Tax-News.com: EU To Probe Potential Abuses Of Citizenship By Investment Schemes

by Ulrika Lomas, Tax-News.com, Brussels

28 January 2019

For the first time, the Commission has presented a comprehensive report on investor citizenship and residence schemes operated by a number of EU member states.

It comes following an announcement from the OECD that it intends to increase its work on challenging tax avoidance through citizenship by investment and similar schemes, focusing in particular on taxpayers seeking to avoid their financial data from being exchanged with their home country tax authority under the Common Reporting Standard.

The Commission’s new report maps the existing practices and identifies certain risks such schemes imply for the EU, in particular as regards security, money laundering, tax evasion, and corruption. A lack of transparency in how the schemes are operated and a lack of cooperation among member states further exacerbate these risks, the report finds.

The Commissioner for Migration, Home Affairs, and Citizenship, Dimitris Avramopoulos, said: “Legally residing in the EU and in the Schengen area comes with rights and privileges that should not be abused. Member states must at all times fully respect and apply existing obligatory checks and balances – and national investor residence schemes should not be exempt from that. The work we have done together over the past years in terms of increasing security, strengthening our borders, and closing information gaps should not be jeopardised. We will monitor full compliance with EU law.”

In the EU, three member states – Bulgaria, Cyprus, and Malta – currently operate schemes that grant investors the nationality of these countries under conditions less strict than ordinary naturalization regimes, the Commission said. In these three member states, there is no obligation of physical residence for the individual, or a requirement of other genuine connections with the country before obtaining citizenship.

These schemes are of common EU interest since every person that acquires the nationality of a member state will simultaneously acquire Union citizenship. The decision by one member state to grant citizenship in return for investment, automatically gives rights in relation to other member states, in particular free movement and access to the EU internal market to exercise economic activities as well as a right to vote and be elected in European and local elections. In practice, these schemes are often advertised as a means of acquiring Union citizenship, together with all the rights and privileges associated with it.

The Commission said, among other things, monitoring and reporting is necessary to make sure that individuals do not take advantage of these schemes to benefit from privileged tax rules.

The Commission added that investor residence schemes, while different from citizenship schemes in the rights they grant, pose equally serious security risks to member states and the EU as a whole. A valid residence permit gives a third-country national not only the right to reside in the member state in question, but also to travel freely in the Schengen area. While EU law regulates the entry conditions for certain categories of third-country nationals, the granting of investor residence permits is currently not regulated at EU level and remains a national competence. Currently, 20 member states run such schemes: Bulgaria, the Czech Republic, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, and the United Kingdom.

The Commission said it will monitor wider issues of compliance with EU law raised by investor citizenship and residence schemes and it will take necessary action as appropriate. For this reason, it said member states need to ensure, in particular, that:

  • All obligatory border and security checks are systematically carried out;
  • The requirements of the Long-Term Residence Permit Directive and the Family Reunification Directive are properly complied with; and
  • Funds paid by investor citizenship and residence applicants are assessed according to the EU anti-money laundering rules.

The Commission noted, in the context of tax avoidance risks, there are tools available in the EU framework for administrative cooperation, in particular for exchange of information.

The Commission said it will monitor steps taken by member states to address issues of transparency and governance in managing these schemes. Further, it will establish a group of experts from member states to improve the transparency, governance, and the security of the schemes. That group will be tasked, in particular, with:

  • Setting up a system of exchange of information and consultation on the numbers of applications received, countries of origin, and on the number of citizenships and residence permits granted/rejected by member states to individuals based on investments; and
  • Developing a common set of security checks for investor citizenship schemes, including specific risk management processes, by the end of 2019.

Finally, concerning third countries setting up similar schemes, the Commission will monitor investor citizenship schemes in candidate countries and potential candidates as part of the EU accession process. It will also monitor the impact of such schemes by EU visa-free countries as part of the visa-suspension mechanism.

Given the OECD’s movement into this area of international policy, the latest announcement appears to signal that the EU is seeking to clean up affairs at home, to enable it to better participate in international efforts to seek wider reform.

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Tax-News.com: Switzerland Begins Sharing Tax Data Internationally

by Ulrika Lomas, Tax-News.com, Brussels

12 October 2018

Switzerland has made its first exchanges under the new international automatic exchange of information (AEOI) framework, the Common Reporting Standard.

The Swiss Federal Council said that the Federal Tax Administration (FTA) made its first transmission of financial account information at the end of September. The FTA sent information on around two million financial accounts to its partner states.

