Ireland is Not a “Tax Haven”

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While speaking to the subcommittee on global taxation of the Parliament of Ireland, Frank Barry, a leading national economist and the Chair of International Business and Economic Development at Trinity College Dublin, denounced international accusations that Ireland’s tax system facilitates excessive tax avoidance for multinational businesses, saying that such claims are tantamount to nothing more than political “grandstanding”.

Frank Barry’s comments came as a repose to the recent launch of an inquiry by the European Commission on the alleged special tax deals given to large multinational corporations by the governments of Ireland, the Netherlands, and Luxembourg.

Frank Barry explained that despite the claims of special tax treatment, Ireland is not a “tax haven”, and any possible tax changes have the effect of tarnishing the country’s reputation for stability.

He also said that other countries in the EU are currently poised to take advantage of any alterations and adjustments made to Ireland’s tax system, and they will not hesitate to make appropriate changes in their own regimes in order to attract investors away from Ireland and to take advantage of “any leeway that we give them”.

As an example, pointed to the UK’s patent box regime, which allows businesses to pay a lower tax rate if they are engaged in innovative research activity, and he went on to say that “…I believe already we have lost some companies to the UK who are exploiting that.”

Frank Barry also addressed a recent report by the World Bank which claimed that the effective tax rate in Ireland may be as low as 6.5 percent, saying that the results were mere “bank of the envelope calculations”, and the actual effective tax rate in Ireland is between 11 and 12 percent.

Liechtenstein Congratulated On Successful Tax Policy

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Standard and Poor's has maintained Liechtenstein's triple A rating, alluding to a stable outlook and highlighting the fact that the Principality's fiscal and financial policies have very much contributed to Liechtenstein's reputation and strength as a safe, reliable, and attractive economic location.

As regards tax policy, the ratings agency emphasized the Government's ongoing commitment to pursuing a fiscal consolidation course to narrow the small fiscal gap. Here, Standard and Poor's noted that the Government recently submitted its third fiscal package to parliament, providing for new revenues totaling around CHF39m (USD42m), to compensate for an anticipated shortfall of tax income. The package provides crucially for a rise in the minimum income tax and for cuts in expenditure. The Government accounts are expected to return to balance in 2017.

Underscoring that economic growth in Liechtenstein relies predominantly on the country's banking and industrial sectors, Standard & Poor's explained that the Principality's low tax regime, coupled with its traditional banking secrecy, and stable political environment, have supported the development of a large financial services sector, which contributed about 27 percent of gross domestic product in 2010. While describing the financial industry, consisting mostly of asset managers, regional banks, and trusts, as a "contingent fiscal liability," the agency nevertheless stressed that the risk is mitigated by the industry's strong capitalization and banks' potential access to the Swiss National Bank (SNB).

While making clear that Liechtenstein's heavy reliance on the financial services industry could lead to "reputational issues," the body praised the proactive work of the Government in swiftly meeting the demands of international regulators, notably by adopting the latest anti-money laundering legislation. Furthermore, it underlined the Principality's commitment to tax compliance and extolled the country's tax agreement policy, in particular its willingness to automatically exchange tax information with other jurisdictions, especially with the UK and with the US. This "effective policy making" is expected to continue, it said, adding that it believes that "the Principality will continue to adapt its financial sector to business models that focus less on banking secrets and tax evasion," vitally important if external regulatory pressures mount.

Commenting, Liechtenstein's Prime Minister Adrian Hasler stated that the triple A rating will enable the country to offer itself up as a highly stable and attractive economic location. However, the top priority for the Government is still to consolidate the state budget, Hasler warned, while insisting that the Government is on track.

Malta Signs Double Taxation Avoidance Agreements With Turkey

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An income tax treaty for the avoidance of double taxation between the governments of Malta and Turkey will come into effect on January 01, 2014.

The treaty, which was signed in 2011, involves a 10 percent withholding tax on dividends paid by a Turkish resident company to a Maltese company in which it has at least a 25 percent stake. In all other cases a maximum withholding tax of 15 percent will be applied.

Under the terms of the treaty Malta will not tax dividends paid by a Maltese resident company to a Turkish resident company.

A maximum Turkish withholding tax of 10 percent will apply to interest paid by a Turkish resident to a Maltese resident beneficial owner of the interest income.

Canada Consults On 2013 Economic Action Plan

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On September 13, the Department of Finance released for consultation draft legislative proposals that would implement a number of tax measures from Canada's Economic Action Plan 2013, which was originally introduced in March this year by Finance Minister Jim Flaherty during his 2013 Budget.

The draft legislation contains various measures to be taken within the personal income tax code, including an increase to the Lifetime Capital Gains Exemption to CAD800,000 (USD774,000) and indexing the new limit to inflation.

However, the major elements within the personal income tax changes relate to tax compliance. Examples include: extending the reassessment period for reportable tax avoidance transactions and tax shelters when information returns are not filed properly and on time; ensuring that derivative transactions cannot be used to convert fully taxable ordinary income into capital gains taxed at a lower rate; and ensuring that the tax attributes of trusts cannot be inappropriately transferred among arm's length persons, and responding to the Federal Court of Appeal decision in the Sommerer case to restore the intended tax policy result in relation to non-resident trusts.

In like manner, with regard to international taxation, the reassessment period for taxpayers who have failed to correctly report income from a specified foreign property on their annual income tax return, will be extended; as will the application of Canada's thin capitalization rules to Canadian resident trusts and non-resident entities.

In respect of business taxation, the draft legislation will eliminate the unintended tax benefits of leveraged life insurance arrangements, and enhance corporate anti-loss trading rules to address planning that avoids those rules. It will also expand the eligibility for the accelerated capital cost allowance for clean energy generation equipment to include a broader range of biogas production equipment and equipment used to treat gases from waste.

