EU STD » Tax Research UK

The UK Switzerland tax agreement – a grubby little arrangement

EU STD, Europe, Information exchange, Switzerland, Tax evasion 17 Responses »

Apr 262011

The European country is known for its banking secrecy and the Treasury estimates tens of thousands of British people have stored £125bn in its institutions without paying UK tax.

Any deal is likely to include a withholding tax, taken by the bank on dividend and interest payments, and a levy on previously untaxed income.

The difficulty of this for the UK is threefold.

First, this deal allows Swiss banking secrecy to continue. That means the abuse will go on, and on, and on. Indeed, it will now have official sanction. In this circumstances to call this a grubby little arrangement to generate a bit cash is being over kind to it. Candidly, it’s the sort of deal no self respecting government and no self respecting tax official should be seen to have gone near. Continue reading »

Liechtenstein structures will be within European Union Savings Tax Directive

EU STD, Europe, Liechtenstein, Tax avoidance, Tax evasion, Uncategorized 4 Responses »

Apr 252011

The following is for all serious offshore aficionados. It comes form the person I think the foremost expert on the European Union Savings Tax Directive – Mark Morris, and is from his blog, with permission.

What it says is at the end of the day simple, but vitally important, and that is that iof the European Union Savings Tax Directive is amended as the EU desires then Liechtenstein’s secrecy is cracked open. Which is very welcome indeed. Over to Mark:

“Liechtenstein is home to nearly 100,000 entities and legal arrangements which are effectively untaxed. These structure are used for succession planning, creditor protection, family support and confidentiality. Considering there are onshore taxable facilities that do these tasks equally well, one assumes the following Liechtenstein structures are chosen because tax efficiency is a prime motivator.

Aktiengesellschaft A.G. (company limited by shares)
Gesellschaft mit beschrenker Haftung GmbH (private limited company without shares)
Anstalt (establishment, commercial and non-commercial without shares)
Stiftung (foundation)
Treuunternehmen (registered trust)
Treuhandschaft (trust)
Partnerships [Limited, collective, simple, occasional & silent] (Not taxed on income from assets)

How Liechtenstein structures avoid tax:

Liechtenstein foundations, establishments and trusts have to date successfully avoided international taxes as they are crafted to present an image that no party involved can have a tax liability. This is done in seven stages:
1. Separate ownership of assets from the principal contributor: The principal contributorgives away their assets to someone else to manage on behalf of named or unnamed beneficiaries.		2. Disguise the source of assets: Utilise an agent /nominee to contribute the assets on behalf of the principal contributor. The only name on public record as the provider of funds is the nominee / agent, e.g. the lawyer who founds the foundation.
3. Utilise a temporary holder/ manager of the assets: The management cannot be taxed as they are not beneficial owners of the assets, but merely look after it for named or unnamed beneficiaries.		4. Disguise control of the assets: If the principal contributor is seen to be controlling the assets after giving it away, he may be liable for tax. Therefore the principal contributor manages the assets indirectly via an undisclosed letter of wishes / bylaws, appointment of protector, etc.
5. No beneficiary is immediately entitled to any payment received: No specific beneficiaries are named. Therefore no income tax payable.		6. Alchemy on income received: Convert the character of income into a tax efficient payment at a later date, such as charity, capital gain, wage, loan, etc.
7. Present a restricted view of structure to bank: The bank holding the structure’s account is the Paying Agent responsible for applying the savings tax. However, with a restricted view presented to the bank, a beneficial owner cannot be identified. As no-one supposedly owns the assets, the bank cannot apply the savings tax.

How the EU savings tax amendments will tackle Liechtenstein tax avoidance structures:

