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Country-by-Country Reporting (CbCR) is a tax transparency measure introduced by the OECD as part of its Base Erosion and Profit Shifting (BEPS) initiative.
CbCR requires large multinational companies to report detailed information about their operations, profits, and taxes paid in each country where they do business.
This information is then shared with tax authorities to help them detect tax avoidance practices, such as profit shifting to low-tax jurisdictions.
CbCR applies to multinational companies with global revenues of more than €750 million.
These companies must file an annual CbCR report that provides a breakdown of their income, profits, taxes paid, and other economic activities in each country where they operate.
For example, if a company has subsidiaries in 10 different countries, it must provide information on how much revenue each subsidiary earns, how much profit it makes, and how much tax it pays in each country.
This level of detail helps tax authorities identify where a company might be shifting profits to avoid taxes.
as introduced as part of the OECD’s effort to tackle tax avoidance by multinational companies.
Before CbCR, it was difficult for tax authorities to see the full picture of a company’s global operations.
By requiring companies to disclose their activities on a country-by-country basis, CbCR gives tax authorities the information they need to detect tax avoidance schemes.
This reporting helps ensure that multinational companies are paying their fair share of taxes in the countries where they actually do business, rather than shifting profits to tax havens.
Country-by-Country Reporting is a critical tool for improving tax transparency and combating tax avoidance.
By requiring large multinational companies to report detailed information about their global operations,
CbCR helps tax authorities ensure that companies are paying their fair share of taxes and operating in a fair and transparent manner.
If you have any queries about this article – What is country by country reporting? – then please do get in touch.
On October 15, 2024, the UAE Ministry of Finance officially announced the cancellation of the Economic Substance Regulations (ESR).
This significant development follows the introduction of the Federal Corporate Tax (CT) Law and marks a pivotal shift in the regulatory landscape for businesses operating in the UAE.
The cancellation was formalised through Cabinet Resolution No. (98) of 2024, which amends the earlier provisions of Cabinet Resolution No. (57) of 2020 on Economic Substance Requirements.
This article explores the background, implications, and key provisions of the latest resolution.
The Economic Substance Regulations were initially introduced on April 30, 2019, through Cabinet Resolution No. 31 of 2019, as part of the UAE’s commitment to the OECD Inclusive Framework on BEPS and to address the EU’s concerns about the UAE’s tax framework.
This move aimed to ensure that the UAE was removed from the EU’s list of non-cooperative jurisdictions for tax purposes (EU Blacklist), which occurred on October 10, 2019.
The regulations required UAE onshore and free zone companies conducting specific “Relevant Activities” to meet an Economic Substance Test by maintaining sufficient substance in the UAE.
However, with the advent of the Federal CT Law, the relevance of ESR has diminished, leading to its eventual withdrawal.
The new resolution limits the applicability of ESR to fiscal years beginning January 1, 2019, and ending December 31, 2022.
For financial years commencing after December 31, 2022, UAE entities are no longer required to comply with ESR obligations, including filing notifications or reports.
Penalties imposed for non-compliance with ESR obligations for financial years beginning after December 31, 2022, have been revoked.
The Federal Tax Authority (FTA) will refund fines already paid, and procedures for claiming these refunds are expected to be announced soon.
Although ESR obligations have ended for financial years after December 31, 2022, businesses must retain documentation for ESR submissions made during the effective period (2019–2022).
The FTA continues to audit filings for this period, and entities should be prepared for such reviews.
With the cessation of ESR, businesses can now direct their focus toward compliance with the UAE CT Law.
Clarifications on administrative procedures for penalties and filings related to the post-ESR period are anticipated.
Entities that have paid fines or filed appeals for fiscal years ending after December 31, 2022, can seek refunds and expect the resolution of their grievances.
Businesses should monitor updates from the FTA on refund procedures.
For the ESR period (2019–2022), entities should maintain proper records of filings and ensure readiness for potential audits.
The cancellation of ESR signifies a shift in the UAE’s approach to economic regulation, reflecting the evolving tax framework under the UAE CT Law.
