Mauritius: Insolvency Bill

The present statutory framework dealing with insolvency in Mauritius is scattered among various pieces of legislations and have serious gaps that need to be addressed. Our economy has evolved and grown in sophistication in the past two decades. There is a wider variety of businesses, the economy is more globally integrated and business risk is becoming more spread and more intense. For these same reasons, many countries around the world have reformed their insolvency legislations and others are now adapting to that trend. Mauritius cannot afford to lag behind. In fact the Insolvency Bill is yet another example of Government’s commitment to adapt our legislation to the modern environment and to comply with international norms, standards and best practices. It is also crucial to our endeavour to improve the business climate in Mauritius and to ensure that the interests of all stakeholders in a business venture are fully protected, especially when companies face difficulties and become insolvent.

Consultations

This Bill has been worked out in close collaboration with the World Bank and the stakeholders in Mauritius. A Consultative Paper was issued in August 2007 on the policy proposals. It is to be noted that the World Bank submitted the “Report on the Observance of Standards and Codes” (ROSC) of Insolvency and Creditor Rights Systems for Mauritius” in March 2004. A Steering Committee on Insolvency and creditor rights was appointed to work with the World Bank in the development of its report. Prior to the issue of the final report, a dissemination seminar was held in 2004, with the widest possible participation, among whom there were lawyers, accountants, bankers and other professionals. A number of policy recommendations were discussed and incorporated in the final report. Following these consultations the Bill has been finalized with the assistance of Professor Mc Kenzie from New Zealand who also drafted the Companies Act 2001 and the Companies Act 1984. We have also drawn on the experience of other countries, including Australia, Canada, Malaysia, New Zealand, Singapore and UK to finalise the Bill.

Consolidating and modernizing the legal framework

The most pressing reform of the insolvency legislation relates to the need for consolidation. Presently, the process for corporate insolvencies i.e. winding up, receivership and liquidation of companies are dealt with in the Companies Act 1984. The parts relating to these processes were not repealed by the Companies Act 2001. Individual insolvencies are dealt with in two separate statutes namely the Bankruptcy Ordinance of 1888 and the Insolvency Act 1982. The Insolvency Act 1982 which is essentially the Insolvency Ordinance of 1856 deals with the insolvency of individual non-traders while the Bankruptcy Ordinance of 1888 deals with the insolvency of individual traders. Part of insolvency is dealt with in the Code Civil Mauricien and governed by many laws, including the outmoded law for trader (1888) and more recent company legislation that supports a variety of procedures for voluntary and compulsory winding-up. The Bill will update and integrate the current fragmented framework in one modern, omnibus legislation.

The Priority of Claims in Liquidation – enhancing employee protection (Schedule 4)

Another crucial area where the law is modernized relates to the treatment of employee rights. Liquidation of a company under the existing legal framework produces little or no return to the unsecured creditors and a comparatively low return even to non-bank secured creditors. This Bill reviews the process in order to give greater protection to employees while at the same time protecting the priority of secured creditors under their respective security instruments. The Bill redefines the priority of claims in the distribution of assets in liquidation and gives workers’ unpaid salary higher priority than the secured creditors. Under present legislation workers claim are treated pari-pasu with the claims of secured creditors.

It is clear that the salary of workers, the bread earners in the family will get higher priority in the insolvency process than is presently the case. We need to put the focus on preventing and minimizing the human sufferings that closing down businesses can cause. This should be our primary concern and it has been our primary concern in this Bill. In fact, the higher priority of claims being given to workers’ salaries is not the only way in which this new legislation gives greater protection to workers. The fact that this Bill puts a big focus on saving the company through alternative means to liquidation and provides for liquidation to come as a very last resort and not as easily as it does presently is a significant step forward to protect employment and the employees. I will elaborate on this important feature of the Bill in greater details.

The other striking reforms in the area of claims relates to Government revenue. Presently, Government can claim from a company in liquidation, all the amount due to it. Under the new legislation, collection of these dues will be restricted to the amount due in one year.

The Insolvency Bill is, therefore, setting out (in the Fifth Schedule) a new order of ranking of creditor claims following a survey of existing practices adopted by 15 countries, and takes into consideration suggestions received during the public consultation process. The list of ranking will now be in the legislation in contrast to the present situation where there is no statutory list. These proposals would benefit all stakeholders (shareholders, creditors, employees, the State) by giving them a fair share in the distribution of realised assets at each stage of the process.

Setting in place alternative measures to bankruptcy (Part II- subpart IV)

Indeed, another major weakness of the present legal framework for corporate insolvency is its bias towards liquidation. In many circumstances, companies are placed into liquidation when alternative resolutions might be possible or even less costly. This Bill corrects this bias. It provides for rehabilitation procedures that permit quick and easy access to the process of rehabilitation, providing sufficient protection for all those involved, providing a structure that permits the negotiation of a commercial plan, enabling the majority of creditors in favour of the plan or other course of action to bind all other creditors by the democratic exercise of voting rights and providing for judicial or other supervision to ensure that the process is not subject to manipulation or abuse.

This Bill provides procedures for two important alternatives to winding up – these are: (i) workouts and (ii) voluntary administration.

Workouts

Workouts are out-of-court debt restructurings. This has now become a global reality and a widespread practice. These debt restructurings are handled by professional insolvency and restructuring practitioners and are usually less expensive and painful as an alternative to outright bankruptcies. This instrument provides an avenue to enterprises to reduce and/or renegotiate its bad debts in order to improve or restore liquidity and rehabilitate the enterprise so that it can continue its operations. Thus workouts are a rehabilitation mechanism to remodel the financial and organizational structure of debtors experiencing financial distress so as to permit the continuation of their business. The rehabilitation procedures, therefore, give a debtor/enterprise an opportunity to recover from its temporary financial difficulties, and to provide it with an opportunity to restructure its operations. Where rehabilitation is possible, such an approach will be a preferred option as the continued operation of the enterprise will enhance the value of the assets as opposed to liquidation and that production unit can be sold as going concern to minimize hardship on shareholders, creditors and workers.

The Bill provides for directed workouts for prescribed companies - those companies which by reason of the nature and scale of activities or the number of employees, has a material impact on the national economy. The Bill provides for the establishment of a Companies Supervisory Committee, one member of which is appointed by the FSC, one member by the BOM, three members appointed by the Minister from the private sector, and the Registrar of Companies. The Committee is given power to review the activities of prescribed companies and take steps where reasonably practicable to rehabilitate those companies that are encountering financial difficulties.

Voluntary Administration (Part III, subpart IV – s 215 to s 303)

Voluntary Administration is another alternative to liquidation that is provided for in the Bill. In some of the major jurisdictions, including UK, New Zealand, and Australia the introduction of voluntary administration saw an immediate buy-in, and it has since become the dominant formal procedure in times of financial distress. The consequences of administration include the following:

1. Directors retain their positions, but are unable to exercise any of their powers without the written consent of the administrator;
2. Any transaction affecting the company’s property is void unless made with the consent of the administrator, or with leave of the Court;
3. A moratorium is placed on the rights of owners, or lessors of property in possession of the company;
4. There is a moratorium on all proceedings against the company. Creditors can however resolve to liquidate the company;
5. The administrator takes over the management and control of the company and, amongst other powers, may carry on or terminate the business, dispose of the company’s property, and remove directors;
6. The administrator may also sell property subject to a charge, if this is done in the ordinary course of business, or with leave of the Court. However, the secured creditors can still enforce its security even if an administrator is appointed.

