It is estimated that approximately $1.4 trillion is held in offshore banks in the Cayman Islands alone. According to an article in Forbes magazine, there is a total of approximately 15 trillion to 20 trillion dollars in offshore bank accounts, brokerage accounts and hedge fund portfolios.
31 December 2010
23 December 2010
HFR: How to set up a hedge fund
A guide to setting up hedge funds in the British Virgin Islands, Cayman, Ireland, Luxembourg, Malta, Singapore and the US looking at regulation and fund structures as well as general facts.
British Virgin Islands
Cayman Islands
Ireland
Luxembourg
Malta
Singapore
22 December 2010
Ireland: Central Bank Publishes Consultation on Impact Metrics for the Risk Based Supervision of Financial Firms and on Impact Based Levies
The Central Bank of Ireland today (22 December 2010) published the consultation paper ‘Consultation on Impact Metrics for the Risk Based Supervision of Financial Firms by the Central Bank and on Impact Based Levies’. The paper outlines proposed metrics that could be used to enable the categorisation of all regulated entities based on inherent impact. It sets out how the Central Bank plans to use such measures to categorise firms into different groups to which different supervisory approaches will be applied.
The use of impact metrics is a key component of the Central Bank’s strategy to enhance its supervision programme and fulfil its responsibilities to mitigate prudential risk and protect consumers. Whilst the risk of a serious supervisory or consumer related issue arising at a firm is largely unrelated to the size of the firm, the occurrence of such an event at a large firm will have a far more material impact on the Irish economy and State than an equivalent event at a small firm. Given this, the Central Bank believes it is necessary to adopt an enhanced long term approach to the supervision of all large, or high impact, firms.
The purpose of the consultation paper is to set out the key metrics that can be used in an impact-based supervision model to indicate a firm’s potential to do harm. These will be largely quantative measures such as the number of customers or total assets. The Central Bank plans to use these measures to inform the allocation of supervisory resources and the levies firms pay.
The deadline for responses is 24 February 2011. A copy of the consultation paper is available 
21 December 2010
Mauritius and Congo Sign agreements on Taxation and Investment
A Double Taxation Avoidance Agreement (DTAA) and an Investment Promotion and Protection Agreement (IPPA) between Mauritius and Congo were signed yesterday in Port Louis by the Vice-Prime Minister, Minister of Finance and Economic Development, Mr Pravind Jugnauth, and the Minister of Foreign Affairs and La Francophonie of the Republic of the Congo, Mr Basile Ikouébé.
The DTAA which will give a further spur to the positive evolution of economic ties between the two countries will provide greater tax certainty for businessmen while making clear the taxing rights of Mauritius and Congo on all forms of income arising from cross-border economic activities between the two countries. As regards the IPPA, it will give a boost to cross-border investment by protecting investors from direct or indirect double taxation and enhance the commercial and economic relations between the two countries and broaden investment opportunities for the business community. It will also be easier for Investors from both countries to invest their capital and repatriate their investments and profits to their respective countries.
Speaking on the occasion, the Vice-Prime Minister, Minister of Finance and Economic Development, stressed the importance of Foreign Direct Investment (FDI) which according to him is an instrument which contributes largely to the economic development and growth of a country. He also underscored that the influx of foreign investment is a major driver of growth and generates financial resources for business, causes the transfer of technology, promotes the development of capacity of managers and entrepreneurs and creates employment opportunities. According to him, Mauritius, being an emerging economy and due to its strategic location has a central role in facilitating trade and investment. Mauritius is particularly interested in closer cooperation with Congo in the areas of investment and trade and concrete actions should be taken to increase the trade volume between the two countries, he said.
The Minister of Foreign Affairs and La Francophonie of the Republic of the Congo, for his part, qualified the agreement as a significant achievement that demonstrates the commitment of both countries towards promoting cooperation and consolidating efforts in areas of mutual interests. He also underlined that Mauritius serves as a development model for Congo which is currently seeking assistance from Mauritius to develop an export processing zone (EPZ) and also explore mutually profitable business opportunities between the two countries.
It will be recalled that Mauritius has so far signed thirty seven Double Taxation Avoidance Agreements with several countries and the country is also committed to developing a Tax Information Exchange Agreement with countries where there is no Double Taxation Agreement with us.
20 December 2010
Shopping for Anonymous Shell Companies: An Audit Study of Anonymity and Crime in the International Financial System
The last few years have seen an international campaign to ensure that the world's financial and banking systems are "transparent," meaning that every actor and transaction within the system can be traced to a discrete, identifiable individual. I present an audit study of compliance with the prohibitions on anonymous shell companies. In particular, I describe my attempts to found anonymous corporate vehicles without proof of identity and then to establish corporate bank accounts for these vehicles. (Transactions processed through the corporate account of such a "shell company" become effectively untraceable—and thus very useful for those looking to hide criminal profits, pay or receive bribes, finance terrorists, or escape tax obligations.) I solicited offers of anonymous corporate vehicles from 54 different corporate service providers in 22 different countries, and collated the responses to determine whether the existing legal and regulatory prohibitions on anonymous corporate vehicles actually work in practice. To foreshadow the results, it seems that small island offshore centers may have standards for corporate transparency and disclosure that are higher than major OECD economies like the United States and the United Kingdom.
