Tax and regulatory news

UK's HMRC issues draft CFC exemption regulations The UK's HM Revenue and Customs (HMRC) has published The Draft Controlled Foreign Companies (Excluded Territories) Regulations 2012. The aim of the Excluded Territories Exemption (ETE) is to exempt CFCs that are resident in territories where the CFC's income is taxed at a rate broadly similar to that of the UK main corporate tax rate and where the CFC satisfies some general residence and income conditions. The regulations provide a list of around 100 excluded territories for the purposes of the ETE and set out a further requirement for the ETE to apply.hideThey also provide a modified ETE exemption which will apply in specified cases provided certain requirements are met. The simplified ETE is available for CFCs in Australia, Canada, France, Germany, Japan and USA. The simplified ETE is intended to allow groups to deal quickly with CFCs in these territories, which are major trading partners that have tax regimes broadly equivalent to the UK's. The simplified ETE is an additional, optional basis for exemption that will not affect entitlement to ETE under the normal rules. The ETE broadly replaces the Excluded Countries Exemption which was part of the previous CFC legislation. Thailand introduces catastrophe insurance fund The Thai government has implemented a catastrophe insurance fund that is designed to provide insurance for damages caused by flood, earthquake and windstorm on an optional basis. A prerequisite for the catastrophe cover is a fire insurance or industrial all-risk policy. Coverage provided through the fund will be subject to tariff rates, deductibles and sub-limits. Policies will be arranged through local insurers which will reinsure to the government fund. Loss of property in any designated flood area will be covered directly by special governmental indemnification assistance. (Source: Chartis Market alert, which can be found in the IPN Databank) New Zealand clarifies Goods and Services Tax and non-resident insurers New Zealand's Minister of Revenue has released Supplementary Order Paper No 98 to the Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill addressing a range of issues, including provisions amending the Goods and Services Tax Act 1985 (the GST Act) to remedy an asymmetry in the GST treatment of premiums for and receipts under a contract of insurance. The asymmetry has arisen as a result of the application of the reverse charge rules in the GST Act when an insurer is a non-resident. The amendment is backdated to the commencement of the reverse charge rules at 1 January 2005. Section 5(13) is amended to clarify that amounts received by a New Zealand resident business from a non-resident insurer are not subject to GST. Section 20(3)(d) is amended to prevent a payment of a premium to a non-resident insurer from being included in the calculation of a deduction under the GST Act. (Source: Deloitte New Zealand) Global transfer pricing tax authority survey from Ernst & Young Ernst & Young's 2012 global transfer pricing tax authority survey has revealed that tax authorities continue to increase their transfer pricing staffing, and, while the documentation burden is growing, the arm's- length principle continues to hold sway. Ernst & Young said there has been a remarkable increase in the number of countries that have introduced transfer pricing requirements in recent years, with the spread of transfer pricing rules from the developed markets in North America, western Europe and Australia to the developing markets in Africa, Asia and eastern Europe. The survey also found that the increasing geographic scope of documentation requirements imposes rising benchmarking burdens, and that there is still little coordination of transfer pricing and indirect tax standards. It also found that transfer pricing scrutiny is not limited to perceived high-risk transactions, and transfer pricing reviews target high-profit industries and major trading partners, rather than tax havens specifically. Penalties have also become more frequent and more onerous. Hungary to introduce insurance premium tax Hungary has passed a law to introduce full insurance premium tax on Freedom of Services insurance. The law was passed on 9 July, 2012. As part of a package of financial measures Hungary will reorganise the tax regime levied on insurance premiums from 1 January, 2013. The planned rates for the new insurance premium tax are 10% for property and accident insurance and 15% for comprehensive motor insurance. Other classes such as credit insurance and legal expenses insurance may also be taxed, while life and health insurance will be exempt. The proposal to tax compulsory motor third party liability insurance has been dropped. The new tax will replace some of the existing Hungarian taxes levied on insurance policies-fire brigade charge and the surcharge on insurance companies. The Hungarian accident tax will not be repealed now following an amendment to the original bill. All insurers, both resident and non-resident, will be expected to pay the new tax on insurance policies when a risk is located in Hungary. At present, the tax will be levied on the insurer, not the insured as in most other European countries. (Source: TMF Group) Irish Insurance Compensation Fund levy may be extended In Ireland, there are reported to be rumours that the new Insurance Compensation Fund levy will be extended for several years, following news that the losses of Quinn Insurance could exceed €1.65bn instead of the previously thought €738m. A bill was passed by the Irish parliament last year