A Breakdown of New and Important Information Discussed at STEP ASIA 2018
STEP ASIA at the Grand Hyatt in Hong Kong took place from November 19th-21st and was a sold-out event despite only 12 Americans attending (due to the event taking place over the American Thanksgiving Holiday). Because of the interest in the event and to increase the potential size, STEP Asia is considering moving the conference to a hotel across the harbor in Kowloon in 2020. STEP Asia 2019 will take place in Singapore.
STEP began by updating the organization’s standardized membership qualifications across jurisdictions. The industry continues to evolve rapidly from a regulatory perspective.
Mandatory Disclosure Rules
The conference hit the ground running with a presentation from Jonathan Midgley followed by a panel discussion of Mandatory Disclosure Rules (MDRs).
The digitalization of information makes personal information sharing (CRS and MDRs) possible, but that’s not necessarily a good thing for privacy.
The discussion noted that personal privacy concerns are swinging the pendulum back to “common decency,” but has overcorrected towards disclosure and has a long way to go to recover.
The Organisation for Economic Co-operation and Development’s (OECD) 40-page rulebook regarding MDR’s for marketing, promoting, and service provider retroactive disclosure rules are legally troubling. There are currently no protocols for what is a reportable event, and it can cover a broad range of activities.
The creation of a database that will house names and demographic information without the knowledge of the accused is profoundly concerning. The fundamentals of substantive and procedural criminal law are violated. This should trouble all, as severe principles and freedoms are being violated.
While advising wealthy cross-border families is not a crime, failing to record a “reportable event” can be one if your local jurisdiction adopts model OECD language. The audience at STEP ASIA was encouraged to fight these laws with their local bar associations.
The goal of the OECD is likely to “name and shame” individuals, as MDRs have no legal effect. In this business, reputation is everything, and individuals named in the MDRs will have no due process with these accusations in databases, and may not even be aware of their inclusion. They will have no rights of the accused typically seen in free societies.
Does this mean that individuals named could be denied access to border crossings while traveling? It’s possible.
The governments’ thirst for tax enforcement information is broadly dismissing individual privacy rights and legitimate safety issues. Here’s the reality – tax prosecution is often used as a form of political suppression and many governments participating in the CRS are little more than criminal gangs hiding behind the cloak of government.
Society generally agrees that increased tax compliance does not justify the means that are now being taken to get there.
There are specific social values that need to be protected and are more important than the theoretical elimination of all crime: Values such as the right to no self-incrimination, use of torture, rights of the accused, etc. This should also apply in the area of tax enforcement. If one argues that tax enforcement is somehow different than the other areas of law enforcement, that can be a slippery slope.
An Update on the PRC
Highlights of the presentation:
There is still no estate duty in the People’s Republic of China (PRC), despite annual rumors of such. The estate duty laws of 125,000 USD exemption level, then 55% drafted in 2004 have never been implemented.
Wills and estate plans are being used with increased frequency in Asia and the PRC, usually adopted by the first group, those with international experience, and Asians concerned about the fate of their family businesses, the second adoption group. This trend should continue with the aging population and large sums of 1st generational and regional wealth being transferred.
An update on blockchain from 2017 STEP ASIA in Singapore: During this panel, attendees were reminded that bitcoin was created in 2008 as a peer-to-peer electronic cash system, not a tool for speculation. However, there is still great potential in blockchain technology.
The blockchain now is similar to where the internet was in 1994 – most people did not have an email address in 1994, and we are now very early in blockchain adoption. However, the proof of concept stage was passed long ago.
Certain governments are financing the development of this field, eyeing it as a long-term alternative to using the U.S. dollar, and its usefulness is increasing.
Legal issues related to possession vs. action in regards to property laws need to be sorted, and the question needs to be asked: what is “custody” of an asset in a digital context?
Fundamental activities of banking institutions, including the payment of dividends, coupon payments, and corporate actions can all be recorded on a peer-to-peer system allowing huge savings at the expense of banks.
Tuesday Afternoon Presentations
Cyber Security with Richard Stagg and Robin Youill
Security has four elements:
- Physical Security
All four areas must be tested in routine circumstances, and in times of emergency/crisis.
