AITC Tax Flash Editorial: The Problem of Retroactive Use of the Legislative Requalification of Tax Avoidance into Tax Evasion
A flamboyant newspaper article title in the last week´s well circulated newspaper declared a famous football player as a tax evader. Naturally the title must have attracted the attention of any person who either knows this famous player or of the people that are interested in analysing the tax schemes that have given rise to the BEPS and other projects that are tackling aggressive tax planning. The article, however, in contrast to the accusatory title, did not provide any evidence of tax fraud or description of tax evasion. On the contrary it seemed to confirm that the exercised tax and financial planning was executed years before such practice was considered initially immoral and later legislatively qualified as tax evasion.
Every lawyer should be wary of expressions that have weak definitions or that could overlap with the meanings of other expressions, especially in cases where one expression defines an illegal act and the other provides legally available options. This was infamously so with the division between expressions of tax planning, aggressive tax planning, tax avoidance and tax evasion. For most experts it is clear that tax evasion is illegal as it constitutes tax fraud, however, it is not always clear where tax avoidance stops and tax evasion begins. After the downpour of information regarding off shore accounts and parked finances in tax havens, wrapped in the negative media coverage and adverse position of governments against such dealings, the distinction between tax avoidance and tax evasion has become even more blurred. These blurred lines have already had real life effects on some taxpayers, either financial or defamatory.
Now, when many of the countries have rewritten some of the tax codes to accommodate to the changing circumstances of the globalized world of business, we are witnessing intense criminalisation of tax planning acts that were legal and widespread a couple of years ago or even endorsed by some EU countries as financial opportunities. The changes in the tax systems of many countries is not the problem, the problem is the desire of some of the countries to categorize specific tax planning schemes as illegal retroactively. This would mean that a transaction or a financial planning scheme that was executed years ago could be reviewed by the tax official under the new code, with the justification that the transaction was against the general spirit of the tax code in the time of the execution.
This approach could be considered to go against the fundamentals of modern legal systems that follow the principle of nullum tributum sine lege praevia and would demand a reserved approach of tax administrations that follow the rule of law. Nonetheless, there are already reported cases of tax repercussions for companies and individuals who have exercised previously legislatively allowed planning options, but have now been called accountable due to changing legislation. Regardless of moral implications and defamations of subject´s good name or personal positions on tax avoidance and tax planning schemes, legislative changes cannot be used to review transactions that were executed in accordance with the letter of law.
Contributed by: Dominik Kuzma, editor of Tax-Flash in association with AITC, E: firstname.lastname@example.org
AITC Welcomes the New Ghana Member
The President and the Board of AITC welcome of Mr. Richard Dwumor of RDK Consulting Services, the new AITC representatives in Accra, Ghana and wish a rewarding mutual cooperation.
For more information please see the online information, read the personalised introduction of the member below or contact of Mr. Richard Dwumor directly.
Company: RDK Consulting Services
Contact person: Mr. Richard Dwumor
Address: RDK Consulting Services, House no. A1, Gen. Ankrah Street, Dansoman, ACCRA, GHANA
Tel: +233 (0)302309380
AITC Welcomes the New Mauritius Member
The President and the Board of AITC welcome of Ms. Shahannah Abdoolakhan of Toukan Corporate Services Limited, the new AITC representatives in Ebene Cybercity, Mauritius and wish a rewarding mutual cooperation.
For more information please see the online information or contact of Ms. Shahannah Abdoolakhan directly.
Company: Toukan Corporate Services Limited
Contact person: Ms. Shahannah Abdoolakhan
Address: Toukan Corporate Services Limited, 5th Floor, The Core, 62 Ebene Cybercity 7220, Mauritius
Tel: +230 454 60 30
Contributed by: AITC – Association of International Tax Consultants, E: info@aitc- pro.com, W: www.aitc-pro.com
Ghana: Introduction of Ghana Member
My name is Richard Dwumor from Ghana, West Africa. I am very excited to join the Association of International Tax Consultants with diverse members who have footprints in almost every part of the world.
