IFC Review: Q&A with Simon Harris, Irish Minister of State with responsibility for International Banking and the IFSC

The IFC Review speaks to Minister Harris about Ireland’s success as an international finance centre and looks at the challenges facing the small but robust European IFC going forward

IFC Review: The Future of Offshore – The Industry in 2020

Following the release of OIL's Offshore 2020, Jonathon Clifton considers the future of the Offshore Financial Industry

IFC Review: The Global Citizen – The Wealth Management Opportunity

With global investors looking to take advantage of the growing number of citizenship schemes available

Read article

IFC Review: Q&A with Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration

With the first seven deliverables of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project now delivered to Finance Ministers of the G20, IFC Review speaks to Pascal Saint Amans about the future of the project.

IFC Review: Looking Through the Porthole to Maltese Citizenship

Following the passage through parliament of Malta's Citizenship by Investment programme, George Mangion considers the benefits of acquiring Maltese citizenship

IFC Review: Are All Animals Equal? Ethical Aspects of Investor Citizenship Programs

With Citizenship by Investment programmes becoming ever more appealing for financial centres in need of increasing revenue streams, Dr Jelena Dzankic examines whether or not there is a level playing field for individuals interested in such schemes.

Mauritius tops African governance list for 8th consecutive year

Mauritius is ranked first in the Ibrahim Index of African Governance (IIAG) 2014 for the eighth consecutive year. Among the 52 countries rated by the Foundation, Mauritius scored the highest overall mark of 81.7 points which is also higher than the continental average score of 51.5 points, followed by Cabo Verde at the second position with 76.6 points.

According to Mo Ibrahim Foundation Index, released yesterday, Mauritius also ranked first in Africa for Sustainable Economic Opportunity business environment, a category which assesses whether the state provides the conditions necessary for the pursuit of economic opportunities that contribute to a prosperous and equitable society. It also measures the delivery of sound economic policies and the provision of a sustainable economic environment that is conducive to investment and the operation of a business.

Mauritius is also ranked first in Human Development, a category which evaluates the success of the state in securing the well-being of all of its citizens. It measures the extent to which the government provides citizens with social protection, comprehensive education provision and a healthy life.

Commenting on the ranking, the Financial Secretary, Mr Dev Manraj, underlined that: “It is indeed with great pride that we welcome the MO Ibrahim report on Governance and we are pleased that Mauritius again tops the ranking for the eight consecutive years. Today’s announcement shows that Mauritius continues to lead Africa in terms of its high governance standards and that we have significantly improved our performance in public management, on the business environment and in providing sustainable economic opportunities. I am confident that this announcement will further enhance the position of Mauritius as a secure, transparent and trusted environment for FDI and also as an ideal platform for outward investments into Africa”.

IIAG provides an annual assessment of the quality of governance in African countries. Compiled by combining over 100 variables from more than 30 independent African and global institutions, the IIAG is the most comprehensive collection of data on African governance. The rankings are based on four categories of high-functioning states: safety and rule of law, human rights and participation, economic opportunity, and human development.

IIAG was established in recognition of the need for a robust, comprehensive and quantifiable tool for civil society to track government performance in Africa. It is Africa's leading annual assessment of governance established to inform and empower the continent's citizens and support governments, parliaments and the civil society to assess progress.

Mauritius: Financial Summaries for GBC 2s

The FSC Mauritius wishes to remind Management Companies that GBC2s are required to file with the Commission the original duly signed and dated financial summary within seven (7) business days as per Circular Letter CL310714. The Circular Letter was issued to harmonise and ease the filing of financial summaries by GBC2s, and for the purpose of data compilation. 

In the event that the Commission does not receive the hard copies of the financial summary within the prescribed days, the electronic version of the submission will be automatically disregarded and the financial summary would be considered not filed.  This would, in addition, have an implication on administrative penalties.

The FSC Mauritius also informs Management Companies that incomplete submissions would be treated as non-filing. Financial summaries should be dated and signed, reflect the business activity (ies) of the GBC2s and accord with proper accounting principles.

It has, furthermore. been noted that there are instances where GBC2s filed Audited Financial Statements to the Commission. In such cases, GBC2s would only be required to file their Financial Summaries and send an electronic version to the Commission on filing@fscmauritius.org

BIZweek Edition 14 – Samedi 27 Septembre 2014

• Confession devant l’ARC: Maurice choisie par les Indiens pour éviter les impôts
• David Bailey, CEO of Augentius Depositary Company Limited: “I would contest Mauritius as an emerging financial hub”
• La FSC aurait consigné une deposition

BIZweek Edition 14 – Samedi 27 Septembre 2014

Singapore: MAS Reprimands Aon Singapore Pte Ltd for Licensing Breach under the Insurance Act [“IA”]

1. On 26 September 2014, MAS reprimanded Aon Singapore Pte Ltd (“Aon”), a registered direct insurance broker under the IA, for contravention of section 35W of the IA.
2. Section 35W of the IA states that no person shall carry on business as any type of insurance broker in Singapore unless the person is registered by MAS as that type of insurance broker or exempted from registration under section 35ZN of the IA.
3. Aon had contravened section 35W of the IA as it had carried on business as a general reinsurance broker by acting as agent for an overseas insurer by placing four reinsurance policies with various Singapore registered insurers from 2010 to 2013, without being registered by MAS as a general reinsurance broker.
4. Aon has confirmed to MAS that it has put in place policies and procedures to prevent future recurrence of a similar contravention.

All insurance brokers should ensure that they only conduct the type of insurance broking activity for which they are registered under the IA.

