ISSUE 12 - Poledna | Boss | Kurer
ISSUE 12 - Poledna | Boss | Kurer ISSUE 12 - Poledna | Boss | Kurer
GLOBAL TAX WEEKLY a closer look ISSUE 12 | JANUARY 31, 2013 SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL GOVERNANCE BUDGETS COMPLIANCE OFFSHORE SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS COUNTRIES AND REGIONS EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU
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- Page 4 and 5: Transfer Pricing 61 Transfer Pricin
- Page 6 and 7: Regulation and IGA/Definitional Con
- Page 8 and 9: Value Individual Account holders; r
- Page 10 and 11: The last date by which a FFI can re
- Page 12 and 13: Traditionally, Parliament has react
- Page 14 and 15: The government has also used succes
- Page 16 and 17: When the Aaronson report 3 was publ
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- Page 22 and 23: 4 5 Newton Oller de Mello, Eduardo
- Page 24 and 25: II. Time Of Taxation According to S
- Page 26 and 27: B. Taxation Of Restricted Or Unlist
- Page 28 and 29: information stated in Art. 4 of the
- Page 30 and 31: 15 Art. 17c FDTA, Art. 7e FTHA. 24
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- Page 34 and 35: 1.2. PE taxation rules CTA, Art. 14
- Page 36 and 37: 1.3. Comparison with German rules P
- Page 38 and 39: Art. 138 (i), and OECTA, Art. 176 (
- Page 40 and 41: source rules and PE taxation rules,
- Page 42 and 43: 22 23 OEITA, Art. 183. However, the
- Page 44 and 45: 5% profitability requirement had si
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- Page 48 and 49: pension funds and their managers, a
- Page 50 and 51: currency-related crises in various
GLOBAL TAX WEEKLY<br />
a closer look<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE<br />
TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL<br />
GOVERNANCE BUDGETS COMPLIANCE OFFSHORE<br />
SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS<br />
RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND<br />
MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS<br />
COUNTRIES AND REGIONS EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC<br />
DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE<br />
HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND<br />
PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM<br />
EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH<br />
AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN<br />
BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY<br />
UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA<br />
JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA<br />
CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO<br />
URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT<br />
ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA<br />
TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA<br />
BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF<br />
MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU
GLOBAL TAX WEEKLY<br />
a closer look<br />
Global Tax Weekly – A Closer Look<br />
Using the unrivalled worldwide multi-lingual<br />
research capabilities of leading law and tax<br />
publisher Wolters Kluwer and its new acquisition<br />
BSI (The Lowtax Network), CCH has launched<br />
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Topicality, thoroughness and relevance are<br />
our watchwords: BSI's network of expert local<br />
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input to a US/UK team of editors outputting<br />
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subjects (e.g. transfer pricing), and regions (e.g.<br />
asia-pacific).<br />
Alongside the news analyses are a wealth of feature<br />
articles each week covering key current topics in depth,<br />
written by a team of senior international tax and legal<br />
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and "The Jester's Column," a light-hearted but<br />
merciless commentary on the week's tax events.<br />
Read Global Tax Weekly – A Closer Look in<br />
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GLOBAL TAX WEEKLY<br />
a closer look<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
CONTENTS<br />
FEATURED ARTICLES<br />
The Final FATCA Regulations: Highlights<br />
by Alan Winston Granwell and Witold Jurewicz,<br />
DLA Piper LLP (US) 5<br />
The UK's GAAR: To Be Or Not To Be?<br />
by Stuart Gray, Managing Tax Editor, Global Tax Weekly 11<br />
Digital Invoicing In The EU And Brazil<br />
by Richard T Ainsworth, Boston University School<br />
of Law, Graduate Tax Program 20<br />
New Swiss Legislation On The Taxation<br />
Of Employee Shareholdings<br />
by Walter H. <strong>Boss</strong>, Attorney at Law, LL.M. and Andrea<br />
Scherrer, Attorney at Law, Certified Tax Expert,<br />
<strong>Poledna</strong> <strong>Boss</strong> <strong>Kurer</strong> AG, Zurich, Switzerland 23<br />
Why Japan Needs To Change PE Taxation Rules<br />
by ASATSUMA Akiyuki, Doctor of law in the<br />
University of Tokyo, Associate professor of tax law at<br />
College of Law and Politics, in Rikkyo University, Tokyo 32<br />
Latest Changes To The Brazilian<br />
Transfer Pricing Rules<br />
By Miguel A. Valdes, Lawyer and certified public<br />
accountant, partner of the law firm Valdes & Associates,<br />
LLC, in Chicago, Illinois 43<br />
Financial Transaction Taxes:<br />
Robin Hood Rides Again<br />
by Caroline Huggett, Senior Editor, Global Tax Weekly 46<br />
NEWS ROUND-UP<br />
Financial Investments 55<br />
Financial Investments - Analysis<br />
Ecofin Gives Go-Ahead To FTT<br />
US Lawmakers Reintroduce FTT Bill<br />
Cayman Clarifies Fund Registration Rules<br />
Country Focus: Switzerland 58<br />
Country Focus: Switzerland - Analysis<br />
Austria To Wait For Revenues From Swiss Tax Deal<br />
Swiss Tax Administrative Assistance Act In Force Soon<br />
Switzerland Reorganizes 'Sin Tax' Collection<br />
Switzerland Extends VAT Perk For Hoteliers<br />
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Transfer Pricing 61<br />
Transfer Pricing - Analysis<br />
BRICS Countries Agree To Greater Cooperation<br />
In Tax Administration<br />
UK Cracking Down On Transfer Pricing Abuse<br />
Cameron Attacks Tax Avoidance At Davos<br />
Other Taxes 71<br />
Other Taxes - Analysis<br />
French Report Advocates Internet Tax<br />
Caribbean To Stand Its Ground On Rum Tax Dispute<br />
India Hikes Gold Import Duty<br />
Philippines Looks To Tax Online Traders<br />
Industry Update: Aerospace 65<br />
Industry Update: Aerospace - Analysis<br />
Flybe Looks To Free Itself From UK APD Stranglehold<br />
Jersey Minister Gives Channel Island Aircraft Registry Update<br />
Flat Year For Embraer In 20<strong>12</strong><br />
TAX TREATY ROUND-UP 74<br />
CONFERENCE CALENDAR 77<br />
IN THE COURTS 88<br />
THE JESTER'S COLUMN<br />
The unacceptable face of tax journalism 90<br />
Real Estate and Property Taxes 68<br />
Real Estate and Property Taxes - Analysis<br />
Hong Kong Considers Vacant Property Tax<br />
Shanghai Modifies Property Tax Threshold<br />
IRS Provides Guidance On Mortgage Reduction Incentive<br />
For article guidelines and submissions, contact GTW_Submissions@wolterskluwer.com
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
The Final FATCA Regulations:<br />
Highlights<br />
by Alan Winston Granwell and Witold Jurewicz,<br />
DLA Piper LLP (US)<br />
On January 17, 2013, the US Treasury Department<br />
issued final FATCA regulations (the “Regulations”).<br />
The Regulations, although simplified and clarified,<br />
are lengthy (544 pages) and over 150 pages longer<br />
than the Proposed Regulations.<br />
In drafting the Regulations, the US Treasury Department<br />
adopted a targeted, risk-based approach<br />
to implement FATCA by balancing policy considerations<br />
and administrative burdens and more fully<br />
incorporating local AML/KYC documentation<br />
practices. The Regulations detail the operational<br />
aspects of implementing FATCA – to reduce administrative<br />
burdens and clarify the interaction of<br />
the unilateral regulatory regime with the bilateral<br />
intergovernmental (“IGA”) regime. Of particular<br />
importance is that the Regulations fill in many of<br />
the gaps that foreign financial institutions (“FFIs”)<br />
had as to how to implement FATCA. Nevertheless<br />
FFIs, particularly global financial institutions, will<br />
have continuing challenges implementing the rules<br />
under the Regulations and IGAs within the current<br />
timelines among geographies, lines of business, clients<br />
and products.<br />
Headline Changes<br />
Withholding : grandfathered date extended for<br />
obligations outstanding on January 1, 2014 and<br />
for gross proceeds and foreign passthru payments<br />
occurring before January 1, 2017.<br />
Covered FFIs : clarified and scope limited; nonprofessionally<br />
managed passive entities now are<br />
non-fi nancial foreign entities (“NFFEs”), not<br />
FFIs; clarification of scope of depository institutions,<br />
insurance companies and investment funds.<br />
Financial Account : clarified and scope limited.<br />
Deemed Compliant : current category requirements<br />
relaxed and several new categories added.<br />
Retirement funds : exempted categories expanded<br />
and relaxed.<br />
Due Diligence/Documentation Rules : calibrated,<br />
based on value, risk profile; greater reliance on<br />
currently existing information, AML/KYC and<br />
local statements and self-certifications.<br />
Timing : delay timeframes to review existing accounts<br />
and implement FATCA's obligations in<br />
stages.<br />
Compliance and Verification : FFI obligations<br />
detailed with respect to establishing, reviewing<br />
and remediating compliance program.<br />
Local Law Conflicts with FFI Agreemen t: FFI's<br />
withholding and reporting obligations under an<br />
FFI Agreement and local law conflicts clarified.<br />
5<br />
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Regulation and IGA/Definitional Conformance:<br />
numerous definition variances and other items<br />
under Proposed Regulations and IGAs conformed.<br />
IGAs : details provided as to interaction of Regulations<br />
and IGAs.<br />
IRS Portal : details provided, including with respect<br />
to registration and applicable dates.<br />
Summary Overview of Highlights<br />
The Regulations contain myriad, detailed rules; this<br />
Alert focuses on a number of the important changes between<br />
the Regulations and the Proposed Regulations.<br />
Withholding:<br />
Grandfathering. Obligations outstanding on<br />
January 1, 2014, and associated collateral, are<br />
exempt from FATCA withholding.<br />
Foreign Passthru Payments . Exempted from<br />
FATCA withholding until the later of January 1,<br />
2017, or six months after the date of publication<br />
of final regulations defining the term “foreign<br />
passthru payments”.<br />
Dividend Equivalent Payments. Exempted from<br />
FATCA withholding with respect to obligations<br />
outstanding any time prior to six months after<br />
the final regulations published.<br />
US Source FDAP. January 1, 2014 for certain payees;<br />
then in subsequent years phases in for other payees.<br />
Gross Proceeds from US obligations . Exempted<br />
from FATCA withholding until January 1, 2017.<br />
Covered FFIs:<br />
Depository institution : precondition is accepting<br />
deposits in the ordinary course of its business with<br />
customers; in addition, the entity must regularly<br />
engage in one or more of the banking or financing<br />
activities enumerated in the Regulations; thus,<br />
finance companies that do not fund operations<br />
through deposits are excluded. The Regulations<br />
also clarify that an IGA controls as to whether a<br />
resident entity described in an applicable IGA is<br />
an FFI.<br />
Investment Entity : defi nition is clarifi ed and<br />
narrowed to exclude passive, non-commercial<br />
investment vehicles and trusts. Thus, passive, not<br />
professionally managed entities will generally be<br />
treated as passive NFFEs rather than FFIs, but<br />
entities that function or hold themselves out as<br />
mutual funds, hedge funds, or similar investment<br />
vehicles established with an investment strategy<br />
of investing, reinvesting or trading in financial<br />
assets will be investment entities.<br />
Certain Holding Companies and Treasury<br />
Centers : limit the circumstances under which a<br />
holding company or treasury center is treated as<br />
an FFI.<br />
Financial Account:<br />
The Regulations limit the scope of the term “depository<br />
account” in a number of ways and, in<br />
that regard, provide clarifying guidance with respect<br />
to equity or debt interests in different types<br />
of financial institutions.<br />
Th e Regulations simplify insurance definitions<br />
and contracts and clarify when an insurance<br />
company is an FFI or a NFFE.<br />
The Regulations expand the exception from financial<br />
account status for certain savings accounts to<br />
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6
accommodate savings vehicles used in a number<br />
of countries.<br />
funds and exempt beneficial owners identified<br />
in an IGA.<br />
Deemed Compliant:<br />
The Regulations generally retain the same deemed<br />
compliant categories included in the Proposed<br />
Regulations, subject to modification and clarification,<br />
and add new categories for certain credit<br />
card issuers, sponsored FFIs ( i.e. , where a trustee<br />
or fund manager manages trusts or funds on a<br />
consolidated basis) and limited-life debt investment<br />
entities.<br />
Insurance companies can now qualify as local<br />
FFIs and FFIs with only low-value accounts.<br />
Th e Regulations have relaxed various requirements<br />
for registered deemed compliant FFIs,<br />
including local FFIs, qualified collective investment<br />
vehicles and restricted funds.<br />
The Regulations have added a six month “cure”<br />
period to correct non-compliance with the<br />
deemed compliant requirements.<br />
Retirement fund deemed compliant categories<br />
have been moved to the “exempt beneficial<br />
owner” category.<br />
Non-profit entities have been moved from the<br />
deemed compliant category to the excepted<br />
NFFE category.<br />
IGA deemed compliant entities will be treated as<br />
deemed compliant entities under the Regulations.<br />
Retirement Funds:<br />
The Regulations expand the circumstances under<br />
which certain classes of entities qualify for exemption<br />
from FATCA, including certain retirement<br />
Due Diligence/Documentation Rules:<br />
The Regulations significantly modify and relax<br />
general requirements for identifying, documenting<br />
and retaining documentation of account<br />
holders and the interaction with AML/KYC rules.<br />
The Regulations in certain circumstances permit<br />
reliance on withholding certificates, written<br />
statements, elimination of the penalty of perjury<br />
requirements, substitute and non-IRS forms<br />
(including forms in a foreign language), reliance<br />
on pre-FATCA W-8 Forms; the treatment of a<br />
new account of a pre-existing customer as a preexisting<br />
account; curing inconsequential errors;<br />
the validity of documentation; how and when<br />
the changed circumstances rule applies and its<br />
impact on documentation; rules with respect to<br />
reliance on documentation from other parties and<br />
in a “bulk acquisition”; and reliance on electronic<br />
transmission of documentation.<br />
Timing:<br />
Th e Regulations provide delayed time frames for<br />
various actions; to include: effective date of FFI<br />
Agreement is December 31, 2013 for all Participating<br />
FFIs that receive a GIIN (defined below)<br />
prior to January 1, 2014 ; date new account due<br />
diligence procedures commence is January 1,<br />
2014; accounts maintained prior to January 1,<br />
2014 are pre-existing accounts; account holder<br />
documentation is delayed until December 31,<br />
2015 for other than prima facie FFIs and High<br />
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7
Value Individual Account holders; reporting account<br />
information to the IRS, on Form 8966,<br />
with respect to 2013 and 2014 is delayed until<br />
March 31, 2015 .<br />
FFI Agreement and Local Law Conflicts:<br />
The Regulations provide that an FFI may enter<br />
into an FFI Agreement if it can meet the following<br />
requirements: (i) if foreign law prohibits a<br />
Participating FFI from fulfilling its withholding<br />
obligations with respect to an account, the Participating<br />
FFI must close the account within a<br />
reasonable time or, if local law prohibits closing<br />
the account, the Participating FFI must block of<br />
transfer the account; and (ii) if a Participating FFI<br />
is prohibited by foreign law, absent a waiver, from<br />
reporting information on an account that it must<br />
treat as a US account, the Participating FFI must<br />
request a waiver of foreign law from the account<br />
holder and if such waiver is not obtained within<br />
a reasonable period of time, the Participating FFI<br />
must close or transfer such account. If an FFI<br />
cannot meet the foregoing requirements, it is not<br />
eligible to enter in an FFI Agreement but may obtain<br />
status as a “limited FFI” or “limited branch”<br />
if conditions are satisfied. That status causes the<br />
limited FFI or limited branch to be subject to<br />
FATCA withholding but does not disqualify the<br />
expanded affiliated group from becoming noncompliant<br />
FFI through 2015.<br />
Caveat . After December 31, 2015, under the<br />
Regulations, all FFIs within an expanded affiliated<br />
group must be compliant. Thus, non-IGA FFIs/<br />
branches will not be treated as compliant and will<br />
become subject to the FATCA withholding tax<br />
unless the local country changes its laws to allow<br />
compliance with FATCA or the country enters<br />
into an IGA (IGA country FFIs/branches can<br />
remain compliant if certain conditions are met<br />
under the IGA).<br />
Compliance and Verification:<br />
The Regulations provide detailed rules with respect<br />
to Participating FFI compliance, to include appointment<br />
of a responsible officer, establishment of<br />
a compliance program that includes policies, procedures<br />
and processes sufficient for the Participating<br />
FFI to satisfy the FFI Agreement requirements,<br />
responsible officer periodic review of the compliance<br />
program, material failures, events of default,<br />
certification and remediation, and IRS review.<br />
A responsible officer may be any officer of the<br />
Participating FFI or reporting Model 1 FFI in<br />
the Participating FFI's expanded affiliated group<br />
with sufficient authority to fulfill the duties of a<br />
responsible officer as described in the Regulations.<br />
Regulation/IGA Conformance:<br />
The Regulations conform the definition of many<br />
FATCA terms to those contained in IGAs to avoid<br />
disparities that were contained in the Proposed<br />
Regulations. The Regulations also conform various<br />
items related to due diligence, such as timing and<br />
when changed circumstances must be reported.<br />
IGAs:<br />
FFIs covered by, and compliant with, Model 1<br />
IGAs do not need to comply with the Regulations<br />
8
for purposes of avoiding FATCA withholding,<br />
but must register, as discussed below.<br />
In certain cases, the laws of a FATCA Partner<br />
jurisdiction may allow an FFI to elect to apply<br />
the provisions of the Regulations instead of IGA.<br />
FFIs covered by Model 2 IGA will be required<br />
to implement FATCA in manner prescribed by<br />
Regulations except to the extent expressly modified<br />
by the Model 2 IGA but must register, as<br />
described below.<br />
IRS Portal:<br />
The Portal will be the primary means for FFIs to interact<br />
with the IRS to complete and maintain their<br />
FATCA registrations, agreements and certifications.<br />
The Portal will be a paperless, secure online web<br />
portal.<br />
The Portal will be used for registration, electronic<br />
communication between the IRS and FFIs and other<br />
registrants and other FATCA communications.<br />
Registered FFIs designated as leads of an expanded<br />
affiliated group will be able to use the<br />
Portal to manage the registration status of group<br />
members. Thus, an FFI in a Model 1 country can<br />
register and enter into FFI Agreements on behalf<br />
of branches in jurisdictions covered by Model 2<br />
IGA and in non-IGA countries .<br />
The Portal will be accessible to FFIs NLT than<br />
July 15, 2013 . At that time, FFIs will be able to<br />
register as Participating FFIs, sponsoring entities<br />
or as limited FFIs or registered deemed compliant<br />
FFIs (including reporting Model 1 FFIs, which<br />
are treated as registered deemed compliant FFIs<br />
under the Regulations).<br />
Once an FFI has registered, the IRS will approve<br />
its registration and issue a GIIN (Global<br />
Intermediary Identifi cation Number) to each<br />
Participating FFI and registered deemed compliant<br />
FFI.<br />
Model 1 FFIs or an FFI described as a Reporting<br />
Financial Institution under the Model 2 IGA will<br />
also be required to register so long as the FATCA<br />
Partner jurisdiction is identified on a list published<br />
by the IRS of countries treated as having<br />
in effect an IGA, even if any necessary ratification<br />
of such IGA in the jurisdiction has not yet been<br />
completed.<br />
Th e IRS currently contemplates that the GIIN<br />
may also be used by reporting Model 1 FFIs to<br />
satisfy reporting requirements under local law<br />
and is discussing this possibility with its Model<br />
1 IGA partners.<br />
Under a transitional rule, for payments made<br />
prior to January 1, 2015, it will not be necessary<br />
for a Model 1 FFI to have a GIIN provided that<br />
the Model 1 FFI's withholding certificate specifies<br />
that it is a Model 1 FFI and identifies its IGA<br />
jurisdiction.<br />
A GIIN will be assigned beginning no later than<br />
October 15, 2013 and will be used as the ID<br />
number for satisfying the FFI's reporting obligations<br />
and identifying its status to a withholding<br />
agent.<br />
Th e IRS will electronically post the fi rst IRS<br />
list of Participating FFIs and registered deemed<br />
compliant FFIs (including Model 1 FFIs) on<br />
December 2, 2013 , and will update the list on<br />
a monthly basis.<br />
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9
The last date by which a FFI can register with the<br />
IRS to ensure inclusion on the December 2013<br />
IRS FFI list is October 25, 2013.<br />
Forthcoming IRS Guidance to Include:<br />
IRS will issue a Revenue Procedure before the Portal<br />
opens containing all the terms and conditions<br />
of an FFI Agreement, including administrative<br />
provisions such as those relating to termination,<br />
renewal and modification of the agreement.<br />
A revision of the requirements for a QI agreement<br />
for external audit procedures to verify a<br />
QI's compliance with its QI agreement.<br />
New forms (and instructions) relating certification,<br />
reporting and withholding FATCA<br />
requirements.<br />
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10
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
The UK's GAAR: To Be Or Not To Be?<br />
by Stuart Gray, Managing Tax Editor,<br />
Global Tax Weekly<br />
Introduction<br />
Th is article examines some of the key existing and<br />
proposed measures to tackle the problem of aggressive<br />
tax planning in the United Kingdom, with a<br />
focus on the forthcoming general anti-abuse rule<br />
(GAAR) and the existing tax avoidance scheme<br />
disclosure regime, in addition to other recent antiavoidance<br />
legislation.<br />
Th e UK is certainly not alone in its desire to crack<br />
down on tax evasion and avoidance, and governments<br />
all over the world are strengthening their<br />
legislative arsenals to prevent individuals and businesses<br />
playing fast and loose with the tax laws as<br />
they attempt to reduce the “tax gap” and replenish<br />
depleted treasury coffers. The UK government<br />
has, however, been particularly active in this area<br />
lately as reports continue to flood the airwaves and<br />
written media about the aggressive tax planning<br />
techniques employed by some wealthy individuals<br />
and businesses. Such reports reveal how marketed<br />
schemes have enabled some high-profile and wellremunerated<br />
entertainers to reduce their overall tax<br />
rate to single digit figures, sometimes to as low as<br />
1% or 2%; and on the corporate side, some large<br />
multinationals have come in for severe criticism<br />
from lawmakers and the general public for using tax<br />
mitigation strategies that have led to them paying<br />
very little – in some cases nothing – in income tax<br />
in the UK over several years.<br />
In most jurisdictions, including the UK, the line between<br />
legal tax avoidance and criminal tax evasion is<br />
quite clearly defined, and in the case of the recently<br />
described extreme tax minimization techniques used<br />
by individuals most would agree that a boundary<br />
between “acceptable” tax avoidance and “unacceptable”<br />
(some would say “immoral”) tax avoidance had<br />
been crossed. In the corporate sector, things are not<br />
so clear. The companies that have been pilloried in<br />
the UK argue, quite rightly, that they are only following<br />
the law as it is written, and that they have a duty<br />
to their shareholders to reduce costs, including tax,<br />
and maximize profits, even if many think that such<br />
activity falls into the “unacceptable” category. So it<br />
is not always easy to define the difference between<br />
acceptable and unacceptable tax planning, and separating<br />
the two in legal terms almost always involves<br />
somebody’s own subjective judgment – usually the<br />
government’s or the legislature’s. If large amounts of<br />
revenue are at stake, many would think that governments<br />
can't always be trusted to exercise their judgment<br />
in the best interests of taxpayers.<br />
11<br />
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Traditionally, Parliament has reacted to examples of<br />
“unacceptable” tax planning by approving sticking<br />
plaster anti-avoidance bills which are tacked onto<br />
the main tax statutes when they become aware of a<br />
new scheme. As a result, over the last ten years, there<br />
have been dozens of changes in UK law to shut down<br />
avoidance schemes. While the government boasts that<br />
this has protected billions of pounds in tax revenue,<br />
it has had the undesirable effect of making an already<br />
complicated tax system practically unfathomable to<br />
most people – including, in some cases, the tax authority<br />
itself – and has filled up the court system with<br />
complex pieces of tax litigation –, something Graham<br />
Aaronson referred to in his report on a UK GAAR<br />
(see below) as a “sort of fiscal chess game, but with an<br />
ever increasing number of moves and pieces.”<br />
Over the last few years however, there have come<br />
to be signs that the government wants to take a<br />
more strategic approach to tackling unacceptable<br />
tax avoidance, to reduce the administrative burden<br />
on taxpayers and HM Revenue and Customs<br />
(HMRC), foster more certainty in fiscal affairs and<br />
improve the business environment generally. This<br />
led to the creation of a disclosure regime in 2004,<br />
although reports suggest that this has only been<br />
partially successful in tackling the problem (indeed,<br />
many of the tax law changes mentioned above stem<br />
from this regime). More recently, the government<br />
has proposed a general anti-abuse rule, which it<br />
hopes will be a panacea for the problem of aggressive<br />
tax avoidance, and will simplify the process of<br />
dealing with avoidance cases when they reach the<br />
courts. Both of these aspects are explored below.<br />
The Disclosure Of Tax Avoidance Schemes<br />
(DOTAS)<br />
The Disclosure of Tax Avoidance Schemes (DOT-<br />
AS) regime is a statutory disclosure regime which<br />
was enacted as part of the Finance Act 2005, and it<br />
was introduced with effect from August 1, 2004. It<br />
places an obligation on promoters of tax avoidance<br />
schemes to disclose details of the arrangements to<br />
HMRC. Initially, DOTAS was limited to arrangements<br />
concerning employment or the use of certain<br />
financial products, but it was widened with effect<br />
from August 1, 2006, to cover income tax, corporation<br />
tax and capital gains tax. Under the legislation,<br />
a scheme must be disclosed when: it will, or might<br />
be expected to, enable any person to obtain a tax advantage;<br />
that tax advantage is, or might be expected<br />
to be, the main benefit or one of the main benefits<br />
of the arrangement; and it is a tax arrangement that<br />
falls within any description prescribed in the relevant<br />
regulations. With regards to the third point,<br />
these descriptions, known as “hallmarks,” include:<br />
wishing to keep the arrangements confidential<br />
from a competitor;<br />
wishing to keep the arrangements confidential<br />
from HMRC;<br />
arrangements for which a premium fee could<br />
reasonably be obtained;<br />
arrangements that are standardized tax products;<br />
arrangements that are loss schemes; and<br />
arrangements that are certain leasing arrangements<br />
In most situations where a disclosure is required it<br />
must be made by the scheme “promoter” within<br />
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<strong>12</strong>
five days of one of three trigger events, the first<br />
of which coincides with actively marketing the<br />
scheme. However, the scheme user may need to<br />
make the disclosure in cases where: the promoter is<br />
based outside the UK; the promoter is a lawyer and<br />
legal privilege applies; and there is no promoter.<br />
Upon disclosure, HMRC issues the promoter with<br />
an eight-digit scheme reference number for the disclosed<br />
scheme. By law the promoter must provide<br />
this number to each client that uses the scheme,<br />
who in turn must include the number on their tax<br />
return or on a special form created as part of the<br />
DOTAS disclosure process. A person who designs<br />
and implements their own scheme must disclose it<br />
within 30 days of it being implemented.<br />
A disclosure regime was also introduced on 1 August<br />
2004 in relation to arrangements that are intended to<br />
give any person a value-added tax (VAT) advantage.<br />
The main obligation for disclosure rests with those<br />
taxable persons who are party to the scheme. However,<br />
disclosure is limited to two broad categories: listed<br />
VAT avoidance schemes and hallmarked schemes.<br />
The listed schemes are certain arrangements<br />
that involve:<br />
the first grant of a major interest in a building;<br />
payment handling services;<br />
value shifting;<br />
leaseback arrangements;<br />
extended approval periods;<br />
groups and third party suppliers;<br />
education and training by a non-profit making body;<br />
