Summer Webinar 2021

Chairman: Milton Grundy
13 April - 8 June

Meeting Summary
  • 1. Art as an Investment – Risks and RewardsRichard Bagnall-Smith
    • It is easy to lose a lot of money by investing in art.  Traditional sectors have been in decline for years.  Contemporary sales have experienced explosive growth.  There is a buying fee of 25% at auction.  Part of the advisor’s job is to protect the vulnerable – mainly middle-aged, successful men operating on instinct and lacking knowledge.  The market is of the order of $ 68bn a year.  The margin of a dealer is typically 200-300%.  The art world does not look commercial, but is in fact aggressively and ingeniously commercial.  There are many instances of conflict of interest: advisers routinely profit from their advice.  Timothy Sammons was jailed for fraud in the United States.  Clients become emotionally involved in a work they plan to buy and resistant to unwelcome advice.  The value for insurance should not be used for any other purpose.

      The sales channels are dealers and brokers and the global auction house.  Auction houses use “business getters”, whose advice owners should never be relied on.  The art market is surprisingly thin.  Understanding marketing reach is critical.  Purchasers and sellers are in need of informed and independent advice, which is not easy to obtain.

  • 2. Wealth Management in Germany: the Tax Factor – Inheritance, trusts, foundationsAndreas Richter
    • Germany’s laws against tax evasion are very strict, with long limitation periods, and stringent reporting requirements.  New residents should consider their future tax liabilities before they arise.  There are exit taxes on departure.  There are CFC rules and high rates of corporation tax and real estate transfer tax.  A partnership is tax transparent, but a proposal for partnership to have the option of being treated as a corporation is under discussion.  Foundations are regulated, the interest of the beneficiaries not being protected by a right of action by them, as with a trust, but by rules enforced by statute (which are currently being revised).

      Germany has a wide net of double taxation agreements and retains for the time being its relation with the United Kingdom prevailing under the European Union.  Federal debt has grown during the pandemic and increased taxation is expected, possibly including a wealth tax.

  • 3. Citizenship and Residence – The present situationMeir Rabkin
    • Migration has been growing, especially over the last 18 months.  Governments offer residence and citizenship in return for investment.  This is a valuable source of revenue.  Clients may be motivated by convenience, safety, personal security, investment in the future, citizenship renunciation, avoiding the Pandemic and the closing of borders.  Mobility has been stimulated by distance working.  There has been a decline in travel freedom.  Australia is currently the most popular destination, followed by the US, Canada and Portugal.  Climate change also influences migration.  Japan is the leading destination for clients seeking ability to travel.  Citizenship by investment is offered by Austria, Malta, St Kitts, Grenada, Montenegro.  Popular residence destinations include UK, Canada, Portugal.  Beneficial passports are issued by several countries.

  • 4. DAC7, DAC8 and DAC9 – what is on the horizon?Niklas Schmidt
    • Since 1977, the EU Commission has been introducing machinery for sharing information, most recently in DAC6 of 2018, with 77 pages of text.  DAC7 of 22nd March of this year relates to rent of immovable property, payments for personal services, proceeds of sale of goods and rental of transport involving internet activity.  The Directive introduces reporting obligations for Platform Operators and Sellers each year and provides for the information received to be shared with other EU countries.  Member States are required to take steps to ensure compliance.  Foreseeably relevant information – including royalties – may be required from other Member States.  Provision is made for joint audits.  DAC8 is a proposal to introduce exchange of information relating to crypto assets.  There is presently a period of consultation, ending on 2nd June 2021.  Nothing is yet known about a DAC9.

  • 5. UK Real Estate: investment by non-residents – Tax considerationsSam Brodsky
    • The UK Government attempts to hold a balance between the need to tax property and at the same time to maintain its value.  The amount by which non-residents are taxed on land has risen greatly in recent years.  A trade of dealing in UK land has been taxable for a long time.  The provisions were tightened up in 2016.  There are several anti-avoidance provisions, targeting especially “slice of action” deals.  Residents used to be subject to income tax on “property income”.  It is now subject to corporation tax.  This covers transactions with a purpose of generating income, even though not part of a trade.  Capital gains from disposals of real property have become taxable by provisions enacted since 2013, substantially curtailing the effectiveness of using offshore companies.  The measures provide for an element of re-basing and for various anti-avoidance rules.  Freedom from tax on disposal of a principal private residence is restricted to residents.  It is expected that this year’s Finance Act will impose a 2% stamp duty surcharge on purchases of residential property by non-residents.

