Around the world

British Virgin Islands

• The British Virgin Islands’ (BVI’s) Financial Services Commission (the Commission) is preparing draft amendments to financial services legislation to address recommendations from the Caribbean Financial Action Task Force’s (CFATF’s) 2023 mutual evaluation report. The report was tabled at the CFATF meeting in December 2023 but has not yet been published. The Commission’s 2024 work plan reveals it will draft a new Trust and Corporate Service Providers Act. It also plans to implement the register of persons with significant control to capture beneficial ownership information on all BVI companies, implement systems to collect economic substance information on all BVI companies and further develop the register of directors.

Canada

• The Supreme Court of British Columbia has rejected an application to remove the executor of an estate, reaffirming the rules applied to such an action. It noted the four categories of conduct that would warrant the removal of an executor: endangerment of the trust property, want of honesty, want of proper capacity to execute the duties or want of feasible fidelity. The court found that the plaintiffs provided insufficient evidence that the executor had met any of the criteria to warrant removal and dismissed the application accordingly.^[1]
• The Canada Revenue Agency (CRA) has released new guidance on the new reporting rules in respect of trusts for taxation years ending on or after 31 December 2023. The new rules require many more trusts to file an annual T3 return. This includes many foreign trusts that hold taxable Canadian property, have a Canadian resident as beneficiary or hold property transferred or loaned by a Canadian resident. Bare trusts under which the trustee acts as agent for the beneficiaries are also caught. Trusts with a 31 December 2023 tax-year-end must file their T3 by 2 April 2024. The CRA has also released additional instructions for filing under the new rules.
• In Estate of Nordby,^[2] estate trustee was given a short prison sentence of five days for contempt of court after repeatedly failing to provide accounts to the Office of the Children’s Lawyer. The court concluded that, as the funds were in place to be of benefit to children, a fine was not appropriate. ‘The paramount principle to be applied is deterrence and fostering respect for and compliance with court orders,’ the judge said. ‘Imprisonment is a punishment that will make [the defendant] and the public “sit up and take notice.”’
• The Superior Court of Justice of Ontario has awarded costs to an estate trustee following significant litigation during a challenge to the will. The deceased’s son had challenged his mother’s will on the basis of undue influence and lack of testamentary capacity, running up almost CAD60,000 in legal fees before accepting the terms of the deceased’s will and settling the case. The estate trustee sought indemnity costs of approximately CAD75,000 to cover the legal expenses of defending the estate. The court found there was a lack of substantive evidence supporting the claims of incapacity and undue influence and noted the ‘disproportionate’ costs that had been incurred. It therefore awarded costs to the estate trustee.^[3]
• Canada’s new requirement for federal corporations to report individuals with significant control came into effect on 22 January 2023. Prior to this, corporations were required to maintain a register of such individuals since June 2019, including individuals in control of a trust that owns or controls more than 25 per cent of the corporation’s shares. For the time being, this information will be made available only to a corporation’s own directors and shareholders and the investigative authorities.

England and Wales

• STEP has responded to the UK government’s cross-departmental consultation exploring new policy settings to increase transparency on who owns and controls land in England and Wales.^[4] The consultation paper considers extending access to trust information currently held on the UK Register of Overseas Entities (ROE). STEP’s consultation response expresses concern that many individuals who do not own, control or exercise any influence over land would be compromised in this regime change simply because they are identified as a beneficial owner. STEP agrees that certain information about trusts that have an interest in land should be made public; however, STEP believes the unintended consequences could also lead to the misuse of data for fraudulent or malicious purposes. STEP has urged the government to consider these risks in the next stage of its consultation process.
• New guidance from the Charity Commission for England and Wales (the Commission) makes clear that trustees offered a donation should start from a position of accepting it, although they may sometimes have a difficult decision as to whether to refuse or return a donation. In such cases, they must balance the risks of refusing (financial impact, ability to deliver services and ability to attract future donations) against the risks of accepting (reduced support or reputational harm, particularly among younger supporters or beneficiaries). The Commission also warns trustees not to allow their personal views or external pressures unrelated to their charity’s purposes to influence them to act in a way that is not in their charity’s best interests.
• The UK government has announced it will exempt national museums and galleries from ss.15 and 16 of the Charities Act 2022. This means that they will not be granted powers to restitute objects in their collections to persons outside the UK without permission from the Charity Commission of England and Wales (the Commission). The clauses allow charity trustees to authorise smaller ex gratia payments themselves without the need for Commission approval. However, the government says the potential consequences were not made clear by the Law Commission of England and Wales and were not the subject of parliamentary scrutiny or debate during the Bill’s passage.
• The First-tier Tax Tribunal has rejected a trust’s application for entrepreneurs’ relief (ER) from capital gains tax on a share disposal because the relevant shares were not personally owned by the qualifying beneficiary for the required period. It accepted His Majesty’s Revenue and Customs’ argument that ER (now known as business asset disposal relief) was allowable only if the beneficiary held 5 per cent of the shares in his own right for one year within the three years before the disposal. However, the only share had been held by the settlement and not the beneficiary personally.^[5]

France

• Non-discretionary revocable US trusts whose beneficiaries are French-resident Americans are not transparent under French tax law, according to Decision Opinion No. 406825 of the French Administrative Supreme Court. Distributions from such trusts are therefore taxed as investment income at the 30 or 34 per cent flat rate in the hands of the settlor, trustees and beneficiaries under the US-France double tax treaty. It is not clear whether US citizens who are French taxpayers taxed in the US are entitled to claim a corresponding credit against French income tax.

