Global Forum On Transparency and Exchange of Information For Tax Purposes: Peer Reviews: Global Forum On Transparency and Exchange of Information For Tax Purposes Peer Reviews: Lebanon 2012

GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE
OF INFORMATION FOR TAX PURPOSES

Peer Review Report
Phase 1
Legal and Regulatory Framework
-:HSTCQE=V\]VZV:
ISBN 978-92-64-17815-1
23 2012 19 1 P
Global Forum on Transparency and Exchange of Information
for Tax Purposes
PEER REVIEWS, PHASE 1: LEBANON
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the
multilateral framework within which work in the area of tax transparency and exchange of
information is carried out by over 100 jurisdictions which participate in the work of the Global
Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer review of the implementation
of the standards of transparency and exchange of information for tax purposes. These
standards are primarily reected in the 2002 OECD Model Agreement on Exchange of
Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax
Convention on Income and on Capital and its commentary as updated in 2004, which has
been incorporated in the UN Model Tax Convention.
The standards provide for international exchange on request of foreseeably relevant
information for the administration or enforcement of the domestic tax laws of a requesting
party. Fishing expeditions are not authorised, but all foreseeably relevant information must
be provided, including bank information and information held by duciaries, regardless of the
existence of a domestic tax interest or the application of a dual criminality standard.
All members of the Global Forum, as well as jurisdictions identied by the Global Forum as
relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1
reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange
of information, while Phase 2 reviews look at the practical implementation of that framework.
Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews.
The ultimate goal is to help jurisdictions to effectively implement the international standards
of transparency and exchange of information for tax purposes.
All review reports are published once approved by the Global Forum and they thus represent
agreed Global Forum reports.
For more information on the work of the Global Forum on Transparency and Exchange of
Information for Tax Purposes, and for copies of the published review reports, please visit
www.oecd.org/tax/transparency and www.eoi-tax.org.
Please cite this publication as:
OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer
Reviews: Lebanon 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing.
http://dx.doi.org/10.1787/9789264178168-en
This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical
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LEBANON
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232012191cov.indd 1 14-Jun-2012 11:02:25 AM
Global Forum
on Transparency
and Exchange
of Information for Tax
Purposes Peer Reviews:
Lebanon 2012
PHASE 1
June 2012
(reflecting the legal and regulatory framework
as at April 2012)
This work is published on the responsibility of the Secretary-General of the
OECD. The opinions expressed and arguments employed herein do not
necessarily reflect the official views of the OECD or of the governments of its
member countries or those of the Global Forum on Transparency and Exchange
of Information for Tax Purposes.
This document and any map included herein are without prejudice to the status
of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.
ISBN 978-92-64-17815-1 (print)
ISBN 978-92-64-17816-8 (PDF)
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews
ISSN 2219-4681 (print)
ISSN 2219-469X (online)
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http://dx.doi.org/10.1787/9789264178168-en
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK LEBANON OECD 2012
TABLE OF CONTENTS 3
Table of Contents
About the Global Forum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Information and methodology used for the peer review of the Republic of
Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Overview of Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
B. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 44
B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 50
C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . 61
C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . 64
C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 65
4 TABLE OF CONTENTS
Summary of Determinations and Factors Underlying Recommendations. . . . 67
Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . . 71
Annex 2: List of All Exchange-of-Information Mechanisms in Effect . . . . . . . 76
Annex 3: List of all Laws, Regulations and Other Material Received . . . . . . . 78
ABOUT THE GLOBAL FORUM 5
About the Global Forum
The Global Forum on Transparency and Exchange of Information for Tax
Purposes is the multilateral framework within which work in the area of tax
transparency and exchange of information is carried out by over 100 jurisdic-
tions, which participate in the Global Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer review of
the implementation of the international standards of transparency and exchange
of information for tax purposes. These standards are primarily reflected in the
2002 OECD Model Agreement on Exchange of Information on Tax Matters
and its commentary, and in Article 26 of the OECD Model Tax Convention on
Income and on Capital and its commentary as updated in 2004. The standards
have also been incorporated into the UN Model Tax Convention.
The standards provide for international exchange on request of fore-
seeably relevant information for the administration or enforcement of the
domestic tax laws of a requesting party. Fishing expeditions are not author-
ised but all foreseeably relevant information must be provided, including
bank information and information held by fiduciaries, regardless of the exist-
ence of a domestic tax interest.
All members of the Global Forum, as well as jurisdictions identified by
the Global Forum as relevant to its work, are being reviewed. This process
is undertaken in two phases. Phase 1 reviews assess the quality of a juris-
dictions legal and regulatory framework for the exchange of information,
while Phase 2 reviews look at the practical implementation of that frame-
work. Some Global Forum members are undergoing combined Phase 1
and Phase 2 reviews. The Global Forum has also put in place a process for
supplementary reports to follow-up on recommendations, as well as for the
ongoing monitoring of jurisdictions following the conclusion of a review. The
ultimate goal is to help jurisdictions to effectively implement the international
standards of transparency and exchange of information for tax purposes.
All review reports are published once adopted by the Global Forum.
For more information on the work of the Global Forum on Transparency and
Exchange of Information for Tax Purposes, and for copies of the published review
reports, please refer to www.oecd.org/tax/transparency and www.eoi-tax.org.
EXECUTIVE SUMMARY 7
Executive Summary
1. This report
1
summarises the legal and regulatory framework for trans-
parency and exchange of information in Lebanon. The international standard
which is set out in the Global Forums Terms of Reference to Monitor and
Review Progress Towards Transparency and Exchange of Information, is con-
cerned with the availability of relevant information within a jurisdiction, the
competent authoritys ability to gain timely access to that information, and in
turn, whether that information can be effectively exchanged with its exchange
of information partners.
2. Lebanon is not a member of the Global Forum on Transparency and
Exchange of Information for Tax Purposes, but was identified in 2010 as a
jurisdiction that is relevant to the Global Forums work because of advertising
itself as a developing financial centre.
3. Lebanon is a Middle Eastern country with a service-oriented
economy, including a large banking sector. Its legal system is influenced by
Ottoman law, the Napoleonic code, canon law and civil law. Its tax system
includes both direct and indirect taxes, including VAT.
4. Lebanese commercial, financial and tax legislation ensures the avail-
ability of ownership information for partnerships, limited liability companies
and joint stock companies (with respect to registered shares). However, there
are insufficient mechanisms in place to ensure the availability of ownership
information for bearer shares issued by joint-stock companies. Foreign com-
panies having a branch or representative office in Lebanon are required to
register with tax authorities and provide ownership information on registra-
tion and in their annual tax returns. Where a Lebanese resident is a trustee of
a foreign trust, sufficient information with regard to settlor and beneficiaries
of the trust is not required to be kept unless the Lebanese trustee is an entity
within the Lebanese financial industry, subject to the anti-money launder-
ing legislation. Banks and other financial institutions can act as fiduciaries
1. This document and any map included herein are without prejudice to the status
of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.
8 EXECUTIVE SUMMARY
under a Lebanese fiduciary contracts. They are required to keep information
with regard to the identity of the settlor and the beneficiaries of the fiduciary
contract. However, this information is subject to bank secrecy and therefore
not available for tax purposes.
5. Lebanese legislation requires all commercial entities, including all
companies and partnerships, to keep necessary accounting information and
underlying documentation for at least five years. There is no obligation that
reliable accounting records or underlying documentation are kept for foreign
trusts which are administered in Lebanon or in respect of which a trustee is
resident in Lebanon.
6. Lebanese banks are required to keep necessary information on trans-
actions and on their customers.
7. The Lebanese competent authority, the Ministry of Finance, has the
necessary powers to access accounting and ownership information held by
entities within its jurisdiction. However, the Lebanese legislation appears to
limit the use of most access powers to situations where the information is
also required for Lebanons own tax purposes. Information which is already
available to the competent authority can be exchanged to foreign counterparts.
The most serious gap in the legal framework concerns strict bank secrecy
obligations. The Ministry of Finance cannot access information regarding
transactions and the identity of customers of banks and other financial institu-
tions acting as fiduciaries under a Lebanese fiduciary contract. The scope of
the professional secrecy safeguards appears to be broader than the professional
secrecy protected under the international standard. The other rights and safe-
guards that apply to persons in Lebanon are compatible with effective exchange
of information.
8. Lebanon has DTCs with 32 jurisdictions, 29 of which are in force.
However, none of these agreements can be seen as meeting the standard with
regard to EOI. This is because of the domestic legislative restrictions which
do not allow bank information to be accessed by the Ministry of Finance and
do not allow the exercise of a number of information gathering powers for
exchange with international counterparts. Other aspects of Lebanons EOI
provisions meet the standard.
9. As elements which are crucial to achieving effective exchange of
information are not yet in place in Lebanon, it is recommended that it does not
move to a Phase 2 Review until it has acted on the recommendations contained
in the Summary of Factors and Recommendations to improve its legal and
regulatory framework. Lebanons position will be reviewed when it provides
a detailed written report to the Peer Review Group within 12 months of the
adoption of this report. It should also provide an intermediate report within
6 months of the adoption of this report.
INTRODUCTION 9
Introduction
Information and methodology used for the peer review of the Republic
of Lebanon
10. The assessment of the legal and regulatory framework of the Republic
oI Lebanon ( ), hereinaIter reIerred to as 'Lebanon,
was based on the international standards for transparency and exchange
of information as described in the Global Forums Terms of Reference to
Monitor and Review Progress Towards Transparency and Exchange of
Information, and was prepared using the Global Forums Methodology for
Peer Reviews and Non-Member Reviews. The assessment was based on the
laws, regulations, and exchange of information mechanisms in force or effect
as at April 2012, other materials supplied by Lebanon, and information sup-
plied by partner jurisdictions.
11. The Terms of Reference breaks down the standards of transparency and
exchange of information into ten essential elements and 31 enumerated aspects
under three broad categories: (A) availability of information; (B) access to infor-
mation; and (C) exchange of information. This review assesses Lebanons legal
and regulatory framework against these elements and each of the enumerated
aspects. In respect of each essential element, a determination is made that either:
(i) the element is in place; (ii) the element is in place but certain aspects of the
legal implementation of the element need improvement; or (iii) the element is not
in place. These determinations are accompanied by recommendations on how
certain aspects of the system could be strengthened. A summary of the findings
against those elements is set out at the end of this report.
12. Lebanon is not a member of the Global Forum on Transparency and
Exchange of Information for Tax Purposes but was identified in 2010 as a
jurisdiction that is relevant to the Global Forums work because of advertis-
ing itself as a developing financial centre. As a non-member of the Global
Forum, Lebanon was given the same opportunity to participate in its review
as Global Forum members. Lebanons review began on 14 November 2011
by the sending of a questionnaire on Lebanons legal regulatory framework.
Lebanon has actively participated in all stages of the review process.
10 INTRODUCTION
13. The assessment was conducted by a team which consisted of three
expert assessors and two representatives of the Global Forum Secretariat: Mr.
Christophe Leconte, Inspector from the Belgian Administration des Affaires
Fiscales; Mr. Duncan Nicol, Director, and Mrs. Marlene Carter, Deputy
Director, from the Cayman Islands Tax Information Authority; with Ms.
Renata Teixeira and Mr. Beat Gisler from the Global Forum Secretariat.
Overview of Lebanon
14. Lebanon is located in the Middle East. It covers an area of 10 452 km
and is divided into six provinces: Beirut (the capital), Mount Lebanon, the
North, Beqaa, Nabatiyeh and the South. According to a United Nations 2011
estimate, the population is around 4.1 million. Lebanons official language
is Arabic, although French and English are widely spoken. The national cur-
rency is the Lebanese Pound (LBP).
2
15. Lebanon has a developing economy with a gross domestic prod-
uct (GDP) of USD 37 124 billion in 2010
3
, i.e. a GDP per capita of around
USD 9 000. The services sector (commerce, transportation, financial sector,
tourism, etc.) represents about two thirds of the national product. Banking
and tourism are the main growth sectors. Recently, the construction sector
has been a growth driver as well. The Lebanese economy is also a typical
open economy with a large banking sector with banking assets equivalent to
370% of its GDP. Due to its tightly regulated financial system and the highest
gold reserve in the Middle East, Lebanese banks largely avoided the financial
crisis of 20072010. The agricultural sector (representing 6% of GNP) ranks
third after the industrial sector (15% of GNP). The most important industries
are: foodstuffs, textile, chemicals, cement, wood, metals and jewellery, in
addition to other natural products such as limestone, iron ore and salt.
16. The urban population in Lebanon is noted for its commercial enter-
prise. Over the course of time, emigration has yielded substantial Lebanese
commercial networks throughout the world. As a result, remittances from
Lebanese abroad to family members within the country totalled USD 8.4 bil-
lion in 2010 (estimate) and account for one fifth of the countrys economy.
4
Lebanons main exports are jewellery, machinery and base metals, and its
2. EUR 1.00 = LBP 1 929.08 and USD 1.00 = LBP 1 507.50, www.xe.com, accessed
6 January 2102.
3. Source: IMF County Report 12/39: www.imf.org/external/pubs/ft/scr/2012/cr1239.
pdf, accessed on 6 April 2012.
4. Migration Policy Institute, Remittances Profile: Lebanon, www.migrationinfor-
mation.org/datahub/remittances/Lebanon.pdf, accessed 14 February 2012. In
2010, Lebanon was the 13
th
largest remittance receiving country. The World Bank
INTRODUCTION 11
major countries of destination are Switzerland, the United Arab Emirates,
France, Saudi Arabia and Iraq. Lebanons main imports come from the
United States, China, Italy, France and Germany.
5
17. Lebanon is a member of the Arab Monetary Fund, the Group of 24
(G24), the League of Arab States, the United Nations and the World Customs
Organisation.
Governance and legal system
18. The Republic of Lebanon was a part of the Ottoman Empire for about
400 years. At the end of World War I it became a separate political entity under
French mandate. In 1943, Lebanon gained full independence and sovereignty
and later participated in the 1945 San Francisco Conference as a founding
member of the United Nations. The Lebanese Constitution was issued in
1926 during the French mandate, and has been amended several times. The
Constitution as amended in 1990 stipulates that Lebanon is a parliamentary
democracy, with a special system known as confessionalism, a power-sharing
mechanism for its religious communities. This system is intended to deter
sectarian conflict and attempts to fairly represent the demographic distribution
of the 18 recognised religious groups in government. The Constitution also
enshrines the principles of separation, balance and co-operation among the
three constitutional powers (executive, legislature and judiciary).
19. Lebanons national legislature is the unicameral Parliament of
Lebanon. Its 128 seats are divided equally between Christians and Muslims,
proportionately between the 18 different denominations and proportionately
between its 26 regions. The Parliament is elected for a four-year term by pop-
ular vote on the basis of proportional representation of the religious groups.
20. The executive branch consists of the President, who is the head of
State, and the Prime Minister, the head of government. The Parliament elects
the President for a non-renewable six-year term by a two-third majority.
The President appoints the Prime Minister, following consultations with the
Parliament. The President and the Prime Minister form the Cabinet.
21. Lebanons legal system is influenced by Ottoman law, the Napoleonic
code, canon law and civil law. In accordance with the Lebanese constitution
Migration and Remittances Factbook 2011, http://siteresources.worldbank.org/
INTLAC/Resources/Factbook2011-Ebook.pdf, accessed 14 February 2012.
5. Source: Trade statistics developed Lebanons Ministry of Finance: www.finance.
gov.lb/en-US/finance/EconomicDataStatistics/Documents/TradeStatistics/
LITE%202012-02.pdf accessed on 6 April 2012. The Lebanese authorities also
informs South Africa and Turkey are also among the major countries of destina-
tion of Lebanons exports.
12 INTRODUCTION
as amended, legislative authority is vested in the House of Representatives or
Parliament whose members are elected by direct popular suffrage for a four year
term. The laws approved by Parliament must be promulgated by the President of
the Republic within one month (or five days if the Parliament has declared the
law to be urgent) after it is sent to the government. The law so promulgated is
then published in the official gazette within 15 days from the date of its promul-
gation and becomes effective on the 8
th
day after its publication unless it stipulates
otherwise. The highest legal instrument in the Lebanese legal system is the
Constitution. The Parliament may issue Codes, Laws, Regulations and Decrees.
