OECD Considering How to Tax Online Sales: Tax Chief
The OECD may look to revise controversial rules on how to define a taxable branch, with an eye toward online transactions, the organization’s tax chief said. Pascal Saint-Amans, the Organization for Economic Cooperation and Development’s director for tax policy and administration, said the OECD would consider expanding the definition of permanent establishments—recently tweaked in the organization’s base erosion and profit shifting (BEPS) project—as it develops a 2018 report to the Group of 20 on tax issues in the digital economy. “That’s what we’re working on, with the idea of further expanding the PE definition that includes something that would track the digital presence of a company,” Saint-Amans said during an Aug. 28 panel discussion at the International Fiscal Association Congress in Rio de Janeiro. He added that the OECD would also look at profit attribution rules and possible interim measures such as an alternative tax on e-sales. He suggested “ALES” as a potential acronym for the alternative tax. How to source taxation in the online world has become an increasingly difficult and controversial topic among tax administrations. While the BEPS project aimed to address many of those concerns, Saint-Amans conceded the project had not produced a complete agreement. After the panel, Saint-Amans told Bloomberg BNA that he hopes the OECD can help provide some measure of agreement as countries consider unilateral actions to tax online sales—but he wasn’t optimistic. “Will there be any sort of agreement on an interim solution? I don’t think so, because there’s a big divide between the U.S., the Europeans, and Japan,” he said. The 2018 report is being developed by the OECD Task Force on the Digital Economy, and follows a G-20 communique, issued July 8, which emphasized the “tax challenges raised by digitalisation of the economy.” Inconclusive During the panel, Saint-Amans admitted that the work of the BEPS on Action Item 1, which dealt with the digital economy, hadn’t produced a strong consensus. “Action 1 was conclusive, but not that well conclusive as regards the corporate income tax,” he said. “And we can see there is no stability here.” The Action 1 BEPS report laid out new principles for collecting general service and value-added taxes, including a rule stating that difficult-to-pinpoint transactions should be taxed at the normal location of the consumer. But on stickier corporate income tax issues related to online transactions, the OECD neglected to write specific rules, claiming that it was impossible to separate the digital economy from commerce in general. A separate BEPS report on Action 7 rewrote the rules for defining a permanent establishment. The report targets structures that allow companies to do business in a country without triggering taxation. But the report stopped short of declaring that digital activity alone could create a taxable presence for income. India’s Perspective Akhilesh Ranjan, principle chief commissioner of income tax at India’s Ministry of Finance who spoke on the IFA panel, said he supports revising the permanent establishment and digital economy rules, blasting the current regime as failing to recognize reality in today’s business environment. “The current tax rules, we believe, are not prepared to take into account the role the market plays in this,” Ranjan said. “Market conditions do create value, and this value is not captured by standard methods of transfer pricing.” Ranjan said in the context of digital services, “there is a distinct element of value creation or addition which is created by the market itself, and that is something which must be compensated and remunerated.” Attributing Profits Ranjan also criticized the OECD’s rules on attributing profit to a permanent establishment, which rely on using transfer pricing principles to tax the branch as if it was a distinct subsidiary. “An attribution scheme which is only based on a functions, assets and risks analysis is heavily lopsided for the supply side, and not considering demand-side factors, which also create value,” he said. Ranjan said India’s recently enacted equalization levy, which imposes a withholding tax on outbound payments for advertising when there isn’t a permanent establishment, was “sort of an interim” measure until the OECD develops stronger rules on these issues. “We really strongly believe that the world must realize that we have to consider the challenges posed by the digital economy, whether or not it’s a BEPS risk in the technical sense of the term,” he said. Article compliments IFC Review.
Misleading Claims about Multi-National Corporate Tax Avoidance
Global political leaders can’t seem to agree on much these days, except perhaps for one thing: cracking down on corporate tax avoidance. Over the past few months, more than 100 countries have signed the Inclusive Framework sponsored by the Organisation for Economic Cooperation and Development (OECD), which sets common rules for addressing base erosion and profit shifting, commonly known as BEPS. Despite the stampede to address this issue, it is still an open question as to how much corporate tax avoidance is actually draining government coffers and what harm, if any, it is having on the global economy. Activist groups that have pushed for these rules, such as the Tax Justice Network and Oxfam, say BEPS is denying developing countries of the resources they need to grow and deliver important services such as health care and education. The recent Oxfam report “Making Tax Vanish”, claims that “tax avoidance hits the poorest the hardest…Reduced quality and accessibility of these essential services means that women and girls often fill the gap through unpaid or low-paid work. Societies become more unequal, as it becomes harder for those at the bottom to improve their lives and escape poverty.” So how much is tax avoidance by multinational enterprises (MNEs) costing developing nations? Estimates vary widely, but Oxfam points to a 2015 report by the United Nations Conference on Trade and Development (UNCTAD) which estimates that BEPS cost developing countries $90 billion in 2012. Developed countries, by contrast, lost an estimated $110 billion. While $90 billion is surely a lot of money, it turns out that MNEs already contribute quite a lot to developing nations through corporate income taxes, social insurance taxes, and natural resource royalties. These taxes are in addition to the capital investments MNEs make in developing countries. UNCTAD estimated that the foreign affiliates of MNEs paid as much as $730 billion in total taxes on the profits generated by some $5 trillion in capital investments they had in developing countries as of 2012. Corporate income taxes amounted to $220 billion in revenues, taxes on trade and social insurance contributions added another $210 billion, while taxes on property and natural resource extraction totaled roughly $300 billion. Relative to their profits in these countries, the amount of taxes paid by MNE foreign affiliates is not trivial. UNCTAD estimated that “the total contribution to government revenues represents about 50 percent of foreign affiliate commercial profits, with minor variations by region.” So foreign firms are basically splitting their profits with developing nations. As large as these tax payments are in cash terms, they represent a very small share (10 percent) of the $6.9 trillion in total tax revenues collected by developing nations in 2012. If countries were to capture the $90 billion in revenues “lost” to tax avoidance, it would lift that share to 11 percent, equal to adding one more penny of tax revenues to every $1 collected by these developing nations. Domestic corporations are far more important taxpayers in developing countries, contributing more than one-third ($2.5 trillion) of the total tax revenues collected. These facts run completely contrary to the narrative maintained by development activists that raising taxes on multinational firms is key to funding essential public services. Another revealing finding of the UNCTAD report is that tax avoidance seemingly has no impact on reducing the effective tax rates (ETRs) paid by foreign firms relative to their domestic counterparts. UNCTAD’s own firm-level analysis “finds that the ETRs for foreign affiliates and domestic firms are substantially aligned. Other studies have also found no evidence of a substantial difference in ETR between domestic companies and MNEs.” If foreign and domestic firms have the same ETRs despite all the alleged tax avoidance, what does this say about profit shifting being a “problem”? It could mean that domestic firms are as adept at tax avoidance as foreign firms. (Which is plausible in some developing countries where corruption is a major issue; although the same findings hold for developed countries as well.) More likely, it means that BEPS is not as big of a problem as the activists and bureaucrats at the OECD suggest it is. This is sort of like caffeine in coffee. There is such a thing as a lethal dose of caffeine. But a few cups of coffee a day is not going to kill you. As if to undermine the significance of their own estimates of tax avoidance, UNCTAD researchers issued this warning to global leaders: “[A]ny policy action aimed at increasing fiscal contribution and reducing tax avoidance, including the policy actions resulting from the BEPS project, will also have to bear in mind the first and most important link: that of tax as a determinant of investment.” In other words, taxes matter a lot to investment decisions. Therefore, development activists and global tax collectors have a choice: they can try to collect that last penny of tax revenue from MNEs, or they can have the investment projects that MNEs make possible. They just can’t have both. It may be too late. With more than 100 nations committed to addressing BEPS, it seems as though the global community is speeding down the path of creating a solution more harmful than the “problem” itself. If global investment stalls as a result, the poor will then truly suffer. Article compliments IFC Review.
