International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Saturday, October 31, 2015

2016 Budget Passed - What's Actually in it?

H.R.1314 — 114th Congress (2015-2016)

Download 2016-17 Budget

Download Cost of 2016-17 Budget

Download 2016-17 Budget Pension Impact

Sec. 801. Short title.

Partnership Audit Changes: 

“(a) In General.—Any adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year (and any partner’s distributive share thereof) shall be determined, any tax attributable thereto shall be assessed and collected, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to any such item or share shall be determined, at the partnership level pursuant to this subchapter.


“(a) In General.—In the case of any adjustment by the Secretary in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share thereof—

“(1) the partnership shall pay any imputed underpayment with respect to such adjustment in the adjustment year as provided in section 6232, and

“(b) Determination Of Imputed Underpayments.—For purposes of this subchapter—

“(1) IN GENERAL.—Except as provided in subsection (c), any imputed underpayment with respect to any partnership adjustment for any reviewed year shall be determined—

“(A) by netting all adjustments of items of income, gain, loss, or deduction and multiplying such net amount by the highest rate of tax in effect for the reviewed year under section 1 or 11,

“(B) by treating any net increase or decrease in loss under subparagraph (A) as a decrease or increase, respectively, in income, and

“(C) by taking into account any adjustments to items of credit as an increase or decrease, as the case may be, in the amount determined under subparagraph (A).

“(2) ADJUSTMENTS TO DISTRIBUTIVE SHARES OF PARTNERS NOT NETTED.—In the case of any adjustment which reallocates the distributive share of any item from one partner to another, such adjustment shall be taken into account under paragraph (1) by disregarding—

“(A) any decrease in any item of income or gain, and

“(B) any increase in any item of deduction, loss, or credit.

October 31, 2015 in Economics | Permalink | Comments (0)

Fake kidnappers cause genuine loss

by Bridget Small, Consumer Education Specialist, FTC

Phone scammers spend their days making trouble. They waste our time, tie up our phone lines and Ftc_logo_430harass us with ugly language. Some do much, much worse. The FTC has heard from people who got calls from scammers saying, “I’ve kidnapped your relative,” and naming a brother, sister, child or parent. “Send ransom immediately by wire transfer or prepaid card,” they say, “or something bad will happen.”

They’re lying. They didn’t kidnap anyone, but they hope you’ll panic and rush to pay ransom before checking the story. Dozens of people told the FTC they got calls like this and paid $100 to $1,900 — often by wire transfer — to the kidnappers. To stop you from checking out the story, scammers order you to stay on the phone until the money is sent. There’s pressure to pay quickly, and the caller says not to contact anyone. And, of course, scammers demand payment by wire transfer or prepaid cards. Why? Because it’s difficult to trace or recover money sent that way.

The FBI calls this scam virtual kidnapping. Scammers scour the internet and social media sites, grabbing information about where people live, work, or travel, and names of friends and family. The cons use the details to pick a target and make their calls sound credible. To cut down on the information that scammers can find, think about limiting access to your networking pages — and encourage your family to do the same. Never post your Social Security number or account numbers online, and only share your phone number with your friends and contacts.

If you get a call like this, remember that it’s fake, no matter how scary it sounds. Even if it feels really real, never wire money or pay by prepaid card to anyone who asks you to. If you’re worried about the call, get off the phone and get in touch with the relative or friend in question – just to reassure yourself. And then report it to the FTC.

October 31, 2015 in FinCEN | Permalink | Comments (0)

Friday, October 30, 2015

IRS Announces 2016 Pension Plan Limitations; 401(k) Contribution Limit Remains Unchanged at $18,000 for 2016

The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016.  In general, the Irs_logopension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.  However, other limitations will change because the increase in the index did meet the statutory thresholds.

The highlights of limitations that changed from 2015 to 2016 include the following:

  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $184,000 and $194,000, up from $183,000 and $193,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000.  For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,500 for married couples filing jointly, up from $61,000; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.

The highlights of limitations that remain unchanged from 2015 include the following:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range.  For singles and heads of household who are covered by a workplace retirement plan, the income phase-out range remains unchanged at $61,000 to $71,000.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Below are details on both the adjusted and unchanged limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2016, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2016, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2015, by 1.0011.

The limitation for defined contribution plans under Section 415(c)(1)(A) remains unchanged in 2016 at $53,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2016 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $265,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period remains unchanged at $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, remains unchanged at $395,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $18,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) remains unchanged at $215,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systematically important plan under section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb).  After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systematically important plan under section 432(e)(9)(H)(v)(III)(aa) is increased in 2016 from $1,000,000,000 to $1,012,000,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2016 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,500 to $37,000; the limitation under Section 25B(b)(1)(B) is increased from $39,500 to $40,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $61,000 to $61,500.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,375 to $27,750; the limitation under Section 25B(b)(1)(B) is increased from $29,625 to $30,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,750 to $46,125.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,250 to $18,500; the limitation under Section 25B(b)(1)(B) is increased from $19,750 to $20,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,500 to $30,750.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) remains unchanged at $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) remains unchanged at $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $183,000 to $184,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $183,000 to $184,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $116,000 to $117,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,101,000 to $1,106,000. 

October 30, 2015 in Financial Services | Permalink | Comments (0)

Thursday, October 29, 2015

Crédit Agricole Corporate and Investment Bank Admits to Sanctions Violations, Pays $787.3 Million With Forfeiture of $312 Million

Crédit Agricole Corporate and Investment Bank (CACIB), a corporate and investment bank owned OFACby Crédit Agricole S.A. and headquartered in Paris, has agreed to forfeit $312 million and enter into a deferred prosecution agreement with the U.S. Attorney’s Office of the District of Columbia for CACIB’s violations of the International Emergency Economic Powers Act (IEEPA) and the Trading With the Enemy Act (TWEA). 

CACIB employs over 7,000 employees and has a presence in over 30 countries.  The bank has also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control (OFAC), the Board of Governors of the Federal Reserve System, the New York County District Attorney’s Office and the New York State Department of Financial Services (DFS).  In total, CACIB will pay $787.3 million in criminal and civil financial penalties.

A one-count felony criminal information and a related civil forfeiture complaint were filed today in federal court in the District of Columbia charging CACIB with knowingly and willfully conspiring to defraud the United States and to commit violations of IEEPA and TWEA.  CACIB has waived federal indictment, agreed to the filing of the information and civil forfeiture complaint, and has accepted responsibility for its criminal conduct and that of its employees.

CACIB is to pay $156 million to the U.S. Attorney’s Office for the District of Columbia and $156 million to the New York County District Attorney’s Office.

The New York County District Attorney’s Office is also announcing today that CACIB has entered into a separate deferred prosecution agreement, and that, in the corresponding factual statement, CACIB admitted that it violated New York state law by falsifying the records of New York financial institutions.

In addition, the Board of Governors of the Federal Reserve System is announcing that CACIB has agreed to a cease and desist order, to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations and to pay a civil monetary penalty of $90.3 million.  DFS is announcing CACIB has agreed to, among other things, employ a compliance consultant for a period of one year and pay a monetary penalty of $385 million to DFS.  The Treasury Department’s OFAC has also levied a fine of approximately $329.5 million, which will be satisfied by the payments to federal and local agencies.

“Sanctions laws are critical to both our national security and foreign policy interests,” said U.S. Attorney Phillips.  “CACIB, through its subsidiaries, violated our laws and our interests by conducting business on behalf of entities in Sudan.  CACIB’s subsidiaries succeeded in these efforts, in large part, by hiding their conduct from CACIB’s employees in the United States.  In this case, the overwhelming majority of the unlawful conduct occurred at a foreign subsidiary that no longer exists.  Although CACIB moved quickly to end these unlawful transactions and fully cooperated with investigators, today’s resolution demonstrates that there will be significant consequences for any financial institution that allows its foreign subsidiaries that do not intend to respect U.S. law to, nevertheless, access the U.S. financial system.”

“The financial penalties imposed on Crédit Agricole Corporate and Investment Bank send a powerful message to any financial institution that prioritizes profits over adherence to the law,” said Assistant Director Campbell.  “This investigation is another example of our commitment to work closely with our federal and state partners to ensure compliance with U.S. banking laws to promote integrity across financial institutions and to safeguard our national security.”

“Today’s announcement is another significant milestone on an international stage that should send a clear warning to other global financial institutions,” said Chief Weber.  “IRS-CI’s work in this investigation, as well as prior sanction cases, has proven the ability of IRS-CI and our partners to expose violations of IEEPA and TWEA sanctions.  We will continue to use our financial expertise to uncover these types of violations and hold financial institutions accountable for international criminal violations.”

“With this resolution, as well as eight previous agreements, my office and our partners are sending a clear message that financial institutions must comply with sanctions against rogue nations,” said District Attorney Vance.  “Over the course of our investigation, it was revealed that subsidiaries of Crédit Agricole illegally moved hundreds of millions of dollars through the U.S. on behalf of clients in Sudan, Iran, Cuba and Burma.  This type of conduct requires the bank be held accountable, and I would like to thank all our partners for their efforts to ensure that our financial system is protected.”

