1 March 2012 Weekly Press Report

G20, OECD, FATF

The G20 Finance Ministers and Central Bank governors’ statement adopted at their recent Mexico meeting called for the strengthening of transparency and information exchange, in particular by expanding and enforcing the Convention on Mutual Administrative Assistance in Tax Matters. The Communiqué also alluded to an upcoming OECD report “on necessary steps to improve comprehensive information exchange, including automatic exchange of information”.

India ratified the Convention on Mutual Administrative Assistance in Tax Matters, after becoming a signatory to this international instrument just over a month ago, the OECD confirmed. According to the Treaty Office of the Council of Europe, the Convention will enter into force on 1st June 2012. India’s Finance Ministry noted “by signing the Convention, India and the other 33 signatories encourage more countries to join, sending a strong signal that countries are acting together to ensure that individuals and multinational enterprises pay the right amount of tax, at the right time and in the right place”.

Tax Analysts (Subscription) looked at stakeholders’ reactions to the revised anti-money laundering and counter-terrorist financing (AML/CFT) standards issued by the FATF, which classify tax evasion as a predicate offence for AML/CTF purposes. While the new guidelines were hailed by the EU, the US and the UK, the Swiss Bankers Association expressed reservations. Global Financial Integrity’s expectations regarding enhanced global action against money laundering are also cited in the article.

The UK

The Confederation of British Industry (CBI) has expressed support for proposals to adopt a General Anti-Avoidance Rule (GAAR), the Financial Times, the Independent, and the Guardian confirmed. The report "Tax and British Business – Making the Case", in which the CBI expresses the view that “abusive or black-box arrangements” should be scrapped even while uncertainty should be prevented from affecting normal commercial transactions, is set to become the springboard for a campaign to ensure that business pays what is perceived as a fairer share of tax. A consultation on the GAAR will be opened in the Budget on 21st March.

International Tax Review (Subscription) analysed the U-turn performed by the CBI in backing the introduction of some form of GAAR. Although the implementation of anti-avoidance rules might be seen as inevitable, experts consider that it will still create uncertainties for business due to the lack of objective ways of deciding what falls in or outside the law.

According to the Financial Times, Reuters and the Telegraph, the Treasury has announced the closure of two “highly abusive” tax avoidance strategies used by Barclays which appear to have resulted in a £500m tax loss. Exchequer Secretary to the Treasury David Gauke noted that “the government wants to ensure that the tax system is fair for all and we will not allow those who seek to benefit from this aggressive avoidance to get an unfair advantage”. Barclays’ tax arrangements, which it used despite having signed the Banking Code of Practice on Taxation, were discussed at length on Radio 4’s Today Programme.

As the debate on business ethics gathers momentum, the Telegraph’s economics editor looked at Barclays’ reputational exposure. The Financial Times also analysed the increasing damage to Barclays’ reputation as it faces intense public scrutiny of its tax arrangements. The latest decision by the Treasury to crackdown on “aggressive” tax avoidance has far-reaching implications for the banking industry, suggesting that the value of banks is to be measured not just by their commercial success or compliance with the rules, but by their contribution to real economic growth and ability to survive without being bailed out by taxpayers. Nicholas Shaxson presented his views on Channel 4, and Tax News reported on Barclays’ response to the UK Treasury’s decision.

In a letter to the Telegraph 537 directors of SMEs across Britain called on the UK Chancellor to repeal the 50% top tax rate in his forthcoming budget, warning of the detrimental effects of this levy on wealth creation and economic growth, BBC News and the Financial Times reported. The Telegraph noted entrepreneurs’ views on how the tax – by which, they sustain, “populist politics [are put] before sound economics”- impairs their ability to expand their businesses, hindering investment, jobs and growth.

The Telegraph reported on HMRC’s decision to reform the rules governing deals struck between tax commissioners and large companies for the settlement of tax disputes. Changes include the appointment of an “assurance commissioner” to oversee deals involving over £100 million and “guard against any perception of possible conflicts of interest”. The Financial Times looked at details of the Treasury’s response to a critical report by the Public Accounts Committee issued in December.

The Guardian published an excerpt from Capital, a forthcoming novel by John Lanchester, in which the author argues that the British policy on non-domiciles resembles that of “tax havens”. Lanchester highlights the fact that although the Treasury claims that this policy brings economic benefits to the country, no evidence has been produced regarding the effects of the ‘non-dom’ rules on inequality and fairness in Britain.

