IFC Review: FATCA – Enforcement Win or Expatriate Generator?

Dianne Mehany and Mark Matthews examine if FATCA has succeeded in its aim to enforce US tax policy globally or whether it has become an expatriate generator.

The Africa Report - Mauritius: The great clean-up

The new government elected in December enjoyed a short honeymoon. It is now engaged in dealing with corruption cases, problems in the banking sector and growth levels that are too low to make Mauritius a high-income country by 2020.

The Africa Report

FATF Guidance for a Risk-Based Approach to Virtual Currencies

Virtual currencies have emerged and attracted investment in payment infrastructure built on their software protocols. These payment mechanisms seek to provide a new method for transmitting value over the internet. At the same time, virtual currency payment products and services (VCPPS) present money laundering and terrorist financing (ML/TF) risks. FATF made a preliminary assessment of these ML/TF risks in the June 2014 virtual currencies report (key definitions and Potential AML/CFT Risks).

As part of a staged approach, the FATF has developed this Guidance focusing on the points of intersection that provide gateways to the regulated financial system, in particular convertible virtual currency exchangers. FATF will continue to monitor developments in VCPPS and emerging risks and mitigating factors to update this Guidance, to include, where appropriate, emerging best practices to address regulatory issues arising in respect of ML/TF risks associated with VCPPS.

This Guidance seeks to:

• Show how specific FATF Recommendations should apply to convertible virtual currency exchangers in the context of VCPPS, identify AML/CFT measures that could be required, and provide examples; and
• Identify obstacles to applying mitigating measures rooted in VCPPS’s technology and/or business models and in legacy legal frameworks.

Letter: Lax with tax facts

The article, "New tax treaty with Mauritius may affect cross-border investment" (BDlive, June 17), contains factual inaccuracies and fails to take into account the underlying policy behind the new treaty. It is also disappointing that no comments were sought from the Treasury or the South African Revenue Service (SARS) to check the facts.

BusinessDay

Mail & Guardian - South Africa: Tax treaty with Mauritius blocks outflow

Globally, initiatives are afoot to close tax loopholes and South Africa is one of the frontrunners – its new treaty with Mauritius removes the allure for tax-shy corporates doing business in South Africa to set up shop on the island.

BVI Templates for US and UK FATCA Self Certification

• BVI Template for US - UK FATCA - Entity Self Certification Form June 2015
• BVI Template for US - UK FATCA - Individual Self Certification Form June 2015

The Africa Report - Mauritius: We can emerge as a regional hub

Eradicating corruption, promoting new sources of growth and shifting investment focus from Asia to Africa are among the challenges ahead

The Africa Report

Developing a global financial centre for social impact investment

Social impact investment (SII) is a growing market. While most of this growth has been domestically-focussed, the SII market now appears to be reaching a level of maturity, with the potential to progress to a more global market. Research by JP Morgan and GIIN estimated a total global market value in surplus of $12bn in 2015 with significant growth potential.

Developing a global financial centre for social impact investment takes a forward-look and explores what measures leading financial centres in this field – such as London, New York and Luxembourg - might take to support and enable such global growth. 

The research develops a three-stage model of development for a global financial centre, with particular consideration of London’s current position. The research finds that London is seen as a strong national financial centre for SII, specifically in terms of its financial markets and regulatory, policy and legal environment, and has potential to become a global financial centre for SII. However to do so London also needs to address a number of aspects including accreditation models, enabling greater retail investment, and technical assistance models. 

Developing a global financial centre for social impact investment was commissioned by the City of London Corporation and produced by PwC.

KPMG Mauritius: MRA Circular on Directors’ fees paid by a GBC 2 to non-resident directors

The Mauritius Revenue Authority (MRA) recently issued a circular on the taxability of directors’ fees paid by a Company holding a Category Two Global Business Licence (GBC 2) to non-resident directors

Amal Clooney and the Chagos islanders

“My wife’s the smart one,” says George Clooney without a trace of irony. Before her marriage last year in a star-studded ceremony in Venice to the Hollywood heartthrob, Amal Alamuddin was well known in international legal circles for her human rights work

Mauritius deepens its commitment to fight international tax avoidance and evasion

In line with the international movement towards more transparency and exchange of information, Mauritius has taken a significant step to enhance its exchange of information legal framework and has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. It is the seventh member of the African Tax Administration Forum to join the Convention and becomes the 87th jurisdiction participating to this truly global instrument to fight international tax avoidance and evasion.

Mr. Vishnu Lutchmeenaraidoo, Minister of Finance and Economic Development signed the Convention in the presence of the OECD Secretary-General Angel Gurría.

Developed by the OECD and the Council of Europe, the Convention provides a comprehensive multilateral framework for the exchange of information and assistance in tax collection. Its coverage includes administrative assistance between tax authorities for information exchange including automatic exchange, simultaneous tax examinations and assistance in the collection of tax debts. 

On 24 October 2014, Mauritius was among the first 51 jurisdictions (the early adopters),  which signed a multilateral competent authority agreement to automatically exchange on financial account information (the new international standard)  based on Article 6 of the Multilateral Convention. Subsequent signatures of the agreement bring the total number of jurisdictions to 61. Mauritius has committed to start exchanging automatically in 2017 and now has joined the legal instrument which once ratified serves as the basis for the implementation of the multilateral competent authority agreement already signed.

The 87 jurisdictions participating in the Convention can be found at:

www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf

During his presence at the OECD Minister Lutchmeenaraidoo also met with the Director for Development Centre, Mario Pezzini, and his senior staff to discuss the fruitful ongoing cooperation and possible future areas of work between Mauritius and the Development Centre. Mauritius has been a member of the Centre since 2009.

Read the opening remarks by Angel Gurría, Secretary-General, OECD.

