Andorran Financial Summit 2017

Implementation of international standards in Andorra; evolution of legal framework and level playing field

Andorra La Vella, 26-27 October 2017

Luis Viñuales Sebastián Led by:

1. Andorran legal and tax system 2. Institutional regulatory framework 3. Andorra and international standards setting bodies 4. Relevant milestones for the adoption of international regulatory standards 5. Financial regulatory standards. The EU reference 6. Implementation of international regulatory standards 7. Implementation of AML/CFT international standards 8. International assessment of AML/CFT; legal framework and effectiveness 9. International standards on tax transparency and exchange of information

9.1. Exchange of Information on Request (EOIR) 9.2. Automatic Exchange of Information (AEOI)

10. International standards against agressive tax planning. OECD BEPS project

Table of contents

2

1. Andorran legal and tax system

3

Co-princes

General Council

Constitutional Court

High Council of Justice

High Court of Justice

Administrative Court Civil Court Criminal Court

Tribunal de Corts (serious offences)

Batlles Court

Administrative Section

Civil Section

Pre-trial proceedings

Specialized pre-trial

proceedings Juvenile

Batllia Presidency

Registry

Public Prosecutor

JUDICIAL POWER

EXECUTIVE POWER LEGISLATIVE POWER

Head of Government

Ministries

4

CUSTOMS UNION AGREEMENT 1990

STATE TAX FRAMEWORK

Direct taxes Indirect taxes Others

• Corporate Income Tax (IS) • Non-Resident Income Tax (IRNR) • Personal Income Tax (IRPF) • Capital Gains Tax

• Indirect General Tax (IGI) • Indirect tax on Insurance Services

(ISI - Assegurances) • Tax on real estate transactions

(ITP) • Taxes on tobacco, alcohol and

hydrocarbure • Gambling tax

• Local taxes • Trademark Office Fees • Judicial Fees • Work Permit Fees

Tax rates: • IS General 10% Collective investment undertakings 0% • IRNR General 10% • IRPF General 10% • IGI General 4,5%

1. Andorran legal and tax system

2. Institutional regulatory framework

• Financial supervisory authority

− Andorran National Institute of Finance (INAF) Public body independent from the Government

• AML/CFT supervisory authority

− Andorran Financial Inteligence Unit (UIFAND) Public body independent from the Government

• Tax competent authority

− Ministry of Finance − Taxes and Borders Department

5

3. Andorra and international standards setting bodies

Andorra EU

Exchange of information Monetary Agreement

• AML/CFT • Financial legislation

FATF MONEYVAL

AML/CFT

OECD • Exchange of information • “BEPS”

IMF Financial stability

6

4. Relevant milestones for the adoption of international regulatory standards • February 2007 IMF. Assessment of Financial Sector Supervision and

Regulation

− Regulatory improvements. Law 14/2003, on the Andorran National Finance Institute

− Aspects to be implemented: Accounting regulatory framework Audit regulatory framework International cooperation Collective Investment Undertakings: regulatory framework and

supervision Insurance: regulatory framework and supervision

7

4. Relevant milestones for the adoption of international regulatory standards • June 2011 Andorra-EU Monetary Agreement

− Entitled to use euro as official currency − Entitled to issue euro coins − Transposition of EU legislation - Annex to the

Monetary Agreement AML/CFT (18 months) Prevention of fraud and counterfeiting (18 months) Regulation of euro bank notes and coins (12

months) Financial and banking regulation (4-6 years)

− Joint Committee Andorra-EU. Yearly update of EU legislation

«The Principality of Andorra has a significant banking sector which operates in close connection with that of the euro area. Relevant EU banking and financial legislation, legislation concerning the prevention of money laundering, the prevention of fraud and counterfeiting of non-cash means of payment, and statistical reporting requirements should therefore be made progressively applicable to the Principality of Andorra with a view to ensuring a more level playing field.»

