Germany and UK seek strengthened International Tax Standards

   During the latest G20 meeting in Mexico, UK Chancellor of the Exchequer George Osborne and German Finance Minister Wolfgang Schäuble underlined the need for international action to strengthen tax standards.

After discussing their concerns about the erosion of corporate tax paid by large international companies at a meeting held in Berlin recently, Schäuble and Osborne called at the G20 summit for “concerted international cooperation to strengthen international standards for corporate tax regimes”.

   Schäuble and Osborne said: “Britain and Germany want competitive corporate tax systems that attract global companies to our countries, but also want global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards”.

The finance ministers explained: “Global companies are a significant source of growth, investment, employment and tax in Germany, Britain and the EU as a whole. However, international tax standards have had difficulty keeping up with changes in global business practices, such as the development of e-commerce in commercial activities. As a result, some multi-national businesses are able to shift the taxation of their profits away from the jurisdictions where they are being generated, thus minimizing their tax payments compared to smaller, less international companies.”

  Schäuble and Osborne therefore urged the G20 to back the Organization for Economic Cooperation and Development’s (OECD) work on identifying possible blanks in the standards as a first step in promoting a better way of dealing with profit shifting and the erosion of the corporate tax base at global level.

Germany and UK back the OECD’s tax base erosion and profit shifting (BEPS) initiative. The first analysis report is due to be presented at the next G20 meeting in Russia in February 2013.

  Concluding, the ministers stressed: “Britain and Germany will continue to work together, and with our partners in the EU, G7 and G20, to maintain momentum on strengthening international standards.”

European Fiscal Treaty - Where Things Stand

OCTOBER 10 - 2012

France inched closer to ratifying the European fiscal compact Tuesday after the lower house of parliament backed a bill incorporating the treaty into national law.

If the French Senate also support the bill, France will be the 14th country (and 10th eurozone member) to adopt the treaty, which was signed by 25 out of 27 EU leaders in March.

The countries who have already signed the treaty are: Austria, Cyprus, Denmark, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Portugal, Romania, Slovenia and Spain.

The treaty will enter into force on January 1, 2013, if at least 12 eurozone countries have ratified it.

Its main elements, which are legal point of view only for eurozone members, are:

Countries must incorporate a "golden rule" on balanced budgets into their legal systems, at constitutional level or equivalent, including automatic correction mechanisms - such as spending cuts or tax hikes - when the target is not met.

Structural deficits - that is, budget shortfalls not linked to the temporary effects of economic recessions - must be kept below 0.5 per cent of gross domestic product (GDP). Derogations apply "only in exceptional circumstances."

Countries whose public debt breaches the EU limit of 60 per cent of GDP must reduce it by 5 per cent per year. Conversely, countries respecting the limit can run higher structural deficits, up to 1 per cent of GDP.

Countries with deficits above 3 per cent of GDP are to face sanctions unless a qualified majority of eurozone member states blocks the move.

The European Court of Justice will police whether nations implement the budget rule properly and can fine them up to 0.1 per cent of GDP if they fail to do so.

Only countries that have signed the treaty will be eligible to apply for funds from the European Stability Mechanism, the eurozone's new permanent bailout fund.

Parliament members support permanent cuts treaty

  France's lower house of parliament overwhelmingly ratified the European Union fiscal pact today despite fears that it amounts to a "permanent austerity treaty."

  Parliament members backed the Fiscal Stability Treaty, which forces national governments to set budgets the EU deems balanced and penalises those which are considered to spend too much, by 477 votes to 70.
  The Left Front led resistance to the treaty, while around 20 MPs of President Francois Hollande's governing Socialist Party and his Green allies also voted against.
It passes to the Senate tomorrow.
  The CGT trade union federation led a day of protest to coincide with the vote, highlighting job losses and a flatlining economy. Marches "in defence of work and industry" were joined by thousands in Paris, Marseille, Lyon and other cities. 
  CGT secretary Bernard Thibault said Mr Hollande's government was proving no better than that of his predecessor Nicolas Sarkozy.
  "We're deep in crisis because of bad policy, quite simply," he said. "If a majority voted for a change of president it was because they wanted a change of economic and social policy."
  The president is seeking to convince unions to agree to reduced employment rights and wage cuts in line with business lobbying, but Mr Thibault argued: "I don't see why the workers should have to give more. It's workers who made possible the change in government, not business".
"This is about having a government that listens to its electorate."
  Fellow union official Pascal Debay said: "We're witnessing the breaking of employment and the wreckage
of French industry. That's why we're mobilising."
  Demonstrators outside the Paris motor show protesting at job losses in car manufacturing clashed with riot police, who fired tear gas at activists who pelted them with flour and eggs.
CGT also mounted strikes in the energy sector, reducing power output.
  nEurozone finance ministers meeting in Luxembourg failed to reach agreement on a tax on financial transactions or terms for increased economic unity in the bloc.
  Eleven countries agreed on a financial tax in principle and may go ahead without the others, but the details of the tax have not been clarified.

