How To Control an Offshore Foundation

I’m often asked if I set up an Offshore Foundation using Nominees how can I still control the Foundation?

 

The day to day business of a tax free Offshore Foundation is overseen by a Councillor or Board of Councillors.

 

However you can ask, when the Offshore Foundation is registered, that a Protector is included as part of the Foundation structure.

 

What is a Protector? 

 

A Protector is a person whose prior written consent is legally required ahead of a Foundation Council doing certain key things. 

 

Certain rights can be reserved to a/the Protector including:

 

  • The power to direct or approve the appointment or removal of a Councillor
  • The power to direct or approve the addition or exclusion of a Beneficiary
  • The power to direct or approve the continuation of the Foundation as a Foundation registered under the laws of a jurisdiction outside its country of registration
  • The power to direct or approve the amendment of the Charter and/or the Regulations by the Council
  • The power to direct or approve the dissolution of the Foundation
  • The power to direct or approve investment activities of the Foundation, including the acquisition and disposal of investments by the Foundation
  • The power to direct or approve the rights, entitlements and restrictions relating to each Beneficiary, including the power to direct or approve the making of any distribution of Foundation Assets (or any part thereof) to a Beneficiary.
  • The power to direct or approve the Council to effect the forfeiture by a Beneficiary of his benefit, right and interest under the Foundation if he/she (ie the Beneficiary) challenges in writing:

(i)                 the establishment of the Foundation; or

(ii)               the transfer of any assets to or by the Foundation; or

(iii)             the Charter or any provision of the Charter; or

(iv)              the Regulations or any provision of the Regulations; or

(v)                any decision of a councillor, the Protector or the Founder

 

 

 

Offshore Asset Protection & Multi-Jurisdictional Strategies

 

 

I’m often asked is there any advantage in spreading your Offshore Company and or Offshore Offshore Trust and or Offshore Foundation and Offshore Bank Account across several jurisdictions?

 

 

The bottom line is the more jurisdictions you mix into your structure the harder you make it for people to attack your (Offshore) assets.

 

 

Say you have 3 structures in place ie an Offshore Company an Offshore Trust and an Offshore Foundation (ie a serious asset protection structure). Say a firm of vulturous lawyers are suing you and  they suspect you have assets held by an Offshore Company (from which the Lawyers hope to extract recovery for their client + a fat fee for themselves).

 

 

The first thing that would happen is the vultures would try and find out who owns the Offshore Company. Unless you are involved in some very serious criminal activity (eg drug trafficking, money laundering, terrorist financing etc) no one should be able to find out who the owner/shareholder of that Offshore Company is (or who the beneficiaries of any Offshore Trust or Offshore Foundation beneath it are – see below).

 

 

To crack the privacy veil anyone wanting to either (a) attack/get hold of assets held by the Offshore Company or (b) find out who actually owns the Offshore company would have to apply to the Supreme Court of the Country where your Offshore Company is incorporated for a disclosure order ie a court order compelling the names of the shareholders/owners of the Offshore Company to be revealed.

 

 

Before the Court will even hear the application the vultures would have to produce evidence ie a prima facie case proving that the Offshore Company or persons closely connected to it have more likely than not been involved in serious criminal activity as defined.

 

 

If they do get the order they would find that the Offshore Company is owned by an Offshore Trust in a 2nd country.

 

 

The lawyers for the vultures would then have to pack their bags go home and start all over again. That is they would then have apply to the Supreme Court of the country in which the Offshore Trust is registered for a disclosure order (ie for an order requiring that the names of the beneficiaries of the Trust be revealed). Again, usually before the Court will even hear the application, the vultures would once again have to produce evidence ie a prima facie case proving that the Trust or persons closely connected to it are more likely than not to have been involved in serious criminal activity as defined.

 

 

Say by some miracle they do get that order. All they will find out is that the sole beneficiary of the Trust is a Foundation registered in a 3rd jurisdiction.

 

 

The lawyers for the vultures would then (again) have to pack their bags go home and start over. That is they would then have apply to the Supreme Court of the country in which the Foundation is is registered for a  disclosure order ie a court order requiring that the names of the beneficiaries of the Foundation be revealed. As usual before the court will even hear the application the vultures would again have to produce evidence ie a prima facie case proving that the Foundation or persons closely connected to it are more likely than not to have been involved in serious criminal activity as defined.

 

 

And if the Offshore Company’s bank account is held in a 4th country the vultures would need to appear before a Court in that 4th country seeking an order that the Company’s Bank Account in that country be frozen (ie pending finalisation of litigation/claims against the company or its owners).

 

 

As any experienced litigation lawyer will tell you what’s described above is the lawyer’s equivalent of having to climb Mount Everest. The time it would take and the legal costs involved would be virtually inestimable.

