Richard Frimston TEP is a Partner at Russell Cooke
LLP and Chairman of the STEP Cross Border Estates Group
‘Man’s disobedience, and the loss thereupon of Paradise: the
prime cause of his fall, Satan in the Serpent; who revolting from
God, and drawing to his side many Legions of Angels, was by the
command of God driven out of Heaven with all his Crew into the
great Deep.’John Milton, Paradise Lost
The Public Policy Committee has been grappling for some time
with the difficulties of how STEP should respond as an organisation
to the growing demands from the OECD, the EU and the USA for
exchange of tax information between states and the inequalities of
bargaining positions.
For a long time, I was of the opinion that such matters did not
directly affect my cross-border estate practice; my client base
tends towards the residents of high-tax jurisdictions who are at
risk of double or triple tax on their assets in such jurisdictions,
rather than the über wealthy residents of low-tax jurisdictions
with trust or foundation structures in international financial
centres who are aiming for low or no taxation. The traditional
distinction between off- and onshore put me firmly in the Thames
estuary. We cross-border practitioners were largely unaffected;
that was for the internationalists.
Recent developments have, however, reminded me that the world is
becoming a very small place and that offshore jurisdictions may not
be quite where you expect. The current OECD list of ‘uncooperative
tax havens’ (in French paradis fiscaux) consists of Andorra,
Liechtenstein and Monaco.
Robin Paul recently reminded me again that the old
Government of India v Taylor [1955] AC 491 rule of
non-enforceability for inheritance tax is wearing thin. The
European Community Council Mutual Assistance Recovery Directive
2001/44 does not apply to inheritance tax. However, the
Council of Europe – OECD ETS No 127 Convention on Mutual
Administrative Assistance in Tax Matters of 25 January 1988
does. More than 20 years old, this convention took some time to get
going. It did not come into force until 1995, but was not ratified
by the United Kingdom until 1 May 2008. The convention has now been
ratified by Council of Europe members Azerbaijan, Belgium, Denmark,
Finland, France, Iceland, Italy, Netherlands, Norway, Poland,
Sweden and OECD member USA (Canada, Germany and Ukraine have signed
but not yet ratified). From a UK perspective, inheritance and gift
tax can now be enforceable between Convention states. The practical
effects of this Convention are yet to become apparent. If the
relevant limitation period is that of the other state, how are
personal representatives to be protected? Must we apply to court
for an order for distribution in such cases?
Recent developments have reminded me that the world is
becoming a very small place and that offshore jurisdictions may not
be quite where you expect
The UK and France have gone even further in their new double tax
treaty SI 2009 No. 226 on income and capital gains ratified by the
UK on 11 February 2009, but not yet by France. Article 27 on
information exchange applies to information in relation to any tax,
not only income and capital gains. If information is requested by a
Contracting State, the other Contracting State shall use its
information gathering measures to obtain the requested information,
even though that other State may not need such information for its
own tax purposes.
Such obligations are wide-ranging. Even though other tax
information exchange agreements may be restricted and with specific
confidentiality limits, it would be a brave soul who would be
prepared to predict that such wide powers and obligations will not
be ranged against smaller island paradises in due course.
For cross-border estates, tax in the other jurisdiction will
become an increasing problem. The distinctions between
international wealth and cross-border affluence will be forgotten
in the governmental stampede to increase tax collection.