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Individual Tax and Private Client Newsletter of the International Bar Association Legal Practice Division Vol 2 No 1 SEPTEMBER 2014
I n October 2015, the IBA Annual Conference will be held in the baroque splendour of Vienna, with its Hofburg
Palace, Spanish riding school and famous Viennese coffee houses. More importantly, Vienna is the hub for Central
and Eastern European business, with more than 1,000 international companies coordinating their regional activities
from Austria. Over 300 international companies have their CCE headquarters in Vienna and it is the seat of several
international organisations such as OPEC and the third United Nations Headquarters. With these links and connections
Vienna is a fitting and inspiring setting for the International Bar Association’s 2015 Annual Conference.
What will Vienna 2015 offer?
• The largest gathering of the international legal community
in the world – a meeting place of more than 5,000 lawyers
and legal professionals from around the world
• Nearly 200 working sessions covering all areas of practice
relevant to international legal practitioners
• The opportunity to generate new business with the leading
firms in the world’s key cities
• A registration fee that entitles you to attend as many working
sessions throughout the week as you wish
• Up to 25 hours of continuing legal education and continuing
professional development
• A variety of social functions providing ample opportunity to
network and see the city’s celebrated sights, and an exclusive
excursion and tours programme
www.ibanet.org/conferences/Vienna2015.aspx
To register your interest, please contact:
International Bar Association, 4th Floor, 10 St Bride Street, London EC4A 4AD, United Kingdom
Tel: +44 (0)20 7842 0090 Fax: +44 (0)20 7842 0091 Email: ibaevents@int-bar.orgContributions to this newsletter are always welcome
IN THIS ISSUE and should be sent to the Newsletter Editor:
Note from the Chair 4 Gerd Goyvaerts
Tiberghien Advocaten, Antwerp
Note from the Editor 5
Tel: +32 3 443 20 07
Committee Officers 6 Fax: +32 3 443 20 20
gerdd.goyvaerts@tiberghien.com
IBA Annual Conference
Tokyo, 19–24 October 2014:
Our committee’s sessions 7 International Bar Association
Reports from the 19th International Wealth 4th Floor, 10 St Bride Street
Transfer Practice Conference London EC4A 4AD, United Kingdom
Tel: +44 (0)20 7842 0090
How to hold your home away from home: real
estate holding structures adapted to Fax: +44 (0)20 7842 0091 www.ibanet.org
these challenging times 9 © International Bar Association 2014.
All rights reserved. No part of this publication may be
‘His mother was an earwig, his father was a reproduced or transmitted in any form or by any means,
whale’: planning for the modern family 10 or stored in any retrieval system of any nature without the
prior permission of the copyright holder. Application for
‘See you… out of court’: dispute resolution – permission should be made to the Director of Content at
mediation and arbitration 12 the IBA address.
The past, present and future relationship of
Terms and Conditions for submission of articles
onshore and offshore jurisdictions 14
1. Articles for inclusion in the newsletter should be sent to the Newsletter Editor.
2. The article must be the original work of the author, must not have been previously
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contains material which is someone else’s copyright, the unrestricted permission
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Following first publication, such publishing rights shall be non-exclusive, except that
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4. The rights of the author will be respected, the name of the author will always be
clearly associated with the article and, except for necessary editorial changes, no
substantial alteration to the article will be made without consulting the author.
This newsletter is intended to provide general
information regarding recent developments in tax law.
Views expressed are not necessarily those of the
International Bar Association.
Advertising
Should you wish to advertise in the next issue of the
Individual Tax and Private Client Committee newsletter
please contact the IBA Advertising Department.
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INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 3MESSAGE FROM THE CHAIR
Gerd Kostrzewa
Message from the Chair Heuking Kühn Lüer
Wojte, Düsseldorf
g.kostrzewa@
heuking.de
W
ith the IBA Annual Conference International Guide on Estate Planning. At
in Tokyo fast approaching, this time, there are twenty-three chapters
the Individual Tax and Private on our IBA webpage, with additional
Client Committee is busy with chapters under current review. The project
the preparation of our conference sessions is ongoing, as our Committee wishes to
and other Committee events taking place in attract as many jurisdictions to contribute
Tokyo. We will be involved in seven half-day chapters as possible. If you see that your
sessions, among them sessions organised in country is not involved and you would like to
collaboration with the Taxes Committee, contribute, please contact Mark Osborne, the
the Closely Held and Growing Business coordinator of this project at meosborne@
Enterprises Committee, the Immigration and ohkdlaw.com. You can view our publications
Nationality Law Committee and the Family page here: tinyurl.com/PrivateClientPubs
Law Committee. Our Committee will also offer We are very proud to host our 20th London
a networking lunch on Monday 20 October. International Wealth Transfer Practice
So far 2014 has been a very good year Conference on 2 and 3 March 2015. This
for our Committee. We are pleased to conference will focus on the role of the private
welcome many new committee members, client adviser in a changing world. We will also
which demonstrate a growing interest in collaborate with the Art, Cultural Institutions
consulting private clients in their tax and and Heritage Law Committee in a special Art
other legal matters. Law Conference, which will take place on 26
Our 19th International Wealth Transfer and 27 March 2015 at Sotheby’s London.
