ITR Special Focus: UK GAAR

International Tax Review provides you with full coverage of the developments surrounding the proposal to introduce a general anti-avoidance rule (GAAR) in the UK, what it could mean for your business, the concerns raised, and how it is inching closer to implementation.

Mauritius: Bharat Telecom

Bharat Telecom Ltd (BTL) is a private limited company incorporated in August 2010 in Mauritius to provide FTTH (Fibre to the Home) service to Mauritian households”. IPTV and High Speed Broadband Internet are some of the services that the company will introduce on this platform.

BTL believes that its digital infrastructure described by the term GEPON (Gigabit Ethernet Passive Optical Network) will act as a carrier backbone for many other service providers both existing and start-up enterprises in the Gaming and WebTV business.

Mr Baljinder Sharma, Director at Bharat Telecom Ltd states, “BTL has the vision to connect every home and office in the country with a fibre network”.

Mr Anil Gujjalu, Chief Operating Officer of Bharat Telecom says that the work has been ongoing since year 2011 and we have now reached the deployment phase which means that shortly houses and offices will be connected through 100Mbps fibre optic cables thus assuring the availability of high speed Internet and other value added services at very affordable prices.

“As previously announced, the basic bundle comprising of some 40 IPTV channels and a 2Mbps Internet connectivity will be available at a monthly subscription of around Rs280”. This is the start up package that we propose to introduce on commercial basis within the next six to eight weeks depending on the time it takes to get tariffs approved from the regulatory authority.

“We know that many Mauritians have put on hold their Internet connection plans and we would like to re-assure them that the service will soon be available in certain areas in the Plaine Wilhems region”. Dr Choudhari, whose company is responsible for technology advisory and infrastructure roll out adds that the project had some initial delay but our objective is to provide on-demand fibre connection to large majority of homes over the next eighteen months. Fibre connections are presently being tested in three locations and several more will be put to test starting next week particularly in Quatre Bornes and Rose Hill.

“Along with high speed Internet connection, we will also be offering a wide range of interactive TV channels through IPTV [Internet Protocol TV]” informs Mr Gujjalu. We should be revolutionising the market shortly with our technology.

Dr Choudhari explains that the technology being brought to the houses from the main Network Operation Centre located at Ebene through a core network of 10 Gbps underground Fibre optic cable estimated to be about 200km. The aerial network that is utilizing CEB poles will be approximately 2,700km consisting of both 24 core and 1 core fibre.

Interestingly, BTL will, for the first time also launch a new method of fibre laying known as HDD (Horizontal Directional Drilling) that drills underground without any need for road excavation. The HDD machine has already been imported in Mauritius and will be seen working on the roads from next week onwards after permission from Road Development Authority has been obtained.

The Customer Premise Equipment (CPE) will consist of an Optical Network Unit (ONU) with a Wi-Fi connection and a Set-Top Box (STB) which will cater for IPTV and Internet Access.

Dr Choudhari informs that this FTTH technology is very environmental friendly and the quantity of materials to be used when the whole Mauritius is connected is as low as 80 Tons, including all equipment and cables and the power requirement will be less than 20kw for the whole island-wide network.

“The deployment plan is very much on track and we expect some 70% of the population to be covered within the coming 12 coming months after the commercial launch” states Mr Gujjalu. The remaining part of the island will be covered by year 2013.

Mr Sharma concludes by saying that we have very high hopes from this project in line with the hopes of the citizens of the country. Based on our experience and customer feedback in Mauritius we propose to enter five more African countries in the next 18-24 months.

Mr Sharma puts on record the proactive support and collaboration BTL has received from the Ministry of IT and Telecommunications, the regulatory authority, the Central Electricity Board and the Board of Investment for which he is extremely thankful.

Offshore Pilot Quarterly (March 2012, Volume 15 Number 1)

Ali Baba and the Bureaucrats

This quarter’s newsletter includes two quotations from Lord Alfred Tennyson, the Victorian poet, and extracts from my speech at this month’s Offshore Investment conference which has been put together by the United Kingdom journal, Offshore Investment, a first for them in Panama. The first Tennyson quote pretty well sums up life’s cycles, whether one thinks of politics or (which I suspect has concentrated more minds of late) economics. To wit:

“The old order changeth, yielding place to new,

And god fulfills himself in many ways,

Lest one good custom should corrupt the world.”

Lord Tennyson’s words resonate with the Organisation for Economic Co-operation & Development, along with a collection of other official and quasi-official agencies and organizations which believe that one good custom, secrecy, is corrupting the world today. They, not God, want all the commercial and individual business affairs of man to be open to the world. For the purposes of my text I shall collectively refer to them as bureaucrats. We all know who God is, despite being one in three persons, and although some bureaucrats act as if they are.

Anton Chekov tells us that every person lives his real, most interesting life under the cover of secrecy. If the bureaucrats have their way interesting lives will be confined to the home. When is secrecy a bad thing? In the commercial sense it’s a matter of who answers the question. My answer to the bureaucrats is this: whenever secrecy in financial services will be aiding and abetting criminal activity then it’s right and proper to eliminate it. Of course, tax evasion in many jurisdictions is classified as criminal activity and where one country agrees to co-operate with another in cases of tax evasion (even if evasion is not classified by either country as criminal) a formal agreement to do so will be entered into in the form of either a double tax agreement (which can be beneficial for the taxpayer’s business) or a tax information exchange agreement, where there is no commercial advantage for the taxpayer, only his government. Let me declare my firm belief that in the case of Panama, the jurisdiction has nothing to fear from entering into tax agreements with foreign governments, anymore than it should fret if bearer shares are banned tomorrow. Honest parties, in the meantime, can rely on the confidentiality of Panama’s banks which is supported by legislation that will punish breaches.

