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Vintage Wine Market Update – April, 2024

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Vintage Wine Market Update – April, 2024

Fine wine market – A buyer’s market

Since the beginning of 2023, the fine wine market has experienced a noticeable downturn in all major growing regions. After more than 2 years of strong and steady price growth, it is evident the performance of the fine wine market has been significantly affected by the combination of economic and geopolitical uncertainties. Auction houses have been a victim to these conditions and reported a decline in total sales revenue for 2023. In addition, the reopening of China hasn’t had the expected effect many desired.

UK and Europe have been the strongest markets in 2023, whilst Asian and US buyers have remained cautious. The main question on many minds is has the market bottomed or will price corrections continue. Q1 2024 showed glimpses of stabilization, however, most merchants expect prices to continue dropping.

En Primeur Bordeaux

The Bordeaux 2023 tastings have finished, and the consensus is 2023 will be a good vintage with some remarkable wines. Neal Martin from Vinous has described it as a “Dalmatian vintage”. A vintage which will be approachable at an early stage whilst also offering great aging potential for the top wines.

Left bank Cabernet Sauvignon is set to perform very well especially for vineyards in north Medoc such as St Estephe and Pauillac. Keep an eye out for Montrose, Pontet Canet, Lafite, Pichon Baron and Ducru Beaucaillou in St Julien. Pomerol and Saint Emilion have also produced some outstanding wines thanks to a great quality Cabernet Franc, not to mention Figeac, Cheval Blanc and Eglise Clinet which are among the best wines produced in 2023.

After months of Bordeaux under-performance in the secondary market and abundance of stock available, an attractively priced En Primeur campaign is ultimately what Bordeaux wine merchants and Chateaux should focus on. In these challenging economic times, the Bordeaux En Primeur offers great opportunities for Bordeaux wineries and the trade to focus their attention on the region. So far, Bordeaux wineries have shown some good will and have considerably lowered their release prices compared to the 2022 vintage. Chateau Lafite for example, probably one of the best wines of the vintage, dropped their prices 31% from the previous year to £4920 per 12 bottles.

We have noticed that there is much commentary attempting to link, or correlate, the fine wine market with financial markets, economic developments, and even monetary policy.  This is nothing more than an attempt to lend sophistication to physical assets that have limited production and a constantly dwindling supply as wine is consumed.  It is simply supply and demand, which is driven by increased discretionary income, the latest consumer trends, and weather conditions.

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The Modern HNW Family II

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The Modern HNW Family II – December 2023


The Society of Trust and Estate Practitioners (STEP) recently conducted a roundtable discussion, sponsored by Royal Bank of Canada Wealth Management, about how Covid and increased geo-political instability has impacted the concerns and objectives of HNW families.

A core finding is that priorities have shifted, incrementally, away from a focus on cross-border investment opportunities and risk-adjusted returns, to a greater emphasis on asset protection and estate and succession planning, or “future-proofing” the family’s wealth.


Attitudes towards social responsibility and equality have acquired greater significance, especially amongst younger generations.  There is also an increasingly hostile attitude towards wealth and complex, often non-transparent, ownership structures from parts of the media and society.

Advisors often encourage families to discuss the purposes and values of the family and its approach to managing its wealth in hopes of creating a broad understanding.  These discussions may increasingly include the family’s ownership structures (including trusts) and business practices and how that aligns to its purported values and purposes.

Even families with legitimate offshore structures can find themselves defending their purposes because information about the family and its wealth that was once private is increasingly becoming public.

Diverse Attitudes within a Family can Complicate an Advisor’s Approach

The panel highlighted that advisors should not assume that all family members hold similar views, particularly when it comes to evolving social issues.  The conversation about how the family’s wealth will be used can change radically as the views of the younger generation are voiced.  This may, in turn, make the older generation, that may have built the wealth, more anxious about the future, when they will no longer as much influence.

The challenge is seen as creating a culture that can be communicated through education about family purpose with detailed discussion around succession planning options.

An example of how differing principles between generations can directly impact advisors and these processes are issues associated with ESG principles.  Advisors, including Trustees, increasingly must deal with differing views on how to prioritize ESG objectives when evaluating investment alternatives.

This public debate, including pushback from some politicians, and well documented misalignments through lack of standards or green-washing, is already impacting large wealth managers through reputational attacks.

If some family members wish to emphasize ESG-directed investments without regard to conventional expectations of “financial returns”, how do their investment managers respond?  More specifically, how does a trustee or investment managers’ fiduciary responsibilities apply in this case and might they become liable to a beneficiary?

Trustees should ensure that the trust deeds are guiding their investments, rather than their own views about issues associated with ESG.  But what if those matters are not addressed in the trust deed, letter of wishes, or family governance documents?

