The Austrian Holding Company

Taxation: The Trust

Madeira: recent legislative changes

Rak Free Trade Zone

THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLANDOctober // November // December 2009

Grow with us!

Grow with us!EDITORIAL

It is with great pleasure that I present the quarterly issue of Facts & Figures, produced by De Vittori of Switzerland.

In this edition, we discuss the Ras Al Khaimah Free Trade Zone (Rak FTZ); profit based for international commercial deve-lopments and one of the fastest growing and most cost-effective free trade zones in the UAE. Also, an article written by Giovanna Abate, a colleague from our Lugano branch, illustrates applications and benefits of the Swiss Trust. Finally, an informative article details VAT legislation and explains the changes that will take place on January 1st 2010 regarding the collection of VAT.

In this issue, we bring back news of the economic situation from Switzerland and around the world and we proudly announce a new addition to our group: On January 11th 2010, we will open our Miami office. Our second office in the United States that will work side by side with our office in the Empire Sta-te Building in New York. This new addition will allow us to merge into the Central and South American markets.

In conclusion, we would like to remind you, our loyal readers, that we await your contributions. If you have any suggestions or proposals, please do not hesita-te to write to us. This can help us produce a more interesting and varied magazine.

Alessandro PumiliaEditorial Director

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De Vittori of Switzerland

We’re your right-hand man… and often also your left!

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TaxationThe Trust

EconomyThe Austrian Holding Company

MadeiraRecent legislative changes

UAERak Free Trade Zone

News from SwitzerlandSwitzerland removed from OECD grey list

News from the worldBusiness Community Urges UK Corporate Tax Review

VAT Changes to vat legislation in the EU

inside this issue

De Vittori of Switzerland

Swiss Tax Treatment of Trusts

On 1st July 2007, following approval by the Federal Assembly on 20th December 2006 (RU 2007 2849) and ratification

with the Instrument deposited on 26 April 2007, the Hague Convention on the Law Applicable to Trusts and on their

Recognition of 1985 (RS 0.221.371) came into effect in Switzerland.

With its Circular No. 30 of 22 August 2007, the Swiss Fiscal Conference then outlined the rules for the taxation applica-

ble to this legal institution.

But what exactly is a trust and what are the characteristics that make it particularly appropriate for estate planning

and asset protection purposes?

Art. 2 of the Hague Convention reads as follows: “the term trust refers to the legal relationships created – inter vivos

or on death [mortis causa] – by a person, the settlor, when assets have been placed under the control of a trustee

for the benefit of a beneficiary or for a specified purpose”. In other words, this means that the legal relationship arises

when the person creating it (settlor) transfers, on the basis of a constituent deed (trust deed), certain assets to one or

more persons (trustees) with the specific duty of administering these assets for the benefit of the beneficiaries or for a

specified purpose.

According to Art. 2 of the Hague Convention, the trust also has the following characteristics:- the trust assets constitute a separate fund and are not a part of the trustee’s own estate;

- title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;

- the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of

the assets in accordance with the terms of the trust and the special duties imposed upon him by law.

The transferred assets thus do not become a part of the trustee’s own estate, and he/she has only the “formal

ownership” (title in law) thereof, but exercises de facto powers deriving from the right of ownership. The institution of

the trust makes it possible to divide the ownership of an asset between two sets of owners: the beneficiaries, with be-

neficiary ownership and an equitable estate (title in equity) and the trustees, with trust-ownership and a legal estate

(title in law), which allows them to use the assets only for the exclusive benefit of the beneficiaries.

Fundamentals

7.

SettlorThe person who creates a trust

inter vivos or mortis causa.

ProtectorA natural or legal person that

the settlor may name to oversee the correct

performance of the duties of the trustee.

Letter of WishesA non-binding declaration of intent with which the settlor communicates his will and dispositions to the trustee.

Trust DeedA binding document setting forth the instructions for the administration and preservation

of the trust assets for the benefit of the beneficiaries.

BeneficiaryThe person who enjoys the benefits of the trust. The settlor may name as beneficiary

him/herself or any other natural or legal person. Title in equity to the trust assets stands in the name of the beneficiary, who is the beneficial owner thereof.

TrusteeThe natural person [individual] or legal person [corporate body] to whom or to which certain assets are transferred for administration

and management in accordance with the instructions given by the settlor. Title in law to the trust assets stands in the name of the

trustee.

Tax-related Considerations

The Hague Convention does not

affect the internal national system of

the contracting States, which there-

fore establish autonomously the tax

treatment of trusts.

