PRACTICAL LAW PRIVATE CLIENT MULTI-JURISDICTIONAL GUIDE 2011/12. The law and leading lawyers worldwide

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1 PRACTICAL LAW MULTI-JURISDICTIONAL GUIDE 2011/12 The law and leading lawyers worldwide Essential legal questions answered in 24 key jurisdictions Rankings and recommended lawyers in 34 jurisdictions of critical legal issues AVAILABLE ONLINE AT

2 Current issues relating to the use of international financial centres: an update Andrew Vergunst and Martyn Gowar McDermott Will & Emery UK LLP In late 2008 and the early months of 2009, the outlook for offshore financial centres was uncertain. The following three factors combined to draw the accusatory gaze of the G20 nations to onshore and offshore financial centres: The credit crunch, which drew attention to catastrophic regulatory failures around the world and put enormous pressure on the national finances of the leading industrial nations. Tax evasion scandals involving UBS in the US and German account holders in Liechtenstein, which drew unfavourable attention to banking secrecy jurisdictions, often conflated in the rhetoric of politicians with international financial centres. The collapse of two Icelandic banks with subsidiaries in the Crown Dependencies of Guernsey and the Isle of Man, which caused an outcry in Britain when many British account holders were left without adequate deposit protection. As a result, the G20 nations took steps, collectively and individually, to attempt to counter the perceived threat of international financial centres to their tax base and national currencies. Since 2009, the ongoing international financial crisis has continued to put national governments under pressure to find both tax revenues and opportunities to make political capital by looking outside the home jurisdiction. This chapter: Provides an overview of the steps made concerning internationally agreed standards, including the G20 agreement of 2 April 2009 and the current progress made. Reviews national initiatives to reduce tax avoidance using international financial centres. Considers how to advise clients on compliance and the use of international financial centres. Concludes that despite the best efforts of the G20 nations, the importance of international financial centres is likely to continue for fundamental reasons related to disparities in national taxation and expenditure (see box, International financial centres, why do they exist?). This section considers: The G20 s April 2009 agreement and the Organisation for Economic Co-operation and Development s (OECD s) most current list of whitelisted, greylisted and blacklisted jurisdictions. Progress on internationally agreed standards (since April 2009). April the G20 agreement and the OECD lists At the meeting of 2 April 2009, the G20 published the following statements: The G20 Declaration on Strengthening the Financial System. This stated that it was essential to protect public finances and international standards against non-compliant jurisdictions, and called on all jurisdictions to meet international standards in the following areas: banking regulation; tax transparency; anti-money laundering (AML); combating the financing of terrorism (CFT). Leaders Statement. The leaders explicitly stated that they were ready to use sanctions to protect their public finances and financial systems, and that the era of banking secrecy was over. On the same day that the G20 agreement was reached, the OECD published its whitelist, greylist and blacklist. These assessed the degree of compliance of a large number of jurisdictions with the agreed international standards on tax transparency. According to the latest OECD Progress Report on Implementing the International Tax Agreed Standard, of 14 September 2011, the blacklist is empty. Therefore, all surveyed jurisdictions have at least committed themselves to the internationally agreed tax standard. The greylist of countries (that is, those countries that have committed to but not yet fully implemented standards), is sub-divided between: Offshore tax havens, including: Montserrat; Nauru; Niue. INTERNATIONALLY AGREED STANDARDS On 2 April 2009, the leaders of the G20 nations reached an agreement on what was widely reported as a dramatic crackdown on tax havens...paving the way for naming and shaming of countries that fail to comply with internationally agreed standards. Other financial centres, including: Guatemala; Uruguay. See below, Internationally agreed standards - where are we now?: Banking secrecy and tax transparency. This article was first published in the Private Client multi-jurisdictional guide 2011/12 and is reproduced with the permission of the publisher, Practical Law Company.

