EU agrees double taxation dispute resolution system
The proposal sets out to improve the mechanisms used for resolving disputes between member states when disputes arise from the interpretation of agreements on the elimination of double taxation, reports CCH Daily. Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency, said: ‘This directive is an important part of our plan for strengthening tax certainty and improving the business environment in Europe.’ The draft directive requires dispute resolution mechanisms to be mandatory and binding, with clear time limits and an obligation to reach results. The aim is to create a tax environment where compliance costs for businesses are reduced to a minimum. The text allows for a ‘mutual agreement procedure’ to be initiated by the taxpayer, under which member states must reach an agreement within two years. If the procedure fails, an arbitration procedure is launched to resolve the dispute within specified timelines. For this, an advisory panel of three to five independent arbitrators is appointed together with up to two representatives of each member state. The panel (advisory commission) issues an opinion for eliminating the double taxation in the disputed case, which is binding on the member states involved unless they agree on an alternative solution. The Council endorsed a number of options covering some issues. For example, while it has agreed on a broad scope for the types of cases which can be considered, there is the option, on a case-by-case basis, of excluding disputes that are judged not to involve double taxation. It also agreed the pool of independent arbitrators must be made up of ‘independent persons of standing’. Arbitrators must not be employees of tax advice companies or have given tax advice on a professional basis. Unless agreed otherwise, the panel chair must be a judge. In addition, the Council left open the possibility of setting up a permanent structure to deal with dispute resolution cases if member states so agree. Agreement on the proposals was reached at a meeting of the economic and financial council. The Council will adopt the directive once the European Parliament has given its opinion. Member states will have until 30 June 2019 to transpose the directive into national laws and regulations. It will apply to complaints submitted after that date on questions relating to the tax year starting on or after 1 January 2018. The member states may however agree to apply the directive to complaints related to earlier tax years. CCCTB proposals The same meeting of the economic and financial council also discussed a proposal for a common corporate tax base (CCTB) in the EU, aimed at reducing the administrative burden of multinational companies. This would form the first step of an envisaged two-step corporate tax reform, which has proved controversial when originally put forward. Revamping an earlier 2011 proposal, it establishes a single rulebook for calculating companies’ corporate tax liability. The presidency confirmed its intention to continue discussions on new elements of the proposal, and that an appropriate degree of flexibility should be provided for. A separate proposal on tax consolidation (CCCTB) will be considered without delay once the CCTB rulebook has been agreed. The Council will require unanimity to adopt the directive, after consulting the European Parliament.
Uganda: How tax incentives can make or break an economy
Tax incentive is an exemption from a tax liability, offered as an enticement to engage in a specified activity such as an investment for a certain period, reports New Vision. Governments argue that tax incentives stimulate employment and development by making the country competitive as a destination for foreign investment. However, tax incentives have doubled-edged impacts on the economy. The measures may not only promote trade or particular sectors in the economy but will also result into revenue loss. Research suggests that developing countries do not need to grant tax incentives and exemptions to attract Foreign Direct Investment (FDI). Because the decision to invest is largely based on the country’s overall investment climate. This view is emphasised in a 2012 study conducted by SEATINI-Uganda which established that tax incentives appear to have a contradictory impact on the economy. For example, in the year 2009/10, tax exemptions resulted into a direct loss of 3.99% tax to GDP ratio. Without the exemptions, the tax to GDP ratio would have reached a level of 16.15%, according to the Ministry of Finance, Planning and Economic Development report of 2011. The International Monetary Fund (IMF) has discovered that some of the tax incentives and exemptions that Government is granting are unhealthy for the economy, and has continuously encouraged government to reduce tax incentives. At the start of 2017, the media has been awash with reports of the amount of tax that government has paid in respect to the tax exemptions. This year the Government will spend sh77b to pay taxes for Bidco Oil Refineries Ltd, Aya Investments Ltd, Steel and Tube, Cipla Quality Chemicals, Uganda Electricity Generation Company Ltd and Uganda Electricity Transmission Company Ltd. This is as a result of tax exemptions/incentives given to these companies. The amount of money being paid in taxes for these companies could do boost sectors like trade that have been allocated a dismal sh94.39b which amounts to 0.4% of the sh28,252.5 trillion National Budget FY2017/18. Tax incentives and exemptions equals to tax foregone and ultimately has to be paid by someone else. Parliament needs to review Article Section 77(1)-(2), of the Public Finance Management Act (PFMA), 2015, which allows the responsible minister to award tax exemptions and there after report and justify the award to Parliament. This limits parliament oversight role before exemptions and incentives are awarded. Therefore, there needs to be a more transparent approach of giving incentives and exemptions which would provide for more scrutiny and debate by decision makers and all stakeholders. Government and civil society need to conduct a comparative cost benefit analysis of all tax exemptions/incentives that have been given thus far to ascertain whether they have benefitted the country. Most importantly is, the Government of Uganda should withdraw all tax incentives it has given and have not served their intended purpose. Article compliments IFC Review.
Macron to be tough in Brexit talks, but won’t seek to punish UK: economic adviser
France’s President-elect Emmanuel Macron will be tough in negotiations over the terms of Britain’s departure from the European Union but will not seek to punish Britain, his economic adviser said on Monday. Jean Pisani-Ferry said that no-one had an interest in a hard Brexit that totally severs ties between Britain and the rest of the European Union once it leaves, saying there was a mutual interest in maintaining economic and security ties. “At the same time, we have divergent interests on some aspects of the negotiations. So there will be a tough negotiation and he will be tough,” Pisani-Ferry told BBC Radio, adding that Macron would not seek retribution against Britain for leaving the EU even as he looked to strengthen the bloc. “Punish? Certainly not. But he believes that today that Europe is part of the solution to the problems we’re facing.” Article compliments Yahoo News!
Italy, Google End 14-Year Tax Dispute with $335M Settlement
Google announced it has reached a 306 million-euro ($335 million) settlement with Italy’s tax agency that will close the door on a dispute spanning 14 years, reports BNA. The value of the deal with Google is just short of the 318 million-euro settlement Italy reached with Apple Inc. in December 2015, still the largest single tax settlement case ever in Italy. At the heart of the case were allegations that Google improperly reduced its tax obligations by logging profits in low-tax jurisdictions like Ireland, rather than in Italy. The corporate income tax (IRES) in Italy was reduced to 24 percent from 27.5 percent in 2017, but is still among the highest in the European Union. The settlement value is far below the more than 800 million euros Italy reportedly sought at the start, but it is more than a third higher than the 224 million-euro figure that had circulated earlier this year. It covers the period from 2002 to 2015, a significantly broader period than the 2009-to-2013 period indicated when the investigation was first announced last year. According to Francesco Brandi, a law professor at Rome’s La Sapienza University and a former government tax official, the main impact from the Google deal may come in the future. “The biggest thing is not the cash for the treasury but the fact that Google and other major players will have to follow these rules from this point forward,” Brandi told Bloomberg BNA. Recognition of PE Status ‘Significant’ Maurizio Villani, a tax attorney based in the southern Italian city of Lecce, agreed, telling Bloomberg BNA that by striking the deal, Google agreed with the Italian agency’s interpretation that it should be taxed as a permanent establishment in Italy. “This recognition is significant,” Villani said. In a statement released from the U.S. headquarters, rather than from the Milan offices of Google-Italia, the subsidiary of Alphabet Inc. stated that, “In addition to the taxes already paid in Italy Google will pay another 306 million euros.” A statement from Italy’s tax office confirmed the same amount and terms. Before the settlement was announced, Google reportedly denied it owed additional taxes in Italy, saying it was working together with tax officials and claiming it paid what it was legally required to pay. Villani said that the IRES is unlikely to be lowered in the near term and that with plans to raise Italy’s value-added-tax, companies will likely be taxed at an even higher rate going forward. “This settlement with Google is significant, but in terms of tax rates nothing is changing,” Villani said. “The same incentives for companies to look for ways to reduce their tax exposure in Italy remain.” Article compliments IFC Review.
Banks planning to move 9,000 jobs from Britain because of Brexit
The largest global banks in London plan to move about 9,000 jobs to the continent in the next two years, public statements and information from sources shows, as the exodus of finance jobs starts to take shape. Last week Standard Chartered (STAN.L) and JPMorgan (JPM.N) were the latest global banks to outline plans for their European operations after Brexit. They are among a growing number of lenders pushing ahead with plans to move operations from London. Goldman Sachs (GS.N) chief executive Lloyd Blankfein said in an interview on Friday that London’s growth as a financial center could “stall” as a result of the upheaval caused by Brexit. Thirteen major banks including Goldman Sachs, UBS (UBSG.S), and Citigroup (C.N) have given an indication of how they would bulk up their operations in Europe to secure market access to the European Union’s single market when Britain leaves the bloc. Talks with financial authorities in Europe have been underway for several months, but banks are increasingly firming up plans to move staff and operations. “It’s full speed ahead. We are in full motion with our contingency planning,” said the head of investment banking at one global bank in London. “There’s no waiting.” Although the moves would represent about 2 percent of London’s finance jobs, Britain’s tax revenues could be hit if it loses rich taxpayers working in financial services. The Institute for Fiscal Studies – a think tank focused on budget issues – said in a report on Thursday the rest of the population will have to pay more if top earners move. The exact number of jobs to leave will depend on the deal the British government strikes with the EU. Some politicians say bankers have exaggerated the threat to the economy from Brexit. The plans of large banks such as Credit Suisse and Bank of America and many smaller banks are still unknown. Frankfurt and Dublin are emerging as the biggest winners from the relocation plans. Six of the 13 banks favor opening a new office or moving the bulk their operations to Frankfurt. Three of the banks will look to expand in Dublin. Deutsche Bank (DBKGn.DE) said on Apr. 26 up to 4,000 UK jobs could be moved to Frankfurt and other locations in the EU as a result of Brexit – the largest potential move of any bank. JPMorgan last week announced plans to move hundreds of roles to three European cities in the next two years. This is still significantly lower than the 4,000 figure JPMorgan CEO Jamie Dimon first estimated before the vote. Estimates for possible finance-related job losses from Brexit are on a broad range from 4,000 to 232,000, according to separate reports by Oliver Wyman and Ernst & Young. Banks are treading carefully, enacting two-stage contingency plans, to avoid losing nervous London-based staff as they work out how many jobs will have to eventually move. This suggests that the numbers could potentially rise further depending on what deal is eventually negotiated between the EU and Britain. This first phase involves small numbers to make sure the requisite licenses, technology and infrastructure are in place, while the next will depend on the longer term strategy of a bank’s European business. The Bank of England has given finance companies until July 14 to set out their plans. One senior bank executive at a large British bank said forcing companies to make a plan makes it more likely that they will follow through. “It is an unintended consequence, but the more and more preparation you do the more likely you are to execute those plans,” the executive said. HSBC Chief Executive Stuart Gulliver said this week that the bank’s previous estimate that around 1000 staff would move to Paris following Britain’s vote to leave the EU, was based on a ‘hard Brexit’ scenario. Most banks are working on the assumption that this is the most likely outcome of the separation talks and would involve losing access to the single market with no special financial services deal and no transition period. Article compliments Reuters.
