Trusts conference: Confidentiality not threatened by TIEAs

The signing of Tax Information Exchange Agreements by international financial centres has not had a major effect on the preservation of confidentiality rules, a panel of experts said at the Mourant Ozannes inaugural International Trusts Conference last week. 

The panel of trust experts from Cayman, the Bahamas, Guernsey and the UK debated confidentiality in the light of the increasing burden of disclosure and, as moderator Shan Warnock Smith put it, the paradox of living in a time when the right to privacy is paramount, but also full disclosure is required by governments and other authorities. 

The panellists noted first and foremost there have been very few cases of information requests based on Tax Information Exchange Agreements. TIEAs are a product of a political time, when offshore was made the scapegoat for the problems of the world, said Robert Shepherd, partner at Mourant Ozannes in Guernsey.  

“I don’t think we are quite the scapegoat now as we were then,” he said. 

In addition, foreign tax authorities making information requests have a number of hoops to jump through in the form of procedural obstacles, including the identification of the taxpayer and the need to exhaust all local powers first, he said. Trustees should be vigilant to that and demand authorities fulfil these requirements before an information request can be complied with. 

“There are an awful lot of things that you can do as a trustee to protect your beneficiaries and to honour your obligations of confidentiality,” Mr. Shepherd said. 

Butterfield’s Julien Martel agreed tax information exchange agreements are more of “a storm in a tea cup” and an issue that “does not come up in conversations with clients either”. He said “confidentiality is an issue for clients, but certainly in our business we are not seeing anything which is stopping the business growing”. 

Although there are cases where TIEAs are part of the armoury used by beneficiaries and claimants in other jurisdictions to attack or get information about a trust, tax information exchange has not been making substantial inroads into the status of international financial centres, Ms. Warnock Smith said. 

Nonetheless, she said, there is naturally a strain between the beneficiary, who does not want information to be released, and the trustee, who is under a statutory obligation to comply with information requests. Ziva Robertson of law firm Withers considered the balancing act a trustee must exercise between the interests of the beneficiaries when there are no court proceedings and the duty to give a court full disclosure of anything that is material to proceedings. At the same time, she said, trusts are increasingly complex and can span a large number of jurisdictions.  

“You just need to bear in mind that confidentiality means different things in different jurisdictions and it means different things in times of war and in times of peace as regards the position of the trust,” she said. 

Trustees therefore have to be careful to identify all of the issues in each jurisdiction. 

Ms Robertson said the commercial reality for a trustee, who has to grow the assets of a trust fund, is that agreements with third parties may contain confidentiality clauses which would prevent the trustee from disclosing a transaction to the beneficiaries of the trust. This could breed suspicion among the beneficiaries and purists might question why a trustee who is acting in the best interest of the beneficiaries would enter into such agreements. 

Alan Milgate of Rawlinson & Hunter said the trustee’s investment obligations can also be seriously constrained by the need to give information to commercial parties.  

“In certain cases beneficiaries in trust cases want us to be able to disclose certain information. Trying to understand where and how you do that and the cost and benefit are something that we have to focus our attention on,” he said.  

Once a dialogue has started about what can be disclosed, it can become a real challenge to withdraw from that dialogue if the need for information, by an investment fund for instance, becomes too invasive or problematic for the trustee, Mr. Milgate said. The consequence is that a lot more planning has to go into the preparation of an investment and the trust structure has to be explained upfront. 

The withdrawal from an investment opportunity is potentially suspicious in itself, Mr. Shepherd said. He emphasised a trustee needs to understand what the law requires, but he noted a friction with the views of compliance officers who are naturally more concerned with what their internal processes demand. 

The conference hosted by law firm Mourant Ozannes at the Ritz Carlton, Grand Cayman, on Friday, 14 October, was structured around the day in the life of a trustee and the issues that may come up with regard to information requests from beneficiaries and tax authorities, confidentiality rules, financial management and in negotiations with trust protectors, as well as legal issues such as the potential for a court to set aside certain actions by a trustee made by mistake. 

Trusts conference

Panelists at the Mourant Ozannes International Trusts conference. From left Julien Bartel, Alan Milgate, Shan Warnock Smith, Robert Shepherd and Ziva Robertson. – Photo: Michael Klein
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