People tend to be over-dependent on technology solutions and overlook the #1 risk: the quality of the people surrounding them. Many security firms use out-sourced labor, allowing the risk of “an inside job” to grow exponentially.
For digital communications, a VPN is essential, hacking into public wi-fi is too easy.
A Fresh UK Tax Update
This is not your mother’s sleepy HMRC any longer. The commission is looking very closely at domicile issues and challenging them like never before. The risk of becoming a “deemed domicile” and falling into the UK tax net is increasing if not correctly structured. Even evidence of prior non-dom approval is being requested. You need to have kept your favorable ruling letter from the ’80s or ’90s, because it’s you’re responsibility to produce it, not the HMRC’s.
The good news is that several trust strategies still work for tax-minimization of non-UK assets. A few ideas include “Will Trusts” which are similar to dynasty trusts, these do not pay the 10-year periodic charges and are a great way to minimize taxes. Several types of trusts can limit gains vs. incomes. Properties have special considerations, and you must be careful that if using loans, the loan itself is not deemed a UK asset. You also need to be sure to do this type of planning before you consider returning to the UK.
Political Risk Planning
The focus of this session was on the value of using Investment Protection Treaties. These treaties between countries usually provide an arbitration right if an overseas investment is negatively and unfairly impacted by government action, local regulators, tax authorities, or the court system. This is becoming more of a factor in today’s geopolitical environment.
Over 300 of 700 filed cases since 1989 have found relief. The use of a holding company or trust in a favorable country generally changes the character of the investment to benefit from the treaties. China and Germany have the most treaties, and those in the U.S. and EU tend to be more narrow. Financing these arbitration claims is an additional option.
How OffShore and On-Shore Courts Look at Reserved Power Trusts
Much of the early discussion in this session was on the Pugachev case, which could take up a day of presentations on its own. However, reviews of claims of illusory trusts, sham trusts, and fraudulent transactions were also detailed.
It was clear to the presenters that on-shore courts view trusts with too many reserved powers, and with a high degree of skepticism. Alternatively, offshore courts are not very sympathetic to the views of on-shore courts. On-shore courts take a family court approach to trusts, a naturally skeptical and sometimes even hostile view to the trust structures.
It should be noted that the only permissible claim against a trust in Nevada is that of fraudulent conveyance. Sham and alter ego claims are forbidden by statute. This is not the case for many offshore reserved power trusts.
Wednesday included a very detailed presentation on the new American tax code and new planning opportunities for American taxpayers, and non-American taxpayers. Non-U.S. citizen strategies were largely not impacted by recent trust law changes.
Property Ownership in the U.S.
The details of property ownership in the U.S. were shared with a few slides and scenarios. U.S. property is an attractive asset for PRC citizens. Avoiding the estate tax of 40% above 60,000 USD is not difficult if the appropriate structuring options are put in place.
For U.S. persons, the use of an intentionally defective grantor trust (IDGT) is highly recommended to take advantage of the relatively high estate and gift tax exemptions. If leveraged properly, assets which are still exposed to the estate tax regime can be used and taxes paid from these assets. Many regard this structure strategy as superior to the GRAT which lacks the ability to use the GST exemption.
If you would like to discuss or review any of these presentations or strategies with Alliance Trust, contact us to set up an appointment.
Interview of Supreme Highness Prince Michael of Liechtenstein
The thoughtful and reflective interview of Supreme Highness Prince Michael of Liechtenstein reflected on 900 years and 36 generations of rule, and the more modern family ownership of Liechtenstein Global Trust (LGT Bank) the largest family-owned financial institution in Europe.
He discussed religious wars, expropriations, as recently as 1939, and managing family dynamics from generation to generation in a manner that families of all sizes of wealth could learn from.
The Wrap Up
The bon voyage BBQ held at the Hyatt pool was well-attended, and even a little rain did not dampen the spirits of the STEP Asia attendees.
If you’re interested in next year’s conference, mark your calendars for November 3rd-5th in Singapore.
For more information about establishing your trust in the U.S. and the state of Nevada, we’re here to answer your questions.