The Evolution of the Employee

The employee from a decade ago is not the same as the employee who we are starting to see today

Mauritius: Compliance by corporate and trust service providers with the US Foreign Account Tax Compliance Act (FATCA)

The US Foreign Account Tax Compliance Act (“FATCA”) was enacted in response to concerns that US taxpayers were avoiding US tax by using offshore financial institutions to hide assets and avoid reporting income. Generally, FATCA imposes due diligence, information reporting and withholding obligations on non-US financial institutions (“FFIs”) and withholding obligations on other persons making withholdable payments to non-exempt non-US persons.

Corporate and trust service providers must understand the implications of FATCA and its compliance requirements. A wide range of entities fall within the category of “investment entities” which are also classified as FFIs and are subject to FATCA. Included within the investment entity category are most non-US investment funds as well as other non-US entities in an offshore fund structure (such as Global Schemes, GBC 1 or 2 investment holding companies in PE structures and CIS Managers in Mauritius). 

If your firm, or the client entities for which you act, are FFIs as defined for FATCA purposes you will have to register with the Internal Revenue Service (IRS) in the United States via the IRS portal. The IRS allocate a unique Global Intermediary Identification Number (GIIN) to all registered Financial Institutions. Additionally, FFIs in Mauritius will need to make returns to MRA for onward transmission to the IRS.

If an FFI doesn't comply with their FATCA obligations and is non-participating, FATCA law and associated regulations will require withholding agents (including US withholding agents and certain foreign financial institutions) to impose a 30% penalty on withholdable payments that they make to the foreign financial institution.

Mauritius to implement Common Reporting Standard for Automatic Exchange of Tax Information

Mauritius is taking steps to implement the new global Common Reporting Standard for automatic exchange of tax information. 

In that context the Ministry of Finance and Economic Development has on 18th September 2014 confirmed to the Global Forum on Transparency and Exchange of Information for Tax Purposes Government’s commitment to implement the Common Reporting Standard for automatic exchange of tax information.

The Organisation for Economic Co-operation and Development has recently proposed a new global Common Reporting Standard for automatic exchange of tax information in a multilateral context. This standard, which has been endorsed by the G20 Finance Ministers, largely builds on the US Foreign Accounts Tax Compliance Act (FATCA). 

Mauritius is the first African country to have signed an intergovernmental agreement with the USA to implement the FATCA.

Mauritius confirms commitment to implement the Common Reporting Standard for Automatic Exchange of Tax Information

Mauritius, has confirmed on September 18, its commitment to implement the Common Reporting Standard for automatic exchange of tax information and the country is already taking the required steps to implement the new global standard for automatic exchange of tax information.

This measure is in line with the proposed new global Common Reporting Standard for automatic exchange of tax information in a multilateral context, recently proposed by the Organisation for Economic Co-operation and Development (OECD).

This standard, which has been endorsed by the G20 Finance Ministers, largely builds on the US Foreign Accounts Tax Compliance Act (FATCA). The Government of the Republic of Mauritius and the Government of the United States of America (US) signed on 27 December 2013 a Tax Information Exchange Agreement (TIEA) and an Inter-governmental Agreement (IGA), for the implementation of the FATCA between the two countries.

It will be recalled that Mauritius is the first African country to have signed an Intergovernmental Agreement with the USA to implement the FATCA.

The objective of the FATCA, enacted in March 2010 by the US authorities, is to identify US persons behind foreign financial holdings and communicate their corresponding investment information, namely their names, addresses, account numbers, account balances and incomes derived from such investments to the US Inland Revenue Service (IRS). 

FSC Mauritius consults on IFRS for SMEs - (for GBC 1s)

FSC Mauritius issues Consultation Paper on Submission of Audited Financial Statements as per International Financial Reporting Standards ("IFRS") for Small and Medium Entities ("SME's") - (for Companies holding Category 1 Global Business Licence)

FAQ

Tax and transparency fact-finding mission

Obstacles, solutions and windows of opportunity for progress towards financial transparency and tax justice

This report is the outcome of a Tax and Transparency Fact-finding Mission carried out by a delegation of independent experts from Asia, Africa and Latin America in October and November 2013. Based on visits to Switzerland, France, Norway, United Nations, Organisation for Economic Co-operation and Development, and the European Commission.

Mauritius: Draft Report on National Minimum Wage in the private sector to be presented to tripartite constituents

The draft Report of the Study on the Introduction of a National Minimum Wage in the private sector will be subject to discussion during a five-day workshop to be organised by the Ministry of Labour, Industrial Relations and Employment, from 13 to 17 October.

The document which has been prepared by an International Labour Organisation (ILO) consultant Mr François Eyraud, will be presented to the tripartite constituents namely representatives of Employer’s, Worker’s and Government with a view to examine the recommendations contained in the draft Report.

This was announced by the Minister of Labour, Industrial Relations and Employment, Mr Shakeel Mohamed at a press conference on September 22 in Port Louis.

Taking into consideration that the existing Minimum Wage-Fixing Machinery is rather complex with two complementary minimum wage support systems, namely, the Remuneration Order System and the Annual Salary Compensation, the draft report recommends that it is not advisable to add a new system that will render the mechanism very complex to manage and coordinate. It also provides for the salary fixing machinery to be replaced by a simple, coherent and efficient system.

The minimum wage is a labour market mechanism used in majority of countries worldwide to assess minimum salary payable to employees. A total of 116 member States have ratified one or both Conventions of the International Labour Organisation (ILO) on minimum wage fixing and many other countries have established minimum wage fixing procedures even though they have not ratified the Conventions.

The Lawyer: China Elite 2014

The Lawyer’s new China Elite report contains the most detailed research available on the PRC legal market and contains unparalleled insight into the country's leading law firms. They vary in size, practice focus and geographic coverage, but they all share one common quality – ambition. Find out which firms are reinventing themselves to stay ahead of the curve and provide clients with much needed clarity and solutions in a highly complex and constantly-changing jurisdiction.