The Council of Ministers may issue binding sanctionable resolutions. In addition,
certain Ministries and government entities (e.g. the Ministry of Economy and
Trade and the Central Bank) may issue binding sanctionable instruments, often
called Circulars. International treaties that have been ratified by Lebanon enter
into force by virtue of the exchange of instruments of ratification in the case of
bilateral treaties, and by virtue of the deposit of instruments of ratification or
accession in the case of multilateral treaties. In the hierarchy of norms, such trea-
ties have a higher standing than any laws, but not the Constitution.
22. The Lebanese court system consists of three primary types of courts
civil, commercial and criminal all of which have three levels courts of
first instance, courts of appeal, and the court of cassation. Moreover, admin-
istrative courts have more recently been established. Tax matters are initially
heard by the tax administration and appeals or objections are sent to objec-
tions committees established on a temporary basis until the administrative
courts are operational. At a final level, taxpayers and the tax administration
can file appeals to the Lebanese State Consultative Council. The administra-
tive courts and the State Consultative Council) have the power of settling
disputes between the individuals and the State. The Constitutional Council
rules on constitutionality of laws and electoral frauds. There is also a sepa-
rate Military Court system as well as Personal Status Courts, constituted of
members of the clergy. The rulings of the Personal Status Courts and their
decisions are subject to the review of the higher Civil Courts.
Tax system
23. Articles 81 and 82 of the Lebanese Constitution state that no tax can
be established, amended or cancelled without a law; and that taxes are to be
applied on all the Lebanese territory without exception. Article 83 and fol-
lowing articles outline the Parliamentary budget approval procedure. Income
tax is territorial in general. Foreign source income of Lebanese taxpayers
(legal entities and individuals) is not subject to tax, with the exception of
income from movable capital (e.g. interest and dividends).
24. Companies and individuals are subject to income tax. Employers in
Lebanon must pay social security and other contributions with respect to their
INTRODUCTION 13
employees. Since 2002, value-added tax (VAT) is levied at 10% on all goods
and services, subject to certain exemptions, such as medical and educational
services. In January 2003, Parliament adopted the 2003 Budget Law, pursuant
to which interest paid in respect of bonds issued by the Lebanese Republic
after 31 January 2003, and by private entities, as well as interest from bank
deposits and other interest bearing assets, is subject to a 5% withholding tax.
25. The Income Tax Act (ITA) defines three categories of income which
are taxed separately: (i) tax on business profits, including royalties, rent,
income from the exercise of liberal professions
6
and capital gains (Title 1);
(ii) tax on salaries, wages and pension benefits (Title 2); and (iii) tax on
income from movable capital, including interest, dividends and directors fees
paid out of profits (Title 3).
26. Business profits tax is applicable to persons undertaking business
activity in Lebanon (whether resident or not in Lebanon), including incorpo-
rated companies, sole proprietorships and professions. Entities exempt from
business tax are listed in the ITA (Art. 5). They generally include non-profit
organisations and public entities that do not compete with private companies.
The tax rate depends on the legal status of the taxpayer. Corporations and
limited liability companies are subject to a flat rate of 15% as from 1 August
1999. Other non-corporate entities, such as sole proprietorships and liberal
professionals, are subject to progressive rates. Profits of partnerships are
taxed in the hands of the partners, even though the income tax is defined as
a liability of the partnership until the settlement of the tax by the partners.
27. The main types of income subject to the tax on income from movable
capital are dividends, interest, and any payments that can be considered as
equivalent (in substance) to interest and dividends. Capital gains that arise
from the disposition of stocks are exempt from tax except when they are held
by individuals (Law No. 283/93). However, the disposition of stocks can be
subject to the business profit tax if the investment is not passive. Non-resident
corporations carrying on business activities in Lebanon are deemed to have
distributed all their after-tax profits at the end of the tax year. The tax on this
income is a 10% flat rate.
28. SpeciIic rules apply to joint stock companies that are 'holding com-
panies and 'oIIshore companies.
7
Offshore companies are only subject to an
annual fixed tax of LBP 1 000 000 (EUR 518). They are exempt from fiscal
6. Liberal professions are those practised on the basis of relevant professional quali-
fications in an independent capacity in the interest of the client and the public. It
covers law, medicine, architecture, science, actuaries, among other professions.
7. Holding companies are governed by Decree-Law No. 45 of 24 June 1983 and
Law No. 772 of 11 November 2006, offshore companies by Decree-Law No. 46
of 24 June 1983 and by Law No. 19 of 5 September 2008.
14 INTRODUCTION
stamp duties on contracts and all documents signed by offshore companies
relating to activities conducted outside the Lebanese territory. Holding com-
panies enjoy tax exemptions on profits and dividend distribution. The taxation
of holding companies is limited to certain items of income and an annual tax
on the value of the companys capital and reserves capped at LBP 5 million
(EUR 2 590).
8
29. Lebanese tax law does not provide a definition of the concept of
residence.
9
Rather, specific types of companies and all other legal persons
incorporated in Lebanon are deemed to be resident there. Lebanese perma-
nent establishments of foreign legal persons are also deemed to be resident
in Lebanon. Tax treaties signed by Lebanon do however define residence for
purposes of their application. Non-residents without permanent establishment
in Lebanon are subject to withholding tax on their Lebanese source income.
Taxable income of non-residents is 15% of their total revenues generated in
Lebanon, or 7.5% if the revenues arise from providing services in Lebanon
(Art. 42).)
30. Exchange of information for tax purposes is governed by the provi-
sions of Double Taxation Conventions (DTC). Currently, Lebanon has 29
DTCs in force. There is no domestic law related to the EOI for tax purposes,
although a draft law authorising the exchange of bank information under lim-
ited circumstances has been submitted to Parliament (more details are in the
Recent Developments section below). Lebanon has no resources specifically
dedicated to exchange of information for tax purposes. Rather, the Ministry
of Finance deals with incoming requests on a case-by-case basis.
8. Holding companies are taxed in relation to the following: (i) interest received
on money loaned to companies operating in Lebanon is subject to tax if such
interest is derived from loans contracted for a period not exceeding three years;
(ii) capital gains derived from the disposal of shares of Lebanese companies are
subject to 10% tax if they are held for a period of less than two years; (iii) man-
agement fees derived from services rendered to Lebanese subsidiaries of the
holding company are subject to 5% tax provided that the fees do not exceed a
certain threshold of the revenue of the subsidiary (determined by the Minister
of Finance); (iv) income from the lease of patents and trademarks to companies
in Lebanon are subject to tax at a 10% rate; annual tax is imposed on the value
of the companys capital and reserves at regressive rates of 6%, 4% and 2%. The
annual tax is capped at LBP 5 million (EUR 2 590)
9. A draft law providing for the concept of tax residence has been submitted for the
approval of the Lebanese Council of Ministers.
INTRODUCTION 15
Overview of the financial sector and relevant professions
31. Lebanon hosts one of the most important banking and financial
centres in the Middle East. The financial sector in Lebanon includes banks,
financial institutions, financial intermediation institutions, leasing compa-
nies, exchange institutions/money dealers and collective investment schemes.
Banking activities are also subject to both the Code of Commerce (1942) and
the Code of Money and Credit (1963). The Lebanese Banking System pro-
vides strict banking secrecy (1956 Banking Secrecy Law). Bank information
can be accessed under specific circumstances in cases involving money laun-
dering, drug trafficking, illicit enrichment and terrorism financing activities.
32. From the 1950s to the start of the conflict in 1975, Beirut was the
regions most prominent financial services centre. At the onset of the oil
boom starting in the 1960s, Lebanon-based banks were the main recipients
of the regions petro-dollars. The financial sector in Lebanon is comprised of
banks (around 97% of the financial sectors size), other financial institutions,
financial intermediaries, insurance companies, finance leasing companies
and exchange companies.
33. Banks and other financial institutions in Lebanon fall under the
jurisdiction of the Central Bank of Lebanon (BDL), which is also the bank
regulatory authority. Banks assume the form of a Lebanese joint-stock com-
pany duly licensed by the BDL. Branches of foreign banks must in addition
be licensed in their country of origin. The Banking Control Commission
(BCC), established in 1967, monitors the banks while the Special Investigation
Commission (SIC) is the supervisory authority in terms of AML/CFT. There
are currently 70 banks registered at the BDL (20 of which are foreign com-
mercial banks).
34. The Beirut Stock Exchange (BSE), the second oldest stock market in
the Middle East, was established in 1920. All BSE members, including hold-
ing companies and offshore companies, are Lebanese joint stock companies
(SAL) with capital above LBP 30 000 000 (EUR 15 551) and registered at the
secretariat of the Commercial Register. As at 25 November 2011, the capitali-
sation of BSE is over EUR 7 billion.
35. Professional service providers in Lebanon include lawyers, public
notaries and chartered accountants. As at 26 March 2012, the number of pro-
fessional service providers registered with the Lebanese tax administration
were:
approximately 9 910 lawyers affiliated with the two bar associations
(Beirut and Tripoli);
2 142 certified accountants (though, some of them do not practice the
profession);
16 INTRODUCTION
59 accounting offices rated as internal or external audit offices
(authorised auditors); and
61 notaries publicly registered and practicing.
Anti money laundering/combating financing of terrorism
legislation
36. The National Co-ordinating Committee for AML was established
to co-ordinate authorities AML policies, exchange expertise and informa-
tion, and organise training sessions (Council of Ministers Decision No. 2 of
24/10/2002). It comprises representatives from the Central Bank of Lebanon
(Chairman), the Special Investigation Commission, the Banking Control
Commission of Lebanon, the Prosecutor General attached to the Court of
Cassation, the Directorate General of Customs and the Internal Security
Forces. In 2007, this committee was expanded to include representatives of
the Ministries of Justice, Finance, Interior & Municipalities, Foreign Affairs
and Emigrants and Economy and Trade as well as Beirut Stock Exchange
(Cabinet Resolution No. 105).
37. On 10 November 2009, the Middle East and North Africa Financial
Task (MENAFATF) issued the mutual evaluation report on the Lebanese
Republic.
10
That report concludes that, notwithstanding the fact that Lebanese
AML system has positive aspects, Lebanons legal framework still needs
to be modified to comply with the FATF recommendations. Key issues to
be addressed by Lebanon include the enactment of regulations and other
required enforceable means and the fact that the Lebanese AML/CFT frame-
work does not cover all designated non-financial businesses and professions,
such as lawyers, public notaries and accountants.
Recent developments
38. The Government is currently working on the reorganisation of the
revenue administration along a function-based structure with a headquarters
and operational regional offices and is expanding the scope of coverage of
the Large Taxpayers Office. A Tax Procedure Code that unifies procedures
for taxes and fees became effective in 2009. The creation of a revised income
tax law is progressing.
39. On 14 March 2012, the Council of Ministers approved a draft law
related to the exchange of information for tax purposes, including bank infor-
mation. The draft law has been transferred to Parliament. Once approved,
10. www.menafatf.org/MER/MutualEvaluationReportoftheLebaneseRepublic-
English.pdf, accessed 14 February 2012.
INTRODUCTION 17
the law will authorise the Minister of Finance, in the context of international
co-operation, to enter into bilateral or multilateral agreements for exchanging
information on cases of tax evasion or tax fraud under the conditions set in
the law.
40. With the aim of enhancing transparency in the administration, a draft
law has been submitted to parliament which will allow citizens to access
information and documents held by the administration, with the exception
of confidential information. The draft law, once approved, will require the
administration to publish certain administrative reports and documents annu-
ally and to justify its administrative decisions in order to allow citizens to
access the reasons for taking such decisions.
41. Negotiations for entering into DTCs have started with Kuwait and
Moldova.
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19
Compliance with the Standards
A. Availability of Information
Overview
42. Effective exchange of information (EOI) requires the availability of
reliable information. In particular, it requires information on the identity of
owners and other stakeholders as well as information on the transactions car-
ried out by entities and other organisational structures. Such information may
be kept for tax, regulatory, commercial or other reasons. If the information is
not kept or it is not maintained for a reasonable period of time, a jurisdictions
competent authority may not be able to obtain and provide it when requested.
This section of the report assesses the adequacy of Lebanons legal and regu-
latory framework on the availability of information.
43. Lebanese commercial, financial and tax legislation generally ensure
the availability of ownership information for limited liability companies and
joint stock companies (with respect to registered shares) and partnerships.
However, ownership information will generally not be available with respect
to bearer shares and to order shares issued by joint stock companies and
partnerships limited by shares. Foreign companies having a branch or repre-
sentative office in Lebanon are required to register with tax authorities and
provide ownership information on registration and in their annual tax returns.
44. Where a Lebanese resident is a trustee of a foreign trust, sufficient
information with regard to settlor and beneficiaries of the trust is not required
to be kept unless the Lebanese trustee is an entity within the Lebanese
financial industry, subject to AML legislation. Only authorised banks and
20 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
other financial institutions can act as fiduciaries under a Lebanese fiduciary
contracts. They are required to keep information with regard to the identity
of the settlor and the beneficiaries of the contract. However, this information
is subject to bank secrecy and therefore not available for tax purposes.
45. Lebanese legislation requires commercial entities (including foreign
companies and partnerships doing business in Lebanon) to keep account-
ing records, including underlying documentation for a period of ten years.
Neither accounting records nor underlying documentation to the standard
need be kept for trusts which have Lebanese trustees. Lebanese banks are
required to keep necessary information on transactions and the identification
of their customers.
A.1. Ownership and identity information
Jurisdictions should ensure that ownership and identity information for all relevant
entities and arrangements is available to their competent authorities.
Companies (ToR A.1.1)
Types of companies
46. Lebanese legislation provides for the following types of companies:
limited liability company (socit responsabilit limite SARL):
A SARL is formed by a minimum three and maximum twenty
members. They may not perform banking, financial operations or
insurance. The minimum capital is LBP 5 000 000 (EUR 2 592).
The liability of each member is strictly limited to the value of inter-
est held by the member. There were 38 447 SARLs in Lebanon as at
26 March 2012;
joint stock company (socit anonyme SA): An SA is composed of
a minimum of three shareholders. The minimum authorised capital
is LBP 30 million (EUR 15 551). The liability of each shareholder is
strictly limited to the value of the shares held. The majority of the
members of the board of directors must be of Lebanese nationality.
There were 12 352 SAs registered in Lebanon as at 26 March 2012.
Whatever its object, every joint stock company is subject to commer-
cial laws (Art. 78(1) Code of Commerce);
partnerships limited by shares (socit en commandite par actions
SCA): An SCA is formed by one or more managing partners, who
are traders and are indefinitely and jointly liable for the partnerships
debts, and limited partners who are shareholders and liable for losses
only up to the amount of their contributions. There were only 17
SCAs in Lebanon as at 24 May 2012. Shares may be in registered or
bearer form (see Section A.1.2 below); and
civil companies: these companies can have a purpose such as artis-
tic, literature, educational, art or liberal professions
11
etc. They must
register at the Civil Companies Register at the Court of First Instance
where the office of the company is usually located (Law 420/2001).
On 26 March 2012, there were 352 civil companies registered in
Lebanon. The Lebanese authorities advise that, for tax purposes,
civil companies are treated as partnerships and the owners of those
companies are required to include in their returns their share of the
civil companys profits.
47. SpeciIic rules apply to joint stock companies that are 'holding com-
panies and 'oIIshore companies.
12
These types of entities are not subject to
the requirement that a certain proportion of the members of the board have to
be of Lebanese nationality. There are certain limits with regard to activities
that can be performed by them. Offshore companies may negotiate and sign
contracts relating to operations outside Lebanon and to merchandise located
abroad or in Lebanese Customs-free areas. They may use Customs-free
zones to store imported goods for re-export, rent office space, and acquire
real estate. They may also prepare studies and engage in financial services
for ventures beyond Lebanese borders. Holding companies are limited to
buying shares in existing Lebanese or foreign joint stock or limited liability
companies and may manage companies in which they own shares and grant
loans and provide guaranties to them. They can hold intellectual property
rights and license them to companies operating in Lebanon and abroad. They
may also own real estate, provided it is strictly for the needs of the company.
