It has been both compelling and disturbing to observe from a distance the pursuit of Wikileaks founder Julian Assange and the attempts by various under-seige governments to try and shut down his ground breaking whistle-blowing website.

Whilst much could be said about the wider issue of freedom of speech (and the importance of maintaining it) the message that this sends in no uncertain terms is that the governments who have been most heavily hit by the banking crisis are now prepared to go to hitherto unseen lengths to try and shore up their shaky positions.

Already President Obama has made it clear that in his view the “tax havens” are at least partly to blame for the current banking crisis.

The bottom line is that big government is now under huge pressure to reduce spending and increase revenue collections… which means the affairs of those using or connected to low tax or zero tax companies offshore are going to be watched closer than ever before.

This places notions of professional structuring and company management at the forefront of issues that offshore company owners need to consider closely moving forward.

It’s interesting to note that former Crocodile Dundee star Paul Hogan has just won a long standing battle against the Australian Tax Office (they elected to discontinue proceedings against him for alleged tax evasion after conceding that insufficient evidence existed to prove that he had broken the law). At the core of his success was the fact that the various structures he had set in place to legitimately try and minimize taxes payable on the success of his movie trilogy had been carefully thought out and put together by a team of tax and financial professionals.

Whilst the law governing this area differs from country to country a good starting point for many is to note that an offshore company can potentially avoid being taxed onshore if it is (and is seen to be) managed and controlled from offshore.

If you not sure what this entails, or whether your IBC meets this basic benchmark, it’s probably time speak to your professional advisers….

A two year long Criminal proceeding launched against Liechtenstein’s LGT banking group by German state prosecutors has reportedly ended with the bank paying a landmark fine totaling around EUR50m. (The bank had been under investigation since early 2008 on suspicion of having abetted tax evasion).

The Bank in question LGT (which had been under investigation since early 2008 on suspicion of having abetted tax evasion)’s media spokesman has said the settlement – reached without admission of guilt by either the individuals concerned or by the bank itself – was reached in order to avoid lengthy and burdensome litigation.

State prosecutors in Bochum investigating employees of the former LGT subsidiary, LGT Treuhand, agreed to suspend their tax investigations in return for payment of a global fine of EUR46.35m imposed on the banking group and for individual fines of around EUR3.65m.

The tax investigations were launched following Germany’s Federal Intelligence Service purchase (at a cost believed to have been in the region of EUR5m) of data stolen from LGT Treuhand. Hundreds of individuals worldwide with accounts held in the bank were alleged to have evaded taxes, including Klaus Zumwinkel, former head of German mail giant Deutsche Post.

Meanwhile Liechtenstein’s government has just approved tax information exchange agreements in accordance with the OECD standard with Norway, Sweden, Finland, Denmark, Iceland, the Faroe Islands, and Greenland.

The agreements with the seven Nordic partners meet the internationally applicable standards in accordance with the OECD model tax convention. Both sides of the agreement have reportedly emphasized a willingness to expand and to deepen tax cooperation beyond the TIEA. This also includes a willingness to enter into talks concerning the conclusion of a double taxation agreement.

Liechtenstein has now concluded 23 OECD-compliant tax agreements. The new agreements were due to be signed on December 17, 2010.

Whilst TIEAs having become a fact of life for those in the Offshore Incorporation world it’s a shame indeed that LGT didn’t test in court the admissibility of the illegally obtained evidence. I wouldn’t be the only legal expert to cast doubts over whether the Prosecution would have been allowed to lead such heavily tainted evidence (especially in such a huge trial) having regard to public policy considerations.

Tis a sad day indeed for justice when the Government of an economic giant can be allowed to get away with persecuting a smaller neighbor after having acted criminally itself… ( Star Chamber anybody?)

The Australian Tax Office is aggressively trying to obtain details of persons holding accounts with the Vanuatu branch of Australasian banking giant ANZ Bank.

Rather than seeking details as regards a particular customer or customers (as is the norm)  the ATO is demanding  information about ANZ customers in Vanuatu who fit one or more of four criteria, including Australian nationality or domicile, a residential or business address in Australia, or an account recorded in Australian dollars.

The information sought from ANZ relates to the period July 1, 2008, to November 30 2010 and includes the account number, any identifiers of the customer, nationality and domicile, and the tax file number or Australian business number of the customer or signatory.

Under a second notice, the ATO is targeting similar information from ANZ customers with accounts kept in any currency other than the vatu, Vanuatu’s official currency. The ATO notices mention 17 different types of accounts, but are not limited to those accounts, or to accounts held in Vanuatu.

The ANZ says it would breach Vanuatu confidentiality laws if it gave up the information and its high powered legal team have lodged documents in Australia’s Federal Court essentially  arguing that the tax office is engaged in a highly dubious fishing expedition.

The bank says that compliance with two December 17 notices from the ATO, which seek open access to customer data, would breach Vanuatu criminal law and put its licence to operate in the Pacific island nation at risk. It adds that each of the notices is “uncertain and/or oppressive”.

The ANZ’s chief executive for the Pacific region, Michael Rowland, said the bank had obligations under Vanuatu law and that it was seeking court guidance on its obligation to comply with the ATO notices.

“ANZ abides by the legal and regulatory requirements of the markets in which we do business, including Vanuatu, and we treat customer information sensitively and respectfully,” Mr Rowland said.

The ANZ has hired two QCs to press its claim, with the case set down for a directions hearing on February 17.

Last April, it was reported that the ATO following Australia’s signing of a Tax Information Sharing Agreement with Vanuatu, had demanded that 57 financial institutions, including Australia’s four major banks, hand over the records of clients with offshore bank accounts held between July 2005 and June last year.