Malta Shipping Review 2012-2013

With its location in the heart of the Mediterranean Sea, a centuries old maritime tradition and a respected and favourable regulatory and tax regime for shipping, it is no surprise that Malta has developed one of the world's largest ship registers in modern times, and in the face of stiff competition from other prominent maritime nations.
Vessel registration under the Malta flag and the operation of the Maltese ships is regulated by the Merchant Shipping Act, a law based in the main on United Kingdom legislation, subsequently revised and amended in 1986, 1988, 1990, 2000 and 2010. The main legislation is also supplemented by a comprehensive set of rules and regulations. Malta is additionally a party to most of the major International Maritime Conventions and Malta-flagged ships are obliged to strictly adhere to the provisions of these international conventions. By the end of 2011, a total of 5,830 ships were registered under the Maltese Merchant Shipping Act, for a total of 46.6m tonnes. There were also 300 super yachts registered in Malta at the end of 2011, representing 19% growth over 2010.
In January, 2006, Malta was one of only four flag states that attained the highest quality ranking following the Paris Memorandum on Port State Control's annual inspections. The Paris MoU “White List” represents quality flags with a consistently low detention record. By the end of 2011, the White List included 43 flag states.
In order to register a ship in Malta, it must be owned by a company incorporated in the jurisdiction. All types of vessels from pleasure craft to oil rigs may be registered provided that they are wholly-owned by legally constituted corporate bodies, or by European Union citizens. There are no nationality requirements for shareholders or directors of Maltese companies, and neither are there any nationality restrictions on officers and crew employed on Maltese-flagged ships.
A yacht is first registered provisionally under the Malta flag for six months (extensible under certain circumstances) during which period all documentation needs to be finalized. This includes, in particular, evidence of ownership and of cancellation of former registry. Authority to operate still remains linked to conformity with the relative manning, safety and pollution prevention international standards. Once a vessel is provisionally registered, registration, transfer and discharge of mortgages may be effected immediately on presentation of the relative documents to the Registrar. The 1986, 1988, 1990 and 2000 amendments introduced important safeguards in respect of registered mortgages, making financing of Maltese ships more attractive.
Generally, boats that are more than 25 years old are not accepted for registration by the Maltese Registry, and ships which are older than 20 years will be required to undergo a Flag State inspection prior to provisional registration. Maltese law provides for both bareboat charter registration of foreign ships under the Malta flag and also for the bareboat charter registration of Maltese ships under a foreign flag. Ships that are bareboat charter-registered in Malta enjoy the same legal privileges, and have the same legal obligations, as any other ship registered in Malta. Maltese law also allows for the registration of ships that are under construction.
Yachts which do not carry cargo or more than 12 passengers may be registered as commercial yachts under Malta's Commercial Yacht Code 2006, which sets out standards on safety and pollution. The Commercial Yacht Code was developed in line with international regulations and other industry standards and caters for both small yachts and super-yachts above 24 metres and up to 3,000 gross tons. The Code has been proving successful with major yacht and super-yacht builders alike, with the number of commercial yachts certified in compliance with the Malta Code increasing considerably during the past years. The registration procedure for yachts is similar to that of other vessels, and a six month provisional registration is usually granted allowing time for the appropriate documents to be submitted and the registration finalized.
Malta applies a tonnage tax system to boats on its register. This varies from EUR1,000 for ships not exceeding 2,500 net tons, up to EUR7,180 for vessels exceeding 50,000 net tons (plus 5 cents for every net ton above this threshold). However, the amount of tax due can be lower or higher depending on the age of the ship: there is a 30% reduction in annual tonnage tax for ships which are less than 5 years old; and a 15% reduction for ships which are not less than five years old and not more than 10 years old. Vessels which are no less than 15 years old and no more than 20 years old pay an additional 5% in tonnage tax, rising to 50% for ships which are equal to or exceed 30 years of age. Commercial yachts pay an annual tonnage tax of EUR175 provided they are less than 24 metres in length. Commercial yachts of 24 metres or more in length pay tonnage tax on the same schedule as other ships.
Unusually for a low tax jurisdiction, Malta has entered into more than 50 double tax treaties, and a reciprocal agreement between Malta and the United States exempts shipping and air operations from income tax. This agreement makes it possible for Maltese companies owning or operating ships calling at US ports to claim an exemption from the 4% gross transportation tax levied on transportation income attributable to transport which begins or ends in the United States. Malta has also concluded two maritime agreements with the People's Republic of China and the Russian Federation; similar treaties with several other countries are in the process of negotiation.
In June 2012, it seemed that Malta’s position as the EU’s maritime jurisdiction of choice was further endorsed when reports emerged from Germany that the operator of the German cruise liner the MS Deutschland - the last cruise liner to operate under the German flag - had decided to re-flag the vessel in Malta. This was partly due to the German government’s refusal to offer concessions that, according to the cruise line, “offset the significant cost disadvantages” of operating under the German flag. However, it was said that, with the move to Malta, Deilmann is seeking a more predictable operational environment with the same advantages enjoyed by competitors. It has been estimated that the decision may cut the liner's costs by more than EUR250,000 (USD315,000), as flagging under the Maltese register will provide Deilmann with a number of tax exemptions, including on profits, and competitive annual fees. Malta also provides additional benefits such as eased administrative procedures.
However, in July 2012, the European Commission opened an in-depth investigation to examine whether the Maltese tonnage tax scheme is compatible with EU state aid rules. The Commission has concerns that the favourable tax treatment allowed by the EU Guidelines on state aid to maritime transport for the transport of passengers and freight by sea may have been extended to other categories of beneficiaries that are not suffering from the same handicaps and are therefore not entitled to lower taxes. The Guidelines on state aid to sea transport allow member states to reduce taxes for maritime transport of passengers or freight under certain conditions. However, according to the Commission, the scope of the Maltese tonnage tax may be too wide as it includes fishing boats, yachts, oil rigs and ship-owners without any shipping activity of their own.
“Given the multitude of exemptions and reductions available, it appears that in a number of cases the level of tax burden for a given tonnage is lower in Malta than in other Member States,” the Commission stated at the time. “This could potentially make the Maltese tonnage tax system more attractive than the ones applied in the rest of the EU. Moreover, no sufficient safeguards are established to ensure that benefits available under the tonnage tax do not spill over to non-shipping activities of the beneficiaries. The Commission therefore has concerns that the Maltese scheme may lead to distortions of competition in the EU internal market by potentially attracting companies and vessels from other Member States. The Commission will now investigate in-depth to find out whether these concerns are confirmed or not.
Joaquín Almunia, Commission Vice-President in charge of competition policy further explained that: "The Commission acknowledges the contribution of the maritime transport sector to the EU economy. Given the high exposure to competition from third countries offering favourable tax treatment to their shipping companies, the EU allowed the possibility to reduce taxes for maritime transport activities. In the Maltese case, the support measures apply to yachts, bankers, ship lessors, amongst other beneficiaries. This seems neither justified from a competition perspective, nor appropriate in times of high budgetary constraints."
On September 25, 2012, the Commission announced an invitation to submit comments on Malta’s tonnage tax regime and other state measures, but it remains to be seen whether the European Commission’s investigation will ultimately lead to changes in Malta’s tonnage tax regime. If the Commission decides to challenge aspects of the tax regime, it is possible that the Maltese government will contest them through the European Courts, a process which could extend to several years.

German Finance Minister intends to sign tax treaty with Singapore

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Germany's government is seeking to strengthen its tax treaty with Singapore to help it ensure German nationals aren't stashing assets in the Southeast Asian nation to evade taxes.
German Finance Minister Wolfgang Schaeuble will discuss revising Germany's bilateral tax treaty with Singapore during a visit to the Southeast Asian country Sunday as part of Berlin's efforts to step up its battle against tax evasion, a spokesman for the German finance ministry said Monday. A spokesman for Singapore's Ministry of Finance said the two countries are in talks to revise their 2006 double taxation agreement.
The move comes amid a broadening effort by authorities in the U.S. and Europe to penetrate the barriers of banking secrecy around the globe. Germany is concerned some of its citizens who once stashed their wealth in secret Swiss bank accounts have begun to move money to Singapore ahead of a new tax treaty with Switzerland that will make it harder for Germans to park their money in Swiss accounts out of the reach of the German tax authorities.
"The revision of the current bilateral tax treaty is part of our strategy to take a comprehensive global approach in fighting tax evasion," the German finance ministry spokesman said.
Mr. Schaeuble will meet with Prime Minister Lee Hsien Loong, among other Singapore officials during his visit.
"Singapore's policy of enhancing tax cooperation with its tax treaty partners is not a new one," the Singapore finance ministry's spokesman said. "Singapore is committed to the internationally agreed standard for exchange of information."
Since Singapore adopted the Organization for Economic Co-operation and Development guidelines on tax transparency in 2009, it has added them to bilateral tax agreements with 35 countries "and will continue to do so with others," the spokesman said.
As in Switzerland, Germany wants Singapore to become more transparent and make public information about German investors in Singapore to German tax authorities. In the new tax treaty with Switzerland, the Swiss government has agreed to withhold the tax due on German accounts in Swiss banks but doesn't provide the German government with the names of the investors. That way, Germany gets the taxes owed, but Switzerland still can ensure the secrecy of its bank accounts.
Abhijit Ghosh, a Singapore-based tax partner at PwC Services LLP, said much of the capital migration from Europe to Singapore is to try to take advantage of better investment returns. "It is definitely happening. Against the backdrop of the euro crisis, you do see a number of fund managers and bankers who are setting up shop in Singapore to tap into leverage on the Asian growth story here because of the erosion of the capital base in Europe," he said.
But that by itself is no reason for German authorities to be concerned, "unless they have reason to believe the flight of capital is meant to evade taxes," he said.
Singapore came under scrutiny in recent years as the U.S. and Europe began cracking down on offshore bank account holders, seeking more transparency from countries with a long tradition of banking secrecy like Switzerland. Singapore's bid to align itself with international standards helped it in November 2009 to get off an OECD "gray list" of countries targeted by the U.S., France, Germany and others over concerns that their tax laws hide tax evaders and money launderers.
When it adopted the OECD guidelines, Singapore said it wanted to emphasize "its role as a trusted centre for finance and a responsible jurisdiction, with strong and consistent regulatory policies and a firm commitment to the rule of law."

Eurozone contemplates separate budget, new FTT tax

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A kind of Soviet-style centralized economy could replace the current EU Treaty, creating a separate, unified "single budget" for the 17 countries sharing the euro.

As the EU summit draws near, the conceptual single-budget proposal, including a new transaction tax, is being widely acclaimed by northern European countries, including Britain, Denmark, the Netherlands and Finland, according to a Sunday Reuters report. "I wouldn't say that there was strong support for it, but there was certainly a feeling that this is an idea that should be explored in more detail," said one diplomat briefed on a recent discussion that took place between eurozone leaders. 

 

 The centralized, single budget proposal was first laid out by Herman Van Rompuy, the president of the European Council. In a document published in September, Rompuy proposed the single budget concept to stimulate debate about how Europe's monetary union could be strengthened. Van Rompuy’s idea involves creation of a "fully fledged fiscal union" among the 17 countries that share the euro under a single treasury office and "a central budget whose role and functions would need to be defined." While there is no definition of what would constitute a “single budget, or what the ramifications are to sovereignty and national commerce, Germany and France have both signaled their approval of the concept as an ultimate direction towards attaining greater eurozone solvency. New taxes are being proposed as a way to pay for the single budget.