Richard is the managing partner of RDK Consulting Services, a professional services firm spearheaded by enthusiastic young professionals who work hard to distinguish themselves among its competitors. We engage in Accounting, Audit, Tax, IT and Advisory services for companies in Ghana and abroad.
Under tax services we provide high quality services in personal tax, corporate tax, Value Added Tax, Custom duties, transfer pricing, tax planning and other tax advisory support.
Richard Dwumor is a chartered accountant with the Association of Certified Chartered Accountants (ACCA) UK; he is a member of the Institute of Chartered Accountants Ghana (ICA), hold final certificate with the Chartered Institute of Taxation Ghana.
Richard also holds Masters of Business Administration (MBA) in Finance from Central University College in Ghana and Bsc. in Applied Accounting from Oxford Brookes University (UK).
Richard has over 10 years consulting and audit experience in a number of companies spread over different sectors of the Ghanaian economy which include Downstream Petroleum, Not for Profit Organisations, Information Technology, Hospitality, Manufacturing, Retail and Distribution.
I have a passion for tax and I will endeavour to bring my experience and knowledge on board to assist other members of AITC in our bid to provide high quality services to our esteem clients across the globe.
Contributed by: Richard Dwumor of RDK Consulting Services, E: email@example.com, W: www.rdkconsulting.net
AITC: Berlin General Meeting Information
A short note to thank all the members present at our AITC meeting which was held in Berlin between the 2nd and 3rd September. A special thank you goes to our German member Martin Seiler and his firm for organising such a memorable, interesting and fruitful AGM. During the meeting the members discussed the launch of the new website, the blog and the brochure of AITC. The Board was satisfied that these changes were welcomed by its members which encourages us to continue working for AITC.
This year during the AGM workshops were also introduced on current important international tax issues. The topics discussed were OECD Action Plan on Base Erosion and Profit Shifting (PEPs, Preventing the Artificial Avoidance of Permanent Establishment Status and Neutralising the Effects of Hybrid Mismatch Arrangements. Ms Satenik Molkonyan a lecturer at the European University Viadrina, an expert in the field was chosen by the host member to chair the workshops. The workshops gave members time to discuss their personal experiences on the subjects discussed and it was also an opportunity to exchange knowledge and know-how in the related topics discussed.
The AITC was also proud to present its awards to six of its members for their accomplishments in 2015.
The awards in the following categories were given to :
- AITC Best International Tax Practice – Martin Seiler
- AITC Best Domestic Tax Practice – David Watts and Mark Wollett
- AITC Best Corporate Services – Stavros Pavlou
- AITC Best Business Developer – Pier Luigi Brogi
- AITC Best Business Achievement – Shigeki Minami
- AITC Rising Star – Noe Vicca
It was decided that next year’s AGM will be held in Romania between the 1st and 2nd of September 2017. The Board hopes that its members will block the dates to be able to be present at next year’s meeting.
Malta: News of Malta Member Restructuring
Jeannine Giglio together with her partners have set up the law firm LexPractis and IURIS Management Limited shall be wound up. For this reason LexPractis is being created as an Independent Maltese Law Firm and services provider. The firm’s partners have long been established and provide an in-depth knowledge and experience in their field of practice. LexPractis is a traditional law firm specialising in all areas of law, albeit with particular focus on the financial services sector including tax and commercial law, as well as criminal, civil and litigation. The firm is committed to provide its clients with a personalised professional service of the highest quality and to do so speedily but with due care and diligence.
Contributed by: LexPractis, E: firstname.lastname@example.org, W: www.lexpractis.com
Ghana: Income Tax Act 2015 ACT 896
On January 1, 2016, the much awaited Income Tax Act 2015 (Act 896) which seeks to consolidate income tax laws and regulations which relate to financial institutions, Insurance, Mining, and Petroleum came into force.
Even though this move will enhance tax administration by Ghana Revenue Authority, it also brought along a number of changes that will impact on business transactions for both resident and non-resident companies.
