have arrived……we are almost there. Read the preface here.
(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, and, 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.
“…there is a need for development of standards of comparison independent of the particular interests of competitors. Allowing special interest coalitions of onshore economies like the OECD to define the parameters of debate is thus particularly inappropriate.
There is a legitimate place for discussion of relative regulatory effectiveness in discussions of the global financial system. But it is critical that the discussion be in the context of the relative success of jurisdictions in achieving the goals of regulation, not the means they use to do so. As the UK’s 1998 review of financial regulation in the Crown dependencies noted, “[a]ll financial centres, onshore and offshore, have problems. All have their critics.”
The sooner the onshore/offshore distinction is abandoned and there is an even-handed approach to understanding different regulatory regimes, the sooner there will be improvements in both onshore and offshore regulatory efforts. It is important to remember that regulation of financial activity is not an end in itself, but merely a means to the end that is a system of vibrant world-wide financial markets that facilitate the creation of wealth.
Once that is recognized, the experience of the mature offshore financial centers may well hold lessons for how onshore regulators may improve their efforts to avoid the next Enron, Bear Stearns, Madoff, or Parmalat. Reorienting the discussion to focus on the best means for accomplishing the common goal of healthy financial markets is a necessary step.”
…..to read the full text of this timely and insightful article by Andrew P. Morris and Clifford C. Henson; and published in the Virginia Journal of International Law, CLICK HERE.
About the signing, Chancellor of the Exchequer, George Osbourne commented that the UK was leading the way in creating a new global standard for tax transparency and automatic tax information sharing; and the agreement demonstrated their shared commitment to tackling tax evasion.
'fair share of taxes', automatic exchange of information, bearer shares, Beneficial ownership, Britain, Cameron, Companies House, David Cameron, G20, G8, G8UK, London, money laundering, Northern Ireland, Obama, OECD Global Forum, Offshore financial centre, Offshore Trusts, tax evasion, transparency
Today in London at the Open Government Partnership Summit, Prime Minister Cameron announced his government’s plans to make public, national registers of the ‘true’ , ‘shell’, ‘real’ or ‘beneficial’ owners of companies.
In the company of the Presidents of Tanzania and Liberia, Cameron said that “a list of the owners of “shell” companies where firms keep money offshore to avoid tax will be published to discourage tax evasion.”
He went on to say that, “the cloak of secrecy surrounding company ownership had lead to questionable practice and downright illegality”; and that “illegality that is bad for the developing world – as corrupt regimes stash their money abroad under different identities…is bad for Britain’s economy too – as people evade their taxes through untraceable trails of paperwork.”
No Tax Base – No Low Tax Case
Using this new mantra – also unveiled today – in making the case for the adoption of similar legislation by his G20 colleagues, Cameron has seemingly positioned publicly accessible registers as the solution to all that ails the developing world by commenting that “the UK is helping deprive corrupt politicians and criminals of the use of anonymous companies to hide their real identities. This will go a long way in curbing corruption, money laundering, drug trafficking, tax evasion and financial crime responsible for the continued loss of much needed wealth from the world’s poorest countries.”
G8UK Transparency Agenda
Cameron has been talking about public registers of beneficial owners even before he hosted this year’s G8 Summit in Northern Ireland. His 3T agenda, based on tax, trade and transparency was the forerunner to this year’s endorsement by the G20 of automatic exchange of tax information as the new global standard which the OECD Global Forum has been charged with implementing; thereby supplanting the existing rule that advocates treaty-based bilateral exchanges ‘on request’.
Cameron also registered some success under the second ‘T’ – trade – with the recent launch of EU-US Free Trade talks, even as concerns about the usual French ‘sensitivities in the areas of culture and farming subsidies were raised.
Now with his announcement that, not only is the UK going to establish a public register of the ultimate or ‘true’ owners of companies, but these registers to be available for public scrutiny, Cameron is trying to gain traction in the third part of his ambitious G8UK agenda.
It turns out that there is cause for Cameron to speak so boldly about the accessibility of public registers as this British initiative comes as the EU considers amending its anti-money laundering directive to tighten loopholes and demand that natural beneficial owners of corporations be named in a public registry.
It has also been reported that France is considering similar measures.
Even the Obama administration has promised to take action on beneficial ownership as part of its commitment under the transparency initiative called Open Government Partnership. Congress is considering legislation to create private corporate registries at state level.
Of course no word yet from other G8 members most notably Russia and Canada whose response to Cameron transparency agenda was lukewarm at best.
Who’s the ‘real’ owner anyway?
In circumstances when the UK still permits the holding of ‘bearer shares’ facilitating the opacity of company ownership, Cameron’s talk of transparency and public access was perhaps understandably greeted with horror by the ‘suits’ in London.