3 In 2009, politicians issued serious warnings about failure to comply. The then Prime Minister, Gordon Brown, stated that people would increasingly see that there would be no guarantee of the safety of funds in a country that still wants to declare itself as a tax haven. He stated that if tax information is exchanged on request, as these countries have agreed to, then the benefits from being in these countries will diminish every day. information from 1 July It is likely that more financial centres, which have savings agreement with EU members, will move in the same direction. Therefore, subject to the relevant revenue and banking bodies effectively implementing the TIEAs, banking secrecy is now effectively at an end in the main financial centres, whether onshore or offshore. Internationally agreed standards - where are we now? Although many issues pre-occupied the G20 leaders and other interested parties, all coalesced into a deep suspicion of: Offshore financial centres as tax havens. Onshore banking secrecy jurisdictions, including Switzerland and Liechtenstein. Gordon Brown s statement in particular (see above, April 2009, the G20 agreement and the OECD lists) suggests that, in the minds of the G20 leaders at least, the foremost issue was that of banking secrecy and its facilitation of tax evasion, and that by achieving exchange of information, all benefits from being in a tax haven would disappear. A lack of effective exchange of information was one of the four signs of a tax haven identified in the OECD 1998 report on tax competition. However, despite a number of leading offshore financial centres already being on the OECD whitelist for information exchange (see above, April 2009, the G20 agreement and the OECD lists), this did not prevent them being included with other jurisdictions as harmful tax havens. In November 2008, the then UK Chancellor of the Exchequer, Alastair Darling, was quoted as referring to the Isle of Man as a tax haven in the Irish Sea. This shows that whether a jurisdiction is offshore or onshore is irrelevant. The binding factor is the low cost bases of these jurisdictions (see box, International financial centres - why do they exist?). This section concerns progress in relation to the following areas: Banking secrecy and tax transparency. Regulation of the financial and banking sectors. Banking secrecy and tax transparency. Significant steps have been taken on tax transparency. The OECD reported in October 2011 that since September 2009, more than 700 tax information exchange agreements (TIEAs) have been signed, which is about seven times the total number of TIEAs for the previous nine-year period. The 14 September 2011 OECD Progress Report includes on the whitelist those countries that have substantially implemented the internationally agreed standard by signing a minimum of 12 TIEAs. The vast majority of those countries originally on the greylist (see above, April 2009, the G20 agreement and the OECD lists), as a result of signing up to TIEAs, have been added to the whitelist. The minimum required number of TIEAs will probably rise over time. It is likely that there will also be increasing pressure for financial centres to move to automatic exchange of information. This already applies under Directive 2003/48/EC on taxation of savings income in the form of interest payments (Savings Directive), and some jurisdictions now already apply automatic exchange. The Isle of Man and Guernsey, not EU members themselves, agreed to help the EU in its bid to combat cross-border tax evasion by automatically exchanging Regulation of the financial and banking sectors. Regulation had been subject to the following reviews: At the G20 St Andrews summit in November 2009, it was reported that there was an ongoing review of compliance with regulatory and supervisory standards through: Financial Sector Assessment Programs (FSAPs); Reports on the Observance of Standards and Codes (ROSCs). A report on progress from this review was published on 20 July The G20 leaders reaffirmed their support for robust and transparent independent international assessment and peer review through the FSAPs and ROSCs assessment processes. The Financial Action Task Force (FATF) is continually reviewing AML/CFT standards. On 24 June 2011, the FATF called on its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing, which the FATF believes to be emanating from Iran and the Democratic People s Republic of Korea. The FATF also identified other jurisdictions both: with what it perceives to be strategic AML/CFT deficiencies; and where there is perceived insufficient progression addressing these deficiencies or a lack of commitment to an action plan developed by FATF to address these deficiencies. These states were Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey. In a report of October 2010, the FATF highlighted issues concerning AML and CFT weaknesses in respect of Trust and Company Service Providers (TCSPs) in some jurisdictions. The report found that TCSPs have often been used, wittingly or unwittingly, in the conduct of money laundering activities. Certain jurisdictions have chosen not to put an AML/CFT supervisory framework for the TCSP sector in place because of the nature of their legal systems. The following factors were found to have contributed to money laundering: weak or ineffective AML/CFT frameworks in some jurisdictions, in areas which can affect the operation of TCSPs; the presence in the TCSP sector of persons that are willing to get involved in or to perpetrate criminal activities; and the proliferation of TCSPs whose management/ staff do not have the required expertise, knowledge or understanding of key matters that are relevant to the operation of their business, such as their clients affairs. It was found that this lack of knowledge and skill can promote and facilitate illegal activities.

