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Magazine 1st Quarter 2011

Panama's New TIEA Page 20

Dubai Standing Tall Its Not Just Big Brother Watching By Kevin Packman

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Luxembourg Islamic Finance Page 18

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EDGE Magazine Autumn 2010

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Joy Godfrey (joy@cititrust.biz) EDITOR IN CHIEF

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theeditorialboard Dear Reader: Welcome to the second issue of Cititrustâ€&#x;s EDGE Magazine. The magazine is designed specifically to serve the needs of those in the international financial services industry. Each issue of the publication will provide in-depth industry analysis, expert advice, provocative editorials, thoughtful insight and essential information and coverage from all corners of the globe and every segment of the industry. The EDGE Magazine covers a wide range of topics within the international financial services sector such as: Taxation, Law, Intellectual Property, Incorporation, Trusts, Banking, Insurance, Funds, Wealth Management, Foundations and Licensing across offshore jurisdictions from around the world.

Every issue of the EDGE Magazine will prove to be essential reading for entrepreneurs, professional service providers, business-people, and investors in great measure thanks to its premium editorial content written by industry experts with detailed knowledge of all aspects of the offshore sector. We hope that you find the magazine informative, thought provoking and entertaining.

Editorial Board Cititrust EDGE Magazine

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insidethisissue It‟s Not Just Big Brother Watching You! The Probate Show; Top 10 Causes of Estate Litigation Cayman Islands‟ Segregated Portfolio Companies Dubai, Still Standing Tall Robin Hood Gone Crazy Strategic Turnaround by Cayman Islands‟ Privy Council Islamic Finance & Shipping in Luxembourg Panama – US TIEA America the Beautiful Tax Haven Lenders' Right to Foreclosure; Is the UAE Ready for a Change? Immigrating to Canada from a Tax Perspective The New International Regime for IP Protection Hungary as a Tax Haven International Collective Investment Schemes Canada, a Tax Friendly Destination for Wealthy Immigrants Is Banking Secrecy a Thing of the Past? Shipping Trends in 2011 & Beyond

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Cititrust‟s EDGE Magazine accepts no responsibility for any information or other content contained within the magazine. Where the information is to be relied upon by the user, the information should be independently verified by a professional. Articles in this magazine are not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is solely intended to provide a brief overview and give general information. The opinions expressed here within are strictly those of the authors and not necessarily the views of Cititrust EDGE Magazine. Cititrust‟s EDGE Magazine strives to ensure that all information in the magazine is accurate, however the publishers would emphasize that they cannot accept responsibility for any mistakes or omissions.

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Its Not Just Big Brother Watching You! The government could be recruiting your own children, your friends, and your employees to spy on you! By Kevin E. Packman, Partner Holland & Knight LLP www.hklaw.com kevin.packman@hklaw.com

In the premiere issue of CitiTrust's Edge Magazine, I wrote about the IRS' increasing use of technology to catch taxpayers who are paying less than their share of tax, whether as a result error or intent to cheat. In this issue, I am focusing on another tool available to the IRS, whistleblowers.

informant substantially contributed to the collection of tax. The amount of the award can be reduced if the whistleblower was involved in the noncompliance. If the whistleblower is convicted of criminal conduct arising from his or her role in planning and initiating the action, the Whistleblower Office will deny the award.

In 2006 Congress introduced legislation creating a whistleblower office within the IRS. The legislation, codified at 26 U.S.C. § 7623, became effective on December 20, 2006 and provides incentives for ordinary citizens to share information with the IRS about tax cheats. The program is designed to prevent annoyance claims from being filed by disgruntled neighbors, jilted spouses, and angry employees because the claim must meet minimum standards.

On June 18, 2010, the IRS added new provisions to the Internal Revenue Manual (IRM) applicable for the whistleblower program. Senator Charles Grassley (RIowa) wrote a letter to Treasury Secretary Geithner asking that he delay the implementation of the new IRM update, as he was troubled by the fact that the provision was posted without public comment. He was also disturbed by the fact that the definition of "collected proceeds" appears to limit the payment of a Section 7623(b) award to only those cases where the IRS receives cash from a taxpayer. This definition would deny rewards to whistleblowers who prevent improper refunds, or reduce a credit balance by a taxpayer.

To be eligible for an award, the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed $2 million for any taxable year and, if the taxpayer is an individual, the individual‟s gross income must exceed $200,000 for any taxable year in question. The amount of award will be at least 15%, but no more than 30%, of the collected proceeds in cases in which the IRS determines that the information submitted by the

Perhaps in response to Senator Grassley's comments, the IRS issued a proposed regulation on January 14, 2011 to revise Treasury Regulation §301.7623-1. The proposed regulation clarifies the definition of proceeds of amounts

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collected and collected proceeds, as the terms are used in Section 7623. The proposed regulation defines the terms for purposes of Section 7623 as including "‌tax, penalties, interest, additions to tax, and additional amounts collected by reason of the information provided; amounts collected prior to receipt of the information if the information provided results in the denial of a claim for refund that otherwise would have been paid; and a reduction of an overpayment credit balance used to satisfy a tax liability incurred because of the information provided." Whistleblowers who are unable to satisfy the income threshold are not left without options. Section 7623(a) provides authority for the informant to receive a discretionary award with the maximum award being 15% up to $10 million. Since the award is discretionary, the informant cannot dispute the determination of the award in Tax Court. To file a claim with the Whistleblower Office, the informant must complete Form 211, and sign it under penalties of perjury. When the Whistleblower Office has made a final determination regarding a claim, it will send notification to the informant indicating the amount of the reward it intends to pay. If the informant is not satisfied with the reward, he/she has 30 days in which to file an appeal to the Tax Court. Whistleblowing is becoming a cottage industry for private bankers. On May 3, 2010, Rudolf Elmer spoke at the 8th Annual OffshoreAlert Financial Due Diligence Conference on Miami Beach. Elmer worked for Bank Julius Baer in Switzerland, where he was a Senior Auditor from 1987 to 1994, and then in the Cayman Islands, where he was the group's local Chief Operating Officer from 1994 to 2003. He indicated that he gave internal

company documents to officials in several countries, including the United States and Germany. He also indicated that the bank helped clients evade tax. Elmer was not the first such banker, nor will he be the last. On August 4, 2010, Bloomberg.com reported that Herve Falciani, a former HSBC Holdings Plc software technician now in police protection in France took computer files containing data on at least 24,000 current and former account holders from several countries. Falciani was preceded by Heinrich Kieber, a former employee of the LGT Bank of Liechtenstein, who in 2008 took more than 12,000 pages of bank documents detailing secret, multi-million-dollar accounts held by taxpayers around the world. Kieber is living in an undisclosed location, reportedly as part of a witness protection program, after providing information to government officials in England, Germany, the United States and other countries on their citizens who hid billions in wealth through the bank. Joseph Insinga, a finance specialist with the Dutch Bank, Rabobank, is another banker turned whistleblower. He told the IRS that the bank was financing tax shelters on behalf of United States companies. He provided information that led to investigations against Cardinal Health and Newell Rubbermaid Inc. Of course, Insinga was preceded by the revelations former Swiss UBS private banker, Bradley Birkenfeld, provided the IRS and Department of Justice, which ultimately led to the February 2009 UBS deferred prosecution. The Whisleblower Office submitted its annual report to Congress on December 13, 2010, and indicated that it received more than 5000 cases in fiscal year 2009, 460 of which will likely qualify for an award.

Holland & Knight LLP Kevin E. Packman Partner

Miami t: 305-349-2261 kevin.packman@hklaw.com www.hklaw.com

Top Up and Comer South Florida Legal Guide Tax, Estate Planning, 2011

Kevin E. Packman, a partner in the Private Wealth Services Section, is a native of Miami, Florida. His practice focuses on estate and gift tax planning for domestic and international clients as well as on preimmigration planning for international clients. He also assists clients with IRS tax controversies, creditor protection planning and probate administration.

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During our lifetimes, many of us strive to make a “Top 10” list of one sort or another – whether it be for fame, for fortune or simply for recognition amongst our family and friends. What most of us do not aspire to, however, is to become a victim of a poorly-drafted (or, dare I suggest, non-existent) estate plan. Estate litigation tends to arise for a variety of reasons. Generally speaking, the following are what would be classified as the ten most frequent causes of estate litigation. 1. Failing to Prepare an Estate Plan A basic estate plan will often include a Power of Attorney for Property, a Power of Attorney for Personal Care and at least one Will. In this way, a testator can plan for incapacity and direct how assets are to be administered during his lifetime, and he can thereafter direct how the remaining assets will be distributed on death. Notwithstanding the abundance and availability of information that is disseminated on a regular basis, the

fact remains that more people die without having created an estate plan than one would expect. 2. Failing to Maintain a Current or Updated Estate Plan The creation of an estate plan is not a one-time event. Powers of Attorney and Wills must be properly updated, particularly in the face of changed personal circumstances and after the passage of significant periods of time. Where principal beneficiaries predecease a testator, where there has been a sale of a significant asset (often a private business or family cottage), or a dramatic change in the value of the estate, plans should be revisited. 3. Failing to Recognize the Need for Professional Assistance There has recently been a promulgation of “Do-itYourself” Will and Power of Attorney kits. Although we can understand the reluctance to hire professionals, these situations are often prime examples of where you can either “pay now, or pay later”.