I. Structure becomes the Paying Agent Upon Receipt: To circumvent the bank’s limited view of the structure, the savings tax directive amendment moves the Paying Agent responsibility away the bank and onto the structure itself. The logic being the structure has an unimpeded true view of all parties involved.
II. The Principal Contributor is the beneficial owner : The amendment takes into consideration that it will be highly unlikely to identify a beneficiary immediately entitled to the payment received. In this case, the principal contributor of assets will be deemed the beneficial owner. The logic being that tax liability remains yours until transferred to someone else with a tax liability. In limbo doesn’t qualify for exemption.
III. Agent / Nominee is transparent: The savings tax directive looks through the nominee settlor / shareholder. A lawyer used to establish a foundation is merely an agent founder acting on behalf of the principal founder. The beneficial owner is deemed to be the individual who initially contributes the assets, directly or indirectly. According to the EU directive on money laundering and anti-terrorist financing, a nominee is a trust and company providing service and sand is therefore a candidate for Paying Agent Upon Receipt responsibilities.
IV. Paying Agent Upon Distribution if no contributor identifiable: In the event that a principal contributor is not identifiable, e.g. for a deceased settlor, then the structure becomes a Paying Agent Upon Distribution and must apply the savings tax to any individual who become entitled to the payment within 10 years
V. No more dummy charities: Trusts or foundations set up for charitable purposes will only be exempt from Paying Agent Upon Receipt responsibilities if they serve:- exclusively for charitable purposes, and for the public benefit. Mixed purpose or private charity foundations will thus be in scope.
VI. Bank accounts in Singapore / Dubai / Bahamas, etc also in scope: A knee-jerk reaction to move the structure’s bank account to beyond the savings tax territory will not avoid the savings tax provisions. The Paying Agent Upon Receipt must apply the savings taxirrespective of where the assets are held. This is similar to am economic operator securing interest from anywhere in the world.
VII. Run but you can’t hide: A fiduciary structure fleeing to outside the savings tax territory, e.g. to a Singapore trust, will not help the trust and company providers based within the savings tax jurisdiction. If the new structure is still effectively managed from within the savings tax territory, e.g. trustee, council or director is based in Liechtenstein, then the management will be a Paying Agent Upon Receipt, and consequently the structure will be in scope.

In summary, the EU savings tax amendment should end opportunities for tax avoidance using Liechtenstein structures for EU residents, as described in this PDF document guideline on Paying Agents Upon Receipt.”

Now you know why I am so keen on reform.

And why every honest taxpayer in Europe should share that enthusiasm.

The European Union Savings Tax Directive Amendments – a practical guideline

EU STD, Tax evasion Comments Off

Mar 152011

I’m delighted that Mark Morris has made available to me for the purposes of publication his stunning guide to the proposed amendments to the European Union Savings Tax Directive.

This is available here.

I make no pretence that this is an easy read: it isn’t. But I’ve known Mark for some time now and know that he is widely recognised in the EU as an expert on these issues and I believe that what he’s written is both invaluable information and a stunning guide for those with concern on this issue.

It also shows just how important these changes will be in tackling tax evasion – and not just in the EU. This has much wider impact. Unless you’re a tax evader you’ll be in the group who are bound to be better off when this is in place.

EU Directive update

EU STD, Europe, Switzerland, Tax evasion 2 Responses »

Feb 182011

A German magazine, NZZ (not available on line) ha noted that Austria is now holding out against reform of the European Union Savings Tax Directive. The reason? The deal being done between the UK, Germany and Switzerland on withholding taxes that preserves bank secrecy in Switzerland.

This is, of course, convenient politicking by Austria, which has been no firmed of the European Union Savings Tax Directive. But it is none the less significant. Why should the Swiss get such absurd and favourable treatment that only facilitates tax evasion?

Europe heralds new era of tax transparency

EU STD, Europe, Tax avoidance, Tax evasion 2 Responses »

Dec 152010

The following blog is by Alex Cobham, policy manager at Christian Aid, It first appeared on the blog of the Task Force on Financial Integrity and Economic Development. The issue to which he refers is really important, and I agree with his interpretation on the issue. I do so having checked my facts. I am aware that many right wing tax abusers think that the initiative he refers to spells the end of the European Union Savings Tax Directive. They are wrong. I have checked with sources in Europe and not only does the change have no effect on the European Union Savings Tax Directive, there appears to be remarkable confidence that it will be extended next year. But, over to Alex:

“While the headlines are full of information that governments did not intend to release, European ministers of finance including UK Chancellor George Osborne last week agreed to a draft directive outlining a powerful new basis for the automatic exchange of tax information between jurisdictions – a directive which, if it does what it says on the tin, would be a dramatic step towards the end for European tax havens.

This Tuesday 7 December there was a meeting in Brussels of the Economic and Financial Affairs council (EcoFin, effectively Europe’s council of finance ministers). The press release (still provisional) shows an agenda that covered everything from the Irish bailout to climate finance, but importantly included the following: “political agreement on a draft directive aimed at strengthening administrative cooperation in the field of direct taxation so as to enable the member states to better combat tax fraud. [The Council] will adopt the directive without further discussion at a forthcoming Council meeting, after finalisation of the text.”

The significance of this agreement should not be understated. The additional press release devoted specifically to this item contains further detail. The draft directive will “overhaul‚Ä¶ directive 77/799/EEC, on which administrative cooperation in the field of taxation has been based since 1977.” And how! According to the Ecofin press release, the changes represent nothing less than a fundamental rethink of the approach to information exchange.

As a first step, the OECD model tax convention on income and capital [3MB pdf file] will be implemented. This is a valuable step, but the Council makes clear, however, just how weak the convention is in terms of information exchange, by explaining how the draft directive will exceed the convention’s requirements.

First, the exchange of information on request will be made much more effective. New measures include extending cooperation to taxes of any kind; imposing time limits for jurisdictions to respond to requests; allow officials from one jurisdiction to participate in investigations in another; and ease the process through standardisation, including importantly of the format for information to be exchanged.

A major aspect will be to reduce the burden on the requesting state. The OECD model of information exchange ‚Äòon request’ has been criticised for effectively requiring the requesting state to know all the information already about the specific case of tax abuse. Unsurprisingly, the quantity of actual information exchange resulting has been low. The new draft directive will apparently only require requesting nations to provide “the identity of the person under investigation and the tax purpose for which the information is sought”, which could dramatically increase actual information exchange.

The second and‚Äîif anything‚Äîmore powerful way in which the OECD convention will be exceeded by the new European arrangements is in the automatic nature of some information exchange. Specifically, “The Council agreed on a step-by-step approach aimed at eventually ensuring unconditional exchange of information for [the eight major] categories of income and capital.” This will involve automatic exchange of five of these categories by 2015, with a view to a proposal by 2017 to extend to all categories. The categories are as follows: income from employment; directors’ fees; dividends; capital gains; royalties; certain life insurance products; pensions; and ownership of, and income from immovable property.

There can no longer be any question that automaticity is the new standard for information exchange to combat tax abuse. Including developing countries in this system, to stem their massive tax losses, must now be the priority.

Quite apart from the benefits that the draft directive would have for citizens of the EU in terms of greater revenues and less corruption in the form of tax abuse, the potential benefits for developing countries are huge. Leading international figures such as the OECD Secretary-General now share Christian Aid’s view that developing countries’ revenue losses to international tax dodging are substantially in excess of all aid receipts. For that reason, the last UK government led the way and ensured that the London G20 meeting of 2009 committed to including developing countries in a new climate of transparency and cooperation in the field of tax – a commitment which has yet to be meaningfully realised.

The draft directive does not herald the absolute end of European tax havens, for some issues of secrecy will (of course) remain, and there remain weaknesses about the expectation on states to hold information for exchange‚Äîa problem for a number of U.S. states too. It is, nonetheless, a dramatic step towards tax transparency.

European finance ministers have laid down some clear markers: that multilateral information exchange agreements are necessary for tax transparency; that the OECD standard for information exchange ‚Äòon request’ is unfit for purpose in a number of ways; and that automatic exchange is the future. The critical issue now should be about establishing a process and a schedule to further ‚Äòmultilateralise’ the agreement so that developing countries can finally benefit from greater cooperation as the G20 committed.”

EU Commissioner demands automatic information exchange

EU STD, Europe, Secrecy jurisdictions, Tax avoidance 1 Response »

Nov 242010

Take a look at these remarks made last week by Algirdas ?†emeta, EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, in a presentation entitled The Importance of Information Exchange in Tax Matters. (hat tip: Markus Meinzer and the Tax Justice Network).

I can only highlight a couple of things he said (and note that he was speaking in an official capacity, it seems.) Like Italian Finance Minister Giulio Tremonti, he gives short shrift to those who think a withholding tax regime alone is good enough. Proper information exchange, he says, is the thing to aim for.

"Automatic exchange of information permits tax authorities to obtain information on their own tax residents in cases where they might not otherwise be aware of such cross-border investments.
It is much more interesting for a tax authority to receive comprehensive information about the assets owned by its residents abroad than to receive only a withholding tax on the income produced by such assets. Such a withholding tax may generate some revenue, but it does not allow Member States to assess the overall tax base of their residents. As a consequence, the progressivity of some tax scheme cannot properly be applied. This leads to less revenue and the unequal treatment of taxpayers."

And as for the OECD’s forms of information exchange – they just aren’t good enough he says. So much for the OECD’s claim that theirs are the universally accepted international standard.

Undoubtedly, the OECD standards of transparency and exchange of information have paved the way for international consensus on the importance of effective exchange of information for collecting taxes. But as you may know, the OECD standards, which prevent States from invoking bank secrecy to refuse access to information, concerns exchange of information on request. This approach only works if the State that needs the information already has indications that a tax resident may have financial interests in another State.

