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UBS data transfer 'violated secrecy laws'
UK to bring Perpetuities & Accumulations Act into force
New German government drops tax haven reporting requirements
Hong Kong passes exchange of tax information amendment
Credit Suisse and Lloyds TSB agree sanctions settlements with US
French tax declaration initiative nets over €500 million
Italian tax amnesty scheme nets €95 billion in disclosures
Swiss Court hands over bank data in Siemens’ case
Japan and Netherlands agree treaty renegotiation
France-UK tax treaty and France-US Protocol enter into force
Revised US-Italy tax treaty finally brought into force
Japan considers relaxation of corporate tax avoidance regime
China-Singapore tax treaty Protocol enters into force
Caricom leaders say financial services remain viable
UK New Disclosure Opportunity brings in 10,000 taxpayers
UK Pre-Budget Report targets anti-avoidance
Cayman passes fee increases for money services
Singapore passes tax information exchange law
EC refers Spain and Portugal to ECJ over companies exit tax
Singapore and Liechtenstein sign 12 TIEAs to meet OECD standard
China issues new Foreign Partnership rules
Netherlands voluntary disclosure nets €1 billion in hidden assets
Australia launches new offshore tax "amnesty"
Cayman Islands raise $312 million in first-ever international bond
Singapore anti-money laundering changes come into force
US voluntary disclosure programme attracts 15,000 taxpayers
UK publishes review of offshore financial centres
Switzerland freezes tax treaty negotiations with Italy
Singapore hopes to break US tax treaty deadlock
China signs new tax treaty with Belgium
Alhamrani case in Jersey ends in settlement
EC requests France to abolish tax discrimination on foreign donations
Qatar brings in 10% flat corporate tax rate
UK Court of Appeal remits pilot residence case to First-Tier Tribunal
EC refers the UK to ECJ over implementation of M&S ruling
UK Court rejects service of "Chabra" order on foreign domiciled party
Canadian tax court rules on residency of trusts
UK Court of Appeal holds corporate schemes of arrangement cannot deprive
beneficiaries of trust assets
UK High Court refuses jurisdictional challenge to service of proceedings
Bahamian Parliament amends information exchange law
New law simplifies the migration of offshore funds to Ireland
HKSE approves listing of BVI companies
Cayman Grand Court introduces Financial Services Division
UBS data transfer 'violated secrecy laws'
8 January 2010, a Swiss court ruled that Swiss Financial Market Supervisory Authority (FINMA) had
violated Swiss laws by authorising the transfer of data of 300 clients of UBS, Switzerland's largest
bank, to US tax authorities. Three US clients of UBS brought the case against FINMA.
Last February, in a bid to settle charges of tax fraud in the US, UBS agreed to pay US authorities
US$780 million and hand over details of about 300 clients. Banks in Switzerland are not allowed to
provide any data on their clients to authorities, unless there is clear evidence of fraud or money
laundering. Only the Swiss government and the parliament are authorised to allow banking secrecy
rules to be lifted by evoking the law of "constitutional necessity”.
The Federal Administrative Tribunal ruled that: “the decision of the FINMA on 18 February 2009 to
order the transfer of banking data of UBS clients to authorities of the United States of America
violates the law.” It further noted: "even if FINMA is in a critical situation due to threats of a penal
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proceeding against UBS from the US authorities, it is not authorised to allow the transmission of
banking data concerning clients outside of the ordinary international administrative assistance
procedure."
FINMA justified its decision saying that "only this solution could prevent an imminent lawsuit by the
US penal authorities against the bank that threatened the existence" of UBS. It said it would analyse
the ruling and decide if it would file an appeal at the Supreme Court.
UK to bring Perpetuities & Accumulations Act into force
7 January 2010, Justice Minister Bridget Prentice announced a Commencement Order to bring the
Perpetuities and Accumulations Act 2009, which received Royal Assent on 12 December 2009, fully
into force on 6 April 2010. The Act is designed to modernise and simplify trust law on leaving property
in trust for future generations.
Under the Act, a standard perpetuity period of 125 years will apply to property put in trust, by will or
otherwise. The perpetuity period limits the length of time that the future ownership of property can be
dictated by a person setting up a trust. The new time limit aims to strike the balance between
respecting the intentions of people who give away property, against the needs of future generations to
use estates for other purposes that might be more appropriate in future years.
The Act will also remove the current limits on the time that the terms of a trust can require the trustees
to accumulate investment income rather than distributing it. The previous law derived from legislation
in the early-19th century that was designed to prevent individuals accumulating sufficient money to
threaten the national economy – which is no longer considered to be a threat. Charities will be subject
to an accumulation limit of 21 years or, if specified, the remainder of the life of the settlor, unless the
court or the Charity Commission allows longer.
The Act implements, with some modifications, the recommendations in the Law Commission’s 1998
Report, The Rules Against Perpetuities and Excessive Accumulations (LC251) and is the first piece of
primary legislation to enter Parliament under a trial of a proposed House of Lords procedure for
legislation implementing Law Commission recommendations.
New German government drops tax haven reporting requirements
7 January 2010, the new German Finance Minister Wolfgang Schaeuble announced that he would not
be seeking to impose new reporting requirements on taxpayers transferring money to jurisdictions that
Germany had previously labeled as tax havens.
The position is a reversal from the previous administration, in which then-Finance Minister Peer
Steinbrueck pushed hard for legislation that empowered Berlin to take punitive steps against those
jurisdictions. The resulting law, passed in September last year, requires taxpayers to document
transactions with tax havens and submit the data to German tax officials. Failure to comply could lead
to a revocation of privileges for companies, and heavy fines for individual taxpayers.
But the new Finance Ministry of CDU member Wolfgang Schaeuble issued a statement saying: "No
state or area fulfilled the criteria for prohibitive measures suggested in the September tax evasion law.
At this point, we see no reason to force taxpayers or banks to provide documentation of accounts."
Schaeuble instead called on the OECD to enforce the standards with which jurisdictions have agreed
to comply.
Hong Kong passes exchange of tax information amendment
6 January 2010, the Hong Kong Legislative Council passed the Inland Revenue (Amendment) (No. 3)
Bill 2009. This amendment enables Hong Kong to adopt the latest international standard for exchange
of tax information and removes a major obstacle to its ability to enter into tax treaties.
Prior to this amendment, the Inland Revenue Department (IRD) could only collect taxpayers’
information for domestic tax purposes, a provision that conflicted with the exchange of information
clause in the OECD’s 2004 Model Tax Convention. This provides that the lack of a domestic tax
interest does not constitute a valid reason for refusing to collect and supply the information requested
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by the other contracting party.
The amendment to the Inland Revenue Ordinance introduces a new section 49.1(A), which allows the
chief executive to authorise tax treaties or tax information exchange agreements (TIEAs) with other
countries that include wording in conformity with the OECD standard. Tax authorities will have the
authority to obtain information – using search warrants if necessary – that may affect any liability,
responsibility or obligation of anyone under the laws of a treaty partner concerning taxes of that
territory.
The government said it would adopt the "most prudent" version of the standard to protect the privacy
of firms and individuals, and ensure confidentiality. Relevant tax jurisdictions would need to prove
their request was necessary or relevant to avoid "fishing expeditions", and must treat the information
as confidential under their domestic laws.
This amendment will facilitate Hong Kong’s ability to enter into more tax treaties in line with its main
competitors. Hong Kong has so far concluded only five treaties – with Belgium, Thailand, mainland
China, Luxembourg and Vietnam – since 2003. It is expected that Hong Kong will now sign a number
of tax treaties and TIEAs, and it may be that the Special Administrative Region will be included in
future agreements entered into by mainland China.
The Financial Services & Treasury Bureau has not said which nations are involved in current talks or
the progress of negotiations, but it is understood that a number of significant trading partners,
including the UK, the Netherlands, France and Ireland, have been waiting for this amendment before
concluding treaty negotiations with Hong Kong.
The move comes as a Bill is progressing through the US Congress to extend a crackdown on US
taxpayers evading tax overseas. In February, Swiss bank UBS agreed to a US$780 million settlement
with the US government over charges it helped Americans evade US taxes. Several of the UBS
clients hid money in corporations in Hong Kong.
