Category: Tax Structuring

The future of investment dispute settlement

The original article was published in Family Office Magazine and can be found here.

Entrepreneurs engaging in international investments face several issues when they are accused of a breach of contract. When the investment agreement does not provide solid provisions for dispute settlement, endless legal discussions and expensive court cases in unfamiliar jurisdictions can be the result. This article provides simple solutions for both investor and beneficiary to avoid such issues. 

The solution to avoid endless legal battles is to insert an arbitration clause in the investment agreement (out of court legislation). Arbitration has numerous advantages.

  1. Unlike in court, parties can select an arbitrator with an appropriate degree of practical experience. For example, a Court of Arbitration has a list of arbitrators who are experts in the field of digital commerce.
  2. Arbitration is faster than litigation in court, and a time limit can be placed on the length of the process.
  3. Arbitration is cheaper and more flexible, more commercial and less formal than court.
  4. Unlike court rulings, arbitration proceedings and arbitral awards are confidential.
  5. Unlike in court, there are very limited avenues for appeal of an arbitral award, which limits the duration of the dispute and any associated liability.
  6. Due to the provisions of the New York Convention 1958, arbitral awards are far easier to enforce in other nations than court judgments.

From an international perspective, there are several courts of arbitration that offer an effective way to solve investment disputes. Below are examples (in alphabetical order).

Astana International Financial Court (AIFC Court)

The AIFC Court in Kazakhstan provides a common law court system that operates to the highest international standards to resolve civil and commercial disputes in the Astana International Financial Centre.  It adjudicates exclusively all claims arising out of the AIFC and its operations and other claims in which all parties to the dispute agree in writing to the jurisdiction of the AIFC Court.  

The AIFC Court has its own court of final appeal, its own procedural rules, and a special fast track for small claims. Its Chief Justice and judges are among the most experienced and distinguished judges from the common law world with global reputations for independence, impartiality, integrity, unconditional application of the rule of law, and incorruptibility. The judges, procedures, practices and standards at the AIFC Court will be familiar to businesses currently operating in major financial centres around the world.

Website: http://aifc-court.kz

Dubai International Financial Courts (DIFC Courts)

The laws establishing the DIFC Courts were designed to ensure the highest international standards of legal procedure, thus ensuring that the DIFC Courts provide the certainty, flexibility and efficiency expected by the global institutions operating in, with and from Dubai and the UAE. The laws enacted provide for a court system capable of resolving all civil and commercial disputes, ranging from sophisticated, international financial transactions to debt collection and employment disputes.

The DIFC Courts deal exclusively with all cases and claims arising out of the DIFC and its operations and any other claims where all parties agree in writing to use the DIFC Courts. The DIFC Courts carry out their functions in an independent manner, in accordance with the provisions of the DIFC laws and regulations.

Website: https://www.difccourts.ae

Court of Arbitration of the European Chamber of Digital Commerce (ECDC Court)

As an activity of its parent organization, the Swiss Chamber of Commerce in The Netherlands, founded in 1933, the Court of Arbitration of the European Chamber of Digital Commerce plays a crucial role in today’s digital world. Issues specific to digital technology include fintech, blockchain, cybersecurity, digital currencies, and intellectual property. Fairness has always been a business tradition observed in Europe, making the region so prominent as an arbitration location. The Court of Arbitration is conveniently located at Schiphol International Airport in The Netherlands.

The Court of Arbitration applies the UNCITRAL Arbitration Rules of the United Nations Commission on International Trade Law which meet international legal standards. The rules are concise and easy to understand, comply with current national and international legal developments, and are published in several languages.

Unless parties do not agree otherwise, the Court will apply the neutral UNIDROIT Principles of International Commercial Contracts to judge the dispute.

Website: https://europeanchamberofdigitalcommerce.com

London Court of International Arbitration (LCIA)

The LCIA is one of the world’s leading international institutions for commercial dispute resolution. The LCIA provides efficient, flexible and impartial administration of arbitration and other ADR proceedings, regardless of location, and under any system of law. The international nature of the LCIA’s services is reflected in the fact that typically over 80% of parties in pending LCIA cases are not of English nationality. 

The LCIA has access to the most eminent and experienced arbitrators, mediators and experts from many jurisdictions with the widest range of expertise. The LCIA’s dispute resolution services are available to all contracting parties without any membership requirements.

Website: https://www.lcia.org

Arbitration Institute of the Stockholm Chamber of Commerce (SCC)

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has developed into one of the world’s leading forums for dispute resolution. The SCC was established in 1917 and is part of, but independent from, the Stockholm Chamber of Commerce. The SCC consists of a Board and a Secretariat and provides efficient dispute resolution services for both Swedish and international parties. The SCC was recognized in the 1970’s by the United States and the Soviet Union as a neutral centre for the resolution of East West trade disputes. Also China recognized the SCC as a forum for resolving international disputes around the same time. The SCC has since expanded its services in international commercial arbitration and emerged as one of the most important and frequently used arbitration institutions worldwide.

Website: https://sccinstitute.com

Conclusions

When you want to avoid legal dramas unfolding from an investment agreement, check the websites above and copy the relevant clause into the agreement before signing. Another option is to persuade the counterparty to allow an already arisen case be settled by one of these arbitration institutions.