4 NATIONAL ATTEMPTS TO OVERCOME NON- COMPLIANCE This section mainly focuses on national measures against international financial centres in the UK, although it also considers initiatives in other jurisdictions, including the US, Italy and The Netherlands. Finally, it considers the continuing concern of national governments about undisclosed assets. The UK-notable initiatives The current coalition government in the UK has a flagship policy of eliminating the budget deficit over its term of office. It has entered into negotiations with several international financial centres, forecasting that these negotiations will net the Exchequer GB 10 billion in total (as at 1 November 2011, US$1 was about GB 0.6). UK agreements with Liechtenstein and Switzerland are each expected to deliver GB 3 billion. Lately, attention has turned to Panama and the British Virgin Islands, with HM Revenue and Customs (HMRC) planning to reach information sharing agreements with both of these jurisdictions. In recent years, the UK has implemented a number of initiatives aimed at bringing in resistant taxpayers and associated revenues, including: The Offshore Disclosure Facility (ODF). Although it is now closed, the ODF, launched in April 2007, was aimed at UK taxpayers with undisclosed tax liabilities in respect of foreign bank accounts and assets. These taxpayers were able to benefit from favourable rates of penalties for disclosure (although not necessarily including immunity from criminal prosecution). Penalties were capped at 10% of the outstanding tax owed, plus interest. An estimated GB 400 million was yielded in unpaid tax, penalties and interest as a result of this initiative. However, the initial expectation of HMRC was that they would yield as much as GB 2 billion in unpaid tax from the ODF. Although HMRC served information notices on five offshore retail banks and obtained information on UK-based account holders, of the customers invited to make a voluntary disclosure, only around 25% came forward. HMRC concluded that the scale of outstanding liability must be significant and that offshore tax evasion presents a significant risk to public finances. The New Disclosure Opportunity (NDO). This is the ODF s successor and ended on 12 March The NDO, which cast its net much wider than the ODF, saw HMRC targeting hundreds of other banks and financial institutions. Now that the NDO has ended, HMRC will vigorously pursue all outstanding liabilities. Those taxpayers who failed to come forward and are found to have unpaid tax liabilities will face penalties of between 30% and 100%, and will run an increased risk of prosecution. Liechtenstein Disclosure Facility (LDF). This scheme specifically relates to taxpayers who wish to declare unpaid tax liability linked to investments or assets in Liechtenstein. Provided a Liechtenstein connection is established, the LDF can be used as an umbrella for the disclosure of any tax liability connected with an overseas asset. Therefore, it may be unnecessary for all overseas assets to be transferred to Liechtenstein to qualify for the LDF. The LDF is scheduled to run until 31 March Under the agreement between the UK government and Liechtenstein relating to the establishment of the LDF, all Liechtenstein financial intermediaries will review their UK clients to identify those who need to confirm their position with HMRC. If a UK investor is unable to confirm that they are compliant, the Liechtenstein institution must withdraw its services from that client. Other countries may decide to follow this bilateral model. The LDF is seen by some as the most attractive opportunity afforded to holders of undisclosed bank accounts. It has turned out to be more popular than HMRC expected, with the Treasury last year revising its predicted yield from GB 1 billion to GB 3 billion. This expected boost in yield is attributed to the more favourable terms offered by the LDF in comparison with those terms offered by the UK-Swiss deal (see below, UK-Swiss Confederation Taxation Co-operation Agreement). The terms of the agreement between the UK and Liechtenstein provided that Liechtenstein banks were obliged to identify all of their UK