The decision to move doesn’t come easy, but family offices around the world are increasingly taking flight, either moving wholesale to other countries or opening satellite offices there. An international study of more than 300 family office professionals by family office service provider Ocorian reports that 78 per cent have seen offices open in different jurisdictions over the past five years.
Why are family offices building bridges over borders? Some of the top reasons, according to the study: Business activities are following the footsteps of family members who are moving to other countries or spending more time there (79 per cent), and 57 per cent of respondents said they opened offshore to manage increasingly diversified and sophisticated investment portfolios. Other reasons include mitigating the risk of geopolitical issues (41 per cent), accessing friendly tax and regulatory regimes (40 per cent), and working around skills shortages in their home jurisdiction (11 per cent).
While the aggregate data may look as though family offices are migrating on single issues, Steve Ivacko, a partner in family office services with MNP, notes that the decision-making process is often more nuanced. Extending a family office often follows increased business activity in other countries, establishing satellite offices when their kids attend school in another country and decide to stay there, or even setting up a philanthropic presence elsewhere.
“Generally, the core of the family office remains where the majority of the family lives,” he says. “On the other hand, we’ve had several families approach us about leaving Canada entirely for tax and political reasons. We had one family office client who were dual citizens. They were writing $1-million cheques to the government every year, felt they were being gouged and had the ability to leave Canada.”
Ultimately, whatever purpose a family office has for moving or setting up satellite offices, it’s important that the not inconsiderable costs and effort involved achieve the goals they have in mind.
Sam Tabrizi, national private company tax leader for assurance, tax and consulting services provider RSM Canada, notes that the grass is not always greener on the other side of an international border. For example, many of the loopholes related to offshore tax havens have been tightened, and many former tax-favourable jurisdictions don’t offer the same level of advantage they once did, in part due to heightened transparency and cooperation among governments.
On top of that, flow of funds is an area that families don’t always consider when moving or expanding their family office to another jurisdiction, he says.
“There are implicit tax consequences for residents of Canada receiving funds from a non-resident or non-Canadian domiciled entity,” Tabrizi explains. “Not planning ahead and understanding the local tax and general legalities of a jurisdiction usually leads to headaches in the future. If there is a spread of family members into multiple jurisdictions, we plan and ensure an effective and efficient structure to serve the family’s goals.”
In fact, even a move to a relatively familiar domain may result in unintended consequences.
Jonathan Flack, global and U.S. leader of PwC’s family office and family business practice, recalls one Canadian family whose members were spending more and more time in California and were considering a move of their assets and family office to the Golden State as the next logical step.
“I think they focused on taxes from a federal level and saw that as maybe not a significant shift,” Flack recalls. “But when we got into the details of California state taxes and property taxes and even city taxes in Los Angeles, where they were based, they were blown away by the total tax burden. When you get into the real-world details of tax regime changes, it ends up surprising a lot of our clients.”
Families who consider moving their offices to another jurisdiction must also have a degree of certainty that they’re in it for the long haul. That’s because leaving may involve numerous and costly transitions, up to and including renouncing their citizenship.
“If something changes and you need to come back home, all of the expense in relocating has been wasted,” Flack says. “If you leave the new jurisdiction, you may have to pay an exit tax. If you’ve left the U.S., for instance, and you spend more and more time back there, even though you haven’t technically moved back, the U.S. tax authorities may determine that you never really left. You could also be receiving a letter from the tax regime in the country you had intended to move to.”
Amidst all of the tax, legal and financial details, Ivacko also notes that considering the personal ramifications of a move may sometimes get short shrift.
“I was working with the matriarch of a multigenerational family who was in her 60s,” he recalls. “When she was 18, the family had moved to another country for tax reasons. That upended their entire lives as far as the kids went—their friends, their schools, everything got left behind. It’s important to go beyond the tax and financial benefits and also consider the emotional impact of moving the family at the centre of the family office.”
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