education and training by a non-eligible body;<br />
cross-border face-value vouchers; or<br />
a surrender of a relevant lease<br />
Th e hallmarks are:<br />
confidentiality agreements;<br />
agreements to share a tax advantage;<br />
contingent fee agreements;<br />
prepayments between connected parties;<br />
funding by loans, share subscriptions or subscriptions<br />
in securities;<br />
off-shore loops;<br />
property transactions between connected persons;<br />
and<br />
issue of face-value vouchers<br />
Th e obligation to disclose is triggered by:<br />
the submission of a VAT return that shows an<br />
amount that is different (higher or lower) from<br />
what would have been shown had the scheme not<br />
been entered into;<br />
the submission of a claim for VAT (for example,<br />
by the making of a voluntary disclosure of an<br />
error) that is higher than what would have been<br />
claimed had the scheme not been entered into; or<br />
incurring at any time less non-deductible VAT<br />
than would have been incurred had the scheme<br />
not been entered into<br />
Th e disclosure regime has been extended on a number<br />
of occasions to other taxes, including Stamp<br />
Duty Land Tax in 2005, national insurance contributions<br />
from May 1, 2007 and inheritance tax<br />
from April 6, 2011.<br />
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13
The government has also used successive finance<br />
bills to tighten various aspects of the disclosure<br />
regime.<br />
Following consultation, the March 2010 budget<br />
announced a package of five measures to strengthen<br />
and improve the DOTAS regime. Briefly these<br />
measures included:<br />
A new 'trigger point ' for the disclosure of actively<br />
marketed schemes – the point at which a promoter<br />
first communicates information (including<br />
information about the expected tax advantage)<br />
about a substantially designed scheme to a third<br />
party with a view to obtaining clients for that<br />
scheme;<br />
An information power which gives HMRC the<br />
power to require a scheme “introducer” (an intermediary<br />
whose function is to introduce clients<br />
to the promoter) to identify the promoter;<br />
Increased penalties for failure to comply with a<br />
disclosure obligation;<br />
A new requirement for promoters to provide<br />
HMRC with periodic information about clients<br />
who implement a notifiable scheme; and<br />
Revised and extended hallmarks.<br />
Th e first four of these measures were included in<br />
the 2010 Finance Act, while HMRC’s work to extend<br />
and revise the hallmarks has been ongoing.<br />
In a speech 1 to the Policy Exchange think tank in<br />
July 20<strong>12</strong>, Exchequer Secretary to the Treasury, David<br />
Gauke outlined further measures to strengthen<br />
the DOTAS regime. These included the granting of<br />
additional powers to HMRC to force promoters to<br />
disclose avoidance schemes and the details of their<br />
beneficiaries. Gauke revealed that rules would also<br />
be tightened to make it is easier to impose penalties<br />
for failure to provide information to HMRC about<br />
a scheme and that the government was also considering<br />
publishing warnings about tax avoidance<br />
schemes that are effectively being mis-sold.<br />
Doubts have been raised, however, over the effectiveness<br />
of DOTAS in deterring aggressive tax<br />
planning. The National Audit Office (NAO) was<br />
particularly critical of the disclosure regime in a<br />
report 2 tackling tax avoidance in November 20<strong>12</strong>.<br />
While this report noted that DOTAS has helped<br />
HMRC make important headway in reducing the<br />
opportunities for avoidance, it nevertheless saw little<br />
evidence that HMRC was making progress in<br />
preventing the sale of highly contrived tax avoidance<br />
schemes to a large number of taxpayers.<br />
On the plus side, the report found that in each of the<br />
previous four years, over 100 new avoidance schemes<br />
had been disclosed under DOTAS. It also concluded<br />
that DOTAS has helped to change the market for<br />
tax avoidance schemes, with the larger accountancy<br />
firms now less active in this area. But, in the view<br />
of the NAO there is little evidence to suggest that<br />
the usage of avoidance schemes is reducing. Since<br />
the introduction of DOTAS, HMRC has initiated<br />
93 changes to tax law designed to reduce avoidance.<br />
However, because tax avoidance is difficult to define<br />
in legal terms, it is still up to the tax authority<br />
to prove that a scheme is not consistent with tax law,<br />
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14
a resource-intensive process that has led to a backlog<br />
of 41,000 open cases relating to marketed avoidance<br />
schemes. While HMRC, concentrating on “lead<br />
cases,” has a good success rate when it litigates, its<br />
investigations can take many years to resolve and it<br />
cannot always successfully apply the rulings in lead<br />
cases to other cases. What’s more, observes the NAO,<br />
the costs of such a strategy are not counted, limiting<br />
the department’s ability to make informed decisions<br />
about where to direct its avoidance activity.<br />
"HMRC must push harder to find an effective way<br />
to tackle the promoters and users of the most aggressive<br />
tax avoidance schemes,” said Amyas Morse,<br />
head of the NAO. “Though its disclosure regime<br />
has helped to change the market, it has had little<br />
impact on the persistent use of highly contrived<br />
schemes which deprives the public purse of billions<br />
of pounds. It is inherently difficult to stop tax<br />
avoidance as it is not illegal. But HMRC needs to<br />
demonstrate how it is going to reduce the 41,000<br />
avoidance cases it currently has open."<br />
While the NAO’s report concentrated on the limitations<br />
of DOTAS and on the failings of HMRC to adequately<br />
manage its tax avoidance case load, another<br />
conclusion that could be drawn from it is that a more<br />
holistic approach to the problem of aggressive tax<br />
avoidance is needed, and this is to come in the form<br />
of the government’s proposed general anti-abuse rule.<br />
The Aaronson Report<br />
The Treasury announced its intention to proceed<br />
with a GAAR at the 20<strong>12</strong> Budget in March last<br />
year and it was scheduled for introduction in 2013<br />
as part of the government's "strategic approach" to<br />
the risk of avoidance. The inclusion of the proposals<br />
in the 20<strong>12</strong> Budget came partly in response to<br />
rising public anger at the unfairness of a tax system<br />
that lets the wealthy whittle their tax liability<br />
down to virtually nothing, while the vast swathes<br />
of working people have to pay up in full. However,<br />
the idea of bringing a GAAR to the UK is<br />
not new. The previous Labor administration under<br />
Prime Minister Gordon Brown toyed with the idea<br />
of a general anti-avoidance rule, but it eventually<br />
shelved the idea.<br />
Th en, in December 2010, the recently-elected<br />
coalition government commissioned tax barrister<br />
Graham Aaronson QC to lead a study that would<br />
consider the merits of a GAAR, and whether a law<br />
of this type could deter and counter tax avoidance,<br />
whilst providing certainty and minimizing<br />
costs for businesses and the tax authority. Aaronson<br />
put together a small committee consisting of<br />
experts from the field of UK tax law. Its members<br />
included: John Bartlett, Group Head of Tax at<br />
BP; Judith Freeman, Professor of Taxation Law,<br />
Oxford University Law Faculty; Sir Launcelot<br />
Henderson, Judge of the Chancery Division of<br />
the High Court of Justice; Lord Hoffman, Non-<br />
Permanent Judge of the Court of Final Appeal<br />
of Hong Kong; Howard Nolan, former Tax Partner<br />
at Slaughter and May and a part time Judge<br />
of the First-Tier Tribunal; and John Tiley QC,<br />
Emeritus Professor of the Law of Taxation and<br />
Founding Director of the Centre for Tax Law,<br />
Cambridge University.<br />
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15
When the Aaronson report 3 was published on November<br />
21, 2011, it did indeed make the case for<br />
a GAAR, but one that was narrowly-targeted to<br />
catch "abusive" tax avoidance schemes, because, it<br />
concluded, a broad-based rule would not be beneficial.<br />
Hence, it should be called a general anti-abuse<br />
rule, rather than a general anti-avoidance rule.<br />
This would be intended to ensure more certainty<br />
for “centre ground tax planning” while targeting<br />
“highly abusive, contrived and artificial schemes.”<br />
“I have concluded that introducing a broad spectrum<br />
general anti-avoidance rule would not be beneficial<br />
for the UK tax system,” wrote Aaronson in his<br />
report. “This would carry a real risk of undermining<br />
the ability of business and individuals to carry<br />
out sensible and responsible tax planning. Such tax<br />
planning is an entirely appropriate response to the<br />
complexities of a tax system such as the UK’s. To<br />
reduce the risk of this consequence a broad spectrum<br />
rule would have to be accompanied by a comprehensive<br />
system for obtaining advance clearance<br />
for tax planning transactions. But an effective clearance<br />
system would impose very substantial resource<br />
burdens on taxpayers and HMRC alike. It would<br />
also inevitably in practice give discretionary power<br />
to HMRC who would effectively become the arbiter<br />
of the limits of responsible tax planning.”<br />
settled is seen to be operating fairly and effectively,<br />
the report recommends extended the scope of the<br />
rule to other taxes, such as stamp duty land tax.<br />
However, Aaronson argued against including value-added<br />
tax within the ambit of the GAAR, because<br />
VAT law has its own set of anti-avoidance<br />
laws derived from European law, and applying a<br />
UK GAAR in parallel could clash with EU law.<br />
Aaronson’s GAAR includes a series of important<br />
safeguards to ensure that the centre ground of responsible<br />
tax planning is effectively protected. These<br />
safeguards are: an explicit protection for reasonable<br />
tax planning; an explicit protection for arrangements<br />
which are entered into without any intent<br />
to reduce tax; placing upon HMRC the burden of<br />
proving that an arrangement is not reasonable tax<br />
planning; having an Advisory Panel, with relevant<br />
expertise and a majority of non-HMRC members,<br />
to advise whether HMRC would be justified<br />
in seeking counteraction under the GAAR; giving<br />
taxpayers and HMRC the right to refer to material<br />
or information which was publicly available when<br />
the tax planning arrangement was carried out; requiring<br />
that potential application of the GAAR has<br />
to be authorized by senior officials within HMRC<br />
to ensure consistency and responsibility in its application<br />
by HMRC.<br />
Th e report recommended that a GAAR should initially<br />
apply to the main direct taxes – income tax,<br />
capital gains tax, corporation tax, and petroleum<br />
revenue tax, as well as national insurance contributions.<br />
In time, when the GAAR legislation had<br />
On the fundamental question of what should and<br />
should not be regarded as an “abusive” transaction<br />
under the GAAR, Aaronson considered that reasoning<br />
developed by the Court of Final Appeal in<br />
Hong Kong in dealing with the territory’s GAAR<br />
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16
offers the best approach for the UK. “That approach<br />
is to recognize that tax rules may give taxpayers<br />
a number of reasonable choices as to the sort<br />
of transactions which they may carry out and, depending<br />
on the choice, the tax result which could<br />
be achieved,” he wrote.<br />
To reduce uncertainty, Aaronson’s main recommendation<br />
is that HMRC apply a “double reasonableness<br />
test” when scrutinizing a tax avoidance<br />
scheme. This would be achieved by placing<br />
on HMRC the burden of demonstrating that the<br />
arrangement “cannot reasonably be regarded as a<br />
reasonable exercise of choice.”<br />
Publishing the Report, Aaronson said: “Responsible<br />
tax planning is an essential feature in a complex tax<br />
regime, such as the UK’s. But artificial and abusive<br />
tax avoidance schemes are widely regarded as an intolerable<br />
assault on the integrity of the tax regime.<br />
A general anti-abuse rule narrowly targeted to deter<br />
such schemes, while not affecting responsible tax<br />
planning, should lead to a fairer, more principled<br />
and ultimately simpler tax system; and I strongly<br />
recommend that such a rule should be introduced<br />
into our tax laws.”<br />
Although the proposals appeared to be welcomed<br />
by the government, which looked as if it was at<br />
least trying to stamp out the sort of schemes reported<br />
on frequently in the media, Aaronson’s report<br />
got mixed reviews from the tax community.<br />
The Chartered Institute for Taxation (CIOT) and<br />
Association of Taxation Technicians 4 for example,<br />
while welcoming Aaronson’s decision to opt for a<br />
narrowly-defined anti-abuse rule, said that the proposals<br />
overall pose more questions than answers.<br />
For instance, how would the GAAR affect the existing<br />
body of anti-avoidance laws? Would the narrow<br />
scope just cause further uncertainty over what<br />
is “abusive”; Who is to make the judgment about<br />
what is reasonable? How can the government ensure<br />
that the GAAR will not be wielded by HMRC to<br />
intimidate taxpayers/generate more revenue? Who<br />
will write the guidance, and would this not simply<br />
add yet another layer of rules onto the system? The<br />
CIOT also suggested that DOTAS could be just as<br />
effective as the proposed GAAR if it was given sufficient<br />
teeth.<br />
“We recognize there are concerns with aspects of the<br />
operation of the UK tax system that need to be addressed;<br />
we remain to be convinced that this GAAR<br />
is the right way to address them,” said the CIOT.<br />
The Government’s Proposals<br />
The government accepted the main recommendations<br />
of the Aaronson report, that a GAAR targeted<br />
at artificial and abusive tax avoidance schemes<br />
would improve the UK's ability to tackle tax avoidance,<br />
and put its draft proposals out to a threemonth<br />
consultation on June <strong>12</strong>, 20<strong>12</strong>. Under the<br />
government’s envisaged timeline, the GAAR is to<br />
apply to tax arrangements entered into on or after<br />
April 1, 2013 and it will also apply to inheritance<br />
tax, stamp duty land tax and annual residential<br />
property tax (due to be introduced in 2013),<br />
in addition to the taxes listed in Aaronson’s report.<br />
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17
Crucially, the government’s proposals differ in other<br />
ways too, and the language in the draft legislation<br />
suggests that it would be wider in scope than<br />
Aaronson’s GAAR.<br />
Over 14,000 consultation responses were received<br />
by the Treasury, and while these revealed support<br />
for the concept of a general anti-abuse rule, many<br />
respondents to the consultation expressed some<br />
alarm at certain key elements of the draft legislation.<br />
One of the main concerns is over the tests to be used<br />
to establish whether a tax scheme is "abusive" or "acceptable"<br />
avoidance, which deviate from the recommendations<br />
of the Aaronson report, and in particular,<br />
the government's "main purpose" test to be used<br />
to define a "tax arrangement." This clause would<br />
ensnare an arrangement if, “having regard to all the<br />
circumstances, it would be reasonable to conclude<br />
that the obtaining of a tax advantage was the main<br />
purpose, or one of the main purposes, of the arrangement.<br />
Suggestions by respondents that a more narrowly-targeted<br />
test, such as a "sole," "dominant" or<br />
"primary" purpose test would be preferable to a main<br />
purpose rule, so as to provide greater assurance to taxpayers<br />
that "centre ground planning" would not be<br />
caught, were rejected by the government, however.<br />
Respondents also pointed out flaws in the “reasonable”<br />
test. Indeed, this was a key concern for nearly<br />
all respondents, a large majority of whom considered<br />
that the proposed "double reasonableness" test<br />
is subjective and that the draft legislation may go<br />
beyond the stated policy aim, its scope potentially<br />
extending across a broad spectrum.<br />
Echoing the views of the CIOT, KPMG 5 says that<br />
the proposed anti-abuse rule, while sounding fine<br />
in principle, is far from perfect, and could end up<br />
merely adding more uncertainty to an already complex<br />
tax system. Consequently taxpayers entering<br />
into any planning at all will have a "sword of Damocles<br />
hanging over their head."<br />
"It's a real shame that the general anti-avoidance<br />
rule… is likely to lead to more, not less, uncertainty<br />
over where the line is drawn between ‘reasonable<br />
tax planning' and ‘unacceptable tax avoidance'<br />
which is often a key bone of contention between<br />
taxpayers and tax authorities when agreeing what is<br />
the ‘right' amount of tax due," commented Chris<br />
Morgan, head of tax policy at KPMG, upon the<br />
publication of the draft GAAR law. "The GAAR<br />
aims to target artificial and abusive tax planning<br />
and is not designed to be a broad spectrum rule<br />
that would sweep up arrangements made in the<br />
normal course of business. The government is to be<br />
applauded for following Graham Aaronson QC's<br />
Report recommending such a targeted approach.<br />
However, looking at the wording of the proposals,<br />
it could go much wider than this as it is based on<br />
what is and is not ‘reasonable' in both the wording<br />
and spirit of the legislation. What is reasonable<br />
to one person is unacceptable to another and ultimately<br />
the Courts will have to decide where the<br />
line is."<br />
Law firm Clifford Chance 6 also doubts that the<br />
"double reasonableness" test will achieve its objective,<br />
observing in a client briefing that: "When the<br />
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18
current wording of the test is examined against the<br />
backdrop of existing legislation and case law concerning<br />
the concept of reasonableness, it seems<br />
doubtful whether the test achieves its stated objective.<br />
The implication of this is that, unless the<br />
wording is strengthened, we may find ourselves<br />
drifting towards a more intrusive GAAR than what<br />
was originally proposed."<br />
Conclusion<br />
Ironically then, it seems as if the UK GAAR faces an<br />
uncertain future, with many questions on its scope,<br />
application and operation still to be fully answered<br />
by the government. However, the positive light in<br />
which the Aaronson report was received by the government<br />
suggests that it is intent on going through<br />
with an anti-abuse rule, partly to appease a large<br />
swathe of the electorate which thinks that HMRC<br />
lets far too many rich tax avoiders off the hook.<br />
Another point to bear in mind is that both Aaronson’s<br />
and the government’s proposals do not really<br />
attempt to tackle the issue of corporate tax avoidance,<br />
especially by multinationals. This is because<br />
when an international dimension is added to the<br />
tax planning equation, it is very hard for any single<br />
government to do anything about it. What’s more,<br />
as highlighted earlier in this piece, the Amazon’s<br />
and Google’s of this world have not actually broken<br />
any UK laws. So this particular can of worms will<br />
probably be kicked down the road for another day.<br />
ENDNOTES<br />
1<br />
2<br />
3<br />
4<br />
5<br />
6<br />
http://www.hmtreasury.presscentre.com/Press-Releases/Government-to-tighten-net-round-cowboytax-advisers-67d7f.aspx<br />
http://www.taxation.co.uk/taxation/files/Tax%20<br />
Avoidance_P1.pdf<br />
http://www.hm-treasury.gov.uk/d/gaar_final_report_111111.pdf<br />
http://www.tax.org.uk/Resources/CIOT/Documents/20<strong>12</strong>/01/<strong>12</strong>0<strong>12</strong>7_GAAR_CIOT_ATT.pdf<br />
http://www.kpmg.com/uk/en/issuesandinsights/<br />
articlespublications/newsreleases/pages/proposedgeneral-anti-abuse-rule-on-tax.aspx<br />
http://www.cliffordchance.com/publicationviews/<br />
publications/20<strong>12</strong>/09/the_draft_gaar_thedoublereasonablenesstest.html<br />
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19
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Digital Invoicing In The EU And Brazil<br />
by Richard T Ainsworth, Boston University<br />
School of Law, Graduate Tax Program<br />
Baby-steps verses giant-steps; that's the difference<br />
between digital invoicing initiatives in the EU and<br />
Brazil. On January 1, 2013 the Second Invoicing<br />
Directive went into effect in the EU. 1 Brazil began<br />
a much more ambitious digital invoicing transformation<br />
2 on September 15, 2006 with a pilot project<br />
3 that went national by April 2009, and was considered<br />
fully implemented and complete by 2010. 4<br />
(3) Establishment of a common period during<br />
which invoices must be stored; and<br />
(4) Restriction of the right of Member States to<br />
impose further conditions on invoices drawn<br />
up by the customer.<br />
Th e difference between Brazil and the EU on digital<br />
invoicing is instructive. In Brazil a legally binding<br />
invoice is digital (only). It may have a paper<br />
replica, but in Brazil the digital invoice is the real<br />
deal. 5 It does not matter if the parties are domestic,<br />
or foreign. In the EU a legally binding invoice may<br />
be either paper or digital. There is no stated priority<br />
or preference, but there are practical difficulties in<br />
going digital in the EU.<br />
The EU's Second Invoicing Directive followed from<br />
a study, 6 a public consultation, 7 and a Commission<br />
Proposal. 8 The proposal focused on harmonization,<br />
but the result fell far short. The Commission sought<br />
to accomplish four things:<br />
(1) Removal of all differences between paper and<br />
digital invoices;<br />
(2) Establishment a common deadline for the<br />
issuance of invoices;<br />
Th e Council reached agreement in 2010, and adopted<br />
the Second Invoicing Directive on July 13,<br />
2010. Its provisions were not in force before December<br />
31, 20<strong>12</strong>. As a result, 20<strong>12</strong> has been an intense<br />
year on the invoicing side of EU tax-technology.<br />
Th e EU's invoicing effort is all about harmonization<br />
and natural processes. The assumption is that<br />
if all the barriers to digital invoices are removed,<br />
then by establishing legal equivalence between<br />
digital and paper invoices natural modernization<br />
and business efficiency efforts will push the EU to<br />
where Brazil is today.<br />
New Article 217 defines an e-invoice. It is, "… an<br />
invoice that contains the information required in<br />
this Directive, and which has been issued and received<br />
in electronic format." Thus, a PDF attached<br />
to an e-mail is an e-invoice. A faxed invoice is not<br />
20<br />
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an e-invoice. A scanned invoice is an e-invoice (if it<br />
is scanned before it is sent).<br />
The EU problem is that a number of old invoicing<br />
rules have survived. Two are notable. First, old Article<br />
232 required a seller to get his customer's acquiescence<br />
before issuing an e-invoice. This rule remains. The<br />
Commission had proposed its elimination. As a result,<br />
if some Member States retain their old rules requiring<br />
formal (explicit) acceptance of e-invoicing in advance<br />
of its use, many businesses will not "go digital."<br />
Secondly, the Commission proposed removing a<br />
requirement under Article 233 that e-invoices provide<br />
the tax administration with a "guarantee" of:<br />
the authenticity of the origin of the invoice, and<br />
the integrity of the contents of the invoice.<br />
Instead of removing this requirement, the Second Invoicing<br />
Directive extended it to all invoices. It is up<br />
to each business that sends or receives an invoice to<br />
determine how it will meet these requirements. The<br />
issue comes down to business controls over invoicing.<br />
New Article 233 indicates that the integrity of the<br />
content, and the legibility of invoices can be assured<br />
by "… any business controls which create a reliable<br />
audit trail between an invoice and a supply." Member<br />
States are sure to differ over the kinds of controls that<br />
will meet this requirement. Thus, without an Implementing<br />
Regulation there is a high risk that invoicing<br />
rules will differ significantly around the EU.<br />
In some areas there has been real simplification. For B2C<br />
transactions (provided the customer agrees to digital<br />
invoicing) only the sender (B) needs to meet the business<br />
control requirements. Thus, "going digital" is entirely<br />
within the grasp of any retail establishment. However,<br />
this B2C benefit only extends to EU businesses.<br />
The main rule on EU invoicing is that the applicable<br />
rules are those in the Member State where<br />
the goods or services are supplied. Derogation<br />
changes the main rule so that the invoicing rules in<br />
the Member State where the supplier is established<br />
control, but this only applies if the supplier is established<br />
in the EU. If a business is established outside<br />
the EU the main rule applies. Thus, an American<br />
business will be confronted with different invoicing<br />
rules based on where their customers are located.<br />
A lot of work has been done over the past year on<br />
digital invoicing in the EU. A lot more remains to<br />
be done, if the EU is to catch up with Brazil.<br />
E NDNOTES<br />
1<br />
2<br />
3<br />
Council Directive 2010/45/EU of 13 July 2010 amending<br />
Directive 2008/1<strong>12</strong>/EC on the common system<br />
of value added tax as regards the rules on invoicing.<br />
2010 O.J. (L 189) 1.<br />
A constitutional amendment was needed to put the<br />
plan in place, because it required information sharing<br />
among the states. Constitutional Amendment No. 42<br />
of December 19, 2003 (See: Constitution of the Federal<br />
Republic of Brazil of October 5, 1988, Art. 37).<br />
Six Brazilian states participated in the pilot project,<br />
and 37 invoice-issuing commercial centers were involved.<br />
These companies were by and large the largest<br />
companies in Brazil.<br />
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21
4<br />
5<br />
Newton Oller de Mello, Eduardo Mario Dias, Caio Fernando<br />
Fontana & Marcelo Alves Fernandez, The Evolution<br />
of Electronic Tax Documents in Latin America, Proceedings<br />
of the 13 th World Scientific and Engineering<br />
Academy and Society (WSEAS) International Conference<br />
on Systems (2009) 449, 297, available at : http://<br />
dl.acm.org/citation.cfm?id=1627575&picked=prox .<br />
The Brazilian modernization program is called<br />
SPED. SPED is the acronym for Sistema Publico de<br />
Escrituracao Digital or Public System for Digital<br />
Accounting. The Electronic Invoice (NF-e; an acronym<br />
for Nota Fiscal Eletrônica ) and the Electronic<br />
6<br />
7<br />
8<br />
Waybill (CT-e; an acronym for Conhecimento de<br />
Transporte Eletrônico de Cargas ) are the two parts<br />
of this program that are important for comparative<br />
purposes. They are now firmly part of Brazilian<br />
commercial practice.<br />
PricewaterhouseCoopers, A Study on the Invoicing<br />
Directive (2001/225/EC) now incorporated in the VAT<br />
Directive (2006/1<strong>12</strong>/EC) November 3, 2008.<br />
The public consultation was launched on July 24,<br />
2008 and summarized in a report in November 2008.<br />
TAXUD/DI/GW/mveD(2008) 25115.<br />
COM(2009) 21.<br />
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22
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
New Swiss Legislation On The Taxation<br />
Of Employee Shareholdings<br />
by Walter H. <strong>Boss</strong>, Attorney at Law, LL.M. and<br />
Andrea Scherrer, Attorney at Law, Certified<br />
Tax Expert, <strong>Poledna</strong> <strong>Boss</strong> <strong>Kurer</strong> AG, Zurich,<br />
Switzerland<br />
I. Introduction<br />
On January 1, 2013 new Swiss legal provisions<br />
ensuring a more consistent taxation of employee<br />
shareholdings at the cantonal level entered<br />
into force.<br />
At the federal level the former taxation practice for<br />
employee shareholdings was mainly based upon<br />
two Circular Letters 1 of the Swiss Federal Tax Administration<br />
(“ FTA ”), whilst at the cantonal level<br />
the practices could differ from canton to canton.<br />
With the new Federal Law of December 17, 20<strong>12</strong><br />
on the taxation of employee shareholdings (“ new<br />
law ”) as part of the Federal Direct Tax Act (“ FDTA ”)<br />
and the Federal Tax Harmonization Act (“ FTHA ”)<br />
and the correspondent Ordinance of June 27, 20<strong>12</strong><br />
on employer's reporting obligations regarding employee<br />
shareholdings (“ Ordinance ”) the issue has<br />
now been regulated at the legislative level. This<br />
has improved the harmonization of the taxation of<br />
employee shareholdings significantly and granted<br />
more legal certainty for all involved parties, in particular<br />
regarding the timing of taxation and the tax<br />
assessment in international situations reflecting the<br />
rules provided by the Commentary of the OECD<br />
Model Tax Convention on Income and Capital.<br />
On December 14, 20<strong>12</strong>, the FTA has already issued<br />
a new (draft) Circular Letter No. 37 on the<br />
Taxation of Employee Shareholdings (“ Draft CL<br />
2<br />
37 ”) to give an overview of the tax consequences<br />
of the new law and to eliminate any gaps in the new<br />
law and the Ordinance. Said Circular Letter will<br />
replace the two aforementioned Circulars.<br />
This article provides an overview of the new<br />
legislation and describes in particular how and<br />
when income from employee shareholdings is<br />
taxed. It also addresses the timing of taxation of<br />
income deriving from employee shareholdings<br />
granted in Switzerland but exercised by the employee<br />
at the time after he has left Switzerland<br />
(so called export of employee shareholdings) or<br />
vice versa, i.e. granted abroad, but exercised in<br />
Switzerland (so called import of employee shareholdings).<br />
Finally, the reader's attention is drawn<br />
to the new reporting obligations of the employer<br />
towards the Swiss tax authorities regarding employee<br />
shareholdings.<br />
23<br />
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II. Time Of Taxation<br />
According to Swiss tax law all income deriving from<br />