 

Germany and France are already hyping a financial transactions tax (FTT) that would be implemented among nine euro zone nations, which is considered the minimum required to gain quarry. "There will come a time when you need to have two European budgets, one for the single currency, because they are going to have to support each other more, and perhaps a wider budget for everybody else," British Prime Minister David Cameron told the BBC on Sunday, the first day of his Conservative Party's annual conference. "I don't think we will achieve that this time, but it is an indicator of the way that Europe is going," he said. Some officials have reportedly implied that it could involve each country setting aside 0.3 or 0.5 percent of their GDP for a communal budget while others disagree.

 

"The modalities are completely unknown," said one EU official when asked how a single budget might work, according to the report. Even if FTT and the single budget proposal are discussed rigorously at the October 18-19 summit, it would likely take years to implement either, even if everyone supports it. The proposal would mean making fundamental changes in how the eurozone is administered and even changing the EU treaty, which is indicative of an extended and divisive debate.

Italy and Gibraltar Sign tax information exchange agreement

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The government of Gibraltar has announced the signing, on October 2, 2012, with Italy, of the territory's 20th tax information exchange agreement (TIEA).

Gibraltar’s Minister for Financial Services, Gilbert Licudi, signed the agreement at the Italian Embassy in London, with the Italian Ambassador to the United Kingdom, Alain Giorgio Maria Economides, signing on behalf of the Italian government.

Licudi said that he was “particularly pleased" to have signed this TIEA with Italy. "This agreement brings the total of such agreements signed to 21, with 18 of those having already entered into force. It also underscores the government’s commitment to international standards of cooperation.”

He added that he trusted the agreement would encourage the development of a closer business relationship with Italy. Licudi was accompanied to the signing by James Tipping, Gibraltar’s Finance Centre Director.
It was disclosed that, to date, Italy has signed 97 double taxation agreements including provision for the exchange of tax information, and four TIEAs (the last being with Guernsey on September 5 this year).

Germany is thinking to sign a tax deal with Singapore

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During an upcoming visit to Asia, German Finance Minister Wolfgang Schäuble intends to negotiate a bilateral agreement with Singapore pertaining to the exchange of tax information between the two countries, according to the German finance ministry.
Plans to update and to revise the existing double taxation agreement (DTA) with Singapore, by aligning provisions with the latest international developments and Organization for Economic Cooperation and Development standards, form an important part of global action against tax evasion, the German ministry explains, highlighting the fact that the main aim is to improve information exchange in tax matters.
The ministry underlined its optimism regarding the chances of negotiating a new accord, emphasizing Singapore’s declared “white money strategy”.
Schäuble’s Singapore plans are to be seen within the context of the negotiated German-Swiss tax treaty, due to enter into force on January 1, 2013. Reports suggest that banks in the Confederation have urgently advised their German clients to swiftly transfer their untaxed assets to Singapore, thereby escaping the clutches of the German tax authorities when the provisions apply. Swiss banks have vehemently denied the allegations, however.
The tax agreement with Switzerland provides notably for the taxation of the hitherto undeclared and untaxed assets of German residents held in Swiss accounts as well as for the equal tax treatment of future income from the capital deposits of German taxpayers at the same rates as levied in Germany.
Although Germany’s main opposition parties the Social Democrats and the Green Party have opposed the accord from the outset, threatening to veto the text in the Bundesrat, or upper house of parliament, where the black-yellow coalition no longer has a majority, Rhineland-Palatinate’s Prime Minister Kurt Beck recently indicated that further negotiations could avert a disaster. The vote in the Bundesrat has reportedly been postponed until the end of November to facilitate ongoing cross-party discussions.

Portuguese Budget Hikes Taxes

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Amid growing unrest, Portugal’s Finance Minister Vitor Gaspar unveiled details recently of a new wave of austerity measures, aimed at reducing the country’s deficit and appeasing its bail-out creditors.
Determined to ensure disbursement of the next tranche of international aid from Portugal’s bail-out agreement, Gaspar previewed the 2013 budget providing for fiscal measures totalling around EUR4.3bn (USD5.6bn).
Among the key measures to be included in the budget are plans to introduce a 4% extraordinary tax on income next year and to reduce from eight to five the number of income tax brackets.
Other proposed tax rises announced by the finance minister include plans to impose new levies on capital gains and to introduce a financial transactions tax. Precise details of these proposed measures have yet to be finalized.
The centre-right Portuguese government of Prime Minister Pedro Passos Coelho has, however, been forced to abandon its controversial plans to increase social security contributions paid by workers.
The government had planned to increase payroll social security contributions by almost two thirds, from 11% to 18%, and to reduce employer contributions from 25% currently to 18%.
Unsurprisingly, the proposals provoked immediate outrage from unions and from workers, accusing the government of simply transferring the fiscal burden from companies to individuals.
The u-turn marked a significant turning point, highlighting Portugal’s waning patience and increasing frustration with the austerity measures imposed by international lenders in return for the country’s EUR78bn bailout programme, agreed with the Troika last year.
Portugal has already pursued a rigorous fiscal policy, raising taxes, cutting wages and public spending.
The government aims to reduce the deficit from a forecast 5% of gross domestic product (GDP) this year to 4.5% in 2013, and to subsequently 2.5% of GDP in 2014, under the 3% limit.
Due to be examined by the Portuguese parliament on October 15, the budgetary measures have already gained approval from the European Commission.

Dunne dismisses tax haven suggestions

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Revenue Minister Peter Dunne is dismissing a suggestion New Zealand is a tax haven after criticism over his "legitimate tax avoidance" comments.
In an interview aired by 60 Minutes yesterday about foreign trusts, Mr Dunne said the term tax haven was an exaggeration because it implied illegal tax evasion rather than "legitimate tax avoidance".
"There's nothing sinister about that - minimising one's tax has always been within the law, that's the difference between avoidance and evasion," he said.
The comments sparked criticism, with Green Party co-leader Russel Norman labelling them "astounding".
"The tax system is being undermined by the minister in charge of it," he said.
Prime Minister John Key was today unconcerned by Mr Dunne's comments.
He had not seen the 60 Minutes interview but Mr Dunne would have been using "the absolutely correct technical terms", he said.
"Tax evasion is completely against the law. Tax avoidance means that it's a responsibility of your accountant to actually look to minimise your tax as best you can within the bounds of the law."

Mr Key said servicing foreign trusts in New Zealand was a strong and legitimate business that employed a lot of professionals and added to the New Zealand economy.
"It's a very sensible place to house a trust."
Mr Dunne today dismissed the idea that New Zealand was a tax haven for foreign trusts.
"The key identifying characteristics of tax havens are secrecy and lack of transparency. Those are simply not factors here in New Zealand. Our legislation for taxing trusts is fully transparent."
He also announced that New Zealand would sign a multilateral convention on tax assistance later this month.
The Convention on Mutual Administration Assistance in Tax Matters will give Inland Revenue the ability to request help from other tax authorities in detecting and preventing tax evasion, and collecting outstanding tax debts.
"This is an important step and consistent with New Zealand's approach to tax matters, and frankly, makes a mockery of tax haven assertions," Mr Dunne said.
New Zealand had a wide network of tax treaty partners, including 37 double tax agreements and a growing network of tax information exchange agreements.
Dr Norman has called for more transparency of the roughly 8000 foreign trusts in New Zealand, which are set up with foreign income by non-residents but managed in New Zealand.
The trusts must be registered with Inland Revenue, but are not required to pay tax and their ownership is effectively anonymous.
"New Zealand's foreign trusts hide billions of dollars of assets and should be broken open to help stop the global tax evasion industry," he said.
Labour's revenue spokesman David Clark said Mr Dunne was far too relaxed and hands-off about the wealthy paying their fair share.

Tax clarity for transactions

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 The Government has announced a series of committees to relook tax laws, GAAR, DTC and others to bolster investor confidence. This is also, perhaps, the time to build clarity on certain aspects of transactions to help the Indian entrepreneur raise more finances internationally. Currently, transactions for investments related to future performance are challenged on grounds of income tax and exchange control. The need is to balance the risks with rewards in a manner that is fair to all stakeholders navigating parameters such as income tax, foreign investment policy, SEBI laws, corporate laws and securities, which at times could create conflicts.

