India: Commissioner of Wealth Tax, Rajkot v Estate of Late HMM Vikramsinhji of Gondal

The Supreme Court of India (SC) in a recent ruling [Commissioner of Wealth Tax, Rajkot v. Estate of Late HMM Vikramsinhji of Gondal (Civil Appeal No. 2312 of 2007)] has held that the Indian resident beneficiaries of an offshore discretionary trust shall not be subject to tax on the trust’s income until the trustees or ‘discretion exercisers’ exercise the discretion and make a distribution of income to the beneficiaries.

IBFD Launches the Global Tax Treaty Commentaries, the First Digital Global Commentary of Its Kind to Assist in the Analysis of Tax Treaties

IBFD is proud to present the IBFD Global Tax Treaty Commentaries (GTTC), a revolutionary online publication for the analysis of tax treaty practices across the globe. This peer-reviewed cutting edge publication represents a collective view of world-class academics and tax professionals on the subject, such as Hugh Ault, Brian Arnold, John Avery Jones, Mukesh Butani, Wei Cui, Guglielmo Maisto, Yoshihiro Masui, Jacques Sasseville, Eduardo Schoueri– to name a few.

IBFD's Academic Chairman, Professor Pasquale Pistone, comments: "The two-tier structure adopted in the development of GTTC allows for an authoritative interpretation of the actual problems, since the authors - all distinguished experts of international tax law - elaborate on issues raised by country experts and derived from tax treaty practice in numerous jurisdictions around the world."

The GTTC chapters provide a high-level analysis with respect to each article of the OECD Model and the UN Model. The publication also contains chapters on meta-topics on important general issues like tax treaty interpretation and tax avoidance.

Professor Richard Vann, Editor-in-Chief of GTTC, says: “IBFD’s Global Tax Treaty Commentaries will provide context, commentary and critique of the evolving development of tax treaties as the major instrument of international tax coordination.”

GTTC is a source of authority and a research tool for tax treaty practitioners of all kinds – from the advisory and corporate sector, government and the judiciary, treaty negotiation and academic departments – that is unmatched by any existing product.

Professor Hugh Ault, a member of the Editorial Board of GTTC, comments: “By making accessible online a wide range of judicial decisions from many jurisdictions, this publication will greatly assist courts in reaching reasoned and consistent decisions, and will aid both taxpayers and tax authorities in dealing with treaties. It will also give academics a wonderful source of comparative law research.”

GTTC is linked with one mouse-click to an array of other collections and primary materials, utilizing the strength and breadth of the IBFD Tax Research Platform. Authors substantiate their statements by reference to the OECD Model and the UN Model, official commentaries, treaties, case law, journal articles and other sources.

IBFD’s CEO Sam van der Feltz says about this publication: “To commission and edit these first-class commentaries in a completly new electronic format is a tremendous achievement. IBFD shows its value by combining this major publication with its powerful Tax Research Platform.”

London Tops PwC’s Cities of Opportunity Study of Global Centers of Business, Finance and Culture

For the first time, London posts the highest score among the 30 cities studied by PwC US in the sixth edition of its Cities of Opportunityreport, released today. London, the only city to finish first in three of the 10 indicators—economic clout, city gateway and technology readiness, a category it ties with Seoul—was followed by New York and Singapore. The study shows that top ranked cities embody the energy, opportunity and hope that draw people to city life. High performing cities also find the right balance between social and economic strengths in a world being quickly shaped by inescapable global trends.

Moving up four spots from the last edition, Singapore takes third place overall and finishes first in two indicators—ease of doing business and transportation and infrastructure. Despite not having a top rank in any indicator, New York continues to show strong consistency across most of the categories. Rounding out the top five cities are Toronto and San Francisco.

As for London, the city outperforms New York by a good margin after finishing second in a virtual tie with New York in 2012. Results show London is developing a strong foundation for the future with top economic strength, openness to the world and technology readiness—all critical building blocks for further growth in a digitally and physically connected world. In addition, London finishes a narrow second to Paris in intellectual capital and innovation and comes in second—virtually tying Sydney—in demographics and liveability, both key areas for future urban prosperity.

“Changing demographics, shifts in economic power and the concepts of urbanization being realized are the forces taking the world in a new direction,” said Bob Moritz, PwC's US Chairman and Senior Partner. “Cities are increasingly competing for talent and are working hard to capture the promise of growth from the many opportunities in today’s rapidly changing world. As a result, people are looking for more potential for personal opportunity while demanding critical elements to increase quality of life. It’s the top ranking cities in this year’s study that are demonstrating the foresight that is needed to adapt, stay competitive and thrive for a sustainable positive future."

