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European Commission to fast track Savings Tax report
Hong Kong to update Trust Law
Guernsey brings in Trusts Law amendments
Isle of Man ratifies Nordic tax treaties
FATF to seek new mandate
Hong Kong named as world’s freest economy
US brings in new tax treaty and three protocols
France ratifies protocol to tax treaty with Luxembourg
Portugal to change treatment of real estate gains
Barbados votes for regime change
Jersey brings new indirect tax regime into effect
Jersey appoints London Business School to research finance future
Cayman banker posts data on "whistle blower" Web site
Singapore Budget includes financial services incentives
India set to curtail CGT exemption in Cyprus tax treaty
Switzerland, EU still deadlocked on cantonal tax talks
Liechtenstein to revise Foundation rules
Jersey launches two unregulated fund classes
Switzerland sets agenda for Financial Centre Master Plan
US Senate threatens action on offshore tax enforcement
Labuan rebrands offshore financial centre
UK “pre-nup” remains untried after test case dropped
Kovacs keeps EU common corporate tax base plans afloat
New St Vincent IBC Act gets Royal Assent
Netherlands-Jersey TIEA comes into force
Qatar-Turkey tax treaty comes into force
Monaco to cooperate on tax evasion
Hong Kong and China sign second tax treaty protocol
Bahrain and Belgium sign tax treaty
Spain agrees new formula for Gibraltar treaties
Hong Kong's new company registration hits record high
Russian tax amnesty nets $150 million
European Commission to fast track Savings Tax report
4 March 2008, German Finance Minister Peer Steinbrueck said the European Commission would look
into expanding and developing the European Union Savings Directive and to report on this "very soon".
Speaking after the Ecofin meeting of EU finance ministers in Brussels, he said the Commission had been
asked to report at the next Ecofin meeting in May on expansion of the 2005 Directive. The report had
been due by October or November.
The Germany government’s initiative was prompted by a massive investigation into tax evasion through
Liechtenstein. It estimates that tax havens are costing EU public coffers at €30 billion a year. The draft
proposal included:
 an extension of the scope of the Directive to cover not just interest payments on cash savings but
all forms of returns on financial assets, including dividend payments and capital gains.
 making it applicable to legal entities, targeting German taxpayers who have parked their money in
trusts in Liechtenstein and elsewhere in order to circumvent the rules.
 creating a duty for countries with strict bank secrecy rules to transfer information about the
identity of bank account holders.
Steinbrueck said he was "positively surprised" about the support for this move not only by several
Scandinavian countries, France, Spain and Italy, but also by the UK and the Netherlands, which was
“very important". He reiterated that Germany would be willing to act on a national level if no international
rules could be agreed.
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Austrian Finance Minister Wilhelm Molterer rejected criticism of Austria's policy and said his country's
bank secrecy would remain in place. Under the existing Directive, Austria, Belgium and Luxembourg
elected to opt out of automatic exchange of information about the savings income of foreign investors in
favour of retaining secrecy and paying a fixed withholding tax to the taxpayers' home country. Molterer
said Austria would only be willing to agree to changes if "third party" European countries, which were not
members of the EU – such as Switzerland, Liechtenstein, Andorra, San Marino and Monaco – also
signed up.
Meanwhile, senior EU tax officials, including European Tax Commissioner Laszlo Kovacs, launched a
fresh approach to Asian financial centres in January, in a bid to have them included within the ambit of
the Savings Tax Directive. Kovacs visited Hong Kong while other senior officials began talks with the
Chinese territory of Macau and the city-state of Singapore. But no formal negotiations have been opened
with any of the three. Currently, the Directive can largely be circumvented by moving assets out of
personal bank accounts into corporate or trust structures, or to accounts based in territories out of the
reach of the directive's information sharing provisions.
Hong Kong to update Trust Law
27 February 2008, Hong Kong’s Financial Secretary John Tsang confirmed in his budget speech that the
government is to review the Trustee Ordinance, which was modelled on the English Trustee Act of 1925 and has not
been amended since 1934. “We will review the Trustee Ordinance in order to increase the competitiveness of our
trust services industry” said Tsang.
The move follows a detailed review of the existing Ordinance that was submitted to the government by the Society
of Trust & Estate Practitioners Hong Kong and the Hong Kong Trustees’ Association in 2006. It said private and
commercial trust business was moving from Hong Kong to other jurisdictions, principally Singapore, and that HK
was being bypassed for new business. They recommended far-reaching reforms to Hong Kong’s trust law, including
provisions for purpose trusts.
The Hong Kong government is also to review the regulatory framework for the securities market, to improve market
quality and reduce compliance costs for the industry, and has launched a rewrite of the Companies Ordinance with a
view to developing modernised company legislation. To tie in with the implementation of Qualified Domestic
Institutional Investor (QDII) arrangements by the Chinese Mainland, the Hong Kong government and regulatory
bodies will continue to liaise with the Mainland, improve market infrastructure, promote financial intermediary
activities, encourage financial innovation and launch new financial products. “We are working hard to develop an
Islamic financial platform in Hong Kong so as to tap a market with an estimated value of US$1,000 billion.