Trump’s populist message on taxes comes with heavy dose of corporate rate cuts
Trump’s speech didn’t mask the fact that lawmakers still face a wide range of knotty questions when they return to Washington next week, reports Politico. President Donald Trump kicked off his efforts to sell a big tax package to voters on Wednesday, calling for a “pro-American” system that would cut tax rates for businesses and offer a boost to the middle class. Trump maintained that a new tax system was crucial to ushering in a new prosperity in the U.S., in a speech that White House officials acknowledged beforehand would be light on policy details. The president laid out several principles for tax reform, including cleaning the code of tax breaks and offering tax relief to middle-class families. But in a speech meant to put a populist polish on tax reform, Trump also spoke repeatedly about the need to lower the statutory corporate tax rate — which, at 35 percent, stands among the highest in the industrialized world — and to give companies more opportunity to bring back profits they’ve stashed offshore. “Instead of exporting our jobs, we will export our goods. Our jobs will both stay here in America and come back to America. We’ll have it both ways,” Trump said at a Springfield, Mo., manufacturer, adding that millions of people would move from welfare to work and “will love earning a big fat beautiful paycheck.” “We believe that ordinary Americans know better than Washington how to spend their own money and we want to help them take home as much of their money as possible and then spend it,” he said. “So they’ll keep their money, they’ll spend their money, they’ll buy our product.” But Trump’s speech also underscored just how big a challenge he and a Republican Congress will face in pulling off a true overhaul of the tax code. The president only briefly touched on policy details, saying that businesses would “ideally” be taxed at a top rate of 15 percent and that the tax code would contain incentives for child care — a top priority of his daughter, Ivanka Trump. The president also laid bare some of the tensions that have erupted between the White House and GOP lawmakers following the implosion of their efforts to repeal Obamacare. “I am fully committed to working with Congress to get this job done,” Trump said. “And I don’t want to be disappointed by Congress. Do you understand me?” Trump’s speech was aimed at showing that Republicans have the message down on tax reform, but lawmakers have yet to confront the monumental task of turning the rhetoric into reality. Senior White House officials this week repeatedly billed the president’s speech as an address focused on why tax reform needs to happen, not how it will materialize. That’s the sort of big-picture cover on taxes that Trump didn’t offer congressional leaders in their doomed efforts to repeal and replace Obamacare. But while congressional leaders undoubtedly welcome the president making the broad case for a tax revamp, Trump’s speech doesn’t mask the fact that lawmakers still face a wide range of knotty questions when they return to Washington next week. Republicans still have to figure out how to pass a budget this fall, a process that will play a big role in deciding how generous a tax plan they can write. They also have to decide whether tax changes should be permanent or temporary, or a mix of the two, and whether their plan should be a net tax cut that would add to the deficit. And that’s before they will feel the full brunt of a massive lobbying push on what would be the first major tax overhaul in more than 30 years. Already, GOP lawmakers are starting to hear from industries that might be the losers in a tax overhaul, such as big corporations that don’t want a minimum tax on foreign earnings and a retirement sector wary of potential changes to savings plans. The hurdles won’t be limited to policy, either, after a summer that saw both sides of Pennsylvania Avenue grow increasingly wary of the other as the GOP’s health care efforts imploded. Republicans on Capitol Hill steamed privately in July that Trump’s obsession with White House infighting and the Russia controversy was a major factor in the death of the repeal effort. They’re crossing their fingers that he won’t be so easily distracted on tax reform. That’s because Hill Republicans will need Trump to use his bully pulpit for tax reform to cross the finish line, and GOP leaders believe Trump is uniquely able to reach the entire electorate in a way Hill leaders never could. As one House GOP leadership aide put it, the speech shows the White House is rowing in the same direction as the Hill, reassuring lawmakers that tax reform is possible. But the ultimate test will come when the House, which is expected to move first on taxes, drops its bill. There are questions, following the health care debacle, over whether the White House will embrace the legislation as its own — or distance itself from the plan as a House effort once the critics and special interests start getting louder. GOP leaders on the Hill say the weekly tax reform meetings with administration officials suggest that the White House and Congress will stand firm in their unity behind the jointly laid plan. Meanwhile, top Trump aides and advisers, like Gary Cohn, the director of the National Economic Council, have made it clear that lawmakers will take the lead on actually writing the tax bill. “The administration has been very well represented in this process,” a senior White House official said Tuesday. That unity will be tested, however, when various interests start picking apart the plan. Plenty of powerful industries could be hurt by a tax overhaul, which will undoubtedly complicate efforts to get lawmakers on board with the effort. The housing sector, for instance, is concerned about chatter that Republicans would consider both capping the mortgage interest deduction and ending the deduction for state and local taxes. The GOP is also looking at curbing the pre-tax benefits for contributing to retirement accounts, raising anxiety among that industry. All sorts of businesses are also worried that Republicans might end the long-standing deduction for business interest, something the House GOP proposed in its blueprint last year. Trump to seize populist mantle for pitching messy tax overhaul The Alliance for Competitive Taxation, a coalition that includes Google, IBM and Pfizer, warned against across-the-board limits on the interest deduction in a new paper this week while also coming out against a minimum tax on offshore earnings that has gained traction since the death of the House GOP’s border adjustment. “Imposition of a foreign minimum tax on the active business income of U.S. companies would have unintended and adverse consequences,” wrote the group, which also wants Washington to drastically cut the corporate tax rate from 35 percent and to generally limit the taxation of offshore income for multinational corporations. Beyond the policies that have yet to be ironed out, Hill Republicans still have to pass a budget in order to tackle partisan tax reform — a major hurdle in itself. House Republicans, divided among moderates and conservatives, have been unsuccessfully trying to reach a budget deal for months. But while GOP insiders believe they’ll finally advance their fiscal blueprint in September, they’ll still need to strike a deal with Senate Republicans, whose fiscal blueprint is likely to look entirely different, sending the House back to square one. Without a budget, Republicans would need Democrats to pass any tax bill — an uphill battle for an increasingly unpopular president, especially considering that 45 Senate Democrats have vowed not to back any measure that includes tax cuts for the wealthy or adds to the deficit. “The millionaires and the billionaires in this country are doing just fine, God bless them, don’t have any problem with that,” Senate Minority Leader Chuck Schumer said Wednesday in a conference call ahead of Trump’s speech. Article compliments IFC Review.
Isle of Man joins Commonwealth body in strategic Brexit move
The Isle of Man, one of the UK’s crown dependencies, plans to strengthen its economic links with Commonwealth countries ahead of Brexit by becoming a strategic partner of the Commonwealth Enterprise and Investment Council (CWEIC), reports International Adviser. The move was announced by Howard Quayle, chief minister for the Isle of Man, as one of a series of measures aimed at preserving – and possibly strengthening – the crown dependency’s economic status after Britain’s planned withdrawal from the European Union. Home to 2.4 billion people, The Commonwealth is a voluntary association of 52 independent and equal sovereign states that are mostly former territories of the British Empire. “Looking ahead to a world beyond Brexit, the Commonwealth offers a global network of markets and opportunities that the Isle of Man is particularly well placed to support,” said Quayle, who will represent the crown dependency on the organisation’s advisory board. “We specialise in facilitating international trade and investment and we look forward to making a positive contribution to the work of the CWEIC.” As a crown dependency, the Isle of Man cannot be a member of the Commonwealth in its own right. However, by becoming a strategic partner of the cross-governmental association, it “will build on existing business links with Commonwealth members such as South Africa and India and help to open up new opportunities for the island,” the government of the Isle of Man said in a statement. The Council is also responsible for the Commonwealth Business Forum, part of the biennial Commonwealth Heads of Government Summits which is to be held in the UK next year. “We are delighted to welcome the Isle of Man as a Strategic Partner of CWEIC,” Lord Marland, chairman of the Commonwealth Enterprise and Investment Council, said. “It is a great testament to the Isle of Man’s government that they see the fantastic opportunity within the Commonwealth for trade and business, and to play a central role at the Commonwealth Business Forum to be held in London next April.” Article compliments IFC Review.