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4. Failing to Obtain Adequate Professional Advice. Reliance upon skilled and experienced practitioners is key to creating estate plans that will implement and uphold testamentary intentions. We have all heard the old adage “you get what you paid for” – this really is not the time to “cut corners”. 5. Acrimonious Extended Family Members. “Step”, “second” or “in-law” relationships tend to be a key ingredient to the nastiest of family and estate fights. Extra-marital partners and children and grandchildren born out-of-wedlock tend to hold a strong second place. In each of these cases, the tension may be present even during the testator‟s lifetime, albeit more covertly than after his or her death.

and legal challenges. Even documents that were “properly” drafted at the time they were created can, with the passage of time or change in legislation, become ineffective. 9 The Nature of the Estate Assets. The mix, nature and value of a testator‟s assets can be a profound instigator for estate litigation. Often family businesses or cottage properties can have emotional elements attached to them. Inter vivos gifting and trust arrangements may also surprise beneficiaries, who might have expected to receive their entitlements on death or outright. Jointly-held assets, pensions, insurance policies and registered savings plans with designated beneficiaries are similarly often the source of much litigation. 10. Personal Representatives.

6. Intransigent Family Members and Other Beneficiaries. Sometimes even the best-trained professionals cannot reason with stubborn, principled clients; in these situations, the proceedings often have to “run the course” for some period of time before cooler heads and logic can prevail. 7. Failing to Fully Disclose. No one wants to contemplate extra-marital relationships, unexpected illness or physical or mental impairments. The reality is, however, that these things do happen – and it is better to plan for them now then to leave issues that arise from them to loved ones to deal with later. 8. Poorly Drafted Estate Planning Documents. Sometimes, despite all best efforts, an estate plan can be frustrated. Documents that are poorly drafted can lead to interpretation issues, validity concerns

The choice of an executor can be a very emotional decision for family members to deal with. This trusted individual is chosen by a testator to administer his estate and effect his testamentary intentions. More often than not, however, this tends to be a thankless appointment, and one that is fraught with scrutiny and judged unfairly with the benefit of hindsight. In these types of cases, no amount of compensation can make the job worth it. Conclusion Even a most comprehensive estate plan, created by the most skilled of practitioners, can become the subject of estate litigation. After all, it only takes one person to commence litigation. Having said that, there are certainly ways to thwart the likelihood of their success. Recognizing some of the principal sources of estate litigation is a starting point in doing just that.

Suzana Popovic-Montag is the Managing Partner of Hull & Hull LLP, practising exclusively in the areas of estates, trusts, capacity and fiduciary litigation. Suzana is also a specialized estate mediator and the author of numerous articles published in academic journals. She can be reached at 416.369.1416 or at spopovic@hullandhull.com.

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Ring Fenced Cayman Islands Segregated Portfolio Companies

By Paul Scrivener Head of the Insurance Group

Solomon Harris www.solomonharris.com PScrivener@solomonharris.com

The Segregated Portfolio Company (“SPC”) is a particular type of Cayman Islands company which is able to create one or more segregated portfolios or cells for segregating pools of assets and liabilities within a single company. A cell might be thought of as a silo or sealed compartment within the company but is not a separate legal entity in its own right. Some other jurisdictions have similar vehicles – sometimes called protected cell companies - but the Cayman legislation is generally regarded as one of the best. The key feature of the SPC is that the assets and liabilities of each cell are statutorily “ring-fenced” from the assets and liabilities of the other cells. Therefore, a creditor of one cell may only have recourse to the assets of that cell and not to the assets of any other cell. It is this ring-fencing which makes the SPC ideally suited for rent-a-captives, umbrella hedge funds and structured finance

vehicles. There is no restriction on the number of cells that an SPC can create but each cell must be separately identified and include the word “Segregated Portfolio” in its name. Any assets of an SPC which are not held in a cell are referred to in the Companies Law as general assets and, colloquially, as assets of “the core”. A creditor of the core may only have recourse to the assets of the core and not to the assets of any of the cells. If the assets of any cell are insufficient to meet in full the claim of a creditor of that cell, the creditor may, in respect of the shortfall, have recourse to the assets of the core but only to the extent that the assets of the core exceed the minimum regulatory capital specified by the Cayman Islands Monetary Authority. However, the Companies Law does permit any SPC to “opt out” of this provision by stipulating in its articles of association that the

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assets of the core are not available to meet the claims of any cell creditor. Where any of the SPCâ€&#x;s assets are held outside the Cayman Islands, legal advice should be obtained in the relevant jurisdiction to ensure that the structure would be recognised. It is also always a good idea to have all contracts and transactions entered into by the SPC governed by Cayman Islands law and made subject to the jurisdiction of the Cayman courts. An SPC may issue shares in respect of any cell to identify the economic ownership of the cell. Alternatively, the economic ownership may be reflected not by shares but by contractual arrangements between the SPC and the economic owner. Directors of SPCs are subject to certain specific statutory duties over and above their general directorsâ€&#x; duties. They must have procedures in place to segregate cell assets from core assets and to segregate the assets of one cell from the assets of another cell. Therefore, the core and each cell should have its own bank account, brokerage account, custody account etc. Physical segregation rather than accounting segregation is essential. Directors must also have procedures in place to ensure that assets and liabilities are not transferred between cells

otherwise than at full value. Finally, where any contract, deed or other document is entered into by the SPC in respect of a particular cell, the directors must ensure that the contract etc clearly identifies the relevant cell and that the execution of the contract etc is on behalf of that cell. Any director who is in breach of this duty can incur personal liability under the contract etc. Whilst an SPC is an attractive option in many situations it is always important to bear in mind that there are potential shortcomings. If the directors breach any of their duties outlined above, and in particular the duty to ensure physical segregation of all pools of assets, there is the risk that the integrity of the structure could be compromised. The SPC might then be treated as a regular company without the benefit of statutory ring-fencing. SPCs do not exist in most jurisdictions and the legal effectiveness of ring-fencing specific pools of assets and liabilities within a single company has not been tested in the courts of any jurisdiction. Therefore, there is some risk that a foreign court may not be willing to uphold the limited liability feature of the SPC. However, the popularity of SPCs is growing and they are increasingly becoming part of the offshore mainstream which can only assist in establishing their credentials with a foreign court.

Paul Scrivener is a partner and head of the Insurance Group at Solomon Harris in the Cayman Islands

SOLOMON HARRIS CAYMAN ISLANDS ATTORNEYS-AT-LAW First Caribbean House, PO Box 1990, George Town, Grand Cayman KY1-1104, Cayman Islands Tel: +1 345-949-0488 Fax: 345-949-0364 Email: PScrivener@solomonharris.com

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Dubai Still Standing Tall By Adriaan Struijk Freemont Group

Dubai had its fair share in the global downturn. Real estate prices plummeted and many expatriates had to leave the UAE. But for those still here it is a much more pleasant place to be. Aside from the lower rental and property prices, there are less people, less traffic jams, a clean metro, 40 Mbps fiber optics internet connections, and last but not least: freezones competing for business. And Dubai is still unique in many respects: a major cosmopolitan city located in a country that does not levy direct taxes of any kind, has no VAT, and only a 5% custom‟s duty. It is an offshore jurisdiction without the offshore stigma. But maybe an even more important feature that makes setting up in business here so attractive is that through the UAE it is possible to access the world‟s labour force. For any person, skilled or unskilled, a work permit can be obtained with a minimum of hassle. There is no other country that offers this unique combination of features. Operating a business in the UAE Under UAE federal law foreign businesses have three main forms to choose from to conduct business in the UAE:  As a local limited liability company;  As a branch of a foreign company;  As a representative office of a foreign company Alternatively, six out of seven Emirates (the exception being Abu Dhabi) offer the possibility to conduct business out of a freezone. And two emirates – Dubai and Ras al Khaimah – offer an International Business Company regime. Freezones If there is no need to sell goods directly to the local market then setting up in a freezone is often more attractive than setting up as a local company, which requires 51 per cent local ownership. The practice is to allow the provision of services through a free-zone entity to the local market as long as a significant proportion of the turnover is realised abroad.