Some of the key changes are as follows:
Taxes on Corporate Income
- There has been an introduction of carry forward of tax losses which ranges from between 3 to 5years depending on the type of business.
- Capital gains resulting from the disposal of depreciable assets which preciously was computed separately and taxed at 15% is now added to the income of the business and taxed at the corporate rate of 25%.
- Capital allowance granted for a particular year cannot be carried forward or deferred if not utilized in the same year.
- Thin capitalisation has been enhanced from debt to equity of 2:1 to 3:1 and this is good news for companies which are highly leveraged.
- Payment to Residents
Withholding tax rates for the various types of payments had remain fairly stable with the exception of payment of fees or allowances to resident directors, managers or board members and payment for goods, works and services.
With respect to fees to directors the rate has been moved from 10 to 20%.
For goods, works and services the rates are 3%, 5% and 7.5% respectively as compared to the flat rate of 5% in the previous Internal Revenue Act, 2000, ACT 592.
- Payment to Non Residents
|Royalties, natural resource payment and rents||20%|
|Management and technical services fees||20%|
|Goods, works and services (where the contract give rise to income from Ghana)||20%|
Since the inception of this new Act, there has been an expression of resentment from the business community about the increase in taxes and the haste with which the ACT was passed.
In furtherance of this, there have been a number of amendments which have affected about 18 sections of the Income Tax Act 2015, Act 896. In my next bulletin I will highlight on each of the amendments and other areas so that members can be guided accordingly.
Australia: New Zealand ‘Netflix’ Tax
What does this mean for GST-registered New Zealand businesses?
New Zealand businesses will not be charged GST on remote services they purchase from non-resident suppliers if the supply is part of their GST-registered business activities, and before or at the time of purchase the business owner:
- notifies the supplier that they are registered for GST, and
- they provide the supplier with their New Zealand GST registration number or business number.
The new rules for GST on imported services for New Zealand will operate as follows:
- There is a 15% tax added to the price of most goods and services supplied into New Zealand
- Remote services (as defined) are those services supplied to New Zealand-resident consumers
- It is these services that will be deemed as being performed in New Zealand and subject to GST.
A qualifying remote service would include:
- Supplies to digital content such as e-books, movies, TV shows, music and online newspaper subscriptions;
- Online supplies of games, apps, software and software maintenance;
- Webinars or distance learning courses;
- Insurance services;
- Gambling services;
- Website design or publishing services;
- Legal, accounting or consultancy services
Cyprus: Cypriot Citizenship by Investment Revised Scheme
- Citizenship will be granted to individual investors investing €2 million who also purchase a residence valued at least €500,000. An additional residence valued at €500,000 will have to be purchased if an investor’s parents also wish to apply for citizenship.
- Investors also have the option to purchase government bonds up to a maximum of €500,000.
- Real estate ownership is for an indefinite period of time, while investments must be kept for a minimum of three years. In order to confirm that investments are held for at least 3 years, the Ministries of Interior and Finance must be informed annually, reporting the value of the initial investment.
Economic criteria introduce that the applicant should invest at least €2 million on purchase or construction of immovable property or creation of commercial or residential developments, development projects in the tourist industry or other infrastructure.
The investor may also invest in Cyprus companies.
Provisions for Cypriot citizenship will be evaluated in order to confirm that the businesses or companies are based in Cyprus, have a substantial activity and an important cycle of works, and they employ at least five (5) Cypriot citizens or citizens of the European Union. The minimum number of employees will increase in case that, one or more applicants invest at the same time in the same business or company. At the time of the application, employees should have a five year legal and continuous stay in Cyprus.
Applicants may also proceed in a minimum €2 million investment in Alternative Investment Organizations founded in the Republic of Cyprus, licensed and inspected by the Securities Commission and of which all investments are exclusive in the Republic of Cyprus and approved by the Ministry of Finance.
