STEP (SINGAPORE) E-NEWS ISSUE 27 (22 August 2014)
COMMITTEE NEWS:
Chairperson’s Message [insert Chiwi’s photo]
(Pending)
INDUSTRY NEWS & UPDATES
Feedback Sought on Proposed New Regulation to Amend Definition of ‘Accredited Investor’ (“AI”)
The MAS has issued a consultation paper on 21 July 2014 to invite feedback on proposed new legislation to the Securities and Futures Act (Cap. 289) and the Securities and Futures (Prescribed Specific Classes of Investors) Regulations 2005.
The deadline for submitting comments and feedback to the MAS is 1 September 2014.
The STEP Singapore Committee is proposing to send the following feedback to the MAS, and invite members to provide their input and comments to by 17:00, Friday 29 August 2014:
STEP Singapore Committee Proposed submission to MAS:
“Paragraph 2.22 of Part III of the MAS Consultation Paper dated 21 July 2014 states as follows:
“2.22 The current AI definition includes the trustee of any trust which has assets exceeding S$10 million, and an individual whose net personal assets exceed S$2 million. As a result, investments options that are available to an AI whose net personal assets exceed S$2 million would not be available if such assets were held under a trust for him, if the value of the total assets under the trust is S$10 million or less. To address this inconsistency, MAS proposes to extend AI eligibility to the trustee of any trust in which all the beneficiaries are AIs. This proposal would also be consistent with the statutory “look through” approach for corporations which are wholly owned by AIs.”
The objective of the proposed legislative amendment appears to be to address the inconsistency in the position in relation to a trust, as compared with an individual. This is an eminently logical approach, as individuals who are AIs form the predominant pool of clients who are willing and able to set up trusts for preservation of assets and succession planning.
In order to achieve the above objective, it is proposed that an amendment be included to extend the definition of accredited investor (AI) to include a trust where the settlor is an AI.
Although it may be possible to satisfy the requirement that all beneficiaries are AIs in a collective investment scheme set up as a trust, it may be practically impossible to satisfy the requirement that all the beneficiaries are AIs in the case of family trusts, as it is extremely common for such trusts to have minor children/incapacitated beneficiaries, non-working spouse, or retired parents of the settlor. Some trusts may also include small charities as beneficiaries. Further, not all beneficiaries may be in a position to control/manage the trustee or the trust fund, particularly in the case of discretionary trusts.
Therefore it is submitted that the definition of AI in relation to a trust should be extended to a situation where the settlor is an AI. Where the settlor is an AI, then it is a natural assumption that the trust which is established by such a person should also enjoy similar benefits/advantages in relation to investments. This is particularly pertinent in the light of the following points:
· Trustees are subject to fiduciary duties in relation to investments in a discretionary trust, and most professional trust companies are required to be licensed in most jurisdictions.
· The settlor retains responsibility for investments in a settlor reserved powers trust, and section 90(5) of the Trustees Act recognises that a settlor can retain investment powers pursuant to a trust, without invalidating the trust.
In line with the above reasoning, it is submitted that there is no need to impose additional restrictions or conditions, so long as the settlor is an AI. If however, some restrictions or conditions are considered necessary and desirable, then please consider the following situations, where the settlor should be regarded as retaining sufficient nexus with the trust such that a ‘look through’ approach to the settlor should naturally be adopted:
· where the trust is revocable such that the settlor can take back the assets upon revocation of the trust,
· where the trust is a settlor reserved powers trust, or
· where the settlor is one of the beneficiaries of the trust (eg. a member of the discretionary class of beneficiaries).
Further, we also propose, as an alternative to the requirement that all beneficiaries be AIs, that the proposed Regulation 2(b) (ii) be amended to "a trust where any beneficiary is an accredited investor, provided that all the beneficiaries are connected persons as defined in Section 2(1) of the Financial Advisers Act [or the Schedule to the Trust Companies (Exemption) Regulations 2005] or are charities.”
