Wealth Planning
Director, Trust Administration and Wealth Engineering
Since the 2008 financial crisis, we have been witness to an intensified battle against international tax evasion. This was demonstrated in particular through the abolition of banking secrecy in Switzerland and the establishment of registers of beneficial owners of companies in several so-called “offshore” jurisdictions.
Similarly, the Organization for Economic Cooperation and Development (OECD) has led the implementation of the Common Reporting Standard (CRS). More than 100 countries have signed and ratified the international agreement on the establishment of the CRS in national law. As a result, the financial information of individuals (or their controlled entities) is automatically exchanged annually between the various signatory countries so that tax authorities are directly informed of the existence and value of the financial accounts that their taxpayers hold or control abroad. In Canada, this implementation into domestic law was achieved by adding Part XIX to the Income Tax Act.
Nonetheless, how does the CRS apply when a trust holds an account with a financial institution? Who are the individuals associated with the trust whose personal information is shared? In all cases, it concerns the (i) settlor(s), (ii) trustee(s), and (iii) protector(s). Depending on the jurisdiction and whether the trust is discretionary or not, the beneficiaries may also be subject to these new requirements.
Indeed, in some cases financial institutions, for instance located in European Union jurisdictions, may regard beneficiaries, even discretionary beneficiaries who have not received any distribution of income or capital, as controlling persons of the trust. In such a case, their personal information and their relationship with the trust holding the financial account will be communicated annually to the tax authority of their respective country of residence.
The Canadian approach is different. In all cases, the beneficiary of a discretionary trust will only be reported by the Canadian reporting financial institution for the years in which he or she receives a distribution. The Canadian tax authority is then provided with certain information including the identity and country of residence of the beneficiary as well as the identification of the trust that made the distribution(s) to him or her. The Canadian authority then forwards this information to the foreign authorities concerned.
It is important to note that the CRS requirements are limited to financial assets and do not apply to real assets (buildings, art, etc.) held directly by non-residents in Canada or by a trust with non-resident Canadian participants.
More generally, it should be noted that in recent years, the various international tax authorities have been collecting a considerable amount of financial and personal data from non-resident individuals. The issue of data protection is essential and deserves the full attention of our governments. The first successful case of tax data piracy from the CRS which took place in Bulgaria last summer should serve as a reminder.
As an institutional trustee and financial institution regulated by the Autorité des Marchés Financiers du Québec, Blue Bridge Trust Company Inc. is responsible for collecting and transmitting the relevant information on the trusts it administers to the Canadian Competent Authority as required by Canada’s implementation of the CRS. To this end, we therefore attach the utmost importance to the protection of this data as well as to the transmission of only authenticated, legally sound and substantiated information to the tax authorities.
http://www.oecd.org/tax/transparency/statement-on-the-data-breach-in-the-national-revenue-agency-of-bulgaria.htm
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