employment, including income from employee<br />
shareholdings is subject to Swiss income tax. 3<br />
Th e timing of taxation depends on the type of employee<br />
shareholdings. The law makes a distinction<br />
between genuine employee shareholdings which<br />
include employee shares and employee stock options,<br />
and phantom employee shareholdings, i.e.<br />
entitlements to cash pay outs. 4<br />
A. Income From Genuine Employee<br />
Shareholdings<br />
1. Income From Employee Shares<br />
Income from employee shares – regardless of whether<br />
they are restricted (vested) or not and whether<br />
they are publicly listed or not – is subject to taxation<br />
at grant. The fair market value of the shares<br />
reduced by a possible issuance price is taxable. 5 The<br />
fair market value of publicly listed shares is generally<br />
the closing price at the day of grant. 6 The fair market<br />
value of unlisted shares is generally the intrinsic<br />
value calculated according to a recognized formula. 7<br />
Compared to unrestricted employee shares restricted<br />
employee shares are of lesser value. For this reason the<br />
new law provides for a discount on the fair market<br />
value of 6% per vested year as this was already the<br />
case under the former taxation practice. A discount is<br />
only possible for a maximum of 10 years. 8 Hence the<br />
difference between the reduced fair market value and<br />
the lower issuance price is subject to income tax. 9<br />
A capital gain resulting from the sale of employee<br />
shares, which the employee holds as private assets,<br />
qualifies as tax free capital gain. 10<br />
The new law reflects the former taxation practice,<br />
which was summarized in the aforementioned CL<br />
5. The taxation of income deriving from employee<br />
shares still takes place at the time of grant. What<br />
is more, for vested employee shares a discount is<br />
still provided as it was under the former practice.<br />
Hence, under the new law the taxation of income<br />
deriving from employee shares has actually not undergone<br />
any significant changes. 11<br />
2. Income From Employee Stock Options<br />
According to the former taxation practice (mainly<br />
in the German-speaking cantons of Switzerland)<br />
employee stock options with vesting clauses were<br />
normally not taxed at grant but at the time of exercise.<br />
The time of grant and the end of the vesting<br />
period were irrelevant from a tax point of view. <strong>12</strong><br />
Under the new law these taxation rules have been<br />
changed: as a general rule, employee stock options are<br />
now taxed at grant, i.e. the same taxation rules apply<br />
as for employee shares ( cf. section II.A.1). Namely, the<br />
fair market value of the shares reduced by the issuance<br />
price, if any, is subject to income tax. However, different<br />
rules apply for income deriving from restricted<br />
or unlisted employee stock options. According to the<br />
new law restricted or unlisted employee stock options<br />
are not taxed at grant but taxed at the time of exercise.<br />
The fair market value of the share at the time of<br />
exercise minus the exercise price is taxable. 13<br />
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24
In summary, only unrestricted publicly listed employee<br />
stock options are taxed at grant. Given that<br />
most employee stock options are usually either<br />
unlisted or have some restrictions not much has<br />
changed under the new law, i.e. most employee<br />
stock options will still be taxed at exercise. 14<br />
B. Income From Phantom Employee<br />
Shareholdings And Restricted Stock Units<br />
Income deriving from phantom employee shareholdings<br />
– i.e. cash pay outs – is taxed at the time<br />
the employee actually receives the cash. 15<br />
Generally, the issue, where income from employee<br />
shareholdings in an international situation is taxed, is<br />
only relevant for restricted or unlisted employee stock<br />
options, as only this kind of employee stock options is<br />
not taxed at grant. As mentioned employee shares and<br />
other employee stock options are taxed at grant, hence<br />
the question of proportional taxation does not arise. 17<br />
However, whether the income is taxed in Switzerland<br />
at source or ordinarily in international situations<br />
is a question which needs to be taken into<br />
account for all kinds of employee shareholdings.<br />
Regrettably the new law still does not provide explicit<br />
taxation provisions for entitlements to employee<br />
shares such as restricted stock units (“ RSUs ”).<br />
However – and in line with the former taxation<br />
practice – the FTA now mentions in Draft CL 37,<br />
section 5 that entitlements to employee shares are<br />
taxed at the time they are converted into employee<br />
shares. For the time of taxation one may therefore<br />
refer to section II.A.1. 16<br />
III. Taxation Of Employee Shareholdings<br />
In International Situations<br />
There are generally two issues regarding the taxation<br />
of employee shareholdings in international situations:<br />
(i) employees may move from one country<br />
to another between the grant and the exercise of the<br />
employee shareholdings and the question where the<br />
income is taxed in respect of which state gets the<br />
right to tax arises and (ii) in case Switzerland gets the<br />
right to tax, how is the income taxed, i.e. whether it<br />
is taxed at source or whether it is taxed ordinarily.<br />
A. Taxation Of Employee Shares And<br />
Unrestricted Publicly Listed Employee<br />
Stock Options<br />
As mentioned because income from employee<br />
shares and unrestricted publicly listed employee<br />
stock options is taxed at grant the question of proportional<br />
taxation does not arise; i.e. the entire income<br />
is taxed at grant.<br />
With regard to the question how the income is<br />
taxed the following applies: in case Switzerland has<br />
the right to tax, Switzerland will levy the relevant<br />
income tax at source at the time of grant regardless<br />
of whether the recipient of the income is a tax resident<br />
of either Switzerland or a foreign state, if the<br />
conditions for taxation at source are met, in particular<br />
if (i) the foreign employee is a foreign citizen<br />
without a residence permit in Switzerland (so called<br />
C-permit) and (ii) is either a tax resident in Switzerland<br />
or (iii) is not a tax resident in Switzerland,<br />
but is working in Switzerland. 18<br />
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25
B. Taxation Of Restricted Or Unlisted<br />
Employee Stock Options<br />
1. Pro Rata Taxation<br />
As mentioned restricted or unlisted employee<br />
stock options are taxed at exercise. In case a taxpayer<br />
is not a tax resident of Switzerland during<br />
the entire period between the grant and the time<br />
he has the right to exercise the restricted employee<br />
stock options, the taxation of the income<br />
derived from the employee stock options is only<br />
taxed in Switzerland on a pro rata basis in proportion<br />
of the vesting period to the time the employee<br />
has spent in Switzerland according to Art.<br />
17d FDTA respectively Art. 7f FTHA. Either the<br />
employee has moved to Switzerland after he was<br />
granted employee stock options but before he exercised<br />
them (so called import of employee shareholdings)<br />
or the employee left Switzerland after<br />
he was granted the employee stock options but<br />
before he exercised them (so called export of employee<br />
shareholdings). In both cases the employee<br />
stock options are granted in a different country<br />
than the one in which they are exercised. Art. 7<br />
and 8 of the Ordinance list the employer's reporting<br />
obligations in the relevant cases.<br />
According to the various Double Tax Treaties Switzerland<br />
has concluded in international cases generally<br />
Switzerland may not tax the full monetary<br />
benefit from the realization of the employee shareholdings.<br />
The right to tax is to be spread amongst<br />
the various states according to the number of days<br />
the employee was a resident of those states between<br />
the time at grant and the time of exercise. The<br />
relevant criterion, whether a state has the right to<br />
tax, is therefore whether the state has the right to<br />
tax the income of the underlying employment. 19<br />
Th e income taxable in Switzerland is to be calculated<br />
on a pro rata basis according to the formula<br />
set out in Art. 7 section 2 or Art. 8 section 2 of<br />
the Ordinance.<br />
2. Taxation At Source<br />
Th e recipient 20 of the income from employee<br />
stock options, which is taxed at the time of exercise,<br />
may have his tax residence at that time either<br />
in Switzerland or abroad. The taxation in Switzerland<br />
will take place at source, if the conditions<br />
for taxation at source are met. 21 In particular if<br />
Switzerland has the right to tax the income and<br />
(i) the foreign employee is either a tax resident 22<br />
in Switzerland or (ii) the foreign employee is not<br />
a tax resident in Switzerland, but is working in<br />
Switzerland. 23 Further, it must be distinguished<br />
whether the recipient is still an employee of the<br />
employer who granted the employee shareholdings,<br />
at the time of exercise, or not:<br />
2.1 Recipient Is An Employee At Time Of Exercise<br />
In case the recipient is still an employee of the<br />
employer and a tax resident in Switzerland at the<br />
time of exercise, pro rata taxation according to<br />
Art. 17d FDTA respectively Art. 7f FHTA can<br />
only take place if the employee has not been subject<br />
to tax in Switzerland during the whole relevant<br />
period, i.e. between grant and exercise of<br />
the employee stock options.<br />
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26
In case the recipient is still an employee of the employer<br />
and therefore Switzerland has the right to tax<br />
the income from employee shareholdings, although<br />
he is not a tax resident in Switzerland at the time<br />
of exercise, the source tax is levied from the gross<br />
income. Pro rata taxation is excluded and those<br />
employees are subject to source tax in Switzerland<br />
for the entire income from employee stock options,<br />
unless a different provision in a Swiss Double Tax<br />
Treaty provides otherwise. 24 The ordinary source<br />
tax rates apply. 25<br />
2.2 Recipient Is Not An Employee At Time<br />
Of Exercise<br />
In case the recipient is not an employee of the employer<br />
who granted the employee shareholdings<br />
anymore but he is a Swiss tax resident at the time<br />
of exercise the income derived from the employee<br />
stock options is taxed at source and pro rata taxation<br />
takes place if the employee has not been subject<br />
to tax in Switzerland during the whole relevant<br />
period, i.e. between grant and exercise of the employee<br />
stock options. 26<br />
If at the time of exercise the recipient of the income<br />
deriving from the employee stock options is no longer<br />
an employee of the employer who granted the employee<br />
shareholdings and he is a tax resident abroad,<br />
the income from the “exported” employee stock options<br />
is taxable in Switzerland at source on a pro rata<br />
basis according to Art. 97a FDTA. The source tax<br />
rate on the federal level amounts to 11.5 % of the<br />
monetary benefit. On the cantonal level the cantons<br />
are free to determine their own source tax rates.<br />
IV. Employer's Reporting Obligations<br />
A. In General<br />
Simultaneously with the new provisions in the<br />
FDTA and the FTHA a new ordinance entered<br />
into force that ensures the implementation of the<br />
new federal law by providing minimum standards,<br />
with which the employers have to comply due to<br />
their reporting obligations with respect to employee<br />
shareholdings under the new law. 27<br />
Under the new law the employer is obliged to issue a<br />
confirmation for each tax period in which he issues<br />
employee shareholdings or in which the employee<br />
realizes taxable income from employee shareholdings.<br />
The employer may determine the reporting<br />
form as he chooses. 28<br />
The purpose of the confirmation in particular is to<br />
provide a calculation basis for the income to be declared<br />
in the salary statement of the employees. However,<br />
the confirmation must not be sent to the tax<br />
authorities directly. In general it is sufficient if the<br />
employer issues the confirmation to the employee<br />
as an enclosure with his annual salary statement, referring<br />
to the source tax statements. 29 However, it is<br />
necessary to provide the cantonal tax authorities of<br />
the canton of which the former employee is a resident<br />
with the confirmation directly in cases where the employment<br />
has been terminated before the income<br />
from employee shareholdings has been realized. 30<br />
For employee shares a confirmation must be issued<br />
at the time of grant. It must include all the<br />
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27
information stated in Art. 4 of the Ordinance. 31<br />
For other employee stock options, which are taxed<br />
at the time of realization of the income, two confirmations<br />
are necessary. The first one has to be issued<br />
at the time the employee stock option is granted<br />
and the second one at the time of realization. The<br />
information which must be included in the confirmations<br />
is listed in Art. 5 of the Ordinance. 32 For<br />
unrestricted listed employee stock options, which<br />
are taxed at grant a sole confirmation is generally<br />
sufficient. It has to be issued in the tax period in<br />
which the employee acquires the employee stock<br />
options and must also include the aforementioned<br />
information stated in Art. 4 of the Ordinance. 33<br />
Th e tax authorities can require additional information<br />
regarding the granted employee shareholdings<br />
from the employer. 34<br />
B. In International Situations<br />
As mentioned, in international situations the income<br />
from employee shareholdings may only partially<br />
be subject to taxation in Switzerland.<br />
In the case of an import of employee shareholdings<br />
the employer is obliged to issue a confirmation to<br />
the employee at the time of realization of the income<br />
according to Art. 7 of the Ordinance. 35 It is<br />
important to note that the entire income derived<br />
from the employee shareholdings has to be reported<br />
in the salary statement. However, the employee<br />
may then deduct in his tax return the portion relating<br />
to the time spent outside of Switzerland as<br />
“income taxable abroad”.<br />
In the case of an export of employee shareholdings,<br />
the confirmation must be enclosed with the source<br />
tax statement according to Art. 8 of the Ordinance.<br />
Separate reporting directly to the tax authorities is<br />
not necessary. 36 In addition to the regular information<br />
to be included in the confirmation, the employer<br />
is obliged to report the realization of the income<br />
deriving from the employee shareholdings to<br />
the cantonal tax authorities in the canton in which<br />
he has his legal seat 37 , and include in the confirmation<br />
also (a) the numbers of days within the vesting<br />
period the employee was working in Switzerland<br />
and (b) the income received. Further, the employer<br />
is obliged to withhold and pay the proportional<br />
source tax. 38<br />
V. Ruling Confirmation Of Swiss<br />
Tax Authorities<br />
Switzerland has a long standing and established ruling<br />
practice in all possible tax matters. In particular<br />
for employee shareholdings, a written ruling confirmation<br />
by the Swiss tax authorities does not only<br />
grant legal certainty regarding the tax assessment<br />
of the employee but also guarantees the correct<br />
handling of the employee shareholding plan by the<br />
employer from a tax point of view in national and<br />
international situations.<br />
The cantonal tax authorities in the canton in which<br />
the employer has his legal seat are responsible for<br />
rulings regarding employee shareholdings. However,<br />
if employees are resident in various cantons it is<br />
advisable to require a ruling confirmation from the<br />
FTA as well. 39<br />
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28
VI. Conclusion<br />
Although the harmonization of the former somewhat<br />
uncertain situation in taxation of income<br />
deriving from employee shareholdings is much<br />
welcomed, the law still does not provide for solutions<br />
to various issues on the taxation of employee<br />
shareholdings. For example as mentioned the<br />
taxation of RSUs is still not explicitly regulated at<br />
the legislative level. Many questions therefore are<br />
still unanswered. It remains to be seen whether<br />
the practice of the FTA and the cantonal tax authorities<br />
will head in the same direction or whether<br />
differences will remain. Considering this, it is<br />
still advisable to obtain a ruling for legal certainty<br />
if an employer decides to grant employee shareholdings<br />
to his employees.<br />
Further, employers are well advised to amend their<br />
employee shareholding plans in accordance with<br />
the new legislation and renew ruling confirmations<br />
in place with the competent cantonal tax authorities<br />
in due time.<br />
Finally, employers need to implement processes<br />
to comply with their reporting obligations under<br />
the new law. In particular with respect to<br />
internationally mobile employees, Swiss employers<br />
should be aware of the practical challenge of<br />
staying informed about the exercise time of their<br />
former employees' stock options, because of their<br />
reporting obligations and liability to pay the withheld<br />
income tax.<br />
* * * * *<br />
For further information or to discuss any of the issues<br />
raised, please contact Walter H. <strong>Boss</strong> ( boss@<br />
pbklaw.ch ) or Andrea Scherrer ( scherrer@pbklaw.<br />
ch ) on +41 44 220 <strong>12</strong> <strong>12</strong>.<br />
E NDNOTES<br />
1<br />
2<br />
3<br />
4<br />
5<br />
6<br />
7<br />
8<br />
9<br />
10<br />
11<br />
<strong>12</strong><br />
13<br />
14<br />
Circular Letter No. 5 of April 30, 1997 on the Taxation<br />
of Employee Shares (“ CL 5 ”; Kreisschreiben Nr. 5 vom<br />
30. April 1997 über die Besteuerung von Mitarbeiteraktien)<br />
and Circular Note of May 6, 2003 on the Taxation<br />
of Employee Stock Options with Vesting Clauses<br />
(Rundschreiben vom 6. Mai 2003 über die Besteuerung<br />
von Mitarbeiteroptionen mit Vesting-Klauseln).<br />
Entwurf Kreisschreiben Nr. 37 Besteuerung von Mitarbeiterbeteiligungen<br />
vom 14. Dezember 20<strong>12</strong>.<br />
Art. 17 FDTA. Art. 7 of the FTHA.<br />
Art. 17a FDTA, Art. 7c FTHA.<br />
Art. 17b section 1 FDTA, Art. 7d ection 1 FTHA.<br />
Draft CL 37, section 3.2.1.<br />
Draft CL 37, section 3.2.2.<br />
Art. 17b section 2 FDTA, Art. 7d section 2 FTHA.<br />
Draft CL 37, section 3.3.<br />
Art. 16 section 3 FDTA; Art. 7 section 4 lit. b FTHA.<br />
Instead of many: Mario Kumschick/Miriam Kaufmann,<br />
Neues Bundesgesetz über die Besteuerung von Mitarbeiterbeteiligungen,<br />
Beseitigt das neue Bundesgesetz<br />
Rechtsunsicherheiten bei der Besteuerung von Mitarbeiterbeteiligungen?,<br />
in: Der Schweizer Treuhänder,<br />
Heft 6-7, 2011, section 513-518, section 513.<br />
Instead of many: Kumschick/Kaufmann, loc. cit. , section<br />
514.<br />
Art. 17b section 3 FDTA, Art. 7d section 3 FTHA.<br />
Instead of many: Kumschick/Kaufmann, loc. cit. , section<br />
514.<br />
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29
15<br />
Art. 17c FDTA, Art. 7e FTHA.<br />
24<br />
Art. 91 in connection with Art. 84 FDTA and Art. 13<br />
16<br />
Draft CL 37, section 5. See also instead of many: Kum-<br />
of the Ordinance. See also Draft CL 37 section 7.3.4.<br />
schick/Kaufmann, loc. cit ., section 516.<br />
25<br />
Art. 13 of the Ordinance in connection with Art. 85<br />
17<br />
Draft CL 37, section 7.<br />
FDTA.<br />
18<br />
Draft CL 37 section 7.2.2. In case the employee is a tax<br />
26<br />
Art. 83 FDTA, Art. 32 FTHA, Draft CL 37 section 7.3.4.<br />
resident in Switzerland, income from employee share-<br />
27<br />
Art. <strong>12</strong>9 section 1 lit. d FDTA, Art. 45 lit. e FTHA.<br />
holdings is taxed at source together with any other<br />
28<br />
The FTA provides model confirmations in the annexes<br />
income from employment according to Art. 83 FDTA<br />
to the Draft CL 37.<br />
and Art. 32 FHTA. In case the employee is a tax resident<br />
29<br />
Art. 10 of the Ordinance; caveat different provisions<br />
abroad, income from employee shareholdings is taxed<br />
in cantonal tax law.<br />
at source together with any other income from employ-<br />
30<br />
Art. 15 of the Ordinance.<br />
ment according to Art. 91 FDTA and Art. 35 FHTA.<br />
31<br />
The confirmation must include namely (a) the name<br />
19<br />
Draft CL 37 section 7.1.<br />
of the employee shareholdings plan, (b) the date of<br />
20<br />
Besides the tax provisions for employees as outlined<br />
acquisition, (c) the fair market value of the shares, (d)<br />
in this article there exist several additional tax provi-<br />
possible vesting periods and the duration of possible<br />
sions, in particular regarding the taxation at source of<br />
obligations to return the shares, (e) the agreed ac-<br />
e.g. employee shareholdings granted to the directors<br />
quisition price, (f) the number of the acquired shares<br />
of the board, etc., which – due to the lack of space –<br />
and (g) the income deriving from the employee shares<br />
are not described in this article. Reference is made to<br />
as declared in the salary statement referring to the<br />
the relevant provisions in the FDTA and FTHA as well<br />
source tax statement<br />
as the relevant sections in Draft CL 37.<br />
32<br />
The first confirmation at grant must include namely<br />
21<br />
Draft CL 37 section 7.3.4.<br />
(a) the name of the employee shareholdings plan, (b)<br />
22<br />
Please note that only foreign employees without a<br />
the date of acquisition, (c) the date as per which the<br />
residence permit (so called C-permit) may be taxed<br />
employee stock option can be exercised and (d) the<br />
at source. Foreign employees with a residence permit<br />
number of the acquired stock options. The second<br />
(C-permit) are taxed ordinarily.<br />
confirmation at exercise must include (a) the name<br />
23<br />
In case the employee is a tax resident in Switzerland,<br />
of the employee shareholdings plan, (b) the date of<br />
income from employee shareholdings is taxed at<br />
acquisition, (c) the date of exercise, (d) the fair market<br />
source together with any other income from employ-<br />
value of the underlying share, (e) the agreed acquisi-<br />
ment according to Art. 83 FDTA and Art. 32 FHTA. In<br />
tion price, (f) the number of the exercised employee<br />
case the employee is a tax resident abroad, income<br />
from employee shareholdings is taxed at source<br />
together with any other income from employment<br />
according to Art. 91 FDTA and Art. 35 FHTA.<br />
33<br />
stock options and (g) the income deriving from the<br />
employee shares as declared in the salary statement<br />
referring to the source tax statement.<br />
Art. 5 section 1 of the Ordinance.<br />
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30
34<br />
Art. 17 of the Ordinance.<br />
36<br />
Draft CL 37, section 8.1.3.2.<br />
35<br />
In addition to the aforementioned information to be<br />
37<br />
Art. 8 section 1 lit. a of the Ordinance in connection<br />
included in the confirmation, the confirmation must<br />
with Art. 107 section 2 FDTA.<br />
also state (a) the numbers of days within the vesting<br />
38<br />
Art. 8 section 1 lit. d of the Ordinance in connection<br />
period the employee has been working in Switzerland<br />
with Art. 100 section 1 lit. d FDTA.<br />
and (b) the income received.<br />
39<br />
Draft CL 37, section 9.<br />
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31
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Why Japan Needs To Change PE Taxation<br />
Rules<br />
by ASATSUMA Akiyuki, Doctor of law in the<br />
University of Tokyo, Associate professor of tax<br />
law at College of Law and Politics, in Rikkyo<br />
University, Tokyo<br />
1. Income Tax Rules For Foreign<br />
Corporations Were Made In 1962<br />
Japanese income tax rules on non-resident individuals<br />
and foreign corporations were legislated in 1962. 1 At<br />
that time, Japan tried to participate in the OECD,<br />
and Japanese bureaucrats of Ministry of Finance studied<br />
the draft version of the OECD Model Tax Convention.<br />
2 As seen below, Japanese PE taxation rules<br />
resemble Articles 5 and 7 of the OECD Model Tax<br />
Convention. However, the source of income rules<br />
resemble a pre-1966 version of the American rules.<br />
Japanese tax practitioners call the pre-1966 version of<br />
the American source rules the “entire income principle,”<br />
and call the after-1966 version of the American<br />
source rules the “effectively connected income principle:”<br />
3 Japanese source rules are also called the “entire<br />
income principle.” Now the government 4 is discussing<br />
changes of Japanese source rules and PE taxation rules<br />
from the “entire income principle” to the “attributed<br />
income principle” which is adopted in the German<br />
EStG (Einkommensteuergesetz: Income Tax Act).<br />
1.1. Source rules<br />
The ITA (Income Tax Act), 5 , 6 Art. 161 7 and<br />
CTA (Corporation Tax Act), 8 Art. 138 describe<br />
“Domestic Source Income” on an item-by-item<br />
basis.<br />
ITA, Art. 161 (i) to (xii) describe sources of income<br />
approximately as follows:<br />
(i) income from a business conducted in Japan<br />
or from the utilization, holding or transfer<br />
of assets located in Japan, including:<br />
(i)-2 profi t from a business conducted in Japan<br />
under a partnership contract 9<br />
(i)-3 consideration for the transfer of land or any<br />
right on land, or any building and auxiliary<br />
equipment or structure thereof<br />
(ii) income from the provision of independent<br />
personal services 10<br />
(iii) payment for the lending of real estate<br />
(iv) interest on Japanese national and local government<br />
bonds and interest on deposits or savings etc<br />
(v) dividends etc<br />
(vi) interest on a loan provided to a person who<br />
performs operations in Japan<br />
(vii) royalties for an industrial property right etc,<br />
and copyright royalties<br />
(viii) salary, compensation, wages, annual allowance,<br />
bonus and remuneration paid to<br />
32<br />
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individuals in respect of employment undertaken<br />
in Japan<br />
(ix) amounts paid in respect of advertising<br />
(x) pensions received under a life insurance contract,<br />
casualty insurance contract etc<br />
(xi) miscellaneous profit margins<br />
(xii) distribution of profit received under a silent<br />
11 , <strong>12</strong> , 13<br />
partnership contract<br />
CTA, Art. 138 (i) to (xi) describe sources of income<br />
approximately as follows:<br />
(i) income from a business conducted in Japan<br />
or from the utilization, holding or transfer<br />
of assets located in Japan<br />
(ii) income from the provision of personal services<br />
(iii) payment for the lending of real estate<br />
(iv) interest on Japanese national and local government<br />
bonds and interest on deposits or<br />
savings etc<br />
(v) dividends etc<br />
(vi) interest on a loan provided to a person who<br />
performs operations in Japan<br />
(vii) royalties for an industrial property right etc,<br />
and copyright royalties<br />
(viii) amounts paid in respect of advertising<br />
(ix) pensions received under a life insurance contract,<br />
casualty insurance contract etc<br />
(x) miscellaneous profit margins<br />
(xi) distribution of profit received under a silent<br />
14 , 15 , 16<br />
partnership contract<br />
ITA, Art. 161 and CTA, Art. 138 are roughly similar,<br />
excepting ITA, Art. 161 (viii) in respect of wages<br />
which could not be earned by a corporation and<br />
ITA, Art. 161 (i)-2 to (i)-3. It might be confusing,<br />
however, that items of income listed in ITA,<br />
Art. 161 (i)-2 to (i)-3 earned by a foreign corporation<br />
can be taxed, as seen below. ITA, Art. 161 (i)<br />
to (vii) and CTA, Art. 138 (i) to (vii) are roughly<br />
equivalent and ITA, Art. 161 (ix) to (xii) and CTA,<br />
Art. 138 (viii) to (xi) are roughly equivalent.<br />
Taxable income of a foreign corporation is provided<br />
for under ITA, Art. 7 and CTA, Art. 141. ITA, Art.<br />
7 (v) defines taxable income of a foreign corporation<br />
as:<br />
(v) A foreign corporation: Domestic source income<br />
listed in Article 161(i)-2 to (vii) and (ix)<br />
to (xii) (in the case of a foreign corporation<br />
listed in Article 141(iv) of the Corporation<br />
Tax Act (Foreign Corporations Having No<br />
Permanent Establishments in Japan); excluding<br />
that listed in Article 161(i)-2)”<br />
Why is the taxable income of a foreign corporation<br />
provided for in ITA? ITA, Arts. 178 to 180-<br />
2 covers “Tax Liabilities of Foreign Corporations”<br />
and ITA, Art. 2<strong>12</strong> covers “Withholding Liability.”<br />
When items of income listed in ITA, Art. 161 (i)-2<br />
to (vii) and (ix) to (xii) are paid to a foreign corporation<br />
which has no PE in Japan, these items of<br />
income are subject to withholding tax. Items of<br />
income listed in ITA, Art. 161 (i) and CTA, Art.<br />
138 (i) are not subject to withholding tax. When a<br />
foreign corporation which has a PE in Japan earns<br />
domestic source income including as under CTA,<br />
Art. 138 (i), such income is taxed in the hands of<br />
the PE, as is seen in next section.<br />
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33
1.2. PE taxation rules<br />
CTA, Art. 141 provides a definition of a PE (permanent<br />
establishment) and the taxable income of a<br />
foreign corporation simultaneously. CTA, Art. 141<br />
is key to understanding Japanese PE taxation rules;<br />
a literal translation is as follows:<br />
“Article 141 The tax base of corporation tax imposed<br />
on a foreign corporation for income for<br />
each business year shall be the amount of income<br />
categorized as domestic source income listed in<br />
each of the following items for the category of<br />
foreign corporation listed in the relevant item.<br />
(i) A foreign corporation that has, in Japan,<br />
branch offices , factories or any other fixed places<br />
for conducting a business which are specified by a<br />
Cabinet Order: All domestic source income<br />
(ii) A foreign corporation that has carried out construction<br />
, installation, assembly or any other work or provided<br />
services for directing and supervising such work<br />
(hereinafter referred to as "construction work, etc." in<br />
