Liechtenstein Foundations/Trusts and Automatic Exchange of Tax Information
Author: Roger Frick
This article was contributed by ATU (Allgemeines Treuunternehmen), an independent fiduciary service provider in Vaduz, Liechtenstein.
In August 2013, China became the 56th signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. It was considered to strengthen collaboration between China and the OECD to fight international tax evasion and avoidance.
In July 2013, G20 Finance Ministers and Central Bank Governors declared automatic exchange of information as the new global standard. The OECD, China and other G20 countries worked together to make that a reality by developing the operational platform for the global standard for automatic exchange of information. The Convention provides the instrument to enable all countries to swiftly implement automatic exchange of tax information (AEoI).
On 1 July 2015 China’s National People’s Congress approved the signature of the Multilateral Convention for Mutual Assistance in Tax Matters.
The Multilateral Convention contains provisions for mutual assistance in various ways. These include exchange of information on request, spontaneous information exchange, tax examinations in other countries, simultaneous tax examinations and assistance in tax collection. The agreement contains provisions to protect taxpayers’ rights. The agreement allows the option to engage in automatic exchange of information where parties agree to this.
The AEoI, ratified and agreed upon by China with the specific country (note: next to the Multilateral Convention, a bilateral agreement is required to confirm the reciprocity and technical specifications, but not all countries request this and participate and exchange unilaterally with all), will also mean that a foreign bank (outside of China) will report Chinese account holders to the own tax authority which itself will transfer the data to the Chinese tax authorities.
Liechtenstein reports to 111 countries, including China. China reports to around 70 countries, including Liechtenstein.
The first exchange of information under the automatic exchange of information (AEoI) between China and Switzerland took place in September 2019 for the reporting of fiscal year 2018. Liechtenstein started one year earlier.
Relevance are basically bank account balance, gross sales amount on bank accounts, rental income, dividends and interest income. where the account holder is a foundation / trust, the information to be exchanged is on settlors, protectors, trustees, beneficiaries and other controlling persons. Here, a professional trustee may outline to their wealthy family clients the differences of reporting standard in between foundations and trust for whose names or the type of data to be reported. In the time of AEol family foundations and trusts continue to thrive as a wealth planning tool as the main object of the family foundation / trust are wealth preservation, succession planning, inheritance matters, creditor protection and tax optimization. Here a professional trustee can offer and recommend certain opportunities and demonstrate the effects by drafting the appropriate foundation / trust deed, considering the right country and bank network.
For example, a wealthy family will not organize highly complicated inheritance matters with a foundation / trust with a bank account in Switzerland, because then the planning opportunities might be limited. Also, New Zealand may not be an appropriate jurisdiction to setup a trust for its extensive creditor protection planning. A client has to explain his / her situation before a professional trustee can offer him / her the appropriate solution.
Clients may also need to understand that the AEoI reporting may be different for foundations and trusts with assets other than bank accounts, for example holding shares of various companies and / or used as commercial treasury centres.
A professional trustee is expected to explain this to potential clients before their clients making decisions of structuring
Founded 1929, Allgemeines Treuunternehmen (ATU) is one of Liechtenstein’s first and most traditional trust companies with subsidiaries and offices in various important financial centres. Thanks to our broad range of experience we are familiar with numerous foreign jurisdictions and are able to adjust our proposed solutions to international legal and business situations.