A Superior Structure to the Cook Islands Trust?

From time to time, structures are presented as being “stronger” or “more private” than a traditional Cook Islands trust. In this episode, we critically examine one such multi-layered structure and place it in its proper context—technical theory vs. regulatory reality.

This is not an endorsement. It is an explanation of how such structures are described, how reporting logic is argued, and why extreme caution is required.

🔎 What This Episode Covers

1️⃣ The Proposed Structural Architecture (High-Level Overview)

The structure is typically described as follows:

• An SPV custodial institution is established

• The custodial institution owns one or more investment entity companies

• A trust acts as the founder of a foundation (in any jurisdiction)

• The founder of the foundation is the custodial institution

• The custodial institution is located in a non-participating jurisdiction (e.g., Svalbard)

The theory presented is that reporting obligations stop at the custodial institution level.

2️⃣ The Reporting Argument Being Made

Proponents usually claim:

• A foundation does not report on its founder if the founder is a custodial institution

• If that custodial institution is in a non-participating jurisdiction, there is:

– No CRS automatic exchange

– No exchange on request

• No FATCA withholding exposure if the custodial institution earns no income

These claims rely heavily on technical CRS interpretation, not outcomes tested in court.

3️⃣ OECD Commentary Commonly Cited

Supporters often reference Organisation for Economic Co-operation and Development CRS Commentary, particularly:

Section VIII – Commentary on Equity Interests

Key principles cited include:

• Where equity interests are held through a custodial institution, the custodial institution is the reporting party

• Foundations do not report on custodial institutions

• The same principles apply to trusts and trust-equivalent arrangements

• Investment entities do not report when a custodial institution sits above them

This is a technical allocation of reporting responsibility, not a guarantee of invisibility.

4️⃣ The Critical Risks Often Overlooked

This episode highlights why such structures are high-risk in practice:

• Substance over form analysis may collapse the structure

• Non-participating jurisdiction status is not permanent

• Courts may still focus on control, benefit, and influence

• Exchange on request can arise via parallel legal routes

• Mischaracterisation risks regulatory sanctions

• Aggressive positioning increases audit, enforcement, and reputational risk

Importantly: OECD commentary is interpretive guidance—not immunity.

5️⃣ Key Takeaway

This type of structure may exist in theoretical reporting discussions, but:

• It is not a safe replacement for compliant planning

• It has not been judicially validated

• It carries significant enforcement risk

• It should never be implemented without senior legal, tax, and regulatory advice

Complexity does not equal protection.

And opacity is not a substitute for lawful planning.