EU Brexit Guidelines Set Taxation Safeguards
Leaders from 27 European Union member states adopted guidelines for the upcoming Brexit negotiations that include measures to safeguard the EU in the event the U.K. decides to dramatically lower the corporate tax rate or provide special tax rulings to multinational companies to attract investment, reports BNA. The guidelines — approved at a special April 29 EU summit and due to be formalized in a May 3 European Commission proposal — state that any future trade EU-U.K. relationship must “ensure a level playing field.” According to the guidelines, this includes “safeguards against unfair competitive advantages” when it comes to tax and other sectors such as social, environmental and regulatory practices. The specific language that any move by the U.K. to pursue a low-tax policy would jeopardize EU-U.K. trade relations responds to warnings from U.K. Chancellor of the Exchequer Philip Hammond in March that his government would do “whatever we need to do” if the EU and the U.K. conclude the Brexit negotiations without a trade deal. “The purpose of the language adopted today is very much designed to make it clear that the U.K. cannot expect to have a free trade relationship if it moves toward a low tax policy and this includes dramatically reduced corporate rates,” European Council spokesman Preben Aamann told Bloomberg BNA April 29. Some EU officials said their concerns about a U.K. low-tax policy have increased in the wake of the recent announcement by President Donald Trump’s administration on plans to slash U.S. corporate tax rates from 35 percent to 15 percent. Flexibility in Guidelines European Parliament member Philippe Lamberts told Bloomberg BNA that it was almost inevitable that the U.K. would move towards lowering corporate tax rates. “Unfortunately it seems that we are now engaging in a race to bottom when it comes to corporate tax rates,” Lambert, a European Green Party member from Belgium. “I think there is a significant likelihood that the U.K. will follow in the U.S. steps.” European Parliament President Antonio Tajani insisted that the EU Brexit guidelines adopted April 29 had enough flexibility to allow the EU to react to any U.K. move towards tax policies deemed to be competitively unfair. “We have measures that will allow us to address this problem now, during the negotiations over the next year and after the U.K. leaves,” Tajani said in response to a question posed by Bloomberg BNA at a April 29 press conference. He said the European Parliament will have a yes or no vote when it comes to approving whatever are the final terms between the EU and U.K. on Brexit. Trend Toward Lower Rates Others pointed out the broad range of corporate tax rates within the EU. Hungary has the lowest EU corporate tax rate at 9 percent followed by Bulgaria at 10 percent. Ireland, with its 12.5 percent corporate tax rate, has been successful in attracting U.S. multinationals to set up their EU headquarters there. “Unfortunately, the trend in the EU is also to lower rates,” Lamberts said. “This, in the long run, will make it difficult to challenge the U.K. if they do go down that route.” Fredrik Erixon, director of the European Centre for International Political Economy, a Brussels-based think tank, told Bloomberg BNA via email in advance of the summit that “there is a great degree of variety in EU corporate taxes and there is no general position on the right rate of taxation but the U.K. has already run into troubles in the EU over its corporate tax regime by allowing very generous rules for patent boxes.” He added: “Politically, I do not think a corporate tax cut will appeal to the Brexit opinion. If people voted to leave to revolt against the elite or the establishment, a tax cut for the economic establishment probably will not go down well.” Article compliments IFC Review.
BEPS focus drives global tax innovation
The firm’s survey of 50 countries found that 30% intend to invest in broader business incentives to stimulate or sustain investment, with new or improved business incentives being offered in 27% more countries than in 2016, reports CCH Daily. Much of the focus is on introducing more generous research and development (R&D) incentives, which 22% plan to introduce in 2017, while new or improved R&D incentives are now being offered in 83% more countries than last year. Eight of the 50 countries (16%) surveyed now have laws in place that will drive lower corporate income tax (CIT) rates this year. Seven of those are based in Europe (versus just three last year), including the UK, Luxembourg and France, suggesting that the epicenter of BEPS has moved into Europe and that countries in that region are reducing rates faster than countries elsewhere in a bid to encourage foreign direct investment. Only one outlying country, Chile, forecasts a known or anticipated headline CIT rate increase in 2017. The number of countries forecasting an increasing business tax burden continues to rise, with 22% expecting an overall increase in the CIT burden in 2017, compared to 18% in 2016. Half (46%) of countries identify new BEPS-related transparency and disclosure requirements as the main sources of increases in their tax burden. Nine jurisdictions forecast a higher indirect tax burden, as the worldwide spread of VAT and goods and services tax (GST) continues and technology is adopted more widely by tax administrations. Chris Sanger, EY global tax policy leader, said: ‘Governments are increasingly adopting incentives as a pragmatic means to compete amid coordinated change across the tax landscape. Incentives can encourage and sustain business investment, allowing governments to respond to the dual pressures of continued weak economic growth and the introduction of new measures and legislation in response to tax reform in Europe and globally.’ Article compliments IFC Review.
Italy to Open $141M Criminal Tax Probe Into Amazon Subsidiary
Prosecutors in Milan are preparing to launch a formal criminal investigation into Amazon.com Inc. to determine whether the U.S.-based online retailer skipped out on a 130 million euro ($141 million) tax bill over a six-year period, reports BNA. A separate, smaller-scale administrative investigation—a kind of audit that could carry sanctions—into the company could also be in the works, tax officials told Bloomberg BNA. The paperwork for the criminal probe was filed April 28, just before a three-day weekend in Italy. The Milan prosecutor’s office declined to comment on the pending case when contacted by Bloomberg BNA May 2, but an official confirmed that the paperwork had been filed. On May 2, Amazon’s Italian office issued a statement denying any wrongdoing. “Amazon pays all the taxes we are required to pay in every country where we operate,” the statement said. “Corporate tax is based on profits, not revenues, and our profits have remained low given our heavy investments and the fact that retail is a highly-competitive, low margin business.” The statement also said the company has invested more than 800 million euros in Italy since it began operations in the country in 2010, and noted that it employs more than 2,000 full-time workers in Italy. In Italy, tax investigations can be criminal or administrative, although in this case the administrative investigation would be narrower in scope. Administrative investigations can only go back five years, according to Francesco Tundo, a tax law professor from the University of Bologna. So “an investigation opened this year, before Dec. 31, can only look into tax year 2012 or later,” Tundo said in an interview. According to Giovanni Iaselli, a tax attorney with DLA Piper in Milan, the case involving Amazon is particularly complicated because the company operates as a fixed entity in Italy that handles the logistics and some of the administrative aspects of the company, while the European entity based in Luxembourg is the official entity that handles company sales. “The structure of companies like Amazon can make enforcing tax laws much more difficult,” Iaselli told Bloomberg BNA. Harmonized Tax Laws Tundo, Iaselli and others said similar cases are likely in the future until European tax laws are harmonized. “This kind of case will continue to emerge as long as each country has its own set of laws,” Carlo Garbarino, a tax law professor at Bocconi University in Milan, said in an interview. Tundo said that until the European Union has a uniform set of tax rules in this area, enforcement will be complicated and mostly ineffective. “It’s like closing the barn door after the horse has run out,” Tundo said. “Italy will most likely recover some money from Amazon in this case, but there are hundreds of cases with smaller companies that will never come to light.” Apple Probe Amazon is the latest in a series of high-profile U.S.-based digital companies Italy has investigated on allegations of tax evasion. In January, Italy launched a tax probe involving at least 224 million euros into Google, a subsidiary of Alphabet Inc. That investigation is still open. In late 2015, the Italian subsidiary for Apple Inc. settled a much larger tax suit for 318 million euros, still the largest single tax settlement case in Italy. Article compliments IFC Review.
