“Pet Peeve” of the month…returns!!!

The Triumph of Form Over Substance…let’s put it to rest: Throughout the ‘80s and even the ‘90s, the triumph of form over substance was often the norm for the fiduciary services industry. Fancy diagrams with boxes, solid and dotted lines, promises of “bullet-proof” confidentiality and all sorts of “consultancy” or “marketing” or “other” agreements were paraded in front of wide-eyed clients who were over-impressed with the clever thinking of the author. Of course, these “structures” were built upon quicksand as most would not withstand scrutiny when prying eyes looked beyond the boxes, lines, confidentiality and “agreements”. The onset of aggressive plaintiff's counsel, and government and law enforcement inquiries has – or at least should have – forced practitioners to think more about substance over form. Simply stated, if the structure was attacked in part or whole, would the client’s objectives still be achieved? I confess that, during my career, I have been a party to some of this form over substance structuring, albeit I am not clever . I can now state quite emphatically that, since starting GCSL, I am no longer engaged in such illusions. If the strategy relies solely on pretty boxes, lines, agreements, confidentiality or other efforts at being clever, then it does not work for the client or GCSL…so we will not do it. I am confident in saying that GCSL is the triumph of substance over form…welcome to the new age of fiduciary services. Let’s put the triumph of form over substance to rest…please!!!
 

Onwards and upwards...

THE EUROPEAN COMMISSION PROMOTES THE EFFECTIVE USE OF TAX INCENTIVES FOR RESEARCH & DEVELOPMENT
The European Commission has recently announced the adoption of a Communication on a more effective use of Research & Development (R&D) tax incentives to boost R&D investments and stimulate job creation and economic growth in Europe. The Communication is the result of a European Commission’s statement in 2002 according to which R&D should approach 2% of Gross Domestic Product (GDP) by 2010 of which 2% should come from the private sector. Furthermore, in 2003 a Communication was issued on an action plan in which R&D was indicated as playing a key role in achieving productivity gains and economic growth.

According to the European Commission, R&D tax incentives have the advantage of being timely, predictable and transparent. Furthermore, they have the effect of convincing more companies to make R&D investments as well as creating lasting changes to the way companies plan and take part in R&D activities. The Commission has observed that, although EU Member States have further developed R&D tax incentives, the diversity of available schemes has resulted in an increasingly complex landscape for R&D tax treatment which obstacles co-operation within the European Union.

The Communication recently issued by the Commission indicates that tax incentives restricted to domestic activities are not compatible with the EC Treaty whereas R&D tax incentives applicable to a specific group or sector may constitute incompatible State aid. As a result, national schemes have to be compatible with the adopted new State Aid Framework for Research and Innovation.

According to the Communication, R&D tax incentives must comply with the following guidelines:

1. easy access for a broad range of R&D firms;
2. simplicity and involvement of low administrative and compliance costs;
3. evaluation of the tax incentives;
4. timely, efficient and predictable grant.

The Commission has also recommended that Member States work together on tax issues that concern the funding of large-scale transnational R&D projects, growth of innovative enterprises and cross-border mobility of researchers.
 

Contributed by Dr Cristiano Medori ACA CTA ATT, Director of Taxation, Intrust Limited
Cristiano' email address is cristiano.medori@intrust.co.uk

HONG KONG IPO MARKET GEARING UP FOR 2007
As at January 25, 2007, Hong Kong saw four new listing announcements on the Main Board. Not surprisingly, each company has substantial business activities in China ranging from PCB manufacturing to pharmaceuticals to bio-chemicals to manufacturing of petroleum drilling and extracting machinery. Watch this space as we update you on all the new Hong Kong IPOs…the new “Gateway Out of China” (see article below).

Contributed by Johnson Chien, General Manager – Fiduciary Services, GCSL Hong Kong
Johnson’s email address is johnson@gcsl.info

HONG KONG: GATEWAY OUT OF CHINA
Hong Kong has seen another major policy push by the government to integrate Hong Kong’s highly efficient open market economy to that of the burgeoning China market. The Chief Executive of Hong Kong, Donald Tsang, convened an “Economic Summit on the Development of Hong Kong” with recommendations by focus groups on trade and business, financial services, maritime and logistics, professional services, information & technology and tourism. These recommendations will form government policy submitted to Beijing state planners as part of the China’s 12th Five Year Plan Economic (from 2007-2012).