Furthermore, in the past few months, we have led financial sector delegations to visit Vietnam and India,” said
Tsang. “Last year, the Securities and Futures Commission and the Hong Kong Exchanges and Clearing issued a
joint policy statement on the listing of overseas companies in Hong Kong so as to attract more overseas enterprises
to list here. The government will continue to monitor and promote the development of the local financial markets in
collaboration with the financial regulators,” he said.
Guernsey brings in Trusts Law amendments
17 March 2008, the Trusts (Guernsey) Law 2007, which was passed by the States of Guernsey last July and received
Royal Assent on 12 February, has been brought into force. The most significant changes include:
 The introduction of (non-charitable) Purpose Trusts
 Removal of limits on the length of a trust’s duration – allowing perpetual trusts
 Clarification of the position of retiring trustees, making the transfer process more streamlined
 Clarification of the circumstances under which information has to be given to beneficiaries
 Abolition of the liability of directors of corporate trustees based in Guernsey or acting as trustees of
Guernsey law trusts, particularly as a way to encourage greater use of Private Trust Companies (PTCs)
 Revision of arrangements regarding limitation periods and Alternative Dispute Resolution.
The new law has its roots in a series of proposals made in the “Evans Report”, a review of the Guernsey’s trust
legislation by a working party under the chairmanship of advocate Rupert Evans. Guernsey has more than 140
licensed fiduciaries, which hold between £200 and £300 billion worth of assets in trust.
"The amendments to Guernsey’s trust legislation include several significant changes like the introduction of Purpose
Trusts that will particularly enhance the Island’s fiduciary environment,” said Peter Niven, chief executive of
GuernseyFinance – the promotional agency for the finance industry. "Work continues to introduce legislation that
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will allow the establishment of Foundations. The addition of this innovative tool will ensure that the island’s
practitioners are able to offer their internationally mobile clients the widest spectrum of products and services," he
added.
Isle of Man ratifies Nordic tax treaties
12 March 2008, Tynwald, the Manx parliament, ratified the taxation agreements on exchange of information with
the Nordic countries of Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden. The
agreements were signed by the Treasury Minister Alan Bell in Oslo in October last year. The Isle of Man
government has pursued a policy of engaging with member states of the Paris-based OECD and follows similar
agreements concluded with the US and the Netherlands in 2002 and 2005 respectively. “I expect that the Isle of Man
will be signing more international tax agreements in the near future and that, as with the Nordic agreements, we will
move rapidly to bring them into force,” said Bell.
FATF to seek new mandate
The Financial Action Task Force (FATF) against money laundering is to hold a meeting of all FATF
ministers in April 2008 in Washington DC to adopt a revised mandate for the organisation and set out its
future strategic priorities. At its plenary meeting in Paris, from 27 to 29 February 2008, the FATF agreed
to issue a statement highlighting deficiencies in the anti-money laundering and counter terrorist financing
systems in Uzbekistan, Iran, Pakistan, São Tomé & Príncipe and Turkmenistan. It calls on its members
and all jurisdictions to advise their financial institutions to take the risk arising from the deficiencies in
these regimes into account for enhanced due diligence. It also drew attention to the AML/CFT risks in the
northern part of Cyprus. The FATF welcomed the Caribbean Financial Action Task Force (CFATF) as the
fifth associate member of the FATF. Associate membership gives the FATF-style regional bodies a
greater decision-making role within the FATF.
The FATF finalised a comprehensive report on terrorist financing, which explores the range of methods
used by terrorists to move funds within and between organisations. The three main avenues for such
movements, it found, were through the financial sector, by physical transportation and through the
commercial trade system. Charities and alternative remittance systems have also been used to disguise
movement of terrorist funds. The study identified four strategies which could help in further strengthening
counter-terrorist financing efforts:
 Action to address jurisdictional issues, including safe havens and failed states;
 Outreach to the private sector to ensure access to the information necessary to detect terrorist
financing;
 Building a better understanding of terrorist financing across the public and private sectors;
 Using financial investigation, enhanced by financial intelligence.
The FATF also adopted new guidance to support the full and effective implementation of the FATF
Standards in low capacity countries. This focuses on key implementation priorities such as co-operation,
engagement, prioritisation and planning. Building on ideas raised in the private sector consultative forum,
established in October 2007, the FATF is to initiate a joint project with the private sector on the role of
intermediaries and other third parties in performing customer due diligence.
The FATF is an inter-governmental body to develop and promote policies, both at national and
international levels, to combat money laundering and terrorist financing. The FATF Secretariat is housed
at the OECD in Paris. The FATF currently includes 32 member states, as well as the European
Commission and the Gulf Co-operation Council. India and the Republic of Korea are observer countries.
