Seychelles announces tax changes

Seychelles are gearing up for tax changes over the next 3 years, starting in 2010. Finance Minister Danny Faure announced on the 9th of June the main points that will guide the reforms, stressing the need to find a fair system as well as encouraging foreign investment. He indicated that existing concessions, such as the Tourism Incentive act would remain until July of 2010, but also that the 40% corporate tax will be reduced from January 2010. Business in the import zone would be required to have the same conditions as domestic importers; a more comprehensive Good and Services Tax system would be put in place from 2012; and a personal income tax would also be introduced replacing the social security contributions.

Notes from America: Iran - The Sanctions Quandary

The outcome of Iran's presidential elections in June, and the subsequent handling by the regime of popular protests not seen since the revolution of 1979, have created significant pressure on U.S. legislators and policymakers to place further sanctions upon the Iranian economy. Continued repression of popular opposition protests throughout Iran is almost certain to lead to new extra-territorial sanctions by the U.S. upon foreign companies operating in Iran.

Prior to the Iranian elections, nearly 15 different pieces of legislation seeking heightened sanctions on Iran had been proposed in the U.S. Congress. Several bills had progressed through the legislative process, nearing completion and voting consideration by the time of the June Iranian elections. In order to avoid actions that would strengthen the Iranian regime prior to those elections, the U.S. House of Representatives postponed indefinitely votes on two major bills.
HR 1327, the Iran Sanctions Enabling Act, seeks to make divestment a "business risk" for publicly-traded companies operating in Iran. Specifically, the bill would formally set U.S. policy to support decisions of State and local governments and educational institutions to divest from and prohibit investment in persons or entities that are or have made:

· An investment of $20 million in Iran's energy sector; or

· Investment in any entity that provides tankers or pipeline products for Iran's energy sector; or

· A financial institution lending $20 million or more, for 45 days or more, to an entity if that credit will be used for direct investment or provision of supplies and products as outlined above.

HR 2194, the Iran Refined Petroleum Sanctions Act of 2009, was proposed by House Foreign Relations Committee Chairman Berman, and co-sponsored by 206 legislators. This bill would sanction U.S. and foreign entities that invest in or otherwise contribute to Iran's petroleum and refined petrol industries. The bill would specifically sanction entities who export refined petroleum products to Iran or who engage in any activity that could contribute to the enhancement of Iran's ability to import refined petroleum resources.

Importantly, the definition of "persons" or "entities" in both bills is not restricted to U.S. persons, but is applied broadly to any form of entity, domestic or foreign, with investments in Iran that meet criteria specified in the bill. If passed, the bill would create new pressures on foreign companies operating in Iran.
Companion legislation to both HR 1327 and HR 2194 has already been introduced in the Senate, streamlining the route to eventual passage.

Congressional Appetite for Action

Despite generally broad, bipartisan support for the Obama Administration's restrained approach to Iran's elections, many in the Congress are actively pushing for the adoption of aggressive foreign policy measures. At this early stage of the situation in Tehran, such demands have not persuaded the Obama Administration to act unilaterally.

As Republican ire at White House inaction on Iran grows, however, many in the Democratic Party will seek to defend their political credibility via new sanctions, which have certain symbolic value in U.S. domestic politics. This White House will be unable to fend off such political pressures on Iran policy indefinitely. Notwithstanding U.S. commitments in the World Trade Organization, the political weight of the Iran issue means that Congress will not shy from seeking to impose sanctions with extra-territorial impact.

The charged atmosphere on Capitol Hill is already having an effect on legislation. Since the repression of opposition protestors in Iran, multiple resolutions have passed by unanimous consent in both chambers of Congress supporting Iranian rights of free speech and dissent, and condemning the Ahmadinejad regime's tactics. More to the point, Congress is putting real money in the game. Echoing the provisions of HR 2194, the House Appropriations Committee last week approved the country's foreign affairs budget with a key modification - barring the U.S. Export-Import Bank from issuing or guaranteeing financing to foreign companies that export refined petroleum to Iran.

NGO Activism on the Rise

Many non-governmental organizations, including arms control associations, human rights groups and, most prominently United Against Nuclear Iran (UANI), have seized upon the apparent electoral fraud perpetrated by the Iranian regime to lobby aggressively for new sanctions, arguing that immediate enactment is necessary as a punishment to Ahmadinejad and to prevent Iran from developing nuclear arms. These external voices will increase the overall pressure on the Administration to act.

State Governments Moving Independently

Pressure on Washington is also bubbling up from the states. Over the last two months, the states of Florida, Oregon and Minnesota joined the ranks of state governments that have banned public pension funds from investing in the stocks of companies operating in Iran. These efforts include the mandatory divestment of such stocks already owned by state funds. Some 15 states now have laws requiring the divestment of securities of companies linked to Iran, and the movement is gathering speed.

Next Steps for Obama?

The Obama Administration has, of necessity, taken a cautious approach toward the popular uprising in Tehran. The White House does not seek to strengthen the hand of the Ahmadinejad regime by appearing to explicitly support the opposition. Such realism however may soon require the Administration to consider international support for a stiffened sanctions program against Tehran.

As the Iranian regime appears to have successfully used oppressive tactics to preserve its power for at least the short term, we anticipate domestic political pressure for fresh sanctions will spike. The Obama team is not likely to find robust support at the United Nations Security Council for new international sanctions. That reality, combined with the domestic political environment, is almost certain to lead down the path to unilateral action on sanctions as a practical response to a political necessity.

Should the opposition leader Mousavi somehow prevail and secure new elections or the presidency outright, then momentum in Washington for new sanctions will stall indefinitely, as a regime change of that magnitude would necessitate an intensive round of stock-taking by the U.S. government of the new situation. This scenario however, has but the slimmest odds of coming to pass.

This contribution was gratefully received from Eric Shimp - Special Advisor to UAE regarding the UAE-USA FTA Negotiations, and Senior Director, Global Business Strategy, Alston & Bird, LLP.