Cities of Opportunity 6 also highlights the increasing competitiveness of emerging cities across several key indicators. Beijing, which ranked 19th, finishes in the top three in both the city gateway and economic clout categories, while Seoul is top in technology readiness and is the only emerging city to reach the top 10 in the ease of doing business indicator. Seoul and Buenos Aires also break into the top three for transportation and infrastructure, while Johannesburg is in the top three for cost.

The Cities of Opportunity key indicators and top three cities within each are:

• Intellectual capital and innovation: Paris, London, San Francisco
• Technology readiness: London and Seoul tied for first place, Stockholm, Hong Kong
• City gateway: London, Beijing, Singapore
• Transportation and infrastructure: Singapore, Toronto, Buenos Aires and Seoul tied for third
• Health, safety and security: Stockholm, Sydney and Toronto tied for second, Berlin
• Sustainability and the natural environment: Stockholm and Sydney tied for first, Paris and Berlin tied for second, San Francisco
• Demographics and livability: Sydney, London, San Francisco
• Economic clout: London, Beijing, New York
• Ease of doing business: Singapore, Hong Kong, New York
• Cost: Los Angeles, Chicago, Johannesburg

The full report is available at http://www.pwc.com/cities.The site also features in-depth video interviews with leaders including Bob Moritz, PwC’s US Chairman and Senior Partner, Erik Brynjolfsson of MIT’s center for digital business, and Ulla Hamilton, Deputy Mayor of Stockholm for entrepreneurism.

Cities of Opportunity 6: We, the urban people

In June, PwC will release Cities of Opportunity 6: We, the urban people, that will include findings from a global survey of 15,000 PwC professional staff—comprised of an average of 20 percent of staff in each of the 30 cities. The study, which was used to enrich the data of the main Cities of Opportunity 6 report, will provide an in-depth look at demographics and quality of urban life, including responses on commuting, urban priorities, likelihood of remaining in the city, preferences for relocation, and spending patterns, among other revealing points.

Methodology

Cities of Opportunity is based on publicly available data, using three main sources: global multilateral development organizations such as the World Bank and the International Monetary Fund; national statistics organizations, such as National Statistics in the UK and the Census Bureau in the US; and commercial data providers. The data was collected during the third and fourth quarters of 2013. Besides adding Jakarta, Nairobi, and Rio de Janeiro to the study, PwC also replaced Abu Dhabi with Dubai, which brought the study to 30 cities total, the largest to date. The scoring methodology was developed to facilitate transparency and simplicity for readers, as well as comparability across cities.

Mauritius well poised to develop a buoyant Islamic financial services industry

Mauritius as an international financial centre of repute is well poised to sustain and further develop a buoyant Islamic financial services industry which is a new frontier for the country and is well positioned to act as a bridge to Africa, said the Prime Minister, Dr Navinchandra Ramgoolam.

He was speaking this morning at the opening of the 11th Islamic Financial Services Board (IFSB) summit on the theme: New Markets and Frontiers for Islamic Finance: Innovation and the Regulatory Perimeter, at Le Meridien Hotel, Pointe aux Piments.

Dr Ramgoolam highlighted that Mauritius is often referred to as Africa’s growth success story and has succeeded in becoming an upper middle income country with a thriving financial services sector. This, is mostly associated with a two-fold dimension thus positioning Mauritius as an ideal location for the holding of the IFSB summit, he added. Firstly, a thriving internationally oriented offshore financial market that is increasingly serving the needs of global investors and secondly the deeply engrained institutional necessity for building institutions and business that are economically successful. This added the PM is the prerequisite to build successfully an Islamic Finance industry in Mauritius.

According to the PM, in the wake of the global financial crisis, we need to stay ahead of the curve and adopt risk-sharing which is at the heart of Islamic Finance, which offers genuine advantages to any financial system. What is needed, stressed the PM, is to islamize conventional banking with focus on the provision of real economic services and risk sharing with effective regulations.

Dr Ramgoolam also spoke on the Islamic investments across the world totaling to 3 trillion US dollars and out of which only one percent of the investment is channeled into Africa. In this regard, he made an appeal to the Islamic Financial services industry to tap the tremendous opportunities that are rising on the African continent.

Commenting on the global financial crisis which has led to the collapses of many economies across the world, the PM said that Mauritius with a more conservative and rigorous regulatory system, has escaped the worst of the primary impact and has sufficiently been resilient with the secondary impact of the problems affecting our main trading partners in Europe.

Over 300 partcipants both local and foreign from all sectors of the financial services industry across the globe are attending the one and a half day summit aiming at providing a gateway for the sharing of new ideas, services and new markets to extend the frontiers of Islamic Finance and define its future role and how Islamic finance has been serving the world in this changing environment and how it can progress further.

