Thursday, June 30, 2016
Representatives of more than 80 countries and jurisdictions have gathered in Kyoto, Japan to push forward ongoing efforts to update international tax rules for the 21st century, the latest step in the OECD/G20 Project to tackle Base Erosion and Profit Shifting (BEPS).
The 30 June - 1 July meeting marks the first time that a broad range of countries, representing varying levels of development, come together on an equal footing in the OECD’s Committee on Fiscal Affairs, and inaugurates the new inclusive framework on BEPS implementation.
"Today we launch a new era in international tax," said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. "Through their participation in the decision-making as well as the technical working groups of the OECD's Committee on Fiscal Affairs, the members of the inclusive framework will now have a direct influence in shaping international tax rules to tackle BEPS and ensuring a level playing field."
The BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to "disappear" or be artificially shifted to low or no tax environments, where companies have little or no economic activity. Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues, the impact of BEPS on these countries is particularly damaging.
Thirty-six countries and jurisdictions have already formally joined the new inclusive framework on BEPS, and have committed to implement the BEPS package, bringing to 82 the total number of countries and jurisdictionsparticipating on an equal footing in the Project. The other 21 countries and jurisdictions attending the Kyoto meeting are likely to join the inclusive framework in the coming months.
In Kyoto, participants have started the work to undertake the standard-setting on remaining issues including transfer pricing and interest deductibility, as well as the development of practical guidance to support consistent, global implementation of their commitments to the BEPS package. A particular focus of the inclusive framework will be ensuring implementation of the four minimum standards arising from the BEPS Project – on harmful tax practices, tax treaty abuse, country-by-country reporting and dispute resolution mechanisms – which will be subject to a peer review process, alongside ongoing monitoring of the other elements of the package.
Recognising their role in supporting global implementation of the BEPS package, international organisations and regional tax bodies are also participating in the initiative to ensure countries are well-equipped to tackle BEPS. A special session of the meeting will be held with representatives from business and civil society, providing governments the opportunity to hear first-hand their perspectives on the BEPS Project to date and provide input at an early stage on the work of the new inclusive framework.
During the meeting in Kyoto, five countries – Argentina, Curacao, Georgia, Korea, and Uruguay – signed the Multilateral Competent Authority agreement for the automatic exchange of Country-by-Country reports ("CbC MCAA") under the BEPS Project, bringing the total number of signatories to 44 countries. The CbC MCAA allows all signatories to bilaterally and automatically exchange Country-by-Country Reports with each other, as contemplated by Action 13 of the BEPS Action Plan. It will help ensure that tax administrations obtain a complete understanding of how MNEs structure their operations, while also ensuring that the confidentiality of such information is safeguarded.
Hosted in Japan by Finance Minister TaAso and the Chair of the Committee on Fiscal Affairs, Vice-Minister Masatsugu Asakawa, this meeting will also mark Mr Asakawa’s last plenary meeting as chair. Martin Kreienbaum, Director General of International Taxation for the German Federal Ministry of Finance has been elected to replace Mr Asakawa as Chair of the Committee on Fiscal Affairs from January 2017.
For more information, please visit www.oecd.org/tax/beps/
Wednesday, June 29, 2016
Today the OECD has taken a new step in its continuing efforts to boost transparency in international tax matters with the release of Guidance on the Implementation of Country-by-Country (CbC) Reporting.
The OECD/G20 BEPS Project set out 15 key actions to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created. A key pillar of the project focused on ensuring transparency while promoting increased certainty and predictability. One of the main outcomes of that work has been the adoption of country-by-country reporting, as set out in the 2015 BEPS Report on Action 13 "Transfer Pricing Documentation and Country-by-Country Reporting". Under CbC reporting, MNEs will be required to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.
Following the endorsement of the BEPS Package by G20 Leaders in November, the focus has now shifted to ensuring a consistent implementation, including of the new transfer pricing reporting standards developed under Action 13 of the BEPS Action Plan. To that aim, the guidance released today sets out:
- Transitional filing options for MNEs that voluntarily file in the Parent jurisdiction;
- Guidance on the application of CbC reporting to investment funds;
- Guidance on the application of CbC reporting to partnerships; and
- The impact of exchange rate fluctuations on the agreed EUR 750 million filing threshold for MNE groups.
Questions answered include:
- Can MNE Groups with an Ultimate Parent Entity resident in a jurisdiction whose CbC reporting legal framework is in effect for Reporting Periods later than 1 January 2016 voluntarily file the CbC report for fiscal periods commencing on or from 1 January 2016 in that jurisdiction? What is the impact of such filing on local filing obligations in other jurisdictions?
- How should the CbC reporting rules be applied to investment funds?
- How should a partnership which is tax transparent and thus has no tax residency anywhere be included in the CbC report? How should a reverse hybrid partnership, which is tax transparent in its jurisdiction of organisation but considered by a partner’s jurisdiction to be tax resident in its jurisdiction of organisation, be treated?
- If Country A is using a domestic currency equivalent of EUR 750 million for its filing threshold, Country B is using EUR 750 million for its filing threshold, and as a result of currency fluctuations Country A's threshold is in excess of EUR 750 million, can Country B impose its local filing requirement on a Constituent Entity of an MNE Group headquartered in Country A which is not filing a CbC report in Country A because its revenues, while in excess of EUR 750 million, are below the threshold in Country A?
