What important legislative changes do you anticipate so far as they affect your advice to private clients?
Private Client (3rd edition)
- Freedom of disposition of estate on death:
With the entry into force of Law 1934 of 2018, as of 1 January 2019 a person may freely dispose of half of their estate without being subject to forced heirship rules.
- Colombian Tax Reform:
On October 2019, the Colombian Constitutional Court issued Ruling C-112 of 2019 whereby the most recent tax reform (Law 1943 of 2019) was declared unconstitutional. According to this ruling, Law 1943 of 2018 will remain enforceable until December 31, 2019. This ruling has effects for the future only and no legal situations consolidated prior to the ruling's notification should be affected by this decision.
On October 23, 2019, the Colombian Government filed a new tax bill before Congress including the same body of rules introduced by Law 1943 of 2018. This new draft bill should be approved before December 31, 2019 with the purpose of being enforceable as of January 1st, 2019.
For the above-mentioned reasons, a general review of the rules mentioned in this article should be reviewed by early 2020.
There is a pending proposal of delegation law aimed at relaxing forced heirship rights (proving a credit right of the forced heir, rather than a right to the asset, so that assets can circulate more easily) and at expanding the situations where a succession agreement can be concluded. Currently, succession agreements can be entered into only in relation to the transfer of a business to direct descendants. The proposal is meant to allow the renounce to future rights as heir or forced heir.
The implementing provisions of the beneficial owners registers will be issued shortly. See 19.
The Third Sector Reform will be fully implemented shortly. Not-profit entities will seek advice as to their status as TSE. See 26.
In light of the 5th AML Directive, certain changes are expected to be implemented on the Companies Registry.
In addition to these, discussions are being made by the Government to increase the corporate tax rate, with a subsequent reduction of the capital gains tax and abolishment of stamp duties. However, this matter has not been brought to the Parliament for vote.
a. It is expected that Continuing Powers of Attorney Bill will at some point in the future be introduced to the Legislative Council. This is intended to replace the existing Enduring Powers of Attorney Ordinance, extending the scope of EPOA to include matters relating to the personal care of the donor.
b. The current legal regime in Hong Kong may subject to change beyond 2047.
On October 30, 2019, Mexican Congress approved the new tax reform for 2020, making important modifications to the current Mexican tax regime. This modifications will enter in force as of tax year 2020, and should be considered by all taxpayers. Some of the most relevant changes are explained below.
• Income Tax Law
1. Update of the concept of permanent establishment.
In order to reflect in the Mexican legislation the recent changes to the definition of permanent establishment included on the Organization for Economic Cooperation and Development (OCDE) Base Erosion and Profit Shifting (BEPS) project, it is proposed to broaden the concept that is currently included in the Mexican Income Tax Law.
The most important additions to the permanent establishment definition refers to activities carried out by non-residents through a person different from an agent of an independent status; also, a new provision was included aimed at preventing a group of related parties from fragmenting a business operation into minor operations in order to avoid having a permanent establishment in the country.
2. Combat hybrid mechanisms (or hybrid mismatches).
Although the Mexican tax legislation already contains measures against hybrid mechanisms or mismatches (i.e. cases where an expense deduction is authorized by the Mexican tax legislation and the corresponding income is tax exempted or not subject to tax abroad), the Mexican government has acknowledged that these measures have not been effective, and that the most recent recommendations of the OECD to combat this practice need to be included in our tax legislation.
Based on the above, payments made by a Mexican tax resident to a related party directly or through a “structured agreement” (under which the consideration to be paid involves payments to entities subject to preferential tax regimes which benefits the Mexican taxpayer or its related parties) will not be considered as deductible for Mexican tax purposes.
3. Limits for interest payment deductions.
Although Mexican law already contains measures which limit the deduction of interest between related parties, such as thin capitalization rules, the Mexican government deems necessary to include new rules regarding interest payments made not only to related parties but also to independent parties.