Swiss law firm’s fee taxable in India

For decades, benefits claimed by partnership firms through international tax treaties have been under litigation. The complexities of legislations, jurisdictions and variance in tax treatments have kept alive the controversy on the topic. Recently, the AAR dealt with one such issue in the case of Schellenberg Wittmer, a Switzerland-based partnership firm whose partners are Swiss residents. The firm engaged in law practice in Switzerland was appointed by an Indian company for representation in an adjudication proceeding in that country. The controversy was over whether the firm could be treated as a resident of Switzerland under the India-Switzerland tax treaty.

The AAR held that the definition of ‘person’ in the tax treaty includes a company, body of persons, or any other entity ‘which is taxable under the laws in force in either contracting state’. Section 2(31) of the Income Tax Act, 1961 confers the status of a ‘person’ on a partnership firm, but there is no corresponding definition in Swiss law. Also, the partnership firm is not a taxable entity in Switzerland. Even though the partners are residents, they cannot invoke the tax treaty as they are compensated by the firm and not the Indian company. Further, the source of income for rendering professional services is in India.

Accordingly, the firm will not be treated as a resident under the tax treaty, and cannot benefit from it. Therefore, the legal fees received will be taxable in India.

Tax relief for inter-State gas sale

Since the inception of VAT (local sales tax) and Central Sales Tax (CST) laws, the issue of whether a sale would qualify as intra-State (subject to VAT) or inter-State (subject to CST in the originating State) has been under intense litigation.

More so in the oil and gas sector, where it has surfaced time and again as oil and gas for different buyers is transported through a common pipeline. Hence, the destination State often tries to levy VAT on the transaction (as such oil and gas is appropriated to the buyer at the exit point) while the originating State demands CST.

The Allahabad High Court, in a recent writ petition filed by Reliance Industries Ltd, has tried to settle this ambiguity. RIL was shipping gas from Gadimoga in Andhra Pradesh to Auraiya in Uttar Pradesh. The company was depositing CST on the sale in AP, while UP demanded VAT by treating it as a local sale.

The Court held that according to contracts executed, the delivery point is Gadimoga. From the seller’s perspective, the sale concludes at Gadimoga as all the rights and liabilities (that is, title of natural gas) are transferred at the delivery point. Therefore, it is an inter-State sale subject to CST.

The Court further held that if the contention of revenue were to be accepted, then every buyer would be required to install his own pipeline to transmit such gas, which is practically not possible. Accordingly, the Court while allowing the writ petition also directed the UP authorities to refund the VAT collected by them.

Record Tax Revenues collected by Hong Kong

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Hong Kong’s Commissioner of Inland Revenue Chu Yam-yuen has introduced the 2011-12 Annual Report of the Inland Revenue Department (IRD), highlighting  that it collected 14% more in taxes than in the year before, thereby setting a new record.

In 2011-12, the IRD collected HKD238.3bn (USD30.7bn), an increase of HKD29.3bn over the amount collected in the previous year. The increase mainly came from profits tax and salaries tax collections. Profits tax soared by 27% to HKD118.6bn, while salaries tax climbed 17% to HKD51.8bn. Stamp duty, on the other hand, dropped by HKD6.6bn or 13%, and stood at HKD44.4bn.

The increase in revenue from profits tax was partly attributable to the all-time high collection of back tax and penalties recovered, which increased by 77% as compared with the previous year.

Over the past few years, it was said, the Field Audit and Investigation Unit had put in great efforts to tackle those tax avoidance schemes involving large amounts of interest deductions, which took place before the 2004 Inland Revenue (Amendment) Ordinance came into force. In 2011-12, the Unit completed the audit of a number of such schemes resulting in substantial amounts of tax recoveries.

The IRD’s increased results were also achieved without increasing its staff. To cope with the increasing workload, it has been making intensive use of information technology in business operations, and remains proactive in identifying new initiatives to enhance its productivity and improve services to the public.
For example, in August 2011, the IRD launched an electronic filing service for employers on the eTAX platform. For the first time, employers could file electronic notifications for their employees in respect of commencement of employment, cessation of employment and departure from Hong Kong.
In addition, with effect from April 2012, the eTAX filing service has been extended to annual employer’s returns, and, during the year, the Business Registration Office and the Companies Registry jointly introduced an additional one-stop notification service at the e-Registry of the Companies Registry. By using this electronic service, corporations have the option to update their registered office address and business address in just one notification.

On the taxation arrangements for cross-border employees, the IRD and China’s State of Administration of Taxation (SAT) have recently reached a consensus on the issue of double taxation faced by these employees, after several rounds of discussion. To help reduce the incidence of double taxation on individual income of cross-border employees, and taking into consideration the suggestions by various parties, both IRD and SAT have agreed to adopt “the number of physical presence days” as the basis for allocating taxable income.
Hong Kong, he said, has also taken remarkable steps forward in establishing its international tax treaty network in recent years. The amendment to the Inland Revenue Ordinance in March 2010 enabled Hong Kong to adopt the international standard in exchange of information arrangements, and, since then, the tax treaty network of Hong Kong has expanded rapidly. As at March 31, 2012, Hong Kong had signed a total of 23 comprehensive double taxation agreements, of which 17 were in force by that date.
The Phase 1 peer review of Hong Kong by the Global Forum on Transparency and Exchange of Information for Tax Purposes, of which Hong Kong is a member, examined the legal and regulatory framework of Hong Kong and was carried out from April to September 2011. It affirmed the efforts of Hong Kong in enhancing tax transparency, and concluded that Hong Kong has an adequate legal and regulatory framework to facilitate the effective exchange of information.

It also concluded that Hong Kong could enter into the Phase 2 peer review, which will evaluate the implementation of the standard in practice, and will commence towards the end of 2012.

UK, Brazil ink co-production treaty

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UK signs film and TV co-production treaty with rising power Brazil.

The UK and Brazilian governments have signed a co-production treaty, with the terms negotiated by the UK’s BFI and ANCINE, the National Cinema Agency of Brazil.

Film and TV productions that qualify under the terms of the treaty will gain national status in each country.
Productions will be able to access Brazil’s tax incentives, all federal public funds and access to favourable TV terms, while in the UK qualifying productions will be able to access the UK’s Film Tax Relief and apply to the BFI Film Fund, which has a current allocation of £18m per year for film development, production and completion. This is set to increase to £24m by 2017, in line with the BFI’s five year plan for film, which it launches in October.

The treaty is expected to take two years to come into force.
Amanda Nevill,chief executive of the BFI, said: “The UK and Brazil have a history of working together in film and a formal co-production treaty is a natural next step. Film has an important role to play in driving economic growth in the UK and this treaty helps us strengthen those ties with Brazil. We will be working closely with ANCINE to bring filmmakers in both countries closer together to generate real gain and advantage.”

Manoel Rangel, director-president of ANCINE, added: “The opportunity to make it easier for our producers to work in closer contact with their British counterparts represents an important step in the consolidation of the Brazilian audiovisual sector as one of the most active and dynamic in its region and the world. We are hoping that this agreement will lead to much future collaboration in the field of film and TV production, in which both Brazilian and British producers are known for their expertise and unique creativity.”

London recently hosted the Rio Content Market in March 2012, where PACT and the ABPITV, the trade bodies representing independent producers in the UK and Brazil respectively, signed an agreement to promote closer ties between the independent production sectors in both countries.

