have arrived……we are almost there. Read the preface 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.
Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services.
Senator Levin Introduces Bill to Combat U.S Corporations with Hidden Owners
Portugal Considering 17% Corporate Tax Rate
Obama Equates Tax Cuts with Increased Spending
Moody Mulls Over Isle-of-Man Triple A Downgrade because of Tax Transparency Concerns
U.S Liechtenstein Tax Evasion Probe Nets $23.8 Million
FATCA: A Simple Premise Gone Horribly Wrong
Profit Shifting a Race to Top Not Bottom of Economic Prosperity
Britain Is Slamming Its Doors Against the World
UK Should Adopt Unilateral Approach to Tax Avoidance
‘Fabulous Fab‘ Found Liable for Fraud
Australia to Introduce a Bank Levy on Deposits
Tax Regime to Target Corrupt Officials
House of Lords Weighs In on Tax Avoidance Reform
Judge Dismisses Dodd-Frank Challenge
Minimise this: A Plan to Curb Tax Avoidance Takes Shape
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Highlights from the Communique adopted by the G20 Finance Ministers and Central Bank Governors at the end of their meeting held today in St. Petersburg Russia:
It is expected that the full slate of OECD anti-tax haven initiatives will be tabled and adopted by the G20 Heads of Government at their 2013 Summit between September 5-6.
The U.S ranks 94th out of 100 on the Tax Attractiveness Index (TAI); is the worst performer of all G8 countries; and of its G20 colleagues, it only managed to out-rank Argentina, South Korea and Indonesia.
Little wonder perhaps that U.S multinationals have found better tax planning opportunities in the index’s top 10 highest ranking countries including, other EU members of the G20 like the Netherlands and Luxembourg; as well as Britain’s overseas territories and crown dependencies.
The TAI may also explain why despite its apparent rhetoric about shutting down tax havens, eliminating tax evasion, increasing tax transparency, making public the beneficial owners of companies and trusts, adopting automatic exchange of information, and other elements of the G8UK Declaration; when it comes to the specifics, the U.S comes up short every time.
The TAI presents a metric of how far behind the U.S lags behind the rest of the world based on the attractiveness of its taxation system. It also affords its policy makers a clear picture of how much work must done at home if the U.S is to get serious about transparency and combating tax evasion and aggressive tax avoidance.
After all according to the index, which assigns rankings between 0 and 1 with high values indicating an attractive tax environment, at 0.2432 the U.S would have to make up at least 0.5 points to fall within competitive range of those countries within the top 10 percentile of the TAI.
Given that the index is based on an analysis of, among other things, statutory corporate tax rates, dividend and capital gains taxation, double tax treaty networks, anti-avoidance legislation and the statutory personal income tax rate; it all makes for some of the heaviest kind of legislative and political lifting that few political parties are prepared undertake.
In fact, you can almost sympathize with successive U.S leaders faced with the mammoth task of making the country a more attractive tax domicile; with the ‘pulling power’ to not only retain its own multinationals but also attract others. This is especially so when some will rightly argue that tax is not the single driver of investment. Of course, others will counter that in a protracted global recession and with the increasing growth of ‘stateless’ income, tax has become the most important preoccupation for multinationals, governments and consumers.
Faced with this, it must be tempting to wonder privately if its even worth the bother.Especially when you are at the bottom of the pile, suggesting that perhaps this is not your country’s desired area of ‘specialisation’. Easier still, when your ‘exiled’ companies continue to find safe and profitable harbour higher up the list.
Far better perhaps to allow others to get on with what they are obviously good at, given the growing appetite for this type of expertise from those who might otherwise be saddled with the same ‘unattractiveness’ plaguing those inhabiting the bottom rung of the index.
The full TAI is here.
A final point.
According to the TAI, although countries which are perceived as engaging in ‘harmful tax competition’ by the OECD based on its 2000 and 2009 blacklists reach significantly higher index values than others, these countries have been removed from the OECD list although they continue to offer extremely attractive tax environments.
( US President Obama Image: Headlinedigest)
Is America’s emphatic response to French proposals tabled this week ahead of the G20 finance ministers meeting for a new tax on internet multinationals like Apple, Google and Amazon, based on the volume of personal data collected.