Under the new rule, any amounts exceeding 30% of the adjusted tax ebidta of a legal entity will not be deductible for tax purposes. This limitation is only applicable when the amount of the interest payments made by a Mexican resident entity and its Mexican-resident related parties exceeds in the aggregate MXN 20 million.
Carryforward on non-deductible interest is permitted for the following ten fiscal years. It is worth noting that certain interest payments are excluded from the application of this rule, such as interests on loans obtained to finance public infrastructure works, real estate developments located in Mexico, as well as interest paid on loans taken to finance projects in the extractive industries, and those derived from public debt instruments
Corporate groups are allowed to calculate the adjusted tax profit on a consolidated basis, in the terms that will be later established.
4. Tax treatment of provision of services and sale of goods through the internet, technological platforms, computer applications and similar means.
Following the administrative rules that had been published earlier in the year, and confirming the intention of the Mexican government to implement new mechanisms that ensure that Mexican resident individuals that participate in the business models of the digital economy comply with their tax obligations, new withholding rules are included.
Under the new regime, companies providing digital platform services (regardless of whether they are residents in Mexico or residents abroad) would be obliged to withhold income tax from Mexican resident individuals who obtain income through such digital platforms. Formal obligations are established both for the taxpayers (individuals) and for the legal entities obliged to make the tax withholding, including non-residents who do not have a permanent establishment in Mexico.
5. Elimination of private Infrastructure and Real Estate Trusts (private ‘Fibras’).
Given that the Mexican government considers that taxpayers have taken abusive advantage of the tax regime applicable to private Infrastructure and Real Estate Trusts, this regime was eliminated from the Mexican legal system.
6. Payments made to tax transparent foreign entities and vehicles.
Although current Mexican legislation recognizes the tax transparency of entities that are not deemed as taxpayers in other countries, allocating income to the members of such entities and vehicles, it has been considered necessary to establish a new rule that simplifies the collection of taxes that ultimately correspond to the members of transparent entities and vehicles, either Mexican tax residents or non-residents.
For these purposes, a new provision is included in the Mexican Income Tax Law applicable to foreign fiscally transparent legal entities and vehicles (such as trusts and partnerships) who obtain Mexican sourced income, in order to disregard their tax transparent status thus being subject to tax under the rules applicable to resident legal entities or to non-resident legal entities, as the case may be.
An exception to the above has been proposed regarding tax transparent vehicles that manage private equity funds invested in Mexican legal entities, subject to the compliance of certain requirements, i.e. that the transparent vehicle and its members are tax residents in a jurisdiction with which Mexico has entered into an exchange of information agreement considered as a “broad” by the Mexican tax authorities.
7. Income obtained by Mexican tax-residents through fiscally transparent foreign entities and vehicles and through controlled foreign entities whose income is subject to a preferential tax regime.
Under the current tax regime, Mexican tax residents who obtain income through fiscally transparent foreign entities and vehicles or through legal entities whose income is subject to preferential tax regimes, as a general rule, shall pay income tax on the income derived by the foreign entities or vehicles, even if the corresponding income has not been distributed by the same. This tax treatment has certain exceptions under which tax deferral is authorized, i.e. lack of control over the entity’s management.
Under the new rules, a differentiated tax treatment is established between income obtained through fiscally transparent entities, and income obtained through controlled foreign entities who do not have a transparent status abroad and whose income is subject to a preferential tax regime.
As a general rule, in both cases, income derived by the foreign entity or vehicle shall be taxable for the Mexican taxpayers, even if the same has not been distributed to them, proportionally to their participation in the entity or vehicle. Tax deferral may be applicable in certain cases where the taxpayers lack significant control regarding income obtained through controlled foreign entities; no tax deferral is allowed regarding income obtained through tax transparent vehicles.
• Value Added Tax Law
1. Provision of digital services by non-tax residents.
The reform also includes several changes and additions to the Value Added Tax Law in the area of digital economy, in order to comply with the recommendations issued by the OECD and increase revenue from indirect taxes.
