The pugnacity of the Hungarian EU Presidency and of the European Commission did not pay off: Italy refused, on 17 May, to support a compromise on the taxation of savings income in the absence of sanctions for states and operators that "systematically" violate the existing rules. Rome's refusal in this context targeted Switzerland.
This is unfortunate:
The Hungarian Presidency had proposed that the 27 finance ministers give a green light to the Commission to draft mandates to negotiate with five countries — Switzerland, Liechtenstein, Andorra, San Marino and Monaco. The idea was to ensure that they continue to apply measures equivalent to the EU's in the area of taxation of savings income. The 27 are considering extending the scope of their directive to new products (investment funds, life insurance, etc) and to certain 'intermediaries' (trusts, foundations, etc) that can serve as screens for fraudsters.
Luxembourg ended up approving Budapest's draft conclusions, which carefully avoid the sensitive issue of abolishing banking secrecy. Luxembourg and Vienna demand to be treated on an equal footing with Switzerland. They refuse to be forced to switch from withholding at the source to the automatic exchange of information between tax administrations if Berne does not follow suit.
That was progress. But Italy was adamant:
Italian Finance Minister Giulio Tremonti accused certain states and economic operators of "systematically" violating existing regulations.
The EU directive on savings taxation "was written by Switzerland, of which the Union has become a member," he railed. "This is a paper tiger, a text with no teeth. Obligations were imposed on financial institutions and states, but no sanctions were put in place" against those failing to comply.
This "leaves the door wide open to abuse. It's a scandal," he added, accusing banks (Swiss in particular) of "using insurance systems or offshore funds" to circumvent their obligations.
This seems misguided ion Italy's part:" the new European Union Savings Tax Directive would address these issues, so meeting its concerns. But:
Rome consequently refused to make the slightest concession until the Union "undertakes to apply sanctions against non-compliant countries and operators" in the framework of the review of implementation of the EU legislation. The Commission will present a report in June, confirmed Taxation Commissioner Algirdas Semeta, who wants "to use it as an instrument of surveillance".
I understand Italy's anger. I'm not sure they've expressed it the right way.
But it doesn't look as though it's back to the drawing board. Progress is likely, I think.
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The very loopholes that the Italian Finance Minister is peeved off about are full tackled in the amendments. So I guess after being politely shown this, the directive will pass unanimously by July.
Mark, do you have the draft text of the directive (here or over at yours). How does it deal with Luxembourg’s and Austria’s whitholding option?
What happened to the Italians? Was there some horsetrading that did not go as planned?
Darren,
The month or two break allows the Commission to update the amendment draft because there are still up to 10 technical loopholes. Expect a new draft (version 3) on my website soon..
The Italian Finance Minister wants some anti-avoidance provisions, standard in MS tax legislation. However, the Commission feels it is more efficient to rather tighten up the directive so that it cannot be circumvented.
Would be interesting to know if Mark, who I am sure is following this, has got any particular insight. The Italian move, whatever one thinks of the underlying issues, looks like rather bad politics.
Darren, I have shown Richard the words direct from the horses mouth…
This is a minor hiccup, with the Italian Finance Minister not up to scratch with the technical details. This is a tiny wrinkle that will be quickly ironed out.
Kinda like the Italian delay in 2003 on the EUSD over a milk quota.
Just the European Union being European and united, as usual.
All for one, and one for f-all
Darren, Harry
My guess is you’re both involved in fiduciary services.
Do yourselves a favour, and quickly do a self-test of your know-how on the savings tax amendments.
Let me know it’s a walk in the park…
Mark
Mark – seriously no I am not in fiduciary services. I co-run and own a global alternative investment business with both liquid and illiquid strategies. My interest in (European) tax matters has different origins. I have discovered since yestrday that this makes me one of Murphy’s number one ennemies.
The self-test is nevertheless quite straightforward, with the caveat that you continue to assume, in error, that Switzerland is a party to, and covered by the various EU directives that make up the new regime. The replication of the revised EUSD in the Swizz-EU agreements will be the subject of a future negotiation.
Back to my original question though, how did the EU leave it with Luxembourg and Austria regarding the withholding regime?
The exchange of information issue with Luxembourg and Austria will be an issue to be tackled later with the directive on administrative cooperation in the field of taxation. So not only interest will be subject to auto exchange of info, but 8 other categories of capital income.
Regarding Switzerland acquiescing to the savings tax amendment. You can take it to the bank that Switzerland will quickly fully adopt the revision.
Why are you the only person in the world who thinks this may not happen? Even the Swiss keep repeating that they will agree to it…
Mark – As far as I know the directive you mention will result in automatic exchange with respect to a maximum 5 categories starting in 2015 (salaries, pensions, certain life insurance products, real estate and directors’ fees). Post-2017 the Commission may propose 3 additional categories (dividends, capital gains and royalties), but this will be subject to unanimous acceptance by the member states. The directive has been specifically drafted to leave out, and not affect income from savings (i.e. interest). After the directive was adopted in December last year, Luc Frieden clearly stated that the directive, combined with a permanent withholding regime for savings income was the position that Luxembourg would stick to.