Hong Kong named as world’s freest economy
The Index of Economic Freedom 2008, published by The Heritage Foundation and The Wall Street
Journal, has ranked Hong Kong as enjoying the highest level of economic freedom for the 14th straight
year. Former UK colonies in Asia continue to lead the world in economic freedom. Singapore remains
close, ranked second in the world, and Australia is ranked fourth, which means that the Asia–Pacific
region is home to the three of the world’s top five freest economies, with New Zealand sixth and Japan in
17th place. Hong Kong Financial Secretary, John Tsang, said: "We are determined to uphold Hong
Kong's position as the freest economy in the world. We see the role of the government as that of a
facilitator. We provide a business-friendly environment where all firms can compete on a level-playing
field and establish an appropriate regulatory regime to ensure the integrity and smooth functioning of a
free market."
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While every region has at least one of the top 20 freest economies, half of them are European. A majority
of the freest economies are in Europe, led by Ireland, Switzerland, the UK in the top ten. The others are
Denmark, Estonia, The Netherlands, Iceland, Luxembourg, Finland and Belgium. Five are in the Asia–
Pacific region, and three are from the Americas: the US, Canada and Chile. One country – Mauritius – is
from the sub-Saharan Africa region, and one – Bahrain – is from the Middle East/North Africa region.
Economic freedom, said the survey, is strongly related to good economic performance. The world’s freest
countries have twice the average per capita income of the second quintile of countries and over five times
the average income of the fifth quintile. The freest economies also have lower rates of unemployment and
lower inflation. Across the five regions, Europe was the freest using an unweighted average (66.8%),
followed at some distance by the Americas (61.6%). The other three regions fell below the world average:
Asia–Pacific (58.7%), Middle East/North Africa (58.7%) and sub-Saharan Africa (54.5%).
US brings in new tax treaty and three protocols
The US Treasury Department announced that protocols amending existing tax treaties with Germany,
Denmark and Finland, together with a new tax treaty and protocol with Belgium, were ratified and entered
into force on 28 December 2007. All generally apply to tax years beginning on or after 1 January 2008,
although certain provisions of the protocols with both Germany and Finland are effective as of 1 January
2007. Provisions of the protocols include elimination of source-country withholding taxes on certain
dividends, royalty and interest payments, and modernisation of the treaty's limitation of benefits provision.
The new treaty and protocol with Belgium also includes provision for improved exchange of information
between the US and Belgium. The US Senate approved the protocols with Denmark and with Finland on
16 November 2007, and the protocol with Germany and new treaty and protocol with Belgium on 14
December 2007.
France ratifies protocol to tax treaty with Luxembourg
18 December 2007, the French parliament adopted a law ratifying the second protocol to the 1958
France-Luxembourg tax treaty. Luxembourg ratified the protocol earlier by a law dated 21 November. The
provisions of the protocol, which was signed on 24 November 2006, in Luxembourg, therefore entered
into force on 1 January 2008. The protocol is designed close the loopholes in the treaty which allowed the
non-taxation in both contracting states of income gained from directly owned real property. It clearly
allocates the taxation rights on income gained from the use or disposal of real property to the contracting
state in which that real property is located.
Portugal to change treatment of real estate gains
The Portuguese government is to amend the individual tax code (IRS) so as to extend the tax exemption
enjoyed by capital gains made on the disposal of property intended for permanent habitation by a
taxpayer and their family. Currently the exemption applies only if the capital gains are reinvested in
Portuguese territory in respect of property for permanent habitation and within 24 months of the gain
arising. The amendment will extend the exemption to capital gains reinvested in any other EU Member
State under the same conditions. It applies not just in respect of property for permanent habitation, but
also for land for construction of a property for permanent habitation or in the construction, enlargement or
improvement of an existing property for permanent habitation by the taxpayer and their family. The
current exemption was found by the European Court of Justice, in a judgment handed down on 26
October 2006, to be incompatible with the principle of free movement of capital under the EC Treaty. It is
anticipated that the proposed amendment will become effective as from the current tax year.
In October last year, the ECJ further determined that Portugal's differing capital gains tax treatment of
residents and non-residents who transfer Portuguese immovable property was also in breach of the EC
Treaty. Under Portugal's CGT regime, Portuguese residents benefited from a special 50% reduction of
the tax base but were taxed on a progressive basis up to a rate of 42%, while non-residents were taxed
on the entire capital gains but at a special flat rate of 25%. A non-resident taxpayer, a German citizen,
argued that the different tax treatment was disadvantageous to her and, in particular, that it breached her
rights under EU law. The ECJ agreed, noting that the less favourable tax rules for non-residents on the
same immovable property, made the transfer of capital "less attractive for non-residents by deterring
them from making investments in immovable property in Portugal and . . . from carrying out transactions
related to those investments such as selling immovable property." It therefore concluded that the differing
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treatment constituted a restriction on the free movement of capital, which the Portuguese government
failed to justify. As a result, Portugal will have either to reduce the taxation of EU citizens or revoke the
benefit for tax residents and refund the tax unduly levied in the last four years to those taxpayers that file
a valid claim.
