Canadian Transnational Trust Companies by Richard Hay
Offshore centres are under close scrutiny by the high tax countries and their supranational agencies. The prospect of a multi-pronged attack on the offshore environment disconcerts clients. Offshore trusts which are well designed should be capable of responding dynamically to the risks posed by these potential challenges.
This article considers the use of the Canadian transnational trust company as a means of improving the safety of existing trust structures in light of these threats. The Canadian transnational trust company was originally intended to provide protection from the risk of adverse changes in the laws of an offshore centre, so the concept was designed to address the risks contemplated in this article. The commercial appeal of the structure lies in the fact that it can provide such protection without requiring immediate relocation of existing trusts from centres perceived by clients (rightly or wrongly) to be vulnerable to onshore coercion or other problems.
Operation of the Transnational Trust Company
The Canadian transnational trust company is essentially a vehicle for delivering international fiduciary services through a branch format. The company facilitates transnational operations for a trustee with limited connections to a number of different jurisdictions (i.e., incorporation in Canada, administration in an offshore centre and directors’ meeting held anywhere outside of Canada). Transnational trust companies have no offices or personnel in Canada and maintain no other significant Canadian presence. The companies administer their trusts by contracting for services from affiliates in offshore jurisdictions. Such companies use existing facilities, and do not require a commitment of resources beyond those already available within the corporate group.
In a transnational trustee structure the directors of the corporate trustee can terminate a relationship with a jurisdiction which has become problematic by simply changing the jurisdiction of administration for the trust. The traditional alternatives, (i) moving the trust itself (through use of a flee clause), (ii) moving the trust company or (iii) pouring the assets from one structure to another, are all much more complex transactions. There is, for example, no need to change brokerage or other mandates on a change of the centre of administration as the trustee owning the assets remains the same. Continuity of ownership also avoids possible tax exposures arising from the crystallisation of gains which may otherwise occur where assets are poured into a new structure .