 

 

It should come as no surprise to anyone then (given the proliferation of litigation lawyers and the advent of information exchange between OECD type jurisdictions) to hear that the use of multi-national Offshore Corporate Structures is on the rise.

 

 

Hopefully after reading the above you can well understand why…

 

 

More US Businesses Incorporating Offshore

 

Information was released publicly in the US last week showing that the number of US Companies re-incorporating in Offshore Tax Havens continues to climb.

 

The practice known as Corporate inversion is used by US companies, when bidding for (generally smaller) foreign companies, as a means of moving away from the higher American 35 percent corporate tax rate. Under current US law, a company that merges with an Offshore Company can move its headquarters Offshore (even though management and operations remain in the US), and take advantage of lower taxes offered Offshore, as long as at least 20 percent of its shares are held by the Offshore company’s shareholders after the merger.

 

The published list shows that 47 US corporations have reincorporated in Offshore Tax Havens through inversions in the last 10 years, as against only 29 in the previous 20 years. According to the data, there is estimated to be about ten prospective inversion deals that are pending completion.

 

To try and counter this ever increasing trend of Offshore Incorporation bills have been introduced into the House and the Senate in the US which propose to restrict corporate inversions by putting the minimum foreign shareholding at 50 percent.

 

However, the bills have yet to move forward with the house leaders reportedly preferring to deal with the question of Offshore re-Incorporation within the framework of future comprehensive tax reform. At the same time leading Republicans are said to have decided that using tax reform to lower the corporate tax rate and having a more internationally competitive tax code would be the better option.

 

With knee jerk positions on Offshore Tax Havens being released almost daily (following little if any reasoned debate) it is refreshing to see policy makers taking a more holistic approach to the issue of Offshore Tax Competition. In this instance the bigger picture sees that the practice of Corporate inversion is sending a clear message to Legislators… that if they want to retain the tax business of these companies they must be prepared to compete on price.

 

Whilst people are always resistant to change, in the commercial world – if a customer feels he/she is being taken for granted by a supplier – (and the customer knows that he/she can get a better deal elsewhere) what does he/she do? The customer weighs up the inconvenience of changing suppliers against the benefits of a move (ie fiscal savings).

 

It’s incumbent then on the supplier, knowing what the competitor is offering, to make it sufficiently attractive for the customer to stay loyal.

 

Why should the relationship between taxpayer and government be any different?

 

How To Trade Forex As a Resident of India

 

Forex trading is strictly forbidden in India and any individual caught trading in the Forex market will be charged with a crime and may even serve jail time.

 

Corporations are allowed to trade provided they use only free dollars from their reserves. Free dollars usage means that they are not allowed to convert the Indian currency to dollars and then use those converted dollars for trading. Moreover they are conditioned to stick to a leverage of less than ten times.

 

If you want to avoid jailtime and or have greater freedom to trade you may be interested to know that a combination of a tax free Offshore Company and a tax free Offshore Foundation can gift you the ability to trade more freely.

 

In terms of how that can work structurally and practically:
• The shares of the Company would be held by the Foundation; and
• The beneficiaries of the Foundation would be whoever you nominate.

 

And if you choose a Seychelles Foundation if/when the bank or a broker asks who is the beneficial owner of the company/account you can lawfully answer “the Foundation” as section 71 of the Seychelles Foundation Law clearly states that the legal AND beneficial owner of any asset transferred to a Seychelles Foundation is the Foundation itself. That can get you access to brokerages/trading platforms that won’t accept Indian residents or Corporations as customers. Such an argument could also be used in defence to any criminal claim as may be made against an Indian resident individual trading forex via an Offshore Corporation.

 

How does it work from a practical perspective?

 

In terms of structure the Offshore Company would be set up with a Nominee Director and with the Private Foundation as shareholder. Commercially, the company would do the buying and selling, ie it would generate the income. Ideally, you would be appointed as Consultant or as an arms’ length adviser to the Director of the Company with certain areas of responsibility (eg you could be an authorized Trader or Trading Manager or an IT Consultant or Management Consultant  or Sales Consultant etc) for which you would be paid a commission (eg a percentage of profits) or Consulting fees.

 

As part of your brief you might also be given signing power on a bank account reporting/answerable to the Director. However that relationship is structured for legal reasons, it would need to be seen to be commercially realistic. The income you generate from this would be paid to you or your local i.e. Indian company which, I imagine, would then pay a dividend to you, which would be assessable income at home for you.

 

And as India does not have Controlled Foreign Corporation (or Controlled Foreign Trust) Laws the remainder of the profit could be held (and/or reinvested) offshore potentially tax free.  (Though that’s something you should speak to your tax adviser about).

 

What is clear however is that a combination of a Tax Haven Company and an Offshore Foundation can gift you the opportunity to trade (and or greater freedom to trade) plus get you access to a wider choice of brokers.