The yearly volume of bitcoin transactions in Russia is estimated by the central bank to be over $5 billion. But a recent legislative recommendation escalated a brewing disagreement between the Russian Ministry of Finance and the central bank. Let’s take a deeper look at what the fuss is all about and how this can affect how cryptocurrency is taxed in the USA and across the globe.

Russia’s Latest Crypto Regulation

The finance ministry published legislative recommendations that contrasted with the central bank's call for a blanket ban. This escalated a brewing disagreement over cryptocurrency regulation in Russia.

The proposed legislation to regulate cryptocurrencies in the country includes requirements that investors can no longer stay anonymous and that transactions be limited to a particular value, among many other things. In this context, it must be noted that enabling law enforcement, the ability to track money movements and transactions risks undermining one of the cryptocurrencies' key selling points: its anonymity.

However, to add to the complexity of the matter, a document obtained by Reuters states that the central bank opposes the ministry's plans. Also, it wants an official ban on the creation and distribution of cryptocurrencies.

In order to understand how this legislative recommendation affects the global crypto tax dynamics, let’s take a look at how cryptocurrency is taxed in the USA and in Russia.

How Is Cryptocurrency Taxed In Russia?

In the last month of 2020, the Russian Federation's government introduced Bill No. 1065710-7 to the State Duma, which includes measures that would control the circulation and possession of cryptocurrency and define liability for violations of the bill's laws.

The bill mandates residents, individuals, and legal companies operating in the Russian Federation to report their cryptocurrency holdings and imposes tax liability for illegal failure to submit information or declaring misleading information regarding cryptocurrency transactions. The bill's changes call for cryptocurrencies to be recognised as an "asset" and taxed appropriately.

How Is Cryptocurrency Taxed In The United States?

For tax purposes, the Internal Revenue Service considers cryptocurrencies as property and not currency. You must keep a record of the capital gains or the capital losses and incur the proper cryptocurrency tax rates, just like you would with stocks, bonds, or real estate. These crypto tax rates are determined by the holding period of the assets and your income tax bracket for the financial year.

• Holding your crypto assets for more than a year will lead to long-term capital gains or losses when you sell them. The tax rates on long-term capital gains are often lower than that of short-term tax rates. 

Depending on your income tax bracket, long-term capital gains tax rates vary from 0% to 20%.

• Holding your crypto assets for less than a year will lead to short-term capital gains or losses when you sell them. The tax rates on short-term capital gains are often much higher than that of long-term tax rates. 

Depending on your income tax bracket, short-term capital gains tax rates vary from 10% to 37%.

What Is The Effect Of Russian Crypto Regulation On How Cryptocurrency Is Taxed In The USA?

The Russian government and the central bank have agreed to regulate cryptocurrencies and will treat them as foreign currency rather than a stock. Essentially, the plan states that transactions of $8,000 or more must be registered, and exchanges must be licensed.

With the change in crypto dynamics in Russia, the third-largest crypto mining country, the United States is now attempting to consider what its rules would look like. It is projected that crypto havens would spring up in either primarily island countries throughout the world that simply wants people to switch their bitcoin there to escape taxation. There will be a lot of amendments here from various nations across the globe.

The Bottom Line

These are all significant developments, even if they occur on a global scale, for how U.S. politicians may consider crypto, whether as a security or a currency.

FAQs:

• Is Bitcoin used in Russia?

Russia is the third-largest country in terms of mined cryptocurrencies. But officials have, for a very long time, questioned the crypto market, worrying about its volatility and risk of unlawful activities, and have demanded crypto rules be imposed. The yearly volume of bitcoin transactions in Russia is estimated by the central bank to be over $5 billion.

However, the Bitcoin sales in rubles have remained limited. Russians have purchased an average of 210 BTC each day with rubles. 

• How is cryptocurrency taxed in Russia?

In the last month of 2020, the Russian Federation's government introduced Bill No. 1065710-7 to the State Duma. The bill mandates residents, individuals, and legal companies operating in the Russian Federation to report their cryptocurrency holdings and imposes tax liability for illegal failure to submit information or declaring misleading information regarding cryptocurrency transactions. The bill's changes call for cryptocurrencies to be recognized as an "asset" and taxed appropriately.

• What is the new crypto legislation recommendation in Russia?

The proposed legislation to regulate cryptocurrencies in the country includes requirements that investors can no longer stay anonymous and that transactions be limited to a particular value, among many other things. In this context, it must be noted that enabling law enforcement, the ability to track money movements and transactions risks undermining one of the cryptocurrencies' key selling points: its anonymity.

Daniel D. Morris is the Founding Partner of the Silicon Valley, Los Angeles, and Portland (Oregon) based CPA firm, Morris + D’Angelo, which focuses on servicing entrepreneurial families and their businesses. The firm utilises an integrated and holistic approach designed to help customers navigate the most complex and sensitive of matters.

Below, Daniel discusses the impact of Donald Trump’s new tax legislation, as well as the things that make Morris + D’Angelo unique when compared to other tax and business advisory firms in Silicon Valley.

What have been any recent tax policies or reforms in the US and how have they impacted your clients?

In December last year, President Donald Trump signed new tax legislation that changed the landscape of business and individual taxation. Corporate tax rates have been reduced by 40% and initiated a quasi-territorial tax system for corporations. Individual tax brackets have likewise been reduced, albeit only slightly. Individual based tax deductions have been significantly curtailed while increasing allowable standard allowances. Self-employed and associated pass-through businesses in most categories will also see reduced rates.

The most notable challenges the new legislation created are in the international arena. The new provisions created a global tax on intangibles (called GILTI) and imposes an effective 10.5% corporate level tax with the remainder excluded from income under the aforementioned quasi-territorial regime. Global structures owned and operated by individuals, families, estates, trusts, joint ventures, and pass-throughs pay a GILTI at upwards of 37% and do not receive the corporate level territorial exclusion.

