Antigua 1992 meeting

The International Business Companies Law was enacted in 1982 and has been amended since. It provides for tax-free companies. The Antigua Offshore Association works with the Government to keep the jurisdiction free from abuse.
Several international airlines fly to Antigua. Telephone and fax communication is excellent. The law is based on the English common law. There is a tax treaty with the United Kingdom and an exchange of information treaty with the United States (MLAT).

The IBC Law is modern and permissive. Name approval is easy. The fee does not depend on the size of the company’s capital.

International banking is carried on from Antigua, offering the private client a personal and tax efficient service. Minimum capital for a bank is US$ 5 million; ownership of the bank must be approved by Government. It may be formed under the IBC Act; the annual Government fee is US$ 15,300.

Antigua provides trust administration. Many trusts established in Antigua have an asset protection function. They follow the pattern established in England.

A trust corporation requires a minimum capital of US$ 500,000. There is an annual Government fee of US$ 7,800. A new trust law is expected in 1998.

Antigua has the infrastructure to conduct international insurance. The IBC Act permits the formation of international insurance companies: they are free from domestic restrictions but are strictly regulated by an Insurance Supervisor appointed by Government. They carry on business outside the CARICOM region and in non- CARICOM currencies. The insurance corporation requires at least one local director; the Act provides for criminal penalties for unlawful disclosure of information by an insurance corporation.

The Merchant Shipping Act was enacted in 1985. It provides for full Convention registration. The Department of Marine Services adopts a very co-operative and flexible attitude to registration and is anxious to enlarge business in this area. In 1987, the Act was amended to permit registration of bareboat charters.

Antigua welcomes offshore business and has the capacity to carry it out. To forestall attacks on trusts based on the Rahman decision, the first step will be to show that the assets were transferred to genuine trust companies carrying on business in Antigua.

NEW DEVELOPMENTS While Bermuda’s reputation as a stable and well developed offshore business centre is solid, increasing improvement in services and products in competing jurisdictions has helped promote change in Bermuda. Twenty-four task forces of the Bermuda International Business Association are now reviewing all areas of international business with a view to suggesting new law or practices. Government supports the response to competition.
Some new developments may be noted. First, there was the Trust Companies Act of 1991, which requires public trust companies to be licensed. It also allows foreign-owned trust companies on a limited basis: possibly only 12 will be permitted. Most of the “Big Six” accounting firms now have trust companies. In 1992 came the Companies Amendment Act, the Partnership Act and an amendment to the Stamp Duty Act (by which stamp duty was abolished on international pension trusts). An improved fraudulent conveyance law – more conservative than those of other jurisdictions – is now in draft form. The possibility is being discussed of a law to make provision for a U.S.-style Limited Liability Company. In Garner v. Bermuda Trust Company Ltd (Civil Jurisdiction 1991 No. 318; Civil Appeal No. 4 of 1992) the Court of Appeal decision upheld section 11 of Trusts (Special Provisions) Act 1989 to recognise a Bermuda trust when attacked by foreign succession rights law.

PURPOSE TRUSTS The Trusts (Special Provisions) Act 1987 also allows trusts for purposes other than charitable ones. The purposes must be specific, reasonable and possible, and they must not be contrary to public policy, law or morality. They may be quasi-charitable or they may be for certain business purposes. The trust must provide for the appointment of an Enforcer and must provide for disposition of surplus on termination. Examples of quasi-charitable purposes are the promotion of a political party or the encouragement of Greenpeace or environmental protection.

Examples of business purposes are to acquire and retain shares of a company, to ensure its efficient management, to provide finance for a particular transaction. In the first case, the company held may qualify as a Foreign Sales Corporation for U.S. tax purposes; in the second, the finance may be for the purchase and leasing of an aircraft, and the trust may include protection for the lender against the bankruptcy of the borrower. Other trusts may have as their purpose to buy and sell receivables, or to own ship management companies.

PRIVATE TRUSTEE COMPANIES These are companies with the capacity to act only as a trustee of a particular trust or group of related trusts. They are not licensed to offer trustee services to the public. The rationale for their use is to provide client involvement in control of the family trusts. The client may serve on the board of directors, but it is important to ensure that non-family members also serve. A professional trustee company or management company should be appointed to keep minutes and generally attend to the administration of the company. The cost of a private trustee company is often less than the employment of an institutional trustee, and there is the advantage that there is no stamp duty on the trust instrument because the company is a Bermuda exempted company. The private trustee company is useful where the trust investments carry risks or liabilities and an institutional trustee would be reluctant to act.

One of the most difficult tasks facing a tax administrator is how to obtain information it needs to enforce its tax laws where international transactions are involved and the information is physically located in a foreign jurisdiction. Toward this end, the U.S. has negotiated a number of income tax treaties (40), tax information exchange agreements (13) and mutual legal assistance treaties (8). Each of these has some sort of provision for mutual assistance or the exchange of information or both. The I.R.S. routinely exchanges tax information with state tax authorities, and it has begun to exchange more information with other federal agencies. There are formal and informal Treasury and I.R.S. pronouncements, and a body of case law.
The wide enforcement net that has been stitched together to catch tax evaders, money launderers, narcotics traffickers, inside traders and other criminals will catch innocent fish, too, including those with very valid reasons for seeking privacy for their financial transactions. Preserving privacy for clients for whom it is a legitimate concern will require more sensitivity and better planning than ever.

The TIEA had its genesis here in the Caribbean where the Caribbean Basin Initiative was enacted in part for the purpose of encouraging Caribbean governments to execute TIEAs. A CBI country with a TIEA in effect with the U.S. qualifies for certain U.S. tax benefits. Only 11 of the 30 eligible countries have concluded TIEAs, and the Treasury apparently believes that the “easy ones are done”. The Treasury has continually reiterated its commitment to TIEAs, but it has also reaffirmed that that commitment is counterbalanced by an equally strong commitment to protect the right of individuals to privacy. The right to privacy, however, is by no means absolute or unqualified. In the U.S., it has never been considered to include bank secrecy; and, although it is accorded Constitutional status, it must be balanced against important governmental interests, including the government’s power to “lay and collect taxes”, which is equally a Constitutional right.

