RAPAPORT... After years of dark days and restructuring, after job losses and company closings, it appears that very soon, the caterpillar could turn into a butterfly. Important strategic and fiscal changes that have been demanded for years are on their way to becoming reality. That became clear at the second Antwerp World Diamond Centre (AWDC) information conference, which took place February 20. However, despite these positive developments, barely 30 to 40 people attended the conference, reflecting the complex nature of Antwerp.
Goods Held in Custody
A proposed law that is being reviewed by parliament could turn out to be crucial for the diamond sector. Professor Axel Haelterman of Freshfields Bruckhaus Deringer, the law firm that represents Antwerp diamond industry interests, explained:“The idea of the law is that, in cases of alleged fraud, the [disputed] goods would be [inventoried and itemized] on a list, instead of being taken into custody, and the business [owning the goods] could continue to operate. Indeed, in that event, a body set up in Brussels would be informed of all transactions of the business, and the money from that business’ sales would be paid into a special bank account.”
In the past, the industry has complained about the undue financial hardship placed on businesses under investigation because authorities’ seizure of their diamond goods while the investigation was underway left the companies with no inventory to continue doing business.
Dilip Mehta of Rosy Blue asked about sales made with long-term credits instead of cash. Haelterman was also asked if it would be possible to use money coming from a sale of goods to repay a bank debt or purchase new goods. He said such details are still to be addressed.
However, it was said that the revised law has the support of Belgium’s five major political parties and that Jo Vandeurzen, the minister of justice, appears in favor as well. Optimistic expectations are that the proposed law could be implemented in as little as a few months.
The principle of the law is that a greater concern would be shown in the case of alleged fraud investigations for the industry’s economy in general. Under the proposal, if a judge decides to physically seize the goods of a company, he’d have to convince a second judge, possibly a consulary judge, that the decision is well founded. In addition, the consulary judge would also have to take into account the economic impact on the industry, on industry employment and on business continuity. Only then would extreme measures be applied.
Customs and Airport Facility
The long-discussed airport free zone is at last shaping up. Obviously, it won’t operate the same as in Switzerland. In the case of Antwerp, the operation would be based on a “pick-up slip” that would allow anyone presenting the slip to pick up goods in a dedicated place in Belgium’s Zaventem Airport.
The conditions would be as follow: Goods could be picked up in the airport by any person holding a pick-up slip and a boarding pass for a flight outside the European Union (EU). Still under discussion are methods to assure the confidentiality of the pick-up mechanism. Operational issues hopefully will be finalized within the next three months.
Haelterman explained that the procedure would not violate antimoney-laundering (AML) laws, because the buyer would be known and invoiced. As long as the buyer is identified and the trade is a regular one involving payment through bank accounts, there’s no need for the authorities to know who picks up the goods.
Transfer Pricing Ruling
A new ruling by fiscal authorities allows Belgian companies to repatriate profit made in Hong Kong without double taxation. The amount of profit repatriated cannot be in excess of five times the taxable profit of the Belgian company. The figure of five was explained as a threshold above which the company would be suspected of an abnormal level of activity in Hong Kong. Conceivably, that figure will evolve with the reality of trade.
Accounts in Dollars
A sector-wide exception for the diamond industry would allow all companies meeting one simple requirement to keep their accounts in dollars. Qualifying companies would be those whose turnover is 90 percent in dollars. So far, only three companies have qualified for the exception. There is no impact on taxes and there is no obligation to augment the capital in any way.
In considering all the proposed changes, Philip Claes, AWDC spokesman, concluded that “I’m proud to see all the work that’s been accomplished underground by AWDC and to be able to witness the resurrection of an Antwerp diamond center that will be stronger than ever.”
The Marketplace• Demand is good for 50 pointers+, VS+, D-J.
• Demand is also good for 3-caraters+ but the color range is D-K.
• There is a shortage of collection goods in better qualities.
• Lower-quality goods will suffer from the U.S. market decline.
Fancy
• 3-caraters+ in marquises, pears and ovals are moving okay.
• Square cuts are weakening due to U.S. market slump.
• Piqué goods in SI2 minus are not moving for the same reason.
Article from the Rapaport Magazine - March 2008. To subscribe click here.