One form of tax agreement has caused a stir; it is the tax information exchange agreement, TIEA for short. It raised, in fact, a degree of alarm in Panama when one (the country’s only one so far) was ratified with the United States of America. Its effect, however, is not necessarily the equivalent of the Arabian Nights’ Ali Baba commanding a sealed cave to open with the words: “Open Sesame”. In fact, it is difficult to predict how effective this streamlined version of a double tax agreement might be because, of course, as many commentators have already pointed out, with no fishing expeditions allowed, the tax authority first has to know what it is looking for before it can ask for it. If not, then you have a blind man in a dark room looking for a black hat which isn’t there. The cave, in other words, remains sealed.

Interestingly, reports are surfacing that up to now the TIEA programme worldwide has been more successful in spreading fear than recovering unpaid taxes. Despite the Netherlands having signed 28 TIEAs at the end of last October, the Dutch have, to my knowledge, only made 22 requests for information in the last 3 years. According to an ex-employee of the fiscal investigation arm of the Dutch Tax & Customs Administration the main stumbling block was the difficulty in meeting the formal criteria of a request. And of the 22 requests made, 13 were sent to Jersey with 7 responses; a handful of similar requests went to Guernsey and there were 3 replies; only 1 request went to the Isle of Man which has actually had the TIEA in place since the beginning of 2007.

Crucially, when a country wants information under a TIEA it must provide the competent authority in the other country with the reasons for the request: to ask a question, in other words, it must know the answer, a rule applied by astute trial lawyers in court. This explains in large part the Dutch experience and the dismal results. The Dutch also found that carrying out an audit of a suspected tax evader can be exhaustive and might take a team of 7 inspectors up to 2 years. The director of the Centre for Taxation and Public Governance in Amsterdam has said that carrying out a TIEA request properly calls for specialist knowledge; as in most cases tax authorities around the world are short- staffed and specialists are therefore few and far between. In any event, the 2012 issue of the Green Book produced by the International Tax Planning Association says that the US appears to be losing interest in TIEAs now that it is being asked to provide information itself.

The Potter’s Wheel

It is the hurdles, therefore, which must be faced before a TIEA request is successful that are key. On the evidence so far, I am of the opinion that TIEAs do not present a serious threat to IFCs. In any event, given the requirements, it is likely that it will mostly be only big cases that tax authorities will investigate because of the attendant costs of investigations that must be justified.

I should add that the rule of unintended consequences extends to the US Foreign Account Tax Compliance Act, FATCA as it is known by. It has now dawned on the US Treasury that there will be foreign countries who may require quid pro quo – asking US financial institutions to reciprocate by providing similar information about their own taxpayers.

The US Treasury’s Acting Assistant Secretary for Tax Policy, Emily McMahon, has accepted the many problematic issues which FATCA presents. She says that supporting regulations will now minimize the administrative burden and focus on their application towards circumstances that present a higher risk of tax evasion; as with TIEAs, it will be the big cases in the spotlight. She went on to say that the US is “open to exploring an intergovernmental approach to FATCA implementation that would address legal impediments to direct reporting”. But beware. When bureaucrats see light at the end of the tunnel they order more tunnel usually. And Milton Friedman, as I have reminded readers before, said that if you put the Federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand. Britain’s National Health Service, for example, has hospital trusts buying 21 different forms of A4 file paper and 652 different kinds of surgical gloves. Not for the bureaucrat the simple approach, as illustrated by the late Momofuku Ando, inventor of instant noodles: Peel off lid, pour boiling water, steep for three minutes, stir well and serve.

Personally, I see both tax information exchange and FATCA as clay on the potter’s wheel. We don’t know the final shape of things to come: will TIEAs really gain traction and will FATCA prove to be the monster many fear? The potter’s wheel is still spinning and his hands remain busy. Harbingers of doom (and there are many) have, in the meantime, already decided that IFCs have been dealt a fatal blow. There’s no shortage of onshore lawyers exploiting the situation, I am afraid to say, and one whose outcome which they cannot themselves be certain of; the only certainty is that fat fees will be made from FATCA. Fear and panic flourish in the land of lemmings, all of them being members of a large group following an unthinking course towards mass destruction. Unthinking; I shall return to that subject.

And just as secrecy conjures up different meanings, depending on the individual, it would seem that so does transparency. Is it not a wonderful piece of irony to reflect that contributors to the coffers of this year’s US presidential candidates can remain anonymous by contributing not directly but, if they choose, indirectly through a shell company to which they need not be connected? So a president can benefit by such means to get elected and once he does so, he can stand behind legislation that demands complete transparency from the individual. It would seem to be a case of demockery within a democracy.

The Unreadable, Unaccountable and Untraceable

Let’s now turn specifically to one of this year’s US presidential hopefuls, Mitt Romney. The US television network, ABC, back in January reported how Mr. Romney has invested over $30 million in untaxed Cayman vehicles. Since then it has been established that the network’s report strayed from the facts; it certainly doesn’t know its offshore ABCs. At the risk of punnery let me say that there are mitigating circumstances. Inevitably, the usual slurs were repeated, with the Cayman Islands described as “a notorious Caribbean tax haven, where secrecy is the rule”.

