Real Estate & Legal News in All from Propertyshowrooms.com

Investors advised to get contents insurance-160708

Wed, 16 Jul 2008 00:00:00 GMT

Overseas property investors have been advised to make sure the contents of their home are covered.

According to research by Zurich Private Clients, 1 in 10 holiday home owners do not have any insurance for the items inside, which are worth an average £15,200.

This has prompted to the British Insurance Brokers Association to say that it is "really important" for people to make sure they are fully protected.

Graeme Trudgill, corporate affairs executive at the organisation, commented: "You have got a considerable amount of contents there that will add up to this kind of money."

He added that most people would need specialist insurance policies that cater for the fact that holiday homes are often left empty for a period of time.

According to figures from the Office for National Statistics, about 211,000 people in the UK have a second home overseas.

Expert Tax Advice From Milestone International Tax consultants Ltd - July 2008

Wed, 9 Jul 2008 00:00:00 GMT

Financial expert Binne Vries from Milestone International Tax consultants Ltd gives his personal opinion on the latest tax schemes:

Tax Tip

Treaty Shopping and Beneficial Ownership - The Canadian view

Multinational groups with cross border activities often use intermediary holding companies that own local subsidiaries to conduct local activities. The location of the intermediary holding company may produce a tax advantage through reducing withholding taxes on distributions by the local subsidiary via the intermediary holding company to the ultimate owner or parent company. However, in virtually all double tax treaties, the benefits of the reduced withholding tax rates are only granted if the recipient of the dividend income is the 'Beneficial Owner' of the dividend. In situations where an intermediary holding company is used, tax authorities sometimes claim that the structure is used only to obtain a tax benefit and that it cannot be considered to be the Beneficial Owner.

The term Beneficial Owner is not defined in the tax treaties and, to further complicate matters, States applying tax treaties give different meanings to the term. The Commentary to the OECD Model Conventions provide that a conduit company cannot normally be regarded as the beneficial owner if it has, as a practical matter, very narrow powers that render it a mere fiduciary or administrator acting on account of the interested parties. Some of our readers may remember the UK Indofood case where the Civil Court in the UK decided that a Dutch intermediary company receiving interest from a UK resident could not be regarded as the Beneficial Owner. An important factor in this case was that the Dutch company never received the interest: the debtor of the interest paid the interest due directly to the beneficial owner. As a result of the decision, HMRC was entitled to ignore the reduced withholding tax rate under the relevant tax treaty. Although this decision is considered to be controversial, HMRC announced that they would follow the decision and have since published guidelines on the 'International meaning of the term Beneficial Owner'.

The issue was more recently tested in a Canadian case (Prévost Car Inc v HM The Queen). In this case, the Tax Court of Canada was asked to consider the meaning of Beneficial Owner in the Canada-Netherlands tax treaty. Volvo of Sweden and Henlys of the UK owned, via a Dutch intermediary JV company (Prevost Holding BV), a Canadian subsidiary (Prevost Car Inc). Revenue Canada argued that the Dutch company was not the beneficial owner but was merely a conduit (effectively agent or nominee) for the shareholders of the Dutch company. Revenue Canada based their arguments on the fact that there was a shareholders’ agreement which provided for required distributions from the company and the fact that there was no real substance in the Dutch company.

In rejecting Revenue Canada’s assertions, the Tax Court determined that the Dutch company was indeed the beneficial owner of the relevant dividends, since it was the person who received the dividends for its own use and enjoyment. The shareholders’ agreement governed the relationship between the shareholders only, not the relationship between the Dutch company and the shareholders. The Dutch holding company was not party to the shareholders agreement and neither Henlys nor Volvo could take action against the Dutch company for failure to follow the dividend policy described in the shareholders agreement. Financial statements of the Dutch company show that it owned the relevant assets and had liabilities, and it was a requirement, if dividends were to be declared to the shareholders, that the directors had to declare such dividends and the shareholders subsequently to approve them. Until such time as dividends were declared, the dividends receivable were an asset of the Dutch company and were available to any creditors.

