What is a trust company?

The trust, a legal instrument to secure the financing granted to companies

The legal regime of the trust (for security trusts on the movable property and real property) is provided for in articles 2011 and following of the law of 19 February 2007. It is important to underline that the reform of 18 December 2008 was decisive. because, through twelve articles, the law clearly specifies the rights of the creditor beneficiary of a trust as well as those of the debtor subject to a procedure of safeguard, recovery or judicial liquidation. 

The trust-trust: the “queen of securities” 
The trust-trust does not have the nickname “Queen of Security” by chance. Its legal force is indeed to be able to organize a transfer in full ownership of the assets that a debtor gives to its creditor as a guarantee of the payment of its debt. In other words, the creditor has a temporary transfer of ownership during the financing period because the assets are intended to reintegrate the debtor’s assets when he will pay his secured debt. 

It is also important to note that these assets transferred in the context of trust are completely out of the debtor’s assets since the debtor’s personal creditors can not apprehend them. These assets do not enter the estate of the trustee, the third owner. 

A very specific tax and accounting regime

The tax and accounting regime of the trust-trust is consistent with the very particular character of this property.
Assets transferred are recognized separately at the beneficiary. Regarding the tax plan, the transaction is neutral and is treated as an infill. The tax regime that applies is similar to that of contributions that are placed under the favorable regime of mergers and similar transactions.

Trust-security: safe and effective to facilitate business financing 
The trust is particularly effective security because it provides creditors who are beneficiaries of a trust with solid protection that is far superior to that provided by the pledge, the pledge or the mortgage. 
Indeed, the creditors benefit from an exclusive right of attribution on the goods transferred as well as on the price of sale of the realized asset in the event of failure of the debtor; they are not part of the creditors’ committees and can not, therefore, be subject to waivers, debt swaps or payment terms exceeding 10 years in the context of a safeguard or recovery plan. In summary, by providing more security for lenders, the trust-trust provides companies with access to financing to meet current cash requirements or to finance special operations. 

The trust, a relevant tool for investments & real estate financing 

In the real estate sector, the trust is an attractive alternative to current legal practices, which for some seem to be too far removed from contemporary economic imperatives. 
Indeed, because of its flexibility and its “permanent” tax system, the fiduciary arrangement is likely to play a big role in the business world in general, and in the real estate sector in particular. 

The management trust in a real estate investment transaction 
The mechanism of the management trust, the purpose of which is to entrust the trustee with the management of property, rights or assets until a date determined by the contract, is frequently used in the context of a transaction. real estate investment, and more specifically in terms of outsourcing. More specifically, in certain specific business sectors (Health, Logistics …), institutions use the management trust to “outsource” their real estate park (s). 
The transaction consists of a transfer of housing stock by the user company, in return for the payment of financial compensation, to a trustee who manages the property on a delegated basis. Because of the tax neutrality of the trust, this transaction can be carried out free of capital gains tax, which is a considerable asset compared to investment transactions carried out more typically in full ownership. 

The trust-trust in the more specific context of real estate financing 
In the context of real estate financing, the trust-trust is also used for guarantee purposes. The mechanism is as follows: the debtor (settlor) transfers ownership of one or more of his assets to the trustee who will be responsible for delivering them to the grantor if he is discharged from his debt or to the creditor in order to clear the guaranteed debt. In other words, a borrower can bring a building as collateral for the financing it contracts. The immovable thus transferred to the trustee’s assets may, if applicable, continue to be used by the borrower (the settlor) by means of a loan agreement. The safety trust, more efficient than the mortgage, makes it easier for businesses to invest. 

Trust inspired by the Anglo-Saxon trust is a relevant tool for investment and real estate financing and a legal instrument to secure the financing granted to companies 

The trust inspired by the Anglo-Saxon trust 

Of Roman origin, the trust is one of the eldest so-called real contracts that can be compared to a deposit agreement. It is aimed either at the management of a patrimony (trust-management) or the guarantee of a debt (trust-security). 
It was in the Middle Ages, especially at the time of the Crusades, that the trust was used to allow the Crusaders to manage their property during their absence. 
In France, the trust was created by Law No. 2007-211 of 19 February 2007. 

Operation of three stakeholders: the settlor, trustee, beneficiary 
– The constituent: any natural or legal person; 
– The trustee: the person who receives and manages the property, rights or security by keeping them out of his patrimony; 
– The beneficiary: it can be a legal entity or a natural person (it can also be the grantor). His identity can be determined upon signature of the trust agreement or can be determined or determined at a later date during the execution of the trust; 
– The third party protector: he is the person who, if the constituent decides his intervention, will be in charge of supervising the proper execution of the fiduciary’s mission. 

