20 September 2012 Weekly Press Report

FATCA – Intergovernmental Agreements

The US and Britain signed a bilateral agreement providing for reciprocal automatic information exchange based on the model agreement adopted by the US Treasury for the implementation of FATCA, the Wall Street Journal and the Financial Times confirmed. With certain types of "low-risk" savings excluded from the deal, Assistant Treasury Secretary for Tax Policy Mark Mazur noted that "we are pleased that the United Kingdom, one of our closest allies, is the first jurisdiction to sign a bilateral agreement with us and we look forward to quickly concluding agreements based on this model with other jurisdictions". The UK Treasury statement and the agreement are available here.

The Financial Times reported on a consultation paper outlining the details for the application of the US-UK agreement to "Improve International Tax Compliance and Implement FATCA". Financial services experts welcomed the consultation released by HMRC, but alarm is on the rise amongst Americans and dual nationals living in Britain regarding their compliance status.

Tax Analysts  (Subscription)  examined the implications for financial institutions based partner countries which sign intergovernmental agreements  (IGAs)  with the US for the application of FATCA. The article provides a background of the IGAs and analyses the practical advantages and shortcomings derived from the provisions, which allow banks based in the signatory countries to report to their home governments as opposed to the IRS.

Reuters confirmed that the US Treasury is seeking to negotiate FATCA-tax information agreements with at least 40 countries. With final FATCA regulations due to be released later in the year, experts are of the view that unless governments strike intergovernmental agreements with Washington, then their financial institutions will have no other option than to put infrastructure in place to comply with disclosure requirements by directly dealing with US authorities.

British Overseas Territories

A blogpost on the National Review considers the lessons that US policy makers should draw from the Cayman Islands’ business model. The article argues that by removing a second layer of tax imposed on US investors, while providing a sophisticated financial services platform, Cayman is in a position to assist in the expansion of international markets for US workers.

Bermuda’s regulatory efforts to obtain equivalence with the EU Solvency II regime were recognised at the recent US Captive Services Award 2012. Meanwhile, Tax News published key figures released by the Bermuda Monetary Authority which show a decline of 4.2% in the Island’s banking sector assets during the second quarter.

A representative of the Association of Bermuda Insurers and Reinsurers  (ABIR)  examined the key factors that would enhance Bermuda’s attractiveness as a location for international insurers and reinsurers in an article in the Royal Gazette. Acknowledging that the Island faces internal and external pressures, the article noted that key issues to address that would improve Bermuda’s business outlook would be its equivalence with the EU Solvency II regime and the solving of uncertainties over how US corporate tax rules affect companies operating on the Island.

Reuters examined the uncertainty created by the IRS’s decision to stop issuing private letter rulings allowing mutual funds to set up commodity investments through offshore subsidiaries as controlled foreign corporations, thereby granting tax exemptions on the income from these investments. The article looked at the relevant tax rules in the US and the possible options left for commodity-related mutual funds investing through low-tax jurisdictions.

Tax Information Exchange

Reuters looked at the political debate surrounding the approval of the Swiss-German withholding tax agreement brokered in April. The German government continues wrestling with the opposition, the Social Democrat Party, which has not budged in its determination to veto the bilateral tax accord in Parliament.

Credit Suisse has agreed to hand over to US authorities the names of its employees serving wealthy Americans, Reuters reported. Amid controversy over the breaching of Swiss privacy laws, the bank’s move is part of its negotiation with Washington in an attempt to avoid possible indictments as a result of tax evasion probes underway. Meanwhile, Reuters also reported that French inspectors carried out a search in the Paris offices of UBS as part of a tax evasion investigation into the activities of the Swiss bank’s French wealth management arm.

Tax Analysts  (Subscription)  examined the proposals made by the Swiss President Eveline Widmer-Schlumpf, to the Belgian Foreign Office for a possible withholding tax agreement to ensure the regularisation of undeclared money held by Belgians in Swiss bank accounts. The proposal would introduce a system resembling that of the Rubik accords signed already with the UK and Germany, and could yield up to €10 billion for Belgium.

British Crown Dependencies

The BBC noted a positive budgetary forecast for Jersey in 2012 according to Jersey's Treasury and Resources Department. According to Senator Philip Ozouf, extra revenue will be assigned to stimulating the Island’s economy.

United Kingdom

According to the Financial Times, both businesses and tax professionals have raised concerns over the possible negative effects of an excessively broad general anti-avoidance rule  (GAAR) . In response to a consultation launched by the UK Treasury regarding the adoption of a GAAR, the CBI warned that attempts to outlaw "abusive and artificial" tax arrangements should not hinder "straightforward tax management".

According to an investigation conducted by The Times, the UK Treasury is losing up to £1 billion as a result of tax avoidance by over 2,000 British living in Monaco. A video broadcast by the Times explores whether and how UK policymakers could "solve a problem like Monaco", noting in particular a new statutory test for residency expected to be put in place next year.

United States - Tax Reform

Laura Tyson, Professor at the University of California and former chair of the Council of Economic Advisers under President Bill Clinton argues in the Financial Times that US tax reform should aim at making the system more competitive, efficient and progressive. Professor Tyson advocates a lower corporate tax rate, which will "weaken the incentives for international companies to move production to lower-tax locations".

Global Finance

The Economist looked at the reduction of global investment-banking businesses following falls in profitability. Noting that one of the main reasons explaining this trend is that "regulations on capital and liquidity are starting to bite", the article poses questions about the resilience of London’s standing as a leading international financial centre.

20 Sep 2012