About the author: Bob Juchter van Bergen Quast, LLM, FSS, is the President of the Court of Arbitration of the European Chamber of Digital Commerce. Juchter van Bergen Quast has the right of audience before the AIFC. He is Chief Executive Officer of the Swiss Chamber of Commerce in The Netherlands and the European Chamber of Digital Commerce.

How Chambers of Commerce Help Family Offices and Wealth Management Firms

A Chamber of Commerce has traditionally furthered the interests of businesses in a particular geography or market sector by way of representation, business services, and networking opportunities. Multilateral Chambers of Commerce can link the business environments of two or more countries, such as the Swiss Chamber of Commerce in The Netherlands.

International Chambers of Commerce, such as the European Chamber of Digital Commerce, aim to boost companies’ reputation and growth in a particular business sector, such as Digital Technology. Some are governmental, nonprofit, or private organisations.

This article, written by Bob Juchter van Bergen Quast and published in Family Office Magazine, presents some unique benefits that Chambers of Commerce can offer businesses in an independent, impartial manner.

Read the full article here

Becoming an International Offshore Centre – Steps to be taken by African nations

Introduction

A number of African countries have began the process of moving away from being a tax haven to being an international finance centre, offering financial products to take advantage of the increasing international mobility of capital and labour. Legislations are continually being written with this goal in mind. It is important to enact laws that are in line with internationally accepted standards of an international finance centre. This article describes the steps to be taken for an African nation to become a modern international financial centre. It describes the way Rwanda is developing towards becoming an international financial centre and describes the importance of blockchain technology in this respect.

Goals

The broad objectives of governments that are willing to play a role as a financial centre should include:

  • to encourage businesses to form companies and take advantage of all the benefits the corporate form provides;
  • to create a sound base for business law framework in Africa which engenders confidence;
  • to promote a system which ensures sound reporting mechanisms as well as accountability and transparency;
  • to provide a simple and sound system which will ensure access for all to the company law;
  • to create a well functioning Companies Registry to support the new legislation and provide users with a reliable, cost effective and time efficient service; and
  • to provide urban and rural communities with open and affordable access to the proposed company law.

Requirements

African countries should havein place a comprehensive legislative framework covering local and international companies incorporated. These legislations are designed not only for ease of incorporation but to also provide sufficient and non onerous compliance and ease of maintenance. Since their independence, numerous pieces of legislation have been enacted to compliment and update existing African laws inherited from Britain and France. Such legislations were required to enhance regulation which were lacking in specific areas of the industry. In addition, there should beimplemented a Prevention of Fraud Act to prevent the use of a country for fraud and illegitimate commercial purpose, to promote African countries as a legitimate tax havens and to encourage foreign investments in Africa.

Todo

In most cases, the entire list of actions below needs to be executed. In some cases one or more steps already have been taken.

  • A new Companies Act should be drafted, with input from the industry’s stakeholders. Such an act should eliminate the complex and cumbersome approach to formation and operation of companies. A well functioning Companies Registry to compliment thesenew laws should eventually provide affordable accessibility to the company law. Ultimately, a significant reduction in the overall cost of doing business in Africa should be the direct result.
  • With technical aid from the International Monetary Fund, anew International Banking Act should bepassed to regulate and supervise all offshore licensed banks. This ensures protection of depositor’s assets and sound banking practice and qualified management are in place.
  • A Mutual Assistance in Criminal Matters Act is needed. The aim is to regulate the provision by African nationsof international assistance in criminal matters in the prevention of Money Laundering of proceeds from criminal activities and terrorist funding.
  • A new Insurance Act is neededto provide for the licensing, regulation and supervision of insurance business. This is to promote the maintenance of efficient, fair, safe and stable insurance markets for the benefit and protection of policyholders.
  • Providers of company and trust services must apply for a license to offer such services and to be regulated with a system that sets out their legal obligations as license holders. This ultimately protects users of financial products and further enhances the reputation as a finance centre.
  • A new Companies Act should provide the courts with as much direction as possible to allow them to continue to make decisions on company law. The underlying objective of this is to reduce gaps and grey areas in the legal system.
  • The promise this proposed law is holding out is to ultimately remove the expensive, time consuming and protracted process of incorporating a company. The approach to this is to replace the traditional Memorandum and Articles of Association with a straight forward Application Form. The Application Form will contain the essential information required by the Registrar of Companies to satisfy himself prior to accepting or declining the application to incorporate a company.
  • Part of this shift is to introduce a set of “Model Rules”. This replaces the traditional Memorandum and Articles of Association which only servesthe legally trained. The Model Rules is essentially the internal governance rules which apply to the company and by which the company operates on a daily basis. Logically therefore, the Model Rules cover such things as appointments of directors, removal and powers of officers, meeting procedures, shareholders rights and so forth. In line with the Act’s objective to reduce costs and achieve simplicity, Model Rules will be attached as schedules to the required Act. There will be no need to get the Model Rules prepared professionally. And the Model Rules will provide both directors and shareholders with guidance for the management of the company. All types of company: private, public, single shareholder and community will be covered by the Model Rules which can be amended to meet specific needs of the company.

