Jersey’s fiduciary sector had the rare opportunity to discuss current developments in the taxation of trusts and new immigrants in Israel with two leading Israeli specialists at Carey Olsen’s recent seminar.
There was standing room only at the Pomme D’Or as trust practitioners, with an interest or involvement in trust work with Israeli settlors or beneficiaries, heard from two of Israel’s leading tax and trust lawyers, Alon Kaplan and Meir Linzen.
The guest speakers presented alongside Carey Olsen fiduciary partner and head of trust and fiduciary law, Paul Matthams, and senior associate Keith Dixon.
Mr Matthams said that there were many trusts established and administered in Jersey with Israeli resident beneficiaries and changes to Israeli tax legislation were likely to have significant implications for both trustees and beneficiaries.
“The new Israeli tax legislation, which formed part of recent legislative amendments to the state budget for 2013-2014, was passed by the Knesset, the Israeli parliament, during the summer and relevant provisions come into effect on 1 January 2014,” he said.
A founder and current president of the Israeli branch of the Society of Trust and Estate Practitioners (STEP), Alon Kaplan, who, together with STEP Israel chairman, Meir Linzen, had been a member of the Israel Tax Authority committee involved with preparing the current tax rules for trusts (in 2006) gave a fascinating insight into the development of trust law in Israel. He noted that under the current tax legislation, a trust which was established by a non Israeli resident was called a Foreign Resident Settlor Trust (FRST) and was subject to tax reporting requirements in Israel only to the extent that it received Israeli source income.
Mr Linzen said the changes to the Israeli legislation meant that the generous concessions given to FRSTs would no longer exist under Israeli law.
He said it had been replaced by two new categories of trusts: the Foreign Residents Trust, which requires settlors and all beneficiaries to be foreign residents, and the Israeli Beneficiary Trust, a trust settled by a non-Israeli resident but which has at least one Israeli resident beneficiary, which meets various other criteria.
“It is the trustee’s responsibility to determine, to the best of their knowledge, which of these categories their existing trusts may fall into.” Mr Linzen said.
“Some potential solutions to these developments would be for the trust to make distributions before the end of the year, for trustees to explore deferral strategies, or for the trusts to be restructured and for any Israeli beneficiaries to become contingent beneficiaries upon the death of the settlor.”
Mr Linzen acknowledged that the new legislation could result in double taxation in some instances. However, Israeli authorities were expected to publish specific legislation in order to address this issue.
Carey Olsen’s Mr Dixon led a discussion regarding possible solutions to the changes with particular reference to Israeli structures and Jersey foundations.
Mr Linzen advised that Jersey foundations were not currently treated as trusts in Israel from a tax perspective although he anticipated that in the future legislation would include them.
Mr Kaplan and Mr Linzen warned that any failure by a trustee to abide by the strict reporting requirements which are due to come into force on 1 January 2014 would be considered a criminal offence.
Mr Dixon said: “The conference provided a unique opportunity for Jersey’s trust practitioners to discuss solutions directly with Israel’s leading industry figures. Carey Olsen was keen to raise awareness of the forthcoming changes so that Jersey's finance sector may continue to provide a leading service to clients in Israel and around the world.”