In addition, the accelerated capital cost allowance for capital assets used in new mines and certain mine expansions will be phased out, and the deduction rate for pre-production mine development expenses will be reduced.

Interested parties are invited to provide comments on the draft legislative proposals by October 15, 2013.

Hong Kong, South Korea Agree To Share Tax Information

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South Korea and Hong Kong have reached an agreement to share tax information, particularly on those South Koreans suspected of having undeclared funds in Hong Kong.

The South Korean Ministry of Strategy and Finance announced the reaching of the deal between the two countries' tax authorities – Hong Kong's Inland Revenue Department (IRD) and South Korea's National Tax Service (NTS) – under which South Korea will obtain access to account information held by financial institutions in Hong Kong.

The agreement comes at a time when, in a bid to reduce the incidence of tax evasion, the NTS is proposing to impose heavier fines on those South Korean residents who are found to hold substantial unexplained financial accounts in overseas jurisdictions. South Koreans with overseas financial accounts worth more than KRW1bn (USD924,000) would be obligated to report the assets, and to explain the sources of the funds, or pay at least a 10 percent fine.

The deal between the IRD and the NTS will require parliamentary approval in both countries before it can be officially signed, but it is hoped that it will enter into force next year.

Guernsey Signs TIEAs With Switzerland And Hungary

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Guernsey's Chief Minister, Deputy Peter Harwood, signed Tax Information Exchange Agreements (TIEAs) with Switzerland and with Hungary in London today, according to a government press release.

Deputy Harwood commented: "Guernsey's relationship with Switzerland is of great value and we have much in common as finance centers outside of, but working with, the European Union."

He went on: "I am delighted to be able to sign this Agreement, not only because it acts as another indicator of Guernsey's commitment to tax transparency, but also because Switzerland is a country of significance for our industry. This Agreement strengthens the economic and political ties between Guernsey and Switzerland."

Dominik Furgler, the Swiss Ambassador to the UK said: "I am very pleased to sign this Tax Information Exchange Agreement with Guernsey, which will contribute to strengthening the relationship between Switzerland and Guernsey, and further demonstrates Switzerland's commitment to implementing international standards."

Guernsey's Chief Minister also signed an agreement with the Hungarian Ambassador to the UK, Janos Csak. Commenting on the agreement, Deputy Harwood said: "I am very pleased to sign this agreement with Hungary, a country which sits at the heart of the European Union and is now a long-standing member of the Organization for Economic Co-operation and Development and the World Trade Organization.

"The agreement demonstrates Guernsey's ongoing commitment to tax transparency with the member states of the EU."

Guernsey's Director of Income Tax Rob Gray noted that: "The signing of this latest TIEA Agreement takes Guernsey's total to 46 - including 16 of the G20 members. The Island's growing network of tax agreements further demonstrates the ongoing commitment to meeting and exceeding international standards in tax transparency."

Not fair to call Overseas Territories tax havens, says Britain’s Prime Minister David Cameron

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   Britain’s Prime Minister David Cameron has officially recognised that the Overseas Territories and Crown Dependencies operate “fair and open tax systems”.
Speaking in the House of Commons, he said, "I do not think it is fair any longer to refer to any of the Overseas Territories or Crown Dependencies as tax havens. They have taken action to make sure that they have fair and open tax systems."

   Cameron’s comments were welcomed by the Overseas Territories in the Caribbean.
Cayman Finance, the private sector group that represents the Cayman Islands’ financial services industry, said the remarks by the prime minister finally recognised the transparency of the Cayman Islands financial services industry built over the past four decades.
   A good, recent example of how the Cayman Islands compares to other jurisdictions is illustrated in the OECD secretary-general's report to the G20 leaders, issued in early September, Cayman Finance said.
   The report shows ratings for 98 jurisdictions, based on nine criteria, giving a green, amber, or red rating for each and where 'green' denotes the highest rating. Cayman is rated green across all nine categories. Brazil and the US have two ambers, Russia has seven, and Canada, Germany, Spain, and the UK each have one.
   "Clearly we appreciate the comments by the prime minister. Given the facts, like the OECD/FATF reviews, we believe it is about time Cayman starts to receive some credit. We applaud Prime Minster Cameron for making this statement, which reflects the reality of the situation regarding international financial centres. We hope other heads of state emulate his actions, and the international media starts to focus on facts rather than fiction," said Gonzalo Jalles, CEO of Cayman Finance.
   Premier and minister of finance of the British Virgin Islands, Dr Orlando Smith, said, “I thank Prime Minister David Cameron for setting the record straight and acknowledging that the BVI should no longer be labelled as a ‘tax haven’.

   “For many years the BVI has implemented the highest international standards on transparency, accountability and information exchange on tax matters, as set out by international bodies such as the OECD.
   “We strongly agree with Mr Cameron’s assessment that the focus should now shift to those countries that really are tax havens. We have long argued that to create a level playing field, all financial centres should be covered by global agreements on regulatory standards. The BVI considers it particularly important that in order to achieve fairness and overall success on these issues policies should be raised to the highest level of established international standards to ensure across-the-board compliance.
   “I reiterate my government’s support for the UK’s agenda on tax, trade and transparency and fully support all efforts aimed at establishing global standards. The BVI will continue to be a constructive partner in evolving and setting the highest standards of regulation. We are proud of our part in the global economy and we believe that good regulation is good for business. We are pleased this has now been recognised by the UK government.”

Switzerland and Hungary sign new double taxation agreement

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Yesterday in Budapest, Switzerland and Hungary signed a new double taxation agreement (DTA) in the area of taxes on income and assets. It replaces the agreement of 9 April 1981. The new DTA contains provisions on the exchange of information in accordance with the international standard applicable at present. It will contribute to the further positive development of bilateral economic relations.