Businesses must align their operations with the new regulatory requirements while addressing any residual ESR obligations for the 2019–2022 period.
If you have any queries about this article on the UAE Ministry of Finance’s cancellation of Economic Substance Regulations or tax matters in the UAE, please get in touch.
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The OECD has introduced a new Crypto-Asset Reporting Framework (CARF) designed to enhance transparency and combat tax evasion in the cryptocurrency market.
This framework represents a significant step forward in addressing the tax challenges posed by digital assets.
The Crypto-Asset Reporting Framework requires crypto exchanges, wallet providers, and other intermediaries to report transactions and account balances to tax authorities.
This information will then be shared among jurisdictions through the OECD’s Common Reporting Standard.
Crypto users in participating jurisdictions will face increased scrutiny of their transactions.
This may lead to higher compliance costs but is expected to reduce the misuse of cryptocurrencies for tax evasion and other illicit activities.
The CARF aims to standardise the treatment of crypto assets across jurisdictions, making it easier for governments to track and tax digital transactions.
However, countries with lax regulations may still pose challenges to enforcement.
The OECD’s Crypto-Asset Reporting Framework is a game-changer for the regulation of digital assets.
While it may create additional burdens for crypto users and businesses, its long-term benefits for transparency and tax compliance are undeniable.
If you have any queries about this article on OECD’s crypto reporting framework, or tax matters in crypto-friendly jurisdictions, then please get in touch.
Alternatively, if you are a tax adviser in crypto-friendly jurisdictions and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
In April 2023, the Trust Property Control Act (TPCA) was amended to require trusts to submit a register containing prescribed information about beneficial owners (BO Register) to the Master of the High Court.
This amendment was introduced to address deficiencies highlighted by the Financial Action Task Force (FATF) when South Africa was grey listed.
In addition to these trust-related requirements, new rules regarding the disclosure of beneficial ownership for assets owned by companies were also implemented.
These measures aim to enhance transparency and combat financial crimes.
Although the new rules under the TPCA came into effect on 1 April 2023, neither the legislation nor the Master of the High Court initially specified a deadline for submitting BO Registers.
However, trusts have reportedly been slow to comply. Recently, the Master’s website was updated to set a firm deadline of 15 November 2024 for submission.
Failure to submit the BO Register constitutes an offence. Trustees found guilty of non-compliance could face penalties, including fines of up to ZAR 10 million and/or imprisonment for up to five years. This underscores the importance of ensuring timely compliance with the BO Register submission requirements.
While it remains uncertain whether the Master will actively enforce these sanctions in practice, trustees are strongly advised to prepare and submit their BO Registers promptly.
Even if a trust misses the deadline, it is better to comply as soon as reasonably possible to avoid potential legal and financial consequences.
The definition of a beneficial owner under the TPCA can be ambiguous.
At a minimum, the founder and the trustees of a trust are considered beneficial owners.
However, beneficiaries are not automatically included within this definition.
Trustees should carefully assess their obligations and consult the relevant guidance to ensure compliance.
If you have any queries about this article on South Africa’s Beneficial Register, or tax matters in South Africa more generally, then please get in touch.
Alternatively, if you are a tax adviser in South Africa and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
In an era of increasing global tax transparency, businesses must navigate evolving disclosure standards to maintain compliance and uphold their reputations.
Recent developments highlight significant changes, including the European Union’s public Country-by-Country (CbC) reporting directive, Romania’s early adoption of this directive, and the United States’ new tax disclosure standards.
The EU’s public CbC reporting directive mandates that multinational enterprises (MNEs) with consolidated revenues exceeding €750 million disclose specific tax-related information on a country-by-country basis.
This initiative aims to enhance transparency and allow public scrutiny of MNEs’ tax practices.
The directive requires the disclosure of data such as revenue, profit before tax, income tax paid and accrued, number of employees, and the nature of activities in each EU member state and certain non-cooperative jurisdictions.