There’s that word “secrecy” again, the finest of fodder for some journalists doubtless whom Oscar Wilde had in mind when he said: “The difference between literature and journalism is that journalism is unreadable and literature is not read”. In wartime, said Winston Churchill, the truth must be surrounded by a dense thicket of lies. This seems to be the aim of those mischievous journalists and politicians who have launched a war against the offshore industry. In fact, the Romney story illustrated the legitimate use and advantage of running investments through an International Finance Centre.

Let’s pause at this point and consider the words of John Milton, an English poet from the seventeenth century: “neither man nor angel can discern hypocrisy, the only evil that walks invisible”. Well today it can most certainly be discerned in the onshore/offshore arena, and until it is eradicated, the offshore world will never willingly fall in line with the dictates of developed countries while distortions continue to exist.

A footnote to the Romney story. In one instance a corporation called W Spann LLC donated $1 million to his campaign and then was immediately dissolved. The LLC was formed in Delaware, which comes as no surprise to me or any of my regular readers who, like myself, feel that the state’s prevailing secrecy, given all the circumstances, is an outrage. Stephen Colbert, American satirist, has his own opinion about the role hidden money could play (I thought I’d try a different word to “secret”) in all presidential and congressional elections. He said that it has created “an unprecedented, unaccountable, untraceable cash tsunami”. You would think that Colbert’s comment was about “a notorious Caribbean tax haven…” but, then again, you would think a lot of things to be other than they are unless you have read lots of Lewis Carroll. No wonder Robert Frost surmised that education is the ability to listen to (and, I suggest, also read) almost anything without losing your temper or your self-confidence.

What, however, is education without an independent mind? When, I wonder, does one realise that perhaps you have joined the league of lemmings, the guild of the gullible? Many of us have surrendered our thoughts to those assumed to know better, or perhaps trusted, in matters of governance and economics. But just glance back only four or five years to see how the road travelled is strewn with folly, misjudgement and worse.

Chuck Prince, former Chairman of Citigroup, who became a dark prince, spoke during the financial frenzy that centred in Wall Street, the banker’s ground zero, of dancing until the music stopped. But whose tune was he dancing to as the pillars of profligacy tumbled to the ground? It was certainly not his own; he had become a hostage of the harmonies of others – much in the same way many of us did, and still do.

Returning to the unthinking course of lemmings; a bit more independent thought on the part of many of us would be no bad thing. Henry David Thoreau pondered: “If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music he hears, how ever measured or far away”.

A little distance and measured thought is never a bad thing and as this is the first issue in the new year, I think that my second quotation from Lord Tennyson, kept for the end, is most apt, even although a drummer is absent from the poem’s basic rhythm:

“Ring out the old, ring in the new…,

Ring out the false, ring in the true.”

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

Thomson Reuters launches Accelus Compliance Manager

Thomson Reuters Governance, Risk & Compliance today announced the launch of Accelus Compliance Manager, a single platform that allows firms to track, monitor and understand regulatory changes and connect them to their internal compliance process and workflow. The platform combines Thomson Reuters trusted global regulatory intelligence with its leading software platform for governance, risk and compliance.

Thomson Reuters Accelus Compliance Manager was created in response to its customer feedback and is designed to connect the five key stages of compliance identified by Thomson Reuters Governance, Risk & Compliance: understand, evaluate and map regulatory risk; identify, monitor and track regulatory change; define and communicate controls; monitor, test and audit controls; and evidence risk controls to management and regulators.

The resulting solution provides information from more than 230 regulators and exchanges around the world, and can be deployed within an organization to manage the lifecycle of the compliance process, from the notification of a new regulation, through responding to regulatory audits.

The launch of Accelus Compliance Manager comes on the back of the results of a recent Thomson Reuters survey of more than 500 compliance professionals globally who report they are often struggling to keep up with the growing demands of global regulation. Accelus Compliance Manager was developed to address this challenge in association with some of the world’s most heavily regulated organizations.

“The compliance manager’s workflow has reached saturation point. Our customers are hit with thousands of regulatory developments each year and traditional manual approaches are no longer viable,” said Andrew Neblett, SVP, Compliance, Audit and Risk, Thomson Reuters Governance, Risk & Compliance. “Budget constraints also mean departments are continually being squeezed to do more with less. Accelus Compliance Manager will help them support the oversight and operation of their enterprise-wide compliance programs, deliver improvements in corporate governance and provide the ability to achieve their business objectives faster.”

Commenting on the launch, Mark Schlageter, president, Thomson Reuters GRC, said: “If you look at the results of our Annual Cost of Compliance Survey 2012, it is clear that the traditional approach to managing compliance and demonstrating that to the regulators will no longer scale to meet the new demands imposed by increased regulatory volume and complexity.”

According to Schlageter, the launch of Accelus Compliance Manager builds on the success of Thomson Reuters Enterprise Governance, Risk & Compliance software solutions, designed to reduce the time, effort, and cost that organizations invest in their pursuit of Governance, Risk & Compliance convergence. It also follows the platform’s inclusion in the Leaders Quadrant of Gartner’s “Enterprise Governance, Risk and Compliance Platforms Magic Quadrant” report, and exemplifies the strategy and the vision behind Thomson Reuters Governance, Risk & Compliance business.

