Dear Lucie,

                                        

Access to double tax treaties is one of the most important elements of international business structuring, but there are now serious doubts whether certain treaties may still be used.  This was an issue I explained at our January meeting in Nicosia, Cyprus.  The first relevant consideration is the title of a double tax treaty: It is a convention between two countries ‘for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital gains’. This specifically states that tax treaties should not be used to create opportunities to avoid tax which would otherwise be levied in the absence of trying to obtain treaty protection or benefits. Thus, the BEPS Action 6 states that the title and preamble of a convention should be borne in mind when tax authorities implement action against tax avoidance. 

 

The second issue one needs to consider is whether there is any ‘limitation of benefits clause’, a specific anti-avoidance clause aimed at preventing people who are not ‘qualified residents’ from obtaining the benefits of double tax treaties.  In other words, treaty shopping should not enable people who would otherwise not be able to benefit from double tax treaties from doing so. There are some treaties, such as the Cyprus/US treaty where the LOB clause is very limited, requiring only that more than 75% of the number of shares in a company are owned by qualified individuals and that less than 50% of the income is paid to third parties as deductible payments.  However, compare this to the 2001 UK/US double tax treaty, which is far more extensive and limits the qualification for treaty benefits to either individuals who are resident in the UK or US, listed companies and certain other beneficiaries including what are called ‘equivalent beneficiaries’ (where more than 95% of the shares are owned by residents of EU, EEA and NAFTA countries with again less than 50% of the income paid to third parties as deductible expenses). Moreover, there is an additional exemption where the UK or US claimant company conducts an active trade or business, involving the concept of ‘substance’ and the absence of ‘passive income’. 

 

And finally, the BEPS Action 6 suggests that there should be a general anti-avoidance clause included in double tax treaties which is the ‘principal purpose test’.  However, this is a far more subjective test in that only one of the principal purposes needs to be to obtain treaty benefits to disregard the treaty in entirety! And the burden of proof is on the taxpayer to establish that not even one of the principal purposes was to obtain treaty benefits!  Whether this general anti-avoidance rule will be implemented in the proposed multi-lateral instrument to amend double tax treaty arrangements remains to be seen. 

  

Besides the Cyprus meeting, in the last few weeks we have held IBSA members’ discussion group meetings in London, Dubai, Malta and New York, and my thanks go to the various committees who have devised and arranged for these meetings to take place.  I know that they have been very successful; Geraldine Schembri has annexed to this newsletter a summary of her Malta meeting on Creating, Valuing and Financing Tax Efficient Intellectual Property Structures , whilst Robert Kiggins and Scott Davis have written a summary of the new tax outlook in a Trump world, a recording of which can be downloaded here .  As a result of these various meetings, I am glad to report that our membership in various regions is growing including our newly created Middle East and Africa branch, whilst the discussions in all of the meetings we have held have been fascinating and informative. 

  

Currently, w e are in the process of planning events for the second quarter of 2017, although please scroll down for the March events taking place in Geneva, New York and the UK (and there will be a further one in Hong Kong in late March which we will advise you on in due course).  Our Geneva event is on 2nd March and will review Residence and Citizenship planning for Owner Controlled Businesses.

  

We are considering a mid-year conference in June on the topic of disclosure of beneficial ownership, and our November conference has been formulated based on the personal issues affecting entrepreneurs in today’s world (including what happens on divorce, death, management buyouts, exit strategies and so on).  We are also holding a course on international business structuring on 24th and 25th June which will be available free of charge to IBSA members, where we are particularly aiming at younger professionals who need to understand all of the issues relating to international business structuring when advising clients.  All of our discussion group meetings, workshops and conferences are CPD accredited, wherever they occur.

 

The IBSA’s membership comprises entrepreneurs themselves and their professional advisers of many differing disciplines.  As members, besides receiving our monthly newsletters, your articles get read by our entire database of over 4,000 (so please keep sending them in to Lucie), and you are entitled to attend branch discussion group meetings anywhere in the world at no cost.  We are also developing our social events such as our annual members’ dinner the night before our annual November conference, and we are considering a golf weekend-cum-workshop later on in the year in October, so please watch this space for further news. Our aim is for IBSA to engender a club-like feeling throughout all of our five branches, North America, UK, Continental Europe, Asia and the Middle East, where knowledge sharing and social gatherings help our members keep abreast of developments in the world of international business structuring.  

             

Kind regards,

Roy Saunders

Cité du Temps, Geneva

Join Dharshi Wijetunga Frei and Matthew Ledvina of Anaford, Caroline Bennett-Akkaya of PraxisIFM, Aliasghar Kanani of Bonnard Lawson and Micha-Rose Emmett of CS Global Partners for a discussion group meeting on the issues behind changes of residence status for business, tax, social or other personal reasons, particularly for entrepreneurial clients who may consider their future income and exit strategies.  

They will be covering laws affecting residence in several countries, amongst them Switzerland, Malta, Italy, Portugal, Spain, Singapore, Australia, New Zealand and the UK.  We will also be dealing with citizenship issues and why these may be important in the context of changes in residence status to what may otherwise be regarded as high tax countries.          

Squire Patton Boggs, New York/London

It is with pleasure that we invite you to the first Transatlantic discussion group meeting of the IBSA UK and US branches to be held at 12.30 on 15th March at the New York office of Squire Patton Boggs at 30 Rockefeller Plaza, New York, NY 10112 and simultaneously at 17.30 pm at the London office of Squire Patton Boggs at 7 Devonshire Square, London EC2M 4YH.

  

Join Bern Gilbey, Jeremy Cape and Mitch Thompson of Squire Patton Boggs, Robert Kiggins of Culhane Meadows and Roy Saunders of IFS Consultants and the IBSA for a discussion on the effect that Brexit will have on international business structuring issues, a review of President Trump’s proposals as they affect cross-border transactions, and an analysis of the anti-hybrid and interest deductibility provisions recommended by the OECD BEPS initiative as they relate to the UK and US.