Practice Conference was held on 3 and 4 The Individual Tax and Private
March 2014 in London. Once again not only Client Committee is keen to increase
did the number of delegates attending the the involvement of its members in the
conference increase, the active participation Committee’s activities. Please contact us if
of delegates as speakers, session chairs or you are interested in speaking at one of our
session reporters also increased. conferences, if you wish to write a session
The Individual Tax and Private Client report, a newsletter article or a contribute to
Committee also supported a Joint our Guide on Estate Planning.
International Association of Young Lawyers I would like to take the opportunity to
(AIJA)/IBA seminar on Foundations and thank Helen Darling of Macfarlanes London
Trusts in International Estate Planning on for her excellent work as the previous chair
19-21 in Berlin. Encouraged by this successful of our Committee. My thanks also go to the
event, we will increase our efforts to recruit other officers of the Individual Tax and Private
more young lawyers to our Committee. Client Committee who are listed on page 6.
Our Committee has published an We hope to see you in Tokyo!
4 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISIONEDITOR’S NOTE
Gerd D
Goyvaerts
Tiberghien Advocaten, Editor’s note
Antwerp
gerdd.goyvaerts@
I
tiberghien.com
am happy to introduce you to the new provide articles and briefs on legal
publication of the Individual Tax and developments in your jurisdiction that would
Private Client Committee. This second be of interest to our members.
issue focuses on the IBA 19th Annual Needless to say, in these times where
International Wealth Transfer Practices state budgets are under pressure and tax
Conference, which took place in London authorities seek to attack private wealth with
on 3−4 March 2014. You will find several draconian taxes and increasing measures
reports on some of the many sessions. Many of forced disclosure, ultra-high net worth
thanks to the members of the Committee who individuals (UHNWI) will be in need of
volunteered to act as reporters: Katie Hawksley, careful and high-level advice and guidance, in
Kwong Wing, Oksana Voynarovska and María order to be able to pass on his wealth to the
Luisa de Alarcón. next generations.
Publications such as this can live, strive Let us therefore all hope that the Individual
and develop only through the continued Tax and Private Client Committee and its
contributions of the members of our members may find continued inspiration to
Committee. You are therefore urged to guide their clients.
INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 5COMMITTEE OFFICERS
Committee officers
Chair Publication and Newsletter Editor
Gerd Kostrzewa Gerd Goyvaerts
Heuking Kühn Lüer Wojtek, Düsseldorf Tiberghien Advocaten, Antwerp
Tel: +49 (211) 6005 5217 Tel: +32 3 443 20 07
Fax: +49 (211) 6005 5210 Fax: +32 3 443 20 20
g.kostrzewa@heuking.de gerdd.goyvaerts@tiberghien.com
Senior Vice-Chair Committee Liaison Officer
Olga Boltenko Raul-Angelo Papotti
Withers, Zurich Chiomenti Studio Legale, Milan
Tel: +41 (0)44 488 8888 Tel: +39 (02) 7215 7855
Fax: +41 (0)44 488 8899 Fax: +39 (02) 7215 7227
olga.boltenko@withersworldwide.com raul.papotti@chiomenti.net
Vice-Chair Website Officer
Rashad Wareh Bijal Ajinkya
Kozusko Harris Duncan, New York Khaitan & Co, Mumbai
Tel: +1 (212) 980 9809 Tel: +91 22 6636 5000
Fax: +1 (212) 202 5085 bijal.ajinkya@gmail.com
rwareh@kozlaw.com
Corporate Counsel Forum Liaison Officer
Treasurer James Paladino
Catherine Watson South Dakota Trust Company, New York
McInnes Cooper, Halifax Tel: +1 2126428377
Tel: +1 (902) 474 6582 Fax: +1 2126428376
Fax: +1 (902) 425 6350 jpaladino@sdplanco.com
catherine.watson@mcinnescooper.com
Conference Quality Officer
Scholarship Officer Olga Boltenko
Jerome Assouline Withers, Zurich
Sekri Valentin Zerrouk, Paris Tel: +41 (0)44 488 8888
Tel: +33 (0)158 183 034 Fax: +41 (0)44 488 8899
Fax: +33 (0)158 183 031 olga.boltenko@withersworldwide.com
jassouline@svz.fr
Session Reporter Coordinator
Secretary Niklas Schmidt
Daniel Simon Wolf Theiss, Vienna
Collyer Bristow, London Tel: +43 (1) 515 10 5410
Tel: +44 (0)20 7242 7363 - +44 (0)20 7468 7365 Fax: +43 (1) 515 10 66 5410
Fax: +44 (0)20 7468 7386 niklas.schmidt@wolftheiss.com
daniel.simon@collyerbristow.com
Membership Officer
Mark Osborne
Osborne Helman Knebel & Deleery, Austin
Tel: +1 (512) 542 2000
Fax: +1 (512) 542 2011
meosborne@ohkdlaw.com
6 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISIONIBA ANNUAL CONFERENCE, TOKYO, 19–24 OCTOBER 2014: OUR FORUM’S SESSIONS
Individual Tax and Private Client Committee sessions
Monday 1430 – 1730 on international litigation about marital rights, and is designed to
take a comparative look at prenuptial and postnuptial agreements,
what structures may be appropriate, entitlement to assets from
Secondment of employees from and into Asia
trusts, family protocols and constitutions, and the attitude of
Presented by the Taxation Section
courts in different jurisdictions towards discovery of information,
The secondment of employees within groups of companies into privilege, disclosure and confidentiality.
