Latinoamerica: crisis y democracia

Cinco años de un fuerte crecimiento económico ha producido un lento pero firme alza en apoyo de la democracia y sus instituciones entre los latinoamericanos.

Estas encuestas realizadas en 18 paises fueron publicadas por la revista The Economist en inglés. Tratan de las actitudes en cuánto a la intervención del Estado, la democracia, los partidos y otros asuntos.

"The Latinobarómetro poll

Democracy and the downturn

Latin Americans are standing up for their rights

FIVE years of strong economic growth have prompted a slow but fairly steady rise in support for democracy and its institutions among Latin Americans, although many remain frustrated by the way their political systems work in practice. Most see themselves as politically moderate, but they retain a yearning for strong leaders and expect the state to solve their problems. These are some of the findings from the latest Latinobarómetro poll taken in 18 countries across the region and published exclusively by The Economist. Because the poll has been taken regularly since 1995, it tracks changes in attitudes in the region.


This year’s poll was taken in September and early October. It therefore reflects the sharp increase in inflation in the region in the first half of this year, but not the full effect of the financial turbulence and deteriorating economic outlook that hit some Latin American countries in recent weeks. Nevertheless, it carries some sobering lessons for the region’s politicians.

The poll underlines the fact that a small majority of respondents are convinced democrats. In 12 countries, support for democracy has risen since 2001, when the region last suffered an economic recession. But only in five countries is it higher than it was in 1996. This year democracy has received a particular boost in Paraguay, a country where authoritarian attitudes previously predominated. The shift follows the victory in a presidential election in April of Fernando Lugo, a leftish former bishop who ended more than half a century of rule by the Colorado Party. That echoes similar hopes of change aroused by newly elected leaders in the region in recent years.

Conversely, in Venezuela, support for democracy may have been boosted this year among opponents of President Hugo Chávez, after their victory in a referendum on constitutional change last December. In Colombia, President Álvaro Uribe’s success against the FARC guerrillas may be the reason for a similar democratic lift.

Uruguayans are by far the most satisfied with how their democracy works (see chart 3). Peruvians are particularly disgruntled. That is paradoxical: Peru’s economy has grown faster than that of any other of the region’s bigger countries both this year and last. Their discontent seems to reflect deep flaws in the political system. But even if slightly less than two-fifths of respondents across the region are satisfied with their democracies, that is a significant improvement on the 2001 figure.

The relative dissatisfaction owes much to the deep-rooted socioeconomic inequalities in Latin America. Across the region 70% of respondents agreed that governments favour the interests of the privileged few; around half say they would not mind a non-democratic government if it solved economic problems; a similar proportion say democracy has not reduced inequalities; and only 30% think there is equality before the law. These attitudes help to explain the popularity of Mr Chávez, an oil-rich strongman—more than a third of Venezuelan respondents say inequalities have diminished.

But most respondents are convinced that democracy is the only road to development—and 71% say they are personally happy. So why the grumbles? As democracy has come to stay in the region, “people are more conscious of their rights and their expectations are higher”, says Marta Lagos, Latinobarómetro’s director. She adds that the yearning for a strongman is more a cultural trait than a political preference—and that the same goes for a fondness for a paternalist state.

The poll shows that a large majority believe that pensions should be in state hands. In Argentina that number is 90%, which perhaps helps explain why President Cristina Fernández last month nationalised the private pension system. But at the same time 56% of respondents see a market economy as the road to development (up from 47% last year). And 32% declare themselves satisfied with privatised public services, up from 15% in 2004. Some 44% say they trust their banks, up from 29% in 2003. The church remains the most trusted institution in the region—but less so than it was. Trust in government and legislatures continues to edge up.

In six countries, including Mexico and Venezuela, crime and public safety are seen as the most important problem. In ten countries, economic concerns (unemployment, poverty and inflation) are still seen as paramount. In Brazil 19% cited health care as the biggest problem.

Despite the swing to the left in the region in recent years, most respondents to the poll consider themselves in the political centre (42% this year, up from 29% in 2003). Only 17% say they are on the left and 22% are on the right (even in Mr Chávez’s Venezuela those on the left and right are tied at 26%).

That provides hope for centre-right politicians in a round of presidential elections in the larger countries in the region in 2010-12. Those elections are likely to be held against a much less rosy economic backdrop than has prevailed for the past few years. The task facing Latin America’s politicians is to ensure that economic difficulties do not spill over into a weakening of support for democracy.

Lecciones de la crisis japonesa

"Algunas lecciones de la crisis japonesa", articulo publicado el 03-11-2008 , por José Carlos Díez. Economista jefe de InterMoney, en Expansion.com:

En 1991, la bolsa japonesa y los precios inmobiliarios se desplomaron y provocaron la peor crisis de un país desarrollado desde la Gran Depresión. El sistema bancario había financiado toda aquella locura y el desplome del valor de los colaterales provocó una quiebra sistémica, cuyo saneamiento ha costado el 15% del PIB japonés.


La principal característica de la crisis fue la inacción, tanto de los responsables de la política económica como de las empresas y de los bancos.

Cuando comenzaron a tomar medidas, el sistema financiero estaba quebrado, la economía entró en una trampa de la liquidez keynesiana, la política monetaria perdió efectividad y el policy mix de política económica fue desastroso, especialmente la política cambiaria y fiscal que acabaron neutralizando sus efectos restando efectividad a las medidas. A continuación, se va analizar las consecuencias de la crisis, que más de tres lustros después mantienen a la economía nipona al borde de la deflación.

La deflación maligna

La deflación es una patología atípica y es lógico que los economistas nos preocupemos más de proteger a las economías de la inflación que es más habitual. Pero, Japón es un ejemplo de la deflación y sus efectos deben hacer que cualquier sociedad tome las medidas que sean necesarias para protegerse de ella.

Se puede observar la debilidad del crecimiento de del PIB que ha registrado un crecimiento promedio anual de 1,3% desde 2001 hasta 2007. Destaca la debilidad del consumo privado y la inversión y la fortaleza de las exportaciones.

Cuando las familias tienen expectativas deflacionistas retrasan sus decisiones de consumo, especialmente de bienes duraderos, ya que esperan que al año siguiente podrán comprar los bienes más baratos.

La debilidad de consumo estanca las ventas de las empresas y la deflación de precios, junto a salarios nominales rígidos a la baja, hunde los márgenes empresariales, lo cual elimina cualquier incentivo a invertir en nuevos proyectos empresariales e incluso en proteger a la capacidad instalada de su depreciación.

Esto explica que la tesis de Keynes en la teoría General fuera que ante la contracción de la demanda efectiva, tenía que ser el gasto público el que compensase los efectos de deflación para evitar en una caída en picado de la acumulación de capital que hundiese el crecimiento potencial.


Por fortuna para Japón, la burbuja se concentró en el precio de los activos inmobiliarios y de las acciones pero no se contagió al resto del mundo, por lo que gracias a su elevada capacidad tecnológica la economía puede mantener el crecimiento y la acumulación de capital vía exportaciones. Eso libró a Japón de la pobreza extrema que si se produjo en la Gran Depresión.

En el gráfico 2 se puede observar cómo el sector público tardó varios años en implementar políticas fiscales expansivas y cuando lo hizo fue ineficaz, al no priorizar el gasto en infraestructuras y acompañarlo de medidas de liberalización de sus economías para aumentar el crecimiento potencial.

Conclusiones

Aunque en la actual crisis también hay deflación de activos, por fortuna hay muchas diferencias que alejan el caso japonés del escenario central, aunque el riesgo sigue existiendo. La principal es que al ser una crisis de activos, el desplome de los mercados, especialmente de las bolsas, ha hecho que la sociedad sea consciente de la gravedad de la crisis y ha favorecida la acción de los Gobiernos.

Las primeras medidas han sido apuntalar el sistema financiero y recapitalizar a los bancos más afectados, pero ahora ha llegado la hora de la política fiscal. En las últimas décadas el paradigma liberal del minimalismo público «menos estado es más» ha primado la rebaja de impuestos. A partir de ahora, la incertidumbre es máxima y la bajada de impuestos puede ser destinada por las familias al ahorro, por lo que replicaríamos la trampa de la liquidez keynesiana que ha asolado Japón.

El gasto público tiene un efecto multiplicador y acaba arras-trando al sector privado al reactivar el empleo y las rentas salariales. Lo relevante es tener presente que el Estado no puede suplantar al sector privado permanentemente y que debe priorizar el gasto en infraestructuras. El anuncio de fuertes emisiones de deuda pública mundial ha provocado un aumento de las pendientes de las curvas de tipos, lo cual nos aleja del caso japonés. Sin duda, una gran noticia.

Investment banking: Difficult times may give rise to a different model

Very interesting article publshed in Financial Times (www.ft.com), writed by Brooke Masters and entitled "Investment banking: Difficult times may give rise to a different model":

"Of all the financial services sectors, investment banking has been hit the hardest by the turmoil of the past year or so.

Not only have such venerable houses such as Bear Stearns and Lehman Brothers disappeared, but the survivors have had to find well-capitalised partners or reconstitute themselves as traditional commercial banks.

Volatile equity markets, the credit squeeze and the sharp decline in activity on Aim have made it hard for corporates of all sizes to raise money and have hit the bottom lines at bulge-bracket investment banks and smaller boutiques alike.

Many institutional investors are sitting on the sidelines and most banks are reluctant to lend.

Yet companies still need to raise money: to keep going, refinance debt, or take opportunities. That makes them even more dependent on their advisers to help them find a way through what everyone agrees are difficult times.

“In these volatile times, it is crucial to be close to the markets, so we can advise clients on how shareholders will react to corporate developments. When it comes to capital-raising, our ability to judge the market and move quickly are important,” says Naguib Kheraj, chief executive of JPMorgan Cazenove.

Very few deals are likely to get done before Christmas and some bankers think the slowdown could continue through the first few months of next year.
Investors and lenders, they say, are waiting to see first quarter 2009 results to get a sense of where earnings will go.

