Family Offices – What investors should know about them

Family Offices – What investors should know about them

The Family Office can help if the private wealth has become extensive and complex. Finding a suitable partner is essential. To enable successful, i.e. profitable, management of assets, Family Offices must meet specific quality requirements such as personal integrity, high professional standards and service orientation. Due to increasing complexity and internationalization, advice from independent external legal advisors is indispensable in order to guarantee high-level expertise. Mandating large law firms can be advantageous for liability reasons.

The Family Office concept

Depending on the context in which it is used, the term “Family Office” can have very different meanings. Some talk of it in a quite derogatory manner as “butler of the rich”, others as “high-level secretarial services”.  It is true that Family Office services are rendered in the context of mostly large fortunes. Here, the term Family Office should be understood as an organizational unit in which all services relating to the management of private wealth will be managed externally in a business structure.

Nowadays, Family Offices are in operation all around the world. Previously, Family Offices were common particularly in the United States and Europe. Today, Family Offices are also gaining increasing importance in Asia (Hong Kong, Singapore). In Europe, Switzerland must be regarded as the centre of Family Offices alongside London. Although there are no precise figures, 300 to 500 Family Offices are supposedly engaged in the Family Office business in Switzerland.

One assumes that all over Europe there are about 4,000 firms each with assets of at least 100 million USD under management. Of these, approximately 750 are organized as Single Family Offices, i.e. as corporations set up to render services for one particular family. The remainder are so-called Multi Family Offices, i.e. units in which the services are bundled for the assets of several individuals.

Where does the concept of Family Offices come from?

The stewardship itself is not a phenomenon of modernity. Rather, the roots date back to the 6th century when the major-domo took over the management of the assets for his dominion. The modern concept of Family Offices was developed in the 19th century. In 1838, the family JP Morgan founded the House of Morgan for the administration of the family’s assets. In 1882, the Rockefeller family set up a comparable entity.

Why have Family Offices enjoyed such a boom in recent years?

A major reason for this is the general increase in the concentration of wealth, followed by all needs arising from this in terms of the protection and growth of a large fortune.

At the same time, many wealthy investors had very negative experience with conventional investment advice from their banks during the last financial crisis. Consequently, they have been looking for independent investment advice and have found an option in the concept of Family Offices.

Additionally, this form of organization meets the increasing need of most investors for discretion. Not only externally, but also vis-à-vis the banks involved and investment providers, they do not want to disclose their financial circumstances fully and in detail. Here, a Family Office offers a shielding or at least filtering effect.

Finally, the legal and administrative requirements for investors have increased enormously in recent years. Firstly, because investors are increasingly focusing on real assets whose management is more complex than the mere holding of an indirect investment through a financial product. Secondly, this is a consequence of the generally increasing internationalization of investments.

What services offered by Family Offices can investors benefit from?

Classically, professional Family Office services include aspects such as asset planning, asset management, asset controlling, asset protection as well as legal and tax compliance.

The range of possible supplementary services is extremely wide and limited only by the individual needs of the asset owners. Such services can comprise administrative support, providing personnel, managing selective private matters, through to the complete lifestyle management of the asset holder.

At what point does a Family Office make sense?

In simple terms, working with a Family Office is always worthwhile if the private wealth has become so large and complex that neither the time nor the know-how for its self- administration are available.

However, the operational costs of running a Family Office can be significant. The reason is that the team of specialists is kept exclusively for the purpose of the asset owner. Therefore, as a general rule, the establishment of a Family Office only makes sense economically for really large fortunes. Fixed limits can hardly be defined, since the individual needs of the asset holder and the individual demands resulting from the asset structure vary to a large extent. As a basic rule, however, one can say that in Switzerland a fortune of between 400 and 500 million CHF is considered to be the minimum amount for setting up a Single Family Office.

But even without the full exclusivity of (and control over) a Single Family Office, wealthy investors can benefit from Family Office services by pooling their interests in Multi Family Offices. This form of pooling may include benchmarking, better investment terms or access to investment opportunities / high-profiling networks through higher investment volumes. In Europe, Multi Family Offices serve an average of 10 to 15 clients with total assets under management of some 25 to 50 million USD.