After the G-20 meeting in London in April last year, China was included by the OECD on its "white list"
of jurisdictions that had substantially implemented the internationally agreed tax standards. But in a
footnote, the Special Administrative Regions – Hong Kong and Macau – were specifically excluded
because they had only “committed” to implement the internationally agreed tax standard.
The IRD has also recently released DIPN 46 to illustrate how transfer-pricing principles will be applied
in the territory. The document explains how OECD Transfer Pricing Guidelines will be practiced in
Hong Kong and particularly how OECD transfer pricing methodologies will work with its own Inland
Revenue Ordinance (IRO). It shows the provisions in the IRO and the relevant articles in tax treaties
that should allow the IRD to reallocate profits or adjust deductions by substituting an arm’s length
consideration.
Credit Suisse and Lloyds TSB agree sanctions settlements with US
4 January 2010, the US Treasury’s Office of Foreign Assets Control (OFAC) announced a record
$536 million settlement with Credit Suisse, after the Swiss bank committed “egregious sanctions
violations”. The joint resolution between the US Department of Justice and the New York County
District Attorney’s Office is the largest in OFAC’s history.
Regulators said Credit Suisse had structured wire transfers to ensure that the involvement of
sanctioned parties was hidden from US authorities. Thousands of transfers over a 20-year period,
involving sanctioned parties in Iran, Sudan, Libya, Burma, Cuba and the former Liberian regime of
Charles Taylor, were executed through US banks, as well as securities transactions executed through
Credit Suisse’s US office.
According to OFAC, Credit Suisse used elaborate procedures to hide from US banks the involvement
of sanctioned parties in payment transactions, which included removing the names of sanctioned
parties from payment instructions and forwarding payment messages that falsely labeled Credit
Suisse as the ordering institution.
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The US Federal Reserve Board issued a consent cease and desist order against Credit Suisse,
including enhanced reporting requirements for the bank’s global activities. The Swiss Financial Market
Supervisory Authority (FINMA) agreed to assist in its enforcement.
British-based Lloyds TSB Bank also agreed to pay a US$350 million penalty to settle a probe that it
illegally handled financial transfers for Iran and Sudan in violation of US sanctions. The bank agreed
to forfeit US$175 million to the US and US$175 million to New York County.
Prosecutors alleged that from 1995 until 2007, Lloyds’ agents in the UK and Dubai "falsified outgoing
US wire transfers that involved countries or persons on US sanctions lists." A US Justice Department
statement said Lloyd's "has accepted and acknowledged responsibility for its criminal conduct" in a
criminal complaint filed in US District Court in New York.
French tax declaration initiative nets over €500 million
3 January 2010, the French government announced that it had received more than €500 million in
additional tax revenue, from approximately €3 billion of funds repatriated to France, as a result of the
tax declaration initiative, begun in April 2009. More is expected as the government updates its figures,
with a final tally due later in January.
The voluntary compliance programme ended on 31 December and the special tax unit set up to bring
back assets held illegally offshore was due to be closed. But Budget Minister Eric Woerth instead
announced plans to extend the work of the unit, giving taxpayers further opportunity to put their
accounts in order.
There was a surge of taxpayers making voluntary declaration after it emerged in early December that
the French authorities had obtained data stolen from the offshore banking headquarters of HSBC in
Geneva. HSBC confirmed that Hervé Falciani, a former employee, had stolen the data in 2006 and
2007 and fled to France. It was obtained by French officials following a raid on his home undertaken
at the request of Switzerland.
On 21 December, the French Ministry of Justice agreed to return the client data to Switzerland but
said it would continue to make use of it. France's possession of the data led to a diplomatic dispute,
with Swiss President and Finance Minister Hans-Rudolf Merz announcing on 16 December that he
had sought to delay parliamentary approval of a pending protocol to the France-Switzerland tax
treaty.
The dispute may continue despite the handover of the data. A Swiss Finance Ministry spokesperson
said that the Finance Ministry "took note" of the French move but that the matter was not completely
resolved. "As far as the double taxation agreement is concerned, some points remain open. The
essential question is what France is prepared to do with the data. Switzerland will need to clarify this
with France at the political level," he added.
Italian tax amnesty scheme nets €95 billion in disclosures
29 December 2009, Economic Minister Giulio Tremonti announced that Italian taxpayers had
disclosed €95 billion in previously undeclared assets under the country’s latest tax amnesty scheme,
noting that 98% of the amount was to be repatriated from offshore. He said that "a last-minute
acceleration" in voluntary disclosures by individuals was the reason behind the figure surpassing the
government’s previous estimate of €80 billion. Assets repatriated included works of art, sculptures,
jewelry, cars and berths.
The Italian government launched the tax amnesty – the third in the past eight years – last October to
entice Italians to either repatriate assets or declare them to tax authorities. In the case of assets held
in jurisdictions listed on the OECD's “grey” list of countries that had not yet substantially implemented
its standards of exchange of information, only repatriation would suffice. Under the scheme, which
ended on 15 December, individuals were required to pay a 5% tax rate on the total value of assets,
but there was no requirement to declare how the funds were earned.
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Tremonti has earlier announced, on 17 December, an extension to the scheme with an increase in the
tax rate levied on the declared or repatriated funds. The rate levied during the original amnesty rises
to 6% for assets declared or repatriated before 28 February 2010 and then 7% for assets declared or
repatriated before 30 April 2010.
In a statement, the ministry said the extension of the tax amnesty to April 2010 would be the "last one
and definitive”. It anticipates that the four-month extension will bring home a further €30 billion,
amounting to about €1.8 billion in extra tax revenue.
Inflows linked to the scheme from San Marino stood at €3.25 billion as of 11 December, while press
reports have estimated the amount of repatriations from Switzerland at between €30 billion and €40
billion.
Swiss Court hands over bank data in Siemens’ case
23 December 2009, the Federal Criminal Court rejected an appeal against the disclosure of banking
information to German prosecutors who are examining whether Siemens, the German industrial
conglomerate, employed corrupt practices in Malaysia.
Siemens has faced a series of international corruption investigations and legal proceedings in
numerous jurisdictions around the world, leading to a US$1.6 billion settlement with the US and
German authorities in December 2008.
The Court heard that $300,000 was paid through Swiss accounts to Malaysia in 2004 and 2005,
where Siemens sought to become the exclusive supplier to a mobile phone company. Switzerland
launched its own investigation in 2005 to determine whether Siemens channeled money into secret
accounts for bribes to secure contracts. The investigation is ongoing. More than US$95.5 million in
Siemens accounts in Switzerland is blocked pending the investigation, said Jeanette Balmer,
spokeswoman of the federal prosecutor's office.
Before 1999, bribes were deductible as business expenses under the German tax code, and paying
off a foreign official was not a criminal offence. In February 1999, Germany ratified the OECD
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Japan and Netherlands agree treaty renegotiation
18 December 2009, the Japanese Ministry of Finance (MOF) announced that the governments of
Japan and the Netherlands had reached agreement in principle on the terms of a new tax treaty that
will replace the current 1970 tax treaty. It is expected that the new tax treaty will be ratified by mid2010 and will become effective as of 1 January 2011.
The renegotiated treaty substantially reduces withholding rates on cross-border payments. It includes
a full exemption from dividend withholding tax for dividends paid by qualifying shareholdings. The
withholding tax exemption applies if a resident of one of the countries holds at least 50% of the shares
in a company resident in the other country. For shareholding between 10% and 50% a reduced
withholding tax rate of 5% applies.
It was announced that the new treaty is to contain a limitation on benefits article, which is expected to
follow those appearing in the Japan-US, Japan-UK, Japan-Australia, and other recently negotiated
income tax treaties.
The Bahrain-Netherlands income tax treaty, signed at The Hague on 16 April 2008, entered into force
on 24 December. The treaty is the first income tax agreement concluded between the two countries
and its provisions generally will apply beginning 1 January 2010.
France-UK tax treaty and France-US Protocol enter into force
18 December 2009, a new tax treaty between France and the UK, signed on 19 June 2009, entered
into force to replace the 1968 France-UK tax treaty. In France, its provisions will generally apply
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beginning 1 January 2010, and in the UK, its provisions regarding income tax and capital gains tax
will apply beginning 6 April 2010, and its provisions regarding corporation tax will apply beginning 1
April 2010.
