The UK offers a particularly favourable tax treatment to those individuals who, having a close association with another country, have come to live here, but do not intend to settle here permanently. They are classed as foreign domiciliaries indicating that their connection with another juristriction is stronger that that of the UK, and accordingly, the UK’s ability to tax them is limited.

To remain foreign domiciled they should retain ties with their country of birth through, for example, keeping a house there and making regular and extended visits home, maintaining local business interests, bank accounts and investments. It is also advisable to execute in each country to take account of the assets in that country.

We are going to look at the UK capital gains tax, inheritance tax and income tax privileges enjoyed by such individuals who hold their property in offshore trusts. We will consider the position of an individual settling property on an offshore trust for the benefit of himself and his spouse. A trust is an obligation binding a person to deal with property in a particular way for the benefit of one or more beneficiaries, and the individual who puts property into a trust is called the settlor.

Capital Gains Tax -

The main reason foreign domiciliaries set up offshore trusts is to shelter their capital gains. The requirement that a trust is offshore is satisfied for capital gains tax purposes if the majority of the trustees are resident outside the UK and the general administration of the trust is carried on abroad. Being non-resident, the trustees are not liable to capital gains tax.

As the sheltering of capital gains through offshore trusts was attracting widespread press criticism, the government acted to change the tax laws. They have imposed a tax liability on a UK domiciled settlor when a gain is realised by the offshore trustees if he or his children or their spouses are actual or potential beneficiaries of the trust or derive some benefit from it. These provisions will also bite where property is added to the trust. However, provided the settlor is domiciled outside the UK when the trustees make the gain, he will not pay any tax on the trust gains, even if the settlor is resident in the UK or UK trust gains are involved.

Thus, unless the beneficiary class is non-family or skips down a generation to the settlor’s grandchildren there are no tax advantages for a UK domiciled individual in establishing an offshore trust.

Furthermore, provided the settlor of an offshore trust is not UK domiciled when he set up the trust and when the gain is made by the trustees, the beneficiaries of the trust are not liable to capital gains tax on any capital payments they receive from it. But once the settlor becomes UK domiciled the beneficiaries may also become liable to tax as when they receive capital payments from the trust. However, if a beneficiary is not resident or domiciled in the UK in the year the capital payment is made, he will not be liable to tax.

Foreign domiciliaries clearly receive favourable treatment under the capital gains tax regime. It is essential however to ensure that they retain their foreign domicile. If on the facts a settlor is likely to lose his foreign domicile, it may be necessary to take action to eliminate the accumulation of gains, by for example, investing in life assurance investment bonds or offshore roll-up funds which are not chargeable to capital gains tax.

Inheritance Tax -

Individuals are liable to inheritance tax on their world-wide assets if they are domiciled in the UK. Assets held overseas by a foreign domiciliary, however, are excluded from the inheritance tax net. Thus property held in an offshore trust does not attract inheritance tax where the settlor is a foreign domiciliary at the time the trust is made and the property is situated outside the UK. The status of the beneficiary is not relevant and a settlor can safely include himself in the beneficiary class.

Once the settlor becomes UK domiciled, inheritance tax will be chargeable on his world-wide assets, but the excluded property held in the offshore trust generally remains exempt. The settlor can remain a beneficiary even after he becomes UK domiciled, but must not then add any property to the trust. It should be noted if an individual has been resident for not less than 17 out of the previous 20 tax years, then for inheritance tax only he would be treated as if he were domiciled here.

Income Tax -

Generally speaking, individuals who are resident in the UK are liable to income tax on their world-wide income. For UK residents with a foreign domicile however, income arising to the trustees of an offshore trust from foreign sources is only taxable on the remittance basis i.e. on the amount of the sums received in the UK.

With the recent weakness of the euro, could it sink below a level of one against the dollar? Does this mean the failure of the single currency among the 11 Member State and prove the euro-sceptics right in their opposition to the single currency? One simple answer, would be "Who cares, as long as fundamentals are right and the euro’s weakness is not an obstacle to low inflation and sustained growth".

