September 2014
It is my pleasure to welcome you to the Autumn edition of La Mondiale Expat News which focuses on several important regulatory and tax developments at both EU and national levels.
I’m also pleased to be able to let you know about La Mondiale Europartner’s ongoing success. Our new business premiums in the first half of 2014 were €1.5bn, an excellent result when compared with our total of €2.2bn for the whole of 2013. I would like to thank our distribution partners for their wonderful support and for helping us to reach this great result.
As we move into Autumn our thoughts are already turning towards having a successful run into the 2014 year-end, recognising that the sales process for many clients means that the next few weeks are an important time if business is to be written this year. Everyone in the La Mondiale Europartner team is available to support our partners across the next few weeks that can be so crucial to having a successful year-end. Please just let us know if there’s anything we can do to help you.
I hope you will find the enclosed articles to be of interest and I wish you happy reading!
Fabrice Sauvignon CEO, La Mondiale Europartner
Inside this edition… New Single Euro Payments
Area Operational
2 New UK 'Strict Liability'
Offshore Tax Evasion Offence 2 Shifting the LDF Goalposts 3 MiFID II IFA Commission Ban Confirmed
3 Flexibility Coming for UK
Pension Scheme Members
4 French Court Rules Against
Tax On Non-Resident Property Owners
5
New Regulations Governing Life Insurance Sales in Belgium
6
Proposed Tax Reductions And New Exit Tax In Spain
LA MONDIALE EUROPARTNER Member of AG2R LA MONDIALE Group
Société Anonyme registered in Luxembourg number B49.940
Registered address: La Mondiale Europartner SA, 23 ZA Bourmicht, L-8070 Bertrange Grand Duché de Luxembourg Authorised by the Commissariat Aux Assurances
Tél. : +352 45 85 87-1 Fax : +352 45 87 18
N
EWS
INGLEE
UROP
AYMENTSA
REAO
PERATIONALThe introduction of the euro made it as easy to make cash payments anywhere in the Eurozone as it is at home, but making electronic payments in other eurozone countries (such as paying for goods with a bank debit card or transferring money to a bank account in another eurozone country) has remained problematic, with additional costs and delays being the norm.
This situation changed on 1 August 2014 with a true European single market for retail payments made in euro becoming fully operational in all eurozone countries. Within the Single Euro Payments Area (SEPA) bank transfers, direct debits and card payments between EU member states are now just as easy and fast as the equivalent domestic transactions.
Over 500 million citizens and 20 million businesses, plus public authorities, in the Eurozone can now make and receive payments in euro under the same basic conditions, rights and obligations, regardless of their location.
In addition to the obvious benefits for consumers, for instance when shopping abroad, these changes should deliver better banking services through transparent pricing, valuable guarantees ensuring that payments are received promptly and in full, and banks assuming responsibility if something goes wrong with your payment. This will extend to direct debits set up, for instance, to pay bills in other Eurozone countries from a domestic bank account. Businesses that regularly buy or sell on a cross-border basis will no longer need to set up bank accounts in the different eurozone countries where they do business as they will be able to handle all their euro payments from a single bank account.
The cross-border rules now applicable within the SEPA will also apply to euro-denominated transactions in non-eurozone countries from 30 October 2016.
The adoption of the automatic exchange of information as a new standard at G20 level, and other initiatives such as FATCA, the EU Mutual Assistance Directive on Administrative Cooperation, the OECD Convention on Mutual Administrative Assistance in Tax Matters and the corresponding Common Reporting Standard on automatic exchange of information, has led to the evolution of Luxembourg’s position on this issue.
N
EWUK
'S
TRICTL
IABILITY'
O
FFSHORET
AXE
VASIONO
FFENCEWhile countries such as Luxembourg move to automatic exchange of information under the EU savings tax regime, the UK’s HM Revenue and Customs (HMRC) is seeking to close off other avenues of tax evasion by introducing a criminal offence of failing to declare taxable ‘offshore’ income. The message to offshore tax evaders is clear - come forward before HMRC knocks on your door!
In a new consultation paper, HMRC is seeking views on the geographic scope of the new offence, the level of penalties and appropriate safeguards. It is also consulting on possible defences, which could include the taxpayer being able to demonstrate that ‘appropriate professional advice’ had been taken and followed.
LA MONDIALE EUROPARTNER Member of AG2R LA MONDIALE Group
Société Anonyme registered in Luxembourg number B49.940
Registered address: La Mondiale Europartner SA, 23 ZA Bourmicht, L-8070 Bertrange Grand Duché de Luxembourg Authorised by the Commissariat Aux Assurances
Tél. : +352 45 85 87-1 Fax : +352 45 87 18
However, to prove that the new offence had been committed, HMRC would only have to demonstrate that the taxpayer failed to correctly declare income or gains, and not that this was done with the intention to defraud HMRC, effectively a presumption of guilt, raising the possibility of prosecution for people who have been careless or forgetful or allowed themselves to be misled over what taxes they had to pay.
