Montreux 2011 meeting

Monaco is a constitutional monarchy, but the Minister of State is nominated by France. The casino and the railway were the beginning of its prosperity. Several treaties have regulated its relationship with France. Monaco has signed 23 TIEAs and tax treaties – thought not yet with Italy or the UK. The financial sector is regulated by SICCFIN, which has extensive power to examine the affairs of service providers. Bank confidentiality is similar to Luxembourg and Switzerland.

A Monaco resident individual makes no tax return. The safety, proximity and accessibility of the country are its other attractions. A carte de séjour is needed. For this a Monaco bank must certify the applicant has sufficient assets. The process takes approximately 9 weeks after the formal interview. Estate tax may be mitigated by a Law 214 trust. The cost of living is not as high as in commonly supposed. Monaco companies are liable to corporation tax at 33.33%, but only if more than 25% of the profit arises abroad. A business licence is required and is subject to strict rules. There are new laws regulating the management of funds. Monaco has proved to be a good location for family offices. It has the necessary expertise and is an attractive and convenient location for family meetings. Shipping is also managed from the Principality.

The non-resident investor should use an overseas company owned by an offshore trust borrowing from a bank and from the shareholder trust. The SDLT is hard to avoid, but a one-property company can avoid the tax for a subsequent purchaser. An unauthorized unit trust may also be used. The interest payable to the trust is subject to transfer pricing: the position may be improved by adding to the company’s assets.

For a deal, treaty protection is needed. Jersey is still a possible location; a UK PE must be avoided. If a development is to last over 6 months, the land may be held by an offshore land company owned by an offshore share-dealing company which sells its shares in the land company. The gain inherent in the land company is not relevant if the purchaser is a non-resident or an open company.

The world is full of charming and persuasive crooks. The professional adviser needs to be alert. Routine money laundering procedures are important but not sufficient: instinct and experience are also needed. Mere possession of stolen goods is an offense. The scope of money laundering is very wide. Any unexpected or unusual aspect of a transaction needs to be examined. Being investigated is a very disagreeable experience: it is worth a great deal of care and effort to avoid it.

Can a Jersey trust buy a French property through a company? The French tax system discourages this. Changes in the Luxembourg treaty and the termination of the treaty with Denmark have taken away the advantage of owning property through companies there. A société civile funded by debt is the best form of ownership.

President Sarkozy is keen to abolish wealth tax, but it is still in force with a threshold of €800,000. Apportionment of ownership is the key to minimising liability. If the property is held by an SCI, only the shareholding and not the debt is taxable. The 3% tax on companies has not been extended, and though exemption is available it must be claimed. The recent TIEA concluded with Jersey permits Jersey companies to own French real property without liability to the 3% tax.

By 24th February, 447 TIEAs had been concluded. The revised OECD model lowered the standard for exchange of information and increased the gathering requirement, removing any defence of bank secrecy. The EU adopted a new directive to go into force by the end of 2013, providing for automatic exchange of information at a later stage. There is to be no restriction on onward transmission of information. This general policy shift to greater transparency is reflected in new UK penalty regime, providing an incentive to countries to agree to automatic exchange of information. The Swiss have now agreed to accept wider methods of identification of bank account holders. India is more active in obtaining information about accounts in Liechtenstein. The UK has had amnesties for Liechtenstein account holders: now plumbers have one! The US has a voluntary disclosure initiative. India appears opposed to amnesties.

The tax justice agenda has taken to the streets in the UK, with demonstrations against Vodafone, Boots, Topshop. Organisations have come into existence – UK Uncut, US Uncut and others. Tax compliance, tax litigations and settling of tax dispute have become a public relations issue. It appears that information published in Private Eye may have come from the Revenue.

The EU has taken steps to challenge UK anti-avoidance measures contained in s13 and the former s739, based on Art 49 or Art 63. This is worldwide challenge, not limited to the EU. Can the UK justify these provisions, as being needed for curbing tax avoidance? Section 13 has no ‘commercial’ defence, and the ECJ is likely to support this challenge. Sector 739 is more problematic but is likely to be changed. Taxpayers within the time limits may have repayment claims.

The traditional offshore international financial centres are coming under pressure from many sources – G20, OECD and national governments. China has benefitted from nearby financial centres, which Africa lacks. World GDP has grown by virtue of globalization, but at the same time the gap between the rich and the poor has widened, because the world market has brought pressure to bear on the value of a unskilled labour.

Under French chairmanship, the G20 may discriminate against the IFCs, but it has other priorities and its emphasis on increasing regulatory standards has blunted the attack on small IFCs. The EU is building a wall around itself and wants IFCs to be either in or out. This is the EU’s solution to its decline in productivity. Having stimulated a huge increase in the number of TIEAs (ostensibly in order to fight terrorism) and finding itself now being asked to provide information, the US appears to be losing interest in tax information exchange. The project to amend the EU Savings Tax Directive also appears to have stalled. In the UK , the fiscal deficit is huge in relation to the estimated collection from amnesties.

The EU Code of Conduct is intended to eliminate ‘predatory taxation policies’. The EU now says the 0/10 regime in the UK Crown Dependencies violates the spirit of the Code because of the deemed distribution to resident shareholders. Guernsey has suggested a territorial system and Jersey and the Isle of Man are planning to abolish the deemed distribution.

Offshore centres need to win hearts and minds. They play a key role in world prosperity.

Luxembourg has a variety of entities which hold investments, but the true wrapper carries control, notably the insurance wrapper – at its simplest a single premium life assurance policy. In Luxembourg, a policy with a €2.5 million or greater premium may contain any assets and may obtain the benefit of Luxembourg’s tax treaties. In practice, however, insurance companies may not accept control and the cost can be high. It may be that a one-policy company does not need a licence.

There are other vehicles. A private trust company administering a foreign-law trust does not require a licence. A Luxembourg trust may be on its way. Luxembourg allows any risk to be securitised: foreign income can enjoy the benefit of Luxembourg’s treaties while outgoing payments are treated as interest and are deductible – making this a tax-neutral vehicle. A securitisation vehicle however may not be actively managed.

The SICAR holds assets with a view to developing their potential – i.e. private-equity investments. It is only taxed on management fees and long-term interest. Its regulatory regime is very light touch. The SIF – the specialised investment fund – is a popular and flexible vehicle, but, unlike the SICAR, it requires risk diversification. It pays an annual 0.01% tax on its NAV: some countries allow it to benefit from their tax treaties. A SIF can function as a family office. The SPF is the successor to the 1929 company, designed for private management of investments in high-tax countries.

The Soparfi is a lightly-taxed vehicle, but with the disadvantage that there is a withholding tax on outgoing dividends. A stock exchange listing can offer a wrapper further advantages.