Offshore Financial Law Trusts and Related Tax Issues

3199 Pages·2013·6.15 MB·English

by  Rose-Marie Antoine

OFFSHORE FINANCIAL LAW
OFFSHORE FINANCIAL LAW
Trusts and Related Tax Issues
SECOND EDITION
ROSE-MARIE BELLE ANTOINE
LLB (UWI); LLM (Cambridge); D Phil (Oxon)
Professor of Labour Law & Offshore Financial Law
Attorney-at-Law
Great Clarendon Street, Oxford, OX2 6DP,
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First Edition published in 2005
Second Edition published in 2013
Impression: 1
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FOREWORD TO SECOND EDITION
A foreword should be short and sweet, especially this one in view of Sir Roy
Goode’s excellent foreword to the first edition (which remains very relevant)
and of Professor Belle Antoine’s detailed Preface.
This second edition, appearing over eight years since the first edition, is much
needed in dealing with further statutory trust developments, whether offshore or
onshore in the USA and the Middle East, and with OECD nations’ responses
which are designed to counter money laundering, tax evasion and terrorist
funding that they consider may be particularly assisted by offshore trust laws.
There have also been case law developments in the evolving legal framework
of concepts underlying what the professor terms ‘hybrid trusts’.
The professor has thus been able to further develop her extensive coverage of
trusts and related tax issues with a thorough analysis of the intricate issues of
domestic and private international law, and of public policy, which underlie tax
minimization attempts and attempts by divorcing spouses, heirs, or creditors to
undermine offshore trusts or, directly or indirectly, to enforce foreign
judgments. The breadth of the coverage of the statute and case law is most
impressive and makes for a stimulating read, especially where the professor
leads us through some controversial areas. For practitioners, there is plenty of
comparative pragmatic material to guide them, whether contemplating which
trust law to choose to govern a trust or whether they may have some chance of
success in attacking a trust in the light of its governing law not containing
provisions inserted into another state’s more recent legislation.
I warmly welcome this new edition. It successfully builds upon the professor’s
significant first foray into this fascinating offshore trust world which has
produced useful case law for traditional onshore trust jurisdictions and even led
them to enact modernizing legislation. It provides thought-provoking material
for legal scholars while providing clear analyses for guiding practitioners
interested in ‘hybrid’ trust jurisdictions. It should be widely read by both legal
practitioners and legal scholars.
David Hayton
Caribbean Court of Justice
Trinidad, January 2013
FOREWORD TO FIRST EDITION
Oliver Wendell Holmes, the father of the great judge of the same name, once
wrote: ‘Put not your trust in money, but put your money in trust.’ We can
imagine the enthusiasm with which he would have greeted that modern
phenomenon, the offshore trust, which is the subject of this excellent new book.
Professor Ross Cranston and I had the pleasure of co-supervising Rose-Marie
Antoine’s doctoral thesis on offshore financial law, a thesis highly commended
by the examiners, part of which later grew into a larger specialist work
published under the title Confidentiality in Offshore Financial Law, by Oxford
University Press. In that work Dr Antoine graphically depicted the tension
between the desire of offshore jurisdictions to respond to the needs of
international business and finance, through strict confidentiality rules, tax
advantages, and the like, and the concern of onshore jurisdictions to counter tax
evasion and money laundering, and drew attention to the important
constitutional issues involved. Confidentiality in Offshore Financial Law, a
splendid work, is now followed by this second offering from Dr Antoine’s pen,
an equally fine text which explores the distinctive characteristics of the offshore
trust, an institution combining the traditional trust developed by the English
common law with new features designed to protect the trust assets from the
claims of creditors, bypass inconvenient rules on succession and counter
challenges by onshore jurisdictions.
In this new book Dr Antoine combines a rigorous analysis of the complex legal
issues surrounding the offshore trust with a balanced policy perspective in
which she stoutly defends the institution of the offshore trust as a legitimate
instrument of estate planning based on freedom of contract and of property
while acknowledging that it may be abused and that onshore jurisdictions have
legitimate concerns which need to be addressed. The book is wide-ranging,
covering matters as diverse as the liability of trustees and the validity of
exculpatory clauses, tax implications, the use of human rights law to protect the
essential features of the offshore trust, and issues of the conflict of laws,
including an examination of the Hague Convention on the Recognition of
Trusts. It is at once a challenging work for the scholar and a vade mecum for
the practitioner, and I have no doubt that it will be welcomed as warmly as its
predecessor.
Roy Goode
Oxford
November 2004
PREFACE
The idea or notion of a ‘statutory trust’ is to some heresy and to others a
contradiction in terms. Since the trust is a creation of equity, then statute, by
definition, cannot create a trust. Yet, it is precisely what the creators of the