Read the report to access:

• Management, recruitment and financial trends in the Chinese legal market
• The top practices in China, firm-by-firm
• How these firms are adapting to changes in regulatory environment and client demands
• Financial performance including revenue figures and year-on-year growth rate
• The latest developments in the Chinese legal market
• Who are the country’s leading advisers on corporate work

DLA Piper: English court upholds obligation to hold "friendly discussions" before arbitration

In a recent decision, the English Commercial Court has upheld the enforceability of a clause requiring the parties to seek to resolve a dispute by 'friendly discussions' prior to commencing arbitration.

The decision contrasts with previous authority regarding the enforceability of agreements to seek to settle disputes by negotiation prior to formal proceedings, but is in line with a possible judicial trend towards the enforceability of good faith obligations under English law.

This DLA Piper article takes a closer look at the case in question and its implications

Global Financial Centres Index 16 (GFCI 16)

Today the Z/Yen Group publishes the sixteenth Global Financial Centres Index (GFCI 16), sponsored by the Qatar Financial Centre Authority. The top 10 centres of 83 in total are shown to the right, the full report is available here.

New York, London, Hong Kong and Singapore remain the top four global financial centres. All four centres lose points in the GFCI ratings but retain their relative ranks. New York remains the top centre but by only one point on a scale of 1,000.

The top financial centres have performed poorly in GFCI 16. Of the top 15 centres only two increased their ratings - San Francisco is up eight points and Vancouver is up two. Only seven of the top 30 centres saw an increase in their ratings.

The top ten Western European centres all saw a decline in their ratings. Leading centers in the region all fell in the ratings, with Zurich, Geneva, Luxembourg and Frankfurt joining London in losing ground.

Leading Centres in Eastern Europe and Central Asia saw ratings improve. Istanbul, Almaty and Prague all saw their ratings (and ranks) improve although Moscow continues to languish with another large drop in the ratings.

Eight of the top ten Asia/Pacific centres saw a decline in their ratings. The progress made by the leading Asia/Pacific centres in GFCI 15 was reversed with Hong Kong, Singapore, Tokyo, Seoul and Shanghai dropping in the ratings.

Most North American centres were down but with smaller drops than in other regions. Boston, Washington DC, Toronto and Chicago saw small declines. San Francisco saw a rise of eight points but with other centres declining, this led to a rise from 10th to 5th in the GFCI, and may also be influenced by recent high-profile technology deals.

Middle Eastern centres continue to rise in the index. There was significant upheaval in the Middle East and Africa. Dubai, Abu Dhabi and Riyadh all saw improved ratings. Qatar saw a very small fall in its rating but climbed in the ranks. The African centres of Johannesburg and Casablanca both saw an improvement in their ratings which led to Johannesburg moving up 12 places to 38th and Casablanca moving up 11 places to 51st.

Offshore centres continue to struggle with reputation and regulation. Whilst Offshore centres are well ahead of their position several years ago, all Offshore centres have seen their ratings decline since GFCI 15. In particular the British Crown Dependencies of Jersey, Guernsey and the Isle of Man have dropped significantly in the ranks.

Mark Yeandle, Associate Director of the Z/Yen Group and the author of the GFCI said "The top centres are declining in relative competitiveness - two years ago there was a gap of about 140 points between 1st and 20th - that gap is now only 88."

GFCI 16 provides profiles, rating and rankings for 83 financial centres, drawing on two separate sources of data - instrumental factors (external indices) and responses to an online survey. 105 factors have been used in GFCI 16, of which 42 have been updated since GFCI 15 and 4 are new. New York, London, Hong Kong and Singapore remain the top four centres. All fourt centres lose.points in the GFCI ratings but retain their relative ranks. New York remains the top centre but by only one point on a scale of 1,000. Following GFCI 15, London remains just behind New York due to uncertainty over the UK’s position in Europe, regulatory creep and the UK appearing to be less welcoming to foreigners all being contributing factors.

Singapore: Public Consultation on Proposed Regulations to Help Financial Institutions Comply with US FATCA

The Ministry of Finance (MOF), Monetary Authority of Singapore (MAS) and the Inland Revenue Authority of Singapore (IRAS) have proposed regulations to help financial institutions in Singapore comply with the US Foreign Account Tax Compliance Act (FATCA).  FATCA requires all financial institutions outside of the US to regularly submit information on financial accounts held by US persons to the US Internal Revenue Service, or face a 30% withholding tax on certain gross payments received from the US.

To ease the FATCA compliance of financial institutions here, Singapore has substantially concluded a Model 1 Intergovernmental Agreement (IGA)  with the US. The IGA will be signed in the fourth quarter of 2014.

MOF, MAS, and IRAS are inviting public feedback on:

• the draft Income Tax (International Tax Compliance Agreements) (United States of America) Regulations 2014, which sets out the due diligence and reporting obligations of Singapore-based financial institutions in relation to the FATCA IGA; and
• a draft FATCA e-Tax Guide, which provides further explanation of those obligations.

The public consultation will be from 22 September 2014 to 17 October 2014. 

Click here for more details

OECD and G20 pursue efforts to curb multinational tax avoidance and offshore tax evasion in developing countries

The OECD and its Global Forum on Transparency and Exchange of Information have today been mandated by the G20 to develop toolkits to support developing countries addressing base erosion and profit shifting (BEPS) and to launch pilot projects to assist them to move towards automatic exchange of information. This mandate comes in response to two reports:

• Report on the Impact of Base Erosion and Profit Shifting in Low Income Countries (Part 2); and
• Roadmap for developing country participation in the new global standard for the automatic exchange of information between jurisdictions.

The G20 communiqué issued yesterday sets out an ambitious agenda for developing countries to take advantage of the tax reforms that have taken shape in 2014.

The OECD will report to the G20 Leaders in November on its plan to deepen the involvement of developing countries in the OECD/G20 BEPS project and ensure that their concerns are addressed.