The new provisions include general tax credit mechanisms with respect to income tax rather than the
exemption method prevailing under the previous tax treaty. The application scope now includes
several additional social contributions, French/UK partnerships and several real estate vehicles (SIIC
and OPCI in France; REITs in the UK).
France and the US also exchanged instruments of ratification on 23 December 2009 to allow the
effective entry into force of a Protocol, signed on 13 January 2009, to amend the existing 1994 tax
treaty.
The Protocol provides for the elimination of source-country taxation on qualifying parent/subsidiary
dividends and cross-border royalty payments. These new withholding tax exemptions will be
applicable retroactively to qualifying payments and distributions made since 1 January 2009.
The Protocol also strengthens the previous limitation on benefits provision and provides for a
mandatory arbitration in specific circumstances that cannot be settled by the competent authorities
within a specified period of time. The Protocol also amends the rules regarding the exchange of
taxpayer information between the tax authorities of both countries.
Revised US-Italy tax treaty finally brought into force
16 December 2009, the US Department of the Treasury announced the entry into force of a new tax
treaty with Italy, originally approved by the US Senate in 1999, following an exchange of ratification
documents in Rome. It replaces the 1985 Italy-US treaty.
The new treaty reduces the withholding tax rates on dividends, interest, and royalties; authorises the
collection of a dividend-equivalent tax on the repatriated profits of a branch; includes a provision
limiting the benefits of the treaty to some qualified residents of the other contracting state; addresses
the creditability in the US of the Italian regional tax on production activities; and provides for a special
arbitration procedure if the competent authorities of the two contracting states fail to reach an
agreement over a treaty dispute within two years.
The US Senate made ratification subject to a reservation requiring deletion of the "main purpose"
language included in the withholding provisions, and subject to an understanding regarding the
information exchange provision. The reservation required the Italian government's approval, which
stalled the ratification process.
In 2006 and 2007, the two governments exchanged diplomatic notes in which the Italian government
officially agreed to the Senate reservation, paving the way for final ratification and, on 3 March 2009,
the Italian Parliament passed legislation authorising ratification of the new treaty.
With respect to taxes withheld at source, the new treaty will have effect for amounts paid or credited
on or after 1 February 2010. For all other taxes, the new treaty will cover taxable years starting 1
January 2010.
Japan considers relaxation of corporate tax avoidance regime
12 December 2009, the Japanese government's Tax Advisory Council (Zeisei Chousa-kai) was
reported to be considering a change to Japan's tax policy in respect of so-called “tax havens” in the
2010 financial year.
In addition to having one of the highest effective corporate tax rates in the OECD, Japan considers
countries with corporate tax rates under 25% as "tax havens" and treats the earnings of Japanese
corporates in such countries as part of the parent company in Japan in assessing corporate taxes.
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Earnings from overseas subsidiaries in Hong Kong, Singapore, Russia, Vietnam and other key
emerging markets are therefore taxed at domestic rates. According to a survey by the Ministry of
Economy, Trade and Industry (METI), Japanese companies have some 17,000 overseas
subsidiaries, of which approximately half are in countries that the Japanese tax agency considers to
be "tax havens".
Following a court action involving to a Hong Kong-based subsidiary and representations from the
Japan Business Federation, the Tax Advisory Council is understood to be considering a reduction of
the applicable corporate income tax to just over 20% on income from jurisdictions deemed to be tax
havens, according to a Nikkei report.
China-Singapore tax treaty Protocol enters into force
11 December 2009, the Second Protocol to the 2007 China-Singapore income tax treaty, signed on
24 August 2009, entered into force upon ratification. Its provisions took effect from 1 January 2010.
The major change in the new protocol relates to Article 22 of the original treaty regarding the
elimination of double taxation on dividends. It will increase the minimum share ownership requirement
for qualifying for a Chinese indirect foreign tax credit under paragraph 1(b) of Article 22 of the Treaty
from 10% to 20%.
As a result, if the income derived from Singapore is a dividend paid by a company that is a resident of
Singapore to a company that is a resident of China and that owns not less than 20% of the shares of
the company paying the dividend, the Chinese foreign tax credit will take into account the tax paid to
Singapore by the company paying the dividend in respect of its income. The treaty will therefore be
less favourable than the China-Hong Kong tax treaty, which provides a lower share ownership
threshold of 10% for qualifying for a Chinese indirect foreign tax credit.
The Protocol also contains less significant changes to the articles covering Permanent Establishment,
where the more precise term “183 days” is substituted for the term “six months”, and Interest, where
the list of beneficial owners of interest that qualify for an exemption from tax on interest is amended.
Caricom leaders say financial services remain viable
10 December 2009, Caribbean Community (Caricom) leaders said offshore financial services are
remained a viable development option for Caribbean states despite unwelcome pressure from
developed countries targeting offshore financial centres in the region.
Caribbean governments grouped in the 15-nation Caricom have reacted with concern to an
international campaign against banking secrecy by G-20 leaders, which has led to increased scrutiny
and the inclusion of a number of Caribbean jurisdictions on the OECD Global Forum’s list of states
viewed as not fully compliant with international tax information standards.
Many Caribbean states are struggling to cope with the global economic downturn that has badly
affected both offshore finance and tourism. Caribbean leaders argue that the G20/OECD focus on
their countries is unfair and discriminatory and say there are offshore financial jurisdictions within the
US, Britain and Europe which fail to apply fully the same transparency standards.
Caricom Secretary-General Edwin Carrington said it was industrialised countries and the international
financial institutions they control that had originally advised Caribbean states to move into financial
services. “We answered many of the criticisms years ago about whether we were tax havens,” he
said. “It is surprising that this pressure is now being brought on us when in fact many of the rules
outlined for us to follow are not even followed by enterprises and areas of the developed countries
themselves.”
UK New Disclosure Opportunity brings in 10,000 taxpayers
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7 January 2010, HM Revenue & Customs announced that 10,000 individual taxpayers with previously
undisclosed offshore income or gains had responded to the UK tax amnesty known as the New
Disclosure Opportunity (NDO).
The deadline for registering under the NDO, which offers tax evaders reduced penalties and a lower
risk of prosecution, had been extended from 30 November 2009 to 4 January 2010 in a bid to
increase take-up. HMRC said many of the 308 banks served legal notices in August requiring them to
divulge account details had not yet handed over the information, in some cases because they were
still appealing against the notices.
Dave Hartnett, permanent secretary for tax at HMRC, said: “We know that some bank customers will
not be contacted by their banks in good time for the original deadline of 30 November, so in the
interests of fairness we have decided to extend our deadline by a month to 4 January.
“I strongly urge anyone who has been hiding taxable assets offshore to go on line and register. The
NDO is voluntary but from the start of the New Year we will begin to investigate those who were
eligible to use the NDO but instead buried their heads in the sand. Don’t let that happen to you.”
UK Pre-Budget Report targets anti-avoidance
9 December 2009, the UK government delivered its Pre-Budget Report – the last before the next
general election – that included a one-off “super tax” on bankers' bonuses and a number of targeted
anti-avoidance measures relating to inheritance tax and pensions and further measures targeted at
tackling offshore tax evasion.
As previously announced, higher earners will be targeted with a new 50% tax rate from 6 April 2010
on income over £150,000. Dividends received by those subject to this new rate of 50% will be subject
to tax at a new dividend rate of 42.5%. The new higher rates of tax will also apply to trusts. From April
2010, the dividend trust rate will be increased to 42.5% and the trust rate of tax payable by
discretionary trusts will be increased to 50%, regardless of the level of trust income.
Chancellor Alistair Darling announced the introduction of a one-off 50% “super tax” on bonuses of
more than £25,000 per employee, whether in cash or otherwise, paid by banks and other financial
services firms. The 50% bank payroll tax will be payable by the employer and will be in addition to the
income tax and national insurance contributions payable by the employee on the net amount of the
bonus after the 50% tax has been paid. The employee will get no credit for the 50% tax already paid
by the bank and the 50% tax will not be a deductible expense in calculating the bank's profits for
corporation tax purposes.
