Owen, Christopher: Global Survey – January 2022

21 December 2021, Guernsey, the Isle of Man and Jersey published joint guidance relating to economic substance for partnerships. The tax administrations from the Crown Dependencies will continue to work together to further develop this guidance, which will be updated periodically, and will be complemented by island-specific guidance.

Economic substance rules have applied to companies that are tax resident in the Crown Dependencies since 1 January 2019. In response to commitments made with respect to the EU Code of Conduct in November 2020, legislation introducing economic substance requirements for partnerships in the Crown Dependencies was approved by the respective parliaments in 2021:

• Guernsey – The Income Tax (Substance Requirements) (Implementation) Regulations 2021
• Isle of Man – Income Tax (Substance Requirements) Order 2021
• Jersey – Taxation (Partnerships - Economic Substance) (Jersey) Law 2021

The legislation applies to all partnerships resident for tax purposes in the Crown Dependencies and is effective at various dates depending on the type of provision and type of partnerships.

The joint guidance states that economic substance requirements apply to any resident partnership for any relevant activity for which it has gross income, not taxable income/profit or accounting income/profit. Generally, the economic substance test will not apply to a resident partnership if all partners are individuals subject to income tax in the respective island, or the resident partnership is not part of a multinational group.

If there is any indication that a partnership is seeking to manipulate or artificially suppress its income to avoid being subject to substance requirements, the respective Tax Administrations will take the appropriate action.

Partnerships will be required to demonstrate that the relevant activity is directed and managed by its ‘governing body’ in the islands. The governing body is the person or group of persons responsible for making a partnership’s strategic and management decisions. If that person or group is not able to be identified, then all the partners in the partnership will be deemed the governing body.

It is expected that any business will need to have meetings of its governing body in line with the levels of activities it conducts, and it is at those meetings that the decisions required to run the business are made. The governing body should meet in the island at an adequate frequency given the level of decision making required in respect of the relevant activity. Strategic decisions must be set at those meetings, with the minutes reflecting those decisions, even those where the board considers courses of action and rejects them.

The governing body, as a whole, must have the necessary knowledge and expertise to discharge their duties. All minutes and relevant records must be kept in the island. If there is evidence that substantive decision making is taking place in any forums, or by any persons, without reference to or without the oversight of the identified governing body, it is unlikely to be accepted that this is the governing body for purposes of the economic substance test.

For a limited partnership, the governing body will be considered to be the board of directors of the body corporate which is the general partner. For a limited liability partnership, the governing body will be its management committee or team (however constituted) as mandated pursuant to its partnership agreement.

For a general partnership, it will be necessary to have regard for the facts and circumstances of that partnership and its partnership agreement to determine what is the governing body. If a partnership has mandated a group of ‘senior’ partners, akin to a management committee, it will be considered to be the governing body. In other circumstances, all partners in the partnership may be considered the governing body.

For a limited liability company managed by its members, the governing body will be those members; for a limited liability company that has vested its management in another person, the governing body will be that person(s).

Generally, the islands’ legislation treats a partnership as resident for purposes of the economic substance rules either if it is legally formed in the island and its place of effective management is not elsewhere, or if it is foreign formed but has its place of effective management in the island.

The islands’ legislation follows the OECD guidelines, which note: “The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made.” An additional element allows partnerships to have only one place of effective management at any one time (even if there are multiple places of management).

Although there is no one set test, as each situation depends on its particular facts and circumstances, in most cases the form, membership and location of the governing body can be clearly established, usually from the partnership agreement, partnership registers, minutes of meetings, or from the records at the registry, and from this follows the partnership’s place of effective management.

A partnership is not required to satisfy the economic substance test if it is eligible for one of two exemptions that apply where:

• All the partners are individuals and subject to income tax in the island in respect of their share of the profits of the partnership (‘individual exemption’); or
• The partnership is not part of a multi-national group and carries out its activities in the island (‘domestic exemption’).

As with companies, the Collective Investment Vehicle (CIV) exemption will also apply to partnerships.

The legislation in each island includes definitions of certain terms used within the individual exemption and the domestic exemption as well as the specific text of the exemptions, which must be read in conjunction with the guidance.

Each jurisdiction also uses a different term to define a multi-national group; however, in general a multi-national group is a collection of enterprises (which are not all tax resident in the same jurisdiction) that are required to prepare consolidated financial statements, in accordance with international accounting standards. There is no specified turnover threshold.

A partnership will be considered to carry out its activities from the fixed place of business/premises through which the trade or business is carried on. For limited partnerships, only the general partner is permitted to conduct activity of the limited partnership. The limited partnership will be considered to carry out its activities from the fixed place of business/premises through which the general partners trade or business activities are carried on.

Performing services for the benefit of the resident partnership, rather than a customer, are not considered part of the partnership’s activities in this context.

The joint guidance states that, for clarification, under the economic substance test there is a requirement to demonstrate certain elements in each island, such as adequate qualified employees, which includes all substance in the Islands used in the relevant activity.

Qualified employees would cover those working for: the partnership; the governing body, including a general partner, or any other partners; or for persons to whom activities have been outsourced, provided those duties are performed or held in the island.

The guidance should be read in conjunction with the following island laws, as the intent is that the application of rules for the economic substance test to partnerships should be, where relevant, consistent with the similar rules applicable to companies.

9 December 2021, Finance Minister Constantinos Petrides announced that Cyprus would proceed with tax reforms in 2022, including increasing the corporate income tax rate to 15% and introducing green taxation to achieve its environmental targets.

Presenting the 2022 Budget to the House of Representatives, Petrides referenced the global tax reform agreement for the imposition of a minimum global corporate tax rate of 15% reached by 137 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in October.

The objective of the Budget was to have a fairer and fiscally neutral tax reform that would be completed within 2022. He stated that the increase of the corporate tax in Cyprus from 12.5% to 15% would not substantially affect the foreign investments in Cyprus because the country had other comparative advantages as an investment destination that would balance this small increase in the corporate tax rate.

Apart from the increase in corporate taxation, the Cyprus government would consider the reduction or abolition of the special defence contribution on deemed or real distribution of dividends, the reduction of the rate of special defence contribution on interest income, and the reduction or abolition of the €350 annual company levy.

The reform, he added, would also include the introduction of carbon taxation, the gradual increase of taxation on fossil fuels and the introduction of environmental levies.