Romania has proactively implemented the EU’s public CbC reporting directive ahead of other member states.
This early adoption reflects Romania’s commitment to tax transparency and positions it as a leader in implementing EU tax directives.
Romanian entities meeting the revenue threshold must comply with these reporting requirements, necessitating adjustments to their financial reporting processes to ensure accurate and timely disclosures.
In the United States, new tax disclosure standards have emerged, influenced by the global shift towards public CbC reporting.
While the US has not adopted public CbC reporting, it has introduced regulations requiring certain tax disclosures to enhance transparency.
These standards focus on providing stakeholders with a clearer understanding of a company’s tax position and strategies, aligning with the global trend of increased tax transparency.
The global movement towards greater tax transparency is driven by efforts to combat tax avoidance and ensure that MNEs pay their fair share of taxes in the jurisdictions where they operate.
This shift is evident in various international initiatives, including the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims to address tax avoidance strategies that exploit gaps and mismatches in tax rules.
To navigate these evolving tax disclosure requirements, companies should develop cohesive global tax transparency strategies. Key steps include:
By proactively addressing these requirements, companies can mitigate risks and align with the global trend towards transparency in tax matters.
The landscape of tax disclosure is rapidly evolving, with significant implications for multinational enterprises.
Understanding and adapting to new standards, such as the EU’s public CbC reporting directive and the US’s enhanced disclosure requirements, is crucial.
By developing comprehensive compliance strategies, businesses can navigate these changes effectively, ensuring transparency and maintaining stakeholder trust.
If you have any queries about this article on this article, or tax matters more generally, then please get in touch.
Alternatively, if you are a tax adviser and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
A tax haven is a country or jurisdiction that offers very low or no taxes to individuals and businesses.
Tax havens also often have strict privacy laws, making it difficult for other countries’ tax authorities to find out who is holding money there or how much income they’re earning.
These features make tax havens attractive to people and companies who want to reduce their tax bills by moving profits or wealth offshore.
Many multinational companies use tax havens to reduce their overall tax bills by moving profits to these low-tax jurisdictions.
For example, a company might establish a subsidiary in a tax haven, shift its profits to that subsidiary, and avoid paying higher taxes in the countries where it actually does business.
Individuals also use tax havens to avoid paying taxes on their wealth.
By moving money to a tax haven, they can often keep their income hidden from their home country’s tax authorities.
Tax havens are often criticized for enabling tax avoidance and contributing to global inequality.
When companies and wealthy individuals use tax havens to reduce their tax bills, it deprives governments of the revenue they need to fund public services like healthcare, education, and infrastructure.
Efforts are being made by organisations like the OECD and European Union to crack down on tax havens and make it harder for individuals and companies to use them to avoid paying taxes.
Tax havens play a significant role in international tax avoidance, but they are increasingly under scrutiny.
As global efforts to combat tax avoidance ramp up, the role of tax havens is likely to decline, but they remain a key part of the discussion on how to ensure fair taxation across borders.
If you have any queries about this article on ‘what is a tax haven?’ – or any queries at all – then please do not hesitate to get in touch.
On 31 July 2024, the Cayman Islands introduced the Beneficial Ownership Transparency Act 2023 (BO Act) along with the Beneficial Ownership Transparency Regulations, 2024 (BO Regulations).
Alongside these regulations, guidance titled Guidance on Complying with Beneficial Ownership Obligations in the Cayman Islands (BO Guidance Notes) was also made available on the General Registry’s website.
This new framework, known as the New BO Regime, revises the rules for entities registered in the Cayman Islands.
For those involved in private client structures, especially with trust arrangements and underlying companies incorporated in the Cayman Islands, these changes may have significant implications.
This article explores what the New BO Regime entails and how it may impact trusts and other wealth management entities.
The New BO Regime broadens the types of Cayman Islands entities required to comply with beneficial ownership reporting obligations.
Under the new rules, some entities that were previously exempt now fall within scope, meaning more wealth structuring vehicles, including foundation companies and private trust companies (PTCs), must adhere to these requirements.