As a result, many corporate advisers are using this period to help clients get ready for tough scrutiny.

“Cash is still king, so advisers will be spending a lot of time over the several months helping their clients take a hard look at their balance sheets to determine the most advantageous mix of assets.

“Those who have managed their resources well will have a big advantage,” says Marisa Drew, a Credit Suisse managing director who is co-head of the European global markets solutions group and the European leveraged finance origination group.
The next year may see the return of private equity-backed deals, albeit on a far smaller scale than in pre-crunch days.

“Private equity deal volumes have fallen away, but dialogue and the search for opportunities has not,” says Simon Tilley, head of the European Financial Sponsors Group at Close Brothers. “Identifying and delivering bolt-on acquisition opportunities is a key focus for private equity sponsors and for our business.”

Some bankers believe the financial crisis will prove to be a great opportunity for the big universal banks, such as Citigroup and JP Morgan, which can talk up relationship banking, their top-tier mergers, and how they can offer acquisition advice, financing, foreign exchange and cash management all at once.

“Historically, we have supported our clients through difficult times and we expect this downturn to be no different,” says Tom King, head of Europe, Middle East and Africa Banking at Citigroup.

Companies interested in tapping the big banks for financing may find they have to offer other businesses as a sweetener. Lenders have become highly selective about which deals they will back, and institutional investors are also having to husband their cash.

“Companies need to foster and guard relationships with these organisations, as it is longer-term knowledge, shared experiences and the resultant loyalty that will have a bearing on the provision of services and financial backing – be that equity provision from fund managers, debt funding from banks or advice from investment banks,” says David Currie, head of UK investment banking at Investec.

On the other hand, difficult markets may also prove to be an opportunity for a completely different model because some companies will want independent advice that does not come with strings attached.

They are likely to turn to a wide variety of service providers, ranging from Rothschild and Lazard via boutiques such as Greenhill Partners and Fenchurch, to the corporate finance arms of the big accounting and consulting firms.

“Independence from a trading arm and balance sheet for funding will be an advantage both in terms of escaping the fallout and also reputation and reliability – and this is something that corporate finance boutiques and professional services firms alike will be able to leverage and benefit from,” says Neil Sutton, Head of UK Corporate Finance, PwC.

“We may therefore see a re-ordering of adviser brands, where independence and agility in the face of turbulence win over more traditional investment banking names or newly established boutiques.”

After the 2001 dotcom crash, some financial services industry observers predicted the emergence of a “barbell effect” in which universal banks and independent boutiques would prosper, while those in the middle were pushed out.

Independents certainly grew. According to Thomson Financial, in 2000, independent advisers advised on 19 per cent of global M&A. In 2007, the figure was 38 per cent.
But the banks in the middle prospered as well, because the whole pot got bigger and all sizes and kinds of investment banks did well. This downturn may bring about that long-expected squeeze. It may already be under way.

The last big US independent investment banks – Morgan Stanley and Goldman Sachs – are rushing to add a retail component, and retail banks such as Barclays – which picked up large parts of Lehman’s US business – and Bank of America – which is merging with Merrill Lynch – are expanding their advisory side.

It will be up to their clients to make clear which model they prefer.

Copyright The Financial Times Limited 2008

Migrant Money Remittances help to boost Real Estate in Emerging Markets

According to www.iamtn.org, migration patterns have been shifting and along with them, the financial impact of remittances is leaving its trail. This money trail now follows the migrants moving from one developing country to another. One of the largest impacts of this migration pattern is on real estate. A recent report 'Global Demographics 2008' by Urban Land Institute, partly sponsored by Deloitte LLP, suggests that "global remittances from immigrants to their families support residential and retail developments in their countries of origin". Firstly, one of the first priorities for a remittance recipient is to spend on housing, leading to growth in real estate markets in 'receive' countries. A blue-collar worker from rural southern India sends money from the Middle East to his wife, two children and widowed mother; his wife says, "We have been saving the amount he sends us to build a home on the outskirts of a nearby urban area."

Second, the growing number of white-collar expatriates demands high quality residential realty in 'send' markets. Even at the lower level, migrant influx translates to housing and retail space demand. Global Demographics 2008 suggests that "increasingly, migrants gravitate towards large, urban areas". Already, the price of real estate in growing urban pockets of several developing nations is starting to climb. The report claims that "new migration patterns" are amongst the key factors that shape the future of real estate internationally.

Says Lady Olga Maitland, CEO, IAMTN, "We are well aware of the impact on real estate, and this is set to grow. In some countries it plays a more significant role than others. In Nigeria, 40% of the remittances go to building a home. Broadly remittances are prioritized into first sustenance; food then health, education, house building and finally a family business."

Less regulation in the case of SEC?

U.S. Securities & Exchange Commission member Paul Atkins recently co-wrote an article claiming that enforcement issues are so egregious that the SEC needs to set up an independent review panel. The last time the SEC had one was 36 years ago.

These are excerps from the article:

Financial markets and their regulatory landscape have changed markedly in the past three and a half decades since an independent panel reviewed the SEC's enforcement program. It is time to convene a similar panel to bring the program up to date. The Division of Enforcement of the U.S. Securities Exchange Commission has a proud history and many dedicated attorneys, accountants and other staff. Thirty-six years after its creation, the Enforcement Division is larger, stronger and more visible than anyone at the time could have imagined.

In the 36 years since the Wells Committee set out its recommendations, financial markets have changed tremendously, and corporate scandals have rocked both Wall Street and Main Street. In response, Congress gave the SEC significantly more enforcement authority, much of it penal in nature. The SEC now can impose multimillion-dollar penalties against corporations and individuals, bar individuals from serving as officers and directors of corporations, and prevent professionals such as accountants and securities lawyers from practicing before the SEC. Some believe that in exercising these new punitive powers, the SEC has shifted its focus without adjusting its due process protections along the way. It is time for the commission to convene a new advisory committee, in a spirit similar to that of the Wells Committee, to conduct an independent review of the SEC's enforcement program and to recommend any needed changes to modernize enforcement practices. As the Wells Committee did, this new committee also should examine whether the SEC is taking appropriate steps to protect the rights of defendants and to provide appropriate due process. Although much has changed since the original Wells Committee did its work, the same philosophical and practical concerns exist today. Therefore, the new advisory committee could adopt essentially the same mandate as that of the Wells Committee in 1972.

Among the many issues that would fall under this broad mandate would be the implementation of mechanisms to provide more efficacy, predictability and transparency to the enforcement program. As an agency tasked with enforcing laws and regulations mandating transparency, the SEC itself must provide transparency to the public in its enforcement practices. Predictability and transparency provide for a fair process that respects the rights of all parties involved and ensures adherence to the rule of law.

The SEC is governed by a five-member commission, each of whom is appointed by the president with Senate confirmation. The commission delegates to the career staff investigative authority, but the commission retains the decision by majority vote to issue subpoenas and to sue defendants or settle with them. The most important Wells Committee recommendation was that the enforcement staff should give notice to a prospective defendant of the potential charges to be asserted against him before the enforcement division seeks authority from the commission to sue. This policy change was a key protection of due process, and gave a defendant the ability to defend himself on the basis of facts and the law. Thus, the formal defense submission in response to the notice came to be known as a "Wells Submission." Often, the facts uncovered in investigations indicate that no action should be taken against a potential defendant, or a Wells Submission may be persuasive in arguing against an action. Sometimes, however, institutional and other factors may make it difficult to drop a matter altogether. The ability of the Enforcement Division to recommend that no action be taken in a particular matter based on the facts and law should be encouraged and institutionalized. This will require a re-evaluation of the incentives for bringing actions and obtaining penalties, such as through promotions, awards and public recognition of SEC staff. An evaluation system should focus on rewarding high-quality efforts and professionalism regardless of the outcome of particular actions. In some instances, exercising discretion may not be appropriate. There should not be institutional encouragement for using discretion to formulate theories of liability that overstep the boundaries of existing law.
Standards are set through the legislative process in Congress and through the SEC's rule-making process; it is not the function of the Enforcement Division. Rule making through enforcement violates the fundamental principles of due process that Congress established in the Administrative Procedure Act, which requires regulatory agencies to give notice and seek (and respond to) comment from the public before adopting or changing rules. In the recent past, federal courts have nullified various SEC rule-making attempts because the agency did not follow proper procedure or overstepped its authority in adopting rules.

The U.S. General Accountability Office in 2007 strongly criticized the Enforcement Division for not promptly closing investigations at their conclusion. When the commission or its staff determines that an investigation should be closed or action is not warranted, the agency should promptly send a closing letter, not only to those who have made a Wells Submission but also to any significant nonparty who has been involved in the investigation. The advisory committee also should consider bolstering the Wells Submission process by permitting a proposed defendant to appear before the commission to oppose the initiation of an enforcement proceeding. Although it would be both unnecessary and unmanageable to allow such an "oral Wells Submission" in every matter, it may be beneficial to both the commission and proposed defendants for the commission to have a discretionary avenue to hear from proposed defendants prior to taking action, particularly in complex cases or those in which character assessment is important. A review of the enforcement process would not be complete without a review of the costs to parties responding to an investigation. The SEC must ensure that its investigations and enforcement actions do not impose unnecessary costs. Overly broad subpoenas or document or interview requests add to a responding entity's costs--and not every responding entity becomes a defendant. Compliance with notices to preserve--and subsequent requests to produce--electronic data, including e-mails, voice mails and server backup tapes, is undeniably burdensome and can be very expensive.

It is critical for the SEC to have certain electronic data, but preservation notices and requests for their production are often generic and extend well beyond the boundaries of an existing investigation. The new advisory committee should recommend ways to minimize costs while still ensuring that the SEC can get the information it needs for its investigations. With respect to enforcement policies, the advisory committee should examine the usage, effects, amount and appropriateness of corporate penalties in financial fraud cases, to determine if they are consistent with the SEC's mission to protect investors; maintain fair, orderly and efficient capital markets; and facilitate capital formation.