Passions flare up over Switzerland-Germany agreement

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Backers and adversaries of the Rubik bilateral taxation agreement that Germany has signed with Switzerland maintained their irreconcilable positions, on 24 September in Berlin.
The Finance Committee of the Bundestag, the German parliament's lower chamber, held a public hearing on this sensitive issue as important parliamentary votes loom in November (see Europolitics 4492). A total of 23 experts in different areas (Swiss state secretary, bankers, university professors, tax consultants, tax administration officials, NGO representatives, etc) participated.
The Rubik agreement, which provides for the anonymous regularisation of assets stashed by residents of Germany in Switzerland, and the levy of a withholding tax at the source on income that continues to be earned on these assets in the future, is generally viewed positively by the banking community.
For the German Bankers' Association, it offers "the opportunity to achieve its objectives": to replenish the state budget without encountering much opposition. The German government expects to recover €1.62 billion in 2013. "Never has Germany had the opportunity to rely on aid from another state to enforce its tax claims," said tax lawyer Jochen Lüdicke (Freshfields Bruckhaus Deringer).
Reactions in academia are much more mixed. Professor Lorenz Jarass (Hochschule RheinMain Wiesbaden) commented that if the German parliament ratifies the agreement, it will be giving fraudsters "a blank cheque" because Rubik will preserve Swiss banking secrecy. According to Zurich-based international tax expert Mark Morris, this is all the more true because Rubik is like emmenthal cheese: full of holes. Trusts and foundations, among other entities, will remain very attractive vehicles for those who wish to evade taxes. Swiss State Secretary for International Financial Issues Michael Ambühl naturally disputed this claim, saying the agreement is "broad" in scope.
For Itai Grinberg, professor at Georgetown University in the United States and former adviser in the Obama administration, that is nevertheless not the most serious consideration. The adoption of automatic information exchange between administrations on the widest scale possible is the only way to fight tax evasion effectively, he argued.
If it endorses Rubik, Berlin may well "nip in the bud the emergence of a multilateral system" based on this principle, which it nevertheless advocates in other bodies (EU, OECD, agreement with the United States on FATCA). The question is how to convince Luxembourg, Austria, Singapore and Hong Kong to abolish banking secrecy if Switzerland is not obliged to do so. Predictably, this view was echoed by Markus Meinzer of Tax Justice Network.

Switzerland, Bulgaria Sign Revised DTA

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Switzerland and Bulgaria have recently signed in Sofia a new bilateral double taxation agreement (DTA) in the area of taxes on income and capital.

The accord replaces the agreement of October 28, 1991, and contains provisions on the exchange of information in accordance with the international standard applicable at present.
According to the Swiss Federal Department of Finance, the treaty is largely in line with Switzerland's agreements policy and will serve to contribute to the further positive development of bilateral economic relations.

Aside from an OECD administrative assistance clause, Switzerland and Bulgaria have agreed that both countries may levy withholding tax of no more than 10% on gross dividend amounts. If, however, a company holds a stake of at least 10% in the capital of the distributing company for at least a year, the dividends will be exempt from withholding tax. Moreover, there will be no withholding taxes on dividends paid to the national banks of the two countries or to pension funds.

Regarding interest, both countries may levy withholding tax not exceeding 5%. However, interest payments between associated enterprises with a stake of 10% for at least one year, for example, will not be subject to any withholding tax. There also will be no withholding tax on royalty payments.

Following the negotiations, a report on the new DTA with Bulgaria was submitted to the Swiss cantons and the business associations concerned for their comments. They approved the signing.

The new agreement still has to be approved by parliament in both countries before it can come into force.

Offshore Banking Not Just for Super Rich; Online Services Make Offshore Tax Benefits Accessible to All

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For centuries, offshore bank accounts have been used by the wealthy to help avoid paying taxes. While many efforts have been made to squash these practices, they have been overwhelmingly futile. Even the G20 Treaty which was signed last November with the goal of ending banking secrecy has proven unsuccessful as bank depositors just more their accounts from places like Switzerland to new offshore banking havens like Hong Kong.

While offshore banking may not be anything new, the way it is done has drastically changed over the past decade. According to the banking experts at the newly-launched website OffshoreBankingAndCompanyFormation.com, “Offshore banking used to be just for the super-rich. Only they could afford the frequent trips to tax havens like Luxembourg and accountants to manage their funds. The advent of the internet changed all of this though by making offshore banking readily accessible to all people right through their home computers.”

Individuals and small businesses who wish to set up offshore bank accounts can do so through online companies. These companies typically will have agents located in offshore tax havens who can quickly and efficiently take care of the paperwork required to set up a bank account abroad. In one report from Offshore Banking and Company Formation, an intern was even able to set up a bank account in Panama for his employer via email.

Many online offshore banking companies also offer company formation as part of their services. These offshore companies can be very powerful when it comes to keeping financials private, reducing taxes and protecting assets. Offshore Banking And Company Formation includes profiles of the top tax havens, and also discusses the procedure for and benefits of opening a company in the countries.

“Offshore banking and company formation offer incredible tax saving and asset protection benefits. There is no reason that individuals shouldn’t be taking advantage of these opportunities, especially since packages can be purchased for as low as $300. You no longer have to be Mitt Romney to have an offshore account.”

For more details please visit  www.bethelfinance.com.

Malta and Jersey Sign Gambling Regulation Memorandum of Understanding

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Malta's Lotteries and Gaming Authority (LGA) and Jersey’s Gambling Commission (JGC) have entered into a Memorandum of Understanding (MoU) to establish a legal framework for the two authorities to cooperate more deeply on regulatory matters.

Under the terms of the agreement, the two countries aim to develop common responsible gaming measures and enhance consumer and player protection measures including the protection of minors and the vulnerable. In addition both jurisdictions will strive to develop and share common regulatory best practices including employee exchange programs, common certification standards and other practical and operative arrangements to reflect technological and other relevant developments in the area.

Welcoming the pact, the LGA stated: "This MoU will provide a formal basis and framework for cooperation between the two jurisdictions, including for the exchange of information and investigative assistance of providers and remote gaming services. The MoU also addresses issues such as cloud regulation, the recognition of the use of financial institutions located in the territory of either jurisdiction for gaming transactions, the recognition of national certification bodies and player liquidity."

The MoU was signed by Reuben Portanier, CEO of the Lotteries and Gaming Authority and Jason Lane, Chief Executive of the Jersey Gambling Commission.

Agreement of Switzerland with Germany

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Proponents and opponents of banking secrecy will be locking horns on the afternoon of 24 September in Berlin, at a public hearing sponsored by the Finance Committee of the Bundestag (German parliament's lower house) on the Rubik bilateral taxation agreement signed by Germany and Switzerland in 2011. The agreement is criticised by the United States.

The Rubik deal has to be ratified by both houses of the German parliament – voting is set for 23 November, two days ahead of a possible Swiss referendum – to enter into force, at the beginning of 2013, hopes Berne. This will be less of a problem in the Bundestag, where the German chancellor and her allies have a majority, than in the Bundesrat (which represents the Länder), where they are in the minority.

Switzerland intend to play it safe, though. It will be sending some important people to Berlin, on 24 September: its State Secretary for International Financial Matters, Michael Ambühl, and the President of the Swiss Bankers' Association, Patrick Odier, among others. They will be facing determined opponents to Rubik, including US law professor Itai Grinberg and Zurich-based tax consultant Mark Morris. Twenty-three people will testify at the hearing.

Grinberg, one of the drafters of the Foreign Account Tax Compliance Act (FATCA) and a former taxation adviser in the Obama administration, will warn German MPs against the temptation of endorsing the Rubik agreement.

According to the text forwarded to German MPs, use of a system of automatic information exchange, on the largest scale possible, is the only way to effectively fight tax evasion, if only for reasons of fairness. Such a system also helps identify all funds hidden by fraudsters abroad.

Germany seems to have understood the message, since it has concluded precisely on this basis a "model intergovernmental agreement" with the United States on the application of FATCA, which will impose a transparency obligation on financial institutions, on pain of penalties. The United Kingdom, France, Italy and Spain have done the same.

Berlin committed in this context to promote the model of automatic information exchange in the international arena. So it would lose credibility by ratifying the agreement with Switzerland, which preserves Swiss banking secrecy. According to Grinberg, the confederation itself made serious concessions to the United States in June 2012. Germany could have made an effort to obtain the same concessions, argues the professor.
Meanwhile, Berlin risks "nipping in the bud the emergence of a multilateral automatic information exchange system". Not only Washington, but also most EU and even OECD states are now advocating for such a system. How can Luxembourg, Austria, Singapore or Hong Kong be convinced to abolish their banking secrecy if Switzerland is not placed under the same obligation? Germany would therefore shoot itself in the foot by ratifying Rubik, says Grinberg, since it would "diminish its ability to address its own tax evasion concerns" with other jurisdictions.

Morris, an international taxation expert, stresses the flaws inherent to Rubik. They concern first and foremost the provisions on the "effective beneficiary" of earnings on assets, which will only be partially addressed by the planned extension of the scope of EU regulations on savings taxation, limited to interest, to other sources of income. Foundations and trusts, among others, will remain a very attractive vehicle for those who wish to escape the reach of the German tax administration.