In fact the study of fundamentals appears to point towards the euro’s strength. The US current account deficit is forecast by the OECD at 3.7% of GDP in 1999, rising to 4.2% in 2000 and again in 2001. The euro-zone by contract, has a current account surplus of 0.6% of GDP in 1999, followed by forecasts of 0.7% and 0.8% for 2000 and 2001. In addition, economic forecasters have reacted to these improvements, with upward revision of their forecasts of euro-zone growth- Goldman Sachs for example, has increased its forecast from below 2% for this year and next to 2.1% and 2.4% respectively. Why then should the currency of the zone enjoying low inflation, falling unemployment, sound public finances, robust growth and strong external position be weak? One immediate cause in the "apparent" weakness in the euro is the capital flows, which have come about as a result of the mergers and acquisitions, as part of the long awaited restructuring in Europe. As Goldman Sach’s currency economists point out, the combined total of Deutsche Telekom’s purchase of One-2-One and Mannesmann’s acquisition of Orange are equivalent to more than two-third of the euro-zone’s E60bn. annual current surplus. Vodafone’s bid for Mannesmann is worth double that surplus (see article on Mergers & Acquisitions). M & A activity is a more important influence on currencies than ever before. In addition, in the short-term currency movements, the economists have been wrong-footed by the continued strength of the US economy and the continued growth of the US equity market and the flow of capital into the US, which has strengthened the dollar (similar factors have been at work in Japan, where foreign investors have bought equities in the belief that economic recovery is now assured).

The Euro-sceptics and Euro-phobics are overjoyed with the news of the slide in the euro, their reason for celebration is as immature as their general understanding of economics, foreign currency market, etc. (they are generally consistent in their immature attitude in almost all subjects!!). To top it up they also suffer from rather short-term memories- how often have we seen the sterling/dollar rate swing between almost $2.00 and $1.00 rate, in the last 20 years. Can anyone claim to know the right exchange rate? If we could, there would be no complexity in the workings of the financial markets and life would not be as much fun as it is!

For the supporters of the single currency, the good news is that the recovery as a result of fundamental reforms that will ensure sustained growth and improved long-term competitiveness. According to the experts, the encouraging feature of the euro-zone’s recovery is that, governments are not using the return to growth as an excuse to avoid reform. The euro-zone is going to enter the new century with confidence. If only we could have celebrated the millennium with them.

I have absolutely no doubt whatsoever that Britain will eventually join the Single Currency and for my part the sooner we join the better. The official Government position is that the British Government is in favour of the Single Currency in principle and that there is no "constitutional bar" to our joining. This policy pronouncement made by the Chancellor of the Exchequer, Gordon Brown, in October 1997 is enormously important and means that Government policy is very different from that of the Conservative Opposition who are not in favour of the Single Currency in principle and would not join at least for the period of this and the next Parliament, if indeed they would ever join.

The other aspects of the Government's position relate to the Chancellor's economic conditions which must be met before it can be deemed to be in the British interest to join. These relate to the so-called convergence factors and really amount to important technical matters rather than matters of principle. Once the Government decides the time is right they are then committed to putting the question of our joining the Single Currency to the people by way of a referendum. It is at that time that the matter will be fully argued out although Europe as a whole, and for that matter the Single Currency, could well be a very important issue during the next General Election Campaign.

My reasons for being such a strong supporter of Britain joining the Euro are both political and economic. On the political side, which is of fundamental importance, I have absolutely no doubt that membership of the Euro will put us at the heart of the European Union and make us a party to its innermost councils. Vital decisions concerning the future of Europe will increasingly be taken by the Euro countries and to my mind it is only a matter of time before they will develop a political momentum within the European Union in addition to an economic one. To be left outside such a central and important, not to mention historic, movement would be very much against the interests of our country. I fundamentally believe that we have, in the light of our considerable international experience, a very important contribution to make in the European Union. That contribution can only be made from its very centre and that is where it should be.