According to documents released publicly today, between August 2003 and September 2008, CACIB subsidiaries in Geneva knowingly and willfully moved approximately $312 million through the U.S. financial system on behalf of sanctioned entities located in Sudan, Burma, Iran and Cuba.  Specifically, during this time period, these CACIB subsidiaries employed deceptive practices that concealed the involvement of banks designated as Specially Designated Nationals (SDNs) and other corporate entities in financial transactions that transited through the United States and thereby deprived the United States and CACIB’s New York branch and other U.S. financial institutions of the ability to filter for, and consequently block or reject, sanctioned payments. 

The bank’s conduct caused approximately $312 million in unlawful transactions to transit through the United States financial systems—although nearly all of the bank’s violations involved Sudanese business organizations.  CACIB subsidiaries also unlawfully caused transactions on behalf of clients located in Burma, Iran and Cuba to unlawfully transit through the United States as well.

According to court documents, CACIB’s employees were aware of U.S. sanctions against Sudan and the fact that the sanctions applied to payments the bank sent to the United States.  Further, CACIB has acknowledged that compliance personnel within CACIB subsidiaries in Geneva were aware of the U.S. sanctions against Sudan and that these sanctions applied to payments the bank sent through the United States.  Despite this knowledge, compliance personnel authorized payments on behalf of the bank’s Sudanese customers.

CACIB has admitted that its employees permitted 11 Sudanese banks to maintain U.S. dollar accounts with CACIB—six of the Sudanese banks were SDNs.  CACIB’s subsidiaries relied primarily on non-transparent payment messages, known as cover payments, to mask the unlawful payments that were sent through the United States. 

This case was investigated by the IRS-CI and the FBI’s New York Field Office.  This case is being prosecuted by Assistant U.S. Attorneys Matt Graves, Maia L. Miller and Zia Faruqui of the District of Columbia, and former Assistant U.S. Attorney Ann Petalas assisted in the investigation.

The New York County District Attorney’s Office also conducted its own investigation in conjunction with the Department of Justice.  The Board of Governors of the Federal Reserve Bank of New York, the DFS and the Treasury Department’s OFAC provided assistance with this matter. 

October 29, 2015 | Permalink | Comments (0)

Wednesday, October 28, 2015

The exchange of traditional currencies for units of the ‘bitcoin’ virtual currency is exempt from VAT

hat tip to Prof. Mark Burge...

Mr David Hedqvist, a Swedish national, wishes to provide services consisting of the exchange of European_Court_of_Justicetraditional currency for the ‘bitcoin’ virtual currency and vice versa. ‘Bitcoin’ is a virtual currency used for payments between private individuals over the Internet and in certain online shops that accept it; users can purchase and sell the currency on the basis of an exchange rate.

Before starting to effect such transactions, Mr Hedqvist requested a preliminary decision from the Swedish Revenue Law Commission in order to establish whether VAT must be paid on the purchase and sale of ‘bitcoin’ virtual currency units. According to that commission, ‘bitcoin’ is a means of payment used in a similar way to legal means of payment and the transactions that Mr Hedqvist intends to effect must, consequently, be exempt from VAT.

In today’s judgment, the Court holds that transactions to exchange traditional currencies for units of the ‘bitcoin’ virtual currency (and vice versa) constitute the supply of services for consideration within the meaning of the directive, since they consist of the exchange of different means of payment and there is a direct link between the service provided by Mr Hedqvist and the consideration received by him, namely the margin created by the difference between, on the one hand, the price at which he purchases currencies and, on the other hand, the price at which he sells them to his clients.

The Court also holds that those transactions are exempt from VAT under the provision concerning transactions relating to ‘currency, bank notes and coins used as legal tender’. To exclude transactions such as those envisaged by Mr Hedqvist from the scope of that provision would deprive it of part of its effects having regard to the aim of the exemption, which is to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible which arise in the context of the taxation of financial transactions.

Full Decision here

1.      Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article.

2.      Article 135(1)(e) of Directive 2006/112 must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision.

Article 135(1)(d) and (f) of Directive 2006/112 must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.

Previous Advocate General's Opinion: 

1.      The exchange of a pure means of payment for legal tender and vice versa, which is effected for consideration included by the supplier when the exchange rates are determined, constitutes the supply of a service effected for consideration within the meaning of Article 2(1)(c) of the VAT Directive.

2.      Such transactions are exempt from VAT under Article 135(1)(e) of the VAT Directive.

October 28, 2015 in Financial Regulation | Permalink | Comments (0)

Tuesday, October 27, 2015

EU Parliament Publicly Criticizes EU Council deal on automatic exchange of tax rulings as a “missed opportunity”

The EU Parliament released a statement today (hat tip to Haydon Perryman):

The EU member states’ deal on plans for them to exchange details of their tax rulings for EU Parliament logomultinationals automatically was a “missed opportunity” to take a big step forward in fighting aggressive tax planning and unfair tax competition, says Parliament in an opinion voted on Tuesday. 

The Economic and Finance (ECOFIN) Council deal watered down the Commission's proposal for more transparency and exchange of information, on 6 October, before Parliament's Economic and Monetary Affairs Committee voted its position, on 13 October.


Commenting on the Council deal, Parliament’s rapporteur Markus Ferber (EPP, DE) said: "If this is the final text, member states will have missed a great opportunity to create more transparency in taxation. National budgets will continue to suffer. We need an EU-wide systematic and mandatory procedure. For the moment, member states' tax authorities would not realise that tax ruling deals forged in other member states are undermining their own tax bases. Tax authorities should be obliged to exchange information on tax rulings and make them available to a central database at the European Commission”.

What MEPs suggest, compared to what the Council agreed

  • Limited scope - MEPs would prefer the directive to apply to all tax rulings, not just "cross border rulings and advance pricing arrangements", given that purely national transactions can also have cross-border effects. The Council made the directive’s scope "cross-border only".
  • Commission sidelined - The Council ensured that the Commission is explicitly not allowed to do anything with the information - to which the Commission only has very limited access - other than overseeing that the directive is properly applied.
  • No retroactive effect - The Council agreed that the directive would apply only to rulings, amendments or renewals of rulings after 31 December 2016, with some exceptions for those issued, amended or renewed between 2012 and 2016. 

Fiat and Starbucks prove need for transparency

Commenting on the Commission’s 21 October state aid decisions on tax rulings by Luxembourg (Fiat Finance) and the Netherlands (Starbucks), Mr Ferber added: “There is also a competition side to tax rulings. This is why the Commission must be empowered to access and use the data to investigate tax avoidance and dumping practices and to assess whether they are in line with state-aid rules. Why are member states clearly denying the Commission access to these data? Are they hiding something? The Commission's state aid verdicts on Starbucks and Fiat Finance show that it should be able to play its role”.

The resolution was passed by 572 votes to 90, with 30 abstentions.

Next steps

The draft Council directive is to be approved at a forthcoming Council meeting, following today's opinion by the European Parliament.

The new rules are to apply from 1 January 2017. Until then, any existing obligations to exchange information among member states will stay in place.

October 27, 2015 in BEPS | Permalink | Comments (0)

Piguet Galland Bank Pays $15.4 Million for 337 Non-Compliant U.S. Accounts, Turns Over Employees Details to IRS

Since Aug. 1, 2008, Piguet Galland and its predecessor banks held 337 U.S.-related accounts, with Irs_logoaggregate assets under management of $441 million.  Piguet Galland will pay a penalty of $15.365 million.

Piguet Galland evolved through the combination of three small, traditional Swiss private banks focused on wealth management.  In November 2003, Banque Franck SA acquired the client relationships of Banque Galland & Cie SA to become Franck Galland & Cie SA.  Until 2011, Piguet & Cie (Banque Piguet) was a separate entity, majority-owned by Banque Cantonale Vaudoise (BCV).  Between February and April 2011, BCV acquired Franck Galland from its owner, a U.S. financial group (the U.S. financial group), and then merged it with Banque Piguet (the 2011 Acquisition) to form the current entity, Piguet Galland.  BCV owns Piguet Galland.

Piguet Galland and its predecessor banks opened, serviced and profited from accounts for U.S. taxpayers with the knowledge that some of these account holders likely were not complying with their U.S. income tax and reporting obligations.  Piguet Galland and its predecessor banks offered a variety of traditional Swiss banking services that they knew or should have known would assist U.S. taxpayers in concealing assets and income from the Internal Revenue Service (IRS), including hold mail and code name or numbered account services.

One particular relationship manager (RM-1) was responsible for managing many of the U.S.-related accounts at Banque Franck and later Franck Galland.  RM-1 was a member of senior management at both of those banks.  Before Aug. 1, 2008, RM-1 opened several entity and trust accounts for U.S. persons, which remained open past Aug. 1, 2008.  RM-1 was a relationship manager for at least 65 U.S.-related accounts at Piguet Galland after Aug. 1, 2008.