OECD: Mauritius Signing Ceremony - Convention on Mutual Administrative Assistance in Tax Matters

Opening remarks by Angel Gurría, 

Secretary-General, OECD

Paris, 23 June 2015

Minister Lutchmeenaraidoo, ladies and gentlemen,

I am delighted to welcome you this morning for the signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the most powerful single instrument for international tax co-operation. Mauritius becomes the 87th jurisdiction to join the club!

In Berlin last October, Mauritius joined 50 other jurisdictions in committing to implement automatic exchange of information and to begin sharing financial account information automatically by 2017 and 2018. With the Convention, Mauritius is moving forward to turn that commitment into a reality. The Convention will provide the legal basis for Mauritius to undertake tax information exchange, as well as other forms of cross-border cooperation, across its large network of trade and investment partners. 

Of course, these are just the latest steps Mauritius has taken towards best practice in tax transparency. Mauritius first became a member of the Global Forum on Transparency and Exchange of Information when it was restructured in 2009. Mauritius was one of the first jurisdictions to undergo the Global Forum’s peer review process for EOI on request, and its combined Phase 1 and Phase 2 report was published in 2011. In November 2013, Mauritius was rated as ‘largely compliant’ – the second highest rating possible. It has demonstrated its ongoing dedication to improving its framework by addressing the Forum’s recommendations, making further changes to its tax information exchange regime, which were reflected in the OECD’s 2014 supplementary report. 

So, I would like to congratulate Mauritius on its ongoing commitment and progress on tax transparency. We look forward to continuing to work with you and support your implementation of automatic exchange in line with the global standard.

Thank you!

IFC Review - Nevis: LLC and Trust Law Amendments

David Neufeld & Jonathan E Gopman examine recent amendments to the Limited Liability Companies and Trust laws.

IFC Review - Cayman Islands: The Ever-Changing Regulatory Landscape

Simon Thomas examines how the Cayman Islands have fared in the face of increasing and ever-changing regulatory conditions.

IFC Review: TIEAs in the Courts of International Financial Centres

Alex Potts examines how the courts of international financial centres increasingly busy with creative debates regarding the legality and proper scope of tax information exchange agreements.

INSEAD: Using Tax Havens Secretly Is Bad for Shareholders

Tax havens are used for more than just saving money. When companies take advantage of their lack of transparency for more sinister activities, shareholders can lose out.

Our recent paper Corporate Tax Havens and Shareholder Value, examined data from  17,331 publicly-listed firms from 52 countries to establish the motives for establishing subsidiaries in low, or no, tax countries, and to examine the impact this has on shareholder value, with surprising results.

INSEAD

Ile Maurice: Lutchmeenaraidoo signe un protocole d’accord sur les échanges de renseignements

Le ministre des Finances et du Développement économique, Vishnu Lutchmeenaraidoo, qui se trouve actuellement à Paris à la tête d’une délégation, procédera aujourd’hui à la signature d’un protocole d’accord sur la Multilateral Convention on Exchange of Information avec l’OCDE.

Le Mauricien

Mauritius: Finance Minister discusses investment opportunities with French investors

The Minister of Finance and Economic Development, Mr Vishnu Lutchmeenaraidoo, is currently at the head of a delegation on a five-day investment promotion campaign in France.

During his mission, Minister Lutchmeenaraidoo, will have working sessions with political leaders as well as potential investors to promote and market the economic vision of the country as well as to seek the assistance and expertise of the French authorities to support priority development sectors in the Mauritian economy.

Among these sectors : the development of the Smart Cities project; the development of the Port Louis Harbour; the Information and Communication Technology sector and the Ocean economy.

The Minister had a meeting on June 22 with the Secretary of State for the Budget of France, Mr Christian Eckert, with whom he discussed and reviewed bilateral economic cooperation issues between the two countries. Moreover, the Mauritian delegation discussed the Smart Cities and Sustainable Cities concepts with potential French investors.

The signing of a Multilateral Convention on the exchange of Information with the Organisation for Economic Cooperation and Development is also on the agenda. This instrument will further strengthen the position of Mauritius as a transparent international Financial Centre of good repute. 

Furthermore, the Board of Investment of Mauritius will open an antenna on the premises of the Mauritian Embassy in Paris to facilitate investment from France to Mauritius and vice-versa.

The Mauritius-India DTAA: the urgency of transparency and disclosure

Pouring insults and using intimidatory tactics will not help to break the logjam with respect to what has happened to the treaty between Mauritius and India on double taxation. What is instead required is an informed discussion, an enlightened debate, an objective analysis and a dispassionate assessment of what has exactly been conceded at the negotiating table by Mauritius and its implications and ramifications on the global business industry.

L'Express

EU Commission’s Announcement on Non-cooperative jurisdictions: Letter to Global Forum members

Dear Colleagues,

As many of you may be aware, on 17 June, the EU Commission released its Comprehensive “Action Plan for Fair and Efficient Corporate Taxation in the EU”. The plan includes five key areas for action, including item 4, “Further Progress on Tax Transparency”. As an immediate first step as part of this item, the Commission has released what is essentially a compilation of a pan-EU-wide list of third country non-cooperative tax jurisdictions, which is based on Member States' independent national lists. In their background document, the EU has indicated that they have not decided which countries should be listed, rather it is relaying decisions taken at national level by their members. It is very unfortunate that this exercise has looked like the establishment of a list. Our EU colleagues have confirmed that this is not their intent.

The list is made up of jurisdictions that appear on at least 10 EU member states’ national blacklists. Some information is provided as to what factors go into making the national blacklists - they include “compliance with transparency and exchange of information standards; absence of harmful tax measures, other criterion”.

It should be noted that the EU Commission has incorporated the Global Forum’s terms of reference into its principles of good governance in tax matters and so supports a clear link between compliance with the Global Forum standard and inclusion on a national blacklist. However, it is not clear how this aspect is factored into either the national blacklists or the EC’s list. In addition, the inclusion of harmful tax practices or “other criterion” in determining inclusion in a national blacklist makes it impossible to determine how this independently reflects on a jurisdiction compliance with the Global Forum standards.

