Under sub-section (1) of Section 12A of the Sindh Trusts Act, 2020, a specialized trust is required to obtain a ‘No objection certificate’ from the relevant regulator. Regulators in respect of many cases referred above are known and identified; however, in some cases such as provident fund and others this matter needs to be clarified.
Requirement for registration
Both Punjab and Sindh laws have prescribed requirements for the registration of a trust. These requirements were not there in the old law except that a trust was formed for a lawful purpose. The new requirements are effectively related to issues relating to the FATF, which are:
• That members are not proscribed persons;
• That District Intelligence Coordination Committee considers that the trust is not a threat to national security; and
• Complete details of author, trustees and beneficiaries are provided.
Documents for operation of a trust
As a principle, the only document relevant in a trust structure is the trust deed. This is defined in the respective law as an instrument of trust. For example, the Sindh Trust Acts 2020 states that no trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered or by will of the author of the trust or of the trustee and its ownership is transferred to the trust.
This is the only document relating to a trust since inception. The Sindh Trusts Rules 2020 has; however, introduced an additional document by the name of Memorandum of Association that shall define the relationship of the author with the trustees and specify the objectives to which such trust has been formed.
There is no requirement of memorandum of association under the Punjab Trusts Act 2020.
For practical purposes in all the trust deeds there should be a provision for framing rules for the administration of that trust and those rules should identify the basis for the appointment of the trustee at present and in future. Lack of these provisions is the reason for problems in future operation of trust.
Investment of trust money
Under the old trust law as well as new trust laws of Punjab and Sindh, trust money can only be invested in the following:
• Federal or provincial government securities;
• Rules prescribed by the High Court in this regard;
• Any investment as provided in the rules framed under the instrument of trust. This means that the rules of a particular trust can provide the avenue where the funds of the trust can be invested.
Registration of trust properties
All properties held by a trust are required to be registered under the Registration Act, 1908. This therefore means that properties which
are not registered under the Registration Law 1908 are necessarily required to be registered under these provisions.
Trusts and Pakistan Income Tax Laws
Pakistan’s income tax laws have specific provisions for the treatment for a trust, income of a trust and the distribution from a trust.
A trust is treated as ‘company’ under the Income Tax Ordinance, 2001. However, the trust for the purposes of the tax law is not limited to a trust formed under the Pakistan trust laws. Any vehicle that contains the attribute of a trust is treated as a trust and consequently a company under the Pakistan tax laws. It states as under:
“trust” means an obligation annexed to the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust;
A foreign trust is therefore a trust under the Pakistan law and is treated as a company for tax purposes in Pakistan.
The beneficiary of a trust is treated as a shareholder for the purposes of tax laws. Similarly, any distribution of income by the trust is treated as ‘dividend’ under the Pakistan tax laws.
Under the Pakistan tax laws, all resident persons are required to disclose their local and foreign assets.
In case of a foreign trust under the correct application of law both settlor and ultimate beneficiary, though being resident in Pakistan, are not required to disclose in their wealth statement the assets/ interest they hold in a foreign trust. This situation arises on account of the special nature of trust structure. Nevertheless, prudence requires that such assets be disclosed in the wealth statement of the beneficiary to the extent of identified interest in the trust.
This is a very important issue in relation to foreign trusts where settlor and beneficiaries are resident in Pakistan. This issue has arisen only in Pakistan because there is a concept of filing a wealth statement of the world assets by resident persons.
Distinction with Mussalman Waqf
Trust laws do not apply on Muslim law as to waqf.
Waqf under the Mussalman Waqf Validating Act, 1913 means the permanent dedication by a person professing the Mussalman faith or any property for any purpose recognised by the Mussalman Law as religious, pious, or charitable. This is called ‘Waqf-Fi-Sabilillah’.
Under the Mussalman Waqf Validating Act, 1913 it shall be lawful for any person professing the Mussalman faith to create a Waqf, which in all other aspects is in accordance with the provisions of Mussalman Law for the following among other purposes:
(a) For the maintenance and support wholly or partially of his family, children, or descendants. Such trust is called Waqf-Alal-Aulad. The person responsible for managing the waqf is called Mutawalli.
(b) Where the person creating Waqf is Hanafi Mussalman also for his own maintenance and support during his lifetime or for the payment of his debts of rents and profits of the property dedicated.
Provided that ultimate benefit is in such cases expressly or impliedly reserved for the poor or for any other purpose recognised by the Mussalman law as a religious, pious or charitable purpose of a permanent character.
Under the Mussalman Waqf Act, 1923 every Mutawalli of a waqf is required to furnish a statement to the Court of local jurisdiction the detail of the waqf property.
A registered waqf for the purposes of tax laws in Pakistan is treated as a trust.
(Concluded)
(This was the second and last part of this two-part series of articles by this author)
Copyright Business Recorder, 2021
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