Case study: Rwanda

Rwanda will soon be able to handle cash transactions for regional and international financial service providers following an endorsement to establish Kigali International Financial Center (KIFC).The center will basically serve as a home for nationally or internationally significant financial service providers, enabling Rwanda to handle finances for others. They will include banks, investment managers, hedge-funds or stock exchanges.

Currently, Rwanda is on the move to have its financial systems especially the local stock exchange integrated within the regional dynamics. So far the Rwanda stock exchange (RSE) has announced plans to get automated by June 2018 – a step towards standards money handling procedures.

As one of the most interesting features, besides boosting the GDP, the establishment of a financial center means that Rwanda will be able to handle offshore accounts and attract investors to bank their money in Rwanda even when their projects are in other countries (1).

Blockchain technology

An extra and in my opinion, very important step to taken, is the implementation of Blockchain technology in the new (to be developed) African offshore banking sector. There are offshore jurisdictions that are working to attract Crypto banks. As an example, Puerto Rico just issued a license for a Cryptocurrency International Financial Entity (Puerto Rico’s version of a banking license). Dominica is also active in the issuance of quality offshore banking licenses and makes allowances for cryptocurrency. 

In addition, a number of open-sourced groups have been formed to increase the availability of blockchain technology for offshore banks. For example, the Enterprise Ethereum Alliance became the world’s largest open-source blockchain initiative on July 18, 2017. With members like MasterCard, Cisco and Scotiabank, I have high hopes for this team.

Conclusions

The end result in the proposed change to the incorporation process will make company formation much easier and cheaper. An executing agency, e.g. a Financial Services Commission (FSC), will no longer undertake extensive reviews of documents at the assessment stage since simple user-friendly forms will be used. An old fashion discretion of the Minister in the incorporation process will bereplaced by a new set of rules, as described above. This effectively will expedite the process and reduce the time involved in forming a company.

The future of African countries as International Finance Centres is bright. With changes in the regulatory regime, Africais poised to take advantage of the increasing mobility of capital and labour with the goal of capturing a slice of this market. With common sense regulation designed to avoid suffocating bureaucracy and onerous compliance, Africais poised to be a major international financial centre.

(1) KT Press, 6 December 2017, Rwanda To Establish International Financial Centre

The value of a Dutch foundation for international asset protection

According to the Rule of Law Index , the Dutch justice system ranks as one of the most reliable and effective in the world. In general terms, only the Scandinavian justice systems seem to do better. In terms of resistance to discrimination, corruption and undue political influence, The Netherlands is even ranked #1.

Companies that are active on an international level become increasingly aware of the risks involved when engaging business in certain national legal systems, but also of the opportunities differences in jurisdictions present. International asset protection is an important activity in the current business environment. International Asset Protection is the legal process of titling both personal and business assets to put them beyond the reach of future potential threats and creditors. In this respect, multinational companies look for a jurisdiction that best suits their needs in an individual case.

For such sophisticated parties, it can be interesting to set up a Dutch legal entity. An important option in this respect is the Dutch Foundation. In this article, I will detail most of the topics to know before starting a foundation in The Netherlands, in particular a Dutch Administration Office foundation.

What is a foundation?

A foundation is a private legal entity, not associated with the government, that has no members or shareholders and in which the revenues are used for non-profit purposes, such as a charity fund.

Facts and features

Dutch foundations have specific features within the Dutch tax regulations. Although they have legal personality, Dutch foundations differ from businesses because their profits are not used to accumulate personal wealth. Instead, Dutch foundations have a non-profit goal and pay no taxes as long as their activities do not focus on profit or they do not compete with other businesses. As long as this situation remains, Dutch foundations do not need to file tax documents or deposit documents at the Dutch Chamber of Commerce.

The Dutch foundation can only be incorporated by a Dutch notarial deed, and will subsequently be registered by the notary in the Dutch public company register, where the names of the board members are publicly disclosed. There can be one or more incorporators and/or board members. No government authority is involved in the creation of a Dutch foundation and it acquires full legal capacity immediately when it is created. The Dutch foundation has a board, composed of one or more individuals and/or legal entities. It needs an office address in or outside The Netherlands. The directors of a Dutch foundation are not liable for the debts of the foundation, except for instance in cases of fraud.

Stichting Administratiekantoor (STAK)

A so called ‘STAK’ (Dutch: Stichting Administratiekantoor or in English: Administration Office Foundation) is a normal Dutch foundation, but with specific statutes. In short, a STAK is formed to hold the shares of a private company. By using the STAK to hold ‘their’ shares, shareholders are able to separate the economic ownership from the voting rights.

Thus, a STAK can be a voting trust foundation, without shareholders or share capital. When the STAK is used to buy, hold or manage shares of other companies, it must issue exchangeable depository receipts to the original owner of the shares. The STAK thus enters into an agreement with the original owner of the shares, transferring their legal ownership to the STAK, while the original owners maintain economic ownership of the shares. The main regulatory document in this respect is the trust conditions document, drawn up by the notary when forming the STAK. This document stipulates the agreement between the STAK and the depository receipt holders. The original owner of the shares (now the depository receipt holder) may then receive any dividends from the stock, even though he or she is no longer the legal owner of the shares.

A STAK structure can also acquire and manage assets in its own name. It can then issue certificates to the directors attesting to the economic value of the foundation’s assets.