However, the success of this type of bundling depends to a crucial extent on the assumption that the specific client profiles are comparable to each other. Managing assets that are mainly invested in Asian financial market instruments will hardly generate synergies for managing European real assets.

Success factors – what makes a Family Office a good Family Office?

The decision in favour of a Family Office – whether a Single or a Multi Family Office – is a significant and mostly far-reaching decision. There are numerous companies that offer Family Office services. The problem is that “Family Office” is not a protected term and thus anyone can offer Family Office services without having any specific qualification or experience.

Based on the demands in terms of the successful, i.e. profitable, management of larger assets, the following skills are of particular importance.

  • Personal Integrity: A Family Office is not only an asset manager but also a close intimate of the client with a deep insight into highly personal matters. Thus, personal integrity and confidentiality are indispensable.
  • High Professional Standards and Expertise: Decisive for the quality of the consulting services is a high level of competence on the part of the Family Office employees such as attorneys, tax consultants, asset managers etc.
  • Service Orientation: One of the major reasons for holders of considerable assets to mandate a Family Office is severe time restraints. Given this situation, they expect a very high degree of flexibility from their advisors. Whether or not the collaboration turns out to be successful depends very much on each advisor’s ability to comply with the client’s needs and preferences.
  • Network: The quality of the services rendered also depends on how well the Family Office is networked to experts advising within comparable settings. Consequently, it is most helpful to have a network comprising advisors of other Family Offices, thus enabling the advisors to benefit from each other’s expertise or networks.
  • External Expertise: Mainly because of the increasing complexity and internationalization of investments, it is important that the Family Office consultants realize when it is advantageous or even necessary to mandate an external consultant. Smaller entities in particular cannot afford to employ several specialists within the same department.  In legal departments, for example, it would be very difficult for one single person to constantly monitor legal changes in all relevant fields and to react proactively to future changes. Here, large law firms that provide highly specialized services can be of assistance, especially those focused on private clients. These teams can offer all required legal advice on civil law, corporate law, tax planning, asset protection etc. They can contribute not only high-level expertise but are also very familiar with this market segment and its specific rules. Most effectively, they can provide solutions they have already developed for other clients in comparable situations and that turned out to be helpful. Finally, the advice of a large external law firm can be advantageous for liability reasons as well, since such law firms tend to have higher levels of insurance cover. http://www.heuking.de

Dirk W. Kolvenbach is a German attorney at law and Senior Partner with HEUKING KÜHN LÜER WOJTEK in Zurich and Dusseldorf. Further, he is the head of the Practice Group “Private Clients” and a renowned specialist in all Private Clients matters (e.g. succession, asset protection and transaction).

Dirk W. Kolvenbach

Dirk W. Kolvenbach

Heuking Kühn Lüer Wojtek
How to deal with disputes in the family business?

How to deal with disputes in the family business?

Sound Management and the Family Business

A Family business is the pillar of family assets. A special attention should be given to it in a Family Charter. Who manages the Family Business? Family members and/or others? They may be assisted by consultants and advisers. How are Family directors and officers appointed? Are they remunerated? If yes, what is their legal status? Are they employees of the Family? How to remunerate them? The Family Charter should provide answers to these questions.

An intricate matter not to be ignored when drafting a Family Charter, is to clarify and set out the management roles of Family members and of non-Family members. Who will manage the Family Business? A Family member? An outsider? What are the prerequites for a Family member to sit on the Board of the Family Business? Are young Family members admitted to play a part in the management of the Family Business? On what conditions? How are the Family Business managers and/or directors remunerated? How to evaluate their performance? How are shares in the Family business transferred?