This corporate versus individual disparity is creating terrific drama and challenges as advisers and taxpayers regroup their thinking as to how best to navigate global business operations while avoiding excessive taxation.

Morris + D’Angelo reacted swiftly to protect our customers’ options while providing best-of-class advisory and choices. This is an ongoing process as the legislation is so radically different in approach than the previous underlying taxation philosophy that served our country so well for nearly seventy years, that the primary concept we champion is to “hold on and prepare for more changes”.

Tell us about Morris +D’Angelo’s key priorities towards your clients? What differentiates the company as opposed to other tax and business advisory firms in Silicon Valley?

Our priorities are clearly developed around providing world-class services and options to a selected group of customers. Unlike traditional firms that charge by the hour and have a shotgun approach to customer attraction, selection, and retention, we utilise a more sniper-driven process.

Our customers share the following characteristics:

• They are closely held and family driven enterprises, meaning we do not seek publicly held companies, non-profit associations, or most regulated type enterprises.
• They are multi-jurisdictional, meaning they are or will be operating across both state and national borders and they require what we term ‘deep generalists’ that understand the complexities associated with global enterprises and who personally have developed networks of qualified advisers to assist in local matters while having a coordinated professional at the helm of global design, compliance, and outcomes.
• They frequently have family offices where we are the advisers to the family to help them achieve success in their coordinated endeavors.
• They will likely be invested in real estate as developers, landlords, commercial operators, property managers, and similar real property business activities.
• They will be engaged in technology-driven enterprises as investors, inventors, executives, and advisers.
• They will be profitable at levels that can afford our services and where there is ample cash flow to execute enhanced business operations.
• They are awesome people. They contribute to the well-being of their communities, they respect others, they promote good citizenship, and they are pleasant to spend time with. We invest in their success. Accordingly, we avoid toxic personalities.
• We live our famous trademark as we are “Not Just Another CPA Firm”.

What would you say are the challenges of providing effective tax and business advice to entrepreneurial and family-based enterprises?

Challenges, of course, are certainly situational as no two families are alike. The most common challenge is likely gathering their full attention. Entrepreneurs are doers and they are hyper-focused on achieving measurable results and rarely invest in activities that require them to reflect and ponder their futures.

Additionally, there are inherent conflicts among generations in regards to desired outcomes, where to invest the family attention, and the legacies to be fulfilled. We’re also often faced with the, unfortunately, common challenges of blended families due to divorce, or changing demographics relative to marriage and family, and the likelihood of a geographically and/or societally mixed marriage (e.g. mixed religions can create estate and inheritance issues should people of mixed faiths marry, have children, and reside in countries that base inheritance laws on religious attributes compared to for example common law or civil law countries).

On top of this, the availability of information to both the lay and professional person exponentially increases the challenge. While the internet is great for research and ideas, it fails to provide context, wisdom, or judgement. True professionalism integrates knowledge, context, and experience to blend a better result. Accordingly, there are conflicts upon perceptions of what options might be available, in the minds of customers, compared to the conclusions provided by professionals. These conflicts are best resolved by active engagement, communication, compassion, and listening. These are hallmarks of our firm. We leverage both ears before we exercise our one mouth.

What are the most tax efficient structures for US entrepreneurial and family-based enterprises?

This depends on the context of the specific case. For global enterprises, operating in a traditional cross-border CFC (controlled foreign corporation) environment, the most tax efficient structure today is likely a corporation, as it limits the global GILTI tax impact, provides for territorial tax benefits and domestic tax (on domestic earnings) of 21% or less.

For real estate type businesses, pass throughs like LLCs and Limited Partnerships are likely to provide better after tax cash flows due to reduced tax rates on real estate activities and a single layer of taxation.

As for more common business, my advice is to model out their cash flows and determine which of the available models provides the best tax-based results, ease of management and control, long-term family considerations, privacy matters, and asset protection.

I should note that trusts are generally overlooked as an operating vehicle, but they can provide many benefits of ownership along with control, asset protections, and longevity. This is something that our customers frequently consider.

How can entrepreneurs structure their business portfolio in such a way that their personal tax liability is mitigated?

Our recommendation for the families that we advise is to utilise dynastic trust concepts where the trusts are formed in excellent asset protection jurisdictions. These protector-driven trusts mitigate the risk associated with claims, allow for multi-generational transfers, and provide protection for the family’s daily operations.

What are Morris + D’Angelo’s goals moving forward?

Our goals are to continue to expand our offices to more geographies with our targets to include Dallas, Miami, Washington, DC, New York, London, and Geneva. We will continue to grow our cross-border and multinational services dedicated to helping families achieve their goals, objectives, and success. We will remain nimble, flexible, and current as it relates to technology, economics, and governance. Finally, we will continue to have fun each and every day as it makes life easier and certainly more enjoyable.

Website: https://www.cpadudes.com/

About Daniel D. Morris

In addition to his work for Morris + D’Angelo where he serves customers in over 20 countries and 25 states, Dan is also the Co-founder of The VeraSage Institute, a think tank dedicated to helping professionals improve their pricing and customer centric economics. He’s been an author/instructor with professional CPA and related associations since 1998 and has been an adjunct professor for Foothill College located in Los Altos Hills, California. Dan is the only American to hold the prestigious Post Professional Graduate Diploma in Private Wealth Advisory - a programme sponsored by the Society of Trust and Estate Professionals in the UK.

Daniel has served numerous regional and national professional associations (California CPA Society and the American Institute of Certified Public Accountants) where he’s held several leadership positions including President of the Silicon Valley/San Jose Chapter along with the state-level governance council. He is also active in FinTech, including the blockchain and associated crypto currencies and is frequently interviewed by regional and national publications.