Example of the use of a STAK in respect to international asset protection

The STAK structure has become an effective legal form of asset protection, because the STAK structure separates legal and economic ownership of stock in other companies. This has been proven in e.g. the Yukos cases; several international court and arbitral cases seeking compensation from the government of Russia to the former shareholders of Yukos-based on the claim that Russian courts were not acting in good faith in launching tax evasion criminal proceedings against Yukos, which led to the bankruptcy of the company. The Yukos structure is as follows:

Yukos Capital S.a.r.l., a Luxembourg-based company under two Dutch STAKs – Stichting Administratiekantoor Yukos International and FPH for Stichting Administratiekantoor FPH – that are run by Yukos’s former management, represents all those who held Yukos shares when the company was liquidated in 2007, including about 55,000 minority shareholders, some of which were investment funds. As of 2015, the structures control up to $2 billion in assets.

Tax benefits

There are also tax benefits to forming a STAK. First, holding investments in a STAK is not considered a business activity, and a STAK is taken as transparent for tax purposes. Therefore, it is not a subject to the Dutch corporate income tax. If the depository receipt holders do not live or conduct business in The Netherlands, and their investment are not actually located in The Netherlands, they are not subject of the Dutch tax liability on profits or capital gains.

Other benefits

The STAK structure limits disclosure of ownership since the STAK itself is the legal owner of shares. It can also function as an inheritance planning vehicle.

Note

All information has been prepared for general information purposes only to permit you to learn more about financial law. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice. 

Tax structuring with Dutch private limited liability companies – shareholders’​ rights

Mainly due to its tax efficiency, the Dutch holding (BV) company regime is the most preferred holding regime in the world. The Dutch tax regime is beneficial regarding withholding tax, capital gains and income received from subsidiaries. Other advantages of a BV are the flexibility of Dutch corporate law and tax law, as well as the low costs of incorporation and maintenance. These factors make The Netherlands a good choice for group structuring and for international joint ventures. In this article I will discuss some important legal aspects related to shareholders’ rights of a BV.

Articles of association

In The Netherlands, a private limited liability company can only be formed with the aid of a notary, who will write the articles of association (AOA) of the company. These articles include the official domicile, the mission of the company, the share capital, corporate objects, types of shares, Shareholder obligations and requirements, corporate bodies and organs, the way in which to convene the general meeting of shareholders, representation of the company, issuance of shares, how and when decisions can be taken and which decisions require a supermajority of votes. The subjects that are not covered by the articles of association are regulated by the Civil Code of The Netherlands (BW). It provides general rules concerning the relationships among shareholders. The AOA stipulates the competence of the organs of the company.

In addition to these AOA the shareholders may want to specify the way these competences can be used. This is stipulated in a separate document, called shareholders agreement (SHA), that does not require the help of a notary.

Shareholders agreement

The shareholders agreement deals with the management and the the relation among shareholders in detail. They are only binding on the parties thereto. It may sound strange, but Dutch law does not prevent SHAs from regulating non-company matters as well. Examples of rules that can be found in the SHA are: funding of the company, division of tasks, transfer or sale of shares and minority shareholders’ rights. SHAs are not regulated in the BW. The general rules of Dutch contract law are applicable to SHAs.

Under Dutch case law, voting agreements must not be in violation of the Civil Code or any other rules relating to public morals. A shareholder should be able to pursue his own interest in exercising his voting rights, provided he takes into account his interest in the company alongside the company’s interests and the general principles of corporate law (see: M. Pannekoek, Shareholders’ rights in private and public companies in The Netherlands: overview).

Protecting minority shareholders

In Dutch company law a number of rights are given to all shareholders, irrespective of the number of shares they hold, such as the right to right to vote in the general meeting of shareholders. Book 2 of the BW provides important minority shareholders protection articles, of which the most fundamental one is section article 2:201:

  1. Except as is otherwise provided for in the articles, all shares shall rank pari passu (on equal footing) in proportion to their amount.
  2. A company limited by shares must treat shareholders and holders of depository receipts whose circumstances are equal in the same manner.

The relevant section of Dutch company law with regard to the principle of equality (2:201) subsection 2) is a direct result of the European Council’s second company law directive (section 42 of the directive of the European Council, 13 December 1976, Pb L 26/1, 31). This directive is limited to subjects related to capital protection and is also only applicable to public companies. However currently the principle of equality of shareholders applies not only to issues concerning capital protection but to all company law issues. Other important provisions for the protection of minority shareholders in Book 2 are sections 2:15 about the right to ask for nullification of a resolution if the shareholder who requests nullification has a reasonable interest in the due performance of the obligation which has not been performed; section 2:220 about the right for shareholders who together hold a certain percentage of the shares to convene a general meeting of shareholders; section 2:343 providing a shareholder an exit-opportunity in case the continuation of his shareholding can no longer be reasonably expected of him due to the conduct of other shareholders, and section 2:344-359 about the right to demand an official inquiry with the object being the policy and the conduct of business.

