Australia, beneficial owner, beneficial ownership of information, brissbane, FATF, foundations, G20, g20 final communique, g20brisbane, koala, koala bears, Obama, OECD Global Forum, Trusts, ultimate ownership and control, Vladimir Putin
(Aussie PM Tom Abbott and US President Obama)
Don’t expect much by way of surprises because the October 22-24 Financial Action Task Force (FATF) meeting and the OECD Global Forum on Transparency and Exchange of Tax Information Berlin plenary, also held this past October, provided some useful sign-posts to what G20Brisbane would be minded to agree to.
Importantly, now that one of its members, the United Kingdom, has finally gotten rid of ‘bearer shares’- almost twenty years after the OECD called on tax havens to do so – the G20 High Level Principles on Beneficial Ownership Transparency inludes the expected ‘beefed up’ language in this regard.
A conspicuous though not unexpected absence is agreement on public registries of beneficial ownership with consensus reached only on such registries being made accessible to law enforcement, tax authourities, finanical intelligence units and their international counterparts.
The requirement to provide ultimate beneficial owner information has also been extended, if somewhat more tentatively, to trusts and foundations. See my earlier predictions on this here.
Here now are the ten (10) principles G20Brisbane have agreed:
- Countries should have a definition of ‘beneficial owner’ that captures the natural person(s) who ultimately owns or controls the legal person or legal arrangement.
- Countries should assess the existing and emerging risks associated with different types of legal persons and arrangements, which should be addressed from a domestic and international perspective.Appropriate information on the results of the risk assessments should be shared with competent authorities financial institutions and designated non financial businesses and professions (DNFBPs) and, as appropriate,other jurisdictions. Effective and proportionate measures should be taken to mitigate the risks identified.
- Countries should identify high risk sectors and enhanced due diligence could be appropriately considered for such sectors. Countries should ensure that legal persons maintain beneficial ownership information onshore and that information is adequate, accurate, and current.
- Countries should ensure that competent authorities (including law enforcement and prosecutorial authorities, supervisory authorities, tax authorities and financial intelligence units) have timely access to adequate, accurate and current information regarding the beneficial ownership of legal persons. Countries could implement this, for example, through central registries of beneficial ownership of legal persons or other appropriate mechanisms.
- Countries should ensure that trustees of express trusts maintainadequate, accurate and current beneficial ownership information, including information of settlors, the protector (if any) trustees and beneficiaries. These measures should also apply to other legal arrangements with a structure or function similar to express trusts.
- Countries should ensure that competent authorities (including law enforcement and prosecutorial authorities, supervisory authorities, tax authorities and financial intelligence units) have timely access to adequate, accurate and current information regarding the beneficial ownership of legal arrangements.
- Countries should require financial institutions and DNFBPs, including trust and company service providers, to identify and take reasonable measures, including taking into account country risks, to verify the beneficial ownership of their customers. Countries should consider facilitating access to beneficial ownership information by financial institutions and DNFBPs. Countries should ensure effective supervision of these obligations, including the establishment and enforcement of effective, proportionate and dissuasive sanctions for non-compliance.
- Countries should ensure that their national authorities cooperate effectively domestically and internationally. Countries should also ensure that their competent authorities participate in information exchange on beneficial ownership with international counterparts in a timely and effective manner.
- Countries should support G20 efforts to combat tax evasion by ensuring that beneficial ownership information is accessible to their tax authorities and can be exchanged with relevant international counterparts in a timely and effective manner.
- Countries should address the misuse of legal persons and legal arrangements which may obstruct transparency, including: a.prohibiting the ongoing use of bearer shares and the creation of new bearer shares, or taking other effective measures to ensure that bearer shares and bearer share warrants are not misused; and b.taking effective measures to ensure that legal persons which allow nominee shareholders or nominee directors are not misused.
The OECD Common Reporting Standard (CRS) which is designed to give effect to the new Automatic Exchange of Information (AEIO) standard is the latest addition to global co-ordination efforts to counter tax evasion; and builds on other information sharing mechanisms found in tax treaties, Tax Information Exchange Agreements (TIEAs), the OECD Multilateral Convention on Mutual Assistance in Tax Matters, FATCA and the EU Savings Directive.
