Geopolitics, Tax and a New Global Order

Divergence and fragmentation. Populism and partisanship. Protectionism and trade tariffs. Hyperinflation and record unemployment numbers. Income inequality is worsening at a global level and at a pace never seen before in living memory. The enduring impact of climate change. Shortages in food and energy resources. The steady erosion of trust towards global institutions. Distrust of politicians and the political systems at large…

Multiple and consecutive crises within the span of just a few short years have caused a nearly lethal blow to global trade, capital markets and distribution chains. It is no exaggeration to say that the unpredictability and uncertainty that characterizes today’s geopolitical power game has thrown the global order as we knew it deep into unchartered waters.

A once-in-a-lifetime pandemic swept across the globe like a hurricane, shutting down all major economic activity and disrupting well-established distribution chains, pushing economies and governments alike to the brink of collapse like paper towers. A war, the first after decades of relative calm and peace, broke out on the continent of Europe and now the conflict between Israel and Hamas threatens to escalate without any warning escalate into a major regional conflict, throwing the broader area of the Middle East into further chaos. Moreover, we face the historic first-ever criminal conviction of a former US president and the real possibility that the future US president could be a convicted felon.

The global world order as we have known it for many decades is slowly but steadily coming to an end and a new global order is about to emerge.

Advising HNWIs is a complex and multi-dimensional task

Tax advisors can no longer be useful and relevant if they are simply offering state-of-the-art technical advice based on a set of tax rules that may become irrelevant in the blink of an eye, if the safety or the well-being of the family or the HNWI is at risk.

In today’s complex economic and political environment, tax advisors must aim to provide all-round advice which is the result of an informative and pragmatic analysis based, on the one hand, on both technical data and deep knowledge and an understanding of the technical details of the subject matter and, on the other, on a careful and deep understanding of how geopolitical events are unfolding and how social trends are impacting and reshaping tax policies in the short-, medium- and long-term horizon.

Tax advisors will surely agree that, when it comes to dealing with HNWIs, planning with a focus only on taxation has never been a zero-sum game. In reality, taxation does not even feature in the top three reasons why HNWIs seek expert advice from a professional. Non-tax related reasons will, in my experience, always lead and dominate the discussion, underlining the great importance assigned to them by HNWIs.

The top three reasons of concern are the following:

• Personal and family safety and security;
• Securing the well-being and unity of the family;
• Preserving the family’s wealth for current and future generations.

In recent years, great uncertainty and unpredictability – a direct offspring of the consecutive crises the planet has gone through and the long-lasting effects that they have had on all aspects of everyday life –have magnified the importance placed by HNWIs on the issue of physical safety and the emotional health of their family. The well-being and safety of the family will always top any monetary gains or tax savings, with no exceptions.

Another reason for concern is the need of the HNWI to preserve their current level of wealth and to be able to pass it on to their family and future generations in as fair and risk-free a manner as possible. What is of essence for HNWIs is to feel comfortable that their family and heirs are protected and taken care of financially. The last few years have only strengthened and exacerbated this need.

No known recipe for optimal advice

Advising and planning for HNWIs defies most conventional practices and norms. The dilemma of whether to pursue more money, versus the well-being of the family has an easy answer. Although money can be an important factor in the well-being of the family, more significant is ensuring the well-being of the family at any cost, which to this day remains priceless.

Effectively advising HNWIs requires above all, active listening and a deep understanding of their always unique personal and family circumstances. Trying to find solutions that, as much as possible, balance between the family needs and the monetary and financial needs and pursuits.

Offering one-sided solutions, which satisfy all or most of the HNWI’s non-tax related considerations but are disastrous for the monetary and financial needs of the family, or the opposite scenario, where the advice provided fully serves the family’s monetary and financial needs without catering for its unity or well-being – which are non-negotiable most of the time – will not keep an advisor on the job for long.

Weighing possible outcomes and scenario planning of what is possible or feasible and, consequently, which alternatives are viable on the one hand but at the same time being prepared for the worst outcome and the dire consequences that are sure to come with it, can help effectively mitigate threats and efficiently manage exposure. It is no exaggeration to say that advising HNWIs has less to do with taxes and more to do with protecting and safeguarding the unity and well-being of the family first and foremost, as well as preserving the wealth of the family for current and future generations.

An all-round solution, which offers a healthy balance between the financial and business affairs of the HNWI while ensuring the safety, well-being and the unity of the HNWI’s family, is often the ideal advice.

By Costas Markides, Board Member, International Tax Services, KPMG in Cyprus

(This article first appeared in the 2024 edition of The Cyprus Journal of Wealth Management, commissioned by Eurobank Cyprus and published by IMH. Click here to view the article. Click here to view the entire magazine online.)