As the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters. Without prejudice to countries' sovereign positions, we are happy to confirm that these jurisdictions are cooperative and we would like to commend the tremendous progress made over the past years as well as the cooperation and integrity of the Global Forum process.

We have already expressed our concerns and stand ready to further clarify to the media the position of the affected jurisdictions with regard to their compliance with the Global Forum standards.

We look forward to further engagement with you all and remain fully available should you need any assistance.

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration and Monica Bhatia, Head, Global Forum Secretariat

Role of IFCs in facilitating Africa inward investment to be explored at Jersey Finance seminar

Opportunities to invest in Africa and the role that International Finance Centres (IFCs) can play in facilitating growth in the continent will form the focus of an event to be held by Jersey Finance in London next week.

The Jersey Finance ‘Africa Investment Seminar’ will be held at the Institute of Directors in London on 25 June from 8-10am, and will feature a talk from Geoff Cook, CEO, Jersey Finance, announcing the findings of a new report analysing Jersey’s competitiveness in attracting and mobilising foreign direct investment (FDI). The report, produced by global management advisory firm Investment Consulting Associates, is entitled ‘Jersey’s Contribution to FDI’ and identifies the strengths of Jersey’s finance industry in facilitating FDI and its contribution to the global economy.

In addition, Senator Philip Ozouf, Assistant Chief Minister of The Government of Jersey, will give a keynote speech at the breakfast event exploring the growing links between Jersey and Africa and highlighting the efforts being made at a political level to cement positive relationships between Jersey and the African markets.

Mark Pragnell of Capital Economics will also give a talk outlining the key messages from the ‘Jersey’s Value to Africa’ report, published last year. It found that, whilst Africa is one of the fastest growing regions globally, to sustain that growth it needs to invest US$85 trillion in infrastructure by 2040 and that this could not be generated locally or through international aid. The paper estimated a shortfall of US$11.4 trillion in investment, US$6.1 trillion of which will need to come from outside the continent through foreign direct investment.

A panel session featuring Deon de Klerk, Head of Africa and International at Standard Bank, and Boshoff Grobler, CEO of Ashburton Investments, as well as Mark Pragnell and Senator Philip Ozouf, will then look in more depth at the links between Jersey and Africa and the implications of both the ‘Value to Africa’ and ‘Value to FDI’ reports. Panellists will also discuss barriers to inward investment into Africa and how the strengths of IFCs like Jersey, such as specific expertise in cross-border investment pooling can help mitigate those challenges.

Geoff Cook said:

“This seminar builds on the findings of last year’s Value to Africa report, which identified for the first time the scale of foreign direct investment that the African continent needs to realise its growth potential and the significant role quality IFCs like Jersey can play in facilitating that investment. With comments from the recent World Economic Forum on Africa pointing to the growing focus within Africa on investment in infrastructure, this will be a fascinating and timely debate on the role of IFCs in mobilising investments into Africa and developing countries more widely, and I’m delighted that we will be joined by such a strong line-up to direct our discussions.”

The Africa Investment Seminar takes place on 25 June at the Institute of Directors in London. It follows a series of roadshows staged by Jersey Finance earlier this month in Cape Town, Johannesburg, Nairobi and Lagos.

Follow the money: inside the world's tax havens

From the Cayman Islands to Jersey, tax havens are busier than ever – a secretive world of offshore accounts and shell companies. Nothing to do with you? Then you win my Hermit of the Year prize

The Guardian

IMF - Pension Reforms in Mauritius : Fair and Fast—Balancing Social Protection and Fiscal Sustainability

Despite important past reforms, the ageing population of Mauritius threatens the sustainability of its pension system. This paper examines how pension spending might increase without reforms and discusses reforms options. The findings suggest that unifying the retirement age and indexing it to life expectancy would contribute most significantly to secure and sustainable pensions. The poverty reducing objective of the universal pension can be improved by better targeting. The old age protection objective of the National Pension Fund could be strengthened by increasing contribution and replacement rates. Implementing changes faster should result in less drastic future changes and fairer outcomes.

Working Paper No. 15/126

Bloomberg: Britam of Kenya’s Biggest Holder Has Stake Put Up for Sale

BAI Co. of Mauritius’s stake in British American Investments Co. of Kenya is being sold to help pay creditors and policyholders after the Mauritian investor was placed under conservatorship, PricewaterhouseCoopers said.

Bloomberg

Mauritius: Finance Minister discusses Smart Cities project with Indian Investors

The Minister of Finance and Economic Development, Mr Vishnu Lutchmeenaraidoo, who is currently in New Delhi, India  for a promotional roadshow with regard to the Smart Cities project, participated yesterday in a business meeting with potential Indian investors.

The meeting which was attended by the business community in India and representatives of the Mauritian private sector served as platform for Mauritius to market the various aspects of the Smart Cities project.

The Mauritian side, through the Board of Investment (BOI), made a presentation on the possible avenues of cooperation and investment in various projects to be set up across the island. The Ministry of Finance and Economic Development has also developed a Smart City Scheme that offers a package of attractive fiscal and non-fiscal incentives to investors.

The Special Economic Zones (SEZs) which Mauritius plans to set up in Africa especially Ghana, Madagascar and Senegal were also presented to the Indian investors. The BOI made a presentation of the techno-park project in Accra, Ghana.

In his address on the occasion Minister Lutchmeenaraidoo reiterated Government’s interest in the setting up of the Smart Cities as well as in the creation of the SEZs to achieve further growth. He invited Indian investors to be part of the development project.

The Minister presented Mauritius as a land of opportunities and an ideal gateway for Indian investments in Africa. He also reassured the investors about the significance of the Double Taxation Avoidance Treaty for India and Mauritius with a view to facilitating investments from India into Africa and vice-versa. On that score he outlined that Mauritius is a clean jurisdiction as far as investment promotion and protection and the transparent financial services sector.

