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.
Switzerland: UBS Group AG (UBS) to Stand Trial for Tax Evasion in France
Swiss bank, UBS Group AG UBS, and its French unit will be facing a trial in France against allegations that the bank helped its clients in that country to evade taxes. Notably, a five-year probe into such allegations was closed last year. Following this, the prosecutor’s office was supposed to file its comments over the next three months. The investigating panel’s decision of whether the bank will face a trial depended on this, reports Nasdaq. According to a French judicial official, the investigating panel from PNF – the national financial prosecutor’s office – has claimed the charges against the bank as valid and ordered the case to be sent to trial at a later date. According to the PNF, UBS holds fraudulent money worth around €9.76 billion on behalf of French individuals. On losing the trial, the fine may amount to “up to half of the value or funds involved in laundering operations”, according to the French Criminal Code. “We will now have the possibility to respond in detail in a court of law,” the bank stated on Monday. “UBS has made clear that the bank disagrees with the allegations, assumptions and legal interpretations being made,” it added. Management further noted, “We will continue to strongly defend ourselves and look forward to a fair proceeding.” Background UBS has been under investigation by the French authorities on potential charges of illegally soliciting clients in France to open Swiss accounts for hiding undisclosed wealth in the period between 2004 and 2012. Later, the investigation included money laundering charges against the bank. Following the failure of settlement talks on account of UBS’ refusal to plead guilty, the bank was ordered to pay a €1.1 billion bail amount in Jul 2014. Apprehending adverse impact on its business, UBS restrained from pleading guilty. The bank appealed against the verdict citing that the bail amount as “unprecedented and unwarranted.” Notably, UBS pressed for the figure equivalent to €300 million, which the bank paid as settlement in 2014, to German authorities related to a similar probe into whether the banking giant helped clients in that country evade taxes. However, after losing an initial appeal against the €1.1 billion bail payment in Sep 2014, the bank’s appeal was rejected again in Dec 2014 by France’s apex appeals court, Cour de Cassation. Disappointed with the ruling, UBS had proposed to contest the court’s decision, including the right to a fair trial, at the European Court of Human Rights. Notably, in 2009, the Swiss bank had paid $780 million to regulators as settlement related to U.S. criminal and civil investigation, and admitted that it had helped clients evade taxes. UBS is not the only Swiss bank to be involved in such issues. In May 2014, Credit Suisse Group AG CS pleaded guilty to criminal charges of assisting its U.S. clients to evade taxes and agreed to shell out $2.8 billion as settlement charges to the U.S. authorities. Conclusion We believe that the ongoing investigations on banks will be a step forward toward reducing the huge losses incurred due to offshore tax evasion. Regulatory authorities are investigating scandals and are determined to put forward a landmark judgment to curb such shrewd practices.
G20 finance chiefs to grapple with tackling tax evasion
The German town of Baden-Baden is enjoying the global spotlight as it gets to host the world’s most powerful economic policymakers. They have plenty of challenges to talk about. But solutions are tough to come by, reports DW.com Whoever wants to test their luck at the casino in Baden-Baden may feel disappointed this weekend, as it will remain closed from Friday until at least Saturday evening. The reason for the closure is the gathering of some very important people who control a lot of money, namely the finance ministers and central bank chiefs of the world’s top 20 economies. Germany currently holds the presidency of the G20 grouping – a club of 20 most important developed and emerging economies in the world. The meeting in Baden-Baden sets the stage for the leaders’ summit planned to take place early July in Hamburg. The gathering will also demonstrate if any of the topics on the agenda set by the host gains traction among the participants. Trump robs attention German Finance Minister Wolfgang Schäuble will strive to appear as a fighter against tax evasion and avoidance by multinational firms. He would also like to set the tone on financial stability, debt reduction (his favorite topic) and forming a new partnership with Africa. Another issue high up on the agenda is monetary policy, particularly given the divergence in the policy outlook between the US Federal Reserve and the European Central Bank. Tackling all the above-mentioned issues requires international cooperation and a fine understanding of the causes and effects of each country’s actions on others. But global cooperation seems to be out of vogue now in Washington, where Donald Trump’s White House espouses an “America First” policy. The new US president’s penchant for bilateral “deals” instead of multilateral negotiations is unambiguous. He also wants to offer tax incentives to US firms, weaken the dollar and relax the regulations imposed by none other than the G20 on financial institutions in the wake of the 2007-08 financial crisis. Turning towards Africa The top priority for the group has narrowed to ensuring that the international policymaking process runs smoothly. Even if the G20 has long seized to be a dynamic body, it still remains the only global forum that appears to function, at least partly. It’s still unclear whether that continues to be the case under President Trump. Schäuble’s meeting with US Treasury Secretary Steven Mnuchin on Thursday evening offered the German minister a chance to employ all his diplomatic skills to convey the significance of his agenda to his American counterpart. It could certainly work in the case of Schäuble’s project for Africa, named “Compact with Africa.” The plan foresees an offer of investment partnership, aimed at creating better conditions for private investment in African countries. Five African nations – Ivory Coast, Morocco, Senegal, Rwanda and Tunisia – will be represented at Baden-Baden. All eyes on Washington Contentious issues such as the fight against international tax evasion, measures against so-called shadow banks, money-laundering and terror financing have been set for discussion on Saturday. Nevertheless, the trickiest problem relates to monetary policy. The G20 nations have long committed themselves to not manipulating their currencies to gain undue competitive advantage. But Washington’s accusations against Berlin over the past couple of months that Germany is exploiting its trade partners with the help of a weakened euro have unnerved German policymakers. Schäuble will no doubt reiterate once again that Germany has no influence over the decisions made by the European Central Bank. Participants at Baden-Baden will on Friday also turn their attention to what happens in Washington, which is likely to overshadow the ministers’ gathering. There, German Chancellor Angela Merkel will meet US President Donald Trump at the White House. She was originally scheduled to fly to meet the new US leader on Tuesday, but the trip had to be postponed due to an approaching blizzard. This time round, however, at least the weather conditions are better. The talks between the two leaders at the White House are certain to influence the discussions in Baden-Baden. Article compliments IFC Review.