Lost Privacy

We have elsewhere described the increasing reporting requirements for HNW families.  Some of these are not public, such as CRS-mandated transfers between tax authorities.  But there is an increased likelihood that private information such as wealth, holding structures, succession arrangements become public via registers members of the media or public can access or information leaked to social media.

For families that see privacy as a key part of their own security and safety arrangements, their Advisors should consider how their estate and tax planning is exposing the family to unnecessary public filings and monitor their custody banks and other third parties to ensure that information that is not absolutely required to be shared is nevertheless being shared due to a misunderstanding of the rules or through recklessness.

Impact on Planning Processes

An increased focus on personal safety and asset security can have other more direct impact on NHW families – in terms of mobility and choice of location.

Some people having migrated from Hong Kong is well documented.  But the same concerns has also led some to shift family office assets to another jurisdiction.  Another contributor on the panel noted that Middle Eastern families have an increased interest in greater international diversification of assets because it is difficult to anticipate where instabilities will suddenly arise.

Others noted that places that were once viewed as very stable might be seen to HNW families in China or the Middle East as less so.  The current UK and US political discourse does not increase confidence.

Some wonder what Swiss cooperation in sanctions applied against certain Russian nationals and entities might mean for individuals in China with assets in Switzerland.

A key observation is that when Advisors are revisiting a family’s estate plan, it is not just changes within the family that need to be top of mind in assessing whether the existing plan meets family objectives.  External influences can also cause stress as a family’s attention turns from inter-generational issues, to security issues flowing from regulatory and geo-political changes.

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The Modern HNW Family Part I      

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The Modern HNW Family Part I – October 2023

In 2021, the Society of Estate and Tax Practitioners (STEP) conducted two broad surveys of HNW advisors, sponsored by TMF Group and RBC Wealth Management, centered on the evolving needs and expectations of the “modern HNW family”.

The panel members observed that changing client expectations are being driven by both i) changes within family dynamics, and ii) changes to regulatory regimes and societal impacts. This note focuses on the first of those.

Changing Family Composition is Impacting Objectives

Core findings are influenced by the changing composition of “modern” families. Advisors recognize that their advice and processes also need to evolve as these changes can heighten conflicts between family members with respect to viewpoints and priorities.

An increasing proportion of client families have i) members from a mix of cultural or ethnic or religious backgrounds, and are separated geographically, ii) family members by way of adoption or step-parent arrangements, iii) cohabitating partners, and iv) same-sex partners. These modern, more complex, families are sometimes described as “blended”.

Advisors are finding that differing priorities between the older, perhaps “founding”, generation and the younger generations have become more pronounced than was a case 20 years ago. The trend has been to encourage the older generations to give greater voice to the younger generations, expecting that greater communication will surface areas of conflict that can be addressed early. Bringing these conflicting views into the formal planning process can at times make the older generation anxious about the future or resentful at what they perceive as insufficient respect.

Sometimes, the gap between the objectives of younger family members and the laws of jurisdictions that have been slower to modernize can complicate solutions.

Advisors see increased reliance upon Soft Skills

HNW families have always required advisors with expertise across investment management, tax planning, estate and succession planning, accounting and insurance. This may require expertise across multiple jurisdictions, especially with respect to tax and estate planning.

But families increasingly seek out advisors experienced in family and business governance, inter-personal dynamics, education and communication.

The panel also concluded that while clients require advisors that can deal with complex, multi-jurisdictional issues quickly, they often require that this differs set of experts be able to collaborate with each other effectively.

Many families have found the process to complete a complex tax and estate plan took far too long. Since most professionals charge by the hour, “too long” translates into “too expensive”.

Some family offices are developing regional or global networks of other family offices. This can lead to developing networks of professionals that already have established collaborative, cross-jurisdictional relationships. Such a network may be just as helpful in spotting opportunities as well as threats. But it depends on key members of the consortium having developed good collaborative skills and practices.

We have posted other notes highlighting the increased legal and reporting requirements for families with members and assets in numerous countries.

As you layer on changes occurring within families, it reaffirms the need for families to regularly examine or freshen their estate planning and structures, particularly those related to asset protection and succession planning.

A legacy structure is no longer fit-for-purpose can be many times more costly than the expenses incurred in these re-examinations. The danger is wider than simply being offside new tax and reporting requirements. It is to anticipate and manage differing attitudes and objectives arising within the family, before those develop into real conflict.

In the past, advisors may have seen their value-add as focused on technical issues such as tax planning, international succession planning including multiple Wills, investments monitoring and reporting systems. But STEP’s survey indicates that advisors increasingly see “early and open conversations about succession” amongst the family and across generations along with enhanced communication and education as a key factor in the successful management of changing family dynamics.