The OECD will continue to support the consistent and swift implementation of CbC reporting to ensure a level playing field, but also provide certainty for taxpayers and improve the ability of tax administrations to use CbC reports in their risk assessment work. Where additional questions of interpretation arise and would be best addressed through common guidance, the OECD will endeavour to make this available.
Help an academic out! I (William Byrnes) am working on a neutral, independent comparables comparison for the Starbucks EU State Aid case this summer, with a view to an academic article submitted this Fall. If you have ideas for me to find data, please reach out and let's talk. William Byrnes is the primary author of Lexis’ Practical Guide to U.S. Transfer Pricing.
The award is the second-largest issued by the SEC since its whistleblower program began nearly five years ago. The SEC issued a $30 million award in September 2014 and a $14 million award in October 2013.
- Three Tax Whistleblowers Who Changed The Game
- Tax Whistleblowers – $104 Million IRS Award to Mr. Birkenfeld (UBS) Yet Nothing for Mr. Insinga (RABO)?
As a precautionary step to protect taxpayers, the Internal Revenue Service announced 23 June 2016 that the electronic filing PIN tool is no longer available on IRS.gov or by toll-free phone following additional questionable activity.
In February, the IRS announced that cybercriminals using taxpayer data stolen elsewhere and an automated bot attack program accessed more than 100,000 e-File PINs through the tool. The tool only reveals the PIN. It does not reveal any taxpayer data. Criminals used taxpayers’ names, addresses, filing status, dates of birth and Social Security Numbers which they obtained from other sources to access the e-File PIN.
The IRS retained the tool at that time because links are embedded in almost all commercial tax software products that helped taxpayers file their returns. However, additional defenses were added inside the IRS processing systems for protection, including extra scrutiny for any return with an e-File PIN.
Recently, the IRS observed additional automated attacks taking place at an increasing frequency, but only affecting a small number of e-File PINs. We were able to identify this issue because of additional defenses put in place earlier this year, and backend protections remain in place. However, the IRS decided to remove the e-File PIN program as a safety measure. Prior to this, the IRS had been working with industry to assess elimination of the e-File PIN later this year.
The e-File PIN serves as an alternative signature verification method on the Form 1040 series and helps assist with electronic filing of tax returns. Most taxpayers do not need an e-File PIN to file electronically, they can use their prior-year adjusted gross income from copies of their prior year tax returns. For those who do not have a copy of their tax return, they may use Get Transcript to obtain a copy which will display the adjusted gross income.
Tuesday, June 28, 2016
Department of Education Releases Critical Report on ABA's Continued Recognition as Accreditor, ABA Withdraws Distance Education From Its Scope of Recognition
Inside Higher Ed reported that the DOE's National Advisory Committee on Institutional Quality and Integrity (NACIQI) panel "rebuked the American Bar Association, in part for its lack of attention to student achievement." Inside Higher Ed reported that "the NACIQI, after three contentious votes, recommended that the department suspend the association's ability to accredit new members for a year. The panel said the ABA had failed to implement its student achievement standards and probationary sanctions, while also falling short on its audit process and analysis of graduates' debt levels."
The ABA, the staff reports states: "In response to the draft analysis, the [ABA] agency withdrew distance education from their scope of recognition."
The agency needs to provide documentation that would attest to the qualifications of site team members to serve in their respective roles. ... The site evaluators training materials include distance education. However, formal training on distance education was not evident in the meeting agenda or materials. .... The Department also expects that all of the personnel involved in accreditation activities will have received training regarding the accreditation and evaluation of distance education programs. As noted previously the agency provided no evidence of those involved in accreditation activities regarding distance education.
Staff Recommendation: Continue the agency's recognition as a nationally recognized accrediting agency at this time, and require the agency to come into compliance within 12 months with the criteria listed below, and submit a compliance report due 30 days thereafter that demonstrates the agency's compliance.
Issues or Problems: It does not appear that the agency meets the following sections of the Secretary’s Criteria for Recognition. These issues are summarized below and discussed in detail under the Summary of Findings section.
-- The agency must provide the twelve resumes of staff with responsibilities for accreditation activities, as listed on the submitted organizational chart but not included as evidence, to be assessed for this criterion. [§602.15(a)(1)]
-- The agency must provide the resumes for the four Council members and the one Data Policy & Collection Committee member not included in the documents provided for this criterion. [§602.15(a)(2)]
-- The agency must amend its standards, policies and procedures to include an academic and an administrative member in its composition of the Appeals Panel and provide evidence that an academic and administrative member serves on the Appeals Panel in the one defined role to demonstrate compliance with this criterion. [§602.15(a)(3)]
-- The agency standards, policies and procedures must be amended to clarify the requirements of the site evaluation questionnaire in lieu of the self-study. The agency must also provide evidence of these approved changes from the decision making bodies. [§602.16(a)(1)(viii)]
-- The agency standards, policies and procedures must be amended to clarify the requirements of the self-study and the site evaluation questionnaire. The agency must also provide evidence of these approved changes from the decision making bodies.
(2) Competent and knowledgeable individuals, qualified by education and experience in their own right and trained by the agency on their responsibilities, as appropriate for their roles, regarding the agency's standards, policies, and procedures, to conduct its on-site evaluations, apply or establish its policies, and make its accrediting and preaccrediting decisions, including, if applicable to the agency's scope, their responsibilities regarding distance education and correspondence education;
The agency states that the accreditation processes are performed by the council, accreditation committee, managing director, and appeals panel. The council has primary authority to determine compliance with agency standards; the accreditation committee makes recommendations to the council on various issues; the managing director oversees and reports all accreditation matters to the council and assures legal requirements are followed for law school accreditation; and the appeals panel considers appeals on denial or withdrawal of accreditation.