Legal challenge against Fatca shut down by US appeals court
A group of US citizens living abroad “lack standing” to challenge the US Treasury Department’s taxes on their foreign bank accounts, the country’s Court of Appeals for the Sixth Circuit ruled on Friday. The taxes were established by the Foreign Account Tax Compliance Act (Fatca) in 2010 and have been described by attorneys representing several US citizens as “draconian”, reports legal news site Courthouse News Service. Fatca requires foreign banks to report all accounts held by US citizens to the country’s Internal Revenue Service (IRS) or risk being hit with a 30% withholding tax. Taxpayers wilfully failing to file a foreign bank account report also face a penalty of 50% of the value of the account or $100,000 (£77,674, €85,051), whichever is greater. US senator Rand Paul was among the plaintiffs in the original lawsuit in July 2015 that accused Fatca of being a financial surveillance programme that encouraged Americans living abroad to give up their citizenship. Along with five US citizens living overseas, Paul also claimed that foreign banks purged accounts held by Americans to avoid being taxed by the IRS. “…no plaintiff claims to hold enough foreign assets to be subject to the individual-reporting requirement.” The lawsuit was dismissed by US District Court judge Thomas M. Rose, who ruled that all of the plaintiffs lacked standing to bring their claims because none had been adversely affected by Fatca. On appeal, Jim Bopp, the plaintiffs’ attorney, argued before the Sixth Circuit in January that even though Fatca has not been enforced against his clients, the US Supreme Court allows for a pre-enforcement challenge of the law under Susan B. Anthony List versus Driehaus. But the Sixth Circuit affirmed judge Rose’s decision Friday, finding that the plaintiffs have no standing to challenge Fatca. “First, no plaintiff has alleged any actual enforcement of Fatca such as a demand for compliance with the individual-reporting requirement, the imposition of a penalty for noncompliance, or [a foreign financial institution’s] deduction of the Passthru Penalty from a payment to or from a foreign account,” judge Danny Boggs said, writing for the three-judge panel. “Second, no plaintiff can satisfy the Driehaus test for standing to bring a pre-enforcement challenge to Fatca because no plaintiff claims to hold enough foreign assets to be subject to the individual-reporting requirement,” the 28-page opinion continues. A foreign bank’s refusal to accept US clients may be related to Fatca’s reporting requirements, but it is the bank’s decision and that injury cannot be imputed to the US Government, the panel ruled. The Cincinnati-based appeals court also rejected Paul’s claim that he has been denied the opportunity to vote against the Fatca intergovernmental agreements (IGAs) negotiated by the Treasury Department and IRS. “Any incursion upon Senator Paul’s political power is not a concrete injury like the loss of a private right, and any diminution in the Senate’s law-making power is not particularised but is rather a generalised grievance,” Boggs said. “Senator Paul has a remedy in the legislature, which is to seek repeal or amendment of Fatca itself, under the aegis of which Treasury is executing the IGAs.” Paul did, in fact, introduce a bill to repeal Fatca in April. It has been referred to the Senate Finance Committee. Article compliments IFC Review.
New investment rules to curb China’s foreign acquisition binge
The Chinese government has officially put the brakes on Chinese companies pouring big money into overseas property development, issuing rules likely to have a significant impact in Australia, reports The Sydney Morning Herald. China’s State Council, or cabinet, issued the first rules on overseas investment by Chinese companies on Friday. US President Donald Trump has authorised an inquiry into China’s alleged theft of intellectual property. A new banned list includes casinos and defense technology, while overseas property development and hotels are classified as “restricted”. Chinese companies bought 38 per cent of all the residential property development sites sold in Australia last year, spending $2.4 billion, according to a Knight Frank report this year. But China’s National Development and Reform Commission declared on Friday that the property sector was “not the real economy” and companies investing overseas in real estate could be harming China’s financial stability by increasing capital outflows. The commission has labelled the overseas buying spree by China’s biggest private companies in recent years as “irrational”. Companies that violate the foreign investment rules would be punished, the State Council statement said. The average size of property development sites sold to Chinese companies in Australia last year was 21,045 square metres, an 18-fold increase from four years ago, according to Knight Frank’s January report. Chinese regulators had recently put the four biggest Chinese offshore private investors, HNA, Dalian Wanda, Fosun International and Anbang under greater scrutiny. But Friday’s rules signal for the first time the crackdown on overseas property development and hotel purchases would extend beyond these big four. The film industry, sports, and entertainment investments are also now classified as “restricted” investments. Dalian Wanda a fortnight ago began restructuring its business, which includes two $1 billion Australian apartment … Dalian Wanda a fortnight ago began restructuring its business, which includes two $1 billion Australian apartment projects at Circular Quay in Sydney. Photo: Supplied Dalian Wanda a fortnight ago began restructuring its business, which includes two $1 billion Australian apartment projects at Circular Quay in Sydney and the Gold Coast, plus the Hoyts cinema chain. HNA has a stake in Virgin Australia, and a convention centre in Victoria, and has indicated it will continue to invest in airports and airlines overseas that have synergy with its core business, Hainan Airlines. But there are many other Chinese companies active in the Australian property and hotel market. Dahua Group last year spent $347 million in Melbourne and $400 million in Sydney to buy multiple suburban sites to develop as master planned estates. Shanghai-based Dahua had made an unsuccessful billion-dollar unsolicited bid to the NSW government to redevelop the Sydney Fish Markets in 2015. Greenland Group and Country Garden also have major Australian property projects. All three companies have real estate as their core business in Shanghai, and it is unclear how the new restriction on offshore property development will impact them. The State Council said China will instead encourage companies to invest in projects that contribute infrastructure to its hallmark foreign policy, the Belt, and Road Initiative, which is seeking to build new rail and shipping links for trade. Australia hasn’t signed a Belt and Road memorandum of understanding with China. Australian Trade Minister Steve Ciobo said this year the Free Trade Agreement with China meant bilateral trade was already developing well outside of the BRI. Minister of trade, tourism, and investment Steven Ciobo says trade links are already developing. Minister of trade, tourism, and investment Steven Ciobo says trade links are already developing. Photo: Sanghee Liu The new rules encourage prudent investments in oil and gas exploration, minerals and energy, areas where Chinese companies have traditionally and continue to invest in Australia. Agriculture and fisheries investment is also given the green light, as is joint investment with foreign companies in technology and advanced manufacturing. The official China Daily reported: “Officials should guide overseas investments according to different categories, providing support to those on the encouraged list, offering tips to those on the restricted list, while strictly managing those on the banned list.” Chinese outbound investment fell 44 per cent in the first seven months of 2017 as the Chinese government began cracking down on capital flight, and criticised Chinese companies buying trophy assets such as European football clubs, iconic hotels such as Club Med, and Hollywood studios. Article compliments IFC Review.
Netherlands and UK are biggest channels for corporate tax avoidance
Almost 40% of corporate investments channelled away from authorities and into tax havens travel through the UK or the Netherlands, according to a study of the ownership structures of 98m firms. The two EU states are way ahead of the rest of the world in terms of being a preferred option for corporations who want to exploit tax havens to protect their investments. The Netherlands was a conduit for 23% of corporate investments that ended in a tax haven, a team of researchers at the University of Amsterdam concluded. The UK accounted for 14%, ahead of Switzerland (6%), Singapore (2%) and Ireland (1%). Every year multinationals avoid paying £38bn-£158bn in taxes in the EU using tax havens. In the US, tax evasion by multinational corporations via offshore jurisdictions is estimated to be at least $130bn (£99bn) a year. The researchers reported that there were 24 so-called “sink” offshore financial centres where foreign capital was ultimately stored, safe from the tax authorities. Of those, 18 are said to have a current or past dependence to the UK, such as the Cayman Islands, Bermuda, the British Virgin Islands and Jersey. The tax havens used correlated heavily to which conduit country was chosen by the multinational’s accountants. The UK is a major conduit for investments going to European countries and former members of the British Empire, such as Hong Kong, Jersey, Guernsey or Bermuda, reflecting the historical links and tax treaties enjoyed by firms setting up in Britain. The Netherlands is a principal conduit for investment ending in Cyprus and Bermuda, among others. Switzerland is used as a conduit to Jersey. Ireland is the route for Japanese and American companies to Luxembourg. In terms of the purpose, on paper, of the corporate structures, the Netherlands specialises in providing holding companies. The UK provides head offices and fund management and Ireland offers financial leasing and the provision of head offices. “Our results show that offshore finance is not the exclusive business of exotic small islands far away,” the researchers write in an article for the academic journal Scientific Reports. “Countries such as the Netherlands and the United Kingdom play a crucial yet previously hidden role as conduits of offshore finance on its way to tax havens.” Dr Eelke Heemskerk, who led the research, said that the work showed the importance of developed countries cleaning up their financial sectors. He said: “In the context of Brexit, where you have the UK threatening, unless they get a deal, to change their model to be attractive to companies who want to protect themselves from taxes, well, they are already doing it. “The Netherlands says they won’t let the UK be an offshore tax haven. That’s because they don’t want them taking their business.” Article compliments The Guardian.
UK Government Delays Making Tax Digital
The UK Government has delayed the mandating of digital record-keeping and quarterly reporting by small businesses and landlords for income tax purposes until at least April 2020. Under the Making Tax Digital project, it had originally aimed to introduce mandatory digital record keeping in April 2018. The government said that under the new timetable only businesses with a turnover above the value-added tax (VAT) threshold, currently GBP85,000 (USD110,000), will have to keep digital records and only for VAT purposes. Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes, it added. “Businesses agree that digitizing the tax system is the right direction of travel,” said Mel Stride, Financial Secretary to the Treasury and Paymaster General. “However, many have been worried about the scope and pace of reforms.” “We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.” The Chartered Institute of Taxation (CIOT) said the delay means that smaller businesses will have much longer to familiarize themselves with digital record keeping and find the right software and processes suitable for their business. “This deferral will give much more time for businesses, supported by their advisers, to identify for themselves, at their own pace, the benefits of digital record keeping,” said CIOT President John Preston. “It will also ensure that many more software products can be developed and tested before mandation is reconsidered.” Whilst the requirement has been deferred for income tax, the Government is still planning to mandate digital reporting for VAT in April 2019. From this point VAT-registered businesses with a turnover in excess of GBP85,000 per annum will be obliged to maintain digital records and provide quarterly updates (VAT returns) to HMRC. Article compliments Tax News.
