President of the EU Commission Jose Manuel Barros
You really cannot make this stuff up!
So the EU Commission publishes its long awaited tax haven blacklist of uncooperative countries.
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.
(Cayman Islands-Australia TIEA signing; Image:IslandJournal)
Of course you already know this but for a recent illustration please read on.
The Tax Information Exchange Agreement (TIEA) between the Cayman Islands and Australia is not retrospective and only applies to tax periods beginning on July 1, 2010 going forward. This is understandable of course because not only would it be against the spirit of international treaties it would be unfair to taxpayers in both countries.
International tax co-operation based on newly forged treaty relations, and absent a culture of information sharing is largely a forward-looking exercise.
The majority of the eight hundred (800) OECD-styled TIEAs now in place are of very recent vintage, with most, less than four years old. Little wonder therefore that they are useless in providing confidential tax payer information ‘on request’ for tax periods prior to the date to which the TIEA applies.
Despite the frenzied TIEA activity by most members of the OECD Global Forum on Transparency and Exchange of Information for tax Purposes over the last four years, largely fueled by threat of economic sanction by the world’s wealthiest countries, few cover tax periods before 2010.
Indeed, this is precisely the case with the Cayman Islands-Australia TIEA and why according to Professor Miranda Stewart, of the Melbourne Law School, the OECD is reviewing whether the domestic laws of TIEA signatories are impeding information exchange.
A Quick Aside
That the OECD would attempt to cast judgement on the domestic laws of a TIEA-signatory and in the process supplant the lawful rulings of the judiciary in either party is another matter which deserves separate consideration in another post.
Suffice it say however that, like all treaties TIEA interpretation is a matter left to the parties to the agreement and the Vienna Convention on the Law of Treaties. Aside from the ready availability of the G-20 as its enforcement arm one cannot imagine how the OECD could assert any jurisdiction over an international contract to which it is not a party.
Back to the case.
Justice Charles Quin of the Cayman Islands Grand Court recently ruled that it was illegal for the Cayman Islands Tax Information Authority to hand over documents about two companies registered in the islands to the Australian Tax Office (ATO). The Cayman Justice decided that the tax authourity was barred from doing this even though the companies – MH Investments and JA Investments – are linked to Australian businessman Vanda Gould who has been charged with tax and money-laundering.
What’s the problem?
The TIEA only applies to tax periods beginning on July 01, 2010, but the case against the two Cayman Islands companies relates to the years from 2000 to 2007.
Interestingly however, this ruling did not prevent Australian Judge Nye Perram from allowing the documents unlawfully obtained by the ATO for use in its USD40m Federal Court case despite a request by Justice Quinn that the documents be returned or destroyed.
A Question of Workablity
Now fresh questions have been raised about the utility of perfectly sound legal instruments which are based on a well established rule of international tax treaty law that treaty obligations between countries apply from the date agreed to by the parties.
The fact that building a case involving the proving of tax fraud, evasion or other criminality may require access to tax information several years predating the agreement and involving companies connected to the principal defendant does not, as a matter of law, call into question the validity of the instrument.
That TIEAs may be unhelpful in some, or perhaps even in the majority of cases involving tax malfeasance before 2009, is not a mark against these agreements or the bona fides of the signatories thereto.
Rather it merely illustrates the point that international tax co-operation is a relationship between tax authourities which does not begin or end with the inking of a model agreement.
According to Appleby’s latest “On the Register” report, which provides insight and data on company incorporations in offshore financial centers, company formations in both London and Hong Kong are well above those recorded in 2009.
In fact, Hong Kong, as a comparator, saw a 9 percent increase in the total number of active registered companies, with the local register there breaking through the one million mark for the first time. The Mauritius and Cayman registries are also steadily returning to their pre-recession peaks, experiencing a 3 percent and 1 percent rise respectively.
Commenting on the findings Farah Ballands, partner and global head of fiduciary and administration services at Appleby said that “there are signs that 2013 will be a watershed year in terms of seeing a universal return to pre-2009 activity levels across the offshore jurisdictions.”
Moreover, Appleby considers 2012 a year of consolidation following large increases in annual new incorporations between 2009-2011. Interesting because these increases occurred around the same time that the OECD programme on transparency and tax information exchange was in full swing and there was speculation that it would lead to the ‘shutting down’ of offshore financial centres.
Unsurprisingly , not so!
Read the full report here.
Barack Obama, British Virgin Islands, Cayman Islands, Convention on mutual administrative assistance in tax matters, DOMAtax avoidance, FATCA, Foreign Direct Investment, France, Jersey, OECD, offshore banks, Spending Review, Supreme Court of the United States, tax haven, UBS
Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services.
1. India to blacklist treaty partners over concerns about the lack of effective tax information exchange.
2. The British Virgin Islands, with a population of 30,000, is now the fifth biggest recipient of FDI in the world, said the annual World Economic Report.
4. Op-Ed: Knowing Your Customer Must Mean Knowing the Real Owner U.S Treasury Department
5. Starbucks Pays UK Corporation Tax for the First Time in Five Years.
6. Cadbury Accused of Highly Aggressive Tax Avoidance Schemes.
7. Italy’s Football Clubs Being Investigated by the Tax Authourities.
8. Jersey Court Dismisses TIEA Appeal.
9. White House to Pursue Beneficial Ownership Legislation.
10. Lamy: Doha Talks are Not Dead
11. UK Spending Review: How the Cake Is Cut
12. US Supreme Court Strikes Down Defence of Marriage Act.
13. Swiss Parliament Agrees to FATCA IGA.
14. UBS’s French Unit Fined $13 Million in Tax-Evasion Inquiry
15. study Finds It’s Easier to Set Up a ‘Puppet’ Company in Britain and U.S Than Offshore
France Announces New Tax Haven Blacklist. Are You Surprised?