As far as Switzerland is concerned,

Circular No. 30 states that, on the

basis of the rules of Swiss tax law, no

provision exists under which the trust

may be subject to taxation as an

autonomous entity. As the trust does

not have legal capacity, it cannot

be the owner of an estate (Circular

No. 30 of 22 August 2007; Art. 2.1 and

4.1) . The question must therefore be

considered in relation to how the

trustee, the protector, the settlor and

the beneficiary are subject to taxa-

tion. The trustee and the protector,

as such, are not subject to taxation.

The trustee has merely the power of

administration of the assets in the

exclusive interest of the beneficiari-

es, but he/she may not dispose fully

thereof. The protector has no rights

to the assets of the trust and merely

performs a supervisory role in relation

to the performance of the duties

established by the settlor. For the

trustee and the protector what must

be recorded and declared to the

Tax Administration are the fees and

remunerations that they receive.

The assets and proceeds of the trust

are attributed either to the settlor or

to the beneficiary, who are therefore

subject to taxation. However, for a

correct interpretation of their tax

liabilities, it is necessary to examine

the economic consequences of the

different types of trust that can be

constituted. For tax treatment purpo-

ses, it is in fact decisive for defining

whether the settlor divests himself

definitively of the assets transferred

to the trust or whether he may still

have access to them in the future,

regardless of the denomination of

the trust.

The main types of trust are listed

below together with their tax-related

implications.

- Revocable trustThis kind of trust allows the settlor

to reserve for him/herself the right

to revoke the trust and to recover

the ownership of the transferred

assets, thus not divesting him/herself

thereof in a substantial and definitive

manner. The trust is considered to

be transparent: its constitution does

not entail the impoverishment of the

estate of one owner contextually

with the enrichment of the estate of

another. Consequently, the assets

must continue to be declared and

are subject to taxation in the name

of the settlor.

As far as distributions to the bene-

ficiaries are concerned, we are

confronted with a gift, not subject to

income tax, but to gift tax, at rates

that are fixed at cantonal level.

On liquidation, if the assets return

to the settlor, no taxes are levied; if

instead the assets are distributed to

the beneficiaries, we are confron-

ted with a gift, to which the above

observations apply.

- Irrevocable fixed interest trustThe settlor divests himself definitely

of the assets transferred to the trust

and may not reacquire the owner-

ship thereof. The beneficiary and

his/her rights are stated in the deed

constituting the trust, excluding

discretionary powers for the trustee

in the choice of the beneficiaries of

the assets and income of the trust.

The beneficiary may therefore be

compared to a usufructuary, hence

the attribution to the beneficiary

for tax purposes of the assets and

proceeds of the trust.

The act of constitution of the trust

is considered to be a gift on the

part of the settlor to the beneficia-

ry, equal to the capital of the trust,

subject to cantonal tax.

When distributions are made, the

proceeds received by the benefi-

ciary definitively and those on which

he/she has acquired a legal claim

are subject to the tax on wealth,

which is levied on the part of the

trust assets received. If this part

cannot be determined, the income

may be capitalized. The distribution

of capital gains and the contribu-

ted capital of the trust are instead

exempt from taxation. The trust

capital may be distributed only after

TRUST

the distribution of all the incomes

therefrom.

For liquidation, see the notes on

distributions.

- Irrevocable discretionary trustThe settlor identifies potential bene-

ficiaries, leaving to the trustee the

possibility of choosing from among

them those who may claim the be-

nefit. Therefore, the beneficiaries do

not have immediately any right to

the assets, but only the expectation

of a right, and are thus not taxed on

the wealth of the assets of the trust.

The tax treatment of the trust varies

depending upon whether the settlor

is domiciled in Switzerland or not at

the time when the trust is constitu-

ted. In the first case, the assets and

the income from wealth continue to

be attributed to the settlor, and the

treatment is therefore the same as

for a revocable trust.

If instead the settlor is domiciled

abroad, the assets of the trust may

not be attributed either to the settlor

or to the beneficiaries and the act

of constitution of the trust and of

transfer of the assets to the trust is

considered to be a gift on the part

of the settlor equal to the amount of

the wealth of the trust.

The beneficiaries are subject to tax

only when their right to obtain the

distribution of the incomes deriving

from the trust comes into existence.

The long-lasting structure of the trust

means that the contributed capital

may be distributed only after the

distribution of the proceeds. If the

wealth of the trust is not attributed

to the beneficiaries for tax purposes,

the distribution may not be exem-

pted wholly or in part from taxation

as private profit of the beneficiaries.

For liquidation, see the notes on

distributions.

With regard to the refund of withhol-ding tax, Circular No. 30 establishes that the trust may not apply for such refund, as it has no legal personality. The following options therefore exist:

- in the case of a revocable trust, the

right to apply for the refund of the

withholding tax pertains to the settlor

if the trust assets and wealth are

taxable in his name;

- in the case of an irrevocable fixed

trust the right to apply for the refund

of the withholding tax may pertain

to the beneficiary if the latter has a

right of enjoyment and is domiciled

in Switzerland;

- in the case of an irrevocable

discretionary trust, there is no way

to obtain a refund. However, if the

settlor is domiciled in Switzerland at

the time when the trust is constituted

and there has been no impoveri-

shment of the estate of one owner

contextually with the enrichment of

the estate of another, the income

of the trust is considered to pertain

to the trustee, and the rules for the

revocable trust are applicable to

the refund.