The administrator is required to hold meetings of creditors within a strict time frame, investigate the affairs of the company and within 21 days of his appointment to convene a meeting of creditors, inform them as to the affairs of the company and give his opinion on whether the creditors should either enter into a deed of arrangement; terminate the administration; or wind up the company.

Thus the Insolvency Bill proposes a four-phased process:

• Restructuring/Work outs
• Administration Receiver/Manager
• Liquidation

Liquidation will only take place when there is absolutely no hope of restoring an insolvent person or corporation.

The present legal framework is very vague on who can act as liquidator, how much they can charge and what are their powers. In contrast the Bill requires that a liquidator be registered with the Insolvency Service. The fees charged by the liquidator will also be governed by the Bill and should not exceed 15% of the distributable proceeds. The Bill also brings together in one place a statement on the powers and duties of the liquidator.

The Bill provides for continued supply of essential services for a short period of time to companies that are being sold as a going concern.

Individual insolvency (Part II)

As regards individual insolvency, separate regimes exist presently – the Bankruptcy Act (1888) for traders and the Insolvency Act 1982 for non-traders. Although there is a broad similarity between the two regimes, there are a large number of procedural differences- because the Bankruptcy Act is derived from the English bankruptcy statute and the Insolvency Act is related to the Code Civil Mauricien. This weakness will be addressed by having one single legislation to govern all insolvency matters.

In a number of respects, there is an intersection between the individual and corporate regimes, i.e. references are made to the Companies Act as well as the Bankruptcy Act. Thus at the time the Companies Act 2001 was enacted, certain of the provisions of the Companies Act 1984 dealing with corporate insolvency matters were not repealed as it was felt that such issues would be better addressed in a comprehensive insolvency legislation covering both individual and corporate bankruptcies. The Insolvency Bill repeals the remaining provisions of the Companies Act 1984, the Bankruptcy Ordinance 1888 and the Insolvency Act 1982.

An important change in this Bill regarding individual insolvency relates to application by a bankrupt for discharge. The present Bankruptcy Act provides in s.29 for a bankrupt to apply for discharge at any time after being adjudged bankrupt. The Court may grant, refuse or suspend discharge under s.30. However, many bankrupts never apply for discharge. As undischarged bankrupts, they present some hazard to the commercial community as their capacity to enter into further indebtedness is limited and they may not, without risk to those whom they contract with, re-enter into the control or management of a business. The practice in modern bankruptcy Acts is to provide for automatic discharge after a stated period of time, usually three years. A bankrupt who wishes to apply for discharge at some earlier date is able to do so and whether or not the application is granted is subject to the discretion of the Court in the usual way. In the case of an automatic discharge, any creditor or the Official Receiver may lodge with the Court an objection to the bankrupt’s discharge. If an objection is filed, then the Court will hear any representations made by the Official Receiver and creditors, and if appropriate grounds are established, the Court may refuse to grant a discharge or grant a discharge subject to such conditions as the Court thinks fit, including an order for regular payments to be made by the bankrupt in reduction of his indebtedness for such period of time as the order provides.

The Insolvency Bill makes provision in clause 97 for the automatic discharge of a bankrupt upon the expiration of three years from the date of adjudication in bankruptcy. In the case of a Summary Administration under clause 34, the period is two years.

Cross-border insolvency (Schedule 10th)

A new regime which is included in the Bill in order to address the problems which arise from cross-border insolvency, i.e where, in the case of an individual or company insolvency, assets are held in more than one jurisdiction and creditors may be located in a number of jurisdictions. Important issues arise for Mauritius in this area because of the significance of the global business sector. It is important that there are clear and well understood rules governing the insolvency of global business companies incorporated in Mauritius and also governing those respects in which such companies can form part of, or operate outside of, an international insolvency administration. The Bill thus provides for Mauritius to adopt the UNCITRAL model law on cross-border insolvency which has been adopted by a number of jurisdictions. It is set out in the 10th Schedule. The Schedule will, however not come into operation until there is sufficient reciprocity in dealing with insolvencies in jurisdictions that have trading or financial connections with Mauritius, or that it is otherwise in the public interest. For the regime to be workable, it is desirable that there be some mutuality between affected jurisdictions so that the principal countries with which Mauritius has grading or financial connections either have adopted the UNCITRAL regime or have compatible regimes. Special provision is made in clause 132(4) for deposit taking institutions, mutual funds and life insurance companies, conferring on the Court power to segregate assets so as to give priority for payment to local depositors or investors. This Bill is therefore a significant step towards the modernization of Mauritius insolvency system to deal with cross-border insolvency proceedings.

Netting arrangements in financial contracts (Part V – clauses 338-363)

Another crucial coverage of this Bill is the introduction of a new set of statutory provisions dealing with netting arrangements in financial contracts. It provides for the netting of certain financial contracts, both in and outside of insolvency. It also provides rules relating to the law to be applied to intermediaries in relation to the maintaining of securities accounts and ‘intermediary’ is defined in clause 338(3) and covers a person who, in the course of business or other regular activity, maintains securities accounts for others or both for others and for its own accounts. Sharebrokers, futures dealers, money market dealers, investment bankers and merchant bankers would come within this description. These rules have importance in relation to a number of financial transactions, particularly international financial transactions, where arrangements are entered into for the netting between parties of their respective positions where the parties are subjected to payment or delivery obligations at some future point of time. Where the positions are closed out, the parties will net off their obligations. In the absence of legislation, major difficulties can arise if one of the parties becomes insolvent and unable to honour its part of the netting obligation. It is important that payment systems, particularly those which can impact in a systemic way more widely on the financial system, be protected from insolvency laws that could otherwise jeopardize finality and the irrevocability of transactions. The Bill provides statutory support for the enforcement of netting arrangements in relation to certain qualified financial transactions in the event of the insolvency of one of the participants.

In line with the recommendations of the Mackay Report, the Insolvency Legislation has been prepared on the assumption that a Commercial Court would be established to handle both commercial and bankruptcy matters. A Commercial Division of the Supreme Court is already operational since January 2009 where corporate cases are being attended to.

The provisions relating to receiverships and winding up matters under the Companies Act 1984 will be repealed with the coming into force of the insolvency law, and its administration would remain with the Registrar of Companies. The proposed “Insolvency Service” would operate as a Unit of the Registrar of Companies as is the case in other jurisdictions.

Another salient feature of the Bill, is the placing of additional responsibilities on directors of companies in the exercise of their duties, including procedures for public examination of directors and debtors by the Official Receiver / Court to prevent recurrence of delinquent behaviour and a sanction mechanism (clause 52, 3rd schedule).

Conclusion

The Insolvency Bill reflects the objectives of Government to implement an insolvency regime that effectively balances the interests of debtors and creditors. This has not been a simple task. We strongly believe that the legislation before the House will make insolvency proceedings more transparent and less painful. Under this new legal framework, insolvency will not happen in an opaque world bereft of accountability. This Bill also gets the balance of regulation right so that all stakeholders affected by insolvency have confidence in the process. This Bill will also secure the reputation of Mauritius as a well governed business and financial services center and a trustworthy investment destination. It will shore up corporate goodwill. With the passing of the current Bill, the Companies Act 2001 and the Insolvency legislation would become the two most important set of laws governing the corporate sector. Together they will enhance corporate governance and corporate ethics, and allow creditors to put in place the management of troubled firms, and in this way create incentives for prudent corporate behaviour.