Barbados votes for regime change
The Barbados Labour Party, led by Prime Minister Owen Arthur, was defeated in the general election on
19 January 2008 after three successive five-year terms. The Democratic Labour Party, led by David
Thompson, which pledged reforms to make Barbados a more attractive place for business, won 20 seats
in the 30-seat House of Assembly. The DLP's manifesto promised to relax capital controls on the ability of
local financial institutions to acquire foreign investments from 25% to 50% over a five-year period to allow
such institutions to diversify their total portfolio investments, as well as improve their capacity to offer
wealth management services to non-residents. Exchange controls are also to be removed on nonresidents, to encourage high net worth individuals to access financial services in Barbados. Residents
and non-residents will be able to hold bank accounts in US dollars, euros, Canadian dollars and sterling
in unrestricted amounts provided these are not funded from Barbados dollar sources.
A 5% rate of income tax will be applied to interest earned on balances to encourage repatriation from
foreign banks. These deposits will be subject to the existing foreign currency reserve requirements.
Persons in Barbados on work permits will be deemed non-resident and free of all exchange controls and,
if working for a company registered under any of the international business legislation, may be paid
externally in a foreign currency and only their remittances to Barbados declared for income tax purposes.
Exchange controls will be removed on property transactions between non-residents and restrictions will
be removed on amounts up to BD$10,000 for amounts remitted for the purposes of supporting family
members resident abroad. This will be monitored by the Commercial banks and the Central Bank.
Jersey brings new indirect tax regime into effect
The phased registration of businesses for the introduction of Jersey’s Goods and Services Tax (GST) on
1 May 2008 began on 14 January for businesses with a 12-month taxable turnover of more than £10
million. Phase two began on 18 February, for businesses with a 12-month taxable turnover of between £1
million and £10 million; and phase three on 18 March, for businesses with a 12-month taxable turnover of
between £300,000 and £1 million, and for those requesting voluntary registration.
Jersey appoints London Business School to research finance future
The Economic Development Ministry, together with Jersey Finance, has commissioned the London
Business School to undertake a fundamental review of the future of Jersey’s finance industry. The review
is designed to assist the finance industry in making informed decisions about its strategies for growth in
the long term. A key objective will be to help Jersey advance its position as a centre for international
finance, whilst increasing the contribution of finance to real economic growth, fiscal stability, and the
continuing prosperity of the community. It will include a comprehensive analysis and comparison of
Jersey with its competitor jurisdictions together with a strategic analysis of the future and how the island
can manage the challenges that may arise.
Senator Philip Ozouf, minister for Economic Development said: “We see considerable opportunities for
further growth against a background of fierce competition, whilst also experiencing a number of externally
driven changes to our offering. Now is a good time to consider a fundamental review of opportunities and
challenges and seek to plan our future more precisely so that we secure the future success of the
industry and the benefits it provides for the island community.”
Cayman banker posts data on "whistle blower" Web site
Wikileaks, a website designed to enable whistleblowers to publish sensitive documents, published a
number documents relating to the offshore activities of Swiss bank Julius Baer. Initially Julius Baer and its
Cayman-based subsidiary obtained an injunction to close the site from the US District Court in California,
which held that "immediate harm will result to (the bank) in the absence of injunctive relief." The
documents purported to show alleged money transfers into offshore accounts and had titles that include
"tax avoidance", "tax evasion" and "offshore tax scheme". The source for the documents was Rudolf
Elmer, former chief operating officer of Bank Julius Baer & Trust in the Cayman Islands. The records
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pertain to clients from 1997 to 2002. Mr Elmer claims they came lawfully into his possession. The bank
alleges it was theft. Legal proceedings are ongoing in Switzerland.
When the disputed information appeared on Wikileaks this year, the bank's lawyers took legal action
against the site's operators and, on 15 February, obtained an injunction in the US District Court in
California, which ordered that the web site was taken offline. But on 29 February, US District Judge
Jeffrey White reversed his decision, dissolving the injunction and refusing to extend a restraining order
that required Wikileaks and its server to remove the documents. He said restraining Wikileaks might be
unconstitutional and his court might not have jurisdiction because there was no evidence the site's
creators were in the US. Julius Baer subsequently filed a note with the court saying it would voluntarily
dismiss its own case. The bank further denied the authenticity of the material and rejects the “serious and
defamatory” allegations that it contains.
Wikileaks was launched in early 2007 with the help of Chinese dissidents to help whistleblowers in
authoritarian countries post sensitive documents on the Internet without being traced.
Singapore Budget includes financial services incentives
15 February 2008, Singapore Finance Minister, Tharman Shanmugaratnam, unveiled a number of new
tax initiatives designed to improve the city-state's financial services regime in his 2008 Budget Statement.
Tharman announced the introduction of a new tax incentive that grants tax exemption on locally sourced
investment income and foreign-sourced income received by qualifying family-owned investment holding
companies. The new exemption will run from 1 April 2008 to 31 March 2013.
The minister also announced the abolition of Estate Duty – a tax that dated from the British colonial era –
to improve Singapore’s attractiveness as a place for wealth to be invested and built up, whether by
Singaporeans or foreigners. This measure is effective as of 15 February 2008. “If we make Singapore an
attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring
their assets here, it will benefit our whole economy and society, not just the individuals who build up their
wealth. It is not a zero sum game," he said.
