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The Potential Impact of the Panama Papers

Friday, September 30, 2016

The Panama Papers debacle have created great concern in the ultra-wealthy foreign community that its long-treasured confidentiality will be compromised. Furthermore, many countries, including British Virgin Islands, Cayman Islands, Ireland, Isle of Man, Jersey, Liechtenstein, Luxembourg, the Netherlands and Panama have adopted or are on the verge of adopting an international system that will provide for the automatic sharing of the identity and residence of the financial account holders, account details, reporting entity, account balance/value and income, and sale and redemption proceeds between participating countries.

As a result of these developments, more and more international clients should consider moving trust assets to the United States and the use of trusts formed in the United States and governed by protective state laws, like those of Nevada and Delaware, with U.S. resident trustees.

The exchange of information will begin for many jurisdictions by Sept. 30, 2017, but the information required is from 2016. That means the countries in the earliest implementation phase should already have started to gather the required information.

This global cooperation and sharing of information system is known as the common reporting standard, or CRS, and it creates an information standard for the automatic information exchange between countries that are participating members in the program. The purpose of the CRS is to improve transparency in multinational business and investment reporting among the participating jurisdictions' respective tax authorities.

CRS requires that financial institutions that are residents in a participating country implement due diligence procedures, document and identify reportable accounts and establish a very extensive reporting process. Under CRS the burden of reporting is placed on financial institutions, which include depository institutions, custodial institutions and investment entities. Custodial institutions include most corporate trustees that act as paid professional fiduciaries over assets held in trust for others.

In April 2016, shortly after the release of the Panama Papers, Panama also agreed to become a cooperating member and will undertake its first exchange by 2018. For example, starting in 2018 if a Colombian resident is a beneficiary of a New Zealand trust or Panamanian foundation, the trustee or foundation council will be required to provide information required by the CRS of the trust or foundation to the New Zealand Department of Inland Revenue, which in turn will exchange it with the Colombian taxing authority known as the national taxes and customs direction. Each participating jurisdiction will be required to enact domestic legislation or rules to provide for the implementation of the CRS. The U.S. has so far not joined the CRS.

Because the U.S. has thus far refused to participate in the CRS, trustees of trusts that have direct or indirect beneficiaries who are residents of CRS-participating jurisdictions should consider moving their trusts and their trusts' assets to the U.S. if they wish to avoid disclosure of the identity of the beneficiaries and the trusts' business and investment activities in the countries where the beneficiaries are resident.

If You are intrested in selling or buying real estate inb Miami or New York Area please give me a call

Olga Rubin +1 (914) 400 9613


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