Ernst & Young - Indian Capital Markets: Funding growth in challenging times

With equity market shrinking in India and FIIs pulling out, there exists a compelling need to develop the bond market and alternative sources of financing. Click here to read the report

Singapore: MAS consults on proposals to strengthen the regulation of the sale

MAS is consulting the public on proposals to further safeguard consumers’ interests and promote higher industry standards for the sale and marketing of unlisted investment products.
2. The proposals were formulated based on MAS' review of the sale and marketing of unlisted investment products after the current global financial crisis led to the failure of several structured notes in Singapore. Some of the main proposals are as follows:
(i) Issuers will be required to prepare a short, user-friendly Product Highlights Sheet to promote more effective disclosure. In addition, requirements for ongoing disclosure and fair and balanced advertising will be strengthened.
(ii) FIs will be required to undertake an enhanced product due diligence process before selling new investment products.
(iii) Representatives will be required to enhance the quality of information obtained from their customers. They will be required to provide customers with more details in their basis for recommendation and set out more clearly in a formal document why the products are suitable for them.
(iv) A new category of “complex investment products” will be introduced, and subject to enhanced regulatory requirements. FIs will only be able to sell a complex investment product to customers when they give customers advice on whether it is suitable for them. The prospectus, Product Highlights Sheet, and all marketing and advertising materials of complex investment products will carry health warnings.
(v) MAS’ powers to investigate and take regulatory action will be strengthened through several measures, including the introduction of a civil penalty regime under the Financial Advisers Act (FAA).
3. Many of these proposals will require legislative amendments. MAS will issue the Guidelines on “Fair Dealing – Board and Senior Management Responsibility for Delivering Fair Dealing Outcomes to Consumers” by end March 2009. The Guidelines will make clear MAS’ expectations of what the board and senior management of FIs should be doing to achieve fair dealing outcomes for consumers.
4. In formulating these proposals, MAS has taken into account public comments, investors’ complaints, and its reviews of the systems and processes of the FIs, along with developments in other jurisdictions. MAS has also tapped the views of market practitioners, industry associations, as well as of the Consumers Association of Singapore and the Securities Investors Association (Singapore).
5. Shane Tregillis, Deputy Managing Director, Market Conduct, MAS said, "MAS' proposals will further safeguard consumers' interests and promote higher industry standards. While we are enhancing our current regulatory regime, regulation by itself is never a complete answer. We expect FIs to go beyond mere compliance with regulatory requirements. FIs should learn from recent events and the board and senior management should embed a strong culture of dealing fairly with their customers throughout the whole organisation. FIs should make use of this opportunity to fundamentally rethink business models based on a commission-driven, short-term product sales culture. Only by dealing fairly with and providing real long-term value for their customers can financial institutions truly rebuild consumer confidence and trust."
6. MAS invites interested parties to give their views and comments on the proposals contained in the Consultation Paper. (Click here to view the consultation paper)
7. The consultation period will end on 23 April 2009.

Guernsey becomes world's fourth largest captive domicile

Guernsey has become the world’s fourth largest captive domicile, according to trade publication Business Insurance (9 March 2009).
The research also shows that the Island still plays host to more captives than any other jurisdiction in Europe.
“This is obviously very good news,” said Peter Niven, Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry.
“Guernsey has a long and proud history as a captive domicile. We have been the pre-eminent jurisdiction in Europe for a good number of years now and it is great to comfortably retain that position. The Island has also been recognised for some time as a world-leader so it is extremely pleasing to move into fourth place based on numbers of captives.
“I think it underlines how clients are attracted to Guernsey by the fact our heritage has grown an industry that is renowned for its robust yet pragmatic regulation and significant experience, expertise and innovation in providing tailored solutions to meet their needs.”
The Business Insurance survey for 2008 reveals that Guernsey – fourth – has traded places with the British Virgin Islands – fifth – compared to 12 months previously. There were 368 captives domiciled in Guernsey at the end of 2007 and a net increase of 2 during last year took the total to 370 at the end of 2008. The BVI was playing host to 392 captives at the end of 2007 but a net decrease of 60 means that only 332 were based in the jurisdiction at the end of 2008.
The 2008 table is led by Bermuda with an estimated 960 captives, followed by Cayman Islands (777) and Vermont (557).
Guernsey has comfortably retained its place as the leading captive domicile in Europe and is followed by Luxembourg (262), Isle of Man (156), Dublin (131) and Switzerland (50).
“It is extremely pleasing that Guernsey has not only maintained its status as the largest captive domicile in Europe but we have also consolidated our position as a leader on the world stage. This has come against a backdrop of our maturity as a captive domicile, increased competition from other jurisdictions and the soft market conditions that have prevailed,” said Dominic Wheatley, Chairman of the Guernsey Insurance Companies Management Association (GICMA).
“However, I believe that we can build on this further during 2009. The commercial market will begin to increase premiums during this year as the changed economic picture means insurers find capital more expensive and investment income harder to come by. Indeed there are already clear signs of a hardening of premium rates in a number of critical corporate insurance markets. At the same time there is likely to be a heightened perception of the risks associated with relying totally on the commercial market for primary insurance given the failures or near-failures of some very large insurers.
”These developments increase the attractiveness of risk financing alternatives such as captives. However, they are moving apace and so it is better to establish a captive sooner rather than later. In short, the time to establish a captive is now.”
Mr Niven added: “A great breadth of finance business is carried out in Guernsey so while the global downturn is adversely impacting flows within some sectors, others are seeing an upswing or have identified new prospects as a result of the overall global economic picture. One of the clearest opportunities arising is within captive insurance and we are getting out these positive messages to key decision makers on risk, particularly those like chief financial officers and finance directors, so that Guernsey can continue to draw in new business flows despite all the talk of doom and gloom.”

