DEATH and taxes are familiar bedfellows - and may become yet more intimate following a ruling at the Court of Appeal.
The two-one judgment by the court last Friday could leave the family of the late steel magnate Pong Ding-yuen facing tax of up to $40 million after it found his complex trust arrangements were primarily established as a means to avoid tax. The Pong family, which has waged a six-year battle with the Commissioner of Estate Duty, is expected to appeal.
The case centred on whether it was appropriate to apply the Ramsay principle, which puts the focus on the end result of a series of related transactions when determining whether the transactions were made to avoid tax.
It is the first time the principle has been applied in Hong Kong.
Paul Blackburn, head of private trust services at HSBC International Trustee Hong Kong, said: 'For the [trust] industry, it's a very important decision. It will mean trustees and other advisers would have to look very closely at other arrangements they have made and ensure the structures they have created are still viable.' He said that, although the Court of Final Appeal could still set aside the latest decision, its impact would remain. 'I don't think it means we would all sit back and say it never happened.
'Anybody who has got trusts and is doing them for estate-planning purposes should really be talking again to their advisers, to their trustees.' The legal environment in which trusts are drawn up is dynamic and subject to change.