RM-1 traveled regularly to the United States, mostly to attend meetings with both existing and potential U.S. clients.  Among other places, RM-1 traveled to Arizona, California, New Hampshire, New York and Wisconsin to meet both existing and potential clients.  This travel sometimes occurred at the request of the U.S. financial group that owned Franck Galland and often was in connection with trips to visit the U.S. financial group’s management.  RM-1 met with U.S. clients at hotels, clients’ clubs and other public places in the United States.  Management at Franck Galland, including its former chief executive officer, was aware of RM-1’s travel to the United States.  In fact, at least one member of Franck Galland’s Executive Committee knew that RM-1 was a U.S. person at the time he started employment.

Franck Galland permitted two other former relationship managers to travel to the United States to meet with U.S. taxpayer-clients.  On one occasion, one of these relationship managers provided $5,000 in cash from an undeclared account held by a U.S. taxpayer-client directly to that client in the United States.

Franck Galland had a sister entity that was also owned by the U.S. financial group.  This sister entity was a now-dissolved Cayman Island entity (the Cayman Entity).  The Cayman Entity was acquired by Piguet Galland as part of the 2011 Acquisition.  The Cayman Entity was ultimately liquidated in 2013, effective in 2014.  Prior to the 2011 Acquisition, the Cayman Entity:

  • Assisted in the opening of undeclared U.S.-related accounts at Franck Galland, sometimes through entities the Cayman Entity helped to create;

  • Helped manage structures holding undeclared U.S.-related accounts at Franck Galland;

  • Suggested facilitating meetings in the United States between RM-1 and undeclared U.S. taxpayer-clients with Cayman Entity accounts at Franck Galland;

  • Facilitated cash withdrawals and transfers out of undeclared U.S.-related accounts at Franck Galland; and

  • Served as trustee for two trusts that held U.S.-related accounts from 1995 to June 2011.

The Cayman Entity also held a subsidiary, the only purpose of which was to hold a condominium in George Town, Cayman Islands.  While the condominium was principally for use by the U.S. financial group and its management, it was also used by executives of Franck Galland and at least three of its U.S. taxpayer-clients.  The condominium was sold prior to the 2011 Acquisition.

Banque Piguet, another predecessor to Piguet Galland, allowed some of its relationship managers to communicate with its clients, including U.S. taxpayers, through private email accounts and the email domain “,” without disclosure of the communication’s origin.

Franck Galland and Banque Piguet opened and maintained undeclared accounts beneficially owned by U.S. taxpayers and held in the name of structures, some of which had cash or credit cards linked to them, while knowing, or having reason to know, that some of these structures were used by U.S. taxpayer-clients to help conceal their identities from the IRS.  Franck Galland and Banque Piguet also:

  • Accepted instructions in connection with U.S.-related accounts not to invest in U.S. securities and not to disclose the names of U.S. taxpayer-clients to U.S. tax authorities, including the IRS;

  • Opened and maintained accounts for U.S. taxpayer-clients transferring from other Swiss financial institutions that were closing such accounts, while both Franck Galland and Banque Piguet knew, or had reason to know, that a portion of the accounts at the other institutions were or likely were undeclared; and

  • Maintained undeclared accounts for U.S. taxpayer-clients who renounced their beneficial ownership of such accounts, or who transferred account funds to non- U.S.- related accounts, while continuing to exercise control or retain entitlement to the funds.

Throughout its participation in the Swiss Bank Program, Piguet Galland committed to providing full cooperation to the U.S. government.  Among other things, Piguet Galland provided a list of the names and functions of individuals who structured, operated or supervised the cross-border business at Franck Galland, Banque Piguet and Piguet Galland.

October 27, 2015 in FinCEN | Permalink | Comments (0)

BBVA Suiza S.A. Pays $10 Million, Reaches Resolution With DOJ

Bank Will Pay Penalty of More than $10 Million and Continue to Cooperate with Department

“Swiss banks such as BBVA Suiza S.A. are providing detailed information regarding their efforts to Irs_logoconceal U.S.-related accounts, and are turning over the names of individuals and entities that facilitated this criminal conduct,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.  “With each agreement, we are lifting the veil of secrecy shrouding those that assist accountholders in the evasion of their U.S. tax obligations.”

According to the terms of the non-prosecution agreement signed today, BBVA Suiza agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute this bank for tax-related criminal offenses.

BBVA Suiza is a Swiss private bank with one office in Zurich, where it provided private banking and asset management services through private bankers.  BBVA Suiza is wholly owned by Banco Bilbao Vizcaya Argentaria S.A. and is part of the BBVA Group.  BBVA, the flagship of the BBVA Group, is a major global financial institution based in Spain.  In 1984, a predecessor of BBVA entered the Swiss market by purchasing a Swiss bank that later became BBVA Suiza.

BBVA Suiza was aware that U.S. taxpayers had a legal duty to report their assets and income to the Internal Revenue Service (IRS) and to pay taxes on the basis of all their income, including income earned from accounts that BBVA Suiza maintained on their behalf.  Despite being aware of this legal duty, BBVA Suiza maintained undeclared accounts for clients that it knew, or should have known, were U.S. taxpayers.

BBVA Suiza offered a variety of traditional Swiss banking services that assisted and enabled certain of its U.S. taxpayer clients to conceal their account assets and income, file false federal tax returns with the IRS and evade their U.S. tax obligations.  These services included opening and maintaining undeclared accounts for U.S. taxpayers, offering the option to hold mail at BBVA Suiza and providing Swiss travel-cash cards, which enabled one U.S. client to access funds from undeclared accounts to spend in the United States.

BBVA Suiza permitted four groups of U.S. taxpayers to maintain six accounts, which held U.S. securities in the name of six offshore structures, specifically Panama corporations and British Virgin Islands companies.  The U.S. taxpayer’s interest in each of these accounts was not reported to the IRS even though BBVA Suiza knew, or had reason to know, that such offshore-structure accounts were operated without strict adherence to corporate formalities and, in effect, were operated by the U.S. taxpayer beneficial owners as sham, conduit or nominee entities.  BBVA Suiza relationship managers associated with these six accounts:

  • met with or took instructions from the U.S. taxpayer beneficial owners of these offshore-structure accounts, instead of the directors or other authorized parties of the account;
  • acted on instructions to transfer funds to a U.S. beneficial owner, including to accounts located within the United States or to a third-party designated by the U.S. beneficial owner; and/or
  • effected transfers from certain of the offshore-structure accounts to pay for personal expenses incurred in connection with the use of credit cards issued in favor of the U.S. beneficial owners of the structures.

BBVA Suiza accepted certifications from the directors of these entities that falsely declared that the entity was the beneficial owner of the assets deposited in the accounts.  In these instances, BBVA Suiza was in violation of the terms of its Qualified Intermediary Agreement with the IRS by failing to obtain IRS Forms W-9 from the U.S. beneficial owners of accounts that held U.S. securities, undertake IRS Form 1099 reporting or impose backup tax withholding when it had knew, or had reason to know, that an offshore structure was acting as a nominee for its U.S. beneficial owners.

BBVA Suiza also transferred the assets of U.S.-related accounts belonging to certain U.S. taxpayer clients in ways that concealed the U.S. nature of those accounts, such as through cash or check withdrawals, wire transfers and sham transfers to non-U.S. relatives or their nominal accountholders.  In addition, BBVA Suiza removed some of its U.S. taxpayer clients’ names as joint-accountholders, leaving only non-U.S. persons as accountholders, or moved their assets into new accounts that were held in the names of non-U.S. persons, including non-U.S. relatives.  BBVA Suiza thereafter treated such accounts as non-U.S.-related accounts, despite some relationship managers continuing to take and execute instructions given directly from the U.S. taxpayers formerly associated with the accounts, or the U.S. taxpayer clients retaining effective beneficial ownership of the accounts.  BBVA Suiza followed instructions from U.S. beneficial owners, or their external asset managers, to transfer undeclared assets from U.S.-related accounts to locations throughout the world without knowing or first confirming whether the U.S. beneficial owners were compliant with their U.S. tax obligations.

Since Aug. 1, 2008, BBVA Suiza maintained 138 U.S.-related accounts with a maximum aggregate dollar value of more than $157 million.  BBVA Suiza will pay a penalty of $10.390 million.

While U.S. accountholders at BBVA Suiza who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at BBVA Suiza must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

“Today’s resolution with BBVA Suiza S.A. marks another step forward in DOJ’s Swiss Bank Program,” said Acting Deputy Commissioner International David Horton of the IRS Large Business & International Division (LB&I).  “U.S. taxpayers who hid their money in this and other Swiss banks need to come forward to report their foreign accounts and pay taxes on the income they earned.  Working with DOJ, we continue to uncover both those who hid offshore accounts and those who aided this illegal activity.”

“The multiplier effect that these agreements have on tax compliance cannot be underestimated,” said Chief Richard Weber of IRS-Criminal Investigation (CI).  “The magnitude of the data provided by each of these agreements leads us to more—more banks, more countries and more individuals.  IRS-CI will continue to use all of the information we gather from these agreements to vigorously pursue individual U.S. taxpayers who illegally conceal assets offshore and to develop innovative strategies to combat international tax evasion worldwide.”

