With Common Reporting Standards and global transparency will come the simplification of trust structures by Asia’s private banking clients.
That’s according to Seow Chee Goh, managing director and head of wealth advisory South East Asia at J.P. Morgan Private Bank.
‘In the new world, things will circle back to simplicity -- looking at your objective and the simplest way for you to achieve it,' she told Citywire Asia.
‘A trust is actually a simple instrument in itself but over the last 20 years, different jurisdictions have come up with different features within trust laws to attract clients. As a result, clients have started ignoring the common law rule of giving away assets to a trustee so the trustee can take care of it.
‘But with CRS and global transparency, families will move back to basics. Clients are starting to examine how to simplify things to make tax compliance easier.’
As a result of regulations, the playing field between offshore trust centres will also level, according to the Singapore-based expert.
‘The reporting obligations will be the same. It is more important to decide where to live, where your tax exposure is and how you manage that.'
According to Goh, there used to be clear country patterns for wealth structuring -- with one market gearing towards setting up private trust companies, the second with an appetite for secular directed trusts and the third for discretionary trusts.
‘But now people are starting to wonder – all these PTCs I set up… how useful is it to me? When I have to file my tax return in my home jurisdiction, will it facilitate my reporting or make it more cumbersome? In a strange way with all the regulations hitting us, things are a lot simpler.’
Indeed, she believes the scope of tax planning has shrunk dramatically. ‘Now you have to essentially take a tax position and you have to live with complying with it.’
BEPS and CFC
Another anti-tax avoidance regulation hitting private banking clients is the OECD’s controlled foreign corporation rules. It is designed to combat base erosion and profit shifting (BEPS) - tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.
‘When BEPS come into full force, it will let the tax authorities have a ton of information on you,’ said another expert, who asked to be quoted anonymously. ‘In Indonesia, country by country reporting is the first item people are taking action on.
‘With the BEPS country by country reporting and the CRS Information – like what companies and subsidiaries you own, where you are shifting profits to and then on the personal side they also have information on where you keep your money – they will have a massive amount of data on you.'
However, for now, clients in private banks are focusing on the transfer pricing regulation and understanding how the CFC rules apply to them.
Much like Goh expects conversations around trust structures to change with time, discussions around the setting up of family offices are also taking on a new tone.
‘In recent years, I am seeing more interest in setting up of family offices. Whether that family office will sit in Hong Kong, Singapore or Dubai -- there has been quite an uptick in that discussion.’
In Singapore, J.P. Morgan Private Bank advises ultra-high net worth individuals who are interested in setting up a family office and facilitate the clients' application to incentive schemes in Singapore.