This is because in it is most usual for family trusts to include beneficiaries who are non-working spouses, minor or incapacitated children, and favourite charities, which would make it practically impossible for a family trust to satisfy the requirement that all the beneficiaries are accredited investors. These persons are likely to constitute the discretionary class of beneficiaries i.e. they might not receive anything until the trustee makes an appointment in their favour. However, where there is one beneficiary who satisfies the requirement of an accredited investor, this should be consistent with the statutory spirit and intent that this is a type of trust fund which is sufficiently large/sophisticated so as not to need additional protection. Otherwise, there might be adverse effects of having to exclude the non-working spouse, children, incapacitated beneficiaries or charities in order to qualify under the amended legislation, which would run counter to the objective of setting up a trust to benefit such persons i.e. such trusts may not even be set up in the first place, even though they may be sufficiently large in size and have one or more beneficiaries who are accredited investors, but cannot include other persons as beneficiaries.”
STEP Singapore Committee, 2014/2015
Important New Developments in Singapore
1. Singapore has initialled a Model 1 Inter-Governmental Agreement (IGA) with the US to ease the compliance burden of financial institutions imposed pursuant to the Foreign Account Tax Compliance Act (FATCA), and was included on 5 May 2014 in the US Treasury's list of jurisdictions that are treated as having an IGA in effect. The Model 1 IGA establishes a framework for financial institutions to report account information of US persons to the Singapore authority, which will in turn provide the information to the US IRS, as compared with Model 2, which establishes a framework for financial institutions to directly report account information of US persons to the US IRS. The Singapore-US IGA is expected to be signed in the second half of 2014.
2. On 6 May 2014, Singapore stated its intention to implement the Declaration on Automatic Exchange of Information on Tax Matters at the OECD’s annual Ministerial Council Meeting in Paris.
3. Further amendments to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“CDSA”) are proposed via an Amendment Bill on 28 May 2014. Imprisonment penalties for money laundering offences will be increased to 10 years. The application of dual criminality for foreign tax evasion offences will be clarified as allowing for prosecution so long as the offence has been criminalised in the foreign jurisdiction, as the scope of taxation in Singapore may differ from other jurisdictions. Property of corresponding value can be confiscated if instruments of crime have been dissipated. These amendments complement the changes to the Terrorism (Suppression of Financing) Act in 2013. Amendments will also be introduced to the Mutual Assistance in Criminal Matters Act (MACMA) to strengthen Singapore’s mutual legal assistance framework. The Commercial Affairs Department (CAD) has tripled its financial investigation resources.
4. The draft Income Tax (Amendment) Bill 2014, which was open for consultation from 4 to 24 July 2014, proposed amendments to enable Singapore to ratify the Convention on Mutual Administrative Assistance in Tax Matters (the Convention), which Singapore signed on 29 May 2013. The Convention expands Singapore’s multilateral exchange of information partners by 13 jurisdictions, including the United States of America (US), promoting international tax cooperation. This Income Tax Bill also introduces new anti-avoidance provisions to prevent circumvention of the exchange of information provisions.
5. The 2014 Income Tax Amendment Bill also proposes that the process of judicial review in relation to exchange of information (EOI) requests will be subject to confidentiality obligations under EOI arrangements.
Case Note Summaries
1. Equity and Trusts:
a. Chan Yuen Lan v See Fong Mun
[2014] SGCA 36
Court of Appeal decision delivered on 24 June 2014.
Facts:
Two married octogenarians were involved in a tussle over the beneficial ownership of 24 Chancery Lane, which was registered in the wife’s sole name, but she had granted him a power of attorney so that he could exercise control over it. The property was acquired in 1983 for $1.78 million, but was presently worth an estimated $20 million.
Issue:
Neither wife nor husband had commenced matrimonial proceedings, so the question of who is entitled to beneficial ownership fell to be decided by the law of trusts.
