6. Taxation of offshore centres Flashcards
How can you use offshore entities to reduce taxation?
Offshore companies and trusts provide opportunities to hold assets and undertake specific activities at an ‘arm’s length’ of the beneficial owners. - This allows them to benefit from the non-resident status of the company or trustees. Furthermore, offshore entities can be used to retain income, or profits, offshore and thus deferring tax liability until a distribution is made, which could be a time when the client’s basic rate to tax has fallen.
What is the UK doing to prevent the use of offshore centers to minimise tax avoidance?
Anti-avoidance legislation has been introduced to restrict or eliminate the opportunities, particularly where the transaction has no purpose other than the minimisation or avoidance of taxation.
What is FATF’s recommendation with respect to beneficial ownership?
That every jurisdiction should ensure that there are register of beneficial ownership and beneficiaries available to the public.
Where is a company considered to be tax resident?
If a company is incorporated in the UK it is a UK-tax resident.
For companies incorporated in other jurisdictions, the company’s management and control determines its tax residency. If a company wishes to remain a non-uk tax resident then all decisions regarding its affairs must be made offshore by offshore directors.
What is the liability of UK Resident companies and trusts?
They are liable to corporation tax (for companies) and income tax (for trusts) on any worldwide income.
What is the UK tax liability of a non-resident company?
Companies with a non-UK residency are only liable to tax from gains and profits made within the UK.
How do we determine a trust’s residency?
If the majority of the trustees are UK-resident, then the trust will also be considered a UK-resident. If there is a mixture, the trust will be also be considered a UK-resident unless the settlor is non-resident and non-domiciled.
What is the tax liability with respect to distributions of a trust?
When distributing to beneficiaries, only the beneficiaries may be liable to tax.
On capital distributions, the beneficiaries will not be liable to income tax.
For income distributions, this is likely to result in liability to income tax. If capital distributions occur regularly they may be viewed as income distributions and be subject to income tax.
How can you avoid IHT liability with trusts?
If an asset if gifted into a discretionary or life interest trust, the settlor or trustee would be subject to payment of 20% IHT above the nil rate bate. However, this would no longer form part of the settlor’s estate upon death and would therefore not be liable to IHT.
What is the tax liability of a partnership?
The partners of a general partnership are subject to pay tax on their own share of the partnership profits. This is the same treatment used for limited liability partnerships.
How are foundation’s residency and tax liability determined?
It is not clear if how HMRC will treat tax liability of foundations, as a corporate body or settlement. The residency of a foundation is determined the same way as a company.
What is tax avoidance?
The legitimate minimisation of tax liability.
What is tax evasion?
Evasion of tax that would otherwise be due or payable, which is a criminal offence by failure to declare or under declare income, gains or profits.
GAAR
General Anti Avoidance Rule. Introduced by the Finance Act 2013 which is designed to counteract tax advantages arising from tax arrangements that are deemed abusive. GAAR imposes an overriding statutory limitation on the nature and extent to which taxpayers can go in their attempts to reduce their tax bills.
DOTAS
Disclosure of Tax Avoidance Schemes. Under DOTAS, promoters of tax avoidance schemes, are required to disclose any information about schemes that bare certain hallmarks.