When evaluating the use of penalties against issuers of securities in financial fraud cases, the advisory committee should, for example, ask, Do penalties protect investors? Do they harm or benefit shareholders? Is the circularity of "Fair Fund" penalty distributions (the company pays--meaning, in effect, the shareholders pay--a penalty, which is put into a fund and then distributed to the company's shareholders) consistent with ensuring fair, orderly and efficient capital markets? Is capital formation impeded by the threat of large, unpredictable issuer penalties? Do we create a moral hazard if we permit officers of companies to agree to a large corporate penalty to avoid or soften actions against culpable individuals? Are individuals deterred from wrongdoing if they expect that shareholders will pay the penalties for the misconduct? And, most important, does the prospect of large issuer penalties and the inevitable press coverage cause the SEC to misallocate resources to use the government's power to pursue weaker cases to the detriment of other types of enforcement actions?.

But thigs may are not giving the reason to Mr. Atkins. The SEC is getting into the act as well with its “emergency order” restricting short trading — not in general, but specifically in the shares in Fannie Mae and Freddie Mac, both of whom are protectorates of the federal government anyway. The SEC’s supposed target is “unlawful manipulation,” which is illegal.

All this in a not very serious maner. Normally in a functioning democracy, lawmakers and federal agencies craft rules through a deliberative process, and those rules apply prospectively across the board. When the government acts through orders rather than legislation or established administrative procedurees to identify emergencies and bogey men, and then seeks to outlaw their practices with hastily drafted decrees — well, that’s when the market makers, who depend on freedom and the established rule of law, should start to worry.

Paul S. Atkins is a commissioner at the U.S. Securities and Exchange Commission. Bradley J. Bondi is legal counsel and policy adviser to Commissioner Atkins. Their article is extracted from “Evaluating the Mission: A Critical Review Of The History And Evolution Of The SEC Enforcement Program,” first published in the Fordham Journal of Corporate and Financial Law.

Lack of preparedness for the European Payment Services Directive

A recent IAMTN survey of money service businesses shows a serious lack of preparedness for the implementation of the European Payment Services Directive which comes into force in November 2009 - just 16 months away. Despite the fact that the Payment Services Directive which will impact on all those financial services providing money transfer facilities, IAMTN survey shows that companies have not got to grips with the changes which will impact on their business. The IAMTN response is similar to a survey put out by PSE Consulting exclusively to banks.

Addressing a conference organized by Sidley Austin on the European Payments Services Directive, Lady Olga Maitland, CEO, IAMTN said "Our findings are worrying for the money service sector. Most companies we found have chosen to ignore the changes or make any preparation at all - despite being only 16 months away from the deadline. Bearing in mind that the PSD will have a beneficial effect on the money service sector; giving them a level playing field with banks in Europe - and a great opportunity for both themselves and their customers, it is interesting to note how little attention has been paid to changes which will undoubtedly change the way they operate. "Indeed we found, as indeed did PSE in their survey, that the vast majority of businesses and banks are light years away from preparedness. This will cause massive last minute problems for them."

The Payment Services Directive was approved by the European Parliament in December 2007. Charlie McCreevy, the European Commissioner for Internal Markets and Services, described its objectives as 'generating more competition' providing a simple, harmonized set of rule and ensuring a high level of consumer protection." The PSD will have a revolutionary effect on the legal framework between banks and their customers setting stringent rules for information disclosure, conduct of business rules and service provision. It addition it introduces a new lightly regulated licensed entity called a 'Payments Institution' which may allow non-banks ie. Money service businesses etc to join the bankers' payment schemes and associations across the European Union. It could be said that the money service sector and banks are into new territory. They are unused to implementing prescriptive legislation from the EU. As a consequence smaller institutions appear to be unaware of the potential impact of the PSD on their customers and operations.

While the major international institutions expect to be ready by November 1st, 2009, substantial concerns have appeared for the lack of readiness by smaller banks - let alone the money service businesses. "What was interesting in our survey were those who did NOT respond when it was in their interests for their businesses to take advantage of the new opportunities. Lack of awareness of the changes ahead, like it or not, have not hit them. Among those who did respond, they had a moderate understanding of the changes. Most felt that the impact would be modest. Interestingly it was the small and medium sized businesses who felt that the PSD would be implemented on time. The major institutions did not."

The Majority of respondents to our questionnaire who are more aware than most, admitted they have not yet made any effort to prepare for the changes. Others are keeping their heads down and waiting for the implementation by national governments. Only 11% had made an impact assessment and of that only 7% had agreed a budget for implementation. The others had not got started. As a result they had not consulted with third party providers who would also be involved, ie. The software companies, agency banks, agents and so on. For those who had given some thought, they felt that the greatest effort will fall on adjusting the IT, and updating the terms and conditions. Interestingly we should recall the Capgemini World Payments Report 2007 who also lamented lack of preparedness. But in addition they pointed out that the greatest beneficiaries would be the card sector. They anticipated that by 2012 44% of all non-cash transactions in Europe will be via cards - to the point that Europe needs a 'any card at any terminal solution. Costs. Most believe it will not be that bad.

Banks though are fearful. According to PSE Consulting over 40% of banks surveyed believe that implementation will cost them more than 10m Euros and almost 25% believe it will cost over 50mEuros. Significantly nearly 60% of the banks surveyed do not believe there will be any benefits. Broadly though there is a positive feel about the opportunities. Indeed 61% in the IAMTN survey said there would be a revenue benefit. If there is a wind of change, it will affect the banks the most, who face highly competitive, agile and innovative money service business competition."

Why the threat of a free fall is growing

The BusinessWeek cover story The Home Price Abyss: Why the threat of a free fall is growing. is very interesting. The core argument is that price declines could potentially feed on themselves. Big price declines make people unable to keep paying their mortgages (because their ARMs are resetting and the banks won’t refinance) or unwilling to keep paying their mortgages (because they see no point in throwing good money after bad). That drives up the foreclosure rate, which drives the prices of neighboring homes, adding to the downward spiral.We’re already seeing this happening in some of the markets with the worst price declines such as southern California, Nevada, Arizona, and southern Florida. The question is whether it could spread to more areas and become a national problem. One person which was quote in the story says that the taboo on walking away from your home and leaving the keys behind could be diminishing. He says that in commercial real estate it’s business as usual.

We would like to know what Banksit readers think about the idea of walking out on a mortgage.

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SEC Finds Shortcomings in Credit Rating Agencies'

The Securities and Exchange Commission today released findings from extensive 10-month examinations of three major credit rating agencies that uncovered significant weaknesses in ratings practices and the need for remedial action by the firms to provide meaningful ratings and the necessary levels of disclosure to investors.

Under new statutory authority from Congress that enabled the SEC to register and examine credit rating agencies, the agency's staff conducted examinations of Fitch Ratings Ltd., Moody's Investor Services Inc., and Standard & Poor's Ratings Services to evaluate whether they are adhering to their published methodologies for determining ratings and managing conflicts of interest. With the recent subprime market turmoil, the SEC has been particularly interested in the rating agencies' policies and practices in rating mortgage-backed securities and the impartiality of their ratings.

The SEC staff's examinations found that rating agencies struggled significantly with the increase in the number and complexity of subprime residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDO) deals since 2002. The examinations uncovered that none of the rating agencies examined had specific written comprehensive procedures for rating RMBS and CDOs. Furthermore, significant aspects of the rating process were not always disclosed or even documented by the firms, and conflicts of interest were not always managed appropriately.
"We've uncovered serious shortcomings at these firms, including a lack of disclosure to investors and the public, a lack of policies and procedures to manage the rating process, and insufficient attention to conflicts of interest," said SEC Chairman Christopher Cox. "When the firms didn't have enough staff to do the job right, they often cut corners. That's the bad news. There's also good news. And that's that the problems are being fixed in real time. The recent events affecting our economy and our markets have galvanized regulators around the world to re-examine the regulatory framework governing credit rating agencies, but ultimately the responsibility for providing meaningful ratings to investors begins with the credit rating firms themselves."

Lori Richards, Director of the SEC's Office of Compliance Inspections and Examinations, said, "These examinations found shortcomings in the ratings processes used by each of the firms examined. The firms have all agreed to implement broad reforms to address the letter and the spirit of the findings, to better ensure that investors can have confidence in their ratings."
The Summary Report of Issues Identified in the Commission Staff's Examinations of Select Credit Rating Agencies describes the significant weaknesses in the rating agencies' processes in rating subprime RMBS and CDOs linked to subprime residential mortgage-backed securities from January 2004 to the present.

Specifically, the examinations found:
- There was a substantial increase in the number and in the complexity of RMBS and CDO deals since 2002, and some of the rating agencies appear to have struggled with the growth.

- Significant aspects of the ratings process were not always disclosed.

- Policies and procedures for rating RMBS and CDOs can be better documented.

- The rating agencies are implementing new practices with respect to the information provided to them.

- The rating agencies did not always document significant steps in the ratings process - including the rationale for deviations from their models and for rating committee actions and decisions - and they did not always document significant participants in the ratings process.

- The surveillance processes used by the rating agencies appear to have been less robust than the processes used for initial ratings.

- Issues were identified in the management of conflicts of interest and improvements can be made.
- The rating agencies' internal audit processes varied significantly.

The examinations were conducted by staff in the SEC's Office of Compliance Inspections and Examinations, Division of Trading and Markets, and Office of Economic Analysis. The report summarizes generally the remedial actions that credit rating agencies are expected to take as a result of the examinations, and includes observations by the SEC's Office of Economic Analysis about conflicts of interest that are unique to these products. A factual summary of the models and methodologies used by the rating agencies is provided in the report to provide transparency to the ratings process and the activities of the rating agencies in connection with the recent subprime mortgage turmoil.

