have arrived……we are almost there. Read the preface here.
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:
(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:
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 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:
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.
(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.
For more on Australia’s 2014 G20 Agenda click here.
For more on the US Position on BEPS click here.
For more on Australia’s approach to tax evasion click 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.
'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.
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 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.
bEPS, G20, IMF, International Monetary Fund, international tax reform, International taxation, OECD, OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, OFCs, tax avoidance, tax evasion
(Christine Lagarde, Managing Director of the IMF)
I suppose depending on your view of the International Monetary Fund (‘The Fund’) you could say that the last month’s release of a paper by its Fiscal Administration Department (FAD) on the role of the Fund in matters of international taxation is better late than never.
It does however beg the question that given the Fund’s conspicuous and long-standing absence from the policy and regulatory dialogue on international tax, what has finally piqued the Fund’s interest in this area of global economic concern?
An obvious secondary question may also arise as to whether the Fund’s late arrival will advance the debate any or will it take us ten steps back?
Put differently, what will be the value of the Fund’s contribution to the dialogue given that it is supposed to act in the interest of its’ near universal membership to foster global growth and economic stability?
To be fair however, one should not believe that the IMF has been unconnected to the global preoccupation with international tax. Indeed the paper makes the point that the Fund has been an ‘observer’ at various meetings of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. In fact, by all public accounts, until now, the Fund has done just that, ‘observe’.
Nonetheless some clues to the Fund’s likely new orientation to the issues of tax evasion, tax avoidance, tax competition, and the OECD’s Action Plan on Base Erosion and Profits Shifting may be found in this paper of June 28, 2013, titled Issues of International Taxation and the Role of the IMF.
Interesting is it not, that more than two decades after the OECD’s first attempt at rule-making and enforcement of their international tax rules ended in failure, the Fund has now found it necessary to define its role in this area of obvious concern to 188 members.
Nonetheless as I mentioned, better late than never right?
The FAD’s paper proposes a work plan on international taxation which focuses on macro-relevant spillovers, exploits the Fund’s comparative advantages, and complements the work of other institutions, most notably the OECD.
Importantly the FAD asks four questions of the Fund’s directors, namely:
Perhaps anticipating a positive response to the first query, the FAD sets out in paragraphs 34-36 ‘three proposed areas of ‘Future Work‘ based on the Fund’s mandate and comparative advantage.
The FAD makes it clear that the Fund will “complement and enlighten, not supplant, the current initiatives described above”.
These initiatives principally relate to the work of the OECD, about whom the FAD had this to say:
“The OECD, by its history and expertise, is well placed to lead technical work on international taxation. Through its Committee on Fiscal Affairs (CFA), it has traditionally set consensual standards for its members—and indirectly for other countries—most notably for bilateral treaties and standards for avoiding abusive transfer pricing, though in other related technical matters as well.”
This ringing endorsement of the OECD by the FAD may give rise to some early alarm bells for those non-OECD members of the Fund given their experience of the ‘history and expertise’ of the OECD in this area; and its methods to ‘indirectly set consensual standards for non-members of the OECD.
But I digress.
About the proposed future works’ relevancy to the Fund’s overall mandate “to foster global growth and economic stability”, the FAD makes the point that :
“International tax issues are important for the Fund‟s mandate, given their significance for macroeconomic stability at both the national and international levels. In particular, the Fund, in its surveillance, assesses whether members are pursuing policies that promote their own domestic and balance of payments stability, and whether their policies give rise to spillovers that may undermine global economic and financial stability. The impact of international tax policies on revenue mobilization—both directly and indirectly through effects on the rest of the tax system—as well as on investment and capital movements can have important implications for these assessments.”
Interestingly, haven already extolled the technical competence of the OECD, even in the face of sustained criticism, and confirming that the OECD remains well placed to do the technical work in this area; about the Fund’s own comparative expertise in international tax the FAD writes:
“The Fund’s comparative advantage in relation to international tax issues comes from its unparalleled TA (technical assistance) experience on these issues, recognized expertise in their economic analysis, and the near-universal Fund membership. Progress on these sensitive issues requires a firm grasp of the technicalities, a strong analytical basis, and an understanding of the impact on widely differing countries, which the Fund is well equipped to provide.”
You may well ask the question why the Fund failed to recognise and act on these comparative advantages in 1998 and again 2008 when the OECD sought to foist a one-size-fits all solution to the issues of transparency and tax information exchange on its widely differing membership given its self-confessed ‘sensitivity’.
But again I digress.
On the issue of ‘spill-overs’ which the FAD argues falls within the Fund’s competence, the paper makes five (5) key points:
Against this background which, frankly, flies in the face of contemporary thinking on tax competition and recent remarks by the OECD Director of Tax Policy which instead suggest a downward movement of national corporate tax rates to remove existing market distortions, the FAD has set out the following three -pronged work programme for the consideration of the Directors:
While we await public reaction by the Fund’s Directors to the proposed work programme,given the tenor of the FAD’s commentary on the OECD and propriety (or otherwise) of tax competition, one has to wonder what in the end will be the real worth of the IMF’s contribution to the discourse on international tax reform; and to whom will it redound.
Indeed, non-OECD/G20 OFCs members should carefully reflect on whether the present orientation of the FAD portends meaningful progress or represents ten steps backwards in the area of international tax cooperation.
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