After a tough political battle, fraught with tension and speculation, Switzerland’s National Council and Senate have finally united in their decision not to subject the UBS agreement to a national referendum.
The landmark victory comes as the National Council, the country’s lower house of parliament, yielded at the eleventh hour, and followed the advice of the conciliation group (comprising 13 members of each council) set up to resolve the highly critical issue. Marking a significant u-turn, the lower house voted by 81 votes to 63, with 47 abstentions, against a referendum.
An agreement was eventually reached thanks to the decision by the Swiss People’s Party (SVP) to reverse its previous stance and to approve the treaty in order to prevent its collapse. Failure by the National Council to comply with the conciliation group’s recommendations would have resulted in an end to the agreement.
Commenting on parliament’s decision, UBS stated that:
“UBS welcomes today’s Swiss Parliamentary approval of the US-Swiss Government Agreement. This vote is an important step to support the resolution at the governmental level.”
“UBS continues to focus on its comprehensive and timely compliance with all obligations under its separate settlement agreements with the US Department of Justice and the Securities and Exchange Commission (known as the Deferred Prosecution Agreement, or DPA, and Consent Order) and is confident that this will be achieved by the relevant deadlines in August 2010.”
As a result of parliament’s decision to give the green light to the agreement, the Swiss Federal Council will now be able to assist US authorities under the terms of the agreement by August 19.
Concluded in August last year, the agreement provides that UBS is to disclose to US authorities the names and bank details of 4,450 of its American clients, suspected of evading taxes over a number of years with the help of the Swiss banking giant. In return, civil charges against the bank will be dropped.
Category Archives: European Tax & Money Havens
Why you need a private foundation – L’Oreal heiress Liliane Bettencourt’s fortune dispute
If you establish a private foundation, and are careful with how you use Swiss bank accounts, you would avoid repeating Liliane Bettencourt’s problems.
The story of L’Oreal heiress Liliane Bettencourt fortune have it all to provoke a scandal ; A L’Oreal heiress gives EUR 1.3 billion to a friend, causing an investigation, here hiding of secret funds in Switzerland, and here attempt to move the money to Singapore and Uruguay, as well as a jealous daughter and more……. Read the story here.
If you understand French you can listen to the secrets tapes here.
The lesson from Liliane Bettencourt’s case is be careful with how you use Swiss banks and get distance to your fortune by using foundations and trust’s in selected jurisdictions.
Contact us if you need assistance to establish a private foundation or advise regarding the use of Swiss bank and other international banking centers.
Private Foundations
We can help you to establish a Private Foundation. Essentially, Private Foundations act as a holding entity for assets transferred to them. The transfer is usually in the form of a gift, by a person referred to as the donor and in some jurisdictions, the term “settlor” is used.
The Private Foundation have traditionally been used over the centuries for benevolent or charitable purposes, often being associated with pieces of art or other valuable collections. The Private Foundation works well for individuals desiring a straight forward asset holding/protection structure designed to provide beneficiaries with an asset-derived income.
Foundations cannot be used for trading activities or for conducting financial service business activities. However, the buying and selling of assets (real estate, shares in trading companies, investments etc.) is not considered a trading activity. Foundations can act as a shareholder but not a director or officer, in a trading entity like a corporation.
There is no gift tax to pay at the time a Foundation is established, and earnings generated by the Foundation are tax exempt. However, incomes paid by Foundations to its beneficiaries, once declared by beneficiaries, might be subject to local taxation at their place of domicile.
Because the Foundation’s assets are gifted, the donor receives no payment in return. The Foundation becomes the owner of the assets endowed to it and, as such, the entity has a separate legal personality. It is in this area that Foundations fundamentally differ from trusts, since trusts are not considered to be legal entities. In the case of a trust, legal title of its assets is held in the name of the trustee.
In order for the Foundation to function, the assets need to have been endowed and placed at the disposal of the Foundation and its officers. This endowment satisfies the tax inspector’s question “has the property ceased to be the asset of the tax-payer (donor)”. One of the documents required at the time of registration of a Foundation is a Certificate of Initial Assets signed by its officers. This declaration must confirm that assets of not less than US$ 10,000 in value have been endowed to the Foundation. Upon receipt of the Certificate of Initial Assets, the Registry will issue a ‘Certificate of Endorsement of Statement of Value of Initial Assets’. The specific assets endowed at the time of registration need not be named and additional assets can be gifted at anytime, again without any public record of their value or their source.