UK: Ultra-rich protect wealth with spread of ‘family offices’
These are teams of professionals – such as lawyers, financiers and psychologists – employed to ensure the “dynastic wealth” of the super-rich, reports The BBC. These offices work for families worth at least £200m, says the study. Researcher Luna Glucksberg says their role “demands scrutiny”. The study, from the LSE’s International Inequalities Institute, says more attention should be paid to the rise of such “shadowy” family offices, which are employed full-time to protect the interests of their “elite families”. The study describes how they support a “bunkered” and “fortified” way of life of the “global super-rich”. Family offices have grown alongside the concentrations of the ultra-rich in cities such as London – and researchers say they have moved on a step from buying in specialist advisers. These are full-time professional staff, which could include investment experts, property advisers, economists, trust fund advisers and lawyers, who work for a single family, in the way that a corporation might have its own dedicated staff. The study quotes a US report from 2010 that found that 50 of the wealthiest such family offices were looking after $500bn (£407bn). Rather than getting external advice from bankers and financiers, these family offices will keep such information private and in-house. Their role “goes far beyond that of private bankers”, says Dr Glucksberg. “They are about creating dynasties, ensuring generational transfers of wealth,” she says. As well as maximising financial interests and investments, such family offices can look after every aspect of the private lives of their employers. This can be everything from buying clothes and organising holidays to arranging divorces and making financial arrangements to prevent money being lost to in-laws. The study says that for an individual family to have a family office, they would need to be worth at least £200m and probably much more. But there are cases of “multi-family offices” – where families worth from £80m upwards could share such services. The growth of extreme wealth, alongside poverty and low-income families, means that there needs to be more analysis of how such wealth is perpetuated, the study suggests. These family offices “play a crucial role” in how advantages are handed on between generations, with full-time staff able to make long-term, strategic planning, says the study. “The rise of elite dynasties, economic inequality, and the vast concentrations of global wealth in recent times means that the role of the ‘family office’ in our society demands scrutiny,” says Dr Glucksberg. Article compliments IFC Review.
US: Norwegian shipowners reject OMSA tax evasion claims
The Norwegian Shipowners Association has rejected claims by the Offshore Marine Services Association (OMSA) in the US that Norwegian owners of offshore construction vessels operating in the Gulf of Mexico are engaged in tax evasion, reports Offshore Support Journal. As highlighted recently by OSJ, US Customs & Border Patrol (CBP) recently announced its intent to revoke several letter rulings that were said to be ‘inconsistent’ with the Jones Act. In documents provided to OSJ, OMSA claims earlier rulings “allowed foreign vessels using cheaper foreign labour” that pay “little or no taxes in the US or in their home jurisdictions” to stifle US maritime investment and job creation. OMSA, which supports the proposed revocation of interpretation of the Jones Act, which effectively would ban international offshore construction vessels from the Gulf of Mexico, claims that inaction by CBP on the issue “will put foreign companies first and American companies last, discourage investment in US infrastructure, and proliferate tax evasion practices.” OMSA also claims that if CBP does not take action, it will “create an uneven playing field for US companies, stifling future job growth and economic security and create a US Coast Guard immigration ‘free zone’ and put homeland security at risk.” Sources say the issue arises because of the way Norwegian-flagged vessels are treated under the US/Norway tax treaty. Under this tax treaty, they claim, Norwegian-flagged vessels do not pay US income taxes when working in the US because they are paying the Norwegian tax. “While that logic sounds fine, when closely examined, it is not a level playing field,” they claim. “The Norwegian tax is tonnage-based, not revenue-based, but since the merchandise these vessels transport isn’t heavy, but is very costly, and it isn’t transported very far relatively speaking, they don’t pay a tax here, and virtually no tax in their home country.” Responding to the claims, Sturla Henriksen, chief executive of the Norwegian Shipowners Association, said: “Norway has a tonnage tax system for shipping companies. The scheme is similar to those found in several other European countries, as well as countries outside Europe, such as Singapore. A tonnage-taxed company pays a tonnage tax (calculated on the net tonnage of its ships), and not a tax on its income. “If a Norwegian-owned vessel is engaged in work on the US continental shelf, the work will – as a rule – be done through a US-based subsidiary, or alternatively a permanent establishment (PE)/branch in the US, cf article 4A of the US/Norway tax treaty. The vessel will be chartered from the Norwegian company to the US subsidiary, and the charter payment will be determined in accordance with the arm’s length principle (which is the international transfer pricing standard that OECD member countries have agreed should be used for tax purposes). “The US subsidiary will of course be subject to US tax – in the same way as other US companies,” said Mr Henriksen. “And the same will apply to a PE, cf article 5 of the US/Norway tax treaty.” Mr Henriksen said there are two exemptions in article 4A (2) and (3), but they will usually not apply due to the length and nature of the activities. “When calculating the tax base in the US, the company will receive deductions for its costs, including the charter payment to the Norwegian company that owns the vessel. The profit (or loss) will be subject to ordinary US tax. Consequently, in our opinion, it is a fair playing field.” Industry sources on both sides of the Atlantic have highlighted the fact that the recent revocation ruling by CBP has nothing to do with tax evasion, the use of non-US labour, immigration or national security, and only addresses interpretation of the Jones Act. Article compliments IFC Review.
