OECD/G20 BEPS Project: Reforms to the international tax system for curbing avoidance by multinational enterprises

The OECD presented today the final package of measures for a comprehensive, coherent and co-ordinated reform of the international tax rules to be discussed by G20 Finance Ministers at their meeting on 8 October, in Lima, Peru.  The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to « disappear » or be artificially shifted to low/no tax environments, where little or no economic activity takes place.

Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant.

“Base erosion and profit shifting affects all countries, not only economically, but also as a matter of trust,” said OECD Secretary-General Angel Gurría. “BEPS is depriving countries of precious resources to jump-start growth, tackle the effects of the global economic crisis and create more and better opportunities for all. But beyond this, BEPS has been also eroding the trust of citizens in the fairness of tax systems worldwide. The measures we are presenting today represent the most fundamental changes to international tax rules in almost a century: they will put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation, and when fully implemented, these measures will render BEPS-inspired tax planning structures ineffective,” Mr Gurría said.

Undertaken at the request of the G20 Leaders, the work to address BEPS is based on the 2013 G20/OECD BEPS Action Plan, which identified 15 actions to put an end to international tax avoidance. The plan was structured around three fundamental pillars: introducing coherence in the domestic rules that affect cross-border activities; reinforcing substance requirements in the existing international standards, to ensure alignment of taxation with the location of economic activity and value creation; and improving transparency, as well as certainty for businesses and governments.

The OECD will present the BEPS measures to G20 Finance Ministers during the meeting hosted by Turkey’s Deputy Prime Minister Cevdet Yilmaz on 8 October, in Lima, Peru. 

Following delivery of the BEPS measures to G20 Leaders during their annual summit on 15-16 November in Antalya, Turkey, the focus will shift to designing and putting in place an inclusive framework for monitoring BEPS and supporting implementation of the measures, with all interested countries and jurisdictions invited to participate on an equal footing.

The final package of BEPS measures includes new minimum standards on: country-by-country reporting, which for the first time will give tax administrations a global picture of the operations of multinational enterprises; treaty shopping, to put an end to the use of conduit companies to channel investments; curbing harmful tax practices, in particular in the area of intellectual property and through automatic exchange of tax rulings; and effective mutual agreement procedures, to ensure that the fight against double non-taxation does not result in double taxation.

The BEPS package also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called “cash box” entities to shelter profits in low or no-tax jurisdictions, and redefines the key concept of Permanent Establishment, to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.

The BEPS package offers governments a series of new measures to be implemented through domestic law changes, including strengthened rules on Controlled Foreign Corporations, a common approach to limiting base erosion through interest deductibility and new rules to prevent hybrid mismatch arrangements from making profits disappear for tax purposes through the use of complex financial instruments.

Nearly 90 countries are working together on the development of a multilateral instrument capable of incorporating the tax treaty-related BEPS measures into the existing network of bilateral treaties. The instrument will be open for signature by all interested countries in 2016. 

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

“Everyone has a stake in reversing base erosion and profit shifting,” Mr Gurria said. “The BEPS Project has shown that all stakeholders can come together to bring about change. Swift implementation by governments will ensure a more certain and more sustainable international tax environment for the benefit of all, not just a few.”

Government Officials from Central and Southern Africa Promote Good Practice in Preventing Tax Fraud

The AFRITACs Central and South organized on September 28-October 2 an interregional seminar, in collaboration with the Africa Training Institute. The event organized at the institute’s headquarters in Mauritius brought together senior officials and experts in tax and customs from Burundi, Cameroon, Central African Republic, Chad, Comoros, Gabon, Equatorial Guinea, Madagascar, Mauritius, the Democratic Republic of Congo and the Republic of Congo.

Mr. Sudhamo Lal, Director General of the Mauritius Revenue Authority, welcomed the initiative and noted that “the choice of the operational model for concerted action between customs and tax agencies to fight fraud is immaterial. What is critical is to ensure that there is a coherent strategy involving agencies moving in the same direction towards a common goal with dedicated and competent staff.”

The international trade of the countries represented in the seminar generates a large part of the resources mobilized by the State, including the collection of VAT on both imports and domestic activities. The persistence therefore, even the increase, of VAT fraud points to the need for a joint approach of the tax and customs administrations in charge of VAT collection. Sharing intelligence, cooperation, and integrating certain responsibilities of these two agencies is crucial for combating VAT fraud and improving its performance.

As stated by Olivier Benon, Director/Coordinator of AFRITAC Central, the theme of the seminar meets one of the strategic objectives of the Centre which is "improving the administration of VAT and strengthening the management and fiscal control of the natural resources sectors”.