The right to privacy with respect to taxpayer information has also been codified in Section 6103 of the Internal Revenue Code, which states that tax returns and return information are confidential, but which is subject to 60 exceptions. Those exceptions include the Competent Authority of a foreign government, pursuant to agreement. Under newer treaties, treaty partners may seek tax information regarding persons who are nonresidents of either treaty country but who are nonetheless subject to tax in one of them. Generally, disclosure of information to a third country is not permitted. A fundamental principle of all U.S. tax treaties is that the information exchanged thereunder is limited to information relating to tax matters. This has been interpreted very broadly, however, by the I.R.S. and in the U.S. courts.

Most information exchanged pursuant to agreements proceeds via routine exchanges. Spontaneous exchanges are used, too, but the I.R.S. appears to consider reciprocity a condition for these. Governments also exchange information in response to specific requests from treaty partners, and they utilize Simultaneous Examination Programs where such programs have been separately and specifically agreed.

The U.S. is obligated to obtain requested information to the same extent as if it were enforcing its own internal revenue laws, including by use of its summons power. The summons procedure is also meant to serve as a protection to taxpayers by imposing restrictions on requests for information, assuring notice and interposing a federal judge. U.S. courts generally have not recognised foreign illegality as an absolute defence to production of requested documents by a taxpayer or a third party. Recent developments in the Bank of America case in California appear to reflect efforts of the U.S. to target certain offshore jurisdictions, subjecting persons to audit, and records to summons just because those jurisdictions were employed. Also, the I.R.S. has attempted in recent years, with some success, to utilize compelled consents, which eliminate the necessity for balancing the interests of sovereignties.

Expanded reporting requirements, including most recently Code Section 6038A, have increased the effectiveness of the summons with respect to foreign affiliate records and information. The recently promulgated final Section 6038A regulations should partially alleviate concerns that large numbers of summonses will be issued in treaty jurisdictions, but there is still reason for some concern on this score. Another significant reporting requirement is the U.S. Bank Secrecy Act, which requires that most currency transactions above a $10,000 threshold be reported and that relevant records be maintained.

Mutual legal assistance treaties are limited to the exchange of information in criminal matters, but the standard MLAT negotiating text includes tax offenses. MLATs are in great favor in Washington. They enable law enforcements authorities to obtain evidence abroad in a form admissible in our courts, and private persons have no right to impede compliance with an MLAT request.

What conclusions can we draw about confidentiality? International tax co-operation is a growth area, and information flows increasingly multilaterally. The trend of increasing international co-operation is evidenced by an increased use of law enforcement internationally and a gradual elimination of barriers, including privacy. The U.S. Internal Revenue Service has a sweeping power to gather information, and generally has not been impeded to any great extent by foreign secrecy laws. Where privacy is the paramount concern, non-treaty, non-TIEA jurisdictions with minimal reporting and record keeping requirements and strong secrecy laws continue to offer the greatest security. There’s no absolute guarantee of privacy anywhere, however.

Anguilla – John Benjamin
Aruba – Hector Gonzalez
Bahamas – Michael Barnett
Barbados – Yolande Bannister
Belize – Eamon H. Courtenay
British Virgin Islands – Anne Riggall
Cayman Islands – Gerald Brady
Montserrat – John Kelsick
Nevis – Vincent K. Hubbard
Panama – Rosa Restrepo
Turks and Caicos – Ariel Misick
Uruguay – Geoffrey Hooper
U.S. Virgin Islands – William Blum
ANGUILLA John Benjamin
It is a British dependant territory close to St. Martin, with a population of some 10,000. A new Offshore Bank and Trust Company Ordinance is now in force. There is no income tax, inheritance tax or exchange control. There is a Confidential Relationship Act. The applicant for a banking licence requires references, experience and minimum capital.

ARUBA Hector Gonzalez

Aruba lies at the south-western end of the Caribbean near Venezuela. It is an autonomous country, forming part of the Dutch Kingdom. The legal system is similar to the Dutch and the final Court of Appeal is in Holland.

The infrastructure is modern: there is a permanent population of 70,000 and a tourist population of some 500,000. The people are well educated; there is virtually no illiteracy.

Banks adhere to the Basel Convention in screening clients and an Association of Offshore Practitioners helps to keep the offshore business within lawful bounds.

The AVV is an IBC-type company, formed under an enactment of 1988; there are already some 3,000 of them. Formation is speedy; costs are competitive.

THE BAHAMAS Michael Barnett

Over 11,500 IBCs have now been established, and trusts have been formed by many HNWI’s, often for asset protection reasons.

A new government came to power in 1992, with an emphasis on the private sector and a commitment to removing obstacles to foreign investment.

BARBADOS Yolande Bannister

The international financial services sector is second in importance only to the tourist industry.

Barbados is an offshore centre with tax treaties. Insurance captives and FSC’s are tax-exempt, but other offshore companies pay tax of 1% to 2.5%. There are treaties with Canada, Finland, Norway, Sweden, the United Kingdom and the United States; treaties with Brazil and Venezuela are on the way.

Barbados provides facilities for offshore banks, insurance captives, FSC’s, trusts, IBC’s and shipping. New legislation is expected in 1993, amending the trust law and providing for U.S.-style limited liability companies and limited partnerships. The establishment of a Financial Services Secretariat is expected by the end of 1992.

BELIZE Eamon H Courtenay

On 18th May 1992 a new trust law was enacted. It permits the law governing a trust to be changed and prevents claims under foreign laws from being brought in the Courts of Belize against the trust fund of a Belize trust.

Charitable trusts and purpose trusts may be established. The Act permits “letters of wishes”; it permits a settlor to create a spendthrift trust in his own favour. Registration is permitted but not required.

Where the settlor and beneficiaries are non-resident and the assets are outside Belize, the trust is exempt from tax.