While trusts themselves are exempt from registration, companies or other entities under a trust, known as “Trust Underlying Entities,” must comply with beneficial ownership reporting if they meet certain criteria.
Under the New BO Regime, several types of entities are classified as “Legal Persons” and fall within the scope of the regulations, including:
Entities designated as Legal Persons must maintain a Register that identifies their beneficial owners.
The BO Act sets out who qualifies as a “Registrable Beneficial Owner.” This includes individuals or legal persons who:
In the absence of a Registrable Beneficial Owner, a senior managing official, like a director or CEO, must be listed as the contact person on the Register.
For each Registrable Beneficial Owner, the following information must be provided:
The Register needs to be updated monthly to ensure compliance.
The responsibility for maintaining and filing the Register lies with the Legal Person itself, typically in collaboration with a corporate services provider (CSP). Failure to comply with these reporting requirements may lead to civil or criminal penalties.
The New BO Regime enforcement begins in January 2025, providing a grace period for entities to meet compliance obligations.
Trustees of trusts with a Trust Underlying Entity may need to report beneficial ownership details if there are no other identifiable Beneficial Owners.
Trustees must meet specific criteria, demonstrating ultimate control over the trust’s activities, unless this control is limited to advisory or managerial functions.
Foreign trustees also need to report details of a nominated individual within their organisation.
Foundation companies commonly used in private wealth structuring may also require review.
Depending on the constitutional documents, a Registrable Beneficial Owner could be the Supervisor, founder, or another individual with control.
For PTCs, previously exempt unlicensed PTCs now fall within scope, requiring identification of Registrable Beneficial Owners.
Privacy and Future Changes
However, draft regulations are under consultation, exploring a possible framework for public access in the future.
If public access is introduced, requests will be subject to a “legitimate interest” test to safeguard against risks like extortion or violence.
The New BO Regime places a significant regulatory responsibility on entities and individuals managing trusts and wealth structures in the Cayman Islands.
With the January 2025 deadline approaching, private clients, trustees, and wealth management advisors should carefully assess their current structures to ensure compliance.
If you have any queries about this article on beneficial ownership, or tax matters in the Cayman Islands, then please get in touch.
Alternatively, if you are a tax adviser in the Cayman Islands and would be interested in sharing your knowledge and becoming a tax native, there is more information on membership here.
A non-cooperative tax jurisdiction is a country or territory that does not follow international tax transparency and information-sharing standards.
These jurisdictions often have low or no taxes and strict privacy laws, making them attractive to individuals and businesses looking to avoid or evade taxes in their home countries.
However, because these jurisdictions do not cooperate with international efforts to combat tax avoidance, they are often labelled as “non-cooperative” by organisations like the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD).
Non-cooperative tax jurisdictions make it easier for individuals and businesses to hide their income and assets, reducing the amount of tax revenue that countries can collect.
This can lead to significant losses for governments, which depend on taxes to fund public services like healthcare, education, and infrastructure.
In addition, non-cooperative jurisdictions often allow companies to shift their profits to low-tax or no-tax countries, a practice known as profit shifting.
This deprives the countries where the profits were actually made of tax revenue, contributing to **base erosion**.
The **EU** and the **OECD** maintain lists of non-cooperative tax jurisdictions. These lists are based on criteria like:
Countries that do not meet these criteria may be placed on a black list or grey list of non-cooperative jurisdictions.
Countries and territories on these lists may face penalties or sanctions.
For example, businesses operating in or through non-cooperative jurisdictions may be subject to higher taxes or stricter reporting requirements in other countries.
In some cases, non-cooperative jurisdictions may also face restrictions on accessing international financial markets.
Non-cooperative tax jurisdictions contribute to global tax avoidance and profit shifting, depriving countries of much-needed revenue.
By identifying and penalising these jurisdictions, the EU and OECD aim to create a fairer global tax system where companies and individuals pay their fair share of taxes.
If you have any queries about this article or on international tax matters more generally, then please get in touch.