Asia and from Asia into Europe and the US is on the rise in many
industries. Depending on the organisation of the secondment, its
Wednesday 0930 – 1230
duration and financial terms there are many different scenarios
to be dealt with from a tax perspective. This panel gives an inside
view on the problems that employers and employees are facing
in Asia and in other countries. It will broadly analyse the tax ‘... There’s some corner of a foreign field’:
consequences and will present practical solutions. dying abroad with assets at home or dying
at home with assets abroad – international
succession and probate
Tuesday 1430 – 1730
Presented by the Individual Tax and Private Client Committee
A distinguished, multi-jurisdictional panel will consider the
Don’t fence me in – family discipline vs complexities of cross-border estates, including conflicting
individual freedom of family members succession laws, probate formalities and taxation. The emphasis
Presented by the Closely Held and Growing Business Enterprises will be on practical solutions to minimise problems and taxation
Committee and the Individual Tax and Private Client Committee for your clients, be they common law or civil law residents.
The session looks at the different intents of the family and
individual family members and how those can harmonised. The
session will examine these issues from a combined corporate Wednesday 1430 – 1730
and tax law perspective, focusing on both the company and its
shareholders. Structuring ownership of luxury items:
planes, yachts and Louis Vuitton handbags
Presented by the Individual Tax and Private Client Committee
Tuesday 1430 – 1730 Clients increasingly understand that the enjoyment of an asset is
independent from the ownership of that asset. Furthermore, the
‘Til the sooner of death and divorce do us use of an ownership structure can enhance confidentiality and
part: the use of trusts, marital agreements improve management possibilities.
and other structures in the protection of However, private asset ownership structures do not sit
wealth upon the termination of marriage comfortably with all legal and tax systems, especially where
Presented by the Family Law Committee and the Individual Tax the structure relies on corporate entities. The speakers will
and Private Client Committee discuss their experience with asset ownership structures in their
jurisdictions, the issues these structures face and the solutions (if
When one or both of the spouses have substantial assets, the
any) which are available.
difficulties of handling the legal repercussions of the breakdown
or end of the relationship become even more complicated. The Assets covered will include: cars, yachts, private jets and works
session will focus on the practical aspects of protecting wealth and of art.
INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 7FEATURE ARTICLE
Thursday 0930 – 1230 Thursday 1430 – 1730
Pre-immigration planning and exit The lawyers’ guide to the best clients:
taxation, visas and passport shopping finding, minding and grinding
Presented by the Immigration and Nationality Law Committee Presented by the Individual Tax and Private Client Committee
and the Individual Tax and Private Client Committee
No matter if you are a finder, minder or grinder, there are
Globally mobile executives, entrepreneurs and private investors essential practice issues the private client lawyer will confront.
face many legal challenges as they cross borders to change their This interactive roundtable format discussion will break down the
residence. In this session the panellists will discuss immigration essential elements of representing your client including:
law implications as well as tax aspects relevant to individuals who
• How to handle existing clients
relocate from one jurisdiction to another.
• How to attract new clients directly or by referral
• How to be sure you get paid
• What if your client is up to no good?
• How to fire a client with style when you must.
To find out more about the conference venue, sessions
and social programme, and to register your interest, visit
www.ibanet.org/conferences/tokyo2014.aspx.
Further information on
accommodation, tours
and excursions during the
conference week can also be PRELIM
INARY
PROGRA
MME
found at the above address. ACCOM
MODATI
O N
OFFICIAL
CORPORAT
E SUPP
ORTERS
OFFICIAL
CORPORAT
E SUPP
ORTERS
8 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISIONHOME AWAY FROM HOME: REAL ESTATE HOLDING STRUCTURES ADAPTED TO THESE CHALLENGING TIMES
Oksana
Voynarovska
Vasil, Kisil and Partners, How to hold your home
Kiev
voynarovska@ away from home: real estate
vkp.kiev.ua
holding structures adapted to
these challenging times
Report on a session at the 19th Annual International Wealth Transfer Practice Conference
Monday 3 March 2014
Session Chair acquisition, holding, sale, gifts and death.
Jerome Assouline Sekri Valentin Zerrouk, Paris Then she discussed the issues that affect
existing property structures, particularly
Speakers those involving companies, which were
José Blasi Navés Monereo Meyer Marinel-lo established before recent tax changes and
Abogados, Barcelona now need to be reviewed. Finally, Dupernex
Lisa-Jane Dupernex Speechly Bircham, briefly considered some UK tax issues
London affecting UK resident non-domiciliaries
Natalie Peter Staiger Schwald & Partner, acquiring a property outside the UK. The
Zurich report assumed that the property is going to
Megan R Worrell Duane Morris, New York be occupied by the client/family member,
and will not be let commercially.