The agency provided training materials for the aforementioned groups as evidence. The materials are created to ensure understanding of the standards, policies, procedures in their perspective roles as a decision and policy-makers as well as the evaluators reviewing the application of standards, policies and procedures during site visits.
Analyst Remarks to Response:
|In response to the draft analysis, the agency withdrew distance education from their scope of recognition and provided additional information and documentation to address the previous concerns related to competency of representatives as evidenced in Exhibits B-C and F-G in addition to further explanation of exhibits 10-11, 15, 17-19 and 21. Specifically, the agency included in the response resumes of the members of the Appeals Panel and Accreditation Committee but only some of the resumes for the Council and Data Policy & Collection Committee members (exhibits B-C and F-G). The agency also provided additional detail on the training of all entities involved in accreditation activities outlining the focus of these training workshops.
Finally, the agency clarified the role of the Data Policy & Collection Committee as it relates to the accreditation process of the agency. The agency attest s that the Data Policy & Collection Committee role is to continue a dialogue between the schools and the Council on the most effective and efficient ways to collect and report the data that is required to operate the agency’s accreditation process which falls under the Special Committees of Article X, section 2 within the agency Bylaws (exhibit 15). The agency provided the roaster for the Data Policy & Collection Committee members and all but one of the resumes for the members (exhibits 21 and G).
However, the exclusion of the resumes causes the agency to remain out of compliance with the criteria.
Volkswagen to Spend Up to $14.7 Billion to Settle Allegations of Cheating Emissions Tests and Deceiving Customers on 2.0 Liter Diesel Vehicles
Settlements Require VW to Spend up to $10 Billion to Buyback, Terminate Leases, or Modify Affected 2.0 Liter Vehicles and Compensate Consumers, and Spend $4.7 Billion to Mitigate Pollution and Make Investments that Support Zero-Emission Vehicle Technology
In two related settlements, one with the United States and the State of California, and one with the U.S. Federal Trade Commission (FTC), German automaker Volkswagen AG and related entities have agreed to spend up to $14.7 billion to settle allegations of cheating emissions tests and deceiving customers. Volkswagen will offer consumers a buyback and lease termination for nearly 500,000 model year 2009-2015 2.0 liter diesel vehicles sold or leased in the U.S., and spend up to $10.03 billion to compensate consumers under the program. In addition, the companies will spend $4.7 billion to mitigate the pollution from these cars and invest in green vehicle technology.
The settlements partially resolve allegations by the Environmental Protection Agency (EPA), as well as the California Attorney General’s Office and the California Air Resources Board (CARB) under the Clean Air Act, California Health and Safety Code, and California’s Unfair Competition Laws, relating to the vehicles’ use of “defeat devices” to cheat emissions tests. The settlements also resolve claims by the FTC that Volkswagen violated the FTC Act through the deceptive and unfair advertising and sale of its “clean diesel” vehicles. The settlements do not resolve pending claims for civil penalties or any claims concerning 3.0 liter diesel vehicles. Nor do they address any potential criminal liability.
The affected vehicles include 2009 through 2015 Volkswagen TDI diesel models of Jettas, Passats, Golfs and Beetles as well as the TDI Audi A3.
“By duping the regulators, Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment,” said Deputy Attorney General Sally Q. Yates. “This partial settlement marks a significant first step towards holding Volkswagen accountable for what was a breach of its legal duties and a breach of the public’s trust. And while this announcement is an important step forward, let me be clear, it is by no means the last. We will continue to follow the facts wherever they go.”
“Today’s settlement restores clean air protections that Volkswagen so blatantly violated,” said EPA Administrator Gina McCarthy. “And it secures billions of dollars in investments to make our air and our auto industry even cleaner for generations of Americans to come. This agreement shows that EPA is committed to upholding standards to protect public health, enforce the law, and to find innovative ways to protect clean air.”
“Today’s announcement shows the high cost of violating our consumer protection and environmental laws,” said FTC Chairwoman Edith Ramirez. “Just as importantly, consumers who were cheated by Volkswagen’s deceptive advertising campaign will be able to get full and fair compensation, not only for the lost or diminished value of their car but also for the other harms that VW caused them.”
According to the civil complaint against Volkswagen filed by the Justice Department on behalf of EPA on January 4, 2016, Volkswagen allegedly equipped its 2.0 liter diesel vehicles with illegal software that detects when the car is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process. During normal driving conditions, the software renders certain emission control systems inoperative, greatly increasing emissions. This is known as a “defeat device.” Use of the defeat device results in cars that meet emissions standards in the laboratory, but emit harmful NOx at levels up to 40 times EPA-compliant levels during normal on-road driving conditions. The Clean Air Act requires manufacturers to certify to EPA that vehicles will meet federal emission standards. Vehicles with defeat devices cannot be certified.
The FTC sued Volkswagen in March, charging that the company deceived consumers with the advertising campaign it used to promote its supposedly “clean diesel” VWs and Audis, which falsely claimed that the cars were low-emission, environmentally friendly, met emissions standards and would maintain a high resale value.