customers by 1 October The banks then had three months to notify their customers of their obligations. Once a notice has been received from a Liechtenstein bank, customers have 18 months either to declare themselves as being tax compliant, or register to make a disclosure under the LDF. UK-Swiss Confederation Taxation Co-operation Agreement. On 6 October 2011, the UK and Switzerland signed an agreement (to come into force from 1 January 2013) to introduce a mandatory withholding tax on undeclared Swiss bank accounts operated by UK-resident individuals (that is, a person whose principal private address is in the UK). This allows these individuals to regularise their tax affairs. The new withholding tax applies to funds in bank accounts and security portfolios, including assets such as gold bullion, held at 31 December 2010 and remaining open at 31 May In respect of those accounts, the Swiss Banks who have signed up to the scheme will pay a one-off payment of between 19% and 34% to HMRC, depending on how long the assets have been held. Once this payment is made, UK resident account holders, even though their identities will not be known to the UK tax authorities, will generally be regarded as having fully complied with their UK tax obligations as they relate to their undeclared Swiss assets unless HMRC had already become aware of those liabilities from their own investigations. After that initial payment, Swiss banks will be required to impose the following annual withholding taxes on their UK resident clients who wish to preserve their anonymity: 48% on past and future interest payments; 40% on dividend income; and 27% on capital payments. These UK-resident clients will have to pay to HMRC a one-off tax payment of between 19% and 34%, depending on how long the assets have been held. Once this payment is made, UK-resident account holders will generally be regarded as having fully complied with their UK tax obligations as these relate to their undeclared Swiss assets unless HMRC had already become aware of these liabilities from their own investigations. As an alternative, UK residents may disclose their Swiss accounts to HMRC, and while not subject to withholding taxes, they will have to pay back taxes.

5 UK-resident Swiss bank account details will remain secret unless a legitimate and specific request is made for an account holder s name. HMRC will only be allowed to submit a limited number of banking information disclosure requests each year, to check that the withholding taxes are being applied. The Swiss regime has become less secretive, but is still a long way from offering automatic information exchange with the UK. The UK-Swiss agreement includes opt-out procedures for nondomiciled individuals (known as non-doms). Swiss banks will accept as an exempt non-dom, any UK resident who submits certification of his non-dom status. The certificate must be provided by a lawyer, accountant or tax adviser who is a member of a relevant professional body. One effect of the UK-Swiss agreement is that Liechtenstein may become a comparatively more attractive alternative for the noncompliant UK-resident Swiss bank account holder. The LDF only requires payment to HMRC for the period from April 1999 onward, rather than the total value of the assets, and penalties are limited to 10% of unpaid taxes. UK-resident Swiss bank account holders with a large liability to income tax or capital gains tax (CGT) pre-dating April 1999 can, even without having a longterm connection with Liechtenstein, seek to avail themselves of the relatively more favourable LDF terms. The UK-Swiss agreement represents a departure from HMRC s statement of December 2009 that withholding taxes do not meet the OECD s standards for transparency because client identities still remain secret. Before its signing this month, the EU warned that the proposed UK-Swiss agreement would not be allowed to supersede EU demands for an automatic exchange of tax information. If there is a conflict, European law always takes precedence over bilateral agreements. Increased penalties. The Finance Act 2011 introduced higher penalties for taxpayers who fail to account for the full amount