International tax planning also known as international tax structures or expanded worldwide planning (EWP), is an element of

international taxation International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries, or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the ...

created to implement directives from several tax authorities following the 2008 worldwide

recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...

History

In 2010, the United States introduced the

Foreign Account Tax Compliance Act The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indication ...

(FATCA). Later the

Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...

(OECD) expanded these directives and proposed a new international system for the automatic exchange of information – known as the

Common Reporting Standard The Common Reporting Standard (CRS) is an information standard for the Automatic Exchange Of Information (AEOI) regarding financial accounts on a global level, between tax authorities, which the Organisation for Economic Co-operation and Develo ...

(CRS). The organisation also attempted to limit companies’ ability to shift profits to low-tax locations, a practice known as

base erosion and profit shifting Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic a ...

(BEPS). The goal of this worldwide exchange of tax information being tax transparency, it requires the exchange of a significant volume of information. As a result, there are concerns about

privacy Privacy (, ) is the ability of an individual or group to seclude themselves or information about themselves, and thereby express themselves selectively. The domain of privacy partially overlaps with security, which can include the concepts of a ...

and

data breach A data breach is a security violation, in which sensitive, protected or confidential data is copied, transmitted, viewed, stolen or used by an individual unauthorized to do so. Other terms are unintentional information disclosure, data leak, info ...

in interested industries. EWP has been an important element on the agenda of the OECD following the succession of leaked revelations about various jurisdictions, including the

Luxembourg Leaks Luxembourg Leaks (sometimes shortened to Lux Leaks or LuxLeaks) is the name of a financial scandal revealed in November 2014 by a journalistic investigation conducted by the International Consortium of Investigative Journalists. It is based on ...

Panama papers The Panama Papers ( es, Papeles de Panamá) are 11.5 million leaked documents (or 2.6 terabytes of data) that were published beginning on April 3, 2016. The papers detail financial and attorney–client information for more than 214,488 ...

and

Paradise papers The Paradise Papers are a set of over 13.4 million confidential electronic documents relating to offshore investments that were leaked to the German reporters Frederik Obermaier and Bastian Obermayer, from the newspaper'' Süddeutsch ...

. In December 2017, European Union finance ministers blacklisted 17 countries for refusing to co-operate in its investigation on tax havens.

Principles

EWP allows a tax paying entity to simplify its existing structures and minimize reporting obligations under the

(FATCA) and CRS. At the heart of EWP is a properly constructed

Private placement life insurance Private placement life insurance is a form of cash value universal life insurance that is offered privately, rather than through a public offering. Overview Variable or indexed life insurance is a form of life insurance that has cash value l ...

(PPLI) policy that allows taxpayers to use the regulatory framework of

life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death ...

to structure

assets In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

along the client's planning needs. These international assets can also comply with tax authorities worldwide. EWP also brings asset protection and privacy benefits that are set forward in the six principals of EWP below. The other elements in the EWP structure may include the client's citizenship, country of origin, actual residence, insurance regulations of all concerned jurisdictions, tax report requirements, and client's objectives. Planning with trust and foundations frequently offer only limited tax planning opportunities whereas EWP provides a tax shield. Adding a PPLI policy held by the correct entity in the proper jurisdiction creates a notable planning opportunity.

Features

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. EWP allows for a tax compliant system that still respects basic rights of privacy. EWP addresses the concerns of law firms and international planners about some aspects of CRS related to their clients' privacy. EWP assists with the privacy and welfare of families by protecting their financial records and keeping them in compliance with tax regulations.

Asset protection

EWP protects assets with segregated account legislation by using the benefits of life insurance. This structure uses asset protection laws in the jurisdictions of residence to shield these assets from creditors' claims. A trust with its own asset protection provisions can still receive additional protection with the policy.

Succession planning

EWP includes transfers of assets without

forced heirship Forced heirship is a form of testate partible inheritance which mandates how the deceased's estate (law), estate is to be disposed and which tends to guarantee an inheritance for family of the deceased. In forced heirship, the estate of a deceas ...

rules directly to beneficiaries using a controlled and orderly plan. This element of EWP provides a wealth holder a method to enact an estate plan according to his/her wishes without complying forced heirship rules in the home country. This plan must be coordinated with all the aspects of a properly structured PPLI policy together with other elements of a wealth owner's financial and legal planning.

Tax shield

EWP adds

tax deferral Tax deferral refers to instances where a taxpayer can delay paying taxes to some future period. In theory, the net taxes paid should be the same. Taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future, particular ...

, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered

tax-deferred Tax deferral refers to instances where a taxpayer can delay paying taxes to some future period. In theory, the net taxes paid should be the same. Taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future, particular ...

in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to structures. In addition, the insurance company is considered the beneficial owner of the assets. This approach greatly simplifies reporting obligations to tax authorizes because assets in the policy are held in segregated accounts and can be spread over multiple jurisdictions worldwide.

Trust substitute

EWP creates viable structure under specific insurance regulations for civil law jurisdictions. It also creates a new role for commercial trust companies. In most civil law jurisdictions, trusts are poorly acknowledged and

trust law A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

is not well developed. As a result, companies with foreign trusts in these civil law jurisdictions, face obstacles.

References

External links

OECD - Centre for Tax Policy and Administration

OECD - Centre for Tax Policy and Administration

United Nations Taxation Committee
{{Derivatives market, state=collapsed Life insurance Tax incidence

International taxation International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries, or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the ...

Tax avoidance