October 27, 2015 | Permalink | Comments (0)

Monday, October 26, 2015

MONEYVAL to evaluate measures against money laundering and terrorist financing in Gibraltar

The Committee of Ministers representing the 47 Council of Europe member states has adopted Moneyval logoResolution agreeing to a request of the United Kingdom that the British Overseas Territory of Gibraltar be evaluated by the anti-money laundering and counter terrorist financing body MONEYVAL, and be subject to its follow up procedures.   

MONEYVAL’s statute allows Council of Europe member states which are members of the Financial Action Task Force (FATF), such as the United Kingdom, to request evaluations by MONEYVAL to cover territories for whose international relations they are responsible, provided that these territories are not already evaluated by the FATF.   

In 2012, the Committee of Ministers agreed for MONEYVAL to evaluate the United Kingdom Crown Dependencies of Guernsey, Jersey and the Isle of Man.

October 26, 2015 | Permalink | Comments (0)

IRS Releases Inflation Adjustments (and Lack Thereof)

Old age and survivors, disabled workers and SSI recipients — will not see a COLA increase in benefits next year for the third time since 2009.  But Social Security beneficiaries with Irs_logohigher incomes will see increases in their premiums for Medicare Part B, which pays for physicians’ bills, outpatient care, durable medical devices and other goods and services.  James J. Green explains the impact of the Medicare Part B premium cost increases for Seniors on ThinkAdvisor and the lack of increase of social security benefits.

For tax year 2016, the Internal Revenue Service today announced  annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2015-53 provides details about these annual adjustments.   The tax items for tax year 2016 of greatest interest to most taxpayers include the following dollar amounts:

  • For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are described in the revenue procedure.
  • The standard deduction for heads of household rises to $9,300 for tax year 2016, up from $9,250, for tax year 2015.The other standard deduction amounts for 2016 remain as they were for 2015:   $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly
  • The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).
  • The personal exemption for tax year 2016 rises $50 to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly).  For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).
  • The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.
  • For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, up from $2,200 for tax year 2015; but not more than $3,350, up from $3,300 for tax year 2015. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 -- $4,450, however the deductible cannot be more than $6,700, up $50 from the limit for tax year 2015. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.
  • For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.
  • For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.
  • Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015. 

October 26, 2015 in Financial Services | Permalink | Comments (0)

Sunday, October 25, 2015

AALS Congress Panel of Law School Rankings

 Sat. Jan. 9, from 8:30 am – 10:15 am - The Future of Law School Rankings, which will feature a panel including:

  • Robert J. Morse.  Chief Data Strategist at U.S. News & World Report.
  • Robert Franek.  Senior Vice President at The Princeton Review.
  • Jack Crittenden.  Editor in Chief, National Jurist/Pre-Law.

Program Summary

Law schools have a love-hate relationship with rankings.  But how do those who do the rankings understand their mission and their role?  This panel will provide insights into the inner workings of the three law school rankings most commonly used by prospective students:  U.S. News, The Princeton Review, and National Jurist. 

The panelists will address such questions as the effect of competition among rankings, how prospective students can deal with information and rankings overload, how the rankings organizations gather information, their openness to feedback on their methodologies, and the potential unintended consequences of their methodologies.  The panelists will then take questions from the audience.

October 25, 2015 in Education | Permalink | Comments (0)

Saturday, October 24, 2015

Will Forthcoming Dept of Ed Executive Action Pressure the ABA to Drop Law Schools With Low Bar Passage and Employment Outcomes?

"...accreditation organizations are the watchdogs that don’t bark."  Secretary of Education Arne Duncan, July 27, 2015.

Inside Higher Ed reports that:

The Obama administration is planning new executive action on higher education accreditation in the coming weeks, as part of a push to make accreditors focus more heavily on student outcomes when judging colleges and universities, officials said Monday.

The executive action will be part of a package of proposals aimed at reforming an accreditation system that the administration believes is green-lighting too many poor-performing colleges and universities.

The Inside Higher Education article mentioned a speech by Arne Duncan, Secretary of Education. His statements are excerpted below:

As it stands, where Congress has asked for little accountability, accreditors have provided little. DeptOfEducation-Seal For the most part, accreditation organizations are the watchdogs that don’t bark.

According to a recent Wall Street Journal investigation, 11 schools with six-year graduation rates in the single digits--below 10 percent! -- still managed to earn a seal of approval from accreditors. When asked if a college with a 10 percent graduation rate can be doing a good job, the accreditor responded: “It can be a good school for those 10 percent who graduate.”

The six regional organizations that accredit 1,500 four-year colleges rescinded membership for just 18 schools. And even Corinthian Colleges remained accredited right up to their recent bankruptcy.

As one leading accreditor acknowledges, accreditation, and I’m quoting, “undeniably and unapologetically looks at inputs.”

For many accreditors, student outcomes are way down the priority list. The current system of continuous improvement is in desperate need of it’s own improvement.

We need to build a system in which student learning, graduation and going on to get good jobs count most. That’s what it means to focus on outcomes.

But too many liberal arts colleges and research universities have built their brands on exclusivity for far too long. It's time to bring to an end to the false choice between excellence and access.

Excellence plus equity is a powerful win-win. Just look at research institutions like Arizona State University, and selective liberal arts colleges like Vassar, and Franklin and Marshall. ASU awards about 60 percent more degrees today than it did a decade ago, while the number of African-American and Hispanic students at ASU has doubled during the same time period.

Franklin and Marshall has doubled its enrollment of low-income and first-generation students without any dip in graduation rates. At Vassar, the percentage of students eligible for a Pell grant rose 11 percentage points in recent years.

Southern New Hampshire University, the University of Wisconsin, and others have demonstrated that flexible, competency-based programs make it possible for employed moms, returning vets, and displaced workers to have access to innovative programs at low and reasonable costs.

Under Secretary of Education Ted Mitchell, as reported by Tara Mathewson of Education Dive, stated in a recent speech: 

It is clear, however, that not all institutions will survive the shift from a focus on enrollment and access to access and outcomes. The gainful employment rules are expected to threaten the livelihoods of more than 1,000 for-profit institutions, specifically. 

October 24, 2015 in Education | Permalink | Comments (0)

Friday, October 23, 2015

OECD holds second regional Network Meeting on BEPS in Eurasia

On 21-23 October 2015, the Eastern Europe and Central Asia Regional Meeting and Governmental Workshop on BEPS discussed the outcomes of the BEPS project, and how countries can engage in the implementation and monitoring of the measures adopted on an equal footing.

This meeting was hosted in Tbilisi by the Georgian Ministry of Finance and the Georgia Revenue Logooecd_enService in cooperation with the OECD and the Intra-European Organisation of Tax Administrations (IOTA). The event followed the previous round of regional meetings on BEPS organised earlier in 2015, and in particular the one which took place on 5-6 March 2015 at the OECD Multilateral Tax Centre of Ankara.

65 participants attended the meeting and provided feedback on the delivery of the BEPS Package, as well as views on how to develop a more inclusive framework to include interested countries on an equal footing in the implementation and monitoring of the measures adopted in the context of the BEPS project. 15 countries were represented and apart from officials of the OECD and the IOTA, the event included representatives from Oxfam, the BEPS Monitoring Group, the Business Industry Advisory Committee (BIAC) and from the business community in the Region.

The Georgian Finance Minister, H. E. Nodar Khaduri, Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration as well as Jan Christian Sandberg, Acting Executive Secretary of the Intra-European Organisation of Tax Administrations (IOTA) and the Deputy Ambassador Radu Gorincioy, Chairman-in-Office of the Black Sea Economic Cooperation (BSEC) welcomed the participants and delivered their opening remarks.

Additional discussions focused on the toolkits being elaborated to target developing countries' specific needs, as well as existing and possible new initiatives aimed at building capacity for the countries in the Region.

For more information, see the co-chair statement and the websites of the IOTA and of the Revenue Service of Georgia.

October 23, 2015 in BEPS | Permalink | Comments (0)

EU Parliament Releases International Tax Policy Report

Full EU Parliament International Tax Report Download IPOL_IDA(2015)563449_EN written by Professor Jeffrey Owen, Senior Policy Advisor of Ernst & Young.

This paper forms part of a series of analytical pieces on various key tax issues, prepared by Policy Department A at the request of the TAXE Special Committee of the European Parliament.  It examines some of the pressures that European countries will face over the coming decade as they move towards a more transparent tax environment and continue to push for better tax compliance and the impact on promoting good governance in third countries.

The first part of this paper provides a brief overview of some of the megatrends that will affect tax systems and then looks at some of the trends in tax levels and structures. This is followed by an examination of some of the challenges that EU tax policy makers facing and how EU governments are responding to these challenges.

The 15 Action points can be grouped in three categories:

• Those intended to improve tax transparency by, for example, forcing MNEs to share information on the taxes paid and income earned and assets held in different jurisdictions in which they operate (what is referred to as “Country by Country reporting”).

• To ensure that tax planning arrangements put in place by MNEs always have substance behind them. Put another way, structures should not be driven just by tax considerations and it is not enough to have one or two highly paid suntanned lawyers in a pleasant off shore environment, to justify a transaction.

• Ensure that companies are able to compete on a level playing field and that there are not tax induced distortions and that there is greater coherency in the international rules.

