Responsible tax: a new strategy for trust companies – but what does it hold?
Recently, the Dutch regulatory supervisor of the trust companies sector, DNB (the Dutch National Bank), issued draft regulations to the effect that trust companies and their associates refrain from assisting clients in agressive tax planning structures, as an act against what DNB called “social decency”. In doing so, DNB appealed to trust companies’ responsibility for preserving public confidence in their sector, and in the financial markets more generally.
These draft regulations raise several doubts, including if it is reasonable and fair to expect from trust companies that they be gatekeepers of public morale; how trust companies could possibly be responsible for clients disclosing full details on their tax planning, and, if a too cautious implementation might not result in trust companies chasing clients away to competitors that take a more relaxed approach.
However, the most burning question in complying it seems would be, how trust companies might distinguish agressive tax planning from ordinary tax planning, which also DNB appears to consider allowed. DNB so far expressly declined to offer any guidance in this respect, since, as it stated, this would entirely be a matter of public opinion, and it would be up to the trust companies themselves to identify how public opinion in this respect develops. While one can understand DNB’s attempt to enhance public awareness among trust companies, as is current trend in many other businesses, this sole reference to the public opinion makes the notion of agressive tax planning highly subjective, and likewise difficult to apply in practice.
The DNB draft regulations concur, and not be coincidence so it seems, with attempts the Dutch tax authorities have lately been making to commit trust companies, and other tax intermediaries, in their effort to counter agressive tax planning schemes, in particular through the law implementing the EU Directive on mandatory disclosure rules (DAC 6). The official explanation to this law elaborates on meaning and application of various of the ‘hallmarks’, by which DAC 6 typifies the agressive tax planning schemes tax intermediaries are obligated to report to the tax authorities, with further detailed guidance having been announced.
In regulations on tax integrity risks for banks issued earlier this year, DNB indicated samples of ‘good practices’, which on inspection ressemble the hallmarks of DAC 6 (but without actually referring to DAC 6). It may therefore be useful also for trust companies to look at these hallmarks when searching for handholds in complying with their new DNB regulations once final.
But there may be more useful guidance in this respect to be derived from international taxation. Over the last few years, various innovative instruments have been implemented for identifying and combating agressive tax planning schemes, which are designed such flexible as to capture new developments both in tax planning techniques and in the perception of what is unwanted practice – similar so it seems to what DNB is aiming for by its reference to developments in public opinion.
Central is the ‘principal purposes test’ (PPT), which the OECD adopted as the main instrument against agressive tax planning schemes under the 2016 Multilateral Convention to implement treaty related measures to prevent base erosion or treaty shopping (MLI). The OECD has provided a set of examples of structures and transactions qualifying, or not, for application of the PPT.
For the Dutch tax authorities, agressive tax planning is one of the reasons to deny a ruling request under the new Dutch Tax Rulings (ATR) regime, which entered into force as per July 1, 2019. The explanatory note to the new regime also mentioned various examples of cases of agressive tax planning.
Some further guidance may be had from provisions against tax avoidance under bilateral tax treaties, in particular any safe harbour rules as there may apply, like under limitation-on-benefits (LOB) clauses, or from case law, among others from the European Court of Justice.
All in all, however, the picture remains far from clear. In its regulations for banks, DNB pointed at third party expert opinions as one means to assure whether a structure or transaction might pass the critical test. One may assume that such opinions will be accepted by the DNB also in the case of trust companies.