"The US has a complicated 'worldwide' system of taxation that requires businesses to pay the 35 percent federal corporate tax rate on their income – the highest in the world – regardless of whether it was earned domestically or abroad," said Tax Foundation Economist Kyle Pomerleau. "When it comes to foreign profits, companies pay tax on their income not once, but twice (less a credit for the taxes they pay to other countries)."
While American firms can delay paying the additional US tax on their foreign profits as long as the earnings are reinvested in the ongoing activities of their foreign subsidiaries (and the additional US tax is only due when the profits are eventually repatriated), the TF explained that companies are still required to report to the IRS on how much they earn in each country they operate in and how much they pay those countries in taxes, as part of their annual tax returns.
The TF noted that, "while it is undoubtedly true that US multinational firms use tax planning techniques to minimize the taxes they pay on their foreign earnings," American companies paid more than USD104bn abroad on foreign taxable income of USD416bn billion; an average effective exchange rate of 25 percent, according to the most recent IRS data for 2009.
Furthermore, while the foreign taxable earnings of US companies have grown over the years between 1992 and 2009, so have their foreign taxes. Over those seventeen years, the TF calculated that taxable income grew in real terms by 214 percent and foreign taxes paid grew by 202 percent.
The TF found that the largest concentration of foreign earnings for US multinationals was in the European Union, at USD164.5bn, on which they paid nearly USD38bn in income taxes at an average effective tax rate of 24 percent. The second largest concentration of taxable earnings was in Asia at USD60.8bn billion, where US firms paid more than USD18bn at an average effective tax rate of 31 percent.
With regard to particular countries, while the TF also emphasized that the majority of countries at the top of the foreign earnings list for US companies have normal corporate tax systems, there were two so-called tax havens, Bermuda (with USD25.3bn in income) and the Cayman Islands (USD9.1bn) within that list. Even there, US multinationals paid average effective tax rate of 17.8 percent and 20.9 percent, respectively.
However, the TF did calculate that Ireland did, due to its low statutory corporate tax rate, give US companies one of the lowest average effective tax rates at 11 percent on earnings of USD14.6bn in 2009.
"People who criticize US companies for 'avoiding' taxes on their foreign earnings need to be more careful with their language and acknowledge that our worldwide tax system requires US firms to pay taxes twice on their foreign profits, before they can reinvest those profits back home," noted Pomerleau. "Any discussion about reforming the corporate tax code must keep these facts in mind."
Swiss Finance Minister Eveline Widmer-Schlumpf has confirmed that the Confederation is close to brokering a deal with the US, aimed at resolving the longstanding tax dispute between the two countries, and finding an "acceptable" solution to deal with the issue of US taxpayers' undeclared income already held in Swiss banks.
Switzerland has for years sought to end relentless and damaging US investigations into major Swiss banks. The US authorities have aggressively pursued Swiss institutions and their employees for complicity in tax evasion and for having deprived the US Treasury of billions of dollars in lost tax revenues.
Although the US and Switzerland recently concluded an Intergovernmental Agreement to facilitate compliance with the US Foreign Account Tax Compliance Act (FATCA), which provides a solution for the future, both countries have been at pains to resolve the issue of past income.
While underlining the importance of finding a solution, Swiss Finance Minister Widmer-Schlumpf made clear that the banks will not "get that for free." The Minister refrained from giving precise details of the penalties and fines that might be imposed on the country's financial institutions under the new deal.
Widmer-Schlumpf emphasized that it will not be a pleasant solution, but will be a legally correct resolution. The accord is not designed to rescue the banks, but is intended to draw a line under the past, she stressed.
Details of the accord are due to be presented shortly.
The head of the Confederation of British Industry has called on politicians to "fix the rules internationally" on taxation rather than moralize, while also warning business leaders to ensure their tax affairs stand the test of public opinion.
Sir Roger Carr made the comments during a speech on tax and reputation at the Oxford Business School, and as the UK government prepares to host the G8 in Belfast next month. Contrasting international action with unilateral measures, he argued that "independent action can cost competitiveness and cause confusion," and that "hasty solutions or political-point scoring" could have long-term unintended consequences. Consultation with the business world was "critical" to the design process for any changes.
On tax evasion and avoidance, Carr observed that "tax evasion is about the law and about right and wrong in the eyes of the law... If the law is weak, it will be contested; it if has loopholes, they will be discovered; and as flaws are found they must be remedied by a change in the law – not a change of heart."
However, he added that although the CBI supports tax management as a legitimate business practice, it rejects schemes that serve no commercial purpose, and he asked businesses to consider: "if management practice was revealed on the front page of a daily tabloid, would we be ashamed, concerned, regretful; would our brand be damaged?" Risk to reputation was the "best weapon in the armoury in fighting the tax battle."
Carr also drew attention to the amount of tax generated by business: GBP40bn in corporation tax; GBP56bn in National Insurance; GBP26bn in business rates; and GBP13bn in fuel duty, amounting to 30 percent of all tax receipts. For every GBP1 raised through corporation tax, a further GBP3 is raised on other taxes.
The European Union's (EU) Economic and Financial Affairs Council (ECOFIN) has reached an agreement on a mandate to allow the European Commission to negotiate amendments to agreements under its Savings Tax Directive.
Tax Commissioner Algirdas Šemeta confirmed following the meeting that, after two years of discussions, ministers have now agreed to give the Commission the go-ahead to launch talks with Switzerland, San Marino, Andorra, Lichtenstein and Monaco. Describing the decision as a breakthrough, Šemeta stressed that he was "ready to proceed with these negotiations with full speed and high ambition." He believes that "greater cooperation and transparency in taxation between the EU and these countries can return billions to the rightful treasuries."
The Commission first adopted an amending proposal to its Savings Tax Directive in November, 2008. The aim was to close existing loopholes, better prevent tax evasion, and ensure the taxation of interest payments channelled through intermediate tax-exempted structures.
These reforms will now be discussed at next week's meeting of the European Council. The deferral disappointed Šemeta, who said that a deal had been blocked on the basis that progress with third countries must be made first. He is convinced that this "is too important an instrument to neglect any further," and that a "stronger Savings Directive is crucial for all Member States to better identify and chase up evaders within the EU."
Šemeta hopes that the situation will be rectified, warning that effective change will only come if the EU's "own house is fully in order." His comments echo those made in a letter from UK Chancellor to his fellow ministers, published ahead of the meeting. In it, George Osborne claimed that: "Unless Europe can show it can agree on this existing proposal, our commitment to a new, stronger standard will not be credible. It is a test of our seriousness - and the world is watching us."
ECOFIN did nonetheless adopt a series of conclusions on tax evasion and fraud. According to Irish Finance Minister and meeting chair, Michael Noonan: "This is real progress towards tackling tax evasion and fraud which is an agreed objective of all member states. We strongly support the international move towards automatic exchange of information as the new global standard."
In a joint statement published after the meeting, ministers from Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the UK reaffirmed that "all member states recognize the importance of taking effective steps to fight evasion and tax fraud." The document further states that ECOFIN "recognises the need for an appropriate combination of efforts at the national, EU and at global levels," and thus supports moves toward the greater use of automatic exchange of information.
Ministers also underlined the "useful role" that can be played by the Commission's Action Plan on evasion, and by its recommendations on aggressive tax planning and good governance in tax matters. They recalled the Council's ongoing work, and acknowledged that member states are implementing existing legal measures, in particular Council Directives for Administrative Cooperation and Mutual Assistance for the Recovery of Claims.
Attendees called on their governments "to consider where appropriate, to what extent their current national legal framework may include a General Anti Avoidance Rule which allows effective action, in compliance with the EU Treaties, against abusive tax arrangements."
Finally, ministers urged incoming EU Presidencies "to work further in order to find the most appropriate ways to tackle tax fraud, tax evasion and aggressive tax planning at national, EU and global level as well as to reinforce efforts in promoting good governance in tax matters to third countries, underlining the importance of strengthening cooperation with the OECD and G20, sharing views, experiences and best practices between member states."
The statement was welcomed by the UK Treasury: "There is now real momentum building towards a step change in the international community's approach to tackling offshore evasion which the government is fully committed to grasp and make a reality as soon as possible. There is strong international consensus forming both in Europe and the G20 to put in place a new global standard on tax transparency."
Commenting Chas Roy-Chowdhury, Head of Taxation for the Association of Chartered Certified Accountants, said: "Europe wide and global efforts to crackdown on the illegal practice of tax evasion is a positive step. However, if the sharing of tax information is going to be used for other reasons that aren't aimed at preventing laws being broken, then we start to get into the realms of 'big brother.'
"It should, by now, be etched into everyone's mind that tax avoidance is within the law, while tax evasion is illegal. If the sharing of tax details amongst EU states of individuals and companies is going to be used for something other than tackling tax evasion, such as a shaming exercise for those who operate well within the law in order to pay less tax, then the EU risks becoming a no go area for the world's business community."
The Hong Kong Federation of Insurers (HKFI) has presented a report on how to enhance the competitiveness and attractiveness of Hong Kong as an international maritime center (IMC) in the Asia-Pacific region to the Hong Kong maritime industry, which includes suggested tax exemptions and incentives.
"With our excellent port infrastructure, strategic location, sound legal system, and quality maritime services, Hong Kong has been an international port since 1970's," said Agnes Choi, Chairman of the HKFI. "To maintain this leading edge, and in face of keen competition from other markets, we hope to find ways to strengthen Hong Kong's role as an IMC."
The report points out that, from previously being the world’s busiest port, Hong Kong now ranks third, after Shanghai and Singapore. To compete, it is believed that "Hong Kong's Government needs to create a business environment conducive to maritime services. The advantages of Hong Kong's simple low tax regime are quickly being eclipsed by the tax incentives offered by competing IMCs."
Firstly, the insurance industry hopes that the Government will negotiate with the Mainland Government to designate Hong Kong a "Tier 2" reinsurance region and introduce double tax deduction to encourage Hong Kong shippers/exporters to change sales terms from the habitual FOB to CIF, thereby encouraging the local placement of insurance.
In addition, however, it is noted that Hong Kong has been a laggard in signing double taxation agreements (DTAs) with only about half of its top 20 trade partners. The HKFI states that pales in comparison with the 50 DTAs that Singapore and Mainland China have each secured. The report comments that additional DTAs with major trading partners would most likely foster bilateral economic and trading activities and encourage companies from more countries to set up regional offices in Hong Kong.
The international nature of marine insurance means that maritime risks anywhere in the world could be underwritten in Hong Kong. To solidify Hong Kong's IMC status, the report proposes that the Government should provide tax exemptions, as Singapore currently does, to provide further encouragement for offshore marine insurers to set up regional head offices in Hong Kong.
Singapore provides a raft of tax exemptions and financial support schemes to attract marine business (such as 10-year tax exemptions on qualified shipping income and 5-year tax concessions on ship or container leasing companies), many of which have been recently revised and are expected to continue for a long time.
Tax exemption schemes are also available in Singapore for captive insurers, specialized insurers and marine hull and liability insurers, and the Hong Kong Government is asked in the report to formulate effective counter-measures by providing tax incentives or exemption schemes in critical sectors so as to retain business.
The Government of Abu Dhabi has approved Federal Decree 15 of 2013 providing for the formation of the territory's first financial free zone, the Abu Dhabi World Financial Market.
Plans for the zone - measuring in at 1,680 square kilometers - have yet to clarify whether the zone will target its own financial services niche or look to muscle in on the business of existing financial centers in the region in Riyadh, Saudi Arabia, Doha, Qatar, or the various tax-free zones in fellow emirate Dubai.
Across the border in Dubai, the Dubai International Financial Center has quickly expanded in the nine years it has been operational, attracting the world's largest financial services, banking, and insurance companies.
Discussing Abu Dhabi's plans in an interview with local paper, the National, Habib Al Mulla, a Dubai lawyer who helped establish the DIFC's legal framework before the free zone was launched in 2004, opined that the plans were a positive development for the United Arab Emirates. As the number of financial institutions increases, the UAE will see more choice and deeper, more liquid capital markets, he suggested, adding that domestic companies will have immediate access to invaluable financial services expertise on their doorstep.
Justice Minister Simonetta Sommaruga said the move was not an unfriendly act against Switzerland’s main trading partner but could be seen as one element among others to limit immigration
Swiss government on Wednesday extended immigration quotas, introduced against eight mainly eastern European states a year ago, for another 12 months. It also wants to apply the same measures against the so-called EU-17 states, including Germany, France, Italy, Spain and Britain.
As a result of Wednesday’s decision, the number of type B permits issued to people from the EU-17 nations will be capped at 53,700 over the next 12 months. B permits grant foreign nationals residence status for five years.
The type B permit quotas for EU-8 nationals – including Poland, the Czech Republic, Slovakia, Hungary, and the Baltic Republics – will remain limited at about 2,180 until May 2014.
On 20 March 2013, the UK Chancellor of the Exchequer, the Rt Hon George Osborne, presented the UK Budget to the House of Commons. This Alert covers the key corporate tax provisions and other items of interest to multinational companies.
Further details are available from the Ernst & Young Tax Alert which can be accessed using the link below:
EU steps up fight against aggressive tax planning and tax havens
By the European Commission Decision of 23 April 2013 the Platform for Tax Good Governance, Aggressive Tax Planning and Double Taxation was set up.
The Platform will allow for a dialogue on issues related to good governance in tax matters,
fighting aggressive tax planning and preventing double taxation in which experience and
expertise are exchanged and the views of all stakeholders are heard.
The Platform will assist the Commission in monitoring progress on its Recommendations on aggressive tax planning and tax havens. The Platform's tasks will be those outlined in Article 2 of the Commission Decision.
The Platform will comprise Member States' tax authorities and up to fifteen business, civil
society and tax practitioner organisations.
The Commission also launched a call for applications to select organisations to become a member of the platform.
Liechtenstein's Ambassador in Washington Claudia Fritsche and Mexico's Finance Minister Luis Videgaray Caso have recently signed in Washington a tax information exchange agreement (TIEA) between the Principality of Liechtenstein and Mexico.
According to the Liechtenstein Government, the treaty with G20 member state Mexico provides for the exchange of tax information upon request. The accord is akin to other TIEAs that Liechtenstein has already concluded, most of which have now entered into force. The TIEA with Mexico complies with the internationally recognized standard, and largely follows the wording of the Organization for Economic Cooperation and Development's Model Convention.
The provisions contained in the bilateral treaty apply to requests submitted following the TIEA entry into force date, and relate to tax years after January 1, 2014.
During the course of the meeting, the negotiating delegations of both countries also agreed to further strengthen fiscal cooperation, and to therefore examine the idea of negotiating and concluding a bilateral double taxation agreement (DTA).
Determined to drive forward the negotiation and conclusion of bilateral tax accords, the Liechtenstein Government intends to negotiate double taxation agreements with the country's economically and strategically important partners in 2013.
Liechtenstein's 2013 negotiation program was drawn up in close collaboration with the relevant associations and government agencies. The program includes key trading partners, identified as target markets with high importance, with whom a DTA should be concluded as a matter or priority. In addition, further "interesting partner states" are listed, namely those that are of interest as future markets, or bridge states or because of their "active agreements policy."
As a result of this active policy, Liechtenstein has already been able to conclude DTAs with key trading partners including Germany and the UK.
Liechtenstein’s tax strategy aimed at maintaining and strengthening the competitiveness of Liechtenstein as a location is based on three pillars, on international tax cooperation, on an innovative and competitive national tax legislation as well as an outstanding quality of service in business and administration.
Swiss banks will in future have to refuse money from clients if they suspect that it has not been taxed, under proposals put forward by the government as part of measures to preserve the country’s “integrity” as a financial centre
Also, people wanting to purchase real estate or luxury goods will not be able to put down more than CHF100,000 (7,400) in cash, with the remainder of the transaction being carried out by financial intermediaries who are subject to the law on money laundering.
The two measures are part of a series announced by the government on Wednesday. They are now being submitted to interested parties for their comments, which must be provided by June 15, 2013.
Finance Minister Eveline Widmer-Schlumpf told journalists after the cabinet meeting that the government would like to see tax fraud worth at least CHF600,000 defined as a crime. This would meet international recommendations. However, she said the exact sum was “not set in stone”.
In such a case, tax fraud would be defined as either the use of forged documents or deception of the tax authorities for the purpose of tax evasion, she explained.
The government is trying to stop billions of dollars flowing out of
Russia has introduced fines on transactions by Russian nationals who send money to overseas bank accounts.
Amendments to existing laws on financial controls stipulate fines ranging from 75% to 100% of any transfer to a foreign account which did not go through a Russian bank account.
This may affect those who rent flats in foreign cities or receive payments for freelance work from non-Russian firms.
The government is trying to stop capital flight and to fight corruption.
According to central bank estimates, capital flight in 2012 came to USD56.8bn.
Spain and the U.S. signed on January 14 a new double tax treaty, DTA, amending the existing tax treaty between the two countries.
The new DTA includes, inter- alia, exemption from capital gain tax in case of share selling, subject to terms.
In addition there is an exemption from tax withholding from payment of interest and royalties.
The withholding rate for payment of dividend is 0%/5%/15%.
On February 13, 2013, in a ceremony held at the Polish Ministry of Finance in Warsaw, the United States Ambassador, Stephen Mull, and Poland’s Deputy Finance Minister, Maciej Grabowski, signed a revised double taxation agreement (DTA) between their two countries.
The new tax treaty replaces the existing DTA, signed in 1974, and brings the bilateral relationship into closer conformity with current US tax treaty policy. Specifically, the new agreement contains a comprehensive limitation on benefits provision that is consistent with many recently concluded US tax treaties, and that is intended to ensure that only residents of the US and Poland will enjoy the DTA’s benefits.
The new DTA also provides for reductions in withholding taxes on cross-border payments of dividends, interest and royalties. The withholding tax on dividends will not exceed 5%, if the beneficial owner is a company that directly owns at least 10% of the voting stock of the company paying the dividends, or 15% in all other cases; while there is a cap of 5% on the withholding taxes over interest and royalties.
The agreement incorporates the new methods for attributing business profits to a permanent establishment, which have been recently developed by the Organization for Economic Cooperation and Development and are consistent with US tax treaty policy.
Furthermore, within provisions consistent with the international standard for tax information exchange, the new DTA provides for the full exchange of tax information between the two countries’ competent authorities.
Jersey's Economic Development Minister, Alan Maclean has proposed a new law to allow money in dormant bank accounts to be collected into a central fund and used to support charities and other good causes on the island.
The announcement follows a consultation that received unanimous public support, after which the Economic Development Department has prepared a document detailing the responses received, and giving replies to specific observations.
“Several countries have introduced schemes which allow money that is lying dormant to be used for the benefit of the community. There are clear advantages to introducing such a scheme in Jersey,” commented the Department. “It’s a win-win situation as bank customers will not lose out as a result of the scheme and we will take steps to ensure that customers can still get their money back.”
The introduction of similar dormant accounts schemes is also underway in Guernsey and the Isle of Man.
Panama's National Assembly has approved two new double tax conventions signed with Israel, and with the United Arab Emirates.
The agreement signed with Israel on November 8, 2012, includes a protocol that seeks to enhance provisions included in the main agreement for the exchange of tax information in line with the Organization for Economic Cooperation and Development's internationally-agreed standard.
In general, the agreement caps the maximum withholding tax rates applicable to cross-border income received in the form of dividends, interest and royalties at 15%. A specific regime is provided for income received from a real estate investment trust, and dividends that are received by a pension scheme may be entitled to a reduced 5% rate. The agreement contains anti-abuse provisions limiting these reduced rates to the beneficial owner of that income, to prevent tax treaty shopping.
The second agreement, signed with the United Arab Emirates on October 13, 2012, also includes provisions to facilitate tax information sharing.
Gibraltar's minister with responsibility for financial services, Gilbert Licudi, has signed three new Tax Information Exchange Agreements (TIEAs) with Poland, Greece and India on behalf of the territory.
The agreements, signed in London, demonstrate Gibraltar's commitment to the internationally agreed standard on tax transparency and information exchange developed by the Organization for Economic Cooperation and Development (OECD). They establish a bilateral information-sharing framework between the territories' tax authorities to support investigations into fiscal crime.
The new TIEAs bring the number of agreements that Gibraltar has concluded, which meet the OECD standard, to 26.
While signing the agreement with India, Licudi took the opportunity to discuss potential cooperation in financial services with that nation's plenipotentiary, India's High Commissioner to the UK, Jaimini Bhagwati. India is a key financial services market for Gibraltar and a member of the Group of Twenty Nations.
Our delegation will consist of Catherine Váradi, László Váradi, Maria Sokolova and Niya Kiriakou. Our staff speak the following languages:
Catherine Váradi: English, Russian, Hungarian
László Váradi: English, Russian, Hungarian
Niya Kiriakou: English, Russian, Greek, Macedonian, Turkish, Bulgarian
Maria Sokolova: English, Russian, Hungarian, German
If, during the exhibition you or any of your colleagues or partners would like to meet us to discuss any questions you may have, please feel free to come and visit us at stand R32.30. If you would like to arrange an appointment in advance, please contact us by telephone on +361 4567200 or e-mail: email@example.com.
A new study from the US Congressional Research Service shows that over the past decade, US multinationals have declared greater shares of their profits in low-tax jurisdictions.
The study compares the contribution of US multinational companies (MNCs) in tax and economic terms in five low-tax territories, including Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland, and five high-tax territories, including Australia, Canada, Germany, Mexico, and the United Kingdom, during 1999-2008.
The report notes that during that nine-year period, profits reported in the aforementioned low-tax territories had increased by roughly 60% without a marked increase in employment or investment in these businesses' operations.
It points out that in 2008, American companies reported earning 43% of overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland while these operations accounted for around 4% of their foreign workforce and 7% of their foreign investment. The ratio of profits reported in these five territories rose markedly between 2000 and 2002, from 24% of total foreign profits to 40%.
In comparison, the traditional economies of Australia, Canada, Germany, Mexico and the United Kingdom accounted for 14% of American MNCs' overseas profits, but 40% of foreign hired labor and 34% of foreign investment.
In addition, MNCs' profits as a share of gross domestic product (GDP) in the traditional economies averaged from 1% to 2% between 1999 and 2008, while their profits in the low-tax countries averaged in at 33% of GDP in 2008, up from 27% in 1999. Profits reported in Bermuda increased from 260% of that country's GDP in 1999 to over 1,000% in 2008. In Luxembourg, American business profits went from 19% of that country's GDP in 1999 to 208% of GDP in 2008.
The report's author, Mark P. Keightley observed that: "By all indicators examined in this report, profit shifting has generally trended upward overtime."
Keightley noted that the proportional decline in profits declared in the sample of five high-tax economies relative to low-tax countries is in part due to American companies' decisions to curtail employment and investment in high-tax economies since the early 2000s. "Employment in these countries as a share of hiring abroad has fallen from 48% to 40%, as has investment, which has decreased from 49% to 34%."
He continued: "Because American companies appear to be reducing their real business presence in the traditional country group (relative to the rest of the world), it is perhaps not surprising that profits reported in these countries are also falling. It is not possible, however, to say how much of the reduction in profits reported is due to declining real activity and how much is due to profit shifting."
The report is likely to give further ammunition to the anti-offshore faction in Congress who believe that more legislation is needed to make it harder for US MNCs to structure their operations to reduce their exposure to US tax. On the other hand, the report also emphasizes the need for an overhaul of US corporate taxation, notably by reducing the combined corporate tax rate - which at approximately 40% is the highest in the OECD - and thus reduce incentives for MNCs to shift profits offshore.
The Greek Parliament in January 2013 passed legislation that affects the income and indirect taxation of legal entities and partnerships, and also the taxation of individuals
Among the measures are changes to the income tax rates (an increase in the corporate income tax rate to 26% from 20%, and new progressive income tax rates for individuals ranging from 22% up to 42%).
Other changes affect the withholding tax rate on certain dividends and profits, reducing the rate from 25% to 10% in 2014, but also reflecting increased withholding tax rates concerning deposits and bonds.
Capital gains arising from the transfer of certain real estate are subject to tax at a rate of 20%, and other changes concern the taxation of fixed or movable assets, deductible expenses for research and development, withholding tax rates on securities income, capital gains and profits from sales of shares, and value added tax (VAT).
The number of licensed international insurers in Guernsey rose significantly during 2012, according to new figures from the island's Financial Services Commission (GFSC).
The GFSC licensed 97 new international insurers during 2012, bringing the total number of international insurers licensed in the island to 737, a net growth of 50 on December 2011 levels.
At the end of December 2012, there were 242 limited companies, 68 Protected Cell Companies (PCCs), 404 PCC cells, five Incorporated Cell Companies (ICCs) and 18 ICC cells.
During the course of the year, four new licenses were granted to limited companies, three in respect of PCCs, 87 for PCC cells and three for ICC cells. A total of 47 licenses were surrendered, from 17 limited companies, three PCCs and 27 PCC cells.
Commenting on the latest figures, Fiona Le Poidevin, the Chief Executive of Guernsey Finance, the promotional agency for the island's finance industry, said: "These figures show that last year was very successful for Guernsey as an international insurance centre. The numbers are particularly impressive considering that general market conditions mean that organizations are not especially pre-disposed to seeking out alternatives to the commercial insurance world, such as captive insurance, which is a key part of the Guernsey offering."
A significant number of the licenses issued last year relate to insurance products supporting mortgages being offered to purchasers of newly built homes in England, Scotland and Wales. They are backed by the respective governments in the UK and are managed by JLT in Guernsey. Heritage in Guernsey is also managing a scheme established for UK housing associations. These represent another development in the use of the Guernsey-pioneered cell company concept.
Also during 2012, Swiss ILS manager Solidum Partners AG established a number of Guernsey reinsurance structures to facilitate the world's first ever private catastrophe bond listing on any exchange worldwide, on the Channel Islands Stock Exchange. In addition, Guernsey became home to another world-first with the launch of the Risk Purpose Trust (RPT), a trust structure similar to a captive insurance entity in terms of its purpose, launched by Guernsey-based companies, Robus Group and Marlborough Trust.
Le Poidevin added: "Clients continue to choose Guernsey as the domicile for their captive insurance business because we offer high standards of service combined with proportional regulation. This fosters a dynamic environment and during this last year, we have seen local practitioners building on Guernsey's tradition of creativity by developing innovative solutions to meet client needs."
The Jersey government has confirmed that it has signed new comprehensive double tax agreements with the Isle of Man and Guernsey.
The agreements were signed by Jersey's Assistant Chief Minister with responsibility for External Relations, Philip Bailhache, Guernsey's Deputy Chief Minister, Jonathan Le Tocq, and the Isle of Man's Treasury Minister, Eddie Teare on January 24, 2013.
Bailhache said: "I am delighted to have signed these two double taxation agreements, which will further strengthen our close political and business relationships with our fellow Crown Dependencies. Jersey is keen to enter into such agreements, which meet the current international standards, and it is most fitting that we are now adding agreements with Guernsey and the Isle of Man to the five double taxation agreements we have already signed."
The agreements have been drafted in line with the Organization for Economic Cooperation and Development Model Double Tax Convention and allocate taxing rights in respect of cross-border income transfers, trade and investment between the territories to ensure income is not taxed twice. The agreements cover corporate and personal income taxes, including profits, dividends, interest, royalties, and income from employment and pensions.
The agreements also provide for the exchange of information on request in line with international standards.
Geoff Cook, the Chief Executive of Jersey Finance - the promotional agency for the island's financial services industry, said: "As well as facilitating further business between the Crown Dependencies by affirming a robust taxation framework for financial flows between Jersey, Guernsey and the Isle of Man, these DTAs also underline a shared commitment to meeting international standards and cooperating at an industry and a political level. The message is a powerful one and should positively impact the reputation of the Crown Dependencies on the international stage and consequently Jersey’s attraction to investors."
The development means that Jersey has now signed seven double tax agreements as well as 29 Tax Information Exchange Agreements.
Liechtenstein and Malta have recently finalized negotiations on a bilateral double taxation agreement
Talks lasted six month with delegations from Liechtenstein and Malta agreeing to conclude negotiations on the DTA. The agreement was signed in Vaduz in respect of taxes on income and on wealth.
The agreement follows the OECD’s Model Convention and governs the tax treatment of wealth structures and funds.
The signing of the DTA is due to take place during the course of 2013. The text will be published following the signing. The agreement is expected to apply from January 1, 2014.
Economic and Finance Ministers Council 22 January 2013 adopted a decision authorizing 11 member states to proceed with the introduction of a financial transaction tax (FTT) through "enhanced cooperation".
The 11 countries are Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.
The 11 eurozone states will now need the European Commission to draft legislation enacting a tax.
On 19 December 2012, the amending exchange of letters, signed by Switzerland on 3 May 2012 and on 6 May 2012 by the United Kingdom, to the Switzerland–United Kingdom Income Tax Treaty (1977), as amended by the 1981, 1993, 2007, and 2009 protocols, entered into force.
The exchange of letters generally applies from 15 December 2010.
Hungary's government plans to identify and tax all wealth held by Hungarians in foreign - mostly Swiss - banks, the Hungarian prime minister's chief of staff Janos Lazar said on Wednesday.
Hungary now wants to tax all holdings in foreign deposits at an average 35 percent rate, Lazar told reporters.
He said the central European country will ask Switzerland first to disclose all data pertaining to bank accounts of Hungarian citizens in Swiss banks.
Hungary's government, which has struggled to improve tax collection as it works to keep its budget deficit under the European Union limit of 3 percent of gross domestic product, has been hostile to offshore holdings since it took power in 2010.
Citing international comparisons and intelligence sources, Lazar said the total holding of Hungarians in foreign, mostly Swiss banks is at least 1 trillion forints (USD4.53 billion) and perhaps as much as 2 trillion.
It was also mentioned, that Hungary will start similar talks with other European countries like Austria and Cyprus.
The number of local companies newly registered with the Hong Kong Companies Registry in 2012 reached a record high of 150,165, compared with the 148,329 incorporated in 2011, an increase of 1.24%, according to figures released on January 13.
According to the Registry’s data, by the end of 2012, the total number of live local companies registered under the Companies Ordinance stood at 1,044,644, up 88,252, or 9.23%, from 956,392 in 2011.
The registration fees for a one-year certificate normally total HKD2,450 (USD316), made up of a HKD2,000 fee and a HKD450 levy, but a special concession was introduced in 2008 waiving the business registration fee until April 1, 2009. The waiver was reintroduced from August 1, 2009 for a further two-year period, and then waived again for one year from April 1, 2012.
Registrar of Companies Ada Chung said a total of 27,319 companies were incorporated online using the one-stop electronic company incorporation and business registration service at the e-Registry, up 79.16% over 2011.
However, the 686 non-Hong Kong companies establishing a new place of business in Hong Kong that were registered under the Companies Ordinance in 2012, were 14% less than the 798 in 2011. The total number of registered non-Hong Kong companies stood at 8,848 at the end of last year.
The number of charges on assets of companies received for registration in 2012 was 31,141, down 17.34% from 2011. The number of memoranda of satisfaction and releases received for registration fell 18.52% to 22,692.
Starting January 14, 2013 the standard V.A.T. rate will increase from current 17% to 18%.
The new 18% rate will further increase to 19% starting January 13, 2014.
From January 13, 2014 the reduced V.A.T. rate of 8% will increase to 9%.
Property Taxation - Finance Bill 2013
The U.K. government will introduce an annual tax on residential real estate valued at more than 2 million pounds (.2 million) that’s owned by an offshore company.
The charge will begin in April, the U.K. Treasury said in a draft of the bill. Owners of homes valued at more than 20 million pounds may have to pay a levy of as much as 140,000 pounds a year, according to the Conservative-led government’s annual budget report in March.
Prime Minister David Cameron targeted the wealthy to pare a record budget deficit by lifting a transaction tax, known as stamp duty, to 7 percent from 5 percent on homes sold for more than 2 million pounds. The government is also introducing capital-gains tax on home sales by non-naturalized owners valued at more than 2 million pounds.
“It is designed to deter high-value residential properties being ‘enveloped’ within a company so as to prevent an opportunity for stamp duty land tax avoidance on future sales,” Sean Randall, real estate tax director at Deloitte LLP, said by e-mail.
Farmhouses valued at more than 2 million pounds and occupied by working farmers will qualify for relief from the new tax, according to the draft legislation. Homes owned by a charity and held for charitable purposes can also gain an exemption.
“Farmers would have been unfairly penalized because there are a number of business benefits to being incorporated,” Knight Frank LLP said on its website.
On 30 November 2012, the President signed the law on reducing certain tax administrative burdens (Deregulatory Law). On the same day, the law was published in the Official Gazette (Dziennik Ustaw No. 1342).
The Deregulatory Law will come into force on 1 January 2013
Following the successful conclusion of negotiations, delegations from Liechtenstein and from Singapore have recently initialed a bilateral double taxation agreement (DTA) between the two countries in the area of taxes on income.