The easiest way to approach these matters is to assimilate the Family to a legal or a corporate entity, having its own existence and interests independently of its members. The reason for this approach is to set a tested framework for the purpose of managing the Family and its assets in the most professional and businesslike manner. Ultimately, the Family members shall benefit from such an overall unbiased management. Consequently, and as a result of such simulation, a Family may have a number of bodies to manage it. The Family Charter shall provide for a structure which may comprise of the following bodies:

  • A Family Assembly: It comprises of all direct Family members. Its operation and decision-making process follow the pattern of a general meeting of a company.
  • A Family Board: This board is the executive management arm of the Family. It runs its affairs. Its members are appointed by the Family Assembly from amongst Family members or non-Family members. As a matter of fact, the independent executive Board members play a crucial role within the Board, as their input and contribution are made without any outside influence or pressure.
  • A Family Council: It is the body that comprises of Family members elected by the Family Assembly. In families, with a large number of members, it is more practical and more efficient to have a Family Council. In its capacity as the Family’s representative, this Council deals with Family matters on behalf of all Family members. The Family Charter shall set out the role and powers of the Family Council. Its most important role is to inter-act between the Family Assembly and the Family Board.
  • Family Committees: These are specialized committees comprised of the Family members who share common interests. Relevant matters of concern to the Family may be submitted to them for perusal and issuance of related recommendations.
  • Family Office: This appointed body runs the Family day-to-day affairs. It implements the Family Board decisions. Typically, it consists of administrators, legal counsels and fund managers. Family Office executives are recruited on the basis of their education, skills and experience. Their main task is to tend to the needs of the Family and its members in all respects. Family Office services range from concierge services to the provision of highly technical financial and legal advices and opinions, which cover current or contemplated investments of the Family.

Mismanagement

A family business, just like any other business, is exposed to the mishandling of its affairs, and the mismanagement by those who have been entrusted with the same. Such mismanagement may materialize in a number of ways, and may be attributable to a number of factors: a Family officer acting intentionally, or negligently, or simply omitting to act when his/her action is required; or to the lack of skills required for the job.

The easiest way to assess the performance of a Family business directors, officers and executives (hereinafter “a Manager” or “Managers” as the context dilates), is to assimilate such business to a corporate business. The duties, in particular the fiduciary duties, laid upon a Manager are no different than those laid upon their counterparts in corporate concerns. Governance, in its widest sense, is equally required in Family businesses.

Family Office Managers are similarly bound by the duties of care and loyalty. Their fair dealings, on behalf of the Family, is not a virtue, but a genuine duty. They should exercise generally recognized best practices, in good faith, using sound business judgement at all times. The fact that a Family Office Manager is at the same time a Family member, elected, or designated, to assume a managerial function, does not exonerate him of such duties.

  • Liability and Accountability: We are inclined to consider a Family member, who is in charge of managing a Family business, more at fault when violating governing regulations, in-house or otherwise, such as laws and official directives, than if “strangers” to the Family perpetrate the same wrongful act. The blood and “next-of-kin” bond with those the wealth of whom have been put in a Manager’s hands, creates, somehow, a type of a personal charge that does not exist in concerns managed by people who do not have such relationship. As we know, a court of law, looking into a matter brought to its attention, may very well award damages to the Family resulting from the misperformance of a Manager. In the event of criminal wrongdoings, such member may, in addition to the payment of a monetary fine, be sentenced to confinement in jail.
  • Disputes with a Managing Family Member: Is a dispute that arises between a Family member, who holds an executive function in the Family Office, or in any other concern owned or controlled by the Family, and the managed entity considered a Family dispute? There are two possible ways to look at this intricate matter, which occurs quite frequently in Families, let alone in Family businesses. If we consider the dispute as a Family dispute, in some cases, other Family members may take sides and support the Manager whose performance is being questioned, against other Family members who challenge such performance. Some of these disputes end up creating cleavages among Family members, and may result in deadlocks that are detrimental to the Family business and could threaten its continuity. The more reasonable approach could be to consider the dispute as being simply a professional dispute; the route cause behind it should be assessed in an objective way, as if the Manager in question was a total stranger to the Family. A common wrongful act by Family Office executives, who are members of the Family, is what we refer to in corporate law as “self-dealing”. This type of dealing consists of the Manager causing the Family business to transact with a related party, thus creating a conflict between the interest of the Family and the personal interest of the Manager. A typical illustration of this conflict is when a Manager reaps financial, or reputational benefits, on the account of the Family business and, consequently, the Family members.