Quite so. Well said. It’s the OECD’s Catch-22 approach. And then, back to the UK’s and Germany’s deeply flawed deals:

In this context, a distinction must be made between our closest neighbours and other international partners. Our European neighbours are closely associated to all our policies, through the EFTA and EEA agreements and, particularly in the case of Switzerland, also through a series of bilateral EU agreements. As a result, our respective markets are closely integrated and cross-border trade and investment are intense.
It is therefore only logical that we have higher expectations for these countries, and that we expect them to cooperate more closely with the EU on the exchange of information. In this context, it is not sufficient that individual EU Member States conclude bilateral agreements with third countries which provide for the OECD standards of transparency and exchange of information.

He is quite right. Fantastic to see influential people speaking truth to power.

Thanks to TJN for permission to use their post

Italy says the Swiss withholding deals do not comply with EU Code of Conduct

EU STD, Europe, Switzerland 2 Responses »

Nov 232010

Tax-News.com has reported:

During a meeting of the European Economic and Financial Affairs Council (Ecofin) in Brussels, Giulio Tremonti, Italy’s Minister of the Economy, declared that he was wholly against the bilateral agreements for the exchange of tax information which some European Union (EU) member states were negotiating with Switzerland.

Tremonti has, for some time, been concerned at the level of information and/or tax remitted between countries under the [European Union Savings Tax] Directive, and had already threatened, at the beginning of this year, an Italian veto on all EU tax matters unless clarification was forthcoming on tax recovery.

He has now said that the agreements being negotiated with Switzerland compromise, and are “plainly against the spirit of”, the existing EU regulations. He said that Italy could not agree to the EU Directive being “violated” by bilateral agreements. He pointed out that he is awaiting a reply within Ecofin on their unacceptability, and that “without a reply, there could not be unanimity”.

While there have also been further rumblings recently, particularly in the Swiss press, that there could be movement shortly towards a signing of the DTA between Italy and Switzerland, it will be seen that Tremonti, on whose shoulders would rest any decision to proceed, would need to move some way in his present opinion before any signing could be contemplated.

He’s right.

And it’s great to see an EU member state standing up and saying so.

Good on Italy, for a change.

And shame on the UK.

Guernsey is abusing the truth

EU STD, Guernsey, Information exchange, Tax compliance 7 Responses »

Oct 132010

I noted the following this morning after Guernsey emailed me about it:

Guernsey plans timing for move to automatic exchange of information

Guernsey’s Government has announced that it plans to give financial institutions a window from 1st January 2011 to 1st July 2011 for moving to automatic exchange of information.

The Fiscal and Economic Policy Group carried out a public consultation earlier in the summer and this morning Chief Minister Lyndon Trott told the local Parliament, the States of Guernsey, of the planned transition to automatic exchange of information for the equivalent measurers Guernsey adopts relating to the EU Savings Tax Directive.

His statement outlined the intended timing of a movement to automatic exchange of information following the consideration of the results of the consultation process.

The Chief Minister said: “In light of the views expressed by members of industry and industry bodies, and given the States’ commitment to maintaining the highest standards of tax transparency, the Fiscal and Economic Policy Group recommended to Policy Council that institutions in Guernsey should move to automatic exchange of information from 1st January 2011 and no later than 1st July 2011. This transition period is to provide the maximum flexibility to our industry in making their necessary adjustments to their payment systems.”

And to be candid this is complete and utter misinformation.

All that Guernsey is doing is moving to a standard that the EU made clear would be compulsory in 2005 when the European Union Savings Tax Directive was introduced. It’s just belatedly coming into line.

And far from there being – as you would think from the release – automatic information exchange on all activities in Guernsey from 2011 onwards this is not true. All that will happen is that information on interest paid on bank deposits held in the name of individual account payers within the EU will be subject to exchange of info0rmatyion with the tax authorities of the states in which they are resident.

So we have this comparison ( simplify a little, but only a little):

Type of income	Exchanged	Not exchanged
Bank and some other forms of interest:
Individuals, EU resident
Individuals, not EU resident
Companies
Trusts
Dividends
Rents
Many forms of unit trust and investment funds
Profits
Capital gains
Trust distributions
Pensions
Proceeds from most life assurance based products

In other words there is no move at all towards automatic information exchange going on here. There is just belated compliance with the very basic, and now widely acknowledged inadequate requirements of the European Union Savings Tax Directive.

It would be so much easier to take places like Guernsey seriously if they were honest. But it’s a sad fact that there rhetoric is a million miles apart from the reality of what they offer and that as a result they remain an ideal location in which to undertake tax evasion, and more, at cost to society at large, both within and more importantly outside that island.