HMRC is also seeking views on tougher civil sanctions for those with taxable accounts offshore including those who move their taxable assets between offshore banks in different countries in an attempt to evade tax. In such situations the value of the penalty could be directly linked to the transparency of the territory in which the income or gain arises. In its consultation document HMRC raises the possibility of extending the scope of penalties for offshore non-compliance beyond income tax and capital gains tax to include inheritance tax (which is not currently subject to increased penalties where non-disclosure of offshore assets is concerned).
Both consultations close on 31 October 2014 and the resultant legislation could have an impact on UK expatriates who should be completing a UK tax return, and on the assets from a UK domicile’s estate should the rules be extended to inheritance tax.
S
HIFTING THELDF
G
OALPOSTSFive years after it was introduced and with less than two years before it ends (on 5 April 2016), key aspects of the Liechtenstein Disclosure Facility (LDF) have been changed by HMRC.
The LDF was launched in 2009 primarily with the aim of allowing individuals with undisclosed tax liabilities and investments or assets in Liechtenstein to come forward and settle their tax liabilities on pre-defined, and very favourable, terms, compared to the normal tax rules. High net worth individuals who wish to regularise their financial affairs with HMRC (not just those previously related to Liechtenstein) have been able to utilse the LDF to their advantage.
HMRC’s latest changes restrict some of the LDF’s favourable terms in certain circumstances such as where no disclosure of new information has been made and in cases where there is no substantial connection between the liabilities being disclosed and the offshore asset held by the taxpayer on 1 September 2009.
As further reviews or changes by HMRC cannot be ruled out, individuals who could benefit from making a disclosure under the LDF would be advised to take specialist advice before HMRC changes the rules again.
M
IFID
II
IFA
C
OMMISSIONB
ANC
ONFIRMEDThe new MiFID II Directive and the Regulation on Markets in Financial Instruments (MiFIR) have taken a major step forward, being published in the EU Official Journal on 12 June 2014. Member States now need to adopt and publish the domestic legislation necessary to implement MiFID II by June 2016, with the new rules applicable from January 2017.
LA MONDIALE EUROPARTNER Member of AG2R LA MONDIALE Group
Société Anonyme registered in Luxembourg number B49.940
Registered address: La Mondiale Europartner SA, 23 ZA Bourmicht, L-8070 Bertrange Grand Duché de Luxembourg Authorised by the Commissariat Aux Assurances
Tél. : +352 45 85 87-1 Fax : +352 45 87 18
is clear that MiFID II will ban advisers providing independent advice from receiving commission and rebates from investment product providers, with the final rules including a definition of independent advice. The scope of this ban will cover mutual funds, portfolio management activities and sales of structured deposits. Advisers and product providers will also be required to provide clients with details of all charges related to their investment.
The European Commission requested ESMA (the European Securities and Market Authority) to provide it with technical advice on the definitions and technical standards for MiFID II and MiFIR. ESMA subsequently issued a 311 page consultation paper that listed 106 separate implementing measures. This consultation closed on 1 August and ESMA will now produce detailed technical advice to the Commission.
Rules governing commission for sales of insurance-wrapped investment products on the other hand will be left to the discretion of individual Member States under an amendment to the IMD (Insurance Mediation Directive), with no obligation for such commission to be banned. However, other consumer protection regulations will apply in any EU country that does not ban commission.
EIOPA (the European Insurance and Pensions Authority) has been consulting on a discussion paper on the Conflicts of Interest in both direct and intermediated sales of insurance-based investment products (referred to as ‘PRIIPs’). This consultation has considered measures that would be required to regulate investment-linked life insurance commission payments in the absence of such a ban, so that they do not harm customers. These measures principally focus on identifying and disclosing to investors potential conflicts of interests that may affect the behaviour of advisers and product providers, with the objective of ensuring consistent consumer protection requirements for the distribution of both unwrapped and wrapped investment products. EIOPA is scheduled to provide its technical advice to the Commission by February 2015 to ensure alignment with MiFID and IMD 2 implementation.
While the final rules and definitions are still some months away, it is clear that independent advisers will need to charge fees for their advice in most situations, while non-independent advisers will continue to receive commission payments from product providers.
