Enforcement of Amendment of the Trust Act and the Improvements Plans of the Trust Taxation Structure
Asian Tax Journal Vol. 13 No. 3 (2012), pp. 421-448
Abstract
Newly revised trust law took effect on July, 26, 2012. The intent of the law is to reflect the variance of economic situation, give it better treatment in accord with global standard, and is to establish a foothold of a legal basis to invigorate the trust system. That is to say, the trust attract great attention rather than current existing financial system under the circumstances of entering aging society. In this situation, trust taxation system should be revised completely. To do this, it had to be examined listed below. Through this, legal stability of trust system should be enhanced and minimize tax avoidance. First, since current trust taxation only applies conduit theory, it is not enough to resolve the issues such as deferred payment of tax through the grantor. Thus, trust operation method should be switched over from center of grantor to center of trustee by introducing entity theory to current trust taxation. Trust should be considered as a taxpayer to do this mentioned above. Second, to improve this profit and loss distribution standard should be set up depending on whole amount of trusted assets. Through this, profit and loss distribution standard should depends on establish rate by case by case on trust contract. The loss rate should be considered depends upon earning rate if earning rate is different to loss rate taxation to beneficiary on trust. Third, the trust duration should be set its limit. Since there is no restriction on revised trust law,the tax avoidance possibility still exists through the trust system. To minimize this, trust duration has to be restricted in efficiency of economical aspect. Forth, there should be a maneuver to future interest of settlor's power of beneficiary appointment in living trusts for the purpose of succession(article 59) and successive interests(article 60) which introduced on revised trust law. Since this interest may crash with the idea of ownership on current civil law, solution on civil law should be seek first. There will be unnecessary tax friction because tax basis of future interest can not be cleared without this solution. Fifth, it is to be switched over from taxation of per gift action to taxation of period measures on gift tax deduction method which is on Article 13, section 1 and article 53 on inheritance tax and gift tax law. The current regulation is not strong enough to respond strongly against trust because period creation of trust system is much longer than any other else. Through this, revising trust law will be expected to contributed to invigorate trust system.
Keywords
- trust duration limits
- entity theory
- future interest
- period creation of trust system