Family Finances

The Family Charter provides also for the management of Family funds, as well as for the rules governing their spending and distribution. The Family Board sets the strategies for the achievement of the Family financial objectives within guidelines normally set by the Family. It also provides for the regular financial reporting to g members (annual, quarterly, monthly). This reporting helps keep all Family members abreast of the performance of Family liquid and non-liquid assets and help them plan their own individual finances and investments.

Settlement of Family Disputes

Disputes among Family members are inevitable, especially when they share the ownership, and/or participate in the management, of a Family business. A well thought Charter addresses all possible controversial issues that may arise within the Family and is, in this respect, a mitigator of Family disputes, and a reducer of their frequency. It helps settle such disputes to a large extent. These disputes normally arise as a result of unclear situations. All members of a Family may not agree on the way profits realized by the Family are to be disposed of.

A Family Charter usually addresses financial matters, such as the acquisition and preservation of valuable assets, the maximization of the return of such assets. If the management and disposal of these assets are regulated, the occurrence of disputes over them is automatically reduced. Having said that, neither a Family Charter nor any other type of documents may prevent or help avoid acute Family disputes.

It is only the will and determination of at least one, or one clan, or one branch of the Family members who are in dispute, that are likely to minimize the adverse consequences of the non-settlement of the disputes, not only between or among them, but mainly on the Family as a whole. This may require concessions to be made. These concessions will prove to be precious gifts to the Family.

The Charter sets out a whole procedure for the settlement of the Family disputes: how to initiate the process? Who, or which body, to submit the disputes to? Arbitration by an arbitration panel? Private arbitration? Or, in a worst case, litigation before a specific court? https://lb.linkedin.com/in/saba-zreik-13122a18

family business

Saba Zreik

Manal Consultancy

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How is a Family Charter drafted?

How is a Family Charter drafted?

Drafting a Family Charter

The drafting of a Family Charter is not a difficult task, as long as its author is fully aware of what to provide in it.

The best Family Charters are those that the largest number possible of Family members contributes to. Participating in the drafting of a Family Charter, or contributing to its contents, is an important step that is indicative that the participant, or contributor and, of course, all Family members who sign it off have the intention to abide by its provisions.

The Charter is the baby of those who bring it to life. They will cherish it. The best way to tackle this task is to select, from the items addressed in the above sections, and other items that are of relevance or concern to the Family, those to be dealt with in the Charter.

The first draft of the Charter shall consist of provisions to be submitted to the Family members and circulated to all of them, through the “head” of the Family, or its patriarch, or through any other member who launches this project, if a different person. The initiator shall preferably own the assignment to manage the whole process, unless another person is found to be more appropriate to assume this task.

Once all comments are received, a second draft may be generated and circulated, in anticipation of a meeting to which the largest possible number of Family members will be invited to attend, in order to sign off the execution copy of the Charter; if there is no final agreement, many subsequent drafts may be required in order to reach a real consensus.

All discussion sessions are supposed to be open ones; each attending Family member being allowed to bring in new ideas and raise issues, opinions, concerns etc. The person leading the discussions about the Charter should always keep the participants in focus and aligned, to the extent possible, with the interests of the Family in mind.

The main objective of the Charter is to set a roadmap, not only for the existing and participating, or even non-participating, Family members, but more importantly for the future of the Family and those of its future members who are not born yet.

Family members should be allowed and even encouraged, if they so wish, to seek outside professional advice on any particular matter to be dealt with in the Charter. While the size or length of a Charter does not necessarily suggest the weight that such Charter carries in terms of clarity, we believe that a great deal of details ought to be included in a Charter to make sure it is comprehensive enough and does address all concerns.

Amending a Family Charter

Family Charters are not set in stone and need to be looked at as living frameworks, to be updated, as and when appropriate. While they may stay with the Family for many years to come, a great number of the variables that they will have been drafted under or along are doomed to change over the years.

