The Times has reported (from behind its paywall):
The British taxpayer is to underwrite a loan of £160 million to support a Caribbean tax haven that is struggling to pay the salaries of its teachers, nurses, doctors and police.
The decision to provide financial support for a country that levies no income tax or capital gains tax, particularly during a period of severe austerity at home, has brought criticism.
The Government admits that there is a “risk”, particularly about ensuring that capital and interest repayments are made on time. But it believes it has a “duty” to intervene. The Turks & Caicos Islands, which have a population of 36,000, have been left on the edge of “financial ruin” by the global crisis. The deficit is $55 million.
Britain seized control of the territory in 2009, ousting the elected premier amid claims of “systemic corruption”.
Alan Duncan, the Minister for International Development, said: “As a British Territory we have a duty to the people of Turks & Caicos. Without our support the islands will slide farther into economic crisis and will be more reliant on UK support in the long run. ”
He said that the rescue package was likely to work and would support the islands without any additional cost to the British taxpayer. He said that action was necessary because the previous Labour Government had left a “mess” by failing to step in when it was clear that reliance on financial services made the country particularly vulnerable.
On the other hand:
Richard Murphy, director of Tax Research UK, said: “We are in the extraordinary situation that the British taxpayer is underwriting a loan to support a tax haven, which will take away our tax revenues. There is absolutely no sense to this. The condition of these loans must be that they strip these tax-haven practices.
” Brendan Barber, the General Secretary of the TUC, said: “The Turks & Caicos Government’s failure to pay the wages of public servants shows the human cost of a country that prioritises jet-setting tax dodgers over its citizens. ”
OK, now you can see why I broke my habit of refusing to pay for the Times on line. But let's also get to the serious issues.
First, the Turks & Caicos are far from alone in being bust - so are Jersey, Guernsey and the Isle of Man - all of whom are running big deficits. Cayman, the Bahamas and Bermuda are also in the club. And as the report makes clear, they can be reckless because we carry the can. And they are being reckless as a result.
Second, if Labour was reckless for not intervening when reliance on financial services (which was actually relatively modest in the T & C's case) left the islands vulnerable then there is now an undoubted duty to intervene in Jersey, Guernsey, the Isle of Man, Cayman, the Bahamas and Bermuda. Check out the Tax Justice Network site on secrecy jurisdictions for the facts, particularly here.
Third, who is going to ask how long it is before these other states come cap in hand for loans as well? Jersey has a deficit of £100 million a year.
Fourth, why in that case are Tories supporting their abuse?
Last, Labour take note: there is action required here.
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Ignoring political views and looking at the finances of those jurisdictions. I understand that the Turks & Caicos Islands had government debt that they could not service which was a big contributory factor in their request for financial help. What is the state of Government debt for Jersey, Guernsey, Isle of man, Cayman, Bahamas and Bermuda? If they all have significant debt then perhaps financial problems are near however, if they have no or little debt then presumably they will be no burden to external agencies (UK government or whoever in the long term).
@John Buckles
I see where you are coming from. Of course we should take no action to stop the crisis developing in the Crown dependencies simply because as yet they have not reached the point of disaster. Quite right. Why worry when things are going wrong? Why not stick our heads in the sand instead?
Isn’t that exactly what Alan Duncan said Labour did?
I don’t think he is right about Labour but if he is right to say we should stop overdependence upon finance to ensure that the economies of these places do not collapse, when they are running substantial and unsustainable deficits, then he is most definitely right. And you ignore the point.
Richard
For somebody who is a chartered accountant, you have a strange definition of “bust”. Take Guernsey for example. It has no debt whatsoever. It has hundreds of millions of pounds of reserves in the bank. It has a current structural deficit of around £40m, which is less than 20% of its cash reserves. It doesn’t even yet have a consumption tax, which makes it just about the only western jurisdiction which hasn’t yet chosen to go down that route. A 4% rate of GST, which would be extremely low by any other jurisdiction’s standards, would wipe put the current structural deficit if we needed it, which we don’t as tax revenues from economic growth are going to wipe out that deficit.
If that’s your definition of “bust” then I have to question whether your accountancy qualification is genuine.
