Canada Freezes Employment Insurance Rate

www.bethelfinance.com

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.

www.bethelfinance.com

  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

www.bethelfinance.com/rm

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

www.bethelfinance.com

  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

www.bethelfinance.com/rm

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

www.bethelfinance.com

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

www.bethelfinance.com

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.