Under the current “One country, Two systems”, China’s richest city enjoys its own independent free market economy and open financial system (as well as independent judicial and legislative powers) which has propelled it into one of the major financial centers in the world.

Focusing on the financial services sector, Hong Kong is working hard to remain as the premier international financial center of China. The financial services focus group has put forward the following proposals to open up Hong Kong’s financial services to Mainland China:

• Allow HK banks and financial institutions greater access to Mainland China markets – allow greater ownership and management of Chinese financial institutions.
   

• Allow financial instruments issued in Hong Kong (particularly those issued by Mainland China fund raisers) to be marketed in Mainland China.
   

• Develop an international RMB convertible market using Hong Kong as a pilot scheme. The “free walk” scheme would allow Mainland China institutions to remit RMB through Hong Kong without regulatory restraints. This would lead eventually to an international convertible RMB currency.
   

• Extend the “free walk” scheme also to include personal banking market. Allowing “High Net Worth” individuals to remit RMB personal savings from RMB1 million to Hong Kong for international banking and investment.
   

• To promote greater institutional fund flows between Hong Kong and China markets without restrictions on investments. Greater cooperation of stock exchanges of Hong Kong with Mainland China (Shenzhen and Shanghai) will ensure cooperation as opposed to competition.
   

• Attract Mainland China licensed insurance companies to setup asset management companies/affiliates in Hong Kong.
   

• Develop a commodities futures market for Mainland China using Hong Kong’s strengths in risk management and global distribution.

The pro-activeness of Hong Kong business and government needs to be applauded in taking an active strategy for plotting its economic future within China’s economic plan. With these recent Hong Kong proposals well received by Mainland state planners, it looks like “One Country, Two Systems” combined with “One very big financial market” holds a very prosperous future.

Contributed by Tony Chan, General Manager - Fiduciary Services, GCSL Hong Kong.
Tony’s email address is tony@gcsl.info.

A VIRGIN IN MACAU?
The flamboyant Richard Branson announced recently that the Virgin Group is in final negotiations to build a USD3 billion casino/hotel resort on a 50 acre plot in Macau with an expected opening in 2010. It seems everyone, including Virgin, is seeking to exploit the advantages of this once sleepy Portuguese enclave.

Contributed by Tony Chan, General Manager - Fiduciary Services, GCSL Hong Kong.
Tony’s email address is tony@gcsl.info

* For a complete list of products, visit http://www.aseansec.org/accfta tif/annex 1.zip
Source: ASEAN - China Free Trade Area (ACFTA) Brochure

The concept of global free-trade at the multilateral level seems to be stalling with the recent collapse of the Doha Round of negotiations of the World Trade Organization. There is a concern that major trading nations would resort to protectionism and a "spaghetti bowl" of bilateral deals making international business more complicated and riskier. However, the surprising speed and willingness of the China – ASEAN governments in formulating and signing the agreement shows how much ASEAN countries want a piece of the great China economic miracle story.

For China, the FTA will expand its trade export frontiers to another 10 member counties. More importantly, it forms a powerful alliance and new major trading block of countries in the face of the other trading blocks such as NAFTA (North America Free Trading Area) and the EU Common Market. In the future if any developed countries want to take China to account on its trade balance surpluses, it will have to deal with negotiating with the new China-ASEAN alliance, the most influential trading block in the world.

Contributed by Tony Chan, General Manager - Fiduciary Services, GCSL Hong Kong.
Tony’s email address is tony@gcsl.info

TAXING ISSUES
VAT RULES FOR PROPERTY
The property value added tax rules were issued in December 1993, but it was the December 28, 2006 circular that finally provided some clarity. As at February 1, 2007, one of the priorities of the government tax collector will be real estate transactions. To determine VAT, one deducts the seller’s original purchase price and transaction costs (Total Cost) from the sale price to get the gain. If the gain is

- less than 50% of all the Total Cost, the rate is 30%
- more than 50% but less than 100% of all the Total Cost, the rate is 40%
- more than 100% but less than 200% of all the Total Cost, the rate is 50%
- more than 200% of all the Total Cost, the rate is 60%

For example:

If the sale price is RMB1 million and the Total Cost is RMB550,000, then the gain is RMB450,000, which is 81.8% of the Total Cost. The VAT would be

RMB275,000 x 30% = RMB82,500
RMB175,000 x 40% = RMB70,000

VAT due is RMB152,500.