Among the topics to be discussed are: global overview of the Islamic Financial Services Industry (IFSI): Outlook and Policy Developments; Legal and Regulatory Environment of Islamic Finance; Sukūk; Market Development and Regulation; the role of Islamic Finance in Economic Development: promoting financial inclusion, sustaining innovation, expanding the regulatory perimeter-Striking a Balance; and new and Emerging Islamic Finance Jurisdictions: Opportunities and Challenges Ahead.

The Islamic Financial Services Board (IFSB) set up in 2003, is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic Financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors.

As at 27 March 2014, the 184 members of the IFSB comprises 59 regulatory and supervisory authorities , eight international inter-governmental organisations and 111 market players and professional firms operating in 45 jurisdictions. The IFSB also conducts research and coordinates initiatives on industry-related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders. 

Mauritius: an international financial centre of repute and substance erroneously described as a tax haven

Shan Sonnagee, an associate at BLC Chambers in Mauritius recently completed a secondment to Hogan Lovells' London office. In an article focussed on the important role that Mauritius now plays as it establishes itself as a gateway for investments in Africa, Shan also considers why Mauritius is sometimes wrongly referred to as a "tax haven"

Mauritius: Autocheck Motor Vehicle Test Centre

FT Special Report: Doing Business in The Isle of Man

The island has worked hard to diversify and improve its skills base. Its efforts have paid off, with the World Bank saying it is the eighth wealthiest country

Download Report

Women's Offshore Network launches in the BVI

A new networking initiative has launched in the BVI for women working in the financial services sector.

The BVI "Women's Offshore Network" launched this morning, 8 May 2014, to an audience of approximately 80 women at The Moorings, Tortola. The initiative is the brain child of business associates from five firms; Mourant Ozannes, KPMG, Forbes Hare, Coverdale and Walkers who, after a steering group breakfast with senior women from BVI organisations, were able to incorporate the group and plan an initial calendar of events. 

The objective of the group is to provide networking opportunities, predominantly for women working in the BVI financial services industry. Men are also able to join as associate members.

Eleanor Morgan, Senior Associate at Mourant Ozannes, is one of the founders of the Women Offshore Network. She said: "Women tend to network in a different way from men, so we wanted to organise smaller, more informal events which would make it easier for people to reach out and build relationships with others working in the industry. We hope that it may also lead to mentoring opportunities."

FSB-IRTI Mid-Term Review of the Ten-Year Framework and Strategies for Islamic Financial Services Industry Development Assesses the Progress of the Industry and Provides Updated Recommendations

A report "Mid-Term Review of the Ten-Year Framework and Strategies for Islamic Financial Services Industry (IFSI) Development" will be launched on 19 May 2014 during an IFSB-IRTI session to be held in conjunction with the 11th IFSB Summit in Mauritius. The Mid-Term Review report is a joint initiative of the IFSB and Islamic Research and Training Institute (IRTI), the research arm of the Islamic Development Bank Group (IDB).

Previously, in March 2007, the IFSB, IDB and IRTI had jointly developed, in consultation with a wide range of stakeholders, the IFSI Development: Ten-Year Framework and Strategies (Ten-Year Framework). The aim was to provide a general blueprint or guideline that may benefit national authorities in designing and developing their national plans and initiatives as part of their financial sector development policies.

After five years of the initial publication, a Mid-Term Review of the initiative was undertaken with the aim to assess the progress made by the IFSI in implementing the 2007 recommendations, incorporate the new developments taking place in the global financial system and the challenges faced by the IFSI. This would ultimately ensure that the Ten-Year Framework not only continues to remain current, relevant and beneficial but also provide resilience and stability to IFSI in moving forward.

The Mid-Term Review of the Ten-Year Framework has taken into account feedback from regulatory and supervisory authorities as well as market players and select leading industry experts. The feedback was obtained via several platforms organised by the IFSB and IRTI, namely a Roundtable on the Mid-Term Review of the Ten-Year Framework on 6 April 2013 in Doha, Qatar; a Forum on preliminary findings of the mid-term review on 14 May 2013 in Kuala Lumpur, Malaysia; and a High-Level Review Committee Meeting on 17 September 2013 in Istanbul, Turkey. An industry-wide Survey covering the regulators and market players of the IFSI was also conducted in mid-2013.

Benefitting from these comprehensive inputs, the revised Framework comprises four main sections – (a) overall assessments and progress of the priorities and initiatives suggested in the 2007 Ten-Year Framework, (b) sector-level assessments – Islamic banking, Islamic non-bank financial institutions, Takāful and ReTakāful services, and Islamic capital markets – arising from developments in the global financial system post-crisis, (c) updated framework recommendations and key performance indicators for measuring progress, and (d) measures to be undertaken by all stakeholders of the IFSI to implement the 16 recommendations of the Ten-Year Framework, outlined under three categories, namely Enablement, Performance and Reach.

