Six tips/questions for offshore trustees

1. Disclosure of Trust Income:

While the Reporting Form does not mandate offshore trustees to provide financial statements, Section I requires the disclosure of all trust-related income and expenses. This includes annual income, costs, expenses, and distributions, and extends to offshore income. Additionally, any income derived from CFCs must also be reported.

Query whether distributions made can make the disclosure different? The answer is yes.

2. Disclosure of Trust Assets:

Section II requires trustees to disclose all trust assets and their values.

Query whether the assets can be assessed at book value? Yes, it is possible, but not always recommended.

3. Disclosure of Beneficiaries:
   1. General Beneficiary Disclosure:

Section III requires the listing of beneficiaries and the trust assets' Taiwanese source income incurred during the fiscal year. If the beneficiaries are unspecified or do not yet exist, it should be noted as "Beneficiaries Unspecified" or "Beneficiaries Not Yet Existing." Despite offshore trusts typically not generating Taiwan source income, beneficiary disclosure remains compulsory.

Query whether the disclosure is different if beneficiaries are named in the trust deed or the letter of wishes? The answer is possible, but amendment of the trust deed is also a reportable item, including both the original and amended trust deeds. Then the next question is what if such disclosure is prohibited by local laws?

2. CFC Income Beneficiary Disclosure:

In Section IV, if the beneficiary is specific and confirmed, then the beneficiary should be listed as the income beneficiary of the CFC. Conversely, if the beneficiary is not specific or confirmed, then the settlor should be listed as the income beneficiary in this section.

Query whether it is still reportable if the sole beneficiary is not a Taiwan resident? Another question is whether the CFC reporting requirement extends to a trust that has no CFC income / issue, and what is the legal basis for that reporting if the whole reporting requirement is a result of the application of the CFC regime?

4. Disclosure of CFC Information:

If a trust underlying company is a CFC and qualifies under the 4 January Ruling (i.e., the settlor has placed the CFC shares as trust assets), Section VII should include comprehensive information about the CFC. This encompasses basic company details, earnings for the current year, profit distribution status, shareholder details, and a structural diagram illustrating the relationships between beneficiaries/settlors and related parties.

Query whether the tax authority could ask more for clarification? The answer is yes and very likely it will happen.

5. Disclosure of Trust Deed:

According to Section VIII, the trust deed must be attached as an appendix. According to our verbal discussion with the NTB, no additional documents are required unless the NTB identifies a need for further verification.

Query whether the definition of Trust Deed can be expanded to not only all the amendments but also the various instruments related thereto?

6. If the Trust is Terminated or the Trust Agreement is Amended During the Year:

Section VIII specifies that if a trust is terminated or if there is any amendment to the trust agreement within the year, relevant documentation, including details before and after the changes, must be submitted. This implies that even if the trust is terminated during any reportable year or transferred to another trustee, the reporting obligation still applies.

Query how a terminated trust should be reported and on what basis a trustee can report something that is not covered by its contractual relationship. Additional question is whether the settlor's consent of disclosure is still valid after the contractual relationship ends, and not to mention the beneficiary's consent which likely was never given.

Risks of non-compliance with reporting obligations

Although Taiwan is not a full participant in the Common Reporting Standard (CRS) network, it currently relies on bilateral negotiations to facilitate information exchange. To date, such arrangements have been established only with Japan, the United Kingdom, and Australia. However, in recent years, the NTB has intensified its tax audit efforts. It now occasionally requests information from Taiwanese shareholders of CFCs, including those holding less than a 50% stake. Required information may include shareholder registers, minutes of shareholder meetings, director registers, and financial statements. This means that even if an offshore trustee opts not to report, there is still a risk of exposure during audits.

Query what would be the consequence if an unreported trust is under audit, and whether a reported trust will guarantee an audit.

Actions to take

Offshore trustees with trusts that meet the criteria of the 10 July Ruling should apply for registration of a tax ID and appoint a Taiwanese agent to handle the submission of the Reporting Form by the end of January 2025. We currently offer local agent services solely for existing trustee clients, but we welcome all inquiries. As the local agent, we believe the first move is to ask for extension as we suspect very few trustees are ready for reporting by the end of January 2025.

We also believe it is appropriate for the trustee to analyze the Taiwan reporting in the overall context of its fiduciary duties, and to examine the impact of the reporting (including what to report, how to report, and actions that can be legitimately undertaken by the trustee in consultation with the settlor/beneficiaries) to ensure consistency with the original intent of the settlor in setting up the trust and to minimize any risks of potential disputes with the settlor and/or the beneficiaries in the future.

1 The full forms can be viewed on the official website: https://www.ntbt.gov.tw/multiplehtml/2370082b3cf34f5ca0165e08312ac92e
Currently, the form is only available in Chinese. We can assist in providing an English translation if needed

2 The Reporting Form consists of eight sections:
Section I: "Trust Property Income and Expense Statement"
Section II: "Directory of Trust Property"
Section III: "Detailed Statement of Beneficiaries' Incomes"
Section IV: "Detailed Statement of Beneficiaries' Incomes – Overseas Income Part"
Section V: "Detailed Statement of Beneficiaries' Incomes – Income from Mainland China"
Section VI: "Private Securities Investment Trust Fund Beneficiary Certificate Transfer Notification Form"
Section VII: "CFC Income Calculation Form"(two separate forms for individual and corporate CFC)
Section VIII: "Attachment Table"(including but not limited to the CFC shareholding and structure)