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New Rules, Swiss Trusts And Beneficial Ownership Under Microscope

Tom Burroughes, Group Editor , 20 February 2020

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This publication was the exclusive media partner at last month's annual STEP conference for the Switzerland and Liechtenstein industry. The event, held in Interlaken, ranged over topics such as new regulations on Swiss financial services, beneficial ownership rules, family governance, and economic "substance".

Third panel

The third panel discussed economic “substance” – which relates to the steps that providers of entities such as trusts and companies must have to show that they are in involved in actual commercial/economic activity and not just an empty shell for tax or some other purpose. Speakers in this panel were Herbert Bischof, managing partner, BDO (Liechtenstein); Paul Davis, partner at Higgs & Johnson, Bahamas; Professor Dr Pierre-Marie Glauser, professor, University of Lausanne and partner, Obserson Abels; and David Cooney, partner, Charles Russell Speechlys. 

Glauser pointed out that Switzerland has never had a “substance” requirement for offshore structures. Instead, it has operated the test of whether an entity has “effective” management and whether it is possible to “pierce the corporate veil” of a structure so that people can see where the commercial activity lies. “It is not about `substance’ itself but where day-to-day management goes on.”

Bischof said that Liechtenstein has a “relevant activities” test and that entities that don’t prove substance can be hit with criminal penalties. So far there hasn’t been any jurisprudence or tests of the substance issue in Liechtenstein because it is still a new concept.

Davis explored issues around the “substance”, such as whether an organisation engages in income-generating activity. In the Bahamas, for example, an entity which is able to benefit from status in local law must engage in income-generating activity there. 

Professor Glauser noted that with trusts in Switzerland, settlors usually created them when they (settlors) lived outside the country, as a pre-immigration structure before relocating to Switzerland, for tax optimisation. 

Fourth panel
Attention shifted to the major topic of beneficial ownership of companies and trusts. Issues that arose include new Swiss anti-money laundering duties for trust and company service providers and AML laws’ requirements to identify beneficial owners. The panel also touched on how jurisdictions such as the Isle of Man, Jersey and Guernsey have moved on beneficial ownership registers for companies. Panellists were Stephanie Auferil, founding partner, Arkwood; Lars Schlichting, partner, Kellerhals Carrard; and Filippo Noseda, partner, Mishcon de Reya and visiting professor, King’s College.

Panellists noted that the European Union’s Fifth Anti-Money Laundering Directive became law on 10 January. Schlichting, who asked about the Swiss situation, said he had seen no indication – yet – that Switzerland intends to set up a beneficial ownership public register for companies as is the case in the EU. “We are in a small corner and we’ve been quiet,” he said. 

Auferil, talking about French legal issues and France’s Constitutional Court ruling that pushed back at demands for public disclosure, noted that only authorities deemed competent can get access to beneficial ownership information, such as people who can demonstrate a legitimate reason, filed with a judge, why they should have it. 

It was noted by panellists that some jurisdictions, such as Liechtenstein, have created the condition that to count as a beneficial owner of a company, a person must actually have control of a company if their identity is be disclosed via a register. Noseda said it was important to differentiate between companies and trusts in terms of beneficial ownership: people who own companies attend annual meetings, are paid dividends and vote on agenda items, whereas a beneficial owner (beneficiary) of a trust might be a child, for example. 

Another issue for beneficial ownership advocates is that the EU, for example, has a right to privacy – which potentially conflicts with demands for total transparency. “I am stunned that no-one has brought this before the courts yet,” Noseda said.

Fifth panel
The final panel for the first day, following a short outline of 12 “Do’s and Don’ts” regarding tax and matters concerning trusts and standalone companies, was about European Union issues. Speakers on this panel were Jean-Blaise Eckert, partner, Lenz & Staehelin; Sabine Monauni, Ambassador of Liechtenstein to the EU; and Professor Dr Michael Wohlgemuth, research officer, Foundation for Governance and Public Law. 

The final panel discussion of the first day examined European Union issues, including Switzerland’s relations with the bloc, and, of course, the aftermath of the UK Brexit vote. Panellists for this segment of the conference were Jean-Blaise Eckert, partner, Lenz & Staehelin; Sabine Monauni, Ambassador of Liechtenstein to the EU, and Professor Dr Michael Wohlgemuth, research officer, Foundation for Economic Governance and Public Law.  
 

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