Developments in the Vintage Wine Market Oct, 2018

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2018 is turning out to be a very positive year for the vintage wine market with the combination of a broad strengthening of prices, a couple of stunning surprises from recent auctions and a good yielding but high quality harvest.

In France, the 2018 vintage will be a great one in many regions, with the exception of areas which were devastated by hail storms in late May.   Some Bordeaux winemakers are already talking about 2018 being the vintage of a lifetime.  Italy, Spain and Portugal overall had mixed results – an excessively wet spring and very high temperatures during the growing season.

There has been much excitement in the auction market and Burgundy wines have been the undisputed stars.  Two headline auctions took place: Henri Jayer’s sale of his personal cellar in Switzerland in June and the Drouhin family cellars of Domaine de la Romanée-Conti (DRC) in October.   The Jayer collection was comprised of 855 bottles and 209 magnums and sold for US$ 35 million, or an average price of US$ 33,000 per bottle.   Not to be outdone, two bottles of 1945 DRC were  sold in NYC last month for a combined amount of more than US$ 1 million.

The star status of Burgundy wines continues to spill into the general vintage wine market.   However, it should be clearly noted that while the broad vintage wine market is enjoying strengthening pricing, Bordeaux looks to be a laggard after having had a preeminence status for many years.

Below are the returns of various vintage wine indices for the 12 months to end of Oct 2018:

  • Liv-ex 1000   (comprised of 1000 wines from around the world)       +10.4%
  • Liv-ex 50    (comprises the latest 10 vintages of the 5 Bordeaux First Growths)       +1.4%
  • Liv-ex Burgundy 150  (comprises the latest 10 vintages of 15 Burgundy wines incl. 6 Domaine de la Romanée Conti)   + 31.5%

Strong interest in Italian Barolo wine and broad based Burgundies has been a strong support for better pricing in the wider vintage market.

Looking ahead, there are reasons to expect continued stronger prices for leading Burgundy producers other than DRC and Jayer.   Scarcity of Burgundy is a simple fact that we will address in further details in our next update.


Canadian Real Estate Market Update 2018 Q2

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In Q2 of 2018 we saw the condominium market across the major cities continue to flourish, as well as townhomes starting to prosper.  Single detached market prices are experiencing year-on-year declines in Toronto and Vancouver; however, they are soaring in other major markets.  Overall, Q2 saw an increase in prices and sales compared to Q1 of this year


Compared to Q1 of this year, Vancouver’s single detached market prices decreased 2.2% but experienced an increase of 3.1% in condo prices and an increase of 2.7% in townhome prices.  This same trend is reflected in the year-on-year (YoY) prices as single detached home prices decreased 1% YoY, while condo and townhome prices rose 18% and 14% respectively.   The areas which underwent the greatest growth were West Vancouver for condos, Vancouver East for townhomes, and North Vancouver for single detached homes.  Vancouver is currently a seller’s market for condos and townhomes; however, it is a buyer’s market for single detached homes as they are selling below asking price.


The Toronto market grew in all sectors in Q2 compared to Q1, but prices YoY were not as positive.   Compared to Q1, single detached home prices grew 18%, condos grew 13%, and town homes increased 23%.  However, YoY prices saw single detached home prices decreasing 8%, townhomes decreasing 2%, but condos increasing 6%.  As the condo and townhome markets continue to be very active, it is no surprise listings have increased in both markets.   Conversely, listings for single detached homes increased only 1%, reflecting the stagnant market.  The biggest growth in Q2 for single detached homes was Toronto West, Toronto East for condominiums, and Toronto Central for townhomes.

In Q2 Montreal’s real estate market continued its hot streak and has seen price increases both compared to Q1 2018 and YoY.   Single detached homes, condos, plexes grew YoY 9%, 7% and 8% respectively.  Compared to Q1, condos grew the most at 8%, single detached at 4%, and plexes at 1.1%.  An interesting statistic to note is the number of listings for condos decreased 9% between Q1 and Q2.  With sales increasing 21% and listings decreasing during the same period, condo prices will continue to grow as there will be lower supply and higher demand.