this item) in Japan for more than one year (excluding<br />
a foreign corporation that falls under the preceding<br />
item): Any of the following domestic source income<br />
(iii) A foreign corporation that has, in Japan, a<br />
person who is authorized to conclude a contract<br />
on its behalf or any other person equivalent to<br />
such an authorized person specified by a Cabinet<br />
Order (hereinafter referred to as an "agent, etc."<br />
in this item) (excluding a foreign corporation<br />
that falls under item (i)): Any of the following<br />
domestic source income:<br />
(a) Domestic source income listed in Article<br />
138(i) to (iii)<br />
(b) Domestic source income listed in Article<br />
138(iv) to (xi), which is attributed to the business<br />
conducted by the foreign corporation in<br />
Japan via the said agent, etc.<br />
(iv) A foreign corporation other than one listed in<br />
the preceding three items: Any of the following<br />
domestic source income:<br />
(a) Domestic source income listed in Article<br />
138(i) which has arisen from the utilization or<br />
holding of assets located in Japan or the transfer<br />
of real estate located in Japan, or any such<br />
income which is specified by a Cabinet Order<br />
(a) Domestic source income listed in Article<br />
138(i) to (iii) (Domestic Source Income)<br />
(b) Domestic source income listed in Article<br />
138(ii) and (iii)” [emphases added by the author]<br />
(b) Domestic source income listed in Article<br />
138(iv) to (xi), which is attributed to the business<br />
involving construction work, etc. that is<br />
conducted by the foreign corporation in Japan<br />
The type of PE listed in CTA, Art. 141 (i) is called<br />
an “ ichigou PE ” (meaning first type of PE), 17 which<br />
resembles OECD Model Tax Convention, Art.<br />
5(2). The type of PE listed in CTA, Art. 141 (ii) is<br />
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34
called a “ nigou PE ” (meaning second type of PE),<br />
which resembles OECD Model Tax Convention,<br />
Art. 5(3). The type of PE listed in CTA, Art. 141<br />
(iii) is called a “ sangou PE ” (meaning third type of<br />
PE), which resembles OECD Model Tax Convention,<br />
Art. 5(5) and (6). 18<br />
CTA, Art. 141 (i) provides that a foreign corporation<br />
which has the first type of PE (say, a branch PE)<br />
in Japan is subject to comprehensive income taxation<br />
concerning “all” its domestic source income<br />
regardless of whether the income is attributable to<br />
the PE or not. This tax result is called a “ force of<br />
attraction. ” Comprehensive income taxation of a<br />
foreign corporation resemble taxation of a domestic<br />
corporation. The tax base is net income.<br />
CTA, Art. 141 (ii)(b) and (iii)(b) provides that a<br />
foreign corporation which has the second or third<br />
type of PE (say, a construction PE or an agent PE)<br />
in Japan is subject to comprehensive income taxation<br />
on domestic source income which is attributable<br />
to the PE. There is a small possibility of “force<br />
of attraction” concerning construction PEs and<br />
agent PEs in CTA, Art. 141 (ii)(a) and (iii)(a), but<br />
it is insignificant.<br />
CTA, Art. 141 (iv) provides that a foreign corporation<br />
which has no PEs in Japan is subject to comprehensive<br />
income taxation on domestic source income<br />
arising from domestic assets as in Art. 138<br />
(i), independent personal services income as in Art.<br />
138 (ii), and rental income of real estate as in Art.<br />
138 (iii). Please look carefully at Art. 138 (i) and<br />
Art. 141 (iv)(a). Art. 138 (i) covers business income<br />
and asset income but Art. 141 (iv)(a) only covers asset<br />
income; therefore business income is not taxed<br />
if a foreign corporation has no PE in Japan. In this<br />
sense, Art. 141 (iv) roughly adopts “no taxation on<br />
business income without PEs” which is roughly<br />
(not strictly 19 ) equivalent to the OECD Model Tax<br />
Convention, Art. 7(1), first sentence.<br />
CTA, Art. 141 (i) to (iv) provides for comprehensive<br />
income taxation of a foreign corporation whether it<br />
has a PE in Japan or not. That means, the foreign<br />
corporation must file a corporation income tax return.<br />
By the way, there is another type of income<br />
taxation: separate income taxation under ITA,<br />
Arts. 7 (v), 178 to 180-2, and 2<strong>12</strong> which is applied<br />
through withholding as seen in the last section.<br />
Nexus for source taxation is as follows:<br />
Type of foreign corporation threshold<br />
CTA, Art. 141: comprehensive<br />
income taxation<br />
ITA, Arts. 178 to 180-2:<br />
separate income taxation<br />
CTA, Art. 141 (i)<br />
PE as threshold full force of attraction no separate taxation<br />
branch PE<br />
Art. 141 (ii)<br />
PE as threshold limited force of attraction separate taxation on gross income<br />
construction PE<br />
Art. 141 (iii)<br />
agent PE<br />
PE as threshold limited force of attraction separate taxation on gross income<br />
Art. 141 (iv)<br />
no PE<br />
half of threshold<br />
There is a small possibility of<br />
taxation<br />
separate taxation on gross income<br />
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35
1.3. Comparison with German rules<br />
Please compare with German business income taxation<br />
rules. EStG Code-section 49 provides “Beschränkt<br />
steuerpflichtige Einkünfte” (limited tax<br />
liability income). Domestic business income is described<br />
in Code-section 49(2)(a) as follows:<br />
EStG Code-section 49 (2) Einkünfte aus Gewerbebetrieb<br />
( Code-section 15 bis 17),<br />
(a) für den im Inland eine Betriebsstätte unterhalten<br />
wird oder ein ständiger Vertreter bestellt ist,<br />
Th at mean, income of domestic business which<br />
is carried out with a domestic PE or an agent<br />
PE is domestic income (Inländische Einkünfte),<br />
which is subject to limited tax liability. German<br />
source rules refer to PEs, and German domestic<br />
business income is, by necessity, income attributed<br />
to domestic PEs.<br />
By contrast, Japanese source rules, especially CTA,<br />
Art. 138 (i), do not refer to PEs.<br />
“CTA, Art. 138 (i) Income from a business<br />
conducted in Japan or from the utilization,<br />
holding or transfer of assets located in Japan<br />
(excluding the types of income falling under<br />
the next item to item (xi)) or any other income<br />
specified by a Cabinet Order as arising from<br />
sources within Japan”<br />
Japanese domestic business income is not automatically<br />
income attributed to domestic<br />
PEs. Taxable income for a foreign corporation<br />
is limited to domestic source income; therefore<br />
even if a certain amount of income is attributable<br />
to PEs in Japan but the source of<br />
the income is not domestic, then the income<br />
is not subject to tax in Japan in the context of<br />
domestic tax law. 20<br />
Many Japanese legal codes had followed German<br />
or French style before the World War II.<br />
Japanese ITA and CTA had followed German<br />
EStG and KStG (Körperschaftsteuergesetz); after<br />
World War II, American economic professor,<br />
Carl Shoup visited Japan and the Shoup<br />
Mission made recommendations for Japanese<br />
tax system, and in 1962, Japanese source rules<br />
followed American source rules before 1966. Although<br />
American rules on taxation on a foreign<br />
corporation were drastically changed in 1966<br />
from “entire income principle” to “effectively<br />
connected income principle,” American source<br />
rules in Code-section 861 also define source of<br />
income on an item-by-item basis, not on an attributed-to-PEs<br />
basis.<br />
1.4. Tax Treaties<br />
As of October 20<strong>12</strong>, Japan has concluded 54 tax<br />
treaties with 65 countries and jurisdictions. One<br />
convention, with the old URSS now applies to<br />
many countries. CTA, Art. 141 provides “force of<br />
attraction” but no tax treaties concluded by Japan<br />
provide “force of attraction.” As more and more<br />
tax treaties have been concluded, “force of attraction”<br />
is applied less and less.<br />
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36
2. What Is The Problem With Japanese<br />
“Force Of Attraction”Rules?<br />
2.1. Logical Problems: Incompatibility<br />
Between PE Threshold And Domestic<br />
Source Rules<br />
As mentioned before, the Japanese threshold of<br />
taxation on a foreign corporation is the existence<br />
of a PE, not only in tax treaties but also in domestic<br />
tax law. In this sense, the Japanese threshold is<br />
not equivalent to the American threshold: “trade<br />
or business in the US.” Although there is a minor<br />
possibility of taxation without a PE with CTA, Art.<br />
141 (v) as seen in Reg-section 1.2 , the Japanese<br />
threshold of taxation is roughly equivalent to the<br />
threshold under the OECD Model. However, Japanese<br />
source rules do not refer to attribution-to-PEs<br />
as in German EStG as seen in Reg-section 1.3 .<br />
Some Japanese domestic source business income of a<br />
foreign corporation can be untaxed when the corporation<br />
has no PE in Japan. Some business income of<br />
a foreign corporation attributed to a PE of the corporation<br />
can be untaxed when the income does not<br />
have a source within the meaning of CTA, Art. 138.<br />
Some tax law scholars have long argued that Japanese<br />
source rules and PE taxation rules are incompatible.<br />
However, there are some source rules with reference<br />
to attribution-to-PEs. CTA, Art. 138 (i) defines domestic<br />
source business income, and OECTA, Art.<br />
176 describes domestic source business income in<br />
more detail. Especially, OECTA, Art. 176 (5) has<br />
been extensively discussed.<br />
“OECTA, Art. 176 (5) Income arising from a<br />
money loan, investment or any other act equivalent<br />
thereto conducted vis-a-vis a person who is<br />
outside Japan by a corporation prescribed in paragraph<br />
(1) via a place prescribed in Article 141(i)<br />
of the Act that the corporation holds in Japan, if<br />
it is attributable to the business conducted at the<br />
said place, shall be treated, notwithstanding the<br />
provision of paragraph (1), as the said corporation's<br />
income from a business conducted in Japan<br />
as prescribed in Article 138(i) of the Act; provided,<br />
however, that this shall not apply where the<br />
corporation has attached, to its final return form,<br />
a document proving the fact that, in the foreign<br />
state where the said act has been conducted (excluding<br />
the state where the corporation's head office<br />
or principal office is located), foreign corporation<br />
tax prescribed in Article 141(1) (Scope of<br />
Foreign Corporation Tax) has been imposed or is<br />
to be imposed on any income from the said act.”<br />
Suppose a foreign corporation, named F-Co, conducting<br />
banking business has a branch doing business<br />
in Japan and F-Co is treated as having a PE in<br />
the sense of CTA, Art. 141 (i) ( ichigou PE , a branch<br />
PE). When the PE of F-Co makes a money loan<br />
to another foreign corporation, named T-Co, while<br />
doing business in the third country, interest income<br />
from the money loan to T-Co is not domestic<br />
source interest income in the meaning of CTA, Art.<br />
138 (vi) because this provision refers to the borrowing<br />
person doing its business in Japan. However,<br />
the interest income can be seen as business<br />
income of the PE of F-Co in the meaning of CTA,<br />
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37
Art. 138 (i), and OECTA, Art. 176 (5) provides as<br />
such, unless the interest income has been taxed in<br />
the third country. It might seem strange, but OEC-<br />
TA, Art. 176 (5) provides that when the interest<br />
income from the third country is taxed in the third<br />
country, then the income is not Japanese domestic<br />
source income; while if the interest income from<br />
the third country is not taxed in the third country,<br />
the income is Japanese domestic income.<br />
Th ere have been some discussions as to whether<br />
OECTA, Art. 176 (5) is compatible with CTA,<br />
Arts. 138 and 141 among tax law scholars. OECTA<br />
has legally binding effect, but OECTA is a Cabinet<br />
Order within the scope of delegation of CTA,<br />
so some Articles of OECTA might be illegal if the<br />
Articles are outside the delegation of CTA. 21 But<br />
in practice, OECTA, Art. 176 (5) has long been in<br />
effect, even though, looked at logically, it has been<br />
a question as to whether OECTA is covered by the<br />
delegation of CTA or not.<br />
2.2. Practical Problems: Co-Location<br />
Services In The Tokyo Securities Exchange<br />
And Server PEs<br />
Although CTA. Art. 141 (i) provides for “force<br />
of attraction” as seen in Reg-section 1.2 , practical<br />
problems related to “force of attraction” have became<br />
fewer and fewer as Japan has concluded more<br />
and more tax treaties, as seen in Reg-section 1.4 .<br />
However, there have been cases in which the “force<br />
of attraction” is a significant barrier for a foreign<br />
corporation earning income in Japan. Suppose<br />
that a foreign investment corporation in a country<br />
or jurisdiction (for example, Cayman Islands)<br />
with which Japan has concluded no tax convention<br />
makes an investment through the Tokyo Securities<br />
Exchange. Modern investment decision-making is<br />
automated with clever software. The corporation<br />
has its own computer servers nearby the Tokyo Securities<br />
Exchange and the servers issue buying or<br />
selling instructions for stocks and securities. Such<br />
a service provided through the servers is known as<br />
a co-location service. Time delay of the investment<br />
decisions is critical, so the servers must be located<br />
nearby the Tokyo Securities Exchange.<br />
Th e servers used in co-location services can be regarded<br />
as PEs in the sense of paragraph 42.2 of the<br />
OECD Commentary on Article 5. Therefore the<br />
servers can be PEs in the sense of CTA, Art. 141<br />
22<br />
(i) ( ichigou PE ). If an investment corporation in<br />
Cayman Islands has server PEs in Japan, “force of<br />
attraction” of CTA, Art. 141 (i) can be applied, so<br />
all Japanese domestic source income of the corporation<br />
must be filed in the tax return. The finance<br />
sector and the Financial Services Agency of Japan<br />
strongly recommend abolishing “force of attraction”<br />
or at any rate that co-location servers should<br />
not be treated as PEs. 23<br />
However, readers might feel that these demands<br />
are odd. Although investors in the Cayman Islands<br />
or other tax havens can be caught by “force of attraction,”<br />
Japan has concluded treaties with many<br />
countries, so that investors in the US, UK, Germany,<br />
French or other countries will not be caught by<br />
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38
Japanese “force of attraction.” Why then do investors<br />
use jurisdictions such as the Cayman Islands or<br />
other tax havens and still demand change in Japanese<br />
tax rules? In reply, tax practitioners in the financial<br />
sector explain that fund managers naturally<br />
utilize the Cayman Islands; Japanese source rules<br />
and PE taxation rules are difficult to understand for<br />
foreign fund managers and the fund managers thus<br />
tend to avoid making investment into Japan.<br />
In my view, “force of attraction” under CTA, Art.<br />
141 (i) is easy to avoid. Even if servers can be PEs,<br />
a foreign investment corporation can have a subsidiary<br />
in Japan which owns servers. When the<br />
Japanese subsidiary is independent in the sense of<br />
the OECD Model Tax Convention, Art. 5(6), the<br />
subsidiary is not an agent PE in the terms of CTA,<br />
Art. 141 (iii). Even if the subsidiary can be seen<br />
as an agent PE, “force of attraction” of CTA, Art.<br />
141 (iii) is limited. However, tax practitioners in<br />
the finance sector explain that foreign fund managers<br />
fear the possibility of establishing PEs in Japan.<br />
2.3. Japan's Situation Is Similar To That In<br />
The US Before The 1966 Amendments<br />
In the US, there were two problems before the<br />
1966 amendments. First, when a foreign corporation<br />
carried out trade or business in the US, not<br />
only the business income but also domestic source<br />
investment income was taxed as if earned by domestic<br />
corporations, and such taxation constituted<br />
a disincentive for foreign investors to make investments<br />
into the US. Second, the PE attribution rules<br />
conflicted with "source of income" rules. 24<br />
Japan's situation is similar to that in the US before<br />
the 1966 amendments. First, “force of attraction”<br />
under CTA, Art. 141 (i) creates a disincentive for<br />
foreign investors to make investments into Japan.<br />
Second, attribution-to-PE rules and source rules<br />
are not compatible.<br />
2.4. Justification For Change<br />
What is the justification for changing Japanese<br />
source rules and PE taxation rules? It is sometimes<br />
said that justification can be found in the OECD<br />
Model Tax Convention, Art. 7 as of July 22, 2010,<br />
which adopted the so-called AOA (Authorized<br />
OECD Approach) in which taxation of business<br />
profits of a PE is limited to the profits attributable<br />
to the PE, treating it as a separate and independent<br />
enterprise. It is said that Japanese PE taxation rules<br />
should also follow AOA and Japanese PEs should<br />
be treated as separate and independent enterprises.<br />
However this conceptual explanation is not persuasive<br />
to me. Tax treaties concluded by Japan have<br />
already followed the OECD Model in which PEs<br />
are treated as separate and independent enterprises.<br />
Moreover, the OECD Model has no bearing on domestic<br />
tax rules. The justification for change should<br />
stem from practical considerations rather than being<br />
doctrinal, as seen in Reg-section 2.3 .<br />
3. How To Change Japanese Source Rules<br />
And PE Taxation Rules<br />
The Government Tax Commission: Sub-Commission<br />
on International Taxation (Chair: Prof. Nakazato<br />
Minoru) is discussing how to change Japanese<br />
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39
source rules and PE taxation rules, with amendment<br />
set for 2014, although discussions have been<br />
paused since the national election on December 16,<br />
20<strong>12</strong>. 25 Thus the proposals mooted below are only<br />
the forecast and opinion of the author.<br />
If the practical problems are limited to “force of<br />
attraction” applied to server PEs in co-location services<br />
as seen in Reg-section 2.2 , the most simple<br />
solution is to deem servers in co-location services<br />
as not being PEs. Even though the OECD Commentary<br />
includes the possibility of deeming servers<br />
as PEs, Japan can choose to legislate in a way<br />
that reduces the possibility of server PEs. However,<br />
the Cabinet Council Decision on December 10,<br />
2011 26 clearly refers to a change from the “entire<br />
income principle” to the “attributed income principle,”<br />
so the option of changing only the scope of<br />
server PEs will not be adopted.<br />
I have said that Japan's situation is similar to that in<br />
the US before the amendment in 1966 in Reg-section<br />
2.3 . Is there then a possibility for Japan to adopt<br />
the American style of “effectively connected income<br />
principle”? I don't think so. Source rules and effectively<br />
connected income rules in the US seem to be<br />
complicated to an extreme degree, so the amendment<br />
in the US in 1966 seems to be a negative example.<br />
Should Japanese source rules follow the German<br />
EStG? It is difficult question. If CTA, Art. 138<br />
were to be drastically changed, issues linked to the<br />
change of source rules will be too many. “Force of<br />
attraction” under CTA, Art. 141 (i) to (iii) might<br />
be abolished and CTA, Art. 138 (i) might refer to<br />
a permanent establishment like EStG Code-section<br />
49 (2)(a) as seen in Reg-section 1.3 .; but the government<br />
might not want to change source rules so<br />
drastically. Tax rules on foreign corporations having<br />
no PEs in Japan under ITA, Arts. 178 to 180-2 and<br />
2<strong>12</strong> will be mostly maintained. 27<br />
Th e Author: ASATSUMA Akiyuki, Doctor of law<br />
in the University of Tokyo, Associate professor of<br />
tax law at College of Law and Politics, in Rikkyo<br />
University, Tokyo. asatsuma@rikkyo.ac.jp<br />
E NDNOTES<br />
1<br />
2<br />
3<br />
4<br />
The number of Articles of ITA and CTA were renumbered<br />
in 1965, but the main structures of income tax<br />
rules on non-resident individuals and foreign corporations<br />
have been maintained.<br />
The first version of the OECD Model Tax Convention<br />
was made in 1963.<br />
Code-section 864 .<br />
Cabinet Council Decision on December 10, 2011:<br />
“Large Package of Tax Revisions in 20<strong>12</strong>” in http://<br />
www.mof.go.jp/tax_policy/tax_reform/24taikou_3.<br />
pdf (Japanese), page 74. At that time, DPJ (the<br />
Democratic Party of Japan) was the governing party<br />
and LDP (the Liberal Democratic Party of Japan) won<br />
against the DPJ in the national election on December<br />
16, 20<strong>12</strong>. The LDP will continue to discuss changes<br />
of Japanese source rules and PE taxation rules. The<br />
newest "Large Package of Tax Revisions in 2013"<br />
of the governing parties (The LDP and Komeito) as<br />
of January 24, 2013 ( http://www.jimin.jp/policy/<br />
policy_topics/pdf/pdf085_1.pdf Japanese), page 91<br />
also refers the changes of source rules and PE taxation<br />
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40
ules from "entire income principle" to "attributed<br />
Arts. 279 to 288. Some Articles of OEITA concerning<br />
income principle" in accordance with the Authorized<br />
international income tax rules are also unofficially<br />
OECD Approach.<br />
translated. See note 6.<br />
5<br />
Law No. 33 of 1965.<br />
14<br />
A corporation can be a silent partner ( tokumei ku-<br />
6<br />
Unofficial translation is available in http://www.japa-<br />
miaiin ) of a silent partnership in Article 535 of the<br />
neselawtranslation.go.jp/ (Japanese Law Translation).<br />
Commercial Code. See note 11.<br />
Not all articles of CTA and ITA are translated into Eng-<br />
15<br />
CTA, Art. 139 provides that source rules in a tax con-<br />
lish, but the main provisions concerning international<br />
vention are superior to domestic rules.<br />
income taxation rules are translated.<br />
16<br />
More detail rules on source of income are provided<br />
7<br />
Source rules and PE taxation rules in the Corporate<br />
in OECTA (Order for Enforcement of the Corporation<br />
Tax Act and the Income Tax Act are similar. This article<br />
Tax Act), Arts. 176 to 184. See note 6.<br />
is mainly based on the CTA, unless otherwise noted.<br />
17<br />
OECTA, Art. 185(1) and (2) is roughly equivalent to<br />
Some of the international income taxation rules in ITA<br />
the OECD Model Tax Convention, Art. 5(2) and (4).<br />
are illustrated in IFA 20<strong>12</strong> Boston Congress: cahiers<br />
18<br />
OECTA, Art. 186.<br />
de droit fiscal international, volume 97a, Enterprise<br />
19<br />
Independent personal services income listed in CTA,<br />
services, pp. 413-435 (20<strong>12</strong>) (written by ASATSUMA,<br />
Art. 138 (ii) is subject to tax in Japan even when a<br />
Akiyuki).<br />
foreign corporation has no PE in Japan under Japanese<br />
8<br />
Law No. 34 of 1965.<br />
domestic tax rules, although we don't know how<br />
9<br />
[A] partnership contract” in Article 667(1) of the Civil<br />
the Japanese tax authority can capture such service<br />
Code is called in Japanese “ nin’i kumiai. ” Not only an<br />
income; but if the foreign corporation is a resident<br />
individual but also a corporation can be a partner<br />
corporation of a country which has concluded a tax<br />
( nin’i kumiaiin ) of a partnership<br />
convention equivalent to the OECD Model, then the<br />
10<br />
There is no definition of “independent” or “depen-<br />
foreign corporation is protected by the “no taxation<br />
dent” in this Article, but independent and dependent<br />
without PE” rule.<br />
character is easy to understand when comparing with<br />
20<br />
However, there is a discussion concerning CTA, Art.<br />
ITA, Art. (viii).<br />
139 which provides that the source rule contained in<br />
11<br />
[A] silent partnership” in Article 535 of the Com-<br />
by tax treaties has priority over Art. 138 (ii) to (xi).<br />
mercial Code is also called “a sleeping partnership”<br />
21<br />
There have not been many cases in the court in which<br />
or “stille Gesellschaft,” but the Japanese “ tokumei<br />
OECTA or OEITA is regarded as incompatible with CTA<br />
kumiai ” is also used.<br />
or ITA, but one case is Supreme Court judgment on<br />
<strong>12</strong><br />
13<br />
ITA, Art. 162 provides that source rules in a tax convention<br />
are superior to domestic rules.<br />
More detail rules on source of income are provided in<br />
OEITA (Order for Enforcement of the Income Tax Act),<br />
July 6, 2010, reported in Minshû , vol. 64, no. 5, p. <strong>12</strong>77.<br />
In this case, the tax authority imposed income tax on<br />
life insurance annuities which had been contracted by<br />
a husband who died and were received by a wife, in<br />
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41
22<br />
23<br />
OEITA, Art. 183. However, the court said that the life<br />
insurance annuities had been subject to inheritance<br />
tax and a part of the annuities were exempt income<br />
in the meaning of ITA, Art. 9 (1)(xvi).<br />
When tax lawyers discussed whether computer servers<br />
can be seen as PEs at the end of the last century,<br />
technical engineers laughed: computer servers can be<br />
located all over the world in a business sense, so it<br />
is ridiculous that servers can be a threshold of taxation.<br />
Ironically, history has shown that the location<br />
of computer servers is critically important in some<br />
types of business.<br />
Financial Services Agency, Demands of tax system<br />
24<br />
25<br />
26<br />
27<br />
revision in 2013, http://www.fsa.go.jp/news/24/<br />
sonota/20<strong>12</strong>0907-2/01.pdf (September 20<strong>12</strong>, Japanese),<br />
page 22.<br />
Cf. Fowler Task Force Report, reprinted in Legislative<br />
History of H.R. 13103, 89th Cong., 2nd Sess. Foreign<br />
Investors Tax Act of 1966. See also Harvey P. Dale,<br />
Effectively Connected Income, 42 Tax Law Review<br />
689, 719 (1987).<br />
See note 4.<br />
See note 4.<br />
There is a little possibility of taxation without PEs under<br />
CTA, Art. 141 (iv) as seen in Reg-section 1.2 . It is not<br />
predictable whether CTA, Art. 141 (iv) will be changed.<br />
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42
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Latest Changes To The Brazilian<br />
Transfer Pricing Rules<br />
By Miguel A. Valdes, Lawyer and certified public<br />
accountant, partner of the law firm Valdes &<br />
Associates, LLC, in Chicago, Illinois<br />
Introduction<br />
This is a follow-up to the article published last year<br />
[see Global Tax Weekly, Issue No. 1, November 15,<br />
20<strong>12</strong> ] regarding the latest changes to the Brazilian<br />
transfer pricing rules. We will continue to follow<br />
up with future articles as more transfer pricing developments<br />
relating to the new law in Brazil occur.<br />
Once again, the Brazilian tax authorities have recently<br />
published more changes to the transfer<br />
pricing legislation as follows: 1) Law Nº <strong>12</strong>,766<br />
(published in the Official Gazette of December<br />
28, 20<strong>12</strong>) changing the rules applicable to financial<br />
transactions, and 2) Regulatory Instruction Nº<br />
1,3<strong>12</strong> (published in the Official Gazette of December<br />
31, 20<strong>12</strong>) with the regulations applicable to the<br />
transfer pricing rules.<br />
Th e main changes brought about by the new regulations<br />
are as follows.<br />
Effective Dates And Benchmark Interest<br />
Rate And Spread<br />
All financial contracts entered into or modified as<br />
of January 1, 2013, must comply with the transfer<br />
pricing rules. In other words, the new rules provide<br />
that on the effective date of the transaction, the<br />
agreed-upon interest rate should be no higher (for<br />
loans to Brazilian parties) or lower (for loans granted<br />
by Brazilian parties) than a benchmark interest<br />
rate plus a spread.<br />
Regulatory Instruction Nº 1,3<strong>12</strong> has been altered,<br />
as of January 18, 2013, to provide the benchmark<br />
interest rate and the spread.<br />
Regulatory Instruction Nº 1,3<strong>12</strong> Substantial<br />
Restriction on the Profitability Safe Harbor<br />
It will be recalled that in order to be outside the<br />
scope of the transfer pricing rules, a taxpayer needed<br />
to demonstrate that it had at least 5% profitability<br />
on its export sales. However, now, in order to<br />
qualify for the safe harbor, two requirements must<br />
be met:<br />
(1) The net revenues derived from export transactions<br />
to related parties shall not exceed 20%<br />
of the net revenues from all export transactions;<br />
and<br />
(2) The company shall have a profitability of at<br />
least 10%, based on an average of the current<br />
year and the two previous years (the previous<br />
43<br />
swipe down ❯
5% profitability requirement had similar<br />
wording; however, the tax authorities issued<br />
instructions allowing for transactions from a<br />
single year to be utilized.)<br />
If a taxpayer does not satisfy both requirements, it<br />
must then comply with the transfer pricing rules<br />
and utilize one of the export methods set forth in<br />
the Brazilian law.<br />
Definition of Commodities<br />
As previously discussed, Law Nº <strong>12</strong>,715 requires now<br />
the use of certain specific methods for transactions involving<br />
commodities. Those methods will compare<br />
transactions subject to the transfer pricing rules with<br />
those carried out in the applicable exchanges. However,<br />
Law º <strong>12</strong>,715 left it to the tax authorities to regulate<br />
the application of the methods and the relevant<br />
exchanges for purposes of defining the benchmark.<br />
Such regulation now is set forth in the Regulatory Instruction<br />
º 1,3<strong>12</strong>, and it has defined commodities very<br />
broadly. Consequently, many more products than the<br />
obvious ones could be subject to the commodities rules<br />
since the tax authorities have included whole chapters<br />
of the Mercosur Common Nomenclature book. It is<br />
very probable that the application of these rules to certain<br />
products will be challenged in the courts.<br />
Controversies with the Import Resale<br />
Minus (PRL) Method<br />
Th e regulations also covered the new PRL Method,<br />
