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Sham Trusts: how does the recent statement in the High Court that Sham Trusts do not really exist correlate to the OECD CRS Guidelines

November 7th 2017

The recent case of JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch) or "Putin's banker" contains a welcome analysis of what, if anything, a sham trust signifies legally.

The phrase is frequently used as a threat by tax adminstrations to beseige offshore trustees, and it is therefore of interest to those involved in the Common Reporting Standard and its reporting requirements.

It is apposite, as the term trust in itself does not describe a legal entity, as there is no legal entity or legal person created by a "trust".  It is therefore impossible to create a "sham" trust.  It is, as the judgment points out an issue as to the nature of the documentation as between the trustees and the Settlor.  The trust itself is in fact a concept independent of the trust instrument or deed, which does no more than evidence the existence of the property arrangement that the trust is and the manner  in which the persons named in the trust may operate in relation to each other and the property held in trust.

As the term "sham" is also bandied about gleefully by NGOs and others with gay abandon,  the statement by Birss J that "Despite the frequent references to a "sham trust", there is not really any such thing." might rock a few Saint Catherine's punts on the Isis to the point of overturning. Those gliding peacefully on the Cam may suffer less as ideas are more scientifically orientated in the Fens, at least on the western side of Parsons Green.

Peter has  written a short summary of the impact that the judgment might have on such issues as the Common Reporting Standard and international tax verifications generally and is available for advice on how to use the legal confirmation of the limited value that the term bears.

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