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The main advantages of setting up in one of the freezones in the UAE are as follows:  100 per cent foreign ownership is allowed;  A guarantee for 15-50 years against the future imposition of corporation tax.  The import of goods duty free provided the goods are not supplied to the local market;  Streamlined procedures: all formalities are typically dealt with through the freezone authorities instead of the various government departments;  No restrictions on hiring expatriates. The freezones each have their own freezone authority. These are profit-making entities. Their main source of income is derived from renting office space, collecting license fees, and providing services to the companies operating in the freezone. In all freezones financial statements need to be submitted to the freezone authorities annually. One of the pleasant side effects of the economic downturn is that freezones are competing for business more so than before. For example, whereas it was an absolute requirement to rent office space until a few years ago, now there are several freezones outside Dubai that have introduced a flexi-desk concept. This means that a room is shared or a desk is rented for a number of hours a month. The UAE is particularly well positioned to cope with the increasing pressure from onshore tax authorities to provide real economic substance. The UAE freezones offer a very easy and inexpensive way to obtain office space, locate a server, and hire staff: i.e. those factors which are important to determine whether a company has real economic. Furthermore the professional infrastructure is developed. A broad range of advisory, support and outsourcing services is available that will further enhance the possibility to locate real business functions here. International Business Companies (IBCs) Dubai, through its Jebel Ali Freezone, and Ras al Khaimah, through the RAKIA freezone and the RAK Free Trade Zone, both offer an IBC regime. These companies are ideal for holding investments such as shares in local or freezone companies, UAE real estate, or for trading activities outside the UAE. IBCs cannot rent office space or apply for staff visas, and they are not allowed to trade with parties inside the UAE. All in all, Dubai offers something that to many will sound too good to be true: an unrivalled lifestyle in a business-friendly, no-tax environment, with a strategic location and access to all the services that you would expect to be available in a worldclass business centre.

The Freemont Group is a rapidly expanding, provider of trust and company administration services to international clients. We provide a range of professional corporate services for the incorporation and management of offshore and Dubai-based companies. The Freemont Group has drawn together a skilled, multi-lingual professional team including qualified accountants, tax planners, and attorneys with offices in Dubai, Cyprus, Curacao, Panama and Czech Republic.

Adriaan Struijk Chairman

Tel Fax Website E-mail Address

+971 4 7030 100 +971 4 7030 110 www.freemontgroup.com info@freemontgroup.com Office 418, Building 6EA Dubai Airport Free Zone United Arab Emirates

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Progressive Income-Taxers, Consumption Taxers, “Flat” Taxers & other delusional heroes - Editorial Board

Imagine for a moment that you‟re going to meet an old college buddy for lunch at a new vaguely French sounding restaurant - Habillete Tepaye. At the end of the meal, the bill comes and upon opening it, there is a line that asks “Yearly Income”. You look at your buddy a confused and ask what it‟s all about. Your friend informs you that it‟s the latest in socially responsible dining, where your bill depends not on the prices in the menu but rather your “ability to pay”. Now let‟s suppose that you are rather well off compared to your college buddy (they undoubtedly have a degree in postmodern lesbian architecture, neo-Marxian vegetarian literature, homeopathic wiccan economics, or some other “enlightened” but underappreciated degree). The result: although you both consumed the exact same meal, your bill comes to $250, while your friend owes $2. That is fairness. That is social justice. This scenario may sound ridiculous however our entire “progressive” tax system is based on that very concept of ability to pay. This means simply that

those who are richer are required to pay higher taxes – this is done all in the name of fairness (as all bad economic policies are) – and essentially is responsible for what drives individuals and firms to seek out low tax jurisdictions offshore. The alternatives don‟t appear much better. Those pushing for a consumption tax (indirectly taxing wealth rather than income) also base their ideas on the concept of “ability to pay”. Those who earn more presumably consume more and hence, are required to pay more, again even if the tax rate is the same for everyone. Our false heroes, the Flat Taxers, are in still in essence basing their tax policy on the ability to pay - those who earn more still pay more, not in terms of a higher rate, however the dollar amount is still higher. So as in our restaurant example, even though we all consume roughly the same amount of government services, some are still forced to pay more for the simple reason that they can pay more.

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The logical extension of the concept of „ability to pay” is a world where the entire economy is based, like our restaurant example, on the concept of ability to pay. Why shouldn‟t this concept of “fairness” extend to everything in life? What if the price of everything that we consumed depended solely on our income? In this way, everyone achieves true income and wealth equality. The richest would pay for all of their consumption to the maximum extent of their wealth, in essence reducing their wealth to zero. The poor, those with no wealth, would consume for free. Equality! Fairness! Robbing from the rich to give to the poor, not through the use of clumsy weapons like swords or bow and arrow, but through the efficient use of government tax policy. Soon we can expect the Olympics handicapped by athletic ability whereby those more gifted athletes start behind the others with the end result being that everyone reaches the finish line at the same time. Equality! How about school exams whereby those with greater academic ability have marks deducted in proportion to their ability so that everyone gets the same test score? Equality!

If indeed we are interested in true fairness (which there is no indication is the case) taxes should then, to as large an extent as possible be based on a “fee for service” concept - in essence; you pay for what government services you consume (as is the case in the private sector economy) and in instances where it‟s too difficult to levy taxes in such a manner, then a true flat tax should be implemented – whereby everyone pays not only the same tax rate but also the same dollar amount. This assumes that we all roughly consume public services to the same extent, although even this is perhaps providing a net benefit to the poor as the less wealthy an individual is, the more government services they tend to consume, so even this method could be construed as a subsidy to the poor, perhaps it could be justified in the name of “fairness.” A shift to a true “flat tax” would remove many of the disincentives to work, investment and wealth creation and may also lessen the need for individuals and companies to utilize offshore jurisdictions (although differentials in the actual monetary value of the “flat tax” may still create the demand for offshore fair tax jurisdictions).

Corporate seals in as little as 24 hours www.corpimpressions.biz 15 seals@corpimpressions.biz “Cave of the Hands” – Santa Cruz, Argentina


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Road to Redemption?

A Strategic Turnaround by the Cayman Islands' Privy Council By Nigel Meeson & Tania Dons

In a judgment delivered on 13th December 2010, in the case of Culross Global SPC Limited v Strategic Turnaround Master Partnership Limited the Privy Council has provided important clarity on the correct approach to the construction of Fund documentation, and has thankfully laid to rest the heresy introduced by the Cayman Islands Court of Appeal as to what it had termed “the process of redemption”. The issue with which the Privy Council was concerned was whether the Appellant (Culross) was a current creditor of the Fund (Strategic Turnaround) with standing to present a winding up petition against the Fund, or whether it was merely a prospective creditor lacking standing to bring a creditor‟s petition. The Court of Appeal had held that on the true construction of the Articles of Association and the Confidential Explanatory Memorandum (“CEM”), the

Fund had validly suspended the payment of redemption proceeds after the Redemption Date, but before payment. It would be unusual for a Fund to provide for a suspension of payment after redemption proceeds had become due, but if, on their proper construction, the Articles of a Fund provided for this then, as the Privy Council affirmed, the members were at liberty to make “any contract inter se which they pleased”. If the Court of Appeal had limited itself to determining the question before it as one solely of construction, then this case would have attracted little interest. However, the Court of Appeal sought to engage in a metaphysical analysis of the “process of redemption” which it said was not complete until payment had been made and the name of the member had been removed from the register. This was support for the manner in which they construed the Articles. However the analysis was manifestly wrong for a number of reasons and was put to rest succinctly by the Privy Council, who said:

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“the issue is not to be approached on the basis of any a priori view that, until payment of the redemption proceeds, a shareholder must or should necessarily remain a member of a company which is (as the Respondent was) due to make such payment upon or after a certain redemption date; and the fact that a person‟s name continues to remain on a company‟s register as member does not mean that it should have done so under the provisions of the Articles.” The Privy Council made it clear that “Any power to withhold payment of the redemption proceeds must be authorized by or pursuant to the articles of association.” They also said that “Bearing in mind the evident importance attached in the articles, and likely to be attached by investors to the Redemption Notice period and the Redemption Date, it would in the Board‟s view require clear words before articles could or should be read as entitling the Respondent retrospectively to reverse or alter the effect of the passing of the Redemption Date pursuant to a valid Redemption Notice.” Ultimately, the Privy Council disagreed with the Court of Appeal in relation to how the Articles were to be construed together with the CEM. The Court of Appeal had treated the reference in the Articles to shares being issued “subject to these articles” and on “the terms referred to in the [CEM]” as expressly incorporating by reference the provision in the CEM which stated that the “Board of Directors may declare a suspension of … or the payment of redemption proceeds …”. .

The Privy Council said that this analysis was incorrect because the CEM served various distinct purposes: (i) identify the commercial terms on which shares were available, (ii) convey information about the Fund, the investment adviser, strategy, fees etc, (iii) describe the effect of the Fund‟s Memorandum and Articles and certain other legal documents. It was only in respect of the first purpose that the provisions of the CEM were incorporated into the Articles by the phrase “the terms referred to in the [CEM]”. The third purpose was merely descriptive and the legal relationship was actually defined by the Articles and not the description of the Articles in the CEM. The Privy Council said they could find no basis for the company to rely in its own favour upon its own misdescription of its own Articles. In summary, the Privy Council has returned to orthodoxy. The right of redemption and the right to suspend redemption is governed by the Articles and depend upon the proper construction of those Articles. The so-called process of redemption is irrelevant. Whether terms contained in a confidential offering or explanatory memorandum are to be incorporated into the Articles is also a question of construction of the Articles. A mere reference in the Articles to a CEM or COM will not necessarily cause all of the provisions of that document to be incorporated if that is not the proper construction.

