Co-founder of Law Firm Tied to Panama Papers Scandal Passes Away

Ramon Fonseca, co-founder of the now-defunct law firm embroiled in the Panama Papers scandal, passed away overnight in a hospital, as confirmed by his attorney to Reuters on Thursday morning.

“Since the beginning of April, he had been under hospital care,” shared Fonseca’s lawyer, Guillermina McDonald, in a phone conversation, refraining from disclosing details regarding his ailment.

“Due to his hospitalization, he was unable to attend the hearing,” McDonald mentioned, alluding to a court session held in early April to review Fonseca’s alleged involvement, along with around twenty others, in suspected money laundering. A verdict and sentence in this matter are pending.

Expressing her condolences, Fonseca’s niece Carolina Fonseca stated on X: “His wisdom and remarkable ideas will forever resonate with us. Rest peacefully, dear uncle; you will remain in our hearts.”

No specifics regarding the funeral arrangements were provided by McDonald.

Mossack Fonseca, Fonseca’s legal firm, gained notoriety in 2016 following the leak of confidential documents unveiling accounts held in tax havens, implicating individuals such as Argentine President Mauricio Macri, Ukrainian President Volodymyr Zelenskiy, and Argentine football icon Lionel Messi.

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UAE targeted for delisting from FATF list in February 2024

The UAE is actively working towards delisting from the FATF’s ‘grey list’. To this end, delegations from Dubai and Abu Dhabi are visiting Washington and Bern and holding talks with key members of the organisation.

If the UAE can convince FATF of significant progress in combating money laundering, tax evasion and increasing the transparency of financial transactions, after the mandatory visit of FATF representatives and on-site assessment of the situation, the country may be removed from the list as early as February next year.

In addition to officials, the process of getting off the grey list is supported by bankers, whose compliance costs have risen significantly since the UAE’s inclusion on the list.

According to Bloomberg, in order to receive support from FATF members, the UAE must address two key issues: circumventing anti-Russian sanctions and regulating cryptocurrency. In addition, the UAE must prove that the changes achieved in recent years are systemic and not just “cosmetic.”

Expansion of Information Exchange Rules Regarding Crypto Assets: DAC8 Amendment

The European Council has adopted a Directive amending the EU rules on administrative cooperation in taxation. These amendments primarily focus on reporting and automatic exchange of information regarding income from transactions involving crypto assets and advance tax rulings for affluent individuals.

The Directive’s aim is to strengthen the existing legislative framework by broadening the scope of obligations concerning registration, reporting, and overall administrative cooperation among tax administrations.

Additional asset and income categories, such as crypto assets, will now be included in the exchange. Tax authorities will engage in mandatory automatic exchange of information obtained from reports provided by service providers in the crypto asset sphere. Until now, the decentralized nature of crypto assets has made it challenging for tax administrations of member states to ensure compliance with tax laws.

This directive encompasses a wide spectrum of crypto assets, relying on definitions outlined in the Markets in Crypto Assets Regulation (MiCA). The exchange sphere also encompasses crypto assets issued in a decentralized manner, as well as stablecoins, including electronic money tokens and certain non-fungible tokens (NFTs).

Empowering the Greater Bay Area: Tax Incentives for Skilled Professionals

In August, the Chinese Ministry of Finance, in collaboration with the tax authorities, issued over 20 normative acts (NPA) with a single objective: to extend the tax incentives that are currently in effect until the end of 2023. These incentives primarily aim to support small businesses (reducing taxes for the businesses themselves and providing indirect support to the cost of financing for SMEs), private investments, poverty alleviation, and benefits for individuals.

One of the most intriguing measures is the subsidy related to the Individual Income Tax (IIT) for highly skilled foreign professionals in the Greater Bay Area (GBA). What is the essence of this incentive?

The GBA encompasses the Hong Kong Special Administrative Region (SAR), the Macau SAR, and nine cities in Guangdong Province adjacent to the special zones, including Shenzhen and Guangzhou. China is actively developing the GBA and aims to attract foreign professionals to this region, along with experts from Hong Kong. However, there is a challenge: highly skilled specialists typically earn high incomes, which would result in higher taxes in mainland China compared to Hong Kong.