These relate to the evolution that the world and the Family, invariably and continuously, witnesses. These variables affect the regulations and laws, societies and social units with what it entails in repercussions on the Families and their businesses. Family Charters have to follow. This is why the drafting of the Family Charter ought to adopt great flexibility in order to avoid any deadlocks in their implementation or amendment.

Withdrawing from a Family Charter

There are various reasons for leaving the Family business. The most common one being the wish to be independent, using his/her share of the Family wealth to create and develop own business. There are other reasons such as disagreements with Family members, or with the way the Family Office is being managed, or the Family wealth invested

One other reason is the ipso facto retirement resulting from the death of a Family member and the unwillingness of his/her heirs to continue in the Family business, or to join the Family Charter, and this even if the latter does provide for such situations. The real question is, since getting out of a Family charter does not mean getting out of a Family, the conduct of which the Charter is supposed to govern, can a Charter be still enforced on the retiring member?

The simplest answers is that all provisions of the Charter, which are of a monetary nature, such as investment and divestment of Family funds and distribution of Family funds, should remain in full force and effect vis-à-vis the retiring Family member.

The only exception will be in the event, by mutual consent, or by application of the Charter itself or similar document/agreement to the same effect, the assets attributable to the retiring member are automatically liquidated. As for the non-monetary provisions, I do not believe that they can be enforced on the retiring Family member. In all events, it will be wise, if not already included in the Charter, to regulate a Family member’s retirement in an addendum to it. https://www.linkedin.com/in/saba-zreik-13122a18/?originalSubdomain=lb

family business

Saba Zreik

Manal Consultancy

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How to select your Multi-Family Office

How to select your Multi-Family Office

The constantly increasing number of wealthy families has, over the past years, had a strong effect on demand for wealth management services like Multi-Family Offices. Ever more wealthy business owners and families that have sold their businesses are considering a family office to support them with their wealth management, instead of standard wealth management services.

What is a Family Office?

A family office is normally set up as a privately-owned legal entity (or structure) and supports wealthy families with the management, organisation and maintenance of their global wealth. Although a family office can be used or established anywhere in the world, you will find them primarily in Europe (mainly in Switzerland, Monaco, Luxembourg and London) and the United States. Families can decide to set up their own single-family office (SFO), or make use of a multi-family office (MFO):

  • An SFO supports only one family, its legal structure is owned (or at least controlled) by that family and its services are made to measure to meet the needs of that family;
  • An MFO comes in all sizes, serving any number of families, ranging from only a couple to over a hundred. The legal structure is in most cases owned by the partners who manage the MFO, and it is also they who decide which services the MFO offers.

As an SFO is not economically feasible for most families, the majority of families end up opting for MFO services. Generally it can be said that for an SFO to be viable, family assets totalling at least $ 200,000,000 are required.

Recent trends for multi-family office services

As demand for MFO services increases, it could easily be concluded that the growth of the MFO industry is the automatic result of that; however, the supply side of this development should not be underestimated. Due to, amongst others, regulatory developments, the consolidation of the private banking industry, overall cost pressures on wealth managers and the “general hype” around MFO services over the last years, quite a few providers are entering or have already entered the MFO market with the aim of getting in on the action. So it is clearly not only demand but also supply that is feeding this trend.

While a large number of providers is generally considered a good thing in a free-market economy, given that this generates a variety of benefits – such as decreasing prices and a more competitive choice for consumers – the same does not automatically apply to the MFO industry.

What range of services is offered by a multi-family office?

There is no industry standard for what range of services an MFO should offer, and most MFOs tend to operate discreetly, off the high street, without giving an insight into their activities and what they actually offer clients. Moreover, the use of the term “family office” is, in almost all jurisdictions, neither regulated nor supervised, and even when it is, only lightly. Lastly, MFOs originate from very diverse backgrounds and tend to offer completely different ranges of services as a result.