A holding company is not allowed to directly acquire more than 40% in two
companies operating in Lebanon in the same field. Both offshore companies
and holding companies benefit from certain tax advantages, as described in
the Introduction of this report.
48. On 26 March 2012, there were 3 111 holding companies and 6 334
offshore companies registered in Lebanon. Both types of companies are reg-
istered in the CR, with the same obligations as other SAs, as well as in special
registers for holding and offshore companies respectively.
11. If civil companies that have a profit purpose must also register with commercial
registry.
12. Holding companies are governed by Decree-Law No. 45 of 24 June 1983 and
Law No. 772 of 11 November 2006, offshore companies by Decree-Law No. 46
of 24 June 1983 and by Law No. 19 of 5 September 2008. Holding companies
must be set up as joint stock companies.
Information held by government authorities
Commercial register
49. Lebanese commercial entities
13
must be registered with the Commercial
Register (CR) within one month of their formation.
14
The place of registration
as well as the registration number has to be included in all correspondence,
invoices, printed papers with the companys letterhead, etc. An abstract of the
articles of incorporation must be submitted to the CR and signed by the persons
requesting the registration (Art. 26 COC). The articles of association must be
notarised or signed before the clerk of the Commercial Register where they are
filed. Amongst other details, the following information has to be provided for
company registration (Arts.26 and 27):
names of the members/shareholders of joint stock companies);
name and purpose of the company;
places where the company operates branches or agencies, either in
Lebanon or abroad; and
names of persons authorised to administer, manage or sign on behalf
of the company (including directors and members of the board of
directors).
15
50. Any change in any registered information, including the identity of
owners has to be submitted to the registrar (Art. 27 COC). The register is
public. All files on companies are readily available at the CR. The files are
archived 10 years after the liquidation of the company or the termination of
the business relationship, but remain available if requested (Art. 23).
13. Articles 6, 7 and 8 of the Code of Commerce define the commercial acts by their
own nature as well as those, which by their identical characters and purposes,
are commercial acts as well. The latter are exemplified in Article 6 and include
manufacturing, transportation, mining and petroleum enterprises, among others.
Lebanese companies are commercial by their object or by law. The companies
whose object is civil but which have assumed the form of joint-stock companies
or of partnerships limited by shares are submitted to all the traders obligations
as specified in the Code of Commerce.
14. There is a commercial register (CR) in the Court of First Instance of each of the six
provinces under the supervision of the Chief Judge or a judge specially appointed
by the ChieI Judge each year (Art. 23 CoC). The Lebanese government is work-
ing on transforming the information registered with the CR into electronic form as
well as computerising the data entry process. The CR is divided into two types: a
general register, where the traders and the companies are registered and a special
register where the commercial entities and their founding charters are registered.
15. Identification documents (identity cards or passports) must be submitted to the CR.
Central Bank register for the financial industry
51. Specific registration rules apply with regard to entities within the
financial industry.
16
They must, in addition to being registered with the CR,
also be licensed by the Bank of Lebanon (BDL). Founders and owners of
such entities and their participation percentage must be disclosed to the BDL.
Registration with the BDL involves provision of identifying documents for
the founders and the individuals participating in the subscription. Further,
shares of banks must be nominal and registered with Midclear, the custodian
and clearing centre for financial instruments in Lebanon. Proof of owner-
ship, trading operations, share pledging, and other rights over bank shares are
affected through the books of Midclear. In order to be effective, any change
in ownership information must be disclosed to Midclear. Subscribing to and
trading of shares in a Lebanese bank or financial institution is subject to
prior approval from the Central Council of the BDL if the subscriber or the
assignee acquires directly or indirectly, more than 5% (banks) or 10% (other
financial institutions) of the total shares of the bank or of the voting rights
(Art. 4(1) Law 308/2001 and Art. 5bis Circular 82/2001).
52. Ownership information regarding banks, financial institutions and
financial intermediation institutions is kept by the BDL for at least 10 years
(Art. 19 CoC). All ownership information is required to be kept at the relevant
bank, financial institution or financial intermediation institution for at least
10 years (Art. 19).
Tax administration
53. Every person undertaking a business that is subject to tax must
register with the Ministry of Finance for tax purposes (Art. 32 TPC). When
registering, the documents to be submitted include the following (Art. 42
Ministerial Decision 453/1/2009): copy of the articles of association registered
in the commercial register, copy of identity documents of shareholders or
partners (individuals) that are unknown to the tax system, copy of the regis-
tration certificate of shareholders who are legal entities.
54. In the case of joint stock companies, the annual tax return includes
details about the identity of the shareholders in the statement of shareholders
equity (Statement 35 of the tax return form).
16. Banks, financial institutions, financial intermediation institutions and leasing
companies. The BDL does not require ownership information for mutual funds
or collective investment companies.
Information held by the company
55. All commercial entities have to be established through written arti-
cles of association (Art. 43 COC).
56. Joint stock companies must keep a shareholders book, with up to
date information on their shareholders holding nominal shares (Art. 29 Tax
Procedure Code TPC). The shareholders book must include all information
and details related to registered shares since the establishment of the company
(purchase, transfer, increase, cancellation, etc, as well as all the amendments
made to nominative shares) (Art. 28 Ministerial Decision 453/1/2009). No
obligation exists to keep information on holders of bearer shares, however.
57. Shares of a limited liability company cannot be issued in negotiable
securities (Art. 2 Decree-Law No. 35 of 5 August 1967) and can only be
transferred to third parties with prior approval of members representing at
least 75% of the companys capital (Art. 15(1)). Transfer of ownership requires
a deed either authenticated or under private seal notified to the companys
manager and each one of its members (Art. 15(2)). No such requirements exist
for joint stock companies, whose shares are freely negotiable and transferable.
Information held by service providers
58. Lebanese banks and branches of foreign banks have the following
customer identification obligations (Art. 5 Law No. 318 of 20 April 2001
Fighting Money Laundering AML Act):
they have to verify the true identity of their permanent customers and
determine the identity of the beneficial owner(s)
17
when operations
are carried out through proxies, through figureheads acting for indi-
viduals, institutions or companies, or through numbered accounts;
they have to identify occasional customers, to the same extent
outlined above, if the value of the requested operation or series of
operations exceeds USD 10 000
18
(EUR 7 900); and
they have to retain photocopies of all operation-related documents,
as well as copies of official documents relating to the identity of
17. The AML Act does not deIine the term 'beneIicial owner. Moreover, the AML
Act and the AML Regulations do not impose a clear obligation on banks and
branches of foreign banks to have information on the ownership chain of their
customers. There is neither an obligation to determine the natural person having
a certain threshold of ownership over the customer.
18. Amount determined by the Banque du Liban in the regulations set out under
Article 5 of the AML Act.
concerned parties for a minimum of ten years after completing the
operations or closing the accounts.
59. Money exchange institutions, financial brokerage firms, leasing
companies, collective investment schemes, insurance companies, companies
promoting, building and selling real estate, and merchants of valuable jewel-
lery, precious stones, gold, works of art and antiques, must also retain records
for operations that exceed USD 10 000 (EUR 7 900).
19
They must verify,
through official documents, the identity and address of each client, and must
retain, for a period of no less than ten years, photocopies of these documents,
as well as photocopies of the operation-related documents (Art. 4 AML Act).
However, they are not required to obtain information on the beneficial owner-
ship of their customers or concerning situations where their customer acts on
behalf of a third party.
60. Other service providers, such as notaries, lawyers or accountants, are
not subject to AML obligations.
Foreign companies
61. Foreign companies wishing to do business in Lebanon have the
option of opening a local branch or a representative office. A branch can
undertake any commercial activity, except where the law requires a certain
legal form or conditions and/or which is exclusively reserved for Lebanese
nationals and/or companies. A branch is subject to corporate tax. To set up a
branch, the foreign companys Board of Directors must issue a proxy/power
of attorney in favour of a person residing in Lebanon granting that person
the authority to register the company in Lebanon, to represent it and to sign
documents and take all necessary measures on behalf of the company.
62. Foreign companies operating a branch office or an agency in Lebanon
are required to register (Art. 29 CoC). High Commissioners Order No. 96 of
30 January 1926 deals specifically with foreign joint stock companies or foreign
partnership companies limited by shares and require them to register with the
foreign companies section in the trade department of the Ministry of Economy
and Trade, whereas other foreign companies must register with the CR. When
registering, the foreign company has to provide its name, place of its head office,
names of its representatives in Lebanon and its registered capital as well as a
certified copy of its memorandum of association and its articles of incorpora-
tion. All modifications of its articles of incorporation, any increase or reduction
of capital, mergers and all replacements of proxies must be submitted to the
Ministry of Economy and Trade/registrar. There are no specific requirements to
Article 5 of the AML Act.
keep or register the names of the owners of the foreign company with the excep-
tion of foreign banks or financial institutions that wish to establish a branch in
Lebanon. Such entities must be licensed by the BDL and their owners and their
participation percentage must be disclosed to the BDL/Midclear (the custodian
and clearing centre) if their participation exceeds 5% of the bank/financial insti-
tutions capital (Base Circular 82/2001). Ownership information for other foreign
companies will be available to the extent such the founding documents provided
include such information, typically information on the founding members.
63. Foreign companies having a branch or representative office in Lebanon
are required to register with tax authorities and provide ownership information
on registration (Art. 32 TPC, Art. 42 Ministerial Decision 453/1/2009). They
are also required to file tax returns as other Lebanese taxpayers and to identify
their shareholders (Statement 35). The compliance of branches of foreign com-
panies with these obligations will be followed up in Phase 2.
64. Lebanese law does not provide for a definition of residency for tax
purposes. Existing tax laws and regulations deals with foreign companies only
when they have established branches and representative offices in Lebanon.
Nominees
65. The concept of nominee that exists in some jurisdictions, in particu-
lar under Anglo-Saxon law, does not exist in the Lebanese law, which follows
civil law in that respect. Registered shares issued by joint-stock companies
and partnerships limited by shares registered in Lebanon are in principle held
by their beneficial owner, whose identity is known to the issuer.
66. Lebanese law does recognise the concept of mandataire (Code of
Obligations and Contracts of 1932 and Law 234 of June 10, 2000 on Regulating
the Financial Intermediation Profession). However, the professional undertak-
ing of financial intermediation activities in Lebanon is restricted to banks and
financial institutions registered with the Banque du Liban, and to financial
intermediation institutions that meet the legal requirements stipulated by Law
No. 234 (Art. 1). As noted previously, Lebanese banks and financial intermedia-
tion institutions must conduct customer due diligence (Arts.4 and 5 AML Act)
and thus must identify customers, including when acting as mandataires.
Conclusion
67. Lebanese commercial, financial and tax legislation ensure the avail-
ability of ownership information for limited liability companies, joint stock
companies (including holding companies and offshore companies), partner-
ships limited by shares and civil companies, except with respect to bearer
shares of joint stock companies and partnerships limited by shares (see
below). Foreign companies that have a permanent establishment in Lebanon
are required to provide ownership information on registration and provide
this information in their annual tax returns.
Bearer shares (ToR A.1.2)
68. Limited liability companies are not allowed to issue shares of any
form, neither registered nor bearer shares (Art. 3 Decree-Law No. 35 of
5 August 1967). Joint stock companies and partnerships limited by shares are
allowed to issue registered shares, bearer shares and to order shares
20
(Arts.104
and 234 CoC). The Lebanese authorities advise that they cannot establish the
identity of the owners of bearer and to order shares in all circumstances.
69. Some legal and practical mechanisms in financial and commercial
legislation require certain holders of bearer shares to be identified or limit the
issuance of such shares:
holders of bearer shares attending shareholders meeting have their
names recorded in the minutes of the meeting;
the shares of banks must all be nominal and registered at Midclear,
the custodian and clearing centre (Law No. 308 of 3 April 2001); and
one third of the shares in a joint stock company whose object is the
operation of a public service
21
have to be nominal shares belonging
to Lebanese shareholders which can only be transferred to Lebanese
shareholders. Transfer to non-Lebanese citizens will be null and void
(Art. 78(3) CoC).
70. No statistics are available regarding the issuance of bearer shares.
The 2009 MENAFATF Mutual Evaluation Report does however refer to one
prominent case which seems to indicate that they are widely accepted.
22
20. Article 265 oI the CoC establishes that a 'To Order security is established by
endorsement expressed asset in pledge or by equivalent wording. The transfer
is made by means of endorsement in the instrument itself and no information
is available to the tax authorities concerning the ownership of those securities,
including to order shares.
21. The Lebanese authorities have clarified that companies operating in the public
service refers to companies operating in regulated activities including the follow-
ing companies: Electricity of Lebanon (EDL), the telecommunication companies,
the Casino du Liban etc.
22. 49% of the shares of Casino du Liban are owned by the Lebanese Republic while
51% belongs to a Lebanese Joint Stock Company whose shares are in bearer form
(para.588 www.menafatf.org/MER/MutualEvaluationReportoftheLebaneseRepu
blic-English.pdf, accessed 14 February 2012).
Conclusion
71. With the exception of banks, there are insufficient mechanisms in
place to ensure that information is available on holders of bearer shares or to
order shares in Lebanese joint stock companies and partnerships limited by
shares. It is not known how many bearer shares are in existence.
Partnerships (ToR A.1.3)
Types of partnerships
72. Lebanon has two types of commercial partnerships:
general partnership (Socit en Nom Collectif SNC): An SNC
is formed by two or more partners. All the partners are personally
liable for the companys debts and obligations. No minimum capital
is set by law. There were 6 085 SNCs as at 26 March 2012; and
limited partnership (Socit en Commandite Simple SCS): An SCS
exists under a business name with one or more general partners who
are jointly and severally liable for the entitys obligations and one or
more silent (limited) partners who are only liable up to the value of
their agreed contribution. There were 5 702 SCSs as at 26 March 2012.
73. Lebanese legislation also provides for co-partnerships (socits en par-
ticipation). These are contractual joint venture arrangements known only to the
parties concerned in order to achieve a certain project and cannot be registered.
The co-partnership agreement sets up the partners rights and obligations, as
well as their participation in profits and losses. Each party is responsible for
their own liabilities. Co-partnerships are contractual arrangements which have
neither legal status nor a corporate or business name and they cannot own
assets. They are not treated as separate entities for tax purposes. Therefore,
these arrangements are not under the scope of the Terms of Reference.
74. Foreign partnerships can operate in Lebanon and the Lebanese
authorities indicate that those partnerships are subject to the same legal
framework applicable to foreign companies, i.e. foreign partnerships operat-
ing a branch office or an agency in Lebanon are required to register (Art. 29
CoC). High Commissioners Order No. 96 of 30 January 1926 specifically
requires partnership companies limited by shares to register. When register-
ing, the foreign partnership has to provide its name, place of its head office,
names of its representatives in Lebanon and its registered capital as well as a
certified copy of its partnership agreement. All modifications must be sub-
mitted to the registrar. Tax law requires foreign partnerships that are subject
to tax in Lebanon to register and provide ownership information (please see
section below).
Information held by government authorities
Commercial register
75. As commercial entities, Lebanese partnerships have to be registered
with the commercial register. As part of the registration process, partnerships
must file with the commercial register ownership information including the
names, first names, nationality, domiciles of the partners as well as a copy of
the partnership agreement (Arts.26, 48 and 49 CoC). The partnership agree-
ment must include (Art. 26):
names of partners (including limited partners of limited partner-
ships), their date, place of birth and nationality;
name and purpose of the entity;
places where the entity operates branches or agencies, either in
Lebanon or abroad; and
names of persons authorised to administer, manage or sign on
behalf of the entity (including directors and members of the board of
directors).
23
76. Any changes to registered information have to be notified to the reg-
istrar (Arts.27, 50 and 55 CoC).
Tax administration
77. Partnerships must register with the Ministry of Finance for tax pur-
poses. When registering, the documents to be submitted include the following
(Art. 42 Ministerial Decision 453/1/2009): certified copy of the partnership
agreement, copy of the certificate of registration with the CR, copy of the
identity document of every partner that is not known to the tax system.
78. The ownership information provided on registration does not require
to be updated. However, the Lebanese authorities advised that updated own-
ership information will be known to them, since partnerships must inform the
names of all partners and their shares in the profit or loss of the partnership
(annual tax return form Statement 48).
