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In a landmark decision on 8 March, the Full Federal Court (FFC) sided with the taxpayer, Minerva Financial Group Pty Ltd, against the Commissioner of Taxation, clarifying the application of general anti-avoidance rules within Part IVA of the Income Tax Assessment Act 1936.
This ruling underscores the nuanced interpretation of Part IVA, particularly concerning discretionary distributions by trustees, and marks a significant victory for taxpayers navigating the complexities of tax law.
The court’s decision offers several crucial insights into Part IVA’s operation:
Taxpayers are reminded of the importance of documenting the reasons behind their arrangements. While Part IVA’s test is objective, understanding the context can help determine the dominant purpose.
It’s essential to consider all eight factors outlined in section 177D(2) collectively, rather than in isolation, to ascertain a scheme’s dominant purpose.
Part IVA does not merely assess if a different course of action would have been taken without the tax benefit, emphasizing that a dominant purpose of obtaining a tax benefit must involve more substantive evidence.
Transactions within a commonly owned group, even if they involve intra-group loan account entries instead of cash transfers, are not inherently indicative of a scheme’s dominant purpose to secure a tax benefit.
The FFC’s ruling further clarified the legality of certain structures and practices:
The case centered around the Liberty group’s restructuring into corporate and trust silos, aimed at optimizing for an IPO.
This restructure led to significant profits being distributed in a way that incurred a lower withholding tax rate, prompting the Commissioner to apply Part IVA, suggesting these distributions were primarily for tax avoidance.
The FFC meticulously dissected the application of Part IVA, focusing on the intent behind the distributions and the structure of the Liberty group.
The court’s analysis, particularly on how the scheme was executed and the financial implications for the involved entities, led to a conclusion that favored the taxpayer.
The decision stresses that the presence of a tax benefit alone is insufficient to prove a dominant purpose of tax avoidance.
This ruling is a pivotal moment for taxpayers and legal practitioners, offering clarity on Part IVA’s interpretation and its application to complex financial structures and distributions.
It serves as a reminder of the critical balance between tax planning and avoidance, reinforcing the need for a comprehensive evaluation of arrangements under the lens of tax law.
The victory of Minerva Financial Group in this case not only provides a roadmap for similar cases but also reassures taxpayers that legitimate business arrangements, even those resulting in tax benefits, can withstand scrutiny under Australia’s general anti-avoidance rules.
If you have any queries about the Minerva case, or any other Australian tax matter, then please get in touch.
Dubai has enhanced its trust and foundations laws through significant amendments to Law Nos. 3 and 4 of 2018, which govern the operations within the Dubai International Financial Centre (DIFC).
These changes, specifically designed to add robust ‘firewall’ or ring-fencing provisions, affirm the supremacy of DIFC laws by preventing the enforcement of foreign judgments that conflict with local statutes.
The newly implemented provisions make it clear that DIFC laws take precedence over foreign judgments, ensuring that trusts and foundations under DIFC jurisdiction are protected from external legal influences that do not recognize or respect DIFC’s legal framework.
A key component of the amendments requires trust officers or foundation managers to discontinue acting under foreign judgments that conflict with DIFC laws.
This safeguard effectively prevents them from exercising asset management powers that could undermine DIFC statutes.
These provisions seem set to position DIFC among the first-tier financial centres with the most potent legal protections for settlors and founders of trusts and foundations.
The provisions also allow these individuals to reserve powers without exposing the trust or foundation to legal challenges as shams.
The amendments expand the role of registered agents, allowing them more flexibility to collaborate with the Registrar of Companies.
This change permits registered agents to fulfill certain compliance-related duties on behalf of foundations, aligning their responsibilities with those of corporate service providers under DIFC’s prescribed company and family office regimes.
Further enhancements include stringent safeguards regarding the transfer of property to a trust or foundation.
Now, a creditor must prove that the transfer was intended to defraud them and that it rendered the settlor or founder insolvent.
Without such proof, the liability of the trust or foundation to settle claims is limited to the interest previously held by the settlor or founder.
Another critical update is the introduction of a three-year statute of limitations on legal proceedings related to property transfers to a foundation, adding an extra layer of security and stability for these transactions.
The new amendments also introduce provisions that allow for the conversion of a DIFC foundation into a company.
Previously, the conversion was only possible from a DIFC company to a foundation, not the other way around.
This change offers greater flexibility in structuring and managing corporate and charitable entities within the DIFC.
These legislative updates significantly bolster the legal framework surrounding trusts and foundations in Dubai’s DIFC, offering enhanced protection against external legal pressures and providing a more stable and secure environment for asset management.