22 December 2021, the European Commission presented a proposed directive to counter the misuse of shell entities for improper tax purposes. The ‘Unshell’ proposal is intended to ensure that entities in the EU that have no, or minimal economic activity would not be able to benefit from any tax advantages intended to support real economic activity.

The proposed new measures would establish transparency standards around the use of shell entities – using a number of objective indicators related to income, staff and premises – so that misuse could more easily be detected by tax authorities.

They would introduce a filtering system for the entities based on indicators in respect of three ‘gateways’. If a company crosses all three gateways, it would be required to report more information related to economic substance to the tax authorities through its annual tax return.

“This proposal will tighten the screws on shell companies, establishing transparency standards so that the misuse of such entities for tax purposes can more easily be detected,” said European Commissioner for Economy Paolo Gentiloni. “Our proposal establishes objective indicators to help national tax authorities detect firms that exist merely on paper.”

The first level of indicators would look at the activities of the entities based on income received. The gateway would be met if more than 75% of an entity’s overall revenue in the previous two tax years did not derive from the entity’s trading activity or if more than 75% of its assets were real estate property or other private property of particularly high value.

The second gateway would require a cross-border element. If the company received the majority of its relevant income through transactions linked to another jurisdiction or passed this relevant income on to other companies situated abroad, the company would cross to the next gateway.

The third gateway would focus on whether corporate management and administration services are performed in-house or are outsourced.

If an entity crosses all three gateways, it will be required to report information in its tax return – termed as ‘substance indicators’ – in respect of the company premises, its bank accounts, the tax residency of its directors and that of its employees. All declarations would need to be accompanied by supporting evidence.

If an entity fails at least one of these substance indicators, it would be presumed to be a ‘shell’. If a company is deemed a shell company, it would not be able to access tax relief and the benefits of the tax treaty network of its member state and/or to qualify for the treatment under the Parent-Subsidiary and Interest and Royalties Directives.

To facilitate the implementation of these measures, the member state of residence of the company would either deny the shell company a tax residence certificate or the certificate would specify that the company is a shell.

Payments to third countries would not be treated as flowing through the shell entity and would be subject to withholding tax at the level of the entity that paid to the shell. As a result, inbound payments would be taxed in the state of the shell’s shareholder.

Consequences would also apply to shells owning real estate assets for the private use of wealthy individuals that have no income flows. Such assets would be taxed by the state where the asset is located as if it were owned by the individual directly.

Entities that do not meet all substance indicators would have the opportunity to rebut the presumption of being a shell by presenting additional evidence, such as detailed information about the commercial purpose of their establishment, the profiles of employees and the fact that decision-making takes place in the member state of their tax residence.

Given the cross-border nature of tax planning, member states’ authorities would automatically exchange information on all entities in scope of the Directive, regardless of whether they are shell entities or not. The proposal would amend the Directive on Administrative Cooperation in the field of taxation (DAC) to this effect.

Further, the proposal would enable member states to request another member state to conduct a tax audit of any entity should report in the latter state and communicate the outcome to the former member state within a reasonable time frame.

The proposed Directive would come into force on 1 January 2024, following its adoption by EU member states. In addition, the Commission said it would present a new initiative to respond to the challenges linked to non-EU shell entities in 2022.

In December 2021, the Commission tabled a very swift transposition of the international agreement on a global minimum level of taxation for multinational enterprises. In 2022, the Commission will put forward another transparency proposal, requiring certain large groups to publish their effective tax rates, while the 8th Directive on Administrative Cooperation is intended to equip tax administrations with the necessary information to cover crypto assets.

22 December 2021, the European Commission released its proposed Directive to implement within the EU the global minimum tax under ‘Pillar 2’ of the OECD agreement reached between 137 countries in October. The Directive largely tracks the OECD agreement, while adding domestic application to comply with EU anti-discrimination requirements.

The proposal delivers on the EU's pledge to be among the first to implement the global tax reform agreement reached by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The proposal sets out how the effective tax rate will be calculated per jurisdiction, and includes clear, legally binding rules that will ensure large groups in the EU pay a 15% minimum rate for every jurisdiction in which they operate.

“The directive we are putting forward will ensure that the new 15% minimum effective tax rate for large companies will be applied in a way that is fully compatible with EU law,” said EU Commissioner for Economy Paolo Gentilioni. “We will follow up with a second directive next summer to implement the other pillar of the agreement, on the reallocation of taxing rights, once the related multilateral convention has been signed.”

The proposed rules will apply to any large group, both domestic and international, including the financial sector, with combined financial revenues of more than €750 million a year, and with either a parent company or a subsidiary situated in an EU Member State.

The effective tax rate is established per jurisdiction by dividing taxes paid by the entities in the jurisdiction by their income. If the effective tax rate for the entities in a particular jurisdiction is below the 15% minimum, then the Pillar 2 rules will be triggered and the group liable to pay a top-up tax to bring its rate up to 15%.

This top-up tax is known as the ‘Income Inclusion Rule' and applies irrespective of whether the subsidiary is in a country that has signed up to the international OECD/G20 agreement or not. The calculations will be made by the ultimate parent entity of the group unless the group assigns another entity.

If the global minimum rate is not imposed by a non-EU country where a group entity is based, member states will apply what is known as the ‘Undertaxed Payments Rule'. This is a backstop rule to the primary Income Inclusion Rule. It means that a Member State will effectively collect part of the top-up tax due at the level of the entire group if some jurisdictions where group entities are based tax below the minimum level and do not impose any top-up tax. The amount of top-up tax that a member state will collect from the entities of the group in its territory is determined via a formula based on employees and assets.

In line with the global agreement, the proposal also provides for certain exceptions. To reduce the impact on groups carrying out real economic activities, a ‘substance carve-out’ will permit companies to exclude an amount of income equal to 5% of the value of tangible assets and 5% of payroll. The rules also provide for an exclusion of minimal amounts of profit, to reduce the compliance burden in low-risk situations. This de minimis exclusion ensures that when the average profit and revenues of a multinational group in a jurisdiction are below certain minimum thresholds, that income is not considered in the calculation of the rate.

For the first 10 years, there is a transitional rule where the starts off at 8% of the carrying value of tangible assets and 10% of payroll costs. For tangible assets, the rate declines annually by 0.2% for the first five years and by 0.4% for the remaining period. In the case of payroll, the rate declines annually by 0.2% for the first five years and 0.8% for the remaining period.

While the scope of the OECD Pillar 2 is limited to multinational (MNE) groups and a parent entity subjects only its foreign subsidiaries to the income inclusion rule, the proposed EU Directive will adjust the scope to also include purely domestic groups. This is necessary to comply with the EU fundamental freedoms, specifically the freedom of establishment.