BRITISH VIRGIN ISLANDS Anne Riggal

A Banks Inspector and a Trusts Inspector together with a licensing system provides for supervision of those aspects of the offshore industry. The Insurance Inspector, in exercise of his supervisory powers, has eliminated several undesirable insurance companies. An Insurance Act, a Trust Act, including provision for asset protection trusts, and a Limited Partnership Act are foreseen for 1993.

The most successful aspect of the BVI’s offshore industry has been its International Business Company. There are now over 72,000 IBC’s and the Ordinance has been widely copied. The Companies Registry provides an extremely efficient service and company names can now be reserved by modem.

CAYMAN ISLANDS Gerald Brady

There are now 538 licensed banks in Cayman and the Companies Register grows at the rate of some 3,000 a year. The basic reason for the success of the Territory has been its responsiveness to change.

The Companies Law was amended in 1989 and again in 1990.

Re-domiciliation of companies is provided by a further amending Law of 1992. The Exempted Limited Partnership Law of 1991 places no limit on the number of partners, but there must be at least one general partner. The Fraudulent Dispositions of Law of 1989 provides for asset protection trusts.

MONTSERRAT John Kelsick

This British dependant territory is close to Antigua. It imposes income tax but offshore financial institutions, of which there are now 21 (mainly connected with South America) are exempt.

The law is based on the English common law; the Offshore Banking Ordinance came into force in January 1992. A minimum capital of US$ 500,000 is required; applications are carefully screened and audited accounts are regularly submitted; a local Registered Agent is necessary. Fees are comparatively low.

An IBC Law was passed in 1985. It has so far been little used, but expansion in this area is foreseen. A Confidential Information Ordinance dates from 1986. A treaty with the United States for mutual assistance in criminal matters came into force in 1991.

Government expresses an intention to expand the offshore industry.

NEVIS Vincent K Hubbard

The territory is self-governing within the Federation of St. Kitts and Nevis. It has a high literacy and low crime rate; Government is democratic and un-corrupt; telephone and fax communication is excellent.

An Act of 1984 provided for offshore companies and has had a modest success. The law is similar to that of Delaware. There are no offshore banking or insurance companies, but a trust company can be formed without a licence.

An asset protection law and a Limited Partnership Act are expected in 1993. New trust companies are moving in and the infrastructure is improving.

PANAMA Rosa Restrepo

After the economic and political crisis of 1988-1989, Panama has recovered beyond expectations. The government has moved towards modernising its economy; the gross national product increased by 4.6% in 1990 and 9.3% in 1991. The banking system has seen growth in total deposits up to 17 billion US Dollars, and the issuance of more than half a dozen new licenses. The corporate sector is alive and well with an average of fourteen hundred new companies registered each month; and Panama continues to grow as an international sea vessel registry. Among the steps taken towards modernising our economy one finds: tax reform, privatisation of government-owned enterprises, the creation of free zones for processing and exportation of products, renovation of the judicial system, and constitutional reforms to improve the system of checks and balances. In addition, Panama has taken steps to improve the image of the service sector by, among other things, signing a treaty on mutual assistance in criminal matters with the United States of America, pursuing effectively drug and money laundering; the adoption of the Apostille superseding the cumbersome consularisation process of documentary authentication and new incentives to encourage use of maritime services.

TURKS AND CAICOS Ariel Misick

In 1990 the Offshore Centre Unit was created and new Superintendents have been appointed for companies, banking, trusts and insurance.

In order to compete with the Bahamas, the company annual fee has been reduced to $100.

The Insurance Ordinance 1989 was amended in 1992. There are now some 1,000 credit life insurance companies, re-insuring risks of a single insurer located in an approved jurisdiction. These are exempt from licensing requirements – a privilege which can now, under a 1992 amendment to the Act, be enjoyed by a re-insurer of multiple insurers.

The Trust Ordinance 1990 came into force in February 1991. It updates the law relating to trusts: it clarifies some international conflict rules and enables a settlor to adopt different laws for different parts of the trust. The law makes provision for asset protection trusts.

The Trustee (Licensing) Ordinance 1992 came into force on 25th September; trust companies are required to have professional indemnity insurance and audited accounts – except a company acting only as bare trustee and some private trust companies established in Turks and Caicos or elsewhere.

Stamp duty on international documents and trust instruments has been abolished.

Government is reviewing trust law and the law relating to limited partners.

URUGUAY Geoffrey Hooper

Uruguay is a tax haven of some 50 years standing. It is located between Argentina and Brazil. The population is some 3 million.

The offshore company legislation was first brought into existence in 1948. South American nationals are surprisingly cash rich: South America is a buyer of offshore services.

Uruguay is democratic, without exchange control, tax, tax treaties or exchange of information treaties, but regulation of banking is very strict.

THE U.S. VIRGIN ISLANDS William Blum

The corporate law is based on that of Delaware. The U.S. Internal Revenue Code applies on the “mirror system” – i.e. by reading U.S.V.I. for U.S. in the Code. Information is exchanged with the IRS.

A 1987 Law makes provision for “qualified foreign corporations” (which includes U.S.V.I. corporations) in which U.S. persons have less than 10% of the equity and votes to be exempt from tax on non-U.S.-source income.

The Foreign Sales Corporation took root in the U.S.V.I.: there are now some 4,000 of them.

U.S. treaties of Friendship Commerce and Navigation apply to the U.S.V.I. A ship owned by a U.S.V.I. corporation flies the U.S. flag and its aircraft may achieve U.S. registration.

Legislation is pending to improve the offshore facilities of the U.S.V.I.

