ABOUT THE AUTHOR: Richard Frimston TEP is a
partner and is Head of the Private Client Team at
Russell-Cooke LLP, and Chair of the STEP EU Committee
In the last issue, I referred to some of the EU issues arising
from the US Foreign Account Tax Compliance Act
(FATCA).
Since then, I seem to have spent most of my time considering the
various reporting and other tax obligations for
administrateurs, constituants and
beneficiaires under the changes to the French tax code put
in place in July 2011.
The position has not been helped by the late issuing of the
relevant décret on 14 June and the subsequent release of
non-obligatory forms 2181 TRUSTS1 and 2181 TRUSTS2. At the time of
writing, the anticipated form of instruction has still not been
issued, even though all the deadlines have passed. These were
originally 15 June 2012, then 15 September 2012, and finally 30
September 2012.
Trustees and personal representatives, who have been faced with
the obligation to report, have been considering the conflicting
issues of confidentiality and enforceability; trapped between a
penalty of 5 per cent of the value of the trust assets on the one
hand, and claims for breach of confidentiality on the other.
The principle set out in Government of India v
Taylor has been dying for several years. The mood music is
now that governments need to collect more tax and are increasingly
cooperating in enforcement and exchange of information. The Council
of Europe Convention 127 on Mutual Assistance in Tax Matters has
been ratified by Australia, Azerbaijan, Belgium, Denmark, Finland,
France, Georgia, Iceland, India, Italy, Korea, Mexico, Moldova, the
Netherlands, Norway, Poland, Slovenia, Spain, Sweden, Ukraine, the
UK and the US.
In addition, the EU has passed Regulation (EU) No 1189/2011 of
18 November 2011 and the Mutual Assistance in Recovery Directive
2010/24/EU.
If trustees or personal representatives outside all of these
states were to rely on non-enforceability, they might find
themselves increasingly isolated.
Whether disclosure might be a breach of confidentiality has been
a question also raised by many trustees and personal
representatives.
The recent Guernsey Court of Appeal decision of 31 July 2012 in
Re B, Appeal No 420, issued by Pleming JA, has considered
the issue further.
In Viscount v Attorney General [2002] JLR 268,
Birt DB said at para 21:
‘A trust company owes a duty of confidentiality to its clients
in respect of their affairs. Thus a settlor or beneficiary of a
trust or a beneficial owner of a company who communicates with the
trust company which administers his structure is entitled to expect
that the trust company will not disclose such communications
voluntarily. The duty is akin to the duty of confidentiality owed
by a banker.’
Is that a comparison to be welcomed?
The Guernsey Court of Appeal in Re B accepted that a
trustee is under a duty to keep the affairs of the trust
confidential.
‘In many respects, this duty is akin to the duty of confidence
owed by a bank in relation to the affairs of its customer. However,
the duty of a trustee is not identical to that of a bank. In the
first place, it does not arise as a matter of contract.
Furthermore, there will be many cases where a trustee has to
disclose information concerning the trust and/or its beneficiaries
for the very purpose of administering the trust, e.g. in order to
open a bank account or obtain a loan… The duty, and its limits, of
a bank are the same in Guernsey as in England and Wales and are set
out in Tournier v National Provincial and Union Bank
of England [1924] 1 KB 461…’
We therefore accept that the duty of confidentiality implied
into the relationship of trustee and beneficiary is subject to the
qualification that ‘the [trustee] has the right to disclose such
information when, and to the extent to which it is reasonably
necessary, for the protection of the [trustee’s] interest.’
The position in other jurisdictions will, of course, be
different. Triggering a non-reporting penalty in France, however,
may result in a money-laundering disclosure obligation in another
jurisdiction.
The Le Creuset frying pan may get rather hot.