The Mid-Term Review report will be launched on 19 May 2014 during an IFSB-IRTI pre-summit session on Mid-Term Review of the Islamic Financial Services Industry Development: Ten-Year Framework and Strategies. The session will also discuss the proposed measures to address the gaps or challenges in meeting the objectives of the Ten-Year Framework, as well as the roles of the public and private sectors and other stakeholders of the IFSI in carrying out the 16 recommendations.

The Report has been approved by the Council of the Islamic Financial Services Board (IFSB) in its 24th meeting on 27 March 2014.

Ernst & Young 2014 Worldwide Corporate Tax Guide

Governments worldwide continue to reform their tax codes at a historically rapid rate. Taxpayers need a current guide such as the EY 2014 Worldwide Corporate Tax Guide in such a shifting tax landscape, especially if they are contemplating new markets. 

The content is straightforward. Chapter by chapter, from Afghanistan to Zimbabwe, Ernst & Young summarize corporate tax systems in 161 jurisdictions. The content is current on 1 January 2014, with exceptions noted.

Marc Hein – ‘FSC Mauritius: A great experience in my career as Chairperson during 2 eventful years’

Mr. Marc Hein has announced his decision to resign from his position as Chairperson of the Board of the Financial Services Commission, Mauritius (FSC Mauritius) with effect from the 30th May 2014. He was appointed as Chairperson of FSC Mauritius Board on 19th March 2012.

Mr. Hein explains in his statement that “I have informed the Prime Minister and the Vice Prime Minister and Minister of Finance that I am resigning from the Chair of the FSC on the 30th May 2014. I have been actively involved in public service for almost four years and it is appropriate for me to be allowed to spend more time towards my legal career, to my Chambers and to my family. I also want to spend some meaningful time writing. I wish also to be able to be active in charitable and philanthropic work. For these reasons, I have decided that the time has come for me to take leave from the FSC. It has been a unique opportunity for me to be able to contribute, over the past two years, towards consolidating the position of the Mauritius International Financial Centre as a jurisdiction of substance and sound repute. I am grateful for the opportunity I was given to share my expertise and provide guidance to the Commission during challenging times that the sector had to face. I sincerely thank the Board members, the Chief Executive and all the staff of the FSC for their dedication and invaluable support during my term as Chairperson. I am sure that the FSC will continue on sound foundations and I am very confident in the future of Financial Services in Mauritius.”

Prior to joining FSC Mauritius, Mr. Hein served as Chairperson of the National Economic and Social Council. He started his career as a Barrister in 1980 and is the founder of the Juristconsult Chambers, one of the largest law firms in Mauritius. He specialises in business related laws, including corporate, commercial and banking.

The FSC Chief Executive, Ms Clairette Ah-Hen, states that “Mr. Marc Hein was appointed as Chairperson of the FSC Mauritius Board a few months after I joined the Commission as Chief Executive. It was an enriching experience to work with him and our skills set and experience complemented each other. His guidance has been meaningful and the FSC has, over the past two years, achieved a lot in spite of the challenging times that the sector had to face. On behalf of the staff of the Commission and on my own behalf, I wish him well in his future endeavours.”

Financial Services Commission, Mauritius

12 May 2014

GFI: African Countries Lose Billions through Misinvoiced Trade

The fraudulent misinvoicing of trade is hampering economic growth and potentially resulting in billions of U.S. dollars in lost tax revenue in Ghana, Kenya, Mozambique, Tanzania, and Uganda, according to a new report to be published Monday by Global Financial Integrity (GFI), a Washington DC-based research and advocacy organization. The study—funded by the Ministry of Foreign Affairs of Denmark—finds that the over- and under-invoicing of trade transactions facilitated at least US$60.8 billion in illicit financial flows into or out of the five African countries between 2002 and 2011.

“It is deeply disconcerting that illicit financial flows are taking such a serious toll on the economies of Ghana, Kenya, Mozambique, Tanzania, and Uganda,” noted Mogens Jensen, Danish Minister for Trade and Development Cooperation. “Denmark has for several years supported Ghana, Kenya, Mozambique, Tanzania, and Uganda in fighting poverty and promoting economic growth and job creation. These efforts are clearly at risk of being undermined by fraudulent trade transactions which rob the people of these countries of funds that could otherwise have been used for investments in infrastructure, schools, hospitals, and other much needed public services. I hope that the study can help the governments in their efforts to curb illicit financial flows.”