The Progressive Tax Scale for employment income in mainland China ranges from 3% to 45%, with deductions for non-taxable minimums (for tax residents: 60,000 Chinese Yuan annually) and other allowances. The majority of the population in China either pays minimal or no IIT, but for individuals with substantial incomes, the tax amount can be significant. In Hong Kong, there’s also a progressive tax scale for salaries, but the tax cannot exceed 15% of the total income. Therefore, working in Hong Kong becomes more advantageous with higher salaries compared to neighboring mainland cities (which is the context for the GBA concept).

To ensure that this advantage doesn’t hinder the flow of talent, qualified and valued professionals in the Chinese segment of the GBA are provided a subsidy. This subsidy covers the difference between the IIT amount that should be paid according to Chinese legislation and the tax amount that should be paid in Hong Kong. The subsidy is not subject to IIT and is paid directly to the employee or employer. As a result, the effective income tax amounts paid in Hong Kong and nearby mainland cities are leveled, and the differences between Hong Kong and cities like Shenzhen, Guangzhou, and Zhuhai (at least in terms of taxes) are nearly eliminated.

Germany reforms citizenship law

Germany is in the process of revamping its citizenship law, streamlining the pathway to obtaining German nationality and also introducing the option of dual citizenship.

The new citizenship law of Germany was unveiled on Wednesday (23.08.2023). Proposed by Interior Minister Nancy Faeser, the legislation aims to simplify the process of obtaining dual citizenship and make naturalization more accessible for non-EU citizens.

In a statement to the press in Berlin, Faeser highlighted that this reform demonstrates Germany’s commitment to modernization. She emphasized that the changes to the citizenship law should be understood within the broader context of the comprehensive reform of Germany’s immigration laws. This reform primarily seeks to attract skilled workers to address the significant labor shortages within the country.

Faeser underlined, “We will be able to attract the most qualified individuals globally only if they can integrate fully into our society, enjoying all democratic rights in the foreseeable future.”

This overhaul has been in development since the fall of 2021 when the center-left coalition, consisting of the Social Democrats, Greens, and the neoliberal Free Democrats, assumed power.

The key points of the new citizenship plans include:

Immigrants who are legally residing in Germany can apply for citizenship after five years, reduced from the current period of eight years. In cases of notable achievements, this period can be further shortened to three years.
Children born in Germany to at least one parent who has been legally residing in the country for five years or more will automatically acquire German citizenship.
Immigrants aged 67 or older will have the option to take an oral German language test instead of a written one.
Multiple citizenships will be permitted.
Individuals solely dependent on state support will not be eligible for German citizenship.
German citizenship will be denied to those who have committed offenses such as antisemitic, racist, xenophobic, or other actions deemed incompatible with a commitment to a free democratic society.

The proposed legislation will undergo parliamentary debates and could potentially come into effect in the fall.

In terms of multiple citizenships, around 14% of the population in Germany, totaling just over 12 million people, do not hold German passports. Approximately five million of these individuals have been residing in Germany for a minimum of a decade. In 2022, there were 168,545 applications for German citizenship, which fell below the EU average.

Currently, dual citizenship is only available for EU and Swiss nationals, citizens of countries that do not permit renunciation of citizenship (such as Iran, Afghanistan, Morocco), children of parents with both German and other citizenships, refugees facing persecution in their home countries, and Israelis. Certain well-integrated Syrian refugees in Germany may also be eligible for expedited German citizenship.

These reforms align Germany with other European nations. In the EU, Sweden had the highest rate of naturalization in 2020, with 8.6% of all foreign residents obtaining citizenship. In contrast, Germany’s rate was 1.1%.

Germany is home to about 2.9 million people who hold more than one citizenship, constituting roughly 3.5% of the population. However, this number is likely higher, as 69% of new German citizens maintain their original passports. Among the most common second citizenships held are Polish, Russian, and Turkish.

Despite these changes, there is opposition. The center-right Christian Democratic Union (CDU), known for consistently obstructing past reforms, expresses reservations. CDU leader Friedrich Merz has voiced caution, stating that German citizenship is a cherished asset that requires careful handling.

The far-right Alternative for Germany party (AfD), which opposes immigration, vehemently opposes these planned changes. AfD lawmaker Gottfried Curio criticized the proposed adjustments, suggesting that they mask integration issues and manipulate statistics.

New Israeli Tax Authority Regulation for Mutual Agreement Procedure under Double Taxation Avoidance Agreements

The Israeli Tax Authority (ITA) has released a new regulation, No. 01/2023, replacing the old No. 23/2001, for Israeli taxpayers who wish to utilize the mutual agreement procedure in accordance with Israel’s double taxation avoidance agreements.