The bank payroll tax will apply to bonuses paid between 9 December 2009 and 5 April 2010, and
where a contractual obligation to pay a bonus arises during that period even if the bonus itself is not
paid until after 5 April 2010. In addition, banks and other financial services firms will have an
obligation to report all bonuses, in excess of £25,000, paid or awarded between 9 December 2009
and 5 April 2010 to HMRC even if they do not consider that the bank payroll tax applies.
The UK government also announced that, having given taxpayers with undeclared offshore assets the
opportunity of coming forward under the 2007 Offshore Disclosure Facility (ODF) and last year’s New
Disclosure Opportunity (NDO), higher penalties will apply for offshore non-compliance and UK
taxpayers with offshore bank accounts in certain jurisdictions will be required to notify HMRC of those
accounts. The government said it is also consulting on whether new obligations to provide HMRC with
information in relation to non-UK resident trusts should be introduced.
Under measures announced in the Pre-Budget Report, penalties in connection with undeclared tax on
assets held or transferred offshore will be the same as those for deliberate domestic tax evasion – a
minimum penalty of 20% for a voluntary disclosure and a maximum penalty of 100% for an
involuntary disclosure where funds have been actively concealed. The new penalties will apply for tax
periods commencing from 1 April 2011.
There will be no requirement, under current proposals, to notify HMRC of an account in a jurisdiction
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with which the UK has an agreement that provides for automatic exchange of information on savings
income. But where a taxpayer has an account in a jurisdiction that has no tax treaty or tax information
exchange agreement with the UK, the taxpayer must notify HMRC within 60 days of opening the
account or face both a fixed penalty and ongoing daily penalties for continued non-compliance. Where
a taxpayer has an account or accounts in any other jurisdiction he will be required to notify HMRC if
the aggregate balance on all of the accounts is more than £25,000. This will not apply to remittance
basis users.
Two measures are to be introduced to counter two inheritance tax avoidance schemes using trusts.
Where a life interest in a trust is purchased on or after 9 December 2009 for full market value, the
assets will be treated as forming part of the individual's estate for inheritance tax purposes on his
death. Where the life interest comes to an end during the individual's lifetime this will be treated as an
immediately chargeable transfer subject to inheritance tax at 20%. The assets will continue to be
treated as within the "relevant property" regime and so subject to ten-yearly periodic charges to
inheritance tax and exit charges.
Also from 9 December 2009, where an individual transfers property into a trust in which they or their
spouse has a future interest, or where a person purchases a future interest in a trust, there will be a
charge to inheritance tax when the future interest comes to an end and the individual becomes
entitled to an actual interest in the trust property or the individual gives their future interest away.
The government also announced a consultation on measures aimed at strengthening the current tax
avoidance disclosure rules under which promoters or in-house advisors of "hallmarked schemes",
which give, or might be expected to give, rise to a tax advantage, are required to provide HMRC with
prescribed information within strict time limits.
Cayman passes fee increases for money services
2 December 2009, the Cayman Islands Legislative Assembly passed the Money Services
Amendment Bill 2009 to amend fees payable by financial services businesses. The Bill will become
law when it is published in the Gazette.
The effect of the amending legislation, together with associated Regulations that the Cabinet passed
on 1 December, will be to:



Increase the annual licence fee payable by money services businesses to KY$10,000
(US$12,345);
Introduce an annual fee of KY$1,000 for each additional subsidiary, branch, agency or
representative office that a money services business operates; and
Introduce a new transaction fee payable to the government, equal to 2% of the gross amount
transferred overseas – up to a maximum of KY$10 per transaction – by a money services
business on behalf of its customers.
Financial Secretary Kenneth Jefferson said: "The government made a deliberate decision to limit the
fee to a maximum of KY$10 recognising that the majority of persons transferring funds overseas are
lower-paid employees. The Money Services Law makes it clear that banks, building societies and
cooperative societies do not fall within its ambit. Hence, wire transfers, drafts and overnight funds in
the banking system are not subject to the new transaction fee.”
Singapore passes tax information exchange law
19 October 2009, Singapore’s parliament passed the Income Tax (Amendment) (Exchange of
Information) Bill, which will enable the country to implement the internationally agreed OECD standard
for the exchange of information for tax purposes by enhancing the level of assistance and information
that it can provide to foreign jurisdictions under bilateral treaties and agreements.
Previously the assistance that Singapore could provide through treaties was subject to the domestic
interest condition, meaning that the information requested had to be relevant to the enforcement of
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domestic tax laws before the Inland Revenue Authority of Singapore (IRAS) could gather and
exchange it with treaty partners. Only where there was a domestic interest, would Singapore’s
banking and trust confidentiality laws allow for information to be obtained for the purposes of
investigating or prosecuting a tax offence.
Minister of Finance Tharman Shanmugaratnam told parliament: “This enhanced scope of cooperation
will not only allow Singapore to provide greater assistance to its prescribed treaty partners, but also
help Singapore obtain information for the enforcement of our domestic tax laws.”
“We will only provide assistance where there is a genuine case on hand, and the requested
information is specific and relevant to the case. Spurious or frivolous requests for information will not
be acceded to.”
The amendment to the Income Tax Act enabled Singapore to implement the OECD standard for
exchange of information for tax purposes upon request, which was endorsed by Singapore in March
2009. When the OECD published its list for the G-20 meeting in London last April, Singapore featured
on the “grey” list of jurisdictions that had committed to, but not yet substantially implemented, the
internationally agreed tax standards.
On 13 November 2009, Singapore qualified for removal from the “grey” list after it signed a twelfth
bilateral information-sharing agreement – with France – and thereby passed the threshold for
inclusion on the OECD’s “white” list of countries whose tax law allows exchanges of information with
other jurisdictions. Singapore had previously signed similar agreements with Belgium, New Zealand,
the UK, Denmark, the Netherlands, Australia, Austria, Norway, Qatar, Mexico and Bahrain.
“Singapore will also be playing an active role in the Global Forum on Transparency and Exchange of
Information, and we are pleased to have been recently appointed as the vice chairman of the Global
Forum’s Peer Review Group,” Shanmugaratnam said.
OECD secretary-general Angel Gurría said: ”Singapore is a key player in the global financial
community. The fact that Singapore has removed the legislative impediments to its implementation of
the international standard is very welcome and it confirms that there is a new global environment of
tax cooperation. No jurisdiction can stand apart from this movement towards greater transparency for
tax purposes.”
EC refers Spain and Portugal to ECJ over companies exit tax
8 October 2009, the European Commission decided to refer Spain and Portugal to the European
Court of Justice for their tax provisions that impose an exit tax on companies that cease to be tax
resident in these countries. The provisions are incompatible with the freedom of establishment
provided for in Article 43 of the Treaty and Articles 31 of the EEA Agreement.
Under Spanish law, when a Spanish company transfers its residence to another Member State or
when a permanent establishment ceases its activities in Spain or transfers its Spanish located assets
to another Member State, unrealised capital gains must be included in the taxable base of that
financial year, whereas unrealised capital gains from purely domestic transactions are not included in
the taxable base.
Under Portuguese law, in case of the transfer of seat and place of effective management of a
Portuguese company to another Member State or in case a permanent establishment ceases its
activities in Portugal or transfers its Portuguese located assets to another Member State, the taxable
base of that financial year will include any unrealised capital gains in respect of the company's assets
whereas unrealised capital gains from purely domestic transactions are not included in the taxable
base. The shareholders of the company that transfers its seat and place of effective management
abroad are also subject to tax on the difference between the company's net assets, valued at the time
of the transfer at market prices, and the acquisition cost of their participation.
The Commission considers that such immediate taxation penalises those companies that wish to
leave Portugal and Spain or to transfer assets abroad, as it results in less favourable treatment as
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compared to those companies that remain in the country or transfer assets domestically. The rules in
question are therefore likely to dissuade companies from exercising their right of freedom of
establishment and, as a result, constitute a restriction of Article 43 EC and the corresponding
provision of the EEA Agreement.
The Commission's opinion is based on the EC Treaty as interpreted by the Court of Justice of the
European Communities in its judgment of 11 March 2004, in Case C-9/02, De Lasteyrie du Saillant,
as well as on the Commission's Communication on exit taxation of 19 December 2006. Since the
Spanish and Portuguese tax rules on exit taxes on companies were not amended to comply with the
reasoned opinions sent to them in November 2008, the Commission has decided to refer the cases to
the Court of Justice.