The SEC last month proposed a three-fold set of comprehensive reforms to regulate the conflicts of interests, disclosures, internal policies, and business practices of credit rating agencies. The first portion of rulemaking would address conflicts of interest in the credit ratings industry and require new disclosures designed to increase the transparency and accountability of credit ratings agencies. The second portion would require credit rating agencies to differentiate the ratings they issue on structured products from those they issue on bonds through the use of different symbols or by issuing a report disclosing the differences. The third part of the SEC's proposed rulemaking would clarify for investors the limits and purposes of credit ratings and ensure that the role assigned to ratings in SEC rules is consistent with the objectives of having investors make an independent judgment of credit risks.

UK HMRC lost in a case about European "tax havens"

The UK government has lost a court battle of 6 years against Vodafone, in a failled effort to prevent companies using European tax havens. A UK judge ruled that Vodafone does not have to pay extra corporation tax on a Luxembourg-based subsidiary.

The UK HMRC has the right to appeal the decision, and if success for Vodafone, the ruling is likely to be closely watched by many other major multinational businesses with overseas subsidiaries, which are waiting the end of the case.

In an article about the case from The Guardian, it is remembered that the case centres around the Controlled Foreign Companies (CFC) legislation introduced in 1988 to try to claw back tax from companies with overseas businesses.

In the article, it was also remembered that two years ago the European court of justice ruled in a case involving Cadbury Schweppes that the legislation is restrictive and can only be justified where subsidiaries are set up artificially to gain a tax advantage. Today's high court judgment relates to the question of the compatibility of the CFC legislation with EU law rather than the facts of the Vodafone case. The judge said that as a result of the Cadbury ruling that no charge could be imposed on Vodafone, or any other company in the same position, under the 1988 legislation and parliament needs to rectify the situation with a new set of rules.

"In my judgement, the CFC legislation must be disapplied so that, pending amending legislation or executive action, no charge can be imposed on a company such as Vodafone under the CFC legislation".

"It seems to me that all UK taxpayers, including Vodafone, were and are entitled to be told by legislation, of which the meaning is plain, what the tax consequences for them will be if they decide to incorporate a controlled foreign company in a (EU) member state."

Vodafone Investments Luxembourg Sarl (VIL) was set up in 2000 as a vehicle for the holding of investments, and it is resident for tax purposes in Luxembourg.

SEC Proposal to Reduce Reliance on Credit Ratings

The Securities and Exchange Commission today published for public comment proposed rule changes to make the limits and purposes of credit ratings clear to investors and ensure that the role assigned to ratings in SEC rules is consistent with the objectives of having investors make an independent judgment of credit risks.

The Commission voted unanimously on June 25, 2008, to issue for public comment this third set of proposed recommendations to bring increased transparency to the credit ratings process and curb practices that contributed to recent turmoil in the credit markets. The Commission voted to propose the first two sets of recommendations on June 11, 2008.

"This action is designed to ensure that the role we assign to ratings in our rules is consistent with the objective of having investors make an independent judgment of the risks associated with a particular security," said SEC Chairman Christopher Cox. "It should be neither the purpose nor the effect of any SEC rule to discourage investors from paying close attention to what credit ratings actually mean."

Erik R. Sirri, Director of the SEC's Division of Trading and Markets, said, "These proposals complete the rulemaking initiative begun two weeks ago with respect to NRSROs. I believe the proposed amendments will further promote the Commission's goals of strengthening the ratings process by reducing any undue reliance on NRSRO ratings and by encouraging independent evaluation and analysis of credit risk."

John White, Director of the SEC's Division of Corporation Finance, added, "These proposals are an important step toward clarifying the appropriate role of credit ratings in investors' decisions about the securities in which they invest. Not only do the proposals establish new criteria, independent of ratings, for issuers to access our forms and utilize the shelf registration process, they do so in a manner that protects the interests of investors."

The Commission has reviewed the requirements in its rules and forms that rely on credit ratings. In many cases, it has concluded that such references can be removed or revised. These proposals also address recent recommendations issued by the President's Working Group on Financial Markets, the Financial Stability Forum, and the Technical Committee of the International Organization of Securities Commissions (IOSCO). Consistent with these recommendations, the SEC has considered whether the inclusion of requirements related to ratings in its rules and forms has, in effect, placed an "official seal of approval" on ratings that could adversely affect the quality of due diligence and investment analysis. The SEC's proposal would reduce undue reliance on credit ratings and result in improvements in the analysis that underlies investment decisions.

Public comments on this third set of proposed rules should be received by the Commission no later than Sept. 5, 2008.

The proposing releases comprising this third set of rule proposals have been posted to the SEC Web site:
http://www.sec.gov/rules/proposed/2008/34-58070.pdf
http://www.sec.gov/rules/proposed/2008/33-8940.pdf
http://www.sec.gov/rules/proposed/2008/ic-28327.pdf

La CE demande à la Hongrie de modifier ses dispositions fiscales discriminatoires concernant l'acquisition de propriétés à usage résidentiel

La Commission européenne a officiellement demandé à la Hongrie de modifier ses dispositions fiscales concernant la taxe prélevée sur l'acquisition de propriétés. Ces dispositions défavorisent les contribuables dont l'acquisition est précédée ou suivie de la vente de leur précédente résidence dans un autre État membre. Elles sont incompatibles avec la libre circulation des personnes et la liberté d’établissement, garanties par les articles 18, 39 et 43 du traité CE ainsi que par les articles correspondants de l'accord EEE. La demande revêt la forme d’un avis motivé (deuxième étape de la procédure d’infraction prévue à l’article 226 du traité CE). En l’absence de réaction satisfaisante à l’avis motivé dans un délai de deux mois, la Commission peut décider de saisir la Cour de justice des Communautés européennes.

En vertu de la l´article 21(5) de la loi XCIII hongroise de 1990 sur les taxes, toute personne achetant une maison en Hongrie doit verser une taxe (en hongrois visszterhes vagyonátruházási illeték) calculée sous la forme d'un pourcentage de la valeur de la propriété. Si la propriété est la résidence du contribuable et si l'acquisition est précédée ou suivie de la vente de sa précédente résidence en Hongrie, la taxe est prélevée uniquement si la valeur de la propriété nouvellement acquise est supérieure à celle de la propriété vendue, et ne concerne que la différence de valeur.
En revanche, si l'acquisition de la résidence en Hongrie est précédée ou suivie de la vente de la résidence précédente du contribuable dans un autre État membre, la taxe sera calculée sous la forme d'un pourcentage de la valeur de la propriété acquise, indépendamment de la valeur de la résidence précédente.

Par conséquent, les personnes s’installant en Hongrie et vendant leur résidence dans un autre État membre sont défavorisées par rapport aux résidents hongrois achetant une nouvelle résidence pour remplacer leur résidence actuelle située en Hongrie. La Commission estime que ces personnes peuvent être considérées comme étant dans la même situation que les résidents hongrois, étant donné qu’elles sont susceptibles d'avoir versé une taxe comparable à la taxe hongroise lors de l’acquisition d'une résidence à l'étranger.

La Commission considère donc que les règles hongroises en question imposent des restrictions au droit de chaque citoyen de l'Union européenne de circuler et de résider librement sur le territoire des États membres (article 18 du traité CE), et, plus particulièrement, qu’elles ne sont pas conformes au droit de libre circulation des travailleurs (article 39 du traité CE) et à la liberté d'établissement (article 43 du traité CE).

La CE demande au Portugal de mettre fin à la discrimination fiscale des contribuables non-résidents

La Commission européenne a officiellement demandé au Portugal de modifier ses dispositions fiscales en vertu desquelles les contribuables non‑résidents doivent nommer un représentant fiscal s’ils perçoivent un revenu imposable au Portugal. La Commission considère ces dispositions incompatibles avec la libre circulation des personnes et la libre circulation des capitaux garanties par les articles 18 et 56 du traité CE ainsi que par les articles 36 et 40 de l’accord EEE. La demande revêt la forme d’un avis motivé (deuxième étape de la procédure d’infraction prévue à l’article 226 du traité CE). En l’absence de réaction satisfaisante à l’avis motivé dans un délai de deux mois, la Commission peut décider de saisir la Cour de justice des Communautés européennes.

En vertu de l´article 130 du CIRS (Código do Imposto portugaise sobre o rendimiento das pessoas singulares, loi fiscale sur les revenus des personnes physiques), les contribuables non-résidents percevant un revenu imposable au Portugal doivent nommer un représentant fiscal afin de les représenter devant l'administration fiscale portugaise et de garantir l'acquittement de leurs obligations fiscales. La Commission comprend que cette exigence a pour objectif de garantir le paiement des impôts et de prévenir la fraude fiscale. Ce sont là des nécessités reconnues d'intérêt public. Toutefois, la Commission est d'avis que l’obligation générale faite aux non-résidents de nommer un représentant fiscal va au‑delà des mesures nécessaires à la réalisation de ces objectifs et entrave par conséquent la libre circulation des personnes et la libre circulation des capitaux établies aux articles 18 et 56 du traité CE et dans l'accord EEE.

L'avis de la Commission est basé sur le traité CE dans l’interprétation qu’en donne la Cour de justice des communautés européennes dans l’arrêt du 7 septembre 2006 concernant l’affaire C-470/04, N.

Brazil, more tax sophisticated still

In an interesting article from the Governo do Para, a new Brazilian law shows that Brazil is even becoming more sophisticated, and it was the more tax-sophisticated country in Latin America already. Brazil will now apply higher withholding tax rates and special transfer pricing rules on payments to recipients to include jurisdictions where there is lack of information as to the "partners"/shareholders of a legal entity – these are in effect taxed as if such recipients were located in zero or low tax jurisdictions. This can make Brazil a country where some investors will not be willing to invest, but the economy of Brazil is soaring, and maybe there is not much interest from the goverment to change this attitude.

SEC Wants to Improve Regulation of Foreign Broker Activities in U.S.

