A seminar was held to get answers to the main questions emerging due to transition to the “New Tax Era” in Moscow on 14 November 2018. The seminar was attended by representatives of Russian companies operating on international markets as well. The key speakers of the meeting included Michael Hadjihannas, the General Director of FinExpertiza Cyprus, and George Tsamourlidis, senior tax consultant of FinExpertiza Cyprus.
“It is time to review our relationships with international banks. They are getting ever stricter with their clients. When it comes, for example, cash transfer – they request for the source of funds and the aim of transfer. When opening new accounts, banks strengthen due diligence procedures, Know Your Customer (KYC) requirements and so on. That means, banks will not open accounts any longer without any substantive reason or purpose”, – Michael Hadjihannas said.
Also, the Head of FinExpertiza Cyprus pointed out to other headwinds making things for international taxpayers more difficult. Thus, the Common Reporting Standard (CRS), developed in response to the G20 request and approved by the OECD Council in 2014, calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
Besides, over 100 countries and jurisdictions are collaborating to implement the Base Erosion and Profit Shifting (BEPS) measures, aimed to minimize tax evasion attempts and profit shifts among companies that have no substance and are registered in low tax jurisdictions. Finally, Controlled Foreign Corporation (CFC) rules are designed to limit artificial deferral of income tax payments by using offshore low taxed entities.
In this environment, substance becomes a key concept. International groups and companies may operate globally in many jurisdictions, on condition that they have actual substance in these jurisdictions: real companies having offices, bank accounts, utility bills and competent personnel. In 2017, the trend became obvious: the amount of companies within groups was reducing, companies registered in well-known offshore jurisdictions were liquidated.
It would be natural to ask: should an international company status be preserved? is it worthwhile? If so, what should an international holding company do to not only comply with the applicable regulations but also to remain within its operating field?
Michael Hadjihannas also spoke on today’s most promising jurisdictions (the Cayman Islands, Cyprus, Hong-Kong, Malta, Singapore, UAE).
George Tsamourlidis, the senior tax consultant of FinExpertiza Cyprus, spoke on recent changes in transfer pricing for intra-group financing, as well as on current trends of restructuring in Cyprus. “Important changes in tax environment are related to pricing in accordance with the Arm’s Length Pricing principle directly influencing intra-group transactions between related parties. For example, since 1 July 2017, Cyprus companies have to substantiate margin and interest rates payable on intra-group funding transactions by means of preparation of transfer pricing reports that may be requested by tax authorities”, – George Tsamourlidis notes.