Thomson Reuters: Cost of Compliance Survey 2012

Thomson Reuters Governance, Risk and Compliance surveyed more than 500 compliance practitioners from financial services firms around the world between November 2011 and January 2012 to canvass their views on the costs of compliance and their greatest challenges for the year ahead. The results reflect the continued focus on regulation and compliance in the aftermath of the global financial crisis and the ever-increasing complexity and volume of requirements.

This essential report covers 7 key themes:

• Tracking, analysing and influencing regulatory change
• Updating policies and procedures
• Reporting
• Alignment with other control functions
• Liaison with regulators
• Managing regulatory risk
• Financial costs and budget

Further, the Cost of Compliance Survey Special Report looks ahead to examine the greatest challenges compliance officers anticipate in 2012 and the likely impact of the regulatory change to come.

Shadow Banking and Financial Instability: Lord Turner speech to the CASS Business School

In a speech to the CASS Business School the Chairman of the Financial Services Authority (FSA), Lord Turner, set out how the ‘shadow banking’ sector contributed to the financial crisis, the risks it still poses to financial stability and the importance of a sufficiently comprehensive and radical policy response.

He highlighted that the 2007-08 financial crisis was not one simply caused by high street banks but one where shadow banking activities played a major role. He described how the shadow banking sector is not simply a standalone system running parallel to the regular banking system but is linked to the banking system in complex and difficult to discern ways that can make the whole system less stable.

He stressed that major reforms had been put in place in the wake of the crisis for ‘normal’ banks including increased capital and liquidity requirements and better supervision, but said there had yet to be a similar response to the ‘shadow’ sector and that this needed to be addressed urgently.

He said:

“In autumn 2008 the developed world’s banking system suffered a severe crisis. And since then the world’s regulators and central banks have focused on building a more stable banking system for the future: less leverage, more liquid, better supervised and with even the largest banks able to be resolved without taxpayer’s support.

“But it’s striking that the crisis did not initially seem to be one of banks themselves, but rather of an apparently new phenomenon: shadow banking. So we need to ensure that our regulatory response appropriately covers shadow banking as well as banks.”

Lord Turner described shadow banking as covering multiple specific institutions and activities including securitised lending, hedge funds active in credit markets, investment bank trading of credit securities, the issuance of asset backed commercial paper and the ‘repo’ market. He set out how money could move through the system in long and complex chains which in combination performed the same role as banks, which involved the same risks, but which fell outside the framework of controls with which regulators seek to make the banking system safe. Estimates of the size of the shadow banking system were, Lord Turner stressed, very uncertain because of the sheer complexity of the system, but some researchers have suggested figures of around $20tn for shadow banking activity in the US in 2007 and around $13tn in Europe.

He argued that some of the particular forms which shadow banking took in the pre-crisis period had declined in importance, but that the underlying factors which drove shadow banking development were still present, and unless checked by appropriate regulation, would produce instability in future. These underlying factors include:

The desire of investors to hold more liquid short term assets than the private financial system can safely provide;

The tendency of financial innovation continuously to create additional complexity and opacity, and to make the system more interconnected and vulnerable to shocks; and

The increasing role of short term secured financed – such as the repo markets, which when combined with mark-to-market accounting and continuous revaluation could “hardwire” potential instability into the financial system.

Lord Turner said:

“We need to understand shadow banking not as something parallel to but separate from the core banking system, but deeply intertwined with it.

“The way in which shadow banking contributed to financial instability reflected and still reflects fundamental developments in our financial system which are relevant to banks as much as to shadow banks, which remain important today and which could produce new problems in the future.

“We should not take the decline in some specific indicators of shadow activity which has occurred since 2008 as suggesting that the risks have gone away.”

He reaffirmed the determination of the Financial Stability Board (FSB) to get to grips with shadow banking issues, ensuring that adequate responses to the risks involved were put in place. He stressed that any response would need to be flexible because in a complex financial system, individual firms will continually innovate new products and new relationships between firms which reduce the risks to the individual firms but which can make the system as a whole more risky.

He noted that some of the risk had been apparent in the earlier 1998 failure of the huge hedge fund Long Term Capital Management, that some of the reforms now being discussed had been considered in its aftermath, but that the action had not been taken once the crisis receded. He added “This time around we need to ensure that we maintain the momentum of reform, and that our response is sufficiently radical”.

IFS Goes Live With Multifonds Fund Accounting

Multifonds a leader in single-platform multi-jurisdictional investment fund software, today announced that International Financial Services Limited (IFS) has successfully implemented Multifonds' Fund Accounting (MFFA) platform and has begun migrating client funds.

IFS is a leading management company incorporated in Mauritius and licensed by that country's Financial Services Commission (FSC) to provide advisory and management services for international businesses. IFS services major global institutions and administers funds for global asset managers such as BlackRock, Invesco PowerShares, New York Life, TATA and Birla Sunlife.

IFS chose Multifonds after a competitive external selection process that included a rigorous proof of concept in Mauritius. The project took just six months to implement from start to finish, and was supported by a small on-site team from Multifonds.

To date, IFS has migrated most of its daily funds onto the new Multifonds platform, and expects to complete the migration of all its weekly and monthly funds by the end of Q1 2012.

Yash Beeharee, Senior Manager at IFS commented, "Thanks to the scalability and functionality of the Multifonds platform, we now have the capacity to increase the number of funds and clients that we are able to take on and service. The Multifonds platform has enabled us to significantly improve our levels of efficiency and rationalise our processes."