UK Residence, Domicile and the Remittance Basis: Operational changes

The Finance Act 2008 made a number of changes to the remittance basis tax rules and some changes to the residence rules. These changes followed the ending of the review of residence and domicile which started in 2002. The changes can be found in sections 24 and 25 and Schedule 7 of the Finance Act 2008 but can be summarised broadly as:
Most individuals now need to make an annual claim to the remittance basis.
Individuals claiming the remittance basis of taxation, where they have unremitted foreign income or gains of £2,000 or more arising in the tax year, lose their entitlement to personal allowances and the annual exempt amount for Capital Gains Tax.
The introduction of an annual £30,000 tax charge for adult remittance basis users resident in the UK in the current year and for seven or more of the previous nine years where they have unremitted foreign income or gains of £2,000 or more in the current year.
Changing the day counting rules that determine when someone becomes resident in the UK under the 183-day rule to count as a day any day upon which an individual is in the UK at the end of that day (ie at midnight), subject to a new rule for transit passengers.
Closure of a number of loopholes and flaws in the remittance basis that allowed people to bring untaxed income or gains into the UK tax-free.
In the light of these changes HM Revenue & Customs (HMRC) is making some changes to the way we deal with residence, domicile and the remittance basis of taxation.
Guidance
The main HMRC guidance for residence, domicile and remittance basis issues has for many years been the IR20. This was updated last year to incorporate some changes introduced by Finance Act 2008 but, as already announced; we recognise that IR20 needs significant revision. So guidance to replace the IR20 will be published soon and at the same time the IR20 will be withdrawn. We will also be withdrawing any other HMRC guidance on residence and ordinary residence contained in other HMRC manuals, Statements of Practice and publications (for example R&CB 01/07, TB52, SP/A10, SP3/81, SP2/91, SP17/91). In the light of this any practices associated with the old guidance, whether in IR20 or elsewhere, will not apply from 6 April 2009, unless provided for in the new guidance. That new guidance will be in the form of a new set of internet based guidance supported by HMRC guidance manuals for our staff which are also published on the Internet.
The new guidance reflects the 2008 Finance Act changes, other changes from other Finance Acts and recent court decisions in this area. Some wholly new guidance is being issued in some areas, such as domicile, to help people correctly self-assess their tax liability.
Some interim guidance had been made available already, mostly in the form of Frequently Asked Questions (FAQs) and the explanatory notes for Schedule 7 Finance Act 2008. This interim guidance will be incorporated into the new permanent guidance as appropriate. The following guidance has already been released:
Guidance on Employment Related Securities
Guidance on section 690 ITEPA directions as explained below
Statement of Practice 1/09 (which replaces Statement of Practice 5/84).
Coming to work in the UK
The remaining guidance will be published shortly and will include:
A simple guide to residence, ordinary residence and domicile.
The 'Residence, Domicile & the Remittance Basis’ guidance (HMRC6). This replaces the old IR20.
New guidance on the remittance basis rules. (This will form part of the new 'Residence, Domicile and Remittances' manual for HMRC staff.)
Some new guidance on domicile. (This will move to the Residence, Domicile and Remittances manual in due course.)
Some new guidance on non-resident trusts.
Some guidance on the application of the remittance basis to the Transfer of Assets legislation. (This will form part of the new 'Transfer of Assets' manual for HMRC staff.)
Updates to the Capital Gains Tax manual to reflect the changes to the remittance basis.
A new short guide for international students.
Revised guidance on letting property abroad.
Most of the guidance will initially be published on the 'Residence and domicile : Guidance on the new tax rules' pages but over the coming months it will be incorporated into existing guidance manuals as appropriate and published as part of our general internet guidance. The same webpage will provide links to any guidance published in existing guidance manuals
Initial non-domicile claims – Form DOM 1
Tax Bulletin 29, published in June 1997, announced that following the introduction of self assessment HMRC (the former Inland Revenue) would no longer provide a residence rulings service. However we continued to accept initial non–domicile claims on forms DOM 1 or P86. Enquiries are sometimes undertaken into such claims under Schedule 1A TMA 1970. In addition an enquiry under section 9A TMA 1970 can also be made into a claim to non-domicile status made on a Self Assessment tax return either as a stand alone enquiry or as part of a wider enquiry.
The publication of our new guidance on domicile, plus the fact that from 2008-09 onwards a claim to the remittance basis is no longer mandatory, and must be made on a year by year basis where an individual has unremitted foreign income or gains of £2,000 or more arising in the tax year, mean that HMRC will no longer accept initial non-domicile claims on form DOM 1 or form P86. Form DOM 1 is being withdrawn completely. It will be replaced by the new comprehensive domicile guidance mentioned above that will allow the vast majority of people to self assess their own domicile status. Form P86 will also be withdrawn soon and replaced by a new form. Until such time as the new form is issued individuals do not need to fill in boxes 12 to 17 on the P86 when submitting it. If they choose to fill in those boxes HMRC will ignore the content when processing the form.
Any DOM 1 forms received by HMRC by close of business 25 March 2009 will still be processed but any received after that date will be returned unexamined.
In future, subject to the comments below about Inheritance Tax, enquiries about domicile status will be dealt with by way of an enquiry into a Self Assessment tax return which an individual has made on the basis that they are not domiciled in the UK.
Where an individual has already submitted a form DOM 1 or P86 and obtained an initial view from HMRC about their domicile status it will be unusual for us to open an enquiry into domicile status in the few years after that, unless new information becomes available that indicates our initial view was incorrect or there has been a change in circumstances. However with the passage of time, circumstances and intentions change and so that initial view from HMRC can become less and less useful as an indicator of domicile status. For example if an individual had advised HMRC on their arrival in England a decade or so ago that they planned to leave the UK after five years but had since married, had a family and decided to make England their permanent home then they will have adopted a domicile of choice within the UK.
Domicile and Inheritance Tax
Where an individual who is not domiciled in the UK settles non-UK assets into a non-UK resident trust then assets in that trust will not be subject to inheritance tax. Following the release of the new HMRC guidance on domicile most settlors should now be able to decide for themselves whether or not they are UK domiciled.
An individual setting up a non-resident trust who, having taken account of the new HMRC guidance, considers they are non-UK domiciled is not obliged to submit an Inheritance Tax account to HMRC. If the settlor is non-UK domiciled then no Inheritance Tax is due. But if an Inheritance Tax account is submitted in these circumstances, HMRC will continue its existing practice and only open an enquiry into that return if the amounts of Inheritance Tax at stake make such an enquiry cost effective to carry out. At present that limit is £10,000.
As is currently the case, where HMRC has expressed an opinion on the domicile status of a settlor for Inheritance Tax purposes we will not normally seek to reconsider that opinion unless new information becomes available that indicates our initial opinion was incorrect or there has been a material change in the circumstances of the settlor. However, when we make a decision it applies only to the date of the transaction concerned. So if circumstances change, the individual returns to the UK for example, that individual’s domicile may need to be considered again at another point in time. Domicile is not a static thing, it can change as people’s circumstances and intentions change.
Enquiries into domicile status
For 2008-09 and later years, in order to make a valid claim to the remittance basis individuals will be required to state on their Self Assessment tax return the grounds for their entitlement by stating either that they are not domiciled in the UK or that they are not ordinarily resident in the UK (or both). The new domicile guidance will help individuals decide their domicile status, supported as appropriate by any professional advice they may obtain. As a result, if HMRC decides to enquire into an individual’s domicile status this will be by way of a section 9A TMA enquiry into their Self Assessment tax return. (Alternatively in appropriate cases HMRC may enquire into an individual’s domicile status by way of a Part VIII IHTA enquiry into an Inheritance Tax return.) Where a claim to the remittance basis is not challenged for that year it does not mean HMRC necessarily accepts the individual’s domicile is outside the UK and does not prevent HMRC from later opening an enquiry to consider the domicile status of the individual in relation to that, or any earlier year.
Enquiries aimed at establishing an individual’s domicile are, by their very nature, examinations of an individual’s background, lifestyle, habits and intentions, possibly over the course of a lifetime. Consequently, any such enquiries conducted by HMRC will, where necessary, extend to areas of individuals’ and their families’ affairs that may not normally be regarded as relevant to their UK tax position. As a result of some feedback from customers on such domicile enquiries our new domicile guidance includes a section starting at paragraph 49600 which explains the nature of a domicile enquiry and the sorts of questions an individual will need to answer as part of that enquiry.
Where HMRC has expressed a view on an individual’s domicile status for income tax or capital gains tax purposes, as a result of an enquiry, then that view will also apply for Inheritance Tax purposes at that time. Likewise a HMRC view expressed for Inheritance Tax purposes, following a Part VIII IHTA enquiry, will also apply for income tax and capital gains purposes at that time. However, it is important to remember that each decision on domicile will be made at a certain point in time, if circumstances have changed since the time of the relevant decision, the domicile of the taxpayer may also have changed.
Remittance basis users whose foreign income and gains is less than £2,000
Under section 809D ITA 2007 an individual who is entitled to claim the remittance basis of taxation but whose total unremitted foreign income and gains is less than £2,000 in any tax year, can use the remittance basis without having to make a formal claim each year by submitting a Self Assessment tax return. Also, such users will not lose any of their Personal Allowances or their Annual Exempt Amount.
Individuals making use of section 809D are still taxable on any foreign income or gains remitted to the UK. Remittances may be in the form of cash, assets or services enjoyed in the UK. Taxable remittances have to be included on a self assessment tax return. Also, some people who are able to use the remittance basis under section 809D will already be within self assessment and so have an annual Self Assessment tax return to make. There is a new box on the supplementary 'Residence and Remittance Basis etc.' pages (SA109) for such individuals to advise HMRC of their use of the remittance basis under section 809D. This ensures they continue to get their Personal Allowances and the Annual Exempt Amount.
It is recognised that some individuals, in particular those on low income, may make small cash remittances to the UK, out of foreign income or gains, and as a result have to complete a Self Assessment tax return possibly to pay only a small amount of tax. This is particularly the case where foreign tax has already been paid on the income or gains. Where an individual who is making use of section 809D remits less than a total of £500 in cash, which arises from foreign income or gains, into the UK during the tax year, then HMRC will accept that such an individual does not need to make a Self Assessment Tax return simply to pay the tax on those cash remittances. However where such an individual is required to complete a Self Assessment tax return for any other reason, or HMRC serves them with a notice to make a return, then they will need to include those remittances on the return and pay the tax due. This practice will apply for 2008-09 and subsequent years.
Individuals paying the £30,000 Remittance Basis Charge
The £30,000 charge is not a separate stand alone tax charge but rather a charge to income tax or Capital Gains Tax on unremitted foreign income or gains. The fact that the £30,000 constitutes income tax or Capital Gains Tax (or a combination of the two) ensures that individuals who remit all of their foreign income and gains to the UK can get credit for the £30,000 against their UK liabilities. In order to obtain that relief individuals have to make sure they make appropriate nominations of the income or gains upon which the £30,000 is paid.
The rules for nominating income and gains upon which the £30,000 is paid, and the rules for identifying what is taxed if those nominated income or gains are later remitted to the UK, can be complex. To help ensure individuals who pay the £30,000 get the right level of customer support from HMRC, we have decided that most individuals who pay the £30,000, or have paid it in the past, will have their tax affairs dealt with in one HMRC office from 2009-10. This will be the CAR Residency office in Castle Meadow, Nottingham.
Customers who are sent a self assessment return by a different office should make the return to the office issuing that return. Once the return has been received by HMRC we will arrange for the individual’s tax records to be transferred to the CAR Residency office in Nottingham and advise the individual and any agent, accordingly. Until such time as individuals or their agents receive such a notification they should continue to deal with their current tax office.
Section 690 ITEPA directions
Prior to April 2008 non-domiciled individuals and not ordinarily resident individuals were automatically taxed on the remittance basis on their foreign employment income. However since April 2008 individuals have to make an annual claim to the remittance basis. Section 690 ITEPA was amended in Finance Act 2008 to reflect this change for not ordinarily resident employees. Prior to April 2008 employers were able to ask for a section 690 direction which permitted them not to apply PAYE to certain employment income paid to not ordinarily resident employees entitled to be taxed on the remittance basis. These rules have been amended to allow this procedure to continue.
As mentioned above, revised guidance on this has already been published on the HMRC website.

OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

The OECD Anti-Bribery Convention establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. It is the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction. The 34 OECD member countries and four non-member countries - Argentina, Brazil, Bulgaria, and South Africa - have adopted this Convention (Entry into force and Status of ratification).

Implementing the Convention, country by country

The Convention itself establishes an open-ended, peer-driven monitoring mechanism to ensure the thorough implementation of the international obligations that countries have taken on under the Convention. This monitoring is carried out by the OECD Working Group on Bribery which is composed of members of all State Parties. The country monitoring reports contain recommendations formed from rigorous examinations of each country.

2009 Anti-Bribery Recommendation

The 38 countries have agreed to put in place new measures that will reinforce their efforts to prevent, detect and investigate foreign bribery with the adoption of the OECD Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions.

OECD Working Group on Bribery in International Business Transactions

The OECD Working Group on Bribery in International Business Transactions (Working Group) is responsible for monitoring the implementation and enforcement of the OECD Anti-Bribery Convention, the 2009 Recommendation and related instruments. Made up of representatives from the 38 States Parties to the Convention, the Working Group meets four times per year in Paris.

Report on global financial crisis points to ´systemic failures´, disconnection from ´real economy´

Self-feeding speculation in housing, currencies, and commodities through complex financial instruments where appropriate prices could not be determined led to a divorce from the "real" economy, a new UNCTAD report contends -- and by the time these speculative bubbles burst, the global financial crisis was a foregone conclusion.
The herd behaviour that characterized these speculative positions went unregulated. Reforms should be made to the international financial and monetary systems allowing appropriate government intervention and international oversight so that these systems to do not get so far out of balance in the future.
"The United Nations must play a central role in the reform process," the report urges, "not only because it is the only institution which has the universality of membership and credibility to ensure the legitimacy and viability of a reformed governance system, but also because it has proven capacity to provide impartial analysis and pragmatic policy recommendations."
The report, titled The Global Economic Crisis: Systemic Failures and Multilateral Remedies , was released today. It was written by economists serving on UNCTAD´s Secretariat Task Force on Systemic Issues and Economic Cooperation in advance of several upcoming international conferences on the global economic crisis.
Financial deregulation, driven by blind faith in the virtues of the market, allowed forms of financial innovation that were completely detached from productive activities in the real sector of the economy, UNCTAD experts contend. Such instruments favour speculative activities that build on apparently convincing information which is little more than an extrapolation of trends into the future. "Speculation on excessively high returns can support itself -- for a while," the report says. But the realities of slow growth of the real economy, where investment can generate increases in real incomes, eventually catch up with the illusions of risk-free speculative finance.
The sudden and almost simultaneous collapse of speculative positions across global financial markets may have been triggered by the bursting of the United States housing-price bubble. But other bubbles, including those related to speculation in currencies and commodities such as oil, also were unsustainable. They would have popped sooner or later even without the spark caused by the US mortgage debacle.
Without greed, the crisis would not have erupted with such force, the report says -- and regulations and practical policies should have been in effect anticipating such greed and short-sightedness. Experience has shown that financial markets do not function well without effectively designed and enforced regulation. "We have learnt now that financial market participants not only have no idea about the equilibrium, but they tend to drive financial prices systematically away from the equilibrium. Governments do not know the equilibrium either, but at some point they are best-positioned to judge when a market is in disequilibrium."
In a globalized economy, interventions in financial markets call for cooperation and coordination by national governments, and for specialized institutions with clear orders for international surveillance.
In confronting the next wave of the crisis, it will be critical to stabilize exchange rates by direct and coordinated government intervention, supported by multilateral oversight, the study contends. Governments should not leave it to the market to find the "bottom line," and international institutions should not make their emergency finance to crisis-stricken countries conditional upon pro-cyclical policies such as public-expenditure cuts or interest rate hikes, which would be damaging in the current situation.
Excessive speculative financial activity should be tackled as a whole, the report recommends. Establishing national regulations to prevent housing bubbles and the creation of risky financial instruments alone would only intensify speculation in other areas such as stock markets, it points out. And preventing currency speculation through a global monetary system with automatically adjusted exchange rates might simply redirect speculators searching for quick profits into commodities futures markets, thus increasing volatility there. The same is true for regional steps to fight speculation, the report says -- that might only make other regions the focus of speculators. "Nothing short of closing down the big casino will provide a lasting solution."
Speculation that develops into a sustained pattern of betting on ever-rising prices is not stabilizing. On the contrary, it destabilizes prices. The key condition for stabilizing speculation is that the "true" price be known in a global economy characterized by objective uncertainty. But this "true" price cannot be known in markets spiralling upwards amidst uniform, but wrong, expectations about long-term price trends. During the recent speculative boom, many agents disposing of large amounts of money bet on the same "plausible" outcome, and saw their expectations confirmed by media opinion, by analysts presumed to be experts, and by policy makers who respected their opinions, the report says There were no regulations -- and little oversight -- in place to halt the upward spiral and to break the illusion of risk-free profits.