Information held by partnerships
79. All general and limited partnerships must have a partnership agree-
ment, which contains the names of their partners (Art. 26 CoC).
23. Identification documents (identity cards or passports) must be submitted to the CR.
Information held by service providers
80. Lebanese banks and branches of foreign banks, are subject to the cus-
tomer identification obligations (Art. 5 Law No. 318 of 20 April 2001 Fighting
Money Laundering AML Act), as described in Part A.1.1 above.
Conclusion
81. Lebanese tax legislation requires submission to the Ministry of
Finance of the names of all partners of general and limited partnerships and
foreign partnerships doing business in Lebanon.
Trusts (ToR A.1.4) and fiduciary contracts
Trusts
82. The concept of trust does not exist in Lebanese legislation. Trusts
cannot therefore be set up under Lebanese law. Lebanon is not a signatory to
the Convention of 1 July 1985 on the Law Applicable to Trusts and on their
Recognition (the Hague Convention).
24
83. There are no specific requirements for the identification of trustees,
settlors or beneficiaries of foreign trusts which have trustees or administra-
tors in Lebanon. However, where a trustee is subject to AML obligations
(i.e. where the trustee is a bank or other specified type of entity within the
financial industry or a trader in certain high value goods), it is required to
perform customer due diligence in accordance with the AML Act. Banks are
required to identify their customers and the beneficial owners of their cus-
tomers. For the other entities subject to AML obligations, they must retain
records for operations that exceed USD 10 000.
25
They have to identify their
customers, but not the beneficial owners of their customers. Other service
providers such as lawyers and accountants are not subject to AML obliga-
tions hence they are not obliged to identify customers or beneficial owners
of the trusts if they were to act as trustees.
84. It is unclear whether the Lebanese tax authorities may attribute, for
tax purposes, the assets and income of a non-recognised foreign trusts to a
Lebanese trustee and, if it were the case, whether record-keeping obligations
would apply to the trustee. As Lebanon only taxes foreign income in certain
24. www.hcch.net/index_en.php?act=conventions.text&cid=59, accessed 14 February
2012.
Article 5 of this Law.
circumstances, it is also unclear whether the trustee would always be subject
to tax, and therefore, to record-keeping requirements for tax purposes.
Fiduciary contracts
85. In 1996, Lebanon created a legal arrangement called the fiduciary
contract (Law No. 520 of 6 June 1996 concerning the development of the
fiscal market and fiduciary contracts). The fiduciary contract is a contract by
which a legal or natural person (the settlor) gives to a person (the fiduciary)
the right to manage and dispose of, for a fixed period of time, rights or mov-
able assets (the fiduciary asset)
26
(Art. 1). The fiduciary works in his name
but for the account and at the expense of the originator. The fiduciary should
declare his status to any third party with whom he signs a contract about any
element of the fiduciary contract without revealing the name of the settlor.
The fiduciary obligation can be performed for the benefit of a third party, the
beneficiary.
86. Only authorised banks, financial and other eligible institutions
licensed and registered with the BDL can act as a fiduciary of a fiduciary
contract (Basic Decision No. 6349 of 23 October 1996 concerning the devel-
opment of the financial market and the fiduciary contracts, annexed to Basic
Circular No. 29 for banks and financial institutions issued by the head of the
BDL). Lebanese authorities confirm that currently only banks and financial
institutions are licensed to perform fiduciary activities and, therefore, no
other institutions act as fiduciaries. Basic Circular No. 29 details the elements
to be included in the written and explicit contract signed by the fiduciary and
the settlor of the fiduciary contract, including:
a clear statement showing that the fiduciary contract is regulated in
accordance with Law No. 520 of 6 June 1996;
name, residence and profession of the fiduciary, the settlor and the
beneficiary(ies);
detailed description of the fiduciary asset(s);
the term of the contract; and
the auditors at banks and credit institutions entrusted to audit the
fiduciary obligation.
87. Banks and other financial institutions licensed to act as fiduciar-
ies are obliged entities under the AML Act. As a result, they must keep all
records on their customers for a minimum of five years after completing the
operations or closing the accounts.
26. Fixed assets cannot be subject to fiduciary contract.
88. There is no general requirement to disclose information on fiduciary
arrangements and persons involved to government authorities. Disclosure to
the BDL may be required on a case-by-case basis depending on the opera-
tions that the fiduciary is performing for the fiduciary estate. Auditors at
banks and financial institutions acting as fiduciaries must audit fiduciary
estates. They must also state the results in a detailed annual report (Circular
21 to auditors issued by the Banking Control Commission at BDL). The fidu-
ciary is subject to the Lebanese bank secrecy law.
27
89. No registration of fiduciary contracts is made with the tax authorities
(registration is made with the BDL, as described above). When the property
is transferred to the beneficiaries, the beneficiaries have tax reporting obliga-
tions in Lebanon as other Lebanese taxpayers.
Conclusion
90. The concept of trust does not exist in Lebanon. However, Lebanese
law does not prevent a Lebanese resident from acting as a trustee or admin-
istrator of a foreign trust. With regard to such trusts, Lebanese law does not
in most cases ensure that information identifying the settlors, trustees and
beneficiaries is available, in particular in cases where the trustee is not a
bank. The parties under a Lebanese fiduciary contract (fiduciary, settlor and
beneficiary) have to be stated in a written contract which under AML and
accounting law has to be kept by the entities authorised to act as fiduciaries
for such contracts i.e. banks and fiduciary institutions.
28
Foundations (ToR A.1.5) and other relevant entities or arrangements
91. The concept of foundations does not exist in Lebanese legislation.
92. There are, however, two types of not for profit associations: asso-
ciations and public service institutions (i.e. associations with a qualified
purpose). These entities are sometimes referred to as foundations. An asso-
ciation is a group of several persons permanently unifying their knowledge
or efforts for non-profit objectives (Art. 1 Associations Act). As at 26 March
2012, there were 5 873 associations and 42 public interest institutions.
93. Associations are required to keep a list identifying their members
and when each member joined the association (Art. 7 Associations Act). The
Ministry of Interior must also be notified by associations of any amendment
27. However, this information is subject to bank secrecy and not available for tax
purposes (see further Part B.1 of this report).
28. However, this information is subject to bank secrecy and not available for tax
purposes (see further Part B.1 of this report).
or alteration to their statutes, administrative board, or location (Art. 6). All
such information is available at the Ministry and information is updated
annually. The Lebanese authorities advise that information provided to the
Ministry is usually kept for 10 years and then archived.
94. Public Interest Associations are associations established to fulfil
public needs as defined in Decree-Law No. 87 of 30 June 1977. To establish
such an association, the association needs to submit to the Minister of Social
Affairs a request to qualify as a Public Interest Association. This status is
granted by a Lebanese Council of Ministers Decree based upon a proposal by
the Minister of Social Affairs, which is also responsible for the supervision of
such entities. Each Public Interest Association must submit an annual report
to the regulator including all the achievements and activities of the previous
year along with the annual budget (Decree 4517/1972) and a statement of its
activity schedule for the next year while defining how the allocated resources
will be used to achieve its goals.
Enforcement provisions to ensure availability of information
(ToR A.1.6)
95. Jurisdictions should have in place effective enforcement provisions
to ensure the availability of ownership and identity information, including
sufficiently strong compulsory powers to access the information. This sub-
section of the report assesses whether the provisions requiring the availability
of information with the public authorities or within the corporate entities
reviewed in PartA.1 are enforceable and failures are punishable.
96. In case of non-registration of companies and partnerships with the
CR, the articles of association of those entities are considered void (Art. 44
CoC). Submitting false information during registration with a commercial
register can be sanctioned with a fine between LBP 25 000 and LBP 500 000
(EUR 13 to 250) or a term of imprisonment from one month to six months
(Art. 38 combined with Art. 30(1) of Law 89/1991). There are no specific pen-
alties for failing to update the information provided to the registrar.
97. A company or partnership that fails to register with the tax admin-
istration is subject to a penalty between LBP 1 million (EUR 500) and
LBP 2 million (EUR 1 000) (Art. 107(1) TPC).
98. Any person who does not submit a tax return within the deadline is
subject to, on conviction, to a penalty of 5% of the tax due for each month of
delay (Art. 109 TPC). The penalty is limited to 100% of the tax due and the
minimum penalty is (i) LBP 750 000 (EUR 375) for joint stock companies;
(ii) LBP 500 000 (EUR 250) for limited liability companies, partnerships
and tax-exempted entities; and (iii) LBP 100 000 (EUR 50) for individuals
(Art. 109). Anyone who omits information when filing tax returns and no
additional tax results from that omission is subject to, on conviction to a pen-
alty of (i) LBP 200 000 (EUR 100) for joint stock companies; (ii) LBP 100 000
(EUR 50) for limited liability companies, partnerships and tax-exempted
entities; and (iii) LBP 50 000 (EUR 25) for individuals (Art. 111 TPC). The
penalty if applied in relation to each piece of information omitted (Art. 111).
99. Joint stock companies which fail to keep a book of shareholders in
accordance with Article 29 of the TPC are subject, on conviction, to a mini-
mum penalty of LBP 750 000 (EUR 375) (Art. 114 TPC).
100. In the event of non-compliance with the requirement to register own-
ership or change of ownership in entities registered with Midclear (threshold
of 10% of the shares in a company and 5% if the company is a bank),
Midclear notifies the BDL and it takes the measures that it deems appropri-
ate. The measures available to the BDL range from mandatory resale of the
shares to imposing an alternative settlement (Art. 9 Circular 82/2001).
101. Article 17 of Law 520/1996 imposes the penalty of Article 655 of the
Penal Code to, among other cases, anyone that acts as fiduciary without a license
in relation to fiduciary contracts. The exact nature of this penalty is not known.
102. Regulated persons who do not comply with customer identifica-
tion and due diligence provisions in the AML Act can be sanctioned with
imprisonment between two months and one year and by a fine not exceeding
LBP 10 million (EUR 5 000) or either (Art. 13 AML Act).
103. Associations that do not inform the government of their establish-
ment are void. Their founders and members of their statutory bodies can
be fined by the Ministry of the Interior with an amount between five and
twenty-five gold coins
29
(Art. 12 Associations Act). If an association fails to
submit the annual list of members to the Ministry of Interior, it can be fined
by the Ministry by a fine ranging from 2 to 10 gold coins (Art. 13).
Conclusion
104. Lebanese legislation provides sanctions in case of non-compliance
with relevant requirements to keep information available. The effectiveness
of the enforcement provisions which are in place in Lebanon will be consid-
ered during Lebanons Phase 2 review.
29. The Lebanese authorities confirmed that the price of gold coins will vary accord-
ing to the price of gold in the international market.
Determination and factors underlying recommendations
Phase 1 determination
The element is not in place.
Factors underlying
recommendations Recommendations
Bearer shares and to order shares
may be issued by joint stock
companies and partnerships limited by
shares and adequate mechanisms to
ensure that the owners of such shares
can be identified are not in place.
Lebanon should ensure that
appropriate mechanisms are in place
to identify the owners of bearer and to
order shares in all instances.
Lebanese law does not ensure that
information identifying the settlors,
trustees and beneficiaries of foreign
trusts with a Lebanese trustee is
available, in particular when the trustees
is acting outside the financial industry
and thus not subject to AML obligations.
information is available identifying the
settlors, trustees and beneficiaries of
foreign trusts which are administered
in Lebanon or in respect of which a
trustee is resident in Lebanon.
A.2. Accounting records
Jurisdictions should ensure that reliable accounting records are kept for all
relevant entities and arrangements.
105. A condition for exchange of information for tax purposes to be effec-
tive, is that reliable information, foreseeably relevant to the tax requirements
of a requesting jurisdiction is available, or can be made available, in a timely
manner. This requires clear rules regarding the maintenance of accounting
records.
General requirements (ToR A.2.1)
106. All commercial entities (including all joint stock companies and lim-
ited liability companies and general partnerships and limited partnerships, as
well as foreign companies and partnerships doing business in Lebanon when
performing acts of trade) have to keep daily or, if the nature of the business
does not allow such a frequency, monthly records of all their transactions.
These records must be sufficient to allow the company/partnership to produce
a balance sheet as well as a profit and loss account, both of which have to be
included in the annual financial statement (Art. 16 CoC and Art. 21 Decree-
Law No. 35 of 5 August 1967).
107. Holding companies and offshore companies must be set up as joint
stock companies and are subject to all provisions applicable to joint stock
companies unless otherwise provided (Art. 5 Decree-Law No. 45 and Art. 3
Decree-Law No. 46). Holding companies and offshore companies must pre-
pare accounting statements as other joint stock companies in accordance with
the COC and the TPC.
108. There are no specific penalties in the COC if accounting records
are not kept. The COC provides, however, that accounting books may be
accepted as documentary evidence in Court in favour of the trader on condi-
tion that they are regularly kept, that their statements are used against another
trader and that the dispute concerns an act of trade (Art. 20 COC). This may
serve as an incentive for traders to keep accounting books pursuant to the
COC. Moreover, some accounting obligations under the CoC coincide with
the ones provided under tax law and for those obligations specific penalties
are imposed (please see below).
109. The TPC (Art. 29) and Ministerial Decision 453/1/2009 (Art. 28)
also require that accounting records are kept for tax purposes. Different
records must be kept for: (i) taxpayers assessed on the basis of the actual
profit method; (ii) taxpayers assessed on the basis of the lump sum method;
(iii) taxpayers assessed on the basis of the estimated profit method; and
(iv) tax-exempt institutions. The following records are required to be kept by
all taxpayers and tax-exempt entities:
a journal recording the total of revenues and expenses, daily;
a fixed assets register; and
a salaries and wages register, if there are employees.
110. These requirements apply also to holding companies and offshore
companies. Additional requirements apply to taxpayers assessed on the
basis of the real profit method. Pursuant to article 28 of Ministerial Decision
453/1/2009 institutions that are exempt of tax which have the status of com-
panies are required to keep records on the basis of the real profit method. As
such, offshore and holding companies would appear to be subject to these
additional requirements, including the obligation to keep a general ledger and
records of nominative shares.
111. For all taxpayers, including foreign companies having a branch
in Lebanon, accounting records have to be kept at the taxpayers place of
business or residence and must be accessible to the Ministry of Finance tax
auditors upon request (Art. 30 TPC).
112. Anyone who does not keep the accounting registers and documents
required by tax laws is subject, on conviction, to a penalty equivalent to 50%
of the net undeclared tax but not less than: (i) LBP 750 000 (EUR 375) for
joint stock companies; (ii) LBP 500 000 (EUR 250) for limited liability com-
panies, partnerships and tax-exempt entities; and (iii) LBP 100 000 (EUR 50)
for individuals (Art. 114 TPC). Anyone who does not produce the documents
and the registers that assist validating the tax due, or does not record transac-
tions, is subject to a penalty equivalent to 50% of the unpaid tax due but not
less than not less than: (i) LBP 750 000 (EUR 375) for joint stock companies;
(ii) LBP 500 000 (EUR 250) for limited liability companies, partnerships and
tax-exemptd entities; or (iii) LBP 100 000 (EUR 50) for individuals (Art. 115).
113. The Lebanese authorities advise that companies and partnerships
must file financial statements (including a statement of financial position
and profit and loss account) as part of their tax returns. Any person who
does not submit a tax return within the deadline is subject to, on convic-
tion, a penalty of 5% of the tax due for each month of delay (Art. 109 TPC).
The penalty is limited to 100% of the tax due and the minimum penalty
is: (i) LBP 750 000 (EUR 375) for joint stock companies; (ii) LBP 500 000
(EUR 250) for limited liability companies, partnerships and tax-exempt enti-
ties; and (iii) LBP 100 000 (EUR 50) for individuals (Art. 109). Anyone who
omits information when filing tax returns and no additional tax results from
that omission is subject to, on conviction to a penalty of: (i) LBP 200 000
(EUR 100) for joint stock companies; (ii) LBP 100 000 (EUR 50) for limited
liability companies, partnerships and tax-exempt entities; or (iii) LBP 50 000
(EUR 25) for individuals (Art. 111). The penalty is applied in relation to each
piece of information omitted (Art. 111).