According to the Liechtenstein government, the DTA largely follows the Organization for Economic Cooperation and Development’s Model Convention, offering an advantageous legal framework for mutual investments and strengthening and promoting bilateral economic relations between Liechtenstein and Singapore.
The agreement ensures in particular that Liechtenstein wealth structures and funds are recognized by Singapore and guarantees that Liechtenstein taxes are imposed on payments to individuals abroad.
The Liechtenstein government emphasizes that the new DTA marks a further step in the consistent expansion of its global DTA network. The agreement will increase the attractiveness for mutual investments and will open up new development opportunities in the economically important area of Asia.
Welcoming the initialing of the DTA, Liechtenstein’s Prime Minister Klaus Tschütscher explained that the accord with Singapore, a state in the growth market of Asia, opens up new potential and creates favorable framework conditions for future investments in the financial and industrial sectors. The DTA with Singapore represents a further important step in the implementation of the Liechtenstein government’s agreement policy, Tschütscher ended.
The signing of the agreement is due to take place in the course of 2013 and the accord is expected to be applicable from January 1, 2014. The text of the treaty will be published following the signing.
Bulgaria has approved its 2013 budget, forecasting growth of between 1.2% and 1.9% and introducing a new 10% tax on bank deposit interest.
The new tax represents a broadening of the country's 10% flat tax rate, which was introduced in 2007. The Finance Minister, Simeon Djankov, recently expressed the view that the flat tax needs to remain in place for the next ten to fifteen years, so that the country can "catch up" in economic terms.
The government expects revenue of BGN30.6bn (USD20.2bn), or 37.5% of GDP, and to spend BGN 31.7bn. The deficit is predicted to remain at around 1.3% of gross domestic product.
Other provisions in the budget include an increase in the minimum salary to BGN310 and an increase in the minimum pension to BGN150.
Passage of the budget was enlivened by a row which reportedly began when Djankov mocked opposition members of parliament as "drunkards." Mr Djankov subsequently apologized for the outburst, which he put down to "tiredness due to many hours of sessions."
Austria’s Financial State Secretary Andreas Schieder and Chile’s Finance Minister Felipe Larrain Bascunan have recently signed a bilateral double taxation agreement (DTA) between Austria and Chile.
According to the Austrian finance ministry, the DTA with Chile is the 32nd agreement that Austria has signed since 2009.
Commenting on the signing of the accord, Schieder emphasized that the treaty will ensure greater transparency and certainty in tax matters for Austrian companies active in Chile, stating that the DTA marks an important step in the deepening of economic relations between Chile and Austria.
Schieder highlighted the fact that Chile ranks behind Brazil as Austria’s most important trading partner in South America, particularly in the area of engineering products and raw materials. Austrian businesses see new business opportunities in the energy, infrastructure, and environmental technology sectors, Schieder explained, pointing out that there are already approximately 40 Austrian subsidiaries operating in Chile.
The finance ministry made known that the trade surplus amounted to just over EUR10m (USD12.9m) last year, with exports from Austria standing at EUR146m and imports into Austria amounting to around EUR136m.
Concluding, the finance ministry underscored that Chile’s political and institutional stability coupled with the existing Associations Agreement between the European Union and Chile will further support growth in the years 2013 to 2017. Chile is "a very attractive location for Austria," the ministry stated.
Slovakia's Parliament has passed legislation raising corporate and personal taxes from the beginning of 2013 and ending a 19% flat tax rate regime introduced nine years ago.
From next year, high earning companies will pay 22%, while individuals earning more than 176.8 times the official subsistence level will pay 25%. Further, expenses allowable for self-employed individuals will be capped at EUR5,040 per year.
The 19% flat rate had previously been praised by international organizations and investors, although its application to VAT was criticized for raising the cost of food. VAT was raised to 20% from the beginning of 2011, and the Prime Minister, Robert Fico, announced plans to introduce progressive taxation in March 2012.
Mr Fico said earlier this year that a flat tax rate "does not have a place in this world" during the current economic climate.
On December 3, 2012 in Washington, D.C., Switzerland and the United States initialed an agreement for the implementation of the Foreign Account Tax Compliance Act (FATCA).
FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers with foreign financial institutions (FFIs). Failure by an FFI to sign an agreement with the US Internal Revenue Service (IRS) and disclose information would result in a requirement to withhold 30% tax on US-source income.
While the text of the US FATCA agreement with Switzerland will not be disclosed until after its approval, it is believed to follow that which was outlined in a joint statement in June this year, reflecting the business-to-government approach for cooperation between Swiss FFIs and the US government.
Under the agreement, the Swiss government would enable all Swiss FFIs to register with the IRS by January 1, 2014, and conclude the necessary FFI agreements to comply with the obligations prescribed by the FATCA rules, including its due diligence, reporting and withholding tax terms with respect to accounts identified as being held by US taxpayers.
In particular, the US-Swiss agreement would ensure that accounts held by US persons at Swiss FFIs are reported either individually, with the consent of the account holder, or, if consent is not given, by administrative assistance channels through group requests. Under the latter, the FFI would be able to provide aggregate information on all such accounts to the Swiss tax authority, which would then be authorized to transmit the group data to the IRS.
Therefore, if the holder’s consent is not given, detailed account information will not be exchanged automatically, but only on the basis of the future administrative assistance provision in a Swiss-US double taxation agreement, which is itself still being negotiated.
In consideration of the above, the US has agreed to provide certain simplifications for certain sectors within the Swiss financial industry. In particular, Social Security and private retirement funds, as well as casualty and property insurances, will be exempt from the application of FATCA; while collective investment vehicles, and Swiss financial institutions with a predominantly local clientele, can be deemed to be FATCA-compliant and subject only to a registration obligation.
The agreement, which should be in operation by January 1, 2014, is now subject to the approval of the Swiss Federal Council and Parliament and to an optional treaty referendum.
At a recent forum hosted by Russian daily Vedomosti, Russian Finance Minister Anton Siluanov announced proposals to align the taxation of bank deposits with securities and bonds, and more broadly levy tax on wealthy individuals receiving significant interest income from these holdings.
Presently, under Russian tax law, bank deposits that yield an interest rate that is no more than 5% above the refinancing rate are exempt from tax. However, interest derived from higher interest rate accounts are subject to tax. The proposals, announced by Siluanov, would introduce a similar taxation mechanism for interest received from bonds and other securities.
Other proposals announced by Siluanov at the event included plans to levy taxes on individuals receiving interest income exceeding RUB1m (USD32,300) in any year to promote tax fairness and income distribution.
On 6 November 2012, the Cabinet of Ministers approved a draft law aimed at the adoption of the euro in Latvia as its currency.
To become law, the draft must be adopted by the Parliament. The euro adoption target date is 1 January 2014.
The draft law aims to provide an efficient and transparent introduction of the euro. Currency exchange would take place at the official exchange rate to be set by the Council of the European Union in July 2013.
The National Bank of Ukraine changes the settlement period under export and import transactions and imposes a mandatory requirement to sell foreign exchange earnings.
NBU Board Resolution N. 475 of 16 November 2012 "On the Changes in the Settlement Period under Export and Import Transactions and Imposition of a Mandatory Requirement to Sell Foreign Exchange Earnings" (hereinafter referred to as Resolution N. 475) and NBU Board Resolution No. 479 of 16 November 2012 "On Establishment of the Amount of Foreign Exchange Earnings subject to the Mandatory Sale" (hereinafter referred to as Resolution N. 479) came into effect on 19 November 2012.
Pursuant to Resolution N. 475, for a period of 6 months the National Bank of Ukraine has:
- changed the settlement period under export and import transactions, having shortened it from 180 calendar days to 90 calendar days;
- imposed a mandatory requirement on the economic entities engaged in foreign economic activity to sell foreign exchange earnings arising from the sale of goods under external contracts.
The mandatory requirement to sell foreign exchange earnings shall apply to earnings in Russian Rubles and foreign exchange of the first group of the Foreign Currency and Banking Metals Classificator. The economic entity shall be obliged to sell foreign exchange earnings without client instruction no later than the next working day after foreign exchange earnings have been credited to a clearing account.
Pursuant to Resolution N. 479, 50% of the amount of foreign exchange earnings is subject to the mandatory sale in the interbank foreign exchange market of Ukraine. The remaining amount of foreign exchange earnings remains at the disposal of residents who may use them in accordance with the foreign exchange regulation rules.
The world's first image rights legislation, The Image Rights (Bailiwick of Guernsey) Ordinance, 2012, is to enter into force on December 3, 2012, following approval by Guernsey's legislative assembly, the States, on November 28, 2012.
The legislation positions Guernsey as the first jurisdiction to have a legislative framework to register an image, enabling effective management and control of the commercial use of a person's identity, images associated with that person, including distinctive characteristics, such as signature, voice, mannerisms and gestures.
The legislation not only establishes image rights as a new and separate branch of intellectual property law, it will also provide clearly defined safeguards for celebrities and sports personalities looking to further protect and capitalize on their image.
The ground-breaking law will create an image rights register enabling legal recognition of a "registered personality" (i.e. the exclusive rights to the images associated with or registered against the personality). Once registered, the image right, as an identifiable asset, can be placed within a Guernsey structure, adding flexibility to allow image rights income to be channeled into a wealth management structure such as a trust, or for instance, a partnership structure to overcome complex asset ownership arrangements.
Welcoming the States of Guernsey's endorsement of the law, Fiona Le Poidevin, Chief Executive of Guernsey Finance, the promotional agency for the island’s finance industry, said:
“We believe that the new legislation will be attractive to global brands and in particular sports and entertainment stars where their image is a particularly important asset both to be protected and exploited for commercial gain. The hope is that they will use Guernsey for its unique image rights capability as well as the island’s broader wealth management offering to service other needs."
“Guernsey has a long and strong heritage in providing services to private clients from around the world in a well-regulated environment. As a result, the island has built significant private banking capacity, extensive experience and expertise in trust and company administration and the Guernsey government has also agreed to introduce foundations into local law, with Privy Council approval expected early next year."
“This new image rights legislation adds another complementary element to our offering and we will be promoting it heavily to clients and their advisers in the coming months. We will start by focusing on the UK and, in particular, London, which remains our principal source of new business, by hosting an event in the city during January next year. We will also be publicizing the legislation in the US and the increasingly important Asian markets.”
“Being able to register image rights in an environment which recognizes them by statute provides greater clarity in the definition of rights and a higher degree of protection from unauthorized use by third parties than is currently on offer in any other jurisdiction. This is the basis for a valuation of the rights and therefore provides a platform for increased economic benefit to be derived, including through the management, structuring and licensing of the rights."
“This legislation will be particularly useful in helping to prevent high profile individuals from becoming the centre of disputes when they die. Succession planning provisions within the Guernsey law mean that registered rights can be treated as part of the deceased’s estate and it can then be specified how these rights are dealt with and who should benefit from them.”
By establishing a legal structure to house one's image offshore, significant tax advantages can be unlocked. The new legislation will enhance the argument that income derived from image rights should be taxable in the jurisdiction in which they are registered. The development of Guernsey's legislation comes after years of uncertainty surrounding the tax treatment of endorsements and sponsorship deals received by sporting personalities, musicians and media personalities. Most recently, the UK tax authority, HMRC, has sought to receive a share of sports personalities' image rights income when they appear on UK soil, regardless of where their image rights are said to be structured.
Finland and Cyprus signed on November 15, 2012 a double taxation treaty, DTA.
According to the DTA the withholding rate for dividends will be 5%/15% depending on the percentage of holding by the recipient.
There will be no tax withholding for royalties and interest which will be taxed only in the country of the recipient.
On 5 December, the European Commission will adopt a comprehensive package to strengthen the fight against tax evasion and aggressive tax planning in the EU.
Tax evasion and avoidance deprive Member States of almost €1 trillion every year. Not only does this result in a serious loss of revenues for public expenditure, it also undermines the fairness of tax systems and creates competitive disadvantages for honest businesses. Given the cross-border nature of tax evasion and avoidance, stronger EU coordination is essential in tackling them.
During a recent sitting, the Liechtenstein government adopted a report and application pertaining to changes to the Principality's tax law, and introducing measures aimed at increasing tax revenues, including notably a new marginal tax rate for the country's top earners.
Defending the planned tax measures, the Liechtenstein government alluded to the budget plan, which revealed an expected revenue shortfall in 2013 and in subsequent years, and noted that although the government has already adopted two fiscal packages to redress the state budget, the measures included have proven insufficient.
The government explained that it had therefore submitted a bill for consultation, providing for a series of new tax rises. However, as a number of the proposed measures were highly contested in the consultation process, Liechtenstein's Prime Minister Tschütscher held talks with representatives from industry to discuss the outcome of the consultation process and to unite on a way forward.
During the consultation process, plans to decouple the notional interest deduction and the own capital interest deduction were rejected, as were plans to increase the minimum income tax and therefore also the minimum capital levy to CHF1,800 (USD1,950).
According to the Liechtenstein government, the Prime Minister and industry representatives agreed that as a first step the revenue measures agreed within the framework of the consultation process should be implemented.
Therefore, the government's adopted report provides for these "undisputed" measures, and provides crucially for the introduction of a new marginal tax rate applicable to top earners in the Principality. The government has not, however, furnished further details of the new tax rate.
The report also provides for an increase in wealth and individual income tax by adjusting the lower and middle tariffs in such a way as to ensure that the tax burden is the same as under the country's old tax law. In addition, the introduction of an additional 8% tax rate has been agreed, together with plans to increase the endowment tax rate.
Finally, the report provides for the loss carry-forward allocation to be limited and provides that no loss carry-forwards are to be generated by own-capital interest.
Given that these new measures will still be insufficient in themselves, the government aims to take further measures to redress the state budget. Consequently, a joint project group, comprising representatives of the associations and the government, has been set up. The group is due to draft a report by mid-February 2013, advocating which additional fiscal initiatives should be taken to consolidate the budget by the required CHF52m.
Following confirmation earlier this month by the Italian Minister of the Economy Vittorio Grilli that Italy is working towards a tax treaty with Switzerland, possibly by the end of this year, the Head of the Markets Division of the State Secretariat for International Financial Matters in Berne, Oscar Knapp has indicated that its signature could take place by December 21.
Discussions on a treaty commenced in May this year, with a bilateral working group being established to carry forward the negotiations. It has also, so far, involved two meetings between Swiss President Eveline Widmer-Schlumpf and Italian Prime Minister Mario Monti in June and August this year.
As has been confirmed, the parties are talking about an agreement on the regularization of assets already held in Switzerland by non-resident taxpayers, through the payment of a fixed tax rate, and the introduction of a withholding tax on future investment income and capital gains, such as has already been concluded with Switzerland by other European Union countries.
While it is expected that, under the agreement, Italian holders of Swiss accounts will remain anonymous, the Swiss authorities will undertake that they will be subjected to the rate of withholding tax agreed between the two countries in the future.
It has been suggested that the additional tax revenue that would be available to Italy if it were to agree such a deal, on estimated undeclared Italian funds in Switzerland of up to EUR160bn (USD204bn), could amount to some EUR40bn up-front, with other significant funds paid annually thereafter.
The discussions have also covered the necessary modifications that would need to be made to the (previously agreed but uncompleted) double taxation agreement between the two countries, particularly with regard to the exchange of tax information so that Switzerland could be taken off the Italian 'black list', together with possible changes to the existing agreement on the taxation of Italian cross-border workers.
Following finalization of the text of the agreement, it will then be subject to ratification by both countries’ parliaments.
First OECD Global Forum on VAT confirms the need for an international standard on the VAT-treatment of international trade
The OECD is currently developing International VAT/GST Guidelines
More than ninety delegations that participated in the inaugural meeting of the OECD Global Forum on VAT, in Paris on 7-8 November, with representatives of over eighty countries and International Organisations from all around the world.
The Global Forum concluded that there is a strong need for internationally agreed principles and guidelines that contribute towards ensuring that VATs interact consistently. Global Forum’s key objective should be to build the widest possible international consensus on the International VAT/GST Guidelines, as the future international standard for applying VAT to cross-border trade with a view to minimizing risks of double taxation and unintended non-taxation.
Work on the VAT/GST Guidelines will now continue under an ambitious work programme to complete these Guidelines by 2014, in co-operation with Global Forum participants. A comprehensive set of Guidelines will be presented for endorsement by the Global Forum on VAT at its next meeting early 2014.
The US Treasury Department has announced that it is engaged with more than 50 countries and jurisdiction to facilitate the implementation of the Foreign Account Tax Compliance Act (FATCA) with the aim of improving international tax compliance.
The announcement was made in a press release dated 8 November 2012, issued by the US Treasury Department.
FATCA requires foreign financial institutions (FFIs) to report to the US Internal Revenue Service (IRS) information on financial accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership interest.
On 8 February 2012, the Treasury Department jointly issued a statement with France, Germany, Italy, Spain and the United Kingdom to express mutual intent to pursue a framework for intergovernmental cooperation to implement FATCA (Model I).
Model I contemplates reporting by FFIs to their respective governments, followed by the automatic exchange of this information with the United States.
On 21 June 2012, the Treasury Department issued a joint statement with Japan and Switzerland to announce mutual intent to develop a second model agreement (Model II), under which FFIs would report specified information directly to the IRS, supplemented by government-to-government exchange of information on request.
On 26 July 2012, the Treasury Department released a model intergovernmental agreement for FATCA implementation. The model agreement is based on Model I (i.e., reporting by FFIs to their respective governments) and is composed of two versions – a reciprocal version and a non-reciprocal version.
The Treasury Department has stated, on its press release dated 26 July 2012, that the reciprocal version of the model agreement will be available only to jurisdictions with which the United States has in effect an income tax treaty or tax information exchange agreement, and which have established sufficient protections and practices to ensure that the information remains confidential and used solely for tax purposes.
The press release dated 8 November 2012, states that the Treasury Department has already concluded a bilateral agreement with the United Kingdom. The agreement with the United Kingdom closely follows the reciprocal version of the model agreement.
The new press release includes the following listing:
The new press release notes that the Treasury Department and the IRS will finalize the regulations implementing FATCA in the near term.
On 7 November 2012, the Swiss Federal Council has adopted the negotiations mandate for a withholding tax agreement between Switzerland and Greece.
The agreement will be similar to the existing agreements with Austria, Germany and the United Kingdom.
In his reply to a question in the Legislative Council, Secretary for Transport and Housing Anthony Cheung has said that last month’s increase to the rate of Special Stamp Duty (SSD) and introduction of the Buyer's Stamp Duty (BSD) should curb speculation amidst the tight supply and high demand in Hong Kong’s residential property market.
From October 27, the SSD payable for properties held for six months or less has increased from 15% to 20%, and to 15%, from 10%, if a property is held for more than six months but less than one year. It will rise from 5% to 10% if the property is held for more than one year but less than three years (rather than two years originally).
The BSD is not applicable to Hong Kong permanent residents, but other buyers, including local and non-local companies, are required to pay an additional duty of 15% on top of the existing stamp duty.
Cheung added that the measures should help reduce the risk of a property bubble, and maintain the stability of the macro-economy and the financial system, which are of vital importance to the overall business environment.
“In the past few months, we have been taking heed of different views of the community on the property market, including those from experts, academics, think tanks and the trade,” he continued. “In formulating the proposals, we have also fully taken into account the general calls from the public for further measures to... ensure that housing demand from Hong Kong permanent resident-buyers be accorded priority.”
Cheung concluded that the government believes “the enhancement of the SSD regime will increase the cost of speculation and thus a significant portion of such transactions would disappear following the announcement, especially short-term resale cases. As to the BSD, it should be effective in reducing demand from non-permanent resident buyers, thereby according priority to meeting the housing needs of permanent residents under the current tight demand/supply balance in the housing market.”
He was also asked whether the measures would have an impact on small- and medium-sized enterprises (SMEs) using residential properties as collateral to seek financing from banks. He replied that banks do not rely solely on the value of collateral to decide whether or not to offer loans to SMEs, and the government does not consider that its measures will have any real impact on those firms seeking financing.
On 12 October 2012, the Bulgarian Government submitted to Parliament a package of draft amendments to the tax laws, most of them set to enter into force as from
1 January 2013.
The Parliament has still to pass the laws. The main amendments proposed are summarized below.
Corporate income tax (CIT)
Personal income tax
Excise duties and warehouses tax
Excise rates on certain categories of goods shall be increased in line with the EU accession engagements of Bulgaria.
Tax and Social Security Procedure Code, Social Security Code and Health Insurance Law
The agreement should replace the convention of 1982 concluded with USSR
08 November 2012 Cyprus and Ukraine sighed double taxation treaty.
According to the treaty 5% withholding tax on dividends will be implemented if participation in the company capital exceeds 20% or 100 000 euro. For other cases tax rate will be 15%.
Withholding tax on percents will be 2% and for royalties - 10%.
Convention will come into force after ratification by parties.
The Russian government has published an Order in the nation's Official Gazette to provide for the removal of Cyprus from the nation's 'blacklist' of non-cooperative 'tax havens' from January 1, 2013, when a Protocol to the nations' double tax agreement becomes effective.
The conclusion of the Russia's domestic ratification procedures in respect of Cyprus's removal from the blacklist comes after years of negotiation between Cypriot officials and the Russian government. These talks began back in 2008 when Cyprus was added to a 'blacklist' of 54 countries after Russian authorities deemed it to be an 'uncooperative territory' that had historically failed to share tax information with Russia.
The 'blacklist' was part of an amendment to the Russian tax code which introduced a tax exemption on the repatriation of dividends from foreign subsidiaries of Russian companies, but specifically excluded Russian subsidiaries based in territories and countries on the blacklist. Many European countries, such as Ireland, Luxembourg and Switzerland successfully lobbied the Russian government to be removed from the blacklist, but Cyprus has remained on the list.
Cyprus's scheduled removal comes after the signing of a Protocol to Cyprus-Russia double tax agreement just over two years ago, in October 2010. The agreement includes a number of changes to the tax treatment of income derived from economic activity between the two nations, and adds provisions in line with the Organization for Economic Cooperation and Development's internationally-agreed standard on tax information exchange.
HM Revenue and Customs (HMRC) has published a factsheet on the Switzerland–United Kingdom Tax Agreement (2011).
The guidance document describes the options available under the agreement for UK taxpayers with assets in Switzerland and the possible procedures to authorize disclosure of details about their Swiss assets.
On 18 October 2012, a bill to implement Directive 2010/45/EC on the rules on invoicing with respect to VAT invoicing, was presented to Parliament.
The bill, which is expected to become effective from 1 January 2013, contains provisions on:
With respect to intra-Community supplies of goods or services, an invoice must be issued no later than on the 15th day of the month following that in which the chargeable event occurs.
Currently, the invoice must generally be issued no later than on the 5th day following the month in which the chargeable event occurs.
With respect to the storage of invoices, the bill provides that invoices must be kept for a period of seven years.
The latest issue of its Global Investment Trends Monitor for the first half of 2012 from the United Nations Conference on Trade and Development (UNCTAD) has shown that China overtook the United States as the world's largest recipient of foreign direct investment (FDI), while Hong Kong remained in third place, despite falling inflows.
UNCTAD found that global FDI inflows reached USD668bn, a decline of 8%, in the first half of 2012, compared with the same period in 2011, as the economic recovery suffered new setbacks in the second quarter of this year. The USD61bn fall was mainly caused by a decline of USD37bn, or 39%, in inflows to the United States and a USD23bn fall in inflows to BRIC countries – Brazil, Russia, India and China.
With the substantial fall in FDI to the US to only USD57.4bn, and despite a marginal decline in its own FDI inflows from USD60.9bn to USD59.1bn, China became the world's largest recipient in the first half of 2012.
While inflows to Hong Kong declined more significantly than the FDI into China - by 26%, from USD55.2bn to USD41bn – it still retained its third position, above France and the United Kingdom at USD34.7bn and USD30.8bn, respectively.
Similarly, FDI flows to South-East Asia decreased by 55% to USD52bn. Member states of Association of Southeast Asian Nations demonstrated diverging trends: inflows to Cambodia, the Philippines and Thailand rose in the first half of 2012, while those to Indonesia, Malaysia and Singapore declined.
On the other hand, for example, FDI inflows to Latin America and the Caribbean increased by 8%, as a result of increases in South America (11%) and the Caribbean (14%) that more than compensated for a 14% decline in Central America. Offshore financial centres were the main drivers of FDI growth to the Caribbean. FDI continued to be attracted into South America by natural resource endowments and relatively higher economic growth.
Developing countries (without transition economies) for the first time absorbed half of global FDI inflows due to the steep fall in flows to the United States and a moderate decline in flows to the EU.
As a result of the above, and compared to the full-year forecast of FDI inflows published in July, UNCTAD now projects that FDI flows will, at best, level-off in 2012 at slightly below USD1.6 trillion. It was observed that “the slow and bumpy recovery of the global economy, weak global demand and elevated risks related to regulatory policy changes continue to reinforce the wait-and-see attitude of many transnational companies toward investment abroad”.
UNCTAD's longer term projections still show a moderate rise, but the risk of further macroeconomic shocks in 2013 could impact FDI inflows negatively.
Eurostat has released statistics showing that the overall deficit of the European Union (EU) shrank sharply in 2011 compared with 2010, although public debt is still rising.
The figures show that the combined deficits of the EU27 decreased from 6.5% of EU gross domestic product (GDP) in 2010 to 4.4% in 2011. However, public debt rose from 80% of GDP to 82.5%. When taking into account eurozone countries only, the deficit fell from 6.2% of GDP in 2010 to 4.1% in 2011 whereas eurozone public debt has swollen from 85.4% to 87.3% of GDP.
In monetary terms, the total EU deficit stood at EUR560bn (USD720bn) at the end of 2011, down from EUR801bn in 2010, marking a 30% decrease.
In 2011, three EU countries showed a budget surplus, including Hungary (4.3%), Estonia (1.1%), and Sweden (0.4%). At the same time, a few EU countries achieved budget deficits below 1% of GDP. These included Germany (0.8%), Finland (0.6%), and Luxembourg (0.3%).
Most EU member states, (17 of them) however, have shown a deficit above 3% of GDP, especially Ireland (13.4%), Greece and Spain (9.4% each).
Eurostat also noted that the ratio of government spending as a proportion of GDP has decreased, while the share of tax revenues on GDP has risen. Throughout the EU, these two ratios stand at 49.1% and 44.7% of GDP, respectively.
On 27 September 2012, the Government proposed amendments to the Corporate Income Tax Law. The key elements of the proposed amendments are listed below.
Limitation on utilization of tax losses
The utilization of tax losses transferred from previous tax years will be limited to 50% of the tax basis (currently, 100%).
This will apply to companies, permanent establishments of non-residents as well as individuals earning professional income.
Lump sum expense deduction for qualifying micro companies
Qualifying companies, permanent establishment and individuals with professional income with annual income not exceeding €50,000 within a tax year, will be able to opt for lump sum deduction.
Under the new scheme, companies will be able to deduct 70% of their annual expenses instead of assessing their actual expenses based on accounting standards.
In order to commit to the scheme, taxpayers will need to file an application to the tax authorities by 31 March of the current tax year, whereby newly established companies will need to file an application within eight days upon their registration.
If the persons committed to the scheme cannot meet the requirements for two consecutive tax years, they will be liable to calculate their tax basis based on the actual revenues and expenses.
The amendments, once approved by the Parliament, will apply as from
1 January 2013.
On 12 October 2012, the Minister of National Economy submitted a bill introducing the 2013 tax package to the Parliament. The bill is designed to:
The proposals, if adopted, will include changes to the rates of transfer, inheritance and gift tax, making the business environment more competitive, and strengthening tax moral.
The most important features of the package are as follows:
Individual income tax
The “gross-up rules” will be removed from the tax base. This implies that Hungary will have a flat tax rate system. The tax rate will be 16%.
The current gross-up rules apply if income exceeds HUF2,424,000, implementing a second effective tax rate of 20.32%. The change simplifies the rules on tax base calculation, as well as the rules on the pay-as-you-earn (advance payment) system.
The “non-salary” benefits will be extended to vouchers provided by an employer for workplace catering, organized by the employer, even if the catering facility is open for the public. The monthly ceiling will be HU12,500.
Social security and health service contribution fee
Individuals, who are members of private pension funds, may enter into a contract with the Administration of National Pension Insurance for voluntary contributions.
The health service contribution fee will be increased from HUF6390 to HUF6,660 per month.
The definition of reported intangible assets will cover self-created intangible assets. Thus, the current capital gains exemption will be available in case of self-created intangible assets as well (the current exemption only applies to acquired intangibles).
This change favors taxpayers carrying out R&D activities which result in intangibles. The exemption means that the proceeds from the disposal of self-created intangibles will be tax exempt, if certain conditions (60-day reporting obligation, holding for one year) are met.
The definition of controlled foreign companies (CFC) will be clarified. According to the new rules, if a foreign state applies various tax rates, the smallest tax rate shall reach the 10% threshold (this 10% threshold determines whether a taxpayer is subject to low taxation or not).
50% of the increase, generated since the last tax year, in the debt owed by a company to its members will be added to the minimum corporate income tax base.
In case of corporate restructuring, according to the current rules, losses of a predecessor company can only be carried forward by the successor company if the successor company realizes revenue from one of the activities of the predecessor company within two years of restructuring.
Based on a new proposal, this requirement will not apply if the successor company ceases to exist without legal successor within two years of restructuring.
The rules on the credit for the promotion of development will be changed. Taxpayers will be obliged to report to the Minister of National Economy, and thus to the tax authorities, the end date of the development project (investment) on the basis of which the tax credit is granted.
A new database will be set up to provide information on local taxes. The database will be operated by the Treasury.
Local municipalities will report important information on a monthly basis to the database, including the contact details of the municipal tax administrations.
Furthermore, municipalities will be responsible for publishing every municipal tax decree, tax return form and contact detail on their website.
Value added tax
Intra-Community leasing of long-term (more than 30 days) means of transport to non-taxable persons will be taxable in the Member State of establishment of the customer.
Inheritance,gift and transfer tax
Inheritance and gift taxes will be levied at 18%, except for acquiring immovable property, in which case, a 9% tax rate will be applicable. Inheritance of an estate by the spouse after the deceased, irrespective of the net value of the estate, will be exempt.
The transfer tax will be levied at 4%. Accordingly, the second 2% tax rate will be revoked.
Any property transferred – irrespective of whether free of charge or not – to descendants or ascendants will be exempt from taxes.
The German federal state of Rhineland-Palatinate is reportedly poised to purchase a so-called tax data disc, containing detailed information pertaining to German residents alleged to have undeclared assets located in Switzerland.
Although Rhineland-Palatinate’s finance ministry is at this stage neither confirming nor denying the reports, if confirmed, this would be the first time that this German state has elected to buy access to Swiss banking information.
Rhineland-Palatinate’s Social Democrat (SPD) Finance Minister Carsten Kühl has, however, announced on a number of occasions that he continues to support the purchase of tax data discs, provided that the offer is of ‘intrinsic value’, and provided that the bilateral withholding tax agreement concluded between Germany and the Confederation has not been adopted by either the Bundestag or the Bundesrat, Germany’s lower and upper houses of parliament.
Germany’s Federal Constitutional Court permitted the use of such tax information at the end of 2010. At the time, the court ruled that information regarding alleged tax evaders, contained on discs provided by informants, may be used during criminal investigations, irrespective of whether or not the original means by which the data was obtained was deemed to be lawful.
Yet the issue of whether or not to ‘obtain’ the stolen tax discs to track down suspected tax evaders and to recover lost revenues, has divided Germany’s ruling black-yellow coalition government. While German Justice Minister and Free Democratic Party (FDP) member Sabine Leutheusser-Schnarrenberger called recently for such purchases to be banned by law, her views were not only criticized by German Finance Minister Wolfgang Schäuble but also by some of her colleagues in the FDP leadership.
The decision by North Rhine-Westphalia to purchase several bank information discs has, however, proven highly worthwhile and indeed lucrative for the German state, unleashing a tidal wave of voluntary declarations from tax evaders seeking to regularize their fiscal situation.
The tax agreement between Germany and Switzerland, aimed at resolving the longstanding issue of past tax avoidance and due to enter into force on January 1, 2013, has been vehemently rejected by the SPD from the outset and it remains uncertain as to whether the accord will actually be adopted by the Bundesrat.
The treaty provides for a one-off tax of between 21% and 41% to be imposed on the hitherto undeclared assets of German taxpayers held in Swiss banks, with the revenues transferred anonymously to the German tax authorities. The tax deal also provides for the taxation of future income from German taxpayers with accounts held in the Confederation. The SPD insists that the provisions are too lenient and has called for the text to be renegotiated.
