DTA entered into force between Russia and Hong Kong

Comprehensive agreement for the avoidance of double taxation (CDTA) was signed in January of this year between Hong Kong and Russia, which came into force on 29 July 2016. According to the sources, this agreement shall remain in force for Hong Kong each year since its signing to double taxation, which took place on or after April 1, 2017.

The CDTA is informed about what is required to support efforts to expand the tax obligations undertaken by the two countries in the framework of the «Belt and Road», which is a project of the Chinese government for the economic development aiming at the integration of trade and investment between the approximately 60 countries in Eurasia.

In the absence of the CDTA program, of Hong Kong companies income, which conduct their entrepreneurial activities with the help of permanent missions in Russia and taxed in both places if their earnings was received in Hong Kong. On this basis, in the new agreement, double taxation is eliminated, and now any Russian tax paid by the companies on their earnings, will be allowed to tax payable in Hong Kong.

Besides, in accordance with this agreement, the rate in Russia on income tax on royalties, up to the present time is 20% (for companies) or 30% (for individuals) will be limited to only 3%. A tax rate on dividends, which are in Russia for Hong Kong citizen will be reduced from the current rate of 15% to 5% or 10% depending on the shares of the recipient.

According with further provisions, all Hong Kong airlines which fly to Russia, will be subject to taxation in accordance with the corporate tax rate in Hong Kong, and will not be subject to taxation in Russia. Profits from international shipping transport earned by citizens who have been in Hong Kong, now is also not planning to impose taxes in Russia.

This agreement contains in itself provide a basis for the exchange of tax information between jurisdictions in accordance with international standards.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

EU signed tax agreement with IOTA

The Intra-European Organization of Tax Administrations (IOTA ) has signed tax agreement with European Commission to develop the solution of more effective way to common targets which this two brunches are working on and also one kind of them activity to prevent double tax avoidance.

According to announce of IOTA 26 of July the main brunches of co-working in agreement frames include battle against swindle, information exchange, alternate support, support of tax departments to increase the level of maintenance by taxpayers.

The agreement was signed between IOTA and the Taxation and Customs Union Directorate General (DG TAXUD) of the European Commission 7 of July.

Edery said: «Commission has get a support IOTA from the day it start exist and attentively watching it progress. We have common target to support European states in development and modernization of tax administration.

Based in Budapest, IOTA is a non-profit intergovernmental organization, created to promote using the best practice in tax administration direction and more effective co-working with 46 tax authorities’ members.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

The Swiss flag

The Italiam Ministry of economy and finance claimed that protocol about tax information of double tax agreement between Italy and Switzerland wich was signed 23 of February, 2016 goes into force 13 of July, 2016.

The agreement protocol comprises all kind of taxes, point out that country can't deny to represent asking information only because this information has in keeping on bank or any other financial constitution.

Much less the country need to empty of all own inner legal proceedings before than protocol can ask information from other. Also need to indicate person or persons who are the object of asking request, period of time need to ask the information, descrabing of information need to and the reason of request if its known, the name and adress of suppose owner of information.

This specifications was added for avoiding any want of judgment, general compromative information, and he also added that the second list of specifications don't using for placing obstacles on the way of effective agreements between these countries.

This protocol also approves that this contributions will use retrospectively to the data that existed prior to or after the date of its signing.

Author: Sergey Panov

managing partner Finance Business Service

Business deoffshorization

In itself, the concept of deoffshorization emerged relatively recently and it was first suggested by Alexander Sergeyevich Zakharov, the famous Russian expert in the field of tax law, 22 May of 2013.

Under the "deoffshorization" term decided to take a process consisting of a set of measures, which holds a State legislative, information and law enforcement areas to reduce or eliminate the residents under the guise of foreign persons or using foreign legal constitution, which are involved in the national economic turnover, and primarily pursues illegal or dishonest purpose.

Globally deoffshorization occurred against the backdrop of Offshore Leaks project that presented the Consortium together with the Süddeutsche Zeitung (SZ) Journalistic Investigations (ICIJ) in 2013. This project has caused a huge scandal in the public and put the confidentiality of offshore companies Region registered before 2010. Journalists have never previously worked with such a huge volume of data leakage. Studies have shown a rare example of how a global industry together with law firms and various companies and the largest, global banks secretly manage the assets of the rich and famous people around the world. It was the global business world that could exist only in the shadows, hidden from all the stares.