imposing a 2% levy on insurance premiums, with effect from 1 January, 2012, to fund the losses from Quinn Insurance, which went into administration in 2010. This was on top of the existing Government Levy of 3% on non-life policies. The levy covers all Irish risks of non-life insurance policies, except health, marine, aviation, cargo and reinsurance risks. The levy is payable by the insurer although it can be passed on to the insured. (Source: TMF Group) Compulsory insurance requirements for hazardous facilities in Russia Owners of 'hazardous facilities' in Russia are subject to new compulsory insurance requirements. Hazardous facilities include certain industrial facilities, gas stations or buildings with elevators/escalators. The insurance is subject to tariffs, mandatory policy wordings, reporting, claims handling procedures and mandatory reinsurance to the local reinsurance pool. The regulation mandates combined coverage for general liability and employer's liability with limits set by the reported exposure. The compulsory policies are subject to 'Cash-before-Cover' rules, and backdating coverage is prohibited. Similar provisions that require liability insurance for state or municipally-owned or subsidised hazardous facilities and for owners of residential accommodations with elevators and escalators will take effect on January 1, 2013. (Source: Chartis Market Alert, which can be found in the IPN Databank) Panama sees premium payments requirements in new insurance law On April 3, 2012, Panama implemented a new insurance law that sets forth certain requirements related to premium payments. Under this new law: i) An insurance policy is enforceable only if the premium is paid in full OR the required installment amount, as agreed between the insured and insurer, has been paid when due. ii) If the policyholder fails to pay the premium within the first 30 days of the policy's inception, coverage will be suspended for the next 30 days and thereafter automatically cancelled unless the outstanding premium is paid. Any claims occurring during the period of suspension cannot be paid. iii) Policies cannot be renewed if any portion of the premium is outstanding. (Source: Chartis Market Alert, which can be found in the IPN Databank) NAIC adopts FSB cross-border regulatory tracking tool Members of the US National Association of Insurance Commissioners (NAIC) have decided to add the Legal Entity Identifier (LEI) to insurance industry regulatory reporting which they hope will help track cross-border insurance transactions. The LEI project is coordinated by the Financial Stability Board and endorsed by the G-20. The NAIC said that, until now, it has been a 'challenge' for financial regulators to track entities beyond country borders, as current registries are unique within countries and across different markets. This was particularly a problem with derivatives counterparties and exposures during the financial crisis, said the regulatory body. "The LEI system will improve the ability of insurance and other financial regulators to track, analyse and understand interconnectedness, risk exposures and systemic issues in a global marketplace," said Kevin McCarty, NAIC President and Florida Insurance Commissioner. "This project represents a significant improvement in global transparency," he added. The NAIC explained that the goal of the LEI project is to assign a unique 20-digit identifier to any entity that engages in financial transactions. The project determines who is eligible to have a LEI and the rules under which they are assigned. In addition to the identifier itself, there will also be reference data maintained by the registrars. "While the LEI project determines eligibility, it is up to financial regulators to decide when the LEI is required and how it should be used," added the regulatory body. US insurance regulators have been involved in the development of the LEI project since early in 2011 as the project work streams got under way, and are among the first regulators to adopt usage. The LEI is scheduled for launch in March 2013 when the new reporting requirements become effective. Also on the cross-border front in late July representatives of the NAIC joined their counterparts from the China Insurance Regulatory Commission (CIRC) to 'further regulatory cooperation' on issues that impact both countries, the body said at the time. The US-China Insurance Regulation Seminar was held in Qingdao, China and the NAIC said that it represented the NAIC's ongoing commitment to share best practices in insurance supervision globally. "Insurance markets have evolved over the years to become increasingly global, interconnected, and convergent-a trend that will undoubtedly continue in years to come. US insurance regulators are heavily invested in the future of insurance globally, and the NAIC is committed to coordinating with our fellow regulators, both domestically and internationally, to ensure open, competitive, stable markets around the world," said Iowa Insurance Commissioner Susan Voss, who led the NAIC delegation. "The most important thing we can do is to promote a level playing field across the globe through strong regulatory systems while recognising that there will continue to be different cultural, legal, and operational differences in regulatory regimes around the world," said District of Columbia Commissioner William White. "Over the years the NAIC and the CIRC have had an excellent relationship and as China pursues efforts to develop its second generation solvency system, we see these recurring regulator to regulator dialogues as critical