For the purposes of this discussion, it is assumed that the client is an alien non-resident, non-domiciliary of the United States; he has in place a well-designed offshore structure to hold U.S. traded securities, U.S. bank accounts and U.S. real estates. In particular, the client holds U.S. traded securities through a foreign (non-U.S.) personal investment company, U.S. bank accounts directly, U.S. real estate through a two-tier structure with a Barbados holding company holding shares of a U.S. corporation which in turn holds the U.S. real estate. The client holds other assets (perhaps bank deposits and securities of non-U.S. issuers) through a trust administered in an offshore financial centre. While this structure is perhaps close to ideal for a continuing alien non-resident and non-domiciliary of the United States, it is most probably the worst kind of structure for a U.S. resident domiciliary.
Before immigration, the alien with significant assets in the United States and elsewhere has the opportunity (which he will not have later) to plan to mitigate a number of adverse effects – namely, the inclusion of all assets in his taxable estate (subject to rates of 55%), imposition of interest charges on income distributed from the foreign trust and recharacterisation of capital gains as ordinary income with a tax rate increase of 3 points – from 28% to 31%.

Three basic steps are indicated before immigration.

1. The client makes large gift to his children but retains control through the use of trusts and management powers over family partnerships holding U.S. real estate on other business assets.

2. Before becoming a U.S. resident, the client contributes most of his assets to a foreign irrevocable trust allowing the trust to continue to hold assets as if no change in residence occurs. The Trustee has discretionary power to distribute income or invade corpus for the benefit of the alien or his family members.

3. The alien simply does not become a U.S. resident or more importantly U.S. domiciliary. The client carefully plans his physical presence in the U.S. and maintains contacts with another foreign country to avoid U.S. residence and domiciliary status.

Global integration requires increased needs for planning. The United States, unlike most countries, taxes on the basis of citizenship as well as (in the case of income tax) on residence and (in the case of estate and gift tax) on domicile. A person acquires domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. A citizen or domiciliary of the United States is subject to U.S. estate and gift taxation on the testamentary or inter vivos transfer of property regardless of where it is situated. An alien non-domiciliary is only subject to U.S. estate and gift taxation on the transfer of property that is situated or deemed situated in the United States.
Real property is situated where it is located. Tangible personalty is generally also deemed situated where it is located. U.S. real property such as a residence or commercial property and tangible personalty, would be subject to the U.S. estate tax in the estate of a non-domiciliary to the extent its value exceeds the unified credit of U.S.$ 13,000 (an exemption equivalent of U.S.$ 60,000). This unified credit does not apply to gifts of such property.

The U.S. estate and gift taxation of intangible personal property owned by a non-domiciliary is complex and depends on the type of such property involved. The following summary should be helpful:

a) Stock of a U.S. corporation is deemed situated in the United States for U.S. estate tax purposes but not for U.S. gift tax purposes. The converse is also true. In the case of a foreign corporation, however, it is essential that the corporation has a business activity and is a bona-fide corporation.

b) Debt obligations of a U.S. person or U.S. governmental entity are deemed situated in the United States with the exception of bank deposits, “80/20″ company debts and certain debt obligations issued after July 18 1984, the income from which would be portfolio interest.

c) The situs of interests in partnerships depends on a variety of factors. If the partnership is not deemed a separate legal entity or does not survive the death of a partner, the partnership is transparent and the location of the partnership’s assets is determinative. If, however, both conditions are met, the answer is not clear. Generally, the following factors are considered, namely, the location of the underlying assets, the applicable local law of the partnership, the domicile of the non-resident partner and the jurisdiction where the partnership conducts its business. The IRS treats the last factor as controlling. This is contrary to traditional principles of law, assuming a partnership interest is classified as intangible personal property, because in such case, the partnership interest should be deemed situated in the jurisdiction of the partner’s last domicile.

d) Life insurance proceeds payable by a U.S. insurer on the life of a non-domiciliary are generally deemed property situated outside the United States.

e) A trust interest will be includable in a non-domiciliary’s estate if the trust is a valid trust and the non-domiciliary’s interest therein is indefeasibly vested. Thus, if a non-domiciliary has a general power of appointment over trust property which is located in the United States, the property would be included in his estate.

As noted above, domicile is determinative of U.S. estate and gift taxation and residence is determinative of U.S. income taxation. A person is resident of the United States if he has a “green card” or is substantially present in the United States. Such substantial presence is met if the person is physically present in the United States at least 31 days in a particular year and a total of 183 days or more during any consecutive three year period with each day of physical presence in the current year counting as a full day, each day of the first preceding year counting as one third of a day and each day of the second preceding year counting as one sixth of a day. Thus, a foreign person can spend up to 121 days per year in the United States without becoming a resident of the United States.

Certain individuals are exempt from these rules namely, foreign government individuals, teachers and trainees (2 out of 6 years), students (up to five years) and athletes performing for a charity. Also an individual who cannot leave the United States due to a medical condition of which he was unaware and which arose while he was in the United States is exempt from the rules.

If a foreign person plans to immigrate to the United States he should review the laws of the jurisdiction from which he will emigrate and consider the following:

a) Sell appreciated assets and obtain a new “stepped-up” basis to avoid U.S. recognition of gain;

b) Defer deductions and losses;

c) Accelerate receipt of income;

d) Undertake a gift programme, taking into account the following:

(i) gifts to grandchildren should avoid the generation skipping transfer tax if the property transferred is not situated or deemed situated in the United States; (ii) gifts of U.S. intangible property are not subject to U.S. tax; and (iii) gifts of tangible or real property situated outside the United States are not subject to U.S. gift tax;
e) Consider creating certain trusts at least 5 years before immigrating, keeping in mind that

(i) non-U.S. trusts are best for non-resident alien family members; (ii) S. 672(f) of the Internal Revenue Code may be a problem; and (iii) consider surrendering certain powers held over existing trusts;
f) Consider preparing new wills;

g) Consider life insurance;

h) Consider type and nature of investments;

i) Consider restructuring of corporate holdings to avoid the anti-avoidance provisions including reducing percentage of stock ownership.

