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.