Victoria and Whistler both experienced growth in all sectors of the market.  Victoria’s YoY growth increased 9% for single detached, 17% for condos, and 8% for townhomes.  Whilst, Whistler experienced a greater YoY growth as single detached, condos, and townhomes are increased 15%, 33% and 32% respectively.   Compared to Q1, prices for Victoria in all markets grew by 4%, whereas Whistler’s single detached market grew 1%, condo by 8% and townhomes by 12%.

Tax Changes Impacting Ownership of UK Residential Property

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There has been a flurry of changes to UK tax laws that, along with additional proposed changes, significantly impact the ownership of UK residential property through off-shore structures.

The tax exposure of UK non-residents owning UK real estate depends, in part, upon how it is held. Its use remains relevant but will become less so as some exemptions for commercial or investment properties are phased out.  As a result, offshore ownership structures may need to be revisited, if you have not done so already.

Non-Doms and Inheritance Tax (IHT)

UK property owners often used offshore companies to hold property to avoid IHT (amongst other purposes). This may have been advantageous even if it meant losing the principal residence exemption under CGT on sale.  Shares of offshore companies are not caught within the UK’s IHT regime unless the owner is (or is deemed) domiciled in the UK.  [UK domiciles are subject to IHT on their worldwide assets.]

In addition, transfers of shares avoided the stamp duties (SDLT) normally charged on property transfers.[i]

A 3% SDLT surcharge now applies where the buyer owns another residence, including residences outside of the UK. But the surcharge will also apply, even in the case of a first residence, where it is purchased through a company or discretionary trust.

Similarly, individuals that were resident in the UK, but treated as “non-domiciled”, could avoid IHT for certain properties if the settlement of a trust had been properly completed before the individual became UK resident.

Starting in 2017, excluded property trusts will no longer effectively shield a residential holder of UK real estate from IHT because shares of offshore companies that own UK real estate will no longer be considered excluded property.

Additional IHT taxes might also apply on a periodic basis prior to death in certain circumstances. Mortgages on UK property could now be exposed to IHT or be unavailable to reduce IHT liabilities.

In addition, tax changes effective in 2017 shorten the time during which long-term residents will not be deemed to be domiciled for IHT purposes and will treat individuals born in the UK as domiciled as soon as they become resident in the UK, even if they had acquired a new domicile by choice in the interim.

Recent Changes to Capital Gains Tax

UK taxes on capital gains from disposition of property previously applied to i) residents and ii) gains connected to UK real estate. This led some to hold UK real estate within offshore structures.

However, starting April 2015, non-residents (including non-resident companies) disposing of UK residential properties became subject to the non-resident CGT regime (costs rebased to April 2015).

The UK intends to apply the CGT regime to sales, occurring after April 2019, of any UK real estate held by non-resident individuals and companies, including commercial property (with perhaps some exemptions for institutional investors). By April 2020, gains on disposition of UK real estate owned by offshore companies may be taxed under the corporate tax regime, rather than under CGT.

In addition, HMRC had seen some push back from the EU on certain taxes imposed when property ownership was exported from the UK.  Following Brexit, some of those relaxations may be repealed.

Annual Tax on Enveloped Dwellings

ATED was introduced in late 2012 to tax offshore entities that hold UK residential property. The legislation addressed a perceived lack of fairness as to how non-Doms and offshore owners of expensive London properties were being treated, vis-à-vis UK residents.[ii]  Investment (or buy to let) properties were initially exempted from the tax.

Offshore companies holding UK residences worth more than £500,000 now pay an annual ATED charge (a sliding scale depending upon value) and will be responsible for a 28% capital gains tax on dispositions (costs were rebased as of April 5, 2013).

Evolving Registration Requirements

Although many of the tax advantages of owning UK property through offshore structures have been eliminated, one of the remaining attractions was enhanced confidentiality.

However, in January the UK clarified rules requiring offshore entities that own UK real estate to complete a public registration. The registration, expected to be in force by early 2021, will likely require the entity to identify its ultimate beneficial owner(s). While the purpose is to address transparency and money-laundering issues, it is consistent with a policy objective to discourage using offshore companies to own UK residential properties.

Additionally, under new rules, non-resident trusts that hold UK assets (or receive UK-sourced income) will need to register. The deadline for registration depends upon the UK taxes that are payable.