G20 leaders seek international agreement on tax policy to enhance growth
G20 leaders affirmed their commitment to international cooperation in the area of tax policy, in a communique released after their July 7–8 summit in Hamburg, Germany, reports MNETax. “We can achieve more together than by acting alone,” the leaders asserted, stating that their highest priority is “strong, sustainable, balanced, and inclusive growth.” The leaders said they welcomed international cooperation on pro-growth tax policies. They also pledged to work together to achieve a “globally fair and modern” international tax system. The leaders again expressed their commitment to the implementation 2015 OECD/G20 base erosion and profit shifting (BEPS) package, which is a series of measures designed to curtail multinational tax avoidance and improve international tax dispute resolution. The G20 leaders urged all countries to join the “BEPS Inclusive Framework,” adopting “minimum standards” devised by OECD and G20 countries in the 2015 BEPS plan. The G20 leaders also said they were working with the OECD to enhance tax certainty. Tackling the tax challenges raised by digitalisation of the economy is also on the G20’s agenda. The leaders reiterated their support for assistance to developing countries in building their tax capacity. The leaders also said they would advance the effective implementation of the international standards on tax transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and cross-border context. Article compliments IFC Review.
Why Is No–one Listening To Repeal FATCA Calls?
Campaigners lobbying for the repeal of FATCA in the USA are demanding to know why President Donald Trump and Republicans in Washington are ignoring their call to axe the controversial tax law, reports iExpats. Around 24 separate lobby groups have come together under the Repeal FATCA banner. They want to abolish FATCA and have spoken with Republicans in Washington DC to support them. But despite the Republicans listing the repeal of FATCA as one of their presidential election policies, no mention has been made of FATCA since President Trump has entered office. Washington silence Since January, when he moved into the White House, the Trump administration has made several announcements about tax changes, but said nothing about FATCA. At the forefront of the campaign is Nigel Green, CEO and founder of world leading expat financial advice firm deVere Group. “President Trump should now make good on his promise that he will be ‘president for all Americans’ including ‘the forgotten men and women of our country who will be forgotten no longer’ by abandoning this achingly un-American policy once and for all,” he writes online at Newsmax Finance. “Americans live under one of the worst tax systems in the entire world. It’s now time that the President should recognize the embarrassment of this draconian regime and join the rest of the civilised world, which has long acknowledged that residence and/or territoriality are the only criteria upon which a fair income tax system should be founded. Tax shackles “The American tax policy is not the global norm. And there’s a reason for this: it is fundamentally unjust to tax a people for their national identity alone.” FATCA demands foreign financial institutions report the financial details of accounts held by US taxpayers to the IRS each year. More than 100 countries and tens of thousands of financial institutions hand information to the IRS under the law. “It is beyond the time that America releases her citizens from the rusty tax shackles and implements a new, modern fairer tax system so that all US citizens can enjoy the same freedoms and prosperity as everyone else in the world,” wrote Green. Article compliments IFC Review.
The UK has led the charge for a fairer worldwide tax landscape
With the UK’s place and influence in the world being much debated, it’s been easy to overlook one of the most significant international tax achievements of recent decades and the leading role the UK played in it, reports City A.M. Last month, at the OECD’s Paris chateau, 68 ministers, ambassadors and senior officials signed a multilateral convention to modify 1,100 bilateral double tax treaties. It was the result of the G20 and OECD’s Base Erosion and Profit Shifting (Beps) project, which was kicked off in 2012 by former chancellor George Osborne and German finance minister Wolfgang Schaeuble. Initially, it was seen as a project to bolster corporate tax revenues of major economies by changing international corporate tax, but it has morphed into a global project, adopted so far by almost 101 countries. So why does it matter? These reforms put the global tax system on a sustainable footing. They establish the core principle in 101 countries that corporate profits should be allocated to, and taxed in, countries based on the value generated there by the key employees of the multinational. In the past, legal agreements could allow profits to be earned in locations with few, if any, people. Second, it addresses so-called “treaty abuse” with regards to withholding tax. Withholding tax is a deduction on a gross payment of interest or dividends to an investor, common in developing countries. In the past, investors in developing countries have got around this fee by interposing a company in a corporate structure in a third country which has a treaty agreement to lower or remove withholding tax. This loophole will come to an end once the multilateral convention takes effect, in 2018 and 2019. The treaty benefits of low or zero withholding taxes will be granted only when envisaged by the treaty countries. This will, for example, benefit developing countries which often rely on these withholding taxes as part of their tax revenues. Third, it sets broad limits on tax deductions for finance costs, recognising that sometimes debt can be used more to deliver tax savings than bring finance to commercial operations. This last rule is a blunt instrument and is likely to catch some commercial activities with high debt levels, but has been chosen by governments as the easiest approach to apply across a broad range of businesses. Finally, the convention introduces new approaches to dispute resolution, where countries cannot agree which state is entitled to tax the profits, underpinned by binding arbitration. New global tax reporting rules, where multinationals must hand over to tax authorities details of sales, profits, employees and taxes by country, will help tax authorities understand risks and target their tax audits. The UK has played a key part in delivering these tax reforms. One of our leading Treasury officials chaired the group that negotiated the multilateral convention. Some of the Beps measures are based on existing British concepts. The UK is implementing measures quickly – perhaps too quickly for some – and has worked with EU partners to implement measures across Europe from 2019. The UK is also the leading global provider of aid to help developing countries build more effective tax administrations, so they can benefit from the reforms. Considering its scale, the Beps project has been devised and implemented incredibly rapidly. There are some rough edges, needing further work, but within a couple of years we should see global corporate taxation put on a sustainable basis. Article compliments IFC Review.
Ecuador Approves Tax Haven Law As Opposition Breaks Alliance
Ecuadoreans voted to approve a historic law banning public officials from having assets or capital in tax havens, reports teleSUR. Ecuador approved on Friday a historic law prohibiting public officials from hiding wealth in offshore tax havens after voting on it in a public ballot, stirring the political alliances of the opposition. Ecuador’s Right-Wing Candidate Linked to 49 Tax Haven Companies The leftist government of former President Rafael Correa proposed the legislation earlier this year, aiming to combat tax havens and increase the accountability of public officials. The law was approved with 107 votes in favor and 18 abstentions, including votes of the right-wing opposition, and SUMA, the political party of Quito Mayor Mauricio Rodas. Former banker and right-wing presidential candidate Guillermo Lasso from the CREO party created an alliance with SUMA for the 2017 presidential elections. CREO abstained from voting in the popular mandate, which was voted on by more than 55 percent of Ecuadorians. After the vote, Lasso announced that the CREO-SUMA alliance had “lost its meaning,” since “it had not brought to the legislative practice the principles that inspired it. Lasso himself is connected to 49 companies in offshore tax havens. Between 1999 and 2000, when Lasso served as minister of finance, his fortune went up from US$1 million to US$31 million dollars, according to an investigation by Pagina 12. The banker — who promoted tax cuts for the rich, downsizing of government institutions and privatization of social programs — lost the election against Correa’s former vice president, Lenin Moreno. In his public role almost 20 years ago, Lasso oversaw a significant increase in the sales tax on basic goods. He then resigned in the wake of a massive banking and dollarization scandal, and the country’s worst-ever economic crisis, which led to the forced migration of almost three million Ecuadoreans. Lasso was never charged in connection with the banking scandal and his involvement in political and economic corruption. As part of the approved law, all public servants and elected officials now have one year to bring any offshore investments back to the country or they will be removed from office for violating the policy. Article compliments IFC Review.