BEPS in Low Income Countries

Following-up on the release of the first set of BEPS recommendations last week, this new report recognises that the risks faced by developing countries from BEPS, and the challenges faced in addressing them, may differ to those faced by advanced economies. It draws on extensive consultations with developing countries to discuss BEPS issues which are a key priority to them, for example transfer pricing and the abuse of tax treaties, as well as issues that are not part of the BEPS Action Plan, such as tax incentives which may erode the tax base in the developing world but do little to attract inward investment.  

Acknowledging that developing countries face specific policy issues and implementation challenges that are not always shared with developed countries, the report sets out areas where additional guidance and tools are required to ensure that the BEPS outcomes fully benefit lower capacity countries. It also highlights the actions developing countries have taken, many with international support, that indicate there are good opportunities to raise additional revenues from addressing BEPS issues and to create a more certain and stable investment climate for business.

Speaking from Cairns, Pascal Saint-Amans said: "This report demonstrates that we are serious about pursuing the dialogue with developing countries on BEPS and giving them a seat at the table. We will continue to work towards finding a coherent global solution ensuring that the revised international tax rules reflect the needs of both developed and developing countries."

Roadmap for developing country participation in AEOI

The Roadmap points the way to developing country participation in the new standard on automatic exchange of information. Drawing on the Global Forum’s extensive consultations with developing countries, the World Bank Group, other international organisations and civil society, the Roadmap provides a stepped approach to ensuring developing countries can overcome obstacles in implementing the new standard. It identifies the benefits, costs and the fundamental building blocks that developing countries need in order to meet the standard.

Pilot projects with developing countries are one of the key ways in which the Roadmap will be implemented. The pilot projects will take a progressive approach to implementation, with a focus on meeting the particular needs of each developing county pilot and ensuring that all confidentiality standards are reached. The pilot projects will be undertaken with the support of the World Bank Group and G20 countries, and include partnerships with more experienced countries. The results of these pilot projects will help to redress the knowledge imbalance between tax administrations in developing countries and tax evaders.

Over half of the Global Forum’s 121 member jurisdictions are developing countries and stand to benefit from the Roadmap and its implementation.

Why is Thomas Piketty's 700-page book a bestseller?

Thomas Piketty is a French economist whose Capital in the Twenty-First Century has swept American discourse. Four experts – Brad DeLong, Tyler Cowen, Stephanie Kelton and Emanuel Derman – take on why that is

The Guardian

Double Taxation Treaties in Uganda: Impact and policy implications

On 18th September, SEATINI-Uganda and ActionAid Uganda launched an analysis of the double taxation treaties Uganda has signed. The analysis shows that the treaties often facilitate tax avoidance instead of protecting taxes that companies and individuals should pay in Uganda.

Multinational companies are extracting resources or selling their goods and services in Uganda and all over Africa while contributing little as taxpayers. This deprives Uganda and other African countries of money to pay for schools, hospitals and other essential services.

Countries across Africa losses $50-60 billion every year to illicit financial flows, the UN High Level Panel on Illicit Financial Flows estimates. Two-thirds of this is lost to manipulation of commercial transactions such as tax evasion and avoidance mechanisms. Multinational companies often rely on the global network of double taxation treaties or agreements to avoid or reduce their tax payments.

Double taxation or double non-taxation?

There are perfectly legitimate reasons to have such agreements: citizens and companies who earn their income in a country other than their home country should not pay tax twice. However, it is usually a bad deal for poor countries to sign treaties with rich countries or tax havens. In many cases, treaties made to prevent double taxation are now facilitating double non-taxation.

Treaty abuses and tax havens

Multinational companies often take advantage of double taxation treaties to shift profits to countries with low withholding tax rates. This strategy, known as ‘treaty shopping’ is particularly problematic when it involves secrecy jurisdictions such as Mauritius, and conduit countries like the Netherlands which companies us to direct money through to avoid taxation. ActionAid and SEATINI-Uganda analyses the treaties with Mauritius and the Netherlands as examples, and the findings expose high levels of secrecy and highlight the risk with the extensive tax treaty networks both countries have. One of the effects from the secrecy is that Mauritius with its extensive treaty network is highly exposed to illicit transfers. Ugandan money is routed to Mauritius and from there into other tax havens that have treaties with Mauritius.

Uganda taking control

Like many other developing countries, the Government of Uganda are in recent years taking bold steps towards ensuring that Uganda receives all due taxes. It has stated that it is developing a policy framework to guide treaty negotiations ahead. The analysis that SEATINI-Uganda and ActionAid has authored encourages the Government to follow suit this track and develop a policy that will ensure that Uganda maintains the taxing right to reflect what is actually produced and resourced from Uganda. One key element is that the starting point should be the UN Model Treaty that favours developing countries. So far, most treaties have been giving away taxing rights to the benefit of Western developed countries and multinational companies, using an OECD Model which disfavours developing countries.

SEATINI-Uganda and ActionAid therefore call upon the Government of Uganda to maintain their positive steps in reviewing their policy framework on double taxation treaties. They should be based on the UN Model Treaty rather than the OECD Model Treaty. 

Mauritius - FSC Communiqué: Warning against the Use of Fraudulent Correspondence

The Financial Services Commission, Mauritius (the “FSC Mauritius”) wishes to alert its licensees that it has come to its knowledge that fraudulent letter(s) bearing the logo of FSC Mauritius and witnessing attempts at usurping the identities, titles and signatures of members of its Leadership Team are being used with a view to deceive its licensees.

Should a licensee have any suspicion about the authenticity of any email, letter or telephone communication purportedly from, for, or on behalf of the FSC Mauritius, please contact the Commission on 403 7000 or send an email on fscmauritius@intnet.mu

The FSC Mauritius wishes to inform that the Commission cannot be held responsible if its name, logo and address are being used fraudulently in correspondences.

