Akiyuki Asatsuma (Rikkyo University) In Garron case (2012 SCC 14, fixed) , Canadian resident taxpayers tried to avoid taxation on capital gain of Canadian corporations, and they made trust contracts in which corporations of Barbados were trustees. The trusts sold stocks of Canadian corporations and realized capital gain. In Canadian Income Tax Act, a trust is treated as an individual. The taxpayers argued that the trusts were residents of Barbados and Canadian tax authority had no right to tax the capital gain earned by residents of Barbados because of Canada-Barbados Tax Treaty, Article 13. However, the court ruled that residence of a trust exists in the place of management and control according to Canadian domestic law and found the fact that that place was not Barbados but Canada; therefore Canadian taxation was legal. In Smallwood case ([2010] EWCA Civ 778, fixed), UK resident taxpayers tried to avoid taxation on capital gain of UK corporations. In UK Taxation of Chargeable Gains Act, a trustee is treated as a taxable entity. The taxpayers argued that 2 nd trustee was a resident of Mauritius when capital gain was realized, and that UK's tax authority (HMRC) had no right to tax the capital gain because of UK-Mauritius Tax Treaty, Article 13. HMRC argued that the trustee was treated as a resident of UK in a fiscal year 2000-2001 (6 April 2000 - 5 April 2001) because 3 rd trustee was residents of UK since 2 March 2001. The court ruled that the trustee was a resident of both Mauritius and UK according to both countries' domestic law, and ruled that the trustee was a resident of UK according to UK-Mauritius Tax Treaty, Article 4
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(3) because of finding the fact that the place of effective management of the trust was in UK. In Chuoh Publishing case (Nagoya District Court, 24 March 2011, appealed), a Japanese resident businessman made a trust contract according to law of New Jersey State in which a trustee was an American corporation and a beneficiary was the businessman's grandbaby who had US nationality. The trust asset was $5 million of US Treasury bonds which was managed in Switzerland. From the view point of US tax law, the donor (the businessman) was a nonresident foreigner; therefore US gift tax was not applied. From the view point of Japanese tax law and according to the argument of taxpayers, the gifted asset was foreign asset and the donee (the grandbaby) was a nonresident foreigner; therefore Japanese gift tax could not be applied. Japanese tax authority argued that the grandbaby was a beneficiary and his domicile was in Japan or the gifted asset was in Japan. The court ruled that the grandbaby was not a beneficiary according to Japanese Inheritance Tax Act; therefore the grandbaby was not taxable. There were many issues in dispute, so the appealed court might look at different issues. We have looked some cases. The place of a trust - this concept would sound quite strange for civil lawyers treating trusts. However, tax lawyers need to determine the place of a trust even though such concept might not have been imagined among civil lawyers. Since 1920s, international tax rule was developed concerning individuals and corporations who had clear legal personality. Since 1990s, international tax rule concerning partnerships, trusts, or other transparent or non-transparent entities was discussed; however a road map of new rule-making concerning such entities have not been developed, because, unfortunately, domestic tax rules concerning such entities have been quite different among countries.