Thank you for your very interesting question regarding
international trusts and therefore taxation of trusts
viewed by two different governments.
I will try to provide you the best answer that I can.
While bearing in mind that trusts and taxation of trusts are
very complex and you need to seek professional advice in this matter.
Trusts are set up to preserve and protect assets as well as reduce tax
liabilities.
According to the U.S./New Zealand Double Taxation treaty if a trust
or person for tax purposes is a resident of both countries and have
assets in both US & New Zealand (N.Z.). then your taxes are calculated
based on your permanent home or if you have a permanent home in both
countries then the country with which you have closer economic ties
”Vital interests” will be considered your primary tax base.
For more information please see the the actual text of the double
taxation treaty between US & N.Z.in PDF format starting on page 6:
http://www.irs.gov/pub/irs-trty/newzld.pdf
There is also a website that offers more double taxation information
between 40 countries analysed and explained:
http://dspace.dial.pipex.com/jsp/
My research so far has led me to believe that there maybe three
choices available. The first would be setting up a N.Z. Offshore trust
to protect
your assets rather than a US based trust that could be penetrated due
to
the US constitutional and state laws involved. Second, you may also
wish
to form two separate trusts, one each in the US & N.Z. for your
assets.
Finally, you may wish to follow Rupert Murdoch’s (News Corp) example
and
set up a Trust in a third country with a favorable double taxation and
asset protection environment such as the Netherlands Antilles. This
structure has allowed Mr.Murdoch to protect his family assets and
reduce his taxes significantly.
Information on U.S. Trusts:
In regards to a US based trusts, further research revealed some
interesting points from US-based lawyers with experience in trust &
estate planning. For the US there are not only Federal rules that are
administered by the IRS but depending on where your trust is based in
the US, State, county or city laws may also apply to your trust.
According to DONLEVY-ROSEN & ROSEN, P.A. it seems that Delaware and
Alaska
have both enacted special laws to help shelter and protect assets in a
Trust but these Trusts have risks:
“Whenever domestic asset protection trusts are discussed, United
States Constitutional issues arise. Specifically, the full faith and
credit clause, the supremacy clause, and the contract clause of the
U.S. Constitution.
Under the full faith and credit clause, each state is required to
recognize
the judgments of the courts of the other states. Under the supremacy
clause, the federal government and its laws are supreme to the extent
they conflict with state laws. Under the contract clause, no state may
pass a law, which infringes on the ability of persons to contract with
each other.
In arguing that the full faith and credit clause does not affect the
ability
of Alaskan trusts to protect assets, one alleged authority has stated
that the trustee is not the same person as the settlor, and that
therefore a judgment obtained against the settlor would not be
enforceable against the trustee in Alaska (who is a different person
than the settlor). While this is entirely true, it avoids the issue of
how trust assets are actually reached by claimants. If a judgment were
obtained against a settlor in Florida who had created an Alaska trust
and the claimant was unable to collect that judgment, he or she would
bring a post-judgment fraudulent transfer action and join the trustee
in Alaska as a transferee (as any transferee would be joined over whom
jurisdiction could be obtained). Once that joinder is accomplished,
the Florida court would have jurisdiction over that trustee, and an
order issued by the Florida court determining that the transfer into
the trust was a fraudulent transfer, will, as a result of the full
faith and credit clause, be enforceable in Alaska…
a creditor holding a judgment in his favor from a U.S. court cannot
hope to have the courts of the (properly selected) offshore
jurisdiction enforce the U.S. judgment. The creditor must commence a
new action in the offshore jurisdiction, and utilize a lawyer admitted
to practice before that court (not his U.S. lawyer). In most asset
protection trust favorable jurisdictions, the foreign lawyer cannot
accept such a case on a contingency fee basis -- this means that the
claimant must make a significant personal financial commitment before
his case even gets off the ground. Assume that commitment is made.
What's next? A consideration of the legal basis for the creditor's
attack on the trust: if the trust situs jurisdiction has been
carefully selected, its laws will preclude many conventional legal
bases of attack, usually leaving as the only avenue of attack the
argument that a fraudulent transfer was involved in establishing the
trust. Here the creditor is faced with a nearly insurmountable burden
of proof and a severely contracted statute of limitations (or no
statute of limitations at all). These hurdles in the legal obstacle
course of attacking the offshore trust are not the end, however. If
threatened in its original situs jurisdiction, the properly drafted
offshore trust can move to another trust favorable jurisdiction --
requiring the creditor to start his litigation all over again in the
new jurisdiction. How does this offshore legal obstacle course compare
with the protection afforded by domestic asset protection trusts?
Let's see: as discussed above, a creditor making a fraudulent transfer
attack on the trust will be able to obtain jurisdiction over the
domestic trustee, and, if successful, reach the trust assets in
satisfaction of the claim. Protection? Remember, the foreign court
will not enforce the U.S. judgment: compare foreign court "will not
enforce" with the Alaska/Delaware court required to enforce...you
decide -- do you want to roll the dice, or eliminate risk?”