Global Think Tank undertakes detailed deliberations on the DTC
Global taxation experts and members of a specially convened Global Think Tank have recommended a window of four months to further analyze and submit detailed recommendations on the Direct Tax Code Bill to the Government of India. A request for this extension has been made to the Parliamentary Standing Committee on Finance by
Lauding the exemplary initiative by the Hon’ble Finance Minister and the Parliamentary Standing Committee in inviting comments on the DTC Bill, Mr. Desai explained, “The DTC represents a significant policy opportunity for reforming the existing tax system and creating a robust and sustainable tax regime based on principles of equity, stability, increased compliance and economic certainty.”
Considering that the DTC Discussion Paper, in its current form, does not provide any analysis of underlying economic theories, juristic or scholarly writings, revenue estimates, international legal practices or policy alternatives and the pros and cons thereof, Mr. Desai added, “In view of the far reaching impact of the DTC proposals on both inbound and outbound investments and business, it is necessary to undertake a thorough comparative analysis of legal developments and best practices from around the world. The Discussion Paper however does not provide such analysis making it difficult for taxpayers, professionals and other stakeholders to meaningfully assess the Code and make recommendations. The 20 day period provided for commenting on a massive piece of legislation such as the DTC Bill would therefore not suffice for this purpose.”
Presenting the international perspective on India’s proposed Direct Taxes Code, eminent academician and tax practitioner, Mr. David Rosenbloom, Professor, New York University, stated that “Some of the DTC proposals such as general anti-avoidance rules, treaty override, change in the threshold for tax residence, controlled foreign corporation regime, taxation of offshore share transfers, etc. have to be approached with due caution. In addition to the difficulties of developing appropriate rules for these complex subjects, attention must be devoted to the implementation of such rules and efficient means of both interpreting them and resolving the inevitable disputes they will spawn.”
Traditionally, the task of assessing the direction and pace of tax reform has been entrusted to able Committees of experts that have presented reports based on in-depth research and analysis, allowing Parliament to identify appropriate fiscal policy to suit the country’s interests. For example, the 1958 Law Commission Report which laid the foundation of the current income tax law was prepared by eminent jurists and draftsmen such as N.A. Palkhiwala, P. Satyanarayan Rao, G.N. Joshi and P.M. Bakshi. The DTC however, is not backed by such high level scrutiny or analysis. Further, the basic terms of reference for drafting the DTC and the Discussion Paper have not been made available to public.
The DTC Global Think Tank would be deliberating on several important constitutional and international law issues including extra-territorial fiscal jurisdiction, treaty override and abuse of powers, and present their recommendations by May 2011.
17 December 2010
FSC : Suspension of a Management Licence
Notice is hereby given that in accordance with Section 27 of the Financial Services Act 2007 (the “FSA”), the Management Licence of Anderson Ross Consulting Limited has been suspended with immediate effect.
In accordance with Section 27(5) of the FSA, a Company shall cease to carry out its activity authorised by its licence but shall remain subject to the obligations of its licence and to the directions of the Commission until the suspension of the licence is cancelled.
Offshore Pilot Quarterly (December 2010, Volume 13 Number 4)
A Toad for Breakfast
A Toad for Breakfast
In the aftermath (hopefully) of the Great Recession it is true to say that, in economic terms, most of us will be looking at things differently: for many perhaps this might be considered the time of the Great Reflection but in any event the end of 2010 and the start of the second decade of this century is a good moment to pause and take stock (if not, perhaps, to buy it).
It is sobering to realise that the volume of world trade fell about twice as fast as it did during the last century’s Great Depression. In the 15 months after the global economy peaked in June, 1929, commerce fell by some 10 per cent; in the same period after the April, 2008, turning point, global trade was down by 20 per cent, according to Barry Eichengreen at the University of California and Kevin O’Rourke at Trinity College in Dublin. So in today’s economic climate in the West, and as we ponder what the second decade will bring, we should note the advice of the 18th century French moralist, Nicolas-Sébastien Roch de Chamfort (admired greatly by Nietzsche, Mill and Pushkin): “A man should swallow a toad every morning to be sure of not meeting with anything more revolting in the day ahead”.
Hyman Minsky, a mid-20th century economist who taught at several US universities, said that stable economies always sow the seeds of their own destruction with investors, banks, consumers and companies assuming the future will be like the recent past and which, as he put it, “breeds a disregard of the possibility of failure”. It is little wonder that his book, “Stabilising an Unstable Economy”, is enjoying renewed interest. Several years of steadily growing output and low inflation lead to misguided confidence and what we have experienced bears out Minsky’s contention that there are 3 stages before the fatal blow is dealt. In the first stage investors have little debt so can easily meet their capital and interest payments; in the second stage finances are stretched such that only interest, and not capital, can be paid; the third phase sees them taking on debt levels that need rising prices to be securely financed. To see where this leads to, just think of the homebuyers who took out 125% mortgages at the peak of the property boom In the United States of America.