It is true however that the Cameron has also announced his government’s intention to abandon this lucrative plank Britain’s business brand, more than fifteen years after legitimate offshore financial centres outlawed the practice.
Unfortunately, banning proof of company ownership by the mere possession of an anonymous share certificates isn’t much help in exposing the true beneficiaries of company ownership.
In fact, while in the afterglow of the Northern Ireland Summit, UK’s overseas dependencies and the US published national action plans to give effect to the creation of registers to log the real owners of corporate vehicles, these plans do little to clarify the metrics required to determined how such a determination would be arrived at, given the several degrees of separation which can remove the company from its true owners.
But how would it work?
Nobody’s sure yet but possibilities include cross-referencing with other databases such as those held by the Passport Office and the electoral register. Alternatively, or perhaps additionally, companies could be asked to provide identification information for beneficial owners such as a national insurance number and date of birth.
What is clear however is that firms registered in Britain will come under a legal obligation to obtain and hold adequate, accurate and current information on the ultimate owner who benefits from the company – and be required to place the information on a central register that would be maintained by Companies House.
What about trusts?
…to be continued.
automatic exchange of information, bEPS, Convention on mutual administrative assistance in tax matters, David Cameron, G20 2013 Summit, G20 g20Russia, G20 OECD, HM Treasury, Moscow, OECD Convention on Mutual Administrative Assistance in Tax Matters, Organisation for Economic Co-operation and Development, Russia, Saint Petersburg
Reporting on G20 Summit meetings being held in St. Petersburg and attended by UK Prime Minister David Cameron and Chancellor George Osbourne, Her Majesty’s Treasury has confirmed that the world leaders:
AEI, automatic exchange of information, Bermuda, British Virgin Islands, France, G20, g20Russia, Multilateralism, OECD, Offshore financial centre, Organisation for Economic Co-operation and Development, tax avoidance, tax evasion, Tax Information Exchange Agreement, Tax treaty, TIEA
(Bermuda Premier Craig Cannonier)
And so it continues.
Expressing its customary surprise and outrage at the territory’s inclusion in France’s latest tax haven blacklist, Bermuda has argued the following lines of defense:
Why is Bermuda surprised?
Why does it envisages that its inclusion on France’s list will be very short-lived or might never have happen if in fact that list is to be effective later than 2013?
I am certain that those of you who have read my blog are not in the least bit surprised by this and are awaiting the release of more 2013 tax haven blacklists.
Read this to understand why being ‘first in class’ provides no immunity from blacklisting: When Offshore Financial Centres Become Chronic Overachievers; the Curse of the Capable.
I hate to tell you that I told you so…but…I did!
The biggest irony is that the Philippines with none of Jersey’s Bermuda’s or BVI’s stellar credentials in transparency and international tax co-operation has been removed from France’s blacklist.
I wonder if now OFCs are beginning to understand what the OECD crafted, G20 supported global transparency and tax information exchange agenda is really about.
Time will tell.
The United States Inland Revenue Service (IRS) plans to carefully consider any comments from stakeholders on its FATCA Reporting Form; a draft of which has now been released.
The early publication of this document – referred to as Form 8966 – is interesting because it is not accompanied by any of the usual guidelines on how any tax form should be completed. You might expect that substantive commentary could only be given if the instructions on how to complete the form were also provided.
The IRS has also been careful to advise foreign financial institutions (FFIs) not to rely on the draft for filing their reports.
Nonetheless, IRS officials working on FATCA have issued the draft form which contains the following sections:
It is unusual for the IRS or, I would suspect, any national revenue authourity to circulate a draft of a form until all ( or at least most) contemplated changes are reflected in the proposed form.
To this the IRS has pointed out that “unexpected issues sometimes arise, or legislation is passed, necessitating a change to a draft form.”
Given the uncertainty that has engulfed FATCA since questions have been raised in the US Senate about the whether the US can, or is still interested in a reciprocal relationship with its FTACA partners; and whether FATCA is good for the US economy in the first place, this caveat by the IRS is warranted.
The delay in the application of FATCA until July 1, 2014 means that stakeholders can expect to not only have time to comment on the draft form, but they may also find themselves commenting on several versions of the same form well into the new year.
Find More Blog Posts on FATCA here
Read the Monday Edition of franhendy’s OFFSHORE Daily here
The Cayman Islands government certainly believes this will be the case.
In announcing the conclusion of negotiations for a Model 1 inter-governmental agreement (IGA) to implement the US Foreign Account-Holder Tax Compliance Act (FATCA), the islands’ Minister for Financial Services Wayne Panton declared that the government was “especially pleased that the conclusion of an IGA will provide certainty to Cayman’s significant fund industry with respect to FATCA. implementation.”
Minister Panton did not, however, elaborate on the nature of the ‘clarity’ that would be afforded to the industry; and he did not express the belief that this ‘certainty’ would extend to US users of Cayman funds.
