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Switzerland has agreed to freeze funds in Swiss bank accounts that are suspected to be connected to the daughter of the Uzbekistan president, Islam Karimov. The decision has come on Monday after a request from the United States.
The Swiss justice ministry granted a request for legal assistance in the case involving Gulnara Karimova in June.
A spokesperson from the justice ministry would not put a number on the precise amount that has now been frozen, but said it is less than $640 million (CHF 598 million), a figure that was reported by the Wall Street Journal newspaper. More than CHF 800 million has already been put on ice by the Federal Prosecutor’s Office.
An ongoing investigation by the federal prosecutors has been looking into Karimova’s finances since 2012, focusing on how Uzbek telecommunications contracts were allocated, and what Karimova’s role was. Just five days ago the prosecutor’s office said they had widened their investigation into six people on suspicion of money laundering and document forgery in the case.
Karimova is a former permanent representative to the United Nations in Geneva. The police carried out a raid on her mansion in the city in 2013 while searching for evidence in the case.
Source: SWI
Two US-Canadian dual citizens will next month learn the outcome of their legal challenge to the Canadian government’s implementation of the US Foreign Account Tax Compliance Act (FATCA).
FATCA requires banks in every country to identify their US clients and report their accounts to the US Internal Revenue Service (IRS), either directly or indirectly through the banks’ own domestic tax agency. In February 2014, the Canadian government signed a ‘Model 1 agreement’ with the US requiring Canadian banks to make FATCA reports to the Canada Revenue Agency (CRA), which will automatically forward the information to the IRS. This agreement was later translated into Canadian law through implementing legislation.
In August last year, two women, Gwen Deegan of Toronto and Virginia Hillis of Windsor, launched a challenge to this law. Both are US citizens by birth but have lived in Canada since infancy and have no US passport, but are still liable to US worldwide taxation and FATCA reporting requirements.
They claim the law contravenes the US-Canada Treaty, which prohibits the exchange of the type of information specified by FATCA. They also allege it contravenes Canada’s Constitution Act and Charter of Rights and Freedoms.
The Federal Court of Canada has now heard oral arguments and will issue a ruling on the case before 30 September, with 15 September the most likely date according to the Financial Post. The federal government has agreed not to pass on FATCA information before that.
If the court overturns the inter-governmental agreement, Canadian banks will have no easy way of complying with the FATCA reporting regime. If they attempt to disclose their US clients’ account details direct to the IRS they are likely to be challenged under Canada’s privacy legislation. If they do not disclose the information required, they may then be forced to pay the non-compliance penalty specified by FATCA – a 30 per cent withholding tax on all their US-sourced investment income.
However, appeals will certainly follow the first-instance outcome, whatever it is. In the meantime the Canada Revenue Agency will not be able to pass on the banks’ FATCA disclosures to the IRS.
Source: STEP
China loosened restrictions on foreign investment in real estate after the yuan’s depreciation reduced the appeal of Chinese property assets.
Overseas companies’ Chinese units and foreign nationals working and living in China can buy properties for their own use that meet “real needs,” Chinese authorities including the Ministry of Commerce said in a joint statement. Requirements that foreign investors should have paid their registered capital in full before borrowing local loans are removed, according to the statement, dated Aug. 19.
The Shanghai Stock Exchange Property Index, which tracks 24 developers listed on the city’s exchange, gained 4 percent as of 10:36 a.m. local time, while the benchmark Shanghai Composite Index added 2.2 percent. Greenland Holdings Corp., China’s largest developer by sales, jumped 5.7 percent, the most in almost two weeks.
The move came as China’s first major devaluation since 1994 this month made inbound investments, already damped by high property prices and a weakening growth outlook, “worthy of a careful pause,” according to realtor Jones Lang LaSalle Inc. The revisions to restrictions introduced in 2006 aim to ensure “stable and healthy” growth of the property market, according to the statement also jointly issued by the central bank.
“It’s a substantial easing of restrictions on the central government level from the previous tightening,” said Liu Yuan, a Shanghai-based research director for Centaline Group, China’s biggest property agency. “However, the actual impact might be small, as overseas buyers only make a microscopic proportion of China’s housing market.”
Non-Chinese homebuyers accounted for 0.5 percent of existing-home transactions in Shanghai last year, according to Centaline.
The government’s 2006 rule, imposed after rapid foreign property investment and home buying, banned foreign citizens living and working in China for less than a year from buying a home in the country. Foreign investors setting up a property company were required to have a registered capital no less than half of their total investments, if they exceeded $10 million.
“This is a carefully measured step that is happening at the right time to add a small boost to market demand,” Steven McCord, head of research for North China at Jones Lang LaSalle, said by e-mail after the announcement. But “it is not a no-brainer purchase that it was 10 years ago,” he said, citing slower economic growth and the yuan’s depreciation. “It is now a major purchase decision for people who intend to live here.”