@Rupert
Oh you do like the superficial, don’t you?
Now let’s look at the fundamentals. You have an illegal tax system, and you are a tax haven. You have to introduce tax on all those tax haven entities located in your domain. that is going to drive a great many of them away. In the meantime, while you dither (and you have to admit, Guernsey is good dithering) you will create fundamental uncertainty which will prevent new business coming to you. So your tax revenues are going to fall, inevitably, but whilst that uncertainty remains the demand for services will increase. So the scale of your deficit will rise. And the only people who will pay your chosen extra taxes will be those without work in the finance industry, caused by the failure of your tax system. The rest, will, of course go elsewhere to buy their commodities cheaper, which is already possible in many cases.
That’s the fundamental problem you face, and which is why I say your deficit is unsustainable, and that’s why you’re going bust.
Yes, I could be wrong. But I haven’t been to date.
Yes have been wrong. Bahamas. They are an independent country so don’t affect the UK’s finances.
Check out wikipedia.
@SadButMadLad
Yes, you’re right
Error of recall
I never siad I was perfect!
Richard
Yes please – let’s look at the fundamentals.
1. “Guernsey has an illegal tax system”. Yes – and has committed to change it.
2. “Guernsey is a tax haven”. Under your definition, yes, but not everyone else’s.
3. “Guernsey has to introduce tax on all those tax haven (sic) entities”. Wrong! Under a territorial tax system, only if those tax haven entities (sic) have income or profits arising in Guernsey. Which they won’t have. I suggest you do more research on territorial tax systems.
4. “There will be fundamental uncertainty”. No there won’t be.
5. “Tax revenues will fall”. No they won’t. They will arise. All companies with income or profits arising in Guernsey will pay at least a 10% tax, compared with 0% at present.
You say that you could be wrong. You most certainly are.
@Rupert
I do understand territorial tax
And yes, you’re right, passive investment income will have arisen elsewhere
But you’re living in wonderland if you think that’s all that flows through Guernsey
So you’re wrong on this one
And I’m also sure that you won’t fill your black hole – you created it at the demand of offshore finance and they’ll refuse to fill it, of that I’m certain
Richard
I can assure that I am not wrong. I know what type of business is operated from Guernsey. It us you who is wrong on this point, just as you are re Jersey. It is precisely why your Plan B is being ridiculed in Jersey. It is built on a flawed understanding by you of the type of business undertaken in the islands.
In fact, it explains why so many people from the islands confront you all the time.
@Rupert
If I was wrong they’d ignore me
It’s because I’m not they don’t
Richard
I’m always willing to learn. I do a lot of CPD. I’d like to learn things about the Guernsey finance industry which I don’t already know. I’m closer than most to knowing how the various elements of the sector are made up, and I see a lot of official statistics on the topic, both published and unpublished.
You’re adamant that the Guernsey finance industry contains a lot of “non-passive” business which you believe would not avoid being taxed under a territorial tax system. I say that you are wrong. You are adamant that you are right. This can mean only one of two things. Either (a) your interpretation of “active” and “passive” sources is completely different to mine and also to that used in existing territorial tax systems in Hong Kong and Singapore, or (b) your understanding of the Guernsey finance industry is based on misinformation, which would lead you to reach inaccurate conclusions. I guess there us a third possibility, albeit very unlikely, that there is a thriving “active trading”sector of the Guernsey finance industry which I and many others don’t know even exists.
This is actually very important and we really need to get to the bottom of this. I’m sure I’m not alone in wanting to know the correct facts because after all of you are right, it might well demonstrate that a territorial tax system is as inappropriate as you claim.
@Rupert
Ah, some sense!
The problem is – how do we know when Guernsey is utterly opaque?
Tell me how we solve that one?
PS Just done long interview with a journalist looking at why trades are recorded in Guernsey and not his home country…..
Richard
Well – you claim to know that there is lots of “active” or “non-passive” business in Guernsey, so much so that you think it will prevent us going down the territorial tax system route. Clearly therefore, Gueensey’s apparent “opaqueness” isn’t sufficient to prevent you from being able to make such a statement. So – either Guernsey is opaque and nobody knows whether any such active business takes place here, in which case your claim that territorial tax can’t work is made without any solid foundation whatsoever, or alternatively its not opaque at all and you do know of another “active” sector which many of us here don’t know about, which defies belief.