India: Updates for October 201
- The Union Cabinet has approved today the proposal of the merging of Union Finance Budget and Railway Budget. Now a Consolidated Budget shall be presented on February 1 every year instead of the last day of the month of February.
- MCA has made an amendment to the Companies (Management and Administration) Rules, 2014. These rules may be called the Companies (Management and Administration) Amendment Rules, 2016 which shall come into force on the date of their publication in the Official Gazette.
- SEBI has issued circular in respect of Permission for trading in futures contracts and modification in contract specifications at exchange level.
- SEBI has issued a clarification that ‘Income from Operations’ may be disclosed inclusive of excise duty, instead of net of excise duty, as specified in the Companies Act, 2013.
- SEBI relaxes restrictions on more than 200 entities, which were barred from the securities market in three different cases including permission, to deal in government securities and invest in ETF.
- SEBI has directed Commodity Exchanges to offer price dissemination facility to subscribers through SMS or any other electronic comm. facility for all commodities on a daily basis.
- GST: One step ahead – President Pranab Mukherjee gives assent to the Constitutional Amendment Bill y’day (08.09.2016) to enable the Central Govt. to bring GST Law in the winter session of Parliament.
- GST: CBEC released Frequently Asked Questions (FAQ) on GST on 21.09.2016. Link athttp://www.cbec.gov.in/resources//htdocs-cbec/deptt_offcr/faq-on-gst.pdf
- GST. proposal to compensate states for revenue loss in first 5 years on the basis of average revenue of 2013-14, 2014-15 & 2015-16.
- The last major development on GST was the approval of Union Cabinet for the formation of GST council and enforcement of all sections of the 101st Constitutional Amendment Act.
- The GST Council has fixed the annual turnover threshold of Rs. 10 Lakh for North eastern states and Rs 20 Lakh for the other regions. Latest in the row is the government has released rules and formats:
- ER-1 return for non SSi assessee for the month of September-10/10/2016
- ER-2 return for EOUs for month of September-10/10/2016
- Submission of ER-3 return by SSi unit for September quarter-10/10/2016
- Advance information for 2nd fortnight of Oct of functions with booking cost more than rs 1 lakh in Banquet halls, hotels etc. in Delhi-12/010/2016
Contributed by: Team Rajput Jain & Associates, Chartered Accountants–Managing Partner, Swatantra Singh, E: email@example.com, W: www.carajput.com
Luxembourg: Special Limited Partnership (“SLP”) for Family Succession
Limited Partnerships are usually established by way of a Partnership Agreement entered into between one General Partner and one or more Limited Partners. Family Offices may use this flexible vehicle to structure the holding of their wealth by bringing all or part of their assets into such a SLP.
The member of the oldest / first generation (founder) brings his assets in kind to the SLP who will issue different types of shares, one category of shares per generation (the first generation receives share A, the second share B and the third share C).
Each category of shares can be freely organised in the Limited Partnership Agreement (“LPA”).
From a direct tax standpoint, the primary measure of the AIFMd law is the full tax transparency of the SLP for Corporate Income Tax (“CIT”), Municipal Business Tax (“MBT”) and Net Wealth Tax (“NWT”) purposes. This means that no taxation will be applicable to the profit realised by the SLP (assuming that the GP does not hold more than 5% of the capital of the SLP).
In addition, the distribution of dividends by a SLP is not subject to withholding tax.
The SLP can then be incorporated to the benefit of a family. It can play the role of private holding entity in a flexible and tax friendly framework.
The provision of the SLP can be adapted to match all the needs of the members of the family.
- Corporate services
- Fund services
- Special Limited Partnership
Contributed by: Creatrust, E: firstname.lastname@example.org, W: www.creatrust.com
Hong Kong: Hong Kong-Korea Tax Treaty in Force
The agreement between Hong Kong and Korea for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income has entered into force. The agreement was signed in July 2014. It came into force on 27th September 2016 after the completion of ratification procedures on both sides. It will be in effect in Hong Kong for any year of assessment beginning on or after 1st April, 2017. The treaty rates for withholding tax on dividends, interests and royalties are all at 10%.