For settlors, founders, and financial professionals engaged with DIFC trusts and foundations, these changes necessitate a thorough understanding and strategic planning to align with the new legal standards.
The DIFC continues to demonstrate its commitment to maintaining a competitive and legally secure financial center with these progressive amendments.
If you have any queries about this article on Dubai’s Firewall Provisions, or tax matters more generally in the UAE, then please get in touch.
These changes, specifically designed to add robust ‘firewall’ or ring-fencing provisions, affirm the supremacy of DIFC laws by preventing the enforcement of foreign judgments that conflict with local statutes.
The newly implemented provisions make it clear that DIFC laws take precedence over foreign judgments, ensuring that trusts and foundations under DIFC jurisdiction are protected from external legal influences that do not recognize or respect DIFC’s legal framework.
A key component of the amendments requires trust officers or foundation managers to discontinue acting under foreign judgments that conflict with DIFC laws.
This safeguard effectively prevents them from exercising asset management powers that could undermine DIFC statutes.
These provisions seem set to position DIFC among the first-tier financial centres with the most potent legal protections for settlors and founders of trusts and foundations.
The provisions also allow these individuals to reserve powers without exposing the trust or foundation to legal challenges as shams.
The amendments expand the role of registered agents, allowing them more flexibility to collaborate with the Registrar of Companies.
This change permits registered agents to fulfill certain compliance-related duties on behalf of foundations, aligning their responsibilities with those of corporate service providers under DIFC’s prescribed company and family office regimes.
Further enhancements include stringent safeguards regarding the transfer of property to a trust or foundation.
Now, a creditor must prove that the transfer was intended to defraud them and that it rendered the settlor or founder insolvent.
Without such proof, the liability of the trust or foundation to settle claims is limited to the interest previously held by the settlor or founder.
Another critical update is the introduction of a three-year statute of limitations on legal proceedings related to property transfers to a foundation, adding an extra layer of security and stability for these transactions.
The new amendments also introduce provisions that allow for the conversion of a DIFC foundation into a company.
Previously, the conversion was only possible from a DIFC company to a foundation, not the other way around.
This change offers greater flexibility in structuring and managing corporate and charitable entities within the DIFC.
These legislative updates significantly bolster the legal framework surrounding trusts and foundations in Dubai’s DIFC, offering enhanced protection against external legal pressures and providing a more stable and secure environment for asset management.
For settlors, founders, and financial professionals engaged with DIFC trusts and foundations, these changes necessitate a thorough understanding and strategic planning to align with the new legal standards.
The DIFC continues to demonstrate its commitment to maintaining a competitive and legally secure financial center with these progressive amendments.
If you have any queries about this article on Dubai’s Firewall Provisions, or tax matters more generally in the UAE, then please get in touch.
On 12 March 2024, the Kazakhstani finance ministry announced significant revisions to the VAT Refund Rules, marking an important change in how businesses interact with tax authorities for VAT refunds.
This article looks at these crucial modifications.
The essence of these updates lies in addressing the controversies surrounding the VAT refund validation process.
Courts have recently highlighted the improper practice by tax authorities of demanding exhaustive supplier chain reports, or “Pyramid” reports, extending through numerous levels.
The revised VAT Refund Rules aim to streamline this process, albeit with nuances that may conflict with existing Tax Code provisions.
These changes became effective on 26 March 2024.
A noteworthy modification is to paragraph 45-1 of the VAT Refund Rules, which now delineates specific scenarios for the creation of Pyramid reports.
Notably, these reports will encompass all direct suppliers involved in horizontal monitoring, moving away from the previous broader scope.
Exceptions to this requirement have been clarified, simplifying compliance for businesses.
The procedure for generating Pyramid reports has been refined, with a clear focus on direct suppliers.
The amendment provides a precise definition of “direct supplier” and introduces the concept of “related parties,” aiming to mitigate tax evasion by tracing transactions to their origin.
The rules now prioritize the generation of Pyramid reports based on potential tax evasion risks identified among suppliers.
This shift focuses on concrete indicators of risk, such as restrictions on e-invoices or legal challenges against the supplier, enhancing the tax authorities’ ability to detect and address evasion schemes.
With the introduction of paragraphs 52-1 and 52-2, the VAT Refund Rules now clearly outline situations where identified risks are disregarded.
This update aims to ensure that discrepancies are not automatically equated with tax evasion, providing a fairer framework for businesses.
Lastly, the amendments expand the circumstances under which tax authorities can conduct counter-audits on suppliers, including intermediaries and freight forwarders.
This broadened scope is intended to tighten scrutiny and ensure compliance throughout the supply chain.