The settlements use the authorities of both the EPA and the FTC as part of a coordinated plan that gets the high-polluting VW diesels off the road, makes the environment whole, and compensates consumers.
The settlements require Volkswagen to offer owners of any affected vehicle the option to have the company buy back the car and to offer lessees a lease cancellation at no cost. Volkswagen may also propose an emissions modification plan to EPA and CARB, and if approved, may also offer owners and lessees the option of having their vehicles modified to substantially reduce emissions in lieu of a buyback. Under the U.S./California settlement, Volkswagen must achieve an overall recall rate of at least 85% of affected 2.0 liter vehicles under these programs or pay additional sums into the mitigation trust fund. The FTC order requires Volkswagen to compensate consumers who elect either of these options.
Volkswagen must set aside and could spend up to $10.03 billion to pay consumers in connection with the buy back, lease termination, and emissions modification compensation program. The program has different potential options and provisions for affected Volkswagen diesel owners depending on their circumstances:
Buyback option: Volkswagen must offer to buy back any affected 2.0 liter vehicle at their retail value as of September 2015 -- just prior to the public disclosure of the emissions issue. Consumers who choose the buyback option will receive between $12,500 and $44,000, depending on their car’s model, year, mileage, and trim of the car, as well as the region of the country where it was purchased. In addition, because a straight buyback will not fully compensate consumers who owe more than their car is worth due to rapid depreciation, the FTC order provides these consumers with an option to have their loans forgiven by Volkswagen. Consumers who have third party loans have the option of having Volkswagen pay off those loans, up to 130 percent of the amount a consumer would be entitled to under the buyback (e.g., if the consumer is entitled to a $20,000 buyback, VW would pay off his/her loans up to a cap of $26,000).
EPA-approved modification to vehicle emissions system: The settlements also allow Volkswagen to apply to EPA and CARB for approval of an emissions modification on the affected vehicles, and, if approved, to offer consumers the option of keeping their cars and having them modified to comply with emissions standards. Under this option in accordance with the FTC order, consumers would also receive money from Volkswagen to redress the harm caused by VW’s deceptive advertising.
Consumers who leased the affected cars will have the option of terminating their leases (with no termination fee) or having their vehicles modified if a modification becomes available. In either case, under the FTC order, these consumers also will receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising. Consumers who sold their TDI vehicles after the VW defeat device issue became public may be eligible for partial compensation, which will be split between them and the consumers who purchased the cars from them as set forth in the FTC order.
Eligible consumers will receive notice from VW after the orders are entered by the court this fall. Consumers will be able to see if they are eligible for compensation and if so, what options are available to them, at VWCourtSettlement.com andAudiCourtSettlement.com. They will also be able to use these websites to make claims, sign up for appointments at their local Volkswagen or Audi dealers and receive updates. Consumer payments will not be available until the settlements take effect if and when approved by the court, which may be as early as October 2016.
Emissions Reduction Program: The settlement of the company’s Clean Air Act violations also requires Volkswagen to pay $2.7 billion to fund projects across the country that will reduce emissions of NOx where the 2.0 liter vehicles were, are or will be operated. Volkswagen will place the funds into a mitigation trust over three years, which will be administered by an independent trustee. Beneficiaries, which may include states, Puerto Rico, the District of Columbia, and Indian tribes, may obtain funds for designated NOx reduction projects upon application to the Trustee. Funding for the designated projects is expected to fully mitigate the NOx these 2.0 liter vehicles have and will emit in excess of EPA and California standards.
The emissions reduction program will help reduce NOx pollution that contributes to the formation of harmful smog and soot, exposure to which is linked to a number of respiratory- and cardiovascular-related health effects as well as premature death. Children, older adults, people who are active outdoors (including outdoor workers), and people with heart or lung disease are particularly at risk for health effects related to smog or soot exposure. NO2 formed by NOx emissions can aggravate respiratory diseases, particularly asthma, and may also contribute to asthma development in children.
Zero Emissions Technology Investments: The Clean Air Act settlement also requires VW to invest $2 billion toward improving infrastructure, access and education to support and advance zero emission vehicles. The investments will be made over 10 years, with $1.2 billion directed toward a national EPA-approved investment plan and $800 million directed toward a California-specific investment plan that will be approved by CARB. As part of developing the national plan, Volkswagen will solicit and consider input from interested states, cities, Indian tribes and federal agencies. This investment is intended to address the adverse environmental impacts from consumers’ purchases of the 2.0 liter vehicles, which the governments contend were purchased under the mistaken belief that they were lower emitting vehicles.
FTC’s Injunctive Relief: The FTC settlement includes injunctive provisions to protect consumers from deceptive claims in the future. These provisions prohibit Volkswagen from making any misrepresentations that would deceive consumers about the environmental benefits or value of its vehicles or services, and the order specifically bans VW from employing any device that could be used to cheat on emissions tests.
The provisions of the U.S./California settlement are contained in a proposed consent decree filed today in the U.S. District Court for the Northern District of California, as part of the ongoing multi-district litigation, and will be subject to public comment period of 30 days, which will be announced in the Federal Register in the coming days. The provisions of the FTC settlement are contained in a proposed Stipulated Final Federal Court Order filed today in the same court.
To view the consent decree, visit: www.justice.gov/enrd/consent-decrees
To view the FTC proposed order, visit: https://www.ftc.gov/enforcement/cases-proceedings/162-3006/volkswagen-group-america-inc.