During the session the panellists addressed Megan R Worrell presented the report on
the present and future of real estate holding non-United States buyers of US real estate, US
structures. tax issues and key objectives, where she briefly
The chosen topic is interesting for the discussed the applicable US taxes that could
participants because an ideal real estate affect the purchase of US real property, the
investment structure is always multifaceted various ownership options for holding US real
as it seeks to meet the investor’s particular property and the benefits and disadvantages
requirements in terms of confidentiality, specific to each option. In part one, the
estate planning, tax optimisation, and so on. speaker described a number of key issues
It has always been difficult to identify the foreign buyers (ie, non-US persons) should
perfect structure and today’s changing legal consider when investing in real property
and tax environment does nothing to simplify located in the US. In part two, she provided
the task. an overview of the issues, both tax and non-
The report on United Kingdom tax, non-US persons face when purchasing US
considerations in structuring property real property, from the time of acquisition,
ownership, given by Lisa-Jane Dupernex, was during their period of ownership and until the
devoted to radical changes of taxation of UK eventual disposition of the property, whether
property holding structures that took place by sale, gift or death. In part three, Worrell
in recent years. The speaker first considered discussed the various structuring options for
triggers of tax: funding a purchase, non-US persons investing in US real estate.
INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 9‘HIS MOTHER WAS AN EARWIG, HIS FATHER WAS A WHALE’: PLANNING FOR THE MODERN FAMILY
María Luisa de
‘His mother was an earwig, Alarcón
JAUSAS, Barcelona
his father was a whale’: malarcon@
jausaslegal.com
planning for the modern family
Report on a session at the 19th Annual International Wealth Transfer Practice Conference,
co-sponsored by the IBA Family Law Committee
Tuesday 4 March 2014
Session Chairs 3. Elizabeth is married with two children
Gillian Rivers Penningtons Manches, London from this marriage. She changes
Catherine Watson McInnes Cooper, Halifax address every two years as a result of her
husband’s job. She has no connection to
Speakers the family business.
Chawkat Houalla Adib & Houalla Law Office, The analysis of the various presentations dealt
Tripoli with three fundamental aspects that must be
Chris Owen Penningtons Manches, London taken into account in this type of analysis.
Von Sanborn Withers Bergman, New York
Markus Zwicky Zwicky Windlin & Partner, Zug
Plan for transferring the business: the
‘Family Protocol’
The presentations relating to this title
correspond to a fairly complex topic The presentations, which were very clear,
regarding private international law: the were given by Chris Owen, who expanded
succession of family business owners when the upon the topic, and Markus Zwicky. The
heirs are ‘atypical’ families, known in this case speakers stated that this planning, or the
as a ‘modern family’. determining of a ‘Family Protocol’, must take
The presentations discussed the case of into account several important elements:
a ‘traditional’ marriage (a husband and • Time changes everything; in other words,
wife, with three children born in wedlock) there have to be flexible structures that
with a family business, where the father is may be changed if the circumstances of the
considering transferring the business to family members change.
the next generation, while maintaining a • Precisely as a result of the foregoing, there
certain level of income that will allow him must be structures in place that allow
to live comfortably; he has no tax plan those family members that do not wish to
or succession plan for the generational continue to be involved in the business
transfer of the business. The couple has to leave at any given time, prearranging
three adult children, with very different valuation systems for their share.
family situations and connections to the • They need to realise that not only is the
family business: business important, but also the family and,
1. Sharon lives with her partner, another therefore, both must be cared for equally.
woman, who has her own children. • In order to resolve any typical conflicts of
Sharon intends to adopt her partner’s interest in family businesses adequately
children, and she is very active in the arising from the various interests at play, the
family business. interests of the owner, the family and the
2. Jonathan lives with, but is not married to, business must be taken into consideration.
his girlfriend, Marika, who has two of her • Permanent channels of communication
own children. He is separated and has must also be established between the family
three children under the legal age from members in order to prevent conflict.
a previous marriage. He works in the • If planning is conceived late and/or does
family business, but has a less strategic not detect the difficulty of efficiently
role than Sharon. coordinating the various conflicts of
10 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION‘HIS MOTHER WAS AN EARWIG, HIS FATHER WAS A WHALE’: PLANNING FOR THE MODERN FAMILY
interest, and/or no one family member into consideration the civil and tax legislation
clearly emerges as the leader to run the applicable to the specific case in question.
business, the sale of the business should be Potential conflicts of interest evidenced
considered, because with money it is easier that the use of the trust may imply that
to manage the owner’s financial needs certain countries that do not customarily use
and plan his or her succession without this structure (and, in such countries, the
generating family conflict. party receiving the income therefrom may
The differences that usually exist between be required to pay income tax), and even
countries were also evidenced in this topic, countries where its existence is recognised,
since certain countries have a more protective such as Switzerland, have provisions for forced
successor system (with forced heirship for the heirship for the heirs, and tax the transfer of
heirs) and economic marriage systems. Both assets to a trust at a rate of 35 per cent, as if it
matters should be taken into account when was a gift.