So – which is it? We’re all ears….
@Rupert
Let’s consider the possibility – the real possibility – that you don’t ask whether a claim made elsewhere is that the trade is Guernsey and the claim in Guernsey is also that it is elsewhere
Inconceivable of course to you
But then again, you don’t ask
Richard
I’ll make this as simple as possible for you as you are clearly struggling to understand.
The nature of activity carried out by financial services entities administered in Guernsey is not trading. Its passive.
Fiduciary services companies these days do not administer anything other than the occasional trading company. Why not? Because the risks of such business are high, because the GFSC discourages it, and because the PI insurers of fiduciary businesses don’t like it. Fiduciary services companies administer holding companies, real-estate owning companies, IP owning companies, investment portfolio companies, trusts etc. The activities carried out by those companies generate interest, rent, dividends, royalties and capital gains from their eventual sale by the entity which owns them. Those activities are passive, not trading. There is no trade, so there is simply no question to ask about where the “trade” is elswhere. The country where those passive investments are made know that the asset generating the passive investment return is resident (ie Guernsey) because the Guernsey entity owns the land, owns the local company, owns the IP etc. Surely that’s not difficult to understand?
The fund administration business administers funds which hold real estate, private equity, derivatives, equities, bonds, currencies etc. The funds generate rent, interest, dividends, capital gains and investment returns, ie all passive. If and to the extent that the strategy of the fund involves the trading of, for example, derivatives, those trades will be carried out in London, New York, Chicago etc, not Guernsey, so no “trade” will be carried out in Guernsey fo territorial tax purposes.
The Captive Insurance industry comes closer to “trading” activity than any other part of the finance industry, as the Guernsey captive is receiving premiums (from outside of the island) and reinsuring part of the risks (from the island but with non-local reinsurers). But with the odd exception, the income (premiums) of the Guernsey captive is derived from non-local clients, so the source of the premium income, along with the risks being insured, are from a non-Guernsey source for territorial tax purposes.
The banking industry is also different. Guernsey banks are taking in a mixture of deposits from outside the island along with deposits from locally-administered fiduciary structures, funds and captive insurance companies. Whilst many of those deposits come in from within the island, those are additions to the balance sheet, they are are not income. The “income” of the bank is the interest which the bank derives from the placement of those deposits into the inter-bank market. If those deposits are placed with other Guernsey banks then the interest will have a Guernsey source. But if the deposits are placed with non-Guernsey banks then the income, and thus the profits, of the Guernsey bank will have a non-Guernsey source for territorial tax purposes.
The much smaller investment management sector is similar to the banks in that fee income derived from locally based clients will have a local source, whereas fee income derived from off-island clients will have a foreign source.
So – when the locally administered entity (fiduciary entity, fund, captive insurance company) is fulfilling its Guernsey tax reporting obligations, it will not have any problem stating where its passive income or profits are derived from. In those very few instances where the Guernsey entity is potentially “trading”, then I can see no reason why it would not be able to state which country it is “trading” with, because in 99.99% of cases the “trade” will be with a regulated financial services businesses in another territory, and the existence of that relationship will therefore already be fully known to the authorities in that other territory. Nobody has anything to hide.
I don’t know what other “trading” activities you think goes on in Guernsey, but those are the pillars of the Guernsey finance industry and if anybody is conducting any other type of financial services activity here then they are doing it totally invisibly, without the regulator or anybody else knowing, and without any telephone directory listing, which seems rather unlikely, don’t you think?
If you believe that all of Guernsey’s fiduciaries are administering thousands of offshore reinvoicing and trading companies then whoever is feeding you that information is I’m afraid misleading you. That type of business left, no doubt with the very odd exception, about a decade ago. More to the point, even if it did still exist, it wouldn’t be employing more than the odd person or two, and wouldn’t be creating enough tax revenue benefit to the island to be noticed if it left.