About Morris + D’Angelo

Morris + D’Angelo’s registered trademark is Not Just Another CPA Firm – and this really is the case! The company never charges clients by time incurred, but instead, they price for purpose which ultimately means that the customers pay for the results they’ve managed to achieve.

The firm was founded in the Silicon Valley in 1994 and over the years, has helped startups and entrepreneurs that have changed the world. The team at Morris + D’Angelo listens and understands what their customers want and need and strives to deliver results in abundance. Along with the company’s physical offices, Morris + D’Angelo has a personally crafted network of affiliations throughout Europe, Asia, Australia, the Caribbean and Latin America. The firm coordinates services in a timely basis in nearly every location that deliver results that are instrumental for success.

Finance Monthly speaks to James Butler – experienced practitioner, business adviser to SMEs and Consulting Partner at GBW – an Irish company that wants to make sure that a choice exists for those smaller businesses that require a more hands-on approach than that offered by the larger firms.

What are the key services that GBW offers to clients?

We are a mid-tier firm of accountants and business advisers with varying specialties and backgrounds. Our services range from assisting with Audit, Assurance, Taxation and Accounting, through to Business Advisory and Corporate Recovery. Our cross-border service offering, business approach and sector expertise is primarily designed to support Small and Medium-Sized Enterprises, or organisations of equivalent scale, with existing or planned international operations.

GBW is an independent member of TGS – a global accountancy and legal network of independent firms specialising in the provision of accounting, audit, tax, business advisory and commercial legal services.

Tell us more about TGS?

Not all networks that are part of the group are the same. TGS member firms are all independently owned and share an entrepreneurial approach to their own and clients’ businesses. We have a shared commitment to the highest levels of technical expertise and professional standards. Our clients enjoy a rapid access to quality assured in country experts across the world, via a single point of contact.

We recognise that every client is unique and our cost-effective solutions are tailored to our clients’ unique requirements. Whether they require a full suite of accounting and business solutions or a one-off specialist service, TGS Global can provide precisely what our clients require, no more and no less.

You have extensive experience in Insolvency & Corporate Restructuring, and have acted as liquidator in both creditor and member voluntary liquidations. What does your role within GBW entail?

In my role within GBW, I deal with banks and financial institutions in all areas concerning distressed property and non-performing loans. I’ve also been involved in debt management and refinancing for both companies and individuals.

Additionally, I am also an experienced practitioner in taxation and business advice for businesses in the area of the licensed trade, professional services and medical practitioners.

GBW’s Services:

Audit and Accounting

We aim to help our clients see the audit process as a benefit to their business, not just a cost.

Taxation

Our taxation department has expertise in all categories of taxation, both our corporate to personal clients.

Business Advisory Services

All businesses require planning – form start-ups to mature businesses. Our business advisory experts can assist with the planning and execution.

Accounting

Our Accounts department provides all types of assistance, whether be in-house or out sourced, we have the expertise.

Corporate Finance

If you are selling, buying or merging a business. If you are making an investment or raising finance – we can help with the decision making process.

Forensic and Litigation Support

In today’s changeable economic environment, business disputes are becoming more frequent and litigation is on the increase. At GBW, we draw on the firm’s wide expertise of our accounting professionals to advise our clients in claims assessment and provide independent expert accounting witness services.

Recovery and Restructuring

We are leaders in the provision of insolvency and restructuring services. Our team comprises of insolvency experts, forensic specialists and support staff who work together to provide a comprehensive and complete solution to any restructuring or insolvency project.

Website: http://gbw.ie

RSM Malta is a professional services and advisory firm with a strong team of professionals with decades of experience assisting clients from a range of industries. The firm’s goal is to be the firm of choice to leading businesses in Malta, offering an excellent and personalised service.

To hear about Tax in Malta, this month Finance Monthly spoke with Dr Timothy Zammit, who has recently been made partner at RSM Malta within the tax and corporate services unit, after having joined the firm in 2010 as a tax lawyer. Together with a team of professionals, Timothy is responsible for assisting clients with their corporate and tax advisory needs.

As a newly appointed Partner at RSM Malta in the tax advisory and corporate services, what are the key services that you assist clients with?

Together with fellow tax partner, George Gregory, and a team of financial and legal professionals, I assist clients with enhancing their fiscal efficiencies through the setting up of companies, special purpose vehicles and corporate restructuring while providing transactional support in acquisitions, mergers and divisions, together with business succession planning while ensuring clients’ full compliance with their tax and corporate obligations. I also advise clients on matters including personal taxation, benefitting from one of the tax residence programmes, taking up residency in Malta and applying for Maltese citizenship.

How complex is the tax system in Malta?

Malta’s tax system is fully compliant with EU Directives and also includes a number of elements that are attractive to both businesses and individuals. Malta is the only EU Member State that has maintained the full imputation system while imposing tax according to the nature of the income’s source. A cornerstone of Malta’s tax system is that universal taxing rights are claimed on persons (both individuals and companies) that are both resident and domiciled in Malta. Malta has also been moving towards a system based on final taxation at source, primarily on property transactions, in the past years. It is the interoperation of these complexities that makes Malta such an attractive option.

In your opinion, are there any unique advantages of conducting business in Malta from a tax perspective?

While Malta’s corporate tax rate is one of the highest in Europe at 35%, at a time where there is a trend of lowering corporate tax rates, the full imputation system offers a business-friendly environment, while eliminating economic double taxation. Malta’s tax system provides shareholders the right to credit the tax paid by the company to their personal tax liability. Where the shareholders’ tax rate is lower than the 35% corporate tax rate, they may apply for a refund between their applicable tax rate and that of the company. This is available to both residents and non-residents, offering a favourable and business-friendly tax environment.