A request to initiate the mutual agreement procedure must be submitted to the ITA within 3 years from the date when the taxpayer was first notified of an action that led to taxation not in accordance with the tax agreement.
If the ITA decides to initiate the mutual agreement procedure, it may require the applicant to provide guarantees regarding their tax payments.
The ITA may agree to initiate the mutual agreement procedure in case of disagreements concerning the applicability of anti-tax avoidance provisions (GAAR) in the tax agreement or domestic legislation.
Disagreements regarding the calculation of foreign taxes paid will not be considered under the reconciliation procedure, as such offsets are governed by domestic legislation.

Additional details (original in Hebrew)

The end of the tax-free era: Bermuda prepares for change

An important announcement from the Government of Bermuda: the country has reached an agreement with the OECD and is coming to a decision to end its tax-free status. As part of this initiative, Bermuda plans to implement a corporate income tax, as well as taxes on capital gains and dividends. An important step will also be joining the global initiative to introduce a 15% income tax for international corporations.

Immediately after the announcement of the government, public consultations will begin, the results of which will be announced in a few months. It is planned to introduce new tax rates from January 1, 2025. Bermuda’s leaders are convinced that to remain attractive to global business, they will need to rethink existing tax liabilities, such as payroll taxes and customs duties.

Although the use of Bermuda companies is not a popular practice in many regions of the world, this event deserves attention, as it reflects the general trend towards the abandonment of classic offshore jurisdictions, which one by one are transforming their tax policies.

Ministry of Finance of Cyprus on the Reaction to the Suspension of the provisions of the Tax Agreement with Russia

The Ministry of Finance of Cyprus commented on Russia’s decision to suspend certain provisions of the tax agreement between the two countries.

According to the Cypriot Ministry of Finance, Russia’s decision to suspend the implementation of certain provisions of the double taxation agreement with Cyprus does not portend additional negative consequences. The diplomatic channel was used to notify the Republic of Cyprus of the signing of the relevant decree by the President of Russia.

In light of the restrictions already imposed by the Russian Federation on the export of foreign exchange and payments to various jurisdictions, including Cyprus, which were classified as “hostile” due to sanctions, and in light of the sanctions imposed on the Russian Federation that led to the suspension of extensive economic and trade ties with the countries of the European Union, the Ministry of Finance of Cyprus does not expect additional negative consequences from this decision and the failure to comply with certain provisions of the agreement.

The Cypriot Ministry of Finance also stressed that it had not consulted with the Russian authorities regarding the suspension of part of the provisions of the agreement.

Italy is changing the tax system: key points of the reform

Italy has initiated a large-scale transformation of its tax system. On March 16, 2023, the Council of Ministers approved a set of general principles and criteria for the forthcoming reform. This marks the most significant overhaul of Italy’s tax system in over 50 years.

Key points of the fiscal system transformation in Italy include:

Comprehensive revision of traditional taxes such as IRES, VAT, and IRPEF.
Reduction in the number of deductions.
Elimination of criminal penalties for tax evasion due to objective reasons beyond the taxpayer’s control.

The expected outcome of the tax burden reduction is to stimulate economic growth and increase birth rates in the country.

The Italian government asserts that these changes will make the system more manageable and facilitate the fight against tax evasion, which, according to the latest data from the Treasury, amounted to €90 billion in 2020.

Income tax for individuals in Italy (Imposta sul Reddito delle Persone Fisiche):

The reforms envision a structural review of the taxation system for individuals. The Italian government aims to establish a unified range of fiscal benefits and equal tax burden, regardless of the category of income received.

Additionally, there are plans to reduce the number of tax brackets from 4 to 3. It is worth noting that Italy currently operates a progressive income tax scale for individuals.

Corporate tax in Italy (Imposta sul Reddito delle Società):

As part of the tax reform in Italy, the government plans to reduce the tax on corporate and organizational incomes from 24% to 15%. However, businesses can only avail of this benefit if they meet two conditions over two tax periods:

The income received (fully or partially) is directed towards business investments or hiring new personnel.
The profits are not distributed or allocated to activities unrelated to commercial operations.

VAT in Italy:

The Italian authorities seek to carry out significant transformations regarding VAT. Their plans include:

Optimizing the number and sizes of tax rates.
Revising the criteria for tax liability and exemptions.
Modifying the deduction mechanism.
Simplifying calculation and application rules for VAT payers.

