Shares donated to Bahamas ICON fund in scope


This page analyses why a structure promoted by a Bahamas bank to circumvent the CRS fails in its goal. The CRS solution is missold as "taking the beneficial owner" out of the financial system and is not reportable
1.
missing ICON plan image file
missing ICON transactions image file
2. False premise of structure to make client non-reportable:

A Bahamas ICON Fund is established by the Bahamas bank through its charity, for the exclusive use of one client. The LATAM resident client donates his equity in an offshore entity to the Bahamas ICON fund. A forward agreement ensures the LATAM client can retrieve his shares from the ICON fund at anytime.

Proponents of this structure wrongly advocate that the LATAM client is not a Reportable Person because he has no Equity Interest, nor is a Controlling Person of the entity, as the LATAM has donated all his shares. The LATAM client is also not reportable by the ICON Fund because he is not a participant in the fund.

3. Debt Interest - Debt Interest - Debt Interest:

This structure totally fails in its goal of circumventing CRS reporting. The advocates of the structure have ignorantly converted the client's Equity Interest in the Bahamas company into Debt Interest in the ICON Fund, which is equally reportable.

The ICON Fund to which the shares were donated, will be categorised as an Investment Entity because all Collective Investments are categorised in the CRS as Investment Entities. The ICON Fund, even with one participant is a Collective Investment. There is no exemption carve-out in the CRS for Collective Investments from being an Investment Entity, even if it is owned by a Charity. The ICON Fund is an Investment Entity because:
  1. It is managed by another Financial Institution, such as a fund manager managing the assets or it is administrated by a Financial Institution; and
  2. It earns income from financial assets, including dividends from the underlying NFE company.

The LATAM client who has a forward agreement to retrieve his shares has a 'Debt Interest' in the ICON Fund to which his shares were given. All Reportable Persons with a 'Debt Interest' in the Investment Entity have Reportable Accounts. A 'Debt Interest' is be regarded where a person holds a lien on an asset and is entitled to reportable payments upon release of the lien. The forward agreement means the LATAM client has a lien on the shares for which he will receive a reportable payment (the shares) upon release of the lien. Hence the LATAM client has 'Debt Interest' in the Investment Entity and should be reportable.

The Bahamas bank providing this solution wrongly interprets that the LATAM client does not have a Debt Interest and is not a Reportable Person. Once the bank has been shown the error of their opinion, they will legally be obliged to report on the LATAM client as an Account Holder of the ICON Fund and the value of the Debt Interest, which is the value of the Bahamas company shares due back to him.