These two apparent contradictory decisions (the UK and the Canadian perspective) will not resolve the different interpretations of the term Beneficial Owner used in double tax treaties. They do, however, provide interesting guidelines and it would seem that it is still possible to use an intermediary conduit company located in a jurisdiction that has the most favourable tax treaty in respect of withholding taxes on dividend, interest or royalty income. This of course is on the proviso that beneficial ownership will only be satisfied where the intermediary company legally (Prevost) and practically (Indofood) is the owner of the income. Naturally, one can expect HMRC to adhere to its published guidelines and will continue to challenge conduit situations irrespective of the legal and practical circumstances. Readers who would like to know what solutions may be available in this regard should contact binne@milestonetax.com.

European Union / Belgium

A recent ECJ ruling on Belgian participation exemption may lead to a change in law

A Belgian court in Belgische Staat v NV Cobelfret (C-138/07) recently held that the distributed profits of a member state subsidiary to its parent in another member state are indirectly taxed because the 95% deduction cannot be fully used in a loss situation. The Court observed that the offset of the losses from the distributed profits of the subsidiary company reduced the loss carry forward possibilities. On 27 February 2007, the Court requested a preliminary ruling from the ECJ as to whether this was compatible with the Art 4(2) EU Parent / Subsidiary Directive (the “Directive”).

The ECJ held that the current Belgian domestic rule that governs the tax treatment of dividends received by a parent company from its subsidiary situated in another member state is incompatible with Art. 4 of the Directive.

The background to the issue is as follows: Article 4 of the Directive provides that if a parent company has a participation of at least 15% in its subsidiary situated in another member state and receives distributed profits, the parent company member state must not tax those profits or must give a tax credit for the corporation tax paid by the subsidiary on such profits. However, Article 4(2) of the Directive allows member states to disallow a fixed amount of management expenses related to the distribution of up to 5% of the total amount of profits distributed.

Belgian domestic law allows for a 95% exemption of profits received provided the parent company holds at least 10% of the capital of its subsidiary and the subsidiary is subject to tax at a minimum rate of 15%. Dividends received are included in the company’s taxable profits which are then adjusted. The deduction of the exempt inter-company dividends can only be made after all other deductions, including loss deductions.

This means that the parent company can only deduct 95% of the qualifying dividends received if there are any remaining taxable profits. Therefore should the parent company have losses, the 95% deduction cannot be fully used, nor can it be carried forward against future profits. The deduction is also not available if the parent company’s profits are lower than that of its subsidiary. Further, the profits received from the subsidiary must be offset against the losses of the parent company before the parent company can carry forward its losses.

The Belgian Revenue authorities have not yet responded to the ECJ decision.

France / Luxembourg

Double CGT exemption

We reported in previous ITNs that the double CGT exemption that was achievable under the old France / Luxembourg 1958 treaty was no longer effective as the treaty is in the process of being renegotiated.

However, the new treaty, which is applicable from 1 January 2008 only abolishes the double CGT exemption on direct ownership (or ownership through a transparent French entity) of French real estate. The following are possible structures to use for French real estate going forward:

Luxembourg company owns a French company owning French real estate: the gain on sale of the shares of the French company is, not taxable in France, and the gain may be exempt in Luxembourg under the participation exemption, provided the relevant conditions are met; or
Luxembourg company owns a French SCI owning French real estate: a French SCI can elect to be a civil or commercial entity. If the French SCI elects to be subject to corporate tax, any gain on disposal of the SCI shares will be taxable in France. If, however, the French SCI is subject to corporate tax by virtue of its trading activities, the gain will be taxable in Luxembourg only and may be exempt under the Luxembourg participation exemption.

Other planning opportunities do exist but care must be taken due to the complexity of French tax law.

Liechtenstein

Tax reform planned

The Liechtenstein government has published the outline and draft discussion points for a tax reform. A draft final report should be published by the end of 2008. The most notable points of the proposal are:

Abolition of capital tax;
Abolition of inheritance and gift tax; and
The taxation of asset management structures, such as foundations, establishments and trusts is to be reviewed.

Luxembourg

International tax competitiveness increased

The Luxembourg corporate tax rate is set to be reduced from 29.63% to 25.5% by 2010, with an initial reduction being made on 1 January 2009.

Capital duty, currently levied at 0.5% on capital contributions to companies and partnerships, will be abolished from 1 January 2009. One less thing to consider in international structuring!