• Sept. 2013 Completed INAF’s adhesion to IOSCO (International Organization of Securities Commissions)

8

5. Financial regulatory standards. The EU reference

9

5. Financial regulatory standards. The EU reference

10

• The three pillars of the Banking Union

Banking Union

Single Supervisory Mechanism (SSM)

• ECB as central prudential supervisor of credit institutions in the Euro area

Single Resolution Mechanism (SRM)

• Single Resolution Board (SRB) as central European resolution authority for the Banking Union

• Single Resolution Fund replacing national resolution funds

European Deposit Insurance Scheme

• Proposal by EU Commission published in November 2015

• Handling of larger shocks and increasing depositor confidence

• Level playing field for all credit institutions under Banking Union

• Based on “reinsurance approach” • Political discussion ongoing

Single Rulebook: CRD IV / CRR, BRRD, DGSD

5. Financial regulatory standards. The EU reference

11

6. Implementation of international regulatory standards

Directive 2006/48/EC relating to the TAKING UP AND PURSUIT OF THE BUSINESS OF CREDIT INSTITUTIONS. 14 June 2006

Law 7/2013, of 9 May, on the legal regime of operating entities of the Andorran legal system

Law 8/2013, of 9 May, on requirements and conditions of entities operating in the financial system, investor protection, market abuse, and financial collateral arrangement

Directive 94/19/EC on DEPOSIT-GUARANTEE SCHEMES and subsequent amendments. 30 May 1994

Directive 97/9/EC on INVESTOR-COMPENSATION SCHEMES and subsequent amendments. 3 May 1997

Directive 2014/49/EU on DEPOSIT GUARANTEE SCHEMES and subsequent amendments. 16 April 2014

Law 1/2011 on the creation of a deposit-guarantee scheme by banking entities. 2 February 2011 (amended by Law 8/2015 on urgent measures for introducing mechanisms for the recovery and resolution of banking institutions)

Draft bill transposing Directives to be enacted before year-end

Directive 2014/49/EU establishing the framework for the RECOVERY AND RESOLUTION OF CREDIT INSTITUTIONS AND INVESTMENTS FIRMS. 15 May 2014

Law 8/2015, of 2 April, on urgent measures introducing mechanisms for the recovery and resolution of banking institutions. 26 April 2015

Draft bill to complete transposition at an advanced drafting stage

Law 35/2010, of 3 June, setting out the rules for authorising the creation of new entities operating in the Andorran financial sector. Consolidated version of 12.02.2014

Law on solvency and liquidity of financial institutions, of 29 February 1996. Consolidated version of 12.02.2014

Law 10/2013, of 23 May, of the Andorran National Institute of Finance

SUPE

RVIS

ION

RESO

LUTI

ON

DGS

12

IOSCO Directive 2002/47/EC on FINANCIAL COLLATERAL ARRANGEMENTS. 6 June 2002

Directive 2007/64/EC on PAYMENT SERVICES in the internal market. 13 November 2007

Multilateral MoU of the International Organization of Securities Commissions (IOSCO). 17 September 2013. Criminalization of “insider trading” and “market abuse” Qualified Law 18/2013, of 10 October, amending Qualified Law 9/2005, of 21 February, on the Criminal Code

Draft bill on payment services and electronic money under parliamentary process

Access to Single European Payment Area (SEPA) in progress

Directive 85/611/EC on certain UNDERTAKINGS FOR COLLECTIVE INVESTMENT in transferable securities (UCITS) and subsequent amendments. 20 December 1985

Law 10/2008 on the rules governing Andorran collective investment undertakings. Consolidated version of 12.02.2014

6. Implementation of international regulatory standards

13

7. Implementation of AML/CFT international standards

40 + 9 FATF RECOMMENDATIONS. June 2003

Law 20/2013, of 10 October, amending LCPI. Assessed by EU Comission in 2013

Directive 2005/60/EC, of 26 October, (3rd AML/CFT DIRECTIVE)

Decree of 20 November 2013, amending the Regulations of the LCPI

Directive 2006/70/EC, of 1 August, on PEPs, SDD AND OTHERS

Regulation (EC) No 1781/2006, of 15 November, on INFORMATION ON THE PAYER ACCOMPANYING TRANSFERS OF FUNDS

Regulation (EC) No 1889/2005, of 26 October, on CONTROLS OF CASH ENTERING OR LEAVING THE COMMUNITY

Council Decision 2000/642/JHA, of 17 October, on EXCHANGE OF INFORMATION BETWEEN MS FIUS

Law 28/2008, of 11 December, amending the Law on international cooperation in criminal matters and the fight against money laundering and terrorist financing, approved on 20 December 2000 (LCPI)

Council Framework Decision 2001/500/JHA of 26 June 2001 on money laundering, THE IDENTIFICATION, TRACING, FREEZING, SEIZING AND CONFISCATION OF INSTRUMENTALITIES AND THE PROCEEDS OF CRIME