determining the succession of the business. The importance of taking into
consideration in tax planning the residence
of the parties that will receive the income in
Tax planning
the future, and even that of the owner, was
There were two presentations regarding this also evidenced.
topic, one given by Zwicky, who dealt with
this matter from the point of view of Swiss
Civil legislation applicable and its effects
Law, which has advantages in certain matters,
on succession and existing marriage
but not in others, and the other given by Von
agreements
Sanborn, who dealt with the matter of the use
of a trust, according to United States law. Finally, Chawkat Houalla highlighted the
The speakers covered the main tax importance of taking into consideration
problems that may arise in these types the law applicable to civil matters regarding
of situations and that must be taken into succession because not all countries recognise
account in planning, especially when various the same rights for heirs depending on
tax legislations are involved as a result of the their situation, which must be taken into
different domiciles of the affected parties: account, in such cases, when designing other
• Inheritance tax, and, where applicable, mechanisms that allow the owner to pass
wealth tax, for the successors and/or the on the assets considered appropriate to the
owner while alive. family member chosen.
• Income tax, where applicable, on the In addition, there are countries that do
income arising from the company not recognise the right of same-sex couples
(dividends, wages, etc) and occasionally to adopt, some that do not consider an
from the trust itself. unmarried couple to have any inheritance
• Taxes may be incurred in the transfer of rights, some that assign different rights to
assets to a trust, if applicable. children born in wedlock from those born
The two types of trust structures that may out of wedlock, others that do not consider
be used for planning are known as ‘dynastic grandchildren to be heirs if the father dies
ownership’ and ‘dynamic ownership’. The first before the grandfather, and so on. The
type of structure uses trusts or foundations, different inheritance rights of the wife based
which have several tax advantages, and on the different applicable marriage systems,
the second type uses strong shareholder whether or not there is forced heirship in the
agreements, without using trusts; the latter country in question, and so on, should also be
are usually less tax efficient, at least in the US, taken into account.
and in practice, family governance provisions All of these elements are also essential
are not always respected. However, the use of when considering succession and must be
either structure must be analysed while taking taken into account in inheritance planning.
INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 11‘SEE YOU… OUT OF COURT’: DISPUTE RESOLUTION – MEDIATION AND ARBITRATION
Katie Hawksley
‘See you… out of court’: Boodle Hatfield,
London
dispute resolution – khawksley@
boodlehatfield.com
mediation and arbitration
Report on a session at the 19th Annual International Wealth Transfer Practice Conference
Tuesday 4 March 2014
Session Chair differentiated between ‘external’ and
‘internal’ litigation. Examples of the former
Tina Wüstemann Bär & Karrer, Zurich
included litigation in the context of divorce,
forced heirship and between creditors and
settlors/beneficiaries; essentially, where
Speakers the trustee is obliged to become involved
in ‘someone else’s problems’. The latter
Edward Buckland Barclays, St Helier
covered scenarios where litigation is aimed
Johannes Gasser Batliner Gasser, Vaduz
at the trustee itself and not the trust fund
Narinder K Hargun Conyers Dill & Pearman,
it administers, with examples being poor
Hamilton
investment performance, mismanagement of
Teresa Rosen Peacocke 3 Stone Buildings,
trust assets, undue favouritism and failure to
London
exercise due care and attention. Whatever the
Jonathan Speck Mourant Ozannes, St Helier
source and nature of the dispute, however,
Buckland made the crucial point that the
This panel session provided an interesting
trustee would often be brought in at some
and informative run through the main
level, as the person in control of the funds.
features of mediation and arbitration and the
He made the further point that, while ADR
differences between those types of dispute
has a great role to play in those types of
resolution and more traditional litigation
dispute, the question remains as to how you
proceedings. There was a particular emphasis
engage all parties in the ADR process, given
on the possible application and value of
that the focus is on a fiduciary relationship
alternative dispute resolution (ADR) to trust
and not a contractual obligation.
disputes.
Narinder Hargun then provided a
The session was opened by Tina
helpful commentary on arbitration, setting
Wüstemann, who considered the driving
out how this differs to other forms of
forces behind the growth of ADR in recent
dispute resolution. The first point was that
years. Key factors included the increase
arbitration is a consensual process between
in complex structures covering multiple
the parties, which requires an agreement
jurisdictions, the use of trusts to circumvent
between them to arbitrate. The process
certain legal concepts (eg, forced heirship/
also requires legal effect to be given to any
marital property regimes), increased life
breach of an arbitration agreement, so the
expectancy, ‘patchwork families’ with
backup of the court process at a national
increased international mobility and conflict
and international level is vital. The New York
of law issues. Interestingly, Wüstemann also
Convention has, to a certain extent, provided
mentioned the fact that many trusts set up in
this cohesive approach, enabling arbitration
the 1960s and 1970s are now approaching the
awards to be recognised and enforced across
first handover of power and influence from
different jurisdictions. Hargun cited the
one generation to the next, and this inevitably
following as reasons to opt for arbitration
gives rise to potential difficulties and conflict.