Ghana, Mauritius sign Double Taxation Avoidance Agreement
The two countries also set up a permanent joint commission on bilateral cooperation as part of measures to facilitate trade between them, reports Business Ghana. Additionally, they have agreed to collaborate on an investment promotion and protection agreement to better channel investments into each other’s country, possibly via special investment zones. The Foreign Affairs and Regional Integration Minister, Ms Shirley Ayorkor Botchwey, signed the agreement on behalf of Ghana, while the Minister of Foreign Affairs, Regional Integration and International Trade, Mr Seetanah Lutchmeenaraidoo, signed on behalf of Mauritius. The DTAA is subject to ratification by Ghana’s Parliament. The agreements were signed last Saturday at Port Louis, Mauritius, in the lead-up to the celebration of that country’s 49th Independence anniversary on Sunday, March 12, 2017. Boosting trade Speaking at a joint press conference after the signing ceremony, Vice-President Alhaji Dr Bawumia, who was the special guest for the celebrations, explained that the agreements formed part of Ghana’s quest for greater cooperation with the rest of the world, especially Africa, in order to boost trade. “We have seen the manifestation of the first fruits of this joint permanent commission with the signing of the historic double taxation agreement between Ghana and Mauritius, and we believe that this will provide a platform to give confidence to investors both in Ghana and Mauritius to undertake investments in our respective countries and not be taxed twice by our respective governments. We believe this is just the beginning of our cooperation,” Dr Bawumia said. He underscored the need for greater intra-African trade to better improve the lives of Africans. “Our government believes very strongly there has to be more trade within the African continent and among countries of the South. There has to be more investment, and more cooperation,” he said. He was excited that the type of cooperation that Ghana sought with Mauritius was being manifested in the area of trying to set up Ghana as an International Financial Services Centre in the West African sub-region. Investments in Ghana The Prime Minister of Mauritius, Anerood Jugnauth, disclosed that a number of framework agreements had also been reviewed, including the setting up of a technology park at Dawa in the Greater Accra Region, and investments in the energy and tourism sectors. “We have also agreed to pursue consultations on two project proposals submitted by Mauritius, namely, the setting up of solar energy power generation, and a tourism and hospitality project providing for the construction of a coastal resort in Ghana. Cooperation between Ghana’s Public Utility Regulatory Commission (PURC) and Mauritius was also discussed,” the Prime Minister said. Ghan’s delegation included the Minister of Communication, Mrs Ursula Owusu-Ekuful, Minister of Business Development, Mr Mohammed Awal, the Chief Executive Officer (CEO) of the Ghana Investment Promotion Centre, Mr Reginald Yoofi Grant, and other senior government officials. Article compliments IFC Review.
Women-Run Hedge Funds are Leading the Pack
If being smarter at making money than their male counterparts is what it takes for female fund managers to make money, then women are doing just that. According to Hedge Fund Research (HFR), in the first months of 2017, women run hedge funds have outperformed male run funds by 1.42%. Women led funds have brought in 3.65% in returns compared to funds led by men that have brought in 2.23% returns. While the hedge fund industry as a whole has been outperformed by the S & P which has returned 5.94% during the same months, women are advancing in bringing in competitive returns, reports Investopedia. Only about 2% of the 2100 hedge funds tracked through Hedge Fund Research (HFR) are woman led and managed. As a result of outpacing others in the industry, KPMG in its 2016 Global Women in Alternative Investments Report has noted that there has been an increase in cash going to women led funds. The report features surveys of 791 women in asset management and tracks their views on gender within the hedge fund industry. 79% of those surveyed believed that it was still harder for women to succeed. The controversial use of mandates for emerging manager funds led by women has increased the number of women led funds in the industry. KPMG notes progress in the number of mandates growing for woman-owned managed funds from 2 to 10 percent. Of those included in the KPMG survery, over 26% of the woman led funds plan to grow their assets to over $1B in AUM. Although many funds are required to include women managers as part of anti-discrimination policy, women are reluctant to bid under such mandates due to fears that their businesses will not be viewed as favorably. 40% of women-owned and managed fund survey respondents had pursued investment through mandate programs – an increase from 31% from 2015. Despite an ongoing gender lens in hedge fund investing, women are making gains. 28% of women surveyed said that they plan to launch a fund within the next 5 years. The progress reported through Hedge Fund Research and KPMG are part of a five year trend. The HFRI Women index has returned 4.4 per cent within the span of five years. This percentage is in comparison with a 4.2 per cent return for the HFRI Fund Weighted Composite index which is an aggregate of returns across genders and investment styles. The HFRI includes 49 women led funds. Article compliments IFC Review.
EU: Panama Papers, PANA committee off to the USA
The Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) within the EU Parliament will be heading to the USA next week to hold a series of meetings, reports The Independent. AD Chairperson Arnold Cassola posted this information on his Facebook page. “After having investigated the London, Malta and Luxembourg financial systems, the PANA delegation will next week visit the USA, including Delaware, which is renowned for its tax avoidance systems. Even Washington will be hosting a public debate on financial systems. And, unlike the Maltese refusal, US parliamentarians will be meeting with the MEPs. It seems the US senators and congressmen do not give a damn about what Keith Schembri thinks about the PANA Committee mandate,” he said making reference to OPM Chief of Staff Keith Schembri’s last minute refusal to meet with the committee. The EU Parliamentarians will be in the USA between 21 – 24 March. Last February, members of the PANA committee came to Malta and interviewed a number of politicians, authority heads and journalists. Following their meeting with Minister Konrad Mizzi, who is at the centre of the local aspect of the scandal, where he was found to have companies in the secretive jurisdiction of Panama, PANA Committee Chairman Werner Langen said that Minister Konrad Mizzi’s situation regarding his Panama company “looks like money laundering”, however stressed that things are not clear at the moment. The PANA committee is not solely looking into the Panama Papers, but is rather looking into EU legislation in terms of any possible loopholes which may exist when it comes to money laundering and tax evasion. Article compliments IFC Review.
U.K.’s Corporate Tax Allure Outweighs Brexit Concerns, CEO Says
The U.K. is gaining allure as a head-office location for international companies as government plans to lower corporation tax outweigh Brexit concerns, according to the founder and chief executive of staffing and outsourcing business Robert Walters Plc, reports Bloomberg. “You’ve got reducing corporation tax, you’ve got a well-educated workforce, you’ve got benign employment law, a devalued currency — why wouldn’t you be based in the U.K.?” Robert Walters said in an interview Wednesday. While much of the post-Brexit debate has centered on whether financial companies will consider leaving London, the government sees lowering costs as key to ensuring large firms remain. In last week’s spring budget, Chancellor of the Exchequer Philip Hammond affirmed a commitment to lower corporation-tax rates from 20 percent to 17 percent by 2020. The government’s stance has drawn the irk of the European Union, which fears Britain being a tax haven on the bloc’s perimeter. McDonald’s Corp. announced plans to move its non-U.S. tax base to the U.K. from Luxembourg last August. Robert Walters, which derives 31 percent of gross profit from the U.K., reported revenue of 999 million pounds ($1.2 billion) for 2016, a 23 percent increase from the year before. Pretax profit of 28.1 million pounds beat the average analyst estimate of 26.4 million pounds. The shares rose as much as 3.8 percent in London. While confidence levels were “negatively impacted” by the runup to and fallout from the Brexit vote, the business won a number of large new client accounts and had “excellent” growth in its outsourcing division, it said. “I don’t think it’s doom and gloom by any means,” said Walters, who has led the company since founding it in 1985. Article compliments IFC Review.
