Yash Birla case to decide status of offshore trusts

Economy


MUMBAI: A high-profile legal battle that will impact the future of thousands of wealthy Indians linked to foreign assets has entered a crucial phase with arguments beginning at the Bombay High Court last week. Whichever way the court rules, the case, involving Yashovardhan Birla, will determine the status of offshore ‘discretionary trusts’ — the most preferred vehicle of the rich to hold foreign assets — and the tax liabilities of many wellknown men and women who are beneficiaries of these trusts.

The dispute relates to multiple overseas trusts, allegedly holding close to Rs 1,550 crore, where Birla is named as one of the beneficiaries. The HC is hearing a petition filed by Birla challenging a two-year old ruling of the Income Tax Settlement Commission (ITSC) rejecting Birla’s application for settlement on the grounds that he failed to make “true and full” disclosure.

ITSC is an alternative dispute resolution forum to settle income and wealth tax matters involving contentious issues between taxpayers and the I-T department. Applicants approach ITSC before assessing officers pass orders; they can also come forward to disclose additional income in the course of proceedings. Birla’s offer to give Rs 50 crore as tax was turned down by the commission.

Loading...

In Birla’s writ petition filed before the HC by law firm MZM Legal, Birla is represented by senior advocate Janak Dwarkadas while additional solicitor general Anil C Singh is representing the tax department.

Legal and tax circles believe that the case may throw up crucial questions surrounding overseas trusts: Should the corpus of a discretionary trust be directly linked to beneficiaries? Can beneficiaries be taxed if they have not received any money from the trust? Is the beneficiary liable if the trust deed allows him to appoint trustees? Can a non-resident relative set up an offshore discretionary trust with resident relatives as beneficiaries without the resident beneficiary attracting any tax implications?

Untitled-7

Among other things, Dwarkadas argued that corpus of a discretionary trust structure cannot be taxed unless there is distribution of the corpus to the beneficiaries, which has not happened in the present case.

“From a legal point of view such a hearing may refresh and reassert certain tax positions for resident Indians. For instance, one is immediately reminded of the SC decision relating to the Maharaja of Gondol in regard to non-taxation of undistributed income from a discretionary trust structure. The very legitimacy of a trust structure may come up for discussion. Also, the question arises should it go against a person if he or she opts for settlement,” said Mitil Chokshi, partner at Chokshi & Chokshi, a tax advisory and forensic firm.

These structures, entities, and accounts linked to Birla are reportedly based in offshore tax havens like Guernsey, Liechtenstein, Panama, British Virgin Islands and Switzerland.

According to the ITSC, the trust structure is just a façade created by the applicant and his father Late Shri Ashok Vardhan Birla, and Yashovardhan Birla was in a position to exercise ultimate control by way of power to remove or appoint the trustees. Here, Birla’s counsel may argue that the right to ‘appoint trustees’ is aimed to preserve continuity of a trust and may not necessarily mean ‘right to manage’ the trust. Besides, Birla was not the sole beneficiary, as the petition points out. While trustees are appointed by a protector or settlor, laws of many countries allow beneficiaries the power.

Secondly, ITSC has pointed out that Birla was named as ‘beneficial owner’ in bank documents — which, according to Birla’s petition, is for the purpose of Swiss anti-money laundering law and not for the purpose of tax.

The case is heard at a point when the tax department has invoked the Black Money Act against Birla following the rejection of his application by ITSC. If HC rules in favour of Birla, the charges against him under the harsh Black Money Act would substantially weaken.

The trusts in question, whose names surfaced in the media following the HSBC data leak, are : At351 (trustee: Albany Trustee Co) set up in 1989 (when Birla was a minor); Nebola Trust (trustee: Credit Suisse) formed in 1998; Bird International Foundation (trustee: HSBC Guyzeller Trust) set up in 2010; and, Banyan Trust (trustee: Confince)set up in 2011. These trusts, in turn, held shares of companies and owned other movable or immovable assets.



Source link

Articles You May Like

Gen Z, millennials had to delay financial milestones due to Covid
How to book a private flight? Mobile apps do the job
Govt may hike FDI limit in pension sector to 74%; Bill likely in monsoon session
Biden consumer watchdog seeks delay of Trump-era debt collection rules
GameStop says it will name Ryan Cohen chairman

Leave a Reply

Your email address will not be published. Required fields are marked *

Loading...