As simple as black and white?

  • Author : Paul Hunter
  • Author : Daniel Bisson
  • Date : February 2012
ABOUT THE AUTHORS: Paul Hunter is Private Client Director in St Helier, Jersey, and Daniel Bisson TEP is Private Client Senior Manager in St Peter Port, Guernsey, for RBC Wealth Management

Over the past decade or so, many countries have created obstacles and implemented measures to discourage their citizens from using low-tax jurisdictions. Perhaps the most talked about is the tax blacklist, which has been employed in many jurisdictions, especially by Latin American countries including Argentina, Brazil, Mexico and Venezuela. In most instances, they aim to limit and reduce potential tax losses by penalising resident taxpayers or corporations when they undertake transactions with, or have interests in, blacklisted jurisdictions. These penalties often take the form of punitive tax charges and burdensome reporting obligations.

The jurisdictions most likely to appear on tax blacklists are small states or countries regarded as offshore or international financial centres (IFCs), such as those in the Caribbean and the Channel Islands. Given that the term ‘blacklist’ is often used in reference to international criminals, or individuals or companies with a dubious credit history, it is perhaps unsurprising that some of the world’s better-regulated IFCs feel indignant at being given this label. Jersey and Guernsey, for example, have reason to be aggrieved when they have been recognised by bodies such as the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD) for their compliance with global standards for tax cooperation and exchange of information.

IFCs argue that many blacklists are compiled in an arbitrary or discriminatory way and are not based on consistently applied objective methodology. Several jurisdictions offer the same tax planning advantages as IFCs, but do not appear on tax blacklists. For example, establishing an international business corporation in an IFC is frowned upon, yet US limited liability companies and Scottish limited partnerships, which are often used to achieve the same result, are not.

Singapore’s position

One country that has largely managed to elude the tax blacklists is Singapore, despite offering many of the same benefits as offshore centres, particularly from a tax and privacy perspective. The main reason for this is probably Singapore’s extensive network of double tax treaties, which include provisions for the exchange of information for tax purposes. This allows treaty partners to make requests for information in limited circumstances, such as when there is a suspicion of tax evasion or other forms of criminal activity.

Importantly, however, Singapore has managed to find the right balance, ensuring that, in common with other reputable IFCs, those who use the jurisdiction for legitimate wealth planning and play within the rules enjoy privacy, while those intent on engaging in unscrupulous behaviour can be brought to justice. Following the G20 accord in April 2009, Singapore obtained OECD approval to further amend its treaties so that information will only be provided pursuant to treaty requests where there has been a judicial process in the requesting country and in Singapore. This, of course, discourages Singapore’s treaty partners from seeking information from the country’s authorities because of the time and cost of going through this double judicial procedure.

With 15 treaties either in place or pending ratification with members of the G20, Singapore has managed to avoid most blacklists, but like any good story there is a twist in the tail. It does, in fact, appear on some blacklists, most notably on Brazil’s.

Brazil has a different blacklisting system to other Latin American countries, applying punitive withholding tax rates to transactions involving blacklisted jurisdictions. Under Brazilian legislation, tax havens are deemed to be jurisdictions that impose no income tax or which levy that tax at a maximum rate lower than 20 per cent, or do not disclose information on the formal or economic ownership of corporate entities, i.e. corporate secrecy. Singapore falls foul of the latter because, like its European equivalent, Switzerland, it can be classified as a banking secrecy jurisdiction. It protects its secrecy legislation fiercely.

The Monetary Authority of Singapore can override banking secrecy, and will authorise this when it is satisfied that the disclosure is in the interests of preventing terrorism, drug trafficking, fraud, any other breach of criminal law or a money-laundering event. In addition, the Mutual Assistance in Criminal Matters Regulations 2001 provide a framework for establishing mutual assistance treaties between Singapore and other countries involving requests to the Attorney General. So far, perhaps unsurprisingly, such treaties have only been set up with the US.

PCA winner

RBC Wealth Management was named Institutional Trust Team of the Year at the Private Client Awards 2011/12. The judging panel said the company was ‘bold, focused and dynamic’ after seeing how its approach to fiduciary responsibilities benefits a sophisticated international client base, how its people are focused on clients’ changing needs, and how staff development is reflected in its commitment to the evolution of the broader international trust industry.

With nearly 600 core trust personnel, serving more than 5,000 clients in ten trust jurisdictions, RBC Wealth Management is proud of its low staff turnover. The judges praised this and the company’s commitment to training. RBC encourages its teams to speak additional languages and hires professionals who have an affinity with the markets where it takes business. In April 2011, it launched a global fiduciary website of fact sheets, articles and videos, which had more than 1,400 downloads in its first month.

Recently, the company looked at the time its professionals spent focusing on clients’ needs. For the British Isles trust business, this led to a transformation project that saw a reorganisation of responsibilities, enabling trust professionals to act as clients’ primary relationship managers.

Paul Patterson, Global Head of Trust, RBC Wealth Management, said: ‘The STEP Private Client Awards are widely recognised as the barometer for measuring success in trust services. This global award is a tremendous endorsement that reflects the significant achievements by our trust teams over the past 12 months.’

Enter the STEP Private Client Awards 2012/13 Nominations open on 1 March 2012

www.step.org/awards

Dark future

So, is it really as simple as black and white? It is for the countries operating the lists. As for the future of blacklists, well, that remains a grey area. It seems that regardless of the measures and steps IFCs take to comply with international laws and the standards around regulation and transparency, the practice of blacklisting is here to stay. Many offshore centres have a low-tax environment, but a large part of their appeal goes beyond taxation to include political and economic stability, confidentiality and their level of professional expertise, to name but a few of the relevant benefits

‘Singapore has managed to find the right balance, ensuring that those who play within the rules enjoy privacy’

With the obvious pressures on governments to raise their internal revenues to service their escalating debts, it is unlikely that blacklists will be abolished in the near future, or indeed ever. What is clear is that, as the demand for trust and estate planning solutions in Latin America continues to rise, so too will the demand for jurisdictions that are free of the blacklist shackles, such as Singapore. In the meantime, well-regulated and transparent IFCs that have been unfairly placed on the lists will no doubt continue to push for countries that operate blacklists to move towards a system that is objective, non-discriminatory and consistently applied.


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