The information exchanged included name, address, state of residence, and the tax identification number of account holders, along with information relating to the reporting financial institution, account balance, and capital income. Currently, there are around 7,000 reporting financial institutions registered with the FTA. These institutions collected the data and transferred it to the FTA.

The Council explained that in 2018 Switzerland will exchange information with the EU’s member states, along with Australia, Canada, Guernsey, Iceland, the Isle of Man, Japan, Jersey, Norway, and South Korea.

The transmission of data to Australia and France has been delayed. The Council said that these countries have not yet been able to deliver data to the FTA due to technical reasons. The FTA has yet to receive data from Croatia, Estonia, and Poland.

Information will not yet be shared with Cyprus and Romania, as they are not seen to meet the international requirements on confidentiality and data security.

The AEOI will take place on an annual basis. In 2019, data relating to 2018 will be exchanged with around 80 partner states, provided they meet the requirements on confidentiality and data security.

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Tax-News.com: Cyprus Issues New CbC Filing Notification

by Ulrika Lomas, Tax-News.com, Brussels

28 September 2018

The Cyprus Tax Department has released a notice on the obligation on Cypriot constituent entities of multinational groups to file a CbC report in Cyprus where the ultimate parent entity files in a territory without an exchange of information arrangement with Cyprus.

The Department noted that providing a report has been filed in a territory that is a party to the CbC Multilateral Convention on Administrative Assistance and has activated automatic information sharing with Cyprus, Cyprus-based constituent entities of multinational groups need not file a report also in Cyprus.

Groups have been advised to refer to the OECD’s website for a list of activated exchange of information relationships for CbC purposes.

However, if an information exchange relationship has not been activated by the CbC reporting deadline of December 31, 2018, a domestic filing obligation will arise for Cypriot constituent entities, it said. The agency further confirmed that it does not anticipate signing a CbC report exchange agreement with the US prior to this date and therefore a domestic filing requirement also arises where a group’s CbC report will be filed in the US.

The Department highlighted that this announcement may affect Cypriot entities’ compliance with Cyprus’s notification requirement. Groups have been advised to revise their notification by December 2018 on which entity will file a CbC report, and where, to avoid penalties.

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Tax-News.com: New Cypriot E-Payment Obligation From June 2018

by Amanda Banks, Tax-News.com, London

03 May 2018


Cyprus’s Department of Taxation said recently that it will accept only electronic payment for the main tax heads from June 1, 2018.

Earlier, the tax agency introduced mandatory electronic payment for pay as you earn (PAYE) income tax, from March 1, 2018.

The change applies to PAYE covering the public sector, provisional income tax, corporate income tax and personal income tax, and the special contributions for the Defense of Republic on interest, dividends, and rents. These taxes must be paid through the JCCsmart service.

The remaining tax liabilities, and the aforementioned categories of tax liabilities that have accrued interest or penalties must be paid in person at the local tax office.

The tax codes for the taxes affected are: 0114, 0200, 0300 (for legal and natural persons), 0602, 0603, 0604, 0612, 0613, 0614, and 0623.

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Tax-News.com: Advance Pricing Agreements ‘At Record High’ In EU

by Ulrika Lomas, Tax-News.com, Brussels

19 March 2018

The number of advance pricing agreements between EU member states and companies rose by 64 percent from 2015 to 2016, according to research by Eurodad.

Eurodad, a coalition of non-government organizations, said that the number of unilateral agreements in place in EU countries increased from 1,252 at the end of 2015 to 2,053 at the end of 2016. In 2014, there were 804 APAs in place, while in 2013 there were just 399.

EU member states (with the exception of the Netherlands) report to the European Commission the number of APAs that are currently in force in their countries.

Eurodad said that Belgium had the most APAs in place in 2016 (1,081), followed by Luxembourg (599). Italy, third on the list, had substantially fewer APAs in place (73), followed closely by Hungary (63), and the Czech Republic (54).

The following member states had reported to the Commission that they did not have any unilateral APAs in force in 2016: Austria, Bulgaria, Croatia, Cyprus, Denmark, Estonia, Germany, Ireland, Malta, Slovenia, and Sweden.

Belgium recorded the highest increase in the number of APAs in force, from 157 in 2014, to 396 in 2015, and 1,081 in 2016. The number of APAs in Luxembourg rose from 347 in 2014, to 519 in 2015, and 599 in 2016.

According to Eurodad, the majority of unilateral APAs in force in the EU concern only other EU member states. However, roughly 25 percent also concern non-EU countries.