Regular readers of the Offshore Pilot Quarterly might recall a previous issue (March, 2009, Volume 12, Number 1) when I quoted Alan Greenspan under the heading, “The Year of the Oxymoron”. He conceded, as the economic dikes failed, that “all the froth bubbles [did] add up to an aggregate bubble”. More about this gentleman later. Bubbles, of course, being globes or half globes of liquid, are normally associated with water and it was the sight of it cascading into mountain pools that inspired Irving Fisher on a trip to Switzerland in 1894. Whether or not, of course, economic theories themselves hold water is an entirely different matter – although we know that they can drown you. What Fisher saw in the cascading water was a way to be able to “define precisely the relationships among wealth, capital, interest and income” as Robert Loring Allen, a biographer, wrote. This imagery formed the basis of many of the central concepts of financial economies for the next 30 years and as Allen put it, “The flowing water, moving into the pool at a certain volume per unit of time, was income. The pool, a given volume of water at a particular moment, became capital”.
Fisher, like Minsky, both belong to the past but their relevance today should not be overlooked. Fisher was probably once America’s most famous economist but it is his British contemporary, John Maynard Keynes, who is currently being spoken of constantly, as many of the world’s economies continue to struggle and, as in the 1930s, the US is submerged in debt again. It was Fisher who wrote in 1933 about over investment and over speculation, both of which compound existing problems and produce stark outcomes when they are conducted with borrowed money, or as Fisher put it: “The very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate … the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip”. This month the good ship Ireland began to appreciate this.
Fisher, a humourless individual, had earned a doctorate at Yale University and, like John Kenneth Galbraith, late economist and intellectual, he believed that modesty is a vastly overrated virtue. This very intelligent man, who developed many theories and monetary policies, advocated that the US dollar’s value should not be linked to gold but to a basket of commodities – a hot topic at present. There is, nonetheless, no substitute for common sense. During the 1920s he invented a card-index system and became very rich; those, apparently, were the only cards he played well. He bought stocks on margin with the money and by 1929 he was worth US$10 million. He was considered a financial guru (an abused term these days) and in October of that year he stated that stocks had reached a “permanently high plateau”. Two weeks after making those comments the stock market crashed.
Perhaps the humourless, and subsequently, penniless, Mr. Fisher should have considered Adam Smith’s opinion: “The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued and by scarce any man who is in tolerable health and spirits valued more than it is worth”. Whilst it is always right to heed the words of many, it is still a very wise policy to remember the Roman caution, festina lente (hasten slowly), and which is the unofficial motto of my firm. Impetuous behaviour produced some of the ugly financial spectacles we have recently seen and in the case of those that you wear, rather than witness, Senator John McCain once said of Alan Greenspan (he of froth and bubbles fame) that if the Chairman of the US Federal Reserve should die “I would prop him up and put a pair of dark spectacles on him.”
But, of course, often the spectre in the background is greed. It was a craving for gold (one shared by many investors today) which, 500 hundred years ago, lead to Francisco Pizarro’s pillage of Perú and which readers can learn more about in this month’s Latin Letter, my companion column in Offshore Investment.com. One of the most popular London plays in 1790, in fact, and, apparently, the second most popular play in the 18th century, was Richard Brinsley Sheridan’s “Pizarro”, a portrayal of Peruvian struggles for independence from Spain.
If one considers the fate of those under the flag of Spain at that time in Latin America it is not hard to appreciate why in his 18th century poem, ”The Vanity of Human Wishes”, Doctor Samuel Johnson addresses, in 368 lines, the dangers that greed can bring to people. The poem opens with the lines “Let observation with extensive view,/ Survey mankind, from China to Peru” and certainly today mankind is surveying China more than it is Peru (although both countries are intertwined by substantial investments). Johnson’s contention that people ask for the wrong things, that folly is often sister to fortune, is still a philosophy held firmly today by many who believe that, as he writes in his poem, “Wealth heap’d on wealth, no truth nor safety buys, / The dangers gather as the treasures rise”.
It was said that Johnson was suffering from one of his periodic bouts of depression when he put pen to paper and wrote the poem, but we do know that, unlike Irving Fisher, he had a plentiful supply of humour. Humour, spoken and written, can be an important ingredient in communication. A word to the wise, delivered lightly rather than harshly, is often best. It is why English kings had jesters at court. When perhaps a toad was not available for breakfast, the substitute jester would deliver the uncomfortable news with banter. Shakespeare’s King Lear was told by his Fool, for example, that he was ruling his kingdom badly; unfortunately he failed in the end to heed the advice: “Have more than thou showest / Speak less than though knowest / Lend less than thou owest”. Sage advice, whether from a guru or a fool, in today’s world of risks.
In this month’s Latin Letter, featuring Pizarro, I also wrote about matters which the passage of time seems to have little effect on. Much like the figure-8 cycles I wrote about (Blocks of Ice and Houses of Stone) in the June issue of Offshore Pilot Quarterly, the pattern (and the motives) is continuous. We have all heard, ad nauseam, the familiar expressions of how history repeats itself (if not, I submit, exactly) so let me offer an alternative African quote most (if any) readers will not have heard of before: “kare haagari ari kare”. The language is Shona, from my former home of Rhodesia (now Zimbabwe), and which, like the tribe itself, is direct: translated it means that the past does not remain the past. Sadly for many of the tribes of Africa the past is still the present.