The growth in China’s property development investment slumped by almost 10 percentage points from a year earlier to 4.3 percent in the first seven months of this year as developers’ confidence sagged, putting pressure on an economy that was already slowing.
Source: Bloomberg
The New Zealand government has launched a consultation on its plan to impose withholding taxes on residential land sales by overseas owners.
The tax, to be introduced in mid-2016, is intended to act as a guarantee that offshore property speculators pay capital gains tax (CGT), said revenue minister Todd McClay. It will act as a ‘bond or prepayment of any tax that may be due’, he said.
It is closely linked to another measure, announced some weeks ago, under which gains from residential property sold within two years of purchase will be liable to CGT, unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement. This so-called ‘bright line bill’ (meaning that it imposes a clear distinction between taxable and non-taxable disposals) is also under consultation. It will apply whether the seller is inside or outside New Zealand, and includes an anti-avoidance rule to prevent companies or trusts being used to circumvent the ‘bright-line’ test.
However, the Internal Revenue Department considers that it is not necessary to enforce a withholding tax on NZ residents, because it should be possible to collect CGT from them later.
Source: STEP
The First-tier Tax Tribunal has accepted Malcolm Scott’s claim that his now-deceased parents gave him three valuable paintings in 1985, despite the absence of any deeds of gift. The tribunal relied on a contemporaneous letter from Scott’s mother confirming the circumstances of the change of ownership and emphasising his responsibility to insure the paintings, as well as the fact that they had been visited by their estate-planning advisor at the time (Scott v HMRC, 2015 UKFTT 0266 TC).
Read in it’s entirety here.
Source: BAILII
10 June 2015
Anecdotal evidence suggests that the introduction of follower notices and accelerated payment notices (APN) (and the similar partnership payment notices) in FA 2014 is having a significant impact upon a large number of taxpayers. HMRC’s rolling programme of issuing such notices has left many individuals facing ‘tax bills’ much sooner than they might otherwise have anticipated, with all the issues that can bring. The policy rationale for these notices, namely that the legislation is intended to counter a perceived advantage enjoyed by alleged tax avoiders of being able to hold onto disputed tax until their case is resolved, is well known. However, some might argue that such a policy ignores the fact that either the statutory date for payment has not arisen; or that payment has been postponed because there are ‘reasonable grounds’ for believing that the tax is not due. Nevertheless, the legislation is being implemented and thousands of notices are being sent out.
Public law challenges to this legislation have commenced; this article does not consider the merits of those challenges. However, the question remains as to whether there is any way to mitigate the rigour of these notices whilst the challenges are being worked out. This article focuses on APNs (as opposed to follower notices, where some of the legislative provisions are different); and considers one possible route that has been explored by some litigants. (Statutory references in this article are to FA 2014 unless otherwise indicated.)
Broadly, HMRC may give an APN to a taxpayer if three conditions are met:
The APN must specify the amount of disputed tax that must be paid (s 220). (There are somewhat different rules depending on whether the APN is given during a tax enquiry or if there is a pending appeal; however, the essence of the APN is the same in each case.)
There is no right of appeal against an APN. The recipient does have the right to make ‘representations’ about the APN, but only on the limited grounds that one or more of the three conditions listed above are not met; or in objection to the specified amount for payment. Such representations must be made in writing within 90 days of the date on which the APN is given (s 222). HMRC must consider these representations and determine whether to confirm the APN (with or without amendment, including an amendment to specify a different amount for payment); or to withdraw it. It must then notify the taxpayer of its decision (s 222(4)).
If no representations are made, payment of the amount specified in the APN is due before the end of 90 days from the date on which it was given. If representations are made and the date is later than that given by the 90 day period, payment must be made before the end of 30 days beginning with the date on which the taxpayer is notified of HMRC’s decision in respect of their representations (s 223).
The statutory power to postpone payment is expressly disapplied for an APN given in the case of a pending appeal. If there is already an agreement or order to postpone some or all of the tax covered by the APN, such agreement or order will cease to have effect from the time the APN is given and the tax becomes due and payable (s 224).
There are potentially stringent late payment penalties in respect of the amounts due under the APN. Where an APN is given during an open enquiry, i.e. before there is a pending appeal, if the amount due is not paid by the end of the 90 day period or the 30 day period as appropriate, there is a 5% penalty of the amount unpaid. If some or all of the amount due is still unpaid five months later, there is a further penalty of 5%. If some or all of the amount due is unpaid 11 months after the day following the 90 day period or 30 day period (as appropriate), there is a further penalty of 5% of the amount that remains unpaid (s 226). There is a statutory right of appeal against the imposition of these penalties and therefore a ‘reasonable excuse’ defence may be argued (s 225).