As we discussed last year, investors should be aware that the Common Reporting Standard arrangements, by now in place in most countries, will provide tax authorities with considerably more information than they have had previously with respect to financial accounts held offshore.  The first package of account information will be sent by HK authorities to the UK by October this year, for example.

Investors that have implemented wealth planning that uses an offshore structure to hold, or make loans related to, UK real estate that were put into place some time ago should carefully review their plans with their professional advisors. Some flexibility present prior to April 2017 will have been lost by now; but curing structures that create unnecessary exposure may still be advantageous.


[i] SDLT on residences starts at 2% for a cost of £150,000 and increases with cost up to a maximum of 12%.  There is also a 3% surcharge where the buyer already owns other properties.  Where an entity is the buyer, a 15% supercharge may be chargeable.

[ii] UK had started to expand its reach to offshore companies being used to mitigate CGT and IHT in 2008 through a new section 13 charge, attributing what would normally have been offshore capital gains to shareholders of closely held companies on a proportionate basis.  The EU somewhat dialed back the application of this charge on freedom of mobility grounds, in 2013, prompting further legislation from the UK.

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Will Others Adopt Canada’s CRS Fix for Investment Entities?

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When the OECD drafted the Common Reporting Standard and related Commentary it paid special attention to areas that were likely to be exploited by offshore investors trying to avoid reporting. At the same time, it used definitions and constructs that mirrored those employed in FATCA’s Final Regulations where it could.

Type B Investment Entities

Under both regimes, personal holding companies and trusts earning primarily passive income and managed by financial institutions are themselves classified as financial institutions, as a (type b) Investment Entity.

“Managed by” includes having a professional trust company as trustee or retaining an institutional asset manager on a discretionary basis.

An important result of this classification is the entity’s custody bank does not need to report on that entity’s account (so long as it is not resident in a non-participating jurisdiction – in which case it is treated as a passive non-financial entity (passive NFE)).  However, that entity must report on the holders of its “equity interests” itself – essentially, in the case of a personal holding company, on its controlling shareholders.

This result is rather counter-intuitive. I doubt the owners of a typical BVI holding company, formed to hold an investment account, i) think of themselves as a financial institution, ii) have any idea that they need to report, or iii) know how to report.

I wondered if this was a widespread misinterpretation of the rules and have been curious why this issue is not more discussed online.

An interesting site,, points a flashlight down CRS rabbit holes, highlighting ongoing abuses.  It discusses this issue and how some might be taking advantage (see abuse #5).

IRS Regulations §1.1471-5(e)4(i)B, -5(e)5(i), and 5(e)4(v) Ex 6, appear to validate this interpretation – with my sympathy to compliance officers dealing with these matters.

Many global investment managers use decision trees to help guide clients through the CRS classification maze, and would lead the typical BVI holdco, with a professionally managed discretionary investment account, to the professionally managed investment entity (PMIE) classification.  They leave it there (other than to indicate no reporting will follow).

So, we were comfortable with this counter-intuitive interpretation, but not sure where that leaves such a client completing its CRS self-certification form.

 Canada’s Approach

The Canada Revenue Agency (CRA) has published CRS guidance notes, which on first skim look much like those of other countries.

A CRA form [RC519 E, essentially a CRS self-cert], released a year ago but only brought to our attention recently, takes an unusual twist.

After repeating the CRS definitions, including word for word the definition of a type b Investment Entity, there appears on page five:

A passive non-financial entity is an entity that is:…

…b) an investment entity described in paragraph b) of the definition of investment entity; or … (emphasis added)

 In others words, something is not what it was otherwise defined to be [1].  Curious, but perhaps helpful ultimately.

The OECD has already responded to country-specific entity classifications that it sees as creating avenues for abuse (e.g., exempt pension plans under Hong Kong’s ORSO regime). However, choosing passive NFE means that the bank will report on the account owner and its controlling persons, and therefore does not seem a likely approach for those trying to avoid reporting.  But the OECD drafted the Commentary and Standard deliberately and, I assume, with certain outcomes in mind.


Non-Canadian residents completing CRS self-certs for their offshore holding company (or trust) for a Canadian bank should feel comfortable selecting passive NFE (if they don’t mind the reporting).  Most have been doing that anyway, I suspect.