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Another Nudge Regarding Estate Planning

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Another Nudge Regarding Estate Planning – September 2023

Most everyone with substantial assets is aware that they should have an estate plan; yet fewer than 35% of families have Wills.

Procrastination is the most common excuse.  Some may have concluded that between today and when a Will will be called upon, their life circumstances will be so different that a Will prepared today will be a waste of money and perhaps create confusion.  Others would do it now, if they knew where to start and who to engage for assistance.  Fair enough; if you start down the wrong path or with the wrong advisor, it may become a multi-year process at considerable expense.

Finally, as a practical matter, some couples without children and an estate that is not complex, might argue that the local intestate rules align perfectly with their own wishes (although they may still face Probate).  This is a weak excuse, because putting your mind to your estate plan will almost certainly reveal complications – e.g., how is your spouse going to access that offshore bank or brokerage account quickly when the broker has never heard of them and your spouse only faintly recalls its existence?

Add in one or more children, and it is irresponsible not to have dealt with guardianship.  If you are going to go that far, why not deal with the straightforward bequests as well?

Practical Hurdles

For “high net-worth” families with complex estates, complex family dynamics and/or global assets, there is usually no resistance to seeking qualified professionals to assist them in reviewing or creating a comprehensive estate plan.

Well-written estate planning guides may be a suitable starting place.  However, families considering an estate planning exercise may be put off by suggestions or structures (e.g., trusts) that are expensive to set-up, expensive to maintain, and may still ultimately result in disputes as their family dynamics change over time.

Multiple Wills can be an appropriate response when dealing with real assets situated across differing legal systems.  Again, the cost may discourage some.

Even Family Offices, with no real financial constraints, can find it difficult to round up a team of professionals, with the relevant local expertise, that can actually collaborate and produce a final plan in a timely manner at an appropriate cost.

While this will be heresy to many advisors, it may be that many people are letting the search for a perfect solution stand in the way of at least a helpful solution.  At least chip away at it.  From an earlier post, you should at least consider having:

  • a comprehensive list of assets, accounts (with numbers, contact names / #s) kept updated and safe and within reach of your spouse / executor / beneficiary(ies);
  • a Will dealing with the major assets, even if it might leave some international rule of law questions outstanding – at least your intentions will be known;
  • Thought about practical steps outside of a Will – e.g., where appropriate, change bank / investment accounts to jointly-held or add designated beneficiaries, ensure insurance contracts are up to date, execute durable Powers of Attorney.

Take a few minutes to imagine how everything is going to work out if you were to pass unexpectedly.

Is someone going to inherent an asset with a liability (including a tax liability) without the ability to pay that tax without selling the asset.

This could happen with large real estate properties or shares in a family business.  Many countries have an inheritance tax regime.  While smaller estates are often exempted, you should consider whether your plan, or no plan, will generate significant taxes for your beneficiaries or estate.

You may have to incorporate life insurance into a trust, or identify certain beneficiaries, in order to allow the smooth transfer of assets.

Practical Problems

Even having developed a good estate plan may not be the end of it.  You need to review the plan periodically, particularly after major life events, to see that it still holds together and would meet your aspirations.

Many couples have made arrangements to avoid Probate by having all major assets, including bank accounts held as joint accounts or with a named beneficiary where applicable.  Then, in a moment of carelessness, a new account is created that is not jointly held and this, upon passing, pushes that part of the Estate into probate (if it is material) and holds up or complicates the financial plan for a period.

Older couples anticipating one or both becoming incapacitated prepare Power of Attorney’s — giving the other spouse or a younger family member broad authority to act on their behalf.  Even when properly prepared, your bank might be unprepared to accept instructions under the PoA.  Many bank employees are not well-trained in dealing with family members armed with PoAs.

On top of everything else going on with the passing of a parent, the time wasted simply getting instructions acted upon or gaining access to funds, can be very frustrating; especially when prudent planning was put in place.

If the PoA is there to protect an older family member that is at risk of become incapacitated, consider taking that person, along with the PoA, into the bank and meet the manager and explain the purposes before incapacitation occurs.

We do not provide estate planning advice and therefore have no real iron in the fire – in terms of fees or type of outcomes.  But we deal frequently with client worries and discomforts about a wide range of issues impacting what they will leave for their family.  While there are risk management approaches to dampen financial market uncertainties, risk on ultimate returns remains.  However, it would be a shame to have addressed those risks and costs that are controllable through an appropriate estate plan.

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Offshore Jurisdictions Continue to Respond to International Pressures

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Offshore Jurisdictions Continue to Respond to International Pressures – June 2023

New BVI Accounting Requirements

Due to changes to the BVI Business Companies Act, BVI holding companies are subject to enhanced reporting requirements, as of this past January.  This will include filing unaudited financial statements annually with their Registered Agent in the BVI.