The OECD Model Rules allow jurisdictions the option to apply a qualifying domestic minimum tax. The Commission proposal will also allow EU member states to exercise the option to apply a domestic top-up tax to low taxed domestic subsidiaries. This option will allow the top-up tax due by the subsidiaries of the multinational group to be charged locally, within the respective member state, and not at the level of the parent entity.

The proposed Directive is subject to certain legislative steps before it can be adopted, including unanimous agreement in the European Council. However, nearly all EU states have already in principle agreed to the rules under the OECD Inclusive Framework. Cyprus, which is not a member of the Inclusive Framework, has also indicated that it supports the agreement.

Minimum corporate taxation is one of the two work streams of the global agreement – the other is the partial re-allocation of taxing rights, known as ‘Pillar 1’. This will adapt the international rules on how the taxation of corporate profits of the largest and most profitable multinationals is shared amongst countries, to reflect the changing nature of business models and the ability of companies to do business without a physical presence. The Commission will also make a proposal on the reallocation of taxing rights in 2022, once the technical aspects of the multilateral convention are agreed.

17 December 2021, the Hong Kong Department of Justice launched a public consultation for a legislative proposal to implement an agreement with the Chinese Mainland on the reciprocal recognition and enforcement of judgments in civil and commercial matters. The consultation runs to 31 January 2022.

The so-called ‘REJ Arrangement’ – the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region – was signed by both the Supreme People’s Court and the Hong Kong SAR government in January 2019.

The legislative proposal to make the REJ Arrangement effective is contained in the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Bill and the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Rules.

These introduce a mechanism under which a person can apply to the Hong Kong Court of First Instance (CFI) to have a Mainland judgment in a civil or commercial matter registered with the CFI on an ex parte basis. A registered judgment can then be enforced in the same way as if it were a judgment originally given by the CFI.

Subject to certain restrictions, the proposed mechanism covers both monetary (excluding punitive or exemplary damages) and non-monetary relief. The CFI can set aside the registration if an applicant is able to prove to the satisfaction of the court that any of the exhaustive grounds of refusal exists.

The mechanism also facilitates the recognition and enforcement of Hong Kong judgments in civil or commercial matters in Mainland China by empowering the Hong Kong court to issue certified copies of and certificates for such Hong Kong judgments.

In formulating the REJ Arrangement, reference was made to the then draft version of the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, while also considering the practical needs and circumstances of Mainland China and the HKSAR.

In fact, the REJ Arrangement goes beyond the Hague Judgments Convention by expressly covering judgments given in respect of disputes over intellectual property (IP) rights, which are specifically excluded from the Convention.

17 December 2021, the Stock Exchange of Hong Kong issued a new listing regime for special purpose acquisition companies (SPACs) following the conclusion of a public consultation that began in September. The Listing Rule amendments were brought into effect on 1 January 2022.

A SPAC is a type of shell company – sometimes known as a ‘blank cheque’ company – that raises funds through an initial public offering (IPO) for the purpose of acquiring an operating company within a pre-defined time after listing. At the time of the IPO, SPACs have no business operations and no assets other than the proceeds from their IPO and the funds required to pay for their expenses.

Under Hong Kong’s new rules, all SPAC Promoters must meet the suitability and eligibility requirements of Hong Kong Exchanges and Clearing (HKEX). The IPO fund raising amount must be a minimum of HK$1 billion (approx. USD128 million) with an issue price of at least HK$10 per share.

Subscription for and trading of a SPAC’s securities before a De-SPAC transaction will be restricted to professional investors only and each type of SPAC securities – shares or warrants – must be distributed to at least 75 professional investors, of which 20 must be institutional professional investors.

The number of ‘promoter shares’ issued to SPAC promoters must not represent more than 20% of the total number of the SPAC’s issued shares as at its listing date. Following completion of the ‘de-SPAC transaction’, SPACs are permitted to issue additional promoter shares capped at 10% of the total number of shares in issue as at the SPAC’s listing date.

The gross proceeds of a SPAC’s initial offering – excluding the proceeds of promoter shares and warrants – must be held in a ring-fenced escrow account that is domiciled in Hong Kong and operated by a qualified trustee or custodian. Interest or other income earned on the funds may be used by a SPAC to settle its expenses.

An announcement of the finalisation of the terms of a de-SPAC transaction must be published within 24 months of the date of SPAC’s initial listing and the transaction must be completed within 36 months. A maximum extension of six months may be granted by HKEX upon request in respect of either the announcement or transaction deadline.

A de-SPAC transaction is conditional on approval by a SPAC’s shareholders in general meeting. SPAC promoters and other shareholders with a material interest in the transaction, and their close associates, will be required to abstain from voting and any outgoing controlling shareholders of the SPAC and their close associates will be prohibited from voting in favour of the resolution. Shareholders can vote against a de-SPAC transaction and still have the option to redeem their investment.

HKEX will suspend trading of a SPAC’s securities if it fails to announce or complete a de-SPAC transaction within the applicable deadlines. In such a case, a SPAC must return funds to its shareholders (excluding holders of promoter shares) on a pro rata basis, for an amount per SPAC share that is not less than the price at which the shares were issued at the SPAC’s initial offering without interest, within one month. After returning funds to its shareholders, the SPAC must liquidate. The HKEX will automatically cancel the SPAC listing upon completion of the liquidation process.

“HKEX is fully focused on making Hong Kong’s markets internationally attractive, competitive and diversified,” said HKEX chief executive Nicolas Aguzin. “Our new SPAC listing regime reflects our commitment to continue to build Hong Kong’s reputation as the region’s premier capital-raising market, reinforcing its global role as a world-leading international financial centre. By enabling experienced and reputable SPAC Promoters to source listings from new and innovative industries, we look to help fuel the growth of the companies of tomorrow.”

14 December 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released the 2020 peer review assessments of 131 jurisdictions in relation to the spontaneous exchanges of information on tax rulings under the BEPS Action 5 minimum standard.

The Inclusive Framework said that exchange on tax rulings was a critical tool in improving access of tax administrations to information relevant to assess the corporate tax affairs of their taxpayers and to efficiently tackle tax avoidance and other BEPS risks.

The conclusions of the peer review assessments showed that the global reach on tax rulings had continued to increase, with 22,000 tax rulings having been identified and 41,000 exchanges between jurisdictions having taken place.