“Trade misinvoicing is stymieing economic growth and likely decimating government revenues in these countries,” said GFI President Raymond Baker, a longtime authority on financial crime. “The consequences are simply devastating.  The capital drained from trade misinvoicing means that local businesses in Uganda and Tanzania have less money to grow their companies and hire more workers.  The potential revenue loss from trade misinvoicing means that Ghana has less money to spend on healthcare, Kenya has less money to devote to education, and Mozambique has less money to invest in infrastructure.  Trade misinvoicing is perhaps the most serious economic issue plaguing these countries.”

Titled “Hiding in Plain Sight: Trade Misinvoicing and the Impact of Revenue Loss in Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011,” the study estimates that, collectively, trade misinvoicing may have cost the taxpayers of these five African nations US$14.39 billion in lost revenue over the decade. The potential average annual tax loss from trade misinvoicing amounted to roughly 12.7% of Uganda’s total government revenue over the years 2002-2011, followed by Ghana (11.0%), Mozambique (10.4%), Kenya (8.3%), and Tanzania (7.4%).1

Authored by a team of GFI experts, the analysis reviews the components and drivers of trade misinvoicing in Ghana, Kenya, Mozambique, Tanzania, and Uganda, it estimates the potential impact on tax revenue for each government, it analyzes the policy environment in each country, and it provides general policy recommendations as well as specific suggestions tailored to the circumstances in each nation.

Policy Recommendations

Based around two themes—greater transparency in domestic and international financial transactions, and greater cooperation between developed and developing country governments to shut down the channels through which illicit money flows—the report recommends a number of steps that can be taken by these five countries to ameliorate the problem of illicit flows of money into and out of the country. Among other steps, GFI recommends that:

• Governments should significantly boost their customs enforcement, by equipping and training officers to better detect intentional misinvoicing of trade transactions;
• Trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials;
• Government authorities should create central, public registries of meaningful beneficial ownership information for all companies formed in their country to combat the abuse of anonymous shell companies;
• Financial regulators should require that all banks in their country know the true beneficial owner of any account opened in their financial institution;
• Ghana, Kenya, Mozambique, Tanzania, and Uganda should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the G20 and the OECD;
• Kenya and Uganda should follow the lead of Ghana, Mozambique, and Tanzania in joining and complying with the Extractives Industry Transparency Initiative (EITI); and
• Government authorities should adopt and fully implement all of the Financial Action Task Force’s anti-money laundering recommendations.

“It is our view that this is just the beginning of the conversation surrounding trade misinvoicing and illicit flows in these countries,” added Mr. Baker, GFI’s president. “Our analysis makes it clear that more research can and should be done to further identify areas for improvement.  It’s our desire to work constructively with the governments of Ghana, Kenya, Mozambique, Tanzania, and Uganda to meaningfully curtail the scourge of illicit financial flows.”

Methodology

GFI Chief Economist Dev Kar and GFI Junior Economist Brian LeBlanc developed robust economic models that highlight the drivers and dynamics of illicit flows in both directions for each of the five countries analyzed. Nevertheless, GFI cautioned that their methodology is very conservative and that there are likely to be more illicit flows into and out of these countries that are not captured by the models.

“The estimates provided by our methodology are likely to be extremely conservative as they do not include trade misinvoicing in services or intangibles, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash,” explained Mr. Baker.

Key Findings of the Report

Ghana

Over the decade:

• US$7.32 billion flowed illegally out of the country due to trade misinvoicing;
• US$7.07 billion flowed illegally into the country due to trade misinvoicing;
• US$14.39 billion in illicit capital flowed either into or out of the country due to trade misinvoicing;
• Gross illicit flows were pegged at 6.6% of the country’s GDP;
• Gross illicit flows roughly equaled ODA provided to the nation;
• The under-invoicing of exports amounted to US$5.1 billion;
• The under-invoicing of exports was the primary method for shifting money illicitly out of the country;
• The under-invoicing of imports amounted to US$4.6 billion;
• The under-invoicing of imports was the primary method for illegally smuggling capital into the country;
• Tax revenue loss from trade misinvoicing potentially totaled US$3.86 billion, averaged US$386 million per year;
• Tax revenue loss from trade misinvoicing roughly equaled 11.0% of total government revenue.

Kenya

From 2002-2010:

• US$9.64 billion flowed illegally out of the country due to trade misinvoicing;
• US$3.94 billion flowed illegally into the country due to trade misinvoicing;
• US$13.58 billion in illicit capital flowed either into or out of the country due to trade misinvoicing;
• Gross illicit flows were pegged at 7.8% of the country’s GDP;
• Gross illicit flows were twice the ODA provided to the nation;
• The under-invoicing of exports amounted to US$9.26 billion;
• The under-invoicing of exports was the primary method for shifting money illicitly out of the country;
• The under-invoicing of imports amounted to US$3.94 billion;
• The under-invoicing of imports was the only method for illegally smuggling capital into the country;
• Tax revenue loss from trade misinvoicing potentially totaled US$3.92 billion, averaged US$435 million per year;
• Tax revenue loss from trade misinvoicing roughly equaled 8.3% of total government revenue.