Book 3 of the Dutch Civil Code, containing property law in general, has two important provisions for minority shareholders. The first section, 3:13, forbids abusing rightfully obtained power. It is an elaboration the principle of reasonableness and fairness of section 2:8 of the BW. It means that shareholders of a company are obliged to respect the principles of reasonableness and fairness in their internal relations and actions. Laws, customs, AOA or resolutions will thus not be applicable when these rules are unacceptable according to the standards of reasonableness and fairness.

The second important section for minority shareholders is laid down in Book 3 of the BW; section 3:305a. This section allows minority shareholders (but the section is not limited to these shareholders) to organise themselves into an association or a foundation and to have the entity bring an action against the company for the benefit of the collective.

Conflict between the AOA and the SHA

It is important to know whether greater weight should be given to the AOA or to the SHA in case of a conflict between the two. In 1938 the Supreme Court of The Netherlands decided that the general meeting of shareholders can only deviate from the articles of association by amending these articles (Hoge Raad 8 April 1938, NJ 1938, 1076). Currently, article 2:8 BW stipulates that all those involved in a legal person must behave reasonably and fairly towards one another. In a recent court case (2014) it was ruled that articles in a SHA under article 2:8 of the BW are operative on the legal relationship within the company. Only when exceptional circumstances arise, shareholders are not required to observe a shareholders’ agreement in full.

Director’s liability towards the company

Directors have a large degree of entrepreneurial freedom in running the company. In general decisions that in retrospective cannot be seen as beneficial or even wrong, will not lead to a director’s liability.

Article 2:9 BW states that the director is obliged to fulfil his duties on behalf of the company in a proper way. If mismanagement (Dutch ‘wanbeleid’)is the case, the director is held personally liable for the damage towards the company. The Dutch Supreme Court has determined finds that mismanagement is the case when a director can be ‘seriously blamed’ for the actions involved and their consequences. Serious blame occurs when a reasonable and experienced director would not have made the contested decision. Some examples include: withdrawing funds from the company for personal purposes, fraud and others criminal acts, irresponsible and excessive financial risks. Only the legal entity itself may hold the director liable on the grounds of section 2:9 BW.

The yearly general meeting of shareholders normally grants discharge from liability for damages for directors. After having granted discharge from liability, the general meeting of shareholders may not hold directors liable for matters which it had knowledge of when granting discharge. In case of irregularities, for example, a 2014 court decision shows that payments to directors can reasonably be deduced from the accounts of the BV, and thus the discharge granted at the general meeting of shareholders covered the liability of the director.

Other issues

According to Dutch law, a legal transaction entered into by a company can be annulled in the event that the transaction is beyond the scope of the company’s objects and the other party to the transaction knew or reasonably should have known this without further investigation. It is generally accepted that acts of a company must be in its best interests, being in accordance with the objects of the company, stated in the AOA. Only the company itself is entitled to request the annulation of a transaction.

Literature

Doorman, A., & Timmerman, L. (2002). Rights of minority shareholders in the Netherlands. Default journal.

Getting Haiti back in the saddle

Goal of the article

In 2017, Professor Michael E. Porter of Harvard Business School gave an important presentation about a strategy for restoring Haiti’s prosperity. A crucial part of his advice is to “make attracting foreign investment a core strategy“. In this article I will provide a suggestion to implement such a strategy.

The causes of Haiti’s poverty

Poverty in Haiti affects its people in many aspects of everyday life, including housing, nutrition, education, healthcare, infant mortality rates, as well as environment. Haiti has constantly been plagued with low levels of living conditions, with many Haitians moving into the capital city of Port-au-Prince in a bid to escape poverty in the more rural areas of the country. Levels of poverty in Haiti are generally regarded as among the most severe in the western hemisphere. This short article describes the origin of Haiti’s poverty and provides a solution to get the country back in the saddle.

French extortion for re-enslaving

An important cause of this poverty is the debt they ‘owed’ to France after fighting for their independence; France demanded a payment of 150 million francs ($20 billion dollars) as ‘compensation’ for the profit they lost when Haitians freed themselves from slavery on plantations producing coffee and sugar. Most of this was still being paid until 1947.

The United States stealing Haiti’s gold

On July 28, 1915, United States Marines landed in Haiti on the orders of President Woodrow Wilson, who feared that European interests might reduce American commercial and political influence in Haiti, and in the region surrounding the Panama Canal. The precipitating event was the assassination of the Haitian President, Jean Vilbrun Guillaume Sam, but United States interests in Haiti went back as far as the previous century: president Andrew Johnson wanted to annex both Haiti and the Dominican Republic. Twenty years later, Secretary of State James Blaine unsuccessfully tried to obtain Môle-Saint-Nicolas, a northern Haitian settlement, for a naval base. By 1915, the Americans were also afraid that an ongoing debt Haiti was forced to pay to France tied the country too closely to its former colonizer; Germany’s growing commercial interests in Haiti were another major concern. So one of the first actions carried out by the United States at the start of the occupation was to move Haiti’s financial reserves to the United States and then rewrite its Constitution to give foreigners land-owning rights.

During the nineteen years of the United States occupation, fifteen thousand Haitians were killed. Any resistance to the centralized, United States-installed puppet governments was crushed, and a gendarmerie—a combination of army and police, modelled after an occupation force—was created to replace the Marines after they left. Although United States troops officially pulled out of Haiti in 1934, the United States exerted some control over Haiti’s finances until 1947.

