In 2021, European tax lawyers and consultants will be required to submit a description of their clients’ tax schemes to the regulatory authorities in terms of the so-called DAC 6 mechanism. In addition, the new 6 AMLD – anti-money laundering rules will come into effect, which include, inter alia, seizure of the proceeds, whose source of origin is indeterminate.
Not only international corporate structures of doubtful assets provenance are at risk, but trusts too. According to the new requirements, the EU member states create open registers of the beneficiaries of trusts, which will be accessible not only to the competent European authorities, but also to third parties with a “legitimate interest”, such as potential creditors of the founder or beneficiary.
Most low-tax countries have fiercely resisted the implementation of such rules and delayed the enactment of the relevant bills. Cyprus and Malta, under pressure from the EU, began to employ measures not characteristic for them before, such as withholding tax at source, local CFC rules, etc. These countries are intermediary parties. And they worsen their intermediary business not of their free will, but because society and certain organizations like the EU demand it.
In Switzerland, a corporate tax reform has already entered into force, according to which the previously applied privileged regimes have been cancelled. It is planned that the negative effect of the reform in this country will be mitigated by a decrease in cantonal tax rates and other tools.
The key question that the tax authorities are now raising is to what extent the actual functionality of trading companies, intra-group treasury centres, holdings and companies registered in low-tax zones corresponds to the amount of profit they exempt from taxation. Tax authorities are guided by the principle “the one who doesn’t work, does not make a profit”, which significantly increases the risks of using European offshore companies for tax purposes. Over the past few years, there has been a trend towards limiting benefits under international agreements and taxing income at source when paid to another country. Even Cyprus, which traditionally used to freely transfer funds through itself to anywhere in the world, is now raising the question of the possibility of taxing payments in offshore areas if they are included in the EU’s blacklist.
But even outside the EU, the conditions for staying in offshore territories are becoming more stringent. Singapore is planning to create a register of ultimate beneficiaries, and similar intentions are announced in other jurisdictions. Most traditional offshore companies introduce subsistence requirements, i.e. the obligatory presence of the company at the place of legal registration. As a result, company owners are forced to spend money on maintaining an additional office. Back in 2019, the owners of companies registered in the British Virgin Islands, Belize, Panama, and the Cayman Islands started moving to more loyal jurisdictions, fearing fines for violating the requirements of the subsistence. This trend has continued in 2020. Many beneficiaries have turned their attention to jurisdictions where there are no requirements for subsistence or are more loyal, such as jurisdiction in Serbia, the Marshall Islands and Seychelles.
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