Among the most relevant changes, the reform establishes that in the cases of digital services provided by non-residents who do not have an establishment in Mexico, the service shall be deemed to be provided within national territory and thus will be taxable for value added tax purposes when the recipient of the service is located in Mexico. In these cases, the non-resident who provides the service through a digital platform shall charge the corresponding value added tax to the service recipient, and shall pay such tax before the Mexican authorities, regardless of whether the non-resident has a permanent establishment in Mexico or not.
• Federal tax code
1. Measures against companies that issue, sell and use tax invoices for non-existent transactions.
Although the current legislation already includes measures against the sale of tax invoices connected to non-existent operations, the current Administration has considered necessary to include more severe measures against these operations.
Among the most important changes, the reform enables the tax authority to deny the use of the electronic signature (used for purposes of complying with tax obligations) in some specific cases, and to increase the number of cases in which the authority may render digital seal certificates (which enable taxpayers to issue tax invoices) null and void.
These measures are complemented with the criminal-tax reform that was approved by the Mexican Congress during earlier days, intended to increase the penalties imposed to those who sell or use tax invoices in connection with non-existent operations.
2. General anti-abuse rule
Although Mexican legislation currently contains measures against tax simulation, it has been deemed necessary to include a new general anti-abuse rule to combat this problem more effectively and comply with the recommendations made by the OECD.
Under the new rule, legal acts that lack a business reason but generate a direct or indirect tax benefit will have a recharacterization of the tax effects corresponding to the acts that would have been performed to obtain the economic benefit reasonably expected by the taxpayer.
3. Disclosure of reportable schemes
In order to increase fiscal transparency, and following the recommendations made by the OECD, Mexican government deems necessary to include a new reporting obligation applicable to tax advisors and taxpayers.
In accordance with the new rule, tax advisors are required to register before the tax authorities and disclose general and personalized schemes designed for their clients as defined under Mexican law.
For these purposes, a “reportable scheme” is deemed as any scheme that generates or may generate, directly or indirectly, a tax benefit in Mexico as long as it complies with any of the features established by law, while “tax advisor” includes any individual or corporation resident in Mexico or resident abroad with a permanent establishment in Mexico that in the ordinary course of their activities are responsible for or involved in the design, marketing, organization, implementation or administration of a reportable scheme, or the person who makes available a reportable scheme for implementation by a third party.
The re-introduction of the estate duty law has been anticipated for the past few years. However, it is unclear on when it may be introduced. This uncertainty has not restrained families from planning for the potential introduction of estate duty. Further, other amendments which have been recently talked about include the direct tax code which could significantly amend the extant Indian tax regime and the private client planning landscape. We have also seen developments in relation to personal laws over the last few years. For example, although same sex marriages are not recognised in India, the Supreme Court of India ruled that Section 377 of the Indian Penal Code, 1860 which criminalised sexual activities “against the order of nature”, was not applicable to consensual sexual activities between homosexual adults. Further, Indian courts have also begun to recognise ‘live in relationships’ and there is a presumption of legitimacy in favour of children born out of such relationships. A heavy burden lies on the person who wishes to disprove the relationship as the law favours legitimacy.
We do not expect important changes in the near future which will influence our advice to private clients. However, a working group of the Institute of Professional Trustees and Fiduciaries is currently discussing some amendments to the law of trusts regarding the rights to information of discretionary beneficiaries and other aspects with the government.
Legislation on civil partnerships may be introduced in the future. In the current state of the Bill pending before the parliament, same-sex or heterosexual couples could enter into an agreement governing their relationship. A new rate of gift tax could be applicable to individuals bound by such contract and the surviving partner could be entitled to some succession rights (see Questions 6 and 13).
Also, the parliament is considering restricting access to Monegasque nationality and prolonging the number of years of residence in Monaco before one is allowed to apply for naturalization.
No important changes in law that would affect advice to private clients are anticipated for the nearest future. However, discussions concerning implementation of a private foundation to the Polish legal system were started, with the first stage of public consultations finished in mid-November 2019. We have been actively involved in the project of introducing that legal solution since the very beginning and created the main assumptions and guidelines for the possible future legislation.