to our ongoing cooperation and collaboration," added Ms Voss. Four more jurisdictions sign IAIS Multilateral Memorandum of Understanding The insurance supervisors of Canada (Office of the Superintendent of Financial Institutions), Isle of Man, Luxembourg, and Poland have joined an international supervisory cooperation and information exchange agreement. There are now 30 jurisdictions admitted as signatories to the IAIS Multilateral Memorandum of Understanding (MMoU), representing approximately 45% of worldwide premium volume. The MMoU is a global framework for cooperation and information exchange between insurance supervisors. It sets minimum standards to which signatories must adhere. Previous MMoU signatories include, among others, Australia, Austria, Bermuda, Chile, Connecticut (US), Chinese Taipei, France, Germany, Hong Kong, Japan, the Netherlands, Qatar, Singapore, Switzerland, and the United Kingdom. French parliament approves CFC amendment The French parliament has approved the Amending Finance Act for 2012, which provides a series of tax measures, including a change affecting Controlled Foreign Companies (CFCs). Under Article 209 B of the French Tax Code, profits of entities controlled by French companies and located in jurisdictions where they benefit from a tax-privileged regime are subject to corporate income tax in France, even if these profits are not distributed to the French controlling company. A tax regime is deemed to be privileged if the effective tax charge is less than 50% of the tax charge that would have incurred under the standard French rules if the taxpayer had been resident in France. However, safe- harbour provisions may apply, depending on the place of establishment of foreign entities. Until now, a safe-harbour provision has applied to non-EU-controlled entities if, among other conditions, their profits were derived from an industrial or commercial activity actually carried on from their state of establishment. This safe-harbour provision has also applied to controlled entities located in a non-cooperative state or territory (NCST), with the specification that the burden of proof was upon the taxpayer. The law simplifies the conditions for the safe-harbour provision to apply to non-EU-controlled entities. Now, in order to benefit from this provision, a taxpayer must demonstrate that the activity of its controlled entity established in a non-EU country is not driven by the purpose of benefiting from a tax-privileged regime therein, regardless of whether such non-EU country is an NCST or not. (Source: Morgan, Lewis & Bockius LLP) Guernsey's revised corporate tax regime approved by EU Guernsey's revised zero-10 corporate tax regime has been given a clean bill of health by the EU. An April meeting of the EU Code of Conduct Group on Business Taxation concluded that the deemed distribution provisions meant Guernsey's zero-10 corporate tax regime was harmful and so at the end of June, the Guernsey parliament, the States of Guernsey, agreed to repeal the deemed distribution provisions from 1 January, 2013. The EU Code of Conduct Group assessed Guernsey's repeal of the deemed distribution provisions and agreed that this removed the 'harmful effects' of the island's corporate tax regime. This is subject to the usual formal ratification by the EU's Economic and Financial Affairs Council (ECOFIN) at the end of this year. Under Guernsey's zero-10 regime, all companies are taxed at 0%, except for the profits of specified financial services businesses which are taxed at 10% (and local utilities at 20%). Isle of Man signs tax and information agreements with Singapore and Turkey The Isle of Man has signed a Double Taxation Agreement (DTA) with the Republic of Singapore and a Tax Information Exchange Agreement (TIEA) with the Republic of Turkey. Both signing ceremonies took place in London. Eddie Teare MHK, the Isle of Man's Treasury Minister, and Mr T Jasudasen, the High Commissioner of Singapore, signed the DTA at the Singapore High Commission. Shortly afterwards, the TIEA signing ceremony took place at the Turkish Consulate between Eddie Teare MHK, and Mr Mehmet Kilci, President of Revenue Administration. The two new agreements mean that the Isle of Man has now signed 6 DTAs and 26 TIEAs and has 32 agreements that meet the OECD international standard on tax cooperation and transparency. Following the entry into force of the TIEA, a statement issued by the Isle of Man stated that it and Turkey will continue to examine measures that could further enhance their political and economic relationship. This will include further clarification of elements of double taxation, discrimination and other 'undesired' tax barriers. Minister Eddie Teare commented: "The Isle of Man remains committed to tax transparency and effective exchange of information. The signing of today's agreements with Singapore and Turkey is further evidence of that commitment and also of the desire to build closer relations." Minister Teare said that the Double Taxation Agreement with Singapore is a 'comprehensive' agreement that will address taxation issues arising in relation to the flow of business and any movement of people between the Isle of Man and Singapore. "This signing is further evidence that we will continue to forge relationships with countries as a good neighbour and as an economic partner. Turkey is a member of both the G20 and the Organisation for Economic Co-operation & Development and is a significant addition to the Isle of Man's network of international tax agreements," he added.

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