Florence 2013 Meeting

Meeting Summary
  • Asset Protection Trusts: Do They Work?Daniel S. Rubin
    • Asset Protection Trust protect assets from future creditors, by means of a discretionary trust or a self-settled spendthrift trust or a combination of the two – see Nichols v. Eaton, Sligh v. First National Bank of Holmes County, Scheffel v. Krueger. In the US, the funds of a self-settled trust have traditionally been available to the settlor’s creditors. But some US States (and some foreign jurisdictions – e.g. the Cook Islands) now facilitate the exclusion of claims of creditors, provided the trust is not made in order to evade existing creditors – i.e. does not constitute a fraudulent transfer: see the Orange Grove case, Brown v. Higashi, Marine Midland Bank v. Portnoy, In re B.V. Brooks, In re Stephan Jay Lawrence, F.T.C. v. Affordable Media, Riechers v. Riechers.

  • Cross-border Charitable GivingClive Cutbill
    • Donors are not motivated by tax benefits to make gifts they would not otherwise make. People give for many reasons, but expect to do so tax-efficiently. It is important to check that the donor has the capacity to make the gift. Charities are favourably treated in many countries. In England and Wales, the rules are derived from the Pemsel case, and are now embodied in the Charity Act 2011. US Exempt Organizations are defined by IRC s501(c)(3), but are regulated by the States separately. A regulated jurisdiction is often to be preferred because of its certainty. Taxation benefits are generally given only to indigenous bodies: the test in the US and UK is in the constitution of the charity. A gift to a non-indigenous charity can trigger a tax charge. A donor-advised fund can serve as an intermediary. The US banker in London has the problem that a gift to a UK charity is required to provide UK tax relief, but a gift to a US charity is needed to achieve a US tax benefit. How can a charity be both UK and US? The solution is to give to a UK charitable company owned by a US foundation. Articles 12 and 56 of the EC treaty facilitates intra-EU gifts and tax relief on foreign income of EU charities. However, there is very great variation in the extent (and manner) in which each EU State has given effect to those provisions.

  • From Russia with WealthSalpy Kouyoumjian
    • Changes are happening in Russia. A quasi-FACTA affects income from quoted securities. CFC rules are foreseen. Foreign companies may be treated as resident if management or controlling shareholders are in Russia. Conduit companies may be ignored. Structures lacking substance are under attack. Most treaties have information provisions on the OECD basis. Currency control regulations are being used to tax foreign income of resident individuals. Foreign insurance is attractive to Russian taxpayers, but changes are expected here. The simple offshore company is no longer effective.

      The key structuring considerations are those generally applicable to taxpayers in high-tax jurisdictions – shedding control, information management, asset protection, choice of jurisdiction, risk assessment and management, segregation of assets, decision making, financing arrangement , costs and timing.

      In designing a structure for the CIS entrepreneur, the advisor needs to consider the merits of diversification and use tried and tested structures – e.g. the private trust company, the limited partnership, or some “exotics” (the STAR or VISTA trust, the Bahamas BEE, the purpose trust). It is important to choose clients carefully.

  • Living with GAARMichael Flesch Q.C
    • The recent UK enactment was inevitable, but unnecessary and unsatisfactory. The new provisions apply to tax advantages arising from tax arrangements that are abusive (FA 2013 s 2006). The ”double reasonableness” test applies to abusive: but “reasonable”, one may ask, to whom? The test is not objective: it is likely to result in tribunals making it up as they go along and leaves enormous scope for opposing views. There is a grudging exception for practices accepted by the Revenue. The onus of proof is on the Revenue. The GAAR Advisory Panel has an important role to play: it must approve the Guidance published by the Revenue and needs to approve any case in which the GAAR is invoked. The tribunal must take its view into account, but is not bound to abide by it. The published Guidance has 41 examples. In example D17, the effective conclusion of a contract is postponed to the following tax year, when a lower rate of tax will be in force. This is not abusive. Would the same result follow if there were a put and call option, exercisable only in the following tax year?

  • Mauritius – Gateway to AfricaMuhammad Uteem
    • Africa is a huge continent with a very promising economic outlook. It has extensive mineral, arable land and forestry resources – in which China is making substantial investment. Infrastructure and communication improvements, a cheap workforce, privatisation, a reviving entrepreneurial class, political stability and big return investment are significant factors. Investors need to adapt to local customs e.g. – child labour, corruption.

      Mauritius is a country of 1.3 million, speaking English and French; it is the only financial centre in Africa. It has never been blacklisted and is party to several conventions for exchange of information. It has 38 tax treaties: a minimum local presence is a condition of taking advantage of them. Mauritius is an advantageous location for a holding company owning a company in, for example, Ruanda. It has signed six Investment and Protection Agreements with African counties; more are awaiting signature or ratification. One interesting feature of the law is that it makes provision for limited partnerships (tax transparent or opaque).

  • The Changing Face of Italian Tax PlanningFrancesco Squeo
    • The recent Bill 1058 provides for a review of legislation regarding abuse of law and tax avoidance. Abusive behaviour does not necessarily require conflict with any specific provision in the law. The burden of proof of avoidance is on the Ministry of Finance. The bill provides for mentoring of taxpayers and a review of the crime and penalty provisions. Criminal sanctions apply only in cases of violation of specific anti-avoidance rules.

      Italy was the first civil law country to ratify the Hague convention on trusts. The trust was introduced into the law 1992. A distinction came to be made between the trust internazionali and trust interno. The position was clarified in 2006. A non-resident trust is taxable only on its income with an Italian source. A resident trust is to be treated as a ”person” for tax treaty purposes. A distinction is made between the ”opaque” and ”transparent” trust. If income is taxed at the trust level, it is not taxed again in the hands of the beneficiary.

  • The Future of Small International Finance CentresMalcolm Couch
    • International Business Centres are sometimes called Offshore Financial Centres or International Finance Centres. The sums involved are now exceedingly large; some of them are illicit, but there are many legitimate uses of ILC – banking for expatriates, joint ventures, mutual funds and stock market listings. The government has the task of encouraging the legitimate and preventing the illegitimate business, applying OECD principles – which require the authorities to collect information and make it available, nowadays by way of automatic exchange. Changes are on the way – from OECD, G20 and G8 – to tackle base erosion and profit shifting and to prevent avoidance and evasion. The G8’s Action Plan will expose beneficiaries’ ownership.

      These initiatives derive from recent scandals – the LGT Bank Liechtenstein, UBS, the financial meltdown and Eurozone problems, and the result is that energy is being devoted to White Lists, Black Lists and other measures. But the world economy is improving, and well-regulated financial centres will see business grow, if they can offer democratic and stable government, compliance with OECD standards and a willingness to change.

  • Understanding Recent Trust CasesMark Bridges
    • Hasting-Bass became a ”get out of jail free” card for trustees who had made mistakes. It was about an appointment from one trust to another. It considered the validity of the exercise, not its consequences. In Pitt, a trust was created which got the inheritance tax position wrong. In Futter an appointment was made, but the capital gains tax position was not understood. The transaction in each case was not void, though it might be voidable, but to be so, the act must fall outside the powers of the trustees. Trustees must take account of all relevant factors – including tax factors. It is necessary to show that a trustee has acted in breach of trust; a trustee who relies on professional advice which later turns out to have been wrong will not be in breach of his fiduciary duty, and will not be in breach of trust. An act may also be voidable if it is done by mistake, but the court may refuse relief pursuant to be the ”conscience” test.

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