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.