No mention was made either of the government’s certainty that the US would reciprocate under the Model 1 IGA given widely circulated reports that the US has neither the legislative framework nor political inclination to provide information on Cayman Island residents using US financial institutions as the Model 1 IGA provides.
Of course the initialing of the IGA by both sides is not the end of the matter since this just demonstrates an intention to sign the agreements and an intention to honour the terms of the agreement which will be publicly available only when officially signed.
Still that ‘uncertainty’ aside, the Cayman government is certain of these other things:
This professed confidence by the Cayman Islands government perhaps explains, in part, its decision to engage in further discussions with the UK’s HM Treasury to finalize the terms of a UK Model 1 IGA FATCA agreement.
Only time will tell.
automatic exchange of information, Obama, OECD Convention on Mutual Administrative Assistance in Tax Matters, OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, OFCs, Putin, Sarkozy, tax evasion, tax haven blacklist
Do you know why Hong Kong has now enacted legislation to allow it to start negotiating Tax Information Exchange Agreements (TIEAs)?
I think Hong Kong is fearful that its OECD Phase 2 Assessment, which looked at the adequacy of its administrative machinery to exchange information (EOI) to current standards and its response to shortcomings identified in its Phase 1 Assessment, will not be favourable.
For Hong Kong, like many other low-tax offshore financial centres (OFC), the availability of tax treaties enhances its competitive position. As a result, it has focussed on building a network of these agreements which prevent double taxation, fiscal evasion; and in most cases apply the current EOI standard through the inclusion of Article 26 of the OECD Model Tax Convention.
In fact, both Hong Kong’s Executive branch and its Legislative Council have long expressed a strong preference to continue to enter into comprehensive tax agreements rather than TIEAs. For Hong Kong, and other members of the OECD Global Forum on Transparency and Tax Information Exchange (Global Forum) offering EOI as part of a tax treaty has been a helpful negotiation point.
However, it has been reported that the Global Forum recommended that Hong Kong establish a legal framework for entering into TIEAs (independent of any DTA) coming out of its Phase 1 Assessment. (Tax Analysts, a subscription service)
This, even though the executive summary of Hong Kong’s Phase 1 Assessment did not suggest that Hong Kong make any changes to its legislation to accommodate TIEAs. Instead it recognised Hong Kong’s importance as an international financial centre and that:
“regardless of their form it should ensure that it has agreements that meet the international standard with all of its relevant partners”.
Moreover, in the assessment the only reference to TIEAs was that “one request was made of Hong Kong to negotiate a TIEA and that recent amendments made to its domestic legislation to allow for exchange of information with respect to tax treaties did not extend to TIEAs or other forms of information exchange”.
There was no specific mention of the need for Hong Kong to change its law to allow it to conclude TIEAs.
Indeed a request by one party, not identified as a ‘relevant partner’ to conclude a TIEA would seem insufficient to activate such heavy legislative machinery.
Nevertheless Hong Kong, has pushed to have just this sort of legislation enacted before its Phase 2 Assessment is published this September.
Why should Hong Kong be so concerned about an initial negative Phase 2 assessment?
After all the Global Forum has maintained that these assessments are ongoing, and with no OECD ‘blacklist’ announced at the end of the last G20 summit, why should Hong Kong move to pass this legislation in time for September, almost two years since the initial report was published?
I think the answer may lie in this part of the G20 communique made this year after its April meeting of Ministers of Finance and Central Bank Governors:
“we are looking forward to overall ratings to be allocated by year end to jurisdictions reviewed on their effective practice of information exchange and monitoring to be made on a continuous basis. In view of the next G20 Summit, we also strongly encourage all jurisdictions to sign or express interest in signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on progress.”
As of June 13, neither China on behalf of Hong Kong, nor Hong Kong in its own right had signed the OECD Convention; and no expression of interest in the Convention has been signalled by either party.
This means that without the amendment to its domestic law to address what Hong Kong clearly feels may be viewed as a deficiency in its legal regime, the country might be faced with two strikes against it by the time the OECD starts to allocate its rankings.
(Former President Sarkozy and U.S President Obama. Image: Whitehouse)
Perhaps like me, Hong Kong too is concerned that the ‘allocation of rankings’ referred to by the G20, may mean that the 2013 G20 Summit will culminate with a ‘roll-call’ of ‘blacklisted’ or uncooperative jurisdictions – as occurred under the Chairmanship of French President Sarkozy – based on the outcome of Phase 1 and 2 assessments, and the acceptance (or otherwise) of automatic exchange of information by Global Forum members.
That this domestic law also allows Hong Kong to start FATCA IGA negotiations with the US may be additional insurance against any fallout from the OECD, G20- mandated ‘ranking’ exercise.
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