Chevron Loss in Australian Court May ‘Empower’ OECD Tax Reform
Chevron Corp., the largest U.S. oil producer after Exxon Mobil Corp., hopes to raise as much as $10 billion this year from global asset sales to counter the profits-sapping slump in energy prices, reports BNA. Benchmark oil prices have been stuck at around $50 a barrel since the start of the year, which means influencing the global policy for the taxation of multinational companies may not be a similar priority for Chevron CEO and Chairman John Watson. Yet that is exactly what the U.S.-based oil producer has managed in its failure to win an appeal in Australia over a long-running transfer pricing dispute, according to tax practitioners. The April 21 ruling from Australia’s second-highest court may both “influence and empower” the OECD over its 15-action plan to combat tax avoidance strategies used by multinational companies, says Zara Ritchie, the Melbourne-based leader for global transfer pricing at accountancy firm BDO. If this happens, “more and more” tax authorities will likely target multinationals over the corporate interest deductions at the center of Chevron’s legal dispute with the Australian Taxation Office, or ATO, adds Daniel Head, the London-based head of U.K. transfer pricing at accountancy firm KPMG. $2.5 Billion Loan, Untaxed Profits The Federal Court of Australia appeal ruling last week related to a $2.5 billion inter-company loan that Chevron Australia Holdings Pty. Ltd. received in 2003 to finance a Western Australia gas export project, with the ATO seeking A$340 million ($257 million) in unpaid taxes, interest and penalties. The inter-company loan to Chevron’s Australian unit should have been made on the same basis as a similar transaction involving independent companies, otherwise known as the arm’s-length principle, under transfer pricing rules which aim to ensure cross-border transactions are priced on a fair basis. Yet by borrowing at a local rate with just 1.2 percent interest and then lending to the Australian unit at 9 percent, a U.S.-based subsidiary of the Australian unit benefited from Chevron’s group credit rating and subsequently received “significant” untaxed profits, according to the April 21 court ruling. As part of its anti-avoidance project, the Organization for Economic Cooperation and Development will deliver guidance on the application of the arm’s-length principle to intra-group loans next year. About A$420 billion in related-party loans were made in Australia in 2014-15, with the energy and resources sector making up almost half the total amount, according to the most recent ATO figures. 2018 Publication Guidance on the arm’s-length principle to intra-group transactions is a remaining part of Actions 8 – 10 of the OECD’s anti-avoidance project against base erosion and profit shifting, known as BEPS. In an April 24 email, a spokesman for the OECD’s transfer pricing team told Bloomberg BNA that work on the arm’s-length guidance is “ongoing,” with publication scheduled for “early in 2018.” Due to the absence of detailed guidance and the complexity of the litigation process, substantial transfer pricing cases on the arm’s-length principle for intra-group financing are rare, according to BDO’s Ritchie, and this has given importance and influence to any that make it to the courtroom. Like Chevron in Australia, U.S.-based conglomerate General Electric Co. received a ruling seven years ago in Canada over the arm’s-length principle of inter-company financing. The legal concepts raised in that case are part of the OECD’s existing guidelines for BEPS Actions 8 – 10, Ritchie adds. “We can expect the OECD’s new BEPS-related guidance on pricing of intra-group financing to further endorse” the principles raised in Chevron’s case, says Geoff Gill, a Sydney-based transfer pricing partner and economist at accountancy firm Deloitte. “For related party debt arrangements, the implication is that taxpayers need to consider whether the terms of the loan can reasonably be considered to be commercial.” Cross-Border Impact While last week’s ruling may influence the OECD’s guidance next year, it will equally allow the ATO to publish its own financing arrangements guidance and give the tax authority confidence to pursue cross-border cases, according to Jason Casas, Grant Thornton Australia’s head of transfer pricing. “The ATO has been waiting for the outcome of this case,” he says about last week’s Chevron ruling, which the company may appeal to Australia’s highest court. “The decision places greater emphasis on multinational companies to review and assess the commerciality of their related party dealings.” Following the verdict, an ATO spokesman told Bloomberg BNA the ruling is “significant” and has “direct implications” for similar court cases involving related-party loans. They also noted that the Chevron case is the first in Australia to test the ATO’s transfer pricing rules on intra-group transactions. Chevron, meanwhile, said in a statement posted on its website following the ruling that it will review the decision “to determine next steps, which may include an appeal to the High Court of Australia.” Cost of Appeal Yet Chevron may “think twice” over an appeal due to financial costs, says David Sayers, a Milton Keynes-based international tax partner and transfer pricing specialist at accountancy firm Mazars. The ruling is going to have multinational companies “looking over their shoulder,” and “not just in Australia,” he adds on the impacts of the case. “Transfer pricing advisers who are benchmarking loans are really going to have to change their approach when it comes to using credit ratings.” Chevron in Oz Chevron is one of Australia’s largest resources investors, mainly due to an $88 billion spending spree on its Gorgon and Wheatstone LNG developments in Western Australia. It also holds a 16 percent stake in the state’s North West Shelf project, which started shipping liquefied natural gas in 1989. Article compliments IFC Review.
UK Tax Practitioners Welcome Decision To Defer Tax Moves
The Chartered Institute of Taxation (CIOT) has welcomed the UK Government’s decision to remove a majority of the Finance Bill following discussions with the Opposition, reports Tax News. The Institute has called for the Government to make a clear statement about whether (if re-elected) all of the clauses dropped will be reintroduced on the original timetable. The Government has decided to delete 72 out of 135 clauses and 18 out of 29 schedules. The residual Bill has been estimated to be roughly 140 pages in length compared with the current 762 pages, a reduction of more than 80 percent by volume. This is in line with a call by CIOT in a letter to the Chancellor, copied to the Shadow Chancellor, sent on April 19, in which CIOT President Bill Dodwell warned of the risks of rushing through a large number of tax changes without any real parliamentary scrutiny. Clauses dropped include those on Making Tax Digital, corporate loss relief, and interest deductibility, VAT in relation to fulfillment houses, and penalties for enablers of defeated tax avoidance schemes. It is likely that most if not all of the provisions dropped will return in a Bill after the election, regardless of who wins the election, CIOT said. Under Making Tax Digital, the Government will require taxpayers with a turnover exceeding GBP10,000 (USD12,370) to maintain digital accounts on a quarterly basis. CIOT President Bill Dodwell commented: “This is a sensible, pragmatic approach from the Government and Opposition. Agreeing to leave most of the complex and controversial clauses in the Finance Bill until a post-election Finance Bill where they can be scrutinized at greater length.” “As we said in our letter to the Chancellor, this is not simply about the formality of parliamentary debate. Since the Finance Bill was published last month, we have identified a number of changes that we believe are needed to the legislation on areas including in complicated areas such as loss relief and interest deductibility. Delaying this legislation until the summer will hopefully allow time for our concerns to be looked at and taken on board by government.” “We particularly hope that the delay in legislating for Making Tax Digital will enable more of the framework for this huge project to be put in statute, rather than brought in through regulations, which are subject to less scrutiny and unamendable.” Article compliments IFC Review.
UAE Signs Up To Tax Information Exchange Standard
The United Arab Emirates has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, joining 108 other jurisdictions, reports Tax News. The Convention provides for all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations, and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers’ rights. According to the OECD, the Convention is seen as being the ideal instrument for swift implementation of the new Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries, as well as for the automatic exchange of country-by-country reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. Signing the Convention will enable the United Arab Emirates to fulfil its commitment to begin exchanging information by 2018. Article compliments IFC Review.
USA: Why Trump’s plan for corporate taxes is a ‘magic unicorn’
Capitol Hill is pushing back against a report that the White House is seeking to cut the corporate tax rate from 35 percent to 15 percent, raising concerns that it would add trillions of dollars to the national debt, reports CNBC. President Donald Trump is scheduled to unveil his broad principles for tax reform on Wednesday. According to The Wall Street Journal, the announcement is expected to include the 15 percent corporate rate that Trump proposed during the campaign. The Tax Policy Center estimates the move would reduce federal revenues by more than $2.4 trillion. “I don’t know if he can get away with it,” Sen. Orrin Hatch, chairman of the powerful Finance Committee, told reporters Monday. Republicans have been planning to use a parliamentary process known as reconciliation to pass a tax reform bill without support from Democrats. However, they cannot use the maneuver if the bill adds to the deficit after 10 years. Treasury Secretary Steven Mnuchin has repeatedly pledged that the administration’s tax plan will pay for itself. He has not indicated support for any ways to raise revenue, such as the controversial border adjustment tax. Instead, Mnuchin has emphasized that the White House proposal will generate economic growth, which he argues should in turn lead to higher tax revenue from rising wages, higher employment and strong business sales. “You could have as high as a $2 trillion difference in revenues depending on what you think is going to be the growth function,” Mnuchin said at a speech in Washington last week. “The plan will pay for itself with growth.” The administration has said it hopes to spur economic growth of 3 per cent, though Trump floated figures as high as 6 percent. The Congressional Budget Office estimates over the next decade range between 3 and 4 percent — a strong showing, but unlikely to be enough to offset such a dramatic reduction in the corporate rate, analysts say. To comply with the rules around reconciliation, the White House could make the tax cuts temporary, letting them expire after 10 years in order to avoid increasing the deficit in the long term. However, House Speaker Paul Ryan’s office threw cold water on that idea. A senior aide pointed out that simply cutting the corporate rate without changing other parts of the tax code would allow businesses to carry forward tax credits that could be used a decade later — ultimately adding to the deficit anyway. In remarks at the Institute of International Finance last week, one of Ryan’s senior tax writers called the prospect of a temporary business tax cut a “magic unicorn running around.” “Not only can that not pass Congress, it cannot even begin to move through Congress,” said George Callas, Ryan’s senior tax counsel. “This is something that actually cannot be done.” Trump is slated to meet with Mnuchin during a closed-door meeting in the Oval Office on Tuesday afternoon. Mnuchin and National Economic Council Director Gary Cohn will then head to Capitol Hill to meet with Ryan and Hatch, along with House Ways and Means Chairman Kevin Brady and Senate Majority Leader Mitch McConnell on tax reform. Article compliments IFC Review.