over litigation:
Edward Buckland then examined ADR
• confidential proceedings;
in the context of trust disputes, from
• the ability for parties to select a qualified
the perspective of the trustee. Buckland
and experienced panel of arbitrators
12 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION‘SEE YOU… OUT OF COURT’: DISPUTE RESOLUTION – MEDIATION AND ARBITRATION
• being able to retain control over the that he referred here to ‘friendly’ rather
arbitration process, for example, in terms of than ‘hostile’ litigation. For the trustee,
timing, procedure, and so on; Speck was of the view that friendly litigation
• the certainty and finality of the arbitration offered valuable protection against criticism
process, which provides limited rights to and legal challenges, allowing the trustee to
appeal the merits of an issue or review apply to the court for guidance and directions
awards; and on difficult decisions or in the event of
• the potential to minimise costs (although conflicts of interest, which might otherwise
Hargun did point out that the cost of the be questioned by beneficiaries, and to
tribunal has to be met by the parties, so this empower the trustee to do something that it
may not always be the case). could not otherwise undertake. This process
The key question in the context of trusts, also arguably provides the beneficiaries with
taking up a question raised earlier by greater certainty, and encourages better
Buckland, was can a trust dispute be resolved communication between the parties.
by way of arbitration? Hargun’s view was that Johannes Gasser rounded off the
this relies upon the introduction of specific panellists’ contributions by looking at
statutory provisions, such as has been seen in arbitration in Liechtenstein. Recent
the Bahamas Trustee Amendment Act 2011. legislation in Liechtenstein in 2010
Teresa Rosen Peacocke followed with a has seen the introduction of a new
review of mediation. Again, she stressed that arbitration law based on Austrian and UN
mediation is, like arbitration, a consensual Commission on International Trade Law
process. Crucially, it is based on ‘interest- (UNCITRAL) Model Law. This provides
based compromise’, with the shared for the recognition and enforcement of
interest(s) of the parties becoming the focus arbitration awards. Gasser examined this
of the mediation, as opposed to position with particular reference to trusts and
based arguments, which would typically form foundations. Essentially, the legislation
the basis of a litigation dispute. A common requires agreement between the parties to
misconception, however, is that mediation the dispute or in some cases, a unilateral
is about parties ‘making up’ and this can declaration, where the law allows such
discourage those who might otherwise a declaration to have legal effect. It was
consider mediation as an alternative to noted that Liechtenstein’s former statutory
other forms of dispute resolution. One of law, which previously required arbitration
the main differences between mediation clauses in foundations, trust deeds, and so
and arbitration is that mediation provides on, to have legal certification by the court,
greater flexibility in the form and effect of no longer applies. Arbitration clauses in
dispute resolution and is not limited to those foundations/trusts are now legally valid and
remedies that would be available in litigation even catch non-signatories, for example,
or arbitration procedures. Again, it is a beneficiaries. The new legislation does
confidential process and can be cost-efficient, not cover the ordinary jurisdiction of
and even if agreement is not reached, the the Liechtenstein court over supervisory
mere act of engaging in the mediation proceedings, however, such as the removal
process can lead to other compromises that of trustees and setting aside trustee
would not otherwise have been considered resolutions. This supervisory role cannot be
by the parties. Peacocke suggested that ousted by arbitration.
mediation in the context of trust and estate This informative panel session ended
disputes can be encouraged by incorporating with a review of a case study, in which
relevant powers into the trust deed/will the panel members discussed the likely
provisions, empowering the trustee/executor approach in their respective jurisdictions
to use trust funds to mediate or perhaps even to issues that would typically arise in a trust
making mediation a prerequisite to litigation. dispute, such as requests for information
Jonathan Speck flew the flag for litigation and arbitration requests.
as the best form of dispute resolution, albeit
INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 13THE PAST, PRESENT AND FUTURE RELATIONSHIP OF ONSHORE AND OFFSHORE JURISDICTIONS
Leon Kwong
The past, present and future Wing
KhattarWong,
relationship of onshore and Singapore
leonkwongwing@
offshore jurisdictions khattarwong.com
Report on a session of the 19th Annual International Wealth Transfer Practice Conference
Tuesday 4 March 2014
Session Chair to redistribute wealth. The parties behind
it are churches and charities lobbying for
Mark Osborne Osborne Helman Knebel &
greater public expenditure, media sympathetic
Deleery, Austin
to left-wing causes and politicians incapable
of reining in entitlement spending because
Speakers of their electoral interests. Facilitating this
agenda are the banks. Having expended the
Bijal Ajinkya Khaitan & Co, Mumbai
money to comply with the Foreign Account
Mauricio Bravo Fortoul Turanzas Bravo y
Tax Compliance Act (FATCA), they are
Ambrosi, Mexico City
the ‘principal enthusiasts’ for the universal
Richard Hay Stikeman Elliott, London
adoption of systems of automatic information
Helene Lewis Simonette Lewis, Tortola
exchange (eg, the Organisation for Economic
Steven Meiklejohn Ogier, St Helier
Co-operation and Development (OECD)
Nicola Saccardo Maisto e Associati, London
common reporting standard).