and the guidance was clear on some aspects,<br />
was not so self evident in others, and even illegal in<br />
one specific point.<br />
Total Cost: This is clearly defined as the total<br />
cost of the item without any exclusion. This<br />
clarification, however, comes as a cost to taxpayers<br />
since it will raise the price against which the<br />
benchmark will be compared and likely increase<br />
the tax adjustments.<br />
Period of Comparison: Not so clearly defined was<br />
the period that should be taken into consideration<br />
for the calculation of the benchmarks and therefore<br />
the taxable adjustments. Regulatory Instruction Nº<br />
1,3<strong>12</strong> states that the benchmark calculation shall<br />
take place when the items are written-off. It also<br />
seems to indicate that beginning inventory should<br />
be included, and that the whole year should be taken<br />
into consideration for the calculation. However,<br />
there are no other clarifications on how to make<br />
these procedures operational, or how to change<br />
from one option to another, or even what adjustments<br />
will be required if a taxpayer elects to use a<br />
method other than the PRL in a later period.<br />
Basis for Calculating the Profit Margin: The Regulatory<br />
Instruction provides two different forms of<br />
calculating the profit margin as follows:<br />
(1) In item IV of Article <strong>12</strong>, the profit margin<br />
is calculated over the share of the controlled<br />
item in the sales price, net of taxes, discounts<br />
and commissions, and<br />
(2) In paragraph 13 of the same Article <strong>12</strong>, the<br />
profi t margin is calculated over the total<br />
price, net only of discounts, and without<br />
taking into consideration the share of the<br />
imported item.<br />
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44
Th is second calculation will give rise to litigation,<br />
since it can be interpreted as an increase in taxation<br />
without the applicable legal grounds.<br />
Changes in Profit Margins<br />
Regulatory Instruction Nº 1,3<strong>12</strong> states that all the<br />
rules applicable to ruling requests are also applicable<br />
to profit margin change requests. However,<br />
ordinance Nº 222/08 clearly states that the ruling<br />
requests rules do not apply to profit margin change<br />
requests. Consequently, this contradiction is likely<br />
to generate controversies in the future.<br />
Drop Shipment Transactions<br />
Regulatory Instruction Nº 1,3<strong>12</strong> provides that<br />
these transactions are subject to the transfer pricing<br />
rules as if they were separate import and export<br />
transactions. Furthermore, the regulations also require<br />
that the overall profitability of the transaction<br />
be compatible with market practices. However, the<br />
regulations do not provide any explanation as to<br />
how to determine the adequacy of the overall profitability<br />
of the transactions.<br />
Presentation of Second Method<br />
Law Nº <strong>12</strong>,715 permits taxpayers to present a second<br />
transfer pricing method, if the first method is<br />
disregarded by the tax authorities or some other circumstances.<br />
Now, Regulatory Instruction Nº 1,3<strong>12</strong><br />
has indicated that, if the presentation of the second<br />
method results in a tax liability, the tax authorities<br />
could levy fines up to 75%.<br />
Concluding Comment<br />
As shown by all the recent activity, there are three<br />
conclusions that can be preliminarily arrived at:<br />
(1) The Brazilian tax authorities will not be<br />
switching the transfer pricing rules to the<br />
OECO rules in the near future.<br />
(2) There will be a lot more litigation in the<br />
transfer pricing area in the near term.<br />
(3) The Brazilian tax authorities, and others in<br />
the region, are keeping up with developments<br />
and implementing similar rules, i.e. , new<br />
commodities rules in Brazil and Peru while<br />
Argentina has been litigating those rules for<br />
a number of years.<br />
The Author:<br />
Miguel A. Valdes, Lawyer and certified public accountant,<br />
is a partner of the law firm Valdes &<br />
Associates, LLC, in Chicago, Illinois; he is also a<br />
consultant with the law firm of Koury Lopes Advogados<br />
based in Sao Paulo, Brazil.<br />
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45
FEATURED ARTICLES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Financial Transaction Taxes: Robin<br />
Hood Rides Again<br />
by Caroline Huggett, Senior Editor,<br />
Global Tax Weekly<br />
Introduction<br />
Although it has been in the news in various forms<br />
for some time, the financial transaction tax (FTT)<br />
concept had its moment in the sun recently, with<br />
the issue coming to the fore in both the European<br />
Union and the United States.<br />
could not be achieved. Those who want to move<br />
ahead, and who appreciate the merits of working<br />
more closely on taxation at EU-level, can do so. This<br />
is a highly significant and very welcome advance.”<br />
In the EU, the FTT was authorized for implementation<br />
by a qualified majority of EU member states<br />
at a meeting of the European Council of Economic<br />
and Financial Affairs (Ecofin), meaning that the<br />
European Commission can now present a concrete<br />
proposal on plans for an FTT, allowing negotiations<br />
to begin on the details of the tax.<br />
Th e significance of the decision was underlined by<br />
the governments concerned, as it represented the<br />
first act of enhanced cooperation in the history of<br />
the European Union in the area of taxation.<br />
EU Tax Commissioner Algirdas Šemeta called the<br />
agreement to allow eleven member states to move<br />
ahead with a harmonized FTT a “major milestone.”<br />
Š emeta observed that: “It is a milestone for EU tax<br />
policy, as it paves the way for more ambitious member<br />
states to progress on a tax file, even when unanimity<br />
He concluded: “For the first time ever, the financial<br />
transactions tax will be applied at regional level. A<br />
block representing around two thirds of EU GDP<br />
will implement this fair tax together, answering the<br />
long-time calls of their citizens. And in doing so,<br />
they can pave the way for others to do the same.”<br />
In the United States, meanwhile, responding to<br />
the EU announcement, Senator Tom Harkin (D -<br />
Iowa) and Representative Peter DeFazio (D - Oregon),<br />
announced this week that they had decided<br />
to reintroduce their bills to impose such a tax<br />
in the United States, first proposed in November<br />
2011, with a planned introduction date of January<br />
1, 2013.<br />
The Wall Street Trading and Speculators Tax would<br />
place a levy of 0.03% on most non-consumer financial<br />
trading transactions, including stocks, bonds<br />
and other debts, except for their initial issuance.<br />
46<br />
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The tax would also cover all derivative contracts,<br />
options, puts, forward contracts, swaps and other<br />
complex instruments at their actual cost. It would<br />
exclude retirement and education savings.<br />
“Our FTT proposal raises considerable revenue (estimated<br />
at USD352bn over 10 years) with little impact<br />
on economically beneficial transactions,” Harkin<br />
explained, continuing: “It is a tax that does not<br />
harm small businesses or the middle class and Wall<br />
Street can certainly afford it. I applaud the action<br />
taken by the EU today and hope that we will soon<br />
have US action on this issue.”<br />
“In the coming months, our country will need<br />
to make hard decisions to get back on sound fiscal<br />
footing. Our financial transaction tax should<br />
be a no-brainer,” DeFazio added. “I, too, applaud<br />
the EU. (Its) action mean(s) there will be less opportunity<br />
to shift US trading overseas to avoid a<br />
US FTT. Wall Street's criticisms of an FTT are<br />
rapidly shrinking.”<br />
Equivalent bills were launched by Democrats in<br />
the last, 1<strong>12</strong>th, Congress but gained no traction. It<br />
seems wildly unlikely that any such measure would<br />
be passed by a Republican House of Representatives,<br />
but . . . never say never.<br />
An FTT Primer<br />
Th e Financial Transaction Tax in its current format<br />
was first formally proposed within the EU following<br />
an examination in October 2010 of the importance<br />
of developing a financial transaction tax<br />
(FTT) in an EC Communication on taxation of<br />
the financial sector, although it has its roots much<br />
earlier than that.<br />
The Commission reasoned in 2010 that: “In the<br />
context of the economic and financial crisis, it is<br />
more and more commonly accepted that the financial<br />
sector should make a fairer contribution,<br />
this sector having been under-taxed to date given<br />
the exemption from VAT of most financial services.<br />
This Proposal for a Directive is therefore aimed<br />
at developing a common tax reserved for financial<br />
transactions, the main objectives of which are to<br />
ensure that financial institutions make a fair contribution<br />
to covering the costs of the crisis and to<br />
avoid fragmentation in the internal market for financial<br />
transactions.”<br />
Summarizing the " Proposal for a Council Directive<br />
of 28 September 2011 on a common system<br />
of financial transaction tax and amending Directive<br />
2008/7/EC ", the EC explained that:<br />
“This Proposal is aimed at establishing a common<br />
system of financial transaction tax...It concerns all<br />
financial transactions, namely the purchase and sale<br />
of a financial instrument, such as company shares,<br />
bonds, money-market instruments, units of undertakings<br />
for collective investment, structured products<br />
and derivatives and the conclusion or modification<br />
of derivatives agreements, on condition that at<br />
least one party to the transaction is established in a<br />
Member State and that a financial institution (such<br />
as investment firms, organized markets, credit institutions,<br />
insurance and reinsurance undertakings, collective<br />
investment undertakings and their managers,<br />
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47
pension funds and their managers, and certain other<br />
undertakings where transactions constitute a significant<br />
part of their activity) established in a Member<br />
State is party to the transaction, acting either for its<br />
own account or for the account of another person, or<br />
is acting in the name of a party to the transaction.”<br />
“In general, a financial institution shall be deemed to<br />
be established in the Member State of authorization<br />
in order to act as such but it should be noted that,<br />
under certain conditions, a financial institution not<br />
established in a Member State, for example where<br />
it is a party to a financial transaction with a party<br />
established in the territory of a Member State, shall<br />
also be deemed to be established in the territory of a<br />
Member State (of the latter mentioned in this case).”<br />
Th e EC went on to reveal that certain types of entities<br />
and transactions would be excluded from the<br />
scope of the proposed Directive. In terms of excluded<br />
entities, these included:<br />
Th e European Financial Stability Facility (established<br />
in 2010 in order to safeguard financial<br />
stability in the eurozone by providing financial<br />
assistance — via the issuing of bonds or other<br />
debt instruments on the capital markets);<br />
Any international financial institution established<br />
by two or more Member States, with the purpose<br />
of mobilizing funding and providing financial<br />
assistance for the benefit of members that are<br />
experiencing severe financing problems;<br />
Central Counter Parties (legal entities that interpose<br />
themselves between the counterparties to a<br />
financial transaction); and<br />
National or international Central Securities Depositories.<br />
Excluded transactions included:<br />
Primary market transactions in principle, relating<br />
to the issue of company shares or bonds;<br />
Transactions with the European Union, the European<br />
Atomic Energy Community, the European<br />
Central Bank, the European Investment Bank,<br />
bodies set up by the European Union or the European<br />
Atomic Energy Community and other<br />
international organizations and bodies (under<br />
certain conditions); and<br />
Transactions with the central banks of Member<br />
States.<br />
The EC explained that:<br />
“The FTT shall become chargeable from the moment<br />
the transaction occurs. Subsequent cancellation<br />
or rectification of a financial transaction shall<br />
have no effect on chargeability, except for cases of<br />
errors. In the case of transactions other than those<br />
concerning derivatives agreements, the taxable<br />
amount of the FTT shall be, in principle, everything<br />
which constitutes consideration paid or owed,<br />
in return for the transfer, from the counterparty or<br />
a third party.”<br />
“In the case of transactions concerning derivatives<br />
agreements, the taxable amount of the FTT<br />
shall be the notional amount (i.e. the underlying<br />
nominal or face amount that is used to calculate<br />
payments made on a given derivatives agreement)<br />
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48
of the derivatives agreement at the time of the<br />
financial transaction.”<br />
payment of the tax due by a financial institution on<br />
account of that transaction.”<br />
Th e minimum rates of FTT are to be 0.1 % for all<br />
financial transactions other than those concerning<br />
derivatives agreements, and 0.01 % for all financial<br />
transactions relating to derivatives.<br />
In terms of payment procedures, obligations and<br />
prevention of evasion, avoidance and abuse, the EC<br />
stated that:<br />
“FTT shall be payable by each financial institution<br />
(deemed to be established in a Member State)<br />
which fulfils any of the following conditions:<br />
it is party to the transaction, acting either for its<br />
own account or for the account of another person;<br />
it is acting in the name of a party to the transaction;<br />
the transaction has been carried out on its account.”<br />
And continued: “It should be noted, therefore, that<br />
any financial institution which is party to a transaction<br />
or is involved in a transaction shall be liable for<br />
the tax. A single financial transaction may therefore<br />
result in payment of the tax on both sides of the<br />
transaction, at the rate applicable in the Member<br />
State of establishment of the financial institution<br />
concerned. However, where a financial institution<br />
acts in the name of or for the account of another financial<br />
institution, only the latter shall be required<br />
to pay FTT. Moreover, each party to a transaction<br />
shall become jointly and severally liable for the<br />
Under the proposed framework, the FTT will<br />
be payable at the moment when the tax becomes<br />
chargeable (where the transaction takes place electronically),<br />
and within three working days from the<br />
tax becoming chargeable in all other cases.<br />
The EC concluded by reminding participating<br />
countries that: “Member States may not introduce<br />
or maintain taxes on financial transactions other<br />
than FTT or value added tax (DA) (VAT) provided<br />
for by the VAT Directive.”<br />
Predecessors Of The FTT<br />
The financial transactions tax in the format in which<br />
it is currently proposed has been several years in the<br />
making, but the concept dates back much further<br />
than that. Keynes himself may have been the first to<br />
suggest such a tax in modern times; then in 1972,<br />
American economist and disciple of Keynes, James<br />
Tobin proposed a currency conversion tax in order<br />
to counter the exchange rate volatility which followed<br />
the collapse of the post-war Bretton Woods<br />
system of monetary management, under which<br />
the US dollar was directly convertible to gold (at<br />
USD35 per ounce), and all participating countries<br />
were required to peg their currency to the dollar, in<br />
order to maintain exchange rates.<br />
The rather unimaginatively-named "Tobin Tax"<br />
was revived as a concept by then French Prime Minister,<br />
Lionel Jospin in 2001 (following a spate of<br />
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49
currency-related crises in various countries around<br />
the world in the 1990s), who suggested that Tobin's<br />
proposed levy of 0.5% on currency exchange<br />
transactions, or something similar, would help to<br />
prevent such situations from arising again.<br />
UK, where the campaign's website suggested that<br />
“a tiny tax on the financial sector” could generate<br />
“GBP20bn annually in the UK alone” which could<br />
go towards protecting the public services being cut<br />
as part of the government's austerity measures.<br />
Th is caused controversy, with critics arguing that<br />
there was not the international political consensus<br />
necessary for such a bold move, and that currency<br />
speculation could be more effectively curbed in<br />
other ways, for example by improving regulation of<br />
such transactions, particularly where they involved<br />
the use of complicated derivatives.<br />
Problems were also raised relating to the implementation<br />
of such a levy, for example what types<br />
of instrument it should take in, how the tax should<br />
be collected, whether collection should include<br />
transactions involving offshore jurisdictions, and<br />
how best to enforce the tax. It was further suggested<br />
that reducing currency speculation might<br />
actually increase volatility in the currency markets,<br />
and opponents of such a levy suggested that<br />
if it was designed to redress the favored position<br />
enjoyed by global financial capital vis-a-vis other<br />
sources of capital, ought it not to be applied to all<br />
financial transactions?<br />
Th is idea was seized upon by campaigners as a potential<br />
solution to the global economic woes caused<br />
by the more recent banking crisis, and the idea of<br />
a "Robin Hood Tax" on the financial sector began<br />
to gather momentum. As might be expected from<br />
its name, such a tax had its strongest backing in the<br />
Th e campaigners explained that: “As a result of the<br />
financial crisis, the International Monetary Fund<br />
(IMF) has calculated UK government debt will be<br />
40% higher. That 40% equates to GBP737 billion,<br />
or GBP28,000 for every taxpayer in the country.<br />
Having to pay back that debt means cuts in vital<br />
services on which millions of people around the<br />
country rely. Total cost to the UK of the financial<br />
crisis in terms of lost output according to the IMF<br />
was 27% of 2008 GDP.”<br />
And argued: “So it's time for justice. It's time for<br />
justice for ordinary families and businesses. For the<br />
one in five British families faced with a choice between<br />
buying food or paying the heating bill. For<br />
the millions of people around the world forced<br />
into poverty by a financial crisis they did absolutely<br />
nothing to bring about.”<br />
“The Robin Hood Tax is justice. The banks can<br />
afford it. The systems are in place to collect it. It<br />
won't affect ordinary members of the public, their<br />
bank accounts or their savings. It's fair, it's timely,<br />
and it's possible.”<br />
However, an eye for an eye and a tooth for a tooth leaves<br />
everyone blind and toothless, and while the campaign<br />
has enjoyed a degree of popular and celebrity support<br />
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50
since its launch, and various “redistributive” taxes have<br />
been considered (including the so-called “mansion tax<br />
” proposed by the Liberal Democrat coalition partners),<br />
the "Robin Hood" tax concept has never really<br />
gotten off the ground in the UK.<br />
FTT EU Background<br />
Nor, it seems, will its idealogical descendant, the financial<br />
transactions tax. While France and Germany<br />
(and to a slightly lesser extent Austria) have been<br />
behind the driving forces behind the introduction<br />
of the tax for more than a decade, the United Kingdom<br />
and various other EU member states have expressed<br />
their distaste for it in the strongest terms.<br />
In November 2011, during a parliamentary budget<br />
debate in the National Council, Austrian Chancellor<br />
Werner Faymann underlined the need for better<br />
regulation of international financial markets in<br />
Europe, and stressed the importance of a financial<br />
transactions tax in achieving this goal.<br />
Speaking on the subject of introducing a debt<br />
brake rule in Austria and elsewhere in Europe,<br />
Chancellor Faymann explained that in order to reduce<br />
the deficit and to create scope for investment,<br />
in addition to a binding framework for reducing<br />
the debt ratio, increased regulation of the financial<br />
markets in Europe was essential, and stated<br />
that Austria would continue to push for a tax on<br />
financial transactions, Faymann said.<br />
And then, around this time last year, then French Finance<br />
Minister François Baroin revealed government<br />
plans to impose a domestic financial transactions tax<br />
on shares, securities and derivatives (although government<br />
bonds were to remain unaffected, Baroin<br />
confirmed), and drew parallels with ongoing discussions<br />
on a wider EU tax. In the event, the domestic<br />
transaction tax came into force in August 20<strong>12</strong>, applying<br />
to transactions in the securities of publiclytraded<br />
companies with capitalization over EUR1bn,<br />
initially at a rate of 0.1%, later increased to 0.2%.<br />
Initial collections from the tax were however well below<br />
the government's expectations.<br />
Commenting more recently, the German Finance<br />
Ministry argued that the introduction of an FTT<br />
in eleven EU member states is a first key step in the<br />
direction of the introduction of a global tax, and<br />
suggested that the tax complements other regulatory<br />
measures taken by the coalition government, notably<br />
Germany's draft high frequency trading law.<br />
In the opposite corner, however, stands the United<br />
Kingdom, backed by various others, including<br />
Sweden, Denmark and the Netherlands. The UK's<br />
objection is based around its traditional reluctance<br />
to surrender any degree of fiscal sovereignty to the<br />
European Union beyond the powers already held<br />
by the EU, and the fact that, given the nature of its<br />
financial center, an FTT would arguably have an especially<br />
adverse effect, unless it was applied evenly<br />
worldwide, something that is completely infeasible.<br />
A report published by think-tank the Adam Smith<br />
Institute in late 2011 argued that in addition to<br />
costing the UK economy dear, the introduction of<br />
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51
a transaction tax in the United Kingdom would increase<br />
rather than reduce market volatility, reduce liquidity,<br />
increase tax avoidance, and lead to job losses,<br />
while failing to generate any significant revenue gains.<br />
transaction tax. Osborne was responding to chairman<br />
Andrew Tyrie’s query on the impacts of a euro<br />
area only FTT on the volume of trading in the UK<br />
and on UK firms trading with the eurozone.<br />
“If the FTT was only introduced in the EU or G20,<br />
many traders currently operating in the UK would<br />
relocate to places like Hong Kong, Singapore or<br />
Zurich. There is little scope for a worldwide FTT<br />
– even types of trades that are affected in a minor<br />
way by the FTT would likely move en masse to<br />
other jurisdictions that would flourish as FTT-free<br />
zones,” the Institute warned, going on to suggest<br />
that the cost is likely to be even higher once the<br />
UK’s disproportionate share of financial trading in<br />
the EU is factored in.<br />
It pointed out that the City of London currently<br />
accounts for 74.4% of interest rate derivatives turnover<br />
within the EU, and cautioned that an FTT<br />
would nearly eliminate derivatives trading in the<br />
UK. This would hit tax revenue and other parts of<br />
the City by preventing traders from hedging against<br />
real-world risks.<br />
UK Chancellor George Osborne went further, calling<br />
the proposals “suicidal” and suggesting in an<br />
article in the UK media at the time that they were<br />
“a bullet aimed at the heart of London.”<br />
He suggested that it was “possible that the tax<br />
might raise no additional money at all for the Exchequer.”<br />
Osborne argued that any gains in direct<br />
revenue would be offset by losses in other taxes, and<br />
predicted that an FTT would result in lower stamp<br />
duty revenues, and reduced levels of corporate tax<br />
from the financial services sector.<br />
Furthermore, some FTT payments from financial<br />
institutions headquartered in other EU member<br />
states would be made to their home government,<br />
instead of the UK, Osborne argued, explaining that<br />
this would mean further revenue losses for the UK,<br />
and also have an indirect impact on other taxes, due<br />
to the negative growth impacts of the EU’s plans.<br />
UK Prime Minister David Cameron subsequently<br />
refused to accept the EU plans, arguing that they<br />
did not adequately safeguard the UK's interests,<br />
which led Irish Finance Minister Michael Noonan<br />
to warn of his concerns over a financial transactions<br />
tax that excludes the City of London, suggesting<br />
that Ireland would be at a disadvantage if such a<br />
levy was applied in Dublin but not in London.<br />
In a somewhat more measured letter sent to the<br />
chairman of the parliamentary Treasury Select Committee,<br />
the Chancellor argued that the UK could<br />
expect to see revenue losses as a result of a financial<br />
The irony of the Irish heading the EU Council during<br />
the period in which the issue is front and center<br />
(despite not having signed up to the initiative) will<br />
no doubt not have been lost on Mr. Noonan.<br />
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Denmark, which held the role for the first half of<br />
20<strong>12</strong>, had expressed its opposition to a solely EUbased<br />
levy, and announced in January 20<strong>12</strong> that<br />
moving the issue forward would not be a priority<br />
during its presidency, while the Dutch central bank<br />
(DNB) condemned the plan as “undesirable.”<br />
The DNB argued that the European Commission’s<br />
planned levy would merely slow down economic<br />
growth, and suggested that a “negative impact on<br />
the economy is a certainty”.<br />
Commenting in February 20<strong>12</strong>, the central bank<br />
observed that: “The Netherlands will be affected<br />
relatively severely by an FTT on account of its<br />
large financial sector, including pension funds. The<br />
negative effects in terms of economic growth and<br />
arbitrage will be stronger, moreover, if tax is not<br />
levied on a global scale. Therefore the introduction<br />
of an FTT as proposed by the Commission is<br />
undesirable.” It continued: “While an FTT might<br />
for instance counteract forms of arbitrage, such as<br />
high-frequency trading, it may also cause traders to<br />
relocate or to increase their risk appetite. Pursuing<br />
a riskier trading strategy to protect one’s margins<br />
would run exactly counter to what the Commission’s<br />
proposal aims to achieve. Which of the two<br />
possible effects would win out is unpredictable.<br />
Moreover, it is questionable that an FTT would be<br />
effective in counteracting market volatility – which<br />
is one of the frequently cited benefits of an FTT.”<br />
“Moreover, the Commission’s draft proposal raises<br />
several questions. The lower rate on derivatives<br />
compared to shares may provoke arbitrage. Secondly,<br />
it is uncertain what the per-transaction rate will turn<br />
out to be. Since the tax also applies to intermediaries<br />
in a transaction, the result may be a ‘cascade effect’<br />
that will multiply the taxation rate. Thirdly, the<br />
effects of the FTT will include implications for the<br />
repo market, currently a major source of short-term<br />
funding for banks. To sum up, hard evidence that the<br />
FTT would yield a net stabilizing effect is lacking.”<br />
And Sweden? Well, its own failed financial transactions<br />
tax experiment (which took place between<br />
1984 and 1991, and effectively saw off a significant<br />
portion of the country's foreign investment, while<br />
causing domestic investors to reduce their trading<br />
frequency) has meant that it has a severe case of<br />
“once bitten, twice shy.”<br />
In Conclusion<br />
The EU now, as never before, is in a state of flux, with<br />
David Cameron pledging a referendum on the UK's<br />
place within the Union if the Conservatives are returned<br />
to power at the next election, while the French<br />
and German governments continue their mutual admiration<br />
society, pushing for greater economic and<br />
policy integration across the entire EU (although there<br />
has been trouble in paradise over the use of revenue derived<br />
from the tax, with Germany wanting it to flow to<br />
national budgets, while the French prefer to see it used<br />
to finance development policy or to be used as own<br />
revenues to support the European Union budget).<br />
However, thanks to the enhanced cooperation<br />
mechanism, whereby a group of EU member states<br />
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53
(a minimum of nine) can launch coordinated action<br />
on a proposal in the event that a consensus is<br />
not possible among all twenty-seven EU member<br />
states, it seems that the FTT juggernaut will roll<br />
on regardless, crushing the UK and other objectors<br />
under its wheels.<br />
One aspect of the proposed EU tax which is likely<br />
to generate an increasing amount of resistance and<br />
may contain within it the seeds of its own destruction<br />
is its extra-territoriality. Any country or small<br />
group of countries introducing an FTT has little<br />
choice but to include extra-territoriality, or it is<br />
just too simple for trades to skip across borders. It's<br />
not clear that the extra-territorial provisions in the<br />
EU's FTT are going to be effective, even if they are<br />
not resisted, because it is probably simple to dodge<br />
the FTT by utilizing offshore structures, at least for<br />
any larger transaction. That remains to be seen. But<br />
resistance there will be: the US is particularly prickly<br />
on such issues, and once Wall Street banks find<br />
that they are having to pay a tax to the EU on any<br />
trade they make with a French, German or Italian<br />
counter-party, or even with a subsidiary of such a<br />
counter-party, it will be a matter of microseconds<br />