What makes you think that either the scope of the directive or Luxembourg’s position have changed?
Regarding Switzerland and the revised EUSD, I agree with you that Switzerland will agree to amend its own arrangements with the EU. I am only saying there is a fair bit of negotiation that will need to take place around the details. As for directive on administrative cooperation in the field of taxation, Switzerland is categorically NOT a party to it.
For heavens sake, at least work out what you’re talking about before you decide to comment here. You are referring to an agreement between European states on the sharing of tax information. We are talking about the European Union Savings Tax Directive – is something entirely different.
The precise reason why there was no reason for European states to have to agree on the sharing of tax information on interest was because it was already covered by the European Union Savings Tax Directive. It’s not omitted. It’s just not duplicated.
To educate yourself on the most basic facts before you begin to take such ridiculous stands as those of you have demonstrated here.
Richard, thank you for the measured reply.
If you read above, you will see that it is your buddy Mark, not me, who first brought up the directive on administrative cooperation in the field of taxation in the context of the EUSD revisions. I am perfectly aware of the difference between the two directives.
Mark, I would still be interested to read you thoughts about the question I have raised. Thank you.
Darren,
I’ll give you some inside dope from the EU Commission, not only direct from the horses mouth but now a publicly stated mission.
The pressure on Luxembourg is going to mount in a variety of manners until Luxembourg submits. Even to the point where EU moves from unanimous requirement to a majority of MS to suffice in tax matters.
There’s much more on this I can discuss but this isn’t the best forum for that. But here’s a hint, if I were you, I wouldn’t rely on continuing your type of business using Luxembourg as a bulwark.
Actually, don’t get me wrong. I’m not a tax justice network member and I don’t advocate tax for poverty relief etc. I am a pure technical mercenary helping the EU Commission with the “cops and robbers” game bankers like to refer this issue as.
It’s a giant chess game, but this time (as opposed to 2003) the tax side has hired some guns.
Mark – the position of the EU Commission is well known and,as you said, has been publicly stated. that was in 2003 and we are still in 2011 debating. Taxation, since it has remained a sovereign matter of each memeber state, is really the reponsibility of the European Council. To change that and/or to make EU taxation only subject to qualified majority would require a treaty change. It will not happen in our lifetime, because not only Luxembourg but also the UK, various Nordic countries and probably even Germany would object.
Anyway, I value your contribution here. You are making some very good points. Any further insight is appreciated.
Mark
I’m in fiduciary services and have no concerns whatsoever about the proposed amendments to the EUSTD. It means more compliance but as my clients are already fully tax-compliant and have already opted for exchange of information instead of withholding tax its just an administrative burden to comply with. That of course adds to the cost of operating from the Channel Islands which gets passed on to the client and so any clients who object strongly to the idea of having to pay for the cost of us doing extra compliance work for their already-compliant structures will simply shift the residency and administration of their structure to another office of my firm’s group in the Far East and the problem is resolved. Its not what I want of course, but its the reality of what will happen and on a very large scale.
And therein lies the entire weakness of the EUSTD.
And therein you expose your ignorance of what is being proposed
No doubt Mark will now elucidate
But it does stagger me how naive you folk really are about what is proposed
Harry,
So you moving all your clients’ trusts, including the trustee and bank account to the far east to save compliance costs. So I take it, the IoM management will have nothing more to do with the structure, no management, no admin, no nominee directorship or nominee shareholding, no accounts, no portfolio management.
.. and then when the beneficiary eventually gets his money in a bank account within territory, he comes back in scope.
OK.. so you save the client compliance costs…
Is their a dole system for you fiduciary guys in IoM?
Pull the other leg. I don’t mind.
Richard
Not ignorant at all. Fully aware of what’s going on. It just doesn’t materially affect my client base because they are already opting for exchange of information. There’s nothing to be naive about. We aren’t all doing what you seem to think we all do!
Mark
Firstly I don’t work in the Isle of Man. I work in Jersey. Don’t make Richard’s mistake of always jumping to conclusions.
Secondly, yes the entire structure (directors, officers, authorised signatories, shareholders) would move to the Far East lock stock and barrel. But only for EU-connected clients and we probably only have 10% of those in our client base – you and Richard seem to think we and everyone else are acting only for EU-resident clients. We aren’t, but let’s not get your fiction get in the way of the facts! Clients with no EU connections other than choosing Jersey as a place to have their global wealth structure administered there couldn’t care less about the EUSTD. And there are lots of them. They have no reason to move from Jersey. They hardly even use Jersey companies.