According to the 2020 Peer Review Reports, 95 jurisdictions were now fully in line with the BEPS Action 5 minimum standard, with the remaining 36 jurisdictions received one or more recommendations to improve their legal or operational framework to identify and exchange the tax rulings.

Full details of the 2020 peer reviews and outcomes can be accessed at www.oecd.org/tax/beps/harmful-tax-practices-2020-peer-review-reports-on-the-exchange-of-information-on-tax-rulings-f376127b-en.htm

28 October 2021, the Bombay High Court ruled that held that a foreign trust could be treated as a trust for Indian income tax purposes and that, since the taxpayer was the settlor and sole beneficiary of the trust, the income assessed in the hands of the trustee was effectively the taxpayer’s income and the benefit of the relevant tax treaty was to be granted.

In Abu Dhabi Investment Authority & Ors v Authority for Advance Ruling & Ors, Writ Petition No. 770 of 2021, the Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund tax resident in the United Arab Emirates (UAE), had made investments into debt securities in India through a revocable trust it had set up in Jersey in 2013, of which it was the sole beneficiary.

The trust was registered with the securities regulator of India as a foreign portfolio investor under the applicable regulations. Under the India-UAE Double Taxation Avoidance Agreement (India-UAE DTAA), ADIA was recognised as a government institution and thus any income derived by it from India was exempt from tax in India under article 24 of the treaty.

ADIA filed an application before the Indian Authority of Advance Ruling (AAR) to gain certainty on the taxability of the income accruing on the investments made or proposed to be made in the Indian portfolio companies by the trust.

ADIA contended that, because the Jersey trust was a revocable trust, the capital contribution made by ADIA in the Jersey trust should be considered as a ‘revocable transfer’ under Indian income tax law such that any income arising should be taxed as the income of the transferor and thereby should be exempt as per article 24 of the India-UAE DTAA.

Secondly, the income received by the Jersey trust was to be taxed in the hands of its trustee as the representative of the beneficiary of such trust in a like manner and to the same extent as it would have been taxed in the beneficiary’s hands and therefore exempt under the India-UAE DTAA.

ADIA explained that at the time it was seeking to invest in India, there was no legal framework in the UAE for the formation of a trust and the taxpayer could not establish a single shareholder subsidiary company in the UAE. For commercial and administrative reasons, it made all its illiquid investments through separate legal entities to ensure that it did not have to deal directly with various portfolio companies.

ADIA used Jersey as a jurisdiction for establishing companies and trusts and for making various investments globally. Jersey’s regulatory regime complied with international standards, it had entered into information exchange agreements with several jurisdictions and was generally not considered an obstructive or opaque jurisdiction.

On 18 March 2020, the AAR denied ADIA’s claim and ruled that the income received by the Jersey trust should be taxable in India because:

• The income from Indian debt securities was received by the Jersey trust and, in the absence of any tax treaty between India and Jersey, such income was taxable in India.
• India had not ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1 July 1985, so trust laws of a foreign jurisdiction did not apply in India.
• In the case of a trust, the settlor could not itself be the sole beneficiary or the trust would serve no purpose.
• Enforcing the provisions relating to a revocable transfer could amount to tax avoidance by ADIA, which would bar the authority from ruling on the application.
• As a foreign trust, the provisions of Indian trust law were not applicable to the Jersey trust, and it could not therefore benefit from the provisions of the Indian income tax law.

ADIA and the Jersey trust petitioned the Bombay High Court to overturn the AAR’s order. The Court quashed the AAR order, holding that a foreign trust could be treated as a trust for Indian income tax purposes and that since the taxpayer was the settlor and sole beneficiary of the trust, the income assessed in the hands of the trustee was effectively the taxpayer’s income and the benefit of the India-UAE DTAA was to be granted.

The Court noted that had ADIA directly made investments in India, its income would have been exempt, and it was only for certain commercial reasons that ADIA had set up the Jersey trust to make investment in India. It observed that ADIA was not attempting to reduce any tax by making investments through the Jersey trust.

In its ruling, the Court upheld a number of principles relating to the taxation in India of foreign trusts, including:

• The settlor of a trust was not prevented from being the sole beneficiary of that trust under Indian trust law.
• There was no requirement under the Indian income tax law that its provisions were applicable only to an Indian trust or a trust falling under the provisions of the Indian trust law.
• The non-ratification by India of an international trust convention did not affect the tax treatment of a foreign trust in India.

The Court concluded: "Even if, the trust is based out of Jersey and the trust is settled in Jersey, ADIA, being the settlor and sole beneficiary of the trust and a resident of the UAE as per the India-UAE DTAA, the income which arises to it by virtue of its investment in Indian Portfolio companies, will be governed by the beneficial provisions of the India-UAE DTAA."

22 December 2021, the Irish Department of Finance launched a public consultation seeking stakeholder views on a possible move to a territorial system of taxation. The consultation period will run to 7 March 2022.

Finance Minister Paschal Donohoe said: “Today I am fulfilling my commitment to launch a public consultation on a territorial tax regime which was included in the January 2021 ‘Update to Ireland’s Corporation Tax Roadmap’. The recent historic Agreement at OECD on changes to address tax challenges arising from digitalisation makes this an appropriate time to consider the strategic direction of Ireland’s tax policy by considering the merits of moving to a territorial system of taxation.”

The consultation builds on the work of the 2017 Review of Ireland’s Corporation Tax Code by Seamus Coffey and the subsequent public consultation on the recommendations of the report held in 2018. It is mainly intended as a scoping exercise seeking to identify the benefits, costs, opportunities and risks of such a move.

20 December 2021, Malta’s Office of the Commissioner for Revenue opened a consultation on draft transfer pricing rules to implement the arm’s length principle for the pricing of in-scope transactions between associated enterprises.

The Maltese government is committed to implement specific transfer pricing rules in accordance with the current global standards as part of Malta’s Recovery and Resilience Plan that was agreed with the EU Commission in September 2021 and approved by ECOFIN in October 2021. A provision (Article 51A) enabling the making of rules in relation to transfer pricing and Advance Pricing Agreements (APAs) was introduced into the Income Tax Act during 2021.

The draft rules define the ‘arm’s length amount’ and provide for the determination of such amount on the basis of methodologies designated by the Commissioner for Revenue in guidelines yet to be published. It is envisaged that the OECD Transfer Pricing Guidelines will constitute an important source of reference in the application of the rules.