The Italian Revenue Agency has further delayed the obligation of banks and other financial institutions to identify transactions that will have to be electronically reported to the tax authorities as part of the government’s efforts to increase tax compliance.
Details of sales to final consumers (as opposed to businesses or professionals) should be communicated only if the transaction occurred on or after July 6, 2011 (the date that the obligation entered into force). The information is to be utilized for the Revenue Agency’s so-called ‘spesometro’ - the accumulation of a database to check taxpayers’ spending against their declared income.
The details of any transaction amounting to not less than EUR3,600 (USD4,670) and subject to value-added tax, paid for by means of debit, credit or prepaid cards, will need to be provided, together with the tax code of the buyer. Sales above the minimum amount paid for by other means, such as cash or cheques, are being reported directly by the seller.
However, it has been decided that the reportable transactions in the first period from July 6 to December 31, 2011, that were to have been reported at the end of April 2012 before that deadline was delayed to October 15, will now only have to be reported by January 31, 2013.
The Revenue Agency has confirmed that the delay in the deadline has been caused by a need to allow financial institutions to update their internal systems to provide the information needed. However, with effect from the transactions effected in 2012, institutions’ notifications will need to be made before April 30 in each succeeding year.
Germany and Singapore have recently agreed to enhance cooperation in tax matters to tackle cross-border tax evasion.
According to the finance ministry of Singapore, both sides have agreed to incorporate the internationally-agreed standard for exchange of information into their double taxation agreement.
The standard, as published in the Organization for Economic Cooperation and Development’s Model Tax Convention, allows exchange of information for the administration and enforcement of the domestic tax laws of the requesting country.
The finance ministry explains that, in line with the standard, the scope for exchanging information will be significantly expanded.
In future, it will be possible to exchange information for all types of tax, as the exchange of information will no longer be restricted to taxes on income and on capital. The exchange of information will no longer depend on the taxpayer being resident in one of the contracting states.
In addition, the requested state is obliged to obtain information even in a case where it does not itself require the requested information for tax purposes. Furthermore, banking secrecy will not constitute an obstacle to exchanging information.
The finance ministry states that both countries will explore ways to further enhance bilateral cooperation in tax matters in the future.
The agreement is due to enter into force following ratification of the text by both treaty partner states.
Hungary’s Economy Minister György Matolcsy has recently unveiled details of a new fiscal adjustment package totalling HUF397bn (USD1.8bn), designed to ensure a budget deficit of below 3% of gross domestic product (GDP) next year.
During the course of his address, Matolcsy announced that the financial transaction tax will no longer apply to the Central Bank. However, he confirmed that the levy will apply to financial transactions undertaken by commercial banks and National Treasury, while cash withdrawals at banks will be subject to a 0.3% tax to raise around HUF60bn for the state budget.
To combat value-added tax (VAT) fraud, which currently costs the government an estimated HUF500bn a year, the minister revealed that legislation will be introduced aimed at increasing the efficiency of tax collection, thereby boosting income by a predicted HUF120bn.
The proposed measures include plans to fit cash registers with a device establishing a direct online connection with the National Tax and Customs Administration of Hungary, a move that will generate additional revenues of approximately HUF95bn.
Other key measures contained in the package include plans to abolish the social contribution ceiling for gross incomes in excess of HUF661,000 a month, and to postpone a planned wage increase for teachers unless growth rises above the predicted 1% next year (HUF73bn).
Under the plans, a ceiling will be introduced in 2013 on those social benefits awarded by local governments, although child support benefits will not be affected, and the level of co-financing in European Union projects will be cut from 15% to 5%.
Another change will be that public sector employees who keep their jobs after reaching retirement age will not be entitled to receive a pension as long as they receive their salary.
Personal income taxes on the world's highest earners have crept ever higher this year, rising by an average of 0.3%, according to a new report from KPMG.
This is only the third year in a decade that KPMG's analysis has turned up an average increase in the tax burden. Personal income taxes rose in 2010 as governments sought to consolidate their deficits, but the tax burden remained broadly level last year as policy makers in particular in Europe faced the prospect of a double-dip recession.
According to Brad Maxwell, a partner with KPMG's International Executive Services practice in Switzerland, the upward tick in personal tax rates during 2012 "is the result of a lack of economic recovery and increasing debt concerns".
“Many economies deemed it necessary to increase their highest rate of personal income tax through one of two approaches: either through the creation of new income tax rate bands for very high income earners, or through the introduction of temporary taxes to address immediate budgetary deficit concerns.” The most prominent examples of this pointed out in the survey are seen in the recent French and Spanish reforms, he said.
France’s reforms saw the introduction of two new tax rate bands for high income earners which has resulted in the top rate increasing from 41% to 45%. The rate increases are generally deemed as an ‘exceptional contribution’ which affects individuals reporting incomes of above EUR250,000 (USD324,000). Further increases may be on the horizon, with President Francois Hollande planning the introduction of a 75% tax rate band for taxpayers earning over EUR1m.
Meanwhile, Spain introduced its ‘complementary tax’ in January 2012 to help address its deficit. The tax applies to all taxpayers, and ranges from 0.75% to 7% depending on an individual’s income level. This effectively means that the rate of tax for individuals earning above EUR300,000 has risen from 45% to 52%. Spain has leaped in KPMG's rankings to having the third highest tax burden on earners, up from tenth last year.
The UK falls in the rankings as a result and is set to decline further from April next year, when the nation will reduce the highest income tax rate to 45% from 50%. This year, the UK has bucked the prevailing policy trend and moves from having the equal 4th highest rate to equal 5th (joint with Austria and Belgium). France is expected to leapfrog the United Kingdom in the rankings when the two countries' respective reforms enter into force, potentially next year.
At 45%, the UK will be closer to the EU average which, on a purely arithmetical basis, is just over 37% and, if weighted for the different size of populations in the various countries, is 42%, according to KPMG’s calculations and Eurostat data.
Marc Burrows, head of international executive services at KPMG in the UK, commented:
“The 50p rate was always described as temporary and so a firm commitment to its reduction was very welcome to businesses and entrepreneurs. Being ‘open for business’ is not just about the corporate tax regime. Personal tax is a major issue for entrepreneurs, high net worth individuals and senior executives, many of whom can and do exercise considerable discretion over where they choose to locate.”
“Headline top rates of tax don’t tell the whole story. The situation is more complicated than that. For example, in the UK, whilst the top rate of personal income tax is 50% on earnings of GBP150,000 (USD240,000) or more, some people on lower salaries experience a higher marginal tax rate in certain situations. Earnings between GBP100,000 and GBP116,210 are taxed at 60% as a result of the clawback of the personal allowance. From next January the withdrawal of child benefit for claimants with household incomes of GBP50,000 or more will result in marginal tax rates of over 50% on earnings between GBP50,000 and GBP60,000.
“Similarly, when comparing rates in different countries, it’s important to consider the threshold at which the rate kicks in and the effect of social security taxes which may be levied. Indeed the survey shows that when considering the combined effective social security and income tax rate levied on a salary of USD100,000 in a range of different countries, the UK is lower than countries such as Belgium, Italy, Germany and Poland.”
Western Europe continues to have the highest personal tax rates of any sub-region globally (46.1%). Sweden leads the rankings of advanced nations with a combined effective top rate of 56.6%, followed by Denmark (55.4%) and the Netherlands (52%). The average rate for Eastern Europe (16.7%) is still less than half of that of other European sub regions, largely due to the prevalence of low flat tax initiatives. Poland and the Ukraine are notable for being the only two Eastern European countries of those surveyed to maintain a progressive tax band structure.
The Middle East and greater Europe region has also seen some movement in tax rates over the past year. In October 2011 (shortly after the publication of last year’s survey), Cyprus increased its top marginal income tax rate from 30% to 35%, and applied the change retroactively from January 1, 2011. In 2012, Armenia also raised its tax rate by 5% and plans to introduce a further 1% increase in 2013. Israel also increased its top marginal tax rate (by 3% to 48%) and Georgia, which has not altered its top rate of tax for several years, signaled an intention to decrease its rate from 20% to 18% effective 2013.
Asia was largely quiet on the rate change front, South Korea introduced an additional tax band with a 3% increase in an effort to target high earners as a source of additional revenue. Hong Kong and Singapore continue to offer very attractive personal income tax rates, and rates remained constant in the other Asian heavyweights (China, Japan and India) who have not altered their top rate of tax in the last ten years. However, there are indications that this trend is set to change with permanent residents of Japan soon becoming subject to a Special Reconstruction Surtax which will start next year with the intention of helping fund the rebuild in the aftermath of the Great East Japan Earthquake.
Some change has been noted in Africa with Egypt introducing a new 25% tax band to target super high income earners, and Zimbabwe increasing its top tax rate by over 10% (bringing it back in line with 2008 levels).
Top rates across North America remained relatively unchanged throughout the year, though Canada’s most populated province Ontario recently announced a hike for high income earners which will increase the top combined federal and provincial rate by 1.56%, putting the jurisdiction onto the list of locations that introduced an additional tax band for its highest earners in 2012.
Meanwhile, while there were no changes to top federal rates in the United States in 2012, the Bush Tax Cuts are once again scheduled to expire at year’s end meaning that, if the expiration remains on schedule, the top US federal tax rate would increase from 35% to 39.6% in 2013.
Overall, Latin America has also kept top rates constant during 2012, though KPMG noted that Mexico is scheduled to decrease its top rate from 30% to 29% next year, and a further reduction to 28% is scheduled for 2014. Guatemala is also scheduled to decrease its top rate in 2013.
Germany will start talks with Singapore next week on a deal to prevent its citizens from evading taxes by shifting their money to the Asian state
According to media reports, there are signs German tax dodgers are shifting funds to Singapore from Switzerland, which signed a tax deal with Germany earlier this year.
The source said hopes were high that Singapore would agree to give German authorities information on assets held in the country by wealthy German citizens as it had stressed earlier this year it did not tolerate tax evasion.
"We are acting on the assumption that Singapore is pursuing a clean money strategy," the source said.
Singapore's central bank said in August it had warned banks last year to guard against funds being transferred into the island state to evade taxation elsewhere, with an eye to new tax treaties being implemented in Europe.
It did not tolerate such flows, and Singapore was cooperating with other countries to prevent abuse of its financial system, a spokeswoman for the Monetary Authority of Singapore said.
During an upcoming visit to Asia, German Finance Minister Wolfgang Schäuble intends to negotiate a bilateral agreement with Singapore pertaining to the exchange of tax information between the two countries, according to the German finance ministry.
Plans to update and to revise the existing double taxation agreement (DTA) with Singapore, by aligning provisions with the latest international developments and Organization for Economic Cooperation and Development standards, form an important part of global action against tax evasion, the German ministry explains, highlighting the fact that the main aim is to improve information exchange in tax matters.
The ministry underlined its optimism regarding the chances of negotiating a new accord, emphasizing Singapore’s declared “white money strategy”.
Schäuble’s Singapore plans are to be seen within the context of the negotiated German-Swiss tax treaty, due to enter into force on January 1, 2013. Reports suggest that banks in the Confederation have urgently advised their German clients to swiftly transfer their untaxed assets to Singapore, thereby escaping the clutches of the German tax authorities when the provisions apply. Swiss banks have vehemently denied the allegations, however.
The tax agreement with Switzerland provides notably for the taxation of the hitherto undeclared and untaxed assets of German residents held in Swiss accounts as well as for the equal tax treatment of future income from the capital deposits of German taxpayers at the same rates as levied in Germany.
Although Germany’s main opposition parties the Social Democrats and the Green Party have opposed the accord from the outset, threatening to veto the text in the Bundesrat, or upper house of parliament, where the black-yellow coalition no longer has a majority, Rhineland-Palatinate’s Prime Minister Kurt Beck recently indicated that further negotiations could avert a disaster. The vote in the Bundesrat has reportedly been postponed until the end of November to facilitate ongoing cross-party discussions.
During a recent working visit to Russia, Luxembourg’s Prime Minister Jean-Claude Juncker and his Russian counterpart Dmitri Medvedev welcomed the conclusion of the bilateral double taxation agreement (DTA) between Luxembourg and the Russian Federation and underlined the need to further strengthen economic ties between the two countries.
Luxembourg and Russia initiated negotiations on a double tax accord in Sochi back in August 2010. Luxembourg’s Finance Minister Luc Frieden has now signed the DTA and the Russian Duma is expected to ratify the treaty in the coming months.
During the course of the prime ministerial talks on bilateral economic relations, Russian Prime Minister Medvedev displayed great interest in Luxembourg's economic know-how, particularly in the area of eco-technologies and information and communication technology, calling for a partnership between Luxembourg and Russia in these specific areas.
As part of his visit to Russia, Juncker also held talks with Oleg Betin, governor of the region of Tambov. Within the framework of the discussions, a cooperation agreement was signed between the two chambers of commerce, aimed at developing and diversifying economic cooperation and trade.
Juncker also met with Tatarstan’s President Rustam Minnikhanov, with the meeting focussing on plans to strengthen bilateral economic relations. Juncker emphasized the importance of cementing a strategic economic partnership between Luxembourg and Tatarstan. Consequently, Luxembourg’s Economy Minister Etienne Schneider is to lead a delegation to Tatarstan at the beginning of next year.
A Memorandum of Understanding (MoU) was signed between both chambers of commerce.
Switzerland and Bulgaria have recently signed in Sofia a new bilateral double taxation agreement (DTA) in the area of taxes on income and capital.
The accord replaces the agreement of October 28, 1991, and contains provisions on the exchange of information in accordance with the international standard applicable at present.
According to the Swiss Federal Department of Finance, the treaty is largely in line with Switzerland's agreements policy and will serve to contribute to the further positive development of bilateral economic relations.
Aside from an OECD administrative assistance clause, Switzerland and Bulgaria have agreed that both countries may levy withholding tax of no more than 10% on gross dividend amounts. If, however, a company holds a stake of at least 10% in the capital of the distributing company for at least a year, the dividends will be exempt from withholding tax. Moreover, there will be no withholding taxes on dividends paid to the national banks of the two countries or to pension funds.
Regarding interest, both countries may levy withholding tax not exceeding 5%. However, interest payments between associated enterprises with a stake of 10% for at least one year, for example, will not be subject to any withholding tax. There also will be no withholding tax on royalty payments.
Following the negotiations, a report on the new DTA with Bulgaria was submitted to the Swiss cantons and the business associations concerned for their comments. They approved the signing.
The new agreement still has to be approved by parliament in both countries before it can come into force.
Malta's Lotteries and Gaming Authority (LGA) and Jersey’s Gambling Commission (JGC) have entered into a Memorandum of Understanding (MoU) to establish a legal framework for the two authorities to cooperate more deeply on regulatory matters.
Under the terms of the agreement, the two jurisdictions aim to develop common responsible gaming measures and enhance consumer and player protection measures including the protection of minors and the vulnerable. In addition both jurisdictions will strive to develop and share common regulatory best practices including employee exchange programs, common certification standards and other practical and operative arrangements to reflect technological and other relevant developments in the area.
Welcoming the pact, the LGA stated: "This MoU will provide a formal basis and framework for cooperation between the two jurisdictions, including for the exchange of information and investigative assistance of providers and remote gaming services. The MoU also addresses issues such as cloud regulation, the recognition of the use of financial institutions located in the territory of either jurisdiction for gaming transactions, the recognition of national certification bodies and player liquidity."
The MoU was signed by Reuben Portanier, CEO of the Lotteries and Gaming Authority and Jason Lane, Chief Executive of the Jersey Gambling Commission.
Russian President Vladimir Putin and Prime Minister Dmitry Medvedev have put weight behind controversial proposals to grant more favourable tax conditions to businesses in Russia's remote eastern regions, to boost the nation's economic potential and foster development.
Medvedev has said that the only viable way of enabling these cut-off Russian territories to catch up with the rest of Russia is to provide generous tax concessions to domestic and foreign investors, to support resource extraction projects, and to enhance economic linkages with rapidly-growing east Asian nations, such as China.
Putin is said to be backing proposals to extend mineral extraction tax breaks on offer in Siberia to other eastern regions. Tax holidays are also said to be under consideration, to temporarily reduce or exempt new investments from sales taxes, property levies and profits taxation.
Medvedev recently attempted to press his case for special far-eastern tax regimes in a meeting with senior figures from the Federation Council, or upper house of parliament, although he admitted that the proposals would likely face opposition, both from within the government and from provinces that would be excluded from the plans. However, he stressed Russia must be better integrated into the world economy.
The Dubai International Financial Centre (DIFC) has held an event to discuss a number of legislative changes following the entry into force of the new Markets Law 2012 in July.
In her opening remarks to the third Knowledge Series event, Roberta Calarese, the DIFC Authority's Chief Legal Officer, said: “As DIFC continues to strengthen its position as [a] global financial hub, we have an obligation to keep pace with how international markets are evolving. The new Markets Law is designed to further align this market with other international markets, particularly in Europe, and more broadly to give investors a greater degree of protection.”
During a panel discussion, experts discussed a number of significant changes brought in by the new Markets Law 2012, including changes to prospectus disclosure, what activities constitute an offer, market misconduct provisions, corporate governance and oversight of auditors.
Other pertinent changes as a result of the Markets Law included adding the oversight of auditors of publicly-listed companies to the supervisory roles undertaken by the Dubai Financial Services Authority (DFSA) to enable the centre to fulfil new European Union requirements. The move will allow auditors based in the centre to continue providing auditing services to EU companies that are publicly listed on stock exchanges. Under the change, auditors of publicly-listed companies will now need to be registered with the DFSA to enable the centre to satisfy European conditions that auditing entities must be overseen by an equivalent, high-quality regulator.
The Knowledge Series is an initiative by the DIFC intended to create dialogue between industry experts and DIFC members about new finance topics. The sessions are held regularly by the Centre to raise awareness about developments in market practices and regulation, and discuss ways for the DIFC’s clients to maximize the advantages of being based in the centre, one of Dubai's most successful tax-free zones.
Cyprus plans to wrap up bailout talks with the troika of lenders within a month, Finance Minister Vassos Shiarly has confirmed, and will seek less funds than on offer, as the government seeks to avoid being bound to the punishing terms outlined in a recently-leaked list of demands from European financiers.
Following recent talks with representatives from the troika - comprising of the International Monetary Fund, the European Central Bank and the European Commission - Cyprus has committed to speeding efforts towards drafting a 2013 Budget. The nation says it will pursue a fraction of the funds on offer from Europe, and is engaging with Russia on the terms of a short-term loan, which the government said would involve fewer fiscal provisos, and instead be based on a 'political' understanding.
The potential cost of a fully European-funded bailout for Cyprus was laid bare recently in a leaked 20-page document from the troika which suggested that Cyprus would have to slash public spending and raise taxes in return for the funds.
It is said that under a European bailout, taxes on cigarettes, petrol, and tobacco would be hiked, and authorities would be urged to lean on the nation's affluent to derive fresh revenues from real estate holdings, accumulated wealth, and income. A 1% increase in value-added tax (VAT) is also a strong possibility.
On the expenditure side, the troika would seek a 15% cut in public sector salaries, and the reining in of generous employee benefits, including the year-end bonus, known as the 13th month salary. The Cypriot authorities would also be required to commit to more substantial public sector layoffs, with as many as 2,250 redundancies, despite sustained government opposition to such a downsizing.
The Cypriot banking sector is heavily exposed to Greece, and it is thought that any bail-out would total around USD15bn (USD19.6bn) over three years.
In the first wave of austerity measures agreed last year, the government hiked the rate of VAT to 17%, from 15%, and introduced a new top tax bracket of 35%, applicable to income above EUR60,000. In addition, withholding tax on savings interest derived by Cypriot residents was hiked to 15% from 10%, tax on real estate was increased, and a new EUR350 annual fee was introduced on companies.
A task force, which was appointed by the Minister of Economic Development Corrado Passera in April this year, has issued a preliminary report in which it suggests policies which could make Italy a country in which startup businesses are encouraged by its tax system, rather than hindered.
It is emphasized that startup companies can be set up in various sectors, not only in the digital world but also in all productive sectors, including the most traditional. They are defined as those firms which are unlisted on a stock exchange, resident and subject to taxation in Italy, and, above all, have as their objective the development of innovative high-technology products or services.
To qualify they should also be owned directly, and at least 51%, by individuals; have been established not more than four years ago; have a business turnover not greater than EUR5m (USD6.5m); and not paying dividends.
The report sees Italy as, at the moment, inhospitable and discouraging for new businesses, both in terms of its fiscal system and labyrinthine bureaucracy. Instead it suggests that the government should look, not to short-term tax collection, but to revenues in the longer term from the earnings of the larger companies that startups could become, and from the additional jobs they could create.
It is noted that the government has already introduced the Ssrl – the simplified limited liability company – which can be established by individuals of less than 35 years of age, with capital from EUR1 to EUR10,000 and a simple written agreement.
However, the report points out that the utilization of a new Ssrl does not abolish the fees and charges payable in the years after its establishment, which still discourage entrepreneurs. Also, its benefits apply only to new businesses, not to those already in existence.
Instead, the report’s authors suggest that a new limited liability company should be allowed – the iSrl, where the ‘i’ would stand for ‘innovation’ – for all startup businesses that fulfil the definitions and qualifications mentioned above, and without any age limit for the individuals concerned.
An iSrl would be set up completely online and without any formal constitution, and by contact directly with its local chamber of commerce. After four years of operation, or if any of the other startup qualifications are exceeded in the intervening period, the iSrl would be transformed automatically into a normal Srl.
While all administrative fees and charges would be abolished during the life of the iSrl, Italian corporate income tax on a firm’s earnings, and value-added tax on its sales, would be calculated on a cash, rather than an accrual, basis.
For example, a firm’s accounting system would include income on a contract only when an invoice was actually paid, and it would not be accrued, on an accounting basis, until then. As an aid to a company’s liquidity, a startup company would thereby, at the end of each accounting period, pay its taxes on the basis, not of what it had accrued, but only what it had encashed.
Cash accounting, as an aid to a company’s liquidity is already available in Italy, but only for companies with a business turnover of up to EUR2m. In the report, it would be allowable within the four-year period and/or up to a turnover of EUR5m, at the end of which the firm would revert to the standard tax regime.
In addition, it is suggested that startup businesses should be allowed to subtract employee costs from the calculation of their liability to IRAP - the regional tax on productivity, which is payable in relation to a company’s turnover, rather than its profits. It is felt that, at the moment, the incidence of IRAP penalizes startups which invest more in know-how and human capital, rather in other productive factors.
Passera has indicated that, following the presentation of the report, an announcement of action by the government to support start-up companies can be expected shortly. It was emphasized that all the policies under consideration will not involve government subsidies, but only revenue-neutral incentives to stimulate business development.
Malta's Ministry of Finance, the Economy and Investment has welcomed the findings of the World Economic Forum's annual Competitiveness Report, which shows that the island's business environment has substantially improved during the past year as a result of government efforts to support inward investment and expand the financial services sector.
Malta climbed four places in the latest rankings, up to 47th place, making it among the top three best performing member states of the European Union this year. The report in particular noted improvements in the island's quality as an international financial centre, ranking it among the most advanced nations for the availability of financial services, financing through the local equity market, the ease of access to credit, and the soundness of the domestic banking system.
Despite its infancy relative to other financial centres, the island's financial services sector already accounts for about 15% of Malta's gross domestic product.
Malta received recognition in particular for its efforts to decrease red tape on businesses, improve the skills base of the local workforce, and streamline its tax regime.
As part of efforts to make the tax system more efficient and cut bureaucracy, the government is targeting the consolidation of the three tax-collecting departments into a single entity this year. The government aims to reduce tax avoidance as part of its 2013 budget, according to a document released in August, to allow effective tax rates to be brought down.
The bilateral double taxation agreement (DTA) between Liechtenstein and Uruguay has now entered into force, according to the Liechtenstein government.
Signed in Bern on October 18, 2010, the DTA between the two countries entered into force on September 3 following ratification of the text by both treaty partners. The accord is in accordance with current international standards and is based for the most part on the Organization for Economic Cooperation and Development’s (OECD) Model Convention.
The Liechtenstein tax administration is the domestic authority responsible for application of the agreement.
In its release, the Liechtenstein government highlights the fact that the agreement is to be seen against the backdrop of the Principality’s international financial centre and tax strategy, as expressed in the Liechtenstein Declaration of March 12, 2009. In its Declaration, Liechtenstein pledged to adhere to the OECD standards on transparency and on information exchange in tax matters.
The government is committed to further extending its network of double taxation agreements in Europe.
The DTA with Uruguay will apply from January 1, 2013.
The Internal Revenue Service (IRS) has paid a whistleblower award of USD104m to former banker Bradley Birkenfeld, for his contribution in providing insider information on UBS’s offshore banking accounts for a number of its United States clients.
According to the IRS, Birkenfeld “provided information on taxpayer behaviour that the IRS had been unable to detect, provided exceptional cooperation, (and) identified connections between parties to transactions, and the information led to substantial changes in UBS business practices and commitment to future compliance”.
“The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth,” it added in its Summary Award Report. “While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions against UBS.”
Birkenfeld's information directly resulted in a USD780m fine being paid to the US by UBS bank; over 35,000 taxpayers voluntarily repatriating their illegal offshore accounts; and the collection of over USD5bn in back taxes, fines and penalties. His disclosures also indirectly led to revised tax treaty negotiations between the US and Swiss governments, and to UBS subsequently releasing the names of over 4,900 US taxpayers with offshore accounts, who are currently being investigated.
Charles Grassley (R – Iowa), Ranking Member of the Senate Committee on the Judiciary, who helped write the stronger whistleblower legislation enacted in 2006, has, since then, pressed the Treasury Secretary and the IRS Commissioner for its effective implementation during Senate hearings and through a series of oversight letters.
He commented that the UBS case “provides evidence about how the whistleblower programme can be effective because the IRS is saying its work against this kind of tax fraud would not have been possible without the whistleblower. By paying an award as the law allows, the IRS encourages courageous actions by others against such big-dollar tax cheating.”
“The potential for this programme is tremendous,” he continued, “and it’s up to the IRS to continue paying rewards and demonstrating to whistleblowers that the process will work and that they will be heard and protected. An award of USD104m is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistleblower information.”
Switzerland and Slovenia have recently signed in Ljubljana a protocol to amend the double taxation agreement (DTA) between the two countries in the area of taxes on income and capital.
According to the Swiss Federal Department of Finance (FDF), the protocol contains provisions on the exchange of information in accordance with the international standard applicable at present and some adjustments to the existing agreement.
The new DTA will contribute to the further positive development of bilateral economic relations, the FDF says.
The FDF explains: “Aside from an OECD administrative assistance clause, Switzerland and Slovenia have agreed that both countries may levy withholding tax of no more than 15% on gross dividend amounts. If, however, a company holds a stake of at least 25% in the capital of the distributing company, the dividends will be exempt from withholding tax. In addition, no withholding tax will be due on dividend payments to pension funds."
The FDF adds: "Interest and royalties paid amongst associated enterprises (stakes of 25% held for at least two years) will no longer be subject to tax at source in future. Finally, the revised agreement contains an arbitration clause.”
Following the negotiations, a report on the protocol to the DTA with Slovenia was submitted to the Swiss cantons and the business associations concerned for their comments. They approved the signing.
The revision still has to be approved by parliament in both countries before it can come into force.
Determined to shake aside its image as a tax haven, Liechtenstein is currently considering the idea of concluding a withholding tax agreement with Germany, providing for an automatic exchange of tax information.
The tax deal sought by the Liechtenstein government would be based on the withholding tax agreement concluded recently between Germany and Switzerland and would serve to resolve the longstanding dispute between the two countries over undeclared and untaxed ‘black money’ held by German residents in Liechtenstein banks.
In contrast to the Swiss accord, which provides for a withholding tax to be levied by the Confederation’s banks and for the product of the tax to be subsequently transferred to the German tax authorities, while at the same time maintaining client anonymity and therefore traditional Swiss banking secrecy, Liechtenstein favours a deal providing for an automatic exchange of information. This would both reduce costs and liability issues.
Commenting on the plans, Liechtenstein’s Prime Minister Klaus Tschütscher announced recently that the government is currently conducting ongoing analysis, involving the evaluation of upcoming regulations, the examination of costs as well as liability issues for the individual institutes concerned and their employees.
Arguing in favour of an automatic exchange of information, Tschütscher explained that the introduction of a withholding tax requires many staff who need the necessary qualifications in order to know which tax is due in which country. In addition, protecting client anonymity is not very advantageous for banks if anything goes wrong, Tschütcher stressed. It may then be more efficient and more attractive to exchange data automatically, as the state concerned then incurs all of the expense and liability, the minister ended.
The bilateral tax agreement between Switzerland and Germany has yet to be ratified by the German parliament. The treaty’s future very much hangs in the balance given the continuing staunch resistance from the opposition parties.
Failure to adopt the text in the Bundesrat, or upper house, where Germany’s black-yellow coalition government no longer has a majority, would force Liechtenstein to seek an alternative solution.
Following a public consultation, the Inland Revenue Authority of Singapore has announced that the various goods and services tax (GST) amendments, including those announced in the 2012 Budget, designed to facilitate the development of a gold trading hub in Singapore, will take effect from October 1, 2012.
To facilitate the development of gold trading and meet strong demand for investment-grade gold in Asia, the 2012 Budget change proposed that the GST treatment for investment–grade gold, silver and platinum, be put on a par with other actively traded financial assets, such as stocks and bonds.
By providing that exemption from GST, it has been suggested that Singapore’s share of the precious metals market could increase from only 2% at the moment to 10%, or even 15%, in the next five to ten years.
The import and supply of investment-grade gold, silver and platinum, in the form of a bar, ingot, wafer and coin which meet certain criteria, will therefore be exempt from the 7% GST rate, while the supply of precious metals which are exported continues to be zero-rated.
Precious metals which do not meet the criteria continue to be taxable. Examples of non-precious metals are jewellery, scrap precious metals and numismatic coins, and other precious metals which are refined by refiners who are not on the ‘Good Delivery’ list of the London Bullion Market Association or the London Platinum and Palladium Market.
In addition, a new Approved Refiner and Consolidator Scheme (ARCS) is being introduced to relieve cash flow and compliance for qualifying refiners and consolidators of precious metals, and enable them to claim input tax to make the first exempt supply of investment-grade precious metals after refining.
An approved refiner within the ARCS, which will also be implemented from October 1, will, for example, enjoy import GST suspension for the importation of its own goods in the course or furtherance of its business. This will also apply to goods belonging to its overseas principal for supply (either in Singapore or for export), and goods belonging to its overseas principal which will be subsequently be re-exported.
The 7% GST exemption will not apply to the supply of refining activities relating to goods delivered locally. However, an approved refiner can claim all the input tax incurred in the course or furtherance of its business, except for expenses specifically disallowed under the tax code.
Panama has adopted a legislative amendment that introduces transfer pricing rules on transactions with foreign related parties irrespective of whether one of the parties is tax resident in a country that holds a convention for the avoidance of double taxation with Panama.
Transfer pricing rules seek to ensure that transactions that occur between two associated entities are fairly taxed. Typically under the rules, the value of a transaction must be determined as though the two entities were unconnected.
Under previous Panamanian law, two related entities engaging in a transaction would be exempt from the application of transfer pricing rules if one of the parties was tax resident in a country that was party to a double tax agreement with Panama.
The law change, contained in Bill no. 491, is effective for the tax year 2012, and taxpayers newly subject to the rules must file Form 930, reporting on the use of transfer pricing rules in calculating taxable amounts in respect of transactions between connected entities, by June 2013.
The legislative amendment also alters permanent establishment rules (tax residence) in Panama, for transfer pricing purposes. To ensure that the rules cannot be avoided by structuring transactions through natural persons rather than companies, the amendment provides that an individual can also be deemed to have a permanent establishment both in Panama and the country in which the other transacting entity is based.
During his visit to Moscow for the Asia-Pacific Economic Cooperation Finance Ministers' Meeting, Financial Secretary John Tsang said he hoped more Russian companies will invest and set up businesses in Hong Kong.
Speaking at a lunch with Russian business representatives who attended a seminar co-organized by Invest Hong Kong and the Zhuhai Municipal People's Government in Moscow, he pointed out that total trade between Hong Kong and Russia recorded a 44% growth in the first half of this year.
Investment in Hong Kong by Russian companies would, Tsang added, reduce Hong Kong’s reliance on traditional markets, and strengthen Hong Kong's protection against fluctuations in the external economic environment in the long run.
He thought that the seminar demonstrated the combined advantages and competitiveness of the Pearl River Delta, and reinforced Hong Kong's position as the premier location for foreign enterprises seeking to tap business opportunities in the Mainland market.
Tsang also took the opportunity, during his visit, to meet senior representatives of Russia's financial and business sectors to strengthen bilateral economic relations.