However, if that entity also has a discretionary investment account booked, for example, in Zurich with Credit Suisse, then they will likely select PMIE on the Credit Suisse self-cert form, which then requires that they think about their own reporting obligations.

We doubt OECD intended the same entity would have different classifications simultaneously; after all, minimizing reporting overlaps was a stated objective.

If the entity, wearing its PMIE hat, reports to its own tax authority, should it report only the accounts maintained in those countries where it has self-certified as a PMIE, or should it report all accounts (to be passed on to authorities in participating countries)?   Should being advised by the CRA that it is a passive NFE be justification for using that classification everywhere?   Given the IRS does not appear to agree with such treatment, how the entity complete its W-8BEN-E for the same Canadian bank?


[1]  This issue is more widely discussed and fuzzy with respect to FATCA reporting because reporting FIs are a narrower concept in Canada’s enabling legislation for FATCA (S. 263(1) of Income Tax Act) than they are in Canada’s IGA or as set out in the FATCA Regs.  Entities are financial institutions if they meet the IGA definition and are included in a list in the ITA.  The key difference in the ITA is a requirement that the entity “is represented or promoted as a collective investment vehicle”.  CRA’s FATCA Guidance suggests that an investment entity that meets the IGA definition but is not listed in the ITA an financial institution should be treated as a non-financial entity.

The language in Canada’s enabling legislation for CRS (and the CRA’s CRS Guidance notes) do not have this second test.  Therefore, the basis for making that assertion in the official form dealing with both FATCA and CRS is not at all clear.

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Spin-Offs Regularly Outperform

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Your investment statements may include a group of companies that share an attribute that has been a reasonably good predictor of out-performance. These are “spin-offs”, and as a broad class have tended to outperform their peers, parents and the broad markets over time.

Recent high-profile spin-offs have included both winners and some that struggled, and include – Baxalta (out of Baxter Int’l); LifePoint (HCA); Murphy USA (Murphy Oil); Adient (Johnson Controls); Marathon Petroleum (Marathon Oil), Phillips 66 (ConocoPhillips); Halyard Health (Kimberly Clark); Cenovus (Encana); AbbVie (Abbot); HPE (HP Inc); Synchrony Financial (GE); Lanxess and Covestro (Bayer); Axalta (DuPont); and Ferrari (FiatChrysler).

There have even been spin-offs out of spin-offs, including DXC Technologies and Micro Focus (HPE). Some may even recall Marathon Oil’s spin-out from US Steel in 2002.

Clients will recognize many of these names as they have been in their portfolios at some point.

Rationales and Results

Broadly, a spin-off is a transaction that separates two (or more) businesses when shares of a controlled subsidiary are distributed to the parent company’s shareholders.

The general bullish argument is that the process releases or enhances shareholder value because the separate parts will ultimately be valued, in sum, higher than would have been the case under the status quo.

For a number of reasons, sometimes related, public company managements have found spin-offs to be an attractive transaction structure. Rationales include:

  1. Separating the underlying business if its risk profile is distracting management or is perceived as detracting from the core business (e.g., Baxalta);
  2. May release value for a subsidiary with a very different growth profile or natural shareholder base, freeing it up to trade at higher valuations as a pure-play (e.g., Autoliv’s spin-out of its auto-driving unit);
  3. If synergies are insufficient to justify a “conglomerate discount” perceived as applying to the whole;
  4. Focus the separate management teams (and the market) on different broad strategies (e.g., Adient), or returning the parent to its core business;
  5. Simplify the story – consolidated financial reporting may be making analysis difficult (e.g., GE);
  6. US parent companies can monetize part of the subsidiary’s value, perhaps facilitate a follow-on transaction (e.g., merger or IPO of the subsidiary) and yet enjoy a tax-free transaction structure; 1
  7. Provides freed-up management with more focus to grow or improve the separated business, with the subsidiary better able to participate in industry consolidation (e.g., Axalta);
  8. Separate the business, but retain some of the upside if less than 100% of the shares are distributed (e.g., Covestro, where Bayer is selling down over time);
  9. Separate a regulated from a non-regulated business, or a specialty business from a commodity business; and
  10. Having failed to find private equity or strategic buyers willing to pay a sufficiently high price, spin it off to shareholders (e.g., Foster’s wine business).

