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5 www.cfa.org.cy
CYPRUS FIDUCIARY ASSOCIATION
CFA FORUM 2016
“The future of Cyprus as a Professional Services Centre”
Regaining Trust in Cyprus as an International Business Centre
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“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” Confucius
Financial Industry – Key Pillars
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Pillars of Substance/Reputation
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Government Financial Industry Policy Framework
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Which Island is this???
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The global trust & fiduciary market value is estimated at £4.5bn.
Source: Public information, PwC analysis
Crown Dependencies c.8-10%
Cyprus c.<1??%
Indicative
c.£4.5bn
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World GDP (Constant prices)
0,0 0,5 1,0 1,5 2,0
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
20
17
2018
20
19
$tn
The outlook for global economic indicators is positive
Source: Capgemini, IMF, UNCTAD
Foreign direct investment
(15%)
5%
25%
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
20
17
2018
20
19
YoY
ch
ange
Forecast
Trade volume of goods and services Forecast
CAGR 2015 – 19: 4%
CAGR 15-19: 6%
CAGR 00 – 08: 1% CAGR 08– 15: (2%)
Avg. growth 00-08: 7% Avg. growth 08-15: 3%
Avg. growth 09-15: 4%
0
20
40
60
80
100
120
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$tn
Forecast
CAGR 2000 – 15: 4%
0
20
40
60
80
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$tn
HNWIs wealth
Forecast
CAGR 15–19: 6%
CAGR 00 – 08: 3%
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There are structural reasons for using offshore structures and they will continue to remain relevant
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Regulation and legislation
Facilitate investment flows
Stability
Skillset/ experience
Confidentiality/ asset protection
Taxation planning
“Organising assets offshore avoids double taxation”
“Holding assets offshore can protect assets and limit liabilities”
“Offshore financial centres have specialist expertise in many areas”
“Offshore domiciles offer high levels of stability”
“Tailored regulation and tested legal frameworks make some OFCs
attractive”
“OFCs are the grease on the wheels in international trade”
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However, there are pressures facing the offshore market
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1. The public opinion may be turning against OFCs and recent events (e.g. ‘Panama papers’) have expanded this
2. There is political pressure and governments are increasing regulatory scrutiny and demand transparency
3. Onshore markets are becoming increasingly competitive
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Public interest and media scrutiny has increased since the financial crisis
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‘Panama
papers’
0
20
40
60
80
100
120
140
160
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
LTM
A
pr-1
6
Apr
-16
(ann
u…
00
0s
of c
itat
ion
s/ y
ear
Media citations of negative tax-related terms, 2000-16
Number of times "Tax haven" is mentioned Number of times "Tax avoidance" is mentioned Number of times "Tax evasion" is mentioned
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Legislated / Significant barriers
BEPS is the OECD’s attempt to ensure tax is paid where economic activity occurs. The actual outcome is uncertain
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Status: Work in progress
•15 initiatives, all OECD recommendations endorsed by G20 & OECD, Nov 2015
•Not yet incorporated into national law and still considerable uncertainty regarding outcome
•Country-by-country reporting is most progressed but has still not been agreed unanimously
Scope Progress Potential impact Barriers
Global Corporates 3 4 3
“It is important to remember that the trend has been for draft papers of this sort to be harsh, and then for the final product to be toned down”
Tax Expert
“I don’t think that BEPS … in the current form will have an effect, unless they become something more punitive”
Introducer
“BEPS will be introduced in its current format and will hit all OFCs…it raises a critical issue of substance. As a result, we need to get more companies to move headquarters here”
Tax Expert
Market views vary BEPS (Base Erosion and Profit Shifting)
4 4 Key:
0 4 Little progress / no barriers
Lower / Easier Higher / More difficult
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25 April 2016 Strictly private and confidential Internal use
The range of realistic scenarios is relatively broad
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Potential outcomes
Benign Scenario Limited impact
Aggressive Scenario Severe impact
• Only MNC structures and corporate structures used by alternative funds
• Implementation is consistent across jurisdictions and applies to all structures including regulated funds where applicable
Scope
• Abolition of hybrid mismatches extends to all user groups, including funds
Reporting • Minimum reporting requirements (Country-by-country reporting)
• More rigorous reporting akin to proposal by EU commission
Hybrid mismatch
• Abolish hybrid mismatch payments
– “Hybrid mismatches will go” - Tax Expert
• Common limitations on benefits clause adopted for use in all treaties (existing and newly negotiated)
• “The biggest fear for the corporate services market is limitation-on-benefits clause being implemented”- Tax Expert
‘Treaty shopping’
• Bilateral treaties continue as currently used - inclusion of LoB clause remains at the discretion of treaty members
• “No uniform implementation of LoB or principal purpose clauses would be a good outcome for corporate services providers” -Tax Expert
• Substance testing becomes uniform and more rigorous to determine jurisdiction where economic activity exists and therefore where tax is paid
• Transfer pricing requires greater substance in the structures in use
Substance testing
• Substance testing is aligned with practises already widely used
Imple-mentation
• Unilateral measures by individual or groups of jurisdictions to satisfy domestic attitudes
• A multilateral instrument is agreed and implemented consistently across territories
– “The multilateral instrument as it has the potential to accelerate all actions” – Tax Expert
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25 April 2016 Strictly private and confidential Internal use