UK: Post-BEPS tax regime getting more complex: KPMG’s global head of tax
Globally, the issue of corporations shifting their profits to low-tax regimes has assumed significance, with countries making all-out efforts to check these practices. Leading on this front are the OECD and G20 countries that have devised a set of rules (BEPS Action Plan) to check this practice. Business Today caught up with Jane McCormick, global head of tax at KPMG in the UK, and discussed how BEPS is shaping the global tax regime, the challenges of taxing a digital economy and the impact of indirect taxes. Edited excerpts, reports Business Today. How base erosion and profit shifting (BEPS) shaping the global tax regime? One of the action plans that has been universally adopted is the country-by-county reporting and transfer pricing related to master file. I think that’s the new world we are living in, with much more transparency, and tax authorities around the world are having a better picture of what the overall tax position of the group looks like rather than focussing on one country. It is important to have a bigger picture to assess the risk. However, the flip side of this is a concern that with all the additional information, tax authorities across the world will start to suck additional profit into their own jurisdiction. Although there are divergent views, we all agreed that post-BEPS you should be taxing the profit where the economic activity giving rise to that profit is located. The idea sounds great, but the problem comes when we start thinking where that could be. In the complex, globally integrated supply chain, it will be quite a difficult task to assess. We are already seeing that different countries are taking different views on where they think the profit is. So, although we may have high-level agreement, we don’t have an agreement on the next level down. There is a concern among international businesses that there may be an increase in disputes in transfer pricing cases. What are the challenges you see due to these divergent views? The obvious risk is double taxation. You are already seeing that the effective tax rates of multinationals are higher than the domestic rates. If you add up all the domestic rates and expect a number, they are paying more than that because they are effectively being taxed twice on the same profit in different jurisdictions. When that happens, there is some mechanism to address such issues through mutual agreements between two jurisdictions, but that is not the perfect system and often some corporations have to concede because the practical difficulties of having these negotiations are too great. Have tax authorities become more aggressive post-BEPS? I think they have become more aggressive and that’s because of two reasons–partly because of the big global discussion on corporations moving profits to low-tax regimes and partly because every country in the world is looking at fiscal deficit and there is a need to collect tax. In India, one of the big debates over the years has been tax terrorism. Do you think a similar situation may arise as we start adopting BEPS action plans? I hope it’s not so because having a lot of tax disputes is not a good thing for anyone. It requires time and resources of the government as well as of the companies. So (tax authorities should be) trying to get the (mutual) agreement upfront… Businesses are happy to pay tax once and more than anything else, they want certainty. So, (the efforts should be to) try and find some mechanism to provide better information to tax authorities so that they can judge things and reach conclusions more easily. Also, (try to find) some mechanism for better risk assessment. Tax authorities should focus on whether there is risk rather than a lot of inquiries, where there isn’t one. And also, better mechanism to resolve disputes when they arrive. There are concerns among companies about the safety of data shared under country-by-country reporting. How real are these concerns? The issue is this: The country-by-country reporting (CBCR) is there to serve a special purpose–the risk assessment. By allowing tax authorities to apply the criteria of how profit matched with headcount, you get an indication if something is out of line, if the substance is not in line with the tax. So, it is just a risk assessment tool, which does not give all the right answers. There is a concern that people will take CBCR, and say, the profit doesn’t align with the headcount. So all I need to do is reassign the profit associated with the headcount. And that’s the answer and I would assess that number. There could be all sorts of reasons why that’s not the right approach. So, there’s a bit of concern that some people will do that. There’s also a debate, especially in Europe, on whether the CBCR report should be made public and the European Union is consulting whether the information should be made public. So the concern that people have about making the information public is that the information in CBCR is for tax authorities to see and not for the layman reader. What are the challenges of taxing the digital economy? It’s a huge issue. One of the action plans of BEPS deals with this, but it never went anywhere. It is like saying it is too difficult. It goes back to this issue where economic activities are giving rise to profit. In a digital economy, you start to think whether the corporation tax is the right tax. There is a good view that the corporation tax is a tax for the old-world economy where a company was located in a country, the whole supply chain sat in the country, and it manufactured, sold and got financed from the banks in the same country, making it relatively easier to get taxed in such a country. As the world becomes more complex and the supply chain gets more broken down, the corporation tax is becoming more difficult to administer. You must have seen a trend globally, the corporate tax rates are coming down and are becoming a smaller percentage of the total tax collection. More and more taxes are collected through other means, especially indirect taxes (GST, VAT). If you look at the digital economy, these taxes (indirect taxes) look more suitable. For instance, you can have destination-based taxes in a digital environment where the services are consumed. This you can’t do with corporation tax. So personally I think, although it is going to take some time for the world to go on that route, digital economy will lead us to greater reliance on indirect taxes. But indirect taxes are considered regressive as they do not distinguish between the rich and the poor. What do you think? Indirect taxes are more progressive than people think. The real issue here is how you make indirect taxes more progressive. There are ways you can do it. The governments can work out a minimum standard of living people ought to have and then exempt those goods and services (required for that living standard) from indirect taxes. In many countries, basic goods like food items and children’s clothes are not taxed, which means the poor surviving on these basic goods and services pay lower taxes. Article compliments IFC Review.
U.S. Emerging as ‘Leading’ Tax, Secrecy Haven, EU Report Says
The U.S. is emerging as a “leading tax and secrecy haven for rich foreigners” because of its resistance to global tax disclosure standards and the array of tax-free facilities available for non-residents, according to a European Parliament report, reports Bloomberg. Released March 7—two weeks before European Union lawmakers visit Washington D.C. and Delaware to probe money laundering and tax evasion issues— the report says U.S. states such as Nevada, Wyoming, South Dakota and Delaware are attracting money flows from around the world because of laws that permit beneficial owners of companies to remain anonymous. “The United States provides a wide array of secrecy and tax-free facilities for non-residents both at the federal level and at the level of individual states,” the report said. The report underlines that the U.S., unlike “virtually all of the other developed counties in the world,” hasn’t agreed to implement the OECD’s common reporting standard for the automatic exchange of bank and tax data between tax authorities. ‘Fact Finding’ U.S. Visit The European Parliament’s Panama Papers investigative committee will visit the U.S. March 21-24 for what has been described as a fact-finding mission. The delegation will meet with counterparts in the U.S. Congress as well as with representatives of the U.S. Department of Treasury, the Internal Revenue Service and various think tanks and organizations. According to a committee document seen by Bloomberg BNA, the purpose of the visit is “to discuss with interlocutors the state of play and future perspectives for transatlantic cooperation in the fight against money laundering, tax evasion and tax avoidance at international, OECD and G-7/G-20 level, and both tax and beneficial ownership transparency at U.S. State level.” OECD BEPS Reforms The report was published amid mounting concerns among EU member countries and the European Commission that the Trump administration and the Republican-controlled Congress won’t implement the Organization for Economic Cooperation and Development’s recommendations under its Action Plan on Base Erosion and Profit Shifting (BEPS), a massive, two-year project to rewrite the global tax rules, and thereby will put European companies at a competitive disadvantage to U.S. companies. The hard-hitting report comes as the EU begins screening 92 countries, including the U.S., for possible inclusion on an EU tax haven blacklist, due to be finalized at the end of 2017. Delaware A key concern for the European Parliament Panama Papers committee are existing U.S. laws that continue to permit beneficial owners of companies to remain anonymous. Some rules—such as tolerance by states like Delaware or Nevada of highly secretive anonymous shell companies—”are rather the result of a race to the bottom between individual states or standards of disclosure and transparency,” the report said. Referring to Delaware in particular, the report said that the “small East Coast state ranks first in importance” in the U.S., by a wide margin, and “also serves as one of the favored places” for real estate funds. “Delaware’s advanced business statutes make it an attractive place for global investors,” the report added. EU Divide The beneficial owners transparency issue is currently the subject of a pending revision to the EU Anti-Money Laundering Directive. The European Parliament is pushing for standards that would require identification of anyone with 10 percent or more of a company or trust to be posted on a public registry. However, EU countries oppose the stricter rules based on, among other things, data privacy standards. The European Parliament report also noted that because U.S. banking regulation is split between the federal and state governments, “Delaware, Nevada, Florida and Wyoming—all with very strict banking confidentiality regulations—would oppose the passing of a federal law on CRS in Congress.” FATCA Complaints Another issue highlighted in the report is the one-sided nature of the U.S. Foreign Account Tax Compliance Act, as EU governments must provide the U.S. with tax and income data about U.S. citizens living within their territory, but that reporting isn’t reciprocated with information about EU citizens living in the U.S. Since the European Parliament panel began investigating the Panama Papers nearly a year ago, the FATCA issue has consistently been raised in hearings, the most recent of which took place March 6. “The fact is that money laundering takes place when money is transferred from shell companies in tax havens via countries such as Switzerland and then onto to the U.S.,” Giuseppe Marino, a professor at Bocconi University in Milan, said at a March 6 hearing on the role Swiss lawyers and banks played in setting up and facilitating shell companies revealed by the Panama Papers. “The one-sided nature of FATCA is clearly a problem.” Article compliments IFC Review.
EU Mulls Tax Sanctions for Countries Branded Tax Havens
Countries that end up on the European Union’s list of tax havens could subject companies operating within their borders to tax sanctions—such as withholding taxes and denied deductions for royalty payments—damaging the businesses’ ability to offset losses in the jurisdictions, reports Bloomberg. Following a March 1 meeting, politicians identified a range of sanctions to impose on companies in any country or jurisdiction that meets the criteria for being considered a tax haven. According to confidential documents obtained by Bloomberg BNA, the sanctions under consideration for the blacklist by the EU Code of Conduct Group for Business Taxation include: withholding taxes; elimination of payment deductions, such as royalties; restrictions via new EU rules for controlled foreign corporations; and elimination of the participation exemption rule. All of the sanctions could apply to an EU company doing business within a jurisdiction that ends up on the EU tax haven blacklist, which is due to be finalized by the end of 2017. Based on the confidential documents, the final list of sanctions can be imposed via coordinated measures such as EU legislation or restrictions through EU funding. Country Screening The EU Code of Conduct Group for Business Taxation is coordinating the bloc’s work on the tax haven blacklist. It is currently preparing to “screen” 92 countries that fail to meet a range of transparency and corporate taxation criteria. The 92 include the U.S. and Switzerland, as well as a range of offshore finance centers such as Bermuda, the Bahamas, the Cayman Islands, Jersey, Guernsey and the Isle of Man. “Being listed for tax purposes by the EU is supposed to have already per se a deterrent effect since this would very likely entail potential consequences in terms of international reputation,” according to the document. It adds that, nonetheless, “member states have asked for concrete, specific and direct countermeasures linked to listed jurisdictions.” Payment Deductions Payments such as royalties, interest and services are currently deductible under domestic law in EU countries when made to persons located in a non-EU country. “At present this type of domestic countermeasure is triggered by different types of criteria including transparency and harmful tax measures,” the document states. The document notes that in some cases, “the deductibility of costs may be accepted if the taxpayer can prove that the payments relate to the real transactions justified on economic grounds.” Controlled Foreign Corporations The code of conduct document notes that the Anti-Tax Avoidance Directive, or ATAD—which takes effect in 2019—provides options for sanctions when it comes to controlled foreign corporations. “Currently the triggering requirement provided for in the ATAD is essentially based on the level of taxation in the CFC jurisdiction,” the document said. “As a first option the triggering requirement could be automatically satisfied for jurisdictions featuring on the EU list without the need to go to a case-by-case basis.” Withholding Taxes The potential withholding tax measures under consideration in the document “provide for a more restrictive tax treatment for certain outbound payments when these have been made to individuals or legal persons located in third-country lists for tax purposes.” The participation exemption rule applies to dividends paid to shareholders that hold “a given percentage of a company’s stock.” These exemptions are allowed via the EU Parent-Subsidy Directive. “A possible countermeasure could provide for denial or limitation of the tax exemption if the foreign entity that pays the dividends is located in a listed jurisdiction,” the document said. Other potential sanctions listed by the conduct group in the confidential document include: reinforced monitoring of certain transactions that include special documentation requirements for payments made towards listed jurisdictions; and placing the burden of proof for the deductibility of certain expenses on the taxpayer rather than the tax authority. Article compliments IFC Review.
UK: The state of play on tax evasion and avoidance
Sometimes it can be hard to keep up with the avalanche of government announcements on tax avoidance and evasion. This guide, produced by Jason Collins, a member of the CIOT’s Management of Taxes Sub-Committee, should bring tax agents, journalists and others with an interest in tax compliance up to speed with the rapidly changing landscape in this area, reports Chartered Institute of Taxation. Offshore evasion The 1st of January 2017 was a seminal date in the war against offshore tax evasion because it is the date on which financial accounts in existence in jurisdictions in the ‘late’ adopters of the Common Reporting Standard (CRS), will have to be reported, even if they are closed after this date. Although the trigger dates were earlier for the Crown Dependencies and Overseas Territories (CDOTs) (1 July 2014) and early adopters of the CRS (1 January 2016), the late adopter countries are perhaps the most significant because they include the major financial centres of Switzerland, Hong Kong, Dubai and Singapore. HMRC received the data from the CDOTs in September 2016 and has begun the process of matching that data to information it already holds in order to decide who to investigate. The data pot will be enhanced by the receipt of the CRS early adopter data in September this year and late adopter data in September 2018. Enablers The date of 1 January 2017 also brought the start of Finance Act 2016 penalties for enablers of someone else’s offshore tax evasion or careless non-compliance. Penalties can be up to 100 per cent of that other person’s tax liability. It is worth noting here that the taxpayer will be entitled to mitigation of his or her own penalty if he or she provides information about any enabler. Strict liability offence HMRC is under pressure to prosecute more people for offshore tax evasion, and FA 2016 introduced a new ‘strict liability’ offence which may achieve this end. The offence will apply if a UK taxpayer fails to notify HMRC of his or her chargeability to tax, fails to file a return or files an incorrect return in relation to income, gains or assets in a non-CRS country and the underpaid tax is more than £25,000 per tax year. There will be no need for the prosecution to prove that the individual’s actions were dishonest but the taxpayer can put forward a ‘reasonable excuse’ defence. The maximum sanction is six months of imprisonment. We do not yet have a definite date, but it is expected this will apply from April 2017. Corporates As with the above, HMRC is also under pressure from the public to see more companies and partnerships prosecuted – in particular those who fail to prevent their staff and agents from criminally facilitating third party tax evasion. A new offence is being introduced in the Criminal Finances Bill and will be effective by September 2017 at the latest. Liability is again ‘strict’, but it will be possible to advance a defence that reasonable procedures were in place to try to stop the misconduct (or that it was not reasonable in all the circumstances to expect there to be a procedure in place). The offence is being introduced because under the current law a corporate will only be criminally liable if very senior management (usually board level) were involved or knew about the facilitation, meaning that it can be all too easy for senior management to let unscrupulous practices go on, provided they know nothing about them. Tougher civil penalties Despite bringing more prosecutions, most cases will continue to be dealt with by HMRC levying financial penalties rather than seeking a criminal conviction. The current maximum penalties for offshore evasion depend upon the extent that the UK has exchange of information arrangements with the jurisdiction connected to the non-compliance, with a maximum penalty of 200 per cent of the tax for the most opaque regimes. The standard penalty payable can be increased by up to 50 per cent where there has been a deliberate attempt to move assets in order to avoid exchange of information regimes (Sch 21, FA 2015). In addition, a new ‘asset-based’ penalty is being introduced (Sch 22 FA 2016) for the most serious cases of evasion with an offshore connection. It is levied in addition to the standard penalties for deliberate behaviour. The asset-based penalty starts at the lower of 10 per cent of the value of the asset and 10 times the potential lost revenue related to the asset and is subject to mitigation. It is not yet known when this penalty will come into force, but it is likely to be sometime in 2017. Disclosure facilities and ‘Requirement to Correct’ The Liechtenstein Disclosure Facility (LDF), which despite its name could be used for irregularities in other jurisdictions, has been withdrawn and replaced with the much less generous Worldwide Disclosure Facility (WDF). The WDF offers no tax amnesty, penalty reduction or guarantee of non-prosecution and therefore provides little incentive for the hard core who have resisted the numerous previous settlement initiatives to regularise their position. The WDF requires the taxpayer to pay the tax, interest and a self-assessed reckoning of the penalties which apply. Linked to this, Finance Bill 2017 will include new measures applying to a person with any undeclared tax relating to offshore matters as at 5 April 2017. The law will impose a special ‘new’ statutory requirement to correct the issue between 6 April 2017 and 30 September 2018. The issue is treated as corrected if the taxpayer takes certain steps, including formally bringing it to the attention of HMRC under the WDF, before the deadline. A failure to correct by the deadline will lead to two things. First, the time limit applying to HMRC’s powers to assess will be extended so that HMRC is given a further four years beyond the usual timeframes in which to discover and collect the under-declared tax. Second, the old penalty regime will fall away and a new super penalty will be applied. The penalty is between 100 per cent and 200 per cent of the potential lost revenue (depending on the levels of cooperation). The underlying conduct giving rise to the non-compliance is irrelevant. However, there is a ‘reasonable excuse’ defence and provision for reduction of the penalty in special circumstances. This super penalty can be imposed in addition to the asset–based penalty mentioned above. It is also subject to an increase of up to 50 per cent under Sch 21 FA 1015 if HMRC can show that assets or funds have been moved in a deliberate attempt to avoid exchange of information (see above). Obligation to write to clients Advisers who have provided tax advice to UK residents in relation to offshore accounts, assets and sources of income and financial institutions who have provided offshore accounts are required to send a letter to their clients enclosing a HMRC leaflet and reminding them of their obligation to disclose offshore income and gains. It will apply in respect of advice provided in the year to 30 September 2016 and there are exclusions. A useful exclusion for advisers covers the situation where all the adviser has done is prepare tax returns disclosing offshore income. Letters need to be sent by 31 August 2017 but advisers need to start working out which clients they need to contact, if they have not already done so. Requirement to notify offshore structures HMRC is consulting until 27 February 2017 on a proposed new legal requirement for intermediaries (both within and outside the UK) creating or promoting certain complex offshore financial arrangements to notify HMRC of the details and provide a list of clients using them. The measure aims to target arrangements which could easily be used for tax evasion purposes. It is proposed that the requirement should apply to arrangements in existence at 31 December 2016, rather than just new arrangements entered into after the new measure comes into force, in order to tie in with the start of CRS. Onshore evasion More tax is lost to onshore evasion or non-compliance than to offshore evasion and avoidance but it does not always attract the same level of public interest – for example a former minister for tax was vilified for making the very valid point about the scale of the tax loss from paying tradespeople in cash. Indeed, the largest single type of loss to the exchequer is from the ‘hidden’ economy – for instance those who fail to register for tax at all (known as ‘ghosts’) or fail to declare an entire source of income (known as ‘moonlighters’). In 2014/15 (the latest figures available), 17 per cent of the tax gap (some £6.2bn) was estimated to be down to this type of non-compliance. As with offshore evasion, HMRC has adopted a two pronged strategy to counteract domestic tax evasion. This involves a combination of ‘encouraging’ recalcitrant individuals to come forward and increasing HMRC’s powers to obtain information from third parties who