Most MFOs only provide a small core of services in-house and coordinate a small number of other services on your behalf. Almost no family offices provide a very wide range of services. For these reasons, the MFO industry is very opaque, which is especially problematic for families looking to use MFO services. Or, as it is also sometimes put, “If you’ve seen one family office, you’ve only seen one family office”.

How to select your Multi-Family Office

It is therefore important for families who are considering using an MFO to compare providers carefully. An important starting point in this process is the origin of the MFO and its founders. Although this does not apply to all MFOs, the majority of them tend to focus on one or a limited number of services, which are closely related to the background of the founders. When the needs of the family are as closely related as possible to the main competencies of the MFO’s founders, the chances of a successful relationship are at its highest.

In this respect, several main types of providers can be defined:

  • Former wealth managers. This type of MFO focuses primarily on asset management, asset allocation, consolidated reporting, risk management and managing relationships with banks. These are often established by a small number of former bankers, and more recently there have even been smaller private banks repositioning themselves as MFOs.
  • Law firms/lawyers. Generally, these focus on estate planning, succession planning, family governance and a wide range of legal issues. Their services are often also related to the structure of the family business. Asset management is mostly outsourced, but monitoring of banks and provision of consolidated financial statements is regularly provided in-house.
  • Tax consultants/tax lawyers/accountancy firms. These focus on tax-efficient structuring, establishing and managing international structures for family businesses and real estate, international relocation, estate and succession planning, and audit and administration. Asset management is mostly outsourced, but monitoring of banks and provision of consolidated financial statements is mostly provided in-house.
  • Private banks or MFOs owned by private banks. These have a strong focus on asset allocation and asset management.
  • Trust providers/trustees. These focus primarily on setting up and administering structures such as trusts, foundations and holding companies, and providing audit and administrative services; some of these MFOs also focus on issues related to yachts and aircraft. Asset management is mostly outsourced, but the monitoring of banks and provision of consolidated financial statements is almost always provided in-house.
  • A Single-Family Office opening up for other clients. This is a difficult category to define, as the services offered are often closely related to the original needs of the founding family. Most of them have a focus on asset management, consolidated reporting and risk management, combined with a limited number of other activities, such as real-estate or private equity investments.
  • Others. The final small but broad category, which includes MFOs founded by real-estate or private equity experts, asset allocation experts, former investment bankers, or for example, by people with a focus on lifestyle management.

What questions to ask when selecting a multi-family office

As every wealthy family has distinct needs, families should carry out proper research on the providers they visit and ask the right questions to get the necessary insight into what they are offering. Otherwise, there is a significant chance that, further down the line, they will not be satisfied with the services their MFO of choice is providing them with. In another article we will deal with some of the practical questions that families should ask when searching for the right MFO. https://ch.linkedin.com/in/jan-van-bueren-0a522111

Declaration of foreign assets and income in Belgium

Declaration of foreign assets and income in Belgium

Already since tax year 1997, Belgian tax resident individuals have to declare the existence of foreign assets/accounts they hold with banks abroad. This declaration of foreign assets is to be made in the annual income tax declaration. This means that taxpayers have to “tick the box” to confirm that they hold a bank account abroad and that they have to mention the country where the bank account is held.

The tax administration can (subsequently) ask the taxpayer to provide her with all tax relevant information in relation to the declared bank account(s), allowing her to determine the amount of taxable income received on that bank account.

Declaration of foreign assets and income in Belgium

In practice, this legal obligation is not always known to Belgian resident individuals. Moreover, individuals who (recently) immigrated to Belgium in the past years are hardly ever aware of the compliance measure, while in particular these persons often hold bank accounts and have foreign assets in different countries following the international nature of their business and the location of their family and possible holiday houses. Nonetheless, these “international” individuals too have to comply with the Belgian reporting duties as soon as they settle as a Belgian tax resident.

The reporting duty applies regardless of the amounts held on the bank account and regardless of the fact whether the account generates income. Thus, also a small account (for instance an account held for the maintenance of the Chalet in Verbier) has to be reported. Self-evidently, the income received on the foreign bank account (i.e. usually dividend and interest income) also has to be declared in the income tax declaration.