As regards Conventions against double taxation, their provisions are applicable in the case that the settlor or the beneficiaries are resident in Switzerland and that the income is attributable to them. In the case that Switzerland is the State of origin, if the application for refund of the withholding tax is made by a trust of another State, the Swiss Tax Administration checks whether this trust may be considered a “resident person” for tax purposes in virtue of the applicable foreign legislation and whether it is subject to taxa-tion. If the answer is affirmative, the foreign trust may benefit from the provisions of the Conventions.

Source:

Giovanna Abate (Fdv Group)

If you found this subject interesting

and would like to go into the matter

in greater depth, please do not

hesitate to contact us:

info@devittori.com

TRUST

9.

De Vittori of Switzerland

The Austrian Holding Company

Austria

At the gateway between West and

East, Austria is a perfect hub for ma-

king tax efficiently investments into

foreign countries. Every Austrian cor-

porate entity like a GmbH (company

with limited liability) or AG (stock

corporation) as well as permanent

establishments of European corpora-

te entities in Austria can benefit from

the Austrian Holding Tax Regime.

Domestic HoldingIntercompany dividends paid

between two Austrian companies

are tax exempt in the hands of the

receiving Austrian company. Capital

gains arising from the sale of shares

in an Austrian corporation held by

another Austrian corporation are

taxable and are due to the stan-

dard flat corporate tax of 25 %. This

percentage is also applicable to any

other income achieved by an Au-

strian GmbH, unless tax exemptions

according to the Austrian Income

Tax Act are granted. Furthermore

almost all tax treaties foresee that in-

come resulting from foreign perma-

nent establishments are tax exempt

in Austria. Nevertheless foreign losses

can be deducted from the domestic

Austrian tax base.

Foreign HoldingsProvided that the Austrian company

holds at least 10 % of the shares of

a foreign corporate entity, which is

comparable to an Austrian GmbH,

for at least one year, any dividends

received by the Austrian company

and any capital gains resulting

from the sale of the shares of the

foreign corporation are tax exempt

in Austria.

Austria does not apply any CFC-

legislation or thin capitalization rules

or debt-equityratios so that Austrian

corporations can leverage the

acquisition of foreign shareholdings.

Interest is fully tax deductible and

can compensate any other income

which is achieved by the Austrian

corporation.

shareholdings of less than 10 % in

other corporations

Dividends are tax exempt if resulting

from rental income.

Dividends are tax exempt even if

the foreign subsidiary does not pay

taxes.

Any other income achieved by the

foreign subsidiary is seen as active

income (even if no tax is levied lo-

cally) and therefore leads to tax-free

dividends and tax-free capital gains

for the Austrian parent company.

Also rental income, achieved by

foreign subsidiaries is seen as active

income. Furthermore please keep in

mind, that if the foreign subsidiary is

achieving dividend income and is

paying this income as dividends to

the Austrian company again this is

active income. When the foreign

subsidiary acts as a “management

holding” this income achieved is

seen as active income by the

Austrian tax authorities. A “manage-

ment holding” is a company which

manages shareholdings for the

Austrian company and is controlling

these shareholdings.

Hybrid Structures It is also possible to use Austrian

corporations for hybrid structures.

The tax exemption for income does

not only include dividends and

capital gains but also any type of

profit related income an Austrian

corporation achieves either from

domestic source or foreign source. If

an Austrian company does not have

a direct shareholding in a foreign

entity but grants a loan to that fo-

reign entity, the interest paid to the

Austrian company is tax exempt and

seen as a kind of dividend income,

provided that the interest is profit

related and the Austrian company is

No withholding tax on interest paid to foreign lenders.

The Austrian “Check-The-Box” System As mentioned above the general

rule in Austria is, that foreign source

dividends and capital gains resulting

from the sale of foreign participa-

tions are tax exempt in the hands of

the receiving Austrian corporation.

Nevertheless the Austrian corpora-

tion can make capital gains taxable

if it wishes to do so. The Austrian

company just has to “check-the-

box” in its tax return and can select

for which participation any capital

gains resulting from a sale should

be taxable. This does not have any

impact on the dividends received,

they stay tax exempt. This might be

a helpful tool for those shareholders,

which can use an underlying tax

credit in their home country.

The Foreign Subsidiary As already mentioned we do not

know any CFC-legislation or similar

regulations. Nevertheless it is impor-

tant to know how the income achie-

ved by the foreign subsidiary has

impact on the tax situation in Austria.