If an individual who is a U.S. citizen or a domiciliary of the United States is married to a non-U.S. citizen, generally there is no marital deduction available for U.S. estate tax purposes which allows the surviving spouse to defer paying U.S. estate tax until his or her death unless property is left in a Qualified Domestic Trust (“QDOT”). The general requirements for a QDOT are:

(i) at least one trustee must be a U.S. person (individual or entity);

(ii) the U.S. trustee must have the right to pay the U.S. estate tax attributable to any distribution from the QDOT to the surviving non-U.S. spouse;

(iii) the executor must elect irrevocably on the U.S. estate tax return to treat the trust as a QDOT; and

(iv) the trustees must comply with the QDOT regulations.

When dealing with U.S. estate and gift tax issues one needs to be careful because the principles of tax law are complex, inconsistent and harsh. An inadvertent misstep can be very costly.

16-17 November 1992
Prepared by Milton Grundy © International Tax Planning Association, 1992,1998
Chairman: Milton Grundy
An Introduction to Antigua – William Cooper (Chairman), with John Greaves, Clare Roberts and J. Nic Stones
Developments in the Caribbean and Uruguay – Milton Grundy (Chairman)
Anguilla – John Benjamin
Aruba – Hector Gonzalez
Bahamas – Michael Barnett
Barbados – Yolande Bannister
Belize – Eamon H. Courtenay
British Virgin Islands – Anne Riggall
Cayman Islands – Gerald Brady
Montserrat – John Kelsick
Nevis – Vincent K. Hubbard
Panama – Rosa Restrepo
Turks and Caicos – Ariel Misick
Uruguay – Geoffrey Hooper
U.S. Virgin Islands – William Blum
Bermuda Trust Practice: Purpose Trusts and Private Trustee Companies – Alec Anderson
Offshore Trusts for Intending U.S. Residents – Bill Norman
Developments in Tax Information Exchange Agreements and Mutual Legal Assistance Treaties – Cynthia Shoss
The U.S. Limited Liability Company: A New Offshore Vehicle – Graham R. Taylor
Planning for the Non-Resident Alien’s Estate and Gift Taxes – Robert Lawrence
An Introduction to Antigua – William Cooper (Chairman), with John Greaves, Clare Roberts and J. Nic Stones (updated 1998)
The International Business Companies Law was enacted in 1982 and has been amended since. It provides for tax-free companies. The Antigua Offshore Association works with the Government to keep the jurisdiction free from abuse.
Several international airlines fly to Antigua. Telephone and fax communication is excellent. The law is based on the English common law. There is a tax treaty with the United Kingdom and an exchange of information treaty with the United States (MLAT).

The IBC Law is modern and permissive. Name approval is easy. The fee does not depend on the size of the company’s capital.

International banking is carried on from Antigua, offering the private client a personal and tax efficient service. Minimum capital for a bank is US$ 5 million; ownership of the bank must be approved by Government. It may be formed under the IBC Act; the annual Government fee is US$ 15,300.

Antigua provides trust administration. Many trusts established in Antigua have an asset protection function. They follow the pattern established in England.

A trust corporation requires a minimum capital of US$ 500,000. There is an annual Government fee of US$ 7,800. A new trust law is expected in 1998.

Antigua has the infrastructure to conduct international insurance. The IBC Act permits the formation of international insurance companies: they are free from domestic restrictions but are strictly regulated by an Insurance Supervisor appointed by Government. They carry on business outside the CARICOM region and in non- CARICOM currencies. The insurance corporation requires at least one local director; the Act provides for criminal penalties for unlawful disclosure of information by an insurance corporation.

The Merchant Shipping Act was enacted in 1985. It provides for full Convention registration. The Department of Marine Services adopts a very co-operative and flexible attitude to registration and is anxious to enlarge business in this area. In 1987, the Act was amended to permit registration of bareboat charters.

Antigua welcomes offshore business and has the capacity to carry it out. To forestall attacks on trusts based on the Rahman decision, the first step will be to show that the assets were transferred to genuine trust companies carrying on business in Antigua.

[TOP]
Developments in the Caribbean and Uruguay – Milton Grundy (Chairman)
Anguilla – John Benjamin
Aruba – Hector Gonzalez
Bahamas – Michael Barnett
Barbados – Yolande Bannister
Belize – Eamon H. Courtenay
British Virgin Islands – Anne Riggall
Cayman Islands – Gerald Brady
Montserrat – John Kelsick
Nevis – Vincent K. Hubbard
Panama – Rosa Restrepo
Turks and Caicos – Ariel Misick
Uruguay – Geoffrey Hooper
U.S. Virgin Islands – William Blum
ANGUILLA John Benjamin
It is a British dependant territory close to St. Martin, with a population of some 10,000. A new Offshore Bank and Trust Company Ordinance is now in force. There is no income tax, inheritance tax or exchange control. There is a Confidential Relationship Act. The applicant for a banking licence requires references, experience and minimum capital.

ARUBA Hector Gonzalez

Aruba lies at the south-western end of the Caribbean near Venezuela. It is an autonomous country, forming part of the Dutch Kingdom. The legal system is similar to the Dutch and the final Court of Appeal is in Holland.

The infrastructure is modern: there is a permanent population of 70,000 and a tourist population of some 500,000. The people are well educated; there is virtually no illiteracy.

Banks adhere to the Basel Convention in screening clients and an Association of Offshore Practitioners helps to keep the offshore business within lawful bounds.

The AVV is an IBC-type company, formed under an enactment of 1988; there are already some 3,000 of them. Formation is speedy; costs are competitive.

THE BAHAMAS Michael Barnett

Over 11,500 IBCs have now been established, and trusts have been formed by many HNWI’s, often for asset protection reasons.

A new government came to power in 1992, with an emphasis on the private sector and a commitment to removing obstacles to foreign investment.

BARBADOS Yolande Bannister

The international financial services sector is second in importance only to the tourist industry.

Barbados is an offshore centre with tax treaties. Insurance captives and FSC’s are tax-exempt, but other offshore companies pay tax of 1% to 2.5%. There are treaties with Canada, Finland, Norway, Sweden, the United Kingdom and the United States; treaties with Brazil and Venezuela are on the way.

