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Protection for Trustees Facing Foreign Tax Liabilities - Representation of WW and XX (Trust) [2013]

June 2013 - Tax & Private Client. Legal Developments by Ogier .

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A recent judgment of the Royal Court is noteworthy and should provide some comfort to Jersey trustees facing potential tax liabilities for two reasons:

  1. It re-enforces the position that a trustee is under a duty to assist the Court in an application for directions brought either by itself as trustee or by another person, and provided that it is acting in accordance with such duty will normally be awarded its costs incurred in doing so;
  2. It confirms that a trustee is entitled to take reasonable steps to ensure that it does not face, personally, a tax liability which in fairness ought not to have been imposed upon it, and it should not be penalised in costs for requesting an indemnity on handover of trust assets based on a potential tax liability.

In this case, the Court found that the trustee concerned was entitled to have regard to a potential tax liability when seeking an appropriate indemnity on handover of trust assets. It was thus not penalised in costs for its approach. The Court in fact went further and said that, even in circumstances where a trustee may not be entitled to request an indemnity to protect itself against a potential tax liability, it would not be willing to order costs against the trustee which sought such an indemnity (at least on the basis of professional advice) because to do so would place a Jersey trustee at the mercy of draconian foreign taxes.

http://www.ogier.com/Publications/Library/Pages/ProtectionforTrusteesFacingForeignTaxLiabilities.aspx