For more information please see:
http://www.protectyou.com/domapt.html
Please take the time to read some interesting views held by United
States IRS on domestic and foreign Trusts:
http://www.irs.gov/individuals/overseas/display/0,,i1%3D1%26i2%3D10%26genericId%3D13346,00.html#QA7
IRS criminal investigations of certain trusts:
http://www.quatloos.com/taxscams/purecase/cid-warn.htm
List of Double Taxation treaty countries with US (pg36):
http://www.irs.gov/pub/irs-pdf/p54.pdf
IRS publications on tax exemptions by treaty:
http://www.irs.gov/formspubs/display/0,,i1%3D50%26genericId%3D12741,00.html
United States Internal Revenue Service home page:
http://www.irs.ustreas.gov/
Tax information for USA:
http://www.taxup.com/USA
Information on New Zealand Trusts:
During my research I discovered a two interesting sites
about international trusts and more specifically New
Zealand Offshore trusts handled by both AsiaTrust N.Z.
Limited and Ross Holmes on-line Success Magazine.
According to AsiaTrust N.Z. Limited the advantages of the N.Z.
offshore trust are as follows:
“Exempt from N.Z. income tax on foreign source income; not subject to
N.Z.
tax on capital gains even if such gains are derived in N.Z.;
located in a jurisdiction that is not a renowned tax haven;
potentially able to access the benefits of N.Z.’s tax treaties;
flexible trust administration through the use of custodian or advisory
trustees as non-resident co-trustees; subject to a well established
system
of trust law founded on equity and common law; located in a
politically and economically stable country; asset protection benefits
particularly if structured with a co-trustee in the Cook Islands; not
subject to any reporting requirements to the N.Z. Inland Revenue
Department or other government body, except in relation to N.Z.
sourced income;...
WHY USE A N.Z. OFFSHORE TRUST?
The N.Z. offshore trust may be used in a number of situations: As a
tax efficient offshore trust entity;
As a treaty network centre investment vehicle; given the lack of
capital gains tax in N.Z., as an asset holding vehicle; as
pre-migration trust, established prior to immigration to N.Z. or to
other countries where such trusts are effective - for example,
Australia, Canada; for international pension or retirement funds; for
international estate or succession planning structures;
as an international trading trust; as a tax effective asset protection
trust particularly if established with a Cook Islands co-trustee”
You can contact AsiaTrust at:
AsiaTrust N.Z. Limited
41 Shortland Street,
Plaza Level
P O Box 1194,
Auckland 1015,
N.Z.
Tel: (649) 302 0140
Fax: (649) 302 0150
Contact:
Geoffrey S Pownall, General Manager
E-mail: new_zealand@asiaciti.com
Website: www.asiaciti.com
Please see:
International trusts:
http://www.trusts-and-trustees.com/main.htm
International Trusts- N.Z. Offshore Trusts:
http://www.trusts-and-trustees.com/main.htm
Also see Ross Holmes on-line Success Magazine:
http://www.rossholmes.co.nz/trusts_offshore_financial1.html
There is also a reputable public organization in New Zealand
that administers trusts.
For further information about forming a Trust in N.Z.
please go to New Zealand’s largest and oldest Trust organization
- The Public Trust- site:
http://www.publictrust.co.nz/
http://www.publictrust.co.nz/contact/
Detail explanation of Trusts:
http://www.publictrust.co.nz/trusts/process.html
Request more information:
http://www.publictrust.co.nz/appointment.asp?topic=property
N.Z. Inland revenue information:
Please look at the N.Z. Inland Revenue booklet on Trust
and Estates income tax rules in PDF format:
http://www.ird.govt.nz/library/publications/geninfo/ir288.pdf
I discovered some Double Taxation (DTA) treaty tax rates from the
N.Z. Inland Revenue. The tax rates for Non resident withholding Tax
(NRWT) for the US is about 10% for interest, interest paid to
associated person, Royalties, Copyright and 15% for Dividends
Double taxation rate table in PDF format:
http://www.ird.govt.nz/library/publications/business/ir290.
Pdf
N.Z. Inland Revenue home page:
http://www.ird.govt.nz/
For further information about Non-residents of N.Z. please
contact N.Z. Inland Revenue:
Non-resident Center
Inland Revenue Department
Private Bag 1932
Dunedin
N.Z.
Phone 64 3 467 7020 (between 9 am and 4.30 pm)
Fax 64 3 467 7083
Tax information for N.Z.:
http://www.taxup.com/NewZealand
Also some useful cautionary information for your review
Trust scams:
http://www.taxprophet.com/hot/Trustscam.htm
For third countries please see:
http://www.lowtax.net/index.asp
I hope that I have been able to shed some light
on this complex question. and please let me know if you require
further Clarification(s)
Seeker |