For more information contact: Naomi Little +1 (441) 298 7828 naomi.little@conyersdill.com www.conyersdill.com

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MEETING OF TWO WORLDS

THE

Islamic Finance & Shipping in Luxembourg By Cédric Raths, Director Pandomus Member of Luxembourg Maritime Cluster cedric.raths@pandomus.lu

In 1990, Luxembourg introduced the Maritime Act to create the maritime public registry and to create the Commission for Maritime Affairs (the Luxembourg supervising authority). Luxembourg is on pole position of the largest inland registries in the world, with more than 240 registered commercial vessels. Luxembourg has a favorable environment for crew members and maritime companies. The labor costs, including social security contributions and taxes, are the most competitive in the EU. As any other Luxembourg company, it may benefit from an income tax credit on its investments whereby secondhand vessels may also qualify. It may also carry forward indefinitely losses incurred during previous accounting periods and offset them against the taxable income of the current accounting period. There is no tonnage tax in Luxembourg which represents a significant competitive advantage in case of a economic crisis; the maritime company pays taxes on its annual incomes which can be much lower in difficult times and not a tax based on a dormant fleet. Under certain conditions, capital gains arising from the sale of a vessel (“asset deal”) may be rolled-over by reinvesting the sales proceeds into new qualifying assets. This allows a maritime company to renew its fleet in a tax efficient manner and on a regular basis. For tax optimization reasons, two layers of Luxembourg companies are often used. In this scheme, instead of selling the underlying vessel, the top holding company (“HoldCo”) sells its subsidiary (“VesselCo”) which owns the vessel. By such a “share deal”, capital gains realized on the disposal of the shares of VesselCo may be fully exempted in Luxembourg. Finally, profits generated by a maritime company may be repatriated to its shareholders at favorable conditions due to both internal laws and due to the large list of Double Tax Treaties (i.e., Malaysia, Qatar, UAE, Indonesia,…) signed with Luxembourg. 19


Involvement of Luxembourg in Islamic finance Despite being a non-Muslim country, Luxembourg has a long-lasting experience in Islamic finance. First steps were already undertaken well before the maritime register initiative. In 1978, Luxembourg was the first western country that hosted an Islamic finance institu¬tion. In 1983, the first Sharia compliant insur¬ance company in Europe was established in Luxembourg and in 2002 Luxembourg was the first European stock exchange to list a Sukuk. In 2009, the Luxembourg Central Bank became the first non-Muslim organization member of the Islamic Financial Services Board (IFSB). In 2010, the Luxembourg Tax Authorities released a circular clarifying the tax treatment ap¬plicable to instruments of Islamic finance. As per Professor N. Khalid from the Maritime Institute of Malaysia, “in the last two decades or so, Sharia financing has grown in prominence in facilitating the growth in the shipping sector. Over the years, several high profile ship financing deals have been transacted using Sharia principles. The increasing popularity of Sharia financing in ship financing stands testimony to its viability as a worthy, if not more attractive, alternative to its conventional counterpart.

Sharia financing has already developed a decent track record for itself as an alternative means of raising financing in shipping. While much of the financing raised in shipping is still interestbased, there is huge potential for Sharia financing, with all its attractions and strengths, to grab a bigger slice of the ship financing pie.” The Islamic bank sets up an accredited maritime company in Luxembourg which buys a vessel, then leases it to its customer, the shipowner. The lessor is the sole owner of the vessel (he retains the legal title on the vessel) until the end of the lease, the customer makes a series of lease payments until the end of the term of the Ijara agreement and the customer can eventually exercise an option to buy the vessel (in case of an Ijara-wa-Iqtina). Under certain conditions, the lessor benefits from the favorable Luxembourg tax framework reserved to the accredited maritime companies and its profits can be repatriated via the Islamic bank at competitive conditions. The structure could be developed further by adding a Luxembourg Fund vehicle on the top in order to hold all accredited maritime companies. The Islamic bank would then be able to distribute Fund units to its clients and benefits from Luxembourg‟ confirmed reputation and expertise in the Funds industry. As such, Luxembourg is where nobody expected it to be, one of the largest inland maritime registries and one of the largest non-Muslim Islamic finance hubs in the world.

Cédric Raths Director cedric.raths@pandomus.lu 121, avenue de la Faïencerie L-1511 Luxembourg Phone (+352) 266 365 – 1 Fax (+352) 266 365 350

20


PANAMA SIGNS TIEA

But is the Country Moving in the Right Direction? By Ramses Owens Partner Mossfon Trust Corporation

There are a number of important matters currently facing Panama, but perhaps the most controversial is the recent signing of a tax information exchange agreement signed between Panama and the US on November 30th. While some are concerned this will harm Panama, there are some positive aspects to the consequences of the new agreement: 1. The management and control system of companies, trusts and foundations remains unchanged. 2. There will be no automatic exchange of information with the United States. 3. There will be no “fishing expeditions”: Any request for information will be framed with the greatest degree of specificity possible. Requests shall specify in writing, among other requirements, the identity of the taxpayer whose tax or criminal liability is at issue; the matter under the requesting Party‟s tax law with respect to which the information is sought; the name and address of

any person believed to be in possession or control of the information requested. Therefore there can be no “fishing expeditions”. 4. It will only refer to investigations involving taxpayers in the United States.

Besides the recent TIEA between Panama and the US, Panama has a handful of other issues with which to contend. The European Union Savings Tax Directives, where European countries can now decide to withhold a 35% savings tax (the tax will be increased to 35% in 2011) instead of a full exchange of tax information. The unyielding position of these jurisdictions is actually facilitating matters for Panama in negotiations with the Organization for Economic Co-Operation and Development (OECD) and the United States of America, the latter still having a huge influence in Panama. The United States has been placing pressure on financial services jurisdictions to sign Tax Information Exchange

21


Agreements (TIEAs). It is now a known fact that the United States will provide financing and eligibility to host foreign sales corporations to those jurisdictions that will be willing to conclude and sign such TIEAs and, as compensation, is committed to finding ways to develop a trade infrastructure with Latin America, where Panama is located. In fact, Panamanian Cabinet Ministers have recently visited the United States in October and November 2010, and personally asked USA authorities for the speedy negotiation of a Free Trade Agreement between the United States and Panama, and conversations concerning the new TIEA were also held. We must bear in mind that Panama, which has a population of just 3.4 million, celebrated its 107th year of independence on November 3, 2010 with a tested democracy, where international treaties need to be officially approved by a 71-congressmen Assembly (an independent Assembly formed by several lawyers). Panama‟s assembly must still approve the TIEA with the US. In Panama, lawyers, (who rarely vote in favor of international taxation agendas, especially considering Panama has been a zero tax jurisdiction for nondomestic businesses since 1917) monopolize corporate services. We have been assured that the TIEA with the United States, will never open Panama for “automated exchange of information”, but only for specific criminal tax cases, and only for American individuals directly involved, not for fishing expeditions to receive information on other citizenships. Nevertheless, Panama has been moving in the right direction to combat money laundering, drug trafficking and financing terrorism, which are the country‟s main outdated stereotypes. The open international financial system requires Panama to implement effective measures to combat any forms of crime that may diminish its

image, especially vis-à-vis clients seeking security. International institutions such as the OECD, FATF, the United States Financial Crimes Enforcement Network (FinCEN), the International Monetary Fund and its Financial Stability Forum (FSF), and regional institutions combating international financial crimes view the new laws as important steps forward for the improvement of Panama as a well-controlled financial center. Panama is nowadays one of the most controlled financial centers in the world. This is perhaps why, in terms of corporate services, it is one of the jurisdictions in the forefront: in 2009, Panama formed several tens of thousands of companies and several thousand Private Foundations, and 2010 figures have been on the rise. Panama is definitely moving in the right direction, being conservative and not accepting international taxation agendas, but at the same time remaining firm vis-à-vis money laundering, drug trafficking and terrorism. In general, Panama is performing strong in the eyes of the international community and is willing to participate in the exchange of information and transparency, provided that its Offshore Financial Center is not harmed. Rules of banking, trust and foundational confidentiality have not been changed, and territorial tax system remains in effect.