The income chargeable to tax of companies that fall within scope of the rules will be computed with reference to the arm’s length amounts of incomes and expenditures. The rules provide for corresponding adjustments to be made in computing the chargeable income of other parties to the arrangement where such income falls within the scope of Maltese taxation.

Companies falling within scope must prepare and retain records for the purposes of determining whether, in relation to an arrangement, the total income of the company has been computed in accordance with the rules. Further details relating to such documentation will be included in guidelines.

The rules also provide a formal framework for the request and issue of Unilateral Transfer Pricing Rulings and APAs (bilateral and multilateral). These are intended to provide certainty in relation to the application of these rules to a transaction or a series of transactions.

The government intends to use publish final transfer pricing rules in late 2022 that will come into force with effect for financial years commencing on or after 1 January 2024.

10 December 2021, the Mauritian National Assembly approved the Virtual Asset & Initial Token Offering Services Act. The draft legislation was approved by the Cabinet at its meeting on 26 November and will be brought into force when Presidential assent is received.

The object of the Act is to provide a comprehensive legislative framework to regulate the new and developing business activities of virtual assets and initial token offerings. This framework is required to meet international Financial Action Task Force standards in respect of provisions for managing, mitigating and preventing any anti-money laundering and countering the financing of terrorism (AML/CFT) risks associated with these emerging business practices.

Under the Act, the Financial Services Commission (FSC) is to be responsible for regulating and supervising virtual asset service providers and issuers of initial token offerings. The Act therefore provides for the FSC, amongst other things, to:

• License virtual asset service providers.
• Register issuers of initial token offerings.
• Determine whether virtual asset service providers and issuers of initial token offerings are, for AML/CFT purposes, complying with the Financial Intelligence and Anti-Money Laundering Act, the Financial Services Act, and the United Nations (Financial Prohibition, Arms Embargo and Travel Ban) Act 2019.

In addition, with a view to protecting the rights of clients of virtual assets and virtual tokens, and to ensure AML/CFT compliance, it will be a financial crime offence to:

• Carry out business activities as a virtual asset service provider without being correctly licensed.
• Carry out business activities as an issuer of initial token offerings without being correctly registered.
• Otherwise, be in breach of this new regulatory regime.

The existing regulatory framework on digital assets was adopted in the form of guidelines and regulations, with its scope limited to custodian services and to digital assets, such as ‘securities’ and ‘security tokens’. The new Act no longer limits the regulatory framework to these areas but provides for the licensing and supervision of a much wider range of activities under a new comprehensive definition.

Key provisions in the Act include the new definition of a ‘virtual asset’, which was imported from the FATF guidelines, and the transitional provisions which provide that a ‘security’ under the Securities Act no longer includes a ‘virtual token’.

With a view to promoting innovation in the financial services sector, the government of Mauritius announced a raft of initiatives in the National Budget 2021-22, as follows:

• The Bank of Mauritius (BoM) and the FSC will set-up open labs for banking and payment solutions.
• A FinTech Innovation Hub will be created to foster entrepreneurship culture and a single desk will be set up to accept all FinTech related applications.
• Introduction of the new Securities Bill to reinforce the legal structure of the FinTech sector, especially in respect of tokens or virtual assets with underlying securities.
• New legislation for virtual assets will be enacted.
• The BoM will roll-out, on a pilot basis, a Central Bank Digital Currency to be known as the ‘Digital Rupee’.

20 December 2021, the OECD published detailed rules to assist in the implementation of a landmark reform to the international tax system, which will ensure Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.

The ‘Pillar 2’ model rules provide governments with a precise template for taking forward the two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy agreed in October 2021 by 137 countries and jurisdictions under the OECD/G20 Inclusive Framework on BEPS.

The rules define the scope and set out the mechanism for the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to MNEs with revenue above €750 million and is estimated to generate around USD150 billion in additional global tax revenues annually.

The GloBE rules provide for a co-ordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. The rules create a ‘top-up tax’ to be applied on profits in any jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum 15% rate.

The new Pillar Two model rules will assist countries to bring the GloBE rules into domestic legislation in 2022. They provide for a co-ordinated system of interlocking rules that:

• Define the MNEs within the scope of the minimum tax;
• Set out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis, and for determining the amount of top-up tax payable under the rules; and
• Impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.

The Pillar 2 model rules also address the treatment of acquisitions and disposals of group members and include specific rules to deal with particular holding structures and tax neutrality regimes. Finally, the rules address administrative aspects, including information filing requirements, and provide for transitional rules for MNEs that become subject to the global minimum tax.

“The model rules released today are a significant building-block in the development of a two-pillar solution, converting the foundations of a political agreement reached in October into enforceable rules,” said Director of the OECD Centre for Tax Policy and Administration Pascal Saint-Amans.

“The fact that Inclusive Framework members have managed to reach a consensus on this detailed and comprehensive set of technical rules demonstrates their commitment to a co-ordinated solution to addressing the challenges raised by an increasingly digitalised and globalised economy.”

In early 2022, the OECD will release the Commentary relating to the model rules and address co-existence with the US Global Intangible Low-Taxed Income (GILTI) rules. This will be followed by the development of an implementation framework focused on administrative, compliance and co-ordination issues relating to Pillar 2.

The Inclusive Framework is also developing the model provision for a Subject to Tax Rule, together with a multilateral instrument for its implementation, to be released in the early part of 2022. A public consultation event on the implementation framework will be held in February and on the Subject to Tax Rule in March.

The full text of the model rules can be accessed at https://oe.cd/pillar-two-model-rules

13 December 2021, the OECD released the second batch of updated transfer pricing country profiles for 18 countries, which contain up-to-date and harmonised information on key aspects of transfer pricing legislation and practice. Together with first time country profiles for Albania, Kenya and the Maldives, it brings the total number of countries now covered to 63.

The information on the country profiles reflects the current state of legislation and practice in each country regarding key transfer pricing aspects, including the arm's length principle, methods, comparability analysis, intangible property, intra-group services, financial transactions, cost contribution agreements, documentation, administrative approaches to avoiding and resolving disputes, safe harbours and other simplification measures, other legislative aspects or administrative procedures and attribution of profits to permanent establishments.

The OECD released the first batch of updated transfer pricing country profiles, which included new information on the transfer pricing treatment of financial transactions and the application of the Authorised OECD Approach (AOA) to attribute profits to permanent establishments, in August 2021.

The second batch of transfer pricing country profiles covered Austria, Belgium, Bulgaria, France, Georgia, Germany, Indonesia, Ireland, Italy, Latvia, Malaysia, Mexico, Peru, Poland, Seychelles, Singapore, South Africa and Sweden. Further updates are expected in the first half of 2022.