The report highlights three specific areas in which the global economy experienced systemic failures. While there are many more facets to the crisis, UNCTAD examines here some of those that it considers to be the core areas to be tackled immediately by international economic policy-makers because they can only be addressed through recognition of their multilateral dimensions.

The global economic crisis: systemic failures and multilateral remedies

The report investigates three interrelated issues of importance to developed and developing countries alike, and proposes measures to address the systemic failures they have entailed:

• how the ideology of financial deregulation within and across nations allowed the build-up of pressures whose unwinding has damaged the credibility and functioning of the market-based models that have underpinned financial development throughout the world;
• how the growing role of large-scale financial investors on commodities futures markets has affected commodity price volatility and fed speculative bubbles; and
• the role of widespread currency speculation in exacerbating global imbalances and fuelling the current crisis in the absence of a cooperative international system to manage exchange rate fluctuations to the benefit of all nations.

Read the report

False Profits: robbing the poor to keep the rich tax-free

As the G20 meet in London to discuss a way out of the global economic crisis, new research commissioned by Christian Aid shows how billions of pounds are lost each year to countries both rich and poor through tax dodging.
False Profits is a shocking indictment of a financial system that allows such abuse to thrive.
Author Dr David McNair, Christian Aid’s senior economic justice adviser, says: ‘Paying as little tax as possible, regardless of the social consequences, has for many become an acceptable way of doing business.
‘The money lost could be used to provide schools, hospitals and better living conditions worldwide.’

Read the report

Internet Intelligence Course : How to use the Internet as an Effective Investigative Research Tool

27-30 September 2009

ICC Commercial Crime Services have developed a three-day course to be held in state of the art computer facilities at Cambridge University which will provide delegates with:

• An overview of the Internet and how it works
• The ability to use the Internet in a more effective way as an open source/competitive intelligence tool
• Advanced techniques to mine data using different search tools and uncover hidden information
• Strategies for filtering, analysing and organising research data
• An awareness of security and privacy issues including techniques to both hide and increase visibilities of sites

The course will be highly practical and interactive and is led by David Toddington, who is a leading expert with a wealth of experience in this field. It will be of interest to a range of different individuals, including:

• Corporate security professionals in banks, insurers and multinationals
• Fraud investigators, accountants and analysts
• Competitive intelligence researchers
• Government and private sector investigators
• Law enforcement officers
• Knowledge workers and researchers

Each delegate will receive a 250-page comprehensive manual, as well as various shareware software applications, and a certificate of attendance. Click here to download a course brochure

Who should attend?

This unique course is designed for anyone who wishes to use the Internet more effectively for research, investigation and information gathering. It will appeal in particular to:

• Corporate security professionals in banks, insurers and multinationals
• Fraud investigators, accountants and analysts
• Competitive intelligence researchers
• Government and private sector investigators
• Law enforcement officers
• Knowledge workers and researchers

What the course includes

• Intensive 3 day training for up to 25 delegates using networked computers
• A 250 page course manual and shareware software applications
• Accommodation in single ensuite rooms at the college
• All meals
• Evening social programme

About the Speaker

David Toddington, is a former Vice President and General Manager of a national Canadian Internet Service Provider. David has operated an Information Technology consulting firm that provides services to a diverse selection of Law Enforcement, Public and Private Sector clients for the past eight years.

DM Toddington & Company provides advanced Internet technologies support, computer forensic data examination and Internet based intelligence services to a number of operational units within the Royal Canadian Mounted Police. In addition to the RCMP, the company has also provided services to sections within the British Columbia Organized Crime Agency and a number of municipal police agencies across Canada.

David regularly lectures on Internet related investigative matters to various police and related groups in Canada, United States, Asia, Europe and the Middle East, and has developed a number of training programmes focused on Information Technologies as they relate to security and police investigations. In addition to his teaching at the Canadian Police College, David also instructs through a number of different police academies including the RCMPs Pacific Region Training Centre, the Idaho State Police Academy (US) and the West Yorkshire Police Training and Development Centre (UK).

Retrenchment and back to basics as financial services stave off impact of global recession

Retrenchment, across the board cost reductions and disposal of non-core businesses and assets are becoming the default strategies for the financial services (FS) industry as it navigates its way through the global recession, according to Ernst & Young.

Opportunities in Adversity, conducted by The Economist Intelligence Unit for Ernst & Young, was based on a poll of 90 financial services organisations around the world with turnovers in excess of $1bn.

As credit availability remains tight and the broader financial distress intensifies, unsurprisingly financial services are most affected by the downturn: 60% of businesses polled said that net profitability within the FS sector had significantly deteriorated. This compared to 40% across the other industries polled in the research. Additionally, almost 75% of financial institutions had experienced a slight or significant deterioration in their organisation compared to just under two thirds of all the businesses polled.

Tom McGrath, managing partner for Ernst & Young’s European, Middle East, India and Africa (EMEIA) financial services business, says: “Across the FS landscape we are seeing a real focus on operational efficiency and cost reduction, either through headcount reduction, demand management or heightened focus on outsourcing.

“We are also seeing an almost ‘real time’ definition of what constitutes core and non-core for our clients, with the focus on accelerated disposals of newly defined non-core businesses or assets. The challenge is to have a clear view of how businesses will continue to perform effectively in its chosen marketplace. Our research shows that future sustainability will be achieved by reshaping not downsizing.

“The current marketplace is also presenting unprecedented growth opportunities for businesses that are relatively capital or cash rich to take market share in profitable segments from weakened competitors or pick-up ‘game changing’ acquisitions. We are already seeing the impact of the slowdown on the financial services landscape with banks on both sides of the Atlantic divesting assets to free up capital. This has to be anticipated over the coming months and we should expect to see a considerable reshaping of the financial services landscape.”

Faring up in the global recession

The research also found that almost 90% of financial institutions have already started or are starting to implement overall cost savings analysis; just under three quarters are doing the same with headcount reduction; and more than half are rationalising employee benefits.

Over the next year and in direct response to current market conditions, more than 50% of the respondents are planning to divest non-core or non performing business; almost 40% plan to increase outsourcing or ‘co-sourcing’; and just over a third are considering moving their operations to lower cost locations.

Andy Baldwin, markets managing partner for Ernst & Young’s EMEIA financial services business, explains: “Traditional outsourcing and co-sourcing has tended to focus on enabling functions, with a particular emphasis on IT, finance and data management and selective voice processes with businesses being largely driven by a mixture of ‘wage arbitrage’ and ‘improved productivity’ .