He also announced a five-year extension to the Financial Sector Incentive scheme, from 1 January 2009
to 31 December 2013, to promote the city as a financial centre, particularly in the area of Islamic finance.
The enhanced FSI scheme will provide a 5% concessionary tax rate on income derived from performing
specific Shariah-compliant activities.
India set to curtail CGT exemption in Cyprus tax treaty
The Indian government is proposing to strip the Cyprus-India tax treaty of its capital gains tax exemption
benefits. It is negotiating for an amendment under which Cyprus-resident individuals and companies
would have to pay CGT at the rate of 10%. It is also proposed that a limitation on benefits clause should
be inserted to ensure that ineligible entities cannot gain a benefit under the tax treaty.
Cyprus does not impose CGT on its residents and, with India exempting the capital gains under the
treaty, investors can currently avail themselves of benefits similar to the India-Mauritius tax treaty.
Dividend income is also exempt from withholding tax. The proposed amendments would be on a par with
those recently made to the India-United Arab Emirates tax treaty, by which capital gains have been made
taxable in the state where the gains are earned. India is also seeking to renegotiate its tax treaty with
Mauritius and, with the UAE and Cyprus treaties losing their tax concessions, the pressure on Mauritius
would increase.
Switzerland, EU still deadlocked on cantonal tax talks
25 January 2008, the Swiss government said it had failed to reach convergence with the European
Commission in a second round of technical discussions on the European Union's assessment of certain
cantonal company tax arrangements in Brussels.
Last year the Commission threatened to launch legal proceedings against Switzerland over cantonal tax
arrangements for holding companies, as well as joint enterprises and management companies, which, it
contends, are forms of state aid and therefore incompatible with the 1972 Free Trade Agreement
between the European Community and the Swiss Confederation. The Swiss Federal Finance Department
said: "The second round of dialogue led to a better understanding of the respective viewpoints but without
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achieving convergence." The Swiss delegation rejected the applicability of the 1972 agreement between
the EU and Switzerland to the cantonal company taxation regulations and challenged the Commission's
interpretation that the tax regime in question restricts trade in goods between Switzerland and the EU or
in some cases distorts competition.
The Swiss delegation also argued that domestic and foreign revenues are taxed in the same way, and
are therefore not discriminatory, as claimed by the Commission.
The Commission said it expected "movement" from the Swiss on the issue by the next meeting in April.
The Commission requested a mandate from the European Council to start negotiations with Switzerland
in February 2007. The council approved this mandate last May and the first round of talks took place in
November.
Liechtenstein to revise Foundation rules
Liechtenstein, whose banks are currently embroiled in the massive German tax evasion investigation,
said on 21 February that is to accelerate proposed reforms to its laws regulating foundations. Under the
proposals, individuals who set up a foundation will not be named in the foundation register, but there will
be some circumstances in which their identities may be disclosed. The purpose of a foundation will also
have to be specified when the foundation is set up and can only be changed thereafter for specific
reasons. The proposed changes, drafted in 2004, are intended to "modernise" a law first established in
1926, said Liechtenstein Justice Minister Klaus Tschuetscher at a press conference in the capital of
Vaduz. Despite the timing, he stressed that the changes were not related to the German investigation.
Jersey launches two unregulated fund classes
Jersey introduced two new classes of investment fund that can be established without regulatory
approval under Jersey’s funds legislation, with effect from 20 February 2008.
Unregulated Eligible Investor Funds can be open or closed-ended and are restricted to “sophisticated”
investors who make a minimum initial investment or commitment of $1 million or equivalent. Unregulated
Exchange Traded Funds must be listed on one of 50 pre-approved stock exchanges including London,
New York, the Channel Islands Stock Exchange, AIM, Nasdaq and Euronext. Funds under the new
regimes will not be subject to audit requirements, limits on the number of investors, or restrictions on
investment or borrowing. Promoters will also have a choice of fund vehicle that includes companies,
protected cell companies, unit trusts or limited partnerships.
Switzerland sets agenda for Financial Centre Master Plan
1 February 2008, the newly established Financial Centre Dialogue Steering Committee, set up to
coordinate moves to strengthen and develop the international competitiveness of the Swiss financial
sector, held its first meeting. Working groups were set up to examine existing and new proposals for
measures to improve the conditions of the financial centre, and implement them where appropriate. A
working group will also examine the fiscal and regulatory framework regarding hedge funds and private
equity. Last September the Swiss Bankers Association, the Swiss Insurance Association, the Swiss
Funds Association and Swiss Financial Market Services published the "Swiss Financial Centre Master
Plan" to strengthen and develop the international competitiveness of the Swiss financial sector.
The Financial Centre Dialogue Steering Committee is chaired by the director of the Federal Finance
Administration, Peter Siegenthaler. The Swiss authorities are represented by the Swiss National Bank,
the Swiss Federal Banking Commission, the Federal Office of Private Insurance and the Federal Tax
Administration. The Financial Centre Dialogue Steering Committee will meet three or four times a year to
implement mandates from the Strategy Committee and prepare the groundwork for the latter to be able to
take decisions. Federal Councillor Hans-Rudolf Merz chairs the strategy committee.