Europe

Philip Kermode, Director of Direct Taxation, Tax Coordination, Economic Analysis and Evaluation at the European Commission, commented in International Tax Review on the Commission’s work in facilitating M&A activity within the Single Market. The senior EU tax expert explains the ongoing initiatives at the Commission aimed at easing and spurring cross-border business in the EU, including by adopting a Common Consolidated Corporate Tax Base (CCCTB).

International Tax Review looked at Switzerland’s recently-unveiled strategy to address international tax concerns affecting its status as a financial centre. The article highlights Swiss Finance Minister Eveline Widmer-Schlumpf’s reiteration of the country’s opposition to automatic information exchange, and notes the statement issued by the Swiss Bankers’ Association in support for the Federal Council’s overall strategy but rejecting a “systematic duty of self-declaration” as regards foreign clients’ tax obligations.

Swiss Info and Bloomberg confirmed that the Lower House of the Swiss Parliament voted in favour of a law on administrative assistance in taxation matters and endorsed, in principle, amendments to the Swiss-US double tax treaty, which could see the data on groups of American clients holding Swiss bank accounts suspected of tax fraud and evasion being transferred to the US authorities. According to Reuters, the deal would pave the way for the settlement of the US tax evasion probe into undisclosed accounts held by Americans in Swiss banks. Meanwhile, Swiss Info examined how US and EU regulatory moves to crack down on banking secrecy are affecting Switzerland’s wealth management industry.

BBC News and the Financial Times reported on the proposal of French Socialist presidential candidate, François Hollande, to tax top earners’ income (above €1m) at a 75% rate. If the April elections or the May run-off grant Hollande victory, this levy would affect between 7,000 and 30,000 individuals and only raise €250m a year.

Ahead of French presidential candidate Francois Hollande’s visit to London, in which he defended the regulatory and tax reforms that he is proposing in order to enhance the social purpose of the financial services sector, a Financial Times blog looked at Hollande’s latest tax proposal, pointing to the fact that it would take the debate on income tax back to the era before Reagan and Thatcher’s reforms, when tax rates reached 70%.

British Crown Dependencies

Tax News reported on the ongoing efforts of the Isle of Man government to preserve a competitive business environment while complying with the requirements of the Foreign Account Tax Compliance Act (FATCA). The Island authorities plan to work closely with UK and the US Treasury officials as well as with their counterparts in Jersey and Guernsey through the high-level FATCA working group established to support the private sector in implementing the forthcoming US regulation.

The Telegraph noted the Isle of Man’s pole position in the alternative investment management (AIM) sector and the recognition of its contribution to the City of London by the Lord Mayor of London, David Wootton. Research commissioned by the Island’s government shows a total AIM market of £1.14 billion that is invigorated by “commercial flexibility, its close links to the City of London, cheap cost base, familiar corporate structures and a fiscal regime that includes a zero rate of corporation tax”.

British Overseas Territories

The performance of the Cayman Islands’ banking and corporate industries between January and September 2011 experienced ups and downs, fresh data published by the Cayman Islands' Economics and Statistics Office shows. According to Tax News, while banking deposits and the number of licensed bank and trust companies fell, company registrations rose by 14.1%.

Reuters reported on the alleged use of the Cayman Islands by a Japanese investment advisory firm to hide losses of US$2.6 billion in pension fund assets. As the Securities and Exchange Surveillance Commission conducts an investigation, it is believed the assets were put in Cayman based-investment trusts and managed through a bank in Bermuda.

The United States

Harvard Professor and former US Treasury Secretary, Charles W. Eliot, argues in the Financial Times that addressing the issue of “tax sheltering” should be an essential objective in any reform of the US tax code. While adducing that the US taxman loses out significantly because of American corporations’ accumulation of profits abroad - mainly in Ireland, Bermuda and Luxembourg - Professor Eliot argues that a revamp is not only possible in 2013 but should also be guided by the goals of growth, fairness and deficit reduction.

Asia

Increased regulatory burdens in Hong Kong and Singapore might result in lower levels of return on equity for Standard Chartered, the Financial Times reported. The Banks’ CEO Peter Sands commented on the bank’s aspirations in Asia.

NGOs

Christian Aid’s written response to the enquiry launched by House of Commons International Development Committee on tax and development was published. Claiming that “tax evasion and avoidance is facilitated by tax havens”, the NGO calls for enhanced corporate transparency and the adoption of automatic information exchange for tax purposes, which it deems essential in assisting resource mobilisation efforts in developing countries. This and other NGOs provided oral evidence to UK MPs on Tuesday.

Christian Aid hailed the CBI’s support for a GAAR.

1 Mar 2012