The 2014 legislation is prescriptive and tightly drawn. The processes of the underlying tax enquiry or pending appeal about disputed tax are not affected; however, the recipient of an APN may be ‘out of pocket’ for quite a while. Normally the legislation provides (for example, TMA 1970 s 56) that the unsuccessful party in a tribunal or court appeal must pay (in the case of a taxpayer) or repay (in the case of HMRC) the tax involved notwithstanding a further appeal. If the taxpayer was successful in the appeal to the First-tier Tribunal, for example, the taxpayer might therefore anticipate recovering the amounts paid under the APN. The 2014 legislation, however, permits HMRC to apply to the tribunal or court for permission to withhold any repayment due, consequent to a decision pending a further appeal; or to require the provision of security by the taxpayer before any repayment is made (s 225).
In an extreme case a taxpayer may be unable to get their money back for a number of years, even if they are successful in one or more stages of their tax appeal. It is perhaps noteworthy that in HMRC’s issue briefing of 3 November 2014, Tax avoidance scheme users to make upfront payments, the department claims to be successful in about 80% of avoidance cases that go to litigation. This figure is not disputed, but it is notable that even on HMRC’s own estimates approximately 20% of appellant taxpayers may be unable to get their money back until their appeal is finally determined in their favour.
HMRC’s guidance clarifies that any representations made by a taxpayer against an APN will be considered by an independent HMRC officer unconnected with the team which issued the notice. HMRC does take this sort of process seriously. Under an APN where representations have been made, payment is not due until 30 days after HMRC has notified the taxpayer of its decision in respect of those representations; therefore, any delay by HMRC in considering representations would provide taxpayers with some respite. Given the number of notices being issued under HMRC’s rolling programme, it is possible that HMRC will be facing a significant number of representations. Resourcing might have an impact here. However, as the obligation to consider representations is a duty imposed by statute, normal public law considerations (and HMRC’s policy intention) should mean that the duty is carried out with reasonable expedition.
To date, judicial review applications have been commenced by at least two sets of taxpayers in relation to notices served on them. It seems that both applications relate to partner payment notices, but it is not thought that anything turns on that detail for immediate purposes. This article does not seek to comment on the merits of those applications or their likelihood of success, but both cases involved an application to the court for interim relief. The first application, in Nigel Rowe and others v HMRC, was heard by Mrs Justice Simler on 26 March 2015, but was unsuccessful. The decision is unreported. However, a transcript of the decision of Mrs Justice Laing in the second case, Dunne and Gray v HMRC [2015] EWHC 1204 (Admin), is available.
The interim relief sought was essentially an order to prevent HMRC from taking any steps to progress the notices issued until judgment was given in the judicial review application; in particular, it sought to prevent the start of time running for payment purposes. The order sought would have specifically prevented HMRC from issuing penalty assessments pending determination of the judicial review application.
HMRC’s position in the application was that it would agree to interim relief by which, insofar as the applicants demonstrated hardship, the department would not take steps to enforce the notices without first applying to the court. However, this potential concession was to be without prejudice to HMRC’s ability to take all steps – namely, to issue further notices, determine written representations, issue notice of penalty, etc. – short of enforcing payment under the notices. This proposed concession was not acceptable to the applicants.
The taxpayers’ essential arguments in favour of the grant of interim relief were that if after considering their representations HMRC decided not to withdraw the notices, the applicants would have two choices, either:
The potential penalties would have amounted to approximately £50,000 for each applicant. This dilemma, it was argued, amounted to imposing a premium on access to justice.
The judge was not persuaded by these arguments and said that the argument that the choices rendered the judicial review ‘nugatory’ was ‘misconceived’. She noted that ‘whether or not the claimants accede to the [notice] and pay the sum which is said to be due, pending the outcome of the judicial review, or do not pay it, in neither case is the judicial review rendered nugatory’.
For the judge, the real issue was whether the court should grant interim relief, which directly interfered with the performance by HMRC of duties imposed on it by Parliament. She was doubtful whether such a power existed in the court; but, even if it did, the judge decided that she would not exercise it in this matter. Her view was that:
She said: ‘It seems to me that the overall effect of this statutory scheme is that if a [notice] has been issued it is for the taxpayer to decide, if [they] wish to challenge the [notice] by judicial review, whether or not to pay the sum demanded by the [notice] or take [their] chances on the judicial review and in relation to a possible statutory appeal against any penalty should the judicial review application fail.’
Consequently, the applicants failed in their application to mitigate the obligation of payment under the notices. They did apply for permission to appeal to the Court of Appeal, but this was refused. It is not known whether the application for permission has been renewed in the Court of Appeal.