Eurodad (the European Network on Debt and Development) is a network of civil society organizations from 19 European countries.

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Tax-News.com: EU Challenges Yacht VAT Avoidance In Three States

by Ulrika Lomas, Tax-News.com, Brussels

08 March 2018


The European Commission has sent letters of formal notice to Cyprus, Greece, and Malta for not levying the correct amount of value-added tax (VAT) on yachts.

Specifically, the infringement procedures launched on March 8 concern:

First, the reduced VAT base for the lease of yachts offered via a general VAT scheme in Cyprus, Greece, and Malta. The Commission said while current EU VAT rules allow member states to not tax the supply of a service where the effective use and enjoyment of the product is outside the EU, they do not allow for a general flat-rate reduction without proof of the place of actual use. Malta, Cyprus, and Greece have established guidelines according to which the larger the boat is, the less the lease is estimated to take place in EU waters, a rule which greatly reduces the applicable VAT rate.

Second, the Commission is challenging the incorrect taxation in Cyprus and Malta of purchases of yachts by means of what is known as “lease-purchase.” The Commission said the Cypriot and Maltese laws currently classify the leasing of a yacht as a supply of a service rather than a good. This results in VAT only being levied at the standard rate on a minor amount of the real cost price of the craft once the yacht has finally been bought, the rest being taxed as the supply of a service and at a greatly reduced rate.

This VAT issue can generate major distortions of competition and featured heavily in the coverage of last year’s “Paradise Papers” leaks, the Commission said, explaining: “The Paradise Papers revealed widespread VAT evasion in the yacht sector, facilitated by national rules which do not comply with EU law. As well as the infringement procedures launched today by the Commission, the European Parliament has recently indicated that its new committee to follow up on the Paradise Papers would also look at this issue.”

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation, and Customs Union, said: “In order to achieve fair taxation we need to take action wherever necessary to combat VAT evasion. We cannot allow this type of favorable tax treatment granted to private boats, which also distorts competition in the maritime sector. Such practices violate EU law and must come to an end.”

The three states have two months to respond to the arguments put forward by the Commission. If they do not act within those two months, the Commission may send a reasoned opinion to their authorities, after which it could refer the states to the European Court of Justice.

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Tax-News.com: Cyprus, Saudi Arabia Negotiate Double Tax Agreement

by Jason Gorringe, Tax-News.com, London

04 January 2018


Cyprus’s Ministry of Finance says the island has signed a double tax agreement with Saudi Arabia with respect to taxes on income and for the prevention of tax evasion.

The agreement was signed on January 3, 2018, in Riyadh during an official visit of the President of Cyprus to Saudi Arabia.

The Convention is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital, and provides for the exchange of financial and other information.

The Ministry says the agreement will contribute to developing economic relationship between the two countries and enhance co-operation in tax matters. It added that upgrading and expanding the island’s network of double tax agreements is critical to strengthening Cyprus as an international business center.

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Tax-News.com: EU Reports On States’ Tax Reforms In 2017

by Ulrika Lomas, Tax-News.com, Brussels

27 December 2017


The European Commission has released the 2017 edition of its survey of Tax Policies in the European Union, looking at the reforms undertaken by EU member states during the year.

As well as looking at EU and international trends, the report evaluates national tax systems’ performance against four EU-level policy priorities: facilitating investment, boosting employment, ensuring tax compliance, and reducing inequalities.

The report says that 2017 saw member states renew focus on lowering tax rates. In 2017 five EU member states implemented cuts in their CIT headline rates: Croatia, Hungary, Italy, Slovakia, and the UK. Further cuts have been announced or are already scheduled in four states: Estonia, France, Luxembourg, and the United Kingdom. Only Slovenia increased its headline tax rate during 2017.

The report said that states are increasingly giving priority to incentivizing investment into young and innovative firms. However, because most countries reformed and expanded their research and development tax incentives during the crisis years, tax reforms in this respect were less numerous in 2016-2017. The report notes Italy extended both its allowance on investment costs as well as its tax credit system, and increased their generosity. In the context of overhauling its research and development tax incentive scheme, Poland not only increased the general tax deduction but also introduced special provisions for SMEs.

In addition, a number of countries undertook measures to support small companies or adapted thresholds or rates of their existing schemes, including France, Hungary, Luxembourg, Latvia, the Netherlands, Poland, Portugal, and Romania. Hungary simplified its small business tax and reduced the respective tax rate, both effective as of 2017.