Oded Weiss, CEO at Multifonds added, "We are delighted that IFS chose the Multifonds platform. We have been working very closely with them to ensure that the fund accounting process is as streamlined and efficient as possible. With so many different types of funds available today, being able to use one secure fund accounting platform saves time and associated costs."

Multifonds' back-office solution is now being used around the world by institutions handling assets totalling over US$3 trillion.

Jersey figures show modest fund sector increase year on year but similar drop in banking deposits with some positive indicators for 2012

Jersey’s Finance Industry recorded a 2.5 per cent increase in the size of the funds sector during the whole of 2011 though the global slowdown has caused a further reduction in the level of bank deposits.

Banking and funds industry figures for the final quarter of 2011 also showed a decrease compared to the previous quarter, though again the number of funds in the same period increased.

The latest statistics, collated and prepared by the Jersey Financial Services Commission, are for the three month period ending 31st December, 2011 and include year on year comparisons. The headline figures are as follows:

- The total sterling value of banking deposits held in Jersey decreased by £9.2bn from £167.3bn to £158.1bn during the last quarter of 2011. Currency movements accounted for £1bn of this decrease. During 2011 the value of banking deposits decreased by £3.5bn (2.2%) from £161.6bn to £158.1bn.

- The net asset value of funds under administration decreased by £4.3bn from £193.7bn to £189.4bn during Q4 2011. The total number of funds increased by 27 from 1,365 to 1,392 over the same period. During the year 2011 the total value of funds under administration increased by £4.7bn (2.5%) from £184.7bn to £189.4bn. The total number of funds increased by 68 (5.1%) during the year 2011.

- The total number of unregulated funds increased by 6 to 153 during the last quarter of 2011. The total number of unregulated funds increased by 31 (25%) during 2011 from 122 to 153.

- The value of total funds under investment management remained at £20.8bn during the last quarter of 2011.

- The total number of live companies stood at 32,508 at the end of December 2011.

Geoff Cook, Chief Executive of Jersey Finance, commented:

These figures are not unexpected given the continuing slowdown in the EU and the US and the view from economic commentators that, in the aftermath of the financial crisis we will continue to see slow and halting growth for sometime to come. Against this backdrop of economic uncertainty it is not surprising that we have seen some peaks and troughs in the performance of our key sectors.

Bank deposits are inclined to fluctuate from quarter to quarter but over the year the 2.2 per cent fall in deposits has been modest and more encouragingly we have welcomed a new banking entrant from the Gulf in the form of Abu Dhabi Commercial Bank while US based State Street, already a major brand presence in Jersey, also broadened its service offering into banking.

Our funds sector performed well year on year and reported a 2.5 per cent increase in the net asset value of funds under administration and a 5.1 per cent increase in the number of regulated funds. We also saw the number of unregulated funds increase strongly by 25 per cent during the year. In the context of the financial crisis therefore which has inevitably had a sustained impact, our industry continues to hold up well overall with several positive indicators for growth in place for 2012.’

US: Levin, Conrad, Whitehouse Lead Senate Passage of Amendment to Combat Offshore Tax Abuses

The Senate today adopted an amendment offered by Sens. Carl Levin, D-Mich., Kent Conrad, D-N.D., and Sheldon Whitehouse, D-R.I., that will add powerful new tools to America’s fight against offshore tax havens and help reduce the deficit.

The amendment, which the Senate adopted as part of the surface transportation bill now under consideration, will allow the Treasury Department to take a range of measures against foreign governments and financial institutions that significantly impede U.S. tax enforcement.

“I have fought against offshore tax havens for years, and I am glad the Senate has taken a strong step in the fight against foreign governments and offshore banks that help privileged individuals and corporations dodge taxes while the rest of Americans have to shoulder the extra tax burden,” said Levin, who as chairman of the Senate Permanent Subcommittee on Investigations has conducted lengthy investigations of the damage done by offshore tax havens. “Enactment of our amendment would help make our tax system more fair and would help reduce the deficit.”

"This legislation will grant the Treasury Department a new tool to stop offshore tax havens and financial institutions from gaming the system. More must be done to clamp down on these tax havens and other schemes solely designed to get around current tax laws. This amendment is common sense and could raise nearly $1 billion to help tackle the nation's deficits and debt," said Conrad, the chairman of the Senate Budget Committee.

“It’s time to put an end to offshore tax abuses that allow tax cheats to profit at the expense of honest taxpayers,” said Whitehouse. “I’m proud to support Senator Levin’s amendment, which will give the U.S. Treasury greater powers to crack down on offshore tax abusers and the banks that aid them.”

Under Section 311 of the Patriot Act, Treasury can take a range of measures against foreign governments or financial institutions that engage in money laundering. The senators’ amendment gives Treasury the same tools to combat foreign governments or financial institutions that significantly impede U.S. tax enforcement. For example, Treasury could prohibit U.S. banks from accepting wire transfers or honoring credit cards from banks found to significantly hamper U.S. tax enforcement efforts.

The amendment’s provisions had previously been included in the Cut Unjustified Loopholes Act, or CUT Loopholes Act, which Levin and Conrad introduced in February. According to the Joint Committee on Taxation, a similar, earlier version of the legislation would reduce the deficit by $900 million over 10 years by restoring revenue lost to offshore tax havens.

A vote on final passage of the surface transportation bill is expected next week.

Orangefield Group received its ISAE 3402 Type II Report

Orangefield Group is proud to announce that it has received its ISAE 3402 Type II Report (formally SAS 70 Type II) for the year ended 31 December 2011.

