23 February 2012 Weekly Press Report

The United States
The Wall Street Journal, the Financial Times, the New York Times, and Reuters confirmed that US Treasury Secretary Timothy Geithner has tabled proposals in the US Congress for a reduction of the top corporation tax rate to 28% – in return for the elimination of a series of tax loopholes and breaks - and the imposition of a minimum tax on multinational corporations’ overseas profits. Although it is unlikely that the corporate tax overhaul will be passed this year, Mr Geithner asserted that it “will help level the playing field for businesses and allow the government to collect needed revenue while promoting economic growth”. The Financial Times reported on US business groups’ “lukewarm” reactions to the government’s blueprint.

Senior Lecturer at Harvard Business School Robert Pozen analyses in the Financial Times the US administration’s proposal of imposing a minimum tax on all foreign profits of US companies. The American academic argues that “tax havens” compromise the fundamental rationale underpinning a territorial system and suggests the adoption of a minimum levy on US corporate profits in any “tax haven”.


The French and German Finance Ministers, François Baroin and Wolfgang Schäuble, presented their EU counterparts with a “Green Paper on Business Tax Convergence between France and Germany”, thereby confirming their plans to harmonise their corporate tax rates by 2013, Europolitics and the Telegraph reported. Amongst other EU members, Britain and Ireland remain reluctant to accept a similar initiative proposed by the European Commission (the Common Consolidated Corporate Tax Base), cautioning that this measure will impinge on fiscal sovereignty.

The European Commission delivered a report detailing the use of the EU framework for mutual assistance in the recovery of tax claims between 2009 and 2010. The figures show an increase in requests for recovery, of which nearly half relate to taxes on income and capital. The report notes an upward trend in the amount of assets effectively recovered during this period and looks at the key features of the EU Directive 2010/24/EU, which concerns mutual assistance for the recovery of claims relating to taxes, duties and other measures and has been effective since 1 January 2012.

Reuters looked at fears that a possible exodus of wealthy French individuals might be prompted by the “confiscatory tax policy" threatened by presidential candidate François Hollande. Practitioners offer their views on a reported increase in the interest of French multi-millionaires in relocating to Britain, Belgium and Switzerland as a result of expected rises in the wealth and capital gains taxes and in the top marginal income tax rate in the event that Hollande succeeds in the upcoming 22nd April elections.

Swiss Info, Reuters, the Wall Street Journal and Tax News reported that Switzerland is pushing ahead with the so-called “white money strategy” (Weissgeldstrategie) drawn up by Finance Minister Eveline Widmer-Schlumpf. The Federal Council endorsed a three-pronged strategy for a “credible, tax-compliant and competitive Swiss financial centre”, which focuses on pursuing international withholding tax agreements, improving administrative and mutual assistance, and enhancing due diligence requirements for banks. Meanwhile, Swiss Info examined the domestic politics underpinning Switzerland’s failure to completely abolish banking secrecy.

The Swiss Bankers Association CEO, Claude-Alain Margelisch, wrote in the New York Times to defend Switzerland’s cooperative stance with the US authorities as they seek to tackle tax evasion. The opinion article notes that “the Swiss banking industry has never been in the business of tax evasion” and adds that a comprehensive solution to solve the tax evasion dispute is being sought.

According to Investment Europe, Italy is looking to sign an agreement with Switzerland for the settlement of undisclosed assets in Swiss banks. With up to €25bn expected to be recouped through such a deal, the Italian Prime Minister is seeking to advance negotiations for a similar agreement on a multilateral basis with other EU countries.

Debate on Transparency

The Financial Action Task Force (FATF) adopted new anti-money laundering and counter-terrorist financing (AML/CFT) standards, the Financial Times, the Wall Street Journal, and Tax News reported. Amongst other changes, tax evasion is listed as a predicate offense for money laundering and an enhanced risk-based approach is adopted so as to better target AML efforts. The Washington Post noted NGOs’ reactions, and Reuters commented on the list of “Jurisdictions with strategic AML/CFT deficiencies”.

The importance of transparency in multinational corporations’ tax affairs is increasing at a remarkable pace, International Tax Review noted. Confirming that a Tax and Transparency Forum will be held in London in May, the article argues that there is widespread pressure on companies to apply country-by-country reporting. In the meantime, the Financial Times looked at concerns raised by companies in the extractive sector over planned amendments to the EU transparency directive.