Alternative structures developed in the 1980’s / 90’s, such as lettered stock / tracking shares, often did not achieve the desired results. Tax savings and retained synergies were buried under a confusing structure and uncertainties as to the spill-over of liabilities.

Research estimates that spun-off subsidiaries have out-performed, broadly, the general market by between 2x and 3x, depending upon the period measured and population size.

2018 Activity

A number of significant spin-offs have been announced or are anticipated for 2018, including Akzo Nobel, DowDuPont, Fiat Chrysler, General Electric, Honeywell, Pfizer, and Twenty-First Century Fox.

We expect the frequent use of spin-offs to continue. Large corporate holdings of cash and US repatriation of some of that, suggests 2018 should continue to see robust M&A activity, even at what some see as full valuations in the public markets.

Until P.E. funds become more active putting their historically large funding commitments to work, managements need to look at all alternatives to generate value for unwanted assets or enhance shareholder value.

A US company can essentially put its subsidiary in play, via a spin off, while retaining the tax-free benefits, if properly advised and certain requirements are met.

The potential tax benefits remain significant, even after the TCJA, although the analysis can be complicated.

A spin-off can still be attractive for shareholders even if tax-free treatment is not available (e.g., Adient – a tax-free outcome was not available because JCI, the parent, merged with Tyco in 2016 in an “inversion” transaction, offshoring the company to Ireland.) 2

We believe that active portfolio managers that monitor and assess opportunities for spun-off subsidiaries to out-perform can add materially to portfolio performance.

We have highlighted the exceptional performance of specific spun-off subsidiaries in past client letters.


1      While the US Congress tightened rules surrounding tax-free reorgs in 1996, in response to the Morris Trust judgement, transactions known as Reverse Morris Trusts remain popular, even if complicated (e.g. HPE’s recent spin-off and mergers of its software business with Micro Focus, and its enterprise services business with Computer Sciences to form DXC Tech).

The recent Shire / Baxalta transaction was initially seen as potentially too aggressive. However, it was not attacked by the IRS.  This may help post-spin valuations, where the market perceives the subsidiary as an potential take-over target.

  1. In addition to the roll-over requirements, proposed merger structures need to be mindful of the recently introduced anti-inversion measures (e.g. these complicated the proposed Pfizer / Allergan merger in 2016)


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New Real Estate Policies Introduced by the British Columbia Government

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It hasn’t even been two years since the first Foreign Buyers Tax was implemented in Vancouver on August 1st 2016. To increase their chances of being re-elected, the Liberal party led by then Premier Christie Clark decided to implement drastic real estate policies to tackle the increasing popular issue of housing affordability. The major policy announced was a 15% Foreign Buyers Tax on buyers who are non-Canadian citizens or Canadian residents for properties in the Greater Vancouver Regional District. The tax led to a short-lived cooling period in Vancouver’s red-hot property market. Roughly 9 months after the tax’s implementation, property prices returned to pre-tax highs and a boom was experienced in the condominium market. Toronto was quick to follow and implemented their own Non-Resident Speculation Tax, the outcomes of which have followed the same path as Vancouver’s Foreign Buyers Tax.


In February, the newly-elected NDP government of British Columbia released their provincial budget which includes very extreme real estate policies. Their aim is to implement measures to decrease property values while investing more in public housing. Below are the major real estate policy changes to take note according to the Urban Development Institute – Pacific Region[1].


New Speculation Tax 

  • Beginning fall 2018, the Province will introduce a new speculation tax on residential property.
  • Annual property tax will target foreign and domestic speculators who do not pay income tax in B.C.
  • The Tax rate will be 0.5% of taxable assessed value for the 2018 tax year and 2 per cent thereafter.
  • The tax will apply to Metro Vancouver, Fraser Valley, Nanaimo and Greater Victoria area, and the municipalities of Kelowna and West Kelowna.
  • Primary residences and long-term rentals will generally be exempt; however, second homes and recreational properties in the selected areas will be applicable.


Increased and Expanded Foreign Buyers’ Tax (FBT)

  • Beginning February 21st , 2018, the FBT tax rate will increase from 15% to 20%, and be expanded to include Fraser Valley, Nanaimo, Capital Regional District and Central Okanagan Regional Districts.
  • Within Metro Vancouver the FBT increase will be effective February 21st with no grandfathering provisions for existing contracts.
  • In the new regions, there will be a three-month grandfathering provision for existing contracts.