Decision:
The wife was found to have contributed 15.83% of the purchase price from her own funds, and the Court applied the law of resulting trusts to hold that she had a 15.83% interest in the property.
Comments:
· On the facts, the Court found that there was no convincing reason why the husband, who was nearing retirement and had just begun an affair, would make the biggest purchase of his life only to gift it to someone who was only his wife in name. There was no intention to benefit the wife. Any presumption of advancement in this case was negated by the state of the relationship of the parties at the time of the purchase.
· The Court stated that in Singapore, the presumption of advance still accords with the community’s contemporary societal norms and expectations in particular situations. There is however no justification for resorting to either of the twin presumptions of resulting trust and advancement, where there is direct evidence of the transferor’s actual intentions, no matter how much such presumptions may reflect the norms and customs of society. Only when the court is not able to find any clear intention, or if the evidence is inconclusive either way, that the court may apply the evidential presumption to tilt the balance.
· The Court expressed a reservation that an unduly wide doctrine of resulting trusts might have unsettling effects on the rights of third parties and security of commercial transactions.
It however preferred the resulting trust analysis over the common intention constructive trust analysis, and declined to follow the English position as established by Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776, in quantifying parties’ beneficial interest in domestic property disputes. The English approach was that if property was held in joint names, the starting point was the presumption that parties were also joint tenants in equity, regardless of whether they had made equal contributions. The burden was on the party seeking to displace equal division to show that the parties had a different common intention.
· The English approach was rejected for creating increased litigation risks due to a larger degree of uncertainty in its approach. Using resulting trusts as the default analytical tool prevents the court from foisting upon the parties an intention which they never had, in order to achieve a ‘fair’ result. The appropriate yardstick to use in resolving property disputes, is that each party’s share of the beneficial interest ought to be determined in a principled and predictable manner.
· The Court ended by laying down practical guidance for parties who have contributed unequally to the purchase and have not executed a trust to show how beneficial interest is to be apportioned:
o Is there sufficient evidence of the parties’ respective financial contributions to the purchase of the property (the presumption of resulting trust)?
o Is there sufficient evidence of an intention that the parties should hold the beneficial interest in a proportion which is different from their financial contributions?
o Is there sufficient evidence that the party who paid more intended to benefit the other party?
o If there is insufficient evidence that the party who paid more intended to benefit the other party, would the presumption of advancement nevertheless operate to rebut the presumption of resulting trust?
o Is there sufficient and compelling evidence of a subsequent intention that the parties should hold the beneficial interest differently, as compared with the time of acquisition of the property?
b. Suhaidah bte Mohd Noor and another (trustees and executors of the estate of Haji Hassan bin Haji Ismail, deceased) v Syed Ahmad Jamal Alsagoff
[2014] SGHC 116
High Court decision delivered on 25 June 2014.
Facts:
The Plaintiffs, who are the present trustees of two settlement trusts and also executors of the Settlor’s estate created over 18 years ago, sought an order for a former trustee to hand over all documents relating to the two settlement estates. The former trustee’s position was that he had already provided all trust documents that were in his possession, and offered to execute a statutory declaration to that effect.
Issue:
Whether the former trustee had handed over all trust documents in discharge of his duty as a former trustee of the two settlement trusts?
Decision:
The Plaintiffs’ application was dismissed. The Plaintiffs did not particularise or identify which documents were missing, and proceedings ought to have commenced by way of writ as opposed to originating summons. By utilising the originating summons procedure, only affidavit and documentary evidence was placed before the judge. No witnesses were cross-examined. Therefore the judge was unable to arrive at a specific conclusion as to whether the former trustee had failed to discharge his duty to hand over trust documents to the Plaintiffs. Disputes of fact are not easily resolved by way of a battle of affidavits.
Comments:
· It is settled law that incoming trustees are entitled to all documents relating to a trust, for the following reasons:
o Documents and financial records relating to the trust are part and parcel of the trust properties.