Mozambique

From 2002-2010:

• US$2.33 billion flowed illegally out of the country due to trade misinvoicing;
• US$2.93 billion flowed illegally into the country due to trade misinvoicing;
• US$5.27 billion in illicit capital flowed either into or out of the country due to trade misinvoicing;
• Gross illicit flows were pegged at 9.0% of the country’s GDP;
• Gross illicit flows amounted to 32.6% of ODA provided to the nation;
• Export under-invoicing amounted to US$1.26 billion;
• Import over-invoicing amounted to US$1.08 billion;
• Both export under-invoicing and import over-invoicing were common for shifting money illicitly out of the country;
• Import under-invoicing amounted to US$2.22 billion;
• Import under-invoicing was the primary method for illegally smuggling capital into the country;
• Tax revenue loss from trade misinvoicing potentially totaled US$1.68 billion, averaged US$187 million per year; 
• Tax revenue loss from trade misinvoicing roughly equaled 10.4% of total government revenue.

Tanzania

Over the decade:

• US$8.28 billion flowed illegally out of the country due to trade misinvoicing;
• US$10.44 billion flowed illegally into the country due to trade misinvoicing;
• US$18.73 billion in illicit capital flowed either into or out of the country due to trade misinvoicing;
• Gross illicit flows were pegged at 9.4% of the country’s GDP;
• Gross illicit flows amounted to 77.6% of ODA provided to the nation;
• Import over-invoicing amounted to US$8.28 billion;
• Import over-invoicing was the only method for shifting money illicitly out of the country;
• Export over-invoicing amounted to US$10.34 billion;
• Export over-invoicing was the primary method for illegally smuggling capital into the country;
• Tax revenue loss from trade misinvoicing potentially totaled US$2.48 billion, averaged US$248 million per year; 
• Tax revenue loss from trade misinvoicing roughly equaled 7.4% of total government revenue.

Uganda

Over the decade:

• US$8.39 billion flowed illegally out of the country due to trade misinvoicing;
• US$457 million flowed illegally into the country due to trade misinvoicing;
• US$8.84 billion in illicit capital flowed either into or out of the country due to trade misinvoicing;
• Gross illicit flows were pegged at 7.1% of the country’s GDP;
• Gross illicit flows amounted to 58.9% of ODA provided to the nation;
• Import over-invoicing amounted to US$8.13 billion;
• Import over-invoicing was the primary method for shifting money illicitly out of the country;
• Export over-invoicing amounted to US$457 million;
• Export over-invoicing was the only method for illegally smuggling capital into the country;
• Tax revenue loss from trade misinvoicing potentially totaled US$2.43 billion, averaged US$243 million per year;
• Tax revenue loss from trade misinvoicing roughly equaled 12.7% of total government revenue.

IMF Policy Paper: Spillovers in International Corporate Taxation

This paper explores the nature, significance and policy implications of spillovers in international corporate taxation—the effects of one country’s rules and practices on others. It complements current initiatives focused on tax avoidance by multinationals, notably the G20-OECD project on Base Erosion and Profit shifting (BEPS). The paper draws on the IMF’s experience on international tax issues with its wide membership, including through technical assistance (TA), and on its previous analytical work, to analyze spillovers and how they might be addressed. In doing so, it goes beyond current initiatives to look at a wide set of possible responses.

Offshore Investment (May 2014) : The new Hong Kong Trust Law - 70 years on

New legislation in respect of trusts in Hong Kong came into force in December. Prior to the amendments, the Trustee Ordinance was essentially a re-enactment of the 1925 English Trustee Act 1925, introduced into Hong Kong in 1934 and therefore an overhaul of the law was well overdue. Pearl Lam explains how the reforms are in line with changes in the law both in England and Singapore and therefore enhance Hong Kong’s competitive edge.

These include a review of the trustees’ duty of care and exemption clauses, and a reform of key trustee powers, including their power to insure, power as to self-remuneration, power to appoint agents and powers in respect of authorised investments. In respect of settlors, new provisions allow increased ability to reserve powers of investment and asset management and protection against forced heirship claims.

Hong Kong has firmly brought itself into competition with other comparable jurisdictions with these amendments to the Trustee Ordinance. With the modernisation, and the absence of licensing requirements, it becomes an attractive jurisdiction for professional trustees to set up trust companies and will no doubt attract more trust business for sophisticated succession planning purposes, particularly in Asia where dynastic trusts are popular.

The new Hong Kong Trust Law

Offshore Investment (May 2014): No more QE!