Aside from an OECD administrative assistance clause, Switzerland and Hungary have agreed that both countries may levy withholding tax of no more than 15% on gross dividend amounts. If, however, a company holds a stake of at least 10% in the capital of the distributing company, 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. In addition, interest and royalty payments will be taxable only in the state of residence. Finally, gains realised on the sale of shares in real estate companies can now be taxed in the country where the real estate is located.

After negotiations finished, a report on the new DTA with Hungary was submitted to the 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.

Liechtenstein Lawmakers Give Go-Ahead To Austrian Tax Accords

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During a recent sitting, the Liechtenstein parliament gave the green light to the withholding tax agreement with Austria, together with the protocol revising the existing double taxation agreement (DTA) between the two countries in the area of taxes on income and on wealth.

The withholding tax law provides for the specific withholding tax rates to be applied to legalize the untaxed wealth of Austrians with assets held in the Principality, and provides a comprehensive framework for tax cooperation.

Under the terms of the withholding tax treaty, future capital gains realized by Austrian citizens with assets deposited in Liechtenstein will be taxed at a rate of 25 %. Previously untaxed assets will be subject to a one-off withholding tax payment to draw a line under the past, with rates generally varying between 15 % and 30 % of the asset value, although rising to 38 % in the case of particularly large wealth.

In contrast to Austria's tax agreement with Switzerland, foundations in Liechtenstein will also be subject to taxation under the terms of the deal, not just the capital assets of Austrians located in Liechtenstein banks.

Welcoming the decision by Liechtenstein lawmakers to adopt the agreement package, Austrian Finance Minister Maria Fekter stressed that this "is another major step in the direction of greater tax equity."

Fekter said: "Tax flight is becoming increasingly unattractive, as this agreement significantly reduces incentives. Implementation of the agreement, which was signed at the end of January in Vaduz, finally makes the days when Austrian money could be funnelled past the Austrian tax authorities and parked in Liechtenstein a thing of the past."

Highlighting the fact that one-off payments from Liechtenstein are expected to arrive in Austria in the second half of 2014, Finance Minister Fekter pointed out that Austria has already received two tranches totaling EUR671.4m (USD890.9m) so far this year from the tax deal concluded with Switzerland.

Concluding, the Austrian Finance Minister stressed that the withholding tax agreement with Liechtenstein is "a good solution for the past and future," making clear that the treaty is a major achievement for the Government. Furthermore, the accord will generate additional revenue for the state budget, thereby strengthening Austria and enabling the Government to continue along its fiscal consolidation path towards a zero deficit, Fekter ended.

The agreement package is due to enter into force at the beginning of 2014.

Improved deficit fuels pressure for Lapid to lower taxes

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Calls mounted Wednesday for Finance Minister Yair Lapid to lower taxes, following the finance ministry's revelation that the deficit is on track to come in well below its 4.65% of GDP target for the year.

"It turns out Lapid was not forced to raise your taxes," Opposition Leader Shelly Yacimovich said Wednesday at a Small and Medium Businesses conference in Airport City. "The new data published in light of the changes to the method of measuring [GDP] and economic growth confirm and reinforce our position, that from the start there was no need to impose such hard measures on the public."

Following a deficit explosion in 2012 that came in at over double the original target, the newly anointed Lapid cut proposed government spending and raised taxes for 2013 and 2014 in order to fill the budget hole and bring the deficit down to sustainable levels. Alongside the new method of calculating GDP, which added some NIS 66 billion to the estimated size of Israel's economy in 2013, a combination of higher-than-expected tax revenues and lower-than-expected spending brought the 12-month deficit in August down to 3.3% of GDP.

Yacimovich took the opportunity to blast Lapid for unpopular tax policies, which have included hikes on cigarettes and beer, a VAT increase, and an income tax increases set to go into effect in 2014. She also blasted him for not tackling corporate tax benefits, used to incentivize capital investments in the economy.

"Take the 4 billion shekels in tax benefits that the four biggest companies in the economy received in 2010, divide it into 4,000 small and medium businesses, a million shekels per business, and you've immediately got job creation, a real fight against concentration, growth, reduced gaps and entrepreneurship," she said.

Opposition politicians were not the only ones looking for changes, however; business groups also got in on the action.

The Federation of Israeli Chambers of Commerce, a business lobby, called on Lapid to undo the hike in the corporate tax rate, and bring it back down to 25% from 26.5%.

"For the first time in Israel's history the national output has reached NIS 1 trillion, and we must continue the growth momentum," FICC President Uriel Lynn said speaking at the same conference. "The improvement in the state budget should be seen as an opportunity to establish long-term policies that will give new momentum to the business sector, so I turn from this stage to the finance minister and suggest to him to take advantage of this opportunity now."

In Tel Aviv, the Israel Securities Authority released a committee report on improving liquidity in the stock market. Among its recommendations to Lapid: lower capital gains taxes to 15%.

"Reducing the tax rate will help the stock exchange companies raise capital in the stock market and may actually cause an increase in government tax revenues from capital gains," the report said.

But even ISA chairman Shmuel Hauser agreed that while the committee recommendations served their specific policy goals, it was up to the tax authority and finance ministry to weigh the broader implications of various tax increases. “The committee found that lowering capital gains taxes will increase liquidity and even help revenue,” he told The Jerusalem Post. “But it’s up to them to weigh the competing goals. We’re not the experts on that.”

Though a lower deficit is in many ways welcome for Lapid and the economy at large, balancing the political pressure to roll back tax increases may prove difficult when weighed against other economic realities.

In 2014 the deficit target will drop to 3% of GDP, and despite the impending income tax increase, many economists believe it will be difficult for the budget to stay in bounds.