114. Associations are required to keep books and accounts on income,
and on the type and amount of operations or transactions (Art. 7 Associations
Act). Associations must file their financial statements to the regulator on
an annual basis. Financial statements include balance sheet, income and
expenses statement, statement of payments to non-residents and statement of
payments to liberal professions (Arts.27 to 37 Decision No. 453/2009).
115. There are no specific requirements for Lebanese trustees of foreign
trusts to keep accounting records with regard to assets and transactions that
occur on behalf of that trust. The Lebanese authorities advise, however, that if
such trustees are financial institutions, regulations in force would ultimately
require that some accounting records are being kept.
116. Concerning fiduciary contracts, Law 520/1996 (Art. 7) and Basic
Circular 29/1996 (Art. 5) provide that entities and individuals entrusted
with fiduciary operations must keep accounting records of a clients fidu-
ciary estate as an autonomous entity registered off the fiduciarys balance
sheet. Each fiduciary estate is to be recorded distinctly from any other
account or fiduciary estate and must show the clients financial position. The
Lebanese authorities indicate that (based on the AML legislation) underlying
documentation must also be kept by the fiduciary provider until the end of the
fiduciary contract.
117. The AML Act requires regulated entities to retain all operation-
related documents (including transaction records) for a minimum of five
years after completing the operations or closing the accounts (Arts.4 and 5).
In addition, institutions conducting exchange operations must keep records of
all operations that exceed USD 10 000
30
(EUR 7 900) (Art. 13 Law No. 347 of
6 August 2001). Thus, financial institutions and other entities regulated under
the AML Law maintain a significant amount of transaction data for those
entities and arrangements which are their customers.
Conclusion
118. All forms of companies, partnerships and associations have to
keep relevant accounting records. However, there are no requirements for
Lebanese trustees of foreign trusts to keep accounting information with
regard to transactions and assets of a foreign trust.
Underlying documentation (ToR A.2.2)
119. Commercial entities are required to keep all documents that allow
them to verify and audit all operations (Art. 16 COC).
120. In addition, Decree 4665/1981, which rules the General Accounting
Plan, imposes on legal entities the obligation to maintain documents which
prove the regularity of any operation recorded (Art. 6). More specifically,
Article 7 of the Decree provides that for each accounting entry made in
the accounting records there must bea proof document to demonstrate the
source and the content of the recorded transaction. The Lebanese authorities
advise that, based on these legal requirements, all relevant underlying docu-
mentation for accounting purposes such as invoices, contracts and business
correspondence are required to be kept.
121. Associations are required to keep all decisions, correspondence and
notifications (Art. 7 Associations Law). It is not clear whether this would
include invoices, contracts, etc. The Lebanese authorities have advised that they
interpret Article 7 of the Associations Law as requiring underlying documenta-
tion such as invoices and contracts to be kept. This interpretation of Article 7
will be the subject of analysis in Lebanons Phase 2 review.
122. There are no obligations on trustees of foreign trusts to maintain
underlying documents associated with accounting records.
Article 5 of this Law.
123. Concerning fiduciary arrangements, underlying documentation must
also be kept by the fiduciary provider as required under the AML legislation.
Currently only banks and other financial institutions are authorised to act
as fiduciaries and they are subject to the AML law. It is possible, however,
that the BDL grants licenses to other institutions to act as fiduciaries. The
Lebanese authorities confirmed that the BDL has not licensed other institu-
tions to act as fiduciaries and that there is no intention to do so in the future.
This issue will be followed up in the Phase 2 review of Lebanon.
Document retention (ToR A.2.3)
124. Commercial enterprises are required to keep all accounting records
and underlying documents for a period of 10 years (Art. 19 CoC).
125. The TPC requires that all accounting records and documents are kept
for a period of 10 years (Art. 30).
126. Lebanese authorities advise that Lebanese legislation does not require
associations to keep accounting records for a fixed period. However, they are
expected to keep accounting records for ten years based on the TPC (Art. 30).
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
Lebanese legislation does not ensure
that reliable accounting records or
underlying documentation are kept for
foreign trusts which are administered
in Lebanon or in respect of which a
trustee is resident in Lebanon.
Lebanon should establish obligations for
the maintenance of reliable accounting
records, including underlying docu-
mentation, for foreign trusts which are
administered in Lebanon or in respect of
which a trustee is resident in Lebanon.
These records should be kept for a
minimum of 5 years.
A.3. Banking information
Banking information should be available for all account-holders.
127. Access to bank information is of interest to the tax administration
only if the bank has useful and reliable information about its customers
identity and the nature and amount of financial transactions.
128. Banks, financial institutions and financial intermediation institu-
tions are subject to the requirements of maintaining accounting records as
described under Part A.2 of this report. These commercial books include
records pertaining to accounts as well as to related financial and transactional
information. The commercial books must be kept for a period of 10 years.
129. Further, banks, financial institutions and financial intermediation
institutions must maintain client information as provided for under Law
No. 318 of 20 April 2001 on Fighting Money Laundering (the AML Act) and
Decision 7818 of 18 May 2011, which approves the Regulations on the Control
of Financial and Banking Operations for Fighting Money Laundering (the
AML Regulation).
130. Pursuant to the AML Act, banks and other financial institutions have
to retain copies of all operation-related documents (including transaction
records), as well as copies of official documents relating to the identity of
concerned parties for a minimum of five years after completing the opera-
tions or closing the accounts (Arts.4 and 5). There are no details in the AML
Act on the transaction records to be maintained. The Lebanese authorities
indicate that as the law requires keeping 'all operation-related documents,
transaction records must contain all information related to this transaction
including the nature of the transaction, the amount and type of transaction,
the date of the transaction; and the parties to the transaction.
131. In addition to the provisions of Law No. 318, Article 13 of Law
No. 347, of 6 August 2001 binds those conducting exchange operations
to keep a special record where all transactions exceeding the amount of
USD 10 000 are registered on a daily basis, including the date and serial
number of each transaction and the customers name, after verifying his
identification.
132. The AML Act obliges all banks and the credit institutions to adopt
clear procedures regarding the opening of the different kinds of accounts,
including credit and numbered accounts, including the requirement to iden-
tity their customers. Pursuant to Article 3 of Law No. 1956 related to bank
secrecy, 'banks may open Ior their clients numbered deposit accounts whose
holders know only the bank`s manager or his agent. The banks may also rent
safe boxes with numbers under the same conditions. According to Article 5
of Law No. 318, the requirements of verifying the clients ID and determining
the beneficial owner are applicable to these accounts. According to Lebanese
authorities, the numbered accounts represent exceptional cases and in most
institutions are opened only after obtaining the approval of the highest
authority at the bank, for the benefit of a certain category of clients and due to
'legal reasons. Only certain persons, including the General Manager oI the
bank, the regional manager and the branch manager, in addition to the com-
pliance officer, may peruse the clients file. Banks and the credit institutions
are prohibited from opening accounts for anonymous persons (Art. 5). The
AML Act also permits opening accounts of figureheads provided that the
beneficial owner is identified (Art. 5(a)). The law does not provide a definition
of beneficial owner.
133. Banks and financial institutions must adopt clear procedures for
opening accounts, in particular for determining the economic (i.e. beneficial)
owner. They must also check the identity of all their permanent and transient
clients, whether resident or non-resident, notably in the following instances
(Art. 3 Basic Decision No. 7818 of 18 May 2001 and Art. 3 AML Regulation):
opening all types of accounts, including the credit and numbered
accounts as well as the accounts belonging to the suspicious persons;
credit operations;
leasing of safe boxes; and
cash transactions exceeding USD 10 000 or the equivalent in other
currencies (cash transactions include deposit of funds, currency
exchange, purchase of precious metals, among other transactions).
134. As detailed in the AML Regulation, CDD obligations include the fol-
lowing (Arts.3 to 6):
requesting identity information (for individuals, copy of passport,
ID case, civil registration or residence permit; for legal entities, duly
registered articles of association, registration certificate, identity of
legal representative;
requesting a written statement from each client concerning the iden-
tity of the beneficial owner (individual or legal entity see Art. 4) of
the intended operation, including his/her full name and address; and
where there are doubts regarding the true beneficial owners (for
instance, as provided in Article 5, when the business relationship is
conducted through umbrella institutions or companies), the bank has
to inform the BDL.
135. Regulated persons who do not comply with customer identifica-
tion and due diligence provisions in the AML Act can be sanctioned with
imprisonment between two months and one year and by a fine not exceeding
LBP 10 million (EUR 5 000) or either (Art. 13 AML Act).
The element is in place.
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 43
B. Access to Information
Overview
136. A variety of information may be needed in a tax enquiry and jurisdic-
tions should have the authority to obtain all such information. This includes
information held by banks and other financial institutions as well as infor-
mation concerning the ownership of companies or the identity of interest
holders in other persons or entities, such as partnerships and trusts, as well
as accounting information in respect of all such entities. This section of the
report examines whether Lebanons legal and regulatory framework gives the
authorities access powers that cover the right types of persons and informa-
tion and whether rights and safeguards would be compatible with effective
exchange of information (EOI).
137. The Tax Procedure Code, which grants access powers to Lebanons
Ministry of Finance, appears to limit the use of most access powers to
situations where it has a domestic need for the information. Nonetheless,
information which is already available to the competent authority can be
exchanged to foreign counterparts. Penalties are applicable for non-provision
of information requested by the Ministry of Finance. Moreover, compulsory
powers are available in certain circumstances. Due to strict bank secrecy
obligations, the Ministry cannot access information regarding transactions
and the identity of customers of banks and other entities within the financial
sector, including fiduciaries under a Lebanese fiduciary contract. Moreover,
the scope of the professional secrecy safeguards appears to be broader than
the professional secrecy protected under the international standard.
138. Application of rights and safeguards (e.g. notification, appeal rights)
in Lebanon does not restrict the scope of information that Lebanons compe-
tent authority can obtain. All professional privileges are clearly overridden
by the Ministry of Finances access powers (except cases involving bank
secrecy).
44 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
B.1. Competent Authoritys ability to obtain and provide information
Competent authorities should have the power to obtain and provide information that is the
subject of a request under an exchange of information arrangement from any person within
their territorial jurisdiction who is in possession or control of such information (irrespective
of any legal obligation on such person to maintain the secrecy of the information).
Bank, accounting, ownership and identity information (ToR B.1.1
and B.1.2)
Ownership and accounting information
139. The Lebanese tax administration (the Ministry of Finance)s access
to information for domestic tax purposes is regulated in the Tax Procedure
Code (TPC).
140. Pursuant to article 23 of the TPC, every person, including all state
agencies, public institutions, municipalities and municipality associations, as
well as various private sector institutions and unions, must co-operate with
the tax authorities and provide it with information it requests in order to carry
out its mission.
141. Moreover, the following other provisions concerning access of infor-
mation exist:
the tax authorities may, in the course of an audit to establish the
amount of tax due and paid, examine all of the components of the
tax base and inspect the accounting records and documents belong-
ing to the taxpayer or to any other person that is connected with the
taxpayer (Art. 44 TPC);
the tax authorities may ask any person who has information that
benefits the investigation concerning the tax owed by any taxpayer
to provide the Ministry with specified information (Art. 48 TPC); and
the tax administration may demand from every natural or legal
person residing in Lebanon (except banks governed by the law of
3 September 1956 on bank secrecy) to provide all registers, docu-
ments and information in their possession relevant to define the basis
of the tax assessment to which this person or other taxpayers may be
subject (Art. 103 TPC).
142. The Lebanese authorities indicated that those powers (and the ones
of article 23 of the TPC) can be used in order to collect information required
to reply to a request for information made under an international treaty even
if Lebanon does not need the information for its own tax purpose. However,
none of the above referenced provisions appears to allow the use of access
powers just for purposes of replying to an exchange of information request
(see Part B.1.3 below) and their application in this respect should be made
clear. In fact, the wording used in all provisions appears to allow access to
information only in cases connected to a domestic tax assessment.
Bank information
143. As detailed below under Secrecy provisions, the Lebanese bank-
ing system provides for strict bank secrecy by virtue of the 1956 Banking
Secrecy Act. Bank secrecy is applicable towards third parties, including the
Ministry of Finance. While, under the AML Law, the Special Investigation
Commission (SIC) has the ability to lift bank secrecy for AML matters, and it
may be lifted in certain circumstances regarding corruption or illicit enrich-
ment, no such exceptions exist for tax purposes in general or exchange of
information in particular.
31
Use of information gathering measures absent domestic tax interest
(ToR B.1.3)
144. The concept oI 'domestic tax interest describes a situation where a
contracting party can only provide information to another contracting party
if it has an interest in the requested information for its own tax purposes.
145. There are no provisions in the Lebanese legislation which specifically
limit the use of the Ministry of Finances domestic access powers to situa-
tions where it has a domestic need for the information.
146. Article 23 of the TPC, when addressing the co-operation among vari-
ous public and private institutions in Lebanon, grants powers to the Lebanese
tax authorities to access all information necessary in order to carry out its
mission. Article 23 provides:
Subject to the provisions of Law No. 3 of September 3, 1956, governing bank
secrecy, every person including all state administrations, public institutions,
municipalities and municipality unions, as well as the various private sector
institutions and syndicates, must cooperate with the tax authorities and
provide them with the information they request in order to carry out their
mission ().
31. On 14 March 2012, the Lebanese Council of Ministers approved a draft law related
to the exchange of information for tax purposes, including bank information. The
draft law has been transferred to Parliament for discussion. Once approved, the law
will authorise the Minister of Finance, in the context of international co-operation,
to enter into bilateral or multilateral agreements for exchanging information on
cases of tax evasion or tax fraud under the conditions set in the law.
147. The Lebanese authorities advised that it is part of the Ministry of
Finances mission to exchange of information with foreign authorities pursu-
ant to international treaties. The Lebanese authorities have also confirmed
that, as a result, they can request information from the taxpayer when the
information is needed solely for the purposes of replying to an exchange of
information request (i.e. is not needed for their own domestic tax purposes).
148. However, neither article 23 nor the provisions related to audit powers
clearly allow the use of access powers just for purposes of replying to an
exchange of information request. The mission of the Ministry of Finance is
not defined in the TPC. Moreover, the wording used in all provisions related
to audit powers appears to restrict access to information to cases connected
to a domestic tax assessment.
149. The only circumstance where the cooperation with foreign authorities
is addressed in the TPC is in article 25, which deals with the duty of confi-
dentiality. Article 25(1) of the TPC provides that:
The current or former Tax Department employees must adhere
to professional secrecy in regard to the information they have
received as employees, and such information may not be dis-
closed except to the following parties:
()
c. The tax departments of foreign countries, in application of
international treaties.
150. This article allows for the provision of information to foreign tax
authorities, but does not address the question of obtaining information.
151. In addition, search and seizure powers, including police powers and
court orders, can only be used in case of mandatory tax collection. Those
powers are not available to the Lebanese authorities for purposes of replying
to a request for exchange of information.
Conclusion
152. The Tax Procedure Code, which grants access powers to Lebanons
Ministry of Finance, appears to limit the use of most access powers to
situations where it has a domestic need for the information. Nonetheless,
information which is already available to the competent authority can be
exchanged to foreign counterparts. It is recommended Lebanon clarify that
its competent authority has the power to obtain and provide information that
is the subject of an EOI request regardless of a domestic tax interest.
Compulsory powers (ToR B.1.4)
153. Jurisdictions should have in place effective enforcement provisions to
compel the production of information.
154. As mentioned previously, the Ministry of Finance has wide-ranging
powers to collect information. These powers include compulsory measures.
In the course of a tax audit, tax officials from the Ministry of Finance can
enter the taxpayers premises or the site where accounting records and docu-
ments are maintained, provided that this is done in co-ordination with the
taxpayer (Art. 44 TPC).
155. Search and seizure powers, including police powers and court orders,
can only be used in case of mandatory tax collection. Those powers are not
available to the Lebanese authorities for purposes of replying to a request for
exchange of information.