The recent amendments to Kazakhstan’s VAT Refund Rules represent a significant shift in the regulatory landscape.
By refining the conditions under which Pyramid reports are generated and clarifying procedures, the changes aim to balance the need for effective tax collection with the operational realities of businesses.
As these changes unfold, businesses operating in Kazakhstan must stay informed and compliant to navigate the evolving tax environment successfully.
If you have any queries about this article on the Updates to Kazakhstan’s VAT Refund Rules, or Kazakh tax in general, then please get in touch.
In an unexpected turn of events, the Canada Revenue Agency (CRA) has announced the retraction of the newly implemented rule requiring trustees of Canadian bare trusts to submit a trust return for the tax year 2023.
This decision, unveiled just a day before the deadline for filing, comes as a response to the unintended consequences the reporting requirements have imposed on Canadians.
The broad context of the enhanced trust reporting requirements can be seen here.
This latest move follows a March 2024 concession that promised no penalties for trustees who filed late, barring instances of serious misconduct.
Initially introduced in 2023, these regulations mandated extensive annual T3 return filings, starting with tax years ending on or after December 31, 2023.
The mandate aimed to include a broader spectrum of trusts, such as bare trusts and foreign trusts with ties to Canadian property or residents, necessitating many to file a T3 return and the Schedule 15 (Beneficial Ownership Information of a Trust) form for the first time.
However, the latest update specifies that the withdrawal of the filing requirement applies exclusively to bare trust arrangements under the new subsection 150(1.3) of the federal Income Tax Act. Other trusts, particularly express or other trusts based or deemed to be resident in Canada, remain subject to the original filing and tax payment obligations by April 2, 2024.
Over the next few months, the CRA plans to collaborate with the Department of Finance to refine and elaborate on the guidelines concerning the bare trust filing requirements.
Despite the recent announcement, bare trusts must prepare to meet the filing expectations, including Schedule 15 submissions, for the 2024 tax year and beyond.
As the CRA promises further clarity on this matter, stakeholders in bare trusts and the broader tax community await detailed guidance, hoping for smoother compliance paths in the future.
If you have any queries on this article on Canada Withdraws Bare Trusts Reporting Requirement, or Canadian tax matters in general, then please let us know.
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.
FedEx Corporation, having previously succeeded in a significant legal battle concerning foreign tax credits, is now urging the US District Court for the Western District of Tennessee to confirm the refund amount due.
This development follows after the government halted discussions on a joint judgment proposal, prompting FedEx to take legal action.
On 8 March 2024, FedEx filed a motion for judgment to finalise the refund amount. This action was taken in response to the government’s withdrawal from negotiations and its indication that it would oppose FedEx’s motion with a novel argument based on the “Haircut Rule”.
The government’s new stance involves Treasury Regulation Section 1.965-5(c)(1)(i), which potentially limits foreign tax credits related to withholding taxes paid to foreign jurisdictions.
FedEx contests this argument on several grounds, including the applicability of the rule when withholding taxes are not claimed, procedural deficiencies under the Administrative Procedure Act, and the belated introduction of this argument in the litigation process.
The government’s late introduction of the “Haircut Rule” argument may face judicial resistance, especially considering the advanced stage of the litigation.
The transparency of the government’s strategy during the litigation and its decision to withhold this argument until a critical juncture could impact the court’s receptivity to the new claim.
The FedEx case underscores the importance of timely presenting arguments in legal disputes.
Waiting until late in the litigation process to introduce new claims can lead to challenges in persuading the court to consider those arguments, with potential consequences including rejection due to delay.
As FedEx moves forward with its motion for judgment, the legal community watches closely.
The outcome may provide further guidance on the strategic considerations and challenges of introducing new arguments in ongoing litigation, particularly in complex tax law disputes.
If you have any queries about this article on FedEx v US Government, or US tax matters in general, then please get in touch.
The Swiss Federal Council has recently outlined new regulatory measures for the taxation of teleworking, specifically addressing the evolving work patterns of cross-border commuters.
Published on 1 March 2024, these regulations aim to integrate the new international treaty agreements with France and Italy into Swiss law, marking a significant step in adapting to the changing landscape of remote work.
The shift towards teleworking, accelerated by the COVID-19 pandemic and ongoing digitalization, has blurred traditional geographic boundaries of employment.
This evolution poses a challenge for taxation, particularly for cross-border commuters who, while working for employers in Switzerland, reside in neighboring countries.
The proposed law by the Swiss Federal Council seeks to address these changes, ensuring that Switzerland remains competitive without forfeiting tax revenue.
