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Cititrust International Ltd. The Cititrust Quarterly Review Volume 1, Issue 1 January—March, 2009 Points of Interest: • BOPA Maps the Direction for Belize’s International Financial Services: Is the Offshore Sector Industry to Blame for the Global • China Economic Crisis? Implements New Income Tax Rules As the effects of the version of the Bill had transactions, Baucus been co-sponsored by Bill diverges from • G20 Summit global economic downturn continue to then-Senator Barrack STHAA in its approach and the “New to compiling a list of Black List” take its toll on international financial secrecy jurisdictions, a • International stability, jurisdictions “Blacklist”. Baucus Bill Financial that provide international supporters argue that the Services : financial services have Bill is less punitive than Financial come under increasing STHAA in several Revolution of scrutiny. respects. Most notably, it New avoids the compilation of Millennium? Critics of the offshore a blacklist, yet advocates sector argue that ‘tax United States Capitol Building strong measures to havens’ exacerbate the combat tax evasion financial crisis by Obama. In a similar including providing the undermining the tax move, Sen. Max Baucus IRS with additional Inside systems of the countries (D-MI) introduced a draft powers to detect and this issue: whose residents utilize bill for circulation, deter offshore abuses. such vehicles. On March commonly referred to as While it is unclear which IFS: Cause of the 3, 2009, Sen. Carl Levin Baucus Bill. While the Bill, if either, will be Global Financial 1 (D-MI) re-introduced a latter contains similar passed into US Law, Crisis? revamped version of his provisions to STHAA financial practitioners 2007 Stop Tax Haven including extending the worldwide continue to Chinese CFC 1 Abuse Act (STHAA) to statute of limitations on warily monitor the Rules the US Senate and assessment from 3 years situation. While the Congress; the 2007 to 6 years for certain United States Whence the “Brass Plate” 4 and “Banking Secrecy” Chinese CFC Rules and Outbound Investment BOPA Looks to based" approach, the entire detailed workings of these the Future of The People's Republic of 6 law contains only 60 rules are going to emerge Belize’s Offshore China on December 11 articles, meaning that over the next few Sector issued the implementation rules for China's new implementation rules, months. China has already Enterprise Income Tax future circulars, and other issued a list of countries to (EIT) Law. The new law, guidance will outline the which the CFC rules do not IFS: Financial enacted on March 16, took specific impact on apply to entities resident in Revolution of 9 effect on January 1, 2008. taxpayers. China due to the fact the 21st Century Under China's "principles- The regulations and that their effective tax Page 2 Offshore Financial Services: Is the Industry to Blame for the Global Economic Crisis? Cont’d. spearheaded the charge substantially nor Macau made neither to force “secrecy implemented the of the three revised jurisdictions” to reveal internationally agreed tax OECD lists. the identities of high net standard”. Barbados worth clients and major made this list. Thirty- Still all is not lost for corporations who have eight countries were Caribbean low-tax utilized their services, designated to the “grey jurisdictions, especially they have also garnered list” - jurisdictions that as the Fifth Summit of G20 Leaders the support of other have committed to the the Americas approaches. The Summit, which is gather at major OECD and G20 internationally agreed tax countries. In Europe, being hosted in Trinidad London standard, but have not Germany and France yet substantially and Tobago from April Summit on have been instrumental implemented them. 17th — 19th, will bring April 2, 2009 in the fight to restrict Included in this list were together Heads of State several CARICOM and and Government from other Caribbean throughout the Western jurisdictions — Anguilla, Hemisphere, including Antigua and Barbuda, President Barrack Obama Aruba, Bahamas, Belize, of the United States, and Bermuda, British Virgin President Hugo Chavez Islands, Cayman Islands, of Venezuela, marking “With regard to Dominica, Grenada, the first meeting where the list of financial secrecy and Netherland Antilles, St. both these Heads of State will be present. It is jurisdictions curtail the activities of Kitts and Nevis, St. Lucia, expected that the top that have not “tax havens”. St. Vincent and the Grenadines, and Turks issue on the agenda will committed to Building on the and Caicos Islands. be the global economic momentum of the G20 the Finally, with regard to crisis — such discussion pledge to crack down on internationally the list of jurisdictions will most