The OECD began initiatives in the late 1990s, addressing tax avoidance practices of multi-national companies and some wealthy families.  Many of these practices are legal schemes, taking advantage of gaps created because different tax systems treat certain types of transactions differently.  However, due to a lack of transparency and reporting it is very difficult for national tax authorities to figure out which are legal and which are not.

In 2013, a 15-point Action Plan was adopted by the OECD, intended to create greater transparency and a better alignment amongst domestic tax regimes, especially with respect to income-producing activity that is geographically mobile.

High in importance was identifying where entities actually conducted their income (wealth) producing activities à thus Action 5, or the new economic substance rules now applied by most offshore jurisdictions.

To enhance information sharing between tax authorities, the Common Reporting Standard (CRS) was introduced in mid-2014. By 2018 most “offshore” jurisdictions had signed up to CRS.

Another initiative is the so-called BEPS program where a greater attempt to match sales with declared taxable income across countries in which a company operates.

International pressures, led by the EU, for a flatter playing field have resulted in additional amendments in domestic tax regimes.  Hong Kong recently made rather remarkable changes to how it taxes capital gains and has promised additional tinkering next year.

Those pressures have also led jurisdictions, such as BVI, to enhance transparency and income reporting.


BVI-registered companies without meaningful operations in the BVI will be required to submit a balance sheet and profit and loss statement within nine months of their financial year-end.  For a typical family-owned investment company with a December 31 year-end, this will mean the first filing is due Sept 30, 2024.

This information will not automatically be passed along to any BVI authority unless the Registered Agent is requested to provide it, and it will not be made public.  However, if you fail to file the annual statements with your Registered Agent, the Agent is required to notify government authorities.

There have been enquiries about how to prepare a starting balance sheet when historical records are not adequate (as financial statements for many of these companies may be nothing more than periodic statements from private banks over the years).

The guidance from the regulations is a little vague and as far as we know, the format for the Annual Financial Return is still being developed.

The general commentary assessment is that this financial information does not necessarily need to conform to IFRS.  Some firms are advising that for purposes of the starting balance sheet, owners assume that all retained profits have been flushed through as dividends.  For pass-through entities, that may be helpful.  It is not as straightforward for those companies holding investment assets that reflect realised and unrealised gains over the years.

However, most accounting firms tend to want to do things properly and are not going to produce weak statements, even if they do not have to provide an audit opinion.

Practical Impacts

Changes in reporting by Offshore Jurisdiction might be intended to demonstrate compliance with EU expectations without actually contributing much to international tax compliance and transparency.  However, even this might be prophylactic in nature, as companies will not know if or when their records are going to be accessed by authorities in a tax dispute — since authorities are aware those records are out there.

So, it would make sense, even if your tax planning is rather aggressive, to be thinking through now how you plan to produce these financial returns and convince yourself that you are prepared to stand behind them with documentary proof should you ever be called upon.

It also presents an opportunity to reassess why you even have these offshore holding companies.  Some families are responding by simplifying their holdings, by moving assets into a fewer number of companies.

If there were valid planning reasons to have the separate holding vehicles, then this may be an unfortunate development.

However, when asked why they are using an Offshore company to hold their investment account, some do not have a persuasive explanation.  Some do not remember, other than a vague recollection that a financial advisor once recommended it.

There has been a risk that securities issued by U.S. companies and held personally could become subject to US estate tax.  Unfortunately, the very high exemption limits available to U.S. families are not necessarily available to non-U.S. persons, which causes concerns.

The easy protection was a BVI company.  They were once cheap to incorporate and maintain, because it was easier to open and maintain bank and custody accounts in the company’s name.

Much has changed in the past 10 years.  Banks are no longer eager to maintain inactive company bank accounts.  Agent’s fees have slowly increased along with responsibilities.  Many custody banks are becoming less comfortable with offshore jurisdictions.

And now, you have the Economic Substance filings, which can be complicated, encouraging some to seek professional assistance.  These Annual Financial Reports will almost certainly require professional assistance to prepare if you are not a well-staffed Family Office.

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New Reporting Issues for Offshore Property Owners

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New Reporting Issues for Offshore Property Owners – May, 2023

If you own or are contemplating buying property in the United Kingdom (and a number of other jurisdictions) you need to consider the reporting requirements and potential tax exposures that have arisen recently. These changes are more likely to trip up long-term owners, because we assume people in the process of buying offshore property are receiving professional advice.

Some of these changes have arisen to deal with clamor pointing to foreign ownership as contributing to unaffordable housing.  Sometimes, they are accommodating demands for increased transparency on cross-border capital flows and ownership.