The ISAE 3402 Type II Report is essentially a report on the effectiveness of a service organizations business procedures and internal controls.

In essence, the report describes the effectiveness of a service organisations’ internal control over financial reporting which requires an organisation to define their business processes and internal controls. An external auditor then checks: (i) that the designed processes are sufficient to achieve the stated control objectives; and (ii) tests if the actual operation of the processes and controls in the day-to-day business has been consistently compliant with those which were initially set out.

The ISAE 3402 Type II report covers the period from January 1, 2011 through December 31, 2011 and consisted of an evaluation of the description of controls together with extensive testing related to fund accounting (which includes new fund set up, transaction processing, cash and position reconciliations, valuations, cash receipts and disbursements, NAV calculations, performance and management fee processing and financial statement reporting), investor services and information technology (which includes logical and physical access security, change control management, and system back-up and recovery processes).

The International Auditing and Assurance Standards Board (IAASB) and the Auditing Standards Board (ASB) in the United States have undertaken to develop new standards for reporting on controls in service organisations with a truly global constituency in mind. As the importance of effective controls and reporting processes becomes more critical than ever, globalisation and regulatory changes have prompted the issuance of two new very similar standards that will effectively replace SAS 70. These new reporting standards are known as ISAE 3402 (International) and SSAE 16 (USA).

STEP: Global Outlook for Trust & Estate Business remains positive

The Society of Trust and Estate Practitioners’ (STEP) latest global quarterly confidence survey shows confidence remains high in both the immediate and long term outlooks for the industry.

The STEP Near Term Confidence Index, which looks at the outlook over the next three months, remains at 11, which means this measure has now remained unchanged for four consecutive quarters. This index was -13 at the start of 2009. The STEP Longer Term Confidence Index, which looks at the outlook over the next 12 months, remains steady on 32, resulting in the most positive three consecutive quarters recorded on STEP’s index since the beginning of 2010.

STEP Chief Executive David Harvey said: “These survey results show our membership has confidence about the long term outlook for trust and estate business, but are still wary of changes to the economy in the short term.”

The quarterly confidence survey looks at members’ views across a wide range of jurisdictions and trust and estate businesses.

The Confidence Indices are constructed by taking the balance of survey respondents replying that they expect business to “improve” or “significantly improve” relative to those expecting business to “decline” or “decline significantly”.

Findings of the 1st quarter 2012 STEP Business Confidence Monitor can be accessed online at:

http://www.step.org/confidencesurvey

Cost is the single most common cause of complaints from people about their lawyers, the Legal Ombudsman said today

In a new report published today, Chief Legal Ombudsman, Adam Sampson, says the legal profession must learn the value of clearer pricing information and good customer service or risk falling behind more marketing led companies in the long run.

The report, titled "Costs and customer service in a changing legal services market" uses the stories of real people who came to the Ombudsman with complaints about costs to illustrate difficulties faced by consumers.

Since launching in 2010, 20-25% of the Ombudsman‟s investigations have involved issues related to cost, either where a consumer felt they had been over-charged, confused, or surprised at the costs presented to them by their lawyer.

Introducing the report, Adam Sampson said: “Good service in any sphere includes ensuring that a customer is not bamboozled, but provided with clear information about what is going to be provided and at what cost.

“Our experience tells us that issues around the cost and pricing of legal services are a key driver for complaints in legal services.”

As well as publishing a report, the Ombudsman has produced a guide for consumers, to help them ask the right sort of questions when first enquiring, and a guide for lawyers, to help them prevent complaints or resolve them quickly if a problem arises.

Consumer interest group, Which?, welcomed the guidance. Head of campaigns, Louise Hanson, said: "Too many disputes with lawyers are due to 'bill shock' but people can prevent nasty surprises in their final bill by asking the right questions.

“This guide from the Legal Ombudsman will help anyone planning to use a legal service get the information they need to help manage the costs."

Adam Sampson added: “Some lawyers are as yet still reluctant to recognise that their clients are also customers. The notion of „customer‟ turns the traditional relationship between lawyer and client on its head.

“In most businesses, the customer holds sway and can pick and choose which services to buy from which provider. This type of relationship is increasingly the norm even in the legal sector.”

In recent years the arrival of price comparison websites has begun to swing things in consumers‟ favour. Likewise, larger, more consumer focussed companies are now offering fixed price services, meaning customers know exactly where they stand. The Chief Legal Ombudsman expects the rest of the profession to take heed: “Firms that fail to adapt their approach will ultimately lose customers” he said.

HKEx's Securities Market Growth Strongly Supported by Overseas Investors

Trading by overseas investors attained a compound annual growth rate (CAGR) of 34 per cent in the past decade, strongly supporting overall market growth, according to the Cash Market Transaction Survey 2010/11 released today (6 March 2011) by Hong Kong Exchanges and Clearing Limited (HKEx).

In 2010/11, overseas investors contributed 46 per cent of total market turnover value, similar to 2009/10.  Local investors contributed 42 per cent, down from 44 per cent in the previous year.  Institutional investors contributed 62 per cent of total market turnover value (64 per cent in 2009/10), remaining above 60 per cent for the sixth consecutive year.  The contribution from retail investors was 27 per cent in 2010/11, compared to 26 per cent in the previous year (see Figures 1 and 2).

Some other key findings of the 2010/11 survey

• Overseas institutional investors, the largest contributors among all investor types, contributed 42 per cent of total market turnover, similar to their contribution in 2009/10 (see Figure 1).
   
