Published: November 2016Contents
i) What are the hot topics?
We are now fully in the era of the Common Reporting Standard (CRS) that became effective in January 2016. Certain aspects of the CRS are causing a degree of confusion in terms of implementation, especially in the trust arena. Many of the difficulties here stem from the basic conceptual framework, copied from the Foreign Account Tax Compliance Act, which treats a trust fund as a ‘financial account’. The most notable glitch in the framework is in identifying those persons connected with the trust and those who need to be reported on. When trustees self-report as reporting financial institutions the concept of an equity interest does not name protectors. Alternatively, if one turns to the parallel list for trusts that are passive non-financial entities, protectors are expressly named.
One silver lining to this confusion and uncertainty on protectors is a renewed focus on the choice of an appropriate person to serve in a protector role. In some cases, families are electing to formalise governance processes around fiduciary holding structures and introduce independent professional protectors in place of close relatives or family friends whose understanding of their duties may be somewhat limited.
ii) Tell us about any key legal developments – recent or pending – and their international impact.
A key development of 2016 was the publication of the Panama Papers. The response to the publication from the governments and the Organisation for Economic Co-operation and Development has reinforced trends seen in prior years towards greater transparency and regulation in the domain of cross-border holding structures, and in the context of beneficial ownership information.
A perspective that may not be published in any newspaper in this context is to explain that the vast majority of offshore trusts are used by tax-compliant families for legitimate wealth structuring and intergenerational succession planning. However, it should not be assumed that this will silence those who oppose trusts as a matter of principle. It has become essential that every opportunity is taken to explain this to policymakers.
iii) What are the biggest opportunities and challenges for practitioners and clients?
It has never been more important for advisers to give balanced and considered advice to families on how best to structure their arrangements, not just in the light of prevailing family circumstances and tax considerations, but also in the knowledge of the likelihood that information about the holding structure will be subject to greater regulatory, government and potentially public disclosure in the years ahead. The paradigm that currently prevails in western Europe is markedly different from that applicable in Asia, the Middle East and Latin America.
It remains to be seen whether many international families who have compliant structures that are fully disclosed to tax authorities will favour the United States as a tax-favoured jurisdiction from which to administer their family structures. This is on the basis that with a thriving domestic industry, the US could well be seen as a reputable jurisdiction that protects families from unwarranted public intrusion into their personal affairs to a greater extent than traditional offshore finance centres if beneficial ownership registers do become public in due course.