12|2010Italy Removes Cyprus from Black List
Italian individuals or companies doing business in Eastern Europe and the CIS countries will be pleased to hear that Italy has removed Cyprus from its Black List of countries suspected of abetting tax avoidance and providing insufficient information exchange. The move comes as a result of Cyprus and Italy having ratified their 28 May, 2009, double taxation treaty, which includes exchange of information protocols. Italians investing in Eastern Europe will now be able to use Cypriot entities and take advantage of Cyprus’s excellent network of tax treaties with Eastern European states, not to mention Cyprus’s very competitive corporate taxation rates.
The most significant developments for Italian taxpayers are that they will no longer be assumed to hold controlled-foreign-companies when working through Cypriot subsidiaries and will no longer be assumed to be Italian companies for tax purposes. Italian authorities will also permit Cypriot companies to be used more effectively for portfolio income exemption purposes, as withholding tax rates will either be removed entirely or reduced to 12.5%. Finally, Cypriot companies are now exempt from the Italian reporting requirement that stipulates enhanced reporting of any import or export transactions in excess of EUR 50,000 with “blacklisted” countries.
23rd August 2010
Liechtenstein and Luxembourg’s
11|2010New Tax Treaty – Zero Withholding Tax
Liechtenstein and Luxembourg are in the process of ratifying a new Double Taxation Treaty (DTT) which will reduce the withholding tax on dividend payments to zero if certain conditions are met. The DTT also has a Tax Information Exchange clause that follows the OECD model treaty, illustrating Liechtenstein’s desire to operate transparently with its peers. Luxembourg has long been a leader in investment fund structures and international holding companies, a success that Liechtenstein is eager to emulate.
In order to qualify, entities in each respective country must hold direct participations of more than 10% of an entity in the country. The acquisition value of that participation must be at least EUR 1.2 million and must be held for a minimum of 12 months (for short-term holdings under 12 months, a 5% residual tax is assessed). For entities that do not qualify under these criteria, the withholding tax rises to 15%. The DTT also calls for zero withholding tax on interest or royalty payments.
4th August 2010
Europe – Progress on Cross-Border
10|2010Inheritance Issues?
The expansion and deepening of the European Union has made it easier for EU citizens to hold assets in and migrate to other member states without the threat of differences in inheritance taxes when compared with those paid by “locals”. The European Commission analyzed eight European Court of Justice Cases going back to 2003 and came to the conclusion that six of these eight cases were, in fact, discriminatory to the persons who migrated to another member country. As a result, the Commission is embarking on a public consultations process designed to harmonize cross-border inheritance taxes.
The consultations will focus on transferring the ownership of small businesses, property valuation rules, debt and liability deduction rules, tax allowance differentials, and issues such as Luxembourg’s freezing of non-resident heirs’ estates until guarantees can be established (Luxembourg nationals are exempt from this). In July, 2010, the Commission will provide additional figures describing the size of this problem and hold consultations with affected EU citizens, business groups and tax practitioners until 22 September, 2010.
29th June 2010
Switzerland – Significant Positive Changes
09|2010to Intra-Group Financing
Swiss-based corporations will have an additional reason to celebrate National Day on August 1st this year. The Federal Council has ratified significant changes to intra-group withholding- and stamp-tax relevant transactions: Loans between group companies are no longer considered to be bonds or money market instruments and thus no withholding tax and stamp tax consequences are incurred.
The government’s prime objective in promulgating these changes is to enhance Swiss internationally-active companies’ competitiveness as corporate financing and cash management centers. The elimination of the taxes provide clarity and lower financing costs to Swiss companies lending domestically and internationally. Companies will no longer have an incentive to incorporate non-Swiss financing subsidiaries.
24th June 2010
Changes to Swiss Lump Sum Taxation
08|2010on the Horizon?
Switzerland is attractive for wealthy individuals to become Swiss resident. Provided that these individuals are not employed in Switzerland, are not Swiss citizens and have not resided in Switzerland for the previous 10 years, significant tax advantages are available. Taxes for such individuals are not based on income and overall wealth (as is the case for “ordinary” residents) but on the individuals’ expected costs of living in Switzerland, represented by a lump sum tax. These individuals also have the opportunity to secure binding rulings from communal and cantonal tax authorities before arriving in Switzerland, minimizing the risk of any unpleasant taxation surprises.
Certain cantons and members of the federal government, however, are taking an increasingly dimmer view of such lump sum arrangements. Voters in the canton of for example Zurich, passed a referendum banning lump sum agreements altogether. Faced with a potential exodus of wealthy foreigners whose indirect taxes may be as important as their lump sum taxes as a revenue source for the cantons, supporters of lump sum taxation are discussing how to “be more fair” without alienating (literally) wealthy foreigners. The most common recommendations are the following:
Increasing the minimum cost-of-living benchmark to CHF 400,000 from the current 100,000 to 150,000, depending on the canton.
Increasing the minimum cost measurement benchmarks to seven times rental costs (from five times) or three times residential cum foodstuffs costs (from two times).
Introducing a lump sum wealth tax in each canton, which not all cantons currently have.
It is important for persons considering expatriating to Switzerland under a lump sum taxation agreement to keep abreast of these developments and to go through the scenarios that make the most sense for each individual.
10th June 2010
OECD and the Council of
07|2010Europe’s Tax Cooperation
In April, 2009, the OECD made a major breakthrough in its quest for increased tax cooperation amongst its members and “business” partners. The organization’s next objective is to deepen the international standard of tax information, using a treaty protocol developed in conjunction with the Council of Europe. The new standards may apply to non OECD or Council members and include the following changes.
Spontaneous (i.e. automatic) exchange of information, as opposed to information upon request.
Simultaneous tax audits between signatories to the protocol.
Tax audits abroad, whereby tax auditors from one signatory look at information in another signatory’s proper jurisdiction.
Assistance in the recovery of (direct and indirect) tax claims.
These steps are ambitious and will require detailed negotiations amongst member states and their satellites. For one, the question of providing automatic information exchange is contentious. Countries where residents’ private spheres are protected by legislation may have a difficult time agreeing to protocols that exchange information without criminal or civil acts having been confirmed by their domestic judiciary. The OECD and the Council’s “shopping list” of changes may prove to be difficult to implement on a less supranational level.
7th June 2010