Philosophers and Kings
In the introduction to my firm’s new brochure I wrote that the late philosopher, Sir Karl Popper, believed that all men and women are philosophers; if this is so, then is there a better guide to one’s thinking than what one either writes or says? I do not believe that there is, and so it is just as important sometimes for professionals to reveal their convictions, and not just their competence. If such professionals are involved in your international long-term financial strategies they need to have, what perhaps Angela Merkel might describe as, weltanschauung (a world view). I admit in my own case to being, in professional terms, an iceberg in Panama. This is not a reference to cool judgement on my part, but to the fact that only one-third of my 45-year career, so far, has been spent on the isthmus and whilst it is essential that you be familiar with the local environment it is equally important, particularly as a professional adviser, that you also understand other cultures. It is to be hoped that President Obama appreciates other cultures and can take a worldly view because, paradoxically, the world’s superpower has a citizenry that is, in the main, insular and a stranger to international affairs.
Mark Twain, cautious curmudgeon, whose real name was Samuel Clemens, would have got on well with Dr. Johnson because he was also blessed with a sense of humour, choosing a pseudonym which was once the warning cry to river boat pilots when they veered into dangerously shallow water. Twain once warned about being careful when reading health books because you could die of a misprint. I would, however, have suggested to President Obama, ahead of his trip to India last month, that it would have been healthy to have read E.M. Forster’s novel, “A Passage to India”, which is a fine illustration of misunderstanding between foreign peoples (in this instance the British and the Indians) that leads to high expectations which give way, eventually, to disappointment. British diplomats, during some 500 years, have had to learn hard lessons and one classic example from England’s days of empire was Lord McCartney’s fruitless efforts to persuade the Chinese emperor to open his borders to British trade which, in part, came about because he refused to prostrate himself before the Divine ruler. David Cameron, Britain’s prime minister, who went to China last month, was able to remain standing although I am certain that economic imperatives would ensure that the right, polite tone was struck – just as it would have been during President Obama’s stay in India – because both Western leaders represent crippled economies.
It is no longer true that wealthy nations comprise a “comparatively small corner of the world populated by Europeans”, as John Galbraith observed in 1958. Fifty years later the only thing in a corner are the Americans and the Europeans with China’s population now representing one person for every five on the planet. Today not only the sun, but economies too, rise in the east. In 1968 Japan overtook West Germany to become the second largest capitalist economy and in 2010 China has moved Japan to third position. The West has to come to terms with the new powers and treat them as equals at the bargaining table, which was the case before the emergence of European imperialism, followed by the arrival of what could be termed, the American century. What is for certain, the economic tide is turning for Western countries and just like the real tide that Canute, the 11th century Danish king, ordered, but failed, to turn at his command, they have found themselves powerless. As Canute lamented: “Let all men know how empty and worthless is the power of kings”. And sometimes that is true of nations too, although resignation doesn’t mean retreat, but denial can only lead to greater political and economic woes.
If the Great Recession has made us look at things differently, then having an international perspective helps with any Great Reflection we might experience. The imminent arrival of a new year in Western cultures is certainly a good time to reflect, but on the other hand, whatever the culture and the calendar, remember that professional skill (which most of you reading this are concerned with) is important, although a little weltanschauung and common sense are good things too.
Offshore Pilot Quarterly has been published since 1997 by Trust Services, S. A. and is written by Derek Sambrook.
14 December 2010
The Future of Islamic Finance
Safe investments and sizeable potential markets continue to buoy the sector
• Tax breaks and other initiatives are aimed at reversing an unexpected slowdown in the country that dominates the Islamic finance sector
• Islamic investment companies and banks now need to diversify
Growth survives the storms
Safe investments and sizeable potential markets continue to buoy the sector, reports David Oakley
North Africa: A region abounding with potential
Egypt leads among nations seen as ripe for expansion, writes Robin Wigglesworth
Asia: Malaysia seeks end to slide in issuance
Tax breaks and other initiatives are aimed at bolstering the sector’s leading market, reports Kevin Brown
United Arab Emirates: Shadow of $26bn upset starts to fade
Borrowers are back after Dubai World’s successful restructuring, says Anousha Sakoui
Investment banks: Nascent sector looks for new model
Crisis-savaged organisations need to diversify, says Robin Wigglesworth
Europe: London and Paris battle for business
The City looks unlikely to be ousted from its position of strength, writes David Oakley
US: Presence and role of market remains marginal
Activity has been subdued since the Nakheel crisis, says Aline van Duyn
Hedge funds: The ultimate goal
Hedge funds are probably the single biggest challenge for lawyers and bankers seeking to reconcile saleable and lucrative investment products with sharia law, writes Sam Jones
Products: Offering grows in wake of crisis
David Oakley looks at the expanding range of instruments being created
Guest column: Joseph DiVanna
There is a vast potential market still to be tapped, writes Joseph DiVanna
A Strategic Turnaround by the Privy Council
In a judgment delivered on 13th December 2010, in the case of Culross Global SPC Limited v Strategic Turnaround Master Partnership Limited, the Privy Council has provided important clarity on the correct approach to the construction of Fund documentation, and has thankfully laid to rest the heresy introduced by the Cayman Islands Court of Appeal as to what it had termed "the process of redemption".
The issue at hand was whether Culross was a current creditor of Strategic Turnaround Master Partnership Limited or whether it was merely a prospective creditor. According to the Court of Appeal, the "process of redemption" was not complete until payment had been made and the name of the creditor removed from the register. The analysis was manifestly wrong for a number of reasons and was put to rest by the Privy Council, who said that: "Any power to withhold payment of the redemption proceeds must be authorized by or pursuant to the articles of association."