• Local institutional investors contributed 20 per cent to total market turnover, down from 23 per cent in 2009/10 (see Figure 1).
   
• Local retail investors contributed 22 per cent to total market turnover, compared to 21 per cent in 2009/10 (see Figure 1).
   
• Exchange Participants' principal trading contributed a record high of 12 per cent of total market turnover in 2010/11, up from 10 per cent in 2009/10 (see Figure 1).
   
• Findings regarding trading value by overseas investors (see Figure 3) show that:
   
• US investors regained their status as the largest contributors to overseas investor trading in 2010/11 with a contribution of 28 per cent, up from 24 per cent in 2009/10.
   
• UK investors, the second largest contributors, contributed 27 per cent of overseas investor trading in 2010/11, compared to 29 per cent in 2009/10.
   
• Continental European investors were ranked third with a contribution to overseas investor trading of 14 per cent in 2010/11, compared to 16 per cent in 2009/10.
   
• The contribution of investors from Mainland China to overseas investor trading was 10 per cent in 2010/11, compared to 11 per cent in 2009/10.
   
• Asian investors in aggregate contributed 22 per cent of overseas investor trading in 2010/11, compared to 27 per cent in 2009/10.
   
• There were 17 reported origins of overseas investors in Asia and over 36 reported origins of overseas investors outside Asia, Europe and the US.
   
• The survey examined for the first time the CAGR in trading value by investor type in the past decade.  The three overseas origins that had the highest CAGR were Mainland China (47 per cent), US (36 per cent) and UK (34 per cent) (see Table 1).
   
• Retail online trading accounted for 26 per cent of total retail investor trading (27 per cent in 2009/10) and 7 per cent of total market turnover (similar to that in 2009/10) (see Figure 4).

The Cash Market Transaction Survey has been conducted annually since 1991.  Each year’s survey covers HKEx's securities market turnover for the 12-month period from October the previous year to September the following year.  For the 2010/11 survey, questionnaires were sent to a target population of 471 Exchange Participants.  The response rate was 92 per cent by number and 96 per cent by turnover value of the target respondents.

The full report on the Cash Market Transaction Survey 2010/11 is available on the HKEx website.

Notes:

1. Cash market, securities market and stock market are interchangeable and refer to shares, bonds, funds, derivative warrants and other products traded on The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of HKEx.
    
2. Stock Exchange Participant, or EP, principal trading is trading on the EP firm's own account.
    
3. Retail online trading refers to trading originating from orders entered directly by individual/retail investors and channelled to brokers via electronic media (eg the Internet).
    
4. The survey' target respondents were EPs. Their responses stemmed from their own understanding of their clients.  HKEx had no direct access to EPs' clients, nor could it verify their identities.
    
5. One of the limitations of the survey is that EPs might not know the true origins of all their client orders.  For instance, an EP might classify transactions for a local institution as such when in fact the orders originated overseas and were placed through that local institution, or vice versa.  In some cases, EPs might not be able to identify the composition of orders channelled via banks (which might be regarded as their institutional clients).  As a result, the findings may deviate somewhat from the true picture.

Figure 1.  Distribution of cash market trading value by investor type (Oct 2010 – Sep 2011)

Note: Numbers may not add up to 100 per cent due to rounding.

Figure 2.  Distribution of cash market trading value by investor type
(2001/02 – 2010/11)

(a) Local vs overseas

(b) Retail vs institutional

Note: Numbers may not add up to 100 per cent due to rounding.

Figure 3.  Distribution of overseas investor trading value in cash market by origin
(Oct 2010 – Sep 2011)

 

#

In 2010/11, reported origins in “Rest of Asia” were Bangladesh, Brunei, Cambodia, India, Indonesia, Kazakhstan, Laos, Macau, Malaysia, Maldives, Mongolia, Myanmar, Pakistan, Philippines, South Korea, Thailand and Vietnam.

*

In 2010/11, reported origins in “Others” included Algeria, Anguilla, Bahamas, Bahrain, Belize, Bermuda, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Cyprus, Commonwealth of Dominica, Dutch Antilles, Fiji, Ghana, Guatemala, Island of Nevis, Israel, Kuwait, Liberia, Mauritius, Mexico, Monaco, Nauru, New Zealand, Panama, Russia, Samoa, Saudi Arabia, Seychelles, South Africa, Turkey, United Arab Emirates and Venezuela.

Note: Numbers may not add up to 100 per cent due to rounding.

Table 1.  Compound annual growth rate (CAGR) in trading value by investor type in the past decade
Type of trade	2001/2011 CAGR
EP principal trading	39%
Overseas investor trading	34%
Retail	40%
Institutional	33%
Local investor trading	26%
Retail	25%
Institutional	28%
Retail investor trading	27%
Institutional investor trading	31%
Total	31%
Overseas origin	2001/2011 CAGR
US	36%
Europe	31%
UK	34%
Europe (excluding UK)	26%
Asia	35%
Japan	28%
Mainland China	47%
Taiwan	28%
Singapore	27% (2002/2011)
Rest of Asia	14%*
Australia	7% (2007/2011)
Others	26%
Total	34%

*	Since Singapore and Australia were spun off from "Rest of Asia" during the 10-year period, CAGR for "Rest of Asia" had to be interpreted with care.

