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Natalie Peter

Philipp Betschart

Problems with special forms of investment (trust, foundation, trust and similar) - national and international

Workshop on the occasion of the ISIS) seminar on 10-11 September 2018

The complete seminar folder can be ordered for CHF
The corresponding case solutions can be purchased for CHF
(introductory price)
can be purchased in the shop.
The workshops are also available individually in the "Documents" section.
The case solutions and other documents can be obtained free of charge in the shop.

Attribution of a trust

A. Facts

Zurich-based S establishes a trust under US law. The purpose of the trust is to hold an apartment in the USA.

The key data of the trust can be summarised as follows:

S has stated the following in a letter of wishes to the Trustee:

  • If S dies before her husband T, T may use the apartment in the USA unrestrictedly and exclusively until his death. He is allowed to rent out the apartment and is responsible for the ongoing maintenance.
  • After the death of T or if T dies before S, the right of use of the apartment passes to the two children U and V. At the request of the children the apartment is to be sold. However, until both children are at least 30 years old, distributions from the sales proceeds should only be made if necessary. Both children are to receive equally high dividends. If both children are at least 30 years old when the apartment is sold, the proceeds of the sale are to be distributed equally to each of the two children.

B. Question

What are the tax consequences of setting up the trust, during S's lifetime, after the death of S and T, and when the apartment is sold?

Liechtenstein Family Foundation and Life Pension

A. Facts

The V, who lives in Zurich, set up a family foundation under Liechtenstein law in 2002. He contributed securities worth CHF 20 million to the foundation.

During the lifetime of founder V, he had the right, according to the foundation charter, to issue a by-law and regulate the beneficiaries. He was also authorised to change the by-laws at any time.

As of the death of the founder, on 30 June 2013, according to the bylaws T, the only daughter of the founder, last issued by V, 12% of the net assets of the foundation at the end of February each year must be paid out at the end of the previous year. The foundation board, which is not bound by any instructions of the beneficiaries, may amend the by-laws at any time.

Following the death of T, the Foundation is required by the by-laws to pay out a total of 12% of its net assets to his descendants annually at the end of February.

B. Questions

  1. Is this foundation to be recognised under civil law?
  2. What were the tax consequences of setting up the foundation?
  3. How were the assets and income of the foundation taxable during V's lifetime?
  4. What are the tax consequences of V's death?
  5. How are the assets and income of the foundation taxable from the death of V?
  6. How are the annual payments (12% of the net assets of the foundation) to be recorded for tax purposes? Especially: Can a tax-free repayment of a capital contribution be claimed proportionally? Is there an annuity for life?

Distributions from an Irrevocable Discretionary Trust - Accrual of contributed capital, capital gains and income

A. Facts

B is a beneficiary of the G Trust established in the USA in 1965 by his grandfather G, who died in 1970. The G-Trust has the following features:

  • According to the trust settlement, the trust is irrevocable.
  • The beneficiaries are all 15 grandchildren of G.
  • Trustee is the independent third party T.
  • Under the Trust Settlement, the Trustee alone and at his discretion decides whether, when and how much to distribute to the Beneficiary.
  • There is no Letter of Wishes and no Protector was used. The trustee is also de facto completely free to decide on distributions and therefore does not have to treat the beneficiaries equally (not even by tribe).

The following is known about the assets of G-Trust (in TCHF):

B. Questions

  1. What type of trust is involved here?
  2. How is the G-Trust to be treated for tax purposes in Switzerland?
  3. What are the tax consequences of the distribution in 2018?

Subsequent modification of a Trust Deed

A. Facts

S is wealthy and lives in Monaco. He has no children. He has established various trusts in which his siblings and nieces and nephews are beneficiaries.
He has set up a trust for his sister, who lives in Switzerland. The sister is the sole beneficiary. S has no further rights reserved. The appointment of further beneficiaries is solely at the discretion of the trustee. The trust is irrevocable and it is at the discretion of the trustee whether and in what amount he makes a distribution to the beneficiaries.

The trust has been recognised by the tax authorities as an irrevocable discretionary trust for the last 10 years.

B. Questions

  1. How is the trust treated for tax purposes in Switzerland?
  2. How are distributions to the sister taxed?
  3. Variant: S is not understood with the way of life of his sister. He would therefore like to have more influence on the trust assets again. The Trust Deed provides that the Trustee may amend the Beneficiary Regulations at any time. Following the wish of S, he himself appointed him as beneficiary, together with his sister. Will the tax treatment of the trust change?
  4. Is there tax avoidance which precludes tax reclassification?

underlying companies

A. Facts

The S resident in Switzerland is settlor, beneficiary and protector of the S trust. The Trust is irrevocable and discretionary under Trust Deed. As Protector, S can recall the Trustee at any time and appoint a new Trustee.

The only asset of the S-Trust is S Ltd, a limited liability company based in Guernsey. S Ltd. does not have its own office premises in Guernsey. Trustees of the S-Trust and directors of the S Ltd. are employees of a Guernsey-based company specializing in trust administration, where the S Ltd. is also domiciled.

S Ltd. has an extensive securities portfolio. This is managed by a Swiss bank under an asset management contract. The bank will discuss fundamental decisions on investments with S.

B. Questions

  1. How is the present trust to be treated for tax purposes?
  2. Is the S Ltd. tax deductible?
  3. If the S Ltd. is to be recognised for tax purposes, where is its actual administration located?
  4. Variant 1 to the basic facts: The settlor and the beneficiaries of the S trust are all resident abroad. Trustee of the S-Trust, directors of S Ltd. and asset managers are employees of a Swiss bank. Where is now the actual place of administration of S Ltd?
  5. Variant 2 to the basic facts: S Ltd. holds as its only asset a loan of CHF 20 million which it grants to a manufacturing company operating in Switzerland which is controlled by S. How is the actual place of administration of S Ltd. determined?

Tax treatment of an institution in Switzerland

A. Facts

Compulsory A, who is resident in the canton of Zurich, established an establishment under Liechtenstein law and granted the establishment a loan of CHF 10 million.

A is the only entitled person at the institution. According to its annual accounts, the institution has no current assets specific to its business and only financial fixed assets. There is a lack of material facilities for the exercise of an independent activity. There are no expenses in the income statement that indicate the existence of an infrastructure (such as rental expenses, electricity costs, telephone costs, insurance premiums, etc.).

B. Questions

  1. How is a Liechtenstein establishment treated for tax purposes in Switzerland?
  2. What are the prerequisites for a breakthrough?
  3. How is the present establishment to be treated for tax purposes?

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