Panama Papers: Germany ‘pays millions’ for leaked data
BBC — Germany has paid millions of euros for the so-called Panama Papers revealing offshore tax evasion, reports say. The Federal Crime Office (BKA) said it would put the multi-million-file inventory into electronic form to allow for detailed evaluation. It did not confirm the sum, but government sources told German media 5m euros (£4.4m; $5.7m) had been paid. The documents leaked last year exposed rich and powerful people, who had used tax havens to hide their wealth. The leaks put heads of state, businessmen and celebrities under pressure, with some resigning over the revelations. Months of investigation Some of the approximately 11.5m documents from Panamanian law firm Mossack Fonseca were leaked initially to Germany’s Süddeutsche Zeitung and then to other news organisations in co-operation with the International Consortium of Investigative Journalists. Süddeutsche said it had refused to pass on the documents to protect its sources and reported that a team of federal police and prosecutors had travelled to Panama City last week to meet local officials. Police said that reviewing the data was likely to take several months. While paying large sums for unlawfully obtained data has been ruled legal by Germany’s constitutional court, it remains controversial. When Denmark paid a smaller sum to buy data allegedly implicating up to 600 Danish citizens last September, opposition parties attacked the decision as “deeply reprehensible”. The Panama Papers leak was the biggest in history. Some of the documents have been published by various media organisations but many remain unpublished. Germany, France and the UK are all believed to have paid for data on bank customers in the past in an attempt to crack down on tax evasion. “These data are being looked into and evaluated with Hesse state’s tax authorities to pursue criminal and fiscal offences,” the BKA said in a joint statement (in German) with Hesse’s finance ministry and the public prosecutor’s office in Frankfurt. As well as tax fraud, investigators will also be looking for evidence of arms trafficking and organised crime. A huge leak of confidential documents has revealed how the rich and powerful use tax havens to hide their wealth BBC Panorama and UK newspaper The Guardian were among 107 media organisations in 76 countries which analysed the documents. The BBC does not know the identity of the source The documents show how the company helped clients launder money, dodge sanctions and evade tax Mossack Fonseca says it has operated beyond reproach for 40 years and never been accused or charged with criminal wrongdoing. Article compliments IFC Review.
Australia: ATO signals tax windfall for wealthy
The tax office has potentially opened the floodgates for family investment companies across the country to claim back hundreds of millions of dollars in company tax, after issuing a landmark ruling that signals a wave of future refunds, reports The Australian. The likely refunds would extend tax cuts implemented for active trading companies earning up to $25 million in income to passive family investment vehicles that are designed to warehouse, or retain, family wealth. Since 2015, the federal government has reduced the company tax rate for smaller companies by 2.5 per cent to its current level of 27.5 per cent. The Australian Taxation Office’s ruling could mean significant refunds and ongoing reductions for hundreds of thousands of passive family investment companies. For example, one warehousing $1m of taxable income per year could save $25,000 for each tax year. The Australian understands that the little-known refund issue and the key ATO draft ruling were discussed at length at a high-powered meeting of the National Tax Liaison Group in Melbourne late last month — a meeting attended by some of the most senior officials from the ATO, federal Treasury and the tax industry. News of what was discussed at the meeting has in recent days spread through the top echelons of the accounting profession. As BDO senior tax partner Tony Sloan notes: “Everyone is talking about it. The issue is massive. It affects a lot of our clients.” However, there could be a sting in the tail if family companies don’t plan their affairs properly. Mr Sloan warned that mum-and-dad shareholders of low-tax companies could be hit if the companies chose to distribute fully franked dividends to them. However, he said many of those types of companies and their shareholders would benefit from the new ruling, particularly wealthy families, as their companies tended to warehouse profits “over years and decades”, and were frequently used as a form of “family bank”. The apparent change of ATO policy emerged in the fineprint of an unrelated draft tax ruling on whether offshore companies were resident in Australia. In it, the ATO appeared to open the way to a broader interpretation of company tax cuts introduced from last year, which saw the tax rate fall from 30 per cent in 2015 to 28.5 per cent in the 2016 financial year and 27.5 per cent in the 2017 financial year and future years. Until the ATO’s draft ruling was issued in March, it had been thought that Australia’s many passive investment vehicles — those mainly used by families and investors to take advantage of a corporate tax rate lower than the general income tax rate — would not be entitled to this cut. When the tax cuts were announced a few years ago, it was made clear they would only apply to companies that carried on a business. However, the ATO has taken a much more generous stance than expected for passive family companies. Its draft ruling states that “generally, where a company is established or maintained to make profit or gain for its shareholders it is likely to carry on business … This is so even if the company only holds passive investments, and its activities consist of receiving rents or returns on its investments and distributing them to shareholders.” Sources at the meeting said the ATO had indicated it was working on more detailed guidance on the issue, which would be published “very soon”. “The ATO is aware there is a lot of interest in this topic,” the source said. Mr Sloan said most family investment companies would already have filed a return for the 2016 year at the full 30 per cent company tax rate. He is advising these entities to consider seeking a refund for the 2016 financial year and to review the position for the 2017 financial year. “Even for my own family company, which has a range of passive investments, I filed my return in 2016 at the 30 per cent company tax rate,” Mr Sloan said. “Once the ATO issues its final guidance on this matter that clarifies that passive companies are indeed carrying on a business, I will be looking for a refund as well. I went to a meeting the other day with 10 people in the room, where this issue was discussed. Every person in the room had a family investment company.” The tax cuts affected companies that earned up to $10m in income in 2016-17, rising to $25m this financial year. Article compliments IFC Review.
FERMA Calls For Consistent BEPS Rules For Captives
The Federation of European Risk Management Associations has released detailed guidance, aimed at supporting countries to develop consistent and appropriate base erosion and profit shifting responses with respective to captive reinsurance arrangements, reports Tax News. FERMA said the aim of the report is to allow OECD members to assess, in a consistent manner, the compliance of captive (re)insurance arrangements with the BEPS recommendations. Drawing on contributions from its 22 member associations, the guidance presents compiled data on premiums, profitability, and taxation levels from a sample of 462 captives owned by European-resident multinational companies. It explains why and how risk management practitioners are using captives in their daily activities as risk management tools; and explains in detail the role of the risk manager in an EU-based multinational group and the importance of using a captive reinsurance vehicle. The guidance provides statistics about captives to demonstrate that the main financial ratios of the captive insurance industry are in line with the traditional insurance market. It includes practical examples and explains the application of captive arrangements in multinational groups. It emphasizes that captives are not primarily used for tax avoidance purposes. An earlier statement from FERMA said many aspects of captive operations, such as the payment of insurance premium tax in source countries, demonstrate their genuine, non-tax functions. FERMA President Jo Willaert said: “The objective of such guidelines is mainly to avoid creating a patchwork of diverging national legislations inspired by BEPS. Captives serve an important Enterprise Risk Management role with true business purposes for European businesses and other organizations. Although captives are only a very small portion of BEPS, FERMA believes that national authorities should be guided in how to assess captive arrangements according to BEPS recommendations.” Carl Leeman, leader of the captive project group and a FERMA Board member, stressed: “Our document demonstrates that the main financial ratios of the captive insurance industry are in line with the traditional insurance market. The paper, enriched and approved by our 22 national associations, represents a strong consensus within the European risk management community on how captives are supporting the operations of their parent organizations.” Article compliments IFC Review.
New Zealand-Hong Kong tax treaty updated
Revenue Minister Judith Collins has today signed a new tax protocol between New Zealand and Hong Kong. The protocol updates the existing double tax agreement between New Zealand and Hong Kong, to allow full exchange of information on tax matters between the two jurisdictions, reports Business Scoop. Once in force, the updated double tax treaty will require both Hong Kong and New Zealand to automatically exchange tax information with each other, in line with the G20 and OECD Automatic Exchange of Information global standard. “This will allow New Zealand to meet its international obligations to complete the first automatic exchange of information by 30 September 2018,” Ms Collins says. Under the global standard, New Zealand financial institutions must review their accounts and compile information to be reported. New Zealand’s existing double tax agreement with Hong Kong was signed in 2010 but was limited to exchanges of information on request. “The protocol will remove this limitation to allow automatic and spontaneous exchanges of tax information to take place,” says Ms Collins. The Second Protocol will come into force once both signatories have completed their respective legal requirements. Article compliments IFC Review.