11 November 2021, the Panama government enacted Law 254 to introduce amendments to strengthen the legislation on international transparency and the prevention of money laundering. It addresses three main areas: accounting records, due diligence and registration of final beneficiaries.

In addition to the existing obligation on all Panama companies and foundations with operations or assets outside Panama to maintain accounting records and support documentation, the new law mandates that the legal entity must provide, as of April 30 every year, accounting records and supporting documentation, or copies of same, to its resident agent relating to the fiscal period ended on 31 December 31 of the preceding year.

The resident agent must submit an annual declaration, as of 15 July, to the Direccion General de Ingresos (DGI) containing a list of all legal entities for which it provides the service of resident agent, including the name, RUC (Panama TAX ID), and whether they follow the accounting record requirements.

For legal entities established before the entry into force of Law 254, the resident agent must send the first declaration within 30 calendar days of the expiration date of the six-month transition period provided for compliance, which is 12 June 2022.

Legal entities that fail to comply with the obligations of accounting records will face penalties ranging from USD5,000 to USD1 million depending on the seriousness and magnitude of the fault. The Public Registry will be ordered to suspend the corporate rights of a legal entity that fails to comply and the DGI is empowered to order the Public Registry to forcibly liquidate the legal entity. Resident agents that fail to comply with the obligations will face penalties ranging from USD5,000 to USD100,000 depending on the seriousness and magnitude of the fault.

New obligations are also introduced in respect of ‘non-financial obligated subjects’, which include free zone companies, casinos and other physical or online gaming, real estate developers, real estate construction, transport of securities, pawn shops, trading of precious metals, lawyers, notaries and accountants.

Resident agents of obligated subjects must maintain due diligence and care conducive to reasonably preventing such operations from being carried out with or on funds from illicit activities. The mechanisms of identification of the client and the final beneficiary, as well as the verification of the information and documentation, will depend on the risk profile of the obligated subjects considering the types of customers, products and services it offers, marketing channels, and the geographical location of its facilities, its customers and its ultimate beneficiaries.

Resident agents of obligated subjects must ensure that documents, data or information collected as part of the due diligence process are kept up to date including:

• Risk assessments
• Transactional profiles
• Know the nature of the client’s business
• Monitor operations to ensure they coincide with the client’s professional profile or business activity, financial or transactional profile.

Resident agents of obligated subjects that fail to comply with these provisions will face penalties from USD5,000 to USD5 million depending on the seriousness and magnitude of the fault and on the size of the obligated subject.

The Superintendence of Non-financial Subjects will create a system for the registration of final beneficiaries of legal entities. A ’final beneficiary’ is a person who ultimately, directly or indirectly owns, controls and exerts influence over the legal entity, or the person on whose behalf or benefit a transaction is made. It includes the person who exercises effective control over a legal person or structure.

The resident agent will be obliged to record the data of the final beneficiaries of the entities under their administration as follows: for the legal entity – name, registration number, date of incorporation, main activity, location of business operation; for the final beneficiary – full name, ID number or passport number, date of birth, nationality, address and the date on which the status of beneficiary of the legal person was acquired.

Registration must be completed within a maximum period of 15 working days following the date of constitution or registration of the legal entity or the appointment of a new resident agent. The resident agent must also keep all registered information updated.

Any legal entity is obliged to provide the information to the resident agent to identify the final beneficiary and notify any change within a maximum period of 15 working days following the date of the change so that the resident agent can update registered information within a maximum period of five working days after receipt.

Resident agents will face penalties from USD1,000 to USD50,000 for each legal entity whose information is not registered or updated under the provisions of this law. The penalties will depend on the seriousness and magnitude of the fault and on the size of the resident agent. The Superintendence may further impose daily progressive fines equivalent to USD500 until the non-compliance is remedied for a maximum period of six months.

The Superintendence will order the Public Registry to suspend the corporate rights of legal entities that have not been registered or updated in the system by their resident agent. To reactivate a legal entity, the infringement must be corrected, a reactivation fine of USD1,000 must be paid and a request for formal reactivation must be made.

The information collected may only be disclosed to the Panama Public Prosecutor’s Office, Panama agents with criminal investigation functions, the Financial Analysis Unit (UAF), the Panama jurisdictional authorities and foreign counterparts under the established channels for the request for information to Panama.

1 December 2021, the tax treaty between Singapore and Brazil, signed in May 2018, entered into force and became effective as of 1 January 2022. It establishes a general 15% withholding tax rate for dividends. A reduced 10% dividend withholding rate applies if the beneficial owner holds at least 25% of the capital of the paying company for the preceding 365 days.

For interest, the treaty also sets a general 15% withholding tax rate. A 10% rate applies for banks in certain circumstances and an exemption applies for government-owned interest. With respect to royalties, the treaty provides a 15% withholding tax rate for the use or right to use trademarks and a 10% withholding tax rate in other cases.

The tax treaty between Singapore and Armenia, signed in July 2019, entered into force on 23 December and became effective as of 1 January 2022. It establishes a general 5% withholding tax rate for dividends. A reduced 0% dividend withholding rate applies if the beneficial owner is a company that holds at least 25% of the capital of the paying company or that has invested the equivalent of USD300,000 or more in the share capital of the paying company. With respect to both interest and royalties, the treaty provides a 5% withholding tax rate.

The tax treaty between Singapore and Jordan, signed in July 2021, entered into force on 30 December 30 and became effective as of 1 January 2022. It establishes a general 8% withholding tax rate for dividends. A reduced 5% withholding tax rate applies if the beneficial owner is a company owning at least 10% of the capital of the paying company. With respect to both interest and royalties, the treaty provides a 5% withholding tax rate.

14 December 2021, the Seychelles deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The MLI, which has been signed by 96 countries, will enter into force for the Seychelles on 1 April 2022.

The MLI is designed to provide a mechanism to transpose then provisions of the OECD/G20 BEPS Project into existing bilateral tax treaties. It also implements agreed minimum standards to counter treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

After its ratification, Iceland also deposited new notifications under the MLI to notify an additional bilateral treaty to which it can apply and to make additional notifications with respect to provisions of the MLI. The MLI entered into force for Iceland on 1 January 2020.

The MLI has now been ratified by 68 jurisdictions and, as of 1 January 2022, it is expected to impact over 850 bilateral treaties concluded among those jurisdictions. Once the MLI is ratified by all signatories it is expected to modify an additional 900 treaties, bringing the total to 1,750 treaties worldwide.

