The work of offshore trustees, and the UK lawyers they work with, is more challenging than ever. With a global emphasis on greater transparency, and continued pressure on revenue authorities to increase the tax take, the fiscal and regulatory burden keeps growing. Nerine Group of Fiduciaries In-House Legal Counsel Mark Biddlecombe examines the new reality for UK lawyers and considers the pitfalls and dangers associated with not keeping up-to-date with the raft of changes impacting their private clients.
There has been a significant shift among the judiciary in recent years in attitudes to what is seen as aggressive tax planning. This reflects a social and political environment that regards much tax planning as morally suspect. The courts are much more inclined now to interpret tax legislation in a way that reflects the aims of the government of the day.
This has been evident in two recent cases. The first was the Supreme Court decision in the Rangers Football Club case where, contrary to expectation, the HMRC’s arguments over the “suspect” tax efficiency of an employee benefit trust prevailed sparking wide-ranging consequences for many other schemes – a point HMRC have been quick to advertise.
Very shortly afterwards, a decision of the First Tier Tax Tribunal took a very strict view on principles of mind and management of offshore companies. Although the facts were unusual, the Development Securities decision means offshore practitioners and onshore advisers will have to think very carefully about how every decision they make – and the background to it – might be scrutinised if the result is to obtain a tax advantage.
In this case, having considered the records and the background to them, the tribunal concluded that the offshore directors did not make a key decision at all; they merely rubber stamped a decision already made by the UK parent. In doing so, the tribunal stressed that recorded board minutes were less important evidentially than handwritten notes of the person recording the board meetings.
Without doubt it was material to the decision that the offshore company was formed to do one thing and one thing only (to acquire an asset for more than it was worth and trigger a tax loss) but practitioners should take heed of the trend these two cases demonstrate.
Another area UK lawyers have to keep constantly under review is the demand for ever greater transparency. Jurisdictions all over the world – onshore and offshore – have to implement beneficial ownership registers as part of a wider international commitment to improve transparency. Offshore trustees have to keep an eye on what is happening elsewhere, not just their own rules.
In the UK for example, the requirement to provide information about the ultimate beneficial owner of UK residential property owned by an offshore entity is reasonably well known.
Less widely understood is the impact of MiFID II. While technically not applicable to trustees based in non-EU countries, this initiative will have an impact where they are using counterparties – brokers, investment managers etc – who are EU-based or who are a branch of an EU institution. In these circumstances, from 3 January next year, trusts or investment companies will not be able to trade in EU financial markets unless they have obtained (and maintain) a Legal Entity Identifier (LEI).
A third example is the UK Trust Register. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the regulations), which came into force on 26 June this year, introduce the much-touted register of beneficial ownership of trusts (which will be accessible only by law enforcement and regulatory authorities) and also introduce a customer due diligence (CDD) regime for trust and company service providers and other financial institutions in the UK.
The regulations require that HMRC maintain a register of beneficial owners of relevant trusts (the register). Note that the term beneficial owner includes most people connected to a trust including the settlor, trustees, beneficiaries and any individual who has “control” over the trust.
Non-UK trusts which would normally not be within scope of the UK legislation will become a relevant trust if the trustee itself has a UK tax liability or a UK tax reporting obligation. Once a trust is on the register the trustee will have an ongoing obligation to keep the register updated and will also have an obligation to disclose information about its beneficial ownership to third parties with whom it contracts.
These examples demonstrate the changing landscape of advice required by onshore counsel and serve as a reminder of the arduous regulatory burden and the active role professional offshore trustees play in deciphering the complexities. This level of understanding, and the costs associated with compliance, is ever-increasing; these costs are money well spent in ensuring that clients are protected and advised appropriately.
Mark Biddlecombe LLB ACIB TEPIn-House Legal Counsel
+44 1481 701300
Mark.Biddlecombe@nerine.com
www.nerine.com
Mark joined Nerine in May 2010 and was subsequently appointed to the Guernsey board and group board. Qualified as both a barrister and solicitor, Mark is a full member of the Society of Trust & Estate Practitioners (STEP) and has worked in the Channel Islands, Asia and London. As Nerine's In-House Counsel he has devoted his career to looking after the interests of international high net worth individuals and their families. Mark is passionate about both his family and Nerine's clients. He loves creative writing and golf and anything that allows him to exercise his competitive streak.
Nerine’s owners and managers have worked together for more than 30 years with client and adviser relationships almost as long. Our commitment is to serve the interests of our clients with care and skill.Nerine is well established in key locations around the world, in complementary time zones, offering fiduciary services from Guernsey in the Channel Islands, the British Virgin Islands in the Caribbean, Geneva in Switzerland, Hong Kong and Delhi in Asia.