Increased Taxes on Homes Valued Over $3 million

  • Increased Property Transfer Tax rate from 3% to 5% on the value of homes over $3 million, forecasted to raise $81 million annually.
  • Increasing school tax rate on the value of homes over $3 million


Tax Compliance and Enforcement

  • Legislative changes to require developers to collect and report comprehensive information about pre-sales assignments.
  • Require additional information on beneficial ownership on the property tax form and establish a registry of beneficial ownership in B.C. that will be publicly available.


Canadian Real Estate Market Update 2017 Q4

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It has been a very busy 2017 for Canadian real estate: Vancouver recovered from the Foreign Buyer’s tax implemented in early August 2016; Toronto experienced an extremely hot market, resulting in the implementation of new real estate policies including a Foreign Buyer’s Tax; while Montreal, Victoria, and Whistler experienced price increases across all sectors.


In Q4 of 2017, Vancouver’s condo and townhome prices continue to increase, while single detached home prices declined slightly by 1.6%. By analyzing the Q4 year-on-year (YoY) price growth we believe that the impact of the Foreign Buyer’s tax was a dramatic price increase in condominiums (+24%) and townhomes (+15%), and much smaller price increases for single detached units (+3%).   As the tax made single detached homes a more expensive investment, investors looked to condominiums as a cheaper alternative.


Toronto Q4 2017 average prices did not change much from Q3, decreasing or increasing by 1%.  However, similar to what occurred in Vancouver during the year and a half after their Foreign Buyer’s tax was announced, where condo and townhome prices continued to increase while single detached home prices declined. The YoY price changes reflect the effect of Toronto’s foreign buyer’s speculation tax, as prices declined by 1% for single detached homes but increased by 17% for condominiums and 4% for townhomes.

Montreal experienced a very active 2017 and is now the largest real estate market in Canada without a foreign buyer’s tax.  A main driver of this increased activity was Toronto’s implementation of the Foreign Buyer’s Speculative tax activated in April of 2017, which imposes a 15% tax on the purchase price on foreign/non-Canadian resident buyers. In Q4, prices and sales increased in all sectors, especially in the condo market as average prices increased 8.1% and average sales increased 22% from Q3.   YoY prices increased in all sectors to culminate a very active year as prices for singled detached homes increased 4%, condominiums 10%, and townhomes 12%.

Victoria’s residential real estate market saw a very energetic 2017.  Despite minor price growth for Victoria in Q4, YoY price growth increased in all sectors, increasing 11% for single detached homes, 19% for condominiums, and 13% for townhomes.

Whistler Q4 average prices were roughly flat, despite townhome average prices increasing 24%.  However, YoY prices increased drastically as prices for single detached homes increased 46%, condominiums increased 34%, and townhomes increased 43%.  The largest YoY price increases amongst the 5 markets.

The EU Succession Regulations May Impact Your Estate Planning

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We previously recommended that families create a written list identifying, and noting key details of, their financial and personal assets. The importance of this in support of drafting a Will or for broad estate planning purposes was emphasized.

Ensuring that testamentary objectives are met can be especially challenging for families with multi-jurisdictional estates.

Jurisdictions apply different connecting factors such as domicile, residence, or nationality to determine which jurisdiction’s laws will apply for succession matters, sometimes leading to complex conflicts of law. Issues such as mental capacity and the validity of substantive aspects of Wills are treated differently across countries (particularly as between common law and civil law countries).

In 2015, most EU countries adopted a set of regulations, known as the EU Succession Regulations, that reduce complications for cross-border succession planning and administration.

Note that the intention was not to harmonize succession and inheritance laws across the EU. The Regulations are intended to reduce conflicts between the laws potentially applying to cross-border estates, including applicable law, jurisdiction of courts, enforcement of decisions and presentation of instruments in succession matters.

Where a client has a multi-jurisdictional estate, including ties to an EU country (e.g., being a citizen or resident or owning assets located there), then the Regulations will impact succession planning.

The Regulations apply to the estates of people dying after August 17, 2015.