Luxembourg continues to take positive steps to enhance its competitiveness. However, we would also like to see the abolition of net wealth tax. This is unattractive to foreign investors and often causes problems in structuring inbound investments.

Moldova / Cyprus

First time treaty

A first-time income tax treaty has been signed between Cyprus and Moldova, although it has not yet been ratified. The treaty has been concluded in Moldovan, Greek and English and is based on the OECD Model Convention.

Rates of withholding tax may be reduced under the treaty as follows:

Dividends: 10% generally, 5% if the beneficial owner is a company (other than a partnership) holding at least 25% of the capital of the company distributing the dividend.

Interest: 5%

Royalties: 5%

The permanent establishment article deviates from the OECD Model Convention, in that, a construction PE will only exist if a building site, a construction, assembly or installation project or supervisory activities in connection therewith, lasts longer than 9 months (compared to 6 months in the Model Convention).

This first-time treaty may be interesting for structuring investment into Moldova or possibly for the development of Moldovan real estate. Cyprus is a good holding company jurisdiction. It does not tax capital gains and has a corporate income tax rate of 10%, although there are unusual anti-abuse provisions to be aware of such as the ‘special defence contribution’, as discussed in earlier ITNs. If you would like advice on structuring investments in Moldova or other Eastern European jurisdictions please contact the tax team who have a wealth of experience in this area.

Ukraine / Cyprus

Update on applicability of Cyprus / Old Soviet Union Treaty to Ukraine

We have mentioned in previous ITNs that Cyprus / Ukraine have concluded and signed a new treaty, but not yet ratified it. It can sometimes take years before a treaty is ratified and will not be applicable until it is in force.

Currently the Cyprus / Soviet Union treaty is applied as between Ukraine and Cyprus. The new Cyprus / Ukraine treaty is not as beneficial as the Cyprus / Soviet Union treaty, for this reason it seems as though Cyprus has dragged its heals, first in the signing of the treaty and now in ratifying it. As such, the Cabinet Ministers of Ukraine have submitted a draft law to Parliament denouncing the old treaty. How long it will take for the denunciation to be approved is not known, particularly if it is correct that a number of members of the Ukrainian parliament have an interest in keeping the old Soviet treaty applicable!

Whatever happens we have solutions for exiting Ukrainian investments once the new treaty comes into force so do contact us if you have a query in this regard.

Currency Market Commentary - Summary of January 2008

Tue, 1 Jan 2008 00:00:00 GMT

GBP/EUR

Key data out this month:

From the UK:

RICS House Prices for December. Previous -40.6 index

Nationwide Consumer Confidence

BoE MPC Interest Rate Announcement

Consumer Price Index

From the EU:

ECB Announces Interest Rates

Trichet speaks at ECB Monthly News Conf

Germany Unemployment Change

German Consumer Price Index

Impact of data in the market place:

January saw Sterling fall to an 11-year low against the Euro; with the value of €1 breaching 75 pence before retracing slightly lower to current levels, although Both the ECB and BoE declined to join the Fed in an emergency interest rate cut and the BoE made it clear from Governor’s King’s speech and from this months meeting minutes that drastic interest rate cuts would not be forthcoming in the face of higher inflation in the economy.

We still expect some rate cuts to materialise in the coming months and the UK economy still has a vulnerable feel for at least the first quarter of 2008, thus leaving GBP/EUR at risk of possible further falls.

UK Consumer confidence declined in December to the lowest in 10 months and retail sales slowed at its weakest rate in 12 month. Rising fuel bills and the lingering credit squeeze left consumers with lower disposable incomes, therefore leading to a sharp downturn in consumer spending.

Also house prices were confirmed to be falling at their fastest rate since the early 1990’s according to the latest RICS report. Nationwide house prices fell for a third consecutive month in January and Rightmove house prices fell to their lowest levels since December 2005.