Malta not only offers an attractive tax regime. The ‘can do’ attitude that is adopted by the authorities in regulating and doing business in general, coupled with the Mediterranean lifestyle gives investors a very appealing option.

How do you help your clients mitigate their tax liability whilst remaining fully compliant with tax laws?

When dealing with cross border businesses, an international tax advisor can never only look at the situation in one jurisdiction – as any solution is only a solution if it works in all the right jurisdictions. It is through the availability of reliable professionals globally with the right experience and background being part of RSM, that we may truly assist clients ensuring that they are fully compliant.

 You’ve recently been made Partner – what does this mean to you? How will your current responsibilities change? What are the goals that you’re arriving with?

Being made Partner in a firm with 170 professionals is a strong vote of confidence by my fellow Partners that gives me renewed enthusiasm to continue contributing to the firm’s growth and solidifying RSM’s position as the mid-tier firm of choice. My role as Partner comes at a challenging time where the industry is facing a multitude of challenges, ranging from changes to tax systems globally in the light of the financial crisis, BEPS and the trend of full disclosure and exchange of information to the industry disruption that will be caused by technologies such as the Blockchain and Artificial Intelligence in the coming years. The challenge is to be able to help identify and adopt the right approach that will guarantee our clients’ continued future success while ensuring that they are fully compliant with their obligations in all the jurisdictions that they operate.

Website: www.rsm.com.mt

Phone: +356 2278 7000

Geordie Bulmer is the UK winner in the Inheritance Tax Planning Adviser of the Year category in Finance Monthly’s 2018 Taxation Awards. We caught up with him this month to hear about his win and his work within inheritance tax planning. 

As winner in the Inheritance Tax Planning Adviser of the Year category, how do you feel your character and attitude towards your profession has made you a leader in the tax planning business?

I’ve been advising on various areas of financial tax planning for over 10 years but have specialised in Inheritance Tax planning because I believe it’s an area where I can add real value. My clients are usually over 60 and one of my strengths is being able to make difficult subjects easier to understand. If a sophisticated investor wants a detailed breakdown of how a specific Trust works, then I can present it at their level but many clients are confused by technical jargon and just want to know that the recommended strategy will achieve their objectives.

You are also a competitive sky diver; how do you believe your skills, not the practical ones of course, transfer to your work in inheritance tax planning?

I stopped skydiving when my wife got pregnant as I could no longer accept the risk of an accident. There is a risk involved with everything and you have to make sure you’ve covered all potential problems before making a big decision, such as establishing a Trust (or jumping out of a plane).

Having joined AISA Professional in 2009, how do you feel the company has developed your winning attributes?

AISA has been winning awards for a number of years now, including International Adviser Excellence in Investment Planning in 2017, so I’m really pleased that we continue to be recognised for our hard work. As a company we aim to follow a planned strategy that we review regularly and this helps us exceed our client’s expectations.

What would you say are two major priorities and concerns of your clients?

Although clients would like their estate to pay less inheritance tax, many do not want to completely give up any future access to their capital or an ongoing income. Therefore every situation has to be individually assessed to ensure current objectives and potential future requirements can be achieved.

Website: http://aisagroup.org/

Written by Nigel Mellor, Senior Policy Adviser, the Office of Tax Simplification 

On 7 November 2017, the Office of Tax Simplification (OTS) laid before Parliament its report entitled Value Added Tax: routes to simplification. The OTS is a small team of independent, expert advisers who undertake detailed research into tax complexity issues typically on behalf of Ministers but it can undertake reviews at its own instigation. The parties consulted for the report included professional bodies, trade associations and micro-businesses through to global corporations. In addition, the team worked closely with HM Treasury and HM Revenue and Customs. Once a report has been finalised, the OTS then lays it before Parliament and typically the Chancellor gives a formal response to any recommendations which have been made.

The 80-page report contains 23 recommendations of which 8 are described as being core recommendations and 15 are categorised as additional recommendations. In essence, the report can be broken down into three main areas; namely,

• The issues and impacts involved if the registration threshold were either higher or lower than it is at present;
• Administrative changes which could help businesses, advisers and HMRC better achieve their common aim of easing friction points in the system;
• The extent to which the definitions of the type of supply which are currently relieved from VAT create complexity for businesses and administration.

Registration threshold issues

The UK’s £85,000 VAT registration is often seen as being a tax simplification measure as many small businesses can comfortably operate below this level without needing to register for VAT. The report points out the current threshold is the highest in the EU and the OCED and at present, the average threshold in the EU is around £20,000. The report also highlights the fact that based on submissions received and academic analysis of HMRC data, the threshold is clearly having a distortive impact on business growth. This is considered to be because businesses are deliberately limiting their expansion, for example, by not taking on an extra employee, an extra contract, or closing their doors for a period to keep their turnover below the threshold. The distortions which this creates can clearly be seen in the graph below.

The OTS has therefore recommended that the government should examine the current approach to the level and design of the VAT registration threshold, including consideration of the potential benefits of introducing a smoothing mechanism.

Administration including guidance, rulings, penalties and appeals

The OTS in earlier reviews has highlighted feedback which it has received that practical issues are often the most important to users of the tax system and many contributors identified where improvements could make life easier for businesses.

A range of concerns were expressed to us about the benefit which is obtained from certainty when decisions need to be made about the VAT treatment of goods and services they supply and/or when dealing with one off events such as a complex restructuring. Concerns were also raised with us about the quality of the guidance produced by HMRC, problems relating to penalties (particularly where a business had made a voluntary disclosure), and issues relating to appeals. The OTS has made a number of recommendations in this area so as to try and address some of these concerns.

