A method used by a number of rich Hong Kong businessmen to distribute millions of dollars tax-free to their children who live in the United States is about to be stopped.
Immigrants to the US from wealthy foreign families not paying tax on distributions from foreign trusts are the targets of measures before the US Congress. The measures are likely to be enacted either late this year or early next year.
They are intended to stop the common practice among rich non-US individuals of putting assets into 'foreign grantor trusts' set up to minimise taxes and duties in the US and their home countries.
Foreign trust distributions to beneficiaries living in the US escape US taxation if properly structured.
It is believed the US measures are aimed largely at wealthy businessmen from Asia, and Hong Kong in particular, who commonly use this practice.
US tax laws deem that as long as the trust distributions are not US-sourced or US business income, they are not subject to US tax, an international tax partner at Price Waterhouse, Anthony Tong, said.