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Jacob Hugeboom - IBCPIB™ 2009

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Effective and efficient management

Effective and efficient management

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  • a All relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time. 24.1 Some countries, however, consider that cases of dual residence of persons who are not individuals are relatively rare and should be dealt with on a case-by-case basis. Some countries also consider that such a case-by-case approach is the best way to deal with the difficulties in determining the place of effective management of a legal person that may arise from the use of new communication technologies. These countries are free to leave the question of the residence of these persons to be settled by the competent authorities, which can be done by replacing the paragraph by the following provision: 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States. Competent authorities having to apply such a provision to determine the residence of a legal person for purposes of the Convention would be expected to take account of various factors, such as where the meetings of its board of directors or equivalent body are usually held, where the chief executive officer and other senior executives usually carry on their activities, where the senior day-to-day management of the person is carried on, where the person’s headquarters are located, which country’s laws govern the legal status of the person, where its accounting records are kept, whether determining that the legal person is a resident of one of the Contracting States but not of the other for the purpose of the Convention would carry the 8 risk of an improper use of the provisions of the Convention etc. Countries that consider that the competent authorities should not be given the discretion to solve such cases of dual residence without an indication of the factors to be used for that purpose may want to supplement the provision to refer to these or other factors that they consider relevant. Also, since the application of the provision would normally be requested by the person concerned through the mechanism provided for under paragraph 1 of Article 25, the request should be made within three years from the first notification to that person that its taxation is not in accordance with the Convention since it is considered to be a resident of both Contracting States. Since the facts on which a decision will be based may change over time, the competent authorities that reach a decision under that provision should clarify which period of time is covered by that decision.
  • Non-reasonable fulfillment is presumed if no accounts are published and / or no proper administration is kept

