Inheritance and Gift Tax Issues with Joint Bank Accounts

Inheritance and Gift Tax Issues with Joint Bank Accounts

Joint bank accounts – Inheritance tax and gift tax issues

Based on law 4916/2022, the exemption from Greek inheritance tax that applied for deposits maintained in joint bank accounts held in Greece was extended also to joint bank accounts held abroad, with the exclusion of non-cooperative tax jurisdictions. The exemption covers accounts in cash deposits and all kinds of securities.

In order for the exemption to apply, the contract with the foreign bank should include a clause providing that after the death of any of the co-beneficiaries of the joint account the deposits are automatically transferred to the other living co-beneficiaries, i.e. without the operation of inheritance rules. It is reminded that the same clause needs to be included in the contract with a Greek bank.

The law provision refers explicitly only to the exemption from inheritance tax and not from gift tax. Therefore, Greek inheritance tax will not be triggered if the co-beneficiary of the joint-bank account withdraws money after the death of the other co-beneficiary, regardless of the subsequent use of that money e.g. for the purchase of real estate or other assets in Greece or abroad.

However, there is a potential risk that the Greek tax authorities may consider, upon a tax audit, that Greek gift tax may potentially be triggered upon either of the following occasions:

  • a) Upon the withdrawal of money from the joint bank account during the other co-beneficiary’s lifetime, in excess of any amounts deposited in the joint bank account by the co-beneficiary withdrawing the money.
  • b) After the death of the other co-beneficiary, upon the future use of said money (again in excess of any amounts deposited in the joint bank account by the co-beneficiary withdrawing the money) e.g. for the purchase of real estate or other assets either in Greece or abroad.

The above risk does not derive explicitly from the law but from tax audit practice or case law.

Greek gift tax may be relevant for foreigners, as it is imposed, among other cases, to any movable property located abroad of a foreign national that is donated to a Greek or foreign national who has his residence in Greece.

It should be highlighted that as of late 2021, a tax-exempt threshold (one-off) of Euros 800,000 applies to the parental gift or the gift to specific categories of close relatives of any asset, as well as the parental gift or the gift of cash to the above persons which is carried out by money transfer through financial institutions. Any excess amount is subject to 10% gift tax. https://www.taxlaw.gr

Natalia Skoulidou specializes in Tax Law and has signification professional experience of 15 years in a broad range of tax areas, with a particular expertise on Greek and EU VAT issues, indirect tax issues, international tax issues and corporate tax and restructuring. She and her team at Iason Skouzos Tax Law are happy to help you with assist you with any legal matters regarding tax or otherwise in Greece and around the world.

Natalia Skoulidou

Natalia Skoulidou

Iason Skouzos Taxlaw

taxlaw.gr

joint bank account

Theodoros I. Skouzos

Iason Skouzos Taxlaw

taxlaw.gr

Tax treatment of dividend in kind in Greece

Tax treatment of dividend in kind in Greece

Recently the dividend in kind has been introduced in the legislative framework of Greek law of Société Anonyme (SA), namely the option that the profits of a company may be distributed in the form of either shares of domestic or foreign listed companies or listed shares owned by the company or any other company asset, apart from cash.However, the Greek Income Tax Code (ITC) does not explicitly refer to the case of distribution of dividends in kind or its taxation.

Greek tax perspective of dividend in kind

The definition of “dividends”, as per article 36 of the Greek ITC includes any income deriving from shares, securities or other types of rights in the participation of profits that do not constitute claims from debts, as well as any income from other corporate rights such as parts, including pre-dividends and numerical reserves, participations in profits of personal companies, distributions of profits from any type of legal entity as well as any similar distributed amount.

The distribution of dividends in kind is explicitly provided by article 161 par. 4 of L. 4548/18 (which is the updated/recent legislative framework for Greek SAs).

Taking into account the existence of the notion of the dividend in kind within the regulatory legal framework, and the absence of any explicit provisions in the taxation framework (e.g. any provision stipulating a special tax treatment), it could be supported that the regular tax treatment of dividends would similarly apply also to dividends in kind (provided they indeed qualify as dividends and this can be substantiated) i.e. in the case of dividends received by individuals, the application of a 5% income tax that exhausts the Greek tax liability.

Further to the above, for the determination of the tax base, there may be a need to determine/evidence, with a valuation, the fair market value of the dividend in kind. In the case of shares being the in-kind dividend, then there would need to be a valuation of such underlying shares, whereas in the case of listed shares their value could potentially be more easily determined on the basis of their market price at disposal.

A similar approach is followed for the in-kind distribution of assets to the shareholders upon the liquidation of a company (e.g. of shares and securities, real estate property etc.), which is also treated as a dividend, to the extent it exceeds the capital that has been contributed by the shareholder, and in which case a valuation is required to determine the fair market value for purposes of determining the taxable value.

Tax credit is applicable to the foreign tax

Moreover, according to article 9 of the Greek Income Tax Code and the relevant provision of the Double Tax Treaty in place (where applicable), the foreign tax is credited against the Greek tax liability on the same income and up to the amount of the Greek tax on that income.

Regarding the possibility of a tax credit being given in Greece not only for the foreign tax imposed on the distributed dividend but also for the foreign corporate income tax imposed on the profits that correspond to the distributed dividend, where the applicable Double Tax Treaty explicitly provides for such a clause, the following are noted:

Documentation required by the Greek tax authorities for the tax credit

According to Circular E. 2018/2019 regarding the tax treatment of dividend income earned by an individual Greek tax resident from a foreign company and the relevant tax credit, it is stipulated that in order to ensure the correct application of the provisions of the DTTs that include such a clause, and in order to indicate in the personal income tax return (E1) the amount of the foreign corporate tax due corresponding to the shareholder and in order for said tax to be credited against the corresponding Greek tax, it is mandatorily required to obtain a certificate from the foreign tax authority which will include the following information:

  • The full details of the legal entity that made the distribution of profits;
  • Certification that the legal entity is a resident of the Contracting State for the purposes of implementing the relevant DTT;
  • The amount of income tax paid in total by the legal entity;
  • The percentage of participation of said shareholder/partner – individual in the share/corporate capital of the legal entity that made the distribution;
  • The amount of the dividend received by the individual and the corresponding corporate tax.

Alternatively, certificates of other public authorities, if they prove the above, even in combination, would be required. Certificates issued by the legal entity itself or by other individuals (certified auditors, accountants or lawyers) are not accepted. https://www.taxlaw.gr/en

 

Natalia Skoulidou specializes in Tax Law and has signification professional experience of 15 years in a broad range of tax areas, with a particular expertise on Greek and EU VAT issues, indirect tax issues, international tax issues and corporate tax and restructuring. She and her team at Iason Skouzos Tax Law are happy to help you with assist you with any legal matters regarding tax or otherwise.

Natalia Skoulidou

Natalia Skoulidou

Iason Skouzos Taxlaw

taxlaw.gr

Natalia Skoulidou

Theodoros Skouzos

Iason Skouzos Taxlaw

taxlaw.gr

Gift tax in Denmark – when and how much?

Gift tax in Denmark – when and how much?

Gift tax in Denmark

If a parent/grandparent donates an asset (cash, shares etc.) to his/her child/grandchild, the Danish rules on gift tax apply if either the donor or donee has jurisdiction in Denmark at the time of the donation. A person has jurisdiction in Denmark if he/she is a resident in Denmark at the time of the gift being given.

Parents/grandparents are entitled to donate tax-free gifts to their children/grandchildren, provided that the total value within any one calendar year does not exceed a basic amount of DKK 69,500 per parent/grandparent (2022).

A 15 % gift tax is payable on gifts exceeding the basic amount. Tax is consequently paid on the value of the gift which exceeds the tax-free basic amount.

A donation exceeding the basic amount must be reported and is subject to control by the Danish Tax Authorities. While it is easy to determine the value of a cash donation or shares in a listed company, the valuation of shares in an unlisted company, which is the case for most family businesses, can be trickier. Therefore, in such cases families must pay careful attention and consideration to the valuation of the gift when reporting to the Danish Tax Authorities.

A way of mitigating the risk of a higher valuation by the Danish Tax Authorities, and thus an increased tax, is to add a revocation/correction clause to the donation. This allows for the parties to either revoke the gift completely or alter the conditions, and hereby eliminate/reduce the increased tax.

Such a revocation/correction clause must comply with certain conditions to be deemed valid and applicable by the Danish Tax Authorities.The time limit for reporting and paying the tax to the Danish Tax Authorities is 1 May in the year after the donation. If the gift tax is reported and/or paid too late, interest becomes payable.

As a general rule, gift tax that has been paid abroad will be credited and thus reduce the payable amount in Denmark. Both the donor and donee are liable for the tax to be paid. If the donor pays the tax, this payment does not constitute a further taxable gift.

In summary, it is highly recommendable with timely and appropriate planning before a donation is made from a parent (grandparent) to a child (grandchild) to avoid unpleasant surprises – especially if either one of them is resident in Denmark.

Björn Brügger is a Danish attorney at law and Senior Associate with Bech–Bruun Law Firm in Copenhagen and Aarhus. He specializes in estate planning advice regarding family-owned enterprises and assets as well as private client matters (e.g. marriage contracts, wills and enduring powers of attorney) and is part of Bech–Bruun‘s Family Business Succession Group and Private Client Group.

joint bank account

Björn Brügger

BechBruun
Tax planning and moving to Canada

Tax planning and moving to Canada

The Importance of Tax Planning when moving to Canada

For anyone planning to immigrate to Canada, or former Canadian residents preparing to return after a period of non-residency, it is worth taking the time to do some pre-immigration tax planning. It may well be that the Canadian tax environment is a lot more aggressive than where you’re coming from. If you wait until after you arrive to start arranging your affairs, it will be too late. Each personal or family situation will be unique and will benefit from bespoke professional advice, but this note will outline a few things that a prospective new/returning Canadian should bear in mind before making their move.

Canada imposes tax on the basis of residency, so once you become a Canadian resident you will be subject to Canadian taxation on your worldwide income, including foreign investments, foreign trusts, foreign rental properties, proceeds of the sale of foreign properties, and any other income from any source, anywhere in the world.  Foreign tax credits may apply to reduce your Canadian tax burden to some extent on foreign sources of income to avoid “double” tax on such amounts.

The Canada Revenue Agency (CRA) actively investigates foreign income and has information exchange treaties with many other countries (including automatic exchange of information treaties that provide for easy, fast, automated sharing), so your assumption should be that the CRA will be able to find or verify any foreign income you may have. It is your responsibility under Canadian law to voluntarily report it – if the CRA has to seek it out, you will be subject to interest and penalties.

Certain income earned before you arrive in Canada, but which you receive after you arrive (i.e., become “resident” in Canada) are taxed in Canada, so make sure you receive as much income as possible prior to your arrival and do not leave amounts accrued and unpaid.

The deemed tax cost (i.e., the adjusted cost base) of your capital assets (worldwide) for Canadian tax purposes will be their fair market value as of the date you become a Canadian resident. This is a benefit because when you dispose of any such assets, you pay tax only on the capital appreciation over and above the adjusted cost base of the asset, so the higher it can be, the better. You should obtain third-party valuations of your material capital assets shortly before or after you become a resident and keep this information on file, as you will need it.

Consider arranging for the establishment of one or more trusts which can help reduce your Canadian tax burden during life and upon succession. Canadian tax laws apply various so-called attribution rules and deemed residency rules for non-Canadian trusts, which operate to severely restrict offshore planning opportunities. Other rules do the same for corporate entities that hold property for a Canadian resident (attributing passive income directly to the individual shareholder). There is greater opportunity to implement effective structures without falling afoul of these rules prior to becoming a Canadian resident.

The same is true of a restructuring of existing trusts, that will become Canadian resident trusts when you move to Canada. The rules are complex and professional advice is necessary before attempting to implement any structures or changes.  The consequences of poor planning can be disastrous from a tax perspective, and such consequences are often avoidable.

Note in particular that even some actions taken prior to residency will come under the scrutiny of the CRA. For instance, if a foreign trust has been settled, or contributed to within the 5-year period prior to Canadian residency, the trust could be deemed to be Canadian resident, including retroactively to the time of the contribution. It depends on who made the contributions and how.

For trusts which do become Canadian resident when you do, note that those trusts will be taxable from January 1 of that year (even if you only became resident later in the year). If you can arrange for those trusts to receive payments prior to January 1 of the year you will become a Canadian resident, you should do that (such as paying out dividends to the trust on shares it holds).

Where a Canadian resident is a beneficiary of an offshore trust, and if the trust has been established in a manner that successfully avoids application of the Canadian attribution or deemed trust residency rules, it is possible to receive payments from such trusts on a tax-free basis. To achieve this, payments need to be made out of trust capital, not income, but this is not difficult to arrange with trusts that are established in jurisdictions that do not impose income tax on trusts. Such payments still need to be reported to the CRA as income received from a foreign trust on form T1142, but Canadian income tax is not payable on such amounts.

Even after Canadian residency is obtained, there remains many very good tax and non-tax reasons to make use of trusts in estate and succession planning, and they remain a central tool to the Canadian wealth planning community. However, there are unique and potentially very beneficial opportunities available to non-residents; be sure to take full advantage of them. http://www.afridi-angell.com

joint bank account

James Bowden

Afridi & Angell
Trusts and the importance of discretion

Trusts and the importance of discretion

Controlling your Trust – A Matter of Some Discretion

Two common reasons for the use of trusts in estate planning are to achieve tax efficiencies and to protect assets from potential creditors and claims.  These are by no means the only reasons that trusts are utilized, but they are important benefits and are sometimes the primary focus of trust structure.  Generally speaking, trusts that provide tax and asset protection benefits need to be structured so as to grant the trustees very wide discretion as to when distributions are to be made, to which beneficiaries, in what amounts, and in which circumstances.

The language used in trust deeds usually gives trustees “absolute discretion” or “unfettered discretion” or similar.  Consider the following two examples of why discretion is important:

  • Example A (tax efficiency):  If a family trust is established with many family members as potential beneficiaries (e.g., “all of my issue”, which would include children, grandchildren, and you may include corporations owned by them, etc.), one of the goals of the trust is probably to take advantage of income splitting opportunities among the beneficiaries.  The trustee needs to be able to assess the individual tax brackets of the beneficiaries so they can “income sprinkle” across the beneficiaries in a tax efficient manner.  If the beneficiaries had fixed entitlements to a specified proportion of trust income or capital, the trustees could not achieve a tax efficient result.  Thus, discretion is needed.
  • Example B (asset protection):  Consider the same example again, but this time one of the beneficiaries has been successfully sued and his/her assets are subject to attachment by the judgment creditor.  If the beneficiary has a fixed entitlement under the terms of the trust, the creditors will be able to attach that interest as well and that beneficiary’s interest is effectively lost.  If the beneficiary’s entitlements are entirely subject to the trustee’s discretion, then the beneficiary has no vested interest at all unless and until the trustee declares each new distribution.  The trustee can confirm before making a distribution whether any beneficiary is subject to creditor claims, and if so, it can exercise its discretion in favour of another beneficiary (or none at all), until the claims are dealt with, keeping the trust assets out of the creditor’s hands.  Accordingly, discretion is again an essential component. [For asset protection trusts, note that it is important that the beneficiary whose interest is being protected is not also the sole trustee (or ideally even one of multiple trustees), as a court may order the beneficiary/trustee to exercise its control over the trust to satisfy the creditor’s claim.  The beneficiary must not have any control over trust decisions.]

With the necessity for a trustee to be granted such broad discretion, the question is often asked:  how do you know the trustee is going to exercise its discretion in the manner you would have intended?  There are essentially three approaches available:  include terms in the trust instrument itself, issue a letter of wishes, and/or the appointment of trust “protectors”.  We will briefly discuss each in turn.

  1. Terms of the Trust Deed Some terms can be included in the trust deed itself without unduly constraining the trustee’s discretion.  These may include directions to the trustee not to make distributions to beneficiaries whose assets are subject to attachment; or a term which excludes the trust property from any beneficiary’s net family property to help protect it from being included in equalization payments upon marriage breakdown; or even a direction that requires certain minimum payments or expenses to be paid out of the trust so that the broad discretion only applies to the funds remaining after that. 

    A trust deed is a very flexible instrument and can be prepared with as many, or as few, specific constraints on a trustee as desired.  However, for the most part, if tax and asset protection benefits are to be maintained, the hard constraints need to be kept to a minimum.  It is more common to do the opposite; that is, explicitly oust duties that trustees would otherwise have as a matter of law that would potentially constrain them.

  2. Letter of Wishes A letter of wishes is separate from the trust deed and is just what its name suggests:  a letter from the settlor to the trustee setting out guidance for the trustee as to how the settlor wishes the trustee to exercise its discretion.  The trustee is not legally bound by the letter of wishes, but in practice trustees do give effect to them, and if a beneficiary challenges the trustee’s choices a court will take letters of wishes into account as relevant context.  Letters of wishes are sometimes very brief and provide simply that the trustees should take into account the views of another person when exercising their discretion (and that person is sometimes the settlor).

    This is a potentially acceptable approach in the short term, but it has its drawbacks:  a court may find that the settlor is the person who is “in fact” making trust decisions as a de facto trustee, a finding that would almost certainly have detrimental consequences for any plan for which the trust was needed; and, upon the settlor’s death (or to whomever the letter of wishes referred), the settlor obviously then loses whatever influence he/she had.  Thoughtful, detailed, foresightful letters of wishes are strongly recommended.  Note that the trust deed should oust any default duties that trustees must comply with as a matter of law which may prevent compliance with a letter of wishes (the obligation to treat all beneficiaries equally, for example, should be ousted in the trust deed, along with others).

  3. Appointing a Protector Finally, there is the role of the trust “protector”.  A protector is someone (or multiple persons) who is granted a number of key powers in the trust deed, but who is not a trustee and, typically, has no fiduciary duties to beneficiaries. [The issue of whether a protector does have, or should have, fiduciary obligations to beneficiaries similar to the obligations of trustees is an unresolved issue in Canadian law.  Care should be taken to specify the settlor’s intent in the trust deed as to the duties expected of a protector.] They are supposed to provide oversight of trust administration and decision making from the perspective of someone close to the settlor who presumably knows what the settlor would have wanted.  Protectors are often granted powers to approve certain decisions of the trustees, to veto certain decisions, to remove and replace the trustee, or to terminate the trust, among other key powers.

    The protector provides a significant check on trustee discretion.  The choice of protector is therefore important:  not only should the protector be someone close to you and who understands your wishes, they should be trustworthy and reliable, and without a conflict of interest (e.g., a beneficiary, or a spouse of a beneficiary).  Care must be taken so as not to usurp the role of the trustees altogether, either in the trust deed or in practice, or there will be a risk that the protector will be found to be the de facto trustee, with potentially disastrous consequences. [Garron Family Trust v. Her Majesty the Queen (2012 SCC 14) is the leading case in Canada on trust residency.  In that case, the courts “looked through” the exercise of powers by a protector, where the protector was in turn subject to replacement by the beneficiaries, and this was one of the reasons that court found that the beneficiaries were effectively functioning as the trust decision makers, with negative consequences for the trust in that case.]

In addition to the above, where a trust is created as part of a plan intended to have specific tax consequences, it is common for trustees to obtain professional advice before making a distribution, to ensure that it is being made in a manner that will not upset the plan.  This is not a limit on the discretion of the trustees, per se, but it does function as one.  Sometimes, detailed tax-driven instructions are provided to the trustees by professional advisors when the trust is created, setting out guidelines for how distributions are to be made, when, and also to whom they must not be made.  Such advice has similar status to a letter of wishes, but is arguably even more likely to be adhered to as the trustees will not wish to be responsible for triggering negative tax consequences in the face of having received such advice.

The above tools to control the discretion of a trustee are very useful, but they still leave some discretion to the trustee, which is unavoidable if the structure is to be robust enough to withstand a challenge by tax authorities or disgruntled beneficiaries. [This note focussed on trustee discretion with respect to distributions of trust income and capital.  It is important to bear in mind that a trustee’s discretion with respect to managing the trust’s investments can be controlled as well, to a greater degree of certainty and detail than controlling discretion as to distributions.] On a practical level, these tools are quite effective as professional trustees are motivated to serve their clients (i.e., settlors) as best they can, and to avoid litigation that may arise from ignoring letters of wishes, or professional advice, or contravening a protector’s decision.

Source

If you have questions about whether a trust may be suitable for you, please contact us and we will be happy to help.

joint bank account

James Bowden

Afridi & Angell