• 01

    Operation and management of corporate
    and trust structures,
    along with asset-holding entities for families

  • 02

    Efficient, integrated onshore and offshore
    company operation and management for corporations
    and entrepreneurs

  • 03

    Professional services for intermediaries
    and the international asset finance community

  • 04

    Establishment and management of Swiss foundations
    and not-for-profit associations

  • 05

    Concierge services for families and companies
    – including relocation assistance

  • 06

    A streamlined, consolidated compliance
    process for all structures, including coordinating
    with third-party service providers

Tax evasion and tax avoidance

Tax evasion and tax avoidance – the key differences

In the media and in the minds of some government officials, tax avoidance and tax evasion are the same thing. They are not. But this doesn’t mean that tax avoidance is always acceptable to governments. Great care is needed.

Tax evasion occurs when assets are hidden from tax administrations in situations where tax would be payable if there were full disclosure. This is usually a criminal offence and Rosetrust will never knowingly become involved in tax evasion. Moreover, there is a growing tendency by banks to demand positive proof of tax compliance by individuals setting up trust or corporate structures.

Tax avoidance is a more difficult area. The traditional view is that it is permitted to arrange one’s tax affairs to minimise tax payable, even if individual governments do not like this. On the face of it, tax avoidance is perfectly legal. Indeed, one government’s tax avoidance is another’s tax incentive. What are favourable depreciation rules, incentives to invest, or techniques to defer or reduce tax liabilities if not forms of government promoted tax avoidance?

Governments continuously use tax rules to encourage companies and individuals to operate in a certain way. Recently, governments such as the UK have taken action to block individual and corporate taxpayers from using what they consider to be artificial structures to minimise tax liabilities. In other countries, the doctrine of abus de droit has sometimes been used to curtail tax benefits that seem to be available to taxpayers – and are perfectly legal.

When companies and entrepreneurs are working internationally, the risks of changes in the application of rules are greater. Historically, many large multinationals have structured their groups to minimise tax through using companies in various jurisdictions. Not only have these structures generally been perfectly legal, but they have been put in place applying current OECD transfer pricing guidelines.

Short of money and alarmed by these tax efficient structures, many onshore governments are now responding. Through the use of the concept of Base Erosion Profit Shifting or BEPS, OECD countries are now moving towards a new methodology to be applied in the case of international business structures. The intention is to ensure that more tax is collected in the country where it is earned, while also restricting the deductibility of business expenses.

International tax planning is still legal, but in future it will need to be more sensitive. A scenario where an international business group pays little or no tax anywhere, despite heavy turnover in its main markets, is provocative and will leave the group vulnerable to attack. The attack may not succeed, but it’s a fight that should be avoided if possible. Moreover, in our view companies and individuals have a social and moral responsibility to contribute towards the communities that they trade with.

These developments may well be the last nail in the coffin of the letter-box company. We advise against setting up structures where profits are booked in tax-favourable or tax-free jurisdictions where it is clear that there is no capability of earning such profits from such locations. If Rosetrust sets up and runs companies as part of an international tax structure, we are always clear that we must be actively involved in the running of those businesses, based on defined guidelines from the parent shareholder. In addition, these companies must act like normal companies, with proper accounts, board meetings and business protocols that are not just adopted as a matter of form but genuinely adhered to.

As with everything in life, the rules are evolving. What was perfectly legal yesterday may not be tomorrow.

Please contact us to discuss your needs in more detail.