Ramses Owens Partner Mossfon Building, East 54th Street, P.O. Box 0832-0886 W.T.C. PANAMA, PANAMA Telephone: +507-205-5888; 206-9400 Fax: +507-263-9218; 263-7327 http://www.mossfon.com

22


"The Most secretive Financial Jurisdiction in the World" America the Beautiful Tax Haven By Hannah M. Terhune, Attorney Capital Management Services Group www.capitalmanagementservicesgroup.com hterhune@capitalmanagementservicesgroup.com

The United States of America is one of the largest tax and regulatory havens in the world. As long as one does not become an actual or deemed tax resident, America offers a compelling tax planning, asset protection and wealth management option. This fact results from an intentional policy decision pioneered by America in the 1980s to bootstrap then ailing American financial institutions. Americaâ€&#x;s lighthanded approach to taxation and regulation of non-residents opened the floodgates to inbound investment flow. The American tax treaty network frames its borders “soft sandsâ€? and lulls most foreign tax authorities into thinking that the US is a team player when it comes to global tax evasion. It is not! It has intentionally developed a solid home court advantage. American tax policy in this regard is so successful that it continues to draw fire from other governments.

American companies offer air of legitimacy unparalleled worldwide. More importantly, American companies offer an excellent opportunity for the location of global asset protection and wealth management holding companies. Why is this so? In America, there are 50 sovereign, autonomous states. Each state has jurisdiction over the way companies within their boundaries are formed. Statutes, policies and reporting requirements vary from state to state. Individuals can choose a variety of business structures when forming an American company. A company is an entity that exists independently of its shareholders meaning that its owners or investors and limits their liability for business debts and obligations while protecting personal assets. In America, the limited liability company (LLC) is a fairly new business form that is a 23


hybrid of the corporation and the partnership. Wyoming passed the first LLC statute in the 1970‟s and Florida followed suit in the early 1980‟s. By the mid-1990s, the remaining states enacted LLC statutes. Most states do not require ownership information at the time a company is formed. Delaware has among the lowest costs and least disclosure requirements of any of the 50 states. In fact, Delaware has been cited by the Tax Justice Network as "the most secretive financial jurisdiction in the world." Based on an analysis of sixty financial jurisdictions according to level of secrecy and cooperation with foreign tax authorities, Delaware ranks ahead of Luxembourg, Switzerland, the Cayman Islands, and the United Kingdom. Companies can be registered within hours and require a Delaware registered office and registered agent. The public file need only contain the name of the company, incorporation number, date of incorporation and details of the registered agent, and no records of the company's business need be kept in Delaware. Delaware LLCs pay a $250 annual tax and are otherwise tax free if no business activity is carried on in America. Florida sets the pace in the number of new business incorporations, leading the nation. Its

States only require basic information on company formation documents, such as the name of the company and the name and address of a contact where legal notices for the company should be sent. While states screen company filings for statutorily required information no state requires verification of the identities of incorporators or company officials. tax system, from a business perspective, is among the most advantageous in the US. Florida has one of the nation's most extensive banking communities, ranking fourth among states in terms of assets and is home to over 100 international banks most of which are statelicensed foreign banks. Florida is the safest tax haven of the Caribbean. Wyoming and Nevada are tax havens and allow bearer shares, which accord ownership of a company to the person who possesses the share certificate. America offers good banks, advanced infrastructure, a consistent legal system and a stable government, all these characteristics of the United States that are taken for granted. The United States does not tax non-residents on interest income or dividend income derived from the United States. There are zero capital gains on profits from investments for nonresidents. There is zero tax on income earned outside America as only “active” United States derived income is taxed.

Capital Management Services Group www.capitalmanagementservicesgroup.com Article by Hannah M. Terhune, Attorney; hterhune@capitalmanagementlaw.com

24


The UAE‟s banking system is invariably connected to the construction and real estate sectors and the recession has significantly exposed this. The property prices have decreased drastically and the income from mortgaged property has become inadequate to cover the borrowers‟ installments. The lenders are facing difficulties in securing a sizeable portion of their loans, secured by mortgages. The above scenario has exposed many banks to high levels of credit risk. Constant brainstorming in search of a rapid solution has brought myriad of ideas to the table. One of such suggestions is to permit the lenders to resort to foreclosure directly and without the intervention of courts. The ownership of a real property cannot vest in the mortgagee or the mortgagee cannot sell the property directly, except in compliance with the legal procedure. Consequently, it may not be possible for the lenders to take possession of, or to sell off by auction, the property of a defaulting borrower, except through the courts. Hence, the right to sell off the mortgaged assets of a defaulting borrower without the intervention of courts would provide a „feel safe‟ attitude to the lenders as it is relatively an easy mode of recovery. However, the question

whether the market is ready to embrace such a drastic transformation, assumes significance. Some thoughts are discussed herein. One of the most cardinal principles of justice in all mature legal systems is „audi alteram partem‟ („hear the other side‟). Generally, resolution of disputes through courts is regulated by defined procedures and is supervised by qualified people. A suit for money secured by mortgage is no exception. In litigation, the borrower would get a chance to defend the case by presenting his version and the court may intervene if the lender‟s case is not legal. If the lenders are empowered to acquire the property and sell them without the intervention of courts, this valuable right may become non-extinct. It is likely that influential lenders meddle with the whole process. The presence of a 3 tier system, comprising of the courts of first instance, appeal and cassation, with distinct powers is a prime advantage of the current system. The higher courts overview the functioning of the subordinate courts and are entitled to review their judgments. If the judgment of a lower court is erroneous, the borrower is entitled to approach the higher forums. However, if the lenders are given seamless powers by-passing the courts, this invaluable right would be lost.

Shifting Sands? Lenders' Right to Foreclosure; Is the UAE Ready for a Change? 25


The principles of procedural fairness and transparency would require that none should judge his own cause. The contemplated scenario where the lenders may be permitted to decide the legality of their own cause would hamper the impartiality and fairness of the judicial process. Any allegation of excesses could hamper the investors‟ confidence in the system. It is inappropriate to confine the role of banks to that of a sheer commercial institution/money lender. They owe certain responsibilities to the society and should follow the best practice standards. Be it assisting the developers in building up townships, or construction giants in laying down the infrastructure of the country, or lending a helping hand to the common men for purchasing a residence, in a way, they are substituting the wider role of the government. There is no federal legislation governing the ownership of real property and the rights of expatriates vary from emirate to emirate. Though Dubai keeps abreast of the needs of the real estate market and have somewhat responded with the necessary legal framework, the scenario is different in most of the other emirates.

Faizal P. Latheef Senior Lawyer faizal.latheef@habibalmulla.com

Further, many of the real estate investors are expatriates. They may not be familiar with the local laws and the federal/emirati distinctions that could have an impact on their investment. On that count too, it may be risky to embrace a sudden transformation. It may be premature to permit the lenders to resort to foreclosure without the intervention of courts. It is naïve to think that empowering lenders with unfettered powers would bring about productive solutions overnight. Any confusion or lack of transparency could harm the exemplary investment climate and the country‟s hard-earned reputation. Likewise, it is inapt to ignore the crisis faced by the banks pursuant to recession. The sustained growth of financial sector is key to the development of any nation and therefore, the government should continue to support the sector. Corrective measures must be taken to minimize the accumulation of non-performing assets, which could include, revising the lending norms, strict due diligence about borrowers‟ creditworthiness and enactment of a comprehensive federal law. Constitution of a judicial authority to deal with mortgage finance disputes in a time bound manner could also be looked in to.

Alia Tower, Office No. 042 Sheikh Khalifa Street, Abu Dhabi - UAE

26


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27


Immigrating to Canada from a Tax Perspective By Allan Garber Parker, Garber & Chesney LLP www.parkergarberchesney.com

Canada has consistently been on the various lists produced annually as one of the best countries to live in from the point of view of political stability, education, health care, religious and social freedoms but one area often overlooked are the business opportunities and the tax implications for immigrating to Canada and setting up business in Canada. Canada is made up of ten provinces and two territories covering almost 10 million square kilometres making it the second largest country in the world after Russia and larger than the 14 largest European countries put together but has a population of less than 34 million working out to less than 3.5 people per square kilometre. Immigrants to Canada have the ability to defer tax on the income from assets being brought into the country for a period of 60 months. This allows immigrants to set up what is commonly referred to as an “immigration trust” for the 60 month period and that all income earned by the trust during that period will not be taxed in Canada even if it is brought into the country. In addition, Canada is not interested in taxing assets brought into the country by immigrants so the tax regime allows immigrants to recognize a “step up” in the cost base of assets held by the immigrant at the time the enter the country. Therefore,

Canada will only tax the capital gain on the disposition of assets based on the appreciation of the asset for the period the taxpayer was resident in Canada. As most countries other than the United States, Canada does not tax citizenship but does tax based on residency or, in the case of a non-resident, only if the income is Canadian-source. In an effort to reduce double-taxation Canada has tax treaties in force with 87 countries, another 8 signed but not yet in force and another 14 under negotiation. Canadian personal tax rates depend on the province of residence and calculated on a progressive system of increasing rates at published levels of taxable income. The highest marginal rate ranges are as follows: Interest and regular income 39% to 48.22% Capital gains 19.5% to 25% Dividends 15.88% to 39.66% Only one half of capital gains are taxed and dividends from Canadian public companies and investment holdings are taxed at reduced rates. Canada has no estate or gift tax although there are special rules for gifts to spouses and minor children. Upon death

28


the deceased is deemed to have sold all assets at fair market value and the gain, if any, is taxed at capital gain rates. The estate or beneficiary would then have a cost base established by the deemed disposition. Assets left to a spouse or spousal trust are not taxed until the death of the surviving spouse. Canada treats common-law spouses and same-sex spouses equally with traditionally married spouses as same-sex marriages are legal in Canada.

estate at the highest values. Corporate tax rates for are very competitive and range as follows: Canadian small business 11.92% to 19% Manufacturing 20.5% to 34% General income 28% to 34%

Each province and territory has a probate fee regime which range from 0.16% to 1.5% of

As you can see Canada offers great potential for immigrants and business.