Morris estimates at €250 billion the amount of undeclared funds accumulated by German residents in Switzerland. In his view, Germany will not be able to recover more than €9 billion with Rubik, whereas it could see €120-130 billion pour into its coffers if it managed to convince Switzerland to abolish its banking secrecy.

Background

The Rubik agreement between Berlin and Berne, signed in August 2011 and amended in April 2012 due to certain objections raised by the European Commission, focuses on two areas: the anonymous regularisation of untaxed assets stashed by German residents in Swiss banks, and, for the future, the withholding of a tax at the source in full discharge of all tax liability on income earned on assets held in Switzerland. The Swiss have signed similar agreements with the United Kingdom and Austria and are holding negotiations with Greece. Preliminary discussions are under way with Italy, while Belgium's officials have been approached on the subject but are undecided.

A "single payment" in full discharge would regularise hidden assets: a tax of between 21% and 41% will be levied on all hidden assets.

In the future, Swiss banks will annually levy a withholding tax at the source on income paid on assets held by German residents in Switzerland. The proceeds will be turned over to the German tax administration. The rate of this taxation will vary depending on the financial products: 35% on interest on savings (as defined by existing and future EU legislation) and 26.375% on other income.

The agreement will preserve Swiss banking secrecy. Switzerland nevertheless had to make several concessions in this context: the payment in advance, in 2013, of €1.8 billion as a sign of its good faith, the possibility for German authorities to make sporadic checks, flexible application of OECD standards on information exchange on request, etc.

In return, Germany agreed to facilitate access for Swiss financial institutions to its market, to decriminalise Swiss banks, their employees and clients, and to no longer exploit stolen data on the clients of Swiss financial institutions.

Limited companies and Canadian Branch Tax

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The 5th Protocol (the "Protocol") to the Canada-U.S. Tax Treaty (the "Treaty") added Article IV(6) to extend Treaty benefits to U.S. limited liability companies ("LLCs") that are fiscally transparent for U.S. tax purposes. While providing relief generally, the approach taken by Article IV(6) does not necessarily extend treaty benefits to LLCs in all circumstances. For instance, an LLC that operates in Canada through a branch or LP may be denied the benefits of the Treaty reduced rate of branch tax where the members of the LLC are not corporations entitled to the benefits of the Treaty. While this result may be questionable policy, it appears to be consistent with the general approach of Article IV(6) to Treaty entitlements contemplated by the Treaty.

The CRA’s longstanding position has been that an LLC that is a flow through is treated as a corporation that is not a resident of the U.S. for purposes the Treaty. This position has not been changed by TD Securities. The Protocol scope was to provide general relief by granting LLCs derivative rights to Treaty relief from Canadian tax to the same extent that a member of the LLC would be entitled to such benefits if the same income was earned by such member directly. This look through applies where the residency and "same treatment" requirements of Article IV(6) are met. While this approach generally permits LLCs to claim Treaty benefits based on the entitlement of its members, in the case of the branch tax, it does not appear to always reach the appropriate result.

The branch tax generally applies to the un-reinvested income of a branch of a non-resident corporation (including an LLC) at the rate of 25% unless reduced by treaty. It is a substitute for the dividend withholding tax that would apply if the business was conducted through a Canadian subsidiary and is intended to provide parity between a branch and subsidiary. The CRA’s position on the entitlement of a LLC’s branch to Treaty benefits in Document 2009-0339951E5 (the "TI") is that the $500,000 exemption and 5% rate only apply if the income attributable to the LLC’s Canadian PE was derived pursuant to that Article by a corporation that is a U.S. resident and a qualifying person under LOB.

The CRA’s general position that an LLC will only be entitled to Treaty benefits to the extent that the members of the LLC meet the requirements of the applicable Treaty article is arguably a reasonable reading of that provision in the context of the Treaty as a whole. As per the TI, the LLC would be subject to branch tax under the Act based on the CRA’s position that it is a corporation. Where the look through rule in Article IV(6) applied, the member deriving the income under that provision would then have to meet the requirements of Article X(6) – corporate status according to the TI - to access Treaty relief. This general approach, if not the result, appears to be supported by the wording of the Treaty, specifically Article X(2). Under that Article, Canadian withholding tax on a dividend from a Canco is reduced to 5% where the recipient is a U.S. corporation that otherwise qualifies for Treaty benefits and meets the requisite 10% share ownership requirement. Where the Canco shares are held through an LLC, Article X(2)(b) attributes the LLC’s ownership of Canco shares to its members for purposes of determining whether any of them meet the requirement for the reduced treaty rate. Such an attribution rule would not be required if share ownership did not have to be satisfied at the member level.

While the TI’s approach may be a reasonable, the policy rationale is less clear. Provided that LOB requirements are met, there does not appear to be any reason to limit the Treaty branch relief to LLCs whose members are corporations. Certainly that issue is not relevant where a U.S. corporation is subject to branch tax nor does is it required to maintain the branch tax as a substitute for dividend withholding tax for LLCs. Instead, the TI’s position appears to be the (unintended) result of the conflict between Canada’s treatment of LLCs under domestic law and the Treaty’s treatment under Article IV(6). Canada taxes the LLC based on its corporate status. The Treaty, however, requires a look through to the LLCs members to determine the LLC’s Treaty benefits. This is similar to the problem pre-Protocol. If one or the other approach applied alone, the LLC would either be subject to branch tax and entitled to Treaty benefits or subject to tax and entitled to benefits based on the identity of the LLC members. Applied together, the LLC is subject to tax but cannot qualify in its own right for Treaty protection. This issue does not appear to arise for other income covered by the Treaty as Canadian tax in those cases will be based on the character of the payment (i.e. interest, dividends) and not of the LLC. The Treaty will then looks at the LLC’s members to determine its Treaty benefits. The CRA’s treatment of LLCs as a corporation does not play a role in either analysis.

As a pure branch may not be common, this may not be a significant issue in practice. There are also alternative structures that can produce a similar U.S. tax result. There may also be an argument that the reduced rate under Article X(6) applies so long as there are "earnings" subject to branch tax under the Act. Under this view, LLC members considered to derive earnings that have been subject to branch tax would benefit from the reduced rate regardless of corporate status but subject to LOB. This appears to be consistent with the CRA’s general approach to Article IV(6), avoids the conflict without (overly) abusing the wording of Article X(6) and produces the appropriate result. Based on the TI, however, CRA may not be sympathetic.

French Socialists Show Split as Hollande Pushes Euro Treaty (Paris)

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French President - Francois Hollande is seeking lawmakers' support for Europe's fiscal treaty as differences emerge over economic policy within his Socialist Party and put the region's crisis resolution at risk.
The budget pact, which Hollande agreed to in June as part of a European package of measures intended to put an end to the three-year euro-area debt crisis, will be put before parliament on Oct. 2, Prime Minister Jean-Marc Ayrault said Wednesday in Paris. It is opposed by Socialist lawmakers including Marie-Noelle Lienemann and Jerome Guedj, who say it will impose austerity that they campaigned against in the May presidential elections.
"Our budget discipline is not imposed by the treaty," Ayrault said Wednesday after the French Cabinet approved the treaty. "It's a question of credibility. My goal is to convince as many members of parliament as possible to do their duty to give France a strong voice so that it's listened to. You can't call for more European solidarity and not ratify the treaty."
Support for the treaty from legislators belonging to former President Nicolas Sarkozy's party may help enshrine it into French law. Still, the split within Hollande's party reflects the growing political challenge he faces in reviving Europe's second-largest economy and retaining the confidence of both investors and his European partners.
"The fiscal treaty ratification process is going to reveal fault lines in France," said Antonio Barroso, an analyst at Eurasia Group in London. "It's going to create lot of noise and generate issues that have been avoided in France for 25 years."
France, which hasn't balanced its budget since 1974, has promised to cut its deficit to 4.5 percent of gross domestic product this year and 3 percent next year from 5.2 percent last year, before eliminating the shortfall in 2017. Hollande said this month that his government is planning 30 billion euros ($39 billion) in tax increases and spending cuts to meet targets.
The fiscal pact, demanded by Germany in return for more support for euro-area governments struggling to get financing, requires the bloc's 17 countries to limit their deficits to 0.5 percent of GDP or less when the economy is growing. The pact takes effect once 12 euro-area countries have ratified it.
Ayrault said in a radio interview Wednesday that the pact has allowed the European Central Bank to offer more help to end the region's debt crisis.
"Thanks to this, the ECB is ready to intervene, which is a major change," he add on RTL radio. By voting for this treaty, lawmakers will "strengthen the hand of the president" in European negotiations, he added.