US Senate threatens action on offshore tax enforcement
30 January 2008, the Internal Revenue Service must improve the collection of US taxes overseas said
US Senate Finance Committee chairman Max Baucus and ranking member Charles Grassley after the
Government Accountability Office released a report citing problems. They warned that legislation could
be advanced in order to ensure collection rates improve. The GAO report, released last December, found
that the current system of ensuring the collection of taxes due to the US from overseas activities was not
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as effective as it could be. In particular, it noted only 12.5% of "US-source income" flows through qualified
foreign intermediaries (QIs), with the remainder passing through withholding agents subject to less
rigorous reporting standards. A substantial portion of income flowed through foreign corporations "whose
ownership is not reported to the IRS".
"As a result, IRS has less information on whether QIs are adequately preventing fraud or illegal acts," the
GAO said. The GAO report recommended stricter reviews of QIs, a requirement that QIs file their
information electronically and an examination of the operations of withholding agents. "I'll be following the
IRS's progress in implementing the GAO's good recommendations," said Grassley. "I'll also continue
looking for legislative measures to effectively address offshore tax compliance and enforcement."
Labuan rebrands offshore financial centre
30 January 2008, Labuan has rebranded the International Offshore Financial Centre as the Labuan
International Business and Financial Centre as part of a strategy to attract more foreign direct
investments. Currently, there are more than 6,000 international companies registered in Labuan,
including 900 that are Malaysian-owned and more than 300 financial institutions. Labuan is host to 56
banks, 131 insurance and insurance-related companies, 99 leasing and 21 trust companies.
The Labuan Offshore Financial Services Authority anticipates a 10% increase in the number of offshore
companies registered this year, boosted by its re-branding strategy, said its director-general Datuk Azizan
Abdul Rahman. Going forward, Azizan said a number of programmes would be initiated, including
measures aimed at securing the “gold standard for holding company jurisdiction”, the expansion of
captive insurance and private equity, as well as the promotion of shariah-compliant trusts and foundations
to complement the Islamic financial products and services available in Kuala Lumpur. “One of the main
things we are doing now is aggressively reviewing the legal framework to enhance Labuan’s
competitiveness as an international offshore financial hub,” he said. LOFSA has appointed legal
consultants to conduct benchmarking studies against other offshore centres. Azizan also said the option
for Labuan offshore companies to elect to be under the Malaysian Income Tax Act 1967 or the Labuan
Offshore Business Activity Tax Act 1990 would enable businesses to structure their transactions more
efficiently.
UK “pre-nup” remains untried after test case dropped
13 February 2008, a "paradigm case" for clarifying the status of pre-nuptial agreements in the UK was
abandoned when a woman described as a "career divorcee" dropped her claim for a share of her
husband's £45 million fortune. The move leaves uncertainty about how the agreements will be enforced,
but a judge had given strong weight to a "pre-nup" between them in an earlier hearing.
Pre-nuptial agreements are not legally binding in the UK, unlike the US and most of Europe, but courts
are increasingly holding couples to what they agreed before marriage in order to cut the time and
expense of divorce proceedings. Last December, Lord Justice Thorpe in the Appeal Court, suggested
that it might be time to introduce legislation that would increase the enforceability of pre-nuptial deals.
The Crossley divorce, the Appeal Court said, was a "paradigm case" for determining a settlement based
almost exclusively on a pre-marital arrangement, given the couple's background and wealth.
Susan Crossley, thought to be worth £18 million after three previous divorces to wealthy men, had
claimed her wedding contract with Stuart Crossley, a property developer, was invalid because he had
failed to tell her of "tens of millions" of pounds in offshore accounts. But Lord Justice Thorpe said last
December: "If ever there is to be a paradigm case in which the courts will look to the pre-nuptial
agreement as not simply one of the peripheral factors of the case but a factor of magnetic importance it
seems to me that this is such a case." Crossley described his ex-wife as a "career divorcee" - she had
previously been married to the Vernon pools heir Robert Sangster, the Kwik Save supermarkets heir
Kevin Nicholson and the Lilley and Skinner shoe chain heir Peter Lilley. The marriage lasted only 14
months before separation.
The largest ever UK settlement in a contested divorce was the £48 million awarded last July to the exwife of insurance magnate, John Charman.
Kovacs keeps EU common corporate tax base plans afloat
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January 2008, EU Taxation Commissioner László Kovács confirmed that he will issue proposals on a
common method for calculating corporate tax in September. He expressed confidence that the initiative
would receive strong backing from the French government, which takes the helm of the EU presidency in
the second half of the year.
“I have some high expectations of the French presidency both on direct and indirect taxation,” he said.
France, Germany, Spain, Italy, Austria and the Benelux countries were, he said, “fully and actively”
supportive.