Minister Lutchmeenaraidoo also spoke on the Legacy Sovereign Fund, as announced in the 2015-2016 budget which at an initial phase will invest in Africa. According to the Minister, the creation of the Legacy Sovereign Fund will translate into action the strong will of Mauritius to encourage Mauritian companies to set up branches in Africa.

During his mission the Minister of Finance met the Indian Minister of Foreign Affairs with whom he discussed about the opportunities of investment in the construction of a fishing port in the Port Louis Harbour, in line with Government’s vision to transform the port into a regional bunkering Hub.

Pascal Saint-Amans : "A l'automne, nous pourrons avoir mis fin aux paradis fiscaux"

Pour Pascal Saint-Amans, l'utilisation des paradis fiscaux par les particuliers a vécu, avec la fin du secret bancaire. S'agissant des entreprises, les nouveaux standards de l'OCDE pourraient être adoptés à l'automne. Ils permettront de limiter fortement l'évasion fiscale. Et de rapatrier l'équivalent de plusieurs points d'Impôt sur les sociétés dans les caisses des États.

La Tribune

The great Moldovan bank robbery

It's a mystery that's thrown Europe's poorest nation into deep crisis - $1bn has vanished from three of Moldova's leading banks, much of it passing through UK companies. A confidential report has blamed 28-year-old businessman, Ilan Shor, but in an exclusive BBC interview he proclaims his innocence.

BBC News

New York Times

L’île Maurice dans la liste des paradis fiscaux de l’Union européenne

L’Union européenne vient de publier une liste de 30 paradis fiscaux dans le cadre de son plan d’action contre l’évasion fiscale. Et surprise ! La juridiction mauricienne fait partie de cette liste. Et ce malgré le fait que le centre financier local figure sur la « White List » de l’Organisation pour la Coopération et le Développement Economique (OCDE).

Defi Media

Belvedere: WSJ exposes Cosgrove link to US’s most wanted financial criminal

The Belvedere kingpins, South African-based Cobus Kellermann and David Cosgrove, have received another big smack with an exposé in today’s Wall Street Journal. It details close links between the duo’s Mauritius operation and the US’s most wanted financial criminal.

The newspaper today published an article exposing ties between Belvedere and jailed British-based trader Navinder Singh Sarao. The trader, who made at least $40m by using technology to distort markets and manipulate asset prices, is fighting extradition to the US. He is behind bars as the Americans have frozen Sarao’s global assets, making it impossible for him to meet £5m (R97m) bail set by the British courts.


According to the WSJ, Sarao has been connected to Belvedere since his fund was registered in Mauritius on 19 July 2010.

Biznews.com

WSJ: ‘Flash Crash’ Trader Navinder Sarao Worked With Fund Network Now Under Investigation

When British trader Navinder Singh Sarao planned to raise money to launch a new investment fund in 2010, he was put in touch with David Cosgrove, an Irishman who had set up dozens of such funds in offshore tax havens.

The NAV Sarao Milking Markets Fund (GBP) was soon registered in Mauritius as part of Mr. Cosgrove’s financial network. 

Wall Street Journal

New tax treaty with Mauritius may affect cross-border investment

The new double-tax treaty between SA and Mauritius is set to come into force in January next year, following a controversial renegotiation to better protect the South African tax base.

BusinessDay

New South Africa and Mauritius Tax Treaty enters into force

The Government of South Africa on Wednesday, 17 June 2015, gazetted (GG 38862) the South Africa-Mauritius tax treaty, which entered into force on 28 May 2015, and replaces the 1996 South Africa-Mauritius tax treaty.

This new treaty reflects changes in the tax policies of the two countries and is in line with international best practices to deal with tax abuse as outlined in the OECD Model Tax Convention. The new treaty deals inter alia with the treatment of dual residence for persons other than individuals and withholding taxes on interest and royalties.

1. Background

In November 2009, South Africa and Mauritius started renegotiations for the new tax treaty. The renegotiations were finalised in January 2011. The main driver for the renegotiation of the old tax treaty was to curb abuse of the old treaty. The new treaty was signed by the two countries on 17 May 2013. The South African Parliament ratified the new treaty on 14 September 2013. Mauritius notified South Africa of its ratification of the new treaty on 28 May 2015.

The main changes to the old tax treaty include a revised test for dual residence for persons other than individuals; witholding taxes on interest and royalties; capital gains tax; removal of tax sparing provision and assistance in tax collection.

A. Dual residence for persons other than individuals

The tie-breaker clause in the new tax treaty, in Article 4(3), follows the alternative test under paragraph 24.1 of the Commentary to the OECD Model Tax Convention. It provides that the Competent Authorities of the Contracting States shall, in any case where a person other than an individual is a resident of both States, endeavour to settle the question by mutual agreement and determine the mode of application of the Agreement to such person. This test has been proposed to become the accepted or main test of the OECD Model under the OECD/G20 Base Erosion and Profit Shifting initiative which is currently taking place under the guidance of the G20.

In order to provide greater certainty to the small number of companies that may be affected by the change, South Africa and Mauritius have signed a Memorandum of Understanding which sets out the factors that the two competent authorities will take into account in deciding the country of residence.

The Memorandum of Understanding draws on the guidance provided in commentaries to the OECD and UN Model Tax Conventions, as well as the ongoing BEPS initiative work, so its approach will be familiar to multinational enterprises.

B. Witholding taxes

The old tax treaty provided for a zero rate on interest and royalties (taxable only in the state of residence).

     (i) Interest

     The new tax treaty provides for a 10 per cent tax rate in the source country on the gross amount of the interest.

     (ii) Royalties

     The new tax treaty provides for a 5 per cent tax rate in the source country on the gross amount of royalties.

C. Capital gains

The old tax treaty was silent on the treatment of property rich companies. The capital gains provision now specifically provides that a Contracting State may tax capital gains derived from the disposal of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in that Contracting State. This is in line with paragraph (4) of Article 13 of the current OECD Model Tax Convention.