Participants reaffirmed the need to a better collaboration; with the view to understand the risks of fraud as well as an appropriate set of coordination of both preventive measures and sanctions. They also developed practical tools adapted to the situation of each country with regard to trade data, fraud risk management, and VAT control.

SEC Charges Two Grant Thornton Firms With Violating Auditor Independence Rules

The Securities and Exchange Commission today charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations that occurred when two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules.

According to the SEC’s orders instituting settled administrative proceedings, the two Grant Thornton International LLP member firms represented in audit reports that they were independent of their respective audit clients when the audit clients paid fees to a consulting firm owned by two Grant Thornton Mauritius partners who served as board members for these audit clients.  The objective of auditor independence rules is to ensure that outside auditors remain independent from their clients both in fact and in appearance throughout the audit and professional engagement period.  According to the SEC’s orders, GT India and GT Audit violated the independence rules because the Grant Thornton Mauritius partners provided prohibited services for the audit clients, including controlling bank accounts and having authority to act on the audit client companies’ behalf.

The SEC’s orders also finds that GT India and GT Audit failed to follow Grant Thornton International’s compliance control procedures.  According to the SEC’s orders, GT Audit failed to obtain independence relationship checks and confirmation letters from member firms in countries where its audit clients have business operations, as required by Grant Thornton International, while GT India failed to obtain the confirmation letter.  According to the orders, the Grant Thornton firms failed to discover the independence violations until several months or years following the violations.  The orders found GT Audit’s violations occurred with audits of four consecutive fiscal years, from 2008 through 2011, while GT’s India’s violations occurred for the 2013 fiscal year.

“The integrity of the financial reporting process relies on auditors to preserve and protect the independence of their audits,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “The two Grant Thornton firms undermined this process by failing to ensure that its audits were free from prohibited non-audit services.”

The orders censure the audit firms for violating the auditor independence standards and sanctioned the audit firms for causing the issuers to violate the requirement to file annual reports with the Commission that include financial statements audited by independent public accountants.  The orders also found that the audit firms engaged in improper professional conduct in violation of federal securities laws and the Commission’s Rules of Practice. 

Without admitting or denying the findings, each respondent agreed to cease and desist from future violations. GT India agreed to pay disgorgement of audit fees in the amount of $128,905, plus prejudgment interest of $8,977, and a penalty of $50,000. GT Audit agreed to pay disgorgement of $88,683, plus prejudgment interest of $13,520, and a penalty of $75,000.

The SEC’s investigation was conducted by Cory C. Kirchert, Nancy E. McGinley, and Kam Lee and was supervised by Anita B. Bandy.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.

SEC order - GT India

SEC order - GT Audit

Mauritius: FSC Issues the Code of Business Conduct

The Financial Services Commission, Mauritius (the “Commission”) issues the Code of Business Conduct, as part of its Fair Market Conduct Programme.

The Code of Business Conduct establishes 9 Guiding Principles, which set out, in general terms, a licensee’s obligations to ensure the sound conduct of business. All licensees are required to meet their obligations under the Guiding Principles.

The Commission expects professional bodies and industry associations, regrouping different categories of licensees, to come up with guidance notes to supplement the Code.

The Commission would like to thank all respondents, who provided their comments during the consultation process.

The Code of Business Conduct shall come into effect on 01 January 2016.

Financial Services Commission, Mauritius

01 October 2015

BEPS Has Tax Competition in the Crosshairs

Brian Garst considers why the Organisation for Economic Co-operation and Development (OECD) is rushing through a massive rewrite of global tax rules in order to address a problem that their own report indicated doesn’t exist when it acknowledged that corporate tax revenues have not declined. By examining organisation documents and public statements, and putting the current initiative in context of other OECD projects, Brian demonstrates that the goal of the Base Erosion and Profit Shifting Initiative is to further constrain low-tax jurisdictions and enable higher corporate taxes across the globe. 

Making Sense of BEPS: The Latest OECD Assault on Tax Competition

‘New Normal’ Productivity Spells Uncertainty for Global Economy

A failure to embrace long-term structural reforms that boost productivity and free up entrepreneurial talent is harming the global economy’s ability to improve living standards, solve persistently high unemployment and generate adequate resilience for future economic downturns, according to The Global Competitiveness Report 2015-2016, which is released today.

The report is an annual assessment of the factors driving productivity and prosperity in 140 countries. This year’s edition found a correlation between highly competitive countries and those that have either withstood the global economic crisis or made a swift recovery from it. The failure, particularly by emerging markets, to improve competitiveness since the recession suggests future shocks to the global economy could have deep and protracted consequences.