Giving to charity your taxes

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Higher donation limits

This tax year you can donate more and get an Israeli tax break. Section 46 of the Income Tax Ordinance allows Israeli and foreign individuals a 35 percent tax credit if they donate at least NIS 180 to a national fund or a public institution (charity) approved by the Finance Ministry and the Knesset Finance Committee. In the case of companies, the tax credit is equal to the company tax rate, currently 25%.

The donation limit for Israeli tax purposes is the lower of: (1) NIS 9 million in 2012 (up from NIS 4,351,000 in 2011); or (2) 30% of taxable income for the year. Unused donations can be carried forward three tax years.

It is unclear if the NIS 180 minimum applies to each donation or to total donations in the tax year. The Israeli tax year is the year ended December 31.

For example, if a person makes a donation of NIS 1,000 to an Israeli charity that has been approved as mentioned above under Section 46, the Israeli tax credit should reduce the tax bill by NIS 350. Keep the receipt from the charity. The tax credit is claimed on the taxpayer’s Israeli tax return, but see below.

If the taxpayer claimed an R&D participation deduction under Section 20A of the Income Tax Ordinance, total participations and donations are limited to 50% of taxable income.

New charitable credit procedure for certain employees

On July 11, the Israel Tax Authority (ITA) announced a new procedure for giving employees their Section 46 tax credit month by month against the tax on their salary (Operating Instructions 7/2012). According to an ITA press release, this follows an instruction on July 14, 2011, from the Prime Minister Binyamin Netanyahu, to government ministries to make proposals for promoting philanthropy in Israel.

The new procedure s voluntary for employers who apply to their tax office directly or via an accountant/tax adviser who is connected to the “Shaam” network of the ITA. Various conditions must be met, as detailed in the ITA pronouncement.

In particular, the employer must have employed at least 50 employees on average in the 12 months preceding the employer’s application to apply the procedure. The credit is granted via the payroll. Employers must receive and hold the original receipts from the charity for donations made by the employees and must check that the charity is approved under Section 46 (via their accountant/tax adviser or via the ITA website: www.misim.gov.il).

The employer must be compliant with the bookkeeping and tax-reporting requirements and must keep detailed records of employee donations. The employer must note on the original donation receipts that the tax credit has been given, using a stamp for this purpose. Maximum donations under this procedure are NIS 25,000 per employee, but they are subject to the Section 46 limits as well.

Comments on the new procedure

This procedure speeds up the tax-credit procedure for employees and may avoid the need for them to file an annual tax return and wait for a tax refund some months after the end of the tax year. But it creates additional bureaucracy for the employer.

Furthermore, the employer needs to employ more than 50 employees, which rules out employees of small- to medium-sized firms. It is unclear what happens if the employer has less than 50 employees but is part of a larger corporate group based in Israel or abroad.

US citizens resident in Israel

Special rules apply to US citizens resident in Israel under the Israel-US tax treaty. To get both a US tax deduction and an Israeli tax credit not exceeding 25% of Israeli source income, they should donate to any organization created or organized under the laws of Israel (and recognized under Section 46 of the Israeli Income Tax Ordinance), if and to the extent such contributions would have been treated as charitable contributions had such organization been created or organized under the laws of the United States.

As for US-source income, they may claim a US deduction and Israeli tax credit for a donation not exceeding 25% of US-source income to any organization constituting a charitable organization for the purpose of the revenue laws of the US, if and to the extent such contributions would have been treated as charitable contributions had such organization been a charitable organization for the purpose of the income-tax laws of Israel.

These are often referred to as “friends of Israel” organizations; for example, American Friends of Hebrew University.

If you have any questions please contact us!

Germany's Merkel to Lobby for German-Swiss Bilateral Tax Treaty

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German Chancellor Angela Merkel Monday threw her weight behind a German-Swiss bilateral tax treaty that has become a controversial political issue in Germany.

"I will work for passage of the treaty," Ms. Merkel told reporters at a news conference.
Germany and Switzerland have signed a treaty that aims to make it more difficult for German citizens to evade paying income tax at home by hiding their money in secret Swiss bank accounts.

The left-leaning Social Democrats, which have a majority in the upper house of Germany's two-chamber parliament, are threatening to block ratification of the treaty. The party rejects the treaty on the grounds that it doesn't go far enough to expose tax evaders.

Increase fiscal cooperation. Singapore and Vietnam sign DTA Protocol

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On September 12, Tharman Shanmugaratnam, Singapore’s Deputy Prime Minister and Minister for Finance, and Vuong Dinh Hue, Vietnam’s Minister of Finance signed a protocol to amend the existing double taxation agreement (DTA) between their two countries.

The protocol revises various matters within the original DTA, which was signed on March 2, 1994. In particular, it includes the internationally agreed standard for exchange of information whereby tax authorities obtain a greater ability to exchange taxpayer information.

Information can apply to “taxes of every kind and description” imposed in the countries, and it is provided that no tax authority can refuse to provide information solely because it does not require the information for its own domestic purposes, or because the information is held by a bank or similar institution.
In addition, the amendments introduced by the protocol, which will enter into force after ratification by both countries, revise the permanent establishment, dividends, interest and capital gains articles of the original DTA.

For example, the protocol states that a permanent establishment arises in the provision of services, including consultancy services, only if such activities continue (for the same or a connected project) within a country for a period or periods aggregating more than 183 days within any twelve months.

The protocol also provides for a decrease in the previously-agreed 10% withholding tax on interest charged by Vietnam, if any DTA completed by the latter with any other country includes a lower rate; and for a reduction, from 15% to 10%, in the tax payable on royalties, other than those in respect of payments received for the use of any patent or industrial, commercial or scientific equipment, where the rate will remain at 5%.

The changes within the protocol, the signing of which was witnessed by the General Secretary of the Communist Party of Vietnam Nguyen Phu Trong and Singapore’s Prime Minister Lee Hsien Loong, on the occasion of the former’s official visit to Singapore are expected to enhance trade and investment flows and elevate the level of tax cooperation between Singapore and Vietnam.

During their meeting, to promote regional economic growth, both leaders committed to cooperating closely to realise the purpose of building an Association of Southeast Asian Nations Community by 2015, and to work closely in advancing regional initiatives such as the Trans-Pacific Partnership.

In addition to the DTA protocol, both leaders also witnessed the signing of a Memorandum of Understanding on Financial Cooperation, which will strengthen exchanges and share mutual experiences on public financial management in the areas of tax administration and policy, customs and property management.

Singapore is said to be a major trade and investment partner of Vietnam. In 2011, total bilateral trade reached USD8.7bn, while Singapore has more than 1,000 investment projects in Vietnam with a total registered capital of nearly USD23bn, ranking fourth among the 95 countries and territories investing in Vietnam.

Switzerland Stands Firm On German Tax Deal

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Switzerland has bitterly rejected the idea of entering into further negotiations with Germany to save the controversial tax agreement between the two countries, which is currently at grave risk of being blocked by opposition parties in the German Bundesrat.

Although Switzerland’s Financial State Secretary Michael Ambühl ruled out further talks, given the concessions already made by the Confederation back in April, he highlighted his optimism that the chances for the agreement remain intact, pointing the fact that the accord represents a good compromise.
If the treaty cannot be ratified, then the status quo will quite simply remain, Ambühl added.

Rejecting claims that there have been massive flights of German capital out of Swiss bank accounts into countries with favourable tax conditions, as a result of the brokered tax deal, Ambühl insisted that there is no evidence of significant transfers to other financial centres. Dismissing allegations that Swiss banks have assisted their German clients in this respect, Ambühl maintained that the banks in Switzerland have pledged not to advise their clients in such a way.