The current rule provides an exemption for foreign broker-dealers that induce or attempt to induce securities transactions by certain institutional investors, if a U.S. registered broker-dealer intermediates certain aspects of the transactions. The proposed rule would modify the conditions under which a foreign broker-dealer could solicit U.S. investors and reduce the role of the U.S. broker-dealer, while maintaining key investor protections.

The category of U.S. investors with which a foreign broker-dealer would be permitted to interact would expand under the proposed rule. Foreign broker-dealers would be able to interact with U.S. institutional investors with $25 million or more in investments, or natural persons who own or control investments of more than $25 million. Currently, such foreign broker-dealers may only interact with institutions with financial assets of more than $100 million.

In addition, the U.S. registered broker-dealer would play a more limited role in transactions involving foreign broker-dealers. U.S. broker-dealer personnel would no longer have to "chaperone" foreign broker-dealer personnel. The current chaperoning requirements have been criticized as impractical and as imposing unnecessary operational and compliance burdens, particularly for investors communicating with broker-dealers in time zones outside the United States.

To maximize flexibility for U.S. investors, foreign broker-dealers could rely on the proposed rule under two approaches:

- Under the first approach, a foreign broker-dealer could effect all aspects of a transaction with a qualified investor, including maintaining custody of funds and assets, provided it makes certain disclosures and conducts a "foreign business." The proposed rule would define "foreign business" to mean the business of a foreign broker-dealer with qualified investors and foreign resident clients where at least 85 percent of the aggregate value of the securities purchased or sold in transactions conducted pursuant to the proposed rule by the foreign broker-dealer is derived from transactions in foreign securities. A U.S. registered broker-dealer, however, would have to maintain copies of all books and records relating to any resulting transactions, although the books and records could be kept with the foreign broker-dealer.

- Under the second approach, a foreign broker-dealer could effect all aspects of a transaction with a qualified investor in both U.S. and foreign securities, provided that a U.S. registered broker-dealer maintains custody of the qualified investor's funds and securities in connection with any resulting transactions and maintains books and records relating to any resulting transactions. There would be no foreign business test under the second approach.
The proposed rule also would retain the conditions in the current rule related to the provision of research reports by foreign broker-dealers, but would expand the category of investors to which a foreign broker-dealer could directly provide research reports.

In addition, the proposed rule would provide:

A new exemption for transactions by foreign broker-dealers with any U.S. person that acts as a fiduciary of a foreign resident client, subject to certain conditions designed to protect U.S. investors.

A new exemption to allow foreign options exchanges to engage in limited efforts to familiarize qualified investors with their markets without triggering additional obligations for their foreign broker-dealer members under U.S. law.

The Securities and Exchange Commission today published for public comment proposed rule amendments to increase the range of services foreign broker-dealers are allowed to offer in the United States. The proposed amendments also would maintain a regulatory structure designed to protect investors and the public interest.

The Commission voted unanimously on June 25, 2008, to issue the proposed rule amendments for public comment. The SEC's proposals would modify the requirement that any contact by a foreign broker-dealer with a U.S. institution must be chaperoned by a person registered with a U.S. broker-dealer.

"In practice, this chaperoning requirement has proven unwieldy as investors face significant inconvenience caused by differences in time zones and limitations on when investors can be contacted," said SEC Chairman Christopher Cox. "Further difficulties for U.S. investors arise because U.S. registered personnel have to be available for communications with foreign broker-dealers. Taken together, these limitations seriously hamper the service of U.S. investors, while making them pay for brokerage services twice. They also effectively limit U.S. investors' access to certain foreign investments."

Erik Sirri, Director of the SEC's Division of Trading and Markets, added, "While the Commission has provided a useful framework for U.S. investors to access foreign broker-dealers for almost two decades, ever increasing market globalization suggests that it is time to revisit that framework to consider whether it could be made more workable."

In general, the SEC's proposed amendments would expand and streamline the conditions under which a foreign broker-dealer could operate without triggering the registration, reporting and other requirements of the Exchange Act and related rules that apply to broker-dealers that are not registered with the Commission. Among other things, foreign broker-dealers would continue to be subject to the antifraud provisions of the federal securities laws.

Public comments on today's proposed amendments must be received by the Commission within 60 days after their publication in the Federal Register.

CE exige a Portugal que ponha termo à tributação discriminatória dos contribuintes não residentes

A Comissão Europeia exigiu formalmente a Portugal que altere as suas disposições fiscais segundo as quais os contribuintes não residentes têm de designar um representante fiscal caso obtenham rendimentos tributáveis em Portugal. A Comissão considera a referida disposição incompatível com a livre circulação de pessoas e de capitais, consagrada nos artigos 18.° e 56.° do Tratado CE e nos artigos 36.° e 40.° do Acordo EEE. Esta exigência assume a forma de parecer fundamentado (segunda fase do processo de infracção, prevista no artigo 226.º do Tratado CE).

Se, no prazo dois meses, não houver uma resposta satisfatória ao parecer fundamentado, a Comissão pode decidir remeter a questão para o Tribunal de Justiça das Comunidades Europeias.

De acordo com l´artigo n.º 130 do CIRS (Código do imposto sobre o rendimento das pessoas singulares), os contribuintes não residentes que obtenham rendimentos tributáveis em Portugal têm de designar um representante fiscal para os representar junto das administrações fiscais portuguesas e garantir o cumprimento dos seus deveres fiscais. A Comissão compreende que o objectivo deste requisito seja o de garantir o pagamento dos impostos e impedir a evasão fiscal. Contudo, a Comissão considera que uma obrigação geral imposta aos não residentes para que designem um representante fiscal ultrapassa o necessário para assegurar estes objectivos, impedindo assim a livre circulação de pessoas e de capitais, tal como estabelecido nos artigos 18.° e 56.° do Tratado CE e no Acordo EEE.

O parecer da Comissão baseia-se no Tratado CE tal como interpretado pelo Tribunal de Justiça das Comunidades Europeias no seu Acórdão de 7 de Setembro de 2006, no processo C-470/04.

The CE requests Hungary to amend discriminatory tax provisions relating to the purchase of residential property

The European Commission has formally requested Hungary to amend its fiscal provisions concerning the duty levied on the purchase of property. Those provisions discriminate against taxpayers whose purchase is preceded or followed by the sale of their previous home in another member state. The provisions are incompatible with the free movement of persons and the freedom of establishment, as guaranteed by Articles 18, 39 and 43 of the EC Treaty and the corresponding articles of the EEA agreement. The request takes the form of a Reasoned Opinion (second step of the infringement procedure provided for in article 226 of the EC Treaty). If there is no satisfactory reaction to the Reasoned Opinion within two months, the Commission may decide to refer the matter to the European Court of Justice.

Under Article 21(5) of the Hungarian Act no. XCIII of 1990 on Duties, a person buying a house in Hungary must pay a duty (in Hungarian visszterhes vagyonátruházási illeték) which is calculated as a percentage of the value of the property. Where the property is the taxpayer's home and the purchase is preceded of followed by the sale of his previous home in Hungary, the duty is levied only if the value of the property now acquired exceeds that of the one sold and only on the basis of the difference in values.
On the other hand, where the purchase of his home in Hungary is preceded or followed by the sale of the taxpayer's previous home in another Member State, the duty will be calculated as a percentage of the value of the property purchased irrespective of the value of his previous home.

As a result, people who move to Hungary and sell their homes in other member States will be treated less favourably compared to Hungarian residents buying a new dwelling to replace their current one situated in Hungary. The Commission considers that such persons can be in the same situation as Hungarian residents, by reason of the fact that they may have paid a duty comparable to the Hungarian one when buying a dwelling abroad.

Therefore, the Commission considers that the Hungarian rules at issue pose a restriction on the right of every citizen of the European Union to move and reside freely within the territory of the Member States.

EC requests Portugal to end discriminatory taxation of non-resident taxpayers

The European Commission has formally requested Portugal to change its tax provisions according to which non-resident taxpayers have to appoint a fiscal representative if they obtain taxable income in Portugal. The Commission considers the provision incompatible with the free movement of persons and the free movement of capital as guaranteed by Articles 18 and 56 of the EC Treaty and Articles 36 and 40 of the EEA Agreement. The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in Article 226 of the EC Treaty). If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the European Court of Justice.

Under Portuguese Article 130 of the CIRS (Código do Imposto sobre o rendimiento das pessoas singulares, Tax Law on the income of natural persons), non-resident taxpayers who obtain taxable income in Portugal have to appoint a fiscal representative in order to represent them before the Portuguese tax authorities and to guarantee the fulfilment of their fiscal duties. The Commission understands that the aim of this requirement is to guarantee payment of taxes and prevent tax evasion. These are recognised requirements of public interest. However, the Commission is of the opinion that a general obligation imposed on non-residents to appoint a fiscal representative goes beyond what is necessary to ensure these objectives and thus impedes the free movement of persons and the free movement of capital as laid down in Articles 18 and 56 of the EC Treaty and in the EEA-Agreement.

The Commission's opinion is based on the EC Treaty as interpreted by the Court of Justice of the European Communities in its judgment of 7 September 2006 in case C-470/04, N,.

SEC review how investors get information of public companies

Securities and Exchange Commission Chairman Christopher Cox today announced the kickoff of an ambitious effort to examine fundamental questions about the way the SEC acquires information from public companies, mutual funds, brokers, and other regulated entities, and the way it makes that information available to investors and the markets.

The aim of the wide-ranging internal inquiry will be to outline the attributes of the disclosure system for the future that incorporates technology, the new ways in which investors get their information, and recent developments in how companies compile and report the information in their SEC-mandated disclosures.

The first phase of the study will be completed by the end of 2008, when a follow-on advisory committee will be appointed to consider the questions in more detailed fashion through a public and consultative process.