Contributed by: Catherine le Bourgeois & Wilson Yeung of Masson de Morfontaine Limited, E: email@example.com, W: www.masson-de-morfontaine.com
Austria: Austrian Transfer Pricing Documentation Law 2016
On 1 August 2016 the Transfer Pricing Documentation Law was published in Austria. It applies to fiscal years starting on or after 1 January 2016.
This law requires multinational companies, depending on their size, to prepare certain documents and files and to send them to the tax office.
- Multinational companies must prepare a Country-by-Country report (“länderbezogener Bericht”) containing information on the worldwide distribution of its revenue, taxes, etc.) if the consolidated group turnover amounted to at least EUR 750 million in the previous fiscal year.
- An Austrian subsidiary of a multinational company must prepare a “Master File” (transfer pricing documentation) and a “Local File” (specific information on business transactions in the Austrian company) if turnover exceeded EUR 50 million in each of the two previous fiscal years.
Fiscal Penal Law
The Fiscal Penal Law in Austria specifies that a penalty of up to EUR 50,000 can be issued in the case of improper communication of the reports.
Transfer Pricing Guidelines 2010
For all Austrian companies affiliated to a company that is resident abroad – even if they are smaller than the aforementioned size criteria, the prices determined between the companies must be calculated according to the arm’s length principle and also documented (in writing). Both the Austrian transfer pricing guidelines and the transfer pricing guidelines recommended by the OECD serve as the legal basis here.
Please note that (written) transfer pricing documentation must also be prepared by small Austrian subsidiaries or branch offices for the purpose of audits. The difference compared to the procedure for large corporations is that small companies do not have to send their transfer pricing documentation to the tax office in advance.
Please contact us if any questions arise.
Contributed by: Casapicola & Gross WP und Stb GmbH, E: firstname.lastname@example.org, W: www.taxes.at
US: Expanded List of Banks Under the Offshore Voluntary Disclosure Program (OVDP)
On May 26, 2016 we posted 97 Offshore Banks Are Turning Over Your Names To The IRS – What Are Your Waiting For? and since then the Government has add 47 more Banks and FINANCIAL ADVISORS to this list bringing the number to 144 Offshore Banks and Foreign Financial Advisors.
The IRS keeps updating its list of foreign banks which are turning over the names of their US Account Holders, who are now subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP). This penalty is based on the highest account balance measured over up to eight years.
Under the program, banks are required to:
- Make a complete disclosure of their cross-border activities;
Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
- Cooperate in treaty requests for account information;
Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
- Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
Pay appropriate penalties.
The Banks, Financial Instructions and Foreign Financial Advisors have made substantial efforts to cooperate with the IRS investigation.
Outside of the banks and financial advisors on the IRS´ updated list above, the norm within the OVDP remains 27.5%. That is far better than prosecution or much bigger civil penalties. Some taxpayers, including taxpayers with accounts at one of the 144 Foreign Banks and Financial Advisors listed above can opt for the easier and less costly Streamlined program. This list does not impact the Streamlined programs because you must be non-willful to qualify. All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts. With increased cooperation from the banks and FATCA it is INEVITABLE that this increased disclosure, will result in EVERY AMERICAN eventually being discovered. Banks worldwide want to know if there US clients are compliant with the IRS.
Within the OVDP, people who Pre-Cleared Before the various Effective Dates are generally Safe From the Higher 50% Penalty.
As additional banks are added to the list, only those American taxpayers that request pre-clearance before their bank is listed, will get the 27,5 % OVDP penalty. The 50% penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons.
Although the 50% penalty is high, willful civil violations can result in tax, penalties and interest totaling 325% of the highest balance in the account for the most recent six years period. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good deal that provides certainty.
Contributed by: Ronald A. Marini, Attorney at Law – Marini & Associates, P.A., E: Rmarini@TaxLaw.ms, W: http://taxlaw.ms