Trust Companies, Banks Should Be Main Haven Targets: EU Report
New measures targeting trust companies and banks in their role of helping to create offshore companies, such as the more than 200,000 exposed in the year-old Panama Papers, should be the priority for EU legislators in their efforts to crack down on the use of tax haven intermediaries, according to a new European Parliament report, reports Bloomberg. The April 24 study for the European Parliament Panama Papers investigative committee also called for the scope of anti-money laundering and anti-terrorist-financing laws to be expanded to cover banks and others intermediaries active in offshore financial centers. “Targeting only the most essential intermediaries (trust companies and banks) for the creation and maintenance of offshore structures could be most effective, as long as such intermediaries also have locations in the onshore jurisdictions,” said the report, “Role of Advisors and Intermediaries in the Schemes Revealed in the Panama Papers.” A separate report for the Parliament committee called for an “EU framework for compulsory common ethical standards for tax advisors in each country,” as well as common standards for the disclosure of tax avoidance schemes. The European Commission is due to propose a regulatory framework for tax advisers and other intermediaries in the coming months. Concerning banks, the report on the role of advisers and intermediaries in the Panama Papers noted that financial institutions often allowed accounts to be set up that violated EU anti-money laundering laws. “Good implementation, compliance and enforcement of AML/CFT standards are crucial,” the report said. “In the past, many offshore entities opened bank accounts to which they were not entitled under” requirements for AML and Combatting the Financing of Terrorism. As for tracking the beneficial owners of the offshore companies, the report noted that it can often be nearly impossible to do because they are hidden via bearer shares, foundations and nominee shareholders. “The decision making cycle starts with” unidentified beneficial owners (UBOs), the report said. “Even with the Panama Papers at hand, it is difficult to trade UBOs.” It noted that despite the Panama Paper leaks, approximately 60 percent of the beneficial owners of the offshore companies identified haven’t been unmasked. The EU is in the midst of finalizing revisions to the EU Anti-Money Laundering Directive. EU member states and the European Parliament are at loggerheads over new rules for identifying beneficial owners of companies, trusts and foundations. Another key recommendation calls for the EU to increase the “pressure on offshore jurisdictions” to force them to regulate trust companies such as Mossack Fonseca, the Panamanian law firm from which the Panama Papers documents leaked, that are based in tax havens. One way to “pressure” offshore jurisdictions is to get them to prevent trust companies from opening a bank account for their clients. Other ways include requiring them to establish company registers, regulatory and supervisory frameworks for advisers and intermediaries—and tax authorities. The EU is drawing up a tax haven blacklist, due to be finalized by the end of 2017, with the intention of preventing money from being diverted to avoid taxation. It is also compiling a list sanctions it will take against any country or jurisdiction that ends up on the EU tax haven blacklist. As for accountants, auditors, notaries, lawyers, tax advisers and others based in the EU that serve as a link between trust advisers such as Mossack Fonseca and the individuals or companies that set up offshore structures, the report noted that in the EU, “the great majority” are based in the U.K., Luxembourg and Cyprus. “Most of these intermediaries have demanded fewer than 10 offshore entities while the largest ones have ordered a couple of thousand offshore entities,” the report said. The report noted that the role of the Big Four accounting firms—PricewaterhouseCoopers LLP, Ernst & Young LLP, KPMG LLP and Deloitte LLP—in the setting up offshore structures identified in the Panama Papers was “limited.” However, the Big Four firms have “advised clients to use offshore structures,” the report noted. “That the Big Four are involved in the creation of offshore structures for illicit means is nevertheless surprising given their codes of ethical and responsible conduct,” the report said. Article compliments IFC Review.
India: FATCA non-compliant a/cs to be frozen from May 1
Mutual fund (MF) investors, bank account holders and those who have invested in insurance schemes cannot operate their accounts, which were opened between July 1, 2014 and August 31, 2015, from May 1 if they are not compliant with tax information sharing law FATCA (foreign account tax compliance act), reports Times of India. The Ministry of Finance has instructed financial institutions — MFs, banks and insurance firms — to block non-compliant accounts. “Queries are being received from financial institutions regarding the revised time lines for completion of due diligence. The financial institutions are advised that all efforts should be made to obtain the self-certification (for FATCA compliance),” the ministry said. “The account holders may be informed that, in case self-certifications are not provided till 30 April 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts,” it said. Investors and account holders have to provide a self-certification about ‘tax residency’ to their respective financial institutions for compliance with FATCA failing which the account will be blocked. FATCA is part of an anti-tax-evasion regime designed to locate income and assets held by US persons in offshore accounts. Financial institutions were told to obtain self-certification and carry out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from July 1, 2014 to August 31, 2015. Such self-certification and documentation was originally required to be obtained by the financial institutions by August 31, 2016. Otherwise they were required to close the accounts and report the same as per the prescribed due diligence procedure. Due to the difficulties faced by account holders, the Central Board of Direct Taxes (CBDT) asked financial institutions not to close accounts that are not compliant in August last year. Industry officials and financial advisors consider FATCA as an ‘irritant’ as the share of NRI (non-resident Indian) investments in domestic MF and insurance schemes is negligible. “MFs have been making sustained efforts to collect the FATCA self-certification from the investors who have opened new accounts during the aforesaid period to confirm their tax residency,” according to the Association of Mutual Funds in India (AMFI). “However, there are still a large number of investors who are yet to provide the same,” it said. FATCA enables automatic exchange of financial information between India and the US. Indian financial institutions have to provide necessary information to Indian tax authorities, which will then be transmitted to the US. The inter-governmental agreement (IGA) with the US for implementing FATCA came into effect on August 31, 2015. Financial institutions were told to obtain self-certification and carry out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from July 1, 2014 to August 31, 2015. Article compliments IFC Review.
UAE joins global fight against offshore tax evasion
At the Paris headquarters of the Operation for Economic Cooperation and Development (OECD), the UAE’s ambassador to France signed the multilateral convention on mutual administrative assistance in tax matters, reports International Adviser. The UAE is the 109th country to sign the treaty and will begin exchanging information by 2018. The convention provides for all forms of administrative assistance in tax matters; including exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It also guarantees extensive safeguards for the protection of taxpayers’ rights. The convention was developed jointly by the OECD and the Council of Europe in 1988. It was amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, thus ensuring that developing countries could benefit from the new more transparent environment. Article compliments IFC Review.
Panama Papers law firm boss sees tax shelter boom in US
The co-founder of the law firm at the center of the Panama Papers scandal says the fallout has set off a “thriving” boom in the creation of tax shelters in the United States, reports Geo News. Juergen Mossack, who partnered with Ramon Fonseca to create the Panamanian firm Mossack Fonseca, said in a document obtained Thursday by AFP that after the Panama Papers leak a year ago, the number of new tax shelters created has fallen by 30 percent in Panama and elsewhere. “However, jurisdictions such as Delaware, Nevada and others located in the United States, where virtually no due diligence is required… incorporations are thriving!” Mossack said. “Whilst Panama tries hard to be whiter than white, others are profiting,” he wrote. The Panama Papers, published a year ago in a leak of more than 11 million documents belonging to Mossack Fonseca, spurred fresh government action against the secretive world of tax fraud and evasion. Before the scandal exposed the global extent of offshore tax havens, Panama was the last major financial center refusing all exchange of banking information. But since then, Panama has adopted new legislation and signed up to the international fight against tax fraud, with all the transparency required. Law firms in Panama have been required to undertake due diligence — to know their clients and the final beneficiaries of the companies they create – since 2015. Mossack said US jurisdictions have “zero transparency” and that is why, after the scandal, there has been an increase in clients creating tax shelters in the US who previously would have gone to Panama. According to the Panamanian economy ministry, the creation of offshore companies fell 27 percent in 2016 from the prior year. No one has been arrested in the Panama Papers leaks scandal. In this Central American country, tax evasion is not a crime. But Mossack and Fonseca have been placed in provisional detention on money-laundering charges as part of a sprawling Brazilian corruption probe dubbed “Operation Car Wash.” Mossack´s letter, written from detention, was dated April 10. Panama´s chief prosecutor, Kenia Porcell, said his office was cooperating with European countries investigating tax fraud revealed in the Panama Papers. The Panama Papers linked some of the world´s most powerful leaders, including Russian President Vladimir Putin, former British prime minister David Cameron and others to unreported offshore companies. Mossack said more than 98 percent of his firm´s clients were not Panamanian nationals and that 85 percent of the companies noted in the Panama Papers were set up to comply with other jurisdictions. According to him, “less than one percent of all the companies incorporated” by Mossack Fonseca could have “a possible wrongful use.” If some of the companies set up by Mossack Fonseca were used by their owners to try to cheat on their taxes “we would not have been aware of that, since no client in his right mind would tell people he has never met that he would use the company for an illegal purpose,” he said. “Such a disclosure would automatically disqualify him from being accepted as a client.”
Ireland: 2,000 taxpayers call Revenue helpline in offshore crackdown
With only a month left for taxpayers to make voluntary disclosures about offshore assets, there’s likely to be a surge in calls to the Revenue Commissioners’ dedicated helpline in coming weeks, reports The Independent. Revenue Commissioners said yesterday that about 2,000 calls have so far been made to its helpline, which was established after Finance Minister Michael Noonan announced in his October Budget that the Government was committed to weeding out taxpayers who are currently non-compliant. The campaign to encourage taxpayers to reveal undeclared or under-declared offshore assets is a final chance for people to make voluntary disclosures and receive lower penalties than they will after an April 30 deadline for coming clean. The Revenue Commissioners wrote to about 500,000 self-assessed taxpayers earlier this year, urging them to reveal any previously undisclosed offshore assets they might have. Those assets could include anything from foreign property and bank accounts, to foreign pensions. Since Mr Noonan announced the tough approach, a small number of taxpayers have already made settlements. “It is important for anyone who has a liability relating to undeclared income or assets outside Ireland to make a full disclosure to Revenue on or before 30 April,” said a Revenue spokeswoman. “If the deadline is missed, the consequences are serious, and may include higher penalties, publication in the quarterly list of tax defaulters, and potential criminal prosecution.” She added: “The vast majority of tax returns are correct and complete, and Revenue’s letter assured taxpayers that if their returns were correct and complete then no further action was required.” The Irish Tax Institute has pointed out that from later this year, the Revenue Commissioners will be able to access bank and other financial account information from more than 100 countries. The information available will include the identity of taxpayers, account balances, gross income, gross sales proceeds and account closures. The institute has pointed out that taxpayers can sometimes assume that a rental loss on an Irish property can be offset against foreign rental income in calculating their tax bill, for instance. This is not possible under Irish law, it pointed out, as Irish rental income and foreign rental income are treated as separate sources of income. Therefore, a loss arising on one cannot be offset against income arising from the other. Other interests that should be declared can include fees from foreign directorships, for instance. Article compliments IFC Review.