of their income or CGT liabilities, where the failure is linked to an offshore matter. The new penalty framework applies to tax periods commencing on or after 1 April This law (with certain limited exceptions) applies the same penalties as for deliberate onshore non-compliance, regardless of whether the offshore non-compliance was deliberate. The aim is to increase the scale of the financial deterrent against holding funds offshore. The penalties are set to be as follows: where a jurisdiction automatically shares information with the UK, the penalties are at the current level; where a jurisdiction only exchanges information with the HMRC on request, inaccuracies arising offshore are subject to penalties one-and-a-half times the existing rate; where non-compliance arises in the jurisdiction which has not agreed to exchange information with the UK, the penalties are double. Controlled foreign companies (CFCs) has seen further developments in the UK Government s attempt to target CFCs in international financial centres and other low tax jurisdictions. The main focuses of the reforms are currently: targeting and imposing a CFC charge on artificially diverted UK profits, so that UK activity and profits are fairly taxed; exempting foreign profits where there is no artificial diversion of UK profits; not taxing profits arising from genuine economic activities undertaken offshore. The government aims to strike the right balance between improving the competitiveness of the UK corporate tax system and protecting the UK tax base against avoidance. Full reform of CFC rules will be completed by spring Other jurisdictions Other jurisdictions, including the US, Italy and The Netherlands also introduced amnesty facilities or have favourable disclosure regimes to bring in non-compliant taxpayers. Tax authorities remain determined to pursue undeclared funds, introducing increasingly heavy penalties for those taxpayers who have not come forward to make voluntary disclosure. For example: In The Netherlands, a voluntary disclosure scheme encouraged taxpayers to report more than EUR1 billion in capital in foreign savings accounts by December 2009 (as at 1 November 2011, US$1 was about EUR0.7). From 1 January 2010 the voluntary scheme was scaled back and instead taxpayers faced a fine for non-disclosure of 300% of the amount held in the undisclosed foreign account, but with reduced penalties from July 2010 of 30% in cases of voluntary disclosure. In the US, the final version of the Foreign Account Tax Compliance Act 2009 (FATCA) became law as part of the Hiring Incentives to Restore Employment (HIRE) Act The FATCA requires foreign financial institutions to report basic identifying information on the US account holders to the Internal Revenue Service (IRS) annually. Non-complying institutions (and account holders who do not provide their financial institution with documentary evidence to establish their US or non-us status) are subject to a 30% withholding tax in relation to withholdable payments made to the institution by a US person. The FATCA provisions also require US taxpayers owning US$50,000 or more in aggregate assets in offshore accounts to report such holdings to the IRS through a disclosure statement with their annual income tax return. The 2011 Offshore Voluntary Disclosure Initiative (OVDI) ended on 9 September US citizens (including green card holders) who have authority over foreign financial accounts whose cumulative balances exceed US$10,000 at any one point in the tax year, must file a Report of Foreign Bank and Financial Accounts (FBAR). Those who availed themselves of the OVDI scheme were no longer at risk of being pursued by the IRS for their unpaid taxes, with the threat of criminal punishment. However, they had to pay both: The taxes and interest they owed, dating back to % penalty, based on the maximum amount they held in these undeclared accounts at any point during 2003 to In Italy, under the amnesty programme that ended in April 2010, taxpayers wishing to take advantage of the amnesty had to repatriate any Swiss assets to Italy. Assets in most other Western jurisdictions could remain there, subject to a 5% penalty.