  • 6. Understanding DAC6 – Some mid-term perspectivesAndrew Knight
    • The European Union claims to ensure that its Directives are clear and easily understood.  DAC6 was enacted in 2018.  Poland has been particularly assiduous in reporting compliance.  Countries vary in interpretation and penalties, but there is little scope for Member State shopping.  The EU practical guide calls for clarity, but the text has many vague concepts and definition.  Some countries have issued guidance – e.g. clarifying the extent to which legal professional privilege is applicable, which varies from one Member State to another.  Promoters are “primary intermediaries”, advisers “secondary intermediaries”, to the extent that they have actual or “reasonably expected” knowledge.  Frequently encountered hallmarks include the “main benefit test”, standardised documentation, conversion of income, deducible payments between associated enterprises, undermining reporting obligations, disguising beneficial owners and transfer pricing.

  • 7. Detecting Fraud in Investment FundsTudor Fedeles
    • The best protection against fraud is due diligence.  There is little public sympathy for victims of fraud.  Perpetrators are generally experienced criminals.  The example is a Luxembourg SICAV.  The structure was complicated, with an umbrella fund, a board of direction, administrator, custodian, auditor, regulator, investment advisor and fraud manager.  A client had lost money.  It was found that fund managers had no relevant experience.  There were mismatches between legal and marketing documentation.  The administrator was a conflicted shareholder.  There were no consolidated accounts.  The AIFM was unresponsive.  The Intel team became directors and found widespread losses, concealed in various ways – by overseas companies, forgery, custodian losses, insider trading, negligent auditing.  The criminals engaged high-quality legal teams.  Criminal and civil proceeds were launched and complaints were made to supra-national and national authorities.  Intending investors should try to understand how the fund is structured, and whether stated investments are actual investments, and the stated return is the actual return.

  • 8. UBO Registers in Europe: an updatePaolo Panico
    • UBO registers have their origin in Articles 30 and 31 of the 4th Directive, as amended by the 5th Directive, which expanded the provisions to a wider range of trusts and extended access to trusts controlling non-EU companies.  The provisions have been transposed into national law in different ways, but not wholly in Hungary, Italy and Lithuania.  The French Constitutional Council decided that a fully accessible register would be unconstitutional.  Germany and Austria made trusts and trust-like arrangements accessible by the general public.  Luxembourg has separate registers for trusts and companies: trusts and fiduciary arrangements are accessible only by person with a legitimate interest.    A beneficial owner can apply to have his name removed.  When a company is controlled by a trust, the position differs from one Member State to another.  For trusts, settlors, trustees and beneficiaries are beneficial owners, regardless of the extent of their interest.

  • 9. The ITPA: Reflections on a Sapphire Anniversary – From stepping-stones to substanceMilton Grundy
    • The Association was formed in 1975, in the office of Gordon Blair in Monte-Carlo, to continue a series of conferences initiated by the Practicing Law Institute Inc and a group of American lawyers headed by Marshall Langer.  Francis Hoogewerf and Richard Pease were founder members.  The first conference was at the Okura Hotel in Amsterdam, and it was there that the speaker introduced the concept of the Stepping Stone – a concept which Tony Murty, at a later conference, applied to trusts in Barbados.  At first, the Association’s conferences were managed by Nick Buser and his team at IBC – a role taken over by Elisabeth Husband in the role of Conference Director.  A memorable talk was given by Robin Mackness, who highlighted some shortcomings in Swiss banking secrecy to an incredulous audience.  Over the years, many talks at conferences focussed on the obstacles to international planning, but some talked about successful schemes and how they worked – like Clive Cutbill on UK/US charitable giving and Robin Vos on capital gains taxes and change of residence.  The speaker recalled an embarrassing episode in Barcelona and an entertaining one in St Tropez.

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