Fresh Fears of Swiss Blacklisting.

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(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.

The IMF Wants Your Views on Tax Evasion.

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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 Wants Radical Rethink of International Tax Arrangements

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(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.

For more posts on this topic click here and here and here

Canada Advances Global Tax Reform Agenda in 2014 Budget

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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).

Tax Transparency

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?

Treaty-Shopping

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.

In Conclusion

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.

For more on the 2014 Budget click here and here.

For more about Canada and the Global Tax Reform Agenda click here, here, here and here.

franhendy’s OFFSHORE WEEKLY

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newsroundup

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.

franhendy’s OFFSHORE WEEKLY

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newsroundup

(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.

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Australia Sets Out G20 2014 Agenda

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(Australia PM and Chair of G20 Tony Abbott)

Fair and low is how taxes should be administered according to Australian Prime Minister Tony Abbott speaking at this year’s World Economic Forum in Davos.

Abbott’s comments on international tax reform are instructive not only because Australia has been at the vanguard of the international tax debate as Chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes – now chaired by India; but also because Australia now holds leadership of the G20.

The Aussie PM  has re-affirmed that under his stewardship the G20 will continue to continue to “tackle businesses artificially generating profits to chase tax opportunities rather than market ones.”

Echoing the dogma of ‘fair’ taxation now in vogue in the Europe, the United States, India and a growing number of industrialised countries, Abbott is resolute in his mind that “an agreement on the principles needed for taxation to be fair in a globalized economy,” would be  “a big step forward.”

Committed to the OECD Base Erosion and Profits Work Plan,Australia ‘s tenure as G20 Chair will seek acceptance of the principle that “in order for the global free-market economy to grow in a digitalised age, corporate profits must be paid where the revenue is generated and not elsewhere.”

The implications for international business and finance centres – onshore and offshore – are plain. They have become the target of countries eager to cash in on the taxes that continue to escape their reach because of rules, of their own crafting, deliberately designed to increase the global competitiveness of their own corporate behemoths.

In November the G20 Summit will be held in Brisbane. While most of the world is excluded from its dialogue this body has become the makers and ‘enforcers’ of international tax law especially supported by the technical expertise of the OECD.

(U.S President Barack Obama)

Passionate as Australia and its leadership may be about ensuring that companies pay taxes where they earn it, more powerful members of the G20 whose businesses depend on the non-taxation of profits through various legal means to stay competitive remain apathetic about the pursuit of such a global norm.

Few expect this to change in the ten months leading up to the Brisbane Summit.

End Notes:

For more on Australia’s 2014 G20 Agenda click here.

For more on the G20 2013 Agenda click here, here and here.

For more on the US Position on BEPS click here.

For more on Australia’s approach to tax evasion click here.

franhendy’s OFFSHORE WEEKLY

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newsroundup

Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services. 

US Republican Party to Vote for FATCA Repeal.

French Politicians Unhappy with Removal of Bermuda and Jersey from Blacklist.

International Tax Overhaul On Schedule Says OECD.

Relatives of Chinese Leaders Accused of Using Tax Havens.

Russia Mulling Over 30% Tax for Online Retailers.

McDonald’s France Denies Charges of Tax Evasion.

Will Credit Suisse Settle US Suit for $800 Million?

Global Tax Avoidance Rules to be Aimed at Digital Economy.

10 Biggest Tax Havens in the World.

Kenyan Athletes Threaten Boycott Over Tax.

Cayman Islands Discusses Beneficial Ownership.

Special Tax Rules for Internet Companies Not Viable.

TIEA Solution to Colombia’s Blacklisting of the Bahamas.

EU Votes on Anti-Money-Laundering Directive.

Eighty-five of the World’s Wealthiest as Rich as the World’s Poorest.

More CEOs Have Greater Confidence in the Global Economy.

What the BEPS are We Talking About?

OECD Webcast on Base Erosion and Profits Shifting.

Internet Sales Tax Hurt Business.

Oxfam Urges Crackdown on Tax Avoidance

Missed my latest blog post? Find it here.

Europe Playing ‘Cat and Mouse’ with Automatic Exchange of Information.

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(EU Tax Commissioner Algirdas Semeta)

Just as the EU starts talks with Switzerland to revise their EU-Swiss Savings Tax Directive, based on planned changes to the EU’s own Savings Tax Directive, EU Tax Commissioner Algirdas Semeta has chided Austria and Luxembourg for playing ‘cat and mouse’ with the EU on the issue of automatic exchange of information (AEI), by refusing to lift their banking secrecy until the EU achieves a level playing field with Switzerland.

Commissioner Šemeta confirmed that the proposed start date for AEI is 2015; and that the overwhelming majority of EU countries agree that the EU must spearhead the campaign for AEI. In fact, as Šemeta pointed out, a “lack of consensus undermines the EU’s credibility as it could not seek to apply pressure at the international level for the adoption of AEI if it is unable to reach agreement internally.”

The problem is that Austria and Luxembourg,are competitors with Switzerland for investors desirous of maintaining ‘secrecy’ in their financial and other dealings; and do not wish to agree to anything that would give the Swiss an advantage in the market.

They are therefore refusing to abandon their secrecy regime until the EU gets Switzerland to do the same first.

While confirming the EU’s resolve to guarantee a level playing field with non-EU members in Europe by negotiating strong agreements, Šemeta understands that this cannot constititue a pre-requisite for reaching an accord within the EU.

Clearly Šemeta is concered not to have the issue of AEI turn into a stale-mate with countries embroiled in  a waiting game of ‘who blinks first’.

Still Šemeta is optimistic because he believes that the EU has new leverage with Switzerland that would compel them to negotiate with the EU to apply planned changes to its Savings Tax Directive.

In particular, he notes that Switzerland is “under great pressure to sign up to AEI, primarily as a result of the changed political environment, and the fact that automatic information exchange is due to become the global standard shortly.”

Moreover, the OECD is currently finalizing its proposed AEI concept, which it hopes will be adopted by G20 Finance Ministers in February, Šand, according to Emeta, if G20 Finance Ministers fail to unite behind the OECD’s proposal, the EU could as a last resort revert to the European Commission’s 2012 recommendation, advocating that countries unwilling to comply with international standards be placed on a so-called “black list” of countries deemed uncooperative in tax matters.

Such a measure could give rise to severe sanctions, including the termination of double taxation agreements.

Despite his optimism Commissioner Šemeta  knows he has precious little time.

franhendy’s OFFSHORE WEEKLY

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newsroundup

Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services. 

Mo Farah Applies for Tax Exile.

HMRC Uses Big Data and Social Media to Catch Tax Cheats.

OECD BEPS Webcast: Registration Available.

Denmark: Another European Tax Haven.

Offshore Captive Insurance Still Under Fire in US.

Still No Consensus in EU on Transparency Regime for Trusts.

Business Lobbies for Flexibility  in the Tax Avoidance Clampdown.

Offshore Leaks‘ Spark New Resolve on Tax Dodging.

Are Resources a Blessing or Curse?: The IMF Reports.

Canada’s Tax Cheats Hotline.

The Impact of the BVI-Shanghai Alliance: What Now for Hong Kong?

Is the Obamacare Website ‘Fixer’ Part of the Tax Haven Problem?

Missed the latest blog posts? Click here and here.

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