D. Tax Sparing

The old tax treaty contained a tax sparing provision. In the new tax treaty, the tax sparing provision has been removed due to concerns that it allowed for double non-taxation. Under the tax sparing method, the foreign investor country allows credit for notional taxes foregone by the investment country because of a tax incentive or holiday in the investment country. 

E. Assistance in tax collection

The new tax treaty includes a new article improving bilateral co-operation in the collection of taxes.

The new tax treaty generally applies from 1 January 2016.

K@W: One Entrepreneur’s Plan to Transform Africa

Fred Swaniker is an entrepreneur and leadership development expert making a huge social impact in Africa, where he founded the African Leadership Academy, the African Leadership Network and his latest effort, the African Leadership Universities. Named one of the Top 10 Young Power Men in Africa by Forbes magazine, among other honors, his long-term goal is to revolutionize the continent’s economies from the educational system up. In a recent interview with Katherine Klein, vice dean of Wharton’s Social Impact Initiative, Swaniker explained his ambitious plans for Africa. 

ActionAid - An Extractive Affair

How one Australian mining company's tax dealings are costing the world's poorest country millions

ActionAid

Tax Avoidance, Tax Evasion and Tax Havens

In this report we describe the way in which tax havens function. The opportunities for tax evasion and avoidance are highlighted from the perspective of the various players, companies, corporations and wealthy individuals – the methods, the instruments used and the tricks that can be applied, not least owing to the loopholes in the tax systems.

Tax avoidance, tax evasion and tax havens

Steuerflucht und Steueroasen

European Commission publishes a list of non-cooperative jurisdictions

The "Top 30" of non-cooperative jurisdictions is made up of countries that featured on at least 10 Member States' blacklists. Ultimately, the aim is to have a common EU approach to defining and reacting to third country non-cooperative jurisdictions. In discussions with Member States on their national blacklists, it became clear that each one uses different criteria to determine which countries to list, and takes different measures (if any at all) against listed countries. 

Member States have called for an EU approach to address external threats to their tax bases. In order to effectively tax profits generated in the EU, they need common measures to stop profit shifting out of the EU. A common EU approach will carry more weight than a patchwork of national ones and will prevent tax avoiders from accessing non-cooperative jurisdictions by exploiting loopholes in different national approaches. EU Member States themselves are committed to transparency, exchange of information and fair tax competition (Code of Conduct for Business Taxation).

A number of EU Member States assess how countries and territories around the world apply standards of tax good governance (transparency, exchange of information, and fair tax competition). The criteria (partly common and partly their own) used by the relevant EU countries in their assessment are listed below:

The full list is:

Andorra, Liechtenstein, Guernsey, Monaco, Mauritius, Liberia, Seychelles, Brunei, Hong Kong, Maldives, Cook Islands, Nauru, Niue, Marshall Islands, Vanuatu, Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Grenada, Montserrat, Panama, St Vincent and the Grenadines, St Kitts and Nevis, Turks and Caicos, US Virgin Islands.

European Commission presents Action Plan for Fair and Efficient Corporate Taxation in the EU

Today the Commission presented an Action Plan to fundamentally reform corporate taxation in the EU. The Action Plan sets out a series of initiatives to tackle tax avoidance, secure sustainable revenues and strengthen the Single Market for businesses. Collectively, these measures will significantly improve the corporate tax environment in the EU, making it fairer, more efficient and more growth-friendly.

Key actions include a strategy to re-launch the Common Consolidated Corporate Tax Base (CCCTB) and a framework to ensure effective taxation where profits are generated. The Commission is also publishing a first pan-EU list of third-country non-cooperative tax jurisdictions and launching a public consultation to assess whether companies should have to publicly disclose certain tax information. 

Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue said: "Today we have set out an ambitious yet realistic plan for fairer and more growth-friendly taxation in the EU. It rests on the core principle that all companies – big or small, local or global - must pay a fair share of tax where real economic activity is taking place and where their profits are actually made." 

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Corporate taxation in the EU needs radical reform. In the interests of growth, competitiveness and fairness, Member States need to pull together and everyone must pay their fair share. The Commission has today laid the foundation for a new approach to corporate taxation in the EU. Member States must now build on it." 

The rules that govern corporate taxation in the EU today are out-of-step with the modern economy. Uncoordinated national measures are being exploited by some companies to escape taxation in the EU. This leads to significant revenue losses for Member States, a heavier tax burden for citizens and competitive distortions for businesses that pay their share. 

To redress this situation, today's Action Plan sets out a new EU approach for fair and efficient corporate taxation. This will be achieved through a series of initiatives to be taken in the short, medium and long-term. These build on the measures already set out in the Tax Transparency Package, which the Commission presented in March. The measures outlined in this Action Plan also echo ongoing work at the OECD to limit tax base erosion and profit shifting. 

KEY ACTIONS

Re-launching the Common Consolidated Corporate Tax Base (CCCTB)

The Commission will re-launch its proposal for a Common Consolidated Corporate Tax Base (CCCTB), as a holistic solution to corporate tax reform.

The CCCTB can deliver on all fronts, significantly improving the Single Market for businesses, while also closing off opportunities for corporate tax avoidance. Negotiations are currently stalled on the Commission's 2011 proposal for a CCCTB. However, there is a general consensus that they need to be revived, given the major benefits that the CCCTB offers. Work will begin immediately on a new proposal to introduce a mandatory CCCTB through a step-by-step approach. This will allow Member States to progress more quickly on securing the common taxable base. Consolidation will be introduced as a second step, as this has been the most difficult element in negotiations so far. The Commission will present this new proposal as early as possible in 2016.

Ensuring Effective Taxation 

The Action Plan sets out the path for effective taxation in the EU, which is the notion that companies should pay a fair share of tax in the country where they make their profits. There are a number of ways to achieve this, without harmonising corporate tax rates across the EU. For example, the Commission is proposing measures to close legislative loopholes, improve the transfer pricing system and implement stricter rules for preferential tax regimes, among other things. These initiatives should also help to advance the ongoing debate between Member States to define and agree on an EU approach to effective taxation.

