As the new ruling has a retrospective effect and applies from 1 January 2024, there may be a risk of non-compliance even if an offshore trustee immediately terminates its current Taiwan engagements as a result of this new ruling.

In the past, Taiwan's tax laws were generally considered not applicable to offshore trustees as MOF did not have jurisdiction over them. With the implementation of the CFC taxation, MOF is eager to obtain information on offshore trusts as they may contain assets that generate Taiwan CFC income. Because Taiwan is not a full member of the CRS network, it can only achieve information exchange through bi-lateral negotiation and the progress has been slow (thus far only with respect to Japan, UK and Australia). If this unprecedented attempt to compel offshore trustees to voluntarily register in Taiwan becomes successful, this can vastly increase Taiwan government's visibility on offshore assets, in essence creating a "CRS backdoor."

This new ruling creates a number of difficulties for offshore trustees. They will obviously need to consider the scope, applicability and legality of the ruling and the potential penalties for non-compliance. But more fundamentally this also put them directly on the front line with respect to larger AML related issues, particularly if they know (or have reason to know) that their trust set-ups have Taiwan tax residents who are themselves non-compliant.

Actions to do

Granted that the ruling is new and we expect further clarification from the MOF in the coming days, we believe there are some actions that may be considered immediately:

Offshore trustees: Please review your Taiwan client's offshore structure and assess the CFC risk immediately. The compliance team need to consider the non-compliance risk and how to be compliant going forward. While no planning/restructuring may be perfect, do-nothing may be the worst option in the long run.

Private bankers: It's a good opportunity to open dialogue with your clients. Trusts are still good tools for succession planning, but a higher level of sophistication will be required.

Providers of other offshore solutions: You may consider your role in mitigating the CFC risks to make life easier for both trustees and their clients.

Family office: As we always maintain, when considering succession planning, please do not consider tax planning as your sole objective. Instead proper focus should be on legal enforceability, succession objectives, family mission and dynamics, with tax efficiency being the icing on the cake. Please discuss with your legal counsel whenever there is a new legal update, and work with your legal/tax counsel to discuss with your trustee on long term and more sustainable solutions.