Thirdly those 10% of EU clients are not in the slightest bit bothered about being “in scope” when they finally receive a distribution. They aren’t hiding anything. They just won’t the aggro and hassle (or to pay for it) when they are not “in scope”.
Harry,
I’m not being personal here at all.. but your offshore games are quickly coming to an end..
If you expect anyone to believe that only 10% of the clients managed in the Channel islands are EU based, then fiction is indeed a wonderful thing. Amazing how many Spanish speaking Latin Americans are just streaming through their door 6 time zones away, rather than Panama!
I see you are focusing on untaxed entities. I can tell you this very week the EU Commission is studying the way to tackle how untaxed entities (mentioned in Annex I of the amendment) distribute to EU residents, viz. loans, consulting fees, etc. What’s the point of moving clients to Singapore / HK if it doesn’t help in the end? May as well stay onshore all the time. Do you realise that the savings tax will be modified from now on every three years to handle every new trick. Problem is there are so many tricks available.
The Commission services would suggest to explore with Member States and market operators the possibility of introducing, at EU level, certain general reporting obligations for all financial intermediaries established in the EU regardless of their structure (and thus for instance applicable also to branches and subsidiaries of intermediaries having the head office or the holding company outside the EU). These reporting obligations would in principle be unrelated to the paying agent function under the Savings Directive and could, for instance, cover any significant (15,000 EURO?) outflows or inflows of capital (with the possible exclusion of those justified by commercial reasons) to and from non-EU territories (at least those which do not apply equivalent measures to the Community acquis in the area of cooperation between tax authorities), realised by customers who are individuals resident in the EU according to the identification rules of Article 3 of the Savings Directive. Where the customer would not be resident in the jurisdiction in which the financial intermediary is established and to which it reports the information, use should be made of the Mutual Assistance Directive and, more particularly, of the mechanism for automatic exchange of information provided under that Directive. It could also be considered whether the financial intermediaries should be obliged to report to the tax authorities information available to them about the existence of possible customer relationships outside the EU (and outside the territories applying measures equivalent to the Savings Directive) for their individual customers. An extended application of these provisions could significantly impact the activity of financial intermediaries established in the EU, so a specific impact assessment could be necessary and this would require appropriate time and resources. Such a substantial impact assessment could be justified only if and when all Member States would be available to examine the possible introduction on their territory of such provisions.”
Next thing you have to worry about is branches and subsidiaries of European banks in Singapore / UK being mandated to report what their head office already knows, as the UK did with its branches in the Channel Islands. I suppose you gonna put your clients money in some Indonesian bank? Ha.
Mark
Your cynicism is wholly justified
Harry is clearly talking out of his proverbial
But then you have to live in a world of make believe to do the job he does
That can’t in the long run be good for your powers of perception, argument, or discernment
Mark
You seemed to have adopted Richard’s very unfriendly style so please forgive me if I reciprocate from time to time.
There are large numbers of Middle Eastern, Far Eastern, India, South African and Latin American (less so) clients using Jersey. Actually, I’ll correct that. There are significant numbers of extremely wealthy clients from those parts of the world. There are of course lots of UK-connected clients as well. Continental Europe and the rest of the EU? Absolutely minimal.
You seem to believe that clients are evading their taxpaying obligations in their home country. Have you not heard of legitimate tax avoidance? Let me spell it out for you. Just because a transaction will now become reportable under the extended EUSTD does not mean that it will be taxable! That results in unnecessary hassle for the client – extra compliance with no resulting tax burden. Your comments of “may as well have stayed onshore” is naive in the extreme. Don’t you know the benefits of legitimate compound long-term tax deferral? Please do keep up with the programme.
You don’t seem to “get it” that some organisations will simply abandon the EU altogether if that’s what it takes. Global wealth is extremely mobile. Modern-day electronic communications make it very easy to manage and administer structures in other parts of the world. Pure back-office administration of offshore structures (non-Jersey entities) which are, say, managed out of Hong Kong and Singapore can be very easily outsourced to, for example, Jersey. That’s not a financial intermediary and nor is it a branch. You really haven’t worked this through have you?
Where will clients bank? Let’s see. The big Canadian, Australian and South African banks are extremely healthy. The major US banks will be extremely hungry for offshore business even with FATCA compliance. The big Chinese and Indian banks are making big headway. The local Hong Kong and Singaporean banks are becoming very substantial. Several Middle Eastern banks are major players. Face it – most of the European banks are in an absolute mess. Who on earth wants to bank with them anyway? You materially over-estimate the attraction of EU banks. There are far more options out there than your sarcastically-suggested suggested “Indonesian banks”. Wake up to what’s going on – Europe is no longer the power that it was. Its bust for the next 10 years. The BRICS are taking over.