before there is a bill in Congress to make such payments<br />
illegal. So, let the fun begin! It should be<br />
worth watching.<br />
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NEWS ROUND-UP: FINANCIAL INVESTMENTS<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Analysis<br />
The Financial Transaction Tax was front and center<br />
this week, with the European Union announcing<br />
that — despite strong objections from member states<br />
such as the UK and Sweden — it would be going<br />
ahead with the implementation of such a levy in at<br />
least eleven countries, with more potentially to follow,<br />
using the “enhanced cooperation” mechanism.<br />
Th is move prompted US lawmakers Senator Tom<br />
Harkin (D - Iowa) and Representative Peter De-<br />
Fazio (D - Oregon) to reintroduce their own legislation,<br />
which would impose a similar levy on the<br />
majority of non-consumer financial transactions.<br />
In the Cayman Islands, meanwhile, the authorities<br />
were less concerned with taxing financial transactions<br />
and more with their regulation, introducing new legislation<br />
to clarify registration requirements for certain<br />
types of mutual fund, seen in many parts of the<br />
world as a major step towards greater transparency.<br />
Ecofin Gives Go-Ahead To FTT<br />
Th e European Council of Economic and Financial<br />
Affairs (Ecofin) has authorized European Union<br />
(EU) member states to push ahead with plans for a<br />
financial transactions tax (FTT) within the framework<br />
of enhanced cooperation.<br />
Th e European Commission can now present a concrete<br />
proposal on plans for an FTT, allowing negotiations<br />
to begin.<br />
Th is is the first act of enhanced cooperation in the<br />
history of the European Union in the area of taxation,<br />
and follows the European Parliament's approval<br />
of the proposal on December <strong>12</strong>, 20<strong>12</strong>.<br />
Enhanced cooperation is a procedure enabling a<br />
group of EU member states (a minimum of nine)<br />
to launch coordinated action on a proposal in the<br />
event that a consensus is not possible among all 27<br />
EU member states.<br />
In October 20<strong>12</strong>, eleven EU member states – Germany,<br />
France, Austria, Belgium, Spain, Estonia,<br />
Greece, Italy, Portugal, Slovakia and Slovenia – requested<br />
the use of enhanced cooperation to press<br />
forward with the FTT.<br />
Germany and France have championed the levy<br />
from the outset. According to the German Finance<br />
Ministry, the introduction of an FTT in eleven EU<br />
member states is a first key step in the direction of<br />
the introduction of a global tax. Emphasizing that<br />
the aim of the tax is to ensure a fair and equitable<br />
contribution from the financial sector to the costs<br />
of the banking crisis, the ministry pointed out that<br />
the tax complements other regulatory measures<br />
taken by the coalition government, notably Germany's<br />
draft high frequency trading law.<br />
Insisting that the future financial transactions tax<br />
must include all possible financial instruments,<br />
have a wide base and a low tax rate, the Finance<br />
55<br />
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Ministry warned that the levy should not merely<br />
be limited to financial transactions carried out on<br />
the stock markets and regulated trading platforms<br />
but should also apply to trading taking place outside<br />
of this sphere.<br />
EU Tax Commissioner Algirdas Šemeta said that<br />
the agreement to allow eleven member states to<br />
move ahead with a harmonized FTT represented a<br />
“major milestone.”<br />
Š emeta stated: “It is a milestone for EU tax policy,<br />
as it paves the way for more ambitious member<br />
states to progress on a tax file, even when unanimity<br />
could not be achieved. Those who want<br />
to move ahead, and who appreciate the merits<br />
of working more closely on taxation at EU-level,<br />
can do so. This is a highly significant and very<br />
welcome advance.”<br />
He concluded: “For the first time ever, the financial<br />
transactions tax will be applied at regional<br />
level. A block representing around two thirds of<br />
EU GDP will implement this fair tax together,<br />
answering the long-time calls of their citizens.<br />
And in doing so, they can pave the way for others<br />
to do the same.”<br />
US Lawmakers Reintroduce FTT Bill<br />
Senator Tom Harkin (D - Iowa) and Representative<br />
Peter DeFazio (D - Oregon), while welcoming<br />
the news that a group of 11 European Union<br />
(EU) countries have been given the go-ahead to<br />
implement a financial transaction tax (FTT), have<br />
decided to reintroduce legislation to impose such a<br />
tax in the United States.<br />
The Wall Street Trading and Speculators Tax would<br />
place a levy of 0.03% on most non-consumer financial<br />
trading transactions, including stocks, bonds<br />
and other debts, except for their initial issuance.<br />
The tax would also cover all derivative contracts,<br />
options, puts, forward contracts, swaps and other<br />
complex instruments at their actual cost. It would<br />
exclude retirement and education savings.<br />
This compares with the proposed EU FTT, which<br />
could be levied on the exchange of shares and bonds<br />
at a rate of 0.1% and on derivative contracts at a<br />
rate of 0.01%.<br />
“Our FTT proposal raises considerable revenue (estimated<br />
at USD352bn over 10 years) with little impact on<br />
economically beneficial transactions,” Harkin explained,<br />
continuing: “It is a tax that does not harm small businesses<br />
or the middle class and Wall Street can certainly<br />
afford it. I applaud the action taken by the EU today and<br />
hope that we will soon have US action on this issue.”<br />
“In the coming months, our country will need to<br />
make hard decisions to get back on sound fiscal<br />
footing. Our financial transaction tax should be a<br />
no-brainer,” DeFazio added.<br />
“I, too, applaud the EU. (Its) action mean(s) there<br />
will be less opportunity to shift US trading overseas<br />
to avoid a US FTT. Wall Street's criticisms of an<br />
FTT are rapidly shrinking.”<br />
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Cayman Clarifies Fund Registration<br />
Rules<br />
The Cayman Mutual Funds (Amendment) Law,<br />
20<strong>12</strong>, became effective on January 10, 2013, clarifying<br />
registration requirements for some master funds.<br />
The Cayman Islands introduced registration requirements<br />
for master funds in The Mutual Funds<br />
(Amendment) Bill, 2011, which was passed by the<br />
Cayman Islands' legislative assembly in December<br />
2011. The registration requirements impact openended<br />
master funds, where investors can buy into<br />
the scheme directly from the fund on an ongoing<br />
basis, rather than purchasing equity from existing<br />
investors, as would be the case after the initial offering<br />
of shares in a closed-ended fund.<br />
The newly-effective Mutual Funds (Amendment)<br />
Law 20<strong>12</strong> seeks to clarify the definitions<br />
of feeder fund, regulated feeder fund and<br />
master fund to eliminate any uncertainty as to<br />
whether the registration requirements apply to<br />
a master fund. It also introduces a provision<br />
that requires non-resident mutual fund administrators<br />
to file an annual declaration with the<br />
Financial Services Authority and pay the prescribed<br />
fee before January 31 each year in respect<br />
of any regulated mutual fund that that<br />
person administers.<br />
Prior to the change in 2011, master funds with fewer<br />
than 15 feeders/investors were exempt from having<br />
to register with the Financial Services Authority.<br />
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NEWS ROUND-UP: COUNTRY FOCUS<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Switzerland - Analysis<br />
Th e emphasis in Switzerland this week was very<br />
much on cooperation, as it was announced that<br />
the new Tax Administrative Assistance Act (which<br />
governs the execution of administrative assistance<br />
under double taxation agreements) will be coming<br />
into force on February 1, 2013.<br />
Separately it emerged that although the treaty between<br />
Austria and Switzerland has entered into<br />
force, the Austrian authorities must wait to get their<br />
hands on the additional revenue to be generated by<br />
the withholding tax on undisclosed assets.<br />
Still on the subject of vices, it was also reported this<br />
week that the Swiss authorities are planning to reorganize<br />
the collection of “sin taxes,” to bring them<br />
under one department, in the interests of reducing<br />
costs and improving the efficiency of collection.<br />
Austria To Wait For Revenues From<br />
Swiss Tax Deal<br />
Austria will have to wait for around six months before<br />
revenues start to flow from the bilateral withholding<br />
tax deal concluded with Switzerland.<br />
Based on the tax treaties concluded between Switzerland<br />
and the UK and Switzerland and Germany,<br />
the Swiss-Austrian tax deal signed in April, 20<strong>12</strong>,<br />
provides for a withholding tax levied on undisclosed<br />
assets held by Austrian residents in Swiss<br />
banks to regularize the accounts. The agreement<br />
also contains plans to impose an annual withholding<br />
tax on future investment income.<br />
Th e treaty entered into force as planned on January<br />
1, 2013.<br />
The Austrian Finance Ministry is anticipating income<br />
from one-off withholding tax payments<br />
of around EUR1bn (USD1.3bn), and a further<br />
EUR50m annually from the 25% tax on future<br />
capital gains, the same rate as applied in Austria.<br />
Despite the fact that the accord entered into force<br />
at the beginning of the year, revenues will not flow<br />
to Austria straight away as taxpayers have until May<br />
31 to decide whether to settle the withholding tax<br />
due on capital or to elect to report their investments<br />
via a voluntary tax declaration. The taxation of illiquid<br />
assets, such as shares and bonds, may delay<br />
expected income yet further, as this process will undoubtedly<br />
prove more complicated.<br />
Th e withholding tax rates provided for in the<br />
agreement vary between 15% and a maximum<br />
of 38% for large banking deposits. According<br />
to the Austrian Finance Ministry, the actual rate<br />
of the withholding tax imposed will depend in<br />
part on whether the money placed in Switzerland<br />
since 2003 was the result of a one-off deposit<br />
or of continuing payments, referred to as<br />
“black sources,” and indicative of efforts aimed<br />
at avoiding corporation or income tax.<br />
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Opponents of the bilateral deal lament the fact that<br />
the provisions are too lenient, and allow tax evaders<br />
to preserve their anonymity.<br />
Swiss Tax Administrative Assistance<br />
Act In Force Soon<br />
Th e Swiss Federal Council has recently resolved to<br />
bring the new Tax Administrative Assistance Act<br />
into force on February 1, 2013.<br />
Switzerland's Tax Administrative Assistance Act<br />
(TAAA) governs the execution of administrative<br />
assistance under double taxation agreements. Approved<br />
by Parliament on September 28, 20<strong>12</strong>, the<br />
referendum deadline expired on January 17, 2013<br />
without a referendum being called.<br />
The existing ordinance governing the implementation<br />
of double taxation agreements will be repealed<br />
when the TAAA comes into force.<br />
Group requests in accordance with the international<br />
standard are also permitted with the entry<br />
into force of the TAAA. Such requests require a<br />
description of the action taken by bank clients to<br />
avoid taxation and must be clearly distinct from<br />
“fishing expeditions.”<br />
In accordance with the Ordinance on Administrative<br />
Assistance in the Case of Group Requests According<br />
to International Tax Agreements, group requests<br />
for information are admissible from the date<br />
that the law enters into force.<br />
Switzerland Reorganizes 'Sin Tax'<br />
Collection<br />
Switzerland has announced plans to reorganize the<br />
taxes on beer, tobacco, and spirits, and to regroup<br />
the departments involved in tax collection into one<br />
single organizational unit.<br />
Within the framework of a total revision of the<br />
law on alcohol, the Swiss Federal Department<br />
of Finance (FDF) intends to integrate the Swiss<br />
Alcohol Board into the Swiss Customs Administration<br />
(SCA), transferring competencies relating<br />
to the taxes on beer, tobacco and spirits, as<br />
well as regulations governing the alcohol market,<br />
to the SCA.<br />
The decision is to be implemented following entry<br />
into force of the revised legislation on alcohol.<br />
According to the FDF, the regrouping of the<br />
different consumption taxes within the SCA<br />
opens up a number of opportunities, notably<br />
as regards the collection of taxes. It will also reduce<br />
administrative costs for businesses and for<br />
the authorities themselves.<br />
Switzerland Extends VAT Perk<br />
For Hoteliers<br />
The Swiss Federal Council has recently approved<br />
plans to extend until 2017 the special value-added<br />
tax (VAT) rate of 3.8% accorded to the hotel industry<br />
for accommodation services.<br />
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Th e decision is in accordance with an initiative submitted<br />
by the Committee for Economic Affairs and<br />
Taxation (CEAT) of the Swiss National Council.<br />
Introduced in 1996, the special VAT rate benefiting<br />
the hotel industry, currently in force until the<br />
end of 2013, has already been extended four times.<br />
The last time was within the framework of the total<br />
revision of Switzerland's VAT law.<br />
reduced VAT rate and will no longer benefit<br />
from a special VAT rate. However, given the<br />
need to modify the constitution, necessitating<br />
the approval of both the Swiss people and cantons,<br />
the new model is not expected to enter<br />
into force before 2016.<br />
As an interim measure, it was agreed that the current<br />
special VAT rate be extended.<br />
On December 21, 2011, the Swiss National Council<br />
rejected plans for the introduction of a single<br />
VAT rate, as recommended by the Federal Council.<br />
The National Council requested instead that the<br />
future VAT model be based on two VAT rates.<br />
Consequently, in accordance with the reform,<br />
the hotel sector will in future be subject to a<br />
According to the Swiss Federal Department of<br />
Finance (FDF), this decision will lead to a shortfall<br />
of tax revenue of CHF180m (USD193m) a<br />
year, representing a total shortfall of EUR720m<br />
over four years. Given the size of the sum, the<br />
measure will have to be compensated by a reduction<br />
of expenditure or by a rise in taxes, the<br />
FDF states.<br />
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NEWS ROUND-UP: TRANSFER PRICING<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Analysis<br />
Although very different in terms of their cultures<br />
and economies, the BRIC countries (Brazil,<br />
Russia, India and China) have a number of<br />
areas of common interest, including the development<br />
of up-to-date, comprehensive and fit for<br />
purpose transfer pricing rules, and it emerged<br />
this week that the heads of revenue of the four<br />
countries have identified a number of areas of<br />
tax policy and administration in which a cooperative<br />
approach would be useful in advancing<br />
their cause.<br />
In the UK, meanwhile, the government was<br />
very much on the warpath with regard to businesses<br />
avoiding or illegally minimizing their tax<br />
liabilities using transfer pricing, as it emerged<br />
that HM Revenue and Customs' Large Business<br />
Service is chasing almost 50% more tax relating<br />
to such abuses than it sought to recover the<br />
previous year.<br />
Speaking at the World Economic Forum in Davos,<br />
Prime Minister David Cameron sought to hammer<br />
the government's stance on this issue home, while<br />
having a sneaky dig at Starbucks (which was caught<br />
in the tax-dodging act by the Public Accounts<br />
Committee late last year, and committed to paying<br />
an additional GBP20m (USD31.3m) in extra<br />
tax over the next two years) by suggesting that tax<br />
dodging businesses “need to wake up and smell the<br />
coffee because the public who buy from them have<br />
had enough.”<br />
BRICS Countries Agree To Greater<br />
Cooperation In Tax Administration<br />
The heads of revenue of the BRIC countries (Brazil,<br />
Russia, India and China) have identified seven areas<br />
of tax policy and administration where they can<br />
extend their mutual cooperation, and have agreed<br />
to establish a central point of contact in each jurisdiction<br />
for further coordination on tax issues.<br />
Th e commitments are outlined in a joint communique<br />
issued by the BRICS countries following a<br />
two day meeting in India. Representatives of the<br />
various tax administrations met “to discuss the potential<br />
areas of cooperation based on our existing<br />
commitment to openness, solidarity, mutual understanding<br />
and trust.”<br />
Among the topics covered were international taxation,<br />
transfer pricing, the prevention of cross-border<br />
tax evasion and avoidance, the exchange of information,<br />
the sharing of best practices in tax system<br />
administration and the resolution of disputes.<br />
Last year, the BRICS Finance Ministers and Central<br />
Bank Governors declared that all countries<br />
would develop a cooperative approach on issues<br />
relating to international taxation, transfer pricing,<br />
the exchange of information and tax evasion<br />
and avoidance. The communique sets out<br />
the heads of revenues' agreement to extend this<br />
cooperation on the following issues of tax policy<br />
and tax administration:<br />
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To contribute to the development of international<br />
standards on international taxation and transfer<br />
pricing, taking into account the aspirations of<br />
developing countries in general and the BRIC<br />
countries in particular;<br />
To strengthen enforcement processes by taking appropriate<br />
actions for non-compliance and putting<br />
more resources into international cooperation;<br />
The sharing of best practices and capacity building;<br />
The sharing of anti-tax evasion and non-compliance<br />
practices, including abuse of treaty benefits<br />
and the shifting of profits;<br />
Th e development of a joint mechanism to facilitate<br />
the countering of abusive tax avoidance<br />
transactions, arrangements, shelters and schemes;<br />
The promotion of effective exchange of information;<br />
and<br />
Any other issues of common interest and concerns<br />
related to taxation.<br />
Participants also committed to preventing tax base<br />
erosion through practices including the abuse of<br />
tax treaty benefits, the incomplete disclosure of information<br />
and fraudulent claims. They pledged to<br />
work together to produce a paper on these subjects.<br />
A central point of contact will be established in<br />
each of the BRIC countries for coordination on<br />
tax issues. These contacts will identify issues of<br />
common interest in international taxation and<br />
transfer pricing, and will interact and meet regularly,<br />
including pre-meeting before important<br />
multilateral meetings, with the aim of setting out<br />
a common response.<br />
Th e agreed common response will then be communicated<br />
to those international organizations working<br />
on the creation of standards on international<br />
taxation and transfer pricing.<br />
UK Cracking Down On Transfer<br />
Pricing Abuse<br />
The UK's revenue agency has stepped up its crackdown<br />
on businesses it suspects are using transfer<br />
pricing to avoid taxes, new research has shown.<br />
Research by international law firm, Pinsent Masons<br />
found that HM Revenue and Customs'<br />
(HMRC's) Large Business Service is going after<br />
GBP1bn (USD1.57bn) of tax linked to transfer<br />
pricing issues. This is up 47% on last year's figure<br />
of GBP680m.<br />
The Service is responsible for the taxes paid by the<br />
770 largest businesses in the UK. Pinsent Masons<br />
believes that the figures are indicative of the increased<br />
compliance activity being undertaken by<br />
HMRC and of the interest taken in where multinationals<br />
with UK operations pay their taxes.<br />
Heather Self, Partner at Pinsent Masons, explained<br />
that: “With increased pressure from the<br />
government to bring in more revenue, and more<br />
resources to investigate potential avoidance and<br />
evasion, HMRC has been investigating more<br />
and more tax payments. This doesn't necessarily<br />
mean there is more avoidance or evasion taking<br />
place, but that HMRC is being more thorough<br />
with its investigations.”<br />
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Transfer pricing can affect the profits reported in<br />
different markets, because it concerns the charges<br />
made between the different parts of an international<br />
business for goods, services, or intangible assets.<br />
Transfer pricing has come under the microscope to<br />
a greater extent in the UK in recent months, with<br />
a number of multinationals, including Amazon,<br />
Google, and Starbucks, facing sustained criticism<br />
late last year from lawmakers.<br />
In December, Parliament's Public Accounts Committee<br />
(PAC) issued a highly critical report on<br />
HMRC's ability to deal with large corporations<br />
which generate significant income in the UK but<br />
which appear to pay little or no tax there. In an<br />
unprecedented move, Starbucks offered to pay<br />
HMRC around GBP20m in extra tax over the next<br />
two years after coming under fire over the figures it<br />
revealed in PAC hearings.<br />
Pinsent Masons is however warning against what it<br />
calls knee-jerk reactions, and Self argued that the UK<br />
“has to accept that it cannot change the law on transfer<br />
pricing or the taxation of revenues unilaterally.”<br />
Th e concern is that if the government “followed<br />
through on the calls by MPs and campaigners to<br />
change unilaterally tax laws governing multinationals,<br />
the UK’s reputation as a stable place to do business<br />
would be put at risk,” Self stressed.<br />
The government is committed to the introduction of a<br />
General Anti-Abuse Rule (GAAR), which is expected<br />
to enter into force this coming financial year. The aim is<br />
for the GAAR to apply to the main direct taxes (income<br />
tax, corporation tax, capital gains tax and petroleum<br />
revenue tax) and to National Insurance. An Advisory<br />
Panel will be charged with giving opinions on specific<br />
cases and approving HMRC guidance on the new rule.<br />
Cameron Attacks Tax Avoidance<br />
At Davos<br />
Britain's Prime Minister has taken aim at tax avoidance,<br />
using a speech at the World Economic Forum<br />
in Davos to attack the way “some companies navigate<br />
their way around legitimate tax systems” and<br />
explaining that the UK has committed hundreds of<br />
millions to cracking down on avoidance.<br />
David Cameron argued that it was “corrosive of<br />
the public trust” when businesses weren't seen to<br />
be paying tax, and that businesses who think they<br />
can continue to dodge their “fair share” of tax “need<br />
to wake up and smell the coffee because the public<br />
who buy from them have had enough.”<br />
He added that: “After years of abuse, people across<br />
the planet are rightly calling for more action, and<br />
most importantly, there is gathering political will to<br />
actually do something about it.”<br />
Responding to a question about whether the “enormous<br />
moral and public pressure to pay more tax”<br />
would discourage investment in the UK, Cameron<br />
stated that “Britain has got a great offer for business.”<br />
He explained that corporation tax was coming down<br />
close to 20%, and that the “patent box” would slash<br />
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this to 10% for items that are invented in the UK.<br />
In return, companies should pay their fair share.<br />
observing that this could be worth around USD-<br />
70bn to the global economy.<br />
Cameron also called for more multilateral deals on<br />
automatic information exchange, including with<br />
developing counties, observing that: “The fact is,<br />
the poorer the nation, the more they need tax revenues,<br />
but often the weaker the capacity they have<br />
to collect them. But we must not let them off the<br />
hook – it can be done.”<br />
Cameron cited the example of Ethiopia, explaining<br />
that UK involvement in tax collection there has led<br />
to a seven-fold increase in tax collection over the<br />
last decade.<br />
Along with tax, Cameron's speech also emphasized<br />
the issues of trade and of transparency within the<br />
developing world. He complained that trade is still<br />
choked off by barriers and bureaucracy, and he noted<br />
negotiations with the European Union and with<br />
Canada, Singapore, and Japan, as well as the beginning<br />
of negotiations on an EU-US trade agreement.<br />
The UK Prime Minister further expressed a hope<br />
that the Ministerial Conference in Bali in December<br />
2013 would “sweep away trade bureaucracy,”<br />
As regards transparency, Cameron explained that “we're<br />
going to push for more transparency on who owns companies,<br />
on who's buying up land and for what purpose,<br />
on how governments spend their money, on how gas,<br />
oil and mining companies operate, and on who is hiding<br />
stolen assets and how we recover and return them.”<br />
John Cridland, Director-General of the Confederation<br />
of British Industry, expressed support for<br />
Cameron's attack on tax avoidance, observing that:<br />
“The majority of businesses pay the right amount of<br />
tax, and for the small minority which do not, times<br />
are getting tougher, and rightly so. The CBI does not<br />
condone highly abusive avoidance schemes which<br />
serve no commercial purpose other than the minimization<br />
of tax, even if they are legal. In some cases the<br />
tax system is lagging behind commercial reality, particularly<br />
around the taxation of the digital economy<br />
and transfer pricing. As the Prime Minister highlights,<br />
the UK needs to work together with other countries,<br />
including the G8, to change the rules where appropriate,<br />
so that they are fit for the global business age.”<br />
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NEWS ROUND-UP: INDUSTRY UPDATE<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Aerospace - Analysis<br />
The news was not great this week for budget airline,<br />
Flybe, which — blaming the UK's Air Passenger<br />
Duty (APD) — revealed that it will be cutting its UK<br />
employee roster significantly in order to cut costs.<br />
However, things were a bit more optimistic in<br />
Jersey, where the Minister for Economic Development,<br />
Alan Maclean was able to discuss the<br />
tax benefits likely to be afforded by registration<br />
with the forthcoming new joint Channel Islands<br />
Aircraft Registry, and to point to possible<br />
schemes under consideration to make the Registry<br />
uniquely attractive.<br />
Flybe Looks To Free Itself From<br />
UK APD Stranglehold<br />
Budget airline Flybe has announced that it<br />
will slash its UK workforce by 300, and has<br />
blamed the UK's Air Passenger Duty (APD)<br />
for its declining profitability.<br />
“Today’s announcement of a turnaround strategy<br />
for the UK business is a clear indication that Flybe<br />
has a plan not only to address the challenges we face,<br />
but also one to exploit the opportunities available,<br />
particularly in Europe,” he explained, continuing:<br />
“It is the first time in almost 30 years of business<br />
that we have had to take such action. However,<br />
faced with the brutal impact of a 160% rise in Air<br />
Passenger Duty over the past six years and the consequent<br />
20% decline in domestic traffic over the<br />
same period, we have to recalibrate the business.<br />
There is no escape from the GBP68m per year APD<br />
tax burden which Flybe has to pay as a result of<br />
increases successive governments have levied on the<br />
industry. Flybe now pays more than 18% of our<br />
ticket revenues to the government in APD, whilst<br />
other UK-based carriers who operate a greater proportion<br />
of their business outside of the UK pay less<br />
than 6%.”<br />
According to a filing with the London Stock Exchange<br />
on January 23, 2013, Flybe is to cut approximately<br />
300 jobs in the UK, from its Exeter,<br />
Manchester and Newcastle operations, to help<br />
achieve cost savings of GBP35m (USD55m).<br />
Flybe's Chief Executive, Jim French, revealed that<br />
the company's “turnaround plan” will involve an<br />
increased presence in Europe, where the tax burden<br />
on airlines is less onerous, and fewer flights in the<br />
United Kingdom.<br />
Concluding, French stated that: “Recognizing that<br />
any significant change to either the UK economy<br />
or the redistribution of APD is likely to be some<br />
way off, this announcement represents a clear and<br />
realistic plan with a measurable timescale and<br />
benchmarks, based upon significant restructuring<br />
and cost reduction to return Flybe to profitability.”<br />
UK APD is the most draconian tax of its type<br />
worldwide, and critics have said that the government<br />
has transformed the environmental levy into<br />
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a crisis-time “cash cow.” APD on fares has risen<br />
markedly since the levy was first introduced in<br />
1994, from rates of between GBP5-10, to GBP13-<br />
184 at present. APD is to rise again on April 1,<br />
2013, and business jets will also be brought into<br />
the tax net.<br />
Jersey Minister Gives Channel Island<br />
Aircraft Registry Update<br />
Responding to the findings of a Scrutiny Panel review<br />
of progress towards the new joint Channel<br />
Islands Aircraft Registry, Jersey's Minister for Economic<br />
Development, Alan Maclean has begun to<br />
address the unique selling points the Registry will<br />
offer in tax terms.<br />
In discussing the proposed registry, the Scrutiny<br />
Panel, which acts as an independent government<br />
oversight panel, noted that companies that register<br />
aircraft in the Isle of Man are in a unique position<br />
which enables them to become registered for valueadded<br />
tax (VAT), and through corporate ownership<br />
structures to claim back VAT on purchases.<br />
Jersey is not in such a position, and will need to<br />
determine its own unique selling proposition, the<br />
Panel pointed out.<br />