Where an estate falls entirely within a person’s country of residence and nationality, then little changes. In addition, the Regulations do not apply to revenue, customs or administrative matters, including questions relating to matrimonial property regimes, legal capacity, maintenance obligations or property rights other than those arising by reason of death, trusts or company matters.

The Succession Regulations and Impact

The default position set out in the Regulations is that the law of the Member State where the deceased had her last habitual residence has jurisdiction with regard to her entire estate.  The inheritance laws of that country would be applicable to the estate.  This includes both succession and administration issues.

Habitual residence is not necessarily the same as the last domicile or even residence prior to death.  It involves an assessment of the “life circumstances” of the deceased up to and including the time of death.  Where her life was centered, including her most important social contacts, are be considered.

This default position can also be overridden in a number of circumstances – most importantly, if the testator elects the laws of her nationality to apply to the whole estate, by evidencing in writing, the election to exercise a “choice of law”.

Note: some advisors question whether an estate containing multiple wills can make this election with respect to less than the entire estate.

This choice of law would be helpful where a testator has a strong preference for a particular set of national laws or where there is any uncertainty with respect to habitual residence.

The Regulations determine the set of laws that apply to succession issues, but does not determine which courts can be involved. The courts of the Member State where the deceased was habitually resident at the time of death or in which property is located would retain the jurisdiction to rule on succession matters, but they would apply the national laws set out under the choice of law election.

Where a Member State is elected as the choice of law, then the parties can agree that the courts of that country will have exclusive jurisdiction to rule on all succession matters.

While not a requirement, the parties can apply for a Certificate of Succession that will be recognized in each Member State (and probably Switzerland and perhaps other countries).

Impact on Clients that are Not Resident in the EU

It is only EU Member States that are bound by the Regulations, but there are two ways in which nationals or residents of non-Member States could be impacted.

If the connecting factors of a country’s Private International laws would link a person’s assets back to laws of the EU country, then these Regulations will apply.

If you have property in an EU country, or have dual citizenship including of an EU country, then the Regulations are relevant, especially if you have concerns about particular local laws – e.g., those dealing with forced heirship.


Historically, a Canadian national habitually resident in France, and owning real property in both France and Canada, would have had French law apply to the personal property and real property located in France, and Canadian law to the real property located in Canada.

Now, that person could elect to have Canadian law apply to the entire estate, which would require French courts to apply Canadian succession laws to the French real property.

Under the Regulations, if that person died without having made an election, then French law, including forced heirship rules, would apply to the entire estate, including the Canadian real property.   [However, it is questionable whether Canadian courts would give up jurisdiction with respect to the Canadian real property.]

It is not yet clear that all EU countries will accept an election to a national law that does not provide for forced heirship rights. However, court references to date suggest that they would only apply local laws in exceptional circumstances, after looking at the practical consequences of the proposed succession.




Disclaimer: The above is intended as commentary only, and should not be interpreted as advice for any particular circumstances. The Regulations are complicated, and the way that they interact with domestic laws impacting, inter alia, estate, succession, marital property and tax issues remain uncertain and certainly not without risk and complexity.  The commentary above is brief and has not dealt with many relevant issues or nuances addressed in our internal memorandum.

Developments in the Vintage Wine Market Dec, 2017

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2017 is already well-known to be a complicated year for both winemakers and vineyard owners. As mentioned in our July update, there were severe frosts in many wine regions earlier in the year.  The implications are uneven ripening and in many cases a total loss of this year’s crop.

Heterogeneous is a good adjective to describe this vintage. Despite the severe conditions, many top estates located along the Gironde estuary escaped the frost and were able to bring their crops to full maturity. Whereas on the right bank, the situation looks bleaker for most properties except those located on the hill tops.  Poor weather in September further complicated the vintage for many producers.  Undoubtedly, the small harvest will have an impact on prices and may help to clear existing inventory.  This will become clearer during the spring en primeur campaign.

The weakness of the pound, due to Brexit and related uncertainties, is a dominant theme when assessing the fine wine market. The fine wine merchants in the secondary market are predominately London-based and the market is traded in sterling. Whether we look at the Liv-ex 1000 or the Liv-ex 100, the recent returns in sterling are attractive, but have been less so in USD or Euros.