Singapore and Liechtenstein sign 12 TIEAs to meet OECD standard
13 November 2009, Singapore signed a protocol with France that brought the two countries’ bilateral
tax treaty into line with the OECD standard on transparency and exchange of information for tax
purposes. It was the twelfth such agreement signed by Singapore in accordance with the OECD
standard, such that it moves onto the OECD’s “white list” of jurisdictions that have substantially
implemented the standard.
OECD Secretary-General Angel Gurría said: “Singapore is a key player in the global financial
community. The fact that Singapore has removed the legislative impediments to its implementation of
the international standard is very welcome and it confirms that there is a new global environment of
tax cooperation. No jurisdiction can stand apart from this movement towards greater transparency for
tax purpose.”
The previous day, Liechtenstein signed tax information exchange agreements (TIEAs) with Belgium
and the Netherlands, also bringing its total of TIEAs to 12 and ensuring its promotion to the OECD
white list. OECD secretary-general Angel Gurria said the principality "has within a few months turned
into reality its commitment to fully cooperate in tax matters".
Other new entries to the “white list” after the OECD update on 10 November include: Estonia,
Gibraltar, India, Israel, Monaco, Netherlands Antilles, San Marino, Slovenia and Switzerland.
China issues new Foreign Partnership rules
2 December 2009, China's State Council issued administrative measures for Foreign Enterprises and
Individuals to Establish Partnerships in China. They will become effective on 1 March 2010.
The measures allow a partnership to be established by two or more foreign enterprises or individuals;
or a foreign enterprise or individual and a Chinese individual, enterprise, or other organisation. The
measures also allow foreign enterprises and individuals to become partners in a partnership formed
by Chinese individuals, enterprises, or other organisations.
The establishment of a foreign partnership requires only registration with the local branch of the State
Administration of Industry and Commerce. There are no minimum capital requirements. Foreign
partnerships that make investments in special projects or industries that do require special approval
have to be preapproved by the relevant authorities. The establishment of a foreign partnership whose
main business is to make investments may be subject to other rules and regulations.
The measures provide that foreign-partnership-related tax matters should follow the prevailing
applicable tax rules and regulations. Article 6 of the Partnership Law sets out the fundamental taxing
principle, which simply states that each partner should separately pay income tax on its share of
income derived from a partnership.
The Ministry of Finance and the State Administration of Taxation jointly issued Circular 159, Notice on
Issues Concerning the Income Tax Levied on Partners of a Partnership, in December 2008. This
circular reconfirmed the taxing principle outlined in the Partnership Law that individual and enterprise
partners are subject to individual income tax and enterprise income tax, respectively, on income
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allocable from the partnership in which they are partners.
Netherlands voluntary disclosure nets €1 billion in hidden assets
1 December 2009, the Dutch Ministry of Finance announced that its voluntary disclosure initiative for
individuals with undisclosed foreign savings accounts had so far identified 4,400 individuals and over
€1 billion in hidden assets. The number of persons volunteering was running at around 50 per day
and this was expected to increase before the year-end.
"The voluntary owning-up scheme will be cut back as from 1 January 2010,” said State Secretary Jan
Kees de Jager, “whereas the fine for persons not declaring their savings was increased to 300% in
July of this year. In addition, these tax payers know that the Netherlands has meanwhile concluded
tax treaties with many tax havens and they do not want to run the risk anymore of being caught by the
Tax and Customs Administration or the Fiscal Investigation and Intelligence Service & Economic
Investigation Service."
Australia launches new offshore tax "amnesty"
3 December 2009, the Australian Tax Office (ATO) announced a new scheme to allow some offshore
tax avoiders to regularise their affairs without risking prosecution. Unlike the previous amnesty,
Australians will, until 30 June 2010, be able to inform the ATO about untaxed offshore assets and
income anonymously, and receive an indication of whether they are likely to be prosecuted were they
to make a disclosure.
The new voluntary disclosure scheme increases the penalties on large-scale offshore tax avoiders.
Individuals whose undisclosed taxable income was more than A$20,000 in a tax year will have to pay
a "shortfall penalty" of 10%, instead of the 5% imposed in the 2007 amnesty. There is no penalty
where untaxed income was below that threshold.
The ATO warned that those who do not disclose their offshore affairs before the amnesty expires
would find that "all bets are off". Tax commissioner Michael D'Ascenzo said: "For undeclared income
through an audit process, penalties can be as high as 90%, and we will seek prosecution in serious
cases."
Cayman Islands raise $312 million in first-ever international bond
23 November 2009, the Cayman Islands announced it had raised $312 million (£189 million) in its
first-ever placement on international bond markets, as it seeks to put its finances in order after a
recent budget crisis, while avoiding the introduction of new taxes. According to press statement, the
money will be used to repay outstanding bridge financing facilities and to fund capital expenditures.
News of the bond placement came as the Cayman Islands government has been considering ways of
dealing with the effects on its budget of the recent global recession and a downturn in tourism
revenues that would not involve its having to introduce new taxes. In June, it was revealed that the
country faced a budget deficit of about $100 million, and last month, was understood to have secured
a $60 million loan.
Newly elected premier, McKeeva Bush, has proposed raising fees on company registrations, mutual
fund licenses, security investment businesses, work permits and exempted limited partnerships, as
well as certain new fees, such as an annual business premises fee that would replace a current
stamp duty on commercial leases.
The Cayman Islands, which has a population of about 57,000, was a part of Jamaica until 1962, and
is now an independent British overseas territory. It was one of nine offshore British financial centres
studied and included in a recent report for the UK government.
The jurisdiction recently moved onto the OECD's "white list" of jurisdictions that are deemed to have
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substantially implemented its internationally-recognised standard for tax information transparency,
having signed tax information exchange agreements with 14 countries, including the US, UK and
France.
Singapore anti-money laundering changes come into force
2 December 2009, new requirements in respect of the prevention of money laundering and countering
the financing of terrorism, issued as a series of notices under the Monetary Authority of Singapore
Act, came into force. The Monetary Authority of Singapore (MAS) issued a consultation paper on the
proposed revisions in May.
The notices amend existing requirements on enhanced customer due diligence on foreign politically
exposed persons (PEPs) with a view to covering “a natural person who is or has been entrusted with
prominent public functions whether in Singapore or a foreign country”. The notices apply to: banks;
merchant banks; finance companies; capital market intermediaries; financial advisers; life insurers;
trust companies; holders of money-changer’s licence and remittance licence; and, holders of stored
value facilities.
“Prominent public functions” for the above purpose includes the roles held by a head of state, a head
of government, government ministers, senior civil servants, senior judicial or military officials, senior
executives of state owned corporations, and senior political party officials. The new requirement
comes into effect.
Additional changes that also came into effect are designed to spell out explicitly that simplified
procedures are not acceptable whenever there is suspicion of money laundering or terrorist financing;
and that the obligation is on the financial institution to immediately collect the necessary information
concerning elements of the customer due diligence process from the third party. These changes apply
to most of the financial institutions and functionaries mentioned in the preceding paragraph.
A statement adopted at the recently concluded 17th APEC Economic Leaders’ Meeting, held in
Singapore on 14-15 November 2009, referred to the financing of terrorism and stated that:
“We note the importance of international cooperation in combating and dismantling the threat of
cross-border criminal networks and its linkages with corruption nodes. We encourage member
economies, where applicable, to ratify the UN Convention against Corruption and UN Convention
against Transnational Organised Crime and take measures to implement their provisions, in
accordance with economies’ legal frameworks.”
US voluntary disclosure programme attracts 15,000 taxpayers
17 November 2009, IRS Commissioner Douglas Shulman said participation in the Internal Revenue
Service amnesty programme was "unprecedented", with almost 15,000 US taxpayers voluntarily
disclosing previously undeclared foreign holdings.
Of 14,700 newly disclosed accounts, many involved bank accounts in Switzerland and Europe, but
assets were hidden in more than 70 countries. In particular, there was a "significant influx in accounts
with holdings in the Far East”. The IRS has said recently it is focusing on funds flowing out of Europe
and into Asia, and is opening a new office in Beijing.
The US and Swiss governments also released the criteria used to select the 4,450 accounts that
Swiss bank UBS must provide to the IRS. Details of the agreement, reached on 19 August 2009, had
remained secret to allow the US to extract the maximum returns from its offshore amnesty
programme.