At present, the policy of removing a perceived cash flow advantage for (broadly) users of tax avoidance schemes by compelling them to pay the disputed tax ‘upfront’ remains undamaged.
However, this does leave recipients of APNs with a potential dilemma. The cases have confirmed that judicial review is a potential way of challenging these notices; at least, permission to bring the applications has been granted. However, the courts have so far declined to suspend the operation of the notices pending the determination of the judicial review applications. This means that late payment penalties would be ‘clocking up’.
Although the judge did refer to the possibility of a ‘reasonable excuse’ defence against the imposition of any penalties, such a defence may not succeed if the reasonable excuse was the simple fact of having brought the judicial review proceedings. While it might not enforce any liability, HMRC is likely to take steps to protect its position. Equally, it is unclear why HMRC would agree to delay making a decision on a taxpayer’s representations and so prevent a payment date arising.
As things stand, there does not seem to be a risk free means of avoiding or mitigating the obligation to make payments under an APN. Taxpayers should think carefully before deciding not to make payments under such a notice pending the determination of a challenge to the notice.
Monday, 15 June, 2015
HM Revenue & Customs has published technical guidance to determine who will have to pay the new Scottish rate of income tax starting in April 2016.
The Scotland Act 2012, which introduces the tax, itself purports to define Scottish taxpayer status. However some of the terms used are not closely defined in the act and so more detailed guidance is needed to determine cases where there may be a dispute – that is, where the taxpayer has a second home in the UK, or has moved residence during the year.
The main criterion in this case is the ‘main place of residence’. UK residents will be Scottish taxpayers if either of two conditions holds: either they have a ‘close connection’ to Scotland through having their ‘main place of residence’ in Scotland for at least as much of the tax year as it has been in another part of the UK; or through day counting – that is, if the individual spends at least as many days in Scotland as elsewhere in the UK.
As the legislation does not define ‘place of residence’, HMRC says it must be ‘given its ordinary meaning’. Ultimately, this will depend on the facts of the individual case, and on existing case law. ‘Residence’ must be a place where the individual has actually lived, but ‘a degree of permanence or continuity’ is required to turn occupation into residence. Staying as a guest at the house of a friend from time to time will not make it a place of residence. However, ownership by the taxpayer is not a necessary criterion; rented or work-provided accommodation, even in a mobile home can be where an individual habitually lives, though the place of work itself is not relevant to Scottish taxpayer status.
The definition of ‘main place of residence’ as set out by HMRC is also elastic. ‘A main place of residence is the place of residence with which the individual can be said to have the greatest degree of connection. It is not necessarily the residence where the individual spends the majority of their time, although it commonly will be. What constitutes a ‘main place of residence’ is a matter of fact and all of the facts and circumstances of the particular case must be considered to arrive at a conclusion’, according to the guidance.
The guidance also asserts that private residence relief from capital gains tax may also be of relevance to interpreting ‘residence’ in the context of Scottish taxpayer status. However, it does not state explicitly that the location of the taxpayer’s nominated principal private residence will automatically make them a Scottish (or non-Scottish) taxpayer.
It recommends that taxpayers keep a whole host of records to determine their Scottish tax status, although it stresses that ‘no one piece of evidence will demonstrate the existence of a place or main place of residence’.
‘HMRC will consider the weight and quality of all the evidence as, taken together, a number of pieces of evidence may be sufficiently strong to establish a place or main place of residence’, it says.
Source: STEP
08/06/2015 – Pushing forward efforts to boost transparency in international tax matters, the OECD today released a package of measures for the implementation of a new Country-by-Country Reporting plan developed under the OECD/G20 BEPS Project.
The Country-by-Country Reporting Implementation Package will facilitate a consistent and swift implementation of new transfer pricing reporting standards developed under Action 13 of the BEPS Action Plan, ensuring that tax administrations obtain a complete understanding of the way multinational enterprises (MNEs) structure their operations, while also ensuring that the confidentiality of such information is safeguarded.
Action 13 of the BEPS Action Plan recognised that enhancing transparency for tax administrations, by providing them with information to assess high-level transfer pricing and other BEPS-related risks, is crucial for tackling base erosion and profit shifting.
Country-by-country reporting requirements will require MNEs to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group, as well as information about which entities do business in a particular jurisdiction and the business activities each entity engages in.
The new implementation package consists of model legislation requiring the ultimate parent entity of an MNE group to file the country-by-country report in its jurisdiction of residence, including backup filing requirements when that jurisdiction does not require filing. The package also contains three Model Competent Authority Agreements to facilitate the exchange of country-by-country reports among tax administration. The model agreements are based on the Multilateral Convention on Administrative Assistance in Tax Matters, bilateral tax conventions and Tax Information Exchange Agreements (TIEAs).
Source: OECD