27 November 2021, the UAE Federal Government introduced amendments across more than 40 existing laws to further enhance the openness and competitiveness of the business environment and to accelerate the UAE’s transition towards a new economic model.

The UAE Ministry of Economy said the unprecedented law amendments, which were timed to coincide with celebrations to mark the Golden Jubilee of the UAE foundation, would have a far-reaching positive impact on the business, investment, innovation, environment and intellectual property sectors.

The most important UAE laws to have undergone extensive amendment are the Commercial Companies Law (CCL), Commercial Register Law and Trademark law, which represent “key drivers for enhancing the flexibility of the economic climate, stimulating innovation, developing the intellectual property system, and increasing the country's attractiveness to companies, investors, entrepreneurs, talents and innovators from around the world in vital and strategic sectors.”

A total of 55 amendments were made to the CCL: 51 articles have been replaced, three new articles added and one deleted. The changes are intended to enhance the competitiveness of the UAE economy and the dynamism of its business environment. Several new provisions are also designed to support the shift towards the new economic model in accordance with the principles of economic openness and flexibility, the Ministry of Economy said

The most significant new provisions and amendments to the CCL include:

• Provision for the establishment of companies for the purposes of acquisition or merger, and Special Purpose Vehicles (SPVs), and establish a legal framework for these new legal forms that exempts them from some provisions of the Companies Law subject to regulation by the Securities & Commodities Authority (SCA) to ensure their effectiveness and economic feasibility.
• Abolition of a maximum and minimum percentage in respect of a founders’ contribution to the company’s capital at the time of a public offering and the legal limitation of the subscription period. These two matters will be specified in the prospectus.
• Abolition of the requirements in respect of the nationality of the members of the board of directors and instead permit shareholders’ decisions in the election of board members in accordance with the terms and conditions set by the competent authority.
• Provision for a company to transform into a public joint stock company and sell its shares or offer new shares in a public subscription without being restricted to a certain percentage, by following the price-building mechanism of the security.
• Provision for companies to divide and create legal rules governing division operations, therefore enabling companies to diversify their business activities and sectors and increase their opportunities for growth.
• Provision for companies to determine the face value and the percentage of any offering.
• Provision for companies to access financing solutions through the issuance of other types of shares.
• Provision for branches of foreign companies licensed in the UAE to transform into a commercial company with UAE citizenship.

The revisions to the Commercial Register Law aim to make the Economic Register a comprehensive reference for economic activities that will assist investors and companies to develop their businesses based on documented, integrated and accurate information.

In particular, the amendments seek to direct investment towards the knowledge and scientific sectors, advanced technological industries and areas of the new economy, by providing a world-class digital infrastructure and a unified digital platform that provides integrated, easy and fast digital services for all sectors and economic activities.

The most significant new provisions and amendments to the Commercial Register Law include:

• Establishing the Economic Register as the official reference for data and information for establishments with economic activity in the country.
• Enabling the use of a unified Economic Register number as a digital identity for establishments.
• Providing a unified database for all registrants in the Commercial Register, trademark owners, commercial agency activities, etc., and information related to merchants and licensed activities, and any updates or modifications to this data, ensuring its validity, accuracy and updating periodically.
• Providing a comprehensive and reliable digital knowledge base that can be accessed via advanced digital platforms available at any time and from anywhere to serve investors, policy makers, economic researchers, academics, students and all stakeholders.
• Facilitating the provision of official data to economic consultancy, research, classification and evaluation institutions and relevant international organisations, and support analysis and research related to economic activities, market trends and potential opportunities.
• Enabling data sharing between relevant authorities and provide advanced services based on partnership to facilitate customer journey and avoid repetition of submissions.
• Allowing all transactions to be conducted through the unified Economic Registry number, without the need to re-use documents and data across different government entities.

The new Trademark Law is designed to offer integrated protection for trademarks and new mechanisms that will enhance the effectiveness and efficiency of government work and build a more competitive trademark and intellectual property system. This will enhance the UAE’s reputation as an attractive destination for major regional and global companies and brands by reassuring investors that their rights will be preserved in accordance with advanced legal systems that are compatible with ground realities.

The most significant new provisions and amendments to the Trademark Law include:

• Accelerating the issuance of licences and the completion of government approvals and procedures to enhance integration int work of service providers and increase their supportive contribution to SMEs.
• Determining the procedures for registering a mark locally and internationally, providing it with protection and preventing and addressing infringement with deterrent penalties.
• Providing a comprehensive database of trademarks to be open and free of cost to the public.
• Introducing the option to renew a mark within six months of an expiry period and to extend by a further six months if reasons are accepted by the Ministry of Economy.
• Providing legal protection for non-traditional trademarks, including smell, sound, hologram, tones and others.
• Raising the scale of penalties for violators of the law and its regulations.
• Providing protection for ‘geographical indications’ to strengthen the status of the UAE and its domestic products globally.
• Allowing the submission of multi-category applications that will encourage companies to protect their trademarks.

6 December 2021, the US Court of Appeals for the Sixth Circuit affirmed the US Tax Court’s grant of summary judgment and held that US domestic appliance manufacturer Whirlpool must pay taxes on more than USD45 million of profits that had been shifted to a Luxembourg subsidiary with a single part-time employee.

In Whirlpool Financial Corp. v. Commissioner, Nos. 1899/1900, the Court of Appeals upheld an IRS deficiency determination that sales income from manufacturing operations in Mexico involving a Luxembourg controlled foreign corporation (CFC) was ultimately taxable to the US parent under the ‘foreign base company sales income’ (FBCSI) provisions in section 954(d).

During 2007-2009, the taxpayer restructured its Mexican manufacturing operations in a way that the Tax Court described as “driven largely by tax considerations”. Following the restructuring, the taxpayer’s Luxembourg CFC acted as the nominal manufacturer of appliances in Mexico. Under the Mexican ‘maquiladora’ programme, if it met certain requirements Whirlpool-Luxembourg was deemed not to have a permanent establishment in Mexico and was exempt from tax on its profits in Mexico. Those profits amounted to more than USD45 million in 2009.

The Luxembourg CFC, which had a single employee, then sold these appliances to the taxpayer and to the taxpayer’s Mexican distribution CFC, which distributed the appliances for sale to consumers. For Luxembourg tax purposes, the Luxembourg CFC established that it did have a permanent establishment in Mexico. Under Luxembourg’s tax treaty with Mexico, this enabled Whirlpool to avoid tax on the income in Luxembourg as well. When Whirlpool filed its return for 2009 in the US, it reported that it did not owe tax on the profits in the US either.