Contributed by Johnson Chien, General Manager – Fiduciary Services, GCSL Hong Kong
Johnson’s email address is johnson@gcsl.info

A NEW CALM IN THE SINGAPORE PROPERTY MARKET
Foreigners have swarmed to the property scene in Singapore in a big way, making their presence felt with large numbers, in a diversity of nationalities but this time with a staying power that strengthens and calms the Singapore property market. Their purchases of private residences hit an all-time high of about 5,000 last year alone – about a third of the approximately 15,000 purchases made by Singaporeans.

Malaysians and Indonesians still form the biggest group of  buyers, but they have been joined at the top by Koreans, Indians, and Chinese. And since 2003, even Danes, Bulgarians, Egyptians, Tongans and Cambodians have joined the melee.

Many foreigners in Singapore vouch for the quality of living as many professionals are like international nomads. They give muscle to the property market as they are not looking to make a quick buck from it. Even those who buy here to invest have pockets deep enough to hold on to their properties – these foreigners have been termed “specuvestors”, who differ from speculators who tend to sell up or “flip” the unit quickly because they may be financially stretched.

Many are people flying in with accountants and lawyers, have a personal net worth of billions and are seeking to invest and build a house here to escape winter back home.

Such uber-rich, agents say, started showing up in late – 2004 with the launch of unprecedented projects such as The Sail @ Marina Bay – the country’s tallest residential building – and Sentosa Cove’s waterfront homes. With yet more lifestyle developments planned for the Southern Islands, you may see more of them soon.

Some of these foreigners push up prices in the high-end market. As they are generally more aggressive with their offer prices, they are creating a bidding war on some properties.

The spread of nationalities and the staying power of the buyers has brought a certain stability to the market – a contrast from 1998 when the foreigners buying properties here came mainly from Malaysia and Indonesia. When their economies crashed so did the Singapore property market.

Nowadays, and away from the usual prime districts, one sees some clustering of different nationalities. An American presence is sprouting in Woodlands, close to the American School. Many Japanese families are in District 5’s West Coast area. Indian expatriates have built up a presence in the condos along Tanjong Rhu and River Valley Road, where dozens of families gather around barbecue pits and beer over the weekend. Australians and French are starting to congregate in the Serangoon Gardens area owing to the presence of the Australian and French Schools.

Singapore is now fast upping its stake in being a truly multi-racial society.

Contributed by Lawrence Fong, Managing Director, GCSL Singapore
Lawrence's email address is lawrence@gcsl.info

ANGUILLA’S COMMERCIAL ONLINE REGISTRATION NETWORK (ACORN) – ANGUILLA’S COMPETITIVE ADVANTAGE
Unlike any other jurisdiction, Anguilla has a fully computerized online company formation system known as ACORN. The system gives Anguilla a distinct competitive advantage in terms of speed and efficiency over its competitors and forms the centerpiece of the jurisdiction’s international financial services business opportunities.

ACORN enables instant and secure electronic incorporation and registration of Anguilla ordinary or domestic companies, IBCs, LLCs and limited partnerships. These incorporations can be done instantly from anywhere globally, 24 hours a day and 365 days a year. It enables all other corporate registration activities permitted under Anguilla law to be undertaken online. The system has done away with paper since users can file anything from articles of incorporation in a variety of languages including Russian and Chinese, to paying annual fees. ACORN will also provide guidance on the legal pitfalls that accompany the art of completing and registering statutory documents. Incorporations are effected immediately and the system provides a digital copy of the company’s certificate of incorporation instantly online. Hard-copies of all certificates generated are also provided through the local licensed company manager (registered agent as they are called in other jurisdictions) or trust company. ACORN even allows users to access reports including transactions already undertaken and their costs and status.

In order to access ACORN, a service provider must be licensed as a company manager or a trust company. GCSL Anguilla can assist with either application and manage the licensee’s local operations through a brass-plate/cubicle relationship for a negotiated management fee. Alternatively, a service provider may become an overseas agent of a licensed company manager or trust company like GCSL Anguilla and access the system under that license. Either way, GCSL Anguilla is able to facilitate access to ACORN either directly or indirectly to end-users and clients in order that they too can take advantage of Anguilla competitive advantage.