Financial Services Commission

18 September 2014

Warning against the Use of Fraudulent Correspondence

Mauritius: Agreement for the Exchange of Information Relating to Taxes (United States of America - FATCA Implementation) Regulations 2014

For the implementation of the Agreement between the Government of the Republic of Mauritius and the Government of the United States of America for the Exchange of Information Relating to Taxes:

(a) the  Director-General of the Mauritius Revenue Authority may require any Mauritius Financial Institution to apply specified due diligence procedures in order to identify U.S Reportable Accounts and accounts held by a Non-participating Financial Institution;

(b) the Director-General may require any Mauritius Financial Institution to provide him with information of specified description; and

(c) the information required under paragraph (b) shall be provided to the Director-General by the Mauritius Financial Institution at such times and in such form and manner as the Director-General may determine

OECD: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances

This report includes proposed changes to the OECD Model Tax Convention to prevent treaty abuse. Countries participating in the BEPS Project have agreed on a minimum standard to prevent treaty shopping and other strategies aimed at obtaining inappropriately the benefit of certain provisions of tax treaties. The report also ensures that tax treaties do not inadvertently prevent the application of legitimate domestic anti-abuse rules. The report clarifies that tax treaties are not intended to be used to generate double non-taxation and identifies the tax policy considerations that countries should consider before deciding to enter into a tax treaty with another country. The model provisions included in the report provide intermediary guidance as additional work is needed, in particular in relation to the limitation on benefits rule.

OECD releases first BEPS recommendations to G20 for international approach to combat tax avoidance by multinationals

The OECD released today its first recommendations for a co-ordinated international approach to combat tax avoidance by multinational enterprises, under the OECD/G20 Base Erosion and Profit Shifting Project designed to create a single set of international tax rules to end the erosion of tax bases and the artificial shifting of profits to jurisdictions to avoid paying tax.

Presenting the OECD’s recommendations, Secretary-General Angel Gurría said: “The G20 has identified base erosion and profit shifting as a serious risk to tax revenues, sovereignty and fair tax systems worldwide. Our recommendations constitute the building blocks for an internationally agreed and co-ordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favourable tax treatment.” (Read the full speech)

At the request of the G20 Leaders, the OECD’s work is based on a BEPS Action Plan setting out the 15 key elements to be addressed by 2015. The project aims to help governments protect their tax bases and offer increased certainty and predictability to taxpayers, while guarding against new domestic rules that result in double taxation, unwarranted compliance burdens or restrictions to legitimate cross-border activity.

The first 7 elements of the Action Plan released today focus on helping countries to:

• ensure the coherence of corporate income taxation at the international level, through new model tax and treaty provisions to neutralise hybrid mismatch arrangements (Action 2);
• realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties (Action 6);
• assure that transfer pricing outcomes are in line with value creation, through actions to address transfer pricing issues in the key area of intangibles (Action 8);
• improve transparency for tax administrations and increase certainty and predictability for taxpayers through improved transfer pricing documentation and a template for country-by-country reporting (Action 13);
• address the challenges of the digital economy (Action 1);
• facilitate swift implementation of the BEPS actions through a report on the feasibility of developing a multilateral instrument to amend bilateral tax treaties (Action 15); and
• counter harmful tax practices (Action 5).

The OECD recommendations will be a key item on the agenda when G20 finance ministers next convene at a meeting hosted by Australia’s Finance Minister Joe Hockey on 20-21 September in Cairns, Australia.

The proposed measures were agreed after a transparent and intensive consultation process between OECD, G20 and developing countries and stakeholders from business, labour, academia and civil society organisations.

These recommendations may be impacted by decisions taken with respect to the remaining elements of the BEPS Action Plan, which are scheduled to be presented to G20 Governments for final approval in 2015. At that point Governments will also address implementation measures for the Action Plan as a whole.

Offshore Pilot Quarterly (September 2014, Volume 17 Number 3)

Privacy on Tap

Many years ago I was intrigued by a cartoon of two businessmen standing in an office doorway looking at a man sitting on a tall stool and dressed like a bank clerk out of a Dickensian story. Before him was a very large ledger on a high, slanted table; the clerk, with quill pen poised, was making an entry in the ledger. One of the businessmen observing this was saying to his colleague: “I believe we have the solution to computer theft”. 

Is it perhaps right to say that sometimes progress is achieved by regress? George Orwell (who comes into his element this quarter) may have written in “1984” about “…the clocks were striking thirteen”, but in June the hands on Bolivia’s Congress building clock began to move anticlockwise. This was deliberate and is intended as a protest against the West’s (primarily the United States of America) level of involvement in world affairs. It is a complaint found in this month’s Latin Letter in Offshore Investment about the disillusionment which has caused the next generation of major economic powers to find fault with both the international political and economic blueprints that have prevailed for so long. I will come back to this subject, but first let’s return to regress.

Whilst I do not predict the future universal use of ledgers for accounting, I anticipate more typewriters coming out of storage and being tapped back into life. The telegraph and floppy disk may have been lowered into their respective technical tombs but expect to also hear the whirring of more faxes too, because a lot of people now believe that documents attached to e-mails are less private, and faxes also avoid the perils of serial hackers. Covert internet surveillance is a growing concern and as the saying goes, needs must when the Devil drives. The head of the parliamentary committee in Germany which is looking into the activities there of America’s National Security Agency recently revealed that the committee had considered using a mechanical typewriter to produce sensitive documents. Typewriters are still around (just like long-playing records) and in the US alone they continue to be used by government agencies, city halls, police forces and many commercial businesses. I have one in the office.

