Bulletin 7

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U.K: Corporate Tax Allure Outweighs Brexit Concerns, CEO Says

The U.K. is gaining allure as a head-office location for international companies as government plans to lower corporation tax outweigh Brexit concerns, according to the founder and chief executive of staffing and outsourcing business Robert Walters Plc.

“You’ve got reducing corporation tax, you’ve got a well-educated workforce, you’ve got benign employment law, a devalued currency — why wouldn’t you be based in the U.K.?” Robert Walters said in an interview. While much of the post-Brexit debate has centred on whether financial companies will consider leaving London, the government sees lowering costs as key to ensuring large firms remain. In last week’s spring budget, Chancellor of the Exchequer Philip Hammond affirmed a commitment to lower corporation-tax rates from 20 percent to 17 percent by 2020.

The government’s stance has drawn the irk of the European Union, which fears Britain being a tax haven on the bloc’s perimeter. McDonald’s Corp. announced plans to move its non-U.S. tax base to the U.K. from Luxembourg last August.

EUROPEAN UNION: Spain told to reduce penalties for offshore non-compliance

The European Commission has warned Spain that its fines on taxpayers who fail to notify the authorities of assets held abroad are disproportionately heavy. The fines are much higher than penalties applied in a purely national situation, and may deter businesses and private individuals from investing or moving across borders in the single market. The Commission is allowing the Spanish authorities two months to reply before referring Spain to the EU Court of Justice.

ANTI-MONEY LAUNDERING: Beneficial ownership high on FATF meeting agenda

The international Financial Action Task Force (FATF) has had discussions in Paris on transparency and beneficial ownership, aiming to ‘help prevent the abuse of companies and trusts for criminality and terrorism, including through focusing on vulnerabilities linked to beneficial ownership, the enforcement and supervision of beneficial ownership obligations, and collaboration with the OECD Global Forum on Tax in order to ensure consistency and maximum impact of both bodies’ peer review processes’. The meetings will also review progress by countries with outstanding money laundering deficiencies, such as Brazil and South Africa, and monitor the negative impact of de-risking by the clearing banks.

IRELAND: Government calls for comments on multinational tax reform

Ireland’s government has launched a public consultation on its planned review of the country’s corporation tax code. It focuses on: tax transparency; automatic exchange of information on tax rulings; ending preferential treatment to any taxpayer; commitments to tackle harmful tax competition and aggressive tax planning; delivering tax certainty for business; and maintaining the competitiveness of Ireland’s corporation tax offering, including the 12.5 per cent rate of corporation tax.

GERMANY: Budget surplus highest since 1990

Germany’s budget surplus hit a post-reunification high of nearly 24bn euros (£20bn) in 2016 boosted by a higher tax take and increased employment. This is the third year running that German government revenue has outstripped expenditure. However, there was an increase in spending on housing and integrating refugees. Under budget law, some of the surplus money will go into a fund to support the refugees. Separately, official figures confirmed the economy grew by 1.9% last year, mainly because of higher spending by consumers and government.

EUROPEAN UNION: Agreement reached on hybrid mismatch directive

European Union finance ministers have agreed the text of a draft directive aimed at closing down multinational tax avoidance schemes that exploit ‘hybrid mismatches’ with the tax systems of third countries outside the EU. The directive will be implemented on 1 January 2020, a year later than originally planned, and banks will be given a transitional exemption period.

EU: Member states’ broad definition of tax havens raises concerns

EU finance ministers agreed on criteria that will be used to label tax-free jurisdictions as offshore territories, sparking concerns about the negative impact on EU’s future black-list. The EU will publish its list of tax havens by the end of the year and the Ecofin Council initially agreed on the criteria for preparing a list of ‘non-cooperative jurisdictions for tax purposes’ last November.

But Britain and Ireland’s opposition to naming territories with 0% tax rate as tax havens forced the member states to agree on a new definition. As agreed in November, EU finance ministers insisted today that third countries “should have no preferential tax measures that could be regarded as harmful”, according to the criteria included in the member states’ code of conduct for business taxation.

In terms of tax-free jurisdictions, experts will examine them against the principles included in the member states’ code of conduct on business taxation. The goal is to ensure that foreign regimes fulfil the same principles as the EU territories, in order to level the playing field.

OECD Base Erosion Profit Shifting: Minimum Standards and Peer Reviews

The G20 agreed to the various actions under the 15 BEPS Action Plan at the end of 2015 subject to further work in some areas which was largely completed by the end of 2016. A major piece of work completed by the end of 2016 was agreement to the Multilateral Instrument which was signed this year and will allow those countries who sign up to it to modify, with immediate effect, the agreed changes to their existing Double Tax Treaties.