"We believe that the deficit in the next budget year will be higher than the target, and will come out around 3.6 percent (compared to three percent according to the government target," analysts at Harel Finance wrote in a macroeconomic survey the start of the month, though the new GDP formula would bring that figure down somewhat.

"The meaning will be additional budget cuts (in our opinion, the ability to raise taxes has been completely exhausted), which will have a negative impact on economic activity."

Double taxation treaties key to foreign direct investment, says Barbados banker

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  Barbados could see an increase in foreign direct investment from Latin America, over the next five years, once it continues to sign double taxation treaties in those jurisdictions.
 Director of Cidel Bank and Trust, Ben Arrindell, made this assertion during the question and answer segment of a Consular Corps of Barbados luncheon meeting held recently.
 Arrindell, who spoke on the theme: The Role of Barbados’ Double Taxation Treaties and Investment, said there was the likelihood of a decline in investment out of the main market, Canada, due to increased competition from countries such as Bermuda and the Cayman Islands.
 He reasoned that, while the Canadian market was important, Barbados should not rely on that market too heavily and pointed to the importance of diversification. In this regard, Arrindell noted that Barbados had ratified a treaty with Mexico about three years ago and was already seeing benefits.
 “Barbados has become a player in terms of investment, certainly from United States companies going into Mexico. So… as Barbados expands its network of treaties, you will find investors from many other countries, other than Canada, that will use Barbados for investment,” he noted.
 Arrindell further explained: “I see that on two fronts. I see that in terms of investors in Latin America being able to use Barbados as a hub for their investment into various parts of the world, as well as foreign investors using Barbados to go to those countries. So, if we have a double taxation agreement, we are removed from the blacklist of those Latin American countries, then that facilitates the two-way flow.”
 He added that, once Barbados was exposed to the international business sector in the Latin American market, it could also benefit the island’s tourism industry.

Canada Freezes Employment Insurance Rate

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The Canadian Government has announced that it will freeze the payroll tax rate for employees for the next three years.

In 2014, the Employment Insurance premium rate for employees will remain at the 2013 level of CAD1.88 (USD1.81) per CAD100 of insurable earnings. The rate will be set no higher than CAD1.88 for 2015 and 2016.

According to Finance Minister Jim Flaherty, this will leave CAD660m "in the pockets of job creators and Canadian workers in 2014 alone, which will help provide the certainty and flexibility employers, especially small business, need to keep growing."

The EI Operating Account, which records all amounts received or paid out, recorded a cumulative deficit of CAD9.2bn in 2011. Flaherty's Department blames this on the global recession, which it says led to an increase in Employment Insurance benefit expenditures over a relatively short period of time. His 2013 Budget projected that, to eliminate the deficit, the Employment Insurance premium rate would need to rise to CAD1.98 in 2015.

However, falling unemployment has now put the Operating Account on track for a return to cumulative balance, meaning that the hikes will now no longer need to take place.

An employee earning CAD48,600 (the maximum insurable earnings threshold for 2014) can expect to see savings of CAD24 next year. For a small business employing 10 workers, this would represent savings of up to CAD340.

Commenting on the initiative, Dan Kelly, President and CEO of the Canadian Federation of Independent Businesses, said: "As payroll taxes like Employment Insurance are particularly challenging for small business, the announcement of an Employment Insurance rate freeze is fantastic news for Canada's entrepreneurs.

"This move will keep hundreds of millions of dollars in the pockets of employers and employees which can only be a positive for the Canadian economy. As employers pay 60 per cent of the cost of the Employment Insurance system, small firms can use these savings to hire, improve wages or help grow their businesses."

From 2017, the Employment Insurance premium rate will be set annually, at a seven-year break-even rate. The aim is to ensure that premiums are no higher than is required to pay for the Employment Insurance program over that seven-year period.

Israelis work more hours, produce less than G-7, OECD average.

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  Israel’s relatively low capital investment and extensive government bureaucracy are responsible for its low worker productivity, according to a new study.
 “In addition to the problematic level of the country’s human capital infrastructure and to the multi-decade neglect of its transportation infrastructure, Israel’s capital formation is at the low end of the OECD,“ the Taub Center for Social Policy report released on Sunday said. “The country’s cumbersome governmental bureaucracy, requiring the diversion of even more resources away from actual production of goods and services, lower[s] productivity even further.”
 In Israel, it takes businesses two-anda- half times longer to open their doors than in the average OECD country.
 Those Israelis that were part of the labor forced tended to work longer hours but produce less than their counterparts abroad, Taub Center Executive Director Dan Ben-David said. “Though Israelis who do participate in the labor force work more hours than workers in the leading Western countries, their productivity per hour worked is considerably less, and falling further and further behind (in relative terms) the G-7 labor productivity.”
 The Taub study joins a growing chorus of reports that generally praise Israel’s economy for its innovative edge and investment in scientific research, but decry the difficulty of doing business and low levels of productivity.
 Israel dropped one place in the World Economic Forum’s Global Competitiveness Index released last week, which listed inefficient government bureaucracy, inadequate access to financing, cumbersome tax regulations and restrictive labor regulations as the economy’s major impediments.

In May, the IMD World Competitiveness Ranking found that Israel was held back by low productivity and efficiency, high prices and poor basic infrastructure.
 A Google-sponsored study in July put Israeli productivity 24th among the OECD’s 34 member states, though it blamed inadequate integration of information communication technology infrastructure into the economy.
 “We’re very good at ICT as an industry, but very weak at ICT as a tool,” the study’s author Shally Tshuva said at the time. “In 25 years, we have not succeeded in lowering the productivity gap with Europe.”

Cayman Seeks Inclusion In OECD Tax Convention

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The Cayman Islands Government announced that it has formally asked the United Kingdom to extend its membership in the OECD/Council of the Europe Convention on Mutual Administrative Assistance in Tax Matters (the convention) to the Cayman Islands.