Fulbright Specialist Prof. William Byrnes (Texas A&M Law) was invited to address India's National Board of Accreditation and receive an award for his pioneering efforts with online pedagogical methods in the early nineties. His remarks address developing learning outcomes and effective pedagogical practices with an emphasis on distance learning. The remarks cover the following topics: Review of the Effectiveness of Distance Learning, Developing Learning Outcomes, Occupational Outcomes Framing Learning Outcomes, Information Acquisition, Information Delivery, Learning Communities, Learning Media, Learner Motivation, Knowledge Acquisition and Learning Tools. See my white paper at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2487679
Reuters reported that "A federal bankruptcy judge in Texas on Monday ordered former billionaire Sam Wyly to pay $1.11 billion in back taxes, interest and penalties after finding he committed tax fraud by shielding much of his family's wealth in offshore trusts."
Read the Reuters full story here.
Monday, June 27, 2016
Hedge Fund Managers and Former Government Official Charged in $32 Million Insider Trading Scheme; One Commits Suicide
Sunday, June 26, 2016
The Securities and Exchange Commission announced that it has obtained a court order freezing the assets of an investment advisor it has charged with secretly siphoning millions of dollars from accounts he managed for professional athletes and investing them in a struggling online sports and entertainment ticket business on whose board he served.
- Narayan was a managing director in the California office of Dallas-based investment advisory firm RGT Capital Management.
- Narayan’s clients trusted and relied upon Narayan to pursue safe, conservative investments that would not put their principal at risk, realizing that as professional athletes with injury risks, their earnings might occur within a short window.
- Besides failing to disclose the bulk of The Ticket Reserve investments to his clients and the fees he was receiving in exchange for investing their money, Narayan failed to disclose other key conflicts of interest—including that he was a member of The Ticket Reserve’s board of directors and owned more than three million shares of company stock. Narayan also falsely claimed to be a CPA.
- Harmon and Kaptrosky participated in the scheme by making undisclosed finder’s fee payments to Narayan out of his clients’ funds and covertly describing them as “director's fees” and “loans” in various company documents.
- Harmon and Kaptrosky approved and executed Ponzi-like payments, falsified and backdated documents, and created sham promissory notes between The Ticket Reserve and Narayan in attempts to further conceal the scheme.
Saturday, June 25, 2016
Analogic Subsidiary Agrees to Pay More than $14 Million to Resolve Bribery in Russia and Other Countries
A subsidiary of Massachusetts technology company Analogic Corporation entered into a non-prosecution agreement and agreed to pay a $3.4 million penalty today to resolve the government’s investigation into improper payments made in Russia and elsewhere in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Carmen M. Ortiz of the District of Massachusetts.
According to admissions made in the resolution documents, BK Medical ApS, a manufacturer of ultrasound equipment headquartered in Denmark, engaged in a scheme with its distributor in Russia to make improper payments to third parties using fictitious invoices, falsely book those third-party payments and cause Analogic to falsify its books and records. BK Medical admitted that, as part of the scheme, after the terms of a sale had been agreed upon, the distributor requested that BK Medical issue invoices that falsely inflated the sales price on the equipment. The distributor then overpaid BK Medical the inflated amount and BK Medical transferred the excess funds to third parties as directed by the distributor, the company admitted. BK Medical had no legitimate business relationship with those third parties and had not conducted due diligence on them, it admitted. According to admissions in the resolution documents, at least some of these payments ultimately went to doctors employed by Russian state-owned entities. Although the scheme involving its Russian distributor was the most extensive, BK Medical also admitted that it engaged in similar schemes with distributors in five other countries. BK Medical admitted that its conduct – creating and maintaining these fictitious invoices, representing to Analogic that BK Medical was complying with all Analogic accounting policies and signing Sarbanes-Oxley subcertifications – caused Analogic to falsify its books, records and accounts in violation of the FCPA.
As part of the non-prosecution agreement, BK Medical has agreed to pay the criminal penalty, to continue to cooperate with the department and with foreign authorities in any ongoing investigations and prosecutions relating to the conduct, including of individuals, to enhance its compliance program and to periodically report to the department on the implementation of its enhanced compliance program. The department reached this resolution based on a number of factors. Among other factors, BK Medical received credit for its self-disclosure and its remediation, including terminating the officers and employees responsible for the corrupt payments. It received partial credit for cooperation because, as described in the non-prosecution agreement, it did not initially disclose certain relevant facts that it learned in the course of its internal investigation. Otherwise, by the conclusion of the investigation, BK Medical had provided to the department all relevant facts known to it, including information about individuals involved in the FCPA misconduct.
In a related matter, Analogic reached a settlement today with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $7,672,651 in disgorgement and $3,810,311 in prejudgment interest. Download BK Medical Non-Prosecution Agreement
Friday, June 24, 2016
UBS AG has complied with an Internal Revenue Service (IRS) summons for bank records held in its Singapore office, the
Justice Department announced today. Because UBS has now produced all Singapore-based records responsive to the request and the IRS determined that UBS complied with the summons, the Justice Department has voluntarily dismissed its summons enforcement action against the bank.
The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw. According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011. Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition. UBS refused to produce the records, and the United States filed its petition to enforce the summons.
“The Department of Justice and the IRS are committed to making sure that offshore tax evasion is detected and dealt with appropriately,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division. “One critical component of that effort is making sure that the IRS has all of the information it needs to audit taxpayers with offshore assets. In this case, we filed a petition to enforce a summons for offshore documents, but that’s only one of the tools we have available for gathering information. Taxpayers with offshore assets who underreported their income should come forward before we come looking for them.”