Barbados provides facilities for offshore banks, insurance captives, FSC’s, trusts, IBC’s and shipping. New legislation is expected in 1993, amending the trust law and providing for U.S.-style limited liability companies and limited partnerships. The establishment of a Financial Services Secretariat is expected by the end of 1992.

BELIZE Eamon H Courtenay

On 18th May 1992 a new trust law was enacted. It permits the law governing a trust to be changed and prevents claims under foreign laws from being brought in the Courts of Belize against the trust fund of a Belize trust.

Charitable trusts and purpose trusts may be established. The Act permits “letters of wishes”; it permits a settlor to create a spendthrift trust in his own favour. Registration is permitted but not required.

Where the settlor and beneficiaries are non-resident and the assets are outside Belize, the trust is exempt from tax.

BRITISH VIRGIN ISLANDS Anne Riggal

A Banks Inspector and a Trusts Inspector together with a licensing system provides for supervision of those aspects of the offshore industry. The Insurance Inspector, in exercise of his supervisory powers, has eliminated several undesirable insurance companies. An Insurance Act, a Trust Act, including provision for asset protection trusts, and a Limited Partnership Act are foreseen for 1993.

The most successful aspect of the BVI’s offshore industry has been its International Business Company. There are now over 72,000 IBC’s and the Ordinance has been widely copied. The Companies Registry provides an extremely efficient service and company names can now be reserved by modem.

CAYMAN ISLANDS Gerald Brady

There are now 538 licensed banks in Cayman and the Companies Register grows at the rate of some 3,000 a year. The basic reason for the success of the Territory has been its responsiveness to change.

The Companies Law was amended in 1989 and again in 1990.

Re-domiciliation of companies is provided by a further amending Law of 1992. The Exempted Limited Partnership Law of 1991 places no limit on the number of partners, but there must be at least one general partner. The Fraudulent Dispositions of Law of 1989 provides for asset protection trusts.

MONTSERRAT John Kelsick

This British dependant territory is close to Antigua. It imposes income tax but offshore financial institutions, of which there are now 21 (mainly connected with South America) are exempt.

The law is based on the English common law; the Offshore Banking Ordinance came into force in January 1992. A minimum capital of US$ 500,000 is required; applications are carefully screened and audited accounts are regularly submitted; a local Registered Agent is necessary. Fees are comparatively low.

An IBC Law was passed in 1985. It has so far been little used, but expansion in this area is foreseen. A Confidential Information Ordinance dates from 1986. A treaty with the United States for mutual assistance in criminal matters came into force in 1991.

Government expresses an intention to expand the offshore industry.

NEVIS Vincent K Hubbard

The territory is self-governing within the Federation of St. Kitts and Nevis. It has a high literacy and low crime rate; Government is democratic and un-corrupt; telephone and fax communication is excellent.

An Act of 1984 provided for offshore companies and has had a modest success. The law is similar to that of Delaware. There are no offshore banking or insurance companies, but a trust company can be formed without a licence.

An asset protection law and a Limited Partnership Act are expected in 1993. New trust companies are moving in and the infrastructure is improving.

PANAMA Rosa Restrepo

After the economic and political crisis of 1988-1989, Panama has recovered beyond expectations. The government has moved towards modernising its economy; the gross national product increased by 4.6% in 1990 and 9.3% in 1991. The banking system has seen growth in total deposits up to 17 billion US Dollars, and the issuance of more than half a dozen new licenses. The corporate sector is alive and well with an average of fourteen hundred new companies registered each month; and Panama continues to grow as an international sea vessel registry. Among the steps taken towards modernising our economy one finds: tax reform, privatisation of government-owned enterprises, the creation of free zones for processing and exportation of products, renovation of the judicial system, and constitutional reforms to improve the system of checks and balances. In addition, Panama has taken steps to improve the image of the service sector by, among other things, signing a treaty on mutual assistance in criminal matters with the United States of America, pursuing effectively drug and money laundering; the adoption of the Apostille superseding the cumbersome consularisation process of documentary authentication and new incentives to encourage use of maritime services.

TURKS AND CAICOS Ariel Misick

In 1990 the Offshore Centre Unit was created and new Superintendents have been appointed for companies, banking, trusts and insurance.

In order to compete with the Bahamas, the company annual fee has been reduced to $100.

The Insurance Ordinance 1989 was amended in 1992. There are now some 1,000 credit life insurance companies, re-insuring risks of a single insurer located in an approved jurisdiction. These are exempt from licensing requirements – a privilege which can now, under a 1992 amendment to the Act, be enjoyed by a re-insurer of multiple insurers.

The Trust Ordinance 1990 came into force in February 1991. It updates the law relating to trusts: it clarifies some international conflict rules and enables a settlor to adopt different laws for different parts of the trust. The law makes provision for asset protection trusts.

The Trustee (Licensing) Ordinance 1992 came into force on 25th September; trust companies are required to have professional indemnity insurance and audited accounts – except a company acting only as bare trustee and some private trust companies established in Turks and Caicos or elsewhere.

Stamp duty on international documents and trust instruments has been abolished.

Government is reviewing trust law and the law relating to limited partners.

URUGUAY Geoffrey Hooper

Uruguay is a tax haven of some 50 years standing. It is located between Argentina and Brazil. The population is some 3 million.

The offshore company legislation was first brought into existence in 1948. South American nationals are surprisingly cash rich: South America is a buyer of offshore services.

Uruguay is democratic, without exchange control, tax, tax treaties or exchange of information treaties, but regulation of banking is very strict.

THE U.S. VIRGIN ISLANDS William Blum

The corporate law is based on that of Delaware. The U.S. Internal Revenue Code applies on the “mirror system” – i.e. by reading U.S.V.I. for U.S. in the Code. Information is exchanged with the IRS.

A 1987 Law makes provision for “qualified foreign corporations” (which includes U.S.V.I. corporations) in which U.S. persons have less than 10% of the equity and votes to be exempt from tax on non-U.S.-source income.

The Foreign Sales Corporation took root in the U.S.V.I.: there are now some 4,000 of them.