may provide the key to finding those who are non-compliant. Disclosure initiatives Recent ‘encouragement’ initiatives involve HMRC targeting areas where they believe there may be non-compliance. In the past HMRC has focused on specific industries, eg plumbers, solicitors and doctors, but over the last year it has launched campaigns targeting specific types of income that may be relevant to the population more generally, such as buy-to-let rental income and income from second occupations. These initiatives enable a voluntary disclosure to be made of previously undeclared income and generally offer reduced penalties, compared to the position if it is HMRC that discovers the non-declared income. ‘Nudge’ letters A more controversial aspect of the strategy to encourage non-compliant people to come forward voluntarily has been the use of ‘nudge’ letters. These letters to taxpayers reminding them of their obligations are sometimes not copied to agents, such as one that was sent out just before Christmas to those who had declared interest income on their 2014-5 tax return asking them to check the figures returned. It was not clear from the contents of this standard letter whether it had been sent randomly or to specific individuals as a result of HMRC receiving different information from banks and building societies about the interest paid. Anecdotal evidence from tax advisers suggests that the letter worried some individuals who had, in fact, complied with their obligations. Increased HMRC powers In relation to the second prong of the strategy, there were three consultations last year on additional powers to clamp down on the hidden economy. One consultation proposed extending HMRC’s data gathering powers to enable it to collect data from money services businesses (for instance businesses that provide money transmission, cheque cashing or currency exchange services). As part of the ‘Fintech’ revolution, more and more people are buying bank services outside the traditional bank supply lines and HMRC has had to respond to try to ensure that the ‘shadow banking’ sector cannot easily be used to hide sources of income or wealth. Another consultation proposed making access to public sector licenses such as licences for private hire vehicles, environmental health, planning and property letting conditional on registering for tax. As an alternative the government is considering measures which will effectively give financial services companies an indirect role in policing the hidden economy, by making access to business services such as insurance and bank accounts conditional on proving that you are registered for tax. The third consultation document proposed tougher sanctions for those involved in the hidden economy, including higher penalties for those who repeatedly fail to notify chargeability, additional tracking and enhanced monitoring of taxpayers with a history of non-compliance, and strengthening the penalty regime where an immigration offence is also committed. Connect In this high-technology age, HMRC has invested heavily to keep up. It has spent a very large sum of money on a database, called ‘Connect’. All information is fed into this data trove and reviewed in order to inform HMRC’s deployment of resource to meet onshore and offshore risks, as well as identifying specific instances of non-compliance. The flip side is that as the country moves away from using cash, the traditional channels for the hidden economy are closing. Tax evasion is as old as the hills, but one wonders whether it has met its match. Tax avoidance A crackdown on tax evasion is probably only just ahead of a crackdown on avoidance in the political popularity stakes. In the eyes of HMRC, aggressive avoidance is no more acceptable than evasion and shares the feature that (because of their overwhelming success rate in challenging avoidance) tax is legally due but unpaid. This perspective has justified a barrage of measures in recent years. Penalties for enablers of avoidance The most contentious measure is the suggested imposition of penalties on the ‘supply chain’ in avoidance – not just the designers and promoters, but those who provide advice and who sell the arrangements to others. A first consultation drew gasps from among the tax industry as it suggested penalties would be applied to any bank or adviser whose client was successfully challenged under, among other things, a targeted anti-avoidance rule. The penalty would be up to 100 per cent of the tax due from the client. Thankfully HMRC listened to stakeholders’ concerns about the breadth of the proposals and the draft legislation for inclusion in Finance Bill 2017 provides that the measure will only apply to ‘abusive arrangements’. This uses the ‘double reasonableness’ test used for the general anti-abuse rule (GAAR) – arrangements which cannot reasonably be regarded as a reasonable course of action having regard to all the circumstances. The penalty will be capped at the fee received by the adviser/intermediary. It is proposed that the new rules will apply to activity taking place after Royal Assent is given to the 2017 Finance Bill. Serial tax avoiders A new ‘serial tax avoiders’ regime has been in force since 15 September 2016. It applies where a tax avoidance scheme is ‘defeated’ (either by the decision of a tribunal or court or by settlement with HMRC). Anyone who has participated in a scheme on or after 15 September 2016 can be issued with a warning notice which lasts for five years and imposes an annual obligation to notify HMRC of further schemes used, with enhanced penalties, possible ‘naming and shaming’ and restriction of access to tax reliefs if any schemes used within the period are defeated. A warning notice can be issued to those who entered into schemes before 15 September 2016 which are defeated on or after 6 April 2017, but then only the annual notification requirements apply and not the other sanctions. Increased transparency Tied in with international measures and the fight against tax evasion and avoidance we have also seen a number of measures to increase transparency. These include the requirement since April 2016 for certain UK companies and LLPs to formally identify and keep a register of ‘persons with significant control’ over them and to provide this information to Companies House at least annually. There are also proposals for a register of people controlling non-UK companies owning UK real estate as well as a register of settlors and beneficiaries of trusts which generate UK tax consequences. Further details are expected this year. Large businesses will also be required to publish their tax strategy online. This will include details of their attitude to tax planning and their appetite for risk. Country-by-Country Reporting, under which large companies have to formally break down where they make profits and where they pay tax, will also go live in 2017. VAT Clause 95 of the Finance Bill 2017 provides for a new penalty which will apply to anyone found to have claimed input tax on a transaction which they ‘knew or should have known’ was connected with a VAT fraud (the input tax claim thus being bad in law). HMRC say that the current VAT penalty regime (which identifies careless or deliberate errors) requires HMRC to specify whether they are alleging one or the other of actual and constructive knowledge for the purposes of the penalty, whereas they do not need to make this distinction for the legal test in respect of the tax itself. Under this new fixed 30 per cent penalty, liability is engaged irrespective of the type of knowledge. The penalty cannot be reduced for co-operation with HMRC and company officers can be personally liable. Tax Avoidance Disclosure Regimes for Indirect Taxes and Inheritance Tax The Government will revise the VAT avoidance disclosure regime (VADR) and widen it to cover other indirect taxes from September 2017. Among the proposals is to move the principal obligation to report schemes from VAT-registered businesses to scheme promoters and align the penalties for non-compliance with VADR obligations with those chargeable under DOTAS. The Government insists that it will reduce burdens as the focus for compliance shifts from all taxpayers to a much smaller number of promoters. HMRC plans to introduce a wider disclosure mechanism applicable to all IHT arrangements that are contrived or abnormal, or which contain contrived or abnormal steps. More details are to be included in the regulations. Conclusion Although the pace of change has already been very rapid, a significant number of the measures outlined above are due to take effect in 2017. This will give HMRC considerably more fire power in its battle against tax evasion and avoidance. Tax advisers need to be aware of the impact these changes could have on their clients and of the increasing number of measures which could catch the unwitting tax adviser. Article compliments IFC Review.