USA: The $767 Billion Money Pot Driving Tax Reform
With the failure of legislation to repeal the Affordable Care Act, the Trump administration and Republicans lawmakers are moving on to corporate tax reform. At the heart of this debate is the problem of corporations shifting their profits to foreign tax havens to avoid U.S. income taxes. A new report by the Institute on Taxation and Economic Policy (ITEP) helps clarify the scope of this problem, finding that Fortune 500 corporations now disclose more than $2.6 trillion in offshore earnings on which these companies have avoided as much as $767 billion of income tax, reports Tax Justice. The reason for this exodus of offshore cash is that the corporate tax code allows companies to avoid paying even a dime of U.S. taxes on their offshore earnings, which often includes domestic earnings moved offshore, until they officially repatriate these profits. This policy, known as deferral creates a huge incentive for companies to simply hold their money offshore indefinitely because it allows them to avoid paying taxes to the United States. ITEP’s new report shows that offshoring profits is a widespread phenomenon: 322 Fortune 500 companies now report having some offshore earnings. But the data also show that the bulk of these earnings are held by a relatively small number of companies. In fact, just 10 companies, including Apple, Pfizer, Microsoft and General Electric, alone hold $1 trillion of the $2.6 trillion hoard. Fifty-nine of the offshoring companies disclose, in their annual financial reports, how much federal income tax they’re avoiding by keeping their profits offshore. The unpaid tax rate for these 59 corporations averages 28.7 percent. Since the federal tax bill on repatriation is 35 percent minus any foreign tax already paid, this implies that these companies have paid an average tax rate of just 6.3 percent on these profits so far. This is a clear indication that much of this income is being reported in low-rate foreign tax havens like Bermuda and the Cayman Islands. If the other offshoring companies faced the same tax rate on repatriation, then these companies would owe an estimated $767 billion in unpaid taxes on their offshore earnings. Rather than seeking to collect this $767 billion in unpaid taxes, many lawmakers on both sides of the aisle appear more interested in giving companies a tax break. In lieu of tackling corporate tax reform head-on by repealing unwarranted tax loopholes, some policymakers have noticed that even a small tax on offshore cash could bring in enough revenue to pay for infrastructure and/or lower corporate tax rates, at least in the short run. For his part, President Donald Trump has proposed a mandatory tax of 10 percent on offshore earnings. While he has pitched the idea as a revenue generator, the reality is that applying a 10 percent rate would represent a 70 percent tax break compared to the 35 percent rate that the law requires. Overall, this would mean that President Trump’s tax plan would give companies a tax break of over half a trillion dollars compared to the $767 billion that they owe. President Trump is certainly not alone in proposing irresponsible repatriation proposals. Lawmakers and advocacy groups on both sides of the aisle have put out a variety of proposals to tax offshore earnings at rates even lower than 10 percent. The House Republican leadership’s plan would tax these earnings at rates of 8.75 percent for liquid assets and 3.5 percent for all other offshore earnings. Bipartisan legislation proposed during the last Congress would have allowed companies to voluntarily repatriate their earnings at a rate of 6.5 percent, though this effort ran into trouble when the non-partisan Joint Committee on Taxation (JCT) found that the legislation would lose $118 billion in revenue. More recently, Rep. John Delaney proposed a pair of bipartisan bills that would allow companies to repatriate their earnings at a zero percent or 8.75 percent to pay for infrastructure spending. These bills are striking for their support by a number of Democrats, despite the fact that they are proposing a tax break larger than the one offered by President Trump. The one bill that stands in sharp contrast to others is the Corporate Tax Dodger Prevention Act proposed in early March by Sens. Bernie Sanders and Brian Schatz and Rep. Jan Schakowsky. This bill would require companies to pay the full 35 percent rate they owe (minus foreign tax credits) on their offshore earnings. Even better, the bill would permanently close the deferral loophole, which would effectively shut down offshore tax avoidance once and for all. This approach would not only make the tax system more fair, it would also raise a substantial amount of revenue that could be used for public investments. Article compliments IFC Review.
UK: The government must move fast in Brexit talks to stop a City exodus
London is a global hub, bolstered by its pan-European reach. But unless the UK government can negotiate a better position, the disappearance of financial services passports will mean firms in many sectors will not be able to conduct business within the EU as freely as they do today, reports City A.M. Many businesses are already planning for this contingency, which is why, in some limited areas, jobs are already moving out of the City. In part, this is because there is some resignation among business leaders that even if a deal can be done, the process of leaving the EU will be so complex, and the position of the UK’s financial services industry will be so central, that such a deal will only become clear very late in the negotiating process. This timeline might be too uncertain, and too late, for firms to rely upon. Against this backdrop, what should the UK government’s early priorities be? First, the UK government needs to recognise that many other European financial centres see Brexit as a great opportunity. The UK should acknowledge that the City has no special right to dominate European financial services business, and recognise that Europe has a legitimate interest in ensuring that the major financial services centre for Europe (and the euro) is not “offshore”, as London will shortly become. The UK has chosen to leave the EU, and should be open about the fact that doing so will have consequences. Second, when the UK has left the EU, it will still be in a unique position. The UK has fully embraced the EU financial services Single Market and is already compliant with the rules. The UK government should therefore seek an early “in principle” commitment to continued access on the basis of maintaining equivalent rules. The UK would also need a seat at the rule-making table, although thinking this seat would allow the UK to be a full rule-maker may be overly optimistic. It should be possible to make an arrangement whereby the UK courts would take into account, but not be bound by, European Court of Justice rulings on the meaning of the relevant EU legislation. This overall approach is likely to come with a price tag, and the UK government is likely to ask the industry to pay for it. But only such an early “in principle” commitment is likely to give sufficient comfort to parties that they will continue to be able to carry out pan-European business from London. Third, some European financial services Single Market measures already include a commitment to equivalence. Many do not, but some of the most important measures do (such as MiFID II, which the investment banking community relies on). The UK government should emphasise, at the earliest possible stage, the importance of getting an “in principle” commitment to using equivalence measures where they already exist. Without such an “in principle” commitment, even the optimists about the Brexit process are likely to concede that achieving MiFID third-country equivalence status at a late stage in the negotiating process is unlikely to prevent businesses from making early decisions to transfer jobs needlessly to the continent. The financial services industry is likely to take final decisions in 2017, not 2018, about whether to relocate, and if so, where and how much of their businesses to move. Understanding this timetable, and the importance of making early progress (even if the details are to follow) should be the priority on both sides. Achieving a sensible outcome is not going to be easy. But unless there are signs of early progress, any good work undertaken at a later stage may, in part, be wasted if business leaders have already taken decisions to move their business (into the EU, or elsewhere). The government needs to reassure the industry not only that it recognises the importance of access to EU markets for the financial services industry, but that the timing matters as well. While no deal is done until it is done, getting “in principle” acceptance on the key issues should be the UK government’s early priority. Article compliments IFC Review.
French banks posted ‘multi-billion euro profits’ in tax havens
The report details how, in 2015, top Eurozone banks generated €25 billion in profits in low-tax territories like the Republic of Ireland, Luxembourg, the Cayman Islands and the American state of Delaware, reports France 24. Despite the massive profits, the banks only conducted 12 percent of their total business and employed 7 percent of their workers in those countries – a clear sign of the “tricks” that banks are willing use to avoid countries with stricter tax regimes, according to Oxfam’s Manon Aubry, one of the report’s authors. In Europe, banking is now the only sector in which companies must declare country-by-country tax and profit figures, thanks to legislation passed in the wake of the financial crisis. The anti-poverty NGO Oxfam took advantage of the new data to write its report. France first? Several of France’s biggest banks figure prominently in the report, including BNP Paribas, Crédit Agricole, Société Générale and BPCE (which owns Banque Populaire and Caisse d’Epargne). French banks declared almost €2 billion in profit in Luxembourg, as much as they reported in Germany and Spain combined, despite the fact that Luxembourg’s population is only 1 percent that of Spain’s. Some of the most telling figures come from discrepancies between profit and other key economic measures. “Société Générale, for instance, reported 22 percent of its profits in tax havens,” Oxfam’s Aubry told FRANCE 24, “but only 4 percent of its employee pay was generated there.” In another example, BNP Paribas declared €134 million of profit in the Cayman Islands in 2015, although it had zero employees there. However, Servane Costrel, Wealth Management Press Officer for BNP Paribas, said that these figures were “obsolete”. “Profits earned in the Cayman Islands were taxed in the United States,” Costrel told FRANCE 24 by email. “But this is a non-issue since that figure [of profits in the Cayman Islands] dropped to zero in 2016.” Costrel also pointed out that BNP Paribas paid 28.8 percent in taxes overall in 2016, and that it no longer operates in any state considered “uncooperative” tax havens by the Organisation for Economic Co-operation and Development. Of course, banks from Germany, Italy, the Netherlands and the UK also posted huge profits in tax havens. In 2015 the British bank Barclays, for example, declared €557 million before taxes in Luxembourg, a country where it only employed 42 people. Legal loopholes Banks break few laws by sheltering their profits in tax havens. This means European countries need to take stronger action against tax dodgers, says Oxfam’s Aubry. She targeted France’s official list of tax havens, which she called “meaningless”. The French list of nine countries conspicuously leaves out heavyweights Luxembourg, the Cayman Islands and Ireland, all of which appear on lists compiled by financial sites such as Forbes and The Motley Fool. Instead it includes Botswana, Guatemala and the Marshall Islands. “These are not countries that play an essential role in global tax avoidance,” Aubry said. “They don’t compare to the 0 percent tax rates charged by a place like the Cayman Islands.” Driving down corporate taxes Aubry pointed out that tax havens can influence other countries’ tax policies, too. States that want to attract business will lower their own corporate tax in response.“France is a good example,” Aubry said. “It used to have a 33 percent corporate tax rate. It just agreed to lower it to 28 percent. And almost all the French presidential candidates are proposing to lower it to 25 percent, even [far-left candidate Jean-Luc] Mélenchon.” Article compliments IFC Review.