The position in Jersey is very similar, albeit with a considerably largely banking sector but with no captive insurance sector and with a large securitisations sector. Very simply, neither island is remotely dependent on offshore trading companies and indeed both the industry and the regulator pretty much discourages such business.
Hopefully the above explains why comments like yours above (8, 10, 12 and 14) are simply wrong.
@Rupert
And here is a very simple question for you
Do the tax authorities of the locations where you claim these tardes occur know that these Guernsey companies are trading there?
If so, how?
And what check does Guernsey make to ensure they do?
And how do they inform the location – automatically – if they fear they do not know?
@Rupert
It is quite cute that your argument is that ‘nothing happens offshore’
Which I have of course said for a long time
But then – why does offshore exist is then the argument?
The paradox requires reconciliation
I know my explanation
What is yours?
Richard
Re your post #16
Sorry – which trades are you referring to ? I’m saying that by and large there isn’t any such trading activity going on. For those cases where, for example, a fund is trading in commodities, then the trading account of the Guernsey fund will of course be with the onshore commodities trader in (say) Chicago at the Mercantile Exchange, so of course the regulatory authorities would be aware of it, and their tax authorities would be aware of it from whatever they get from the regulated commodities broker.
Its not the job of the Guernsey fund to tell the IRS that it is trading with a regulated Chicago commodities trader. If I place a deposit with a UK bank is it my responsibility to report to HMRC that I have done so? Of course not – that’s the tax reporting responsibility of the Uk bank as the UK taxpayer.
But trading “with” another country is not the same as trading “in” that country. The latter would usually result in a permanent establishment being created. The former wound not. Again, using a UK anology, if I buy goods from a UK company or sell goods to a UK company from abroad, I just happen to have a customer in the UK. The system doesn’t require me to pay tax there as a result. However, if I have a permanent establishment in the UK then I would of course have created a taxable presence in the UK and would be liable to tax on the resulting profits attributable to that permanent establishment (subject to the terms of any relevant double tax treaty).
Your last paragraph therefore makes no sense at all.
Richard
Re your post #17.
This is very easy to answer.
Wealthy people create offshore structures to legitimately hold their personal wealth in a safe, private environment. Without any desire to evade tax, the offshore structure is either taxable or it isn’t, whatever the relevant laws say, and/or the beneficial owner/settlor/beneficiaries may be liable to tax on deemed income or gains depending on their country of residence/domicile.
I have NOT said that “nothing happens offshore”. It is you who has said that. I have said that no TRADING activity happens offshore. You don’t seem willing or able to realise that directors of offshore companies and trustees of offshore trusts can hold assets and generate non-trading returns from those assets (interest, dividends, royalties, rent). The directors and trustees of offshore companies or trusts actively manage those entities’ assets to produce those passive returns, but as far as I know, under no tax legislation anywhere in the world is the generation of passive income or capital gains from the holding of investments regarded as “TRADING”.
Let me give you a good example. I know a lot about how to finance the ownership of an investment property. I understand the buying and selling of property. I understand tenancies and mortgage funding. As a director of an offshore company I can decide to buy a property through lawyers, negotiate a lease, enter into the lease and manage that company completely, making all relevant decisions with no external input required whatsoever. Very very easy to demonstrate full that management and control of that offshore company is offshore.
However, if I want to buy a development site on behalf of an offshore company and develop it by getting planning permission and building 500 flats on it for resale, which is clearly “trading”, then my role becomes very different indeed. I know how to acquire the site. I know how to appoint architects and surveyors to get planning permission, but do I know how to negotiate extensive contracts with builders? Do I know how to manage that project whilst the site is being developed? Well, slightly yes, but not without engaging specialist property directors, and if I don’t have those on my offshore board then clearly I’m going to struggle to convince HMRC that I, from offshore, am properly managing and controlling that offshore company. That’s because its “trading”, almost certainly through a permanent establishment in the UK. So I don’t look to take on “trading” business – its very very difficult to demonstrate proper management and control of such companies.