Table of Contents





  • Reconciling national tax systems with globalization
  • Redesigning the international tax rules of the game
  • Exchange of information
  • The move towards tax transparency
  • Dealing with illicit activities
  • Countering Harmful Tax Competition


October 23, 2015 in BEPS, GATCA | Permalink | Comments (0)

FTC Warns Chip Card Scams Proliferating

The FTC recently informed consumers about credit and debt chip card technology designed to 1024px-US-FederalTradeCommission-Seal.svgreduce fraud, including counterfeiting.  However, many consumers do not have such cards yet.

The FTC is now reporting that scammers are trying to take advantage of the millions of consumers who have not yet received a chip card.  The FTC shared the following: 

Here's what’s happening: Scammers are emailing people, posing as their card issuer. The scammers claim that in order to issue a new chip card, you need to update your account by confirming some personal information or clicking on a link to continue the process.

If you reply to the email with personal information, the scammer can use it to commit identity theft. If you click on the link, you may unknowingly install malware on your device. Malware programs can cause your device to crash, monitor your online activity, send spam, steal personal information and commit fraud.

So how can you tell if the email is from a scammer?

  • There's no reason your card issuer needs to contact you by email — or by phone, for that matter — to confirm personal information before sending you a new chip card. Don't respond to an email or phone call that asks you to provide your card number. Period.
  • Still not sure if the email is a scam? Contact your card issuers at the phone numbers on your cards.
  • Don't trust links in emails. Only provide personal information through a company's website if you typed in the web address yourself and you see signals that the site is secure, like a URL that begins https (the "s" stands for secure).

October 23, 2015 in FinCEN | Permalink | Comments (0)

Wednesday, October 21, 2015

Commission decides selective tax advantages for Fiat in Luxembourg and Starbucks in the Netherlands are illegal under EU state aid rules

The EU's Marbury v Madison?

Starbucks represents the first salvo by the EU Commission to establish that it has the authority, under a State Aid premise, to step into the shoes of the national revenue authority and retroactively for at least ten years re-allocate profits of an enterprise according to the EU Commission’s interpretation and analysis of the arm’s length concept.  American attorneys will appreciate that this is a Marbury v Madison moment of Adam's Federalists v. Jefferson's Anti-Federalist.

The EU Commission's finding of a range of two - three Euro million annual difference from its own assessment of the scenario versus the assessment of the Dutch revenue authority likely reflects its trepidation to venture into the area of interposing its own judgement call for that of a sovereign national revenue authority's arm’s length determination, especially one memorialized in an advance pricing agreement (APA) with a taxpayer.  The trepidation probably results from several causes, including weaknesses of the EU Commission’s choice and implementation of an arm’s length methodology, justification thereof, and even more so, from the geopolitical ramifications of its decision.

The trepidation is exemplified by the very low adjustments the EU Commission found, after its nearly year of investigation.  The adjustments are enough to be noticed by the EU state authorities and the companies, but de minimis in the context of corporate annual profits, corporate profit accumulation over time (e.g. perpetual deferral), corporate tax reserves, and de minimis in the context of revenue collection for either The Netherlands or Luxembourg.

Starbucks’ potential 30 million Euro re-capture tax bill by The Netherlands (EU Commission required), dating back to accumulation from 2008, will, assuming the tax bill stands after Starbucks’ appeal and after Starbucks’ challenge the decision up through the EU Court Of Justice, be offset by a US tax credit of like amount.  Consequently, the low adjustment is a wash out, albeit could require a cash flow payment in the nearer future than the perpetual one under U.S. tax deferral accounting.  30 million Euro is too small to be noticeable to Starbucks shareholders or to the U.S. Treasury, especially when the tax credits are applied.  Viewed from an annual perspective though, the two to three million Euro per annum over 10-years finding against Starbucks annual three billion dollars paid in global taxes from a global effective tax rate of 33%, it is not even a rounding error.

Had the EU Commission found, as it alluded that it is able to, that the State Aid amounted to the hundreds of millions or even billions of Euro, the intensity of the EU Commission-National government conflict would have changed, and the EU Commission would have lost that battle with the stakes so high.  Fiat would have drawn Italy into the fray, to align with Netherlands, Ireland and Luxembourg.  As more advance pricing agreements are challenged, more national government would align against the EU Commission.  At some tipping point, the EU Commission would have to withdraw from the fight or face a bloodied nose.

Yet, more so a danger for the EU Commission, had the EU Commission’s decision been an exaggerated amount, then the U.S. Treasury would have been forced to act as if a trade war had broken out. Treasury beating up on Starbucks for transfer pricing out of the U.S. tax base is OK because Starbucks in a U.S. company, as far as the U.S. Treasury is concerned.  Starbucks represents potential U.S. deficit reduction tax dollars.

Had the EU Commission decided for a large amount well beyond any tax credit relief, thus which would have represented a significant subsidy from the U.S. to EU national budgets and/or a significant subsidy from US retirement system shareholders to EU budgets, one might imagine the joint-Republican Democratic Senate hearing called by Washington state’s two Democratic senators Patty Murray and Maria Cantwell. That hearing would conclude a joint statement to Treasury demanding it report back how it intends to implement a tit-for-tat strategy against EU companies to extract an equal amount to that the EU Commission pulled from the bowels of Starbucks reserves.

Throw in enough U.S. multinationals with HQs in the various states such as New York, Illinois, California and Texas,  Congress may actually in rare bipartisan stature pass tit-for-tat legislation by year end requiring Treasury to act.  Perhaps a $5 billion Section 482 adjustment against each of the top 50 European companies measured by revenues.  The EU would respond, and the U.S. retort, to and fro, until the weight of taxation slowed cross border investment to a trickle.

But the EU Commission instead chose to bark very loudly and withhold its bite.  Probably it has avoided the worst case scenarios of political warfare presented above.  With such a small award, the various stakeholders will let the appeals and ECJ process run its course before acting.  The US Congress and US Treasury may not understand the Marbury v Madison moment of the EU Commission's decision - that the "perpetual deferral" reserves of U.S. MNEs such as Starbucks, Apple, Microsoft, Google, Amazon etc, may be put "up for grabs" by European revenue authorities to fill their bloated social spending expenditure gaps (instead of flowing into U.S. investment needs or back to U.S. institutional shareholders representing our collective national retirement savings).  [But Treasury has now released the below response to the EU Commission decision].


Most Appropriate Method?

The OECD adopted in 2010 a “most appropriate method” concept, similar to the U.S. “best method rule”. The most appropriate method concept replaced the previous OECD rule that transactional profit methods, profit split and TNMM were only to be leveraged as methods of last resort (with TNMM being in last spot). Regarding the “most appropriate method” the 2010 Guidelines states:

[T]he selection process should take account of the respective strengths and weaknesses of the OECD recognised methods; the appropriateness of the method considered in view of the nature of the controlled transaction, determined in particular through a functional analysis; the availability of reliable information (in particular on uncontrolled comparables) needed to apply the selected method and/or other methods; and the degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments that may be needed to eliminate material differences between them. No one method is suitable in every possible situation, nor is it necessary to prove that a particular method is not suitable under the circumstances.

However, in spite of the foregoing, the 2010 Guidelines indicate a preference for traditional methods in applying the most appropriate method rule:

[W]here, taking account of the criteria described at paragraph 2.2, a traditional transaction method and a transactional profit method can be applied in an equally reliable manner, the traditional transaction method is preferable to the transactional profit method.

Comparability Analysis?

The 2010 OECD Guidelines for comparability analysis contains nine, non-linear, steps.

Step 1: Determination of years to be covered.

Step 2: Broad-based analysis of the taxpayer’s circumstances.

Step 3: Understanding the controlled transaction(s) under examination, based in particular on a functional analysis, in order to choose the tested party (where needed), the most appropriate transfer pricing method to the circumstances of the case, the financial indicator that will be tested (in the case of a transactional profit method), and to identify the significant comparability factors that should be taken into account.

Step 4: Review of existing internal comparables, if any.

Step 5: Determination of available sources of information on external comparables where such external comparables are needed taking into account their relative reliability.

Step 6: Selection of the most appropriate transfer pricing method and, depending on the method, determination of the relevant financial indicator (e.g. determination of the relevant net profit indicator in case of a transactional net margin method).

Step 7: Identification of potential comparables: determining the key characteristics to be met by any uncontrolled transaction in order to be regarded as potentially comparable, based on the relevant factors identified in Step 3 and in accordance with the comparability factors ….

Step 8: Determination of and making comparability adjustments where appropriate.

Step 9: Interpretation and use of data collected, determination of the arm’s length remuneration.

What Is the Value of Starbucks Roasting “Know How”?

The Commission alleges that the payment of royalties by SMBV to the Starbucks UK subsidiary (Alki) owning the “know-how” intellectual property rights does not provide a correct representation of the value of the intellectual property rights and therefore cannot be deemed to be arm’s length. This incorrect representation led Starbucks to exaggerate the value attaching to its coffee bean roasting “know-how”, in turn leading to an excessive royalty payment.

The royalty payment is based upon an “adjustment variable”, the level of which is determined by the accounting profits of SMBV subtracting the compensation agreed in the APA in the form of a fixed mark-up on the operational costs of SMBV.  The APA does contain a fixed method of being able to assess the arm’s length nature of the level of the royalties.