All sorts of businesses have sought to protect their companies from enemies and raiding; someone to maintain their privacy or to achieve tax optimization, someone set up a joint venture with a foreign partner or to conduct charitable activities, but most of the services of registering offshore companies are those who simply want to get away from taxation and thus save on taxes. This affected not only the politicians, celebrities or entrepreneurs, but also for non-payment of taxes and the scandal had attracted global brands such as Google, Apple or Starbucks.

Of course, many governments under the watchful eye of the public immediately responded to it. With such disturbing the minds of iniquity, deofshorizatsiya is a single way of dealing with the minimization of taxation. Currently is conducted a violent fight with offshore companies and the tightening of the rules of registration and submission of documents to the tax authorities.

Let us hope that, starting in 2017 will earn automatic exchange of information in accordance with accepted common standards (Common Reporting Standards), which enables financial institutions to collect information on the tax status of the Company and the beneficiaries of all their customers, and shall enter into force requirement to provide reports to the tax authorities and for multinational companies.

For businessmen, using offshore companies will develop new criteria that will be evaluated by their resident status, and almost no trading will be used.

Entrepreneurs still have time to prepare their corporate structures to the automatic exchange. We hope that in the future will demand of reporting companies from jurisdictions that in the event that will not be afraid of disclosure and easily be able to confirm their tax status. Despite the fact that the perpetrators rather difficult to prosecute, to completely eliminate or prohibit offshore unlikely, and whether it is necessary, it is wiser to create such business conditions, under which a resident is not a desire to withdraw their money and they will not be afraid to keep their property in their home country.

We believe only in a lawful, honest and conscientious business.

Author: Yuriy Krasilnikov

managing partner Finance Business Service

The exchange of tax information

What is the Global standard of automatic exchange of information about financial accounts (AEOI & CRS) (hereinafter - the "Global standard")?

The global standard of automatic exchange of information on financial accounts (original title in English - Global Standard for Automatic Exchange of Financial Account Information in Tax Matters and Common Reporting Standard) is an international political initiative of the G20 member countries and countries participating in the Organization of Economic Cooperation and development (OECD / OECD), aimed at joint international fight against tax evasion and the illegal concealment of undeclared income in foreign financial institutions.

How the requirements of Global standard implemented in real life?

The OECD has developed and published the fundamentals and practical tools implementation of the Global standard, which were endorsed by the member countries of G20 at summit in September 2014.

International obligations of countries participating in the global standard, in the vast majority are fixed in the form of accession to the Convention on mutual administrative assistance in the tax area on 25.01.1988 and by the signing and ratification of the Multilateral Agreement between the competent The European Union (EU), in parallel with individual participation and the signing of the EU-member states of the agreement MCAA, acceded to the global standard through the adoption of the EU Directive 2014/107 / EU of 09.12.2014 (DAC2), which introduces the automatic exchange of information about financial accounts and assigns it to EU member countries. Coordinating organization for the dissemination, development, promotion and development of comments and other supporting materials in relation.institutions (MCAA), which was signed by the first countries-participants in the October 2014.

To whom and how will influence the Global standard?

First of all we should say about which institutions, in accordance with the provisions of the Global standard, impose obligations for the collection and transmission of information to the authorities. It all financial counterparties working in the territory of any of the member countries of the Global standard. This is primarily banks and investment institutions, brokers and certain insurance companies.

From 1 January 2016 came into force the next Global standard requirements for financial institutions:

  • to figure out from their customers and beneficial owners of client country (s) and / or location (s) of their tax residence by receiving from the client the appropriate declaration form approved by the national legislation and / or verification and analysis available to financial institutions, information and documents relating to the client, as well as the verification received from the client-assurance declaration;
  • annually beginning from 2017, send to the national tax authority information and details of customers' accounts, certain by regulatory enactments and, in certain cases, information about the beneficial owners of customers, if the first and / or second are tax residents of countries joining and participating in the Global standard. In its turn the tax authority of the country carries out an annual mutual exchange of such information about tax resident with the fiscal authorities of the countries participating in Global standard;
  • to track changes in the circumstances and details of the customers, which may affect the change of tax residence;
  • take any other actions stipulated by regulations.

How Global standard will affect the customers of financial institutions and what it will take from them?