offshore trust have dared to do. It is little wonder, therefore, that the offshore
trust has been described as a bastard offspring of equity.
This new creation, the offshore trust, is, in many ways, extraordinary. On the
one hand, it borrows heavily from the traditional trust, created and fashioned by
the principles of equity. Yet, on the other hand, it embodies unique concepts
radical to the traditional trust, justifying my coining of the term ‘hybrid trust’ to
describe it. The offshore trust has attempted to surmount the forced heirship
regime of the civil law, even the Islamic expression of it, with a particular
variant labelled the ‘Shari’a trust’, discussed in this second edition. It has
promoted the unorthodox entity that is the ‘purpose trust’. It has embraced
selected principles of company law, married these principles to equity, and
created a vehicle for offshore investment. Perhaps the best example of this is
the so-called ‘VISTA’ trust, created in the British Virgin Islands. It has
attempted to exploit universal principles of tax law which advance tax
mitigation. It has promoted the cause of the freedom of disposition of property,
even to the extent of prioritizing the interests of named beneficiaries and trust
purposes over future, unidentifiable creditors. As the challenge to its existence
mounts, its creators constantly seek to reshape it to enable it to adapt to its
changing environment. All of these innovations and revolutions have been done
in the name of commercial pragmatism and viability, to create an efficient
mechanism suitable for the modern international business environment.
As expected, there has been considerable jurisprudential evolution in relation
to these dynamic issues. The questions raised and the positions articulated in
the first edition about some of these new trust questions have now produced
concrete judicial confirmations, which are ripe for further inquiry. Indeed, we
have seen some predictions come to fruition, such as the re-thinking of the rule
in Hastings-Bass, the trend toward viewing protectors as fiduciaries, and the
changing view of the trust for purposes of jurisdiction, treating it as akin to a
corporate structure.
Further, statutory developments in the offshore trust sector have also continued
at a pace since the last edition. Some of these reforms have to do with
increasing pressures toward transparency by the international community, such
as more record keeping, incorporation of tax exchange of information treaties,
and the like. However, there have been key substantive developments as well,
such as on forced heirship, enforcement, perpetuities, trust liabilities, and new
corporate trust formations. Many of these were to respond to what was
anticipated in the first edition, an expected explosion in offshore trust litigation
as the innovative statutory provisions that characterize the offshore trust are
tested before the courts. This is expected to continue.
In addition, the inherent dualistic nature of offshore trust law has acquired a
distinct international flavour, introducing another dimension to the already
complex interplay between offshore and onshore, traditional laws and offshore
laws, and now, international law. This has occurred because of the increasing
array of treaties and international agreements, as well as important judicial
decisions interpreting them, that now impact on offshore trust law. This
dimension has so much depth that we can now identify international law
understandings of key offshore trust concepts, such as the residence of the trust,
beneficial ownership, restraint orders, and, to a lesser degree, the concept of a
sham where tax-related issues involving the trust are concerned. These are
fascinating developments which will no doubt be explored further as offshore
trust law continues its remarkable journey.
We have thus witnessed the development of a distinct body of what I have
described as offshore financial law, which includes offshore trust law, terms
now seemingly accepted into the legal lexicon of both commerce and law,
acquiring legitimacy. Further, as I have argued elsewhere, offshore trust law has
contributed significantly to the development of the concept of the common law
trust in general, particularly in the commercial context.1
The fascinating legal framework of the offshore trust and its evolving
jurisprudence is thus the subject of this book. It is a subject with which every
trust practitioner and every person associated with the business environment
should familiarize themselves. Notwithstanding its obvious usefulness to the
practitioner, the very existence of this new trust, the first truly indigenous and
carefully planned trust creation of modern times, should be a stimulating topic
of inquiry for the academic and the student alike. The book serves also as a
companion volume to Confidentiality in Offshore Financial Law.
Part I explores the underlying principles of the offshore trust and explains its
anatomy and functions. Special trust vehicles are described and examined.
Inevitably, one is never far away from either defending or trying to explain the
jurisprudential tensions surrounding the offshore trust. One underlying theme
of the book is exposing the inconsistent application of legal principle and
policy by onshore countries where offshore jurisdictions are concerned. In this
new edition, the addition of a new chapter which focuses on financial sectors
identified in US states which have enacted laws that mirror those found in