Registration of Foreign Ownership

The U.K.’s Economic Crime (Transparency and Enforcement) Act, which came into force in August of last year, requires the beneficial owners of non-UK corporations or partnerships (and apparently trusts) that own UK real estate to register that ownership in a public register.

We understand that January 31, 2023 was a deadline to register existing ownership.  The registration process is more elaborate and time consuming than is the process elsewhere.  If you happen to own UK property through an offshore entity, you should investigate how to get onside, in a way that is not too expensive.

In addition to rather serious penalties for failing to register, you will likely be unable to sell the property until registration is complete.

Taxes on Foreign Owners

The UK has slowly been expanding the scope of taxation of residential property held by foreign holders, entities in particular.

Since 2015, non-residents have been taxable on capital gains arising from the sale of residential properties.  In 2019, this was expanded to apply corporate income tax to the gains for properties held by offshore entities.

Even prior to that, annual taxes were due on properties held by corporate entities (the so-called “envelope” regime).

Australia has had a register for foreign ownership of residential property for some time now.

Canada recently introduced new property taxes on residential properties acquired by non-residents (with some exemptions).  Existing owners do not need to worry about this – but the trend to increased fiscal costs is worrying.

Increased Focus on Occupancy

Some countries have introduced annual taxes on under-utilised residential properties.  The rationale is a mix of discouraging keeping residences empty and dealing with absentee owners enjoying the securities of maintaining wealth in a stable jurisdiction but not contributing to its tax base.

France has an occupancy tax aimed at second homes and unoccupied homes and would capture most properties held by offshore individuals / entities.  It has clarified its occupancy tax exempts primary residences; however, it will apply to owners of other types of properties, including foreign owners and those holding property through a Société Civile Immobilière.

In addition to temporary taxes on foreign acquirors of residential property, the Canadian Federal government and a few Canadian municipalities have introduced laws targeting under-utilised (read vacant) residential properties. The Canadian government now applies a 1% annual tax on under-utilised residential properties owned by non-residents, including private companies and trusts with non-resident beneficiaries.

There are number of practical exemptions, but offshore owners of Canadian property need to be aware of the new rules and filing obligations.

The new law mandates an annual filing by owners of residential properties, if for no other reason than to claim an applicable exemption from the tax.  The annual filing will require information about occupancy.

Many popular locations for holiday properties enjoy an exemption from the tax, but you need to verify this and you may need to make annual filings.

British Columbia has had a vacant residence tax since 2018.  Sensing a fiscal opportunity as well as addressing affordability, a number of Canada’s largest cities,  have added their own 1% tax and filing requirements. (This applies to Canadian citizens as well.)   An unused condo in Vancouver could now be subject to annual taxes, determined based on value, at three levels of government, exposing the owner to additional penalties if they were unaware of these new reporting requirements and failed to file and pay taxes.

Many countries immediately restricted access to existing registers.  However, in December the Court wound back its decision somewhat by saying that anyone with a “legitimate interest” should have access.

Not all countries will interpret this in the same way, but it will likely end up with a hurdle requirement for members of investigative organisations or the press generally needing to confirm a legitimate interest prior to being given access to a filing.  Marketing groups will no longer have indiscriminate access.

The obligations to register foreign ownership of certain Australian assets beginning July 1 this year, are consistent with this tilting of the balance back towards respecting privacy while giving law enforcement adequate tools.  The information will not be public, it will be available only to Government agencies for certain purposes.


Families with assets across borders and complex holding structures now need to pay close attention to increased registration or disclosure requirements in each of the countries in which they own assets or entities with respect to a wide range of assets.

It is not just ownership registers, but new tax-related filings and reports, including those testing economic substance, and local filings with respect to ownership and use of residential or vacation properties.

Organisations such as The Society of Trust and Estate Practitioners have been active in arguing that these registers, while adequately addressing their purposes, better balance privacy and security concerns.  Recent events give hope for a better balance.

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Ownership Registries Expanding

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Ownership Registers Becoming More Common – April 2023

Many families use offshore holding companies, trusts, family funds etc., to assist with complex family structures or succession planning.  Most are not engaged in money laundering, tax evasion or other criminal activities.  However, they are increasingly being caught up in regimes created to deal with money laundering through increased transparency of beneficial ownership of real property and entities.

As a result, the unintended consequences include families having to reveal more personal information relating to wealth, beneficial ownership and location than they would like.

Families often consider privacy is important in protecting their security and reputation.  At a minimum, they will want to ensure that information that is not required to be revealed, is not revealed simply because advisors or financial institutions were careless or unfamiliar with actual requirements when providing information.


