Trusts and tax in Asia

  • Author : William Ahern
  • Date : January 2009
ABOUT THE AUTHORWilliam Ahern TEP is Principal of Family Capital Conservation, Hong Kong

T he STEP Asia Conference, Trusts and Tax in Asia, was held in Hong Kong on 9-10 October 2008. This was the second such trusts conference to be hosted in Hong Kong. I had the pleasure of opening the conference by welcoming guests from 22 countries, from a variety of disciplines and also a strong local contingent.

John Riches, Deputy Chairman STEP Worldwide, introducing the Conference on its behalf, remarked upon the efficiency of his arrival and transportation to the hotel and spoke of STEP’s progress as an international organisation during the previous year.

Prof KC Chan, Hong Kong’s Secretary for Financial Services and the Treasury, gave the Keynote Address entitled ‘Trust and Fear‘. Prof Chan gave a detailed exposition of how the financial crisis that was gripping Hong Kong and the rest of the world at that time arose and what needed to be done in policy terms by governments around the world to contain it. He also reconfirmed Hong Kong’s commitment to the private wealth management and protection industry, mentioning its agenda for the review of Hong Kong’s trust law, in respect of which STEP was an important part.

Angela Mackay, Executive Director of the Financial Times in Asia, and the conference’s exclusive worldwide media partner, led a panel discussion by Aurore Saglio of Cap Gemini Asia, Adrish Gosh from Barclays Wealth India and Fabiola Suwanto of Brian Cave in Shanghai. Aurore led the panel by examining in detail the statistics concerning the growth in private wealth in markets around Asia and in particular in India and in the People’s Republic of China. The statistics showed not only the rates of growth of wealth within particular countries, but how they compared with each other and with growth in wealth outside Asia. It became clear from the statistics that private wealth growth in Asia was leading the world and that on current trends private wealth in India and in China would soon outstrip more mature markets both within the region and outside the region. Angela Mackay then had Adrish and Fabiola speak to some of the softer, but no less important, issues of both factors driving the growth of private banking and trustee services in their respective jurisdictions and those factors limiting the growth. The panel concluded with tips on how best to position service provision to take advantage of the extraordinary growth in those two jurisdictions.

Mr Justice Hayton of the Caribbean Court of Justice, and distinguished author of the world’s leading trusts text, then spoke about ‘Beneficiary Control of Trust Affairs‘, outlining control over investment or management functions and distributive discretions. He went on to examine control as being dependent upon the trustee’s duty to provide information to beneficiaries, and examined the state of the law with respect to the so-called Hastings Bass principle.

James Tsang, David Russell QC, Nick Jacob and Patrice Marceau then outlined succinctly the recent changes to tax law and practice and court decisions in their respective jurisdictions, namely the US, Australia, the UK and Canada.

Michael Parody, filling in for Marcus Killick, addressed the topic ‘The End of Banking Privacy‘ with a spirited look at the continuing efforts of the OECD and others to force offshore jurisdictions into providing all sorts of information. He highlighted the hypocrisy of the United States in its treatment of the state of Delaware. He importantly drew a distinction between the human right to privacy as opposed to secrecy, but concluded that increasing transparency was likely to be the way of the future.

After lunch Mark Daniell and John Williamson teamed-up to look at aspects of successful family dynasties and the history of family office management from Roman to present times and its impact on how to ‘keep it in the family‘. Mark Daniell pointed to the importance of the holistic approach to family wealth management and John Williamson concluded by suggesting that sophisticated family offices were increasingly unlikely to buy bundled services from family office platforms, but sought to gauge input separately of the various aspects of family office services.

Mr Justice Hayton returned with a detailed and compelling roundup of recent trust cases from around the world, surely a topic every STEP Conference looks forward to.

Peter Rolston, an expert in the art of communication, finished the afternoon by showing us how not to present to clients, using yours truly as a prop to demonstrate the worst aspects of client communication. He counselled the audience to carefully listen to their clients’ needs and to seek to engage them on a personal level using their own, and not some corporate personality. He concluded by emphasising the extraordinary impact that good communication skills had on the careers of people in all walks of life, including the trust and tax area.

Day two commenced with a forensic look at what the British courts were doing with respect to divorce settlements following the decision in White and White and in the Charman case. Russell Coleman QC analysed the position from a matrimonial standpoint, both with respect to aspects of division of matrimonial assets and the extent to which trust assets could be included in the division and John Riches looked at how trust structures might be established and administered in a way making them less available to the jurisdiction of the divorce courts.

Mark Lea, Joe Field and Lusina Ho then formed a panel looking at Labuan, Dubai and the People’s Republic of China pointing out what was new there in the trust law world and predicting whether they succeed generally and particularly how they would compete against Hong Kong.

Richard Pease then examined, with characteristic clarity, the most difficult subject of trusts and double tax treaties, throwing new light on this apparently impenetrable subject.

Joe Field then returned to look at why, where and how life insurance negates the estate taxes in various parts of the world but in particular the United States. I then chaired a panel comprising David Russell QC, Mimi Hutton, Peter Vaines and Clifford Ng analysing the principles of taxation of foreign trusts in the Australia, the US, the UK and Canada by analysing the impact on beneficiaries in those jurisdictions of distributions from a ‘foreign‘ trust using a standardised profit and loss and distribution statement.

Breakout sessions and debates

The afternoon featured breakout sessions on the taxation of foreign trusts in the US, Australia, the UK and Canada, all of which were well-attended and well-reviewed by delegates in their appraisal forms.

Delegates returned to the main ballroom to hear two debates. The first dealt with whether Hong Kong should capitulate to OECD pressure to sign the 2004 OECD model treaty provisions concerning the exchange of information and whether the OECD would succeed in regulating the offshore world.

David Sutherland from Morgan Stanley argued that Hong Kong should accede to OECD requests because Hong Kong had more to gain than to lose from the provision of tax information, which was, he said, part of an inevitable worldwide trend towards transparency. I replied that what Hong Kong was being asked to give up outweighed what we were being offered in return and that Hong Kong should be loath to accept these new provisions.

David Parody gave an impassioned plea for the importance of regulation of the offshore jurisdictions and David Russell replied by saying that whilst a certain level of regulation was good and inevitable, overregulation and complete disregard for client confidentiality would only lead to a pyrrhic victory for those nations arguing for it, as they would lose both wealth creators and foreign investment.

From the opening cocktails at the G Bar at the IFC to the closing at Hong Kong’s prestigious Hong Kong Club, delegates were impressed by the service levels and cuisine available in Hong Kong. This year’s delegates were clearly more representative of senior levels of the various professions that make up our industry and this a welcome development in STEP conferences in this part of the world.

Delegate and sponsor appraisals of the conference were unusually generous. Some 94 per cent of the delegates thought the conference was excellent value for money concerning content and networking opportunities, and the speakers received consistently high ratings with excellent or good accounting for some 90 per cent of all comments. There were also very complimentary comments about the organisation, and we have Barker Brooks and STEP to thank for that.

We in Hong Kong very much enjoyed hosting the second conference and look forward to Trusts and Tax in Asia in Hong Kong in 2010.


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