Chairman: Milton Grundy
20 - 22 October
Non-residents pay a tax of 9 or 10% tax on purchase and an annual tax on ownership (greater for non-resident companies). Individuals selling within five years pay 21% tax. No tax is chargeable on sale after five years. The same applies where the seller is a company.
Real estate is subject to gift and inheritance tax at 4-8% on properties with a cadastral value of over €1m. It is proposed gift tax be chargeable on distributions from a trust. Relief is offered by the tax treaties with USA, Sweden, UK, Denmark, Israel, Greece and France. Italian authorities may look through companies owning property but having no other function. It is best to buy Italian property as an individual or resident Italian company.
Ordinary income, financial income, inheritance, gift and wealth attract tax. The Italian forfait regime requires a payment of €100,000 a year for 15 years; and foreign income is not taxed. There is also a favourable regime for pensioners with foreign income. The impatriate regime is advantageous for top managers and employees.
The forfait regime is appropriate for the rentier, the art collector or the holder of foreign participation. A holding company with Italian assets may have a tax residence issue or be disregarded; rulings are available. Trusts also may be treated as opaque or disregarded. The forfait regime applies to distributions from foreign opaque trusts or from foreign family office and to foreign carried interest.
This was an OECD initiative. The offshore jurisdictions have introduced legislation, e.g. for BVI: companies, tax resident in the jurisdiction and carrying on relevant activities, must have relevant and adequate substance. Relevant activities are banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and serving centres, holding, intellectual property, but a pure equity holding can comply with reduced substance elements. To fall outside these provisions the core income-generating activities must take place in the jurisdiction, with enough employees, physical premise, local expenditure. There are penalties for non-compliance and power to wind-up non-compliant companies. Sufficient employees, books and records etc. are indications of substance.
Small offshore jurisdictions may have difficulty in providing the people, space and features required to satisfy the substance test.
However, where companies have the ability to develop their local substance elements, then job opportunities for locals should also increase, as no new opportunities for educational and business activities for the local people; hence adding a significant value to the future of the jurisdiction.
A Modular Trust is a hybrid of unit trust and Foreign Trust (a trust with a non-resident settlor having only foreign income). It is taxed only on New Zealand-source income. The beneficiary has a certificate.
The Trustee Act 2020 s 53 afford the trustee a direction as to disclosure of information to beneficiaries in accordance with the provisions of the trust instrument. Section 74 provides for a trust advisor and s 67 for a custodian trustee. All powers can be delegated. Section 121 provides for variations and re-settlement to be made by the Court affecting unrepresented beneficiaries. Section 142 enables a trustee to opt for alternative dispute resolution; whether or not such power is expressed in the trust settlement.
The USVI is one of five US Territories. The ‘mirror’ tax applies US Federal Tax but the local legislature can adopt a lower rate. US tax treaties do not generally apply, but bilateral investment treaties do. The Federal Estate Tax is not applicable to USVI residents who gained US citizenship by birth or naturalization there. It has Exempt Companies, at least 90% owned by non-residents, used for aircraft registration and as holding companies. There are tax reduction programmes – the EDC and RTP. New legislation affecting trusts and companies is coming.
FACTA and ICAs are not applicable to the USVI, and CRS is not applicable to the US. USVI has no tax treaties. Only a few TIEAs are applicable to the USVI, but the USVI has very little information to exchange. The Corporation Transparency Act will be applicable; regulations are under development.
The BEPS agenda has developed into a global initiative to require profits to suffer 15% tax wherever earned. This was taken forward by G7 in June. The Global Minimum tax will be applicable to companies with consolidated revenue of at least €750 million. The Priority Rule authorises country of payor to levy withholding tax. The is a Main Rule, Backstop Rule, Switchover Rule and an Income Inclusion Rule. It is uncertain how low-tax jurisdictions will respond – perhaps introducing a corporate tax. Large companies are going to have to review their activities in the light of the Global Minimum requirement.
Trusts have a long history and satisfied many needs. In the UK, trusts were widely used, notably offshore to avoid capital gains in the Thatcher boom years. From 1981, trusts were increasingly subjected to more tax in new ways. Trusts are now very heavily taxed and costly to run. Family Investment Companies offer the opportunity of gifting growth shares. Resident companies incorporated elsewhere offer opportunities for the non-domiciled and privacy to all. The offshore bond allows a 5% annual draw down and distances the beneficiary from the fund; bonds can also be particularly advantageous for the non-domiciled.
The onslaught has occurred in phases – the introduction of KYC, the attack on privacy transparency and convergence of global regulatory framework. The result has been less privacy, and more tax. The criterion for taxability is expected to move from residence to citizenship. Measures against tax planning are expected to increase. For business, the cost of regulatory compliance is increasing. A critical mass is needed to support compliance. Transparency becomes a moral imperative. Small enterprises and small jurisdictions are unlikely to survive.