Multiple rates

Goods and services supplied in the UK are by default subject to VAT at the standard rate. There are various exceptions under which the goods or services may be subject to a reduced rate, zero-rated or exempt from VAT. As most readers will be aware, these boundaries can create absurdities and the different treatments can cause complexity and be administratively burdensome. This complexity has arisen over many years and on occasion the treatment has links to how goods were classified for purchase tax.

The OTS recommended that rather than trying to address these complexities in a piecemeal fashion, the time is now right for HM Treasury and HMRC to undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules, working with the support of the OTS.

Partial exemption

During the course of the review, it became apparent that many more businesses are now captured by the partial exemption regime than would have been the case when the tax was introduced over 40 years ago. There are many reasons why this has happened including the fact that there is now more diversification by businesses but a contributing factor is that the de minimis limits which are designed to keep smaller businesses out of partial exemption have not been increased for decades. Similarly, many larger businesses expressed concern that when they need to negotiate or renew a partial exemption special method, the process was frequently taking years to obtain approval.

As a way of resolving these issues, the OTS recommended that the government should both increase the de minimis limits and explore alternative ways for businesses incurring insignificant amounts of input tax to be relieved from carrying out partial exemption calculations.

Capital Goods Scheme

The Capital Goods Scheme (CGS) requires businesses to consider each year after the purchase or first use of the asset whether the use of the asset has changed. The rules around the necessary adjustments can be quiet complex. The scheme currently captures land and building works in excess of £250,000 as well as computers, aircraft and yachts costing more than £50,000. There are several issues with caused by the complexities of the scheme but the most important is that the threshold for scheme adjustments relating to land and property have not increased since 1990 despite a huge increase in property values. The OTS have recommended that the land and property threshold should be increased and it has also questioned whether the other categories are still needed.

Option to tax

The option to tax allows businesses to charge VAT on certain land a property transactions which would otherwise be exempt and this enables a recovery of input VAT on costs associated with that supply. The OTS explored a number of potential changes in relation to this area and it has recommended that HMRC should consider how the record keeping and audit trails for options could be improved for example by handling options to tax on-line.

In addition to the core recommendations which have been outlined above, the report has made a number of additional recommendations. These recommendations are explained in more detail in the report and a pdf can be downloaded from the OTS section on the gov.uk website. This can be found at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/657215/Value_added_tax_routes_to_simplification_print.pdf

To hear about tax in Romania, Finance Monthly reached out to Florica Cira who is the Managing Partner and Founder of FinACo -an accounting and tax advice company.

Have there been any recent/upcoming updates or changes to tax rules in Romania?

There have been quite a few changes in Romania in the last few years. Some of them were needed, but others, in my opinion, simply increased the bureaucracy.

2017 was a very dynamic year in regards to changes in the tax rules in Romania. An amendment was published almost every month so tax advisers, accountants, managers, as well as business owners had a busy year.

A lot of things changed in labour taxation:

• The increase of minimum gross salary per economy to 1,450 RON. The previous change was made in May 2016, from 950 RON to 1,400 RON, therefore in less than 1 year, an increase of 50% affected several industries.

• The increase of Pension insurance for salaries higher than €3,000 a month.
• The employers pay additional tax for the part-time labour contracts.
• Stricter rules for the time sheet evidence and labour contracts conditions were activated. At the same time, the penalties increased.
• The disability fund paid by the companies was increased by 100%.
• Due to a new regulation published in November, as of January 2018, a new social security system will be applied by transferring the employer cost with social security to the employees. The employer will still be obliged to withhold on payroll the employees’ social security.

The main modifications refer to:

• Increase the employee social security from 16.5% to 35% and decrease the income tax from 16% to 10%.
• Decrease the employer taxes on labour from 22.75% to 2.25%.

The actual labour cost will not change much. However, in some sectors like IT and R&D, where the employees are exempted of income tax, this transfer of taxes will decrease the net salaries with around 7%.

This major change could have a negative impact on companies considering that the budget for the next year was approved beforehand.

In the long run however, these changes could be very beneficial for Romanian social security, since individual insurance will increase. Furthermore, the public funds for future payments to social security could be managed much better.

Still, business managers and owners ask themselves whether the Government guarantees to keep the labour taxation to 2.25% in the next few years.

The period of time for implementation, software updates, discussions, negotiations between employer and employees is very short and involves efforts by both sides.

Additionally, there have also been recent changes in regards to VAT - the so-called “split payment” of VAT which set-up a new method to follow-up collection and VAT payment, starting in 2018. The system implies that VAT tax payers will have the obligation to open a new bank account for managing only VAT payments.  The companies are forbidden to withdraw cash or use this funds for anything that’s not VAT payments. The fines and penalties are extremely high if the rules are not respected.

The Government’s main objective is to increase the level of collection and reduce VAT fraud. However, specialists note that this measure will increase operating cost and cause cash flow issues.

The business sector firmly rejects this new form of bureaucracy and economic experiment, hoping it will not be applied.

As of 1^st January 2018, there will be some major changes in regards to corporate tax too. Companies with a total in revenues under € 1mil per year, will pay tax on revenues:

• 1%, if it has employees.
• 3% if it does not have employees.

In the last five years, the threshold for this type of taxation has increased from € 65,000 in 2013, € 100,000 in 2016, € 500,000 in 2017 to € 1 mil, as of 1^st January 2018.

Because this form of taxation is mandatory, it could have a negative impact on industries with EBITA lower than 6%, as well as on investment projects, where the operating expenses cannot be deducted from the operating profit in the current year or in the next fiscal years.

What would you say are the advantages of setting up a business operation in Romania, in terms of tax?

Even though there have been many changes in tax regulations in the last few years, which has created challenges in setting-up a business strategy, there are still some fiscal advantages which are worth mentioning:

-Developers and employees from R&D projects are exempted of income tax on salary. This facility can decrease the labour cost.