P G &C

Parker Garber & Chesney, LLP Chartered Accountants

Small business rates apply to the first $500,000 per year and manufacturing rates apply to amounts over $500,000.

1 West Pearce Street Suite 700 Richmond Hill, Ontario L4B 3K3 (T) 905-764-0404 (F) 905-764-0320 www.pgcllp.com

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29


The Party's Over!

An Australian Perspective on the New International Regime for Intellectual Property Protection By Andrew Hudson Hunt & Hunt

During negotiations regarding the proposed AntiCounterfeiting Trade Agreement ("ACTA") there were concerns that it would introduce additional reporting obligations on intermediaries such as freight forwarders, customs brokers and transport companies as well as additional costs for holding and destruction of goods alleged to be in breach of a party's intellectual property. Another concern was a view that the negotiations had been conducted with some level of secrecy and that certain interest groups may have been manipulating the outcomes to preserve their interests at the expense of others. Following an extensive series of negotiations involving 37 countries, it was announced on 16 November 2010 that negotiations had been concluded on the form of the ACTA. While Australia's adoption of the ACTA is subject to final legal review, further review by the Joint Standing Committee on Treaties and final Parliamentary endorsement, it seems fair to assume that Australia will enter into and support the ACTA.

For current purposes, there are a number of items which warrant consideration arising out of the adoption of the ACTA. The ACTA represents a set of commitments to protect intellectual property which are in excess of those which arise under the WTO TRIPS Agreement and those contained in other international agreements. The Department of Foreign Affairs and Trade ("DFAT�) did actively seek submissions and conducted consultation with industry during the course of ACTA negotiations. The CBFCA made a variety of submissions to DFAT and attended consultations specifically addressing the concerns of the freight forwarding and customs broking industries

and related transport providers to ensure that they did not face additional levels of regulation or cost. This gave grounds to DFAT to resist efforts by other countries to include additional provisions which would adversely affect the

30


rights of intermediaries, whether in Australia or elsewhere.

changes to intellectual elsewhere in the world.

According to press releases by DFAT and the Australian Government, the ACTA will not require any changes to Australian law and regulation. However, representatives of the Australian Government have indicated that there will be increased attention to export and transhipment goods in relation to intellectual property protection. The aim is to stop infringing goods entering the intended import market.

Knowledge of the changes elsewhere in the world will not, in itself, be enough. Those in industry need to ensure that they comply with those requirements in other countries. In addition, parties will need to review their terms and conditions to ensure that they impose obligations on customers to provide the information which will be required overseas for the reporting of the movement of goods. In addition, the terms and conditions will also need to augment existing indemnities to ensure that international air cargo operators are adequately protected against costs and liabilities which arise from enhanced intellectual property enforcement here and overseas.

Even though the ACTA does not require any changes to Australian regulatory environment, Australia still pursued the adoption of the ACTA on the grounds that it would act as an "aspirational" benchmark for other contracting countries to provide additional levels of intellectual property protection. Such additional levels of protection would benefit Australian exporters and holders of intellectual property rights. As a result, there are likely to be changes to intellectual property regulation in other contracting parties (including such countries as New Zealand and Canada), which will include additional means to protect intellectual property on goods as they pass through borders. As a result, those involved in international air cargo need to pay careful attention to

property

law

One recent outcome has been confirmation by the Australian Customs and Border Protection Service ("Customs") that those parties handling the carriage of goods the subject to action by the holders of intellectual property rights can now seek to recover costs associated with their involvement. For these purposes, parties should consider forwarding an invoice to Customs who can then seek to recover those costs from the holders of the intellectual property rights who instigated the action in the first instance.

Partner, Melbourne

T +61 3 8602 9231 ahudson@hunthunt.com.au www.hunthunt.com.au

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by Tamas Danku

THECOMPANYHOUSE www.companyhouse.hu

Although the tax haven status mentioned in the title is very much an exaggeration, perhaps, some readers will recall the “offshore� rules of Hungary, which enabled companies only operating abroad to pay a corporation tax of 3 to 5%, if their owners were foreign citizens or legal entities, but their management was made up of Hungarian citizens. In fact, there were only 500 to 600 companies that operated taking advantage of the above-mentioned rules, considered rather stringent at the time, but this opportunity has been terminated from 31 December 2005, thus the territory of Hungary shrank on the map of international tax planning. On the other hand, because of the relatively low rate of corporation tax, it remained a flexible tool for group financing of Hungarian companies, the utilization of intellectual products, performance of holding functions and asset management of securities listed on stock markets. By the end of 2009 foreign companies had not been required to deduct withholding tax from royalties, interest and dividends paid to foreign enterprises or private individuals, and dividends received had been tax exempt, therefore in Hungary it was possible to operate holding type companies inexpensively, since the costs of company establishment and maintenance is relatively law. In 2009 a minister of finance coming from a Big4 company

intended to close down the opportunities for cheap tax planning for non-Big4 consumer - and also responded to the hysteria raging against offshore companies at the time - and therefore tightened the CFC rules, and introduced a 30% withholding tax on interests, royalties, commissions and consulting fees paid to countries with no contract, but thanks to God, dividends were left out from the sanctions. In 2010 the Hungarian legislation modified the favorable rules under which a Hungarian company could also become once again the means of efficient tax planning. However, the new parliament approved of the implementation of changes by which Hungary can become the alternative of Cyprus or Malta in international tax planning. Since the new parliament abolished withholding tax and reduced the corporation tax rate to 10% up to a tax base of 500,000,000 HUF (app. 2.5 million USD), Hungarian limited liability companies and private companies limited by shares could once again become efficient elements of a holding, royalty or financing type structure, but trading activities can also be performed subject to a low tax burden – with appropriate planning.

32


Since dividends received by a Hungarian company (non-CFC) are tax exempt and no withholding tax applies to the paid dividends, either, it is possible to use a Hungarian enterprise as an intermediary holding, efficiently and at reasonable costs. The profits realized on the sale of so-called reported participations is not taxable, if the participation was at least 30% in the other enterprise, the holding retained the shares for at least 12 months, and reported the purch to the tax authority within 30 days following the acquisition. There is no restriction on the activities of subsidiaries, but if no report was made, the price gains become taxable. If trading activities are desired within or outside the EU, it is recommended to register the companies in a city where the local government does not levy business tax. The rate of local business tax is 2%, payable on the price margin of the enterprise. Owing to the high tax rate, companies registered in cities with business tax may have to pay an effective tax rate of not only 10%, but also significantly higher. On the other hand, there are quite a few villages and small towns where no local business tax is required and we can provide a registered office.

by proper planning this can be reduced or even eliminated totally. From 2011 the withholding tax of 30% with not apply to royalty disbursements, even if the royalty is paid to a country with no agreement with Hungary on the avoidance of double taxation. Since the paid interest is tax exempt, and received interests are subject to a tax rate of 10% up to about 2.5 million US dollars, furthermore, it is exempt from the local business tax of 2%, the Hungarian company can also be used as means of group financing. However, on the downside there is the rule of thincapitalization, under which interests paid on loans not borrowed from a financial institute and not exceeding three times the equity of the company cannot be deducted from the tax base. At present Hungary is party to 69 ratified agreements on the avoidance of double taxation, the most recent ones have been concluded with San Mario, Taiwan and Hong Kong, but we have also concluded such agreements with Russia, Japan, Uzbekhistan, Uruguay, Ukraine or the Philippines.

Hungarian companies may obtain VAT registration and the community tax number in a few hours after the documents were submitted to the court, the tax authority does not carry out a separate procedure for that. And from the day following the day of registration, the tax authority will immediately issue the Certificate of Residency, in English or German language.

Considering the political and social events and legislative changes of the recent 4 to 5 years, at times Hungary may seem a politically unstable and unpredictable country for a foreign investor. In reality, the political bouts have not had and hopefully will not have any impact on the lives of the majority of enterprises - in sharp contrast with the economic crisis, which affected almost every sector in Hungary as well.