"Our formal request to join comes after many months of substantive discussions between Cayman and the UK, and it underscores our continued commitment to proactive participation in matters related to international tax cooperation," said the Minister for Financial Services, Wayne Panton.

The convention provides for all possible forms of administrative co-operation between states in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion. This co-operation ranges from exchange of information, including automatic exchanges, to the recovery of foreign tax claims.

The press release from Cayman Islands Financial Services (CIFS) said that Cayman will not handle matters related to requests for the recovery of foreign tax claims, or exchange of information regarding local taxes, and social security contributions.

Minister Panton said he looks forward to officials from Cayman and the UK’s HM Treasury working together to complete the necessary steps for extension.

CIFS stated that it fully supports the Minister and the Government in the decision to join the convention.

"The financial services industry was consulted, through Cayman Finance, during these discussions and we are confident that the implementation of the bilateral agreements that will arise from the convention will consider the needs of our jurisdiction," said CEO Gonzalo Jalles.

He added that the convention was a standard adhered to by more than 50 countries, and said it was crucial for Cayman's financial services industry to remain aligned with global movements in the direction of automatic exchange of information.

BVI open for business in Asia

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  The British Virgin Islands (BVI) has taken another significant step forward in its global positioning with the launch of an office in Hong Kong to represent the jurisdiction in mainland China and the Asia Pacific region.
  Close to 100 Hong Kong professionals gathered at the British Consulate on September 5 for an evening reception to mark the official launch of “BVI House Asia”. The event, hosted by the British Consul General to Hong Kong and Macau Caroline Wilson, was attended by representatives from several governments, including Hong Kong, the United States, European Union, Switzerland and Ireland, together with leading financial services practitioners and other notable guests.
  In her welcoming remarks about the relationship between the United Kingdom and the BVI, a British Overseas Territory, Wilson quoted British Prime Minister David Cameron, who said that the Overseas Territories (OTs) are an integral part of Britain’s life and history.
  Wilson said that the UK government has a strong partnership with its OTs and was keen to support them in pursuing trade and investment opportunities to strengthen their economies. The BVI’s solidifying and seeking to grow its presence in the Asia Pacific market through Hong Kong was an example of initiatives supported by Britain.
  BVI premier and minister of finance, investment and tourism, Dr Orlando Smith, in his response, said that establishing an office in Hong Kong would allow the BVI to deepen its footprint in the Asia region and to get a better understanding of the market where approximately 40 percent of its business comes from. He said it would also help in building closer relationships to enable the BVI to be more responsive to the needs of clients in that market.
  BVI House Asia will also serve as a central hub to facilitate a smooth interface between the industry in Asia and the BVI, while at the same time raising the jurisdiction's profile by speaking for the BVI government; responding to enquiries of a social, political or economic nature from the region; and promoting investment into the jurisdiction.

  The new office will also provide time sensitive access for certain information services to users of BVI business companies; and work towards deepening the relationship with Mainland China not only in financial areas but in educational and cultural areas as well.
  In addition, through the BVI Financial Services Commission (BVI FSC), BVI House Asia will help strengthen ties with regional government authorities and serve as a point of contact for the regulated financial community.
  The office is currently staffed with the interim director and a chief operating officer, Heather Tang, a native of Hong Kong. The BVI FSC will also be providing staff and other resources for BVI House Asia in the coming months. Tourism officials are also expected to join the team by fall 2014.

Switzerland Adopts Draft Law On French Inheritance Tax Deal

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The Swiss Federal Council has sent a draft law on the new inheritance tax agreement with France for the attention of parliament. The agreement is designed to prevent a legal vacuum, detrimental to taxpayers, and constitutes a first concrete step in the tax dialogue with France.

On July 11, 2013, during a meeting in Paris, Swiss Federal Councillor Eveline Widmer-Schlumpf and French Finance Minister Pierre Moscovici decided to engage in a dialogue on outstanding bilateral tax and financial issues. Furthermore, they signed the new double taxation agreement (DTA) in the area of inheritance. The draft treaty largely follows the principles of the OECD and Switzerland's agreement policy in both formal and material terms.

The DTA will enter into force after it has been approved by parliament in both countries and after the referendum deadline in Switzerland has expired. France has refrained from requesting that the new text be applied from January 1, 2014.

The current agreement dates from 1953 and has not been revised since then. Although it reflects the principles pursued by the two contracting states at that time, it is no longer in line with France's current policy in this area. In 2011, France notified Switzerland that it wished to denounce the 1953 deal. Switzerland informed the French authorities that it preferred a revision to a legal vacuum and the associated risk of double taxation. Negotiations were subsequently held by the two countries.

Commenting, the Swiss Federal Department of Finance (FDF) stated that: "While the new agreement does indeed increase the tax burden for taxpayers in France, it ensures legal certainty and prevents the risk of double taxation, unlike a situation without any agreement."

The FDF explained: "In the event of a legal vacuum, taxpayers would automatically suffer the consequences of any change in the domestic laws of the two countries and be exposed to the risk of double taxation. Moreover, they would not benefit from any system allowing for the amicable settlement of possible disputes in the area of inheritance. Worse conditions would apply for the taxation of heirs resident in France and there would be no exceptions for some real estate companies held by the deceased or his or her relatives."

France Eyes End To Education Tax Breaks

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The French Government reportedly plans to make savings totaling almost EUR500m by abolishing certain tax breaks (les niches fiscales) accorded for the costs of schooling, within the framework of its 2014 finance bill.

According to Les Echos, the Government intends to remove both tax breaks currently benefiting families with children in secondary and higher education in France. An income tax reduction of EUR61 (USD80.5) per child is currently accorded to families with children studying at a collège (the first stage of secondary education), while a tax reduction of EUR153 per child is granted to households with dependents at a lycée (the second and final state of secondary education). Finally, an income tax reduction of EUR183 per child is given to those families with children in higher education.