Tax haven debate shows many people don’t know the difference between a business and a company
What’s the difference between a business and a company? No, it’s not a trick question. Whilst “company” and “business” are terms people use inter-changeably, there are important differences with a company being a legal construct and absolutely not the same thing as a business, reports City A.M. Businesses exist by virtue of people buying and selling stuff, companies exist because the law says they do. Some companies do have employees, bank accounts and property but that isn’t the point of them. Companies exist to box up ownership and control and allocate responsibility and risk. This is relevant because the current debate on offshore companies is based on misunderstandings of what a company is. While the current focus is offshore companies, in the medium term it threatens the whole idea of the company – and you don’t have to be a corporate lawyer to believe that the company is an essential tool to global prosperity. Take a software distribution agreement which requires the distributor to keep full accounts relating to sales of the kit, to let the supplier see these accounts, to get data licences and a whole host of other reasonable things. Let’s say the distributor was a moderately complicated business. The obvious way of dealing with all these requirements without the complexity of special accounts and to minimise the risk is to incorporate a subsidiary just to carry on this business. If the supplier wanted more financial comfort it could have a guarantee from the group. But simply boxing this particular bit of a business into a separate company makes life simpler and better for everyone. No tax angle, no deception, just clarity. This example is just one of many reasons companies exist and are set up in offshore financial centres. Partly because of this lack of understanding, companies, particularly ones based offshore, are facing scrutiny within calls for public beneficial ownership registers. People want to know who really owns these companies. This may sound reasonable, but it ignores reality because the whole point of many companies is to transmute ownership. In this sense, companies are a way of picking apart and repackaging the elements of ownership and control. This is relatively simple say in relation to a person, but which get more complex with multiple assets and people where some control goes one way, some another, some rights to a return or to proceeds here, some elsewhere, some liability here, some there. A company is not unique in doing this but it is probably the most widespread sophisticated mechanism for this risk and reward allocation in relation to ownership and control. Companies exist not to hide real ownership but in many cases they do exist to change it. Pretending they don’t and that the issue is to expose “real” ownership in a binary register does no-one any good. Article compliments IFC Review.
Ireland has been accused of rivalling the Cayman Islands when it comes to tax avoidance
IRELAND HAS BEEN accused of being one of the worst offenders for facilitating tax avoidance – potentially allowing the world’s biggest banks to dodge hundreds of millions of euro in corporate tax, reports The Journal. A new report from Oxfam has shown that Europe’s top banks registered a combined €2.3 billion in profits in Ireland from a total turnover of €3 billion in 2015. That profitability rate of 76% was four times the global average. Only the Cayman Islands (167%) had a higher average profitability rate, while Luxembourg (61%) was in third place. The research, which was also carried out by the Fair Finance Guide International, examined filings made under new EU transparency rules for the top 20 banks in Europe – 16 of which have a presence in Ireland. The report showed that the banks paid an average effective tax rate in Ireland of no more than 6% – less than half the statutory rate of 12.5%. The research showed that three banks – Barclays, RBS and Crédit Agricole – paid less than 2%. The effective tax rate was calculated using the standard formula of dividing the tax paid on profits by the total reported pre-tax profits. The report suggested if the effective tax rate is substantially lower than the statutory tax rate, this could mean: That company’s benefits from special tax exemptions A company has a preferential tax regime Part of an organisation’s profits are not taxed in the jurisdiction Profits are being shifted into a low-tax jurisdiction. The report also focused on the average profit per employee. Based on this metric, Ireland ranked as a “productive location” for business, as European banks generated an average of €409,000 in profits in 2015 per employee based in the Republic. One such bank based in Ireland, Spanish financial giant BBVA, generated profits of €6.8 million on average per employee in Ireland, according to the report. That was the 200 times the average profits generated per employee, on average, across the whole organisation in Europe. The Cayman Islands (€6.3 million) again topped the list based on profits per employee, ahead of Curacao (€4.15 million) and Luxembourg (€454,000) in second and third place respectively. Diverted Oxfam Ireland’s policy and research coordinator Michael McCarthy Flynn said the research suggested that big banks are targeting the Republic as a location in which they can avoid tax. He added that by allowing this type of tax avoidance, the Irish economy would benefit very little from having these big institutions based on its shores. “The research raises serious questions about the effectiveness of the Irish government’s measures to tackle corporate tax avoidance,” he said. “The rules must be changed to prevent banks and other big businesses from dodging taxes or helping their clients dodge taxes. Tax dodging deprives countries throughout Europe and the developing world of the money they need to pay for doctors, teachers and care workers.” The information underpinning the report followed new EU rules that oblige multinational banks to publish details of their profits and a breakdown of the tax that is paid for each country in which they operate. McCarthy Flynn added that the new European Commission proposal made last year to increase corporate tax transparency on all multinationals – not just the financial institutions – doesn’t go far enough as it is limited to companies with €750 million or more in turnover. It was estimated last year that EU countries miss out on up to €70 billion a year in lost tax revenues due to companies dodging tax. Oxfam previously labelled Ireland one of the world’s six worst tax havens, behind the Netherlands, Switzerland and Singapore. Finance Minister Michael Noonan dismissed that report as flawed and unable to be taken seriously. The government has repeatedly denied that Ireland facilitates corporate tax avoidance, instead blaming inconsistencies in international tax laws for the use of Irish firms in multinationals’ profit-shifting schemes. Last year Ireland was placed on a blacklist of tax havens by Brazil, however the Department of Finance has made a formal request for the Republic to be removed from that register. Articles compliments IFC Review.
OECD releases 33 comments to draft guidance on tax treaty access by non-CIV funds
The OECD on March 24 made public 33 letters commenting on draft examples issued last January that address the application of the principal purpose test in tax treaties to non-collective investment vehicle (non-CIV) funds, reports MNE Tax. The work is part of follow on work from the OECD/G20 base erosion profit shifting (BEPS) project. The draft examples are proposed to be added to paragraph 14 of the Commentary on the principal purpose test, as it appears in paragraph 26 of the OECD Action 6 report. The Action 6 report suggests that countries add to their tax treaties a principal purpose test or other tests to prevent taxpayers from using the treaty for tax avoidance. When applicable, the test will exclude taxpayers from entitlement to tax treaty benefits, in particular reduced withholding taxes. The three draft examples describe the application of the principal purpose test to non-CIV funds, such as regional investment platforms, securitization companies, and funds that invest real estate. In their comment letter, the Business and Industry Advisory Committee to the OECD (BIAC) said that more examples are needed than the three provided in the draft guidance, including examples that provide clarity on what constitutes a non-CIV fund and guidance reflecting the application of the principal purpose test to fund-to-fund structures. BIAC argues that example 1 of the draft, dealing with regional investment platforms, does not illustrate a real-world situation, instead providing an implicit safe harbor using facts and circumstances that don’t reflect the structure of the vast majority of non-CIV funds. Further, the BIAC objects to the rules’ implication that no single investor in a non-CIV fund may obtain tax treaty benefits that are better than the benefits that would have been obtained if the same investment was made directly. The Alternative Investment Management Association (AIMA) and the Alternative Credit Council (ACC) joined in commenting that the draft examples may unfavorably affect a wide range of uncontroversial arrangements. The groups state that they generally disapprove of the subjective nature of a principal purpose test and suggest that the OECD add more examples addressing more controversial topics. The examples ultimately adopted should be reviewed after two or three years so that their implications can be reviewed and assessed in the light of real world experience, the AIMA and ACC suggest. The Association of the Luxembourg Fund Industry asked that the guidance make it clear that all conditions mentioned in the examples do not have to be met in practice to ensure treaty access is granted. The BEPS Monitoring Group, comprised of tax experts representing civil society groups, argued that to be entitled to tax treaty benefits, an investment fund should be subject to regulation which includes know-your-customer requirements and obligations to participate in comprehensive, automatic exchange of information for tax purposes. The group also suggests several iterations to the fact patterns in the examples to provide more complete guidance on the topic. The BEPS Monitoring group said that, at a minimum, the OECD should include at least one example where the conclusion is that it is reasonable to deny tax treaty benefits. BIAC offered similar comments in its letter Comment letters were also received by following organizations and groups of organizations: the Association of Real Estate Funds; BlackRock; the British Property Federation (BPF); BVCA; the Commercial Real Estate Finance Council (CREFC) Europe; the Confédération Fiscale Européenne; Deloitte; The Dutch Association of Tax Advisors; EFAMA; EY; Arbeitsgemeinschaft kommunale und kirchliche Altersversorgung Corporation (AKA), APG Asset Management, PensionDanmark, and PGGM Investment Management; the Guernsey International Business Association; INREV; Invest Europe and the American Investment Counsel; The Investment Association; the Irish Debt Securities Association; Irish Fund; Jersey Funds Association and Jersey Finance Limited; M&G investments; the Managed Funds Association; Maples and Calder; The Master Limited Partnership Association (MLPA); The National Association of Publicly Traded Partnerships; Morri Rossetti; Osler, Hoskin & Harcourt LLP; PWC; New Zealand Superannuation Fund and Queensland Investment Corporation (QIC); Taxand; and Caisse de dépôt et placement du Québec, OMERS, Alberta Investment Management Corp., British Columbia Investment Management Corporation, Canada Pension Plan Investment Board, Public Sector Pension Investment Board, and Ontario Teachers’ Pension Plan Board. Article compliments IFC Review.