Provided that the Austrian corpora-

tion holds shares in a foreign entity

which achieves passive income the

sale of such a participation and

the dividends, paid to the Austrian

company, will be taxable. The mere

holding of such corporations does

not have any tax impact.

The Austrian tax authorities categori-

ze income as passive if the following

income is achieved by the foreign

subsidiary and, at the same time, the

overall tax burden is not more than

15 % of the foreign country:

- Interest income

- Royalty income

- Capital gains achieved by selling

KEY FEATURES OF THE AUSTRIAN HOLDING REGIME

11.

entitled to participate in the liquida-

tion proceeds of the foreign entity.

That does not mean, that there

will be liquidation proceeds, the

corporation just has to have the right

to participate in. Even if the foreign

entity is deducting these payments,

made to the Austrian corporation,

from its own tax base these pay-

ments stay tax-free in the hands of

the Austrian company.

Summary Of The Austria Holding System

- Domestic dividends tax exempt

- Domestic capital gains taxable (25 %)

- Foreign dividends

tax exempt (10 % holding for at

least one year)

- Foreign capital gains

tax exempt (10 % holding for at

least one year)

NO TAX TREATY REQUIRED Dividends from foreign corporations

and capital gains resulting from the

sale of shares in such foreign corpo-

rations are tax exempt, regardless

whether a treaty with this country is

existing or not.

NO CFC LEGISLATION Only dividends received from foreign

companies earning interest income

or royalties are taxable as are ca-

pital gains resulting from the sale of

shares in such companies. The mere

holding of shares in such companies

does not trigger taxes.

Any other dividends or capital gains,

even from off-shore companies, are

tax exempt.

NO DEBT-EQUITY RULESInterest fully deductible, even if ef-

fectively connected with tax exempt

income. NO withholding tax on

interest paid to foreign lenders (e.g.

off-shore company).

NOTIONAL INTEREST DEDUCTION For a foreign shareholder’s loan

notional interest can be deducted

for tax purposes thereby reducing

the tax base.

LOSSES OF FOREIGN SUBSIDIARIES TAX DEDUCTIBLE IN AUSTRIA (GROUP TAXATION) Losses of a foreign

subsidiary can be set off from the

tax base of the Austrian parent

company Condition: shareholding

of more than 50 % in the foreign

subsidiary.

“CHECK THE BOX” SYSTEM Austrian parent companies can

decide for each holding in a foreign

subsidiary whether capital gains

resulting from the sale of such sha-

reholdings shall be tax exempt (as

foreseen by law) or be taxable.

DUAL RESIDENT COMPANIES CAN USE THE AUSTRIAN HOLDING SYSTEM

Conclusion Taking into consideration the far re-

aching tax treaty network of Austria,

which is constantly extended, and

the very liberal tax climate in Austria

there is no doubt about, that Austria

should be considered to be one of

the first choices when planning a

holding company. Not only for this

purpose but also for other internatio-

nal business activities Austria and its

national as well as international tax

law serves as a perfect, stable and

reliable base for economic activities.

SourceErich Baier, MBA, LL.M.

Schwarzenbergstraße 1-3/14a

1010 Vienna, Austria

baier@austrian-taxes.com

“there is no doubt about, that Austria should be considered to be one of the first choices when planning a holding company”

13.

De Vittori of Switzerland

We work side by side with you to solve every strategic operating need

The Decree Law 185/2009, dated

12th of August, reflects the Directi-

ve 2006/46/CE from the European

Parliament and the Council dated

14th of June, adopting measures to

simplify mergers and the split-up regi-

me, which may be essential not only

to the restructure of companies and

to an increase of its competitiveness,

reducing the respective direct admi-

nistrative costs, but also determines

that several procedures should be

undertaken electronically and that

the time for the reply of administrati-

ve entities would be reduced.

Decree Law 186/2009 – Changes to the rules of location of services for VAT purposes

The Decree Law 186/2009, dated

12th of August, reflects the Directives

2008/8/CE (its article number 2) and

2008/9/CE dated 12th of Februa-

ry 2008, as well as the Directive

2008/117/CE dated 16th December

2008, all from the Council, related to

the VAT common system, changing

essentially the rules of location of the

services provided, namely transna-

tional ones. With this Decree Law,

a simplified reimbursement system

for taxpayers who support VAT in

another EU member States, is cre-

ated. Therefore the reimbursement

request is made electronically at

the State where it is established and

must be decided within 4 months,

as long as there are no additional

information requests. Other measu-

res of administrative simplification

where also put in place, for example

the suppression of the obligation to

deliver a summary annual statement

on distance sales.