Taking advantage of the wide DTT system, Hungarian enterprises can also be applied as excellent royalty holdings. Since royalty income is not subject to local business tax and the tax base may be reduced by 50% of the royalty (to the extent of the positive tax base), the maximum tax burden is 5% up to approximately an income of five million dollars, but

If we considered the country from the aspect of international tax planning, advantages include the advanced banking system, a not very aggressive tax office, EU membership, and that the country is free from the offshore or low-tax stigma - thus Hungary is recommended to be considered once again as a possible location of tax planning.

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.

By Athena P. Constantinou APC CONSTANTINOU & PARTNERS CPA LTD www.apccpa.eu info@apccpa.eu

Cyprus renders itself for the establishment of private investment funds which are also known as private International Collective Investment Schemes (ICIS) and are regulated by the Central Bank of Cyprus. The purpose of a private ICIS is the collective investment of funds injected in such schemes by unit-holders. A private ICIS can have up to 100 investors, also known as unit-holders. It provides an arrangement that enables a number of investors to add collectively their assets, have these professionally managed and invested by independent managers and, in case of successful investment, extract their profits in a tax efficient manner. The advantages of a private ICIS are flexibility, regulation, transparency, straightforward formation, clear legal framework and tax efficiency. These are discussed below: • Flexibility – Private ICIS can be established with limited and unlimited duration or with variable and fixed capital. They can also take the form of a limited company, trust or partnership, depending on the underlying circumstances applicable to each specific occasion. • Regulation – Private ICIS are fully regulated by the Central Bank of Cyprus. In order to issue an approval of the scheme, the supervising authority must be satisfied

that the directors, promoters, managers and trustees of the scheme are competent, honest and meet certain legislative requirements and, also, that the manager(s) or the general partner(s) or the trustee(s), as applicable, act independently. After formation, the Central Bank of Cyprus pursues a substantial monitoring role. • Transparency – Annual & half yearly reports must be prepared by the managers in relation to each ICIS. The former reports must contain financial statements, information on borrowing, portfolio information, report by trustees and report by auditors. • Straightforward formation – Formation can be effected within 6 weeks. • Tax Incentives - Cyprus private ICIS benefit from significant tax incentives. A private ICIS is treated identically to any other Cypriot entity and, accordingly, enjoys a 10% flat corporate income tax rate on the annual net profits earned worldwide. In addition, the following tax advantages are especially significant for an ICIS: - Exemption from tax on profits from sale of shares and other financial instruments. - Exemption from tax on foreign dividends received

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- No withholding on interest and dividend payments made from Cyprus abroad

Under current legislation a private investment scheme may take one of the following forms:

- No withholding tax on income repatriation

1. International Fixed Capital Company (IFCC) 2. International Variable Capital Company (IVCC) 3. International Unit Trust Scheme (IUTS) 4. International Investment Limited Partnership (IILP)

- A wide network of Double Tax Treaties is in place with more than 40 countries worldwide, securing tax incentives and encouraging the channeling of funds in other countries without or with reduced further taxation. Cyprus private ICIS are commonly used for the accumulation of funds and collective investments in countries such as Russia, Poland, Ukraine and India. Investments in the Balkans are equally favorably structured via Cyprus. These are usually combined by alternatives or more elaborate tax structures, such as a private ICIS operating as a subsidiary of funds established in other International jurisdictions (feeder funds). The development of ICIS law and practices in Cyprus has strengthened the position of Cyprus as a reputable and strong international financial center and has attracted considerable international investment. Up to October 2010, 59 private ICIS have been successfully registered and operate in Cyprus.

All four legal types of Schemes, can either be of limited or unlimited duration. It must be stressed that the Central Bank of Cyprus recognizes, for the time being, only Private Schemes i.e. Schemes which have up to 100 investors. Such Schemes must appoint a Custodian which must be a Cyprus Bank, unless specifically exempt by the Central Bank of Cyprus. It must also be noted that Private Schemes which do not have a physical presence in Cyprus must appoint a company to carry out the administration work of the Scheme. The said company must be based in Cyprus and be approved by the Central Bank of Cyprus.

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CANADA; A TAX-FRIENDLY DESTINATION FOR WEALTHY IMMIGRANTS By Michael I. Atlas, CA,CPA,TEP

Probably more than ever before, Canada is considered to be a highly desirable destination for wealthy immigrants. Many non-tax reasons can be cited, including Canada‟s:     

Healthy diverse economy. Natural resources that are the envy of the world, including abundant supplies of fresh water, oil and gas, potash, timber and gold. Banking system that is considered the healthiest in the world. Stable democratic government. Highly multi-cultural society that welcomes people of all backgrounds.

However, although many people do not realize it, Canada‟s tax system is also particularly favourable to wealthy immigrants, for many reasons, including those cited below:

No estate or gift taxes-Canada has not had estate or gift taxes for many years. Accordingly, wealth may be transferred between generations without any taxes. The only time that taxes on transferring assets arises is where such assets have unrealized capital gains. In certain cases, relatively modest probate fees may apply with respect to assets transferred under a will; however, with proper planning, this can usually be avoided. Stepped-up cost base of appreciated assets-As a general rule, an immigrant‟s cost base for Canadian tax purposes of assets owned at the time of relocating to Canada is equal to the fair market value at that time. Accordingly, gains accrued prior to coming to Canada will never be subject to Canadian tax. Five-year tax holiday on offshore income-Through the use of a so-called “immigrant trust”, it is possible to avoid Canadian taxation on income and capital

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gains that are earned and accrued on foreignassets during the first five years of residency. Permanent exemption from taxation of income in certain offshore trusts-If assets are held in an offshore trust to which no Canadian resident has ever made a contribution, it is possible for a Canadian beneficiary to be totally exempt from taxation on income earned on such assets ad infinitum. This can be the case even if such income is distributed to the beneficiary, as long as it is not paid or payable in the same year that it is earned. This is particularly relevant in connection with both lifetime gifts and inheritances from relatives who remain overseas. Ability to avoid taxation on income from overseas businesses-In cases where the immigrant maintains an interest in a business carried on outside of Canada, it is possible to avoid Canadian tax on the earnings from that business, even if distributed as dividends, via the use of a holding corporation formed either in Canada or offshore. Low domestic corporate tax rates-for immigrants who decide to form and operate a business in Canada, Canada offers a very favourable corporate tax regime. The first $500,000 of profits each year are subject to very low corporate tax rates (generally around 15%); income above that is subject to tax rates that have been declining over the years-in the province of Ontario this rate will be as low as 25% starting in 2013. Exemption on up to $750,000 of capital gains-Canada offers a complete exemption from capital gains tax on gains derived from the sale of shares of qualifying Canadian private corporations that carry-on an active business in Canada. The exempt gain is limited to $750,000 per person, but can be multiplied by splitting ownership amongst several family members

Unlimited exemption on capital gains on gains on shares in name of overseas family-as a result of changes to Canadian tax laws that went into effect in March of 2010, Canada no longer taxes non-residents on capital gains from the sale of shares of private Canadian corporations, except in very limited circumstances. Generally, Canadian tax will not apply unless more than 50% of the value of such shares is attributable to Canadian real estate, resource properties, or timber limits. Accordingly, if ownership of Canadian corporations that are operated by immigrants to Canada is placed in the name of non-resident family members, tax on capital gains may be avoided. However, because of the complexity of Canadaâ€&#x;s tax system, prospective immigrants should always seek expert Canadian tax advice prior to finalizing their move to Canada.

Michael I. Atlas Chartered Accountant 120 Adelaide Street West Suite 2500 Toronto, Ontario M5H 1T1

Telephone: (416) 860-9175 Fax: (416) 860-9189 E-Mail: matlas@TaxCA.com Web Site: www.TaxCA.com

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Ideal for Life

Paragon, in collaboration with other associated International Financial Services Providers, presently offers ; two competitive products that are tailored to the investment and estate planning needs of high net-worth individuals world-wide. Paragon aims is to provide insurance services that are carefully tailored in each case to the individual client’s requirements.

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CAN YOU KEEP A SECRET?

Bank Secrecy – A Thing of The Past? By Alexander A. Bove, Jr. Though the universe may be expanding, our own world could not be shrinking much faster, especially our financial world. Not that long ago, most jurisdictions carefully kept all information relating to financial activities strictly private, By Alexander A. Bove Jr. reflecting the well-publicized theme of Las Vegas, Nevada: “What happens here, stays here.” Now, however, a more appropriate jurisdictional tagline would seem to be, “What happens here, stays here, provided you are not subject to a Tax Information Exchange Treaty (TIEA), Mutual Legal Assistance Treaty (MLAT), or other disclosure agreement.”

Virtually all of the major jurisdictions and most of the Caribbean jurisdictions have entered into one or more disclosure agreements, as well as agreements to comply with OECD and FATF regulations, providing for increased financial transparency, exchange of information among jurisdictions, and a heightened sensitivity to money-laundering activities. While at one time a person could actually walk into a Swiss (or other city) bank with an attaché case full of cash and easily open an account, today that same person would, if he were lucky, simply be turned away, or in the more serious case, be reported to the authorities to respond to a money-laundering enquiry. In other words, bank or financial secrecy is becoming, if it has not already become, a thing of the past. Is this a bad trend? What is it about bank “secrecy” that is so important, anyway? In fact, there are typically only two reasons for seeking true bank secrecy. One would be to ensure that the existence of the account would not be accessible to creditors of the account holder (perhaps even including a spouse), and the second would be to prevent the government of the account holder‟s domicile from discovering the account, including interest or profits thereon.