The Common Reporting Standards, intended to increase tax compliance and transparency, resulted in additional information about families with complex offshore structures being shared amongst tax authorities.  This should not have been a major concern for families that are tax compliant.

However, major releases of private information, such as the so-called Panama Papers Scandal in 2016, highlighted how much capital is hidden behind offshore structures.  Initiatives to counter offshore tax avoidance (not adequately dealt with through CRS) included encouraging offshore jurisdictions to adopt Economic Substance reporting requirements.

Of course, these are less helpful when beneficial owners are determined to maintain secrecy.

Public Registers

The logical extension was to introduce registers where the owners, especially offshore entity owners, of certain properties would be required to reveal relevant information as to the true beneficial ownership of such properties.

The UK and EU members were quite responsive to the encouragement to create public registers for the ultimate beneficial ownership of residential real estate and domestic companies.  The next stage, was to expand the registers to include beneficiaries of trusts that owned assets situated in the country.

This had the unsettling potential of making the name, country of residence, nature of ownership and birthdate of each beneficial owner available to anyone with access, regardless of the bona fides of these enquiring members of the public.

Push Back in Europe

In Q4 last year and to the relief of many trustees and private client advisors, the EU Court of Justice ruled that the public disclosure as set out in the key EU Directive, was inconsistent with EU constitutional protections for the right to one’s privacy and the right to protection of personal data.

This did not affect the existence or requirements to register, but would limit who could access the registers.

Many countries immediately restricted access to existing registers.  However, in December the Court wound back its decision somewhat by saying that anyone with a “legitimate interest” should have access.

Not all countries will interpret this in the same way, but it will likely end up with a hurdle requirement for members of investigative organisations or the press generally needing to confirm a legitimate interest prior to being given access to a filing.  Marketing groups will no longer have indiscriminate access.

The obligations to register foreign ownership of certain Australian assets beginning July 1 this year, are consistent with this tilting of the balance back towards respecting privacy while giving law enforcement adequate tools.  The information will not be public, it will be available only to Government agencies for certain purposes.


Families with assets across borders and complex holding structures now need to pay close attention to increased registration or disclosure requirements in each of the countries in which they own assets or entities with respect to a wide range of assets.

It is not just ownership registers, but new tax-related filings and reports, including those testing economic substance, and local filings with respect to ownership and use of residential or vacation properties.

Organisations such as The Society of Trust and Estate Practitioners have been active in arguing that these registers, while adequately addressing their purposes, better balance privacy and security concerns.  Recent events give hope for a better balance.

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Significant Changes to HK’s Taxation of Certain Offshore Passive Income

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Significant Changes to HK’s Taxation of Certain Offshore Passive Income – January 2023

You may have noticed media headlines warning about substantial changes coming to Hong Kong’s taxation of certain passive offshore income.

The types of income impacted, which includes dividends and capital gains, might initially concern wealth management clients.

However, these changes will not impact individuals nor those that own a HK-based company simply holding passive investments.  This note expands on the implications of these tax changes.

Brief Background

Some multinational enterprise groups (MNEs) employ ownership structures and manage affiliate distributions in such a way that business earnings originating in high-tax countries end up not being taxed anywhere.  The creative use of double taxation agreements, hybrid products and entities resident in low-tax countries or those that have adopted a territorial-based system of tax, can substantially erode the tax base in the countries where income is originally generated.

The EU, while not attacking Hong Kong’s foreign-sourced income exemption (“FSIE”) regime broadly, is concerned that entities, with essentially no real economic activity taking place in Hong Kong are not subject to passive income derived from offshore affiliates.

The EU placed Hong Kong on its “grey list” of uncooperative jurisdictions for tax purposes, in October, 2021.  Hong Kong’s administration has responded by making amendments to its FSIE regime (the Bill dated Oct 28, 2022 is referred to as the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income).  Hong Kong’s IRD has also provided an explanatory note available on its website.  Legco approved the Bill Nov 2.

Under the revised regime, certain passive income, generated by business operations conducted outside of Hong Kong, and which was not previously taxed upon being remitted to Hong Kong may become taxable if that income, or the income from which it was paid, was not taxed elsewhere.

This can include dividends, capital gains from disposals of equity interests, interest and royalties will become subject to Hong Kong’s profits tax, unless exemptions or exceptions apply.  The inclusion of capital gains on the sale of foreign shares is obviously a fundamental change in Hong Kong’s existing tax regime.

The new FSIE regime will apply to Hong Kong resident entities that are part of a corporate group that operates in more than one jurisdiction and which receive passive income in Hong Kong.  The Bill defines the type of HK-based entities that are covered; and to grossly simplify, it covers entities that are managed or controlled in Hong Kong, carry on a trade, business or service in Hong Kong and are an affiliate of an MNE group.  Accounting concepts are used to help define this affiliate status.