When OFCs Become Chronic Over Achievers; the Curse of the Capable
Your 8 Questions Answered on the OECD Multilateral Convention on Mutual Assistance in Tax Matters Answered (PPT/PDF)
What is a Tax Haven? It Depends
Canada Cracks Down on Domestic Tax Cheats.
Same-Sex Tax Squabbles
Status of the Convention on Mutual Administrative Assistance in Tax Matters and Amending Protocol (Updated)
Perhaps Offshore Financial Centres (OFCs) have learnt a thing or two in the last twenty years since the start of the OECD assault on ‘tax competition’ because the US Treasury department has announced that it expects to conclude inter-governmental agreements on FATCA implementation with Guernsey, Ireland, Isle of Man and Jersey by year-end.
Moreover the US is actively engaged with other OFCs like the Cayman Islands, Singapore, Cyprus, Liechtenstein, Malta, Mauritius and Estonia to conclude such agreements with high hopes for successful outcomes before the New Year.
Further still the US Treasury is working to explore ‘options’ for inter-governmental engagement with other OFCs including Bermuda, the British Virgin Islands, Gibraltar, Luxembourg, the Seychelles and Sint Maarten.
FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, at Foreign Financial Institutions (FFIs) including banks, investment funds and insurance companies), foreign trusts and foreign corporations. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
To assist compliance by FFIs, the Treasury has published a model inter-governmental agreement for implementing FATCA and announced the development of a second model agreement. It is intended that these models should serve as the basis for concluding bilateral agreements with interested jurisdictions.
According to Treasury Assistant Secretary for Tax Policy Mark Mazur, “Global cooperation is critical to implementing FATCA in a way that is targeted and efficient and by working cooperatively with foreign governments and financial institutions; we are intensifying our ability to combat tax evasion while minimizing burdens on financial institutions.”
If this all sounds like the work of the G-20 backed OECD Global forum on Transparency and Exchange of Information for Tax Purposes both of which the US is an active member – there are some significant similarities with one important exception – the distinct lack of a multilateral approach.
The Treasury has published a model inter-governmental agreement for implementing FATCA to assist compliance by so-called FFIs, a model inter-governmental agreement for implementing FATCA and announced the development of a second model agreement.
It is intended that these models should serve as the basis for concluding bilateral agreements with interested jurisdictions.
With the plethora of bilateral negotiations on FATCA taking place with the US and OFCs, despite what OFCs may have learned in the past perhaps they are yet to grasp the value of harnessing the power of coordinated and collective action.
Certainly we will have to see what each OFC manages to negotiate with the US bilaterally but the scale of the disparity — if significant —may well raise important issues of competitive advantage (or disadvantage) amongst foreign financial institutions operating in OFCs and their ‘onshore’ counterparts.
Fore more on FATCA:
If the Glazer family – owners of the Barclays Premier League side popularly known as the ‘Red Devils’ – get their wish, this Manchester-based football club could soon become a wholly-owned subsidiary of a holding company based in the Cayman Islands.
This re-organisation is part of a bigger plan for the indebted club which plans to hold an initial public offering (IPO) of stock and become a listed company on the New York Stock Exchange; and in the process become the first team to ‘go public’ on the NYSE in a decade.
No Luck in Singapore!
With no luck with its IPO proposal of US$1billion in Singapore, the American owners of the ‘Red Devils’ are now looking across the Atlantic for new investors in the franchise. Banking on their belief that the ‘ManU’ brand is a global franchise and its ranking this year by Forbes Magazine as the most valuable football club in the world for an eighth successive year, the Glazers are hoping to raise at least US$100million.
The supporting documents filed with the Securities Exchange Commission as part of the offering confirm what it already common knowledge – ManU is saddled with debt of US$423million as a result of the 2005 leveraged buy-out by the current owners and has an estimated annual debt service of $40million.
Staggering Player Wages.
Besides significantly paying down the debt, the money raised through the IPO is to increase their Scottish manager’s budget to buy players that can rival those of its cross-town neighbour and current League Cup holders Manchester City (ManCity). ManCity continues to benefit from the largesse of its United Arab Emeriti owners who have enabled the club to operate virtually debt free and so offer players likes Yaya Toure, Carlos Tevas, David Silva and Sergio Aguero salaries that could cover the national debt of a number of island small nations!
Supporters of ManU who welcome the move will tell you that the Glazer’s purchase of club through a near 100% loan was madness in the first place because the debt-service is so high that the Club can hardly afford to keep its top players far less afford to buy new ones.
Why Not London?
England is ‘football-mad’ and has enough money to buy into the club. So why have the owners opted for the NYSE and not the LSE? In fact the club was listed on the London Stock Exchange from 1991 until 2005 when it was delisted as a result of the buy-out.
Well first the NYSE is the largest stock exchange in the world and the potential pool of investors is several times a multiple of what can be accessed through the LSE. Secondly because football is firmly imprinted on British culture the idea that the Glazer family would retain control over the club through Class B shares, which would have 10 times the voting power of the shares that would be sold to the public might not sit well with potential London financiers who will want to ensure that their money can buy a voice in the Glazers’ boardroom.
This has been mooted as the reason why the Singapore listing was abandoned in favour of New York. It seems the investment culture in the U.S is more comfortable with the concept of ‘ownership without control’ and many may be content to add ManU shares to their ManU kit and memorabilia.
At least that’s what the Red Devils are hoping for.
With many more millions possibly available to the club in time for the Christmas/New Years transfer window, Sir Alex is no doubt hoping to have the funds to engage in a ‘footie’ spending spree the likes he has not seen in recent memory.
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