The Commission alleges that, on the basis of its application of an arm’s length transaction price via a CUP test, SMBV would not have been willing to pay any royalty for know-how.  The Commission’s allegation is based upon a comparison of Starbuck’s agreements for roasting coffee with other coffee roasters worldwide. Thus, Alki should not have been paid any royalties. Moreover, the Commission contends that the royalties, paid over for many years, cannot be arm’s length because SMBV does not appear to gain any business advantage from the use of the intellectual property in the area of roasting coffee.  An independent company, argues the Commission, will not pay for a license if it is unable to earn back the royalties paid.

Additionally, the Commission contends that payment for royalties does not represent a payment for Alki taking upon itself the risks of SMBV. The Commission dismissed the Tax Authority argument that Alki bore the economic risk of SMBV’s loss of stock (wastage).  The Commission points to Alki’s lack of  employees as justification that Alki’s capacity is too limited to actually bear such risk.  Finally, the Commission dismissed Alki’s payment for technology to Starbucks US as a justification of its royalty payment from SMBV.

What Is the Value of Starbucks Sourcing of Green Beans?

The Commission alleges that SMBV overpays Starbucks coffee sourcing operation in Switzerland (SCTC) for acquisition of ‘green beans’, which are then roasted by SMBV and distributed to Starbucks’ various national operations.  The purchase price of green beans paid by SMBV to SCTC is abnormally high and therefore does not comply with the arm’s-length principle.

The Commission alleges that Starbucks did not investigate an arm’s length relationship for which the transactions between SCTC and SMBV, being the purchase and delivery of green coffee beans.  Secondly, the Commission did not accept Starbucks’ underlying grounds for the justification of the significant increase from 2011 of the mark-up in the costs for the green beans supplied by SCTC.  Starbucks’ contends that SCTC’s activities became increasingly important from 2011 partly due to the evolving “C.A.F.E. Practices” program (e.g. ‘fair-trade’).  Comparing the costs of similar fair-trade programs, the figures provided by Starbucks in connection with its C.A.F.E. Practices program, argues the Commission, are problematic both in terms of consistency as well as the arm’s length nature. The Commission contends that the Tax Authorities should have rejected the additional deduction from the accounting profits. Moreover, the increased mark-up can be connected directly to the losses incurred by SMBV’s coffee roasting activities since 2010, which highlights the non arm’s length relationship of this mark-up.

Least complex function

The Commission posits a secondary argument that Starbucks misapplied the TNMM to its supply chain.  Firstly, the Commission alleges that Starbucks incorrectly categorized SMBV as the “least complex function” of the Starbucks’ value added supply chain, basically as a contract manufacturer, in comparison with Starbucks’ UK subsidiary that owns the manufacturing and processing “know how”.  This misapplication of the TNMM led Starbucks to incorrectly led Starbucks to select SMBV as the subsidiary to be the “tested party”.  Secondly, the Commission posits that when SMBV is compared to other market participants in the coffee trade sector, SMBV incorrectly applied two upward adjustments to its cost base.  Consequently, Starbucks inappropriately limited its Netherlands taxable basis.

Determining the least complex function takes place prior to the application of the TNMM as transfer price method. In order to determine the entity with the least complex function, a function comparison must be made. The outcome of the function comparison indicates an entity, to which the transfer price method can be applied in the most reliable manner and for which the most reliable comparison points can be found.

In its coffee roasting function, the Commission contends that SMBV does not only carry out routine activities. SMBV conducts market research reflected by its payments for market research.  Also, SMBV holds significant intellectual property reflected by the amortisation of intangible assets in its accounts.  Moreover, SMBV performs an important resale function. A routine producer is not involved in such activities. On the other hand, Alki activities are very limited. Alki does not have employees and it thus operates with limited capacity.  The Commission contends that the financial capacity of Alki is not the total financial capacity of the worldwide Starbucks Group.

Starbucks Reaction?

Starbucks released a statement: “The dispute between the European Commission and the Netherlands as to which OECD rules we and others should follow will require us to pay about €20m to €30m on top of the $3 billion in global taxes we have already paid over the seven years in question (2008-2014).  Starbucks complies with all OECD rules, guidelines and laws and supports its tax reform process. Starbucks has paid an average global effective tax rate of roughly 33 percent, well above the 18.5 percent average rate paid by other large US companies.

Netherlands Government Reaction?

In October the European Commission has decided that the Netherlands provided State aid to Starbucks Manufacturing. The Commission decision is placed in the context of the fight against tax avoidance by multinationals.  The Dutch government greatly values its practice of offering certainty in advance. The Dutch practice is lawful and compliant with the international system of the OECD. However, the European Commission’s verdict in the Starbucks case deviates from national law and the OECD’s system. In the end this will cause a lot of uncertainty about how to enforce regulations.

In order to get certainty and case law on the application of certainty in advance by way of rulings, the government appeals the Commission decision in the Starbucks case. The government is of the opinion that the Commission does not convincingly demonstrate that the Tax Authority deviated from the statutory provisions. It follows that there is no State aid involved.

AmCham Reaction?

OECD rules for setting internal transfer prices constitute an international standard whereby double taxation is prevented. These rules require that each transaction is assessed on the basis of the most appropriate transfer pricing method. The TNMM method can be used to establish an at arm’s length remuneration for production activities, such as those of the Dutch coffee roaster Starbucks Manufacturing BV, and is widely used internationally.

"This decision is a staggering," says Arjan van der Linde, Chairman of AmCham’s Tax Committee and fiscal spokesman for AmCham. "By disregarding OECD rules, the European Commission is creating considerable uncertainty about the tax implications for foreign investment in the Netherlands. This has a direct effect on new investments and future employment. Uncertainty about such a fundamental component of an investment is unacceptable for many companies," predicts Van der Linde.

He also highlights the expertise of the Dutch tax authorities, "The Dutch tax authorities have years of experience with the application of OECD rules and work thorough and carefully in considering transfer pricing requests.  A separate APA practice exists.  In addition, the Dutch tax authorities are consistent in their approach, with all sorts of coordination groups looking over the shoulder of the inspector. This thorough approach cannot simply be cast aside."

US Treasury Response

Treasury has followed the state aid cases closely for a number of reasons. First, we are concerned that the EU Commission appears to be disproportionately targeting U.S. companies.

Second, these actions potentially undermine our rights under our tax treaties. The United States has a network of income tax treaties with the member states and has no income tax treaty with the EU because income tax is a matter of member state competence under EU law.  While these cases are being billed as cases of illegal state subsidies under EU law (state aid), we are concerned that the EU Commission is in effect telling member states how they should have applied their own tax laws over a ten-year period.  Plainly, the assertion of such broad power with respect to an income tax matter calls into question the finality of U.S. taxpayers’ dealings with member states, as well as the U.S. Government’s treaties with member states in the area of income taxation.

Third, the EU Commission is taking a novel approach to the state aid issue; yet, they have chosen to apply this new approach retroactively rather than only prospectively. While in the Starbucks case, the sums were relatively modest (20 to 30 million Euros), they maybe substantially larger – perhaps in the billions – in other cases. The retroactive application of a novel interpretation of EU law calls into question the basic fairness of the proceedings. Fourth, while the IRS and Treasury have not yet analyzed the equally novel foreign tax credit issues raised by these cases, it is possible that the settlement payments ultimately could be determined to give rise to creditable foreign taxes. If so, U.S. taxpayers would wind up footing the bill for these state aid settlements when the affected U.S. taxpayers either repatriate amounts voluntarily or Congress requires a deemed repatriation as part of tax reform (and less U.S. taxes are paid on the repatriated amounts as a result of the higher creditable foreign income taxes).

Finally, and this relates to the EU’s apparent substantive position in these cases, we are greatly concerned that the EU Commission is reaching out to tax income that no member state had the right to tax under internationally accepted standards. Rather, from all appearances they are seeking to tax the income of U.S. multinational enterprises that, under current U.S. tax rules, is deferred until such time as the amounts are repatriated to the United States. The mere fact that the U.S. system has left these amounts untaxed until repatriated does not provide under international tax standards a right for another jurisdiction to tax those amounts. We will continue to monitor these cases closely.

Below are excerpts of the EU Press Release 


Today the European Commission decided that Luxembourg and the Netherlands have granted EU Commissionselective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules.

Commissioner Margrethe Vestager, in charge of competition policy, stated: "Tax rulings that artificially reduce a company's tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today's decisions, this message will be heard by Member State governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax."

Following in-depth investigations, which were launched in June 2014, the Commission has concluded that Luxembourg has granted selective tax advantages to Fiat's financing company and the Netherlands to Starbucks' coffee roasting company. In each case, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company.

Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions. However, the two tax rulings under investigation endorsed artificial and complex methods to establish taxable profits for the companies. They do not reflect economic reality. This is done, in particular, by setting prices for goods and services sold between companies of the Fiat and Starbucks groups (so-called "transfer prices") that do not correspond to market conditions. As a result, most of the profits of Starbucks' coffee roasting company are shifted abroad, where they are also not taxed, and Fiat's financing company only paid taxes on underestimated profits.