Increasing Transparency 

The Action Plan sets out the next steps for greater tax transparency – within the EU and vis-à-vis third countries. This builds on the measures already envisaged in the Tax Transparency Package, adopted in March. To launch a more open and uniform EU approach to non-cooperative tax jurisdictions, the Commission has published a pan-EU list of third countries and territories blacklisted by Member States. This can be used to screen non-cooperative tax jurisdictions and develop a common EU strategy to deal with them. As such, it will reinforce Member States' collective defence system against external threats to their revenues. 

The Commission is also launching a public consultation today on to gather feedback on whether companies should have to publicly disclose certain tax information, including through Country-by-Country Reporting (CbCR).The consultation, together with the Commission's ongoing impact assessment work, will help to shape any future policy decisions on this issue.

The Commission is also launching a public consultation today on to gather feedback on whether companies should have to publicly disclose certain tax information, including through Country-by-Country Reporting (CbCR).The consultation, together with the Commission's ongoing impact assessment work, will help to shape any future policy decisions on this issue. 

BACKGROUND 

The Action Plan for Fair and Efficient Corporate Taxation is part of the Commission's ambitious agenda to tackle corporate tax avoidance, ensuring a fairer Single Market and promoting jobs, growth and investment in Europe. 

In his July 2014 Political Guidelines, President Juncker stated: "We need more fairness in our internal market. While recognising the competence of Member States for their taxation systems, we should step up our efforts to combat tax evasion and tax fraud, so that all contribute their fair share." 

The Commission is rapidly delivering on the commitments made in its 2015 Work Programme to clamp down on tax evasion and tax avoidance, and ensure that companies pay tax where they generate profits.

As a first step, the Commission proposed a Tax Transparency Package in March to create more openness and cooperation between Member States on corporate tax issues. A key element in the Package was a proposal for the automatic exchange of information on tax rulings. This proposal received unanimous political support from Finance Ministers at the Informal ECOFIN in April. Member States are now discussing it at technical level with the aim of reaching agreement by the end of the year. 

Today's Action Plan represents the second and more comprehensive step towards reforming corporate taxation in the EU 

Meet Africa’s most integrated Chinese community

Across much of Africa, there have been teething troubles as Chinese migrants have settled down. But many of the same issues arising now were being dealt with centuries ago in Mauritius, where a small but prosperous Chinese community has today become an integral part of the island’s makeup. However, not all is well for the minority population, as James Wan reports from Port Louis

Revised Mauritius – South Africa Treaty. Has life changed?

What benefit a treaty is to a legal entity, individuals excluded, relies heavily on this interpretation of this criterion that can tilt the balance, if not shift it altogether. This treaty, however, does not only dilute the other advantages in terms of the withholding tax benefits, but more importantly, creates a veil of uncertainty that now circles the interpretation of tax residency of legal entities where they are considered as dual tax residents. 

Revised Mauritius – South Africa Treaty. Has life changed?

Offshore Pilot Quarterly (June 2015, Volume 18 Number 2)

Can’t See the Wood for the Degrees

Isn’t it strange? With all the emphasis on education, seemingly with the variety of degrees competing in number with new software apps on the market, we find so many mismatches in professions where square pegs have been pulverized by being pounded into round holes. This at a time when experience in the offshore financial services business in many cases has taken the seat behind education instead of sitting alongside it.

The late, extraordinary English author, Graham Greene, who was courted by many of the old guard of both leftwing leaders and dictators in South America because, at the time, they thought it politically prudent to treat the famous author well, once said that he “didn’t particularly care for academics, their life begins with the Adam’s apple, goes upwards – never reaches the pants”. Accepting the author’s hyperbole, it is true that what the pants hide is certainly what men (with or without degrees) in business need in the offshore business today; but that’s another subject for another OPQ.

The word “experience” has one letter more than “education”, but that one letter can be far more important than the letters put after a person’s name. Speaking of which, I have often wondered why American lawyers, of both genders, purloined the word “esquire”. What statement this makes, I am not too sure, but it is a medieval word from Old French that referred to a young nobleman apprenticed (more on apprenticeships later) to a knight. In the United Kingdom it is common in polite society (which is contracting at an alarming rate) to use it when addressing a letter to a man; my banker still affords me that courtesy. Be that as it may, besides experience there is wisdom and common sense, two intangible qualities possessed by some, regardless of education, but which can make all the difference.

As for computer technology in the workplace, those two qualities will never be replicated by it because it is far more difficult to automate what we do with our minds than what we do with our hands. A computer scientist turned economist, Charles Jonscher, refers to the “non-digital quality of wisdom” – not to mention human creativity. The same, of course, applies to knowledge (not to be confused with education). As one senior executive at an international computer services company put it: “Knowledge is a flow, it is about what is in people’s heads rather than what is in a database”. I would also suggest that after obtaining a degree, there is no guarantee that what is in a person’s head will equip him with the knowledge needed.

A reader’s comment in The Economist newspaper is apposite and merits repeating, in part: “In my grandfather’s day it was common for people to be hired out of school and trained for positions which now require a university degree. Why should public universities be doing this job?” In all this, however, one cannot be blind to the benefits of a university education. It’s just a question of getting the balance right and avoiding assumptions.

Even if you have not decided on the vocation you wish to follow, the benefits derived from a spell at university can be significant because, after all, achievement builds confidence; and, in many instances, the environment promotes and encourages a rich cultural and social experience which can serve you well in later life. But, there again, there’s no guarantee that an individual’s type of personality will benefit appreciably from the exposure. In theory, university also promotes independent thought; I say in theory because the absence of it is in abundant supply today amongst graduates.