The Swiss Justice Department said it would hand over the names of wealthy US clients of UBS with
unreported accounts holding more than SFr1 million, at any time since 2001, where there was a
reasonable suspicion of tax fraud.
Other criteria included:
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
US clients who indirectly owned accounts that generated unreported income above
SFr100,000 in any of the three years in the period 1998-2008;

Clients who held more than SFr250,000 and who are shown to have committed "fraudulent
conduct". This could mean holding accounts through trusts, shell companies or foundations,
or failing to disclose US citizenship when opening the account. This criterion applies to about
250 of the accounts, according to the Swiss authorities.

Clients who used secure mobile phones or debit cards to move funds secretly.
There will be no disclosure of US clients who have lived outside the US for a long time and who hold
Swiss accounts in their own names – although the IRS said it still regards such people as liable for tax
penalties.
The Swiss Justice Ministry said UBS has already handed over details of 900 accounts to the Swiss
tax authorities. The first 500 UBS account holders were to be officially informed that they are to be
identified to the IRS by the end of November.
Jean-Pierre Blackburn, Canadian Minister of National Revenue, announced on 2 December 2009 that
90 Canadian residents had voluntarily come forward in the past year to disclose hidden offshore
accounts in Swiss bank UBS.
The Canada Revenue Agency (CRA) has so far reached settlement agreements with 41 residents
who disclosed a total of C$15.3 million in previously unreported income and was still in talks with UBS
to obtain a list of other Canadian taxpayers holding secret offshore accounts with the bank, similar to
the deal agreed in August by the US.
"It's not easy," Blackburn told the Financial Post. "If we realise that it won't be possible to obtain it, if
they just try to obtain time, we will go [to] court to obtain that list."
Since 1 January 2009, a total of 6,798 Canadians – including the 90 with UBS accounts – had
voluntarily disclosed hidden assets and offshore accounts, revealing C$1.66 billion in unreported
income.
UK publishes review of offshore financial centres
29 October 2009, Britain's offshore financial centres must meet clear standards on financial regulation
and tax information exchange, according to Michael Foot's independent review on the sector.
Foot, the former managing director of the UK Financial Services Authority, published his review of
British Crown Dependencies and Overseas Territories with significant financial sectors, which looked
at the future sustainability of these jurisdictions and set out a series of standards to which offshore
centres must adhere.
He did not spell out the kind of sanctions that might be imposed, but said London needed to “offer
both carrots and sticks” to a group in which some members were performing well but others had “a lot
of work to do”.
An accompanying report on corporate tax avoidance – prepared by Deloitte, the accounting firm, and
published on the same day – calculated said that UK companies avoided up to £2 billion of taxes
each year through offshore jurisdictions and other means, a much lower number than some previous
estimates. The report analysed the financial results for last year for 50 of Britain’s biggest businesses
The 93-page Foot report stated that British offshore financial centres must ensure they meet
international standards on tax information exchange, financial regulation, anti-money laundering and
financing of terrorism.
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Foot said that while the majority of the centres surveyed – Jersey, Guernsey, the Isle of Man,
Gibraltar, Bermuda, the Cayman Islands, the British Virgin Islands, Anguilla and the Turks and Caicos
Islands – had a “good story to tell”, none could afford to be complacent.
He said he shared the concerns that offshore businesses were too secretive, but pointed to similar
problems in rich countries, most significantly the US state of Delaware.
The report noted that financial intelligence units that had only single-digit numbers of staff oversaw
huge financial industries such as the Cayman hedge fund sector. Bermuda, the British Virgin Islands,
Anguilla and the Turks and Caicos Islands needed to do more to tackle financial crime, Foot said,
while Gibraltar and the Isle of Man had to improve compliance with international anti-money
laundering norms.
More controversially, he said, that tax havens must also ensure that they put public finances on a
firmer footing by diversifying their tax bases, making them less vulnerable to events like the current
financial crisis. “It’s in their own hands,” Foot said. “There are some tough calls for some of these
jurisdictions.”
The report also said the UK government should discuss its relationship and future responsibilities
towards these jurisdictions, including what financial assistance it will provide in times of crisis, and
how their risks exposures will be managed.
Stephen Timms, financial secretary to the UK Treasury, said: "This report sends a strong signal to
overseas financial centres that they must ensure that they have the correct regulation and supervision
in place, while also ensuring their tax bases are more diverse and sustainable to withstand economic
shocks – this is essential to their long term stability."
Switzerland freezes tax treaty negotiations with Italy
29 October 2009, Switzerland announced that it had frozen its tax treaty negotiations with Italy in
response to an Italian crackdown on tax evasion. The move followed threats by Giulio Tremonti,
Italy’s finance minister, to “dry out” Lugano, Switzerland’s third financial centre after Zurich and
Geneva, and the traditional destination for Italian funds.
“The agreement was ready to be signed on our side,” said Hans-Rudolf Merz, finance minister and
head of state this year under Switzerland’s rotating presidency.
The Italian foreign minister said it would be counter-productive for Switzerland to retaliate after Italian
police raided local branches of Swiss banks. Switzerland summoned the Italian ambassador to
demand an explanation after officers of Italy's Guardia di Finanza and tax inspectors from the Agenzia
delle Entrate raided, on 27 October, 76 Italian branches of Swiss banks and Italian banks with Swiss
links in north Italy and around San Marino.
Italy said the operation was aimed at ensuring all relevant data was being provided to tax authorities
to assist a crackdown on widespread tax evasion.
Relations between the two countries have soured since Italy announced a generous tax amnesty
aimed at recovering billions of Euros illicitly hidden by Italians in Switzerland and other jurisdictions.
The Italian government published a list of 36 countries – deemed to be cooperating with tax
authorities by providing information – where funds can be declared and a one-off penalty paid without
having to repatriate them. Switzerland was not included. Italy's tax authorities estimate that Italians
have Euro125 billion in Switzerland.
Singapore hopes to break US tax treaty deadlock
19 October 2009, Singapore Minister for Finance Tharman Shanmugaratnam said Singapore expects
to hold exploratory talks next year with the US regarding a comprehensive income tax treaty, which
may lead to a breakthrough in the 22-year deadlock between the two countries.
In July, John Harrington, international tax counsel for the US Treasury department, said that
historically, there had been three issues on which the US could not compromise in tax treaty
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negotiations. "The country had to be willing to exchange information, had to be willing to agree on a
comprehensive limitation on benefits provision, and can't insist on tax sparing," he said. "So to the
extent countries across the board are meeting the OECD information exchange standard, that does
open the door for some group of countries with whom that was an obstacle. That puts some potential
countries back on the table."
China signs new tax treaty with Belgium
7 October 2009, Belgium and China signed an income tax treaty and protocol in Brussels. They will
enter into force 30 days after the countries exchange instruments of ratification. Once in force, it will
replace the 1985 Belgium-P.R.C. tax treaty.
The treaty provides that dividends are taxable at a maximum rate of 5% if the beneficial owner is a
company (other than a partnership) that before the moment of payment of the dividends has directly
held, for an uninterrupted period of at least 12 months, at least 25% of the dividend payer's capital. In
all other cases, dividends are taxable at a maximum rate of 10%. Interest may be taxed at a
maximum rate of 10% and royalties are subject to a maximum rate of 7%.
Alhamrani case in Jersey ends in settlement
16 September 2009, the Jersey Royal Court made orders by consent to discontinue 16 actions
concerning the Jersey trusts of the Alhamrani family and bringing to an end the longest and costliest
case in Jersey's judicial history. The move followed an out-of-court settlement, details of which were
not disclosed.
Five members of the Saudi Arabian Alhamrani family originally filed suit against the JPMorgan
(Jersey) Trust Co and others, seeking compensation for losses they claimed totalled more than
US$120 million in value. The action centred around two trusts that were set up in Jersey in 1998 to
hold most of the Alhamrani family's foreign investments. All the defendants denied the charges, which
included breach of trust, conflict of interest, gross negligence and lack of communication between the
trustees and beneficiaries.
