August 2021: International Tax Planning Review

August 2021: International Tax Planning Review

The regular report on harmful tax regimes

The Forum on Harmful Tax Practices (FHTP) has published the new peer review results on the existing preferential tax regimes under the OECD’s monitoring. The report reflects the progress of various countries and territories in eliminating the tax regimes which earlier had been recognized as “harmful”.

At this point, almost all countries have abolished or reorganized harmful regimes on a step-by-step basis, owing, among other things, to the OECD’s pressure. For example, Seychelles abolished the regime of Companies with Special Licence (CSL), Belize has deeply reformed its International Business Companies (IBC) regime, Malta has abolished one of its intellectual property regimes known as Patent Box. For the tax regimes being cancelled, a transitional period is usually envisaged, with the preservation of previously granted benefits for the relevant entities (known as “grandfathering”).

According to the results of expert assessments, many operating regimes were recognized as “not harmful”. The only regime which the FHTP considers “harmful” for today is Free Trade Zones regime in Trinidad and Tobago located in the Caribbean.

The Forum also noted the successful implementation by all monitored “no or only nominal tax jurisdictions” of the economic substance requirements for the companies incorporated in their territories. They include well-known tax havens such as the British Virgin Islands, the Cayman Islands, Guernsey, Jersey, the Isle of Man, the United Arab Emirates and others.

OECD published updated transfer pricing country profiles

The Organisation for Economic Co-operation and Development (OECD) has published the updated jurisdiction profiles with the highlights of the transfer pricing rules in force in each country.

The purpose is to show the current state of various countries’ national transfer pricing laws and assess their compliance with the OECD Transfer Pricing Guidelines.

The country profiles provide up-to-date reference information on such transfer pricing issues as the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, transfer pricing documentation, resolution of disputes.

In total, the profiles cover 60 countries, including both OECD members states and other jurisdictions. The latest updates (as of 3 August 2021) affected the profiles of 20 countries, including the Czech Republic, Denmark, the Netherlands, Russia, Slovakia, Switzerland and others.

Transfer pricing rules are one of the tools tax authorities use to prevent abuse in transactions between related parties. For example, if prices in a transaction between associated companies differ from market ones (that is, prices that would apply in comparable transactions between independent parties), the tax consequences for the parties to the transaction can be forcibly adjusted.

Cyprus: filing of beneficial ownership information is mandatory for partnerships

The Department of Registrar of Companies of the Ministry of Energy, Commerce and Industry has informed of the legal opinion received from the Republic of Cyprus Attorney General.

According to the opinion, all partnerships registered in the Registrar of Companies under the article 50 of the General and Limited Partnership and Business Names Law (Cap. 116) must enter their beneficial ownership details onto the Beneficial Owner system.

Therefore, partnerships are considered as “other legal entities” for the purposes of the Prevention and Suppression of Money Laundering and Terrorist Financing Law, 2007.

Currently, the submission of information on the beneficiaries of Cypriot partnerships to the System is not available. The System is being updated and is expected to be launched in early October. Partnerships will submit the information according to the same procedure as companies.

As a reminder, Cypriot companies have an obligation to collect data on their beneficiaries and transfer them through the online portal of the Registrar of Companies from 12 March 2021. This procedure must be completed within 12 months – until 12 March 2022.

Malta Business Registry and Financial Intelligence Analysis Unit will cooperate in verifying beneficiaries

The agreement between the two agencies provides information exchange and cooperation in identifying the ultimate beneficial owners of business structures and aims to remove Malta from the Financial Action Task Force (FATF) “grey list”.

The agreement focuses on the mechanisms of cooperation of the Registry and the financial intelligence in the determination, identification and verification of beneficial owners of commercial entities to ensure that competent authorities can effectively prevent, detect and investigate financial crimes.

The situation with the transparency of beneficial ownership became one of the main reasons for the inclusion of Malta in the FATF “grey list” in June 2021. This list includes the countries with strategic deficiencies in their anti-money laundering regimes that are subject to the FATF’s increased monitoring.

Besides Malta, the FATF “grey list” currently includes Albania, Barbados, Botswana, Burkina Faso, Cambodia, Cayman Islands, Haiti, Jamaica, Mauritius, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Sudan, Syria, Uganda, Yemen, Zimbabwe.

Hungarian government opposes global tax reform

“Hungary does not intend to give up its financial sovereignty”, told Hungary’s Finance Ministry state secretary. In his opinion, the standardization of Hungarian tax legislation in line with the global tax reform being developed under the auspices of the OECD will significantly undermine the national economy. 

The global tax reform involves the introduction of a minimum corporate tax at a rate of 15%. According to the authors of the reform, these measures will increase the collection of taxes from large companies at the place of their actual activities and not at the place of their incorporation.

According to the Hungarian authorities, such an idea would essentially eliminate international tax competition for investment by requiring large multinationals to pay at this rate in any case.

Hungary currently has a corporate tax rate of 9%. This is the lowest figure among the countries of the European Union.

Ukraine committed to implementing the CRS automatic exchange

Ukraine has committed to implementing the automatic exchange of financial account information (AEOI) by 2023. The relevant letter addressed to the Global Forum on Transparency and Exchange of Information for Tax Purposes was approved by the Government in August.

According to the Ministry of Finance, implementing the CRS standard “will improve the image of Ukraine as a predictable partner that seeks to implement the best standards and fight against tax base erosion and profit shifting.”

With the beginning of the active phase of automatic exchange, the tax authorities of Ukraine will automatically receive data on Ukraine residents’ foreign accounts from foreign competent authorities and provide the partner countries with the information about the Ukrainian accounts held by residents of such countries.

The list of Ukraine’s partner countries for automatic exchange is not yet known. It will depend on Ukraine’s intention to carry out the automatic exchange with each specific country and the similar choice of the other countries.

According to the OECD, in 2019, 100 tax administrations exchanged information on 84 million financial accounts holding assets worth about 10 trillion euros. At the same time, the automatic exchange network is expanding annually.

Ukraine is going to carry out its first automatic exchange of financial account information in September 2023 for the 2022 reporting year.

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