Ultimately, the Privy Council disagreed with the Court of Appeal in relation to how the Articles were to be construed together with the Confidential Explanatory Memorandum, and ruled that the right of redemption and the right to suspend redemption is governed by the Articles and depend on the proper construction of those Articles. The so-called process of redemption is irrelevant.
13 December 2010
Prime Minister opens the Mauritius International Arbitration Conference 2010
At the opening ceremony of the Mauritius International Arbitration Conference 2010 (MIAC), this morning, the Prime Minister, Dr Navinchandra Ramgoolam, GCSK, FRCP, said that this Conference will launch the new platform created by the Government of Mauritius for international commercial and investment arbitration, and is the culmination of five years of co-operation between Mauritius and the leading institutions.
The Mauritius International Arbitration Conference 2010 is jointly organised by the Government of Mauritius the United Nations Commission on International Trade Law (UNCITRAL), the Permanent Court of Arbitration (PCA), the International Centre for Settlement Centre of Investment Disputes (ICSID), the International Chamber of Commerce, the International Council for Commercial Arbitration and the London Court of International Arbitration. Some 300 participants, local and international, are attending this two-day event.
Dr. Ramgoolam pointed out that this Conference provides a platform that brings together international and regional leaders in the field, and is the first step aimed at turning Mauritius into a centre of expertise and training in the field for the African continent and beyond.
The Prime Minister recalled that Mauritius adopted in November 2008 state-of-the-art legislation based on the UNCITRAL Model Law, adapted to best serve the interests of international users, and concluded in April 2009 a Host Country Agreement with the Permanent Court of Arbitration at The Hague pursuant to which the PCA has appointed a permanent representative in Mauritius. Mauritius is now co-operating with a leading institution in the field of international arbitration to open a dedicated and state-of-the-art regional Centre for international Arbitration.
During this Conference, panels under the chairmanship of the heads of the co-hosting institutions will use the new framework created in Mauritius as a blank canvas against which to rethink the cornerstones of international commercial arbitration and of investment arbitration.
The agenda for the working sessions over the two days at the Intercontinental Mauritius Resort Balaclava, where the Conference is being held, includes two panels on investment arbitration, chaired by the ICSID and the Permanent Court of Arbitration will aim to rethink the negotiation of investment treaties and the degree of deference which investment treaty tribunals should pay to the regulatory or judicial acts of a Host State. Four dedicated panels on international commercial arbitration, chaired by eminent practitioners will aim to rethink issues of jurisdiction, arbitrability, Court intervention and the recognition and enforcement of arbitral awards.
10 December 2010
Mauritius and Italy Sign Protocol on Avoidance of Double Taxation
Mauritius and Italy signed yesterday in Port Louis a Protocol to amend the Mauritius-Italy Convention for the Avoidance of Double Taxation with respect to taxes on income and prevention of fiscal evasion.
The existing Convention was signed in March 1990. The Protocol will review the exchange of information article contained in the Convention in order to align it with the updated Article 26 of the revised Organisation for Economic Cooperation and Development (OECD) Model Convention. The amended Convention will further contribute to encourage mutual trade and investment and reinforce the economic ties between the two countries.
As regards exchange of information and transparency, Mauritius has put in place the required legislation to implement the OECD proposed standards and has introduced new banking laws which provide the necessary mechanisms for sharing of banking information with public sector agencies, law enforcement agencies and foreign regulatory agencies. The powers of the Director General of the Mauritius Revenue Authority have also been enhanced so that relevant information can be obtained from taxpayers for exchange with treaty partners.
Furthermore, Mauritius has actively participated in the various initiatives of the OECD in the domain of exchange of information and transparency. In addition to being among the first six non-OECD countries that formed part of the Global Forum Working Group set up to draft the Model Agreement on Exchange of Information on Tax Matters, Mauritius is part of the OECD Joint Ad Hoc Group on Accounts. This year, the country has also undergone the OECD combined phases I and II peer review on the effectiveness of the exchange of information mechanism and will endeavour to implement the recommendations made in the assessment report.
It will be recalled that earlier this week Mauritius signed a Tax Information Exchange Agreement (TIEA) and an Additional Benefits Agreement (ABA) with Australia, which will strengthen the commitment of both countries to improve the integrity of the international tax system. To date Mauritius has concluded Double Taxation Avoidance Agreements which contain a section on exchange of information with thirty six countries.
09 December 2010
Ernst & Young welcomes IASB proposals that will simplify hedge accounting
Ernst & Young today announces its support for the International Accounting Standards Board’s (IASB) proposals on hedge accounting that will substantially simplify the current requirements under International Financial Reporting Standards (IFRS). The proposals, set out in the Board’s exposure draft released today, are designed to provide a better link between an entity’s risk management strategy, the rationale for hedging and the impact of hedging on the financial statements.
Tony Clifford, Ernst & Young’s Global IFRS Financial Instruments Leader says, “We welcome the IASB’s efforts to reduce complexity in hedge accounting and to provide a principles-based approach that can be consistently applied for both financial services entities and other entities. The proposals represent a fundamental shift from the way entities applied hedge accounting in the past. Financial reporting can now reflect more accurately how an entity manages its risk and the extent to which hedging practices mitigate those risks. The proposal is intended to address difficulties with the current hedge accounting under IFRS – arbitrary limits, complex rules and onerous hedge effectiveness testing, to name a few.”