Unlike trusts, once assets are placed in a Foundation, they cannot be withdrawn at will by the donor. A statement relating to the endowed assets also needs to be included in the Memorandum of Endowment signed by the donor and submitted with the application to register. The Memorandum is not filed, but is returned to the Foundation attached to a Certificate of Endorsement of Documents issued. An ‘Extract of Particulars of the Memorandum of Endowment’, signed by the Secretary of the Foundation is filed. The names, addresses and specimen signatures of the appointed officers and the Secretary, and details of the address to be used for the service of documents to the donor are included in this Extract. The name of the donor does not appear in the Extract and, therefore, need not become public information. In addition, more than one donor is permissible, and there are no restrictions on residency or nationality of the donor. However, a donor cannot act as an officer or be appointed as the Secretary of the Foundation, but can participate in its supervisory board, if one is appointed. Moreover, the donor can be one of the beneficiaries.
Management responsibility of a Private Foundation sits with its officers who determine the distribution of income and capital in accordance with the donor’s instructions.
A minimum of three officers need to be appointed, and at least two officers must be physical persons. One of the officers can also act as the Secretary, and a corporate Secretary is permitted. Consent to Act declarations for each officer and the Secretary need to be submitted with the application to register the Foundation, and these are filed together with the Extract. As with the donor, there are no restrictions on residency or nationality for the officers and/or the Secretary. Officers can delegate their powers to one another. To assist in the management of a Foundation, the officers may decide to appoint a Supervisory Board comprised of at least three physical persons. Private Foundation Law permits a donor to participate on the Supervisory Board.
The Supervisory Board must be established as a body that is independent of its officers and beneficiaries. The Board acts like the Protector of a trust. Similarly, auditors may also be appointed. The procedural rules for running a Foundation are set out in the Management Articles, a document that is very similar in scope to the bylaws of a corporation. The Articles are signed by the donor and submitted with the application to register the Foundation. Like the Memorandum, the Management Articles are not filed, but returned to the Foundation attached to a Certificate of Endorsement of Documents.
A typical function of a Private Foundation is to provide beneficiaries with an income derived from an asset(s) endowed to it from a donor(s). As has been outlined above, the donor provides guidelines as to how the Foundation is to be managed and also defines who the beneficiaries will be, what payments should be paid to the beneficiaries, and when payments should occur.
While the officers of the Foundation need to know the names of the beneficiaries, such information is not required to be filed. A donor can also provide further guidance to assist officers to manage the Foundation in the form of a Letter of Wishes and, from time to time, change the beneficiaries. The Letter of Wishes is an internal document and not, therefore, filed.
Once formed, a mandatory annual return for the Foundation, signed by the Secretary must be submitted. The annual return must confirm that the information filed in the Extract remains correct and that proper accounts have been maintained. Annual returns are not publicly filed.
The Private Foundation provides a perfect holding structure for emerging financial and asset empires, while distancing the donor from otherwise taxable events. The Foundation permits income generated from assets held by the Foundation to be available to the donor and subsequently his heirs in accordance with the (changing) wishes of the donor/settlor. At the same time, the Foundation keeps intact the wealth-generating activities of a family (shipping operation, hotels, property, licenses, royalties, manufacturing or service activities).
The above concept is based on Austrian law and also used in Liberian Private Foundations. Similar foundations are available other places like Panama and Mauritius.
Contact us if you are interested to set up a Private Foundation.