Administrative Rule 972/2009 – Regulation on issuing Rulings

The Administrative Rule 972/2009,

dated 31st August, regulates the

terms on how the request for a

Ruling from the Tax Administration

should be done, reducing the time

for the Tax Administration to decide

and establishing the procedures to

follow on presenting such requests.

It should be noted that the Tax Ad-

ministration has now 90 days, from

the date of the request, to notify its

decision, a period which can be

reduced to 60 days if the request

is submitted with an urgent nature.

Rulings in Madeira can be obtained

in a fairly quick time, not taking,

in some cases, longer than 2 to 3

weeks.

Source

http://www.newmadeira.com.

MADEIRA: recent legislative changes

15.

De Vittori of Switzerland

Rak Free Trade Zone

De Vittori of Switzerland

Rak Free Trade ZoneEstablished in 2000, Ras Al Khaimah

Free Trade Zone (RAK FTZ) is one of

the fastest growing and most cost-

effective free trade zones in the UAE

and today is home to some 7,000

companies. With the same services

companies enjoy in other centres,

for instance in Dubai, but with lower

costs, the clients of Ras Al Khaimah

Free Trade Zone benefit from a ran-

ge of advantages:

- 100% tax exemption

- 100% foreign ownership

- Transparent laws and regulations

- No restrictions on capital and

profit repatriation

- Strategic location within proximity

to Dubai

- State-of-the art communication

facilities

- Easy access to Ras Al Khaimah

international airport and a sea port

Ras Al Khaimah Free Trade Zone

(RAK FTZ) posted a 14.5 percent

increase in revenue in the second

quarter of 2009, compared to the

same period in 2008. New company

registrations for April–June 2009 clim-

bed to 554, a marked 14.7 percent

increase from last year’s registration

and a further 13.6 percent increase

compared to the first quarter of this

year.

“Our target for 2009 is to have 2,000

new companies by the end of the

year” says Oussama El Omari, CEO

of RAK FTZ. “With 931 companies

already registered in the first half of

2009, we are confident that we will

reach this target. The free zone con-

tinues to attract business in industries

spanning IT, Consulting, Manufactu-

ring and Trading.”

Instead of slowing down due to the

recent global recession and typical

summer business sluggishness, RAK

permanent office space.

Main Benefits- Cost effective solution for new

businesses entering the market

- Flexible desk / office use, based on

client needs

- Serviced by an advanced

telecommunication infrastructure

- Low risk - an ideal way to test the

market

- Upgradeable to conventional

Executive Office

Businesses that want to be registered

in the United Arab Emirates but do

not intend to conduct any substan-

tial business in the country, can opt

for RAK FTZ´s International Registry

Service. This service is particularly

suitable for companies looking to

minimise their overall tax liability,

creating a company with a purely

nominal equity investment, seeking

asset protection or in need of esta-

blishing an exchange control trading

vehicle. This product is available

exclusively through a network of our

registered offshore agents who will

take care of all administrative and

legal matters.

Advantages and Benefits- Absolute privacy, confidentiality

and protection of assets and

information

- 100% foreign ownership

- Ability to maintain bank accounts

in the UAE

- Option for choosing the applicable

economic laws

- Ability to issue multiple classes of

shares, including Restricted Bearer

shares

- Limited liability company

- Minimum one director required

- Ability to own real properties in the

UAE

Source

http://www.rakftz.com/en/

FTZ enjoyed the highest single-month

registrations total since opening, with

211 new companies signing up in

June. El Omari attributes this to the

quality of the products and services

provided by the free trade zone,

especially when it comes to tailoring

custom packages according to

specific client needs.

Breaking down the numbers of the

newly registered companies, 64

percent are trading companies with

warehousing facilities, 26 percent

offer consulting and other services,

seven percent are general trading

firms and three percent are indu-

strial.

Companies from Asia make up 41

percent of the new registrations,

followed by the European Union at

21 percent, the Middle East at 13

percent, the rest of Europe at six

percent and other countries at 19

percent.

For the next five years, RAK Free

Trade Zone’s strategy is to attract

industrial and service companies

that will trigger and aid the deve-

lopment of basic infrastructure and

services in the emirate. RAK FTZ is

encouraging various companies

interested in public-private part-

nerships with the free zone to set

up projects in the airport, seaport,

tourism and education sectors.

RAK FTZ offers offices with lease fa-

cilities that allow to use shared and

networked desks or offices on a time

limited basis. As these services come

with an assigned phone number, pri-

vate email and mail address, license

to operate in the UAE and an entry

visa package. They are an ideal tool

for self-employed businessmen, small

businesses or professionals entering

the UAE market or not requiring a

Ras Al Khaimah Free Trade Zone (RAK FTZ) is home to some 7,000 companies

17.