Global

• At its February 2024 plenary meeting, the Financial Action Task Force (FATF) adopted new risk-based anti-money laundering (AML) guidance for its Recommendation 25 on beneficial ownership and transparency of legal arrangements such as trusts. The recommendation itself was amended in 2023. The new guidance was published at the end of February 2024, ready for the next round of FATF mutual evaluations of its 200 member jurisdictions.
• The FATF has published new guidance on the application of Recommendation 25 on beneficial ownership and transparency of express trusts and other legal arrangements, ready for the next round of FATF mutual evaluations. The guidance explains the FATF’s requirements to obtain adequate, accurate and up-to-date beneficial ownership information and highlights mechanisms to verify this information with due regard to the assessed risk. STEP submitted a response to the FATF’s call for evidence, recommending that the FATF should require disclosure of information of trustees that financially benefit from a trust rather than those who are objects of a power. STEP also suggested that an approach giving law enforcement agencies sufficient tools to access accurate information on trust ownership is the best approach to tackling potential economic crime threats.

Isle of Man

• The whole of the Isle of Man Trusts and Trustees Act 2023 is now in operation. Key changes include a restoration of the Hastings-Bass rule on voiding transactions where there was no breach of duty and a clarification on who may apply for trust information. Sections 1 and 2 of the new regime were brought into force when it received Royal Assent on 18 July 2023. The Act amends the Trustee Act 2001, with a new Part 1A codifying the position set out in the Isle of Man case of Schmidt v Rosewood. It provides clarity as to who may apply for trust information and when a trustee may refuse to provide trustee information. It also inserts a new Part 3A, allowing trustees to contract with themselves when acting as trustees of multiple trusts. In this respect it brings the law into line with the realities of the modern trust industry. A third provision in Part 4A limits the trustee’s liability to the value of the trust property when transacting as a trustee with a third party.

Jersey

• The Jersey Royal Court’s judgment in the Paicolex case sets out the circumstances in which it will approve the use of art.47 of the Trusts (Jersey) Law 1984 to vary the terms of a Jersey family trust as part of a planned wider restructuring of the trust in question. The court held that it did possess jurisdiction to approve the proposed change, essentially removing the settlor’s excluded person status. However, it decided not to do so because it had not been shown that the change would provide tax advantages for the UK-domiciled minor beneficiaries.
• The Jersey Financial Services Commission has launched its annual data-collection exercise for anti-money laundering and other supervisory risk data. It is asking additional questions on legal persons and arrangements applicable to trust company service providers, as well as additional financial crime questions applicable to all supervised businesses and new conduct questions applicable to regulated businesses. The submission deadline for supervised firms, non-profit organisations and trust company businesses is 31 May 2024.

Pakistan

• Pakistan’s Federal Board of Revenue has enforced stringent requirements for companies and associations of persons to report detailed information about their beneficial owners under the Income Tax Rules 2002. Non-profit organisations must report their settlor, trustee, founder, promoter, beneficiary or class of beneficiaries as beneficial owners. For entities already registered, this information was required by 31 December 2023, but the online form had not been made available as of 11 January 2024.

Scotland

• The Trusts and Succession (Scotland) Bill received Royal Assent on 30 January, having been passed by the Scottish Parliament on 20 December 2023. The trust provisions will require regulations from Scottish ministers to bring them into force, but the sections relating to succession will automatically come into force at the end of April. The Act provides the individual who created a trust (known as the ‘truster’ rather than the ‘settlor’, as in England and Wales) with a fall-back power to appoint a new trustee in a scenario where no capable trustee exists or can be traced.

Switzerland

• Following the Swiss Federal Council’s decision in September 2023 not to implement a legal basis for trusts, the Council of States has adopted the so-called ‘Burkart motion’. The motion would strengthen Swiss family foundations by lifting the ban on pure maintenance or beneficial foundations. The National Council’s Legal Affairs Commission has now recommended supporting the motion to ensure that Switzerland has an additional estate instrument representing a new alternative to foreign legal vehicles.

Taiwan

• Taiwan’s finance ministry has announced that shares or capital held by the settlor through an offshore trust may no longer be excluded from the calculation of direct shareholding percentages, under the current regulations governing application of income calculation from a controlled foreign company for an individual.

UK

• The UK Supreme Court has unanimously dismissed an appeal by the liquidators of Saad Investments Company Ltd for the return of USD213 million worth of shares that a trustee transferred to another financial group in breach of trust, after which they were again transferred to the Saudi National Bank. It upheld the England and Wales High Court’s 2022 ruling that a claim for knowing receipt cannot be made if a claimant’s equitable interest in the property has been extinguished by the time of the defendant’s receipt of the property.^[6]

US

• The US government is proposing new rules requiring real estate professionals to report all legal entities or trusts that buy any residential real estate for cash.
• The US federal Corporate Transparency Act (the CTA) came into effect on 1 January 2024, requiring millions of corporate entities to register their beneficial owners with the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Certain non-profit bodies and trusts will be in scope.
• On 1 March 2024, in National Small Business United v Yellen, the US District Court for the Northern District of Alabama ruled that the CTA was unconstitutional. The government filed a Notice of Appeal on 11 March. FinCEN has announced that it will continue to implement the CTA.