International Tax Review reported on the release of a report by the Publish What You Pay (PWYP) campaign concluding that US$100 billion vanished between 2000 and 2010 due to transfer mispricing in the oil industry in the EU and the US. Industry stakeholders have signalled their scepticism at the accuracy of the findings and warn that country-by-country reporting is unlikely to be a cost-effective solution.

Debate on Tax Competition and information exchange

PwC Tax Partner David Sandison and Tax Manager Lim Kexin argue that global tax competition is rapidly intensifying. Commenting on the latest joint PwC-World Bank publication “Paying Taxes 2012”, the practitioners note that more than 60% of the economies studied in this publication have reduced their tax burden and comment on Singapore’s ranking.

The Wall Street Journal confirmed Greece’s adhesion to the OECD Convention on Mutual Administrative Assistance in Tax Matters. The OECD noted that “at a time when Greece is looking to shore up its economy in line with a new financial package supported by the Euro area countries and other stakeholders, the Convention will allow Greece to work more closely with other countries to combat tax avoidance and evasion”.

British Overseas Territories

According to Cayman News Service, official figures show that Bermuda’s deficit for FY 2011 totalled nearly US$276 million. The article includes detailed figures, noting that Bermuda’s negative fiscal outlook does little to help it face growing competition from Cayman in the reinsurance sector.

Premier McKeeva Bush confirmed his objective of developing the Cayman Islands as a world-leading reinsurance centre, Compass Cayman reported. While Premier Bush confirmed plans to attract foreign talent and offer cost-efficient operational infrastructure, Société Générale’s Managing Director and Head of Insurance and Pension Solutions-Americas, Jeff Mullholland, argued that “in the next two years a lot of business that historically has been in Bermuda will leave and relocate to Cayman”.

Mondaq published an article by Samuel Banks and Simon Raftopoulos from Appleby in which they explain why Cayman is the preferred jurisdiction for offshore holding structures that assist developing countries in expanding their global M&A market share. The authors argue that recent reform of the Companies Law has boosted the use of Cayman for the incorporation of vehicles in merger and acquisition activity and add that “the Cayman Islands' stable government and responsible approach to regulation coupled with its extensive network of Tax Information Exchange Agreements provides an attractive platform for these complex cross-border transactions”.

The UK

Former UK Defence Secretary Liam Fox wrote in the Financial Times calling for corporate tax cuts as a crucial tactic to stimulate economic growth ahead of the Budget due on 21st March. Financial Times commentary on the government’s fiscal plans suggests that it is under intense pressure to primarily target wealthy foreign investors for the purposes of ensuring an increased tax take.

The UK hailed the upgrading of the FATF standards in a Treasury statement, Tax News reported. The new risk-based approach is expected to strengthen the effectiveness of anti-money laundering measures, with the Treasury noting that “the revision of the Recommendations will also provide more flexibility to simplify measures that are applied to financial services or transactions that pose a low risk for abuse. This risk-based approach will allow financial institutions and other designated sectors to focus resources more effectively on higher risk areas”.

The Telegraph published new official figures showing a drop in the revenue collected from the 50% top tax rate. With a study that will examine the effectiveness of this levy due next month, some Treasury officials believe that this fall in the tax take is due to the fact that high-income earners in the UK have resorted to tax avoidance strategies.


The Wall Street Journal and Business Standard confirmed that Indian authorities are reportedly planning to appeal the verdict in Vodafone’s favour of the Indian Supreme Court with respect to the company’s 2007 acquisition of Hutchison. With experts judging that there is little chance of the appeal succeeding, the hearing is scheduled for 27th February.

The Chinese government established a 50bn Yuan fund in Shanghai to facilitate outward investment by Chinese companies, Reuters reported. According to Shanghai Vice-Mayor Tu Guangshao, the Sailing Capital International fund "meets Chinese companies' strategic needs to venture out, and would also play an important role in building Shanghai into a center for asset management and cross-border investment denominated in yuan."


Global Witness welcomed the FATF’s move to list tax evasion as a predicate crime for AML purposes but criticised the fact that the FATF recommendations did not include the creation of a public register to disclose companies’ ultimate beneficial owners.

Karen Egger from Transparency International defended in a letter to the Financial Times the idea of demanding that multinational corporations disclose information on their operations on country-by-country basis.

23 Feb 2012