It applies not only to income earned by corporate monoliths but also to individuals.
Since it is meant to implement the OECD AEIO standard it is broader in scope than information exchanges contemplated under FATCA.
Planned or existing FATCA compliance machinery in the private and public sector will not be sufficient to satisfy the CRS. What will be needed is a flexible approach which will meet the dictates of the existence compliance models while being capable of quickly and cost-effectively incorporating the expected changes, additions and modifications to global information sharing which will occur in the short to medium term.
Mauritius has just joined a list of 46 countries including the UK Overseas Territories and Crown Dependencies who have indicated that they will adopt the CRS by the 31st of December 2015. The list does not include the United States.
Banks are not the only entities who must comply with the CRS but the term financial institutions includes some entities that are excluded from FATCA Model 1 IGAs such as financial institutions with a local client base, local banks, certain retirement funds, financial institutions with a low-value accounts, sponsored investment vehicles, some investment advisors and investment managers and specified investment funds.
New ‘on-boarding’ procedures adopted by financial institutions will see some clients being dropped; and others will find it increasingly difficult to find a bank that will want to take them on as clients.
Not all financial institutions will survive the implementation of the CRS. The cost of compliance and the risks associated with non-compliance will be too high for some.
In like manner not all International Financial Centres will survive the global drive towards integrated mechanisms for information sharing.
No-one can be assured of confidentiality of the information transmitted. Already some some reports suggest that countries like the US will reserve the right not to exchange information if the confidentiality of their citizens cannot be adequately safeguarded by the state requesting the information.
What will happen to the mountain of information identified, collated, collected, verified, assimilated, transmitted and stored has to be determined at the firm level and the country level.
The IRS has announced that ‘FTCA-phishing’ has already stated; it will only be a matter of time before similar problems are faced under the the CRS.
The CRS has the potential to accelerate the purging of financial and quasi-financial institutions. For many OFCs -sooner rather than later- a decision about whether or not to continue to be involved in the competitive provision of financial services will have to be made as the cost of CRS implementation, compliance and monitoring; coupled with the emerging elements of the BEPS project; and pre-existing obligations under the transparency and information exchange protocols fast develop into a complex web of rights, roles, and responsibilities, the beginning the ending of which cannot, at this stage be determined with any certitude.
(Swiss Finance Minister: Image courtesy Reuters)
Proposed modifications to recommendations by the Financial Action Task Force (FATF) by Swiss law-makers have fuelled fears of Switzerland’s re-branding as ‘uncooperative’ by the OECD.
The plan that has raised the ire of the Swiss Finance Minister would see an adjustment in the threshold which would trigger the characterisation of a serious tax offence as ‘tax evasion’.
To be fair, recent experience shows that Minister Eveline Wider-Schlumpf is right to be concerned.
Though referred to as ‘Recommendations’ the 40 +9 rules FATF are recognised as the international standard for
- combating money laundering;
- financing of terrorism; and
- the proliferation of weapons of mass destruction.
Importantly too, according to the FATF “they form the basis for a global response to these threats to the integrity of the financial system and help ensure a level playing field.”
As many international and offshore financial centres already know, such co-ordinated activity includes the ‘blacklisting’ of a country as ‘uncooperative‘ for failure to apply the standard to the letter and in the prescribed time-frame.
As part of the obligations of the FATF’s thirty-four (34) member jurisdictions Switzerland must provide biennial up-dates on its progress in applying the Recommendations.
Switzerland’s next scheduled onsite visit by an FATF delegation is in June or July next year.
IMF Managing Director, Christine Lagarde
If you’re more than a bit surprised to read about the IMF’s new found interest in the global debate on tax evasion, aggressive tax planning, fair taxation and excessive profits shifting, that probably means you haven’t read this.
This month’s new public consultation launched by the IMF on March 3, seeks the public’s opinion on:
- the economic, financial and taxation effects that international double taxation agreements have on developing nations;
- the technical aspects of profit shifting carried out by multinational corporations, and
- the international push for greater disclosure on the source of profits earned by multinationals.