This is illegal under EU state aid rules: Tax rulings cannot use methodologies, no matter how complex, to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company. It would give that company an unfair competitive advantage over other companies (typically SMEs) that are taxed on their actual profits because they pay market prices for the goods and services they use.

Therefore, the Commission has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations. The amounts to recover are €20 - €30 million for each company. It also means that the companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings.

Furthermore, the Commission continues to pursue its inquiry into tax rulings practices in all EU Member States. It cannot prejudge the opening of additional formal investigations into tax rulings if it has indications that EU state aid rules are not being complied with. Its existing formal investigations into tax rulings in Belgium, Ireland and Luxembourg are ongoing. Each of the cases is assessed on its merits and today's decisions do not prejudge the outcome of the Commission's ongoing probes.


Fiat Finance and Trade, based in Luxembourg, provides financial services, such as intra-group loans, to other Fiat group car companies. It engages in many different transactions with Fiat group companies in Europe.

The Commission's investigation showed that a tax ruling issued by the Luxembourg authorities in 2012 gave a selective advantage to Fiat Finance and Trade, which has unduly reduced its tax burden since 2012 by €20 - €30 million.

Given that Fiat Finance and Trade's activities are comparable to those of a bank, the taxable profits for Fiat Finance and Trade can be determined in a similar way as for a bank, as a calculation of return on capital deployed by the company for its financing activities. However, the tax ruling endorses an artificial and extremely complex methodology that is not appropriate for the calculation of taxable profits reflecting market conditions. In particular, it artificially lowers taxes paid by Fiat Finance and Trade in two ways:

  • Due to a number of economically unjustifiable assumptions and down-ward adjustments, the capital base approximated by the tax ruling is much lower thanthe company's actual capital.
  • The estimated remuneration applied to this already much lower capital for tax purposes is also much lower compared to market rates.

As a result, Fiat Finance and Trade has only paid taxes on a small portion of its actual accounting capital at a very low remuneration. As a matter of principle, if the taxable profits are calculated based on capital, the level of capitalisation in the company has to be adequate compared to financial industry standards. Additionally, the remuneration applied has to correspond to market conditions. The Commission's assessment showed that in the case of Fiat Finance and Trade, if the estimations of capital and remuneration applied had corresponded to market conditions, the taxable profits declared in Luxembourg would have been 20 times higher.

Fiat graph



Starbucks Manufacturing EMEA BV ("Starbucks Manufacturing"), based in the Netherlands, is the only coffee roasting company in the Starbucks group in Europe. It sells and distributes roasted coffee and coffee-related products (e.g. cups, packaged food, pastries) to Starbucks outlets in Europe, the Middle East and Africa.

The Commission's investigation showed that a tax ruling issued by the Dutch authorities in 2008 gave a selective advantage to Starbucks Manufacturing, which has unduly reduced Starbucks Manufacturing's tax burden since 2008 by €20 - €30 million. In particular, the ruling artificially lowered taxes paid by Starbucks Manufacturing in two ways:

  • Starbucks Manufacturing pays a very substantial royalty to Alki (a UK-based company in the Starbucks group) for coffee-roasting know-how.
  • It also pays an inflated price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL.

The Commission's investigation established that the royalty paid by Starbucks Manufacturing to Alki cannot be justified as it does not adequately reflect market value. In fact, only Starbucks Manufacturing is required to pay for using this know-how – no other Starbucks group company nor independent roasters to which roasting is outsourced are required to pay a royalty for using the same know-how in essentially the same situation. In the case of Starbucks Manufacturing, however, the existence and level of the royalty means that a large part of its taxable profits are unduly shifted to Alki, which is neither liable to pay corporate tax in the UK, nor in the Netherlands.

Furthermore, the investigation revealed that Starbucks Manufacturing's tax base is also unduly reduced by the highly inflated price it pays for green coffee beans to a Swiss company, Starbucks Coffee Trading SARL. In fact, the margin on the beans has more than tripled since 2011. Due to this high key cost factor in coffee roasting, Starbucks Manufacturing's coffee roasting activities alone would not actually generate sufficient profits to pay the royalty for coffee-roasting know-how to Alki. The royalty therefore mainly shifts to Alki profits generated from sales of other products sold to the Starbucks outlets, such as tea, pastries and cups, which represent most of the turnover of Starbucks Manufacturing.

 Starbucks graph


As a matter of principle, EU state aid rules require that incompatible state aid is recovered in order to reduce the distortion of competition created by the aid. In its two decisions the Commission has set out the methodology to calculate the value of the undue competitive advantage enjoyed by Fiat and Starbucks, i.e. the difference between what the company paid and what it would have paid without the tax ruling. This amount is €20 - €30 million for each of Fiat and Starbucks but the precise amounts of tax to be recovered must now be determined by the Luxembourg and Dutch tax authorities on the basis of the methodology established in the Commission decisions. 

New investigative tools

In the two investigations the Commission has for the first time used information request tools under a Council decision by Member States of July 2013 (Regulation 734/2013). Using these powers the Commission can, if the information provided by the Member State subject to the state aid investigation is not sufficient, ask that any other Member State as well as companies (including the company benefitting from the aid measure or its competitors) provide directly to the Commission all market information necessary to enable it to complete its state aid assessment. These new tools form part of the State Aid Modernisation initiative launched by the Commission in 2012 to allow it to concentrate its enforcement efforts on aid that is most liable to distort competition. 

Further background

Since June 2013, the Commission has been investigating the tax ruling practices of Member States. It extended this information inquiry to all Member States in December 2014. The Commission also has three ongoing in-depth investigations where it raised concerns that tax rulings may give rise to state aid issues, concerning Apple in IrelandAmazon in Luxembourg, and a Belgian tax scheme.

The fight against tax evasion and tax fraud is one of the top priorities of this Commission. In June 2015, the Commission unveiled a series of initiatives to tackle tax avoidance, secure sustainable tax revenues and strengthen the Single Market for businesses. The proposed measures, part of theCommission’s Action Plan for fair and effective taxation, aim to significantly improve the corporate tax environment in the EU, making it fairer, more efficient and more growth-friendly. Key actions included a framework to ensure effective taxation where profits are generated and a strategy to re-launch the Common Consolidated Corporate Tax Base (CCCTB) for which a fresh proposal is expected in the course of 2016. The Tax Transparency Package presented by the Commission in March also had its first success in October 2015 when Member States reached a political agreement on an automatic exchange of information on tax rulings following only seven months of negotiations. This legislation will contribute to bringing about a much greater degree of transparency and will act as a deterrent from using tax rulings as an instrument for tax abuse - good news for businesses and for consumers who will continue to benefit from this very useful tax practice but under very strict scrutiny in order to ensure a framework for fair tax competition.

The non-confidential version of the decisions will be made available under the case numbers SA.38375 (Fiat) and SA.38374 (Starbucks) in the State aid register on the DG Competition website once any confidentiality issues have been resolved. The State Aid Weekly e-News lists new publications of State aid decisions on the internet and in the EU Official Journal.

EU Commission State Aid cases

EU Commission State Aid page


October 21, 2015 | Permalink | Comments (0)

Commission seeks views ahead of a new proposal for a Common Consolidated Corporate Tax Base (CCCTB)

The European Commission has launched a public consultation to help identify the key measures for inclusion in the re-launch of the proposal for a Common Consolidated Corporate Tax Base (CCCTB).

The call for feedback comes as part of the implementation of the Commission's Action Plan for Fair and Efficient Corporate Taxation which was presented in June this year. A wide range of views is sought from businesses, civil society and other stakeholders. The Commission intends to come forward with revised legislation next year. EU Commission

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: "I remain convinced that the CCCTB is the best instrument for fighting cross-border tax abuse and tax fraud and for easing the administrative burden on companies operating in the EU.We very much hope that the views collected in this public consultation will help us to present in 2016 a revised proposal that is balanced and beneficial to all."

This consultation wants to gather views, in particular, on the extent to which a CCCTB could function as an effective tool against aggressive tax planning without compromising its initial objective of making the Single Market a more business-friendly environment. Feedback is also welcomed on the proposed 'two-step approach' of the initiative and on the criteria that could determine which companies should be subject to a mandatory CCCTB. The consultation will also look at ideas on how to address the 'debt bias' and the type of rules that would best foster Research & Development activity.

The Commission expects to gather views in particular on the following:

  • To what extent the CCCTB could function as an effective tool against aggressive tax planning, without compromising its initial objective of making the Single Market a more business-friendly environment.
  • Which criteria should determine the companies that will be subject to the rules of a mandatory CCTB/CCCTB. Whether non-qualifying companies should still be given the possibility to opt for applying the common rules.
  • Whether a 'staged' approach, whereby priority will be given to agreeing the tax base before moving to consolidation, would be a preferable way forward.
  • Whether, in the short-term, it would be useful to agree common rules for implementing certain international BEPS-related aspects of the common tax base based on the current proposal until the Commission adopts the new (revised) CCTB/CCCTB proposal.
  • How the debt bias issue should be addressed.
  • Which types of rules would best foster R&D activity.
  • Whether a cross-border loss relief mechanism aimed to balance out the absence of the benefits of consolidation during the first step (CCTB) could help in keeping the business in the CCCTB.