The Government announced its intention to repeal the tax break for secondary education costs back in June. The measure will lead to savings estimated at around EUR235m. At the time, the Government argued that the tax shelter only benefits taxable households in France, and not the most modest families, namely those most in need of financial support for the costs of a child's education. It therefore pledged to replace the tax benefit with a more targeted form of allowance for very low-income households.

Determined to generate additional revenue to balance next year's budget, while at the same time minimizing recourse to new taxes, the Government has now opted to extend the scope of the plans, to include the tax break for higher education. Such a move will affect over 1 million households in France, and is forecast to yield additional revenues of EUR210m, bringing total savings from the abolition of the two tax shelters to approximately EUR445m.

Given that the Government also aims to cut the "family quotient" income tax break in the upcoming budget, the tax burden on families will undoubtedly rise. The Government plans to lower the ceiling of the "family quotient" (quotient familial) from EUR2,000 currently to EUR1,500, generating additional income of EUR1bn. This tax break reduces income tax using a coefficient system and is calculated by dividing the household's net taxable income into parts, with the number of parts corresponding to marital status and number of dependents.

The Government is due to unveil details of its 2014 finance bill shortly.

HSBC pulls out of Bahamas

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A decision by HSBC to exit the banking market in The Bahamas in no way indicates deficiencies on the part of the Bahamian financial services environment, according to the minister of financial services.

Responding to an announcement by the Hong Kong and Shanghai Banking Corporation Limited (HSBC Ltd) that it will close its Nassau operation by year end 2014, Ryan Pinder said he “would not be surprised” if the decision came as part of an overall “strategic review” of the company’s presence in the Caribbean region following the revocation of one of its branch banking licences by the Cayman Islands Monetary Authority (CIMA) earlier this year.
In a release issued late Friday, HSBC stated: “As part of its ongoing strategic review of all group businesses, HSBC has decided to exit the banking market in The Bahamas through the closure of the Nassau branch of The Hong Kong and Shanghai Banking Corporation Limited.
“The closure of this small non-core operation, which is subject to regulatory approval, is expected to be complete by year end 2014.”
The company directed media queries to HSBC Bahamas chief executive officer Peter Waterhouse. Up to press time, Waterhouse did not return a call left late Friday.
Pinder said that he was not informed of the decision to close prior to the announcement being made. However, he added that as far as he was aware, the operation was a “very small back office” and while he does not have exact figures, he believes it may impact only around five staff members. It is not clear if any Bahamians would be impacted.
In February 2013, HSBC saw its banking licence revoked in the Cayman Islands for the local branch of HSBC Mexico SA.

According to the Caymanian Compass, a local Cayman Islands newspaper, the bank was named last year in an investigation by the US Senate’s Permanent Subcommittee on Investigations of anti-money laundering weaknesses at HSBC.
The investigation had pointed to a significant number of high risk transactions with insufficient anti-money laundering controls involving US dollar accounts held by Mexican residents at the branch, a class B banking licence holder in the Cayman Islands.
In July 2012, following the release of the subcommittee report, CIMA launched its own investigation of HSBC Mexico SA to determine whether the bank and its Cayman affiliate had breached any local laws or regulations.
In a decision notice dated February 27, 2013, the Monetary Authority set out its decision to revoke the category “B” banking licence held by HSBC Mexico SA.
The decision came just under three months after HSBC agreed to pay a $1.9 billion fine to settle allegations by US prosecutors relating to concerns over weaknesses in anti-money laundering measures at the bank.
The HSBC Group HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The group serves customers worldwide from around 6,600 offices in 80 countries and territories in Europe, Hong Kong, the rest of Asia-Pacific, North and Latin America and the Middle East and North Africa.
With assets of US$2.645 billion at June 30, 2013, the HSBC Group is one of the world’s largest banking and financial services organizations.

Liechtenstein Adopts Implementing Law For Austrian Tax Deal

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The Liechtenstein Government has adopted a draft law implementing the withholding tax agreement with Austria.

On January 29, 2013, Liechtenstein and Austria concluded a withholding tax accord, together with a protocol revising the existing bilateral double taxation agreement (DTA) between the two countries.

The withholding tax treaty provides comprehensive provisions on tax cooperation, ensuring the swift and comprehensive regularization of the untaxed assets of Austrians held in Liechtenstein, and guaranteeing cross-border tax compliance for the future. Furthermore, the provisions protect financial intermediaries in Liechtenstein, and provide legal certainty for investors, vis-à-vis tax treatment.

The latest bill waved through by the Government contains provisions governing implementation of the withholding tax accord, notably the regularization of the past, the future taxation of capital income, non-tax transparent wealth structures, and the monitoring of compliance with the requirements arising from the agreement.

According to Liechtenstein's Prime Minister Adrian Hasler, the draft law was drawn up following consultation with the business associations concerned, and takes into consideration the outcome of the consultation, in so far as the agreement with Austria permits. Critical points have been clarified and further discussed with stakeholders, Hasler said.

The "agreement package" is due to be examined by the Liechtenstein parliament in September and is expected to enter into force on January 1, 2014.

France Revamps Dreaded Carbon Tax

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Exhuming the idea of the dreaded carbon tax, French Ecology Minister Philippe Martin has announced plans recently to introduce a new "climate energy contribution" in France, within the framework of the Government's 2014 finance bill.

Determined to reassure households, already "fed up" with taxes, French Prime Minister Jean-Marc Ayrault has stepped in, however, insisting that this will not mean the creation of a new tax. The level of taxes in France will not be affected by the introduction of the contribution, Ayrault made clear.