Individuals, local companies or corporate groups operating solely within Hong Kong are not subject to this regime.  One would not expect the regime to apply to a HK-entity that has small, passive investments in the publicly-listed shares of many foreign companies.   Entities operating under SFC licenses are exempt.

However, trusts are treated as entities. Families have set up international structures that include trusts and holding corporations, where one of those entities is resident in Hong Kong, will have to examine their structure and possible exposure to this new regime.

Specific Exemptions

The receiving Hong Kong entity will be exempt if it meets Economic Substance requirements, a concept which has been employed for a number of years now in offshore tax havens.  Whether relevant requirements are met will depend upon the activity undertaken.  But generally, if an entity is a pure equity holding company, then complying with corporate filing requirements in Hong Kong may be sufficient, assuming its human resources (actual or outsourced) are adequate.  This is not generally seen as burdensome.

If an entity is making strategic or investment decisions with respect to its assets, is managing risks and investing in more than passive equity positions, then it will not be a pure equity holding company.  However, Economic Substance safe harbours still exist, but the resources required and the quality of those resources will be heightened.  Resource requirements can be outsourced, so long as they are undertaken in Hong Kong and the entity is monitoring their execution.  Additional guidance on meeting Economic Substance requirements is expected and will be welcomed.

Even if the Hong Kong’s entity does meet the Economic Substance criteria, there is an additional set of exempting rules, broadly described as the “participation exemption”.  Exemption will generally be met if the gains or dividends, or the income from which they were paid, was taxed elsewhere in the hands of an affiliate within the MNE group, at a 15% rate (as a headline rate).

There are no de minimis exemptions, which is unusual for tax regimes designed to deal with MNE tax avoidance.

The new FSIE regime will include anti-abuse provisions; but will also include provisions to deal with scenarios resulting in double taxation.  Taxes will be subject to credits for taxes paid overseas, including withholding taxes (and in the case of dividends, on the underlying income generating that dividend).  Existing double taxation agreements will apply.  But even where a DTA does not exist, the receiving Hong Kong entity should be able to avail itself of the type of credits generally available under DTA agreements (what some are calling a “unilateral tax credit”).

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Vintage Wine Market Update – November, 2022

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Vintage Wine Market Update – November, 2022


Harvest 2022– A promising year for France.

2022 looks like a great year for French winegrowers. High temperatures and minimum precipitation during the maturing season, led to high concentration and disease prevention. Across the country, the harvest brought in ripe, healthy, concentrated grapes– although in smaller quantities than normal. Of all the wine growing appellations, Champagne will certainly offer the most spectacular wines.

2022 is noticeably a vintage where the effects of climate change are becoming more apparent. For example, temperatures in the Bordeaux region have been above the 30-year average by 1 to 3 degrees Celsius since February. The impact on winegrowing is becoming less and less negligeable.


Fine wine market

After a strong boost in September, mainly due to the weakness of the pound, the fine wine market is starting to react to uncertainties in the world. Signs of prolonged recession coupled with the lack of Chinese buyers (Hong Kong included) have led to the sense of unpredictability and led to a cooling down of the market in general.

In the past, fine wine has proven to be an effective hedge against inflation and shown that it can ride out price increase and economic storms. Will it continue to do so in the months ahead?


Auction results and trends

After 2021, a year which broke all records and a strong first half of the year, the last quarter of 2022 is showing signs of cooling down for the fine wine auction market. Most major players such as Acker and Zachys remain optimistic but latest auctions from Sotheby’s and Christie’s show a softening of demand especially from buyers in Asia. Most sales went for under their high estimates.


Focus on Champagne

According to Liv-ex, Champagne represents now 12.4% of the secondary market compared to 2% in 2012. It is the most traded fine wine region after Bordeaux and Burgundy. Like many other luxury products, Champagne seems to have benefited from the pandemic, the war in Ukraine and inflation. Over the past 2 years, Liv-ex Champagne 50 (the index which tracks price performance of the most recent vintages of the 12 most traded Champagne) has risen by 72.7%. UK and the rest of Europe represent 70% of the market followed by the US. Asia has yet to show its taste for the bubbles with only a 7.4% market share.

Vintages play an important role within the Champagne market. Among the best vintages produced lately, 2008 undoubtedly offers a premium. As proof, Louis Roederer Cristal 2008 has been not only the most highly rated Champagne this year but it has also been the most traded fine wine in 2022.

Champagne has a strong image of a luxury product reinforced by the well-known and prestigious brands such as LVMH.