Peter Temple-Morris M.P., President of BIBA

On the economic side I have no doubt that the euro will steadily become a major world currency and a strong one at that. It will obviously take time and indeed it has not made that good a start but it will get there in the end. As its usage and strength steadily increases it will become more and more economically disadvantageous for us to be outside. Indeed even with the Euro not doing well we have, for more than the last year, seen one effect of being outside in the artificially high value of the pound. Europe is where most of our trade is and this high pound is a great disadvantage. The agricultural industry for example is literally on its knees and cries out to politicians to give it a level playing field. This means essentially membership of the Euro, when overwhelmingly they would have a level financial playing field. The same sort of thinking goes for many other exporting industries. The other major factor in my opinion is the question of European and International investment in the UK. Britain has been overwhelmingly the largest recipient within the EU of such investment with major contributions coming from Japan and the USA and within the European Union from Germany. I have little doubt that this investment only comes here on the basis that we will eventually join the euro, and indeed several major international companies have broadly hinted as much in public statements. If ever these major corporations believed that we were not going to be in the euro, which could for example happen if by some unlikely misfortune the Conservative Party was to win the next General Election, then the effects could be disastrous as investment is steadily channelled out into other euro countries.

The timing leading up to Britain's eventual membership of the Single Currency is a difficult question. My own reasonably informed bet would be that the referendum will come soon after the next General Election. The most likely General Election date is about May 2001 which leaves it open to have the referendum in October 2001.

Having boldly made my bet let me now supply some of the background details!

Obviously the convergence factors are important and a judgement will have to be made upon them. But also material and indeed relevant to the judgement will be how the euro performs and what the extent of its usage might be amongst our major international trading companies. It is quite possible that a successful euro will build up a momentum of its own within this country, whether or not we are actually members of the Single Currency. I am hopeful that this will increasingly prove to be the case, which will inevitably strengthen the case for going in and indeed make it almost a natural and progressive development. The other background factor that presents a major political reason for not rushing the decision to have a referendum until the time is right is of course large sections of the British media or more particularly the broadsheet press. In any referendum campaign the press become extremely important for obvious reasons, and the circulation of the newspapers concerned, which is very substantial, goes right across the population that has to be won over in favour of the euro. Of particular relevance here are The Telegraph Group under their right-wing Canadian proprietor, Conrad Black, the Murdoch stable which includes The Times, Sunday Times and Britain's largest circulation tabloid The Sun and last but not least the Rothermere owned Daily Mail and Sunday Mail. A more pro euro view can only be expected from committed centre-left newspapers such as The Guardian, Observer and Independent. The situation is therefore out of balance and makes the timing of a referendum a very difficult political decision for the Government, whose overwhelming priority must be the gaining of the second term of office at the next General Election. To risk losing a referendum on the euro before the next General Election to an anti-European Conservative Party, and from that position then having to fight soon afterwards a General Election is just not good politics.

Having said all that, the fight back is now beginning with the recent launch of the Britain in Europe Campaign. This campaign will provide a platform for the increasing presentation of pro-European Union views going much wider than the Single Currency and is very necessary to prepare the way for the referendum on the euro against a background where the British people have for many years been submitted to a stream of anti-European virtual propaganda from so many of our newspapers. So the likely and practical course of events has to be a General Election which the Labour Government will win and, having secured its second term, a referendum on the back of that victory against a demoralised Conservative Party which I believe can be won.

Having said all that, I will end by reminding members of the Association of a comment made two years ago by a very distinguished former Prime Minister, Harold Macmillan, who when asked what he found most difficult about being Prime Minister thought for a moment and replied "events dear boy, events".

Mergers and Acquisitions ("M&A") mania, which took over the corporate world in 1998, continued to steal the headlines in 1999 (well probably not in every paper!), with no sign of its force abating in the next few years.

