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Private Banking Newsletter Wealth Management Private Banking Newsletter September 2015 Table of Contents Feature Automatic Exchange: OECD Common Reporting Standard implementation .................................. 1 Case Summaries France Funds transferred to an undeclared account abroad and presumption of income ......................... 14 Business assets exempt from the wealth tax (ISF): Is the manager’s company housing a business asset? .............................................................................................................................. 15 Corporate tax liability of a SCI due to the real estate purchase and resale activity of one of its shareholders .............................................................................................................................. 15 Germany Qualification of a Liechtenstein foundation as a privileged family foundation: Tax exemption of dividend income for foreign family foundations and trusts ......................................................... 16 Jersey In the Matter of the Y Trust - When can a trustee surrender its power to the court? ..................... 18 United Kingdom Pugachev: Freezing orders and disclosure orders - making trusts susceptible to attack? ............ 20 United States U.S. Tax Court issues important decision on investor control over variable life insurance policy assets ................................................................................................................................... 23 Legal Developments Argentina Extension of the amnesty program for the disclosure of unreported foreign currency ................... 26 Australia OTC derivatives draft rules and regulations released: Central clearing and single-sided trade reporting ................................................................................................................................ 28 Belgium New “Cayman Tax” published ........................................................................................................ 31 China Withholding tax treatment for China-sourced interest received by Chinese banks’ foreign branches clarified............................................................................................................................ 35 Germany Update on the draft bill on changing the German Inheritance and Gift Tax Act ............................. 35 Reform of the taxation of fund investments .................................................................................... 36 Mexico SAT will audit foreign accounts ...................................................................................................... 38 Mexican Anti-Money Laundering Law ............................................................................................ 38 Taiwan Legislature announces amendments to the Income Tax Act affecting capital gains tax in the sale of real property ........................................................................................................................ 38 Thailand Six actions to take before the Inheritance and Gift Taxes come into force .................................... 39 Ukraine National Bank of Ukraine simplifies currency control rules applicable to certain internet transactions .................................................................................................................................... 42 United Arab Emirates FATCA and CRS implementation in the Gulf Region: Challenges for financial institutions and account holders ....................................................................................................................... 43 United Kingdom Less than six months to go: UK non-compliance and the Liechtenstein opportunity ..................... 49 UK Summer 2015 Budget: A summary of the key issues for wealthy individuals resident in or invested in the UK ...................................................................................................................... 52 United States New FBAR and tax filing deadlines and rules on inherited property .............................................. 57 Developments on the PFIC insurance exception ........................................................................... 60 Basis adjustment for certain grantor trusts added to no-rule areas ............................................... 61 New Rules: Gain recognition on transfers to partnerships with foreign partners ........................... 62 Around the Corner Exchange of information: Where are we heading to? .................................................................... 64 Beware of using U.S. entities in wealth planning structures .......................................................... 65 Is CRS inconsistent without global access to markets? ................................................................. 66 Voluntary disclosure for people with good stories: Did waiting make sense? ................................ 68 Forthcoming Events Wealth Management Contacts September 2015 Feature Automatic Exchange: OECD Common Reporting Standard implementation By Elliott Murray (Geneva), Rodney Read (Houston), Cecilia Hassan (Miami), Paul DePasquale (New York), Joshua Odintz (Washington, DC) and Lyubomir Georgiev (Zurich) In August 2015, the Organization for Economic Cooperation and Development (“OECD”) released guidance on implementing the multilateral automatic exchange of financial account information under the Common Reporting Standard (“CRS”). This guidance included the first edition of the CRS Implementation Handbook (“Handbook”). The Handbook provides practical guidance and outlines the necessary steps to assist governments and Financial Institutions (“FIs”) to implement the CRS. It identifies areas of challenges in CRS implementation. It also contains answers to frequently asked questions (“FAQs”) received by OECD from governments, FIs and Non-Financial Entities (“NFEs”). However, the Handbook leaves many issues unresolved. Steps for CRS implementation The four core requirements to implement CRS (which a jurisdiction may accomplish in any order) are as follows: ● Requirement 1: Translating the reporting and due diligence rules into domestic law, including rules to ensure their effective implementation ● Requirement 2: Selecting a legal basis for the automatic exchange of information ● Requirement 3: Putting in place the necessary administrative and IT infrastructure ● Requirement 4: Protecting confidentiality and safeguarding data Requirement 1: Translating the reporting and due diligence rules into domestic law, including rules to ensure their effective implementation Legislation and guidance incorporating CRS into domestic law can align with existing legislation implementing a FATCA Intergovernmental Agreement (“IGA”) and existing guidance issued thereunder. The Handbook contains a list of 16 optional provisions that countries could adopt to provide flexibility for FIs, align CRS with FATCA, and reduce costs for FIs. Some businesses and advisors who have participated in OECD briefings are advocating for an adoption of all of the optional provisions by all participating jurisdictions. The first group of options addresses reporting requirements. One option would allow for FIs, such as Investment Entities (“IEs”), to report the average balance or value of the account in lieu of the end of year balance or value (following FATCA). Gross proceeds reporting could be delayed to a subsequent year. There is also the option for a jurisdiction to require nil reports; CRS is silent on this issue, including the method of reporting the lack of reportable accounts (e.g., .xml or paper return). The second group of optional implementation provisions address due diligence and include options to: ● Allow FIs to apply the due diligence procedures for new accounts to be used for preexisting accounts (following FATCA and the EU Directive). ● Allow due diligence procedures for high value accounts to be used for lower value accounts (following FATCA and the EU Directive). Feature | 1 Private Banking Newsletter ● Allow FIs to elect to exclude from due diligence procedures pre-existing entity accounts of USD250,000 or less (following FATCA). ● Allow FIs to make greater use of and rely on existing standardized industry coding (SIC) systems for the due diligence process for pre-existing entity accounts (following FATCA and the EU Directive). ● Allow FIs to apply US dollar amounts or equivalent amounts for various CRS thresholds (following FATCA and the EU Directive). ● Allow FIs to use the residence address test to determine an individual account holder’s tax residence for a lower value preexisting account (less than USD1 million), in lieu of an electronic indicia of residence search. ● Allow third party service providers to fulfill reporting and due diligence obligations of reporting FIs. The third group of options addresses CRS definitions and options to: ● Allow FIs to treat, for due diligence purposes, new accounts held by a preexisting customer opened with the FI or a related entity as preexisting accounts (following FATCA and the EU Directive). The FI can rely on prior documentation so long as (i) the FI satisfied its AML/KYC procedures for the account by relying on AML/KYC performed for the preexisting account and (ii) the opening of the new account does not require new, additional, or amended customer information. ● Expand the definition of a related entity to treat as related IEs that are under common management that is responsible for the IE due diligence (following FATCA
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