Impact on non-financial services entities
Clifford adds, “Although the proposals are part of the financial instruments project, the most significant benefit will be for non-financial services entities. Hedge accounting will now be permitted for components of non-financial items (such as certain commodities), provided the entity can separately identify and measure the risk component (for example, commodity price risk) that is being hedged.
Impact on banks and other financial institutions
Tony Clifford says, “Although so called ‘macro hedging’ has not yet been addressed, which will be necessary to try to remove the European Union’s ‘carve out’ of sections of the current rules, banks and other financial institutions also stand to gain from the new proposals. Hedge effectiveness testing will be much simpler and will only be required on a prospective basis – previously, it was necessary to perform retrospective and prospective tests. Qualitative testing will be possible where appropriate and there will be no arbitrary bright lines in the new model.”
As well as reducing complexity, the proposed hedge accounting model will place a greater onus on entities to manage their hedge relationships in line with their risk management approach. It is important that all entities assess the impact of proposals and provide feedback to the IASB.
Regional Multi-disciplinary Centre of Excellence to become fully operational
The Government of Mauritius and the Regional Multi-disciplinary Centre of Excellence (RMCE) signed yesterday in Port Louis a host agreement that would allow the RMCE to become fully operational by setting up its quarters in Mauritius and be in a position to directly manage all resources that development partners would put at its disposal.
The RMCE will serve as a platform to provide a regional response to identified common needs for capacity building in the Sub-Saharan African region as concerns designing, formulating and implementing economic development strategies and policies to transform the region into an effective Free Trade Area and eventually a common market.
The agreement specifies the obligations of both Mauritius as the host country and the RMCE, a non-profit company registered under the Companies Act. The RMCE, which has been set up in line with the Government's objective to transform Mauritius into a knowledge hub, is governed by a board of directors comprising representatives of the three founding members, that is Mauritius, the Indian Ocean Commission and the Common Market for Eastern and Southern Africa (COMESA), as well as other stakeholders.
Development partners are providing financial assistance for the RMCE's operations. The European Union which is a long-standing supporter of COMESA is making available a grant of € 5. 4 million to cover the major part of the activities of the RMCE over the next five years and also to hire consultants to help set up the institution. The African Development Bank (ADB) is providing for a grant to hire consultants to define and market programmes while the Agence Française de Développement (AFD) is providing technical assistance for mounting courses on public finance. Mauritius is providing Rs 12 million annually to meet office as well as local staff costs.
It will be recalled that the idea of setting up the RMCE emanated from a proposal made in 2005 in Mauritius during the International Conference on Small Island Developing States. The RMCE started its operations in 2008. It has so far hosted six regional events with the support of COMESA, ADB, the World Bank, the Commonwealth Secretariat and the AFD. Through the networking among the various development partners, the RMCE will also serve as a vehicle for Governments of the region to build capacity in the public sector to allow for more peer to peer learning.
Listing of the Cell Shares of JPT Capital Agrifund, one of the cells of JPT Capital PCC on the Official Market of SEM
The Listing Executive Committee of the Stock Exchange of Mauritius Ltd (SEM) has approved today, 9 December 2010, the listing of yet another global fund on the Exchange. After the listing of Meteor Property Fund, one of the Cells of The Four Elements PCC, on 6 October 2010, the SEM is now admitting another global fund, one of the Cells of JPT Capital PCC, namely JPT Capital Agrifund.
The listing of Global Funds is in line with SEM’s strategy to position itself as a multi-product and internationally oriented Exchange. The changes to the Listing Rules since early 2010, have helped to position the SEM as an attractive venue for the Listing of Global and Specialised Funds. The new Listing régime is based on flexible rules that can accommodate the listing of a wide spectrum of funds including Professional Collective investment schemes, Specialized collective investment schemes, Expert Funds, and other types of Global and Specialised Funds.
Facts on JPT Capital PCC
The approval concerns the listing of up to 500,000 redeemable preference shares of JPT Capital PCC at a price of £100 per share. JPT Capital PCC’s shares will be admitted on SEM’s Official Market on 14 December 2010.
The objective of JPT Capital Agrifund is to invest for significant long-term income and capital appreciation with a focus on property investments in Australia. Investment in property can be direct or indirect through a broad range of investment vehicles.
About the Stock Exchange of Mauritius Ltd (SEM)
The Stock Exchange of Mauritius Ltd (SEM) was incorporated in Mauritius on March 30, 1989 under the Stock Exchange Act 1988, as a private limited company responsible for the operation and promotion of an efficient and regulated securities market in Mauritius. Since October 2008, the SEM has become a public company, and over the years the Exchange has witnessed a significant overhaul of its operational, regulatory and technical framework to reflect the everchanging standards of the stock market environment worldwide. SEM is today one of the leading Exchanges in Africa and a member of the World Federation of Exchanges (WFE).
About JPT Capital PCC
JPT Capital PCC is a protected cell company incorporated in Mauritius in September 2010. It has its registered office at c/o Multiconsult Limited, Rogers House, 5 President John Kennedy Street, Port Louis. It holds a Category 1 Global Business Licence and is licensed by the Financial Services Commission as a Global Scheme under the Securities (Collective Investment Schemes and Closed End Funds) Regulations 2008. The purpose of JPT Capital PCC is to facilitate a structure of separate authorised Cells, with each Cell having its own distinct investment objectives, restrictions and risk profile.