“In future, it’s likely that this trend will continue at a new, more aggressive level in FS – although the direct financial interest of many European governments in a number of financial institutions is likely to heighten the political sensitivity around this topic.

“In addition, uncertainty in the future regulatory landscape, future fiscal policy and the impact on remuneration structures are likely to feature prominently in the decision of where to locate some of the smaller, entrepreneurial FS businesses that retain a strong owner-managed culture. For some of the major FS centres across EMEIA, this represents a particular set of challenges which the authorities will need to navigate with great care.”

Balancing the customer and supplier tightrope

Financial institutions are also treading a fine balance in their relationships with customers and suppliers alike: almost three quarters have increased their focus on key accounts; just over 50% have terminated high-risk contracts with customers; while just over a third have launched new products or services to maintain customer numbers.

When it comes to suppliers financial institutions are split into two camps: almost 55% have narrowed their supplier base to obtain more favourable prices or terms, while precisely a third have broadened their supplier risk to reduce the impact of a supplier’s bankruptcy.

Cash is king

The old adage that cash is king still rings true: just under 75% of FS respondents had seen the credit worthiness of their customers fall away; well over half said that some key customers were experiencing financial distress; and almost a third were seeing an increase in customer order and cash collection.

Where suppliers are concerned, more than half of financial institutions are communicating more proactively with suppliers as they seek to maintain cash management, and a third said they were negotiating more frequent payment terms.

In terms of their own cash management, almost 70% of the companies polled have conducted a top-down review of current cash management and flows; half have considered possible assets that could be turned into cash; and almost four in ten are building working capital measures into the performance objectives of their management teams.

Andy Baldwin commented: “Over the last 10 years many FS businesses have experienced a period of unprecedented boom. Inevitably during such periods of high growth the basic housekeeping of cash and working capital management received less management attention. Any manufacturer will tell you that cash flow has brought down many businesses long before the profit & loss showed a loss.

“With the deteriorating market conditions, increases in corporate defaults and the risk of bad debt, many FS businesses are refreshing skills and putting increased organisational focus around cash in and cash out processes. We have found that by getting this right some FS businesses can generate a further 3-5% of total sales value.”

Other findings from the research:

• 63% of financial services companies expect a significant increase in efforts to protect their assets, compared to almost 40% of overall respondents;
• Just under half (46%) expect a significant increase in restructuring their business to meet new conditions (compared to 37% overall);
• Six in ten firms are considering alternate sources of liquidity while almost half are obtaining access to short term finance facilities and/or credit. A similar number were also proactively communicating with lenders, analysts and ratings agencies;
• Protection of the brand and financial reputation was the key driver for an enhanced risk assessment in the current environment (62%), closely followed by better liquidity and cash management (61%);
• Sales and marketing is the activity that six in ten financial services businesses thought would be most affected by decline in investment (compared to a third of all businesses); and
• Just over four in ten financial institutions believed that an information security breach could severely impact their brand and financial reputation (compared to 32% overall).

Opportunities in Adversity

The Economist Intelligence Unit on behalf of Ernst & Young surveyed in January 2009, 337 board members of international corporates, over half of which had turnover of $10billion plus, on how the downturn had impacted on their strategic objectives and the way they do business.

Download the whitepaper

FICCI Grant Thornton Corporate Governance Review 2009

Corporate governance and its implementation in India is not only being seen as an aftermath to recent corporate frauds, but also as a consequence of the increasing emergence of the Indian economy, as a global powerhouse. With greater integration within the global framework, Indian companies realise that they also need to be seen as being sound, ethical and transparent in their operations. And it is not simply legislation that will facilitate greater adoption of good governance practices - it is softer aspects that need greater attention in India. The inaugural FICCI GT: India 101-500 CGR 2009, was designed specifically to analyse corporate governance practices at 'mid-market' listed companies in India. The review methodology was based on a survey to gauge the nature and extent of corporate governance practices and approximately 500 companies across various sectors were targeted to participate in the survey. In addition, views of strong advocates of corporate governance in India were obtained on specific issues emanating from the survey and these were analyzed by a team of experts from FICCI and Grant Thornton. The results of this study and review have been thoroughly brought out in the FICCI GT: 101 - 500 CGR 2009 report, which was released on 25 March 2009, at a press conference with FICCI.

Click here to download the report

Singapore: 100,000 employers to receive $920 million in first payment of Jobs Credit

100,000 employers employing some 1.3 million local workers will receive $920 million in the first payment of Jobs Credit on 31 March 2009.

2. The Jobs Credit scheme is part of the $20.5 billion Resilience Package announced in Budget 2009 to help Singapore see through the severe economic downturn this year. The Jobs Credit scheme provides cash grants to employers to help them preserve jobs. Under the scheme, an employer will receive a 12% cash grant on the first $2,500 of each month’s wages for each employee on their CPF payroll. It is a one-year scheme with four quarterly payments.

First Payment of Jobs Credit on 31 March 2009

3. Eligible employers[1] will receive a notification letter by 27 March 2009 from the Inland Revenue Authority of Singapore (IRAS) which administers the scheme. The letter will inform them of the amount of Jobs Credit they will receive for the first payment, which will be based on the wages that they paid in October to December 2008.

4. The First Payment will be made on 31 March 2009. The remaining three payments will be made on:

Second Payment : 30 June 2009
Third Payment : 30 September 2009
Fourth Payment : 31 December 2009

5. Employers eligible for future payments will receive a notification letter from IRAS prior to the payment dates.

No Sign-Up Necessary to Receive Jobs Credit

6. The Jobs Credit will be automatically granted to eligible employers – employers do not need to apply for it. The Jobs Credit will be computed based on CPF contribution data and will be paid via direct credit into employers’ bank accounts or by cheque[2].

Further Extension of CPF Contribution Deadline for Jobs Credit

7. As the Jobs Credit scheme was announced on 22 January 2009 and is new, a further extension of deadline has been granted for employers to qualify for the First Payment of Jobs Credit. Employers who make late CPF contributions by 15 April 2009[3] for wages that were paid in October to December 2008 will receive Jobs Credits on these wages on 30 June 2009. (They will hence receive the First Payment of Jobs Credit at the same time as the Second Payment that will be made on 30 June 2009.) There will be no extension of deadline for the Second and Third Payments of Jobs Credit. Employers will have to make CPF payments on time in order to qualify for these Jobs Credit payments.

DTAA Between Mauritius and Germany to be Revised

A first round of discussions on a revised Double Taxation Avoidance Agreement (DTAA) between the Federal Republic of Germany and Mauritius ended yesterday at the headquarters of the Mauritius Revenue Authority (MRA) in Port Louis.
An official delegation from the Federal Republic of Germany, headed by Dr Wolfgang Lasars from the Federal Ministry of Finance, was in Mauritius since the 18 March in the context of a revision round on the existing Mauritius-Germany DTAA which dates as far back as 1978.
The Mauritian negotiating team comprised a representative from the MRA, the State Law Office and the Ministry of Finance and Economic Empowerment.
At this stage, both parties have agreed on some of the provisions of the new treaty and further discussions will be pursued at a second round before finalising the treaty which will be beneficial in terms of boosting economic transactions as well as encouraging cross-border transactions between both countries.
Double tax treaties comprise of agreements between two countries which, by eliminating international double taxation, promote exchange of goods, services and investment of capital. They are bilateral economic agreements where the countries concerned evaluate the sacrifices and advantages which the treaty brings for each contracting State, including tax forgone and compensating economic advantages.
The objectives of double taxation avoidance agreements are to help in avoiding and alleviating the adverse burden of international double taxation by means of laying down rules for division of revenue between two countries, by exempting certain incomes from tax in either country, and reducing the applicable rates of tax on certain incomes taxable in either countries.
It is recalled that so far Mauritius has concluded 34 tax treaties and is party to a series of treaties under negotiation.