-Small companies with a turnover under €1 mil, which report EBITA over 7% has an advantage by paying only 1% to their revenue.

-Companies which invest in equipment are exempted on tax on profit for the value of the investment.

What are some of the key challenges of helping clients with tax, accounting and payroll?

The SME sector have grown very quickly in the last years, partially because of the investments made with European Funds. Our role is to assist and help our customers with their goals and to be more competitive and dynamic in a market influenced that is more and more by new technologies, data volume and high speed of reaction. At the same time, a challenge that we face is ensuring that the accounting and reporting standards are respected as well as that the taxes are correctly assessed.

We assist our clients with finding new better solutions to optimise their activity. Some of our projects that we work on include:

-Assisting with setting up ERP systems in compliance with the local accounting and fiscal standards. The challenge is to localise the system, ensure that the reporting criteria is fulfilled, and ensure that the automatic processes are correctly set.

-A lot of small companies have gone through mergers or have split to better organise their activity or to sell the business. Such a project implies team work from managers, lawyers, accountants and advisers.

-Assisting and representing our clients to fiscal audits performed by Tax Authorities on field like: corporate tax, transfer pricing, labour tax, VAT.

-Project-based accounting and management reporting is requested more and more even by small companies, to optimise their cost, to measure and increase their performance.

What differentiates FinACo from its Romanian competitors?

We provide integrated services to our clients for projects regarding: accounting, budgeting, consultancy, and tax-related issues.

Where do you see the company in 2-3 years?

New technology will challenge us to find a new way of using our knowledge. Booking routine works will be taken over by machines. We must be prepared for new methods like cloud accounting, and learn to be more than an accountant and become an adviser on business environment.

Website: http://www.finaco.ro/

The VAT House is a respected and trusted EU VAT specialist based in Belgium. It is internationally known and works for large multinational companies, smaller companies that are expanding their businesses on a global scale, as well as accounting firms. Frank Borger, Partner and lecturer on VAT at several major institutions, tells us about The VAT House’s beginnings, principal services and priorities towards their clients.

What is the history behind The VAT House?

Established in 1997, The VAT House has a rich history of advising and supporting large companies and SME’s across Belgium and other European countries. We also assist accounting firms with VAT questions of their clients, large non-profit organisations, and government bodies.

It’s a tough task for businesses to remain up-to-date with domestic VAT laws, European VAT directives and jurisprudence, and the domestic VAT laws in other countries. Managing VAT issues and bringing businesses into line with all the different VAT obligations requires a high level of experience and knowledge.

The VAT House’s mission is to help our clients with this difficult task. It has now 5 partners, which all have a deep knowledge of VAT and an experience of 25-30 years on both national and international level.

What are the principal services the company provides and its priorities towards clients?

We have a wide and comprehensive range of services: advice on VAT, negotiations with national and European VAT authorities, performing VAT audits, supervising the implementation of ERP packages for VAT, e.g. helping to determine VAT codes, organising internal VAT training courses for companies and organisations. We are experienced in almost every business sector.

Additionally, we can assist our clients in VAT compliance matters (e.g. VAT registration in Belgium and/or other countries, filing VAT returns in Belgium and/or other countries, filing Intrastat returns, filing VAT refund applications).

Our daily goal is providing our clients with practical solutions at an outstanding price/quality level.

Have there been any recent updates or changes to VAT rules in Belgium and the EU?

VAT rules are constantly changing. An important trigger is the so-called VAT gap, which is the overall difference between the expected VAT revenue and the amount actually collected. The VAT Gap measures the effectiveness of VAT enforcement and compliance measures in each EU Member State. It estimates revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations. For the EU28 the VAT gap is 12.8 % and amounts €152 billion, of which cross-border fraud is estimated on €50 billion. These figures are a strong motivator for governments to take policy measures to improve VAT compliance and enforcement. The European Commission has recently come up with proposals for a far-reaching reform of the EU VAT system. The proposed VAT reform would also make the system more modern, robust and simpler to use for companies and businesses alike.

In the meantime, it is expected that every EU Member State will take internal action to reduce the VAT gap. Businesses must be aware of that and keep an eye on their VAT position.

What are the key issues that your clients face in relation to managing VAT?

One of the main hurdles is definitely the complexity of VAT. As a consumption, tax VAT sits on the skin of the economy. As we know, commercial transactions have become more and more international and complex due to globalisation. VAT rules are moreover not necessary adapted at the same speed as economic life evolves. In that context our clients are happy that they can rely on our knowledge and can trust on our assistance.

What are your recommendations for effective management of VAT?

Always keep ahead of problems. In our practice, clients often call for help when transactions occur. In some cases, it is easy to apply the correct VAT solution. But in some cases, it isn’t and it disturbs the commercial relation between trade partners and the tax position of the company can be influenced.

What upcoming VAT changes should companies operating in Belgium and the EU be aware of?

One should keep up-to-date with the progression of Brexit talks, as well as the major VAT reform that has been proposed by the European Commission.

Contact details:

Email: tvh@vat-house.com

Website: www.vat-house.com

To hear about taxation in India, this month Finance Monthly reached out to Shipra Walia – Managing Partner at W S & Co. With her experience in Corporate Taxation & Advisory spanning over 12 years, Shipra is experienced in opining on international tax issues, valuations, ICDS, FATCA, interpretation of treaties, group reorganization options, transfer pricing issues, due diligence, inbound/outbound options and expat taxation. Her tax compliance work includes representation before the tax authorities, including settlement commission.

International organisations continue to spend more time and resources managing tax liabilities in both their local and overseas markets. What tax efficient structures are available in India to businesses with international interests?

There are many forms of incorporation in India as per which a person can enter into Indian market:

• Branch Office
• Project Office
• Company
• Partnership Firm
• Joint Venture
• Association of Persons or
• A foreign company can incorporate a subsidiary in India.