Its no different from offshore reinvoicing companies. Let’s turn the clock back 20 years. A company from country A is selling goods to country B, but wants to reduce its taxable profit, so it creates an offshore company in country C. It sells to that offshore company at a lower mark-up, so less profit to be taxed in country A, and the offshore company sells to the company in country B, thereby generating part of the profit offshore. What possible value has the board of directors in the offshore jurisdiction added? In 99% of cases none at all. So such structures quite rightly started to be successfully attacked under transfer pricing rules. They really don’t work unless the offshore company and its directors are genuinely adding value, i.e. where a company which is exporting from India to Europe decides to open a distribution subsidiary in Dubai, with real offices where real staff do real things relating so sales and administration. Respectable offshore jurisdictions just don’t do that sort of business these days for reasons already explained. Sure, there must be one or two remnants still around, but if those remnants disappear then its got no measurable impact on the government finances of the offshore jurisdiction.
THe trustees of an offshore trust are the sole decision-makers of that trust, and they are the sole signatories on the trust’s bank account. They provide the sole directors of an underlying offshore company. They are exercising full management and control of those entities from offshore. Nobody else has any power whatsoever to make any decisions on behalf of the offshore trust or company (except if a discretionary investment manager has been appointed, in accordance with its mandate). There are not “nominee (sic) directors” or general powers of attorney in issue to the ultimate “client”. Those days ended years ago (except in one or two “exotic” jurisdictions, perhaps.
Why does offshore exist then? Because wealthy clients want a safe, tax-efficient environment in which to hold their personal wealth, whilst still complying with the tax reporting obligations. There will ALWAYS be a demand for such privacy.
If you think that the Channel Islands are running thousands of offshore trading companies then you are way off with your beliefs. You might see a bit of it in the Isle of Man still because the VAT structures facilitates such business, but in Guernsey or Jersey in the 21st century – sorry but no. That is just a myth. And that’s why your assertion that a territorial tax system won’t work in the Channel Islands is simply wrong.
Rupert
So no transactions pass through Guernsey?
Arnald
You clearly don’t understand the doctrine of source. Companies would only pay tax in Guernsey on income or profits which have their source in Guernsey. That’s how territorial tax systems operate. It removes the distinction of ownership of a company by residents or non-residents of Guernsey, ie the “ringfencing” which offends the EU Code of Conduct under zero-10, which means that more tax is collected from those businesses which trade in Guernsey but which are currently not taxable because they are not owned locally. If they are physically trading from within Guernsey or generating sales revenue from Guernsey residents then their income and profits have a Guernsey source and so would be subject to Guernsey tax. All other income or profits of the company from non-Guernsey sources would be outside the scope. The tax rate in Guernsey need not be limited to 10%. It could just as easily be 20%, the same as the persinal tax rate, if this helps to ensure that no GST is introduced.
If you want to find out more about territorial tax systems, a study of Hong Kong or Singapore will tell you all you might want to know. Both have corporate tax rates at around the 15% to 16% level and their territorial tax system have been in place for decades, supporting populations of circa 4m to 5m people.
You accept that the financial sector in Turks and Caioos is small and yet you imply a connection between it and the current crisis. The governance issues at the root of this have nothing to do with offshore finance but arise from reckless spending funded (to the extent that bills were paid at all) by sales of publicly owned land, coupled with a property bubble and unchecked systemic corruption. Legal responsibility for governance issues lies with the UK, not the locals, most of whom have no say in choosing the administration and none of whom choose the governor. Moreover the debt is plainly beyond the ability of the territory to repay or, I suspect, even service.
Rupert,
These so called decision making directors and trustees!
On average how many directorships and or trusteeships do these Jersey executive individuals have?
I suggest too many to do what you suggest happens.
The argument for tax avoidance is clear and very understandable from the point of view of the individual or company saving or deferring tax.
But when the people who are thus indirectly affected by the use of these tax planning schemes, because the tax rate goes up and they end up paying more taxes to make up for those not paid by the tax avoiders.
This is no longer an argument, it is well documented and the discussion now should be, how do various countries level the playing field for their taxpayers.
The only way to legally and ethically avoid tax is to live in a tax haven and have all your income generated and earned in the tax haven or live off your capital. If you have income from anywhere else in the world, be it passive or earned, the tax should be paid in the country that it arises. Also capital gains taxes.