As for the first reason, this has not changed and probably will not change, because none of the information and exchange agreements offers civil creditors any more access to financial accounts than they had before. Thus, any argument that the information exchange movement undermines the protective nature of accounts from civil creditor‟s is baseless. All of the inter-governmental agreements are primarily concerned with illegal moneylaundering activities, including drug dealing, terrorist activities, and the like. Only recently has tax evasion been brought into the mix, amplified by the recent UBS scandal. Though tax evasion is a felony in the United States, it has been treated as only a misdemeanor in Switzerland, but no matter how it is regarded or punished, there is no dispute that it is against the interests of a healthy society, as are the other unsavory activities. Accordingly, the second reason for objecting to the release of information on financial accounts is by its own definition immoral and a virtual admission of an intention to violate the laws of the account holder‟s own jurisdiction, with the possible exception of those few jurisdictions which impose no tax on assets or income. So, what then would be the objection to a government‟s access to the account information?

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And what is it, we might ask, that makes a person who more or less wants for nothing, take the risk of going to prison for the savings of a relatively few dollars? Is it some natural resentment to being taxed? That is certainly not new. An archaeological discovery of a 7,000 year old Sumerian tablet contained a saying declaring, “You can have a lord, you can have a king, but the man to fear is the tax collector.” And in the medieval times, when families were taxed on the number of animals they kept, elaborate schemes were devised to hide most of the animals when the tax collector visited, in order to be charged a lower tax. It is said that clever tax collectors would simply follow the trail of droppings to locate the hidden animals. Despite the reasons we may not want to pay taxes, it is rapidly becoming more and more difficult for us to hide the animals, and, as noted, the risk is a ridiculous one to take. As a result, some people are choosing to simply abandon their high tax jurisdictions in favor of a low tax one. The problem is that it is no simple matter to obtain permanent residence in any of the major jurisdictions, but why would we, since they all have their own significant taxes (and most, I might add, are higher than the U.S.). There are, of course, a handful of small, low tax

jurisdictions with economic stability and all of the comforts of home, such as Monaco and Liechtenstein, but they do not have an “opendoor” policy and they actually discourage new residents who are simply looking for a convenient place to nest. That leaves some of the more receptive, low-tax jurisdictions, such as many of the Caribbean islands, but even they have their residency requirements. Sometimes, however, these requirements can be resolved by payment of an entrance fee. Citizenship can actually be purchased, for example, in St. Kitts and Nevis for a lump sum payment of $35,000 for a single applicant and $15,000 for each dependent. In addition, the new resident must invest at least $250,000 in designated real estate. Certainly there must be some jurisdictions somewhere that offer no taxes of any kind, no entrance or exit fees, and complete secrecy, but with most, if not all the comforts and assistance we look for in living a reasonably satisfying lifestyle. Actually, I have heard that there is a small group of islands about 1,000 miles off the coast of Madagascar that just might qualify. All you need to do is to become (and remain) friendly with the chief of your chosen island. Copyright © 2011 by Alexander A. Bove, Jr.

Alexander A. Bove, Jr. Bove & Langa, P.C. Ten Tremont Street Suite 600 Boston, MA 02108 Phone: 617.720.6040 Fax: 617.720.1919 Email: bove@bovelanga.com Website: www.bovelanga.com

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Rough Seas Ahead? Shipping Trends in 2011 & Beyond By Denese Enriquez

The business environment of late is defined by more frequent changes, more noticeable cycles and more violent turbulences. By now, the adage “we‟re all in the same boat” is commonplace in most business discussions. Those in the shipping industry share similar sentiments because of what lies ahead. Shipping covers a range of activities, right from ship building to cruise lines, ferries, cargo vessels and terminal operation. The global economic recession had a sharp impact on the shipping industry, with a reported 4.5% decline in seaborne trade, amounting to 7.94 billion tons in 2009 (UNCTAD, Review of Maritime Transport 2010). This had exacerbated the many challenges the liner industry faces in 2011 and beyond. These challenges include piracy, regulations, environmental issues and financing. Financing constraints and high operating costs have posted serious threats to long term sustainability and viability. Vessel operating costs are expected to increase by 3.5% in 2011, with the most noted increases being in crew costs (3%), lubricants (2.7%), repairs & maintenance (2.6%), insurance (2.4%) and management fees (1.8%) [Moore Stephens – Future Operating Costs Report, Nov 2010]. These increases may be attributed to

piracy‟s undeniable impact on shipping, causing the need for extra insurance and additional distance steamed to avoid piracy areas. Piracy‟s impact on shipping can also be understood from the fact that Lloyd‟s has named a Somali pirate as one of the top five influential people in shipping. In terms of financing, the industry is estimated to need an additional $262.5bn (PetroFin) over the next four years in new financing. Banks that have traditionally financed shipping are now either exiting the industry or offering more stringent terms. As a result, alternative financing schemes such as the Norwegian KS, German KG, Islamic Financing and IPOs have become popular. Regulations such as the new EU Customs System will add new dimensions to port and shipping logistics. With this new regulation, all traders involved in customs transactions and international logistics will now have to provide EU customs authorities with security data electronically, prior to bringing goods into, or out of, the EU. The European Commission is also developing a maritime information sharing network which is likely to be in place by 2014. The Common Information Sharing Environment (CISE) will allow tax, environmental monitoring, and general law enforcement authorities to exchange maritime surveillance data on all shipping sectors. This integrated approach to the management and

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governance of the oceans, seas and coast will usher in a sectors. This integrated approach to the management and governance of the oceans, seas and coast will usher in a new era where all ship-owners will have to implement adequate legal structures and compliance measures in all aspects of their shipping operations.

new era where all ship-owners will have to implement registration inspections required as requisite for provisional license. These and many other features have put Belize on the forefront of open registries with regards to maritime legislation and foster its appeal as the “friendly flag of quality”.

Though the challenges are many, there is good news. Many governments like the UK, Germany, India and USA have introduced tonnage tax regimes and new fiscal measures to strengthen their shipping sector. The Canadian government has imposed a 25% tariff waiver on all cargo vessel and tanker imports, as well as ferries longer than 129 meters. This will save ship-owners CAD 25m per year over the next decade. Additionally, the tonnage tax regimes currently provide relatively lax vessel ownership and tax advantages for ship-owners and have since attracted half the world‟s tonnage to their registries. The Belize Registry, for example, offers innovative provisions in mortgages, salvage, limitation of liability of ship owners and maritime liens. Under the recently amended Merchant Ships (Registration) Law, the Belize mortgage now ranks fourth after court costs, salvage and crew wages; and its provisions can apply to vessels under construction. The Belize Registry also allows provisional, preliminary and permanent registration of ships and mortgages, with no pre-

Rounding off the top shipping trends is environmental issues. Whether it‟s Richard Branson admonishing the industry to clean up its act or shipping-related companies forming collaborative initiatives to “green” the industry, it is clear that shipping is armed with a new environmental consciousness. IMO is introducing a rule in 2015 for stricter sulphur emissions and this is expected to increase the cost pressures. Some ports like Rotterdam, Amsterdam and Antwerp have implemented systems which reward environmentally-friendly ocean-going vessels through discount on port/docking dues. Companies are also seeking more fuel efficient ship designs, emissions reduction technology and cleaner types of fuel as viable means to promote the “green” transformation. Trends and challenges have no doubt created uncertainty in most industries of late. Yet history has proven that the shipping industry is buoyant and will remain resilient for years to come.

Gateway to the World CIL Hong Kong International tax planning | Global wealth management | Offshore companies | 42 Trusts | Insurance | Banking Suite 1001-2, Albion Plaza, 2-6 Granville Road, Tsimshatsui, Kowloon, Hong Kong Email: services@cilhk.hk Website: www.cititrust.biz


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Call For Authors and Writers! We are currently accepting submissions of articles for our next quarterly issue. Article length: Between 500 and 750 words. Articles longer than 750 words will NOT be accepted. We do NOT split articles and run them over several issues. Submission deadline: 30 days prior to publishing, unless otherwise indicated. Preferred format: Microsoft Word Editing: We edit for spelling and punctuation only. Article exhibiting serious grammatical errors will NOT be used. Please contact: magazine@cititrustintl.biz

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Citittrust EDGE Magazine Quarter 1 - 2011  
Citittrust EDGE Magazine Quarter 1 - 2011  

Inside this Issue It's Not Just Big Brother Watching You! The Probate Show; Top 10 Causes of Estate Litigation Cayman Islands? Segregated Po...

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