The public consultation closes 8 January 2016.

What is the Common Consolidated Corporate Tax Base (CCCTB)?

The Commission strategy to re-launch its proposal for the CCCTB rests on the belief that companies operating across borders within the EU could benefit from a far simpler way to calculate their taxable profits. Under a CCCTB, businesses would have to comply with just one EU system for computing their taxable income, rather than the current situation where they have to comply with different rules in each Member State in which they operate.

The aim of the strategy is to kick-start negotiations in the Council which have stalled largely because of the scale of the original proposal back in 2011.

For this reason, a new proposal for a CCCTB would consist of a step-by-step approach. First, the Commission will propose a common tax base without consolidation. This should make the proposal easier for Member States to agree. Once the common base is secured, consolidation – meaning that Member States would be allowed to tax their share of the base at their own corporate tax rate - will be introduced.

The main focus of the CCCTB is on facilitating EU and third-country business, primarily those active in more than one Member State within the EU. In addition to creating a business friendly environment by reducing the administrative burden, compliance costs and legal uncertainties for companies, the CCCTB would also function as an effective tool against aggressive tax planning.

Link to public consultation:

Q&A on the CCCTB

October 21, 2015 in BEPS | Permalink | Comments (0)

Tuesday, October 20, 2015

Two months away from Global Financially Transparent, Whether or Not the U.S. Participates

"In just over two months, thousands of U.S.-based financial institutions will face new requirements for sharing financial information. These businesses should get ahead of the deadline and start preparing for the impact these rules will have on their operations and bottom lines. ..." writes Deloitte Global FATCA leader Denise Hintzke.

Read her full Forbes analysis at The World is About to Become More Financially Transparent, Whether or Not the U.S. Participates

October 20, 2015 in GATCA | Permalink | Comments (0)

Monday, October 19, 2015

Offshore Compliance Programs Generate $8 Billion Since 2009, Mostly From FBAR's AML Penalties, Not Tax Collection

With more than 54,000 taxpayers coming in to participate in offshore disclosure Irs_logoprograms since 2009, the Internal Revenue Service reminded U.S. taxpayers with undisclosed offshore accounts that they should strongly consider existing paths established to come into full compliance with their federal tax obligations.

Both the Offshore Voluntary Disclosure Program (OVDP) and the streamlined procedures enable taxpayers to correct prior omissions and meet their federal tax obligations while mitigating the potential penalties of continued non-compliance. There are also separate procedures for those who have paid their income taxes but omitted certain other information returns.

“The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion,” said IRS Commissioner John Koskinen. “People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.”

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and partner jurisdictions, automatic third-party account reporting began this year, making it less likely that offshore financial accounts will go unnoticed by the IRS.

In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

Since OVDP began in 2009, there have been more than 54,000 disclosures. The IRS has collected more than $8 billion from this initiative. 

The streamlined procedures, initiated in 2012, were developed to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts but whose circumstances substantially differed from those taxpayers for whom the OVDP requirements were designed. More than 30,000 taxpayers have used streamlined procedures to come back into compliance with U.S. tax laws. Two-thirds of these have used the procedures since the IRS expanded the eligibility criteria in June 2014.

Separately, based on information obtained from investigations and under the terms of settlements with foreign financial institutions, the IRS has conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

The IRS remains committed to stopping offshore tax evasion wherever it occurs.  Even though the IRS has faced several years of budget reductions, the agency continues to pursue cases in all parts of the world.

Information from IRS taxpayer prosecutions and the OVDP 

The IRS reported that between 2009 and 2014 it charged more than thirty banking professionals and 71 accountholders with tax violations. By example, in 2013, a former UBS client pled guilty to two criminal counts of filing false tax returns for failing to report her offshore accounts left to her by her deceased husband for seven years (2001–2007).

Mary Estelle Curran, uneducated beyond high school, was 79 at the time of her plea, and owed $667,716 in taxes plus interest and penalties over the seven years, thus on average $95,388 lost tax revenue per year including the 40 percent understatement penalty and interest on the understatement. Her imposed penalty for failure to report the foreign bank accounts on her FBAR form, which is a Bank Secrecy Act/FinCEN violation constituting an anti-money laundering penalty instead of a tax penalty, was $21,666,929, comprised of 50 percent of the high balance of the accounts.

Criminal tax attorney, Charles Rettig, reported in the June/July 2014 Journal of Tax Practice & Procedure that various taxpayers who have opted out of the IRS’ offshore voluntary disclosure program (OVDP) have already received notices asserting multiple, cumulative, FBAR penalties of 50 percent for each year under audit. Rettig also described the finding of a trial jury against Carl Zwerner. Zwerner, at 87 more elderly than Mrs. Curran, through his tax attorney, made voluntary disclosures to the IRS Criminal Investigation in 2009 before the OVDP was established, for 2004 through 2006, 2007 having been timely filed.

Although the Tax Court and IRS appeals abated a 75 percent civil income tax fraud penalty imposed by the IRS, a jury upheld a 150 percent cumulative FBAR penalty, equaling $3,488,609.33 for an account with a high balance of $1,691,054 during the relevant time period.

In its October 16, 2015 press announcement, the IRS reported that its OVDPs have produced $8 billion since 2009 from 54,000 taxpayers from back taxes, interest and penalties.  But like with Mary Estelle Curran and Carl Zwerner, the substantial majority of this $8 billion revenue is neither tax revenue nor tax penalty, but instead from FBAR anti-money laundering penalties.  

The majority of the $8 billion revenue derives from collection calculated as a percentage of asset similar to an asset seizure action, not based on income like an income tax action.

According to the Government Accountability Office Report of 2013, for small accounts of less than $100,000 that over a six year period had only an average of $103 tax owing ($17 a year additional tax revenue), the IRS imposed a FBAR penalty of $13,320 (i.e. $2,220 a year FBAR penalty on average for $17 dollar tax understatement, in additional to the tax penalty and interest). The twenty-fifth percentile paid on average a $5,945 FBAR penalty for an average annual $277 tax understatement. The median paid a FBAR penalty $17,991 a year for $2,125 a year tax understatement.

The GAO analysis found that the offshore penalties paid by taxpayers with the smallest accounts (i.e., those in the tenth percentile with accounts of $78,315 or lower) were disproportionate ─ at least 575 percent of the actual tax, interest, and tax penalty owed for their unreported income. The offshore penalties were also disproportionately greater for taxpayers with small foreign balances than the amount paid by those with the largest accounts (i.e. those in the ninetieth percentile with accounts of more than $4 million) who paid 86 percent or less.

On its face, since 2009, the OVDPs look to be batting a declining average of approximately 9,000 up until 2014 to only 8,000 taxpayers a year as of 2015, and the average annual revenue falling from approximately $1.3 billion revenue to slightly less than $1.2 billion.  Most of the revenue does not appear to be from actual tax evaded and the accompanying tax penalties, but from FBAR seizure of assets. 

At the beginning of 2014 Treasury reported that OVDIs have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date. Thus, the OVDIs slowed down considerably to only 2,000 additional disclosures and $500 million additional revenue over the first half of the 2014 year. From 2014 through 2015, and additional 11,000 disclosures, presumably many more of these using the stream lined procedures and also presumably relatively small accounts, one may reasonably speculate that the OVDI, at least for high net wealth disclosures, is by the end of 2016 to have petered out. 

Have these disproportionate FBAR fines at least produced a corresponding higher rate of FBAR compliance?  The IRS does not know the answer to this question, and cannot know with its current allocation of internal resources for its Office of Service-wide Penalties (OSP). 

The Taxpayer Advocate noted in its 2014 Report to Congress that two decades prior Congress recommended that the IRS “develop better information concerning the administration and effects of penalties” to ensure they promote voluntary compliance. Yet, the IRS Office of Service-wide Penalties (OSP) is “an office of six analysts buried three levels below the Small Business/Self-Employed Division Commissioner [that] cites insufficient resources, insufficient staffing, employees with the wrong skillsets, and a lack of access to penalty-related data as barriers to conducting penalty research.” 

In 2002, the IRS reported to Congress that the FBAR compliance rate was less than 20 percent because it had received fewer than 200,000 FBARs when one million taxpayers may have been required to file. The 2013 Taxpayer Advocate Report, replying on State Department statistics, cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements for foreign accounts, yet the IRS received only 807,040 FBAR submissions as recently as 2012. The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. Given only 807,040 FBARs from a potential class of eight to ten million FBAR filers that have breached the non-inflation adjusted $10,000 FBAR filing threshold, compliance with FBAR filing appears to be declining, not increasing.

October 19, 2015 | Permalink | Comments (0)

Swiss Government Turning Over Bank Records to Indian Government in Tax Investigation

Swiss Info News reported that the Swiss government will assist the Indian government by providing any bank account information on the Indian car magnate Subhash Vasant Sathe, the son of a former Indian minister, and Sathe’s wife, Indrani Vasant. 

October 19, 2015 in GATCA | Permalink | Comments (0)