Mark, it is very clear you are an expert in your field. However perhaps your expertise does not extend to the business undertaken in the Channel Islands. I would suggest the figure for EU related business is closer to 25%. Further to this, there is plenty of Latin American business here, despite Panama’s emergence as a more trusted place to do business. Whilst you may not be prepared to undertake work in different time zones, there are plenty who are!
Ha ha Harry..
I’m not being sarcastic or cynical here… and I’m not insulted by any unfriendliness.
… but let’s get to the crux of the matter here.
On the one hand, you keep going on about how tax compliant the client is, and then on the next breath you going on about Chinese or Brazilian banks won’t report.
You offshore guys are thoroughbred leeches. And if the client is dumb enough to fall for the age old “benefits of tax deferred” story, then good luck you. I take my hat off to you guys for fooling them.
Mathematics is my forte. So I leave it up to you to convince me the same Aesop tale I used when I was an offshore insurance broker, that deferring tax and letting investments roll up gross is “much” more beneficial than paying tax each year. That’s a good story except for one fact. The cost you leeches! (Personal insults not meant here, Harry LoL)
Ok, so run me a little excel spreadsheet showing me 20 years tax free growth but don’t forget to deduct your leech costs, and then eventually being subject to marginal tax rate as opposed to the same onshore projections taxed each year. Gonna love that one…
Now no BS about how offshore funds are more flexible and can grow more, Also no BS about flexibility to retire tax free in Azerbaijan. No BS about asset protection from nasty creditors, no BS about how offshore trusts are the only way to cater for the future needs of family.
There’s only one party who really financially benefits from offshore industry, and that’s the offshore finance industry.
All the talk about moving money to Singapore at the speed of email is very slick. Except how does the client eventually get to enjoy that money back home without giving up all those “legitimate tax planning” opportunities you have provided at a cost, no less. Oh yes, I forgot.. retirement in Azerbaijan.
Harry,
You on thin ice regarding managing far east structures electronically from Jersey but saying its done elsewhere. In fact, I would say you’ve crossed the red line…
Place of effective management of an entity, with or without legal personality, shall mean the address where key management decisions are taken that are necessary for the conduct of the entity’s activity as a whole. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive;
Note: Nominee managers don’t cut it. In fact I’m the one writing the draft legislation on nominee directors, so I don’t think “I don’t get it” is quiet correct 🙂
Harry,
Thank for the tip. I’ll make sure the EUSD negotiation with Jersey ensures that “back office administration” which is outsourced to Jersey means the effective management is undertaken in Jersey. That will make the Jersey “administrators” of the Hong Kong Company a Paying Agent Upon Receipt.
Just like what is being done for agent founders of Liechtenstein foundations.
Mark
Where shall I start?
I didn’t say that Chinese or Brazilian banks (actually I didn’t mention Brazilian banks at all) would not report. The fact is that they don’t need to report under the EUSTD because they are not a party to the EUSTD and are not affected by it.
If mathematics is your forte then I would suggest that you buy a new calculator or improve your spreadsheet formula skills as my example below clearly demonstrates.
If you were formerly an offshore insurance broker then you would have almost certainly been working in a high commission “rip-off” environment charging probably 5 or 6 times what a Jersey fiduciary charges, in addition to high initial commissions. A different world altogether and it does rather explain some of your inaccurate comments about the Jersey fiduciary industry. I’ve found very few offshore insurance brokers who know anything about anything, especially ethics.
Tax deferral means that the client pays the eventual tax (in full) based on what he receives and when he receives it. Its hardly rocket science. For the purposes of the exercise below I will indeed leave out all of the major reasons why wealthy individuals and families actually use trusts, even though it is ridiculous not to list those many attributes. On bare numbers alone its a compelling case.
Re your 4pm post you have completely misread what I have said. I spoke about transferring the management to the Far East. That means lock, stock and barrel. No director, officer, trustee or authorised signatory would be in Jersey making decisions. They would make all those decisions from a physical presence in Singapore. The Jersey back office would be literally that. It would carry out bookkeeping, accounting, company secretarial and tax compliance services. Not one of those functions requires any management and control or directorial input. Did major UK companies become resident in India by virtue of transferring their back office functions to India ? If you can tell me how a BVI-incorporated company, presently managed and controlled in Jersey by Jersey-resident directors (do you have any idea just how many BVI companies compared with Jersey-incorporated companies are actually run from Jersey?), could still be deemed to be managed and controlled in Jersey after all Jersey directors, officers and authorised signatories have been replaced by a Singapore-based team of senior executives (almost certainly the same directors and managers who will relocate to Singapore), with all future decisons genuinely made there, then you haven’t got a prayer. There is not a chance of deeming that BVI company to be a “paying agent” just because it employs accountants and company secretarial staff with no management powers whatsoever to do the back office administration. Key management decisions, in fact ALL management decisions, would be made in Singapore. They would NOT be made in “more than one jurisdiction”.