Portuguese tax regime concerning individuals is expected to remain stable.
Main changes that should be taken into account are:
(1) equalization of income tax for resident and non-resident individuals at 13% (the initiative was included by the Ministry of Finance into the tax policy document for 2020-2022);
(2) introduction of a separate “the centre of vital interests” test for identification of Russian tax residence (the initiative was included by the Ministry of Finance into the tax policy document for 2020-2022);
(3) Implementation of MLI and a number of anti-avoidance rules.
Russia has adopted Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (known in international practice the Multilateral Instrument or MLI). MLI might enter into force at the end of 2019, although, the provisions regarding withholding tax payments will apply from 1 January 2020. MLI is an international convention between countries aimed to unify the provisions of existing double tax treaties. Potential repercussions mostly involve the need to reassess the tax risks related to the corporate holding structures owned by individuals.
(4) potential option to establish an inheritance fund (as was discussed in question 18, since 2018 individuals can establish an inheritance fund by will in Russia).
No such legislative changes could be anticipated at the date of this guide.
An ongoing revision of the Swiss Civil Code including forced heirship rules will reduce the protected share of descendants from 3/4 to 1/2 of the statutory inheritance entitlement and abolish the protected share of parents.
The Swiss Private International Law Act shall be revised to better coordinate Swiss international inheritance law and the EU Succession Regulation. By allowing individuals to choose additional places of jurisdiction or other foreign laws, contradicting decisions in Switzerland and EU Succession Regulation member states shall be prevented or minimized and planning security shall be enhanced.
The new laws are not expected to enter into force before 2021.
On December 22, 2017, President Trump signed into law H.R. 1, a Congressional bill informally known as the “Tax Cuts and Jobs Act” (the Act), which represented the most significant overhaul to the US tax system in over 30 years. Generally, the provisions of the Act took effect for tax years beginning after December 31, 2017. Among other changes, the Act modified the individual income tax brackets, doubled the amount of the exclusions from gift, estate and generation-skipping transfer taxes, and limits individual income tax deductions for state and local taxes. These changes are effective until January 1, 2026, at which time the Act provides for a return to prior law. The above answers reflect the current state of the law under the Act.
Beginning January 3, 2019, the House of Representatives (the lower house of Congress) came under the control of the Democratic Party; the Senate remains in the hands of the Republican Party. It is unlikely that significant further tax cuts will be enacted during this period of divided government, which should extend at least until January 3, 2021.
In late 2019, Democratic candidates for president began to announce the economic plans they intend to implement should they be successful on November 3, 2020. Among the policies included in some of these plans are a reduction in the estate, gift and GST exemptions, an increase in income and capital gains tax rates, and the implementation of a wealth tax on the assets of ultra-high net worth individuals. Whether any of these proposals will pass will depend upon the results of the 2020 election for the presidency and for Congress.
Save in the area relating to stamp duties for transfer of real properties in Singapore, the estate and transfer tax laws have not seen any substantial variation or changes in the past ten years. These have remained stable, transparent and consistent. Most tax incentives have a sunset date and are generally reviewed every five years. Generally, any change in laws would not have a retrospective effect. This stability and transparency is an attraction for high net worth individuals to base their wealth and succession planning structures in Singapore.
Singapore has also been proactively attracting funds to its shores. The various tax incentive schemes together with the introduction of the Variable Capital Company (“VCC”) furthers this attraction. The VCC is a new corporate structure that is able to issue and redeem shares without shareholders’ approval, and pay dividends using capital and not just profits. It can be a standalone structure or an umbrella structure with multiple sub-funds (suitably ring-fenced) with different investment objectives, investors, assets and liabilities.
The Singapore Academy of Law’s Law Reform Committee issued a report in April 2019 recommending that Singapore should enact a Variation of Trusts Act, modelled on the United Kingdom’s Variation of Trusts Act 1857 with certain modifications, to confer jurisdiction on the Singapore High Court to approve consensual variation of trusts where these will benefit beneficiaries who are unable to consent to the variation. There is yet to be any public indication as to when the draft bill will be debated in Parliament and subsequently enacted.