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Alternative Investments Part 2 – October 2022

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Alternative Investments Part 2– October 2022

Our last post introduced Private Equity and Private Credit. This post introduces other Alternative investments.

Real Assets

This category includes real estate (e.g., residential, timberland, farming), infrastructure assets (e.g., transportation, power generation and transmission, ports), commodities or natural resources themselves, and intellectual property rights (or “intangibles”).

The primary rationale for holding real assets, and Alternatives generally, is the assets’ impact on total portfolio diversification.

Most wealthy families already own real estate as a principal, and often other, residences.  But in a discussion of Alternative assets, real estate usually refers to a broad range of real estate sub-categories including: residential housing, multi-family residences, student housing, office buildings, malls and other retail properties, warehousing and logistics and special purpose buildings.

Many jurisdictions have promoted vehicles that invest in real estate pay out most of their income to the fund holders (e.g., Real Estate Investment Trusts, or “REIT”s).  Some REITs comprise assets that are not land but rather mortgage-backed instructions or even mortgage servicing rights.

Of more recent interest to institutional and wealthy investors are investments, either directly or through PE funds, or other investment vehicles, into infrastructure assets.  These include pipelines, highways, electricity distribution, storage or export terminals; or regulated or systematically important assets such as public transit, airports and ports.

The appeal is the long-life nature of the assets, often supported by either regulated returns, or given their local importance, reasonably certain income stream. These assets are thought to produce returns that are not well-correlated with traditional equities.

“Real assets” also include art collections, wine and more recently vintage cars and sports memorabilia.  Historically, stamps, coins and noteworthy historical documents would be included as well.  These asset classes will probably remain the domain of wealthy families that have a particular hobby-type interest in the actual assets.

Hedge Funds

Hedge funds are investment pools that invest primarily in traditional assets but in ways that are different from traditional investment funds.  They may use leverage, including derivatives, or short selling to generate returns that differ from those available through conventional funds.  They may also include non-traditional assets such as derivatives, currencies or commodity exposures.

The common theme of hedge funds is the objective to generate superior risk-adjusted returns.  Those can come in the form of higher absolute returns without taking on a commensurate level of additional risk, or more commonly, to reduce volatility without sacrificing expected returns materially.  Many of these strategies, including market neutral strategies, accept that they will underperform in good markets and prefer to set absolute return objectives as opposed to compare their periodic performance against traditional asset benchmarks.

Historically, because hedge funds cannot meet the regulations applied to registered funds, they raise funds from institutional and wealthy investors privately.  In this regard, they are similar to the PE and private credit funds discussed earlier.

However, hedge fund-like strategies or exposures are now being packaged into instruments that can be sold to retail investors.  The underlying strategies may have to be somewhat modified, and sponsors may use a “feeder” vehicle into the underlying strategy.  The most common modifications give these instruments the suitable liquidity.

Just as is the case with a traditional asset portfolio, it is important to diversify an Alternatives portfolio across asset classes, managers and strategies.  Some institutional advisors believe that a hedge fund allocation should be spread across at least five managers.  This assumes the allocation would be across strategies as well.  Given the minimum subscription amounts for many Alternative funds, it becomes clear why hedge fund participation is more suitable to the very wealthy.


Because alternative investments are complex and tend not to be regulated, it is often difficult for non-professionals to evaluate the suitability of any particular fund.  Alternatives funds have wrinkles in terms of custody arrangements, potential leverage, liquidity constraints and less transparent valuation processes that much less common with traditional asset funds.  This makes it difficult for those with limited experience to select appropriate Alternatives managers and strategies.

PE firms seem to be constantly seeking additional commitments to new funds.  Unlike an investment in a traditional fund or account, PE investors will “commit”, for example, $25 million to a particularly PE fund and then wait for the PE fund to request payment.   Given the amount of dry powder held by these funds, you might have to wait a few years before the entire commitment is called.  During this wait, you may receive requests for additional commitments with other managers with whom you wish to continue a good relationship.  This constant marketing is causing some investor indigestion.

As a response to

  1. the uncertainties created by this process.
  2. the significant fees earned by PE firms;
  3. the difficulty of determining the actual returns earned by PE funds generally, and
  4. the increasing expertise, experience and networks held by advisors working directly for wealthy families (in family offices for example),

many wealthy families are sourcing and investing directly into Alternative assets; perhaps alongside a PE fund or in combination with other institutions or wealthy families.  The challenge, of course, is in sourcing attractive deals before they are picked over by the legacy PE funds.

In many financial centers such as New York, Zurich and Singapore, family offices or agencies have created formal networking and sourcing clubs, creating more opportunity for families to access more deals, on better terms while focusing on the exposures with which they are comfortable (e.g., geographical preferences or those based on responsible investing, or length or size of the commitment).


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