Rarely, I totally agree with you that “nominee managers” or “nominee directors” don’t cut it. Of course they don’t. That’s why reputable businesses don’t allow or encourage or infer anything of the sort. There – we agree on something.
Re your 4.50pm post – I won’t hold my breath. It would be absolutely impossible to deem a party to be a “paying agent” when they have absolutely no involvement in any decision which a “paying agent” might make, with no ability to either influence or prevent any such payment.
Now to that spreadsheet comparison. My assumptions are:
£10 million capital sum invested.
A 10% gross annual return for 20 years.
8% of the gross annual return to come from realised capital gains, taxed at 28% if received directly by a UK resident.
2% of the gross annual return to come from interest/dividend income, taxed at 50% if received directly by a UK resident.
This produces a “blended” annual tax rate of 32.4% (22.4% plus 10%), so the UK resident receives a net annual return of 6.76% (10% less 32.4%).
An annual offshore administration fee of 0.3% (ie £30,000 based on £10m, which is probably even on the high side for an entity with a discretionary portfolio of that value, unless you are being ripped off by a bank of offshore insurance broker. Its certainly in the ballpark of what I would charge). This reduces the offshore annual return to 9.7% (10% less 0.3%).
The same blended rate of 32.4% to apply to the “gain” element of the final sum once distributed to the UK resident.
No tax suffered offshore by the offshore entity.
That should all be clear and is in line with your request above.
After 20 years of gross compound offshore growth of 9.7% per annum, the sum of £10 million would grow to £63,698,991. After tax of 32.4% is applied to the “gain” of £53,698,991, this results in a tax liability of £17,398,473. The net after-tax sum received by the UK individual is therefore £46,300,518 (£63,698,991 less £17,398,473).
By contrast, the UK resident investing the same initial £10m of capital and receiving 10% gross per annum on which he pays 32.4% of tax each year, grows to just £36,997,408 after 20 years.
The one who uses the offshore structure, after paying ALL UK taxes due, is therefore better off to the tune of £9,303,110 after 20 years. I think that’s pretty worthwhile, don’t you? The offshore fiduciary has received £600,000 of fees over that same 20-year period, so the client has paid £600,000 to be £9,303,110 better off, which is about 6.45% of the difference. So I don’t think you can say that its only the offshore fiduciary has benefited, do you?
Now, I fully appreciate that in your old offshore insurance broker days those figures would have come out very differently indeed, possibly more in line with what you had claimed, but offshore fiduciaries (or at least the majority of them) don’t operate in that same way (thank goodness).
And at this point I have to mention the distinct possibility that such a UK individual is very likely to be happy to spend a couple of years somewhere nice, perhaps South Africa or the Caribbean or Dubai, before cashing in the offshore investment and thereby avoiding the £17,398,473 tax altogether. It doesn’t quite need to be as extreme as Azerbaijan you know. But its crystal clear that he doesn’t need to go anywhere at all to receive a massive benefit from the offshore structure, and that’s after paying all tax due.
Show me evidence of 0.3%
And tell me how the £10 million got there in the first place?
What evidence? An estimated annual running cost of £20,000 to £30,000 based on a £10m trust with a sole asset of an underlying discretionary investment portfolio equates (based on the higher figure of £30,000) to 0.3% per annum. That’s what my company would charge.
The initial £10m could come from several different sources but we will always verify it for any-money laundering purposes. Could be proceeds of sale of a family business, an inheritance, gift etc.
JJ,
OK, let me be magnanimous here, and just maybe the 25% you refer to, is the absolute number of EU resident clients in Jersey who have selected exchange of info option… but then these are small fish who in total probably make up less than 5% of the total EU-resident assets.
It’s just pure mathematics.
£13m tax handed to EU means say €20 m was collected.
€20m collected at a withholding rate of 20% means interest earned was €100m
Assume a mix of EUR / GBP interest rate at 2.5% for the year means total debt assets subject to savings tax collected was €4 billion.
Now Has Jersey got some €400 billion assets under management. OK, a chunk of that is Swiss Fiduciary deposits.
So let’s say I’m being real generous with your assumption and only €200 billion of assets are EU resident based. (the 10% claim is ridiculous). Assume 40% in debt assets, means €80 billion should have been subject to EUSD.
But EUSD witholding tax in Jersey is only 5% of this.
A. so you saying 95% of clients exchanged info?
B. or I say 90% circumvented.
Not hard to see which..
But never mind, we’ll all see the proof in the pudding after the next two revisions of the EUSD.
Mark, there appears to be some confusion here. My 25% figure was the number of EU resident clients (with 75% non EU resident). The majority of clients have nothing to do with the EU.
In addition, i’ve only ever come accross 1 EU resident client who opted to pay the withholding tax. All of the others were more than happy to opt for information exchange.