“Switzerland and its banking system should assume that in five to ten years when a foreign client comes and opens a Swiss bank account, his name, the date he opens the account and the bank’s name will be automatically transferred to his country’s treasury,” said Hildebrand.
“The Swiss fiscal refuge is over.”
Hildebrand, who resigned as SNB chairman in January amid controversy over his wife’s currency trades, said he regretted what had happened.
“I regret it as I deeply loved my job at the SNB,” he commented.
In the interview the former SNB chairman also described the “terrible” period in October 2008 when the national bank was forced to bail out Switzerland’s largest private bank UBS with a multi-billion franc rescue package.
Hildebrand, who at the time was an SNB board director before he became chairman, said he felt “disgusted philosophically” that the state had had to intervene to save a private company.
Hildebrand resigned from the SNB in January after emails cast doubt on his claims not to have known about a foreign exchange trade made by his wife Kashya in August 2011, weeks before the SNB moved to stop the Swiss franc climbing.
Hildebrand was accused of insider trading after details of the currency transactions were leaked. The SNB chairman denied the charge.
In June 2012 following his resignation it was announced that Hildebrand had joined the world’s largest asset management company Blackrock, based in London where he will be looking after institutional clients in Europe, the Middle East, Africa and Asia.
The Protocol with Sweden entered into force on 5 August 2012 and, with regard to the exchange of information, is applicable to information from 1 January 2012, and concerning the other provisions, from 1 January 2013.
The Protocol with the Slovak Republic entered into force on 8 August 2012 and, with regard to the exchange of information, is applicable to information from 1 September 2012, and concerning the other provisions, from 1 January 2013.
Cyprus government has amended some tax laws, not to raise revenue, but to make the EU member state with the lowest tax rates even more business friendly
With the demise of Greece, the interwoven Cyprus economy has taken a beating. Following the footsteps of other Euro members, the Cypriot government has asked the EU for a bailout. Of course it would be foolish for them not to try, since the European Commission seems so keen in handing out billions of Euro's.
At the same time the Cyprus government has amended some tax laws, not to raise revenue, but to make the EU member state with the lowest tax rates even more business friendly.
The most important change is the 80% tax exemption on capital gains arising from the sale of intellectual property after all relevant costs have been deducted. Acquisition of IP rights can be amortized over a period of 5 years. The amendment reaffirms Cyprus' positions as top holding jurisdiction for intellectual property. Where else can you find such a highly respected nation that effectively taxes IP rights at 2%, has a vast tax treaty network, and can access the entire European Union on the basis of the EU royalty and interest directive?
Other tax incentives include an increased depreciation allowance for capital goods including real estate. This change will apply for the years 2012, 2013 and 2014 as follows:
• For all machinery and plant: 20% per annum (previously being 10%)
• For industrial and hotel buildings: 7% per annum (previously being 4%)
Interest expense relating to the direct or indirect acquisition of shares in a 100% subsidiary (irrespective of its tax residency) shall be tax deductible for the Cyprus parent company which suffers the expense. This tax deduction is proportionally not available on the cost of assets owned by the subsidiary which are not used in the business.
And finally, the reduced VAT rate of 5% on the sale or construction of residential real estate shall now apply to non-residents as well.
Although Cyprus is going through some rough times, Cypriot politicians still have their countries best interests in mind, and understand what it takes to attract business.
During his visit to Moscow for the Asia-Pacific Economic Cooperation Finance Ministers' Meeting, Financial Secretary John Tsang said he hoped more Russian companies will invest and set up businesses in Hong Kong.
Speaking at a lunch with Russian business representatives who attended a seminar co-organized by Invest Hong Kong and the Zhuhai Municipal People's Government in Moscow, he pointed out that total trade between Hong Kong and Russia recorded a 44% growth in the first half of this year.
Investment in Hong Kong by Russian companies would, Tsang added, reduce Hong Kong’s reliance on traditional markets, and strengthen Hong Kong's protection against fluctuations in the external economic environment in the long run.
He thought that the seminar demonstrated the combined advantages and competitiveness of the Pearl River Delta, and reinforced Hong Kong's position as the premier location for foreign enterprises seeking to tap business opportunities in the Mainland market.
Tsang also took the opportunity, during his visit, to meet senior representatives of Russia's financial and business sectors to strengthen bilateral economic relations.
The UK's international aid programme should focus on supporting tax authorities abroad, a new report has urged, with its authors also warning that the government should analyze the impact of its new tax rules on developing countries as a matter of urgency.
The recommendations are made in a report by parliament's International Development Committee.
The report notes that while the UK already works with other tax authorities as part of its aid programme, this sort of work should be given higher priority within future programmes. The report stresses that this recommendation is equally valid for all forms of taxation, including value-added tax (VAT), personal income taxation and corporate taxation. The Committee also deems it essential that taxes are paid on a fair and equal basis by local companies and individuals as well as foreign investors.
The Committee’s Chairman, Sir Malcolm Bruce explained: "The aim of development work is to enable developing countries to escape from over-reliance on aid. Supporting revenue authorities is one of the best ways of doing this: it represents excellent value for money, both for the countries concerned and for UK taxpayers. That is why we are urging the government to do more."
The report also focuses on how the government's new tax rules will affect those in developing countries. In particular, the Controlled Foreign Companies (CFC) rules are flagged as a matter of concern. Designed to discourage UK-owned corporations from using tax havens, CFC rules have traditionally applied to all UK-owned corporations. However, the new rules will apply only to corporations operating in the UK. According to the Committee, this will make it easier for those operating in developing countries to use tax havens.
It highlights claims made by organizations such as ActionAid that developing countries may lose up to GBP4bn in tax revenues as a result. The Committee has now urged the government to conduct its own analysis, for, while the government does not accept ActionAid's calculation, it does not deny that there will be some cost to developing countries. The Committee recommends that, subject to the review's outcome, the government should consider reversing the change.
Bruce said, "The government is committed to supporting economic growth in developing countries to reduce their dependency on aid. While this is clearly the right thing to do, it would be deeply unfortunate if the government’s efforts were undermined by its own tax rules.
"Some estimates claim that the revised CFC rules will cost developing countries up to GBP4bn. We do not know if this estimate is correct, but the government cannot legitimately refute the GBP4bn figure unless it is prepared to conduct its own analysis. That is what we are urging it to do."
The US Department of Justice (DOJ) has announced that a US taxpayer pleaded guilty in a US federal district court to willfully failing to file Form TD-F 90-22.1 (Report of Foreign Bank and Financial Accounts, FBAR) to report his Swiss bank accounts.
The announcement was made in a DOJ Press Release dated 20 August 2012.
According to the press release, the taxpayer agreed to pay back taxes of over US9,000 and to pay a civil penalty of over US.8m, as part of the guilty plea agreement.
The taxpayer faces a maximum term of five years in prison, a maximum term of three years of supervised release, and fines of the greatest of US0,000, or twice the gross gain derived from the offense or twice the gross loss to any victim.
The press release states that the US taxpayer failed to file an FBAR with the US Internal Revenue Service (IRS) regarding his accounts at an international bank with its headquarters in Switzerland, and a Swiss bank (Wegelin).
The taxpayer also omitted the information about the foreign bank accounts in his US tax returns. The taxpayer further failed to make voluntary disclosures under the IRS’s Voluntary Disclosure Program.
US taxpayers are required to report their worldwide income when they file their US individual income tax returns (IRS Form 1040).
Additionally, taxpayers who have a financial interest in, or signature or other authority over, a bank account in a foreign country with an aggregate value of more than US,000 at any time during a particular year are required to file FBARs for each qualifying account.
The government of Belize confirmed on August 20 that it is was unable to find USD23m to pay creditors a scheduled coupon payment as part of a USD544m bond deal negotiated prior to the financial crisis, which as of 2012 pays a yield of 8.5%.
While Belize has a comparatively low fiscal deficit, expected to rise to 2.5% of gross domestic product this year, from 1.1% in 2011, the bond was negotiated based on substantially higher pre-crisis interest rates. Under the 2007 deal, which was negotiated to service half of the nation's debt, the coupon rate increased from 6% to 8.5% this year, and is due to mature in 2029.
Under a first proposal with creditors, Belize has been said to be offering 20 cents on the dollar, substantially lower than that offered following Argentina's default in 2001, and in the Greek bailout, which offered around 30 cents on the dollar. The Belize government has said however that it is committed to meeting with creditors to find an amicable solution to restructure the debt under more favourable terms. Parties to the deal must do so within a 30-day grace period, starting August 20, 2012, or Belize will default on the bond.
Each of three scenarios proposed by the Central Bank extend the bond's maturity period to at least 2042, or as late as 2062. Those options proposed to expire in 2042 would involve a 45% 'haircut', with either a set 3.5% coupon throughout, with a five-year grace period, or a gradually-increasing coupon rate starting at 1% and rising to 4% from 2026. The other option involves a 2062 maturity date, a 15-year grace period and a 2% rate but no principal reduction.
Although recession, stalling growth and high unemployment continue to impact many markets, the data and insights in this quarter’s rapid-growth markets forecast tells us that the overall prospects for RGMs remain strong.
Our analysis suggests that RGMs are likely to weather the ongoing Eurozone crisis and remain engines of global growth, though many will see expansion slow this year. Their expansion is expected to accelerate once more in 2013, helping stimulate a wider pick-up.
And as uncertainty surrounding the single currency diminishes — for we still believe a Eurozone break-up is unlikely — we expect growth to move forward from 4.9% in 2012 to 5.9% in 2013 and 6.5% in 2014.
What lies behind such positive projections?
First the rapidly growing Asian countries are playing an increasingly powerful role on the global scene. By adjusting their growth patterns towards more reliance, the major Emerging Asian economies would allow greater exchange rate flexibility.
Meanwhile, the US and other advanced economies should reduce internal demand relative to overall growth. This shift in relative demand and prices between surplus and deficit countries will help stabilizing financial markets and economic systems across the world.
Secondly, we believe that soaring domestic demand in the RGMs is poised to change the rules of the world economy. By 2020, the number of middle-class households in emerging countries will more than double, overtaking the US and Eurozone with nearly 150 million new consumers.
The speed and scale of the transition is astonishing
For example, in 2011 emerging Asia accounted for just 14% of global consumer spending in US dollars. By 2020, its share will be 25% and by 2030 that share will be 40% – a near threefold rise in just 20 years. In India, meanwhile, 47% of households had income exceeding US,000 in 2010; by 2020, 80% will.
Emerging market consumers are also on average significantly younger than their rich-world counterparts, and are increasingly concentrated in cities, making them readily accessible. As they become richer they want new homes equipped with modern amenities and filled with consumer durables.
Sales in western markets hinge upon replacement cycles and the pace of new household formation; in emerging markets, demand growth is much faster because many households are first-time buyers: that explains why refrigerator sales in China rose by 25% a year from 2005-09.
Businesses need to urgently adapt their strategies to take advantages of these new challenges and opportunities. How should they do so? By optimizing their customer reach firstly, it is vital that businesses decide where to focus their investment. They should expect volatility — and not to lead the market.
And in addition, the sheer scale of the opportunities for consumer products companies means it is impossible to tackle them all at once. Instead, they should choose the most promising group of consumers and focus on how to best target them.
This means that they need to select which products have the most potential for which markets, a decision which depends on them understanding the consumer. To gain an understanding they need to look at their needs and preferences and not just rely on economic data.
Within different countries, different groups have different needs and consumer products companies must appreciate how they are evolving as incomes rise. To this end, price points matter — business needs to offer the right product at the right price for groups of consumers who have different levels of income.
To ensure this happens, consumer companies need to work backward from the price point to perfect their products. This means they need to develop a creative supply chain with adequate rewards for vendors, and pay close attention to tax rules to ensure tax- and-cost-effective supply.
On 16 August 2012, the Ministry of Finance published a draft of an Emergency Ordinance amending the Tax Code. The amendments would enter into force on
1 January 2013, unless otherwise indicated.
The major proposals are summarized below.
With effect from 1 October 2012, the supplementary deduction in respect of research and development expenses would be increased from 20% to 50%.
Losses of entities that cease to exist as a result of divisions or mergers would be carried forward. Currently, such losses may not be recovered by the newly formed taxpayer.
Further clarifications regarding the existing provisions on social security contributions are included.
The place of supply of long-term rental of means of transport to a non-taxable person would be the place where the beneficiary has his domicile or usually resides.
Currently, the place of supply of such services is the place where the supplier has established his business or, if the services are provided from a fixed establishment of the supplier located in a place other than the place where he has established his business, the place of supply is the place where that fixed establishment is located.
Taxable persons having a turnover not exceeding €500,000 would collect VAT at the moment of invoice payment.
Concomitantly, VAT would be deducted only when invoices are paid by both the eligible taxpayers and their beneficiaries. Currently, VAT is collected at the time when goods and services are supplied and the beneficiaries may deduct VAT when the invoice is issued, even if not paid.
The application of the measure regarding a postponed accounting system which enables only importers having a deferred payment license from the Romanian tax authorities to avoid payment of VAT at the time of importation is extended until
31 December 2016 (instead of 31 December 2012).
The bill contains changes following the implementation of the Council Directive 2010/45/EU of 13 July 2010 , amending the Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing.
The US Internal Revenue Service (IRS) has released a draft of IRS Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain US Branches for United States Tax Withholding).
The draft is dated 13 August 2012. The draft form revises the current W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain US Branches for United States Tax Withholding) to implement the Foreign Account Tax Compliance Act (FATCA).
The revised form allows affected persons to indicate their Chapter 4 status (FATCA status). A draft of revised IRS Instructions for Form W-8IMY has not yet been released.
The current IRS Instructions for Form W-8IMY is available on the IRS website.
Swiss bankers whose names were delivered to the United States in April as part of the crackdown on US tax evaders face the risk of arrest while travelling in some European countries, not just on US soil
Extradition treaties between the US and countries including France, Germany, Italy, Austria and Britain make it possible for the US to take legal steps via Interpol against bankers suspected of helping US citizens evade taxes, Denise Chervet, central secretary of the Swiss Bank Employees Association told the Swiss News Agency.
"If the US issues an arrest warrant via Interpol, the employee targeted could be arrested in any country with which Washington has an extradition treaty, and where the alleged offences are also punishable," Chervet said.
Around 10,000 employees of 11 banks under investigation by US authorities could be affected by potential travel restrictions.
Chervet said that employees visiting the US who had had direct contact with American clients "run the risk of being arrested for violating American tax laws for having assisted with tax evasion". Other bank employees who may not have had direct contact with clients could be called as witnesses, she said.
Bankers' families could also be implicated: a report in La Tribune de Genève newspaper this week said two teenagers who arrived in the US to visit their grandparents were interrogated by officials for six hours about the whereabouts and working habits of their father, a Geneva banker.
German left-wing parties are in the process of crystallizing plans to hike taxes for wealthy taxpayers should they come back to power in 2013.
Under the proposal from the Social Democratic Party (SPD) together with the Green Party, a wealth tax at a rate of 1% should be reintroduced in Germany providing it targets only taxpayers with “major wealth”. As a result, the tax-free threshold would be set at EUR2m (USD2.5m) for single taxpayers and EUR4m for married couples.
Wealth taxes have been widely in force throughout Europe during the end of the 20th century, but many countries have progressively scrapped or eased them to avoid waves of tax-motivated expatriation. The German left-wing’s proposal, however, comes as part of a fresh global move in favour of further wealth taxation, led by France.
There has not been any wealth tax in Germany since 1997, since the German constitutional tribunal ruled the then wealth tax was against the fundamental law (constitutional law). Since then, the German government has not attempted to amend the law to make the wealth tax compliant with the constitution, therefore rendering it ineffective.
The ruling conservative-liberal coalition, led by Angela Merkel, has already dismissed the proposals to reintroduce the wealth tax. Nevertheless, Merkel’s stance may change due to political pressure on the ruling coalition with the forthcoming elections in 2013 in sight, and its difficulties to pass its tax reforms, especially through the upper house where support from the left is required.
According to the German Institute for Economic Research (DIW), this new tax would help generate an annual EUR11.5bn in additional revenues.
The introduction of a tough new penalty regime means that around half a million of the UK's Self Assessment taxpayers will now receive penalty letters for late filing.
The penalties will be issued by HM Revenue and Customs (HMRC) over the next few weeks. They relate to the 2010/11 tax year, for which the filing deadline was January 31. Any taxpayer who missed that deadline was slapped with a GBP100 (USD156) penalty, applicable even where no tax was due or the tax was paid on time. Notices were issued for this fine in late February and early March.
The new penalty regime also means that, after three months, additional daily penalties of GBP10 apply, up to a maximum of GBP900. Once six months have passed, a further penalty of 5% of the tax due or GBP300 (whichever is greater) will be charged. Finally, after 12 months, this charge is reapplied. This means that the penalties currently being issued by HMRC will be for a minimum of GBP1,200.
According to HMRC, the penalties should act as an incentive to file, and reduce the costs to taxpayers of chasing up missing forms. The plan seems to be working, as the number of outstanding returns has almost halved. 10.7% of Self Assessors filed late last year, but this figure has now dropped to 5.9%. HMRC says this means that 518,000 fewer penalties are being issued. A further 273,000 taxpayers have been taken out of Self Assessment by HMRC this year.
There are options for those receiving the letters. Taxpayers can appeal against the fines if they believe that they have a reasonable excuse for not sending their tax return, such as a family illness or bereavement. Taxpayers who have received the notices but think they do not need to be in Self Assessment can also potentially apply to be taken out of Self Assessment. If HMRC agrees, the return and any penalty will be cancelled.
HMRC’s Director General for Personal Tax, Stephen Banyard, said: “We want the returns, not the penalties. This year, half a million more people have filed their return – which means we are issuing 44% fewer penalties. But, despite several reminders, nearly six per cent of people have not sent their 2010/11 tax returns to us and they’ll be getting a penalty. Where someone has a reasonable excuse for not sending a return on time, we will waive the penalty. We also recognize that there will be some people within this group who don’t need to be in Self Assessment, and we will be happy to remove them from the Self Assessment system and cancel their penalty.”
Ukraine is targeting substantial growth in its domestic Information Technology (IT) industry with new legislation which will provide the sector with a substantially improved tax environment for a period of ten years.
Starting on January 1, 2013, a new value-added tax (VAT) exemption will apply to the supply of operating systems, regular computer programs, system administration, encrpytion software, websites, online services, testing and IT consultancy. Presently, goods and services provided by the IT sector are subject to a 20% VAT rate.
In addition, starting from January 1, 2013, the corporate tax rate for companies engaged in the IT sector will be reduced from 21% to 5%.
Originally, Ukraine's parliament had adopted the law in May of 2012, but it was later vetoed by the President. The newly-endorsed updated version removes provisions that would have allowed tax authorities to hold unscheduled audits of eligible IT companes. In addition, companies seeking to avail themselves of the ten-year tax holiday will no longer be subject to an eligibility assessment from the State Agency for Science, Innovation and Information. Instead companies must apply for the concessions by filing a form with the nation's tax authority.
The tax breaks target annual sectoral growth of 30-40%. Presently Ukraine is the world's fifth largest software exporter, with the annual value of services provided by the IT industry amounting to USD1.5bn. By 2016, the government hopes the income of the IT software export sector can be comparable to the nation's metallurgy exports.
The measures are being introduced following a successful six-month pilot, launched in the first half of 2011, during which the industry grew by 40% under a 0% VAT rate applicable to IT sector goods and services.
A substantial restructuring plan is to be put into effect in September to significantly cut the size of Cyprus's second largest lender, Cyprus Popular Bank, which requires a state bailout having suffered substantial exposure to Greek non-performing loans.
A restructuring plan being drawn up by advisory firm KPMG is to be published next month and will reportedly include substantial lay-offs, and the closure of around 60 branches in Cyprus and Greece.
The problems at Cyprus Popular Bank, which reportedly immediately requires a bailout of at least EUR4bn, have been blamed on Brussels's handling of the bailout of Greece. In a July press conference attended by the head of the European Commission, Jose Manuel Barroso, Cyprus's Finance Minister, Vassos Shiarly said that the Cypriot banking sector, with its close business ties to Greece, had been forced to shoulder some EUR4.2bn (US5.1bn) in writedowns, equal to a quarter of the economy's Gross Domestic Product (GDP), and argued that the burden of Greece's non-performing loans should have been more equally distributed among EU member states.
Popular Bank requires an immediate injection of funds worth at least EUR1.8bn to meet minimum capital requirements set by the European banking regulator. However, Fitch Ratings has estimated that the Bank may need as much as EUR4bn, equal to around 23% of Cyprus's GDP, to remain afloat, and the potential cost of propping up the bank has been said to be substantially higher. The nation's largest bank, the Bank of Cyprus has proved more resilient to the Greece crisis; despite substantial write-offs, the lender has required just EUR500m in state support to meet Tier 1 capital requirements.
Cyprus is currently in discussions with the Troika group of lenders comprising the European Central Bank, the International Monetary Fund, and the European Union regarding a bailout both to prop up the banking sector, and service the country's deficit. Cyprus has been shut out of international bond markets since last year and has relied on credit provided by Russia, which it may again seek to tap to avoid stringent bailout conditions.
The governments of the Channel Islands, Guernsey and Jersey, have held their first joint ministerial meeting, held to discuss areas where the two territories can cooperate more deeply.
According to a statement from the Jersey government following the meeting, discussions in particular focused on aligning the islands' policies in respect of the territories' relationship with the United Kingdom, which has been under substantial strain following a number of tax spats, and also included discussions on the islands' relations with France and Europe. Both Ministers agreed that continued government support for the Channel Islands' Brussels Office is critical. The Office was established in 2011 in response to changing international tax transparency requirements; new regulation facing international financial centres; and European scrutiny of the islands' tax regimes, with the aim of enhancing representation of the islands' interests in international fora.
Commenting following the July 31, 2012, meeting, Guernsey's Chief Minister, Peter Harwood stated: “Today’s meeting was constructive and productive; these discussions will enable our islands to take a more strategic approach to common external engagement. The benefits of working together in our engagement with the wider world are clear, in terms of both efficiency and effectiveness."
“Today’s discussions are only one aspect of the stronger working relationship that is being established between Guernsey and Jersey. I am delighted that Policy Council members and departmental boards are meeting, speaking and working with their counterparts in Jersey to find areas where working together can lead to clear mutual benefits.”
Jersey's Chief Minister, Ian Gorst added: “Today’s meeting has allowed us to develop further our common priorities. By working more closely together we can make our case more effectively to the international community and ensure that the benefits of cooperative working make a difference to our own communities."
“There is much common ground between [Jersey's] Council of Ministers and Guernsey’s Policy Council. Today’s joint summit meeting has found new ways of exploiting that commonality to our mutual advantage. I am pleased to say that today’s talks have been productive and I very much hope that future meetings will maintain the positive dialogue that we enjoy with Deputy Harwood and his ministerial colleagues.”
The first joint ministerial meeting was held following an agreement in May 2012 between the two ministers to update the framework for cooperation between the two territories. The Ministers agreed that the jurisdictions could benefit from more closely coordinating their activities, and sharing resources. Meetings are expected to be held biannually, alternately hosted by each island. The next meeting, scheduled to take place in Jersey in late 2012, will focus on the potential for greater sharing of public services between the islands.
On 31 July 2012, the European Commission published the Draft Council Directive COM(2012)428 on the introduction of a Quick Reaction Mechanism (QRM) to combat VAT fraud.
Details of the directive proposal are summarized below.
The draft directive is a result of the communication on the future of VAT in which it was announced that measures would be proposed for a quicker response to VAT fraud.
Currently, VAT fraud can only be combated by an amendment of the EU VAT Directive (2006/112) or by individual derogations granted to Member States on the basis of article 395 of the EU VAT Directive.
The latter requires a proposal from the European Commission, a process which can take up to eight months. Afterward, the proposal must be adopted unanimously by the European Council, which causes further delay.
Therefore, the Commission proposes to introduce a QRM, which allows a more speedy reaction to VAT fraud.
Scope of QRM
The QRM is not intended to replace the current derogation system. Therefore, its scope is limited to massive and sudden fraud mechanisms in specific economic sectors in a particular Member State.
Forms of QRM
The draft directive lists the following forms of QRM:
Adoption of a QRM
QRM measures will be granted by the Commission itself in an examination procedure that allows the Commission to adopt applicable acts immediately on the basis of duly justified grounds or urgency.
Once the requesting Member State has submitted the required data, the Commission will take a decision within one month.
QRM authorization period
A QRM authorization will be granted for one year to allow the Member State concerned, in the meantime, if necessary, to request an authorization to derogate from the EU VAT Directive based on the procedure of article 395 of that directive.
The directive proposal should be implemented by the Member States by 1 January 2013.
Russia is hiking taxes on the sale of all cars, with a particular emphasis on luxury cars as part of the government's tax reform towards a tax system raising more through indirect taxes.
The Russian lower chamber, the State Duma, has recently approved a utilization tax on all cars, with effect from August 2012. In addition, the Russian finance ministry has prepared a draft proposal for a further levy on luxury cars, which it estimates would concern 20,000 across Russia.
This latter tax comes without surprise as President Putin promised during the presidential campaign he would hike taxes on “excessive personal consumption” should he be elected.
The proposed levy on luxury cars would be applicable to all cars exceeding 410 horsepower at a rate of RUB300 (USD9) per horsepower, with an exemption for cars produced before 2000 and those used exclusively for sports events. Regions might also increase the rate.
The utilization tax will be imposed on car makers and importers, but has prompted protests from manufacturers that the tax rise might shrink demand. The basis for determining the exact amount of this tax has yet to be released, but it is said that the basic rate is likely to be between RUB20,000 and RUB40,000.
Previous rejected plans from A Just Russia Party included a general sales tax rise of 1.25% for all cars coupled with a 2% rise for luxury cars, and a tax hike for cars costing more than RUB2m only.
While, in October last year, an Italian court near Turin had adjudicated that the list containing details of foreign account holders taken from HSBC in Switzerland could not be utilized by the Italian tax authorities, the provincial tax court in Treviso has now said that it can.
IT expert, Hervé Falciani, admitted to passing the information, including details of 7,000 accounts held by Italians in Switzerland in 2005 and 2006, to the French tax authorities in July 2008. Last year, following a request to the French prosecutor in Nice, those details were obtained by the Guardia di Finanza, the Italian financial police.
It had been expected that the names of Italians identified from the list would enable the Guardia di Finanza, together with the Italian Revenue Agency, to open new lines of investigation, or re-open dormant enquiries, on the movement of Italian funds in Switzerland.
However, after various delays, a court near Turin threw out the case against a presumed individual tax evader on the grounds that the list of accounts was obtained illegally by Falciani, and could therefore not be used in evidence. It was said that the taking of the list could be classified as an aggravated embezzlement, and was the illicit collection of information contained in a computer system.
However, the court in Treviso has now issued a contrary opinion regarding a case against two other individuals who contested assessments by the Revenue Agency of increased tax, interest and penalties of around EUR360,000 (USD445,000) in one case and almost EUR2m in the other.
The tax court considered the acquisition of the data to be completely legitimate as it was obtained following a request to the French tax authorities, through the normal channels of collaboration and fully respecting the necessary procedures and agreements. In particular, the data was acquired within the exchange of tax information stipulations foreseen in European directives and the double taxation agreement between Italy and France.
It also confirmed that the possibility that the list was obtained illegally by Falciani in Switzerland could not be transferred and used to prove its illegality in an Italian court. In fact, it added, on the one side, there could not be assumed a right of secrecy for any Italian citizen's undeclared foreign bank account, while, on the other, the information had not been obtained in violation of any Italian laws or by an action by the Italian tax authorities.
The European Commission (EC) has adopted a proposal for a Quick Reaction Mechanism (QRM), which would enable European Union (EU) member states to respond more swiftly and efficiently to value-added tax (VAT) fraud.
VAT fraud is reported to cost the EU and national budgets several billion euros every year. In some serious cases, vast sums are lost within a very short timeframe, due to the speed at which fraud schemes evolve nowadays. For example, between June 2008 and December 2009, an estimated EUR5bn (USD6.1bn) was lost as a result of VAT fraud in greenhouse gas emission allowances.
Currently, if a member state wants to counteract VAT fraud through measures not provided for under EU VAT legislation, it must formally request a derogation to do so. The EC then draws up a proposal to this effect and submits it to the European Council for unanimous adoption before the measures can be implemented. This process can be slow and cumbersome, delaying the member state in question from taking the necessary action to stop the fraud.
With the QRM, member states would no longer have to wait for this formal process to be completed before applying specific anti-fraud measures. Instead, a much faster procedure would grant them a temporary derogation within a month. They would be able to apply, within that month, a ‘reverse charge mechanism’ which makes the recipient rather than the supplier of the goods or services liable for VAT. The derogation would be valid for up to one year.
This would allow the member state in question to begin counteracting the fraud nearly immediately, while more permanent measures are being established (and if necessary while the standard derogation procedure is being launched).
That should significantly improve member states’ chances of tackling complex fraud schemes, such as carousel fraud, and of reducing otherwise irreparable financial losses. In order to deal with possible new forms of fraud in the future, it is also foreseen that other anti-fraud measures could be authorized and established under the QRM.
Algirdas Šemeta, European Commissioner for Taxation, Customs and Anti-Fraud, said: "When it comes to VAT fraud, time is money. Fraudsters have become quicker and cleverer in developing schemes to rob the public purse. We must strive to be one step ahead of them. The QRM will ensure that our system is sufficiently equipped to tackle VAT fraud effectively. It will help preserve much needed public revenues and create a fair and level-playing field for honest businesses."
Canada and Switzerland have reached an agreement on the interpretation of the information exchange provisions of their double tax agreement (DTA).
The agreement on Article 25 of the convention was concluded by way of an Exchange of Letters between the Canadian government and the Swiss Federal Council. The DTA was first signed in 1997 and amended by protocol in 2010.
Under the agreement, the interpretive protocol is amended to ensure that the interpretation of the provisions of Article 25 is fully consistent with the standard developed by the Organization for Economic Cooperation and Development (OECD) for the exchange of tax information.
Canada and Switzerland will now carry out the domestic measures necessary for the entry into force of the agreement. They will notify each other once this process is completed. The agreement will enter into force on the date of the later of these notifications and its provisions will have effect from December 16, 2011.
It has been announced that the double taxation agreement (DTA) between Hong Kong and Malta entered into force on July 18, 2012, after completion of ratification procedures on both sides.
The DTA was signed on November 8 last year, and sets out the allocation of taxing rights between the two jurisdictions and the tax relief on different types of passive income, which, it is hoped, will help investors to better assess their potential tax liabilities from cross-border economic activities.
In the absence of the DTA, for example, income earned by Malta residents in Hong Kong was subject to both Hong Kong and Malta income tax. Profits of Malta companies doing business through a branch in Hong Kong were fully taxed in both places. Under the agreement, however, tax paid in Hong Kong will now be allowed as a credit against tax payable in Malta.
In addition, under the DTA, Hong Kong airlines operating flights to Malta will now be taxed at Hong Kong's corporation tax rate (which is lower than that of Malta). Profits from international shipping transport earned by Hong Kong residents that arise in Malta, which are currently subject to tax there, will not be taxed in Malta under the agreement.
The agreement also incorporates the latest Organization for Economic Co-operation and Development standard on exchange of information relating to tax matters.
The provisions of the DTA will have effect in Hong Kong for any year of assessment beginning on or after April 1, 2013.
The Organization for Economic Cooperation and Development (OECD) has welcomed the conclusion of negotiations between the United States and five European Union member states on a new model international tax agreement aimed at cutting the cost for financial institutions of compliance with the United States Foreign Account Tax Compliance Act (FATCA).
Welcoming the new agreement, OECD Secretary-General Angel Gurria said: “I warmly welcome the co-operative and multilateral approach on which the model agreement is based. We at the OECD have always stressed the need to combat offshore tax evasion while keeping compliance costs as low as possible. A proliferation of different systems is in nobody’s interest. We are happy to redouble our efforts in this area, working closely with interested countries and stakeholders to design global solutions to global problems to the benefit of governments and business around the world.”
FATCA, enacted by Congress in March 2010, will require foreign financial institutions (FFIs) to disclose information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income. Presently, it is anticipated that FFIs will only need to begin reporting income received by these clients by January 1, 2016, in respect of the calendar year 2015. Despite the lengthy transitional period envisaged, FFIs have warned of the substantial compliance burden attached to the reporting requirements.
Developed by the United States, France, Germany, Italy, Spain and the United Kingdom, the new agreement has been designed to cut the cost of compliance for FFIs by allowing these entities to transmit relevant data to a central domestic authority. The data would then be automatically exchanged with the United States tax authority, the Internal Revenue Service. The United States has also agreed to reciprocate with signatory nations, requiring US FFIs to also provide relevant information to these nations' authorities.