Contributed by Carlyle Rogers, Managing Director, GCSL Anguilla
Carlyle's email address is carlyle@gcsl.info

Contributed by Carlo Mason, Managing Director, GCSL Belize
Carlo's email address is carlo@gcsl.info

Contributed by Laura Fepuleai, Manager, GCSL Samoa
Laura's email address is laura@gcsl.info

Contributed by Cathy Odgers, Group Legal Counsel, GCSL Hong Kong
Cathy's email address is cathy@gcsl.info

OFFSHORE TAX AMNESTY FOR OFFSHORE BANK ACCOUNTS ON ITS WAY
Reports before Christmas stated that the UK government was set to announce an amnesty scheme for what it described as "tax evaders" who held money in offshore bank accounts and did not declare and return interest earned on these funds. This follows a decision where Her Majesty's Revenue & Customs (HMRC) was successful in gaining a legal victory over Barclays Bank compelling the London bank to hand over customers' offshore account details.

Estimates have over £180bn held in offshore bank accounts by UK nationals, with Jersey a favourite destination for British cash. The UK Revenue has waged a war against high street banks for some 20 years to access information about offshore accounts. This latest legal decision to compel information to be handed to Authorities has angered many in the banking profession and offshore industry alike.

While it is unsure how any amnesty would operate, there needs to be a balance obviously rewarding those who own up to past indiscretion, fairness as to those who have reported the interest income and acknowledgement of the difficulties in tracing such funds even when records are gained from the banks.

It is legal for UK nationals of course to hold money in offshore bank accounts, but illegal to conceal interest earned on funds held in those accounts. There are estimates that accessing offshore bank records would allow the HMRC to recover around £1.5bn in unpaid tax from Barclays customers alone.

GCSL will keep you informed of any updates to this proposal and the finalised rules of any amnesty.

Contributed by Cathy Odgers, Group Legal Counsel, GCSL Hong Kong
Cathy's email address is cathy@gcsl.info

The things that make us smile, frown and generally make life interesting...

OUR MONTHLY QUOTE THAT MADE US SMILE
“My favorite four letter word…nice ” Jack Flader

HOW TO GET A GAL…YEAH, RIGHT!!!
We recently read that British psychologists have discovered a man will be considered more attractive to women if he hires other women to smile at him. Yes, you heard us right, apparently women are more attracted to a man when they notice other women smiling at the fella. Drop dead easy, fellas…just tell a lady how good she looks. She smiles, other women see the smile directed at you and voila, you are on a date with the women of your dreams. No more expensive dinners, cuddling when you would rather be watching football, agreeing to sit through a “chickflick”. One smile…yeah, right! We think those psychologists need to get out more often because it ain’t that easy!!!

TOO MUCH OF A GOOD THING CAN BE A BAD THING?
We were somewhat confused the other day when China announced its highest annual economic growth figures in the past decade and Hong Kong stocks dropped about 2%. Hmmm, we remember the days when good economic numbers in China mean better stock prices in Hong Kong. We guess too much of a good thing can be a bad thing…or something like that

CHEAP!!!
We recently read about the New York taxi driver who returned 31 diamond rings to his female passenger who had given him a USD0.30 tip…his reward was a check for USD100. Cheap!!!

RIVETING
We understand a group of UK farmers has set-up www.cheddarvision.tv so really exciting people can watch cheddar cheese maturing 24/7 on the Internet. Riveting!!!

EVER WONDER?

Why the sun lightens our hair, but darkens our skin?
Why is "abbreviated" such a long word?
Why is it that doctors call what they do "practice"?
Why is it that to stop Windows 98, you have to click on "Start"?
Why is lemon juice made with artificial flavor, and dishwashing liquid made with real lemons?
Why is the man who invests all your money called a broker?
Why is the time of day with the slowest traffic called rush hour?
You know that indestructible black box that is used on airplanes? Why don't they make the whole plane out of that stuff?
Why are they called apartments when they are all stuck together?
If flying is so safe, why do they call the airport the terminal?
If con is the opposite of pro, is Congress the opposite of progress?

A NEW TWIST ON THE OLD ADAGE OF NO FREE LUNCH
We recently read about a young Yank who won a “free” trip to outer space valued USD138,000. Unfortunately for this space buff, the IRS wants USD25,000 in taxes. Alas, the young lad would have to go into debt to pay the pound of flesh and has canceled the trip of a lifetime. A new twist on the old adage of there ain't no such thing as a free lunch!