JJ
JJ,
You see! I keep saying that fiduciary players keep insisting that virtually all their clients choose exchange of info. Then why is Jersey fighting exchange of info tooth and nail. It’s not the influence of big banks, because fiduciary deposits in Jersey will be in scope in Switzerland.
Harry,
Tut, tut. You fail miserably with your inane arguments, lack of knowledge and omission of facts. But that must be normal for the life of a trustee.
The BVI company is not a “Paying Agent” but will be a “Paying Agent Upon Receipt” or “Paying Agnet Upon distribution” if it suceeds in hiding the beneficial owner. No ands, ifs or buts. Doesn’t matter where the fake management team is situated. LoL. Read the legilsation, I helped write to counter slick but outdated moves like moving the management team to Bosnia & Herzegovina or Peru. If this were a chess game, you’d be 3 moves behind.
So after going to specsavers, I suggest you read the following…
So you see, boychik, all untaxed companies established in the BVI mandatory become a Paying Agent Upon Receipt and must then look through the structure to the actual beneficial owner(s) according to the anti money laundering directive, whether the management have been replaced by a Singapore-based team of senior executives (almost certainly the same directors and managers who will relocate to Singapore), with all future decisions genuinely made there. The effective management issue only refers to entities and legal arrangements outside the savings tax territory. So what was that about not having a prayer? LoL.
… and your bluster about advantages of offshore investments rolling up gross before final tax falls completely apart when you inform your sucker of a client that offshore funds have much higher charges than onshore equivalent. And don’t tell me you buy pure equities cause you guys need a healthy reward from the funds to keep the wolf away from the door… and a 0,3% p.a. total charge is very funny. Trusts that I know in detail charge about 1% and offshore funds cost at least 0.5% – 1.5% more. So my calculations show your poor clients are really 32% worse off…
… and yes, millions of clients just itching to retire in a crime ridden hell hole such as South Africa! LoL
Mark
Back to insults I see.
For heaven’s sake there is no “hiding of the beneficial owner” if the client is fully tax-compliant! What on earth would he be hiding from? You are assuming that the clients are tax evaders when I’ve stressed all along that they are fully tax compliant. Yes it will catch any tax evaders but there’s nothing to catch where the structure is fully tax-compliant and already opting for automatic exchange. Please keep up with the programme. And I wasn’t talking about “fake” management teams. I’m talking about full and absolute management and control. But I’m happy to leave you to carry on down the route that you are taking because you aren’t going to achieve any of your objectives with those of us who genuinely do things properly.
And I’m sorry but I have to take you to task over your comments about offshore trustee fees. You’ve clearly been swimming with the offshore broker sharks for far too long.
Independent professional trustees are not in the investment management game. We charge for acting as trustee – no fees or commissions are earned from investments. All retrocessions and commissions are rebated to the client’s entity. Fees are totally transparent and I can categorically assure you that an annual fee of between £20,000 and £30,000 is perfectly reasonable for administering a single trust of £10m which merely owns a discretionary portfolio managed by a third party investment manager. There is often no need to use funds, but the investment managers usually charge 1% (including custodian fees) on a portfolio of £10m, and any retrocessions or commissions are again credited against their fees. My figures are absolutely accurate. You’ve obviously experienced some very unscrupulous trustees – nobody gets 1% per annum these days as an annual trustee fee except perhaps that some fees for very low value trusts might happen to cost that much as a percentage of the trust fund.
You need to update your research. Offshore management fees are no more expensive than their equivalent onshore. Why? Because the onshore manager has to charge VAT to his onshore client and the offshore manager does not.
My figures stand. Your need to do better research and not assume that everybody else swims with the sharks.
There are a very large number of independent trust companies, run by lawyers, accountants, and other professionals. The core of the Channel Islands trust industry is run by such people. Yes, there are major banks who charge high fees and commissions (and to date have largely not been interested in tax compliance). Your own figures may resonate more with them, but not with the bulk of the industry.
I have to reiterate – I don’t believe you
Of course all your clients are squeaky clean
For how many do you have copy tax returns?
Richard
I can’t help it whether you believe me or not. Nothing I can say will change that.
But we do even better than getting copy tax returns – we deal ourselves with the reporting of the initial funding of the trust itself for IHTA purposes directly to HMRC, and also with all self-assessment returns on behalf of the trust (or company where relevant). There is no “wriggle room” whatsoever for clients. So yes – I can be 100% confident that my clients are totally tax-compliant where they are UK-connected.
Where they are not UK-connected, we provide a full tax reporting pack to the client and to his domestic tax advisors and request written confirmation in every case that all relevant information has been duly reported by them to their home tax authorities. We do not go as far as getting a copy of their foreign tax return because we know that in the vast majority of countries with whom we deal, we know from the tax advice received that the structure is not subject to tax until and unless benefits are received or enjoyed by them from the structures.