"On the 75th anniversary of the SEC, with so much new technology available to improve the quality of information for investors as well as the way investors acquire it, we're initiating a broad, introspective look at our business model," said Chairman Cox. "What hasn't changed in 75 years is the importance of full disclosure — sunlight remains the best disinfectant for problems in our capital markets. We'll be examining how to improve the way disclosure works, including tapping the full potential of today's technology and integrating it seamlessly into our regulatory approach. That could mean fewer confusing forms, and more useful information at investors' fingertips in a form they can really use."

Chairman Cox also announced that the SEC's internal study known as the '21st Century Disclosure Initiative' will be undertaken by a dedicated staff of experts to be led by Dr. William D. Lutz of Rutgers University.

"Bill Lutz is ideally suited to lead this effort," said Chairman Cox. "He will bring an expert and fresh perspective to thinking about the agency's full-disclosure mission, and how it can best serve the needs of America's investors."

Dr. Lutz has a unique background with dual expertise as a securities lawyer and plain-English expert focused on transparency. He has significant experience in working with the SEC on disclosure issues, has participated in several SEC roundtables, and has frequently provided advice on SEC rulemaking. From 1995 to
1999, he played an important role in advancing the SEC's Plain English initiative by preparing the SEC's Plain English Handbook, a manual to help mutual funds and public companies write clear and understandable SEC filings. He is Emeritus Professor of English at Rutgers University, and the author of numerous books and articles on the importance of plain-language disclosure.

The internal study will produce, by the end of 2008, a blueprint for future Commission action to improve the usefulness and timeliness of disclosure for investors, and to streamline and modernize the collection of disclosure from companies and regulated entities. The study will be a fundamental rethinking of financial disclosure, beginning with the basic purposes of disclosure from the perspective of investors and markets. The inquiry will be aimed at identifying the objectives of the ideal disclosure system at the architectural level. Essential to the study will be the determination of how to match the capabilities of today's information technology with the SEC's regulatory aims and the needs of investors.

The study will include a review of all existing SEC forms and reporting requirements, as well as the manner in which information is provided to the Commission, with a special focus on needless redundancy. It will also include consideration of various alternative strategic approaches to acquiring and publishing disclosure information. In addition, the study will consider ways that regulatory requirements for the collection of information might be tailored to get the best real-time distribution of financial and narrative disclosure to investors. Finally, the study will examine how best to integrate public disclosure with the SEC's proposed new post-EDGAR architecture for investor search, assembly, and comparison of data.

UAE to improve anti money laundering regulations

The United Arab Emirates (UAE) has implemented new anti-money laundering regulations in an effort to meet international standards of financial compliance. The central bank in the middle of june notified banks and exchange houses of the 13 new regulations that update the UAE’s first anti-money laundering controls, which came into force in November 2000.

The new measures require banks to carry out more due diligence on prospective customers, applying many existing practices still ignored by some local and regional institutions.
“These new requirements have come in response to the remarks of the assessment team in March to try to fill in the gap with international requirements,” a central bank official said.
The new regulations, which include five amendments to the 2000 law, bring down the threshold at which banks are forced to verify the name and address of remitters from Dh40,000 ($11,000) to Dh3,500.

They also require banks to engage in enhanced due diligence to determine whether “foreign politically exposed persons” are trying to open an account in the UAE, as well as officially banning all financial relationships with “shell banks or companies”.

Banks should carry out extra due diligence on dealers in precious stones, real estate and luxury goods. There were concerns that the booming property sector of Dubai, and now Abu Dhabi, could be used by money launderers.

There is also a move to regulate hawala, the informal money transfer system used across the Middle East and South Asia.

The central bank has also called on senior management to approve the opening of new correspondent banking relationships with foreign banks, taking care when they “are headquartered in countries which are reported to be involved in drugs, a high level of public corruption and/or criminal/terrorist activities”.

SEC propose Internet comparison shopping of mutual funds

The Securities and Exchange Commission today voted unanimously to formally propose that mutual fund investors get access to key information about fees, performance, and strategies through interactive data, which would permit comparison shopping among thousands of funds with all the ease of conducting an Internet search.

The SEC's proposal would require funds to label data in their public filings using computer tags similar to the bar codes that identify products at stores or packages in the mail. The labeling would allow investors to instantly access and compare investment objectives and strategies, risks, performance, and costs for more than 8,000 mutual funds at the click of a mouse.

"This exciting new technology will enable investors to instantly analyze and compare not just two or three mutual funds, but hundreds or even thousands, and to quickly focus on the particular funds that are right for them," said SEC Chairman Christopher Cox. "Investors will no longer need to wade through lengthy documents to find the relevant details needed to compare funds one at a time."

Andrew J. Donohue, Director of the SEC's Division of Investment Management, said, "This proposal would, if adopted, create an interactive database of key mutual fund information that will enable investors to more easily analyze and compare cost, performance, and other key information across the more than 8,000 available mutual funds. Together with the Commission's recently proposed summary prospectus, this proposal has the potential to transform information access for mutual fund investors."

Mutual funds already have been submitting information to the SEC in interactive data format on a voluntary basis. The SEC's rule proposal would require all mutual funds to provide data-tagged information beginning with registration statement filings that become effective after Dec. 31, 2009. A mutual fund also would be required to post the interactive data on its Web site, if it maintains one.

Mutual funds seeking a head start on data tagging can participate in the SEC's voluntary program for the submission of interactive data. More information is available at: http://www.sec.gov/spotlight/xbrl.shtml. When the SEC's interactive data pilot program began in 2005, it initially covered the financial statements of corporate filers. The program was expanded to cover key mutual fund information in August 2007.

Investors can give mutual fund interactive data a "test drive" by using the Mutual Fund Reader on the SEC Web site to analyze and compare visual charts and graphs of key mutual fund information that has been voluntarily submitted using data tags.

Last week, the SEC proposed a similar rule to help investors by requiring public companies to provide financial information using interactive data beginning next year for the largest companies and within three years for all public companies.

Public comment on the SEC's proposed rule should be received by the Commission no later than August 1.

SEC proposes provide new technology to investor

The Securities and Exchange Commission today voted unanimously to formally propose using new technology to get important information to investors faster, more reliably, and at a lower cost.

At the center of the SEC proposal is "interactive data" — computer "tags" similar in function to bar codes used to identify groceries and shipped packages. The interactive data tags uniquely identify individual items in a company's financial statement so they can be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases, and put to any number of other comparative and analytical uses by investors, analysts, and journalists.

The proposed rule would require all U.S. companies to provide financial information using interactive data beginning next year for the largest companies, and within three years for all public companies.

"This is all about bringing investors better, faster, more meaningful information about the companies they own," said SEC Chairman Christopher Cox. "It would transform financial disclosure from a 1930s form-based system to a truly 21st century model that taps the power of technology for the benefit of investors."

John White, Director of the SEC's Division of Corporation Finance, said, "These steps will represent real progress, both for SEC filers and investors. All of the technology is coming together to make electronic filing a true analytical tool. The staff has gathered valuable experience during the almost three years that public companies have been submitting interactive data in our voluntary filer program. This helps give us a strong foundation for moving forward."

Conrad Hewitt, the SEC's Chief Accountant, said, "Accounting is the business language of the world, and interactive data will become an easy and reliable technology to improve that language worldwide, just like many other tools available on the Internet. The SEC's Advisory Committee on Improvements to Financial Reporting has been studying the benefits of interactive data and has proposed that the Commission proceed with a mandatory adoption schedule. Over the long term, preparers are expected to benefit through better internal management information and applications, and investors will benefit with improved analytical methods to analyze financial information."

Corey Booth, SEC Chief Information Officer, said, "Interactive data represents the logical next step in the evolution of company disclosure, just as HTML and Internet access were the next logical step a decade ago. And like a decade ago, this move will usher in a quantum leap in helping companies explain their business to investors."

David M. Blaszkowsky, Director of the SEC's Office of Interactive Disclosure, said, "Information — meaningful, accurate, timely, easy-to-use financial reporting — always has been the driver of commerce and markets. This proposal provides the critical regulatory framework by which interactive data will make financial reporting more easily and quickly available, and help transform the relationship between filer and investor."

Since 2005, companies have voluntarily submitted to the SEC financial information in interactive data format. The rules proposed today would require companies to provide this information according to a phase-in schedule.

The SEC's proposed schedule would require companies using U.S. Generally Accepted Accounting Principles with a worldwide public float over $5 billion (approximately the 500 largest companies) to make financial disclosures using interactive data formatted in eXtensible Business Reporting Language (XBRL) for fiscal periods ending in late 2008. If adopted, the first interactive data provided under the new rules would be made public in early 2009. The remaining companies using U.S. GAAP would provide this disclosure over the following two years. Companies using International Financial Reporting Standards as issued by the International Accounting Standards Board would provide this disclosure for fiscal periods ending in late 2010. The disclosure would be provided as additional exhibits to annual and quarterly reports and registration statements. Companies also would be required to post this information on their websites.

The required tagged disclosures would include companies' primary financial statements, notes, and financial statement schedules. Initially, companies would tag notes and schedules as blocks of text, and a year later, they would provide tags for the details within the notes and schedules.

Companies filing under the proposed rule that use U.S. GAAP will use upgraded data tags issued April 28, 2008, by XBRL US, Inc. that were developed based on U.S. GAAP and on the review of hundreds of actual SEC filings. The SEC's EDGAR system will accept test filings using a February 11 version of these tags later this month, with the final April 28 version of the tags becoming usable in June. In addition, an interim system is expected to be announced shortly that will enable companies immediately to provide interactive data submissions to the SEC using the April 28 version of the tags.

The SEC has had an interactive data pilot program for three years, beginning in 2005. It covered the financial statements of corporate filers. In addition, the SEC began an interactive data filing program for mutual fund risk return information in August 2007. Also last year, the SEC created an online database tagging executive compensation data for 500 large companies. Filers seeking a head start on data tagging are invited to formally join these SEC voluntary filing programs or informally practice with the new data tags.

More information is available at http://www.sec.gov/spotlight/xbrl.shtml.