Ransomware virus hits computer servers across Europe
A major ransomware attack on Tuesday hit computers at Russia’s biggest oil company, the country’s banks, Ukraine’s international airport as well as global shipping firm A.P. Moller-Maersk. Moscow-based cyber security firm Group IB said hackers had exploited code developed by the U.S. National Security Agency (NSA) which was leaked and then used in the WannaCry ransomware attack that caused global disruption in May. One of the victims of Tuesday’s cyber attack, a Ukrainian media company, said its computers were blocked and it had received a demand for $300 worth of the Bitcoin crypto-currency to restore access to its files. “If you see this text, then your files are no longer accessible, because they have been encrypted. Perhaps you are busy looking for a way to recover your files, but don’t waste your time. Nobody can recover your files without our decryption service,” the message said, according to a screenshot posted by Ukraine’s Channel 24. The same message appeared on computers at Maersk offices in Rotterdam, according to screenshots posted on local media. The Danish shipping giant said it had been hit across multiple regions by a computer outage. “We can confirm the breakdown is caused by a cyber attack,” a spokeswoman said. Other companies that said they had been hit by a presumed cyber attack included Russian metal maker Evraz, French construction materials firm Saint Gobain and the world’s biggest advertising agency, WPP – though it was not clear if their problems were caused by the same virus. Food company Mondelez International also said its staff in different regions were experiencing technical problems. WANNACRY AGAIN Cyber security firms scrambled to understand the scope and impact of the attacks, seeking to confirm suspicions hackers had leveraged the same type of NSA hacking tool exploited by WannaCry and to identify ways to stop the onslaught. Researchers with multiple firms identified the ransomware as Petya, malware that makes computers inoperable by encrypting their hard drives and demands ransoms in exchange for a digital key to restore access. “It’s like WannaCry all over again,” said F-Secure Chief Research Officer Mikko Hypponen. He said it was highly likely the attack had exploited the NSA hacking tool and he expected the outbreak to be reported in the Americas soon, as workers turned on vulnerable machines, allowing the virus to attack. “Nothing is stopping Petya now. This could hit the U.S.A. pretty bad,” he said. The first reports of disruption emerged from Russia and Ukraine, with Ukraine’s Prime Minister Volodymyr Groysman describing the attacks on his country as “unprecedented”. An advisor to Ukraine’s interior minister said the virus got into computer systems via “phishing” emails written in Russian and Ukrainian designed to lure employees into opening them. In Russia, Rosneft, one of the world’s biggest oil producers, said its crude production had not been affected by the outage. The company’s website went down for at least two hours but was back up by 1450 GMT. “The hacking attack could lead to serious consequences, but the company has moved to a reserve production processing system and neither oil output nor refining have been stopped,” it said on Twitter. In Ukraine, Yevhen Dykhne, director of the capital’s Boryspil Airport, said it had been hit too. “In connection with the irregular situation, some flight delays are possible,” Dykhne said in a post on Facebook. Ukrainian Deputy Prime Minister Pavlo Rozenko said the government’s computer network had gone down and posted a picture on Twitter of a computer screen with an error message. The Ukrainian central bank said a number of banks and companies, including the state power distributor, were hit by a cyber attack that disrupted some operations. “As a result of these cyber attacks these banks are having difficulties with client services and carrying out banking operations,” the central bank said in a statement. Article compliments Reuters.
EU fines Google record $2.7 billion in first antitrust case
EU antitrust regulators hit Alphabet (GOOGL.O) unit Google with a record 2.42-billion-euro ($2.7 billion) fine on Tuesday, taking a tough line in the first of three investigations into the company’s dominance in searches and smartphones. It is the biggest fine the EU has ever imposed on a single company in an antitrust case, exceeding a 1.06-billion-euro sanction handed down to U.S. chipmaker Intel (INTC.O) in 2009. The European Commission said the world’s most popular internet search engine has 90 days to stop favoring its own shopping service or face a further penalty per day of up to 5 percent of Alphabet’s average daily global turnover. The fine, equivalent to 3 percent of Alphabet’s turnover, is the biggest regulatory setback for Google, which settled with U.S. enforcers in 2013 without a penalty after agreeing to change some of its search practices. The EU competition enforcer has also charged Google with using its Android mobile operating system to crush rivals, a case that could potentially be the most damaging for the company, with the system used in most smartphones. The company has also been accused of blocking rivals in online search advertising. The Commission found that Google, with a market share in searches of over 90 percent in most European countries, had systematically given prominent placement in searches to its own comparison shopping service and demoted those of rivals in search results. “What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation,” European Competition Commissioner Margrethe Vestager said in a statement. Google said its data showed people preferred links taking them directly to products they want and not to websites where they have to repeat their search. “We respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case,” Kent Walker, Google’s general counsel, said in a statement. The action follows a seven-year investigation prompted by scores of complaints from rivals such as U.S. consumer review website Yelp (YELP.N), TripAdvisor (TRIP.O), UK price comparison site Foundem, News Corp (NWSA.O) and lobbying group FairSearch. The penalty payment for failure to comply would amount to around $12 million a day based on Alphabet’s 2016 turnover of $90.3 billion. The Commission did not specify what changes Google had to make. “This decision is a game-changer. The Commission confirmed that consumers do not see what is most relevant for them on the world’s most used search engine but rather what is best for Google,” said Monique Goyens, director general of EU consumer group BEUC. Thomas Vinje, legal counsel to FairSearch, welcomed the Commission’s findings and urged it to act on Google’s Android mobile operating system following its 2013 complaint that Google restricted competition in software running on mobile devices. Article compliments Reuters.
Fed: US banks have money for crisis
The 34 largest banks in the US have money on hand to withstand a severe recession, the US central bank said on Thursday, reports the BBC. The finding comes from an annual “stress test” conducted by the Federal Reserve. The tests were put in place after the financial crisis to strengthen financial capacity in the event of a downturn. Banks have been pushing to relax those rules. Some said Thursday’s results could make it easier to convince policymakers to do so. “We see today’s … stress test results as a positive for Trump administration efforts to deregulate the banks,” Jaret Seiberg, a policy analyst with Cowen & Co, told Reuters. The Federal Reserve tested to see how banks with $50bn (£39.4bn) or more would respond in the event of a global recession, if unemployment increased to 10% and property values declined. That would trigger combined losses of nearly $500bn over more than two years – including $383bn from loans – but the firms have enough of a cushion to handle such a blow, the Federal Reserve said. Since 2009, the 34 firms have added more than $750bn in common equity capital, the Federal Reserve said. Jerome H Powell, a governor of the Federal Reserve who has urged some regulatory reform, said the tests show that “even during a severe recession, our large banks would remain well capitalised”. “This would allow them to lend throughout the economic cycle and support households and businesses when times are tough,” he said. Article compliments IFC Review.
Maryland, District of Columbia sue over payments to Trump hotels
The attorneys general of Maryland and the District of Columbia on Monday filed a lawsuit claiming that government payments to President Donald Trump’s businesses violate the U.S. Constitution. Payments to the president’s enterprises from foreign and domestic governments through his hospitality empire draw business away from Maryland and D.C. venues and put local governments under pressure to give Trump-owned businesses special treatment, according to the complaint. Foreign and domestic government payments to Trump’s businesses were the target of a similar lawsuit brought in January by plaintiffs including an ethics non-profit group, and Democratic lawmakers have blasted them as potential corrupting influences on Trump. The Trump Organization has said it will donate profits from customers representing foreign governments to the U.S. Treasury but will not require the customers to identify themselves. The case by the two Democratic attorneys general is seen standing a better chance in court as the first government action over allegations that Trump, a Republican, violated the Constitution’s so-called emoluments clauses. Democratic attorneys general have taken a lead role in challenging Trump policies, successfully blocking executive orders restricting travel from some Muslim-majority countries. The Maryland and D.C. attorneys general will seek an order in U.S. district court in Maryland preventing Trump from continuing to receive government payments beyond his salary. The Justice Department declined to comment. White House officials did not respond to requests for comment. Trump’s ownership in hundreds of businesses not only financially hurts Maryland and D.C. but also violates “emoluments” clauses in the Constitution that bar the president from accepting gifts from foreign governments without congressional approval as well as from domestic governments under any circumstances, according to the attorneys’ general complaint. While Trump turned over management of the umbrella Trump Organization in January to a trust controlled by his two elder sons, he still owns his businesses, including the Trump International Hotel in Washington, and can draw revenue from them at any time. Maryland and D.C. are presented with an “intolerable dilemma” when Trump asks them to grant his businesses land-use permissions or favours, the attorneys general allege. If the court does not grant the requests, the complaint says, they could be “susceptible to injury resulting from budgetary decisions that are subject to the corruption influence of emoluments.” The Justice Department on Friday argued in the other emoluments lawsuit filed in January that the plaintiffs lacked legal standing to sue because they cannot allege enough specific harm caused by Trump’s businesses. The government also said Trump hotel revenue does not fit the definition of an improper payment under the Constitution. Payments to Trump’s hotels do not qualify as a violation of the emoluments clause, which is intended to cover personal services performed by the president, the government said. Article compliments Reuters.