The two missions of the trust: the management of a patrimony, the guarantee of a debt 
– The management trust: this transaction consists of transferring property, rights or security to the trustee whose mission is to manage them on behalf of the settlor or a third party beneficiary. The justification for such a transfer lies in the need to entrust the ownership of the assets to a trusted third party according to the needs of the parties to the contract. 
– The trust-trust: it allows a beneficiary (creditor) to obtain the transfer of assets in trust as security for the payment of a debt. The transfer of ownership ensures the beneficiary (creditor) the exclusivity on the value of the transferred assets in case of default of the debtor (constituent). The trustee retains and manages the assets until full repayment and, failing that, executes the security for the benefit of the beneficiary (ies) of the contract. This security mission can, of course, be accompanied by a management mission at the request of the parties. 

The termination of the trust: several possible causes 
A trust contract may end for various causes: 
– the death of the settlor since he is a natural person; 
– the term of the trust agreement; 
– the achievement of the objective (s) pursued; 
– when all the beneficiaries decide to renounce the trust; 
– if the trustee is the subject of liquidation or is prohibited from exercising, a delisting (ex for lawyers); 
– if the trustee is dissolved or is likely to disappear following a merger or absorption. 

Offshore ciitzen.net are at your disposal with help and advice about trust companies.

Russian tax authorities will learn about all the beneficiaries of European companies and trusts

The new tool will allow Russian tax authorities to find out the owners of companies with accounts in Europe

The European Parliament passed amendments to the anti-money laundering legislation last week. The fourth directive obliges each EU country to create a register of final beneficiaries of all companies registered in its territory, including in its offshore jurisdictions. It will contain the names, nationality, and place of permanent residence of the real owners of not only companies but also trusts.

The Netherlands, Luxembourg, Malta, and Cyprus (these countries are often used for the transit of capital flows between Russia and offshore companies) will make appropriate amendments to national laws in two years, in fact, the innovation will take effect from 2017, the website of the European Parliament says.

Quarter disclosure

Last week, the UK passed a law on the disclosure of information on beneficiaries from 2016. The register will include persons owning more than 25% of the company. If the company has four beneficiaries, it is not necessary to enter information about them.

First, unrestricted access to information from their registries will be obtained by law enforcement and government agencies of EU countries, as well as banks and law firms. 

Russian officials will have such an opportunity later, KPMG partner Anna Voronkova says: Russia joined the OECD initiative on the automatic exchange of tax information since 2018 it will technically be able to use the mechanism. Other individuals or organizations will be able to request information if they provide evidence that the beneficiary laundered money, financed terrorism, committed tax or corruption crimes or that he is simply a fraudster. Restrictions may be imposed in exceptional cases to protect the personal data of the owners.

This will be the first centralized beneficiary system in the world, notes Alexander Zakharov from the Paragon Advice Group: “So far there have been no requirements to transfer relevant information about the beneficiaries to government agencies, although banks have such information.” Creating a registry will be a serious risk for those who use transnational tax minimization schemes, says Deputy Head of the Federal Tax Service Daniil Egorov, but these risks materialize in 4–5 years. The new system will allow receiving information about the beneficiaries of trusts, he hopes: trust is not a legal entity, but an agreement, from the promised register it will be possible to learn both about the very existence of the agreement and about its beneficiaries. With such information, it will be possible to verify whether the reduced rates from the agreements on avoidance of double taxation are reasonably applied, Egorov notes.

The Directive concerns only a part of offshore companies – owned by EU members. If the Cyprus company is “a Seychelles Foundation without beneficiaries, who then should be disclosed? After all, the structure in Seychelles will not be affected by this directive, ”asked John Tiner & Partners partner Vladimir Gidirim. The beneficiaries of other offshore companies will also be in the registry, but as beneficiaries of transit companies in the EU, the tax partner of Timmermans & Simons International Business Lawyers is Rustam Vakhitov. Invisible to the new system, you can remain in only one way – not to have companies or bank accounts in Europe, he explains, and this is difficult – 

“Europe goes for legal protection, stability, tax treaties”. The holding company is offshore on about. Cook, who owns Russian assets without interlayers in Europe, – This is a maximum of taxes and serious risks, says Vakhitov. “Disclosure will be everywhere, this is without options,” he sums up.

Singapore may become a replacement for European offshore companies (there is an agreement on avoidance of double taxation with it), says Dmitry Klenov, a partner at UFG Wealth Management. You can find an opaque jurisdiction, but this is a temporary solution, PwC partner Ekaterina Lazorina warns: business with them is too expensive, and information around the world is becoming more and more open. This is a global trend and a new reality, says Voronkova.