La CE engage une procédure contre la Bulgarie, l'Espagne, le Portugal et la Roumanie sur la impositon des dividendes

La Commission européenne a adressé à l'Espagne et au Portugal un avis motivé (deuxième étape de la procédure d’infraction prévue à l’article 226 du traité CE) au sujet de leur réglementation selon laquelle les dividendes versés aux fonds de pension étrangers sont plus lourdement imposés que les dividendes versés aux fonds de pension nationaux. Elle a également adressé une demande d'informations sous forme de lettre de mise en demeure (première étape de la procédure d'infraction) à la Bulgarie au sujet de sa réglementation selon laquelle les dividendes entrants versés aux entreprises peuvent être plus lourdement imposés que les dividendes domestiques, et à la Roumanie et à la Bulgarie au sujet de leur réglementation selon laquelle les dividendes sortants versés aux entreprises peuvent être plus lourdement imposés que les dividendes domestiques. Les quatre États membres sont invités à y répondre dans les deux mois. Parallèlement, la Commission a clos la procédure contre le Luxembourg concernant l'imposition plus élevée des dividendes sortants versés aux entreprises, ce pays ayant supprimé cette mesure discriminatoire.

Les dividendes sortants sont les dividendes payés par les entreprises d’un État aux actionnaires établis dans d’autres États. Les dividendes domestiques sont, quant à eux, les dividendes payés par les entreprises d’un État à des actionnaires de cet État. Les dividendes entrants sont les dividendes payés aux actionnaires d'un État par des entreprises établies dans d'autres États.

Dividendes sortants versés aux fonds de pension
Les fonds de pension sont généralement soumis à des règles fiscales différentes de celles appliquées aux entreprises. C'est pourquoi les règles fiscales applicables aux dividendes payés aux fonds de pension et celles applicables aux dividendes versés aux entreprises font l'objet d'une évaluation séparée.

L'Espagne exonère de l'imposition le revenu des fonds de pension et ils peuvent demander le remboursement de toute retenue à la source dans ce pays sur les dividendes versés. Les dividendes domestiques qu'ils perçoivent sont donc dans la pratique non imposés. En revanche, l'Espagne effectue une retenue à la source de 18 % sur les dividendes payés aux fonds de pension établis dans d'autres pays de l'UE ou les pays de l'EEE/AELE (Islande, Norvège et Liechtenstein). Cela aboutit à une imposition plus lourde des dividendes versés aux fonds de pension étrangers. Un taux de retenue à la source moins élevé peut être prévu dans le cadre de conventions fiscales bilatérales.

De la même manière, le Portugal exonère les dividendes perçus par les fonds de pension domestiques et effectue une retenue à la source de 25 % sur les dividendes payés aux fonds de pension établis dans d'autres pays de l'UE ou les pays de l'EEE/AELE.

L'imposition plus lourde des dividendes payés aux fonds de pension étrangers risque de dissuader ces fonds d'investir dans l'État membre pratiquant cette imposition. De la même façon, il pourrait être difficile pour les entreprises établies dans cet État membre d'attirer les capitaux des fonds de pension étrangers. L'imposition plus élevée des fonds de pension étrangers peut donc entraîner une restriction de la libre circulation des capitaux garantie par l'article 56 du traité CE et par l'article 40 de l'accord EEE. En cas de participation majoritaire des fonds de pension étrangers, cela peut également être à l'origine d'une restriction de la liberté d'établissement garantie par l'article 43 du traité CE et par l'article 34 de l'accord EEE. La Commission n’a connaissance d’aucun élément pouvant justifier de telles restrictions.
En ce qui concerne l'imposition plus lourde des dividendes payés aux fonds de pension étrangers, la Commission a déjà adressé des lettres de mise en demeure à la République tchèque, au Danemark, à l'Espagne, à la Lituanie, aux Pays-Bas, à la Pologne, au Portugal, à la Slovénie et à la Suède, et outres.

Faisant suite aux plaintes qui lui ont été transmises, la Commission examine la situation dans d’autres États membres. Cet examen pourrait déboucher sur l’ouverture de nouvelles procédures d’infraction.

Dividendes sortants versés aux entreprises
La lettre de mise en demeure adressée à la Roumanie porte sur l'imposition des dividendes versés à des entreprises établies dans d'autres pays de l'UE ou les pays de l'EEE/AELE.
Les dividendes domestiques sur les participations représentant jusqu'à 15 % des actions font l'objet d'une retenue à la source finale de 10 %. La Roumanie applique une retenue à la source de 16 % sur les dividendes sortants analogues. Ce taux peut être réduit dans le cadre de conventions fiscales bilatérales.

Les dividendes domestiques sur les participations de 15 % ou davantage ne sont pas imposés. En revanche, la Roumanie effectue une retenue à la source finale de 10 % sur les dividendes versés à des entreprises établies en Norvège et de 16 % sur des dividendes sortants analogues versés à des entreprises établies dans les autres pays de l'EEE/AELE.

La première lettre de mise en demeure adressée à la Bulgarie porte également sur l'imposition de dividendes versés à des entreprises établies dans d'autres pays de l'UE ou dans les pays de l'EEE/AELE. La Bulgarie exonère les dividendes domestiques de la retenue à la source ou de l'impôt sur les sociétés. Toutefois, les dividendes sortants versés aux entreprises établies dans l'UE avec une participation inférieure à 15 % sont soumis à une retenue à la source de 5 % (si la participation est égale ou supérieure à 15 %, la retenue n'est pas appliquée). Les dividendes sortants payés aux entreprises dans les autres pays de l'EEE/AELE font également l'objet d'une retenue à la source de 5 % quel que soit leur taux de participation.

L'imposition plus élevée des dividendes sortants versés aux entreprises peut donc entraîner une restriction de la libre circulation des capitaux garantie par l'article 56 du traité CE et par l'article 40 de l'accord EEE. De la même manière, dans les cas de participation majoritaire des entreprises étrangères, cela peut entraîner une restriction de la liberté d'établissement garantie par l'article 43 du traité CE et par l'article 34 de l'accord EEE. La Commission n’a connaissance d’aucun élément pouvant justifier de telles restrictions.

Concernant l'imposition plus lourde des dividendes versés aux entreprises, la Commission a déjà décidé de traduire la Belgique, l'Espagne, l'Italie, les Pays-Bas et le Portugal devant la Cour de justice des Communautés européennes le 22 janvier 2007. La Commission clôt maintenant la procédure engagée contre le Luxembourg (qui concernait uniquement les trois pays de l'EEE/AELE), ce pays ayant mis un terme à la discrimination moyennant sa loi du 27 décembre 2007.

Dividendes entrants versés aux entreprises
La seconde lettre de mise en demeure adressée à la Bulgarie porte sur l'imposition de dividendes versés par des entreprises établies dans d'autres pays de l'UE ou dans les pays de l'EEE/AELE à des entreprises établies en Bulgarie. Les dividendes domestiques perçus par les entreprises établies en Bulgarie ne sont pas imposables. Les dividendes entrants sur les participations inférieures à 15 % dans les entreprises d'autres États membres de l'UE sont imposés à hauteur de 10 % au même titre que tous les dividendes reçus des entreprises des pays de l'EEE/AELE. L'imposition plus élevée des dividendes entrants par rapport aux dividendes domestiques risque d'entraîner une restriction de la libre circulation des capitaux garantie par l'article 56 du traité CE et par l'article 40 de l'accord EEE. La Commission n’a connaissance d’aucun élément pouvant justifier de telles restrictions.

La CE envia dictámenes motivados contra España y otros países en relación a la fiscalidad de los dividendos

La Comisión Europea ha enviado dictámenes motivados (el segundo paso del procedimiento de infracción previsto en el artículo 226 del Tratado CE) a España y Portugal en relación con sus normas, en virtud de las cuales los dividendos abonados a los fondos de pensiones extranjeros están gravados con más impuestos que los abonados a los fondos de pensiones nacionales. Ha enviado también solicitudes de información en forma de cartas de emplazamiento (el primer paso del procedimiento de infracción) a Bulgaria, en relación con sus normas, en virtud de las cuales pueden aplicarse impuestos más altos a los dividendos entrantes pagados a las empresas que a los dividendos nacionales, así como a Rumanía y Bulgaria, en relación con sus normas en virtud de las cuales los dividendos salientes pagados a las empresas pueden estar gravados con más impuestos que los dividendos nacionales. Se pide a los cuatro Estados miembros que respondan en el plazo de dos meses. Al mismo tiempo, la Comisión ha archivado el procedimiento contra Luxemburgo por aplicar impuestos más altos a los dividendos salientes pagados a las empresas, ya que Luxemburgo ha eliminado esta imposición discriminatoria.

Los dividendos salientes son los dividendos que abonan las empresas nacionales a los accionistas residentes en otros Estados. Los dividendos nacionales son los pagados por las empresas nacionales a sus accionistas nacionales. Los dividendos entrantes son los pagados por empresas establecidas en otros Estados a accionistas nacionales.

Dividendos salientes pagados a fondos de pensiones
Los fondos de pensiones suelen estar sujetos a normas fiscales diferentes a las de las empresas. Por eso se evalúan por separado las normas fiscales sobre los dividendos pagados a los fondos de pensiones y las aplicables a los dividendos pagados a las empresas.
En España, las rentas de los fondos de pensiones están exentas y dichos fondos pueden solicitar la devolución de cualquier retención a cuenta que España aplique a los dividendos que reciben. Por lo tanto, en la práctica, los dividendos nacionales que reciben están exentos de impuestos. En cambio, España impone una retención a cuenta del 18 % a los dividendos pagados a los fondos de pensiones establecidos en otro lugar de la UE o en los países del EEE/AELC (Islandia, Noruega y Liechtenstein). El resultado es que los dividendos pagados a los fondos de pensiones extranjeros soportan más impuestos. El tipo de la retención a cuenta puede ser inferior en virtud de convenios fiscales bilaterales.