Central bank rates:

UK (MPC) 5.50%

EU (ECB) 4.00%

High & Low of the month:

High: 1.3614

Low: 1.3130

Difference of cost on a €200k property:

High = £146,907.60

Low = £152,322.92

GBP/USD

Key data out this month:

From the UK:

Nationwide house Prices for January

BBA Mortgage Approvals for December

PPI input &output for December

RICS House Prices for December

Retail sales for December

From the US:

Interest rate cut

Consumer credit for November

Retail sales for December

University of Michigan Consumer Sentiment Survey for January

Existing Home & New homes sales for December

Consumer confidence for January

Impact of data in the market place:

The US Dollar’s structural weakness over 2007 saw significant depreciation against Sterling and most notably the Euro, even more when the US Federal Reserve made a surprising, announcement of an emergency rate cut on the 22nd. The Fed cut by 0.75% from 4.25% down to 3.5%, the first emergency reduction since 9/11. And on the 31st of January, the US Federal Reserve decided to cut the Fed Funds rate by a further 0.5% to 3.0%. Since September the rate has been slashed by a massive 2.25%.

The key weaknesses of the US economy persist, with risks to economic growth firmly to the downside.

The committee took action after Asian and European stock markets tumbled citing concerns about a weakening economy and turmoil in the financial markets, all adding to signs of a US recession. While the initial reaction was relatively muted, the Dollar weakened against the Euro and Sterling, while the trend continued throughout the end of the month.

Central bank rates:

UK: (MPC) 5.50%

US: (FED) 3.00%

High & Low of the month:

High: 1.9957

Low: 1.9335

Difference of cost on a £200k property:

High: $399 140

Low: $386 700

EUR/USD

Key data out this month:

US Pending home Sales for November. Previous 3.7%. Actual -2.6%

EU ECB Interest Rate Announcement

US FOMC Interest Rate Announcement

Impact of data in the market place:

The upward trend of EUR/USD shows little sign of breaking as the US economy continues to remain under pressure moving into 2008. The minutes from the Fed’s December interest rate meeting indicated that further rate cuts would be necessary in 2008 due to the increasing difficulties in the credit markets and further economic slowdown. This highlighted the effects of the credit squeeze had spilled over to consumer spending – a key driver of growth for the US economy. However, the Fed faced the predicament that lowering borrowing costs will fuel inflationary pressures. Ben Bernanke, the chairman of the US Federal Reserve, had signaled at the beginning of the month that the Fed was ready to take aggressive action to fend off recession; this resulted in 2 interest rate cuts (one being an “Emergency rate cut”) from 4.25% to 3% in the space of 7 days. This emergency rate cut was the first since 9/11 and the largest cut in rates for 26 years. It will be a waiting game to see whether this drastic rate cut has the desired effect of reversing the slowdown. Furthermore, the sub prime mortgage lending problem that originated in the US remains an issue in the economy, as the housing sector shows little sign of a turn around.

The European Central Bank decided to keep interest rates on hold this month. The Euro is being supported largely by weaker data from the US and UK, rather than key data from the Eurozone. Whilst all three economies begin to suffer the effects of slowing growth the Eurozone seems to be a lot more concerned with Inflationary pressures and has not ruled out a rate hike in 2008. We can expect continued Euro strength and a continued EUR/USD uptrend going forward the HICP (measure of inflation in the Eurozone) came out higher than expected at 3.2% (targeted at 2.0%) highlighting that the ECB will certainly not be cutting interest rates in the near future

Central bank rates:

US: 3.00% Interest Base Rate

EU: 4.00% Interest base Rate

High & Low of the month:

High: 1.4922

Low: 1.4364

Difference of cost on a $200k property:

€5,206.95

GBP/AED

Key data out this month:

Finance ministers from the six-nation GCC (Bahrain, Kuwait, Oman, Saudi Arabia and the United Arab Emirates) dismissed the abandonment or movement of their pegs to the declining US dollar.

Impact of data in the market place:

After all of the recent volatility experienced due to the market expectations of a decision to unpeg, the market has once again begun to settle. AED remains pegged to the USD at a rate of 3.67 and therefore the movements in the currency mirror that of GBP/USD.