In 1998 we witnessed some of the largest mergers in the history of the corporate world: British Petroleum and Amoco in the States created one of the strongest international energy and petrochemical groups in the world, with current market capitalisation of £113bn. In the financial world, Travellers Group and Citicorp announced their $72.5bn merger in April 1998 and became the world’s largest financial group.

The trend was followed in the autumn of 1999, with the merger of MCI WorldCom and Sprint, the second and third largest long-distance telecom carriers in the States, which set the record at $115bn. Well, we did not have to wait long for an even larger deal, Vodafone AirTouch’s hostile bid for Mannesmann for E135bn. (£83bn.), which is the largest hostile takeover bid to date.

No sooner had I said that with the current merger fever, it would not be long before we see a new record set by an even bigger merger, that the AOL and Time Warner merger was announced on the 10th January 2000. What a way to start the new millennium! AOL, the internet service provider is taking over Time Warner, the US media conglomerate, in a $160 all-stock deal. The agreed deal, the largest ever, revolutionalises the way news, entertainment and the internet are delivered to the home. The new company will be worth $327bn., with revenues of $30bn. The possibility of more mergers between internet and media companies pushed the technology-heavy Nasdaq up 167 points or 4.3% to 4,049.66.

These mergers add up to some impressive figures. According to preliminary figures, there were global M&A deals worth $3,435bn. during 1999, compared to $2,620bn. the previous year. The US remained the centre of action, followed closely by Europe, which accounted for 36% of all M&A deals, totalling $1,213bn. The UK accounted for $386bn., Germany $261bn. and France $163bn.

The latest mergers cover a wide range of industries and are a clear indication that this phenomenon is not confined to one industry or one country. Here are some of the more recent announcements:


City Workers Strolling To Work

In the aerospace industry, the proposed merger of Aerospatale Matra of France and DaimlerChrysler Aerospace (Dasa) of Germany, with annual sales of about $22bn., will be the world’s third largest aerospace and defence company, behind Boeing and Lockheed Martin of the US. The deal left British Aerospace in the cold and for BAe to be able to compete effectively in the global market, it can not stay alone for long.

In the oil sector, the $59bn. all-share offer by TotalFina, the Franco-Belgian oil group for its rival French Elf Aquitaine was one of the larger intra-European deals and with the creation of the euro-zone, we are likely to see a lot more of such deals as European corporates now look at the EU as one market. The £12bn.merger of Alcan Aluminium of Canada, Pechiney of France and Algroup of Switzerland, creating an aluminium company to rival Alcoa, the world’s largest producer (a day after the announcement of this news, Alcoa made a $5.6bn. offer for Reynolds, the third largest producer, thus maintaining its leadership in the industry) is yet another example of global consolidation within an industry.

The very latest batch of mega-mergers are the $20bn. merger of Novartis and AstraZeneca’s agrochemical businesses, Pfizer, the US drugs group’s $80bn. bid for its competitor Warner-Lambert, in November 99, just hours after Warner-Lambert had announced the terms of its $70bn. agreed all-share merger with American Home Products and of course the new kid on the block, Bank of Scotland’s hostile bid for National Westminster Bank (at this rate, there is not much point mentioning M&A’s below $10bn.).

M&A mania are not confined to North America or Europe. The fever is spreading and even Japan has caught a sudden bout of merger fever. In August, Dai-Ichi Kangyo, Industrial Bank of Japan and Fuji Bank announced merging to form the world’s largest banking group, with assets totalling $1,241bn.

This was followed in October by the merger of Sumitomo Bank and Sakura, two of Japan’s largest banks to create the world’s second largest banking group with total assets of $925bn. by 2002. The move provides another striking sign of the consolidation sweeping Japan’s financial sector, as competition in domestic and overseas financial markets intensifies. The recent merger of Cosmo Oil and Nippon Misubishi Oil to create Japan’s largest refining group with a 37% market share, is an indication that consolidation is likely to spread to other industries.