likely feature tax havens and bring an agreed tax that have not committed deliberations concerning end to banking secrecy to the internationally the ‘crackdown’ on standard - four laws, the OECD released agreed tax standard — offshore jurisdictions. countries were a revised version of its the notorious “Blacklist” deemed non- infamous “Blacklist”. — four countries were cooperative” Forty countries were deemed non-cooperative: given a clean bill of Costa Rica, Malaysia health, falling under the (Labuan), Philippines, classification and Uruguay. “jurisdictions that have Interestingly, Hong Kong Chinese CFC Rules and Outbound Investment cont’d rates are greater than 12.5%. The State that are higher than the threshold Administration of Taxation (SAT referred to in the controlled foreign issued a ruling (Guo Shui Han [2009] company CFC rules of the Enterprise No.37) on January 21st, 2009 stating Income Tax Law. that India, UK, Australia, USA, Norway, South Africa, Canada, Chinese CFC rules will have a major France, Germany. Italy, Japan, and impact on outbound Chinese New Zealand have effective tax rates Investment structuring. As a result The Cititrust Quarterly Review Volume 1, Issue 1 Page 3 Chinese CFC Rules and Outbound Investment cont’d network and the scope for will have an extremely low cost effective substantial “cost of substance”. This is operations that could be an opportunity Belize could implemented. easily grasp because, as other countries are demonstrating, Indubitably, Chinese tax rules new Tax Information are quickly taking the same Exchange agreements can be thrust as US and UK tax CFC concluded in a matter of “Chinese rules. It won't be more than weeks. tax rules two years before Chinese are quickly outbound investment requires This is another a reason why we of the new Chinese CFC rules the a similarly sophisticated level of believe Barbados can be a taking the undistributed or under international tax planning. successful proposition in China. same distributed profits arising from Clearly the use of offshore There are major opportunities CFCs of the above listed countries thrust as companies by Chinese for a country like to Belize to US and UK do not need to be included in the residents will be declining over quickly reposition itself within taxable income of the Chinese the short term as these rules the envelope and actually tax CFC resident shareholder provided take effect. become extremely competitive. rules. that a resident shareholder can We will continue to monitor the produce the evidence of his or her As the OECD information Chinese State Administration of residency. Chinese shareholders sharing standard is rolled out Taxation and the Guoshuifa of CFCs in other countries across the low tax jurisdictions (circulars) issued by them. especially in low tax jurisdictions including Singapore, Switzerland will be charged on their income etc and loopholes such as those on an arising basis, or in the EU Savings directive are immediately, as profits accrue. closed, the playing field will become more level and Notably the CFC rules may international tax planning be deemed not to apply, and experts will become more may be avoided by Chinese attentive to the cost of residents, if the CFC has substance. Countries like sufficient substance and Ireland and Cyprus will be able commercial purpose. The to deliver low tax solutions but meaning of substance and will be competitively pressured commercial purpose requires from a “cost of substance” further elucidation. perspective. This is a clear opportunity for Barbados to This is an opportunity for the leverage its low tax solution Barbados model in that with a comparatively “low cost Barbados resident entities of substance” advantage. and family offices and financial institutions with Other low tax jurisdictions like sufficient substance using the Belize and Seychelles are likely Barbados treaty network will to have to enter this space of be attractive to Chinese enabling low tax through residents. Given that substance. Information Barbados treaty network Sharing to OECD standard with extends to Latin America, the TIEAs and Art 26 on tax USA and Europe, all of these treaties will in 2009 remove the markets can be accessed and usefulness of offshore profits cost effectively companies to Chinese resident accrued in Barbados. Of the shareholders as an outbound many low tax jurisdictions, investment structure. The Barbados is one of the few main advantage that countries jurisdictions with a treaty like Belize will have is that they Chinese Parliament, Beijing, China The Cititrust Quarterly Review Volume 1, Issue 1 Page 4 Whence the “Brass Plate” and “Banking Secrecy” The “perfect storm” has come information exchange will UBS, A and the main they seek to do it

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