Weekly Press Report

3 May 2012 Weekly Press Report
Debate on transparency

Swiss Info confirmed that a resolution was passed by the parliamentary representatives of the Council of Europe to “promote an appropriate policy on tax havens”. The resolution was accompanied by a report outlining the key problems associated with tax havens, low taxes and secrecy and annexing the TJN Financial Secrecy Index. The non-binding Resolution 1881 - opposed by Cyprus, Germany, Liechtenstein, Luxembourg and Monaco – calls on the OECD, the IMF and European states to adopt a myriad of measures to ensure sustained global action against “harmful and predatory tax practices”, which is deemed a “moral duty”.

International Tax Review cited the views of the Head of the OECD’s Centre for Tax Policy and Administration regarding the need for tax compliance to support efforts to stimulate economic growth and recovery. At a tax and transparency forum in London, the OECD official highlighted the initiatives currently under way aimed at addressing what he identified as the major challenges in the domain of transparency in tax matters, such as aggressive tax planning and abusive transfer pricing practices.

Switzerland

Switzerland will respond to India’s requests for exchange of information even when the name of the foreign account holder under scrutiny is not provided. According to Tax News, the commitment to cooperate bilaterally on this basis is provided for in a new protocol to the existing double taxation agreement.

Bloomberg cited estimates indicating that the number of Americans who have given up their citizenship has increased sevenfold over the last four years. The UBS case has reportedly prompted many to relinquish US passports for tax reasons, particularly in Switzerland. Experts warn that this trend is set to continue with the implementation of the Foreign Account Tax Compliance Act (FATCA) as from next year.

Bloomberg noted recent findings according to which the Swiss-German withholding tax agreement may trigger a significant repatriation of German assets. Making up around 12% of foreign capital in the Swiss financial sector, German funds are estimated to have reached EUR222bn in 2010.

The United States

According to US Congressional newspaper The Hill, the countries where US presidential candidate Mitt Romney holds trusts, partnerships and bank accounts are highlighted in a map used by President Obama’s electoral campaign. The graph shows Bermuda, Ireland, Germany, Luxembourg, Switzerland, the Cayman Islands and Australia, alluding to the fact that Romney paid an effective tax rate in 2010 of as little as 13.9% and calling on voters to “tell Mitt Romney to bring his offshore accounts back to the USA.”

The Financial Times analysed the compliance costs that the financial services sector is preparing to face at a global scale as the deadline for the implementation of the Foreign Account Tax Compliance Act (FATCA) looms. With banks expected to pay out up to US$100m each and investment managers between US$15m and US$150m each over the next five years in order to comply with FATCA requirements, and small banks considering divesting their American clients, final rules will be issued in July.

The Financial Times argues that although there is broad bipartisan acquiescence about the need to reform the US corporate tax code, long-standing discrepancies on the details may continue delaying the overhaul even after the presidential elections. The greatest hurdle lies in the need to eliminate a series of tax breaks as part of the trade-offs to offset the budgetary impact on public finances of lowering the statutory corporate tax rate.

Britain

Reuters looked at how London is making strides to position itself as a leading offshore Yuan trading hub. The article looks at the strategic interests driving both Britain and China’s moves towards increasing London’s current global share of 25% of the offshore Yuan trade market. It also examines the UK’s reluctance to issue a bond in the Chinese currency at present and the hurdles London needs to overcome, in particular the fears of European businesses regarding use of the Renminbi.

The Telegraph commented on the legitimacy of cutting taxes in order to stimulate wealth and job creation. Contesting the view that the reduction of the 50% top tax rate to 45% was “immoral”, the article argues that it is moral to allow citizens to count on their own financial resources to make their own decisions and invest money responsibly instead of handing it over to wasteful governments.

Corporate Tax Avoidance

Significant criticisms were levelled in the Financial Times at the UK government’s policies towards business, specifically what is perceived as its non-competitive tax regime. The Financial Times published the views of the CEO of Alliance Boots, Stefano Pessina, who hinted at the fact that corporations operating in Britain could migrate elsewhere if official pressure against legitimate tax avoidance persists.

The New York Times scrutinised Apple’s corporate strategy, highlighting the difficulty of ensuring that IT companies pay any substantial tax. The special report notes a study which found that Apple cut its tax bill in the US by up to US$2.4 billion last year by taking advantage of the tax competition prevailing at the state level in the US, and by allocating up to 70% of profits in low-tax jurisdictions overseas.

The New York Times published a diagram depicting how Apple and other US multinational corporations shift profits to low-tax jurisdictions by using Irish subsidiaries. The US newspaper also featured a graph plotting a reduction in corporate tax rates in the US despite the fact that US corporate tax profits have surged over the last 30 years.

Tax Journal takes a look at a Barclays report, commenting partly on the bank’s UK corporation tax obligations. The “citizenship report” notes that the Bank acknowledges the need to adopt a “changing approach” in the way it handles its tax affairs and denies claims that the decision to locate operations in “offshore finance centres” was driven by an interest in tax avoidance, adding that “‘virtually all’ of the profits generated in its 134 Cayman Islands companies were subject to corporate tax at the UK rate”.

British Crown Dependencies

Malta is being considered as an alternative to Guernsey for the relocation of pension schemes established on the Island but no longer accredited by HMRC as Qualified Recognised Overseas Pension Schemes (QROPS), the Times of Malta confirmed. The paper cites sources indicating that Jersey might not have the same appeal as Malta for the relocation of QROPS “as the HMRC wants to see movement of pension monies into locations where those monies are taxed unless there is a double taxation treaty”.

Neil Gibson, the director of Oxford Economics' regional services division and author of the report “Review of Guernsey’s economic profile and assessment of future opportunities”, argued that Guernsey would benefit from embracing a strategy of economic diversification. The International Adviser article outlines the key findings of the report published in February.

Asia and the Middle East

According to the Times of India, the Indian Finance Ministry is considering possible exemptions from the application of recently proposed general anti-avoidance rules (GAAR) for small companies. Delhi may also decide on delaying the implementation of these rules in an attempt to allay investors’ concerns.

Commentary in the New York Times suggests that the prospects for the development of regional financial hubs in the Gulf are clouded, in part, by the fact that businesses are mostly controlled by governments and families. The article notes the decline of US and European financial institutions providing Islamic finance products, while local banks are increasing their offering.

3 May 2012