U.S. treaties of Friendship Commerce and Navigation apply to the U.S.V.I. A ship owned by a U.S.V.I. corporation flies the U.S. flag and its aircraft may achieve U.S. registration.

Legislation is pending to improve the offshore facilities of the U.S.V.I.

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Bermuda Trust Practice: Purpose Trusts and Private Trustee Companies – Alec Anderson
NEW DEVELOPMENTS While Bermuda’s reputation as a stable and well developed offshore business centre is solid, increasing improvement in services and products in competing jurisdictions has helped promote change in Bermuda. Twenty-four task forces of the Bermuda International Business Association are now reviewing all areas of international business with a view to suggesting new law or practices. Government supports the response to competition.
Some new developments may be noted. First, there was the Trust Companies Act of 1991, which requires public trust companies to be licensed. It also allows foreign-owned trust companies on a limited basis: possibly only 12 will be permitted. Most of the “Big Six” accounting firms now have trust companies. In 1992 came the Companies Amendment Act, the Partnership Act and an amendment to the Stamp Duty Act (by which stamp duty was abolished on international pension trusts). An improved fraudulent conveyance law – more conservative than those of other jurisdictions – is now in draft form. The possibility is being discussed of a law to make provision for a U.S.-style Limited Liability Company. In Garner v. Bermuda Trust Company Ltd (Civil Jurisdiction 1991 No. 318; Civil Appeal No. 4 of 1992) the Court of Appeal decision upheld section 11 of Trusts (Special Provisions) Act 1989 to recognise a Bermuda trust when attacked by foreign succession rights law.

PURPOSE TRUSTS The Trusts (Special Provisions) Act 1987 also allows trusts for purposes other than charitable ones. The purposes must be specific, reasonable and possible, and they must not be contrary to public policy, law or morality. They may be quasi-charitable or they may be for certain business purposes. The trust must provide for the appointment of an Enforcer and must provide for disposition of surplus on termination. Examples of quasi-charitable purposes are the promotion of a political party or the encouragement of Greenpeace or environmental protection.

Examples of business purposes are to acquire and retain shares of a company, to ensure its efficient management, to provide finance for a particular transaction. In the first case, the company held may qualify as a Foreign Sales Corporation for U.S. tax purposes; in the second, the finance may be for the purchase and leasing of an aircraft, and the trust may include protection for the lender against the bankruptcy of the borrower. Other trusts may have as their purpose to buy and sell receivables, or to own ship management companies.

PRIVATE TRUSTEE COMPANIES These are companies with the capacity to act only as a trustee of a particular trust or group of related trusts. They are not licensed to offer trustee services to the public. The rationale for their use is to provide client involvement in control of the family trusts. The client may serve on the board of directors, but it is important to ensure that non-family members also serve. A professional trustee company or management company should be appointed to keep minutes and generally attend to the administration of the company. The cost of a private trustee company is often less than the employment of an institutional trustee, and there is the advantage that there is no stamp duty on the trust instrument because the company is a Bermuda exempted company. The private trustee company is useful where the trust investments carry risks or liabilities and an institutional trustee would be reluctant to act.

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Offshore Trusts for Intending U.S. Residents – Bill Norman
For the purposes of this discussion, it is assumed that the client is an alien non-resident, non-domiciliary of the United States; he has in place a well-designed offshore structure to hold U.S. traded securities, U.S. bank accounts and U.S. real estates. In particular, the client holds U.S. traded securities through a foreign (non-U.S.) personal investment company, U.S. bank accounts directly, U.S. real estate through a two-tier structure with a Barbados holding company holding shares of a U.S. corporation which in turn holds the U.S. real estate. The client holds other assets (perhaps bank deposits and securities of non-U.S. issuers) through a trust administered in an offshore financial centre. While this structure is perhaps close to ideal for a continuing alien non-resident and non-domiciliary of the United States, it is most probably the worst kind of structure for a U.S. resident domiciliary.
Before immigration, the alien with significant assets in the United States and elsewhere has the opportunity (which he will not have later) to plan to mitigate a number of adverse effects – namely, the inclusion of all assets in his taxable estate (subject to rates of 55%), imposition of interest charges on income distributed from the foreign trust and recharacterisation of capital gains as ordinary income with a tax rate increase of 3 points – from 28% to 31%.

Three basic steps are indicated before immigration.

1. The client makes large gift to his children but retains control through the use of trusts and management powers over family partnerships holding U.S. real estate on other business assets.

2. Before becoming a U.S. resident, the client contributes most of his assets to a foreign irrevocable trust allowing the trust to continue to hold assets as if no change in residence occurs. The Trustee has discretionary power to distribute income or invade corpus for the benefit of the alien or his family members.

3. The alien simply does not become a U.S. resident or more importantly U.S. domiciliary. The client carefully plans his physical presence in the U.S. and maintains contacts with another foreign country to avoid U.S. residence and domiciliary status.

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Developments in Tax Information Exchange Agreements and Mutual Legal Assistance Treaties – Cynthia Shoss
One of the most difficult tasks facing a tax administrator is how to obtain information it needs to enforce its tax laws where international transactions are involved and the information is physically located in a foreign jurisdiction. Toward this end, the U.S. has negotiated a number of income tax treaties (40), tax information exchange agreements (13) and mutual legal assistance treaties (8). Each of these has some sort of provision for mutual assistance or the exchange of information or both. The I.R.S. routinely exchanges tax information with state tax authorities, and it has begun to exchange more information with other federal agencies. There are formal and informal Treasury and I.R.S. pronouncements, and a body of case law.
The wide enforcement net that has been stitched together to catch tax evaders, money launderers, narcotics traffickers, inside traders and other criminals will catch innocent fish, too, including those with very valid reasons for seeking privacy for their financial transactions. Preserving privacy for clients for whom it is a legitimate concern will require more sensitivity and better planning than ever.