Qualified Law 19/2013 of 10 October, amending the Criminal Procedure Code of 10 December 1998

Council Decision 2007/845/JHA, of 6 December, concerning COOPERATION BETWEEN ASSET RECOVERY OFFICES

Convention on laundering, search, seizure and confiscation of the proceeds from crime, signed in Strasbourg on 8 November 1990

Decree of 11 June 2014, approving the regulations on the organisation, functioning and powers of the Asset Recovery Office 14

Law 14/2017, of 22 June, on the prevention and fight against money laundering and terrorist financing

Directive (EU) 2015/849, of 20 May 2015, (4th AML/CFT DIRECTIVE)

Regulation (EU) 2015/847, of 20 May 2015, on INFORMATION ACCOMPANYING TRANSFERS OF FUNDS

Regulation (EC) 1889/2005, of 26 October 2005, on CONTROLS OF CASH ENTERING OR LEAVING THE COMMUNITY

Council Framework Decision 2001/500/JHA, of 26 June 2001, on money laundering, THE IDENTIFICATION, TRACING, FREEZING, SEIZING AND CONFISCATION OF INSTRUMENTALITIES AND THE PROCEEDS OF CRIME.

Council Decision 2000/642/JHA, of 17 October, on EXCHANGE OF INFORMATION BETWEEN MS FIUS

Council Decision 2007/845/JHA, of 6 December, concerning COOPERATION BETWEEN ASSET RECOVERY OFFICES

Regulations on the Law 14/2017, of 22 June, on the prevention and fight against money laundering and terrorist financing, at a drafting stage

7. Implementation of AML/CFT international standards

40 FATF RECOMMENDATIONS. February 2012

15

8. International assessment of AML/CFT; legal framework and effectiveness • MONEYVAL evaluation of the AML/CFT regime

− Fourth Mutual Evaluation Round (March 2012) » Positive assessment of regulatory reforms. KYC framework

» Positive assessment of international cooperation

Regular follow-up (March 2014)

Regular follow-up (April 2015)

Enhanced follow-up (September 2015)

− Fifth Mutual Evaluation Round (September 2017) » Positive assessment of the Andorran progress

16

International standards on tax transparency and exchange of information

9.

17

9.1. Exchange of Information on Request (EOIR)

• March 2009 Paris Declaration. Commitment to adopt international standards on EOIR

• September 2009 Law 3/2009, of 7 September, on exchange of information in tax matters upon request

• 2009 – 2015 Tax Information Exchange Agreements with 24 countries, including Spain, France and Portugal

• November 2013 Signature of the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters

• 2015 – 2017 Double tax treaties with 7 countries, including Spain, France and Portugal

18

9.1. Exchange of Information on Request (EOIR)

• International assessment. OECD Global Forum on Tax Transparency

− September 2011 Peer review Phase 1 Terms of Reference 2010. Domestic legal framework

− October 2013 Peer review Phase 2. Terms of Reference 2010. Practices and procedures Partially compliant

− June 2017 Fast-track procedure Terms of Reference 2010. Both domestic legal framework

and practices/procedures Largely compliant

19

9.2. Automatic Exchange of Information (AEOI)

• December 2015 Signature of the OECD Multilateral Competent Authority Agreement

− Commitment to adopt OECD Common Reporting Standard on financial information

− First reporting of financial accounts’ information in 2018

• February 2016 Signature of the Andorra-EU Agreement on AEOI − Implements the OECD Common Reporting Standard

between Andorra and EU member states

• November 2016 Law 19/2016, of 30 November, on AEOI

20

10. International standards against agressive tax planning. OECD BEPS project

• October 2016 Adhesion to OECD Inclusive Framework on BEPS

• July 2017 Parliamentary bill amending Law 95/2010, of 29 December, on the Corporate Income Tax.

− Review of prefrential regimes in accordance with Action 5 of BEPS Project “Patent Box” regime. Nexus approach Cash pooling regime. Abolishment

− Introduction of “Country-by-country report” in accordance with Action 13 of BEPS Project

21

BARCELONA · BILBAO · LISBOA · MADRID · PORTO · VALENCIA · BRUXELLES · FRANKFURT · LONDON · NEW YORK · BOGOTÁ · BUENOS AIRES · LIMA · CIUDAD DE MÉXICO · SANTIAGO DE CHILE · SÃO PAULO · BEIJING

www.uria.com

22