The report’s Global Competitiveness Index (GCI) also finds a close link between competitiveness and an economy’s ability to nurture, attract, leverage and support talent. The top-ranking countries all fare well in this regard. But in many countries, too few people have access to high-quality education and training, and labour markets are not flexible enough.

First place in the GCI rankings, for the seventh consecutive year, goes to Switzerland. Its strong performance in all 12 pillars of the index explains its remarkable resilience throughout the crisis and subsequent shocks. Singapore remains in 2nd place and the United States 3rd. Germany improves by one place to 4th and the Netherlands returns to the 5th place it held three years ago. Japan (6th) and Hong Kong SAR (7th) follow, both stable. Finland falls to 8th place – its lowest position ever – followed by Sweden (9th). The United Kingdom rounds up the top 10 of the most competitive economies in the world.

In Europe, Spain, Italy, Portugal and France have made significant strides in bolstering competitiveness. Thanks to reform packages aimed at improving the functioning of markets, Spain (33rd) and Italy (43rd) climb two and six places respectively. Similar improvements in the product and labour market in France (22nd) and Portugal (38th) are outweighed by a weakening performance in other areas. Greece stays in 81st place this year, based on data collected prior to the bailout in June. Access to finance remains a common threat to all economies and is the region’s greatest impediment to unlocking investment.

Among the larger emerging markets, the trend is for the most part one of decline or stagnation. However, there are bright spots: India ends five years of decline with a spectacular 16-place jump to 55th. South Africa re-enters the top 50, progressing seven places to 49th. Elsewhere, macroeconomic instability and loss of trust in public institutions drag down Turkey (51st), as well as Brazil (75th), which posts one of the largest falls. China, holding steady at 28, remains by far the most competitive of this group of economies. However, its lack of progress moving up the ranking shows the challenges it faces in transitioning its economy.

Among emerging and developing Asian economies, the competitiveness trends are mostly positive, despite the many challenges and profound intra-regional disparities. While China and most of the South-East Asian countries performing well, the South Asian countries and Mongolia (104th) continue to lag behind. The five largest members of the Association of Southeast Asian Nations (ASEAN) – Malaysia (18th, up two), Thailand (32nd, down one), Indonesia (37th, down three), the Philippines (47th, up five) and Vietnam (56th, up 12) – all rank in the top half of the overall GCI rankings.

The end of the commodity super cycle has strongly affected Latin America and the Caribbean, and is already having repercussions on growth in the region. Greater resilience against future economic shocks will require further reform and investment in infrastructure, skills and innovation. Chile (35th) continues to lead the regional rankings and is closely followed by Panama (50th) and Costa Rica (52nd). Two large economies in the region, Colombia and Mexico, improve to 61th and 57th, respectively.

It’s a mixed picture in the Middle East and North Africa. Qatar (14th) leads the region, ahead of the United Arab Emirates (17th), although it remains more at risk than its neighbour to continued low energy prices, as its economy is less diversified. These strong performances contrast starkly with countries in North Africa, where the highest placed country is Morocco (72nd), and the Levant, which is led by Jordan (64th). With geopolitical conflict and terrorism threatening to take an even bigger toll, countries in the region must focus on reforming the business environment and strengthening the private sector.

Sub-Saharan Africa continues to grow close to 5%, but competitiveness and productivity remain low. This is something countries in the region will have to work on, especially as they face volatile commodity prices, closer scrutiny from international investors and population growth. Mauritius remains the region’s most competitive economy (46th), closely followed by South Africa (49th) and Rwanda (58th). Côte d’Ivoire (91st) and Ethiopia (109th) excel as this year’s largest improvers in the region overall.

“The fourth industrial revolution is facilitating the rise of completely new industries and economic models and the rapid decline of others. To remain competitive in this new economic landscape will require greater emphasis than ever before on key drivers of productivity, such as talent and innovation,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

“The new normal of slow productivity growth poses a grave threat to the global economy and seriously impacts the world’s ability to tackle key challenges such as unemployment and income inequality. The best way to address this is for leaders to prioritize reform and investment in areas such as innovation and labour markets; this will free up entrepreneurial talent and allow human capital to flourish,” said Xavier Sala-i-Martin, Professor of Economics at Columbia University.

Jersey: Annual economic indicators highlight finance industry growth

The latest figures on the performance of the economy in 2014 provide a welcome boost and once again highlight the role of the finance industry as the major contributor to future prosperity, according to Geoff Cook, CEO of Jersey Finance.

The survey, ‘Measuring Jersey’s Economy GVA and GDP 2014’, published by the statistics unit of the States of Jersey, recorded that Jersey’s economy, as measured by GVA (Gross Value Added) grew by 5% in real terms in 2014, driven by real term growth of the finance sector.