Maclean responded: “The issue of competitive disadvantage<br />
to the Isle of Man and other Registries<br />
presented by VAT is a challenge, but does not appear<br />
to be insurmountable.”<br />
He pointed out that the Channel Islands Strategic<br />
Case report established that, due to the different<br />
VAT regimes, it was likely that different clients<br />
would be attracted to the Channel Islands Registry<br />
than those using the Isle of Man, depending upon<br />
their place of business and the planned base of activity<br />
for their aircraft.<br />
“Discussions are currently ongoing with Economic<br />
Development and Guernsey’s Commerce and Employment<br />
Department. Officials from both islands<br />
are working together to seek to identify the best<br />
way to proceed and hope to be able to make an announcement<br />
on a final decision very shortly.”<br />
He agreed with the Panel's suggestion that allowing<br />
the registration of aircraft under fractional ownership<br />
could present a viable unique selling point for<br />
the Registry and revealed that the two governments<br />
are considering the option.<br />
Reviewing progress towards the registry, which is<br />
expected to be launched this year, Maclean confirmed<br />
that it had been agreed that due to Guernsey's<br />
pro-active leadership in spearheading the development<br />
of the necessary legislation, the Registry<br />
will be based in Guernsey.<br />
Jersey will benefit from its establishment through an<br />
increase in retail sales, and associated financial services<br />
and wealth management business, Maclean suggested.<br />
Responding to additional feedback from the Scrutiny<br />
Panel on the competitive disadvantage Jersey<br />
faces in terms of the island's 5% Goods and Services<br />
Tax, Maclean explained that the government<br />
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66
was looking at measures to mitigate the potential<br />
impact of the island's sales tax on visitor numbers<br />
and associated business flows.<br />
Lastly, Maclean confirmed that the governments<br />
had abandoned immediate plans to jointly develop<br />
a Category 1 Shipping Registry, but highlighted<br />
there were no barriers to Jersey considering a move<br />
to Category 1 in isolation, to establish a Category 1<br />
Channel Islands Registry to be based in Jersey.<br />
Flat Year For Embraer In 20<strong>12</strong><br />
Brazilian jet manufacturer Embraer saw almost<br />
no increase in aircraft deliveries in 20<strong>12</strong> in the<br />
commercial and business jet market, after seeing<br />
deliveries of its flagship E-Jet family model<br />
jump 28% in 2011, but will benefit from Brazilian<br />
tax breaks.<br />
Th e manufacturer reported that a strong fourth<br />
quarter of 20<strong>12</strong> helped push up volumes, with<br />
106 airplanes delivered to the airline market (105<br />
in 2011) and 99 to executive aviation (level with<br />
2011). Suggesting a slowdown in sales, the company's<br />
firm order backlog fell from USD15.4bn to<br />
USD<strong>12</strong>.5bn, despite a major deal concluded with<br />
an Irish lessor, Aldus Aviation Limited in the final<br />
quarter of 20<strong>12</strong>.<br />
Embraer confirmed on January 17, 2013, that Aldus<br />
had signed a contract to purchase 20 E-Jets -<br />
five EMBRAER 175s and 15 EMBRAER 190s.<br />
The contract also includes 15 purchase rights for<br />
any E-Jet family model. The deal can reach a total<br />
of USD1.56bn.<br />
Since 2004, Embraer has delivered over 900 E-Jets.<br />
The aircraft, which seats between 70 and <strong>12</strong>0 passengers,<br />
is used by 63 airlines in 43 countries.<br />
Founded in 1969, Embraer is the world's largest<br />
manufacturer of commercial jets up to <strong>12</strong>0 seats,<br />
and one of Brazil's leading exporters. Embraer's<br />
headquarters are located in Sao Jose dos Campos,<br />
Sao Paulo, and it has offices, industrial operations<br />
and customer service facilities in Brazil, China,<br />
France, Portugal, Singapore, and the US. Embraer's<br />
profits dropped in the first half of 20<strong>12</strong>, partly due<br />
to a higher tax charge, but will have benefited in<br />
the second half from a payroll tax holiday, part of<br />
the Brazilian government's support package for domestic<br />
industries.<br />
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NEWS ROUND-UP: REAL ESTATE AND PROPERTY TAXES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Analysis<br />
Many Western countries would like to have the<br />
Asian problem of excessive property prices. Singapore,<br />
China and Hong Kong have all been lining up<br />
to try to throttle back exuberant real estate markets.<br />
So this week's real estate and property tax focus has<br />
something of an Asian flavor, with the authorities<br />
in Hong Kong threatening developers with a tax on<br />
unsold properties. And in Shanghai, one of only<br />
two cities in China currently piloting a property<br />
tax, it was announced that the threshold for the top<br />
rate of property tax had been adjusted for 2013.<br />
in order to produce homes and reduce their current<br />
shortage for Hong Kong’s residents.<br />
A construction completion date is specified in development<br />
land leases, but property developers are<br />
not restricted by any stipulation on when the sales<br />
of the new flats must be held. There are, presently,<br />
4,000 unsold new flats, and a 4% overall vacancy<br />
rate, in the private sector. It is estimated that, of<br />
the 6,100 flats built by the private sector last year,<br />
2,000 remain unsold, while, of the 9,400 flats built<br />
in 2011, 1,000 are still vacant.<br />
In the United States, however, the focus was on<br />
property owners in financial distress, with the<br />
Internal Revenue Service providing guidance<br />
on the Home Affordable Modification Program<br />
(HAMP), which helps homeowners to lower their<br />
mortgage payments.<br />
Hong Kong Considers Vacant<br />
Property Tax<br />
During a radio interview, Hong Kong’s Chief Executive<br />
Leung Chun-ying has warned that the government<br />
could introduce a tax on unsold new homes,<br />
in order to prevent developers hoarding them for<br />
resale at higher prices.<br />
Leung stressed that the government could not sit<br />
and do nothing if there was evidence of properties<br />
being held back by developers, purely for capital<br />
gain. Property is released to developers, he added,<br />
It is likely that a “vacancy” tax would be levied as a percentage<br />
(as yet unspecified) of a flat's rental value. A tax<br />
rate has not yet been indicated, but it has been pointed<br />
out that it would need to be greater than the developers'<br />
prospective investment return to be effective.<br />
The suggestion has been criticized, however, with<br />
opponents arguing that it was likely, by forcing developers<br />
to sell flats immediately, to reduce future<br />
interest in development applications, and would<br />
also be a further example of the government interfering<br />
in the operation of the free-market economy.<br />
The Chief Executive's warning comes not long after<br />
the government raised all levels of the Special<br />
Stamp Duty for properties resold within 24 months<br />
of purchase, and introduced a 15% Buyer's Stamp<br />
Duty for buyers of residential properties who are<br />
not Hong Kong permanent residents.<br />
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Th e government has said that it intends to assess<br />
the impact of those measures, and that further<br />
additions and readjustments could be made<br />
if necessary.<br />
Shanghai Modifies Property<br />
Tax Threshold<br />
In China, Shanghai's municipal government has<br />
announced an increase to the threshold over which<br />
its property tax will be paid at a higher rate.<br />
In 20<strong>12</strong>, property tax was levied at a preferential<br />
rate of 0.4% on homes purchased at no more than<br />
RMB26,896 (USD4,325) per square meter, but that<br />
will now be increased marginally to RMB27,740<br />
this year. Homes costing more than RMB27,740<br />
per square meter will pay the standard rate of 0.6%.<br />
The adjustment was necessary as, under Shanghai's<br />
property tax regulations, the 0.4% preferential rate<br />
is restricted to homes with a price per meter of not<br />
more than twice the average sale price of new homes<br />
in the city for the year before. In fact, new homes<br />
were sold at an average price of RMB13,870 per<br />
square meter in 20<strong>12</strong>.<br />
Chongqing, the only other city in China to levy a<br />
property tax, also increased its threshold this month.<br />
The Chinese government approved a property tax<br />
pilot scheme in 2011, to be imposed, initially, on<br />
luxury residential properties in the two cities, as<br />
part of its effort to try to bring under control the<br />
rapid increases that have been seen in the country's<br />
real estate prices.<br />
It is expected that there will be an increasing use of<br />
property taxation in China this year. However, the<br />
government appears to be continuing its study of<br />
the effect of the two property tax pilots before deciding<br />
on the appropriate tax structure to be rolled<br />
out in other cities.<br />
IRS Provides Guidance On Mortgage<br />
Reduction Incentive<br />
The United States Internal Revenue Service (IRS)<br />
has announced tax guidance for borrowers, mortgage<br />
loan holders and loan servicers who are participating<br />
in the Principal Reduction Alternative (PRA)<br />
investor incentive payments made through the<br />
Home Affordable Modification Program (HAMP).<br />
To help financially distressed homeowners lower<br />
their monthly mortgage payments, the Treasury Department<br />
and Department of Housing and Urban<br />
Development have established HAMP, under which<br />
the principal of a borrower's mortgage may be reduced,<br />
over three years, by a predetermined amount<br />
called the PRA Forbearance Amount, if the borrower<br />
satisfies certain conditions over a trial period.<br />
More specifically, if the loan is in good standing on<br />
the first, second and third annual anniversaries of<br />
the effective date of the trial period, the loan servicer<br />
reduces the unpaid principal balance of the<br />
loan by one-third of the initial PRA Forbearance<br />
Amount on each anniversary date. This means that<br />
if the borrower continues to make timely payments<br />
on the loan for three years, the entire PRA Forbearance<br />
Amount is forgiven.<br />
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To encourage mortgage loan holders to participate,<br />
the HAMP program administrator will make an incentive<br />
payment to the loan holder (called a PRA<br />
investor incentive payment) for each of the three<br />
years in which the loan principal balance is reduced.<br />
The guidance issued by the IRS provides that PRA<br />
investor incentive payments made by the HAMP<br />
program administrator to mortgage loan holders are<br />
treated as payments on the mortgage loans by the<br />
US government on behalf of the borrowers. These<br />
payments are generally not taxable to the borrowers<br />
under the general welfare doctrine.<br />
On the other hand, if the principal amount of a<br />
mortgage loan is reduced by an amount that exceeds<br />
the total amount of the PRA investor incentive<br />
payments made to the mortgage loan holder,<br />
the borrower may be required to include the excess<br />
amount in gross income as income from the discharge<br />
of indebtedness. However, many borrowers<br />
will qualify for an exclusion from gross income.<br />
For example, a borrower may be eligible to exclude<br />
the discharge of indebtedness income from gross<br />
income if the discharge of indebtedness occurs (in<br />
other words, if the loan is modified) before January<br />
1, 2014, and the mortgage loan is qualified principal<br />
residence indebtedness, or the discharge of indebtedness<br />
occurs when the borrower is insolvent.<br />
Borrowers receiving aid under the HAMP–PRA<br />
program may report any discharge of indebtedness<br />
income, whether included in, or excluded<br />
from, gross income, either in the year of the permanent<br />
modification of the mortgage loan or ratably<br />
over the three years in which the mortgage<br />
loan principal is reduced on the servicer's books.<br />
Borrowers who exclude the discharge of indebtedness<br />
income must report both the amount of<br />
the income and any resulting reduction in basis<br />
or tax attributes.<br />
Th e guidance explains that mortgage loan holders<br />
are also required to file a form with respect to<br />
a borrower who realizes discharge of indebtedness<br />
income of USD600 or more for the year in which<br />
the permanent modification of the mortgage loan<br />
occurs. This rule applies regardless of when the borrower<br />
chooses to report the income, and regardless<br />
of whether the borrower excludes some or all of the<br />
amount from gross income.<br />
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NEWS ROUND-UP: OTHER TAXES<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Analysis<br />
Never one to shy away from the introduction of<br />
new or heavier taxes, and wanting to teach Google<br />
and its profit shifting peers a lesson, the French<br />
government is reported to be considering a recommendation<br />
for a new levy on “the exploitation<br />
of personal data”, such as is carried out by the<br />
search giant in order to direct targeted advertising<br />
to its users.<br />
In Barbados, meanwhile, there has been a storm in a<br />
rum glass this week. The jurisdiction, together with<br />
fellow CARICOM members, is in dispute with the<br />
United States over the latter's long-standing arrangement<br />
to route (or pour?) excise tax revenue<br />
relating to rum imported into the United States to<br />
the US Virgin Islands and Puerto Rico.<br />
And finally, the Indian authorities (never averse to<br />
a bit of tweaking), have announced import duty increases<br />
with regard to gold and platinum imports,<br />
in an attempt to moderate what Finance Minister<br />
P. Chidambaram has called a “huge drain on the<br />
current account.”<br />
French Report Advocates Internet Tax<br />
Th e French Finance Ministry has recently unveiled<br />
details of a report on taxation of the digital economy,<br />
submitted by state councilor Pierre Collin and<br />
government auditor Nicolas Colin.<br />
Commissioned in July last year, the report “offers a<br />
detailed and striking vision” of the rise in the digital<br />
economy and the importance of “the exploitation<br />
of personal data” in this growing sector. The report<br />
exposes the problem of profit relocation or shifting<br />
by companies, warning that this phenomenon will<br />
only increase if nothing is done to tax their activity<br />
in France.<br />
The report calls for a new tax to be introduced as a<br />
matter of urgency, based on the amount of personal<br />
information collected by internet companies such<br />
as Google which is used to direct personalized advertising<br />
and other services to users.<br />
As recommended in the report, the government intends<br />
to act within the G20, the Organization for<br />
Economic Cooperation and Development, and the<br />
EU to adapt existing international rules governing<br />
the taxation of profits to the realities of the digital<br />
economy, notably by championing plans to modify<br />
the definition of “permanent establishment.”<br />
Alluding to a preliminary report due to be presented<br />
to the G20 in mid-February, dealing with the issue<br />
of profit relocation, the French finance ministry<br />
emphasized that the so-called “BEPS” (Base Erosion<br />
and Profit Shifting) initiative offers a historic<br />
opportunity for France and its partners to make<br />
rapid advances in this area.<br />
At national level, the French government aims to<br />
pursue efforts to detect and to combat fraudulent<br />
behavior supported by digital technologies.<br />
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Th e government has made clear that the idea of a<br />
national tax based on the use of personal data is<br />
to be explored in detail in parallel with other proposals<br />
that have already been put forward aimed at<br />
resolving the issue, including notably the idea of<br />
taxing electronic trade.<br />
Also, the USVI has controversially provided some<br />
USD2.7bn in tax breaks to enable the company to<br />
export its Captain Morgan Rum to the United States<br />
at a price significantly lower than offered by other<br />
Caribbean territories, prompting complaints from<br />
CARICOM countries about unfair competition.<br />
Caribbean To Stand Its Ground On<br />
Rum Tax Dispute<br />
Barbados's Prime Minister, Freundel Stuart, has<br />
stated that the government, and its peers in the<br />
Caribbean Community, will not back down in the<br />
rum tax dispute with the United States until business<br />
conditions are fair between the US Virgin Islands,<br />
Puerto Rico, and the rest of the Caribbean.<br />
The dispute relates to long-standing tax provisions<br />
in the United States, dating back to 1917 for Puerto<br />
Rico and 1954 for the US Virgin Islands, which<br />
provide that any excise tax collected on rum imported<br />
into the United States is transferred to or<br />
“covered-over” to the treasuries of Puerto Rico and<br />
the USVI. The law does not impose any restrictions<br />
on how the two territories can use the transferred<br />
revenues, and historically both territories have used<br />
some portion of the revenue to promote and assist<br />
their rum industries.<br />
Recently, the USVI has dedicated a larger share of<br />
current and future covered-over revenue to help finance<br />
public and private infrastructure that would<br />
directly benefit the rum industry, in particular industry<br />
giant Diageo.<br />
Freundel reassured local rum producers that the<br />
governments are still working towards a solution,<br />
explaining that: “The government of Barbados has<br />
had to take a stand on this issue, and under my instructions,<br />
the Ministry of Foreign Affairs and Foreign<br />
Trade has communicated with the US government.<br />
And, of course, very recent discussions have<br />
taken place between CARICOM countries, the<br />
Dominican Republic and the United States Trade<br />
Representative with a view to addressing the more<br />
pressing concerns of rum producers, not only here<br />
in Barbados, but in other parts of the Caribbean.”<br />
While CARICOM and the Dominican Republic<br />
hope to achieve an amicable resolution in consultations<br />
with the United States, Freundel underscored<br />
that the territories would not “relax [their] persistence<br />
on this issue. We do not intend to allow rum<br />
producers in the Caribbean to be so severely disadvantaged<br />
by this market distortion which has resulted<br />
from these overwhelming, if I may use that<br />
word, subsidies being extended to producers in the<br />
US Virgin Islands and Puerto Rico.”<br />
In August, CARICOM members warned of the<br />
potential long-term damage to their rum industries<br />
as a result of the measures and warned that if the<br />
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72
matter could not be resolved with US officials, the<br />
bloc would consider taking the matter to the World<br />
Trade Organization.<br />
India Hikes Gold Import Duty<br />
The Indian government has hiked the import duty<br />
on gold and platinum with immediate effect, in a<br />
bid to moderate demand and rein in the current<br />
account deficit.<br />
Th e initiative forms part of a package of reforms<br />
to India's treatment of gold imports announced by<br />
Finance Minister P. Chidambaram.<br />
Earlier this month, Chidambaram labeled gold<br />
imports a “huge drain on the current account.”<br />
Imports in the 2011-<strong>12</strong> financial year were worth<br />
USD56.5bn, and estimates for the current year to<br />
end-December, 20<strong>12</strong> put the value at USD38bn.<br />
The levy was doubled last year, from 2% to 4%.<br />
Chidambaram's latest hike of 2% places the new<br />
duty rate at 6%.<br />
Philippines Looks To Tax Online Traders<br />
As part of its efforts to increase revenue while improving<br />
tax compliance, the Philippines Bureau of<br />
Internal Revenue (BIR) has indicated that it will<br />
increase its focus on online traders and the websites<br />
that they use.<br />
As it looks to widen further the Philippines tax base,<br />
the BIR is focusing not only on the regular online<br />
traders using so-called “buy and sell” websites without<br />
registering with the BIR to pay their taxes, but<br />
also on the website operators themselves (said to<br />
include eBay, Sulit and AyosDito) that allow them<br />
to do so without checking their tax credentials.<br />
BIR Commissioner Kim Henares has confirmed recently<br />
that cases can be filed against both the sellers<br />
of the goods and also the websites that allow individuals<br />
to trade online, as the latter act in much the<br />
same way as mall operators that lease commercial<br />
space to entrepreneurs and, under the country's tax<br />
code, have to ensure that their tenants are issuing<br />
receipts and are registered with the tax authority.<br />
Th e government says that consequential changes<br />
in additional customs duty and excise duty will be<br />
implemented via notifications dealing with the import<br />
duty/excise duty on gold ore bars, gold ores<br />
and refined gold. These duties will be reviewed if<br />
there is a drop in import quantities.<br />
She also confirmed that the BIR could move immediately<br />
against the online traders and websites<br />
under existing tax regulations which state that, for<br />
each sale of goods or service provided valued at or<br />
above PHP25, receipts have to be issued by the seller<br />
or provider.<br />
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TAX TREATY ROUND-UP<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
CHINA - ECUADOR<br />
Signature<br />
China and Ecuador signed a DTA on January 21,<br />
2013.<br />
CROATIA - GEORGIA<br />
Signature<br />
Croatia and Georgia signed a DTA on January 18, 2013.<br />
CZECH REPUBLIC - KAZAKHSTAN<br />
Negotiations<br />
According to preliminary media reports, the Czech<br />
Republic and Kazakhstan are holding negotiations<br />
on a protocol to their existing DTA on January 28-<br />
31, 2013.<br />
ECUADOR - QATAR<br />
Draft<br />
Ecuador's Ministry for Foreign Affairs said that it<br />
expects to sign a new DTA with Qatar on February<br />
15, 2013, following meetings that concluded<br />
on January 17, 2013.<br />
GUERNSEY - VARIOUS<br />
Signature<br />
Guernsey signed Comprehensive DTAs with the<br />
Isle of Man and Jersey on January 24, 2013.<br />
INDIA - ARGENTINA<br />
Ratified<br />
Argentina on January 14, 2013 completed the nation's<br />
ratification of the TIEA signed with India,<br />
with the publication of legislation to this end in its<br />
Official Gazette,.<br />
JAPAN - UNITED STATES<br />
Signature<br />
Th e United States and Japan signed a Protocol to<br />
the existing DTA on January 24, 2013.<br />
JERSEY - VARIOUS<br />
Signature<br />
Jersey signed new comprehensive DTAs containing<br />
tax information exchange provisions with the other<br />
Crown Dependencies on a trilateral basis, on January<br />
24, 2013.<br />
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JERSEY - VARIOUS<br />
Signature<br />
Jersey signed new TIEAs with Brazil and Latvia on<br />
January 28, 2013.<br />
LITHUANIA - QATAR<br />
Initialed<br />
According to preliminary media reports, Lithuania<br />
and Qatar initialed a DTA on January 24, 2013.<br />
MALTA - SAUDI ARABIA<br />
Effective<br />
The DTA and an accompanying Protocol signed<br />
between Malta and Saudi Arabia on January 4,<br />
20<strong>12</strong>, became effective on January 1, 2013, after<br />
coming into force on December 1, 20<strong>12</strong>.<br />
MEXICO - VARIOUS<br />
Effective<br />
According to information published by Mexican<br />
authorities on January 17, 2013, three new DTAs,<br />
with Bahrain, Lithuania, and Ukraine, as well as a<br />
Protocol to the 1994 Mexico-Singapore DTA signed<br />
in 2009, became effective on January 1, 2013.<br />
MEXICO - VARIOUS<br />
Effective<br />
According to information published by the Mexican<br />
government on January 17, 2013, new TIEAs between<br />
Mexico and Costa Rica, and Mexico and the Cayman<br />
Islands, became effective on January 1, 2013.<br />
PHILIPPINES - VARIOUS<br />
Ratified<br />
The Philippines Senate ratified three double tax<br />
agreements signed by the Philippines with France,<br />
Qatar and Kuwait on January 22, 2013.<br />
RUSSIA - ARMENIA<br />
Ratified<br />
Russia's lower house of Parliament approved a law<br />
on January 18, 2013, ratifying a Protocol amending<br />
the 1996 DTA between Russia and Armenia.<br />
SRI LANKA - INDIA<br />
Signature<br />
Sri Lanka and India signed a new DTA to replace<br />
their existing pact on January 22, 2013.<br />
SWITZERLAND - VARIOUS<br />
Effective<br />
The new DTA between Hong Kong and Switzerland<br />
became effective in Switzerland on January<br />
1, 2013, and will be effective in Hong Kong from<br />
April 1, 2013.<br />
A new Protocol to the DTA between Switzerland<br />
and South Korea, signed on December 28, 2010,<br />
also became effective on January 1, 2013, for<br />
both parties.<br />
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TURKEY - AUSTRALIA<br />
Legislation<br />
Turkey's parliament on January 17, 2013, endorsed<br />
legislation approving the new DTA signed between<br />
Turkey and Australia.<br />
TURKEY - BERMUDA<br />
Into Force<br />
Turkey completed its domestic ratification procedures<br />
in respect of the TIEA signed with Bermuda, publishing<br />
an Order in its Official Gazette on January<br />
17, 2013. Consequently, the TIEA is now in force.<br />
TURKEY - BRAZIL<br />
Effective<br />
Th e new Turkey-Brazil DTA signed on December<br />
16, 2010, became effective on January 1, 2013, following<br />
the publication of legislation to this effect in<br />
Turkey's Official Gazette.<br />
URUGUAY - ARGENTINA<br />
Into Force<br />
According to preliminary media reports, the TIEA<br />
Agreement signed between Uruguay and Argentina<br />
will enter into force on February 7, 2013.<br />
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CONFERENCE CALENDAR<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
A guide to the next few weeks of international tax<br />
gab-fests (we're just jealous - stuck in the office).<br />
THE AMERICAS<br />
2013 NATIONAL MULTISTATE TAX<br />
SYMPOSIUM<br />
Deloitte<br />
Venue: Disney's Grand Floridian Resort & Spa, 4401<br />
Grand Floridian Way, Lake Buena Vista, FL 32830<br />
Chairs: Michael A. Lampert (Chair, Tax Section of<br />
The Florida Bar), James W. Wetzler (Director, Deloitte<br />
Tax LLP), Jerry Gattegno (Senior Partner, Deloitte<br />
Tax LLP), Robert Vonick (Vice President and<br />
Senior Tax Counsel, The Walt Disney Company)<br />
2/6/2013 - 2/8/2013<br />
http://www.deloitte.com/view/en_US/us/Events-De-<br />
loitte/e2c6c1c8684d9310VgnVCM2000003356f70aR-<br />
CRD.htm?id=us_furl_tax_mts_2013symp_0918<strong>12</strong><br />
CAPTIVE INSURANCE TAX SUMMIT<br />
Bloomberg BNA<br />
Venue: Treasure Island Hotel, 3300 S. Las Vegas<br />
Blvd, Las Vegas, NV 89109<br />
Key Speakers: Ernest F. Aud, Jr. (Ernie Aud LLC),<br />
Chris Booth (Deloitte), Rick Buggy (Saslow, Lufkin<br />
& Buggy LLP), Fred Chilton (McDermott Will &<br />
Emery LLP), Ward S. Connolly (PricewaterhouseCoopers<br />
LLP), George Craven (Mayer Brown LLP),<br />
James P. Fuller (Fenwick & West LLP), Elvin Hedgpeth<br />
(Ernst & Young LLP), Tom Jones (McDermott<br />
Will & Emery LLP), Art Koritzinsky (Marsh USA<br />
Inc), Charles “Chaz” J. Lavelle (Bingham Greenebaum<br />
Doll LLP), Larissa Neumann (Fenwick & West<br />
LLP), James M. O’Brien (Baker & McKenzie LLP),<br />
Joshua D. Odintz (Baker & McKenzie LLP), John M.<br />
Peterson, Jr. (Baker & McKenzie LLP), Roy Sedore<br />
(Baker & McKenzie LLP), William R. Skinner (Fenwick<br />
& West LLP), and Bruce Wright (Sutherland,<br />
Asbill & Brennen LLP)<br />
2/11/2013 - 2/<strong>12</strong>/2013<br />
http://www.citeusa.org/Calendar20<strong>12</strong>/captive.html<br />
INTERNATIONAL CORPORATE TAX<br />
ESSENTIALS<br />
Lorman Education Services<br />
Venue: Independence, Ohio, US TBA<br />
Chair: Robert J. Misey (Reinhart Boerner Van<br />
Deuren)<br />
2/15/2013 - 2/15/2013<br />
http://les.brochure.s3.amazonaws.com/391019.pdf<br />
NUTS AND BOLTS OF TAX PENALTIES<br />
2013<br />
Practising Law Institute<br />
Venue: PLI New York Center, 810 Seventh Avenue<br />
at 53rd Street (21st floor), New York, New York<br />
10019<br />
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Chair: Bryan Skarlatos (Kostelanetz & Fink LLP)<br />
3/1/2013 - 3/1/2013<br />
http://www.pli.edu/Content/Seminar/Nuts_and_<br />
Bolts_of_Tax_Penalties_2013_A_Primer/_/N-<br />
4kZ1z<strong>12</strong>pjx?ID=159980<br />
US ESTATE, GIFT AND INCOME TAX<br />
PLANNING<br />
STEP Calgary<br />
Venue: Devonian Room, Calgary Petroleum Club, 3319<br />
5 Avenue Southwest Calgary, AB T2P 0L6, Canada<br />
Key Speaker: Nadja Ibrahim (PwC)<br />
2/20/2013 - 2/20/2013<br />
http://www.step.org/events.aspx?eventId=a0XC00<br />
00009JLGUMA4<br />
CICA 2013 INTERNATIONAL<br />
CONFERENCE<br />
Captive Insurance Companies Association<br />
Venue: Westin Mission Hills Resort, 71333 Dinah<br />
Shore Drive, Rancho Mirage, CA 92270, USA<br />
Panel Moderators: Michael C. Meehan (Consultant,<br />
Milliman, Inc); Anne Marie Towle (Senior Consultant,<br />
Willis Global Captive Practice); Erich A Brandt<br />
(Consulting Actuary, Pinnacle Actuarial Resources,<br />
Inc); and Les Boughner (Executive Vice President &<br />
Managing Director, Willis Captive Consulting)<br />
3/10/2013 - 3/<strong>12</strong>/2013<br />
http://www.cicaworld.com/EventsEducation/<br />
EventsIntConf/ProgramSchedule.aspx<br />
INTERNATIONAL TAX AND TRUST<br />
CONGRESS<br />
TolleyConferences<br />
Venue: The Hilton, Barbados, St Michael, BB11000<br />
Chair: James Corbett QC (Kobre & Kim LLP)<br />
3/<strong>12</strong>/2013 - 3/13/2013<br />
http://www.conferencesandtraining.<br />
com/en/Browse-Events/tax-conferences/<br />
International-Tax-And-Trust-Congress-Barbados/<br />
THE 2ND OFFSHORE INVESTMENT<br />
CONFERENCE, PANAMA<br />
Offshore Investment<br />
Venue: Waldorf Astoria, 47th St. & Uruguay Street,<br />
Panama City, Panama<br />
Chair: Derek R. Sambrook (Managing Director,<br />
Trust Services SA)<br />
3/13/2013 - 3/14/2013<br />
http://www.offshoreinvestment.com/pages/index.<br />
asp?title=The_2nd_Offshore_Investment_Conference_Panama&catID=9913<br />
CURRENT US TAX PLANNING FOR<br />
FOREIGN-CONTROLLED COMPANIES<br />
Bloomberg BNA<br />
Venue: Marriott Union Square, 480 Sutter Street,<br />
San Francisco, CA. 94108<br />
Key speakers: Barton Bassett (Morgan, Lewis &<br />
Bockius LLP), Anthony Cipriano (Morgan, Lewis<br />
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78