Legal proceedings have been ongoing in Jersey since 2003, with numerous appeals to the Jersey
Court of Appeal and the Privy Council. The first stage of the hearing commenced in November 2008
in a temporary courtroom set up in a Jersey hotel. By August 2009, when settlement was finally
achieved, the plaintiffs' witnesses had been heard and the defendants' witnesses were in the course
of being cross-examined
EC requests France to abolish tax discrimination on foreign donations
20 November 2009, the European Commission formally requested France to abolish tax
discrimination against foreign public interest and not-for-profit bodies. It has sent the French
authorities a “reasoned opinion”, which is the second stage of the infringement procedure laid down in
Article 226 of the EC Treaty. If France does not agree to amend its legislation within the two months
following the Commission's letter, the Commission may decide to refer the matter to the European
Court of Justice.
The French tax legislation currently in force lays down a system of exemptions for public bodies,
public‑interest bodies based in France and not-for-profit bodies carrying out their activities in France
from dividend tax and transfer duties on donations and bequests. By contrast, similar bodies
established or active in the other EU and EEA Member States are subject to tax at 60% of the value
of the donations or bequests received. France also grants tax deductions to donors only for donations
or contributions paid to not-for-profit bodies carrying out their activity in France.
Qatar brings in 10% flat corporate tax rate
17 November 2009, Crown Prince Sheikh Tamim Bin Hamad Al Thani issued Law No. 21 of 2009 to
lower the tax rate on foreign companies to a flat rate of 10% as of 1 January 2010. Previously Qatar
imposed corporate tax on foreign-owned companies at a progressive rate ranging from 10% to 35%.
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Several Gulf States have cut corporate tax rates in recent years, including Saudi Arabia, Kuwait and
Oman. These states face strong competition from the United Arab Emirates and Bahrain, which both
operate a 0% corporate tax rate.
UK Court of Appeal remits pilot residence case to First-Tier Tribunal
1 November 2009, the Court of Appeal found that the Special Commissioner had misdirected herself
in law in the case of Lyle Dicker Grace v Revenue & Customs Commissioners when she originally
heard the case, and this would have affected her decision regarding his residence. It ruled that the
case should be remitted to the Tax Tribunal for reconsideration in the light of the areas where the
Court of Appeal considered the Special Commissioner was misdirected.
Grace was a pilot domiciled in South Africa but who had been living in the UK for some time. He had
come to the UK in 1986 to qualify as a commercial pilot and was then employed by British
Caledonian. In 1997 his marriage was dissolved and he returned to South Africa, setting up home in
Cape Town while continuing his employment with the airline. He retained his house near Gatwick
Airport, which he used in order to rest before or after carrying out his flying duties.
HMRC argued that he had not really left the UK. There had been no distinct break and he remained
resident here. Grace said that in August 1997 he left the country to live outside the UK permanently
and thereafter was not resident in the UK. He had moved the centre of his life to South Africa and he
had kept his visits to the UK to a minimum. In the following three years he spent 41, 71 and 70 days in
the UK, ignoring days of arrival and departure. The Special Commissioner decided that he was not
resident in the UK.
On appeal, the High Court decided that he was resident after all. The judge said that his presence in
the UK to perform duties under a permanent contract of employment was not casual or transitory and
his presence simply could not be described as a temporary purpose. This was not a conclusive point
and although the issue of distinct break was raised, the judge did not feel it profitable to deal with the
point and it was not a basis for his decision. The only error of law made by the Special Commissioner
was that she should not have concluded that because Grace had a permanent dwelling and a settled
place of abode in South Africa, he could not have had one in the UK. She misdirected herself
regarding the nature and quality of Grace’s presence in the UK.
The Court of Appeal did not feel that a finding of UK residence was the only possible conclusion
based on the facts found by the Special Commissioner so it would not be right to pre-empt a decision.
It said: “It would be wrong to treat the appellant’s presence for the purposes of his employment as a
factor which necessarily shows his residence. It may well be a strong pointer in that direction but…I
do not think it would be right to regard Mr Grace’s residence in this country in order to perform the
duties of his employment as a trump card which of itself concludes the issue in favour of residence.”
It therefore allowed the appeal by Grace, but only so that the issue of residence could be remitted to
the First-tier Tribunal for reconsideration.
EC refers the UK to ECJ over implementation of M&S ruling
8 October 2009, the European Commission said it is to refer the UK to the European Court of Justice
(ECJ) for improper implementation of the ECJ ruling in Marks & Spencer on cross-border loss relief.
The relevant UK legislation imposes conditions on cross-border group loss relief that make it virtually
impossible for taxpayers to benefit from such relief. The relevant provisions are incompatible with the
right of establishment provided for in Articles 43 and 48 of the EC Treaty and Articles 31 and 34 of the
EEA Agreement.
In the Marks & Spencer ruling (Case C-446/03 of 13 December 2005) the Court ruled that it was
disproportionate to prohibit a UK parent company from deducting the losses of its non-resident
subsidiary, when the latter had exhausted all possibilities for relief in its state of establishment.
Following this ruling, the UK should in principle be granting relief for definitive losses of a subsidiary
established in another Member State.
But although the legislation has been amended, the Commission said the UK continues to impose
conditions on cross-border group loss relief that in practice make it virtually impossible for the
taxpayer to benefit from such relief in accordance with the judgment. Of particular concern is: the
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unnecessarily restrictive interpretation of the condition that there should be no possibility of use of the
loss in the State of the subsidiary; the condition that the parent company should demonstrate that the
condition that there should be no possibility of use of the loss in the State of the subsidiary is met as
from immediately after the end of the accounting period in which the loss arises; and that the
legislation states that it applies only to losses incurred after 1 April 2006.
According to the Commission, these conditions render the UK legislation incompatible with the
freedom of establishment, guaranteed by Articles 43 and 48 of the EC Treaty and Articles 31 and 34
of the EEA Agreement.
UK Court rejects service of "Chabra" order on foreign domiciled party
24 September 2009, the UK High Court held that it did not have jurisdiction to serve a “Chabra” order
on foreign domiciled third parties ancillary to a freezing injunction already granted by the Court
against the first defendant.
In the case of Dario Belletti & ors v Pierantonio Morici & ors [2009] EWHC 2316, the claimants were
Italian professionals and businessmen who claimed to have been the victims of a fraud perpetrated by
the first defendant. Claims were brought against the first defendant in Italy, in the form of civil
proceedings within criminal proceedings. In December 2007, the Milan Criminal Court found the first
defendant guilty of aggravated fraud and awarded the claimants some €4 million, plus costs.
On 25 May 2006, the claimants had obtained a worldwide freezing injunction against the first
defendant under section 25 of the Civil Jurisdiction and Judgments Act, which permits the English
court to give interim relief in support of substantive proceedings elsewhere in the EC. The first
defendant infringed the injunction by concealing funds in Monaco.
His Italian-domiciled parents, the fifth and sixth defendants, had assisted the first defendant with the
transfers and, on 8 May 2009, the claimants obtained without notice orders restraining them from
dealing with or disposing of any assets of the first defendant. The order also ordered delivery up of
assets and information relating to them – a “Chabra” order, so named after the decision in TSB
Private Bank International v Chabra. The fifth and sixth defendants failed to comply and applied to
have the order set aside on the ground of want of jurisdiction.
Mr Justice Flaux held that the application to set aside the order should be heard, despite the fifth and
sixth defendants’ contempt of court, because the issue was whether the court had jurisdiction to make
the order.
Secondly, there was no jurisdiction to make a Chabra order against them because the Civil Procedure
Rules, Practice Direction 6, para 3.1, which permits service on a person who is a necessary or proper
party, applied only where the substantive dispute was before the English courts. Even if that was
wrong, then there was no dispute between the claimants and the fifth and sixth defendants.
It was not expedient to make a Chabra order under section 25 of the 1982 Act because there was no
connection between the fifth and sixth defendants and England, and the English court had no power
to enforce any order against them.
Canadian tax court rules on residency of trusts
10 September 2009, the Tax Court of Canada held that, where a statutory rule does not apply, the
residence of trusts should be determined using the test of central management and control (CMAC).
In The Garron Family Trust v The Queen (2009 TCC 450), the trustee of the trust was a corporation
incorporated, licensed and resident in Barbados. The beneficiaries were Myron Garron, a Canadian
resident, his wife and children. The trust realised a $450 million capital gain on the sale of a Canadian
corporation and claimed an exemption under Article XIV(4) of the Canada-Barbados tax treaty, which
provides that gains from the alienation of property is only taxable in the state of which the alienator is
a resident.
