CYPRUS FIDUCIARY ASSOCIATION

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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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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


Large cross boarder groups 1 4 4

4 4 Key:



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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)


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…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)


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:




UK changes to resident Non-Dom status 4th AML – register of UBO’s

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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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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.

Documents

CYPRUS FIDUCIARY ASSOCIATION