The TIEA had its genesis here in the Caribbean where the Caribbean Basin Initiative was enacted in part for the purpose of encouraging Caribbean governments to execute TIEAs. A CBI country with a TIEA in effect with the U.S. qualifies for certain U.S. tax benefits. Only 11 of the 30 eligible countries have concluded TIEAs, and the Treasury apparently believes that the “easy ones are done”. The Treasury has continually reiterated its commitment to TIEAs, but it has also reaffirmed that that commitment is counterbalanced by an equally strong commitment to protect the right of individuals to privacy. The right to privacy, however, is by no means absolute or unqualified. In the U.S., it has never been considered to include bank secrecy; and, although it is accorded Constitutional status, it must be balanced against important governmental interests, including the government’s power to “lay and collect taxes”, which is equally a Constitutional right.

The right to privacy with respect to taxpayer information has also been codified in Section 6103 of the Internal Revenue Code, which states that tax returns and return information are confidential, but which is subject to 60 exceptions. Those exceptions include the Competent Authority of a foreign government, pursuant to agreement. Under newer treaties, treaty partners may seek tax information regarding persons who are nonresidents of either treaty country but who are nonetheless subject to tax in one of them. Generally, disclosure of information to a third country is not permitted. A fundamental principle of all U.S. tax treaties is that the information exchanged thereunder is limited to information relating to tax matters. This has been interpreted very broadly, however, by the I.R.S. and in the U.S. courts.

Most information exchanged pursuant to agreements proceeds via routine exchanges. Spontaneous exchanges are used, too, but the I.R.S. appears to consider reciprocity a condition for these. Governments also exchange information in response to specific requests from treaty partners, and they utilize Simultaneous Examination Programs where such programs have been separately and specifically agreed.

The U.S. is obligated to obtain requested information to the same extent as if it were enforcing its own internal revenue laws, including by use of its summons power. The summons procedure is also meant to serve as a protection to taxpayers by imposing restrictions on requests for information, assuring notice and interposing a federal judge. U.S. courts generally have not recognised foreign illegality as an absolute defence to production of requested documents by a taxpayer or a third party. Recent developments in the Bank of America case in California appear to reflect efforts of the U.S. to target certain offshore jurisdictions, subjecting persons to audit, and records to summons just because those jurisdictions were employed. Also, the I.R.S. has attempted in recent years, with some success, to utilize compelled consents, which eliminate the necessity for balancing the interests of sovereignties.

Expanded reporting requirements, including most recently Code Section 6038A, have increased the effectiveness of the summons with respect to foreign affiliate records and information. The recently promulgated final Section 6038A regulations should partially alleviate concerns that large numbers of summonses will be issued in treaty jurisdictions, but there is still reason for some concern on this score. Another significant reporting requirement is the U.S. Bank Secrecy Act, which requires that most currency transactions above a $10,000 threshold be reported and that relevant records be maintained.

Mutual legal assistance treaties are limited to the exchange of information in criminal matters, but the standard MLAT negotiating text includes tax offenses. MLATs are in great favor in Washington. They enable law enforcements authorities to obtain evidence abroad in a form admissible in our courts, and private persons have no right to impede compliance with an MLAT request.

What conclusions can we draw about confidentiality? International tax co-operation is a growth area, and information flows increasingly multilaterally. The trend of increasing international co-operation is evidenced by an increased use of law enforcement internationally and a gradual elimination of barriers, including privacy. The U.S. Internal Revenue Service has a sweeping power to gather information, and generally has not been impeded to any great extent by foreign secrecy laws. Where privacy is the paramount concern, non-treaty, non-TIEA jurisdictions with minimal reporting and record keeping requirements and strong secrecy laws continue to offer the greatest security. There’s no absolute guarantee of privacy anywhere, however.

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The U.S. Limited Liability Company: A New Offshore Vehicle – Graham R. Taylor
Limited Liability Companies (“LLCs”) are unincorporated associations with corporate and partnership characteristics. They began with a 1977 Wyoming statute and languished until 1988, when IRS Rev. Rul. 88-76 confirmed their partnership tax status. Many of the U.S. states have enacted and the rest will soon enact legislation for LLC’s and recognition of out of state LLC’s.
An LLC is organised by 2 or more legal persons. Its shareholders are `members’, its shares are `interests’, its Articles of Organisation are similar to a U.S. corporate charter and its Operating Agreement similar to By Laws. Its name must include “LLC” or “Limited Liability Company”. Corporate structure is highly flexible, special allocations, management designation and member rights, preferences and privileges can be designed to meet the client’s needs.

The key to “conduit” tax status in the United States lies in two features of the LLC. First, the shares are not freely transferable: any interest transfer requires unanimous (or majority in some States) consent of members. And second, the LLC has no continuity of life: the death, retirement, resignation, dissolution, bankruptcy, or expulsion of a member causes the LLC to dissolve. However, the members can unanimously agree to continue and can contract to give their consent to continuance. The LLC has a 30 year `sunset’ under most State legislation. The U.S. States have mostly agreed to treat LLC’s as partnerships, but Texas and Florida treat them as corporations. California is expected to have an LLC Act in 1993/94 and to treat an LLC like an `S’ corporation.

Newer U.S. tax treaties predicate access to treaty benefits only to entities who are themselves taxable. Older treaties will, however, permit the LLC to access U.S. treaty benefits. Indeed, an LLC comprised of non-U.S. entities can access some treaties without being “engaged in a U.S. trade or business”. U.S. legal counsel should be asked to opine as to LLC tax status and treaty access.

LLCs permit more than 35 shareholders and more than 1 class of stock, compared to U.S. `S corps’. They are useful for inbound U.S. real estate investment, U.S.-inbound portfolio investment, cross-border nature capital funds, operating businesses, U.S. outbound investments etc. They will likely over time supersede `S corps’ and limited partnerships. No member has unlimited liability, in contrast to limited partnerships, and the LLC can own property in its own name.

The LLC is an extremely flexible vehicle with great potential for purely offshore activities underneath a U.S. entity. Treaty access opens up enormous possibilities.