All of these structures have their different tax forms. Further, India has recently laid down rules and framework for the foreign tax credit adjustments as per which the person doing business in India or with India or Indian entity doing business in other parts of the world will be able to claim hassle free credit / setoff[1] of the taxes paid in other different countries.

Is the India’s tax regime more suited to particular types of business? If so what are they and what makes them suited to India?

India is already a hub for the Services Industry. Currently, with the focus of the Indian Government on the concept “Make in India” and with the various time-to-time relaxations provided in the Foreign Direct Investment norms, all businesses have a scope in India.

How do you help your clients mitigate their tax liability whilst remaining fully compliant with tax laws?

Planning from the initiation of the transaction is key. It is our foremost intention to keep our clients updated of the new events, news or any changes happening which helps them with planning their business strategy.

Can tax saving initiatives be kept up-to-date, especially in light of changing legislation? What happens if a current tax plan is no longer viable because of legislative changes?

Yes, any legislative change gives you enough time to act and adjust accordingly.

However, there may be times when certain changes are made without room for profitable amendments in the on-going initiatives. In such cases, we make sure to help clients with understanding the most profitable option or finding the best way possible.

If you could, what would you change about the tax legislation in India?

India’s tax legislation is 60 years old and in my opinion, there are numerous major issues which are either settled by the Apex court or are being amended. However, as India is pacing with the world’s economy, as well as the laws and legislations prescribed by various international authorities, thankfully, the legislation itself keeps on changing almost every year.

Website: www.wsco.in

www.shiprawalia.in

[1] Subject to the conditions provided and Double Taxation Avoidance Agreement between countries

Odoi Yemoh is the Founder and Executive Director of Reality Capital Management. Established in 2009 and based in Toronto, Canada, the firm offers tax preparation and planning, accounting, payroll, unemployment consulting, personal household budgeting, loan analysis, product management and marketing, as well as QuickBooks training and support.  

What would you say are the advantages and challenges of providing effective tax advice in Canada? In your opinion, how complex is the tax system in the country?

Providing effective tax advice in Canada is done through tax planning, which helps Canadians with reducing their income tax burdens through pension income splitting, RRSPs, Registered Disability Savings Plan (RDSP), Open Tax Free Savings Accounts (TFSA) and many more. There are also other benefits for employers, however, the generally expenses incurred by an employee are not deductible and there are certain specific exceptions. However, depending on the employee’s relationship with their employer, there may be unforeseen tax problems too, such as purchase employment assets, the benefit of using company car, loans from your employer, etc.

Canadian business owners find the tax system unfair because:

• Most new businesses have losses in their first few years after incorporation. However, the losses will be retained by the corporation and can be used against future corporate income.
• Corporate owners may have personal assets in the corporation or may be using money from the corporation for personal purposes, which may include unintended tax issues.
• Some owners tend to take out assets from the corporation, which then triggers personal tax consequences.
• Investments held inside the corporation are subject to tax rates, which typically are higher than the top personal tax rates
• Corporate income is taxed and the income flowed out by dividends is taxed too. While there is a measure of integration to reduce double taxation, some double taxation on dividends is still evident.

The Canadian Government has been imposing strict rules and regulations, which are preventing individuals and business owners from making profits. Individuals gain more from tax saving due to the benefit given to them. This makes it difficult for business owners to create jobs for the young people or strategize their business, because they are taxed based on their revenue and they’d rather lose in tax saving.

In what ways has the Canadian tax system transformed throughout the last 2-3 years?

Each year, the Canadian tax system becomes more complicated. The personal income tax was extended to most of the working population at high, progressive rates, and the corporation income tax was raised drastically and applied to excess wartime profits. Through the tax rental agreements, income tax jurisdiction was transferred from the provinces to the Federal Government. The point was to make income taxation the principal source of federal government revenue for financing Canada’s war effort and to lay the basis for financing the post-war welfare state. For a few years, the Federal Government has been mandating to make amends on the tax system for small business owners and this makes us think that there is a legitimate issue in trying to create tax fairness for all Canadian people. The Government has been trying to improve the fairness of Canada's tax system by closing tax loopholes and amending existing rules to ensure that the rich pay their fair share of taxes and that people in similar circumstances pay similar tax.

As the Executive Director at Reality Capital, how are you developing new strategies and ways to help your clients?

Reality Capital Management helps clients with accounting, taxation, auditing and financial services with the oversight of experienced accountants. We offer defining the profitability of companies through our financial education courses. Our clients are usually individuals and small businesses including Non-profit organizations in Greater Toronto Area (GTA) and outside of Ontario. Currently, Reality Capital Managements expanded on budgeting and debt consulting courses to the public, allowing students to make valuable financial management decisions. Developing these strategies helps us to serve our current and future clients better.

Contact details:
Odoi Yemoh
205-2200 Martin Grove Road
M9V 5H9
Toronto, Ontario.
647-388-5751.

Katia Delfin Diaz is the Managing Director of Brussels-based OmniVAT Consulting. She has been passionate about Tax Law for years and her current role is to assist Belgian and foreign companies to be in line with this complex matter or to optimise the impact of VAT in their business. After working for a few of the Big Four companies, Katia started her own consultancy firm, specialising in VAT, in January 2011. Today, OmniVAT Consulting assists clients from a wide range of sectors in Belgium and across Europe. Finance Monthly speaks with Katia about VAT trends and her tips for effective VAT management.

As an expert with 24 years of experience in VAT matters, what are your recommendations for successful management of VAT?

The best piece of advice that I could give is to be up-to-date with this complex and ever-changing matter. VAT regulations evolve quickly and some updates are absolutely necessary. A good VAT manager must follow the evolution of VAT, both on national and European level. It is crucial for companies to be aware of future changes of regulations and laws, in order to amend their internal processes accordingly.