France’s quarrel with the U.S is that according to existing international tax rules these companies have no taxable presence in the countries where they source most of their customers through the collection of their personal data.
(Pierre Moscovici French finance minister Image: Reuters)
The French are pushing for the adoption of radical changes to these rules. Principally those related to the existence of a taxable presence of a company in the territory of another so that these digital companies can be caught by the tax dragnet.
Protective of their multinationals, the U.S is only in favour of ‘tweaks’ to the global regime but not proposals for wholesale overhaul expected to be presented by the OECD in its report to the G20 meeting this Thursday. A draft of this ‘leaked’ document which has been in wide circulation for more than a week details a number of anti-tax haven measures and other initiatives designed to thwart tax evasion, base erosion and other corporate devices to shift their profits away from the countries where their sell goods and services, or source their customers.
According to the OECD’s preliminary report to the G20 this in February:
“Nowadays it is possible to be heavily involved in the economic life of another country, for example, by doing business with customers located in that country via the internet, without having a taxable presence therein. In an era where non-resident [corporate] taxpayers can derive substantial profits from transactions with customers located in another country, questions are being raised as to whether the current rules ensure a fair allocation of taxing rights on business profits, especially where the profits from such transactions go untaxed anywhere.”
Despite its stated resolve to pursue avenues to further combat tax evasion at the end of the last G8 Summit, the US has made it clear that its commitment does not extend to its home-grown internet giants.
Obama might feel differently when non-US rivals for the personal data of its own citizens arise, but until then the U.S seems content to maintain the ‘status quo‘; casting serious doubts on the G20’s acceptance of anything other than a watered-down version of the OECD’s proposal for reform.
[For more on the tax avoidance/tax evasion debate click here.]
[Missed yesterday blog post? Its here.]
At the 11th hour the U.S Treasury has postponed FATCA registration and withholding again.
According to Treasury officials:
“The FATCA registration Web site was scheduled to open on July 15, but that date has been pushed back until August 19, which will allow financial institutions more time to begin testing the process and entering information.”
“Due to overwhelming interest from countries around the world, it will extend by six months the start of the withholding and account due diligence requirements of the Foreign Account Tax Compliance Act, or FATCA, until July 1, 2014, to allow more time to complete agreements with foreign jurisdictions.”
Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services.
Apple Guilty of E-book Price-Fixing Conspiracy
UK Signs G5 Tax Agreement to Tackle Tax Evasion
U.S Congressional Leaders Launch National Tax Reform Roadshow
Concern about Privy and Competitiveness Fuelling FATCA Backlash
Credit Suisse Can Reveal U.S Client Data to IRS
5 million U.S Citizens Considering Renouncing Citizenship
Advance Passenger Duty Hurting British Investment
3 years After His Death Russian Tax-Evader Convicted
U.S Online Gambling Bill to Help Antigua WTO Case
UK Tax Treasure in Switzerland Less Than Expected
Switzerland and China Sign Free Trade Agreement
Britain in Unfair Fight for Foreign Investment
Singapore to Usurp Switzerland as Top Financial Hub by 2015
EU Urged to Reconsider Financial Transactions Tax
UK to Make Oil, Gas and Mining Sector More Transparent
OECD’s Proposed New Anti-Tax Haven Initiatives
FATCA Registration Begins in 6 Days…
Is Tax Avoidance a Moral Issue?: 3 Videos to Help You Decide
Boycott Twitter?…Go Ahead..Make My Day!
Increasingly British Crown Dependencies are negotiating full tax treaties. This week’s feature agreement is the pending treaty between Guernsey and Hong Kong
Your edition of franhendy’s OFFSHORE Daily is always available here
Emotive stuff right?
Here’s what I think
Tax avoidance is not a moral issue; it is an issue of competitiveness.
On the other hand, tax evasion crosses that imaginary line in the sand between what are acceptable tax savings and what is tantamount to stealing from the society in which the tax-payer is resident.
That’s why it is illegal.
From this perspective, a company’s ‘fair share of taxes‘ is what it pays after the application of all lawful means, including tax avoidance but excluding tax evasion, of reducing its overall tax liability.
Since the payment of tax for most people is a legal and not moral obligation, a company’s obligation to pay its fair share of taxes must be set by law and not morality.