Customers will have to to provide a declaration form indicating the country (s) and / or location (s) of their tax residence, as well as similar information with respect to beneficial owners of customers.

Also, the financial institution may request from the client of the legal entity / organization declaration-assurances about the character of its business activities, i.e. whether such activities are active or passive. After analyzing the declaration-assurances provided by the client and comparing it with their existing bank data and information on the client, it may be necessary to contact the client for further explanations. Client upon request of the financial institution is obliged to provide accurate declaration form, as well as documents confirming the information stated in this form.

What kind of customer financial institutions will submit information to the tax authorities?

Automatic exchange between countries and transmission into the national tax authority is subject to the information on the accounts of only those customers who are tax resident in a jurisdiction which joined and started to use the Global standard. The duty towards information about these customers and their accounts appears only when the customer's jurisdiction was entered into the list of jurisdictions participating in standard. A similar procedure shall also apply to information on beneficial ownership of customers who are passive non-financial organizations.

From the statements of the Global standard are excluded clients who are:

  • organization, whose shares are regularly traded on an organized securities market, or an organization affiliated with the public face;
  • government agencies, international organizations, the central bank;
  • financial institution.

What information financial institutions will be sent about customer accounts to the national tax authority?

In relation to the client (physical person and legal entity / organization)

  • name, last name / name
  • address
  • taxpayer number
  • date and place of birth (for individuals)
  • jurisdiction (ies) of tax residence
  • account number
  • account balance as of the end of the reporting calendar year
  • the size of interest income actually received by the bank during the reporting year + additionally on the investments accounts:
    • the size of interest income, dividends and other income actually received during the reporting year
    • the amount of income derived from the sale or maturity of these financial instruments is actually credited in the reporting year

In relation to the beneficial owners of customers who are passive nonfinancial institutions

  1. name, surname
  2. address
  3. taxpayer number
  4. date and place of birth
  5. jurisdiction (ies) of tax residence.

List of countries participating in Global standard (as of May 12, 2016)

Jurisdiction

Start date of the exchange of information

1. Australia September 2018
2. Austria September 2018
3. Albania September 2018
4. Andorra September 2018
5. Antigua and Barbuda September 2018
6. Argentina September 2017
7. Aruba September 2018
8. Barbados September 2017
9. Belize September 2018
10. Belgium September 2017
11. Bermuda Islands September 2017
12. Bulgaria September 2017
13. The British Virgin Islands September 2017
14. Hungary September 2017
15. Ghana September 2018
16. Germany September 2017
17. Guernsey September 2017
18. Gibraltar September 2017
19. Grenada September 2018
20. Greenland September 2017
21. Greece September 2017
22. Denmark September 2017
23. Jersey September 2017
24. Israel September 2018
25. India September 2017
26. Indonesia September 2018
27. Ireland September 2017
28. Iceland September 2017
29. Spain September 2017
30. Italy September 2017
31. Canary Islands September 2017
32. Canada September 2017
33. Cyprus September 2017
34. China (Peoples Republic) September 2018
35. Colombia September 2017
36. Korea September 2017
37. Costa Rica September 2018
38. Latvia September 2017
39. Lithuania September 2017
40. Liechtenstein September 2017
41. Luxembourg September 2017
42. Mauritius September 2017
43. Malaysia September 2018
44. Malta September 2017
45. The Marshall Islands September 2018
46. Mexico September 2017
47. Monaco September 2018
48. Netherlands September 2017
49. New Zealand September 2018
50. Norway September 2017
51. i. Curacao September 2017
52. i. Anguilla September 2017
53. i. Montserrat September 2017
54. i. Niue September 2017
55. The Isle of Man September 2017
56. Cook Islands September 2018
57. Poland September 2017
58. Portugal September 2017
59. The Russian Federation September 2018
60. Romania September 2017
61. Samoa September 2018
62. San Marino September 2017
63. Seychelles September 2017
64. Saint Vincent and the Grenadines September 2018
65. Saint Kitts and Nevis September 2018
66. Saint Lucia September 2018
67. Sint Maarten September 2018
68. Slovakia September 2017
69. Slovenia September 2017
70. United Kingdom September 2017
71. Turkish and Caicos islands September 2017
72. The Faroe Islands September 2017
73. Finland September 2017
74. France September 2017
75. Croatia September 2017
76. Czech Republic September 2017
77. Chile September 2018
78. Switzerland September 2018
79. Sweden September 2017
80. Estonia September 2017
81. South Africa September 2017
82. Japan September 2018
Author: Olena Kutova

senior lawyer of the Finance Business Service company

Japan-Panama

Japan and Panama have agreed to conclude an agreement on the exchange of tax information.

