Over the last decade, the world has seen unprecedented activity around the globe aimed at improving tax transparency and the pace of change seems only to accelerate. Just as clients and advisors began to find their way around the nuances of tax information being exchanged on request, new international measures are being introduced leading to automatic exchange of tax information. Whilst these measures are intended to counter suspected offshore evasion and money laundering, they have a significant impact for clients, including those who have historically been fully compliant in reporting and meeting their tax liabilities. Of potentially greater concerns, though, the same period has also seen international developments on improving the availability of beneficial ownership data.

The United States was the first to concentrate on putting an end to banking secrecy, which culminated in the enactment of the Foreign Accounts Tax Compliance Act (FATCA), which sought to eliminate tax avoidance through a system aimed at information reporting and enforced via a 30% withholding tax on US source income for non-compliance.

The FATCA rules are very complex and so is the legislation implementing them in various jurisdictions, but the bottom line is that the US consider that there is a direct correlation between reporting under FATCA and a settlor’s or beneficiary’s US tax liability. FATCA seeks to prevent tax avoidance through this automatic exchange of information.

Following the trend of FATCA, the Common Reporting Standard (CRS) was approved by the Organisation for Economic Co-operation and Development (OECD) Council in July 2014. The CRS will see over 100 countries automatically exchanging information on taxpayers’ bank and other financial accounts from dates beginning in 2017 or 2018. Clients and advisors have already begun to familiarise themselves with the multitude of forms sent out by banks and other financial institutions in preparation for the CRS reporting deadlines.

In the meantime, the leak of the Panama Papers in April this year has concentrated the media’s attention on the extent to which the beneficial owners of assets may be hidden behind company and trust structures. This is not a new issue, but one that the UK Government has been focusing on over recent years.

So far, the debate around allowing public examination of an individual’s financial affairs has been focused on Europe and the UK led the way with the introduction, via the Small Business, Enterprise and Employment Act 2015, of a publically accessible register of Persons with Significant Control (PSC). The legislation effectively requires those with control of significant stakes in corporate entities to register their interests on the publically accessible register. Companies House annual returns have been amended and companies are now required to submit revised Confirmation Statements containing PSC information.

The UK approach to corporate registers has been adopted in the European Union Fourth Anti-Money Laundering Directive, which will come into effect from 2017 onwards. Article 30 of the new Directive requires Member States to establish registers listing the beneficial owners of corporate and other legal entities and requires the registers to be accessible to “any person or organisation that can demonstrate legitimate interests”.

It remains to be seen how this will be implemented in the EU in due course and in fact replicated elsewhere in the world. For example, the UK has outstanding requests to its Crown Dependencies and Overseas Territories for them to follow its lead and establish publically accessible corporate registers. So far, these requests have been resisted on the grounds that this would go well beyond currently accepted international standards of transparency. What has been agreed is that the Crown Dependencies and Overseas Territories (other than Guernsey) will provide the UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies (in some of these Territories the result of signing up to other exchange information agreements means that they will also have to exchange information on trusts as well as companies).

Shortly before the introduction of the Beneficial Ownership Register, in March 2016, the Government published a Discussion Paper setting out proposals to increase transparency to the ownership of foreign companies that purchase properties in England or Wales, or participate in public contracting in England. The proposal set out in the Discussion Paper would require foreign companies to provide information on their beneficial ownership before they are able to buy property in England and Wales. It is expected that the information required will be broadly similar to that required in PSC registers.

Shortly after the publication of the Discussion Paper, the Land Registry published an overseas company data spreadsheet containing considerable amounts of information for each foreign owner of UK property. The data can be accessed here.

The information recorded and published is extensive, detailing the following information:

  • Title Number
  • Tenure
  • Property address
  • Price paid
  • Local Authority area
  • Company name
  • Company registration number
  • Type of company
  • Country of incorporation
  • Correspondence address
  • Date of registration at the Land Registry
  • Addition proprietor indicator and
  • Multiple address indicator.

The only information required to be submitted to the Land Registry at the moment is the name of the company, and its territory of incorporation, as well as evidence that the legal entity can be registered as the owner (for example, constitutional documents such as the Memorandum and Articles of Association).

The released data spreadsheet contained just under 100,000 properties owned by foreign companies in England and Wales, so collecting beneficial ownership information on these would no doubt represent substantial challenges.

To enable the UK tax authorities to deal with the newly available information, the UK Government is at the same time introducing a range of new powers to tackle perceived non-compliance with tax and money laundering regulations, particularly where this relates to offshore matters.

We live during very challenging times and are undergoing a difficult transition period, where clients are looking to understand and review their affairs from a tax and reputation perspective, in readiness for the new regime.

Given that privacy relating to corporate and property ownership is already being significantly undermined and could well be removed altogether in the not too distant future, we recommend that those with existing structures holding UK real estate should review these as soon as possible; especially in the wider context of reviewing their inheritance tax position given the legislation due to come into force April 2017.

If you would like to discuss this article or any of the concerns it raises, then please do not hesitate to contact Ekaterina Vagner – Associate or any member of the Edwin Coe Private Client team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

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