COMBATING MONEY LAUNDERING: SWITZERLAND’S EFFORTS RECEIVE INTERNATIONAL RECOGNITIONBern, 27.10.2009 - The Financial Ac-tion Task Force (FATF) has ended its international monitoring with regard to Switzerland under the third round of Mutual Evaluations. The FATF the-reby recognises that Switzerland has made significant progress in streng-thening the systems it has in place to combat money laundering.Recently, Switzerland submitted a

report to the FATF outlining the mea-

sures it has introduced to improve its

system of combating money launde-

ring and terrorist financing since the

last FATF evaluation conducted in

2005. The FATF has acknowledged

these measures which include the

revision of its Anti-Money Laundering

Act and the strengthening of pre-

ventive measures and its structure of

financial market supervision. On 14

October 2009 it therefore decided

to end the international monitoring

of Switzerland introduced within the

scope of the third round of mutual

evaluations conducted on a global

scale (2004 - 2011).

In future Switzerland will only be

subject to a simplified biennial

process. This process requires Swit-

zerland to submit regular reports

on developments in its system of

combating money laundering and

terrorist financing with effect from

October 2011. As such Switzerland

will be among the first countries to

be evaluated under this simplified

process alongside Italy, Norway

and the UK. The FATF nevertheless

observed that shortcomings remain,

particularly regarding the effecti-

veness of the system for reporting

suspicious transactions, transparency

relating to bearer shares as well as

in terms of the measures in place to

implement international standards

on freezing terrorist assets.

PRESIDENT MERZ APPOINTS WORKING GROUP TO PREVENT ANY FURTHER ESCALATION IN RELATIONS WITH ITALY CONCERNING TAXES

Bern, 04.11.2009 - President Merz has appointed an interdepartmental working group made up of represen-tatives from the Federal Department of Finance, the Federal Department of Foreign Affairs and the Federal Department of Economic Affairs in the dispute about tax policy issues with Italy. The working group has the task of drawing up a joint strategy to calm relations concerning tax policies with Italy and to examine certain measures. The objective is to prevent any further escalation in relations with Italy concerning taxes.Against the backdrop of years of

efforts on the part of Switzerland

to find a solution to the unresolved

tax policy issues with Italy and the

unjustified charges made by Italy in

relation to the financial centre in the

Tessin, President Merz took the de-

cision to suspend negotiations with

Italy on the revision of the double ta-

xation agreement (DTA) until further

notice. President Merz informed the

Federal Council in its meeting today

that as a further step, he would ap-

point an interdepartmental working

group with the task of drawing up a

strategy to calm relations with Italy

concerning tax policies and to exa-

mine other measures. The objective

is to prevent any further escalation in

relations between Italy and Switzer-

land in the area of taxes.

SWITZERLAND AND TURKEY INITIAL NEW DOUBLE TAXATION AGREEMENTBern, 04.11.2009 - Switzerland and Turkey have concluded negotiations on extending administrative assi-stance in tax matters in accordance with the OECD standard and on other points. A new double taxation agreement (DTA) was initialled to-day in Bern. The DTA is in line with the parameters decided by the Federal Council.Since the Federal Council decision

of 13 March 2009 on extending

administrative assistance in tax

matters in accordance with Article

26 of the OECD Model Convention,

Switzerland has already negotiated

and initialled fifteen DTAs with the

extended administrative assistance

clause. The agreements with Den-

mark, Luxembourg, France, Norway,

Austria, the United Kingdom, Mexico,

Finland, the Faeroe Islands, the USA

and Qatar have already been sig-

ned. The agreement with Spain also

counts as an agreement which has

been signed. The current DTA with

Spain contains an automatic most-

favoured nation clause, in case

Switzerland should agree to more ex-

tensive provisions on the exchange

of information with another EU mem-

ber state. This clause was activated

with the signing of the DTA with

Denmark in August 2009. Switzerland

has been on the `White List’ of the

OECD since 25 September 2009 and

thereby avoids fiscal discrimination

and being subjected to disadvanta-

ges from the community of states.

The Federal Council will shortly sub-

mit a series of individual dispatches

to the National Council and the

Council of States, in which the

Federal Council requests approval

from parliament of the DTAs which

were signed first. The signing of the

renegotiated and initialled agree-

ments with the Netherlands, Poland

and Japan is envisaged in the next

few weeks.

The renegotiation of the DTAs in part

goes far beyond extending admi-

nistrative assistance in tax matters.

Switzerland not only conducted

negotiations on adapting admini-

strative assistance but also obtai-

ned numerous advantages for the

economy. These include reductions

in withholding tax and zero rates

for dividends, interest and royalty

payments and arbitration clauses to

avoid double taxation. In addition

it was achieved that discrimination

due to administrative assistance

policies up to now was stopped.

This policy will be pursued. Further

negotiations have already been

arranged with other countries.

Source

Federal Department of Finance FDF

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19.