Tax advantage in Russia’s Silicon Valley
Russia’s Skolkovo To Have Own Tax Regime The head of the Russian ‘Silicon Valley’ project at Skolkovo, Victor Vekselberg, has given an interview to Vedomosti, in which he describes the project and its planned tax privileges in more detail. Skolkovo will have its own special legal regime, he said, which will be managed and funded by a non-profit making foundation rather than a city council. Companies in residence, will be exempt from income taxes on property, and have lower rates of social security contributions,” said Vekselberg, adding that he had sometimes had to raise his voice when discussing tax privileges with the Ministry of Finance. Enterprises should be eligible for duty-free importation of equipment – or subsidies to compensate for duties. According to the draft terms still to be agreed, preferential tax treatment would be given for unspecified periods of up to 10 years, or until annual revenues reached RUB3bn during which time there could be zero taxes on income, property, land, and transport, and no VAT.
Vekselberg said that he would be the first president of the foundation, assisted by co-sponsors on the foundation board of trustees, which would include representatives from the Russian Academy of Sciences, Rusnano, Vnesheconombank, the Russian Venture Company, a Fund for Assistance to Small Innovative Enterprises in the scientific and technical sphere, the owner of the land (а state-sponsored housing association), as well as an association formed by universities. Vekselberg did not exclude the possibility of adding foreign sponsors to the list in due course.
The community is expected to grow to 25,000-30,000 people and premises for postgraduate and doctoral research will be constructed, which should also encompass laboratories, housing, offices, kindergartens, schools and hospitals. The construction alone, excluding research funding, should involve expenditure of USD2bn.
Vekselberg described the construction as low-rise, environmentally friendly and energy efficient. Funding for the first 30 months may reach RUB50-60bn (USD1.7bn-USD2.0bn). It would be state funded and financial contributions from co-sponsors would be minimal. Local services would also be state funded.
The foundation will provide grants for some projects. Companies whose projects are supported will be able to rent premises virtually at cost and will be given tax, customs and other privileges. This way, Vekselberg said, companies will be able to concentrate fully on research without being distracted by bureaucracy and formalities.
A streamlined procedure for the transfer of land would be introduced, which would shortcut planning permission formalities. Import formalities would also be streamlined. Some projects would not have to meet performance criteria, promised Vekselberg; for the first time in Russia, projects may be allowed to fail. In the West, Vekselberg concluded, two successful start-ups out of 10 would be regarded as a satisfactory outcome.
The project is not without its critics, however. Vedomosti quoted, for example, Sergei Mitrokhin, leader of liberal party Yabloko, as saying: “It will be a kind of state corporation, a sinecure; and with the absence of local government (which is in fact unconstitutional), activity will be completely out of control.”
The European Union outlaws exit taxes
The European Commission has sent reasoned opinions to Belgium, Denmark and the Netherlands, requesting that they change their exit tax rules on companies that transfer their seat or assets to other member states.
The Commission considers these provisions to be incompatible with the freedom of establishment provided for in Article 49 of the Treaty on the Functioning of the European Union (TFEU). A similar case against Sweden has been closed, following compliance by the Swedish authorities.
The Commission has called on the aforementioned countries to amend the following provisions:
- Belgium – Article 208, 209 and 210, paragraph 1, point 4 of the Income tax code (CIR92), that provides for the immediate taxation of capital gains where the company switches fiscal residence to outside Belgium;
- In Denmark, Section 7A of the Danish Corporate Tax Act provides for immediate taxation of capital gains on assets transferred outside Denmark; and
- In the Netherlands, articles 3.60 and 3.61 of the Income Tax Law 2001 and articles 15c and 15d of the Corporate Tax Law 1969, which provide for exit taxation of non-incorporated businesses and companies.
The Commission considers that such exit tax rules are likely to dissuade businesses and companies from exercising their right of freedom of establishment and constitute restrictions of Article 49 TFEU.
The Commission’s opinion is based on the Treaty as interpreted by the Court of Justice of the European Union in De Lasteyrie du Saillant, Case C-9/02 of March 11, 2004, and in N, Case-470/04 of September 7, 2006, and on the Commission’s Communication on exit taxation of December 19, 2006. The immediate taxation of accrued but unrealized capital gains at the moment of exit is not allowed if there would be no similar taxation in comparable domestic situations. It follows from the case-law that the member states have to defer the collection of their taxes until the moment of actual realization of the capital gains.
The Commission had already referred Spain and Portugal to the Court of Justice for similar exit tax rules, and sent a reasoned opinion to Sweden,