Following the conclusion of negotiations towards the model agreement, the nations have asked the OECD to develop, with interested countries, an adapted version of the model agreement to create a common model for automatic exchange of information among more participants, and also to develop reporting and due diligence standards for financial institutions.
The United States Treasury Department has published a model intergovernmental agreement to implement the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA), together with a joint communique with France, Germany, Italy, Spain and the United Kingdom endorsing its text.
FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, with foreign financial institutions (FFIs). Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
While FFIs will be able to register through an online system that will become available by January 1, 2013, and institutions with US clients will be required to report basic account details for 2013 and 2014 by January 1, 2015, it is currently envisaged that the income of those clients will not need to be reported until January 1, 2016, with respect to calendar year 2015.
FFIs across the world (including banks, investment funds and insurance companies) have all expressed concern about the legislation, in particular the costs of compliance and penalties that will ensue in case of non-compliance.
When, in February this year, the Treasury and the IRS issued their latest version of the FATCA regulations, it was also announced that agreements with France, Germany, Italy, Spain and the UK to pursue government-to-government frameworks for implementing FATCA had been reached, as an important step toward addressing legal impediments to FFIs’ ability to comply with the regulations.
An exemption from FATCA was not contemplated for any jurisdiction, but instead a model for information sharing is offered based on existing bilateral tax treaties and allowing FFIs to report the necessary information to their respective governments rather than to the IRS.
As a result of their FATCA discussions, it has been further confirmed that the five partner countries, along with the US, will, in close cooperation with other partner countries, the Organization for Economic Cooperation and Development, and, when appropriate, the European Commission, “work towards common reporting and due diligence standards in support of a more global approach to combating tax evasion effectively while minimizing compliance burdens”.
“(The announcement of the model agreement) is an important milestone in our joint efforts to combat offshore tax evasion and make our tax systems more efficient and fair,” said US Treasury Secretary Tim Geithner. “(The model) agreement implements FATCA in a way that is targeted and effective, while also providing a foundation for further international coordination.”
“We appreciate that France, Germany, Italy, Spain and the UK were among the first jurisdictions to join us in this important effort and we look forward to quickly concluding bilateral agreements based on the model,” he added.
The model agreement is accompanied by a joint communique with the five partner countries, endorsing the model agreement and calling for a speedy conclusion of bilateral agreements based on it.
There are two versions of the model agreement - a reciprocal version and a non-reciprocal version. Both versions establish a framework for reporting by FFIs of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements. Both versions of the model agreement also address the legal issues that had been raised in connection with FATCA, and simplify its implementation for FFIs.
The reciprocal version of the model also provides for the US to exchange information currently collected on accounts held in US FFIs by residents of partner countries, and includes a policy commitment to pursue regulations and support legislation that would provide for equivalent levels of exchange by the US.
That version of the model agreement will be available only to jurisdictions with whom the US has in effect an income tax treaty or tax information exchange agreement and with respect to whom the Treasury Department and the IRS have determined that the recipient government has in place robust protections and practices to ensure that the information remains confidential and that it is used solely for tax purposes.
On 19 July 2012, the Government published a summary of responses received to its consultation on “Company residence for Income Tax Purposes.”
The consultation was launched in April 2012, in order to simplify the income tax position for companies with dual residence and provide new business opportunities.
The proposed legislative amendment would allow a company, incorporated under the Isle of Man Companies Acts but managed and controlled in a foreign country, to be considered as resident for Manx income tax purposes, only in that other country if:
The amendment will be introduced by a Temporary Taxation Order, after its revision and the incorporation of suitable anti-avoidance measures.
On 10 July 2012, the Liechtenstein Government adopted amendments to the implementing Ordinance concerning the exchange of information agreement relating to tax matters between Liechtenstein and the United Kingdom.
The ordinance defines under which criteria a financial intermediary may consider a customer relationship to be relevant under the law in order to be able to make use of the Liechtenstein Disclosure Facility.
The current ordinance contains several imprecise legal terms, which leave them open to interpretation. The adopted amendments provide for more clarity on these terms.
The amendments stipulate that the relevance of a business relationship in any event exists:
The amendments will enter into force on 1 September 2012.
The UK's Exchequer Secretary to the Treasury has launched a stinging attack on tax avoidance, warning that the government will come down hard on the "cowboy tax avoiders" who promote avoidance schemes.
Tax avoidance has become a hot topic in the UK recently, with the government keen to be seen as cracking down on the practice. Last month, a number of high profile celebrities were revealed as having participated in legal schemes including the 'K2' scheme. This disclosure led Prime Minister David Cameron to label such activity as “morally wrong”. According to Chief Secretary to the Treasury Danny Alexander, were the government able to claw back the revenue lost through these schemes, 2% could be slashed off the basic rate of income tax.
Earlier this month, the Court of Appeal backed HM Revenue and Customs (HMRC) in its bid to shut down a scheme once marketed by PwC. Those who participated now face paying the tax they avoided in full, together with interest charges and "significant" costs for their use of the scheme. In addition, the introduction of a general anti-avoidance rule (GAAR) is scheduled for 2013. The government plans for the GAAR to apply to the main direct taxes (income tax, corporation tax, capital gains tax and petroleum revenue tax) and National Insurance.
David Gauke's warning therefore comes at a time when the government is making very visible its efforts to prevent avoidance activity. In a speech to the Policy Exchange think tank, he said,: “We are building on the work we have already done to make life difficult for those who artificially and aggressively reduce their tax bill. These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence. And they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride."
The government will increase the pressure it places on advisers who market schemes that "artificially and aggressively" reduce tax. Among the proposals unveiled by Gauke is making the Disclosure of Tax Avoidance Schemes (DOTAS) rules a stronger and more effective weapon in the battle against tax avoidance. Between the introduction of DOTAS in 2004 and the end of March, 2012, a total of 2,289 avoidance schemes were disclosed to HMRC under the rules. This has led to over 60 changes in tax law to stop avoidance, and the closure of several schemes. According to Gauke, this has closed off around GBP12.5bn (USD19.4bn) in avoidance opportunities.
HMRC will be given greater powers to force promoters to tell them about avoidance schemes and who is using them. Rules will be tightened to make it is easier to impose penalties for failure to provide information to HMRC about a scheme. The government is also considering publishing warnings about tax avoidance schemes that are effectively being mis-sold. The aim would be to make it easier for taxpayers to identify when they are on the receiving end of a hard sell by a less reputable promoter.
Commenting on the proposals, Mary Monfries, head of tax policy at PwC, said: "We are positive that the government is entering into a consultation on this subject. We welcome the opportunity for there to be a proper debate to clarify what constitutes unacceptable tax avoidance versus acceptable tax planning. Given both the short-term budget deficits and the long-term funding requirements of the economy, it is imperative that there is a stable platform for generating tax revenue. That needs to be a platform that maintains confidence in the tax system and the competitiveness of the UK to support business activity and growth."
Gauke's attack on tax avoidance did not end with his speech at the Policy Exchange. In an interview with the Daily Telegraph, he slammed the payment of tradesmen with cash-in-hand as "morally wrong". He explained that securing a discount with a tradesman by paying cash-in-hand results in losses to the Revenue. “I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash. That is a large part of the hidden economy,” he stressed.
His comments have already been criticized, however. They were described by Labour MP Austin Mitchell, a member of the Public Accounts Select Committee, as "petty". It is not anticipated that the government will seek the revenue already lost in this way.
The tax authorities announced on 26 June 2012 an extension of the grace period for voluntary disclosure of income derived from foreign assets.
The new deadline is 27 September 2012 (previously, 30 June 2012).
The announcement also provides for the possibility to apply anonymously for the arrangement. The identity of the taxpayer may be disclosed once the application is approved.
During his speech to a conference in Rome, Carlo Sangalli, the President of Confcommercio, the federation representing small and medium-sized enterprises, professionals and sole traders, divulged that its research has shown that the country’s actual tax burden has reached almost 55%.
He pointed out that the apparent tax burden - that which is obtained by comparing Italian gross domestic product (GDP) and total tax revenue - is currently 45.2%, and therefore at fifth place amongst the 35 countries in the Organization for Economic Co-operation and Development.
However, the actual burden on those who pay their taxes, after subtracting the Italian underground economy from the equation, has been found to be much higher at 54.8%. That, it is said, would be, by far, a world record, with Denmark a long way away in second place, at 48.6%.
In fact, the non-taxpaying economy in Italy has now reached 17.5% of GDP – another world first – although it has shown a slight tendency to reduce, given that in 1998 it had actually reached 20%.
In addition, Confcommercio has produced statistics proving that Italy is in first position in the world for the time that the government takes to pay its tax debts to companies, and in last place for the number of days it takes to obtain a definitive court judgement in a contractual dispute.
Its research has also demonstrated that it is not that Italians have a “genetic propensity” for tax evasion, but that the deficiencies in the Italian judicial and tax administration systems, the low quantity and quality of public services financed from tax revenue, the high cost and time taken in fulfilling tax obligations and, above all, the too-high tax levels, have led to a tendency towards tax avoidance.
It is emphasized therefore that the government’s actions against tax evasion will not be successful without a parallel process to reduce tax burdens, and the only possible conclusion is that a precise mechanism is needed to give back to regular taxpayers the higher revenues obtained by those actions.
Sangalli pounced on that conclusion in his speech and urged the government to introduce measures to reduce corporate and individual income tax rates, and encourage economic growth, using funds made available, on the one hand, by less or better-targeted public spending and, on the other, by increased revenues from reduced tax evasion.
While pointing out that the high taxation levels weigh heavily on both investment and consumption in the economy, he understood that, during the period that the country remained in fiscal deficit, it would be impossible to reduce direct taxes, without providing additional resources as cover. Confcommercio therefore hopes that the government will immediately solve that problem by putting together a separate ‘tax reduction fund’, to be filled with resources obtained, over time, from reduced public spending and measures against tax evasion.
At the same conference, the General Manager of the Italian Revenue Agency, Attilio Befera, pointed out that the 55% tax burden could be even higher for some, given that some businesses had indicated that they have paid an overall tax rate up to 70%. He is in favour of Confcommercio’s tax reduction fund, and promised that, by September 30 this year, the Agency will put forward its ideas, to discuss with all interested parties, of possible further reductions to tax compliance requirements.
India's Prime Minister has established an expert panel to consult on plans for a general anti-avoidance rule (GAAR) and finalize the guidelines under which the rule will operate.
It is Manmohan Singh's hope that the newly constituted Expert Committee will bring transparency and a high degree of technical expertise to the consultation process. The initiative follows the ex-Finance Minister Shri Pranab Mukherjee's decision to postpone implementation of the GAAR until 2013. Its introduction should now coincide with the establishment of a Direct Tax Code (DTC).
According to Singh, deferring the GAAR by one year was a very welcome move. However, he stressed that a widespread consultative process is necessary to generate a discussion on the GAAR's provisions. Singh wants to see an informed debate on how GAAR is going to operate.
Originally, the Department of Revenue consulted with stakeholders before finalizing a first draft set of guidelines. The draft guidelines were then published online. Singh said that while these steps were positive, there remains a need for greater clarity on many other fronts.
With this in mind, the Expert Committee is charged with vetting and reworking the guidelines and publishing a further draft for comment. This will be done on the back of feedback received from stakeholders and the general public.
Once this process has been completed, the Expert Committee is required to undertake widespread consultations on the second guideline draft. Ultimately, the guidelines will need to be finalized, and a roadmap provided for implementation.
A tight timeline has been set for the Committee's work. The original draft guidelines remain open for comment until the end of July. Within a month, the Committee must respond to the feedback received and publish new guidelines. The final guidelines and implementation schedule must then be submitted to the government by September 30.
Saint Kitts and Nevis has welcomed a number of agreements with international creditors for eased terms in relation to the repayment of its debts, under a comprehensive debt-restructuring programme aimed at restoring sustainable finances.
Prime Minister Denzil Douglas has in particular lauded the decision of the United Kingdom to cancel the debt owed by the twin-island federation to Britain. Douglas further said he had extended his gratitude to the United States, at a meeting in London, for agreeing to extend the period of repayment on debt to the nation at a very low interest rate, "thus making it possible to manage the outstanding debt with the United States government," and further thanked domestic and regional creditors for their support.
Announcing the completion of the program, Douglas stated: “I commend the members of the Paris Club who cooperated and collaborated with us, especially the British government who has officially informed me that they have given complete debt forgiveness for the balance debt that we owed them.”
“With all that has been achieved, we are seeing the continuing increase in confidence returning to the economy of St Kitts and Nevis, where we should now be doing everything that we can, not only to stimulate domestic investment to St Kitts and Nevis, but also to attract foreign direct investment."
The completion of the debt restructuring programme is a significant milestone for St Kitts and Nevis, which has endeavoured during the past three years to significantly reduce its debt. In 2009, St Kitts and Nevis had the most significant public debt among its Caribbean peers, at 185% of gross domestic product, and the third largest in the world as a percentage of the economy. Following the introduction of a value-added tax and excise tax reforms in November 2010, and the streamlining of import duty exemptions and the introduction of an environmental levy, the government has managed to make inroads into the debt problem and the International Monetary Fund has consistently reported that the territory is making significant strides towards fiscal consolidation under a 36-month financial assistance programme.
The government welcomed the passage of Hong Kong’s new Companies Bill by the Legislative Council on July 12, saying it was an historic moment opening a new chapter in the development of company law in Hong Kong.
The bill was tabled by the government in January last year to enhance corporate governance, improve regulation, facilitate business, and modernize the law to strengthen Hong Kong's status as an international commercial and financial centre, and its competitiveness.
The rewrite of the Companies Ordinance (CO) started in mid-2006, and three public consultations were conducted to gauge views on a number of complex subjects. In the course of the rewrite exercise, the Financial Services and the Treasury Bureau benefited from the advice of the Standing Committee on Company Law Reform as well as four advisory groups and a joint government/Hong Kong Institute of Certified Public Accountants working group, which was set up to advise on specific areas of the rewrite.
Some of the measures introduced by the Bill to enhance corporate governance include: improving the accountability of directors so as to enhance transparency and accountability, and clarifying directors’ duty of care, skill and diligence; emphasizing shareholder engagement in the decision-making process; improving the disclosure of company information; and strengthening auditors’ rights.
In addition, better regulation will be ensured by means of the accuracy of information on the public register, an improvement to the registration of charges scheme, and a strengthening of the enforcement regime through the Registrar. There will be easier reporting for small- and medium-sized enterprises (SMEs), while SMEs will also be able to prepare simplified financial and directors’ reports.
The Secretary for Financial Services and the Treasury, Professor K C Chan, emphasized that "the CO rewrite exercise is a challenging and highly complex project which could not have come to fruition without the concerted efforts of the government and the relevant sectors of the community over the years”.
The government will now draft more than ten pieces of subsidiary legislation in the next legislative session, and the new Companies Ordinance will start operation after their enactment. Chan added that the government will work with the industry in familiarizing enterprises and stakeholders with the requirements of the ordinance to facilitate compliance.
Jersey has secured a second international award in less than a month that recognises it as the top offshore international financial services jurisdiction.
Jersey received the accolade of ‘Best Offshore Centre’ at the recent annual investment management awards organized by asset management and securities publication Global Investor/ISF. This follows closely after Jersey's receipt of 'Best International Finance Centre' at the International Fund and Product Awards 2012, organized by Incisive Media.
The Global Investor/ISF award was presented to David Vieira, head of marketing at Jersey Finance Limited, at a gala dinner awards ceremony in London hosted by Anthony Hilton, city editor of the Evening Standard, who was also a member of the eight-strong independent judging panel.
Jersey was on a short list with Bermuda and Ireland. Factors taken into consideration included the legislative enhancements during 2011, the introduction of the Private Placement regime, the arrival of up to 18 new finance houses in Jersey, many of them hedge funds, the issuing of two new banking licences, the ongoing signing of tax information exchange and other agreements with authorities abroad, and Jersey’s consistent number one ranking in the Global Finance Centres Index.
Welcoming the award, Geoff Cook, the Chief Executive of Jersey Finance, commented: "While we are working in tough economic times, where all jurisdictions are facing much greater scrutiny and increasing swathes of regulation which together bring their own set of challenges, it is encouraging that Jersey continues to receive recognition for the quality of the jurisdiction and its international offering from respected publishing groups. Most importantly, we are being recognized for the fact that we continue to evolve and develop to meet those global challenges in order to secure new business for the jurisdiction."
Russia's lower house of parliament, the State Duma, has endorsed Russian membership of the World Trade Organization (WTO) by a small majority, paving the way for accession this year.
With 238 votes in favour, and 208 votes against, the Russian parliament has agreed to membership and commitments made in the nation's accession bid. Membership would require Russia to liberalize market access, and lower its final legally-binding tariff ceiling to 7.8% from a 2011 average of 10%, for all products. The average tariff ceiling will be 10.8% for agriculture products (13.2% currently) and 7.3% for manufactured goods (down from 9.5% currently).
Addressing the State Duma prior to the package's adoption, Economy Minister, Andrey Belousov said that although there were concerns about protections for Russian domestic industries, the benefits of WTO accession outweigh the negatives. Blocking the deal, he warned, would require renegotiation and further delay accession and the substantial immediate economic boost membership would bring.
Backing the ratification of the deal earlier this year, Russian President, Vladimir Putin highlighted that transitional arrangements have been negotiated in the deal. The final bound rate will be implemented on the date of accession for more than one third of national tariff lines with another quarter of the tariff cuts to be put in place three years later. The longest implementation period is eight years for pork, followed by seven years for motor cars, helicopters and civil aircraft.
The rapid ratification of Russia's membership package is expected to lead to the repeal of the Jackson-Vanik amendment in the United States, a law dating back to the Cold War, which was introduced to prohibit most favoured nation status for non-market economies originally on the basis of human right concerns. The United States has retained the law but has each year since 1992 granted a waiver to Russia. The archaic law however presents increased risks for businesses undertaking cross-border trade between the United States and Russia.
If the United States fails to rescind the amendment and reinstate Permanent Normal Trade Relations, US exporters will be prevented access to the lower tariffs and increased market access Russian WTO membership will bring for other nations. The Jackson-Vanik amendment is said to infringe WTO rules that require nations to offer equal tariff treatment to other WTO members.
Russia will join the WTO just thirty days after the completion of the nation's ratification procedures, putting time pressure on US lawmakers. Russian membership of the WTO is expected to double US trade and investment in Russia, and provide a significant long-term boost to the Russian economy.
Cyprus has underscored that it will not accept punitive conditions in exchange for a financial assistance package from European Union member states, arguing that the bailout of Greece was poorly executed and over-burdened the Cypriot banking sector, which itself now needs substantial bailout funds.
At a heated joint press conference with Jose Manuel Barroso, the head of the European Commission, Cypriot Finance Minister, Vassos Shiarly criticized Brussels's management of the European bailout of Greece as unfair on Cyprus. He highlighted that the Cypriot banking sector, with its close financial connections to Greece, had been asked to shoulder some EUR4.2bn (USD5.1bn) in writedowns, equal to a quarter of the economy's Gross Domestic Product. He argued that if Greek financial sector losses had been shared among European nations on the basis of the size of their economies, the cost to the Cypriot banking sector would have been some fifty times lower and the nation would not now be enquiring about financial assistance.
Cyprus this month initiated financial assistance talks with the troika of lenders, comprising of the European Central Bank, the European Commission and the International Monetary Fund. An assessment of Cyprus's financial needs is ongoing, with a decision on terms for a financial assistance package to be announced by the end of the month.
Shiarly, who earlier stressed that Cyprus would not budge on various areas of its fiscal policy, in particular the island's corporate tax rate and public sector wages, has said that the provision of financial assistance should be seen on a separate basis than earlier bailouts of European nations, in recognition that the Greek bailout contributed to Cyprus's 'junk' credit rating, preventing the nation from externally servicing its debt.
Shiarly took flak from Barroso at the conference for approaching Russia on the possibility of securing EUR5bn in new finance, under a deal that would involve fewer conditions and weaken Europe's influence over Cypriot fiscal policy. Shiarly said that Cyprus had only submitted an enquiry to the troika on financial assistance and had not requested a bailout. He also noted that Ireland too had received external support in its bailout, from the United Kingdom and Sweden.
Confirmation that Cyprus will require a bailout comes despite reassurances that the nation would be able to overcome political division and implement deep structural reforms, to reduce the significant deficit in two successive steps, from a deficit that topped 7% of gross domestic product (GDP) at the start of this year, to 2.5%-2.7% of GDP in 2012, and to 0.5% of GDP in 2013.
The government managed to obtain EUR2.5bn in credit from Russia in 2011 to finance state debt and resist a European bailout that year. However the government has failed to find domestic sources of credit to refinance the nation's second largest financial institution, Cyprus Popular Bank, which reportedly requires an injection of funds worth at least EUR1.8bn, but may require as much as EUR4bn, equal to around 23% of Cyprus' GDP, according to estimates from Fitch Ratings.
Shiarly has conceded however that the bailout would not be limited to support for the banking sector, as the Cypriot economy has significantly weakened this year, undermining austerity measures introduced in 2011 and 2012, designed to rapidly cut the deficit. It is anticipated that Cyprus may need to secure EUR10bn in rescue funds.
The current controversy over the tax affairs of wealthy celebrities in the United Kingdom has cast an unwelcome spotlight onto offshore territories like Guernsey and Jersey, and has led some to suggest that the offshore trust, at least as far as these jurisdictions are concerned, has had its day, with David Cameron’s coalition government expected to fire a new volley of anti-avoidance legislation in their direction. Leading political and finance industry figures in the islands, however, beg to differ.
The often fiery debate over what distinguishes tax avoidance which is ‘acceptable’ from that which is ‘unacceptable’ or ‘aggressive’ – yet still within the letter of the law – has occupied the British media for the past several days after an investigation by The Times newspaper revealed how well-known entertainers had used schemes, often with an offshore component, to shelter their income from UK tax.
Much of this media coverage has focussed on one avoidance scheme in particular - the so-called ‘K2’ scheme. This structure establishes an employer-employee relationship between the individual and a Jersey-based company, and employment income is distributed to the individual in the form of a loan. The net result is that the user of this scheme is able to dramatically reduce liability to UK tax, and it was said that in the case of one individual, their effective tax rate had been slashed to as low as 1%. Another scheme called ‘Icebreaker 2’ (Icebreaker 1 had already been closed down by HM Revenue and Customs, HMRC) involved a complex circular transaction which exploited the UK film tax relief scheme.
At a time when the government is leaning on taxpayers to help close the GBP160bn budget deficit it inherited when elected in 2010, the news predictably provoked much public outrage, and using his politician’s nose to sniff out an opportunity for a populist sound-bite, Cameron went on the record to say that he thought the K2 scheme was “morally wrong”.
But it is not just K2 and Icebreaker that has got the public and politicians spitting with indignation. Thanks to the complexity of the UK tax system, there are many ways in which those with means can manipulate what are usually loosely described as ‘loopholes’ to reduce exposure to tax, and the latest revelations about tax-dodging celebs has led to renewed calls for the government to accelerate the pace of tax reform, especially with regards simplification measures.
However, it is when tax avoidance involves an offshore dimension – regardless of whether it is legal or not - that hearts really start racing in Westminster (and in many other centres of government come to that). And offshore trusts, protected as they are by strong confidentiality rules, have become a particular target.
It is unclear what the government could do to force the issue. Although Guernsey and Jersey are Crown Dependencies, and therefore the UK holds much political influence over them, they are largely free to make their own laws as they see fit (as is the case with most offshore trust jurisdictions).
Both islands have signed up to several bilateral information exchange agreements whereby information about an individual can be passed to the tax authority of the requesting nation on request. However, not a single request has been received by Jersey for example from HMRC under the Tax Information Exchange Agreement which went into effect in November 2009.
Furthermore, efforts by the UK to crack down on aggressive tax avoidance using offshore trusts are nothing new, and several pieces of anti-avoidance legislation have been enacted down the years to prevent abuses of one type or another. Indeed, in the 2012 Budget, one of Chancellor George Osborne’s headline anti-avoidance measures was to impose a 15% rate of Stamp Duty Land Tax on purchases of property in the UK for GBP2m or more by non-natural persons, the intention being to reduce the number of property purchases involving complex ownership structures, including offshore trusts, to avoid UK tax.
Another measure announced at the 2012 Budget attempts to stop abuse of the ‘excluded property’ rules, under which a UK-domiciled individual can acquire an interest in settled property in an offshore trust, and reduce the value of the property for inheritance tax purposes through a series of transactions.
A general anti-abuse rule has also been proposed, in response to the Aaronson report into tax avoidance, and this is expected to be introduced next year. It is unclear how this would work in practice especially with regard to foreign trusts, and there will likely have to be a series of long-drawn-out court cases before the degree of sharpness of the GAAR’s teeth is established.
Whatever the future holds, successive tightenings in the past of UK anti-avoidance legislation in the area of offshore trusts has yet to put a huge dent into the fiduciary services industry in the Channel Islands. Although trust statistics are not readably available, it is estimated that the number of Jersey trusts is in the tens of thousands, and both government and industry in these jurisdictions do not seem unduly concerned at the latest wave of anti-offshore sentiment headed their way.
Responding to the Budget stamp duty announcement, Geoff Cook, CEO of Jersey Finance, the promotional body for the island’s finance industry, said: "The changes proposed are fiscal measures designed to increase revenues to the UK Treasury through the collection of stamp duty on UK residential property worth GBP2m or more. While this is important business for the Channel Islands' finance sector, it is very much a single service within a broad and deep portfolio of services that the islands offer."
And on the more general issue of tax avoidance, he commented: "While we cannot comment on specific schemes, which are a matter for HMRC to consider and review, Jersey’s position on tax evasion is very clear: tax evasion is illegal in Jersey and it is a criminal offence to facilitate or engage in tax evasion. Jersey is, and remains, one of the best regulated international finance centres in the world, a position that is regularly acknowledged by independent assessments from some of the world’s leading global bodies, including the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF). In our view, conflation between illegal tax evasion and legal tax avoidance, or tax planning, is unhelpful in moving any wider debate forward."
Cook said that coverage of the matter in the UK, "raised some important points in this area", and noted in particular that it had described the complex system of British tax reliefs as "byzantine", and called for "lower" and "simpler" taxes.
Expressing his hope that the GAAR consultation would be a positive development, in drawing a line in the sand on what constitutes acceptable tax planning, Cook stated: "It is this sort of informed debate and intelligent legislative development that can provide greater clarity and certainty for all parties and which we welcome as a positive way to develop the business of international finance.”
On behalf of Guernsey's Policy Council, the island's Chief Minister, Peter Harwood, said that Guernsey regularly discusses taxation issues with counterparts in the UK, the European Union, the United States, and supranational bodies such as the OECD, and would continue to do so.
He underscored that: "Guernsey has the highest possible category (category A) of tax information exchange with HMRC; has implemented automatic tax information exchange with the UK and all other EU Member States that meets the standard of the EU Savings Directive; and late last year the G20's Financial Stability Board confirmed that Guernsey was a jurisdiction that was 'already demonstrating sufficiently strong adherence to regulatory and supervisory standards on cooperation and information exchange.'"
The bad news for the Channel Islands, and offshore trust jurisdictions generally, is that the danger is not coming just from the UK. Indeed, some countries, notably the United States, have gone much further than the UK in cracking down on the perceived problem of offshore-based tax avoidance, which, according to the accepted estimate, costs the US Treasury USD100bn a year.
US tax laws already make it extremely difficult for US citizens, either located abroad, with overseas assets, or with foreign-source income, to escape the domestic tax net. And the Foreign Account Tax Compliance Act, the provisions of which begin to kick in next year, will make it a whole lot harder for Americans with foreign investments to escape the attentions of the Internal Revenue Service – to the point where many foreign banks and wealth managers no longer want anything to do with US clients.
Then there is Francois Hollande’s new Socialist government France, which is preparing to declare war on wealthy tax avoiders in a bid to restore tax ‘justice’.
But perhaps Cook and Harwood are right not to be too concerned by all this. In the future, Guernsey and Jersey, as well as the Isle of Man, will be less reliant on the UK wealth management market, with considerable new business expected to flow in from the growing population of newly-affluent in the Middle and Far East looking for wealth and succession management, and asset protection services.
Considerable resources have been set aside for marketing purposes in these regions, and both Channel Islands have established firm links with the Gulf states, Hong Kong and China, having opened representative offices there.
It is a strategy which appears to paying dividends, as demonstrated by the June visit of a delegation of nearly 30 officials and practitioners from the Chinese trust sector to Guernsey, where the possibility of undertaking increased business in the island was explored.
Peter Niven, Chief Executive of Guernsey Finance, said: “Guernsey Finance established a representative office in Shanghai at the end of 2007 and since then, we have made huge strides in raising awareness of the Guernsey brand. Part of this process has been building relationships with the relevant professional associations, including the China Trustee Association (CTA). The delegation was here for less than 24 hours but I really do think that we were able to showcase the best of the island in its various different guises. We have made a very positive impression which will enable us to further strengthen our ties with the CTA and its membership in the future. Indeed, extending our reach, particularly through professional associations, is an extremely important strand of our work to help develop new business flows from China.”
Less than one week later, the Isle of Man played host to a delegation of leading business people from the London operations of some of China's leading companies from various sectors, including banking, shipping, telecoms, petrochemicals and food.
"This was the first visit of its kind to the Isle of Man and it is highly encouraging that the Chinese delegation had expressed a desire to visit here over other jurisdictions,” commented Michael Charlton, Director of International Business Development in the Manx government. “We have been very proactive over the last year in building relationships with key Chinese Government Ministries, trade bodies and business leaders with three visits from Isle of Man delegations having visited China already and another planned for the Autumn."
Zhou Xiaoming, Minister Counsellor, Economic & Commercial Office, Embassy of the People's Republic of China in London was “impressed” by the diversity of the Island's economy, the range of opportunities available to Chinese business. “We see this visit as the beginning of a lasting relationship and very much look forward to working together with the Isle of Man Government and the Island's businesses we have met to mutual advantage."
Ultimately, these jurisdictions have taken all that the OECD, the FATF and the EU could throw at them over the past decade or more during the campaigns for transparency and fiscal fairness, and they have come through the ordeal leaner and fitter. It may well become more difficult for people in places like the US, the UK and elsewhere in Europe to utilise offshore trusts, but the potentially huge volume of custom headed from the newly-wealthy in the emerging economies suggests they have a secure future, and places like the Channel Islands and the Isle of Man in particular have adapted well to the changing financial environment in recent years.
French Budget Minister Jérôme Cahuzac has recently confirmed that the government is currently considering its plans for a 75% tax imposed on income in excess of EUR1m (USD1.3m), emphasizing that the measure will be in force in 2013.
The government is currently reflecting on its plans and there will be a provision in the initial 2013 finance bill, due to be presented in September, Cahuzac revealed, while hinting that the tax might not come in the form of a new top rate of income tax.
Underscoring the need to “reflect on the base” of the tax to ensure that it does not “constrain the economy”, the minister also said that it is imperative to take into account the principal of equality.
Cahuzac indicated that there could be a difference in the tax treatment of individuals, differentiating between those whose income is “guaranteed, certain, without risk” and those whose income is not assured, for example in the case of artists, authors, researchers, entrepreneurs, and possibly even sportsmen.
Cahuzac defended the government’s plans for the tax, highlighting the fact that the proposal was well received in the presidential election campaign, and underscoring the need for a notion of equality as regards the efforts and sacrifices that need to be made as a result of the ongoing crisis.
Equality is a powerful concept, a founding value of the French Republic, the minister argued, stressing that a very large majority of citizens in France are completely “exasperated” with the “indecent” remuneration received by some individuals.
French Socialist President François Hollande announced plans back in March during his election campaign to introduce a top rate of income tax in France of 75%, imposed on income in excess of EUR1m a year.
Although Hollande had previously unveiled election plans to levy a 45% rate of tax on income above EUR150,000, after further consideration, the presidential hopeful later decided to create an additional 75% rate of tax imposed on “indecent” remuneration of over EUR1m.
Denouncing existing injustices, and citing the interest of fairness at the time, Hollande also called for income from capital to be taxed at the same tax rate as income from work, using the same income tax scale.
The interim government in the Turks and Caicos Islands has confirmed in a recent White Paper the structure, rates and date of implementation for the islands' upcoming value-added tax (VAT) regime.
The White Paper says: “Given the state of public finances, this government is not considering a delay in the implementation of VAT, and therefore is fully committed to an implementation date of April 1, 2013." VAT will replace Communications Tax, Hotel & Restaurant Accommodation Tax, Vehicle Hire Stamp Duty, Insurance Premium Tax and the Domestic Financial Service Tax. When VAT is implemented, Customs Import Duty will generally be reduced by 10% - 15%.