The issue was whether the tax treaty applied to exempt the trust from Canadian tax on the basis that
it was resident in Barbados, where the gains would be non-taxable under Barbadian law, and not
resident in Canada.
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The Court rejected the argument, based on the earlier Canadian decision in Thibodeau, that
residence of a trust should be determined based on the residence of the trustee who manages the
trust or controls the trust property. It acknowledged that there were significant differences between the
legal nature of a corporation and a trust, but concluded that, in the interests of certainty, predictability
and fairness, the test of CMAC established for corporations should also apply to trusts, with such
modifications as were appropriate.
The court held that the CMAC of the trust was located in Canada with Myron Garron because he
made the substantive decisions respecting the trust, either directly or indirectly through his advisers.
In the UK case of Wood v Holden, no one directed the decisions made by the managing director of
the non-resident corporation. The trustee in Garron, however, assumed a limited role in the
management of the trust. Accordingly, the trust was subject to Canadian tax because it was resident
in Canada under general principles.
UK Court of Appeal holds corporate schemes of arrangement cannot deprive beneficiaries of
trust assets
6 November 2009, the Court of Appeal held that the court had no jurisdiction under Pt 26 of the
Companies Act 2006 to sanction a scheme of arrangement which extended to the release of rights
over property held by the company under a trust since it did not constitute a compromise or
arrangement between the company and its creditors within s 899 of the 2006 Act.
In re Lehman Brothers International (Europe) (in administration) (No 2) [2009] EWCA Civ 1161,
dismissed an appeal by the administrators of Lehman Brothers International (Europe) against the
decision of Blackburne J on 21 August 2009 that the court had no jurisdiction to sanction a scheme of
arrangement proposed by the administrators between the company and certain former clients with
proprietary interests in the assets held by or on behalf of the company.
Patten LJ said that the question was one of statutory construction. The current provisions had
remained essentially unchanged since they first appeared in the 1870 Act and there was nothing to
suggest that Parliament had recently intended to give them any different or wider meaning. Given that
“creditor” was not defined in the legislation, it was inconceivable that Parliament should have used the
word in the 2006 Act in any but its literal sense. An arrangement between a company and its creditors
had to mean an arrangement that dealt with their rights inter se as debtor and creditor. That
formulation did not prevent the inclusion in the scheme of the release of contractual rights or rights of
action against related third parties necessary in order to give effect to the arrangement proposed for
the disposition of rights and liabilities of the company to its own creditors. But it did exclude from the
jurisdiction rights of creditors over their own property that was held by the company for their benefit,
as opposed to their rights in the company’s own property held by them merely as security.
Parliament could not have intended to allow creditors to be compelled to give up not merely those
contractual rights but also their entitlement to their own property held by the company on their behalf.
A proprietary claim to trust property was not a claim in respect of a debt or liability of the company.
The beneficiary was entitled in equity to the property in the company’s hands and was asserting its
own proprietary rights over it against the trustee. The trust element in these arrangements could not
be merged in some way into the general contractual framework and treated merely as ancillary when
considering the limits of the scheme jurisdiction, nor did Parliament ever intend to deal with it in that
manner.
UK High Court refuses jurisdictional challenge to service of proceedings
24 September 2009, the UK High Court held that although a defendant worked and resided in Kenya
and spent no more than a small fraction of his time in England, a house he owned in London, which
was occupied by his wife and family, was his "usual or last known residence" for the purpose of
serving proceedings upon him.
In Relfo Ltd (In Liquidation) v Bhimji Velji Jadva Varsani (2009), the defendant applied to set aside
service upon him of proceedings brought by the claimant or, in the alternative, to stay the proceedings
pursuant to res judicata. The claimant sued the defendant in Singapore, alleging that, just prior to the
claimant going into liquidation one of the directors paid a large sum to the defendant in breach of
fiduciary duty and that the defendant was liable to account for that sum on the basis of knowing
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receipt. The claim was dismissed in the Singaporean courts on the basis that it amounted to an
indirect enforcement of the revenue laws in the UK. The claimant issued fresh proceedings in
England.
The claim form was served on the defendant’s father at an address in London. The defendant
challenged the service on the basis that the London address was not his “usual or last known
residence” as he worked and resided in Kenya and spent only a small fraction of time in England and,
even if the proceedings were correctly served, res judicata should prevent the claimant bringing an
action which had already been dismissed in Singapore.
It was held that the defendant’s house in England was as a home where his immediate and wider
family lived. The term “usual residence” meant that which was in ordinary use. On the evidence, the
claimant had a better case in establishing that the English address was a usual residence of the
defendant than the defendant had of establishing the contrary. If a defendant could have more than
one residence, he could have more than one “last known” residence. The defendant’s application
failed in this respect. The doctrine of res judicata did not apply because the merits of the cause of
action by the claimant against the defendant had not been finally disposed of in the courts in
Singapore, which had declined to use their jurisdiction rather than decide the claim on its merits.
Bahamian Parliament amends information exchange law
15 October 2009, the Bahamian Parliament approved legislation to amend the Criminal Justice
(International Cooperation) Act 2000 to allows for the exchange of tax information under tax
information exchange agreements (TIEAs) and tax treaties that are based on the OECD model
convention.
The Bahamas had previously signed only a single TIEA – with the US in 2002 – but, as of 31
December 2009, it had signed 9 further TIEAs (UK, China, France, New Zealand, Argentina, Belgium,
the Netherlands, Monaco and San Marino), successfully concluded TIEA negotiations with 14 more
countries and was confident it would meet the G-20/OECD’s March 2010 deadline of a minimum of 12
signed TIEAs.
New law simplifies the migration of offshore funds to Ireland
18 December 2009, the new Irish Companies (Miscellaneous Provisions) Bill 2009 came into force,
which facilitates the migration of offshore funds to Ireland by permitting non-Irish corporate funds to
register as Irish companies and continue their existence as funds authorised by the Irish Financial
Regulator.
The new legislation will benefit fund promoters looking to take advantage of the distribution
opportunities afforded by the UCITS Directive and may also provide benefits under introduction of the
proposed Alternative Investment Fund Managers Directive that, as it stands, will only grant a EU
marketing passport to EU-domiciled funds.
In his budget speech of 9 December 2009, Minister for Finance Brian Lenihan said the 12.5%
corporation tax rate "will not change" and that further measures would be introduced to facilitate
Ireland becoming the "European hub of the international funds industry following recent European
legislative changes".
HKSE approves listing of BVI companies
15 December 2009, the Hong Kong Stock Exchange announced that it would allow companies
incorporated in the British Virgin Islands to list in Hong Kong. The move will simplify the listing
process and provides a cost-efficient exit strategy for investors in BVI-incorporated companies.
Several other major exchanges worldwide, including NASDAQ and NYSE in the US, AIM in London
and SGX in Singapore, already permit BVI companies to list. By jurisdiction, BVI companies provide
the second largest source of foreign investment in China, at US$5.8 billion in the year to June 2009.
BVI Financial Services Commission managing director Robert Mathavious said: "This is long
something that the BVI authorities and industry practitioners have hoped would be possible. It
emphasises the quality of BVI companies and extends their value to users.”
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Cayman Grand Court introduces Financial Services Division
1 November 2009, the business of the Cayman Islands Grand Court was reconfigured as four
specialist divisions – Financial Services, Civil, Admiralty and Family. The Financial Services Division
(FSD) will be housed in purpose-built court premises and will also have its own dedicated Registrar
and support staff.
New procedural rules have been introduced to expedite proceedings in the FSD, including the
assignment, at the outset, of an FSD judge to preside over interlocutory hearings and the trial. The
majority of proceedings relating to investment funds, partnerships, trusts, insurance, corporate
insolvencies/rescues/reorganisations, negligence by service providers and regulatory laws will be
allocated to the FSD. Transitional arrangements provide that existing proceedings relating to these
matters will also be transferred to it.
On 24 November, three new judges – former English High Court judge Sir Peter Cresswell, Andrew
Jones QC and Angus Foster – were appointed to the FSD.
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