High & Low of the month:

High: 7.33

Low: 7.10

Difference of cost on a £200k property:

High: 1466000 AED

Low: 1420000 AED

GBP/CAD

Key data out this month:

Canada

Gross Domestic Product (Month of Month (MoM)) Nov.Forecast 0.1% Actual 0.1%
Consumer Price Index. Both figures were in-line with expectations – MoM 0.1% and Year on Year (YoY) 2.4%.
Interest rate announcement. 0.25% basis point cut to 4.00%.
Retail Sales. Expected at 0.3% came out at 0.7%.
Housing Starts. Forecast at 221k actual 187.5k

UK

Retail Sales. Forecast for 0.2%, actual -0.4%.
Consumer Price Index came out at 2.1% - expected at 2%.
Bank of England Interest Rate Announcement. Rates held at 5.5%.
Bank of England minutes released showing 8:1 vote to keep rates steady.

Impact of data in the market place:

A very choppy month for GBP/CAD with some big movements on the back of data releases. The Bank of Canada’s move to cut rates by a quarter of a percent may help to preserve the longest economic expansion since World War II even as the U.S, Canada’s largest trading partner, slumps on the back of the credit crisis. 30% of economic output in Canada is covered by exports such as lumber and cars – approximately 80% of these sales are to U.S customers. High Retail Sales figures were boosted by strong fuel prices and the general outlook among consumers remain positive.

The Bank of England minutes showed an unsurprising 8-1 vote in favour of a hold. Whilst uber-dove David Blanchflower sited a “greater risk of a sharp slowdown” for his vote in favour of a cut, the minutes showed that the Bank of England is becoming concerned about inflation amidst rocketing energy and food costs.UK consumer price inflation was released above the Bank of England’s target (2%) for the third consecutive month with the biggest upward effect coming from food prices.

Market conditions have been volatile based on the stark contrast between the UK and Canada’s current economic conditions and room for economic growth. This in turn creates a lot of uncertainty in those who need to trade Canadian Dollars. The positive side of this for clients wishing to migrate to Canada is that the economic conditions out there are remaining strong despite the general negative outlook across most of the developed world at present. However, with such large movements being seen it is important to remember the impact that currency fluctuations can have when converting funds. As seen below clients transferring 250,000CAD will have seen a difference of over £6000 in one month.

Central bank rates:

Bank of Canada: 4.00%

Bank of England: 5.50%

High & Low of the month:

High: 17/01/08 - 2.0351

Low: 04/01/08 - 1.9394

Difference of cost on a 250kCAD property:

£6,061.76

GBP/AUD

A choppy start to 2008 as the $AUD shows more volatility:

The New Year started where 2007 left off; more volatility in an increasingly uncertain market, making it even harder to guesstimate where the rates are going! Starting 2008 at around the 2.28 levels, the dollar continued to benefit from a weaker pound and the rates fell to just under $2.17, levels not seen for over 10 years! Only a year ago it was trading at over $2.50 to the pound, but ignoring an uncharacteristic move in August, it has been on a progressive march downwards ever since.

There was more strong data out from Australia, with low unemployment, strong CPI inflationary data and very bullish housing and retail figures. We did see a brief correction in this downward movement, as investors took some of their profits from the so called “carry trades” and this pushed the rates back up to around the 2.28 levels again. However, these gains were short lived and, as expected, the dollar strengthened in the last week of January, finishing the month at around 2.18 – 2.19.

So how low can it go? Difficult to say given the current conditions, an answer that I appreciate has been given for the last few months. The UK are looking at a possible rate cut in February, down to 5.25%, in a bid to calm fears that the UK will follow the plight of the US. The RBA, however, may need to raise their interest rates in an effort to contain inflationary pressures and control their booming economy. This may well be a continuing trend until they can see domestic demand starting to suffer under the weight of a creaking global economy.

The moves we are seeing illustrate just how much the markets can react and what a risky business buying and selling currency can be without the proper planning. It can be such a difficult decision deciding when to buy your currency, and whether to leave it in the UK hoping that the rate will improve, especially when it is your life savings.

There are, however, ways in which to considerably reduce this risk:

The key is to address your exposure from the outset and get a strategy in place that suits you. One popular option is what is known as a forward contract, or ‘buy now pay later’ method, whereby you can lock into a rate of exchange with just a 10% deposit, for delivery up to 2 years in the future. If you had locked in at the beginning of January 07, you would have achieved around the 2.50 mark. In ’08 that figure would have been about 2.27, a massive 23 cent difference, or $56,000 on £200,000! Put into perspective, that is your new house furnishings or even a very nice new car. Even if you take the difference in January of 11 cents, that would be a potential saving, or loss, of $22,000 on that £200,000….in just one month!