Switzerland has proactively negotiated with France and Italy to establish clear rules for teleworking.
A notable agreement with France, effective from 1 January 2023, allows up to 40% of working hours per year to be conducted remotely without affecting the cross-border commuter status or altering taxation rights.
Similarly, an agreement with Italy permits teleworking for up to 25% of working hours from 1 January 2024, maintaining the status and taxation rights of cross-border commuters.
These agreements exemplify Switzerland’s commitment to modernizing its tax legislation in line with international standards.
The Swiss Federal Council’s proposal introduces a framework to tax teleworking activities conducted outside Switzerland by residents of neighboring countries, provided international treaties grant taxation rights to Switzerland.
This approach not only aligns with the agreements with France and Italy but also sets a precedent for future international collaborations on teleworking taxation.
The implementation of these regulations will necessitate detailed certification of teleworking days, which must be submitted to tax authorities.
While the new rules specifically address arrangements with Italy and France, they do not impact agreements with other neighboring countries like Germany, Liechtenstein, and Austria.
However, the broader objective remains clear: to safeguard Swiss tax revenues while enhancing the nation’s appeal as a workplace for international talent.
As Switzerland prepares for parliamentary approval of these proposals, the future of teleworking taxation is poised to offer greater clarity and certainty for cross-border commuters and their employers.
If you have any queries on this article on Switzerland Cross Border Teleworking, or Swiss tax matters generally, then please get in touch.
On 19 January 2024, the Dutch Supreme Court delivered a landmark decision addressing the contentious issue of beneficial ownership concerning Dutch dividend tax credits.
This judgement overturns a prior ruling by the Court of Appeal and provides crucial guidance on the interpretation of anti-dividend stripping rules within Dutch tax law.
The case involved a Dutch taxpayer, X BV, a subsidiary of an international banking group that held shares in Dutch companies as part of its investment portfolio.
These shares were loaned to its indirect UK parent company and were returned to X BV’s securities account, managed by a French custodian, just before dividends were distributed.
X BV claimed it was both the recipient and beneficial owner of these dividends, crediting the Dutch dividend tax against its corporate income tax.
The Dutch tax authorities contested this, denying the credit based on anti-dividend stripping rules.
The Court of Appeal had previously determined that X BV was not the beneficial owner of the dividends due to the influence of the UK parent company over the shares and dividends.
However, the Supreme Court found this interpretation overly broad and vague, ruling that the anti-dividend stripping rule did not apply in this context.
It clarified that the legal owner of a dividend, who can freely dispose of it and is not acting as an agent, is generally considered the beneficial owner, except under specific circumstances outlined in anti-abuse rules.
The Supreme Court also instructed a reevaluation of X BV’s legal ownership of the shares under French law, given the securities account’s location.
This is essential for determining X BV’s right to credit the dividend tax.
This ruling has significant implications for Dutch taxpayers and the Ministry of Finance, particularly concerning the interpretation and application of beneficial ownership and anti-abuse rules in dividend transactions. It highlights:
The Supreme Court’s decision offers welcome clarity on the open norm of beneficial ownership, limiting its application and enhancing legal certainty for taxpayers.
It is a crucial development for entities engaged in similar transactions, providing a clearer path to navigate the complexities of Dutch dividend tax law.
As of January 1, 2024, amendments to the rules on beneficial ownership have broadened the scope of specific situations of abuse and shifted the burden of proof to the taxpayer for dividend tax amounts exceeding €1,000.
The verdict also has potential implications for ongoing tax litigation and existing investment structures, warranting a review of stock agreements and tax planning strategies.
If you have any queries about this article on Dutch Supreme Court Clarifies Beneficial Ownership in Dividend Case, or Dutch tax matters in general, then please get in touch.
A year after Hong Kong lifted its final COVID-19 restrictions, the city continues grappling with economic recovery challenges, exacerbated by global geopolitical tensions and high interest rates.
Despite these hurdles, the Financial Secretary, Mr. Paul Chan, unveiled several tax-related measures in the 2024-25 Budget Speech on 28 February2024, aimed at revitalising the economy.
This article delves into the key measures affecting high net worth individuals, fund managers, and property investors.
In an effort to increase public revenue, the government proposes a two-tiered standard rate for salaries tax and personal assessment.
The new regime maintains the standard 15 percent rate on the first HK$5 million of net income, while income above HK$5 million will incur a 16 percent rate.
Targeting the city’s wealthiest, this adjustment is expected to affect approximately 12,000 taxpayers, or 0.6 percent of the taxable population.
Despite these changes, Hong Kong’s tax rates remain competitive globally, with rates significantly lower than those in Australia, the United Kingdom, the United States, and Singapore.