A company is a legal construct and governed by legislation not conscience. It is for this reason that acceptable company behaviour is compelled by law – reinforced by sanction – and not by reference to some inherent moral compass.
Why should the determination of a company’s fair share of taxes be any different?
Tax avoidance is not illegal nor is it a question of immorality because its availability is necessary to enhance a country’s competitiveness in its quest to attract foreign and mobilize local investment.
If this were not the case it would be far easier for law-makers to ban tax avoidance of any kind especially if their competitors did likewise. They are however reluctant to do because they are constrained by the dictates of a ‘free market’ economy premised on specialisation and the unencumbered movement of goods, services and capital across national borders.
Moreover, un-competitiveness has implications for national development and is inextricably linked to the quality of life of a country’s people.
That said, ‘aggressive’ tax avoidance is gradually being accepted as unlawful. However, without the universal, or near universal, acceptance of aggressive tax avoidance as illegal the competitiveness of those countries that ban it will be adversely affected when compared to those for which no legal sanction attaches.
So why are countries still not keen to prohibit all forms of tax avoidance?
Because they are an important means of attracting and retaining investment. Investment which provides jobs, creates infrastructure, generates foreign exchange, pays for social and other public services, drives down the cost of consumer items and contributes to government’s revenues; enabling it to execute the domestic, regional and foreign policies expected by the electorate.
What do you think?
(Image courtesy the Guardian)
…and confusion reigns!
The on-line portal for foreign financial institutions (FFI) to register for FATCA set up by the U.S Internal Revenue Service goes ‘live’ on July 15 but the sign-in instructions have still not been finalised.
Thousands of banks, insurance companies, investment funds and other FFIs with U.S. customers are required to register with the IRS by October 25 to avoid FATCA penalties due to start in less than six months.
The problem is that if the IRS does not produce guidance within a couple of weeks of the portal’s opening this delay this will inevitably lead to a ‘scramble’ by FFIs to register before the October 25th cut-off date for registration.
Worst case fears are that the portal could become overloaded and ‘crash’ leaving FFIs unable to register through no fault of their own and exposed to the application of the U.S 30% withholding levy.
So widespread is the concern that the Securities Industry and Financial Markets Association (SIFMA), citing the fact that FATCA was delayed once before, has renewed its call that the imposition of FATCA penalties be postponed by another year to 2015.
(US President Obama with his Treasury Secretary Jack Lew. Image: Boston Globe)
Predictably the official line of the IRS is that it continues to push ahead with FATCA implementation.
The foreseeable problems with on-line registration for FATCA is just another in a series of widely publicised ‘knocks’ that this global tax compliance initiative has received in the past couple of weeks.
Of the nine FATCA implementation arrangements, referred to as intergovernmental agreements (IGA), that the US has negotiated, only Germany seems set to ratify theirs which would allow German firms to report U.S. client information via their local tax authorities rather than directly to the IRS.
In Canada, debate on a proposed IGA has raised the inevitable questions of sovereignty, access to confidential taxpayer information and the ability of the US to secure the integrity of the information they collect.
Russia has demonstrated its apathy to this extra-territorial application of U.S domestic tax evasion law commenting only that they are studying the implications and would be in a position to discuss a U.S IGA sometime in the future.
It has also been reported that Chinese government officials have so far been publicly dismissive of FATCA, throwing into question whether financial firms in Hong Kong will be able to comply with the FATCA law. According to a Hong Kong official, Hong Kong is “initiating some preliminary discussion” with U.S. officials.
U.S Senator Paul Rand introduced a bill to repeal FATCA and has suggested that contrary to the one version of the model IGA which provides for the reciprocal exchange of information between the US and its FATCA partner, legally the U.S Treasury cannot reciprocate.
More on the lack of U.S reciprocity here.
Finally, regional and multilateral FATCA-inspired legislation is taking root in the European Union and possibly at the multilateral level using the OECD crafted Convention on the Mutual Administrative Assistance in Tax Matters. With the blacklisting of tax havens seemingly contingent on their willingness to sign on to to G20 backed multilateral FATCA, the problems with the IRS on-line registration portal may just be the beginning of the fallout from FACTA.
For more on FATCA click here.
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