Not for one minute am I playing down the immense advantages that technology has brought; there is little doubt that business and individuals have benefited greatly. Let’s remember, however, that it is the mind of man that has been its creator and whilst more astounding inventions lie ahead, there are other mental attributes that man has and which cannot be replicated or adapted by machines. Thus, advancement needs a blend of man and machine. What they do have in common, however, is fallibility.

Sometimes speed and sophistication in business can be fatal; like arsenic, however, in the right doses they can be beneficial. There’s one Knight, for instance, a former champion of technology, that is no longer wearing shining armour. In just 45 minutes, due to a trading glitch, a US$440 million loss was suffered by the market trader Knight Capital in 2012 (subsequently it was merged with another trader in 2013, after a protracted and painful demise). That loss equalled nearly twice the revenue generated by the company in its entire second quarter that year and within 24 hours three-quarters of the market-maker’s value had been lost. In 2011 Knight had dominated trading in the New York Stock Exchange and Nasdaq-listed stocks and had been frequently given awards for its advanced information technology and high-speed trading systems.

I appreciate that Knight was not alone and UBS and Facebook suffered from electronic gremlins in 2012 too. Worryingly, however, it has been estimated that pure high-frequency trading in US stocks (including algorithmic strategies) is fast taking over from “real money” stock trading. Bear in mind that Knight’s downfall followed the installation of market-making software that suddenly sent erroneous orders to the market. 

Many experts believe that we have brought on a high-frequency arms race, applying a military simile, and that the limits of the technology available are being stretched beyond a safe level. Despite the arrival of driverless cars, the aerospace industry – so far – has seen the drawbacks of aircraft automation. 

“Automation” became a buzzword on Wall Street a few years ago and joins the ranks of words and phrases that have been added to my “1984” list, named after Orwell’s masterpiece in which the idea of controlling language as a way of controlling what people think came to the fore; the words and phrases on that list – not to mention others – are a seductive force in the thought process and their application in the offshore financial services industry has been profuse.

Worlds Apart from Bonaparte

Many of the competing offshore financial services jurisdictions, whose hype has almost reached the stratosphere, have usually been islands and the culprits have been a mix of their respective public and private sectors; in the case of the former, many bureaucrats, unfortunately, start from a paucity of technical knowledge and a lack of appreciation of the big commercial picture. The practitioners, however, in the great majority of instances,have no such excuse and should know better. To those practitioners I say this: the professional, and not the place, with few reservations, is what counts. 

My “Latin Primer: A Practitioner’s Perspective” is a 27-page booklet which – besides delving into the culture of the Latin American region –suggests the key elements to look for in an offshore practitioner. It is a reflective work and like this quarterly, its purpose is neither the promotion of Panama nor my firm; the sole aim being to continue to provide a commentary and stimulate thought.

Understanding the practitioner’s philosophy is vital and his working environment – not his location – becomes important. If he represents a large organisation then, of course, he becomes a piece on the chess board and learning about the organisation’s philosophy, not his, is key; that might be a more difficult task. 

In this interlinked global environment a keypad can co-ordinate a plan from the Island of St. Helena, deep in the South Atlantic, if needs be. The sheer isolation felt by Napoleon, however, once exiled there, is for another era. What truly matters is that the heart of any structure must be situated, if not the practitioner, where political stability exists and governance, laws and regulations are sound. Wherever the practitioner’s location, of course, the perception of the place comes into play –although regular readers know only too well my views on perception. 

The press often shapes perception and over the years it has fired many missiles at offshore financial centres; there have been many innocent casualties. Experienced journalists, whose library of knowledge has well-stacked shelves of measured opinions, can be respected for their views; however, regarding the rest, the late Italian-born British civil servant and poet, Humbert Wolfe, was sceptical:

“You cannot hope to bribe or twist,

Thank God, the British journalist.

But seeing what the man will do

Unbribed, there’s no occasion to!”

Today, of course, the observation goes well beyond Britain’s borders. We have seen the results of inaccurate reporting brought on by poor research and often scant knowledge of the subject – in this case offshore business. Perhaps apprehension caused Joseph Pulitzer to say: “a cynical, mercenary, demagogic, corrupt press will produce in time a people as base as itself”.

There’s plenty of evidence of Wolfe Syndrome out there if one just looks at the coverage where the central theme is tax evasion, as financially-crippled governments seek revenue. Torrents of condemnation have been poured on the offshore centres in particular as developed countries decry the repugnance of citizens avoiding their tax man (legitimate avoidance is no longer palatable to governments in the West). President Barack Obama has said that inversions may be legal but they are not moral. He was referring to American companies which, in some cases, can reduce taxes by moving their US headquarters to a foreign country and have been labelled “corporate deserters” by the president.

Orwell wrote about political language being “…designed to make lies truthful and murder respectable, and to give an appearance of solidity to pure wind”. World affairs in this century bear testament to that but when it comes to pure wind some offshore centres, seeking profit and not political gain, with hype almost becoming hypnotic, are equally guilty. Ideally, the application of the regulations will be in capable hands too, because, as with pilots guiding ships through the Panama canal, wobbles at the wheel can lead to indecisiveness and worse. It’s no use premiers or practitioners (not just) on islands espousing the virtues of the financial services available at conferences, or through advertisements or articles in professional magazines, referring in heady terms, for example, to “innovative legislation” that is “cutting edge” and, therefore, is guaranteed to keep the jurisdiction “ahead of the pack”, unless the pitch is matched with performance. 

In fact, Frank Luntz, described as America’s top political wordsmith by The Atlantic, had this to say on the subject of communication: “There’s a simple rule. You say it again, and you say it again, and you say it again, and you say it again and then again and then again, and again and again, and again, and about the time that you’re absolutely sick of saying it is about the time that your target audience has heard it for the first time”. 

Trusts and Transvestites

Over-eager salesmanship driven by competition has seen a surge in copy-cat offshore legislation and products. The Bahamas, for example, has attempted to replicate the success of the company law in the British Virgin Islands (featured in my Private Client Adviser August blog) by producing legislation almost word for word; even spelling mistakes were, apparently, repeated. 

