UPDATE ON INTERNATIONAL PLANNING ISSUES LUXEMBOURG
Tax rulings
[ JOHN GRAHAM ] THE OECD, EU and IFA have their own definitions of a tax ruling. Essentially, it is an agreement on the tax position of one or more specific taxpayers, usually made in advance. They have recently had unfavourable publicity. There are agreements for exchange of information about taxpayers. BEP’s Action 5 calls for exchange of information about rulings, establishing ‘preferential rules’ (but not relating to natural persons). The OECD has prescribed a best practice: the ruling itself may need to be supplemented by the preceding correspondence. Rulings relating to companies with less than €40m are not included. There is a standard form of exchange. There is to be a central directory, not (so far) accessible by the public. State aid is a current
issue. It must be repaid by the recipient. It is a financial benefit granted by a state applying to certain goods and/ or businesses – a special rate, an exemption etc. Recent examples include Apple, Starbucks, Fiat, Amazon, McDonald’s. The Apple rulings limited taxable profits in Ireland. It was said that there was “no scientific basis for profit”, but the end result was not arrived at on an arm’s length basis. The repayment may not qualify for tax credit in the US. Similarly, the Commission considered that the taxable profits of Fiat Finance and Trade were improperly reduced by the ruling. In Starbucks, the royalty payment was too high, as it was in Amazon. In McDonald’s, branch royalties were allocated to the US, where they were not taxable.
The US is hostile to the state aid case, as is the EU to the state aid.
BEP’s Action 5 calls for exchange of information about rulings.
The offshore trust – choosing a jurisdiction
[ JAMES HOWES ]
THE SEARCH for a sensible seat for the family trust is
of some antiquity. When a family is dissatisfied with their trustee they may find a new trustee or go to another jurisdiction. Suppose a UK family, English speaking, living in several countries. Should the trust remain offshore? Should another jurisdiction be chosen? Some civil law countries allow
administration of trusts, but a common law jurisdiction may be preferred – one where first- class services can be found. Time zones and telephone links are relevant factors, as of course are running costs. Being ‘comfortable’ with the trustee is important; the trustee must be able to say “No”. The trust is inherently mobile.
Tax liability generally goes with the residence of the trustee, but some jurisdictions, e.g. Jersey, look to the residence of the beneficiaries. Anti-avoidance rules may negate the apparent advantage of having the trust offshore. The OECD list of tax havens does not include New Zealand. There is a wide choice of countries using the common law, but some are the subject of blacklists – which are constantly being updated. Cyprus, Ghana, Hong Kong, India and Ireland are not listed by any
EU member states. Efficiency, banking system,
law courts – these are relevant to making a choice. A branch of STEP may indicate a higher-level service provider. Hong Kong and New Zealand may appeal to a family resident in Asia. An introduction from a satisfied customer is a great help. To come to a final list, there are the ‘Rolls-Royces’ of the offshore jurisdictions – Bermuda, BVI, Jersey, Hong Kong, New Zealand. There are differences. Bermuda has high quality, but tends to be more expensive. It allows for purpose trusts. It has no register of trusts. The BVI is home to some 40% of the world’s offshore companies. The VISTA trust overcomes the problems indicated by the Bartlett rule and its rule in Saunders v Vautier. In Jersey, a trustee is liable
to local tax, but in practice is exempt if the beneficiaries reside abroad. The trust may have an unlimited perpetuity period. Hong Kong has source- based income taxation but no capital gains tax or estate duty. Trusts are recognised and not regarded with suspicion. New Zealand is in no sense a
tax haven, but taxation depends on the residence of the settlor. The trust can benefit from New Zealand’s tax treaties.
The ITPA Green Book 2017
www.itpa.org
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