You are naive if you think there are no longer any “trading companies” offshore. Where are many of the oil exploration companies? and the shipping companies and the cruise ships all domiciled.
Trust me no-one wants to pay taxes.
Nichael
You need to be aware that in this day and age it is quite rare to find individuals acting as a trustee or as a director of offshore trusts or companies respectively. Certainly in the Channel Islands you will invariably see corporate trustees or corporate directors, of which in turn there may well be 8-10 regulated individual directors. Passive investment companies or trusts are not time-consuming to exercise full management and control, unlike trading companies by comparison.
You say that tax on income and capital gains should always be paid where the income or capital gains is realised. That’s a very interesting point because many countries expressly permit income and capital gains generated from that jurisdiction to be paid gross, with no tax liability arising there. Why? To attract much-needed foreign investment. That’s hardly “offshore’s” fault! And yes, don’t you see, that if income and capital gains should be taxed where it arises, then it should not be taxed again where it doesn’t arise – which is the very essence of the territorial tax system which I am advcating!
Your definition of “trading companies” is interesting. I think you will find that mt oil exploration companies own their oil drilling and extraction rights through offshore companies, which would license those rights to a local company in the oil jurisdiction. The offshore company receives passive income – royalties – not trading income. Such a company is not a “trading company”. Similarly, ships are usually registered in an offshore jurisdiction such as Panama, Liberia, the Bahamas etc, and then chartered to onshore operating companies. The offshore company receives charter income or “rent”, ie passive income, not trading income. The same with cruise ships. You see very little of that activity through places like Guernsey or Jersey as the legislation for commercial ship ownership is nothing like as attractive as that of Panama, Liberia or the Bahamas who, incidentally, are totally independent and not in any way connected to the EU. So no – I’m not “na?Øve” at all. I know what goes on where and why and how.
They are not time consuming because the corporate trustees or corporate directors do not make decisions of their own, they are told what decisions need to be made. The 8-10 well regulated directors, if they live in Jersey do not “manage” the assets of the trust or the company. They shuffle paper.
Example a holding company. All the assets are held by the holding company. The tax haven directors are then instructed by the true executive directors who live elsewhere. Nothing happens in the tax haven,the negotiation of contracts or the management of the underlying assets. Foreign asstes may be sold to another entity, also outside of the country where the asset resides. This quite common in India. The capital gains are thus avoided.
Ships…now tell me why is the ship registered in a tax haven other than to avoid tax?
Tell me who negotiated the oil rights for the exploration company? Were they resident in the tax haven at the time? What is the purpose of owning the rights in a tax haven and then licensing those rights back to the same country, if its not purely for tax reasons.
Your argument seems to be centred round the fact that all the income is passive income, but you must admit that if you do not pay tax on the “trading income” because you have created an expense onshore which is now offshore passive income, then the trading and the passive become very blurred. The fact remains it is tax avoidance at its very worst.
I repeat the argument has gone past that. The countries in which the icome arises have decided to crack down on transfers of income to tax havens without taxation.
So the question is, what will tax havens be able to provide once these admitted loopholes are closed.
You remain niaive because you do not realize the income that is transferred to tax havens by the companies you describe are no longer accepted as tax free income, passive or trading or capital gains.
What remains to be seen is how legislation is going to be tightened up.
Michael
If you (wrongly) believe that well-regulated offshore finance centres are applying such low levels of management and control then it explains why you reach those conclusions. But fortunately your understanding is wrong, and so as a result are your conclusions.
What you describe is what existed in the top-tier offshore centres up until about a decade ago, and which is still almost certainly the case in several lower-tier jurisdictions.
Re the negotiation of oil exploration rights, the only ones I have been involved in concerned rights which had been pre-negotiated and then sold on arms length terms to the offshore company, with the value agreed with the tax inspectors in the former owner’s country of residence and with the resulting gains taxed there accordingly. Where’s the tax leakage there? Why do you believe offshore directors (accountants/lawyers) are incapable of negotiating such a deal?
There is so much ignorance out there about how the top-tier offshore jurisdictions operate these days. Some is sheer ignorance, much is over-reliance on myths, the rest is an unawareness of how much progress has been made. Some people know all this but refuse to listen because it destroys the image they are determined to portray to protect their agendas.