On 21 June 2016, the Council agreed on a draft directive addressing tax avoidance practices commonly used by large companies. The member states will have until 31 December 2018 to transpose the directive into their national laws and regulations, except for the exit taxation rules, for which they will have until 31 December 2019. Member states that have targeted rules that are equally effective to the interest limitation rules may apply them until the OECD reaches agreement on a minimum standard or until 1 January 2024 at the latest.
The directive is part of a January 2016 package of Commission proposals to strengthen rules against corporate tax avoidance. The package builds on 2015 OECD recommendations to address tax base erosion and profit shifting (BEPS).
The directive addresses situations where corporate groups take advantage of disparities between national tax systems in order to reduce their overall tax liability. Corporate taxpayers may benefit from low tax rates or double tax deductions. Or they can ensure that categories of income remain untaxed by making it deductible in one jurisdiction whilst in the other it is not included in the tax base. The outcome distorts business decisions and risks creating situations of unfair tax competition.
New provisions in five areas
The draft directive covers all taxpayers that are subject to corporate tax in a member states, including subsidiaries of companies based in third countries. It lays down anti-tax-avoidance rules in five specific fields:
Interest limitation rules. Multinational groups may finance group entities in high-tax jurisdictions through debt, and arrange that they pay back inflated interest to subsidiaries resident in low-tax jurisdictions. The outcome is a reduced tax liability for the group as a whole. The draft directive sets out to discourage this practice by limiting the amount of interest that the taxpayer is entitled to deduct in a tax year.
Exit taxation rules. Corporate taxpayers may try to reduce their tax bill by moving their tax residence and/or assets to a low-tax jurisdiction. Exit taxation prevents tax base erosion in the state of origin when assets that incorporate unrealised underlying gains are transferred, without a change of ownership, out of the taxing jurisdiction of that state.
General anti-abuse rule. This rule is intended to cover gaps that may exist in a country's specific anti-abuse rules. Corporate tax planning schemes can be very elaborate and tax legislation doesn't usually evolve fast enough to include all the necessary defences. A general anti-abuse rule therefore enables tax authorities to deny taxpayers the benefit of abusive tax arrangements.
Controlled foreign company (CFC) rules. In order to reduce their overall tax liability, corporate groups can shift large amounts of profits towards controlled subsidiaries in low-tax jurisdictions. A common scheme consists of first transferring ownership of intangible assets such as intellectual property to the CFC and then shifting royalty payments. CFC rules reattribute the income of a low-taxed controlled foreign subsidiary to its - usually more highly taxed - parent company.
Rules on hybrid mismatches. Corporate taxpayers may take advantage of disparities between national tax systems in order to reduce their overall tax liability. Such mismatches often lead to double deductions (i.e. tax deductions in both countries) or adeduction of the income in one country without its inclusion in the other.
For more information:
Proposal on anti-tax avoidance measures
Memo on the Anti-Tax Avoidance Package
Study on Structures of Aggressive Tax Planning and Indicators
Action Plan for Fair and Efficient Corporate Taxation in the EU
Excerpt from Canada Revenue statement regarding its investigation of persons named in the Panama Papers:
The CRA continues to pursue audits related to offshore tax evasion including some Canadian clients associated with law firm Mossack Fonseca. The Agency is actively pursuing the cooperation of its tax treaty partners and the International Consortium of Investigative Journalists to obtain all of the leaked records that pertain to Canadian residents.
Since 2015, the CRA has collected data on international funds transfers, and is actively identifying high risk taxpayers, high risk jurisdictions, and high risk intermediaries.
The Minister of National Revenue has instructed CRA officials to obtain the data leaked through the Panama Papers in order to cross-reference this information with the data already obtained through the Agency’s existing investigation tools. The CRA will be communicating with its treaty partners to obtain any further information that may not currently be in its possession. We will continue to analyze relevant information from all sources to identify Canadian taxpayers who may have used accounts to hide or conceal money offshore in an effort to avoid or evade paying tax.
Compliance actions are being taken according to the information available in each case, including referrals to the CRA’s Criminal Investigations Directorate and, where appropriate, the Public Prosecution Services of Canada for possible criminal prosecution.
International tax evasion and aggressive tax avoidance are complex global issues. Budget 2016 allocated over $440M for the CRA to combat tax evasion and aggressive tax avoidance, including offshore. This investment enhances the effective tools the CRA already has to detect offshore non-compliance, including access to international Electronic Funds Transfers, information from the Offshore Tax Informant Program (OTIP) and exchanges with treaty partners.
Since January 2015, the CRA has collected information on all international funds transfers over $10,000, including those to Panama and other jurisdictions of concern.
OTIP allows the CRA to pay individuals who confidentially provide specific information about major international tax non-compliance. If the CRA collects more than $100,000 in federal taxes resulting from this information, the person who provided it could be awarded between 5% and 15% of the amount collected. Since the program started in January 2014, it has received calls from over 800 individuals and is reviewing over 120 cases.
Information sharing and international cooperation are key to deterring international tax evasion and avoidance, and identifying tax non-compliance and abuse. Canada has one of the most extensive tax treaty networks in the world, with 92 tax treaties and 22 Tax Information Exchange Agreements (TIEAs) in force as ofApril 4, 2016. Treaties and TIEAs are important tools that enhance Canada's ability to obtain information to enforce our laws and to see that all Canadians, including those with operations and investments abroad, pay their appropriate share of taxes.