The White Paper announces that the regime will feature an 11% standard rate, making the Turks and Caicos Islands' rate the second lowest among countries of the Caribbean Community (CARICOM), bested only by Haiti, with its 10% rate. Almost all CARICOM territories impose VAT at a rate of at least 15%, with the exception of Belize with its 12.5% rate. There is no sales tax however in the Cayman Islands.
The registration threshold, the minimum annual gross sales which will determine whether a business would be required to charge and collect VAT, is to be set at USD200,000 annually, other than for businesses already registered for Accomodation Tax, where the VAT registration threshold will be set at USD50,000.
For the sake of simplicity, the VAT system will only involve two rates, a standard rate, and a zero rate, which will be applied primarily to exports. The Paper says that should a future government decide to impose a higher rate of indirect tax on specific goods or services this should be undertaken by the introduction of a separate excise duty or tax.
To protect low-income taxpayers, a basket of essential food and household items will be exempt from VAT, along with healthcare and educational supplies, among numerous other items and services confirmed in the White Paper.
Recently defending the introduction of the regime, the interim government, installed by UK authorities in response to alleged corruption and unsustainable debt levels, said that the introduction of a VAT in the Turks and Caicos Islands offers "the opportunity to further strengthen the country's fragile recovery", under a regime that is "simpler, equitable and a stable source of government revenue".
Advocating the benefits of what is expected to be a tax-neutral reform, the government added: "VAT is a proven system across the Caribbean. It is straightforward to administer and is beneficial here in that this single form of taxation replaces five different sets of ordinances that both government and business need to keep abreast of."
The Jersey government has welcomed a number of positive developments emerging from the Red Ensign Conference, held in the Isle of Man in May, which provided a platform for Jersey to promote and agree upon areas of expansion for the island's shipping register.
The conference brought together thirteen crown dependencies and UK overseas territories entitled to register vessels under the British flag. Government delegates from as far afield as the Falkland Islands, Montserrat and the British Virgin Islands attended the conference together with representatives from the UK’s Department for Transport (DfT), Foreign and Commonwealth Office and the Maritime and Coastguard Agency.
This year, up to 60 delegates attended the conference and their discussions focused on safety, legislation, regulation, technical compliance and constitutional matters common to the various territories. Lawyers, surveyors and those associated with the maritime world were invited to networking events within the framework of the conference.
From Jersey's perspective, key points agreed at the conference included:
Commenting, Minister for Economic Development, Alan Maclean, stated: “We can be very pleased with this progress. We took a strong delegation to the conference and came back with very positive results. I think the whole shipping industry in Jersey will benefit especially from the opportunity to register commercial super yachts.”
European Union (EU) Commissioner for Trade Karel De Gucht has recently underscored the importance of the European Union-Korea Free Trade Agreement (FTA) in terms of boosting trade and reducing duties, one year after its signature.
Alluding to the fact that this is a crucial time for trade policy, as protectionism is on the rise and new trade liberalization is needed to boost flagging economies, De Gucht pointed out that the EU-Korea FTA is “the most advanced and ambitious free trade agreement that Europe has yet achieved, in terms of content and in terms of economic value”, noting that it is therefore of great importance to carefully and accurately assess the results of the accord.
While acknowledging that many of the ground-breaking regulatory provisions at the core of the agreement have yet to be implemented, that information is limited, and that trade figures around the world have fluctuated wildly in recent years as a result of the crisis, De Gucht nevertheless underscored the importance of getting a first sense of how this agreement is functioning so far, as this is of interest for shaping future trade policy.
In order to assess the impact of the FTA, EU trade with Korea was measured over nine months from July 2011 until March 2012, and the figures then compared to an average of the figures from the same months over the previous four years.
Highlighting the fact that “the news is good”, the EU Commissioner said that trade is up, and up significantly, noting that overall, Europe's exports to Korea have already increased by 35%.
Where liberalization has actually happened, the increase is even more impressive, the Commissioner explained, noting that duties were dropped on about a third of EU exports to Korea when the agreement entered into force last July and that sales of those goods have increased by 46%. For many other products – just under half EU exports - tariffs were only partially reduced, De Gucht added, while pointing out that even for those products EU exports are up by 36%. Overall those increases translate into almost EUR2bn (USD2.5bn) in new trade and EUR350m saved in duties.
Alluding to specific products, De Gucht said that the growth is more dramatic in the following areas:
According to De Gucht, even in economically tough times, trade deals are vital for boosting trade in both directions, and the EU agreement with Korea should be seen as the first in a series.
De Gucht explained that a free trade agreement with Columbia and Peru was signed recently, and that FTA negotiations with Vietnam have also been initiated. The agreement with Central America is due to be signed in Honduras shortly.
The EU Commissioner said that negotiations with Singapore and Canada are due to be finalized in the near future, while others, like India, Malaysia and Mercosur are also expected.
Alluding to a “step change” in the EU’s relations with two of its largest trading partners, De Gucht revealed that the Commission is due to decide in July whether to request permission from member states to open negotiations with Japan. At the end of the year, member states will have to decide whether to launch negotiations for a comprehensive agreement with the United States. Both of these processes are in their infancy, De Gucht stressed, while emphasizing that given the scale of the economic relationship, they have the potential to have an enormous economic impact.
Jersey should be prepared to rethink its relationship with the United Kingdom as a Crown Dependency, in response to aggressive tax policy from the UK government which has increasingly targeted the Channel Islands and soured ties, Jersey's Assistant Chief Minister has said.
In comments to the UK newspaper, the Guardian, Assistant Chief Minister Philip Bailache stated his belief that the island is being given "a raw deal" by the United Kingdom government. He said:
"I hope that the constitutional relationship with the UK will continue. But if it becomes plain that our interests in fact lie in being independent it doesn't seem to be that we should bury our head in the sand and say we're not going to do that."
"The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey's interest to do so."
The statement comes after the most recent damaging development between the island and the United Kingdom, in which tax planning arrangements in Jersey were publicly denounced by UK Prime Minister, David Cameron, as "morally wrong", after publicity of a well-known UK comedian's use of a scheme to mitigate UK income tax. The government has commenced a consultation on a General Anti-Abuse Rule, which would make it more challenging to market tax planning schemes to UK participants.
This follows a raft of controversial policies that have been introduced since the crisis. Prior to the recent publicity on tax avoidance schemes, the UK tax authority HM Revenue and Customs failed to adequately communicate changes to rules in relation to the tax-free transfer of UK pensions to overseas pension schemes. The proposals led to several territories introducing fresh pension scheme structures to comply with the incoming rules as they were understood at the time, only for many new and existing schemes to fail to achieve compliance. The rule change, which was particularly damaging for Guernsey, amended requirements so that pension funds can now only be transferred from the UK to another territory free of tax if they are transferred to a Scheme that is managed in the same territory as the expatriate's new country of residence - putting a stopper on a profitable industry for many financial centres.
Guernsey, which saw 99% of its domestic schemes wiped from the UK's list of Qualifying Recognised Overseas Pension Schemes, said at the time it felt "singled-out" by the UK. Seeking clarification, the government said at the time: “The current actions have been introduced without warning, lack transparency and appear discriminatory. Indeed, [the UK tax authority] HM Revenue and Customs seems to have set aside its own rules to meet an unpublished policy objective."
Earlier, in March 2012, the Channel Islands decided to legally challenge UK tax policy in relation to proposals to repeal UK Low Value Consignment Relief for Channel Islands exporters. The long-standing LVCR scheme allows goods to be imported into the UK from non-European Union territories for sale in the United Kingdom free from value-added tax providing they are priced at less than GBP15 (USD23). From April 1, 2012, the United Kingdom controversially removed the exemption for the Channel Islands, while the relief remains in place for exporters from other non-EU nations, in a move expected to decimate the islands' fulfilment industries.
As part of its tax-grab since the crisis, the UK government has also revised the terms of the Value-Added Tax sharing agreement with the Isle of Man, requiring the island nation to introduce new tax measures to counteract the tax shortfall.
In a recent blog post responding to the recent tax avoidance publicity, the Chief Executive of Jersey Finance, the promotional agency for the island's financial services industry, Geoff Cook noted that Cameron's comments are ironic on the basis that the Prime Minister acknowledged the importance of tax competition in the same week, with regard to French proposals to hike income tax for top earners to 75%. Cameron said: “If the French go ahead with a 75% top rate of tax we will roll out the red carpet and welcome more French businesses to Britain and they will pay taxes in Britain and that will pay for our health service, and our schools and everything else.”
UK tax law is extremely complicated, with Tolley's Tax handbook on the Code spanning 11,500 pages of explanation, Cook noted, adding that it is further complicated by the addition of tax incentivized schemes to encourage investments into key industries, which earn the United Kingdom billions of pounds. He noted in addition that historically there has been but a thin line on what constitutes aggressive tax avoidance in the United Kingdom. Cook noted: "When we buy duty free we are avoiding tax, invest in a pension or an ISA we are avoiding tax, accept a benefit in kind rather than cash, we are avoiding tax, run our affairs through a company utilizing dividends as opposed to paying income tax and national insurance we are avoiding tax, and so it goes on. Neither is tax avoidance the privileged domain of big business or high net worth individuals."
"Of course the difficulty with introducing morality into tax is one man’s tax planning is another man’s 'aggressive' tax avoidance."
Noting hypocrisy by the government, following the expenses scandal relating to UK MPs, Cook said that Cameron's comments regarding 'immorality' could well come back to haunt him as he opens the door to press scrutiny of Tory Party donors' tax planning arrangements. He noted also the findings announced by Danny Alexander, Chief Secretary to the Treasury to Parliament, that an HM Treasury Review had uncovered large scale public service tax avoidance.
Urging a more thoughtful response from politicians, Cook urged that the individual judgment of personal tax affairs should be "a matter for tax administrations and not the court of public opinion".
Guernsey's legislative assembly, the States of Guernsey, has unanimously approved a law that will repeal the island's deemed distribution regime from January 1, 2013.
The Income Tax (Zero 10) (Deemed Distributions) (Repeal) (Guernsey) Ordinance, 2012, provides for the repeal of the regime, which ensures that tax is paid on individuals' holdings in profit-making companies as their respective holdings appreciate. Under the regime, a 'deemed distribution' is presumed by the government and individual income tax is liable on the amount irrespective of whether a distribution has in fact been disbursed to the company shareholder.
The government prepared the law in expectation that the Council of the European Union Finance Ministers would approve a preliminary assessment from the European Union's Code of Conduct Group on June 22, 2012, confirming that, as in Jersey and the Isle of Man, the island's deemed distribution regime is 'harmful' and contrary to modern day international standards in the area of business taxation.
The Group, in respect of Guernsey, assessed that whilst the manner of operation of Guernsey's deemed distribution regime was 'quite different' to the deemed distribution and attribution regime for individuals previously present in Jersey and the Isle of Man (which it previously viewed as being harmful) its de facto effect is the same but with only a timing difference.
In support of the bill, prior to its adoption, Gavin St Pier, Guernsey's Treasury Minister, said: "The Code Group has already confirmed through precedent that a zero/10 regime without deemed distribution aspects is compliant through its previous assessment of Jersey and the Isle of Man. I am confident that repealing our deemed distribution regime swiftly and decisively is the right action to take and will result in our corporate tax regime being assessed as compliant with the EU Code of Conduct on Business Tax. The move will ensure that our corporate tax regime remains internationally acceptable and competitive and provide the necessary tax neutrality which is vital to safeguard the economic success of our finance industry."
The European Commission has recently set out its vision for greater fiscal union in the euro area.
In its statement, the Commission says: “We are in a defining moment for European integration and for the European Union (EU) as a whole. The lessons of the past have taught us that further integration within the euro area is indispensable to complete the economic and monetary union (EMU).”
It adds: “A fiscal union is one of the main building blocks required to ensure smooth functioning of our common currency. This new architecture would provide a clear vision of the future of the EU's Economic and Monetary Union and guide the reforms and decisions necessary for the euro area and its member states to tackle current challenges.”
The Commission highlights the fact that considerable progress on strengthening EU economic governance has already been made, notably in terms of the European Semester and the adoption of the so-called “six-pack” laws, aimed at strengthening the Stability and Growth Pact by increasing macroeconomic surveillance and providing for sanctions for those member states that deviate from the rules.
According to the Commission, the six-pack marks a major milestone in Europe's economic governance and crisis response as it represents a decisive step towards a functional framework to complement monetary union with a real economic union.
Turning its attention to new proposals, the Commission alludes to the “two-pack” laws, draft regulations that build on the “six-pack” rules by further strengthening the coordination of budgetary policy in the euro area.
The first draft regulation aims to further improve fiscal surveillance and budgetary monitoring and assessment by requiring euro area member states to submit their draft budgetary plans for the following year to the European Commission and the Eurogroup in October, along with the independent macro-economic forecasts on which they are based. This will allow the Commission to issue an opinion on such draft budgetary plans which will feed into the national budgetary debate, notably concerning the appropriate implementation of EU policy guidance.
In case a plan seriously breaches the EU fiscal rules, the Commission will ask the member state in question to present a revised draft budgetary plan.
The second draft regulation aims to improve surveillance of the most financially vulnerable euro area member states.
The "2-pack" is currently being scrutinized by both the European Parliament and the Council of Ministers. The Commission is working towards a fast approval of an ambitious version of its draft laws.
Other plans include implementation of the fiscal treaty, signed by twenty-five of the twenty-seven EU member states in March, and aimed at ensuring greater fiscal discipline. In accordance with the plans, if a country does not properly implement the new budget rules in national law and fails to comply with a European Court of Justice (ECJ) ruling that requires it to do so, the ECJ can impose financial sanctions.
The treaty is currently in the process of ratification by member states.
Other proposals currently under discussion and aimed at significantly deepening EMU include plans to issue European Stability Bonds to mutualize public debt.
The Commission states that:
“Recent years have seen an unprecedented strengthening of coordination of economic and fiscal policies at EU level. This has been accompanied by an expression of solidarity to support financially vulnerable euro area countries through the building-up of the euro area's firepower in the form of the EFSF, and the ESM (which should be effective in July).”
“The renewed intensification of the sovereign debt crisis demonstrates the need to build further on these achievements, and map out the main steps towards full economic union, to complement and strengthen the existing economic and monetary union, as the European Commission has advocated and implemented in the past years.”
“A fully-fledged economic union would require more decisions taken at European level when it comes to public expenditure, revenues and borrowing, and thereby a higher degree of political integration. This should obviously entail commensurate steps that ensure democratic legitimacy and accountability.”
The United States Internal Revenue Service (IRS) has announced that its offshore voluntary disclosure programmes (OVDPs) have collected more than USD5bn, and that it has tightened the eligibility requirements of the third programme it opened in January this year.
"We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore," said IRS Commissioner Doug Shulman. "People are finding it tougher and tougher to keep their assets hidden in offshore accounts."
Shulman added the IRS OVDPs have so far resulted in the collection of more than USD5bn in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programmes. In addition, another 1,500 disclosures have been made under the new programme announced in January.
The IRS reopened the third OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programmes. It will be open for an indefinite period, until otherwise announced. Unlike last year, there is no set deadline for people to apply, but its terms could change at any time in the future.
Under the current OVDP, the offshore penalty has been raised to 27.5% from 25% in the 2011 programme, but the reduced penalty categories of 5% and 12.5% are still available.
The IRS has also closed a loophole that has been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the US Justice Department of the appeal.
The IRS said that if the taxpayer fails to comply with this law and does not notify the US Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the OVDP. The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the US government has taken action in connection with their specific financial institution.
Liechtenstein lawmakers have unanimously voted in favour of a bill providing for the creation of a law on alternative investment fund managers (AIFML) during a first reading.
According to the Liechtenstein government, the bill, which presents “an outstanding combination of European Economic Area (EEA) legislative transposition, investor protection and market promotion for the fund industry”, was enthusiastically welcomed by all members of parliament.
The law, described as flexible and modern, is designed to strengthen the fund industry in Liechtenstein and position the jurisdiction internationally as a recognized fund centre, enabling it to generate sustainable growth.
Under the legislation, there will be a limited licensing obligation for small funds, while the so-called business partner model will be created for administrators, risk managers, investment fund distributors and prime brokers.
A wide variety of existing Liechtenstein-based service providers, including trustees, asset managers, auditors, and lawyers, are available for all these activities and the tasks of a depositary, which every AIFM has to appoint for the funds.
The government is expecting international acceptance of the legal framework to boost Liechtenstein's reputation as a business centre and lead to the creation of new jobs.
As a business location, Liechtenstein already offers a wealth of appealing factors when it comes to setting up new businesses, such as legal certainty, EEA membership, links to the Swiss economic area, a high level of expertise in the asset management industry, a supervisory authority which is recognized internationally and in Europe as well as an attractive tax system that complies with international standards.
Commenting on the bill, Liechtenstein’s Prime Minister Klaus Tschütscher said that: “Within the framework of the ongoing project 'Fund Location Liechtenstein' further efforts are to be made to promote the attractiveness of the location and, in particular, to develop and extend its quality.”
Tschütscher added: “Given Liechtenstein's geographical location, there is especially scope for bridge-building with Switzerland, the synergy effects of which could benefit both sides”.
Tschütscher also stated that legislative process had already succeeded in stimulating considerable interest, including some businesses who are seriously thinking about relocating.
Austria’s Finance Minister Maria Fekter has recently underlined the key role of the country’s financial police in enforcing payment of due taxes and thereby ensuring tax justice in Austria.
Alluding to the fact that the financial police now play a pivotal role in intensive efforts to combat the problem of social fraud and tax avoidance in Austria, Fekter stressed that combating fraud necessitates criminological analysis, which the ministry said is both “intensifying and optimizing”.
Highlighting specifically the resounding successes recorded by the financial police in clamping down on the non-payment of due taxes in the catering industry (cases of undeclared work, the illegal employment of foreigners, as well as trade law violations), the Austrian finance ministry warned that anyone with outstanding tax debts will in future face a visit from a team from the financial police.
According to the finance ministry, during the course of the visit the financial police will conduct a full review of employees and databases, and demand any outstanding contributions. The team may also impound any valuables, the ministry added.
The procedure involving the financial police is designed to ensure greater tax justice and to have a preventative effect to improve tax compliance, thereby protecting and securing tax revenues.
Invest Hong Kong (InvestHK) has announced that, in the first half of 2012, it assisted more than 200 overseas and Mainland Chinese companies to set up or expand in Hong Kong, up 5.6% from a year ago.
Its Director-General of Investment Promotion, Simon Galpin, confirmed that he was encouraged by the interim results, noting that they showed continued strength in inward investment into Hong Kong, despite fears about the global economy.
Galpin remained optimistic that InvestHK will be able to meet the annual target for this year, although he noted that the extent of the impact from the global economy on Hong Kong for the rest of 2012 and into 2013 is still to be seen.
The investing companies in the 209 completed projects in the first six months of this year came from 32 countries, with the Mainland the largest single source of investment into Hong Kong, with a total of 38 completed projects, followed by the US (37), Japan (22), the UK (18) and Germany (12). Those companies planned to employ 1,857 people in Hong Kong for their first year of set up or expansion, up 7.3% from a year ago.
Tourism and hospitality, transport and industrial, and financial services, were the top three sectors. By subsector, Hong Kong’s opportunities in the first half of 2012 proved most attractive to companies in asset management, software solutions and design services.
That was said to reflect both the traditional strengths of Hong Kong as a financial hub and recent trends, such as the increasing number of Mainland companies using Hong Kong-based companies to help them ‘go global’.
It was added that Hong Kong’s international business hub status continues to make it an ideal location in terms of attracting a broad spectrum of companies. In April, InvestHK assisted Nissan Infiniti’s global headquarters opening in Hong Kong. Infiniti joined multinationals like General Electric and Schneider Electric which have based part or all their global functions in the city.
At the other end of the scale, Hong Kong also remained a magnet for entrepreneur-led start-ups from overseas, which are attracted by the city’s ready pool of talent, simple business procedures and position as the financial and business capital of Asia Pacific.
Jamaica's Minister for Finance and Planning, Dr Peter Phillips has warned Caribbean financial institutions to prepare for the implementation of the United States' Foreign Account Tax Compliance Act (FATCA), at a recent conference dedicated to the subject held in Kingston.
At a recent conference dedicated to the subject held in Kingston, Phillips told attendees: “We are still at an early stage in the implementation of FATCA. My impression is that the final regulatory arrangements are still not clear, even in the mind of the US authorities, but nevertheless, we understand the asymmetries of power and influence that exist, and I think it is important that we be prepared here.”
FATCA, which was enacted in 2010 by the US government as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in the US’ efforts to combat tax evasion by US taxpayers with investments in offshore accounts. The Act is of particular significance as it places an obligation on foreign or non-US financial institutions to report to the US Internal Revenue Service (IRS) information about financial accounts held by US taxpayers, including entities in which the US taxpayer holds a significant ownership interest.
A participating Foreign Financial Institution (FFI) will have to enter into an agreement with the IRS to provide the name, address and taxpayer identification number (TIN) of each account holder who is a specified US person; and, in the case of any account holder which is a US-owned foreign entity, the name, address, and TIN of each substantial US owner of such entity. The account number is also required to be provided, together with the account balance or value, and the gross receipts and gross withdrawals or payments from the account.
Under the timeline provided by the IRS and US Treasury, an FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
Phillips said for Jamaica's part, the government would be putting in place several measures shortly to help institutions prepare for FATCA’s implementation. This will include the Bank of Jamaica carrying out a risk assessment on its licensees to determine the state of readiness of these entities and their systems.
The Minister welcomed talks ongoing between US authorities with the United Kingdom, France, Germany, Italy and Spain, to ease the compliance burden attached to the FATCA, potentially through a centralized body in each nation for dealing with the information exchange requirements under the Act. A total of 40 additional nations are thought to be interested in joining such an agreement to ease the substantial financial burden the Act is to have on financial institutions, including those without US accounts. “If this proves possible, financial entities will be relieved of some liabilities particularly if reporting is done through the local central authorities who would be empowered to receive this information,” Phillips said.
“Even as we make our efforts, whether on the basis of bilateral interventions with the United States, or in partnership with other Caribbean countries, we will be strenuously seeking to ensure that there is no unfair advantage faced by Jamaican financial institutions," Phillips added. "Equally, the message must be that we are facing an increasingly stringent global regime of tax compliance and we need to put our house in order in this regard,” he emphasized.
He said non-compliance with the regulations may not be an option: “If we choose simply to ignore it, it will render the financial institution ultimately liable to the withholding on all income, including gross proceeds of investment transactions sourced to a US asset at a 30% rate. So essentially, you will be foregoing 30% of all your income flows."
Warning regional financial institutions to begin considering the impact of FATCA on their business, Phillips said: “There are several important risks that arise as a consequence of this for local financial institutions. There are the legal risks relating to the unauthorized disclosure of customer information; legal risks relating to withholding and or closing customers’ accounts; there are the operational costs and risks relating to retrospective and additional due diligence and data transmission measures; and there are the risks related to the withholding on a foreign financial institution’s US income payments and possible closure of that foreign financial institution’s US accounts.”
During a media interview, Economic Development Minister Corrado Passera has underlined that no headroom exists for a wealth tax in Italy, or any other large new tax, after taxation on assets was increased by last December’s introduction of IMU, the new unified property tax.
“The taxation introduced within the ‘Save Italy’ budget had the objective of imposing a clear and transparent levy on property assets,” he said, “trying, at the same time, to reduce its impact as far as possible on smaller property owners.”
He did not therefore believe that “another large tax" was appropriate. "The tax burden is already very high, and (the government) does not see room for further taxation.”
In addition, Passera confirmed that the government’s current target is to find, by way of the on-going public spending review, sufficient resources to avoid the automatic second increase in the rate of value-added tax which could still occur in October this year, and would have a further recessionary effect.
However, he was more cautious on the government’s capacity to reduce tax burdens. “To cut taxes on those who pay them is an objective that we have,” he concluded. “But it is not thinkable in the near future.” He said that, to cut tax burdens, it will firstly be necessary to reduce tax evasion and to stimulate growth in the economy, thereby creating the conditions for obtaining more tax revenue.
The UK's creative industries are set to benefit from new "world class tax breaks" unveiled by Chancellor of the Exchequer George Osborne in a move designed to encourage innovation and investment.
According to Osborne, the reliefs will be among the most generous in the world, and will build on the success of the UK's existing Film Tax Relief. The government is now consulting on plans announced in Osborne's 2012 Budget, which outlined proposals for tax reliefs targeted at animation, high-end television and video games.
In aiming to establish the UK as the technology centre of Europe, the government hopes that the tax breaks will support technological innovation and ensure that creative industries continue to contribute to economic growth.
Subject to European Union State aid approval, these corporate tax reliefs will enter into force from April, 2013. The government is keen to repeat the boost generated for the film industry, where tax reliefs provided around GBP95m (USD150m) of support and helped over GBP1bn of investment in 208 films in 2009/10.
The consultation invites views from individuals, companies, and representative and professional bodies on the proposed design options. In particular, the government wishes to hear from production companies and those working directly in the production of video games, animation and high-end television.
A separate consultation on the design of suitable cultural tests for each of these reliefs will be launched in the autumn. The tests will identify culturally British works that are to be considered eligible for the new tax reliefs in line with the European Commission’s rules on State aid. In the meantime, discussions will continue with industry-focused working groups and the European Commission.
Osborne explained the government's initiative: “I want the UK to remain a world leader in the creative industries, that’s why I am announcing tax reliefs that will be among the most generous available anywhere. High-end TV, animation and video games production are exactly the kind of innovative, high-tech industries at which this country excels, and the government is determined to support them as part of our efforts to grow this economy.”
Reacting to the news, Rachel Austin, Deloitte tax director, said: “The aim of the proposed relief to support a sustainable creative industry with a world class skills and talent base in the UK will be welcomed by the industry. However, given the long lead time for productions in these sectors, companies need to know the value of the proposed reliefs as soon as possible to start building it into their planning processes. If the government sets the rate of relief at the right level, the proposals will increase the UK’s competitiveness in these sectors encouraging additional investment in the UK and discouraging UK companies from producing culturally British content in countries that already offer incentives such as Ireland, Hungary and France."
The consultation remains open until September 10, and the government will publish draft legislation for further consultation in the autumn.
The Swiss Private Bankers Association has recently published details of its 2011 annual report, outlining the major challenges currently facing the Swiss financial centre, particularly in the area of tax, regulation and financial market access.
In its report, the SPBA highlights the fact that the wealth management sector is currently confronted with "unprecedented" challenges, notably with regards the fiscal and regulatory framework.
According to the association, tax issues were of primary concern for institutions in the period under review (May 2011 to May 2012), and will continue to remain so as a number of issues are far from being resolved.
Alluding to the bilateral tax deals concluded between Switzerland and the UK, Germany and Austria recently, the SPBA emphasizes that implementation of these agreements within the specified timeframe will demand “colossal efforts” from Swiss banks, in particular from the country's smallest institutions.
The SPBA points out that the government’s policy of exchanging information in tax matters, agreed back in March 2009, also entered the implementation phase, noting that almost forty new double taxation agreements have so far been negotiated and that the first treaties have already entered into force.
The association warns, however, that the standards now appear to be subject to a dynamic beyond national control, explaining that the admission of grouped requests based on behavioural patters will be the next important development in this area.
Developments in the European Union (EU) arising from the financial crisis and relating to increased financial supervision have forced Switzerland to adapt its national regulations accordingly to ensure that its operators are not cut off from their principal foreign markets and to ensure a level playing field, the association adds.
Confronted with these profoundly mutating framework conditions, Swiss banks have been asked “to reinvent” themselves, the SPBA reveals, explaining that the Swiss Financial Market Supervisory Authority has called on financial institutions to change their business model, without providing the necessary guidance to facilitate the transition.
The SPBA criticizes the Federal Council for endeavouring to develop at national level its “white money strategy”, a new financial market policy geared towards the management of taxed assets. The association stresses that the sector is already subject to external pressures, without new domestic pressures being imposed on them from the government, warning that this will adversely affect competitiveness.
Wealth management forms the backbone of the Swiss financial centre.
According to a report published last year, the private banking and asset management sectors generated gross revenue in 2010 of CHF31.4bn (USD33bn), representing 53.5% of the total income of banks in the Confederation.
With 43.6% of this total, private banking remains by far the main pillar of banking activities, a pillar that is largely dependent on foreign clients. The study showed that three quarters of assets managed by Swiss banks in this sector alone are held by foreign nationals.
With a share of the market of 27%, Switzerland remains the largest cross-border private wealth management market, albeit only slightly ahead of the UK and its satellites (26%), and the US (20%).
South Korea and Colombia are expected to formally announce the conclusion of free trade talks after the G20 summit, which kicked off on June 18 in Mexico.
The agreement is expected to be signed on June 25, 2012, when Korean President Lee Myung-bak visits Bogota, Colombia. Negotiations towards the agreement have progressed briskly, with a total of eleven rounds of negotiations held since talks were initiated in 2009.
The agreement, South Korea's third with a Latin American nation, will be particularly beneficial for Korea's vehicle and electronic goods manufacturing industries, which are currently subject to substantial tariffs in Colombia.
For Colombian exporters, the agreement will gradually reduce tariffs on food, coffee and metals, which constitute the bulk of Colombian exports to Korea.
Hong Kong’s Financial Secretary, John C Tsang, and Macao’s Secretary for Economy and Finance, Tam Pak-yuen, co-chaired the recent Fifth Hong Kong Macao Co-operation High Level Meeting in Macao to review the progress and future direction of co-operation between the two places, particularly in environmental, taxation and financial matters.
In reviewing the achievements made in Hong Kong-Macao co-operation, Tsang said: "Since the establishment of the Hong Kong-Macao liaison officers' mechanism in 2008, co-operation and exchange between the two sides have been increasing both in depth and breadth … Hong Kong and Macao have been working hand in hand to promote regional development and implement projects that have a synergy effect."
For example, it was said that the two governments' efforts in promoting regional environmental protection have been “bearing fruit.” As emissions from marine vessels have become one of the largest sources of air pollution in the region, representatives from both sides agreed at the meeting “to study the initiative of imposing in parallel a requirement for ocean-going vessels berthing in Hong Kong and Macao waters to switch to low-sulphur fuel, with a view to transforming regional waters into areas with advanced technology and quality green ports.”
With regard to the avoidance of double taxation and the exchange of tax information, the two sides said they hoped to resume discussions as soon as possible, “when the relevant legal frameworks of the two places are ready to enable the discussion to proceed further.”
Tsang also stressed that one of the key factors in Hong Kong-Macao co-operation “is to complement each other's strengths and promote co-ordinated development," adding that China’s 12th Five-Year Plan emphasises the national support for enhancing Hong Kong's status as an international financial centre.
“Under the principle of mutual benefits,” he added, “we proposed to the Macao government and the Monetary Authority of Macao at the meeting to capitalise on the financial platform in Hong Kong to make long-term investments so as to maintain and enhance the value of the fiscal reserves of Macao. The Macao side welcomed the proposal and indicated that they will actively consider it."
Switzerland’s Federal Council has recently adopted a package of measures designed to strengthen the Confederation’s banking centre.
As a result of the total revision of the Capital Adequacy Ordinance, banks will have to comply with the new rules (Basel III) of the Basel Committee on Banking Supervision from January 1, 2013.
Furthermore, big banks whose failure would do considerable harm to the Swiss economy will have to comply with supplementary capital and risk diversification requirements in the future, as well as present an effective emergency plan to the supervisory authority.
The package also contains two immediate measures that will introduce a mechanism for activating a countercyclical buffer and impose more risk-oriented requirements for the capital underpinning mortgage lending.
The regulatory framework referred to as Basel III, which was developed by the Basel Committee on Banking Supervision, will be written into Swiss law with the rewrite of the Capital Adequacy Ordinance.
Banks will have to hold better quality capital. They will have to hold minimum capital representing 8% of risk-weighted assets (RWA) as well as an additional capital buffer of 2.5% of RWA, whereby 7% must be comprised of common equity Tier 1 (essentially share capital and reserves). This will improve their ability to bear losses during difficult times. Moreover, the new risk diversification rules should limit interconnectedness within the banking sector and reduce dependence among banks, particularly systemically important banks.
At the same time, the revision implements the supplementary requirements for systemically important banks resulting from the amendment of the Banking Act of September 30, 2011 ("too big to fail").
The higher capital requirements apply in parallel to the Basel III requirements. They consist of a basic component representing 4.5% of RWA and a capital buffer of 8.5% of RWA. Each bank has to fulfil both components with at least 10% common equity Tier 1. 3% can be in the form of contingent convertible bonds (CoCos), that is debt capital that is converted into equity capital in the event of the bank experiencing a crisis or which the creditor has to forgo without receiving any compensation.
Then, as an additional requirement, systemically important banks must hold a progressive component that depends on the total assets and market share of the bank in question.