The US economy is in it's 9th year of expansion. This is one of the longest economic booms of this century. While over the past two or three years there has been several predictions of imminent decline, significant pick up in inflation or bursting of the stock market "bubble", none of these have materialised. The US economy currently enjoys a period of low inflation, strong growth and very low unemployment. These factors have been attributed to:-

* Increased productivity per unit labour cost
* Very low raw material/ commodity prices
* Strong consumer demand
* Strong Dollar
* Low import prices as the result of recession in Asia
* Accommodating federal reserve policy through low interest rates

One of the key components of strong economic growth has been the stock market. Paul Volcker, ex-Chairman of the Federal Reserve is reported to have said that the "world economy is very dependent on the performance of the US economy. The US economy depends on strong consumer spending. The consumer spending relies on strong stock market, and finally the stock market has relied on performance of handful of stocks". This is very true that certain companies' stock performance is nothing short of "amazing". These stocks such as Microsoft, or some internet companies, have seen their shares go up by several multiples every year. The P/E (price/earning) ratio of S & P 500 is now close to it's highest point ever. The big question is would this economic miracle continue. The answer in my opinion is "probably". The reason I am somewhat negative is that in my opinion several factors which have been responsible for this economic growth are starting to show negative signs. These are:-

The US economy is in it's 9th year of expansion. This is one of the longest economic booms of this century. While over the past two or three years there has been several predictions of imminent decline, significant pick up in inflation or bursting of the stock market "bubble", none of these have materialised. The US economy currently enjoys a period of low inflation, strong growth and very low unemployment. These factors have been attributed to:-

* Increased productivity per unit labour cost
* Very low raw material/ commodity prices
* Strong consumer demand
* Strong Dollar
* Low import prices as the result of recession in Asia
* Accommodating federal reserve policy through low interest rates

One of the key components of strong economic growth has been the stock market. Paul Volcker, ex-Chairman of the Federal Reserve is reported to have said that the "world economy is very dependent on the performance of the US economy. The US economy depends on strong consumer spending. The consumer spending relies on strong stock market, and finally the stock market has relied on performance of handful of stocks". This is very true that certain companies' stock performance is nothing short of "amazing". These stocks such as Microsoft, or some internet companies, have seen their shares go up by several multiples every year. The P/E (price/earning) ratio of S & P 500 is now close to it's highest point ever. The big question is would this economic miracle continue. The answer in my opinion is "probably". The reason I am somewhat negative is that in my opinion several factors which have been responsible for this economic growth are starting to show negative signs. These are:-

1. Productivity growth seems to have reached a plateau.

2. Commodity prices have started to edge up. Oil, which declined to $9 a barrel, has made an impressive recovery and now stands at around $22 a barrel. Gold has increased from $260 an ounce in the past 3 weeks to $320 an ounce. Other commodity prices have also started to rise in sympathy.

3. Some of the Asian economies have started to rebound, or it seems that the worst is behind them.

4. The Federal Reserve has started to increase the discount rate 1/4% twice over the past few months, and have stated it's bias towards tightening in the last October 5 meeting.

5. The dollar has started to weaken particularly against the Yen. It has declined from the rate of 140 earlier this year to around 106 currently.

Aside from the above, the strong corporate profitability which has been the main propeller of the stock market seems to have slowed. We are just starting the 3rd quarter earning report season. While a lot remains to be seen, the indications are not that great. In the eyes of some analysts most of the above factors have already been priced in the market. They argue that Dow has declined from 11,500 to 10,400. S & P has declined from 1,420 to 1,310. Maybe this is true, but clearly the market can not grow at the pace it has done over the past few years. Also, while there is no sign of inflation in the market, there is clearly a bias towards an increase as result of factors mentioned above.

