Offshore Business Environment July 2010

Transcription

1 Offshore Business Environment July 2010 s and examiner s comments Important notice When reading these suggested answers, please note that the answers are intended as an indication of what is required rather than a definitive right answer. In many cases, there are several possible answers/approaches to a question. Please be aware also that the length of the suggested answers given here may be somewhat exaggerated compared with what might be achieved in the reality of an unseen, time-constrained examination. Examiner s general comments The examination was, as with previous sittings, divided into three Sections, with candidates required to attempt all parts of Section A, all questions in Section B and two of the three questions in Section C. Advice for future candidates: Read the instructions carefully. Attempt the required number of questions. Use the examiner s comments and suggested answers as key parts of the examination preparation process. Read the questions carefully (especially those in Section C). ICSA, 2010 Page 1 of 10

2 Section A (Answer all parts of Question 1 Select only one of the options A,B,C or D for each part) 1. (i) Which document sets out the standards that banks have to follow when opening an account? A. The Guidelines of Banking Practice. B. The Rules of Banking Practice. C. The Policy for Banking Practice. D. The Code of Banking Practice. (ii) What do the initials FATF stand for? A. Financial Action on Terrorist Financing. B. Fiscal Action on Terrorist Financing. C. Fiscal Action Task Force. D. Financial Action Task Force. (iii) Which English contract law case decided the definition of consideration? A. Cutter v Powell B. Beswick v Beswick C. Hutton v Warren D. Currie v Misa (iv) What is the Civil Law Rule that requires a portion of the deceased person s estate to pass to stated heirs? A. Foreign Heirship Rule. B. Fixed Heirship Rule. C. Forced Heirship Rule. D. Foremost Heirship Rule. (v) Which of the following international organisations does SWIFT collaborate with? A. International Organisation for Standardisation. B. International Association of Securities Supervisors. C. Basel Committee on Banking Supervision. D. Securities Exchange Commission. ICSA, 2010 Page 2 of 10

3 (vi) What is an investment trust company? A. A sinking fund. B. A unit trust. C. An open ended investment company. D. A closed ended fund. (vii) In respect of UK taxation rules, how long must an individual be physically present in the UK during a tax year in order to be considered resident for UK tax purposes? A. 3 months B. 4 months C. 6 months D. 9 months (viii) How many recommendations did the FATF publish in 1990? A. 40 B. 48 C. 49 D. 50 (ix) Which legal phrase means by the way? A. Obiter Dicta B. Ratio Decidendi C. Stare Decisis D. Quantum Meruit (x) What is another name for a Managed Bank? A. Restricted Bank B. Cubicle Bank C. Standalone Bank D. Intermediate Bank (Total: 20 marks) ICSA, 2010 Page 3 of 10

4 s (i) D The Code of Banking Practice. (ii) D Financial Action Task Force. (iii) D Currie v Misa (iv) C Forced Heirship Rule. (v) A International Organisation for Standardisation. (vi) D A closed ended fund. (vii) C 6 months (viii) A 40 (ix) A Obiter Dicta (x) B Cubicle Bank Section B (Answer all five questions) 2. Excluding principal private residence, suggest three other assets that enjoy an exemption from UK Capital Gains Tax. (6 marks) Any three of the following: Gilts and other UK loan stocks (except convertibles, which are taxable). Wasting assets (ie. assets which usually have a life of less than 50 years and including cars). Other moveable assets (such as antiques or stamps, where the sale proceeds are below the exemption level). Gains on certain life-assurance policies made by the original proposer of the policy. A generally well answered question, with most candidates achieving a pass mark. ICSA, 2010 Page 4 of 10

5 3. The mischief rule in English case law is sometimes referred to as the rule in Heydon s Case. Which three factors did this case prescribe that judges should consider? (6 marks) What the law was before the statute was passed. What mischief the statute was trying to remedy. What remedy Parliament was trying to provide. This was generally poorly answered, which might reflect that this question had not been asked in previous examinations. 4. Suggest six services that could be categorised as offshore legal services. (6 marks) Any six of the following: Offshore asset protection. Tax mitigation. Estate planning. Insurance strategies. Jurisdiction advisory services. Offshore company and trust formations. Private banking and investment advisory services. Registration of ships, yachts, aircraft and trademarks. Examiner s comment This was generally well answered. ICSA, 2010 Page 5 of 10