Alongside the risk-based capital requirements, banks must also meet the leverage ratio requirements. In this regard, a bank's equity may not fall below 4.56% of total exposure, consisting of the balance sheet total and certain off-balance sheet items (capitalization as at year-end 2009). It is planned that the supplementary requirements will be phased-in up to 2018.
Finally, systemically important banks also have to use an emergency plan to demonstrate to the Swiss financial market supervisory authority FINMA how they can ensure that functions that are systemically important for Switzerland are maintained in the event of threatened insolvency. These rules are set out in the amended Banking Ordinance, which should enter into force together with the new Capital Adequacy Ordinance on January 1, 2013.
The ordinance provisions for systemically important banks still have to be approved by parliament beforehand.
The adopted banking package also contains two measures to be implemented immediately in the currently applicable Capital Adequacy Ordinance.
One of the measures will establish the basis for the so-called countercyclical buffer with which banks can be required to hold a higher amount of capital of up to 2.5% of RWA in order to boost their resilience in the event of excessively strong credit growth or to counter excess credit growth. When the conditions are met, the Swiss National Bank consults FINMA and then instructs the Federal Council to activate the buffer.
The other measure requires banks to hold more capital for underpinning residential mortgage lending if the borrower does not contribute a minimum sum from a source other than occupational benefits provision (second pillar) and does not repay the mortgage principal in an appropriate manner. Banks define the minimum requirements for mortgage lending in their self-regulation provisions, which are to be recognized by FINMA as a minimum standard.
FINMA has also recognized the banks' corresponding self-regulation provisions. Accordingly, the minimum sum from a source other than occupational benefits provision (second pillar) is 10% of the collateral value. Similarly, the mortgage debt on residential properties is to be repaid such that it amounts to no more than two-thirds of the collateral value after 20 years.
Luxembourg’s Economy Minister Etienne Schneider has recently conducted a working visit to Lebanon to promote economic relations between the two countries.
During the course of his visit, the Luxembourg minister held talks with Lebanon’s President Michel Sleimane, with Lebanon’s Prime Minister Najib Miqati as well as with Lebanon’s parliamentary president Nahbi Berri.
While highlighting the excellent existing relations between Luxembourg and Lebanon, Economy Minister Schneider discussed various ways in which to further develop economic and commercial ties between the two countries.
During the course of the discussions, it emerged that the bilateral double taxation agreement (DTA) between Luxembourg and Lebanon could be concluded shortly, as Lebanon is confident of reaching a consensus on the issue of information exchange.
According to the Luxembourg finance ministry, certain areas of cooperation, in particular logistics, the banking and financial sector, as well as civil engineering and construction merit being further strengthened in the years ahead.
The Jersey Financial Services Commission has reported particularly strong performance from the island's fund sector during the first quarter of 2012, with a 3.5% increase in the net asset value of funds under administration, and funds registered reaching 1,412, the highest figure recorded since 2009.
According to statistics from the Commission, the net asset value of funds under administration increased to GBP196.2bn (USD303.9bn).
The total number of unregulated funds, geared towards sophisticated, professional and institution investors, also increased by an impressive 8.5%, with a total of 13 new funds being established during the first quarter.
The value of total funds under investment management increased at a lesser rate of 0.9%, growing from GBP20.8bn to GBP21bn.
Finally, the total number of live companies in Jersey at the end of March 2012 was 32,816, with 646 new companies formed during the quarter, the Commission reported.
A new report from the OECD makes numerous recommendations to German decision makers on energy tax reform measures, to limit the amount of carbon, energy and resources Germany uses to grow its economy.
On policies introduced to-date, the OECD commended the stringent environmental requirements now in place, which have caused Germany to become a leader in the environmental goods and services sector. The sector is expected to be worth up to EUR300bn (USD375bn) by 2020 and become an increasingly important source of economic growth and jobs for Germany.
In launching the report on future measures, the OECD's Environment Director, Simon Upton said: “New sources of green growth can play an important part in the recovery from the current economic and financial crisis. In this, Germany is leading the way.”
The report notes that German environmental tax policy dates back to 1999-2003, and could be updated to improve the regime's efficacy. The reform introduced a tax on electricity consumption and gradually increased the excise duties on fossil fuels. Revenues collected have contributed to a reduction in social security contributions, while providing incentives for companies to reduce their carbon footprint.
Estimates indicate that this mechanism has helped reduce energy consumption and greenhouse gas emissions, while having positive employment and economic effects. The OECD points to a number of design features which have, however, reduced the effectiveness of these reforms:
The report says that Germany should ensure that taxes are consistent with the environmental externalities of fuel use. The report notes that in most countries, diesel is taxed at a lower rate than petrol, despite its higher carbon content and the higher levels of local air pollutants it generates. Energy taxation and the EU ETS should be better combined to provide an effective and consistent carbon price signal across the economy, so as to avoid gaps and double regulation between the ETS and non-ETS sectors, the report says.
The report also suggests that Germany's tax regime in respect of vehicles is ineffectively designed. The report says that a patchwork of conflicting economic measures apply to vehicles, and recommends that taxation should be revised to provide a more coherent set of incentives for vehicle owners to purchase and use more environmentally-friendly models.
The report says that Germany's comparatively low tax burden on the purchase of cars provides a relatively weak incentive at present, for the purchase of low-emission vehicles. Furthermore, the OECD has said that the tax treatment of company cars undermines the nation's vehicle tax policies. The report did however commend German policies on heavy goods vehicles, which through the application of emission-based highway tolls, has helped increase the uptake of low-emission freight vehicles. This should be extended to light duty vehicles and passenger cars, the report recommends, to provide similar environmental benefits.
Lastly, the report says that subsidies in place that counteract the impact of energy taxes are significant, amounting to 1.9% of gross domestic product in 2008, representing a considerable loss of revenue for the public budget. The report notes that progress has been made in reducing direct subsidies to coal production and other tax breaks, but warned that remaining support measures may run counter to national climate policy objectives.
The report recommends that Germany should consider establishing a mechanism to systematically screen existing and proposed subsidies against their potential environmental impact, with the goal of phasing out environmentally harmful and inefficient subsidies. Extending the use of market-based instruments, including green taxes, and reforming environmentally harmful subsidies could make the tax system more growth-friendly, would contribute to maintaining a balanced budget, and would help achieve environmental goals more cost-effectively, the report concludes.
It has been announced that the agreement for the avoidance of double taxation (DTA), signed between Hong Kong and Portugal on March 2, 2011, came into force on June 3 this year, after the completion of ratification procedures on both sides.
The DTA determines the allocation of taxing rights between Hong Kong and Portugal and the relief on tax rates on different types of passive income. It is designed to help investors better assess their potential tax liabilities from cross-border economic activities, foster closer economic and trade links between the two countries, and provide added incentives for companies from one country to do business or invest in the other.
Under the agreement, the withholding tax rate on dividends received from Portugal is cut to 10%, and will be further reduced to 5% if the beneficial owner of the dividends is a company (other than a partnership) holding directly at least 10% of the capital of the company paying the dividends.
In addition, the Portuguese withholding tax on interest will be capped at 10% and the Portuguese withholding tax on royalties will be capped at 5%.
Hong Kong airlines operating flights to Portugal will be taxed at Hong Kong's corporation tax rate, which is lower than that of Portugal; and profits from international shipping transport earned by Hong Kong residents that arise in Portugal, which are currently subject to tax there, will not be taxed.
The agreement, which also incorporates the internationally-agreed Organization for Economic Co-operation and Development standard on the exchange of tax information, will be in effect in Hong Kong for any year of assessment beginning on or after April 1, 2013.
Suggesting that the jurisdiction's tax system is no longer fit for purpose in the 21st century, Bahamas Finance Minister Perry G. Christie has announced a root-and-branch review of taxation.
"There is an emerging national consensus that the Bahamian tax system is simply inadequate to meet the needs of a modern 21st century society," Christie said in his 2012/13 Budget speech last month.
"My Government will therefore launch an extensive review of the Bahamian tax system with a view to proposing alternative means of taxation that address the problems of the current system while providing the government with a stable, buoyant and adequate source of revenue to meet its governance obligations to the Bahamian people," the Finance Minister explained.
Legislation will be introduced to establish a council of economic advisors, Christie said, adding that the role of the council will be to develop policy recommendations for the government on the major issues pertaining to economic growth and stability, including tax reform.
Also, in an effort to stimulate the real estate market, Christie announced that the government would make good on its commitment to lower the maximum rate of stamp duty on land sales from 12% to 10%, and will also re-introduce a maximum cap on real property tax.
The Beijing office of China’s State Administration of Taxation (SAT) appears to have jumped the gun by announcing that it has received government approval to be the next city to trial the pilot scheme to replace the existing business tax on the country’s service sector with value-added tax (VAT). There is no confirmation of when the trial in Beijing will begin, but it has been widely expected, after Shanghai began the reform on January 1, this year, that it would be extended subsequently to Beijing on July 1.
The pilot scheme imposes VAT, rather than business tax, on selected service industries, such as transport. VAT was previously only imposed on manufacturing companies. The move is part of a plan to amalgamate all forms of China’s turnover taxes into VAT over the long-term.
The imposition of VAT is expected to reduce the tax burden on the service sector, as business tax is calculated on a firm’s gross revenues, rather than only on added value. It should also avoid double taxation issues in that sector, whereby, currently, some products have been subject to VAT after manufacture, and then business tax when sold.
It is hoped that the reduced taxation will go some way to help smaller firms in the Chinese services sector that have been greatly affected recently by increased costs and restricted credit. According to SAT’s calculations, the replacement of business tax with VAT could result in reduced tax revenue of more than RMB100bn (USD15.75bn), create 700,000 new jobs, and produce a 0.5% and 0.7% growth in China’s gross domestic product and exports, respectively.
In the pilot scheme in Shanghai, the government has introduced two new 11% and 6% VAT rates for the services sector, compared with the current normal VAT rates of 17% and 13%. The transport industry in Shanghai pays the higher 11% rate.
It is not yet known, and Beijing’s SAT office did not disclose, exactly which service industries will be included in Beijing’s scheme, and which of the tax rates each will pay.
As it pursues its long-term aim of developing the Chinese services sector, the government has indicated that it will speed up the pace of the VAT reforms, with some further cities and provinces being included later on this year, possibly, October 1, and others waiting until the beginning of next year.
It is reported that, apart from Shanghai, applications have been made by ten cities and provinces to take a part in the VAT pilot scheme – Beijing, Chongqing, Shenzhen, Tianjin, Xiamen, as well as five provinces.
The private sector-led Hong Kong-London Forum, which was established in January this year to promote closer collaboration between Hong Kong and London in support of the wider international use of the renminbi (RB), held its first meeting on May 22, 2012.
The meeting was attended by senior representatives from the Hong Kong and London offices of Bank of China, Barclays, Deutsche Bank, HSBC, JP Morgan, RBS and Standard Chartered. The Hong Kong Monetary Authority (HKMA) and the UK Treasury acted as facilitators.
It was stated that the Forum’s participants reviewed recent developments in international RMB business in both financial centres and noted the growing synergies between them. They discussed the opportunities for the private sectors in Hong Kong and London arising from the wider use of the RMB for business and financial transactions, following the liberalization measures enacted by the Mainland Chinese authorities supporting use of RMB for trade settlement, direct investment and portfolio investment.
The Forum agreed to take action to enhance support for corporate customers wishing to settle their two-way trade with Mainland China in RMB. The participants noted that RMB trade settlement activities have been generating a significant flow of RMB funds to the international market, and continued expansion in this area of business will provide an important impetus for the further development of the pool of RMB liquidity in Hong Kong and London.
It was also agreed to take fuller advantage of the extended operating hours of the RMB Real Time Gross Settlement system in Hong Kong (from 08:30 to 23:30 Hong Kong time) and expand cross-market interbank funding activities between Hong Kong and London. This will help enhance the liquidity of the offshore RMB market and the flows of RMB funds between Hong Kong, London and other markets around the world, helping to ensure a single integrated pool of liquidity is maintained.
In addition, the participants will closely monitor the evolution of foreign exchange (FX) settlement risk in the international RMB market. While they did not believe this represented an immediate constraint on the market's development, they agreed to explore now how global best practice in managing FX settlement risk could best be applied.
To further improve the scope, efficiency and transparency of the offshore RMB market as a whole, they agreed to develop improved pricing benchmarks and bond indices; to work with inter-dealer brokers to boost the liquidity of existing and new products; and to engage with the relevant trade bodies to ensure consistent global standards for RMB product documentation.
The next meeting of the Forum is to be arranged in London in Autumn 2012.
The Panamanian government has increased the government tax for Panama Companies and Private Interest Foundations Effective May 9, 2012, all new companies must pay US0 at the moment of incorporation instead of the usual US0; the annual government tax after the first year remains unchanged at US0. The first annual tax for Panama Private Interest Foundations increases from 0 to US0 at the moment of incorporation and every year thereafter will increase to US0 yearly.
All companies that do not pay its annual maintenance fee for two consecutive years will incur on a penalty of US0.00 in addition to the current penalty of US for each year of non-payment.
Non-profit associations, Unlimited Liability Companies and unregistered Trusts will continue to be exempt from the flat tax. All entities will continue to be exempt of Panama income tax on transactions sourced outside of Panama and interest earned from bank accounts.
China has continued to emerge as the preferred location for hedge fund firms investing in Asia, while the number of Asia-focussed hedge funds is approaching the record number set just before the global economic crisis, according to new data from Hedge Fund Research (HFR).
HFR's data shows that 30% of hedge funds investing in Asia are headquartered in China, a substantial increase since the first quarter of 2009 when 20% of these funds were China-based.
Globally, China trails only the US, UK and Switzerland as the preferred location for hedge funds worldwide, ahead of both Canada and France by number of hedge funds. In the Asian region, Singapore is the second-most preferred location for Asian-focused funds, with nearly 10% of funds located there, followed by Australia and Japan, respectively.
The number of active Asia-focused hedge funds increased to 1,101 in the first quarter of this year, approaching the record number of 1,107 Asia-focused hedge funds set in the fourth quarter of 2007. Total capital invested in the Asian hedge fund industry increased by over USD4.5bn since the end of 2011 to USD86.6bn to end of the first quarter this year.
“It is difficult to overstate how important the ability for investors to access Asian markets and investors as an integral component of the growth of the global hedge fund industry in coming years,” stated Kenneth J. Heinz, President of HFR. “China will continue to emerge as the capital of the Asian hedge fund industry, representing integral access to specialized local expertise and insight of Asian markets as sophisticated hedge fund strategies evolve to operate in these markets. As this occurs, funds operating in Hong Kong, Shanghai and Singapore will be as relevant and significant to investors as those operating in New York, London and Zurich.”
Hedge funds investing in Emerging Asia posted industry-leading gains to start 2012, with the HFRI EM: Asia ex-Japan Index gaining 7.4% in the first quarter of this year, the best start for the index since 2006 when it gained 12.3%.
The HFR index of Emerging Asia hedge funds easily outperformed Chinese equity markets by over 450 basis points for the first quarter of 2012 following a volatile 2011 which saw the HFRI Asia Index decline by 18.08%. In contrast, while the HFRX Japan Index gained 5.2% for Q1 2012, it trailed the strong quarterly gain of 19.2% for the Nikkei 225.China has continued to emerge as the preferred location for hedge fund firms investing in Asia, while the number of Asia-focussed hedge funds is approaching the record number set just before the global economic crisis, according to new data from Hedge Fund Research (HFR).
HFR's data shows that 30% of hedge funds investing in Asia are headquartered in China, a substantial increase since the first quarter of 2009 when 20% of these funds were China-based.
Globally, China trails only the US, UK and Switzerland as the preferred location for hedge funds worldwide, ahead of both Canada and France by number of hedge funds. In the Asian region, Singapore is the second-most preferred location for Asian-focused funds, with nearly 10% of funds located there, followed by Australia and Japan, respectively.
The number of active Asia-focused hedge funds increased to 1,101 in the first quarter of this year, approaching the record number of 1,107 Asia-focused hedge funds set in the fourth quarter of 2007. Total capital invested in the Asian hedge fund industry increased by over USD4.5bn since the end of 2011 to USD86.6bn to end of the first quarter this year.
“It is difficult to overstate how important the ability for investors to access Asian markets and investors as an integral component of the growth of the global hedge fund industry in coming years,” stated Kenneth J. Heinz, President of HFR. “China will continue to emerge as the capital of the Asian hedge fund industry, representing integral access to specialized local expertise and insight of Asian markets as sophisticated hedge fund strategies evolve to operate in these markets. As this occurs, funds operating in Hong Kong, Shanghai and Singapore will be as relevant and significant to investors as those operating in New York, London and Zurich.”
Hedge funds investing in Emerging Asia posted industry-leading gains to start 2012, with the HFRI EM: Asia ex-Japan Index gaining 7.4% in the first quarter of this year, the best start for the index since 2006 when it gained 12.3%.
The HFR index of Emerging Asia hedge funds easily outperformed Chinese equity markets by over 450 basis points for the first quarter of 2012 following a volatile 2011 which saw the HFRI Asia Index decline by 18.08%. In contrast, while the HFRX Japan Index gained 5.2% for Q1 2012, it trailed the strong quarterly gain of 19.2% for the Nikkei 225.
The British Virgin Islands (BVI) government has completed the first phase of implementing amendments to the Business Companies Act, set to be introduced later this year.
According to Ogier BVI, the BVI Business Companies (Amendment) Act 2012 was recently tabled for a first reading by the nation's House of Assembly, and the Business Companies Regulations, 2012, have recently been published in the BVI's Official Gazette.
The Act and the Regulations are not yet in force under BVI law as the Act itself remains subject to a number of readings and reviews.
Areas to be affected by the revised Act and Regulations include:•Listed companies;
•Voluntary liquidations and voluntary liquidators;
•Involuntary dissolution and striking off of a company;
•The mechanics of security registration;
•The passing of directors written resolutions; and,
•The choice of company names.
“The proposed changes are not viewed as being substantive or controversial and [are being] introduced to further enhance the BVI's leading position as an international corporate domicile,” Ray Wearmouth, Managing Partner, Ogier BVI, commented.
The Registrar of Companies, Ada L L Chung, has announced that the capital duty currently levied on Hong Kong companies will be abolished from June 1, 2012.
Capital duty is currently levied in Hong Kong on a company having a share capital at a rate of HKD1 for every HKD1,000 (USD129) or part thereof, subject to a cap of HKD30,000 per case, on the amount of nominal share capital for registration of a company, an increase in the nominal share capital after incorporation, and the amount of premium for an issue of shares at a premium.
The abolition of the capital duty has been implemented by the Companies Ordinance (Amendment of Eighth Schedule) Order 2012. The Order was made by the Secretary for Financial Services and the Treasury, Professor K C Chan, to implement the Financial Secretary's proposal in the 2012-13 Budget to abolish capital duty levied on local companies.
"The abolition of the capital duty aims to enhance Hong Kong's attractiveness as a company domicile and our competitiveness as an international business centre. We are pleased that the legislative process has been completed and local companies will benefit from the initiative," Chung commented.
The amendments will be applicable to companies which lodge the relevant specified forms with the Companies Registry on or after June 1.
Russia's new President, Vladimir Putin has dismissed calls to delay the nation's accession to the World Trade Organisation (WTO).
Putin stated that a delay of even a year or two would be tantamount to a statement of refusal from Russia to join the global trade body, after what has been a fractious 17-year process.
The comments were in response to concerns about the impact Russian membership would have on Russia's domestic industries, after the nation agreed to substantially ease trade tariffs in its accession package.
On average, the final legally-binding tariff ceiling for the Russian Federation will be 7.8% compared with a 2011 average of 10% for all products. The average tariff ceiling will be 10.8% for agriculture products (13.2% currently) and 7.3% for manufactured goods (9.5% currently).
Putin underscored that if Russia's parliament ratifies the deal by June 15, 2012, as anticipated, the country would have a substantial gap, typically five to seven years, to prepare for the tariff and regulatory changes. He added that membership would not limit Russia's ability to protect its interests internationally.
On the Customs Union with ex-Soviet states, Belarus and Kazakhstan, Putin underscored that relations with the bloc remain a 'top priority' for the nation. Putin reassured the nations that Russia's WTO membership would not damage the strength of the Union, despite earlier concerns.
The Custom Union between Russia, Kazakhstan and Belarus was created on January 1, 2010. All customs borders were removed between the three countries on July 1, 2011, and a single economic space became operational on January 1, 2012. As part of its accession package, Russia has agreed to publish any Customs Union legislation before adoption and provide a reasonable period of time for WTO members and all stakeholders to comment to the competent Custom Union body.
The Hungarian government has announced plans to halve the country’s bank tax in 2013, before subsequently abolishing the levy in 2014.
According to Hungary’s Economy Minister Gyorgy Matolcsy, if by then there is a financial transaction tax at European Union (EU) level, then the government in Budapest will examine whether or not to re-introduce the charge.
Introduced back in 2010 to generate additional tax revenues with which to respond to the challenges of the crisis and to meet the budget deficit demands of the European Union, Hungary’s bank tax was originally due to be halved this year, and finally abolished in 2013. However, the government decided to extend the duration of the tax in March last year, much to the disappointment and annoyance of the country’s banks.
The government’s new ‘Szell Kalman’ plan, forming part of the country’s euro convergence programme and containing new tax measures to help shore up its revenue base, provides for revenues from the bank tax in 2012 of around HUF180bn (EUR619m).
The introduction of planned new taxes will create the scope to remove the levy.
Within the framework of the Szell Kalman plan, aimed at finalizing the transition to a tax system based on consumption rather than labour, Budapest now plans to introduce a financial transactions tax in Hungary from 2013, levied at a rate of 0.1% on bank and post office transactions.
The government also plans to impose a telecommunications tax of HUF2 per minute of connect time from July 1, 2012, a measure expected to generate around EUR170m for the state. The tax will be imposed after the first ten minutes of connect time and capped at a monthly limit of HUF700 for individuals and HUF2,500 for businesses in Hungary.
In accordance with the government’s plans, a unified tax on insurance companies will also apply, and a 30% rate of corporation tax will be applied to energy service providers and public utility companies.
Finally, under the plans, businesses in Hungary will be required to make payments excess of HUF5m via bank transfer.
The proposals are due to be submitted to parliament for approval shortly.
A new report from Appleby shows that transaction values for mergers and acquisitions (M&A) in major offshore financial centers rose by 25% in the first quarter of 2012.
The first ever Offshore-i report from Appleby, the world’s largest provider of offshore legal, fiduciary and administration services, looks at M&A activity for the first quarter of 2012, providing sectoral analysis and expert insight on deal types and geographic trends.
The key findings of the report show that offshore deal values in Q1 2012 increased by 25% from the previous quarter's USD23.2bn to USD30.9bn. However, the volume of deals taking place offshore was down 24% on the last quarter of 2011 and was 26% lower than the same period of last year, revealing that corporate transaction activity continues to be depressed.
The number of transactions in the offshore sector in Q1 2012 amounted to 412. However, while deal volumes were lower than the same period a year ago, the report shows that there is still a reasonable amount of activity going on across the offshore world.
The most popular destinations for investors doing deals involving offshore targets are Hong Kong and the Cayman Islands, while the banking, insurance and financial sector continues to dominate offshore activity, well ahead of the next area of interest, wholesaling.
The report finds that most of the deals in the quarter were minority stake transactions rather than full takeovers.
“It will be interesting to see if this positive increase in values continues into the rest of 2012,” said Peter Bubenzer, Appleby’s Bermuda-based group chairman. “The challenges ahead are manifold, but there are ongoing signs of real buoyancy in Asian and other emerging markets.”
The report says offshore transactional markets have been affected by global economic pressures, and in the first quarter, the United States economy faltered amid fears that any recovery may be lacklustre. This impacted transactions in the offshore jurisdictions of Bermuda and the Cayman Islands, which derive the bulk of their business from America. Continuing uncertainty about the Eurozone, and the potential contagion from Greece of the sovereign debt crisis into the Spanish and Italian markets hit deal drivers elsewhere, the report said, while fears about China's ability to maintain high growth rates further dented confidence. Nonetheless, the report reveals that the continuing strength and attractiveness of the Asian markets is driving investors doing deals involving offshore targets, primarily in Hong Kong and the Cayman Islands.
Meanwhile, Mauritius emerged as the offshore economy experiencing the greatest growth in M&A activity, with the number of deals involving targets there jumping from six to 12 between Q1 2011 and Q1 2012.
Offshore transactions remain dominated by the banking, insurance and financial services sector, which has been consistently ahead of other areas for some time. Mining and extraction and other natural resources sectors are also experiencing activity, with the demand for natural resources coming out of China in particular fuelling activity.
As highlighted in the report, a small number of large deals distorted the statistics this quarter, with the biggest transaction of the period, the USD6bn acquisition by institutional investors of a 14% stake in AIA Group, the largest independent listed pan-Asian life insurance group in the world, dwarfing the USD1.5bn Cinven takeover of Jersey-headquartered CPA, one of the world’s largest legal process outsourcing and Intellectual Property-management firms.
With respect to deals involving offshore acquirers, Jersey completed 23 deals with an aggregate deal value of USD46.2bn in the first quarter of 2012. The report notes that this quarter Jersey was also at the centre of one of the biggest ever mergers seen in the mining sector - the purchase of Xstrata PLC by Jersey-registered commodities trading and mining company, Glencore for approximately USD40bn in shares. Mark Lewis added: "It is really encouraging to see Jersey at the centre of an industry first like this. Jersey continues to attract companies that can see this jurisdiction as giving them an advantageous position from which they can leverage their growth strategies.”
The report found minority stakes are changing hands more often than entire businesses, driven largely by the economic uncertainty that has presented challenges for dealmakers. Additionally, the number of Initial Public Offerings (IPOs) hit a significant low (down from 34 in Q4 2011 to nine in Q1 2012). However, Appleby predicts the number of IPOs is to rise.
The Gibraltar government has sought to improve relations and expand on business opportunities with US regulators, operators and businesses, with a delegation led by the Gibraltar's Minister with responsibility for gambling, Gilbert Licudi, to the GiGse Totally Gaming conference in San Francisco.
GiGse is regarded as one of the world's most important gaming conferences attracting speakers and delegates from the top companies and providers in the gaming industry including several based in Gibraltar. Gibraltar's Gambling Commissioner, Phill Brear, was invited to contribute his expertise on regulatory issues as part of a panel at the event.
The conference covered a wide range of topics including developments in e-gaming in several American states and the importance of transparent regulatory frameworks which deal with, inter alia, age verification, anti-fraud, player protection and responsible online gaming. The event also presented an opportunity for Licudi to hold meetings with other delegates in attendance.
Licudi also attended a series of meetings in Las Vegas. Licudi met with the Governor of Nevada, Brian Sandoval, and the Chairman of the Nevada Gaming Control Board, Mark Liparelli. Licudi also had meetings with two significant operators based in Las Vegas who have indicated an intention to apply for licences in Gibraltar. Further meetings took place with two Las Vegas gaming equipment testing houses.
Licudi explained: “The US market is slowly opening up to e-gaming. Nevada is the first US State to legislate to allow intrastate internet poker. We are aware that there are a number of Gibraltar operators interested in branching out by seeking a licence in Nevada. At the same time, various Nevada-based operators are interested in being licensed in Gibraltar. It is therefore in Gibraltar's interest that we have contact with and build a solid relationship with Nevada at both a regulatory and political level. Nevada is regarded as one of the gambling capitals of the world. In that context, it was very gratifying to be told that Nevada has a lot to learn from Gibraltar."
Licudi underscored that Gibraltar will continue a selective approach to licensing with a high bar to entry and only the world's leading brands being considered for a licence.
Commenting on the visit to San Francisco and Las Vegas, Licudi said:
"Attendance at the conference has been invaluable. This follows my attendance at the ICE gaming exhibition and conference in London in January. As I said when I attended that conference, it is absolutely essential that we keep up with developments in the dynamic world of internet gaming and that we continue to build relationships with major players and regulators.”
“Gibraltar is regarded as the most important jurisdiction in internet gaming. Our operators participate at these events and so must Gibraltar at an official level.”
To encourage innovation in the information technology and industrial technical upgrading, China’s State Administration of Taxation has announced preferential corporate income taxes for producers of software and integrated circuits (IC).
With effect from January 1, 2011, to the end of 2017, companies manufacturing IC lines thinner than 0.8 microns will obtain a corporate income tax exemption for their first two profitable financial years. Those companies will then be taxed at only 50% of China’s corporate income tax rate, currently 25%.
In addition, under certain conditions, corporate tax exemptions and reductions are also to be made available for companies producing IC lines thinner than 0.25 microns and qualified software firms.
Under the same initiative, some IT firms deemed to be of national significance will benefit from a corporate tax rate of only 10%.
The Hungarian government has recently adopted the second part of its ‘Szell Kalman’ plan, forming part of the country’s euro convergence programme and containing new tax measures to help shore up the country's revenue base.
According to the government, the Szell Kalman plans, which have been submitted to Brussels, are intended to ensure that Hungary’s deficit returns to 2.5% of gross domestic product (GDP) in 2012 and to then 2.2% in 2013. The measures contained in the programme aim to maintain budgetary stability in the long-term and to kick-start growth.
The government stressed that the second part of the plan is designed to finalize the transition to a tax system based on consumption, thereby enabling the government to reduce labour taxes.
Underscoring that the proposed new tax measures are of a structural nature, to ensure the long-term stability of fiscal revenues, the government unveiled plans to introduce a financial transactions tax in Hungary from 2013, levied at a rate of 0.1% on bank and post office transactions, and to impose a telecommunications tax of HUF2 (USD0.009) per minute of connect time from July 1, 2012.
The telecoms tax is expected to generate around EUR170m for the state.
Commenting on the latest Szell Kalman plan, state secretary at the economy ministry Zoltan Csefalvay emphasized that the initiatives should enable the country to exit the crisis and to convince both the European Commission and the markets that the government is able to keep the country’s deficit in check.
The proposed package of measures should also enable the government to secure a financing deal with international moneylenders, Csefalvay ended.
The United States Internal Revenue Service has launched a new online search tool, Exempt Organizations Select Check (EOSC), to help users more easily find key information about tax-exempt organizations, such as federal tax status and filings.
Users can now go to one location on the IRS website, select a tax-exempt organization, and check if the organization, for example, is eligible to receive tax-deductible charitable contributions. It is confirmed that taxpayers may rely on this list in determining deductibility of contributions.
It can also be found if the organization has had its federal tax exemption automatically revoked under the law for not filing a return or notice for three consecutive years; and if it has filed an annual electronic notice.
The EOSC also offers improved search functions. For example, users can now look for organizations eligible to receive deductible contributions by Employer Identification Number (EIN), and data about organizations eligible to receive deductible contributions are now updated monthly, rather than quarterly.
Jersey Finance, the agency responsible for the promoting the island's finance industry, has responded to measures in the UK budget which seek to prevent stamp duty tax avoidance on the purchase of high-value residential property in the UK..
via offshore company structures.
Jersey Finance's CEO Geoff Cook called for a "measured approach" to understanding the implications of the UK budget, suggesting that the change to tax rules around the use of offshore structures to purchase UK residential property will not have a major impact on the island's financial services industry.
In the latest budget, UK Chancellor George Osborne introduced a 7% stamp duty on purchases by non-resident individuals of residential property worth more than GBP2m (USD3.2m), and 15% for residential property purchased by offshore companies. He has also proposed an annual levy on legal entities that have previously purchased high-value properties in similar transactions, and is to launch a consultation on imposing capital gains tax on their sale. The use of offshore structures has historically allowed stamp duty as low as 0.5% to be paid on property purchases, and such structures have been used in the past as a means of avoiding the UK's 40% inheritance tax.
Responding to the measures, Cook said: "The changes proposed are fiscal measures designed to increase revenues to the UK Treasury through the collection of stamp duty on UK residential property worth GBP2m or more. While this is important business for the Channel Islands' finance sector, it is very much a single service within a broad and deep portfolio of services that the islands offer."
"The demand for such properties has been much in evidence from overseas buyers many of whom will still see the purchase of London-based residential property as an attractive proposition despite the imposition of the additional stamp duty charge. It is also important to note that, unlike the changes to Low Value Consignment Relief, these proposals do not relate to a specific sub-industry, but only to a particular and specific use of offshore companies. The changes apply to all offshore companies wherever they are located in the world, so the islands are not being singled out for specific attention," he added.
Responding to suggestions that the budget announcements might impact jobs in the finance industry, Cook again called for a measured examination of the facts. He said: "As with any budget announcement, a significant period of review of the detail is needed before all implications can be understood. There will now be a lengthy period of consultation regarding the proposed changes and this will allow Jersey Finance, working alongside industry and the government, to consider the detail of the changes and respond accordingly. It is important to point out that these measures affect neither of the two largest activities in our finance industry, namely the collection and administration of deposits and funds."