As of December 2019, no important legislative changes are anticipated. However, as Israel is going through its third national elections within a period of 12 months, it is advised to regularly verify all tax rates and exemptions, including the 'new immigrant' regime, as well as the possible levying of an inheritance tax, which has tended to be a campaign promise by some political parties.
There is no important legislative changes the authors anticipate as our advice already take into account the provisions of the Finance Act for 2020.
The most relevant legislative change in 2020 will be the implementation of Council Directive (EU) 2018/822 – commonly referred to as “DAC 6”. The German legislator is planning to introduce obligations to report cross-border tax arrangements, if at least one EU member state is affected and the arrangement falls within one of the categories called “hallmarks”.
The Act will have retrospective effect. Any cross-border tax arrangement taking place after June 24th 2018 will have to be reported. Arrangements that were implemented between June 24th 2018 and June 30th 2020 must be reported by August 31st 2021. All other cross-border arrangements are due to be reported within 30 days.
The duty of reporting arrangements primarily falls upon “intermediaries”. An intermediary is any person that promotes, designs for a third party, organizes, makes available for implementation or manages the implementation of a reportable cross-border arrangement. In case of such intermediary being bound by confidentiality (e.g. lawyers), he or she must inform other intermediaries or even the taxpayer himself about his duty to report the tax arrangement.
27.1 Amendments to the tax rates, bands, allowances and rules referred to above typically take effect from the beginning of each new tax year (§2.13), and so changes should be expected with effect from 6 April 2020. Details of some of these changes are set out in §2, although many of the rates and allowances have not yet been confirmed for the tax year ending 5 April 2021. It also should be noted that whilst legislation had previously been passed to reduce the corporation tax rate to 18% from 1 April 2020, the UK government has announced that this would be reversed as part of their pre-election commitments.
27.2 The capital gains tax relief in relation to the disposal of an individual's main or only residence will be restricted from 6 April 2020, with relief for any periods when it has been rented out removed, and the previously 'deemed' final 18 months of ownership being classed as if the property was being lived in as a main residence (even if the owner had by then purchased another main residence) being reduced to a 'deemed' final period of 9 months. In addition, from 6 April 2020 payment of capital gains tax on disposals of residential property must be made within 30 days of the completion date, for UK residents. Non-UK residents are already subject to this shorter time frame.
27.3 The UK Government has announced that they intend to impose an additional SDLT surcharge of up to 3% on non-residents buying UK residential property, although the intended commencement date of this surcharge is not yet known.
27.4 The UK Government also announced a review and potential reform of a significant capital gains tax relief aimed at those who have created or developed businesses, known as Entrepreneurs' relief, which reduces capital gains tax (to potentially 10%) on disposals of, inter alia, shares in trading companies, provided certain conditions are met. In addition, a full review into Business Rates as mentioned in 8.7 is expected.
27.5 The UK is expected to incorporate into its domestic law the Fifth Anti-Money Laundering Directive of the European Union by 10 January 2020, which will significantly extend the disclosure requirements in respect of trusts (§19.2; 19.5). It seems currently that the additional disclosure requirements for trusts will be delayed until later in 2020. However this directive will extend the scope of trusts which need to register under the Trust Register to (i) all UK express trusts (regardless of whether they have UK tax liabilities) (ii) non-EU resident trusts that acquire UK land or property either on or after 10 March 2020 and (iii) non-EU resident express trusts that enter into a business relationship with an 'obliged entity' (such as a bank, accountant or solicitor) on or after 10 March 2020. Whilst the details on the Trust Register will not be generally available to the public (as any individual making information requests will need to demonstrate a 'legitimate interest' as to why they should see them), there is no need to show a legitimate interest when making for requests for information in relation to trusts which hold a controlling interest in a non-EEA company.
27.6 We expect a new beneficial ownership register for overseas companies and other legal entities owning UK properties to come into force in 2021.