Other member states, including Ireland, the UK and Slovakia, have expressed scepticism about the
proposed common consolidated corporate tax base (CCCTB). The commissioner reiterated assurances
that the tax base will not, as such countries fear, lead to the introduction of harmonised tax rates. Should
member states fail to agree unanimously on the matter, Kovács again indicated his readiness to use
enhanced co-operation to introduce proposals. Under the Treaty of Amsterdam, agreed in 1997, member
states may use enhanced co-operation to proceed in adopting laws in areas like taxation that would
normally require unanimity. Business, he said, was strongly behind the proposals.
MEPs criticised the European Commission last year for relegating CCCTB in its programme for 2008 from
the status of a strategic priority to work-in-progress, apparently in a bid to avoid any disruption to the
ratification of the Treaty of Lisbon. French Socialist MEP Pervenche Berès, who chairs the European
Parliament’s committee on economic and monetary affairs, is trying to rally cross-party support for the
proposals to ensure that the Commission does not retreat. Berès said that the issue should be
approached from a political, rather than a national, perspective.
New St Vincent IBC Act gets Royal Assent
The SVG International Business Companies (Amendment and Consolidation) Act 2007 received Royal
Assent on 22 February 2008. Its main provisions include:
 No residency or nationality requirement for shareholders, officers and/or directors of SVG IBCs.
 Companies may be formed with as few as one shareholder who may be a natural person or a
juridical entity.
 Companies may be formed with only one director, who may be a natural person or a juridical
entity.
 No requirement for a company secretary.
 IBCs may own land in the jurisdiction, although foreigners may require an alien landholding
licence.
 Exemption from taxation; under present regulations there are no personal income taxes, estate
taxes, corporate income taxes or withholding taxes for SVG IBCs.
 Ability for IBCs to benefit from the Caricom Tax Treaty in return for payment of tax at 1% on
annual profits.
 No requirement for the filing of annual reports or accounts with any government authority in SVG,
except for IBCs benefiting from Caricom tax treaties.
Trustees of shares of SVG IBCs held in an SVG trust enjoy similar status to trustees of VISTA trusts in
the BVI. Trustees have an overriding duty to hold the shares and have no duty to oversee the
management of the underlying company, unless so provided in the trust deed or the Articles and By
Laws.
The 2007 IBC Act also makes provision for the incorporation of segregated cell companies where preincorporation clearance has been obtained from the International Financial Services Authority, the local
regulator. The Act, like similar legislation in other jurisdictions, provides that such companies may be
approved by the regulator if formed to be used as a mutual fund or a captive insurance company. But the
SVG Act goes further; approval may be given where the company is formed for any other purpose
approved by the local regulator. Under this last category, companies established for the purpose of
owning, managing and developing or investing in real estate in any part of the world will be approved for
incorporation as segregated cell companies, provided certain strict criteria are met.
Netherlands-Jersey TIEA comes into force
1 March 2008, the Netherlands-Jersey Tax Information Exchange Agreement and the Netherlands-Jersey
Agreement on Adjustment of Profits and Participation Exemption were brought into force, according to a
Dutch Ministry of Finance. Both treaties were signed last June. The TlEA will have effect for criminal tax
matters on that date and for all other tax matters on that date, but only in respect of taxable periods
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beginning on or after that date or, where there is no taxable period, all charges to tax arising on or after
that date. The agreement on the access to mutual agreements procedures will apply to proceedings
initiated after 1 March 2008.
Qatar-Turkey tax treaty comes into force
12 February 2008, the Qatar-Turkey income tax treaty entered into force. Its provisions will apply
beginning 1 January 2009. The agreement, which was signed in Ankara in December 2001, is the first tax
treaty concluded between the two countries.
Monaco to cooperate on tax evasion
27 February 2008, Prince Albert II of Monaco pledged to cooperate with Germany in countering tax
evasion, according to a report by Agence France-Presse that quoted a German government spokesman.
At a meeting in Berlin with German Chancellor Angela Merkel, Prince Albert “gave his agreement to
cooperation between the German and Monaco authorities as well as improved data exchange in the fight
against tax fraud, money laundering and corruption," the government spokesman said. "Our
understanding is that such an agreement would include tax evasion.’
Prince Albert told Germany's Frankfurt Allgemeine Zeitung newspaper that Monaco has improved its
banking transparency and aims to reach the highest international banking standards. "Our steps forward
have been considerable, but it's not enough to be blameless," he was quoted as saying in an interview. "I
want Monaco's financial centre to diversify." He said he also wants the principality to focus less on
managing assets and to offer financial products, possibly through trading in environmental funds and
emissions. "Our financial centre must reach the highest standards. The principality has strived for many
years for our banking centre to conform to international regulations," Prince Albert said. He said Monaco
is currently applying EU guidelines on interest, taxing interest at source at the rate of 15%, with an
increase to 20% planned for 2009. His comments were echoed by Monaco Finance Minister Gilles Tonelli
who said Monaco was prepared to work with the OECD. According to a report on france24.com, he told a
news conference that "Monaco does not intend to distance itself from a general movement of information
exchange as long as it is really applied by everyone."
