The worst fear of those with secret offshore bank accounts and private trusts is coming true — some tax havens are ready to part with ‘old’ records and even details of trusts and foundations that no longer exist, reports the India Times.
A week ago, Jersey, one of the early tax havens often preferred by the rich, responded to queries from the Indian tax office. It disclosed information pertaining to years prior to 2012, when it signed the treaty with India. As tax havens came under the glare after the 2008 meltdown and were forced to enter into information sharing agreements, several Indians were quick to dismantle old offshore structures (that held the funds) and move money to jurisdictions such as Dubai and Singapore.
This was done to whitewash records in the original tax haven, shift funds to safer territory under new names and structures, escape tax and protect privacy. It was based on a clear understanding that when confronted, a tax haven would have no obligation to reveal details of bank accounts and trusts that have been closed; especially, they cannot be forced to share information on transactions that were entered into before the date of signing of the information sharing pact.
Jersey, it appears, is about to break up this arrangement. In at least two cases (relating to two business families in Mumbai and Delhi), it has shared information on old, discretionary trusts having resident and non-resident Indians as beneficiaries
“Jurisdictions like Jersey have become overly cautious and are sharing information without getting into specific details... From a compliance angle, this is a welcome move, but it can result in loss of privacy as details shared may include names of beneficiaries who are no longer Indian citizens Information on them should not be shared,” a person aware of the development told ET. India’s income tax department had approached Jersey authorities a little over a month ago. The India-Jersey Tax Information Exchange Agreement which came into force on 7 May 2012, enables India to obtain information that is relevant for the enforcement of the Indian income tax law.
“However, on the basis of a recent court ruling, the Jersey Tax Administration Authority believes it is legal to share information even prior to this date,” said another person familiar with the matter. Till now, no other financial centre or tax haven has shared ‘old’ information. For instance, Switzerland has been careful in ensuring compliance but at the same time maintaining client privacy. (It’s another point that most Indians have moved money out of Switzerland to Dubai and elsewhere in the last few years).
But the decision by Jersey, which has served as a gateway for property investments in the UK, could rattle many wealthy families with complex succession planning structures, assets and investments in various countries.
Many have chosen Jersey to settle their family estate through foundations or discretionary trusts for succession planning and wealth protection from insolvency, lawsuits, family divorce matters, kidnapping, ransoms etc. “Needless to add these documents remain private and confidential documents as like a will which most families are reluctant to share. So, it’s not just a matter of tax evasion. For many, it’s also about privacy,” said a senior tax practitioner.
Also, there are funds which pool in money in Jersey or Cayman Islands and then form sub-funds in centres like Mauritius or Singapore depending on the investment destination. The classic trust structure involves the family patriarch to settle estate into a Trust with named beneficiaries. The Trustees then manage the Trust funds.
The beneficiaries derive benefits at the discretion of the Trustees and confirmed by the Protector depending upon age, situation, occupation and other factors. The beneficiaries are generally required to disclose their interests in their respective home country tax returns. Some of these trusts have been settled years ago.
But some of the settlers and beneficiaries of Jersey trusts may now make a mental note that their asset information, irrespective of their citizenship or residency, could some day land up with the Indian tax authorities.