Still, an assumption that ability is guaranteed within the confines of a campus, whether student or professor, has been proven to be wrong time and time again. So let’s reverse the belief which says that it is life’s journey, not its destination, that is important; the journey taken when knowledge is your destination – and the roads are many – doesn’t matter; just getting there does. I am not alone in my opinion.

Enchanted Circles

A good example is Frédéric Bastiat, who was born in France in 1801 and orphaned at the age of nine. He was brought up by his grandparents and before eventually inheriting his grandfather’s estate he had already worked in commerce, farming and insurance; with his inheritance he became a farmer, yet he devoted a great deal of time to reading about economics, especially the writings of Adam Smith and Jean-Baptiste Say. He was never a scholar but his studies in economics had an impact on those who were and he produced a stream of articles, pamphlets and books which abruptly ended with his early death at forty-nine years of age in Rome on Christmas Eve in 1850.

Never a theorist, but a realist always applying the practical, he delighted in exposing economic fallacies. Henry Hazlitt, a founding board member of America’s Mises Institute, called him “the master of the reductio ad absurdum”. His wit and skill with words were the props that supported his persuasive logic. He made no important original contribution to abstract economic theory, but because of his expressions of economic truths, Joseph Schumpeter, the late economist and political scientist, at the time described him as “ the most brilliant economic journalist who ever lived.” He, literally, shed light on false logic, as you will see in a moment or two.

When it comes to Adam’s apples, Bastiat once argued for the abolition of French university degrees considering, in his view, the state of public education at the time. He said that education is the transmission from generation to generation of the knowledge acquired by society and should not be “monopolised and enclosed in an enchanted circle by university degrees”. He saw that on the road to knowledge the travelling was never more important than the arrival.

Universities still to this day practice their own form of protectionism, discouraging the many alternatives to joining the “enchanted circle”. We have tenured professors, often the products of the hot house syndrome (because they have never been exposed to experiencing the vagaries of commerce), teaching, of all things, business studies when usually all they can offer is theory which is not balanced by practice. Schumpeter may have seen no problem with this but Bastiat would have, and the advent of Massive Open Online Courses are spooking some universities that see them as weapons of massive destruction threatening academia; but smart universities (such as Harvard and Stanford) have embraced the concept and are profiting from it.

The Dark Side of Competition

With insight and common sense, Bastiat addressed two contentious subjects at the time: competition and efficiency. The government had levied tariffs to protect domestic industries from competition, forcing people to pay more for domestic goods when cheaper foreign imports were available; French businesses thrived with natural competition blocked, but at the expense of everyone else. Rather, Bastiat believed that money should be put into an industry where domestic companies do have a competitive advantage; we see today how some financial services have moved offshore because of such advantage much to the chagrin of domestic providers (not to mention many of their governments).

To make his point and to reinforce the free market arguments of Adam Smith, Bastiat wrote a satirical essay entitled “The Candle Maker’s Petition”. The petition involved the French lighting industry, including manufacturers of candles, tapers, lanterns, sticks, street lamps, snuffers, as well as producers of other related products, including tallow, oil, resin and alcohol. Bastiat describes how they all come together to call upon the government to take protective action against the unfair competition coming from the sun during daylight hours.

He proposed that people be forced to close “all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights and blinds” which would lead to a higher consumption of candles. Everyone involved in the lighting industry – especially the candle makers – would have much greater sales if the sun’s benefits could be curtailed and the petition reads: “We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so superior to our own for the production of light, that he is flooding the domestic market with it at an incredibly low price…” To some degree (pardon my pun) this applies to online degree courses which should not be shut out any more than the sun when, compared to a university education, the cost is also incredibly low.

And as for the issue of creating jobs at the expense of efficiency, Bastiat suggested that the king be petitioned to forbid people from using their right hands – or, he posited, perhaps they could be chopped off. With one hand rather than two, it would follow that labour, because not everyone is ambidextrous, would require more than twice as many people, and twice as many jobs, to get an equal amount of work done (assuming that consumption remained the same).

In the case of the world’s bureaucrats today, with the plethora of confounding rules and regulations, one wonders how effective this could ever be for them when, on most occasions, the right hand never knows what the left hand is doing anyway. But what I do know is that we are sorely in need of a hand from Bastiat.

Performance and Delivery

Let’s look at some splintered, mashed square pegs in key commercial roles. We’ve read and heard about the incompetence of international bankers during the last several years, but when looking at monetary policy it becomes all too clear that not enough has been spoken about the track record of central bankers. By all accounts it is economists and lawyers who fill the top jobs at central banks in the West (the same people, incidentally, who seem to suffer from a dearth of practical banking knowledge, unlike those at the battlefront).

Top slot goes to America’s Federal Reserve. In the dark and distant past members of its board had bank experience and therefore could understand that bank profits and people’s prosperity went together, translating into dividends paid and loans made, boosting consumer spending and, of course, business investment. What we see is a deposit rate so low that banks are either penalised for, as it has been described, “pumping liquidity” (America) or being bled with negative deposit rates (Europe).

Janet Yellen, the Chair of the Federal Reserve, steeped in academia, has never worked in a bank, while other members include former professors and a presidential cabinet member; no one has direct experience in retail banking. If we consider the European Central Bank and the United Kingdom’s Monetary Policy Committee there is no cause for optimism there either. The UK’s nine-member committee has only four members with any (but no retail) banking experience. And of the 25-member ECB governing council, just five of them have worked at a bank (mostly, however, as staff economists).

Bastiat, speaking from the grave, might conclude that they know laws, banking models and politics, but little reality. Although Schumpeter recognised Bastiat’s gifts, he sniffingly said that the Frenchman was no theorist, reminding him more “of the bather who enjoys himself in the shallows and then goes beyond his depth and drowns”. Perhaps so, but it is that realistic, practical approach which we now need, and from what I can see it is the central bankers, primarily theorists, who have got themselves into deep water when not all of them can swim.