@Rupert
Of course Michael is right to believe that well regulated offshore financial centres are applying very low levels of management control. That is the reality of the situation. We all know that is true.
This is why offshore financial centres have trust with reversions of interest. These, as is obviously true to anyone who has any understanding of the nature of common law trusts, are not trust at all. They are mere sham arrangements. And yet they are sold in those selfsame well regulated offshore financial centres. Now why is that?
And why do trusts having enforcers if the trustees have sole management responsibility?
Come to that, while their letters of wishes? Surely those are in complete conflict with discretionary arrangements?
And I sincerely hope that you will for ever banish the idea that a local company director will undertake the transaction which he or she is directed to perform by a parent company elsewhere, & the pre-agreed minute that is part of the scheme of arrangement that will in the long run end up as the Bible of documents for the whole scheme of sale? Surely this has never happened?
Rupert, let us face facts here. Either you think we’re stupid or you are. Which is true? We know that you do not manage trusts in offshore financial centres. We know that you undertake your client’s wishes, wishes given from elsewhere, where of course the centre of management control of the supposed operations you manage is actually located. Why insult our intelligence by pretending otherwise?
And how do I know that all that I say is true? Because quite candidly, no one in their right mind would pass over substantial assets to the management and control of a trust company, removed from all personal responsibility by the use of corporate entities, as you note, without retaining absolute control over the assets and without certain knowledge that they could recover them whenever they wished. That’s how I know that this is true. After all, why on earth should anyone trust an offshore lawyer or accountant to act in their best interests? Every scrap of the free-market economics which supposedly underpins offshore suggest that they will not. Remember that.
Richard
Utter rubbish. You have just proved once and for all that you are the prime source of such ignorant propoganda. You haven’t got a clue about the modern trust industry or about how trusts work.
If you think that all offshore trustees are mere puppets of their “clients” then you are simply wrong. Totally wrong.
Not all jurisdictions have reversionary trusts and a great many of us have never seem one or even been asked for one. You make it sound like its the bedrock of the offshore trust industry. It most certainly isn’t.
If you had even the most basic knowledge of trust law, which for obvious reasons I doubt, you would know that charitable trusts have no obviously identifiable beneficiaries, indeed just a wide class of beneficiaries, and that purpose trusts have no beneficiaries. For a valid trust to exist, thete must be a party to whom the trustees are accountable. That is the role of an enforcer or protector.
I really wouldnt expect a socialist to understand why wealthy families to keep their wealth intact on a dynastic basis, but most wealthy families want to do just that. For you to be blind to that is your choice. But I’m telling you the reality. You invite debate on this blog but you only want to know about the facts if they support your stance.
But let’s not allow the facts to get in the way of the fiction.
Rupert
I can’t believe your stance here. The trend may be going the way you mention, but most of the established trust cos are servicing established trust designed to obfuscate. I’m not sure where you get your information from, incredible since youobviously know more than anyone else, but the resistance to change from trust admins to get their act in order is public knowledge.
The turnover within the compliance sector, caused by legals and officers not wishing that their reputations are sullied, is chronically over-represented.
Many good people (in Guernsey) are moving jobs within a year of employment because of the dogmatic nature of trust providers to hang on to a status quo.
I’ll give you the benefit of doubt that you mayu be on a vanguard of transparency, but you’re not speaking the language of the old guard.
It’s not out of date, what Shaxston et al are saying, but endemically current. I fear you are being told porkies by your peers.
Second hand car salesmen
@Arnald
The correspondence I published from Jersey in 2006 when it was introducing its new trust laws shows what you say to be the case, and acknowledged in government
They recognised that Jersey trust arrangements were shams in reality with trustees acting on instruction – which I am sure they do in a great many cases
And yes, of course there must be exceptions Rupert. Maybe you only see them. But it’s weird if that’s true or that you can’t imagine otherwise
Arnald
I don’t believe your “statistics” of turnover. I do know of one or two people moving between compliance departments, but nothing exceptional. I don’t think I can definitively prove that, but I don’t think you can either.