New China Cybersecurity Guidelines for Registration of Networked Medical Devices
The China Food and Drug Administration (“CFDA“) has issued guidelines aimed to implement China’s new Cybersecurity Law (“CSL“) in the administration of medical devices in China. This development is a clear signal that Chinese regulators intend to enhance cybersecurity protection in the healthcare sector. From 1 January 2018, medical device companies will be required to register their networked medical devices with the CFDA and be assessed for their cybersecurity protection status under the Principles on Guiding Technology Examination of Medical Device Cybersecurity Registration (“CFDA Guidelines“). Major implications for medical device companies Cybersecurity threats represent a risk to the safe and effective operation of networked medical devices. A data breach may lead to infringement of patients’ personal privacy while a network attack can cause the malfunction of a device resulting in the injury or death of patients. Medical device companies are therefore expected to pay attention to these issues throughout the product life cycle to ensure proper cybersecurity protection for their networked products. When applying to register networked medical devices with the CFDA, the CFDA Guidelines require applicant companies to conduct a self-assessment of the relevant cybersecurity protection standards or measures. Applicants need to be aware that while the CFDA Guidelines do not express the cybersecurity protection standards as mandatory obligations, failure to meet the requirements may potentially cause delay on product registrations. In practical terms, this can have an impact on the success and timing of the roll-out of new medical device products. What are the highlights? By way of background, the CSL was introduced on 7 November 2016 and takes effect on 1 June 2017. The CSL imposes obligations on network operators to formulate internal security management systems for cybersecurity protection and take measures to protect important data, among other things. Failure to comply with the CSL may result in various penalties including the imposition of fines on directly responsible personnel. The CFDA Guidelines, which were issued on 20 January 2017, aim to implement the CSL in the administration of medical devices in China. The key features of the CFDA Guidelines include: Non-mandatory principles.The CFDA Guidelines do not specify mandatory requirements for registration. When registering medical device products, the applicant may conduct a self-assessment on whether some measures proposed under the CFDA Guidelines should apply. If not, the applicant may elaborate the reasons or propose alternative solutions to ensure its compliance with the CSL and other relevant regulations. Application scope.The CFDA Guidelines apply to the registration of Grade II and Grade III medical devices that have electronic data exchange or remote control functions through network connection (“Qualified Devices“). Impact on product lifecycle.Companies that intend to register Qualified Devices in China are expected to consider cybersecurity protection issues during the entire lifecycle of the medical devices, including product design, development, production, distribution and maintenance. Specifically, cybersecurity protection of the Qualified Devices should, among others, satisfy the following requirements: Confidentiality:the data can only be accessed by authorized users within an authorized timeframe through authorized means; Integrity:the data must be accurate, comprehensive and cannot be altered without authorization; and Availability:the data must be accessible and utilized as expected. Product registration documents.In order to register Qualified Devices with the CFDA, the applicant is required to submit a standalone cybersecurity description file and a cybersecurity instruction manual. When there is a major cybersecurity update affecting the safety or effectiveness of the Qualified Devices after the initial registration, the applicant is required to file a revised application with the CFDA. Review factors.When reviewing the product cybersecurity registration process, the CFDA will consider: Data:the data on the Qualified Devices can be categorized as personal data and equipment data. Different protection measures should be adopted depending on the type of data and the transmission method. Personal data usually warrants enhanced protection and relevant personal privacy protection rules should be followed. Technology:different cybersecurity protection technology can be utilized. The applicant may follow various international and national standards to build up their cybersecurity protection capability. Off-the-shelf software:the applicant is expected to pay close attention to the cybersecurity risks associated with off-the-shell software and adopt relevant maintenance procedures, as well as notify users of relevant information in a timely manner. Actions to consider The CFDA Guidelines and CSL are good reminders for businesses to assess cybersecurity risk issues connected to the use and function of their networks and products. Similarly, companies should continue to be vigilant on the collection and protection of personal data, and ensure that they comply with the relevant data privacy laws. To avoid delay on the registration of networked medical products, and prevent exposure to potential penalties under the CSL, we recommend that medical device companies consider the following steps: Seek advice and adopt cybersecurity protection measures to meet the specific standards under the CFDA Guidelines. Closely monitor the latest developments of the CSL and its implementing rules in relation to the cybersecurity protection requirements of medical devices. Article compliments Global Compliance News.
Antitrust: The EU Commission introduces new whistleblower tool
On 16 March, the EU Commission launched a new tool which shall make it easier for individuals to alert the Commission about secret cartels and other antitrust violations while maintaining their anonymity. Although individuals already previously had the opportunity to report antitrust violations to the Commission, until now, most cartels have been detected through the Commission’s leniency program. The Commission’s leniency program allows companies to report their own involvement in a cartel in exchange for immunity from fines or a reduction of fine. The new whistleblower tool shall now increase the number of individual whistleblowers by promising to protect the whistleblowers’ anonymity through a specifically-designed encrypted messaging system. The messaging system is run by a specialized external service provider who acts as an intermediary and who provides the Commission only with the content of received messages without forwarding any metadata that could identify the individual providing the information. In addition, the messaging system allows for two way communications. As well as allowing individuals to provide information, it enables the Commission to seek clarifications and details, thereby increasing the likelihood that the information received by the whistleblower will be sufficiently precise and reliable to enable the Commission to follow up the leads with an investigation. Emphasizing the importance of the new tool, Commissioner Margrethe Vestager, in charge of competition policy, stressed that individuals’ “inside knowledge can be a powerful tool to help the Commission uncover cartels” and “can contribute to the success of our investigations quickly”. The new whistleblowing system for individuals may indeed be capable of increasing the likelihood of detection of cartels within the EU. Similar, the German Federal Cartel Office has already been making use of an anonymous whistleblower tool since 2012 and claims it to be successful. For companies involved in cartels this would not only mean that the chance increases that they may be subject to cartel proceedings by the Commission but also that, in such cases, the chance decreases that they may obtain immunity from fines under the Commission’s leniency program. This is due to the fact that a company will only be granted immunity from fines in case the Commission did not yet hold sufficient information to either conduct unannounced inspections or establish an antitrust violations when the company made an application under the Commission’s leniency program. Contrary, should the Commission already have obtained the relevant information through an individual whistleblower, companies who cooperate with the Commission may at the most receive a reduction of fine for their cooperation. Not only, but also in light of the new Commission whistleblowing tool, it is hence advisable for companies to contemplate the implementation of internal compliance reporting tools (e.g., internal whistleblower hotline, ombudsman system, compliance declaration processes) in order to learn about potential antitrust violations in time and not only after an aggrieved employee has left the company. Article compliments Global Compliance News.
Rich Chinese Race to Apply for a U.S. Golden Visa
As members of Congress in Washington debate raising the minimum required to obtain a U.S. immigrant investor visa from $500,000 to $1.35 million, concern about the hike has set off a scramble among wealthy would-be participants in China, reports Bloomberg. “Some clients are demanding that we make sure their applications are submitted before April 28,” the date the program expires unless extended or amended by Congress, said Judy Gao, director of the U.S. program at Can-Reach (Pacific), a Beijing-based agency that facilitates so-called EB-5 Immigrant Investor visas. “We’re working overtime to do that.” China’s wealthy, using not-always-legal means to skirt capital controls to get their money out and at the same time gain residency in the U.S., are continuing to dwarf all others as the largest participants in the EB-5 program, despite heightened measures by the Chinese government. The initiative channels money to high-profile U.S. real estate projects from New York to Miami to California — including those by the family of Jared Kushner, President Donald Trump’s son-in-law and senior adviser. A current plan by the Kushner family to refinance and reconstruct its New York office building at 666 Fifth Avenue is seeking $850 million in EB-5 funding, as well as cash from Anbang Insurance Group and other investors, according to terms of the proposal reported by Bloomberg News. A spokesman for Kushner Cos. declined to comment. 200,000 Jobs At stake if the EB-5 is curtailed is a program estimated to have played a role in creating at least 200,000 U.S. jobs and drawing as much as $14 billion from Chinese investors alone, based on data provided by Rosen Consulting Group and the Asia Society. Past projects taking advantage of EB-5 include New York’s Hudson Yards, Hunter’s Point Shipyard in San Francisco, and a Trump-branded tower in Jersey City. New projects recently doing the rounds in China’s chat rooms, web forums and hotel-ballroom investor seminars include a 5-star hotel complex in Palm Springs, California, and what’s touted as “the world’s tallest residential building,” on New York’s 57th Street, known as Billionaires’ Row. Because Chinese individuals are limited to exchanging $50,000 worth of yuan a year, a 10th of what the EB-5 program requires, some agents are advising clients who don’t already have assets offshore to use a means nicknamed “smurfing” to move their money. “Our suggestion to the client is to open three to four personal accounts in the U.S. or line up three to four friends’ accounts, so they can split the money and wire it to different personal accounts without being put on a blacklist by the Chinese authorities,” said a Shanghai-based real estate agent who gave the surname Dong. “It may require a trip to the States to do so to facilitate the process.” Chinese Dominate the EB-5 Investor Visa Program While the government in Beijing spent much of 2016 working to stop its citizens sending money abroad in order to stabilize its declining currency and foreign reserves, Chinese investors’ use of EB-5 continued anyway, totaling $3.8 billion in the fiscal year that ended Sept. 30, according to data from the U.S. State Department. EB-5 started decades ago as a way to create jobs in needy U.S. neighborhoods by attracting foreign investment. But it has run into political opposition amid charges the program is benefiting billionaire developers and being dominated by wealthy Chinese. “EB-5 has been a key program for capital flight that has been abused by Americans and Chinese people seeking to game the system,” said Andrew Collier, an independent analyst in Hong Kong and former president of Bank of China International USA. While there’s no suggestion of wrongdoing by developers that receive funding from EB-5, a series of Securities and Exchange Commission cases against EB-5-linked immigrant investor centers led the U.S. Citizenship and Immigration Services to announce last week that they would audit the centers amid concern about fraud. Dwarfing Others Chinese investors, several thousand a year, have made up as much as 85 percent of the annual EB-5 investor total, according to U.S. data provided by Rosen Consulting and the Asia Society. In 2015, China overtook Canada as the biggest foreign buyer of U.S. homes. Changes to the EB-5 minimum would affect property developers who rely on the program as a funding channel, said Michael Shaoul, chief executive officer at Marketfield Asset Management in New York. “Any interruption of the program or reduction in Chinese participation would have a meaningful effect on a development cycle that is already showing signs of strain in certain key U.S. cities,” he said by email. Investment in an EB-5 project in New York, a hotel near Central Park, allowed Shanghai resident Kevin Tai to move to the U.S. this month. He applied with his family for the investor visa at the end of 2013. Transferring more than $50,000 abroad every year was also prohibited then, so to pony up the cash, Tai used his Shanghai home as collateral to secure a $500,000 loan from Hang Seng Bank in Hong Kong, a faster route to getting cash than trying to get yuan over the border in batches. That route is now closed as well. “I don’t recall what return rate they promoted, because that doesn’t matter,” he said just before his departure. “For most EB-5 applicants like us, the purpose is to get a permanent Green Card.” Palm Springs The project in Palm Springs being promoted via messaging app WeChat by Dong’s firm seeks Chinese EB-5 investors for a $155 million hotel. It offers an unusually high expected annual return of 12 percent. By fronting a minimum of $500,000 for the 26-villa development, prospective investors become eligible to apply for a Green Card, the promotion says. The majority of EB-5 investments offer very low returns in the range of 0.25 percent to 0.5 percent, said Can-Reach’s Gao. The Central Park Tower project, now under construction by the New York-based luxury condo builder Extell Development Co., will reach 1,550 feet (472 meters) and house a Nordstrom department store as well as “ultra-luxury” residences, according to the architect’s website. A previous downtown New York condo project by Extell, One Manhattan Square, also received funds from EB-5 and initially targeted Asian buyers. The latest Extell tower was pitched last year to packed rooms of investors in four Chinese cities: Shanghai, Beijing, Shenzhen and Nanjing. Packed Rooms About 900 firms in China are registered to handle emigration, and most of them offer EB-5 services. To be sure, the overall volume of money leaving China through the EB-5 channel is small — just half a percent of the $728 billion estimated by Standard Chartered Plc to have flowed out in 2016. While capital outflows have fallen sharply in recent months as regulators increase scrutiny and the yuan holds steady, analysts say there’s pent up pressure to move money out of China. That’s why the State Administration of Foreign Exchange, the currency regulator, has been closing loopholes that allow money to be illegally channeled overseas by seeking extra disclosure. Outflows moderated in February as foreign exchange reserves rose, reversing a seven-month losing streak. Restrictions include limits on overseas investments and acquisitions, seeking more details from citizens looking to use their $50,000 quota and limits on purchases of investment-linked insurance products in Hong Kong. Another Rush A slew of external risks could trigger another rush to get money out. If the Federal Reserve lifts interest rates quicker than anticipated, it could drive up the dollar, prompting outflows. “Demand is strong to get money out,” said Pauline Loong, managing director at research firm Asia-Analytica Pte. in Hong Kong. The problem, though, will likely remain how to bypass authorities seeking to rigidly enforce currency rules, said Dong, the Shanghai agent. “The biggest obstacle now is how to get $500,000 out,” he said. And especially so if the U.S. Congress acts next month to more than double the minimum EB-5 investment. Article compliments IFC Review.