Ben Butler

January 7, 2011

A MOVE by big retailers to sidestep GST by moving their e-commerce operations offshore risks being caught up in a Tax Office crackdown.

The idea has been floated by Myer and Harvey Norman, two of the retailers spearheading a controversial advertising campaign against the exemption from GST of imported goods worth less than $1000.

The Tax Office has noted international transactions and GST as an area of concern in its most recent compliance program, saying it would work more closely with other government agencies to ensure compliance with the law.

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Myer and Harvey Norman put up the idea while lobbying against tax-free offshore shopping, but other retailers say it would be better to concentrate on working with government to get better enforcement of existing GST and import rules.

Yesterday the Fair Imports Alliance, an umbrella group, attacked the big retailers’ coalition for its attempts to ”bully government” into ditching the $1000 threshold, saying the advertising campaign would prove counterproductive.

The Tax Office is already cracking down on GST avoidance through a program that has been allocated $337.5 million over the next four years. It has pledged to step up work on GST compliance in international and cross-border transactions.

”Our use of data from third parties, such sources as Customs and AUSTRAC, will enable a better-targeted view of international transactions and ensure compliance checks, education and marketing messages reach businesses at higher risk,” the Tax Office said in its 2010-11 compliance program.

The note was issued in mid-December, a week after the Harvey Norman boss, Gerry Harvey, said he would follow Myer’s lead and set up an offshore e-tailing website.

A spokeswoman said the Tax Office was legally barred from commenting on individual cases.

”Whether or not the ATO would consider the application of the gener al anti-avoidance provisions depends on the facts and circumstances of that particular arrangement,” she said.

An alliance spokesman, Brad Kitschke, said a lack of enforcement meant the $1000 threshold was being used as a loophole, hurting retailers who played by the rules.

Alliance members include the Australian Retailers Association.

”We cite the example of someone who could sit at home and import multiple packages up to the value of $1000,” Mr Kitschke said.

”They don’t pay GST or customs duties on those goods. They then sell those goods through eBay or through markets or theTrading Post or other means and they don’t apply GST when they sell those goods.

”So GST is not being collected at two points, as well as customs duties on the way in.”

The situation was made worse because ”a lot of those people aren’t paying income tax”.

He said 7.5 per cent of government revenue came from customs duties. ”If those are undermined, those hospital beds, schools, police – payment for those, need to come from other means.”

He said the alliance was not arguing for any particular threshold and supported a Productivity Commission inquiry that will look at problems confronting the retail industry.

”We don’t believe the way Gerry Harvey, Solomon Lew and that particular group have engaged is the right way to go about things and we don’t believe that it will ensure the best outcome for the retail sector and consumers.”

It would be ”irresponsible” for the government to cave in to the ”loud voices” of the big retailers, he said.

Hong Kong has reportedly just signed Double Taxation Avoidance Agreements (DTAs) with the UK & Ireland, which brings to 13 the number of such treaties signed with its trading partners.

The DTAs generally follow the OECD model treaty and spell out the allocation of taxing rights between the jurisdictions and the relief on tax rates on different types of passive income, including capital gains.

In the absence of the DTAs, profits earned by British and Irish residents (& companies doing business through a branch in Hong Kong in Hong Kong) are subject to both Hong Kong and local tax. Pursuant to the new DTA, the UK and Ireland will provide tax credits to their residents and companies against UK and Irish tax payable in respect of that income.

Hong Kong residents currently receiving dividends from the UK and Ireland are subject to a withholding tax, which is currently 20% in both jurisdictions. The new regime provides however that the withholding tax rate will be reduced to 15% in the UK and exempted in Ireland.

Hong Kong residents receiving royalties and interest from the UK hitherto have been subject to  withholding tax at 20% in both the UK and Ireland. Under the new agreements, withholding tax on royalties will be capped at 3% and on interest will be reduced to 10% in Ireland, and exempted in the UK.

Special arrangements have also been negotiated as regards airlines and shipping between Hong Kong and UK/Ireland.

The Hong Kong/UK DTA incorporates the latest OECD standard on exchange of information (but is limited to taxes covered by the agreement ie taxes imposed on income, on gains from the alienation of property and on capital appreciation).

The existing taxes to which the agreement will apply are, therefore, profits tax, salaries tax and property tax in Hong Kong; income tax, corporation tax and capital gains tax in the UK; and income tax, income levy, corporation tax and capital gains tax in Ireland.

The provisions of the agreements will take effect from the next calendar year.

Hong Kong says it is actively seeking to establish a network of comprehensive DTAs   & where comprehensive DTA discussions cannot be started for the time being, Hong Kong will seek to conclude limited double taxation avoidance arrangements for airline and shipping income with relevant partners. So far, 27 such agreements on airline income, six agreements on shipping income, and two agreements on airline and shipping income have been reached.

The Canadian Ministry of Finance has announced the signing of two Tax Information Exchange Agreements, with the Bahamas on June 17, and with Saint Lucia on June 18.

The two agreements were negotiated in line with the OECD standard on transparency and tax information exchange and are a direct result of efforts to ‘level the playing field’ in tax competition. The agreements will provide the respective tax authorities with access to tax information on request in civil tax matters and in the investigation of fiscal crime.

The Ministry of Finance said that the agreements are consistent with “Canada’s international efforts to promote transparency and effective exchange of tax information.”

“The Agreements will provide the mutual exchange of tax information that is possessed by, or accessible to, the taxation authorities of either jurisdiction, and by the Canadian Revenue Agency, in order to better administer and enforce taxation laws and to prevent international fiscal evasion,” the ministry stated.

The agreements will enter into force after the concerned countries have completed their individual ratification procedures.