156. With the exception of entities subject to bank secrecy, every legal and
natural person in Lebanon must co-operate with the Ministry of Finance and
provide information requested of them (Art. 23 TPC). Anyone who abstains
from producing the documents and the registers that assist validating the
tax due, or from recording transactions, is subject to a penalty equivalent to
50% of the unpaid tax due but not less than not less than: (i) LBP 750 000
(EUR 375) for joint stock companies; (ii) LBP 500 000 (EUR 250) for
limited liability companies, partnerships and tax-exempt entities; and
(iii) LBP 100 000 (EUR 50) for individuals (Art. 115).
Secrecy provisions (ToR B.1.5)
Bank secrecy
157. All banks and most other financial institutions
32
, fiduciaries and the
BDL are subject to the Banking Secrecy Act of 3 September 1956 (Art. 3
Law 5439 of 20 September 1982 and Art. 151 Code of Money and Credit).
The managers and employees of banks and the other financial institutions, in
addition to any person who, owing to their capacity or position, have access
by any means to the banks books, operations or correspondence, are abso-
lutely bound by bank secrecy to the benefit of the clients of their banks. They
or any other person legally authorised to inquire into documents, records,
operations and correspondence of banks, are not allowed to inform any other
third party (individual or public authorities, even legal) about the name of
their customers, their properties, their accounts and their credits (Art. 2).
32. Money exchange institutions, financial brokerage firms, leasing companies,
collective investment schemes and insurance companies are not subject to bank
secrecy obligations, see Article 4 AML Act.
158. In addition, the Lebanese authorities informed that the secrecy provi-
sions applicable to banks and the other financial institutions and the Capital
Markets Authority
33
is subject to the same strict secrecy. Companies or col-
lective investment schemes operating in the Lebanese financial market and
exchange institutions are subject to the confidentiality obligation provided in
the Lebanon Criminal Code.
34
They must not disclose any information, data
or fact known to them in the course of their business, job or work, whether
related to investors in these markets or to companies and entities concerned
with investments regulated by the act.
159. The SIC can decide to lift bank secrecy for AML purposes
(Art. 8 AML Act), or bank secrecy can be lifted as provided for in Law
154 of 27 December 1999 on Fighting Illicit Enrichment and Law 32 of
16/10/2008 on fighting against corruption. However, no exemptions apply
to bank secrecy with regard to tax matters and that is confirmed in the TPC
(Art. 23)
35
. All information is covered by bank secrecy and may only be dis-
closed for tax purposes if the client authorises the disclosure in writing.
Professional secrecy
160. Legal professional privilege is laid down in Article 92 of Law No. 8
of 1970 governing the lawyers profession: the lawyer may not disclose a
secret confided to him or that he knew by virtue of his profession even after
the expiry of the power of attorney. He may not as well testify against his
customer in the case that he is defending or was defending.
161. The language of Article 92 appears to protect the disclosure of infor-
mation including communications produced for purposes other than seeking
or providing legal advice or use in existing or contemplated legal proceed-
ings. It is, therefore, beyond the scope of information covered by the privilege
is considerably broader than the international standard.
33. Established in Law No. 161 of 17 August 2011.
34. Article 579 of the Criminal Code provides that A person who, by reason of his
status, function, profession, or his art, knowledge of a secret, reveal without due
cause, or the use of personal gain or benefit of third be punished, if the question
is likely to cause harm even moral, to imprisonment for a year and a fine not to
exceed LBP 400 000.
35. Article 23 of the TPC reads as follows: Subject to the provisions of Law No. 3 of
September 3, 1956, governing bank secrecy, every person (), must cooperate
with the tax authorities and provide them with the information they request in
order to carry out their mission ().
162. For certified public accountants (CPAs) and auditors, the Accountancy
Profession Act No. 364/1994 provides that: A CPA shall be sworn to profes-
sional confidentiality and banking secrecy (Art. 14).
163. Moreover, the Lebanese Criminal Code (Art. 579) provides that:
A person who, by reason of his status, function, profession, or his
art, has knowledge of a secret, reveals without due cause, or the
use of personal gain or benefit of a third party shall be punished,
if the fact is likely to cause harm even moral, to imprisonment for
a year and a fine not exceeding LBP 400 000.
164. There is a specific override in the TPC:
() professional secrecy may not be invoked by anyone in order
to prevent the Tax Department staff from auditing the accounting
records and documents that help establish whether the tax due
was paid.
165. The Lebanese authorities confirmed, based on the above-mentioned
provisions, that no person, including lawyers, tax advisors, CPAs, auditors
etc. can claim professional secrecy to avoid providing to the tax authorities
information they have on their clients or third persons. However, considering
the wording of article 23 of the TPC, the override is available only where a
domestic tax interest exists. 166.As a result, absent the possibility to apply the
override, the scope of information covered by the privilege remains consider-
ably broader than the international standard.
Factors underlying
Lebanese authorities do not have
access to information held by
banks, fiduciary institutions and
other institutions within the financial
industry, for tax purposes.
Lebanon should ensure the authorities
have the power to obtain and provide
information that is the subject of
a request under an exchange of
information arrangement from any
bank, fiduciary institution or other
financial institution within its territorial
jurisdiction.
Factors underlying
Although the Lebanese competent
authority can exchange any
information already in its possession,
it is unclear whether it has powers
to access information for exchange
purposes when the information is not
required for it has own tax purposes.
Lebanon should make clear that its
competent authority has the power
to obtain and provide information
that is the subject of a request under
a DTC or a TIEA from any person
within its territorial jurisdiction who
is in possession or control of such
information, even if it does not
need the information for its own tax
purposes.
The scope of the professional
secrecy safeguards appears to be
broader than the professional secrecy
protected under the international
standard.
Lebanon should ensure that its
professional secrecy rules do not
operate to prevent exchange of
information in accordance with the
international standard.
B.2. Notification requirements and rights and safeguards
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the
requested jurisdiction should be compatible with effective exchange of information.
Not unduly prevent or delay exchange of information (ToR B.2.1)
167. Rights and safeguards should not unduly prevent or delay effective
exchange of information. For instance, notification rules should permit excep-
tions from prior notification (e.g. in cases in which the information request is
of a very urgent nature or the notification is likely to undermine the chance
of success of the investigation conducted by the requesting jurisdiction).
168. There are no provisions within Lebanese law specifically addressing
exchange of information for tax purposes.
36
Thus, there are no obligations to
notify taxpayers when EOI is going to take place.
169. There are no provisions in Lebanons legislation which either permit
or prohibit appeals by a taxpayer or a third party who is asked for information
under the procedures described under B.1.
36. A new bill related to the exchange of information for tax purposes has been
approved by the Council of Ministers and is now pending approval from
Parliament.
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 53
C. Exchanging Information
Overview
170. Jurisdictions generally cannot exchange information for tax purposes
unless they have a legal basis or mechanisms for doing so. In Lebanon, the
legal authority to exchange information is derived from bilateral mechanisms
(double tax conventions) as well as domestic law. This section of the report
examines whether Lebanon has a network of agreements that would allow it
to achieve effective exchange of information in practice.
171. Lebanon has signed agreements that provide for exchange of informa-
tion with 33 jurisdictions, 29 of which are in force. All of them are double tax
conventions (DTCs), which are based on the OECD Model Tax Convention.
To date, Lebanon has not concluded tax information exchange agreements
(TIEAs). There seem to be no restriction in the laws of Lebanon concerning
the conclusion of TIEAs, however. Article 52 of the Lebanese Constitution,
which deals with the conclusion of international treaties, does not restrict the
form of bilateral agreement (DTC or TIEA) which Lebanon may enter into.
172. None of the agreements concluded by Lebanon can be seen as meet-
ing the standard, however. This is because none of them ensures that bank
information can be exchanged and because of uncertainties as to whether a
domestic tax interest exists in Lebanon (see Part B.1 of this report).
173. Other aspects of Lebanons EOI provisions meet the standard. There
is no distinction drawn in Lebanons DTCs between civil and criminal mat-
ters as far as taxation is concerned, and no dual criminality condition applies.
There are no restrictions in the EOI provisions in Lebanons DTCs that would
prevent Lebanon from providing information in a specific form, as long as
this is consistent with its own administrative practices.
174. All exchange of information provisions in Lebanons DTCs contain
confidentiality provisions to ensure that the information exchanged will be
disclosed only to persons authorised by the agreements. While each of the
articles might vary slightly in wording, these provisions generally contain
54 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
all of the essential aspects of Article 26(2) of the Model Tax Convention.
Lebanons domestic legislation also contains relevant confidentiality provi-
sions. The rights and safeguards protected under Lebanons EOI agreements
are consistent with the standard (element C.4).
175. There appear to be no legal restrictions on the ability of Lebanons
competent authority to respond to requests within 90 days of receipt by provid-
ing the information requested or by providing an update on the status of the
request. The present report does not address this element, as this involves issues
of practice that will be dealt with in the Phase 2 review (see Part C.5 below).
C.1. Exchange of information mechanisms
Exchange of information mechanisms should allow for effective exchange of information.
176. Lebanon has signed agreements that provide for exchange of informa-
tion with 33 jurisdictions, 29 of which are in force. All of them are double tax
conventions (DTCs), which are based on the OECD Model Tax Convention.
177. Article 52 of the Lebanese Constitution deals with the conclusion of
international treaties:
The President of the Republic negotiates international treaties
in coordination with the Prime Minister. These treaties are not
considered ratified except after being approved by the Council of
Ministers. They are to be made known to the Chamber whenever
the national interest and security of the state permit. However,
treaties involving the finances of the state, commercial treaties,
and in general treaties that cannot be renounced every year are not
considered ratified until they have been approved by the Parliament.
178. To date, Lebanon has not concluded tax information exchange agree-
ments (TIEAs). There is no restriction in the laws of Lebanon concerning the
conclusion of TIEAs, however.
179. In the hierarchy of legal norms, Lebanons DTCs have a higher stand-
ing than any (ordinary) laws, but not the Constitution. In this regard, Article 2
of the Civil Procedure Code provides that:
The courts must respect the hierarchy of rules.
When the provisions of the international treaties are in contra-
diction with the provisions of the ordinary laws, the provisions of
the treaties must be applicable.
The courts are not empowered to declare a law invalid because it
contravenes the constitution and the international treaties.
Foreseeably relevant standard (ToR C.1.1)
180. The international standard for exchange of information envis-
ages information exchange upon request to the widest possible extent.
Nevertheless it does not allow 'Iishing expeditions, i.e. speculative requests
for information that have no apparent nexus to an open inquiry or investiga-
tion. The balance between these two competing considerations is captured in
the standard oI 'Ioreseeable relevance which is included in Article 26(1) oI
the OECD Model Tax Convention set out below:
The competent authorities of the Contracting States shall
exchange such information as is foreseeably relevant for carry-
ing out the provisions of this Convention or to the administration
or enforcement of the domestic laws concerning taxes of every
kind and description imposed on behalf of the Contracting
States, or of their political subdivisions or local authorities, inso-
far as the taxation thereunder is not contrary to the Convention.
The exchange of information is not restricted by Articles 1 and 2.
181. Lebanon has bilateral treaties providing for international exchange of
information in force with 29 jurisdictions. Other DTCs have been signed with
four jurisdictions (Canada, Cuba, Gabon and Sudan) but are not yet in force.
182. Lebanons DTCs provide for the exchange of information that is
'necessary or 'relevant Ior carrying out the provisions oI the Convention
or oI the domestic tax laws oI the Contracting States. The phrase 'as is nec-
essary is recognised in the commentary to Article 26 oI the OECD Model
Tax Convention as allowing the same scope of exchange as does the term
'Ioreseeably relevant.
37
The Lebanese authorities confirmed that they inter-
pret the terms 'necessary and 'relevant used in certain treaties as allowing
the same scope oI exchange oI inIormation as does the term 'Ioreseeably
relevant. In view oI this recognition, the DTCs concluded by Lebanon meet
the 'Ioreseeably relevant standard.
In respect of all persons (ToR C.1.2)
183. Article 26(1) of the OECD Model Tax Convention indicates that 'the
exchange oI inIormation is not restricted by Article 1, which deIines the
personal scope of application of the Convention and indicates that it applies
to persons who are residents of one or both of the Contracting States.
184. All of Lebanons DTCs contain that sentence, except for the DTCs
37. See Article 1 of the OECD Model TIEA, para.5.4 of the Revised Commentary
(2008) to Article 26 of the UN Model Convention and para.9 of the Commentary
to Article 26 of the OECD Model Convention.
with Bahrain, Bulgaria, Kuwait, Malaysia, Oman and the United Arab
Emirates. The EOI provisions in these treaties nonetheless apply to carrying
out the provisions of the agreement or of the domestic laws of the Contracting
States concerning taxes covered by the agreements insofar as the taxation
thereunder is 'not contrary to or 'in accordance with the agreements. As
the domestic laws are applicable to non-residents as well as to residents, under
these agreements information can be exchanged in respect of all persons.
Obligation to exchange all types of information (ToR C.1.3)
185. Jurisdictions cannot engage in effective exchange of information if
they cannot exchange information held by financial institutions, nominees or
persons acting in an agency or a fiduciary capacity. Both the OECD Model
Tax Convention and the OECD Model TIEA, which are primary authoritative
sources of the standards, stipulate that bank secrecy cannot form the basis for
declining a request to provide information and that a request for information
cannot be declined solely because the information is held by nominees or
persons acting in an agency or fiduciary capacity or because the information
relates to an ownership interest.
186. The absence of wording akin to Article 26(5) of the OECD Model Tax
Convention does not automatically create restrictions on exchange of bank
information. The Commentary on Article 26(5) indicates that whilst paragraph 5
(added to the Model Tax Convention in 2005) represents a change in the struc-
ture of the Article, it should not be interpreted as suggesting that the previous
version of the Article did not authorise the exchange of such information.
187. However, as detailed previously in Part B.1 of this report, there are
considerable limitations in Lebanons laws with respect to access to bank
information. The Lebanese competent authorities do not have access to infor-
mation regarding transactions or the identity of customers of banks and other
financial institutions. As a result, bank information cannot be exchanged by
Lebanon with its treaty partners and none of Lebanons agreements meet the
188. Moreover, none of Lebanons EOI instruments contains a provision
similar to Article 26(5) of the OECD Model Tax Convention.
38
Even once
Lebanon has removed its bank secrecy limitation, the absence of a specific
38. 14 of Lebanons 33 EOI partners are members of the Global Forum and 8 of
these have already been the subject of a peer review (Bahrain, Cyprus*, Czech
Republic, France, Italy, Malaysia, Malta and Qatar). Those reviews show that
Malaysia would need a provision equivalent to Article 26(5) of the OECD Model
Tax Convention to exchange bank information.
* See footnote 40 below.
provision in the respective DTCs requiring exchange of bank information
unlimited by bank secrecy may mean such exchange is limited by domes-
tic legislative restrictions in partner jurisdictions. It is recommended that
Lebanon continue to renegotiate its older DTCs to include paragraph 26(5) of
the OECD Model Tax Convention.
Absence of domestic tax interest (ToR C.1.4)
189. The concept oI 'domestic tax interest describes a situation where a
contracting party can only provide information to another contracting party
if it has an interest in the requested information for its own tax purposes. A
refusal to provide information based on a domestic tax interest requirement
is not consistent with the international standard. EOI partners must be able
to use their information gathering measures even though invoked solely to
obtain and provide information to the requesting jurisdiction.
190. The agreements with Canada (not yet in force) and Senegal contain
similar language with Article 26(4) of the OECD Model Tax Convention,
obliging the contracting parties to use information-gathering measures to
exchange requested information without regard to a domestic tax interest.
The remaining DTCs do not contain such a provision. The Commentary to
Article 26(4) indicates that paragraph 4 was introduced in the 2005 Model
Tax Convention to express an implicit obligation contained in this Article to
exchange information in situations where the requested information is not
needed by the requested State for domestic tax purposes.
191. As outlined in Part B of this report, although the competent authority
can exchange any information already in its possession, it is unclear whether
Lebanons powers to access information can be exercised in circumstances
where Lebanon does not need the information for its own tax purposes.
192. Moreover, the absence in most of Lebanons agreements of a specific
provision akin to Article 26(4) of the OECD Model Tax Convention may
mean such exchange is limited by domestic legislative restrictions in partner
jurisdictions.
