Virtual currencies are attracting more and more attention. Last week the FATF released a report on virtual currencies. Since we receive queries on virtual currencies regularly this report will be off interest other visitors of our site as well.
Over the last years virtual currencies (with Bitcoin attracting the most attention recently) have developed into a payment method with ever growing global acceptance. Virtual currencies offer an innovative, cheap and flexible method of payment. As with all innovations in the financial industry, the virtual currencies pose a challenge to regulators and tax departments (for example see Notice 2014-21 issued by the IRS) around the world, not sure on how to deal with this new payment method. Responses to the virtual currency vary, where some countries embracing this new technology and others limiting or restricting its legitimate use.
We receive most questions on the AML impact of accepting / investing in virtual currencies and clearly so did the FATF. Consequently the FATF conducted research into the characteristics of virtual currencies to make a preliminary assessment of the ML/TF risk associated with this payment method. An important step in assessing the risks and developing an appropriate response, is to have a clear understanding of the various types of virtual currencies and how they are controlled and used.
The FATF released a their report: Virtual Currencies; Key Definitions and Potential AML/CFT Risks
The FATF also recognize the benefits of virtual currencies such as:
- increased payment efficiency and lower transaction costs
- facilitate international payments (regardless of opening hours of financial institutions)
- have the potential to provide payment services to populations that do not have access or limited access to regular banking services
At the same time the FATF identifies potential AML risks associated with virtual currencies:
- the anonymity provided by the trade in virtual currencies on the internet
- the limited identification and verification of participants
- the lack of clarity regarding the responsibility for AML compliance / supervision / enforcement for transactions
- the lack of a central oversight body
The report provides a (i) brief introduction to virtual currencies (ii) explanation of the difference between convertible / non-convertible currencies (iii) explanation of centralized / non-centralized currencies and the second part of the report contains law enforcement examples of money laundering offences involving virtual currencies to demonstrate how this payment method has already been abused for money laundering purposes.
For those of you wondering what virtual currencies are all about and want to understand the risks a bit better the report makes interesting reading. We are following the development with great interest as we are of the opinion the virtual currencies are here to stay. We are all faced with the challenges that come with new technology and innovation in this area.
A new Argentine tax reform introduces significant changes to the income tax law regarding the taxation of dividends and capital gains in Argentina has come into force.
The foremost modifications announced by the reform include:
Before the reform, foreign parties (non-Argentine residents) were exempt from income tax on gains from the sale of shares, bonds and other securities. This tax reform eliminates this exemption, applying 15% income tax to net gains derived from such transactions.
For foreign beneficiaries, the net gain is assumed to be 90% of the gross sales price. This implies an effective tax rate of 13.5% of the gross sales price (15% x 90% assumed net income). Alternatively, the law gives the possibility of calculating the net income by deducting from the gross sales price the actual costs allowed under Argentine regulations (it is still to be clarified how this is to work in practice).
Since the proposed introduction of the AIFMD (“Alternative Investment Fund Managers Directive”) by the European Union in late 2010, CIMA (“Cayman Islands Monetary Authority”) has been actively involved in the process leading up to the implementation of this directive, which is due to become fully effective in July of 2013.
Various clients have approached us with questions on the AIFMD (“Alternative Investment Fund Managers Directive) and therefore we want to provide a brief update here as well as some interesting links to EU documentation.
One of our clients approached us with the question if we could assist in assessing whether or not it was possible and/OR beneficial to his investors in his offshore funds to file a claim with the European Court of Justice (“ECJ”) for “discriminatory withholding taxes”. A topic that we felt would benefit more clients and their investors.
A proposal to amend the BVI Business Companies 2004 has been introduced in the BVI’s House of Assembly. The proposal, together with the BVI Business Companies Regulations 2012 has been published in the BVI Gazette. Changes are anticipated to become effective by the end of 2012.
Most of the suggested amendments are minor changes, where the most interesting changes are:
The amendment will make it explicitly clear that the Registrar, when considering whether to allow a company name, is not to be concerned with the legal rights any person or company has to the name or to the use of the names (regardless if this arises out of trade or service mark legislation in the BVI or elsewhere or under common law).
Foreign character names
The regulations contain a detailed provision for the registration of an additional foreign character name for a BVI company. This will require a notarized statement by a “person with the necessary competence” confirming the translation and meaning of the foreign character name when applying for registration.
Reuse company names
The regulations will allow for a company name to be reused once that BVI company has been dissolved (or moved from the BVI to another jurisdiction) after a period of seven years.
The amendment proposes that the liquidation of a solvent BVI company will commence on the registration with the Registry of a notice of appointment by the voluntary liquidator, rather than at the time of resolution to appoint the voluntary liquidator. In addition, the Regulations determine that BVI companies which are regulated entities (excl. funds) will be required to appoint a licensed insolvency practitioner as voluntary liquidator.
The amendment proposes an application to restore a BVI company (e.g. by paying the outstanding license fees, etc.) will need to be made within 7 years of the company being struck off (opposed to current 10 years) before the company will be dissolved.
Listed company and funds regulations
The amendment will enable regulations to be made to exclude or modify the provisions of the Business Company Act in relation to listed BVI companies and BVI companies operating as funds.
These we feel are the most relevant proposals. Should you require more information on the proposals, please do not hesitate to contact your VBK account manager(s) or just post a response to this blog.
Following Announcement 2012-42 (http://www.irs.gov/pub/irs-drop/A-12-42.pdf) the US Internal Revenue Service (IRS) has delayed the timelines for withholding agents and foreign financial institutions (FFI’s) to complete the due-diligence requirements as detailed in FATCA (Foreign Account Tax Compliance Act).