The OECD's preliminary data for 2015 show that aggregated pension fund investments in the OECD area total USD 24.8 trillion, down slightly on the 2014 total of USD 25.2 trillion in Pension Markets in Focus (see Table 1).
The OECD analyzed that "the relative fall of pension fund investments may be explained by low real net investment returns in 2015, coupled with the strengthening of the US dollar vis-à-vis other major currencies".
Find all the OECD Pension Markets data here.
Thursday, June 23, 2016
A former Credit Suisse AG banker, who has been a fugitive since 2011, pleaded guilty today in U.S. District Court in the Eastern District of Virginia to charges related to aiding and assisting U.S. taxpayers in evading their income taxes, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente of the Eastern District of Virginia.
Michele Bergantino, 48, a citizen of Italy and a resident of Switzerland, pleaded guilty before U.S. District Judge Gerald Bruce Lee to conspiring to defraud the United States by assisting U.S. taxpayers to conceal foreign accounts and evade U.S. tax during his employment as a banker working for Credit Suisse AG on its North American desk.
“Mr. Bergantino is now the third fugitive to come to the United States and plead guilty to charges in this case,” said Acting Assistant Attorney General Ciraolo. “To those who have actively assisted U.S. taxpayers in using offshore accounts to evade taxes, the message is clear: staying outside the United States will provide little comfort. We will investigate and charge you, and will work relentlessly to hold you to account for your actions.”
Bergantino admitted that from 2002 to 2009, while working as a relationship manager for Credit Suisse in Switzerland, he participated in a wide-ranging conspiracy to aid and assist U.S. taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts. Bergantino oversaw a portfolio of accounts, largely owned by U.S. taxpayers residing on the West Coast, which grew to approximately $700 million of assets under management. Bergantino admitted that the tax loss associated with his criminal conduct was more than $1.5 million but less than or equal to $3.5 million.
During his time as a relationship manager, Bergantino assisted many U.S. clients in utilizing their Credit Suisse accounts to evade their U.S. income taxes and to facilitate concealment of the U.S clients’ undeclared financial accounts from the U.S. Treasury Department and the Internal Revenue Service (IRS). Among the steps taken by Bergantino to assist clients in hiding their Swiss accounts were the following: assuring them that Swiss bank secrecy laws would prevent Credit Suisse from disclosing their undeclared accounts to U.S. law enforcement; discussing business with clients only when they traveled to Zurich to meet him; structuring withdrawals from their undeclared accounts by sending multiple checks, each in amounts below $10,000, to clients in the United States; facilitating the withdrawal of large sums of cash by U.S. customers from their Credit Suisse accounts at Credit Suisse offices in the Bahamas, in Switzerland, particularly the Credit Suisse branch at the Zurich airport and at a financial institution in the United Kingdom; holding clients’ mail from delivery to the United States; issuing withdrawal checks from Credit Suisse’s correspondent bank in the United States; and taking actions to remove evidence of a U.S. client’s control over an account because the U.S. client intended to file a false and fraudulent income tax return. Moreover, Bergantino understood that a number of his U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations.
Bergantino also admitted traveling to the United States approximately one to two times a year to meet with clients, taking careful steps to conceal the purpose of his visits from U.S. law enforcement. He used private couriers to send clients’ account statements to the U.S. hotels where he stayed, so that he would not be caught traveling with clients’ statements in his possession. In addition, Bergantino obtained “travel” account statements for each client he intended to visit which were devoid of Credit Suisse’s logo and account or customer identification information and used business cards that Credit Suisse provided that contained only his name and office number and did not carry the Credit Suisse name or logo. On entering the United States, Bergantino provided misleading information regarding the nature and purpose of his visit to U.S. Customs and Border Protection authorities.
In addition to assisting customers in evading their U.S. taxes, Bergantino also provided illegal advice to U.S. customers regarding investments in U.S. securities. Neither Bergantino nor Credit Suisse were registered with the U.S. Securities and Exchange Commission and both U.S. law and Credit Suisse policy prohibited Bergantino and other Credit Suisse employees from providing investment advice in the United States. Nevertheless, Credit Suisse management pressured its employees, including Bergantino, to make sales in the United States.
Two of Bergantino’s co-defendants, Andreas Bachmann and Josef Dörig, pleaded guilty to the superseding indictment in 2014 and were sentenced on March 27, 2015. Credit Suisse pleaded guilty in May 2014 for conspiring to aid and assist taxpayers in filing false returns and was sentenced in November 2014 to pay $2.6 billion in fines and restitution.
Bergantino faces a statutory maximum sentence of five years in prison. He also faces monetary penalties and restitution.
U.S. Navy Admiral Pleads Guilty to Lying to Federal Investigators about His Relationship with Foreign Defense Contractor in Massive Navy Bribery and Fraud Investigation
U.S. Navy Rear Admiral Robert Gilbeau pleaded guilty today in federal court to charges that he lied to federal investigators to conceal his illicit years-long relationship with Leonard Glenn Francis, owner of Glenn Defense Marine Asia (GDMA), the foreign defense contractor at the center of a massive bribery and fraud scandal.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Laura E. Duffy of the Southern District of California, Acting Director Dermot O’Reilly of the Department of Defense’s (DOD) Defense Criminal Investigative Service (DCIS), Director Andrew Traver of the Naval Criminal Investigative Service (NCIS) and Director Anita Bales of Defense Contract Audit Agency (DCAA) made the announcement.