F
LEXIBILITYC
OMING FORUK
P
ENSIONS
CHEMEM
EMBERSFollowing its surprise pension reform announcements in its 2014 Budget in April, the UK Government is consulting on its proposals to introduce increased flexibility for people with defined contribution pension savings from April 2015. Under the new system, people aged over 55 will be able to withdraw their savings at a time of their choosing subject to their marginal rate of income tax, rather than being forced to purchase an annuity. The changes include:
• removing restrictions on lifetime annuity payments;
• enabling pension schemes to make payments directly from pension savings with 25% taken tax-free (instead of a tax-free lump sum);
• removing the higher tax charges where people take pensions under money purchase pension savings as they wish; and
LA MONDIALE EUROPARTNER Member of AG2R LA MONDIALE Group
Société Anonyme registered in Luxembourg number B49.940
Registered address: La Mondiale Europartner SA, 23 ZA Bourmicht, L-8070 Bertrange Grand Duché de Luxembourg Authorised by the Commissariat Aux Assurances
Tél. : +352 45 85 87-1 Fax : +352 45 87 18 drawdown funds from 6 April 2015.
Individuals who have a defined benefit pension and who wish to access the new additional flexibilities rather than receiving their pension in their pension scheme’s standard format will generally need to transfer this to a defined contribution scheme first. This means that members of traditional final salary schemes will be able to cash out their entire benefits on the day of their retirement, subject to income tax at their marginal rate. The new rules won’t apply to members of unfunded public sector pension schemes.
The new Taxation of Pensions Bill also promises to increase consumer protection by introducing a ‘guidance guarantee’ where everyone with a defined contribution pension arrangement is offered free, impartial guidance so they are clear on the range of options available to them at retirement. The rules will also put in place additional safeguards to protect individuals and pensions schemes when people consider transferring out of a defined benefit scheme (for instance individuals will have to demonstrate that they have taken impartial financial advice on the options available to them before a transfer will be permitted, with such advice provision being restricted to only FCA-authorised adviser firms).
These pension changes will provide increased flexibility for large numbers of UK residents, including those who will go on to retire abroad, and many existing UK expats, with membership of defined contribution schemes growing from 2.2 million in 1997 to 4.2 million today. Around 7 million members of private sector defined benefit schemes will also be able to access the new flexibilities from April 2015.
The new flexible UK rules will have an impact on the relative attractiveness of QROPS (Qualifying Recognised Overseas Pension Schemes) for many UK expats but QROPS may still have overall advantages for other UK expats depending on their specific situations. It will be important for advisers to weigh up the pros and cons in each individual case, considering the tax (both country of residence and UK liabilities, and any double tax agreement arrangements) and currency exchange implications, plus any restrictions in any proposed QROPS scheme. Robust comparisons will need to wait for the publication of the final UK rules later in 2014.
F
RENCHC
OURTR
ULESA
GAINSTT
AX ONN
ON-R
ESIDENTP
ROPERTYO
WNERSFrance’s Supreme Administrative Court has ruled that the charge to income tax under Article 164C of the General Tax Code on non-residents owning property in France is in violation of the freedom of movement of capital under EU rules.
Under Article 164C, a non-resident individual who owns French immovable property which is not used in an active business (for example, a private holiday home) is liable to a flat-rate 20% income tax based on three times the property’s assessed rental value. Residents of France who own such properties are taxed differently.
LA MONDIALE EUROPARTNER Member of AG2R LA MONDIALE Group
Société Anonyme registered in Luxembourg number B49.940
Registered address: La Mondiale Europartner SA, 23 ZA Bourmicht, L-8070 Bertrange Grand Duché de Luxembourg Authorised by the Commissariat Aux Assurances
Tél. : +352 45 85 87-1 Fax : +352 45 87 18
The court ruling means that this exemption should also apply to third countries (non-EU and non-EEA) effectively undermining the basis of all Article 164C charges.
N
EWR
EGULATIONSG
OVERNINGL
IFEI
NSURANCES
ALES INB
ELGIUMNew legislation affecting the sale of life insurance policies in Belgium has taken effect, effectively introducing some of the principles of MiFID already in place in other sectors into the insurance sector.
This new legislation is designed to deliver improved policyholder protection through: • enhanced information exchange;
• more robust evaluation and assessment of client needs and product suitability; • identification and management of potential conflicts of interest;
• strict regulation of the remuneration the intermediary receives for selling the policy; and
• transparency of policy fees and charges.
This legislation imposes specific conduct rules and organisational requirements on advisers/intermediaries selling life policies and on the product providers, based on the principle that both advisers and insurance companies should always act in an honest, fair and professional manner, and in the best interests of their clients.
P
ROPOSEDT
AXR
EDUCTIONS ANDN
EWE
XITT
AX INS
PAINThe Spanish government has announced proposed tax reforms aimed at boosting economic growth by reducing taxes. Following a period of public consultation these proposals come before the Spanish parliament in October 2014, with the final agreed measures entering into force on 1 January 2015.
The government’s proposals would see income tax rates reduced with a 45% top rate. However, the income threshold to reach the new marginal maximum would be reduced significantly from €175,000 to €60,000. The savings income tax rate would be reduced from 27% to 24% in 2015 and then to 23% in 2016. The savings income threshold would be increased from €24,000 to €60,000. Wealth tax and inheritance tax are not included in the proposed reforms.