Bulletin 35

Printable Version

TAX AGREEMENTS: Ireland and Malta put block on ‘single malt’ structures

The Irish and Maltese tax authorities have jointly declared that their bilateral tax treaty will prevent the so-called ‘single malt’ tax planning structure used by some US multinational enterprises. Such structures can be used to hold a multinational’s intellectual property in a company incorporated in Ireland but tax-resident in Malta, and channel payments for non-US sales through another company resident in Ireland. This second company then pays large sums to the Maltese-resident firm for a licence, substantially cutting the tax it has to pay on profits declared in Ireland. The new agreement states that the first company is tax-resident in Ireland and so will have to pay tax on its licensing income.

UK: Cross-border civil cooperation extended for 21-month post-Brexit transition

A controversial draft agreed by the UK cabinet yesterday (14 November), on Britain’s exit from the European Union in March 2019, provides that EU law on cross-border recognition, and enforcement of judgments and confiscation orders will continue to apply to judgments issued during the 21-month transition period. EU law on international jurisdiction in cross-border civil disputes will continue to apply to legal proceedings begun during the period. The three million EU nationals in the UK will have the right to stay permanently and continue their current activities and be joined by their relatives in future. The European Commission has asked the European Council of Ministers to approve the agreement, which must first get through the UK parliament.

GERMANY: Prosecutors raid Deutsche Bank in money laundering investigation

German prosecutors have raided Deutsche Bank’s Frankfurt headquarters and five of its other offices in the city. They are investigating allegations that two employees set up offshore accounts at a Deutsche Bank subsidiary registered in the British Virgin Islands, for clients to launder money from criminal activities, between 2013 and the beginning of this year. The evidence is said to come from the so-called ‘Panama Papers’ stolen from Panamanian law firm Mossack Fonseca in 2016.

IRELAND: EU anti-money laundering directive transposed into law

Ireland’s President has signed the Criminal Justice (Money Laundering and Terrorist Financing) Act 2018 into law, transposing the EU Fourth Anti-Money Laundering Directive (4AMLD) in full. It widens the definition of ‘designated persons’ to cover all cash transactions of EUR10,000 or more, while ‘beneficial ownership’ now includes any natural person who ultimately owns or controls the relevant body through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity or through control via other means, as well as any individual who is entitled to a vested interest in trust property, and the settlors, trustees and protectors of a trust.

CITIZENSHIP: European Parliament committee calls for repeal of all citizenship-by-investment schemes

The European Parliament’s TAX3 committee on tax evasion and money laundering has issued a report calling for, among other things, the phasing out of all citizenship-by-investment schemes in Europe. The committee’s members say the schemes offered by Malta and Cyprus threaten the integrity of international exchange of information under the OECD Common Reporting Standard, and pose serious risks of money laundering and tax evasion. It calls on the European Commission to ‘rigorously and continuously’ ensure that Member States employ due diligence in administering their schemes ‘until they are repealed in each Member State’.

ITALY: Tax amnesty allows settlement without penalties

The Italian government has launched a tax amnesty called Tax Peace, aimed at reducing disputes and scrapping pending debts with the revenue agency. With immediate effect, it allows taxpayers to settle tax audit reports, deeds of assessment, tax court proceedings and tax collection notices by paying only the taxes assessed, without penalties and interest. Debts under EUR1,000 assessed for fiscal years 2000-2010 will be automatically written off. Tax returns containing mistakes or omissions can be amended by paying a 20 per cent fine.

SWITZERLAND: Government bows to OECD on bearer shares

The Swiss government has formally agreed to implement the OECD Global Tax Transparency Forum’s demand for the abolition of bearer shares, despite strong criticism from the country’s financial sector. Failure to comply would have left Switzerland with an insufficient rating in the Global Forum peer review at the end of 2018, with the risk of being blacklisted as a non-cooperative jurisdiction, says the Federal Council.

BAHAMAS: Legislation to meet OECD/EU corporate tax demands to be passed this week

The Bahamas government has enacted the Commercial Entities (Substance Requirements) Bill, the Removal of Preferential Exemptions Bill, the Register of Beneficial Ownership Bill, and the Non-Profit Organizations Bill. The Bills are intended to meet the requirements of the European Union’s Code of Conduct Group (CCG) on fair business taxation, and draft copies of the Bills have been passed to the CCG and the OECD for approval.

BAHAMAS: Government hopes abolition of ‘ring-fencing’ will appease EU

The Bahamas’ Deputy Prime Minister, Peter Turnquest, has announced that the jurisdiction is to yield to European Union and OECD demands for an end to ‘ring-fencing’, under which preferential tax regimes are granted to international business companies, non-resident entities and foreign investors. However, the Removal of Preferential Exemptions Bill now being drafted will include grandfathering provisions for existing foreign investors. Both the EU and the OECD have threatened to blacklist jurisdictions whose tax regimes favour non-resident companies over domestic ones.

BEPS: OECD now requires all zero-tax countries to apply substance criterion

The OECD’s Forum on Harmful Tax Practices (FHTP) is to assess the preferential tax regimes of all zero- or low-tax jurisdictions on their substantial activity requirements, as well as on the transparency of their tax rulings. However, the FHTP’s latest progress report on preferential tax regimes has again failed to find any such regimes that are deemed ‘harmful’ in terms of encouraging profit-shifting, other than France’s tax relief on long-term capital gains and profits from the licensing of intellectual property rights.

DENMARK: Anti-money laundering regime now rated largely FATF-compliant

The global Financial Action task Force has upgraded Denmark’s rating on anti-money laundering controls to largely or fully compliant on most of the issues found wanting in its 2017 mutual evaluation, after which the country was placed in ‘enhanced follow-up’.

CANADA: BC to hit property investors with extra ‘speculation and vacancy tax’

The British Columbian government has tabled a parliamentary Bill introducing a new annual tax on residential properties in certain regions, to address the house price boom. The speculation and vacancy tax will come into effect this year for properties worth at least CAD150,000, charging 0.5 per cent of the property value for Canadian nationals and permanent residents, and rising to 2 per cent for foreigners or non-residents.

PAKISTAN: Race to develop anti-money laundering law reforms

The Pakistani government is about to place the Mutual Legal Assistance Act 2018 (MLAA) before parliament, in one of the reforms necessary to avoid being blacklisted by the global Financial Action Task Force (FATF). In June last year, the country was placed on FATF’s ‘grey list’ list of high-risk countries subject to compliance monitoring, after a review found many deficiencies in its anti-money laundering regime. The MLAA will allow the authorities to share AML information with other countries, but 27 further reforms will still be needed before September 2019, including customer due-diligence rules.

Sources: STEP | IFC Review

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