Stealing by the Duvalier family

From 1957 to 1986 Haiti was ruled by the corrupt and oppressive Duvalier family. Loans incurred during this period alone were estimated to account for approximately 40% of Haiti’s debt in 2000, before debt relief was granted. These funds were used to strengthen the Duvaliers’ control over Haiti and for various fraudulent schemes. Large amounts were simply stolen by the Duvaliers.

New loans

With the devastating effects of the early 2010 earthquake in Haiti there came renewed calls for a further debt cancellation from civil society groups. In light of the tragedy and new borrowing that lifted Haiti’s debts back to $1.25 billion, groups such as the Jubilee Debt Campaign called for this debt to be dropped. Furthermore, during the aftermath emergency money was offered to the Haitian government from the IMF in the form of loans. Civil society groups protested the offer of loans and not grants for such an already heavily indebted country trying to cope with such destruction. 

On 28 May 2010, the World Bank announced it had waived Haiti’s remaining debts to the bank. The value of the waiver was only $36 million.

In 2015, France forgave only about US $77 million in a modern debt, unrelated to independence. In 2004, the Haitian government demanded that France repay Haiti for the millions of dollars paid between 1825 and 1947 as compensation for the slaves’ freedom. In 2015, the French government rejected this plan and said that it would consider investing in the country.

Conclusions

The Battle of Vertières on the island of Haiti on 18 November 1803 was the final event that stood between slavery liberty in Saint-Domingue. It involved forces made up of former enslaved people on the one hand, and Napoleon’s French expeditionary forces (who were openly committed to re-enslave the former enslaved people and regain control of the island) on the other hand. The result was that Napoleon’s troops pulled back from Vertières, knowing they were defeated and that Haiti was lost to France.

Because Napoleon had failed to re-enslave Haiti he was missing the plantation revenues. As war with England was inevitable and he could not raise enough assets, Napoleon abandoned his colonial policy. France’ immense territory of Louisiana was sold to the United States on 30 April 1803 by means of the Louisiana Purchase Treaty. It was the birth of what now is considered the most powerful nation in the world, as Livingston made clear in his famous statement: “We have lived long, but this is the noblest work of our whole lives…From this day the United States take their place among the powers of the first rank.”

The West still profits from the international political and economic role that the United States plays in the world. The country contributes to world peace and has liberated Europe twice from German dominance. However, until now, the West has only contributed to Haiti’s poverty. It is my opinion that not much can be expected from the West and that Haiti needs to take into account that it needs to get back on its feet without or with minimal foreign aid.

Solutions

In order to restore Haiti to its former glory, I suggest the following.

  • As France has suggested it would invest in Haiti, a way of doing so would be to implement access to internet all over the country, so Haitians can have access to the open education platforms of e.g. Coursera. The French government could also fund a liaison office of the Institut européen d’administration des affaires (INSEAD) in Haiti that provides open education. INSEAD prides itself that it offers participants a global educational experience. With campuses in Europe (France), Asia (Singapore) and Middle East (Abu Dhabi), and alliances with top institutions, INSEAD’s business education and research spans around the globe. Our 150 renowned faculty members from 40 countries inspire more than 1,400 students in our degree and PhD programmes. In addition, more than 11,000 executives participate in INSEAD’s executive education programmes each year. I see INSEAD as an institution that can provide an ideal impuls to develop the level of education that Haiti needs to become an emerging market.
  • A very important step to taken, is the implementation of Blockchain technology in a new (to be developed) Haitian offshore banking sector. There are offshore jurisdictions that are working to attract Crypto banks. As an example, Puerto Rico just issued a license for a Cryptocurrency International Financial Entity (Puerto Rico’s version of a banking license). Dominica is also active in the issuance of quality offshore banking licenses and makes allowances for cryptocurrency. 
  • In addition, a number of open-sourced groups have been formed to increase the availability of blockchain technology for offshore banks. For example, the Enterprise Ethereum Alliance became the world’s largest open-source blockchain initiative on July 18, 2017. With members like MasterCard, Cisco and Scotiabank, I have high hopes for this team.
  • A new Companies Act should be drafted, with input from the industry’s stakeholders. Such an act should eliminate the complex and cumbersome approach to formation and operation of companies. A well-functioning Companies Registry to compliment these new laws should eventually provide affordable accessibility to the company law. Ultimately, a significant reduction in the overall cost of doing business in Haiti should be the direct result.
  • With technical aid from the International Monetary Fund, a new International Banking Act should be passed to regulate and supervise all offshore licensed banks. This ensures protection of depositor’s assets and sound banking practice and qualified management are in place.
  • A Mutual Assistance in Criminal Matters Act is needed. The aim is to regulate the provision by Haiti of international assistance in criminal matters in the prevention of Money Laundering of proceeds from criminal activities and terrorist funding.
  • A new Insurance Act is needed to provide for the licensing, regulation and supervision of insurance business. This is to promote the maintenance of efficient, fair, safe and stable insurance markets for the benefit and protection of policyholders.
  • Providers of company and trust services must apply for a license to offer such services and to be regulated with a system that sets out their legal obligations as license holders. This ultimately protects users of financial products and further enhances the reputation as a finance centre.
  • A new Companies Act should provide the courts with as much direction as possible to allow them to continue to make decisions on company law. The underlying objective of this is to reduce gaps and grey areas in the legal system.
  • The promise this proposed law is holding out is to ultimately remove the expensive, time consuming and protracted process of incorporating a company. The approach to this is to replace the traditional Memorandum and Articles of Association with a straight forward Application Form. The Application Form will contain the essential information required by the Registrar of Companies to satisfy himself prior to accepting or declining the application to incorporate a company.
  • Part of this shift is to introduce a set of “Model Rules”. This replaces the traditional Memorandum and Articles of Association which only serves the legally trained. The Model Rules is essentially the internal governance rules which apply to the company and by which the company operates on a daily basis. Logically therefore, the Model Rules cover such things as appointments of directors, removal and powers of officers, meeting procedures, shareholders rights and so forth. In line with the Act’s objective to reduce costs and achieve simplicity, Model Rules will be attached as schedules to the required Act. There will be no need to get the Model Rules prepared professionally. And the Model Rules will provide both directors and shareholders with guidance for the management of the company. All types of company: private, public, single shareholder and community will be covered by the Model Rules which can be amended to meet specific needs of the company.