The economic committee of the Swiss National Council recently opposed plans to allow retroactive grouped requests that would have enabled the German tax authorities to trace German taxpayers that have transferred their money from the Confederation abroad since the conclusion of the tax agreement.

The bilateral Double Taxation Agreement (DTA)  between Switzerland and Germany, aimed at resolving the longstanding issue of German residents’ wealth deposited in Swiss bank accounts, still requires the approval of the Bundesrat, or upper house of parliament in Germany, where the black-yellow coalition no longer has a majority. The Social Democrats and the Green Party have threatened to veto the treaty, however.

Despite the apparent impasse, German Finance Minister Wolfgang Schäuble told the Bundestag that he still hoped that the agreement will be ratified.

Following increased international action to dilute banking secrecy, wealthy foreigners with money invested in Swiss bank accounts are said to be withdrawing money from the Confederation in droves, to avoid the advances of the domestic tax authorities. Credit Suisse has estimated the amount of money that will be relocated in the coming years to be between CHF25bn (USD26.6bn) and CHF35bn.

DTA In Force between Liechtenstein and Uruguay

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According to the Liechtenstein government, the bilateral double taxation agreement (DTA) between Liechtenstein and Uruguay has now entered into force.
Signed in Bern on October 18, 2010, the DTA between the two countries entered into force on September 3 following ratification of the text by both treaty partners. The accord is in accordance with current international standards and is based for the most part on the Organization for Economic Cooperation and Development’s (OECD) Model Convention.

The Liechtenstein finance administration is the domestic authority responsible for application of the agreement.

In its release, the Liechtenstein government pointed the fact that the agreement is to be seen against the backdrop of the Principality’s international financial centre and tax strategy, as expressed in the Liechtenstein Declaration of March 12, 2009. In its Declaration, Liechtenstein pledged to adhere to the OECD standards on transparency and on information exchange in tax matters.

The DTA with Uruguay will apply from January 1, 2013. The government is committed to further extending its network of double taxation agreements in Europe.

Gestion de patrimoine : La prudence est fondamentale

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Lors de la privatisation de France Telecom, mon grand père, enfin à la retraite après une vie de labeur, vendit son magasin et investit toutes ses économies pour acheter des actions à 70 euros.
Pourquoi ? Son banquier, un jeune diplômé de 30 ans, bien sous tout rapport, à priori compétent, qu’il connaissait depuis 3 ans lui avait dit que c’était sans risques…
Résultat : Mon grand père a perdu son patrimoine et à son décès ma grand-mère s’est retrouvée sans rien.

Cette histoire vous la connaissez ?

Cette histoire est vraie et pourrait être la votre.
Ne croyez pas votre banquier sur parole et n’acceptez pas des suggestions financières qui semblent mirobolantes.
Un investissement doit être réfléchi longuement et s’inscrit dans le temps et subit sans cesse des ajustements.
Si vous nous confiez la gestion discrétionnaire de votre portefeuille voici comment nous procéderons
Les étapes de notre approche d’investissement sont les suivantes:
1. Comprendre vos objectifs – nous pensons qu’un portefeuille approprié ne peut être conçu qu’avec une compréhension complète et détaillée de vos objectifs.
En nous limitant à quelques nouveaux clients par an, nous pouvons VOUS consacrer le temps nécessaire pour parvenir à cette compréhension.
2. En ce qui concerne l’allocation d’actifs stratégiques nous sommes contre les schémas déjà préétablis.
En s’engageant sur la durée, notre service de recherche, se fondant d’abord sur vos objectifs financiers mais aussi sur une analyse fine des marchés, concevra toujours un portefeuille sur mesure.
3. Nous faisons occasionnellement des changements tactiques dans la répartition des actifs.
Notre équipe de recherche d’investissements effectue une analyse approfondie des marchés en vue d’apporter des ajustements pour le portefeuille à long terme lorsque des possibilités particulières se présentent.
Ces décisions contribuent considérablement à la performance.
4. Sélectionner et régler le subtil mélange de gestionnaires de fonds en fonction des conditions du marché:
A Bethel Finance, nous avons un processus de sélection sophistiqué des gestionnaires de fonds qui commence avec le dépistage de plus de 15.000 fonds et réduit ce nombre à quelques-uns que nous choisissons pour vous.
Les gestionnaires retenus sont constamment revus et nous ajustons le dosage des gestionnaires en fonction des conditions du marché.
5. Suivi et gestion du portefeuille:
Nos rapports mettent en avant vos objectifs initiaux et les comparent aux résultats. Nous fournissons également une analyse détaillée par classe d’actif et le rendement des gestionnaires de fonds.
Nous surveillons en permanence le portefeuille au sein d’un système de gestion du risque qui intègre la technologie et le jugement humain dans chaque étape du processus ‘investissement.
Nous consacrons beaucoup de nos ressources à l’identification d’opportunités d’investissements afin de fournir en permanence un choix complet de produits financiers à revenu fixe ou encore de placements alternatifs.
Vous l’avez bien compris, nous ne vendons pas de produits financiers mais du conseil, nous gagnons uniquement si vous gagnez. Cela change complètement la donne n’est ce pas ?
Venez nous rencontrer et jugez par vous-même.

Franchise Israel

www.bethelfinance.com

La franchise comme solution ?

Faire son Alyah est un grand saut dans l’inconnu
La question économique est primordiale, car si Israël est un rêve pour vous, y gagner un revenu comparable a celui que vous avez aujourd’hui est un défi en soit.
Et si la franchise était la solution ?
Créer son entreprise sans sauter à pieds joints dans l’inconnu, c’est ce que propose le concept de la franchise.
Fin 2011, Israël comptait près de 1 000 franchisés, chefs d’entreprise à part entière mais affiliés à l’un des réseaux existants. Un engouement que la crise pourrait renforcer. Car quoi de plus important pour un entrepreneur en herbe qu’un peu de visibilité en ces temps tourmentés ? Encore faut-il faire les bons choix au départ.
Notre cabinet spécialisé dans l’émigration économique a conçu un programme qui vous permettra de solutionner en partie votre intégration économique en Israël
S’appuyer sur un concept qui a fait ses preuves, profiter d’une communication à l’échelle nationale, bénéficier des tarifs avantageux d’une centrale d’achat et surtout ne pas être seul face aux aléas: le principe de la franchise ne manque pas d’atouts pour un nouvel immigrant inquiet à l’idée de créer son activité ex nihilo. “La franchise est un réducteur de risque”,
Le concept est accessible à tous, quels que soient votre âge, votre expérience ou votre niveau d’études. “Parmi les franchisés, nous trouvons des femmes qui ont besoin d’un second revenu pour leur foyer, des commerçants indépendants qui veulent se reconvertir, des salariés qui ont perdu leur emploi, des jeunes débordant d’énergie”
Nous en sommes en rapport constant avec les différents franchiseurs israéliens et avec les différents services d’aide a la création d’entreprise
Il s’agit en effet de se poser les bonnes questions:

1. Quels services offre la tête de réseau en contrepartie de cette redevance?
2. Quelle formation?
3. Quels accompagnements sont proposés?
4. Quelle est la notoriété de l’enseigne?
5. Quelle exclusivité territoriale ?
6. Combien d’années reste-t-il sur le bail ?

Nous établirons une liste de franchises potentielles et nous sélectionnerons ensemble la franchise qui vous conviendra le mieux en fonction de critères claires. Nos avocats francophones israéliens feront tout pour sécuriser votre investissement.

Un Oeil sur des franchises israeliennes

Je voudrais acheter une franchise. Où dois-je commencer?
Tout d'abord, vous devez décider quel type d'entreprise vous souhaitez faire fonctionner.
Rappelez-vous que vous aurez à y travailler pendant de longues heures chaque jour.
Il est important de décider le budget que vous êtes prêt à investir dans votre entreprise.
Une fois cela pris en compte, nous contacterons les franchiseurs qui correspondent à vos conditions et nous évaluerons ensemble les conditions commerciales qu'ils offrent.
PIzza Hut
Mike's Place
Zer4U
Cafe Cafe
Hakol BeDollar
Sheshet
Aphrodite
Anglo-Saxon
Il s'agit d'une petite liste des franchises potentielles en Israël
Pour prendre rendez, un numéro + 972 3 643 79 99 ou par email : info@bethelfinance.com