Considering that VAT is a European tax, I recommend following the European Jurisprudence that offers a respectable interpretation of the law through the ECJ cases.

In addition to OmniVAT Consulting, we also organise regular seminars through our VAT Academy. The aim is to update practitioners on direct and indirect tax laws, customs matters and Incoterms. The main sessions are French, but we also organise intra-company seminars in English, Dutch and Spanish upon request.

Can you update us on any recent or upcoming updates or changes to VAT rules in Belgium?

This year has been eventful in terms of VAT updates in Belgium. In addition to some slight amendments to the VAT legislation, a few administrative decisions and VAT notes were published in order to help individuals and companies interpret and apply VAT legislation.

One interesting Belgian decision, published this autumn, concerns the application of the VAT exemption on “claims settlement services” rendered by a third party in the name and on behalf of an insurance company. This decision was taken by the Belgian Tax Authorities after the ECJ Court made their decision on the Aspiro case (see C-40/15 arrest dated 17 March 2017).

As of 1^st January 2018, the Belgian point of view will follow the conclusion of the ECJ Court - “claims settlement services” made by a subscribing agent in the name and on behalf of a counterparty (insurance company, other subscribing agent, etc.) will have to be subjected to the standard rate of VAT, provided that these are not part of the integrated services. Indeed, Belgian Authorities accepted that the VAT exemption was applied for this kind of services. Furthermore, a transitional period is planned to allow the sector to adapt to the VAT treatment of these services.

The Belgian Tax Authorities underlined that when an individual claim occurs, for example, after 31^st December 2017, its assignment to a claims manager will not be exempt from VAT anymore.

What are OmniVAT’s mission and key priorities towards its clients?

Typically, clients come to us when they face a VAT problem within the company or during a VAT inspection. Clients also reach out to us when they need a VAT audit of their transactions or when they would like to receive a confirmation of the VAT treatment on a new sales scheme. The optimisation of VAT transactions is an important concern of our clients. They may also have questions on customs regulation or on Incoterms.

Our key priority is the satisfaction of our clients and we do our best to serve them the best way possible. We keep them informed on important VAT changes and we do our best to keep on top of their needs or questions. I’d say that good communication is essential for a successful relationship with customers.

Website: http://www.omnivat.be

www.vat-academy.be

Following the Panama Papers leak of files from last year, earlier this month, the Paradise Papers leak once again threw light on the world elite’s hidden wealth. 3.4 million confidential documents relating to offshore investments were leaked to Suddeutsche Zeitung, the same German newspaper that took hold of the Panama Papers in April, 2016, which then shared them with the International Consortium of Investigative Journalists (ICIJ) and a network of more than 380 journalists. The files reveal that large corporations, heads of state, politicians, celebrities and High-Net-Worth individuals are investing huge amounts of money in offshore tax havens. Surprise, surprise. And whilst about 100 media outlets worldwide are pouring over the findings, that include the Queen’s private estate allegedly being invested in a Cayman Islands fund, as well as offshore dealings by Donald Trump’s cabinet members, advisers and donors, a lot of people have asked the question: “What exactly is the problem considering that tax avoidance is legal?”

Panama Papers vs. Paradise Papers

Of course, as with everything, opinions are divided with many ordinary people finding tax avoidance to be offensive and unfair, while others feel that it is a perfectly fine way to save some of their hard-earned money. However, does the muted response to the Paradise Papers scandal show that we don’t care as much anymore?

Following the leak’s predecessor, the Panama Papers, thousands of people gathered to protest, which immediately resulted in politicians stepping aside and losing their jobs. Iceland’s ex-Prime Minister, Sigmundur Davíð Gunnlaugsson, resigned amid widespread protests and outrage over allegations that his family had sheltered money offshore. In contrast, it seems like this time around, the public anger has been on a much smaller scale. Last year, US President Barack Obama called for international tax reform in the wake of the Panama Papers, whilst admitting that “The problem is that a lot of this stuff is legal, not illegal.” However, whilst some wealthy public figures suffered personally and governments and organizations have put out a handful of fixes in recent years, the system remains perfectly intact.

So, are we all silently waiting for that potential reform, or have we simply come to terms with the fact that tax avoidance is fine and the rich and powerful will continue dodging tax?

The morality of offshore tax havens

It is a fundamental principle of democracy that everyone obeys the law. The law applies to everyone. The law states that we have to pay taxes. Whilst in most cases, putting your money outside of your financial regulations is legal, many argue that dodging taxes is morally wrong. In addition, according to a  letter to world leaders from May 2016, more than 300 economists argue that: “The existence of tax havens does not add to overall global wealth or wellbeing; they serve no useful economic purpose.”

By sheltering trillions of dollars offshore ($10 trillion according to Boston Consulting Group), the world’s top end make their money untaxable, depriving governments of hundreds of billions of dollars of tax revenues each year. Niels Johannesen, an Economics professor at the University of Copenhagen discusses the consequences of this behaviour: “Either a lot of people pay more taxes [to compensate], or there’ll be less public goods - schools, hospitals, and so on.” He also adds: “Given that this offshore wealth is to a large extent owned by the very wealthiest… it is people who should be paying the highest taxes who are evading the most.”

Thus, not only do offshore tax havens not serve any economic purpose, but they’re also immoral and deprive economies of funds that could be used on improving public services. Some politicians are recognising the issue, such as the Leader of UK’s Labour Party Jeremy Corbyn, who promised that if his party wins the next General election, it would clamp down on tax havens and end loopholes. The Paradise Papers have once again highlighted the need for this to happen. Yet, the notion that the majority of those involved are ‘getting away’ with tax avoidance, paired with the seeming apathetic response from the public appear to be rather worrying.