6 Concern about undisclosed assets The scale of the assets and tax liabilities disclosed under these measures has led to the perception among national governments that very significant undeclared funds remain in a number of former banking secrecy jurisdictions. The UK and US governments remain convinced that the sums disclosed in their respective disclosure facilities are only the tip of the iceberg. The chief of the IRS Criminal Investigation division, Eileen Mayer, has indicated that voluntary disclosures made through the IRS s special offshore programme represented account balances ranging from US$10,000 to US$100 million. However, the scale of the problem is unknown. ADVISING CLIENTS ON INTERNATIONAL FINANCIAL CENTRES International financial centres are increasingly compliant with internationally agreed standards, but this does not mean that there is no longer any reason for people to place their funds in offshore financial centres. However, tax evasion and banking secrecy are not the only reasons people may have for placing and keeping their funds outside of their home jurisdiction. There are a number of other legitimate reasons for doing so, including taking advantage of beneficial tax treatment where this is available. It is still the law in the US and UK that a person can order his affairs to pay the least tax due. Despite the significant progress made in the area of tax information exchange, results are still awaited in the other areas covered by international standards. The methods of their implementation remain uncertain. It is also uncertain to what extent fishing expeditions will be undertaken, and how they will be treated. However, it is clear from the recent developments between the Swiss and the UK and German governments in relation to information exchange, that the Swiss government is trying to prevent such expeditions taking place by limiting information requests to only those that are well-founded (see above, National attempts to overcome noncompliance: The UK, notable initiatives). Banking secrecy must now be regarded as on its way out or at least confined to a dwindling number of minor rogue jurisdictions. However, this does not mean the end of the line for international financial centres, as Gordon Brown once suggested. A number of the international financial centres were already on the OECD whitelist before the April 2009 G20 summit (see above, Internationally agreed standards: April 2009-the G20 agreement and the OECD lists). These jurisdictions were not banking secrecy jurisdictions, yet were flourishing due to their tax policies which in many cases operate to impose only low or no tax on non-residents. The major industrial nations have tended to refer to this as harmful tax competition, but this overlooks the fact that the offshore jurisdictions do not typically need to raise revenues on the same scale (see box, International financial centres - why do they exist?). For example, even with their lower rates of tax, the British Crown Dependencies and a number of the Overseas Territories were running budget surpluses for a number of years leading up to the credit crisis. These tax rates may change in the future. The independent review of the British offshore financial centres, carried out by Michael Foot, which produced its final report in October 2009, has emphasised the need for these jurisdictions to consider diversification of their tax bases to protect against further economic downturn in the future. Deloitte has recommended that value added tax (VAT) or a general sales tax should be introduced in those jurisdictions that do not yet have such a system. It still seems likely that offshore financial centres will continue to differentiate themselves by operating lower levels of tax than the onshore jurisdictions and for as long as they do so, taxpayers will have the ability to structure their affairs through low tax jurisdictions. The EU announced in October 2011 that it will review Guernsey s corporate tax regime. This is a result of the EU concerns that the island s zero/ten company taxation system (under which companies pay either 0% or 10% profit tax) could be considered as a form of harmful tax competition. Pressure from the EU has already led Jersey and the Isle of Man to agree to remove deemed distribution and attribution rules from their respective corporate tax regimes. Considerations for legal advisers These developments have led to new considerations for legal advisers. The following section considers: Advising non-compliant clients. Advising clients on the use of international financial centres. Non-compliant clients It would be preferable if all clients were starting from a fully compliant historic base. But if, in reality, there is still a significant element of non-disclosed funds, the question arises as to what can or should be done. Advisers should bear in mind the following points: There is now limited scope to use a jurisdiction which maintains full banking secrecy. Those few jurisdictions which still offer secrecy are likely to come under increasing pressure from the G20 nations going forward. Advisers should anticipate that the bigger countries, especially the US, UK and EU countries, will implement strong countermeasures. Professional advisers in many jurisdictions that have implemented the full FATF-recommended AML/CFT rules now have legal duties to disclose to the relevant authorities if they suspect that a client has funds which are non-compliant. Failure to disclose may lead to criminal sanctions for the adviser. As part of the ongoing drive towards implementation of the agreed international standard on AML and CFT, advisers in more jurisdictions will be subject to the same standards. Clients will find themselves increasingly controlled by their advisers on behalf of the relevant revenue authorities. The US already has stringent disclosure requirements relating to bank accounts held by its taxpayers outside the home jurisdiction (see above, National attempts to overcome non-compliance: Other jurisdictions).