13.

De Vittori of Switzerland

Looking ahead, going beyond

November 2009ITALIAN AMNESTY MAY BREAK EU LAWAccording to a study published by

the European Policy Forum (EPF) au-

thored by an expert in EU legislation,

Advocate Giuseppe Giacomini of

Genoa, the tax amnesty launched

by the Italian government contrave-

nes EU law by breaking rules desig-

ned to maintain a level playing field

in financial markets across Europe.

The study was launched at a press

conference in the European Par-

liament in Brussels which brought

together prominent Italian MEPs

from different political groups.

The study shows that the amnesty

exempts individuals and companies

controlled by them from a range of

offences which continue to apply to

their competitors in Italy and across

the EU.

It also makes unilateral changes

to the VAT system, a European tax

which has pan-European rules which

are infringed by the amnesty, espe-

cially in regards to concealment of

matters from the European Commis-

sion.

The amnesty falls foul of competition

and state aid rules, says Advocate

Giacomini, who calls for a full investi-

gation by the Commission followed

by appropriate action against the

Italian government.

He says the way in which the am-

nesty is constructed also makes it

likely to contravene EU anti-money

laundering legislation.

The amnesty is due to expire on

December 15 but it has been sugge-

sted that it might be extended until

mid-2010.

EPF President Graham Mather said:

“Countries with high taxes but serious

fiscal deficits may be tempted in

current conditions to reach for the

apparently attractive technique of

a tax amnesty. This study, however,

clearly demonstrates the need for

caution. Amnesties can seriously cut

across Europe’s level playing field,

break Community law, and discomfit

and disadvantage other states. They

may also generate a profound sense

of unfairness among taxpayers,

with unpredictable but potentially

negative consequences for legisla-

tors. Let us hope that these lessons

are learned in the debate which has

been triggered by the latest Italian

amnesty.

November 2009GERMANY’S SCHÄUBLE RULES OUT NEW TAX SYSTEM BEFORE 2013 Germany’s freshly appointed Finan-

ce Minister Wolfgang Schäuble has

ruled out the possibility of a funda-

mental reform of the country’s tax

system until the end of the current

legislative period. Determined to

honour the pledges contained in the

recent coalition agreement, Schäu-

ble has confirmed government plans

to carry out a limited tax reform

programme from January 1, 2010

of around 1% of gross domestic

product, suggesting that this is both

economically right and justifiable. He

has also made known his intention

to strive towards implementing

additional tax reductions of around

EUR20bn in 2011, provided that this is

possible to legislate.

November 2009AUSTRALIA’S TAX REVENUE RISE LAGS BEHIND ECONOMIC GROWTHThe 2009-10 Mid-Year Economic

and Fiscal Outlook (MYEFO), while

predicting higher Australian growth

than expected, also pointed to a

lag before tax revenues catch up

with budgetary forecasts. Australia’s

Treasurer, Wayne Swan, announcing

the MYEFO’s release, suggested that

despite the improved outlook, the

economy is expected to continue

to operate below capacity for

some time and unemployment is

still expected to rise, with a drag

on domestic incomes and business

investment.

November 2009CAYMAN SIGNS TIEA WITH THE NETHERLANDS ANTILLES The Cayman Islands signed a Tax

Information Exchange Agreement

(TIEA) with the Netherlands Antilles

on October 29, 2009, whilst atten-

ding the Caribbean Financial Action

Task Force (CFATF) plenary, held in

Curacao. The agreement, which is

Cayman’s fourteenth, was signed on

behalf of the Cayman Islands by the

Cayman Attorney General, Samuel

Bulgin. Commenting on the signing

of the agreement, Bulgin stated:

“This signing represents the Cayman

Islands’ continued commitment to

OECD standards for transparency

and exchange of information on tax

matters. It will commemorate the

beginning of what I am sure will be

a mutually-rewarding relationship

between the Cayman Islands and

the Netherlands Antilles.” According

to the Cayman government, nego-

tiations have also been completed

with a number of other countries,

including Aruba, Australia, Canada,

Germany, Italy and Mexico and it

is anticipated that agreements will

be signed before the end of 2009.

Negotiations are also currently on-

going with a further ten jurisdictions:

Argentina, Belgium, China, Czech

Republic, India, Japan, Korea, Portu-

gal, Spain and South Africa.

Source

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21.

17.

Previously, businesses had to forward

a number of documents and all

original invoices usually by mail to

each VAT Authority. This procedure

will be replaced by an electronic

process, ensuring a quicker process

and refunds to claimants.