Most of us accept the idea that to be an accomplished and re-elected politician it is important to be good at rhetoric.  Or to be a successful criminal barrister it is necessary to sow just enough doubt in a jury’s collective mind that the prosecution is unable to meet the burden of proof.  However, neither of these sets out to be truthful per se being principally designed to deliver an outcome that is favourable for the rhetorician. 

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IMF - Mauritius: 2014 Article IV Consultation-Staff Report, Press Release, and Statement

The Mauritian economy has grown steadily despite weak activity in Europe, its main trading partner. Growth was supported by fiscal stimulus and accommodative monetary policy. The economy is operating slightly below potential, domestic investment has fallen, and the planned medium-term fiscal consolidation has been delayed. Outlook and risks: The economic outlook for 2014 is broadly positive with growth projected at 3¾ percent and inflation at 4½ percent. The main short-term risk would be renewed Euro area financial stress; medium-term risks relate to weak future reform efforts. Fiscal policy: The 2014 fiscal stance is neutral. Staff recommended initiating fiscal adjustment already in 2014 to smooth the planned medium-term adjustment. Staff projects debt to be sustainable, but recommended additional medium-term fiscal adjustment efforts to safely reach the legally-mandated 2018 debt target. Monetary policy: The moderately accommodative monetary policy is appropriate but should be forward looking to anticipate inflationary pressures. Excess liquidity has to be removed to improve the monetary transmission mechanism despite likely, but justified, losses for the Bank of Mauritius. Staff suggested sharing the cost of monetary policy. External sustainability: Standard quantitative measures together with a persistently high current account deficit, weak export performance, and wage growth in excess of productivity suggest a moderate overvaluation. International reserves appear adequate. Long-term growth: Staff suggested fiscal adjustment and structural reforms to reduce external vulnerabilities and improve long-term growth. Reforms to public enterprises, social safety nets, pensions, local governments, and the general business environment could lift longer-term growth rates to reach high income status faster than projected. Financial sector: The financial sector remains well-capitalized and profitable. Stress tests show a broad resilience of the system. BOM started using macro-prudential tools and is improving coordination with the nonbank supervisor.

Country Report No. 14/107

Hong Kong: SFC outlines risks of crowd-funding and potential regulatory issues

The Securities and Futures Commission (SFC) today issues a notice reminding parties engaging in crowd-funding activities of the potential application of relevant securities laws and regulations, and reminding the public of potential risks relating to participating in crowd-funding activities in view of the increase in such activities internationally and in Hong Kong.

Parties engaging in crowd-funding activities are reminded that this may be subject to provisions of the Securities and Futures Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance and/or relevant SFC requirements, including regulations on offers of investments, intermediary licensing and conduct of business requirements, and requirements applicable to automated trading services and/or recognized exchange companies. Other Hong Kong laws and regulations may also apply depending on the features of the activities. Parties looking to engage in crowd-funding activities should seek professional advice if in doubt to ensure compliance with all applicable laws and regulations.

Potential risks involved in participating in crowd-funding activities as an investor include risk of default, risk of illiquidity of the investment, risk of platform failure and insolvency, risk of fraud, risks associated with platforms operating outside Hong Kong, information asymmetry and lack of transparency, cyber security issues and possible illegal activities. Investors considering participating in crowd-funding activities and in doubt about the nature, risk profile and regulatory status of such activities should seek professional advice.

“Parties seeking to engage in crowd-funding activities should be aware that a breach of the relevant laws could lead to serious consequences including criminal liability,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “Investors should also take note that participating in crowd-funding activities could involve significant risks.” 

“The SFC will keep in view the development of crowd-funding activities and will take appropriate regulatory action where non-compliance with relevant securities laws and regulations is detected,” Mr Alder added.

OECD - Countries commit to automatic exchange of information in tax matters

Bank secrecy for tax purposes is coming to an end as countries and major financial centres commit to automatic exchange of information between jurisdictions.

The Declaration on Automatic Exchange of Information in Tax Matters was endorsed during the OECD’s annual Ministerial Council Meeting in Paris by all 34 member countries, along with Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa.

The Declaration commits countries to implement a new single global standard on automatic exchange of information. The standard, which was developed at the OECD and endorsed by G20 finance ministers last February, obliges countries and jurisdictions to obtain all financial information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.

“Tax fraud and tax evasion are not victimless crimes: they deprive governments of revenues needed to restore growth and jeopardise citizens’ trust in the fairness and integrity of the tax system,” OECD Secretary-General Angel Gurría said. “Today’s commitment by so many countries  to implement the new global standard, and to do so quickly, is another major step towards ensuring that tax cheats have nowhere left to hide.”

The OECD will deliver a detailed Commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 finance ministers in September 2014. 