So why aren’t you saying which company you are from
You see I suggested Plan B for Jersey based on total compliance
People recoiled in horror
But you say you’re doing it
Reconcile those positions please
Harry,
Jersey withheld £13m savings tax. Working backwards that’s the savings tax on less than 1% of the non-resident assets held on the island.
No savings tax tax circumvention happening huh? Low interest rates huh? Everyone invested in equities huh? The other 99% all exchanging info, huh?
Case closed.
Mark
Your naivety astonishes me. The Jersey finance industry hardly deals with direct retail deposits. Its impossible to add value from holding pure deposits. The value is added from providing bespoke, tax-compliant tax and estate planning structures. Clients don’t invest for income – especially at current low rates. Do you think a US$200m family wealth is held in a fiduciary structure purely to avoid withholding tax on interest of less than 1% per annum? Don’t be daft. The entire Jersey industry is built more around the fund and fiduciary sectors. As you well know, until now interest earned in structures has been outside the scope of the EUSTD so how you can possibly correlate the amount of tax withheld to the total amount of assets held? Of course that figure will increase once the EUSTD is extended. But that’s the future and you are using current/historical figures under a different system to justify your case. I would have expected your research to be somewhat better than that.
You also fail to mention how many client structures are already opting to automatically exchange information. Why are they doing that? Because they are fully compliant and aren’t doing anything that they shouldn’t! Where’s your data on that then?
I assume my post reply to JJ on the figures came after your “naivety comment”.
But I’ll say this, in Switzerland at least 40% of all assets are in debt claims, because wealthy people have capital preservation as their main concern.
Now Harry, yes I realise deposits are a tiny fraction of investments. But what about bonds, what about swaps, what about capital guaranteed products, what about fixed income funds, what about convertibles. I’m not even going to go near the more complex debt assets out there.
So no need to try pull wool over anyone’s eyes that not much assets in Jersey are in debt claims.
Mark
Switzerland is a totally different market to Jersey, as you well know (or should know). Switzerland is a market built on tax evasion, not legitimate tax avoidance. The Swiss banks and asset managers specialise in bonds and debt instruments. Not a relevant comparison at all.
I’m very surprised indeed that you don’t know that. I thought your research would have been better than that.
See my separate posting re “circumvention”. You’re assuming that everybody is doing the same as the major high street bank in Jersey which was exposed on Panorama, which was so far away from the norm as to be laughable. Of course the level of withholding tax is low when the EUSTD excluded interest paid to legitimate offshore structures. I’m astonished that you haven’t worked that out.
Harry,
The whole point of me pointing out that the withholding tax in Jersey was low is precisely because your clients used entities and legal arrangements. Now that this won’t be a valid planning tool, I expect your clients to run. But be assured, that will put you out of business, unless you move lock stock and smoking barrel to Singapore. Your “back office outsourcing” and ” nominee directors” sham won’t cut it.
By the way, I just calculated a 20 year investment compounded at 10% p.a. offshore versus onshore, and assuming a 33% tax upon repatriation of offshore funds (tax compliant you said), the poor sucker of a client is 15% – 33% worse off with your services, assuming your offshore funds and your costs are merely 1% – 2% more than onshore… As I said, I take my hat off to you for not demonstrating that to your clients… but after 20 years, you certainly benefit.
Kinda like the Dilbert cartoon where Dilbert the cat as financial adviser shows a photograph of his mansion to a client and says “after 20 years, you too can have one of these”. Client says.. “A villa like that?.” Dilbert says, “No, you’ll be able to have the photograph”.
Mark
Whoever mentioned ”nominee directors”? There is of course no such thing. I can assure you that serious trust professionals would never entertain such a ”concept” in this day and age.
Please don’t be silly
We don’t believe you
That’s utter riubbish
Harry,
Hong Kong and Singapore company providers offer nominee directors at a drop of a hat. Google it.
Richard
Are you totally unable to accept that there are fiduciaries who actually do things properly and are fully tax compliant? Do you really think that every single fiduciary is a harbour for tax evaders and incapable of acting professionally as a proper director or trustee? Seriously? Come on, this is very important because its at the very heart of your stance against Jersey and the business that it carries out in 2011.
Excuse me Harry,
No such thing as nominee directors and shareholders today!!??
Amazing how a nominee is used for the founder in all Liechtenstein foundations. And the Council is merely a nominee board acting on behalf of the principal founder’s bylaws and letter of wishes. So nominees are a standard offshore scam.
You still say there is no such thing as nominee directors or shareholders. Funny how the EU money laundering rule specifically mentions that nominee directors and nominee shareholders are trust and service providers and as such are subject to the laundering directive.
Mark
You and I know there is no such thing in law. Anybody claiming that “I’m not responsible, I was merely a nominee director” would get no protection from the courts. A director is a director, full stop,and is always responsible for his actions.