Although the Government has not finalized details of its plans, the new climate energy contribution is expected to be based on a proposal put forward at the beginning of the summer by economist Christian de Perthuis, Chairman of the French committee on ecological taxation (CFE). In its June report, the CFE suggested that a carbon tax be introduced within the framework of the domestic tax on consumption (TIC), thereby enlarging the base of an existing tax, while at the same time taking into consideration the carbon footprint or content of the different types of energy.

France's TIC tax includes, for example, the domestic tax on the consumption of energy products (TICPE), the domestic tax on natural gas (TICGN), and the domestic tax levied on the consumption of combustibles, including coal, lignite, and coke (TICC).

The CFE recommended that the tax be introduced progressively, rising from a starting point of EUR7 (USD9.3) per tonne of carbon in 2014 to EUR20 per tonne in 2020. The measure would directly impact on fuel prices at the pump.

The Government is expected to put forward a raft of additional environmental tax initiatives in its September finance bill. It must find EUR3.5bn by 2016, via so-called "green" tax measures, to finance the competitiveness and employment tax credit (CICE). The Government intends to abolish certain tax breaks deemed to be anti-environmental. It is examining the idea of progressively aligning the taxation of diesel and petrol and of imposing a tax on refrigerants, used in fridges and air conditioning systems.

France To Pay For Pension Deficit With Higher Payroll Taxes

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France is to "preserve" the "heritage" of its pension system by increasing payroll taxes, the Prime Minister has said.

Jean-Marc Ayrault emerged from intensive talks with industry representatives with plans for what he called "responsible" reform.

The deficit in France's pay-as-you-go (PAYG) system is expected to hit EUR20.7bn (USD27.7bn) by 2020. To compensate, employers and employees will have to pay more in contributions, with rates to rise by 0.3 percent in 2017. This will equate to roughly EUR4.50 a month for a worker on the minimum wage.

Many will also be affected by what effectively amounts to a change in the retirement age. The minimum number of contribution years required for a worker to receive a full pension will rise from 41.5 years to 43 years by 2035.

"It will lead little by little to a rise in the effective age of retirement and it is because of this that this is a major structural reform," Ayrault said.

The initiative was immediately condemned by Pierre Gattaz, head of France's employers' confederation. He called the reform "dangerous" and unacceptable, telling Le Figaro that "all the Government does is tax and then tax some more."

Britain approves Cayman Islands fiscal plan

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Britain’s Foreign and Commonwealth Office has approved the Cayman Islands government's four-year fiscal plan covering the years 2013/14 to 2016/17.

In a letter dated 22 August 2013, the United Kingdom's Minister for Overseas Territories Mark Simmonds wrote to Cayman Islands Premier Alden McLaughlin giving his approval for the plan, which the government submitted on 15 August 2013.

The premier welcomed the UK's approval of the plan.

"It demonstrates the positive results that can be achieved when processes are followed and a logical, credible and consultative approach is taken toward fiscal planning," McLaughlin said.

"I am extremely pleased that we are able to put behind us the uncertainty and anxiety that has attended the budget process over the past four years. The country now has a four-year plan that provides certainty and stability to the government's future fiscal planning and provides challenging but realistic targets," he said. 

"My government can now look long-term at its plans and projects rather than having to focus on short-term, short-sighted annual plans,” McLaughlin added.

"Whilst the government has not made many public utterances about the ongoing work to develop this plan, its culmination follows weeks of meetings between the elected government, the ministry of finance and key stakeholders across the entire public sector. From those meetings, a fiscal plan was devised that is credible, sustainable and provides the necessary trajectory for us as a country to meet the fiscal targets outlined in the Public Management and Finance Law," the premier said.

The plan outlined the government's global fiscal targets for the next four budget years and the strategies that will be employed to achieve them and gain compliance with the fiscal ratios contained in the Public Management and Finance Law (2012 revision). The plan favours an initial aggressive reduction in public sector operating expenditure, significant increases to government's cash reserves, no new borrowings, continued repayment of existing loans and zero inflationary revenue measures.

The plan shows the government as the facilitator of economic growth through its support for various private sector initiatives, does not propose any major capital expansion programmes and is not dependent on any revenue measure packages or 'silver bullets' to be successful.

In his letter, Simmonds said he welcomed the Cayman government's clear commitment to fiscal planning and to achieving the key debt ratios agreed in the Framework for Fiscal Responsibility by the end of the financial year 2015/16. He further noted his approval for the top-down, multi-year approach to fiscal planning taken by the government, which he believes will be a powerful tool for sustainable public expenditures and revenues.

Based on this level of detail planning, the UK was able to approve the plan on its first submission. The full details of the plan will be provided when the government presents the 2013/14 full year budget in late September.

China Signs OECD Convention On Tax Information Exchange

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China became the 56th signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters during a ceremony at the headquarters of the Organization for Economic Cooperation and Development (OECD) in Paris on August 27.

With the signing between the Chinese Tax Commissioner Jun Wang and Angel Gurría, Secretary-General of the OECD, all G20 countries have now fulfilled the commitment they made at their Summit in Cannes in November 2011, to sign the Convention and move towards the automatic exchange of tax information as the global standard.

It was emphasized that all tax authorities worldwide are moving from bilateral to multilateral cooperation and from exchange of information on request to automatic exchange of information. The Convention provides a comprehensive multilateral framework for such co-operation and complements other initiatives, such as the standardized multilateral automatic exchange model now being developed by the OECD and its G20 partners. It provides for the spontaneous exchange of information, simultaneous tax examinations and assistance in tax collection.

"This Convention provides the ideal instrument to swiftly implement automatic exchange, and to do so with a wide range of partners," said Gurría. "A valuable tool for governments to fight offshore tax evasion, the Convention also ensures compliance with national tax laws and respects the rights of taxpayers by protecting the confidentiality of the information exchanged."