So how do you avoid this mistaken cross-pollination of professionals? There is no way of doing that, but what you can do is avoid taking advice from the wrong source; this is particularly important in the offshore financial services arena because at its apex is estate and succession planning, when total reliance is usually placed on the advice given. The professional assumes, in such circumstances, the guise of a priest hearing a confession; he is privy to sensitive information and the client, reposing complete confidence in him, must feel reassured that after confessing his concerns he will get a solution, if not absolution.

The performance and delivery, not their framed diplomas, is the yardstick I use when I judge the professional people with whom I must deal in my own chosen vocation. My judgement looks to those knight apprentices of yore; a combination of education, training and mentoring (whether college tutorials or not) is required, and the standard university model (which is showing signs of cracks) is, in many ways, becoming outmoded. Universities do not want to hear this, and that’s fair enough.

Perhaps Bastiat, in his study of Adam Smith, considered this observation: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. A quote taken from Wealth of Nations. Discouraging competition is understandable, whether it’s natural like the sun or not, but it is at the consumer’s expense. It is similar to the hold that medieval guilds had, and is similar to the one today that corporate America has on the country’s politics. America’s Supreme Court has done the ordinary voter no favours by giving practically unlimited rights to corporate intervention in the country’s electoral process. What an opportunity for businessmen to conspire, where instead of votes being weighed they are only counted.

It is no coincidence that Germany is synonymous with quality products. More than 40 per cent of Germans in 2013 became apprentices whereas just 0.3 per cent of the US labour force followed that route. A study by the Center for College Affordability and Productivity showed that 15 per cent of taxi drivers in the US had a degree: in 1970 it was 1 per cent. Similarly, 25 per cent of sales clerks (compared with 5 per cent in 1970) were graduates. It points to a country (it is not alone) that has too many square pegs. 

Returning to those medieval guilds, a big part of the problem is that in so many instances power rests on professional prestige rather than proficiency. Universities are especially adept at nurturing this sense of exclusiveness because education is big business, particularly in America. Those with a lot less training can still be highly effective and a review of studies of nurse practitioners in the UK, South Africa, the US, Japan, Israel and Australia that was published in the British Medical Journal found that patients treated by nurses in the general wards were more satisfied and no less healthy than those treated by doctors who should devote their skill to complex, not routine, tasks in line with their highly trained abilities.

So in offshore – or onshore – financial services you must assess your choices carefully. Whether the letters after the name are “Esq” or other ones, they do not guarantee that a lesser known English word is more applicable: ultracrepidarian. It means “acting or speaking outside one’s own experience, knowledge or ability”. In the trust field, as an example, you can describe yourself as a trust accountant, trust adviser or lawyer, but that doesn’t make you a specialist; to be a proper trust practitioner means that at the core of your skills is a solid knowledge of bookkeeping as well as estate and trust law. You might not have a clue how to balance the books for IBM or about divorce law, but then you don’t need to.

Offshore Pilot Quarterly (independent writing for independent thinkers) has been published since 1997 by Trust Services, S. A. and is written by Derek Sambrook

Mauritius regulators to keep abreast of financial innovation

Sharona Rambocus, Vice President of CFA Society Mauritius, spoke to AfricaMoney on how Mauritius’ credibility as an international financial centre of choice took a hit in the latest financial scandal. However, she pointed out that, subsequently, local investor confidence in the stock market has rebounded upon favourable corporate results of certain major market players. She also stressed that PwC conservators needs to be transparent in their communication about the financial services major implicated in the financial scandal, the BAI Group, as well as its related entities, as people are speculating on rumours which might be completely baseless and downright detrimental to the health of the financial market.

Bloomberg: Distressed Funds Try Mauritius Courts to Chase Indonesian Debts

Holders of an Indonesian bank’s defaulted bonds have turned to a court on a tropical island 6,500 kilometers (4,039 miles) away to recoup the missed payments.

Bloomberg

Forget Confessional: Vatican Adopts FATCA, Helps IRS Track Offshore Accounts

The news that the Vatican has signed on to FATCA making a Catholic agreement to go after tax evaders may not surprise more than one billion Catholics around the world. Americans may be the only ones who really care. And no matter how astounding this looks, they should not be surprised.  Although this deal was just announced, it was last Christmas that the Holy See reached the substance of an Intergovernmental Agreement to hand over American account details.

Forbes

The obscure legal system that lets corporations sue countries

Fifty years ago, an international legal system was created to protect the rights of foreign investors. Today, as companies win billions in damages, insiders say it has got dangerously out of control

The Guardian

FSC Mauritius - Consultation: Draft Financial Services (Funeral Scheme Management) Rules 2015

The FSC Mauritius consults stakeholder on the draft Financial Services (Funeral Scheme Management) Rules 2015

Communiqué

Draft Financial Services (Funeral Scheme Management) Rules 2015

Template for submitting comments on the draft Rules

IFC Review - CRS and Trusts: An Uneasy Alliance

Andrew Knight and Anthony Markham examine the profound effect the Common Reporting Standard will have on the Trusts industry

Capital flows, tax haven and offshore secrecy system

The discussion of the Mbeki Panel report in the last issue of African Agenda, in both the Editorial and the article by Tetteh Hormeku, rightly drew attention to the need to look beyond the issue of 'illegal flows'. While the Panel's concern with 'money illegally earned, transferred or used' is important, there are much wider implications raised by the report, contends Sol Picciotto.

African Agenda

Two listed companies connected to Brighton SPC suspended

In the ongoing fallout from the investigations into companies with links to Belvedere Management, two British companies listed on Denmark’s GXG Markets exchange were suspended on Wednesday. This follows from the announcement earlier in the week that the Cayman Island’s Monetary Authority (CIMA) had placed Brighton SPC in controllership.

Fulhold Pharma Plc and Eligere Investments Plc are both connected to the Brighton umbrella fund, although through different cells. Fulhold also has close ties to one of Belvedere’s major shareholders, David Cosgrove.

Moneyweb