The report notes that Latvia introduced a new tax regime for start-ups; Ireland introduced a reduced capital gains tax for entrepreneurs; and Finland implemented a five percent entrepreneur deduction into its personal income tax law. With respect to equity investment, Hungary, Portugal, and Cyprus introduced tax incentives for investors providing finance into young enterprises.

There have been reforms to embrace digitalization and engaging with the collaborative economy, the Commission reported. France, Estonia, and the UK were singled out as innovators in this area.

Most states sought to lower their personal income tax burdens in 2017, the report said. For instance, Croatia undertook a reform that reduced tax rates and simplified the system by reducing the number of tax brackets. Portugal is gradually eliminated the solidarity surcharge over the course of 2017, starting with the lowest two tax brackets. Finland implemented a general earned income tax reduction, by lowering the lowest and highest tax rates, increasing the maximum amount of the earned income tax credit, and increasing various deductions, the report said. The UK further increased the tax-free allowance and revised upwards the threshold for the higher rate tax bracket, and Denmark legislated for an increase in PIT rates from 2018.

Across the whole EU, top corporate income tax (CIT) rates have decline constantly over the past two decades. The decline of CIT rates slowed down after the crisis, the Commission reported, but the decline is said to have accelerated again in recent years. The picture with regards value-added tax is mixed; while many countries have implemented increases to their value-added tax rates, the average across the EU is broadly level with 2013 levels, the report says.

The report highlights that tax incentives for venture capital and business angels have become an increasingly important part of the investment and innovation policy mix in the EU and beyond. It highlights the findings of an EU-Commissioned report from PwC and the Institute for Advanced Studies (IHS), which recommended that states improve relief on capital gains; provide more favorable loss relief; ease restrictions on the participation of related parties; ease or removing minimum holding periods; and better monitoring the costs of providing such incentives.

The report also looked at the environmental tax policies in place in member states, looking in particular at subsidies and tax relief for petrol and diesel and tax relief for company car purchases and purchases of environmentally friendly cars.

Last, it discusses the importance of tax certainty and ongoing tax initiatives, including the common corporate tax base, and looked at tax administrative proposals in the pipeline.

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Tax-News.com: Cyprus Extends Deadline For CbC Reporting Entity Notification

by Jason Gorringe, Tax-News.com, London

14 December 2017


The Cypriot tax authority has extended until January 15, 2018, the deadline for multinational corporations to submit their notifications concerning country-by-country reporting for 2017. The deadline had been December 31.

In December 2016, Cyprus issued a decree introducing CbC reporting obligations for multinational enterprises with consolidated group revenue of EUR750m (USD884m) or more.

One of the regime’s requirements is that a Cypriot resident member of a multinational group must inform the Cypriot tax agency whether it will file the CbC report, either as an “ultimate parent entity” or a “surrogate parent entity.”

CbC reporting was recommended by the OECD under Action 13 of its base erosion and profit shifting project. A CbC report should contain certain information relating to the global allocation of MNE income and taxes paid, together with information on where the group’s economic activity takes place.

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Tax-News.com: EU Commission Warns Of Tax Scam Letters

by Ulrika Lomas, Tax-News.com, Brussels

12 December 2017


The European Commission has warned taxpayers in Europe of letters being sent by fraudsters bearing its name and demanding the payment of tax not due.

The Commission said that the scam letters inform citizens of the existence of an outstanding tax debt, seek immediate payment, and threaten legal action for non-payment.

They purport to be from the Tax Administration of the European Commission and bear the logo of the European Commission. They are signed by an official of the “Taxation and Customs” of the European Commission.

Warning of the scam, the Commission said: “Please note that the European Commission and its departments never send individual letters to citizens regarding their tax status or to demand payment of taxes. The taxation of individuals, including setting the tax rates, determining the tax base and the subsequent collection of the tax debt, is an exclusive competence of EU member states.”

“If you have already received such a letter, you are advised to immediately terminate all further contacts with the fraudsters and to contact your local tax authority. If you have already acted on such a letter and have transferred funds to the fraudsters, you are advised to contact both your tax authority and your local law enforcement agency for assistance.”

“The European Commission takes very seriously such fraudulent use of its name, logo, and reputation. We are therefore assessing what action we can take with the law enforcement authorities of members states to discontinue the reported scam and to possibly prosecute those responsible. Any such action will not, however, be a remedy for any individual loss suffered as a result of the scam, for which civil and/or criminal action at national level is the only remedy.”

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