Cook stressed that the finance industry in Jersey has weathered the global financial crisis well, with recent statistics showing positive growth trends over the last four years since the height of the crisis. Jersey has a well-diversified finance industry offering services across banking, funds, private wealth and capital markets, Cook emphasized, adding that all of these have shown overall growth since 2008.
According to HMRC starting April 1 2012 all businesses, apart from a very small number will have to submit the VAT returns online and pay any VAT due electronically.
Most of the businesses have been required to do so since April 2010. The new guideline extends the requirement even to previous registered VAT payers who had an annual turnover exceeding GBP 100,000 before the year ending December 2009 and their future turnover drops below GBP 100,000.
The National Development and Reform Commission has confirmed that the pilot property tax presently operating in Shanghai and Chongqing will be extended to other cities in China later this year.
China introduced the pilot tax on luxury residential properties in Shanghai and Chongqing last year, as part of the government’s effort to try to bring under control the rapid increases that have been seen in the country’s real estate prices.
The original statement last year by the Ministry of Finance advised that a property tax on the residential sector was necessary for the sound working of the property market, an equitable distribution of income and for restructuring the economy. It was then also confirmed that the government expected that, eventually, it would be rolled out nationally.
In fact, while in Shanghai, the first city in which the tax was trialled, property tax is payable only by owners of properties where purchases are completed after its introduction, existing owners in Chongqing are also required to pay the tax applicable to the value of their properties
However, given its current low rate, and the fact that it only applies to a small percentage of the residential property market, it is expected that the government will wish to study the effect of the property tax pilot before deciding on the appropriate structure to be rolled out in other cities.
Hong Kong’s government has launched a two-month public consultation on its draft legislation on trust law reform, which followed the positive responses it had received from stakeholders in an earlier consultation held in 2009.
The Secretary for Financial Services and the Treasury, Professor K C Chan, said: "The reform seeks to modernize Hong Kong's trust law to better cater for the needs of modern-day trusts and enhance the interests of parties to a trust. It is a major initiative to strengthen the competitiveness of our trust services industry and further consolidate our status as an international asset management centre."
The consultation document sets out draft provisions to amend the Trustee Ordinance and the Perpetuities and Accumulations Ordinance, which seek to clarify trustees' duties and power to provide clearer guidelines on the role of trustees. It is intended that reforming Hong Kong’s trust law will bring its regulatory regime in line with other comparable common law jurisdictions such as the United Kingdom and Singapore.
Specifically, the draft provisions seek to: impose a statutory duty of care on trustees; provide trustees with a general power to appoint agents, nominees and custodians; give trustees wider powers to insure trust property against risks of loss; and allow professional trustees to receive remuneration for services rendered to trusts.
In addition, statutory provisions will be introduced to enhance the protection of beneficiaries' interests. These include provisions to regulate exemption clauses that seek to relieve professional trustees from liabilities for breach of trust, while beneficiaries will also be given the right to remove trustees through a simple, time-saving and court-free process.
The trust law will also be modernized. A provision will be introduced to clarify that a trust will not be invalidated only by reason of a settlor reserving to himself some limited power, and the outdated rules that set time limits on the duration of trusts and the accumulations of income would be abolished.
"The consultation we launched today (March 22) marks another milestone in taking forward the trust law reform,” Chan added. “We look forward to receiving further views on the draft legislation so that we can finalize the amendment bill for introduction into the Legislative Council in the 2012-13 legislative year."
People are asked to submit their comments to the Financial Services and the Treasury Bureau on or before May 21, 2012.
A draft law on luxury tax was introduced in the Parliament.
Items subject to luxury tax would include immovable property with a value above RUB30m and vehicles with a value above RUB3m.
The tax base would be the market value of such assets.
The following annual tax rates are proposed:
For immovable property:
If adopted, the amendments would enter into force as of 2013.
We would like to inform you that LAVECO Ltd will be attending the forthcoming INTAX EXPO conference, to be held in Ras Al Khaimah, UAE, on 28th and 29th March 2012.
If you, or your representative/s, wish to meet and discuss any questions you may have, please feel free to arrange an appointment in advance, by contacting us on Tel: +361 4567200 or + 361 217 9681; Email: firstname.lastname@example.org and we will be happy to arrange a meeting with Michael Dwen our representative at the conference.
The Office of Tax Simplification (OTS) has put forward its recommendations on UK tax advantaged share schemes, designed to encourage take up, and reduce the burdens on those offering the schemes.
The recommendations follow an OTS simplification review of the four government approved employee share schemes attracting special tax reliefs. They are Enterprise Management Incentives (EMI), Company Share Option Plans (CSOP), Share Incentive Plans (SIP) and Save as you Earn (SAYE). Evidence was gathered through surveys, meetings and roadshows throughout the UK, with the OTS receiving input from employers and employees, tax and HR advisers, and representative bodies.
The recommendations include both technical and administrative simplifications. The key recommendations are as follows:
John Whiting, Tax Director for the OTS said: “We have looked hard to see whether the approved share schemes are still valid, given their decline in usage. Accordingly, we spent a lot of time gathering the views of the people that use them, and found that employers saw real benefits, citing greater commitment from employees, and better engagement across all employees. We think the way forward is to improve the current schemes and this has led us to recommend a number of technical and practical changes. Overall, we think the recommendations put forward today offer a common sense approach to simplify the various schemes for the thousands of employers offering them throughout the UK and will encourage wider use.”
The Cayman Islands' Economics and Statistics Office has reported that the island's economy began to recover from the economic downturn during the first nine months of 2011, with growth of 1.2% year-on-year recorded.
Among the various economic sectors, the performance of the hotels and restaurants, and real estate, renting and business services stood out as these were estimated to have grown by 7.5% and 3.4% respectively. However, the financial services sector continues to see mixed results.
Banking deposits fell by 2% over the period to September 2011 to USD5.16 trillion. As of September 2011, the total number of licensed bank and trust companies stood at 250 - down by 4.6% from 262 a year ago. Similarly, licences issued to trust companies decreased by 4.7% to 123.
During the nine-month period, applicants from Europe and USA led the Caymans' banking licencees accounting for 29.2% and 26.4%, respectively. The distribution of other banking licence sources was as follows: South America 17.2%; Asia and Australia 10.0%; Caribbean and Central America 8.4%; Canada and Mexico 5.2%; and the Middle East and Africa 3.6%.
In the insurance industry, the number of captive insurers fell marginally over the period, while premiums improved to USD2.07bn. The number of mutual funds fell by 1.7% year-on-year.
The Cayman Islands Stock Exchange experienced a growth in listings of 1.5% from 1,116 in September 2010 to 1,133 in September 2011.
The Cayman Islands also witnessed growth in terms of company registrations, to 7,063 compared with 6,192 over the same period of 2010, a 14.1% increase.
Despite weak economic performance, the Cayman Islands government was successful in significantly reducing the deficit from USD61.3m a year ago to USD17m. Revenues increased by 6.5% over the period while expenditure increased at a lesser rate of 3.6%. Capital expenditures fell markedly.
Following hot on the heels of a recent announcement by Romania’s Prime Minister of plans to clamp down on rampant tax evasion in the country, around 30 individuals have been arrested on suspicion of tax avoidance amounting to an estimated EUR20m.
According to the public prosecutor’s office, specialized in the fight against organized crime, DIICOT, the latest operation was aimed at dismantling an organized criminal group specialized in tax evasion and money laundering with “particularly serious” implications.
The arrests follow just ten days after Ungureanu underlined the fact that the fight against tax evasion is a goal of “national security”. Highlighting the ongoing problem of tax collection in Romania, Ungureanu revealed that public revenues currently represent around 33% of GDP, well below the European average of 40%.
Ungureanu insisted that stepping up the fight against tax evasion, with a particular focus on the illegal trade in alcohol and vegetable products, must serve to yield additional tax revenues of at least 1.5% of GDP, and he underscored his “unconditional support” for applying any measures necessary in order to achieve this goal.
The country’s Justice Minister Catalin Predoiu emphasized that Romanian legislation is adequate enough to combat tax evasion, although the minister also alluded to plans by the justice ministry to conduct “a rigorous analysis” of the current application of the legislation and to propose any necessary modifications to the government.
Romanian Finance Minister Bogdan Dragoi explained that strengthening measures to combat tax evasion would enable the government to be more flexible on investment spending, while strictly adhering to the budget deficit target in 2012 of 1.9% of GDP.
The UK has taken steps to close what it calls two highly abusive tax avoidance schemes, disclosed to HM Revenue and Customs (HRMC) by a bank.
The Treasury says that the aggressive schemes are designed to work around legislation that has been introduced in the past to block similar attempts at tax avoidance. It stresses that by acting immediately, it can ensure the payment of over GBP500m (USD792m) in tax, protect further billions of tax from being lost and maintain fairness in the tax system.
The Treasury has provided details of the two schemes, the first of which it says seeks to ensure that the commercial profit arising to a bank from a buyback of its own debt is not subject to corporation tax. The government will now introduce legislation to prevent the scheme’s use in the future. The legislation will also act retrospectively to block its recent use by banks.
The second scheme involves Authorized Investment Funds (AIFs) and aims to convert non-taxable income into an amount carrying a repayable tax credit in an attempt to secure ‘repayment’ from the Exchequer of tax that has not been paid. The government is also introducing legislation to block any future use of this second scheme.
The Treasury says that the bank in question has adopted the Banking Code of Practice on Taxation which contains a commitment not to engage in tax avoidance. The government is clear that these are not transactions that a bank that has adopted the Code should be undertaking.
David Gauke, Exchequer Secretary to the Treasury, said: "The government wants to ensure that the tax system is fair for all and we will not allow those who seek to benefit from this aggressive avoidance to get an unfair advantage. We do not take today’s action lightly, but the potential tax loss from this scheme and the history of previous abuse in this area mean that this is a circumstance where the decision to change the law with full retrospective effect is justified. The government is committed to creating a competitive tax system and we have brought in a range of corporate tax reforms, but we are absolutely clear that business must pay the tax they owe when they owe it."
The UK and Singapore have signed a second protocol to their existing Double Taxation Agreement (DTA), amending withholding tax rates.
The latest amendment was signed in Singapore on February 15 by Lord Green of Hurstpierpoint, the UK's Minister of State for Trade and Investment, and Josephine Teo, Singapore's Minister of State for Finance & Transport.
The protocol sets a withholding tax rate for dividends at 0%, except in the case of real estate investment trusts, which will be taxed at 15%. The headline interest withholding tax rate under the protocol is 5%, with certain entities charged at a 0% rate. Royalties will be taxed at 8%.
The treaty was originally signed in 1997, with the latest exchange of information standards inserted in 2009. According to Singapore's Ministry of Finance, the changes will serve to enhance trade and investment flows between the two countries.
Switzerland’s Finance Minister has recently put forward the idea of compelling Swiss banks to obtain in future a declaration from their foreign clients confirming that their assets held in the Confederation are correctly taxed.
Under the Swiss Finance Minister’s proposal, and within the framework of the government’s new “white money strategy” (Weissgeldstrategie), Swiss banks would not only be required to obtain such a self-declaration, but would also be required to investigate cases of suspected tax evasion, or cases involving, for example, cash payments from an unknown origin.
Widmer-Schlumpf’s proposal, due to be presented shortly to the Swiss Federal Council, is based on the Liechtenstein model, requiring the Principality’s banks under the terms of an agreement with the UK to obtain proof from their British clients that their wealth is correctly taxed.
The Swiss Finance Minister hopes that the proposal will serve to gain much needed support from the Social Democrats in parliament for the additional report on the new double taxation agreement with the US, designed to pave the way for a global solution in the ongoing tax dispute with the US authorities.
The Swiss parliament is due to vote on the new provisions of the Swiss-US bilateral DTA at the beginning of March.
By ratifying this Protocal Cyprus has been removed from the Russian "black" list.
On February 15th, 2012, the Russian Duma finally ratified the amending Protocal to the Cyprus-Russia Double Tax Treaty of 1998, signed on Oct 7th, 2010. Cyprus had ratified this Protocal earlier in August 2011.
According to experts, Russia was waiting to ratify in order to make sure they were prepared for the procedures for information exchange between the two countries that this Protocol would permit.
The Protocal is just coming into force now and it is hard to predict at the moment the real effect this will have.
The Jersey government has published an initial response to the release of further details by the US tax authority and Treasury on the US Foreign Account Tax Compliance Act, which will impact Jersey's financial services industry.
“As we have known for some time, these new regulations will have an impact on companies operating within Jersey's finance industry,” Jersey Finance, the jurisdiction's promotional body for the finance industry, said in a statement. “Jersey Finance is fully engaged at both industry and government level, including a specific FATCA Working Party in order to support members in dealing with the introduction of FATCA.”
“The FATCA provisions are in the form of guidance, which make it clear that the US has taken into account representations from foreign governments, of which Jersey was one, in seeking to minimize the reporting burden," the statement continues. "It is important to note that, not all financial institutions in Jersey will be engaging in activities that are affected by FATCA, or if they are some to only a rather limited extent.”
“The FATCA provisions will apply to all jurisdictions - they are not directed at centres such as Jersey alone - and so they should not adversely affect Jersey’s competitive position," Jersey Finance adds.
FATCA was enacted by the US in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers at foreign financial institutions (FFIs). Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on certain US-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information.
A participating FFI will have to enter into an agreement with the US Internal Revenue Service to provide the name, address and taxpayer identification number (TIN) of each account holder who is a specified US person; and, in the case of any account holder which is a US-owned foreign entity, the name, address, and TIN of each substantial US owner of such entity. The account number is also required to be provided, together with the account balance or value, and the gross receipts and gross withdrawals or payments from the account.
A notice issued by the US Treasury and the IRS now provides a timeline for FFIs and US withholding agents to implement the various requirements of FATCA. Specifically, an FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
Withholding on US source dividends and interest paid to non-participating FFIs will begin on January 1, 2014, and will be fully phased in on January 1, 2015. Due diligence requirements for identifying new and pre-existing US accounts (including certain high-risk accounts, including private banking accounts with a balance that is equal to or greater than USD500,000) will begin in 2013, and reporting requirements will begin in 2014.
“Jersey enjoys an excellent relationship with the US, and in fact the first TIEA that Jersey signed in 2002 was with the US," Jersey Finance states. "Jersey also has a Statement of Co-operation between the Jersey Financial Services Commission and the four United States financial regulators (Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and the Office of Thrift Supervision) to formalize existing arrangements for cooperation and information sharing.”
"A substantial amount of information has been released and we are now working to fully analyze the content of the draft regulations in order to provide further updates and specific guidance to member firms,” Jersey Finance concludes.
The number of captive insurance companies formed in the Cayman Islands increased markedly during 2011, a trend that is expected to continue into 2012, according to Cindy Scotland, the Managing Director of the Cayman Islands' Monetary Authority.
While conditions in the international marketplace have been challenging to the formation of captives over the past several years, there continues to be solid interest in the Cayman Islands that translated into a 52% increase in captive formations in this jurisdiction in 2011,” said Scotland.
CIMA ended 2011 with 739 captives and 632 segregated portfolios registered in the Caymans. Further, the Cayman Islands continued to be the leading jurisdiction for healthcare captives. This was the primary line of business for 256 companies (35% of the total). Workers’ compensation remained the second largest line of business with 161 companies (22%) providing this as their primary type of risk insured. The 739 active captives as at December 31, 2011, comprise the following: 419 pure captives (57%), 124 segregated portfolio companies (17%), 75 group captives (10%), 52 association captives (7%), 36 special purpose vehicles (5%), 32 open market insurers (4%) and one rent-a-captive.
Scotland said that already in the early weeks of 2012 CIMA's Insurance Division has processed five new captive license applications, with a further four applications in the initial stage of processing at the beginning of February.
CIMA noted that, globally, the captive market has been soft. Among the factors that have placed a downward pressure on captive formation across jurisdictions since the credit crisis have been the generally low investment returns for all types of investments and fears of another recession, coupled with the availability of commercial insurance at very low rates.
Gordon Rowell, Head of Insurance at CIMA, commented: “In some cases this has dampened corporate sponsors’ motivation to take on the expense of setting up a captive in order to self-insure. Nevertheless, industry players know the value of captives as a major part of organisations’ risk management strategy. The industry has established a track record for robust risk management and in recent years captives and insurance managers have been quite efficient at maximising value despite the soft market.”
Concluding Scotland said: “Given these factors, captive sponsors are seeking the greatest efficiencies and the choice of domicile for a captive becomes critical in achieving this value. The Cayman Islands has fared well because of a number of advantages. Captive participants have told us that in addition to the expertise of local service providers who have built up specialization, especially in the area of health care captive structuring, the jurisdiction is very cost competitive, the process for establishment of the captive is efficient, and the legislative and regulatory framework is stable and robust.”
Saint Kitts and Nevis's Cabinet has approved the signing of a Tax Information Exchange Agreement (TIEA) with India and has endorsed the commencement of negotiations towards similar agreements with a further four nations.
Emphasizing the importance of TIEAs, the territory's Prime Minister and Minister for Finance Denzil Douglas said the signing of agreements was crucial to the territory's efforts in meeting international standards. St. Kitts and Nevis has already signed 17 agreements and has been placed on the OECD 'white list' of those territories that have substantially implemented the internationally-agreed standard on tax transparency and tax information exchange.
The Cabinet agreed that negotiations should begin with Guernsey, South Korea, Greece and Mauritius.
To date, St. Kitts and Nevis has signed TIEAs with the United Kingdom, Australia, Monaco, The Netherlands, The Netherlands Antilles, Aruba, Liechtenstein, New Zealand, Denmark, Belgium, Norway, Sweden, Greenland, the Faroe Islands, Iceland, Finland and Canada.
The twin-island Federation has already initialed or concluded negotiations with and is awaiting dates for signature with France, Germany and San Marino.
The Federation has already commenced TIEA discussions with India, Japan, the Republic of Seychelles and the United States but has not yet confirmed the text for these agreements.
Changes to the UK's inheritance tax (IHT) threshold could see more people becoming liable for the levy, chartered accountancy firm Midgley Snelling has warned.
New legislation will see the nil rate band rise in line with the Consumer Prices Index (CPI) from April 6, 2015, instead of tracking the higher Retail Prices Index (RPI).
The nil rate band currently sits at the rate introduced in 2009, GBP325,000 (USD515,192), and will remain at this value until 2014-15. According to Midgley Snelling, had this freeze not occurred, and if the nil rate band had risen in line with RPI instead, the current threshold would now be more than GBP360,000.
Treasury estimates show that as a result of the changes, around 1,500 more estates will have to complete more complex paperwork for HM Revenue and Customs (HMRC) in 2015-16. Midgley Snelling calculates that of these, more than half - around 900 - will be liable for IHT, with the figure expected to continue rising.
In addition, Midgley Snelling points out that research from Legal & General shows that while 69% of people are aware of the potential impact that IHT will have on them, the same percentage have done nothing to minimise it except for making a will.
Peter Bond, tax partner at Midgley Snelling, said: “People often put off estate planning because they feel it is too early to be thinking about inheritance tax, but it is never too early to start planning where tax is concerned."
“With these changes set to come into force in April, 2015, more people will be affected by IHT than before, making it all the more important to plan ahead to mitigate the impact,” Bond concluded.
Recently-released final figures from China’s Ministry of Finance show that, in 2011, its tax revenue reached a total of RMB8.97 trillion (USD1.42 trillion), an increase of more than RMB1.65 trillion or 22.6% over the previous year.
The significant rise in tax collections was said, in particular, to be the result of the country’s continued economic growth and price inflation. Consequential on the resultant rise in corporate profitability, corporate tax revenues rose by more than 30.5% to RMB1.676 trillion, or 18.7% of total tax revenue.
In addition, with the increases in domestic consumption and rise in imports during 2011, value-added tax VAT, business tax, and consumption tax revenues increased by 15.0%, 22.6%, and 14.2%, respectively. At a total of RMB2.427 trillion, VAT is now 27% of total Chinese tax revenues, compared to business tax at 15.2%.
In comparison, individual income taxes reached RMB605.4bn in 201, an annual increase of more than 25%. However, collections of individual income taxes decreased in the final quarter of the year, mainly due to the effect of the increase in the basic tax threshold from September 1.
It was pointed out that, while overall tax collections are still rising, as growth in the economy gradually cooled down over the course of the year, so did the increase in Chinese revenue growth. Tax revenue growth in each successive quarter of 2011 was 32.4%, 27.2% and 22.6% and 6.8%. An actual fall in tax revenues has been seen from the automotive and property sectors.
Social Democrat (SPD) controlled states throughout Germany reportedly plan to block the bilateral tax agreement between Switzerland and Germany in the German Bundesrat, or upper house of parliament, during a crucial vote on February 10.
According to Baden-Württemberg's Finance Minister Nils Schmid (SPD), German Finance Minister Wolfgang Schäuble will no longer be able to prevent a defeat in the upper house. Schmid warned that it is "highly unlikely" that the agreement will receive the country's support, arguing that the proposed level of taxation of undeclared German assets held in the Confederation is "simply too small".
Schmid called for the Swiss government to demonstrate a greater willingness to compromise, otherwise the only alternative would be to continue to purchase tax data discs.
Signed on September 21, the landmark Swiss German bilateral tax deal, aimed at resolving the longstanding tax dispute between the two countries, provides for the future taxation of income earned by German taxpayers through accounts held in Switzerland from January 1, 2013 by means of a 26% rate of withholding tax, with the proceeds derived from the levy subsequently being transferred to the German authorities.
The agreement also provides for the lump sum taxation of 'old money' held by German residents in undeclared Swiss accounts, imposed at a rate of between 19% and 34%.
The treaty maintains traditional Swiss banking secrecy, by regularizing accounts without, however, disclosing individual identities.
Determined to gain support for the treaty from the SPD-led states in the Bundesrat, where the coalition Christian Democratic Union and Free Democratic Party no longer have a majority, German Finance Minister Schäuble had reportedly intended to amend the provisions, to allow more instances of mutual assistance. The current text limits the number of requests for information to 999 over a period of two years.
Prior to the agreement, the purchase of the tax data discs by the country's authorities proved highly lucrative for the state, leading to a wave of voluntary disclosures throughout Germany from individuals fearing prosecution. Although it was initially unclear as to whether or not the purchase was legal, Germany's Federal Constitutional Court finally permitted the use of the tax information contained on data discs for criminal prosecutions in December 2010.
The court ruled that information regarding alleged tax evaders, contained on discs provided by informants, may indeed be used during criminal investigations, irrespective of whether or not the original means by which the data was obtained was deemed to be lawful.
Sberbank of Russia and Troika Dialog have announced the closure of a deal to merge the two companies, in the process creating the largest banking institution in Russia.
The merger will allow the bank to increase its range of services, from traditional banking services to wealth management and more sophisticated investment banking and global markets products.
Herman Gref, CEO and Chairman of the Management Board of Sberbank, Russia's largest bank, says the merged institution has ambitious targets, and plans to become a major global player in the area of investment banking.
“We are taking the scope of our business to the next level," Gref commented. "The merger will enable us to modernize the Russian financial industry and increase the quality of services we offer to our corporate and private clients. We plan to consolidate and expand our leading positions in investment banking in both Russia and the CIS in the next two to three years and intend to become one of the top 15 global players in terms of debt securities, currency, and commodities operations in the next five years. We have ambitious goals: in 2014 we expect to double income from investment banking activity. At the moment we are already working on over 70 investment banking deals.
Sberbank accounts for about 27% of the aggregate Russian banking assets and employs about 240,000 people. The bank has the largest countrywide branch network with 17 regional head offices and more than 19,000 outlets as well as subsidiary banks in Kazakhstan, Ukraine and Belarus, a branch in India, and representative offices in Germany and China. Sberbank’s founder and major shareholder is the Bank of Russia, which holds over 60% of voting shares.
Founded in 1991, Troika Dialog is one of the leading investment companies in the CIS. The company’s business consists of securities sales and trading, investment banking, private wealth and asset management, direct and venture investments, retail distribution and alternative investment. Troika Dialog’s operations are located in 21 cities across Russia plus offices in London, New York, Kiev, Almaty and Nicosia.
Preliminary data for 2011 shows that Sberbank and Troika Dialog together generated RUB22bn (USD712m) of income from financial market operations, out of which RUB8bn came from securities sales and trading operations, and RUB6bn from conversion operations and precious metal operations. Investment banking services generated preliminary income of RUB3.4bn.
As part of the restructuring of the two banks' divisions, a new Corporate Investment Bank will be created, which will provide services to the largest Russian and foreign corporations and financial institutions.
Another new division will focus on wealth management services, including asset management and private banking. The unit’s development plans include the creation of the largest private bank in Russia, "leveraging western experience of developing product lines and client service technology".
“We have been granted all the necessary regulatory approvals," announced Ruben Vardanian, Chairman of the Board of Directors and CEO of Troika Dialog. "Our company is now becoming a part of Sberbank and it is a pleasure for me to open this new chapter in the history of Troika Dialog. We are turning into a unique partner for investors from Russia and the CIS who require access to the global financial markets, and also for international clients who can take advantage of the opportunities that are opening up for them in the region. In the immediate future we will continue to strengthen our team and have made plans to develop existing products and launch new ones. At the moment we view global market operations, structured products and investment banking services as promising areas of business.”
UK shareholders will be given more powers to block excessive pay proposals and payments for failure under new proposals from the Business Secretary, Vince Cable.
Announcing a package of measures aimed at tackling excessive executive pay, Cable said firms will also have to justify high salaries with clearer and more informative remuneration reports. Cable's plans aim at addressing the issue on four fronts: they will ensure greater transparency, so that what is paid is clear and easily understood; more shareholder power so that companies can be held to account; more diverse boards and remuneration committees (REMCOs), to tackle the status quo; and best practice led by the business and investor community.
To promote greater transparency, the government will require more information on what benchmarks companies use to set executive pay and how pay policy relates to company strategy and performance. Companies will have to produce a single figure for total pay and show how spend on executive pay compares with other payouts such as dividends and business investment.
The government will consult on giving shareholders binding votes on executive pay policies and exit payments worth more than one year’s salary. It will in future require companies to secure 75% shareholder support to pass the vote, up from the current 50%. The coalition will also look at requiring clawback clauses to be introduced in all contracts so that pay can be recovered if a company does badly.
In an effort to promote diversity, the government will launch a renewed drive to get more people from different professional backgrounds onto company boards. It will investigate reducing the number of current executive directors serving on other companies’ remuneration committees.
Companies will also be required to explain how they have consulted employees and taken account of employee pay when they set board pay. Employees will be encouraged to utilize their right to request that employers consult them on pay deals.
Speaking at the Social Market Foundation, Cable said he is "challenging this country’s world-class companies and executives to embrace the reforms I have outlined, and work with us to renew public trust in UK business".
Aside from an OECD administrative assistance clause, Switzerland and Ireland have agreed that both countries may levy withholding tax of no more than 15% on gross dividend amounts.
If, however, a company holds a stake of at least 10% in the capital of the distributing company, the dividends will be exempt from withholding tax. Moreover, there will be no withholding taxes on dividends paid to the national banks of the two countries or to pension funds.
The revision still has to be approved by parliament in both countries before it can come into force.
Malta has welcomed the signing of a Tax Information Exchange Agreement (TIEA) with Gibraltar, which will provide both countries with tax information on request when there is evidence of fiscal crime.
The High Commissioner of Malta in London Joseph Zammit Tabona signed on behalf of the government of Malta and Gibraltar's Minister with responsibility for Financial Services, Gilbert Licudi signed on behalf of the government of Gibraltar, at the Malta High Commission, London.
Tabona said: "It is my pleasure to sign this Agreement with Gibraltar - which reinforces links and strengthens bilateral relations, particularly in the fields of financial services and business. The signing of TIEAs demonstrates good practice in the global financial sector."
Licudi, added: "I am delighted to have signed this Tax Information Exchange Agreement with Malta and especially so given the very important social, cultural and political links that we share. A significant part of Gibraltar's population are descendants of Maltese nationals which means that our heritage is intrinsically bound together. There is already an element of business activity that we share with Malta. We trust that this agreement will encourage the development of an even closer business relationship."
Both signatories confirmed the agreement included all standard means to ensure due process was followed in tax information requests, including, for example, provisions to protect confidentiality of information. The TIEA will also adhere to public policy considerations and provisions related to protecting legal privilege.
On the eve of the signing, officials from both countries discussed various opportunities where Malta and Gibraltar can cooperate more fully and further strengthen relations, particularly in financial services.
We would like to inform you that LAVECO will be taking part in the upcoming MIPIM exhibition which will be held from 06/03/2012 to 09/03/2012 in Palais des Festivals, Cannes, France.
Our delegation will consist of Catherine Váradi, László Váradi, Maria Sokolova and Ilona Záhonyi-Nagy. Our staff speak the following languages:
Catherine Váradi: English, Russian, Hungarian
László Váradi: English, Russian, Hungarian
Ilona Záhonyi-Nagy: English, Russian, Hungarian
Maria Sokolova: English, Russian, Hungarian, German
If, during the exhibition you or any of your colleagues or partners would like to meet us to discuss any questions you may have, please feel free to come and visit us at stand R32.37. If you would like to arrange an appointment in advance, please contact us by telephone on +361 4567200 or +361 217 9681 or e-mail: email@example.com.
Tax administrations from 43 countries have concluded their 7th 'Forum on Tax Administration' meeting, headed by the OECD as part of its policy agenda to unify advanced nations in its fight against tax evasion.
Reviewing progress made to date, administrations agreed, in a communique published by the OECD, that: “Although there have been some high-profile successes in the fight against offshore tax abuse, resulting in significant additional tax revenues and real improvements in transparency and exchange of information, it is far too soon to declare victory.”
The OECD called for a “unified and strengthened commitment to combat offshore tax abuse,” including through greater country-to-country cooperation, including through the use of information exchange and coordinated action “to better identify and pursue the promoters and users of abusive offshore schemes.”
"When promoters and facilitators feel that we are tightening the net, they may simply move to a new location. Our Offshore Compliance Network is building on the achievements of individual countries to improve our collective ability to deter, detect, and deal with offshore tax evasion. An early priority is to better understand the structures used to hide offshore wealth." According to the Organisation, administrations at the meet agreed to coordinated actions to tackle evasion in this area.
The OECD further reported that attendees agreed that 'in times of shrinking budgets', administrations must build stronger relationships with large corporations to foster cooperation. “We agreed that we need to create innovative strategies for issue resolution that are less time and resource intensive for both, while still promoting a climate that encourages compliance with tax laws,” the OECD reported after the meet. “We will pay particular attention to the process of conducting and resolving transfer pricing cases. Overall, we intend to move away from a hide and seek approach to one based on greater transparency on the part of both taxpayers and tax administrations,” the OECD said.
The double tax treaty between the two countries entered into force on December 31, 2011.
According to the DTA the withholding tax rates for interest and royalties are 10%.
The withholding tax rate for dividend is generally 15%, or 5% when the recipient is a company holding 10% or more of the paying company's share capital.
The DTA applies from January 1, 2012.
The Organisation for Economic Cooperation and Development (OECD) has agreed to invite Estonia, Israel and Slovenia to become members of the Organisation, paving the way for its membership to grow to 34 countries.
The Organisation for Economic Cooperation and Development (OECD) has agreed to invite Estonia, Israel and Slovenia to become members of the Organisation, paving the way for its membership to grow to 34 countries.
During nearly three years of accession negotiations, the three countries were reviewed by 18 OECD Committees with respect to their compliance with OECD standards and benchmarks.The invitation to Estonia, Israel and Slovenia to join the OECD acknowledges the efforts already made to reform their economies, including in such areas as combating corruption, protecting intellectual property rights and ensuring high standards of corporate governance.
All three countries will contribute to OECD work in a number of specific areas.
The OECD will welcome the three future members at a special ceremony during the annual meeting of the OECD Council at ministerial level on May 27 in Paris. The meeting will be chaired by Italian Prime Minister Silvio Berlusconi.
Dmitry Medvedev has instructed First Deputy Prime Minister, Viktor Zubkov to establish a 'Black Economy' Task Force to fight financial crime, including tax evasion.
According to a January 12 announcement by the President's office, the new working group will bring together law enforcement agencies, the Bank of Russia and the Federal Tax Service in order to "combat illicit financial transactions".
"The aim of establishing the working group is to improve the detection and prevention of financial transactions aimed at the legalization of proceeds from criminal activity (including through the use of fly-by-night companies), financing of terrorism, evasion of taxes and customs duties, as well as the detection and prevention of obtaining income generated by corruption," the office stated.
Zubkov already has some experience in this area, having headed the government's financial crime watchdog, the Financial Monitoring Agency, from March 2004 to September 2007.