The countries involved in the BEPS Action Plan now number about 100 which are all part of the Inclusive Framework and all these countries have agreed to implement the BEPS minimum standards: these cover four of the Actions. At a meeting in Paris as part of the meeting of the Committee of Fiscal Affairs these 100 countries agreed how they are going to ensure the implement the minimum standards, Each of the minimum standards is subject to a peer review process in order to ensure timely and accurate implementation.

CANADA: Advisors will need to register all tax products with CRA

The Canadian government has accepted all the recommendations of the parliamentary Finance Committee’s report on offshore tax avoidance and tax evasion, published in October 2016. They include requiring tax advisors operating in Canada to register all their tax planning products with the Canada Revenue Agency (CRA). The CRA will also pursue audits of individuals and firms implicated by the Mossack Fonseca data leak, reporting back by 1 June 2017.

EUROPEAN UNION: MEPs vote to include all trusts in beneficial ownership registers

Two European Parliament committees have overwhelmingly voted to amend the Fourth EU Anti-Money Laundering Directive (4AMLD) to make it compulsory for trusts to publicly identify their beneficial owners. The European Parliament’s vote would also require 4AMLD’s company beneficial ownership provisions to be extended to allow free access to that information to all EU citizens, not just those with a ‘legitimate interest’.

EU: Union Mulls Tax Sanctions for Countries Branded Tax Havens

Countries that end up on the European Union’s list of tax havens could subject companies operating within their borders to tax sanctions—such as withholding taxes and denied deductions for royalty payments—damaging the businesses’ ability to offset losses in the jurisdictions.

Following a March 1 meeting, politicians identified a range of sanctions to impose on companies in any country or jurisdiction that meets the criteria for being considered a tax haven. According to confidential documents obtained by Bloomberg BNA, the sanctions under consideration for the blacklist by the EU Code of Conduct Group for Business Taxation include:  withholding taxes;  elimination of payment deductions, such as royalties;  restrictions via new EU rules for controlled foreign corporations; and elimination of the participation exemption rule.

All of the sanctions could apply to an EU company doing business within a jurisdiction that ends up on the EU tax haven blacklist, which is due to be finalized by the end of 2017. Based on the confidential documents, the final list of sanctions can be imposed via coordinated measures such as EU legislation or restrictions through EU funding.

IRELAND: Michael Noonan attacks EU body over corporate tax plans

Minister for Finance Michael Noonan has launched a stinging attack on the European Commission over its proposals on corporate tax reform, accusing it of reneging on previous agreements and of “bad practice”. Mr Noonan also appeared to suggest he would delay any progress on the proposals for common rules on calculating corporation tax, known as the common consolidated corporate tax base (CCCTB).

He also suggested that the commission’s plans could derail existing international agreements to prevent tax avoidance by multinational companies. Mr Noonan departed from a prepared script in the course of his address to the Irish Taxation Institute’s annual dinner last Friday evening to make some highly pointed comments about the commission.

GERMANY: No unfettered public access to beneficial ownership register

The German federal government has approved a draft bill to implement the Fourth European Anti-Money Laundering Directive (4AMLD). The text of the bill has undergone substantial changes since the earlier ministerial draft, published in December 2016. The bill now covers the whole gambling sector, not just casinos and online betting. All companies trading in goods will be obliged to report suspicious transactions, and to carry out customer due diligence in such cases. The bill also introduces a central electronic register of ultimate beneficial owners (D: Transparenzregister) of companies, partnerships and trusts, though it will not be available to the general public.

ITALY: Country Joins The European Race To Attract Wealthy Foreigners

Italy’s  government this week introduced a measure in its 2017 budget that it has been discussing for a while: By simply declaring Italy as your primary residence and paying a flat €100,000 a year “in lieu of the Italian Income Tax,” all one’s foreign-earned income will be considered tax paid. Potentially more than 1,000 wealthy and potentially super-wealthy people are expected to take up the offer, which officials hopes will draw new investors, spur real estate purchases and boost consumption.

The government makes no bones about its rationale for the provision. “The aim,” the Agencia Entrate (Internal Revenue Service) explains on its website, is to “enhance investments in Italy by attracting high-net-worth individuals (by providing) for those individuals transferring their residence to Italy a substitute tax to their foreign income and gain.” The tax break applies to “newly resident individuals in Italy, who (regardless of their nationality or domicile)” lived outside Italy for nine of the past 10 years, must be renewed annually and has a limit of 15 years.

Sources: STEP | IFC Review

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