He noted that the signing of the Convention also "represents another significant step in the strengthening of collaboration between China and the OECD." The OECD and China cooperate closely on a number of other taxation issues, as China plays a leading role as a Vice-Chair of its Steering Group and as a member of the Peer Review Group, and participates in the OECD's Forum on Tax Administration and its Committee on Fiscal Affairs, where the OECD looks forward to working with China to deliver on the Action Plan to put an end to tax base erosion by multinational enterprises.

In addition, Gurría congratulated China on "the very positive results of China's peer review, which demonstrated the adequacy of China's legal and regulatory framework and the effectiveness of its tax administration in implementing the Global Forum's standards."

Accounting firm merges practices in Bermuda, BVI and USVI

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International accounting and financial consulting firm Deloitte announced the merger of its Bermuda, British Virgin Islands and US Virgin Islands offices effective on Monday.

The combination is said to bring enhanced services to clients and greater access to Deloitte professionals who provide insights and solutions to complex business challenges in an ever-increasing borderless global marketplace.

The merger coincides with the retirement of BVI/USVI managing partner Mark Chapman, who will continue as a consultant to the firm through the end of October. Chapman joined Deloitte BVI in 1995 focusing on offshore entities in the financial services sector. In his nearly 30 years with Deloitte, he has helped to build the largest professional services firm in the Virgin Islands. 

Directors Carlene Romney and Richard White succeed Chapman and assume leadership of the operations in the BVI and USVI offices. 

An audit professional, Romney joined Deloitte in January 2000. She has extensive experience performing audits, including spending three years with the Boston, Massachusetts office with Deloitte where she gained additional experience performing financial services audits. 

White has over 13 years of experience working in practice and industry as a chartered accountant. He started his career in London at a Big Four firm working in all areas of public practice. Richard joined Deloitte in the Virgin Islands over six years ago where he has helped clients with audit, accounting and financial advisory engagements.

“I am pleased to bring together our professionals to better serve our clients,” said John Johnston, office managing partner of Deloitte Bermuda and CEO of Deloitte Caribbean and Bermuda Limited. “While we have always enjoyed a good working relationship under the Deloitte brand, this merger cements our shared values of working together to deliver excellence. It is an important step in our strategy of greater integration of the Deloitte firms across the Caribbean region.”

The practices will continue to operate as Deloitte & Touche Services Ltd from current locations in Road Town, British Virgin Islands and St Thomas, US Virgin Islands. Combined with the Bermuda practice, over 170 professionals will deliver audit, tax, consulting and financial advisory services. There are no plans to close offices and each will have local leadership. Professional staff will continue to have employment opportunities, with few redundancies expected.

“Our clients, communities and professionals will benefit from our merger,” stated Romney. “With access to more talent, we are able to deliver additional services that help our clients, especially in areas such as tax, restructuring, and risk management.”

Added White, “We are excited to take the strong foundation that Mark Chapman built and continue the tradition.”

Bahamas looks to Middle East for growth

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The government of The Bahamas will undertake a trade mission to the Middle East this fall, with the intention of drawing into the country some of the region’s wealth in the form of sovereign wealth funds and high net worth individuals.

Fred Mitchell, minister of foreign affairs, said that officials from Saudi Arabia will visit The Bahamas next week, a representative from Qatar will come in October, and a trade mission to Dubai is being planned for later that month.

Ryan Pinder, minister of financial services and trade, told Guardian Business that the government will continue to look for new partners in order to expand the financial services sector during a period when traditional sources of wealth are less forthcoming.

“When you look to expand an industry you have to be nimble enough to adjust to look at markets that demonstrate growth and wealth, and certainly it is clear we’ve identified Latin America as one of those regions and we understand that the EU economy has limited growth prospects there so we look to other markets. Latin America is one, North America is one and certainly we feel that certain areas in the Middle East are growth areas,” Pinder said.

He added that the intention of the upcoming trade mission would be to develop The Bahamas as a financial services hub that can connect Middle Eastern interests with “opportunities in Latin America and North America,” adding: “The Bahamas could be a perfect conduit for that.”

Noting that Bahamas-based financial institutions do currently deal with Middle Eastern clients, and some even have a presence in the Middle East, Pinder said the hope is that these linkages can be further leveraged.

“We believe there’s a lot more growth business to be had. Traditionally a lot of Middle East private wealth management has been centered in Geneva. We believe we can utilize our location on this side of the world to give added value to clientele,” he explained.

Pinder added that the government will only attempt to engage in business with countries that have diplomatic relations with the US, and would also seek to use the trade mission to study Dubai’s success as a center for arbitration, an industry The Bahamas is also planning to develop.

Indicators do suggest that, notwithstanding the present turmoil in countries such as Syria and Egypt, the Middle East is ripe for further engagement by The Bahamas.

A recent study in the ‘Insights’ series of publications by leading wealth manager Barclays Wealth found that Middle East-based high net worth individuals (HNWIs) are more confident about their prospects for making money than their counterparts in Europe and North America.

Six in ten of the region’s HNWIs believe wealth can be created faster today than in the past, compared to 43 percent of respondents in Europe and 31 percent in North America, the report found.

Such findings do point to a higher level of interest in wealth management offerings that The Bahamas could provide.

As for sovereign wealth funds (SWFs), globally these are managing around $1.8 trillion at present on behalf of states such as Qatar and the United Arab Emirates.

In a May 2013 report, financial services firm KPMG notes that these funds are increasingly being seen by the West as an important source of capital given how the impact of the economic downturn on SWFs in the oil rich countries was partly mitigated by the increase in the price of oil during recent years.

This effect has left these funds in a strong position to take advantage of the recovery in the global markets.