If such a service (sic) is being offered by Hong Kong, Singapore or Liechtenstein service providers then it highlights just how poorly regulated they are compared to Jersey or Guernsey.
If you can find any examples of CI providers offering such services then I would be astonished, not least because they would lose their licences immediately.
Harry
It is very easy to realise that this is happening
Jersey deliberately created law allowing sham trusts in 2006. See here http://www.taxresearch.org.uk/Blog/2006/06/15/jersey-passes-law-allowing-%E2%80%98sham%E2%80%99-trusts-for-use-by-tax-evaders/
Everything about this was to facilitate nominee structures
How do I know – well minister and civil servants said so – see here http://www.taxresearch.org.uk/Blog/2006/09/17/jersey-rotten-to-the-core/ and http://www.taxresearch.org.uk/Blog/2006/09/18/jersey-what-was-really-said/
Now very politely stop telling us a load of rubbish
The idea that Jersey directors are real is laughable – as laughable as the idea that Jersey trustees are real trustees. They do what settlors, enforcers and others tell them. If they did not they would be out of business in 5 minutes
Harry,
Why do all Jersey fiduciary service providers propound that virtually all their clients have selected exchange of info, yet Jersey Finance will rather cut its throat than choose the exchange of info route? Logic leads one to believe… you fill in the gap.
Mark
That’s a remarkable statement. Do “all” Jersey fiduciary service providers really propound that? Where on earth do you get that from? Why would “virtually all their clients have selected exchange of info” when most of their clients aren’t even connected to the EU?
The “gap” to which you refer almost certainly relates to the major banks on the island, not to the fiducaries. My personal view is that its the large Jersey banks, who employ very large numbers, who are the ones calling the shots on that front. And please get it right – its not Jersey Finance but the States of Jersey who make those decisions. There is a massive difference between the business written by the large number of fiduciaries and fund administrators and the business written by several of the major banks. There’s your answer.
Try as I might I can find no difference between Jersey Finance and the States of Jersey. One speaks for the other frequently, as is commonplace when a state has been taken over by the finance industry. Suddenly Chris Cook frequently acts as if he is a government spokesperson.
The only occasion when he does not seem to do so is when he is trying to pass blame. Just as you are to the banks.
Harry,
You’re being obtuse on purpose. Obviously I meant to say trustees claim that virtually all their EU RESIDENT clients have chosen exchange.
Why on earth would I even be referring to the huge batch of your Mexican / Nicaraguan clients?
Mark
Not Nicaraguan – that’s for sure. Mexico is difficult because of their “blacklist” approach. A lot of Mexican business goes to New Zealand and Singapore.
Try Brazil, Argentina, Uruguay and Chile.
I think most Jersey trustees genuinely do have clients who have mostly chosen information exchange as they have absolutely nothing to hide. But you seem to think that this is “circumventing” the EUSTD. It isn’t. Its a consequence of setting up an offshore structure for proper tax and estate planning purposes, not to avoid income tax. Some banks (as the BBC documentary showed) clearly have been getting their clients to set up offshore companies to deliberately circumvent the EUSTD. But that’s not the business that the vast majority of Jersey fiduciaries are involved in, and yes of course that’s exactly the type of business which will be caught by the extended EUSTD.
Back to basics – the EUSTD is designed to tax passive investment income arising offshore. Most Jersey fiduciaries are not engaged in income tax planning but instead are focused on capital tax planning which the EUSTD hasn’t covered to date. Hardly “circumventing” something is it?
As JJ Lehto rightly days – you really don’t understand what the Jersey industry even does.
Harry
I am intervening and for good reason
You are being abusive. I know it goes with Jersey – but I’ve had enough of it, for one good reason
Your claims about Jersey come from cloud cuckoo land
Jersey is, has been and I suspect always will be built on the basis of tax abuse – that is until the government fails or the European Union Savings Tax Directive blows it asunder.
And if you don’t know the new ESTD will tackle gains
Candidly what you are writing is outright rubbish. I don’t believe you. Nor, it is obvious, does Mark.
Please don’t waste my time again
I think you mean Geoff Cook, not Chris Cook. He obviously hasn’t made much of an impression on you.
He’s a deeply unimpressive man
Mark, I have no idea why Jersey are still fighting exchange of info. Guernsey has already removed the witholding tax option. I guess Jersey folk are just plain stubborn, as shown by their attitude to zero-10.
I think what Harry is trying to say is that his clients don’t fear exchange of info, because their clients disclose to their own authorities anyway. Or it could be that the exchange of info option is not to be feared because in practice it doesn’t really work………………..
Let’s be clear – Jersey does its utmost bto make sure it does not work
I believe it is one of the jurisdictions that sends paper print outs of Excel fules, deliberately
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