Sources

  • Porter, Michael E. “A Strategy for Haitian Prosperity.” (pdf) In Keynote Presentation. Paper presented at the Forum on Competitiveness and Investment, Port-au-Prince, Haiti, September 22, 2017
  • “World Bank cancels Haiti’s debt”. AFP. 29 May 2010. 
  • Wroughton, Lesley (28 May 2010). “World Bank cancels remaining Haiti debt”. Reuters. 
  • “Hollande pledges Haiti investment”. BBC News. 2015-05-13. 
  • “France Confirms Will Not Repay Haiti ‘Independence Debt'”. TelesurTV. 12 May 2015. 
  • Wikipedia

Example of a tax minimization technique, called “double Irish with a Dutch sandwich”

The double Irish with a Dutch sandwich is a tax avoidance technique employed by large corporations, such as Google, Apple and Microsoft. This construction is called double Irish because two Irish companies are used in the arrangement. It involves the use of a combination of Irish and Dutch subsidiary companies to shift profits to low tax jurisdictions. One of the Irish companies is tax resident in a tax haven, such as the Cayman Islands or Bermuda. The double Irish with a Dutch sandwich’s essence is to send profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven (the ultimate owner of the intellectual property). 

Example

  1. An industrial company pays an IT-company for software to be used in Germany.
  2. The IT-company sends the money to its first subsidiary in Ireland, which holds the  IP.
  3. The tax payable in Ireland is 12.5 percent. As the Irish company pays a royalty to a Dutch subsidiary, it gets an Irish tax deduction. The activities of the Dutch licensing company primarily consist of receiving royalties from or on behalf of group companies. The Dutch company is typically not the owner of intellectual property rights, but it only obtains a license from a group company which it then sub-licenses to other parties.
  4. The Dutch company pays the money to the second Irish subsidiary that is tax resident in a tax haven. There is no withholding tax on inter-EU transactions and The Netherlands do not levy any transfer taxes with regard to the transfer of intellectual property.
  5. The owner of the IP is a group company. In order to avoid a high tax burden at the level of the owner of the IP, it is quite common that the company which owns the IP (and thus receives royalties from the Dutch company) is established in a jurisdiction which levies no or only few taxes over the IP income (tax haven). The Dutch tax system allows an easy transit of royalties to a tax haven company. The profits can thus land in an overseas zero-tax haven where they are stored for years.

Under the new Irish tax rules, companies not already operating in Ireland may not use the “Double Irish” technique as of January 2015. The companies that already use this technique have until 2020 to find another arrangement. They have to look for a replacement for Ireland, which is not so hard to find.

De factuur fiscaal bezien

Het komt voor dat de belastingdienst de aftrek van BTW in facturen weigert. Met name als het om grotere bedragen gaat. Het verwijt dat de ondernemer dan wordt gemaakt is dat de omvang en aard van de werkzaamheden niet is vast te stellen. Wat zegt het internationale recht over de inhoud van de factuur?

BTW-aftrek mag in beginsel niet worden geweigerd

In de zaak ECLI:EU:C:2016:690 en 101 bevestigt het Hof van Justitie EU dat het herhaaldelijk heeft geoordeeld dat het recht op btw-aftrek waarin de artikelen 167 en volgende van richtlijn 2006/112 voorzien, een integrerend deel van de btw-regeling is en, in beginsel, niet kan worden beperkt. Het wordt onmiddellijk uitgeoefend voor alle belasting die op in eerdere stadia verrichte handelingen heeft gedrukt (zie in die zin arrest van 13 februari 2014, Maks Pen, C 18/13, EU:C:2014:69, punt 24 en aldaar aangehaalde rechtspraak).

De aftrekregeling heeft tot doel de ondernemer geheel te ontlasten van de in het kader van al zijn economische activiteiten verschuldigde of betaalde btw. Het gemeenschappelijke btw-stelsel waarborgt bijgevolg een neutrale fiscale belasting van alle economische activiteiten, ongeacht de doelstellingen of resultaten van deze activiteiten, mits deze activiteiten in beginsel zelf aan de btw zijn onderworpen (arrest van 22 oktober 2015, PPUH Stehcemp, C 277/14, EU:C:2015:719, punt 27 en aldaar aangehaalde rechtspraak).

