall cantonal tax relief would have been restricted to a maximum of 80%.

      Finance Minister Ueli Maurer said the defeat meant that Switzerland would no longer be able to fulfil its promises to abolish special privileges by 2019. However it remained committed to reform its tax system in order to retain its high attractiveness as business location for international companies.

      European Commissioner for Economic and Financial Affairs Pierre Moscovici said: “The rejection of the reform and referendum means we need to redouble our efforts when it comes to taxation. The Commission plans to consult the member states so we can decide together how to proceed.”

      “Switzerland’s partners will expect it to implement its international commitments within a reasonable time period and this need not happen within the context of a wider reform, which could take longer than the two years originally foreseen for these changes,” said OECD tax director Pascal Saint-Amans.

      The Federal Council is to prepare a revised bill as quickly as possible. The current tax legislation remains in force and the existing tax regimes remain available until a new law is passed.


  • Switzerland consults on AEOI with 20 more countries
    • 2 February 2017, Switzerland’s Federal Department of Finance launched a consultation on introducing automatic exchange of information (AEOI) in tax matters with 20 additional countries.

      The countries under consideration are: China, Indonesia, Russia, Saudi Arabia, Liechtenstein, Colombia, Malaysia, the United Arab Emirates, Montserrat, Aruba, Curaçao, Belize, Costa Rica, Antigua and Barbuda, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, the Cook Islands and the Marshall Islands.

      AEOI is to be based on the international standard for the exchange of information developed by the OECD under the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information. The implementation of AEOI with these nations would be from 1 January 2018, with the first exchange of information taking place in 2019.

      In 2017, Switzerland introduced AEOI with all EU member states including Gibraltar, as well as with Australia, Iceland, Norway, Japan, Canada, South Korea and the British crown dependencies of Jersey, Guernsey and the Isle of Man. Data will be exchanged for the first time with these 38 states and territories in 2018.

      The consultation, which will end on 13 April, is running parallel to Switzerland’s consultation, initiated on 1 December 2016, regarding the introduction of the AEOI with other states and territories from 2018/2019. When the consultations have been completed, both proposals will be merged into a single item and submitted to parliament.

  • UK confirms increase to probate fees for high-value estates
    • 24 February 2017, the UK Ministry of Justice confirmed that it is to proceed, following a consultation, with government proposals to reform the fee payable for an application for a grant of probate. The regime will move, as of 1 May, from a flat fee to a banded structure where the fees increase in line with the value of the estate, up to a maximum of £20,000.

      The current flat fee of £215 will be replaced with a new system of tiered charges. No fee will be payable for estates worth less than £50,000 but the charges will increase rapidly beyond that threshold, as follows:

      • £300 for estates worth more than £50,000 and up to £300,000
      • £1,000 for estates worth more than £300,000 and up to £500,000
      • £4,000 for estates worth more than £500,000 and up to £1 million
      • £8,000 for estates worth more than £1 million and up to £1.6 million
      • £12,000 for estates worth more than £1.6 million and up to £2 million
      • £20,000 for estates worth more than £2 million.

      The proposal to link probate fees to the value of the estate was published in February 2016 and attracted overwhelming opposition, especially in view of the government's subsequent admission to parliament that the Probate Registry was already self-funding on the existing fee structure. Only 63 out of 829 respondents agreed with linking probate fees to the value of the estate and 695 disagreed. Most responses to the consultation considered that the proposed fees were too high, and, because they exceeded cost recovery levels, would effectively constitute a form of taxation.

      Justice minister Shailesh Vara said: “These proposals are progressive, with lower value estates lifted out of paying any fee at all and other estates only paying more as the value of estate increases. They are also necessary, making a significant contribution to reducing the deficit and enabling investment which will transform the courts and tribunals service.”

  • US professor receives prison sentence and fine
    • 10 February 2017, a retired business professor from New York who amassed a $220 million fortune in secret foreign accounts was sentenced to seven months in prison. Dan Horsky pleaded guilty last November to “conspiring with others to defraud the US and to submitting a false expatriation statement to the Internal Revenue Service (IRS)”.

      Horsky created Horsky Holdings, a nominee entity, to hold some of his investments in start-up companies. He then used the Horsky Holdings account, and later, other accounts at a Zurich-based bank, to conceal his financial transactions and financial accounts from the IRS and the US Treasury Department.

      The sale of one of the companies in which he invested netted him US$80 million, but he disclosed to the IRS only US$7 million of his gain from that sale and paid taxes on just that fraction of his share of the proceeds. By 2013, his investments in another company, combined with other unreported offshore assets, reached over US$200 million.

      Horsky also wilfully filed false individual income tax returns between 2008 and 2014, which failed to disclose his income from, and beneficial interest in and control over, his Zurich-based bank accounts. He was charged with multiple offences of wilfully failing to declare income, and failing to file or filing false Foreign Bank Account Report (FBAR) forms. In total, Horsky was found to have evaded more than $18 million in income and gift tax liabilities over a 15-year period.

      In addition to the prison sentence, Horsky was ordered to serve one year of supervised release and to pay a fine of US$250,000. As part of his plea agreement, Horsky also paid a penalty of US$100 million dollars to the US Treasury for failing to file and filing false FBARs, and paid over US$13 million in taxes owed to the IRS.

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