 Figure 4.  Percentage share of retail online trading value in cash market
(2001/02 – 2010/11)

Note:

One EP which had a significant proportion of its total turnover as retail agency trading and reported high percentage share of retail online trading prior to 2010/11 did not provide the percentage share of its retail online trading in 2010/11. This EP was excluded from the responded sample in calculating retail online trading in percentage and value terms for 2010/11.

OECD recommends action on international tax loopholes

Aggressive tax planning – untaxed income, multiple deductions and other forms of international tax arbitrage - is a growing concern for all governments.

OECD’s new report Hybrid Mismatch Arrangements: Tax Policy and Compliance Issues describes arrangements that exploit national differences in the tax treatment of instruments, entities or transfers to deduct the same expense in several different countries, to make income “disappear” between countries or to artificially generate several tax credits for the same foreign tax.

The report, which draws from the OECD Directory on Aggressive Tax Planning, concludes that these arrangements generate significant policy issues in terms of tax revenue, competition, economic efficiency, fairness and transparency. It notes that concerns about distortions caused by double taxation also apply to double non-taxation.

Anecdotal evidence shows that billions of dollars in tax revenues are at stake. New Zealand settled cases involving 4 banks for a combined sum exceeding NZD 2.2 billion. Italy recently settled a dozen cases involving hybrids for an amount of approximately EUR 1.5 billion. In the United States, the amount of tax evaded in 11 foreign tax credit generator transactions has been estimated at USD 3.5 billion.

“The OECD strives to eliminate double taxation and other obstacles to cross-border trade and investment,” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “At the same time, we are working hard to make sure that there are no tax loopholes between tax systems that would allow some taxpayers to gain an unfair competitive advantage over others”.

Intertrust acquires Walkers Management Services

Intertrust Group Holding S.A. (“Intertrust”) announces it has reached agreement with Walkers Global on the acquisition of its subsidiary Walkers Management Services (“WMS”), a leading provider of corporate, company secretarial and fiduciary services.

Walkers Management Services provides corporate, fiduciary and company secretarial services from the world’s leading financial centres – the Cayman Islands, Delaware (USA), Dubai, Dublin (Ireland), Hong Kong and the British Virgin Islands. Headquartered in George Town, Cayman Islands, WMS currently generates annual sales in excess of US$ 50 million. WMS management is committed to stay with Intertrust Group post integration.

Intertrust is a recognized global quality leader in the trust and corporate services sector, providing a broad range of commercial, legal, tax and administrative services to multinational corporations and high net worth individuals. As a combined group, Intertrust will operate with more than 1,100 people from 30 offices in 21 countries. Intertrust combines global reach with local knowledge and cultural understanding to serve international clients from every corner of the world. The acquisition of WMS reinforces Intertrust’s successful acquisition strategy, aimed at extending its expertise and global capabilities in light of ongoing globalization and clients’ increasingly complex needs.

Commenting on the transaction, David de Buck, CEO of Intertrust Group, said:

‘Walkers Management Services has a strong international position in the corporate services industry; providing high quality services to top-tier clients that will benefit from Intertrust’s capabilities to service them across the globe. Through the acquisition we gain a market leading position in the Cayman Islands, one of the most important financial centres in the world, and we further expand our global network by adding offices in Dubai, Delaware and the British Virgin Islands. Walkers’ quality, experience, heritage and ambitious approach to servicing clients mirror the Intertrust culture. We look forward to working with the Walkers Management Services team and enjoying further success based on our joint capabilities.’

Nancy Lewis, CEO of WMS, added:

‘We very much look forward to joining Intertrust Group. We share a drive for quality and experience in working for the world’s most sophisticated clients. Our combined network of offices will deliver a strong foundation for further growth of our business; bringing us a sound position in all key international business locations across Asia, Europe and the Americas. This platform will allow us to provide even greater global solutions for our clients.'

The acquisition is subject to regulatory approval and is expected to be completed in the coming months. Financial details of the transaction are not being disclosed.

Apex completes sucessful ISAE 3402/SSAE 16 examination

Apex Fund Services, one of the world’s largest independent fund administration companies successfully completed a Type 2 examination under Statement on Standards for Attestation Engagements No. 16 (SSAE 16), and under the International Standard on Assurance Engagements, Assurance Reports on Controls at a Service Organization (ISAE 3402).

A key determination for completing an ISAE 3402 / SSAE 16 examination is that an independent service auditor successfully examined the system under audit for processing user entities transactions during the period of audit, as well as the suitability of the design and operating effectiveness of controls based on the defined control objectives.

This examination was performed by KPMG in India, one of the leading firms of independent service auditors for such examinations for 10 offices of Apex Fund Services. 

Commenting on KPMG’s report, Peter Hughes, Group Managing Director, said:

“Fund Managers require increasing levels of confidence and trust in their administrators as the demand for greater transparency begins to take effect. The need for Managers to work with the most reliable partner possible has never been higher.

“Investors and Fund Managers alike can take comfort from the fact that KPMG has completed a ‘root and branch’ examination of the controls and systems at 10 of Apex’s offices. This is another clear demonstration of Apex’s commitment to its clients that they receive the best levels of service in the industry.”

The service auditors issue an unqualified opinion when they are satisfied that (i) the description of controls fairly presents the system that was designed and implemented through the period in scope, (ii) the controls related to the control objectives are suitably designed to provide reasonable assurance that the control objectives would be achieved if the controls operated effectively throughout the period in scope, and (iii) the controls tested, if operating effectively, were those necessary to provide reasonable assurance that the control objectives operated effectively throughout the period in scope.