This strategic move aims to preserve Hong Kong’s appeal as a low-tax haven for affluent professionals and talents.
In a decisive move to stimulate the stagnant property market, all existing cooling measures were abolished as of February 28, 2024.
This sweeping reform followed a partial relaxation last October, including a 50 percent reduction in Buyer’s Stamp Duty (BSD) and New Residential Stamp Duty (NRSD).
Now, both sellers and buyers face only the Ad Valorem Stamp Duty (AVD) at Scale 2 rates, which are significantly more favorable and do not discriminate based on buyer type or residency status.
This policy shift is anticipated to rejuvenate market confidence and transaction volume.
It also opens new doors for using corporate vehicles or trust structures for property purchases and succession planning, a tactic previously deterred by high Stamp Duty costs.
Aiming to solidify Hong Kong’s status as a leading asset and wealth management hub, the Budget proposes to refine tax concession regimes for investment funds, single family offices, and entities receiving carried interest.
Plans include broadening the scope of tax-exempt transactions and easing limitations on incidental transaction income, which has been tightly capped until now.
These adjustments are designed to attract more fund managers and family offices by offering tax incentives on a wider array of financial transactions.
Although specifics are pending, the commitment to expand these tax advantages underscores a clear strategy to bolster investment and reinforce Hong Kong’s competitive edge in global finance.
The 2024-25 Budget reflects Hong Kong’s strategic approach to economic recovery, with significant tax reforms and regulatory easements designed to attract high net worth individuals, enhance the property market, and cement the city’s role as a global financial hub.
As these measures unfold, they promise to reshape Hong Kong’s economic landscape, offering new opportunities for growth and investment in the post-pandemic era.
If you have any queries about the Hong Kong 2024-25 Budget, or Hong Kong tax matters in general, then please get in touch.
The Canadian government has taken bold steps toward fostering a clean economy with the proposal of five new refundable investment tax credits (ITCs).
These measures, updated as of 6 March 2024, are intended to enhance Canada’s competitiveness in attracting clean energy investments.
This article provides an overview of the proposed ITCs as they stand, following developments from their initial announcement on 4 December 2023.
Aimed at boosting clean technology adoption and operations within Canada, this ITC offers a 30% refundable credit on eligible investments made between 28 March 2023, and the end of 2033.
Investments made in 2034 will receive a 15% credit, with no credit available for investments thereafter.
This incentive targets taxable Canadian corporations and mutual fund trusts, including those part of a partnership investing in eligible property.
This credit supports investments in carbon capture technology, offering up to 50% for direct carbon capture expenditures and 60% for capturing carbon from ambient air.
A 37.5% credit is also available for qualified carbon transportation, storage, and use expenditures.
These rates apply to expenses incurred from January 1, 2022, to December 31, 2030, halving for the following decade and expiring after 2040.
Investments in clean hydrogen production projects will benefit from a credit up to 40%, depending on the carbon intensity of the produced hydrogen.
This applies to projects available for use from 28 March 2023, to the end of 2033, with a reduced rate for 2034 and no credit thereafter.
A 30% credit is available for investments in clean technology manufacturing and critical mineral processing from 2024 to 2031, with a gradual reduction to 5% by 2034.
This aims to encourage the manufacturing or processing of renewable energy equipment and other clean technologies.
Offering a 15% refundable credit for investments in clean electricity generation, storage, and transmission, this ITC will be available following the 2024 federal budget delivery for projects not commenced before March 28, 2023.
The initiative encompasses a wide range of clean energy sources, including wind, solar, and nuclear, and will conclude after 2034.
Each tax credit is specifically designed to support different segments of the clean energy sector, from technology adoption and carbon capture to clean hydrogen production and clean electricity generation.
Taxpayers are generally restricted to claiming one credit per eligible investment, and none of these credits have yet become law.
These ITCs are refundable, meaning they are treated as payments already made by the taxpayer, with refunds issued if no additional tax is due.
The design of these credits involves specific labor and production requirements, with potential recapture for properties that change use, are exported, or disposed of within certain timeframes.
Canada’s proposed investment tax credits represent a significant push toward a sustainable, clean economy.
By incentivizing investments in clean technology, carbon capture, clean hydrogen, and clean electricity, the government aims to position Canada as a leader in clean energy while fostering economic growth.
As these credits move through the legislative process, businesses and investors should stay informed and consult with professionals to understand how these incentives could impact their operations and investment decisions.
If you have any queries about the proposed Investment Tax Credits for the Clean Economy in Canada, or other Canadian tax matters, then please get in touch.