Negotiations for this agreement were launched after the Japan-Panama summit meeting which took place on April 20 this year between Prime Minister Shinzo Abe and President of Panama Juan Carlos Varela.

The two leaders shared the view that Japan and Panama must immediately begin formal negotiations on an agreement on the exchange of tax information.

Currently it is likely that Japan will become the first country to sign an agreement on the exchange of tax information with Panama after the leak "Panama Papers" earlier this year.

The agreement will include the rules in accordance with the general standard of the automatic exchange of tax information between countries created by the Organization for Economic Cooperation and Development.

Author: Sergey Panov

managing partner Finance Business Service

International reporting. Canada

Canada has signed a multilateral agreement on reporting between countries. The first exchange of information is expected to be held in June 2018.

Budget Canada 2016 includes a proposal to require companies with annual revenues of the consolidated group of USD 750 million or more, to submit annual reports on their income and taxes paid and accrued on the number of employees, capital, retained earnings and tangible assets for each tax jurisdiction in which they do business.

Canada has the opportunity to share the information contained in the reports with tax treaty partners which also comply with the necessary standards of accountability. According to the Agency Revenue Canada, this information will allow countries to improve their ability to check and detect aggressive international scheme of tax evasion, as well as contribute to making global operations affected companies more transparent and that they pay the relevant taxes in the country which is generated by their profit.

Currently 32 jurisdictions have signed the agreement on the international exchange of information.

Canada noted that the signing of the agreement is part of a four-point action plan to address tax evasion. The Action Plan includes measures to expand the sources of information, to strengthen its cooperation with international partners.

Revenue Minister Diana Lebouthillier said: "Our government in the framework of this important international agreement will support efforts around the world to strengthen the rules of international taxation and prevent tax evasion Canada is pleased to be an active participant in the work."

Author: Olena Kutova

senior lawyer of the Finance Business Service company

EU Declaration

The Committee on Economic and Monetary Affairs of the European Parliament voted in favor of the proposal for automatic exchange of country-by-country reports.

MEPs approved a report on the proposal by 45 votes, with 11 abstentions. Dariusz Rosati, who prepared the report, said that the initiative is "an important step in the fight against harmful tax practices within the EU. This should increase transparency and reduce harmful tax competition."

Under the proposal, multinational companies with total consolidated revenues of EUR 750 million or more will need to submit statements of EU countries. This rule will apply to all countries with which the company operates.

The report stresses that the Commission should have full access to the information exchanged between the tax authorities of the countries to give the opportunity to assess whether they practice in accordance with the rules of state aid. This is especially important for small and medium-sized companies who work in one country only, as they "usually pay an effective tax rate which is much closer to the official rates than multinational firms." The Commission also added that "the domestic companies do not have to face disadvantages due to their size or the lack of cross-border trade."

The report also recommended that EU countries should impose sanctions for companies that fail to provide tax reporting to other countries.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

Fighting in the UK

The UK government has set out an action plan for the implementation of measures to combat money laundering and counterterrorist finance regime.

The Action Plan defines three main steps. First, strengthen law enforcement response to the threats faced by the United Kingdom. This step will include improved law enforcement capacity and the creation of new legal powers to disrupt the activities of criminals and terrorists.

Second, the reform should help to keep track of those companies that promote or allow to launder money. And, thirdly, to increase the international reach of law enforcement agencies and international exchange of information.

Within the framework of the action plan, the government will hold a six-week consultation on a number of proposed measures. Interior Minister Theresa May said: "The world's leading financial system of Great Britain is threatened and undermined by money laundering, illegal financing and the financing of terrorism and laundering of proceeds from criminal activities Our plan of action sends a clear signal that we will not tolerate this type of activity in our financial institutions.

We will create a new partnership that will provide in-depth exchange of information and take joint action to protect the rights. And we will act vigorously against criminals and terrorists to ensure the safety and well-being of our citizens and to ensure the integrity of the financial economy of the UK."

Author: Sergey Panov

managing partner Finance Business Service