On 1st July 2023, Australia ushered in a comprehensive reform with the activation of the Foreign Ownership Register, under Part 7A of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).
This new register has absorbed and expanded upon the functionalities of previous registers maintained by the Australian Taxation Office (ATO), marking a significant shift in how foreign ownership of Australian assets is documented and regulated.
The Foreign Ownership Register amalgamates several previously separate registers into a unified system.
Notably, it encompasses the Agricultural Land Register and the Water Register, both previously under the 2015 Register of Foreign Ownership of Water or Agricultural Land Act (Cth) (Old Register Act), along with the register for foreign ownership of residential land.
However, registers pertaining to critical infrastructure assets and foreign media ownership remain independently managed by the Cyber and Infrastructure Security Centre and the Australian Communications and Media Authority, respectively.
The broadened scope under Part 7A significantly enhances the transparency around foreign investments in Australia, imposing new reporting and compliance obligations on foreign investors.
Among the critical updates are the requirements for notifying certain acquisitions of interests in Australian entities, businesses, and all types of Australian land.
From 1st July 2023, foreign persons must notify acquisitions of specific interests in Australian assets, including interests in entities, businesses, and land.
Notices for these acquisitions should be submitted within 30 days, except for registrable water interests, which have a 30-day window post-financial year-end.
If a holder of a Registrable Interest becomes a foreign person post-acquisition, notification is required.
Various changes, such as disposal of interests or significant modifications in the nature of the interest, necessitate notification within 30 days, with specific provisions for registrable water interests.
The introduction of the Foreign Ownership Register represents a pivotal step towards greater transparency and control over foreign investments in Australia.
By centralising and broadening the scope of reporting requirements, the Australian government aims to ensure that foreign investments are made transparently and responsibly, aligning with the national interest.
If you have any queries on this article on the Foreign Ownership Register in Australia, or Australian tax matters in general, then please get in touch.
In a significant regulatory update, the Canadian federal government has introduced new trust reporting requirements effective for taxation years ending after 30 December 2023.
The first reporting deadline for trusts with a 31 December 2023, year-end is 2 April 2024.
This development introduces an expanded scope of reporting, bringing a wider array of trusts under the purview of mandatory filing, including certain bare trusts.
Here’s what you need to know about these new requirements and their potential impact.
The amendments mandate more extensive filing for trusts, including those that were previously exempt under certain conditions. Key changes include:
More trusts are now required to file T3 trust income tax and information returns, extending to certain bare trusts previously exempt.
Most trusts must provide additional information, including details about trustees, beneficiaries, settlors, and anyone with influence over the trust’s decisions.
The new rules specifically target express trusts resident in Canada or foreign trusts deemed resident, eliminating previous exemptions for certain types of trusts.
However, a list of “listed trusts,” such as registered charities and mutual fund trusts, continues to enjoy exemptions.
Trusts mandated to file under the new rules must complete the new Schedule 15, disclosing comprehensive information about the involved parties.
This includes their names, addresses, taxpayer identification numbers, and their roles within the trust.
Failure to comply with these updated reporting requirements could lead to substantial penalties, especially in cases of gross negligence.
Penalties are pegged at 5% of the trust’s property value or $2,500, whichever is higher.
In a move to facilitate a smoother transition, the Canada Revenue Agency (CRA) has announced a waiver for the normal failure-to-file penalty for the 2023 taxation year, specifically for trusts qualifying under the bare trust exclusion.
Given the significant changes and the potential for hefty penalties, it’s crucial for trustees and beneficiaries to familiarize themselves with the new requirements.
This includes understanding which trusts now need to file, the expanded information requirements, and ensuring compliance to avoid penalties.
For those involved in trust administration or planning, staying informed about these developments and their implications is essential.
This article merely serves as a starting point, but further guidance and clarification from the CRA may be necessary as taxpayers work to comply with the new framework.
If you have any queries on this article around Canada’s Enhanced Trust Reporting Regulations, or Canadian tax matters more generally, then please get in touch.