39
39. 8 of the 32 jurisdictions with DTCs that do not include Article 26(4) have already
been reviewed by the Global Forum (Bahrain, Canada, Cyprus*, the Czech
Republic, Italy, Malaysia, Malta and Qatar). None of those was found to have a
domestic tax interest limitation.
* See footnote 40 below.
Absence of dual criminality principles (ToR C.1.5)
193. The principle of dual criminality provides that assistance can only be
provided if the conduct being investigated (and giving rise to the information
request) would constitute a crime under the laws of the requested country if
it had occurred in the requested country. In order to be effective, exchange of
information should not be constrained by the application of the dual criminal-
ity principle.
194. None of the EOI agreements concluded by the Lebanese Republic
applies the dual criminality principle to restrict the exchange of information.
Exchange of information in both civil and criminal tax matters
(ToR C.1.6)
195. Information exchange may be requested both for tax administration
purposes and for tax prosecution purposes. The international standard is not
limited to information exchange in criminal tax matters but extends to infor-
mation requested Ior tax administration purposes (also reIerred to as 'civil
tax matters).
196. All of Lebanons exchange of information agreements provide for
exchange of information in both civil and criminal tax matters:
the first paragraph of the exchange of information article in the DTCs
with Algeria, Armenia, Bahrain, Bulgaria, Canada, Cuba, Cyprus
40
,
Egypt, Gabon, Jordan, Malaysia, Malta, Pakistan, Poland, Romania,
Russia, Senegal, Turkey and Ukraine mentions that the information
exchange will occur as well as or especially in order to prevent or
in order to prevent in particular fraud or evasion. The use of the
terms especially, as well as and in particular ensures that EOI can
take place also in the cases where no tax evasion or fraud is involved,
i.e. in civil tax matters;
40. 1. Footnote by Turkey: The information in this document with reference to
'Cyprus relates to the southern part oI the Island. There is no single authority rep-
resenting both Turkish and Greek Cypriot people on the Island. Turkey recognises
the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable
solution is found within the context of the United Nations, Turkey shall preserve its
position concerning the 'Cyprus issue.
2. Footnote by all the European Union Member States of the OECD and the
European Commission: The Republic of Cyprus is recognised by all members
of the United Nations with the exception of Turkey. The information in this
document relates to the area under the effective control of the Government of the
Republic oI Cyprus.
the DTC with France refers to exchange of information as necessary
to ensure the regular assessment and collection of the taxes referred
to in this Convention and the application, in respect of such taxes, of
the statutory provisions relating to the prevention of tax fraud; and
the DTCs with Morocco, Oman, Qatar, Sudan, Tunisia and Yemen
mention that information exchange will occur for carrying out the
provisions of this Convention or of the domestic laws of the contract-
ing parties, concerning taxes covered by this Convention, in order
to prevent (in particular) the fraud from and the evasion of such
taxes. The Lebanese authorities interpret those provisions as allowing
exchange of information for carrying out the treaty provisions or the
domestic law provisions in both civil and criminal matters.
Provide information in specific form requested (ToR C.1.7)
197. In some cases, a Contracting State may need to receive information
in a particular form to satisfy its evidentiary or other legal requirements.
Such forms may include depositions of witnesses and authenticated copies
of original records. Contracting States should endeavour as far as possible to
accommodate such requests. The requested State may decline to provide the
information in the specific form requested if, for instance, the requested form
is not known or permitted under its law or administrative practice. A refusal
to provide the information in the form requested does not affect the obligation
to provide the information.
198. There are no restrictions in the exchange of information provisions in
Lebanons exchange of information agreements that would prevent Lebanon
from providing information in a specific form, as long as this is consistent
with its own administrative practices.
In force (ToR C.1.8)
199. Exchange of information cannot take place unless a jurisdiction has
EOI arrangements in force. Where EOI arrangements have been signed, the
international standard requires that jurisdictions must take all steps necessary
to bring them into force expeditiously.
200. International treaties that have been ratified by Lebanon enter into
force by virtue of the exchange of instruments of ratification in the case of
bilateral treaties, and by virtue of the deposit of instruments of ratification
or accession in the case of multilateral treaties. In the hierarchy of norms,
such treaties have a higher standing than any ordinary laws, but not the
Constitution.
201. Of the 33 bilateral tax treaties which Lebanon has concluded, four are
not in force (see Annex 3 for signing and entry into force dates). All of these
treaties were signed more than 7 years ago (DTC with Canada, signed on
29 December 1998; DTC with Cuba, signed on 4 February 2001; DTC with
Gabon, signed on 20 February 2001; and DTC with Sudan, signed on 9 March
2004). The Lebanese authorities indicate that Lebanon has completed the
ratification procedure in relation to all four treaties.
202. The Lebanese authorities explained that the following procedure
applies for bringing treaties into force:
after signing the tax treaty, the Ministry of Finances Revenues
Department prepares the documentation required for the ratification
of the treaty and transmits it to the Council of Ministers for approval;
once the treaty is approved by the Council of Ministers, it is submit-
ted to Parliament; and
upon approval, the Parliament enacts a ratification law.
Be given effect through domestic law (ToR C.1.9)
203. For information exchange to be effective the parties to an exchange
of information arrangement need to enact any legislation necessary to comply
with the terms of the arrangement.
204. In the hierarchy of legal norms, Lebanons DTCs have a higher stand-
ing than any ordinary laws, but not the Constitution.
205. However, as detailed in Part B.1 of this report, Lebanons competent
authority cannot access bank information to respond EOI requests and there
are uncertainties as to whether a domestic tax interest exists. As a result, so far,
none of the agreements signed by Lebanon meets the international standard.
Factors underlying
None of Lebanons treaties provides
for effective exchange of information
to the standard due to restrictions on
access to information, in particular
bank information.
Lebanon should enact necessary
legislation to remove deficiencies
noted in this report, which will enable
it to comply with and give effect to its
EOI agreements regardless of their
form.
C.2. Exchange of information mechanisms with all relevant partners
The jurisdictions network of information exchange mechanisms should cover
all relevant partners.
206. Ultimately, the international standard requires that jurisdictions
exchange information with all relevant partners, meaning those partners who are
interested in entering into an information exchange arrangement. Agreements
cannot be concluded only with counterparties without economic significance. If
it appears that a jurisdiction is refusing to enter into agreements or negotiations
with partners, in particular ones that have a reasonable expectation of requiring
information from that jurisdiction in order to properly administer and enforce
its tax laws it may indicate a lack of commitment to implement the standards.
207. Lebanons network of signed EOI agreements covers a variety of
jurisdictions, including:
13 Member States of the League of Arab States;
8 Member States of the European Union;
5 of the G20 economies;
5 of the 34 members of the OECD; and
14 of the 105 Global Forum members.
41
208. Lebanons treaty network mainly covers jurisdictions situated in
North and Northeast Africa and the Middle East, which are, in respect of
Lebanons economic relationships, clearly relevant. Lebanon also shares
41. Bahrain, Canada, Cyprus*, the Czech Republic, France, Italy, Malaysia, Malta,
Morocco, Poland, Qatar, Russia, Turkey and the United Arab Emirates.
*1. Footnote by Turkey: The information in this document with reference to
Republic oI Cyprus.
agreements with some of its main trading partners, including France, Italy,
Russia, Syria and the United Arab Emirates.
42
209. Twenty-nine of the 33 agreements entered into by Lebanon are
currently in force. The first one was signed with France in 1962 and the
most recent with Qatar in 2005 (see Annex 2). Lebanon has informed that,
since 2005, partners have not sought agreements with Lebanon because of
Lebanons legislative restriction on the exchange of bank information for tax
purposes.
210. Moreover, comments were sought from Global Forum member
jurisdictions in the course of the preparation of this report. No Global Forum
members have indicated that Lebanon has refused to enter into an agreement
when requested to do so. Some jurisdictions have confirmed that Lebanon did
not show readiness to lift or limit its bank secrecy or implement the standard
and, therefore, the negotiations have been terminated.
211. Nevertheless, the analysis of Lebanons EOI instruments made in sec-
tion C.1 above shows that Lebanon is not able to exchange information to the
standard with any of its partners. Lebanon is urged to update and develop its
EOI network to ensure it has agreements for exchange of information to the
standard with all relevant partners.
Factors underlying
Lebanon cannot exchange
information with its relevant partners
in accordance with the international
standard under any of its agreements.
Lebanon should continue to
develop its EOI network to ensure
it has agreements for exchange of
information to the standard with all
relevant partners.
42. Other main trading partners are Switzerland, Iraq, Saudi Arabia, Germany,
China, the United States and Russia. Source: Lebanon Ministry of Finance web-
site www.finance.gov.lb/en-US/finance/EconomicDataStatistics/Documents/
TradeStatistics/LITE%202011-11.pdf.
C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate
provisions to ensure the confidentiality of information received.
Information received: disclosure, use, and safeguards (ToR C.3.1)
212. Governments would not engage in information exchange without the
assurance that the information provided would only be used for the purposes
permitted under the exchange mechanism and that its confidentiality would
be preserved. Information exchange instruments must therefore contain
confidentiality provisions that spell out specifically to whom the information
can be disclosed and the purposes for which the information can be used.
In addition to the protections afforded by the confidentiality provisions of
information exchange instruments, jurisdictions with tax systems generally
impose strict confidentiality requirements on information collected for tax
purposes.
213. All the exchange of information articles in Lebanons double tax
agreements have confidentiality provisions modelled on Article 26(2) of the
OECD Model Tax Convention. Pursuant to these provisions, information
provided by foreign tax authorities can only be used for the purpose for which
they are required and can be disclosed only in judicial proceedings.
214. Moreover, pursuant to the ITA, every person whose position, power
or special field require his involvement in the assessment or collection of
income tax or in litigation related thereto, is under the obligation to keep
information secret (Art. 104 ITA). Information may only be used in the
interests of the administration or in events during which the tax officers
concerned with assessment, collection or inspection carry out their admin-
istrative duties. Tax officials have to take an oath to that effect before the
judicial authorities prior to taking up their duties. Persons who, without a
legitimate reason, disclose confidential information in their possession in
virtue of their status, job or profession, or use such information for their own
benefit or the benefit of others, will be sanctioned by imprisonment of up to
one year and must pay a fine not exceeding LBP 400 000 (EUR 200) if their
action causes any tangible or intangible damage (Art. 579 Penal Code).
215. All statements and correspondence concerning income tax, exchanged
by the officials of the tax authorities or forwarded by them to the taxpayers,
must be transmitted under sealed covers (Art. 106).
216. Finally, the TPC mandates that current or former employees of the
Lebanese tax administration adhere to professional secrecy with regard
to the information they have received as employees (Art. 25). Information
must not be disclosed except for the following parties: (i) tax administration
employees, the General Director of the Ministry of Finance, and the Minister
of Finance within the context of carrying out the official mandate; (ii) the
public prosecution office, the court of audit, or the judicial courts in case a
person is prosecuted because it has committed tax offence; and (iii) the tax
departments of foreign countries, in application of international treaties.
All other information exchanged (ToR C.3.2)
217. The confidentiality provisions in the agreements and in Lebanons
domestic law do not draw a distinction between information received in
response to requests and information forming part of the requests themselves.
As such, these provisions apply equally to all requests for such information,
background documents to such requests, and any other document reflecting
such information, including communications between the requesting and
requested jurisdictions and communications within the tax authorities of
either jurisdiction.
C.4. Rights and safeguards of taxpayers and third parties
The exchange of information mechanisms should respect the rights and
safeguards of taxpayers and third parties.
218. The international standard allows requested parties not to supply
information in response to a request in certain identified situations where an
issue of trade, business or other listed secret may arise.
219. Among other reasons, an information request can be declined where
the requested information would disclose confidential communications pro-
tected by legal professional privilege, which is a feature of the legal systems
of many jurisdictions. However, communications between a client and a
lawyer or other admitted legal representative are, generally, only privileged
to the extent that the lawyer or other legal representative acts in his or her
capacity as a lawyer or other legal representative. Where legal professional
privilege is more broadly defined it does not provide valid grounds on which
to decline a request for exchange of information. To the extent, therefore,
that a lawyer acts as a nominee shareholder, a trustee, a settlor, a company
director or under a power of attorney to represent a company in its business
affairs, exchange of information resulting from and relating to any such activ-
ity cannot be declined because of the legal professional privilege rule.
220. Lebanon has currently no specific domestic legislation with regard
to EOI. Therefore, the previously described general limitations in domestic
legislations as well as limitations within EOI agreements apply. The limits
on information which must be exchanged under the Lebanons arrangements
mirror those provided for in the international standard. That is, information
which is subject to legal privilege; would disclose any trade, business, indus-
trial, commercial or professional secret or trade process; or would be contrary
to public policy, is not required to be exchanged. As outlined in Part B.1 the
TPC which, dealing with professional secrecy, mentions that Ministry of
Finance is not restricted by professional secrecy when exchanging informa-
tion with foreign tax authorities pursuant to international treaties (Art. 25).
C.5. Timeliness of responses to requests for information
The jurisdiction should provide information under its network of agreements
in a timely manner.
Responses within 90 days (ToR C.5.1)
221. In order for exchange of information to be effective, it needs to be
provided in a timeframe which allows tax authorities to apply the informa-
tion to the relevant cases. If a response is provided but only after a significant
lapse of time, the information may no longer be of use to the requesting
authorities. This is particularly important in the context of international co-
operation as cases in this area must be of sufficient importance to warrant
making a request.
222. There are no specific legal or regulatory requirements in place which
would prevent Lebanon responding to a request for information by provid-
ing the information requested or providing a status update within 90 days of
receipt of the request.
Organisational process and resources (ToR C.5.2)
223. Article 52 of the Lebanese Constitution provide powers to enter into
tax treaties. Lebanons competent authority is the Ministry of Finance. It has
the powers to enter into DTCs (and no restriction exisits in relation to enter-
ing to TIEAs) and also deals with incoming EOI requests.
224. Lebanons Ministry of Finance has no resources specifically dedi-
cated to exchange of information for tax purposes and the Ministry of Finance
deals with incoming requests on a case-by-case basis. A review of Lebanons
organisational process and resources will be conducted in the context of its
Phase 2 review.
Absence of restrictive conditions on exchange of information
(ToR C.5.3)
225. There were no aspects of Lebanons laws that appear to impose
restrictive conditions on exchange of information. A review of the practical
application of these processes and the resources available to the Lebanons
competent authority will be conducted in the context of its Phase 2 review.
The assessment team is not in a position to evaluate whether this element
is in place, as it involves issues of practice that are dealt with in the
Phase 2 review.
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 67
Summary of Determinations and Factors
Underlying Recommendations
43
Determination
Factors underlying
Jurisdictions should ensure that ownership and identity information for all relevant entities
and arrangements is available to their competent authorities (ToR A.1)
The element is not in
place.
Bearer shares and to order
shares may be issued by
joint stock companies and
partnerships limited by shares
and adequate mechanisms to
ensure that the owners of such
shares can be identified are
not in place.
appropriate mechanisms are in
place to identify the owners of
bearer and to order shares in
all instances.
Lebanese law does not ensure
that information identifying
the settlors, trustees and
beneficiaries of foreign trusts
with a Lebanese trustee is
available, in particular when
the trustees is acting outside
the financial industry and thus
not subject to AML obligations.
Lebanon should ensure
that information is available
identifying the settlors,
trustees and beneficiaries
of foreign trusts which are
administered in Lebanon or in
respect of which a trustee is
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities
and arrangements (ToR A.2)
The element is in
place, but certain
aspects of the legal
implementation of
the element need
improvement.
Lebanese legislation does not
ensure that reliable accounting
records or underlying
documentation are kept
for foreign trusts which are
administered in Lebanon or in
respect of which a trustee is
Lebanon should establish obli-
gations for the maintenance
of reliable accounting records,
including underlying documen-
tation, for foreign trusts which
are administered in Lebanon
or in respect of which a trustee
is resident in Lebanon. These
records should be kept for a
minimum of 5 years.
43. The ratings will be finalised as soon as a representative subset of Phase 2 reviews is
completed.