De materiële voorwaarden waaraan moet zijn voldaan opdat het recht op btw-aftrek ontstaat, volgen uit artikel 168, onder a), van richtlijn 2006/211 dat de goederen of diensten waarvoor op dat recht aanspraak wordt gemaakt, door de belastingplichtige in een later stadium moeten zijn gebruikt voor zijn eigen belaste handelingen en in een eerder stadium door een andere belastingplichtige moeten zijn geleverd of verricht (zie in die zin arrest van 22 oktober 2015, PPUH Stehcemp, C 277/14, EU:C:2015:719, punt 28 en aldaar aangehaalde rechtspraak).

Wat de formele voorwaarden voor de uitoefening van dit recht betreft, volgt uit artikel 178, onder a), van richtlijn 2006/112 dat de belastingplichtige in het bezit moet zijn van een overeenkomstig artikel 226 van deze richtlijn opgestelde factuur (zie in die zin arresten van 1 maart 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C 280/10, EU:C:2012:107, punt 41, en 22 oktober 2015, PPUH Stehcemp, C 277/14, EU:C:2015:719, punt 29).

Het Hof heeft geoordeeld dat het basisbeginsel van neutraliteit van de btw verlangt dat aftrek van voorbelasting wordt toegestaan indien de materiële voorwaarden daartoe zijn vervuld, ook wanneer een belastingplichtige niet voldoet aan bepaalde formele voorwaarden. Wanneer de belastingdienst over de nodige gegevens beschikt om vast te stellen dat is voldaan aan de materiële voorwaarden, mag hij bijgevolg voor het recht van de belastingplichtige op aftrek van die belasting geen nadere voorwaarden stellen die tot gevolg kunnen hebben dat de uitoefening van dat recht wordt verhinderd (zie in die zin arresten van 21 oktober 2010, Nidera Handelscompagnie, C 385/09, EU:C:2010:627, punt 42; 1 maart 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C 280/10, EU:C:2012:107, punt 43, en 9 juli 2015, Salomie en Oltean, C 183/14, EU:C:2015:454, punten 58 en 59 en aldaar aangehaalde rechtspraak).

Daarom mag de belastingdienst het recht op btw-aftrek niet weigeren enkel en alleen omdat een factuur niet voldoet aan de door artikel 226, punten 6 en 7, gestelde voorwaarden indien hij beschikt over alle gegevens die nodig zijn om na te gaan of is voldaan aan de materiële voorwaarden voor uitoefening van dat recht.

In dit verband mag de belastingdienst zich niet ertoe beperken de factuur zelf te onderzoeken. Hij moet bovendien rekening houden met aanvullende informatie die de belastingplichtige verstrekt. Deze stelling vindt steun in artikel 219 van richtlijn 2006/112, dat ieder document of bericht dat wijzigingen aanbrengt in en specifiek en ondubbelzinnig verwijst naar de oorspronkelijke factuur, met een factuur gelijkstelt.

De economische realiteit

Het HvJ EU overweegt in de zaak Paul Newey (HvJ EU 20 juni 2013, nr. C-653/11, BNB 2014/49) in de eerste plaats dat het begrip dienst een objectief begrip is dat onafhankelijk van het oogmerk of het resultaat van de rechtshandelingen wordt toegepast. Vervolgens overweegt het Hof in genoemde zaak dat contractuele bepalingen normaliter de economische realiteit weergeven en – mede omwille van de rechtszekerheid – een in aanmerking te nemen factor vormen. Een afwijking van de contractuele bepalingen is echter mogelijk als sprake is van een zuiver kunstmatige constructie die niet beantwoordt aan de economische realiteit en alleen is bedoeld om een belastingvoordeel te verkrijgen. De nationale rechter dient – op basis van een globale beoordeling van de omstandigheden – na te gaan wie de daadwerkelijke ontvanger van een dienst is. De contractuele bepalingen vormen daarbij een in aanmerking te nemen, maar niet de doorslaggevende factor.

Aard en omvang van de geleverde diensten

Een factuur die bij wijze van vermelding van de aard van een dienst slechts de omschrijving als bijvoorbeeld ‚juridische dienstverlening’ bevat, voldoet aan de eisen van artikel 226, punt 6, van richtlijn 2006/112/EG (2016:101, r.o 102 onder 1).

De factuur is onder meer bedoeld om te kunnen controleren of de opsteller van de factuur de juiste belasting heeft voldaan. Daartoe moet – naast voornoemde omschrijving – ook de datum bekend zijn waarop een dienst is verricht. Het is namelijk deze datum – en niet bijvoorbeeld de datum van uitreiking van de factuur – die volgens artikel 63 van de btw-richtlijn in beginsel bepaalt wanneer het belastbare feit in de zin van artikel 62, lid 1, van deze richtlijn heeft plaatsgevonden, en daarmee ook welke belastingvoorschriften ratione temporis op die handeling van toepassing zijn (2016:101, r.o 68).

Kortom, vermeld op een factuur duidelijk waar het om gaat en wanneer de prestaties zijn verricht.

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