Gilbeau, 55, of Burke, Virginia, pleaded guilty to one count of making a false statement. He was charged by information today and is the highest-ranking U.S. Navy officer to be charged in the investigation so far. Gilbeau is scheduled to be sentenced on Aug. 26, 2016, before U.S. District Judge Janis L. Sammartino of the Southern District of California.
In his plea agreement, Gilbeau admitted that he lied when he told agents from DCIS and NCIS that he had never received any gifts from Francis, the owner of Singapore-based GDMA. Gilbeau also admitted that he lied when he told investigators that he “always paid for half of the dinner” when he and Francis met about three times a year. Gilbeau further admitted that when he became aware that Francis and others had been arrested in connection with the fraud and bribery offenses in September 2013, he destroyed documents and deleted computer files. Francis previously pleaded guilty to plying scores of other U.S. Navy officials with gifts such as luxury travel, meals, cash, electronics, parties and prostitutes.
According to his plea, in 2003 and 2004, Gilbeau was the supply officer on the USS Nimitz, where he was responsible for procuring all goods and services necessary for operation of the ship. He later served as head of the Tsunami Relief Crisis Action Team in Singapore, heading the Navy’s logistics response to the Southeast Asia tsunami in December 2004, and in June 2005, Gilbeau was assigned to the office of the Chief of Naval Operations as the head of aviation material support, establishing policies and requirements for budgeting and acquisitions for the Navy’s air forces, according to the plea agreement.
In August 2010, after he was promoted to admiral, Gilbeau assumed command of the Defense Contract Management Agency International, where he was responsible for the global administration of DOD’s most critical contracts performed outside the United States, according to admissions made in connection with his plea.
“As a flag level officer in the U.S. Navy, Admiral Gilbeau understood his duty to be honest with the federal agents investigating this sprawling bribery scheme,” said Assistant Attorney General Caldwell. “By destroying documents and lying about the gifts that he received, Admiral Gilbeau broke the law and dishonored his uniform.”
“Of those who wear our nation’s uniform in the service of our country, only a select few have been honored to hold the rank of Admiral – and not a single one is above the law,” said U.S. Attorney Laura Duffy. “Admiral Gilbeau lied to federal agents investigating corruption and fraud, and then tried to cover up his deception by destroying documents and files. Whether the evidence leads us to a civilian, to an enlisted service member or to an admiral, as this investigation expands we will continue to hold responsible all those who lied or who corruptly betrayed their public duties for personal gain.”
“The guilty plea of Rear Admiral Robert Gilbeau is an unfortunate example of a dishonorable naval flag officer who has betrayed his shipmates, the U.S. Navy and his country,” said Acting Director O’Reilly. “Admiral Gilbeau's guilty plea should be a resounding message that DCIS, Naval Criminal Investigative Service and the Department of Justice will continue to investigate and seek to prosecute any individual, regardless of position or rank, who would put our mission of ‘Protecting America’s Warfighters’ at risk.”
“This investigation demonstrates that corruption, conspiracy and the release of sensitive information puts Department of the Navy personnel and resources at risk,” said Director Traver. “And in concert with our partner agencies, NCIS remains resolved to follow the evidence, to help hold accountable those who make personal reward a higher priority than professional responsibility.”
“DCAA is proud to stand in partnership with our law enforcement allies and make a meaningful contribution to the outcome in this egregious case,” said Director Bales. “It is very disappointing that this high-ranking individual lost sight of his responsibility as a government official. We look forward to continuing our support of this significant investigation.”
Including Gilbeau, 14 individuals have been charged in connection with this scheme; of those, nine have pleaded guilty, including U.S. Navy Captain (Select) Michael Misiewicz, U.S. Navy Capt. Daniel Dusek, Lieutenant Commander Todd Malaki, NCIS Special Agent John Beliveau, Commander Jose Luis Sanchez and U.S. Navy Petty Officer First Class Dan Layug. Former Department of Defense Senior Executive Paul Simpkins awaits trial. On Jan. 21, 2016, Layug was sentenced to 27 months in prison and a $15,000 fine; on Jan. 29, 2016, Malaki was sentenced to 40 months in prison and to pay $15,000 in restitution to the Navy and a $15,000 fine; on March 18, 2016, Alex Wisidagama, a former GDMA employee, was sentenced to 63 months and to pay $34.8 million in restitution to the Navy; on March 25, 2016, Dusek was sentenced to 46 months in prison and to pay $30,000 in restitution to the Navy and a $70,000 fine; and on April 29, 2016, Misiewicz was sentenced to 78 months in prison and to pay a fine of $100,000 and to forfeit $95,000 in proceeds for the scheme. Retired Navy Captain Michael Brooks, Commander Bobby Pitts and Lieutenant Commander Gentry Debord were charged by a federal grand jury on May 25, 2016, and their cases remain pending. GDMA, the corporate entity, was also charged and has pleaded guilty. Francis and Ed Aruffo, a former GDMA employee, have both pleaded guilty and await sentencing.
NCIS, DCIS and DCAA are conducting the investigation. Assistant Chief Brian R. Young of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Mark W. Pletcher and Patrick Hovakimian of the Southern District of California are prosecuting the case.