68 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS
Determination
Factors underlying
Banking information should be available for all account-holders (ToR A.3)
Competent authorities should have the power to obtain and provide information that is the
subject of a request under an exchange of information arrangement from any person within
their territorial jurisdiction who is in possession or control of such information (irrespective
of any legal obligation on such person to maintain the secrecy of the information) (ToR B.1)
place.
Lebanese authorities do not
have access to information
held by banks, fiduciary
institutions and other
institutions within the financial
industry, for tax purposes.
Lebanon should ensure the
authorities have the power to
obtain and provide information
that is the subject of a
request under an exchange of
information arrangement from
any bank, fiduciary institution
or other financial institution
within its territorial jurisdiction.
Although the Lebanese
competent authority can
exchange any information
already in its possession, it is
unclear whether it has powers
to access information for
exchange purposes when the
information is not required for
it has own tax purposes.
Lebanon should make clear
that its competent authority has
the power to obtain and provide
information that is the subject
of a request under a DTC or a
TIEA from any person within its
territorial jurisdiction who is in
possession or control of such
information, even if it does not
need the information for its own
tax purposes.
The scope of the professional
secrecy safeguards appears
to be broader than the
professional secrecy protected
under the international
standard.
its professional secrecy rules
do not operate to prevent
exchange of information
in accordance with the
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the
requested jurisdiction should be compatible with effective exchange of information (ToR B.2)
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 69
Determination
Factors underlying
Exchange of information mechanisms should allow for effective exchange of information
(ToR C.1)
place.
None of Lebanons treaties
provides for effective
exchange of information to the
standard due to restrictions
on access to information, in
particular bank information
regardless of their form.
Lebanon should enact
necessary legislation to
remove deficiencies noted in
this report, which will enable it
to comply with and give effect
to its EOI agreements.
The jurisdictions network of information exchange mechanisms should cover all relevant
partners (ToR C.2)
place.
Lebanon cannot exchange
information with its relevant
partners in accordance with
the international standard
under any of its agreements.
Lebanon should continue to
develop its EOI network to
ensure it has agreements for
exchange of information to
the standard with all relevant
partners.
The jurisdictions mechanisms for exchange of information should have adequate provisions
to ensure the confidentiality of information received (ToR C.3)
The exchange of information mechanisms should respect the rights and safeguards of
taxpayers and third parties (ToR C.4)
The jurisdiction should provide information under its network of agreements in a timely
manner (ToR C.5)
The assessment team
is not in a position to
evaluate whether this
element is in place, as
it involves issues of
practice that are dealt
with in the Phase 2
review.
ANNEXES 71
Annex 1: Jurisdictions Response to the Review Report
44
Lebanon expresses appreciation to Global Forum and its peer review
group, and particularly, the assessment team, for their efforts and interest in
Lebanon and its legal and regulatory framework, and their support through-
out the preparation of the report. This exercise has been very useful for the
Lebanese institutions, and the Republics team looks forward to a continuous
fruitful collaboration.
The Republic believes that it is in the interest of Lebanon to reach the
goals set by the Forum, where transparency is key to Lebanons own future
development in the globalized world. Lebanon will strive to accelerate the
process, despite the permanently deteriorating local and regional situation that
has delayed many of our projected reforms, and despite the very heavy debt
overhang that imposes on Lebanon to be very careful in every step forward.
Lebanon is currently witnessing an active legislative reform is taking
place both at Parliament and through special committees formed by Banque
du Liban (BdL) and the Ministry of Justice to modernize Lebanese law fol-
lowing the end of the period of conflict in 1990. Since then, significant laws
and regulations were adopted in various areas, including securitization and
fund management, tax procedure, offshore companies and capital markets.
The Republic has also signed treaties for the avoidance of double taxation
with 33 countries, 29 of which are currently in force
45
.
Despite the enactment of the banking secrecy law in 1956, Lebanon
was always keen to provide all requested available information to any tax
44. This Annex presents the jurisdictions response to the review report and shall not
be deemed to represent the Global Forums views.
45. The Republic has signed treaties for the avoidance of double taxation with
Algeria, Armenia, Bahrein, Belarus, Bulgaria, Canada, Cuba, Cyprus, Czech
Republic, Egypt, France, Gabon, Iran, Italy, Jordan, Koweit, Malaysia, Malta,
Morocco, Oman, Pakistan, Poland, Qatar, Romania, Russia, Senegal, Soudan,
Syria, Tunisia, Turkey, Ukraine, United Arab Emirates, Yemen. Double Taxation
treaties that are waiting to be enforced are the ones signed with Canada, Cuba,
Sudan and Gabon.
72 ANNEXES
administration from a partner country. As a matter of fact, the 33 above-men-
tioned tax conventions that Lebanon signed, include an article on exchange
of information in conformity with the OECD article 26 model, before the
introduction of paragraph 5 in 2005, which states that a Contracting Party
cannot decline to supply information solely because that information is held
by a bank or a financial institution.
In addition, Lebanon passed Law No. 318 in 2001 to fight money launder-
ing in line with FATF 40 recommendations. This law gives an independent
legal entity, the Special Investigation Commission, which has been created
within the Central Bank, the exclusive right to decide the lifting of banking
secrecy on accounts opened with banks or financial institutions when sus-
pected of having been used for money laundering purposes.
In the meantime, Lebanon is paving the ground for the necessary legal
approvals needed for joining the Global Forum, and the Ministry of Finance
is finalizing a complete file which will soon be submitted to the Council of
Ministers.
On March 14, 2012, the Council of Ministers approved the Draft Law on
Tax Information Exchange, and it has been transferred to Parliament for its
enactment.
This is an important development in tax information exchange as the
draft law authorizes the Minister of Finance, in the international cooperation
framework, to conclude or adhere to bilateral or multilateral agreements for
exchanging information on tax evasion or tax fraud under the adopted legisla-
tive rules, and without prejudice to the conditions specified in that draft law.
In this context, the information request on tax evasion or fraud will have to
be submitted to the Ministry of Finance by its foreign counterpart or by the
foreign tax authorities.
The Republics team would also like to provide its feedback on Global
Forums recommendations, the following key points need to be clarified:
1 Bearer Shares:
The draft report points out that bearer shares and to order shares may be
issued by joint stock companies and adequate mechanisms to ensure that the
owners of such shares can be identified are not in place. Although Lebanese
law does not contain clear mechanisms to provide information on bearer
shares due to their nature, information regarding bearer shares is gathered
by the tax administration via the minutes of meetings of companies. It is
also mandatory to make information related to owners available to the tax
authorities whenever dividends are to be distributed to them. It is to be noted
that owners of such shares lose their rights to cash their dividends if they fail
ANNEXES 73
to claim the amounts within a three-year period. It is also worth mentioning
that entities regulated by BDL, including banks and financial institutions, can
only have nominative shares, and the central bank follows up regularly on the
actual owners of these shares. In addition, insurance companies and any other
company that owns real estate in Lebanon, are not authorized by law to issue
bearer shares or to order shares.
2 Request for information:
The report mentions that although the Lebanese competent authority can
exchange any information already in its possession, it is unclear whether it
has powers to access information for exchange purposes when the informa-
tion is not required for its own tax purposes. To that statement, our answer is
that although the Lebanese law does not expressly empower the tax admin-
istration to collect information for the purpose of providing it in application
of a DTC the Lebanese legislation does not limit the use of access powers to
situations where it has a domestic need. Lebanese legislation makes no differ-
ence between domestic and foreign needs, and Lebanon has been consistently
providing the required information as a matter of consequence. Furthermore
article 3 paragraph 2 of the TPC expressly states that in case of a discrepancy
between an international treaty and any provision of the TPC, the treaty will
take precedent, and it is therefore the obligation of the Ministry of Finance to
provide information to foreign counterparts based on signed DTCs. However
for the purpose of clarifying this matter and providing additional comfort
to foreign counterparts, the Ministry of Finance has included a paragraph
(paragraph 4) in recent DTCs (initiated with Mexico, Canada, and Korea)
related to the obligation of providing information even when Lebanon does
not need this information for its own tax purposes. Lebanon will include this
paragraph in all future DTCs.
3 Professional secrecy safeguards:
The report also mentions that the scope of the professional secrecy safe-
guards appear to be broader than the professional secrecy protected under
the international standard. Lebanons answer is that article 23 of the TPC
states that subject to the provisions of law number 3 of September 3, 1956
(banking secrecy), every physical or legal person must cooperate with the tax
authorities and provide them with all information they request in order to be
able to carry out their work. It is forbidden to any of those persons to oppose
professional secrecy to the tax administration in a way that would prevent it
from fulfilling its duties. However, the assessment team has referred to arti-
cle 92 of law number 8 of 1970 governing the lawyers profession to conclude
that the scope of information covered by the legal professional privilege was
74 ANNEXES
considerably broader than the international standard. To this, our answer
refers to article 3 paragraph 3 of the TPC which states that tax matters are
subject to the TPC, and in case of conflicting provisions between TPC and
other laws, whether public or private, the TPC supersedes the said laws.
4 Trustees:
The concept of trusts does not exist in the Lebanese legislation. The clos-
est similar arrangements are fiduciary contracts pursuant to Law 520. In this
regard, Lebanon stands ready to consider appropriate measures to address
this issue. It is worth noting that any trustee conducting regular activities in
Lebanon is already subject to income tax with all the related requirements.
We would also like to emphasize that fiduciary arrangements are solely
undertaken by eligible banks and financial institutions. Noting that the term
financial institution under Lebanese law is restrictive to entities whose pri-
mary object is lending. No other entity has been, up to this date, licensed by
the central bank to operate as a fiduciary and there is absolutely no intention
to do that. The latter scenario cannot happen unless the central bank issues
application circulars regulating these entities and specifying the require-
ments they should abide by, as a minimum what currently applies to banks
and financial institutions undertaking fiduciary operations. Bank secrecy
obligation applies to these institutions in their capacity as banks and finan-
cial institutions not because they act as fiduciaries. Thus, this issue would
be automatically resolved as soon as an adequate action has been reached
regarding the exchange of information covered under the Banking Secrecy
Act. As for accounting records, in addition to the requirements under the
Commercial Code, the Banking Act and the central bank regulations mandate
that banks and financial institutions keep records of all their operations in
particular related to their fiduciary arrangements.
5 Bank secrecy:
The Republics team is very much aware that the Lebanese Banking
Secrecy Act prohibits the exchange of information regarding banks and
financial institutions clients. However, it is important to draw Global Forum
peers attention to the fact that the authorities were, and still remain, accom-
modative in this matter. The authorities acknowledge that the banking
secrecy obligation should be lifted in cases of exchange of tax information.
In fact, in a dozen of cases the banking secrecy has been legally authorized to
be lifted, namely in the last 2 areas: (i) anti-money laundering and financing
terrorism and (ii) anti- corruption. Hence, in view of the proven commitment
that Lebanon has demonstrated to fulfil the requirements of internationally
recognized standards and principles, the Republic welcomes Global Forum
ANNEXES 75
support as necessary to enable the Government of Lebanon to adapt to new
challenges.
The Lebanese Republic commends the work done by the Global Forum
in implementing the international agreed standard. Lebanon will strive on
working towards implementing the internationally agreed standards.
76 ANNEXES
Annex 2: List of All Exchange-of-Information Mechanisms
in Effect
Jurisdiction
Type of EoI
arrangement Date signed Date in force
1 Algeria
Double tax
convention (DTC)
26.03.2002 19.07.2006
2 Armenia DTC 16.09.1998 13.12.2000
3 Bahrain DTC 07.08.2003 13.09.2005
4 Belarus DTC 19.06.2001 30.12.2002
5 Bulgaria DTC 01.06.1999 10.11.2001
6 Canada DTC 29.12.1998 Not in force
7 Cuba DTC 04.02.2001 Not in force
8 Cyprus
46
DTC 18.02.2003 14.04.2005
9 Czech Republic DTC 28.08.1997 24.01.2000
10 Egypt DTC 17.03.1996 22.03.1998
11 France DTC 24.07.1962 02.01.1964
12 Gabon DTC 20.02.2001 Not in force
13 Iran DTC 22.10.1998 19.01.2001
46. 1. Footnote by Turkey: The information in this document with reference to
Republic oI Cyprus.
ANNEXES 77
Jurisdiction
Type of EoI
arrangement Date signed Date in force
14 Italy DTC 22.11.2000 21.11.2011
15 Jordan DTC 31.10.2002 12.12.2003
16 Kuwait DTC 21.01.2001 20.03.2002
17 Malaysia DTC 20.01.2003 10.11.2004
18 Malta DTC 23.02.1999 10.02.2000
19 Morocco DTC 20.10.2001 07.08.2003
20 Oman DTC 12.04.2001 28.10.2001
21 Pakistan DTC 31.08.2005 26.06.2008
22 Poland DTC 26.07.1999 07.11.2003
23 Qatar DTC 23.11.2005 28.04.2009
24 Romania DTC 28.06.1995 06.04.1997
25 Russia DTC 07.04.1997 16.06.2000
26 Senegal DTC 19.10.2002 22.09.2004
27 Sudan DTC 09.03.2004 Not in force
28 Syria DTC 12.01.1997 10.03.1998
29 Tunisia DTC 24.06.1998 03.06.2000
30 Turkey DTC 12.05.2004 21.08.2006
31 Ukraine DTC 22.04.2002 05.09.2003
32
United Arab
Emirates
DTC 17.05.1998 21.05.1999
33 Yemen DTC 29.09.2002 20.02.2006
78 ANNEXES
Annex 3: List of all Laws, Regulations
and Other Material Received
Constitution
Tax laws, regulations and other material
Tax Procedure Code (Law No. 44 of 11 November 2008) Excerpts
Income Tax Act (Decree Law No. 144 of 12/6/1959
Financial laws, regulations and other material
Code of Money and Credit (Decree No. 13513 of 1 August 1963)
Banking Secrecy Law of 3 September 1956
Law No. 347 of 6 August 2001
Law No. 192 of 27 December 1999
Law No. 520 of 6 June 1996
Central Bank Basic Circular No. 21 of 23 December 1995
Central Bank Basic Circular No. 27 of 28 June 1996
Central Bank Basic Circular No. 49 of 24 October 1996
Commercial laws, regulations and other material
Code of Commerce (Decree Law No. 304 of 24 December 1942)
Code of Obligations and Contracts Excerpts
Associations Law of 1909
ANNEXES 79
Decree Law No. 11 of 11 July 1967
Decree Law No. 34 of 5 August 1967
Decree Law No. 35 of 5 August 1967
Decree Law No. 45 of 24 June 1983
Decree Law No. 46 of 24 June 1983
Order No. 96 of 30 January 1926
Regulated activities and AML/CFT laws
Law No. 318 of 20 April 2001
Other materials
Lebanese Criminal Code (Decree-Law No. 340 of 1 March 1943),
Article 579
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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE
OF INFORMATION FOR TAX PURPOSES
Peer Review Report
Phase 1
Legal and Regulatory Framework
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PEER REVIEWS, PHASE 1: LEBANON
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the
multilateral framework within which work in the area of tax transparency and exchange of
information is carried out by over 100 jurisdictions which participate in the work of the Global
Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer review of the implementation
of the standards of transparency and exchange of information for tax purposes. These
standards are primarily reected in the 2002 OECD Model Agreement on Exchange of
Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax
Convention on Income and on Capital and its commentary as updated in 2004, which has
been incorporated in the UN Model Tax Convention.
The standards provide for international exchange on request of foreseeably relevant
information for the administration or enforcement of the domestic tax laws of a requesting
party. Fishing expeditions are not authorised, but all foreseeably relevant information must
be provided, including bank information and information held by duciaries, regardless of the
existence of a domestic tax interest or the application of a dual criminality standard.
All members of the Global Forum, as well as jurisdictions identied by the Global Forum as
relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1
reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange
of information, while Phase 2 reviews look at the practical implementation of that framework.
Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews.
The ultimate goal is to help jurisdictions to effectively implement the international standards
of transparency and exchange of information for tax purposes.
All review reports are published once approved by the Global Forum and they thus represent
agreed Global Forum reports.
For more information on the work of the Global Forum on Transparency and Exchange of
Information for Tax Purposes, and for copies of the published review reports, please visit
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http://dx.doi.org/10.1787/9789264178168-en
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