At the launch, Michael Keen, Deputy Director in the IMF’s Fiscal Affairs Department (FAD) observed that “…it is widely recognized that the current international tax architecture, designed for a very different world of a century or so ago, is under considerable strain,” and “…with that in mind, the IMF work will consider both the operation of the current architecture and more fundamental reforms that have been proposed by academics, civil society, and others.”
Angel Gurria, Secretary-General, OECD
Having last year confirmed that the OECD remains well placed to do the technical work in this area, and defined the Fund’s own comparative expertise in international tax issues based on “its unparalleled technical assistance experience on these issues, recognized expertise in their economic analysis, and the near-universal Fund membership; many will be keen to the will read what conclusions the FAD draws from its analysis of the input from governments, academic researchers, think tanks, and the private sector.
(IMF Chief Christine Lagarde)
Speaking at the end of the G20’s first meeting of 2014, Christine Lagarde, former French Finance Minister and now IMF chief backed OECD plans which would allow countries to ignore inter-company contracts aimed at channelling profits into tax havens.
She acknowledged that “governments have to invent new concepts just as quickly and as well as those companies are inventing their optimization schemes.”
(OECD Secretary-General, Angel Gurria)
According to OECD Secretary-General Angel Guerria, the proposed sweeping international tax reforms are not targeting multinationals but insisted that though they have a legitimate expectation of not being exposed to double taxation in the countries where they operate, “they have to contribute; their fair share has to be put on the table.”
(Australian PM Tony Abbott)
Also clear from the post-meeting briefings is that Aussie PM, Tony Abbott, is staking his country’s credibility on the successful implementation of an aggressive plan of international tax reform.
This should not come as a surprise since Australia is one of the most heavily reliant countries in the OECD on corporate tax receipts.
So fixed on the tax reform agenda is Australia, that,in response to a further comment from Lagarde that climate change should also be a G20 priority, PM Abbott warned against pursuing a ‘cluttered’ agenda.
Finance Minister Flaherty’s Federal budget predicts the current deficit in finances to continue until 2016 when he expects a surplus of 6.4 billion.
Like his counterparts around the world his February 11th budgetary statement focused on job creation, innovation and infrastructure.
As a member of the G8, G20 and the OECD, Flaherty also addressed international tax reform in the areas of tax transparency and the prevention of tax base erosion and profits shifting (BEPS).
It is for this reason that Canada’s 2014 budget merits more than a passing interest by treaty-based offshore financial centres (OFCs).
In this regard, Flaherty has called for comments from stakeholders on a series of questions designed to inform a national action plan to combat tax avoidance, including:
- What are the impacts of international tax planning by multinational enterprises on other participants in the Canadian economy?
- Which of the international corporate income tax and sales tax issues identified in the BEPS Action Plan should be considered the highest priorities for examination and potential action by the government?
- Are there other corporate income tax or sales tax issues related to improving international tax integrity that should be of concern to the government?
- What considerations should guide the government in determining the appropriate approach to take in responding to the issues identified – either in general or with respect to particular issues?
- Would concerns about maintaining Canada’s competitive tax system be alleviated by coordinated multilateral implementation of base protection measures?
- What actions should the government take to ensure the effective collection of sales tax on e-commerce sales to residents of Canada by foreign-based vendors?
Following submissions on treaty shopping consultation paper,the budget confirmed that the government now believes that a treaty-based approach would not be as effective as a domestic law rule.
As a result the budget invites comment on what the general outline of such a domestic rule should look like.
Main Purpose Test
Minister Flaherty also confirmed that Canada has opted to use a “main purpose” approach to its treaty shopping rule, rather than the specific “limitation on benefits” approach favoured by the U.S in its treaties.
Under such a provision, a benefit would not be provided under a tax treaty to a person in respect of an amount of income, profit or gain if it is reasonable to conclude that one of the main purposes for undertaking a transaction – or a transaction that is part of a series of transactions or events – that results in the benefit, was for the person to obtain the benefit.