Ernst Walch Walch & Schurti, Vaduz
Hand in glove with the exchange of
financial information are the United
The 2014 London conference closed on a
Kingdom and the European Union proposals
high note with the afternoon programme
to mandate and sanction public registers of
consisting of a solid double session of acute
private assets. In February,1 the European
observations and informative country briefs.
Parliament Economic Affairs and its Justice
There is a well-established and almost
and Home Affairs committees proposed
universal principle that the courts of one
that the ultimate beneficial owners of
country will not enforce the revenue laws of
companies, foundations, trusts and other
another, since foreign taxes are an assertion
legal arrangements be collected in public
of sovereign power by one state into the
registers. According to this initiative, to
territory of another (Dicey and Morris, Rule 3).
disguise the nature, source and ownership of
Many offshore tax systems are directly or
assets both in the EU and abroad constitutes
indirectly derived from the Model Colonial
money laundering. The draft rules are
Territories Income Tax Ordinance that
intended to apply to banks and financial
Britain devised for the colonies. There would
institutions, auditors, lawyers, accountants,
be neither need nor incentive for countries to
notaries, tax advisers, asset managers,
exchange information for tax purposes were
trustees and real estate agents.
the onshore jurisdictions to embrace the same
Rounding up his introduction, Hay
system of taxation that had been invented for
mentioned the German Bundesbank and the
offshore jurisdictions. But in matters of tax
International Monetary Fund (IMF) proposals
there is one law for the mother country and
to effect significant redistribution in heavily
another for the colonies.
indebted countries in Europe by encouraging
their governments to impose a 10 per cent,
Offshore jurisdictions one-off, lightning strike wealth tax.
The implications of handing over private
The session opened with Richard Hay
information to, in Hay’s words, ‘every tinpot
setting the policy context for the afternoon’s
country in the world’ provided both food
discussion, which was that there is an agenda
for thought, as well as the most memorable
14 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISIONTHE PAST, PRESENT AND FUTURE RELATIONSHIP OF ONSHORE AND OFFSHORE JURISDICTIONS
quote of the afternoon. of compliance with the FATF standard to
Ernst Walch pointed out, in case there was prevent the misuse of shell companies, and
any misapprehension, that Liechtenstein OECD countries the poorest compliance.
is ‘the world’s most industrialised country, Hay noted that the US, for one, has a
full stop. It is not the offshore business, or thriving offshore industry. ‘There is quite a
the banking industry, not at all.’ As such, bit of capital flight from Latin America to the
Liechtenstein has a natural interest in US’. Yet the US does not expect its financial
building a treaty network. The country is institutions to ‘look at the money [from Latin
open to making agreements for the exchange America] the same way that the Swiss are
of information, in tandem with a tax treaty. expected to [look at money from US persons]’.
Ironically ‘that is when many of the big Be that as it may, offshore jurisdictions
jurisdictions back out’. have to deal with the world as it really is,
Walch had the session’s best joke: ‘As a which is one of double standards. As Walch
matter of fact, Liechtenstein is only one of put it, quod licet Iovi, non licet bovi - literally,
four countries in the world that is surrounded ‘Gods may do what cattle may not’ - the
by completely landlocked countries. So if standards that the onshore jurisdictions
there is any country that is more onshore apply to themselves are not the same as those
than Liechtenstein…’ they require of the offshore jurisdictions.
Helene Lewis noted that the British For practical purposes, it is not enough, or,
Virgin Islands (BVI) has set up disclosure as Hay put it, ‘practically irrelevant’, that
mechanisms and compliance requirements offshore jurisdictions are well regulated and
since the 1990s. These have been continually compliant with international requirements.
strengthened, and the BVI is comfortably Offshore jurisdictions have to make a
‘ahead of the curve’ with respect to the OECD positive case for their existence and role in
and Financial Action Task Force (FATF) the global economy. The July 2013 report
standards. Countries have been able to obtain ‘Jersey's value to Britain’ commissioned by
the information they need through the Jersey Finance and carried out by the research
existing processes. On the other hand, fishing firm Capital Economics was an important
expeditions and the misuse of information first step towards meeting this requirement. It
for purposes ‘other than that which they objectively lays out the positive contribution
are letting on’ are causes for concern if the that Jersey as an intermediary financial
BVI is to give other governments access centre makes to the UK economy. Meiklejohn
to information ‘instantly by logging on’. emphasised the fact that there were ‘hard
Furthermore, the costs of implementing numbers in there on tax taking and job
such facilities will be borne entirely by the creation, particularly in the UK’.
BVI ‘whereas the benefits cannot easily be
measured’.