AIMA statement on IOSCO short selling consultation report

“This consultation report from IOSCO’s Task Force on Short Selling is admirably sensible.
AIMA, as the global trade body for the world’s hedge fund industry, believes that short selling is a wholly legitimate market practice, is not abusive and helps capital markets function more effectively. We therefore particularly appreciate the positive comments from Kathleen Casey, Chairman of the Technical Committee, who said ‘IOSCO believes that short selling plays an important role in capital markets for a variety of reasons including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities.’
AIMA absolutely agrees with the Task Force that it would be desirable to establish a more consistent international approach to the regulation of short selling. At present the many discrepancies worldwide create unnecessary uncertainty.
We also agree that there should be appropriate reporting regimes for disclosing short positions to national regulators, although we believe that any reporting of short positions to the market should be in aggregate form only.
We support the Task Force’s suggestion that regulators worldwide should have an effective discipline for the settlement of short selling transactions, particularly the settlement of failed trades. Indeed in our new policy platform of 24th February we said we would support measures to reduce such settlement failures.
Finally, we think the conclusion by the Task Force that ‘it is necessary that there is flexibility in short selling regulation in order to allow market transactions that are desirable for efficient market functioning and development’ is a wise one, and we are glad that IOSCO has taken such a pragmatic approach.”

Andrew Baker, Chief Executive of AIMA

IOSCO consults on regulatory approach to short selling

The International Organization of Securities Commissions’ (IOSCO) Technical Committee has published a consultation report entitled Regulation of Short Selling prepared by its Task Force on Short Selling (Task Force), which contains proposed principles designed to help develop a more consistent international approach to the regulation of short selling. The Task Force was established by the Technical Committee in November 2008 in response to concerns regarding the impact short selling was having in the extreme market conditions created by the financial crisis. The Task Force's aims were to work to eliminate gaps between the different regulatory approaches to naked short selling whilst minimising any adverse impact on legitimate activities, such as securities lending and hedging, which are critical to capital formation and reducing market volatility. The report recommends that effective regulation of short selling should be based on the following four principles:

1. Short selling activities should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets;
2. Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities;
3. Short selling should be subject to an effective compliance and enforcement system; and
4. Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.

Kathleen Casey, Chairman of the Technical Committee, said: “IOSCO believes that short selling plays an important role in capital markets for a variety of reasons including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities. However there is also a general concern that, especially in extreme market conditions such as we have recently experienced, certain types of short selling or the use of short selling in combination with certain abusive strategies may contribute to disorderly markets.” “These principles have been developed with a view to striking a balance between realising the potential benefits of short selling and reducing the adverse impact on financial markets that may arise from abusive short selling.” Martin Wheatley, Chairman of the Task Force on Short Selling, said: “We believe that short selling should operate in a well structured regulatory framework in the interests of maintaining a fair, orderly and efficient market. The objective of such regulation being to reduce the potential destabilising effect that short selling can cause without exerting undue impact on its legitimate benefits in capital formation and volatility reduction.” “While IOSCO encourages a concerted move towards a consistent approach to short selling, it recognises that the case for the regulation of this activity varies from jurisdiction to jurisdiction and depends on a range of domestic factors. These principles will provide guidance to market authorities and assist them in assessing and developing their short selling regulatory framework.”

RECOMMENDATIONS

The report outlines the minimum that regulators should do in order to support each of the four principles. The First Principle – appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets In order to reduce or minimise the potential risks from short selling, regulators should have an effective discipline for the settlement of short selling transactions. As a minimum requirement this should impose strict settlement (such as compulsory buy-in) of failed trades. The Second Principle - a reporting regime that provides timely information to the market or to market authorities In order to achieve this enhanced level of transparency regarding short selling activity, jurisdictions should consider some form of reporting of short selling information to the market or to market authorities. The Third Principle - an effective compliance and enforcement system This is essential for an effective short selling regulatory regime. The regulators should:

· monitor and inspect settlement failures regularly;
· consider whether they are able to extend the power to require information from parties suspected of breach, beyond the scope of licensed or registered persons if they lack such power;
· establish a mechanism to analyse the information obtained from the reporting of short positions and/or flagging of short sales to identify potential market abuses and systemic risk; and
· review whether their existing cross-border information sharing arrangements are sufficient to facilitate cross-border investigation.

The Fourth Principle - allow appropriate exceptions for certain types of transactions for efficient market functioning and development It is necessary that there is flexibility in short selling regulation in order to allow market transactions that are desirable for efficient market functioning and development. Therefore regulatory authorities should at a minimum clearly define the exempted activities and the manner in which these exemptions should be reported. The deadline for responses to this consultation paper is 4 May 2009.

Download Consultation Report

Guernsey: Unregulated PCCs and ICCs

Until March 2009, the Guernsey Financial Services Commission ("GFSC") attached a standard condition, when granting consent to the registration of Protected Cell Companies ("PCCs") and Incorporated Cell Companies ("ICCs"), requiring that any changes in beneficial ownership be notified to the GFSC. The GFSC will no longer impose this requirement when granting consent for new cell companies and is willing to remove the condition for existing companies on request to the Intelligence Team. For the avoidance of doubt, the requirement for cell companies to be administered by a licensed financial services business will continue to apply to existing and new unregulated cell companies.

The nationalisation of Northern Rock

The NAO has reported that the nationalisation of Northern Rock in early 2008 offered the best prospect of protecting the taxpayers’ interests and was based on a sufficiently robust analysis of the options available. However, the Treasury was stretched to deal with a crisis of this nature and there were lessons to be learned.

In 2004, the Tripartite Authorities – HM Treasury, the Bank of England and the Financial Services Authority - had identified gaps in their capability for dealing with a failing financial institution, but although work was taken forward it was not judged a priority in the circumstances at the time.

At the time of the initial run on deposits at Northern Rock, the Treasury put in place guarantee arrangements for retail depositors and wholesale creditors. The immediate risk of instability in the financial system was stemmed. But the Treasury could have been more engaged with the actions being taken in the early stages by Northern Rock. As a condition of public support, mortgage lending was reduced but the company still went on writing high-risk loans up to 125 per cent of a property’s value. Mortgages of this type have a higher default rate.

In late 2007 and early 2008 the Treasury conducted a comprehensive review of the long-term options for Northern Rock. It considered the deliverability of private sector bids for the bank, but concluded that there was insufficient prospect of their attracting the financial backing or demonstrating the resilience needed for a viable solution. Public ownership therefore became the best course in the interests of the taxpayer.

When considering Northern Rock’s first business plan in public ownership, the Treasury could however have done more to test the company’s initial business plan, and to challenge with greater rigour its forecast of trading conditions.

Tim Burr, head of the National Audit Office, said today:

“The Treasury successfully met its objective to protect Northern Rock’s depositors and stopped the run on the bank. It rightly concluded that the private sector bids for the bank gave insufficient prospect of safeguarding the taxpayer’s interest. The Treasury could however have conducted a more systematic assessment of the risks it was taking on and more thoroughly tested the bank’s initial business plan in public ownership.”

Full report (PDF - 932KB)