Presumption of ‘Conduit’
Furthermore, in the absence of proof to the contrary, it will be presumed, that one of the main purposes for undertaking a transaction was to obtain a benefit under a tax treaty if the relevant treaty income is primarily used to pay, distribute or otherwise transfer an amount to another person that would not have been entitled to an equivalent, or more favourable benefit, had the other person received the relevant treaty income directly.
Safe Harbour Presumption
Under a safe harbour presumption, and subject to the conduit presumption, it would be presumed, in the absence of proof to the contrary, that none of the main purposes for undertaking a transaction was for a person to obtain a benefit under a tax treaty in respect of relevant treaty income if one of the following conditions is met:
- The person carries on an active business in the state with which Canada has concluded the tax treaty and, where the relevant treaty income is derived from a related person in Canada, the active business is substantial compared to the activity carried on in Canada giving rise to the relevant treaty income;
- The person is not controlled, directly or indirectly in any manner whatever, by another person that would not have been entitled to an equivalent or more favourable benefit had the other person received the relevant treaty income directly; or
- The person is a corporation or a trust the shares or units of which are regularly traded on a recognized stock exchange.
The proposed treaty shopping rules would apply to all of Canada’s tax treaties through inclusion in Canada’s Income Tax Convention Interpretation Act.
It is interesting to note that the new anti-treaty-shopping measures announced in this year’s budget are illustrated using the following examples well-known to onshore and offshore financial centres:
- sub-licensing of royalty income through a favourable treaty jurisdiction,
- payment of dividends through a holding company located in a favourable treaty jurisdiction; and
- the continuation of a company into a more favourable treaty jurisdiction prior to the realization of a capital gain.
To the extent that Canada has rejected a treaty-based approach to treaty-shopping in favour of a domestic route, its OFC tax treaty-partners will want to monitor the continuing national dialogue on how transitional relief and coming-into-force measures could apply.
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Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services.
France Attacks US Tech Firms.
U.S and Listed Multinationals in Mexico Tax Avoidance Probe.
Obama Rhetoric on Offshore Profits Criticised.
Ethical Fund Manager Pulls Amazon Investment.
New Pay-Up First Tax Avoidance Plan Criticised.
EU Parliament Urged to Ban Shell Companies
HMRC Gives Cayman Islands Account Holders 30 Days to Disclose Affairs.
Merkel’s Party Treasurer Quits Over Bahamas Trust.
Cayman Islands Gearing Up for OECD BEPS Programme.
OECD Releases New Draft on Transfer-Pricing Documentation.
Americans Renouncing Citizenship up 221%.
Ghana Suspends Windfall Tax; Some Aren’t Happy.
US – New Zealand FATCA Talks Underway.
Delaware LLC Bill Does Nothing for Transparency.
Dubai International Financial Centre Records 14% Growth in Company Formations.
Foreign Affairs Minister Insists Luxembourg Not a Tax Haven.
Luxembourg Won’t Block Expansion of EU Savings Directive
Portugal’s Receipt-Lottery to Fight Tax Evasion.
(Here’s What You Missed Last Week and a Look Ahead.)
Your Summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services
Safe Havens Regain Appeal.
EU’s New Plan for Safer Banks.
Obama Renews Corporate Tax Reforms
Fear Be Dammed: Why It is Time to Invest in Emerging Markets.
State Bank of India Turning to Facebook and Twitter for New Customers.
Nigeria Seals Off 23 Companies for Non-Remmittance of Employee Taxes
A View from Budapest: Tax Dodgers Always Ahead of the Game
Why Where You Trade is Everybody’s Business
HMRC Claims £100M Victory in Tax Evasion Case.
FATCA Fuels IRS Amnesty, But Advocate Calls it Harsh
Slovenia Initials FATCA Agreement with US
UN Says Top Tax Haven in 2013 Received More Investment Than Brazil and India.
How Panama Can Become the ‘Singapore’ of the Americas.
What Hosting the G-20 Means for Australia.
Australia Announces Offshore Banking Reforms.
The Irish Times Examines the Rise of Jersey as an Offshore Giant.
Africa Told to Seize the Opportunities from Global tax Reform.
Hungary Rejects OECD Advise to Tax Wealth.