Asimismo, en Portugal están exentos los dividendos que reciben los fondos de pensiones nacionales y se gravan con una retención a cuenta del 25 % los dividendos pagados a los fondos de pensiones establecidos en otro lugar de la EU o en los países del EEE/AELC.
El mayor nivel de imposición aplicado a los dividendos que se pagan a los fondos de pensiones extranjeros puede disuadir a estos fondos de invertir en el Estado miembro que impone el gravamen más elevado. De igual modo, las empresas establecidas en ese Estado miembro pueden encontrar dificultades para atraer capital de fondos de pensiones extranjeros. Por lo tanto, gravar con más impuestos los fondos de pensiones extranjeros tiene como resultado una restricción de la libre circulación del capital garantizada por el artículo 56 del Tratado CE y el artículo 40 del Acuerdo EEE. En el caso de los fondos de pensiones extranjeros con participación de control puede también producirse una restricción de la libertad de establecimiento, garantizada por el artículo 43 del Tratado CE y por el artículo 34 del Acuerdo EEE. La Comisión no conoce ninguna justificación para estas restricciones.

En relación con el mayor nivel de imposición de los dividendos pagados a los fondos de pensiones extranjeros, la Comisión ha enviado ya cartas de emplazamiento a la República Checa, Dinamarca, España, Lituania, los Países Bajos, Polonia, Portugal, Eslovenia y Suecia ( el 7 de mayo de 2007), a Italia y Finlandia (el 23 de julio de 2007) a Alemania y Estonia (el 31 de enero de 2008) y a Austria (el 23 de noviembre de 2007).
Como seguimiento de las denuncias que ha recibido, la Comisión está examinando aún la situación en otros Estados miembros, lo cual podría dar lugar al inicio de otros procedimientos de infracción.

Dividendos salientes pagados a empresas
La carta de emplazamiento dirigida a Rumanía se refiere a la imposición de los dividendos que se pagan a las empresas establecidas en otro lugar de la UE o en los países del EEE o la AELC.
Los dividendos nacionales sobre participaciones de hasta el 15 % de las acciones están sujetos a un impuesto a cuenta final del 10 %. Rumanía grava dividendos salientes similares con una retención a cuenta del 16 %, porcentaje que puede reducirse en virtud de convenios fiscales bilaterales.

Los dividendos nacionales sobre participaciones de al menos el 15 % están exentos de impuestos. En cambio, Rumanía impone una retención a cuenta final del 10 % a los dividendos pagados a las empresas establecidas en Noruega y del 16 % a dividendos salientes similares abonados a las empresas establecidas en los demás países del EEE/AELC.

La primera carta de emplazamiento dirigida a Bulgaria se refiere también a la imposición de los dividendos pagados a empresas que están establecidas en otro lugar de la UE o en los países del EEE/AELC. En Bulgaria, los dividendos nacionales están exentos de retención a cuenta y del impuesto de sociedades. Sin embargo, los dividendos salientes pagados a las empresas establecidas en la UE con una participación en acciones inferior al 15 % están sujetos a una retención a cuenta del 5 % (si la participación en acciones es de al menos el 15 % están exentos de esta retención). Los dividendos salientes pagados a las empresas en los demás países del EEE/AELC están sujetos también a una retención a cuenta del 5 %, con independencia del tamaño de su participación en acciones.

Un mayor gravamen de los dividendos salientes pagados a las empresas puede tener como resultado una restricción de la libre circulación de capitales garantizada por el artículo 56 del Tratado CE y por el artículo 40 del Acuerdo EEE. Asimismo, en el caso de los fondos de pensiones extranjeros con participaciones de control, puede producirse una restricción de la libertad de establecimiento garantizada por el artículo 43 del Tratado CE y el artículo 34 del Acuerdo del EEE. La Comisión no conoce ninguna justificación para estas restricciones.

En cuanto al mayor nivel de imposición de los dividendos pagados a las empresas, la Comisión decidió ya el 22 de enero de 2007 denunciar a Bélgica, España, Italia, los Países Bajos y Portugal ante el Tribunal de Justicia Europeo.

Dividendos entrantes pagados a empresas
La segunda carta de emplazamiento dirigida a Bulgaria se refería a la fiscalidad de los dividendos pagados por las empresas, establecidas en otro lugar de la UE o en los países del EEE/AELC a empresas con sede en Bulgaria. Los dividendos nacionales recibidos por las empresas con sede en Bulgaria están exentos de impuestos. Los dividendos entrantes sobre participaciones de menos del 15 % en empresas de otros Estados miembros de la UE están gravados al 10 %, al igual que todos los dividendos recibidos de empresas de los países de la AELC/EEE. Es probable que el mayor nivel de imposición de los dividendos entrantes que el de los dividendos nacionales restrinja la libre circulación de capitales garantizada por el artículo 56 del Tratado CE y el artículo 40 del Acuerdo EEE. La Comisión no conoce ninguna justificación para estas restricciones.

CE takes steps against Bulgaria, Spain, Portugal and Romania relating to taxation on dividends

The European Commission has sent reasoned opinions (the second step of the infringement procedure of Article 226 of the EC Treaty) to Spain and Portugal about their rules under which dividends paid to foreign pension funds are taxed more heavily than dividends paid to domestic pension funds. It has also sent requests for information in the form of letters of formal notice (the first step of the infringement procedure) to Bulgaria about its rules under which inbound dividends paid to companies may be taxed more heavily than domestic dividends and to Romania and Bulgaria about their rules under which outbound dividends paid to companies may be taxed more heavily than domestic dividends. The four Member States are asked to reply within two months. At the same time the Commission has closed the case against Luxembourg on the higher taxation of outbound dividends paid to companies, as Luxembourg has eliminated the discriminatory taxation.

Outbound dividends are dividends paid by domestic companies to shareholders resident in other States. Domestic dividends are dividends paid by domestic companies to domestic shareholders. Inbound dividends are dividends paid by companies resident in other States to domestic shareholders.

Outbound dividends to pension funds
Pension funds are usually subject to different tax rules than companies. The tax rules on dividends paid to pension funds and those for dividends paid to companies are therefore assessed separately.

Spain exempts pension funds from tax on their income, and they can claim back any Spanish withholding tax on the dividends that they receive. The domestic dividends that they receive are thus effectively tax free. In contrast, Spain levies a withholding tax of 18% on dividends paid to pension funds established elsewhere in the EU or in the EEA/EFTA countries (Iceland, Norway and Liechtenstein). These result in the higher taxation of dividends paid to foreign pension funds. Bilateral tax treaties may provide for a lower withholding tax rate.
Similarly, Portugal exempts the dividends received by domestic pension funds and levies a withholding tax of 25% on dividends paid to pension funds established elsewhere in the EU or in the EEA/EFTA countries.

The higher tax on dividends paid to foreign pension funds may dissuade these funds from investing in the Member State levying the higher tax. Equally, companies established in that Member States may face difficulties in attracting capital from foreign pension funds. The higher taxation of foreign pension funds thus results in a restriction of the free movement of capital as protected by Article 56 EC and Article 40 EEA. In the case of controlling participation by the foreign pension funds, it may also result in a restriction of the freedom of establishment, protected by Article 43 EC and Article 34 EEA. The Commission is not aware of any justification for such restrictions.

Concerning the higher taxation of dividends paid to foreign pension funds, the Commission has already sent letters of formal notice to the Czech Republic, Denmark, Spain, Lithuania, the Netherlands, Poland, Portugal, Slovenia, Sweden, Italy, Finland, Germany, Estonia and Austria.

Following up on the complaints it received, the Commission is still examining the situation in other Member States. This may result in the opening of further infringement procedures.

Outbound dividends to companies
The letter of formal notice to Romania concerns the taxation of dividends which are paid to companies, resident elsewhere in the EU or in the EEA/EFTA countries.
Domestic dividends on participations of up to 15% of the shares are subject to a final withholding tax of 10%. On similar outbound dividends, Romania levies a withholding tax of 16%. Bilateral tax treaties may reduce that rate.

Domestic dividends on participations of 15% or more are tax exempt. In contrast, Romania levies a final withholding tax of 10% on dividends paid to companies resident in Norway and of 16% on similar outbound dividends paid to companies resident in the other EEA/EFTA countries.

The first letter of formal notice to Bulgaria also concerns the taxation of dividends paid to companies which are resident elsewhere in the EU or in the EEA/EFTA countries. Bulgaria exempts domestic dividends from withholding tax or corporation tax. However, outbound dividends paid to companies resident in the EU with a shareholding of less than 15% are subject to a withholding tax of 5% (if shareholding is of 15% or more they are exempt from withholding tax.). Outbound dividends paid to companies in the other EEA/EFTA countries are also subject to a withholding tax of 5%, regardless of the size of their shareholding.

Higher taxation of outbound dividends paid to companies may result in a restriction of the free movement of capital as protected by Article 56 EC and Article 40 EEA. Similarly, in the case of controlling participations by the foreign companies, it may result in a restriction of the freedom of establishment, protected by Article 43 EC and Article 34 EEA. The Commission is not aware of any justification for such restrictions.

Concerning the higher taxation of dividends paid to companies the Commission has already decided to refer Belgium, Spain, Italy, the Netherlands and Portugal to the European Court of Justice on 22 January 2007. The Commission is now closing the case against Luxembourg (which concerned only the three EEA/EFTA countries), since Luxembourg eliminated the discrimination through its law of 27 December 2007.

Inbound dividends to companies
The second letter of formal notice to Bulgaria concerns the taxation of dividends paid by companies, resident elsewhere in the EU or in the EEA/EFTA countries to companies resident in Bulgaria. Domestic dividends received by companies resident in Bulgaria are tax exempt. Inbound dividends on participations of less than 15% in companies of other EU Member States are taxed at 10%, just like all dividends received from companies of the EFTA/EEA countries.

The higher taxation of inbound dividends than of domestic dividends is likely to restrict the free movement of capital as protected by Article 56 EC and Article 40 EEA. The Commission is not aware of any justification for such restrictions.