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IN204 - The Future Control of International Family Wealth


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IN204 - The Future Control of International Family Wealth

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IN204 - The Future Control of International Family Wealth

  1. 1. IN204 - The Future Control of International Family Wealth International financial regulation continues to be subject to significant change. Terrorism has obviously played a part and, more recently, volatile money markets and the credit crunch have changed the taxation expectations of Governments and the requirements that they now specify for monetary reporting. These trends have contributed to an increased need for structures that provide certainty and clarity in relation to commercial activities. Transparency and Tax Compliance Appropriate ownership structures have been in place for many family positions for a considerable time. These are often of great value in preserving a family’s wealth and well being for the future. In recent years the heightened Government reporting expectations around the world have increased the need for transparency and the flow of information from jurisdictions. This is largely as a result of the openness of information required under tax information exchange agreements, double tax agreements and the EU Savings Tax Directive, as well as the increased reporting obligations demanded from qualified intermediaries. The historic acceptance by some that banking secrecy and a less than complete regard for tax compliance in the home country of an individual were acceptable in achieving tax savings has rapidly been brought to an end. Future Models for International Business The changes and pressures that remain are generating an increasing need for international tax structuring advice. An element of tax competition between countries will always exist to secure national investment and local taxable activity from both corporations and individuals. Opportunities to enhance tax efficiencies will therefore remain available. Further changes in the approach to international business will need to develop as a result of the following factors: Business is now much more mobile as a result of the internet and the ability to sub-contract various aspects of business support. International trading activities can be located in many jurisdictions around the world and can be moved to take advantage of lower taxes on profits. The increase in multi jurisdictional activity (where business activity is conducted in more than one jurisdiction) creates other tax issues which influence the location of a business: It is vital to consider the location of the management and control of a business and the issue of “substance” in relation to the organisation of business affairs through a connected company located elsewhere. Transfer pricing and controlled foreign corporation laws may be relevant to international organisations. These can significantly affect the tax “acceptability” of a situation. The country where the business activity takes place does not need to be, and increasingly will not necessarily be, the country of residence of the individuals owning the business. The critical factor is the ultimate personal tax position of the individual or individuals owning the structures. Individual Tax Liability Personal taxation is normally applied relative to the country of residence of the individuals. Joint ventures by families with individuals resident in lower tax jurisdictions can provide the opportunity for some tax sheltering. There is also the potential for families working internationally to develop an ownership structure in a low tax jurisdiction for the protection of the family as a whole.
  2. 2. The United States of America (USA) is one of the few countries in the world which taxes its citizens on the basis of citizenship and not of residence. Wherever its citizens are living, they remain subject to US taxation. The “new world” may well create an increased impetus to achieve a change of citizenship, particularly by US citizens living outside the US who may have very little connection to the USA. In countries such as the United Kingdom (UK) there is an advantage in being a foreign born resident. Tax liabilities may then be restricted to remittances and earnings in the UK. Planning to take advantage of this provision requires expert tax advice and on- going vigilance. National tax exemptions, like those applicable in the UK, are relevant and present opportunities, in varying degrees, in a number of countries. Motivational Factors Family holding structures may not solely be established for tax purposes, and often the issue of income tax in particular is not the major motivational factor. Various considerations should be taken into account when planning for business and wealth succession: How the wealth will pass down the future generations and whether it should be held in such a way that it will benefit more than just the next generation. Structures will be required which protect families from internal events and individuals, such as divorce and spendthrifts. Account needs to be taken of political risk and the risk of extortion should the full extent of a family’s wealth be widely known. Structures are required to ensure that wealth managers have sufficient independence to take necessary action to protect wealth from economic problems, such as the recent turmoil in the banking industry. Location, Location, Location The key for the future is where the entrepreneur lives or, more importantly, where he does not live and who he does business with. Control over the assets owned, in conjunction with trusted partners or family members, will often be very important in developing wealth and maintaining its value. It is not just low tax jurisdictions that will appeal to wealthy individuals. They may re-locate to jurisdictions which provide a base for the management of funds for the benefit of the family and business partners, in conjunction with other professionals. Increased review and reporting requirements may only serve to further exacerbate this flow of wealth, and people with wealth, to new centres. Future Capital Holding Arrangements The importance in planning for the future is to structure and develop transparent business ventures and investment holdings, recognising the base of residence of the participating individuals. These individuals may include family members resident in different countries, and also trusted custodians and business partners. Tax obligations for annual reporting can be structured to fall on individuals resident in preferred locations, with the long term position being protected by commercial agreements or ownership holding arrangements. Conclusion Wealthy families need to plan carefully how to hold family wealth. These plans need to be based on a family’s real needs, not just on taxation issues. The legal and taxation rules in the home jurisdiction of the family must be taken into account. The most efficient tax structures will be achieved where families can take advantage of greater mobility and the increasingly international character of families. As a result, families will require expertise and advice relating to many countries. Additional Information If you would like further information on this topic, or to discuss which tax jurisdiction might be most appropriate to achieve specific objectives, please speak to Laurence Binge at our office in the UK or alternatively contact us.
  3. 3. DIXCART GROUP OFFICE LOCATIONS Website: Dixcart Guernsey Dixcart Trust Corporation Limited Contact: Alan Corlett or John Nelson Address: PO Box 161, Dixcart House, Sir William Place, St Peter Port, Guernsey, CI, GY1 4EZ Tel: +44 (0)1481 723996 Fax: +44 (0)1481 727417 Email: Full Fiduciary Licence granted by the Guernsey Financial Services Commission Dixcart Isle of Man Dixcart Management (IOM) Limited Contact: Simon Kelly Address: 69 Athol Street, Douglas, Isle of Man, IM1 1JE Tel: +44 (0) 1624 649250 Fax: +44 (0) 1624 615603 Email: Licensed by the Isle of Man Financial Supervision Commission Dixcart Madeira Dixcart Management (Madeira) Lda Contact: John Dias or Carlos Lourenco Address: Avenida do Infante 50, 9004-521, Funchal, Madeira, Portugal Tel: +351 291 225019 Fax: +351 291 226418 Email: Dixcart Malta Dixcart Management Malta Limited Contact: Sean Dowden Address: Level 15, The Business Tower, Portomaso, St Julians, STJ 4011, Malta Tel: +356 2248 4000 Fax: +356 2248 4050 Email: Dixcart Nevis Dixcart Management Nevis Limited Contact: John Terry Address: PO Box 598, Dixcart House, Fort Charles, Charlestown, Nevis, St. Kitts and Nevis, West Indies Tel: +1 869 469 2829 Fax: +1 869 469 6509 Email: Dixcart Sark Dixcart Management Limited Contact: Alex Magell Address: Le Grand Dixcart Sark, Channel Islands, GY9 0SD Tel: +44 (0)1481 832444 Fax: +44 (0)1481 832394 Email: Full Fiduciary Licence granted by the Guernsey Financial Services Commission Dixcart Switzerland Dixcart Corporate Services Sàrl Contact: Christine Breitler Address: 3, rue du Port, PO Box 3083, 1211 Geneva 3, Switzerland Tel: +41 22 320 37 65 Fax: +41 22 800 32 05 Email: Dixcart UK Dixcart International Limited Contact: Laurence Binge or Joe Dunne Address: Hillbrow House, Hillbrow Road, Esher, Surrey, KT10 9NW, UK Tel: +44 (0) 1372 461400 Fax: +44 (0) 1372 461401 Email: