Vanity Fair is an unlikely source of interest for people whose minds turn more often to trusts than trust fund babes. However, a line in Vanity Fair’s recent interview with Ned Lambton, the seventh Earl of Durham, after whose ancestor Wellington’s Lambton Quay was named (the first New Zealand connection), warrants further consideration.
Discussing his sisters’ claims against the trust of which he is a beneficiary, he advises that “I am a beneficiary of this trust and run the [trustee] company on its behalf”. Whether or not that is in fact the case remains to be seen. However, presuming that this is the case – while such a degree of control can be damaging from a trust law perspective – spectres of sham looming – from a tax law perspective the situation is particularly dire.
This is because the trust, of which the fortunate peer is a beneficiary (the trust’s assets including the historic and particularly desirable Villa Cetinale in Tuscany) has a New Zealand resident trustee company. A trust that has never had a resident settlor is a foreign trust for New Zealand tax purposes, despite the fact that the trustee is resident in New Zealand. Foreign trusts do not pay income tax in New Zealand if there is no New Zealand source income and no resident settlor (or beneficiaries) at the time of a distribution. However, that is only the New Zealand position – and it is important at this juncture to appreciate that New Zealand, unlike the majority of the world, determines trust jurisdiction by reference to the settlor, not the trustee as is more commonly the case. For example a trust is deemed to be resident in Italy if its registered office, its place of effective management or its place of main activity is in Italy for the majority of the fiscal year.
Let’s go back to that trustee company, Cetinale Limited, the control of which we are so interested in. The company is incorporated in New Zealand and, for that reason, in the first instance is tax resident in New Zealand. New Zealand, like many jurisdictions, also treats a company as being tax resident if it is controlled from New Zealand. A search of the Companies Office shows that Cetinale Limited has two directors, one resident in New Zealand and the other whose address is stated as being in Uruguay. Additional reporting of the Vanity Fair story suggests that the director with the Uruguay address also spends time in Argentina. So now we have a company that we are told is controlled from Italy, is incorporated in New Zealand, and perhaps is also managed from Uruguay or Argentina. So where then is the trust resident? None of this changes its status as a New Zealand foreign trust (if that is indeed what it is), but what it does raise is the possibility that the trust could have other tax residences too.