There was a 9% increase in economic activity in the finance industry year on year, the highest percentage rise of any industry sector, as a result of a real term increase in GOS (Gross Operating Surplus) of almost a fifth. The survey also recorded that financial services accounted for 44% of the overall economic activity in the Island, by far the largest component. Geoff Cook added:

“These annual figures also sit well with other surveys that have been published recently and help paint a relatively positive picture for the financial services sector. The Survey of Financial Institutions indicated a rise in profits for the industry overall in 2014 with an optimistic forecast regarding employment opportunities and the more recent business tendency survey also pointed to a strong long term outlook for the industry.

“However, it’s clear that there is no room for complacency and that the economy as a whole is not close to the peak of economic activity in 2007 prior to the financial crisis. Nevertheless, this is the first year since then that economic activity overall has increased, led by the performance of the finance industry, and it’s extremely encouraging as the industry seeks to build further new business in markets around the globe.

“Furthermore, the buying power of a strong finance sector in turn supports the growth of other island industries.”

Mauritius Times - The BAI case: Why it is proving so intractable

The first move to deal with the BAI group was made by the Bank of Mauritius in early April this year, notably with the revocation of the licence of its commercial bank, the Bramer Bank. This was followed up by the decision by the Financial Services Commission (FSC), the regulator of non-bank financial services, to place the British American Insurance, the insurance arm of the group, under conservatorship.

Mauritius Times

Walking quieter routes to work can avoid peaks in air pollution

Commuting to work by walking on quieter side streets rather than main roads can help people avoid exposure to peaks in harmful air pollution, according to new research presented today at the European Respiratory Society's International Congress, 2015.

Black carbon is one of the components of air pollution, and comes from incomplete combustion by diesel vehicles. It is known to be associated with a range of respiratory diseases, such as asthma, as well as with cardiovascular diseases.

Mrs Lee Koh, a researcher at the Blizard Institute at Queen Mary University of London (London, UK), used a hand-held monitor to measure levels of black carbon particulate matter while walking between Whitechapel in the east of London to Moorgate, which is nearer to central London, between 16.00-19.00hr using main roads. She then used an urban walking route planner (www.walkit.com) to plan a quieter route that might, potentially, have lower levels of air pollution.

"We know that short-term exposure to black carbon is associated with increased hospital admissions due to respiratory symptoms, and that long-term exposure is associated with exacerbations and increased prevalence of asthma. Since London is one of the most polluted cities for black carbon in Europe, ways that people might be able to reduce their own exposure are of interest, and we wanted to see whether walking quieter, side-street routes might help to do this," said Mrs Koh.

"We found in this small study that people could avoid peaks in black carbon if they choose to walk a quieter route."

Walking the busy route six times between February and May produced measurements of black carbon that averaged 3339-6995 ng·m-3 for every five minutes (nanograms of black carbon per cubic metre per five minutes). When walking the quieter routes six times at the same time of day, the measurements ranged from 2555 to 5854 ng·m-3 for every five minutes, which, although slightly lower than the busy route, was not a statistically significant difference.

Mrs Koh found that there was a statistically significant difference in the peaks of exposure to black carbon between the two routes.

"The peaks are when a much higher levels of pollution are present. For example, when you stop to cross a busy road and so you are subject to a higher level of pollution compared to when walking away from the traffic," she explained.

There were no peaks in black carbon exposure on the side-street route, while on the busy route there were three occasions when the levels of black carbon exceeded 10,000 ng·m-3 for every five minutes, ranging between 10,209 to 10,454 ng·m-3 for every five minutes.

To put these figures in context, the UK's Daily Air Quality Index [1] has suggested that exposure to fine particles of air pollution known as PM2.5 (particulate matter that measures approximately 2.5 micrometers or less in diameter, of which black carbon is a constituent) should not exceed 35,000 ng·m-3 over a 24-hour period.

Mrs Koh concluded: "Our study suggests that, in London, it is possible to reduce exposure to peaks of black carbon particles (mainly from diesel soot) by choosing to walk a less polluted route. Government action will be required to further improve the general air quality around us."

Évasion fiscale - Dans l’arrière-boutique du wealth management

Plongée dans les coulisses d’une officine de «gestion de fortune» proposant des «solutions» aux fraudeurs. Où l’on croise des comptes à Nassau ou à Maurice, une banque dépositaire au Luxembourg et la filiale d’un PSF aux Bahamas.