The forward contract holds many benefits; you do not need all of your funds available (the majority of peoples funds are tied up in property for example), it gives you peace of mind knowing you have secured a rate and know what you are going to achieve, and it is flexible and can accommodate changes in the time scale originally agreed due to house sales falling through, etcetera.

Of course, it is always tempting to wait for a better rate and only you can decide how much of your wealth you want to expose to risk (you may decide to fix an exchange rate for half or all of your assets). For those of you willing to take a bit of a gamble, you can take out a “market order” or target rate, which is where you set a level at which you want to buy your currency. If and when this level is reached, the money is bought, but obviously it holds the risk that your target won’t be achieved so you will simply have to buy at the prevailing rate on the day.

Some people may not have the money available to them for a forward contract. The UK housing market is currently experiencing a slow down, with houses taking longer to sell, so many people will leave the majority of their funds in the UK. HiFX have an office in Sydney, which is fully ASIC regulated, and an account can be set up with them before you leave the UK, making the transition as smooth as possible
For those of you who are leaving for Australia over the coming months, forward planning is of the utmost importance and could save you thousands of pounds to start your new life. For a free, no obligation consultation about your situation and the options available please contact the migration team at HiFX on +44 (0) 1753 859159, or email migration@hifx.co.uk.

GBP/NZD

$NZD Continues to Strengthen in an Uncertain and Volatile Market:

As we moved into 2008 the $NZD was still experiencing the volatility it suffered throughout 2007 in an increasingly uncertain market. It moved over 16 cents in January, closing at just over the $2.50 levels. Ignoring the blip caused by the sub prime crisis in America in August, the Dollar has been strengthening against the Pound since midway through 2006, where it reached a peak of 3.06.

One of the determining factors of this continued strength has been the large interest rate differential, with NZ rates being at 8.25%. This makes it very attractive for investors who are seeking high returns on their funds, and lends itself to what is known as the “carry trade”, where people borrow in a low yielding currency and invest in one such as the New Zealand Dollar which offers such lucrative returns. Despite deteriorating global growth and market turbulence, the RBNZ kept their rates at 8.25% this month, citing high inflationary figures and an unchanged outlook for the NZ economy from previous months.

The question is, of course, how much lower can it go? Unfortunately this is very difficult to say given the current conditions, an answer that I appreciate has been given for the last few months. The UK are looking at a possible rate cut in February, down to 5.25%, in a bid to calm fears that the UK will follow the plight of the US. The RBNZ’s stance will depend mostly on how the impending US-led global slowdown affects commodity prices, and therefore inflation and growth in New Zealand. In 2005, the rates dropped to just over 2.41, and that was when the Pound was a lot stronger than it is now. In 1996, the rate was just under 2.17!

The moves we are seeing illustrate just how the markets can react and what a risky business buying and selling currency can be without the proper planning. It can be such a difficult decision deciding when to buy your currency, and whether to leave it in the UK hoping that the rate will improve, especially when it is your life savings.

There are, however, ways in which to considerably reduce this risk:

The key is to address your exposure from the outset and get a strategy in place that suits you. One popular option is what is known as a forward contract, or ‘buy now pay later’ method, whereby you can lock into a rate of exchange with just a 10% deposit, for delivery up to 2 years in the future. If you had locked in at the end of January 07, you would have achieved over 2.90. In ’08 that figure would have been about 2.45, a massive 45 cent difference, or $90,000 on £200,000! Even if you take the difference in January of 16 cents, that would be a potential saving, or loss, of $32,000 on that £200,000….in just one month! Imagine how that could change the start of your new life?

For those of you who are leaving for New Zealand over the coming months, forward planning is of the utmost importance and could save you thousands of pounds to start your new life. For a free, no obligation consultation about your situation and the options available please contact the migration team at HiFX on +44 (0) 1753 859159, or email migration@hifx.co.uk.

There are many strategies available to minimise your risk when transferring funds, all of which will be explained clearly by your personalised dealer should you open a trading facility with HIFX. To discuss your requirements in more detail and for a free currency consultation please contact HiFX plc on 01753 859 159 or email info@hifx.co.uk.