Regional production tax in Italy (imposta regionale sulle attività produttive):

IRAP is a regional tax levied in Italy on enterprises engaged in production, trade, services, and other types of activities. The standard rate is 3.9%, but it may vary based on the region and the nature of the activity. IRAP is paid in addition to the corporate income tax (IRES).

During the reform, there are plans to completely replace this tax with IRES. By increasing the latter, Italian authorities aim to ensure sustained revenue for the state treasury and guarantee:

Additional Fixed Tax

One of the most significant innovations of the 2023 Italian reform is the introduction of a fixed tax rate of 15%, which is set to apply to all wage earners. Currently, this tax is only applicable to the following categories:

Self-employed individuals
Professionals such as lawyers, accountants, notaries, etc.
Individuals engaged in artistic activities

This tax will only be levied on income exceeding the average citizen’s income level for the past 3 years but not exceeding a maximum limit of €40,000. The additional fixed tax will replace the higher standard IRPEF tax.

Combatting Tax Evasion in Italy

Italian authorities acknowledge substantial budget losses due to tax evasion. Therefore, the reform will significantly address this issue. The plans include:

Simplifying the declaration mechanism;
Reviewing taxpayer rights;
Introducing tools such as global agreements with creditors and activating economic conflict resolution through negotiations;
Implementing motivational instruments for taxpayers who admit their guilt and show remorse in their actions;
Actively digitizing processes at all levels and stages of taxation, including customs and the judicial system.

Regarding the revision of criminal tax penalties, special attention will be given to cases where the taxpayer is unable to fulfill tax obligations due to reasons beyond their control.

Reduction in the Number of Tax Deductions

To ensure the successful implementation of the reform, Italian authorities need to find necessary resources. To achieve this, there are plans to significantly reduce the number of tax deductions, of which there are approximately 600 in Italy. This measure aims to provide annual budget revenues of €5 billion to €10 billion.

The availability of deductions will be reduced based on an increase in the taxpayer’s income. Authorities also intend to introduce a one-time payment for citizens with low-income levels.

Empowering Municipalities

The proposed law envisions expanding the powers of local authorities in making decisions regarding taxation. Furthermore, municipalities will receive more financial autonomy and the freedom to manage their revenues.

New Fuel Excise Taxes

The proposed law supports producers of renewable energy actively. The authorities seek to increase the share of electricity, methane gas, or natural gas produced from biomass or other renewable resources. Certificates will be issued to provide benefits or exemptions from excise taxes.

Additionally, excise duties on natural gas, electricity, and renewable energy sources will be revised based on the actual cost of sold products and invoices.

New Taxes on Capital Gains

The 2023 tax reform includes a reorganization of capital and financial income taxes. These are planned to be combined into a single category of taxable income based on cash and compensatory principles.

Currently, Italy has a capital gains tax rate of 26% on any annual capital gain. After the implementation of the changes, taxpayers will only have such obligations during asset realization. Furthermore, taxation of the accumulated part of pensions will be canceled, and the mechanism for tax collection from pension funds will be revised.

It is essential to note that the tax reform in Italy will affect all aspects of life and business, including non-residents. After approval by the Council of Ministers, the enabling law project will be examined in a joint conference. The head of state will then submit the draft law to the chambers. From this point, the parliamentary process will start, expected to conclude in May, followed by the second phase of implementing the tax reform in Italy.

Introduction of the European Sustainability Reporting Standards (ESRS)

On July 31, 2023, the European Sustainability Reporting Standards (ESRS) were approved and will now become mandatory for companies covered by the Accounting Directive and required to provide sustainability information. This applies to public companies whose shares are listed on stock exchanges.

The Accounting Directive, as amended by the Corporate Sustainability Reporting Directive (CSRD), adopted in 2022, was designed to provide comparable and reliable sustainability information from companies in the European Union. ESRS is introduced based on these two directives.

The core idea of the ESRS is the principle of “double materiality”, which means that companies are required to report not only on their impact on people and the environment, but also on how social and environmental issues can affect financial sustainability and prospects. companies.

The ESRS covers 12 core areas to help companies more accurately and comprehensively assess and document their sustainable practices and sustainability risks. This decision opens a new stage in strengthening the sustainability and responsibility of business in the European Union.