& Bockius LLP), Kirsten Malm (Baker & McKenzie),<br />
Timothy Fitzgibbon (PwC), Joel Slavonia<br />
(PwC), Roy Crawford (McDermott Will & Emery),<br />
Alan Appel (Bryan Cave LLP), Rafic Barrage (Mayer<br />
Brown LLP), Arthur Walker (Mayer Brown LLP)<br />
http://www.citeusa.org/pdf/fcc.pdf<br />
TRANSFER PRICING BRAZIL<br />
C5<br />
Venue: Intercontinental Hotel, Alameda Santos,<br />
1<strong>12</strong>3 - Jardim Paulista, São Paulo, 01419-001,<br />
Brazil<br />
Key Speakers: Carlos Alberto Freitas Barreto (Secretariat<br />
of the Federal Revenue, Brazil), Maria Elisa Sabatel<br />
Giordano (International Tax Manager, Maersk<br />
Line), Robert Goulder (Editor-in-Chief, Tax Analysts),<br />
Anderson Rocha (Legal Director Taxation,<br />
Unilever Brasil), Augusto Flores (Tax Director, DAF<br />
Caminhões Brasil), Anderson Rocha (Legal Director<br />
Taxation, Unilever Brasil), Andrea Anjos (Brazil<br />
Tax & Customs Director, Cargill), Ivan Ferreira<br />
(Latam Tax Director, MWV Group), among others.<br />
3/18/2013 - 3/19/2013<br />
http://www.c5-online.com/2013/569/<br />
transfer-pricing-brazil<br />
CHINA: LEGAL, TAX &<br />
ACCOUNTING UPDATE<br />
Bloomberg BNA<br />
Venue: Marriott Union Square, 480 Sutter Street,<br />
San Francisco, CA 94108<br />
Co-chairs: Deborah Lee (PwC), Michael O’Laughlin<br />
(O’Laughlin & Co)<br />
3/18/2013 - 3/19/2013<br />
http://www.citeusa.org/pdf/china.pdf<br />
INTERNATIONAL FILM & TV<br />
FINANCE SUMMIT<br />
Bloomberg BNA<br />
Venue: Luxe Sunset Boulevard, 11461 Sunset Boulevard,<br />
Los Angeles, CA 90049<br />
Chair: TBA<br />
3/21/2013 - 3/21/2013<br />
http://www.citeusa.org/Calendar20<strong>12</strong>/film.html<br />
ASIA PACIFIC<br />
2013 FINANCIAL SERVICES<br />
TAXATION CONFERENCE<br />
Th e Tax Institute, Australia<br />
Venue: Hyatt Regency Sanctuary Cove, Manor Circle,<br />
Sanctuary Cove, Queensland 42<strong>12</strong>, Australia<br />
Key speakers: Richard Vann (Challis Professor of<br />
Law, University of Sydney); David Russell (QC,<br />
Ground Floor Wentworth Chambers); Phil Cole (JP<br />
Morgan); John Brodgden, (Australia's Financial Services<br />
Council), and others<br />
2/13/2013 - 2/15/2013<br />
http://www.taxinstitute.com.au/go/events-and-education/upcoming-cpd-events/upcoming-cpd-events/<br />
EVENTID/1130202M1<br />
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FASTAX SERIES - MANAGING TAX<br />
COMPLIANCE ESSENTIALS RIGHT<br />
CCH Malaysia<br />
Venue: Traders Hotel, Magazine Road, Georgetown,<br />
Penang Island 10300, Malaysia<br />
Chair: Vincent Josef (former Assistant Director<br />
General of Malaysia's Inland Revenue Board)<br />
2/25/2013 - 2/25/2013<br />
http://www.cch.com.my/my/ExecutiveEvents/<br />
ExecutiveEventDetails.aspx?PageTitle=FasTax-<br />
Series-Managing-Tax-Compliance-Essentials-<br />
Right&ID=1548&Source=EEHome<br />
FASTAX SERIES - MAXIMISING TAX<br />
INCENTIVES ESSENTIALS<br />
CCH Malaysia<br />
Venue: Traders Hotel, Magazine Road, Georgetown,<br />
Penang Island 10300, Malaysia<br />
Chair: Kularaj K. Kulathungam (former Assistant<br />
Director of Malaysia's Inland Revenue Board)<br />
3/5/2013 - 3/5/2013<br />
http://www.cch.com.my/my/ExecutiveEvents/Ex-<br />
ecutiveEventDetails.aspx?PageTitle=FasTax-Series-<br />
Maximising-Tax-Incentives-Essentials&ID=1553<br />
&EETopicID=3&Source=EETopic<br />
TRUSTS SYMPOSIUM 2013<br />
STEP South Australia<br />
Venue: The Hilton Hotel, Victoria Square, Adelaide,<br />
Australia<br />
Key Speakers: Christopher Kourakis (Honourable<br />
Chief Justice, Supreme Court of South Australia),<br />
John Basten (Supreme Court of New South Wales),<br />
Professor Gino Dal Pont (University of Tasmania),<br />
William Gummow (Gummow AC Former Justice<br />
of the High Court of Australia), Arlene Macdonald<br />
(Edmund Barton Chambers and Chair of the South<br />
Australian Branch of STEP), Anthony Besanko (Federal<br />
Court of Australia (South Australia)), Margaret<br />
White (Supreme Court of Queensland), and Richard<br />
White (Supreme Court of New South Wales)<br />
3/8/2013 - 3/8/2013<br />
http://www.step.org/docs/events/TRUSTS%20<br />
SYMPOSIUM%202013%20pdf.pdf<br />
ASIA-PACIFIC REGIONAL TAX<br />
CONFERENCE<br />
International Fiscal Association, Tax Academy of<br />
Singapore<br />
Venue: Shangri-La Hotel, 22 Orange Grove Rd,<br />
Singapore 258350, Singapore<br />
Key Speakers: Alan Ross (PwC Singapore), Aliff Fazelbhoy<br />
(ALMT Legal), Andy Baik (Ernst & Young<br />
Singapore), Anna Chan (Singapore Economic Development<br />
Board), Chai Sui Fun (Inland Revenue<br />
Authority of Singapore), Eric Roose (Morrison<br />
Foerster), Gurbachan Singh (KhattarWong LLP),<br />
Kari Pahlman (KPMG Hong Kong), Koh Soo How<br />
(PwC Singapore), Lawrence Sussman (O’Melveny<br />
& Myers LLP Beijing), Liu Hern Kuan (Inland<br />
Revenue Authority of Singapore), Luis Coronado<br />
(Ernst & Young Singapore), Ong Sim Ho (Drew &<br />
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Napier), Peter Barnes (General Electric Company),<br />
Pieter De Ridder (Loyens & Loeff), Professor Kees<br />
Van Raad (Loyens & Loeff), Professor Roy Rohatgi,<br />
Ram Kishan (Goldman Sachs), Sharon Tan (Nike<br />
Inc), Teoh Lian Ee (Inland Revenue Authority of<br />
Singapore), WH Baik (Kim & Chang), Yeoh Lian<br />
Chuan (Allen & Overy)<br />
4/2/2013 - 4/4/2013<br />
http://www.taxacademy.sg/downloads/seminar-workshop/IFA%202013%20Programme_Website.pdf<br />
TRANSFER PRICING: INTANGIBLES<br />
AND INTRA-GROUP FINANCE<br />
IBFD<br />
Venue: Kuala Lumpur, Malaysia, TBA<br />
Key Speakers: Tarun Arora (PwC), Sockalingam<br />
Murugesan (Head of Transfer Pricing, E&Y Malaysia)<br />
Vinay Nichani (Director, E&Y Malaysia's<br />
Transfer Pricing Practice)<br />
4/8/2013 - 4/10/2013<br />
http://www.ibfd.org/Courses/Transfer-Pricing-Intangibles-and-Intra-Group-Finance<br />
WEALTHMATTERS HONG KONG<br />
WealthMatters<br />
Venue: Four Seasons Hotel, No.8 Finance Street,<br />
Central, Hong Kong, China<br />
Key Speakers: TBA<br />
4/9/2013 - 4/9/2013<br />
http://www.wealthbriefing.com/html/event_detail.<br />
php?id=49166<br />
THE 4TH WEALTH MANAGEMENT<br />
& PRIVATE BANKING: RUSSIA & CIS<br />
CONFERENCE<br />
Adam Smith Conferences<br />
Venue: Hotel Baltschug Kempinski, 1 Ulitsa Balchug,<br />
Moscow 115035, Russia<br />
Key Speakers: Petr Terekhin, (Vice-President, Head<br />
of Private Banking, Promsvyazbank), Svetlana Le<br />
Gall (Head of GHP GROUP Wealth Management),<br />
Andrei Movchan (CEO, Third Rome Group), Dr.<br />
Issaak Bekker (International Financial Consultant,<br />
FCP (Financial Management) Ltd)<br />
4/9/2013 - 4/11/2013<br />
http://www.adamsmithconferences.com/event/<br />
wealth-management-private-banking-russia<br />
MIDDLE EAST AND AFRICA<br />
OPPORTUNITIES FOR THE FLOW<br />
OF NEW WEALTH<br />
STEP Dubai<br />
Venue: One & Only Royal Mirage Hotel, Al Soufoh<br />
Road | Jumeirah Road, PO Box 37252, Dubai,<br />
United Arab Emirates<br />
Key Speakers: TBA<br />
3/5/2013 - 3/6/2013<br />
https://step.sym-online.com/registrationforms/<br />
dubai13/<br />
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IBFD'S 75TH JUBILEE WORKSHOP<br />
IBFD<br />
Venue: Cape Town, South Africa, TBA<br />
Key speakers: Belema Obuoforibo (Director of the<br />
IBFD Knowledge Centre, IBFD), Shee Boon Law<br />
(Manager of Tax Research Services, IBFD)<br />
3/11/2013 - 3/11/2013<br />
http://www.ibfd.org/IBFD-Tax-Portal/Events/<br />
IBFD-75th-Jubilee-Workshop-Cape-Town#tab_<br />
program<br />
TREATY ASPECTS OF<br />
INTERNATIONAL TAX PLANNING<br />
IBFD<br />
Venue: Johannesburg, South Africa, TBA<br />
Key Speakers: Shee Boon Law (Manager of Tax Research<br />
Services, IBFD), Belema Obuoforibo (Director,<br />
IBFD Knowledge Centre)<br />
3/13/2013 - 3/15/2013<br />
http://www.ibfd.org/Courses/<br />
Treaty-Aspects-International-Tax-Planning<br />
WESTERN EUROPE<br />
CURRENT INTERNATIONAL<br />
TAX <strong>ISSUE</strong>S IN CROSS-BORDER<br />
CORPORATE FINANCE, CAPITAL<br />
MARKETS<br />
International Bar Association/ The Chartered Institute<br />
of Taxation<br />
Venue: Holborn Bars, 138-142 Holborn London<br />
EC1N 2NQ, United Kingdom<br />
Co-chairs: Jack Bernstein (Aird & Berlis); Jonathan<br />
Schwarz (Temple Tax Chambers)<br />
2/11/2013 - 2/<strong>12</strong>/2013<br />
http://www.int-bar.org/conferences/conf467/binary/London%20IBA_CIOT%202013%20programme.pdf<br />
TAXPRO-2013<br />
BOSCO Conference<br />
Venue: Shakhtar Plaza Hotel, Germana Titova Avenue,<br />
15, Donetsk, Ukraine<br />
Speakers: TBA in March<br />
4/18/2013 - 4/18/2013<br />
http://bosco-conference.com/en/events/<br />
upcoming/donetsk-2013<br />
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LANDED ESTATES: TAX PLANNING &<br />
WEALTH PRESERVATION CONFERENCE<br />
TolleyConferences<br />
Venue: London, UK, TBC<br />
Chair: Sue Laing (Partner, Boodle Hatfield LLP)<br />
2/<strong>12</strong>/2013 - 2/<strong>12</strong>/2013<br />
http://www.conferencesandtraining.<br />
com/en/Browse-Events/tax-conferences/<br />
Tax-Planning-For-Landed-Estates/<br />
EUROPEAN INDIRECT TAXES<br />
CONFERENCE 2013<br />
The Chartered Institute of Taxation<br />
Venue: The Royal Garden Hotel, 2-24 Kensington<br />
High Street Kensington, London W8 4PT<br />
Chairs: Christine Barwell (CIOT); Peter Dylewski,<br />
(Vice Chair Indirect Tax, CIOT Technical<br />
Committee)<br />
2/14/2013 - 2/14/2013<br />
http://www.tax.org.uk/members/events/European<br />
Indirect Taxes Conference 2013<br />
FATCA: AN UPDATE<br />
STEP Jersey<br />
Venue: Pomme d’Or Hotel, Liberation Square, St<br />
Helier JE1 3UF<br />
Key Speakers: Alex Jones (Deloitte), Paul Woodman<br />
(Deloitte)<br />
2/21/2013 - 2/21/2013<br />
http://www.step.org/docs/events/FATCA%20<br />
An%20Update.pdf<br />
FUNDS TRANSFER PRICING<br />
AND BANK ASSET-LIABILITY<br />
MANAGEMENT<br />
British Bankers' Association<br />
Venue: Pinners Hall, 105-108 Old Broad Street,<br />
London, EC2N 1EX<br />
Chair: Moorad Choudhry (Treasurer, Corporate<br />
Banking Division, Royal Bank of Scotland and Visiting<br />
Professor, Department of Mathematical Sciences,<br />
Brunel University)<br />
2/21/2013 - 2/21/2013<br />
http://www.bba.org.uk/events-and-training/event/fundstransfer-pricing-and-bank-asset-liability-management1<br />
INTERNATIONAL TAX ASPECTS OF<br />
PERMANENT ESTABLISHMENTS<br />
IBFD<br />
Venue: IBFD Head Office, H.J.E. Wenckebachweg<br />
210, 1096 AS Amsterdam, The Netherlands<br />
Key Speakers: Roberto Bernales (Senior Research<br />
Associate, European Team, and Research Manager,<br />
IBFD Knowledge Centre); Walter van der Corput<br />
(Editor, IBFD International VAT Monitor and EU<br />
VAT Compass); Hans Pijl (Partner, Deloitte); Bart<br />
Kosters (Senior Principal Research Associate, IBFD<br />
Tax Services Department)<br />
2/25/2013 - 2/28/2013<br />
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http://www.ibfd.org/Courses/<br />
Amsterdam-Netherlands<br />
CORPORATE INTERNATIONAL TAX<br />
PLANNING<br />
Lexis Nexis<br />
Venue: London, United Kingdom, Venue TBC<br />
Chair: David Campkin (Group Tax Director, BBC)<br />
2/26/2013 - 2/26/2013<br />
http://www.conferencesandtraining.<br />
com/en/Browse-Events/tax-conferences/<br />
CITP/?displayControl=agenda<br />
THE 8TH FATCA AND<br />
WITHHOLDING TAX CONGRESS<br />
Osney Media<br />
Venue: Marriott Regents Park Hotel, <strong>12</strong>8 King<br />
Henry's Road, London NW3 3ST, England<br />
Chair: Jorge Morley Smith (Head of Tax, Investment<br />
Management Association)<br />
2/27/2013 - 2/28/2013<br />
http://www.withholdingtaxcongress.com/uk/<br />
agenda-2/<br />
18TH ANNUAL INTERNATIONAL<br />
WEALTH TRANSFER PRACTICE<br />
CONFERENCE<br />
International Bar Association<br />
Venue: Claridge's, 49-55 Brook Street Mayfair,<br />
London, United Kingdom, W1K 4HR<br />
Chairs: Leigh-Alexandra Basha (Partner, Holland &<br />
Knight); Helen Darling (Private Client Partner, Macfarlanes);<br />
Christopher Potter (Senior Counsel, Sete)<br />
3/4/2013 - 3/5/2013<br />
http://www.ibanet.org/Article/Detail.<br />
aspx?ArticleUid=1d1eebee-f28c-4496-ac6b-f6cad-<br />
03266da<br />
RUSSIA & CIS - PRIVATE CLIENTS,<br />
3RD ANNUAL FORUM<br />
Academy and Finance<br />
Venue: Dolder Grand Hotel, Kurhausstrasse 65,<br />
Zurich 8032, Switzerland<br />
Chair: Olga Boltenko (Partner, Withers LLP)<br />
3/5/2013 - 3/7/2013<br />
http://www.academyfinance.ch/v2/next_events/<br />
AF455.html<br />
TAX PLANNING FOR SPORTSPEOPLE<br />
AND ENTERTAINERS<br />
TolleyConferences<br />
Venue: London, United Kingdom, TBC<br />
Key speakers: Freddie Huxtable (Private Client and<br />
International Tax Director, RSM Tenon); Charles<br />
Bradbrook (Partner, Deloitte); Robert Hartley;<br />
Adrian Shipwright (Judge of the First Tier and<br />
Deputy Judge of the Upper Tier Tax Tribunals);<br />
Peter Fairchild (Partner, Smith & Williamson Tax<br />
LLP)<br />
3/7/2013 - 3/7/2013<br />
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http://www.conferencesandtraining.com/en/<br />
Browse-Events/tax-conferences/sports-entertainers/<br />
THE INTERNATIONAL TAX<br />
PLANNING ASSOCIATION'S MARCH<br />
MEETING<br />
The International Tax Planning Association<br />
Venue: Hotel Phoenicia, The Mall, Valletta, Island<br />
of Malta FRN 1478, Malta<br />
Chair: Milton Grundy (Gray's Inn Tax Chambers)<br />
3/10/2013 - 3/<strong>12</strong>/2013<br />
https://www.itpa.org/?page_id=3306<br />
HIGH GROWTH ECONOMIES 2013<br />
IBC<br />
Venue: London, UK, TBA<br />
Chair: Ashley Crossley (Baker & McKenzie)<br />
3/<strong>12</strong>/2013 - 3/<strong>12</strong>/2013<br />
http://www.iiribcfinance.com/event/<br />
High-Growth-Economies<br />
INTERNATIONAL TRANSFER<br />
PRICING SUMMIT 2013<br />
IBC<br />
Venue: London, UK, TBA<br />
Key speakers: Peter Steeds (Deputy Director, and<br />
Head of Transfer Pricing & Business International,<br />
HMRC), Dmitry Volvach, (Head of Transfer<br />
Pricing and International Cooperation Directorate,<br />
Federal Tax Service, Russia), Alexey Overchuk<br />
(Deputy Comissioner, Federal Tax Service, Russia),<br />
Annie Devoy (UK Transfer Pricing Leader, PwC),<br />
Glyn Fullelove (Group Tax Director, Informa Plc),<br />
Wendy Nicholls (Head of Transfer Pricing, Grant<br />
Thornton), Anton Hume (Global Head of Transfer<br />
Pricing, BDO), Stig Sollund (Director General,<br />
Tax Law Department, Norweigan Ministry of Finance),<br />
Joseph Andrus (Head of Transfer Pricing<br />
Unit, OECD), Michael Lennard (Chief of International<br />
Tax Cooperation in the Financing for Development<br />
Office, United Nations)<br />
3/<strong>12</strong>/2013 - 3/13/2013<br />
http://www.iiribcfinance.com/appdata/downloads/International-Transfer-Pricing-Summit/<br />
FKW52469_TP_Summit_2013_Draft_Programme.pdf<br />
DECLARED SPANISH CLIENTS<br />
Academy and Finance<br />
Venue: Hotel Beau Rivage, Quai du Mont-Blanc<br />
13, <strong>12</strong>01 Geneva, Switzerland<br />
Key Speakers: Manuel Santa Maria (Garrigues), Pablo<br />
Alarcon Espinosa (Alarcon-Espinosa Abogados),<br />
Josefina Garcia Pedroviejo (Uría Menéndez Abogados),<br />
Matias Jimenez-Brito (Jiménez-Brito Abogados<br />
& Asesores Tributarios), Eduardo Martínez-Matosas<br />
Ruiz de Alda (Gomez Acebo & Pombo)<br />
3/13/2013 - 3/13/2013<br />
http://academyfinance.ch/v2/next_events/AF448.html<br />
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85
FOUNDATIONS: BALANCING THE<br />
RISKS AND REWARDS<br />
STEP Jersey<br />
Venue: Pomme d'Or Hotel, Liberation Square, St<br />
Helier, Jersey<br />
Key Speakers: Michael Cushing (Partner, Appleby),<br />
and Naomi Rive (Partner, Appleby)<br />
3/14/2013 - 3/14/2013<br />
http://www.step.org/events.aspx?eventId=a0XC00<br />
00009Qg11MAC<br />
INTAX WEALTH MANAGEMENT<br />
SUMMIT<br />
INTAX Group<br />
Venue: Westin Dragonara Hotel, Dragonara Road,<br />
St.Julian's, STJ 3134, Malta<br />
Key Speaker: Erich Baier (Bilanz-Data), others<br />
TBA.<br />
3/18/2013 - 3/19/2013<br />
http://www.intax-wealth.com/<br />
INTERNATIONAL PRIVATE CLIENT<br />
SECTION CONFERENCE<br />
The Law Society<br />
Venue: The Law Society, 113 Chancery Lane, London,<br />
United Kingdom<br />
Key Speakers: TBA<br />
3/19/2013 - 3/19/2013<br />
http://services.lawsociety.org.uk/events/<br />
node/56891<br />
THE 7TH COLLECTIVE INVESTMENT<br />
SCHEMES TAXATION CONFERENCE<br />
InfoLine<br />
Venue: London, UK, TBA<br />
Chair: Kevin Charlton (Head of Tax Advisory and<br />
Control, UBS Global Asset Management)<br />
3/20/2013 - 3/20/2013<br />
http://www.infoline.org.uk/appdata/downloads/<br />
Collective-Investment-Securities-Tax-Conference/<br />
FKM62542_Latest_Agenda_21.<strong>12</strong>.<strong>12</strong>.pdf<br />
THE 5TH ANNUAL CONFERENCE ON<br />
INVESTMENT TRUST ACCOUNTING,<br />
TAXATION AND REGULATION<br />
InfoLine<br />
Venue: London, UK, TBA<br />
Chair: John Stevens (Finance Director & SORP<br />
Project Co-Coordinator, Association of Investment<br />
Companies)<br />
3/21/2013 - 3/21/2013<br />
http://www.infoline.org.uk/appdata/downloads/<br />
Investment-Trust-Accounting-Taxation-Regulation/FKM62543_Latest_Agenda_20.<strong>12</strong>.<strong>12</strong>.pdf<br />
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<strong>12</strong>TH ANNUAL TAX PLANNING<br />
STRATEGIES<br />
American Bar Association Section of Taxation<br />
Venue: Hofburg Congress Center, Heldenplatz<br />
1010 Vienna, Austria<br />
Co-chairs: Elinore J. Richardson (Institute for International<br />
Taxation, Inc), Joan C. Arnold (Pepper<br />
Hamilton LLP), Dirk J.J. Suringa (Covington<br />
& Burling LLP), Christian Wimpissinger (Binder<br />
Grosswang), Gerald Gahleitner (Leitner Leitner),<br />
Clemens Philipp Schindler (Wolf Theiss)<br />
3/29/2013 - 3/30/2013<br />
http://meetings.abanet.org/meeting/tax/LON-<br />
DON13/media/Vienna20<strong>12</strong>_program_FINAL.pdf<br />
INTERNATIONAL TAX ASPECTS OF<br />
MERGERS, ACQUISITIONS AND<br />
CORPORATE FINANCE<br />
IBFD<br />
Venue: Amsterdam, The Netherlands, TBA<br />
Key Speakers: Rens Bondrager (Allen & Overy<br />
LLP), Piet Boonstra (Van Campen Liem), Marcello<br />
Distaso (Van Campen Liem), Napoleão Dagnese<br />
(Head of International Tax, Oerlikon Group), Paulus<br />
Merks (DLA Piper LLP), Roberto Penati (Head<br />
of the Fiscal Affairs Department, Maire Tecnimont),<br />
Alfonso Rivolta (Director, UBS AG), Fabiola Rossi<br />
(Bonelli Erede Pappalardo), Jan-Pieter van Niekerk<br />
(KPMG)<br />
4/10/2013 - 4/<strong>12</strong>/2013<br />
http://www.ibfd.org/Courses/International-Tax-Aspects-Mergers-Acquisitions-and-Corporate-Finance<br />
INTERNATIONAL TRUSTS AND<br />
PRIVATE CLIENT FORUM, GUERNSEY<br />
IBC and Mourant Ozannes<br />
Venue: Old Government House Hotel, Saint Ann's<br />
Place Saint Peter Port GY1 2NU, Guernsey<br />
Chair: Keith Corbin (Nerine Trust Company)<br />
4/16/2013 - 4/16/2013<br />
http://www.iiribcfinance.com/download/send-file/<br />
iddownload/8892<br />
TAX AND ACCOUNTING FOR LEASES<br />
Informa<br />
Venue: Central London, UK, TBA<br />
Chair: David Maxwell (Director, Classic Technology<br />
and Member of the IASB/FASB Working Group<br />
on Leasing)<br />
4/17/2013 - 4/17/2013<br />
http://www.iiribcfinance.com/event/<br />
accounting-leases-asset-finance-conference<br />
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IN THE COURTS<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
ASIA PACIFIC<br />
India<br />
Th e Supreme Court of India ruled that the lessor<br />
of vehicles for hire remains the legal owner and is<br />
therefore entitled to claim tax depreciation. Additionally,<br />
the vehicles are being used by the lessor for<br />
business purposes which provides a higher rate of<br />
depreciation. The Revenue failed to argue that the<br />
lessee is registered as the owner under the Motor<br />
Vehicles Act, because ownership would revert back<br />
to the lessor upon expiry of the lease.<br />
Th e judgment was delivered on January 14, 2013.<br />
http://judis.nic.in/supremecourt/imgs.aspx<br />
A listing of key international tax cases in the<br />
last 30 days<br />
Supreme Court: I.C.D.S. Ltd vs. CIT<br />
WESTERN EUROPE<br />
Denmark<br />
The European Court of Justice disallowed the appeal<br />
by rejecting all three of the appellant's contentions<br />
with the judgment of the EU General Court (Case<br />
T-30/03). The appellant failed to argue that the length<br />
of the Commission's preliminary examination of Denmark's<br />
tax scheme was unjustified, or that it was not<br />
carried out under the principle of good administration.<br />
Th e judgment was delivered on January 24, 2013.<br />
European Court of Justice: Falles Fagligt Forbund<br />
(3F)v. European Commission (C-646/11 P)<br />
http://curia.europa.eu/juris/document/document.<br />
jsf?text=&docid=132764&pageIndex=0&docla<br />
ng=EN&mode=lst&dir=&occ=first&part=1&c<br />
id=2497619<br />
Netherlands<br />
Th e European Court of Justice ruled that the VAT<br />
Directive does not allow exemption from VAT for<br />
the supply of land that had not been built upon<br />
after the previous building had been demolished,<br />
despite the intention of the parties to build upon<br />
the land. Whether the party receiving the land<br />
has such an intention is a matter for the national<br />
courts to decide.<br />
Th e judgment was delivered on January 17, 2013.<br />
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http://curia.europa.eu/juris/document/document.jsf<br />
?text=&docid=132561&pageIndex=0&doclang=EN<br />
&mode=lst&dir=&occ=first&part=1&cid=<strong>12</strong>08192<br />
http://curia.europa.eu/juris/document/document.jsf?t<br />
ext=&docid=132763&pageIndex=0&doclang=EN&<br />
mode=lst&dir=&occ=first&part=1&cid=2494990<br />
Poland<br />
The European Court of Justice ruled that the leasing<br />
of property and the providing of insurance on<br />
such property are independent supplies and subject<br />
to VAT separately.<br />
The Court also ruled that insurance on the leased<br />
property arranged by the lessor and re-invoiced to<br />
the lessee is an insurance transaction and therefore<br />
exempt from VAT.<br />
The judgment was delivered on January 17, 2013.<br />
http://curia.europa.eu/juris/document/document.<br />
jsf?text=&docid=132522&pageIndex=0&docla<br />
ng=EN&mode=lst&dir=&occ=first&part=1&c<br />
id=<strong>12</strong>18160<br />
European Court of Justice: Frucona Kosice v.<br />
European Commission (C-73/11 P)<br />
Spain<br />
The European Court of Justice decided that Spain is providing<br />
a reduced VAT rate on a range of medical goods<br />
and services that is incompatible with EU legislation.<br />
Th e judgment was delivered on January 17, 2013.<br />
http://curia.europa.eu/juris/document/document.<br />
jsf?text=&docid=132525&pageIndex=0&docla<br />
ng=EN&mode=lst&dir=&occ=first&part=1&c<br />
id=<strong>12</strong>16266<br />
European Court of Justice: Commission v.<br />
Spain (C-360/11)<br />
European Court of Justice: BGZ Leasing v.<br />
Director of Warsaw Tax Chamber (C-224/11)<br />
Slovakia<br />
The European Court of Justice accepted the appeal<br />
and sent the case back to the EU General Court for<br />
it to consider the pleas of the appellant on which it<br />
did not rule (Case T-11/07).<br />
The Court of Justice based its decision on the failure<br />
of the General Court to recognise the need to include<br />
the duration of the bankruptcy procedure in the assessment<br />
by the Commission of the private creditor test.<br />
The judgment was delivered on January 24, 2013.<br />
United Kingdom<br />
The Supreme Court ruled that legal advice privilege<br />
cannot be extended to advice received from an<br />
accountant regarding a tax avoidance scheme. The<br />
Lords agreed that whether such a privilege should<br />
be made available to a profession other than lawyer<br />
is not a matter for a court to decide.<br />
Th e judgment was delivered on January 23, 2013.<br />
http://www.supremecourt.gov.uk/decided-cases/<br />
docs/UKSC_2010_0215_Judgment.pdf<br />
Supreme Court: Prudential plc v. Special<br />
Commissioner of Income Tax (2013 UKSC 1)<br />
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THE<br />
ESTER'S COLUMN<br />
<strong>ISSUE</strong> <strong>12</strong> | JANUARY 31, 2013<br />
Dateline January 31, 2013<br />
As an ex-conference organizer myself, I can only eat<br />
my heart out at the franchise that Klaus Schwab has<br />
constructed on a snowy Swiss mountain; but now,<br />
as a humble journalist, I have to thank him for his<br />
annual newsfest. This year, the best moment may<br />
have been David Cameron's carefully calculated<br />
challenge to the EU. Let's leave aside the ritual attack<br />
on corporate tax avoidance; by now it's about<br />
equivalent to saying grace before a meal, and about<br />
as effective, some might think. More important is<br />
that he has been brave enough to throw down the<br />
gauntlet to the mad dogs of Brussels , who are systematically<br />
destroying Europe' competitive advantage,<br />
and need to be stopped. Of course everyone<br />
says that he is doing it for selfish political purposes,<br />
but it can happen that politics, national advantage<br />
and economic sanity may inhabit the same place at<br />
the same time; and that's the role that the UK can<br />
play in the next five years, if Cameron sticks to his<br />
last. Naturally the Continentals are throwing every<br />
kind of negative propaganda at him; but they more<br />
they do it, the more I think he must be right. After<br />
50 years of corporatist, social partner gibberish, the<br />
EU has become hidebound, trapped in its own sententious<br />
verbiage. So, go for it, David!<br />
If David Cameron and his euro-skeptic legions<br />
want a semi-detached UK, the terrible twins Angela<br />
Merkel and Francois Hollande want to complete<br />
the roofing of their half-finished euro-house. Again,<br />
we'll have to shut our ears to the twaddle about<br />
transaction taxes and corporate tax unification and<br />
focus just on the fiscal charter, which will submit EU<br />
members to some sort of budgetary harmonization<br />
under the control of Brussels and Dragon Draghi.<br />
You may be surprised to hear this coming from me:<br />
how can I support Cameron's dash for freedom at<br />
the same time as euro-unification? Because Europe<br />
has to go one way or the other: a Brexit accompanied<br />
by a Grexit and a few other exits would lead<br />
to an outcome of a sort - a Europe of competing<br />
nation states, but it is against the grain of history. A<br />
better outcome would be a united Europe with one<br />
currency and a single economic budgetary policy,<br />
on the model (OK, not quite) of the USA, which<br />
could then live or more likely die in competition<br />
with other major blocs. But that's not going to be<br />
the result: instead, we will have something like a<br />
re-creation of EFTA led by the UK, with a unitary<br />
euro-zone, which may have been forced to become<br />
more competitive by the UK's antics. That's how I<br />
can have my cake and eat it!<br />
Europe's systemic lack of competitive advantage<br />
is revealing itself, day-by-day, in its terrible and<br />
worsening unemployment figures, while the US<br />
demonstrates some underlying resilience during<br />
difficult times. There may even be an outbreak of<br />
bipartisanship in the Congress, with the passage<br />
by the House and its rapid acceptance by the Senate<br />
and the President of a temporizing bill to push<br />
off the next section of the fiscal cliff . It is tempting<br />
to equate the relative health of the US economy<br />
to its lower level of public spending and taxation;<br />
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ut this may be an illusory equation. It is horribly<br />
difficult to compare such figures across borders.<br />
Apparently, US public spending is about 5% less<br />
than the UK's and 10% less than higher-spending<br />
EU economies (percentages of GDP); and taxation<br />
provides a lower proportion of spending, hence the<br />
worries over the debt cap. But there are so many<br />
other factors: the regulatory environment; the level<br />
of education; the "entitlement" canvas. All one can<br />
say with some certitude, at least, all I can say, is that<br />
less government spending is better than more, and<br />
less taxation is better than more. That puts me in<br />
the tea-pot, probably!<br />
I can't believe that the Greek government is behaving<br />
so badly over its new gaming laws and the state<br />
gambling monopoly, OPAP. It's as if the minister<br />
responsible and the whole state gambling apparatus<br />
are inhabiting a parallel universe with no communication<br />
passing between them and the rest of the<br />
administration. They are flagrantly breaking settled<br />
EU law despite repeated complaints from Brussels<br />
and the European gaming industry. Just this last<br />
week the European Court of Justice ruled against<br />
the regime, even as it was before the latest law was<br />
passed, which actually makes the situation worse.<br />
I can only imagine that the government is so fixated<br />
on spending the money foolishly donated to it<br />
by the troika that it has no time for anything else.<br />
What else can explain it?<br />
Bermuda is becoming the latest in a line of "offshore"<br />
island jurisdictions to fall foul of the economic<br />
downturn , although it's not clear yet whether<br />
the solution will be more taxes or less government,<br />
nor whether the UK will so to speak stick its oar in,<br />
as it has done in the case of the Cayman Islands and<br />
Turks and Caicos. At least there has been no suggestion<br />
of skullduggery; it's always a problem in these<br />
small places that government can be captured by<br />
undesirable elements. It's their smallness that lies<br />
at the root of all their problems, from one perspective,<br />
although it's also their quasi-invisibility that<br />
allowed them to flourish for decades as the home<br />
for foot-loose money on the run from the tax man.<br />
But then they got noticed, big-time, and they have<br />
had to grow up quickly, learning how to be respectable<br />
world citizens. And that's not easy, when you're<br />
small. So now we have the spectacle of a number,<br />
let's say a dozen, of mini-states with vast financial<br />
sectors, tiny populations and large, cumbersome<br />
bureaucracies. A linked problem is that they are<br />
mostly ex-colonies, with racially mixed populations<br />
which have taken over their own governance without,<br />
at first, really knowing how to do it. All of this<br />
is very expensive for them, which was just about<br />
bearable in the good times, but has now brought<br />
one after another of the islands to their knees. Really<br />
it's illogical for these over-grown governmental<br />
and regulatory apparatuses to exist in such numbers;<br />
they ought to merge, to make more sense of it.<br />
How about Bermuda and the BVI? There would be<br />
a power-house. Of course that's not going to happen;<br />
CARICOM shows you how it goes when a<br />
group of such jurisdictions tries to create a bigger<br />
unit: 1 + 1 + 1 + 1 + 1 + 1 doesn't = 6, it equals 7.<br />
Or however many it is, plus one extra government,<br />
just as in Europe. Bermudians are much too proud<br />
to consider such a thing, anyway.<br />
Th e Jester<br />
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