7 In these circumstances, a client wishing to evade tax will have very few places left to hide. Therefore, the only possible advice to such clients must be to come clean. Where there is an amnesty or favourable disclosure regime available, this would seem to be an obvious place to start. Where there is no such facility, or it is no longer open to newcomers, the taxpayer should get the best advisers available and make a voluntary approach to the revenue authorities without delay. Using international financial centres Despite the tendency of tax authorities to conflate tax avoidance with tax evasion, it remains the case that in most countries it is perfectly legitimate for a client to wish to mitigate his tax liability within the limits of the law. This includes, where exchange control rules do not apply, placing assets in jurisdictions outside of the home jurisdiction. Therefore, the emphasis for advisers will be on: Placing funds in reputable financial centres. Ensuring full compliance and disclosure with the relevant tax authorities. Clients will increasingly rely on their advisers to ensure they do not fall foul of the increasing number of applicable rules. Deal with new issues arising from new regulations or changes to existing regulations, including: complex overlapping tax compliance; and disclosure requirements across a number of jurisdictions. Detailed and reliable record-keeping will be essential. More than ever, advisers will need to understand and walk with their clients through the increasingly complex international landscape. INTERNATIONAL FINANCIAL CENTRES - WHY DO THEY EXIST? International financial centres have been subject to a great deal of criticism from the G20 countries. Higher tax countries are attempting to persuade international financial centres to raise taxes (for example, the pressure on Jersey and Guernsey in recent years to impose a 10% corporation tax in place of the current nil rate). However, beneath all this debate lies the fundamental purpose of a tax system for every country, to pay for the expenditure the national government has decided to make. It is the mismatch of expenditure levels of the respective governments, more than arguments of national sovereignty that lies at the root of the disparity. Clients who will continue to use and establish structures in international financial centres will tend to be larger value structures and international families. This is because the increasing compliance costs will tend to act as a barrier to entry for smaller value structures or clients with smaller amounts to place in offshore banks. These existing structures and accounts may be looking to unwind and repatriate funds to the home jurisdiction. The client will require their advisers to: Draw on their expertise in the key jurisdictions to advise on important issues such as: family funding; succession to any family business; investment and distribution policies. For example, mineral rich countries do not need to ask their citizens for taxes, but rather impose a levy on sales. Similarly, international financial centres that cover a small geographical area with often fewer than 100,000 citizens have limited needs for finance. In contrast, a G20 country has a large bureaucracy and wide international obligations. Therefore, it is unlikely that the first two types of country will need to charge the same rates of taxation as a G20 country. In turn, this increases rates of investment from taxpayers in G20 countries, which makes high levels of domestic taxation even less necessary. The difficulty that the G20 governments face is that many individuals and corporations operate on a global basis. As an economic reality, they may no longer have a specific jurisdiction to which they owe a taxing allegiance. In those circumstances and until national governments successfully re-evaluate domestic taxation and tax competition, tax arbitrage with lower tax jurisdictions seems bound to continue.

8 CONTRIBUTOR DETAILS ANDREW VERGUNST McDermott Will & Emery T F E avergunst@mwe.com W MARTYN GOWAR McDermott Will & Emery T F E mgowar@mwe.com W Qualified. South Africa, 1996; England & Wales, 2001 Areas of practice. International private client. Recent transactions Acting as lead international adviser on complex international trust and corporate restructuring of family interests. Representing clients in respect of enquiries and disputes with revenue services/authorities. Advising trustees on trustee powers and fiduciary obligations. Advising on and drafting various forms of international trust deeds. Advising on contentious trust matters. Qualified. England, 1970 Areas of practice. International private client; international tax. Recent transactions Restructuring trust arrangements for very wealthy European families. Structuring Swiss review US citizen s affairs with family members in UK and US. Advising trustees and beneficiaries on trust and tax matters relating to the establishment and administration of offshore structures and the funding of multinational beneficiaries. Advising on the use of private trust companies, choice of trustees and other fiduciaries, and choice of jurisdictions. Advising families on the establishment of family offices, family office management and ownership structures, family governance and family agreements, the involvement of family members in the family business, generational change, family philanthropy, custody and reporting, risk management, and investment approaches and philosophies.

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