Costs on which VAT is reclaimed will

have to be classified in accordance

with the following categories:

1.Fuel2.Hiring of means of transport3.Expenditure on means of transport (other than 1. and 2. above)4.Road tolls and road usage charges5.Travel expenses such as taxi fares, public transport fares etc 6.Accommodation7.Food, drink and restaurant services8.Admissions to fairs and exhibitions 9.Expenditure on luxuries, amusement and entertainment 10.Other

In addition, applicants must include,

if applicable, details of their deduc-

tible VAT method of calculation in

the country of establishment. Tax

Authorities will be required to pro-

cess claims within a stipulated time

period. If exceeded, they will have

to pay interest to the claimants on

overdue refunds.

Reporting obligations and listings Additional filing requirements will be

introduced as of 1 January 2010 for

businesses rendering services within

the EU. Businesses that supply basic

rule services to businesses in other

EU countries will have to periodically

report these services by submitting

a listing electronically to their Tax

Authority (Form VIES Il listings). These

services must be broken down by

value and by VAT number for each

service recipient. VIES Il forms need

to be submitted on a monthly basis;

in addition, quarterly VAT returns

need also be submitted.

HOW DO THE CHANGES AFFECT CYPRUS COMPANIESCompanies already registered for VAT purposes

Cha

nge

s To V

AT Le

gisla

tion In The

EU

A NUMBER OF EU VAT RULES WILL CHANGE WITH EFFECT FROM 1 JANUARY 2010. THE MOST SIGNIFICANT CHANGES RELATE TO:

1.The rules for determining the place where a service is supplied and which country can therefore tax these services (the place of supply’ rules).

2.The refund of foreign (EU) VAT incurred on cross border transactions within the EU (8th Directive).

3.Reporting obligations and listings

Place of supply of services to taxable persons Presently, the place of services is

deemed to be where the service

provider is established for VAT pur-

poses, according to the basic rule.

With effect from 1 January 2010,

the rule on the place of supply of

cross border services will change

as follows: for services provided to

businesses, the new basic rule is

that these services are deemed to

be supplied where the recipient of

these services is established (reverse

charge mechanism).

The service provider will not charge

VAT, but the recipient of services

will have to account for the VAT

payable on the services in their VAT

returns.

General guidelineFor supplies or services to taxa-

ble persons, the general rule with

respect to the supply of services VAT

arises in the place where the reci-

pient is established. Where services

are supplied to non-taxable persons,

the general rule should continue to

be that the place of supply of servi-

ces is the place where the supplier

has established his business.

Refund of foreign (EU) VAT (in terms of the 8th Directive)With effect from 1 January 2010, it

will be easier for EU established bu-

sinesses to reclaim foreign (EU) VAT.

- They are not affected and will

continue to submit VAT returns as

they do now.

- If they receive cross-border services

- whether from EU Member States or

other (third) countries - they need

to account for VAT in terms of the

reverse charge mechanism, as they

do now.

- If they provide cross border services

to businesses in the EU Member

States, these companies need to

submit, on a monthly basis, the VIES Il

submissions as explained above.

Companies providing cross border services to businesses in EU Member States- They will have to register for VAT

purposes.

- They do not have to charge VAT as

long as the recipient is registered for

VAT purposes. In fact, the recipient is

now obliged to account for VAT un-

der the reverse charge mechanism.

- If the recipient is not registered for

VAT services, the Cyprus company

must charge VAT at the prevailing

rate of 15%.

- They are required to submit VIES

Il submissions on a monthly basis.

There is no minimum threshold for

registration.

Companies receiving cross border services from EU Member States or other countries - They will also have to register for

VAT purposes.

- They will need to account for VAT

under the reverse charge mechani-

sm on all services received. Excluded

are property related services, supply

of transport, restaurant services,

hiring of transport etc, both for EU

Member States and other countries.

- There is no minimum threshold for

registration.

Companies providing services to businesses in other countries - These services fall outside the sco-

pe of VAT.

- Consequently, they are exempt

from having to register for VAT.

- They are not required to file VIES Il

forms.

- They may voluntarily register for VAT

in order to claim refunds on local

expenses incurred and provided

accepted by the Cyprus VAT

Authorities.

Companies incurring business rela-ted costs within EU Member States - They are entitled to claim VAT

refund on business related costs

incurred within EU Member States.

- Such VAT refund claim may be

submitted electronically.

- The VAT Authorities in the individual

EU Member States are now required

to process claims within a stipulated

time period.

Source

Oneworld ltd

Nicosia, Cyprus

23.

19.

Published byDe Vittori of Switzerland - Lugano

DirectorAlessandro Pumilia

The information in this brochure is subject to change without notice.Application of the information to specific circumstances requires the advice of professionals who must rely upon their own sources of information before providing advice. The information is intended only as a general guide and is not to be relied upon as the sole basis for any deci-sion without verification from reliable professional sources familiar with the particular circumstances and the applicable laws in force at that time.

DesignGiovanna Capoferri

THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLANDOctober // November // December 2009