Taxation Of Entities Flashcards
How offshore entities are used to reduce tax
Provide opportunities to minimise taxation payable / complex area of tax planning requires expert advice
Offshore entities used to retain profits : defer tax liability until distributions made
Non residents taxed more favourably / offshore entities managed & controlled in low tax jurisdictions - hold assets there / allow them to benefit from non resident status
I.e offshore structures funds settled into trust, loaned arms length to underlying company for specific purposes to purchase property, rented out, cost to repay loan offset expense against rental receipt = reduce taxable income for co
Outline anti avoidance legislation
Minimise oops to reduce taxation via offshore entities
Reduce oops available / prevent financial activity from reviving favourable treatments
Each time loophole closes / experts identify new opps
UK gov difficult task to keep up with strategies devised to balance legislation with rules & encourage wealthy clients to remain / operate there
The significance of residence for company taxation
Companies incorp in U.K generally considered to be resident there
Foreign companies incorp offshore considered to be resident wherever central management & control located
Companies uk resident subject to corp tax on worldwide income & gains
Company non resident in U.K liable to corp tax only if trade in U.K through permanent establishment
Non resident company liable to income tax on non trading income
Offshore SP appoint advisors to deal with tax authorities & complete corp tax returns on behalf
Outline corp tax for companies
Type of tax on taxable profits
- profits from taxable income such as trading & investments
- capital gains
When would companies be exempt from taxation offshore
Beneficiary not resident there
No property held offshore
No income from offshore / except from bank deposits - annual fee)
*extra care taken if transferring to offshore / advice planned throughly
Outline the rules regarding companies managed & control
Day to day business occurs
Offshore SP usually directors/ m&c offshore = considered non resident / achieve tax efficient structures
SP must explain to clients not to be involved in management / decisions from outset of relationship / difficulty to keep interfering with co affairs / risk of client becoming shadow director
*if client resident in UK argued company is m&c in U.K & subject to corp tax on worldwide profits
However some reasons directors involve clients / take advice if expert on company business or contracts can be great assistance
Acceptable to involve clients / vital terms of agreement documented & identify scope of involvement / decisions made my directors
What should administarors to to avoid m&c questioning
All decisions made offshore/ director sign docs
Don’t take direct orders from BO
prep time for meetings sufficient & ensure items considered fully
Outline taxation of Trusts
Considered resident where majority trustees reside
If mixture, Trust resident unless settlor was non res or non domiciled
UK resident trusts liable to income tax on worldwide income
Trusts not separate legal entity / liability rests with trustee / due to be paid by them
Non resident trusts treated differently depending on type of trust & residence status of settlor / benes
Assets properly vested & control stated in TI / ensure trust not sham & no intended gifts with reservation created to avoid tax consequences
Trustee consider impact of taxation on distributions / bene may be subject to tax / important to get independent tax advice
Capital disruptions free from income tax / income distributions subject / important to show separation to prevent mixture
Outline IHT for trusts
Charges arise from certain types of trusts created
Gifts to discretionary = chargeable lifetime transfers & subject to IHT of 20% over nil rate band
Usual death rate if donor doesn’t die before 7 years after settling
Offshore trust usually to reduce IHT on persons estate - gifts transferred timely manner
Wealthy individuals reduce IHT by giving away assets / interest can be held in asset = gift with reservations / still form part of estate
Outline the excluded property trusts rule
Non U.K domiciled create EPTs created with non U.K assets
Receive favourable IHT treatments as assets non uk so exempt from IHT
10 year change & exit charges avoided depending extent assets held in trust
If not held in trust IHT payable upon death on UK assets / if deemed domiciled tax due in respect of worldwide assets
Outline the 10 year anniversary charge
Assets in discretionary trusts give rise to IHT charges every 10 years & exit charges (property leaves trust)
Won’t arise on non U.K situs Assets
Offshore admin take consideration prior 10 year charges to reduce IHT payable / take steps to declare & pay tax to HMRC to ensure aware of existence
Outline taxation of partnerships
Partners required to pay income tax on their share of partnership profits
Nominated partner completes tax return
Limited partners taxed on share of profits as if carried out alone / each member taxed as if members of general
CGT - partners charged on disposal of interest in chargeable assets if gain arises
Outline taxation of foundations
UK law doesn’t specify as not clear how HMRC tax them as corporate bodies or settlements
Tax advisors stated likely residence determine if they’re companies (M&C)
Offshore administrators be aware anti avoidance applied to offshore T&C can be applied to foundations
If using foundation structure - caution & advice from qualified advisors