Monaco is one of only three jurisdictions worldwide, together with Liechtenstein and Andorra, which still
appears on the OECD's list of uncooperative tax havens first published in 2002.
Hong Kong and China sign second tax treaty protocol
30 January 2008, Hong Kong and the Chinese mainland signed a second protocol to the recent tax
treaty, which further clarifies which Hong Kong firms should pay Enterprise Income Tax on the Chinese
mainland. Hong Kong Secretary for Financial Services and Treasury Professor K C Chan signed the
agreement with the Chinese deputy Taxation Commissioner Wang Li in Beijing. The tax treaty itself was
formally signed on 21 August 2006 and came into effect on 8 December that year, but both sides have
differed on the interpretation of certain sections. After negotiation they agreed on the amendments and
initialled the second protocol last September.
At the same time, the new Enterprise Income Tax Law of the Mainland came into effect on 1 January
2008. Corresponding adjustment of the relevant articles of the treaty had to be made in respect of tax
types involved and the definition of a "resident". In determining whether a Hong Kong enterprise providing
services, including consulting services, in the Mainland is liable to the Enterprise Income Tax, both sides
have now agreed to substitute "183 days" for "six months" as the basis of calculation. The meaning of
"month" had been subject to different interpretations. Hong Kong enterprises will therefore be considered
as having a permanent establishment on the Mainland and be chargeable to tax if they provide services
for an aggregate of 183 days in any 12-month period on the Mainland. Apart from some specified
transactions in the treaty and the second protocol, the gains derived by a Hong Kong resident from the
alienation of immovable assets should be taxable in Hong Kong only.
Investors can now estimate their tax liabilities with increased certainty. Hong Kong has entered into tax
treaties with the Mainland, Belgium, Thailand and Luxembourg. This is the first occasion on which
amendments are made to the articles of a treaty by signing a protocol, which is considered to be an
important move in the proper implementation of a treaty.
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Bahrain and Belgium sign tax treaty
4 November 2007, Bahraini Finance Minister Ahmad bin Muhammad al-Khalifa and Belgian
Administrative Simplification Minister Vincent van Quickenborne signed a tax treaty in Manama. Sheikh
Muhammad bin Isa Al-Kalifah, head of the Bahraini Economic Development Board, said the treaty was
considered “vital for both parties, as there are currently more than 130 Belgian companies based in
Bahrain”. He also said he hoped the treaty would pave the way for the early conclusion of the free-trade
agreement between the European Union and the Gulf Cooperation Council.
Spain agrees new formula for Gibraltar treaties
10 January 2008, the Gibraltar government welcomed an agreement on the longstanding issue of Spain’s
objection to the application of international treaties, conventions and agreements to Gibraltar. The EU’s
adherence to many important international conventions has been obstructed by Spain’s objection to
Gibraltar’s participation. Spain’s position has been that all countries should deal with Gibraltar through the
UK. The matter has been resolved by an agreement that extends the 2000 Competent Authority between
Gibraltar and Spain to all international agreements. Gibraltar and Spain will channel their formal, written
communications through UK diplomatic channels, called “the Post Box”. Those between Gibraltar and
every other country will remain direct. The agreement will not alter the fact that the policy, executive and
administrative acts and decisions will continue to be taken exclusively in Gibraltar by the Gibraltar
Competent Authority, the government added. “We are delighted with these agreements which work very
well for all sides," stated Gibraltar's Chief Minister Peter Caruana. "These agreements remove a whole
area of traditional problems and difficulties between Spain, Gibraltar and the UK in the diplomatic arena,
and will allow international business to be conducted more fluidly."
Hong Kong's new company registration hits record high
The number of new local companies registered in Hong Long in 2007 hit a record high of 100,761, up
23% on 2006, according to the Hong Kong Companies Registry. The statistics showed that 748 new
overseas companies established a place of business in Hong Kong Special Administrative Region and
registered under the Companies Ordinance last year, up 23% on 2006. The total number of live
companies registered at the end of last year was 655,038, up 63,094 from the end of 2006. The total
number of overseas companies stood at 8,081, 372 more than in 2006.
Russian tax amnesty nets $150 million
A Russian tax amnesty launched in March 2007 has raised RUB3.66 billion ($150 million) in tax with over
83% of the total being declared in the final month, said the Russian Federal Treasury. In the first ever
amnesty, which ran until December 2007, individuals and self-employed entrepreneurs paid 13% tax on
RUB28.19 billion in previously untaxed income earned prior to 1 January 2006. Those who took
advantage of the amnesty will now be exempt from any legal action by tax and law enforcement
agencies, said local agency reports. The government brought in the amnesty to try to halt capital flight
and encourage inflow into Russia. It has been estimated that more than $160 billion left Russia following
the collapse of the Soviet Union. Under the amnesty, no restrictions were set on the minimum or
maximum amount that could be declared and the simplified procedure allowed individuals to make a
"declaration payment" on income earned since 2001 and then pay 13% of the declared sum without
penalty. The amnesty did not extend to those already convicted of tax evasion and tax-related crimes.
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