Foundations are being increasingly adopted in common law offshore centres where they have been ripped from their civil-law roots and transplanted. As such, I predict that they will not flourish but will develop into a transvestite trust: clothed to appear as a foundation, but in reality being something else, with the courts attempting to hammer a square peg into a round hole. The end result might be “confoundations”. 

But besides competition, the offshore centres have to wrestle with America’s Foreign Account Tax Compliance Act, a tax policy which has been eagerly replicated, if not exactly, by other countries. It has been met with unvarnished hostility by international bankers because of its complexity and attendant costs of compliance; its extra-territoriality is also a bone of contention and it is seen as invasive. It’s shifting compliance guidelines to date calls for an apt Orwellian description of its obscure, tangled text that, in sum, “falls upon the facts like soft snow, blurring the outlines and covering up all the details”. In fact, Basil Zirinis of the American law firm, Sullivan and Cromwell, graphically emphasised its unpopularity at a conference for offshore  wealth managers in Geneva when he suggested that if Islamist fighters threatened Baghdad, President Obama might “drop FATCA on them”. Sullivan and Cromwell have an absorbing history and one which, like FATCA, touches Panama. Perhaps the subject for a future Latin Letter column, the firm was established in 1879 by Algernon Sydney Sullivan and William Nelson Cromwell in the City of New York and became involved in international finance from the very beginning. 

William Cromwell was hired in 1896 by the bankrupt French Panama Canal Company to sell its rights to build a canal; he was, in fact, instrumental in having Panama chosen over Nicaragua for a canal route across the isthmus. Rumour and intrigue abound concerning Cromwell’s involvement but many commentators agree that whatever the facts, he was key to not only Panama gaining the canal, but its independence also. Any controversial comments made by Mr. Zirinis, I suspect, probably didn’t match the standard set by Mr. Cromwell about Central and American politics during his career.

As for the growing Islamist threat in the Middle East which has its origins linked with the West’s involvement there, I go back to my opening comments about a political blueprint that seems dated. It is just another illustration of why the emerging economic powers have become critical of the West, driving forward a view which is bucking against global rules traditionally made by the US and Europe. Is it appropriate for the West to represent, in key areas, the interests of the world? The US sets the rules for the internet, for example, but the traffic is no longer mainly American. One thing is for sure, the bank created by the BRICS (see “Embrace of the Dragon”) will have neither a European nor an American in charge, unlike the International Monetary Fund and the World Bank, both based in Washington. 

Changing times (not just on the face of Bolivia’s congress clock) are likely to be of greater political significance in this decade, more so than those in the first decade of the new century. It would help, however, if we could guard against loose language and, for once, try to keep the Wolfe at the door.

Offshore Pilot Quarterly has been published since 1997 by Trust Services, S. A. and is written by Derek Sambrook

Offshore Investment (September 2014) - Embrace of the dragon

"Seduction in the Caribbean" was the title of my July/August column in 2012 (issue 228) when I wrote not of romance, but finance, all coming from China into the community of island countries stretched across the West Indies, arguably seen by the paranoid as Chinese political stepping stones to the nearby shores of the heart of capitalism, the United States of America.  Back in 2012 I wrote about Chinese projects in the Bahamas, and since then the pace of investment has not slackened.

See more

Mauritius: Launch of workers’ pocket guide on the Employment Rights Act

A workers’ pocket guide to sensitise both local and foreign workers, on their rights as laid out in the Employment Rights Act 2008, was launched on September 12 by the Minister of Labour, Industrial Relations and Employment, Mr Shakeel Mohamed, in Port Louis. 

An initiative of the Ministry of Labour, Industrial Relations and Employment, the guide is a first in a series of other publications by the Ministry with regards to labour related issues.

It covers, amongst others, terms and conditions of employment, namely working hours; payment of overtime, meal allowance, travelling benefits, end-of-the-year bonus; leave; discrimination at work; protection against termination of agreement; payment of severance allowance; and violence at work.

Workers Guide

UNCTAD - FDI in Small Islands Developing States: Its limitations and potential

The structural characteristics of the Small Islands Developing States (SIDS) limit FDI options. Their smallness impedes the minimum efficient scale of production and limits foreign direct investment (FDI). The remoteness of some of them implies high transport costs which limits exports and, in particular, inhibits the establishment of global production networks.

Nevertheless, FDI to SIDS as a group is high compared to the size of their economies due to fiscal advantages in some SIDS and to large investments in natural resources in others.

The ratio of inflows to GDP during the period 2004-2013 was almost three times the world average and more than twice the average of developing and transition economies.

The ratio of stocks to GDP, during the same period, reached 72 per cent, more than twice the world average (30 per cent). FDI flows and stocks per capita are also higher than the world and developing and transition economies averages, but lower than developed economies.

FDI to SIDS is concentrated in a few host countries, it comes from a small number of home countries, and it targets a limited number of activities. It is concentrated in countries rich in mineral resources, countries offering fiscal advantages, and a few that have a relatively larger market size. A limited number of developed countries, e.g. the United States and Australia, are the main direct investors, although new investor countries are growing. Mineral extraction and related downstream activities, as well as tourism, business and financial services are the main FDI targets.

Recent developments have the potential to open new avenues for FDI into SIDS. China is emerging as a new source of external financing for SIDS. The planned Panama Canal expansion may open new opportunities in transport-related activities in the Caribbean SIDS. The shale gas revolution may encourage investments in small-scale LNG plants, regasification terminals, and power generation.

Global Investment Trend Monitor, No. 17

Mauritius: Private Pension Schemes (Returns) 2014

The FSC Mauritius issued the Private Pension Schemes (Returns) Rules 2014 which is operational since 01 September 2014. A Circular Letter (CL120914) has been issued to guide the implementation of the Rules.