There are still one or two dinosaurs around in the trust industry in Guernsey and the GFSC are well aware of who they are and are taking steps to address it and, ultimately, to close them down. Unfortunately that process takes too long, inevitably because of human rights and the difficulty of taking away somebody’s livelihood without concrete evidence, but it will happen.
I’ve just read Shakston’s book and apart from several chapters being very well-written and other chapters (especially the Jersey one) looking like it had been writtem for him by somebody else (and I’m talking in terms of both quality of content and style!), its very readable. But no – it does not represent the Channel Islands’ trust industry today. If it had been written in say 1998 or 1999 then I would have said it was quite accurate for that era.
Richard
I struggle with your timing. You commented in 2006 that the new Jersey trust law COULD result in “sham” trusts. I can’t argue with that. But has it? How many such trusts have been formed since 2006? You’ll say that its impossible to know because of lack of public information, but my sources tell me “very few indeed”.
You seem to be suggesting that ALL Jersey trusts may therefore be “shams”. Which is utter nonsense.
@Rupert
Just read this
http://www.taxresearch.org.uk/Blog/2006/09/18/jersey-what-was-really-said/
Heaven’s above – even the officials know what’s happening
Why not you?
Richard
So, in 2006 you concluded that Jersey was actively forming “sham” trusts under draft new legislation which wasn’t enacted until the following year. How widely used was this legislation subsequent to being enacted? Wheat evidence do you have?
I can’t say that I’m too enthusiastic about reserved powers trusts but on what basis are they a “sham? Sure – they are useful for tsx avoidance planning but that’s legal. If the terms of a trust expressly exclude a beneficiary from being able to benefit for a specified period of time or whilst he is resident in another country, then for that specific period a valid truat exists. A trust does not need to be irrevocable to be valid. There are probably millions of revocable trusts out there, especially in the United States. The ability of the settlor to control or manage the assets of a trust from which he is excluded from benefitting for a specific period does not make it a sham. Control and beneficial use of the same asset can legally be separated as a fundamental element of basic trust law.check it out.
How is it a sham? It would oinly be a sham (and also a breach of trust) if the settlor, having been excluded from benefit, did actually have a benefit conferred on him whilst he was excluded as a beneficiary. But making investment decisions on behalf of the trust fund is not receiving a benefit from the trust. It just isn’t – basics of trust law. You obviously think that the settlor is having his cake and eating it. My interpretation would be that he is having his cake but not eating it until later as the terms of the trust prevent him from receiving a benefit for a specified period. That’s not a sham trust – its still a valid trust. Yes – it results in tax avoidance (not evasion), but its not a sham.
@Rupert
Sorry – you’re describing evasion
If the right to recover the income exists then beneficial ownership is with the person who has control – even if the trust makes it appear otherwise
Richard
Rubbish. You need to undertake some legal training re. the law of trust. There is no right to access the income or enjoy the benefits of the money during the period of the restriction. That’s a period in which a valid trust exists. The trust period comes to an end when the period of restriction is fulfilled. In that intervening period the settlor is excluded from benefit and has lost the right to access the income DURING THAT PERIOD. The fact that he can access it later does not change the fact that he was prohibited from accessing it during that period.
Put it another way. if the trustee paid income to the settlor whilst he was excluded from benefit then he would be in clear breach of trust. To be in breach of trust then a trust must of course have existed.
That’s avoidance, not evasion. Fairly aggressive avoidance, I would accept. But its not evasion and its not a sham because a valid trust existed, albeit for a restricted period, which is why the tax planning works. The actual steps follow the provisions of the trust deed. Not a sham at all.
@Rupert
They may be trusts
They also have no tax effect
So what you describe is evasion
Richard
So a trust which has no tax effect is evasion? Really? On what legal basis do you reach that conclusion?
@Rupert
It’s not evasion if the income is declared as that of the settlor
But if not then it is evasion
That’s the beginning and end of this
If its declared properly in relation to the actual provisions of the trust deed then I would agree with you.
But who says it wasn’t ? You were saying in 2006, in advance, that it wouldn’t be. How could you possibly state that in advance?
@Rupert
It’s what Jersey’s senior politicians thought they’d be used for
And they should know