China’s new banking watchdog chief coy on super-regulator role ‘rumour’
The Chinese banking regulator’s newly appointed chief on Thursday brushed aside suggestions that he would spearhead a merger of the country’s three financial industry watchdogs, describing the talk as “rumour”, reports CNBC. In his first public appearance since taking on the top job at the China Banking Regulatory Commission last week, Guo Shuqing vowed to strengthen oversight of the sector, but stopped short of saying what his role would be in overhauling financial regulation. “If you’d asked me about the ways to improve rural toilets, I would say I knew three ways; but you’ve asked me about my plans for banking regulation, and at present, I have none,” he said. Guo, who was named CBRC chairman after four years as governor of Shandong, tried to tamp down speculation that he would lead the nation’s effort to merge the regulators for banking, securities and insurance. When asked if he had any idea abouts a suitable financial regulatory model, Guo said: “I have been in my [new] office for just three days, and I really have had no time to think about the problem thoroughly. “I have been working on the real economy for the last four years, and I haven’t thought about financial regulation too much – I need to learn from you as well.” The light-hearted comments belie the severity of Guo’s task – he has pledged to bring the banking industry into line to serve the economy and to crack down on irregularities among lenders. Guo’s return to the capital comes as the leadership is urging regulators to root out sources of financial risk. Liu Shiyu, chairman of the China Securities Regulatory Commission, said last week that his institution would tackle “big crocodiles” – the tycoons pulling the strings behind the scenes in the capital market. The insurance regulator has also barred a high-profile tycoon from the insurance business for a decade. Guo said the CBRC would urge banks to channel funds to support supply-side reform, the hallmark of President Xi Jinping’s economic policy. He also aimed to close regulatory loopholes to stop profiteering. “We will put priority on financial risk control to make sure there won’t be any systemic financial risks,” Guo said. “Some financial products … are invested in each other with no one really knowing the underlying assets or the final destination of fund flows.” Article compliments IFC Review.
New Zealand: Govt reveals changes to target multinationals over tax
Changes to ensure multinational companies pay a fair share of tax have been outlined by the Government, reports NewsTalk ZB. Finance Minister Steven Joyce and Revenue Minister Judith Collins have released three consultation papers, that propose new measures for taxing multinational companies. “We welcome multinationals’ participation in our economy, but we also expect them to pay tax based on their actual levels of economic activity in New Zealand,” Collins said. The proposed changes include: Addressing concerns about multinationals booking profits from New Zealand sales offshore, despite the same sales being driven by New Zealand-based staff, Stopping companies using interest payments to shift profits offshore. New Zealand is among 96 countries that are working on a multilateral tax treaty developed by the OECD to tackle tax avoidance strategies used by multinational companies, that are known by the acronym for base erosion and profit shifting (BEPS). Joyce said New Zealand’s tax system performs “very well” overall. “However, it’s important that it keeps evolving to ensure that all companies operating in New Zealand pay their fair share of tax. “The proposals in these documents are in line with the recommendations from the OECD’s base erosion and profit-sharing project.” A Herald investigation in March last year found the 20 multinational companies most aggressive in shifting profits out of New Zealand collectively paid virtually no income tax. The companies in question, including Facebook, Google and Pfizer, said they followed New Zealand laws and differences in profitability between their New Zealand operations and elsewhere were the results of different business models. Facebook paid just $43,000 tax in New Zealand on $1m in revenue, according to recent financial statements. In December, then Revenue Minister Michael Woodhouse said proposals outlined in a cabinet discussion document tabled last month would see Inland Revenue properly armed to tackle the problem and could be accompanied by increased enforcement funding for the taxation authority. The proposals included granting broader information-gathering powers to Inland Revenue investigators, shifting the burden of proof to multinational companies in disputes over transfer pricing, and tightening loopholes that allow companies to claim they have no taxable presence in New Zealand. The moves stop short of a full-scale diverted profits tax, as introduced by Australia and the United Kingdom. Labour Party Revenue spokesman Michael Wood has reservations about the approach being largely amendments of existing rules as opposed to more widespread reform. He’s concerned a diverted profit tax isn’t on the table, saying it should be so that it can be properly considered. Mr Wood said another potential problem is the proposed changes are so technical and tweaky, that they could be worked around by smart lawyers and accountants – potentially causing litigation down the track. Retail NZ is disappointed measures do not include a requirement for them to register for GST if they are selling goods to New Zealand customers. Spokesman Greg Harford said the Government is expecting to collect between 200 and 300 million dollars, which big multinational firms are currently sending off to tax havens. But he said it’s missing out on at least another 200 million because the companies are not GST registered. He said some foreign retailers are doing a significant amount of business here online, without paying New Zealand tax. Mr Harford said Australia has recognised GST is a cost-effective and simple way to plug a hole in the tax system and make sure foreign firms are paying their fair share of tax.
CANADA: Advisors will need to register all tax products with CRA
The Canadian government has accepted all the recommendations of the parliamentary Finance Committee’s report on offshore tax avoidance and tax evasion, published in October 2016. They include requiring tax advisors operating in Canada to register all their tax planning products with the Canada Revenue Agency (CRA). The CRA will also pursue audits of individuals and firms implicated by the Mossack Fonseca data leak, reporting back by 1 June 2017. Article compliments Canada revenue Agency. Canadian Parliament (Government response to committee report, PDF file)