OECD BEPS convention will “close loopholes in thousands of tax treaties worldwide”
Ministers and high-level officials from 76 countries and jurisdictions have signed a multilateral BEPS convention to close loopholes in tax treaties and reduce opportunities for tax avoidance by multinational enterprises. The multilateral convention to implement tax treaty related measure to prevent base erosion and profit shifting (BEPS) was officially signed at the annual OECD week. The OECD suggested that the signing ceremony bring is an important milestone in the the goal of preventing BEPS. The treaty allows jurisdictions to transpose results from the OECD BEPS Project into their existing networks of bilateral tax treaties. “The signing of this multilateral convention marks a turning point in tax treaty history,” said OECD secretary-general Angel Gurría. Revenue losses from BEPS are estimated at $100-240 billion annually, or the equivalent of 4-10 percent of global corporate income tax revenues. Gurría continued: “We are moving towards rapid implementation of the far-reaching reforms agreed under the BEPS Project in more than 1,100 tax treaties worldwide, and radically transforming the way that tax treaties are modified. Beyond saving signatories from the burden of re-negotiating these treaties bilaterally, the new convention will result in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens. Today’s signing also shows that when the international community comes together there is no issue or challenge we cannot effectively tackle.” Article compliments Captive International.
EU agrees double taxation dispute resolution system
The proposal sets out to improve the mechanisms used for resolving disputes between member states when disputes arise from the interpretation of agreements on the elimination of double taxation, reports CCH Daily. Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency, said: ‘This directive is an important part of our plan for strengthening tax certainty and improving the business environment in Europe.’ The draft directive requires dispute resolution mechanisms to be mandatory and binding, with clear time limits and an obligation to reach results. The aim is to create a tax environment where compliance costs for businesses are reduced to a minimum. The text allows for a ‘mutual agreement procedure’ to be initiated by the taxpayer, under which member states must reach an agreement within two years. If the procedure fails, an arbitration procedure is launched to resolve the dispute within specified timelines. For this, an advisory panel of three to five independent arbitrators is appointed together with up to two representatives of each member state. The panel (advisory commission) issues an opinion for eliminating the double taxation in the disputed case, which is binding on the member states involved unless they agree on an alternative solution. The Council endorsed a number of options covering some issues. For example, while it has agreed on a broad scope for the types of cases which can be considered, there is the option, on a case-by-case basis, of excluding disputes that are judged not to involve double taxation. It also agreed the pool of independent arbitrators must be made up of ‘independent persons of standing’. Arbitrators must not be employees of tax advice companies or have given tax advice on a professional basis. Unless agreed otherwise, the panel chair must be a judge. In addition, the Council left open the possibility of setting up a permanent structure to deal with dispute resolution cases if member states so agree. Agreement on the proposals was reached at a meeting of the economic and financial council. The Council will adopt the directive once the European Parliament has given its opinion. Member states will have until 30 June 2019 to transpose the directive into national laws and regulations. It will apply to complaints submitted after that date on questions relating to the tax year starting on or after 1 January 2018. The member states may however agree to apply the directive to complaints related to earlier tax years. CCCTB proposals The same meeting of the economic and financial council also discussed a proposal for a common corporate tax base (CCTB) in the EU, aimed at reducing the administrative burden of multinational companies. This would form the first step of an envisaged two-step corporate tax reform, which has proved controversial when originally put forward. Revamping an earlier 2011 proposal, it establishes a single rulebook for calculating companies’ corporate tax liability. The presidency confirmed its intention to continue discussions on new elements of the proposal, and that an appropriate degree of flexibility should be provided for. A separate proposal on tax consolidation (CCCTB) will be considered without delay once the CCTB rulebook has been agreed. The Council will require unanimity to adopt the directive, after consulting the European Parliament.
Uganda: How tax incentives can make or break an economy
Tax incentive is an exemption from a tax liability, offered as an enticement to engage in a specified activity such as an investment for a certain period, reports New Vision. Governments argue that tax incentives stimulate employment and development by making the country competitive as a destination for foreign investment. However, tax incentives have doubled-edged impacts on the economy. The measures may not only promote trade or particular sectors in the economy but will also result into revenue loss. Research suggests that developing countries do not need to grant tax incentives and exemptions to attract Foreign Direct Investment (FDI). Because the decision to invest is largely based on the country’s overall investment climate. This view is emphasised in a 2012 study conducted by SEATINI-Uganda which established that tax incentives appear to have a contradictory impact on the economy. For example, in the year 2009/10, tax exemptions resulted into a direct loss of 3.99% tax to GDP ratio. Without the exemptions, the tax to GDP ratio would have reached a level of 16.15%, according to the Ministry of Finance, Planning and Economic Development report of 2011. The International Monetary Fund (IMF) has discovered that some of the tax incentives and exemptions that Government is granting are unhealthy for the economy, and has continuously encouraged government to reduce tax incentives. At the start of 2017, the media has been awash with reports of the amount of tax that government has paid in respect to the tax exemptions. This year the Government will spend sh77b to pay taxes for Bidco Oil Refineries Ltd, Aya Investments Ltd, Steel and Tube, Cipla Quality Chemicals, Uganda Electricity Generation Company Ltd and Uganda Electricity Transmission Company Ltd. This is as a result of tax exemptions/incentives given to these companies. The amount of money being paid in taxes for these companies could do boost sectors like trade that have been allocated a dismal sh94.39b which amounts to 0.4% of the sh28,252.5 trillion National Budget FY2017/18. Tax incentives and exemptions equals to tax foregone and ultimately has to be paid by someone else. Parliament needs to review Article Section 77(1)-(2), of the Public Finance Management Act (PFMA), 2015, which allows the responsible minister to award tax exemptions and there after report and justify the award to Parliament. This limits parliament oversight role before exemptions and incentives are awarded. Therefore, there needs to be a more transparent approach of giving incentives and exemptions which would provide for more scrutiny and debate by decision makers and all stakeholders. Government and civil society need to conduct a comparative cost benefit analysis of all tax exemptions/incentives that have been given thus far to ascertain whether they have benefitted the country. Most importantly is, the Government of Uganda should withdraw all tax incentives it has given and have not served their intended purpose. Article compliments IFC Review.
Macron to be tough in Brexit talks, but won’t seek to punish UK: economic adviser
France’s President-elect Emmanuel Macron will be tough in negotiations over the terms of Britain’s departure from the European Union but will not seek to punish Britain, his economic adviser said on Monday. Jean Pisani-Ferry said that no-one had an interest in a hard Brexit that totally severs ties between Britain and the rest of the European Union once it leaves, saying there was a mutual interest in maintaining economic and security ties. “At the same time, we have divergent interests on some aspects of the negotiations. So there will be a tough negotiation and he will be tough,” Pisani-Ferry told BBC Radio, adding that Macron would not seek retribution against Britain for leaving the EU even as he looked to strengthen the bloc. “Punish? Certainly not. But he believes that today that Europe is part of the solution to the problems we’re facing.” Article compliments Yahoo News!
Italy, Google End 14-Year Tax Dispute with $335M Settlement
Google announced it has reached a 306 million-euro ($335 million) settlement with Italy’s tax agency that will close the door on a dispute spanning 14 years, reports BNA. The value of the deal with Google is just short of the 318 million-euro settlement Italy reached with Apple Inc. in December 2015, still the largest single tax settlement case ever in Italy. At the heart of the case were allegations that Google improperly reduced its tax obligations by logging profits in low-tax jurisdictions like Ireland, rather than in Italy. The corporate income tax (IRES) in Italy was reduced to 24 percent from 27.5 percent in 2017, but is still among the highest in the European Union. The settlement value is far below the more than 800 million euros Italy reportedly sought at the start, but it is more than a third higher than the 224 million-euro figure that had circulated earlier this year. It covers the period from 2002 to 2015, a significantly broader period than the 2009-to-2013 period indicated when the investigation was first announced last year. According to Francesco Brandi, a law professor at Rome’s La Sapienza University and a former government tax official, the main impact from the Google deal may come in the future. “The biggest thing is not the cash for the treasury but the fact that Google and other major players will have to follow these rules from this point forward,” Brandi told Bloomberg BNA. Recognition of PE Status ‘Significant’ Maurizio Villani, a tax attorney based in the southern Italian city of Lecce, agreed, telling Bloomberg BNA that by striking the deal, Google agreed with the Italian agency’s interpretation that it should be taxed as a permanent establishment in Italy. “This recognition is significant,” Villani said. In a statement released from the U.S. headquarters, rather than from the Milan offices of Google-Italia, the subsidiary of Alphabet Inc. stated that, “In addition to the taxes already paid in Italy Google will pay another 306 million euros.” A statement from Italy’s tax office confirmed the same amount and terms. Before the settlement was announced, Google reportedly denied it owed additional taxes in Italy, saying it was working together with tax officials and claiming it paid what it was legally required to pay. Villani said that the IRES is unlikely to be lowered in the near term and that with plans to raise Italy’s value-added-tax, companies will likely be taxed at an even higher rate going forward. “This settlement with Google is significant, but in terms of tax rates nothing is changing,” Villani said. “The same incentives for companies to look for ways to reduce their tax exposure in Italy remain.” Article compliments IFC Review.