Jacob Hugeboom - IBCPIB™ 2009 Presentation Transcript

  • 1. Effective and Efficient management of a SPV Jacob Hoogenboom Intertrust Russia & CIS 16.07.09
  • 2. Agenda
    • Criteria for choosing a management structure
    • Types of management
    • Management responsibilities
    • Improving SPV management
    • About the Intertrust Group
    16.07.09 Effective and Efficient management of a SPV
  • 3. Section 1 Criteria for choosing a management structure 16.07.09 Effective and Efficient management of a SPV
  • 4. Issues to consider 4 main criteria for choosing a structure
    • “ Effective management”
    • Internal control
    • Liability and management obligations
    • Practicalities
    16.07.09 Effective and Efficient management of a SPV
  • 5. Issues to consider 1) “Effective management”
    • The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made
    • (OECD commentary to the 2008 model convention, article 24)
    16.07.09 Effective and Efficient management of a SPV
  • 6. Issues to consider 1) “Effective management”
    • […] it shall be deemed to be a resident only of the State in which its place of effective management is situated.
    • OR
    • […] the competent authorities […] shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention […]
    • (OECD 2008 model convention, standard and optional article 3)
    16.07.09 Effective and Efficient management of a SPV
  • 7. Issues to consider 1) “Effective management”
    • Competent authorities […] would be expected to take account of various factors, such as where the meetings of its board of directors or equivalent body are usually held, where the chief executive officer and other senior executives usually carry on their activities, where the senior day-to-day management of the person is carried on, where the person’s headquarters are located, which country’s laws govern the legal status of the person, where its accounting records are kept, whether determining that the legal person is a resident of one of the Contracting States
    • (OECD commentary to the 2008 model convention, article 24.1)
    16.07.09 Effective and Efficient management of a SPV
  • 8. Issues to consider 2) Internal control
    • A process within an organization designed to provide reasonable assurance regarding the achievement of the following objectives:
    • The reliability and integrity of information
    • Compliance with policies, plans, procedures, laws, and regulations
    • The safeguarding of assets
    • The economical and efficient use of resources
    • […]
    16.07.09 Effective and Efficient management of a SPV
  • 9. Section 2 Types of management 16.07.09 Effective and Efficient management of a SPV
  • 10. Types of management Different types of directors External Management Personal directorships Personal Management Corporate directorships Corporate Management External directors 16.07.09 Effective and Efficient management of a SPV
  • 11. Types of management Examples of common board structures
    • Client directors only
    • Local (corporate) director only
    • Alphabet board with personal managers
    • Mixed board with external directors
    16.07.09 Effective and Efficient management of a SPV
  • 12. Types of management Typical legal framework (1)
    • Typical agreement framework:
    • A general indemnity agreement between the BO and the trust company
    • A management agreement between the trust company and the SPV
    • In case of an orphan structure:
      • Letter of wishes from the BO
      • Specific articles of incorporation / trust deed
      • Letter of intend from the directors
    16.07.09 Effective and Efficient management of a SPV
  • 13. Types of management Typical legal framework (2)
    • Typical agreement provisions:
    • The trust organization and the nominee directors are typically indemnified, except for gross negligence and willful misconduct
    • The BO typically has the right to issue instructions, but the nominee directors may chose not to execute these in certain circumstances
    • Nominee directors typically retain the right to exit the structure at short notice / instantly
    16.07.09 Effective and Efficient management of a SPV
  • 14. Section 3 Management responsibilities (the case of the Netherlands) 16.07.09 Effective and Efficient management of a SPV
  • 15. Management responsibility General responsibility (BW 2:9)
    • Each director is obliged to reasonably fulfil his management task
    • Failure to do so may lead to personal liability, even in case of a failure of the board as a whole
    16.07.09 Effective and Efficient management of a SPV
  • 16. Management responsibility Proper administration (BW 2:10)
    • Management is responsible for proper documentation procedures
    • All relevant documents are to be kept for at least 7 years
    • Resulting annual accounts should be prepared within 6 months after the end of the financial year
    The administration should be kept in such a way that the rights and obligations of the company are known at all times 16.07.09 Effective and Efficient management of a SPV
  • 17. How can we accomplish proper administration? 16.07.09 Effective and Efficient management of a SPV
  • 18. Management responsibility In case of bankruptcy (BW 2:248)
    • It has not reasonably fulfilled its responsibilities
    • It can be reasonably assumed that this is an important cause of the bankruptcy
    • However,
      • The liability is limited to the past three years
      • The court may reduce unreasonable claims on the management
    The management can be held personally liable in case of bankruptcy if: 16.07.09 Effective and Efficient management of a SPV
  • 19. Management responsibility For proper accounting (BW 2:249) The management can be held personally liable if annual accounts or interim figures provide a misleading view of the state of the company Management can also be held liable if it fails to publish annual accounts on time 16.07.09 Effective and Efficient management of a SPV
  • 20. Section 4 Improving SPV management 16.07.09 Effective and Efficient management of a SPV
  • 21. Improving SPV management Board composition style
    • What level of substance do I need?
    • How much control would I like to have?
    • Do we have in-house directors who are willing to take up the responsibilities and have sufficient local knowledge?
    • Practicalities
    • Type of structure (I.e. joint venture or subsidiary)?
    • Price level
    Client only, local only, mixed (alphabet), mixed (external directors) 16.07.09 Effective and Efficient management of a SPV
  • 22. Improving SPV management Choosing local directors
    • Key issues to consider:
    • Reputation and reference client portfolio
    • Experience with doing business in your home country
    • Industry specific experience
    • Frequency of contact / board meetings
    • “ Gut feeling”
    How to choose the right director? 16.07.09 Effective and Efficient management of a SPV
  • 23. Improving SPV management Adaptations at HQ
    • Key issues to consider:
    • Clear allocation of responsibility
    • Demand regular financial reporting from the trust organization
    • Perform annual substance audit
    • Keep copies of key documents
    • Keep track of key filing, board and shareholder meeting dates
    How to ensure proper control at HQ? 16.07.09 Effective and Efficient management of a SPV
  • 24. Improving SPV management Improving substance
    • Accounting & tax compliance
    • Legal & corporate secretarial work
    • Follow up on obligations and correspondence
    • Maintain an active bank account locally
    • Consider hiring a local employee
    • Consider hiring dedicated local office space
    Increasing the level of activity in the offshore jurisdiction 16.07.09 Effective and Efficient management of a SPV
  • 25. Section 5 About the Intertrust Group 16.07.09 Effective and Efficient management of a SPV
  • 26. The story about Intertrust
    • Intertrust is a quality leader in the Trust & Corporate Services domain, providing a broad range of commercial, legal, fiscal and administrative services to companies and high net worth clients.
    16.07.09 Effective and Efficient management of a SPV Our dedication to guiding our clients working side by side to reach their goals has made us leaders in the industry since 1952
  • 27.
      • Belgium
      • China
      • Denmark
      • Guernsey
      • Hong Kong
      • Ireland
      • Isle of Man
      • Luxembourg
      • Netherlands
      • Netherlands Antilles
      • Poland
      • Singapore
      • Spain
      • Sweden
      • Switzerland
      • Turkey
      • United Kingdom
      • British Virgin Islands
      • Cayman Islands
      • Cyprus
      • Mauritius
      • Jersey
      • Etc.
      • We can provide services in the following jurisdictions:
      • We can also assist in:
    Representative offices in:
      • London
      • Dubai
      • New York
      • San Francisco
      • Moscow
    16.07.09 Effective and Efficient management of a SPV
  • 28. dd.mm.yy Implementation of Structures and Arrangements Thank you 520540.0003 © 2009 Intertrust Group Holding S.A. This document is provided by Intertrust for information purposes only and does not constitute an offer, invitation or inducement to contract. The information herein does not constitute legal, tax, regulatory, accounting or other professional advice and therefore one should seek appropriate professional advice before considering a transaction as described in this document. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. The text of this disclaimer is not exhaustive, further details can be found at: http://www.intertrustgroup.com/disclaimer.html
  • 29. Intertrust Russia & CIS Jacob Hoogenboom [email_address] mobile +7 905 760 80 60 tel +7 495 589 22 51 dd.mm.yy Implementation of Structures and Arrangements