08 December 2010
Mauritius International Arbitration
The main features of the International Arbitration Act 2008 ("the Act")
Mauritius has adopted state-of-the-art legislation based on the UNCITRAL Model Law, the main features of the Act are as follows:
(a) The Act establishes two distinct and entirely separate regimes for domestic arbitration and for international arbitration. It covers only the latter.
(b) The provisions of the Amended Model Law have been incorporated within the Act itself (rather than in a separate schedule). In order to assist international users, a Schedule (The Third Schedule to the Act) has been prepared setting out where given Articles of the Model Law have been incorporated in the Act. The Amended Model Law has been modified by reference (in particular) to the current works of UNCITRAL on its arbitration Rules, and to the English, Singapore and New Zealand Arbitration Acts.
(c) A number of specific features have been incorporated in the Act:
- (i) The Act provides that all Court applications under the Act are to be made to a panel of three judges of the Supreme Court, with a direct and automatic right of appeal to the Privy Council. This should provide international users with the reassurance that Court applications relating to their arbitrations will be heard and disposed of swiftly, and by eminently qualified jurists.
- (ii) The Act adopts a unique solution, in that all appointing functions (and a number of further administrative functions) under the Act are given to the Permanent Court of Arbitration at The Hague (“the PCA”). In order to ensure that the PCA is able to react swiftly in all Mauritian arbitrations, the Government of Mauritius has concluded a Host Country Agreement with the PCA pursuant to which the PCA has appointed a permanent representative to Mauritius, funded by Government of Mauritius, whose tasks will consist inter alia of assisting the Secretary-General of the PCA in the discharge of all his functions under the Act.
- (iii) Specific provision has been made in the Act for the arbitration of disputes under the constitution of offshore companies incorporated in Mauritius in order to provide a link between Mauritius’ thriving offshore sector and the new intended international arbitration sector.
- (iv) The Act expressly clarifies that foreign lawyers are entitled to represent parties and to act as arbitrators in international commercial arbitrations in Mauritius.
Mauritian Public Key Infrastructure for secure electronic transactions
Mauritius has its own Public Key Infrastructure (PKI) since 6 December. The launching of the PKI at the Swami Vivekananda International Convention Centre, Les Pailles, by the Minister of Information and Communication Technology, Mr. T. Pillay Chedumbrum, is deemed an important step in providing for safe, trusted and secure electronic transactions and establishing Mauritius as a trusted hub for e-commerce by providing a wide range of security products and services.
The PKI is an architecture that proves the identity of people, web sites and computer programme, among others. PKI has been recognised to be the key element for supporting secure and reliable electronic communications in the framework of e-Government and e-service delivery as well as being a trusted technology that ensures the trustworthiness of identity credentials in national identity programs, and e-passport programs. Through its mix of authentication, encryption, and digital signatures, the PKI maintains strong security, streamlines administration, and contains operational costs.
It is to be recalled that in February 2009, the Information and Communications Technologies Authority (ICTA) signed a Memorandum of Understanding with the Controller of Certifying Authority of India for the implementation of the PKI in Mauritius. Hence, to enable a secure electronic transactions operating environment, the Electronic Transactions Act was amended and the Electronic Transactions (Certification Authorities) Regulations 2010 came into effect on 1 December 2010 providing for the licensing framework as well as the regulation of Certification Authorities (CA) activities in Mauritius. Parts of the Electronic Transactions Act have also been proclaimed to enable ICTA to exercise the powers of the Controller of Certification Authorities (CCA) and make the PKI operational.
The role of the CCA includes the certification of the technologies, infrastructure and practices of all CAs duly licensed, recognised, or approved to issue Digital Certificates. The Digital Certificate is the vehicle that guarantees the required level of trust as it contains information about the person holding the certificate. It aims at ensuring, through the use of Digital and Electronic Signatures, confidentiality, authenticity, integrity and non-repudiation for online transactions.
According to the Minister of Information and Communication Technology, the adoption of the PKI will reduce very considerably the risk of forgery, theft, or abuse of identification credentials. He said that the implementation of the national ID card project will include the use of PKI to improve the security of the data stored on the card. Mr. Pillay Chedumbrum also stated that the next step is to ensure the widest adoption of the PKI technology for online transactions to enable secured online transactions that have the required legal sanctity and be receivable in a court of law as evidence in cases of disputes.
Mauritius and Australia Sign Tax Information Exchange Agreement
A Tax Information Exchange Agreement (TIEA) and an Additional Benefits Agreement (ABA) between Mauritius and Australia were signed this morning in Port Louis by the Vice-Prime Minister, Minister of Finance and Economic Development, Mr Pravind Jugnauth, and the High Commissioner of Australia in Mauritius, Mrs Catherine Johnstone.
Mauritius has become the 27th TIEA partner of Australia with the signing of the agreement which will further strengthen the commitment of both countries to improve the integrity of the international tax system. The TIEA will reinforce Australia's longstanding action towards the implementation of tax information exchange standards developed by the Organisation for Economic Cooperation and Development (OECD) and the Global Forum on Transparency and Exchange of Information for Tax Purposes which is currently chaired by Australia. Under the agreements the Australian Taxation Office will also provide technical assistance and training to the Mauritius Revenue Authority.
