The CRS Regime and its implications for Offshore Trustees

1. The CRS Regime and its implications for Offshore Trustees STEP Cayman Branch Monday 29 September 2014

2. CRS • Origins • Relationship to US FATCA Regime • Relationship to UK Cayman IGA • Treatment of Trusts • Proactive response

3. CRS Origins Statement of Early Adopter’s Group – March 19, 2014 • Tax evasion is a global problem and requires a global solution. We therefore welcome the new standard in automatic exchange of information between tax authorities developed by the OECD (the Common Reporting Standard). This will provide a step change in our ability to clamp down on tax evasion, which reduces public revenues and increases the burden on those who pay their taxes. The initiative was first launched by France, Germany, Italy, Spain and the UK in April 2013. In doing so we recognised that only those financial centres which adopt the highest standards in tax transparency and work in close cooperation to tackle cross-border tax evasion will prosper in the future. Now that the Common Reporting Standard is agreed, we intend to implement it among the early adopters group to an ambitious but realistic timetable: … The first exchange of information in relation to new accounts and pre-existing individual high value accounts will take place by the end of September 2017.’ Wider context • Interplay with AML Initiatives • Current status of position concerning EU 4th Anti-money laundering directive • Does CRS make the issue of trust registers largely academic?

4. CRS - Relationship to US FATCA Regime • Common parentage – use of the ‘FI’ concept as the core basis for reporting on interests in financial accounts. • Possible future scope for extension to non-financial assets (July 2014 report) • Contrasting points with FATCA • Absence of external registration process of use of GIIN • Absence of withholding regime • Similarities with US FATCA – automatic information exchange process – use of calendar year basis for reporting – common guidance

5. CRS - Relationship to UK Cayman IGA • UK/Cayman IGA contains a ‘sunset’ provision that provides for CRS to replace current IGA when adopted. • UKCayman IGA only relevant for period from 1 July 2014 to 31 December 2015 (reporting due September 2016) • CRS rules take effect 1 January 2016 (first reporting 30 September 2017) • ‘Special’ non dom regime contained within UK Cayman IGA in practice irrelevant – requirement for UK res nondoms to report non UK distributions even though not taxable • Guidance for UK/Cayman IGA on points of interpretation will have significant impact on CRS going forwards (especially in the area of trusts).

6. CRS - Key issues for consideration • Use of key terms: • Equity Interests – position of trust – relevant parties • ‘Any person treated as settlor’ • ‘Beneficiary of all or a portion of the trust’ • ‘Any other natural person exercising ultimate effective control over the trust’ • Concept of ‘Controlling Person’ – misleading terminology • What needs to be reported • Settlor interested trusts/life interest trusts • Discretionary beneficiaries • Position of owners of corporate beneficiaries

7. CRS - Key issues for consideration – Use of key terms cont.. • Areas likely to give rise to confusion in the future • Corporate settlors – identifying underlying beneficial owners • Protectors/enforcers requirement to report where no beneficial interest – use of nil return approach? • Persons ‘exercising effective control’ – application of this phrase to different scenarios • Reserved powers trust • Power to revoke Trust • Indirect ability to influence selection of trustees • Private Trust companies

8. CRS -What should trustees be doing now • Identify resident status of beneficiaries – this will be essential to identify by 1 January 2016 even if no UK resident beneficiaries are affected • Note that there are many jurisdictions included in the Early Adopters’ Group that will be subject to CRS reporting from 1 January 2016 • Variation of trust ahead of 31 December 2015 (where no UK resident beneficiaries) – careful consideration should be given to: • Existence of mandatory life interests – are these still required • Reserved powers of revocation that might be classified as leading to a ‘person’ exercising effective control – role of PTC – will governance powers of family in a PTC context generate reporting obligations that might otherwise not arise (eg in the case of dead settlors)

9. CRS – Silver Lining? • Transparency dividend – simplification of complex structures • Use next fifteen months to proactively review existing structures to consider scope of reducing complexity John Riches john@rmwlaw.co.uk