Banks planning to move 9,000 jobs from Britain because of Brexit
The largest global banks in London plan to move about 9,000 jobs to the continent in the next two years, public statements and information from sources shows, as the exodus of finance jobs starts to take shape. Last week Standard Chartered (STAN.L) and JPMorgan (JPM.N) were the latest global banks to outline plans for their European operations after Brexit. They are among a growing number of lenders pushing ahead with plans to move operations from London. Goldman Sachs (GS.N) chief executive Lloyd Blankfein said in an interview on Friday that London’s growth as a financial center could “stall” as a result of the upheaval caused by Brexit. Thirteen major banks including Goldman Sachs, UBS (UBSG.S), and Citigroup (C.N) have given an indication of how they would bulk up their operations in Europe to secure market access to the European Union’s single market when Britain leaves the bloc. Talks with financial authorities in Europe have been underway for several months, but banks are increasingly firming up plans to move staff and operations. “It’s full speed ahead. We are in full motion with our contingency planning,” said the head of investment banking at one global bank in London. “There’s no waiting.” Although the moves would represent about 2 percent of London’s finance jobs, Britain’s tax revenues could be hit if it loses rich taxpayers working in financial services. The Institute for Fiscal Studies – a think tank focused on budget issues – said in a report on Thursday the rest of the population will have to pay more if top earners move. The exact number of jobs to leave will depend on the deal the British government strikes with the EU. Some politicians say bankers have exaggerated the threat to the economy from Brexit. The plans of large banks such as Credit Suisse and Bank of America and many smaller banks are still unknown. Frankfurt and Dublin are emerging as the biggest winners from the relocation plans. Six of the 13 banks favor opening a new office or moving the bulk their operations to Frankfurt. Three of the banks will look to expand in Dublin. Deutsche Bank (DBKGn.DE) said on Apr. 26 up to 4,000 UK jobs could be moved to Frankfurt and other locations in the EU as a result of Brexit – the largest potential move of any bank. JPMorgan last week announced plans to move hundreds of roles to three European cities in the next two years. This is still significantly lower than the 4,000 figure JPMorgan CEO Jamie Dimon first estimated before the vote. Estimates for possible finance-related job losses from Brexit are on a broad range from 4,000 to 232,000, according to separate reports by Oliver Wyman and Ernst & Young. Banks are treading carefully, enacting two-stage contingency plans, to avoid losing nervous London-based staff as they work out how many jobs will have to eventually move. This suggests that the numbers could potentially rise further depending on what deal is eventually negotiated between the EU and Britain. This first phase involves small numbers to make sure the requisite licenses, technology and infrastructure are in place, while the next will depend on the longer term strategy of a bank’s European business. The Bank of England has given finance companies until July 14 to set out their plans. One senior bank executive at a large British bank said forcing companies to make a plan makes it more likely that they will follow through. “It is an unintended consequence, but the more and more preparation you do the more likely you are to execute those plans,” the executive said. HSBC Chief Executive Stuart Gulliver said this week that the bank’s previous estimate that around 1000 staff would move to Paris following Britain’s vote to leave the EU, was based on a ‘hard Brexit’ scenario. Most banks are working on the assumption that this is the most likely outcome of the separation talks and would involve losing access to the single market with no special financial services deal and no transition period. Article compliments Reuters.
EU Brexit Guidelines Set Taxation Safeguards
Leaders from 27 European Union member states adopted guidelines for the upcoming Brexit negotiations that include measures to safeguard the EU in the event the U.K. decides to dramatically lower the corporate tax rate or provide special tax rulings to multinational companies to attract investment, reports BNA. The guidelines — approved at a special April 29 EU summit and due to be formalized in a May 3 European Commission proposal — state that any future trade EU-U.K. relationship must “ensure a level playing field.” According to the guidelines, this includes “safeguards against unfair competitive advantages” when it comes to tax and other sectors such as social, environmental and regulatory practices. The specific language that any move by the U.K. to pursue a low-tax policy would jeopardize EU-U.K. trade relations responds to warnings from U.K. Chancellor of the Exchequer Philip Hammond in March that his government would do “whatever we need to do” if the EU and the U.K. conclude the Brexit negotiations without a trade deal. “The purpose of the language adopted today is very much designed to make it clear that the U.K. cannot expect to have a free trade relationship if it moves toward a low tax policy and this includes dramatically reduced corporate rates,” European Council spokesman Preben Aamann told Bloomberg BNA April 29. Some EU officials said their concerns about a U.K. low-tax policy have increased in the wake of the recent announcement by President Donald Trump’s administration on plans to slash U.S. corporate tax rates from 35 percent to 15 percent. Flexibility in Guidelines European Parliament member Philippe Lamberts told Bloomberg BNA that it was almost inevitable that the U.K. would move towards lowering corporate tax rates. “Unfortunately it seems that we are now engaging in a race to bottom when it comes to corporate tax rates,” Lambert, a European Green Party member from Belgium. “I think there is a significant likelihood that the U.K. will follow in the U.S. steps.” European Parliament President Antonio Tajani insisted that the EU Brexit guidelines adopted April 29 had enough flexibility to allow the EU to react to any U.K. move towards tax policies deemed to be competitively unfair. “We have measures that will allow us to address this problem now, during the negotiations over the next year and after the U.K. leaves,” Tajani said in response to a question posed by Bloomberg BNA at a April 29 press conference. He said the European Parliament will have a yes or no vote when it comes to approving whatever are the final terms between the EU and U.K. on Brexit. Trend Toward Lower Rates Others pointed out the broad range of corporate tax rates within the EU. Hungary has the lowest EU corporate tax rate at 9 percent followed by Bulgaria at 10 percent. Ireland, with its 12.5 percent corporate tax rate, has been successful in attracting U.S. multinationals to set up their EU headquarters there. “Unfortunately, the trend in the EU is also to lower rates,” Lamberts said. “This, in the long run, will make it difficult to challenge the U.K. if they do go down that route.” Fredrik Erixon, director of the European Centre for International Political Economy, a Brussels-based think tank, told Bloomberg BNA via email in advance of the summit that “there is a great degree of variety in EU corporate taxes and there is no general position on the right rate of taxation but the U.K. has already run into troubles in the EU over its corporate tax regime by allowing very generous rules for patent boxes.” He added: “Politically, I do not think a corporate tax cut will appeal to the Brexit opinion. If people voted to leave to revolt against the elite or the establishment, a tax cut for the economic establishment probably will not go down well.” Article compliments IFC Review.
BEPS focus drives global tax innovation
The firm’s survey of 50 countries found that 30% intend to invest in broader business incentives to stimulate or sustain investment, with new or improved business incentives being offered in 27% more countries than in 2016, reports CCH Daily. Much of the focus is on introducing more generous research and development (R&D) incentives, which 22% plan to introduce in 2017, while new or improved R&D incentives are now being offered in 83% more countries than last year. Eight of the 50 countries (16%) surveyed now have laws in place that will drive lower corporate income tax (CIT) rates this year. Seven of those are based in Europe (versus just three last year), including the UK, Luxembourg and France, suggesting that the epicenter of BEPS has moved into Europe and that countries in that region are reducing rates faster than countries elsewhere in a bid to encourage foreign direct investment. Only one outlying country, Chile, forecasts a known or anticipated headline CIT rate increase in 2017. The number of countries forecasting an increasing business tax burden continues to rise, with 22% expecting an overall increase in the CIT burden in 2017, compared to 18% in 2016. Half (46%) of countries identify new BEPS-related transparency and disclosure requirements as the main sources of increases in their tax burden. Nine jurisdictions forecast a higher indirect tax burden, as the worldwide spread of VAT and goods and services tax (GST) continues and technology is adopted more widely by tax administrations. Chris Sanger, EY global tax policy leader, said: ‘Governments are increasingly adopting incentives as a pragmatic means to compete amid coordinated change across the tax landscape. Incentives can encourage and sustain business investment, allowing governments to respond to the dual pressures of continued weak economic growth and the introduction of new measures and legislation in response to tax reform in Europe and globally.’ Article compliments IFC Review.