Record Tax Revenues collected by Hong Kong

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

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

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

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

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

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

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

UK, Brazil ink co-production treaty

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

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

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

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

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

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

Passions flare up over Switzerland-Germany agreement

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

Switzerland, Bulgaria Sign Revised DTA

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

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

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

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

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

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

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

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

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

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

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

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

For more details please visit  www.bethelfinance.com.

Malta and Jersey Sign Gambling Regulation Memorandum of Understanding

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

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

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

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

Agreement of Switzerland with Germany

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

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

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

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

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

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

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

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

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

Background

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

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

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

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

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