G20 governments have mandated the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes to monitor and review implementation of the standard. 

   

More than 60 countries and jurisdictions have now committed to early adoption of the standard, and additional Global Forum members are expected to join this group in the coming months.

OXFAM - Developing countries must be at the heart of Global Tax Reform

After the world was plunged into a financial crisis, back in 2009, G20 leaders promised to clean up the international tax system, once and for all. The result – five years on – is a plan of action devised for them by the Organisation for Economic Co-operation and Development (OECD) to tackle Base Erosion and Profit Shifting (BEPS), a series of tactics used by multinational companies to make profits ‘disappear’ or move to another country, to pay less or even avoid paying corporate taxation. 

This action plan is obviously a much needed and welcome step. The current dysfunctional international tax rules are allowing scores of multinational companies to pay minimal tax bills in the countries where economic production takes place, compared to the profits they are earning and often hiding offshore. They also fuel a system of unhealthy competition abused by companies, where developing countries enter into a race to the bottom to offer the most competitive tax rates and unfeasible tax breaks, in the hope of attracting foreign investment to their shores. And they exacerbate inequality, because it’s the least well-off economies who are being hit hardest. 

It’s estimated that the tax gap, in other words the amount of tax liability not paid by multinationals to developing countries, is about $104 billion a year. One discreet example of corporate tax dodging illustrates the kind of impact this has for the public; Peru’s tax administration audited just a fraction of corporate transactions involving transfer pricing in 2013, and uncovered a sum equivalent to US$ 105 million in unpaid tax - almost enough to fund the whole maternal neonatal public programme. 

So why, when developing countries are so obviously impacted and when better tax structures could be of such monumental benefit to poorer economies, are these nations not being involved in any plans for tax reform? The OECD’s negotiations have failed so far to include any developing countries in the process on an equal footing. There have been attempts to ‘consult’ some of them but on such a serious issue as an international tax reform, more than mere consultation is needed.  

Currently the reform led by the OECD leaves four fifths of the planet on the side and is posing a huge risk that any revisions to global tax rules will only reflect the interests of the wealthiest and most powerful nations.

Oxfam believes that any global talks to reform tax rules must include all countries, including the poorest. Policy makers and influencials representing the G20 and other OECD members must use the opportunity of the OECD Forum, taking place in Paris next week, to commit to doing this. 

If done properly, the G20/OECD BEPS project presents a unique opportunity to overhaul international corporate tax rules to the benefit of all economies, an opportunity too rare and important to be squandered. 

But beyond that, we need to raise our ambition on tax reform. Global governments should start seriously talking about the creation of a World Tax Authority with the mission to ensure that tax systems will deliver for the public interests in all countries.

Read the report: Business Among Friends. Why corporate tax dodgers are not yet losing sleep over global tax reform

OXFAM - Business Among Friends: Why corporate tax dodgers are not yet losing sleep over global tax reform

Fair tax regimes are vital to finance well-functioning states and to enable governments to uphold citizens’ rights to basic services, such as healthcare and education. Tax dodging by big corporations deprives governments of billions of dollars and drives rapidly increasing inequality. Recent G20 and OECD moves to clamp down on corporate tax dodging are a welcome first step, but opponents are set on undermining them. And most developing countries, which lose billions to corporate tax dodging annually, are being left out of the decision making.

Oxfam’s briefing shows how tax rules are rigged in favour of multinational corporations and how the G20’s current approach to tax reform is at risk of being dominated by a legion of corporate lobbyists. Commercial interests must not be allowed to pursue their agenda at the cost of the public interest. All developing countries must be included in negotiations, and corporations must pay what they owe.

IFC Review: The Seychelles Vision

Rupert Simeon examines the great strides the Seychelles is making to comply with international transparency standards.

IFC Review: FATCA Offspring

With FATCA proving to be a watershed moment for information exchange, Louise Gonçalves and Eran Shay discuss what this means for those caught within its grasp.

IFC Review: An Asian Welcome for Offshore

Frances Woo examines how Asian financial centres have gone from strength to strength in recent years through facilitating global trade and investment. 

IFC Review - Revised Parent and Subsidiary Directive: Towards a Fairer Tax System

Thomas Neale highlights European Commision initiatives to lift tax obstacles to trade while also striving for a fairer tax system by regulating against tax avoidance.

IFC Review - Due Diligence: NGO’s and Charities

In this month's column, Burke Files examines how the veneer of decency can be used to hide mischief through the use of Charities and NGO's as channels for laundering money.

IFC Review - Protection Ratchets Up: Long Finance and Offshore Centres

Professor Michael Mainelli examines the potential for IFCs to market themselves as leaders in the fight for tax transparency as they have often been shown to be ahead of the regulatory curve when compared to their onshore rivals.