We have actively engaged with the Taiwan's National Tax Bureau (NTB) since the release of the two rulings to clarify their specifics and with an aim to persuade the NTB that the proper use of offshore trusts serves a legitimate role in legacy planning for Taiwanese high-net worth families. Compliance with law is important but there are needs for flexibility and confidentiality that are not tax motivated, and should be respected and protected against overbroad disclosure rules. The use of an offshore trust provides a powerful solution and addresses a need that is currently unmet for the families and should not be regarded simply as a tax avoidance tool. We believe the NTB is sympathetic to our argument, and appears to have the patience and wisdom to work with industry players that are law compliant and adding value to the Taiwan market. Though this is only the beginning of our dialogue, we are hopeful that it is a positive first step and a good development for all parties (the NTB included), and many of our offshore clients can use the legal development to their advantage to have a deeper, more sustainable and compliant relationship with their Taiwan clients.

Key updates

Some specific clarifications also emerge from our dialogue with the NTB:

1. Both the Jan 4 Ruling and July 10 Ruling apply retroactively to trusts established at any time, even before the inception of the CFC or alternative minimum tax rules. This means that as long as a trust meets the criteria of the July 10 Ruling, no matter when the trust was established, the offshore trustee must report according to the July 10 Ruling.
2. As the July 10 Ruling has a retrospective effect and applies from 1 January 2024, even if an offshore trustee immediately terminates its current Taiwan engagements, it still has an obligation to report the trust income from 1 January 2024, until the date of termination of the trust. It is therefore not advisable to simply dissolve existing CFCs or terminate a trust without first thinking through the follow-on actions.
3. Although the specific language of the Jan 4 Ruling appears to exempt a situation where the settlor only settled assets into a private investment company (PIC) set up by the offshore trustee, we do not see decanting of assets under an existing trust to a new trust with a PIC as a sustainable solution. The NTB is on notice and may well view this as tax abusive, potentially leading to greater risks.
4. Reporting obligations and scope:
   1. We have clarified with the NTB that although it is not clear from the two rulings, the withholding obligation of the offshore trustee applies only to income sourced from Taiwan. This should significantly reduce the compliance burden for offshore trustees as trust income in a typical offshore trust would not generate Taiwan source income.
   2. Acquiring a tax identification number: A trustee entity needs only one Tax Code Number of the Withholding Agency that can be used for multiple clients/trusts.
   3. Reporting may not be as daunting as it first appears. Although the NTB currently has no plan to extend the initial deadline of January 2025, we believe the NTB is open to discussing extensions for specific cases as such conversation would assist NTB with fine-tuning the reporting structure that may be more consistent with trustees' practice.