6 5. Identify six practical steps a UK-resident but non UK-domiciled individual can take to continue to prove non UK-domiciled status. (6 marks) Retention of accommodation abroad. A foreign will and grave plot. Business interest abroad. Social and family connections. The education of the children. Frequent visits to native country. This was generally well answered. 6. State three of the four essential elements necessary for a sound know-your-customer programme contained within the Basel Committee on Banking Supervision s 2001 Report on Customer Due Diligence for Banks. (6 marks) Any three of the following: Customer acceptance policy. Customer identification. Ongoing monitoring of high risk accounts. Risk management. Most candidates were able to state customer identification as one of the essential elements. Stating the additional elements proved more challenging for some candidates. ICSA, 2010 Page 6 of 10

7 Section C (Answer two questions only) 7. You work for a firm in London advising on both offshore and onshore financial planning. One of your clients is moving from the UK and is able to establish a structure offshore to mitigate a UK tax liability. Your client is uncertain about which jurisdiction to use and how to choose a service provider. Advise your client on relevant factors to be considered when choosing the following: (a) A suitable offshore jurisdiction. (15 marks) Any fifteen of the following: Reputation Good communications / telecommunications. Political, social and economic stability. Supportive ministers and officials. Political control clearly in hands of the governing party. Links with a major country. Satisfactory moral and ethical standards. Freedom of movement of funds (no exchange control). Moderate costs. Expertise on local work force. Established legal system. Secrecy laws. Low tax regime. Forced heirship exclusion rules. Business language. Convenient time zone. Regulation Modern company / trust law. ICSA, 2010 Page 7 of 10

8 (b) An appropriate provider of offshore trusteeship services. (10 marks) Any ten of the following: Reputation Recommendation Prestigious name. Good regulatory track record. Quality of staff. Level of communications technology. Premises location. Number and spread of offices. Quality of marketing literature. Owned by a substantial financial institution. Fees Minimum-balance requirements. Whether staff are available outside office hours. This was the most popular question in Section C. Most candidates scored good marks for this question. 8. (a) Explain the criteria contained within the OECD s report Harmful Tax Competition: An Emerging Global Issue ( the report ) for deeming a jurisdiction a tax haven. (7 marks) Either nominal taxation or no taxation at all. Laws or practices that prevented exchange of information in relation to taxpayer benefitting from such low-tax or zero-tax regimes. Lack of transparency in the operation of the relevant provisions. No substantial economic activity (apart from financial services). ICSA, 2010 Page 8 of 10

9 (b) Explain the objections to the report raised by jurisdictions deemed tax havens. (9 marks) Offshore centres are not being treated the same as onshore centres nor are all offshore centres being treated equally (level playing field). Tax-haven criteria are flawed. Some centres had already (or have since) implemented changes that allow for greater exchange of information. All centres co-operate to combat money laundering (ML). Some question whether tax evasion should be considered as ML. There are tax practices amongst OECD member states that can be viewed as harmful. The OECD delayed measures to address tax issues amongst its members and instead attacked offshore centres. The offshore centres argued that taxation is sovereign to a country and no policy initiative should dictate any sovereign country on taxation matters. (c) In respect of the report, identify five commitments to transparency sought by the OECD. (9 marks) Eliminate rules that depart from established laws and practices. No secret tax rulings. No ability for the government and taxpayer to negotiate the rate of tax applied. Financial accounts to be drawn up and filed. Government authorities to have access to beneficial ownership information. This was the most technical of the Section C questions which might explain its unpopularity in terms of the number of candidates who attempted the question. 9. (a) Jack lives in a jurisdiction that does not levy any type of direct taxation, either during Jack s lifetime or after his death. Suggest reasons why Jack might nonetheless want to establish a trust. (14 marks) To protect assets from exchange control. To preserve confidentiality. ICSA, 2010 Page 9 of 10

10 The protection of a stable political and social environment for the ownership of assets. Place assets in a safe jurisdiction when emigrating or temporarily working abroad. Avoiding potential disputes between heirs or beneficiaries. To hold property for minors. To protect family property from dissipation. To protect capital in the event of a beneficiaries financial difficulty or bankruptcy. To hold funds for a mentally disabled person. To hold shares for employees. To hold funds for a charitable purpose. (b) Apart from establishing and administering Jack s trust, what other types of services are routinely provided by a trust and corporate services provider? (11 marks) The formation and administration of companies in an offshore centre including shelf companies. A range of trusteeships and corporate services including provision of directors and nominee shareholders and acting as company secretary and share registrar. Asset protection structures. Bank account opening and administration. Insurance products. Accounting and re invoicing services. Establishing structures specific for particular client needs, including the establishment of a trust in turn owning one or more companies. This was generally well answered. The scenarios included here, except where expressly identified, are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental. ICSA, 2010 Page 10 of 10