Recently, the Belgian legislator moreover created two new legal obligations. Since tax year 2013, the taxpayer has to declare the existence of foreign life-insurance contracts abroad and starting from tax year 2014, the taxpayer will have to declare the existence of so called “private wealth structures” (trusts, foundations, off-shore companies,…) of which he is the founder or beneficiary.

Often the question arises, which legal consequences the taxpayer faces when he does not comply with his reporting duty (duties) and how non-reporting of foreign bank accounts ( and their foreign assets ) can be remedied as soon as the taxpayer becomes aware of the necessity thereof.

In general, non-complying with the reporting duty itself can only lead to an administrative fine of at most EUR 1.250,00. The tax administration may however perceive the non-declaration as a sign of tax evasion. In case foreign movable income has not been declared, the tax administration could claim tax increases up to 200%. When the tax administration retains tax evasion on behalf of the tax payer, the statute of limitations is moreover extended to 7 years. This means that non-declared income received in 2007 can still be taxed by the tax administration in 2014.

When the tax administration considers there is tax evasion on behalf of the taxpayer, she can also transfer the case to the public prosecutor. He could claim a criminal sanction following a violation of the income tax code with fraudulent intent. Moreover, he could claim a money-laundering offence on behalf of the taxpayer. Recent case law of the Belgian Constitutional Court (judgment April 3, 2014) however prohibits the culmination of administrative fines and criminal sanctions in tax cases. Nonetheless, it remains to be seen how the tax administration and the public prosecutor will apply this case law in practice.

Off-course, each individual should have the opportunity to remedy potential tax violations or mistakes for the past. In Belgium, this remedy existed under the form of a separate voluntary disclosure procedure which entered into force with a law of December, 27, 2005 and existed until the end of 2013. A voluntary disclosure demand had to be filed with a separate Voluntary Disclosure Unit.

In this procedure, non-declared income was finally subjected to the normal tax rate (as it should have applied when the income was immediately declared in the annual tax declaration), in some cases increased with an additional tax-fine varying between 5% and 20%, depending on the nature of the income that was declared. Upon payment of the voluntary disclosure imposition, the taxpayer received an attestation granting him tax and criminal immunity.

Since by the end of 2013 the existing voluntary disclosure procedure has been abolished, no special procedure currently exists for the regularization of undeclared assets. This obviously does not mean that the taxpayer should continue non-declaring the existence of his bank account or (movable) income he receives on this account.

First of all, the taxpayer could simply start with declaring the existence of his foreign bank account(s) as from his next tax declaration over tax year 2014. As from declaration, it will no longer be possible to state that the taxpayer wants to hide or conceal these assets to the tax administration. Thus, at least for the future, the taxpayer can no longer be deemed to act in a tax fraudulent way. For the past, it remains to be seen whether the tax administration decides to further investigate the taxpayer. This can never be excluded, but practice shows that declaring the existence of a foreign bank account does not automatically lead to investigative measures.

Besides this approach, the taxpayer can opt to spontaneously contact his local tax administration in order to rectify tax breaches committed in the past. As opposed to the regime under the higher mentioned abolished voluntary disclosure regime, no clear legal basis exists for such approach. The tax administration did confirm this possibility in a tax circular of April, 1, 2010 and continues to allow it in practice. This approach nonetheless entails negotiations with the tax inspector regarding the number of tax years to be rectified, the applicable tax increase, interests for late payment,…and the result may vary depending on the location.

In any event, it is advised that taxpayers who hold undeclared assets on a foreign bank account, seek legal advice in this respect timely. International exchange of banking information is increasing rapidly and Belgium more and more approaches the prosecution of undeclared assets from a criminal point of view. Settling possible tax evasion committed in the past, is moreover necessary in case of further wealth planning of these (foreign) assets and to preclude that heirs or beneficiaries are confronted with a tax or criminal investigation in the future. https://www.tiberghien.com/

family business

Gerd D. Goyvaerts

Tiberghien