Vintage wine market indices should be viewed as mere guidelines and comparing them with major equity indices such as the FTSE 100 or S&P 500 or gold is tenuous at best. While there has been a very long trading history over the past centuries between Bordeaux and London and more recently between other wine producing regions of France and London, the French may turn to Americans, Russians or Chinese in the future, so a weak sterling will become less of an issue.

In any case, no one should be collecting vintage wine if they may have to depend on it as a near-term financial asset. It should provide pleasure either through future consumption or the passion of collecting a living, dynamic natural product – which leads us to the auction market.

So far this year, all the top auction houses have seen their sales increase, led by the UK and US auction markets. As usual, top wines such as Lafite, Petrus and Domaine de la Romanée Conti (DRC) have attracted strong interest.   Of note is that offers from single-owner collections with impeccable provenance have become a major focus.  Speaking after their recent wine auction in Hong Kong, Jamie Ritchie, Sotheby’s worldwide head of wine, commented, “The outstanding result of today’s FUX 1 sale (HKD29.5M / USD3.8M) shows that buyers truly value the provenance of single-owner wine collections that have impeccable condition, especially when they have an interesting story behind them.”

In our last update we noted that COFCO, China’s largest foodstuffs conglomerate, entered into a joint venture with wine writer and critic, James Suckling.  COFCO Wine & Wine, the importing arm of COFCO, has built a broad distribution network of 400 outlets across 27 Chinese provinces.

Wine & Spirit Education Trust (WSET), the largest global provider of wine and spirits qualifications, released figures that showed mainland China had more participants than the U.S.  WSET opened its first international office in Hong Kong this year.

These trends suggest that in the coming years there will be more people interested in consuming wine and as they become older and more affluent, they will undoubtedly wish to consume better and more expensive wines.

Fine wine is of limited supply while poor harvests such as with the 2017 vintage further abate the supply, which, coupled with the increase in demand, will ultimately lead to higher prices.


1 FUX is an award-winning contemporary restaurant in Lech, Austria, founded in 1998, boasting a wine list of 4,000 different wines with over 55,000 bottles, and which was awarded the best wine list in Austria (2015) by Falstaff magazine.

ChapmanCraig’s Diversified Global Portfolios Are Core Investments For Wealthy Asian Clients

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ChapmanCraig’s Diversified Global Portfolios Are Core Investments For Wealthy Asian Clients 

Asia-Pacific is home to the largest population of high-net worth individuals (HNWI) in the world. With HNWI wealth in the region expected to surpass US$42 trillion by 2025, Hong Kong-based ChapmanCraig is prepared to meet Asia-Pacific’s growing demand for wealth management services – bringing expertise developed over its 25 years of helping wealthy clients meet their financial objectives.

Combining the investment resources typical of a global private bank with the personal attention of a local boutique, the independent, employee-owned wealth management firm has been managing client investment portfolios since 1995.

Affluent families seeking to pass on their wealth to future generations, busy high-level professionals and entrepreneurs without the time to look after their finances, and retired corporate executives in their golden years choose ChapmanCraig’s advice. This includes building portfolios that are broadly diversified across industries and geographies – to secure their wealth and deliver long-term capital appreciation.

“It’s important to have global exposure in today’s markets. Part of our dynamic and holistic approach is through industry-centric global diversification,” says managing director Craig Chapman. “We’ve had a very solid investment performance over the years, and we provide total transparency in the way we operate and report.”

Licensed and regulated by Hong Kong’s Securities and Futures Commission, ChapmanCraig works with prominent financial institutions, each with a strong capital base – including its Montreal-based portfolio manager Letko, Brosseau and Associates, and custody banks Royal Bank of Canada and Scotiabank.

The portfolios of the world’s wealthiest are comprised primarily of equities, bonds, and real estate. ChapmanCraig’s expertise covers all these asset classes.

“Asians are becoming wealthier and more globally aware. Their risk levels are changing – from making very speculative investments to more secure investments,” Chapman says. “So much of this industry is transaction-related, but what we do isn’t. We provide attractive long-term returns not just through well-diversified portfolios at appropriate valuations, but also by forming valuable, long-term partnerships that work in our clients’ best interests.”

-S7 Canada Business Report, SCMP. Friday, November 10, 2017