The IRS disagreed, concluding that the income the Luxembourg CFC earned from sales of appliances to the taxpayer and to the taxpayer’s Mexican CFC constituted FBCSI under section 954(d). Determining that this was taxable as subpart F income under section 951(a), the IRS increased the taxpayer’s taxable income for 2009 by some USD50 million, which in turn decreased a consolidated net operating loss (NOL) carry back deduction.

The taxpayer petitioned the US Tax Court and filed a motion for partial summary judgment contending that the sales income was not FBCSI because the appliances sold by the Luxembourg CFC were ‘manufactured’ by its Mexican branch by ‘substantial transformation’ of the component parts and raw materials it had purchased. The IRS opposed the motion, contending that genuine disputes of material fact existed as to whether the Luxembourg CFC actually manufactured the products.

In May 2020, the US Tax Court granted summary judgment for the IRS after concluding that whether or not the Luxembourg CFC was regarded as having manufactured the products under section 954(d)(1), its Mexican branch under section 954(d)(2) was to be treated as a subsidiary of the Luxembourg CFC, and that the sales income the Luxembourg CFC earned constituted FBCSI taxable to the taxpayer as subpart F income.

Whirlpool appealed. The Sixth Circuit Court of Appeals examined the statute under Internal Revenue Code section 954(d)(2), noting that the provision specified that two consequences would follow if two conditions were met.

The first condition was that the CFC was “carrying on” activities “through a branch or similar establishment” outside its country of incorporation. The court concluded this condition was met because Whirlpool-Luxembourg carried out its activities through a Mexican entity that it elected to treat as a branch for Luxembourg tax purposes.

The second condition was that the branch arrangement had “substantially the same effect as if such branch were a wholly owned subsidiary corporation (of the CFC) deriving such income”. The Court concluded that it did have “substantially the same effect” because it led to the deferral of tax on sales income.

In a majority decision, the Court of Appeals therefore agreed with the Tax Court that, under the text of the statute alone, the sales income was FBCSI that should be included in the taxpayer’s income under subpart F.

The full judgment can be accessed at https://law.justia.com/cases/federal/appellate-courts/ca6/20-1899/20-1899-2021-12-06.html

7 December 2021, the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). The proposed rule addresses, among other things, who must report beneficial ownership information, when they must report, and what information they must provide.

The proposed rule is designed “to protect the US financial system from illicit use and impede malign actors from abusing legal entities, like shell companies, to conceal proceeds of corrupt and criminal acts.” It is also consistent with the efforts of the Financial Action Task Force and G7 and G20 leaders.

The CTA, part of the Anti-Money Laundering Act of 2020, established beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the US.

The proposed regulations describe two distinct types of reporting companies that must file reports with FinCEN – domestic reporting companies and foreign reporting companies. Generally, a domestic reporting company is any entity that is created by the filing of a document with a secretary of state or similar office of a jurisdiction within the US. A foreign reporting company is any entity formed under the law of a foreign jurisdiction that is registered to do business within the US.

A beneficial owner is any individual who meets at least one of two criteria:

• Exercising substantial control over the reporting company
• Owning or controlling at least 25% of the ownership interest of the reporting company.

roposed regulations also describe who is a company applicant. In the case of a domestic reporting company, a company applicant is the individual who files the document that forms the entity. In the case of a foreign reporting company, a company applicant is the individual who files the document that first registers the entity to do business in the US. A company applicant includes anyone who directs or controls the filing of the document by another.

Domestic reporting companies created, or foreign reporting companies registered to do business in the US, before the effective date of the final regulations would have one year from the effective date of the final regulations to file their initial report with FinCEN. New reporting companies would be required to file their initial report with FinCEN within 14 calendar days of the date on which they are created or registered, respectively.

If there is a change in the information previously reported to FinCEN under these regulations, reporting companies would have 30 calendar days to file an updated report. A reporting company that filed inaccurate information would have to file a corrected report within 14 calendar days of the date it knew, or should have known, that the information was inaccurate.

The proposed regulations describe the information that a reporting company must submit to FinCEN about the reporting company and each beneficial owner and company applicant. This includes the name and address of each beneficial owner and company applicant. In lieu of providing specific information about an individual, the reporting company may provide a unique identifier issued by FinCEN called a FinCEN identifier.

The proposed regulations also describe highly useful information that reporting companies are encouraged, but not required, to provide. This additional information would support efforts by government authorities and financial institutions to prevent money laundering, terrorist financing, and other illicit activities such as tax evasion.

The CTA provides that it is unlawful for any person to wilfully provide, or attempt to provide, false or fraudulent BOI to FinCEN, or to wilfully fail to report complete or updated BOI to FinCEN. The proposed regulations describe persons that are subject to this provision and what acts (or failures to act) trigger a violation.

In addition to the reporting requirements addressed by this proposed rule, Section 6403 requires FinCEN to maintain the information that it collects under the CTA in a confidential, secure and non-public database. It further authorises FinCEN to disclose the information to certain government agencies, domestic and foreign, for certain purposes specified in the CTA; and to financial institutions to assist them in meeting their customer due diligence requirements. All disclosures of information submitted pursuant to Section 6403 are subject to appropriate protocols to protect the security and confidentiality of the BOI. FinCEN is required to establish such protocols by rulemaking.

Section 6403 also requires that FinCEN revise its current regulation concerning customer due diligence (CDD) requirements for financial institutions at 31 CFR 1010.230. The current CDD Rule requires certain financial institutions to identify and verify the beneficial owners of legal entity customers when those customers open new accounts as part of those financial institutions' customer due diligence programmes.

Comments on the NPRM will be accepted for 60 days following publication in the Federal Register. FinCEN intends to issue three sets of rulemakings to implement the requirements of Section 6403:

• Firstly, to implement the beneficial ownership information reporting requirements.
• Secondly, to implement the statute's protocols for access to and disclosure of beneficial ownership information.
• Thirdly, to revise the existing CDD Rule, consistent with the requirements of section 6403(d) of the CTA.

In this proposed rule, FinCEN seeks comments only on the first proposed regulations. It intends to issue proposed regulations to implement the other aspects of section 6403 of the CTA in the future and will solicit public comments on those proposed rules through publication in the Federal Register.

“FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing,” said Acting FinCEN Director Himamauli Das.