The UK economy seems to have followed the US with a one year lag. Similar, US inflation is very low, interest rates are low, unemployment is negligible, and finally the £ is fairly strong. The question is how long is this going to last. Again, in my opinion the future may not be as rosy. A significant decline in the US stock market would have a very negative impact on the UK economy in general and the UK stock market in particular. There is a big question mark as to whether the huge slump in the US stock market will ever materialise. In addition, the big mergers will continue to be a source of strength for the stock market. On the other hand, I expect that Bank of England will continue it's bias towards raising interest rates. This has provided support to sterling at the expense of the manufacturing sector and particularly, the exporters. I expect that sterling will continue it's rise particularly against the $. The big question for the future of the UK economy is when and if she will decide to join the "Euro".

1. Productivity growth seems to have reached a plateau.

2. Commodity prices have started to edge up. Oil, which declined to $9 a barrel, has made an impressive recovery and now stands at around $22 a barrel. Gold has increased from $260 an ounce in the past 3 weeks to $320 an ounce. Other commodity prices have also started to rise in sympathy.

3. Some of the Asian economies have started to rebound, or it seems that the worst is behind them.

4. The Federal Reserve has started to increase the discount rate 1/4% twice over the past few months, and have stated it's bias towards tightening in the last October 5 meeting.

5. The dollar has started to weaken particularly against the Yen. It has declined from the rate of 140 earlier this year to around 106 currently.

Aside from the above, the strong corporate profitability which has been the main propeller of the stock market seems to have slowed. We are just starting the 3rd quarter earning report season. While a lot remains to be seen, the indications are not that great. In the eyes of some analysts most of the above factors have already been priced in the market. They argue that Dow has declined from 11,500 to 10,400. S & P has declined from 1,420 to 1,310. Maybe this is true, but clearly the market can not grow at the pace it has done over the past few years. Also, while there is no sign of inflation in the market, there is clearly a bias towards an increase as result of factors mentioned above.

The UK economy seems to have followed the US with a one year lag. Similar, US inflation is very low, interest rates are low, unemployment is negligible, and finally the £ is fairly strong. The question is how long is this going to last. Again, in my opinion the future may not be as rosy. A significant decline in the US stock market would have a very negative impact on the UK economy in general and the UK stock market in particular. There is a big question mark as to whether the huge slump in the US stock market will ever materialise. In addition, the big mergers will continue to be a source of strength for the stock market. On the other hand, I expect that Bank of England will continue it's bias towards raising interest rates. This has provided support to sterling at the expense of the manufacturing sector and particularly, the exporters. I expect that sterling will continue it's rise particularly against the $. The big question for the future of the UK economy is when and if she will decide to join the "Euro".

Hossien Yassaie,Imagination Technologies, speaking at BIBA's 95th business meeting on 26th March 2001, London Hilton

(A close look at the evolution of competitive advantage and value-chain trends among the emerging technology companies.)

In the recent years there has been great emphasis on "old" versus "new" economy companies. This has been fuelled, to a large extent, by the Internet and other technological advances. The talk explores these issues with direct consideration of some of the relevant competitive advantage trends and the changing shape of the associated value-chains, as applicable to technology companies. The wisdom and the real value of the split of businesses along the "new" & "old" economy lines is questioned. The talk attempts to highlight the real measures that should be considered when assessing the future prospect and the potential of hitech companies.

Dr Hossein Yassaie, aged 43 is a PhD graduate and chief executive of Imagination Technologies Group Plc, which is one of the hottest stocks at the moment according to the Financial Times.

After attaining his PhD, Dr Yassaie was a research fellow at the University of Birmingham. Prior to joining Imagination Technologies in February 1992, he was with Inmos and STMicroelectronics for 8 years, where he set up and managed the DSP and digital video developments. Ultimately he became responsible for system division, including research and development, manufacturing and marketing. On joining Imagination Technologies, Dr Yassaie held the position of Technical Director, before becoming chief executive officer in June 1998.