Wealth planning in times of political uncertainty

Speakers: Withers LLP: Jeremy Arnold (UK), Chris Groves (UK), Giulia Cipollini (Italy), David Stein (US), Justine Markovitz (Switzerland / Monaco), Stacy Choong (HK / Singapore)

Q: Beyond tax, there seems to be a meaningful shift on the right to privacy across the globe. How do wealthy families now need to approach this?
A: There is undoubtedly a global move to transparency, led by the OECD. There are two types of transparency that are being promoted, firstly reporting by institutions in one state to an account holders or beneficial owners home state and secondly an increased drive for public ownership registers for companies and property. Wealthy families need to avoid the temptation to resist this in the manner of a boy with his finger in the dyke, or they risk being swept away. Families certainly need to prepare for disclosure of accounts and structures to their home jurisdiction by making sure that their affairs are demonstrably in order. They should also consider what their exposure may be to public registers and take sensible steps to mitigate the loss of that privacy.

Q: With CRS, clients need to plan locally, what new trends do you see happening in structuring wealth for global families?
A: In the UK we are seeing an increasing drive to bring assets and structures onshore, driven by the costs of compliance and changes to the UK tax regime. This is tempered somewhat by an increasing sense of political instability in the UK.

Q: How bad will the flight of money be out of the UK in the event of a Corbyn government – where is it likely to go and how effective might the inevitable need for exchange controls be?
A: There would undoubtedly be financial outflows if a majority Labour government looked likely, if only because of the fear of falling asset prices. Our view is that exchange controls are not inevitable and certainly not a permanent fixture.

Q: Where does the panel stand on CRS, PSC registers et al v the right to privacy? Should professional bodies have lobbied harder against these developments or is the panel in favour of them?
A: There needs to be a balance between the ability of governments to recover revenue in line with the law. However the risk is that a lack of trust in government means that the increasing use of public registers starts to significantly erode the right to privacy.

Q: In which Swiss Cantons can foreigners purchase properties? Are there restrictions on resale?
A: Switzerland has rules restricting the ability of non-Swiss nationals to acquire real estate in Switzerland called the ‘Lex Koller’. These rules are driven by an individual’s residence status, rather than their tax status. EU/EFTA nationals who hold a Swiss residency permit are not subject to the Lex Koller purchasing restrictions. EU/EFTA nationals who are not Swiss resident will require a ‘Lex Koller permit’ in order to purchase real estate. There are some areas in Switzerland where non-Swiss nationals and non-Swiss residents are allowed to purchase a holiday home. Individuals who do not wish to become resident in Switzerland may still acquire a holiday home there – but it will be subject to obtaining a Lex Koller permit. There are no restrictions on sale where a Swiss resident non-Swiss national permit holder wishes to dispose of real estate, but a holiday home owned by a non-Swiss national who does not have a residence permit cannot be resold during the first five years of ownership, except in the event of force majeure (illness, death, etc).

Q: How will the new Italian coalition government change tax system and wealth planning certainty?
A: Albeit the current political situation is still unclear, there are no reasons to expect the new Italian coalition to introduce changes that will make the tax system or the wealth planning opportunities less certain. Italy has been historically a jurisdiction with a non sensible level of taxation from inheritance and gift tax perspective. It is in the Italian DNA the transfer of wealth through generations. Italy never experienced exit taxes for physical individuals. Even under the very recent Italian coalition, the major tax measures being discussed mainly relate to the reduction of both individual income tax (introducing two flat tax rates) and corporate income tax (currently at a standard rate of 24%).

Q: How safe is the Italian non-Dom regime?
A: We see the Italian non-Dom regime as a stable measure, with no relevant grey areas of application. In fact, it is not an isolated measure but rather the latest in a series of tax measures aimed at attracting specific foreign individuals (even Italian returnees) to Italy. The trend started in 2010 with the introduction of a special regime for highly qualified employees and inward expatriates as well as for professors and researchers who transfer their tax residence to Italy and has been consolidated at the end of 2016 with the Italian non-Dom regime (first year of application, FY2017). Moreover, the Italian regime’s main features are totally in line with other similar regimes within European: maximum period of application (15 years as the UK); a forfait amount to be paid (close to the Swiss example), etc.; with no fast track options as per the collection of the Italian citizenship.
The certainty of the regime is also guaranteed by the fact that, pursuant to Italian law, as a general principle, laws cannot be retroactive. Thus, any amendment to the regime (if any) would have effect only after the entry into force of the law who introduced such amendment.