Onshore jurisdictions
Steven Meiklejohn similarly described
Jersey as having had ‘no truck with tax Mauricio Bravo Fortoul explained that there
evasion or aggressive tax avoidance in recent is no such thing as tax-compliant or non
years’. Jersey has undertaken to exchange tax-compliant structures in Mexico. Rather,
information with the United States in support the situation is that Mexican residents are
of FATCA. It has a disclosure facility with normally only taxed on foreign-sourced
the UK to allow taxpayers to regularise their income that is brought back to Mexico.
affairs with HM Revenue & Customs (HMRC). However, if a Mexican resident participates
When the disclosure facility runs out in in a vehicle that is taxed at less than three
March 2016, an intergovernmental agreement quarters of Mexico’s 35 per cent corporate
provides for the automatic exchange of tax rate (ie, under 26.25 per cent), such a
information about UK residents with accounts vehicle is regarded as a controlled foreign
in Jersey. From 1 January 2015, Jersey will also company (CFC). With regard to CFCs, ‘the
exchange information automatically under Mexican government has been very active in
the EU Savings Directive. Jersey has also detecting where they are located and trying
committed itself to being part of the OECD to make a tax assessment on them’. For this
common reporting standard. purpose, Mexico has entered into exchange
Indeed, The Economist (22 September 2012) of information agreements with a number of
reported on a study carried out by Michael offshore jurisdictions, such as the Isle of Man
Findley, Daniel Nielson and Jason Sharman that and Panama, and with the US. Mexico also
found that ‘tax havens’ had the highest standards includes an exchange of information clause
INDIVIDUAL TAX AND PRIVATE CLIENT NEWSLETTER SEPTEMBER 2014 15THE PAST, PRESENT AND FUTURE RELATIONSHIP OF ONSHORE AND OFFSHORE JURISDICTIONS
in its tax treaties. In addition, the country is has also recently launched a voluntary
party to the Strasbourg Convention on the disclosure programme for Italian residents
exchange of tax-related information. to come forward with unreported foreign
One particular focus of the Mexican assets. The programme waives criminal
revenue’s enforcement has been the assets penalties and grants reduced civil penalties
and income in Spain that Mexican residents in consideration for disclosure, and full
have failed to report. Fortoul also said that payment of tax and interest. The reduction of
Mexican families are concerned about US penalties is contingent on the foreign assets
taxation, and some have been reorganising being brought back into Italy and other EU
their portfolios in response to FATCA. Member States. If the assets remain outside
Bijal Ajinkya referred to the Indian Italy, the penalties can still be mitigated if
government being pushed by the Indian there are commitments from foreign financial
Supreme Court in 2011 to address the matter intermediaries to provide information on the
of ‘black money’ hidden abroad by Indians. foreign assets.
The Indian government had not pursued Saccardo foresees substantial foreign
this issue possibly because ‘a lot of the money assets being transferred back to Italy and EU
stashed in these bank accounts are politically- Member States, and a lot of restructuring to
connected payments’. The white paper optimise taxation of the future income arising
on black money published by the Indian from the assets transferred back.
government in 2012 makes for fascinating For foreigners considering taking up
reading. India has concluded 82 tax treaties Italian residence, Saccardo advised that
with exchange of information articles, ‘it is worth considering settling assets into
and entered into exchange of information a foreign trust before taking up Italian
agreements with ‘all the tax havens’. Indian residency’ because ‘the trust will be outside
law stipulates that ‘if any Indian national has the scope of Italian tax, and any distribution
any interest in foreign assets or holds any to the beneficiaries will not be taxable for
foreign entities – be it a trust, company or Italian tax purposes’.
partnership – he must disclose them in his Italy has blacklists against foreign
income tax returns’. jurisdictions having extremely low taxes or
Ajinkya surprised the audience with not exchanging information adequately.
the revelation that India regards itself as It also has a white list under which
not bound by treaty provisions should the jurisdictions are ranked according to the
country be dissatisfied with the exchange of level of information that they provide to
information from a treaty partner. A lot of Italy. Saccardo recommended that foreign
money has been invested from Cyprus into nationals thinking of moving to Italy should
India because Cyprus residents enjoy an move existing structures to white-listed
exemption from Indian capital gains tax and countries before they relocate.
a preferential rate of interest withholding Saccardo mentioned that Italy has
tax. However, India declared Cyprus to be a been ‘very active over the last month
non-cooperative country with regard to the with negotiating and signing exchange
exchange of information from 1 November of information treaties with a number of
2013. As a result, remittances from India to offshore jurisdictions. More than ten treaties
Cyprus have been subject to a 30 per cent on exchange of information have been
withholding tax for the past five months, signed, including the treaties with Jersey,
notwithstanding the Cyprus-India treaty. Guernsey and the Cayman Islands.’ Finally,
India is also working on an negotiations between Italy and Switzerland
intergovernmental agreement with the US on an agreement for the exchange of
regarding FATCA. information are in progress.
Italian enforcement used to be
concentrated principally on corporate Note
1 European Parliament press release, Money laundering:
taxpayers, but we learnt from Nicola MEPs vote to end anonymity of owners of companies and trusts,
Saccardo that the Italian Revenue is turning 20 February 2014.
its attention to individual taxation. Italy
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