Speaking on this occasion, the Vice-Prime Minister, Minister of Finance and Economic Development, stressed that Mauritius is looking forward to a full-fledged Double Taxation Avoidance Agreement (DTAA) with Australia and that the signing of the Additional Benefits Agreement and the TIEA is the first step towards the conclusion a complete DTAA and an Investment Promotion and Protection Agreement (IPPA) with Australia.
The High Commissioner of Australia, for her part, qualified the agreement as a significant achievement that demonstrates the commitment of both countries towards improving the integrity of the international tax system and added that the agreement will further enhance the relationship between the two countries.
It will be recalled that Mauritius has always been active as regards information exchange and transparency and has participated in the various initiatives of the OECD in this domain. The country is among the first six non-OECD countries that form part of the Global Forum Working Group set up to draft the Model Agreement on Exchange of Information on Tax Matters.
Mauritius has so far signed thirty six Double Taxation Avoidance Agreements which contain a section on exchange of information and is in the process of negotiating other Double Taxation Agreements with several countries which will contain a section on effective exchange of information compliant with the requirements of the OECD. The country is also committed to developing a Tax Information Exchange Agreement with countries where there is no Double Taxation Agreement.
07 December 2010
A confused economy: multinationals, tax havens and embezzlement
Who are the most profit-making workers in the world?: the Chinese, the Bermudans or the Americans?
Which country is the number one exporter of bananas to Europe?: Jersey, Equador or Costa Rica?
For which country do we have the highest expectations for the future?: The British Virgin Islands, The USA or China?
The responses to these questions are far from being obvious...this is not least because of the massive use of tax havens by multinational companies, which distorts and falsifies the economy.
The report "A confused economy", launched today, highlights the distortions between the real economy and the indicators that guide the G20 and the International Financial Institutions. Investments, trade, savings, production- the report shows how the use of offshore financial centres makes any measurement of these indicators impossible. At the heart of this economic lie, the report points to the important role of multinationals and banks- the top users of tax havens.
The results of some very thorough research on the activities of the top 50 European companies, it delivers an unprecedented overview of the subsidiaries of these companies in financial black holes. While in 2011 France will chair the G8 and G20, the report also provides an overview of the fight against tax evasion since the G20 in London and recalls the expectations of civil society in this area, concerned with a greater fairness in both North and South.
The editorial of the report is available in English below.
Read the executive summary of the report in French.
Read the full report in French
EU - Combating tax fraud: Agreement on strengthened mutual assistance and the exchange of information
The Council of the European Union today reached 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 evasion and tax fraud.
In the light of greater taxpayer mobility and a growing volume of cross-border transactions, the draft directive sets out to fulfil the member states' growing need for mutual assistance – especially via the exchange of information – so as to enable them to better assess taxes due.
One of a number of measures implementing the EU's strategy against tax fraud, launched in 2006, the text provides for an overhaul of directive 77/799/EEC, on which administrative cooperation in the field of taxation has been based since 1977.
The directive will ensure that the OECD model tax convention on income and capital is implemented in the EU as regards the exchange of information on request. It will thus prevent a member state from refusing to supply information concerning a taxpayer of another member state on the sole grounds that the information is held by a bank or other financial institution.
In addition, the directive will:
– extend cooperation between member states to cover taxes of any kind;
– establish time limits for the provision of information on request and other administrative enquiries;
– introduce provisions on the automatic exchange of information (see below);
– allow officials of one member state to participate in administrative enquiries on the territory of another member state;
– provide for feedback on the exchange of information;
– provide that information exchange be made using standardised forms, formats and channels of communication.
The Council's discussion focused on two issues:
- exchange of information on request. In order to allay the risk of member statesmaking imprecise requests aimed at detecting irregularities ("fishing expeditions"), the Council agreed to identify in the directive certain details that must be specified in requests for information, namely the identity of the person under investigation and the tax purpose for which the information is sought. These details are however less stringent than in the OECD convention, thus allowing for more scope for information exchange;
- automatic exchange of information. The Council agreed on a step-by-step approach aimed at eventually ensuring unconditional exchange of information for eight categories of income and capital. From 2015, member states will communicate automatically information for a maximum of five categories, provided that that information is readily available (they will however not be required to send more information than they receive in return). By 1 July 2017, the Commission will provide a report and, if need be, a proposal. When examining that proposal, the Council will examine the possibilities for removing the condition of availability and extending the number of categories from five to eight.
The Council will adopt the directive without further discussion at a forthcoming meeting, once the text has been finalized.
05 December 2010
Roundtable: Trials and tribulations in the arbitral procedure and bottlenecks encountered when enforcing an award
YIAG, ICC YAF, Young ICCA and Mauritian young arbitration practitioners invite you for the first ever interactive roundtable discussion. With leading arbitration experts and young arbitration practitioners from around the globe: John Beechey, Albert Jan van den Berg, Dustin Bhoyrul, Amir Ghaffari, Nathalie Harel-Grion, Anne-Sophie Jullienne, Matthias Kuscher, Jan Paulsson, Jamsheed Peeroo, The Right Honourable the Lord Phillips of Worth Matravers, Rajeev Sharma-Fokeer, Adrian Winstanley.
Costs: Free of Charge. Please register by 10 December 2010. Download the brochure
15 December 2010. Port Louis, Mauritius,
contact YIAG, ICC YAF and Young ICCA, Chitra Sungeelee, chitra.sungeelee@blc.mu
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