• Private Pension Schemes (Returns) Rules 2014
• Private Pension Schemes (Returns) Rules - Schedule
• Circular Letter (CL120914) - Private Pension Schemes (Returns) Rules 2014

Fighting Corporate Abuse - Beyond Predatory Capitalism

Fighting Corporate Abuse demonstrates, though compelling and revelatory analysis, the legislation and regulation needed to deal with the abuses in the corporate sector that have been revealed in recent years. It highlights the more general contribution of company law and practice to the current crisis in capitalism. 

The first section develops a controversial argument, using detailed illustrations and vivid examples which show how the various abuses of predatory capitalism have been carried out through the manipulation of the corporate form and the creation of highly complex corporate groups. The group of authors, all experts in their fields, tackle head-on the issues of tax evasion, extraction of value and asset stripping, environmental destruction and managerial self-interest. In doing so, they paint a picture of a system that is abusive, and degenerated, but also a system which can be reformed. 

In the run up to the UK general election, the authors develop of a set of practical proposals for an incoming government, outlining how each of these abuses could be curtailed and how a more acceptable and accountable form of corporate capitalism can be developed through national and international action.

Drawing on the group’s activism, as well as their academic experience in law, politics, economics and human rights, this will be an authoritative as well as a highly practical book.

Introduction 

Part I

1: Tax Evasion and Avoidance 

2: Cover-up Accounting and Auditing 

3: Avoiding Liability 

4: Extracting value 

5: Managerial Self-interest 

6: The Mirage of Corporate Social Responsibility 

7: Bad banking and Market Manipulation 

Part II

8: A New Political Economy for the Corporation

9: Controls on Multinationals 

10: Controlling International Tax Avoidance and Evasion 

11: Reforming Systems of Governance, Accounting and Auditing 

12: Controlling Market Manipulation and Short-Termism 

13: Small and Locally-based Alternatives 

14: Towards New Corporate Forms

Notes

Index

Mauritius: Amari by Vineet

Amari by Vineet Bhatia, brings the flavours of India to LUX* Belle Mare. The resort’s new Indian restaurant is a clean-lined but opulent space for the Michelin-star chef’s scintillating fare.  

A leading light in the reinvention of Indian cuisine, Chef Vineet Bhatia won his first Michelin star at Zakia in London in 2001, followed by another in 2009 for inspirational cuisine at Rasoi by Vineet in Geneva. His masterful technique makes the textures and flavours of India shine, in sumptuous, subtly spiced dishes with contemporary flair.

Mauritius: User-friendly Postcode Directory Launched

A user-friendly directory of postcodes, prepared by the Mauritius Post Ltd for reference by staff of post offices and members of the public, was launched yesterday at the Gallery Nicolas Lambert, Postal Museum, Port-Louis Waterfront. The Minister of Information and Communication Technology, Mr Tassarajen Pillay Chedumbrum, was present on that occasion.

A postcode, an essential part of the addressing system, is used by postal operators to facilitate and automate sorting and forward postal items. It also provides an efficient and timely mail delivery service.

The public will be able to consult the directory on the website of Mauritius Post Ltd where a soft version will be posted.

The Postcode project

The postcode project was implemented on a pilot basis, from January to March 2012, at Lallmatie, Bon Accueil and Brisée Verdière. The replication of the postcode was subsequently effected in other localities across the island.

The process is now complete, with the project going nationwide on 15 August 2014.  348,500 Postcode Information Cards have been distributed to households in Mauritius across 130 Village Council Areas, 5 Municipal Council Areas comprising seven towns and 1,450 sub-localities. In Rodrigues, 14,800 households across 160 sub-localities have received their postcodes.

It is recalled that the postcode is an important tool of work for delivery for postmen in the sequencing of letters. It is also an essential location element for the prompt intervention of emergency services such as the police.

Dutch banks and tax avoidance

The report provides the results of a case study on the possible involvement in international tax avoidance by the major Dutch banking groups. The aim of this case study, which Profundo is undertaking for the Eerlijke Bankwijzer (Fair Bank Guide), is to find out whether or not any of the major Dutch banking groups are involved in international tax avoidance  practices. The premise of this case study is that companies should pay taxes in the countries where their economic activities take place and iIndividuals with large financial wealth should also pay their fair share of taxes.

The report is organised as follows:

• Chapter 1 explains the different mechanisms for international tax avoidance and evasion, the problems created by them, the different forms in which banks can be involved and the various policy initiatives taken at different levels to combat international tax avoidance and evasion.
• Chapter 2 presents the methodology of this case study, discussing the objective and the different research approaches.
• The subsequent chapters discuss the Dutch banking groups, analysing their recent tax payments, their subsidiaries located in tax havens and services they have provided to special purpose vehicles. If relevant this information is complemented by the comments of the banking group. The results are presented in the following order: Chapter 3 discusses ABN AMRO, Chapter 4 discusses Aegon, Chapter 5 discusses ASN Bank, Chapter 6 discusses Delta Lloyd, Chapter 7 discusses ING, Chapter 8 discusses NIBC, Chapter 9 discusses Rabobank, Chapter 10 discusses SNS Reaal, Chapter 11 discusses Triodos and Chapter 12 discusses Van Lanschot.

U4 Brief - The Creation of International Financial Centres in Africa: The Case of Kenya

International financial centres (IFCs) are jurisdictions whose laws and institutions provide optimal conditions for the financial services industry. While some of the activities they encourage may have positive effects on a country’s economy, IFCs also facilitate money laundering, tax evasion, tax avoidance, and other practices generally considered harmful. These effects have been recognised at least since 1998, when the Organisation for Economic Co-operation and Development (OECD) established an international framework to counter harmful tax competition.

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