Stocks sink as ‘Trump trade’ flips into reverse
Stocks around the world sank Monday on worries that the Trump White House may not be able to help businesses as much as once thought. Many of the trends that have been in place since Election Day went into sharp reverse: The dollar’s value sank against other currencies, as did bank stocks, while prices jumped for Treasury bonds. KEEPING SCORE: The Standard & Poor’s 500 index fell 15 points, or 0.6 percent, to 2,329, as of 10:25 a.m. Eastern time. The Dow Jones industrial average lost 141, or 0.7 percent, to 20,445. The Nasdaq composite dropped 29, or 0.5 percent, to 5,799. Small-company stocks, which have outpaced the rest of the market since the election, fell even more. The Russell 2000 index sank 14 points, or 1.1 percent, to 1,340. The stock market had been on a nearly nonstop rip higher since Election Day on the belief that President Donald Trump and a Republican-led Congress will cut income taxes, loosen regulations for companies and institute other business-friendly policies. Besides stronger economic growth, investors were also predicting higher inflation would be on the way. But last week’s failure by Republicans to fulfill a pledge they’ve been making for years, to repeal the Affordable Care Act, raises doubts that Washington can push through other promises. The House on Friday pulled its bill to revamp the country’s health care system, when it was clear that it didn’t have enough votes to pass. DOLLAR DUMP: The dollar fell against most of its major rivals, including the Japanese yen, euro and British pound. The ICE U.S. Dollar index, which measures the U.S. currency’s value against six others, has given up nearly all of its big gains since Election Day. The dollar fell to 110.38 Japanese yen from 110.80 late Friday. The euro rose to $1.0883 from $1.0808, and the British pound rose to $1.2593 from $1.2500. YIELDS DROP: The yield on the 10-year Treasury fell to 2.36 percent from 2.41 percent late Friday. That’s close to its lowest level in a month. It was above 2.60 percent just a couple weeks ago. BANKS SINK: Bank stocks have tracked the movements of Treasury yields recently, because higher interest rates would allow them to charge more for loans and reap bigger profits. Financial stocks in the S&P 500 dropped 1.4 percent, the largest loss among the 11 sectors that make up the index. AN ANXIOUS MARKET: The VIX index measures the market’s nervousness by looking at how much traders are paying to protect against upcoming drops in the S&P 500. By that measure, investors early Monday were feeling the most jittery since mid-November, shortly after Election Day. The VIX jumped 10 percent. HEALTHY GAINS: Among the few gainers on the day were hospital stocks. The Republican health care plan would have resulted in 24 million additional uninsured people in a decade, according to a tally by the Congressional Budget Office. And hospitals take care of patients, whether they’re insured or not. HCA Holdings jumped $4.05, or 4.7 percent, to $90.09 for the biggest gain in the S&P 500. Universal Health Services rose $5.14, or 4.2 percent, to $127.03 for the second-largest gain. GOLD GLITTERS: The price of gold rose $7.20 to $1,255.70. Silver rose 31 cents to $18.06 per ounce. Copper, whose price tends to rise and fall with expectations for economic growth, fell 6 cents to $2.58 per pound. MARKETS ABROAD: Stocks were weak around the world. In Asia, Japan’s Nikkei 225 index dropped 1.4 percent, South Korea’s Kospi index lost 0.6 percent and the Hang Seng in Hong Kong fell 0.7 percent. In Europe, the German DAX lost 0.9 percent, the French CAC 40 fell 0.4 percent and the FTSE 100 in London dropped 0.9 percent. OIL: Benchmark U.S. crude fell 70 cents to $47.27 per barrel. Brent crude, used to price international oils, lost 63 cents to $50.29. Article compliments LOOP News Barbados.
Oxfam exposes tax haven habits of big European banks
The EU’s fight against tax evasion is far from over. After a series of tax evasion scandals concerning European countries and companies in recent years, the NGO Oxfam on Monday published a damning report on the conduct of European banks, reports Euractiv. Using data from country by country reporting, a transparency requirement recently established under EU law, the NGO put the activities of Europe’s 20 biggest banks under the microscope. “New EU transparency rules give us a glimpse into the tax affairs of Europe’s biggest banks and it’s not a pretty sight,” said Manon Aubry, the head tax justice campaigner for Oxfam France and author of the report. Oxfam’s findings reveal flagrant abuses. The banks analysed declare 26% of their profits in tax havens, but just 12% of their revenue and 7% of their employees. For the NGO, this gap between real activity (number of employees and turnover) and declared profits is proof that the banks knowingly shift their profits to low taw jurisdictions. “The 20 European banks declare €628 million in tax havens where they employ no staff and €383m of profits on which they pay not a single euro in tax,” the report stated. Real activity The gap between banks’ real activities and their profits can sometimes reach incredible proportions. In the Cayman Islands for example, “for every €100 of revenue, there is an average of €167 profit”. By shifting their profits to attractive tax jurisdictions, some of which even offer zero-rate deals, some European banks have managed to achieve negligible effective tax rates. Barclays, the fifth largest bank in Europe, declared profits of €557m in Luxembourg, which Oxfam classifies as a tax haven, but only paid €1m in tax. “The results of this report, some of which defy understanding, show the extent of the problem of the total impunity surrounding Europe’s largest banks in tax havens. The scandals keep on coming and still the banks do not seem to change their practices,” said Aubry. Tax havens in the heart of Europe The report focusses on European tax havens, like Ireland and Luxembourg, where five banks (RBS, Société Générale, UniCrédit, Santander and BBVA) manage to book profits higher than their revenues. At €39m, Société Générale’s Ireland profits for 2015 were more than four times higher than its €9m revenue. “While there may sometimes be reasons for high profits in some countries, these kinds of results indicate the potential shifting of profits to Ireland,” the report said. Oxfam based its calculations on data available from country by country reporting, which obliges banks to publish a certain amount of information on their activities: the number of branches and the nature of their activities, turnover, staff, profits or losses before tax, the amount of tax paid and public subsidies received. This obligation was introduced in France in 2013, before being taken up at European level later the same year. “It would have been impossible to shed light on the practices of European banks in tax havens without these new transparency obligations,” said Aubry. Access to this new information has made it easier to check whether profits are really made in the jurisdiction where they are declared, and not shifted to optimise the company’s tax bill. Country by country reporting requirements currently apply only to banks. An EU directive is being negotiated in the European Parliament, with the aim of extending the requirements to multinationals across all sectors. But in France, an attempt to force multinationals to publish their tax bills was struck down by the Constitutional Court. The country’s top judges found that the transparency requirement undermined companies’ freedom to do business. Non-existent tax havens black list The definition of a tax haven varies from one country to another. In France, the list of non-cooperative territories offers rather meagre reading: in 2011 it contained 16 countries but had been pared down to just eight in 2016. At European level, the creation of a common list of tax havens is currently being discussed. But the exercise is an almost impossible political balancing act, because no EU member state will figure on the list. Yet, there is no shortage of EU jurisdictions offering highly favourable rates for multinational businesses. As a result, Oxfam did not rely on the official list of tax havens but instead compiled its own information from different sources, including the OECD and the European Parliament, ending up with a list of 31 countries. BACKGROUND An updated directive on the automatic exchange of information between national tax administrations received the green light from the EU’s 28 finance ministers. So-called ‘country-by-country reporting’ between national tax authorities is opening a new era in tax transparency, backers said. The 4th Directive on Administrative Cooperation (DAC4), adopted on 8 March 2016, will require multinationals to report, among other things, on their revenues, profits, taxes paid and number of employees in every country where they operate. The Panama Papers exposed offshore companies used to avoid tax, and has embroiled figures including Vladimir Putin, Ukrainian President Petro Poroshenko, UK Prime Minister David Cameron, Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, and Climate Commissioner Miguel Arias Cañete. It comes at a time when tax avoidance is high on the political agenda. The fight against tax evasion is one of the Juncker Commission’s main priorities. News of the systematic, state-sanctioned tax evasion practices of many multinationals based in Luxembourg, known as the Luxleaks scandal, broke shortly after the new Commission was sworn in. On 18 March 2015, the executive presented a package of measures aimed at strengthening tax transparency, notably by introducing a system for the automatic exchange of information on tax rulings between member states. Article compliments IFC Review.