Tax Havens Are Turning The U.S. Into An Unequal Aristocracy

To Gabriel Zucman, protégé of rock star French economist Thomas Piketty, the United States is starting to look a lot like Europe in the late 1800s.

“There’s been this great reversal where, in the 19th century, the U.S. was much more equal than Europe, and thought of Europe as being way too unequal,” Zucman, a native Parisian, told The Huffington Post in an interview on Tuesday. “Now, the U.S. is unequal and many people think Europe is too equal.”

Maurice: AfrAsia Bank affirme que les démissions n'ont rien à voir avec les enquêtes en cours

La direction d’AfrAsia Bank, dans un communiqué vendredi après-midi 25 septembre, explique que la démission de son Chief Executive Officer (CEO) James Benoit et de son Deputy CEO Kamben Padayachy n’ont rien à voir avec les « enquêtes en cours » et « rejette toute allégation l’associant à des produits d’investissement illégaux ».

Defi Media

Mauritius: Communiqué - AfrAsia Bank Limited

AfrAsia Bank Limited wishes to inform its clients and the public that the resignation of James Benoit and Kamben Padayachy bears no relation to current investigations. The Bank also strongly denies any type of alleged association with illegal investment products.

AfrAsia Bank Limited operates within a rigorous corporate governance framework as well as strict parameters set forth by local and international regulators. The Bank reiterates its commitment to principles of integrity and transparency in all its dealings.

With a strong capital base of MUR 4.9 billion as at 30 June 2015 and trust from its major shareholders, namely GML Investissement Ltée, National Bank of Canada, Intrasia Capital Pte Ltd and PROPARCO, AfrAsia Bank is well positioned for future growth and to meet its ambitions for regional and international expansion.

AfrAsia Bank Limited

25 September 2015

Mauritius: New Invest Hotel Scheme

Cabinet has agreed to the new Invest Hotel Scheme to assist hotels in reducing their debt burden, and restructuring and financing major refurbishment and renovation works. The Scheme will bring in additional Foreign Direct Investment and apply to existing hotels. 

Why Do Governments So Often Disappoint?

With some notable exceptions (e.g., Singapore, Abu Dhabi, some Nordic countries), trust in government has been declining; to the point where it is one of the least trusted institutions globally. A sense of "permanent underperformance" pervades sentiments about government, from the way it delivers public services to the way it supports the economy. 

The declining level of trust in government may reveal as much or more about our evolving conception of progress as it may about the role and contribution of government. During a recent symposium on Government and Progress at INSEAD’s Europe campus in Fontainebleau, France, academics, policymakers, business leaders and consultants debated why this may be the case.

INSEAD Knowledge 

Zimbabwe: Creditors rescue AfrAsia Capital Management

AfrAsia Capital Management (ACM) creditors on Tuesday voted in favour of saving the company from liquidation saying it should divest from parent company, AfrAsia Bank.

NewsDay

Maurice: Les deux dirigeants d’AfrAsia Bank démissionnent

AfrAsia Capital Management (ACM) creditors on Tuesday voted in favour of saving the company from liquidation saying it should divest from parent company, AfrAsia Bank.

NewsDay

Business Today: Black and White

A story of shell companies, trusts, hawala, tax havens, consultants and money routing

AfrAsia: Resignation of Chief Executive Officer, Mr James Benoit, and Deputy CEO, Mr Kamben Padayachy

The Board of Directors of AfrAsia Bank Limited announced today the resignation of its Chief Executive Officer, Mr James Benoit, and its Deputy CEO, Head of Global Banking, Treasury and Markets, Mr Kamben Padayachy.

Mr Thierry Vallet, who has worked as General Manager and Head of Private Banking within AfrAsia for 8 years, will be the acting CEO of the bank, subject to regulatory approval.

The Board has initiated the process for the recruitment of a new CEO, who will be tasked to spearhead the reorganization of the bank’s internal structure to better serve its banking and non-banking clients. With this organisational transformation, the ABL franchise will be well positioned to reinforce its foothold in its various markets and create more value for its shareholders.

The Board wishes to thank Messrs Benoit and Padayachy for their contribution.

Mauritius: FSC issues Circular Letter on Procedures for Registration of Prospectus

The Financial Services Commission, Mauritius (the "FSC") refers to the Consultation Paper CP/26052015 issued on 26 May 2015 in relation to "Registration of Prospectus". Pursuant to Section 68(1 )(b) of the Securities Act 2005 (the "Act"), no person shall make an offer of securities to the public unless the offer is made in a prospectus that complies with Part V of the Act which concerns "Offers and Issues of Securities". In this respect, the FSC is informing all stakeholders of the procedures for registration of prospectus which will henceforth be applicable with immediate effect.