Legislated / Significant barriers
In October 2016, the Commission proposed to re-launch the Common Consolidated Corporate Tax Base “CCCTB”
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Status: Just Re-launched
•CCCTB is a single set of rules to calculate companies' taxable profits in the EU
•cross-border companies will only have to comply with one, single EU system for computing their taxable income
•The consolidated taxable profits will be shared between the Member States in which the group is active, using an apportionment formula
•CCCTB will eliminate mismatches between national systems, preferential regimes and hidden tax rulings, which tax avoiders exploit. It will remove the need for transfer pricing, which is a primary route for profit shifting
Scope Progress Potential impact Barriers
Large cross boarder groups 1 4 4
4 4 Key:
0 4 Little progress / no barriers
Lower / Easier Higher / More difficult
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25 April 2016 Strictly private and confidential Internal use
CRS is the key upcoming regulatory change to increase transparency…
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Status: Agreements in place
•Automatic Exchange of Financial Information
•c.130+ participating countries
•Exchange of residents’ interests abroad
•Includes ultimate owners
Scope Start date Potential impact Ease to implement
Global Effective
reporting 2017 - 2018
4 4
“CRS is inevitable however there will be a lot of teething problems and education required…the most likely impacts are clients moving away from less reputable jurisdictions and providers, and service costs increasing”
Introducer
4 4 Key:
“I don’t see why CRS will have a detrimental impact, transparency isn’t a bad thing providing the client is compliant and uses a robust trust company”
Introducer
Market views CRS (Common Reporting Standard)
Lower / Easier Higher / More difficult
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25 April 2016 Strictly private and confidential Internal use
…as well as other actions to tackle perceived tax avoidance and transparency
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Status: Legislation passed, tax treatment unknown
• Abolish permanent resident non-dom status as of April-17
• Reduce residency criteria to 15 years resident of last 20 years (previously 17 of 20)
• Tax changes to be confirmed end of 2016
Status: Work in progress • New AML legislation to include register of UBOs
• In-country register of UBO to be made available on request
• CDOT’s have agreed to join (April 2016) and seeking common response from other G20 nations
• Concern due to intention to make registers public for corporate structures (not trusts)
Scope Progress Potential impact Barriers
EU, potentially global*
2 4 2
Scope Start date Potential impact Ease to implement
UK resident non-doms
Effective April 2017
4 4
“It’s likely any UBO reporting would stretch to cover trusts but they wouldn’t be made public”
Introducer
“The non-dom benefit will be removed in 2017 but the tax treatment of offshore trusts hasn’t been finalised…on the one hand we could see structures close in the face of an offshore asset tax or any penalty could be on future distributions so the structure remains and has a longer life ”
Introducer
*In April 2016 the 5 largest EU economies wrote to the G20 requesting a global response to UBO transparency
4 4 Key:
0 4 Little progress / no barriers
Legislated / Significant barriers
Lower / Easier Higher / More difficult
UK changes to resident Non-Dom status 4th AML – register of UBO’s
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25 April 2016 Strictly private and confidential Internal use
Onshore tax regimes (e.g. UK changes) are increasingly competitive on headline rates
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30% 30% 30% 28% 28%
26% 24% 23%
21% 20% 20% 19% 19% 19% 17%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
UK corporate tax rate, 2006-20f
Budget 2016
“Over the last few years we have seen European countries bringing their rates down to compete more with traditional tax jurisdictions”
Introducer
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25 April 2016 Strictly private and confidential Internal use 19
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25 April 2016 Strictly private and confidential Internal use 19
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25 April 2016 Strictly private and confidential Internal use 19
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25 April 2016 Strictly private and confidential Internal use
Reflection!!!
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STRENGTHS
1. High Quality Service certainly by the large reputable providers
2. Highly educated workforce 3. Competitive prices 4. “Value for Money” proposition 5. Highly appreciated by the people who have used Cyprus
in the past and dealt with the right providers 6. Sunshine!!!
WEAKNESSES
1. Reputation 2. Large number of small providers who may offer lower
quality service and accept questionable business to survive
3. Regulatory Gap and Arbitrage mainly due to segmentation of the market under three regulators
4. Bureaucratic procedures of Governmental authorities 5. No international bank operates on the island 6. Very limited Custodian services 7. Weak stock market 8. Limited depth and complexity of investment and finance
sector 9. Ineffective judicial system
OPPORTUNITIES
1. New services (funds etc.) 2. Become European leaders in fund administration for
small mid-cap fund managers 3. New markets (Middle East, Africa, Latin America, Far
East) 4. Regional offices – Substance 5. Non-Doms, Citizenship and Residency programmes 6. Shipping 7. Brexit???
THREATS
1. International fiscal transparency agenda and associated increased compliance costs of services
2. Socio/political/economic/legal/regulatory changes impacting the fiduciary industry
3. Perceived Political Instability as a result of the political issue
Regaining Trust in Cyprus as an International Business Centre
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“When it is obvious that the goals cannot be reached, don't adjust the goals, adjust the action steps” Confucius
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CYPRUS FIDUCIARY ASSOCIATION Business Address: 115 Griva Digeni Avenue, 3101 Limassol, Cyprus P.O. Box 58159, 3731 Limassol, Cyprus Tel.: +357 25 590086 Fax: +357 25 590089 E-mail: [email protected] Website: www.cfa.org.cy
Thank you.